##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2009
 o
    
    Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from _______to_______
 Commission File Number 0-53713
 OTTER TAIL CORPORATION
  MINNESOTA
    
    27-0383995(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 215 SOUTH CASCADE STREET, BOX 496, FERGUS FALLS, MINNESOTA
    
    56538-0496(Address of principal executive offices)
    
    (Zip Code)
 866-410-8780
  Title of each class
    
    Name of each exchange on which registeredCOMMON SHARES, par value $5.00 per share
    
    The NASDAQ Stock Market LLC
  CUMULATIVE PREFERRED SHARES, without par value
 þ o
 o þ
 þ o
 o o
   Large Accelerated Filer þ
    
    Accelerated Filer o
    

Non-Accelerated Filer o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ
 $767,320,116.
 35,835,553 Common Shares ($5 par value) as of February 15, 2010.
  Proxy Statement for the 2010 Annual Meeting-Portions incorporated by reference into Part III




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##### 



OTTER TAIL CORPORATION  FORM 10-K TABLE OF CONTENTS
 Description
    
    Page NumbersPART IITEM
1.
    

Business
    
    2ITEM 1A.
    
    Risk Factors
    
    29ITEM 1B.
    
    Unresolved Staff Comments
    
    35ITEM 2.
    
    Properties
    
    35ITEM 3.
    
    Legal Proceedings
    
    36ITEM 3A.
    
    Executive Officers of the Registrant (as of February 26, 2010)
    
    37PART IIITEM 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters And
Issuer Purchases of Equity Securities
    
    38ITEM 6.
    
    Selected Financial Data
    
    39ITEM 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    40ITEM 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    64ITEM 8.
    
    Financial Statements and Supplementary Data:Report of Independent Registered Public Accounting Firm
    
    67Consolidated
Statements of Income
    
    68Consolidated Balance Sheets
    
    69Consolidated Statements of Shareholders Equity and Comprehensive Income
    
    71Consolidated Statements of Cash Flows
    
    72Consolidated Statements of Capitalization
    
    73Notes to Consolidated Financial Statements
    
    74Quarterly Financial Data
    
    116ITEM 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    117ITEM 9A.
    
    Controls and Procedures
    
    117ITEM 9B.
    
    Other Information
    
    117PART IIIITEM 10.
    
    Directors, Executive Officers and Corporate Governance
    
    118ITEM 11.
    
    Executive Compensation
    
    118ITEM 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    119ITEM 13.
    
    Certain Relationships and Related Transactions and Director Independence
    
    119ITEM 14.
    
    Principal Accountant Fees and Services
    
    119PART IVITEM 15.
    
    Exhibits and Financial Statement Schedules
    
    120Signatures
    
    
    
    126Exhibit Index12.1
    
    Calculation of Ratios of Earnings to Fixed Charges and Preferred Dividends21-A
    
    Subsidiaries of the Registrant23-A
    
    Consent of Independent Registered Public Accounting Firm24-A
    
    Power of Attorney31.1
    
    CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002EX-12.1EX-21.AEX-23.AEX-24.AEX-31.1EX-31.2EX-32.1EX-32.2
  1




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##### Table of Contents



PART I
 
 Item 1.
    
    BUSINESS
 General Development of Business
 th
   
    
    Electric includes the production, transmission, distribution and sale of
electric energy in Minnesota, North Dakota and South Dakota by OTP. In addition, OTP is
an active wholesale participant in the Midwest Independent Transmission System Operator
(MISO) markets. OTPs operations have been our primary business since 1907.
    
    Plastics consists of businesses producing polyvinyl chloride (PVC) pipe in
the Upper Midwest and Southwest regions of the United States.
    
    Manufacturing consists of businesses in the following manufacturing
activities: production of wind towers, contract machining, metal parts stamping and
fabrication, and production of waterfront equipment, material and handling trays and
horticultural containers. These businesses have manufacturing facilities in Florida,
Illinois, Minnesota, Missouri, North Dakota, Oklahoma and Ontario, Canada and sell
products primarily in the United States.
    
    Health Services consists of businesses involved in the sale of diagnostic
medical equipment, patient monitoring equipment and related supplies and accessories.
These businesses also provide equipment maintenance, diagnostic imaging services and
rental of diagnostic medical imaging equipment to various medical institutions located
throughout the United States.
    
    Food Ingredient Processing consists of Idaho Pacific Holdings, Inc. (IPH),
which owns and operates potato dehydration plants in Ririe, Idaho; Center, Colorado;
and Souris, Prince Edward Island, Canada. IPH produces dehydrated potato products that
are sold in the United States, Canada and other countries. Approximately 16% of IPHs
sales in 2009 were to customers outside of the United States.
    
    Other Business Operations consists of businesses in residential, commercial
and industrial electric contracting industries, fiber optic and electric distribution
systems, water, wastewater and HVAC systems construction, transportation and energy
services. These businesses operate primarily in the Central United States, except for
the transportation company which operates in 46 states and four Canadian provinces.
 2




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
    
    Emerging or middle market company;
    
    Proven entrepreneurial management team that will remain after the acquisition;
    
    Preference for 100% ownership of the acquired company;
    
    Products and services intended for commercial rather than retail consumer use; and
    
    The potential to provide immediate earnings and future growth.
  Holding Company Reorganization
      3




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Financial Information about Industry Segments
  Narrative Description of Business
 ELECTRIC
 General
  State
    
    2009
    
    
    2008Minnesota
    
    
    49.1
    %
    
    
    50.2
    %North Dakota
    
    
    41.5
    
    
    
    40.4South Dakota
    
    
    9.4
    
    
    
    9.4Total
    
    
    100.0
    %
    
    
    100.0
    %
  Customer category
    
    2009
    
    
    2008Commercial
    
    
    36.8
    %
    
    
    35.9
    %Residential
    
    
    32.8
    
    
    
    30.6Industrial
    
    
    23.3
    
    
    
    23.1All Other Sources
    
    
    7.1
    
    
    
    10.4Total
    
    
    100.0
    %
    
    
    100.0
    %
   4




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Capacity and Demand
  Baseload PlantsBig Stone Plant
    
    
    256,000
    kWCoyote Station
    
    
    143,000Hoot Lake Plant
    
    
    140,466Total Baseload Net Plant
    
    
    539,466
    kWCombustion Turbine and Small Diesel Units
    
    
    116,550
    kWHydroelectric Facilities
    
    
    3,765
    kWOwned Wind Facilities (rated at nameplate)Langdon Wind Center (27 turbines)
    
    
    40,500
    kWLuverne Wind Farm (33 turbines)
    
    
    49,500Ashtabula Wind Center (32 turbines)
    
    
    48,000Total Owned Wind Facilities
    
    
    138,000
    kW
    Purchased Wind Agreements (rated at nameplate and greater than 2,000 kW)Edgeley
    
    
    21,000
    kWLangdon
    
    
    19,500Total Purchased Wind
    
    
    40,500
    kWPurchased Power Agreements (in excess of 1 year and 500 kW)Manitoba Hydro
    
    
    50,000
    kWWAPA
    
    
    5,800WPPI Energy
    
    
    40,000Total Purchased Power
    
    
    95,800
    kW
    5




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Big Stone II
    Fuel Supply
   2009
    
    
    2008Net Kilowatt
    
    
    % of Total
    
    
    Net Kilowatt
    
    
    % of TotalHours
    
    
    Kilowatt
    
    
    Hours
    
    
    KilowattGenerated
    
    
    Hours
    
    
    Generated
    
    
    HoursSources
    
    (Thousands)
    
    
    Generated
    
    
    (Thousands)
    
    
    GeneratedSubbituminous Coal
    
    
    2,186,145
    
    
    
    63.0
    %
    
    
    2,613,060
    
    
    
    67.7
    %Lignite Coal
    
    
    856,359
    
    
    
    24.7
    
    
    
    1,016,828
    
    
    
    26.4Wind and Hydro
    
    
    391,032
    
    
    
    11.3
    
    
    
    177,250
    
    
    
    4.6Natural Gas and Oil
    
    
    33,017
    
    
    
    1.0
    
    
    
    48,957
    
    
    
    1.3Total
    
    
    3,466,553
    
    
    
    100.0
    %
    
    
    3,856,095
    
    
    
    100.0
    %
  Plant
    
    Coal Supplier
    Type of Coal
    
    Expiration DateBig Stone Plant
    
    Cloud Peak Energy Resources LLC*
    
    Wyoming subbituminous
    
    December 31, 2010COALSALES, LLC
    
    Wyoming subbituminous
    
    December 31, 2010Hoot Lake Plant
    
    Cloud Peak Energy Resources LLC*
    
    Wyoming subbituminous
    
    December 31, 2011Coyote Station
    
    Dakota Westmoreland Corporation
    
    North Dakota lignite
    
    May 4, 2016
 
 *
    
    Formerly known as Kennecott Coal Sales Company 6




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General Regulation
   2009
    
    2008% of
    
    
    
    
    
    
    % ofElectric
    
    
    % of kwh
    
    
    Electric
    
    
    % of kwhRates
    
    Regulation
    
    
    Revenues
    
    
    Sales
    
    
    Revenues
    
    
    SalesMN Retail Sales
    
    MN Public Utilities Commission
    
    
    42.4
    %
    
    
    37.6
    %
    
    
    32.6
    %
    
    
    31.7
    %ND Retail Sales
    
    ND Public Service Commission
    
    
    35.8
    
    
    
    30.2
    
    
    
    26.3
    
    
    
    23.4SD retail Sales
    
    SD Public Utilities Commission
    
    
    8.1
    
    
    
    7.3
    
    
    
    6.1
    
    
    
    6.2Transmission & Wholesale
    
    Federal Energy Regulatory Commission
    
    
    13.7
    
    
    
    24.9
    
    
    
    35.0
    
    
    
    38.7Total
    
    
    
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    7




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Minnesota
       Resource
    
    Approved MWNatural gas
    
    200 MWWind
    
    280 MWDemand-Side Management
    
    100 MW
  8




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2 2
      9




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2
      10




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North Dakota
      11




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South Dakota
   12




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FERC
   Revenue Sufficiency Guarantee (RSG) Charges
    13




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
    
    The Public Utility Holding Company Act of 1935 (PUHCA) was repealed effective February
8, 2006. PUHCA significantly restricted mergers and acquisitions in the electric utility
sector.
    
    FERC was authorized to create an Electric Reliability Organization (ERO) to establish
and enforce mandatory reliability rules regarding the interstate electric transmission
system. In July 2006, FERC approved the application of the North American Electric
Reliability Corporation (NERC) to become the ERO for the United States. On January 1, 2007
the ERO began operating.
    
    The FERC established incentives for transmission companies, such as performance based
rates, recovery of costs to comply with reliability rules and accelerated depreciation for
investments in transmission infrastructure.
    
    Federal support was made available for certain clean coal power initiatives, nuclear
power projects and renewable energy technologies.
 MEMA
  MRO
  MISO
    14




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MAPP
  Other
   Competition, Deregulation and Legislation
      Environmental Regulation
 Impact of Environmental Laws
 15




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Air Quality
   2
 2 x
 2 2 2 2
 x x x x x
 2 x x
 2 x x x
 16




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17




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X 2
  2 2
 2 2 2.
 2 2 2
 18




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2 x
 2
 2 2 2 2
  2
 
    
    Supply efficiency and reliability: Between 1990 and 2008, OTP decreased its
CO2 intensity (lbs. of CO2 /mwh generated) by nearly 16%.
    
    Conservation: Since 1992 OTP has helped its customers conserve more than 1.2 million mwh
of electricity. That is roughly equivalent to the amount of electricity that 110,000
average homes would have used in a year. OTP continues to educate customers about energy
efficiency and demand-side management and to work with regulators to develop new programs
and measurements. OTPs integrated resource plan calls for an additional 100 MW of
conservation impacts by 2020.
    
    Renewable energy: Since 2002, OTPs customers have been able to purchase 100% of their
electricity from wind generation through OTPs TailWinds program. Also, 40.5 MW of
purchased power agreement wind projects and 138 MW of owned wind resources were on line by
December 2009 for serving OTPs customers.
    
    Other: OTP will continue to participate as a member of the EPAs SF6 (sulfur
hexafluoride) Emission Reduction Partnership for Electric Power Systems program. The
partnership proactively is targeting a reduction in emissions of SF6, a potent GHG. SF6 has
a global-warming potential 23,900 times that of CO2. OTP is studying the
potential for certain methane reduction projects. Methane has a global-warming potential 20
times that of CO2. OTP participates in carbon sequestration research through the
Plains CO2 Reduction Partnership (PCOR) through the University of North Dakotas
Energy and Environmental Research Center. The PCOR Partnership is a collaborative effort of
more than 80 public and private sector stakeholders working toward a better understanding
of the technical and economic feasibility of capturing and storing anthropogenic
CO2 emissions from stationary sources in the central interior of North America.
 19




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2
 Water Quality
   Solid Waste
    20




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Capital Expenditures
  Franchises
  Employees
  PLASTICS
 General
  Northern Pipe Products, Inc. (Northern Pipe)
 Vinyltech Corporation (Vinyltech)
  Customers
  Competition
  21




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Manufacturing and Resin Supply
    Capital Expenditures
  Employees
  MANUFACTURING
 General
   BTD Manufacturing, Inc. (BTD)
 22




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DMI Industries, Inc. (DMI)
 ShoreMaster, Inc. (ShoreMaster),
 T. O. Plastics, Inc. (T.O. Plastics)
 Competition
   Raw Materials Supply
  Backlog
  Legislation
  Capital Expenditures
  Employees
  23




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HEALTH SERVICES
 General
   DMS Health Technologies, Inc. (DMSHT)
 DMS Imaging, Inc. (DMSI)
 
    
    DMS Imaging  provides shared diagnostic medical imaging equipment and nonphysician
personnel (primarily mobile) for MR, CT, nuclear medicine, PET, PET/CT, ultrasound,
mammography and bone density analysis.
    
    DMS Interim Solutions  offers interim and rental options for diagnostic imaging
equipment.
    
    DMS MedSource Partners  develops long-term relationships with healthcare providers to
offer dedicated in-house diagnostic imaging equipment.
    
    DMS Portable X-Ray  delivers portable x-ray, ultrasound and electrocardiography
services to nursing homes and other facilities.
    
    DMS Health Technologies  Canada, Inc., a subsidiary of
DMSI is located in Fargo,
North Dakota. It provides limited interim and rental options for diagnostic equipment to
Canadian healthcare entities.
  Regulation
   24




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25




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Reimbursement
   Competition
  Environmental, Health or Safety Laws
  26




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Capital Expenditures
  Employees
  FOOD INGREDIENT PROCESSING
 General
   Customers
  Competition
  Potato Supply
  Regulation
  27




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Capital Expenditures
  Employees
  OTHER BUSINESS OPERATIONS
 General
   Foley Company
 Aevenia, Inc. (Aevenia)
 Otter Tail Energy Services Company
 E. W. Wylie Corporation (Wylie)
 Competition
   28




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Backlog
  Capital Expenditures
  Employees
  
 Item 1A. RISK FACTORS
 RISK FACTORS AND CAUTIONARY STATEMENTS
  GENERAL
 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 increase borrowing costs and pension plan and postretirement health care expenses.
   29




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Any significant impairment of our goodwill would cause a decrease in our assets and a reduction in
our net operating performance.
   The inability of our subsidiaries to provide sufficient earnings and cash flows to allow us to meet
our financial obligations and pay dividends to our shareholders could have an adverse effect on the
Company.
  Economic conditions could negatively impact our businesses.
  30




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If we are unable to achieve the organic growth we expect, our financial performance may be
adversely affected.
  Our plans to grow and diversify through acquisitions may not be successful, which could result in
poor financial performance.
  Our plans to acquire, grow and operate our nonelectric businesses could be limited by state law.
  The terms of some of our contracts could expose us to unforeseen costs and costs not within our
control, which may not be recoverable and could adversely affect our results of operations and
financial condition.
   We are subject to risks associated with energy markets.
  Certain of our operating companies sell products to consumers that could be subject to recall.
  31




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ELECTRIC
 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
shareholders or scheduled payments on our debt obligations.
   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 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.
  32




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Changes to regulation of generating plant emissions, including but not limited to
CO 2 emissions, could affect our operating costs and the costs of supplying
electricity to our customers.
 2 2
 Fluctuations in wholesale electric sales and prices could result in earnings volatility.
  PLASTICS
 Our plastics operations are highly dependent on a limited number of vendors for PVC resin and a
limited supply of PVC 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 our plastics business.
  We compete against a large number of other manufacturers of PVC pipe and manufacturers of
alternative products. Customers may not distinguish our products from those of our competitors.
  Reductions in PVC resin prices can negatively affect our plastics business.
  33




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MANUFACTURING
 Competition from foreign and domestic manufacturers, the price and availability of raw materials,
fluctuations in foreign currency exchange rates and general economic conditions could affect the
revenues and earnings of our manufacturing businesses.
   HEALTH SERVICES
 Changes in the rates or methods of third-party reimbursements for our diagnostic imaging services
could result in reduced demand for those services or create downward pricing pressure, which would
decrease our revenues and earnings.
  Our health services businesses may be unable to continue to maintain agreements with Philips from
which we derive significant revenues from the sale and service of Philips diagnostic imaging
equipment.
  Technological change in the diagnostic imaging industry could reduce the demand for diagnostic
imaging services and require our health services operations to incur significant costs to upgrade
its equipment.
  Actions by regulators of our health services operations could result in monetary penalties or
restrictions in our health services operations.
  34




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FOOD INGREDIENT PROCESSING
 Our company that processes dehydrated potato flakes, flour and granules, IPH, competes in a highly
competitive market and is dependent on adequate sources of potatoes for processing.
   OTHER BUSINESS OPERATIONS
 Our construction companies may be unable to properly bid and perform on projects.
  
 Item 1B. UNRESOLVED STAFF COMMENTS
  
 Item 2.PROPERTIES
      35




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Item 3. LEGAL PROCEEDINGS
 Sierra Club Complaint
  Federal Power Act Complaint
 36




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Other
 
 Item 3A. EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF FEBRUARY 26, 2010)
  DATES ELECTED TONAME AND AGE
    
    OFFICE
    
    PRESENT POSITION AND BUSINESS EXPERIENCEJohn D. Erickson (51)
    
    4/8/02
    
    Present:       President and Chief Executive OfficerGeorge A. Koeck (57)
    
    4/10/00
    
    Present:       Corporate Secretary and General CounselLauris N. Molbert (52)
    
    6/10/02
    
    Present:       Executive Vice President and Chief Operating OfficerKevin G. Moug (50)
    
    4/9/01
    
    Present:       Chief Financial OfficerCharles S. MacFarlane (45)
    
    5/1/03
    
    Present:       President, Otter Tail Power Company
  37




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PART II
 
 Item 5.
    
    MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
  
  
 2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009OTC
    
    $
    100.00
    
    
    $
    118.10
    
    
    $
    132.05
    
    
    $
    151.81
    
    
    $
    106.38
    
    
    $
    119.57EEI
    
    $
    100.00
    
    
    $
    116.05
    
    
    $
    140.14
    
    
    $
    163.34
    
    
    $
    121.03
    
    
    $
    133.99NASDAQ
    
    $
    100.00
    
    
    $
    102.13
    
    
    $
    112.19
    
    
    $
    121.68
    
    
    $
    58.64
    
    
    $
    84.28
 38




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Item 6.
    
    SELECTED FINANCIAL DATA
 (thousands, except number of shareholders and per-share data)
    
    2009
    
    2008
    
    2007
    
    2006
    
    2005RevenuesElectric
    
    $
    314,625
    
    
    $
    340,020
    
    
    $
    323,478
    
    
    $
    306,014
    
    
    $
    312,985Plastics
    
    
    80,208
    
    
    
    116,452
    
    
    
    149,012
    
    
    
    163,135
    
    
    
    158,548Manufacturing
    
    
    323,895
    
    
    
    470,462
    
    
    
    381,599
    
    
    
    311,811
    
    
    
    244,311Health Services
    
    
    110,006
    
    
    
    122,520
    
    
    
    130,670
    
    
    
    135,051
    
    
    
    123,991Food Ingredient Processing
    
    
    79,098
    
    
    
    65,367
    
    
    
    70,440
    
    
    
    45,084
    
    
    
    38,501Other Business Operations (1)
    
    
    136,088
    
    
    
    199,511
    
    
    
    185,730
    
    
    
    145,603
    
    
    
    105,821Corporate Revenues and Intersegment Eliminations (1)
    
    
    (4,408
    )
    
    
    (3,135
    )
    
    
    (2,042
    )
    
    
    (1,744
    )
    
    
    (2,288
    )Total Operating Revenues
    
    $
    1,039,512
    
    
    $
    1,311,197
    
    
    $
    1,238,887
    
    
    $
    1,104,954
    
    
    $
    981,869Net Income from Continuing Operations
    
    $
    26,031
    
    
    $
    35,125
    
    
    $
    53,961
    
    
    $
    50,750
    
    
    $
    53,902Net Income from Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    362
    
    
    
    8,649Net Income
    
    $
    26,031
    
    
    $
    35,125
    
    
    $
    53,961
    
    
    $
    51,112
    
    
    $
    62,551Operating Cash Flow from Continuing Operations
    
    $
    162,750
    
    
    $
    111,321
    
    
    $
    84,812
    
    
    $
    79,207
    
    
    $
    90,348Operating Cash Flow  Continuing and Discontinued Operations
    
    
    162,750
    
    
    
    111,321
    
    
    
    84,812
    
    
    
    80,246
    
    
    
    95,800Capital Expenditures  Continuing Operations
    
    
    177,125
    
    
    
    265,888
    
    
    
    161,985
    
    
    
    69,448
    
    
    
    59,969Total Assets
    
    
    1,745,678
    
    
    
    1,692,587
    
    
    
    1,454,754
    
    
    
    1,258,650
    
    
    
    1,181,496Long-Term Debt
    
    
    436,170
    
    
    
    339,726
    
    
    
    342,694
    
    
    
    255,436
    
    
    
    258,260Basic Earnings Per Share  Continuing Operations(2)
    
    
    0.71
    
    
    
    1.09
    
    
    
    1.79
    
    
    
    1.70
    
    
    
    1.82Basic Earnings Per Share  Total(2)
    
    
    0.71
    
    
    
    1.09
    
    
    
    1.79
    
    
    
    1.71
    
    
    
    2.12Diluted Earnings Per Share  Continuing Operations(2)
    
    
    0.71
    
    
    
    1.09
    
    
    
    1.78
    
    
    
    1.69
    
    
    
    1.81Diluted Earnings Per Share  Total(2)
    
    
    0.71
    
    
    
    1.09
    
    
    
    1.78
    
    
    
    1.70
    
    
    
    2.11Return on Average Common Equity
    
    
    3.8
    %
    
    
    6.0
    %
    
    
    10.5
    %
    
    
    10.6
    %
    
    
    13.9
    %Dividends Per Common Share
    
    
    1.19
    
    
    
    1.19
    
    
    
    1.17
    
    
    
    1.15
    
    
    
    1.12Dividend Payout Ratio
    
    
    168
    %
    
    
    109
    %
    
    
    66
    %
    
    
    68
    %
    
    
    53
    %Common Shares Outstanding  Year End
    
    
    35,812
    
    
    
    35,385
    
    
    
    29,850
    
    
    
    29,522
    
    
    
    29,401Number of Common Shareholders(3)
    
    
    14,923
    
    
    
    14,627
    
    
    
    14,509
    
    
    
    14,692
    
    
    
    14,801
 
 (1)
    
    Beginning in 2007 corporate revenues and expenses are no longer reported as components of
Other Business Operations. Prior years have been restated accordingly.(2)
    
    Based on average number of shares outstanding.(3)
    
    Holders of record at year end.
 39




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##### Table of Contents



Item 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 OVERVIEW
     
    
    ability to provide returns on invested capital that exceed our weighted average cost of
capital over the long term; and
    
    assessment of an operating companys business and potential for future earnings growth.
   
    
    We achieved record annual net cash from operations of $162.7 million.
    
    Our food ingredient processing segment reported record net income of $7.4 million.
    
    Net income from our electric segment increased 2.5% to $34.1 million.
    
    OTP invested $100.6 million in its third rate-base wind farm. This is a 49.5 MW project
which is a portion of the Luverne Wind Farm in Steele County, North Dakota.
    
    OTP received grant proceeds of $30.2 million under the American Recovery and
Reinvestment Act of 2009 related to its $100.6 million investment in 33 wind turbines at
the Luverne Wind Farm.
    
    OTP announced its withdrawal from participation in the planned construction of a 500- to
600-megawatt generating unit at its Big Stone Plant site.
    
    OTP was granted general rate increases of 11.7% in South Dakota and 3.0% in North
Dakota.
 
 40




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##### Table of Contents




    
    Planned capital budget expenditures of up to $817 million for the years 2010 through 2014
of which $641 million is for capital projects at OTP, including $245 million for additional
generation and $110 million for anticipated expansion of transmission capacity in Minnesota
(CapX 2020). See Capital Requirements section for further discussion.
    
    Utilization of expanded plant capacity from capital investments made in our nonelectric
businesses in 2007 and 2008.
    
    The continued investigation and evaluation of organic growth and strategic acquisition
opportunities.
  (in thousands)
    
    2009
    
    2008Operating Revenues:Electric
    
    $
    314,424
    
    
    $
    339,726Nonelectric
    
    
    725,088
    
    
    
    971,471Total Operating Revenues
    
    $
    1,039,512
    
    
    $
    1,311,197Net Income (Loss):Electric
    
    $
    34,079
    
    
    $
    33,234Nonelectric
    
    
    1,336
    
    
    
    14,194Corporate
    
    
    (9,384
    )
    
    
    (12,303
    )Total Net Income
    
    $
    26,031
    
    
    $
    35,125
      Intersegment Eliminations(in thousands)
    
    2009
    
    2008
    
    2007Operating Revenues:Electric
    
    $
    201
    
    
    $
    294
    
    
    $
    320Nonelectric
    
    
    4,207
    
    
    
    2,841
    
    
    
    1,722Cost of Goods Sold
    
    
    3,948
    
    
    
    2,703
    
    
    
    1,553Other Nonelectric Expenses
    
    
    460
    
    
    
    432
    
    
    
    489
 41




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##### Table of Contents



ELECTRIC
  %
    
    
    
    
    
    %(in thousands)
    
    2009
    
    change
    
    2008
    
    change
    
    2007Retail Sales Revenues
    
    $
    282,116
    
    
    
    (2
    )
    
    $
    287,631
    
    
    
    4
    
    
    $
    276,894Wholesale Revenues
    
    
    13,578
    
    
    
    (46
    )
    
    
    25,122
    
    
    
    13
    
    
    
    22,306Net Marked-to-Market Gains
    
    
    2,184
    
    
    
    3
    
    
    
    2,114
    
    
    
    (37
    )
    
    
    3,334Other Revenues
    
    
    16,747
    
    
    
    (33
    )
    
    
    25,153
    
    
    
    20
    
    
    
    20,944Total Operating Revenues
    
    $
    314,625
    
    
    
    (7
    )
    
    $
    340,020
    
    
    
    5
    
    
    $
    323,478Production Fuel
    
    
    59,387
    
    
    
    (17
    )
    
    
    71,930
    
    
    
    19
    
    
    
    60,482Purchased Power  System Use
    
    
    52,942
    
    
    
    (6
    )
    
    
    56,329
    
    
    
    (25
    )
    
    
    74,690Other Operation and Maintenance Expenses
    
    
    105,867
    
    
    
    (8
    )
    
    
    115,300
    
    
    
    8
    
    
    
    107,041Depreciation and Amortization
    
    
    36,946
    
    
    
    16
    
    
    
    31,755
    
    
    
    22
    
    
    
    26,097Property Taxes
    
    
    8,853
    
    
    
    (1
    )
    
    
    8,949
    
    
    
    (5
    )
    
    
    9,413Operating Income
    
    $
    50,630
    
    
    
    (9
    )
    
    $
    55,757
    
    
    
    22
    
    
    $
    45,755
 %
    
    
    
    
    
    %Electric kwh Sales(in thousands)
    
    2009
    
    change
    
    2008
    
    change
    
    2007Retail kwh Sales
    
    
    4,244,377
    
    
    
    
    
    
    
    4,241,907
    
    
    
    3
    
    
    
    4,123,831Wholesale kwh Sales  Company Generation
    
    
    402,498
    
    
    
    (15
    )
    
    
    472,441
    
    
    
    28
    
    
    
    368,061Wholesale kwh Sales  Purchased Power Resold
    
    
    1,004,916
    
    
    
    (55
    )
    
    
    2,210,188
    
    
    
    73
    
    
    
    1,280,780
 2009 compared with 2008
    42




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2008 compared with 2007
      43




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##### Table of Contents



PLASTICS
  %
    
    
    
    
    
    %(in thousands)
    
    2009
    
    change
    
    2008
    
    change
    
    2007Operating Revenues
    
    $
    80,208
    
    
    
    (31
    )
    
    $
    116,452
    
    
    
    (22
    )
    
    $
    149,012Cost of Goods Sold
    
    
    71,872
    
    
    
    (31
    )
    
    
    104,186
    
    
    
    (16
    )
    
    
    124,344Operating Expenses
    
    
    4,764
    
    
    
    (4
    )
    
    
    4,956
    
    
    
    (31
    )
    
    
    7,223Depreciation and Amortization
    
    
    2,945
    
    
    
    (3
    )
    
    
    3,050
    
    
    
    (1
    )
    
    
    3,083Operating Income
    
    $
    627
    
    
    
    (85
    )
    
    $
    4,260
    
    
    
    (70
    )
    
    $
    14,362
 2009 compared with 2008
  2008 compared with 2007
  MANUFACTURING
  %
    
    
    
    
    
    %(in thousands)
    
    2009
    
    change
    
    2008
    
    change
    
    2007Operating Revenues
    
    $
    323,895
    
    
    
    (31
    )
    
    $
    470,462
    
    
    
    23
    
    
    $
    381,599Cost of Goods Sold
    
    
    260,815
    
    
    
    (33
    )
    
    
    389,060
    
    
    
    30
    
    
    
    300,146Operating Expenses
    
    
    37,625
    
    
    
    (15
    )
    
    
    44,093
    
    
    
    25
    
    
    
    35,278Product Recall and Testing Costs
    
    
    1,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plant Closure Costs
    
    
    
    
    
    
    
    
    
    
    2,295
    
    
    
    
    
    
    
    Depreciation and Amortization
    
    
    22,530
    
    
    
    17
    
    
    
    19,260
    
    
    
    47
    
    
    
    13,124Operating Income
    
    $
    1,300
    
    
    
    (92
    )
    
    $
    15,754
    
    
    
    (52
    )
    
    $
    33,051
 2009 compared with 2008
  
    
    Revenues at DMI Industries, Inc., (DMI), our manufacturer of wind towers, decreased
$88.3 million (35.5%) as a result of a lower volume of wind towers being sold in 2009.
    
    Revenues at BTD Manufacturing, Inc. (BTD), our metal parts stamping and fabrication
company, decreased $30.4 million (26.7%) as a result of decreases of $18.8 million from
reduced sales volume, $9.0 million from lower prices and $2.7 million in scrap sales
revenue related to lower steel prices and less scrap available for sale.
    
    Revenues at ShoreMaster, Inc. (ShoreMaster), our waterfront equipment manufacturer,
decreased $20.8 million (31.7%). The decrease in revenues mainly reflects a lower volume of
commercial construction projects in 2009 and lower sales of residential products between
the years related to the economic recession and credit restraints affecting consumers.
    
    Revenues at T.O. Plastics, Inc. (T.O. Plastics), our manufacturer of thermoformed
plastic and horticultural products, decreased $7.0 million (16.8%) due to a decrease in
volume of products sold, mainly as a result of delays in, or suspension of, orders related
to the economic recession. Revenues in 2008 included $1.7 million from a small facility in
South Carolina that was sold in 2008.
 44




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##### Table of Contents




    
    Cost of goods sold at DMI decreased $87.3 million as a result of the reductions in
production and sales of wind towers. Also, cost of goods sold in 2008 included $4.3
million in costs associated with start-up inefficiencies at DMIs Oklahoma plant, $3.5
million in additional labor and material costs on a production contract in Ft. Erie and
higher costs due to steel surcharges.
    
    Cost of goods sold at BTD decreased $17.3 million. A decrease of $13.7 million in cost
of goods sold related to a decrease in sales volume and $7.0 million in lower prices for
raw materials was partially offset by $3.3 million in unabsorbed overhead costs due to
the lower volume of products produced and sold.
    
    Cost of goods sold at ShoreMaster decreased $17.5 million mainly due to the completion
of a large commercial construction project in 2008 and reduced sales of residential
products between the years.
    
    Cost of goods sold at T.O. Plastics decreased $6.1 million mainly as a result of a
decrease in volume of products sold.
  
    
    Operating expenses at DMI decreased $2.5 million, reflecting decreases in labor, selling
and promotional expenses.
    
    Operating expenses at BTD decreased $1.6 million mainly due to a reduction in incentive
compensation directly related to decreased profitability between the years.
    
    Operating expenses at ShoreMaster decreased $3.0 million, which reflects a reduction of
$2.3 million mainly in payroll costs and selling expenses and $2.3 million in plant closure
costs incurred in 2008, offset by $1.6 million of product recall and testing costs incurred
in 2009. The $2.3 million in plant closure costs in 2008 includes employee-related
termination obligations, asset impairment costs and other losses and expenses incurred
related to the shutdown and sale of a production facility in California following the
completion of a major marina project in the state. The $1.6 million in product recall and
testing costs in 2009 includes the recognition of $1.1 million in costs related to the
recall of certain trampoline products and $0.5 million in costs to test imported products
for lead and phthalate content.
    
    Operating expenses at T.O. Plastics were flat between the years.
  2008 compared with 2007
  
    
    Revenues at DMI increased $64.6 million (35.0%) as a result of increases in production
and sales activity, including first-year production from its new plant in Oklahoma.
    
    Revenues at BTD increased $32.0 million (39.0%) between the years, including $17.5
million in 2008 revenues from Miller Welding, acquired in May 2008, $7.6 million from
higher prices driven by higher material costs and $6.9 million from increased sales to
existing customers.
    
    Revenues at T.O. Plastics increased $2.5 million (6.5%) between the years as a result of
increased sales of horticultural products.
    
    Revenues at ShoreMaster decreased $10.3 million (13.5%) between the years as a result of
lower residential and commercial sales.
 45




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##### Table of Contents




    
    Cost of goods sold at DMI increased $63.7 million between the years as a result of
increases in production and sales activity, including initial operations at its new plant
in Oklahoma. DMI experienced only a $0.9 million increase in gross profit margins between
the years mainly due to the start-up of its Oklahoma plant, where the levels of labor and
overhead spending was higher than expected and production had not reached levels
necessary to cover these costs. Included in cost of goods sold for 2008 are costs of $4.3
million associated with start-up of the Oklahoma plant, $3.5 million in additional labor
and material costs on a production contract at the Ft. Erie plant and higher costs due to
steel surcharges.
    
    Cost of goods sold at BTD increased $23.4 million between the years, mainly in the
categories of materials, labor and shop supply costs, as a result of increased sales
volumes to existing customers and higher material prices. Miller Welding accounted for
$13.2 million of the increase in cost of goods sold. BTDs gross margin was also reduced
by $1.0 million in 2008 as a result of the sale of Miller Weldings inventory that was
adjusted to fair value on acquisition, as required under business combination accounting
rules.
    
    Cost of goods sold at T.O. Plastics increased $2.2 million, mainly in material costs
related to increased sales of horticultural products.
    
    Cost of goods sold at ShoreMaster decreased by $0.3 million despite a $10.3 million
decrease in revenues between the years. Reduced sales combined with dealer discounts and
tighter profit margins, as well as losses incurred on a commercial construction project,
contributed to the $10.0 million decline in gross profits at ShoreMaster.
  
    
    Operating expenses at DMI increased $5.3 million, including expenses related to the
operation of its new plant in Oklahoma, which began construction in the third quarter of
2007 and went into operation in January 2008. The increase also includes approximately $1.0
million in increased severance and retention costs in 2008 related to personnel changes and
delayed orders for towers that resulted in workforce reductions at the end of 2008.
    
    Operating expenses at BTD increased $3.6 million between the years, mainly as a result
of increases in labor, benefit and contracted service expenses and the May 2008 acquisition
of Miller Welding.
    
    Operating expenses at T.O. Plastics decreased by $0.1 million, but T.O. Plastics
operating income was flat between the years as its depreciation expenses increased by $0.4
million related to $7.0 million in capital expenditures in 2007 and 2008.
    
    Operating expenses at ShoreMaster increased $2.3 million as a result of the shutdown and
sale of ShoreMasters production facility in California following the completion of a major
marina project in the state. Plant closure costs include employee-related termination
obligations, asset impairment costs plus other related losses and expenses.
   46




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HEALTH SERVICES
  %
    
    
    
    
    
    %(in thousands)
    
    2009
    
    change
    
    2008
    
    change
    
    2007Operating Revenues
    
    $
    110,006
    
    
    
    (10
    )
    
    $
    122,520
    
    
    
    (6
    )
    
    $
    130,670Cost of Goods Sold
    
    
    89,315
    
    
    
    (7
    )
    
    
    96,349
    
    
    
    (3
    )
    
    
    99,612Operating Expenses
    
    
    19,844
    
    
    
    (6
    )
    
    
    21,030
    
    
    
    (11
    )
    
    
    23,691Depreciation and Amortization
    
    
    3,907
    
    
    
    (5
    )
    
    
    4,133
    
    
    
    5
    
    
    
    3,937Operating (Loss) Income
    
    $
    (3,060
    )
    
    
    (404
    )
    
    $
    1,008
    
    
    
    (71
    )
    
    $
    3,430
 2009 compared with 2008
  2008 compared with 2007
  FOOD INGREDIENT PROCESSING
  %
    
    
    
    
    
    %(in thousands)
    
    2009
    
    change
    
    2008
    
    change
    
    2007Operating Revenues
    
    $
    79,098
    
    
    
    21
    
    
    $
    65,367
    
    
    
    (7
    )
    
    $
    70,440Cost of Goods Sold
    
    
    58,718
    
    
    
    6
    
    
    
    55,415
    
    
    
    (2
    )
    
    
    56,591Operating Expenses
    
    
    3,796
    
    
    
    27
    
    
    
    2,998
    
    
    
    (4
    )
    
    
    3,135Depreciation and Amortization
    
    
    4,333
    
    
    
    6
    
    
    
    4,094
    
    
    
    4
    
    
    
    3,952Operating Income
    
    $
    12,251
    
    
    
    328
    
    
    $
    2,860
    
    
    
    (58
    )
    
    $
    6,762
 2009 compared with 2008
  2008 compared with 2007
  47




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##### Table of Contents



OTHER BUSINESS OPERATIONS
  %
    
    
    
    
    
    %(in thousands)
    
    2009
    
    change
    
    2008
    
    change
    
    2007Operating Revenues
    
    $
    136,088
    
    
    
    (32
    )
    
    $
    199,511
    
    
    
    7
    
    
    $
    185,730Cost of Goods Sold
    
    
    88,427
    
    
    
    (34
    )
    
    
    132,985
    
    
    
    
    
    
    
    133,407Operating Expenses
    
    
    47,826
    
    
    
    (12
    )
    
    
    54,538
    
    
    
    28
    
    
    
    42,448Depreciation and Amortization
    
    
    2,550
    
    
    
    14
    
    
    
    2,230
    
    
    
    8
    
    
    
    2,058Operating (Loss) Income
    
    $
    (2,715
    )
    
    
    (128
    )
    
    $
    9,758
    
    
    
    25
    
    
    $
    7,817
 2009 compared with 2008
  
    
    Revenues at Foley Company (Foley), a mechanical and prime contractor on industrial
projects, decreased $34.4 million (35.0%) due to a decrease in volume of jobs in progress
related to the recent economic recession and increased competition for available work.
    
    Revenues at Aevenia, Inc. (Aevenia), our electrical design and construction services
company, formerly Midwest Construction Services Inc., decreased $18.8 million (32.1%) as a
result of a decrease in jobs in progress, especially wind-energy projects, related to the
recent economic recession and increased competition for available work.
    
    Revenues at E.W. Wylie Corporation (Wylie), our flatbed trucking company, decreased
$10.2 million (24.0%) as a result of a 13.8% reduction in miles driven by company-owned
trucks directly related to the recent economic recession combined with the effect of lower
diesel fuel prices being passed through to customers. Also, increased competition for fewer
loads has driven down shipping rates.
  
    
    Foleys cost of goods sold decreased $31.9 million as a result of decreases in
construction activity and jobs in progress.
    
    Cost of goods sold at Aevenia decreased $12.7 million as a result of a reduction of jobs
in progress.
  
    
    Wylies operating expenses decreased $5.3 million between the years. Fuel costs
decreased $7.2 million as a result of a 37.6% decrease in fuel costs per gallon combined
with the 13.8% decrease in miles driven by company-owned trucks. Payments to
owner-operators decreased $1.2 million as a result of lower fuel prices. The decreases in
fuel costs were partially offset by an increase in repair and maintenance expenses of $1.7
million, an increase in rent expenses of $1.0 million, mainly related to additional
equipment leases, and an increase in labor costs of $0.5 million.
    
    Aevenias operating expenses decreased $0.9 million between the years as a result of
reductions in employee incentive bonuses and benefits from reduced profitability between
the years and reductions in other contracted services related to less work volume.
    
    Foleys operating expenses decreased $0.3 million between the periods due to reductions
in incentive bonuses because of lower profitability in 2009.
 2008 compared with 2007
  
    
    Revenues at Foley increased $16.6 million (20.3%) between the years due to an increase
in volume of jobs performed.
 48




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##### Table of Contents




    
    Revenues at Aevenia decreased $10.3 million (15.0%) between the years as a result of a
reduction in the number of jobs in progress in 2008 compared to 2007 in the area of
electrical infrastructure for delivery of wind generated electricity and Aevenia supplied
materials for more jobs in 2007 resulting in a reduction in material pass through costs and
revenues in 2008.
    
    Revenues at Wylie increased $7.5 million (21.5%) mainly as a result of the impact of
increased fuel costs on shipping rates. Miles driven by company-owned trucks increased
15.7% as a result of the addition of heavy haul and wind tower transport services. Miles
driven by owner-operated trucks decreased 32.6%. Combined miles driven by company-owned and
owner-operated trucks decreased 1.1% between the years, reflecting a reduction in transport
activity related to the economic downturn that started in 2008.
  
    
    Foleys cost of goods sold increased $14.2 million, including increases of $6.2 million
in direct labor and benefit costs, $5.1 million in subcontractor costs and $2.7 million in
material costs as a result of increased construction activity and jobs in progress.
    
    Cost of goods sold at Aevenia decreased $14.7 million due to decreases in material and
subcontractor costs directly related to Aevenia having fewer jobs in progress and supplying
materials on fewer jobs in 2008. However, Aevenias gross margins increased by $4.4 million
mainly as a result of higher productivity and increased margins on wind turbine and
electric transmission line projects in 2008.
  
    
    Wylies operating expenses increased $8.8 million between the years. Fuel costs
increased $6.9 million as a result of higher diesel fuel prices and a 15.7% increase in
miles driven by company-owned trucks. Labor and benefit costs increased by $1.3 million and
equipment rental costs increased by $0.6 million due to the addition of heavy-haul services
in the fourth quarter of 2007.
    
    Aevenias operating expenses increased $2.0 million between the years due to increases
in salary, benefit and professional services expenses.
    
    Foleys operating expenses increased $0.9 million between the years due to increases in
labor, professional services and insurance costs.
    
    Operating expenses at Otter Tail Energy Services Company, our energy services
subsidiary, increased $0.4 million between the years related to the investigation of
renewable energy wind-generation projects.
 CORPORATE
  %
    
    
    
    
    
    %(in thousands)
    
    2009
    
    change
    
    2008
    
    change
    
    2007Operating Expenses
    
    $
    13,246
    
    
    
    (17
    )
    
    $
    15,867
    
    
    
    62
    
    
    $
    9,824Depreciation and Amortization
    
    
    397
    
    
    
    (26
    )
    
    
    538
    
    
    
    (7
    )
    
    
    579
 2009 compared with 2008
  2008 compared with 2007
  49




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##### Table of Contents



CONSOLIDATED OTHER INCOME
   CONSOLIDATED INTEREST CHARGES
   CONSOLIDATED INCOME TAXES
   IMPACT OF INFLATION
   50




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##### Table of Contents



LIQUIDITY
  In Use on
    
    Restricted due to
    
    Available on
    
    Available onDecember 31,
    
    Outstanding
    
    December 31,
    
    December 31,(in thousands)
    
    Line Limit
    
    2009
    
    Letters of Credit
    
    2009
    
    2008Otter Tail Corporation Credit Agreement
    
    $
    200,000
    
    
    $
    6,000
    
    
    $
    14,245
    
    
    $
    179,755
    
    
    $
    77,706OTP Credit Agreement1
    
    
    170,000
    
    
    
    1,585
    
    
    
    680
    
    
    
    167,735
    
    
    
    142,935Total
    
    $
    370,000
    
    
    $
    7,585
    
    
    $
    14,925
    
    
    $
    347,490
    
    
    $
    220,641
 1
    
    On January 4, 2010, OTP paid off the remaining $58.0 million balance
outstanding on its two-year, $75.0 million term loan that was originally due on May 20,
2011, using lower costs funds available under the OTP Credit Agreement. OTP did not
incur any penalties for the early repayment and retirement of this debt.
       51




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(BAR CHART)
    
    (BAR CHART)
    52




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##### Table of Contents



CAPITAL REQUIREMENTS
    (in millions)
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2010-2014Electric
    
    $
    104
    
    
    $
    199
    
    
    $
    146
    
    
    $
    50
    
    
    $
    641Plastics
    
    
    3
    
    
    
    9
    
    
    
    4
    
    
    
    2
    
    
    
    11Manufacturing
    
    
    43
    
    
    
    48
    
    
    
    19
    
    
    
    12
    
    
    
    95Health Services
    
    
    5
    
    
    
    4
    
    
    
    3
    
    
    
    11
    
    
    
    28Food Ingredient Processing
    
    
    
    
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    9Other Business Operations
    
    
    6
    
    
    
    4
    
    
    
    4
    
    
    
    3
    
    
    
    31Corporate
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    2Total
    
    $
    162
    
    
    $
    266
    
    
    $
    177
    
    
    $
    80
    
    
    $
    817
  Less than
    
    
    1-3
    
    
    3-5
    
    
    More than(in millions)
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsLong-Term Debt Obligations
    
    $
    495
    
    
    $
    59
    
    
    $
    101
    
    
    $
    1
    
    
    $
    334Interest on Long-Term Debt Obligations
    
    
    309
    
    
    
    31
    
    
    
    61
    
    
    
    50
    
    
    
    167Capacity and Energy Requirements
    
    
    155
    
    
    
    19
    
    
    
    35
    
    
    
    16
    
    
    
    85Coal Contracts (required minimums)
    
    
    111
    
    
    
    52
    
    
    
    27
    
    
    
    19
    
    
    
    13Operating Lease Obligations
    
    
    106
    
    
    
    38
    
    
    
    37
    
    
    
    13
    
    
    
    18Postretirement Benefit Obligations
    
    
    66
    
    
    
    3
    
    
    
    8
    
    
    
    8
    
    
    
    47Other Purchase Obligations
    
    
    21
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Cash Obligations
    
    $
    1,263
    
    
    $
    223
    
    
    $
    269
    
    
    $
    107
    
    
    $
    664
  53




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CAPITAL RESOURCES
  In Use on
    
    
    Restricted due to
    
    
    Available on
    
    
    Available onDecember 31,
    
    
    Outstanding
    
    
    December 31,
    
    
    December 31,(in thousands)
    
    Line Limit
    
    
    2009
    
    
    Letters of Credit
    
    
    2009
    
    
    2008Otter Tail Corporation Credit
Agreement
    
    $
    200,000
    
    
    $
    6,000
    
    
    $
    14,245
    
    
    $
    179,755
    
    
    $
    77,706OTP Credit Agreement1
    
    
    170,000
    
    
    
    1,585
    
    
    
    680
    
    
    
    167,735
    
    
    
    142,935Total
    
    $
    370,000
    
    
    $
    7,585
    
    
    $
    14,925
    
    
    $
    347,490
    
    
    $
    220,641
 
 1
    
    On January 4, 2010, OTP paid off the remaining $58.0 million balance
outstanding on its two-year, $75.0 million term loan that was originally due on May 20,
2011, using lower costs funds available under the OTP Credit Agreement. OTP did not
incur any penalties for the early repayment and retirement of this debt.     54




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##### Table of Contents



Financial
Covenants
    
    
    Under the Credit Agreement, we may not permit the ratio of our Interest-bearing Debt to
Total Capitalization to be greater than 0.60 to 1.00 or permit our Interest and Dividend
Coverage Ratio to be less than 1.50 to 1.00 (each measured on a consolidated basis), as
provided in the Credit Agreement.
 
    
    Under the Cascade Note Purchase Agreement, we may not permit our ratio of Consolidated Debt
to Consolidated Total Capitalization to be greater than 0.60 to 1.00 or our Interest Charges
Coverage Ratio to be less than 1.50 to 1.00 (each measured on a consolidated basis), permit
the ratio of OTPs Debt to OTPs Total Capitalization to be greater than 0.60 to 1.00, or
permit Priority Debt to exceed 20% of Varistar Consolidated Total Capitalization, as provided
in the Cascade Note Purchase Agreement.
 
    
    Under the OTP Credit Agreement, OTP may not permit the ratio of its Interest-bearing Debt
to Total Capitalization to be greater than 0.60 to 1.00 or permit its Interest and Dividend
Coverage Ratio to be less than 1.50 to 1.00, as provided in the Loan Agreement.
 55




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##### Table of Contents




    
    Under the 2001 Note Purchase Agreement, the 2007 Note Purchase Agreement and the financial
guaranty insurance policy with Ambac Assurance Corporation relating to certain pollution
control refunding bonds, OTP may not permit the ratio of its Consolidated Debt to Total
Capitalization to be greater than 0.60 to 1.00 or permit its Interest and Dividend Coverage
Ratio (or, in the case of the 2001 Note Purchase Agreement, its Interest Charges Coverage
Ratio) to be less than 1.50 to 1.00, in each case as provided in the related borrowing or
insurance agreement. In addition, under the 2001 Note Purchase Agreement and the 2007 Note
Purchase Agreement, OTP may not permit its Priority Debt to exceed 20% of its Total
Capitalization, as provided in the related agreement.
  Moodys Investors
    
    
    
    StandardService
    
    Fitch Ratings
    
    & PoorsOtter Tail
CorporationCorporate Credit/Long-Term Issuer Default Rating
    
    Baa3
    
    BBB-
    
    BBB-Senior Unsecured Debt
    
    Baa3
    
    BBB-
    
    BB+9.000% Notes Due 2016
    
    Ba1
    
    BBB-
    
    BB+Outlook
    
    Stable
    
    Stable
    
    Stable
 Moodys Investors
    
    
    
    StandardService
    
    Fitch Ratings
    
    & PoorsOtter Tail
Power CompanyCorporate Credit/Long-Term Issuer Default Rating
    
    A3
    
    BBB
    
    BBB-Senior Unsecured Debt
    
    A3
    
    BBB+
    
    BBB-Outlook
    
    Stable
    
    Stable
    
    Stable
   
 OFF-BALANCE-SHEET ARRANGEMENTS
  56




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2010 BUSINESS OUTLOOK
   
    
    We expect lower levels of net income from our electric segment in 2010. This decrease
is due to continued soft wholesale power markets, lower AFUDC earnings as there are no
large construction projects expected in 2010, and increased operating and maintenance
expense in 2010 due primarily to increased employee benefit costs. Expectations in 2010
also reflect an interim rate increase of approximately $1.5 million in the Minnesota
jurisdiction.
    
    We expect our plastics segments 2010 performance to improve and be more in line with
2008 results.
    
    We expect earnings from our manufacturing segment to improve in 2010 as a result of the
following:
 
    
    Improved earnings are expected at BTD in 2010 due to productivity improvements
and cost reductions made in 2009.
    
Results at ShoreMaster are expected to be near breakeven in 2010 given the
restructuring of costs that occurred in 2009. ShoreMaster continues to be affected by
current depressed economic conditions and does not expect any improvement to overall
business conditions until the economy starts to recover.
    
Improved earnings are expected at DMI in 2010 due to a better backlog of
business going into 2010 and continued improvements in productivity from cost controls
implemented in 2009.
    
Slightly better earnings are expected at T. O. Plastics in 2010 compared with
2009.
    
Backlog in place in the manufacturing segment to support 2010 revenues is
approximately $239 million compared with $241 million one
year ago.
 
    
    We expect increased net income from our health services segment in 2010. In an effort
to right-size its fleet of imaging assets, health services will not renew leases on a
large number of imaging assets that come off lease in 2010. This will result in a lower
level of rental costs in 2010.
    
    We expect a similar level of net income from our food ingredient processing business in
2010 compared with 2009.
    
    We expect our other business operations segment to have improved earnings in 2010
compared with 2009. Backlog in place for the construction businesses is $84 million for
2010 compared with $71 million one year ago.
    
    We expect corporate general and administrative costs to return to more normal levels in
2010.
  57




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CRITICAL ACCOUNTING POLICIES INVOLVING SIGNIFICANT ESTIMATES
   PENSION AND OTHER POSTRETIREMENT BENEFITS OBLIGATIONS AND COSTS
       58




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REVENUE RECOGNITION
  FORWARD ENERGY CONTRACTS CLASSIFIED AS DERIVATIVES
  (in thousands)
    
    2010
    
    2011
    
    2012
    
    TotalNet Gain
    
    $
    389
    
    
    $
    320
    
    
    $
    321
    
    
    $
    1,030
 ALLOWANCE FOR DOUBTFUL ACCOUNTS
     59




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DEPRECIATION EXPENSE AND DEPRECIABLE LIVES
   TAXATION
 Income Taxes
  ASSET IMPAIRMENT
 Property, Plant, and Equipment  Subsequent Measurement
   GOODWILL IMPAIRMENT
 Goodwill
- Subsequent Measurement
 60




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(in thousands)Enterprise Value
    
    $
    48,600Interest Bearing Debt
    
    
    36,500Market Value of Common Equity
    
    
    12,100Book Value of Common Equity
    
    
    12,000Excess of Market Value over Book Value
    
    $
    100
  Impact on Fair ValueAssumption
    
    Change
    
    (in thousands)Annual Revenue Growth Rate
    
    Plus 1%
    
    $
    3,700Annual Revenue Growth Rate
    
    Minus 1%
    
    
    (3,600
    )Annual Gross Margin
    
    Plus 1%
    
    
    3,800Annual Gross Margin
    
    Minus 1%
    
    
    (3,800
    )Discount Rate
    
    Plus .5%
    
    
    (2,200
    )Discount Rate
    
    Minus .5%
    
    
    2,400
  61




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##### Table of Contents



ACQUISITION METHOD OF ACCOUNTING
 Business Combinations
 Business Combinations
     KEY ACCOUNTING PRONOUNCEMENTS
 Business Combinations Business Combinations,
 62




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##### Table of Contents



Disclosures about Derivative Instruments and Hedging Activities Derivatives and Hedging,
 Employers Disclosures about Postretirement Benefit Plan Assets Defined Benefit PlansGeneral,
 Interim Disclosures about Fair Value of Financial Instruments Financial Instruments,
 Subsequent Events Subsequent Events,
 SFAS No. 167, Amendments to FASB Interpretation No. 46(R),
 FORWARD-LOOKING INFORMATION  SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
  63




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Item 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
         64




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##### Table of Contents



(in thousands)
    
    December 31, 2009Current Asset  Marked-to-Market Gain
    
    $
    8,321Regulatory Asset  Deferred Marked-to-Market Loss
    
    
    7,614Total Assets
    
    
    15,935Current Liability  Marked-to-Market Loss
    
    
    (14,681
    )Regulatory Liability  Deferred Marked-to-Market Gain
    
    
    (224
    )Total Liabilities
    
    
    (14,905
    )Net Fair Value of Marked-to-Market Energy Contracts
    
    $
    1,030
 Year ended(in thousands)
    
    December 31, 2009Fair Value at Beginning of Year
    
    $
    (123
    )Amount Realized on Contracts Entered into in 2008 and Settled in 2009
    
    
    123Changes in Fair Value of Contracts Entered into in 2008
    
    
    Net Fair Value of Contracts Entered into in 2009 at Year End 2009
    
    
    Changes in Fair Value of Contracts Entered into in 2009
    
    
    1,030Net Fair Value at End of Year
    
    $
    1,030
  (in thousands)
    
    2010
    
    2011
    
    2012
    
    TotalNet Gain
    
    $
    389
    
    
    $
    320
    
    
    $
    321
    
    
    $
    1,030
     65




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##### Table of Contents



Year-to-Date(in thousands)
    
    December 31, 2009Fair Value at Beginning of Year
    
    $
    (289
    )Changes in Fair Value of Contracts Entered into in 2008
    
    
    232Less: Amount Realized on Contracts Entered into in 2008 and Settled in 2009
    
    
    57Net Fair Value of Contracts Entered into in 2008 at the End of the Year
    
    
    Changes in Fair Value of Contracts Entered into in 2009
    
    
    88Less: Amount Realized on Contracts Entered into in 2009 and Settled in 2009
    
    
    (88
    )Net Fair Value End of the Year
    
    $
    
  Derivatives and Hedging
 66




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##### Table of Contents



Item 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
  TO THE SHAREHOLDERS OF OTTER TAIL CORPORATION
        
 67




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##### Table of Contents



OTTER TAIL CORPORATION
 
 Consolidated Statements of IncomeFor the Years Ended December 31
 (in thousands, except per-share amounts)
    
    2009
    
    2008
    
    2007Operating RevenuesElectric
    
    $
    314,424
    
    
    $
    339,726
    
    
    $
    323,158Nonelectric
    
    
    725,088
    
    
    
    971,471
    
    
    
    915,729Total Operating Revenues
    
    
    1,039,512
    
    
    
    1,311,197
    
    
    
    1,238,887Operating ExpensesProduction Fuel  Electric
    
    
    59,387
    
    
    
    71,930
    
    
    
    60,482Purchased Power  Electric System Use
    
    
    52,942
    
    
    
    56,329
    
    
    
    74,690Electric Operation and Maintenance Expenses
    
    
    105,867
    
    
    
    115,300
    
    
    
    107,041Cost of Goods Sold  Nonelectric (excludes depreciation; included below)
    
    
    565,199
    
    
    
    775,292
    
    
    
    712,547Other Nonelectric Expenses
    
    
    126,641
    
    
    
    143,050
    
    
    
    121,110Product Recall and Testing Costs
    
    
    1,625
    
    
    
    
    
    
    
    Plant Closure Costs
    
    
    
    
    
    
    2,295
    
    
    
    Depreciation and Amortization
    
    
    73,608
    
    
    
    65,060
    
    
    
    52,830Property Taxes  Electric
    
    
    8,853
    
    
    
    8,949
    
    
    
    9,413Total Operating Expenses
    
    
    994,122
    
    
    
    1,238,205
    
    
    
    1,138,113Operating Income
    
    
    45,390
    
    
    
    72,992
    
    
    
    100,774Other Income
    
    
    4,550
    
    
    
    4,128
    
    
    
    2,012Interest Charges
    
    
    28,514
    
    
    
    26,958
    
    
    
    20,857Income Before Income Taxes
    
    
    21,426
    
    
    
    50,162
    
    
    
    81,929Income Tax (Benefit) Expense
    
    
    (4,605
    )
    
    
    15,037
    
    
    
    27,968Net Income
    
    
    26,031
    
    
    
    35,125
    
    
    
    53,961Preferred Dividend Requirements
    
    
    736
    
    
    
    736
    
    
    
    736Earnings Available for Common Shares
    
    $
    25,295
    
    
    $
    34,389
    
    
    $
    53,225Average Number of Common Shares OutstandingBasic
    
    
    35,463
    
    
    
    31,409
    
    
    
    29,681Average Number of Common Shares OutstandingDiluted
    
    
    35,717
    
    
    
    31,673
    
    
    
    29,970Earnings Per Common Share:Basic
    
    $
    0.71
    
    
    $
    1.09
    
    
    $
    1.79Diluted
    
    $
    0.71
    
    
    $
    1.09
    
    
    $
    1.78Dividends Per Common Share
    
    $
    1.19
    
    
    $
    1.19
    
    
    $
    1.17
 See accompanying notes to consolidated financial statements.
 68




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##### Table of Contents



OTTER TAIL CORPORATION
 
 Consolidated Balance Sheets, December 31
 (in thousands)
    
    2009
    
    2008ASSETSCurrent AssetsCash and Cash Equivalents
    
    $
    4,432
    
    
    $
    7,565Accounts Receivable:Trade (less allowance for doubtful accounts of $4,391 for
2009 and $2,744 for 2008)
    
    
    95,747
    
    
    
    136,609Other
    
    
    10,883
    
    
    
    13,587Inventories
    
    
    86,515
    
    
    
    101,955Deferred Income Taxes
    
    
    11,457
    
    
    
    8,386Accrued Utility and Cost-of-Energy Revenues
    
    
    15,840
    
    
    
    24,030Costs and Estimated Earnings in Excess of Billings
    
    
    61,835
    
    
    
    65,606Income Taxes Receivable
    
    
    48,049
    
    
    
    26,754Other
    
    
    15,265
    
    
    
    8,519Total Current Assets
    
    
    350,023
    
    
    
    393,011Investments
    
    
    9,889
    
    
    
    7,542Other Assets
    
    
    26,098
    
    
    
    22,615Goodwill
    
    
    106,778
    
    
    
    106,778Other IntangiblesNet
    
    
    33,887
    
    
    
    35,441Deferred DebitsUnamortized Debt Expense and Reacquisition Premiums
    
    
    10,676
    
    
    
    7,247Regulatory Assets and Other Deferred Debits
    
    
    118,700
    
    
    
    82,384Total Deferred Debits
    
    
    129,376
    
    
    
    89,631PlantElectric Plant in Service
    
    
    1,313,015
    
    
    
    1,205,647Nonelectric Operations
    
    
    362,088
    
    
    
    321,032Total
    
    
    1,675,103
    
    
    
    1,526,679Less Accumulated Depreciation and Amortization
    
    
    599,839
    
    
    
    548,070PlantNet of Accumulated Depreciation and Amortization
    
    
    1,075,264
    
    
    
    978,609Construction Work in Progress
    
    
    23,363
    
    
    
    58,960Net Plant
    
    
    1,098,627
    
    
    
    1,037,569Total
    
    $
    1,754,678
    
    
    $
    1,692,587
 See accompanying notes to consolidated financial statements.
 69




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##### Table of Contents



OTTER TAIL CORPORATION
 Consolidated Balance Sheets, December 31
 (in thousands, except share data)
    
    2009
    
    2008LIABILITIES AND EQUITYCurrent LiabilitiesShort-Term Debt
    
    $
    7,585
    
    
    $
    134,914Current Maturities of Long-Term Debt
    
    
    59,053
    
    
    
    3,747Accounts Payable
    
    
    83,724
    
    
    
    113,422Accrued Salaries and Wages
    
    
    21,057
    
    
    
    29,688Accrued Taxes
    
    
    11,304
    
    
    
    10,939Other Accrued Liabilities
    
    
    24,319
    
    
    
    12,034Total Current Liabilities
    
    
    207,042
    
    
    
    304,744Pensions Benefit Liability
    
    
    95,039
    
    
    
    80,912Other Postretirement Benefits Liability
    
    
    37,712
    
    
    
    32,621Other Noncurrent Liabilities
    
    
    22,697
    
    
    
    19,391Commitments (note 9)Deferred CreditsDeferred Income Taxes
    
    
    155,306
    
    
    
    123,086Deferred Tax Credits
    
    
    47,660
    
    
    
    34,288Regulatory Liabilities
    
    
    64,274
    
    
    
    64,684Other
    
    
    562
    
    
    
    397Total Deferred Credits
    
    
    267,802
    
    
    
    222,455Capitalization (page 73)Long-Term Debt, Net of Current Maturities
    
    
    436,170
    
    
    
    339,726Class B Stock Options of Subsidiary
    
    
    1,220
    
    
    
    1,220Cumulative Preferred Shares
    
    
    15,500
    
    
    
    15,500Common Shares, Par Value $5 Per ShareAuthorized, 50,000,000 Shares;Outstanding, 200935,812,280 Shares; 200835,384,620 Shares
    
    
    179,061
    
    
    
    176,923Premium on Common Shares
    
    
    250,398
    
    
    
    241,731Retained Earnings
    
    
    243,352
    
    
    
    260,364Accumulated Other Comprehensive Loss
    
    
    (1,315
    )
    
    
    (3,000
    )Total Common Equity
    
    
    671,496
    
    
    
    676,018Total Capitalization
    
    
    1,124,386
    
    
    
    1,032,464Total
    
    $
    1,754,678
    
    
    $
    1,692,587
 See accompanying notes to consolidated financial statements.
 70




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OTTER TAIL CORPORATION
 
 Consolidated Statements of Common Shareholders Equity and Comprehensive Income
 Premium
    
    
    
    
    
    
    AccumulatedCommon
    
    
    Par Value,
    
    
    on
    
    
    
    
    
    
    Other
    
    
    TotalShares
    
    
    Common
    
    
    Common
    
    
    Retained
    
    
    Comprehensive
    
    
    Common( in thousands, except common shares outstanding)
    
    Outstanding
    
    
    Share
    
    
    Shares
    
    
    Earnings
    
    
    (Loss)/Income
    
    
    EquityBalance, December 31, 2006
    
    
    29,521,770
    
    
    $
    147,609
    
    
    $
    99,223
    
    
    $
    245,005
    
    
    $
    (1,067)
    (a)
    
    $
    490,770Common Stock Issuances, Net of Expenses
    
    
    336,508
    
    
    
    1,683
    
    
    
    6,018
    
    
    
    
    
    
    
    
    
    
    
    7,701Common Stock Retirements
    
    
    (8,489
    )
    
    
    (43
    )
    
    
    (252
    )
    
    
    
    
    
    
    
    
    
    
    (295
    )Comprehensive Income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,961
    
    
    
    
    
    
    
    53,961Unrealized Gain on Marketable Equity Securities
(net-of-tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Foreign Currency Exchange Translation (net-of-tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,019
    
    
    
    2,019SFAS No. 158 Items (net-of-tax):Amortization of Unrecognized Postretirement Benefit
Costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165
    
    
    
    165Actuarial Gains and Regulatory Allocations Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    60Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,209Tax Benefit for Exercise of Stock Options
    
    
    
    
    
    
    
    
    
    
    1,092
    
    
    
    
    
    
    
    
    
    
    
    1,092Stock Incentive Plan Performance Award Accrual
    
    
    
    
    
    
    
    
    
    
    2,213
    
    
    
    
    
    
    
    
    
    
    
    2,213Vesting of Restricted Stock Granted to Employees
    
    
    
    
    
    
    
    
    
    
    860
    
    
    
    
    
    
    
    
    
    
    
    860Premium on Purchase of Stock for Employee Purchase Plan
    
    
    
    
    
    
    
    
    
    
    (269
    )
    
    
    
    
    
    
    
    
    
    
    (269
    )Cumulative Effect of Adoption of FIN No. 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (118
    )
    
    
    
    
    
    
    (118
    )Cumulative Preferred Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (736
    )
    
    
    
    
    
    
    (736
    )Common Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,780
    )
    
    
    
    
    
    
    (34,780
    )Balance, December 31, 2007
    
    
    29,849,789
    
    
    $
    149,249
    
    
    $
    108,885
    
    
    $
    263,332
    
    
    $
    1,181
    (a)
    
    $
    522,647Common Stock Issuances, Net of Expenses
    
    
    5,557,531
    
    
    
    27,788
    
    
    
    128,818
    
    
    
    
    
    
    
    
    
    
    
    156,606Common Stock Retirements
    
    
    (22,700
    )
    
    
    (114
    )
    
    
    (642
    )
    
    
    
    
    
    
    
    
    
    
    (756
    )Comprehensive Income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,125
    
    
    
    
    
    
    
    35,125Unrealized Loss on Marketable Equity Securities
(net-of-tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    (40
    )Foreign Currency Exchange Translation (net-of-tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,784
    )
    
    
    (2,784
    )SFAS No. 158 Items (net-of-tax):Amortization of Unrecognized Postretirement Benefit
Costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    153
    
    
    
    153Actuarial Gains and Regulatory Allocations Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,510
    )
    
    
    (1,510
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,944Tax Benefit for Exercise of Stock Options
    
    
    
    
    
    
    
    
    
    
    1,777
    
    
    
    
    
    
    
    
    
    
    
    1,777Stock Incentive Plan Performance Award Accrual
    
    
    
    
    
    
    
    
    
    
    3,093
    
    
    
    
    
    
    
    
    
    
    
    3,093Vesting of Restricted Stock Granted to Employees
    
    
    
    
    
    
    
    
    
    
    165
    
    
    
    
    
    
    
    
    
    
    
    165Premium on Purchase of Stock for Employee Purchase Plan
    
    
    
    
    
    
    
    
    
    
    (365
    )
    
    
    
    
    
    
    
    
    
    
    (365
    )Cumulative Preferred Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (736
    )
    
    
    
    
    
    
    (736
    )Common Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,357
    )
    
    
    
    
    
    
    (37,357
    )Balance, December 31, 2008
    
    
    35,384,620
    
    
    $
    176,923
    
    
    $
    241,731
    
    
    $
    260,364
    
    
    $
    (3,000)
    (a)
    
    $
    676,018Common Stock Issuances, Net of Expenses
    
    
    437,843
    
    
    
    2,189
    
    
    
    6,243
    
    
    
    
    
    
    
    
    
    
    
    8,432Common Stock Retirements
    
    
    (10,183
    )
    
    
    (51
    )
    
    
    (178
    )
    
    
    
    
    
    
    
    
    
    
    (229
    )Comprehensive Income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,031
    
    
    
    
    
    
    
    26,031Unrealized Gain on Marketable Equity Securities
(net-of-tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74
    
    
    
    74Foreign Currency Exchange Translation (net-of-tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,965
    
    
    
    1,965SFAS No. 158 Items (net-of-tax):Amortization of Unrecognized Postretirement Benefit
Costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    357
    
    
    
    357Actuarial Gains and Regulatory Allocations Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (711
    )
    
    
    (711
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,716Tax Benefit for Exercise of Stock Options
    
    
    
    
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    (23
    )Stock Incentive Plan Performance Award Accrual
    
    
    
    
    
    
    
    
    
    
    2,592
    
    
    
    
    
    
    
    
    
    
    
    2,592Vesting of Restricted Stock Granted to Employees
    
    
    
    
    
    
    
    
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    52Premium on Purchase of Stock for Employee Purchase Plan
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    (19
    )Cumulative Preferred Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (736
    )
    
    
    
    
    
    
    (736
    )Common Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,307
    )
    
    
    
    
    
    
    (42,307
    )Balance, December 31, 2009
    
    
    35,812,280
    
    
    $
    179,061
    
    
    $
    250,398
    
    
    $
    243,352
    
    
    $
    (1,315)
    (a)
    
    $
    671,496
 
 (a)

    Accumulated Other Comprehensive Income (Loss) on December 31is comprised of the following (in thousands)Before Tax
    
    
    Tax Effect
    
    
    Net-of-TaxUnamortized Actuarial Losses and TransitionObligation Related to Pension and2007
    
    Postretirement Benefits
    
    $
    (3,863
    )
    
    $
    1,545
    
    
    $
    (2,318
    )Foreign Currency Exchange Translation
    
    
    5,795
    
    
    
    (2,318
    )
    
    
    3,477Unrealized Gain on Marketable Equity Securities
    
    
    36
    
    
    
    (14
    )
    
    
    22Net Accumulated Other Comprehensive Income
    
    $
    1,968
    
    
    $
    (787
    )
    
    $
    1,181Unamortized Actuarial Losses and TransitionObligation Related to Pension and2008
    
    Postretirement Benefits
    
    $
    (6,125
    )
    
    $
    2,450
    
    
    $
    (3,675
    )Foreign Currency Exchange Translation
    
    
    1,155
    
    
    
    (462
    )
    
    
    693Unrealized Loss on Marketable Equity Securities
    
    
    (30
    )
    
    
    12
    
    
    
    (18
    )Net Accumulated Other Comprehensive Loss
    
    $
    (5,000
    )
    
    $
    2,000
    
    
    $
    (3,000
    )Unamortized Actuarial Losses and TransitionObligation Related to Pension and2009
    
    Postretirement Benefits
    
    $
    (6,715
    )
    
    $
    2,686
    
    
    $
    (4,029
    )Foreign Currency Exchange Translation
    
    
    4,430
    
    
    
    (1,772
    )
    
    
    2,658Unrealized Gain on Marketable Equity Securities
    
    
    94
    
    
    
    (38
    )
    
    
    56Net Accumulated Other Comprehensive Loss
    
    $
    (2,191
    )
    
    $
    876
    
    
    $
    (1,315
    )
 See accompanying notes to consolidated financial statements.
 71




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OTTER TAIL CORPORATION
 
 Consolidated Statements of Cash FlowsFor the Years Ended December 31
 (in thousands)
    
    2009
    
    
    2008
    
    
    2007Cash Flows from Operating ActivitiesNet Income
    
    $
    26,031
    
    
    $
    35,125
    
    
    $
    53,961Adjustments
to Reconcile Net Income to Net Cash Provided by Operating Activities:Depreciation and Amortization
    
    
    73,608
    
    
    
    65,060
    
    
    
    52,830Deferred Tax Credits
    
    
    (2,331
    )
    
    
    (1,692
    )
    
    
    (1,169
    )Deferred Income Taxes
    
    
    44,792
    
    
    
    40,665
    
    
    
    4,366Change in Deferred Debits and Other Assets
    
    
    (18,527
    )
    
    
    (41,851
    )
    
    
    6,505Discretionary Contribution to Pension Plan
    
    
    (4,000
    )
    
    
    (2,000
    )
    
    
    (4,000
    )Change in Noncurrent Liabilities and Deferred Credits
    
    
    24,895
    
    
    
    40,918
    
    
    
    481Allowance for Equity (Other) Funds Used During Construction
    
    
    (3,180
    )
    
    
    (2,786
    )
    
    
    Change in Derivatives Net of Regulatory Deferral
    
    
    (1,442
    )
    
    
    1,044
    
    
    
    (800
    )Stock Compensation Expense  Equity Awards
    
    
    3,563
    
    
    
    3,850
    
    
    
    2,986OtherNet
    
    
    1,489
    
    
    
    298
    
    
    
    (1,837
    )Cash Provided by (Used for) Current Assets and Current Liabilities:Change in Receivables
    
    
    43,822
    
    
    
    19,522
    
    
    
    (18,903
    )Change in Inventories
    
    
    16,344
    
    
    
    (743
    )
    
    
    8,407Change in Other Current Assets
    
    
    13,146
    
    
    
    (12,362
    )
    
    
    (14,333
    )Change in Payables and Other Current Liabilities
    
    
    (34,490
    )
    
    
    (8,572
    )
    
    
    (2,556
    )Change in Interest Payable and Income Taxes Receivable/Payable
    
    
    (20,970
    )
    
    
    (25,155
    )
    
    
    (1,126
    )Net Cash Provided by Operating Activities
    
    
    162,750
    
    
    
    111,321
    
    
    
    84,812Cash Flows from Investing ActivitiesCapital Expenditures
    
    
    (177,125
    )
    
    
    (265,888
    )
    
    
    (161,985
    )2009 American Recovery and Reinvestment Act Grant  Luverne Wind
Farm
    
    
    30,182
    
    
    
    
    
    
    
    Proceeds from Disposal of Noncurrent Assets
    
    
    4,909
    
    
    
    8,174
    
    
    
    12,486AcquisitionsNet of Cash Acquired
    
    
    
    
    
    
    (41,674
    )
    
    
    (6,750
    )Net (Increase) Decrease in Other Investments
    
    
    (5,706
    )
    
    
    4
    
    
    
    (7,745
    )Net Cash Used in Investing Activities
    
    
    (147,740
    )
    
    
    (299,384
    )
    
    
    (163,994
    )Cash Flows from Financing ActivitiesNet Short-Term (Repayments) Borrowings
    
    
    (127,329
    )
    
    
    39,914
    
    
    
    56,100Proceeds from Issuance of Common Stock
    
    
    7,420
    
    
    
    162,978
    
    
    
    7,733Common Stock Issuance Expenses
    
    
    (23
    )
    
    
    (6,418
    )
    
    
    Payments for Retirement of Common Stock and Class B Stock of
Subsidiary
    
    
    (229
    )
    
    
    (91
    )
    
    
    (305
    )Proceeds from Issuance of Long-Term Debt
    
    
    175,000
    
    
    
    1,240
    
    
    
    205,129Short-Term and Long-Term Debt Issuance Expenses
    
    
    (5,526
    )
    
    
    (1,252
    )
    
    
    (1,762
    )Payments for Retirement of Long-Term Debt
    
    
    (23,356
    )
    
    
    (3,639
    )
    
    
    (118,171
    )Dividends Paid
    
    
    (43,043
    )
    
    
    (38,093
    )
    
    
    (35,516
    )Net Cash (Used in) Provided by Financing Activities
    
    
    (17,086
    )
    
    
    154,639
    
    
    
    113,208Effect of Foreign Exchange Rate Fluctuations on Cash
    
    
    (1,057
    )
    
    
    1,165
    
    
    
    (993
    )Net Change in Cash and Cash Equivalents
    
    
    (3,133
    )
    
    
    (32,259
    )
    
    
    33,033Cash and Cash Equivalents at Beginning of Year
    
    
    7,565
    
    
    
    39,824
    
    
    
    6,791Cash and Cash Equivalents at End of Year
    
    $
    4,432
    
    
    $
    7,565
    
    
    $
    39,824
 See accompanying notes to consolidated financial statements.
 72




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OTTER TAIL CORPORATION
 
 Consolidated Statements of Capitalization, December 31
 (in thousands, except share data)
    
    2009
    
    
    2008Long-Term DebtLombard US Equipment Finance Note 6.76%, early retired in June 2009
    
    $
    
    
    
    $
    4,657Term Loan, Variable 3.73% at December 31, 2009, due May 20, 2011 (early retired on January 4, 2010)
    
    
    58,000
    
    
    
    Senior Unsecured Notes 6.63%, due December 1, 2011
    
    
    90,000
    
    
    
    90,000Pollution Control Refunding Revenue Bonds, Variable, 3.00% at December 31, 2009, due December 1, 2012
    
    
    10,400
    
    
    
    10,4009.000% Notes, due December 15, 2016
    
    
    100,000
    
    
    
    Senior Unsecured Notes 5.95%, Series A, due August 20, 2017
    
    
    33,000
    
    
    
    33,000Grant County, South Dakota Pollution Control Refunding Revenue Bonds 4.65%, due September 1, 2017
    
    
    5,125
    
    
    
    5,165Senior Unsecured Note 8.89%, due November 30, 2017
    
    
    50,000
    
    
    
    50,000Senior Unsecured Notes 6.15%, Series B, due August 20, 2022
    
    
    30,000
    
    
    
    30,000Mercer County, North Dakota Pollution Control Refunding Revenue Bonds 4.85%, due September 1, 2022
    
    
    20,400
    
    
    
    20,625Senior Unsecured Notes 6.37%, Series C, due August 20, 2027
    
    
    42,000
    
    
    
    42,000Senior Unsecured Notes 6.47%, Series D, due August 20, 2037
    
    
    50,000
    
    
    
    50,000Obligations of Varistar Corporation  Various up to 13.31% at December 31, 2009
    
    
    6,684
    
    
    
    7,982Total
    
    
    495,609
    
    
    
    343,829Less:Current Maturities
    
    
    59,053
    
    
    
    3,747Unamortized Debt Discount
    
    
    386
    
    
    
    356Total Long-Term Debt
    
    
    436,170
    
    
    
    339,726Class B Stock Options of Subsidiary
    
    
    1,220
    
    
    
    1,220Cumulative Preferred SharesWithout Par Value (Stated and Liquidating Value $100 a Share)Authorized
1,500,000 Shares; nonvoting and redeemable at the option of the Company:Series Outstanding:   
         
 Call Price December 31, 2009$3.60, 60,000 Shares   
            
          $102.25
    
    
    6,000
    
    
    
    6,000$4.40, 25,000 Shares   
            
          $102.00
    
    
    2,500
    
    
    
    2,500$4.65, 30,000 Shares   
            
          $101.50
    
    
    3,000
    
    
    
    3,000$6.75, 40,000 Shares   
            
          $101.35
    
    
    4,000
    
    
    
    4,000Total Preferred
    
    
    15,500
    
    
    
    15,500Cumulative Preference SharesWithout Par Value, Authorized 1,000,000 Shares; Outstanding: NoneTotal Common Shareholders Equity
    
    
    671,496
    
    
    
    676,018Total Capitalization
    
    $
    1,124,386
    
    
    $
    1,032,464
 See accompanying notes to consolidated financial statements.
 73




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##### Table of Contents



1. Summary of Significant Accounting Policies
 Principles of Consolidation
 Regulated Operations,
 Regulation and ASC 980
   Plant, Retirements and Depreciation
   Jointly Owned Plants
  (in thousands)
    
    2009
    
    
    2008Big Stone Plant:Electric Plant in Service
    
    $
    135,500
    
    
    $
    135,623Accumulated Depreciation
    
    
    (78,306
    )
    
    
    (74,416
    )Net Plant
    
    $
    57,194
    
    
    $
    61,207Coyote Station:Electric Plant in Service
    
    $
    155,417
    
    
    $
    148,109Accumulated Depreciation
    
    
    (87,269
    )
    
    
    (86,911
    )Net Plant
    
    $
    68,148
    
    
    $
    61,198
  74




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Recoverability of Long-Lived Assets
  Income Taxes
 Income Taxes,
 Revenue Recognition
     Derivatives and Hedging
    75




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##### Table of Contents



December 31,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Costs Incurred on Uncompleted Contracts
    
    $
    400,577
    
    
    $
    377,237Less Billings to Date
    
    
    (400,711
    )
    
    
    (366,931
    )Plus Estimated Earnings Recognized
    
    
    59,202
    
    
    
    47,355$
    59,068
    
    
    $
    57,661
  December 31,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Costs and Estimated Earnings in Excess of
Billings on Uncompleted Contracts
    
    $
    61,835
    
    
    $
    65,606Billings in Excess of Costs and Estimated
Earnings on Uncompleted Contracts
    
    
    (2,767
    )
    
    
    (7,945
    )$
    59,068
    
    
    $
    57,661
  Retainage
  Sales of Receivables
 Sales of Financial Assets
 Marketing and Sales Incentive Costs
 Customer
Payments and Incentives
 76




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##### Table of Contents



Foreign Currency Translation
   Shipping and Handling Costs
  Use of Estimates
  Cash Equivalents
  Supplemental Disclosures of Cash Flow Information
 (in thousands)
    
    2009
    
    
    2008
    
    
    2007(Decreases) Increases in Accounts Payable
and Other Liabilities Related to Capital
Expenditures
    
    $
    (3,832
    )
    
    $
    (22,729
    )
    
    $
    23,514Noncash Investing and Financing Transactions:Capital Leases
    
    
    
    
    
    $
    2,084
    
    
    
    Cash Paid During the Year for:Interest (net of amount capitalized)
    
    $
    23,563
    
    
    $
    25,032
    
    
    $
    18,155Income Tax (Refunds) Payments
    
    $
    (27,412
    )
    
    $
    1,356
    
    
    $
    25,906
 Investments
  December 31,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Cost Method:Economic Development Loan Pools
    
    $
    482
    
    
    $
    528Other
    
    
    334
    
    
    
    1,057Equity Method:Affordable Housing and Other Partnerships
    
    
    1,025
    
    
    
    1,441Marketable Securities Classified as Available-for-Sale
    
    
    8,048
    
    
    
    4,516Total Investments
    
    $
    9,889
    
    
    $
    7,542
 77




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##### Table of Contents



Consolidation,
  Fair Value Measurements  Fair Value Measurements and Disclosures
     2009 (in thousands)
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Investments
for Nonqualified Retirement Savings Retirement Plan:Money Market and Mutual Funds and Cash
    
    $
    731
    
    
    $
    Forward Energy Contracts
    
    
    
    
    
    
    8,321Investments of Captive Insurance Company:Corporate Debt Securities
    
    
    7,795U.S. Government Debt Securities
    
    
    253Total Assets
    
    $
    8,779
    
    
    $
    8,321Liabilities:Forward Energy Contracts
    
    $
    
    
    
    $
    14,681Total Liabilities
    
    $
    
    
    
    $
    14,681Net Assets (Liabilities)
    
    $
    8,779
    
    
    $
    (6,360
    )
 78




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##### Table of Contents



2008(in thousands)
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Investments
for Nonqualified Retirement Savings Retirement Plan:Money Market and Mutual Funds and Cash
    
    $
    890
    
    
    $
    Forward Energy Contracts
    
    
    
    
    
    
    405Investments of Captive Insurance Company:Corporate Debt Securities
    
    
    3,569U.S. Government Debt Securities
    
    
    947Total Assets
    
    $
    5,406
    
    
    $
    405Liabilities:Forward Energy Contracts
    
    $
    
    
    
    $
    1,690Forward Foreign Currency Exchange Contracts
    
    
    289Total Liabilities
    
    $
    289
    
    
    $
    1,690Net Assets (Liabilities)
    
    $
    5,117
    
    
    $
    (1,285
    )
 Inventories
  December 31,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Finished Goods
    
    $
    42,784
    
    
    $
    38,943Work in Process
    
    
    3,824
    
    
    
    10,205Raw Material, Fuel and Supplies
    
    
    39,907
    
    
    
    52,807Total Inventories
    
    $
    86,515
    
    
    $
    101,955
 Goodwill and Intangible Assets
 IntangiblesGoodwill and Other, Property, Plant, and EquipmentOverallSubsequent Measurement
  Balance December 31,
    
    
    Adjustment
    
    
    Goodwill Acquired
    
    
    Balance December 31,(in thousands)
    
    2008
    
    
    to Goodwill in 2009
    
    
    in 2009
    
    
    2009Plastics
    
    $
    19,302
    
    
    $
    
    
    
    $
    
    
    
    $
    19,302Manufacturing
    
    
    24,732
    
    
    
    
    
    
    
    
    
    
    
    24,732Health Services
    
    
    23,878
    
    
    
    
    
    
    
    
    
    
    
    23,878Food Ingredient Processing
    
    
    24,324
    
    
    
    
    
    
    
    
    
    
    
    24,324Other Business Operations
    
    
    14,542
    
    
    
    
    
    
    
    
    
    
    
    14,542Total
    
    $
    106,778
    
    
    $
    
    
    
    $
    
    
    
    $
    106,778
 79




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##### Table of Contents



Gross Carrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Amortization(in thousands)
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Periods| | | |2009Amortized Intangible Assets:Covenants Not to Compete
    
    $
    2,190
    
    
    $
    2,047
    
    
    $
    143
    
    
    3  5 yearsCustomer Relationships
    
    
    26,956
    
    
    
    3,696
    
    
    
    23,260
    
    
    15  25 yearsOther Intangible Assets
Including Contracts
    
    
    2,358
    
    
    
    1,757
    
    
    
    601
    
    
    5  30 yearsTotal
    
    $
    31,504
    
    
    $
    7,500
    
    
    $
    24,004Nonamortized Intangible Assets:Brand/Trade Name
    
    $
    9,883
    
    
    $
    
    
    
    $
    9,8832008Amortized Intangible Assets:Covenants Not to Compete
    
    $
    2,250
    
    
    $
    1,889
    
    
    $
    361
    
    
    3  5 yearsCustomer Relationships
    
    
    26,854
    
    
    
    2,429
    
    
    
    24,425
    
    
    15  25 yearsOther Intangible Assets
Including Contracts
    
    
    2,710
    
    
    
    1,921
    
    
    
    789
    
    
    5  30 yearsTotal
    
    $
    31,814
    
    
    $
    6,239
    
    
    $
    25,575Nonamortized Intangible Assets:Brand/Trade Name
    
    $
    9,866
    
    
    $
    
    
    
    $
    9,866
  New Accounting Standards
 Business Combinations Business Combinations,
 Disclosures about Derivative Instruments and Hedging Activities Derivatives and Hedging,
 Employers Disclosures about Postretirement Benefit Plan Assets Defined Benefit PlansGeneral,
 80




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##### Table of Contents



Interim Disclosures about Fair Value of Financial Instruments Financial Instruments,
 Subsequent Events Subsequent Events,
 SFAS No. 167, Amendments to FASB Interpretation No. 46(R),
 81




---



##### Table of Contents



2. Business Combinations, Dispositions and Segment Information
    (in thousands)AssetsCurrent Assets
    
    $
    8,855Goodwill
    
    
    7,986Other Intangible Assets
    
    
    16,600Fixed Assets
    
    
    8,994Total Assets
    
    $
    42,435LiabilitiesCurrent Liabilities
    
    $
    761Noncurrent Liabilities
    
    
    Total Liabilities
    
    $
    761Cash Paid
    
    $
    41,674
     Pro(in thousands)
    
    Aviva
    
    
    EngineeringAssetsCurrent Assets
    
    $
    2,083
    
    
    $
    1,956Goodwill
    
    
    
    
    
    
    1,048Other Intangible Assets
    
    
    870
    
    
    
    396Plant
    
    
    
    
    
    
    1,600Total Assets
    
    $
    2,953
    
    
    $
    5,000LiabilitiesCurrent Liabilities
    
    $
    988
    
    
    $
    215Noncurrent Liabilities
    
    
    
    
    
    
    Total Liabilities
    
    $
    988
    
    
    $
    215Cash Paid
    
    $
    1,965
    
    
    $
    4,785
 82




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##### Table of Contents



Segment Information
           Percent of Sales Revenue by Country for the Year Ended December 31:
    
    2009
    
    2008
    
    2007United States of America
    
    
    97.8
    %
    
    
    97.3
    %
    
    
    96.9
    %Canada
    
    
    0.8
    %
    
    
    1.1
    %
    
    
    1.3
    %All Other Countries
    
    
    1.4
    %
    
    
    1.6
    %
    
    
    1.8
    %
 83




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##### Table of Contents



(in thousands)
    
    2009
    
    
    2008
    
    
    2007Operating RevenueElectric
    
    $
    314,625
    
    
    $
    340,020
    
    
    $
    323,478Plastics
    
    
    80,208
    
    
    
    116,452
    
    
    
    149,012Manufacturing
    
    
    323,895
    
    
    
    470,462
    
    
    
    381,599Health Services
    
    
    110,006
    
    
    
    122,520
    
    
    
    130,670Food Ingredient Processing
    
    
    79,098
    
    
    
    65,367
    
    
    
    70,440Other Business Operations
    
    
    136,088
    
    
    
    199,511
    
    
    
    185,730Corporate and Intersegment Eliminations
    
    
    (4,408
    )
    
    
    (3,135
    )
    
    
    (2,042
    )Total
    
    $
    1,039,512
    
    
    $
    1,311,197
    
    
    $
    1,238,887Depreciation and AmortizationElectric
    
    $
    36,946
    
    
    $
    31,755
    
    
    $
    26,097Plastics
    
    
    2,945
    
    
    
    3,050
    
    
    
    3,083Manufacturing
    
    
    22,530
    
    
    
    19,260
    
    
    
    13,124Health Services
    
    
    3,907
    
    
    
    4,133
    
    
    
    3,937Food Ingredient Processing
    
    
    4,333
    
    
    
    4,094
    
    
    
    3,952Other Business Operations
    
    
    2,550
    
    
    
    2,230
    
    
    
    2,058Corporate
    
    
    397
    
    
    
    538
    
    
    
    579Total
    
    $
    73,608
    
    
    $
    65,060
    
    
    $
    52,830Interest ChargesElectric
    
    $
    19,414
    
    
    $
    12,895
    
    
    $
    9,405Plastics
    
    
    811
    
    
    
    1,156
    
    
    
    970Manufacturing
    
    
    5,724
    
    
    
    8,666
    
    
    
    8,546Health Services
    
    
    448
    
    
    
    714
    
    
    
    883Food Ingredient Processing
    
    
    36
    
    
    
    109
    
    
    
    177Other Business Operations
    
    
    509
    
    
    
    1,171
    
    
    
    1,234Corporate and Intersegment Eliminations
    
    
    1,572
    
    
    
    2,247
    
    
    
    (358
    )Total
    
    $
    28,514
    
    
    $
    26,958
    
    
    $
    20,857Income Before Income TaxesElectric
    
    $
    34,725
    
    
    $
    46,160
    
    
    $
    37,422Plastics
    
    
    (126
    )
    
    
    3,114
    
    
    
    13,452Manufacturing
    
    
    (4,331
    )
    
    
    7,650
    
    
    
    24,503Health Services
    
    
    (3,210
    )
    
    
    342
    
    
    
    2,626Food Ingredient Processing
    
    
    11,817
    
    
    
    2,655
    
    
    
    5,912Other Business Operations
    
    
    (3,194
    )
    
    
    8,736
    
    
    
    6,762Corporate
    
    
    (14,255
    )
    
    
    (18,495
    )
    
    
    (8,748
    )Total
    
    $
    21,426
    
    
    $
    50,162
    
    
    $
    81,929Earnings Available for Common SharesElectric
    
    $
    33,711
    
    
    $
    32,498
    
    
    $
    23,762Plastics
    
    
    (59
    )
    
    
    1,880
    
    
    
    8,314Manufacturing
    
    
    (2,025
    )
    
    
    5,269
    
    
    
    15,632Health Services
    
    
    (2,096
    )
    
    
    85
    
    
    
    1,427Food Ingredient Processing
    
    
    7,407
    
    
    
    1,681
    
    
    
    4,386Other Business Operations
    
    
    (1,891
    )
    
    
    5,279
    
    
    
    4,049Corporate
    
    
    (9,752
    )
    
    
    (12,303
    )
    
    
    (4,345
    )Total
    
    $
    25,295
    
    
    $
    34,389
    
    
    $
    53,225Capital ExpendituresElectric
    
    $
    145,787
    
    
    $
    198,798
    
    
    $
    104,288Plastics
    
    
    4,269
    
    
    
    8,883
    
    
    
    3,305Manufacturing
    
    
    18,702
    
    
    
    47,606
    
    
    
    42,786Health Services
    
    
    3,439
    
    
    
    4,039
    
    
    
    5,276Food Ingredient Processing
    
    
    686
    
    
    
    2,402
    
    
    
    47Other Business Operations
    
    
    3,678
    
    
    
    3,919
    
    
    
    5,589Corporate
    
    
    564
    
    
    
    241
    
    
    
    694Total
    
    $
    177,125
    
    
    $
    265,888
    
    
    $
    161,985Identifiable AssetsElectric
    
    $
    1,119,822
    
    
    $
    992,159
    
    
    $
    813,565Plastics
    
    
    70,380
    
    
    
    78,054
    
    
    
    77,971Manufacturing
    
    
    306,011
    
    
    
    356,697
    
    
    
    274,780Health Services
    
    
    58,164
    
    
    
    61,086
    
    
    
    64,824Food Ingredient Processing
    
    
    88,478
    
    
    
    88,813
    
    
    
    91,966Other Business Operations
    
    
    59,915
    
    
    
    71,359
    
    
    
    72,258Corporate
    
    
    51,908
    
    
    
    44,419
    
    
    
    59,390Total
    
    $
    1,754,678
    
    
    $
    1,692,587
    
    
    $
    1,454,754
 84




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##### Table of Contents



3. Rate and Regulatory Matters
 Minnesota
 General Rate Case
 Capacity Expansion 2020 (CapX 2020) Mega Certificate of Need (CON)
  Renewable Energy Standards, Conservation and Renewable Resource Riders
 85




---



##### Table of Contents



Recovery of MISO Costs
 86




---



##### Table of Contents



Minnesota Annual Automatic Adjustment Report on Energy Costs (AAA Report)
 North Dakota
 General Rate Case
 Renewable Resource Cost Recovery Rider
    87




---



##### Table of Contents



CapX 2020 Request for Advance Determination of Prudence
 Recovery of MISO Costs
 South Dakota
 General Rate Case
 Federal
 Revenue Sufficiency Guarantee (RSG) Charges
  
   88




---



##### Table of Contents



Big Stone II Project
    89




---



##### Table of Contents



4. Regulatory Assets and Liabilities
 Regulated Operations
  December 31,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Regulatory Assets:Unrecognized Transition Obligation, Prior Service Costs and
Actuarial Losses on Pensions and Other Postretirement Benefits
    
    $
    78,871
    
    
    $
    64,490Unrecovered Project Costs  Big Stone II
    
    
    12,982
    
    
    
    Deferred Marked-to-Market Losses
    
    
    7,614
    
    
    
    1,162Deferred Income Taxes
    
    
    5,441
    
    
    
    7,094Minnesota Renewable Resource Rider Accrued Revenues
    
    
    5,324
    
    
    
    3,045Debt Reacquisition Premiums
    
    
    3,051
    
    
    
    3,357Deferred Conservation Improvement Program Costs
    
    
    1,908
    
    
    
    280Accumulated ARO Accretion/Depreciation Adjustment
    
    
    1,808
    
    
    
    1,437Minnesota General Rate Case Recoverable Expenses
    
    
    1,693
    
    
    
    1,457Accrued Cost-of-Energy Revenue
    
    
    1,175
    
    
    
    8,982MISO Schedule 16 and 17 Deferred Administrative Costs  ND
    
    
    1,091
    
    
    
    823North Dakota Renewable Resource Rider Accrued Revenues
    
    
    566
    
    
    
    2,009Minnesota Transmission Rider Accrued Revenues
    
    
    420
    
    
    
    South Dakota  Asset-Based Margin Sharing Shortfall
    
    
    330
    
    
    
    MISO Schedule 16 and 17 Deferred Administrative Costs  MN
    
    
    252
    
    
    
    526Deferred Holding Company Formation Costs
    
    
    248
    
    
    
    Plant Acquisition Costs
    
    
    18
    
    
    
    63Total Regulatory Assets
    
    $
    122,792
    
    
    $
    94,725Regulatory Liabilities:Accumulated Reserve for Estimated Removal Costs  Net of Salvage
    
    $
    58,937
    
    
    $
    58,768Deferred Income Taxes
    
    
    4,965
    
    
    
    4,943Unrecognized Transition Obligation, Prior Service Costs and
Actuarial Gains on Other Postretirement Benefits
    
    
    
    
    
    
    834Deferred Marked-to-Market Gains
    
    
    224
    
    
    
    Other Regulatory Liabilities
    
    
    148
    
    
    
    139Total Regulatory Liabilities
    
    $
    64,274
    
    
    $
    64,684Net Regulatory Asset Position
    
    $
    58,518
    
    
    $
    30,041
 CompensationRetirement Benefits,
  90




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##### Table of Contents



Income Taxes
                 91




---



##### Table of Contents



5. Forward Contracts Classified as Derivatives
 Electricity Contracts
    (in thousands)
    
    2009
    
    
    2008
    
    
    2007Wholesale Sales  Company-Owned Generation
    
    $
    12,579
    
    
    $
    23,708
    
    
    $
    20,345Revenue from Settled Contracts at Market Prices
    
    
    110,124
    
    
    
    520,280
    
    
    
    389,643Market Cost of Settled Contracts
    
    
    (109,125
    )
    
    
    (518,866
    )
    
    
    (387,682
    )Net Margins on Settled Contracts at Market
    
    
    999
    
    
    
    1,414
    
    
    
    1,961Marked-to-Market Gains on Settled Contracts
    
    
    14,585
    
    
    
    39,375
    
    
    
    31,243Marked-to-Market Losses on Settled Contracts
    
    
    (13,431
    )
    
    
    (37,138
    )
    
    
    (28,541
    )Net Marked-to-Market Gain on Settled Contracts
    
    
    1,154
    
    
    
    2,237
    
    
    
    2,702Unrealized Marked-to-Market Gains on Open Contracts
    
    
    8,097
    
    
    
    405
    
    
    
    5,117Unrealized Marked-to-Market Losses on Open Contracts
    
    
    (7,067
    )
    
    
    (528
    )
    
    
    (4,485
    )Net Unrealized Marked-to-Market Gain (Loss) on Open Contracts
    
    
    1,030
    
    
    
    (123
    )
    
    
    632Wholesale Electric Revenue
    
    $
    15,762
    
    
    $
    27,236
    
    
    $
    25,640
  December 31,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Current Asset  Marked-to-Market Gain
    
    $
    8,321
    
    
    $
    405Regulatory Asset  Deferred Marked-to-Market Loss
    
    
    7,614
    
    
    
    1,162Total Assets
    
    
    15,935
    
    
    
    1,567Current Liability  Marked-to-Market Loss
    
    
    (14,681
    )
    
    
    (1,690
    )Regulatory Liability  Deferred Marked-to-Market Gain
    
    
    (224
    )
    
    
    Total Liabilities
    
    
    (14,905
    )
    
    
    (1,690
    )]Net Fair Value of Marked-to-Market Energy Contracts
    
    $
    1,030
    
    
    $
    (123
    )
 92




---



##### Table of Contents



Year ended
    
    
    Year ended(in thousands)
    
    December 31, 2009
    
    
    December 31, 2008Fair Value at Beginning of Year
    
    $
    (123
    )
    
    $
    632Amount Realized on Contracts Entered into in Prior Year
    
    
    123
    
    
    
    (1,169
    )Changes in Fair Value of Contracts Entered into in Prior Year
    
    
    
    
    
    
    537Net Fair Value of Contracts Entered into in Prior Year at Year End
    
    
    
    
    
    
    Changes in Fair Value of Contracts Entered into in Current Year
    
    
    1,030
    
    
    
    (123
    )Net Fair Value at End of Year
    
    $
    1,030
    
    
    $
    (123
    )
  (in thousands)
    
    2010
    
    
    2011
    
    
    2012
    
    
    TotalNet Gain
    
    $
    389
    
    
    $
    320
    
    
    $
    321
    
    
    $
    1,030
    Fuel Contracts
  Foreign Currency Exchange Forward Windows
  93




---



##### Table of Contents



(in thousands)
    
    Settlement Periods
    
    
    USD
    
    
    CADContracts Entered into in July 2008
    
    January 2009 - July 2009
    
    $
    2,800
    
    
    $
    2,918Mark-to-Market Losses on Open Contracts at Year End 2008
    
    January 2009 - July 2009
    
    
    (401
    )Contracts Entered into in October 2008
    
    January 2009 - October 2009
    
    $
    4,000
    
    
    $
    5,001Mark-to-Market Gains on Open Contracts at Year End 2008
    
    January 2009 - October 2009
    
    
    112Net Mark-to-Market Losses Recognized on Open Contracts at Year End 2008
    
    $
    (289
    )Net Mark-to-Market Gains in 2009 on Open Contracts at Year End 2008
    
    
    232Net Losses Realized on Settlement of 2008 contacts in 2009
    
    
    
    
    
    $
    (57
    )Contracts Entered Into in July 2009
    
    August 2009 - December 2009
    
    $
    1,000
    
    
    $
    1,163Net Mark-to-Market Gains Recognized and Realized on contracts entered into in 2009
    
    $
    88Net Mark-to-Market Gains Recognized in 2009
    
    
    
    
    
    $
    320Net Mark-to-Market Gains Realized in 2009
    
    
    
    
    
    $
    31
   6. Common Shares and Earnings Per Share
     94




---



##### Table of Contents



Common Shares Outstanding, December 31, 2008
    
    
    35,384,620Issuances:Dividend Reinvestment Plan  Dividend Purchases
    
    
    163,224Dividend Reinvestment Plan  Direct Purchases
    
    
    70,719Stock Options Exercised
    
    
    50,350Employee Stock Purchase Plan  Direct Purchase
    
    
    45,413Executive Officer Stock Performance Awards
    
    
    29,350Restricted Stock Issued to Nonemployee Directors
    
    
    28,800Restricted Stock Issued to Employees
    
    
    27,600Employee Stock Purchase Plan  Dividend Reinvestment
    
    
    17,037Vesting of Restricted Stock Units
    
    
    5,350Retirements:Shares Withheld for Individual Income Tax Requirements
    
    
    (10,183
    )Common Shares Outstanding, December 31, 2009
    
    
    35,812,280
 Stock Incentive Plan
  Employee Stock Purchase Plan
  Dividend Reinvestment and Share Purchase Plan
  95




---



##### Table of Contents



Earnings Per Share
   Year
    
    Options Outstanding
    
    
    Range of Exercise Prices2009
    
    
    415,710
    
    
    $
    24.93  $31.342008
    
    
    
    
    
    NA2007
    
    
    
    
    
    NA
 7. Share-Based Payments
 Purchase Plan
 CompensationStock Compensation,
 Stock Options Granted Under the Incentive Plan
    Stock Option Activity
    
    2009
    
    
    2008
    
    
    2007Average Exercise
    
    
    
    
    
    
    Average Exercise
    
    
    
    
    
    
    Average ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    Price
    
    
    Options
    
    
    PriceOutstanding, Beginning of Year
    
    
    507,702
    
    
    $
    26.00
    
    
    
    787,137
    
    
    $
    25.73
    
    
    
    1,091,238
    
    
    $
    25.74Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    50,350
    
    
    
    19.73
    
    
    
    276,685
    
    
    
    25.23
    
    
    
    298,601
    
    
    
    25.73Forfeited
    
    
    12,542
    
    
    
    21.87
    
    
    
    2,750
    
    
    
    27.11
    
    
    
    5,500
    
    
    
    28.85Outstanding, End of Year
    
    
    444,810
    
    
    
    26.82
    
    
    
    507,702
    
    
    
    26.00
    
    
    
    787,137
    
    
    
    25.73Exercisable, End of Year
    
    
    444,810
    
    
    
    26.82
    
    
    
    507,702
    
    
    
    26.00
    
    
    
    787,137
    
    
    
    25.73Cash Received for Options Exercised
    
    
    
    
    
    $
    994,000
    
    
    
    
    
    
    $
    6,981,000
    
    
    
    
    
    
    $
    7,682,000Fair Value of Options Granted
During Year
    
    
    
    
    
    none granted
    
    
    
    
    
    none granted
    
    
    
    
    
    none granted
 96




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##### Table of Contents



Options Outstanding and ExercisableWeighted-AverageOutstanding and
    
    
    RemainingRange of
    
    Exercisable as of
    
    
    Contractual Life
    
    
    Weighted-AverageExercise Prices
    
    12/31/09
    
    
    (yrs)
    
    
    Exercise price$18.80-$21.94
    
    
    29,100
    
    
    
    0.3
    
    
    $
    19.75$21.95-$25.07
    
    
    26,550
    
    
    
    5.3
    
    
    
    24.93$25.08-$28.21
    
    
    304,010
    
    
    
    1.9
    
    
    
    26.48$28.22-$31.34
    
    
    85,150
    
    
    
    2.2
    
    
    
    31.06
 Restricted Stock Granted to Directors
   Directors Restricted Stock Awards
    
    2009
    
    
    2008
    
    
    2007Weighted Average
    
    
    
    
    
    
    Weighted Average
    
    
    
    
    
    
    Weighted AverageGrant-Date Fair
    
    
    
    
    
    
    Grant-Date Fair
    
    
    
    
    
    
    Grant-Date FairShares
    
    
    Value
    
    
    Shares
    
    
    Value
    
    
    Shares
    
    
    ValueNonvested, Beginning of Year
    
    
    39,300
    
    
    $
    33.45
    
    
    
    34,100
    
    
    $
    30.80
    
    
    
    32,775
    
    
    $
    27.27Granted
    
    
    28,800
    
    
    
    22.15
    
    
    
    20,000
    
    
    
    35.345
    
    
    
    15,200
    
    
    
    35.04Vested
    
    
    13,800
    
    
    
    32.06
    
    
    
    14,800
    
    
    
    29.92
    
    
    
    13,875
    
    
    
    27.10Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nonvested, End of Year
    
    
    54,300
    
    
    
    27.81
    
    
    
    39,300
    
    
    
    33.45
    
    
    
    34,100
    
    
    
    30.80Compensation Expense Recognized
    
    
    
    
    
    $
    535,000
    
    
    
    
    
    
    $
    461,000
    
    
    
    
    
    
    $
    454,000Fair Value of Shares Vested in Year
    
    
    
    
    
    
    442,000
    
    
    
    
    
    
    
    443,000
    
    
    
    
    
    
    
    376,000
 Restricted Stock Granted to Employees
   Employees Restricted Stock Awards
    
    2009
    
    
    2008
    
    
    2007Weighted Average
    
    
    
    
    
    
    Weighted Average
    
    
    
    
    
    
    Weighted AverageShares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair ValueNonvested, Beginning of Year
    
    
    34,146
    
    
    $
    34.72
    
    
    
    24,058
    
    
    $
    35.46
    
    
    
    31,666
    
    
    $
    31.47Granted
    
    
    27,600
    
    
    
    22.15
    
    
    
    19,371
    
    
    
    35.345
    
    
    
    17,300
    
    
    
    35.82Variable/Liability Awards Vested
    
    
    2,250
    
    
    
    22.91
    
    
    
    4,808
    
    
    
    34.85
    
    
    
    24,608
    
    
    
    35.09Nonvariable Awards Vested
    
    
    9,018
    
    
    
    35.84
    
    
    
    4,475
    
    
    
    35.80
    
    
    
    300
    
    
    
    35.30Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nonvested, End of Year
    
    
    50,478
    
    
    
    28.31
    
    
    
    34,146
    
    
    
    34.72
    
    
    
    24,058
    
    
    
    35.46Compensation Expense Recognized
    
    
    
    
    
    $
    439,000
    
    
    
    
    
    
    $
    434,000
    
    
    
    
    
    
    $
    549,000Fair Value of Variable Awards
Vested/Liability Paid
    
    
    
    
    
    
    52,000
    
    
    
    
    
    
    
    168,000
    
    
    
    
    
    
    
    863,000Fair Value of Nonvariable Awards
Vested
    
    
    
    
    
    
    323,000
    
    
    
    
    
    
    
    160,000
    
    
    
    
    
    
    
    11,000
 97




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##### Table of Contents



Restricted Stock Units Granted to Employees
   Employees Restricted Stock Unit Awards
    


    2009
    
    
    2008

    
    
    2007Weighted Average
    
    
    
    
    
    
    Weighted Average
    
    
    
    
    
    
    Weighted AverageRestricted Stock
    
    
    Grant-Date Fair
    
    
    Restricted Stock
    
    
    Grant-Date Fair
    
    
    Restricted Stock
    
    
    Grant-Date FairUnits
    
    
    Value
    
    
    Units
    
    
    Value
    
    
    Units
    
    
    ValueNonvested, Beginning of Year
    
    
    73,585
    
    
    $
    28.13
    
    
    
    55,480
    
    
    $
    26.66
    
    
    
    38,615
    
    
    $
    24.65Granted
    
    
    29,515
    
    
    
    18.86
    
    
    
    26,650
    
    
    
    30.92
    
    
    
    23,450
    
    
    
    30.07Converted
    
    
    5,350
    
    
    
    24.94
    
    
    
    3,850
    
    
    
    25.93
    
    
    
    4,850
    
    
    
    26.95Forfeited
    
    
    5,080
    
    
    
    27.33
    
    
    
    4,695
    
    
    
    28.07
    
    
    
    1,735
    
    
    
    27.03Nonvested, End of Year
    
    
    92,670
    
    
    
    25.42
    
    
    
    73,585
    
    
    
    28.13
    
    
    
    55,480
    
    
    
    26.66Compensation Expense Recognized
    
    
    
    
    
    $
    543,000
    
    
    
    
    
    
    $
    535,000
    
    
    
    
    
    
    $
    383,000Fair Value of Units Converted in Year
    
    
    
    
    
    
    133,000
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    131,000
 Stock Performance Awards granted to Executive Officers
    Maximum SharesSubject
    
    
    Shares Used
    
    
    
    
    
    
    Expense RecognizedPerformance Period
    
    to Award
    
    
    to Estimate Expense
    
    
    Fair Value
    
    
    in the Year Ended December 31,
    
    
    Shares Awarded2009
    
    
    2008
    
    
    20072009-2011
    
    
    181,200
    
    
    
    90,600
    
    
    $
    27.98
    
    
    $
    845,000
    
    
    $
    
    
    
    $
    2008-2010
    
    
    114,800
    
    
    
    70,843
    
    
    $
    37.59
    
    
    
    888,000
    
    
    
    888,000
    
    
    
    2007-2009
    
    
    109,000
    
    
    
    67,263
    
    
    $
    38.01
    
    
    
    852,000
    
    
    
    852,000
    
    
    
    852,000
    
    
    
    34,7682006-2008
    
    
    88,050
    
    
    
    58,700
    
    
    $
    25.95
    
    
    
    
    
    
    
    508,000
    
    
    
    508,000
    
    
    
    29,3502005-2007
    
    
    75,150
    
    
    
    50,872
    
    
    $
    22.10
    
    
    
    
    
    
    
    
    
    
    
    375,000
    
    
    
    62,625Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,585,000
    
    
    $
    2,248,000
    
    
    $
    1,735,000
    
    
    
    126,743
  98




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##### Table of Contents



8. Retained Earnings Restriction
  9. Commitments and Contingencies
 Electric Utility Construction Contracts, Capacity and Energy Requirements and Coal and Delivery
Contracts
   IPH Potato Supply and Fuel Purchase Commitments
  Operating Lease Commitments
  (in thousands)
    
    Electric
    
    
    Nonelectric
    
    
    Total2010
    
    $
    2,491
    
    
    $
    35,821
    
    
    $
    38,3122011
    
    
    1,411
    
    
    
    22,097
    
    
    
    23,5082012
    
    
    924
    
    
    
    12,590
    
    
    
    13,5142013
    
    
    933
    
    
    
    6,921
    
    
    
    7,8542014
    
    
    944
    
    
    
    4,317
    
    
    
    5,261Later years
    
    
    15,642
    
    
    
    1,698
    
    
    
    17,340Total
    
    $
    22,345
    
    
    $
    83,444
    
    
    $
    105,789
  Sierra Club Complaint
   99




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##### Table of Contents



Federal Power Act Complaint
  Product Recall
  Other
  100




---



##### Table of Contents



10. Short-Term and Long-Term Borrowings
 Short-Term Debt
  Restricted due toIn Use on
    
    
    Outstanding Letters
    
    
    Available on
    
    
    Available on(in thousands)
    
    Line Limit
    
    
    December 31, 2009
    
    
    of Credit
    
    
    December 31, 2009
    
    
    December 31, 2008Otter Tail Corporation Credit
Agreement
    
    $
    200,000
    
    
    $
    6,000
    
    
    $
    14,245
    
    
    $
    179,755
    
    
    $
    77,706OTP Credit Agreement1
    
    
    170,000
    
    
    
    1,585
    
    
    
    680
    
    
    
    167,735
    
    
    
    142,935Total
    
    $
    370,000
    
    
    $
    7,585
    
    
    $
    14,925
    
    
    $
    347,490
    
    
    $
    220,641
 
 1
    
    On January 4, 2010, OTP paid off the remaining $58.0 million balance
outstanding on its two-year, $75.0 million term loan that was originally due on May 20,
2011, using lower costs funds available under the OTP Credit Agreement. OTP did not
incur any penalties for the early repayment and retirement of this debt.    101




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##### Table of Contents



Long-Term Debt
  9.000% Notes due 2016
  Term Loan Agreement and Retirement
   ,
 Other Debt Retirement
  102




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##### Table of Contents



Amendments to Note Purchase Agreements
  Fourth Amendment to 2001 Note Purchase Agreement
   Third Amendment to 2007 Note Purchase Agreement
   Amendment No. 2 to Cascade Note Purchase Agreement
  103




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##### Table of Contents



Otter TailOtter Tail
    
    
    Corporation(in thousands)
    
    OTP
    
    
    Varistar
    
    
    Corporation
    
    
    ConsolidatedLines of Credit
    
    $
    1,585
    
    
    
    
    
    
    $
    6,000
    
    
    $
    7,585Term Loan, Variable 3.73% at December 31, 2009,
due May 20, 2011 (early retired on January 4, 2010)
    
    $
    58,000
    
    
    
    
    
    
    
    
    
    
    $
    58,000Senior Unsecured Notes 6.63%, due December 1, 2011
    
    
    90,000
    
    
    
    
    
    
    
    
    
    
    
    90,000Pollution Control Refunding Revenue Bonds,
Variable, 3.00% at December 31, 2009, due December 1, 2012
    
    
    10,400
    
    
    
    
    
    
    
    
    
    
    
    10,4009.000% Notes, due December 15, 2016
    
    
    
    
    
    
    
    
    
    $
    100,000
    
    
    
    100,000Senior Unsecured Notes 5.95%, Series A, due August 20, 2017
    
    
    33,000
    
    
    
    
    
    
    
    
    
    
    
    33,000Grant County, South Dakota Pollution Control
Refunding Revenue Bonds 4.65%, due September 1, 2017
    
    
    5,125
    
    
    
    
    
    
    
    
    
    
    
    5,125Senior Unsecured Note 8.89%, due November 30, 2017
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    50,000Senior Unsecured Notes 6.15%, Series B, due August 20, 2022
    
    
    30,000
    
    
    
    
    
    
    
    
    
    
    
    30,000Mercer County, North Dakota Pollution Control
Refunding Revenue Bonds 4.85%, due September 1, 2022
    
    
    20,400
    
    
    
    
    
    
    
    
    
    
    
    20,400Senior Unsecured Notes 6.37%, Series C, due August 20, 2027
    
    
    42,000
    
    
    
    
    
    
    
    
    
    
    
    42,000Senior Unsecured Notes 6.47%, Series D, due August 20, 2037
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000Obligations of Varistar Corporation  Various up to 13.31% at
December 31, 2009
    
    
    
    
    
    $
    6,684
    
    
    
    
    
    
    
    6,684Total
    
    $
    338,925
    
    
    $
    6,684
    
    
    $
    150,000
    
    
    $
    495,609Less:Current Maturities
    
    
    58,000
    
    
    
    1,053
    
    
    
    
    
    
    
    59,053Unamortized Debt Discount
    
    
    
    
    
    
    380
    
    
    
    6
    
    
    
    386Total Long-Term Debt
    
    $
    280,925
    
    
    $
    5,251
    
    
    $
    149,994
    
    
    $
    436,170Total Short-Term and Long-Term Debt (with current maturities)
    
    $
    340,510
    
    
    $
    6,304
    
    
    $
    155,994
    
    
    $
    502,808
 104




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##### Table of Contents



Financial Covenants
     
    
    Under the credit agreement relating to the $200 million credit facility of the Company
(as assignee of Varistar), the Company may not permit the ratio of its Interest-bearing
Debt to Total Capitalization to be greater than 0.60 to 1.00 or permit its Interest and
Dividend Coverage Ratio to be less than 1.50 to 1.00 (each measured on a consolidated
basis), as provided in the credit agreement.
    
    Under the Cascade Note Purchase Agreement, the Company may not permit its ratio of
Consolidated Debt to Consolidated Total Capitalization to be greater than 0.60 to 1.00 or
its Interest Charges Coverage Ratio to be less than 1.50 to 1.00 (each measured on a
consolidated basis), permit the ratio of OTPs Debt to OTPs Total Capitalization to be
greater than 0.60 to 1.00, or permit Priority Debt to exceed 20% of Varistar Consolidated
Total Capitalization, as provided in the Cascade Note Purchase Agreement.
    
    Under the OTP Credit Agreement, OTP may not permit the ratio of its Interest-bearing
Debt to Total Capitalization to be greater than 0.60 to 1.00 or permit its Interest and
Dividend Coverage Ratio to be less than 1.50 to 1.00, as provided in the Loan Agreement.
    
    Under the 2001 Note Purchase Agreement, the 2007 Note Purchase Agreement and the
financial guaranty insurance policy with Ambac Assurance Corporation relating to certain
pollution control refunding bonds, OTP may not permit the ratio of its Consolidated Debt to
Total Capitalization to be greater than 0.60 to 1.00 or permit its Interest and Dividend
Coverage Ratio (or, in the case of the 2001 Note Purchase Agreement, its Interest Charges
Coverage Ratio) to be less than 1.50 to 1.00, in each case as provided in the related
borrowing or insurance agreement. In addition, under the 2001 Note Purchase Agreement and
the 2007 Note Purchase Agreement, OTP may not permit its Priority Debt to exceed 20% of its
Total Capitalization, as provided in the related agreement.
 11. Class B Stock Options of Subsidiary
  105




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##### Table of Contents



12. Pension Plan and Other Postretirement Benefits
 Pension
Plan
     (in thousands)
    
    2009
    
    
    2008
    
    
    2007Service CostBenefit Earned During the Period
    
    $
    4,180
    
    
    $
    4,630
    
    
    $
    4,837Interest Cost on Projected Benefit Obligation
    
    
    11,943
    
    
    
    11,325
    
    
    
    10,790Expected Return on Assets
    
    
    (13,779
    )
    
    
    (13,968
    )
    
    
    (12,948
    )Amortization of Prior-Service Cost
    
    
    724
    
    
    
    742
    
    
    
    742Amortization of Net Actuarial Loss
    
    
    77
    
    
    
    169
    
    
    
    1,091Net Periodic Pension Cost
    
    $
    3,145
    
    
    $
    2,898
    
    
    $
    4,512
  2009
    
    
    2008
    
    
    2007Discount Rate
    
    
    6.70
    %
    
    
    6.25
    %
    
    
    6.00
    %Long-Term Rate of Return on Plan Assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %Rate of Increase in Future Compensation Level
    
    
    3.75
    %
    
    
    3.75
    %
    
    
    3.75
    %
  (in thousands)
    
    2009
    
    
    2008Regulatory Assets:Unrecognized Prior Service Cost
    
    $
    2,597
    
    
    $
    3,303Unrecognized Actuarial Loss
    
    
    69,378
    
    
    
    56,652Total Regulatory Assets
    
    
    71,975
    
    
    
    59,955Accumulated Other Comprehensive Loss:Unrecognized Prior Service Cost
    
    
    45
    
    
    
    55Unrecognized Actuarial Loss
    
    
    1,199
    
    
    
    943Total Accumulated Other Comprehensive Loss
    
    
    1,244
    
    
    
    998Deferred Income Taxes
    
    
    829
    
    
    
    666Noncurrent Liability
    
    $
    66,598
    
    
    $
    55,024
  (in thousands)
    
    2009
    
    
    2008Accumulated Benefit Obligation
    
    $
    (167,195
    )
    
    $
    (153,676
    )Projected Benefit Obligation
    
    $
    (207,145
    )
    
    $
    (182,559
    )Fair Value of Plan Assets
    
    
    140,547
    
    
    
    127,535Funded Status
    
    $
    (66,598
    )
    
    $
    (55,024
    )
 106




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##### Table of Contents



(in thousands)
    
    2009
    
    
    2008Reconciliation of Fair Value of Plan Assets:Fair Value of Plan Assets at January 1
    
    $
    127,535
    
    
    $
    170,935Actual Return on Plan Assets
    
    
    17,886
    
    
    
    (36,523
    )Discretionary Company Contributions
    
    
    4,000
    
    
    
    2,000Benefit Payments
    
    
    (8,874
    )
    
    
    (8,877
    )Fair Value of Plan Assets at December 31
    
    $
    140,547
    
    
    $
    127,535Estimated Asset Return
    
    
    14.30
    %
    
    
    (21.94
    )%Reconciliation of Projected Benefit Obligation:Projected Benefit Obligation at January 1
    
    $
    182,559
    
    
    $
    185,206Service Cost
    
    
    4,180
    
    
    
    4,630Interest Cost
    
    
    11,943
    
    
    
    11,325Benefit Payments
    
    
    (8,874
    )
    
    
    (8,877
    )Actuarial Loss (Gain)
    
    
    17,337
    
    
    
    (9,725
    )Projected Benefit Obligation at December 31
    
    $
    207,145
    
    
    $
    182,559
  2009
    


    
    
    2008Discount Rate
    
    
    6.00
    %
    
    
    6.70
    %Rate of Increase in Future Compensation Level
    
    
    3.75
    %
    
    
    3.75
    %
  Market-related value of plan assets
   Measurement Dates:
    
    2009
    
    2008Net Periodic Pension Cost
    
    January 1, 2009
    
    January 1, 2008End of Year Benefit Obligations
    
    January 1, 2009
projected to
December 31, 2009
    
    January 1, 2008
projected to
December 31, 2008Market Value of Assets
    
    December 31, 2009
    
    December 31, 2008
  (in thousands)
    
    2010Decrease in Regulatory Assets:Amortization of Unrecognized Prior Service Cost
    
    $
    664Amortization of Unrecognized Actuarial Loss
    
    
    1,963Decrease in Accumulated Other Comprehensive Loss:Amortization of Unrecognized Prior Service Cost
    
    
    19Amortization of Unrecognized Actuarial Loss
    
    
    57Total Estimated Amortization
    
    $
    2,703
 107




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##### Table of Contents



Cash flows
  Years(in thousands)
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015-2019$
    9,414
    
    
    $
    9,772
    
    
    $
    10,147
    
    
    $
    10,590
    
    
    $
    11,027
    
    
    $
    67,340
  Asset Allocation
    
    
    2009
    
    
    

    2008Large Capitalization Equity Securities
    
    
    32.0
    %
    
    
    39.6
    %Small/Mid Capitalization Equity Securities
    
    
    13.5
    %
    
    
    9.2
    %International Equity Securities
    
    
    20.2
    %
    
    
    8.3
    %Total Equity Securities
    
    
    65.7
    %
    
    
    57.1
    %Cash and Fixed-Income Securities
    
    
    34.3
    %
    
    
    42.9
    %100.0
    %
    
    
    100.0
    %
  
    
    The Plan is managed to operate in perpetuity.
    
    The Plan will meet the pension benefit obligation payments of the Company.
    
    The Plans assets should be invested with the objective of meeting current and future
payment requirements while minimizing annual contributions and their volatility.
    
    The asset strategy reflects the desire to meet current and future benefit payments while
considering a prudent level of risk and diversification.
    Asset Allocation
    
    
    Strategic Target

    
    Tactical RangeLarge Capitalization Equity Securities
    
    
    30
    %
    
    
    20%-40
    %Small/Mid Capitalization Equity Securities
    
    
    12
    %
    
    
    6%-22
    %International Equity Securities
    
    
    18
    %
    
    
    10%-30
    %Total Equity Securities
    
    
    60
    %
    
    
    45%-75
    %Cash and Fixed-Income Securities
    
    
    40
    %
    
    
    20%-50
    %
 108




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##### Table of Contents



Executive Survivor and Supplemental Retirement Plan (ESSRP)
   (in thousands)
    
    2009
    
    
    2008
    
    
    2007Service CostBenefit Earned During the Period
    
    $
    752
    
    
    $
    691
    
    
    $
    626Interest Cost on Projected Benefit Obligation
    
    
    1,694
    
    
    
    1,535
    
    
    
    1,451Amortization of Prior-Service Cost
    
    
    71
    
    
    
    66
    
    
    
    67Amortization of Net Actuarial Loss
    
    
    385
    
    
    
    480
    
    
    
    540Net Periodic Pension Cost
    
    $
    2,902
    
    
    $
    2,772
    
    
    $
    2,684
  2009
    
    
    2008
    
    
    2007Discount Rate
    
    
    6.70
    %
    
    
    6.25
    %
    
    
    6.00
    %Rate of Increase in Future Compensation Level
    
    
    4.70
    %
    
    
    4.70
    %
    
    
    4.71
    %
  (in thousands)
    
    2009
    
    
    2008Regulatory Assets:Unrecognized Prior Service Cost
    
    $
    389
    
    
    $
    421Unrecognized Actuarial Loss
    
    
    4,433
    
    
    
    4,114Total Regulatory Assets
    
    
    4,822
    
    
    
    4,535Projected Benefit Obligation Liability  Net Amount Recognized
    
    
    (28,441
    )
    
    
    (25,888
    )Accumulated Other Comprehensive Loss:Unrecognized Prior Service Cost
    
    
    167
    
    
    
    166Unrecognized Actuarial Loss
    
    
    1,910
    
    
    
    1,626Total Accumulated Other Comprehensive Loss
    
    
    2,077
    
    
    
    1,792Deferred Income Taxes
    
    
    1,385
    
    
    
    1,194Cumulative Employer Contributions in Excess of Net Periodic Benefit Cost
    
    $
    (20,157
    )
    
    $
    (18,367
    )
  (in thousands)
    
    2009
    
    
    2008Reconciliation of Fair Value of Plan Assets:Fair Value of Plan Assets at January 1
    
    $
    
    
    
    $
    Actual Return on Plan Assets
    
    
    
    
    
    
    Employer Contributions
    
    
    1,112
    
    
    
    1,067Benefit Payments
    
    
    (1,112
    )
    
    
    (1,067
    )Fair Value of Plan Assets at December 31
    
    $
    
    
    
    $
    Reconciliation of Projected Benefit Obligation:Projected Benefit Obligation at January 1
    
    $
    25,888
    
    
    $
    25,158Service Cost
    
    
    752
    
    
    
    691Interest Cost
    
    
    1,694
    
    
    
    1,535Benefit Payments
    
    
    (1,112
    )
    
    
    (1,067
    )Plan Amendments
    
    
    41
    
    
    
    63Actuarial Loss (Gain)
    
    
    1,178
    
    
    
    (492
    )Projected Benefit Obligation at December 31
    
    $
    28,441
    
    
    $
    25,888Reconciliation of Funded Status:Funded Status at December 31
    
    $
    (28,441
    )
    
    $
    (25,888
    )Unrecognized Net Actuarial Loss
    
    
    7,616
    
    
    
    6,823Unrecognized Prior Service Cost
    
    
    668
    
    
    
    698Cumulative Employer Contributions in Excess
of Net Periodic Benefit Cost
    
    $
    (20,157
    )
    
    $
    (18,367
    )
 109




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2009
    
    
    2008Discount Rate
    
    
    6.00
    %
    
    
    6.70
    %Rate of Increase in Future Compensation Level
    
    
    4.71
    %
    
    
    4.70
    %
  (in thousands)
    
    2010Decrease in Regulatory Assets:Amortization of Unrecognized Prior Service Cost
    
    $
    43Amortization of Unrecognized Actuarial Loss
    
    
    278Decrease in Accumulated Other Comprehensive Loss:Amortization of Unrecognized Prior Service Cost
    
    
    31Amortization of Unrecognized Actuarial Loss
    
    
    199Total Estimated Amortization
    
    $
    551
 Cash flows
 Years(in thousands)
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015-2019$
    1,114
    
    
    $
    1,224
    
    
    $
    1,279
    
    
    $
    1,268
    
    
    $
    1,274
    
    
    $
    7,729
 Other Postretirement Benefits
 Employers Accounting for Postretirement Benefits Other Than
Pensions
  (in thousands)
    
    2009
    
    
    2008
    
    
    2007Service CostBenefit Earned During the Period
    
    $
    1,172
    
    
    $
    1,103
    
    
    $
    1,098Interest Cost on Projected Benefit Obligation
    
    
    2,935
    
    
    
    2,689
    
    
    
    2,565Amortization of Transition Obligation
    
    
    748
    
    
    
    748
    
    
    
    748Amortization of Prior-Service Cost
    
    
    211
    
    
    
    211
    
    
    
    (206
    )Amortization of Net Actuarial Loss
    
    
    
    
    
    
    26
    
    
    
    177Expense Decrease Due to Medicare Part D Subsidy
    
    
    (1,335
    )
    
    
    (1,172
    )
    
    
    (1,233
    )Net Periodic Postretirement Benefit Cost
    
    $
    3,731
    
    
    $
    3,605
    
    
    $
    3,149
  2009
    
    
    
    2008
    

    
    
    2007Discount Rate
    
    
    6.70
    %
    
    
    6.25
    %
    
    
    6.00
    %
 110




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##### Table of Contents



(in thousands)
    
    2009
    
    
    2008Regulatory Asset:Unrecognized Transition Obligation
    
    $
    1,093
    
    
    $
    1,454Unrecognized Prior Service Cost
    
    
    1,361
    
    
    
    1,567Unrecognized Net Actuarial Gain
    
    
    (379
    )
    
    
    (3,855
    )Net Regulatory Asset (Liability)
    
    
    2,075
    
    
    
    (834
    )Projected Benefit Obligation Liability  Net Amount Recognized
    
    
    (37,712
    )
    
    
    (32,621
    )Accumulated Other Comprehensive Loss:Unrecognized Transition Obligation
    
    
    691
    
    
    
    923Unrecognized Prior Service Cost
    
    
    24
    
    
    
    26Unrecognized Net Actuarial Gain
    
    
    (7
    )
    
    
    (64
    )Accumulated Other Comprehensive Loss
    
    
    708
    
    
    
    885Deferred Income Taxes
    
    
    472
    
    
    
    590Cumulative Employer Contributions in Excess of Net Periodic Benefit Cost
    
    $
    (34,457
    )
    
    $
    (31,980
    )
  (in thousands)
    
    2009
    
    
    2008Reconciliation of Fair Value of Plan Assets:Fair Value of Plan Assets at January 1
    
    $
    
    
    
    $
    Actual Return on Plan Assets
    
    
    
    
    
    
    Company Contributions
    
    
    1,254
    
    
    
    1,577Benefit Payments (Net of Medicare Part D Subsidy)
    
    
    (3,113
    )
    
    
    (3,392
    )Participant Premium Payments
    
    
    1,859
    
    
    
    1,815Fair Value of Plan Assets at December 31
    
    $
    
    
    
    $
    Reconciliation of Projected Benefit Obligation:Projected Benefit Obligation at January 1
    
    $
    32,621
    
    
    $
    30,488Service Cost (Net of Medicare Part D Subsidy)
    
    
    960
    
    
    
    902Interest Cost (Net of Medicare Part D Subsidy)
    
    
    2,027
    
    
    
    1,874Benefit Payments (Net of Medicare Part D Subsidy)
    
    
    (3,113
    )
    
    
    (3,392
    )Participant Premium Payments
    
    
    1,859
    
    
    
    1,815Actuarial Loss
    
    
    3,358
    
    
    
    934Projected Benefit Obligation at December 31
    
    $
    37,712
    
    
    $
    32,621Reconciliation of Accrued Postretirement Cost:Accrued Postretirement Cost at January 1
    
    $
    (31,980
    )
    
    $
    (29,952
    )Expense
    
    
    (3,731
    )
    
    
    (3,605
    )Net Company Contribution
    
    
    1,254
    
    
    
    1,577Accrued Postretirement Cost at December 31
    
    $
    (34,457
    )
    
    $
    (31,980
    )
  2009
    

    
    
    2008Discount Rate
    
    
    5.75
    %
    
    
    6.70
    %
  2009
    
    
    
    2008Healthcare Cost-Trend Rate Assumed for Next Year Pre-65
    
    
    7.10
    %
    
    
    7.40
    %Healthcare Cost-Trend Rate Assumed for Next Year Post-65
    
    
    7.63
    %
    
    
    8.00
    %Rate at Which the Cost-Trend Rate is Assumed to Decline
    
    
    5.00
    %
    
    
    5.00
    %Year the Rate Reaches the Ultimate Trend Rate
    
    
    2025
    
    
    
    2017
 111




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(in thousands)
    
    1 point increase
    
    
    1 point decreaseEffect on the Postretirement Benefit Obligation
    
    $
    3,727
    
    
    $
    (3,188
    )Effect on Total of Service and Interest Cost
    
    $
    365
    
    
    $
    (302
    )Effect on Expense
    
    $
    579
    
    
    $
    (556
    )
 Measurement dates:
    
    2009
    
    2008Net Periodic Postretirement Benefit Cost
    
    January 1, 2009
    
    January 1, 2008End of Year Benefit Obligations
    
    January 1, 2009
projected to
December 31, 2009
    
    January 1, 2008
projected to
December 31, 2008
  (in thousands)
    
    2010Decrease in Regulatory Assets:Amortization of Transition Obligation
    
    $
    364Amortization of Unrecognized Prior Service Cost
    
    
    204Amortization of Unrecognized Actuarial Gain
    
    
    Decrease in Accumulated Other Comprehensive Loss:Amortization of Transition Obligation
    
    
    384Amortization of Unrecognized Prior Service Cost
    
    
    6Amortization of Unrecognized Actuarial Gain
    
    
    Total Estimated Amortization
    
    $
    958
 Cash flows
 Years(in thousands)
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015-2019$
    2,321
    
    
    $
    2,456
    
    
    $
    2,554
    
    
    $
    2,671
    
    
    $
    2,856
    
    
    $
    16,127
 Leveraged Employee Stock Ownership Plan
  112




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13. Fair Value of Financial Instruments
  Cash and Short-Term Investments
 Long-Term Debt
 December 31, 2009
    December 31, 2008Carrying
    
    
    
    
    
    Carrying(in thousands)
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair ValueCash and Short-Term Investments
    
    $
    4,432
    
    
    $
    4,432
    
    
    $
    7,565
    
    
    $
    7,565Long-Term Debt
    
    
    (436,170
    )
    
    
    (457,907
    )
    
    
    (339,726
    )
    
    
    (308,283
    )
 14. Property, Plant and Equipment
 December 31,
    
    December 31,(in thousands)
    
    2009
    
    2008Electric PlantProduction
    
    $
    660,654
    
    
    $
    590,252Transmission
    
    
    216,508
    
    
    
    201,456Distribution
    
    
    357,623
    
    
    
    337,296General
    
    
    78,230
    
    
    
    76,643Electric Plant
    
    
    1,313,015
    
    
    
    1,205,647Less Accumulated Depreciation and Amortization
    
    
    446,008
    
    
    
    421,177Electric Plant Net of Accumulated Depreciation
    
    
    867,007
    
    
    
    784,470Construction Work in Progress
    
    
    11,104
    
    
    
    25,547Net Electric Plant
    
    $
    878,111
    
    
    $
    810,017Nonelectric Operations PlantEquipment
    
    $
    244,419
    
    
    $
    220,985Buildings and Leasehold Improvements
    
    
    96,899
    
    
    
    80,281Land
    
    
    20,770
    
    
    
    19,766Nonelectric Operations Plant
    
    
    362,088
    
    
    
    321,032Less Accumulated Depreciation and Amortization
    
    
    153,831
    
    
    
    126,893Nonelectric Plant Net of Accumulated Depreciation
    
    
    208,257
    
    
    
    194,139Construction Work in Progress
    
    
    12,259
    
    
    
    33,413Net Nonelectric Operations Plant
    
    $
    220,516
    
    
    $
    227,552Net Plant
    
    $
    1,098,627
    
    
    $
    1,037,569
  Service Life Range(years)
    
    Low
    
    HighElectric Fixed Assets:Production Plant
    
    34
    
    62Transmission Plant
    
    40
    
    55Distribution Plant
    
    15
    
    55General Plant
    
    5
    
    65Nonelectric Fixed Assets:Equipment
    
    3
    
    12Buildings and Leasehold Improvements
    
    7
    
    40
 113




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##### Table of Contents



15. Income Taxes
  (in thousands)
    
    2009
    
    2008
    
    2007Tax Computed at Federal Statutory Rate
    
    $
    7,499
    
    
    $
    17,556
    
    
    $
    28,675Increases (Decreases) in Tax from:State Income Taxes Net of Federal Income Tax Benefit
    
    
    1,871
    
    
    
    2,608
    
    
    
    2,934Differences Reversing in Excess of Federal Rates
    
    
    893
    
    
    
    1,089
    
    
    
    929Federal Production Tax Credit
    
    
    (6,533
    )
    
    
    (3,234
    )
    
    
    (3
    )Tax Depreciation  Treasury Grant for Wind Farms
    
    
    (3,169
    )
    
    
    
    
    
    
    Allowance for Funds Used During Construction  Equity
    
    
    (1,113
    )
    
    
    (975
    )
    
    
    7Investment Tax Credit Amortization
    
    
    (992
    )
    
    
    (1,125
    )
    
    
    (1,137
    )Corporate Owned Life Insurance
    
    
    (973
    )
    
    
    814
    
    
    
    (507
    )North Dakota Wind Tax Credit Amortization  Net of Federal Taxes
    
    
    (870
    )
    
    
    (369
    )
    
    
    (21
    )Dividend Received/Paid Deduction
    
    
    (683
    )
    
    
    (718
    )
    
    
    (714
    )Affordable Housing Tax Credits
    
    
    (25
    )
    
    
    (55
    )
    
    
    (285
    )Section 199 Domestic Production Activities Deduction
    
    
    
    
    
    
    
    
    
    
    (1,159
    )Permanent and Other Differences
    
    
    (510
    )
    
    
    (554
    )
    
    
    (751
    )Total Income Tax Expense
    
    $
    (4,605
    )
    
    $
    15,037
    
    
    $
    27,968Overall Effective Federal and State Income Tax Rate
    
    
    (21.5
    )%
    
    
    30.0
    %
    
    
    34.1
    %Income Tax Expense Includes the Following:Current Federal Income Taxes
    
    $
    (41,328
    )
    
    $
    (20,011
    )
    
    $
    23,199Current State Income Taxes
    
    
    3,492
    
    
    
    (1,115
    )
    
    
    2,371Deferred Federal Income Taxes
    
    
    42,470
    
    
    
    39,051
    
    
    
    2,832Deferred State Income Taxes
    
    
    (571
    )
    
    
    5,280
    
    
    
    2,116Federal Production Tax Credit
    
    
    (6,533
    )
    
    
    (3,234
    )
    
    
    (3
    )Investment Tax Credit Amortization
    
    
    (992
    )
    
    
    (1,125
    )
    
    
    (1,137
    )North Dakota Wind Tax Credit Amortization  Net of Federal Taxes
    
    
    (870
    )
    
    
    (369
    )
    
    
    (21
    )Foreign Income Taxes
    
    
    (248
    )
    
    
    (3,385
    )
    
    
    (1,104
    )Affordable Housing Tax Credits
    
    
    (25
    )
    
    
    (55
    )
    
    
    (285
    )Total
    
    $
    (4,605
    )
    
    $
    15,037
    
    
    $
    27,968
  (in thousands)
    
    2009
    
    2008Deferred Tax AssetsRelated to North Dakota Wind Tax Credits
    
    $
    58,191
    
    
    $
    35,902Benefit Liabilities
    
    
    36,329
    
    
    
    32,932ASC 715 Liabilities
    
    
    24,946
    
    
    
    9,650Cost of Removal
    
    
    23,253
    
    
    
    22,920Net Operating Loss Carryforward
    
    
    12,757
    
    
    
    6,379Differences Related to Property
    
    
    11,445
    
    
    
    10,300Federal Production Tax Credits
    
    
    6,533
    
    
    
    Amortization of Tax Credits
    
    
    4,966
    
    
    
    4,946Vacation Accrual
    
    
    2,872
    
    
    
    3,003Other
    
    
    5,940
    
    
    
    5,619Total Deferred Tax Assets
    
    $
    187,232
    
    
    $
    131,651Deferred Tax LiabilitiesDifferences Related to Property
    
    $
    (269,718
    )
    
    $
    (212,419
    )ASC 715 Regulatory Asset
    
    
    (24,946
    )
    
    
    (9,650
    )Related to North Dakota Wind Tax Credits
    
    
    (16,116
    )
    
    
    (10,074
    )Transfer to Regulatory Asset
    
    
    (5,808
    )
    
    
    (7,093
    )Excess Tax over Book Pension
    
    
    (2,969
    )
    
    
    (2,599
    )Renewable Resource Rider Accrued Revenue
    
    
    (2,300
    )
    
    
    Impact of State Net Operating Losses on Federal Taxes
    
    
    (2,060
    )
    
    
    Other
    
    
    (7,164
    )
    
    
    (4,516
    )Total Deferred Tax Liabilities
    
    $
    (331,081
    )
    
    $
    (246,351
    )Deferred Income Taxes
    
    $
    (143,849
    )
    
    $
    (114,700
    )
 114




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##### Table of Contents



(in thousands)
    
    TotalBalance at January 1, 2009
    
    $
    284Increases Related to Tax Positions
    
    
    900Uncertain Positions Resolved in 2009
    
    
    (284
    )Balance at December 31, 2009
    
    $
    900
  16. Asset Retirement Obligations (AROs)
    115




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##### Table of Contents



(in thousands)
    
    2009
    
    2008Asset
Retirement ObligationsBeginning Balance
    
    $
    3,298
    
    
    $
    2,447New Obligations Recognized
    
    
    436
    
    
    
    317Adjustments Due to Revisions in Cash Flow Estimates
    
    
    
    
    
    
    407Accrued Accretion
    
    
    316
    
    
    
    127Settlements
    
    
    
    
    
    
    Ending Balance
    
    $
    4,050
    
    
    $
    3,298Asset
Retirement Costs CapitalizedBeginning Balance
    
    $
    1,061
    
    
    $
    1,309New Obligations Recognized
    
    
    436
    
    
    
    317Adjustments Due to Revisions in Cash Flow Estimates
    
    
    
    
    
    
    (565
    )Settlements
    
    
    
    
    
    
    Ending Balance
    
    $
    1,497
    
    
    $
    1,061Accumulated Depreciation  Asset
Retirement Costs CapitalizedBeginning Balance
    
    $
    179
    
    
    $
    185New Obligations Recognized
    
    
    
    
    
    
    Adjustments Due to Revisions in Cash Flow Estimates
    
    
    
    
    
    
    (34
    )Accrued Depreciation
    
    
    54
    
    
    
    28Settlements
    
    
    
    
    
    
    Ending Balance
    
    $
    233
    
    
    $
    179SettlementsOriginal Capitalized Asset Retirement Cost   Retired
    
    $
    
    
    
    $
    Accumulated Depreciation
    
    
    
    
    
    
    Asset
Retirement Obligation
    
    $
    
    
    
    $
    Settlement Cost
    
    
    
    
    
    
    Gain on Settlement  Deferred Under Regulatory Accounting
    
    $
    
    
    
    $
    
 
 Quarterly Information (not audited)
  Three Months Ended
    
    March 31
    
    June 30
    
    September 30
    
    December 31(in thousands, except per share data)
    
    2009
    
    2008
    
    2009
    
    2008
    
    2009
    
    2008
    
    2009
    
    2008Operating Revenues
    
    $
    277,239
    
    
    $
    300,237
    
    
    $
    246,857
    
    
    $
    323,600
    
    
    $
    257,440
    
    
    $
    352,919
    
    
    $
    257,976
    
    
    $
    334,441Operating Income
    
    
    8,609
    
    
    
    17,097
    
    
    
    6,180
    
    
    
    10,303
    
    
    
    17,496
    
    
    
    19,746
    
    
    
    13,105
    
    
    
    25,846Net Income
    
    
    4,388
    
    
    
    8,230
    
    
    
    2,731
    
    
    
    3,517
    
    
    
    10,592
    
    
    
    9,631
    
    
    
    8,320
    
    
    
    13,747Earnings Available for Common Shares
    
    
    4,204
    
    
    
    8,046
    
    
    
    2,547
    
    
    
    3,333
    
    
    
    10,408
    
    
    
    9,447
    
    
    
    8,136
    
    
    
    13,563Basic Earnings Per Share
    
    $
    .12
    
    
    $
    .27
    
    
    $
    .07
    
    
    $
    .11
    
    
    $
    .29
    
    
    $
    .31
    
    
    $
    .23
    
    
    $
    .38Diluted Earnings Per Share
    
    $
    .12
    
    
    $
    .27
    
    
    $
    .07
    
    
    $
    .11
    
    
    $
    .29
    
    
    $
    .31
    
    
    $
    .23
    
    
    $
    .38Dividends Paid Per Common Share
    
    $
    .2975
    
    
    $
    .2975
    
    
    $
    .2975
    
    
    $
    .2975
    
    
    $
    .2975
    
    
    $
    .2975
    
    
    $
    .2975
    
    
    $
    .2975Price Range:High
    
    
    24.50
    
    
    
    35.68
    
    
    
    24.05
    
    
    
    40.98
    
    
    
    25.40
    
    
    
    46.15
    
    
    
    25.34
    
    
    
    30.84Low
    
    
    15.47
    
    
    
    31.28
    
    
    
    18.63
    
    
    
    34.93
    
    
    
    20.73
    
    
    
    29.71
    
    
    
    22.37
    
    
    
    14.99Average Number of Common Shares OutstandingBasic
    
    
    35,325
    
    
    
    29,818
    
    
    
    35,389
    
    
    
    29,993
    
    
    
    35,528
    
    
    
    30,514
    
    
    
    35,611
    
    
    
    35,311Average Number of Common Shares OutstandingDiluted
    
    
    35,489
    
    
    
    30,062
    
    
    
    35,644
    
    
    
    30,300
    
    
    
    35,788
    
    
    
    30,817
    
    
    
    35,866
    
    
    
    35,516
 116




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##### Table of Contents



Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  
 Item 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosures Controls and Procedures
 Changes in Internal Control over Financial Reporting
 Managements Report Regarding Internal Control Over Financial Reporting.
  Internal Control  Integrated Framework
 Attestation Report of Independent Registered Public Accounting Firm
 
 Item 9B. OTHER INFORMATION
  117




---



##### Table of Contents



PART III
 
 Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   
 Item 11. EXECUTIVE COMPENSATION
  118




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##### Table of Contents



Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED  STOCKHOLDER MATTERS
    Number ofsecuritiesremaining availableNumber of
    
    
    
    
    
    
        for future issuancesecurities to be
    
    
    
    
    
    
        under equityissued upon
    
    
        Weighted-average
    
    
        compensation plansexercise of
    
    
        exercise price of
    
    
        (excludingoutstanding
    
    
        outstanding
    
    
        securitiesoptions, warrants
    
    
        options, warrants
    
    
        reflected inand rights
    
    
        and rights
    
    
        column a))Plan Category
    
        (a)
    
    
        (b)
    
    
        (c)Equity compensation plans approved
by security holders:1999 Stock Incentive Plan
    
        
        962,452
        (1)
    
        $
        12.40
    
    
        
        822,317
        (2)1999 Employee Stock Purchase Plan
    
    
        
    
    
    
        N/A
    
    
        
        230,482
        (3)Equity compensation plans not
approved by security holders
    
    
        
    
    
    
        
    
    
    
        Total
    
    
        962,452
    
    
        $
        12.40
    
    
    
        1,052,799
 
 (1)
    
    Includes 181,200, 114,800, and 109,000 performance based share awards made in 2009, 2008 and
2007, respectively, 92,670 restricted stock units outstanding as of December 31, 2009, and
19,972 phantom shares as part of the deferred director compensation program and excludes
104,778 shares of restricted stock issued under the 1999 Stock Incentive Plan.(2)
    
    The 1999 Stock Incentive Plan provides for the issuance of any shares available under the
plan in the form of restricted stock, performance awards and other types of stock-based
awards, in addition to the granting of options, warrants or stock appreciation rights.(3)
    
    Shares are issued based on employees election to participate in the plan. 
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  119




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##### Table of Contents



PART IV
 
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
        
    List of documents filed as part of this report:1.
        
    Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    
        67Consolidated Statements of Income for the Three Year Ended December 31, 2009
    
    
        68Consolidated Balance Sheets, December 31, 2009 and 2008
    
    
        69Consolidated
Statements of Shareholders Equity and Comprehensive Income
for the Three Years Ended December 31, 2009
    
    
        71Consolidated Statements of Cash Flows for the Three Years Ended December
31, 2009
    
    
        72Consolidated Statements of Capitalization, December 31, 2009 and 2008
    
    
        73Notes to Consolidated Financial Statements
    
    
        74
 2.
        
    Financial Statement SchedulesSchedules are omitted because of the absence of the conditions under which they are
required, because the amounts are insignificant or because the information required is
included in the financial statements or the notes thereto.3.
        
    ExhibitsThe following Exhibits are filed as part of, or incorporated by reference into, this report.
 Previously FiledFile No.
    
        As Exhibit No.2-A
        
    
        8-K filed 7/1/09
    
        
        2.1
        
    
        Plan of Merger, dated as of June 30, 2009, by and among
Otter Tail Corporation (now known as Otter Tail Power
Company), Otter Tail Holding Company (now known as Otter Tail
Corporation) and Otter Tail Merger Sub Inc.3-A
        
    
        8-K filed 7/1/09
    
        
        3.1
        
    
        Restated Articles of Incorporation.3-B
        
    
        8-K filed 7/1/09
    
        
        3.2
        
    
        Restated Bylaws.4-A-1
        
    
        10-K for year
ended 12/31/01
    
        
        4-D-7
        
    
        Note Purchase Agreement, dated as of December 1, 2001.4-A-2
        
    
        10-K for year
ended 12/31/02
    
        
        4-D-4
        
    
        First Amendment, dated as of December 1, 2002, to Note
Purchase Agreement, dated as of December 1, 2001.4-A-3
        
    
        10-Q for quarter
ended 9/30/04
    
        
        4.2
        
    
        Second Amendment, dated as of October 1, 2004, to Note
Purchase Agreement, dated as of December 1, 2001.4-A-4
        
    
        8-K filed 12/20/07
    
        
        4.2
        
    
        Third Amendment, dated as of December 1, 2007, to Note
Purchase Agreement, dated as of December 1, 2001.4-A-5
        
    
        8-K filed 7/01/09
    
        
        4.1
        
    
        Fourth Amendment, dated as of June 30, 2009, to Note
Purchase Agreement dated as of December 1, 2001.4-B
        
    
        8-K filed 8/01/08
    
        
        4.1
        
    
        Credit Agreement, dated as of July 30, 2008, among Otter
Tail Corporation, dba Otter Tail Power Company (now known as
Otter Tail Power Company), the Banks named therein, Bank of
America, N.A., as Syndication Agent, and U.S. Bank National
Association, as agent for the Banks.
 120




---



##### Table of Contents



Previously FiledFile No.
    
        As Exhibit No.4-B-1
        
    
        8-K filed 4/24/09
    
        
        4.2
        
    
        First Amendment, dated as of April 21, 2009, to Credit
Agreement, dated as of July 30, 2008.4-C
        
    
        8-K filed 2/28/07
    
        
        4.1
        
    
        Note Purchase Agreement, dated as of February 23, 2007,
between the Company and Cascade Investment L.L.C.4-C-1
        
    
        8-K filed 7/01/09
    
        
        4.3
        
    
        Amendment No. 2, dated as of June 30, 2009, to Note Purchase
Agreement, dated as of February 23, 2007.4-D
        
    
        8-K filed 8/23/07
    
        
        4.1
        
    
        Note Purchase Agreement, dated as of August 20, 2007.4-D-1
        
    
        8-K filed 12/20/07
    
        
        4.3
        
    
        First Amendment, dated as of December 14, 2007, to Note
Purchase Agreement, dated as of August 20, 2007.4-D-2
        
    
        8-K filed 9/15/08
    
        
        4.1
        
    
        Second Amendment, dated as of September 11, 2008, to Note
Purchase Agreement, dated as of August 20, 20074-D-3
        
    
        8-K filed 7/01/09
    
        
        4.2
        
    
        Third Amendment, dated as of June 26, 2009, to Note Purchase
Agreement dated as of August 20, 2007.4-E
        
    
        8-K filed 12/30/08
    
        
        4.1
        
    
        Amended and Restated Credit Agreement, dated as of December
23, 2008 among the Company (as assignee of Varistar
Corporation), the Banks named therein, U.S. Bank National
Association, as agent for the Banks and as Lead Arranger, and
Bank of America, N.A., Keybank National Association, and Wells
Fargo Bank, National Association, as Co-Documentation Agents.4-E-1
        
    
        8-K filed 4/24/09
    
        
        4.1
        
    
        First Amendment, dated as of April 21, 2009, to Credit
Agreement, dated as of December 23, 2008.4-F
        
    
        8-K filed 5/29/09
    
        
        4.1
        
    
        Term Loan Agreement, dated as of May 22, 2009, among Otter
Tail Corporation, d/b/a Otter Tail Power Company (now known as
Otter Tail Power Company), JPMorgan Chase Bank, N.A., as
Administrative Agent, Keybank National Association, as
Syndication Agent, Union Bank, N.A., as Documentation Agent,
and the Banks named therein.4-G
        
    
        8-K filed 11/18/97
    
        
        4-D-11
        
    
        Indenture (For Unsecured Debt Securities) dated as of
November 1, 1997 between the registrant and U.S. Bank National
Association (formerly First Trust National Association), as
Trustee.4-G-1
        
    
        8-K filed 7/1/09
    
        
        4.1
        
    
        First Supplemental Indenture, dated as of July 1, 2009, to
the Indenture (For Unsecured Debt Securities) dated as of
November 1, 1997.4-G-2
        
    
        8-K filed 12/4/09
    
        
        4.1
        
    
        Officers Certificate and Authentication Order, dated
December 4, 2009, for the 9.000% Notes due 2016 (which
includes the form of Note) issued pursuant to the Indenture
(For Unsecured Debt Securities) dated as of November 1, 1997
and the First Supplemental Indenture thereto, dated as of July
1, 2009.10-A
        
    
        2-39794
    
        
        4-C
        
    
        Integrated Transmission Agreement, dated August 25, 1967,
between Cooperative Power Association and the Company.10-A-1
        
    
        10-K for year
ended 12/31/92
    
        
        10-A-1
        
    
        Amendment No. 1, dated as of September 6, 1979, to
Integrated Transmission Agreement, dated as of August 25,
1967, between Cooperative Power Association and the Company.
 121




---



##### Table of Contents



Previously FiledFile No.
    
        As Exhibit No.10-A-2
        
    
        10-K for year
ended 12/31/92
    
        
        10-A-2
        
    
        Amendment No. 2, dated as of November 19, 1986, to
Integrated Transmission Agreement between Cooperative Power
Association and the Company.10-C-1
        
    
        2-55813
    
        
        5-E
        
    
        Contract dated July 1, 1958, between Central Power Electric
Corporation, Inc., and the Company.10-C-2
        
    
        2-55813
    
        
        5-E-1
        
    
        Supplement Seven dated November 21, 1973. (Supplements Nos.
One through Six have been superseded and are no longer in
effect.)10-C-3
        
    
        2-55813
    
        
        5-E-2
        
    
        Amendment No. 1 dated December 19, 1973, to Supplement Seven.10-C-4
        
    
        10-K for year
ended 12/31/91
    
        
        10-C-4
        
    
        Amendment No. 2 dated June 17, 1986, to Supplement Seven.10-C-5
        
    
        10-K for year
ended 12/31/92
    
        
        10-C-5
        
    
        Amendment No. 3 dated June 18, 1992, to Supplement Seven.10-C-6
        
    
        10-K for year
ended 12/31/93
    
        
        10-C-6
        
    
        Amendment No. 4 dated January 18, 1994 to Supplement Seven.10-D
        
    
        2-55813
    
        
        5-F
        
    
        Contract dated April 12, 1973, between the Bureau of
Reclamation and the Company.10-E-1
        
    
        2-55813
    
        
        5-G
        
    
        Contract dated January 8, 1973, between East River Electric
Power Cooperative and the Company.10-E-2
        
    
        2-62815
    
        
        5-E-1
        
    
        Supplement One dated February 20, 1978.10-E-3
        
    
        10-K for year
ended 12/31/89
    
        
        10-E-3
        
    
        Supplement Two dated June 10, 1983.10-E-4
        
    
        10-K for year
ended 12/31/90
    
        
        10-E-4
        
    
        Supplement Three dated June 6, 1985.10-E-5
        
    
        10-K for year
ended 12/31/92
    
        
        10-E-5
        
    
        Supplement No. Four, dated as of September 10, 1986.10-E-6
        
    
        10-K for year
ended 12/31/92
    
        
        10-E-6
        
    
        Supplement No. Five, dated as of January 7, 1993.10-E-7
        
    
        10-K for year
ended 12/31/93
    
        
        10-E-7
        
    
        Supplement No. Six, dated as of December 2, 199310-F
        
    
        10-K for year
ended 12/31/89
    
        
        10-F
        
    
        Agreement for Sharing Ownership of Generating Plant by and
between the Company, Montana-Dakota Utilities Co., and
Northwestern Public Service Company (dated as of January 7,
1970).10-F-1
        
    
        10-K for year
ended 12/31/89
    
        
        10-F-1
        
    
        Letter of Intent for purchase of share of Big Stone Plant
from Northwestern Public Service Company (dated as of May 8,
1984).10-F-2
        
    
        10-K for year
ended 12/31/91
    
        
        10-F-2
        
    
        Supplemental Agreement No. 1 to Agreement for Sharing
Ownership of Big Stone Plant (dated as of July 1, 1983).10-F-3
        
    
        10-K for year
ended 12/31/91
    
        
        10-F-3
        
    
        Supplemental Agreement No. 2 to Agreement for Sharing
Ownership of Big Stone Plant (dated as of March 1, 1985).
 122




---



##### Table of Contents



Previously FiledFile No.
    
        As Exhibit No.10-F-4
        
    
        10-K for year
ended 12/31/91
    
        
        10-F-4
        
    
        Supplemental Agreement No. 3 to Agreement for Sharing
Ownership of Big Stone Plant (dated as of March 31, 1986).10-F-5
        
    
        10-Q for quarter
ended 9/30/03
    
        
        10.1
        
    
        Supplemental Agreement No. 4 to Agreement for Sharing
Ownership of Big Stone Plant (dated as of April 24, 2003).10-F-6
        
    
        10-K for year
ended 12/31/92
    
        
        10-F-5
        
    
        Amendment I to Letter of Intent dated May 8, 1984, for
purchase of share of Big Stone Plant.10-G
        
    
        10-Q for quarter
ended 06/30/04
    
        
        10.3
        
    
        Master Coal Purchase and Sale Agreement by and between the
Company, Montana-Dakota Utilities Co., Northwestern
Corporation and Kennecott Coal Sales Company-Big Stone Plant
(dated as of June 1, 2004).10-H
        
    
        2-61043
    
        
        5-H
        
    
        Agreement for Sharing Ownership of Coyote Station Generating
Unit No. 1 by and between the Company, Minnkota Power
Cooperative, Inc., Montana-Dakota Utilities Co., Northwestern
Public Service Company and Minnesota Power & Light Company
(dated as of July 1, 1977).10-H-1
        
    
        10-K for year
ended 12/31/89
    
        
        10-H-1
        
    
        Supplemental Agreement No. One, dated as of November 30,
1978, to Agreement for Sharing Ownership of Coyote Generating
Unit No. 1.10-H-2
        
    
        10-K for year
ended 12/31/89
    
        
        10-H-2
        
    
        Supplemental Agreement No. Two, dated as of March 1, 1981,
to Agreement for Sharing Ownership of Coyote Generating Unit
No. 1 and Amendment No. 2 dated March 1, 1981, to Coyote Plant
Coal Agreement.10-H-3
        
    
        10-K for year
ended 12/31/89
    
        
        10-H-3
        
    
        Amendment, dated as of July 29, 1983, to Agreement for
Sharing Ownership of Coyote Generating Unit No. 1.10-H-4
        
    
        10-K for year
ended 12/31/92
    
        
        10-H-4
        
    
        Agreement, dated as of September 5, 1985, containing
Amendment No. 3 to Agreement for Sharing Ownership of Coyote
Generating Unit No.1, dated as of July 1, 1977, and Amendment
No. 5 to Coyote Plant Coal Agreement, dated as of January 1,
1978.10-H-5
        
    
        10-Q for quarter
ended 9/30/01
    
        
        10-A
        
    
        Amendment, dated as of June 14, 2001, to Agreement for
Sharing Ownership of Coyote Generating Unit No. 1.10-H-6
        
    
        10-Q for quarter
ended 9/30/03
    
        
        10.2
        
    
        Amendment, dated as of April 24, 2003, to Agreement for
Sharing Ownership of Coyote Generating Unit No. 1.10-I
        
    
        2-63744
    
        
        5-I
        
    
        Coyote Plant Coal Agreement by and between the Company,
Minnkota Power Cooperative, Inc., Montana-Dakota Utilities
Co., Northwestern Public Service Company, Minnesota Power &
Light Company, and Knife River Coal Mining Company (dated as
of January 1, 1978).10-I-1
        
    
        10-K for year
ended 12/31/92
    
        
        10-I-1
        
    
        Addendum, dated as of March 10, 1980, to Coyote Plant Coal
Agreement.10-I-2
        
    
        10-K for year
ended 12/31/92
    
        
        10-I-2
        
    
        Amendment (No. 3), dated as of May 28, 1980, to Coyote Plant
Coal Agreement.10-I-3
        
    
        10-K for year
ended 12/31/92
    
        
        10-I-3
        
    
        Fourth Amendment, dated as of August 19, 1985, to Coyote
Plant Coal Agreement.
 123




---



##### Table of Contents



Previously FiledFile No.
    
        As Exhibit No.10-I-4
        
    
        10-Q for quarter
ended 6/30/93
    
        
        19-A
        
    
        Sixth Amendment, dated as of February 17, 1993, to Coyote
Plant Coal Agreement.10-I-5
        
    
        10-K for year
ended 12/31/01
    
        
        10-I-5
        
    
        Agreement and Consent to Assignment of the Coyote Plant Coal
Agreement.10-J-1
        
    
        10-Q for quarter
ended 9/30/99
    
        
        10
        

        Power Sales Agreement between the Company and Manitoba Hydro
Electric Board (dated as of July 1, 1999).10-K
        
    
        10-K for year
ended 12/31/91
    
        
        10-L
        

        Integrated Transmission Agreement by and between the
Company, Missouri Basin Municipal Power Agency and Western
Minnesota Municipal Power Agency (dated as of March 31, 1986).10-K-1
        
    
        10-K for year
ended 12/31/88
    
        
        10-L-1
        

        Amendment No. 1, dated as of December 28, 1988, to
Integrated Transmission Agreement (dated as of March 31,
1986).10-L
        
    
        10-Q for quarter
ended 06/30/04
    
        
        10.1
        

        Master Coal Purchase Agreement by and between the Company
and Kennecott Coal Sales Company  Hoot Lake Plant (dated as
of December 31, 2001).10-M
        
    
        8-K filed 7/01/09
    
        
        10.1
        

        Standstill Agreement, dated July 1, 2009, by and between the
Registrant and Cascade Investment, L.L.C.10-N-1
        
    
        10-K for year
ended 12/31/02
    
        
        10-N-1
        

        Deferred Compensation Plan for Directors, as amended*10-N-2
        
    
        8-K filed 02/04/05
    
        
        10.1
        

        Executive Survivor and Supplemental Retirement Plan (2005
Restatement).*10-N-2a
        
    
        10-K for year
ended 12/31/06
    
        
        10-N-2a
        

        First Amendment of Executive Survivor and Supplemental
Retirement Plan (2005 Restatement).*10-N-3
        
    
        10-K for year
ended 12/31/93
    
        
        10-N-5
        

        Nonqualified Profit Sharing Plan.*10-N-4
        
    
        10-Q for quarter
ended 3/31/02
    
        
        10-B
        

        Nonqualified Retirement Savings Plan, as amended.*10-N-5
        
    
        8-K filed 4/13/06
    
        
        10.3
        

        1999 Employee Stock Purchase Plan, As Amended (2006).10-N-6
        
    
        8-K filed 4/13/06
    
        
        10.4
        

        1999 Stock Incentive Plan, As Amended (2006).10-N-7
        
    
        10-K for year ended
12/31/05
    
        
        10-N-7
        

        Form of Stock Option Agreement*10-N-8
        
    
        10-K for year ended
12/31/05
    
        
        10-N-8
        
    
        Form of Restricted Stock Agreement*10-N-9
        
    
        8-K filed 4/13/06
    
        
        10.2
        

        Form of 2006 Performance Award Agreement.*10-N-10
        
    
        8-K filed 04/15/05
    
        
        10.2
        

        Executive Annual Incentive Plan (Effective April 1, 2005).*10-N-11
        
    
        10-Q for quarter
ended 6/30/06
    
        
        10.5
        
    
        Form of 2006 Restricted Stock Unit Award Agreement.*10-N-12
        
    
        8-K filed 4/13/06
    
        
        10.1
        

        Form of Restricted Stock Award Agreement for Directors.
 124




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##### Table of Contents



Previously FiledFile No.
    
        As Exhibit No.10-O-1
        
    
        10-Q for quarter
ended 6/30/02
    
        
        10-A
        

        Executive Employment Agreement, John Erickson.*10-O-2
        
    
        10-Q for quarter
ended 6/30/02
    
        
        10-B
        
    
        Executive Employment Agreement and amendment no. 1,
Lauris Molbert.*10-O-3
        
    
        10-Q for quarter
ended 6/30/02
    
        
        10-C
        
    
        Executive Employment Agreement, Kevin Moug.*10-O-4
        
    
        10-Q for quarter
ended 6/30/02
    
        
        10-D
        
    
        Executive Employment Agreement, George Koeck.*10-P-1
        
    
        8-K filed 11/2/07
    
        
        10.1
        
    
        Change in Control Severance Agreement, John Erickson.*10-P-2
        
    
        8-K filed 11/2/07
    
        
        10.2
        
    
        Change in Control Severance Agreement, Lauris Molbert.*10-P-3
        
    
        8-K filed 11/2/07
    
        
        10.3
        
    
        Change in Control Severance Agreement, Kevin Moug.*10-P-4
        
    
        8-K filed 11/2/07
    
        
        10.4
        
    
        Change in Control Severance Agreement, George Koeck.*12.1
        
    
        
    
        
        
        
    
        Calculation of Ratios of Earnings to Fixed Charges and
Preferred Dividends.21-A
        
    
        
    
        
        
        
    
        Subsidiaries of Registrant.23-A
        
    
        
    
        
        
        
    
        Consent of Deloitte & Touche LLP.24-A
        
    
        
    
        
        
        
    
        Powers of Attorney.31.1
        
    
        
    
        
        
        
    
        Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
        
    
        
    
        
        
        
    
        Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
        
    
        
    
        
        
        
    
        Certification of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.2
        
    
        
    
        
        
        
    
        Certification of Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Management contract of compensatory plan or arrangement required to be filed pursuant to Item
601(b)(10)(iii)(A) of Regulation S-K.  125




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##### Table of Contents



SIGNATURES
  OTTER TAIL CORPORATIONBy /s/ Kevin G. MougKevin G. MougChief Financial Officer


Dated:  February 26, 2010  Signature and Title
  John D. Erickson
President and Chief Executive Officer
(principal executive officer) and Director
Kevin G. Moug 
Chief Financial Officer
(principal financial and accounting officer)
John C. MacFarlane 
Chairman of the Board and Director
Karen M. Bohn, Director 
Arvid R. Liebe, Director 
Edward J. McIntyre, Director 
Joyce Nelson Schuette, Director
Nathan I. Partain, Director 
Gary J. Spies, Director
James B. Stake, Director
    
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 By
    
        /s/ John D. EricksonJohn D. EricksonPro Se and Attorney-in-Fact
Dated February 26, 2010
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##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
        Description12.1
        
    
        Calculation of Ratios of Earnings to Fixed Charges and Preferred Dividends21-A
        
    
        Subsidiaries of the Registrant23-A
        
    
        Consent of Independent Registered Public Accounting Firm24-A
        
    
        Power of Attorney31.1
        
    
        Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
        
    
        Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
        
    
        Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
        
    
        Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 127