Exhibit
13-A
 Selected Consolidated Financial Data
 2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(thousands, except number of shareholders and per-share data)RevenuesElectric
    
    $
    340,020
    
    
    $
    323,478
    
    
    $
    306,014
    
    
    $
    312,985
    
    
    $
    266,385Plastics
    
    
    116,452
    
    
    
    149,012
    
    
    
    163,135
    
    
    
    158,548
    
    
    
    115,426Manufacturing
    
    
    470,462
    
    
    
    381,599
    
    
    
    311,811
    
    
    
    244,311
    
    
    
    201,615Health Services
    
    
    122,520
    
    
    
    130,670
    
    
    
    135,051
    
    
    
    123,991
    
    
    
    114,318Food Ingredient Processing
    
    
    65,367
    
    
    
    70,440
    
    
    
    45,084
    
    
    
    38,501
    
    
    
    14,023Other Business Operations (1)
    
    
    199,511
    
    
    
    185,730
    
    
    
    145,603
    
    
    
    105,821
    
    
    
    102,516Corporate Revenues and Intersegment Eliminations (1)
    
    
    (3,135
    )
    
    
    (2,042
    )
    
    
    (1,744
    )
    
    
    (2,288
    )
    
    
    (1,247
    )Total Operating Revenues
    
    $
    1,311,197
    
    
    $
    1,238,887
    
    
    $
    1,104,954
    
    
    $
    981,869
    
    
    $
    813,036Special Charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Income from Continuing Operations
    
    
    35,125
    
    
    
    53,961
    
    
    
    50,750
    
    
    
    53,902
    
    
    
    40,502Net Income from Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    362
    
    
    
    8,649
    
    
    
    1,693Net Income
    
    
    35,125
    
    
    
    53,961
    
    
    
    51,112
    
    
    
    62,551
    
    
    
    42,195Cumulative Change in Accounting Principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Cash Flow from Continuing Operations
    
    
    111,321
    
    
    
    84,812
    
    
    
    79,207
    
    
    
    90,348
    
    
    
    54,410Operating Cash Flow  Continuing and Discontinued Operations
    
    
    111,321
    
    
    
    84,812
    
    
    
    80,246
    
    
    
    95,800
    
    
    
    56,301Capital Expenditures  Continuing Operations
    
    
    265,888
    
    
    
    161,985
    
    
    
    69,448
    
    
    
    59,969
    
    
    
    49,484Total Assets
    
    
    1,692,587
    
    
    
    1,454,754
    
    
    
    1,258,650
    
    
    
    1,181,496
    
    
    
    1,134,148Long-Term Debt
    
    
    339,726
    
    
    
    342,694
    
    
    
    255,436
    
    
    
    258,260
    
    
    
    261,805Redeemable Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Basic Earnings Per Share  Continuing Operations (2)
    
    
    1.09
    
    
    
    1.79
    
    
    
    1.70
    
    
    
    1.82
    
    
    
    1.53Basic Earnings Per Share  Total (2)
    
    
    1.09
    
    
    
    1.79
    
    
    
    1.71
    
    
    
    2.12
    
    
    
    1.59Diluted Earnings Per Share  Continuing Operations (2)
    
    
    1.09
    
    
    
    1.78
    
    
    
    1.69
    
    
    
    1.81
    
    
    
    1.52Diluted Earnings Per Share  Total (2)
    
    
    1.09
    
    
    
    1.78
    
    
    
    1.70
    
    
    
    2.11
    
    
    
    1.58Return on Average Common Equity
    
    
    6.0
    %
    
    
    10.5
    %
    
    
    10.6
    %
    
    
    13.9
    %
    
    
    12.0
    %Dividends Per Common Share
    
    
    1.19
    
    
    
    1.17
    
    
    
    1.15
    
    
    
    1.12
    
    
    
    1.10Dividend Payout Ratio
    
    
    109
    %
    
    
    66
    %
    
    
    68
    %
    
    
    53
    %
    
    
    70
    %Common Shares Outstanding  Year End
    
    
    35,385
    
    
    
    29,850
    
    
    
    29,522
    
    
    
    29,401
    
    
    
    28,977Number of Common Shareholders (3)
    
    
    14,627
    
    
    
    14,509
    
    
    
    14,692
    
    
    
    14,801
    
    
    
    14,889
 
 Notes:(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.




---



##### 



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 consolidated revenues of $1.3 billion.
    
    We achieved record annual net cash from operations of $111.3 million.
    
    Net income from our electric segment was $33.2 million.
    
    Our construction companies reported record net income of $5.5 million.
    
    Capital expenditures totaled $266 million, including expenditures for the electric
utilitys 32 wind turbines at the Ashtabula Wind Center in Barnes County, North Dakota and
expansion of the wind tower manufacturing facilities of DMI Industries, Inc. (DMI) in West
Fargo, North Dakota and Tulsa, Oklahoma.
    
    On May 1, 2008 BTD Manufacturing, Inc. (BTD) acquired the assets of Miller Welding &
Iron Works, Inc. (Miller Welding), of Washington, Illinois for $41.7 million in cash.
    
    The electric utility was granted a general rate increase of 2.9% in Minnesota and
regulators in both Minnesota and North Dakota approved rate riders for the recovery of
renewable resource costs and investment returns.
    
    The electric utility filed a general rate case in North Dakota in November 2008
requesting a revenue increase of approximately $6.1 million.
    
    The electric utility filed a general rate case in South Dakota in October 2008
requesting a revenue increase of approximately $3.8 million.




---



##### 




    
    Planned capital budget expenditures of up to $884 million for the years 2009-2013 of
which $698 million is for capital projects at the electric utility, including $395 million
related to Big Stone II and associated transmission projects and $66 million for
anticipated expansion of transmission capacity in Minnesota (CapX 2020). See Capital
Requirements section for further discussion.
    
    Pursuing the regulatory approvals, financing and other arrangements necessary to build
Big Stone II.
    
    Adding more renewable resources to our electric resource mix.
    
    Completion of the North Dakota and South Dakota general rate cases.
    
    The continued investigation and evaluation of organic growth and strategic acquisition
opportunities.
  (in thousands)
    
    2008
    
    2007Operating Revenues:Electric
    
    $
    339,726
    
    
    $
    323,158Nonelectric
    
    
    971,471
    
    
    
    915,729Total Operating Revenues
    
    $
    1,311,197
    
    
    $
    1,238,887Net Income:Electric
    
    $
    33,234
    
    
    $
    24,498Nonelectric
    
    
    1,891
    
    
    
    29,463Total Net Income
    
    $
    35,125
    
    
    $
    53,961




---



##### 



(in thousands)
    
    2008
    
    2007
    
    2006Operating Revenues:Electric
    
    $
    294
    
    
    $
    320
    
    
    $
    311Nonelectric
    
    
    2,841
    
    
    
    1,722
    
    
    
    1,433Cost of Goods Sold
    
    
    2,703
    
    
    
    1,553
    
    
    
    1,433Other Nonelectric Expenses
    
    
    432
    
    
    
    489
    
    
    
    311
 ELECTRIC
  %
    
    
    
    
    
    %(in thousands)
    
    2008
    
    change
    
    2007
    
    change
    
    2006Retail Sales Revenues
    
    $
    287,631
    
    
    
    4
    
    
    $
    276,894
    
    
    
    6
    
    
    $
    260,926Wholesale Revenues
    
    
    25,122
    
    
    
    13
    
    
    
    22,306
    
    
    
    (13
    )
    
    
    25,514Net Marked-to-Market Gains
    
    
    2,114
    
    
    
    (37
    )
    
    
    3,334
    
    
    
    639
    
    
    
    451Other Revenues
    
    
    25,153
    
    
    
    20
    
    
    
    20,944
    
    
    
    10
    
    
    
    19,123Total Operating Revenues
    
    $
    340,020
    
    
    
    5
    
    
    $
    323,478
    
    
    
    6
    
    
    $
    306,014Production Fuel
    
    
    71,930
    
    
    
    19
    
    
    
    60,482
    
    
    
    3
    
    
    
    58,729Purchased Power  System Use
    
    
    56,329
    
    
    
    (25
    )
    
    
    74,690
    
    
    
    28
    
    
    
    58,281Other Operation and Maintenance Expenses
    
    
    115,300
    
    
    
    8
    
    
    
    107,041
    
    
    
    3
    
    
    
    103,548Depreciation and Amortization
    
    
    31,755
    
    
    
    22
    
    
    
    26,097
    
    
    
    1
    
    
    
    25,756Property Taxes
    
    
    8,949
    
    
    
    (5
    )
    
    
    9,413
    
    
    
    (2
    )
    
    
    9,589Operating Income
    
    $
    55,757
    
    
    
    22
    
    
    $
    45,755
    
    
    
    (9
    )
    
    $
    50,111
 2008 compared with 2007




---



##### 



2007 compared with 2006




---



##### 



PLASTICS
  %
    
    
    
    
    
    %(in thousands)
    
    2008
    
    change
    
    2007
    
    change
    
    2006Operating Revenues
    
    $
    116,452
    
    
    
    (22
    )
    
    $
    149,012
    
    
    
    (9
    )
    
    $
    163,135Cost of Goods Sold
    
    
    104,186
    
    
    
    (16
    )
    
    
    124,344
    
    
    
    (2
    )
    
    
    126,374Operating Expenses
    
    
    4,956
    
    
    
    (31
    )
    
    
    7,223
    
    
    
    (29
    )
    
    
    10,239Depreciation and Amortization
    
    
    3,050
    
    
    
    (1
    )
    
    
    3,083
    
    
    
    10
    
    
    
    2,815Operating Income
    
    $
    4,260
    
    
    
    (70
    )
    
    $
    14,362
    
    
    
    (39
    )
    
    $
    23,707
 2008 compared with 2007
  2007 compared with 2006
  MANUFACTURING
  %
    
    
    
    
    
    %(in thousands)
    
    2008
    
    change
    
    2007
    
    change
    
    2006Operating Revenues
    
    $
    470,462
    
    
    
    23
    
    
    $
    381,599
    
    
    
    22
    
    
    $
    311,811Cost of Goods Sold
    
    
    389,060
    
    
    
    30
    
    
    
    300,146
    
    
    
    22
    
    
    
    246,649Operating Expenses
    
    
    44,093
    
    
    
    25
    
    
    
    35,278
    
    
    
    33
    
    
    
    26,508Plant Closure Costs
    
    
    2,295
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and Amortization
    
    
    19,260
    
    
    
    47
    
    
    
    13,124
    
    
    
    18
    
    
    
    11,076Operating Income
    
    $
    15,754
    
    
    
    (52
    )
    
    $
    33,051
    
    
    
    20
    
    
    $
    27,578
 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, Inc. (T.O. Plastics), our manufacturer of thermoformed
plastic and horticultural products, increased $2.5 million (6.5%) between the years as a
result of increased sales of horticultural products.
    
    Revenues at ShoreMaster, Inc. (ShoreMaster), our waterfront equipment manufacturer,
decreased $10.3 million (13.5%) between the years as a result of lower residential and
commercial sales.
  
    
    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 have been higher than expected and production has 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 large marina project in Costa
Rica, 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.




---



##### 



2007 compared with 2006
  
    
    Revenues at DMI increased $48.0 million (35.2%) as a result of increased productivity at
the West Fargo plant and increased production levels at the Ft. Erie plant compared with
initial start-up levels beginning in May 2006.
    
    Revenues at ShoreMaster increased $15.9 million (26.4%) between the years due to
increased production and sales of commercial products and higher residential sales during
the peak selling season. The Aviva Sports product line, acquired by ShoreMaster in February
2007, contributed $3.7 million to the increase in revenues.
    
    Revenues at BTD increased $3.5 million (4.5%) between the years, mainly as a result of
the May 2007 acquisition of Pro Engineering, LLC (Pro Engineering).
    
    Revenues at T.O. Plastics increased $2.4 million (6.4%) between the years as a result of
greater demand for both custom and horticultural products.
  
    
    Cost of goods sold at DMI increased $39.8 million between the years, including
increases of $30.4 million in material and supplies, $6.8 million in labor and benefit
costs and $2.6 million in other direct manufacturing costs. The increase in cost of goods
sold is directly related to DMIs increase in production and sales activity, including
operations at the Ft. Erie facilities which commenced in May 2006.
    
    Cost of goods sold at ShoreMaster increased $9.2 million between the years as a result
of increases in material and labor costs directly related to the increase in commercial
and residential product sales as well as the acquisition of the Aviva Sports product line
in February 2007, which contributed $2.9 million to cost of goods sold in 2007.
    
    Cost of goods sold at BTD increased $2.8 million between the years as a result of the
acquisition of Pro Engineering in May 2007, partially offset by a decrease in costs at
BTDs other manufacturing facilities related to a decrease in unit sales between the
years.
    
    Cost of goods sold at T.O. Plastics increased $2.1 million, mainly driven by an
increase in volume, as compared to 2006, and higher material costs.
  
    
    Operating expenses at DMI increased $3.0 million, including $2.0 million in 2007
pre-production start-up costs at its new plant in Oklahoma and increases in expenses
related to full operations at the Ft. Erie facility. The new plant in Oklahoma started
producing towers in January 2008.
    
    Operating expenses at ShoreMaster increased $3.9 million as a result of increases in
labor, benefits, sales expenses and professional services, of which $1.7 million is related
to the Aviva Sports product line acquired in February 2007 and $1.3 million is related to
facility relocation and legal expenses.
    
    Operating expenses at BTD increased $1.3 million between the years as a result of
increases in labor and other expenses, mainly related to the acquisition of Pro Engineering
in May 2007, and the reduction of a legal settlement reserve in 2006.
    
    Operating expenses at T.O. Plastics increased by $0.6 million between the years mainly
as a result of leadership succession costs and increases in professional service
expenditures.




---



##### 



HEALTH SERVICES
  %
    
    
    
    
    
    %(in thousands)
    
    2008
    
    change
    
    2007
    
    change
    
    2006Operating Revenues
    
    $
    122,520
    
    
    
    (6
    )
    
    $
    130,670
    
    
    
    (3
    )
    
    $
    135,051Cost of Goods Sold
    
    
    96,349
    
    
    
    (3
    )
    
    
    99,612
    
    
    
    (4
    )
    
    
    104,108Operating Expenses
    
    
    21,030
    
    
    
    (11
    )
    
    
    23,691
    
    
    
    4
    
    
    
    22,745Depreciation and Amortization
    
    
    4,133
    
    
    
    5
    
    
    
    3,937
    
    
    
    8
    
    
    
    3,660Operating Income
    
    $
    1,008
    
    
    
    (71
    )
    
    $
    3,430
    
    
    
    (24
    )
    
    $
    4,538
 2008 compared with 2007
 2007 compared with 2006
 FOOD INGREDIENT PROCESSING
  %
    
    
    
    
    
    %(in thousands)
    
    2008
    
    change
    
    2007
    
    change
    
    2006Operating Revenues
    
    $
    65,367
    
    
    
    (7
    )
    
    $
    70,440
    
    
    
    56
    
    
    $
    45,084Cost of Goods Sold
    
    
    55,415
    
    
    
    (2
    )
    
    
    56,591
    
    
    
    28
    
    
    
    44,233Operating Expenses
    
    
    2,998
    
    
    
    (4
    )
    
    
    3,135
    
    
    
    7
    
    
    
    2,920Depreciation and Amortization
    
    
    4,094
    
    
    
    4
    
    
    
    3,952
    
    
    
    5
    
    
    
    3,759Operating Income (Loss)
    
    $
    2,860
    
    
    
    (58
    )
    
    $
    6,762
    
    
    
    216
    
    
    $
    (5,828
    )
 2008 compared with 2007
  2007 compared with 2006




---



##### 



OTHER BUSINESS OPERATIONS
  %
    
    
    
    
    
    %(in thousands)
    
    2008
    
    change
    
    2007
    
    change
    
    2006Operating Revenues
    
    $
    199,511
    
    
    
    7
    
    
    $
    185,730
    
    
    
    28
    
    
    $
    145,603Cost of Goods Sold
    
    
    132,985
    
    
    
    
    
    
    
    133,407
    
    
    
    45
    
    
    
    91,806Operating Expenses
    
    
    54,538
    
    
    
    28
    
    
    
    42,448
    
    
    
    1
    
    
    
    41,867Depreciation and Amortization
    
    
    2,230
    
    
    
    8
    
    
    
    2,058
    
    
    
    (12
    )
    
    
    2,330Operating Income
    
    $
    9,758
    
    
    
    25
    
    
    $
    7,817
    
    
    
    (19
    )
    
    $
    9,600
 2008 compared with 2007
  
    
    Revenues at Foley Company (Foley), a mechanical and prime contractor on industrial
projects, increased $16.6 million (20.3%) between the years due to an increase in volume of
jobs performed.
    
    Revenues at E.W. Wylie Corporation (Wylie), our flatbed trucking company, 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.
    
    Revenues at Midwest Construction Services, Inc. (MCS), our electrical design and
construction services company, 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 MCS
supplied materials for more jobs in 2007 resulting in a reduction in material pass through
costs and revenues 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 MCS decreased $14.7 million due to decreases in material and
subcontractor costs directly related to MCS having fewer jobs in progress and supplying
materials on fewer jobs in 2008. However, MCS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.
    
    MCS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, (OTESCO), our energy services
subsidiary, increased $0.4 million between the years related to the investigation of
renewable energy wind-generation projects.
 2007 compared with 2006
  
    
    Revenues at MCS increased $22.9 million (49.9%) between the years as a result of an
increase in volume of jobs in 2007.
    
    Revenues at Foley increased $17.3 million (26.9%) between the years due to an increase
in the volume of jobs in progress.
    
    Revenues at Wylie were unchanged between the years.
  
    
    Cost of goods sold at MCS increased $25.0 million mainly due to increases in material,
subcontractor, direct labor and insurance costs related to the increase in volume of jobs
between the years. Lower than expected margins on certain construction projects at MCS was
the main factor contributing to the decrease in operating income between the years.
    
    Cost of goods sold at Foley increased $16.6 million mainly due to increases in direct
labor, employee benefits, and subcontractor and material costs as a result of the increased
volume of work performed between the years.
  
    
    Operating expenses at MCS were unchanged between the years.
    
    Operating expenses at Foley increased $0.5 million between the years as a result of
increased labor, benefit and insurance expenses. Also, Foleys 2006 expenses reflect the
recovery of $0.2 million in bad debts.
    
    Operating expenses at Wylie were unchanged between the years.
  CORPORATE
  %
    
    
    
    
    
    %(in thousands)
    
    2008
    
    change
    
    2007
    
    change
    
    2006Operating Expenses
    
    $
    15,867
    
    
    
    62
    
    
    $
    9,824
    
    
    
    (13
    )
    
    $
    11,322Depreciation and Amortization
    
    
    538
    
    
    
    (7
    )
    
    
    579
    
    
    
    (1
    )
    
    
    587
 2008 compared with 2007
  2007 compared with 2006




---



##### 



CONSOLIDATED OTHER INCOME AND DEDUCTIONS
   CONSOLIDATED INTEREST CHARGES
   CONSOLIDATED INCOME TAXES
   DISCONTINUED OPERATIONS
  IMPACT OF INFLATION




---



##### 



HOLDING COMPANY REORGANIZATION
  2009 BUSINESS OUTLOOK
   
    
    We expect increased levels of revenue and net income from our electric segment in 2009
as a result of recently granted rate increases and resource recovery riders. The expected
increase in revenues includes Minnesota and North Dakota renewable resource cost recovery
rider revenue related to the Ashtabula Wind Center that was placed in service in late
2008, an interim rate increase of approximately $4.8 million, or 4.1%, which is part of a
rate case filed with the NDPSC in November 2008 requesting a general rate increase of
approximately $6.1 million, or 5.1%. Interim rates remain in effect for all North Dakota
customers until the NDPSC makes a final determination on the electric utilitys request,
which is expected to occur by August 1, 2009. Expectations in 2009 also reflect a request
for an increase in revenues in South Dakota of approximately $3.8 million annually, or
15.3% ($1.3 million in 2009). A final decision on the request is expected from the SDPUC
in mid-summer 2009 with no provision for an increase in rates in the interim.
    
    We expect our plastics segments 2009 performance to be below 2008 earnings given
continued poor economic conditions. Announced capacity expansions are not expected to be
brought on line until the economy improves and demand for PVC pipe increases.
    
    We expect earnings from our manufacturing segment to improve in 2009. Business
conditions at BTD remain relatively strong and earnings are expected to increase in 2009
given full year operating results of Miller Welding, acquired in May 2008, an expanded
customer base and expected improvements in manufacturing processes. While the economy is
expected to impact the amount of spending on waterfront products, earnings are expected to
improve at ShoreMaster compared with 2008 given the restructuring that has occurred in its
business. The Adelanto facility has been closed, workforce reductions have been put in
place, capital spending is being limited and improved profitability is expected on
commercial projects in 2009. At DMI, we expect a decline in earnings in 2009 due to wind
developers limited access to financing which has resulted in cancellation or suspension
of orders across the industry. Industry forecasts for megawatt installations of wind power
in 2009 portray a decrease of between 25 to 50 percent from 2008. T. O. Plastics earnings
are expected to remain flat between the years.
Backlog in place in the manufacturing segment to support 2009 revenues is approximately
$241 million compared with $295 million one year ago.




---



##### 




    
    We expect increased net income from our health services segment in 2009 as it focuses
on improving its mix of imaging assets and asset utilization rates and has implemented
cost reductions across the segment.
    
    We expect increased net income from our food ingredient processing business in 2009
based on expectations of higher sales volumes, strong pricing for products, lower energy
costs and higher production levels in 2009 compared with 2008. This business has backlog
in place for 2009 of 48 million pounds compared with 52 million pounds one year ago.
    
    We expect our other business operations segment to have a similar level of earnings in
2009 compared with 2008. Backlog in place for the construction businesses is $71 million
for 2009 compared with $77 million one year ago.
    
    We expect corporate general and administrative costs to decrease in 2009.
  LIQUIDITY
  In Use on
    
    Restricted due toDecember 31,
    
    Outstanding
    
    Available on(in thousands)
    
    Line Limit
    
    2008
    
    Letters of Credit
    
    December 31, 2008Varistar Credit Agreement
    
    $
    200,000
    
    
    $
    107,849
    
    
    $
    14,445
    
    
    $
    77,706Electric Utility Credit Agreement
    
    
    170,000
    
    
    
    27,065
    
    
    
    
    
    
    
    142,935Total
    
    $
    370,000
    
    
    $
    134,914
    
    
    $
    14,445
    
    
    $
    220,641




---



##### 








---



##### 



CAPITAL REQUIREMENTS
   (in millions)
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    
    2009-2013Electric
    
    $
    35
    
    
    $
    104
    
    
    $
    199
    
    
    $
    35
    
    
    
    $
    698Plastics
    
    
    5
    
    
    
    3
    
    
    
    9
    
    
    
    5
    
    
    
    
    18Manufacturing
    
    
    20
    
    
    
    43
    
    
    
    48
    
    
    
    13
    
    
    
    
    115Health Services
    
    
    5
    
    
    
    5
    
    
    
    4
    
    
    
    3
    
    
    
    
    27Food Ingredient Processing
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    3
    
    
    
    
    14Other Business Operations
    
    
    2
    
    
    
    6
    
    
    
    4
    
    
    
    2
    
    
    
    
    11Corporate
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    1Total
    
    $
    69
    
    
    $
    162
    
    
    $
    266
    
    
    $
    61
    
    
    
    $
    884




---



##### 



Less than
    
    1-3
    
    3-5
    
    More than(in millions)
    
    Total
    
    1 Year
    
    Years
    
    Years
    
    5 YearsLong-Term Debt Obligations
    
    $
    343
    
    
    $
    4
    
    
    $
    94
    
    
    $
    10
    
    
    $
    235Interest on Long-Term Debt Obligations
    
    
    246
    
    
    
    21
    
    
    
    40
    
    
    
    28
    
    
    
    157Coal Contracts (required minimums)
    
    
    154
    
    
    
    54
    
    
    
    60
    
    
    
    18
    
    
    
    22Capacity and Energy Requirements
    
    
    140
    
    
    
    24
    
    
    
    17
    
    
    
    11
    
    
    
    88Operating Lease Obligations
    
    
    130
    
    
    
    46
    
    
    
    57
    
    
    
    17
    
    
    
    10Postretirement Benefit Obligations
    
    
    58
    
    
    
    3
    
    
    
    7
    
    
    
    8
    
    
    
    40Other Purchase Obligations
    
    
    42
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Cash Obligations
    
    $
    1,113
    
    
    $
    194
    
    
    $
    275
    
    
    $
    92
    
    
    $
    552
  CAPITAL RESOURCES
  Restricted due toIn Use on
    
    Outstanding Letters
    
    Available on(in thousands)
    
    Line Limit
    
    December 31, 2008
    
    of Credit
    
    December 31, 2008Varistar Credit Agreement
    
    $
    200,000
    
    
    $
    107,849
    
    
    $
    14,445
    
    
    $
    77,706Electric Utility Credit Agreement
    
    
    170,000
    
    
    
    27,065
    
    
    
    
    
    
    
    142,935Total
    
    $
    370,000
    
    
    $
    134,914
    
    
    $
    14,445
    
    
    $
    220,641




---



##### 



Financial Covenants




---



##### 



Moody's Investors
    
    StandardService
    
    & Poor'sSenior Unsecured Debt
    
    A3
    
    BBB-Preferred Stock
    
    Not rated
    
    BBOutlook
    
    Negative
    
    Stable
     
 OFF-BALANCE-SHEET ARRANGEMENTS




---



##### 



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 expenses.




---



##### 



Any significant impairment of our goodwill would cause a decrease in our assets and a reduction in
our net operating performance.
     Economic conditions could negatively impact our businesses.
  If we are unable to achieve the organic growth we expect, our financial performance may be
adversely affected.




---



##### 



Our plans to grow and 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.
  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.
   We may not be able to respond effectively to deregulation initiatives in the electric industry,
which could result in reduced revenues and earnings.
  Our electric generating facilities are subject to operational risks that could result in
unscheduled plant outages, unanticipated operation and maintenance expenses and increased power
purchase costs.




---



##### 



Changes to regulation of generating plant emissions, including but not limited to carbon dioxide
(CO 2 ) emissions, could affect our operating costs and the costs of supplying electricity
to our customers.
 2 2
 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.
  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
Medical from which we derive significant revenues from the sale and service of Philips Medical
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.




---



##### 



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.
  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




---



##### 



(in thousands)
    
    December 31, 2008Current Asset  Marked-to-Market Gain
    
    $
    405Regulatory Asset  Deferred Marked-to-Market Loss
    
    
    1,162Total Assets
    
    
    1,567Current Liability  Marked-to-Market Loss
    
    
    (1,690
    )Regulatory Liability  Deferred Marked-to-Market Gain
    
    
    Total Liabilities
    
    
    (1,690
    )Net Fair Value of Marked-to-Market Energy Contracts
    
    $
    (123
    )
 Year ended(in thousands)
    
    December 31, 2008Fair Value at Beginning of Year
    
    $
    632Amount Realized on Contracts Entered into in 2007 and Settled in 2008
    
    
    (1,169
    )Changes in Fair Value of Contracts Entered into in 2007
    
    
    537Net Fair Value of Contracts Entered into in 2007 at Year End 2008
    
    
    Changes in Fair Value of Contracts Entered into in 2008
    
    
    (123
    )Net Fair Value at End of Year
    
    $
    (123
    )




---



##### 



Accounting for Derivatives and Hedging Instruments,
  (in thousands)
    
    Settlement Periods
    
    USD
    
    CADContracts entered into in March 2008
    
    April 2008  December 2008
    
    $
    3,600
    
    
    $
    3,695Net Mark-to-Market Losses Realized on Settlement
    
    April 2008  December 2008
    
    
    (224
    )Contracts entered into in July 2008
    
    August 2008  July 2009
    
    $
    4,800
    
    
    $
    5,003Net Mark-to-Market Losses Realized on Settlement
    
    August 2008  December 2008
    
    
    (203
    )Mark-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 Realized on Settlement in 2008
    
    
    
    
    
    $
    (427
    )Net Mark-to-Market Losses Recognized on Open Contracts at
Year End 2008
    
    
    
    
    
    
    (289
    )Net Mark-to-Market Losses Recognized in 2008
    
    
    
    
    
    $
    (716
    )




---



##### 



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




---



##### 



REVENUE RECOGNITION
  FORWARD ENERGY CONTRACTS CLASSIFIED AS DERIVATIVES
  ALLOWANCE FOR DOUBTFUL ACCOUNTS




---



##### 



DEPRECIATION EXPENSE AND DEPRECIABLE LIVES
   TAXATION
 Accounting for Uncertainty in Income Taxes  an interpretation of FASB
Statement No. 109, Accounting for Income Taxes
  ASSET IMPAIRMENT
 Accounting for the Impairment or Disposal of Long-Lived Assets




---



##### 



GOODWILL IMPAIRMENT
 Goodwill
and Other Intangible Assets
  
 PURCHASE ACCOUNTING
 Business Combinations
     Business Combinations




---



##### 



KEY ACCOUNTING PRONOUNCEMENTS
 SFAS No. 157, Fair Value Measurements,
 SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an
Amendment of FASB Statement No. 115,
 SFAS No. 141(R) Business Combinations Business Combinations,
 SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB
Statement No. 133,




---



##### 



Managements Report Regarding Internal Control Over Financial Reporting
   Internal Control  Integrated Framework
    /s/ John EricksonJohn EricksonPresident and Chief Executive Officer /s/ Kevin MougKevin MougChief Financial Officer




---



##### 



TO THE SHAREHOLDERS OF OTTER TAIL CORPORATION




---



##### 



Otter Tail Corporation
 Consolidated Statements of Income For the Years Ended December 31(in thousands, except per-share amounts)
    
    2008
    
    
    2007
    
    
    2006Operating RevenuesElectric
    
    $
    339,726
    
    
    $
    323,158
    
    
    $
    305,703Nonelectric
    
    
    971,471
    
    
    
    915,729
    
    
    
    799,251Total Operating Revenues
    
    
    1,311,197
    
    
    
    1,238,887
    
    
    
    1,104,954Operating ExpensesProduction Fuel  Electric
    
    
    71,930
    
    
    
    60,482
    
    
    
    58,729Purchased Power  Electric System Use
    
    
    56,329
    
    
    
    74,690
    
    
    
    58,281Electric Operation and Maintenance Expenses
    
    
    115,300
    
    
    
    107,041
    
    
    
    103,548Cost of Goods Sold  Nonelectric (excludes depreciation; included below)
    
    
    775,292
    
    
    
    712,547
    
    
    
    611,737Other Nonelectric Expenses
    
    
    143,050
    
    
    
    121,110
    
    
    
    115,290Plant Closure Costs
    
    
    2,295
    
    
    
    
    
    
    
    Depreciation and Amortization
    
    
    65,060
    
    
    
    52,830
    
    
    
    49,983Property Taxes  Electric
    
    
    8,949
    
    
    
    9,413
    
    
    
    9,589Total Operating Expenses
    
    
    1,238,205
    
    
    
    1,138,113
    
    
    
    1,007,157Operating Income
    
    
    72,992
    
    
    
    100,774
    
    
    
    97,797Other Income and Deductions
    
    
    4,128
    
    
    
    2,012
    
    
    
    (440
    )Interest Charges
    
    
    26,958
    
    
    
    20,857
    
    
    
    19,501Income from Continuing Operations Before Income Taxes
    
    
    50,162
    
    
    
    81,929
    
    
    
    77,856Income Taxes  Continuing Operations
    
    
    15,037
    
    
    
    27,968
    
    
    
    27,106Net Income from Continuing Operations
    
    
    35,125
    
    
    
    53,961
    
    
    
    50,750Discontinued OperationsIncome from Discontinued Operations Net of Taxes of $28 in 2006
    
    
    
    
    
    
    
    
    
    
    26Gain on Disposition of Discontinued Operations Net of Taxes of $224 in
2006
    
    
    
    
    
    
    
    
    
    
    336Net Income from Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    362Net Income
    
    
    35,125
    
    
    
    53,961
    
    
    
    51,112Preferred Dividend Requirements
    
    
    736
    
    
    
    736
    
    
    
    736Earnings Available for Common Shares
    
    $
    34,389
    
    
    $
    53,225
    
    
    $
    50,376Average Number of Common Shares OutstandingBasic
    
    
    31,409
    
    
    
    29,681
    
    
    
    29,394Average Number of Common Shares OutstandingDiluted
    
    
    31,673
    
    
    
    29,970
    
    
    
    29,664Basic Earnings Per Share:Continuing Operations (net of preferred dividend requirements)
    
    $
    1.09
    
    
    $
    1.79
    
    
    $
    1.70Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    0.01$
    1.09
    
    
    $
    1.79
    
    
    $
    1.71Diluted Earnings Per Share:Continuing Operations (net of preferred dividend requirements)
    
    $
    1.09
    
    
    $
    1.78
    
    
    $
    1.69Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    0.01$
    1.09
    
    
    $
    1.78
    
    
    $
    1.70Dividends Per Common Share
    
    $
    1.19
    
    
    $
    1.17
    
    
    $
    1.15
 See accompanying notes to consolidated financial statements.




---



##### 



Otter Tail Corporation
 Consolidated Balance Sheets, December 31(in thousands)
    
    2008
    
    
    2007AssetsCurrent AssetsCash and Cash Equivalents
    
    $
    7,565
    
    
    $
    39,824Accounts Receivable:Trade (less allowance for doubtful accounts of
$2,744 for 2008 and $3,811 for 2007)
    
    
    136,609
    
    
    
    151,446Other
    
    
    13,587
    
    
    
    14,934Inventories
    
    
    101,955
    
    
    
    97,214Deferred Income Taxes
    
    
    8,386
    
    
    
    7,200Accrued Utility and Cost-of-Energy Revenues
    
    
    24,030
    
    
    
    32,501Costs and Estimated Earnings in Excess of Billings
    
    
    65,606
    
    
    
    42,234Income Taxes Receivable
    
    
    26,754
    
    
    
    283Other
    
    
    8,519
    
    
    
    15,016Total Current Assets
    
    
    393,011
    
    
    
    400,652Investments
    
    
    7,542
    
    
    
    10,057Other Assets
    
    
    22,615
    
    
    
    24,500Goodwill
    
    
    106,778
    
    
    
    99,242Other IntangiblesNet
    
    
    35,441
    
    
    
    20,456Deferred DebitsUnamortized Debt Expense and Reacquisition Premiums
    
    
    7,247
    
    
    
    6,986Regulatory Assets and Other Deferred Debits
    
    
    82,384
    
    
    
    38,837Total Deferred Debits
    
    
    89,631
    
    
    
    45,823PlantElectric Plant in Service
    
    
    1,205,647
    
    
    
    1,028,917Nonelectric Operations
    
    
    321,032
    
    
    
    257,590Total
    
    
    1,526,679
    
    
    
    1,286,507Less Accumulated Depreciation and Amortization
    
    
    548,070
    
    
    
    506,744PlantNet of Accumulated Depreciation and Amortization
    
    
    978,609
    
    
    
    779,763Construction Work in Progress
    
    
    58,960
    
    
    
    74,261Net Plant
    
    
    1,037,569
    
    
    
    854,024Total
    
    $
    1,692,587
    
    
    $
    1,454,754
 See accompanying notes to consolidated financial statements.




---



##### 



Otter Tail Corporation
 Consolidated Balance Sheets, December 31(in thousands, except share data)
    
    2008
    
    
    2007Liabilities and EquityCurrent LiabilitiesShort-Term Debt
    
    $
    134,914
    
    
    $
    95,000Current Maturities of Long-Term Debt
    
    
    3,747
    
    
    
    3,004Accounts Payable
    
    
    113,422
    
    
    
    141,390Accrued Salaries and Wages
    
    
    29,688
    
    
    
    29,283Accrued Taxes
    
    
    10,939
    
    
    
    11,409Other Accrued Liabilities
    
    
    12,034
    
    
    
    13,873Total Current Liabilities
    
    
    304,744
    
    
    
    293,959Pensions Benefit Liability
    
    
    80,912
    
    
    
    39,429Other Postretirement Benefits Liability
    
    
    32,621
    
    
    
    30,488Other Noncurrent Liabilities
    
    
    19,391
    
    
    
    23,228Commitments (note 9)Deferred CreditsDeferred Income Taxes
    
    
    123,086
    
    
    
    105,813Deferred Tax Credits
    
    
    34,288
    
    
    
    16,761Regulatory Liabilities
    
    
    64,684
    
    
    
    62,705Other
    
    
    397
    
    
    
    275Total Deferred Credits
    
    
    222,455
    
    
    
    185,554Capitalization (page 44)Long-Term Debt, Net of Current Maturities
    
    
    339,726
    
    
    
    342,694Class B Stock Options of Subsidiary
    
    
    1,220
    
    
    
    1,255Cumulative Preferred Shares
    
    
    15,500
    
    
    
    15,500Common Shares, Par Value $5 Per ShareAuthorized, 50,000,000 Shares;
Outstanding, 200835,384,620 Shares; 200729,849,789 Shares
    
    
    176,923
    
    
    
    149,249Premium on Common Shares
    
    
    241,731
    
    
    
    108,885Retained Earnings
    
    
    260,364
    
    
    
    263,332Accumulated Other Comprehensive (Loss) Income
    
    
    (3,000
    )
    
    
    1,181Total Common Equity
    
    
    676,018
    
    
    
    522,647Total Capitalization
    
    
    1,032,464
    
    
    
    882,096Total
    
    $
    1,692,587
    
    
    $
    1,454,754
 See accompanying notes to consolidated financial statements.




---



##### 



Otter Tail Corporation
 Consolidated Statements of Common Shareholders Equity and Comprehensive Income
 AccumulatedCommon
    
    Par Value,
    
    Premium on
    
    
    
    
    
    
    
    
    
    OtherShares
    
    Common
    
    Common
    
    Unearned
    
    Retained
    
    Comprehensive
    
    Total(in thousands, except common shares outstanding)
    
    Outstanding
    
    Shares
    
    Shares
    
    Compensation
    
    Earnings
    
    (Loss)/Income
    
    EquityBalance, December 31, 2005
    
    
    29,401,223
    
    
    $
    147,006
    
    
    $
    96,768
    
    
    $
    (1,720
    )
    
    $
    228,515
    
    
    $
    (6,139
    )
    
    $
    464,430Common Stock Issuances, Net of Expenses
    
    
    136,917
    
    
    
    685
    
    
    
    1,837
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,522Common Stock Retirements
    
    
    (16,370
    )
    
    
    (82
    )
    
    
    (378
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (460
    )SFAS No. 123(R) Reclassifications (note 7)
    
    
    
    
    
    
    
    
    
    
    (2,490
    )
    
    
    1,720
    
    
    
    
    
    
    
    
    
    
    
    (770
    )Comprehensive Income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,112
    
    
    
    
    
    
    
    51,112Unrealized Gain on Marketable Equity Securities (net-of-tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    56Foreign Currency Exchange Translation (net-of-tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    6SFAS No. 87 Minimum Pension Liability Adjustment (net-of-tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,257
    
    
    
    4,257Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,431SFAS No. 158 Items (net-of-tax)Reversal of 12/31/06 Minimum Pension Liability Balance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,296
    
    
    
    3,296Unrecognized Postretirement Benefit Costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,585
    )
    
    
    (24,585
    )Unrecognized Costs Classified as Regulatory Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,042
    
    
    
    22,042Tax Benefit for Exercise of Stock Options
    
    
    
    
    
    
    
    
    
    
    288
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    288Stock Incentive Plan Performance Award Accrual
    
    
    
    
    
    
    
    
    
    
    2,404
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,404Vesting of Restricted Stock Granted to Employees
    
    
    
    
    
    
    
    
    
    
    1,096
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,096Premium on Purchase of Stock for Employee Purchase Plan
    
    
    
    
    
    
    
    
    
    
    (302
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (302
    )Cumulative Preferred Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (736
    )
    
    
    
    
    
    
    (736
    )Common Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,886
    )
    
    
    
    
    
    
    (33,886
    )Balance, 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)
    
    $
    676,018
 (a)Accumulated Other Comprehensive Income (Loss) on December 31 is comprised of the following (in thousands)
    
    Before Tax
    
    Tax Effect
    
    Net-of-TaxUnamortized Actuarial Losses and Transition Obligation Related to Pension and Postretirement Benefits
    
    $
    (4,238
    )
    
    $
    1,695
    
    
    $
    (2,543
    )2006
    
    
    Foreign Currency Exchange Translation
    
    
    2,430
    
    
    
    (972
    )
    
    
    1,458Unrealized Gain on Marketable Equity Securities
    
    
    30
    
    
    
    (12
    )
    
    
    18Net Accumulated Other Comprehensive Loss
    
    $
    (1,778
    )
    
    $
    711
    
    
    $
    (1,067
    )Unamortized Actuarial Losses and Transition Obligation Related to Pension and Postretirement Benefits
    
    $
    (3,863
    )
    
    $
    1,545
    
    
    $
    (2,318
    )2007
    
    
    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 Transition Obligation Related to Pension and Postretirement Benefits
    
    $
    (6,125
    )
    
    $
    2,450
    
    
    $
    (3,675
    )2008
    
    
    Foreign Currency Exchange Translation
    
    
    1,155
    
    
    
    (462
    )
    
    
    693Unrealized Gain on Marketable Equity Securities
    
    
    (30
    )
    
    
    12
    
    
    
    (18
    )Net Accumulated Other Comprehensive Loss
    
    $
    (5,000
    )
    
    $
    2,000
    
    
    $
    (3,000
    )
 See accompanying notes to consolidated financial statements.




---



##### 



Otter Tail Corporation
 Consolidated Statements of Cash FlowsFor the Years Ended December 31
 (in thousands)
    
    2008
    
    
    2007
    
    
    2006Cash Flows from Operating ActivitiesNet Income
    
    $
    35,125
    
    
    $
    53,961
    
    
    $
    51,112Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:Net Gain on Sale of Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    (336
    )Income from Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    (26
    )Depreciation and Amortization
    
    
    65,060
    
    
    
    52,830
    
    
    
    49,983Deferred Tax Credits
    
    
    (1,692
    )
    
    
    (1,169
    )
    
    
    (1,146
    )Deferred Income Taxes
    
    
    40,665
    
    
    
    4,366
    
    
    
    (1,258
    )Change in Deferred Debits and Other Assets
    
    
    (41,851
    )
    
    
    6,505
    
    
    
    (38,499
    )Discretionary Contribution to Pension Plan
    
    
    (2,000
    )
    
    
    (4,000
    )
    
    
    (4,000
    )Change in Noncurrent Liabilities and Deferred Credits
    
    
    40,918
    
    
    
    481
    
    
    
    45,340Allowance for Equity (Other) Funds Used During Construction
    
    
    (2,786
    )
    
    
    
    
    
    
    2,529Change in Derivatives Net of Regulatory Deferral
    
    
    1,044
    
    
    
    (800
    )
    
    
    3,083Stock Compensation Expense
    
    
    3,850
    
    
    
    2,986
    
    
    
    2,404OtherNet
    
    
    298
    
    
    
    (1,837
    )
    
    
    418Cash Provided by (Used for) Current Assets and Current Liabilities:Change in Receivables
    
    
    19,522
    
    
    
    (18,903
    )
    
    
    (15,713
    )Change in Inventories
    
    
    (743
    )
    
    
    8,407
    
    
    
    (14,345
    )Change in Other Current Assets
    
    
    (12,362
    )
    
    
    (14,333
    )
    
    
    (17,409
    )Change in Payables and Other Current Liabilities
    
    
    (8,572
    )
    
    
    (2,556
    )
    
    
    23,022Change in Interest Payable and Income Taxes Receivable/Payable
    
    
    (25,155
    )
    
    
    (1,126
    )
    
    
    (5,952
    )Net Cash Provided by Continuing Operations
    
    
    111,321
    
    
    
    84,812
    
    
    
    79,207Net Cash Provided by Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    1,039Net Cash Provided by Operating Activities
    
    
    111,321
    
    
    
    84,812
    
    
    
    80,246Cash Flows from Investing ActivitiesCapital Expenditures
    
    
    (265,888
    )
    
    
    (161,985
    )
    
    
    (69,448
    )Proceeds from Disposal of Noncurrent Assets
    
    
    8,174
    
    
    
    12,486
    
    
    
    5,233AcquisitionsNet of Cash Acquired
    
    
    (41,674
    )
    
    
    (6,750
    )
    
    
    Net Decrease (Increase) in Other Investments
    
    
    4
    
    
    
    (7,745
    )
    
    
    (3,326
    )Net Cash Used in Investing Activities  Continuing Operations
    
    
    (299,384
    )
    
    
    (163,994
    )
    
    
    (67,541
    )Net Proceeds from Sale of Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    1,960Net Cash Used in Investing Activities
    
    
    (299,384
    )
    
    
    (163,994
    )
    
    
    (65,581
    )Cash Flows from Financing ActivitiesChange in Checks Written in Excess of Cash
    
    
    
    
    
    
    
    
    
    
    (11
    )Net Short-Term Borrowings
    
    
    39,914
    
    
    
    56,100
    
    
    
    22,900Proceeds from Issuance of Common Stock
    
    
    162,978
    
    
    
    7,733
    
    
    
    2,444Common Stock Issuance Expenses
    
    
    (6,418
    )
    
    
    
    
    
    
    Payments for Retirement of Common Stock and Class B Stock of Subsidiary
    
    
    (91
    )
    
    
    (305
    )
    
    
    (463
    )Proceeds from Issuance of Long-Term Debt
    
    
    1,240
    
    
    
    205,129
    
    
    
    149Short-Term and Long-Term Debt Issuance Expenses
    
    
    (1,252
    )
    
    
    (1,762
    )
    
    
    (458
    )Payments for Retirement of Long-Term Debt
    
    
    (3,639
    )
    
    
    (118,171
    )
    
    
    (3,287
    )Dividends Paid
    
    
    (38,093
    )
    
    
    (35,516
    )
    
    
    (34,621
    )Net Cash Provided by (Used in) Financing Activities
    
    
    154,639
    
    
    
    113,208
    
    
    
    (13,347
    )Effect of Foreign Exchange Rate Fluctuations on Cash
    
    
    1,165
    
    
    
    (993
    )
    
    
    43Net Change in Cash and Cash Equivalents
    
    
    (32,259
    )
    
    
    33,033
    
    
    
    1,361Cash and Cash Equivalents at Beginning of Year  Continuing Operations
    
    
    39,824
    
    
    
    6,791
    
    
    
    5,430Cash and Cash Equivalents at End of Year  Continuing Operations
    
    $
    7,565
    
    
    $
    39,824
    
    
    $
    6,791
 See accompanying notes to consolidated financial statements.




---



##### 



Otter Tail Corporation
 Consolidated Statements of Capitalization, December 31
 (in thousands, except share data)
    
    2008
    
    
    2007Long-Term DebtSenior Unsecured Notes 6.63%, due December 1, 2011
    
    $
    90,000
    
    
    $
    90,000Senior Unsecured Note 5.778%, due November 30, 2017
    
    
    50,000
    
    
    
    50,000Senior Unsecured Notes 6.47%, Series D, due August 20, 2037
    
    
    50,000
    
    
    
    50,000Senior Unsecured Notes 6.37%, Series C, due August 20, 2027
    
    
    42,000
    
    
    
    42,000Senior Unsecured Notes 5.95%, Series A, due August 20, 2017
    
    
    33,000
    
    
    
    33,000Senior 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
    
    
    20,625
    
    
    
    20,705Pollution Control Refunding Revenue Bonds, Variable, 4.00% at December 31, 2008, due December 1, 2012
    
    
    10,400
    
    
    
    10,400Lombard US Equipment Finance Note 6.76%, due October 2, 2010
    
    
    4,657
    
    
    
    6,986Grant County, South Dakota Pollution Control Refunding Revenue Bonds 4.65%, due September 1, 2017
    
    
    5,165
    
    
    
    5,185Obligations of Varistar Corporation  Various up to 9.69% at December 31, 2008
    
    
    7,982
    
    
    
    7,891Total
    
    
    343,829
    
    
    
    346,167Less:Current Maturities
    
    
    3,747
    
    
    
    3,004Unamortized Debt Discount
    
    
    356
    
    
    
    469Total Long-Term Debt
    
    
    339,726
    
    
    
    342,694Class B Stock Options of Subsidiary
    
    
    1,220
    
    
    
    1,255Cumulative 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, 2008$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
    
    $
    101.6875
    
    
    
    4,000
    
    
    
    4,000Total Preferred
    
    
    
    
    
    
    15,500
    
    
    
    15,500Cumulative Preference SharesWithout Par Value, Authorized 1,000,000 Shares; Outstanding: NoneTotal Common Shareholders Equity
    
    
    
    
    
    
    676,018
    
    
    
    522,647Total Capitalization
    
    
    
    
    
    $
    1,032,464
    
    
    $
    882,096
 See accompanying notes to consolidated financial statements.




---



##### 



1. Summary of Significant Accounting Policies
 Principles of Consolidation  Accounting for the Effects of Certain Types of Regulation
 Regulation and Statement of Financial Accounting Standards No. 71
  Plant, Retirements and Depreciation
  Jointly Owned Plants
 (in thousands)
    
    2008
    
    2007Big Stone Plant:Electric Plant in Service
    
    $
    135,623
    
    
    $
    136,493Accumulated Depreciation
    
    
    (74,416
    )
    
    
    (72,342
    )Net Plant
    
    $
    61,207
    
    
    $
    64,151Coyote Station:Electric Plant in Service
    
    $
    148,109
    
    
    $
    147,724Accumulated Depreciation
    
    
    (86,911
    )
    
    
    (83,417
    )Net Plant
    
    $
    61,198
    
    
    $
    64,307




---



##### 



Recoverability of Long-Lived Assets
 Income Taxes  Accounting for Uncertainty
in Income Taxes  an interpretation of FASB Statement No. 109,
 Revenue Recognition  Accounting for Derivative Instruments and Hedging Activities,




---



##### 



December 31,
    
    December 31,(in thousands)
    
    2008
    
    2007Costs Incurred on Uncompleted Contracts
    
    $
    377,237
    
    
    $
    286,358Less Billings to Date
    
    
    (366,931
    )
    
    
    (292,692
    )Plus Estimated Earnings Recognized
    
    
    47,355
    
    
    
    38,275$
    57,661
    
    
    $
    31,941
  December 31,
    
    December 31,(in thousands)
    
    2008
    
    2007Costs and Estimated Earnings in Excess of
Billings on Uncompleted Contracts
    
    $
    65,606
    
    
    $
    42,234Billings in Excess of Costs and Estimated
Earnings on Uncompleted Contracts
    
    
    (7,945
    )
    
    
    (10,293
    )$
    57,661
    
    
    $
    31,941
  Retainage
 Sales of Receivables  Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
 Marketing and Sales Incentive Costs  Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of a Vendors
Products)




---



##### 



Foreign Currency Translation
  Shipping and Handling Costs
 Use of Estimates
 Cash Equivalents
 Supplemental Disclosures of Cash Flow Information
 (in thousands)
    
    2008
    
    2007
    
    2006Increases (Decreases) in Accounts Payable and Other
Liabilities Related to Capital Expenditures
    
    $
    (22,729
    )
    
    $
    23,514
    
    
    $
    1,401Noncash Investing and Financing Transactions:Capital Leases
    
    $
    2,084
    
    
    
    
    
    
    
    Cash Paid During the Year from Continuing Operations for:Interest (net of amount capitalized)
    
    $
    25,032
    
    
    $
    18,155
    
    
    $
    18,456Income Taxes
    
    $
    1,356
    
    
    $
    25,906
    
    
    $
    35,061Cash Paid During the Year from Discontinued Operations for:Interest
    
    $
    
    
    
    $
    
    
    
    $
    91Income Taxes
    
    $
    
    
    
    $
    
    
    
    $
    423
 Investments
 December 31,
    
    December 31,(in thousands)
    
    2008
    
    2007Cost Method:Economic Development Loan Pools
    
    $
    528
    
    
    $
    655Other
    
    
    1,057
    
    
    
    1,303Equity Method:Affordable Housing and Other Partnerships
    
    
    1,441
    
    
    
    1,851Marketable Securities Classified as Available-for-Sale
    
    
    4,516
    
    
    
    6,248Total Investments
    
    $
    7,542
    
    
    $
    10,057




---



##### 



Consolidation of Variable Interest Entities,
  Fair Value Measurements  Fair Value Measurements
     (in thousands)
    
    Level 1
    
    Level 2
    
    Level 3
    
    TotalAssets:Investments for Nonqualified Retirement Savings
Retirement Plan:Money Market and Mutual Funds and Cash
    
    $
    890
    
    
    $
    
    
    
    
    
    
    
    $
    890Cash Surrender Value of Life Insurance Policies
    
    
    
    
    
    
    8,014
    
    
    
    
    
    
    
    8,014Cash Surrender Value of Keyman Life Insurance
Policies  Net of Policy Loans
    
    
    
    
    
    
    10,244
    
    
    
    
    
    
    
    10,244Forward Energy Contracts
    
    
    
    
    
    
    405
    
    
    
    
    
    
    
    405Investments of Captive Insurance Company:Corporate Debt Securities
    
    
    3,569
    
    
    
    
    
    
    
    
    
    
    
    3,569U.S. Government Debt Securities
    
    
    947
    
    
    
    
    
    
    
    
    
    
    
    947Total Assets
    
    $
    5,406
    
    
    $
    18,663
    
    
    
    
    
    
    $
    24,069Liabilities:Forward Energy Contracts
    
    $
    
    
    
    $
    1,690
    
    
    $
    
    
    
    $
    1,690Forward Foreign Currency Exchange Contracts
    
    
    289
    
    
    
    
    
    
    
    
    
    
    
    289Asset Retirement Obligations
    
    
    
    
    
    
    
    
    
    
    3,298
    
    
    
    3,298Total Liabilities
    
    $
    289
    
    
    $
    1,690
    
    
    $
    3,298
    
    
    $
    5,277Net Assets (Liabilities)
    
    $
    5,117
    
    
    $
    16,973
    
    
    $
    (3,298
    )
    
    $
    18,792




---



##### 



Inventories
 December 31,
    
    December 31,(in thousands)
    
    2008
    
    2007Finished Goods
    
    $
    38,943
    
    
    $
    38,952Work in Process
    
    
    10,205
    
    
    
    5,218Raw Material, Fuel and Supplies
    
    
    52,807
    
    
    
    53,044Total Inventories
    
    $
    101,955
    
    
    $
    97,214
 Goodwill and Intangible Assets  Goodwill and Other Intangible Assets, Accounting for
the Impairment or Disposal of Long-Lived Assets
 
 Adjustmentto Goodwill relatedBalance December 31,
    
    to assets sold in
    
    Goodwill Acquired
    
    Balance December 31,(in thousands)
    
    2007
    
    2008
    
    in 2008
    
    2008Plastics
    
    $
    19,302
    
    
    $
    
    
    
    $
    
    
    
    $
    19,302Manufacturing
    
    
    16,746
    
    
    
    
    
    
    
    7,986
    
    
    
    24,732Health Services
    
    
    24,328
    
    
    
    (450
    )
    
    
    
    
    
    
    23,878Food Ingredient Processing
    
    
    24,324
    
    
    
    
    
    
    
    
    
    
    
    24,324Other Business Operations
    
    
    14,542
    
    
    
    
    
    
    
    
    
    
    
    14,542Total
    
    $
    99,242
    
    
    $
    (450
    )
    
    $
    7,986
    
    
    $
    106,778
  Gross Carrying
    
    Accumulated
    
    Net Carrying
    
    Amortization2008(in thousands)
    
    Amount
    
    Amortization
    
    Amount
    
    PeriodsAmortized 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
    
    
    $
    
    
    
    $
    9,8662007(in thousands)Amortized Intangible Assets:Covenants Not to Compete
    
    $
    2,637
    
    
    $
    2,113
    
    
    $
    524
    
    
    3  5 yearsCustomer Relationships
    
    
    10,879
    
    
    
    1,469
    
    
    
    9,410
    
    
    15  25 yearsOther Intangible Assets
Including Contracts
    
    
    2,785
    
    
    
    1,775
    
    
    
    1,010
    
    
    5  30 yearsTotal
    
    $
    16,301
    
    
    $
    5,357
    
    
    $
    10,944Nonamortized Intangible Assets:Brand/Trade Name
    
    $
    9,512
    
    
    $
    
    
    
    $
    9,512




---



##### 



New Accounting Standards
 SFAS No. 157, Fair Value Measurements,
 SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an
Amendment of FASB Statement No. 115,
 SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141(R)), Business Combinations,
 SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB
Statement No. 133,
 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
     (in thousands)
    
    Aviva
    
    Pro 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




---



##### 



Segment Information
            2008
    
    2007
    
    2006United States of America
    
    
    97.3
    %
    
    
    96.9
    %
    
    
    97.2
    %Canada
    
    
    1.1
    %
    
    
    1.3
    %
    
    
    1.3
    %All Other Countries
    
    
    1.6
    %
    
    
    1.8
    %
    
    
    1.5
    %




---



##### 



(in thousands)
    
    2008
    
    2007
    
    2006Operating RevenueElectric
    
    $
    340,020
    
    
    $
    323,478
    
    
    $
    306,014Plastics
    
    
    116,452
    
    
    
    149,012
    
    
    
    163,135Manufacturing
    
    
    470,462
    
    
    
    381,599
    
    
    
    311,811Health Services
    
    
    122,520
    
    
    
    130,670
    
    
    
    135,051Food Ingredient Processing
    
    
    65,367
    
    
    
    70,440
    
    
    
    45,084Other Business Operations
    
    
    199,511
    
    
    
    185,730
    
    
    
    145,603Corporate and Intersegment Eliminations
    
    
    (3,135
    )
    
    
    (2,042
    )
    
    
    (1,744
    )Total
    
    $
    1,311,197
    
    
    $
    1,238,887
    
    
    $
    1,104,954Depreciation and AmortizationElectric
    
    $
    31,755
    
    
    $
    26,097
    
    
    $
    25,756Plastics
    
    
    3,050
    
    
    
    3,083
    
    
    
    2,815Manufacturing
    
    
    19,260
    
    
    
    13,124
    
    
    
    11,076Health Services
    
    
    4,133
    
    
    
    3,937
    
    
    
    3,660Food Ingredient Processing
    
    
    4,094
    
    
    
    3,952
    
    
    
    3,759Other Business Operations
    
    
    2,230
    
    
    
    2,058
    
    
    
    2,330Corporate
    
    
    538
    
    
    
    579
    
    
    
    587Total
    
    $
    65,060
    
    
    $
    52,830
    
    
    $
    49,983Interest ChargesElectric
    
    $
    12,895
    
    
    $
    9,405
    
    
    $
    10,315Plastics
    
    
    1,156
    
    
    
    970
    
    
    
    814Manufacturing
    
    
    8,666
    
    
    
    8,546
    
    
    
    6,550Health Services
    
    
    714
    
    
    
    883
    
    
    
    910Food Ingredient Processing
    
    
    109
    
    
    
    177
    
    
    
    481Other Business Operations
    
    
    1,171
    
    
    
    1,234
    
    
    
    988Corporate and Intersegment Eliminations
    
    
    2,247
    
    
    
    (358
    )
    
    
    (557
    )Total
    
    $
    26,958
    
    
    $
    20,857
    
    
    $
    19,501Income Before Income TaxesElectric
    
    $
    46,160
    
    
    $
    37,422
    
    
    $
    38,802Plastics
    
    
    3,114
    
    
    
    13,452
    
    
    
    22,959Manufacturing
    
    
    7,650
    
    
    
    24,503
    
    
    
    21,148Health Services
    
    
    342
    
    
    
    2,626
    
    
    
    3,909Food Ingredient Processing
    
    
    2,655
    
    
    
    5,912
    
    
    
    (6,325
    )Other Business Operations
    
    
    8,736
    
    
    
    6,762
    
    
    
    8,666Corporate
    
    
    (18,495
    )
    
    
    (8,748
    )
    
    
    (11,303
    )Total
    
    $
    50,162
    
    
    $
    81,929
    
    
    $
    77,856Earnings Available for Common SharesElectric
    
    $
    32,498
    
    
    $
    23,762
    
    
    $
    23,445Plastics
    
    
    1,880
    
    
    
    8,314
    
    
    
    14,326Manufacturing
    
    
    5,269
    
    
    
    15,632
    
    
    
    13,171Health Services
    
    
    85
    
    
    
    1,427
    
    
    
    2,230Food Ingredient Processing
    
    
    1,681
    
    
    
    4,386
    
    
    
    (4,115
    )Other Business Operations
    
    
    5,279
    
    
    
    4,049
    
    
    
    5,257Corporate
    
    
    (12,303
    )
    
    
    (4,345
    )
    
    
    (4,300
    )Total
    
    $
    34,389
    
    
    $
    53,225
    
    
    $
    50,014Capital ExpendituresElectric
    
    $
    198,798
    
    
    $
    104,288
    
    
    $
    35,207Plastics
    
    
    8,883
    
    
    
    3,305
    
    
    
    5,504Manufacturing
    
    
    47,606
    
    
    
    42,786
    
    
    
    20,048Health Services
    
    
    4,039
    
    
    
    5,276
    
    
    
    4,720Food Ingredient Processing
    
    
    2,402
    
    
    
    47
    
    
    
    1,762Other Business Operations
    
    
    3,919
    
    
    
    5,589
    
    
    
    1,779Corporate
    
    
    241
    
    
    
    694
    
    
    
    428Total
    
    $
    265,888
    
    
    $
    161,985
    
    
    $
    69,448Identifiable AssetsElectric
    
    $
    992,159
    
    
    $
    813,565
    
    
    $
    689,653Plastics
    
    
    78,054
    
    
    
    77,971
    
    
    
    80,666Manufacturing
    
    
    356,697
    
    
    
    274,780
    
    
    
    219,336Health Services
    
    
    61,086
    
    
    
    64,824
    
    
    
    66,126Food Ingredient Processing
    
    
    88,813
    
    
    
    91,966
    
    
    
    94,462Other Business Operations
    
    
    71,359
    
    
    
    72,258
    
    
    
    67,110Corporate
    
    
    44,419
    
    
    
    59,390
    
    
    
    41,008Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    289Total
    
    $
    1,692,587
    
    
    $
    1,454,754
    
    
    $
    1,258,650




---



##### 



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




---



##### 



Recovery of MISO Costs
  Minnesota Annual Automatic Adjustment Report on Energy Costs (AAA Report)




---



##### 



Claims of Improper Regulatory Filings
 North Dakota
 General Rate Case
 Renewable Resource Cost Recovery Rider
   Recovery of MISO Costs




---



##### 



South Dakota
 General Rate Case
 Federal
 Revenue Sufficiency Guarantee (RSG) Charges




---



##### 



Transmission Practices Audit
  Big Stone II Project




---



##### 




    
    That there is reasonable assurance that Big Stone II would be more cost-effective than
renewable energy beyond the statutory levels of renewable energy based on accepted
estimates of construction costs and carbon dioxide;
    
    That the 345 kV transmission project is necessary based on identified regional and state
transmission needs; and
    
    That the project presents risks requiring additional measures to protect the applicants
ratepayers.




---



##### 



4. Regulatory Assets and Liabilities
  December 31,
    
    December 31,(in thousands)
    
    2008
    
    2007Regulatory Assets:Unrecognized Prior Service Costs and Actuarial Losses on
Pension Benefits
    
    $
    64,490
    
    
    $
    26,933Accrued Cost-of-Energy Revenue
    
    
    8,982
    
    
    
    19,452Deferred Income Taxes
    
    
    7,094
    
    
    
    8,733Debt Reacquisition Premiums
    
    
    3,357
    
    
    
    3,745Minnesota Renewable Resource Rider Accrued Revenues
    
    
    3,045
    
    
    
    North Dakota Renewable Resource Rider Accrued Revenues
    
    
    2,009
    
    
    
    Minnesota General Rate Case Recoverable Expenses
    
    
    1,457
    
    
    
    Accumulated ARO Accretion/Depreciation Adjustment
    
    
    1,437
    
    
    
    345Deferred Marked-to-Market Losses
    
    
    1,162
    
    
    
    771MISO Schedule 16 and 17 Deferred Administrative Costs  ND
    
    
    823
    
    
    
    576MISO Schedule 16 and 17 Deferred Administrative Costs  MN
    
    
    526
    
    
    
    855Deferred Conservation Improvement Program Costs
    
    
    280
    
    
    
    518Plant Acquisition Costs
    
    
    63
    
    
    
    107Total Regulatory Assets
    
    $
    94,725
    
    
    $
    62,035Regulatory Liabilities:Accumulated Reserve for Estimated Removal Costs
    
    $
    58,768
    
    
    $
    57,787Deferred Income Taxes
    
    
    4,943
    
    
    
    4,502Unrecognized Transition Obligation, Prior Service Costs
and Actuarial Gains on Other Postretirement Benefits
    
    
    834
    
    
    
    Deferred Marked-to-Market Gains
    
    
    
    
    
    
    271Gain on Sale of Division Office Building
    
    
    139
    
    
    
    145Total Regulatory Liabilities
    
    $
    64,684
    
    
    $
    62,705Net Regulatory Asset (Liability) Position
    
    $
    30,041
    
    
    $
    (670
    )
 Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans,
  Accounting for Income Taxes




---



##### 



5. Forward Contracts Classified as Derivatives
 Electricity Contracts
   (in thousands)
    
    2008
    
    2007
    
    2006Wholesale Sales  CompanyOwned Generation
    
    $
    23,708
    
    
    $
    20,345
    
    
    $
    23,130Revenue from Settled Contracts at Market Prices
    
    
    520,280
    
    
    
    389,643
    
    
    
    385,978Market Cost of Settled Contracts
    
    
    (518,866
    )
    
    
    (387,682
    )
    
    
    (383,594
    )Net Margins on Settled Contracts at Market
    
    
    1,414
    
    
    
    1,961
    
    
    
    2,384Marked-to-Market Gains on Settled Contracts
    
    
    39,375
    
    
    
    31,243
    
    
    
    20,950Marked-to-Market Losses on Settled Contracts
    
    
    (37,138
    )
    
    
    (28,541
    )
    
    
    (20,702
    )Net Marked-to-Market Gain on Settled Contracts
    
    
    2,237
    
    
    
    2,702
    
    
    
    248Unrealized Marked-to-Market Gains on Open Contracts
    
    
    405
    
    
    
    5,117
    
    
    
    2,215Unrealized Marked-to-Market Losses on Open Contracts
    
    
    (528
    )
    
    
    (4,485
    )
    
    
    (2,012
    )Net Unrealized Marked-to-Market (Loss) Gain on
Open Contracts
    
    
    (123
    )
    
    
    632
    
    
    
    203Wholesale Electric Revenue
    
    $
    27,236
    
    
    $
    25,640
    
    
    $
    25,965




---



##### 



December 31,
    
    December 31,(in thousands)
    
    2008
    
    2007Current Asset  Marked-to-Market Gain
    
    $
    405
    
    
    $
    5,210Regulatory Asset  Deferred Marked-to-Market Loss
    
    
    1,162
    
    
    
    771Total Assets
    
    
    1,567
    
    
    
    5,981Current Liability  Marked-to-Market Loss
    
    
    (1,690
    )
    
    
    (5,078
    )Regulatory Liability  Deferred Marked-to-Market Gain
    
    
    
    
    
    
    (271
    )Total Liabilities
    
    
    (1,690
    )
    
    
    (5,349
    )Net Fair Value of Marked-to-Market Energy Contracts
    
    $
    (123
    )
    
    $
    632
 Year ended(in thousands)
    
    December 31, 2008Fair Value at Beginning of Year
    
    $
    632Amount Realized on Contracts Entered into in 2007 and Settled in
2008
    
    
    (1,169
    )Changes in Fair Value of Contracts Entered into in 2007
    
    
    537Net Fair Value of Contracts Entered into in 2007 at Year End 2008
    
    
    Changes in Fair Value of Contracts Entered into in 2008
    
    
    (123
    )Net Fair Value at End of Year
    
    $
    (123
    )
   Natural Gas Contracts
  Foreign Currency Exchange Forward Windows
  (in thousands)
    
    Settlement Periods
    
    USD
    
    CADContracts entered into in March 2008
    
    April 2008   December 2008
    
    $
    3,600
    
    
    $
    3,695Net Mark-to-Market Losses Realized on Settlement
    
    April 2008   December 2008
    
    
    (224
    )Contracts entered into in July 2008
    
    August 2008  July 2009
    
    $
    4,800
    
    
    $
    5,003Net Mark-to-Market Losses Realized on Settlement
    
    August 2008   December 2008
    
    
    (203
    )Mark-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 Realized on Settlement in 2008
    
    
    
    $
    (427
    )Net Mark-to-Market Losses Recognized on Open Contracts at
Year End 2008
    
    
    (289
    )Net Mark-to-Market Losses Recognized in 2008
    
    
    
    $
    (716
    )




---



##### 



6. Common Shares and Earnings Per Share
  Common Shares Outstanding, December 31, 2007
    
    
    29,849,789Issuances:September 2008 Common Stock Offering
    
    
    5,175,000Stock Options Exercised
    
    
    276,685Executive Officer Stock Performance Awards
    
    
    62,625Restricted Stock Issued to Nonemployee Directors
    
    
    20,000Restricted Stock Issued to Employees
    
    
    19,371Vesting of Restricted Stock Units
    
    
    3,850Retirements:Shares Withheld for Individual Income Tax Requirements
    
    
    (22,700
    )Common Shares Outstanding, December 31, 2008
    
    
    35,384,620
  Stock Incentive Plan
  Employee Stock Purchase Plan
  Dividend Reinvestment and Share Purchase Plan




---



##### 



Earnings Per Share
   Year
    
    Options Outstanding
    
    Range of Exercise Prices2008
    
    
    
    NA2007
    
    
    
    NA2006
    
    210,250
    
    $29.74  $31.34
 7. Share-Based Payments
 Purchase Plan
 Share-Based Payments
 Stock Options Granted Under the Incentive Plan
    Stock Option Activity
    
    2008
    
    
    2007
    
    
    2006Average Exercise
    
    
    
    
    
    
    Average Exercise
    
    
    
    
    
    
    Average ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    Price
    
    
    Options
    
    
    PriceOutstanding, Beginning of Year
    
    
    787,137
    
    
    $
    25.73
    
    
    
    1,091,238
    
    
    $
    25.74
    
    
    
    1,237,164
    
    
    $
    25.58Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    276,685
    
    
    
    25.23
    
    
    
    298,601
    
    
    
    25.73
    
    
    
    107,458
    
    
    
    22.88Forfeited
    
    
    2,750
    
    
    
    27.11
    
    
    
    5,500
    
    
    
    28.85
    
    
    
    38,468
    
    
    
    28.60Outstanding, End of Year
    
    
    507,702
    
    
    
    26.00
    
    
    
    787,137
    
    
    
    25.73
    
    
    
    1,091,238
    
    
    
    25.74Exercisable, End of Year
    
    
    507,702
    
    
    
    26.00
    
    
    
    787,137
    
    
    
    25.73
    
    
    
    1,049,713
    
    
    
    25.69Cash Received for Options Exercised
    
    
    
    
    
    $
    6,981,000
    
    
    
    
    
    
    $
    7,682,000
    
    
    
    
    
    
    $
    2,458,000Fair Value of Options Granted
During Year
    
    none granted
    
    none granted
    
    none granted




---



##### 



Options Outstanding and ExercisableWeighted-AverageOutstanding and
    
    
    RemainingRange of
    
    Exercisable as of
    
    
    Contractual Life
    
    
    Weighted-AverageExercise Prices
    
    12/31/08
    
    
    (yrs)
    
    
    Exercise price$18.80-$21.94
    
    
    87,242
    
    
    
    1.1
    
    
    $
    19.69$21.95-$25.07
    
    
    28,300
    
    
    
    6.3
    
    
    
    24.93$25.08-$28.21
    
    
    307,010
    
    
    
    2.9
    
    
    
    26.48$28.22-$31.34
    
    
    85,150
    
    
    
    3.2
    
    
    
    31.06
 Restricted Stock Granted to Directors
   Directors  Restricted Stock Awards
    
    2008
    
    
    2007
    
    
    2006Weighted Average
    
    
    
    
    
    
    Weighted Average
    
    
    
    
    
    
    Weighted AverageGrant-Date Fair
    
    
    
    
    
    
    Grant-Date Fair
    
    
    
    
    
    
    Grant-Date FairShares
    
    
    Value
    
    
    Shares
    
    
    Value
    
    
    Shares
    
    
    ValueNonvested, Beginning of Year
    
    
    34,100
    
    
    $
    30.80
    
    
    
    32,775
    
    
    $
    27.27
    
    
    
    27,000
    
    
    $
    26.32Granted
    
    
    20,000
    
    
    
    35.345
    
    
    
    15,200
    
    
    
    35.04
    
    
    
    19,800
    
    
    
    28.24Vested
    
    
    14,800
    
    
    
    29.92
    
    
    
    13,875
    
    
    
    27.10
    
    
    
    14,025
    
    
    
    26.82Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nonvested, End of Year
    
    
    39,300
    
    
    
    33.45
    
    
    
    34,100
    
    
    
    30.80
    
    
    
    32,775
    
    
    
    27.27Compensation Expense Recognized
    
    
    
    
    
    $
    461,000
    
    
    
    
    
    
    $
    454,000
    
    
    
    
    
    
    $
    401,000Fair Value of Shares Vested in Year
    
    
    
    
    
    
    443,000
    
    
    
    
    
    
    
    376,000
    
    
    
    
    
    
    
    376,000
 Restricted Stock Granted to Employees




---



##### 



Employees  Restricted Stock Awards
    
    2008
    
    
    2007
    
    
    2006Weighted Average
    
    
    
    
    
    
    Weighted Average
    
    
    
    
    
    
    Weighted AverageShares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair ValueNonvested, Beginning of Year
    
    
    24,058
    
    
    $
    35.46
    
    
    
    31,666
    
    
    $
    31.47
    
    
    
    72,974
    
    
    $
    28.91Granted
    
    
    19,371
    
    
    
    35.345
    
    
    
    17,300
    
    
    
    35.82
    
    
    
    Variable/Liability Awards Vested
    
    
    4,808
    
    
    
    34.85
    
    
    
    24,608
    
    
    
    35.09
    
    
    
    41,308
    
    
    
    28.98Nonvariable Awards Vested
    
    
    4,475
    
    
    
    35.80
    
    
    
    300
    
    
    
    35.30
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nonvested, End of Year
    
    
    34,146
    
    
    
    34.72
    
    
    
    24,058
    
    
    
    35.46
    
    
    
    31,666
    
    
    
    31.47Compensation Expense Recognized
    
    
    
    
    
    $
    434,000
    
    
    
    
    
    
    $
    549,000
    
    
    
    
    
    
    $
    815,000Fair Value of Variable Awards
Vested/Liability Paid
    
    
    
    
    
    
    168,000
    
    
    
    
    
    
    
    863,000
    
    
    
    
    
    
    
    1,197,000Fair Value of Nonvariable Awards Vested
    
    
    
    
    
    
    160,000
    
    
    
    
    
    
    
    11,000
    
    
    
    
    
    
    
    
 Restricted Stock Units Granted to Employees
   Employees' Restricted Stock UnitAwards
    
    2008
    
    
    2007
    
    
    2006Weighted 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
    
    
    55,480
    
    
    $
    26.66
    
    
    
    38,615
    
    
    $
    24.65
    
    
    
    
    
    
    $
    Granted
    
    
    26,650
    
    
    
    30.92
    
    
    
    23,450
    
    
    
    30.07
    
    
    
    47,425
    
    
    
    25.41Converted
    
    
    3,850
    
    
    
    25.93
    
    
    
    4,850
    
    
    
    26.95
    
    
    
    7,450
    
    
    
    29.55Forfeited
    
    
    4,695
    
    
    
    28.07
    
    
    
    1,735
    
    
    
    27.03
    
    
    
    1,360
    
    
    
    24.36Nonvested, End of Year
    
    
    73,585
    
    
    
    28.13
    
    
    
    55,480
    
    
    
    26.66
    
    
    
    38,615
    
    
    
    24.65Compensation Expense Recognized
    
    
    
    
    
    $
    535,000
    
    
    
    
    
    
    $
    383,000
    
    
    
    
    
    
    $
    427,000Fair Value of Units Converted in Year
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    131,000
    
    
    
    
    
    
    
    220,000
 Stock Performance Awards granted to Executive Officers




---



##### 



Maximum Shares
    
    
    
    
    
    
    
    
    
    Expense RecognizedSubject
    
    Shares Used
    
    
    
    
    
    in the Year Ended December 31,Performance Period
    
    to Award
    
    to Estimate Expense
    
    Fair Value
    
    2008
    
    2007
    
    2006
    
    Shares Awarded2008-2010
    
    
    114,800
    
    
    
    70,843
    
    
    $
    37.59
    
    
    $
    888,000
    
    
    $
    
    
    
    $
    2007-2009
    
    
    109,000
    
    
    
    67,263
    
    
    $
    38.01
    
    
    
    852,000
    
    
    
    852,000
    
    
    
    2006-2008
    
    
    88,050
    
    
    
    58,700
    
    
    $
    25.95
    
    
    
    508,000
    
    
    
    508,000
    
    
    
    508,000
    
    
    
    29,3502005-2007
    
    
    75,150
    
    
    
    50,872
    
    
    $
    22.10
    
    
    
    
    
    
    
    375,000
    
    
    
    375,000
    
    
    
    62,6252004-2006
    
    
    70,500
    
    
    
    23,500
    
    
    $
    23.90
    
    
    
    
    
    
    
    
    
    
    
    187,000
    
    
    
    23,500Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,248,000
    
    
    $
    1,735,000
    
    
    $
    1,070,000
    
    
    
    115,475
  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
    
    Total2009
    
    $
    2,826
    
    
    $
    43,398
    
    
    $
    46,2242010
    
    
    2,469
    
    
    
    33,183
    
    
    
    35,6522011
    
    
    1,712
    
    
    
    19,617
    
    
    
    21,3292012
    
    
    1,216
    
    
    
    9,844
    
    
    
    11,0602013
    
    
    1,216
    
    
    
    4,728
    
    
    
    5,944Later years
    
    
    2,836
    
    
    
    7,003
    
    
    
    9,839Total
    
    $
    12,275
    
    
    $
    117,773
    
    
    $
    130,048




---



##### 



Dealer Floor Plan Financing
  Sierra Club Complaint
  Federal Power Act Complaint
  Product Recall




---



##### 



10. Short-Term and Long-Term Borrowings
 Short-Term Debt
  Restricted due toIn Use on
    
    Outstanding Letters
    
    Available on(in thousands)
    
    Line Limit
    
    December 31, 2008
    
    of Credit
    
    December 31, 2008Varistar Credit Agreement
    
    $
    200,000
    
    
    $
    107,849
    
    
    $
    14,445
    
    
    $
    77,706Electric Utility Credit Agreement
    
    
    170,000
    
    
    
    27,065
    
    
    
    
    
    
    
    142,935Total
    
    $
    370,000
    
    
    $
    134,914
    
    
    $
    14,445
    
    
    $
    220,641
     Long-Term Debt




---



##### 



Financial Covenants




---



##### 



11. Class B Stock Options of Subsidiary
  12. Pension Plan and Other Postretirement Benefits
 Accounting for Defined Benefit
Pension and Other Postretirement Plans, Accounting for
the Effects of Certain Types of Regulation
 Pension Plan
     (in thousands)
    
    2008
    
    2007
    
    2006Service CostBenefit Earned During the Period
    
    $
    4,630
    
    
    $
    4,837
    
    
    $
    5,057Interest Cost on Projected Benefit Obligation
    
    
    11,325
    
    
    
    10,790
    
    
    
    10,435Expected Return on Assets
    
    
    (13,968
    )
    
    
    (12,948
    )
    
    
    (12,288
    )Amortization of Prior-Service Cost
    
    
    742
    
    
    
    742
    
    
    
    742Amortization of Net Actuarial Loss
    
    
    169
    
    
    
    1,091
    
    
    
    1,844Net Periodic Pension Cost
    
    $
    2,898
    
    
    $
    4,512
    
    
    $
    5,790
  2008
    
    2007
    
    2006Discount Rate
    
    
    6.25
    %
    
    
    6.00
    %
    
    
    5.75
    %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)
    
    2008
    
    2007Regulatory Assets:Unrecognized Prior Service Cost
    
    $
    3,303
    
    
    $
    4,018Unrecognized Actuarial Loss
    
    
    56,652
    
    
    
    17,115Total Regulatory Assets
    
    
    59,955
    
    
    
    21,133Accumulated Other Comprehensive Loss:Unrecognized Prior Service Cost
    
    
    (55
    )
    
    
    (72
    )Unrecognized Actuarial Loss
    
    
    (943
    )
    
    
    (307
    )Total Accumulated Other Comprehensive Loss
    
    
    (998
    )
    
    
    (379
    )Deferred Income Taxes
    
    
    (666
    )
    
    
    (252
    )Prepaid Pension Cost
    
    
    6,595
    
    
    
    7,493Net Amount Recognized  Noncurrent Liability
    
    $
    (55,024
    )
    
    $
    (14,271
    )
  (in thousands)
    
    2008
    
    2007Accumulated Benefit Obligation
    
    $
    (153,676
    )
    
    $
    (154,373
    )Projected Benefit Obligation
    
    $
    (182,559
    )
    
    $
    (185,206
    )Fair Value of Plan Assets
    
    
    127,535
    
    
    
    170,935Funded Status
    
    $
    (55,024
    )
    
    $
    (14,271
    )
  (in thousands)
    
    2008
    
    2007Reconciliation of Fair Value of Plan Assets:Fair Value of Plan Assets at January 1
    
    $
    170,935
    
    
    $
    167,508Actual Return on Plan Assets
    
    
    (36,523
    )
    
    
    8,013Discretionary Company Contributions
    
    
    2,000
    
    
    
    4,000Benefit Payments
    
    
    (8,877
    )
    
    
    (8,586
    )Fair Value of Plan Assets at December 31
    
    $
    127,535
    
    
    $
    170,935Estimated Asset Return
    
    
    -21.94
    %
    
    
    4.85
    %Reconciliation of Projected Benefit Obligation:Projected Benefit Obligation at January 1
    
    $
    185,206
    
    
    $
    186,760Service Cost
    
    
    4,630
    
    
    
    4,837Interest Cost
    
    
    11,325
    
    
    
    10,790Benefit Payments
    
    
    (8,877
    )
    
    
    (8,586
    )Actuarial Gain
    
    
    (9,725
    )
    
    
    (8,595
    )Projected Benefit Obligation at December 31
    
    $
    182,559
    
    
    $
    185,206Reconciliation of Prepaid Pension Cost:Prepaid Pension Cost at January 1
    
    $
    7,493
    
    
    $
    8,005Net Periodic Pension Cost
    
    
    (2,898
    )
    
    
    (4,512
    )Discretionary Company Contributions
    
    
    2,000
    
    
    
    4,000Prepaid Pension Cost at December 31
    
    $
    6,595
    
    
    $
    7,493
  2008
    
    2007Discount Rate
    
    
    6.70
    %
    
    
    6.25
    %Rate of Increase in Future Compensation Level
    
    
    3.75
    %
    
    
    3.75
    %
  Market-related value of plan assets




---



##### 



Measurement Dates:
    
    2008
    
    2007Net Periodic Pension Cost
    
    January 1, 2008
    
    January 1, 2007End of Year Benefit Obligations
    
    January 1, 2008
    
    January 1, 2007projected to
    
    projected toDecember 31, 2008
    
    December 31, 2007Market Value of Assets
    
    December 31, 2008
    
    December 31, 2007
  (in thousands)
    
    2009Decrease in Regulatory Assets:Amortization of Unrecognized Prior Service Cost
    
    $
    704Amortization of Unrecognized Actuarial Loss
    
    
    21Decrease in Accumulated Other Comprehensive Loss:Amortization of Unrecognized Prior Service Cost
    
    
    20Amortization of Unrecognized Actuarial Loss
    
    
    1Total Estimated Amortization
    
    $
    746
 Cash flows
  Years(in thousands)
    
    2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    2014-2018$
    9,123
    
    
    $
    9,286
    
    
    $
    9,390
    
    
    $
    9,766
    
    
    $
    10,139
    
    
    $
    59,081
  Asset Allocation
    
    2008
    
    2007Large Capitalization Equity Securities
    
    
    39.6
    %
    
    
    47.1
    %Small Capitalization Equity Securities
    
    
    9.2
    %
    
    
    10.7
    %International Equity Securities
    
    
    8.3
    %
    
    
    10.4
    %Total Equity Securities
    
    
    57.1
    %
    
    
    68.2
    %Cash and Fixed-Income Securities
    
    
    42.9
    %
    
    
    31.8
    %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
    
    
    48
    %
    
    
    40%-55
    %Small capitalization equity securities
    
    
    12
    %
    
    
    9%-15
    %International equity securities
    
    
    10
    %
    
    
    5%-15
    %Total equity securities
    
    
    70
    %
    
    
    60%-80
    %Fixed-income securities
    
    
    30
    %
    
    
    20%-40
    %
 Executive Survivor and Supplemental Retirement Plan (ESSRP)
   (in thousands)
    
    2008
    
    2007
    
    2006Service CostBenefit Earned During the Period
    
    $
    691
    
    
    $
    626
    
    
    $
    426Interest Cost on Projected Benefit Obligation
    
    
    1,535
    
    
    
    1,451
    
    
    
    1,303Amortization of Prior-Service Cost
    
    
    66
    
    
    
    67
    
    
    
    71Amortization of Net Actuarial Loss
    
    
    480
    
    
    
    540
    
    
    
    473Net Periodic Pension Cost
    
    $
    2,772
    
    
    $
    2,684
    
    
    $
    2,273
  2008
    
    2007
    
    2006Discount Rate
    
    
    6.25
    %
    
    
    6.00
    %
    
    
    5.75
    %Rate of Increase in Future Compensation Level
    
    
    4.70
    %
    
    
    4.71
    %
    
    
    4.69
    %
  (in thousands)
    
    2008
    
    2007Regulatory Assets:Unrecognized Prior Service Cost
    
    $
    421
    
    
    $
    435Unrecognized Actuarial Loss
    
    
    4,114
    
    
    
    4,841Total Regulatory Assets
    
    
    4,535
    
    
    
    5,276Projected Benefit Obligation Liability  Net Amount Recognized
    
    
    (25,888
    )
    
    
    (25,158
    )Accumulated Other Comprehensive Loss:Unrecognized Prior Service Cost
    
    
    (166
    )
    
    
    (160
    )Unrecognized Actuarial Loss
    
    
    (1,626
    )
    
    
    (1,772
    )Total Accumulated Other Comprehensive Loss
    
    
    (1,792
    )
    
    
    (1,932
    )Deferred Income Taxes
    
    
    (1,194
    )
    
    
    (1,288
    )Cumulative Employer Contributions in Excess of Net Periodic Benefit Cost
    
    $
    (18,367
    )
    
    $
    (16,662
    )




---



##### 



(in thousands)
    
    2008
    
    2007Reconciliation of Fair Value of Plan Assets:Fair Value of Plan Assets at January 1
    
    $
    
    
    
    $
    Actual Return on Plan Assets
    
    
    
    
    
    
    Employer Contributions
    
    
    1,067
    
    
    
    1,079Benefit Payments
    
    
    (1,067
    )
    
    
    (1,079
    )Fair Value of Plan Assets at December 31
    
    $
    
    
    
    $
    Reconciliation of Projected Benefit Obligation:Projected Benefit Obligation at January 1
    
    $
    25,158
    
    
    $
    24,783Service Cost
    
    
    691
    
    
    
    626Interest Cost
    
    
    1,535
    
    
    
    1,451Benefit Payments
    
    
    (1,067
    )
    
    
    (1,079
    )Plan Amendments
    
    
    63
    
    
    
    Actuarial Gain
    
    
    (492
    )
    
    
    (623
    )Projected Benefit Obligation at December 31
    
    $
    25,888
    
    
    $
    25,158Reconciliation of Funded Status:Funded Status at December 31
    
    $
    (25,888
    )
    
    $
    (25,158
    )Unrecognized Net Actuarial Loss
    
    
    6,823
    
    
    
    7,795Unrecognized Prior Service Cost
    
    
    698
    
    
    
    701Cumulative Employer Contributions in Excess
of Net Periodic Benefit Cost
    
    $
    (18,367
    )
    
    $
    (16,662
    )
  2008
    
    2007Discount Rate
    
    
    6.70
    %
    
    
    6.25
    %Rate of Increase in Future Compensation Level
    
    
    4.70
    %
    
    
    4.70
    %
  (in thousands)
    
    2009Decrease in Regulatory Assets:Amortization of Unrecognized Prior Service Cost
    
    $
    43Amortization of Unrecognized Actuarial Loss
    
    
    232Decrease in Accumulated Other Comprehensive Loss:Amortization of Unrecognized Prior Service Cost
    
    
    28Amortization of Unrecognized Actuarial Loss
    
    
    153Total Estimated Amortization
    
    $
    456
 Cash flows
 Years(in thousands)
    
    2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    2014-2018$
    1,114
    
    
    $
    1,117
    
    
    $
    1,228
    
    
    $
    1,288
    
    
    $
    1,274
    
    
    $
    7,220




---



##### 



Other Postretirement Benefits
 Employers Accounting for Postretirement Benefits Other
Than Pensions
  (in thousands)
    
    2008
    
    2007
    
    2006Service CostBenefit Earned During the Period
    
    $
    1,103
    
    
    $
    1,098
    
    
    $
    1,319Interest Cost on Projected Benefit Obligation
    
    
    2,689
    
    
    
    2,565
    
    
    
    2,556Amortization of Transition Obligation
    
    
    748
    
    
    
    748
    
    
    
    748Amortization of Prior-Service Cost
    
    
    211
    
    
    
    (206
    )
    
    
    (305
    )Amortization of Net Actuarial Loss
    
    
    26
    
    
    
    177
    
    
    
    556Expense Decrease Due to Medicare Part D Subsidy
    
    
    (1,172
    )
    
    
    (1,233
    )
    
    
    (1,543
    )Net Periodic Postretirement Benefit Cost
    
    $
    3,605
    
    
    $
    3,149
    
    
    $
    3,331
  2008
    
    2007
    
    2006Discount Rate
    
    
    6.25
    %
    
    
    6.00
    %
    
    
    5.75
    %
  (in thousands)
    
    2008
    
    2007Regulatory Asset:Unrecognized Transition Obligation
    
    $
    1,454
    
    
    $
    3,658Unrecognized Prior Service Cost
    
    
    1,567
    
    
    
    1,781Unrecognized Net Actuarial Gain
    
    
    (3,855
    )
    
    
    (4,915
    )Net Regulatory (Liability) Asset
    
    
    (834
    )
    
    
    524Projected Benefit Obligation Liability  Net Amount Recognized
    
    
    (32,621
    )
    
    
    (30,488
    )Accumulated Other Comprehensive Loss:Unrecognized Transition Obligation
    
    
    (923
    )
    
    
    (50
    )Unrecognized Prior Service Cost
    
    
    (26
    )
    
    
    (24
    )Unrecognized Net Actuarial Gain
    
    
    64
    
    
    
    67Accumulated Other Comprehensive Loss
    
    
    (885
    )
    
    
    (7
    )Deferred Income Taxes
    
    
    (590
    )
    
    
    (5
    )Cumulative Employer Contributions in Excess of Net Periodic Benefit Cost
    
    $
    (31,980
    )
    
    $
    (29,952
    )
  (in thousands)
    
    2008
    
    2007Reconciliation of Fair Value of Plan Assets:Fair Value of Plan Assets at January 1
    
    $
    
    
    
    $
    Actual Return on Plan Assets
    
    
    
    
    
    
    Company Contributions
    
    
    1,577
    
    
    
    1,459Benefit Payments (Net of Medicare Part D Subsidy)
    
    
    (3,392
    )
    
    
    (3,127
    )Participant Premium Payments
    
    
    1,815
    
    
    
    1,668Fair Value of Plan Assets at December 31
    
    $
    
    
    
    $
    Reconciliation of Projected Benefit Obligation:Projected Benefit Obligation at January 1
    
    $
    30,488
    
    
    $
    32,254Service Cost (Net of Medicare Part D Subsidy)
    
    
    902
    
    
    
    890Interest Cost (Net of Medicare Part D Subsidy)
    
    
    1,874
    
    
    
    1,776Benefit Payments (Net of Medicare Part D Subsidy)
    
    
    (3,392
    )
    
    
    (3,127
    )Participant Premium Payments
    
    
    1,815
    
    
    
    1,668Actuarial Loss (Gain)
    
    
    934
    
    
    
    (2,973
    )Projected Benefit Obligation at December 31
    
    $
    32,621
    
    
    $
    30,488Reconciliation of Accrued Postretirement Cost:Accrued Postretirement Cost at January 1
    
    $
    (29,952
    )
    
    $
    (28,262
    )Expense
    
    
    (3,605
    )
    
    
    (3,149
    )Net Company Contribution
    
    
    1,577
    
    
    
    1,459Accrued Postretirement Cost at December 31
    
    $
    (31,980
    )
    
    $
    (29,952
    )




---



##### 



2008
    
    2007Discount Rate
    
    
    6.70
    %
    
    
    6.25
    %
  2008
    
    2007Healthcare Cost-Trend Rate Assumed for Next Year Pre-65
    
    
    7.40
    %
    
    
    8.00
    %Healthcare Cost-Trend Rate Assumed for Next Year Post-65
    
    
    8.00
    %
    
    
    9.00
    %Rate at Which the Cost-Trend Rate is Assumed to Decline
    
    
    5.00
    %
    
    
    5.00
    %Year the Rate Reaches the Ultimate Trend Rate
    
    
    2017
    
    
    
    2012
  (in thousands)
    
    1 point increase
    
    1 point decreaseEffect on the Postretirement Benefit Obligation
    
    $
    3,052
    
    
    $
    (2,644
    )Effect on Total of Service and Interest Cost
    
    $
    362
    
    
    $
    (298
    )Effect on Expense
    
    $
    492
    
    
    $
    (554
    )
 Measurement dates:
    
    2008
    
    2007Net Periodic Postretirement Benefit Cost
    
    January 1, 2008
    
    January 1, 2007End of Year Benefit Obligations
    
    January 1, 2008 projected to
    
    January 1, 2007 projected toDecember 31, 2008
    
    December 31, 2007
  (in thousands)
    
    2009Decrease in Regulatory Assets:Amortization of Transition Obligation
    
    $
    364Amortization of Unrecognized Prior Service Cost
    
    
    204Amortization of Unrecognized Actuarial Gain
    
    
    (71
    )Decrease in Accumulated Other Comprehensive Loss:Amortization of Transition Obligation
    
    
    384Amortization of Unrecognized Prior Service Cost
    
    
    6Amortization of Unrecognized Actuarial Gain
    
    
    (2
    )Total Estimated Amortization
    
    $
    885
 Cash flows
 Years(in thousands)
    
    2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    2014-2018$
    2,371
    
    
    $
    2,327
    
    
    $
    2,468
    
    
    $
    2,586
    
    
    $
    2,696
    
    
    $
    15,163
 Leveraged Employee Stock Ownership Plan




---



##### 



13. Fair Value of Financial Instruments
  Cash and Short-Term Investments
 Long-Term Debt
 December 31, 2008
    
    December 31, 2007Carrying
    
    Fair
    
    Carrying
    
    Fair(in thousands)
    
    Amount
    
    Value
    
    Amount
    
    ValueCash and Short-Term Investments
    
    $
    7,565
    
    
    $
    7,565
    
    
    $
    39,824
    
    
    $
    39,824Long-Term Debt
    
    
    (339,726
    )
    
    
    (308,283
    )
    
    
    (342,694
    )
    
    
    (354,242
    )
 14. Property, Plant and Equipment
 (in thousands)
    
    December 31, 2008
    
    December 31, 2007Electric PlantProduction
    
    $
    590,252
    
    
    $
    439,541Transmission
    
    
    201,456
    
    
    
    191,949Distribution
    
    
    337,296
    
    
    
    322,107General
    
    
    76,643
    
    
    
    75,320Electric Plant
    
    
    1,205,647
    
    
    
    1,028,917Less Accumulated Depreciation and Amortization
    
    
    421,177
    
    
    
    401,006Electric Plant Net of Accumulated Depreciation
    
    
    784,470
    
    
    
    627,911Construction Work in Progress
    
    
    25,547
    
    
    
    33,772Net Electric Plant
    
    $
    810,017
    
    
    $
    661,683Nonelectric Operations PlantEquipment
    
    $
    220,985
    
    
    $
    181,743Buildings and Leasehold Improvements
    
    
    80,281
    
    
    
    62,563Land
    
    
    19,766
    
    
    
    13,284Nonelectric Operations Plant
    
    
    321,032
    
    
    
    257,590Less Accumulated Depreciation and Amortization
    
    
    126,893
    
    
    
    105,738Nonelectric Plant Net of Accumulated Depreciation
    
    
    194,139
    
    
    
    151,852Construction Work in Progress
    
    
    33,413
    
    
    
    40,489Net Nonelectric Operations Plant
    
    $
    227,552
    
    
    $
    192,341Net Plant
    
    $
    1,037,569
    
    
    $
    854,024
  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




---



##### 



15. Income Taxes
  (in thousands)
    
    2008
    
    2007
    
    2006Tax Computed at Federal Statutory Rate
    
    $
    17,556
    
    
    $
    28,675
    
    
    $
    27,232Increases (Decreases) in Tax from:State Income Taxes Net of Federal Income Tax Benefit
    
    
    2,806
    
    
    
    2,945
    
    
    
    2,261Differences Reversing in Excess of Federal Rates
    
    
    1,089
    
    
    
    929
    
    
    
    1,271Federal Production Tax Credit
    
    
    (3,234
    )
    
    
    (3
    )
    
    
    Investment Tax Credit Amortization
    
    
    (1,125
    )
    
    
    (1,137
    )
    
    
    (1,146
    )Dividend Received/Paid Deduction
    
    
    (718
    )
    
    
    (714
    )
    
    
    (718
    )North Dakota Wind Tax Credit Amortization
    
    
    (567
    )
    
    
    (32
    )
    
    
    Affordable Housing Tax Credits
    
    
    (55
    )
    
    
    (285
    )
    
    
    (839
    )Section 199 Domestic Production Activities Deduction
    
    
    
    
    
    
    (1,159
    )
    
    
    (524
    )Permanent and Other Differences
    
    
    (715
    )
    
    
    (1,251
    )
    
    
    (431
    )Total Income Tax Expense
    
    $
    15,037
    
    
    $
    27,968
    
    
    $
    27,106Income Tax ExpenseDiscontinued Operations
    
    $
    
    
    
    $
    
    
    
    $
    252Overall Effective Federal and State Income Tax Rate
    
    
    30.0
    %
    
    
    34.1
    %
    
    
    34.9
    %Income Tax Expense Includes the Following:Current Federal Income Taxes
    
    $
    (19,813
    )
    
    $
    23,210
    
    
    $
    26,276Current State Income Taxes
    
    
    (1,115
    )
    
    
    2,371
    
    
    
    4,232Deferred Federal Income Taxes
    
    
    39,051
    
    
    
    2,832
    
    
    
    (937
    )Deferred State Income Taxes
    
    
    5,280
    
    
    
    2,116
    
    
    
    (189
    )Foreign Income Taxes
    
    
    (3,385
    )
    
    
    (1,104
    )
    
    
    (291
    )Federal Production Tax Credit
    
    
    (3,234
    )
    
    
    (3
    )
    
    
    Investment Tax Credit Amortization
    
    
    (1,125
    )
    
    
    (1,137
    )
    
    
    (1,146
    )North Dakota Wind Tax Credit Amortization
    
    
    (567
    )
    
    
    (32
    )
    
    
    Affordable Housing Tax Credits
    
    
    (55
    )
    
    
    (285
    )
    
    
    (839
    )Total
    
    $
    15,037
    
    
    $
    27,968
    
    
    $
    27,106
  (in thousands)
    
    2008
    
    2007Deferred Tax AssetsRelated to North Dakota Wind Tax Credits
    
    $
    35,902
    
    
    $
    12,999Benefit Liabilities
    
    
    32,932
    
    
    
    30,789Cost of Removal
    
    
    22,920
    
    
    
    22,537Differences Related to Property
    
    
    10,300
    
    
    
    8,703SFAS No. 158 Liabilities
    
    
    9,650
    
    
    
    10,504Net Operating Loss Carryforward
    
    
    6,379
    
    
    
    1,815Amortization of Tax Credits
    
    
    4,946
    
    
    
    4,505Vacation Accrual
    
    
    3,003
    
    
    
    2,926Unearned Revenue
    
    
    1,829
    
    
    
    1,733Other
    
    
    3,790
    
    
    
    2,248Total Deferred Tax Assets
    
    $
    131,651
    
    
    $
    98,759Deferred Tax LiabilitiesDifferences Related to Property
    
    $
    (212,419
    )
    
    $
    (166,445
    )Related to North Dakota Wind Tax Credits
    
    
    (10,074
    )
    
    
    (4,340
    )SFAS No. 158 Regulatory Asset
    
    
    (9,650
    )
    
    
    (10,504
    )Transfer to Regulatory Asset
    
    
    (7,093
    )
    
    
    (8,732
    )Excess Tax over Book Pension
    
    
    (2,599
    )
    
    
    (2,953
    )Other
    
    
    (4,516
    )
    
    
    (4,398
    )Total Deferred Tax Liabilities
    
    $
    (246,351
    )
    
    $
    (197,372
    )Deferred Income Taxes
    
    $
    (114,700
    )
    
    $
    (98,613
    )




---



##### 



(in thousands)
    
    TotalBalance at January 1, 2008
    
    $
    506Increases Related to Current Year Tax Positions
    
    
    Expiration of the Statute of Limitations for the Assessment of Taxes
    
    
    (222
    )Balance at December 31, 2008
    
    $
    284
  16. Asset Retirement Obligations (AROs)
   , Fair Value Measurements




---



##### 



(in thousands)
    
    2008
    
    2007Asset Retirement ObligationsBeginning Balance
    
    $
    2,447
    
    
    $
    1,335New Obligations Recognized
    
    
    317
    
    
    
    1,024Adjustments Due to Revisions in Cash Flow Estimates
    
    
    407
    
    
    
    Accrued Accretion
    
    
    127
    
    
    
    88Settlements
    
    
    
    
    
    
    Ending Balance
    
    $
    3,298
    
    
    $
    2,447Asset Retirement Costs CapitalizedBeginning Balance
    
    $
    1,309
    
    
    $
    285New Obligations Recognized
    
    
    317
    
    
    
    1,024Adjustments Due to Revisions in Cash Flow Estimates
    
    
    (565
    )
    
    
    Settlements
    
    
    
    
    
    
    Ending Balance
    
    $
    1,061
    
    
    $
    1,309Accumulated Depreciation  Asset Retirement Costs CapitalizedBeginning Balance
    
    $
    185
    
    
    $
    178New Obligations Recognized
    
    
    
    
    
    
    Adjustments Due to Revisions in Cash Flow Estimates
    
    
    (34
    )
    
    
    Accrued Depreciation
    
    
    28
    
    
    
    7Settlements
    
    
    
    
    
    
    Ending Balance
    
    $
    179
    
    
    $
    185SettlementsOriginal Capitalized Asset Retirement Cost   Retired
    
    $
    
    
    
    $
    Accumulated Depreciation
    
    
    
    
    
    
    Asset Retirement Obligation
    
    $
    
    
    
    $
    Settlement Cost
    
    
    
    
    
    
    Gain on Settlement  Deferred Under Regulatory Accounting
    
    $
    
    
    
    $
    
 17. Quarterly Information (not audited)
  Three Months Ended
    
    March 31
    
    June 30
    
    September 30
    
    December 31(in thousands, except per share data)
    
    2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007Operating Revenues
    
    $
    300,237
    
    
    $
    301,121
    
    
    $
    323,600
    
    
    $
    305,844
    
    
    $
    352,919
    
    
    $
    302,235
    
    
    $
    334,441
    
    
    $
    329,687Operating Income
    
    
    17,097
    
    
    
    20,774
    
    
    
    10,303
    
    
    
    30,271
    
    
    
    19,746
    
    
    
    25,547
    
    
    
    25,846
    
    
    
    24,182Net Income
    
    
    8,230
    
    
    
    10,408
    
    
    
    3,517
    
    
    
    16,103
    
    
    
    9,631
    
    
    
    13,332
    
    
    
    13,747
    
    
    
    14,118Earnings Available for Common Shares
    
    
    8,046
    
    
    
    10,224
    
    
    
    3,333
    
    
    
    15,919
    
    
    
    9,447
    
    
    
    13,148
    
    
    
    13,563
    
    
    
    13,934Basic Earnings Per Share
    
    $
    .27
    
    
    $
    .35
    
    
    $
    .11
    
    
    $
    .54
    
    
    $
    .31
    
    
    $
    .44
    
    
    $
    .38
    
    
    $
    .47Diluted Earnings Per Share
    
    $
    .27
    
    
    $
    .34
    
    
    $
    .11
    
    
    $
    .53
    
    
    $
    .31
    
    
    $
    .44
    
    
    $
    .38
    
    
    $
    .46Dividends Paid Per Common Share
    
    $
    .2975
    
    
    $
    .2925
    
    
    $
    .2975
    
    
    $
    .2925
    
    
    $
    .2975
    
    
    $
    .2925
    
    
    $
    .2975
    
    
    $
    .2925Price Range:High
    
    
    35.68
    
    
    
    35.00
    
    
    
    40.98
    
    
    
    37.06
    
    
    
    46.15
    
    
    
    39.39
    
    
    
    30.84
    
    
    
    37.88Low
    
    
    31.28
    
    
    
    31.06
    
    
    
    34.93
    
    
    
    30.22
    
    
    
    29.71
    
    
    
    28.96
    
    
    
    14.99
    
    
    
    32.82Average
Number of Common Shares      OutstandingBasic
    
    
    29,816
    
    
    
    29,503
    
    
    
    29,993
    
    
    
    29,686
    
    
    
    30,514
    
    
    
    29,746
    
    
    
    35,311
    
    
    
    29,790Average
Number of Common Shares      OutstandingDiluted
    
    
    30,062
    
    
    
    29,757
    
    
    
    30,300
    
    
    
    29,941
    
    
    
    30,817
    
    
    
    29,996
    
    
    
    35,516
    
    
    
    30,090




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##### 



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