SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2008
 o
    
    Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For
the transition period from
 to
 Commission File Number 0-368
 OTTER TAIL CORPORATION
  MINNESOTA
(State or other jurisdiction of incorporation or organization)
    
    41-0462685
(I.R.S. Employer Identification No.)
 215 SOUTH CASCADE STREET, BOX 496, FERGUS FALLS, MINNESOTA
(Address of principal executive offices)
    
    56538-0496
(Zip Code)
 866-410-8780
  Title of each class
    
    Name of each exchange on which registeredCOMMON SHARES, par value $5.00 per share
    
    The NASDAQ Stock Market LLC
  CUMULATIVE PREFERRED SHARES, without par value
 þ o
 o þ
 þ o
 þ
  Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o o þ
 $1,156,006,973.
 35,408,233 Common Shares ($5 par value) as of February 13, 2009.
  2008
Annual Report to Shareholders-Portions incorporated by reference into
Parts I and II
 Proxy Statement for the 2009 Annual Meeting-Portions incorporated by reference into Part III




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BUSINESS
 General Development of Business
 th
     
    
    ability to provide returns on invested capital that exceed the Companys weighted
average cost of capital over the long term; and
    
    assessment of an operating companys business and potential for future earnings
growth.
  1




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
    
    Electric (the Utility) includes the production, transmission, distribution
and sale of electric energy in Minnesota, North Dakota and South Dakota under the name
Otter Tail Power Company. In addition, the Utility is an active wholesale participant
in the Midwest Independent Transmission System Operator (MISO) markets. The electric
utility operations have been the Companys primary business since incorporation.
    
    Plastics consist of businesses producing polyvinyl chloride (PVC) pipe in
the Upper Midwest and Southwest regions of the United States.
    
    Manufacturing consists of businesses in the following manufacturing
activities: production of wind towers, contract machining, metal parts stamping and
fabrication, and production of waterfront equipment, material and handling trays and
horticultural containers. These businesses have manufacturing facilities in Florida,
Illinois, Minnesota, Missouri, North Dakota, Oklahoma and Ontario, Canada and sell
products primarily in the United States.
    
    Health Services consists of businesses involved in the sale of diagnostic
medical equipment, patient monitoring equipment and related supplies and accessories.
These businesses also provide equipment maintenance, diagnostic imaging services and
rental of diagnostic medical imaging equipment to various medical institutions located
throughout the United States.
    
    Food Ingredient Processing consists of Idaho Pacific Holdings, Inc. (IPH),
which owns and operates potato dehydration plants in Ririe, Idaho; Center, Colorado;
and Souris, Prince Edward Island, Canada. IPH produces dehydrated potato products that
are sold in the United States, Canada and other countries. Approximately 25% of IPHs
sales in 2008 were to customers outside of the United States.
    
    Other Business Operations consists of businesses in residential, commercial
and industrial electric contracting industries, fiber optic and electric distribution
systems, wastewater and HVAC systems construction, transportation and energy services.
These businesses operate primarily in the Central United States, except for the
transportation company which operates in 48 states and four Canadian provinces.
   2




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




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Narrative Description of Business
 ELECTRIC
 General
  State
    
    2008
    
    2007Minnesota
    
    
    50.2
    %
    
    
    49.7
    %North Dakota
    
    
    40.4
    
    
    
    40.8South Dakota
    
    
    9.4
    
    
    
    9.5Total
    
    
    100.0
    %
    
    
    100.0
    %
  Customer category
    
    2008
    
    2007Commercial
    
    
    35.9
    %
    
    
    36.3
    %Residential
    
    
    30.6
    
    
    
    30.4Industrial
    
    
    23.1
    
    
    
    23.1All other sources
    
    
    10.4
    
    
    
    10.2Total
    
    
    100.0
    %
    
    
    100.0
    %
   4




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Capability and Demand
  2008
    
    2007Baseload plantsBig Stone Plant
    
    
    256,025
    kW
    
    
    256,025
    kWCoyote Station
    
    
    149,450
    
    
    
    149,450Hoot Lake Plant
    
    
    144,450
    
    
    
    144,325Total baseload net plant capability
    
    
    549,925
    kW
    
    
    549,800
    kWCombustion turbine and small diesel units
    
    
    131,045
    kW
    
    
    132,744
    kWHydroelectric facilities
    
    
    3,742
    kW
    
    
    4,338
    kWOwned wind facilities (rated at nameplate)Langdon Wind Center (27 turbines)
    
    
    40,500
    kW
    
    
    Ashtabula Wind Center (32 turbines)
    
    
    48,000
    
    
    
    Total owned wind facilities
    
    
    88,500
    kW
    
    
    
   2008
    
    2007Purchased wind agreements(rated at nameplate and greater than 2,000 kW)Edgeley
    
    
    21,000
    kW
    
    
    21,000
    kWLangdon
    
    
    19,500
    
    
    
    Total purchased wind
    
    
    40,500
    kW
    
    
    21,000
    kWPurchased power agreements(in excess of 1 year and 500 kW)Manitoba Hydro
    
    
    50,000
    kW
    
    
    50,000
    kWWAPA
    
    
    5,500
    
    
    
    5,500Total purchased power
    
    
    55,500
    kW
    
    
    55,500
    kW
   5




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Big Stone II
   6




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Fuel Supply
  7




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2008
    
    2007Net Kilowatt
    
    % of Total
    
    Net Kilowatt
    
    % of TotalHours
    
    Kilowatt
    
    Hours
    
    KilowattGenerated
    
    Hours
    
    Generated
    
    HoursSources
    
    (Thousands)
    
    Generated
    
    (Thousands)
    
    GeneratedSubbituminous Coal
    
    
    2,613,060
    
    
    
    67.7
    %
    
    
    2,273,799
    
    
    
    67.1
    %Lignite Coal
    
    
    1,016,828
    
    
    
    26.4
    
    
    
    1,032,449
    
    
    
    30.5Hydro and Renewables
    
    
    177,250
    
    
    
    4.6
    
    
    
    20,537
    
    
    
    .6Natural Gas and Oil
    
    
    48,957
    
    
    
    1.3
    
    
    
    59,256
    
    
    
    1.8Total
    
    
    3,856,095
    
    
    
    100.0
    %
    
    
    3,386,041
    
    
    
    100.0
    %
  Plant
    
    Coal Supplier
    
    Type of Coal
    
    Expiration DateBig Stone Plant
    
    Kennecott Coal Sales Company
    
    Wyoming subbituminous
    
    December 31, 2010Hoot Lake Plant
    
    Kennecott Coal Sales Company
    
    Wyoming subbituminous
    
    December 31, 2010Coyote Station
    
    Dakota Westmoreland Corporation
    
    North Dakota lignite
    
    May 4, 2016
     8




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General Regulation
   2008
    
    2007% of
    
    % of
    
    % of
    
    % ofElectric
    
    kWh
    
    Electric
    
    kWhRates
    
    Regulation
    
    Revenues
    
    Sales
    
    Revenues
    
    SalesMN retail sales
    
    MN Public Utilities Commission
    
    
    32.6
    %
    
    
    31.7
    %
    
    
    37.1
    %
    
    
    34.5
    %ND retail sales
    
    ND Public Service Commission
    
    
    26.3
    
    
    
    23.4
    
    
    
    30.4
    
    
    
    25.8SD retail sales
    
    SD Public Utilities Commission
    
    
    6.1
    
    
    
    6.2
    
    
    
    7.1
    
    
    
    6.4Transmission & wholesale
    
    Federal Energy Regulatory Commission
    
    
    35.0
    
    
    
    38.7
    
    
    
    25.4
    
    
    
    33.3100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    Minnesota
 9




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10




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11




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
    
    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 (CO2);
    
    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.
 2
   12




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13




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14




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North Dakota
      15




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South Dakota
  2
  16




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FERC
    17




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
    
    The Public Utility Holding Company Act of 1935 (PUHCA) was repealed effective February
8, 2006. PUHCA significantly restricted mergers and acquisitions in the electric utility
sector.
    
    FERC appointed the Electric Reliability Organization (ERO) formerly known as North
American Electric Reliability Council (NERC) as an electric reliability organization to
establish and enforce mandatory reliability rules regarding the interstate electric
transmission system. On January 1, 2007 the ERO began operating.
    
    The FERC established incentives for transmission companies, such as performance based
rates, recovery of costs to comply with reliability rules and accelerated depreciation for
investments in transmission infrastructure.
    
    Federal support was made available for certain clean coal power initiatives, nuclear
power projects and renewable energy technologies.
 MEMA
 MRO
 MISO
 19




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MAPP
 Other:
 Holding Company Reorganization
  20




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Competition, Deregulation and Legislation
      Environmental Regulation
 Impact of Environmental Laws
 Air Quality
   21




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22




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.
   23




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2 2 2.
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2 2 2
 2 2 2 2
  25




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2
 
    
    Supply efficiency and reliability: Between 1990 and 2005, the Utility decreased its
CO2 intensity (lbs. of CO2 /mWh generated) nearly 11%. The Utility
plans to more than double that reduction by 2025. Big Stone II, the Utility proposed new
generating plant is designed to incorporate supercritical pulverized coal technology that
will increase plant efficiency by 20% and produce fly-ash that can replace cement in making
concrete. In addition, transmission capacity above that which was needed for the plant was
included in order to encourage regional wind energy development.
    
    Conservation: Since 1992 the Utility has helped its customers conserve more than 1
million mWh of electricity. That is roughly equivalent to the amount of electricity that
90,000 average homes would have used in a year. The Utility continues to educate customers
about energy efficiency and demand-side management and to work with regulators to develop
new programs and measurements. The Utilitys integrated resource plan calls for an
additional 98 MW of conservation impacts by 2020.
    
    Renewable energy: Since 2002 the Utilitys customers have been able to purchase 100% of
their electricity from wind generation through the Utilitys TailWinds program. The MPUC
has approved 160 MW of new wind generation in the most recent resource plan filing. Of
that, 19.5 MW of purchased power agreements came on-line in December 2007 and 88.5 MW of
owned wind resources were on-line by December 2008. Other projects are in the development
phase and are expected to come on-line in the 2009  2010 time periods. The Utility has
purchased all the electricity generated by fourteen 1.5 MW wind turbines located in
southeastern North Dakota since 2004. The Utility supports Minnesotas new law requiring
25% of the electricity sold to Minnesota customers be obtained from renewable resources by
2025, especially with its customer protection provisions. This new law was based on the
MPUCs Wind Integration Study, which assumed in its baseline the construction of the Big
Stone II power plant and associated transmission. The Utility supports renewable energy
objectives in North Dakota and South Dakota that 10% of all retail electricity sold within
the states by the year 2015 is obtained from qualifying renewable energy sources.
    
    Other: The Utility will continue to participate as a member of the EPAs SF6
(sulfur hexafluoride) Emission Reduction Partnership for Electric Power Systems program.
The partnership proactively is targeting a reduction in emissions of SF6, a
potent GHG. SF6 has a global-warming potential 23,900 times that of
CO2. The Utility is involved in a pilot project to use methane from a municipal
waste water treatment plant to generate electricity and is also studying the potential for
other methane-related projects. Methane has a global-warming potential 20 times that of
CO2. The Utility participates in carbon sequestration research through the
Plains CO2 Reduction Partnership (PCOR) through the University of North Dakotas
Energy and Environment Research Center. The PCOR Partnership is a collaborative effort of
more than 50 public and private sector stakeholders working toward a better understanding
of the technical and economic feasibility of capturing and storing anthropogenic
CO2 emissions from stationary sources in the central interior of North America.
 2
 26




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Water Quality
   Solid Waste
    27




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Capital Expenditures
   Franchises
  Employees
  28




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PLASTICS
 General
   Northern Pipe Products, Inc. (Northern Pipe)
 Vinyltech Corporation (Vinyltech)
  Customers
  Competition
   Manufacturing and Resin Supply
  29




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Capital Expenditures
  Employees
  MANUFACTURING
 General
   BTD Manufacturing, Inc.
 30




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DMI Industries, Inc.
 ShoreMaster, Inc.,
 T. O. Plastics, Inc. (T.O. Plastics)
 Competition
   Raw Materials Supply
  Backlog
  31




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Legislation
  Capital Expenditures
  Employees
  HEALTH SERVICES
 General
   DMS Health Technologies, Inc. (DMSHT)
 32




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DMS Imaging, Inc. (DMSI)
 
    
    DMS Imaging  provides shared diagnostic medical imaging services
(primarily mobile) for MR, CT, nuclear medicine, PET, PET/CT, ultrasound,
mammography and bone density analysis.
    
    DMS Interim Solutions  offers interim and rental options for
diagnostic imaging services.
    
    DMS MedSource Partners  develops long-term relationships with
healthcare providers to offer dedicated in-house diagnostic imaging
services.
    
    DMS Portable X-Ray  delivers portable x-ray, ultrasound and
electrocardiography services to nursing homes and other facilities.
  Regulation
     33




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34




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Reimbursement
   Competition
  35




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Environmental, Health or Safety Laws
  Capital Expenditures
  Employees
  FOOD INGREDIENT PROCESSING
 General
   Customers
  Competition
  36




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Potato Supply
  Backlog
  Regulations
  Capital Expenditures
  Employees
  OTHER
BUSINESS OPERATIONS
 General
   37




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Foley Company
 Midwest Construction Services, Inc. (MCS)
 Otter Tail Energy Services Company
 E. W. Wylie Corporation (Wylie)
 Competition
   Backlog
  Capital Expenditures
  38




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Employees
  Forward-Looking Information  Safe Harbor Statement Under the  Private Securities Litigation Reform Act of 1995
   
    
    The Company is subject to federal and state legislation, regulations and
actions that may have a negative impact on the Companys business and results of
operations.
    
    Actions by the regulators of the Companys electric segment could result
in rate reductions, lower revenues and earnings or delays in recovering capital
expenditures.
    
    Future operating results of the electric segment will be impacted by the
outcome of a rate case filed in North Dakota on November 3, 2008 requesting an
overall increase in North Dakota rates of 5.14%. The filing included a request for
an interim rate increase of 4.07%, which went into effect on January 1, 2009.
Interim rates will remain in effect for all North Dakota customers until the NDPSC
makes a final determination on the Utilitys request, which is expected by August 1,
2009. If final rates are lower than interim rates, the Utility will refund North
Dakota customers the difference with interest.
    
    Any significant impairment of the Companys goodwill would cause a
decrease in the Companys assets and a reduction in its net operating performance.
    
    A sustained decline in the Companys common stock price below book value
may result in goodwill impairments that could adversely affect the Companys results
of operations and financial position, as well as credit facility covenants.
    
    The terms of some of the Companys contracts could expose it to unforeseen
costs and costs not within its control, which may not be recoverable and could
adversely affect its results of operations and financial condition.
    
    The Company is subject to risks associated with energy markets.
 39




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
    
    Certain of the Companys operating companies sell products to consumers
that could be subject to recall.
    
    Future operating results of the Companys electric segment will be
impacted by the outcome of rate rider filings in Minnesota for transmission
investments.
    
    Certain costs currently included in the FCA in retail rates may be
excluded from recovery through the FCA but may be subject to recovery through rates
established in a general rate case.
    
    Weather conditions or changes in the weather patterns can adversely affect
the Companys operations and revenues.
    
    Electric wholesale margins could be further reduced as the MISO market
becomes more efficient.
    
    Electric wholesale trading margins could be reduced or eliminated by
losses due to trading activities.
    
    The Companys electric generating facilities are subject to operational
risks that could result in unscheduled plant outages, unanticipated operation and
maintenance expenses and increased power purchase costs.
    
    Wholesale sales of electricity from excess generation could be affected by
reductions in coal shipments to the Big Stone and Hoot Lake plants due to supply
constraints or rail transportation problems beyond the Companys control.
    
    The Companys electric segment has capitalized $11.6 million in costs
related to the planned construction of a second electric generating unit at its Big
Stone Plant site as of December 31, 2008. If the project is abandoned for permitting
or other reasons, a portion of these capitalized costs and others incurred in future
periods may be subject to expense and may not be recoverable.
    
    Federal and state environmental regulation could cause the Company to
incur substantial capital expenditures and increased operating costs.
    
    Existing or new laws or regulations addressing climate change or
reductions of GHG emissions by federal or state authorities, such as mandated levels
of renewable generation or mandatory reductions in CO2 emission levels or
taxes on CO2 emissions, that result in increases in electric service
costs could negatively impact the Companys net income, financial position and
operating cash flows if such costs cannot be recovered through rates granted by
ratemaking authorities in the states where the Utility provides service or through
increased market prices for electricity.
    
    The Company may not be able to respond effectively to deregulation
initiatives in the electric industry, which could result in reduced revenues and
earnings.
    
    If the Company is unable to achieve the organic growth it expects, its
financial performance may be adversely affected.
    
    The Companys plans to grow and diversify through acquisitions and capital
projects may not be successful and could result in poor financial performance.
    
    The Companys plans to acquire, grow and operate the Companys nonelectric
businesses could be limited by state law.
 40




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
    
    Competition is a factor in all of the Companys businesses.
    
    Economic uncertainty could have an adverse impact on the Companys future
revenues and expenses.
    
    Volatile financial markets and changes in the Companys debt rating could
restrict the Companys ability to access capital and could increase borrowing costs
and pension plan expenses. Disruptions, uncertainty or volatility in the financial
markets can also adversely impact the results of operations, the ability of
customers to finance purchases of goods and services, and the financial condition of
the Company as well as exert downward pressure on stock prices and/or limit the
Companys ability to sustain its current common stock dividend level.
    
    As of December 31, 2008, the Companys defined benefit pension plan assets
had declined significantly since December 31, 2007. The Company is not required to
make a mandatory contribution to the pension plan in 2009. However, if the market
value of pension plan assets continues to decline and relief under the Pension
Protection Act is no longer granted, the Company could be required to contribute
capital to the pension plan in 2009.
    
    The price and availability of raw materials could affect the revenue and
earnings of the Companys manufacturing segment.
    
    The Companys food ingredient processing segment operates in a highly
competitive market and is dependent on adequate sources of raw materials for
processing. Should the supply of these raw materials be affected by poor growing
conditions, this could negatively impact the results of operations for this segment.
    
    The Companys food ingredient processing and wind tower manufacturing
businesses could be adversely affected by changes in foreign currency exchange
rates.
    
    The Companys plastics segment is highly dependent on a limited number of
vendors for PVC resin, many of which are located in the Gulf Coast regions, and a
limited supply of resin. The loss of a key vendor or an interruption or delay in the
supply of PVC resin could result in reduced sales or increased costs for this
business. Reductions in PVC resin prices could negatively impact PVC pipe prices,
profit margins on PVC pipe sales and the value of PVC pipe held in inventory.
    
    Changes in the rates or method of third-party reimbursements for
diagnostic imaging services could result in reduced demand for those services or
create downward pricing pressure, which would decrease revenues and earnings for the
Companys health services segment.
    
    The Companys health services businesses may be unable to continue to maintain the
agreements with Philips Medical from which it derives 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 the Companys health services
operations to incur significant costs to upgrade their equipment.
    
    Actions by regulators of the Companys health services operations could
result in monetary penalties or restrictions in the Companys health services
operations.
    
    A significant failure or an inability to properly bid or perform on
projects by the Companys construction businesses could lead to adverse financial
results.
 41




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RISK FACTORS
  UNRESOLVED STAFF COMMENTS
  PROPERTIES
      42




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LEGAL PROCEEDINGS
 Sierra Club Complaint
  Federal Power Act Complaint
  43




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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF FEBRUARY 27, 2009)
  NAME AND AGE
    
    DATES ELECTED TO OFFICE
    

PRESENT POSITION AND BUSINESS EXPERIENCEJohn D. Erickson (50)
    
    4/8/02
    
    Present:
    
    President and Chief
Executive OfficerGeorge A. Koeck (56)
    
    4/10/00
    
    Present:
    
    Corporate Secretary
and General CounselLauris N. Molbert (51)
    
    6/10/02
    
    Present:
    
    Executive Vice President and
Chief Operating OfficerKevin G. Moug (49)
    
    4/9/01
    
    Present:
    
    Chief Financial OfficerCharles S. MacFarlane (44)
    
    5/1/03
    
    Present:
    
    President, Otter Tail Power Company
  44




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Item 5.
    
    MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
  
  
 2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008OTC
    
    $
    100.00
    
    
    $
    99.61
    
    
    $
    117.64
    
    
    $
    131.54
    
    
    $
    151.22
    
    
    $
    105.97EEI
    
    $
    100.00
    
    
    $
    122.84
    
    
    $
    142.56
    
    
    $
    172.14
    
    
    $
    200.65
    
    
    $
    148.68NASDAQ
    
    $
    100.00
    
    
    $
    108.84
    
    
    $
    111.16
    
    
    $
    122.11
    
    
    $
    132.42
    
    
    $
    63.80
 45




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Item 6.
    
    SELECTED FINANCIAL DATA
  Item 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Item 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Item 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  Item 9A.
    
    CONTROLS AND PROCEDURES
    46




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Item 9B.
    
    OTHER INFORMATION
   Item 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   Item 11.
    
    EXECUTIVE COMPENSATION
  Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
  47




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Number ofsecuritiesremaining availableNumber of
    
    
    
    
    
    for future issuancesecurities to be
    
    
    
    
    
    under equityissued upon
    
    Weighted-average
    
    compensation plansexercise of
    
    exercise price of
    
    (excludingoutstanding
    
    outstanding
    
    securitiesoptions, warrants
    
    options, warrants
    
    reflected in columnPlan Category
    
    and rights
    
    and rights
    
    (a))(a)
    
    
    
    (b)
    
    
    
    (c)Equity compensation
plans approved by
security holders1999 Stock
Incentive Plan
    
    
    909,632
    (1)
    
    $
    14.51
    
    
    
    1,017,326
    (2)1999 Employee
Stock Purchase Plan
    
    
    
    
    
    
    N/A
    
    
    
    330,565
    (3)Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    909,632
    
    
    $
    14.51
    
    
    
    1,347,891
 
 (1)
    
    Includes 114,800, 109,000, and 88,050 performance based share awards made in 2008, 2007 and
2006, respectively, 73,585 restricted stock units outstanding as of December 31, 2008, and
16,495 phantom shares as part of the deferred director compensation program and excludes
73,447 shares of restricted stock issued under the 1999 Stock Incentive Plan.(2)
    
    The 1999 Stock Incentive Plan provides for the issuance of any shares available under the
plan in the form of restricted stock, performance awards and other types of stock-based
awards, in addition to the granting of options, warrants or stock appreciation rights.(3)
    
    Shares are issued based on employees election to participate in the plan. Item 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  Item 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  48




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##### 



Item 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES
     49




---



##### 



OTTER TAIL CORPORATIONBy
    /s/ Kevin G. MougKevin G. MougChief Financial OfficerDated:  February 27, 2009  Signature and Title
 John D. Erickson
    
    
    )President and Chief Executive Officer
    
    
    )(principal executive officer) and Director
    
    
    ))Kevin G. Moug
    
    
    )Chief Financial Officer
    
    
    )(principal financial and accounting officer)
    
    
    ))
    
    
    By
    /s/ John D. Erickson)John C. MacFarlane
    
    
    )
    
    
    
    John D. EricksonChairman of the Board and Director
    
    
    )
    
    
    
    Pro Se and Attorney-in-Fact)
    
    
    
    Dated February 27, 2009Karen M. Bohn, Director
    
    
    ))Arvid R. Liebe, Director
    
    
    ))Edward J. McIntyre, Director
    
    
    ))Joyce Nelson Schuette, Director
    
    
    ))Nathan I. Partain, Director
    
    
    ))Gary J. Spies, Director
    
    
    ))James B. Stake, Director
    
    
    )
 50




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##### 



TABLE OF CONTENTS
 
  Shareholders
  Managements Report Regarding Internal Control Over Financial Reporting
    
    
    37Report of Independent Registered Public Accounting Firm
    
    
    38Consolidated Statements of Income for the Three Years Ended December 31, 2008
    
    
    39Consolidated Balance Sheets, December 31, 2008 and 2007
    
    
    40 & 41Consolidated Statements of Common Shareholders Equity and Comprehensive Income for the
Three Years Ended December 31, 2008
    
    
    42Consolidated Statements of Cash Flows for the
Three Years Ended December 31, 2008
    
    
    43Consolidated Statements of Capitalization, December 31, 2008 and 2007
    
    
    44Notes to Consolidated Financial Statements
    
    
    45-69Selected Consolidated Financial Data for the Five Years Ended December 31, 2008
    
    
    18Quarterly Data for the Two Years Ended December 31, 2008
    
    
    69
  51




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##### 



Exhibit Index
to
Annual Report
on Form 10-K
For Year Ended December 31, 2008
 Previously FiledAsExhibitFile No.
    
    No.3-A
    
    8-K
filed 4/10/01
    
    
    3
    
    
    Restated Articles of Incorporation, as amended (including
resolutions creating outstanding series of Cumulative
Preferred Shares).3-B
    
    10-K for year
ended 12/31/07
    
    
    3-B
    
    
    Restated Bylaws, as amended.4-A-1
    
    10-K for year
ended 12/31/01
    
    
    4-D-7
    
    
    Note Purchase Agreement, dated as of December 1, 2001.4-A-2
    
    10-K for year
ended 12/31/02
    
    
    4-D-4
    
    
    First Amendment, dated as of December 1, 2002, to Note
Purchase Agreement, dated as of December 1, 2001.4-A-3
    
    10-Q for quarter
ended 9/30/04
    
    
    4.2
    
    
    Second Amendment, dated as of October 1, 2004, to Note Purchase
Agreement, dated as of December 1, 2001.4-A-4
    
    8-K filed
12/20/07
    
    
    4.2
    
    
    Third Amendment, dated as of December 1, 2007, to Note
Purchase Agreement, dated as of December 1, 2001.4-B
    
    8-K filed
8/01/08
    
    
    4.1
    
    
    Credit Agreement, dated as of July 30, 2008, among the
Company, dba Otter Tail Power Company, the Banks named
therein, Bank of America, N.A., as Syndication Agent, and
U.S. Bank National Association, as agent for the Banks.4-C
    
    8-K filed
2/28/07
    
    
    4.1
    
    
    Note Purchase Agreement, dated as of February 23, 2007,
between the Company and Cascade Investment L.L.C.4-D
    
    8-K filed
8/23/07
    
    
    4.1
    
    
    Note Purchase Agreement, dated as of August 20, 2007.4-D-1
    
    8-K filed
12/20/07
    
    
    4.3
    
    
    First Amendment, dated as of December 14, 2007, to Note
Purchase Agreement, dated as of August 20, 2007.4-D-2
    
    8-K filed
9/15/08
    
    
    4.1
    
    
    Second Amendment, dated as of September 11, 2008, to
Note Purchase Agreement, dated as of August 20, 20074-E
    
    8-K filed
10/5/07
    
    
    4.1
    
    
    Credit Agreement, dated as of October 2, 2007, among
Varistar Corporation, the Banks named therein, U.S. Bank
National Association, as agent for the Banks and as Lead
Arranger, and Bank of America, N.A., Keybank National
Association, and Wells Fargo Bank, National Association, as
Co-Documentation Agents.
 52




---



##### 



Previously FiledAsExhibitFile No.
    
    No.4-E-1
    
    8-K filed
12/7/07
    
    
    4.1
    
    
    First Amendment to Credit Agreement, dated as of
November 30, 2007, to Credit Agreement, dated as of
October 2, 2007.4-E-2
    
    8-K filed
12/30/08
    
    
    4.1
    
    
    Amended and Restated Credit Agreement, dated as of
December 23, 2008 among Varistar Corporation, the Banks
named therein, U.S. Bank National Association, as agent for
the Banks and as Lead Arranger, and Bank of America, N.A.,
Keybank National Association, and Wells Fargo Bank,
National Association, as Co-Documentation Agents.10-A
    
    2-39794
    
    
    4-C
    
    
    Integrated Transmission Agreement, dated August 25,
1967, between Cooperative Power Association and the
Company.10-A-1
    
    10-K for year
ended 12/31/92
    
    
    10-A-1
    
    
    Amendment No. 1, dated as of September 6, 1979, to
Integrated Transmission Agreement, dated as of August 25,
1967, between Cooperative Power Association and the
Company.10-A-2
    
    10-K for year
ended 12/31/92
    
    
    10-A-2
    
    
    Amendment No. 2, dated as of November 19, 1986, to
Integrated Transmission Agreement between Cooperative
Power Association and the Company.10-C-1
    
    2-55813
    
    
    5-E
    
    
    Contract dated July 1, 1958, between Central Power
Electric Corporation, Inc., and the Company.10-C-2
    
    2-55813
    
    
    5-E-1
    
    
    Supplement Seven dated November 21, 1973. (Supplements
Nos. One through Six have been superseded and are no longer
in effect.)10-C-3
    
    2-55813
    
    
    5-E-2
    
    
    Amendment No. 1 dated December 19, 1973, to
Supplement Seven.10-C-4
    
    10-K for year
ended 12/31/91
    
    
    10-C-4
    
    
    Amendment No. 2 dated June 17, 1986, to
Supplement Seven.10-C-5
    
    10-K for year
ended 12/31/92
    
    
    10-C-5
    
    
    Amendment No. 3 dated June 18, 1992, to
Supplement Seven.10-C-6
    
    10-K for year
ended 12/31/93
    
    
    10-C-6
    
    
    Amendment No. 4 dated January 18, 1994 to
Supplement Seven.10-D
    
    2-55813
    
    
    5-F
    
    
    Contract dated April 12, 1973, between the Bureau of
Reclamation and the Company.10-E-1
    
    2-55813
    
    
    5-G
    
    
    Contract dated January 8, 1973, between East River
Electric
Power Cooperative and the Company.10-E-2
    
    2-62815
    
    
    5-E-1
    
    
    Supplement One dated February 20, 1978.
 53




---



##### 



Previously FiledAsExhibitFile No.
    
    No.10-E-3
    
    10-K for year
ended 12/31/89
    
    
    10-E-3
    
    
    Supplement Two dated June 10, 1983.10-E-4
    
    10-K for year
ended 12/31/90
    
    
    10-E-4
    
    
    Supplement Three dated June 6, 1985.10-E-5
    
    10-K for year
ended 12/31/92
    
    
    10-E-5
    
    
    Supplement No. Four, dated as of September 10, 1986.10-E-6
    
    10-K for year
ended 12/31/92
    
    
    10-E-6
    
    
    Supplement No. Five, dated as of January 7, 1993.10-E-7
    
    10-K for year
ended 12/31/93
    
    
    10-E-7
    
    
    Supplement No. Six, dated as of December 2, 199310-F
    
    10-K for year
ended 12/31/89
    
    
    10-F
    
    
    Agreement for Sharing Ownership of Generating Plant by
and between the Company, Montana-Dakota Utilities Co., and
Northwestern Public Service Company (dated as of
January 7, 1970).10-F-1
    
    10-K for year
ended 12/31/89
    
    
    10-F-1
    
    
    Letter of Intent for purchase of share of Big Stone Plant
from Northwestern Public Service Company (dated as of
May 8, 1984).10-F-2
    
    10-K for year
ended 12/31/91
    
    
    10-F-2
    
    
    Supplemental Agreement No. 1 to Agreement for Sharing
Ownership of Big Stone Plant (dated as of July 1, 1983).10-F-3
    
    10-K for year
ended 12/31/91
    
    
    10-F-3
    
    
    Supplemental Agreement No. 2 to Agreement for Sharing
Ownership of Big Stone Plant (dated as of March 1, 1985).10-F-4
    
    10-K for year
ended 12/31/91
    
    
    10-F-4
    
    
    Supplemental Agreement No. 3 to Agreement for Sharing
Ownership of Big Stone Plant (dated as of March 31, 1986).10-F-5
    
    10-Q for quarter
ended 9/30/03
    
    
    10.1
    
    
    Supplemental Agreement No. 4 to Agreement for Sharing
Ownership of Big Stone Plant (dated as of April 24, 2003).10-F-6
    
    10-K for year
ended 12/31/92
    
    
    10-F-5
    
    
    Amendment I to Letter of Intent dated May 8, 1984, for
purchase of share of Big Stone Plant.10-G
    
    10-Q for quarter
ended 06/30/04
    
    
    10.3
    
    
    Master Coal Purchase and Sale Agreement by and between
the Company, Montana-Dakota Utilities Co., Northwestern
Corporation and Kennecott Coal Sales Company-Big Stone
Plant (dated as of June 1, 2004).
 54




---



##### 



Previously FiledAsExhibitFile No.
    
    No.10-H
    
    2-61043
    
    
    5-H
    
    
    Agreement for Sharing Ownership of Coyote Station
Generating Unit No. 1 by and between the Company,
Minnkota Power Cooperative, Inc., Montana-Dakota Utilities
Co., Northwestern Public Service Company and Minnesota
Power & Light Company (dated as of July 1, 1977).10-H-1
    
    10-K for year
ended 12/31/89
    
    
    10-H-1
    
    
    Supplemental Agreement No. One, dated as of November 30,
1978, to Agreement for Sharing Ownership of Coyote
Generating Unit No. 1.10-H-2
    
    10-K for year
ended 12/31/89
    
    
    10-H-2
    
    
    Supplemental Agreement No. Two, dated as of March 1,
1981, to Agreement for Sharing Ownership of Coyote
Generating Unit No. 1 and Amendment No. 2 dated March 1,
1981, to Coyote Plant Coal Agreement.10-H-3
    
    10-K for year
ended 12/31/89
    
    
    10-H-3
    
    
    Amendment, dated as of July 29, 1983, to Agreement for
Sharing Ownership of Coyote Generating Unit No. 1.10-H-4
    
    10-K for year
ended 12/31/92
    
    
    10-H-4
    
    
    Agreement, dated as of September 5, 1985, containing
Amendment No. 3 to Agreement for Sharing Ownership of
Coyote Generating Unit No.1, dated as of July 1, 1977, and
Amendment No. 5 to Coyote Plant Coal Agreement, dated as
of January 1, 1978.10-H-5
    
    10-Q for quarter
ended 9/30/01
    
    
    10-A
    
    
    Amendment, dated as of June 14, 2001, to Agreement for
Sharing Ownership of Coyote Generating Unit No. 1.10-H-6
    
    10-Q for quarter
ended 9/30/03
    
    
    10.2
    
    
    Amendment, dated as of April 24, 2003, to Agreement for
Sharing Ownership of Coyote Generating Unit No. 1.10-I
    
    2-63744
    
    
    5-I
    
    
    Coyote Plant Coal Agreement by and between the Company,
Minnkota Power Cooperative, Inc., Montana-Dakota Utilities
Co., Northwestern Public Service Company, Minnesota Power
& Light Company, and Knife River Coal Mining Company
(dated as of January 1, 1978).10-I-1
    
    10-K for year
ended 12/31/92
    
    
    10-I-1
    
    
    Addendum, dated as of March 10, 1980, to Coyote Plant
Coal Agreement.10-I-2
    
    10-K for year
ended 12/31/92
    
    
    10-I-2
    
    
    Amendment (No. 3), dated as of May 28, 1980, to
Coyote Plant Coal Agreement.10-I-3
    
    10-K for year
ended 12/31/92
    
    
    10-I-3
    
    
    Fourth Amendment, dated as of August 19, 1985, to
Coyote Plant Coal Agreement.10-I-4
    
    10-Q for quarter
ended 6/30/93
    
    
    19-A
    
    
    Sixth Amendment, dated as of February 17, 1993, to
Coyote Plant Coal Agreement.10-I-5
    
    10-K for year
ended 12/31/01
    
    
    10-I-5
    
    
    Agreement and Consent to Assignment of the
Coyote Plant Coal Agreement.
 55




---



##### 



Previously FiledAsExhibitFile No.
    
    No.10-J-1
    
    10-Q for quarter
ended 06/30/05
    
    
    10.1
    
    
    Big Stone II Power Plant Participation Agreement by and
among the Company, Central Minnesota Municipal Power
Agency, Great River Energy, Heartland Consumers Power
District, Montana-Dakota Utilities Co., a division of MDU
Resources Group, Inc., Southern Minnesota Municipal Power
Agency and Western Minnesota Municipal Power Agency, as
Owners (dated as of June 30, 2005).10-J-1a
    
    10-Q for quarter
ended 6/30/06
    
    
    10.6
    
    
    Amendment No. 1, dated as of June 1, 2006, to
Participation Agreement (dated as of June 30, 2005).10-J-1b
    
    8-K filed 8/31/06
    
    
    10.1
    
    
    Amendment No. 2, dated as of August 18, 2006, to
Participation Agreement (dated as of June 30, 2005).10-J-1c
    
    8-K filed 10/11/06
    
    
    10.1
    
    
    Amendment No. 3, effective September 1, 2006, to
Participation Agreement (dated as of June 30, 2005).10-J-1d
    
    8-K filed
6/19/07
    
    
    10.1
    
    
    Amendment No. 4, dated as of June 8, 2007, to
Participation Agreement (dated as of June 30, 2005).10-J-1e
    
    8-K filed
9/12/07
    
    
    10.1
    
    
    Amendment No. 5, dated as of September 1, 2007, to
Participation Agreement (dated as of June 30, 2005).10-J-1f
    
    8-K filed
9/24/07
    
    
    10.1
    
    
    Amendment No. 6, dated as of September 20, 2007, to
Participation Agreement (dated as of June 30, 2005).10-J-2
    
    10-Q for quarter
ended 06/30/05
    
    
    10.2
    
    
    Big Stone II Power Plant Operation & Maintenance
Services Agreement by and among the Company, Central
Minnesota Municipal Power Agency, Great River Energy,
Heartland Consumers Power District, Montana-Dakota
Utilities Co., a division of MDU Resources Group, Inc.,
Southern Minnesota Municipal Power Agency and Western
Minnesota Municipal Power Agency, as Owners, and the
Company, as Operator (dated as of June 30, 2005).10-J-3
    
    10-Q for quarter
ended 06/30/05
    
    
    10.3
    
    
    Big Stone I and Big Stone II 2005 Joint Facilities
Agreement by and among the Company, Central Minnesota
Municipal Power Agency, Great River Energy, Heartland
Consumers Power District, Montana-Dakota Utilities Co., a
division of MDU Resources Group, Inc., NorthWestern
Corporation dba NorthWestern Energy, Southern Minnesota
Municipal Power Agency and Western Minnesota Municipal
Power Agency, as Owners (dated as of June 30, 2005).10-J-3a
    
    8-K filed 8/25/06
    
    
    10.1
    
    
    Amendment No. 1, dated as of July 13, 2006, to Joint
Facilities Agreement (dated as of June 30, 2005).
 56




---



##### 



Previously FiledAsExhibitFile No.
    
    No.10-K-1
    
    10-Q for quarter
ended 9/30/99
    
    
    10
    
    
    Power Sales Agreement between the Company and Manitoba
Hydro Electric Board (dated as of July 1, 1999).10-L
    
    10-K for year
ended 12/31/91
    
    
    10-L
    
    
    Integrated Transmission Agreement by and between the
Company, Missouri Basin Municipal Power Agency and Western
Minnesota Municipal Power Agency (dated as of March 31,
1986).10-L-1
    
    10-K for year
ended 12/31/88
    
    
    10-L-1
    
    
    Amendment No. 1, dated as of December 28, 1988, to
Integrated Transmission Agreement (dated as of
March 31, 1986).10-M
    
    10-Q for quarter
ended 06/30/04
    
    
    10.1
    
    
    Master Coal Purchase Agreement by and between the
Company and Kennecott Coal Sales Company  Hoot Lake Plant
(dated as of December 31, 2001).10-N-1
    
    10-K for year
ended 12/31/02
    
    
    10-N-1
    
    
    Deferred Compensation Plan for Directors, as amended*10-N-2
    
    8-K filed
02/04/05
    
    
    10.1
    
    
    Executive Survivor and Supplemental Retirement Plan
(2005 Restatement).*10-N-2a
    
    10-K for year
ended 12/31/06
    
    
    10-N-2a
    
    
    First Amendment of Executive Survivor and Supplemental
Retirement Plan (2005 Restatement).*10-N-3
    
    10-K for year
ended 12/31/93
    
    
    10-N-5
    
    
    Nonqualified Profit Sharing Plan.*10-N-4
    
    10-Q for quarter
ended 3/31/02
    
    
    10-B
    
    
    Nonqualified Retirement Savings Plan, as amended.*10-N-5
    
    8-K filed 4/13/06
    
    
    10.3
    
    
    1999 Employee Stock Purchase Plan, As Amended (2006).10-N-6
    
    8-K filed 4/13/06
    
    
    10.4
    
    
    1999 Stock Incentive Plan, As Amended (2006).10-N-7
    
    10-K for year ended
12/31/05
    
    
    10-N-7
    
    
    Form of Stock Option Agreement*10-N-8
    
    10-K for year ended
12/31/05
    
    
    10-N-8
    
    
    Form of Restricted Stock Agreement*10-N-9
    
    8-K filed 4/13/06
    
    
    10.2
    
    
    Form of 2006 Performance Award Agreement.*10-N-10
    
    8-K filed
04/15/05
    
    
    10.2
    
    
    Executive Annual Incentive Plan (Effective April 1,
2005).*
 57




---



##### 



Previously FiledAsExhibitFile No.
    
    No.10-N-11
    
    10-Q for quarter
ended 6/30/06
    
    
    10.5
    
    
    Form of 2006 Restricted Stock Unit Award Agreement.*10-N-12
    
    8-K filed 4/13/06
    
    
    10.1
    
    
    Form of Restricted Stock Award Agreement for Directors.10-O-1
    
    10-Q for quarter
ended 6/30/02
    
    
    10-A
    
    
    Executive Employment Agreement, John Erickson.*10-O-2
    
    10-Q for quarter
ended 6/30/02
    
    
    10-B
    
    
    Executive Employment Agreement and amendment no. 1,
Lauris Molbert.*10-O-3
    
    10-Q for quarter
ended 6/30/02
    
    
    10-C
    
    
    Executive Employment Agreement, Kevin Moug.*10-O-4
    
    10-Q for quarter
ended 6/30/02
    
    
    10-D
    
    
    Executive Employment Agreement, George Koeck.*10-P-1
    
    8-K filed
11/2/07
    
    
    10.1
    
    
    Change in Control Severance Agreement, John Erickson.*10-P-2
    
    8-K filed
11/2/07
    
    
    10.2
    
    
    Change in Control Severance Agreement, Lauris Molbert.*10-P-3
    
    8-K filed
11/2/07
    
    
    10.3
    
    
    Change in Control Severance Agreement, Kevin Moug.*10-P-4
    
    8-K filed
11/2/07
    
    
    10.4
    
    
    Change in Control Severance Agreement, George Koeck.*13-A
    
    
    
    
    
    
    
    Portions of 2008 Annual Report to Shareholders
incorporated by reference in this Form 10-K.21-A
    
    
    
    
    
    
    
    Subsidiaries of Registrant.23-A
    
    
    
    
    
    
    
    Consent of Deloitte & Touche LLP.24-A
    
    
    
    
    
    
    
    Powers of Attorney.31.1
    
    
    
    
    
    
    
    Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    
    
    
    
    
    Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    
    
    
    
    
    Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 58




---



##### 



Previously FiledAsExhibitFile No.
    
    No.32.2
    
    
    
    
    
    
    
    Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Management contract of compensatory plan or arrangement required to be filed pursuant to Item
601(b)(10)(iii)(A) of Regulation S-K. 59