##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 OR
 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
    
    41-0462685(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)215 South Cascade Street, Box 496, Fergus Falls, Minnesota
    
    56538-0496(Address of principal executive offices)
    
    (Zip Code)
  
 
  þ o
 þ o
 o þ
  October 31,
2005  29,347,813 Common Shares ($5 par value)




---



OTTER TAIL CORPORATION
 INDEX
 Page No.Part I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets  September 30, 2005 and December 31, 2004 (not audited)
    
    
    2 & 3Consolidated Statements of Income  Three and Nine Months Ended September 30, 2005 and 2004 (not audited)
    
    
    4Consolidated Statements of Cash Flows  Nine Months Ended September 30, 2005 and 2004 (not audited)
    
    
    5Notes to Consolidated Financial Statements (not audited)
    
    
    6-20Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20-38Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    38-41Item 4. Controls and Procedures
    
    
    41Part II. Other InformationItem 6. Exhibits
    
    
    42Signatures
    
    
    42Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906




---



##### Table of Contents



PART
I. FINANCIAL INFORMATION
 
 Item 1.
Financial Statements
 Otter Tail Corporation
 
 Consolidated Balance Sheets   -Assets-
 September 30,
    
    
    December 31,2005
    
    
    2004(Thousands of dollars)Current assetsCash and cash equivalents
    
    $
    
    
    
    $
    Accounts receivable:Tradenet
    
    
    121,822
    
    
    
    116,141Other
    
    
    10,790
    
    
    
    9,872Inventories
    
    
    83,361
    
    
    
    72,504Deferred income taxes
    
    
    4,942
    
    
    
    4,852Accrued utility revenues
    
    
    17,598
    
    
    
    15,344Costs and estimated earnings in excess of billings
    
    
    18,103
    
    
    
    18,145Other
    
    
    23,289
    
    
    
    7,800Assets of discontinued operations
    
    
    4,817
    
    
    
    30,937Total current assets
    
    
    284,722
    
    
    
    275,595Investments and other assets
    
    
    38,406
    
    
    
    42,650Goodwillnet
    
    
    98,879
    
    
    
    92,196Other intangiblesnet
    
    
    21,383
    
    
    
    19,600Deferred debitsUnamortized debt expense and reacquisition premiums
    
    
    6,597
    
    
    
    7,291Regulatory assets and other deferred debits
    
    
    17,604
    
    
    
    16,692Total deferred debits
    
    
    24,201
    
    
    
    23,983PlantElectric plant in service
    
    
    898,665
    
    
    
    890,200Nonelectric operations
    
    
    223,481
    
    
    
    208,311Total plant
    
    
    1,122,146
    
    
    
    1,098,511Less accumulated depreciation and amortization
    
    
    456,005
    
    
    
    436,856Plantnet of accumulated depreciation and amortization
    
    
    666,141
    
    
    
    661,655Construction work in progress
    
    
    24,910
    
    
    
    18,469Net plant
    
    
    691,051
    
    
    
    680,124Total
    
    $
    1,158,642
    
    
    $
    1,134,148
  - 2 -




---



##### Table of Contents



Otter Tail Corporation
Consolidated Balance Sheets   -Liabilities-
 September 30,
    
    
    December 31,2005
    
    
    2004(Thousands of dollars)Current liabilitiesShort-term debt
    
    $
    33,000
    
    
    $
    39,950Current maturities of long-term debt
    
    
    4,493
    
    
    
    6,016Accounts payable
    
    
    74,324
    
    
    
    84,433Accrued salaries and wages
    
    
    17,949
    
    
    
    17,330Accrued federal and state income taxes
    
    
    5,854
    
    
    
    3,700Other accrued taxes
    
    
    10,802
    
    
    
    11,391Other accrued liabilities
    
    
    17,123
    
    
    
    10,417Liabilities of discontinued operations
    
    
    1,536
    
    
    
    8,585Total current liabilities
    
    
    165,081
    
    
    
    181,822Pensions benefit liability
    
    
    18,984
    
    
    
    16,703Other postretirement benefits liability
    
    
    26,402
    
    
    
    25,053Other noncurrent liabilities
    
    
    13,826
    
    
    
    11,874Deferred creditsDeferred income taxes
    
    
    122,376
    
    
    
    121,301Deferred investment tax credit
    
    
    9,613
    
    
    
    10,477Regulatory liabilities
    
    
    60,333
    
    
    
    56,909Other
    
    
    3,135
    
    
    
    1,662Total deferred credits
    
    
    195,457
    
    
    
    190,349CapitalizationLong-term debt, net of current maturities
    
    
    258,981
    
    
    
    261,805Class B stock options of subsidiary
    
    
    1,258
    
    
    
    1,832Class B stock of subsidiary
    
    
    745
    
    
    
    Cumulative preferred shares
authorized 1,500,000 shares without par value;
outstanding 2005 and 2004  155,000 shares
    
    
    15,500
    
    
    
    15,500Cumulative preference shares  authorized 1,000,000
shares without par value; outstanding  none
    
    
    
    
    
    
    Common shares, par value $5 per share
authorized 50,000,000 shares;
outstanding 2005  29,330,191 and 2004  28,976,919
    
    
    146,651
    
    
    
    144,885Premium on common shares
    
    
    94,779
    
    
    
    87,865Unearned compensation
    
    
    (1,998
    )
    
    
    (2,577
    )Retained earnings
    
    
    224,243
    
    
    
    199,427Accumulated other comprehensive loss
    
    
    (1,267
    )
    
    
    (390
    )Total common equity
    
    
    462,408
    
    
    
    429,210Total capitalization
    
    
    738,892
    
    
    
    708,347Total
    
    $
    1,158,642
    
    
    $
    1,134,148
  - 3 -




---



##### Table of Contents



Otter Tail Corporation
 
 Consolidated Statements of Income
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except share
    
    
    (In thousands, except shareand per share amounts)
    
    
    and per share amounts)Operating revenues
    
    $
    272,658
    
    
    $
    214,719
    
    
    $
    761,169
    
    
    $
    617,759Operating expensesProduction fuel
    
    
    14,485
    
    
    
    12,477
    
    
    
    40,211
    
    
    
    38,267Purchased power  system use
    
    
    13,295
    
    
    
    10,050
    
    
    
    44,737
    
    
    
    30,875Electric operation and maintenance expenses
    
    
    23,383
    
    
    
    19,158
    
    
    
    72,635
    
    
    
    62,637Cost of goods sold (excludes depreciation; included below)
    
    
    147,196
    
    
    
    118,690
    
    
    
    410,872
    
    
    
    332,648Other nonelectric expenses
    
    
    26,485
    
    
    
    20,667
    
    
    
    74,946
    
    
    
    62,498Goodwill impairment loss
    
    
    1,003
    
    
    
    
    
    
    
    1,003
    
    
    
    Depreciation and amortization
    
    
    11,720
    
    
    
    10,882
    
    
    
    34,658
    
    
    
    31,918Property taxes  electric operations
    
    
    2,735
    
    
    
    2,722
    
    
    
    7,816
    
    
    
    7,570Total operating expenses
    
    
    240,302
    
    
    
    194,646
    
    
    
    686,878
    
    
    
    566,413Operating income
    
    
    32,356
    
    
    
    20,073
    
    
    
    74,291
    
    
    
    51,346Other income
    
    
    1,073
    
    
    
    114
    
    
    
    1,482
    
    
    
    880Interest charges
    
    
    4,657
    
    
    
    4,582
    
    
    
    14,064
    
    
    
    13,291Income from continuing operations before income taxes
    
    
    28,772
    
    
    
    15,605
    
    
    
    61,709
    
    
    
    38,935Income taxes  continuing operations
    
    
    10,692
    
    
    
    4,936
    
    
    
    21,612
    
    
    
    12,200Income from continuing operations
    
    
    18,080
    
    
    
    10,669
    
    
    
    40,097
    
    
    
    26,735Discontinued operations(Loss)/income from discontinued operations net of taxes of
($334); $234; ($97) and $387 for the respective periods
    
    
    (504
    )
    
    
    357
    
    
    
    (156
    )
    
    
    582Net gain on disposition of discontinued operations  net of taxes of
$17 and $5,786 for the three and nine months ended September 30, 2005
    
    
    27
    
    
    
    
    
    
    
    9,937
    
    
    
    Net income from discontinued operations
    
    
    (477
    )
    
    
    357
    
    
    
    9,781
    
    
    
    582Net income
    
    
    17,603
    
    
    
    11,026
    
    
    
    49,878
    
    
    
    27,317Preferred dividend requirements
    
    
    185
    
    
    
    184
    
    
    
    552
    
    
    
    552Earnings available for common shares
    
    $
    17,418
    
    
    $
    10,842
    
    
    $
    49,326
    
    
    $
    26,765Basic earnings per common share:Continuing operations (net of preferred dividend requirement)
    
    $
    0.61
    
    
    $
    0.40
    
    
    $
    1.36
    
    
    $
    1.01Discontinued operations
    
    $
    (0.01
    )
    
    $
    0.02
    
    
    $
    0.33
    
    
    $
    0.02$
    0.60
    
    
    $
    0.42
    
    
    $
    1.69
    
    
    $
    1.03Diluted earnings per common share:Continuing operations (net of preferred dividend requirement)
    
    $
    0.61
    
    
    $
    0.40
    
    
    $
    1.35
    
    
    $
    1.01Discontinued operations
    
    $
    (0.02
    )
    
    $
    0.02
    
    
    $
    0.33
    
    
    $
    0.02$
    0.59
    
    
    $
    0.42
    
    
    $
    1.68
    
    
    $
    1.03Average number of common shares outstanding  basic
    
    
    29,245,640
    
    
    
    26,010,252
    
    
    
    29,176,625
    
    
    
    25,898,244Average number of common shares outstanding  diluted
    
    
    29,441,410
    
    
    
    26,121,911
    
    
    
    29,289,438
    
    
    
    26,019,550Dividends per common share
    
    $
    0.280
    
    
    $
    0.275
    
    
    $
    0.840
    
    
    $
    0.825
  - 4 -




---



##### Table of Contents



Otter Tail Corporation
 
 Consolidated Statements of Cash Flows
 Nine months endedSeptember 30,2005
    
    
    2004(Thousands of dollars)Cash flows from operating activitiesNet income
    
    $
    49,878
    
    
    $
    27,317Adjustments to reconcile net income to net cash
provided by operating activities:Net gain from sale of discontinued operations
    
    
    (9,937
    )
    
    
    Loss /(income) from discontinued operations
    
    
    156
    
    
    
    (582
    )Depreciation and amortization
    
    
    34,658
    
    
    
    31,918Deferred investment tax credit
    
    
    (864
    )
    
    
    (864
    )Deferred income taxes
    
    
    (1,854
    )
    
    
    2,548Change in deferred debits and other assets
    
    
    4,313
    
    
    
    460Discretionary contribution to pension plan
    
    
    (4,000
    )
    
    
    (4,000
    )Change in noncurrent liabilities and deferred credits
    
    
    4,466
    
    
    
    3,767Allowance for equity (other) funds used during construction
    
    
    (601
    )
    
    
    (573
    )Change in derivatives net of regulatory deferral
    
    
    (2,766
    )
    
    
    1,756Other  net
    
    
    2,234
    
    
    
    1,399Cash (used for) provided by current assets and current liabilities:Change in receivables
    
    
    (5,962
    )
    
    
    1,030Change in inventories
    
    
    (7,682
    )
    
    
    (6,815
    )Change in other current assets
    
    
    (9,344
    )
    
    
    (13,781
    )Change in payables and other current liabilities
    
    
    (9,771
    )
    
    
    (18,240
    )Change in interest and income taxes payable
    
    
    (4,175
    )
    
    
    4,169Net cash provided by continuing operations
    
    
    38,749
    
    
    
    29,509Net cash provided by discontinued operations
    
    
    3,493
    
    
    
    2,336Net cash provided by operating activities
    
    
    42,242
    
    
    
    31,845Cash flows from investing activitiesCapital expenditures
    
    
    (42,150
    )
    
    
    (34,183
    )Proceeds from disposal of noncurrent assets
    
    
    3,923
    
    
    
    3,406Acquisitionsnet of cash acquired
    
    
    (11,223
    )
    
    
    (69,069
    )Increases in other investments
    
    
    3,369
    
    
    
    (8,483
    )Net cash used in investing activities  continuing operations
    
    
    (46,081
    )
    
    
    (108,329
    )Net proceeds from the sales of discontinued operations
    
    
    33,685
    
    
    
    Net cash provided by (used in) investing activities  discontinued operations
    
    
    559
    
    
    
    (592
    )Net cash used in investing activities
    
    
    (11,837
    )
    
    
    (108,921
    )Cash flows from financing activitiesChange in checks written in excess of cash
    
    
    1,970
    
    
    
    5,685Net short-term borrowings
    
    
    (6,950
    )
    
    
    85,757Proceeds from issuance of common stock, net of issuance expenses
    
    
    8,266
    
    
    
    7,796Payments for retirement of common stock
    
    
    (365
    )
    
    
    (349
    )Proceeds from issuance of long-term debt, net of issuance expenses
    
    
    339
    
    
    
    540Payments for retirement of long-term debt
    
    
    (5,304
    )
    
    
    (6,431
    )Dividends paid and other distributions
    
    
    (25,060
    )
    
    
    (21,910
    )Net cash (used in) provided by financing activities  continuing operations
    
    
    (27,104
    )
    
    
    71,088Net cash used in financing activities  discontinued operations
    
    
    (2,996
    )
    
    
    (1,801
    )Net cash (used in) provided by financing activities
    
    
    (30,100
    )
    
    
    69,287Effect of foreign exchange rate fluctuations on cash
    
    
    (305
    )
    
    
    79Net change in cash and cash equivalents
    
    
    
    
    
    
    (7,710
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    7,710Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    Supplemental cash flow informationCash paid during the year from continuing operations for:Interest (net of amount capitalized)
    
    $
    11,354
    
    
    $
    9,844Income taxes
    
    $
    26,740
    
    
    $
    8,557Cash paid during the year from discontinued operations for:Interest (net of amount capitalized)
    
    $
    85
    
    
    $
    85Income taxes
    
    $
    2,178
    
    
    $
    467
  - 5 -




---



##### Table of Contents



OTTER TAIL CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Acquisitions
     6




---



##### Table of Contents



Performance
    
    
    Shoreline
    
    
    Southeast(in thousands)
    
    Tool
    
    
    Industries
    
    
    Floating DocksAssetsCurrent assets
    
    $
    748
    
    
    $
    457
    
    
    $
    2,437Plant
    
    
    1,396
    
    
    
    260
    
    
    
    415Goodwill
    
    
    1,794
    
    
    
    1,509
    
    
    
    2,804Other intangible assets
    
    
    800
    
    
    
    557
    
    
    
    1,150Total assets
    
    $
    4,738
    
    
    $
    2,783
    
    
    $
    6,806Liabilities and equityCurrent liabilities
    
    $
    324
    
    
    $
    86
    
    
    $
    318Deferred revenue
    
    
    
    
    
    
    
    
    
    
    2,520Deferred income taxes
    
    
    
    
    
    
    295
    
    
    
    Long-term debt
    
    
    298
    
    
    
    
    
    
    
    Total liabilities
    
    $
    622
    
    
    $
    381
    
    
    $
    2,838Cash paid
    
    $
    4,116
    
    
    $
    2,402
    
    
    $
    3,968
  Revenue Recognition
   7




---



##### Table of Contents



September 30,
    
    
    December 31,(in thousands)
    
    2005
    
    
    2004Costs incurred on uncompleted contracts
    
    $
    156,247
    
    
    $
    99,213Less billings to date
    
    
    (161,826
    )
    
    
    (96,413
    )Plus estimated earnings recognized
    
    
    17,000
    
    
    
    12,469$
    11,421
    
    
    $
    15,269
  September 30,
    
    
    December 31,(in thousands)
    
    2005
    
    
    2004Costs and estimated earnings in excess of billings on uncompleted contracts
    
    $
    18,103
    
    
    $
    18,145Billings in excess of costs and estimated earnings on uncompleted contracts
    
    
    (6,682
    )
    
    
    (2,876
    )$
    11,421
    
    
    $
    15,269
  Stock-based compensation
 Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation
  8




---



##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net incomeAs reported
    
    $
    17,603
    
    
    $
    11,026
    
    
    $
    49,878
    
    
    $
    27,317Total stock-based employee compensation
expense determined under fair value
based method for all awards net of
related tax effects
    
    
    (213
    )
    
    
    (330
    )
    
    
    (497
    )
    
    
    (874
    )Pro forma
    
    $
    17,390
    
    
    $
    10,696
    
    
    $
    49,381
    
    
    $
    26,443Basic earnings per shareAs reported
    
    $
    0.60
    
    
    $
    0.42
    
    
    $
    1.69
    
    
    $
    1.03Pro forma
    
    $
    0.59
    
    
    $
    0.40
    
    
    $
    1.67
    
    
    $
    1.00Diluted earnings per shareAs reported
    
    $
    0.59
    
    
    $
    0.42
    
    
    $
    1.68
    
    
    $
    1.03Pro forma
    
    $
    0.58
    
    
    $
    0.40
    
    
    $
    1.67
    
    
    $
    1.00
 Adjustments and Reclassifications
  .
 Inventories
  September 30,
    
    
    December 31,(in thousands)
    
    2005
    
    
    2004Finished goods
    
    $
    32,234
    
    
    $
    34,081Work in process
    
    
    4,677
    
    
    
    3,733Raw material, fuel and supplies
    
    
    46,450
    
    
    
    34,690$
    83,361
    
    
    $
    72,504
 9




---



##### Table of Contents



Goodwill and Other Intangible Assets
    September 30, 2005
    
    
    December 31, 2004Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    Netcarrying
    
    
    Accumulated
    
    
    carrying
    
    
    carrying
    
    
    Accumulated
    
    
    carrying(in thousands)
    
    amount
    
    
    amortization
    
    
    amount
    
    
    amount
    
    
    amortization
    
    
    amountAmortized intangible assets:Covenants not to compete
    
    $
    2,338
    
    
    $
    1,569
    
    
    $
    769
    
    
    $
    1,966
    
    
    $
    1,334
    
    
    $
    632Customer relationships
    
    
    10,575
    
    
    
    473
    
    
    
    10,102
    
    
    
    10,045
    
    
    
    148
    
    
    
    9,897Other intangible assets including
contracts
    
    
    2,802
    
    
    
    1,618
    
    
    
    1,184
    
    
    
    2,523
    
    
    
    1,387
    
    
    
    1,136Total
    
    $
    15,715
    
    
    $
    3,660
    
    
    $
    12,055
    
    
    $
    14,534
    
    
    $
    2,869
    
    
    $
    11,665Non-amortized intangible assets:Brand/trade name
    
    $
    9,328
    
    
    $
    
    
    
    $
    9,328
    
    
    $
    7,935
    
    
    $
    
    
    
    $
    7,935
  New Accounting Standards
 SFAS No. 151, Inventory Costs an amendment of ARB No. 43, Chapter 4 ,
 SFAS No. 123(R) (revised 2004), Share-Based Payment Accounting for Stock-based Compensation Accounting for
Stock Issued to Employees
 10




---



##### Table of Contents



FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, (FIN 47) Accounting for Asset Retirement Obligations
 SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29 , Accounting for Nonmonetary
Transactions
 SFAS No. 154, Accounting for Changes and Error Corrections, a replacement of APB Opinion No. 20 and
FASB Statement No. 3,
 Segment Information
    11




---



##### Table of Contents



Operating Revenue
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Electric
    
    $
    85,770
    
    
    $
    62,640
    
    
    $
    233,403
    
    
    $
    195,944Plastics
    
    
    45,462
    
    
    
    27,574
    
    
    
    113,621
    
    
    
    86,646Manufacturing
    
    
    59,803
    
    
    
    52,373
    
    
    
    183,190
    
    
    
    144,586Health services
    
    
    30,653
    
    
    
    27,741
    
    
    
    89,775
    
    
    
    80,014Food ingredient processing
    
    
    9,808
    
    
    
    4,803
    
    
    
    27,297
    
    
    
    4,803Other business operations
    
    
    42,276
    
    
    
    40,255
    
    
    
    116,880
    
    
    
    107,676Intersegment eliminations
    
    
    (1,114
    )
    
    
    (667
    )
    
    
    (2,997
    )
    
    
    (1,910
    )Total
    
    $
    272,658
    
    
    $
    214,719
    
    
    $
    761,169
    
    
    $
    617,759
 12




---



##### Table of Contents



Income (Loss) Before Income Taxes
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Electric
    
    $
    24,351
    
    
    $
    9,820
    
    
    $
    43,906
    
    
    $
    32,037Plastics
    
    
    4,873
    
    
    
    1,944
    
    
    
    13,230
    
    
    
    6,843Manufacturing
    
    
    1,459
    
    
    
    4,120
    
    
    
    10,678
    
    
    
    8,308Health services
    
    
    1,898
    
    
    
    1,601
    
    
    
    5,282
    
    
    
    2,125Food ingredient processing
    
    
    505
    
    
    
    367
    
    
    
    2,114
    
    
    
    367Other business operations
    
    
    (4,314
    )
    
    
    (2,247
    )
    
    
    (13,501
    )
    
    
    (10,745
    )Total
    
    $
    28,772
    
    
    $
    15,605
    
    
    $
    61,709
    
    
    $
    38,935
 Identifiable Assets
 September 30,
    
    
    December 31,(in thousands)
    
    2005
    
    
    2004Electric
    
    $
    640,974
    
    
    $
    634,433Plastics
    
    
    78,527
    
    
    
    67,574Manufacturing
    
    
    177,587
    
    
    
    150,800Health services
    
    
    65,650
    
    
    
    66,506Food ingredient processing
    
    
    96,282
    
    
    
    92,392Other business operations
    
    
    94,805
    
    
    
    91,506Discontinued operations
    
    
    4,817
    
    
    
    30,937Total
    
    $
    1,158,642
    
    
    $
    1,134,148
   Discontinued Operations
 Accounting for the Impairment or Disposal
of Long-Lived Assets
 13




---



##### Table of Contents



Three months ended
    
    
    Three months endedSeptember 30, 2005
    
    
    September 30, 2004(in thousands)
    
    MIS
    
    
    SGS
    
    
    CLC
    
    
    Total
    
    
    MIS
    
    
    SGS
    
    
    CLC
    
    
    TotalOperating revenues
    
    $
    
    
    
    $
    213
    
    
    $
    1,868
    
    
    $
    2,081
    
    
    $
    2,157
    
    
    $
    3,807
    
    
    $
    1,580
    
    
    $
    7,544Income/(loss) before income
taxes
    
    
    
    
    
    
    (161
    )
    
    
    (677
    )
    
    
    (838
    )
    
    
    882
    
    
    
    (164
    )
    
    
    (127
    )
    
    
    591Gain/(loss) on disposition
- pretax
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax expense/(benefit)
    
    
    
    
    
    
    (47
    )
    
    
    (270
    )
    
    
    (317
    )
    
    
    352
    
    
    
    (65
    )
    
    
    (53
    )
    
    
    234
 Nine months ended
    
    
    Nine months endedSeptember 30, 2005
    
    
    September 30, 2004(in thousands)
    
    MIS
    
    
    SGS
    
    
    CLC
    
    
    Total
    
    
    MIS
    
    
    SGS
    
    
    CLC
    
    
    TotalOperating revenues
    
    $
    3,773
    
    
    $
    6,542
    
    
    $
    5,640
    
    
    $
    15,955
    
    
    $
    6,227
    
    
    $
    10,386
    
    
    $
    5,684
    
    
    $
    22,297Income/(loss) before income taxes
    
    
    2,167
    
    
    
    (1,724
    )
    
    
    (696
    )
    
    
    (253
    )
    
    
    2,451
    
    
    
    (1,253
    )
    
    
    (229
    )
    
    
    969Gain/(loss) on disposition - pretax
    
    
    19,025
    
    
    
    (3,002
    )
    
    
    (300
    )
    
    
    15,723
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax expense/(benefit)
    
    
    7,975
    
    
    
    (1,890
    )
    
    
    (396
    )
    
    
    5,689
    
    
    
    980
    
    
    
    (500
    )
    
    
    (93
    )
    
    
    387
  Quarter Ended December 31, 2004(in thousands)
    
    MIS
    
    
    SGS
    
    
    CLC
    
    
    TotalOperating revenues
    
    $
    2,512
    
    
    $
    6,823
    
    
    $
    2,069
    
    
    $
    11,404Income before income taxes
    
    
    1,247
    
    
    
    322
    
    
    
    65
    
    
    
    1,634Income tax expense
    
    
    503
    
    
    
    129
    
    
    
    21
    
    
    
    653
  September 30, 2005
    
    
    December 31, 2004(in thousands)
    
    SGS
    
    
    CLC
    
    
    Total
    
    
    MIS
    
    
    SGS
    
    
    CLC
    
    
    TotalCurrent assets
    
    $
    2,183
    
    
    $
    2,305
    
    
    $
    4,488
    
    
    $
    275
    
    
    $
    9,344
    
    
    $
    3,092
    
    
    $
    12,711Investments and other assets
    
    
    
    
    
    
    5
    
    
    
    5
    
    
    
    2,270
    
    
    
    
    
    
    
    5
    
    
    
    2,275Goodwillnet
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,925
    
    
    
    
    
    
    
    
    
    
    
    5,925Other intangiblesnet
    
    
    
    
    
    
    38
    
    
    
    38
    
    
    
    
    
    
    
    18
    
    
    
    74
    
    
    
    92Net plant
    
    
    
    
    
    
    286
    
    
    
    286
    
    
    
    7,960
    
    
    
    1,618
    
    
    
    356
    
    
    
    9,934Assets of discontinued operations
    
    $
    2,183
    
    
    $
    2,634
    
    
    $
    4,817
    
    
    $
    16,430
    
    
    $
    10,980
    
    
    $
    3,527
    
    
    $
    30,937Current liabilities
    
    $
    1,002
    
    
    $
    500
    
    
    $
    1,502
    
    
    $
    2,920
    
    
    $
    2,228
    
    
    $
    837
    
    
    $
    5,985Deferred credits
    
    
    
    
    
    
    33
    
    
    
    33
    
    
    
    581
    
    
    
    271
    
    
    
    33
    
    
    
    885Long-term debt
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    1,710
    
    
    
    
    
    
    
    5
    
    
    
    1,715Liabilities of discontinued operations
    
    $
    1,002
    
    
    $
    534
    
    
    $
    1,536
    
    
    $
    5,211
    
    
    $
    2,499
    
    
    $
    875
    
    
    $
    8,585
  14




---



##### Table of Contents



Class B Stock Options and Class B Stock of Subsidiary
  Common Shares and Earnings per Share
      15




---



##### Table of Contents



Comprehensive Income
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    17,603
    
    
    $
    11,026
    
    
    $
    49,878
    
    
    $
    27,317Other comprehensive income (net-of-tax)Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    (1,263
    )
    
    
    Foreign currency translation gain (loss)
    
    
    666
    
    
    
    49
    
    
    
    407
    
    
    
    49Unrealized (loss) on available-for-sale securities
    
    
    (15
    )
    
    
    13
    
    
    
    (21
    )
    
    
    (7
    )Total other comprehensive income
    
    
    651
    
    
    
    62
    
    
    
    (877
    )
    
    
    42Total comprehensive income
    
    $
    18,254
    
    
    $
    11,088
    
    
    $
    49,001
    
    
    $
    27,359
  Rate and Regulatory Matters
    
    
    The Public Utility Holding Company Act of 1935 (PUHCA) will be repealed effective
February 8, 2006. PUHCA significantly restricted mergers and acquisitions in the electric
utility sector.
    
    The FERC will appoint and oversee an electric reliability organization to establish and
enforce mandatory reliability rules regarding the interstate electric transmission system.
 16




---



##### Table of Contents




    
    The FERC will establish 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.
    
    The Price Anderson Amendments Act of 1988, which provides the framework for nuclear
liability protection, will be extended by twenty years to 2025.
    
    Federal support will be available for certain clean coal power initiatives, nuclear
power projects and renewable energy technologies.
   Regulatory Assets and Liabilities
 Accounting for the Effect of Certain Types of
Regulation
  September 30,
    
    
    December 31,(in thousands)
    
    2005
    
    
    2004Regulatory assets:Deferred income taxes
    
    $
    15,364
    
    
    $
    14,526Debt expenses and reacquisition premiums
    
    
    3,096
    
    
    
    3,424Deferred conservation program costs
    
    
    967
    
    
    
    1,203Plant acquisition costs
    
    
    207
    
    
    
    240Deferred marked-to-market losses
    
    
    878
    
    
    
    331Accrued cost-of-energy revenue
    
    
    8,491
    
    
    
    3,348Accumulated ARO accretion/depreciation adjustment
    
    
    188
    
    
    
    114Total regulatory assets
    
    $
    29,191
    
    
    $
    23,186Regulatory liabilities:Accumulated reserve for estimated removal costs
    
    $
    51,882
    
    
    $
    49,823Deferred income taxes
    
    
    6,176
    
    
    
    6,727Deferred marked-to-market gains
    
    
    2,118
    
    
    
    197Gain on sale of division office building
    
    
    157
    
    
    
    162Total regulatory liabilities
    
    $
    60,333
    
    
    $
    56,909Net regulatory liability position
    
    $
    31,142
    
    
    $
    33,723
 17




---



##### Table of Contents



Accounting for Income Taxes
  Pension Plan and Other Postretirement Benefits
  January 1, 2005 through
    
    July 1, 2005 throughKey assumptions and data
    
    June 30, 2005
    
    December 31, 2005Discount rate
    
    
    6.00%
    
    
    
    5.25%Long-term rate of return on plan assets
    
    
    8.50%
    
    
    
    8.50%Social Security wage base
    
    
    4.00%
    
    
    
    3.50%Rate of inflation
    
    
    3.00%
    
    
    
    2.50%Rate of withdrawal
    
    1% per year through age 54
    
    2% per year through age 54Mortality table
    
    GAM 83
    
    RP-2000 projected to 2006Market value of assets  beginning of period
    
    $
    141,685,000
    
    
    $
    142,547,832
  Pension Plan
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Service costbenefit earned during the period
    
    $
    1,313
    
    
    $
    1,247
    
    
    $
    3,381
    
    
    $
    3,047Interest cost on projected benefit obligation
    
    
    2,413
    
    
    
    2,393
    
    
    
    7,309
    
    
    
    7,093Expected return on assets
    
    
    (3,040
    )
    
    
    (3,314
    )
    
    
    (9,032
    )
    
    
    (9,314
    )Amortization of prior-service cost
    
    
    805
    
    
    
    223
    
    
    
    1,286
    
    
    
    673Net periodic pension cost
    
    $
    1,491
    
    
    $
    549
    
    
    $
    2,944
    
    
    $
    1,499
 18




---



##### Table of Contents



Executive Survivor and Supplemental Retirement Plan
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Service costbenefit earned during the period
    
    $
    111
    
    
    $
    205
    
    
    $
    295
    
    
    $
    615Interest cost on projected benefit obligation
    
    
    318
    
    
    
    372
    
    
    
    950
    
    
    
    1,116Amortization of prior-service cost
    
    
    17
    
    
    
    37
    
    
    
    53
    
    
    
    111Recognized net actuarial loss
    
    
    145
    
    
    
    170
    
    
    
    353
    
    
    
    510Net periodic pension cost
    
    $
    591
    
    
    $
    784
    
    
    $
    1,651
    
    
    $
    2,352
   Postretirement Benefits
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Service costbenefit earned during the period
    
    $
    342
    
    
    $
    299
    
    
    $
    964
    
    
    $
    876Interest cost on projected benefit obligation
    
    
    574
    
    
    
    645
    
    
    
    1,906
    
    
    
    1,935Amortization of transition obligation
    
    
    187
    
    
    
    184
    
    
    
    561
    
    
    
    561Amortization of prior-service cost
    
    
    (76
    )
    
    
    (74
    )
    
    
    (230
    )
    
    
    (228
    )Amortization of net actuarial loss
    
    
    215
    
    
    
    182
    
    
    
    527
    
    
    
    525Effect of Medicare Part D expected subsidy
    
    
    (424
    )
    
    
    (189
    )
    
    
    (826
    )
    
    
    (567
    )Net periodic postretirement benefit cost
    
    $
    818
    
    
    $
    1,047
    
    
    $
    2,902
    
    
    $
    3,102
 Subsequent Events
  19




---



##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of
Operations
 RESULTS OF OPERATIONS
 Comparison of the Three Months Ended September 30, 2005 and 2004
    20




---



##### Table of Contents



Electric
 Three months endedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2005
    
    
    2004
    
    
    Change
    
    
    ChangeRetail sales revenues
    
    $
    61,481
    
    
    $
    51,926
    
    
    $
    9,555
    
    
    
    18.4Wholesale revenues
    
    
    17,467
    
    
    
    7,854
    
    
    
    9,613
    
    
    
    122.4Net marked-to-market gains/(losses)
    
    
    2,406
    
    
    
    (931
    )
    
    
    3,337
    
    
    
    Other revenues
    
    
    4,416
    
    
    
    3,791
    
    
    
    625
    
    
    
    16.5Total operating revenues
    
    $
    85,770
    
    
    $
    62,640
    
    
    $
    23,130
    
    
    
    36.9Production fuel
    
    
    14,485
    
    
    
    12,477
    
    
    
    2,008
    
    
    
    16.1Purchased
power  retail use
    
    
    13,295
    
    
    
    10,050
    
    
    
    3,245
    
    
    
    32.3Other operation and maintenance expenses
    
    
    23,383
    
    
    
    19,158
    
    
    
    4,225
    
    
    
    22.1Depreciation and amortization
    
    
    6,084
    
    
    
    6,014
    
    
    
    70
    
    
    
    1.2Property taxes
    
    
    2,735
    
    
    
    2,722
    
    
    
    13
    
    
    
    0.5Operating income
    
    $
    25,788
    
    
    $
    12,219
    
    
    $
    13,569
    
    
    
    111.0
     21




---



##### Table of Contents



Plastics
 Three months endedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2005
    
    
    2004
    
    
    Change
    
    
    ChangeOperating revenues
    
    $
    45,462
    
    
    $
    27,574
    
    
    $
    17,888
    
    
    
    64.9Cost of goods sold
    
    
    37,684
    
    
    
    23,401
    
    
    
    14,283
    
    
    
    61.0Operating expenses
    
    
    1,974
    
    
    
    1,466
    
    
    
    508
    
    
    
    34.7Depreciation and amortization
    
    
    629
    
    
    
    569
    
    
    
    60
    
    
    
    10.5Operating income
    
    $
    5,175
    
    
    $
    2,138
    
    
    $
    3,037
    
    
    
    142.0
  22




---



##### Table of Contents



Manufacturing
 Three months endedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2005
    
    
    2004
    
    
    Change
    
    
    ChangeOperating revenues
    
    $
    59,803
    
    
    $
    52,373
    
    
    $
    7,430
    
    
    
    14.2Cost of goods sold
    
    
    49,074
    
    
    
    40,768
    
    
    
    8,306
    
    
    
    20.4Operating expenses
    
    
    5,493
    
    
    
    4,920
    
    
    
    573
    
    
    
    11.6Depreciation and amortization
    
    
    2,497
    
    
    
    1,948
    
    
    
    549
    
    
    
    28.2Operating income
    
    $
    2,739
    
    
    $
    4,737
    
    
    $
    (1,998
    )
    
    
    (42.2
    )
  
    
    Revenues at DMI Industries, Inc. (DMI), our manufacturer of wind towers, increased $5.0
million due to an increase in production and sales of wind towers mainly as a result of
legislative action in the fall of 2004 extending production tax credits for investments in
wind generation through 2005 as well as continued improvements in productivity and capacity
utilization.
    
    Revenues at BTD Manufacturing, Inc. (BTD), our metal parts stamping and fabrication
company, increased $2.3 million mainly due to recovery of a portion of higher raw material
and production costs and additional sales related to the 2005 acquisition of Performance
Tool & Die, Inc. (Performance Tool). The number of units processed and produced at BTD
decreased 9.5% between the quarters while the revenue per unit processed or produced
increased 27.5%.
    
    Revenues at T.O. Plastics, our manufacturer of thermoformed plastic and horticultural
products, increased $0.2 million between the quarters.
    
    Revenues at ShoreMaster, our waterfront equipment manufacturer, decreased $0.1 million
between the quarters.
  
    
    DMIs cost of goods sold increased $4.1 million between the quarters due to production
and sales increases. Included in this increase is a $1.0 million write-down of inventory in
the third quarter 2005 for tower sections that have limited use in the wind business due to
changes in wind tower design requirements.
    
    Cost of goods sold at BTD increased $3.1 million between the quarters due to material
cost increases of $2.2 million and labor cost increases of $0.8 million. The increase in
BTDs cost of goods sold includes costs related to the 2005 acquisition of Performance
Tool.
    
    Cost of goods sold at T.O. Plastics increased $0.9 million, mainly reflecting increases
in material costs of $0.7 million and overhead costs of $0.3 million between the quarters.
    
    Cost of goods sold at ShoreMaster, our waterfront equipment manufacturer, decreased $0.1
million between the quarters.
  23




---



##### Table of Contents



Health Services
 Three months endedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2005
    
    
    2004
    
    
    Change
    
    
    ChangeOperating revenues
    
    $
    30,653
    
    
    $
    27,741
    
    
    $
    2,912
    
    
    
    10.5Cost of goods sold
    
    
    21,795
    
    
    
    20,202
    
    
    
    1,593
    
    
    
    7.9Operating expenses
    
    
    5,798
    
    
    
    4,487
    
    
    
    1,311
    
    
    
    29.2Depreciation and amortization
    
    
    973
    
    
    
    1,239
    
    
    
    (266
    )
    
    
    (21.5
    )Operating income
    
    $
    2,087
    
    
    $
    1,813
    
    
    $
    274
    
    
    
    15.1
  Food Ingredient Processing
 Three months endedSeptember 30,2005
    
    
    2004(in thousands)
    
    (13 weeks)
    
    
    (6 weeks)
    
    
    ChangeOperating revenues
    
    $
    9,808
    
    
    $
    4,803
    
    
    $
    5,005Cost of goods sold
    
    
    7,625
    
    
    
    3,834
    
    
    
    3,791Operating expenses
    
    
    752
    
    
    
    264
    
    
    
    488Depreciation and amortization
    
    
    873
    
    
    
    332
    
    
    
    541Operating income
    
    $
    558
    
    
    $
    373
    
    
    $
    185
  24




---



##### Table of Contents



Other Business Operations
 Three months endedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2005
    
    
    2004
    
    
    Change
    
    
    ChangeOperating revenues
    
    $
    42,276
    
    
    $
    40,255
    
    
    $
    2,021
    
    
    
    5.0Cost of goods sold
    
    
    31,728
    
    
    
    30,534
    
    
    
    1,194
    
    
    
    3.9Operating expenses
    
    
    12,872
    
    
    
    10,148
    
    
    
    2,724
    
    
    
    26.8Goodwill impairment loss
    
    
    1,003
    
    
    
    
    
    
    
    1,003
    
    
    
    Depreciation and amortization
    
    
    664
    
    
    
    780
    
    
    
    (116
    )
    
    
    (14.9
    )Operating loss
    
    $
    (3,991
    )
    
    $
    (1,207
    )
    
    $
    (2,784
    )
    
    
    (230.7
    )
  
    
    Revenues at Midwest Construction Services, Inc. (MCS), our electrical design and
construction services company, increased $4.3 million (43.9%) between the quarters as a
result of an increase in work in progress, which was mostly offset by a $3.8 million
increase in construction material and labor costs between the quarters.
    
    Revenues at Otter Tail Energy Services Co. (OTESCO), our natural gas marketing company,
increased $3.7 million in the three months ended September 30, 2005 compared with the three
months ended September 30, 2004. The increase in OTESCO revenues is directly related to
increases in natural gas prices between the periods and was offset by a $3.8 million
increase in natural gas costs.
    
    Revenues at E.W. Wylie Corporation (Wylie), our flatbed trucking company, increased $1.3
million between the quarters mainly due to a 16.8% increase in miles driven by
company-operated and owner-operated trucks. Wylies increased revenues also reflect
increased fuel costs recovered through fuel surcharges between the quarters.
    
    Revenues at Foley Company, a mechanical and prime contractor on industrial projects,
decreased $7.4 million in the third quarter of 2005 compared to the third quarter of 2004
due to a decrease in jobs in progress. The decrease in Foleys revenues was mostly offset
by a $6.4 million decrease in cost of goods sold between the periods mainly in the areas of
labor, materials and subcontractor costs.
  
    
    MCS operating expenses increased $0.3 million between the quarters, mainly as a result
of increases in contracted services and advertising and promotional costs.
    
    Wylies increased revenue was more than offset by a $1.5 million increase in operating
expenses mainly related to higher fuel prices, increased fuel usage and labor costs related
to the increase in miles driven by both contractors and company drivers and increases in
truck leasing costs between the periods.
    
    Operating expenses in this segment also increased $1.1 million due to increases in
health and other insurance costs and other employee benefit costs not allocated to the
other operating segments along with increases in independent auditor fees.
  25




---



##### Table of Contents



Other Income and Income Taxes  Continuing Operations
   Discontinued Operations
  Three months ended
    
    
    
    
    
    
    
    
    
    
    Three months endedSeptember 30, 2005
    
    
    
    
    
    
    
    
    
    
    September 30, 2004(in thousands)
    
    MIS
    
    
    SGS
    
    
    CLC
    
    
    Total
    
    
    MIS
    
    
    SGS
    
    
    CLC
    
    
    TotalIncome/(loss) before income taxes
    
    $
    
    
    
    $
    (161
    )
    
    $
    (677
    )
    
    $
    (838
    )
    
    $
    882
    
    
    $
    (164
    )
    
    $
    (127
    )
    
    $
    591Gain/(loss) on disposition  pretax
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax expense/(benefit)
    
    
    
    
    
    
    (47
    )
    
    
    (270
    )
    
    
    (317
    )
    
    
    352
    
    
    
    (65
    )
    
    
    (53
    )
    
    
    234Net income
    
    $
    
    
    
    $
    (70
    )
    
    $
    (407
    )
    
    $
    (477
    )
    
    $
    530
    
    
    $
    (99
    )
    
    $
    (74
    )
    
    $
    357
 Comparison of the Nine Months Ended September 30, 2005 and 2004
  26




---



##### Table of Contents



Electric
 Nine months endedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2005
    
    
    2004
    
    
    Change
    
    
    ChangeRetail sales revenues
    
    $
    184,328
    
    
    $
    164,311
    
    
    $
    20,017
    
    
    
    12.2Wholesale revenues
    
    
    31,824
    
    
    
    17,746
    
    
    
    14,078
    
    
    
    79.3Net marked-to-market gains
    
    
    3,509
    
    
    
    2,228
    
    
    
    1,281
    
    
    
    57.5Other revenues
    
    
    13,742
    
    
    
    11,659
    
    
    
    2,083
    
    
    
    17.9Total operating revenues
    
    $
    233,403
    
    
    $
    195,944
    
    
    $
    37,459
    
    
    
    19.1Production fuel
    
    
    40,211
    
    
    
    38,267
    
    
    
    1,944
    
    
    
    5.1Purchased
power  retail use
    
    
    44,737
    
    
    
    30,875
    
    
    
    13,862
    
    
    
    44.9Other operation and maintenance expenses
    
    
    72,635
    
    
    
    62,637
    
    
    
    9,998
    
    
    
    16.0Depreciation and amortization
    
    
    18,287
    
    
    
    17,965
    
    
    
    322
    
    
    
    1.8Property taxes
    
    
    7,816
    
    
    
    7,570
    
    
    
    246
    
    
    
    3.2Operating income
    
    $
    49,717
    
    
    $
    38,630
    
    
    $
    11,087
    
    
    
    28.7
    27




---



##### Table of Contents



28




---



##### Table of Contents



Plastics
 Nine months endedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2005
    
    
    2004
    
    
    Change
    
    
    ChangeOperating revenues
    
    $
    113,621
    
    
    $
    86,646
    
    
    $
    26,975
    
    
    
    31.1Cost of goods sold
    
    
    92,765
    
    
    
    73,204
    
    
    
    19,561
    
    
    
    26.7Operating expenses
    
    
    4,943
    
    
    
    4,262
    
    
    
    681
    
    
    
    16.0Depreciation and amortization
    
    
    1,848
    
    
    
    1,721
    
    
    
    127
    
    
    
    7.4Operating income
    
    $
    14,065
    
    
    $
    7,459
    
    
    $
    6,606
    
    
    
    88.6
   Manufacturing
 Nine months endedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2005
    
    
    2004
    
    
    Change
    
    
    ChangeOperating revenues
    
    $
    183,190
    
    
    $
    144,586
    
    
    $
    38,604
    
    
    
    26.7Cost of goods sold
    
    
    145,952
    
    
    
    113,340
    
    
    
    32,612
    
    
    
    28.8Operating expenses
    
    
    16,247
    
    
    
    15,506
    
    
    
    741
    
    
    
    4.8Depreciation and amortization
    
    
    7,047
    
    
    
    5,749
    
    
    
    1,298
    
    
    
    22.6Operating income
    
    $
    13,944
    
    
    $
    9,991
    
    
    $
    3,953
    
    
    
    39.6
   
    
    Revenues at DMI, our manufacturer of wind towers, increased $19.3 million (57.7%) in the
nine months ended September 30, 2005 compared with the nine months ended September 30, 2004
due to an increase in production and sales of wind towers mainly as a result of legislative
action in the fall of 2004 extending
production tax credits for investments in wind generation through 2005. The revenue increase
for DMI also reflects continued improvements in productivity and plant utilization in 2005.
 29




---



##### Table of Contents




    
    Revenues at BTD, our metal parts stamping and fabrication company, increased $13.5
million (28.9%) between the periods as a result of a 3.4% increase in unit sales combined
with a 22.4% increase in revenue per unit sold between the periods. The purchase of
Performance Tool in January 2005 contributed $2.9 million toward BTDs revenue increase.
    
    Revenues at ShoreMaster, our waterfront equipment manufacturer, increased $3.9 million
(9.6%) in the first nine months of 2005 compared to the first nine months of 2004 as a
result of increased production mainly in the area of large marina projects.
    
    Revenues at T.O. Plastics, our manufacturer of thermoformed plastic and horticultural
products, increased $1.9 million (8.1%) between the quarters as a result of increased
productivity and increased sales in addition to higher prices related to higher raw
material costs.
  
    
    DMI cost of goods sold increased $15.3 million between the periods as a result of
increased production and higher raw material costsespecially steelsubcontractor and
labor costs. DMI cost of goods sold also includes a $1.0 million write-down of inventory in
the third quarter 2005 for tower sections that have limited use in the wind business due to
changes in wind tower design requirements.
    
    Cost of goods sold at BTD increased $13.1 million as a result of higher raw material and
labor costs mainly related to increased production. The purchase of Performance Tool in
January 2005 contributed $2.3 million toward BTDs increase in cost of goods sold.
    
    ShoreMasters increase in revenue was partially offset by a $2.8 million increase in
costs of goods sold mainly related to increases in material costs.
    
    T.O. Plastics cost of goods sold increased $1.2 million between the periods as a result
of increased material costs.
  Health Services
 Nine months endedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2005
    
    
    2004
    
    
    Change
    
    
    ChangeOperating revenues
    
    $
    89,775
    
    
    $
    80,014
    
    
    $
    9,761
    
    
    
    12.2Cost of goods sold
    
    
    64,882
    
    
    
    59,824
    
    
    
    5,058
    
    
    
    8.5Operating expenses
    
    
    15,983
    
    
    
    13,495
    
    
    
    2,488
    
    
    
    18.4Depreciation and amortization
    
    
    3,050
    
    
    
    3,926
    
    
    
    (876
    )
    
    
    (22.3
    )Operating income
    
    $
    5,860
    
    
    $
    2,769
    
    
    $
    3,091
    
    
    
    111.6
 30




---



##### Table of Contents



Food Ingredient Processing
 Nine months endedSeptember 30,2005
    
    
    2004(in thousands)
    
    (39 weeks)
    
    
    (6 weeks)
    
    
    ChangeOperating revenues
    
    $
    27,297
    
    
    $
    4,803
    
    
    $
    22,494Cost of goods sold
    
    
    20,731
    
    
    
    3,834
    
    
    
    16,897Operating expenses
    
    
    1,831
    
    
    
    264
    
    
    
    1,567Depreciation and amortization
    
    
    2,519
    
    
    
    332
    
    
    
    2,187Operating income
    
    $
    2,216
    
    
    $
    373
    
    
    $
    1,843
  Other Business Operations
 Nine months endedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2005
    
    
    2004
    
    
    Change
    
    
    ChangeOperating revenues
    
    $
    116,880
    
    
    $
    107,676
    
    
    $
    9,204
    
    
    
    8.5Cost of goods sold
    
    
    88,205
    
    
    
    82,617
    
    
    
    5,588
    
    
    
    6.8Operating expenses
    
    
    37,276
    
    
    
    30,710
    
    
    
    6,566
    
    
    
    21.4Goodwill impairment loss
    
    
    1,003
    
    
    
    
    
    
    
    1,003
    
    
    
    Depreciation and amortization
    
    
    1,907
    
    
    
    2,225
    
    
    
    (318
    )
    
    
    (14.3
    )Operating loss
    
    $
    (11,511
    )
    
    $
    (7,876
    )
    
    $
    (3,635
    )
    
    
    (46.2
    )
  
    
    Revenues at MCS, our electrical design and construction services company, increased
$11.6 million (59.4%) between the periods as a result of an increase in work in progress,
which was mostly offset by a $10.0 million increase in construction material and labor
costs incurred between the periods.
 31




---



##### Table of Contents




    
    Revenues at OTESCO, our natural gas marketing company, increased $9.0 million (30.7%) in
the nine months ended September 30, 2005 compared with the nine months ended September 30,
2004. The increase in OTESCO revenues is directly related to increases in natural gas
prices between the periods and was entirely offset by a $9.0 million increase in natural
gas costs between the periods.
    
    Revenues at Wylie, our flatbed trucking company, increased $3.3 million (16.6%) between
the periods mainly due to a 12.4% increase in miles driven by company-operated and
owner-operated trucks. Wylies increased revenues also reflect increased fuel costs
recovered through fuel surcharges between the periods. Wylies increased revenue was offset
by a $3.2 million increase in operating expenses mainly related to higher fuel prices,
increased fuel usage and labor costs related to the increase in miles driven and increases
in truck leasing costs between the periods.
    
    Revenues at Foley Company, a mechanical and prime contractor on industrial projects,
decreased $14.8 million (-38.8%) in the first nine months of 2005 compared to the first
nine months of 2004 due to a decrease in jobs in progress. The decrease in Foleys revenues
was mostly offset by a $13.5 million decrease in material, subcontractor and labor costs
between the periods.
    Interest Charges and Income Taxes  Continuing Operations
   Discontinued Operations
  32




---



##### Table of Contents



Nine months ended
    
    
    
    
    
    
    
    
    
    
    Nine months endedSeptember 30, 2005
    
    
    
    
    
    
    
    
    
    
    September 30, 2004(in thousands)
    
    MIS
    
    
    SGS
    
    
    CLC
    
    
    Total
    
    
    MIS
    
    
    SGS
    
    
    CLC
    
    
    TotalIncome/(loss) before income taxes
    
    $
    2,167
    
    
    $
    (1,724
    )
    
    $
    (696
    )
    
    $
    (253
    )
    
    $
    2,451
    
    
    $
    (1,253
    )
    
    $
    (229
    )
    
    $
    969Gain/(loss) on disposition  pretax
    
    
    19,025
    
    
    
    (3,002
    )
    
    
    (300
    )
    
    
    15,723
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax expense/(benefit)
    
    
    7,975
    
    
    
    (1,890
    )
    
    
    (396
    )
    
    
    5,689
    
    
    
    980
    
    
    
    (500
    )
    
    
    (93
    )
    
    
    387Net income
    
    $
    13,217
    
    
    $
    (2,836
    )
    
    $
    (600
    )
    
    $
    9,781
    
    
    $
    1,471
    
    
    $
    (753
    )
    
    $
    (136
    )
    
    $
    582
 2005 OUTLOOK
    
    
    Given stronger than expected results in wholesale electric markets and assuming normal
weather patterns
in the fourth quarter, we expect earnings in the electric segment in 2005 to be in a range of
$33.5 million to $35.0 million. Regulated returns in 2005 for the electric segment are expected
to be within authorized levels.
    
    We expect 2005 earnings from the plastics segment to be in a range of $9.0 million to $10.5 million. The plastics
segment expects continuing strong customer demand in the fourth quarter in anticipation of future resin price increases
as concerns continue over the adequacy of resin supply.
    
    Our manufacturing segments 2005 net earnings are expected to be similar to 2004 net earnings.
    
    Our health services segment is expected to grow net income in 2005 as the Company continues to realize earnings
improvement from its imaging business.
    
    We expect our food ingredient processing business to generate net income in the range of $1.6 million to $2.4 million
for the year ending December 31, 2005. The reduction in expected earnings from the previous guidance is due to lower
than expected sales volumes and prices, continuing high energy costs, increasing raw material costs and the increasing
value of the Canadian dollar relative to the U.S. dollar.
    
    Our other business operations segment is expected to show slightly higher losses in 2005 compared with 2004 mainly due
to the $1.0 million goodwill impairment write-off at OTESCO, our energy services subsidiary. While the improving
economy is having a positive impact on our transportation business and the extension of the production tax credit is
expected to have a positive impact on our electrical contracting business, earnings growth in these businesses are
expected to be offset by weaker performance in our other construction business, increased health and casualty insurance
costs and other employee benefit costs.
 33




---



##### Table of Contents



FINANCIAL POSITION
      34




---



##### Table of Contents



MoodysInvestors
    
    StandardService
    
    & PoorsSenior unsecured debt
    
    
    A3
    
    
    BBB+Preferred stock
    
    Baa2
    
    BBB-Outlook
    
    Stable
    
    Negative
     35




---



##### Table of Contents



Critical Accounting Policies Involving Significant Estimates
     36




---



##### Table of Contents



Forward Looking Information  Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995
   
    
    We are subject to government regulations and actions that may have a negative impact on
our business and results of operations.
    
    Weather conditions can adversely affect our operations and revenues.
    
    Electric wholesale margins could be reduced as the Midwest Independent Transmission
System Operator (MISO) market becomes more efficient.
    
    Electric wholesale trading margins could be reduced or eliminated by losses due to
trading activities.
    
    Federal and state environmental regulation could cause us to incur substantial capital
expenditures which could result in increased operating costs.
    
    Our plans to grow and diversify through acquisitions may not be successful and could
result in poor financial performance.
    
    Competition is a factor in all of our businesses.
    
    Economic uncertainty could have a negative impact on our future revenues and earnings.
    
    Volatile financial markets could restrict our ability to access capital and could
increase borrowing costs and pension plan expenses.
    
    Our 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. This segment could also be impacted by foreign
currency changes between Canadian and United States currencies and prices of natural gas.
    
    Our plastics segment is highly dependent on a limited number of vendors for PVC 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 segment.
    
    Our health services businesses may not be able to retain or comply with the dealership
arrangement and other agreements with Philips Medical.
 37




---



##### Table of Contents



Quantitative and Qualitative Disclosures About Market Risk
      Accounting for Derivative Instruments and Hedging Activities Issues
Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in
Energy Trading and Risk Management Activities
 38




---



##### Table of Contents



September 30,(in thousands)
    
    2005Current
asset  marked-to-market gain
    
    $
    3,917Current
liability  marked-to-market loss
    
    
    (3,944
    )Net fair value of marked-to-market gas contracts
    
    $
    (27
    )
 Year-to-dateSeptember 30,(in thousands)
    
    2005Fair value at beginning of year
    
    $
    134Amount realized on contracts entered into in 2004 and settled in 2005
    
    
    (116
    )Changes in fair value of contracts entered into in 2004
    
    
    Net fair value of contracts entered into in 2004 at end of period
    
    
    18Changes in fair value of contracts entered into in 2005
    
    
    (45
    )Net fair value end of period
    
    $
    (27
    )
  4th Quarter
    
    1st Quarter(in thousands)
    
    2005
    
    2006
    
    TotalNet gain
    
    $
    (14
    )
    
    $
    (13
    )
    
    $
    (27
    )
   39




---



##### Table of Contents



September 30,(in thousands)
    
    2005Current
asset  marked-to-market gain
    
    $
    7,628Regulatory
asset  deferred marked-to-market loss
    
    
    878Total assets
    
    
    8,506Current
liability  marked-to-market loss
    
    
    (3,161
    )Regulatory
liability  deferred marked-to-market gain
    
    
    (2,118
    )Total liabilities
    
    
    (5,279
    )Net fair value of marked-to-market energy contracts
    
    $
    3,227
 Year-to-dateSeptember 30,(in thousands)
    
    2005Fair value at beginning of year
    
    $
    301Amount realized on contracts entered into in 2004 and settled in 2005
    
    
    (322
    )Changes in fair value of contracts entered into in 2004
    
    
    21Net fair value of contracts entered into in 2004 at end of period
    
    
    0Changes in fair value of contracts entered into in 2005
    
    
    3,227Net fair value end of period
    
    $
    3,227
  4th Quarter
    
    1st Quarter
    
    2nd Quarter(in thousands)
    
    2005
    
    2006
    
    2006
    
    TotalNet gain
    
    $
    1,259
    
    
    $
    1,508
    
    
    $
    460
    
    
    $
    3,227
 40




---



##### Table of Contents



Controls and Procedures
   41




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Exhibits
 31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 SIGNATURES
  OTTER TAIL CORPORATIONBy:
    
    /s/ Kevin G. Moug

                       Kevin G. MougChief Financial Officer and Treasurer(Chief Financial Officer/Authorized Officer)
 November 9, 2005
 42




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    Description31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 43