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SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


FORM 10-Q

|                                                                                               
|-----------------------------------------------------------------------------------------------
|(Mark One)                                                                                     
|x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE       ACT OF 1934

For the quarterly period ended    JUNE 30, 2003

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

(Exact name of registrant as specified in its charter)


|                                                           |  |                    
|---------------------------------------------------------- |  | -------------------
|Minnesota                                                  |  | 41-0462685         
|                                                           |  |                    
|(State or other jurisdiction of                            |  | (I.R.S. Employer   
|incorporation or organization)                             |  | Identification No.)
|                                                           |  |                    
|215 South Cascade Street, Box 496, Fergus Falls, Minnesota |  | 56538-0496         
|                                                           |  |                    
|(Address of principal executive offices)                   |  | (Zip Code)         

866-410-8780

---

(Registrants telephone number, including area code)


(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES x      NO o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2
of the Exchange Act). YES x      NO o

Indicate the number of shares outstanding of each of the issuers classes of
Common Stock, as of the latest practicable date:

July 31, 2003  25,708,485 Common Shares ($5 par value)





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OTTER TAIL CORPORATION

INDEX

|           |  |  |  |         |    |                                                                                       |  |                                                                                                   |       |  |          |  | 
|---------- |  |  |  | ------- | -- | ------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- | ----- |  | -------- |  | 
|           |  |  |  |         |    |                                                                                       |  |                                                                                                   |       |  | Page No.
|           |  |  |  |         |    |                                                                                       |  |                                                                                                   |       |  |         
|Part I     |  |  |  |         |    | Financial Information                                                                 |  |                                                                                                   |       | 
|           |  |  |  | Item 1. |    | Financial Statements                                                                  |  |                                                                                                   |       | 
|           |  |  |  |         |    |                                                                                       |  | Consolidated Balance Sheets  June 30, 2003
and December 31, 2002 (Unaudited)                     |       |  | 2&3      | 
|           |  |  |  |         |    |                                                                                       |  | Consolidated Statements of Income  Three and Six Months
Ended June 30, 2003 and 2002 (Unaudited) |       |  | 4        | 
|           |  |  |  |         |    |                                                                                       |  | Consolidated Statements of Cash Flows  Six Months
Ended June 30, 2003 and 2002 (Unaudited)       |       |  | 5        | 
|           |  |  |  |         |    |                                                                                       |  | Notes to Consolidated Financial Statements (Unaudited)                                            |       |  | 6-12     | 
|           |  |  |  | Item 2. |    | Managements Discussion and Analysis of Financial
Condition and Results of Operations |  |                                                                                                   | 12-25 | 
|           |  |  |  | Item 3. |    | Quantitative and Qualitative Disclosures about
Market Risk                            |  |                                                                                                   | 25-26 | 
|           |  |  |  | Item 4. |    | Controls and Procedures                                                               |  |                                                                                                   | 26    | 
|Part II    |  |  |  |         |    | Other Information                                                                     |  |                                                                                                   |       | 
|           |  |  |  | Item 4. |    | Submission of Matters to a Vote of Security Holders                                   |  |                                                                                                   | 26    | 
|           |  |  |  | Item 6. |    | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                   | 27    | 
|Signatures |  |  |  |         | 27 |                                                                                      





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TABLE OF CONTENTS



|                                            |                                                                                               |                                            |  |  |  |  |  | 
|------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION              
|                                            | Item 1. Financial Statements                                                                 
|                                            |                                                                                               | Consolidated Balance Sheets               
|                                            |                                                                                               | Consolidated Balance Sheets               
|                                            |                                                                                               | Consolidated Statements of Income         
|                                            |                                                                                               | Consolidated Statements of Cash Flows     
|                                            |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                            | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                            | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                            | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                 
|                                            | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                            | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                 
|EXHIBIT INDEX                              
|EX-4-A Second Amendment to Credit Agreement
|EX-31.1 Certification of CEO - Section 302 
|EX-31.2 Certification of CFO - Section 302 
|EX-32.1 Certification of CEO - Section 906 
|EX-32.2 Certification of CFO - Section 906 



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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Financial Statements




Otter Tail Corporation
Consolidated Balance Sheets
(Unaudited)-Assets-

|                                                    |             |                                                        |         |        |                        |         |              |        |           |         | 
|--------------------------------------------------- | ----------- | ------------------------------------------------------ | ------- | ------ | ---------------------- | ------- | ------------ | ------ | --------- | ------- | 
|                                                    |             |                                                        |         |        | June 30,               |         | December 31,
|                                                    |             |                                                        |         |        | 2003                   |         | 2002        
|                                                    |             |                                                        |         |        |                        |         |             
|                                                    |             |                                                        |         |        | (Thousands of dollars)
|Current assets                                      |             |                                                        |         |        |                        |         |              |       
|Cash and cash equivalents                           |             | $                                                      |        |        |                        | $       | 9,937        |       
|Accounts receivable:                                |             |                                                        |         |        |                        |         |              |       
|                                                    | Trade  net |                                                        |         | 90,317 |                        |         |              | 81,670 |          
|                                                    | Other       |                                                        |         | 3,093  |                        |         |              | 1,466  |          
|Inventories                                         |             |                                                        | 62,560  |        |                        |         | 44,154       |       
|Deferred income taxes                               |             |                                                        | 4,491   |        |                        |         | 4,487        |       
|Accrued utility revenues                            |             |                                                        | 11,739  |        |                        |         | 11,633       |       
|Other                                               |             |                                                        | 23,139  |        |                        |         | 10,866       |       
|                                                    |             |                                                        |         |        |                        |         |              |       
|                                                    |             | Total current assets                                   |         |        | 195,339                |         |              |        | 164,213   |        
|Investments                                         |             |                                                        | 19,626  |        |                        |         | 19,314       |       
|Goodwill  net                                      |             |                                                        | 65,944  |        |                        |         | 64,557       |       
|Other intangibles  net                             |             |                                                        | 5,766   |        |                        |         | 5,592        |       
|Other assets                                        |             |                                                        | 17,275  |        |                        |         | 16,821       |       
|Deferred debits                                     |             |                                                        |         |        |                        |         |              |       
|Unamortized debt expense and reacquisition premiums |             |                                                        | 8,452   |        |                        |         | 8,895        |       
|Regulatory assets                                   |             |                                                        | 11,188  |        |                        |         | 10,238       |       
|Other                                               |             |                                                        | 673     |        |                        |         | 1,220        |       
|                                                    |             |                                                        |         |        |                        |         |              |       
|                                                    |             | Total deferred debits                                  |         |        | 20,313                 |         |              |        | 20,353    |        
|Plant                                               |             |                                                        |         |        |                        |         |              |       
|Electric plant in service                           |             |                                                        | 871,724 |        |                        |         | 835,382      |       
|Nonelectric operations                              |             |                                                        | 186,665 |        |                        |         | 178,656      |       
|                                                    |             |                                                        |         |        |                        |         |              |       
|                                                    |             | Total plant                                            |         |        | 1,058,389              |         |              |        | 1,014,038 |        
|Less accumulated depreciation and amortization      |             |                                                        | 468,298 |        |                        |         | 467,759      |       
|                                                    |             |                                                        |         |        |                        |         |              |       
|                                                    |             | Plantnet of accumulated depreciation and amortization |         |        | 590,091                |         |              |        | 546,279   |        
|Construction work in progress                       |             |                                                        | 19,435  |        |                        |         | 41,607       |       
|                                                    |             |                                                        |         |        |                        |         |              |       
|                                                    |             | Net plant                                              |         |        | 609,526                |         |              |        | 587,886   |        
|                                                    |             |                                                        |         |        |                        |         |              |       
|                                                    |             |                                                        | Total   |        | $                      | 933,789 |              |        | $         | 878,736 | 
|                                                    |             |                                                        |         |        |                        |         |              |       

See accompanying notes to consolidated financial statements

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Otter Tail Corporation
Consolidated Balance Sheets
(Unaudited)-Liabilities-

|                                                                                                                        |                           |                      |         |         |                        |         |              |         |         |         | 
|----------------------------------------------------------------------------------------------------------------------- | ------------------------- | -------------------- | ------- | ------- | ---------------------- | ------- | ------------ | ------- | ------- | ------- | 
|                                                                                                                        |                           |                      |         |         | June 30,               |         | December 31,
|                                                                                                                        |                           |                      |         |         | 2003                   |         | 2002        
|                                                                                                                        |                           |                      |         |         |                        |         |             
|                                                                                                                        |                           |                      |         |         | (Thousands of dollars)
|Current liabilities                                                                                                     |                           |                      |         |         |                        |         |              |        
|Short-term debt                                                                                                         |                           | $                    | 33,700  |         |                        | $       | 30,000       |        
|Current maturities of long-term debt                                                                                    |                           |                      | 10,236  |         |                        |         | 7,690        |        
|Accounts payable                                                                                                        |                           |                      | 67,761  |         |                        |         | 52,430       |        
|Accrued salaries and wages                                                                                              |                           |                      | 11,025  |         |                        |         | 18,194       |        
|Accrued federal and state income taxes                                                                                  |                           |                      | 5,920   |         |                        |         |             |        
|Other accrued taxes                                                                                                     |                           |                      | 8,072   |         |                        |         | 10,150       |        
|Other accrued liabilities                                                                                               |                           |                      | 5,568   |         |                        |         | 5,760        |        
|                                                                                                                        |                           |                      |         |         |                        |         |              |        
|                                                                                                                        | Total current liabilities |                      |         | 142,282 |                        |         |              | 124,224 |        
|Pensions benefit liability                                                                                              |                           |                      | 21,713  |         |                        |         | 20,484       |        
|Other postretirement benefits liability                                                                                 |                           |                      | 22,126  |         |                        |         | 20,382       |        
|Other noncurrent liabilities                                                                                            |                           |                      | 4,284   |         |                        |         | 2,955        |        
|Deferred credits                                                                                                        |                           |                      |         |         |                        |         |              |        
|Deferred income taxes                                                                                                   |                           |                      | 96,274  |         |                        |         | 94,147       |        
|Deferred investment tax credit                                                                                          |                           |                      | 12,206  |         |                        |         | 12,782       |        
|Regulatory liabilities                                                                                                  |                           |                      | 22,425  |         |                        |         | 9,133        |        
|Other                                                                                                                   |                           |                      | 8,691   |         |                        |         | 7,435        |        
|                                                                                                                        |                           |                      |         |         |                        |         |              |        
|                                                                                                                        | Total deferred credits    |                      |         | 139,596 |                        |         |              | 123,497 |        
|Capitalization                                                                                                          |                           |                      |         |         |                        |         |              |        
|Long-term debt, net of current maturities                                                                               |                           |                      | 270,293 |         |                        |         | 258,229      |        
|Cumulative preferred shares
authorized 1,500,000 shares without par value;
outstanding 2003 and 2002  155,000 shares   |                           |                      | 15,500  |         |                        |         | 15,500       |        
|Cumulative 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 2003  25,695,657 and 2002  25,592,160 |                           |                      | 128,478 |         |                        |         | 127,961      |        
|Premium on common shares                                                                                                |                           |                      | 26,133  |         |                        |         | 24,135       |        
|Unearned compensation                                                                                                   |                           |                      | (3,933  | )       |                        |         | (1,946       | )      
|Retained earnings                                                                                                       |                           |                      | 179,387 |         |                        |         | 175,304      |        
|Accumulated other comprehensive loss                                                                                    |                           |                      | (12,070 | )       |                        |         | (11,989      | )      
|                                                                                                                        |                           |                      |         |         |                        |         |              |        
|                                                                                                                        | Total common equity       |                      |         | 317,995 |                        |         |              | 313,465 |        
|                                                                                                                        |                           | Total capitalization |         |         | 603,788                |         |              |         | 587,194 |        
|                                                                                                                        |                           |                      |         |         |                        |         |              |        
|                                                                                                                        |                           |                      | Total   |         | $                      | 933,789 |              |         | $       | 878,736 | 
|                                                                                                                        |                           |                      |         |         |                        |         |              |        

See accompanying notes to consolidated financial statements

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Otter Tail Corporation
Consolidated Statements of Income
(Unaudited)

|                                                      |                        |                          |            |                                                    |         |                  |            |        |         |      |            |        |         |   |            |        |         | 
|----------------------------------------------------- | ---------------------- | ------------------------ | ---------- | -------------------------------------------------- | ------- | ---------------- | ---------- | ------ | ------- | ---- | ---------- | ------ | ------- | - | ---------- | ------ | ------- | 
|                                                      |                        |                          |            | Three months ended                                 |         | Six months ended
|                                                      |                        |                          |            | June 30,                                           |         | June 30,        
|                                                      |                        |                          |            |                                                    |         |                 
|                                                      |                        |                          |            | 2003                                               |         | 2002             |            | 2003   |         | 2002
|                                                      |                        |                          |            |                                                    |         |                  |            |        |         |     
|                                                      |                        |                          |            | (In thousands, except share and per share amounts)
|Operating revenues                                    |                        |                          |            |                                                    |         |                  |            |        |         |      |            |        |         |   |            |       
|Electric                                              |                        | $                        | 77,505     |                                                    |         | $                | 71,889     |        |         | $    | 171,472    |        |         | $ | 146,290    |       
|Plastics                                              |                        |                          | 19,647     |                                                    |         |                  | 24,405     |        |         |      | 42,582     |        |         |   | 40,280     |       
|Manufacturing                                         |                        |                          | 48,838     |                                                    |         |                  | 35,742     |        |         |      | 83,557     |        |         |   | 67,070     |       
|Health services                                       |                        |                          | 25,412     |                                                    |         |                  | 23,633     |        |         |      | 47,230     |        |         |   | 44,752     |       
|Other business operations                             |                        |                          | 27,146     |                                                    |         |                  | 20,903     |        |         |      | 51,827     |        |         |   | 35,913     |       
|                                                      |                        |                          |            |                                                    |         |                  |            |        |         |      |            |        |         |   |            |       
|                                                      |                        | Total operating revenues |            |                                                    | 198,548 |                  |            |        | 176,572 |      |            |        | 396,668 |   |            |        | 334,305 | 
|Operating expenses                                    |                        |                          |            |                                                    |         |                  |            |        |         |      |            |        |         |   |            |       
|Production fuel                                       |                        |                          | 10,696     |                                                    |         |                  | 10,945     |        |         |      | 23,673     |        |         |   | 22,462     |       
|Purchased power                                       |                        |                          | 28,192     |                                                    |         |                  | 23,625     |        |         |      | 63,775     |        |         |   | 42,559     |       
|Other electric operation and maintenance expenses     |                        |                          | 21,967     |                                                    |         |                  | 18,583     |        |         |      | 41,373     |        |         |   | 38,555     |       
|Cost of goods sold                                    |                        |                          | 89,810     |                                                    |         |                  | 72,843     |        |         |      | 168,378    |        |         |   | 131,979    |       
|Other nonelectric expenses                            |                        |                          | 19,190     |                                                    |         |                  | 17,875     |        |         |      | 38,719     |        |         |   | 34,395     |       
|Depreciation and amortization                         |                        |                          | 11,334     |                                                    |         |                  | 10,506     |        |         |      | 22,490     |        |         |   | 20,690     |       
|Property taxes                                        |                        |                          | 2,439      |                                                    |         |                  | 2,347      |        |         |      | 5,038      |        |         |   | 4,882      |       
|                                                      |                        |                          |            |                                                    |         |                  |            |        |         |      |            |        |         |   |            |       
|                                                      |                        | Total operating expenses |            |                                                    | 183,628 |                  |            |        | 156,724 |      |            |        | 363,446 |   |            |        | 295,522 | 
|Operating income (loss)                               |                        |                          |            |                                                    |         |                  |            |        |         |      |            |        |         |   |            |       
|Electric                                              |                        |                          | 7,800      |                                                    |         |                  | 10,168     |        |         |      | 24,751     |        |         |   | 25,461     |       
|Plastics                                              |                        |                          | 1,932      |                                                    |         |                  | 4,935      |        |         |      | 4,626      |        |         |   | 6,827      |       
|Manufacturing                                         |                        |                          | 5,127      |                                                    |         |                  | 3,075      |        |         |      | 6,405      |        |         |   | 4,981      |       
|Health services                                       |                        |                          | 1,495      |                                                    |         |                  | 2,613      |        |         |      | 1,628      |        |         |   | 5,050      |       
|Other business operations                             |                        |                          | (1,434     | )                                                  |         |                  | (943       | )      |         |      | (4,188     | )      |         |   | (3,536     | )     
|                                                      |                        |                          |            |                                                    |         |                  |            |        |         |      |            |        |         |   |            |       
|                                                      | Total operating income |                          |            | 14,920                                             |         |                  |            | 19,848 |         |      |            | 33,222 |         |   |            | 38,783 |        
|Other income  net                                    |                        |                          | 933        |                                                    |         |                  | 358        |        |         |      | 1,263      |        |         |   | 409        |       
|Interest charges                                      |                        |                          | 4,424      |                                                    |         |                  | 4,347      |        |         |      | 8,816      |        |         |   | 8,671      |       
|                                                      |                        |                          |            |                                                    |         |                  |            |        |         |      |            |        |         |   |            |       
|Income before income taxes                            |                        |                          | 11,429     |                                                    |         |                  | 15,859     |        |         |      | 25,669     |        |         |   | 30,521     |       
|Income taxes                                          |                        |                          | 2,995      |                                                    |         |                  | 5,272      |        |         |      | 7,373      |        |         |   | 9,902      |       
|                                                      |                        |                          |            |                                                    |         |                  |            |        |         |      |            |        |         |   |            |       
|Net income                                            |                        |                          | 8,434      |                                                    |         |                  | 10,587     |        |         |      | 18,296     |        |         |   | 20,619     |       
|Preferred dividend requirements                       |                        |                          | 184        |                                                    |         |                  | 184        |        |         |      | 368        |        |         |   | 368        |       
|                                                      |                        |                          |            |                                                    |         |                  |            |        |         |      |            |        |         |   |            |       
|Earnings available for common shares                  |                        | $                        | 8,250      |                                                    |         | $                | 10,403     |        |         | $    | 17,928     |        |         | $ | 20,251     |       
|                                                      |                        |                          |            |                                                    |         |                  |            |        |         |      |            |        |         |   |            |       
|Basic earnings per common share                       |                        | $                        | 0.32       |                                                    |         | $                | 0.41       |        |         | $    | 0.70       |        |         | $ | 0.81       |       
|Diluted earnings per common share                     |                        | $                        | 0.32       |                                                    |         | $                | 0.41       |        |         | $    | 0.70       |        |         | $ | 0.81       |       
|Average number of common shares outstanding  basic   |                        |                          | 25,672,592 |                                                    |         |                  | 25,117,325 |        |         |      | 25,632,477 |        |         |   | 24,892,640 |       
|Average number of common shares outstanding  diluted |                        |                          | 25,854,898 |                                                    |         |                  | 25,411,877 |        |         |      | 25,786,453 |        |         |   | 25,154,599 |       
|Dividends per common share                            |                        | $                        | 0.270      |                                                    |         | $                | 0.265      |        |         | $    | 0.540      |        |         | $ | 0.530      |       

See accompanying notes to consolidated financial statements

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##### Table of Contents






Otter Tail Corporation
Consolidated Statements of Cash Flows
(Unaudited)

|                                                 |                                         |                                                                                   |                                                             |                                                     |       |                        |         |      |       |         |         |  
|------------------------------------------------ | --------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------------------------- | --------------------------------------------------- | ----- | ---------------------- | ------- | ---- | ----- | ------- | ------- | -
|                                                 |                                         |                                                                                   |                                                             |                                                     |       | Six months ended      
|                                                 |                                         |                                                                                   |                                                             |                                                     |       | June 30,              
|                                                 |                                         |                                                                                   |                                                             |                                                     |       |                       
|                                                 |                                         |                                                                                   |                                                             |                                                     |       | 2003                   |         | 2002
|                                                 |                                         |                                                                                   |                                                             |                                                     |       |                        |         |     
|                                                 |                                         |                                                                                   |                                                             |                                                     |       | (Thousands of dollars)
|Cash flows from operating activities             |                                         |                                                                                   |                                                             |                                                     |       |                        |         |     
|Net income                                       |                                         | $                                                                                 | 18,296                                                      |                                                     |       | $                      | 20,619  |     
|                                                 |                                         | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                             |                                                     |       |                        |         |      |       |        
|                                                 |                                         |                                                                                   | Depreciation and amortization                               |                                                     |       | 22,490                 |         |      |       | 20,690  |        
|                                                 |                                         |                                                                                   | Deferred investment tax credit  net                        |                                                     |       | (576                   | )       |      |       | (576    | )      
|                                                 |                                         |                                                                                   | Deferred income taxes                                       |                                                     |       | 879                    |         |      |       | (408    | )      
|                                                 |                                         |                                                                                   | Change in deferred debits and other assets                  |                                                     |       | (330                   | )       |      |       | (1,838  | )      
|                                                 |                                         |                                                                                   | Change in noncurrent liabilities and deferred credits       |                                                     |       | 3,935                  |         |      |       | 2,147   |        
|                                                 |                                         |                                                                                   | Allowance for equity (other) funds used during construction |                                                     |       | (1,063                 | )       |      |       | (1,004  | )      
|                                                 |                                         |                                                                                   | Other  net                                                 |                                                     |       | 836                    |         |      |       | 596     |        
|                                                 |                                         | Cash provided by (used for) current assets & current liabilities:                 |                                                             |                                                     |       |                        |         |      |       |        
|                                                 |                                         |                                                                                   | Change in receivables and inventories                       |                                                     |       | (28,267                | )       |      |       | (5,360  | )      
|                                                 |                                         |                                                                                   | Change in other current assets                              |                                                     |       | (13,372                | )       |      |       | (5,623  | )      
|                                                 |                                         |                                                                                   | Change in payables and other current liabilities            |                                                     |       | 5,371                  |         |      |       | (3,996  | )      
|                                                 |                                         |                                                                                   | Change in interest and income taxes payable                 |                                                     |       | 6,843                  |         |      |       | 10,407  |        
|                                                 |                                         |                                                                                   |                                                             |                                                     |       |                        |         |     
|                                                 |                                         |                                                                                   |                                                             | Net cash provided by operating activities           |       |                        | 15,042  |      |       |         | 35,654  |  
|Cash flows from investing activities             |                                         |                                                                                   |                                                             |                                                     |       |                        |         |     
|                                                 |                                         |                                                                                   | Capital expenditures                                        |                                                     |       | (27,500                | )       |      |       | (40,162 | )      
|                                                 |                                         |                                                                                   | Proceeds from disposal of noncurrent assets                 |                                                     |       | 401                    |         |      |       | 915     |        
|                                                 |                                         |                                                                                   | Acquisitions, net of cash acquired                          |                                                     |       | (1,287                 | )       |      |       | (4,263  | )      
|                                                 |                                         |                                                                                   | (Purchase)/sale of other investments                        |                                                     |       | (605                   | )       |      |       | 1,085   |        
|                                                 |                                         |                                                                                   |                                                             |                                                     |       |                        |         |     
|                                                 |                                         |                                                                                   |                                                             | Net cash used in investing activities               |       |                        | (28,991 | )    |       |         | (42,425 | )
|Cash flows from financing activities             |                                         |                                                                                   |                                                             |                                                     |       |                        |         |     
|                                                 |                                         |                                                                                   | Net borrowings under line of credit                         |                                                     |       | 3,630                  |         |      |       | 15,515  |        
|                                                 |                                         |                                                                                   | Proceeds from employee stock plans                          |                                                     |       | 410                    |         |      |       | 2,241   |        
|                                                 |                                         |                                                                                   | Proceeds from issuance of long-term debt                    |                                                     |       | 18,498                 |         |      |       |        |        
|                                                 |                                         |                                                                                   | Payments for retirement of long-term debt                   |                                                     |       | (4,077                 | )       |      |       | (7,762  | )      
|                                                 |                                         |                                                                                   | Dividends paid and other distributions                      |                                                     |       | (14,449                | )       |      |       | (13,603 | )      
|                                                 |                                         |                                                                                   |                                                             |                                                     |       |                        |         |     
|                                                 |                                         |                                                                                   |                                                             | Net cash provided by (used in) financing activities |       |                        | 4,012   |      |       |         | (3,609  | )
|Net change in cash and cash equivalents          |                                         |                                                                                   | (9,937                                                      | )                                                   |       |                        | (10,380 | )   
|Cash and cash equivalents at beginning of period |                                         |                                                                                   | 9,937                                                       |                                                     |       |                        | 11,378  |     
|                                                 |                                         |                                                                                   |                                                             |                                                     |       |                        |         |     
|Cash and cash equivalents at end of period       |                                         | $                                                                                 |                                                            |                                                     |       | $                      | 998     |     
|                                                 |                                         |                                                                                   |                                                             |                                                     |       |                        |         |     
|Supplemental cash flow information               |                                         |                                                                                   |                                                             |                                                     |       |                        |         |     
|                                                 | Cash paid for interest and income taxes |                                                                                   |                                                             |                                                     |       |                        |         |      |      
|                                                 |                                         | Interest                                                                          |                                                             | $                                                   | 8,157 |                        |         | $    | 7,494 |        
|                                                 |                                         | Income taxes                                                                      |                                                             | $                                                   | 242   |                        |         | $    | 403   |        

See accompanying notes to consolidated financial statements

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OTTER TAIL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

In the opinion of management, Otter Tail Corporation (the Company) has included
all adjustments (including normal recurring accruals) necessary for a fair
presentation of the consolidated results of operations for the periods
presented. The consolidated financial statements and notes thereto should be
read in conjunction with the consolidated financial statements and notes as of
and for the years ended December 31, 2002, 2001 and 2000 included in the
Companys Annual Report on Form 10-K for the fiscal year ended December 31,
2002. Because of seasonal and other factors, the earnings for the three-month
and six-month periods ended June 30, 2003, should not be taken as an indication
of earnings for all or any part of the balance of the year.

Acquisitions

The Company completed two acquisitions during the quarter ended June 30, 2003,
neither of which was individually material, in the health services segment for
approximately $1.3 million in cash. Disclosure of pro forma information related
to the results of operations of the acquired entities for the periods presented
in this report is not required due to immateriality.

Revenue Recognition

Due to the diverse business operations of the Company, revenue recognition
depends on the product produced or sold. The Company recognizes revenue when
the earnings process is complete, evidenced by an agreement with the customer,
there has been delivery and acceptance and the price is fixed and determinable.
In cases where significant obligations remain after delivery, revenue is
deferred until such obligations are fulfilled. Provisions for sale returns and
warranty costs are recorded at the time of sale based on historical information
and current trends.

For those operating businesses recognizing revenue when shipped, the operating
businesses have no further obligation to provide services related to such
product. The shipping terms used in these instances are FOB shipping point.

Some of the operating businesses enter into fixed-price construction contracts.
Revenues under these contracts are recognized on a percentage-of-completion
basis. The method used to determine the progress of completion is based on the
ratio of costs incurred to total estimated costs. The following summarizes
costs incurred and billings on uncompleted contracts:

|                                        |  |          |         |              |  |   |         |  
|--------------------------------------- |  | -------- | ------- | ------------ |  | - | ------- | -
|                                        |  | June 30, |         | December 31,
|(in thousands)                          |  | 2003     |         | 2002        
|                                        |  |          |         |             
|Costs incurred on uncompleted contracts |  | $        | 66,324  |              |  | $ | 42,768  |  
|Less billings to date                   |  |          | (67,008 | )            |  |   | (44,572 | )
|Plus earnings recognized                |  |          | 9,192   |              |  |   | 6,340   |  
|                                        |  |          |         |              |  |   |         |  
|                                        |  | $        | 8,508   |              |  | $ | 4,536   |  
|                                        |  |          |         |              |  |   |         |  

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##### Table of Contents



The following costs incurred and billings are included in the Companys
consolidated balance sheet under Other Current Assets and Accounts Payable:

|                                                     |  |          |        |              |  |   |       |  
|---------------------------------------------------- |  | -------- | ------ | ------------ |  | - | ----- | -
|                                                     |  | June 30, |        | December 31,
|(in thousands)                                       |  | 2003     |        | 2002        
|                                                     |  |          |        |             
|Costs in excess of billings on uncompleted contracts |  | $        | 14,869 |              |  | $ | 5,529 |  
|Billings in excess of costs on uncompleted contracts |  |          | (6,361 | )            |  |   | (993  | )
|                                                     |  |          |        |              |  |   |       |  
|                                                     |  | $        | 8,508  |              |  | $ | 4,536 |  
|                                                     |  |          |        |              |  |   |       |  

The percent of revenue recognized under the percentage-of-completion method
compared to total consolidated revenues was 14.3% for the six months ended June
30, 2003 compared with 11.0% for the six months ended June 30, 2002.

Stock-based compensation

The Company has elected to follow the accounting provisions of Accounting
Principle Board Opinion No. 25, Accounting for Stock Issued to Employees, for
stock-based compensation and to furnish the pro forma disclosures required
under SFAS No. 123, Accounting for Stock-Based Compensation.

Had compensation costs for the stock options issued been determined based on
estimated fair value at the award dates, as prescribed by SFAS No. 123, the
Companys net income for three and six month periods ended June 30, 2003 and
June 30, 2002 would have decreased as presented in the table below. This may
not be representative of the pro forma effects for future periods if additional
options are granted.

|                           |             |                                                                                                                                    |   |                    |      |                  |   |        |      |   |   |        |      |   |   |        |      |  
|-------------------------- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | ---- | ---------------- | - | ------ | ---- | - | - | ------ | ---- | - | - | ------ | ---- | -
|                           |             |                                                                                                                                    |   | Three months ended |      | Six months ended
|                           |             |                                                                                                                                    |   | June 30,           |      | June 30,        
|(in thousands)             |             | 2003                                                                                                                               |   | 2002               |      | 2003             |   | 2002  
|                           |             |                                                                                                                                    |   |                    |      |                  |   |       
|Net income                 |             |                                                                                                                                    |   |                    |      |                  |   |        |      |   |   |        |      |   |   |       
|                           | As reported |                                                                                                                                    | $ | 8,434              |      |                  | $ | 10,587 |      |   | $ | 18,296 |      |   | $ | 20,619 |     
|                           |             | Total stock-based employee compensation
expense determined under fair value
based method for all awards net of
related tax effects |   |                    | (247 | )                |   |        | (259 | ) |   |        | (465 | ) |   |        | (519 | )
|                           |             |                                                                                                                                    |   |                    |      |                  |   |        |      |   |   |        |      |   |   |       
|                           | Pro forma   |                                                                                                                                    | $ | 8,187              |      |                  | $ | 10,328 |      |   | $ | 17,831 |      |   | $ | 20,100 |     
|                           |             |                                                                                                                                    |   |                    |      |                  |   |        |      |   |   |        |      |   |   |       
|Basic earnings per share   |             |                                                                                                                                    |   |                    |      |                  |   |        |      |   |   |        |      |   |   |       
|                           | As reported |                                                                                                                                    | $ | 0.32               |      |                  | $ | 0.41   |      |   | $ | 0.70   |      |   | $ | 0.81   |     
|                           | Pro forma   |                                                                                                                                    | $ | 0.31               |      |                  | $ | 0.40   |      |   | $ | 0.68   |      |   | $ | 0.79   |     
|Diluted earnings per share |             |                                                                                                                                    |   |                    |      |                  |   |        |      |   |   |        |      |   |   |       
|                           | As reported |                                                                                                                                    | $ | 0.32               |      |                  | $ | 0.41   |      |   | $ | 0.70   |      |   | $ | 0.81   |     
|                           | Pro forma   |                                                                                                                                    | $ | 0.31               |      |                  | $ | 0.40   |      |   | $ | 0.68   |      |   | $ | 0.78   |     

Reclassifications

Certain prior year amounts have been reclassified to conform to 2003
presentation. Such reclassifications had no impact on net income, shareholders
equity or cash provided by operating activities.

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Inventories

Inventories consist of the following:

|                                |  |          |        |              |  |   |        | 
|------------------------------- |  | -------- | ------ | ------------ |  | - | ------ | 
|                                |  | June 30, |        | December 31,
|(in thousands)                  |  | 2003     |        | 2002        
|                                |  |          |        |             
|Finished goods                  |  | $        | 22,435 |              |  | $ | 15,795 | 
|Work in process                 |  |          | 3,021  |              |  |   | 1,438  | 
|Raw material, fuel and supplies |  |          | 37,104 |              |  |   | 26,921 | 
|                                |  |          |        |              |  |   |        | 
|                                |  | $        | 62,560 |              |  | $ | 44,154 | 
|                                |  |          |        |              |  |   |        | 

Goodwill and Other Intangible Assets

The carrying amount of goodwill increased by $1,387,000 during the six months
ended June 30, 2003 as a result of two acquisitions during the quarter ended
June 30, 2003.

The following table summarizes the components of the Companys intangible
assets at June 30, 2003 and December 31, 2002.

|                                 |                                             |        |   |               |       |                   |   |          |       |              |   |             |       |          |   |       |       |     |   |       |       |  |   |       |       | 
|-------------------------------- | ------------------------------------------- | ------ | - | ------------- | ----- | ----------------- | - | -------- | ----- | ------------ | - | ----------- | ----- | -------- | - | ----- | ----- | --- | - | ----- | ----- |  | - | ----- | ----- | 
|                                 |                                             |        |   | June 30, 2003 |       | December 31, 2002
|                                 |                                             |        |   |               |       |                  
|                                 |                                             |        |   | Gross         |       |                   |   |          |       | Net          |   | Gross       |       |          |   |       |       | Net
|                                 |                                             |        |   | carrying      |       | Accumulated       |   | carrying |       | carrying     |   | Accumulated |       | carrying
|(in thousands)                   |                                             | amount |   | amortization  |       | amount            |   | amount   |       | amortization |   | amount     
|                                 |                                             |        |   |               |       |                   |   |          |       |              |   |            
|Amortized intangible assets:     |                                             |        |   |               |       |                   |   |          |       |              |   |             |       |          |   |       |       |     |   |       |       |  |   |      
|                                 | Covenants not to compete                    |        | $ | 2,083         |       |                   | $ | 1,274    |       |              | $ | 809         |       |          | $ | 1,920 |       |     | $ | 1,143 |       |  | $ | 777   |      
|                                 | Other intangible assets
including contracts |        |   | 2,314         |       |                   |   | 977      |       |              |   | 1,337       |       |          |   | 2,079 |       |     |   | 884   |       |  |   | 1,195 |      
|                                 |                                             |        |   |               |       |                   |   |          |       |              |   |             |       |          |   |       |       |     |   |       |       |  |   |      
|                                 |                                             | Total  |   | $             | 4,397 |                   |   | $        | 2,251 |              |   | $           | 2,146 |          |   | $     | 3,999 |     |   | $     | 2,027 |  |   | $     | 1,972 | 
|                                 |                                             |        |   |               |       |                   |   |          |       |              |   |             |       |          |   |       |       |     |   |       |       |  |   |      
|Non-amortized intangible assets: |                                             |        |   |               |       |                   |   |          |       |              |   |             |       |          |   |       |       |     |   |       |       |  |   |      
|                                 | Brandname                                   |        | $ | 3,620         |       |                   | $ |         |       |              | $ | 3,620       |       |          | $ | 3,620 |       |     | $ |      |       |  | $ | 3,620 |      
|                                 |                                             |        |   |               |       |                   |   |          |       |              |   |             |       |          |   |       |       |     |   |       |       |  |   |      

Intangible assets with finite lives are being amortized over average lives
ranging from one to five years. The amortization expense for these intangible
assets was $280,000 for the six months ended June 30, 2003 compared to $262,000
for the six months ended June 30, 2002. The estimated annual amortization
expense for these intangible assets for the next five years is: $593,000 for
2003, $586,000 for 2004, $390,000 for 2005, $259,000 for 2006 and $147,000 for
2007.

New Accounting Standards

The FASB has issued SFAS No. 143, Accounting for Asset Retirement Obligations
(ARO), which provides accounting requirements for retirement obligations
associated with tangible long-lived assets. The Company adopted SFAS No. 143 on
January 1, 2003. Retirement obligations associated with long-lived assets
included within the scope of SFAS No. 143 are those for which there is a legal
obligation to settle under existing or enacted law, statute, written or oral
contract or by legal constructions under the doctrine of promissory estoppel.
Adoption of SFAS No. 143 changed the accounting for ARO costs of the utilitys
generating plants. As of June 30, 2003 the Company transferred $13.6 million in
accumulated reserves related to net salvage costs on assets with ARO from
accumulated depreciation to a regulatory liability account in accordance with
the requirements of SFAS No. 143 and Federal Energy Regulatory Commission
(FERC) rules issued on April 9, 2003. SFAS No. 143 requires the present value
of the future decommissioning cost to be recognized as a liability on the
balance sheet with an offsetting amount being added to the capitalized cost of
the related long-lived asset. The liability will be accreted to its present
value each period and the capitalized cost will be depreciated over the useful
life of the related asset.

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The Companys asset retirement obligations include site restoration, the
closure of ash pits and the removal of storage tanks and asbestos at certain
electric utility generating plants. The Company has legal obligations
associated with retirement of other long-lived assets used in its electric
operations that cannot be reasonably estimated because the useful lives of
those assets are not determinable. There are no assets legally restricted for
the settlement of any of the Companys asset retirement obligations.

The present value of the legal asset retirement obligations as of June 30, 2003
of $1,541,000 is included in Other noncurrent liabilities on the Companys June
30, 2003 balance sheet. The $1,541,000 liability includes the original
obligation of $377,000 plus accumulated accretion expense of $1,113,000 from
the date the obligation arose through January 1, 2003, plus $51,000 of
additional accumulated accretion expense for the six months ended
June 30, 2003. Since the recovery of these estimated removal costs, which
include accretion, has been provided for through the recovery of depreciation
expense included as a component of current rates, there is no cumulative effect
on income to be recorded related to the adoption of this accounting principle.
The difference between current accretion expense and depreciation expense based
on approved rates will accumulate as a regulatory asset until the actual cost
to settle the asset retirement obligation has been incurred. At that time, the
associated regulatory asset will be transferred to the associated regulatory
liability account as required by regulatory accounting rules. The effects of
the transitional noncash transactions described above are not reflected in the
Companys consolidated statement of cash flows for the six months ended June
30, 2003.

The following table shows the amount of the asset retirement obligation
liability that would have been included in Noncurrent liabilities in prior
periods had the requirements of SFAS No. 143 been in effect in those periods.

|               |  |                |       |                    |  |      |       |      |  |   |       |  |  |   |       | 
|-------------- |  | -------------- | ----- | ------------------ |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|               |  | As of June 30, |       | As of December 31,
|(in thousands) |  | 2003           |       | 2002               |  | 2002 |       | 2001
|               |  |                |       |                    |  |      |       |     
|As reported    |  | $              | 1,541 |                    |  |      |      |      |  |   |      |  |  |   |      | 
|Pro forma      |  | $              | 1,541 |                    |  | $    | 1,440 |      |  | $ | 1,490 |  |  | $ | 1,392 | 

Segment Information

The Companys business operations consist of five segments based on products
and services. Electric includes the electric utility operating in Minnesota,
North Dakota and South Dakota. Plastics consists of businesses involved in the
production of polyvinyl chloride (PVC) and polyethylene (PE) pipe in the Upper
Midwest and Southwest regions of the United States. Manufacturing consists of
businesses involved in the production of waterfront equipment, wind towers,
frame-straightening equipment and accessories for the auto repair industry,
custom plastic pallets, material and handling trays, horticultural containers,
fabrication of steel products, contract machining, and metal parts stamping and
fabrication located in the Upper Midwest, Missouri and Utah. Health services
include businesses involved in the sale of diagnostic medical equipment,
supplies and accessories. These businesses also provide service maintenance,
mobile diagnostic imaging, mobile positron emission tomography and nuclear
medicine imaging, portable x-ray imaging and rental of diagnostic medical
imaging equipment to various medical institutions located in 40 states. Other
business operations consists of businesses in electrical and telephone
construction contracting, transportation, telecommunications, entertainment,
energy services, and natural gas marketing, as well as the portion of corporate
administrative and general expenses that are not allocated to other segments.
The electrical and telephone construction contracting companies and energy
services and natural gas marketing business operate primarily in the Upper
Midwest. The telecommunications companies operate in central and northeast
Minnesota and the transportation company operates in 48 states and 6 Canadian
provinces. The Company evaluates the performance of its business segments and
allocates resources to them based on earnings contribution and return on total
invested capital.

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Operating Income (Loss)

|                          |       |      |                    |        |                  |      |        |        |  |   |        |        |  |   |        |        | 
|------------------------- | ----- | ---- | ------------------ | ------ | ---------------- | ---- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                          |       |      | Three months ended |        | Six months ended
|                          |       |      | June 30,           |        | June 30,        
|(in thousands)            |       | 2003 |                    | 2002   |                  | 2003 |        | 2002  
|                          |       |      |                    |        |                  |      |        |       
|Electric                  |       | $    | 7,800              |        |                  | $    | 10,168 |        |  | $ | 24,751 |        |  | $ | 25,461 |       
|Plastics                  |       |      | 1,932              |        |                  |      | 4,935  |        |  |   | 4,626  |        |  |   | 6,827  |       
|Manufacturing             |       |      | 5,127              |        |                  |      | 3,075  |        |  |   | 6,405  |        |  |   | 4,981  |       
|Health services           |       |      | 1,495              |        |                  |      | 2,613  |        |  |   | 1,628  |        |  |   | 5,050  |       
|Other business operations |       |      | (1,434             | )      |                  |      | (943   | )      |  |   | (4,188 | )      |  |   | (3,536 | )     
|                          |       |      |                    |        |                  |      |        |        |  |   |        |        |  |   |        |       
|                          | Total |      | $                  | 14,920 |                  |      | $      | 19,848 |  |   | $      | 33,222 |  |   | $      | 38,783 | 
|                          |       |      |                    |        |                  |      |        |        |  |   |        |        |  |   |        |       

Identifiable Assets

|                          |       |      |          |         |              |   |         |         | 
|------------------------- | ----- | ---- | -------- | ------- | ------------ | - | ------- | ------- | 
|                          |       |      | June 30, |         | December 31,
|(in thousands)            |       | 2003 |          | 2002   
|                          |       |      |          |        
|Electric                  |       | $    | 571,999  |         |              | $ | 550,855 |        
|Plastics                  |       |      | 63,058   |         |              |   | 54,926  |        
|Manufacturing             |       |      | 144,599  |         |              |   | 114,120 |        
|Health services           |       |      | 66,603   |         |              |   | 64,785  |        
|Other business operations |       |      | 87,530   |         |              |   | 94,050  |        
|                          |       |      |          |         |              |   |         |        
|                          | Total |      | $        | 933,789 |              |   | $       | 878,736 | 
|                          |       |      |          |         |              |   |         |        

Substantially all sales and long-lived assets of the Company are within the
United States.

Common Shares and Earnings per Share

On April 14, 2003 the Companys Board of Directors granted 222,750 stock
options to key management employees and 90,900 shares of restricted stock to
certain key executives and the directors under the 1999 Stock Incentive Plan.
The exercise price of the stock options is equal to the fair market value per
share at the date of the grant. The options vest ratably over a four-year
period and expire ten years after the date of the grant. As of
June 30, 2003 a total of 1,719,145 options were outstanding and a total of
193,094 shares of restricted stock had been issued under the Plan. The Company
accounts for the Plan under Accounting Principles Board
Opinion No. 25.

Basic earnings per common share are calculated by dividing earnings available
for common shares by the average number of common shares outstanding during the
period. Diluted earnings per common share are calculated by adjusting
outstanding shares, assuming conversion of all potentially dilutive stock
options.

Comprehensive Income

The only element of comprehensive income for the three months ended June 30,
2003 was net income of
$8.4 million as compared to $10.6 million of net income for the three months
ended June 30, 2002. The only elements of comprehensive income for the six
months ended June 30, 2003 were net income of $18.3 million and an additional
accumulated comprehensive loss of $81,000 related to the Companys Executive
Survivor & Supplemental Retirement Plan as compared to $20.6 million of net
income for the six months ended
June 30, 2002.

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##### Table of Contents



Regulatory Assets and Liabilities

As a regulated entity the Company and the electric utility account for the
financial effects of regulation in accordance with SFAS No. 71, Accounting for
the Effect of Certain Types of Regulation. This statement allows for the
recording of a regulatory asset or liability for costs that will be collected
or refunded through the ratemaking process in the future.

The following table indicates the amount of regulatory assets and liabilities
recorded on the Companys consolidated balance sheet:

|                                          |                                                   |                                                          |                         |                              |        |          |        |              |       |        |       | 
|----------------------------------------- | ------------------------------------------------- | -------------------------------------------------------- | ----------------------- | ---------------------------- | ------ | -------- | ------ | ------------ | ----- | ------ | ----- | 
|                                          |                                                   |                                                          |                         |                              |        | June 30, |        | December 31,
|(in thousands)                            |                                                   | 2003                                                     |                         | 2002                        
|                                          |                                                   |                                                          |                         |                             
|Regulatory assets:                        |                                                   |                                                          |                         |                              |        |          |        |             
|                                          | Deferred income taxes                             |                                                          | $                       | 11,131                       |        |          | $      | 10,238       |      
|                                          | Debt expenses and reacquisition premiums          |                                                          |                         | 4,087                        |        |          |        | 4,323        |      
|                                          | Deferred conservation program costs               |                                                          |                         | 755                          |        |          |        | 844          |      
|                                          | Plant acquisition costs                           |                                                          |                         | 307                          |        |          |        | 329          |      
|                                          | Accrued cost-of-energy revenue                    |                                                          |                         | 2,664                        |        |          |        | 768          |      
|                                          | Accumulated ARO accretion/depreciation adjustment |                                                          |                         | 57                           |        |          |        |             |      
|                                          |                                                   |                                                          |                         |                              |        |          |        |             
|                                          |                                                   |                                                          | Total regulatory assets |                              | $      | 19,001   |        |              | $     | 16,502 |      
|                                          |                                                   |                                                          |                         |                              |        |          |        |             
|Regulatory liabilities:                   |                                                   |                                                          |                         |                              |        |          |        |             
|                                          |                                                   | Accumulated depreciation on ARO assets negative salvage |                         | $                            | 13,646 |          |        | $            |      |       
|                                          |                                                   | Deferred income taxes                                    |                         |                              | 8,609  |          |        |              | 8,960 |       
|                                          |                                                   | Gain on sale of division office building                 |                         |                              | 170    |          |        |              | 173   |       
|                                          |                                                   |                                                          |                         |                              |        |          |        |             
|                                          |                                                   |                                                          |                         | Total regulatory liabilities |        | $        | 22,425 |              |       | $      | 9,133 | 
|                                          |                                                   |                                                          |                         |                              |        |          |        |             
|Net regulatory (liability)/asset position |                                                   | $                                                        | (3,424                  | )                            |        | $        | 7,369  |             
|                                          |                                                   |                                                          |                         |                              |        |          |        |             

The regulatory assets and liabilities related to deferred income taxes are the
result of the adoption of SFAS No. 109, Accounting for Income Taxes. Deferred
conservation program costs included in Deferred debits  Other represent
mandated conservation expenditures recoverable through rates over the next 1.5
years. Plant acquisition costs included in Deferred debits  Other will be
amortized over the next 7 years. Accrued cost-of-energy revenue included in
Accrued utility revenues will be recovered over the next six months. The
remaining regulatory assets and liabilities are being recovered from electric
customers over the next 32 years.

If for any reason, the Companys regulated businesses cease to meet the
criteria for application of SFAS No. 71 for all or part of their operations,
the regulatory assets and liabilities that no longer meet such criteria would
be removed from the consolidated balance sheet and included in the consolidated
statement of income as an extraordinary expense item in the period in which the
application of SFAS No. 71 ceases.

Subsequent Events

At June 30, 2003, the Company classified $16.3 million of borrowings under its
line of credit as long-term debt. This amount represents borrowings under the
Companys line of credit used to finance capital expenditures and acquisitions.
The Company has both the intent and ability to refinance this amount on a
long-term basis as evidenced by a commitment letter entered into on July 25,
2003 with a third-party lender. Under the terms of the commitment letter the
Company would issue a $16.3 million seven-year fully amortizing term note with
interest payable at either a variable rate of 1-month LIBOR plus 1.43% or a
fixed rate of 3.95%. The Company would make the interest rate election prior to
closing, which is expected to occur not later than August 31, 2003. The

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transaction has an initial loan term of three years and is renewable
thereafter. The Company expects this note to have financial covenants
consistent with existing credit facilities. There are no rating triggers
contained in this commitment letter.

On August 12, 2003, the Company entered into a commitment letter to increase
its $50 million line of credit to $70 million. There were no changes to the
terms of the line of credit agreement.

In June of 2003, the Companys energy trading risk management policies were
changed to allow transactions over the Intercontinental Exchange at the Cinergy
or Com Ed hubs. The use of hub transactions, when initiated in conjunction with
energy trading activities in future periods, will result in the use of
mark-to-market accounting and the presentation of net margins from trading
activities in the electric revenue line on the income statement in those
periods as required under Generally Accepted Accounting Principles.




Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations

MATERIAL CHANGES IN FINANCIAL POSITION

For the period 2003 through 2007, the Company estimates that funds internally
generated net of forecasted dividend payments will be sufficient to meet
scheduled debt retirements, provide for its estimated consolidated capital
expenditures and pay off most of its currently outstanding short-term debt.
Reduced demand for electricity or products manufactured and sold by the Company
could have an effect on funds internally generated. Additional short-term or
long-term financing will be required in the period 2003 through 2007 in the
event the Company decides to refund or retire early any of its presently
outstanding debt or cumulative preferred shares, to complete acquisitions or
for other corporate purposes. There can be no assurance that any additional
required financing will be available through bank borrowings, debt or equity
financing or otherwise, or that if such financing is available, it will be
available on terms acceptable to the Company. If adequate funds are not
available on acceptable terms, our business, results of operations and
financial condition could be adversely affected.

The Company has the ability to issue up to an additional $135 million of
unsecured debt securities from time to time under its shelf registration
statement on file with the SEC.

On April 29, 2003 the Company renewed its $50 million line of credit. The terms
of the renewed line of credit are essentially the same as those in place prior
to the renewal. This line is available to support borrowings of the Companys
nonelectric operations. The Company anticipates that the electric utilitys
cash requirements through April 2004 will be provided for by cash flows from
electric utility operations. As of June 30, 2003, all of the $50 million line
was in use. The Companys obligations under this line of credit are guaranteed
by a 100%-owned subsidiary of the Company that owns substantially all of the
Companys nonelectric companies. The Company obtained a commitment letter from
a third-party lender on July 25, 2003 to refinance, on a long-term basis, $16.3
million of short-term borrowings. This amount represents borrowings under the
Companys line of credit used to finance capital expenditures and acquisitions.
On August 12, 2003, the Company entered into a commitment letter to increase
its $50 million line of credit to $70 million. There were no changes to the
terms of the line of credit agreement.

The line of credit contains a number of covenants that restrict the Companys
ability, with significant exceptions, to: engage in mergers or consolidations;
dispose of assets; create liens on assets; engage in transactions with
affiliates; take any action which would result in a decrease in the ownership
interest in any subsidiary; redeem stock or any subsidiarys stock and pay
dividends on stock; make investments, loans or advances; guaranty the
obligations of other persons or agree to maintain the net worth or working
capital of, or provide funds to satisfy any other financial test applicable to,
any other person; and enter into a contract that requires payment to be made by
the Company whether or not delivery of the materials, supplies or services is
ever made under the contract. In

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addition, the Company is required to comply
with specified financial covenants, including maintaining a debt-to-total
capitalization ratio not in excess of 60% and an interest and dividend coverage
ratio of at least 1.5 to 1. As of June 30, 2003, the Company was in compliance
with all of the covenants under the line of credit. The interest rate under the
line of credit is subject to adjustment in the event of a change in ratings on
the Companys senior unsecured debt, up to LIBOR plus 0.8% if the ratings on
the Companys senior unsecured debt fall to BBB+ or below (Standard & Poors)
or Baa1 or below (Moodys). The line of credit also provides for accelerated
repayment in the event the Companys long-term unsecured and unsubordinated
debt is rated below BBB- (Standard & Poors) or Baa3 (Moodys).

Cash provided by operating activities of $15.0 million for the six months ended
June 30, 2003 combined with cash on hand of $9.9 million as of December 31,
2002 allowed the Company to pay dividends and fund 38% of its capital
expenditures. The remaining capital expenditures have been funded through
short-term borrowings and long-term debt. Net cash provided by operating
activities decreased $20.6 million for the six months ended June 30, 2003
compared to the six months ended June 30, 2002 primarily as a result of an
increase in receivables, inventories and other current assets of $41.6 million
in the first six months of 2003 compared to an increase of $11.0 million in the
first six months of 2002.

Receivables in the manufacturing segment increased $9.5 million in the first
six months of 2003 mainly related to increased sales including $5.0 million in
increased receivables at the waterfront equipment company related to seasonal
sales increases. Receivables at the construction companies increased $5.5
million from December 31, 2002 to June 30, 2003, coinciding with a normal
increase in regional construction business from winter to summer. The increase
in inventories in the first six months of 2003 is mainly due to a $7.7 million
build-up of inventories at the Companys manufacturer of wind towers, and a
$6.1 million increase in inventory at the plastic pipe companies related to an
increase in pounds of pipe in inventory. The $13.4 million increase in other
current assets in the first six months of 2003 is mainly due to a $9.3 million
increase in costs in excess of billings on uncompleted contracts, of which $7.7
million was at the Companys manufacturer of wind towers. The $9.3 million
increase in costs in excess of billings was partially offset by a $5.4 million
increase in billings in excess of costs on uncompleted contracts

Net cash used in investing activities was $29.0 million for the six months
ended June 30, 2003 compared with net cash used in investing activities of
$42.4 million for the six months ended June 30, 2002. Decreases in capital
expenditures of $12.7 million and business acquisition expenditures of $3.0
million between the periods were offset by a $1.7 million decrease in cash used
in the purchase, or generated from the sale, of other investments and a $0.5
million decrease in proceeds from the sale of noncurrent assets between the
periods. Capital expenditures at the electric utility decreased $6.1 million
related to the completion of a major transmission line in the fourth quarter of
2002 and winding down of construction on the electric utilitys new gas-fired
combustion turbine placed in service in June 2003. Capital expenditures in
other segments decreased by $6.6 million between the periods, reflecting a $3.8
million reduction in equipment purchases at the Companys wind-tower
manufacturing company, a $3.4 million decrease in plant expenditures at one of
the plastic pipe manufacturing facilities, a $3.2 million reduction in
equipment purchases at the Companys metal parts stamping and fabrication
company and a $1.5 million decrease in equipment expenditures at the Companys
transportation company. These decreases were offset by a $2.7 million increase
in capital expenditures at one of the Companys pipe manufacturing companies
related to the construction of a new polyethylene pipe production facility in
Iowa, a $1.4 million increase in equipment expenditures at the medical
diagnositic imaging companies and a $1.0 million increase in capital
expenditures at the Companys manufacturer of thermoformed plastic and
horticultural products related to a relocation and expansion of facilities.

Net cash provided by financing activities increased $4.0 million for the six
months ended June 30, 2003 compared with net cash used in financing activities
of $3.6 million for the six months ended June 30, 2002. The $7.6 million
increase in cash from financing activities between the periods reflects a $6.6
million net increase in short-term and long-term borrowings and a $3.7 million
reduction in the repayment and retirement of long-term debt, offset by a $1.8
million reduction in cash from the issuance of common stock and a $0.9 million
increase in dividends paid and other distributions between the periods.

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Proceeds from the $22.1 million total increase in short-term and long-term
borrowing in the first six months of 2003 were mainly used to finance
construction and operating activities at the Companys nonelectric operating
companies.

As of June 30, 2003 there were no material changes in the Companys contractual
obligations on long-term debt, coal contracts, construction program commitments
and operating leases from those reported in the Companys Annual Report on Form
10-K for the year ended December 31, 2002. The Companys contractual
obligations associated with capacity and energy requirements will increase by
approximately $4 million in the two-year period 2004-2005, $4 million in the
two-year period 2006-2007 and $44 million in the years after 2007 as a result
of a long-term power purchase agreement entered into in the second quarter of
2003. For more information on contractual obligations and commitments, see Item
7 in the Companys Annual Report on Form 10-K for the year ended December 31,
2002.

The Companys current securities ratings are:

|                      |  |           |    |          |    |  |   | 
|--------------------- |  | --------- | -- | -------- | -- |  | - | 
|                      |  | Moody's   |    |          |    | 
|                      |  | Investors |    | Standard
|                      |  | Service   |    | & Poor's
|                      |  |           |    |         
|Senior unsecured debt |  |           | A2 |          |    |  | A | 
|Preferred stock       |  | Baa1      |    |          | A- | 
|Outlook               |  | Negative  |    | Stable  

The Companys disclosure of these securities ratings is not a recommendation to
buy, sell or hold its securities. Downgrades in these securities ratings could
adversely affect the Company. Further downgrades could increase borrowing costs
resulting in possible reductions to net income in future periods and increase
the risk of default on the Companys debt obligations.

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MATERIAL CHANGES IN RESULTS OF OPERATIONS

Comparison of the Three Months Ended June 30, 2003 and 2002

Consolidated Results of Operations

Total operating revenues were $198.5 million for the three months ended June
30, 2003 compared with $176.6 million for the three months ended June 30, 2002. Operating income was
$14.9 million for the three months ended June 30, 2003 compared with $19.8
million for the three months ended June 30, 2002. The Company recorded diluted
earnings per share of $0.32 for the three months ended June 30, 2003 compared
to $0.41 for the three months ended June 30, 2002.

Following is a discussion of the results of operations by segment.

Electric

|                                                  |  |                    |        |      |  |        |        |  |  |   |        |  
|------------------------------------------------- |  | ------------------ | ------ | ---- |  | ------ | ------ |  |  | - | ------ | -
|                                                  |  | Three months ended |        |      |  |       
|                                                  |  | June 30,           |        |      |  |       
|(in thousands)                                    |  | 2003               |        | 2002 |  | Change
|                                                  |  |                    |        |      |  |       
|Retail sales revenues                             |  | $                  | 49,789 |      |  | $      | 45,661 |  |  | $ | 4,128  |  
|Wholesale revenues                                |  |                    | 23,475 |      |  |        | 21,650 |  |  |   | 1,825  |  
|Other revenues                                    |  |                    | 4,241  |      |  |        | 4,578  |  |  |   | (337   | )
|                                                  |  |                    |        |      |  |        |        |  |  |   |        |  
|Total operating revenues                          |  | $                  | 77,505 |      |  | $      | 71,889 |  |  | $ | 5,616  |  
|Production fuel                                   |  |                    | 10,696 |      |  |        | 10,945 |  |  |   | (249   | )
|Purchased power                                   |  |                    | 28,192 |      |  |        | 23,625 |  |  |   | 4,567  |  
|Other electric operation and maintenance expenses |  |                    | 21,967 |      |  |        | 18,583 |  |  |   | 3,384  |  
|Depreciation and amortization                     |  |                    | 6,411  |      |  |        | 6,221  |  |  |   | 190    |  
|Property taxes                                    |  |                    | 2,439  |      |  |        | 2,347  |  |  |   | 92     |  
|                                                  |  |                    |        |      |  |        |        |  |  |   |        |  
|Operating income                                  |  | $                  | 7,800  |      |  | $      | 10,168 |  |  | $ | (2,368 | )
|                                                  |  |                    |        |      |  |        |        |  |  |   |        |  

Retail electric revenues increased 9.0% despite a 4.2% reduction in retail
megawatt-hours sold between the periods mainly due to a $3.8 million increase
in revenues related to increased fuel and purchased power costs passed on to
most retail customers through the cost-of-energy adjustment factor included in
retail rates. The decrease in retail megawatt-hour (mwh) sales is mainly the
result of milder weather in the second quarter of 2003 compared with the second
quarter of 2002. Heating degree-days decreased 22% from 1,275 in the second
quarter of 2002 to 994 in the second quarter of 2003 and cooling degree-days
decreased 94% from 47 in the second quarter of 2002 to 3 in the second quarter
of 2003.

Wholesale power revenues increased 8.4% due to a 31.5% increase in wholesale
electric prices for the three months ended June 30, 2003 compared with the
three months ended June 30, 2002. The increase in wholesale electric prices was
offset by a 17.6% decrease in mwh sales. The decrease in mwh sales is partially
due to a decrease in generation available for sale due to the scheduled
maintenance shutdown of Coyote Station from March 28, 2003 through May 31,
2003. Higher prices in the wholesale power markets reflect generally increasing
generation costs, a decrease in available base-load resources due to the number
of plants shut down for maintenance in the second quarter of 2003, reduced
generation from regional hydro facilities due to lower spring runoff and high
cost generation from natural gas fired peaking units. Wholesale power sales are
expected to continue to be strong for the rest of 2003.

The 7.4% decrease in other electric operating revenues reflects a $2.5 million
decrease in revenue related to the construction of a transmission line in North
Dakota for another area utility that was completed in the fourth quarter of
2002 offset by increases of $1.2 million in revenue related to contracted work
on a North Dakota wind generation

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project, $0.7 million in transmission related revenues from control area
services and $0.3 million in revenue from the sale of steam to an ethanol plant
that began operations in the third quarter of 2002.

Fuel costs decreased by 2.3% for the three months ended June 30, 2003 compared
with the three months ended June 30, 2002 as a result of a 16.2% decrease in
generation combined with a 16.6% increase in the cost of fuel per mwh
generated. The increase in the fuel cost per mwh generated is mostly a function
of the mix of resources available for generation during the second quarter of
2003 as compared to the second quarter of 2002. Coyote Station, the Companys
generating unit with the lowest fuel costs per kwh, was unavailable for
generation in April and May of 2003 due to a scheduled maintenance shutdown.
This resulted in an overall decrease in total mwh output from the Companys
generating units but proportionally more power generation from the Companys
higher fuel cost generating units and, thus, an increase in the cost of fuel
per mwh generated. The increase in the fuel cost per mwh generated also
reflects slight increases in coal and coal transportation costs at Big Stone
and Hoot Lake Plants along with fuel costs for the Companys new combustion
turbine brought on line in June 2003.

Purchased power expense increased 19.3% for the three months ended June 30,
2003 compared with the three months ended June 30, 2002 as a result of a 31.9%
increase in the cost per mwh purchased slightly offset by a 9.5% decrease in
mwh purchases. Power purchases for retail customers increased 17.9% due to the
purchase of replacement power during the scheduled maintenance shutdown of
Coyote Station, while mwh purchases for wholesale customers decreased 16.6% as
a result of milder weather in the Midcontinent Area Power Pool region in the
second quarter of 2003 compared with the second quarter of 2002. The increase
in the cost per mwh of purchased power resulted from an increase in generation
fuel costs combined with a decrease in available generation in the region as
discussed above.

The $3.4 million (18.2%) increase in other electric operation and maintenance
expenses for the three months ended June 30, 2003 compared with the three
months ended June 30, 2002 reflects a $1.4 million increase in maintenance
expenses at Coyote Station related to its scheduled maintenance shutdown and
$0.4 million increase in maintenance costs at Big Stone Plant related to a
boiler wash. The increase in other electric operation and maintenance expenses
also includes a $0.7 million increase in labor expenses due to a general wage
increase and an increase in employee benefit costs, a $0.4 million increase in
economic development expenses mainly related to an agricultural products
processing plant and a $0.4 million increase in costs related to contracted
construction work between the periods. The 3.0% increase in depreciation
expense is due to a 3.1% increase in depreciable plant in 2002. Overall, the
Company expects strong performance in the electric segment for 2003.

Plastics

|                              |  |                    |        |      |  |        |        |  |  |   |        |  
|----------------------------- |  | ------------------ | ------ | ---- |  | ------ | ------ |  |  | - | ------ | -
|                              |  | Three months ended |        |      |  |       
|                              |  | June 30,           |        |      |  |       
|(in thousands)                |  | 2003               |        | 2002 |  | Change
|                              |  |                    |        |      |  |       
|Operating revenues            |  | $                  | 19,647 |      |  | $      | 24,405 |  |  | $ | (4,758 | )
|Cost of goods sold            |  |                    | 16,329 |      |  |        | 17,701 |  |  |   | (1,372 | )
|Operating expenses            |  |                    | 865    |      |  |        | 1,333  |  |  |   | (468   | )
|Depreciation and amortization |  |                    | 521    |      |  |        | 436    |  |  |   | 85     |  
|                              |  |                    |        |      |  |        |        |  |  |   |        |  
|Operating income              |  | $                  | 1,932  |      |  | $      | 4,935  |  |  | $ | (3,003 | )
|                              |  |                    |        |      |  |        |        |  |  |   |        |  

The 19.5% decrease in operating revenues for the three months ended June 30,
2003 compared with the three months ended June 30, 2002 is the result of a
30.5% decrease in pounds of polyvinyl chloride (PVC) pipe sold offset by a
15.9% increase in the price per pound of PVC pipe sold. The decrease in pipe
sales also resulted in a 7.8% decrease in cost of goods sold despite a 32.8%
increase in the cost per pound of PVC pipe sold. The cost per pound of resin,
the raw material used to produce PVC pipe, increased 43.7% between the periods.
Operating expenses decreased 35.1% primarily related to decreased bonuses and
sales commissions directly related to the

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decrease in sales. The 19.5% increase in depreciation and amortization expense
is due to a $3.5 million increase in depreciable plant in 2002 and a $3.0
million increase in depreciable plant in 2003. Given current inventory levels
and expected softness in resin prices, the Company believes the downturn in the
plastics segment will be deeper than previously expected and, as a result,
earnings expectations have been reduced for plastics segment for the rest of
2003.

Manufacturing

|                              |  |                    |        |      |  |        |        |  |  |   |        | 
|----------------------------- |  | ------------------ | ------ | ---- |  | ------ | ------ |  |  | - | ------ | 
|                              |  | Three months ended |        |      |  |       
|                              |  | June 30,           |        |      |  |       
|(in thousands)                |  | 2003               |        | 2002 |  | Change
|                              |  |                    |        |      |  |       
|Operating revenues            |  | $                  | 48,838 |      |  | $      | 35,742 |  |  | $ | 13,096 | 
|Cost of goods sold            |  |                    | 36,373 |      |  |        | 27,132 |  |  |   | 9,241  | 
|Operating expenses            |  |                    | 5,399  |      |  |        | 4,002  |  |  |   | 1,397  | 
|Depreciation and amortization |  |                    | 1,939  |      |  |        | 1,533  |  |  |   | 406    | 
|                              |  |                    |        |      |  |        |        |  |  |   |        | 
|Operating income              |  | $                  | 5,127  |      |  | $      | 3,075  |  |  | $ | 2,052  | 
|                              |  |                    |        |      |  |        |        |  |  |   |        | 

The 36.6% increase in operating revenues for the three months ended June 30,
2003 compared with the three months ended June 30, 2002 reflects revenue
increases of $9.1 million related to the waterfront equipment company
acquisitions completed in May and October of 2002, $2.2 million from the
Companys manufacturer of wind towers, $1.9 million from the Companys
manufacturer of thermoformed plastic and horticultural products, $0.8 million
from the metal parts stamping and fabrication company and $0.2 million from the
manufacturer of automobile frame-straightening equipment. These revenue
increases were offset by a $1.1 million reduction in revenue from the Companys
manufacturer of structural steel products.

The 34.1% increase in cost of goods for the three months ended June 30, 2003
compared with the three months ended June 30, 2002 primarily reflects a $6.5
million increase in costs of goods sold at the waterfront equipment companies
combined with increased costs of $1.4 million from the Companys manufacturer
of wind towers, $0.8 million from the Companys manufacturer of thermoformed
plastic and horticultural products, $0.8 million from the metal parts stamping
and fabrication companies and $0.3 million from the manufacturer of automobile
frame-straightening equipment. These increases were offset by a $0.5 million
reduction in cost of goods sold from the company that manufactures structural
steel products.

The $1.4 million increase in manufacturing operating expenses for the three
months ended June 30, 2003 compared with the three months ended June 30, 2002
resulted mainly from a $1.0 million increase in operating expenses related to
the waterfront equipment company acquisitions and a $0.4 million increase in
operating expenses at the Companys manufacturer of thermoformed plastic and
horticultural products related mainly to compensation increases. . Depreciation
and amortization expenses increased between the periods as a result of the
waterfront equipment company acquisitions and significant plant additions in
2002 most of which were at the metal parts stamping and fabrication companies.

Results in the manufacturing segment were mixed depending on the types of
businesses served by our manufacturing companies. At the start of the year, the
Company believed that economic conditions would improve by the third quarter of
2003. Generally, however, the Company believes the soft economy will continue
through the balance of 2003. The continuing economic uneasiness, coupled with
the impact of steel tariffs, foreign competition and continued pressure from
customers for price reductions are expected to place considerable downward
pressure on the earnings of the metal fabrication companies, including those
that manufacture towers for the wind energy industry. As a result, the
Companys earnings expectations from this segment have been reduced for the
balance of 2003.

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Health Services

|                              |  |                    |        |      |  |        |        |  |  |   |        |  
|----------------------------- |  | ------------------ | ------ | ---- |  | ------ | ------ |  |  | - | ------ | -
|                              |  | Three months ended |        |      |  |       
|                              |  | June 30,           |        |      |  |       
|(in thousands)                |  | 2003               |        | 2002 |  | Change
|                              |  |                    |        |      |  |       
|Operating revenues            |  | $                  | 25,412 |      |  | $      | 23,633 |  |  | $ | 1,779  |  
|Cost of goods sold            |  |                    | 18,734 |      |  |        | 16,461 |  |  |   | 2,273  |  
|Operating expenses            |  |                    | 3,907  |      |  |        | 3,496  |  |  |   | 411    |  
|Depreciation and amortization |  |                    | 1,276  |      |  |        | 1,063  |  |  |   | 213    |  
|                              |  |                    |        |      |  |        |        |  |  |   |        |  
|Operating income              |  | $                  | 1,495  |      |  | $      | 2,613  |  |  | $ | (1,118 | )
|                              |  |                    |        |      |  |        |        |  |  |   |        |  

The 7.5% increase in health services operating revenues for the three months
ended June 30, 2003 compared with the three months ended June 30, 2002 reflects
$1.6 million in additional scan and other services revenue mainly from the
acquisitions that occurred in 2002 and May 2003. Revenues from the sale of
diagnostic imaging equipment increased $0.2 million in the second quarter of
2003 compared with the second quarter of 2002 and are expected to increase for
the balance of 2003 in part due to two recent acquisitions that will add to the
products and geographic territory of the sales and service operations. The
number of scans performed increased 18.5% mainly due to the 2002 acquisitions.
The average fee per scan decreased 3.3%.

Although revenues from imaging services increased by $1.6 million, the increase
was overshadowed by increases in equipment and infrastructure costs incurred to
support expected revenue growth. While operating income for the quarter was
less than operating income in the same quarter a year ago, the segments
results improved significantly from the first quarter of 2003 in part due to
the results of steps taken by management to address the integration of Computed
Imaging Services and operating expenses of the diagnostic imaging operations.

Other Business Operations

|                              |  |                    |        |      |  |        |        |   |  |   |       |  
|----------------------------- |  | ------------------ | ------ | ---- |  | ------ | ------ | - |  | - | ----- | -
|                              |  | Three months ended |        |      |  |       
|                              |  | June 30,           |        |      |  |       
|(in thousands)                |  | 2003               |        | 2002 |  | Change
|                              |  |                    |        |      |  |       
|Operating revenues            |  | $                  | 27,146 |      |  | $      | 20,903 |   |  | $ | 6,243 |  
|Cost of goods sold            |  |                    | 18,374 |      |  |        | 11,549 |   |  |   | 6,825 |  
|Operating expenses            |  |                    | 9,019  |      |  |        | 9,044  |   |  |   | (25   | )
|Depreciation and amortization |  |                    | 1,187  |      |  |        | 1,253  |   |  |   | (66   | )
|                              |  |                    |        |      |  |        |        |   |  |   |       |  
|Operating (loss)              |  | $                  | (1,434 | )    |  | $      | (943   | ) |  | $ | (491  | )
|                              |  |                    |        |      |  |        |        |   |  |   |       |  

The 29.9% increase in operating revenues for the three months ended June 30,
2003 compared with the three months ended June 30, 2002 was mostly due to a
$4.2 million increase in revenues from natural gas sales at the Companys
energy services company related to an increase in natural gas prices while
construction company revenues increased by $2.2 million between the periods.
The 59.1% increase in cost of goods sold reflects a $4.4 million increase in
the cost of natural gas sold by the energy services company and a $2.8 million
increase in construction costs at the construction companies offset by a $0.4
million decrease in other energy services costs.

Construction margins have declined due to the sluggish economy and increased
competition for available work. The construction operating losses were
partially offset by a $0.3 million decrease in operating losses from our energy
services company, which recently has been downsized due to the changing
landscape in the deregulated electric utility industry. Our transportation
company continues to be profitable but is faced with downward pressure on
operating margins because of the slow economy, increased fuel and insurance
costs and highly competitive pricing.

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Other Income  net, Interest Charges and Income Taxes

For the three months ended June 30, 2003 compared with the three months ended
June 30, 2002, other income increased $575,000 due to the recording of $300,000
in approved conservation improvement plan incentives in 2003 and a $100,000
increase in revenues from the allowance for funds used during construction
(AFUDC) due to higher Construction work in progress balances in the second
quarter of 2003 compared to the second quarter of 2002.

The $77,000 (1.8%) increase in interest charges for the three months ended June
30, 2003 compared with the three months ended June 30, 2002 is mainly due to
higher short-term debt balances outstanding between the periods.

The $2.3 million (43%) decrease in income tax expense between the quarters is
primarily the result of a
$4.4 million reduction in income before income tax for the three months ended
June 30, 2003 compared with the three months ended June 30, 2002. The reduction
in the effective tax rate from 33.2% for the three months ended June 30, 2002
to 26.2% for the three months ended June 30, 2003 is due to a decrease in
taxable income relative to the level of tax credits and permanent differences
between book income and taxable income.

Comparison of the Six Months Ended June 30, 2003 and 2002

Consolidated Results of Operations

Total operating revenues were $396.7 million for the six months ended June 30,
2003 compared with $334.3 million for the six months ended June 30, 2002.
Operating income was $33.2 million for the six months ended June 30, 2003
compared with $38.8 million for the six months ended June 30, 2002. The Company
recorded diluted earnings per share of $0.70 for the six months ended June 30,
2003 and $0.81 for the six months ended June 30, 2002.

Following is a discussion of the results of operations by segment.

Electric

|                                                  |  |                  |         |      |  |        |         |  |  |   |        |  
|------------------------------------------------- |  | ---------------- | ------- | ---- |  | ------ | ------- |  |  | - | ------ | -
|                                                  |  | Six months ended |         |      |  |       
|                                                  |  | June 30,         |         |      |  |       
|(in thousands)                                    |  | 2003             |         | 2002 |  | Change
|                                                  |  |                  |         |      |  |       
|Retail sales revenues                             |  | $                | 109,039 |      |  | $      | 99,252  |  |  | $ | 9,787  |  
|Wholesale revenues                                |  |                  | 55,826  |      |  |        | 37,672  |  |  |   | 18,154 |  
|Other revenues                                    |  |                  | 6,607   |      |  |        | 9,366   |  |  |   | (2,759 | )
|                                                  |  |                  |         |      |  |        |         |  |  |   |        |  
|Total operating revenues                          |  | $                | 171,472 |      |  | $      | 146,290 |  |  | $ | 25,182 |  
|Production fuel                                   |  |                  | 23,673  |      |  |        | 22,462  |  |  |   | 1,211  |  
|Purchased power                                   |  |                  | 63,775  |      |  |        | 42,559  |  |  |   | 21,216 |  
|Other electric operation and
maintenance expenses |  |                  | 41,373  |      |  |        | 38,555  |  |  |   | 2,818  |  
|Depreciation and amortization                     |  |                  | 12,862  |      |  |        | 12,371  |  |  |   | 491    |  
|Property taxes                                    |  |                  | 5,038   |      |  |        | 4,882   |  |  |   | 156    |  
|                                                  |  |                  |         |      |  |        |         |  |  |   |        |  
|Operating income                                  |  | $                | 24,751  |      |  | $      | 25,461  |  |  | $ | (710   | )
|                                                  |  |                  |         |      |  |        |         |  |  |   |        |  

Retail electric revenues increased 9.9% while retail mwhs sold increased only
0.8% between the periods mainly due to a $7.1 million increase in revenues
related to increased fuel and purchased power costs passed on to most retail
customers through the cost-of-energy adjustment factor included in retail
rates.

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The 48.2% increase in wholesale power revenues resulted from a 12.8% increase
in mwhs sold combined with a 31.4% increase in wholesale electric prices during
the six months ended June 30, 2003 compared with the six months ended June 30,
2002. The increase in mwh sales and higher wholesale prices reflect increased
demand relative to available supply mainly due to colder weather in the region
in the first quarter of 2003 compared with the first quarter of 2002. Higher
prices in the wholesale power markets reflect generally increasing generation
costs, a decrease in available base-load resources due to the number of plants
shut down for maintenance in the second quarter of 2003, reduced generation
from regional hydro facilities due to lower spring runoff and high cost
generation from natural gas fired peaking units. Wholesale power sales are
expected to continue to be strong for the rest of 2003.

The 29.5% decrease in other electric operating revenues reflects a $5.8 million
decrease in revenues related to the construction of a transmission line in
North Dakota for another area utility that was completed in the fourth quarter
of 2002 offset by increases of $1.2 million in revenue related to contracted
work on a North Dakota wind generation project, $1.3 million in transmission
related revenues from transmission tariffs and control area services and $0.5
million in revenue from the sale of steam to an ethanol plant that began
operations in the third quarter of 2002.

Fuel costs increased by 5.4% for the six months ended June 30, 2003 compared
with the six months ended June 30, 2002 as a result of a 13.3% increase in the
cost of fuel per mwh generated offset by a 7.0% decrease in generation. The
increase in the fuel cost per mwh generated is mostly a function of the mix of
resources available for generation during the second quarter of 2003 as
compared to the second quarter of 2002. Coyote Station, the Companys
generating unit with the lowest fuel costs per kwh, was unavailable for
generation in April and May of 2003 due to a scheduled maintenance shutdown.
This resulted in an overall decrease in total mwh output from the Companys
generating units but proportionally more power generation from the Companys
higher fuel cost generating units and, thus, an increase in the cost of fuel
per mwh generated. The increase in the fuel cost per mwh generated also
reflects slight increases in coal and coal transportation costs at Big Stone
and Hoot Lake Plants along with fuel costs for the Companys new combustion
turbine brought on line in June 2003.

Purchased power expense increased 49.9% for the six months ended June 30, 2003
compared with the six months ended June 30, 2002 as a result of a 20.6%
increase in mwh purchases combined with a 24.2% increase in the cost per mwh
purchased. Increased demand for electricity brought on by the colder weather in
the first quarter 2003 was the main factor contributing to the increases in the
volume of power purchased. The increase in the cost per mwh of purchased power
resulted from an increase in generation fuel costs combined with a decrease in
available generation in the region as discussed above.

The $2.8 million (7.3%) increase in other electric operation and maintenance
expenses for the six months ended June 30, 2003 compared with the six months
ended June 30, 2002 reflects a $1.5 million increase in maintenance expenses at
Coyote Station mainly related to its scheduled maintenance shutdown and $0.6
million increase in maintenance costs at Big Stone Plant mainly related to a
boiler wash. The increase in other electric operation and maintenance expenses
also includes a $1.7 million increase in labor expenses due to a general wage
increase and an increase in employee benefit costs, a $0.4 million increase in
economic development expenses mainly related to an agricultural products
processing plant and a $0.4 million increase in management incentives offset by
a $1.8 million reduction in costs related to contracted construction work
between the periods. The 4.0% increase in depreciation expense is due to a 3.1%
increase in depreciable plant in 2002. Overall, the Company expects strong
performance in the electric segment for 2003.

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Plastics

|                              |  |                  |        |      |  |        |        |  |  |   |        |  
|----------------------------- |  | ---------------- | ------ | ---- |  | ------ | ------ |  |  | - | ------ | -
|                              |  | Six months ended |        |      |  |       
|                              |  | June 30,         |        |      |  |       
|(in thousands)                |  | 2003             |        | 2002 |  | Change
|                              |  |                  |        |      |  |       
|Operating revenues            |  | $                | 42,582 |      |  | $      | 40,280 |  |  | $ | 2,302  |  
|Cost of goods sold            |  |                  | 35,059 |      |  |        | 30,390 |  |  |   | 4,669  |  
|Operating expenses            |  |                  | 1,904  |      |  |        | 2,189  |  |  |   | (285   | )
|Depreciation and amortization |  |                  | 993    |      |  |        | 874    |  |  |   | 119    |  
|                              |  |                  |        |      |  |        |        |  |  |   |        |  
|Operating (loss) income       |  | $                | 4,626  |      |  | $      | 6,827  |  |  | $ | (2,201 | )
|                              |  |                  |        |      |  |        |        |  |  |   |        |  

The 5.7% increase in operating revenues for the six months ended June 30, 2003
compared with the six months ended June 30, 2002 is the result of a 21.1%
increase in the price per pound of PVC pipe sold offset by a 12.7% decrease in
pounds of PVC pipe sold. Cost of goods sold increased 15.4% between the periods
despite the decrease in pounds of pipe sold as a result of a 32.2% increase in
the cost per pound of PVC pipe sold. The cost per pound of resin, the raw
material used to produce PVC pipe, increased 45.5% between the periods.
Operating expenses decreased 13.0% primarily due to decreased compensation
directly related to the decrease in sales. The 13.6% increase in depreciation
and amortization expense is due to a $3.5 million increase in depreciable plant
in 2002 and a $3.0 million increase in depreciable plant in 2003. Given current
inventory levels and expected softness in resin prices, the Company believes
the downturn in the plastics segment will be deeper than previously expected
and, as a result, earnings expectations have been reduced for plastics segment
for the rest of 2003.

The companies in this segment are highly dependent on a limited number of
third-party vendors for PVC resin. For the six months ended June 30, 2003 and
2002, purchases of raw materials from two vendors totaled 95.2% and 59.8%,
respectively, of total resin purchases. The companies in this segment believe
their relationships with their key raw material vendors are good. However, the
loss of a key supplier or any interruption or delay in the supply of PVC resin
could have a significant impact on the plastics segment.

Manufacturing

|                              |  |                  |        |      |  |        |        |  |  |   |        | 
|----------------------------- |  | ---------------- | ------ | ---- |  | ------ | ------ |  |  | - | ------ | 
|                              |  | Six months ended |        |      |  |       
|                              |  | June 30,         |        |      |  |       
|(in thousands)                |  | 2003             |        | 2002 |  | Change
|                              |  |                  |        |      |  |       
|Operating revenues            |  | $                | 83,557 |      |  | $      | 67,070 |  |  | $ | 16,487 | 
|Cost of goods sold            |  |                  | 62,625 |      |  |        | 50,920 |  |  |   | 11,705 | 
|Operating expenses            |  |                  | 10,707 |      |  |        | 8,189  |  |  |   | 2,518  | 
|Depreciation and amortization |  |                  | 3,820  |      |  |        | 2,980  |  |  |   | 840    | 
|                              |  |                  |        |      |  |        |        |  |  |   |        | 
|Operating income              |  | $                | 6,405  |      |  | $      | 4,981  |  |  | $ | 1,424  | 
|                              |  |                  |        |      |  |        |        |  |  |   |        | 

The 24.6% increase in operating revenues for the six months ended June 30, 2003
compared with the six months ended June 30, 2002 reflects a $17.2 million
increase in revenue related to the waterfront equipment company acquisitions
completed in May and October of 2002, an increase of $3.6 million from the
Companys manufacturer of thermoformed plastic and horticultural products, an
increase of $2.1 million from the metal parts stamping and fabrication company
and an increase of $0.3 million from the manufacturer of automobile
frame-straightening equipment. These increases were offset by decreases in
revenue of $3.9 million from the company that manufactures structural steel
products and $2.8 million from the Companys manufacturer of wind towers.

The 23.0% increase in cost of goods for the six months ended June 30, 2003
compared with the six months ended June 30, 2002 primarily reflects a $12.6
million increase in costs of goods sold at the waterfront equipment

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companies combined with increased costs of $2.4 million from the metal parts
stamping and fabrication company, $1.6 million from the Companys manufacturer
of thermoformed plastic and horticultural products and $0.3 million from the
manufacturer of automobile frame-straightening equipment. These increases were
offset by reductions in cost of goods sold of $3.0 million at the Companys
manufacturer of wind towers and $2.2 million at the company that manufactures
structural steel products.

The 30.7% increase in manufacturing operating expenses for the six months ended
June 30, 2003 compared with the six months ended June 30, 2002 reflects a $2.9
million increase in operating expenses related to the waterfront equipment
company acquisitions offset by a $0.4 million decrease in operating expenses at
the Companys manufacturer of wind towers. Depreciation and amortization
expenses increased 28.2% between the periods as a result of the waterfront
equipment company acquisitions and significant plant additions in 2002 most of
which were at the metal parts stamping and fabrication company.

Results in the manufacturing segment were mixed depending on the types of
businesses served by our manufacturing companies. At the start of the year, the
Company believed that economic conditions would improve by the third quarter of
2003. Generally, however, the Company believes the soft economy will continue
through the balance of 2003. The continuing economic uneasiness, coupled with
the impact of steel tariffs, foreign competition and continued pressure from
customers for price reductions are expected to place considerable downward
pressure on the earnings of the metal fabrication companies, including those
that manufacture towers for the wind energy industry. As a result, the
Companys earnings expectations from this segment have been reduced for the
balance of 2003.

Health Services

|                              |  |                  |        |      |  |        |        |  |  |   |        |  
|----------------------------- |  | ---------------- | ------ | ---- |  | ------ | ------ |  |  | - | ------ | -
|                              |  | Six months ended |        |      |  |       
|                              |  | June 30,         |        |      |  |       
|(in thousands)                |  | 2003             |        | 2002 |  | Change
|                              |  |                  |        |      |  |       
|Operating revenues            |  | $                | 47,230 |      |  | $      | 44,752 |  |  | $ | 2,478  |  
|Cost of goods sold            |  |                  | 35,324 |      |  |        | 31,148 |  |  |   | 4,176  |  
|Operating expenses            |  |                  | 7,815  |      |  |        | 6,547  |  |  |   | 1,268  |  
|Depreciation and amortization |  |                  | 2,463  |      |  |        | 2,007  |  |  |   | 456    |  
|                              |  |                  |        |      |  |        |        |  |  |   |        |  
|Operating income              |  | $                | 1,628  |      |  | $      | 5,050  |  |  | $ | (3,422 | )
|                              |  |                  |        |      |  |        |        |  |  |   |        |  

The 5.5% increase in health services operating revenues for the six months
ended June 30, 2003 compared with the six months ended June 30, 2002 reflects
$3.6 million in additional scan and other services revenue mostly from the
acquisitions that occurred in 2002 and May 2003 offset by a $1.1 million
reduction in revenue from equipment sales in the first quarter of 2003 compared
to the first quarter of 2002. Revenues from the sale of diagnostic imaging
equipment increased $0.2 million in the second quarter of 2003 compared with
the second quarter of 2002 and are expected to increase for the balance of 2003
in part due to two recent acquisitions that will add to the products and
geographic territory of the sales and service operations. The number of scans
performed increased 17.4% mainly due to the 2002 acquisitions while the average
fee per scan decreased 2.7%.

Although revenues from imaging services increased by $3.6 million, the increase
was overshadowed by increases in equipment and infrastructure costs incurred to
support expected revenue growth. While operating income for the six months
ended June 30, 2003 was significantly less than operating income for the same
period a year ago, the segments results improved significantly from the first
quarter of 2003 to the second quarter of 2003, in part due to the results of
steps taken by management to address the integration of Computed Imaging
Services and operating expenses of the diagnostic imaging operations.

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Other Business Operations

|                              |  |                  |        |      |  |        |        |   |  |   |        |  
|----------------------------- |  | ---------------- | ------ | ---- |  | ------ | ------ | - |  | - | ------ | -
|                              |  | Six months ended |        |      |  |       
|                              |  | June 30,         |        |      |  |       
|(in thousands)                |  | 2003             |        | 2002 |  | Change
|                              |  |                  |        |      |  |       
|Operating revenues            |  | $                | 51,827 |      |  | $      | 35,913 |   |  | $ | 15,914 |  
|Cost of goods sold            |  |                  | 35,369 |      |  |        | 19,521 |   |  |   | 15,848 |  
|Operating expenses            |  |                  | 18,293 |      |  |        | 17,470 |   |  |   | 823    |  
|Depreciation and amortization |  |                  | 2,353  |      |  |        | 2,458  |   |  |   | (105   | )
|                              |  |                  |        |      |  |        |        |   |  |   |        |  
|Operating loss                |  | $                | (4,188 | )    |  | $      | (3,536 | ) |  | $ | (652   | )
|                              |  |                  |        |      |  |        |        |   |  |   |        |  

The 44.3% increase in operating revenues for the six months ended June 30, 2003
compared with the six months ended June 30, 2002 was mostly due to a $12.2
million increase in revenues from natural gas sales at the Companys energy
services company related to an increase in natural gas prices while
construction revenues increased by $3.2 million and transportation revenues
increased by $1.2 million between the periods. Other energy services revenues
decreased by $0.5 million between the periods as a result of downsizing in this
area due to the changing landscape in the deregulated electric utility
industry. The 81.2% increase in cost of goods sold reflects a $12.4 million
increase in the cost of natural gas sold by the energy services company and a
$4.0 million increase in construction costs at the construction companies,
offset by a $0.5 million decrease in other energy services costs.

The 4.7% increase in operating expenses between the periods reflects a $1.2
million increase in transportation operating expenses and a $0.4 million
increase in construction company operating expenses, offset by a $0.8 million
reduction in energy services operating expenses.

Construction margins have declined due to the sluggish economy and increased
competition for available work. The construction operating losses were
partially offset by a $0.4 million decrease in operating losses from our energy
services company. Our transportation company continues to be profitable but is
faced with downward pressure on operating margins because of the slow economy,
increased fuel and insurance costs and highly competitive pricing.

Other Income  net, Interest Charges, and Income Taxes

For the six months ended June 30, 2003 compared with the six months ended June
30, 2002, other income increased $854,000 due to the recording of $300,000 in
approved conservation improvement plan incentives in 2003 and a $367,000
reduction in expenditures related to investigating the feasibility of
constructing a second electricity generating unit at the electric utilitys Big
Stone Plant.

The $145,000 (1.7%) increase in interest charges is mainly due to higher
short-term debt balances outstanding for the six months ended June 30, 2003
compared with the six months ended June 30, 2002.

The $2.5 million (25.5%) decrease in income tax expense between the periods is
primarily the result of a
$4.9 million reduction in income before income tax for the six months ended
June 30, 2003 compared with the six months ended June 30, 2002. The reduction
in the effective tax rate from 32.4% for the six months ended June 30, 2002 to
28.7% for the six months ended June 30, 2003 is due to a decrease in taxable
income relative to the level of tax credits and permanent differences between
book income and taxable income.

Critical Accounting Policies Involving Significant Estimates

The discussion and analysis of the financial statements and results of
operations are based on the Companys consolidated financial statements, which
have been prepared in accordance with accounting principles generally

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accepted in the United States. The preparation of these consolidated financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities.

The Company uses estimates based on the best information available in recording
transactions and balances resulting from business operations. Estimates are
used for such items as depreciable lives, asset impairment evaluations, tax
provisions, collectability of trade accounts receivable, self insurance
programs, environmental liabilities, unbilled electric revenues, unscheduled
power exchanges, service contract maintenance costs, percentage-of-completion
and actuarially determined benefits costs. As better information becomes
available or actual amounts are known, estimates are revised. Operating results
can be affected by revised estimates. Actual results may differ from these
estimates under different assumptions or conditions. Management has discussed
the application of these critical accounting policies and the development of
these estimates with the audit committee of the board of directors.

Goodwill Impairment

The Company currently has $1.0 million of goodwill recorded on its balance
sheet related to its energy services subsidiary that markets natural gas to
approximately 150 retail customers. At June 30, 2003, evaluation of projected
cash flows from these operations indicated that the related goodwill was not
impaired. However, actual and projected cash flows from these operations are
subject to fluctuations due to low profit margins on natural gas sales combined
with high volatility of natural gas prices. Reductions in profit margins or the
volume of natural gas sales from these operations could result in an impairment
of all or a portion of its related goodwill. The Company will continue to
evaluate this reporting unit for impairment as conditions warrant.

On September 1, 1999 the Company acquired the flatbed trucking operations of E.
W. Wylie Corporation (Wylie). The Company currently has $6.7 million of
goodwill recorded on its balance sheet relating to this acquisition. Highly
competitive pricing in the trucking industry in recent years has resulted in
decreased operating margins and lower returns on invested capital for Wylie.
The Companys current projections are for operating margins to increase from
current levels over the next three to five years as demand for shipping
increases relative to available shipping capacity and additional revenues are
generated from added terminal locations. If current conditions persist and
operating margins do not increase according to Company projections, the
reductions in anticipated cash flows from transportation operations may
indicate that the fair value of Wylie is less than its book value resulting in
an impairment of goodwill and a corresponding charge against earnings. At June
30, 2003, assessment of Wylie indicated that its goodwill was not impaired. The
Company will continue to evaluate this reporting unit for impairment as
conditions warrant.

A discussion of critical accounting policies is included in the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2002. There
were no material changes in critical accounting policies or estimates during
the quarter ended June 30, 2003.

Forward Looking Information  Safe Harbor Statement Under the Private
Securities Litigation Reform Act of 1995

In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the Act), the Company has filed cautionary
statements identifying important factors that could cause the Companys actual
results to differ materially from those discussed in forward-looking statements
made by or on behalf of the Company. When used in this Form 10-Q and in future
filings by the Company with the Securities and Exchange Commission, in the
Companys press releases and in oral statements, words such as may, will,
expect, anticipate, continue, estimate, project, believes or
similar expressions are intended to identify some of the forward-looking
statements within the meaning of the Act and are included, along with this
statement, for purposes of complying with the safe harbor provision of the Act.
Factors that might cause such differences include, but are not limited to, the
Companys ongoing involvement in diversification efforts, the timing and scope

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of deregulation and open competition, growth of electric revenues, impact of
the investment performance of the utilitys pension plan, changes in the
economy, governmental and regulatory action, weather conditions, fuel and
purchased power costs, environmental issues, resin prices, and other factors
discussed under Factors affecting future earnings on pages 27-28 of the
Companys 2002 Annual Report to Shareholders, which is incorporated by
reference in the Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 2002. These factors are in addition to any other cautionary
statements, written or oral, which may be made or referred to in connection
with any such forward-looking statement or contained in any subsequent filings
by the Company with the Securities and Exchange Commission. The Company is not
obligated to publicly update or revise any forward-looking statements.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

At June 30, 2003 the Company had limited exposure to market risk associated
with interest rates and commodity prices and no exposure to market risk
associated with changes in foreign currency exchange rates.

The majority of the Companys long-term debt has fixed interest rates. The
interest rate on variable rate long-term debt is reset on a periodic basis
reflecting current market conditions. The Company manages its interest rate
risk through the issuance of fixed-rate debt with varying maturities, through
economic refunding of debt through optional refundings, limiting the amount of
variable interest rate debt, and utilization of short-term borrowings to allow
flexibility in the timing and placement of long-term debt. As of June 30,
2003, the Company had
$14.9 million of long-term debt subject to variable interest rates. Assuming
no change in the Companys financial structure, if variable interest rates were
to average 1% higher or lower than the average variable rate on
June 30, 2003, interest expense and pre-tax earnings would change by
approximately $149,000 on an annual basis.

The Company has short-term borrowing arrangements to provide financing for
working capital and other purposes for its nonelectric operations. The level of
borrowings under these arrangements varies from period to period, depending
upon, among other factors, operating needs and capital expenditures. On June
30, 2003 the Company had $50 million outstanding short-term borrowings under
these arrangements. However, the Company obtained a commitment letter from a
third-party lender on July 25, 2003 to refinance, on a long-term basis, $16.3
million of short-term borrowings.

The Company has not used interest rate swaps to manage net exposure to interest
rate changes related to the Companys portfolio of borrowings. The Company
maintains a ratio of fixed rate debt to total debt within a certain range. It
is the Companys policy to enter into interest rate transactions and other
financial instruments only to the extent considered necessary to meet its
stated objectives. The Company does not enter into transactions for
speculative or trading purposes.

The electric utilitys retail portion of fuel and purchased power costs are
subject to cost of energy adjustment clauses that mitigate the commodity price
risk by allowing a pass through of most of the increase or decrease in energy
costs to retail customers. In addition, the electric utility participates in
an active wholesale power market providing access to commodity transactions
that may serve to mitigate price risk. The Company has in place an energy risk
management policy with a goal to manage, through the use of defined risk
management practices, price risk and credit risk associated with wholesale
power purchases and sales.

The Companys energy services subsidiary markets natural gas to approximately
150 retail customers. Some of these customers are served under fixed-price
contracts. There is price risk associated with these limited number of
fixed-price contracts since the corresponding cost of natural gas is not
immediately locked in. This price risk is not considered material to the
Company.

The plastics companies are exposed to market risk related to changes in
commodity prices for PVC resins, the raw material used to manufacture PVC pipe.
The PVC pipe industry is highly sensitive to commodity raw material

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pricing volatility. Historically, when resin prices are rising or stable,
margins and sales volume have been higher and when resin prices are falling,
sales volumes and margins have been lower. Gross margins also decline when the
supply of PVC pipe increases faster than demand. Due to the commodity nature
of PVC resin and the dynamic supply and demand factors worldwide, it is very
difficult to predict gross margin percentages or to assume that historical
trends will continue.




Item 4. Controls and Procedures

Under the supervision and with the participation of the Companys management,
including the Chief Executive Officer and the Chief Financial Officer, the
Company evaluated the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (the Exchange Act)) as of June 30, 2003, the
end of the period covered by this report. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures were effective as of June 30, 2003.

During the fiscal quarter ended June 30, 2003, there was no change in the
Companys internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over
financial reporting.




PART II. OTHER INFORMATION




Item 4. Submission of Matters to a Vote of Security Holders



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Annual Meeting of Shareholders of the Company was held on
April 14, 2003, for the purpose of electing three nominees to the
Board of Directors with terms expiring in 2006, approving the
appointment of auditors and to consider a proposal to require
Otter Tail Corporation to change its method of accounting and
reporting of stock options. All nominees for directors as listed
in the proxy statement were elected. The names of each other
director whose term of office continued after the meeting are as
follows: Dennis R. Emmen, Kenneth L. Nelson, Nathan I. Partain,
Arvid R. Liebe, John C. MacFarlane and Gary J. Spies. The voting
results are as follows:

|                      |  |           |            |                    |  |           |           |  |  |  |           | 
|--------------------- |  | --------- | ---------- | ------------------ |  | --------- | --------- |  |  |  | --------- | 
|                      |  | Shares    |            | Shares Voted       |  | Broker   
|Election of Directors |  | Voted For |            | Withheld Authority |  | Non-votes
|                      |  |           |            |                    |  |          
|Thomas M. Brown       |  |           | 19,703,838 |                    |  |           | 2,169,005 |  |  |  | 1,333,242 | 
|Maynard D. Helgaas    |  |           | 21,269,219 |                    |  |           | 603,624   |  |  |  | 1,333,242 | 
|Robert N. Spolum      |  |           | 21,260,956 |                    |  |           | 611,887   |  |  |  | 1,333,242 | 

|                                         |  |           |            |         |  |         |            |           |  |  |         |  |  |  |           | 
|---------------------------------------- |  | --------- | ---------- | ------- |  | ------- | ---------- | --------- |  |  | ------- |  |  |  | --------- | 
|                                         |  |           |            |         |  | Shares  |            | Shares    |  |  |         | 
|                                         |  | Shares    |            | Voted   |  | Voted   |            | Broker   
|                                         |  | Voted For |            | Against |  | Abstain |            | Non-votes
|                                         |  |           |            |         |  |         |            |          
|Approval of Auditors                     |  |           | 21,253,582 |         |  |         | 375,380    |           |  |  | 243,881 |  |  |  | 1,333,242 | 
|Proposal on
Accounting for Stock
Options |  |           | 5,814,710  |         |  |         | 11,233,901 |           |  |  | 857,405 |  |  |  | 5,355,787 | 

26



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##### Table of Contents






Item 6. Exhibits and Reports on Form 8-K



| | a) |  | Exhibits:
| | -- |  | ---------



| | 4-A  |  | Second Amendment to Credit Agreement dated as of April 29,
2003.                                   
| | ---- |  | ---------------------------------------------------------------------------------------------------
|
| | 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.



| | b) |  | Reports on Form 8-K.                                                                                                                                                    
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | The Company filed a Form 8-K on April 28, 2003 to furnish under Item 12
the press release issued on April 28, 2003 to report its earnings for the
first quarter of 2003.




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

| |                       |                                                                                                  |  |                       
| | --------------------- | ------------------------------------------------------------------------------------------------ |  | ----------------------
| |                       |                                                                                                  |  | OTTER TAIL CORPORATION
| |                       |                                                                                                  |  |                       
| | By: /s/ Kevin G. Moug
| |                       |                                                                                                  |  |                       
| |                       | Kevin G. Moug
Chief Financial Officer and Treasurer
(Chief Financial Officer/Authorized Officer)

Dated: August 14, 2003

27



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##### Table of Contents






EXHIBIT INDEX

|               |  |                                                                                                    
|-------------- |  | ---------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                        
|               |  |                                                                                                    
|4-A            |  | Second Amendment to Credit Agreement dated as of April 29, 2003.                                   
|               |  |                                                                                                    
|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.