##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the quarterly period ended March 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission
file number 0-368
 OTTER TAIL CORPORATION
 
 Minnesota
    
    41-0462685(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 215 South Cascade Street, Box 496, Fergus Falls, Minnesota
    
    56538-0496(Address of principal executive offices)
    
    (Zip Code)
  
 
  þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if smaller reporting company)
 o þ
  April 30, 2009  35,466,387 Common Shares ($5 par value)




---



##### 



OTTER TAIL CORPORATION
 INDEX
 Page No.Part I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets  March 31, 2009
and December 31, 2008 (not audited)
    
    
    2 & 3Consolidated Statements of Income  Three Months
Ended March 31, 2009 and 2008 (not audited)
    
    
    4Consolidated Statements of Cash Flows  Three Months
Ended March 31, 2009 and 2008 (not audited)
    
    
    5Notes to Consolidated Financial Statements (not audited)
    
    
    6-25Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    26-37Item 3. Quantitative and Qualitative Disclosures About
Market Risk
    
    
    38-40Item 4. Controls and Procedures
    
    
    40Part II. Other InformationItem 1. Legal Proceedings
    
    
    41Item 1A. Risk Factors
    
    
    41Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 6. Exhibits
    
    
    42Signatures
    
    
    42EX-31.1EX-31.2EX-32.1EX-32.2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Otter Tail Corporation
 
 Consolidated Balance Sheets
  -Assets-
 March 31,
    
    
    December 31,2009
    
    
    2008(Thousands of dollars)Current AssetsCash and Cash Equivalents
    
    $
    3,112
    
    
    $
    7,565Accounts Receivable:TradeNet
    
    
    122,576
    
    
    
    136,609Other
    
    
    9,077
    
    
    
    13,587Inventories
    
    
    97,690
    
    
    
    101,955Deferred Income Taxes
    
    
    8,386
    
    
    
    8,386Accrued Utility and Cost-of-Energy Revenues
    
    
    16,902
    
    
    
    24,030Costs and Estimated Earnings in Excess of Billings
    
    
    55,308
    
    
    
    65,606Income Taxes Receivable
    
    
    32,786
    
    
    
    26,754Other
    
    
    18,832
    
    
    
    8,519Total Current Assets
    
    
    364,669
    
    
    
    393,011Investments
    
    
    9,511
    
    
    
    7,542Other Assets
    
    
    23,395
    
    
    
    22,615Goodwill
    
    
    106,778
    
    
    
    106,778Other IntangiblesNet
    
    
    35,002
    
    
    
    35,441Deferred DebitsUnamortized Debt Expense and Reacquisition Premiums
    
    
    6,988
    
    
    
    7,247Regulatory Assets and Other Deferred Debits
    
    
    80,417
    
    
    
    82,384Total Deferred Debits
    
    
    87,405
    
    
    
    89,631PlantElectric Plant in Service
    
    
    1,206,365
    
    
    
    1,205,647Nonelectric Operations
    
    
    338,284
    
    
    
    321,032Total Plant
    
    
    1,544,649
    
    
    
    1,526,679Less Accumulated Depreciation and Amortization
    
    
    562,266
    
    
    
    548,070PlantNet of Accumulated Depreciation and Amortization
    
    
    982,383
    
    
    
    978,609Construction Work in Progress
    
    
    61,800
    
    
    
    58,960Net Plant
    
    
    1,044,183
    
    
    
    1,037,569Total
    
    $
    1,670,943
    
    
    $
    1,692,587
  2




---



##### Table of Contents



Otter Tail Corporation
Consolidated Balance Sheets   -Liabilities-
 March 31,
    
    
    December 31,2009
    
    
    2008(Thousands of dollars)Current LiabilitiesShort-Term Debt
    
    $
    149,063
    
    
    $
    134,914Current Maturities of Long-Term Debt
    
    
    3,687
    
    
    
    3,747Accounts Payable
    
    
    92,665
    
    
    
    113,422Accrued Salaries and Wages
    
    
    17,035
    
    
    
    29,688Accrued Taxes
    
    
    9,043
    
    
    
    10,939Other Accrued Liabilities
    
    
    12,190
    
    
    
    12,034Total Current Liabilities
    
    
    283,683
    
    
    
    304,744Pensions Benefit Liability
    
    
    81,868
    
    
    
    80,912Other Postretirement Benefits Liability
    
    
    33,083
    
    
    
    32,621Other Noncurrent Liabilities
    
    
    19,768
    
    
    
    19,391Commitments (note 9)Deferred CreditsDeferred Income Taxes
    
    
    128,371
    
    
    
    123,086Deferred Tax Credits
    
    
    33,750
    
    
    
    34,288Regulatory Liabilities
    
    
    64,962
    
    
    
    64,684Other
    
    
    439
    
    
    
    397Total Deferred Credits
    
    
    227,522
    
    
    
    222,455CapitalizationLong-Term Debt, Net of Current Maturities
    
    
    338,797
    
    
    
    339,726Class B Stock Options of Subsidiary
    
    
    1,220
    
    
    
    1,220Cumulative Preferred Shares
Authorized 1,500,000 Shares Without Par Value;
Outstanding 2009 and 2008  155,000 Shares
    
    
    15,500
    
    
    
    15,500Cumulative Preference Shares  Authorized 1,000,000
Shares without Par Value; Outstanding  None
    
    
    
    
    
    
    Common Shares, Par Value $5 Per Share
Authorized 50,000,000 Shares;
Outstanding 2009  35,409,133 and 2008  35,384,620
    
    
    177,046
    
    
    
    176,923Premium on Common Shares
    
    
    241,886
    
    
    
    241,731Retained Earnings
    
    
    254,034
    
    
    
    260,364Accumulated Other Comprehensive Loss
    
    
    (3,464
    )
    
    
    (3,000
    )Total Common Equity
    
    
    669,502
    
    
    
    676,018Total Capitalization
    
    
    1,025,019
    
    
    
    1,032,464Total
    
    $
    1,670,943
    
    
    $
    1,692,587
  3




---



##### Table of Contents



Otter Tail Corporation
 
 Consolidated Statements of Income
  Three months endedMarch 31,2009
    
    
    2008(In thousands, except share andper share amounts)Operating RevenuesElectric
    
    $
    88,479
    
    
    $
    97,505Nonelectric
    
    
    188,760
    
    
    
    202,732Total Operating Revenues
    
    
    277,239
    
    
    
    300,237Operating ExpensesProduction Fuel  Electric
    
    
    18,659
    
    
    
    19,904Purchased Power  Electric System Use
    
    
    17,373
    
    
    
    18,986Electric Operation and Maintenance Expenses
    
    
    26,930
    
    
    
    26,743Cost of Goods Sold  Nonelectric (depreciation included below)
    
    
    152,961
    
    
    
    165,223Other Nonelectric Expenses
    
    
    30,634
    
    
    
    34,747Product Recall and Testing Costs
    
    
    1,766
    
    
    
    Depreciation and Amortization
    
    
    17,817
    
    
    
    14,913Property Taxes  Electric
    
    
    2,490
    
    
    
    2,624Total Operating Expenses
    
    
    268,630
    
    
    
    283,140Operating Income
    
    
    8,609
    
    
    
    17,097Other Income
    
    
    667
    
    
    
    962Interest Charges
    
    
    6,270
    
    
    
    6,711Income Before Income Taxes
    
    
    3,006
    
    
    
    11,348Income Taxes
    
    
    (1,382
    )
    
    
    3,118Net Income
    
    
    4,388
    
    
    
    8,230Preferred Dividend Requirements
    
    
    184
    
    
    
    184Earnings Available for Common Shares
    
    $
    4,204
    
    
    $
    8,046Earnings Per Common Share:Basic
    
    $
    0.12
    
    
    $
    0.27Diluted
    
    $
    0.12
    
    
    $
    0.27Average Number of Common Shares Outstanding:Basic
    
    
    35,324,736
    
    
    
    29,818,079Diluted
    
    
    35,488,640
    
    
    
    30,061,865Dividends Per Common Share
    
    $
    0.2975
    
    
    $
    0.2975
  4




---



##### Table of Contents



Otter Tail Corporation
 
 Consolidated Statements of Cash Flows
  Three Months EndedMarch 31,2009
    
    
    2008(Thousands of dollars)Cash Flows from Operating ActivitiesNet Income
    
    $
    4,388
    
    
    $
    8,230Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:Depreciation and Amortization
    
    
    17,817
    
    
    
    14,913Deferred Tax Credits
    
    
    (538
    )
    
    
    (385
    )Deferred Income Taxes
    
    
    5,487
    
    
    
    3,722Change in Deferred Debits and Other Assets
    
    
    569
    
    
    
    701Change in Noncurrent Liabilities and Deferred Credits
    
    
    1,916
    
    
    
    (1,147
    )Allowance for Equity (Other) Funds Used During Construction
    
    
    (91
    )
    
    
    348Change in Derivatives Net of Regulatory Deferral
    
    
    (809
    )
    
    
    (1,511
    )Stock Compensation Expense
    
    
    837
    
    
    
    699OtherNet
    
    
    195
    
    
    
    252Cash (Used for) Provided by Current Assets and Current Liabilities:Change in Receivables
    
    
    18,482
    
    
    
    8,364Change in Inventories
    
    
    4,072
    
    
    
    (18,230
    )Change in Other Current Assets
    
    
    9,864
    
    
    
    (3,529
    )Change in Payables and Other Current Liabilities
    
    
    (33,430
    )
    
    
    (5,506
    )Change in Interest and Income Taxes Payable/Receivable
    
    
    (6,878
    )
    
    
    433Net Cash Provided by Operating Activities
    
    
    21,881
    
    
    
    7,354Cash Flows from Investing ActivitiesCapital Expenditures
    
    
    (26,756
    )
    
    
    (57,656
    )Proceeds from Disposal of Noncurrent Assets
    
    
    840
    
    
    
    464Net (Increase) Decrease in Other Investments
    
    
    (2,834
    )
    
    
    530Net Cash Used in Investing Activities
    
    
    (28,750
    )
    
    
    (56,662
    )Cash Flows from Financing ActivitiesNet Short-Term Borrowings
    
    
    14,149
    
    
    
    27,200Proceeds from Issuance of Common Stock
    
    
    7
    
    
    
    454Common Stock Issuance Expenses
    
    
    (17
    )
    
    
    Payments for Retirement of Common Stock
    
    
    (160
    )
    
    
    (2
    )Proceeds from Issuance of Long-Term Debt
    
    
    1
    
    
    
    1,135Short-Term and Long-Term Debt Issuance Expenses
    
    
    (71
    )
    
    
    (19
    )Payments for Retirement of Long-Term Debt
    
    
    (982
    )
    
    
    (984
    )Dividends Paid
    
    
    (10,718
    )
    
    
    (9,077
    )Net Cash Provided by Financing Activities
    
    
    2,209
    
    
    
    18,707Effect of Foreign Exchange Rate Fluctuations on Cash
    
    
    207
    
    
    
    224Net Change in Cash and Cash Equivalents
    
    
    (4,453
    )
    
    
    (30,377
    )Cash and Cash Equivalents at Beginning of Period
    
    
    7,565
    
    
    
    39,824Cash and Cash Equivalents at End of Period
    
    $
    3,112
    
    
    $
    9,447
  5




---



##### Table of Contents



OTTER TAIL CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   1. Summary of Significant Accounting Policies
 Revenue Recognition
 Accounting for
Derivative Instruments and Hedging Activities,
    March 31,
    
    December 31,(in thousands)
    
    2009
    
    2008Costs Incurred on Uncompleted Contracts
    
    $
    490,413
    
    
    $
    377,237Less Billings to Date
    
    
    (503,159
    )
    
    
    (366,931
    )Plus Estimated Earnings Recognized
    
    
    62,406
    
    
    
    47,355$
    49,660
    
    
    $
    57,661
 6




---



##### Table of Contents



March 31,
    
    December 31,(in thousands)
    
    2009
    
    2008Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
    
    $
    55,308
    
    
    $
    65,606Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
    
    
    (5,648
    )
    
    
    (7,945
    )$
    49,660
    
    
    $
    57,661
  Retainage
  Sales of Receivables
 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
 Marketing and Sales Incentive Costs
 Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of a Vendors
Products)
 Supplemental Disclosures of Cash Flow Information
 Three Months EndedMarch 31,(in thousands)
    
    2009
    
    2008Decreases in
Accounts Payable and Other Liabilities Related to Capital Expenditures
    
    $
    (2,191
    )
    
    $
    (20,554
    )
 7




---



##### Table of Contents



Fair Value Measurements
 Fair Value Measurements
     (in thousands)
    
    Level 1
    
    Level 2
    
    Level 3
    
    TotalAssets:Investments for Nonqualified Retirement Savings
Retirement Plan:Money Market, Mutual Funds and Cash
    
    $
    1,213
    
    
    $
    
    
    
    $
    
    
    
    $
    1,213Cash Surrender Value of Life Insurance Policies
    
    
    
    
    
    
    8,112
    
    
    
    
    
    
    
    8,112Cash Surrender Value of Keyman Life Insurance
Policies  Net of Policy Loans
    
    
    
    
    
    
    10,450
    
    
    
    
    
    
    
    10,450Forward Energy Contracts
    
    
    
    
    
    
    3,159
    
    
    
    
    
    
    
    3,159Investments of Captive Insurance Company:Corporate Debt Securities
    
    
    3,503
    
    
    
    
    
    
    
    
    
    
    
    3,503U.S. Government Debt Securities
    
    
    3,201
    
    
    
    
    
    
    
    
    
    
    
    3,201Total Assets
    
    $
    7,917
    
    
    $
    21,721
    
    
    $
    
    
    
    $
    29,638Liabilities:Forward Energy Contracts
    
    $
    
    
    
    $
    2,569
    
    
    $
    
    
    
    $
    2,569Forward Foreign Currency Exchange Contracts
    
    
    295
    
    
    
    
    
    
    
    
    
    
    
    295Asset Retirement Obligations
    
    
    
    
    
    
    
    
    
    
    3,367
    
    
    
    3,367Total Liabilities
    
    $
    295
    
    
    $
    2,569
    
    
    $
    3,367
    
    
    $
    6,231Net Assets (Liabilities)
    
    $
    7,622
    
    
    $
    19,152
    
    
    $
    (3,367
    )
    
    $
    23,407
 Inventories
  March 31,
    
    December 31,(in thousands)
    
    2009
    
    2008Finished Goods
    
    $
    34,138
    
    
    $
    38,943Work in Process
    
    
    8,397
    
    
    
    10,205Raw Material, Fuel and Supplies
    
    
    55,155
    
    
    
    52,807Total Inventories
    
    $
    97,690
    
    
    $
    101,955
 8




---



##### Table of Contents



Other Intangible Assets
  Gross Carrying
    
    Accumulated
    
    Net Carrying
    
    AmortizationMarch 31, 2009(in thousands)
    
    Amount
    
    Amortization
    
    Amount
    
    PeriodsAmortized Intangible Assets:Covenants Not to Compete
    
    $
    2,190
    
    
    $
    1,883
    
    
    $
    307
    
    
    3 - 5
    yearsCustomer Relationships
    
    
    26,832
    
    
    
    2,738
    
    
    
    24,094
    
    
    15 - 25
    YearsOther Intangible Assets Including Contracts
    
    
    2,359
    
    
    
    1,620
    
    
    
    739
    
    
    5 - 30
    YearsTotal
    
    $
    31,381
    
    
    $
    6,241
    
    
    $
    25,140Nonamortized Intangible Assets:Brand/Trade Name
    
    $
    9,862
    
    
    $
    
    
    
    $
    9,862December 31, 2008(in thousands)Amortized Intangible Assets:Covenants Not to Compete
    
    $
    2,250
    
    
    $
    1,889
    
    
    $
    361
    
    
    3 - 5
    YearsCustomer Relationships
    
    
    26,854
    
    
    
    2,429
    
    
    
    24,425
    
    
    15 - 25
    YearsOther Intangible Assets Including Contracts
    
    
    2,710
    
    
    
    1,921
    
    
    
    789
    
    
    5 - 30
    YearsTotal
    
    $
    31,814
    
    
    $
    6,239
    
    
    $
    25,575Nonamortized Intangible Assets:Brand/Trade Name
    
    $
    9,866
    
    
    $
    
    
    
    $
    9,866
  Comprehensive Income
 Three Months EndedMarch 31,(in thousands)
    
    2009
    
    2008Net Income
    
    $
    4,388
    
    
    $
    8,230Other Comprehensive Loss (net-of-tax):Foreign Currency Translation Loss
    
    
    (424
    )
    
    
    (452
    )Amortization of Unrecognized Losses and Costs Related
to Postretirement Benefit Programs
    
    
    15
    
    
    
    43Unrealized (Loss) Gain on Available-for-Sale Securities
    
    
    (55
    )
    
    
    59Total Other Comprehensive Loss
    
    
    (464
    )
    
    
    (350
    )Total Comprehensive Income
    
    $
    3,924
    
    
    $
    7,880
 New Accounting Standards
 SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141(R)), Business Combinations,
 9




---



##### Table of Contents



SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB
Statement No. 133,
 FASB Staff Position (FSP) FAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan
Assets, Employers Disclosures about Pensions and Other Postretirement Benefits
 2. Segment Information
        10




---



##### Table of Contents



Three Months EndedMarch 31,2009
    
    2008United States of America
    
    
    98.4
    %
    
    
    96.1
    %Canada
    
    
    0.7
    %
    
    
    1.2
    %All Other Countries (none greater than 1%)
    
    
    0.9
    %
    
    
    2.7
    %
  Operating Revenue
 Three Months EndedMarch 31,(in thousands)
    
    2009
    
    2008Electric
    
    $
    88,541
    
    
    $
    97,590Plastics
    
    
    13,530
    
    
    
    22,350Manufacturing
    
    
    96,019
    
    
    
    97,595Health Services
    
    
    28,167
    
    
    
    29,265Food Ingredient Processing
    
    
    20,086
    
    
    
    15,898Other Business Operations
    
    
    31,895
    
    
    
    38,110Corporate Revenues and Intersegment Eliminations
    
    
    (999
    )
    
    
    (571
    )Total
    
    $
    277,239
    
    
    $
    300,237
 Interest Expense
 Three months endedMarch 31,(in thousands)
    
    2009
    
    2008Electric
    
    $
    4,011
    
    
    $
    2,981Plastics
    
    
    200
    
    
    
    141Manufacturing
    
    
    1,279
    
    
    
    2,146Health Services
    
    
    96
    
    
    
    179Food Ingredient Processing
    
    
    10
    
    
    
    10Other Business Operations
    
    
    120
    
    
    
    307Corporate and Intersegment Eliminations
    
    
    554
    
    
    
    947Total
    
    $
    6,270
    
    
    $
    6,711
 11




---



##### Table of Contents



Income Taxes
 Three months endedMarch 31,(in thousands)
    
    2009
    
    2008Electric
    
    $
    1,771
    
    
    $
    6,420Plastics
    
    
    (1,647
    )
    
    
    425Manufacturing
    
    
    (804
    )
    
    
    (603
    )Health Services
    
    
    (13
    )
    
    
    (415
    )Food Ingredient Processing
    
    
    725
    
    
    
    600Other Business Operations
    
    
    (206
    )
    
    
    (1,160
    )Corporate
    
    
    (1,208
    )
    
    
    (2,149
    )Total
    
    $
    (1,382
    )
    
    $
    3,118
 Earnings Available for Common Shares
 Three months endedMarch 31,(in thousands)
    
    2009
    
    2008Electric
    
    $
    8,342
    
    
    $
    12,566Plastics
    
    
    (2,458
    )
    
    
    620Manufacturing
    
    
    (1,090
    )
    
    
    (616
    )Health Services
    
    
    (73
    )
    
    
    (691
    )Food Ingredient Processing
    
    
    1,447
    
    
    
    1,123Other Business Operations
    
    
    (325
    )
    
    
    (1,765
    )Corporate
    
    
    (1,639
    )
    
    
    (3,191
    )Total
    
    $
    4,204
    
    
    $
    8,046
 Total Assets
 March 31,
    
    December 31,(in thousands)
    
    2009
    
    2008Electric
    
    $
    991,271
    
    
    $
    992,159Plastics
    
    
    75,896
    
    
    
    78,054Manufacturing
    
    
    338,877
    
    
    
    356,697Health Services
    
    
    58,675
    
    
    
    61,086Food Ingredient Processing
    
    
    87,459
    
    
    
    88,813Other Business Operations
    
    
    69,165
    
    
    
    71,359Corporate
    
    
    49,600
    
    
    
    44,419Total
    
    $
    1,670,943
    
    
    $
    1,692,587
 3. Rate and Regulatory Matters
 Minnesota
 General Rate Case
 12




---



##### Table of Contents



Capacity Expansion 2020 (CapX 2020) Mega Certificate of Need (MegaCON)
  Renewable Energy Standards, Conservation, Renewable Resource and Transmission Riders
  13




---



##### Table of Contents



North Dakota
 General Rate Case
 Renewable Resource Cost Recovery Rider
 14




---



##### Table of Contents



South Dakota
 General Rate Case
 Federal
 Revenue Sufficiency Guarantee (RSG) Charges
   15




---



##### Table of Contents



City of Anaheim,
California FERC. City of Anaheim, City of Anaheim
   Big Stone II Project
   
    
    That there is reasonable assurance that Big Stone II would be more cost-effective than
renewable energy beyond the statutory levels of renewable energy based on accepted
estimates of construction costs and carbon dioxide;
    
    That the 345 kv transmission project is necessary based on identified regional and state
transmission needs; and
    
    That the project presents risks requiring additional measures to protect the applicants
ratepayers.
  16




---



##### Table of Contents



17




---



##### Table of Contents



4. Regulatory Assets and Liabilities
   March 31,
    
    December 31,(in thousands)
    
    2009
    
    2008Regulatory Assets:Unrecognized Prior Service Costs and Actuarial Losses on Pension Benefits
    
    $
    64,117
    
    
    $
    64,490Deferred Income Taxes
    
    
    7,094
    
    
    
    7,094Accrued Cost-of-Energy Revenue
    
    
    4,481
    
    
    
    8,982Minnesota Renewable Resource Rider Accrued Revenues
    
    
    3,679
    
    
    
    3,045Debt Reacquisition Premiums
    
    
    3,274
    
    
    
    3,357Accumulated ARO Accretion/Depreciation Adjustment
    
    
    1,516
    
    
    
    1,437Minnesota General Rate Case Recoverable Expenses
    
    
    1,376
    
    
    
    1,457North Dakota Renewable Resource Rider Accrued Revenues
    
    
    1,332
    
    
    
    2,009MISO Schedule 16 and 17 Deferred Administrative Costs  ND
    
    
    755
    
    
    
    823MISO Schedule 16 and 17 Deferred Administrative Costs  MN
    
    
    458
    
    
    
    526Deferred Marked-to-Market Losses
    
    
    102
    
    
    
    1,162Plant Acquisition Costs
    
    
    52
    
    
    
    63Deferred Conservation Improvement Program Costs
    
    
    (63
    )
    
    
    280Total Regulatory Assets
    
    $
    88,173
    
    
    $
    94,725Regulatory Liabilities:Accumulated Reserve for Estimated Removal Costs
    
    $
    59,093
    
    
    $
    58,768Deferred Income Taxes
    
    
    4,773
    
    
    
    4,943Unrecognized Transition Obligation, Prior Service Costs and Actuarial
Gains on Other Postretirement Benefits
    
    
    958
    
    
    
    834Gain on Sale of Division Office Building
    
    
    138
    
    
    
    139Total Regulatory Liabilities
    
    $
    64,962
    
    
    $
    64,684Net Regulatory Asset Position
    
    $
    23,211
    
    
    $
    30,041
 Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans,
 Accounting for Income Taxes
   18




---



##### Table of Contents



5. Forward Contracts Classified as Derivatives
 Electricity Contracts
   19




---



##### Table of Contents



(in thousands)
    
    March 31, 2009
    
    December 31, 2008In Other Current Assets  Marked-to-Market Gain
    
    $
    3,159
    
    
    $
    405In Regulatory Assets and Other Deferred Debits  Deferred
Marked-to-Market Loss
    
    
    102
    
    
    
    1,162In Other Accrued Current Liabilities  Marked-to-Market Loss
    
    
    (2,569
    )
    
    
    (1,690
    )Net Fair Value of Marked-to-Market Energy Contracts
    
    $
    692
    
    
    $
    (123
    )
 Year-to-Date(in thousands)
    
    March 31, 2009Fair Value at Beginning of Year
    
    $
    (123
    )Less: Amount Realized on Contracts Entered into in 2008 and Settled in 2009
    
    
    123Changes in Fair Value of Contracts Entered into in 2008
    
    
    Net Fair Value of Contracts Entered into in 2008 at End of Period
    
    
    Changes in Fair Value of Contracts Entered into in 2009
    
    
    692Net Fair Value End of Period
    
    $
    692
    20




---



##### Table of Contents



Fuel Contracts
  Foreign Currency Exchange Forward Windows
  (in thousands)
    
    Settlement Periods
    
    USD
    
    CADContracts entered into in July 2008
    
    April 2009 - July 2009
    
    $
    1,600
    
    
    $
    1,668Contracts entered into in October 2008
    
    April 2009 - October 2009
    
    
    2,800
    
    
    
    3,499Contracts outstanding on March 31, 2009
    
    April 2009 - October 2009
    
    $
    4,400
    
    
    $
    5,167
  (in thousands)
    
    March 31, 2009
    
    December 31, 2008Fair Value of IPH Foreign Currency
Exchange Forward Windows included in
Other Accrued Current Liabilities
    
    $
    (295
    )
    
    $
    (289
    )
 Year-to-Date(in thousands)
    
    March 31, 2009Fair Value at Beginning of Year
    
    $
    (289
    )Less: Amount Realized on Contracts Entered into in 2008 and Settled in 2009
    
    
    138Changes in Fair Value of Contracts Entered into in 2008
    
    
    (144
    )Net Fair Value of Contracts Entered into in 2008 at End of Period
    
    
    (295
    )Changes in Fair Value of Contracts Entered into in 2009
    
    
    Net Fair Value End of Period
    
    $
    (295
    )
   21




---



##### Table of Contents



6. Common Shares and Earnings Per Share
  Common Shares Outstanding, December 31, 2008
    
    
    35,384,620Issuances:Executive Officer Stock Performance Awards
    
    
    29,350Stock Options Exercised
    
    
    1,350Vesting of Restricted Stock Units
    
    
    1,000Retirements:Shares Withheld for Individual Income Tax Requirements
    
    
    (7,187
    )Common Shares Outstanding, March 31, 2009
    
    
    35,409,133
   Quarter Ended March 31,
    
    Options Outstanding
    
    Range of Exercise Prices2009
    
    420,460
    
    $24.93  $31.342008
    
    
    
    NA
 7. Share-Based Payments
   Three months endedMarch 31,(in thousands)
    
    2009
    
    2008Employee Stock Purchase Plan (15% discount)
    
    $
    90
    
    
    $
    70Restricted Stock Granted to Directors
    
    
    111
    
    
    
    108Restricted Stock Granted to Employees
    
    
    91
    
    
    
    118Restricted Stock Units Granted to Employees
    
    
    121
    
    
    
    94Stock Performance Awards Granted to Executive Officers
    
    
    435
    
    
    
    340Totals
    
    $
    848
    
    
    $
    730
 22




---



##### Table of Contents



9. Commitments and Contingencies
 Electric Utility Coal Contract
  Dealer Floor Plan Financing
  Sierra Club Complaint
   Product Recall
  23




---



##### Table of Contents



11. Class B Stock Options of Subsidiary
  12. Pension Plan and Other Postretirement Benefits
 Pension Plan
 Three Months EndedMarch 31,(in thousands)
    
    2009
    
    2008Service CostBenefit Earned During the Period
    
    $
    1,133
    
    
    $
    1,275Interest Cost on Projected Benefit Obligation
    
    
    2,975
    
    
    
    2,800Expected Return on Assets
    
    
    (3,448
    )
    
    
    (3,550
    )Amortization of Prior-Service Cost
    
    
    181
    
    
    
    175Amortization of Net Actuarial Loss
    
    
    5
    
    
    
    125Net Periodic Pension Cost
    
    $
    846
    
    
    $
    825
  Executive Survivor and Supplemental Retirement Plan
 Three Months EndedMarch 31,(in thousands)
    
    2009
    
    2008Service CostBenefit Earned During the Period
    
    $
    188
    
    
    $
    173Interest Cost on Projected Benefit Obligation
    
    
    424
    
    
    
    384Amortization of Prior-Service Cost
    
    
    18
    
    
    
    16Amortization of Net Actuarial Loss
    
    
    96
    
    
    
    120Net Periodic Pension Cost
    
    $
    726
    
    
    $
    693
 Postretirement Benefits
 Three Months EndedMarch 31,(in thousands)
    
    2009
    
    2008Service CostBenefit Earned During the Period
    
    $
    301
    
    
    $
    300Interest Cost on Projected Benefit Obligation
    
    
    753
    
    
    
    725Amortization of Transition Obligation
    
    
    187
    
    
    
    187Amortization of Prior-Service Cost
    
    
    53
    
    
    
    50Amortization of Net Actuarial Loss
    
    
    1
    
    
    
    125Effect of Medicare Part D Expected Subsidy
    
    
    (297
    )
    
    
    (400
    )Net Periodic Postretirement Benefit Cost
    
    $
    998
    
    
    $
    987
 24




---



##### Table of Contents



15. Income Taxes
   19. Subsequent Events
     25




---



##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of
Operations
 RESULTS OF OPERATIONS
  Comparison of the Three Months Ended March 31, 2009 and 2008
   (in thousands)
    
    March 31, 2009
    
    March 31, 2008Operating Revenues:Electric
    
    $
    62
    
    
    $
    85Nonelectric
    
    
    938
    
    
    
    486Cost of Goods Sold
    
    
    840
    
    
    
    466Other Nonelectric Expenses
    
    
    160
    
    
    
    105
 Electric
 Three Months EndedMarch 31,
    
    
    
    
    
    %(in thousands)
    
    2009
    
    2008
    
    Change
    
    ChangeRetail Sales Revenues
    
    $
    79,055
    
    
    $
    87,300
    
    
    $
    (8,245
    )
    
    
    (9.4
    )Wholesale Revenues
    
    
    4,763
    
    
    
    3,584
    
    
    
    1,179
    
    
    
    32.9Net Marked-to-Market Gain
    
    
    1,034
    
    
    
    2,250
    
    
    
    (1,216
    )
    
    
    (54.0
    )Other Revenues
    
    
    3,689
    
    
    
    4,456
    
    
    
    (767
    )
    
    
    (17.2
    )Total Operating Revenues
    
    $
    88,541
    
    
    $
    97,590
    
    
    $
    (9,049
    )
    
    
    (9.3
    )Production Fuel
    
    
    18,659
    
    
    
    19,904
    
    
    
    (1,245
    )
    
    
    (6.3
    )Purchased Power  System Use
    
    
    17,373
    
    
    
    18,986
    
    
    
    (1,613
    )
    
    
    (8.5
    )Other Operation and Maintenance Expenses
    
    
    26,930
    
    
    
    26,743
    
    
    
    187
    
    
    
    0.7Depreciation and Amortization
    
    
    8,988
    
    
    
    7,708
    
    
    
    1,280
    
    
    
    16.6Property Taxes
    
    
    2,490
    
    
    
    2,624
    
    
    
    (134
    )
    
    
    (5.1
    )Operating Income
    
    $
    14,101
    
    
    $
    21,625
    
    
    $
    (7,524
    )
    
    
    (34.8
    )
  26




---



##### Table of Contents



Plastics
 Three Months EndedMarch 31,
    
    
    
    
    
    %(in thousands)
    
    2009
    
    2008
    
    Change
    
    ChangeOperating Revenues
    
    $
    13,530
    
    
    $
    22,350
    
    
    $
    (8,820
    )
    
    
    (39.5
    )Cost of Goods Sold
    
    
    15,352
    
    
    
    18,936
    
    
    
    (3,584
    )
    
    
    (18.9
    )Operating Expenses
    
    
    1,375
    
    
    
    1,438
    
    
    
    (63
    )
    
    
    (4.4
    )Depreciation and Amortization
    
    
    716
    
    
    
    795
    
    
    
    (79
    )
    
    
    (9.9
    )Operating (Loss) Income
    
    $
    (3,913
    )
    
    $
    1,181
    
    
    $
    (5,094
    )
    
    
    (431.3
    )
  27




---



##### Table of Contents



Manufacturing
 Three Months EndedMarch 31,
    
    
    
    
    
    %(in thousands)
    
    2009
    
    2008
    
    Change
    
    ChangeOperating Revenues
    
    $
    96,019
    
    
    $
    97,595
    
    
    $
    (1,576
    )
    
    
    (1.6
    )Cost of Goods Sold
    
    
    79,535
    
    
    
    82,848
    
    
    
    (3,313
    )
    
    
    (4.0
    )Operating Expenses
    
    
    10,046
    
    
    
    10,323
    
    
    
    (277
    )
    
    
    (2.7
    )Product Recall and Testing Costs
    
    
    1,766
    
    
    
    
    
    
    
    1,766
    
    
    
    Depreciation and Amortization
    
    
    5,358
    
    
    
    3,749
    
    
    
    1,609
    
    
    
    42.9Operating (Loss) Income
    
    $
    (686
    )
    
    $
    675
    
    
    $
    (1,361
    )
    
    
    (201.6
    )
  
    
    Revenues at DMI Industries, Inc. (DMI) increased $1.7 million as a result of increased
production of tower units at its Tulsa plant, which began production in the first quarter
of 2008.
    
    Revenues at BTD Manufacturing, Inc. (BTD) increased $3.8 million. The increase reflects
first quarter 2009 revenues of $5.2 million from Miller Welding, acquired in May 2008,
offset by a $0.7 million decrease in sales volume and a $0.6 million decrease in scrap
sales revenue related to a decrease in steel prices.
    
    Revenues at T.O. Plastics, Inc. (T.O. Plastics) decreased $4.6 million due to a decrease
in horticultural product sales as customers utilized existing inventory in the channel.
    
    Revenues at ShoreMaster, Inc. (ShoreMaster) decreased $2.5 million mainly due to
decreased sales of residential products related to current economic uncertainty and credit
restraints resulting in reduced orders from dealers.
  
    
    DMIs cost of goods sold decreased $2.5 million as a result of productivity improvements
at DMIs Tulsa plant and a reduction in costs at the Fort Erie plant. Included in cost of
goods sold for the quarter ended March 31, 2008 were costs of $0.8 million associated with
the start up of DMIs Tulsa plant and $3.2 million in additional labor and material costs
on a production contract at the Fort Erie plant.
    
    Cost of goods sold at BTD increased $4.7 million. The increase reflects first quarter
2009 costs of $3.9 million at Miller Welding, acquired in May 2008 and sales of higher cost
items from inventory produced in 2008.
    
    Cost of goods sold at T.O. Plastics decreased $3.8 million as a result of decreased
sales of horticultural products.
    
    Cost of goods sold at ShoreMaster decreased $1.7 million mainly due to the decrease in
sales of residential products partially offset by $0.9 million in additional costs on a
large marina project.
  
    
    Operating expenses at DMI increased $0.3 million, mainly as a result of first quarter
2009 fees and expenses related to DMIs accounts receivable sales agreement initiated in
the second quarter of 2008.
    
    BTDs operating expenses increased $0.2 million mainly as a result of the acquisition of
Miller Welding in May 2008.
    
    ShoreMasters operating expenses, including product recall and testing costs, increased
$1.1 million as a result of the recognition of $1.4 million in costs related to the recall
of certain trampoline products and $0.4 million in costs to test imported products for
lead/phthalate content, offset by reductions of $0.5 million in labor and benefit expenses
and $0.2 million in expenditures for professional services.
    
    T.O. Plastics operating expenses were down $0.1 million between the quarters.
  28




---



##### Table of Contents



Health Services
 Three Months EndedMarch 31,
    
    
    
    
    
    %(in thousands)
    
    2009
    
    2008
    
    Change
    
    ChangeOperating Revenues
    
    $
    28,167
    
    
    $
    29,265
    
    
    $
    (1,098
    )
    
    
    (3.8
    )Cost of Goods Sold
    
    
    22,137
    
    
    
    23,291
    
    
    
    (1,154
    )
    
    
    (5.0
    )Operating Expenses
    
    
    5,089
    
    
    
    5,925
    
    
    
    (836
    )
    
    
    (14.1
    )Depreciation and Amortization
    
    
    990
    
    
    
    982
    
    
    
    8
    
    
    
    0.8Operating (Loss)
    
    $
    (49
    )
    
    $
    (933
    )
    
    $
    884
    
    
    
    94.7
  Food Ingredient Processing
 Three Months EndedMarch 31,
    
    
    
    
    
    %(in thousands)
    
    2009
    
    2008
    
    Change
    
    ChangeOperating Revenues
    
    $
    20,086
    
    
    $
    15,898
    
    
    $
    4,188
    
    
    
    26.3Cost of Goods Sold
    
    
    15,982
    
    
    
    12,319
    
    
    
    3,663
    
    
    
    29.7Operating Expenses
    
    
    812
    
    
    
    813
    
    
    
    (1
    )
    
    
    (0.1
    )Depreciation and Amortization
    
    
    1,041
    
    
    
    1,073
    
    
    
    (32
    )
    
    
    (3.0
    )Operating Income
    
    $
    2,251
    
    
    $
    1,693
    
    
    $
    558
    
    
    
    33.0
  Other Business Operations
 Three Months EndedMarch 31,
    
    
    
    
    
    %(in thousands)
    
    2009
    
    2008
    
    Change
    
    ChangeOperating Revenues
    
    $
    31,895
    
    
    $
    38,110
    
    
    $
    (6,215
    )
    
    
    (16.3
    )Cost of Goods Sold
    
    
    20,795
    
    
    
    28,295
    
    
    
    (7,500
    )
    
    
    (26.5
    )Operating Expenses
    
    
    10,861
    
    
    
    12,013
    
    
    
    (1,152
    )
    
    
    (9.6
    )Depreciation and Amortization
    
    
    624
    
    
    
    461
    
    
    
    163
    
    
    
    35.4Operating Loss
    
    $
    (385
    )
    
    $
    (2,659
    )
    
    $
    2,274
    
    
    
    85.5
  
    
    Revenues at Midwest Construction Services, Inc. (MCS) decreased $2.7 million as a result
of a decrease in jobs in progress, especially wind-energy projects, related to the current
economic recession and tight credit.
    
    Revenues at Foley Company decreased $1.4 million due to a decrease in volume of jobs in
progress.
    
    Revenues at E.W. Wylie Corporation (Wylie) decreased $2.1 million due to a 30.1%
reduction in miles driven by company-owned trucks and a 4.5% decrease in miles driven by
owner-operated trucks directly related to the current economic recession.
 29




---



##### Table of Contents




    
    Cost of goods sold at MCS decreased $4.2 million, mainly due to decreases in material,
subcontractor and labor costs related to a reduction of jobs in progress.
    
    Foley Companys cost of goods sold decreased $3.3 million, including decreases of $2.5
million in material costs and $0.7 million in subcontractor costs, as a result of decreased
construction activity and jobs in progress.
  
    
    Wylies operating expenses decreased $1.3 million between the quarters. Fuel costs
decreased $1.1 million as a result of the decrease in miles driven by company-owned trucks.
Subcontractor expenses decreased $0.5 million as a result of the decrease in miles driven
by owner-operated trucks. Equipment rental costs increased by $0.2 million due to the
leasing of additional equipment.
    
    MCSs operating expenses increased $0.3 million between the quarters mainly due to
increased labor expenses.
    
    Operating expenses at Foley Company were flat between the quarters.
 Corporate
  Three Months EndedMarch 31,
    
    
    
    
    
    %(in thousands)
    
    2009
    
    2008
    
    Change
    
    ChangeOperating Expenses
    
    $
    2,610
    
    
    $
    4,340
    
    
    $
    (1,730
    )
    
    
    (39.9
    )Depreciation and Amortization
    
    
    100
    
    
    
    145
    
    
    
    (45
    )
    
    
    (31.0
    )
  Interest Charges
  Other Income
  Income Taxes
  30




---



##### Table of Contents



2009 EXPECTATIONS
    
    
    Our expectations for earnings from our electric segment have been revised downward due to
the negative impact from continuing softness in demand from commercial and industrial
customers and lower volumes and margins from wholesale energy sales. Declining demand along
with the lowest natural gas prices in years is having a dramatic impact on the volume and
price that can be realized from sales of excess generation into the marketplace. As a result,
we now expect earnings from our electric segment to be lower in 2009 than in 2008. We still
expect increased levels of retail revenue
from the electric segment in 2009 as a result of a 4.1% interim rate increase in North Dakota
and increases in resource recovery rider revenue related to the Ashtabula Wind Energy Center
that was placed in service in late 2008. The interim rate increase is part of a rate case filed
with the North Dakota Public Service Commission (NDPSC) in November 2008 requesting a general
annual rate increase of approximately $6.1 million, or 5.1%. Interim rates remain in effect for
all North Dakota customers until the NDPSC makes a final determination on the electric
utilitys request, which is expected to occur by August 1, 2009. Expectations in 2009 also
reflect a request for an increase in revenues in South Dakota. A final decision on the request
is expected from the South Dakota Public Utilities Commission in mid-summer 2009 with an
interim rate increase going into effect in May 2009.
 
    
    We expect the plastics segments 2009 performance to be below 2008 earnings given
continued poor economic conditions. Previously announced capacity expansions are not expected
to be brought on line until the economy improves and demand for PVC pipe increases.
 
    
    We now expect earnings from the manufacturing segment to decline in 2009 as a result of
the following:
 o
    
    BTD saw unanticipated declines in customer demand in the first quarter of 2009 and
expects the soft demand to continue for the rest of the year resulting in lower earnings
compared with 2008.o
    
    While the economy is expected to reduce the amount of spending on waterfront products,
earnings are expected to improve at ShoreMaster compared with 2008 given the restructuring
that has occurred in its business. While there continues to be uncertainty on the level of
spending on residential products, ShoreMaster has implemented significant cost reductions
across the organization, reduced capital spending and reorganized its business units for
more efficient operations.o
    
    At DMI, we expect a decline in earnings in 2009 due to wind developers limited access
to financing which has resulted in delays or suspension of orders across the industry.
Industry forecasts for megawatt installations of wind power in 2009 indicate a decrease of
between 25 to 50 percent from 2008.o
    
    T. O. Plastics earnings are expected to remain flat between the years. While it
expects economic challenges, T.O. Plastics has implemented cost reductions and efficiency
projects to maintain profitability.o
    
    Backlog in place in the manufacturing segment to support revenues for the remainder of
2009 is approximately $152 million compared with $280 million one year ago.
 
    
    We expect increased net income from our health services segment in 2009 as it focuses on
improving its mix of imaging assets and asset utilization rates and has implemented cost
reductions across the segment.
 
    
    We expect increased net income from our food ingredient processing business in 2009 based
on expectations of higher sales volumes, strong pricing for products, lower energy costs and
higher production levels in 2009 compared with 2008.
 
    
    We expect our other business operations segment to have a similar level of earnings in
2009 compared with 2008. Backlog in place for the construction businesses is $85 million for
the remainder of 2009 compared with $83 million one year ago.
 
    
    We expect corporate general and administrative costs to decrease in 2009.
 31




---



##### Table of Contents



FINANCIAL POSITION
  In Use on
    
    Restricted due to
    
    Available on
    
    Available onMarch 31,
    
    Outstanding
    
    March 31,
    
    December 31,(in thousands)
    
    Line Limit
    
    2009
    
    Letters of Credit
    
    2009
    
    2008Varistar Credit Agreement
    
    $
    200,000
    
    
    $
    116,747
    
    
    $
    14,445
    
    
    $
    68,808
    
    
    $
    77,706Electric Utility Credit Agreement
    
    
    170,000
    
    
    
    32,316
    
    
    
    
    
    
    
    137,684
    
    
    
    142,935Total
    
    $
    370,000
    
    
    $
    149,063
    
    
    $
    14,445
    
    
    $
    206,492
    
    
    $
    220,641
     32




---



##### Table of Contents



Financial Covenants
   Moody's Investors
    
    StandardService
    
    & Poor'sSenior Unsecured Debt
    
    
    A3
    
    
    BBB-Preferred Stock
    
    Not rated
    
    BBOutlook
    
    Negative
    
    Stable
  33




---



##### Table of Contents



34




---



##### Table of Contents



Critical Accounting Policies Involving Significant Estimates
   35




---



##### Table of Contents



Forward Looking Information  Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995
   
    
    We are subject to federal and state legislation, regulations and actions that may have a
negative impact on our business and results of operations.
 
    
    Federal and state environmental regulation could cause us to incur substantial capital
expenditures and increased operating costs.
 
    
    Volatile financial markets and changes in our debt rating could restrict our ability to
access capital and could increase borrowing costs and pension plan expenses.
Disruptions, uncertainty or volatility in the financial markets can also adversely impact our
results of operations, the ability of customers to finance purchases of goods and services,
and our financial condition as well as exert downward pressure on stock prices and/or limit
our ability to sustain our current common stock dividend level.
 
    
    Our defined benefit pension plan assets declined significantly during 2008 due to the
volatile equity markets. We are not required to make a mandatory contribution to the pension
plan in 2009. However, if the market value of pension plan assets continues to decline and
relief under the Pension Protection Act is no longer granted, we could be required to
contribute additional capital to the pension plan in 2010.
 
    
    A sustained decline in our common stock price below book value may result in goodwill
impairments that could adversely affect our results of operations and financial position, as
well as credit facility covenants.
 
    
    Any significant impairment of our goodwill would cause a decrease in our assets and a
reduction in our net operating performance.
 
    
    Economic conditions could negatively impact our businesses.
 
    
    If we are unable to achieve the organic growth we expect, our financial performance may be
adversely affected.
 
    
    Our plans to grow and diversify through acquisitions and capital projects may not be
successful and could result in poor financial performance.
 
    
    Our plans to acquire additional businesses and grow and operate our nonelectric businesses
could be limited by state law.
 
    
    The terms of some of our contracts could expose us to unforeseen costs and costs not within
our control, which may not be recoverable and could adversely affect our results of operations
and financial condition.
 
    
    We are subject to risks associated with energy markets.
 
    
    Certain of our operating companies sell products to consumers that could be subject to
recall.
 
    
    Competition is a factor in all of our businesses.
 
    
    We may experience fluctuations in revenues and expenses related to our electric operations,
which may cause financial results to fluctuate and could impair our ability to make
distributions to shareholders or scheduled payments on our debt obligations.
 
    
    Our electric segment has capitalized $11.9 million in costs related to the planned
construction of a second electric generating unit at the Big Stone Plant site as of March 31,
2009. If the project is abandoned for permitting or other reasons, a portion of these
capitalized costs and others incurred in future periods may be subject to expense and may not
be recoverable.
 36




---



##### Table of Contents




    
    Actions by the regulators of our electric segment could result in rate reductions, lower
revenues and earnings or delays in recovering capital expenditures.
 
    
    Future operating results of our electric segment will be impacted by the outcome of rate
rider filings in Minnesota for transmission investments.
 
    
    Future operating results of our electric segment will be impacted by the outcome of a rate
case filed in North Dakota on November 1, 2008 requesting an overall increase in North Dakota
rates of 5.14%. The filing included a request for an interim rate increase of 4.07%, which
went into effect on January 1, 2009. Interim rates will remain in effect for all North Dakota
customers until the NDPSC makes a final determination on the electric utilitys request, which
is expected by August 1, 2009. If final rates are lower than interim rates, the electric
utility will refund North Dakota customers the difference with interest.
 
    
    We may not be able to respond effectively to deregulation initiatives in the electric
industry, which could result in reduced revenues and earnings.
 
    
    Our electric generating facilities are subject to operational risks that could result in
unscheduled plant outages, unanticipated operation and maintenance expenses and increased
power purchase costs.
 
    
    Wholesale sales of electricity from excess generation could be affected by reductions in
coal shipments to the Big Stone and Hoot Lake plants due to supply constraints or rail
transportation problems beyond our control.
 
    
    Existing or new laws or regulations addressing climate change or reductions of greenhouse
gas emissions by federal or state authorities, such as mandated levels of renewable generation
or mandatory reductions in carbon dioxide (CO2) emission levels, taxes on CO2 emissions or cap
and trade regimes, that result in increases in electric service costs could negatively impact
our net income, financial position and operating cash flows if such costs cannot be recovered
through rates granted by ratemaking authorities in the states where the electric utility
provides service or through increased market prices for electricity.
 
    
    Our plastics segment is highly dependent on a limited number of vendors for PVC resin, many
of which are located in the Gulf Coast regions, and a limited supply of resin. The loss of a
key vendor or an interruption or delay in the supply of PVC resin could result in reduced
sales or increased costs for this business. Reductions in PVC resin prices could negatively
impact PVC pipe prices, profit margins on PVC pipe sales and the value of PVC pipe held in
inventory.
 
    
    Our plastic pipe companies compete against a large number of other manufacturers of PVC
pipe and manufacturers of alternative products. Customers may not distinguish the pipe
companies products from those of its competitors.
 
    
    Competition from foreign and domestic manufacturers, the price and availability of raw
materials, fluctuations in foreign currency exchange rates and general economic conditions
could affect the revenues and earnings of our manufacturing businesses.
 
    
    Changes in the rates or method of third-party reimbursements for diagnostic imaging
services could result in reduced demand for those services or create downward pricing
pressure, which would decrease revenues and earnings for our health services segment.
 
    
    Our health services businesses may be unable to continue to maintain agreements with
Philips Medical from which the businesses derive significant revenues from the sale and
service of Philips Medical diagnostic imaging equipment.
 
    
    Technological change in the diagnostic imaging industry could reduce the demand for
diagnostic imaging services and require our health services operations to incur significant
costs to upgrade their equipment.
 
    
    Actions by regulators of our health services operations could result in monetary penalties
or restrictions in our health services operations.
 
    
    Our food ingredient processing segment operates in a highly competitive market and is
dependent on adequate sources of raw materials for processing. Should the supply of these raw
materials be affected by poor growing conditions, this could negatively impact the results of
operations for this segment.
 
    
    Our food ingredient processing business could be adversely affected by changes in foreign
currency exchange rates.
 
    
    A significant failure or an inability to properly bid or perform on projects by our
construction businesses could lead to adverse financial results.
 37




---



##### Table of Contents



Quantitative and Qualitative Disclosures about Market Risk
        38




---



##### Table of Contents



(in thousands)
    
    March 31, 2009Current Asset  Marked-to-Market Gain
    
    $
    3,159Current Asset  Deferred Marked-to-Market Loss
    
    
    102Current Liability  Marked-to-Market Loss
    
    
    (2,569
    )Net Fair Value of Marked-to-Market Energy Contracts
    
    $
    692
 Year-to-Date(in thousands)
    
    March 31, 2009Fair Value at Beginning of Year
    
    $
    (123
    )Less: Amount Realized on Contracts Entered into in 2008 and Settled in 2009
    
    
    123Changes in Fair Value of Contracts Entered into in 2008
    
    
    Net Fair Value of Contracts Entered into in 2008 at End of Period
    
    
    Changes in Fair Value of Contracts Entered into in 2009
    
    
    692Net Fair Value End of Period
    
    $
    692
  2nd Quarter
    
    3rd Quarter(in thousands)
    
    2009
    
    2009
    
    TotalNet Gain
    
    $
    647
    
    
    $
    45
    
    
    $
    692
    39




---



##### Table of Contents



Accounting for Derivatives and Hedging Instruments,
   (in thousands)
    
    Settlement Periods
    
    USD
    
    CADContracts entered into in July 2008
    
    April 2009 - July 2009
    
    $
    1,600
    
    
    $
    1,668Contracts entered into in October 2008
    
    April 2009 - October 2009
    
    
    2,800
    
    
    
    3,499Contracts outstanding on March 31, 2009
    
    April 2009 - October 2009
    
    $
    4,400
    
    
    $
    5,167
  Year-to-Date(in thousands)
    
    March 31, 2009Fair Value at Beginning of Year
    
    $
    (289
    )Less: Amount Realized on Contracts Entered into in 2008 and Settled in 2009
    
    
    138Changes in Fair Value of Contracts Entered into in 2008
    
    
    (144
    )Net Fair Value of Contracts Entered into in 2008 at End of Period
    
    
    (295
    )Changes in Fair Value of Contracts Entered into in 2009
    
    
    Net Fair Value End of Period
    
    $
    (295
    )
  
 Controls and Procedures
   40




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Legal Proceedings
 Sierra Club Complaint
    
 Risk Factors
  
 Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number of
    
    Average Price PaidCalendar Month
    
    Shares Purchased
    
    per ShareJanuary 2009
    
    
    
    
    
    
    February 2009
    
    
    7,187
    
    
    $
    22.29March 2009
    
    
    
    
    
    
    Total
    
    
    7,187
 41




---



##### Table of Contents



Exhibits
 31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 SIGNATURES
  OTTER TAIL CORPORATIONBy:

/s/ Kevin G. MougKevin G. MougChief Financial Officer
(Chief Financial Officer/Authorized Officer)  42




---



##### Table of Contents



EXHIBIT
INDEX
 Exhibit Number
    
    Description31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002