##### 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, 2007
 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 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 215 South Cascade Street, Box 496, Fergus Falls, Minnesota
    
    56538-0496(Address of principal executive offices)
    
    (Zip Code)
  
  
  þ o
  þ o o
 o þ
  April 30, 2007  29,727,759 Common Shares ($5 par value)




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##### 



OTTER TAIL CORPORATION
 INDEX
 Page No.Part I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets  March 31, 2007 and December 31, 2006 (not audited)
    
    
    2 & 3Consolidated Statements of Income  Three Months Ended March 31, 2007 and 2006 (not audited)
    
    
    4Consolidated Statements of Cash Flows  Three Months Ended March 31, 2007 and 2006 (not audited)
    
    
    5Notes to Consolidated Financial Statements (not audited)
    
    
    6-16Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17-29Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29-31Item 4. Controls and Procedures
    
    
    31Part II. Other InformationItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 6. Exhibits
    
    
    32Signatures
    
    
    32Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Otter Tail Corporation
 
 Consolidated Balance Sheets
  -Assets-
 March 31,
    
    
    December 31,2007
    
    
    2006(Thousands of dollars)Current assetsCash and cash equivalents
    
    $
    
    
    
    $
    6,791Accounts receivable:Tradenet
    
    
    151,645
    
    
    
    135,011Other
    
    
    10,388
    
    
    
    10,265Inventories
    
    
    100,570
    
    
    
    103,002Deferred income taxes
    
    
    8,179
    
    
    
    8,069Accrued utility revenues
    
    
    28,676
    
    
    
    23,931Costs and estimated earnings in excess of billings
    
    
    48,227
    
    
    
    38,384Other
    
    
    16,929
    
    
    
    9,611Assets of discontinued operations
    
    
    289
    
    
    
    289Total current assets
    
    
    364,903
    
    
    
    335,353Investments and other assets
    
    
    31,241
    
    
    
    29,946Goodwillnet
    
    
    98,110
    
    
    
    98,110Other intangiblesnet
    
    
    20,858
    
    
    
    20,080Deferred debitsUnamortized debt expense and reacquisition premiums
    
    
    5,994
    
    
    
    6,133Regulatory assets and other deferred debits
    
    
    49,177
    
    
    
    50,419Total deferred debits
    
    
    55,171
    
    
    
    56,552PlantElectric plant in service
    
    
    936,575
    
    
    
    930,689Nonelectric operations
    
    
    242,745
    
    
    
    239,269Total plant
    
    
    1,179,320
    
    
    
    1,169,958Less accumulated depreciation and amortization
    
    
    488,769
    
    
    
    479,557Plantnet of accumulated depreciation and amortization
    
    
    690,551
    
    
    
    690,401Construction work in progress
    
    
    37,603
    
    
    
    28,208Net plant
    
    
    728,154
    
    
    
    718,609Total
    
    $
    1,298,437
    
    
    $
    1,258,650
  2




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##### Table of Contents



Otter Tail Corporation
Consolidated Balance Sheets   -Liabilities-
 March 31,
    
    
    December 31,2007
    
    
    2006(Thousands of dollars)Current liabilitiesShort-term debt
    
    $
    74,100
    
    
    $
    38,900Current maturities of long-term debt
    
    
    3,114
    
    
    
    3,125Accounts payable
    
    
    122,219
    
    
    
    120,195Accrued salaries and wages
    
    
    21,059
    
    
    
    28,653Accrued federal and state income taxes
    
    
    6,076
    
    
    
    2,383Other accrued taxes
    
    
    11,202
    
    
    
    11,509Other accrued liabilities
    
    
    13,114
    
    
    
    10,495Liabilities of discontinued operations
    
    
    197
    
    
    
    197Total current liabilities
    
    
    251,081
    
    
    
    215,457Pensions benefit liability
    
    
    42,915
    
    
    
    44,035Other postretirement benefits liability
    
    
    32,764
    
    
    
    32,254Other noncurrent liabilities
    
    
    20,122
    
    
    
    18,866Deferred creditsDeferred income taxes
    
    
    112,136
    
    
    
    112,740Deferred investment tax credit
    
    
    7,896
    
    
    
    8,181Regulatory liabilities
    
    
    62,995
    
    
    
    63,875Other
    
    
    1,204
    
    
    
    281Total deferred credits
    
    
    184,231
    
    
    
    185,077CapitalizationLong-term debt, net of current maturities
    
    
    254,804
    
    
    
    255,436Class B stock options of subsidiary
    
    
    1,255
    
    
    
    1,255Cumulative preferred shares
authorized 1,500,000 shares without par value;
outstanding 2007 and 2006  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 2007  29,650,137 and 2006  29,521,770
    
    
    148,251
    
    
    
    147,609Premium on common shares
    
    
    101,985
    
    
    
    99,223Retained earnings
    
    
    246,467
    
    
    
    245,005Accumulated other comprehensive loss
    
    
    (938
    )
    
    
    (1,067
    )Total common equity
    
    
    495,765
    
    
    
    490,770Total capitalization
    
    
    767,324
    
    
    
    762,961Total
    
    $
    1,298,437
    
    
    $
    1,258,650
  3




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Otter Tail Corporation
 
 Consolidated Statements of Income
  Three months endedMarch 31,2007
    
    
    2006(In thousands, except shareand per share amounts)Operating revenuesElectric
    
    $
    89,853
    
    
    $
    82,488Nonelectric
    
    
    211,268
    
    
    
    175,319Total operating revenues
    
    
    301,121
    
    
    
    257,807Operating expensesProduction fuel  electric
    
    
    16,425
    
    
    
    14,806Purchased power  electric system use
    
    
    26,011
    
    
    
    18,736Electric operation and maintenance expenses
    
    
    26,875
    
    
    
    23,407Cost of goods sold  nonelectric (excludes depreciation; included below)
    
    
    164,659
    
    
    
    132,394Other nonelectric expenses
    
    
    30,758
    
    
    
    26,248Depreciation and amortization
    
    
    13,093
    
    
    
    12,224Property taxes  electric
    
    
    2,526
    
    
    
    2,618Total operating expenses
    
    
    280,347
    
    
    
    230,433Operating income
    
    
    20,774
    
    
    
    27,374Other income and deductions
    
    
    273
    
    
    
    428Interest charges
    
    
    4,868
    
    
    
    4,444Income from continuing operations before income taxes
    
    
    16,179
    
    
    
    23,358Income taxes  continuing operations
    
    
    5,771
    
    
    
    8,503Net income from continuing operations
    
    
    10,408
    
    
    
    14,855Net income from discontinued operations net of taxes of
$0 and $69 for the respective periods
    
    
    
    
    
    
    105Net income
    
    
    10,408
    
    
    
    14,960Preferred dividend requirements
    
    
    184
    
    
    
    184Earnings available for common shares
    
    $
    10,224
    
    
    $
    14,776Basic earnings per common share:Continuing operations (net of preferred dividend requirement)
    
    $
    0.35
    
    
    $
    0.50Discontinued operations
    
    $
    
    
    
    $
    $
    0.35
    
    
    $
    0.50Diluted earnings per common share:Continuing operations (net of preferred dividend requirement)
    
    $
    0.34
    
    
    $
    0.50Discontinued operations
    
    $
    
    
    
    $
    $
    0.34
    
    
    $
    0.50Average number of common shares outstanding  basic
    
    
    29,503,252
    
    
    
    29,325,986Average number of common shares outstanding  diluted
    
    
    29,756,904
    
    
    
    29,676,117Dividends per common share
    
    $
    0.2925
    
    
    $
    0.2875
  4




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Otter Tail Corporation
 
 Consolidated Statements of Cash Flows
  Three months endedMarch 31,2007
    
    
    2006(Thousands of dollars)Cash flows from operating activitiesNet income
    
    $
    10,408
    
    
    $
    14,960Adjustments to reconcile net income to net cash
provided by operating activities:Income from discontinued operations
    
    
    
    
    
    
    (105
    )Depreciation and amortization
    
    
    13,093
    
    
    
    12,224Deferred investment tax credit
    
    
    (283
    )
    
    
    (287
    )Deferred income taxes
    
    
    (742
    )
    
    
    (866
    )Change in deferred debits and other assets
    
    
    1,302
    
    
    
    (1,149
    )Discretionary contribution to pension plan
    
    
    (2,000
    )
    
    
    (2,000
    )Change in noncurrent liabilities and deferred credits
    
    
    3,523
    
    
    
    548Allowance for equity (other) funds used during construction
    
    
    
    
    
    
    (192
    )Change in derivatives net of regulatory deferral
    
    
    (151
    )
    
    
    2,489Stock compensation expense
    
    
    572
    
    
    
    339Other  net
    
    
    42
    
    
    
    548Cash (used for) provided by current assets and current liabilities:Change in receivables
    
    
    (15,574
    )
    
    
    (660
    )Change in inventories
    
    
    2,812
    
    
    
    (17,811
    )Change in other current assets
    
    
    (23,047
    )
    
    
    (19,131
    )Change in payables and other current liabilities
    
    
    (11,323
    )
    
    
    (18,727
    )Change in interest and income taxes payable
    
    
    5,757
    
    
    
    6,717Net cash used in continuing operations
    
    
    (15,611
    )
    
    
    (23,103
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (95
    )Net cash used in operating activities
    
    
    (15,611
    )
    
    
    (23,198
    )Cash flows from investing activitiesCapital expenditures
    
    
    (23,866
    )
    
    
    (15,473
    )Proceeds from disposal of noncurrent assets
    
    
    5,739
    
    
    
    94Acquisitionsnet of cash acquired
    
    
    (1,965
    )
    
    
    Increases in other investments
    
    
    (5,449
    )
    
    
    (1,331
    )Net cash used in investing activities  continuing operations
    
    
    (25,541
    )
    
    
    (16,710
    )Net cash provided by investing activities  discontinued operations
    
    
    
    
    
    
    900Net cash used in investing activities
    
    
    (25,541
    )
    
    
    (15,810
    )Cash flows from financing activitiesChange in checks written in excess of cash
    
    
    5,629
    
    
    
    12,842Net short-term borrowings
    
    
    35,200
    
    
    
    29,181Proceeds from issuance of common stock, net of issuance expenses
    
    
    2,787
    
    
    
    869Payments for retirement of common stock
    
    
    (2
    )
    
    
    (2
    )Proceeds from issuance of long-term debt
    
    
    90
    
    
    
    57Debt issuance expenses
    
    
    (77
    )
    
    
    Payments for retirement of long-term debt
    
    
    (748
    )
    
    
    (773
    )Dividends paid
    
    
    (8,828
    )
    
    
    (8,643
    )Net cash provided by financing activities  continuing operations
    
    
    34,051
    
    
    
    33,531Net cash provided by financing activities  discontinued operations
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    34,051
    
    
    
    33,531Effect of foreign exchange rate fluctuations on cash
    
    
    310
    
    
    
    47Net change in cash and cash equivalents
    
    
    (6,791
    )
    
    
    (5,430
    )Cash and cash equivalents at beginning of period  continuing operations
    
    
    6,791
    
    
    
    5,430Cash and cash equivalents at end of period  continuing operations
    
    $
    
    
    
    $
    Supplemental cash flow informationCash paid during the year from continuing operations for:Interest (net of amount capitalized)
    
    $
    2,449
    
    
    $
    2,094Income taxes
    
    $
    1,046
    
    
    $
    4,813Cash paid during the year from discontinued operations for:Interest
    
    $
    
    
    
    $
    50Income taxes
    
    $
    
    
    
    $
    257
  5




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OTTER TAIL CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Revenue Recognition
 Accounting for
Derivative Instruments and Hedging Activities
   March 31,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006Costs incurred on uncompleted contracts
    
    $
    216,491
    
    
    $
    257,370Less billings to date
    
    
    (229,033
    )
    
    
    (284,273
    )Plus estimated earnings recognized
    
    
    36,241
    
    
    
    35,955$
    23,699
    
    
    $
    9,052
 6




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##### Table of Contents



March 31,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006Costs and estimated earnings in excess of billings on uncompleted contracts
    
    $
    48,227
    
    
    $
    38,384Billings in excess of costs and estimated earnings on uncompleted contracts
    
    
    (24,528
    )
    
    
    (29,332
    )$
    23,699
    
    
    $
    9,052
 Adjustments and Reclassifications
  Inventories
  March 31,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006Finished goods
    
    $
    42,404
    
    
    $
    46,477Work in process
    
    
    4,668
    
    
    
    5,663Raw material, fuel and supplies
    
    
    53,498
    
    
    
    50,862$
    100,570
    
    
    $
    103,002
 Goodwill and Other Intangible Assets
  March 31, 2007
    
    
    December 31, 2006Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    Netcarrying
    
    
    Accumulated
    
    
    carrying
    
    
    carrying
    
    
    Accumulated
    
    
    carrying(in thousands)
    
    amount
    
    
    amortization
    
    
    amount
    
    
    amount
    
    
    amortization
    
    
    amountAmortized intangible assets:Covenants not to compete
    
    $
    2,575
    
    
    $
    1,900
    
    
    $
    675
    
    
    $
    2,198
    
    
    $
    1,813
    
    
    $
    385Customer relationships
    
    
    10,579
    
    
    
    1,126
    
    
    
    9,453
    
    
    
    10,574
    
    
    
    1,016
    
    
    
    9,558Other intangible assets including
contracts
    
    
    2,704
    
    
    
    1,403
    
    
    
    1,301
    
    
    
    2,083
    
    
    
    1,291
    
    
    
    792Total
    
    $
    15,858
    
    
    $
    4,429
    
    
    $
    11,429
    
    
    $
    14,855
    
    
    $
    4,120
    
    
    $
    10,735Non-amortized intangible assets:Brand/trade name
    
    $
    9,429
    
    
    $
    
    
    
    $
    9,429
    
    
    $
    9,345
    
    
    $
    
    
    
    $
    9,345
  7




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##### Table of Contents



Comprehensive Income
 Three months endedMarch 31,(in thousands)
    
    2007
    
    
    2006Net income
    
    $
    10,408
    
    
    $
    14,960Other comprehensive income (loss) (net-of-tax)Foreign currency translation gain (loss)
    
    
    104
    
    
    
    (55
    )Amortization of unrecognized losses and costs
related to postretirement benefit
programs
    
    
    44
    
    
    
    Unrealized loss on available-for-sale securities
    
    
    (19
    )
    
    
    (7
    )Total other comprehensive income (loss)
    
    
    129
    
    
    
    (62
    )Total comprehensive income
    
    $
    10,537
    
    
    $
    14,898
 New Accounting Standards
 FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes  an interpretation of
FASB Statement No. 109, Accounting for Income Taxes
    SFAS No. 157, Fair Value Measurements,
 8




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##### Table of Contents



SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an
Amendment of FASB Statement No. 115,
 Acquisitions
    (in thousands)
    
    AvivaAssetsCurrent assets
    
    $
    2,083Goodwill
    
    
    Other intangible assets
    
    
    870Total assets
    
    $
    2,953LiabilitiesCurrent liabilities
    
    $
    988Noncurrent liabilities
    
    
    Total liabilities
    
    $
    988Cash paid
    
    $
    1,965
  Segment Information
   9




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##### Table of Contents



Three months endedMarch 31,2007
    
    2006United States of America
    
    
    96.5
    %
    
    
    97.0
    %Canada
    
    
    1.2
    %
    
    
    1.6
    %All other countries (none greater than 1%)
    
    
    2.3
    %
    
    
    1.4
    %
 10




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##### Table of Contents



Operating Revenue
 Three months endedMarch 31,(in thousands)
    
    2007
    
    
    2006Electric
    
    $
    89,980
    
    
    $
    82,584Plastics
    
    
    37,819
    
    
    
    38,105Manufacturing
    
    
    86,225
    
    
    
    68,257Health services
    
    
    32,963
    
    
    
    32,076Food ingredient processing
    
    
    19,495
    
    
    
    9,350Other business operations
    
    
    35,796
    
    
    
    28,279Intersegment eliminations
    
    
    (1,157
    )
    
    
    (844
    )Total
    
    $
    301,121
    
    
    $
    257,807
 Earnings Available for Common Shares from Continuing Operations
 Three months endedMarch 31,(in thousands)
    
    2007
    
    
    2006Electric
    
    $
    5,738
    
    
    $
    9,274Plastics
    
    
    2,828
    
    
    
    4,576Manufacturing
    
    
    2,539
    
    
    
    2,245Health services
    
    
    948
    
    
    
    321Food ingredient processing
    
    
    449
    
    
    
    (1,010
    )Other business operations*
    
    
    (2,278
    )
    
    
    (735
    )Total
    
    $
    10,224
    
    
    $
    14,671
 
 *
    
    Other business operations includes unallocated corporate expenses net-of-tax of $2,524,000
and $1,876,000 for the three months ended March 31, 2007 and 2006, respectively. Total Assets
 March 31,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006Electric
    
    $
    699,377
    
    
    $
    689,653Plastics
    
    
    90,087
    
    
    
    80,666Manufacturing
    
    
    248,948
    
    
    
    219,336Health services
    
    
    68,877
    
    
    
    66,126Food ingredient processing
    
    
    93,057
    
    
    
    94,462Other business operations
    
    
    97,802
    
    
    
    108,118Discontinued operations
    
    
    289
    
    
    
    289Total
    
    $
    1,298,437
    
    
    $
    1,258,650
 11




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##### Table of Contents



Rate and Regulatory Matters
    Regulatory Assets and Liabilities
 Accounting for the Effect of Certain Types of
Regulation
 12




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##### Table of Contents



March 31,
    
    
    December 31,(in thousands)
    
    2007
    
    
    2006Regulatory assets:Unrecognized transition obligation, prior service
costs and actuarial losses on pension and other
postretirement benefits
    
    $
    35,886
    
    
    $
    36,736Accrued cost-of-energy revenue
    
    
    16,945
    
    
    
    10,735Deferred income taxes
    
    
    11,551
    
    
    
    11,712Reacquisition premiums
    
    
    2,619
    
    
    
    2,694Deferred conservation program costs
    
    
    700
    
    
    
    1,036MISO schedule 16 and 17 deferred administrative costs
    
    
    627
    
    
    
    541Accumulated ARO accretion/depreciation adjustment
    
    
    273
    
    
    
    249Plant acquisition costs
    
    
    140
    
    
    
    151Total regulatory assets
    
    $
    68,741
    
    
    $
    63,854Regulatory liabilities:Accumulated reserve for estimated removal costs
    
    $
    57,799
    
    
    $
    58,496Deferred income taxes
    
    
    5,047
    
    
    
    5,228Gain on sale of division office building
    
    
    149
    
    
    
    151Total regulatory liabilities
    
    $
    62,995
    
    
    $
    63,875Net regulatory asset (liability) position
    
    $
    5,746
    
    
    $
    (21
    )
 Accounting for Income Taxes
  13




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Common Shares and Earnings per Share
    Quarter ended March 31,
    
    Options Outstanding
    
    Range of Exercise Prices2007
    
    
    
    N/A2006
    
    231,624
    
    $29.74  $31.34
 Share-based Payments
   Three months endedMarch 31,(in thousands)
    
    2007
    
    
    20061999 Employee Stock Purchase Plan
    
    $
    64
    
    
    $
    60Stock options granted under the 1999 Stock Incentive Plan
    
    
    68
    
    
    
    68Restricted stock granted to directors
    
    
    151
    
    
    
    71Restricted stock granted to employees
    
    
    166
    
    
    
    291Restricted stock units granted to employees
    
    
    69
    
    
    
    Stock performance awards granted to executive officers
    
    
    221
    
    
    
    94Totals
    
    $
    739
    
    
    $
    584
 14




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##### Table of Contents



Class B Stock Options of Subsidiary
  Pension Plan and Other Postretirement Benefits
 Pension Plan
 Three months endedMarch 31,(in thousands)
    
    2007
    
    
    2006Service costbenefit earned during the period
    
    $
    1,263
    
    
    $
    1,210Interest cost on projected benefit obligation
    
    
    2,733
    
    
    
    2,544Expected return on assets
    
    
    (3,223
    )
    
    
    (3,065
    )Amortization of prior-service cost
    
    
    185
    
    
    
    186Amortization of net actuarial loss
    
    
    309
    
    
    
    378Net periodic pension cost
    
    $
    1,267
    
    
    $
    1,253
  Executive Survivor and Supplemental Retirement Plan
 Three months endedMarch 31,(in thousands)
    
    2007
    
    
    2006Service costbenefit earned during the period
    
    $
    156
    
    
    $
    106Interest cost on projected benefit obligation
    
    
    363
    
    
    
    326Amortization of prior-service cost
    
    
    17
    
    
    
    18Recognized net actuarial loss
    
    
    135
    
    
    
    118Net periodic pension cost
    
    $
    671
    
    
    $
    568
 Postretirement Benefits
 Three months endedMarch 31,(in thousands)
    
    2007
    
    
    2006Service costbenefit earned during the period
    
    $
    315
    
    
    $
    334Interest cost on projected benefit obligation
    
    
    698
    
    
    
    637Amortization of transition obligation
    
    
    187
    
    
    
    187Amortization of prior-service cost
    
    
    (51
    )
    
    
    (76
    )Amortization of net actuarial loss
    
    
    129
    
    
    
    133Effect of Medicare Part D expected subsidy
    
    
    (410
    )
    
    
    (293
    )Net periodic postretirement benefit cost
    
    $
    868
    
    
    $
    922
 15




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Discontinued Operations
 Accounting for the Impairment or Disposal of Long-Lived Assets
 Three months ended(in thousands)
    
    March 31, 2006Operating revenues
    
    $
    20,971Income before income taxes
    
    
    174Income tax expense
    
    
    69
  Subsequent Events
    16




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##### 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, 2007 and 2006
    (in thousands)
    
    March 31, 2007
    
    March 31, 2006Operating revenues:Electric
    
    $
    127
    
    
    $
    96Nonelectric
    
    
    1,030
    
    
    
    748Cost of goods sold
    
    
    367
    
    
    
    320Other nonelectric expenses
    
    
    790
    
    
    
    524
 Electric
 Three months endedMarch 31,
    
    
    
    
    
    
    %(in thousands)
    
    2007
    
    
    2006
    
    
    Change
    
    
    ChangeRetail sales revenues
    
    $
    81,176
    
    
    $
    73,359
    
    
    $
    7,817
    
    
    
    10.7Wholesale revenues
    
    
    4,234
    
    
    
    5,658
    
    
    
    (1,424
    )
    
    
    (25.2
    )Net marked-to-market loss
    
    
    (31
    )
    
    
    (909
    )
    
    
    878
    
    
    
    96.6Other revenues
    
    
    4,601
    
    
    
    4,476
    
    
    
    125
    
    
    
    2.8Total operating revenues
    
    $
    89,980
    
    
    $
    82,584
    
    
    $
    7,396
    
    
    
    9.0Production fuel
    
    
    16,425
    
    
    
    14,806
    
    
    
    1,619
    
    
    
    10.9Purchased power  system use
    
    
    26,011
    
    
    
    18,736
    
    
    
    7,275
    
    
    
    38.8Other operation and maintenance expenses
    
    
    26,875
    
    
    
    23,407
    
    
    
    3,468
    
    
    
    14.8Depreciation and amortization
    
    
    6,670
    
    
    
    6,357
    
    
    
    313
    
    
    
    4.9Property taxes
    
    
    2,526
    
    
    
    2,618
    
    
    
    (92
    )
    
    
    (3.5
    )Operating income
    
    $
    11,473
    
    
    $
    16,660
    
    
    $
    (5,187
    )
    
    
    (31.1
    )
  17




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18




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Plastics
 Three months endedMarch 31,
    
    
    
    
    
    
    %(in thousands)
    
    2007
    
    
    2006
    
    
    Change
    
    
    ChangeOperating revenues
    
    $
    37,819
    
    
    $
    38,105
    
    
    $
    (286
    )
    
    
    (0.8
    )Cost of goods sold
    
    
    30,648
    
    
    
    28,180
    
    
    
    2,468
    
    
    
    8.8Operating expenses
    
    
    1,539
    
    
    
    1,448
    
    
    
    91
    
    
    
    6.3Depreciation and amortization
    
    
    765
    
    
    
    730
    
    
    
    35
    
    
    
    4.8Operating income
    
    $
    4,867
    
    
    $
    7,747
    
    
    $
    (2,880
    )
    
    
    (37.2
    )
  Manufacturing
 Three months endedMarch 31,
    
    
    
    
    
    
    %(in thousands)
    
    2007
    
    
    2006
    
    
    Change
    
    
    ChangeOperating revenues
    
    $
    86,225
    
    
    $
    68,257
    
    
    $
    17,968
    
    
    
    26.3Cost of goods sold
    
    
    69,246
    
    
    
    54,399
    
    
    
    14,847
    
    
    
    27.3Operating expenses
    
    
    7,931
    
    
    
    6,215
    
    
    
    1,716
    
    
    
    27.6Depreciation and amortization
    
    
    3,110
    
    
    
    2,569
    
    
    
    541
    
    
    
    21.1Operating income
    
    $
    5,938
    
    
    $
    5,074
    
    
    $
    864
    
    
    
    17.0
  
    
    Revenues at DMI Industries, Inc. (DMI) increased $17.2 million as a result of increases
in production and sales activity due in part to plant additions, including operations at
the Ft. Erie facilities which commenced in May 2006, and continued improvements in
productivity and capacity utilization.
    
    Revenues at T.O. Plastics, Inc. (T.O. Plastics) increased $1.1 million between the
quarters despite a 19.5% decrease in unit sales, as a result of 35.8% increase in the
average price per unit sold.
    
    Revenues at ShoreMaster, Inc. (ShoreMaster) increased $0.4 million between the quarters,
mainly as a result of the acquisition of the Aviva Sports product line in February 2007.
    
    Revenues at BTD Manufacturing, Inc. (BTD) decreased $0.7 million mainly as a result of a
10.0% decrease in unit sales partially offset by a 7.0% increase in the average price per
unit sold.
  
    
    DMIs cost of goods sold increased $14.5 million between the quarters, including $10.1
million in material costs increases. The increase in cost of goods sold is directly related
to DMIs increase in production and sales activity, including operations at the Ft. Erie
facilities which commenced in May 2006.
 19




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##### Table of Contents




    
    Cost of goods sold at T.O. Plastics increased $1.1 million, including $0.5 million in
material cost increases and $0.5 million in increased manufacturing overhead and freight
costs.
    
    Cost of goods sold at ShoreMaster remained relatively unchanged between the quarters.
    
    Cost of goods sold at BTD decreased $0.6 million between the quarters mainly due to
decreases in shop supply and maintenance costs and indirect labor costs related to
productivity improvements.
  
    
    Operating expenses at DMI increased $0.7 million as a result of increases in labor and
contracted services and expenses mainly related to operations of the Ft. Erie plant which
commenced in May 2006.
    
    ShoreMasters operating expenses increased $0.6 million as a result of increases in
labor, sales commissions and marketing expenditures, of which approximately $0.3 million
relates to the acquisition of the Aviva Sports product line in February 2007.
    
    An increase in labor-related costs contributed to a $0.3 million increase in BTDs
operating expenses between the quarters.
    
    T.O. Plastics operating expenses increased $0.1 million between the quarters.
   Health Services
 Three months endedMarch 31,
    
    
    
    
    
    
    %(in thousands)
    
    2007
    
    
    2006
    
    
    Change
    
    
    ChangeOperating revenues
    
    $
    32,963
    
    
    $
    32,076
    
    
    $
    887
    
    
    
    2.8Cost of goods sold
    
    
    24,383
    
    
    
    24,822
    
    
    
    (439
    )
    
    
    (1.8
    )Operating expenses
    
    
    5,806
    
    
    
    5,514
    
    
    
    292
    
    
    
    5.3Depreciation and amortization
    
    
    962
    
    
    
    957
    
    
    
    5
    
    
    
    0.5Operating income
    
    $
    1,812
    
    
    $
    783
    
    
    $
    1,029
    
    
    
    131.4
  20




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Food Ingredient Processing
 Three months endedMarch 31,
    
    
    
    
    
    
    %(in thousands)
    
    2007
    
    
    2006
    
    
    Change
    
    
    ChangeOperating revenues
    
    $
    19,495
    
    
    $
    9,350
    
    
    $
    10,145
    
    
    
    108.5Cost of goods sold
    
    
    16,993
    
    
    
    9,318
    
    
    
    7,675
    
    
    
    82.4Operating expenses
    
    
    752
    
    
    
    685
    
    
    
    67
    
    
    
    9.8Depreciation and amortization
    
    
    969
    
    
    
    919
    
    
    
    50
    
    
    
    5.4Operating income (loss)
    
    $
    781
    
    
    $
    (1,572
    )
    
    $
    2,353
    
    
    
    149.7
  Other Business Operations
 Three months endedMarch 31,
    
    
    
    
    
    
    %(in thousands)
    
    2007
    
    
    2006
    
    
    Change
    
    
    ChangeOperating revenues
    
    $
    35,796
    
    
    $
    28,279
    
    
    $
    7,517
    
    
    
    26.6Cost of goods sold
    
    
    23,756
    
    
    
    15,995
    
    
    
    7,761
    
    
    
    48.5Operating expenses
    
    
    15,520
    
    
    
    12,910
    
    
    
    2,610
    
    
    
    20.2Depreciation and amortization
    
    
    617
    
    
    
    692
    
    
    
    (75
    )
    
    
    (10.8
    )Operating loss
    
    $
    (4,097
    )
    
    $
    (1,318
    )
    
    $
    (2,779
    )
    
    
    (210.8
    )
   
    
    Revenues at Midwest Construction Services, Inc. (MCS) increased $3.7 million between the
quarters as a result of an increase in work in progress.
    
    Revenues at Foley Company increased $3.4 million in the first quarter of 2007 compared
to the first quarter of 2006 due to an increase in the volume of jobs in progress.
    
    Revenues at E.W. Wylie Corporation (Wylie) increased $0.3 million between the quarters
mainly due to a 7.3% increase in miles driven by owner-operated and company-operated
trucks. Miles driven by owner-operated trucks increased 13.9% while miles driven by
company-operated trucks increased 3.5% between the quarters. Wylies increased revenues
also reflect a slight increase in fuel costs recovered through fuel surcharges between the
quarters.
 21




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
    
    Cost of goods sold at MCS increased $4.1 million between the quarters mostly as a result
of increases in material and subcontractor costs on higher-cost contracts.
    
    Foley Companys cost of goods sold increased $3.7 million, including increases of $2.2
million in labor and benefit costs and $1.5 million in subcontractor and material costs, as
a result of increased construction activity and jobs in progress.
  
    
    Corporate operating expenses in this segment increased $1.6 million as a result of
higher labor and professional service costs.
    
    Wylies operating expenses increased $0.5 million between the quarters, mainly as a
result of increases in fuel, equipment rental and contractor expenses.
    
    Foley Companys operating expenses increased $0.4 million between the quarters.
 Income Taxes  Continuing Operations
  Discontinued Operations
 Accounting for
the Impairment or Disposal of Long-Lived Assets
  Three months ended(in thousands)
    
    March 31, 2006Income before income taxes
    
    $
    174Income tax expense
    
    
    69Net income
    
    $
    105
 22




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##### Table of Contents



2007 EXPECTATIONS
   
    
    We expect earnings in the range of $19.0 million to $22.5 million in the electric
segment in 2007. This change from the original guidance is impacted by lower than expected
margins on virtual supply transactions in 2007 relating to the FERC order requiring RSG
charges on virtual supply transactions going back to April 25, 2006. This order is expected
to have a downward impact on margins from virtual supply transactions for the remainder of
2007.
    
    We expect our plastics segments performance to be in the range of $5.5 million to $8.0
million in 2007 because of stronger than expected first quarter performance.
    
    We expect continued enhancements in productivity and capacity utilization, strong
backlogs and an announced expansion of DMIs Ft. Erie, Ontario facility that will increase
the facilitys production capacity by 30% to result in increased net income in our
manufacturing segment in 2007.
    
    We expect moderate net income growth in our health services segment in 2007.
    
    We expect our food ingredient processing business (IPH) to generate net income in the
range of $2.0 million to $4.0 million in 2007.
    
    We expect our other business operations segment to have lower earnings in 2007 compared
with 2006 due to an expected return to more normal unallocated corporate cost levels. Our
construction companies are expected to have a strong 2007 given current backlogs.
 FINANCIAL POSITION
   23




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24




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MoodysInvestors
    
    StandardService
    
    & PoorsSenior unsecured debt
    
    A3
    
    BBB+Preferred stock
    
    Baa2
    
    BBB-Outlook
    
    Stable
    
    Stable
     25




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##### Table of Contents



(in millions)
    
    2007
    
    
    
    2007-2011Electric
    
    $
    215
    
    
    
    $
    680Plastics
    
    
    5
    
    
    
    
    19Manufacturing
    
    
    38
    
    
    
    
    78Health services
    
    
    2
    
    
    
    
    12Food ingredient processing
    
    
    3
    
    
    
    
    17Other business operations
    
    
    1
    
    
    
    
    6Total
    
    $
    264
    
    
    
    $
    812
    26




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##### Table of Contents



Critical Accounting Policies Involving Significant Estimates
   Goodwill Impairment
  
 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.
 27




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##### Table of Contents




    
    Future operating results of the electric segment will be impacted by the outcome of a rate case to be filed in
Minnesota in late 2007.
    
    Certain MISO-related costs currently included in the FCA in Minnesota retail rates may be excluded from recovery
through the FCA and subject to future recovery through rates established in a general rate case.
    
    Weather conditions can adversely affect our operations and revenues.
    
    Electric wholesale margins could be further reduced as the MISO market becomes more efficient.
    
    Electric wholesale trading margins could be reduced or eliminated by losses due to trading activities.
    
    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 reduced by reductions in coal shipments to the Big Stone
and Hoot Lake plants due to supply constraints or rail transportation problems beyond our control.
    
    Our electric segment has capitalized $6.5 million in costs related to the planned construction of a second electric
generating unit at its Big Stone Plant site as of March 31, 2007. Should approvals of permits not be received on a
timely basis, the project could be at risk. If the project is abandoned for permitting or other reasons these
capitalized costs and others incurred in future periods may be subject to expense and may not be recoverable.
    
    Our manufacturer of wind towers operates in a market that has been dependent on the Federal Production Tax Credit. This
tax credit is currently in place through December 31, 2008. Should this tax credit not be renewed, the revenues and
earnings of this business could be reduced.
    
    Federal and state environmental regulation could cause us to incur substantial capital expenditures which could result
in increased operating costs.
    
    Our plans to grow and diversify through acquisitions may not be successful and could result in poor financial
performance.
    
    Our plan to grow our nonelectric businesses could be limited by state law.
    
    Competition is a factor in all of our businesses.
    
    Economic uncertainty could have a negative impact on our future revenues and earnings.
    
    Volatile financial markets could restrict our ability to access capital and could increase borrowing costs and pension
plan expenses.
    
    The price and availability of raw materials could affect the revenue and earnings of our manufacturing segment.
    
    Our food ingredient processing segment operates in a highly competitive market and is dependent on adequate sources of
raw materials for processing. Should the supply of these raw materials be affected by poor growing conditions, this
could negatively impact the results of operations for this segment. This segment could also be impacted by foreign
currency changes between Canadian and United States currency and prices of natural gas.
 28




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##### Table of Contents




    
    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.
    
    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 not be able to retain or comply
with the dealership arrangement and other agreements with Philips
Medical.
    
    A significant failure or an inability to properly bid or perform
on projects by our construction businesses could lead to adverse
financial results.
 
 Quantitative and Qualitative Disclosures about Market Risk
      29




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Megawatt
Daily
   (in thousands)
    
    March 31, 2007Current asset  marked-to-market gain
    
    $
    1,946Current liability  marked-to-market loss
    
    
    (1,963
    )Net fair value of marked-to-market gas contracts
    
    $
    (17
    )
 Year-to-date(in thousands)
    
    March 31, 2007Fair value at beginning of year
    
    $
    203Amount realized on contracts entered into in 2006 and settled in 2007
    
    
    (159
    )Changes in fair value of contracts entered into in 2006
    
    
    Net fair value of contracts entered into in 2006 at end of period
    
    
    44Changes in fair value of contracts entered into in 2007
    
    
    (61
    )Net fair value end of period
    
    $
    (17
    )
  2nd Quarter
    
    3rd Quarter(in thousands)
    
    2007
    
    2007
    
    NetNet gain
    
    $
    83
    
    
    $
    (100
    )
    
    $
    (17
    )
  30




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Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Legal Proceedings
  
 Risk Factors
  31




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##### Table of Contents



Unregistered Sales of Equity Securities and Use of Proceeds
  Total number ofCalendar Month
    
    shares purchased
    
    Average price paid per shareJanuary 2007
    
    
    
    
    
    
    February 2007
    
    
    
    
    
    
    March 2007
    
    
    64
    
    
    $
    31.89Total
    
    
    64
 
 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
   By:
    /s/ Kevin G. MougKevin G. MougChief Financial Officer and Treasurer
(Chief Financial Officer/Authorized Officer) May 10, 2007
 32




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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