##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark
One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 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
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
  October 31, 2008  35,384,620 Common Shares ($5 par value)




---



##### 



OTTER TAIL CORPORATION
 INDEX
 Page No.Part I.
    
    Financial InformationItem 1.
    
    Financial StatementsConsolidated Balance Sheets - September 30, 2008 and December 31, 2007 (not audited)
    
    
    2 & 3Consolidated Statements of Income - Three and Nine Months Ended September 30, 2008 and 2007 (not audited)
    
    
    4Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2008 and 2007  (not audited)
    
    
    5Notes to Consolidated Financial Statements (not audited)
    
    
    6-26Item 2.
    
    Management's Discussion and Analysis of Financial  Condition and Results of Operations
    
    
    27-48Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    49-51Item 4.
    
    Controls and Procedures
    
    
    52Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    52-53Item 1A.
    
    Risk Factors
    
    
    53-60Item 6.
    
    Exhibits
    
    
    61Signatures
    
    
    61EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Otter Tail Corporation
 
 Consolidated Balance Sheets
  -Assets-
 September 30,
    
    
    December 31,2008
    
    
    2007(Thousands of dollars)Current AssetsCash and Cash Equivalents
    
    $
    17,862
    
    
    $
    39,824Accounts Receivable:TradeNet
    
    
    171,681
    
    
    
    151,446Other
    
    
    22,636
    
    
    
    14,934Inventories
    
    
    111,042
    
    
    
    97,214Deferred Income Taxes
    
    
    6,904
    
    
    
    7,200Accrued Utility and Cost-of-Energy Revenues
    
    
    14,207
    
    
    
    32,501Costs and Estimated Earnings in Excess of Billings
    
    
    60,616
    
    
    
    42,234Other
    
    
    23,953
    
    
    
    15,299Total Current Assets
    
    
    428,901
    
    
    
    400,652Investments
    
    
    8,120
    
    
    
    10,057Other Assets
    
    
    24,108
    
    
    
    24,500Goodwill
    
    
    106,778
    
    
    
    99,242Other IntangiblesNet
    
    
    35,977
    
    
    
    20,456Deferred DebitsUnamortized Debt Expense and Reacquisition Premiums
    
    
    6,784
    
    
    
    6,986Regulatory Assets and Other Deferred Debits
    
    
    41,024
    
    
    
    38,837Total Deferred Debits
    
    
    47,808
    
    
    
    45,823PlantElectric Plant in Service
    
    
    1,066,957
    
    
    
    1,028,917Nonelectric Operations
    
    
    306,181
    
    
    
    257,590Total Plant
    
    
    1,373,138
    
    
    
    1,286,507Less Accumulated Depreciation and Amortization
    
    
    538,693
    
    
    
    506,744PlantNet of Accumulated Depreciation and Amortization
    
    
    834,445
    
    
    
    779,763Construction Work in Progress
    
    
    127,937
    
    
    
    74,261Net Plant
    
    
    962,382
    
    
    
    854,024Total
    
    $
    1,614,074
    
    
    $
    1,454,754
  -2-




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##### Table of Contents



Otter Tail Corporation
Consolidated Balance Sheets   -Liabilities-
 September 30,
    
    
    December 31,2008
    
    
    2007(Thousands of dollars)Current LiabilitiesShort-Term Debt
    
    $
    111,955
    
    
    $
    95,000Current Maturities of Long-Term Debt
    
    
    3,389
    
    
    
    3,004Accounts Payable
    
    
    128,547
    
    
    
    141,390Accrued Salaries and Wages
    
    
    27,507
    
    
    
    29,283Accrued Taxes
    
    
    10,248
    
    
    
    11,409Other Accrued Liabilities
    
    
    14,284
    
    
    
    13,873Total Current Liabilities
    
    
    295,930
    
    
    
    293,959Pensions Benefit Liability
    
    
    39,537
    
    
    
    39,429Other Postretirement Benefits Liability
    
    
    31,378
    
    
    
    30,488Other Noncurrent Liabilities
    
    
    21,157
    
    
    
    23,228Deferred CreditsDeferred Income Taxes
    
    
    111,256
    
    
    
    105,813Deferred Tax Credits
    
    
    17,527
    
    
    
    16,761Regulatory Liabilities
    
    
    64,066
    
    
    
    62,705Other
    
    
    330
    
    
    
    275Total Deferred Credits
    
    
    193,179
    
    
    
    185,554CapitalizationLong-Term Debt, Net of Current Maturities
    
    
    340,667
    
    
    
    342,694Class B Stock Options of Subsidiary
    
    
    1,255
    
    
    
    1,255Cumulative Preferred SharesAuthorized 1,500,000 Shares Without Par Value;Outstanding 2008 and 2007  155,000 Shares
    
    
    15,500
    
    
    
    15,500Cumulative Preference Shares  Authorized 1,000,000Shares without Par Value; Outstanding  None
    
    
    
    
    
    
    Common Shares, Par Value $5 Per ShareAuthorized 50,000,000 Shares;Outstanding 2008  35,384,470 and 2007  29,849,789
    
    
    176,922
    
    
    
    149,249Premium on Common Shares
    
    
    240,996
    
    
    
    108,885Retained Earnings
    
    
    257,327
    
    
    
    263,332Accumulated Other Comprehensive Income
    
    
    226
    
    
    
    1,181Total Common Equity
    
    
    675,471
    
    
    
    522,647Total Capitalization
    
    
    1,032,893
    
    
    
    882,096Total
    
    $
    1,614,074
    
    
    $
    1,454,754
  -3-




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##### Table of Contents



Otter Tail Corporation
 
 Consolidated Statements of Income
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except share
    
    
    (In thousands, except shareand per share amounts)
    
    
    and per share amounts)Operating RevenuesElectric
    
    $
    82,821
    
    
    $
    72,052
    
    
    $
    248,904
    
    
    $
    232,403Nonelectric
    
    
    270,098
    
    
    
    230,183
    
    
    
    727,852
    
    
    
    676,797Total Operating Revenues
    
    
    352,919
    
    
    
    302,235
    
    
    
    976,756
    
    
    
    909,200Operating ExpensesProduction Fuel  Electric
    
    
    18,732
    
    
    
    16,994
    
    
    
    53,444
    
    
    
    47,496Purchased Power  Electric System Use
    
    
    10,456
    
    
    
    6,499
    
    
    
    39,598
    
    
    
    43,531Electric Operation and Maintenance Expenses
    
    
    33,091
    
    
    
    27,212
    
    
    
    87,591
    
    
    
    80,738Cost of
Goods Sold  Nonelectric (depreciation included below)
    
    
    213,999
    
    
    
    179,868
    
    
    
    583,457
    
    
    
    521,500Other Nonelectric Expenses
    
    
    37,222
    
    
    
    30,211
    
    
    
    108,211
    
    
    
    92,346Plant Closure Costs
    
    
    883
    
    
    
    
    
    
    
    2,295
    
    
    
    Depreciation and Amortization
    
    
    16,563
    
    
    
    13,366
    
    
    
    47,600
    
    
    
    39,406Property Taxes  Electric
    
    
    2,227
    
    
    
    2,538
    
    
    
    7,414
    
    
    
    7,591Total Operating Expenses
    
    
    333,173
    
    
    
    276,688
    
    
    
    929,610
    
    
    
    832,608Operating Income
    
    
    19,746
    
    
    
    25,547
    
    
    
    47,146
    
    
    
    76,592Other Income
    
    
    1,157
    
    
    
    619
    
    
    
    2,745
    
    
    
    1,232Interest Charges
    
    
    7,269
    
    
    
    4,927
    
    
    
    21,023
    
    
    
    14,821Income Before Income Taxes
    
    
    13,634
    
    
    
    21,239
    
    
    
    28,868
    
    
    
    63,003Income Taxes
    
    
    4,003
    
    
    
    7,907
    
    
    
    7,490
    
    
    
    23,160Net Income
    
    
    9,631
    
    
    
    13,332
    
    
    
    21,378
    
    
    
    39,843Preferred Dividend Requirements
    
    
    184
    
    
    
    184
    
    
    
    552
    
    
    
    552Earnings Available for Common Shares
    
    $
    9,447
    
    
    $
    13,148
    
    
    $
    20,826
    
    
    $
    39,291Earnings Per Common Share:Basic
    
    $
    0.31
    
    
    $
    0.44
    
    
    $
    0.69
    
    
    $
    1.33Diluted
    
    $
    0.31
    
    
    $
    0.44
    
    
    $
    0.69
    
    
    $
    1.31Average Number of Common Shares Outstanding:Basic
    
    
    30,513,578
    
    
    
    29,745,600
    
    
    
    30,108,381
    
    
    
    29,644,866Diluted
    
    
    30,817,013
    
    
    
    29,995,660
    
    
    
    30,398,235
    
    
    
    29,887,510Dividends Per Common Share
    
    $
    0.2975
    
    
    $
    0.2925
    
    
    $
    0.8925
    
    
    $
    0.8775
  -4-




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##### Table of Contents



Otter Tail Corporation
 
 Consolidated Statements of Cash Flows
  Nine months endedSeptember 30,2008
    
    
    2007(Thousands of dollars)Cash Flows from Operating ActivitiesNet Income
    
    $
    21,378
    
    
    $
    39,843Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:Depreciation and Amortization
    
    
    47,600
    
    
    
    39,406Deferred Tax Credits
    
    
    (1,180
    )
    
    
    (852
    )Deferred Income Taxes
    
    
    9,123
    
    
    
    2,706Change in Deferred Debits and Other Assets
    
    
    (2,162
    )
    
    
    (484
    )Discretionary Contribution to Pension Plan
    
    
    (2,000
    )
    
    
    (4,000
    )Change in Noncurrent Liabilities and Deferred Credits
    
    
    1,795
    
    
    
    6,116Allowance for Equity (Other) Funds Used During Construction
    
    
    (1,712
    )
    
    
    Change in Derivatives Net of Regulatory Deferral
    
    
    (337
    )
    
    
    (163
    )Stock Compensation Expense
    
    
    2,885
    
    
    
    1,592OtherNet
    
    
    580
    
    
    
    (469
    )Cash (Used for) Provided by Current Assets and Current Liabilities:Change in Receivables
    
    
    (24,314
    )
    
    
    (26,883
    )Change in Inventories
    
    
    (9,054
    )
    
    
    7,779Change in Other Current Assets
    
    
    (8,165
    )
    
    
    3,562Change in Payables and Other Current Liabilities
    
    
    4,997
    
    
    
    (15,194
    )Change in Interest and Income Taxes Payable
    
    
    810
    
    
    
    4,382Net Cash Provided by Operating Activities
    
    
    40,244
    
    
    
    57,341Cash Flows from Investing ActivitiesCapital Expenditures
    
    
    (172,237
    )
    
    
    (99,433
    )Proceeds from Disposal of Noncurrent Assets
    
    
    7,446
    
    
    
    8,297AcquisitionsNet of Cash Acquired
    
    
    (41,674
    )
    
    
    (6,750
    )Increases in Other Investments
    
    
    (393
    )
    
    
    (5,824
    )Net Cash Used in Investing Activities
    
    
    (206,858
    )
    
    
    (103,710
    )Cash Flows from Financing ActivitiesNet Short-Term Borrowings
    
    
    16,955
    
    
    
    39,881Proceeds from Issuance of Common Stock
    
    
    162,961
    
    
    
    7,633Common Stock Issuance Expenses
    
    
    (6,136
    )
    
    
    Payments for Retirement of Common Stock
    
    
    (91
    )
    
    
    (305
    )Proceeds from Issuance of Long-Term Debt
    
    
    1,140
    
    
    
    25,128Short-Term and Long-Term Debt Issuance Expenses
    
    
    (527
    )
    
    
    (328
    )Payments for Retirement of Long-Term Debt
    
    
    (2,691
    )
    
    
    (2,445
    )Dividends Paid
    
    
    (27,382
    )
    
    
    (26,601
    )Net Cash Provided by Financing Activities
    
    
    144,229
    
    
    
    42,963Effect of Foreign Exchange Rate Fluctuations on Cash
    
    
    423
    
    
    
    (2,681
    )Net Change in Cash and Cash Equivalents
    
    
    (21,962
    )
    
    
    (6,087
    )Cash and Cash Equivalents at Beginning of Period
    
    
    39,824
    
    
    
    6,791Cash and Cash Equivalents at End of Period
    
    $
    17,862
    
    
    $
    704
  -5-




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##### 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,
   6




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##### Table of Contents



September 30,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007Costs Incurred on Uncompleted Contracts
    
    $
    518,863
    
    
    $
    286,358Less Billings to Date
    
    
    (528,496
    )
    
    
    (292,692
    )Plus Estimated Earnings Recognized
    
    
    63,801
    
    
    
    38,275$
    54,168
    
    
    $
    31,941
  September 30,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
    
    $
    60,616
    
    
    $
    42,234Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
    
    
    (6,448
    )
    
    
    (10,293
    )$
    54,168
    
    
    $
    31,941
 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
 Nine Months EndedSeptember 30,(in thousands)
    
    2008
    
    2007Increases (Decreases) in Accounts Payable and Other
Liabilities Related to Capital Expenditures
    
    $
    (21,117
    )
    
    $
    1,631Cash Paid During the Period for:Interest (net of amount capitalized)
    
    $
    19,925
    
    
    $
    11,899Income Taxes
    
    $
    1,779
    
    
    $
    18,896
 7




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##### 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 and Mutual Funds and Cash
    
    $
    1,049
    
    
    
    
    
    
    
    
    
    
    $
    1,049Cash Surrender Value of Life Insurance Policies
    
    
    
    
    
    $
    9,211
    
    
    
    
    
    
    
    9,211Cash Surrender Value of Keyman Life Insurance
Policies  Net of Policy Loans
    
    
    
    
    
    
    10,235
    
    
    
    
    
    
    
    10,235Forward Energy Contracts
    
    
    
    
    
    
    4,922
    
    
    
    
    
    
    
    4,922Investments of Captive Insurance Company:Corporate Debt Securities
    
    
    3,707
    
    
    
    
    
    
    
    
    
    
    
    3,707U.S. Government Debt Securities
    
    
    1,323
    
    
    
    
    
    
    
    
    
    
    
    1,323Total Assets
    
    $
    6,079
    
    
    $
    24,368
    
    
    
    
    
    
    $
    30,447Liabilities:Forward Energy Contracts
    
    
    
    
    
    $
    3,427
    
    
    
    
    
    
    $
    3,427Forward Foreign Currency Exchange Contracts
    
    $
    114
    
    
    
    
    
    
    
    
    
    
    
    114Total Liabilities
    
    $
    114
    
    
    $
    3,427
    
    
    
    
    
    
    $
    3,541Net Assets
    
    $
    5,965
    
    
    $
    20,941
    
    
    
    
    
    
    $
    26,906
 8




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##### Table of Contents



Inventories
  September 30,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007Finished Goods
    
    $
    45,492
    
    
    $
    38,952Work in Process
    
    
    11,044
    
    
    
    5,218Raw Material, Fuel and Supplies
    
    
    54,506
    
    
    
    53,044$
    111,042
    
    
    $
    97,214
 Goodwill and Other Intangible Assets
   September 30, 2008
    
    
    December 31, 2007Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying(in thousands)
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountAmortized Intangible Assets:Covenants Not to Compete
    
    $
    2,256
    
    
    $
    1,817
    
    
    $
    439
    
    
    $
    2,637
    
    
    $
    2,113
    
    
    $
    524Customer Relationships
    
    
    26,946
    
    
    
    2,130
    
    
    
    24,816
    
    
    
    10,879
    
    
    
    1,469
    
    
    
    9,410Other Intangible Assets Including Contracts
    
    
    2,785
    
    
    
    1,944
    
    
    
    841
    
    
    
    2,785
    
    
    
    1,775
    
    
    
    1,010Total
    
    $
    31,987
    
    
    $
    5,891
    
    
    $
    26,096
    
    
    $
    16,301
    
    
    $
    5,357
    
    
    $
    10,944Nonamortized Intangible Assets:Brand/Trade Name
    
    $
    9,881
    
    
    $
    
    
    
    $
    9,881
    
    
    $
    9,512
    
    
    $
    
    
    
    $
    9,512
  Comprehensive Income
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net Income
    
    $
    9,631
    
    
    $
    13,332
    
    
    $
    21,378
    
    
    $
    39,843Other Comprehensive Income (net-of-tax)Foreign Currency Translation (Loss) Gain
    
    
    (579
    )
    
    
    571
    
    
    
    (954
    )
    
    
    1,617Amortization of Unrecognized Losses and Costs
Related to Postretirement Benefit Programs
    
    
    37
    
    
    
    43
    
    
    
    117
    
    
    
    131Unrealized (Loss) Gain on Available-For-Sale Securities
    
    
    (83
    )
    
    
    5
    
    
    
    (118
    )
    
    
    (12
    )Total Other Comprehensive (Loss) Income
    
    
    (625
    )
    
    
    619
    
    
    
    (955
    )
    
    
    1,736Total Comprehensive Income
    
    $
    9,006
    
    
    $
    13,951
    
    
    $
    20,423
    
    
    $
    41,579
 9




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##### Table of Contents



New Accounting Standards
 SFAS No. 157, Fair Value Measurements,
 SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an
Amendment of FASB Statement No. 115,
 SFAS No. 141 (revised 2007), Businesses Combinations (SFAS No. 141(R)), Business Combinations,
 SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133,
 10




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##### Table of Contents



2. Business Combination and Segment Information
 Acquisition
   (in thousands)AssetsCurrent assets
    
    $
    8,855Goodwill
    
    
    7,986Other Intangible Assets
    
    
    16,600Fixed Assets
    
    
    8,994Total Assets
    
    $
    42,435LiabilitiesCurrent Liabilities
    
    $
    761Noncurrent Liabilities
    
    
    Total Liabilities
    
    $
    761Cash Paid
    
    $
    41,674
  Segment Information
    11




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007United States of America
    
    
    97.9
    %
    
    
    97.8
    %
    
    
    97.1
    %
    
    
    96.7
    %Canada
    
    
    1.1
    %
    
    
    0.9
    %
    
    
    1.3
    %
    
    
    1.4
    %All other countries (none greater than 1%)
    
    
    1.0
    %
    
    
    1.3
    %
    
    
    1.6
    %
    
    
    1.9
    %
 12




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##### Table of Contents



Operating Revenue
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Electric
    
    $
    82,883
    
    
    $
    72,110
    
    
    $
    249,139
    
    
    $
    232,662Plastics
    
    
    36,690
    
    
    
    36,975
    
    
    
    99,685
    
    
    
    114,319Manufacturing
    
    
    127,778
    
    
    
    95,330
    
    
    
    345,715
    
    
    
    286,341Health Services
    
    
    31,139
    
    
    
    31,360
    
    
    
    91,144
    
    
    
    96,775Food Ingredient Processing
    
    
    15,333
    
    
    
    15,714
    
    
    
    47,144
    
    
    
    53,612Other Business Operations
    
    
    59,650
    
    
    
    51,231
    
    
    
    145,840
    
    
    
    126,964Corporate Revenues and Intersegment Eliminations
    
    
    (554
    )
    
    
    (485
    )
    
    
    (1,911
    )
    
    
    (1,473
    )Total
    
    $
    352,919
    
    
    $
    302,235
    
    
    $
    976,756
    
    
    $
    909,200
 Interest Expense
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Electric
    
    $
    3,158
    
    
    $
    2,465
    
    
    $
    9,272
    
    
    $
    7,356Plastics
    
    
    369
    
    
    
    242
    
    
    
    838
    
    
    
    750Manufacturing
    
    
    2,659
    
    
    
    2,141
    
    
    
    7,035
    
    
    
    6,125Health Services
    
    
    176
    
    
    
    223
    
    
    
    531
    
    
    
    683Food Ingredient Processing
    
    
    46
    
    
    
    34
    
    
    
    87
    
    
    
    167Other Business Operations
    
    
    331
    
    
    
    315
    
    
    
    933
    
    
    
    757Corporate and Intersegment Eliminations
    
    
    530
    
    
    
    (493
    )
    
    
    2,327
    
    
    
    (1,017
    )Total
    
    $
    7,269
    
    
    $
    4,927
    
    
    $
    21,023
    
    
    $
    14,821
 Income Taxes
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Electric
    
    $
    1,863
    
    
    $
    3,595
    
    
    $
    8,017
    
    
    $
    9,500Plastics
    
    
    1,088
    
    
    
    941
    
    
    
    1,942
    
    
    
    5,081Manufacturing
    
    
    288
    
    
    
    2,359
    
    
    
    303
    
    
    
    7,564Health Services
    
    
    208
    
    
    
    84
    
    
    
    (218
    )
    
    
    1,306Food Ingredient Processing
    
    
    (717
    )
    
    
    942
    
    
    
    497
    
    
    
    1,891Other Business Operations
    
    
    2,908
    
    
    
    935
    
    
    
    2,291
    
    
    
    1,752Corporate
    
    
    (1,635
    )
    
    
    (949
    )
    
    
    (5,342
    )
    
    
    (3,934
    )Total
    
    $
    4,003
    
    
    $
    7,907
    
    
    $
    7,490
    
    
    $
    23,160
 13




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Earnings Available for Common Shares
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Electric
    
    $
    6,335
    
    
    $
    6,309
    
    
    $
    21,993
    
    
    $
    16,939Plastics
    
    
    1,641
    
    
    
    1,384
    
    
    
    2,913
    
    
    
    7,610Manufacturing
    
    
    380
    
    
    
    3,477
    
    
    
    1,160
    
    
    
    11,351Health Services
    
    
    254
    
    
    
    53
    
    
    
    (525
    )
    
    
    1,709Food Ingredient Processing
    
    
    (1,074
    )
    
    
    993
    
    
    
    734
    
    
    
    2,985Other Business Operations
    
    
    4,341
    
    
    
    1,361
    
    
    
    3,370
    
    
    
    2,595Corporate
    
    
    (2,430
    )
    
    
    (429
    )
    
    
    (8,819
    )
    
    
    (3,898
    )Total
    
    $
    9,447
    
    
    $
    13,148
    
    
    $
    20,826
    
    
    $
    39,291
 Total Assets
 September 30,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007Electric
    
    $
    896,355
    
    
    $
    813,565Plastics
    
    
    91,669
    
    
    
    77,971Manufacturing
    
    
    340,178
    
    
    
    274,780Health Services
    
    
    63,533
    
    
    
    64,824Food Ingredient Processing
    
    
    92,978
    
    
    
    91,966Other Business Operations
    
    
    84,546
    
    
    
    72,258Corporate
    
    
    44,815
    
    
    
    59,390Total
    
    $
    1,614,074
    
    
    $
    1,454,754
 3. Rate and Regulatory Matters
 Minnesota
 General Rate Case
  14




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Capacity Expansion 2020 (CapX 2020) Mega Certificate of Need
  Renewable Energy Standards, Conservation and Renewable Resource Riders
 15




---



##### Table of Contents



North Dakota
 Renewable Resource Cost Recovery Rider
 16




---



##### Table of Contents



Federal
 Transmission Practices Audit
  Big Stone II Project
  17




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18




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Holding Company Reorganization
  4. Regulatory Assets and Liabilities
 Accounting for the Effect of Certain Types of
Regulation
  September 30,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007Regulatory Assets:Unrecognized Transition Obligation, Prior Service Costs
and Actuarial Losses on Pension and Other Postretirement
Benefits
    
    $
    25,217
    
    
    $
    26,933Deferred Income Taxes
    
    
    8,012
    
    
    
    8,733Accrued Cost-of-Energy Revenue
    
    
    4,286
    
    
    
    19,452Debt Reacquisition Premiums
    
    
    3,446
    
    
    
    3,745Minnesota Renewable Resource Rider Accrued Revenues
    
    
    2,741
    
    
    
    North Dakota Renewable Resource Rider Accrued Revenues
    
    
    1,662
    
    
    
    Minnesota General Rate Case Recoverable Expenses
    
    
    1,457
    
    
    
    MISO Schedule 16 and 17 Deferred Administrative Costs  ND
    
    
    756
    
    
    
    576MISO Schedule 16 and 17 Deferred Administrative Costs  MN
    
    
    595
    
    
    
    855Accumulated ARO Accretion/Depreciation Adjustment
    
    
    502
    
    
    
    345Deferred Marked-to-Market Losses
    
    
    271
    
    
    
    771Plant Acquisition Costs
    
    
    74
    
    
    
    107Deferred Conservation Improvement Program (Revenues) Costs
    
    
    (263
    )
    
    
    518Total Regulatory Assets
    
    $
    48,756
    
    
    $
    62,035Regulatory Liabilities:Accumulated Reserve for Estimated Removal Costs
    
    $
    58,894
    
    
    $
    57,787Deferred Income Taxes
    
    
    4,349
    
    
    
    4,502Deferred Marked-to-Market Gains
    
    
    682
    
    
    
    271Gain on Sale of Division Office Building
    
    
    141
    
    
    
    145Total Regulatory Liabilities
    
    $
    64,066
    
    
    $
    62,705Net Regulatory Liability Position
    
    $
    15,310
    
    
    $
    670
 19




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Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans,
 Accounting for Income Taxes
             20




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5. Forward Contracts Classified as Derivatives
   September 30,(in thousands)
    
    2008Current Asset  Marked-to-Market Gain
    
    $
    4,922Regulatory Asset  Deferred Marked-to-Market Loss
    
    
    271Total Assets
    
    
    5,193Current Liability  Marked-to-Market Loss
    
    
    (3,427
    )Regulatory Liability  Deferred Marked-to-Market Gain
    
    
    (682
    )Total Liabilities
    
    
    (4,109
    )Net Fair Value of Marked-to-Market Energy Contracts
    
    $
    1,084
 Year-to-DateSeptember 30,(in thousands)
    
    2008Fair Value at Beginning of Year
    
    $
    632Amount Realized on Contracts Entered into in 2007 and Settled in 2008
    
    
    (204
    )Changes in Fair Value of Contracts Entered into in 2007
    
    
    570Net Fair Value of Contracts Entered into in 2007 at End of Period
    
    
    998Changes in Fair Value of Open Contracts Entered into in 2008
    
    
    86Net Fair Value End of Period
    
    $
    1,084
  21




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6. Common Shares and Earnings Per Share
  Common Shares Outstanding, December 31, 2007
    
    
    29,849,789Issuances:September 2008 Common Stock Offering
    
    
    5,175,000Stock Options Exercised
    
    
    276,535Executive Officer Stock Performance Awards
    
    
    62,625Restricted Stock Issued to Nonemployee Directors
    
    
    20,000Restricted Stock Issued to Employees
    
    
    19,371Vesting of Restricted Stock Units
    
    
    3,850Retirements:Shares Withheld for Individual Income Tax Requirements
    
    
    (22,700
    )Common Shares Outstanding, September 30, 2008
    
    
    35,384,470
   22




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7. Share-Based Payments
      Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    20071999 Employee Stock Purchase Plan
    
    $
    75
    
    
    $
    66
    
    
    $
    210
    
    
    $
    193Stock Options Granted Under the 1999 Stock Incentive Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90Restricted Stock Granted to Directors
    
    
    110
    
    
    
    103
    
    
    
    350
    
    
    
    350Restricted Stock Granted to Employees
    
    
    102
    
    
    
    43
    
    
    
    341
    
    
    
    455Restricted Stock Units Granted to Employees
    
    
    149
    
    
    
    103
    
    
    
    387
    
    
    
    281Stock Performance Awards Granted to Executive Officers
    
    
    562
    
    
    
    221
    
    
    
    1,686
    
    
    
    662Totals
    
    $
    998
    
    
    $
    536
    
    
    $
    2,974
    
    
    $
    2,031
 23




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9. Commitments and Contingencies
 Ashtabula Wind Center
  IPH Natural Gas Purchase Commitments
  Dealer Floor Plan Financing
  Sierra Club Complaint
  24




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##### Table of Contents



Federal Power Act Complaint
   10. Short-Term and Long-Term Borrowings
 Short-Term Debt
  11. Class B Stock Options of Subsidiary
  25




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12. Pension Plan and Other Postretirement Benefits
 Pension Plan
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Service CostBenefit Earned During the Period
    
    $
    922
    
    
    $
    1,102
    
    
    $
    3,472
    
    
    $
    3,628Interest Cost on Projected Benefit Obligation
    
    
    2,894
    
    
    
    2,626
    
    
    
    8,494
    
    
    
    8,092Expected Return on Assets
    
    
    (3,376
    )
    
    
    (3,265
    )
    
    
    (10,476
    )
    
    
    (9,711
    )Amortization of Prior-Service Cost
    
    
    207
    
    
    
    187
    
    
    
    557
    
    
    
    557Amortization of Net Actuarial Loss
    
    
    (124
    )
    
    
    200
    
    
    
    126
    
    
    
    818Net Periodic Pension Cost
    
    $
    523
    
    
    $
    850
    
    
    $
    2,173
    
    
    $
    3,384
  Executive Survivor and Supplemental Retirement Plan
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Service CostBenefit Earned During the Period
    
    $
    172
    
    
    $
    157
    
    
    $
    518
    
    
    $
    470Interest Cost on Projected Benefit Obligation
    
    
    383
    
    
    
    362
    
    
    
    1,151
    
    
    
    1,087Amortization of Prior-Service Cost
    
    
    18
    
    
    
    17
    
    
    
    50
    
    
    
    51Amortization of Net Actuarial Loss
    
    
    120
    
    
    
    135
    
    
    
    360
    
    
    
    405Net Periodic Pension Cost
    
    $
    693
    
    
    $
    671
    
    
    $
    2,079
    
    
    $
    2,013
 Postretirement Benefits
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Service CostBenefit Earned During the Period
    
    $
    227
    
    
    $
    194
    
    
    $
    827
    
    
    $
    824Interest Cost on Projected Benefit Obligation
    
    
    567
    
    
    
    528
    
    
    
    2,017
    
    
    
    1,924Amortization of Transition Obligation
    
    
    187
    
    
    
    187
    
    
    
    561
    
    
    
    561Amortization of Prior-Service Cost
    
    
    58
    
    
    
    (52
    )
    
    
    158
    
    
    
    (155
    )Amortization of Net Actuarial Loss
    
    
    (230
    )
    
    
    (125
    )
    
    
    20
    
    
    
    133Effect of Medicare Part D Expected Subsidy
    
    
    (79
    )
    
    
    (105
    )
    
    
    (879
    )
    
    
    (925
    )Net Periodic Postretirement Benefit Cost
    
    $
    730
    
    
    $
    627
    
    
    $
    2,704
    
    
    $
    2,362
 19. Subsequent Events
   26




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Managements Discussion and Analysis of Financial Condition and Results of
Operations
 RESULTS OF OPERATIONS
  Comparison of the Three Months Ended September 30, 2008 and 2007
   Three Months Ended
    
    Three Months Ended(in thousands)
    
    September 30, 2008
    
    September 30, 2007Operating Revenues:Electric
    
    $
    62
    
    
    $
    58Nonelectric
    
    
    492
    
    
    
    427Cost of Goods Sold
    
    
    535
    
    
    
    425Other Nonelectric Expenses
    
    
    19
    
    
    
    60
 Electric
 Three Months EndedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeRetail Sales Revenues
    
    $
    64,539
    
    
    $
    59,896
    
    
    $
    4,643
    
    
    
    7.8Wholesale Revenues
    
    
    9,876
    
    
    
    6,779
    
    
    
    3,097
    
    
    
    45.7Net Marked-to-Market Gain (Loss)
    
    
    65
    
    
    
    (751
    )
    
    
    816
    
    
    
    108.7Other Revenues
    
    
    8,403
    
    
    
    6,186
    
    
    
    2,217
    
    
    
    35.8Total Operating Revenues
    
    $
    82,883
    
    
    $
    72,110
    
    
    $
    10,773
    
    
    
    14.9Production Fuel
    
    
    18,732
    
    
    
    16,994
    
    
    
    1,738
    
    
    
    10.2Purchased Power  System Use
    
    
    10,456
    
    
    
    6,499
    
    
    
    3,957
    
    
    
    60.9Other Operation and Maintenance Expenses
    
    
    33,091
    
    
    
    27,212
    
    
    
    5,879
    
    
    
    21.6Depreciation and Amortization
    
    
    7,864
    
    
    
    6,581
    
    
    
    1,283
    
    
    
    19.5Property Taxes
    
    
    2,227
    
    
    
    2,538
    
    
    
    (311
    )
    
    
    (12.3
    )Operating Income
    
    $
    10,513
    
    
    $
    12,286
    
    
    $
    (1,773
    )
    
    
    (14.4
    )
  27




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28




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##### Table of Contents



Plastics
 Three Months EndedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeOperating Revenues
    
    $
    36,690
    
    
    $
    36,975
    
    
    $
    (285
    )
    
    
    (0.8
    )Cost of Goods Sold
    
    
    32,189
    
    
    
    31,909
    
    
    
    280
    
    
    
    0.9Operating Expenses
    
    
    672
    
    
    
    1,782
    
    
    
    (1,110
    )
    
    
    (62.3
    )Depreciation and Amortization
    
    
    733
    
    
    
    769
    
    
    
    (36
    )
    
    
    (4.7
    )Operating Income
    
    $
    3,096
    
    
    $
    2,515
    
    
    $
    581
    
    
    
    23.1
  Manufacturing
 Three Months EndedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeOperating Revenues
    
    $
    127,778
    
    
    $
    95,330
    
    
    $
    32,448
    
    
    
    34.0Cost of Goods Sold
    
    
    105,965
    
    
    
    75,236
    
    
    
    30,729
    
    
    
    40.8Operating Expenses
    
    
    12,725
    
    
    
    8,800
    
    
    
    3,925
    
    
    
    44.6Plant Closure Costs
    
    
    883
    
    
    
    
    
    
    
    883
    
    
    
    Depreciation and Amortization
    
    
    5,146
    
    
    
    3,341
    
    
    
    1,805
    
    
    
    54.0Operating Income
    
    $
    3,059
    
    
    $
    7,953
    
    
    $
    (4,894
    )
    
    
    (61.5
    )
  
    
    Revenues at DMI Industries, Inc. (DMI) increased $17.0 million as a result of increases
in production and sales activity, including first-year production from its new plant in
Oklahoma.
    
    Revenues at BTD Manufacturing, Inc. (BTD) increased $12.7 million, including $6.7
million from Miller Welding & Iron Works, Inc. (Miller Welding), acquired in May 2008.
BTDs revenue increased $4.0 million as a result of increased product sales to existing
customers and $2.0 million as a result of increased prices mainly related to higher raw
material costs.
    
    Revenues at T.O. Plastics, Inc. (T.O. Plastics) increased $1.6 million as a result of
increased sales of horticultural products.
    
    Revenues at ShoreMaster, Inc. (ShoreMaster) increased $1.2 million as a result of a $3.3
million increase in commercial sales, including revenue earned on a large marina project in
Costa Rica in the third quarter of 2008, partially offset by a $2.1 million increase in
dealer sales incentive discounts.
 
 29




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##### Table of Contents




    
    DMIs cost of goods sold increased $17.2 million as a result of increases in production
and sales activity, including first-year operations at its new plant in Oklahoma. DMI
experienced a reduction in gross profit margins between the quarters mainly due to a slow
start up of its Oklahoma plant where the levels of labor and overhead spending have been
higher than expected and production has not reached levels necessary to cover these costs.
Included in cost of goods sold for the three months ended September 30, 2008 are costs of
$1.5 million associated with start-up inefficiencies at the Oklahoma plant. Higher freight
costs and steel surcharges have also resulted in increased material costs. Increased gross
profits in West Fargo were offset by higher costs for overhead items like rentals and shop
supplies.
    
    Cost of goods sold at BTD increased $8.6 million, mainly in the categories of material
and labor costs, as a result of increased sales volumes and higher material prices. Miller
Welding accounted for $4.9 million of the $8.6 million increase in cost of goods sold,
including $0.3 million in fair valuation write-ups of acquired inventory that was sold in
the third quarter of 2008. Under business combination accounting rules, acquired inventory
is written up to fair value.
    
    Cost of goods sold at T.O. Plastics increased $1.5 million, mainly in material costs
related to increased sales of horticultural products.
    
    Cost of goods sold at ShoreMaster increased $3.5 million as a result of increased
material costs related to commercial projects, including costs incurred on a large marina
project in Costa Rica in the third quarter of 2008 scheduled for completion in December
2008.
  
    
    Operating expenses at DMI increased $2.0 million, mainly for labor, benefit and
contracted services, including expenses related to operation of its new plant in Oklahoma
which began construction in the third quarter of 2007 and went into operation in January
2008.
    
    BTDs operating expenses increased $1.9 million as a result of increases in labor and
benefit expenses and software maintenance costs. Third quarter 2008 operating expenses at
Miller Welding, acquired in May 2008, were $0.4 million.
    
    T.O. Plastics operating expenses increased $0.1 million between the quarters.
    
    ShoreMasters operating expenses decreased $0.1 million between the quarters, excluding
the $0.9 million in plant closure costs incurred in the third quarter of 2008.
   30




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Health Services
 Three Months EndedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeOperating Revenues
    
    $
    31,139
    
    
    $
    31,360
    
    
    $
    (221
    )
    
    
    (0.7
    )Cost of Goods Sold
    
    
    24,779
    
    
    
    24,193
    
    
    
    586
    
    
    
    2.4Operating Expenses
    
    
    4,726
    
    
    
    5,816
    
    
    
    (1,090
    )
    
    
    (18.7
    )Depreciation and Amortization
    
    
    1,020
    
    
    
    1,003
    
    
    
    17
    
    
    
    1.7Operating Income
    
    $
    614
    
    
    $
    348
    
    
    $
    266
    
    
    
    76.4
  Food Ingredient Processing
 Three Months EndedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeOperating Revenues
    
    $
    15,333
    
    
    $
    15,714
    
    
    $
    (381
    )
    
    
    (2.4
    )Cost of Goods Sold
    
    
    15,380
    
    
    
    11,926
    
    
    
    3,454
    
    
    
    29.0Operating Expenses
    
    
    540
    
    
    
    792
    
    
    
    (252
    )
    
    
    (31.8
    )Depreciation and Amortization
    
    
    1,057
    
    
    
    1,017
    
    
    
    40
    
    
    
    3.9Operating (Loss) Income
    
    $
    (1,644
    )
    
    $
    1,979
    
    
    $
    (3,623
    )
    
    
    (183.1
    )
  31




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Other Business Operations
 Three Months EndedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeOperating Revenues
    
    $
    59,650
    
    
    $
    51,231
    
    
    $
    8,419
    
    
    
    16.4Cost of Goods Sold
    
    
    36,221
    
    
    
    37,029
    
    
    
    (808
    )
    
    
    (2.2
    )Operating Expenses
    
    
    15,194
    
    
    
    11,108
    
    
    
    4,086
    
    
    
    36.8Depreciation and Amortization
    
    
    609
    
    
    
    512
    
    
    
    97
    
    
    
    18.9Operating Income
    
    $
    7,626
    
    
    $
    2,582
    
    
    $
    5,044
    
    
    
    195.4
  
    
    Revenues at Foley Company increased $7.0 million due to higher backlog going into 2008
resulting in an increase in volume of jobs in progress.
    
    Revenues at Midwest Construction Services, Inc. (MCS) decreased $3.2 million as a result
of a reduction in jobs in progress between the quarters. In the third quarter of 2007, MCS
was working on three major wind farm projects compared with two major projects in the third
quarter of 2008.
    
    Revenues at E.W. Wylie Corporation (Wylie) increased $4.6 million as a result of the
impact of increased fuel costs on shipping rates, but also as a result of a 2.4% increase
in combined miles driven by company-owned and owner-operated trucks and higher revenues
from heavy-haul services introduced in the fourth quarter of 2007 and the transport of wind
towers starting in 2008. Miles driven by company-owned trucks increased 20.3% as a result
of the addition of heavy haul and wind tower transport services. Miles driven by
owner-operated trucks decreased 31.6% between the quarters.
  
    
    Foley Companys cost of goods sold increased $6.2 million, including increases of $2.3
million in subcontractor costs, $2.0 million in material costs and $1.8 million in labor
and benefit costs as a result of increased construction activity and jobs in progress.
    
    Cost of goods sold at MCS decreased $7.0 million due to decreases in material and
subcontractor costs directly related to MCS having fewer jobs in progress between the
quarters.
  
    
    Wylies operating expenses increased $3.3 million between the quarters. Fuel costs
increased $2.6 million as a result of higher diesel fuel prices and an increase in miles
driven by company-owned trucks. Labor and benefit costs increased by $0.5 million and
equipment rental costs increased by $0.3 million due to the addition of heavy-haul services
in the fourth quarter of 2007. Subcontractor expenses decreased $0.2 million as a result of
the decrease in miles driven by owner-operated trucks.
    
    MCSs operating expenses increased $0.5 million between the quarters due to increases in
salary and benefit expenses.
    
    Foley Companys operating expenses increased $0.3 million between the quarters mostly
due to increased salary and benefit costs.
  32




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Corporate
  Three Months EndedSeptember 30,
    
    
    
    
    
    %(in thousands)
    
    2008
    
    2007
    
    Change
    
    ChangeOperating Expenses
    
    $
    3,384
    
    
    $
    1,973
    
    
    $
    1,411
    
    
    
    71.5Depreciation and Amortization
    
    
    134
    
    
    
    143
    
    
    
    (9
    )
    
    
    (6.3
    )
  Interest Charges
  Other Income
  Income Taxes
  33




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##### Table of Contents



Comparison of the Nine Months Ended September 30, 2008 and 2007
   Nine Months Ended
    
    Nine Months Ended(in thousands)
    
    September 30, 2008
    
    September 30, 2007Operating Revenues:Electric
    
    $
    235
    
    
    $
    259Nonelectric
    
    
    1,676
    
    
    
    1,214Cost of Goods Sold
    
    
    1,600
    
    
    
    1,187Other Nonelectric Expenses
    
    
    311
    
    
    
    286
 Electric
 Nine Months EndedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeRetail Sales Revenues
    
    $
    209,228
    
    
    $
    196,573
    
    
    $
    12,655
    
    
    
    6.4Wholesale Revenues
    
    
    19,681
    
    
    
    17,687
    
    
    
    1,994
    
    
    
    11.3Net Marked-to-Market Gain
    
    
    2,284
    
    
    
    2,647
    
    
    
    (363
    )
    
    
    (13.7
    )Other Revenues
    
    
    17,946
    
    
    
    15,755
    
    
    
    2,191
    
    
    
    13.9Total Operating Revenues
    
    $
    249,139
    
    
    $
    232,662
    
    
    $
    16,477
    
    
    
    7.1Production Fuel
    
    
    53,444
    
    
    
    47,496
    
    
    
    5,948
    
    
    
    12.5Purchased Power  System Use
    
    
    39,598
    
    
    
    43,531
    
    
    
    (3,933
    )
    
    
    (9.0
    )Other Operation and Maintenance Expenses
    
    
    87,591
    
    
    
    80,738
    
    
    
    6,853
    
    
    
    8.5Depreciation and Amortization
    
    
    23,378
    
    
    
    19,501
    
    
    
    3,877
    
    
    
    19.9Property Taxes
    
    
    7,414
    
    
    
    7,591
    
    
    
    (177
    )
    
    
    (2.3
    )Operating Income
    
    $
    37,714
    
    
    $
    33,805
    
    
    $
    3,909
    
    
    
    11.6
  34




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Plastics
 Nine Months EndedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeOperating Revenues
    
    $
    99,685
    
    
    $
    114,319
    
    
    $
    (14,634
    )
    
    
    (12.8
    )Cost of Goods Sold
    
    
    87,810
    
    
    
    93,564
    
    
    
    (5,754
    )
    
    
    (6.1
    )Operating Expenses
    
    
    3,939
    
    
    
    5,074
    
    
    
    (1,135
    )
    
    
    (22.4
    )Depreciation and Amortization
    
    
    2,251
    
    
    
    2,298
    
    
    
    (47
    )
    
    
    (2.0
    )Operating Income
    
    $
    5,685
    
    
    $
    13,383
    
    
    $
    (7,698
    )
    
    
    (57.5
    )
  Manufacturing
 Nine Months EndedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeOperating Revenues
    
    $
    345,715
    
    
    $
    286,341
    
    
    $
    59,374
    
    
    
    20.7Cost of Goods Sold
    
    
    288,190
    
    
    
    225,670
    
    
    
    62,520
    
    
    
    27.7Operating Expenses
    
    
    33,261
    
    
    
    25,839
    
    
    
    7,422
    
    
    
    28.7Plant Closure Costs
    
    
    2,295
    
    
    
    
    
    
    
    2,295
    
    
    
    Depreciation and Amortization
    
    
    13,771
    
    
    
    9,734
    
    
    
    4,037
    
    
    
    41.5Operating Income
    
    $
    8,198
    
    
    $
    25,098
    
    
    $
    (16,900
    )
    
    
    (67.3
    )
  
    
    Revenues at DMI increased $36.6 million as a result of increases in production and sales
activity, including first-year production from its new plant in Oklahoma.
    
    Revenues at BTD increased $21.2 million, including $10.9 million from Miller Welding,
acquired in May 2008. The remainder of BTDs revenue increase came from increased product
sales to existing and new customers and increased prices related to higher raw material
costs.
    
    Revenues at T.O. Plastics increased $4.7 million as a result of increased sales of
horticultural products.
    
    Revenues at ShoreMaster decreased $3.2 million between the periods, of which
$1.7 million related to a major marina project in California that was underway throughout
2007 and completed in early April 2008. Reduced sales of commercial products in Missouri as
a result of new permitting processes on Lake of the Ozarks also contributed to the decrease
in revenues. Also, sales in Missouri in 2007 benefitted from a November 2006 storm on Lake
of the Ozarks.
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##### Table of Contents




    
    DMIs cost of goods sold increased $41.0 million as a result of increases in production
and sales activity, including initial operations at its new plant in Oklahoma. DMI
experienced a $4.3 million reduction in gross profit margins between the periods mainly due
to a slow start up of its Oklahoma plant where the levels of labor and overhead spending
have been higher than expected and production has not reached levels necessary to cover
these costs. Included in cost of goods sold for the nine months ended September 30, 2008
are costs of $4.3 million associated with start-up inefficiencies at the Oklahoma 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 $15.4 million, mainly in the categories of
materials, labor and shop supply costs, as a result of increased sales volumes and higher
material prices. Miller Welding accounted for $8.3 million of the $15.4 million increase in
cost of goods sold, including $1.0 million in fair valuation write-ups of acquired
inventory that was sold in the second and third quarters of 2008. Under business
combination accounting rules, acquired inventory is written up to fair value.
    
    Cost of goods sold at T.O. Plastics increased $3.9 million, mainly in material costs
related to increased sales of horticultural products.
    
    Cost of goods sold at ShoreMaster increased $2.3 million as a result of increased
material costs related to residential products sold in 2008 and costs incurred in 2008
related to the construction of a large marina project in Costa Rica scheduled for
completion in December 2008, offset by reductions in cost of goods sold in Missouri related
to reduced commercial sales on Lake of the Ozarks.
  
    
    Operating expenses at DMI increased $3.9 million, mainly related to operation of its new
plant in Oklahoma which began construction in the third quarter of 2007 and went into
operation in January 2008.
    
    BTDs operating expenses increased $3.0 million mainly as a result of increases in
labor, benefit and contracted service expenses and the May 2008 acquisition of Miller
Welding.
    
    ShoreMasters operating expenses increased $0.4 million, excluding the $2.3 million in
plant closure costs incurred in 2008, as a result of increases in sales and marketing
salaries and expenses.
    
    T.O. Plastics operating expenses increased $0.1 million between the periods.
   37




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Health Services
 Nine Months EndedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeOperating Revenues
    
    $
    91,144
    
    
    $
    96,775
    
    
    $
    (5,631
    )
    
    
    (5.8
    )Cost of Goods Sold
    
    
    72,198
    
    
    
    72,425
    
    
    
    (227
    )
    
    
    (0.3
    )Operating Expenses
    
    
    16,185
    
    
    
    17,733
    
    
    
    (1,548
    )
    
    
    (8.7
    )Depreciation and Amortization
    
    
    3,015
    
    
    
    2,986
    
    
    
    29
    
    
    
    1.0Operating (Loss) Income
    
    $
    (254
    )
    
    $
    3,631
    
    
    $
    (3,885
    )
    
    
    (107.0
    )
  Food Ingredient Processing
 Nine Months EndedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeOperating Revenues
    
    $
    47,144
    
    
    $
    53,612
    
    
    $
    (6,468
    )
    
    
    (12.1
    )Cost of Goods Sold
    
    
    40,416
    
    
    
    43,229
    
    
    
    (2,813
    )
    
    
    (6.5
    )Operating Expenses
    
    
    2,181
    
    
    
    2,334
    
    
    
    (153
    )
    
    
    (6.6
    )Depreciation and Amortization
    
    
    3,201
    
    
    
    2,985
    
    
    
    216
    
    
    
    7.2Operating Income
    
    $
    1,346
    
    
    $
    5,064
    
    
    $
    (3,718
    )
    
    
    (73.4
    )
  38




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Other Business Operations
 Nine Months EndedSeptember 30,
    
    
    
    
    
    
    %(in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeOperating Revenues
    
    $
    145,840
    
    
    $
    126,964
    
    
    $
    18,876
    
    
    
    14.9Cost of Goods Sold
    
    
    96,443
    
    
    
    87,799
    
    
    
    8,644
    
    
    
    9.8Operating Expenses
    
    
    41,260
    
    
    
    32,700
    
    
    
    8,560
    
    
    
    26.2Depreciation and Amortization
    
    
    1,567
    
    
    
    1,466
    
    
    
    101
    
    
    
    6.9Operating Income
    
    $
    6,570
    
    
    $
    4,999
    
    
    $
    1,571
    
    
    
    31.4
  
    
    Revenues at Foley Company increased $14.0 million due to higher backlog going into 2008
resulting in an increase in volume of jobs in progress.
    
    Revenues at MCS decreased $1.4 million as a result of a reduction in the number of jobs
in progress in 2008 compared to 2007 in the area of electrical infrastructure for delivery
of wind generated electricity.
    
    Revenues at Wylie increased $6.3 million mainly as a result of the impact of increased
fuel costs on shipping rates. Miles driven by company-owned trucks increased 22.9% as a
result of the addition of heavy haul and wind tower transport services. Miles driven by
owner-operated trucks decreased 37.5%. Combined miles driven by company-owned and
owner-operated trucks increased 0.5% between the periods.
  
    
    Foley Companys cost of goods sold increased $12.5 million, including increases of $8.4
million in subcontractor and material costs and $4.0 million in direct labor and benefit
costs, as a result of increased construction activity and jobs in progress.
    
    Cost of goods sold at MCS decreased $3.9 million between the periods due to decreases in
material and subcontractor costs directly related to MCS having fewer jobs in progress.
  
    
    Wylies operating expenses increased $5.7 million between the periods. Fuel costs
increased $6.0 million as a result of higher diesel fuel prices and an increase in miles
driven by company-owned trucks. Labor and benefit costs increased by $1.1 million and
equipment rental costs increased by $0.5 million due to the addition of heavy-haul services
in the fourth quarter of 2007. Travel expenses increased $0.3 million. Subcontractor
expenses decreased $2.2 million as a result of the decrease in miles driven by
owner-operated trucks.
    
    MCSs operating expenses increased $1.8 million between the periods due to increases in
salary, benefit and contracted services expenses.
    
    Foley Companys operating expenses increased $0.7 million between the periods due to
increases in labor and insurance costs.
    
    Operating expenses at Otter Tail Energy Services Company increased $0.4 million between
the periods related to the investigation and development of renewable energy
wind-generation projects.
 39




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Corporate
  Nine Months EndedSeptember 30,
    
    
    
    
    
    %(in thousands)
    
    2008
    
    2007
    
    Change
    
    ChangeOperating Expenses
    
    $
    11,696
    
    
    $
    8,952
    
    
    $
    2,744
    
    
    
    30.7Depreciation and Amortization
    
    
    417
    
    
    
    436
    
    
    
    (19)
    
    
    
    (4.4)
  Interest Charges
  Other Income
  Income Taxes
  40




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##### Table of Contents



2008 EXPECTATIONS
   
    
    We continue to expect increased levels of net income from our electric segment in 2008, but
to a lesser degree due to milder weather conditions in the third quarter and early fourth
quarter, an unscheduled outage at Hoot Lake Plant Unit 2 late in the third quarter and the
impact of lower forward energy prices on asset-based wholesale margins. The increase is
attributable to the 2.9% rate increase granted in Minnesota and rate riders for wind energy in
North Dakota and Minnesota. The increase also results from having lower-cost generation
available for the year, as there have been no major shutdowns of Big Stone Plant or Coyote
Station in 2008.
 
    
    We expect our plastics segments 2008 performance to be below normal levels as this segment
continues to be impacted by the sluggish housing and construction markets. Also, announced
reductions in polyvinyl chloride (PVC) resin prices in October 2008 are expected to negatively
impact PVC pipe prices, profit margins on PVC pipe sales and the value of PVC pipe held in
inventory. Announced capacity expansions are not expected to have a material impact on 2008
results.
 
    
    We expect a further decrease in net income in our manufacturing segment in 2008. Increased
capacity related to recent expansions and acquisitions as well as the start-up of DMIs wind
tower manufacturing plant in Oklahoma in 2008 are expected to result in increased levels of
revenue. DMI is investing in new facilities and incurring costs related to starting up and
expanding facilities as well as integrating new customers in order to prepare for the
anticipated growth in the wind industry subsequent to 2008. This is expected to result in a
decrease in net income in 2008 compared with 2007. Also, for ShoreMaster the continuing impact
of a softening economy on its residential business and limited access to credit markets for
customers to finance construction of commercial projects is expected to cause a further
decrease in net income for our manufacturing segment in 2008. Backlog in place on September
30, 2008 in our manufacturing segment to support revenues for the remainder of 2008 is
approximately $131 million. This compares with $95 million in revenue earned in the fourth
quarter of 2007. DMI accounts for a substantial portion of the 2008 backlog.
 
    
    We expect a further decline in net income from our health services segment in 2008 due to
lower utilization levels of certain imaging assets and cancellation of equipment orders by
hospitals that were expected to occur in 2008 but have been either completely cancelled or
delayed into 2009 due to concerns over the weakening economy and limited access to credit
markets to finance equipment purchases.
 
    
    We expect a significant reduction in net income from our food ingredient processing
business in 2008 as a result of higher natural gas and fuel oil prices during the first three
quarters and reductions in raw potato supplies which are expected to lower sales volumes for
the rest of 2008.
 
    
    We expect our other business operations segment to have higher net income in 2008 compared
with 2007. Backlog for the construction businesses at the end of the third quarter of 2008 was
approximately $48 million for the remainder of 2008 compared with $51 million in revenue in
the fourth quarter of 2007.
 
    
    We expect corporate general and administrative costs to increase in 2008.
 41




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##### Table of Contents



FINANCIAL POSITION
      42




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##### Table of Contents



Moodys Investors
    
    StandardService
    
    & PoorsSenior Unsecured Debt
    
    
    A3
    
    
    BBB-Preferred Stock
    
    Baa2
    
    BBB-Outlook
    
    Negative
    
    Stable
 43




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##### Table of Contents



Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
     44




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##### Table of Contents



(in millions)
    
    2008
    
    
    
    2008-2012Electric
    
    $
    194
    
    
    
    $
    880Plastics
    
    
    13
    
    
    
    
    21Manufacturing
    
    
    52
    
    
    
    
    114Health Services
    
    
    2
    
    
    
    
    11Food Ingredient Processing
    
    
    4
    
    
    
    
    18Other Business Operations
    
    
    4
    
    
    
    
    9Corporate
    
    
    
    
    
    
    
    1Total
    
    $
    269
    
    
    
    $
    1,054
  45




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##### Table of Contents



Critical Accounting Policies Involving Significant Estimates
   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.
 46




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##### 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.
 
    
    Any significant impairment of our goodwill would cause a decrease in our assets and a
reduction in our net operating performance.
 
    
    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.
 
    
    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.
 
    
    Future operating results of our electric segment will be impacted by the outcome of rate
rider filings in Minnesota for transmission investments.
 
    
    Certain costs currently included in the FCA in retail rates may be excluded from recovery
through the FCA but may be subject to recovery through rates established in a general rate
case.
 
    
    Weather conditions or changes in weather patterns 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 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.
 
    
    Our electric segment has capitalized $10.8 million in costs related to the planned
construction of a second electric generating unit at its Big Stone Plant site as of September
30, 2008. 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, a portion of these
capitalized costs and others incurred in future periods may be subject to expense and may not
be recoverable.
 
    
    Federal and state environmental regulation could cause the corporation to incur substantial
capital expenditures and increased operating costs.
 
    
    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 or taxes on CO2 emissions,
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.
 
    
    We may not be able to respond effectively to deregulation initiatives in the electric
industry, which could result in reduced revenues and earnings.
 
    
    Our manufacturer of wind towers operates in a market that has been influenced by the
existence of a Federal Production Tax Credit. This tax credit is scheduled to expire on
December 31, 2009. Should this tax credit not be renewed, the revenues and earnings of this
business and the electrical contracting business in our other business operations segment
could be reduced.
 
    
    If we are unable to achieve the organic growth we expect, our financial performance may be
adversely affected.
 47




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
    
    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, grow and operate our nonelectric businesses could be limited by state
law.
 
    
    Competition is a factor in all of our businesses.
 
    
    Economic conditions could have a negative impact on our businesses. Tightening of credit in
financial markets, a decline in the level of economic activity and uncertainty regarding
energy and commodity prices could adversely affect our results of operations and our future
growth.
 
    
    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.
 
    
    As of September 30, 2008, our defined benefit pension plan assets have declined
significantly since December 31, 2007. At this time, we are unable to predict the plans asset
values and required valuation parameters. We will measure our plans asset values and pension
benefit obligations and calculate our 2009 pension benefit expense and 2009 annual plan
contribution requirements at December 31, 2008.
 
    
    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.
 
    
    Our food ingredient processing and wind tower manufacturing businesses could be adversely
affected by changes in foreign currency exchange rates.
 
    
    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 be unable to renew and continue to maintain dealership
arrangements with Philips Medical which are scheduled to expire on December 31, 2008.
 
    
    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.
 
    
    A significant failure or an inability to properly bid or perform on projects by our
construction businesses could lead to adverse financial results.
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Quantitative and Qualitative Disclosures about Market Risk
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(in thousands)
    
    September 30, 2008Current Asset  Marked-to-Market Gain
    
    $
    4,922Regulatory Asset  Deferred Marked-to-Market Loss
    
    
    271Total Assets
    
    
    5,193Current Liability  Marked-to-Market Loss
    
    
    (3,427)Regulatory Liability  Deferred Marked-to-Market Gain
    
    
    (682)Total Liabilities
    
    
    (4,109)Net Fair Value of Marked-to-Market Energy Contracts
    
    $
    1,084
 Year-to-Date(in thousands)
    
    September 30, 2008Fair Value at Beginning of Year
    
    $
    632Amount Realized on Contracts Entered into in 2007 and Settled in 2008
    
    
    (204)Changes in Fair Value of Contracts Entered into in 2007
    
    
    570Net Fair Value of Contracts Entered into in 2007 at End of Period
    
    
    998Changes in Fair Value of Open Contracts Entered into in 2008
    
    
    86Net Fair Value End of Period
    
    $
    1,084
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51




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Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Legal Proceedings
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Risk Factors
   GENERAL
 Federal and state environmental regulation could require us to incur substantial capital
expenditures and increased operating costs.
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Volatile financial markets and changes in our debt ratings could restrict our ability to access
capital and increase borrowing costs and pension plan expenses.
    Any significant impairment of our goodwill would cause a decrease in our assets and a reduction in
our net operating performance.
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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 may not be successful, which could result in
poor financial performance.
  Our plans to acquire, grow and operate our non-electric 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.
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We are subject to risks associated with energy markets.
  ELECTRIC
 We may experience fluctuations in revenues and expenses related to our electric operations, which
may cause our financial results to fluctuate and could impair our ability to make distributions to
shareholders or scheduled payments on our debt obligations.
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Actions by the regulators of our electric operations could result in rate reductions, lower
revenues and earnings or delays in recovering capital expenditures.
   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.
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Changes to regulation of generating plant emissions, including but not limited to CO 2 emissions, could affect our operating costs and the costs of supplying electricity to our
customers.
 2 2
 PLASTICS
 Our plastics operations are highly dependent on a limited number of vendors for PVC resin and a
limited supply of PVC resin. The loss of a key vendor, or any interruption or delay in the supply
of PVC resin, could result in reduced sales or increased costs for our plastics business.
  We compete against a large number of other manufacturers of PVC pipe and manufacturers of
alternative products. Customers may not distinguish our products from those of our competitors.
  Reductions in PVC resin prices can negatively affect our plastics business.
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MANUFACTURING
 Competition from foreign and domestic manufacturers, the price and availability of raw materials,
fluctuations in foreign currency exchange rates, the availability of production tax credits and
general economic conditions could affect the revenues and earnings of our manufacturing businesses.
   HEALTH SERVICES
 Changes in the rates or methods of third-party reimbursements for our diagnostic imaging services
could result in reduced demand for those services or create downward pricing pressure, which would
decrease our revenues and earnings.
  Our health services businesses may be unable to renew and continue to maintain the dealership and
other agreements with Philips Medical from which it derives significant revenues from the sale and
service of Philips Medical diagnostic imaging equipment.
  Technological change in the diagnostic imaging industry could reduce the demand for diagnostic
imaging services and require our health services operations to incur significant costs to upgrade
its equipment.
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Actions by regulators of our health services operations could result in monetary penalties or
restrictions in our health services operations.
  FOOD INGREDIENT PROCESSING
 Our company that processes dehydrated potato flakes, flour and granules, IPH, competes in a highly
competitive market and is dependent on adequate sources of potatoes for processing.
   OTHER BUSINESS OPERATIONS
 Our construction companies may be unable to properly bid and perform on projects.
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Exhibits
 4.1
    
    Credit Agreement, dated as of July 30, 2008, among Otter Tail Corporation, the Banks named
therein, Bank of America, N.A., as Syndication Agent, U.S. Bank National Association, a
national banking association, as agent for the Banks, JPMorgan Chase Bank, N.A., Wells Fargo
Bank, National Association, and Merrill Lynch Bank USA (incorporated by reference to Exhibit
4.1 to Otter Tail Corporations Form 8-K filed August 1, 2008)4.2
    
    Second Amendment to Note Purchase Agreement, dated as of September 11, 2008, among the
Company and the noteholders party thereto (amending that certain Note Purchase Agreement,
dated as of August 20, 2007, among the Company and each of the purchasers party thereto)
(incorporated by reference to Exhibit 4.1 to Otter Tail Corporations Form 8-K filed
September 15, 2008)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) November 7, 2008
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EXHIBIT INDEX
 Exhibit Number
    
    Description4.1
    
    Credit Agreement, dated as of July 30, 2008, among Otter Tail Corporation, the
Banks named therein, Bank of America, N.A., as Syndication Agent, U.S. Bank National
Association, a national banking association, as agent for the Banks, JPMorgan Chase Bank,
N.A., Wells Fargo Bank, National Association, and Merrill Lynch Bank USA (incorporated by
reference to Exhibit 4.1 to Otter Tail Corporations Form 8-K filed August 1, 2008)4.2
    
    Second Amendment to Note Purchase Agreement, dated as of September 11, 2008, among
the Company and the noteholders party thereto (amending that certain Note Purchase
Agreement, dated as of August 20, 2007, among the Company and each of the purchasers
party thereto) (incorporated by reference to Exhibit 4.1 to Otter Tail Corporations Form
8-K filed September 15, 2008)31.1
    
    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