Otter Tail Corporation Reports Solid Financial Results for 2012 and Provides 2013 Earnings Guidance
Otter Tail Corporation Reports Solid Financial Results for 2012 and Provides
2013 Earnings Guidance
FERGUS FALLS, Minn., Feb. 11, 2013 (GLOBE NEWSWIRE) -- Otter Tail Corporation
(Nasdaq:OTTR) today announced financial results for the year ended December
31, 2012.
2012 Summary:
* The corporation continues to execute on its strategy of de-risking with
divestitures of DMS Health Technologies, Inc. (DMS) and DMI Industries,
Inc. (DMI) in 2012 and ShoreMaster, Inc. (ShoreMaster) in 2013.
* Consolidated revenues from continuing operations rose 2.3% to $859.2
million compared with $840.2 million in 2011.
* Consolidated operating income from continuing operations rose 14.1% to
$82.0 million from $71.9 million in 2011.
* On a non-GAAP basis^1, excluding interest and early retirement charges of
$9.3 million in 2012 and interest charges of $2.7 million in 2011 related
to the corporation's $50 million, 8.89% Senior Unsecured Note due November
30, 2017, that was retired in July 2012, consolidated net income from
continuing operations totaled $48.3 million, or $1.31 per diluted share,
compared with $37.6 million, or $1.02 per diluted share, in 2011, a 28.5%
improvement.
* Consolidated net income from continuing operations increased to $39.0
million, or $1.05 per diluted share, from $34.9 million, or $0.95 per
diluted share, in 2011.
* Consolidated net losses from continuing and discontinued operations
totaled $5.3 million, or ($0.17) per diluted share, compared with $13.2
million, or ($0.40) per diluted share for 2011.
* The corporation expects 2013 earnings per share from continuing operations
to be in a range of $1.30 to $1.55.
^1 This release includes measures of financial performance and presentations
of financial information that are not defined by generally accepted accounting
principles (GAAP). Management believes that adjusting for certain one-time
costs, such as debt prepayment premiums and for interest expense related to
the retired debt, and presenting results on the basis of the expected future
classification of continuing and discontinued operations will assist investors
in making an evaluation of our performance against prior periods on a
comparable basis. Management understands that there are material limitations
on the use of non-GAAP measures. Non-GAAP measures are not substitutes for
GAAP measures for the purpose of analyzing financial performance. These
non-GAAP measures are not in accordance with, or an alternative for, measures
prepared in accordance with, generally accepted accounting principles and may
be different from non-GAAP measures used by other companies. In addition,
these non-GAAP measures are not based on any comprehensive set of accounting
rules or principles. This information should not be construed as an
alternative to the reported results, which have been determined in accordance
with GAAP.
CEO Overview
"We are pleased to have ended the year with a good quarter. 2012 was a year of
transformation. We made significant progress and our company is stronger with
enhanced financial stability, more predictable growth, and a lower risk
profile," said Otter Tail Corporation President and CEO Jim McIntyre. "In
2012, we completed the sales of DMS, our health services company, and DMI, our
wind tower manufacturer. And on February 8, 2013 we closed on the sale of
substantially all of the assets of ShoreMaster, our waterfront equipment
manufacturer. Additionally, we took steps to further strengthen our capital
structure and lower our borrowing expense by retiring our $50 million, 8.89%
Senior Unsecured Note, in connection with the sale of DMI.
"Completing the sale of DMI and garnering approximately $80 million in net
proceeds from the sale of DMI's fixed assets and monetizing its net working
capital helped fund our growth prospects in the Electric segment. We continued
to invest in key electric utility opportunities, such as the CapX2020
transmission projects currently under way, the environmental upgrades at Big
Stone Plant, and planned Midwest Independent Transmission System Operator
(MISO) transmission projects. These projects, which have already received
certain regulatory approvals, will generate significant growth for our
Electric segment over the next several years.
"We are encouraged by our 2012 performance. Consolidated operating income rose
14.1%. Our Electric segment continued its strong performance in
2012. Moreover, all of our manufacturing and infrastructure businesses, except
Foley Company, our mechanical and prime contractor on industrial projects,
showed improvement in net income. Our more focused, disciplined approach
coupled with improving consumer markets, is benefitting our financial and
operating results.
"In 2013 we will work to further improve operational and financial results
from all of our businesses. Our goal is to deliver annual growth in earnings
per share between four to seven percent over the next several years. The
growth is expected to come from the substantial increase in our regulated
utility rate base and from planned increased earnings from existing capacity
already in place in our manufacturing and infrastructure businesses. As
previously indicated, we are targeting approximately 75-85 percent of earnings
from our core electric business and 15-25 percent to come from our remaining
portfolio of companies. We believe this is sustainable over time while
maintaining strong credit quality, dependable earnings and manageable risk."
2012 Earnings from Continuing Operations Expectations Met
The following table sets forth actual results against the most recent forecast
for 2012 on a GAAP basis, and also shows the effect on a non-GAAP basis of the
early retirement of the $50 million, 8.89% Senior Unsecured Note due 2017.
2012 Earnings Per Share
Guidance Range November 5, 2012
2012 GAAP 2012 2012
Low High Earnings Non-GAAP Non-GAAP
Per Share Items Earnings
Per Share
Electric $1.01 $1.06 $1.06 -- $1.06
Manufacturing
(without $0.26 $0.30 $0.29 -- $0.29
ShoreMaster)
Net Loss from ($0.08) ($0.07) -- -- --
ShoreMaster
Construction ($0.23) ($0.18) ($0.21) -- ($0.21)
Plastics $0.32 $0.37 $0.39 -- $0.39
Corporate – ($0.22) ($0.17) ($0.26) $0.04 ($0.22)
Recurring Costs
Subtotal $1.06 $1.31 $1.27 $0.04 $1.31
Corporate – Premium
Paid on Debt ($0.22) ($0.22) ($0.22) $0.22 --
Extinguishment
Total – Continuing $0.84 $1.09 $1.05 $0.26 $1.31
Operations
Discontinued
Operations:
Net Losses from
Discontinued ($1.00) ($0.95) ($1.22) -- ($1.22)
Operations
Premium Paid on
Debt Extinguishment -- -- -- ($0.22) ($0.22)
in Connection with
DMI Disposition^1
2012 Interest
Expense on Debt
Extinguished in -- -- -- ($0.04) ($0.04)
Connection with DMI
Disposition^1
Total –
Discontinued ($1.00) ($0.95) ($1.22) ($0.26) ($1.48)
Operations
Total ($0.16) $0.14 ($0.17) -- ($0.17)
^
^1The corporation retired early its $50 million, 8.89% Senior Unsecured
Note due November 30, 2017 from proceeds generated in connection with
the divestiture of DMI. Generally Accepted Accounting Principles require
that in order for debt retirement premiums and related interest expense
to be reported as discontinued operations, a company must be required by
the lender to repay the related debt as a result of the disposition.
Although the corporation was not legally obligated to repay the
aforementioned note, management believes it is appropriate to associate
the 2012 debt prepayment premium and interest expense with its
discontinued operations to provide a better indication of future
earnings.
Cash Flow from Operations and Liquidity
The corporation's consolidated cash flow from continuing operations for the
year ended December 31, 2012 was $169.0 million compared with $93.7 million
for the year ended December 31, 2011. The corporation's consolidated cash flow
from discontinued operations for the year ended December 31, 2012 was
$64.6 million, compared with $10.7 million for the year ended December 31,
2011. The corporation used proceeds from the sale of DMI to retire its
$50 million, 8.89% Senior Unsecured Note due November 30, 2017. This early
retirement reduced the corporation's long-term debt outstanding and lowered
its cost of capital, strengthened its consolidated capital structure and will
have a positive effect on future years' earnings by lowering interest costs.
The following table presents the status of the corporation's lines of credit
as of December 31, 2012:
Restricted due
In Use On to Available on
(in thousands) Line Limit December 31, Outstanding December 31,
2012 Letters of 2012
Credit
Otter Tail Corporation $ 150,000 $ -- $ 733 $ 149,267
Credit Agreement
Otter Tail Power Company 170,000 -- 3,189 166,811
Credit Agreement
Total $ 320,000 $ -- $ 3,922 $ 316,078
Board of Directors Declared Quarterly Dividends
On February 4, 2013 the Board of Directors declared a quarterly common stock
dividend of $0.2975 per share, payable March 9, 2013 to shareholders of record
on February 15, 2013. The Board also declared quarterly dividends on the
corporation's four series of preferred stock, payable March 1, 2013 to
shareholders of record on February 15, 2013.
2012 Segment Performance Summary
Electric
Electric revenues and net income were $350.8 million and $38.3 million,
respectively, compared with revenues of $342.7 million and net income of $38.9
million for 2011. Retail electric revenues increased $4.3 million as a result
of:
* a $2.6 million increase in transmission cost recovery revenues as a result
of increased investment in transmission assets,
* a $1.8 million interim rate refund in 2011 related to amounts collected
under interim rates in Minnesota in 2010,
* a $1.5 million increase in revenue mainly related to rate design changes
implemented in Minnesota in October 2011 on finalization of Otter Tail
Power Company's 2010 general rate case, and
* a $0.9 million increase in retail revenue related to the recovery of
increased fuel and purchased power costs,
offset by:
* a $2.3 million decrease in revenues related to a 1.2% reduction in retail
kilowatt-hour (kwh) sales between the periods due to an 11% reduction in
heating-degree days resulting from significantly milder weather in the
first half of 2012, partially offset by a 19.6% increase in cooling-degree
days in the summer of 2012 compared with the same periods in 2011, and
* a $0.2 million reduction in accrued conservation program cost recovery
revenues and incentives.
Wholesale electric revenues from company-owned generation decreased $1.6
million due to a 6.7% decline in wholesale kwh sales in combination with a
4.4% decrease in the average price per wholesale kwh sold. This was related to
an 8.7% reduction in kwh generation mainly as a result of two major shutdowns
of Otter Tail Power Company's lowest-cost baseload resource, Coyote Station in
2012. The first occurred in the second quarter of 2012 for seven weeks of
scheduled maintenance, and the second occurred on November 27, 2012, when an
electrical fault caused major damage to the station's generator, which needed
to be moved offsite for repairs estimated to take 10 to 12 weeks. Lower demand
in wholesale markets and low natural gas prices for alternative generation
also contributed to the reduction in wholesale electric sales.
Net gains from energy trading activities, including net mark-to-market gains
on forward energy contracts, decreased $0.9 million mainly as a result of a
decrease in mark-to-market gains on open energy contracts, along with a
reduction in trading activity.
A $6.1 million increase in other electric operating revenues reflects:
* a $3.6 million increase in MISO Schedule 26 transmission tariff revenues,
driven in part by returns on, and recovery of, CapX2020 investment costs
and operating expenses,
* a $1.5 million increase in revenues earned under agreements for shared use
of transmission facilities with other regional transmission providers,
* $0.9 million in MISO Schedule 26A revenue, new in 2012, mainly related to
investments in MISO designated Multi-Value Projects (MVPs),
* $0.8 million in revenue earned under a contract to upgrade a distribution
system for another regional electric service provider, and
* a $0.7 million increase in MISO Schedule 1 transmission tariff revenues
due to 2011 and 2012 changes in the calculation methodology used to
determine Schedule 1 revenues,
offset by:
* a $1.3 million reduction in revenue related to a payment received in 2011
from a transmission cooperative to Otter Tail Energy Services Company
(OTESCO) for access rights to construct a high voltage transmission line
through a wind farm site where OTESCO owned development rights, and for
assistance in obtaining easements from landowners.
Fuel costs decreased $2.7 million as a result of a 9.0% decrease in kwhs
generated from Otter Tail Power Company's steam-powered and combustion turbine
generators, partially offset by a 5.5% increase in the cost of fuel per kwh
generated. The decrease in kwh generation was due to the two major maintenance
shutdowns of Coyote Station in 2012. The cost of purchased power for retail
sales increased $5.7 million as a result of a 28.2% increase in kwhs purchased
for system use, partially offset by an 11.7% decrease in the cost per kwh
purchased. The increase in kwh purchases was driven by the need to buy
replacement power after Coyote Station went off-line in November 2012.
Electric operating and maintenance expenses increased $5.7 million due to the
following:
* a $3.4 million increase in MISO transmission service charges, mainly MISO
Schedule 26 charges related to increased investment in transmission
facilities by MISO member companies,
* a $2.2 million increase in labor and benefit expenses mainly due to
increases in pension and retiree health benefit costs resulting from a
reduction in the discount rate applied to projected benefit obligations,
* a $1.1 million increase in maintenance expenses at Coyote Station related
to its second quarter 2012 seven-week scheduled major maintenance
shutdown,
* a $0.5 million increase in property tax expense related to higher taxes on
electric distribution property and increased investments in transmission
property,
* a $0.4 million increase in wind farm maintenance service costs, and
* a $0.3 million increase in maintenance costs at Big Stone Plant,
offset by:
* a $1.7 million reduction in material and supply costs related to costs
incurred in conjunction with a major overhaul of Big Stone Plant in the
fourth quarter of 2011, and
* a $0.4 million reduction in incurred conservation program costs,
commensurate with a reduction in accrued revenues related to the future
recovery of those costs.
Other Income in the Electric segment increased $0.5 million as a result of:
* a $0.3 million increase in allowances for equity funds used during
construction (AFUDC), mainly related to costs incurred in conjunction with
planning and construction of a new air quality control system (AQCS) at
Big Stone Plant, and
* a $0.2 million increase in investment income.
Manufacturing
ShoreMaster's results have been reclassified to discontinued operations, as it
meets the accounting criteria for assets held for sale at the end of 2012 and
are no longer included in the Manufacturing segment.
Manufacturing revenues and net income were $209.0 million and $10.7 million,
respectively, compared with $189.5 million and $8.2 million for 2011.
* At BTD, revenues increased $17.7 million and net income increased $1.4
million as a result of higher sales volume due to improved customer demand
for products and services.
* At T.O. Plastics, revenues increased by $1.8 million and net income
increased $1.1 million as a result of increased sales of industrial and
medical products. Productivity improvements and more selective bidding
practices also contributed to the increase in net income at T.O. Plastics.
Construction
Construction revenues and net losses were $149.1 million and $7.7 million,
respectively, compared with $184.7 million and $2.2 million for 2011.
o Foley Company revenues decreased $48.3 million and its net losses
increased $7.7 million due to a decrease in work volume and the effect of
cost overruns on estimated revenues recognized under
percentage-of-completion accounting. Estimated costs on certain large
projects in excess of previous period estimates resulted in pretax charges
of $14.9 million in 2012 compared with $7.0 million in 2011. Substantially
all of these projects had been completed or were in the final stages of
completion as of December 31, 2012.
o Aevenia's revenues and net income increased $12.7 million and $2.2
million, respectively, mainly as a result of an increase in electrical
transmission, distribution and substation work in the oil patch region of
western North Dakota and improved performance on construction projects.
Plastics
Plastics revenues and net income were $150.5 million and $14.1 million,
respectively, compared with revenues of $123.7 million and net income of $5.8
million for 2011. The increase in revenues and net income was due to a 17.0%
increase in pounds of pipe sold combined with a 4.1% increase in the price per
pound of pipe sold, while the cost per pound of pipe sold decreased by 6.6%
between the years. The decrease in the cost per pound of pipe sold was due to
lower prices of resin between the years and increased productivity as fixed
production costs were spread over a larger volume of pipe produced over longer
production runs with less downtime.
Corporate
Corporate expenses, net-of-tax, increased $0.7 million between the years. The
increase in corporate expenses includes the $7.9 million after tax charge for
the early retirement of long-term debt offset by $7.2 million in net-of-tax
reductions in operating expenses, including reductions in compensation and
benefit costs and less interest expense due to the retirement of the $50
million Senior Unsecured Note on July 13, 2012 and a $28.5 million reduction
in the daily average balance of short-term debt outstanding between the years
under the Otter Tail Corporation line of credit.
Discontinued Operations
On February 8, 2013 the corporation closed on the sale of substantially all
the assets of ShoreMaster for approximately $13.0 million in cash plus a
future working capital true up to be finalized within 180 days of closing. The
corporation recorded a $4.6 million net-of-tax impairment of ShoreMaster's
assets in December 2012 based on the market value of ShoreMaster's assets. On
November 30, 2012 the corporation completed the sale of DMI's assets for total
proceeds, net of commissions and selling costs, of $18.1 million. On February
29, 2012 the corporation completed the sale of DMS for $30.0 million in cash.
On January 18, 2012, the corporation sold the assets of Aviva Sports, Inc.
(Aviva), a wholly owned subsidiary of ShoreMaster that sold various
recreational products, for $0.3 million in cash.
On December 29, 2011 the corporation completed the sale of E.W. Wylie
Corporation (Wylie), its trucking business, for approximately $25.0 million in
cash. The proceeds from the sale of Wylie were used for general corporate
purposes. On May 6, 2011 the corporation completed the sale of Idaho Pacific
Holdings, Inc. (IPH), its food ingredient processing business, for
approximately $86.0 million in cash. The proceeds from the sale, net of $3.0
million deposited in an escrow account, were used to pay down borrowings under
the corporation's then existing credit agreement.
The financial position, results of operations and cash flows of ShoreMaster,
DMI, DMS, Aviva, Wylie and IPH are reported as discontinued operations in the
corporation's consolidated financial statements provided at the end of this
report. Following are summary presentations of the results of discontinued
operations for the years ended December 31, 2012 and 2011:
For the Year Ended December 31,
(in thousands) 2012 2011
Operating Revenues $ 233,059 $ 403,335
Operating Expenses 233,528 419,221
Asset Impairment Charge 53,320 59,977
Other Income 272 23
Interest Expense 175 242
Income Tax Benefit (14,982) (19,255)
Net Loss from Operations (38,710) (56,827)
(Loss) Gain on Disposition Before Taxes (5,216) 14,525
Income Tax Expense on Disposition 315 5,851
Net (Loss) Gain on Disposition (5,531) 8,674
Net Loss $ (44,241) $ (48,153)
Realigning the corporation's portfolio of businesses and refocusing its
capital investment are important to reducing its risk profile, as well as
better supporting its credit metrics, which enhances its ability to support
the dividend and capitalize on available growth opportunities. The corporation
may continue to pursue other opportunities for strategic realignment.
Fourth Quarter 2012 Consolidated Results
Operating revenues were $212.6 million compared with $207.3 million for the
same quarter a year ago. Operating income was $24.2 million compared with
$12.6 million for the fourth quarter of 2011.
Net income from continuing operations was $17.1 million compared with $6.0
million in the fourth quarter of 2011. Fourth quarter 2012 net income from
continuing operations includes increases in net income in all of the
corporation's operating segments.
Net income from continuing and discontinued operations was $3.0 million
compared with a net loss of $44.1 million in the fourth quarter of 2011. The
fourth quarter 2011 net loss from continuing and discontinued operations
mainly reflects a net loss from discontinued operations of $50.1 million,
which included:
o a $39.1 million net-of-tax asset impairment charge at DMS resulting from
the write down of DMS to its fair value based on DMS's indicated sales
price, and
o a $3.8 million after-tax loss on the sale of Wylie.
Diluted earnings per share from continuing operations were $0.47 compared with
$0.16 for the fourth quarter of 2011. Diluted earnings (losses) per share from
continuing and discontinued operations were $0.08 compared with ($1.23) for
the fourth quarter of 2011.
2013 Business Outlook
The corporation anticipates 2013 diluted earnings per share to be in the range
of $1.30 to $1.55. This guidance reflects the current mix of businesses owned
by the corporation as it starts out 2013. It considers the cyclical nature of
some of the corporation's businesses and reflects challenges presented by
current economic conditions, as well as the corporation's plans and strategies
for improving future operating results. The corporation's current consolidated
capital expenditures expectation for 2013 is in the range of $200 million to
$210 million. This compares with $116 million of capital expenditures in 2012.
The major project contributing to the increase in planned expenditures is the
new AQCS for Big Stone Plant to meet requirements of the federal Clean Air Act
and regional haze regulations. The corporation plans to invest in generation
and transmission projects for the Electric segment that are expected to
positively impact the corporation's earnings and returns on capital. In
addition to the AQCS project, current Electric segment projects include
investment in three MISO-determined MVP transmission projects that will serve
the nine-state MISO region, of which one is a CapX2020 project already under
way, and investment with other utilities in one other remaining CapX2020
transmission project also under way.
Segment components of the corporation's 2013 earnings per share guidance range
are as follows:
GAAP 2012 2013 EPS Guidance
EPS by
Segment Low High
Electric $1.06 $1.06 $1.11
Manufacturing $0.29 $0.31 $0.36
Construction ($0.21) $0.06 $0.11
Plastics $0.39 $0.16 $0.21
Corporate ($0.26) ($0.29) ($0.24)
Subtotal – Continuing Operations $1.27 $1.30 $1.55
Corporate – Premium Paid on Debt Extinguishment ($0.22)
Total – Continuing Operations $1.05 $1.30 $1.55
Contributing to the earnings guidance for 2013 are the following items:
* The corporation expects net income to increase slightly in its Electric
segment in 2013 compared with 2012. This is based on rider recovery
increases and an increase in AFUDC related to larger construction
expenditures, offset by lower conservation improvement program incentives
and increases in operating and maintenance expenses due to higher benefit
costs. Otter Tail Power Company's pension benefit costs for the
corporation's noncontributory funded pension plan are expected to increase
by $2.7 million in 2013, reflecting a change in the assumed rate of return
on pension plan assets from 8.0% in 2012 to 7.75% in 2013 and a decrease
in the estimated discount rate used to determine annual benefit cost
accruals from 5.15% in 2012 to 4.50% in 2013.
* The corporation expects earnings from its Manufacturing segment to improve
in 2013 due to the following factors:
* Increased order volume and continuing improvement in economic conditions
in the industries BTD serves,
* A slight increase in earnings from T.O. Plastics, and
* Backlog for the manufacturing companies of approximately $124 million
for 2013 compared with $115 million one year ago.
* The corporation expects higher net income from its Construction segment in
2013 as it has implemented improved cost control processes in construction
management and selectively bid on projects with the potential for higher
margins. 2012 was negatively impacted by the results on certain large
projects at Foley. These projects are now substantially completed and
Foley's internal bidding and estimating project review procedures have
been improved such that the corporation does not expect to see similar
losses in 2013. Backlog in place for the construction businesses is $151
million for 2013 compared with $106 million one year ago.
* The Plastics segment experienced its second best earnings year in its
history in 2012 due in part to certain market and weather related events
that are not expected to recur in 2013. Accordingly, the corporation
expects 2013 net earnings for Plastics to be lower based on the market and
weather conditions currently being experienced.
* Corporate general and administrative costs are expected to remain
relatively flat between the years.
The sales of DMI and ShoreMaster were strategic decisions by management to
monetize assets and divest of companies that do not fit with the corporation's
current operating plans. The divestitures free up liquidity going forward for
upcoming Electric segment capital investments. The corporation will continue
to review its portfolio to see where additional opportunities exist to improve
its risk profile, improve credit metrics and generate additional sources of
cash to support the future capital expenditure plans of its Electric segment.
This will result in a larger percentage of the corporation's earnings coming
from Otter Tail Power Company, its most stable and relatively predictable
business, and is consistent with the strategy to grow this business given its
current investment opportunities.
The following table shows the corporation's 2012 actual and 2013 through 2017
anticipated capital expenditures and electric utility average rate base:
(in millions) 2012 2013 2014 2015 2016 2017
Capital Expenditures:
Electric Segment:
Transmission $ 60 $ 45 $ 56 $ 69 $ 118
Environmental 89 99 72 1 --
Other 33 41 42 43 43
Total Electric Segment $ 102 $ 182 $ 185 $ 170 $ 113 $ 161
Manufacturing and Infrastructure 14 22 19 19 15 20
Segments
Total Capital Expenditures $ 116 $ 204 $ 204 $ 189 $ 128 $ 181
Total Electric Utility Average Rate $ 694 $ 789 $ 919 $1,061 $1,134 $1,197
Base
Execution on the currently anticipated electric utility capital expenditure
plan is expected to grow rate base and be a key driver in increasing utility
earnings over the 2013 through 2017 timeframe. The corporation intends to
maintain its equity-to-total capitalization ratio near its present level of
52% in its Electric segment and will seek to earn its authorized overall
return on equity of approximately 10.5% in the utility's regulatory
jurisdictions.
CONFERENCE CALL AND WEBCAST
The corporation will host a live webcast on February 12, 2013, at 10:00 a.m.
CST to discuss the company's financial and operating performance.
The presentation will be posted on the corporation's website before the
webcast. To access the live webcast go to www.ottertail.com/presentations.cfm
and select "Webcast". Please allow extra time prior to the call to visit the
site and download any necessary software that may be needed to listen to the
Internet broadcast. An archived copy of the webcast will be available on our
website shortly following the call.
Risk Factors and Forward-Looking Statements that Could Affect Future Results
The information in this release includes certain forward-looking information,
including 2013 expectations, made under the Safe Harbor provisions of the
Private Securities Litigation Reform Act of 1995. Although the corporation
believes its expectations are based on reasonable assumptions, actual results
may differ materially from those expectations. The following factors, among
others, could cause actual results for the corporation to differ materially
from those discussed in the forward-looking statements:
o Federal and state environmental regulation could require the corporation
to incur substantial capital expenditures and increased operating costs.
o Volatile financial markets and changes in the corporation's debt ratings
could restrict its ability to access capital and could increase borrowing
costs and pension plan and postretirement health care expenses.
o The corporation relies on access to both short- and long-term capital
markets as a source of liquidity for capital requirements not satisfied by
cash flows from operations. If the corporation is not able to access
capital at competitive rates, its ability to implement its business plans
may be adversely affected.
o Disruptions, uncertainty or volatility in the financial markets can also
adversely impact the corporation's results of operations, the ability of
its customers to finance purchases of goods and services, and its
financial condition, as well as exert downward pressure on stock prices
and/or limit its ability to sustain its current common stock dividend
level.
o The corporation made a $10.0 million discretionary contribution to its
defined benefit pension plan in January 2013. The corporation could be
required to contribute additional capital to the pension plan in the
future if the market value of pension plan assets significantly declines,
plan assets do not earn in line with the corporation's long-term rate of
return assumptions or relief under the Pension Protection Act is no longer
granted.
o Any significant impairment of the corporation's goodwill would cause a
decrease in its asset values and a reduction in its net operating income.
o A sustained decline in the corporation's common stock price below book
value or declines in projected operating cash flows at any of its
operating companies may result in goodwill impairments that could
adversely affect its results of operations and financial position, as well
as financing agreement covenants.
o The corporation currently has $7.3 million of goodwill and a $1.1 million
indefinite-lived trade name recorded on its consolidated balance sheet
related to the acquisition of Foley Company in 2003. Foley Company
generated a large operating loss in 2012 due to significant cost overruns
on certain construction projects. If operating margins do not meet the
corporation's projections, the reductions in anticipated cash flows from
Foley Company may indicate that its fair value is less than its book
value, resulting in an impairment of some or all of the goodwill and
indefinite-lived trade name associated with Foley along with a
corresponding charge against earnings.
o The inability of the corporation's subsidiaries to provide sufficient
earnings and cash flows to allow the corporation to meet its financial
obligations and debt covenants and pay dividends to its shareholders could
have an adverse effect on the corporation.
o Economic conditions could negatively impact the corporation's businesses.
o If the corporation is unable to achieve the organic growth it expects, its
financial performance may be adversely affected.
o The corporation's plans to grow and realign its business mix through
capital projects, acquisitions and dispositions may not be successful,
which could result in poor financial performance.
o The corporation may, from time to time, sell assets to provide capital to
fund investments in its electric utility business or for other corporate
purposes, which could result in the recognition of a loss on the sale of
any assets sold and other potential liabilities. The sale of any of the
corporation's businesses could expose the corporation to additional risks
associated with indemnification obligations under the applicable sales
agreements and any related disputes.
o The corporation's plans to grow and operate businesses outside of its
electric utility, while also owning a regulated utility, could be limited
by state law.
o The corporation's subsidiaries enter into construction contracts which
could expose them to unforeseen costs and costs not within their control,
which may not be recoverable and could adversely affect the corporation's
results of operations and financial condition.
o Significant warranty claims and remediation costs in excess of amounts
normally reserved for such items could adversely affect the corporation's
results of operations and financial condition.
o The corporation is subject to risks associated with energy markets.
o The corporation is subject to risks and uncertainties related to the
timing and recovery of deferred tax assets which could have a negative
impact on the corporation's net income in future periods.
o A significant failure or an inability to properly bid or perform on
projects or contracts by the corporation's construction businesses could
lead to adverse financial results and could lead to the possibility of
delay or liquidated damages.
o The corporation relies on its information systems to conduct its business,
and failure to protect these systems against security breaches could
adversely affect its business and results of operations. Additionally, if
these systems fail or become unavailable for any significant period of
time, the corporation's business could be harmed.
o The corporation may experience fluctuations in revenues and expenses
related to its electric operations, which may cause its financial results
to fluctuate and could impair its ability to make distributions to its
shareholders or scheduled payments on its debt obligations, or to meet
covenants under its borrowing agreements.
o Actions by the regulators of the corporation's electric operations could
result in rate reductions, lower revenues and earnings or delays in
recovering capital expenditures.
o Otter Tail Power Company's 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.
o Changes to regulation of generating plant emissions, including but not
limited to carbon dioxide (CO[2]) emissions, could affect Otter Tail Power
Company's operating costs and the costs of supplying electricity to its
customers.
o Competition from foreign and domestic manufacturers, the price and
availability of raw materials and general economic conditions could affect
the revenues and earnings of our manufacturing businesses.
o The corporation's 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 segment.
o The corporation's plastic pipe companies compete against a large number of
other manufacturers of PVC pipe and manufacturers of alternative products.
Customers may not distinguish the pipe companies' products from those of
its competitors.
o Reductions in PVC resin prices can negatively impact PVC pipe prices,
profit margins on PVC pipe sales and the value of PVC pipe held in
inventory.
For a further discussion of other risk factors and cautionary statements,
refer to reports the corporation files with the Securities and Exchange
Commission.
About The Corporation: Otter Tail Corporation has interests in diversified
operations that include an electric utility, manufacturing, and infrastructure
businesses. Otter Tail Corporation stock trades on the NASDAQ Global Select
Market under the symbol OTTR. The latest investor and corporate information is
available at www.ottertail.com. Corporate offices are located in Fergus Falls,
Minnesota, and Fargo, North Dakota.
The Otter Tail Corporation logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=4958
See Otter Tail Corporation's results of operations for the three and twelve
months ended December 31, 2012 and 2011 in the following financial statements:
Consolidated Statements of Income, Consolidated Balance Sheets – Assets,
Consolidated Balance Sheets – Liabilities and Equity, and Consolidated
Statements of Cash Flows.
Otter Tail Corporation
Consolidated Statements of Income
In thousands, except share and per share amounts
Quarter Ended Year-to-Date
December 31, December 31,
2012 2011 2012 2011
Operating Revenues by Segment
Electric $ 93,235 $ 87,928 $ 350,765 $ 342,727
Manufacturing 49,874 50,005 208,965 189,459
Construction 37,610 44,762 149,092 184,657
Plastics 31,935 24,587 150,517 123,669
Corporate Revenue and (22) (17) (100) (343)
Intersegment Eliminations
Total Operating Revenues 212,632 207,265 859,239 840,169
Operating Expenses
Fuel and Purchased Power 32,343 28,972 115,468 112,468
Nonelectric Cost of Goods Sold 95,264 104,208 417,138 421,650
(depreciation included below)
Electric Operating and 32,532 33,908 131,789 126,053
Maintenance Expense
Nonelectric Operating and 13,316 12,240 52,621 49,296
Maintenance Expense
Asset Impairment Charge -- 470 432 470
Depreciation and Amortization 15,024 14,826 59,764 58,335
Total Operating Expenses 188,479 194,624 777,212 768,272
Operating Income (Loss) by
Segment
Electric 17,660 14,400 61,025 63,453
Manufacturing 5,296 3,200 21,087 15,832
Construction (1,018) (3,003) (12,274) (2,892)
Plastics 6,003 1,696 25,953 10,951
Corporate (3,788) (3,652) (13,764) (15,447)
Total Operating Income 24,153 12,641 82,027 71,897
Loss on Early Retirement of -- -- 13,106 --
Debt
Interest Charges 6,935 8,490 31,905 35,629
Other Income 1,806 1,147 4,085 2,763
Income Tax Expense (Benefit) – 1,933 (694) 2,133 4,121
Continuing Operations
Net Income (Loss) by Segment –
Continuing Operations
Electric 11,928 9,458 38,341 38,886
Manufacturing 2,796 2,123 10,676 8,229
Construction (437) (1,884) (7,689) (2,204)
Plastics 3,484 903 14,113 5,811
Corporate (680) (4,608) (16,473) (15,812)
Net Income from Continuing 17,091 5,992 38,968 34,910
Operations
Discontinued Operations
Loss - net of Income Tax
Expense (Benefit) of $2,800, (7,489) (3,470) (6,603) (14,294)
($792), $6,231 and ($1,811)
for the respective periods
Impairment Loss - net of
Income Tax (Benefit) of
($3,099), ($17,444), ($21,213) (4,648) (42,533) (32,107) (42,533)
and ($17,444) for the
respective periods
(Loss) Gain on Disposition -
net of Income Tax Expense of (1,987) (4,124) (5,531) 8,674
$484, $2,638, $315 and $5,851
for the respective periods
Net Loss from Discontinued (14,124) (50,127) (44,241) (48,153)
Operations
Total Net Income (Loss) 2,967 (44,135) (5,273) (13,243)
Preferred Dividend Requirement 185 184 736 1,058
and Other Adjustments
Balance for Common $ 2,782 $ (44,319) $ (6,009) $ (14,301)
Average Number of Common
Shares Outstanding
Basic 36,062,110 35,952,639 36,047,984 35,922,155
Diluted 36,256,350 36,112,867 36,242,224 36,082,383
Basic Earnings Per Common
Share:
Continuing Operations (net of
preferred dividend $ 0.47 $ 0.16 $ 1.06 $ 0.95
requirement)
Discontinued Operations (net (0.39) (1.39) (1.23) (1.35)
of other adjustments)
$ 0.08 $ (1.23) $ (0.17) $ (0.40)
Diluted Earnings Per Common
Share:
Continuing Operations (net of
preferred dividend $ 0.47 $ 0.16 $ 1.05 $ 0.95
requirement)
Discontinued Operations (net (0.39) (1.39) (1.22) (1.35)
of other adjustments)
$ 0.08 $ (1.23) $ (0.17) $ (0.40)
Otter Tail Corporation
Consolidated Balance Sheets
ASSETS
in thousands
December 31, December 31,
2012 2011
Current Assets
Cash and Cash Equivalents $ 52,362 $ 15,994
Accounts Receivable:
Trade—Net 91,170 93,392
Other 7,684 8,660
Inventories 69,336 68,743
Deferred Income Taxes 30,964 9,523
Unbilled Revenue 15,701 13,719
Costs and Estimated Earnings in Excess of Billings 3,663 12,211
Regulatory Assets 25,499 27,391
Other 8,161 15,009
Assets of Discontinued Operations 19,092 209,929
Total Current Assets 323,632 474,571
Investments 9,471 11,093
Other Assets 26,222 26,997
Goodwill 38,971 39,118
Other Intangibles—Net 14,305 15,286
Deferred Debits
Unamortized Debt Expense 5,529 6,458
Regulatory Assets 134,755 124,137
Total Deferred Debits 140,284 130,595
Plant
Electric Plant in Service 1,423,303 1,372,534
Nonelectric Operations 186,094 177,328
Construction Work in Progress 77,890 52,751
Total Gross Plant 1,687,287 1,602,613
Less Accumulated Depreciation and Amortization 637,835 599,751
Net Plant 1,049,452 1,002,862
Total $ 1,602,337 $ 1,700,522
Otter Tail Corporation
Consolidated Balance Sheets
LIABILITIES AND EQUITY
in thousands
December 31, December 31,
2012 2011
Current Liabilities
Current Maturities of Long-Term Debt $ 176 $ 165
Accounts Payable 88,406 80,457
Accrued Salaries and Wages 20,571 15,862
Billings In Excess Of Costs and Estimated Earnings 16,204 9,175
Accrued Taxes 12,047 11,696
Derivative Liabilities 18,234 18,770
Other Accrued Liabilities 6,334 5,540
Liabilities of Discontinued Operations 11,156 50,691
Total Current Liabilities 173,128 192,356
Pensions Benefit Liability 116,541 106,818
Other Postretirement Benefits Liability 58,883 48,263
Other Noncurrent Liabilities 22,244 18,102
Deferred Credits
Deferred Income Taxes 171,787 173,312
Deferred Tax Credits 31,299 33,182
Regulatory Liabilities 68,835 69,106
Other 466 520
Total Deferred Credits 272,387 276,120
Capitalization
Long-Term Debt, Net of Current Maturities 421,680 471,915
Cumulative Preferred Shares 15,500 15,500
Cumulative Preference Shares -- --
Common Equity
Common Shares, Par Value $5 Per Share 180,842 180,509
Premium on Common Shares 253,296 253,123
Retained Earnings 92,221 141,248
Accumulated Other Comprehensive Loss (4,385) (3,432)
Total Common Equity 521,974 571,448
Total Capitalization 959,154 1,058,863
Total $ 1,602,337 $ 1,700,522
Otter Tail Corporation
Consolidated Statements of Cash Flows
For the Year Ended December 31,
In thousands 2012 2011
Cash Flows from Operating Activities
Net Loss $ (5,273) $ (13,243)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Net Loss (Gain) from Sale of Discontinued 5,531 (8,674)
Operations
Net Loss from Discontinued Operations 38,710 56,827
Depreciation and Amortization 59,764 58,335
Asset Impairment Charge 432 470
Premium Paid for Early Retirement of Long-Term 12,500 ----
Debt
Deferred Tax Credits (2,091) (2,386)
Deferred Income Taxes 11,459 10,661
Change in Deferred Debits and Other Assets (4,802) (25,053)
Discretionary Contribution to Pension Plan (10,000) --
Change in Noncurrent Liabilities and Deferred 32,718 35,178
Credits
Allowance for Equity (Other) Funds Used During (1,168) (861)
Construction
Change in Derivatives Net of Regulatory 718 72
Deferral
Stock Compensation Expense – Equity Awards 1,311 2,177
Other—Net 4,500 6,496
Cash Provided by (Used for) Current Assets and
Current Liabilities:
Change in Receivables 2,430 (7,952)
Change in Inventories (687) (5,286)
Change in Other Current Assets 7,019 (1,072)
Change in Payables and Other Current 30,056 (4,775)
Liabilities
Change in Interest Payable and Income Taxes (14,141) (7,236)
Receivable/Payable
Net Cash Provided by Continuing Operations 168,986 93,678
Net Cash Provided by Discontinued Operations 64,561 10,705
Net Cash Provided by Operating Activities 233,547 104,383
Cash Flows from Investing Activities
Capital Expenditures (115,762) (67,360)
Proceeds from Disposal of Noncurrent Assets 4,889 1,923
Net Increase in Other Investments (1,037) (40)
Net Cash Used in Investing Activities - (111,910) (65,477)
Continuing Operations
Net Proceeds from Sale of Discontinued 42,229 107,310
Operations
Net Cash Used in Investing Activities - (13,896) (36,410)
Discontinued Operations
Net Cash (Used in) Provided by Investing (83,577) 5,423
Activities
Cash Flows from Financing Activities
Change in Checks Written in Excess of Cash -- (7,268)
Net Short-Term Repayments -- (79,490)
Common Stock Issuance Expenses (370) --
Payments for Retirement of Common Stock (111) (1,182)
Proceeds from Issuance of Long-Term Debt -- 142,006
Short-Term and Long-Term Debt Issuance (897) (1,666)
Expenses
Payments for Retirement of Long-Term Debt (50,224) (100,796)
Premium Paid for Early Retirement of Long-Term (12,500) --
Debt
Dividends Paid and Other Distributions (43,976) (43,923)
Net Cash Used in Financing Activities - (108,078) (92,319)
Continuing Operations
Net Cash Used in Financing Activities - (4,278) (3,184)
Discontinued Operations
Net Cash Used in Financing Activities (112,356) (95,503)
Net Change in Cash and Cash Equivalents – (1,246) 2,015
Discontinued Operations
Effect of Foreign Exchange Rate Fluctuations -- (324)
on Cash – Discontinued Operations
Net Change in Cash and Cash Equivalents 36,368 15,994
Cash and Cash Equivalents at Beginning of 15,994 --
Period
Cash and Cash Equivalents at End of Period $ 52,362 $ 15,994
CONTACT: Media contact:
Michael J. Olsen
Sr. Vice President of Corporate Communications
(701) 451-3580 or (866) 410-8780
Investor contact:
Loren Hanson
Manager of Investor Relations
(218) 739-8481 or (800) 664-1259
Otter Tail Corporation Logo
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