FERGUS FALLS, Minn., Feb. 5 /PRNewswire-FirstCall/ -- Otter Tail Corporation (NASDAQ:OTTR) today announced financial results for the quarter and year ended December 31, 2007.
2007 Highlights:
-- Consolidated revenues grew 12.1% to a record $1.2 billion in 2007.
-- Consolidated net income from continuing operations was a record
$54.0 million in 2007 compared to $50.7 million in 2006.
-- Total diluted earnings per share were $1.78 for 2007 compared with
$1.70 for 2006.
2008 Announcements:
-- On February 5, 2008 the Board of Directors declared a quarterly common
stock dividend, increasing the dividend to $0.2975 per share from
$0.2925 per share. This dividend is payable March 10, 2008 to
shareholders of record on February 15, 2008. This increase puts the
corporation's current dividend yield at 3.7% based on today's closing
stock price of $32.54.
-- The Board also declared quarterly dividends on the corporation's four
series of preferred stock, payable March 1, 2008 to shareholders of
record as of February 15.
-- The corporation anticipates its 2008 diluted earnings per share from
continuing operations to be in the range of $1.85 to $2.10.
"We are pleased with our 2007 results. Revenues and net income from continuing operations were at record levels," said John Erickson, president and chief executive officer. "Our electric business provided a solid foundation and our nonelectric businesses continued to perform well, led by growth in our manufacturing platform including strong results at DMI Industries, our wind energy tower manufacturer. We are also pleased to report a significant turnaround at our food ingredient processing business. The 2007 results again illustrate the value of our diversification strategy."
Erickson said dividend payments will again increase in 2008. "Our Board of Directors has increased our dividend payment for the 33rd consecutive year. The increase brings the annual indicated dividend rate to $1.19 per share, a $0.02 increase over the 2007 rate."
Segment Performance Summary
Electric
Electric segment revenue and net income were $323.5 million and $24.5 million, respectively, in 2007 compared with $306.0 million and $24.2 million in 2006. The increase in electric revenue was due to a $16.0 million increase in retail revenues and a $1.8 million increase in other electric revenues, offset by a $0.3 million decrease in wholesale and net energy trading revenues.
The increase in retail revenues includes $8.4 million in increased fuel-clause adjustment (FCA) revenues mainly related to an increase in purchased power costs in the fourth quarter of 2007 to replace generation lost during a scheduled major maintenance shutdown of Big Stone Plant. The increase in retail revenues also includes $7.6 million related to a 3.3% increase in retail kwh sales. Residential kwh sales increased 4.0% due, in part, to a 9.6% increase in heating degree days. Increased oil and ethanol production in our electric service territory and surrounding regions contributed to a 3.3% increase in commercial and industrial kwh sales. The $1.8 million increase in other electric revenues is related to an increase in revenues from integrated transmission agreements, reimbursement of system operations costs from the Midwest Independent Transmission System Operator and electric system construction work performed for other companies.
Electric operating expenses increased $21.8 million, which includes increases of $18.2 million in fuel and purchased power expenses and $3.3 million in other operating and maintenance expenses. Fuel costs increased $1.8 million despite a 5.3% decrease in kwhs generated mainly as a result of an 86% increase in generation at the electric utility's higher-cost combustion turbine peaking plants. Purchased power costs to serve retail customers increased $16.4 million, reflecting a 22.1% increase in kwhs purchased for system use combined with a 4.9% increase in the cost per kwh purchased, mainly related to power purchased in the fourth quarter of 2007 to replace generation lost during a scheduled major maintenance shutdown of Big Stone Plant. The increase in electric operation and maintenance expenses in 2007 reflects an increase in expenses related to external contract work, higher labor and benefit costs, rate case related expenditures and increased tree-trimming expenses. The electric utility recorded a non-cash charge in other income and deductions of $3.3 million in the fourth quarter of 2006 related to a reduction in capitalized interest allowed in rate base. The resulting increase in other income and deductions in 2007 was partially offset by a $0.8 million decrease in allowance for equity funds used during construction.
Plastics
Plastics segment revenues and net income were $149.0 million and $8.3 million, respectively, in 2007 compared with $163.1 million and $14.3 million in 2006. The decrease in revenue and net income is due to an 18.8% reduction in plastic pipe sales prices partially offset by a 12.5% increase in pounds of plastic pipe sold and a 12.5% decrease in the cost per pound of pipe sold. The decrease in sales prices reflected a softening of the plastic pipe market, which was expected.
Manufacturing
Manufacturing segment revenues and net income were $381.6 million and $15.6 million, respectively, in 2007 compared with $311.8 million and $13.2 million in 2006. DMI Industries, Inc. recorded a $48.0 million increase in revenue and a $1.4 million increase in net income as a result of increased production levels and productivity gains. DMI's 2007 operating expenses include $2.0 million in pre-production start-up costs for its new plant in Tulsa, Oklahoma. The new plant is on line and started producing towers in January 2008. At ShoreMaster, Inc., revenues increased $15.9 million and net income increased $1.4 million as a result of strong commercial and residential sales. The Aviva Sports product line, acquired by ShoreMaster in February 2007, contributed $3.7 million to the increase in revenues. At BTD Manufacturing, Inc., revenues increased $3.5 million, mainly related to the acquisition of Pro Engineering in May 2007, while net income was unchanged. At T.O. Plastics, Inc., revenues increased $2.4 million while net income decreased $0.4 million mainly due to increases in labor, benefit and depreciation expenses.
Health Services
Health services segment revenues and net income were $130.7 million and $1.4 million, respectively, in 2007 compared with $135.1 million and $2.2 million in 2006. Scanning and other related service revenues decreased $3.2 million while revenues from equipment sales and service decreased $1.2 million. Cost of goods sold decreased $4.5 million. The decreases in equipment sales revenues and cost of goods sold reflect a shift from traditional dealership distribution of products in 2006 to more commission-based compensation for sales to customers in 2007. A $1.2 million increase in operating expenses contributed to the decrease in health services net income.
Food Ingredient Processing
The food ingredient processing segment recorded revenues of $70.4 million and net income of $4.4 million in 2007 compared with revenues of $45.1 million and a net loss of $4.1 million in 2006. The increase in revenue was the result of an increase in pounds of product sold combined with an increase in the price per pound of product sold. The increase in revenue combined with a decrease in the cost per pound of product sold were the main factors contributing to the increase in net income.
Other Business Operations
Other business operations recorded revenues of $185.7 million and net income of $4.0 million in 2007 compared with revenues of $145.6 million and net income of $5.3 million in 2006. Revenues increased $40.2 million at the construction companies due to an increase in construction activity. Construction company net income decreased $1.4 million as a result of lower than expected margins on certain construction projects at Midwest Construction Services. Revenues from flatbed trucking operations remained essentially unchanged while net income increased $0.2 million.
Fourth Quarter Results
Diluted earnings per share for the fourth quarter of 2007 were $0.46 compared with $0.37 for the fourth quarter of 2006. Revenues for the fourth quarter of 2007 were $329.7 million compared with $286.7 million for the same period a year ago. Operating income for the fourth quarter of 2007 was $24.2 million compared with $24.1 million for the fourth quarter of 2006. Net income was $14.1 million in the fourth quarter of 2007 compared with $11.3 million in the fourth quarter of 2006, with increases in net income in the electric, food ingredient processing and plastics segments more than offsetting decreases in net income in the health services and other business operations segments.
2008 Expectations
Otter Tail Corporation anticipates 2008 diluted earnings per share to be in a range from $1.85 to $2.10. Contributing to the earnings guidance for 2008 are the following items:
-- The corporation expects increased levels of net income from the
electric segment in 2008. This increase is based on having lower cost
generation available for the year, as there are no plant shutdowns
planned for Big Stone Plant or Coyote Station in 2008, and on
additional rate base investment from the Langdon wind project. The
increase also assumes the interim rate increase of $7.1 million, or
5.41%, which is part of the rate case filed with the Minnesota Public
Utilities Commission (MPUC). These interim rates remain in effect for
all Minnesota customers until the MPUC makes a final determination on
the electric utility's request, which is expected to occur by August 1,
2008. If final rates are lower than interim rates, the electric utility
will refund customers the difference with interest. If final rates are
higher than interim rates, the higher rates will become effective as of
the date of the MPUC Order approving those rates.
-- The corporation expects the plastics segment's 2008 performance to be
at or below normal levels. Announced capacity expansions are not
expected to come on line until the fourth quarter of 2008.
-- Increased capacity and productivity related to recent expansions and
acquisitions, and the start-up of DMI's wind tower manufacturing plant
in Tulsa, Oklahoma in 2008, are expected to result in increased levels
of net income in the manufacturing segment in 2008. Backlog in place in
the manufacturing segment to support 2008 revenues is approximately
$295 million compared with $241 million one year ago. The wind energy
tower manufacturing business accounts for a substantial portion of the
2008 backlog.
-- The health services segment expects improvement in net income in 2008
as it focuses on improving its mix of imaging assets and asset
utilization rates.
-- The corporation expects its food ingredient processing business to have
increased net income due to higher operating margins in 2008. This
business has backlog in place for 2008 of 51.5 million pounds compared
with 52.8 million pounds one year ago.
-- The other business operations segment is expected to have higher
earnings in 2008 compared with 2007. Backlog in place for the
construction businesses is $77 million for 2008 compared with
$74 million for the same period one year ago.
-- Corporate general and administrative costs are expected to increase in
2008.
Risk Factors and Forward-Looking Statements that Could Affect Future Results
The information in this release includes certain forward-looking information, including 2008 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:
-- The corporation is subject to federal and state legislation,
regulations and actions that may have a negative impact on its business
and results of operations.
-- Actions by the regulators of the electric segment could result in rate
reductions, lower revenues and earnings or delays in recovering capital
expenditures.
-- Future operating results of the electric segment will be impacted by
the outcome of a rate case filed in Minnesota on October 1, 2007,
requesting an overall increase in Minnesota rates of 6.66%. The filing
includes a request for an interim rate increase of 5.41%, which went
into effect on November 30, 2007. Interim rates will remain in effect
for all Minnesota customers until the MPUC makes a final determination
on the electric utility's request, which is expected by August 1, 2008.
If final rates are lower than interim rates, the electric utility will
refund Minnesota customers the difference with interest.
-- Certain costs currently included in the Fuel Clause Adjustment (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.
Further, all, or portions of, gross margins on asset-based wholesale
electric sales may become subject to refund through the FCA as a result
of a general rate case.
-- Weather conditions or changes in weather patterns can adversely affect
the corporation's operations and revenues.
-- Electric wholesale margins could be further reduced as the Midwest
Independent Transmission System Operator market becomes more efficient.
-- Electric wholesale trading margins could be reduced or eliminated by
losses due to trading activities.
-- The corporation'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.
-- 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 the
corporation's control.
-- The corporation's electric segment has capitalized $8.2 million in
costs related to the planned construction of a second electric
generating unit at its Big Stone Plant site as of December 31, 2007.
Should approvals of permits not be received on a timely basis, the
project could be at risk. If the project is abandoned for permitting or
other reasons, these capitalized costs and others incurred in future
periods may be subject to expense and may not be recoverable.
-- The corporation's 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, 2008.
Should this tax credit not be renewed, the revenues and earnings of
this business could be reduced.
-- Federal and state environmental regulation could cause the corporation
to incur substantial capital expenditures which could result in
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
the corporation's 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.
-- The corporation's plans to grow and diversify through acquisitions and
capital projects may not be successful and could result in poor
financial performance.
-- The corporation's ability to own and expand its nonelectric businesses
could be limited by state law.
-- Competition is a factor in all of the corporation's businesses.
-- Economic uncertainty could have a negative impact on the corporation's
future revenues and earnings.
-- Volatile financial markets and changes in the corporation's debt rating
could restrict the corporation's ability to access capital and could
increase borrowing costs and pension plan expenses.
-- The price and availability of raw materials could affect the revenue
and earnings of the corporation's manufacturing segment.
-- The corporation's 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.
-- The corporation's food ingredient processing and wind tower
manufacturing businesses could be adversely affected by changes in
foreign currency exchange rates.
-- 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 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 the corporation's health services segment.
-- The corporation's health services businesses may not be able to retain
or comply with the dealership arrangement and other agreements with
Philips Medical.
-- A significant failure or an inability to properly bid or perform on
projects by the corporation's construction businesses could lead to
adverse financial results.
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, health services, food ingredient processing and infrastructure businesses which include plastics, construction and transportation. Otter Tail Corporation stock trades on the NASDAQ Global Select Market under the symbol OTTR. The latest investor and corporate information is available at http://www.ottertail.com. Corporate offices are located in Fergus Falls, Minnesota, and Fargo, North Dakota.
See Otter Tail Corporation's results of operations for the three months and years ended December 31, 2007 and 2006 in the attached financial statements.
Consolidated Statements of Income, Consolidated Balance Sheets -- Assets, Consolidated Balance Sheets -- Liabilities and Equity
Otter Tail Corporation
Consolidated Statements of Income
For the Three and Twelve Months Ended December 31, 2007 and 2006
In thousands, except share and per share amounts
Quarter Ended Year-to-Date
December 31, December 31,
2007 2006 2007 2006
Operating Revenues by
Segment:
Electric $90,816 $78,706 $323,478 $306,014
Plastics 34,693 26,404 149,012 163,135
Manufacturing 95,258 85,256 381,599 311,811
Health Services 33,895 34,710 130,670 135,051
Food Ingredient
Processing 16,828 14,449 70,440 45,084
Other Business
Operations 58,766 47,450 185,730 145,603
Corporate Revenue and
Intersegment
Eliminations (569) (274) (2,042) (1,744)
Total Operating
Revenues 329,687 286,701 1,238,887 1,104,954
Operating Expenses:
Fuel and Purchased Power 44,145 29,912 135,172 117,010
Nonelectric Cost of
Goods Sold (excludes
depreciation;
included below) 191,047 161,832 712,547 611,737
Electric Operating and
Maintenance Expense 28,125 27,819 116,454 113,137
Nonelectric Operating
and Maintenance
Expense 28,764 30,193 121,110 115,290
Depreciation and
Amortization 13,424 12,828 52,830 49,983
Total Operating
Expenses 305,505 262,584 1,138,113 1,007,157
Operating Income (Loss) by
Segment:
Electric 11,950 14,453 45,755 50,111
Plastics 979 (339) 14,362 23,707
Manufacturing 7,953 7,785 33,051 27,578
Health Services (201) 1,845 3,430 4,538
Food Ingredient Processing 1,698 (1,036) 6,762 (5,828)
Other Business Operations 2,818 4,187 7,817 9,600
Corporate (1,015) (2,778) (10,403) (11,909)
Total Operating
Income - Continuing
Operations 24,182 24,117 100,774 97,797
Interest Charges 6,036 4,879 20,857 19,501
Other Income and Deductions 780 (2,587) 2,012 (440)
Income Taxes - Continuing
Operations 4,808 5,369 27,968 27,106
Net Income (Loss) by
Segment - Continuing
Operations:
Electric 7,007 4,696 24,498 24,181
Plastics 704 149 8,314 14,326
Manufacturing 4,281 4,310 15,632 13,171
Health Services (282) 1,089 1,427 2,230
Food Ingredient
Processing 1,401 (611) 4,386 (4,115)
Other Business Operations 1,454 2,442 4,049 5,257
Corporate (447) (793) (4,345) (4,300)
Total Net Income -
Continuing
Operations 14,118 11,282 53,961 50,750
Discontinued Operations
Income from
Discontinued
Operations Net of
Taxes of $28 - - - 26
Gain on Disposition of
Discontinued
Operations Net of
Taxes of $224 - - - 336
Net Income from Discontinued
Operations - - - 362
Total Net Income 14,118 11,282 53,961 51,112
Preferred Stock Dividend 184 185 736 736
Balance for Common: $13,934 $11,097 $53,225 $50,376
Average Number of Common
Shares Outstanding--Basic 29,790,350 29,444,655 29,681,237 29,394,033
Average Number of Common
Shares Outstanding--
Diluted 30,089,899 29,730,680 29,969,523 29,664,375
Basic Earnings per Common
Share:
Continuing Operations
(net of preferred
dividend
requirements) $0.47 $0.38 $1.79 $1.70
Discontinued Operations $- $- $- $0.01
$0.47 $0.38 $1.79 $1.71
Diluted Earnings per
Common Share:
Continuing Operations
(net of preferred
dividend
requirements) $0.46 $0.37 $1.78 $1.69
Discontinued Operations $- $- $- $0.01
$0.46 $0.37 $1.78 $1.70
Otter Tail Corporation
Consolidated Balance Sheets
Assets
In thousands
December 31, December 31,
2007 2006
Current Assets
Cash and Cash Equivalents $39,824 $6,791
Accounts Receivable:
Trade--Net 151,446 135,011
Other 14,934 10,265
Inventories 97,214 103,002
Deferred Income Taxes 7,200 8,069
Accrued Utility and Cost-of-Energy Revenues 32,501 23,931
Costs and Estimated Earnings in
Excess of Billings 42,234 38,384
Other 15,299 9,611
Assets of Discontinued Operations - 289
Total Current Assets 400,652 335,353
Investments and Other Assets 34,557 29,946
Goodwill--Net 99,242 98,110
Other Intangibles--Net 20,456 20,080
Deferred Debits:
Unamortized Debt Expense and
Reacquisition Premiums 6,986 6,133
Regulatory Assets and Other Deferred Debits 38,837 50,419
Total Deferred Debits 45,823 56,552
Plant
Electric Plant in Service 1,028,917 930,689
Nonelectric Operations 257,590 239,269
Total 1,286,507 1,169,958
Less Accumulated Depreciation and
Amortization 506,744 479,557
Plant-Net of Accumulated Depreciation
and Amortization 779,763 690,401
Construction Work in Progress 74,261 28,208
Net Plant 854,024 718,609
Total $1,454,754 $1,258,650
Otter Tail Corporation
Consolidated Balance Sheets
Liabilities and Equity
In thousands
December 31, December 31,
2007 2006
Current Liabilities
Short-Term Debt $95,000 $38,900
Current Maturities of Long-Term Debt 3,004 3,125
Accounts Payable 141,390 120,195
Accrued Salaries and Wages 29,283 28,653
Accrued Federal and State Income Taxes - 2,383
Other Accrued Taxes 11,409 11,509
Other Accrued Liabilities 13,873 10,495
Liabilities from Discontinued Operations - 197
Total Current Liabilities 293,959 215,457
Pensions Benefit Liability 39,429 44,035
Other Postretirement Benefits Liability 30,488 32,254
Other Noncurrent Liabilities 23,228 18,866
Deferred Credits
Deferred Income Taxes 105,813 112,740
Deferred Tax Credits 16,761 8,181
Regulatory Liabilities 62,705 63,875
Other 275 281
Total Deferred Credits 185,554 185,077
Capitalization
Long-Term Debt, Net of Current Maturities 342,694 255,436
Class B Stock Options of Subsidiary 1,255 1,255
Cumulative Preferred Shares 15,500 15,500
Cumulative Preference Shares -
Authorized 1,000,000 Shares Without
Par Value; Outstanding - None - -
Common Shares, Par Value $5 Per Share 149,249 147,609
Premium on Common Shares 108,885 99,223
Retained Earnings 263,332 245,005
Accumulated Other Comprehensive Income (Loss) 1,181 (1,067)
Total Common Equity 522,647 490,770
Total Capitalization 882,096 762,961
Total $1,454,754 $1,258,650
Source: Otter Tail Corporation
