```markdown [Definitions](index=3&type=section&id=Definitions) This section defines various abbreviations and acronyms used throughout the report, providing clarity for financial and operational terms - The report uses various abbreviations and acronyms, such as **ARO** (Asset Retirement Obligation), **ARP** (Alternative Revenue Program), **ASC** (Accounting Standards Codification), **EPA** (Environmental Protection Agency), **ESSRP** (Executive Survivor and Supplemental Retirement Plan), **EUIC** (Electric Utility Infrastructure Costs Rider), **FASB** (Financial Accounting Standards Board), **FERC** (Federal Energy Regulatory Commission), **GHG** (Greenhouse Gas), **kwh** (kilowatt-hour), **Merricourt** (Merricourt Wind Energy Center), **MISO** (Midcontinent Independent System Operator, Inc.), **MPUC** (Minnesota Public Utilities Commission), **OBBBA** (One Big Beautiful Bill Act), **OTC** (Otter Tail Corporation), **OTP** (Otter Tail Power Company), **PIR** (Phase-In Rider), **PSLRA** (Private Securities Litigation Reform Act of 1995), **PTC** (Production Tax Credits), **PVC** (Polyvinyl chloride), **RHR** (Regional Haze Rule), **ROE** (Return on equity), **RRR** (Renewable Resource Rider), **RTO** (Regional Transmission Organizations), **SDPUC** (South Dakota Public Utilities Commission), **SEC** (Securities and Exchange Commission), **SIP** (State Implementation Plan), **SOFR** (Secured Overnight Financing Rate), and **TCR** (Transmission Cost Recovery Rider)[6](index=6&type=chunk) [Forward-Looking Information](index=3&type=section&id=Forward-Looking%20Information) This section highlights the forward-looking nature of certain statements and identifies key risks and uncertainties that could impact future financial results and operations - Forward-looking statements are identified by words like 'anticipate,' 'believe,' 'estimate,' 'expect,' 'plan,' 'projected,' 'will,' and similar expressions[7](index=7&type=chunk) - Key risks and uncertainties include future investments and capital expenditures, rate base levels, long-term investment risk, seasonal weather, counterparty credit risk, credit ratings, access to capital markets, employee benefit plan funding, subsidiary dividend payments, cybersecurity threats, government legislation and regulation (including environmental and climate change policies), operational and economic risks of facilities, energy markets, resource material availability and pricing, inflation, workforce stability, regulatory proceedings, litigation, and macroeconomic conditions[7](index=7&type=chunk) [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements of Otter Tail Corporation, including the balance sheets, statements of income, comprehensive income, shareholders' equity, and cash flows, along with their condensed notes, providing a detailed view of the company's financial position and performance for the reported periods [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) **Consolidated Balance Sheets (Unaudited) - Key Figures (in thousands):** | Item | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | **Assets** | | | | Total Current Assets | $674,410 | $630,041 | | Total Noncurrent Assets | $3,090,878 | $3,022,041 | | **Total Assets** | **$3,765,288** | **$3,652,082** | | **Liabilities & Shareholders' Equity** | | | | Total Current Liabilities | $203,480 | $309,790 | | Total Noncurrent Liabilities | $743,972 | $730,059 | | Long-Term Debt | $1,043,374 | $943,734 | | Total Shareholders' Equity | $1,774,462 | $1,668,499 | | **Total Liabilities & Shareholders' Equity** | **$3,765,288** | **$3,652,082** | - **Total Assets** increased by **$113.2 million** (**3.1%**) from December 31, 2024, to June 30, 2025[9](index=9&type=chunk) - **Total Current Liabilities** decreased significantly by **$106.3 million** (**34.3%**) due to the repayment of short-term debt[9](index=9&type=chunk) [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) **Consolidated Statements of Income (Unaudited) - Key Figures (in thousands, except per-share amounts):** | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Operating Revenues | $333,043 | $342,336 | $670,396 | $689,404 | | Total Operating Expenses | $235,585 | $231,425 | $488,939 | $483,518 | | Operating Income | $97,458 | $110,911 | $181,457 | $205,886 | | Income Before Income Taxes | $91,380 | $107,587 | $169,564 | $199,733 | | Net Income | $77,728 | $86,995 | $145,827 | $161,333 | | Diluted Earnings Per Share | $1.85 | $2.07 | $3.46 | $3.84 | - **Net Income** decreased by **$9.3 million** (**10.7%**) for the three months ended June 30, 2025, compared to the same period in 2024[10](index=10&type=chunk) - **Diluted Earnings Per Share** decreased by **$0.22** (**10.6%**) for the three months ended June 30, 2025, compared to the same period in 2024[10](index=10&type=chunk) [Consolidated Statements of Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) **Consolidated Statements of Comprehensive Income (Unaudited) - Key Figures (in thousands):** | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $77,728 | $86,995 | $145,827 | $161,333 | | Total Other Comprehensive Income (Loss) | $0 | $(298) | $202 | $(385) | | Total Comprehensive Income | $77,728 | $86,697 | $146,029 | $160,948 | - **Total Other Comprehensive Income (Loss)** improved from a loss of **$(298) thousand** in Q2 2024 to **$0** in Q2 2025, and from a loss of **$(385) thousand** in H1 2024 to a gain of **$202 thousand** in H1 2025[11](index=11&type=chunk) [Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) **Consolidated Statements of Shareholders' Equity (Unaudited) - Key Figures (in thousands, except common shares outstanding):** | Item | Balance, March 31, 2025 | Balance, June 30, 2025 | Balance, December 31, 2024 | Balance, June 30, 2024 | | :----------------------------------- | :---------------------- | :--------------------- | :----------------------- | :--------------------- | | Common Shares Outstanding | 41,873,995 | 41,904,370 | 41,827,967 | 41,814,425 | | Total Shareholders' Equity | $1,717,361 | $1,774,462 | $1,668,499 | $1,565,652 | | Net Income (Q2) | $77,728 | | | $86,995 | | Common Dividends (Q2) | $(22,020) | | | $(19,569) | - **Total Shareholders' Equity** increased by **$105.96 million** (**6.3%**) from December 31, 2024, to June 30, 2025[12](index=12&type=chunk) - **Common Dividends** paid for the six months ended June 30, 2025, totaled **$44.023 million** (**$1.05 per share**), up from **$39.122 million** (**$0.9350 per share**) in the prior year period[12](index=12&type=chunk) [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) **Consolidated Statements of Cash Flows (Unaudited) - Key Figures (in thousands):** | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | $159,379 | $223,461 | | Net Cash Used in Investing Activities | $(127,026) | $(228,065) | | Net Cash (Used In) Provided by Financing Activities | $(19,763) | $4,903 | | Net Change in Cash and Cash Equivalents | $12,590 | $299 | | Cash and Cash Equivalents at End of Period | $307,241 | $230,672 | - **Net cash provided by operating activities** decreased by **$64.1 million** (**28.7%**) for the six months ended June 30, 2025, compared to the prior year[13](index=13&type=chunk) - **Net cash used in investing activities** decreased by **$101.0 million** (**44.3%**) for the six months ended June 30, 2025, primarily due to lower capital expenditures and a prior year investment in U.S. treasuries[13](index=13&type=chunk) [Condensed Notes to Consolidated Financial Statements](index=11&type=section&id=Condensed%20Notes%20to%20Consolidated%20Financial%20Statements) [1. Summary of Significant Accounting Policies](index=11&type=section&id=1.%20Summary%20of%20Significant%20Accounting%20Policies) This note provides an overview of Otter Tail Corporation's business segments, the basis of financial statement presentation, the use of estimates, and recent accounting pronouncements, including new FASB guidance on income taxes and disaggregated income statement expenses - **Otter Tail Corporation** operates in three segments: Electric (regulated utility), Manufacturing (metal fabrication, plastic products), and Plastics (PVC pipe manufacturing)[14](index=14&type=chunk) - The company anticipates adopting updated **FASB** guidance on **Income Taxes** (**ASC 740**) in its 2025 Form 10-K, applying it retrospectively[18](index=18&type=chunk) - New **FASB** guidance on Disaggregated Income Statement Expenses (**ASC 220**) is effective for annual periods beginning in 2027, and the company is evaluating its impact[19](index=19&type=chunk) [2. Segment Information](index=12&type=section&id=2.%20Segment%20Information) This note details the financial performance, capital expenditures, and identifiable assets for each of the company's three reportable segments: Electric, Manufacturing, and Plastics, along with corporate unallocated costs **Segment Net Income (in thousands):** | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Electric | $19,195 | $18,485 | $43,903 | $40,956 | | Manufacturing | $3,481 | $6,835 | $5,013 | $12,096 | | Plastics | $53,104 | $60,612 | $96,543 | $107,350 | | Corporate | $1,948 | $1,063 | $368 | $931 | | **Total Net Income** | **$77,728** | **$86,995** | **$145,827** | **$161,333** | **Segment Capital Expenditures (in thousands) - Six Months Ended June 30:** | Segment | 2025 | 2024 | | :---------------- | :----- | :----- | | Electric | $114,038 | $145,201 | | Manufacturing | $4,674 | $15,708 | | Plastics | $4,915 | $14,550 | | Corporate | $612 | $69 | | **Total** | **$124,239** | **$175,528** | **Identifiable Assets by Segment (in thousands):** | Segment | June 30, 2025 | December 31, 2024 | | :---------------- | :------------ | :---------------- | | Electric | $2,914,414 | $2,785,522 | | Manufacturing | $247,556 | $254,445 | | Plastics | $221,253 | $186,043 | | Corporate | $382,065 | $426,072 | | **Total** | **$3,765,288** | **$3,652,082** | [3. Revenue](index=15&type=section&id=3.%20Revenue) This note disaggregates the company's operating revenues by segment and revenue source, distinguishing between revenues from contracts with customers and alternative revenue program (ARP) arrangements **Operating Revenues by Segment (in thousands):** | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Electric | $128,731 | $112,828 | $278,451 | $254,317 | | Manufacturing | $78,726 | $96,684 | $160,412 | $196,065 | | Plastics | $125,586 | $132,824 | $231,533 | $239,022 | | **Total Operating Revenues** | **$333,043** | **$342,336** | **$670,396** | **$689,404** | - **Electric Segment revenues** increased by **$15.9 million** (**14.1%**) for the three months ended June 30, 2025, driven by retail, transmission, and wholesale increases[27](index=27&type=chunk) - **Manufacturing Segment revenues** decreased by **$17.9 million** (**18.6%**) for the three months ended June 30, 2025, primarily due to declines in metal parts and tooling sales[27](index=27&type=chunk) - **Plastics Segment revenues** decreased by **$7.2 million** (**5.4%**) for the three months ended June 30, 2025, mainly due to lower **PVC** pipe sales prices[27](index=27&type=chunk) [4. Select Balance Sheet Information](index=15&type=section&id=4.%20Select%20Balance%20Sheet%20Information) This note provides detailed breakdowns of key balance sheet accounts, including receivables, inventories, investments, and property, plant, and equipment, highlighting changes between June 30, 2025, and December 31, 2024 **Receivables, net of allowance for credit losses (in thousands):** | Item | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Trade Receivables | $152,430 | $112,169 | | Total Receivables | $183,180 | $147,884 | | Less: Allowance for Credit Losses | $2,357 | $1,920 | | **Receivables, net** | **$180,823** | **$145,964** | **Inventories (in thousands):** | Item | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Raw Material, Fuel and Supplies | $39,693 | $43,345 | | Work in Process | $22,012 | $22,637 | | Finished Goods | $89,853 | $82,903 | | **Total Inventories** | **$151,558** | **$148,885** | **Net Property, Plant and Equipment (in thousands):** | Item | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Net Electric Plant | $2,578,757 | $2,513,784 | | Net Nonelectric Property, Plant and Equipment | $175,311 | $178,676 | | **Net Property, Plant and Equipment** | **$2,754,068** | **$2,692,460** | [5. Regulatory Matters](index=19&type=section&id=5.%20Regulatory%20Matters) This note outlines the company's regulatory assets and liabilities, including expected recovery/refund periods, and provides an update on the South Dakota rate case filing by Otter Tail Power (OTP) seeking a revenue increase **Regulatory Assets and Liabilities (in thousands):** | Item | June 30, 2025 (Current) | June 30, 2025 (Long-Term) | December 31, 2024 (Current) | December 31, 2024 (Long-Term) | | :----------------------------------- | :---------------------- | :------------------------ | :-------------------------- | :-------------------------- | | Total Regulatory Assets | $8,946 | $99,010 | $9,962 | $98,673 | | Total Regulatory Liabilities | $24,580 | $289,546 | $29,307 | $288,928 | - **OTP** filed a request with the **SDPUC** for a net annual revenue increase of **$5.7 million** (**12.50%**), based on an allowed **ROE** of **10.80%**[35](index=35&type=chunk) - **OTP** may increase rates on an interim basis starting December 1, 2025, if the **SDPUC** does not issue a decision within **180 days**, with interim revenues subject to potential refund[36](index=36&type=chunk) [6. Short-Term and Long-Term Borrowings](index=21&type=section&id=6.%20Short-Term%20and%20Long-Term%20Borrowings) This note summarizes the company's short-term and long-term debt, including credit facilities, recent long-term debt issuances by OTP, and compliance with financial covenants **Short-Term Debt - Lines of Credit (in thousands):** | Item | June 30, 2025 (Amount Outstanding) | June 30, 2025 (Amount Available) | December 31, 2024 (Amount Available) | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | OTC Credit Agreement | $0 | $170,000 | $170,000 | | OTP Credit Agreement | $0 | $210,978 | $141,613 | | **Total** | **$0** | **$380,978** | **$311,613** | **Long-Term Debt (in thousands):** | Borrower | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | OTC Guaranteed Senior Notes | $80,000 | $80,000 | | OTP Senior Unsecured Notes (various series) | $967,000 | $867,000 | | **Total Long-Term Debt, Net** | **$1,043,374** | **$943,734** | - **OTP** issued **$100.0 million** in senior unsecured notes (Series 2025A and 2025B) in March and June 2025, with maturities in **2035** and **2055**, respectively[38](index=38&type=chunk) - As of June 30, 2025, **OTC** and **OTP** were in compliance with all financial covenants, including debt to total capitalization and interest and dividend coverage ratios[40](index=40&type=chunk) [7. Employee Postretirement Benefits](index=22&type=section&id=7.%20Employee%20Postretirement%20Benefits) This note details the components of net periodic benefit cost (income) for the company's defined benefit pension plans and other postretirement benefits, and the impact of regulation on their recognition **Net Periodic Benefit Cost (Income) (in thousands):** | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Pension Benefits (Pension Plan) | $(654) | $(1,072) | $(1,308) | $(2,143) | | Pension Benefits (ESSRP) | $473 | $474 | $947 | $948 | | Postretirement Benefits | $(425) | $(1,053) | $(848) | $(2,106) | | **Total Net Periodic Benefit Cost (Income)** | **$(606)** | **$(1,651)** | **$(1,209)** | **$(3,301)** | - **Net Periodic Benefit Cost (Income)** recognized, after the impact of regulation, was **$143 thousand** for Q2 2025, compared to **$(1,295) thousand** for Q2 2024[42](index=42&type=chunk) [8. Income Taxes](index=23&type=section&id=8.%20Income%20Taxes) This note discusses the company's effective tax rate, which decreased primarily due to increased production tax credits (PTCs) from wind and solar assets, and outlines the potential impacts of the recently enacted One Big Beautiful Bill Act (OBBBA) on tax credits and corporate income tax rules **Effective Tax Rate:** | Period | 2025 | 2024 | | :----------------------------------- | :----- | :----- | | Three Months Ended June 30, | 14.9% | 19.2% | | Six Months Ended June 30, | 14.0% | 19.2% | - The decrease in the **effective tax rate** was primarily due to an increase in **PTCs** from wind and solar generation assets, including a new wind repowering project completed in late 2024[43](index=43&type=chunk) - The **One Big Beautiful Bill Act (OBBBA)**, enacted July 4, 2025, alters renewable energy tax credit timing and eligibility, reinstates **100%** bonus depreciation, and modifies business interest expense limitations[44](index=44&type=chunk)[45](index=45&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk] [9. Commitments and Contingencies](index=25&type=section&id=9.%20Commitments%20and%20Contingencies) This note details the company's commitments, including a solar facility acquisition, and significant contingencies such as ongoing class action lawsuits and a DOJ investigation related to PVC pipe antitrust allegations, as well as regulatory matters concerning transmission upgrade self-funding - **OTP** has an agreement to acquire a solar facility for **$23.6 million**, with closing expected in late 2025 or early 2026, subject to regulatory approvals[49](index=49&type=chunk) - The company is involved in class action lawsuits and a **DOJ** investigation regarding alleged antitrust violations in **PVC** pipe pricing, with potential material impact on financial condition if a violation is found[54](index=54&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk) - **FERC** is reviewing transmission owners' unilateral authority to self-fund generator interconnection upgrades, which could impact **OTP's** financial results if the authority is eliminated[50](index=50&type=chunk)[51](index=51&type=chunk)[53](index=53&type=chunk) [10. Shareholders' Equity](index=26&type=section&id=10.%20Shareholders'%20Equity) This note provides information on the company's registration statements for securities offerings and dividend reinvestment plans, and outlines restrictions on dividend payments from OTC's subsidiaries due to statutory limitations or financing agreements - The company has a shelf registration statement for equity, debt, or other securities, expiring in May 2027, and a second registration statement for up to **1,500,000** common shares under an Automatic Dividend Reinvestment and Share Purchase Plan[60](index=60&type=chunk)[61](index=61&type=chunk) - As of June 30, 2025, **1,379,019 shares** were available for purchase or issuance under the dividend reinvestment plan[61](index=61&type=chunk) - Dividend payments from **OTC's** subsidiaries are subject to restrictions, including financial covenants in credit agreements and **MPUC** requirements for **OTP's** equity-to-total-capitalization ratio (between **47.2%** and **57.7%**)[62](index=62&type=chunk)[64](index=64&type=chunk) [11. Accumulated Other Comprehensive Income (Loss)](index=28&type=section&id=11.%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) This note presents the changes in accumulated other comprehensive income (loss), detailing the components such as unrealized gains/losses on available-for-sale securities and pension/other postretirement benefits **Changes in Accumulated Other Comprehensive Income (Loss) (in thousands):** | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Balance, Beginning of Period | $734 | $1,061 | $532 | $1,148 | | Total Other Comprehensive Income (Loss) | $0 | $(298) | $202 | $(385) | | **Balance, End of Period** | **$734** | **$763** | **$734** | **$763** | - **Total Other Comprehensive Income (Loss)** for the six months ended June 30, 2025, was a gain of **$202 thousand**, a significant improvement from a loss of **$(385) thousand** in the prior year[65](index=65&type=chunk) [12. Share-Based Payments](index=30&type=section&id=12.%20Share-Based%20Payments) This note outlines the stock compensation expense recognized by the company and provides details on restricted stock awards and stock performance awards, including their vesting schedules, fair value determination, and activity for the period **Stock Compensation Expense (in millions):** | Period | 2025 | 2024 | | :----------------------------------- | :----- | :----- | | Three Months Ended June 30, | $1.6 | $1.3 | | Six Months Ended June 30, | $7.4 | $6.8 | - **Restricted stock awards** vest over three or four years, or upon retirement, and are granted to executive officers, key employees, and Board members[67](index=67&type=chunk) - **Stock performance awards** vest after a three-year performance period, with the number of shares awarded ranging from zero to **150%** of the target based on total shareholder return relative to peers and **ROE**[69](index=69&type=chunk) [13. Earnings Per Share](index=31&type=section&id=13.%20Earnings%20Per%20Share) This note details the computation of basic and diluted earnings per share, including the weighted-average common shares outstanding and the dilutive effect of potential common shares from stock awards and employee stock purchase plans **Weighted-Average Common Shares Outstanding (in thousands):** | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic | 41,874 | 41,784 | 41,850 | 41,754 | | Dilutive Effect of Potential Common Shares | 244 | 284 | 240 | 297 | | **Diluted** | **42,118** | **42,068** | **42,090** | **42,051** | [14. Derivative Instruments](index=31&type=section&id=14.%20Derivative%20Instruments) This note describes OTP's use of derivative instruments to manage exposure to market energy price variability, which are recorded at fair value and economically hedge against price volatility, with gains/losses deferred through regulatory assets/liabilities until settlement - **OTP** uses pay-fixed, receive-variable swap agreements with settlement dates extending to December 31, 2026, to manage energy price risk[75](index=75&type=chunk) **Derivative Instruments (in thousands):** | Item | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Megawatt hours of electricity (notional) | 347 | 167 | | Derivative Assets (Current) | $746 | $0 | | Total Derivative Liabilities | $1,724 | $1,989 | - Losses from settled derivative instruments were **$2.6 million** for the six months ended June 30, 2025, compared to **$2.7 million** in the prior year, and are recovered from electric customers through fuel recovery mechanisms[76](index=76&type=chunk) [15. Fair Value Measurements](index=32&type=section&id=15.%20Fair%20Value%20Measurements) This note presents the company's assets and liabilities measured at fair value on a recurring basis, categorized by input levels (Level 1, 2, 3), and provides the carrying value and estimated fair value for financial instruments not recorded at fair value **Assets and Liabilities Measured at Fair Value (in thousands) - June 30, 2025:** | Item | Level 1 | Level 2 | Level 3 | | :----------------------------------- | :------ | :------ | :------ | | Money Market Funds | $1,372 | $0 | $0 | | Mutual Funds | $15,338 | $0 | $0 | | Corporate Debt Securities | $0 | $1,684 | $0 | | Government Debt Securities | $0 | $61,918 | $0 | | Derivative Instruments (Assets) | $0 | $746 | $0 | | Derivative Instruments (Liabilities) | $0 | $1,724 | $0 | - Level 2 fair value measurements for debt securities and derivative instruments are determined using observable market inputs and industry-accepted valuation models[78](index=78&type=chunk)[79](index=79&type=chunk) **Carrying Value and Estimated Fair Value of Financial Instruments (in thousands) - June 30, 2025:** | Item | Carrying Amount | Fair Value | | :----------------------------------- | :-------------- | :--------- | | Cash and Cash Equivalents | $307,241 | $307,241 | | Short-Term Debt | $0 | $0 | | Long-Term Debt | $1,043,374 | $923,102 | [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a comprehensive discussion and analysis of Otter Tail Corporation's financial condition and results of operations, covering economic conditions, segment-specific performance for both quarter-to-date and year-to-date periods, regulatory matters, liquidity, capital resources, and critical accounting policies [ECONOMIC CONDITIONS](index=35&type=section&id=ECONOMIC%20CONDITIONS) This section discusses the potential impacts of broad changes in U.S. trade and tariff policy, including increased costs, supply chain disruptions, and reduced demand, on the company's business operations and financial performance - Changes in U.S. trade and tariff policy could significantly impact domestic macroeconomic conditions and the company's operations, potentially increasing Electric segment capital expenditures and Manufacturing segment steel costs[84](index=84&type=chunk) - Broader macroeconomic conditions, such as rising inflation and recession risk, could lead to increased operating and investment costs, reduced demand for electric service and products, and elevated interest rates[85](index=85&type=chunk) [RESULTS OF OPERATIONS – QUARTER TO DATE](index=35&type=section&id=RESULTS%20OF%20OPERATIONS%20%E2%80%93%20QUARTER%20TO%20DATE) This section analyzes the company's consolidated and segment-specific operating results for the three months ended June 30, 2025, compared to the same period in 2024, highlighting key revenue and expense drivers and their impact on net income [CONSOLIDATED RESULTS](index=35&type=section&id=CONSOLIDATED%20RESULTS%20(Quarter%20to%20Date)) Consolidated operating revenues decreased by $9.3 million, primarily due to lower sales in Manufacturing and Plastics, partially offset by Electric segment growth. Net income declined by $9.3 million, influenced by increased operating expenses and interest expense, despite a decrease in income tax expense **Consolidated Operating Results (in thousands):** | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | $ Change | % Change | | :----------------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Operating Revenues | $333,043 | $342,336 | $(9,293) | (2.7)% | | Operating Expenses | $235,585 | $231,425 | $4,160 | 1.8% | | Operating Income | $97,458 | $110,911 | $(13,453) | (12.1)% | | Net Income | $77,728 | $86,995 | $(9,267) | (10.7)% | - **Operating Revenues** decreased by **$9.3 million**, mainly due to decreased sales volumes in Manufacturing and lower sales prices in Plastics, partially offset by increased Plastics sales volumes and Electric segment fuel recovery revenue[88](index=88&type=chunk) - **Income Tax Expense** decreased by **$6.9 million**, driven by lower income before taxes and an increase in **Production Tax Credits** (**PTCs**) from increased wind and solar generation, including a new wind repowering project[91](index=91&type=chunk) [ELECTRIC SEGMENT RESULTS](index=37&type=section&id=ELECTRIC%20SEGMENT%20RESULTS%20(Quarter%20to%20Date)) The Electric segment saw a 14.1% increase in total operating revenues, driven by higher retail, transmission, and wholesale revenues, and favorable weather conditions. Net income increased by 3.8%, despite higher production fuel, purchased power, and operating & maintenance expenses **Electric Segment Operating Results (in thousands):** | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | $ Change | % Change | | :----------------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Total Operating Revenues | $128,731 | $112,828 | $15,903 | 14.1% | | Production Fuel | $16,292 | $12,324 | $3,968 | 32.2% | | Purchased Power | $15,497 | $9,249 | $6,248 | 67.6% | | Operating Income | $23,633 | $22,597 | $1,036 | 4.6% | | Net Income | $19,195 | $18,485 | $710 | 3.8% | | Retail kwh Sales (in thousands) | 1,337,696 | 1,315,504 | 22,192 | 1.7% | - **Retail Revenues** increased by **$13.7 million**, primarily due to an **$8.7 million** increase in fuel recovery revenues, a **$2.4 million** net increase in rider revenues, and a **$1.6 million** increase from favorable weather[95](index=95&type=chunk)[102](index=102&type=chunk) - **Purchased Power** costs increased by **$6.2 million** (**67.6%**) due to a **60%** increase in the cost of purchased power, driven by higher market energy and natural gas prices[96](index=96&type=chunk) - **Income Tax Benefit** increased by **$3.1 million** due to higher **PTCs** from increased wind and solar generation[98](index=98&type=chunk) [MANUFACTURING SEGMENT RESULTS](index=39&type=section&id=MANUFACTURING%20SEGMENT%20RESULTS%20(Quarter%20to%20Date)) The Manufacturing segment experienced an 18.6% decrease in operating revenues, mainly due to a 9% decline in sales volumes across various end markets and a 7% decrease in pass-through steel costs. Net income fell by 49.1% as a result of lower sales and reduced profit margins **Manufacturing Segment Operating Results (in thousands):** | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | $ Change | % Change | | :----------------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Operating Revenues | $78,726 | $96,684 | $(17,958) | (18.6)% | | Cost of Products Sold | $59,037 | $71,797 | $(12,760) | (17.8)% | | Operating Income | $5,065 | $9,600 | $(4,535) | (47.2)% | | Net Income | $3,481 | $6,835 | $(3,354) | (49.1)% | - **Operating Revenues** decreased by **$18.0 million**, primarily due to a **9%** decrease in sales volumes in agriculture, recreational vehicles, lawn and garden, and construction end markets, and a **7%** decrease in pass-through steel costs[99](index=99&type=chunk) - **Cost of Products Sold** decreased by **$12.8 million**, largely due to lower sales volumes, enhanced profit margins from timing of steel cost fluctuations, and decreased steel costs[100](index=100&type=chunk) [PLASTICS SEGMENT RESULTS](index=41&type=section&id=PLASTICS%20SEGMENT%20RESULTS%20(Quarter%20to%20Date)) The Plastics segment experienced a 5.4% decrease in operating revenues, mainly due to a 15% decline in sales prices, partially offset by an 11% increase in sales volumes driven by strong demand and increased production capacity. Net income decreased by 12.4% **Plastics Segment Operating Results (in thousands):** | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | $ Change | % Change | | :----------------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Operating Revenues | $125,586 | $132,824 | $(7,238) | (5.4)% | | Cost of Products Sold | $46,929 | $44,998 | $1,931 | 4.3% | | Operating Income | $72,034 | $82,089 | $(10,055) | (12.2)% | | Net Income | $53,104 | $60,612 | $(7,508) | (12.4)% | - **Operating Revenues** decreased by **$7.2 million** due to a **15%** decrease in sales prices, partially offset by an **11%** increase in sales volumes driven by strong demand and increased production capacity[103](index=103&type=chunk) - **Cost of Products Sold** increased by **$1.9 million** due to higher sales volumes, partially offset by a **15%** reduction in **PVC** resin costs[104](index=104&type=chunk) [CORPORATE COSTS](index=41&type=section&id=CORPORATE%20COSTS%20(Quarter%20to%20Date)) Corporate costs showed a net loss of $1.9 million for the quarter, an increase from the prior year's loss, primarily due to changes in nonservice components of postretirement benefits and other income **Corporate Operating Results (in thousands):** | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | $ Change | % Change | | :----------------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Operating Loss | $(3,274) | $(3,375) | $101 | (3.0)% | | Net Loss | $1,948 | $1,063 | $885 | 83.3% | [RESULTS OF OPERATIONS – YEAR TO DATE](index=42&type=section&id=RESULTS%20OF%20OPERATIONS%20%E2%80%93%20YEAR%20TO%20DATE) This section analyzes the company's consolidated and segment-specific operating results for the six months ended June 30, 2025, compared to the same period in 2024, detailing revenue and expense trends, and their impact on overall profitability [CONSOLIDATED RESULTS](index=42&type=section&id=CONSOLIDATED%20RESULTS%20(Year%20to%20Date)) Consolidated operating revenues decreased by $19.0 million, mainly due to lower Plastics sales prices and Manufacturing sales volumes, partially offset by increased Electric fuel recovery and favorable weather. Net income declined by $15.5 million, impacted by higher operating and interest expenses, despite a significant decrease in income tax expense **Consolidated Operating Results (in thousands):** | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | $ Change | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Operating Revenues | $670,396 | $689,404 | $(19,008) | (2.8)% | | Operating Expenses | $488,939 | $483,518 | $5,421 | 1.1% | | Operating Income | $181,457 | $205,886 | $(24,429) | (11.9)% | | Net Income | $145,827 | $161,333 | $(15,506) | (9.6)% | - **Operating Revenues** decreased by **$19.0 million**, primarily due to decreased sales prices in Plastics and lower sales volumes in Manufacturing, partially offset by increased fuel recovery revenues and favorable weather in Electric[106](index=106&type=chunk) - **Income Tax Expense** decreased by **$14.7 million**, mainly due to increased **PTCs** from wind and solar generation and a decrease in income before income taxes[109](index=109&type=chunk) [ELECTRIC SEGMENT RESULTS](index=43&type=section&id=ELECTRIC%20SEGMENT%20RESULTS%20(Year%20to%20Date)) The Electric segment's total operating revenues increased by 9.5%, driven by higher retail revenues from fuel recovery, favorable weather, and rate increases in North Dakota. Net income grew by 7.2%, despite significant increases in purchased power, operating & maintenance, and depreciation expenses **Electric Segment Operating Results (in thousands):** | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | $ Change | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Total Operating Revenues | $278,451 | $254,317 | $24,134 | 9.5% | | Purchased Power | $46,367 | $31,771 | $14,596 | 45.9% | | Operating Income | $52,676 | $51,639 | $1,037 | 2.0% | | Net Income | $43,903 | $40,956 | $2,947 | 7.2% | | Retail kwh Sales (in thousands) | 3,010,700 | 2,896,355 | 114,345 | 3.9% | - **Retail Revenues** increased by **$22.6 million**, primarily due to a **$14.7 million** increase in fuel recovery revenues, a **$5.3 million** increase from favorable weather, and rate increases in North Dakota[112](index=112&type=chunk)[113](index=113&type=chunk) - **Purchased Power** costs increased by **$14.6 million** (**45.9%**) due to a **34%** increase in price and a **9%** increase in volume[114](index=114&type=chunk) - **Income Tax Benefit** increased by **$8.3 million** due to higher **PTCs** from increased wind and solar generation[116](index=116&type=chunk) [MANUFACTURING SEGMENT RESULTS](index=45&type=section&id=MANUFACTURING%20SEGMENT%20RESULTS%20(Year%20to%20Date)) The Manufacturing segment's operating revenues decreased by 18.2%, driven by an 11% decline in sales volumes across various end markets and a 5% decrease in pass-through steel costs. Net income fell by 58.6% due to reduced sales and increased depreciation **Manufacturing Segment Operating Results (in thousands):** | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | $ Change | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Operating Revenues | $160,412 | $196,065 | $(35,653) | (18.2)% | | Cost of Products Sold | $123,337 | $148,709 | $(25,372) | (17.1)% | | Operating Income | $7,492 | $17,014 | $(9,522) | (56.0)% | | Net Income | $5,013 | $12,096 | $(7,083) | (58.6)% | - **Operating Revenues** decreased by **$35.7 million** due to an **11%** decrease in sales volumes across multiple end markets and a **5%** decrease in pass-through steel costs[117](index=117&type=chunk) - **Depreciation and Amortization** increased by **$0.9 million** due to increased capital investment in manufacturing equipment and facilities[118](index=118&type=chunk) [PLASTICS SEGMENT RESULTS](index=45&type=section&id=PLASTICS%20SEGMENT%20RESULTS%20(Year%20to%20Date)) The Plastics segment's operating revenues decreased by 3.1%, primarily due to a 13% decline in sales prices, partially offset by a 12% increase in sales volumes driven by strong demand and expanded production capacity. Net income decreased by 10.1% **Plastics Segment Operating Results (in thousands):** | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | $ Change | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Operating Revenues | $231,533 | $239,022 | $(7,489) | (3.1)% | | Cost of Products Sold | $87,016 | $82,809 | $4,207 | 5.1% | | Operating Income | $130,909 | $145,392 | $(14,483) | (10.0)% | | Net Income | $96,543 | $107,350 | $(10,807) | (10.1)% | - **Operating Revenues** decreased by **$7.5 million** due to a **13%** decrease in sales prices, partially offset by a **12%** increase in sales volumes from strong demand and increased production capacity[121](index=121&type=chunk) - **Cost of Products Sold** increased by **$4.2 million** due to higher sales volumes, partially offset by an **11%** decrease in **PVC** resin costs[122](index=122&type=chunk) - **Selling, General, and Administrative Expenses** increased by **$1.9 million** due to costs associated with ongoing **PVC** pipe pricing litigation[123](index=123&type=chunk) [CORPORATE COSTS](index=47&type=section&id=CORPORATE%20COSTS%20(Year%20to%20Date)) Corporate costs resulted in a net loss of $368 thousand for the six months, a decrease from the prior year's loss, primarily due to increased general and administrative expenses from higher employee health insurance claims **Corporate Operating Results (in thousands):** | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | $ Change | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :------- | :------- | | General and Administrative Expenses | $9,534 | $8,111 | $1,423 | 17.5% | | Operating Loss | $(9,620) | $(8,159) | $(1,461) | 17.9% | | Net Loss | $368 | $931 | $(563) | (60.4)% | - **General and Administrative Expenses** increased by **$1.4 million**, primarily due to increased employee health insurance claim costs[124](index=124&type=chunk) [REGULATORY MATTERS](index=47&type=section&id=REGULATORY%20MATTERS) This section provides updates on general rate cases in North and South Dakota, summarizes significant rate rider proceedings, and discusses recent environmental regulations from the EPA, including the Clean Air Act, Mercury and Air Toxics Standards, and the Regional Haze Rule [GENERAL RATES](index=47&type=section&id=GENERAL%20RATES) This subsection details the outcomes of the North Dakota rate case, which approved a $13.1 million net annual revenue increase for OTP, and the ongoing South Dakota rate case, where OTP is seeking a $5.7 million increase - The North Dakota Public Service Commission approved a settlement for **OTP's** general rate case, resulting in a net annual revenue increase of **$13.1 million** (**6.18%**), effective March 15, 2025[126](index=126&type=chunk) - **OTP** filed a request with the South Dakota Public Utilities Commission for a **$5.7 million** (**12.50%**) increase in annual revenue, with a proposed **ROE** of **10.80%**[127](index=127&type=chunk) Interim rates may be implemented by December 1, 2025, if no decision is made within **180 days**[127](index=127&type=chunk) [RATE RIDERS](index=49&type=section&id=RATE%20RIDERS) This subsection summarizes various approved and requested rate rider proceedings across Minnesota, North Dakota, and South Dakota, detailing their revenue impacts and recovery mechanisms for specific costs and investments **Summary of Rate Rider Proceedings (in millions):** | Recovery Mechanism | Jurisdiction | Status | Amount | Effective Date | | :----------------- | :----------- | :----- | :----- | :------------- | | RRR - 2023 | MN | Approved | $17.5 | 07/01/23 | | ECO - 2023 | MN | Approved | $9.7 | 10/01/23 | | ECO - 2025 | MN | Requested | $9.5 | 11/01/25 | | RRR - 2024 | MN | Approved | $8.0 | 09/01/24 | | EUIC - 2025 | MN | Approved | $4.1 | 02/01/25 | | RRR - 2023 | ND | Approved | $12.2 | 05/01/23 | | TCR - 2024 | ND | Approved | $4.5 | 01/01/24 | | MDT - 2025 | ND | Requested | $3.7 | 01/01/26 | | PIR - 2024 | SD | Approved | $3.2 | 09/01/24 | | PIR - 2025 | SD | Approved | $3.2 | 09/01/25 | | TCR - 2023 | SD | Approved | $3.0 | 03/01/23 | [ENVIRONMENTAL REGULATION](index=49&type=section&id=ENVIRONMENTAL%20REGULATION) This subsection discusses recent EPA regulations and proposed repeals concerning greenhouse gas emissions under the Clean Air Act, Mercury and Air Toxics Standards (MATS), and the Regional Haze Rule (RHR), which could impact the company's fossil fuel-fired power plants - The **EPA** finalized new regulations under the Clean Air Act in May 2024 to regulate **GHG** emissions from fossil fuel-fired power plants, impacting Coyote Station and Big Stone Plant[129](index=129&type=chunk) - In June 2025, the **EPA** proposed to repeal existing **GHG** emission standards and the 2024 **MATS** for coal-fired power plants, with public comment periods open until August 2025[130](index=130&type=chunk)[131](index=131&type=chunk) - The **EPA** partially disapproved North Dakota's State Implementation Plan (**SIP**) for the **Regional Haze Rule** in December 2024, but granted a request to reconsider this ruling in April 2025[134](index=134&type=chunk)[135](index=135&type=chunk) [LIQUIDITY](index=51&type=section&id=LIQUIDITY) This section assesses the company's liquidity position, including available cash, credit facilities, and cash flow activities, and discusses capital requirements, dividend policies, and capital resources, emphasizing compliance with financial covenants [LIQUIDITY OVERVIEW](index=51&type=section&id=LIQUIDITY%20OVERVIEW) The company maintains a strong financial condition with ample liquidity from cash, liquid assets, operating cash flows, credit lines, and capital market access, supported by investment-grade credit ratings and compliance with financial covenants - As of June 30, 2025, the company had **$381.0 million** of available liquidity under its credit facilities and **$307.2 million** in cash and cash equivalents, totaling **$688.2 million** in available liquidity[138](index=138&type=chunk) **Status of Lines of Credit (in thousands) - June 30, 2025:** | Item | Borrowing Limit | Amount Outstanding | Letters of Credit | Amount Available | | :----------------------------------- | :-------------- | :----------------- | :---------------- | :--------------- | | OTC Credit Agreement | $170,000 | $0 | $0 | $170,000 | | OTP Credit Agreement | $220,000 | $0 | $9,022 | $210,978 | | **Total** | **$390,000** | **$0** | **$9,022** | **$380,978** | [CASH FLOWS](index=51&type=section&id=CASH%20FLOWS) Net cash provided by operating activities decreased by $64.1 million, primarily due to timing differences in fuel cost and rider recoveries and operating cost payments. Net cash used in investing activities decreased by $101.0 million due to lower capital expenditures and a prior year investment. Financing activities shifted from providing to using cash, influenced by long-term debt issuance and short-term debt repayments **Cash Flows (in thousands) - Six Months Ended June 30:** | Item | 2025 | 2024 | | :----------------------------------- | :----- | :----- | | Net Cash Provided by Operating Activities | $159,379 | $223,461 | | Net Cash Used in Investing Activities | $(127,026) | $(228,065) | | Net Cash (Used in) Provided by Financing Activities | $(19,763) | $4,903 | - **Net cash provided by operating activities** decreased by **$64.1 million**, mainly due to the timing of fuel cost and rider recoveries from utility customers, operating cost payments, and a decrease in earnings[139](index=139&type=chunk) - **Net cash used in investing activities** decreased by **$101.0 million**, including a **$51.3 million** decrease in capital expenditures and a **$50.1 million** investment in U.S. treasuries in the prior year[141](index=141&type=chunk) - Financing activities for H1 2025 included the issuance of **$100.0 million** in long-term debt by **OTP**, net repayments of **$69.6 million** in short-term debt, and **$44.0 million** in dividend payments[142](index=142&type=chunk)[143](index=143&type=chunk) [CAPITAL REQUIREMENTS](index=52&type=section&id=CAPITAL%20REQUIREMENTS) The company's capital expenditure plan involves investments in electric generation, transmission, distribution, manufacturing equipment, and IT systems, subject to ongoing review and adjustment based on various factors. Contractual obligations primarily consist of debt payments, coal/energy commitments, postretirement benefits, and leasing arrangements - The capital expenditure plan is subject to review and revision based on energy demand, technology, environmental laws, regulatory approvals, business expansion, costs, and financial condition[144](index=144&type=chunk) - Contractual obligations include principal and interest payments on debt, commitments for coal, energy, and capacity, postretirement benefit obligations, and land easements/leasing arrangements[145](index=145&type=chunk) - There were no material changes in contractual obligations outside the ordinary course of business during the six months ended June 30, 2025[146](index=146&type=chunk) [COMMON STOCK DIVIDENDS](index=52&type=section&id=COMMON%20STOCK%20DIVIDENDS) The company paid $44.0 million in common stock dividends ($1.05 per share) during the first six months of 2025. Future dividend amounts are determined quarterly by the Board of Directors, considering financial condition, earnings, cash flows, capital expenditures, and business prospects, and are subject to statutory and regulatory restrictions **Common Stock Dividends Paid:** | Period | Amount (in millions) | Per Share | | :----------------------------------- | :------------------- | :-------- | | Six Months Ended June 30, 2025 | $44.0 | $1.05 | | Six Months Ended June 30, 2024 | $39.1 | $0.9350 | - Future dividend payments depend on financial condition, earnings, cash flows, capital expenditures, and business prospects, and are subject to statutory and regulatory limitations[147](index=147&type=chunk) [CAPITAL RESOURCES](index=52&type=section&id=CAPITAL%20RESOURCES) The company maintains financial flexibility through operating cash flows, unused credit lines, and capital market access, supported by strong financial coverages and investment-grade credit ratings. It plans debt financing for refinancing and capital investments, and remains in compliance with all financial covenants for both OTC and OTP - Financial flexibility is provided by operating cash flows, unused lines of credit, and access to capital markets, supported by strong financial coverages and investment-grade credit ratings[148](index=148&type=chunk) - **OTP** issued **$100.0 million** of senior unsecured notes in March and June 2025, and no additional long-term debt is anticipated for 2025[151](index=151&type=chunk) - As of June 30, 2025, **OTC's interest-bearing debt to total capitalization** was **0.37 to 1.00**, and **OTP's** was **0.45 to 1.00**, both well within the maximum allowed ratios (**0.60 to 1.00** or **0.65 to 1.00**)[153](index=153&type=chunk)[154](index=154&type=chunk) [CRITICAL ACCOUNTING POLICIES INVOLVING SIGNIFICANT ESTIMATES](index=55&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20INVOLVING%20SIGNIFICANT%20ESTIMATES) This section states that there have been no material changes to the company's critical accounting policies and estimates from those disclosed in its most recent Annual Report on Form 10-K - No material changes to critical accounting policies and estimates have occurred since the Annual Report on Form 10-K for the year ended December 31, 2024[155](index=155&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=55&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section indicates that there have been no material changes in the company's market risk disclosures since its most recent Annual Report on Form 10-K - No material changes in market risk have occurred since the Annual Report on Form 10-K for the year ended December 31, 2024[156](index=156&type=chunk) [ITEM 4. Controls and Procedures](index=55&type=section&id=ITEM%204.%20Controls%20and%20Procedures) This section confirms that the company's management, including the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures as of June 30, 2025, and found them to be effective. It also states that there were no material changes in internal control over financial reporting during the quarter - The company's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025[157](index=157&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[158](index=158&type=chunk) [PART II. OTHER INFORMATION](index=55&type=section&id=PART%20II.%20OTHER%20INFORMATION) [ITEM 1. Legal Proceedings](index=55&type=section&id=ITEM%201.%20Legal%20Proceedings) This section refers to Note 9 for a detailed discussion of ongoing legal proceedings, specifically class action complaints alleging antitrust violations related to PVC pipe pricing against OTC and other parties - Several class action complaints have been filed against **OTC** and other parties, alleging antitrust violations related to fixing, raising, maintaining, and stabilizing **PVC** municipal water and electrical conduit pipe prices[159](index=159&type=chunk) [ITEM 1A. Risk Factors](index=55&type=section&id=ITEM%201A.%20Risk%20Factors) This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[160](index=160&type=chunk) [ITEM 5. Other Information](index=55&type=section&id=ITEM%205.%20Other%20Information) This section indicates that there is no other information to report under this item - No other information to report[161](index=161&type=chunk) [ITEM 6. Exhibits](index=56&type=section&id=ITEM%206.%20Exhibits) This section lists the exhibits filed as part of, or incorporated by reference into, this report, including certifications, XBRL taxonomy documents, and the interactive data file - Exhibits include certifications from the **CEO** and **CFO** (Sections 302 and 906 of Sarbanes-Oxley Act), Inline **XBRL** Taxonomy Extension Schema, Calculation, Label, Presentation, and Definition Linkbase Documents, and the Cover Page Interactive Data File[163](index=163&type=chunk) [Signatures](index=57&type=section&id=Signatures) - The report was signed by Todd R Wahlund, Vice President and Chief Financial Officer, on August 6, 2025[165](index=165&type=chunk) ```

Financial Data and Key Metrics Changes - The company reported diluted earnings per share of $1.85 in Q2 2025, down from $2.07 in the same period last year, reflecting a decline in earnings [7][23] - Despite the decline, the midpoint of the 2025 earnings guidance was increased to $6.26 from $5.88 due to better-than-expected performance in the Plastics segment [8][29] - The company maintains its original earnings guidance for all other segments, with an expected year-over-year growth of over 7% for the electric segment [30] Business Line Data and Key Metrics Changes - Electric segment earnings increased by $0.02 per share in Q2 2025, driven by timely recovery on capital investments and favorable weather conditions [23][24] - Manufacturing segment earnings decreased by $0.08 per share primarily due to lower product pricing and decreased sales volumes [25] - The Plastics segment experienced a decline in earnings of $0.18 per share, attributed to a 15% decrease in sales prices, although sales volumes increased by 11% [26][27] Market Data and Key Metrics Changes - The company continues to have some of the lowest electric rates in the nation, with 2024 rates being 30% below the national average and 16% below regional peers [18] - The construction and lawn and garden end markets are improving, while recreational vehicle and agricultural end markets are still facing challenges due to high inventory levels [19] Company Strategy and Development Direction - The company is focused on a significant capital investment plan totaling $1.4 billion over five years, aimed at benefiting customers and driving earnings growth [9][30] - The electric segment is projected to have a compounded annual growth rate of 9% through 2029, with a focus on customer-centric investments [12][31] - The company is also working on expanding its manufacturing capabilities, including the BTD Georgia facility and Vinyltech expansion [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term fundamentals of the manufacturing segment despite current down cycles, emphasizing a strong track record of performance during market rebounds [25][31] - The company is monitoring legislative changes that may impact renewable energy projects but expects its current capital investment plan to remain intact [9][10] Other Important Information - The company filed a request with the South Dakota Public Utilities Commission to increase base electric rates for the first time since 2018, proposing to increase net revenues by approximately $5.7 million [11] - The company is finalizing a cost of service analysis in Minnesota and anticipates filing a rate case later this year [12] Q&A Session Summary Question: No questions were raised during the Q&A session - The operator noted that there were no questions in the queue and concluded the call [35][37]

Financial Performance & Guidance - Q2 2025 diluted EPS was $1.85[9], compared to $2.07 in Q2 2024, representing a decrease of approximately 10%[11] - Year-to-date diluted EPS decreased by approximately 10% from $3.84 in 2024 to $3.46 in 2025[11] - The company increased its 2025 EPS guidance to a range of $6.06 to $6.46, up from the previous guidance of $5.68 to $6.08, representing an increase of approximately 6% at the midpoint[9, 12] - The company reaffirmed a 7% EPS growth for the Electric segment[9] - The company's Return on Equity (ROE) is 17%[9] Capital Investments & Rate Base - The company anticipates a $1.4 billion capital investment spending plan to remain intact[19] - Significant rate base growth is expected, with a Compound Annual Growth Rate (CAGR) of 9%[26] - The company expects to convert rate base growth into electric EPS growth near a 1:1 ratio[29] Projects & Regulatory Updates - Regulatory approval was obtained for the direct assignment of Abercrombie Solar and Solway Solar projects, totaling 345 MW[9] - A South Dakota rate case was filed, seeking a $5.7 million net revenue increase, representing a 12.5% increase, with a proposed ROE of 10.8%[9, 23] - The company is investing an estimated $230 million in wind repowering projects, with completion dates in 2024 and 2025[30] - The company is investing an estimated $80 million in Solway Solar, with completion dates in 2026-2027[30] - The company is investing an estimated $450 million in Abercrombie Solar, with completion dates in 2028[30] Manufacturing Platform - PVC pipe sales prices have declined since late 2022[48] - Year-over-year trends show sales prices down 15% QTD and 13% YTD, while sales volumes are up 11% QTD and 12% YTD[48]

Press Release August 4, 2025 "Our Manufacturing segment continues to navigate soft end market demand but remains well positioned to respond when market conditions improve. Our recently completed BTD Georgia facility is ramping up to full production capability and we look forward to being able to better serve our growing customers in the southeast. "Plastics segment results outpaced our expectations for the second quarter. We continue to benefit from strong product demand and higher sales volumes as the sale ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I) [Financial Statements](index=3&type=section&id=ITEM%201.%20Financial%20Statements) This section presents Otter Tail Corporation's unaudited consolidated financial statements for Q1 2025, including balance sheets, income, equity, and cash flow statements with detailed notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$3.70 billion** as of March 31, 2025, from **$3.65 billion** at year-end 2024, with shareholders' equity growing to **$1.72 billion** Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $651,274 | $630,041 | | **Property, Plant and Equipment, net** | $2,709,311 | $2,692,460 | | **Total Assets** | **$3,696,794** | **$3,652,082** | | **Total Current Liabilities** | $248,420 | $309,790 | | **Long-Term Debt** | $993,513 | $943,734 | | **Total Shareholders' Equity** | **$1,717,361** | **$1,668,499** | | **Total Liabilities and Shareholders' Equity** | **$3,696,794** | **$3,652,082** | [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) Net income for Q1 2025 decreased to **$68.1 million** from **$74.3 million** in Q1 2024, primarily due to lower operating income Q1 2025 vs Q1 2024 Income Statement (in thousands, except per-share amounts) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total Operating Revenues | $337,353 | $347,068 | | Total Operating Expenses | $253,354 | $252,093 | | Operating Income | $83,999 | $94,975 | | Net Income | $68,099 | $74,338 | | Diluted Earnings Per Share | $1.62 | $1.77 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly decreased to **$39.5 million** in Q1 2025, resulting in a **$9.8 million** net decrease in cash Q1 2025 vs Q1 2024 Cash Flows (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $39,469 | $71,913 | | Net Cash Used in Investing Activities | ($60,911) | ($75,876) | | Net Cash Provided by Financing Activities | $11,605 | $11,748 | | **Net Change in Cash and Cash Equivalents** | **($9,837)** | **$7,785** | [Condensed Notes to Consolidated Financial Statements](index=10&type=section&id=Condensed%20Notes%20to%20Consolidated%20Financial%20Statements) Notes detail segment performance, debt, regulatory matters, and contingencies, highlighting Plastics strength and ongoing PVC pipe litigation - The company operates in three segments: Electric, Manufacturing, and Plastics[14](index=14&type=chunk) Segment Net Income (in thousands) | Segment | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Electric | $24,708 | $22,470 | | Manufacturing | $1,532 | $5,261 | | Plastics | $43,439 | $46,740 | - In March 2025, Otter Tail Power Company (OTP) issued **$50.0 million** of 5.49% Series 2025A Senior Unsecured Notes due 2035 and has an agreement to issue an additional **$50.0 million** of 5.98% Series 2025B notes in June 2025[37](index=37&type=chunk) - The company faces class action lawsuits and a DOJ investigation regarding alleged PVC pipe antitrust violations, with potential material impact if found liable[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2025 financial performance, noting an **8.4%** consolidated net income decrease, segment-specific results, and strong liquidity [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Consolidated net income decreased **8.4%** to **$68.1 million** in Q1 2025, driven by lower operating revenues and higher interest expense Consolidated Results Summary (in thousands) | Metric | Q1 2025 | Q1 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $337,353 | $347,068 | ($9,715) | (2.8)% | | Operating Income | $83,999 | $94,975 | ($10,976) | (11.6)% | | Net Income | $68,099 | $74,338 | ($6,239) | (8.4)% | - The effective tax rate decreased to **12.9%** in Q1 2025 from **19.3%** in Q1 2024, primarily due to an increase in Production Tax Credits (PTCs) from wind generation[83](index=83&type=chunk) [Segment Results](index=35&type=section&id=Segment%20Results) Electric segment net income rose **10.0%**, while Manufacturing plummeted **70.9%**, and Plastics declined **7.1%** due to price and litigation impacts - **Electric Segment:** Net income increased by **$2.2 million (10.0%)** YoY, driven by a **7.1%** increase in retail revenues due to colder weather (**18.5%** more heating degree days) compared to an unseasonably warm Q1 2024[84](index=84&type=chunk) - **Manufacturing Segment:** Net income decreased by **$3.7 million (70.9%)** YoY, caused by a **13%** drop in sales volumes, particularly in the recreational vehicle, agriculture, and construction markets[91](index=91&type=chunk) - **Plastics Segment:** Net income decreased by **$3.3 million (7.1%)** YoY. A **13%** increase in sales volumes was offset by an **11%** decrease in sales prices and a **$1.4 million** increase in SG&A expenses, primarily due to ongoing litigation costs[95](index=95&type=chunk)[97](index=97&type=chunk) [Regulatory Matters](index=39&type=section&id=Regulatory%20Matters) North Dakota regulators approved a rate case settlement, increasing annual revenue by **$13.1 million** with a **10.10%** allowed ROE, alongside other pending rate riders - The North Dakota Public Service Commission approved a settlement for new rates effective March 15, 2025, resulting in a net annual revenue increase of **$13.1 million** and an allowed ROE of **10.10%**[100](index=100&type=chunk)[101](index=101&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$607.2 million** available, despite a decrease in operating cash flow, and issued **$50.0 million** in new long-term debt - As of March 31, 2025, the company had total available liquidity of **$607.2 million**, consisting of **$284.8 million** in cash and **$322.4 million** available under its credit facilities[106](index=106&type=chunk) - Net cash provided by operating activities decreased by **$32.4 million** YoY, primarily due to the timing of fuel cost recoveries and operating cost payments in the Electric segment[107](index=107&type=chunk) - OTP issued **$50.0 million** of 5.49% senior unsecured notes due 2035 and expects to issue an additional **$50.0 million** of 5.98% notes due 2055 in June 2025[118](index=118&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company states that there have been no material changes in its market risk from the disclosures provided in its Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes in market risk were reported since the last Annual Report on Form 10-K[123](index=123&type=chunk) [Controls and Procedures](index=46&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2025 - The company's disclosure controls and procedures were deemed effective as of March 31, 2025[124](index=124&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter[125](index=125&type=chunk) [PART II - OTHER INFORMATION](index=46&type=section&id=PART%20II) [Legal Proceedings](index=48&type=section&id=ITEM%201.%20Legal%20Proceedings) The company is involved in multiple legal complaints alleging antitrust violations related to PVC pipe price fixing - The company is a defendant in legal proceedings alleging antitrust violations related to the pricing of PVC pipe[127](index=127&type=chunk) [Risk Factors](index=48&type=section&id=ITEM%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - No material changes to risk factors were reported since the last Annual Report on Form 10-K[128](index=128&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the first quarter of 2025, the company purchased its common shares on the open market to satisfy obligations under its Employee Stock Purchase Plan and Employee Stock Ownership Plan Share Purchases in Q1 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2025 | 16,433 | $73.56 | | February 2025 | 3,370 | $78.70 | | March 2025 | — | — | | **Total** | **19,803** | **$74.43** | - Share purchases were made on the open market to fulfill obligations for employee stock plans; the company does not have a publicly announced repurchase plan[129](index=129&type=chunk) [Exhibits](index=48&type=section&id=ITEM%206.%20Exhibits) This section lists the exhibits filed with the report, including the Note Purchase Agreement from March 27, 2025, CEO and CFO certifications, and Inline XBRL data files - Key exhibits filed include a Note Purchase Agreement, CEO/CFO certifications (Sections 302 and 906), and XBRL data files[132](index=132&type=chunk)

Financial Data and Key Metrics Changes - The company reported diluted earnings per share of $1.62 in Q1, an 8% decline from the same period last year, but in line with expectations [31][6][7] - The Electric segment saw a 10% increase in earnings due to favorable weather conditions and increased sales volumes, while the Manufacturing segment earnings decreased due to lower sales volumes and increased production costs [31][32] - The Plastics segment produced diluted earnings per share of $1.03, a 7% decrease compared to the previous year, driven by an 11% decline in PVC pipe prices [33][27] Business Line Data and Key Metrics Changes - The Electric segment's earnings growth was attributed to increased rider revenues from capital investments and favorable weather, while the Manufacturing segment faced challenges from soft end market demand, particularly in recreational vehicles and agriculture [31][32][23] - The Plastics segment experienced a 13% increase in sales volumes, benefiting from strong distributor demand and the new large diameter line's output [33][27] Market Data and Key Metrics Changes - The company noted stabilization in the construction and lawn and garden markets, but challenges remain in the recreational vehicle and agriculture markets due to high inventory levels and softening commodity prices [23][25] - The horticulture market served by T.O. Plastics has stabilized, but the timing of sales volume recovery remains uncertain [24] Company Strategy and Development Direction - The company is focused on a customer-centric capital investment plan, projecting a compounded annual growth rate of 9% in rate base through 2029, aiming to convert this into earnings per share growth at a one-to-one ratio [15][37] - The company is actively monitoring trade and tax policy changes, particularly regarding the Inflation Reduction Act, to mitigate risks and seize opportunities [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate economic uncertainty, affirming the 2025 earnings guidance with a midpoint of $5.88 per share [7][35] - The company anticipates potential challenges in the second half of the year due to housing starts and builder sentiment, but expects to remain within the guidance range [47] Other Important Information - The company completed the expansion of its BTD Georgia facility, which is expected to increase production capacity and annual sales significantly [29][30] - The company maintains a strong balance sheet with a consolidated equity layer of 62% and over $600 million in available liquidity [34][35] Q&A Session Summary Question: Inquiry about Plastics segment volumes and pricing dynamics - Management indicated a lower single-digit increase in volume for the year, with strong Q1 performance but potential downturn in the second half due to housing market risks [46][47] - The expectation of continued product price declines despite inflationary input cost increases was explained as a return to pre-2021 gross margin percentages [48] Question: Impact of competitors expanding capacity in core regions - Management noted that while they do not have complete visibility, they anticipate competitors are likely adding capacity similar to their own efforts [50]

Financial Data and Key Metrics Changes - The company reported diluted earnings per share of $1.62 in Q1, an 8% decline from the same period last year, but in line with expectations [31][6][7] - The Electric segment saw a 10% increase in earnings due to favorable weather conditions and increased sales volumes, while the Manufacturing segment's earnings decreased due to lower sales volumes and increased production costs [31][32] - The Plastics segment produced diluted earnings per share of $1.03, a 7% decrease compared to the previous year, driven by an 11% decline in PVC pipe prices [33][27] Business Line Data and Key Metrics Changes - The Electric segment's earnings growth was attributed to increased rider revenues from capital investments and favorable weather, while the Manufacturing segment faced challenges from soft end market demand, particularly in recreational vehicles and agriculture [31][32][23] - The Plastics segment experienced a 13% increase in sales volumes, benefiting from strong distributor demand and the new large diameter pipe capacity [33][27] Market Data and Key Metrics Changes - The company noted stabilization in the construction and lawn and garden markets, but challenges remain in the recreational vehicle and agriculture markets due to high inventory levels and softening commodity prices [23][25] - The horticulture market served by T.O. Plastics has stabilized, but the timing of sales volume recovery remains uncertain [23] Company Strategy and Development Direction - The company is focused on a customer-centric capital investment plan, projecting a compounded annual growth rate of 9% in rate base through 2029, aiming to convert this growth into earnings per share growth at a one-to-one ratio [15][37] - The company is actively monitoring trade and tax policy changes, particularly regarding the Inflation Reduction Act, which could impact renewable energy investments [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate economic uncertainty, affirming the 2025 earnings guidance with a midpoint of $5.88 per share [7][35] - The company anticipates potential challenges in the second half of the year due to housing starts and builder sentiment, but expects to remain within the guidance range [47] Other Important Information - The company completed the expansion of its BTD Georgia facility, which is expected to increase production capacity and annual sales significantly [29][30] - The company maintains a strong balance sheet with a consolidated equity layer of 62% and over $600 million in available liquidity [34][35] Q&A Session Summary Question: Inquiry about Plastics segment volumes and pricing dynamics - Management indicated a lower single-digit increase in volume for the year, with strong Q1 performance but potential downturn in the second half due to housing market risks [47] - The expectation of continued product price declines despite inflationary input costs was explained as a return to pre-2021 gross margin percentages [48] Question: Impact of competitors expanding capacity in core regions - Management noted that while they do not have complete visibility, they anticipate competitors are likely adding capacity similar to their own efforts [50]

Financial Data and Key Metrics Changes - The company reported diluted earnings per share of $1.62 in Q1 2025, an 8% decline from the same period last year, but in line with expectations [31] - The Electric segment saw a 10% increase in earnings due to favorable weather conditions and increased sales volumes, while the Manufacturing segment's earnings decreased due to lower sales volumes and increased production costs [31][32] - The Plastics segment produced diluted earnings per share of $1.03, a decrease of 7% compared to the first quarter last year, driven by an 11% decline in average sales prices of PVC pipe [33] Business Line Data and Key Metrics Changes - The Electric segment's earnings growth was attributed to favorable weather and increased rider revenues from capital investments [31] - The Manufacturing segment faced challenges with soft end market demand, particularly in recreational vehicles and agriculture, leading to decreased earnings [32][23] - The Plastics segment experienced a 13% increase in sales volumes, offsetting some of the decline in pricing [33][26] Market Data and Key Metrics Changes - The company noted heightened uncertainty in the operating environment due to U.S. trade policy and macroeconomic conditions, impacting its businesses [7][8] - Domestic steel prices have increased due to tariffs, which are expected to impact raw material costs in the second half of 2025, but the company anticipates being able to pass these costs onto customers [11] - The company is monitoring end market conditions, particularly in housing starts and builder sentiment, which could affect sales volumes in the second half of the year [49] Company Strategy and Development Direction - The company is affirming its 2025 earnings guidance with a midpoint of $5.88 per share, focusing on capital investments in the Electric segment to drive growth [7][35] - Otter Tail Power aims to attract large loads, with over 1,000 megawatts of potential new loads in the pipeline, which could benefit existing customers by spreading fixed costs [20][22] - The company is committed to maintaining affordable electric service rates, with rates 30% below the national average [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current economic uncertainty, citing a strong balance sheet and ample liquidity [7][35] - The company is closely monitoring potential changes in tax policy that could impact renewable energy investments, particularly under the Inflation Reduction Act [11][12] - Management remains optimistic about the long-term fundamentals of the Manufacturing segment despite current challenges [25] Other Important Information - The company completed the expansion of its BTD Georgia facility, which is expected to increase production capacity and annual sales [29] - The Electric segment's capital investment plan is projected to produce a compounded annual growth rate of 9% through 2029 [15] - The company has a strong balance sheet with a consolidated equity layer of 62% and over $600 million in available liquidity [34] Q&A Session Summary Question: What kind of volumes are assumed in the guidance for the Plastics segment this year? - The company expects a lower single-digit increase in volume for the year, factoring in potential downturns in the second half due to housing starts and builder sentiment [48] Question: Why expect continued product price declines despite inflationary increases in input costs? - The company anticipates reverting to pre-2021 gross margin percentages, expecting a convergence of costs and prices by the end of 2027 [49] Question: Are there any impacts from competitors expanding capacity in core regions? - The company does not have complete visibility but anticipates competitors are likely adding incremental line capacity similar to its own efforts [51]

Financial Performance & Outlook - The company affirmed its 2025 earnings guidance of $5.68 to $6.08 per share[9] - Q1 2025 earnings reached $68.1 million, with a diluted EPS of $1.62[10] compared to $74.3 million and $1.77 diluted EPS in Q1 2024[12] representing an 8% decrease in net income[12] - The company projects a 14.2% Return on Equity (ROE) for 2025[13] - The electric segment is expected to have 7% earnings growth in 2025[13] Electric Segment & Rate Base - A net revenue increase of $13.1 million (6.18% increase) was achieved in the North Dakota rate case, implemented in March 2025[10, 19] - The North Dakota rate case resulted in an increased ROE to 10.1% (from 9.77%) and an equity layer of 53.5% (from 52.5%)[19] - The company anticipates significant rate base growth with a Compound Annual Growth Rate (CAGR) of 9.0%[22] Manufacturing & Plastics Segments - Sales prices in the plastics segment decreased by 11% in Q1 2025, while sales volumes increased by 13%[41] - Material input costs for the plastics segment decreased by 89%[41] - The BTD Georgia facility expansion was completed in Q1 2025, with the potential to generate up to $35 million in incremental annual revenue[10, 47] Capital Investments & Financing - The company plans total capital expenditures of $278 million in 2025[63] - Long-term debt issuances for Otter Tail Power Company are projected at $100 million for 2025[65] - The company anticipates normalized plastics earnings of $45-$50 million in 2028[70]

Financial Performance - Otter Tail Corporation reported earnings of $68.1 million, or $1.62 per diluted share, for Q1 2025, aligning with expectations [2]. - The company maintains its 2025 diluted earnings per share guidance range of $5.68 to $6.08, expecting a return on equity between 13.8% and 14.6% [7][25]. - Net Income for Q1 2025 was $68,099,000, down 8.4% compared to $74,338,000 in Q1 2024 [31]. - Basic Earnings Per Share (EPS) decreased to $1.63 in Q1 2025 from $1.78 in Q1 2024, reflecting a decline of 8.4% [31]. - Operating Income for Q1 2025 was $83,999,000, a decrease of 11.5% from $94,975,000 in Q1 2024 [31]. - Total Operating Revenues for Q1 2025 were $337,353,000, a decrease of 2.1% from $347,068,000 in Q1 2024 [31]. Segment Performance - Operating revenues for the Electric segment increased by $8.2 million, or 5.8%, driven by higher fuel recovery revenues and favorable weather conditions [15][17]. - The Manufacturing segment experienced a revenue decline of $17.7 million, or 17.8%, primarily due to a 13% decrease in sales volumes [19]. - The Plastics segment's operating revenues decreased slightly by $0.3 million, or 0.2%, despite a 13% increase in sales volumes [21]. - Total operating revenues for the electric segment reached $149,720 thousand, an increase from $141,488 thousand in the prior year, reflecting a growth of about 5% [34]. - The manufacturing segment reported operating revenues of $81,685 thousand, compared to $99,380 thousand in the previous year, indicating a decrease of approximately 18% [34]. - Net income for the electric segment was $24,708 thousand, up from $22,470 thousand year-over-year, marking an increase of about 10% [34]. Cash Flow and Liquidity - Consolidated cash provided by operating activities was $39.5 million for Q1 2025, down from $71.9 million in Q1 2024 [10]. - For the three months ended March 31, 2025, net cash provided by operating activities was $39,469 thousand, a decrease from $71,913 thousand in the same period of 2024, representing a decline of approximately 45% [33]. - Available liquidity as of March 31, 2025, was $607 million, including cash and credit facilities [12][14]. - Cash and cash equivalents decreased to $284,814,000 from $294,651,000, a decline of about 3.5% [32]. - The cash and cash equivalents at the end of the period were $284,814 thousand, compared to $238,158 thousand at the end of the previous year, representing an increase of approximately 19.6% [33]. - The company experienced a net change in cash and cash equivalents of $(9,837) thousand, contrasting with a positive change of $7,785 thousand in the same period last year [33]. Expenses and Costs - Total Operating Expenses increased slightly to $253,354,000 in Q1 2025 from $252,093,000 in Q1 2024, representing a 0.5% increase [31]. - Electric Production Fuel costs decreased to $14,321,000 in Q1 2025, down 19.5% from $17,694,000 in Q1 2024 [31]. - Electric Purchased Power costs increased significantly to $30,870,000 in Q1 2025, up 37.1% from $22,521,000 in Q1 2024 [31]. - Interest Expense rose to $11,553,000 in Q1 2025, an increase of 17.3% compared to $9,850,000 in Q1 2024 [31]. Assets and Liabilities - Total current assets increased to $651,274,000 from $630,041,000, representing a growth of approximately 3.9% year-over-year [32]. - Total noncurrent assets rose to $3,045,520,000 from $3,022,041,000, reflecting an increase of approximately 0.8% [32]. - Total assets reached $3,696,794,000, up from $3,652,082,000, indicating a growth of about 1.2% [32]. - Current liabilities totaled $248,420,000, compared to $230,990,000, marking an increase of approximately 7.5% [32]. - Short-term debt decreased to $58,853,000 from $69,615,000, a reduction of about 15.5% [32]. - Total noncurrent liabilities and deferred credits amounted to $737,500,073, showing a slight increase from the previous period [32]. - Shareholders' equity increased to $209,370,209 from $194,040,000, representing an increase of approximately 7.9% [32]. - Regulatory assets rose to $11,539,000 from $9,962,000, an increase of about 15.8% [32]. - Goodwill remained stable at $37,572,000 with no change from the previous year [32]. Capital Expenditures - Capital expenditures for Q1 2025 totaled $58.0 million, primarily focused on the Electric segment's projects [11]. - Capital expenditures for the three months ended March 31, 2025, were $58,012 thousand, down from $74,044 thousand in the same period of 2024, a reduction of approximately 22% [33]. Future Outlook - Otter Tail Power expects a compounded annual growth rate in rate base of 9% from 2025 to 2029, aiming for long-term earnings-per-share growth of 6% to 8% [8]. - The company plans to focus on expanding its electric segment and enhancing operational efficiencies to improve future performance [34].