Otter Tail (OTTR) - 2021 Q3 - Quarterly Report

Part I Item 1. Financial Statements Presents Otter Tail Corporation's unaudited consolidated financial statements for Q3 2021, highlighting significant revenue and net income growth from Manufacturing and Plastics Consolidated Balance Sheets Total assets grew to $2.71 billion by Sep 30, 2021, driven by receivables and inventories, with shareholders' equity reaching $952.5 million Consolidated Balance Sheet Highlights (unaudited, in thousands) | | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $334,967 | $234,832 | | Total Assets | $2,713,148 | $2,578,354 | | Total Current Liabilities | $510,087 | $436,786 | | Total Liabilities | $1,759,666 | $1,707,388 | | Total Shareholders' Equity | $952,482 | $870,966 | | Total Liabilities and Shareholders' Equity | $2,713,148 | $2,578,354 | Consolidated Statements of Income Net income for the nine months ended Sep 30, 2021, surged 62.1% to $125.2 million, with diluted EPS reaching $2.99, fueled by increased operating revenues Consolidated Income Statement Highlights (unaudited, in thousands, except per-share amounts) | | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Total Operating Revenues | $863,612 | $663,258 | | Operating Income | $178,549 | $119,927 | | Net Income | $125,152 | $77,183 | | Diluted Earnings Per Share | $2.99 | $1.89 | Consolidated Statements of Cash Flows Net cash from operations increased to $154.8 million for the nine months ended Sep 30, 2021, with investing cash outflow decreasing significantly to $117.1 million Consolidated Cash Flow Summary (unaudited, in thousands) | | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $154,752 | $141,276 | | Net Cash Used in Investing Activities | ($117,084) | ($222,385) | | Net Cash (Used in) Provided by Financing Activities | ($37,559) | $104,814 | | Net Change in Cash and Cash Equivalents | $109 | $23,705 | Condensed Notes to Consolidated Financial Statements The notes detail accounting policies, segment performance, regulatory matters, and debt agreements, with Plastics being the largest net income contributor - The company is organized into three business segments: Electric, Manufacturing, and Plastics[15][19] Net Income by Segment (Nine Months Ended Sep 30, in thousands) | | 2021 | 2020 | | :--- | :--- | :--- | | Electric | $55,547 | $54,225 | | Manufacturing | $15,290 | $8,476 | | Plastics | $60,102 | $20,922 | | Corporate (Loss) | ($5,787) | ($6,440) | | Total Net Income | $125,152 | $77,183 | - In June 2021, OTP entered into a Note Purchase Agreement to issue $230 million in senior unsecured notes in two tranches (November 2021 and May 2022) to refinance existing debt[33] Item 2. Management's Discussion and Analysis (MD&A) Management discusses financial results, emphasizing strong performance in Plastics and Manufacturing segments, stable Electric segment results, and outlining capital expenditure plans and liquidity - The company continues to monitor the impact of COVID-19, noting that while negative effects have eased in 2021, uncertainty remains, particularly regarding potential vaccine mandates for employees[71][73][74] - Supply shortages and price increases for key raw materials significantly impacted 2021 results. Steel shortages led to higher product prices in the Manufacturing segment, while resin shortages drove up PVC pipe prices and expanded profit margins in the Plastics segment[76][77][78] - The company filed its 2022 Integrated Resource Plan (IRP), which includes adding 150 MW of solar generation by 2025 and withdrawing from its ownership of the Coyote Station coal plant by 2028[135] Results of Operations – Quarter to Date (Q3 2021) Consolidated net income for Q3 2021 rose 46.8% to $52.8 million, primarily driven by exceptional Plastics segment performance, despite a decline in Electric segment operating income Consolidated Results (Q3 2021 vs Q3 2020, in thousands) | | Q3 2021 | Q3 2020 | $ change | % change | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $316,294 | $235,755 | $80,539 | 34.2% | | Operating Income | $74,528 | $52,729 | $21,799 | 41.3% | | Net Income | $52,754 | $35,934 | $16,820 | 46.8% | - The Plastics segment's operating revenues increased 77.2% to $107.5 million, driven by a 103.6% increase in the price per pound of PVC pipe sold, despite a 13.0% decrease in sales volume[100] - The Electric segment's operating income decreased by $5.0 million (13.4%) due to higher production fuel costs and increased operating & maintenance expenses, including costs for new facilities and a planned outage[88][95] Results of Operations – Year to Date (Nine Months Ended Sep 30, 2021) Consolidated net income for the first nine months of 2021 increased 62.1% to $125.2 million, primarily driven by the Plastics segment's 184.7% operating income surge Consolidated Results (YTD 2021 vs YTD 2020, in thousands) | | YTD 2021 | YTD 2020 | $ change | % change | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $863,612 | $663,258 | $200,354 | 30.2% | | Operating Income | $178,549 | $119,927 | $58,622 | 48.9% | | Net Income | $125,152 | $77,183 | $47,969 | 62.1% | - Plastics segment operating income increased by $53.0 million (184.7%) due to a 71.1% increase in the price per pound of PVC pipe sold, which outpaced a 60.3% increase in resin and input costs[123][124] - Manufacturing segment operating income increased by $9.2 million (75.3%), driven by a 15.6% increase in sales volumes and higher material cost pass-throughs[120] Liquidity and Capital Resources The company maintains strong liquidity with $229.0 million available, increased cash from operations, and a $1.13 billion capital expenditure plan for 2022-2026 - As of September 30, 2021, the company had total available liquidity of $229.0 million from its $340 million in credit facilities[138] Projected Capital Expenditures (2022-2026, in millions) | | Electric Segment | Manufacturing & Plastics | Total | | :--- | :--- | :--- | :--- | | Total 2022 - 2026 | $978 | $153 | $1,131 | - On September 30, 2021, the company amended and restated its credit agreements, extending the maturity date for both the OTC and OTP facilities to September 30, 2026[150] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk have occurred since the disclosures in the Annual Report on Form 10-K for the year ended December 31, 2020 - There have been no material changes in market risk since the last Annual Report on Form 10-K for the year ended December 31, 2020[158] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting identified - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[159] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[160] Part II Item 1. Legal Proceedings The company is involved in various legal and regulatory proceedings, with material matters described in Note 9 and the MD&A section - The company is subject to various legal and regulatory proceedings. Material matters are discussed in Note 9 and the MD&A[161] Item 1A. Risk Factors No material changes to risk factors have occurred since those disclosed in the company's 2020 Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the company's 2020 Annual Report on Form 10-K[162] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including amended credit agreements and CEO/CFO certifications - Exhibits filed include amended and restated credit agreements for both Otter Tail Corporation and Otter Tail Power Company, dated September 30, 2021[164] - Standard CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906 are included as exhibits[164]