Otter Tail Corp. (OTTR, Financial) filed Annual Report for the period ended 2011-12-31.
Otter Tail Corp has a market cap of $786.5 million; its shares were traded at around $21.24 with a P/E ratio of 51.9 and P/S ratio of 0.7. The dividend yield of Otter Tail Corp stocks is 5.5%.
General Rate Case—On November 3, 2008 OTP filed a general rate case in North Dakota requesting an overall revenue increase of approximately $6.1 million, or 5.1%, and an interim rate increase of approximately 4.1%, or $4.8 million annualized, that went into effect on January 2, 2009. In an order issued by the NDPSC on November 25, 2009, OTP was granted an increase in North Dakota retail electric rates of $3.6 million, or approximately 3.0%, which went into effect in December 2009. The NDPSC order authorizing an interim rate increase required OTP to refund North Dakota customers the difference between final and interim rates, with interest. OTP established a refund reserve for revenues collected under interim rates that exceeded the final rate increase. The refund reserve balance of $0.9 million as of December 31, 2009 was refunded to North Dakota customers in January 2010. OTP deferred recognition of $0.5 million in rate case-related filing and administrative costs that are subject to amortization and recovery over a three year period beginning in January 2010. As required by the NDPSC order in the OTP 2008 rate case, OTP submitted a filing for a request to remove the recovery of the costs associated with economic development in base rates in North Dakota. OTP proposed and the NDPSC approved an Economic Development Cost Removal Rider, under which all North Dakota customers will receive a credit of $0.00025 per kwh. The monthly credit was effective with bills rendered on and after January 1, 2011.
Wind Energy consists of DMI Industries, Inc. (DMI), a steel fabrication company with headquarters in Fargo, North Dakota, that manufactures wind towers and other heavy metal fabricated products. DMI has manufacturing facilities in West Fargo, North Dakota; Tulsa, Oklahoma; and Fort Erie, Ontario, Canada. DMI has a wholly owned subsidiary, DMI Canada, Inc., located in Fort Erie, Ontario, Canada. The Fort Erie plant was idled in the fourth quarter of 2011 due to a lack of orders for wind towers. The Company derived 19%, 16% and 20% of its consolidated operating revenues from the Wind Energy segment for each of the three years ended December 31, 2011, 2010 and 2009, respectively. Two customers account for over 85% of the 2011 revenue of the Wind Energy segment. Following is a brief description of this segment:
DMI s revenues decreased $17.1 million as lower production levels were realized due to a different customer mix and lower productivity while supporting deliveries on a customer contract. Cost of goods sold at DMI increased $7.9 million. A reduction in costs related to production decreases was offset by $16.6 million in additional production costs incurred in 2010 to complete towers to a customer s new design specifications and to support the customer s delivery schedule for completed towers. Operating expenses at DMI decreased $1.2 million as DMI recorded a $0.9 million loss on the sale of fixed assets in 2009 compared to no losses on asset sales in 2010. Also, DMI s insurance expenses decreased $0.4 million as a result of safety improvements. Depreciation expense increased mainly as a result of 2009 capital additions.
DMI is party to a $40 million receivable purchase agreement whereby designated customer accounts receivable may be sold to General Electric Capital Corporation on a revolving basis. The agreement is set to expire in July 2012. We are currently reviewing our options regarding this agreement. The discount rate under the current agreement is the 3-month LIBOR plus 4%. Accounts receivable totaling $72.0 million were sold in 2011 compared with $62.7 million in 2010. Discounts, fees and commissions charged to operating expense for the years ended December 31, 2011 and 2010 were $0.6 million and $0.2 million, respectively. The balance of receivables sold that was outstanding to the buyer as of December 31, 2011 was $27.1 million. The sales of these accounts receivable are reflected as a reduction of accounts receivable in our consolidated balance sheets and the proceeds are included in the cash flows from operating activities in our consolidated statement of cash flows.
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Otter Tail Corp has a market cap of $786.5 million; its shares were traded at around $21.24 with a P/E ratio of 51.9 and P/S ratio of 0.7. The dividend yield of Otter Tail Corp stocks is 5.5%.
Highlight of Business Operations:
2010 General Rate Case Filing—OTP filed a general rate case on April 2, 2010 requesting an 8.01% base rate increase as well as a 3.8% interim rate increase. On May 27, 2010, the MPUC issued an order accepting the filing, suspending rates, and approving the interim rate increase, as requested, to be effective with customer usage on and after June 1, 2010. The MPUC held a hearing to decide on the issues in the rate case on March 25, 2011 and issued a written order on April 25, 2011. The MPUC authorized a revenue increase of approximately $5.0 million, or 3.76% in base rate revenues, excluding the effect of moving recovery of wind investments to base rates. The MPUC s written order included: (1) recovery of Big Stone II costs over five years (see discussion below), (2) moving recovery of wind farm assets from rider recovery to base rate recovery, (3) transfer of a portion of Minnesota Conservation Improvement Program (MNCIP) costs from rider recovery to base rate recovery, (4) transfer of the investment in two transmission lines from rider recovery to base rate recovery, and (5) changing the mechanism for providing customers with a credit for margins earned on asset-based wholesale sales of electricity from a credit to base rates to a credit to the Minnesota fuel clause adjustment (FCA). Final rates went into effect October 1, 2011. The overall increase to customers was approximately 1.6% compared to the authorized interim rate increase of 3.8%, which resulted in an interim rate refund to Minnesota retail electric customers of approximately $3.9 million in the fourth quarter of 2011. Pursuant to the order, OTP s allowed rate of return on rate base increased from 8.33% to 8.61% and its allowed rate of return on equity increased from 10.43% to 10.74%. OTP's rates of return will be based on a capital structure of 48.28% long term debt and 51.72% common equity.General Rate Case—On November 3, 2008 OTP filed a general rate case in North Dakota requesting an overall revenue increase of approximately $6.1 million, or 5.1%, and an interim rate increase of approximately 4.1%, or $4.8 million annualized, that went into effect on January 2, 2009. In an order issued by the NDPSC on November 25, 2009, OTP was granted an increase in North Dakota retail electric rates of $3.6 million, or approximately 3.0%, which went into effect in December 2009. The NDPSC order authorizing an interim rate increase required OTP to refund North Dakota customers the difference between final and interim rates, with interest. OTP established a refund reserve for revenues collected under interim rates that exceeded the final rate increase. The refund reserve balance of $0.9 million as of December 31, 2009 was refunded to North Dakota customers in January 2010. OTP deferred recognition of $0.5 million in rate case-related filing and administrative costs that are subject to amortization and recovery over a three year period beginning in January 2010. As required by the NDPSC order in the OTP 2008 rate case, OTP submitted a filing for a request to remove the recovery of the costs associated with economic development in base rates in North Dakota. OTP proposed and the NDPSC approved an Economic Development Cost Removal Rider, under which all North Dakota customers will receive a credit of $0.00025 per kwh. The monthly credit was effective with bills rendered on and after January 1, 2011.
Wind Energy consists of DMI Industries, Inc. (DMI), a steel fabrication company with headquarters in Fargo, North Dakota, that manufactures wind towers and other heavy metal fabricated products. DMI has manufacturing facilities in West Fargo, North Dakota; Tulsa, Oklahoma; and Fort Erie, Ontario, Canada. DMI has a wholly owned subsidiary, DMI Canada, Inc., located in Fort Erie, Ontario, Canada. The Fort Erie plant was idled in the fourth quarter of 2011 due to a lack of orders for wind towers. The Company derived 19%, 16% and 20% of its consolidated operating revenues from the Wind Energy segment for each of the three years ended December 31, 2011, 2010 and 2009, respectively. Two customers account for over 85% of the 2011 revenue of the Wind Energy segment. Following is a brief description of this segment:
DMI s revenues decreased $17.1 million as lower production levels were realized due to a different customer mix and lower productivity while supporting deliveries on a customer contract. Cost of goods sold at DMI increased $7.9 million. A reduction in costs related to production decreases was offset by $16.6 million in additional production costs incurred in 2010 to complete towers to a customer s new design specifications and to support the customer s delivery schedule for completed towers. Operating expenses at DMI decreased $1.2 million as DMI recorded a $0.9 million loss on the sale of fixed assets in 2009 compared to no losses on asset sales in 2010. Also, DMI s insurance expenses decreased $0.4 million as a result of safety improvements. Depreciation expense increased mainly as a result of 2009 capital additions.
DMI is party to a $40 million receivable purchase agreement whereby designated customer accounts receivable may be sold to General Electric Capital Corporation on a revolving basis. The agreement is set to expire in July 2012. We are currently reviewing our options regarding this agreement. The discount rate under the current agreement is the 3-month LIBOR plus 4%. Accounts receivable totaling $72.0 million were sold in 2011 compared with $62.7 million in 2010. Discounts, fees and commissions charged to operating expense for the years ended December 31, 2011 and 2010 were $0.6 million and $0.2 million, respectively. The balance of receivables sold that was outstanding to the buyer as of December 31, 2011 was $27.1 million. The sales of these accounts receivable are reflected as a reduction of accounts receivable in our consolidated balance sheets and the proceeds are included in the cash flows from operating activities in our consolidated statement of cash flows.
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