Overview
Otter Tail Corporation and its subsidiaries form a diverse group of businesses with operations classified into three segments: Electric, Manufacturing and Plastics. Our primary financial goals are to maximize earnings and cash flows and to allocate capital profitably toward growth opportunities that will increase shareholder value. Meeting these objectives enables us to preserve and enhance our financial capability by maintaining desired capitalization ratios and a strong interest coverage position and preserving investment grade credit ratings on outstanding securities, which, in the form of lower interest rates, benefits both our customers and shareholders. Our strategy is to continue to grow our largest business, the regulated electric utility, which will lower our overall risk, create a more predictable earnings stream, improve our credit quality and preserve our ability to fund the dividend. Over time, we expect the electric utility business will provide approximately 75% to 85% of our overall earnings. We expect our manufacturing and plastic pipe businesses will provide 15% to 25% of our earnings and will continue to be a fundamental part of our strategy. The actual mix of earnings in 2019, 2018 and 2017 was 68%, 66% and 68%, respectively, from our electric utility business and 32%, 34% and 32%, respectively, from our manufacturing and plastic pipe businesses, including unallocated corporate costs. We expect that reliable utility performance along with rate base investment opportunities over the next five years will provide us with a strong base of revenues, earnings and cash flows. We also look to our manufacturing and plastic pipe companies to provide organic growth as well. Organic, internal growth comes from new products and services, market expansion and increased efficiencies. We expect much of our growth in these businesses in the next few years will come from utilizing 43
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expanded plant capacity from capital investments made in previous years. We will also evaluate opportunities to allocate capital to potential acquisitions in our Manufacturing and Plastics segments. We are a committed long-term owner and therefore we do not acquire companies in pursuit of short-term gains. However, we will divest operating companies that no longer fit into our strategy and risk profile over the long term.
Major growth strategies and initiatives in our future include:
? Planned capital budget expenditures of approximately
years 2020 through 2024, of which
o
including the Merricourt Wind Energy Center (
completion in 2020, the exercise of a purchase option to transfer the
Ashtabula III wind farm to OTP in 2022, an investment in solar generation in
2023 and routine wind-power replacement projects.
o
transform future operations, including automated metering, telecommunications,
geographic information systems, work and asset management systems, financial
information systems, system infrastructure reliability improvements, outage
management systems, and storage projects. o$134 million for routine distribution plant replacement projects.
o
replacement projects.
o
replace Hoot
? Continued investigation and evaluation of organic growth opportunities and
evaluation of opportunities to allocate capital to potential acquisitions in
our Manufacturing and Plastics segments. In 2019:
? Our Electric segment net income increased 8.5% to
million in 2018.
? Our Manufacturing segment net income increased 0.5% to
? Our Plastics segment net income decreased 13.6% to
million in 2018.
? Our net cash from operations was
in 2018.
? Capital expenditures at OTP totaled
the
started construction on both
? OTP issued
notes in a private placement. OTP used a portion of the
from the issuance to repay
OTP Credit Agreement, primarily incurred to fund OTP capital expenditures, and
will use the remainder of the proceeds to pay for additional capital expenditures and for other general purposes. ? We paid out$55.7 million in common dividends in 2019.
The following table summarizes our consolidated results of operations for the
years ended
(in thousands) 2019 2018 Operating Revenues: Electric$ 459,048 $ 450,198 Manufacturing 277,204 268,409 Plastics 183,251 197,840 Total Operating Revenues$ 919,503 $ 916,447 Net Income (Loss): Electric$ 59,046 $ 54,431 Manufacturing 12,899 12,839 Plastics 20,572 23,819 Corporate (5,670 ) (8,744 ) Total Net Income$ 86,847 $ 82,345 Electric segment revenues increased$8.8 million (2.0%) due to an$18.2 million (4.7%) increase in retail sales revenue, resulting mainly from higher rates and increased rider revenues, partially offset by decreases in transmission services and wholesale sales revenue. Manufacturing segment revenues increased$8.8 million (3.3%). Revenues atBTD Manufacturing, Inc. (BTD) increased$9.5 million , with increased parts sales to customers in all of BTD's end-market manufacturers except energy. Plastics segment revenues decreased$14.6 million (7.4%) due to decreased sales volume and lower pipe prices. 44
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The
? A
revenue due to increases in transmission rider revenues, general and interim
rate increases in
maintenance expenses.
? A
sales volumes and revenues at BTD being mostly offset by lower sales and
reduced margins at T.O. Plastics.
? A
sales and lower margins.
? Corporate net losses decreased
investment income, increased tax savings and a reduction in contributions to
our charitable foundation after our initial$2.0 million funding in 2018.
Following is a more detailed analysis of our operating results by business
segment for the years ended
Results of Operations This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes. See note 2 to consolidated financial statements included in this report on Form 10-K for additional information on our lines of business, locations of operations and principal products and services. For a comparison of fiscal year 2018 against fiscal year 2017, see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our report on Form 10-K for the fiscal year endedDecember 31, 2018 , filed with theSEC onFebruary 22, 2019 and incorporated by reference into this report on Form 10-K. Intersegment Eliminations-Amounts presented in the following segment tables for 2019 and 2018 operating revenues, cost of goods sold, and other nonelectric operating expenses will not agree with amounts presented in the consolidated statements of income due to the elimination of intersegment transactions. The amounts of intersegment eliminations by income statement line item are listed below: Intersegment Eliminations (in thousands) 2019 2018 Operating Revenues: Electric$ 49 $ 57 Product Sales 6 -- Cost of Products Sold 34 21 Other Nonelectric Expenses 21 36 Electric
The following table summarizes the results of operations for our Electric
segment for the years ended
(in thousands) 2019 % change
2018
Retail Sales Revenues from Contracts with Customers$ 405,446 4$ 388,690 Changes in Accrued Revenues under Alternative Revenue Programs 1,032 335 (439 ) Total Retail Sales Revenue$ 406,478 5$ 388,251 Transmission Services Revenue 40,542 (14 ) 46,947 Wholesale Revenues - Company Generation 5,007 (35 ) 7,735 Other Revenues 7,070 (3 ) 7,322 Total Operating Revenues$ 459,097 2$ 450,255 Production Fuel 59,256 (11 ) 66,815 Purchased Power - System Use 72,066 5 68,355 Other Operation and Maintenance Expenses 153,529 (1 ) 155,534 Depreciation and Amortization 60,044 7 55,935 Property Taxes 15,785 1 15,585 Operating Income$ 98,417 12$ 88,031 Electric kilowatt-hour (kwh) Sales (in thousands) Retail kwh Sales 4,969,089 -- 4,976,960 Wholesale kwh Sales - Company Generation 198,569 (27 ) 271,841 Heating Degree Days 7,240 5 6,904 Cooling Degree Days 392 (31 ) 567 45
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Results of operations for the Electric segment are impacted by fluctuations in weather conditions and the resulting demand for electricity for heating and cooling. The following table shows heating and cooling degree days as a percent of normal. 2019 2018 Heating Degree Days 115.6 % 111.0 % Cooling Degree Days 85.0 % 123.5 % The following table summarizes the estimated effect on diluted earnings per share of the difference in retail kwh sales under actual weather conditions and expected retail kwh sales under normal weather conditions in 2019 and 2018, and between years. 2019 vs 2019 vs 2018 vs Normal 2018 Normal
Effect on Diluted Earnings Per Share
2019 Compared with 2018
The
? A
investments in transmission infrastructure and transmission costs not currently recovered in base rates.
? A
revenues due to increased cost recovery requirements resulting from the
expiration of federal production tax credits (PTCs) in
company-owned wind farm.
? A
purchased power costs incurred to serve retail customers.
? A
of a tax refund provision in connection with OTP's 2018 South Dakota rate case
settlement agreement.
? A
and final rate increases inSouth Dakota . ? A$0.9 million increase in revenue related to the establishment of a
generation cost recovery rider in
on funds invested inAstoria Station during its construction phase. ? A$0.3 million increase in revenue related to the recovery of increased conservation improvement program expenditures in 2019.
? A
degree days in 2019 partially offset by a 30.9% decrease in cooling degree
days between the years.
These items were partially offset by:
? A
residential customers. Transmission services revenues decreased$6.4 million mainly due to a$5.0 million decrease associated with reductions in capital spending and collections through theMidcontinent Independent System Operator, Inc. (MISO) tariff. OTP also recorded an additional$1.4 million estimated refund obligation due to aNovember 21, 2019 FERC ruling related to the methodology used to determine the Return on Equity (ROE) component of the transmission rate under the MISO tariff. This is mainly based on a reduced ROE from 10.82% to 10.38% for the period fromSeptember 28, 2016 throughDecember 31, 2019 . The reduced ROE is based on a newly established 9.88% ROE plus the 50-pointRegional Transmission Organization adder granted by theFERC onJanuary 5, 2015 . TheFERC ruling is subject to rehearing requests. Wholesale electric revenues decreased$2.7 million resulting from a 27.0% decrease in wholesale kwh sales due to fewer opportunities for wholesale sales asCoyote Station was offline during the second quarter of 2019 due to an extended maintenance outage and Hoot Lake Plant Unit 2 was offline for maintenance and repairs in June andJuly 2019 . The decrease in revenues also resulted from decreased regional market demand in the third quarter of 2019 due to cooler summer weather, which also drove down wholesale electricity prices. Production fuel costs decreased$7.6 million mainly as a result of a 16.4% decrease in kwhs generated from our fuel-burning plants due to the maintenance outage atCoyote Station and due to maintenance and repairs at HootLake Plant as noted above. The decrease in fuel costs related to the decrease in generation was partially offset by a 6.1% increase in the cost of fuel per kwh generated at OTP's fuel-burning plants. The increased cost-per-kwh generated is mostly due to the absorption ofCoyote Creek Mining Company's fixed coal mining costs on less delivered fuel toCoyote Station during its planned spring 2019 maintenance outage. 46
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The cost of purchased power to serve retail customers increased$3.7 million due to a 23.1% increase in kwhs purchased as a result of purchasing replacement power during the maintenance outages atCoyote Station and HootLake Plant . The increase in kwh purchases was partially offset by a 5.1% decrease in kwh purchases in the fourth quarter of 2019 related to Big Stone Plant's availability during the fourth quarter of 2019 compared to the same period last year when the plant was down for scheduled maintenance. The increased costs due to the increase in kwhs purchased were partially mitigated by a 14.4% decrease in the cost per kwh purchased resulting from lower wholesale energy prices in 2019.
Electric operating and maintenance expenses decreased
? A
related to its fall 2018 maintenance outage.
? A
maintenance.
? A
? A
health insurance costs.
? A
capitalization due to increased capital spending in 2019.
? A
in generation at both
maintenance outages.
These items were partially offset by:
? A
maintenance outage.
? A
increase in third-party MVPs in 2019. ? A$0.7 million increase in costs at HootLake Plant due to 2019 turbine repairs. ? A$0.3 million increase in conservation program expenditures in 2019.
Depreciation expense increased
Property tax expense increased
Manufacturing
The following table summarizes the results of operations for our Manufacturing
segment for the years ended
(in thousands) 2019 % change 2018 Operating Revenues$ 277,204 3$ 268,409 Cost of Products Sold 215,179 5 205,699 Other Operating Expenses 29,895 1 29,650 Depreciation and Amortization 14,261 (4 ) 14,794 Operating Income$ 17,869 (2 )$ 18,266 2019 Compared with 2018
The
? At BTD, revenues increased
construction, industrial, agricultural, and lawn and garden end markets,
partially offset by reduced sales in energy end markets. Included in the parts
revenue increase is the pass through of higher material costs of
with the remaining increase due to
increase in parts revenue was partially offset by a
decrease in revenue from scrap metal sales due to a 28.2% decrease in scrap
metal prices. ? At T.O. Plastics, revenues decreased$0.7 million due to a$0.7 million
reduction in extrusion and other industrial sales, a
sales to a customer bringing more production in house and a
reduction in sales of horticultural containers, partially offset by a
million increase in life science product sales and a$0.3 million increase in sales of scrap material. 47
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The
? Cost of products sold at BTD increased
in increased material costs with
volume and
costs combined with a
offset by a
customers.
? Cost of products sold at T.O. Plastics increased
increased labor costs driven by increased production hours and by wage
increases. T.O. Plastics' gross margin percentage decreased from 2018 to 2019
as a result of a customer's decision to bring more production in house. The$0.5 million decrease in depreciation in our Manufacturing segment includes a decrease of$0.4 million at BTD as a result of certain assets reaching the ends of their depreciable lives. Plastics
The following table summarizes the results of operations for our Plastics
segment for the years ended
(in thousands) 2019 % change 2018 Operating Revenues$ 183,257 (7 )$ 197,840 Cost of Products Sold 139,974 (6 ) 148,881 Other Operating Expenses 11,393 (8 ) 12,323 Depreciation and Amortization 3,451 (7 ) 3,719 Operating Income$ 28,439 (14 )$ 32,917 2019 Compared with 2018 Plastics segment revenues decreased$14.6 million due to a 4.2% decrease in pounds of polyvinyl chloride (PVC) pipe sold and a 3.3% decrease in PVC pipe prices. Wet weather conditions across our sales territory negatively impacted 2019 sales along with lower demand in the Midwest andWest Coast states. Cost of products sold decreased$8.9 million due to the decrease in sales volume and a 1.9% decrease in the cost per pound of pipe sold. The decrease in pipe prices net of the decrease in costs resulted in a 7.7% decrease in gross margin per pound of PVC pipe sold. Plastics segment operating expenses decreased$0.9 million mainly due to a decrease in incentive compensation related to decreased operating income. Corporate Corporate includes items such as corporate staff and overhead costs, the results of our captive insurance company and other items excluded from the measurement of operating segment performance. Corporate is not an operating segment. Rather, it is added to operating segment totals to reconcile to totals on our consolidated statements of income. (in thousands) 2019 % change 2018 Other Operating Expenses$ 9,515 (1 )$ 9,607 Depreciation and Amortization 330 51 218
Corporate operating expenses decreased
? There was no contribution made in 2019 to theOtter Tail Corporation Foundation as compared to a$2.0 million contribution in 2018.
? The decrease in charitable contributions was mostly offset by increases in
stock incentive and health benefit costs not allocated to the operating business segments. Consolidated Interest Charges (in thousands) 2019 % change 2018 Interest Charges$ 31,411 3$ 30,408
The
? A
$100 million in notes issued by OTP onOctober 10, 2019 .
? A
resulting from a
between the years and a 50 basis points increase in the average interest rate
paid on short-term debt between periods, mainly as a result of an increase in
in OTP's average short-term borrowings.
borrowing rates are higher than OTP's short-term borrowing rates. 48
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? A
compared with 11 months of interest on the
inFebruary 2018 .
These increases in interest expense were partially offset by a
Consolidated NONSERVICE COST COMPONENTS OF POSTRETIREMENT BENEFITS (in thousands) 2019 %
change 2018
Nonservice Cost Components of Postretirement Benefits
The$1.2 million decrease in nonservice cost components of postretirement benefits in 2019 compared with 2018 is mostly due to a decrease in pension plan nonservice costs, mainly actuarial loss amortization expenses, partially offset by interest cost increases on all postretirement benefit plans atOtter Tail Corporation and OTP. Consolidated OTHER INCOME (in thousands) 2019 % change 2018
Other Income$ 5,112 48$ 3,461
The
? A
policies.
? A
(AFUDC) on OTP construction work in progress. Consolidated Income Taxes
Income tax expense increased
The following table provides a reconciliation of income tax expense calculated at the federal statutory rate on income before income taxes reported on our consolidated statements of income:
For the Year Ended December 31, (in thousands) 2019 2018 Income Before Income Taxes$ 104,288
$ 21,901$ 20,356 Increases (Decreases) in Tax from: State Income Taxes Net of Federal Income Tax Expense 3,561 5,210 Differences Reversing in Excess of Federal Rates (3,357 ) (3,432 )
Permanent Differences, R&D Tax Credits, Unitary Tax and Other Adjustments
(1,315 ) (1,864 )
North Dakota Wind Tax Credit Amortization - Net of Federal Taxes
(1,033 ) (1,033 ) Corporate-owned Life Insurance (749 ) (3 ) Excess Tax Deduction - Equity Method Stock Awards (744 ) (708 ) Allowance for Funds Used During Construction - Equity (501 ) (431 ) Employee Stock Ownership Plan Dividend Deduction (281 ) (298 ) Investment Tax Credit Amortization (41 ) (98 ) Federal PTCs -- (3,111 ) Total Income Tax Expense $ 17,441$ 14,588 Effective Income Tax Rate 16.7 % 15.0 % Federal PTCs are recognized as wind energy is generated based on a per kwh rate prescribed in applicable federal statutes. InNovember 2018 , the eligibility period for OTP to earn federal PTCs on its currently energized wind farms ended.North Dakota wind energy credits are based on dollars invested in qualifying facilities and are being recognized on a straight-line basis over 25 years. 49
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Table of Contents Impact of Inflation OTP operates under regulatory provisions that allow price changes in fuel and certain purchased power costs to be passed to most retail customers through automatic adjustments to its rate schedules under fuel clause adjustments. Other increases in the cost of electric service must be recovered through timely filings for electric rate increases with the appropriate regulatory agency. Our Manufacturing and Plastics segments consist entirely of businesses whose revenues are not subject to regulation by ratemaking authorities. Increased operating costs are reflected in product or services pricing with any limitations on price increases determined by the marketplace. Raw material costs, labor costs, fuel and energy costs and interest rates are important components of costs for companies in these segments. Any or all of these components could be impacted by inflation or other pricing pressures, with a possible adverse effect on our profitability, especially where increases in these costs exceed price increases on finished products. In recent years, our operating companies have faced strong inflationary and other pricing pressures with respect to steel, fuel, resin, and health care costs, which have been partially mitigated by pricing adjustments. Liquidity
The following table presents the status of our lines of credit as of
In Use on Restricted due to Available on Available on December 31, Outstanding December 31, December 31, (in thousands) Line Limit 2019 Letters of Credit 2019 2018 Otter Tail Corporation Credit Agreement$ 170,000 $ 6,000 $ --$ 164,000 $ 120,785 OTP Credit Agreement 170,000 -- 15,476 154,524 160,316 Total$ 340,000 $ 6,000 $ 15,476$ 318,524 $ 281,101 We believe we have the necessary liquidity to effectively conduct business operations for an extended period if needed. Our balance sheet is strong, and we are in compliance with our debt covenants. Financial flexibility is provided by operating cash flows, unused lines of credit, strong financial coverages, investment grade credit ratings and alternative financing arrangements such as leasing. We believe our financial condition is strong and our cash, other liquid assets, operating cash flows, existing lines of credit, access to capital markets and borrowing ability because of investment-grade credit ratings, when taken together, provide adequate resources to fund ongoing operating requirements and future capital expenditures related to expansion of existing businesses and development of new projects. OnMay 3, 2018 we filed a shelf registration statement with theSecurities and Exchange Commission (SEC) under which we may offer for sale, from time to time, either separately or together in any combination, equity, debt or other securities described in the shelf registration statement, which expires onMay 3, 2021 . OnMay 3, 2018 , we also filed a shelf registration statement with theSEC for the issuance of up to 1,500,000 common shares untilMay 3, 2021 , under the Company's Automatic Dividend Reinvestment and Share Purchase Plan (the Plan), which permits shares purchased by participants in the Plan to be either new issue common shares or common shares purchased in the open market. The Company began issuing common shares in the fourth quarter of 2019 to meet the requirements of the Plan rather than purchasing shares in the open market. OnNovember 8, 2019 , we entered into a Distribution Agreement withKeyBanc Capital Markets Inc. ("KeyBanc") under which we may offer and sell our common shares from time to time through KeyBanc, as our distribution agent, up to an aggregate sales price of$75 million through an At-the-Market offering program. In the fourth quarter of 2019, we received proceeds of$17,458,621 net of$220,995 paid to KeyBanc from the issuance of 347,000 shares under this program. Equity and debt financing will be required in the period 2020 through 2024 given the expansion plans related to our Electric segment to fund construction of new rate base investments. Also, such financing will be required should we decide to reduce borrowings under our lines of credit or refund or retire early any of our presently outstanding debt, to complete acquisitions or for other corporate purposes. Our operating cash flows and access to capital markets can be impacted by macroeconomic factors outside our control. In addition, our borrowing costs can be impacted by changing interest rates on short-term and long-term debt and ratings assigned to us by independent rating agencies, which in part are based on certain credit measures such as interest coverage and leverage ratios. 50
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The determination of the amount of future cash dividends to be declared and paid will depend on, among other things, our financial condition, improvement in earnings per share, cash flows from operations, the level of our capital expenditures and our future business prospects. As a result of certain statutory limitations or regulatory or financing agreements, restrictions could occur on the amount of distributions allowed to be made by our subsidiaries. See note 7 to consolidated financial statements included in this report on Form 10-K for additional information. The decision to declare a dividend is reviewed quarterly by the board of directors. OnFebruary 4, 2020 our board of directors increased the quarterly dividend from$0.35 to$0.37 per common share.
2019 Cash Flows Compared with 2018 Cash Flows
Net cash provided by operating activities was$185.0 million in 2019 compared with$143.4 million in 2018. Primary reasons for the$41.6 million increase in net cash provided by operations between the periods were:
? A
significant changes in inventories, accounts payable and accounts receivable
between the periods. o Inventory balances decreased by$8.4 million during 2019 compared to an
increase of
material costs, primarily steel, from 2018 to 2019 and lower sales volumes in
the Plastics segment during 2019 compared to 2018.
o The level of increases in accounts receivable declined by
2018 to 2019, primarily due to higher raw material costs reflected in customer
billings in 2018 when compared with 2019. Our average collection period on a
consolidated basis remained steady at approximately 31 days.
o The reductions in cash used for inventories and accounts receivable between
the years were partially offset by a
increase in accounts payable and other current liabilities in 2018 compared
with essentially no change in these items in 2019. The primary reason for the
increase in accounts payable and other current liabilities in 2018 was due to
the recording of refunds for the TCJA and interim rate refunds in
and
? An
balances related to fuel cost and
included in changes in deferred debits and other assets and changes in noncurrent liabilities and deferred credits. ? A$4.5 million increase in net income. ? A$3.4 million increase in depreciation and amortization expense.
? A
These items were partially offset by:
? A
funded pension plan in 2019. Net cash used in investing activities was$209.5 million in 2019 compared with$107.4 million in 2018. The$102.1 million increase in cash used for investing activities includes a$101.9 million increase in capital expenditures, mainly due to a$100.1 million increase in cash used for capital expenditures at OTP related to construction of Merricourt andAstoria Station projects and various transmission projects and upgrades. Cash used for capital expenditures at T.O. Plastics increased$1.4 million between periods mainly related to the replacement of a warehouse roof that collapsed during a snowstorm inMarch 2019 . Net cash provided by financing activities was$44.8 million in 2019 compared with$51.4 million in cash used for financing activities in 2018. The$96.2 million increase in cash flows from financing activities includes an$81.2 million reduction in repayments of short-term debt and$20.3 million in proceeds from the issuance of stock in 2019 as we began issuing new common shares under our At-the-Market offering program launched inNovember 2019 and also began issuing new common shares to fulfill the requirements of our Automatic Dividend Reinvestment and Share Purchase Plan in the fourth quarter of 2019 to raise capital to fund OTP's major construction projects. [[Image Removed]] [[Image Removed]] 51
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Table of Contents Capital Requirements Capital Expenditures We have a capital expenditure program for expanding, upgrading and improving our plants and operating equipment. Typical uses of cash for capital expenditures are investments in electric generation facilities and environmental upgrades, transmission and distribution lines, manufacturing facilities and upgrades, equipment used in the manufacturing process, and computer hardware and information systems. The capital expenditure program is subject to review and is revised in light of changes in demands for energy, technology, environmental laws, regulatory changes, business expansion opportunities, the costs of labor, materials and equipment and our consolidated financial condition.
Cash used for consolidated capital expenditures was
?
including
purchase option to transfer Ashtabula III wind farm to OTP in 2022, an
investment in solar generation in 2023 and routine wind-power replacement
projects.
?
transform future operations, including automated metering, telecommunications,
geographic information systems, work and asset management systems, financial
information systems, system infrastructure reliability improvements, outage
management systems, and storage projects. ?$134 million for routine distribution plant replacement projects.
?
replacement projects.
?
replace Hoot
?
of existing equipment.
The breakdown of 2017, 2018 and 2019 actual cash used for capital expenditures and 2020 through 2024 estimated capital expenditures by segment is as follows:
(in millions) 2017 2018 2019 2020 2021 2022 2023 2024 2020-2024 Electric$ 119 $ 87 $ 187 $ 369 $ 124 $ 162 $ 140 $ 101 $ 897 Manufacturing 10 13 14 12 14 14 15 13 67 Plastics 4 4 6 4 4 4 4 4 20 Corporate -- 1 -- -- -- -- -- -- -- Total$ 133 $ 105 $ 207 $ 385 $ 142 $ 180 $ 159 $ 118 $ 984 Contractual Obligations The following table summarizes our contractual obligations atDecember 31, 2019 and the effect these obligations are expected to have on our liquidity and cash flow in future periods. Less than 1-3 3-5 More than (in millions) Total 1 Year Years Years 5 Years Debt Obligations$ 698 $ 6$ 170 $ --$ 522 Coal Contracts 596 23 46 48 479 Interest on Debt Obligations 468 33 58 48 329 Other Purchase Obligations (including land easements) 327 270 49 1 7 Capacity and Energy Requirements 205 25 25 23 132 Postretirement Benefit Obligations 115 5 11 13 86 Right-of-Use Asset Operating Lease Obligations 26 5 9 7 5 Total Contractual Cash Obligations$ 2,435 $ 367 $ 368 $ 140 $ 1,560 Coal contract obligations are based on estimated coal consumption and costs for the delivery of coal toCoyote Station fromCoyote Creek Mining Company under the lignite sales agreement that ends in 2040. Postretirement Benefit Obligations include estimated cash expenditures for the payment of retiree medical and life insurance benefits and supplemental pension benefits under our unfunded Executive Survivor and Supplemental Retirement Plan, but do not include amounts to fund our noncontributory funded pension plan, as we are not currently required to make a contribution to that plan. 52
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Table of Contents CAPITAL RESOURCES Financial flexibility is provided by operating cash flows, unused lines of credit, strong financial coverages, investment grade credit ratings, and alternative financing arrangements such as leasing. Equity or debt financing will be required in the period 2020 through 2024 given the expansion plans related to our Electric segment to fund construction of new rate base and transmission investments, in the event we decide to reduce borrowings under our lines of credit, to refund or retire early any of our presently outstanding debt, to complete acquisitions or for other corporate purposes. There can be no assurance that any additional required financing will be available through bank borrowings, debt or equity financing or otherwise, or that if such financing is available, it will be available on terms acceptable to us. If adequate funds are not available on acceptable terms, our businesses, results of operations and financial condition could be adversely affected. OnMay 3, 2018 we filed a shelf registration statement with theSEC under which we may offer for sale, from time to time, either separately or together in any combination, equity, debt or other securities described in the shelf registration statement, which expires onMay 3, 2021 . OnMay 3, 2018 we also filed a shelf registration statement with theSEC for the issuance of up to 1,500,000 common shares under our Automatic Dividend Reinvestment and Share Purchase Plan (the Plan), which permits shares purchased by participants in the Plan to be either new issue common shares or common shares purchased in the open market. The shelf registration for the Plan expires onMay 3, 2021 . OnNovember 8, 2019 the Company entered into a Distribution Agreement with KeyBanc under which we may offer and sell our common shares from time to time through KeyBanc, as our distribution agent, up to an aggregate sales price of$75 million through an At-the-Market offering program. Debt Following are brief descriptions of the short-term and long-term credit and debt agreements currently in place atOtter Tail Corporation and OTP. See note 10 to our consolidated financial statements included in this report on Form 10-K for additional information on the terms, provisions, restrictions and covenants under these agreements. Short-Term Debt OnOctober 29, 2012 we entered into a Third Amended and Restated Credit Agreement (the OTC Credit Agreement), which provided for an unsecured$130 million revolving credit facility that could be increased subject to certain terms and conditions. OnOctober 31, 2019 the OTC Credit Agreement was amended to extend its expiration date by one year fromOctober 31, 2023 toOctober 31, 2024 , and to increase the amount of the revolving credit facility to$170 million . The amendment also provides that this facility can be increased to$290 million subject to certain terms and conditions. Borrowings under the OTC Credit Agreement bear interest at LIBOR plus 1.50%, subject to adjustment based on our senior unsecured credit ratings or the issuer rating if a rating is not provided for the senior unsecured credit. OnOctober 29, 2012 OTP entered into a Second Amended and Restated Credit Agreement (the OTP Credit Agreement), providing for an unsecured$170 million revolving credit facility that may be increased to$250 million on the terms and subject to the conditions described in the OTP Credit Agreement. OnOctober 31, 2019 the OTP Credit Agreement was amended to extend its expiration date by one year fromOctober 31, 2023 toOctober 31, 2024 . OTP can draw on this credit facility to support the working capital needs and other capital requirements of its operations, including letters of credit in an aggregate amount not to exceed$50 million outstanding at any time. Borrowings under this line of credit bear interest at LIBOR plus 1.25%, subject to adjustment based on the ratings of OTP's senior unsecured debt or the issuer rating if a rating is not provided for the senior unsecured debt. Long-Term Debt OnSeptember 12 , 2019,OTP entered into a Note Purchase Agreement (the 2019 Note Purchase Agreement) with the purchasers named therein, pursuant to which OTP agreed to issue to the purchasers, in a private placement transaction,$175 million aggregate principal amount of OTP's senior unsecured notes consisting of (a)$10,000,000 aggregate principal amount of its 3.07% Series 2019A Senior Unsecured Notes dueOctober 10, 2029 (the Series 2019A Notes), (b)$26,000,000 aggregate principal amount of its 3.52% Series 2019B Senior Unsecured Notes dueOctober 10, 2039 (the Series 2019B Notes), (c) $64,000,000 aggregate principal amount of its 3.82% Series 2019C Senior Unsecured Notes dueOctober 10, 2049 (the Series 2019C Notes), (d)$10,000,000 aggregate principal amount of its 3.22% Series 2020A Senior Unsecured Notes dueFebruary 25, 2030 (the Series 2020A Notes), (e)$40,000,000 aggregate principal amount of its 3.22% Series 2020B Senior Unsecured Notes dueAugust 20, 2030 (the Series 2020B Notes), (f)$10,000,000 aggregate principal amount of its 3.62% Series 2020C Senior Unsecured Notes dueFebruary 25, 2040 (the Series 2020C Notes) and (g)$15,000,000 aggregate principal amount of its 3.92% Series 2020D Senior Unsecured Notes dueFebruary 25, 2050 (the Series 2020D Notes). 53
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OnOctober 10, 2019 OTP issued the Series 2019A Notes, Series 2019B Notes and Series 2019C Notes (the 2019 Notes) pursuant to the 2019 Note Purchase Agreement. OTP used a portion of the$100 million proceeds from the issuance to repay$69.9 million of existing indebtedness under the OTP Credit Agreement, primarily incurred to fund OTP capital expenditures, and intends to use the remainder of the proceeds to pay for additional capital expenditures and for OTP general corporate purposes. The Series 2020A Notes, the Series 2020C Notes and the Series 2020D Notes are expected to be issued onFebruary 25, 2020 and the Series 2020B Notes are expected to be issued onAugust 20, 2020 , subject to the satisfaction of certain customary conditions to closing. OnFebruary 27, 2018 OTP issued$100 million aggregate principal amount of its 4.07% Series 2018A Senior Unsecured Notes dueFebruary 7, 2048 (the 2018 Notes) pursuant to a Note Purchase Agreement dated as ofNovember 14, 2017 (the 2018 Note Purchase Agreement). Proceeds from the 2018 Notes were used to repay outstanding borrowings under the OTP Credit Agreement. OnDecember 13, 2016 Otter Tail Corporation issued$80 million aggregate principal amount of its 3.55% Guaranteed Senior Notes dueDecember 15, 2026 (the 2026 Notes) pursuant to a Note Purchase Agreement dated as ofSeptember 23, 2016 (the 2016 Note Purchase Agreement). Our obligations under the 2016 Note Purchase Agreement and the 2026 Notes are guaranteed by our Material Subsidiaries (as defined in the 2016 Note Purchase Agreement, but specifically excluding OTP). OnFebruary 27, 2014 OTP issued$60 million aggregate principal amount of its 4.68% Series A Senior Unsecured Notes dueFebruary 27, 2029 and$90 million aggregate principal amount of its 5.47% Series B Senior Unsecured Notes dueFebruary 27, 2044 pursuant to a Note Purchase Agreement dated as ofAugust 14, 2013 (the 2013 Note Purchase Agreement). OnDecember 1, 2011 OTP issued$140 million aggregate principal amount of its 4.63% Senior Unsecured Notes dueDecember 1, 2021 pursuant to a Note Purchase Agreement dated as ofJuly 29, 2011 (the 2011 Note Purchase Agreement). OTP also has outstanding its$122 million senior unsecured notes issued in three series consisting of$30 million aggregate principal amount of 6.15% Senior Unsecured Notes, Series B, due 2022;$42 million aggregate principal amount of 6.37% Senior Unsecured Notes, Series C, due 2027; and$50 million aggregate principal amount of 6.47% Senior Unsecured Notes, Series D, due 2037 (collectively, the 2007 Notes). The 2007 Notes were issued pursuant to a Note Purchase Agreement dated as ofAugust 20, 2007 (the 2007 Note Purchase Agreement). Financial Covenants
We were in compliance with the financial covenants in our debt agreements as of
No Credit or Note Purchase Agreement contains any provisions that would trigger an acceleration of the related debt as a result of changes in the credit rating levels assigned to the related obligor by rating agencies.
Our borrowing agreements are subject to certain financial covenants. Specifically:
? Under the OTC Credit Agreement and the 2016 Note Purchase Agreement, we may
not permit the ratio of our Interest-bearing Debt to Total Capitalization to
be greater than 0.60 to 1.00 or permit our Interest and Dividend Coverage
Ratio to be less than 1.50 to 1.00 (each measured on a consolidated basis). As
of
under the requirements of the OTC Credit Agreement and the 2016 Note Purchase
Agreement was 4.51 to 1.00. ? Under the 2016 Note Purchase Agreement, we may not permit our Priority Indebtedness to exceed 10% of our Total Capitalization. ? Under the OTP Credit Agreement, OTP may not permit the ratio of its
Interest-bearing Debt to Total Capitalization to be greater than 0.60 to 1.00.
? Under the 2007 Note Purchase Agreement and 2011 Note Purchase Agreement, OTP
may not permit the ratio of its Consolidated Debt to Total Capitalization to
be greater than 0.60 to 1.00 or permit its Interest and Dividend Coverage
Ratio to be less than 1.50 to 1.00, in each case as provided in the related
borrowing agreement, and OTP may not permit its Priority Debt to exceed 20% of
its Total Capitalization, as provided in the related agreement. As of December
31, 2019, OTP's Interest and Dividend Coverage Ratio and Interest Charges
Coverage Ratio, calculated under the requirements of the 2007 Note Purchase
Agreement and 2011 Note Purchase Agreement, was 3.71 to 1.00.
? Under the 2013 Note Purchase Agreement, the 2018 Note Purchase Agreement, and
the 2019 Note Purchase Agreement, OTP may not permit its Interest-bearing Debt
to exceed 60% of Total Capitalization and may not permit its Priority Indebtedness to exceed 20% of its Total Capitalization, in each case as provided in the related agreement.
As of
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OFf-Balance-Sheet Arrangements
We and our subsidiary companies have outstanding letters of credit totaling$18.2 million , but our line of credit borrowing limits are only restricted by$15.5 million in outstanding letters of credit. We do not have any other off-balance-sheet arrangements or any relationships with unconsolidated entities or financial partnerships. These entities are often referred to as structured finance special purpose entities or variable interest entities, which are established for the purpose of facilitating off-balance-sheet arrangements or for other contractually narrow or limited purposes. We are not exposed to any financing, liquidity, market or credit risk that could arise if we had such relationships. 2020 BUSINESS OUTLOOK We anticipate 2020 diluted earnings per share to be in the range of$2.22 to$2.37 . The midpoint of the 2020 earnings per share guidance reflects a 6% growth rate off 2019 diluted earnings per share. Our 2020 diluted earnings per share guidance also includes$0.05 of dilution associated with the planned issuance of common equity under our At-the-Market Offering Program and Dividend Reinvestment and Employee Stock Purchase Plans to help fund our construction projects at OTP. We have taken into consideration strategies for improving future operating results, the cyclical nature of some of our businesses, and current regulatory factors facing our Electric segment. We expect capital expenditures for 2020 to be$385 million compared with actual cash used for capital expenditures of$207 million in 2019. Our Electric Segment accounts for 96% of our 2020 planned capital expenditures. The increase in our planned expenditures is largely driven by the Merricourt Wind Energy Center andAstoria Station natural gas-fired electric plant rate base projects.
Segment components of our 2020 diluted earnings per share guidance range compared with 2019 actual earnings are as follows.
2019 EPS by 2020 EPS Guidance Segment Low High Electric$ 1.48 $ 1.67 $ 1.70 Manufacturing$ 0.32 $ 0.31 $ 0.35 Plastics$ 0.51 $ 0.43 $ 0.47 Corporate$ (0.14 ) $ (0.19 ) $ (0.15 ) Total$ 2.17 $ 2.22 $ 2.37 Return on Equity 11.6 % 11.0 % 11.7 %
The following items contribute to our earnings guidance for 2020.
? We expect our Electric segment to provide approximately 75% of our
consolidated earnings in 2020 with an increase over 2019 segment net income
based on:
o Capital spending on the Merricourt and
has rider recovery mechanisms in place in
process for approval in
recovery mechanisms in place in
earns AFUDC in
o Increased revenues related to
self-fund generator interconnection agreements.
o No planned generation plant outages for 2020. Plant outage costs totaled
million in 2019. partially offset by:
o Normal weather in 2020. Weather favorably impacted 2019 earnings by
share compared to normal.
o Increased expenses caused in large part by a decrease in the discount rate
used for the pension plan and a lower rate used for our long-term rate of
return. The discount rate for 2020 is 3.47% compared with 4.50% for 2019. For
each 25-basis point decline in the discount rate, pension expense increases
approximately
6.88% compared with 7.25% in 2019. Each 25-basis point decline in this rate
equates to approximately
o Higher depreciation and property tax expense due to large capital projects
being put into service.
o Increased interest costs associated with a full year's interest expense on the
interest on the
to be issued in February and August of 2020, respectively. 55
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? We expect net income from our Manufacturing segment to be flat compared with
2019 based on:
o Slightly lower earnings at BTD due to an expected decline in sales driven
mostly by lower sales volumes in the recreational vehicle markets. Scrap
revenues are expected to decline slightly as well based on lower sales volumes
with scrap prices staying flat between the years.
o An increase in earnings from T.O. Plastics mainly driven by year-over-year
sales growth in horticulture, life science and industrial markets.
o Backlog for the manufacturing companies of approximately
compared with
driving backlog down by
backlog is volume driven.
? We expect 2020 net income from our Plastics segment to be lower than 2019
based on lower expected operating margins in 2020. This is due to an expected
decline in sale prices of pipe and flat year-over-year resin prices, partially
offset by slightly higher sales volumes in 2020 compared to 2019.
? Corporate costs, net of tax, are expected to be higher in 2020 compared with
2019 primarily driven by higher short-term borrowing costs at the corporate
level and higher income tax expense, partially offset by lower employee benefit and health care costs.
The following table shows our 2019 capital expenditures and 2020 through 2024 anticipated capital expenditures and electric utility average rate base.
(in millions) 2019 2020 2021 2022 2023 2024 Total Capital Expenditures: Electric Segment: Renewables and Natural Gas Generation$ 260 $ 18 $ 51 $ 30 $ --$ 359 Technology and Infrastructure 7 18 47 54 43 169 Distribution Plant Replacements 22 27 34 25 26 134 Transmission (includes replacements) 61 26 8 13 9 117 Other 19 35 23 18 23 118 Total Electric Segment$ 187 $ 369 $ 124 $ 163 $ 140 $ 101 $ 897 Manufacturing and Plastics Segments 20 16 18 17 19 17 87 Total Capital Expenditures$ 207 $ 385 $ 142 $ 180 $ 159 $ 118 $ 984 Total Electric Utility Average Rate Base$ 1,170 $ 1,418 $ 1,573 $ 1,634 $ 1,690 $ 1,739 Rate Base Growth 21.2 % 10.9 % 3.9 % 3.4 % 2.9 % The capital expenditure plan for the 2020-2024 time period calls for Electric segment capital expenditures of$897 million based on the need for additional wind and solar in rate base, capital spending forAstoria Station (part of our replacement solution for HootLake Plant when it is retired in 2021), technology-related investments and distribution and transmission investments. Given this capital expenditure plan, our compounded annual growth rate in rate base is projected to be 8.2% over the 2019 to 2024 timeframe. Execution on the currently anticipated Electric segment capital expenditure plan is expected to grow rate base and be a key driver in increasing utility earnings over the 2020 through 2024 timeframe. Our outlook for 2020 is dependent on a variety of factors and is subject to the risks and uncertainties discussed in Item 1A. Risk Factors, and elsewhere in this report on Form 10-K. 56
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Critical Accounting Policies Involving Significant Estimates
Our significant accounting policies are described in note 1 to our consolidated financial statements included in this report on Form 10-K. The discussion and analysis of the financial statements and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We use estimates based on the best information available in recording transactions and balances resulting from business operations. Estimates are used for such items as depreciable lives, asset impairment evaluations, tax provisions, collectability of trade accounts receivable, self-insurance programs, unbilled electric revenues, interim rate refunds, warranty reserves and actuarially determined benefits costs and liabilities. As better information becomes available or actual amounts are known, estimates are revised. Operating results can be affected by revised estimates. Actual results may differ from these estimates under different assumptions or conditions. Management has discussed the application of these critical accounting policies and the development of these estimates with the Audit Committee of the board of directors. The following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Pension and Other Postretirement Benefits Obligations and Costs
Pension and postretirement benefit liabilities and expenses for our electric utility and corporate employees are determined by actuaries using assumptions about the discount rate, expected return on plan assets, rate of compensation increase and healthcare cost-trend rates. See note 11 to our consolidated financial statements included in this report on Form 10-K for additional information on our pension and postretirement benefit plans and related assumptions. These benefits, for any individual employee, can be earned and related expenses can be recognized and a liability accrued over periods of up to 30 or more years. These benefits can be paid out for up to 40 or more years after an employee retires. Estimates of liabilities and expenses related to these benefits are among our most critical accounting estimates. Although deferral and amortization of fluctuations in actuarially determined benefit obligations and expenses are provided for when actual results on a year-to-year basis deviate from long-range assumptions, compensation increases and healthcare cost increases or a reduction in the discount rate applied from one year to the next can significantly increase our benefit expenses in the year of the change. Also, a reduction in the expected rate of return on pension plan assets in our funded pension plan or realized rates of return on plan assets that are well below assumed rates of return or an increase in the anticipated life expectancy of plan participants could result in significant increases in recognized pension benefit expenses in the year of the change or for many years thereafter because actuarial losses can be amortized over the average remaining service lives of active employees. The pension benefit cost for 2020 for our noncontributory funded pension plan is expected to be$6.8 million compared to$3.4 million in 2019, reflecting a decrease in the estimated discount rate used to determine annual benefit cost accruals from 4.5% in 2019 to 3.47% in 2020. The assumed rate of return on pension plan assets is 6.88% for 2020 compared with 7.25% for 2019. In selecting the discount rate, we consider the yields of fixed income debt securities, which have ratings of "Aa" published by recognized rating agencies, along with bond matching models specific to our plan's cash flows as a basis to determine the rate. Subsequent increases or decreases in actual rates of return on plan assets over assumed rates or increases or decreases in the discount rate or rate of increase in future compensation levels could significantly change projected costs. For 2019, all other factors being held constant: a 0.25 increase in the discount rate would have decreased our 2019 pension benefit cost by$842,000 ; a 0.25 decrease in the discount rate would have increased our 2019 pension benefit cost by$1,041,000 ; a 0.25 increase in the assumed rate of increase in future compensation levels would have increased our 2019 pension benefit cost by$563,000 ; a 0.25 decrease in the assumed rate of increase in future compensation levels would have decreased our 2019 pension benefit cost by$545,000 ; and a 0.25 increase (or decrease) in the expected long-term rate of return on plan assets would have decreased (or increased) our 2019 pension benefit cost by$734,000 .
Increases or decreases in the discount rate or in retiree healthcare cost
inflation rates could significantly change our projected postretirement
healthcare benefit costs. A 0.25 increase in the discount rate would have
decreased our 2019 postretirement medical benefit costs by
We believe the estimates made for our pension and other postretirement benefits are reasonable based on the information that is known at the point in time the estimates are made. These estimates and assumptions ae subject to a number of variables and are subject to change. 57
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Table of Contents Taxation We are required to make judgments regarding the potential tax effects of various financial transactions and our ongoing operations to estimate our obligations to taxing authorities. These tax obligations include income, real estate and use taxes. These judgments could result in the recognition of a liability for potential adverse outcomes regarding uncertain tax positions that we have taken. While we believe our liability for uncertain tax positions as ofDecember 31, 2019 reflects the most likely probable expected outcome of these tax matters in accordance with the requirements of Accounting Standards Codification (ASC) Topic 740, Income Taxes, the ultimate outcome of such matters could result in additional adjustments to our consolidated financial statements. However, we do not believe such adjustments would be material. Deferred income taxes are provided for revenue and expenses which are recognized in different periods for income tax and financial reporting purposes. We assess our deferred tax assets for recoverability taking into consideration our historical and anticipated earnings levels, the reversal of other existing temporary differences, available net operating loss carryforwards and available tax planning strategies that could be implemented to realize the deferred tax assets. Based on this assessment, management must evaluate the need for, and amount of, a valuation allowance against our deferred tax assets. As facts and circumstances change, adjustments to the valuation allowance may be required. Goodwill ImpairmentGoodwill is required to be evaluated annually for impairment, according to ASC 350-20-35,Goodwill - Subsequent Measurement. We perform qualitative assessments of goodwill impairment and quantitative goodwill impairment testing annually in the fourth quarter. In addition, the quantitative testing is performed on an interim basis whenever events or circumstances indicate that the carrying amount of goodwill may not be recoverable. Examples of such events or circumstances may include a significant adverse change in business climate, weakness in an industry in which our reporting units operate or recent significant cash or operating losses with expectations that those losses will continue. Under Generally Accepted Accounting Principles inthe United States , we have the option of first performing a qualitative assessment to test goodwill for impairment on a reporting-unit basis. If, after applying the qualitative assessment, we conclude that it is not more likely than not that the fair value of the reporting unit is less than its carrying value, the quantitative goodwill impairment test is not required. If, after performing the qualitative assessment, we conclude that it is more likely than not that the fair value of the reporting unit is less than its carrying value, we would perform the quantitative goodwill impairment test. The quantitative goodwill impairment test is a two-step process performed at the reporting unit level. We have determined the reporting units for our goodwill impairment test are our operating segments, or components of an operating segment, that constitute a business for which discrete financial information is available and for which our chief operating decision makers regularly review the operating results. See note 2 to our consolidated financial statements included in this report on Form 10-K for additional information on our operating segments. The first step of the quantitative impairment test involves comparing the fair value of each reporting unit to its carrying value. If the fair value of a reporting unit exceeds its carrying value, the test is complete and no impairment is recorded. If the fair value of a reporting unit is less than its carrying value, step two of the test is performed to determine the amount of impairment loss, if any. The impairment is computed by comparing the implied fair value of the reporting unit's goodwill to the carrying value of that goodwill. If the carrying value is greater than the implied fair value, an impairment loss must be recorded. AtDecember 31, 2019 the fair value substantially exceeded the carrying value at all our reporting units. Conducting a qualitative assessment to determine if the fair value of a reporting unit is more likely than not in excess of its carrying value and determining the fair value of a reporting unit under quantitative testing requires judgment and the use of significant estimates which include assumptions about the reporting unit's future revenue, profitability and cash flows, amount and timing of estimated capital expenditures, inflation rates, weighted average cost of capital, operational plans, and current and future economic conditions, among others. The fair value of each reporting unit is determined using a combination of income and market approaches. We use a discounted cash flow methodology for our income approach. Under this approach, the discounted cash flow model determines fair value based on the present value of projected cash flows over a specified period and a residual value related to future cash flows beyond the projection period. Both values are discounted using a rate which reflects the best estimate of the weighted average cost of capital at each reporting unit. Under the market approach, we estimate fair value using multiples derived from comparable enterprise value to EBITDA multiples, comparable price earnings ratios, comparable enterprise value to sales multiples and if available, comparable sales transactions for comparative peer companies for each respective reporting unit. These multiples are applied to operating data for each reporting unit to arrive at an indication of fair value. When performing a qualitative assessment, we evaluate whether forecast scenarios used in the most recent quantitative fair value calculation continue to be reasonable considering industry events and the reporting unit's current circumstances. We believe the estimates and assumptions used in our impairment assessments are reasonable and based on available market information, but variations in any of the assumptions could result in materially different calculations of fair value and determinations of whether or not impairment is indicated. 58
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Forward-Looking Information - Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the Act). When used in this Form 10-K and in future filings by the Company with theSEC , in the Company's press releases and in oral statements, words such as "may," "will," "expect," "anticipate," "continue," "estimate," "project," "believes" or similar expressions are intended to identify forward-looking statements within the meaning of the Act. Such statements are based on current expectations and assumptions and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Such risks and uncertainties include the various factors set forth in Item 1A. Risk Factors of this report on Form 10-K and in our otherSEC filings.
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