Otter Tail Corporation
Q4 2016 Earnings Call Transcript

Published: 7 Feb 2017

[Operator:]

Good morning. And welcome to Otter Tail Corporation Fourth Quarter 2016 Earnings Conference Call. Today’s call is being recorded and there will be a question-and-answer session after the prepared remarks. I will now turn the call over to the company.

[Loren Hanson:]

Good morning, everyone, and welcome to our call. My name is Loren Hanson, and I manage the Investor Relations area at Otter Tail Corporation. Last night, we announced our 2016 quarter and issued 2017 guidance. Our complete earnings release and the slides accompanying this earnings call are available on our Web site at www.ottertail.com. A replay of the call will be available on our website later today. Commenting this morning will be Chuck MacFarlane, Otter Tail Corporation’s President and Chief Executive Officer; and Kevin Moug, Otter Tail Corporation’s Senior Vice President and Chief Financial Officer. Before we begin today’s call, I’d like to remind you that during the course of the call, we will be making forward-looking statements. As noted on Slide 2, these statements represent our current judgment or opinion of what the future holds. They are subject to risks and uncertainties that may cause actual results to differ materially from forward-looking statements made today. So please be advised about placing undue reliance on any of these statements. Our forward-looking statements are described in more detail in our filings with the Securities and Exchange Commission which we encourage you to review. Otter Tail Corporation disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments or otherwise. For opening remarks, I would now like to turn the call over to our President and CEO, Mr. Chuck MacFarlane. Chuck?

[Chuck MacFarlane:]

Thanks Loren and good morning everyone. Last night we released our 2016 results, earnings per share from continuing operations for the year were at $1.60, a 2.6% increase over 2015 earnings per share with $1.56. We accomplished this despite weather challenges in our electric platform and difficult market conditions in our manufacturing platform. Employees across the organization remain focused on driving results and we appreciate the leadership they demonstrate. Our stock performed well compared to major utility and broad market indexes, the total return was 59 -- or 57.9%, and our yearend dividend yield is 3.1%. Otter Tail Power employees had a number of accomplishments in 2016, in addition to overcoming a negative weather impact to net income of 2.4 million compared to normal, they had a record safety here achieving a lowest OSHA rate in company history, they again achieved the top electric utility residential satisfaction score in the nation as measured by the American Customer Satisfaction index. They battled tough conditions for more than five days to restore power to customers in North and South Dakota after a Christmas ice storm broke more than 250 poles. And they continue to manage several large projects, including a general rate case in Minnesota, project agreements for new wind farm, a resource plan filling and two regional transmission projects; here is a brief update on each. As we've discussed on previous calls, Otter Tail Power filed a Minnesota general rate case in February last year. The Public Utilities Commission granted interim rates in April. The administrative law judge issued his report a month ago, recommending a return on equity of 9.54%. While that's lower than we requested, the judge agreed with a majority of our positions and he supported an ROE at the high end of the Minnesota Department of Commerce's recommended range. The judge cited Otter Tail Power continued strong customer satisfaction and existing low rates. Although the Minnesota public utilizes commission isn’t bound by its recommendation, it will rely on it in reaching their final decision in March. Meanwhile the accrual we have recorded for any potential refunds of revenue collected under interim rates is reasonable based on the ALG report. In November we executed project agreements for a 150-megawatt wind project, that EDF renewal energy will build in southeast North Dakota in 2019. When complete Otter Tail Power will take a 100% ownership boosting its renewable resources to 28%. Before construction can be an Otter Tail Power and EDF will see required approvals from state regulatory agencies and MISO will need to authorize interconnection to the transmission system. This project will combine with a proposed 250 megawatt natural gas project to replace expiring purchase power agreements and prepared for the retirement of the ageing Lake plant in 2021. Hoot Lake is a two unit 140 megawatt coal fired power plant, one unit has been online since 1959 and the other since 1964. Two years ago the Minnesota public unities commission approved Otter Tail powers 2014 to 2028 resource plan that included the wind and natural gas fired generations additions. The company again identified these additions in its propose 2017 to 2031 resource plan filed last June and we expect a ruling on that plan in March. Employees will also -- made progress on two 345 KV transmission projects we've discussed on past calls. Big Stone South to Brookings and Big Stone South to Ellendale. The map on Slide 8, shows the relative locations, both are designated as multi-value projects within MISO allowing recovery of project costs from all customers in MISO's upper Midwest footprint. Both remain on budget and on schedule. We're a 50% owner in the Brookings project with Exxo [ph] Energy who is the project manager. Whole foundations are complete, structures are being set and we expect the project to be energized later this year. We're a 50% owner in the line portion of Allendale project with MDU. Otter Tail Power is the project manager, contractors at 42% of 750 Paul Foundations and have set 40 structures. We expect the project to be energized in 2019. These projects have a combined Otter Tail investment of approximately 230 million. As shown on Slide 9, the wind, natural gas and transmission projects are part of our electric platform's planned to grow rate base by an annual growth 7.5% using 2015 as a base year. During the 2017 to 2021 timeframe Otter Tail Power plans to make capital investments of 862 million. Slide 10 shows our regulatory framework which continues to be constructive. As noted on the slide the majority of future projects are eligible for rider recovery while under construction. The balance of capital spend is at current depreciation levels which means it is effectively covered in existing base rates. Our manufacturing companies also experienced a number of accomplishments in 2016. Safety performance in all businesses was below the target OSHA incident rate and T.O. Plastics reached a milestone with 324 days without a reportable OSHA incident. Lionel Tech and Northern Pipe products, our plastic segment, had an approximately 11% increase in tons of pipes sold. This was not enough to offset narrowing sales to resident price margins, but is evidence of a nimble management team and engaged employees. BTD completed its facility expansion in Detroit Lakes and Lakeville Minnesota, the project has reduced logistics cost and added complex assembly and in-house painting capabilities. All OEMs have given paint system approval by the end of the year. BTD Illinois experienced strong sales to GE, primarily associated with the transportation fixtures for wind turbine blades. And BTD Georgia converted to BTD's enterprise resource planning software, we're now better able to collect, manage and interpret information system wide. Our manufacturing companies continue to be impacted by economic challenges, especially BTD, which serves under the top OEMs in the nation and we continue to position for future growth. BTD nearly doubled earnings year-over-year in 2016 and although BTD is still working to regain the earnings level achieved prior to 2015 we expect increased sales in 2017 primarily from the lawn and garden end market. Overall, 2016 included a number of important events for our Otter Tail Corporation. We have captured some of the highlights on Slide 5. We will continue to watch the new presidential administration's major initiatives, specifically environmental and tax policy changes. We had already developed compliance plans to meet the intent of the Clean Power Plan even though the U.S. Supreme Court had stayed the rule. The future of the Clean Power Plan rests on the DC circuit ruling, the new EPA and ultimately the future of the Supreme Court. We're also taking steps to address outcomes to our businesses from a potential tax reform. Kevin will describe this further, so I'll turn it over to him for the financial discussion at this time.

[Kevin Moug:]

Good morning. Let me cover with you the following items, a review of 2016 financial results, our liquidity position, strength of our balance sheet in senior unsecured credit ratings, our view of potential tax reform and a preview of our 2017 business outlook. First, based on our solid 2016 performance and our 2017 outlook, Board of Directors increased our indicated annualized dividend rate from $1.25 a common share to $1.28. We have paid dividends on our common stock for 78 years or 313 consecutive quarters. 2016 strong results represent another year of executing on our strategies. Despite continued challenges with soft end markets, base of manufacturing companies and milder than normal weather impacting our electrics utility. Our consolidated net income from continuing operations was up 5.8% and our earnings per share from continuing operations increased 2.6%. Now I will provide a detailed review of 2016 earnings as shown on Slide 11 through 14. The electric segment increased earnings in 2016 despite being inversely impacted by milder weather. Key items of the $1.5 million increase in net earnings were, increased retail revenues of $7.4 million which is net of an estimated refund related to interim effect that we went into effect in April of 2016, increased environmental and transmission writers, the increased conservation improvement program incentive revenue, increased MISO transmission tariff revenue related increased investments in regional transmission projects, and also positively impacting earnings or increased sales pipeline customers. These items were offset by lower retail revenue due to milder weather in 2016, year-over-year weather was a drag on earnings per share of $0.02 and $0.07 compared to normal. Other items negatively impacting earnings were higher operating and maintenance expenses, and higher depreciation and amortization expense related to our increased rate based investments. Our manufacturing segment's earnings increased year-over-year driven by $2 million increase in earnings at BTD. Contributing factors include $15.4 million increase in revenues as a result of owning BTD Georgia for all of 2016 compared to four months in 2015. A $9.6 million increase in revenues related to the production of wind tower components. These increases were offset in part by $15.2 million decrease in revenues related to continued softness in sales to customer served by BTD in the recreational vehicle, agriculture and oil and gas end markets. In T.O. Plastics revenues and earnings decreased year-over-year, primarily due to lower sales in horticulture, industrial and custom sales as well as changes in their product mix. Our Plastics segment revenues and earnings were down year-over-year, revenues decreased $2.9 million primarily due to an 11.2% decrease in the price per pound of pipe sold, despite a 10.5% increase in the pounds of pipe sold. Earnings were lower primarily due to compressed margins as lower raw material prices did not decline as much as sales prices. Our corporate expenses net-of-tax decreased to $2 million between the years. The reduction in cost is primarily due an increase in nontaxable debt benefit proceeds in cash value corporate owned life insurance policies as well as lower operating costs and income taxes. Moving to Slide 15, let's consider our capital structure. We raised over $44 million in equity under our at the market dividend reinvestment and other employee equity plans to support our capital expenditure program. While we don’t expect to use the aftermarket program in 2017, we will continue to use this programs as equity financing will be needed in the future to help fund the utilities rate based growth initiatives. On December 13, 2016, we issued an $80 million, ten year, 3.55% note in a private placement transaction. This proceeds were used to repay existing debt including the remaining $52.3 million of the 9% senior notes that were due on December 15, 2016. We have ample liquidity under our two credit facilities to support our two platforms. Both facilities are in place until October 29 of 2021, and management is committed to maintaining investment grade credit ratings and we'll manage our operations to reflect that commitment. Lets move to Slide 17 and I will share our current views on the hot topic of tax reform. This Slide presents our expected position on the key areas of tax reforms split between our two business platforms. First in terms of lower tax rates, this could result in a revaluation of our differed tax liabilities for our electric platform, which exposes us to a potential immediate refund to our customers. We have $343 million in differed taxes related to property items. We would expect the reduction that would occur would need to flow back to customers over some negotiated period of time. Lower tax rates at our manufacturing platform is favorable to us, given our differed liabilities would be revalued at a lower tax rate, resulting in an immediate pick up of earnings. Also, lower effective tax rates respectively would result in higher cash flows and earnings for these businesses. These benefits are clearly in there to the shareholder. We view ourselves to be in a good position as it relates to the potential elimination of interest expense deductibility. First, we have only 80 million of long term debt at the parent, which has been used solely to finance our manufacturing platform. No debt at the parent has been pushed down to the utility in the form of equity. Second, the rest of our long-term debt is held at Otter Tail Power level, where the elimination of deductibility would be mitigated to our ratemaking process. Full expensing of capital expenditures would lead to large net operating losses given our large capital expenditure plans. There is also discussion of repealing the Section 199 deduction. The loss of this deduction from the electric platform would ultimately be passed back to customers through the ratemaking process and would increase our tax expense for the manufacturing platform. We believe we are competitively positioned for tax reform with our low risk balance sheet. We will certainly need legislative support for our regulated utility to receive normalization treatment related to potential refunds to customers based on a lower effective tax rate, and we are supportive of the efforts EEI is making to shape legislation that's positive for both our business platforms. Please move to Slide 18 for a discussion of our 2017 business outlook. Our 2017 earnings guidance is in the range of $1.60 to $1.75 of earnings per share. This guidance reflects the current mix of the businesses owned by the corporation. This guidance also considers the cyclical nature of some of the operating companies and strategies for improving future results. Our electric segment's 2017 net income is expected to be higher than 2016 net income based on normal weather for 2017, a constructive outcome of the Minnesota rate case, with a full year of increased rates in 2017 compared to 8.5 months in 2016. Writer recovery increases related to increased investments and MVP transmission projects and increased sales to pipeline and commercial customers. These items are offset by increased operating and maintenance expenses related to increased medical, workers' comp and retiree medical benefits. Also, increased pension costs due to a decrease in the discount rate as well as lowering the assumed long term rate of return. Higher depreciation and property tax expense due to large transmission projects being put into service, lower SIP incentives in Minnesota as a result of a new state initiated program and increased cost related to certain capacity earnings. We expect increased earnings from our manufacturing segment 2017 due to increased sales in BTD from the lawn and garden end markets and we continue to see soft end markets in agriculture, oil and gas and energy. Our scrap revenues are expected to be flat between the years and we also look for improved margins from productivity across all of BTD's locations and lower interest cost. Increased earnings at T.O. Plastics are primarily due to increased horticulture and custom sales along with lower interest costs and our backlog to this segment is approximately a $118 million for 2017 compared with a $134 million a year ago. We expect Plastics net income to be in line with 2016. Sales volumes are projected to be down compared to 2016 and look for improved sales prices resulting in improved operating margins. Segment net income will also benefit from lower interest expense and corporate costs are expected to be in line with 2016. Let me provide an overview as shown on Slide 19 of our capital expenditure plans. We expect capital expenditures for 2017 to be $149 million. We continue to invest in transmission projects designated by MISO as multi-value projects, which continue to positively impact the corporation's earnings and returns on capital. The five-year capital expenditure plan calls for $862 million in utility projects. The plan also includes $74 million for manufacturing and plastics businesses. Our updated compounded annual growth rate in rate based is projected to be 7.5% using 2015 as a base year. We believe our 2017 guidance further positions us to achieve 4% to 7% compounded annual growth rate and earnings per share using 2016 $1.60 per share from continuing operations. Our 2017 guidance is dependent on the business and economic challenges our two platforms will face this year. Key initiatives include the constructive outcome in the Minnesota rate case, BTD's successful growth in sales from strategic investments that have been made over the last two years along with continued operational improvements across all locations to further improve return on sales margins. T.O. Plastics must be successful in its strategies to grow revenues across all of the end markets it serves and while there is volatility in our plastic segment's earnings from year-to-year, we're encouraged by the outlook for improved pipe pricing which should enhance operating margins. We continue to look to this segment to provide strong earnings, cash flows and returns on invested capital. We're now ready to take your questions and after the Q&A, Chuck will return with the few closing remarks.

[Operator:]

[Operator Instructions]. Our first question comes from Chris Ellinghaus with Williams Capital. You may begin.

[Chris Ellinghaus:]

Looking at the CapEx slide, this should encompass the wind farm purchase the combustion turbine and the solar, right. So if I look across the years [ph] the renewable in natural gas generation, it doesn't necessarily appear that it totals to their remainder if you back out the wind farm. So have you spent significant dollars on development of the solar and the gas plant at this point that are not included in these numbers?

[Chuck MacFarlane:]

No, we have not.

[Chris Ellinghaus:]

Okay. So it's about 460-ish million, so if you back out the 250 for the winds, do you really get to the 250, plus 200 for the gas plant plus 50-60 for the solar, does that total? Looks a little short.

[Chuck MacFarlane:]

Do you have the transmission projection in there Chris?

[Chris Ellinghaus:]

I'm just looking at the generation line.

[Chuck MacFarlane:]

Okay.

[Chris Ellinghaus:]

So it looks like, not adding it up completely, it's about 460. So I would expect that I will be closer to 500, if I took those three generation projects. Is there a reason there is discrepancy there or are you coming in underbudget on something?

[Kevin Moug:]

Chris, I'm not sure, I'm following where you're looking at here.

[Chris Ellinghaus:]

I follow up with Loren on that one. Can we assume that in '19 you'll be making progress payment on the wind farm?

[Kevin Moug:]

Yes.

[Chris Ellinghaus:]

And can you just walk us through the three quarters with the interim reserve in it, I didn’t see anything about a fourth quarter reserve.

[Kevin Moug:]

Chris, this is Kevin, we at the end of the year for '16, we did work additional reserves for the potential estimated refund in Q4, the effect on the year is about -- for the total year was $0.06 a share and we had 3.6 million of reserves on our books for an estimated refund at the end of the year.

[Chris Ellinghaus:]

So that would make the fourth quarter something like 1.4 million?

[Kevin Moug:]

Right.

[Chris Ellinghaus:]

Kevin, can you discuss after 2017, what's your thoughts on equity are?

[Kevin Moug:]

Sure, so when we look out now in terms of our financing plans over the 2021 timeframe, we're looking to see a pretty healthy growth and retained earnings based on growing earnings across the respective companies, and our current financing plans would put us in a range of equity from probably 90 million to 110 million right now, that assumes that we would just using our current programs available to us, the aftermarket dividend reinvestment, employee stock purchase plans. We will have to renew the aftermarket shelf in May of '18 to continue on with that. And then we do have long term debt at the parent which has been used solely for the utility during this time frame to support capital structure, and to -- literally to maintain its utility, kind of that 51% to 53% equity to total cap range.

[Chris Ellinghaus:]

Okay, I'm sorry, I didn’t catch the -- what term was that? Was that through 2021 or 2020?

[Kevin Moug:]

2021.

[Chris Ellinghaus:]

Okay, one more question and then I'll jump back in the queue. Can you just discuss how you are booking the interim in 2016? Where you using a volume metric approach, was it more of a straight-line approach?

[Kevin Moug:]

In terms of how we booked it, Chris?

[Chris Ellinghaus:]

Yes.

[Kevin Moug:]

Yes, Chris, what we did was, at the end of the second quarter we booked a reserves specific to a correction we had to make in our original filing that was, there was an error related to one of the components of the rate case. So it was a pretty small amount, I think it was a couple of hundred thousand. In the third quarter is when we received all of the intervener testimonies. And so based on the feedback from the intervener testimonies then, we recorded an additional, I think 2.1 million of accrual to reflect where we were at with our rebuttal testimony and then how the direct intervener testimonies had come in. And then we continued to book in the fourth quarter along those lines and then the ALJ report was issued in early January. We then made a comparison of our positions of where we had been accruing compared to where the ALJ report came out and felt that our accrual, that 3.6 million that I referred to, felt that was a pretty appropriate place to be based on the ALJ's report.

[Chris Ellinghaus:]

Okay, great thanks.

[Chuck MacFarlane:]

Maybe Chris just a follow up on your initial question on the capital budget on the natural gas and renewable generation. I think probably that line is misleading, that is our total generation CapEx and you can assume about $10 million a year of maintenance CapEx on the plants and existing wind farms in that line.

[Chris Ellinghaus:]

Okay great, thank you.

[Chuck MacFarlane:]

That should balance it off.

[Operator:]

Thank you, our next question comes from Paul Ridzon with KeyBanc, you may begin.

[Paul Ridzon:]

Just a clarification, did you say, you have a $343 million deferred tax after utility and that would all be refunded to customers under tax reform.

[Kevin Moug:]

No Paul, it's Kevin. I'm just trying to give you a scope. We have 343 million of property related deferred tax items for the utility at the end of the year. So I'm just trying to give you a scope of how big the number is, I mean if you had a revaluation of the -- that reserve based on a lower effective tax rate that would, based on the change in your effective tax rates, that would be kind of the impact to the revaluing of that amount of the liabilities.

[Paul Ridzon:]

Got it, got it, okay, just wasn't clear on that. And then, you had looks like about $0.065-$0.07 of weather versus normal headwind, but you're assuming normal weather for '17 I presume, but you're not getting that -- picked up where the big headwinds there in '17. Or were you doing some cost cutting during the year to help offset, that'll come back in '17?

[Kevin Moug:]

Well we certainly -- there was lots of efforts in '16 and despite the weather to help deliver the earnings we had, so there was certainly cost reductions that were made, we had stronger than expected CIP revenue that we had in '16. And then also, as you look at headwinds in the '17 we are seeing some higher O&Ms given the change in the Minnesota program, for CIPs there is a reduction there that we're expecting that we're not going to have the same levels of CIP incentives in '17 as we did in '16. We've got some capacity purchases, are going to -- costs that are going to increase and so there is headwinds there as well to offset the $0.07 normal that's in our plan.

[Paul Ridzon:]

How much was the CIP in '16?

[Kevin Moug:]

Yes, you know had a $1.7 million increase in CIP incentives year-over-year and the impact for '17 is expected to be about $0.04 a share from '16 to '17, negative.

[Paul Ridzon:]

Got it.

[Kevin Moug:]

It's called out in the press release.

[Paul Ridzon:]

What are you seeing -- are you seeing any pickup in the end markets for energy at manufacturing or is that just not got any traction yet. You talked about increased drilling activity after the OPEC cut, but does it take a while to trickle down?

[Chuck MacFarlane:]

Paul this is Chuck. It's a very slight increase, I would not say that we would call it any sort of a step change in the type of equipment that we were selling two or three years ago. Those vendors likely have their own inventory that they have to work through before putting in new.

[Paul Ridzon:]

Okay. Thank you very much.

[Operator:]

Thank you. [Operator Instructions]. Our next question comes from Chris Ellinghaus with Williams Capital. You may begin.

[Chris Ellinghaus:]

Versus the guidance at the end of the year for manufacturing, it looks like the fourth quarter was a little weaker than you expected. Can you just talk about that a little bit?

[Kevin Moug:]

Sure, in Q4 -- Chris, it's Kevin. We did see softer than expected Hoot [ph] sales at T.O. Plastics. We did see some softer -- some continued softness in the end markets at BTD that certainly impacted where we thought fourth quarter was going to finish up for them. We did get some pickup offsetting that at BTD as it related to shipping these wind tower components out of our Illinois facility. We had stronger than expected shipments there that help to offset some of the end market softness that continued in the fourth quarter with recreational vehicle, ag and oil and gas.

[Chris Ellinghaus:]

Do you have the heating degree days versus normal for the fourth quarter?

[Kevin Moug:]

Just for the fourth quarter?

[Chris Ellinghaus:]

Yeah just the fourth quarter.

[Kevin Moug:]

Chris, it's on Page 4 of the press release, in the table. The heating degrees in -- I'm sorry that's for the full year. We're going to have to get you that, we don't have that here in front of us.

[Chris Ellinghaus:]

Okay. I'll talk to Loren about that. Can I also gather that versus the number that you show in the table for the year in terms of the weather impact, does that mean that the fourth quarter was a $0.015 or $0.02?

[Kevin Moug:]

Yes.

[Chris Ellinghaus:]

Okay. And as far as the guidance, I just want to make sure I understand. You're assuming in the guidance that you get the interim as it stood?

[Kevin Moug:]

Yes.

[Chris Ellinghaus:]

Okay. Included in your comments in the guidance about normal weather, does that include what looks to be like maybe a pretty weak January as well?

[Kevin Moug:]

It doesn't, the $0.07 was based off of the actual results it compared to our budget. Weather right in -- weather started out favorable in the first part of January, but then turned unfavorable at the last half. But that's one month, it doesn't make the year.

[Chris Ellinghaus:]

Right. Just want to make sure it hasn’t taken effect for -- with what looked to be a pretty miserable January really. So as far as numbers looking at Fargo as sort of the benchmark for your service territory, looks like it was down slightly, so there really was no net pickup versus last year's January?

[Kevin Moug:]

I think that's fair, yes.

[Chris Ellinghaus:]

Okay. The fourth quarter in Plastics actually looked like it was maybe a little better then you were expecting, can you give us a little color on that?

[Kevin Moug:]

Sure, so in terms of the fourth quarter, the quarter-over-quarter comparison, we did have about 6% more pounds that were shipped in the fourth quarter of '16 compared to '15. However, that was offset by about a 6% decline in the price of pipes sold between the quarters. So margins were down slightly and were we saw a pickup was the -- we ended up with higher than forecasted taxable earnings. And so we had a stronger Section 199 deduction that came through in the fourth quarter of '16 compared to the fourth quarter of '15, we didn’t get the Section 199 deduction and that helped drive the stronger quarter as well.

[Chris Ellinghaus:]

Okay, what were the benefits in Texas and California at Plastics for 2016, that you don’t expect to recur?

[Kevin Moug:]

Well the Texas markets we had some opportunities we were able to take advantage of to ship pipe into favorably in '16. As we head into '17, we’re not expecting to have the same types of opportunities to move volume in Texas that we had in '16. If the markets change we'll certainly be able to take advantage of that and then in terms of we look -- as we look at our customers in California, we are expecting that we will see some more volumes from some of our customers that had bigger years in '16, and then what they are saying in '17.

[Chris Ellinghaus:]

One more thing Kevin, you have had occasion to talk about what you think normal earnings levels should look like manufacturing and plastics. And now that you've added the capacity and you've worked on cost and efficiency, have you got a new base level that you could talk about in those two segments?

[Kevin Moug:]

Sure, in terms of manufacturing we certainly believed that we should -- consolidated basis as most of this is driven BTD, that we should be able to return to a return on sales level of 5%. And plastics we typically believe we should be able to make kind $0.045 a pound in that business. And we were a little bit below that here in '16 and so that’s kind of our metric that we keep holding the business accountable to and like I said, we were off a little bit in '16, but as we look at planning for the business, we certainly will look to make $0.045 a pound kind of number.

[Chris Ellinghaus:]

Okay great. Thanks for the color guys. I appreciate it.

[Operator:]

Thank you. I'm showing no further question at this time, I'd like to turn the call back over to Chuck MacFarlane for closing remarks.

[Chuck MacFarlane:]

Thank you, during the last several years Otter Tail Corporation has been moving toward a business model with two platforms. The result is a focused manufacturing platform combined with a core utility platform. All of our operating companies focused on our long term compound annual earnings per share growth goal that Kevin has just described. While we are currently below this goal we are confident we will be back in a range given our pipeline of rate based projects and our efforts to return our companies to historic return on sales levels, when the current down cycle in manufacturing segment improves. We expect 2017 earnings to be in the range of a $1.60 to a $1.75 per share as we execute on our objectives to grow the businesses, achieve operation excellence and develop our employees. We want to thank all of our employees of their hard work and we want to thank you for joining our call and for your interest in Otter Tail Corporation. We look forward to speaking with you next quarter.

[Operator:]

Ladies and gentlemen, this concludes today's conference, thanks for your participation, have a wonderful day.