SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended MARCH 31,JUNE 30, 2001
or
/ //_/ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 1-3548
ALLETE, Inc.
Formerly Minnesota Power, Inc.INC.
A Minnesota Corporation
IRS Employer Identification No. 41-0418150
30 West Superior Street
Duluth, Minnesota 55802-2093
Telephone - (218) 279-5000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Common Stock, no par value,
75,685,47982,942,566 shares outstanding
as of April 30,July 31, 2001
INDEX
Page
Definitions 2
Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995 3
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
March 31,June 30, 2001 and December 31, 2000 4
Consolidated Statement of Income -
Quarter and Six Months Ended March 31,June 30, 2001 and 2000 5
Consolidated Statement of Cash Flows -
QuarterSix Months Ended March 31,June 30, 2001 and 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 1112
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 1619
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 1619
Item 5. Other Information 1620
Item 6. Exhibits and Reports on Form 8-K 1721
Signatures 1822
1 ALLETE FirstSecond Quarter 2001 Form 10-Q
DEFINITIONS
The following abbreviations or acronyms are used in the text. References in this
report to "we," "us" and "our" are to ALLETE, Inc. and its subsidiaries,
collectively.
ABBREVIATION OR ACRONYM TERM
- --------------------------------------------------------------------------------
2000 Form 10-K ALLETE's Annual Report on Form 10-K for
the Year Ended December 31, 2000
ACE ACE Limited
ADESA ADESA Corporation
AFC Automotive Finance Corporation
ALLETE ALLETE, Inc.
ALLETE Properties ALLETE Properties, Inc.
ALLETE Water Services ALLETE Water Services, Inc.
APC Auto Placement Center, Inc.
Capital Re Capital Re Corporation
Company ALLETE, Inc. and its subsidiaries
ComSearch ComSearch, Inc.
Dicks Creek Dicks Creek Wastewater Utility
EBITDAL Earnings Before Interest, Taxes,
Depreciation, Amortization and
Lease Expense
ESOP Employee Stock Ownership Plan
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
Florida Water Florida Water Services Corporation
FPSC Florida Public Service Commission
Heater Heater Utilities, Inc.
MAPP Mid-Continent Area Power Pool
MP Telecom Minnesota Power Telecom, Inc.
MPUC Minnesota Public Utilities Commission
NCUC North Carolina Utilities Commission
PSCW Public Service Commission of Wisconsin
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting
Standard No.
Split Rock Split Rock Energy LLC
Square Butte Square Butte Electric Cooperative
SWL&P Superior Water, Light and Power Company
ALLETE FirstSecond Quarter 2001 Form 10-Q 2
SAFE HARBOR STATEMENT UNDER
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, we are hereby filing cautionary statements
identifying important factors that could cause our actual results to differ
materially from those projected in forward-looking statements (as that term is
defined in the Private Securities Litigation Reform Act of 1995) made by or on
behalf of ALLETE in this quarterly report on Form 10-Q, in presentations, in
response to questions or otherwise. Any statements that express, or involve
discussions as to, expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of words or
phrases such as "anticipates," "believes," "estimates," "expects," "intends,"
"plans," "predicts," "projects," "will likely result," "will continue" or
similar expressions) are not statements of historical facts and may be
forward-looking.
Forward-looking statements involve estimates, assumptions and uncertainties and
are qualified in their entirety by reference to, and are accompanied by, the
following important factors, which are difficult to predict, contain
uncertainties, are beyond our control and may cause actual results to differ
materially from those contained in forward-looking statements:
- prevailing governmental policies and regulatory actions, including
those of the United States Congress, state legislatures, the FERC, the
MPUC, the FPSC, the NCUC, the PSCW and various county regulators, about
allowed rates of return, industry and rate structure, acquisition and
disposal of assets and facilities, operation and construction of plant
facilities, recovery of purchased power and capital investments, and
present or prospective wholesale and retail competition (including but
not limited to transmission costs);
- economic and geographic factors, including political and economic
risks;
- changes in and compliance with environmental and safety laws and
policies;
- weather conditions;
- population growth rates and demographic patterns;
- competition for retail and wholesale customers;
- pricing and transportation of commodities;
- market demand, including structural market changes;
- changes in tax rates or policies or in rates of inflation;
- changes in project costs;
- unanticipated changes in operating expenses and capital expenditures;
- capital market conditions;
- competition for new energy and other development opportunities; and
- legal and administrative proceedings (whether civil or criminal)
and settlements that influenceaffect the business and profitability of ALLETE.
Any forward-looking statement speaks only as of the date on which that statement
is made, and we undertake no obligation to update any forward-looking statement
to reflect events or circumstances after the date on which that statement is
made or to reflect the occurrence of unanticipated events. New factors emerge
from time to time and it is not possible for management to predict all of those
factors, nor can it assess the impact of each of those factors on the businesses
of ALLETE or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statement.
3 ALLETE FirstSecond Quarter 2001 Form 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLETE
CONSOLIDATED BALANCE SHEET
Millions
MARCH 31,JUNE 30, DECEMBER 31,
2001 2000
Unaudited Audited
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 209.5274.6 $ 219.3
Trading Securities 94.4159.6 90.8
Accounts Receivable (Less Allowance of $13.0$12.9 and $11.7) 390.0399.0 265.7
Inventories 29.929.7 26.4
Prepayments and Other 147.2161.9 128.8
- -----------------------------------------------------------------------------------------------------------------
Total Current Assets 871.01,024.8 731.0
- -----------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment 1,493.51,528.3 1,479.7
Investments 118.0114.6 116.4
Goodwill 499.5503.6 472.8
Other Assets 115.5122.5 114.1
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $3,097.5$3,293.8 $2,914.0
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts Payable $ 377.5380.0 $ 269.1
Accrued Taxes, Interest and Dividends 74.650.7 52.3
Notes Payable 218.2201.1 274.2
Long-Term Debt Due Within One Year 14.112.3 15.8
Other 71.095.4 95.6
- -----------------------------------------------------------------------------------------------------------------
Total Current Liabilities 755.4739.5 707.0
Long-Term Debt 1,069.51,068.8 952.3
Accumulated Deferred Income Taxes 119.9129.1 125.1
Other Liabilities 160.2171.0 153.8
- -----------------------------------------------------------------------------------------------------------------
Total Liabilities 2,105.02,108.4 1,938.2
- -----------------------------------------------------------------------------------------------------------------
Company Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary ALLETE Capital I
Which Holds Solely Company Junior Subordinated Debentures 75.0 75.0
- -----------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common Stock Without Par Value, 130.0 Shares Authorized
75.682.6 and 74.7 Shares Outstanding 585.5743.6 576.9
Unearned ESOP Shares (54.9)(54.0) (55.7)
Accumulated Other Comprehensive Loss (10.7)(0.4) (4.2)
Retained Earnings 397.6421.2 383.8
- -----------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 917.51,110.4 900.8
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,097.5$3,293.8 $2,914.0
- -----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
ALLETE FirstSecond Quarter 2001 Form 10-Q 4
ALLETE
CONSOLIDATED STATEMENT OF INCOME
Millions Except Per Share Amounts - Unaudited
QUARTER ENDED MARCH 31,SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUE
Energy Services $159.4 $141.6$147.9 $138.9 $307.3 $280.5
Automotive Services 211.1 119.5220.8 129.7 431.9 249.2
Water Services 29.5 28.031.4 31.7 60.9 59.7
Investments 13.0 33.542.9 26.7 55.9 60.2
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Operating Revenue 413.0 322.6443.0 327.0 856.0 649.6
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Fuel and Purchased Power 62.4 53.156.8 53.5 119.2 106.6
Operations 272.6292.6 201.2 565.2 402.4
Interest Expense 22.0 16.321.4 15.2 43.4 31.5
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 357.0 270.6370.8 269.9 727.8 540.5
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 56.0 52.0BEFORE ACE 72.2 57.1 128.2 109.1
INCOME FROM DISPOSITION OF INVESTMENT IN ACE - 48.0 - 48.0
- ---------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 72.2 105.1 128.2 157.1
DISTRIBUTIONS ON REDEEMABLE
PREFERRED SECURITIES OF ALLETE CAPITAL I 1.5 1.5 3.0 3.0
INCOME TAX EXPENSE 21.6 20.128.2 39.4 49.8 59.5
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 32.942.5 $ 30.464.2 $ 75.4 $ 94.6
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
AVERAGE SHARES OF COMMON STOCK
Basic 71.2 69.173.4 69.6 72.4 69.4
Diluted 71.8 69.274.0 69.9 73.0 69.5
- -----------------------------------------------------------------------------------------------------------------
BASIC AND DILUTED---------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE OF COMMON STOCK
$0.46 $0.43Basic $0.58 $0.92 $1.04 $1.35
Diluted $0.57 $0.92 $1.03 $1.35
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS PER SHARE OF COMMON STOCK $0.2675 $0.2675 $0.535 $0.535
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
5 ALLETE FirstSecond Quarter 2001 Form 10-Q
ALLETE
CONSOLIDATED STATEMENT OF CASH FLOWS
Millions - Unaudited
QUARTERSIX MONTHS ENDED
MARCH 31,JUNE 30,
2001 2000
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income $ 32.975.4 $ 30.494.6
Gain from Disposition of Investment in ACE - (48.0)
Depreciation and Amortization 25.4 20.350.9 41.4
Deferred Income Taxes (1.4) (3.3)5.8 (12.8)
Changes In Operating Assets and Liabilities
Trading Securities (3.6) (1.7)(68.8) 81.5
Accounts Receivable (124.3) (93.4)(133.3) (89.5)
Inventories (3.5) (2.1)(3.3) (2.3)
Accounts Payable 108.4 122.4110.9 153.6
Other Current Assets and Liabilities (23.7) (33.4)(37.9) (28.3)
Other - Net 6.4 6.416.4 14.0
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash From Operating Activities 16.6 45.616.1 204.2
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from Sale of Investments 2.6 144.6
Additions to Investments (1.9) (4.8)(9.6) (27.6)
Additions to Property, Plant and Equipment (24.6) (30.1)(78.3) (56.5)
Acquisitions - Net of Cash Acquired (47.2) (15.7)(56.4) (181.0)
Other - Net 8.8 12.416.3 9.0
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash For Investing Activities (64.9) (38.2)(125.4) (111.5)
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of Common Stock 6.9 8.2164.3 13.1
Issuance of Long-Term Debt 125.8 35.0126.1 48.8
Changes in Notes Payable - Net (56.0) 79.5(73.1) 30.2
Reductions of Long-Term Debt (10.3) (38.6)(13.1) (41.4)
Redemption of Preferred Stock - (10.0)
Dividends on Preferred and Common Stock (19.0) (18.9)(38.0) (37.7)
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash From Financing Activities 47.4 65.2166.2 3.0
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (8.9) (0.4)(1.6) (3.5)
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND CASH EQUIVALENTS (9.8) 72.255.3 92.2
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 219.3 101.5
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $209.5 $173.7$274.6 $193.7
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid During the Period For
Interest - Net of Capitalized $23.7 $17.3$41.7 $30.8
Income Taxes $1.7 $15.5$33.1 $54.6
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The accompanying notes are an integral part of this statement.
ALLETE FirstSecond Quarter 2001 Form 10-Q 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements and notes should be
read in conjunction with our 2000 Form 10-K. In our opinion all adjustments
necessary for a fair statement of the results for the interim periods have been
included. The results of operations for an interim period may not give a true
indication of results for the year.
NOTE 1. BUSINESS SEGMENTS
Millions
ENERGY AUTOMOTIVE WATER CORPORATE
CONSOLIDATED SERVICES SERVICES SERVICES INVESTMENTS CHARGESEnergy Automotive Water Corporate
Consolidated Services Services Services Investments Charges
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
For the Quarter Ended
- ---------------------
June 30, 2001
- -------------
FOR THE QUARTER ENDED
- ---------------------
MARCH 31, 2001
- --------------`
Operating Revenue $413.0 $159.4 $211.1$443.0 $147.9 $220.8 $29.5 $13.0$31.4 $42.9 -
Operation and Other Expense 301.6 122.0 153.3 17.5 4.3315.5 114.2 160.4 18.4 14.2 $ 4.58.3
Depreciation and Amortization Expense 25.4 11.6 10.0 3.7 -25.5 11.4 10.1 3.8 0.1 0.1
Lease Expense 8.0 0.6 6.8 0.68.4 0.8 7.1 0.5 - -
Interest Expense 22.0 4.9 10.6 2.721.4 5.3 10.0 2.6 - 3.83.5
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 56.0 20.3 30.4 5.0 8.7 (8.4)72.2 16.2 33.2 6.1 28.6 (11.9)
Distributions on Redeemable
Preferred Securities of Subsidiary 1.5 0.6 - - - 0.9
Income Tax Expense (Benefit) 21.6 7.8 12.7 1.9 3.2 (4.0)28.2 6.1 13.1 2.4 11.3 (4.7)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 32.942.5 $ 11.99.5 $ 17.720.1 $ 3.1 $ 5.5 $(5.3)3.7 $17.3 $(8.1)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
EBITDAL $111.4 $37.4 $57.8 $12.0 $8.7 $(4.5)
Total Assets $3,097.5 $908.7 $1,590.9 $335.2 $262.4 $0.3
Property, Plant and Equipment $1,493.5 $790.4 $425.5 $277.6$127.5 $33.7 $60.4 $13.0 $28.7 $(8.3)
- -
Accumulated Depreciation and Amortization $994.9 $672.5 $103.0 $217.2 $2.2 -
Capital Expenditures $24.6 $8.0 $9.7 $6.9 - -
- ------------------------------------------------------------------------------------------------------------------------
FOR THE QUARTER ENDED------------------------------------------------------------------------------------------------------------------
For the Quarter Ended
- ---------------------
MARCH 31,June 30, 2000
- ---------------------------
Operating Revenue $322.6 $141.6 $119.5$327.0 $138.9 $129.7 $28.0 $33.5$31.7 $26.7 -
Operation and Other Expense 228.0 106.3 85.1 17.3 14.9227.2 105.4 90.1 18.3 10.1 $ 4.43.3
Depreciation and Amortization Expense 20.3 11.5 4.8 3.8 0.121.1 11.6 5.7 3.7 - 0.1
Lease Expense 6.0 0.7 4.9 0.46.4 0.8 5.1 0.5 - -
Interest Expense 16.3 5.2 3.9 2.615.2 5.3 3.8 2.5 - 4.63.6
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 52.0 17.9 20.8 3.9 18.5 (9.1)Before ACE 57.1 15.8 25.0 6.7 16.6 (7.0)
Income from Disposition of ACE 48.0 - - - 48.0 -
- ------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 105.1 15.8 25.0 6.7 64.6 (7.0)
Distributions on Redeemable
Preferred Securities of Subsidiary 1.5 0.40.5 - - - 1.11.0
Income Tax Expense (Benefit) 20.1 6.8 8.9 1.5 7.0 (4.1)39.4 6.0 10.3 2.6 24.0 (3.5)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 30.464.2 $ 10.79.3 $ 11.914.7 $ 2.4 $11.5 $(6.1)4.1 $40.6 $(4.5)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
EBITDAL $94.6 $35.3 $34.4 $10.7 $18.6 $(4.4)
Total Assets $2,534.2 $1,054.7 $848.7 $318.2 $312.2 $0.4
Property, Plant and Equipment $1,277.1 $771.0 $250.9 $255.2$99.8 $33.5 $39.6 $13.4 $16.6 $(3.3)
- -
Accumulated Depreciation and Amortization $935.4 $677.0 $60.5 $195.9 $2.0 -
Capital Expenditures $30.1 $9.7 $15.1 $5.3 - -
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Included $34.8$38.2 million of Canadian operating revenue in 2001 ($17.1 million in 2000).
Included $227.2 million of Canadian assets in 2001 ($149.6 million in 2000).
Included $0.3 million of minority interest in 2001 ($0.226.2 million in 2000).
7 ALLETE FirstSecond Quarter 2001 Form 10-Q
NOTE 2. REGULATORY MATTERS
FLORIDA WATER 1991 RATE CASE REFUNDS. In 1995 the Florida First District Court
of Appeals (Court of Appeals) reversed a 1993 FPSC order establishing uniform
rates for most of Florida Water's service areas. With "uniform rates" all
customers in each uniform rate area pay the same rates for water and wastewater
services. In response to the Court of Appeals' order, in August 1996 the FPSC
ordered Florida Water to issue refunds to those customers who paid more since
October 1993 under uniform rates than they would have paid under stand-alone
rates. This order did not permit a balancing surcharge to customers who paid
less under uniform rates. Florida Water appealed, and the Court of Appeals ruled
in June 1997 that the FPSC could not order refunds without balancing surcharges.
In response to the Court of Appeals' ruling, the FPSC issued an order in January
1998 that did not require refunds. In February 1998 this order was appealed by
customers who paid more under uniform rates. That appeal is still pending.
Florida Water's potential refund liability is about $15 million, which includes
interest. We believe that if refunds are ordered an equal surcharge to other
customers would be required consistent with the 1997 Court of Appeals ruling. We
are unable to predict the outcome of this matter.
In the same January 1998 order, the FPSC required Florida Water to refund, with
interest, $2.5 million, the amount paid by customers in the Spring Hill service
area from January 1996 through June 1997 under uniform rates which exceeded the
amount these customers would have paid under a modified stand-alone rate
structure. No balancing surcharge was permitted. The FPSC ordered this refund
because Spring Hill customers continued to pay uniform rates after other
customers began paying modified stand-alone rates effective January 1996 under
the FPSC's interim rate order in Florida Water's 1995 rate case. The FPSC did
not include Spring Hill in this interim rate order because Hernando County had
assumed jurisdiction over Spring Hill's rates. In June 1997 Florida Water
reached an agreement with Hernando County to revert prospectively to stand-alone
rates for Spring Hill customers.
Florida Water appealed the $2.5 million refund order. While the appeal was
pending, Florida Water and Hernando County reached a settlement of all remaining
issues in this matter that provides Spring Hill customers with a prospective
rate reduction effective April1. BUSINESS SEGMENTS CONTINUED
Millions
Energy Automotive Water Corporate
Consolidated Services Services Services Investments Charges
- --------------------------------------------------------------------------------------------------------------------
For the Six Months Ended
- ------------------------
June 30, 2001
- -------------
Operating Revenue $856.0 $307.3 $431.9 $60.9 $55.9 -
Operation and Other Expense 617.1 236.2 313.7 35.9 18.5 $ 12.8
Depreciation and Amortization Expense 50.9 23.0 20.1 7.5 0.1 0.2
Lease Expense 16.4 1.4 13.9 1.1 - -
Interest Expense 43.4 10.2 20.6 5.3 - 7.3
- --------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 128.2 36.5 63.6 11.1 37.3 (20.3)
Distributions on Redeemable
Preferred Securities of Subsidiary 3.0 1.2 - - - 1.8
Income Tax Expense (Benefit) 49.8 13.9 25.8 4.3 14.5 (8.7)
- --------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 75.4 $ 21.4 $ 37.8 $ 6.8 $22.8 $(13.4)
- --------------------------------------------------------------------------------------------------------------------
EBITDAL $238.9 $71.1 $118.2 $25.0 $37.4 $(12.8)
Total Assets $3,293.8 $1,027.7 $1,623.2 $345.4 $297.3 $0.2
Property, Plant and Equipment $1,528.3 $796.6 $453.0 $278.7 - -
Accumulated Depreciation and Amortization $1,019.0 $682.9 $111.3 $222.5 $2.3 -
Capital Expenditures $78.3 $29.3 $33.9 $15.1 - -
- --------------------------------------------------------------------------------------------------------------------
For the Six Months Ended
- ------------------------
June 30, 2000
- -------------
Operating Revenue $649.6 $280.5 $249.2 $59.7 $60.2 -
Operation and Other Expense 455.2 211.7 175.2 35.6 25.0 $ 7.7
Depreciation and Amortization Expense 41.4 23.1 10.5 7.5 0.1 0.2
Lease Expense 12.4 1.5 10.0 0.9 - -
Interest Expense 31.5 10.5 7.7 5.1 - 8.2
- --------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) Before ACE 109.1 33.7 45.8 10.6 35.1 (16.1)
Income from Disposition of ACE 48.0 - - - 48.0 -
- --------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 157.1 33.7 45.8 10.6 83.1 (16.1)
Distributions on Redeemable
Preferred Securities of Subsidiary 3.0 0.9 - - - 2.1
Income Tax Expense (Benefit) 59.5 12.8 19.2 4.1 31.0 (7.6)
- --------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 94.6 $ 20.0 $ 26.6 $ 6.5 $52.1 $(10.6)
- --------------------------------------------------------------------------------------------------------------------
EBITDAL $194.4 $68.8 $74.0 $24.1 $35.2 $(7.7)
Total Assets $2,560.2 $889.4 $1,073.8 $324.4 $272.1 $0.5
Property, Plant and Equipment $1,311.5 $769.4 $279.5 $262.6 - -
Accumulated Depreciation and Amortization $1,018.0 $650.7 $162.5 $202.8 $2.0 -
Capital Expenditures $56.5 $20.4 $24.5 $11.6 - -
- --------------------------------------------------------------------------------------------------------------------
Included $73.0 million of Canadian operating revenue in 2001 ($44.3 million in 2000).
Included $310.4 million of Canadian assets in 2001 ($227.9 million in 2000).
ALLETE Second Quarter 2001 reducing annual revenue by $0.6 million for
three years with no refunds. Florida Water agreed not to file a rate case for
three years. The settlement was approved in December 2000 by Hernando County and
the FPSC in February 2001. The appeal has been dismissed.Form 10-Q 8
NOTE 3.2. ACQUISITIONS
ADESA AUCTION FACILITIES. On January 18, 2001 we acquired all of the outstanding
stock of ComSearch in exchange for ALLETE common stock and paid cash to purchase
all of the assets of Auto Placement Center, Inc. (APC)APC in transactions with an aggregate value of $62.4
million. APC was accounted for using the purchase method. APC financial results
have been included in our consolidated financial statements since the date of
purchase. ComSearch was accounted for as a pooling of interestinterests with financial
results included in our consolidated financial statements since January 1, 2001.
Pro forma financial results have not been presented due to immateriality. APC is
a provider of "total loss" vehicle recovery services with ten auction facilities
in the United States. ComSearch provides Internet-based parts location and
insurance adjustment audit services nationwide.
On May 1, 2001 ADESA purchased the assets of the I-44 Auto Auction in Tulsa,
Oklahoma. The transaction was accounted for using the purchase method. Financial
results have been included in our consolidated financial statements since the
date of purchase. Pro forma financial results have not been presented due to
immateriality. The I-44 Auto Auction, which is located on 75 acres, was renamed
ADESA Tulsa and offers six auction lanes, storage for over 3,000 vehicles and a
five-bay reconditioning and detail facility.
DICKS CREEK. In February 2001 ALLETE Water Services purchased, subject to certain conditions,completed the December 2000
purchase of the assets of Dicks Creek, a wastewater utility located near
Atlanta, Georgia, in
December 2000 for $6.6 million plus a commitment to pay the seller a fee for
residential connections. The commitment requires the payment of a minimum of
$400,000 annually beginning December 31, 2001 for four years or until cumulative
payments reach $2 million, whichever occurs first. The transaction closed on
February 1, 2001 and was accounted
for using the purchase method. Financial results have been included in our
consolidated financial statements since February 2001. Pro forma financial
results have not been presented due to immateriality.
ALLETE First Quarter 2001 Form 10-Q 8
NOTE 3. INVESTMENT IN ACE
In May 2000 we recorded a $30.4 million, or $0.44 per share, after-tax gain on
the sale of the 4.7 million shares of ACE that we received in December 1999 when
Capital Re merged with ACE. At the time of the merger we owned 7.3 million
shares, or 20 percent, of Capital Re.
NOTE 4. LONG-TERM DEBT
On February 21, 2001 ALLETE issued $125 million of 7.80% Senior Notes, due
February 15, 2008. Proceeds were used to repay a portion of ALLETE's short-term
borrowings incurred for the acquisition of vehicle auction facilities purchased
in 2000 and early 2001, and for general corporate purposes.
NOTE 5. INCOME TAX EXPENSE
QUARTER ENDED
MARCH 31,
2001 2000
- --------------------------------------------------------------------------------------------------------------------
Millions
Current Tax
Federal $ 19.8 $ 19.6
Foreign 0.8 0.5
State 2.4 3.3
- --------------------------------------------------------------------------------------------------------------------
23.0 23.4
- --------------------------------------------------------------------------------------------------------------------
Deferred Tax
Federal (1.2) (2.3)
Foreign (0.2) (0.1)
State 0.4 (0.5)
- --------------------------------------------------------------------------------------------------------------------
(1.0) (2.9)
- --------------------------------------------------------------------------------------------------------------------
Deferred Tax Credits (0.4) (0.4)
- --------------------------------------------------------------------------------------------------------------------
Total Income Tax Expense $ 21.6 $ 20.1
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCK
During the quarter ended June 30, 2001, we issued and sold 6.6 million shares of
common stock at $23.68 per share in an underwritten public offering. Net
proceeds of $150 million were used to repay a portion of our short-term
borrowings with the remainder invested in short-term instruments.
NOTE 6. TOTAL COMPREHENSIVE INCOME
For the quarter ended March 31,June 30, 2001 total comprehensive income was $26.4$52.8 million
($49.042.7 million for the quarter ended March 31,June 30, 2000). For the six months ended
June 30, 2001 total comprehensive income was $79.2 million ($91.7 million for
the six months ended June 30, 2000). Total comprehensive income includes net
income, unrealized gains and losses on securities classified as
available-for-sale, changes in the fair value of an interest rate swap and
foreign currency translation adjustments.
NOTE 7. NEW ACCOUNTING STANDARDS
As of January 1, 2001 we adopted Statement of Financial Accounting Standards No.
(SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded on the balance sheet as either an asset or
liability measured at fair value. Changes in fair value are to be recognized in
current earnings or other comprehensive income, depending on the purpose for
which the derivative is held. Our use of derivative instruments is not
significant. Upon adoption of SFAS 133, we held two interest rate swaps, both of
which qualify for hedge accounting. Based on our current hedging practices, the
adoption of SFAS 133 will have minimal earnings impact.
9 ALLETE FirstSecond Quarter 2001 Form 10-Q
NOTE 7. INCOME TAX EXPENSE
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Millions
Current Tax
Federal $18.4 $43.1 $38.2 $62.7
Foreign 0.4 0.6 1.2 1.1
State 2.2 5.2 4.6 8.5
- --------------------------------------------------------------------------------------------------------------------
21.0 48.9 44.0 72.3
- --------------------------------------------------------------------------------------------------------------------
Deferred Tax
Federal 6.3 (8.3) 5.1 (10.6)
Foreign (0.2) (0.2) (0.4) (0.3)
State 1.3 (0.8) 1.7 (1.3)
- --------------------------------------------------------------------------------------------------------------------
7.4 (9.3) 6.4 (12.2)
- --------------------------------------------------------------------------------------------------------------------
Deferred Tax Credits (0.2) (0.2) (0.6) (0.6)
- --------------------------------------------------------------------------------------------------------------------
Total Income Tax Expense $28.2 $39.4 $49.8 $59.5
- --------------------------------------------------------------------------------------------------------------------
NOTE 8. EARNINGS PER SHARE
The difference between basic and diluted earnings per share arises from
outstanding stock options and performance share awards granted under our
Executive and Director Long-Term Incentive Compensation Plans.
RECONCILIATION OF BASIC AND DILUTED QUARTER ENDED SIX MONTHS ENDED
EARNINGS PER SHARE JUNE 30, 2001 JUNE 30, 2001
- --------------------------------------------------------------------------------------------------------------------
Millions Except Per Share Amounts Basic Dilutive Diluted Basic Dilutive Diluted
EPS Securities EPS EPS Securities EPS
------------------------------ -------------------------------
Net Income $42.5 - $42.5 $75.4 - $75.4
Common Shares 73.4 0.6 74.0 72.4 0.6 73.0
Per Share $0.58 - $0.57 $1.04 - $1.03
- --------------------------------------------------------------------------------------------------------------------
There was no difference between basic and diluted earnings per share for the
quarter and six months ended June 30, 2000.
NOTE 9. NEW ACCOUNTING STANDARD
In July 2001 the FASB issued SFAS 142, "Goodwill and Other Intangible Assets."
SFAS 142 changes the accounting for goodwill from an amortization method to an
impairment-only approach. Amortization of goodwill, including goodwill recorded
in past business combinations, will cease for fiscal years beginning after
December 15, 2001. We have $537 million of goodwill as of June 30, 2001 and
after-tax goodwill amortization expense of approximately $5.5 million for the
first six months of 2001. Annual after-tax goodwill amortization expense is
expected to be approximately $11 million in 2001. We do not believe we have any
goodwill impairment at this time.
ALLETE Second Quarter 2001 Form 10-Q 10
NOTE 10. SQUARE BUTTE PURCHASED POWER CONTRACT
Minnesota Power, our electric utility business, has a power purchase agreement
with Square Butte that extends through 2026 (Agreement). It provides a long-term
supply of low-cost energy to customers in our electric service territory and
enables Minnesota Power to meet power pool reserve requirements. Square Butte, a
North Dakota cooperative corporation, owns a 455-megawatt coal-fired generating
unit (Unit) near Center, North Dakota. The Unit is adjacent to a generating unit
owned by Minnkota Power Cooperative, Inc. (Minnkota), a North Dakota cooperative
corporation whose Class A members are also members of Square Butte. Minnkota
serves as the operator of the Unit and also purchases power from Square Butte.
Minnesota Power is entitled to approximately 71 percent of the Unit's output
under the Agreement. After 2005 and upon compliance with a two-year advance
notice requirement, Minnkota has the option to reduce Minnesota Power's
entitlement by 5 percent annually, to a minimum of 50 percent. Minnesota Power
is obligated to pay its pro rata share of Square Butte's costs based on
Minnesota Power's entitlement to Unit output. Minnesota Power's payment
obligation is suspended if Square Butte fails to deliver any power, whether
produced or purchased, for a period of one year. Square Butte's fixed costs
consist primarily of debt service. At March 31,June 30, 2001 Square Butte had total debt
outstanding of $314.9 million. Total annual debt service for Square Butte is
expected to be approximately $36 million in each of the years 2001 through 2003
and $23 million in both 2004 and 2005. Variable operating costs include the
price of coal purchased from BNI Coal, Ltd., our subsidiary, under a long-term
contract. Minnesota Power's payments to Square Butte are approved as purchased
power expense for ratemaking purposes by both the MPUC and FERC.
11 ALLETE FirstSecond Quarter 2001 Form 10-Q 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ALLETE is a multi-services company with operations in four business segments:
(1) ENERGY SERVICES, which include electric and gas services, coal mining and
telecommunications; (2) AUTOMOTIVE SERVICES, which include a network of vehicle
auctions, an automobile dealer finance company, and several subsidiaries that
are integral parts of the vehicle redistribution business; (3) WATER SERVICES,
which include water and wastewater services; and (4) INVESTMENTS, which include
real estate operations, investments in emerging technologies related to the
electric utility industry and a securities portfolio. Corporate charges
represent general corporate expenses, including interest, not specifically
related to any one business segment.
CONSOLIDATED OVERVIEW
Each of our operating segments produced solid financial results during the first
quartersix months of 2001. For2001, reflecting the success of ALLETE's growth initiatives.
Excluding the ACE transaction (see net income discussion below), net income and
earnings per share for the quarter ended March 31,June 30, 2001 increased 26 percent and
19 percent, respectively, over the same period in 2000. For the six months ended
June 30, 2001, excluding the ACE transaction, net income was up 817 percent and
earnings per share were up 713 percent over the same period ofin 2000.
QUARTER ENDED MARCH 31,SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Millions Except Per Share Amounts
Operating Revenue
OPERATING REVENUE
Energy Services $159.4 $141.6$147.9 $138.9 $307.3 $280.5
Automotive Services 211.1 119.5220.8 129.7 431.9 249.2
Water Services 29.5 28.031.4 31.7 60.9 59.7
Investments 13.0 33.542.9 26.7 55.9 60.2
- -------------------------------------------------------------------------------------------------------------------
$413.0 $322.6------------------------------------------------------------------------------------------------------------------
$443.0 $327.0 $856.0 $649.6
- -------------------------------------------------------------------------------------------------------------------
Operating Expenses------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Energy Services $139.1 $123.7$131.7 $123.1 $270.8 $246.8
Automotive Services 180.7 98.7187.6 104.7 368.3 203.4
Water Services 24.5 24.125.3 25.0 49.8 49.1
Investments 4.3 15.014.3 10.1 18.6 25.1
Corporate Charges 8.4 9.111.9 7.0 20.3 16.1
- -------------------------------------------------------------------------------------------------------------------
$357.0 $270.6------------------------------------------------------------------------------------------------------------------
$370.8 $269.9 $727.8 $540.5
- -------------------------------------------------------------------------------------------------------------------
Net Income------------------------------------------------------------------------------------------------------------------
NET INCOME
Energy Services $11.9 $10.7$ 9.5 $ 9.3 $21.4 $20.0
Automotive Services 17.7 11.920.1 14.7 37.8 26.6
Water Services 3.1 2.43.7 4.1 6.8 6.5
Investments 5.5 11.517.3 10.2 22.8 21.7
Corporate Charges (5.3) (6.1)(8.1) (4.5) (13.4) (10.6)
- -------------------------------------------------------------------------------------------------------------------
$32.9------------------------------------------------------------------------------------------------------------------
42.5 33.8 75.4 64.2
ACE Transaction - 30.4 - 30.4
- ------------------------------------------------------------------------------------------------------------------
$42.5 $64.2 $75.4 $94.6
- ------------------------------------------------------------------------------------------------------------------
DILUTED AVERAGE SHARES OF COMMON STOCK 74.0 69.9 73.0 69.5
- ------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE OF COMMON STOCK
Before ACE Transaction $0.57 $0.48 $1.03 $0.91
ACE Transaction - 0.44 - 0.44
- ------------------------------------------------------------------------------------------------------------------
$0.57 $0.92 $1.03 $1.35
- ------------------------------------------------------------------------------------------------------------------
Including the $30.4 - -------------------------------------------------------------------------------------------------------------------
Diluted Average Shares of Common Stock - Millions 71.8 69.2
- -------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share of Common Stock $0.46 $0.43
- -------------------------------------------------------------------------------------------------------------------million gain associated with the ACE transaction, net income from Investments was $40.6
million for the quarter ended June 30, 2000 and $52.1 million for the six months ended June 30, 2000.
(See Note 3.)
ALLETE Second Quarter 2001 Form 10-Q 12
NET INCOME
The following net income discussion summarizes significant events for the quartersix
months ended March 31,June 30, 2001.
ENERGY SERVICES' net income in 2001 reflected increased margins onmore profitable wholesale
marketing and trading activities and increased sales to residential and commercial
customers. These increases were partially offset bybecause of overall market conditions, decreased
sales to industrial customers.customers and additional costs incurred as a result of a
severe ice storm.
AUTOMOTIVE SERVICES reported highera 42 percent increase in net income in 2001 due to
significant acquisitions made in 2000 and early 2001 and increased financing
activity at AFC's loan production offices. EBITDAL for ADESA's 28 same-store
auction facilities was flatup 7 percent for the firstsix months ended June 30, 2001 (13
percent for the quarter of 2001 reflecting increasedended June 30, 2001). Increased costs and no increase inreduced sales
volumes because of inclement weather in 2001. Vehicles expected
atearly 2001 hampered financial results.
Costs of assimilating the 28 vehicle auction facilities acquired or opened in
the first
11 ALLETE First Quarter2000 also impacted 2001 Form 10-Q
quarter of 2001 that did not occur are expected to come to auction in the second
and third quarters of 2001.results.
WATER SERVICES' net income was slightly higher in 2001 reflecting customer
growth, an October 2000 rate increase implemented by Heater, productivity enhancementscost control
efforts and the release of escrow proceeds received from the sale of assets to
Orange County, Florida in 1997. Above-average rainfall in Florida during the
second quarter and conservation efforts negatively impacted net income in 2001.
INVESTMENTS reported lowerhigher net income in 2001 primarily due to the timing ofincreased sales
by our real estate operations. In 2000 significant real estate sales were
recorded during the first quarter. There were no comparable sales in 2001.
However, in AprilJune 2001 our real estate operations announced thatclosed
its largest sale ever is expected to close in June 2001. Net income from Investments was
also lower in 2001 due to lower income from our emerging technology investments
and our securities portfolio.ever. The after-tax return on our securities portfolio was
10.3210.02 percent in 2001 (3.96(6.02 percent in 2000), however, we had a lower average
balance in 2001. During 2000 we reduced the size of our securities portfolio to
partially fund significant acquisitions made by Automotive Services.
CORPORATE CHARGES reflected increased interest expense and additional incentive
compensation accruals.
ACE TRANSACTION. In May 2000 we recorded a $30.4 million, or $0.44 per share,
after-tax gain on the sale of the 4.7 million shares of ACE that we received in
December 1999 when Capital Re merged with ACE.
COMPARISON OF THE QUARTERS ENDED MARCH 31,JUNE 30, 2001 AND 2000
OPERATING REVENUE
ENERGY SERVICES' operating revenue was up $17.8$9.0 million, or 136 percent, in 2001.
Additional2001,
due to additional demand revenue from large power customers who converted a
portion of their interruptible power to firm power, and fuel clause recoveries for
higher purchased power and gas prices, more than offset a 7 percent decrease in
megawatthour sales. The decline inand wholesale power marketing and trading
activities by Split Rock and Minnesota Power. Minnesota Power's retail
megawatthour sales were down 3 percent because of temporary shutdowns and
reduced production by taconite customers. Minnesota Power's wholesale
megawatthour sales were lower because sales are now made by Split Rock and
recorded in its financial statements. Split Rock, a joint venture between
Minnesota Power and Great River Energy, combines power supply capabilities and
customer loads to share market and supply risks and to optimize power trading
opportunities. Our equity income from Split Rock was attributed to a 20
percent decrease in sales to taconite customers due to temporary shutdowns.
Megawatthour sales to residential and commercial customers were up due to$2.9 million more
normal winter weather in 2001. In addition, the average price we charged for
wholesale electricity was up 58 percent reflecting overall wholesale market
conditions and adding $6.1 million to operating revenue.
Revenue from electric sales to taconite customers accounted for 9 percent of
consolidated operating revenue in 2001 (13 percent in 2000). Electric sales to
paper and pulp mills accounted for 4 percent of consolidated operating revenue
in both 2001 and 2000.(5 percent in 2000). Sales to other power suppliers accounted for 64
percent of consolidated operating revenue in both 2001 and 2000.(6 percent in 2000).
AUTOMOTIVE SERVICES' operating revenue was up $91.6$91.1 million, or 7770 percent, in
2001 primarily due to significant acquisitions made in 2000 and early 2001. At
ADESA auction facilities 500,000492,000 vehicles were sold in 2001 (295,000(307,000 in 2000),
an increase of 6960 percent. Financial results for 2001 included three months of
operations from 28 auction facilities acquired or opened primarily in the second
half of 2000 and results from acquisitions made in January 2001. Financial results for 2001 were
negatively impacted by the timing of vehicles coming to auction and inclement
weather that resulted in both low attendance at and canceled auctions.May 2001.
Operating revenue from AFC was also higher in
13 ALLETE Second Quarter 2001 Form 10-Q
2001 reflecting a 1315 percent increase in vehicles financed through itsexisting loan
production offices. AFC financed approximately 221,000232,000 vehicles in 2001 (195,000(202,000
in 2000). AFC has had 8687 loan production offices since April 2000.at June 30, 2001 (86 at June 30,
2000).
WATER SERVICES' operating revenue was up $1.5down $0.3 million, or 51 percent, in 2001
due to customer growth of 6a 9 percent decrease in consumption primarily attributable to
above-average rainfall in Florida and conservation efforts. The decrease was
tempered by additional revenue from a 7 percent increase in customers and an
October 2000 rate increase implemented by Heater and the release of escrow proceeds received from the sale of assets to
Orange County, Florida in 1997.Heater.
INVESTMENTS' operating revenue was down $20.5up $16.2 million, or 61 percent, in 2001
primarily due to the timing ofstronger sales by our real estate operations. In 2001 two large
real estate sales contributed $2.6$30.4 million to revenue, while inone which was real
estate operations' largest single transaction to date. In 2000 threefour large real
estate sales contributed $18.8$13.1 million to revenue. Revenue from our
emerging technology investments was also $3.1 million lower in 2001. Revenue from our securities
portfolio was down slightly in 2001 due to a lower average balance.
ALLETE First Quarter 2001 Form 10-Q 12
OPERATING EXPENSES
ENERGY SERVICES' operating expenses were up $15.4$8.6 million, or 127 percent, in 2001
because of higher prices paid for purchased power and purchased gas. Operating
expenses also increased in 2001 due to higher plant maintenance expenses and
additional costs incurred as a result of a severe ice storm.
AUTOMOTIVE SERVICES' operating expenses were up $82.0$82.9 million, or 8379 percent, in
2001 primarily due to significant acquisitions made in 2000 and early 2001. In
addition to the increased costs associated with having more vehicle auction
facilities in operation, expenses in 2001 included integration costs, additional
amortization of goodwill and higher interest expense related to debt issued in
late 2000 to finance these acquisitions.
WATER SERVICES' operating expenses were up $0.3 million, or 1 percent, in 2001
due to customer growth and the inclusion of water and wastewater systems
acquired in 2000.
INVESTMENTS' operating expenses were up $4.2 million, or 42 percent, in 2001 as
a result of higher sales by our real estate operations.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
OPERATING REVENUE
ENERGY SERVICES' operating revenue was up $26.8 million, or 10 percent, in 2001
due to additional demand revenue from large power customers who converted a
portion of their interruptible power to firm power, fuel clause recoveries for
higher purchased power and gas prices, and wholesale power marketing and trading
activities. Minnesota Power's retail megawatthour sales were down 5 percent
because of temporary shutdowns and reduced production by taconite customers.
Minnesota Power's wholesale megawatthour sales were lower because sales are now
made by Split Rock and recorded in its financial statements. Our equity income
from Split Rock was $3.1 million more in 2001.
Revenue from electric sales to taconite customers accounted for 9 percent of
consolidated operating revenue in 2001 (13 percent in 2000). Electric sales to
paper and pulp mills accounted for 4 percent of consolidated operating revenue
in 2001 (5 percent in 2000). Sales to other power suppliers accounted for 5
percent of consolidated operating revenue in 2001 (6 percent in 2000).
AUTOMOTIVE SERVICES' operating revenue was up $182.7 million, or 73 percent, in
2001 primarily due to significant acquisitions made in 2000 and early 2001. At
ADESA auction facilities 993,000 vehicles were sold in 2001 (602,000 in 2000),
an increase of 65 percent. Financial results for 2001 included six months of
operations from 28 auction facilities acquired or opened primarily in the second
half of 2000 and results from acquisitions made in January and May 2001. Sales
volumes in 2001 were hampered by inclement weather that resulted in both low
attendance at and canceled auctions earlier in the year. Operating revenue from
AFC was higher in 2001 reflecting a 14 percent increase in vehicles financed
through
ALLETE Second Quarter 2001 Form 10-Q 14
existing loan production offices. AFC financed approximately 453,000 vehicles in
2001 (397,000 in 2000). AFC had 87 loan production offices in 2001 (86 in 2000).
WATER SERVICES' operating revenue was up $1.2 million, or 2 percent, in 2001 due
to customer growth of 7 percent, an October 2000 rate increase implemented by
Heater and the release of escrow proceeds received from the 1997 sale of assets
to Orange County, Florida. Above-average rainfall in Florida and conservation
efforts negatively impacted revenue in 2001.
INVESTMENTS' operating revenue was down $4.3 million, or 7 percent, in 2001
primarily due to $4.0 million less revenue from our emerging technology
investments as a result of fewer sales of these investments in 2001. Revenue
from our securities portfolio was down in 2001 due to a lower average balance.
Our real estate operations reported stronger sales at all locations in 2001.
Four large real estate sales in 2001 contributed $33.1 million to revenue and
included our largest single real estate transaction to date. In 2000 seven large
real estate sales contributed $31.9 million to revenue.
OPERATING EXPENSES
ENERGY SERVICES' operating expenses were up $24 million, or 10 percent, in 2001
because of higher prices paid for purchased power and purchased gas. Operating
expenses also increased in 2001 due to higher plant maintenance expenses and
additional costs incurred as a result of a severe ice storm.
AUTOMOTIVE SERVICES' operating expenses were up $164.9 million, or 81 percent,
in 2001 primarily due to significant acquisitions made in 2000 and early 2001.
In addition to the increased costs associated with having more vehicle auction
facilities in operation, expenses in 2001 included integration costs, additional
amortization of goodwill and higher interest expense related to debt issued in
late 2000 to finance acquisitions. Operating expenses in 2001 also reflected
additional expenses for utility and labor costs incurred as a result of
inclement weather conditions compared to 2000 when weather conditions were
relatively mild.
WATER SERVICES' operating expenses were up $0.4$0.7 million, or 21 percent, in 2001
due to customer growth and the inclusion of water and wastewater systems
acquired in 2000.
INVESTMENTS' operating expenses were down $10.7$6.5 million, or 7126 percent, in 2001
as a result of lowerdue to reduced expenses associated with sales by our real estate operations.
OUTLOOK
We experiencedThe solid performance from each of our four business segments during the first
quartersix months of 2001. Automotive2001 reflected the success of ALLETE's growth initiatives.
ENERGY SERVICES. The economic health of the taconite industry is important to us
and the impact of cheap foreign steel imports concerns us. While taconite
production is currently expected to continue at annual levels of about 40
million tons, the longer-term outlook of this cyclical industry is less certain.
In May 2001 we submitted a bid to acquire LTV Steel Mining Co.'s (LTV) three
75-megawatt electric generating units located in northern Minnesota. This bid
was submitted in connection with a bid by Cleveland-Cliffs Inc. to acquire LTV's
Minnesota mining assets. We believe our offer is competitive, but LTV has not
yet responded to our proposal. Our recent acquisition of Enventis, Inc., a data
network systems provider headquartered in the Minneapolis-St. Paul area,
complements our existing infrastructure and fiber optics network in Minnesota
and Wisconsin. While relatively small, this transaction helps position our
telecommunications business as one of the leading integrated data service
providers in the Upper Midwest. Overall, we believe Energy Services is well
positioned for future growth opportunities.
AUTOMOTIVE SERVICES acquisitions made during 2000 and early 2001, and continued
growth of AFC, ourAFC's vehicle finance company,business, contributed significantly to net
income for the first quartersix months of 2001. With the planned addition of "total
loss" vehicle recovery services at existing ADESA vehicle auction facilities and
economies of scale as a result of integration efficiencies at newly acquired
vehicle auction facilities, we continue to expect to achieve
ourthat Automotive Services' 2001
goal of anet income contribution will be at least 40 percent earningsover
15 ALLETE Second Quarter 2001 Form 10-Q
last year. We also expect that EBITDAL from same-store ADESA auction facilities
will increase 10 percent to 15 percent.
In 2001 industry-wide, dealer consignment sales have been down due to pricing
pressure in the used vehicle market. The pricing pressure is partially caused by
aggressive incentives currently offered by vehicle manufacturers. These
incentives reduce the value of used vehicles. We continue to believe that
vehicle sales within the auto auction industry are expected to rise at a rate of
2 percent to 4 percent annually over the next several years.
WATER SERVICES. Even though Florida had above-average rainfall during the second
quarter of 2001 and water use restrictions remain in effect, Water Services'
2001 financial results are still on target due to customer growth for Automotive Services.at water and
wastewater systems in both Florida and North Carolina.
INVESTMENTS. The
increase in cash flow from Automotive Services will be used to pay down the
acquisition debt.
We announced the $29 million sale of the Tarpon Point property in Cape Coral,
Florida in June 2001 was our real estate operations' largest single transaction
to date. The real estate strategy continues to be to acquire large properties at
low cost, add value and sell them at current market prices. Through
subsidiaries, we own Florida real estate operations in four different locations:
- LEHIGH ACRES with 1,100 acres of land and approximately 500 home sites
adjacent to Fort Myers, Florida;
- SUGARMILL WOODS with 475 home sites in Citrus County, Florida;
- PALM COAST with 1,630 home sites and 9,300 acres of residential,
commercial and industrial land at Palm Coast, Florida. Palm Coast is a
planned community between St. Augustine and Daytona Beach; and
- CAPE CORAL, located adjacent to Fort Myers, Florida, which is expected to close in the second quarterwith approximately
600 acres of 2001.commercial and residential zoned land, including home
sites and commercial buildings.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW ACTIVITIES. During the first quartersix months of 2001 cash flow from
operations reflected strong operating results and continued focus on working
capital management. CashThe decrease in cash flow from operations was lower in 2001 duewas
primarily attributable to $15 million of
cash related to AFC's December 2000 floorplanning program expansionchanges in trading securities. In 2001 additional
trading securities were purchased with a manufacturerportion of the proceeds from our recent
common stock issuance (see Working CapitalSecurities below) and, while in 2000 trading securities
were sold to partially fund the timingacquisition of Automotive Services'
cash receipts and disbursements.Auction Finance Group, Inc. Cash
flow from operations was also affected by a number of factors representative of
normal operations.
WORKING CAPITAL. Additional working capital, if and when needed, generally is
provided by the sale of commercial paper. Our securities investments can be
liquidated to provide funds for reinvestment in existing businesses or
acquisition of new businesses. Approximately 6 million original issue shares of
our common stock are available for issuance through INVEST DIRECT,Invest Direct, our direct
stock purchase and dividend reinvestment plan.
A substantial amount of ADESA's working capital is generated internally from
payments for services provided. However, ADESA has arrangements to use proceeds
from the sale of commercial paper issued by ALLETE to meet short-term working
capital requirements arising from the timing of payment obligations to vehicle
sellers and the availability of funds from vehicle purchasers. During the sales
process, ADESA does not typically take title to vehicles.
AFC also has arrangements to use proceeds from the sale of commercial paper
issued by ALLETE to meet its operational requirements. AFC offers short-term
on-site financing for dealers to purchase vehicles 13 ALLETE First Quarter 2001 Form 10-Q
at auctions in exchange for a
security interest in those vehicles. The financing is provided through the
earlier of the date the dealer sells the vehicle or a general borrowing term of
30 to 45 days.
AFC sells certain finance receivables on a revolving basis to a wholly owned,
unconsolidated, qualified special purpose subsidiary. This subsidiary in turn
sells, on a revolving basis, an undivided interest in eligible finance
receivables, up to a maximum at any one time outstanding of $300 million, to
third party purchasers under an agreement that expires at the end of 2002. At
March 31,June 30, 2001 AFC had sold
$401.2ALLETE Second Quarter 2001 Form 10-Q 16
$421.5 million of finance receivables to the special purpose subsidiary ($335.7
million at December 31, 2000)31,2000). Third party purchasers had purchased an undivided
interest in finance receivables of $274.0$281.0 million from this subsidiary at March 31,June
30, 2001 ($239 million at December 31, 2000). AFC
also entered into an arrangement in December 2000 with a manufacturer to
floorplan certain vehicles located at auctions awaiting resale by June 15, 2001
for a security interest in those vehicles. AFC sells these finance receivables,
on a revolving basis, to another wholly owned, unconsolidated, qualified special
purpose subsidiary. This subsidiary borrows money from a third party under an
agreement that expires June 15, 2001. At March 31, 2001 AFC had sold $38.8
million of these finance receivables to the special purpose subsidiary ($53.5
million at December 31, 2000). At March 31, 2001 the third party lender had
advanced $40 million against these receivables ($43 million at December 31,
2000). At March 31, 2001 AFC also held $19.3 million in cash that will be used
to pay down a portion of the $40 million of third party lender debt during the
second quarter of 2001. Unsold finance receivables and
unfinanced receivables held by the special purpose subsidiariessubsidiary are recorded by
AFC as residual interest at fair value. Fair value is based upon estimates of
future cash flows, using assumptions that market participants would use to value
such instruments, including estimates of anticipated credit losses over the life
of the receivables sold without application of a discount rate due to the
short-term nature of the receivables sold. The fair value of AFC's residual
interest was $122.7$137.2 million at March 31,June 30, 2001 ($106.2 million at December 31,
2000). Proceeds from the sale of the receivables were used to repay borrowings
from ALLETE and fund vehicle inventory purchases for AFC's customers.
Significant changes in accounts receivable and accounts payable balances at March 31,June
30, 2001 compared to December 31, 2000 were due to increased sales and financing
activity at Automotive Services. Typically auction volumes are down during the
winter months and in December because of the holidays. As a result, both ADESA
and AFC had higher receivables and higher payables at March 31,June 30, 2001.
ACQUISITIONS AND DIVESTITURES.ACQUISITIONS. In January 2001 we acquired all of the outstanding stock of
ComSearch in exchange for ALLETE common stock and paid cash to purchase all of
the assets of APC in transactions with an aggregate value of $62.4 million. APC
was funded with internally generated funds and short-term debt which was
refinanced with long-term debt. (See Long-Term DebtSecurities below.) APC is a provider of
"total loss" vehicle recovery services with ten auction facilities in the United
States. ComSearch provides Internet-based parts location and insurance
adjustment audit services nationwide. Both APC and ComSearch are based in Rhode
Island.
In February 2001 ALLETE Water Services purchased, subject to certain conditions,completed the purchase of the assets of
Dicks Creek, a wastewater utility located near Atlanta, Georgia, in December
2000 for $6.6
million plus a commitment to pay the seller a fee for future residential
connections. The commitment requires payment of a minimum of $400,000 annually
beginning December 31, 2001 for four years or until cumulative payments reach $2
million, whichever occurs first. The transaction closed in
February 2001 and was funded with internally
generated funds.
In April 2001 we announced ALLETE Properties has a firm contract to sell Tarpon
Point Marina and the surrounding 150 acres of development property in Cape
Coral, Florida to the Grosse Point Development Company for $29 million in cash.
To effect this transaction, ALLETE Properties will sell the stock of its
subsidiary that owns the real estate being transferred. Cape Coral is adjacent
to Fort Myers. The closing is scheduled for June 2001 and is expected to be a
significant contributor to earnings in the second quarter of 2001. This
transaction will be the largest single real estate sale by a subsidiary of
ALLETE.
In May 2001 ADESA purchased the assets of the I-44 Auto Auction in Tulsa,
Oklahoma. The I-44 Auto Auction, which is located on 75 acres, was renamed ADESA
Tulsa and offers six fully automated auction lanes, storage for over 3,000 vehicles and a
five-bay reconditioning and detail facility. The transaction was funded with
internally generated funds.
ALLETE First QuarterIn July 2001 Form 10-Q 14
LONG-TERM DEBT.we acquired Enventis, Inc., a data network systems provider
headquartered in the Minneapolis-St. Paul area. In connection with this
acquisition, we issued 310,878 shares of our common stock. This transaction
complements our existing infrastructure and fiber optics network in Minnesota
and Wisconsin, and helps position our telecommunications business as one of the
leading integrated data service providers in the Upper Midwest.
SECURITIES. In February 2001 we issued $125 million of 7.80% Senior Notes, due
February 15, 2008. Proceeds were used to repay a portion of ALLETE's short-term
bank borrowings incurred for the acquisition of vehicle auction facilities in
2000 and early 2001 and for general corporate purposes.
In March 2001 ALLETE, ALLETE Capital II and ALLETE Capital III, jointly filed a
registration statement with the SEC pursuant to Rule 415 under the Securities
Act of 1933. The registration statement, which has been declared effective by
the SEC, relates to the possible issuance, from time to time when market
conditions and the needs of ALLETE warrant, of an aggregate amount of $500
million of securities which may include ALLETE common stock, first mortgage
bonds, and other debt securities and ALLETE Capital II and ALLETE Capital III
preferred trust securities.securities, of which approximately $387 million remains
available to be issued. ALLETE also previously filed a registration statements,statement,
which havehas been declared effective by the SEC, relating to the possible issuance,
from time to time when market conditions and the needs of ALLETE warrant, of 1,814,000 shares of ALLETE common stock and $25
million of first mortgage bonds and other debt securities. We may sell all or a
portion of the remaining registered securities if warranted by market conditions
and our capital requirements. Any offer and sale of the above mentioned
securities will be made only by means of a prospectus meeting the requirements
of the Securities Act of 1933 and the rules and regulations thereunder.
In17 ALLETE Second Quarter 2001 Form 10-Q
On May 30, 2001 we redeemed $1.3issued and sold in an underwritten public offering 6.5
million shares of 5.6% Industrial Development Refunding
Revenue Bonds, Series 1994-A, Citycommon stock at $23.68 per share. In addition, an
over-allotment option for 100,000 shares at $23.68 per share was exercised by
the underwriters and sold on June 7, 2001. Total net proceeds of Little Falls, Minnesota. This redemption
was funded$150 million
were used to repay a portion of our short-term borrowings with internally generated funds.the remainder
invested in short-term instruments. The increase in the number of shares of our
common stock outstanding as of June 30, 2001 had an immaterial impact on
earnings per share for the 2001 periods.
INVESTMENTS. As companies included in our emerging technology investments are
sold, we may recognize a gain or loss. In the second half of 2000, several of
the private companies included in our emerging technology investments went
public by completing initial public offerings. Typically, investors in a private
company are not permitted to sell stock in the company for a period of 180 days
following the company's initial public offering. Other restrictions on sale may
also apply.apply and certain shares are held indirectly by us through our investments
in independent investment funds. Since going public, the market value of these
companies has experienced significant volatility. Our investment in the
companies that have gone public has a cost basis of approximately $13$12 million.
The aggregate market value of our investment in these companies at March 31,June 30, 2001
was $33$38 million.
Our emerging technology investments provide us with access to developing
technologies before their commercial debut, as well as potential financial
returns and diversification opportunities. We view these investments as a source
of capital for redeployment in existing businesses and a potential entree into
additional business opportunities. Portions of any proceeds received on these
investments may be reinvested back into companies to encourage development of
future technology.
CAPITAL REQUIREMENTS. Consolidated capital expenditures for the quartersix months ended
March 31,June 30, 2001 totaled $24.6$78.3 million ($30.156.5 million in 2000). Expenditures for
2001 included $8.0$29.3 million for Energy Services, $9.7$33.9 million for Automotive
Services and $6.9$15.1 million for Water Services. Internally generated funds and
the issuance of long-term debt were the primary sources of funding for these
expenditures.
--------------------------
ReadersNEW ACCOUNTING STANDARDS
In July 2001 the FASB issued SFAS 141, 142 and 143. SFAS 141, "Business
Combinations" requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the pooling of
interests method of accounting will be prohibited. We do not have any pending
acquisitions that will be impacted by this new rule.
SFAS 142, "Goodwill and Other Intangible Assets" changes the accounting for
goodwill from an amortization method to an impairment-only approach.
Amortization of goodwill, including goodwill recorded in past business
combinations, will cease for fiscal years beginning after December 15, 2001. We
have $537 million of goodwill as of June 30, 2001 and after-tax goodwill
amortization expense of approximately $5.5 million for the first six months of
2001. Annual after-tax goodwill amortization expense is expected to be
approximately $11 million in 2001. We do not believe we have any goodwill
impairment at this time.
SFAS 143, "Accounting for Asset Retirement Obligations" requires the recognition
of a liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the carrying amount of the
related long-lived asset is correspondingly increased. Over time, the liability
is accreted to its present value and the related capitalized charge is
depreciated over the useful life of the asset. SFAS 143 is effective for fiscal
years beginning after June 15, 2002. We are cautioned that forward-looking statements including those contained
above, should be read in conjunction with our disclosures undercurrently reviewing the heading:impact of
SFAS 143 on the Company.
-----------------------
READERS ARE CAUTIONED THAT FORWARD-LOOKING STATEMENTS INCLUDING THOSE CONTAINED
ABOVE, SHOULD BE READ IN CONJUNCTION WITH OUR DISCLOSURES UNDER THE HEADING:
"SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995" located on pageLOCATED ON PAGE 3 of this FormOF THIS FORM 10-Q.
15 ALLETE FirstSecond Quarter 2001 Form 10-Q 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our securities portfolio has exposure to both price and interest rate risk.
Investments held principally for near-term sale are classified as trading
securities and recorded at fair value. Trading securities consist primarily of
the common stock of publicly traded companies. In strategies designed to hedge
overall market risks, we also sell common stock short. Investments held for an
indefinite period of time are classified as available-for-sale securities and
also recorded at fair value. Available-for-sale securities consist of our direct
investments in emerging technology companies and securities in a grantor trust
established to fund certain employee benefits.
MARCH 31,JUNE 30, 2001 FAIR VALUE
-------------------------------------------------------------------------------------------------------------------------
Millions
Trading Securities Portfolio $94.4$159.6
Available-For-Sale Securities Portfolio $24.0
-------------------------------------------------------------$29.3
------------------------------------------------------------
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On(a) We held our Annual Meeting of Shareholders on May 8, 2001 shareholders2001.
(b) Included in (c) below.
(c) The election of ALLETE elected 11 directors, and approved the appointment of PricewaterhouseCoopers LLP as our independent accountants for
2001 and
the changeapproval of changing our legal name to ALLETE, Inc. Votingwere voted on at
the Annual Meeting of Shareholders.
The results will be
provided in ourwere as follows:
VOTES
WITHHELD OR BROKER
VOTES FOR AGAINST ABSTENTIONS NONVOTES
------------------------------------------------------------------------------------------------------------
DIRECTORS
Kathleen A. Brekken 60,603,953 773,867 - -
Dennis E. Evans 60,642,460 735,360 - -
Glenda E. Hood 60,538,591 839,229 - -
Peter J. Johnson 60,688,499 689,321 - -
George L. Mayer 60,618,350 759,470 - -
Jack I. Rajala 60,663,022 714,798 - -
Edwin L. Russell 60,545,745 832,075 - -
Arend J. Sandbulte 60,553,653 824,167 - -
Nick Smith 60,632,020 745,800 - -
Bruce W. Stender 60,675,183 702,637 - -
Donald C. Wegmiller 60,649,493 728,327 - -
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP 60,417,093 538,868 421,859 -
NAME CHANGE
Change Company legal name to
ALLETE, Inc. 58,832,427 1,896,612 648,781 -
------------------------------------------------------------------------------------------------------------
(d) Not applicable.
19 ALLETE Second Quarter 2001 Form 10-Q
for the quarter ended June 30, 2001.
ITEM 5. OTHER INFORMATION
Reference is made to our 2000 Form 10-K for background information on the
following updates. Unless otherwise indicated, cited references are to our 2000
Form 10-K.
Ref. Page 23. - FirstFifth Paragraph
On May 8,Ref. Page 24. - Table - Power Supply
Ref. Page 44. - Second Paragraph
In June 2001 shareholdersMinnesota Power successfully completed testing its new generating
unit at Potlatch Corp.'s pulp and paper mill in Cloquet, Minnesota. Pending
approval of ALLETE approvedtest results from MAPP, the changenew unit will be ready to generate up to
23 megawatts of our legal name to
ALLETE, Inc.electricity. The new name became effective on May 8, 2001.cogeneration unit will burn a mixture of 50
percent wood waste and 50 percent natural gas. Minnesota Power will own the new
turbine generator and have access to its excess power in times of high demand.
Potlatch will operate and maintain it at Minnesota Power's expense.
Ref. Page 25. - Minimum Revenue and Demand UnderThird Paragraph
On July 31, 2001 we acquired Enventis, Inc., a data network systems provider
headquartered in the Minneapolis-St. Paul area. In connection with this
acquisition, we issued 310,878 shares of our common stock. The transaction helps
position our telecommunications business as one of the leading integrated data
service providers in the Upper Midwest. Enventis, Inc. will operate as a
subsidiary of our telecommunications business, MP Telecom.
Ref. Page 26. - Table - Contract Table
As of May 1, 2001 the minimum annual revenueStatus for Minnesota Power would collect under
contracts with its large power customers is estimatedLarge Power
Customers
On May 23, 2001 Minnesota Power and Lakehead Pipe Line Co. L.P. entered into a
new electric service agreement to be $107.1continue to meet all of Lakehead's electric
requirements through May 2004. The agreement was approved by the MPUC on July
24, 2001.
Ref. Page 27. - Second Paragraph
Minnesota Power and The Burlington Northern and Santa Fe Railway Company
(BNSF) entered into a ten-year agreement for transportation of coal to
Minnesota Power's generating stations near Grand Rapids, Minnesota and Hoyt
Lakes, Minnesota. As a result, Minnesota Power will not pursue construction of
an alternative railroad line to serve the generating stations. Under terms of
the agreement, BNSF will ship all of Minnesota Power's coal needs, about four
million for
2001.tons annually, to the Boswell Energy Center near Grand Rapids and to the
Laskin Energy Center near Hoyt Lakes through 2011. Minnesota Power purchases
low-sulfur, sub-bituminous coal from the Powder River Basin in Montana and
Wyoming.
Ref. Page 28. - Fourth Full Paragraph
Ref. Page 29. - First Full Paragraph
In December 1999Ref. 10-Q for the FERC issued its Order No. 2000 in which it strongly
encouraged all transmission owners in the United States to transfer operational
control over their transmission systems to independent regional transmission
organizations that would have certain specified characteristics and perform
certain specified functions relating to the transmission of electricity in
interstate commerce. On February 28,quarter ended March 31, 2001, Minnesota Power and SWL&P submitted an
application for membership in thePage 16. - Sixth Paragraph
Midwest Independent System Operator (MISO),
which is proposing to become one of the nation's largest electric power delivery
systems, and signed the MISO's Transmission Owner's Agreement. Participation participation by Minnesota Power and
SWL&P iswas contingent on several conditions. However, by a letter dated July 13,
2001, Minnesota Power waived the receipt of all necessary
regulatory approvals.remaining contingencies to its MISO
application. This waiver was based on Minnesota Power's assessment that the
conditions will be fulfilled shortly in order to be eligible for the
super-regional rate for transmission usage throughout the MISO region at the
earliest opportunity.
ALLETE FirstSecond Quarter 2001 Form 10-Q 1620
The MISO was founded in 1996 by certain transmission owners in the Midwestern
United States and was specifically configured to comply with the FERC concept of
an independent regional transmission organization. Its primary objectives are to
provide open access to a large regional transmission system, thus facilitating
development of a robust marketplace and enhancing the stability and reliability
of the region's power grid. When it becomes operational, the non-profit MISO
will operate as a single transmission system for the transmission facilities of
several Midwestern transmission owners.
Ref. Page 28. - Eighth Full Paragraph
Ref. 10-Q for the quarter ended March 31, 2001, Page 17. - Second Paragraph
On February 23,June 28, 2001 the Minnesota Supreme Court denied the MPUC's appeal
regardingMPUC approved Minnesota Power's 1998 "lost margin" case. The MPUC had disallowed
recovery ofrequest to recover $3.5
million, plus $1 million in interest, of lost margins associated with activities
related to Conservation Improvement Programs for 1998. On March 29, 2001 Minnesota Power
filedWe anticipate collecting
this revenue over the Conservation Improvement Program Consolidated Filing with the MPUC
requesting approval to recover the lost margins and associated carrying charges.remainder of 2001.
Ref. Page 28.34. - LastSeventh Paragraph
In May 2001 the Florida First District Court of Appeals affirmed the FPSC's
January 1998 order. The opinion was not challenged. The court action ends the
appeal process relating to uniform rates and any potential refund liability for
Florida Water.
Ref. Page 35. - First Paragraph
In February 2001 the FPSC approved the settlement agreement relating to the
Spring Hill refund issue. The appeal was dismissed. The rate reduction became
effective on April 16, 2001.
Ref. Page 35. - Seventh Paragraph
On March 15,June 22, 2001 ALLETE Properties completed the Minnesota Environmental Quality Board (MEQB) unanimously
approved Minnesota Power's request thatsale of Tarpon Point Marina and
the 12-mile Minnesota portionsurrounding 150 acres of the
Wausau-to-Duluth transmission line proposed jointly by Wisconsin Public Service
Corporation and Minnesota Power be exempt from the requirements of the Minnesota
Power Plant Siting Act. A request for reconsideration filed by opponentsdevelopment property in Cape Coral, Florida to the
project was denied by the MEQB on April 19, 2001. Minnesota Power will begin the
process of obtaining local special use permits or other local requirements.
Ref. Page 31. - Second Paragraph
Ref. Page 32. - Table
On May 1, 2001 ADESA purchased the assets of the I-44 Auto AuctionGrosse Point Development Company for $29 million in Tulsa,
Oklahoma. The I-44 Auto Auction which is located on 75 acres was renamed ADESA
Tulsa and offers six fully automated auction lanes, storage for over 3,000
vehicles and a five-bay reconditioning and detail facility.cash.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3(a) - Amendment to Certificate of Assumed Name, filed with the Minnesota
Secretary of State on May 8, 2001
3(b) - Articles of Incorporation, as amended and restated as of May 8, 2001
3(c) - Bylaws, as amended effective May 8, 2001None
(b) Reports on Form 8-K.
Report on Form 8-K filed January 19, 2001 with respect to Item 5. Other
Events and Item 7. Financial Statements and Exhibits.
Report on Form 8-K filed April 11, 2001 with respect to Item 5.
Other Events.
Report on Form 8-K filed April 18, 2001 with respect to Item 7. Financial
Statements and Exhibits.
17Report on Form 8-K filed May 18, 2001 with respect to Item 5. Other Events.
Report on Form 8-K filed July 19, 2001 with respect to Item 7. Financial
Statements and Exhibits.
21 ALLETE FirstSecond Quarter 2001 Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLETE, Inc.
May 8,INC.
August 3, 2001 D. G. Gartzke
----------------------------------------------------------------------------
D. G. Gartzke
Senior Vice President - Finance
and Chief Financial Officer
May 8,August 3, 2001 Mark A. Schober
----------------------------------------------------------------------------
Mark A. Schober
Vice President and Controller
ALLETE FirstSecond Quarter 2001 Form 10-Q 18
EXHIBIT INDEX
Exhibit
Number
3(a) - Amendment to Certificate of Assumed Name, filed with the Minnesota
Secretary of State on May 8, 2001
3(b) - Articles of Incorporation, as amended and restated as of May 8, 2001
3(c) - Bylaws, as amended effective May 8, 200122