Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/x//X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended JuneSeptember 30, 1995
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 1-3548
Minnesota Power & Light Company
A Minnesota Corporation
IRS Employer Identification No. 41-0418150
30 West Superior Street
Duluth, Minnesota 55802
Telephone - (218) 722-2641
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,
31,308,01531,314,718 shares outstanding
as of July 31,September 30, 1995
Minnesota Power & Light Company
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
JuneSeptember 30, 1995 and December 31, 1994 1
Consolidated Statement of Income -
Quarter and SixNine Months ended JuneSeptember 30, 1995 and 1994 2
Consolidated Statement of Cash Flows -
SixNine Months ended JuneSeptember 30, 1995 and 1994 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 910
Part II. Other Information
Item 5. Other Information 1213
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Definitions
The following abbreviations or acronyms are used in the text.
Abbreviation
or Acronym Term
- --------------- --------------------------------------------------------------------- ----------------------------------------------------------
1994 Form 10-K Minnesota Power's Annual Report on Form 10-K for the Year
Ended December 31, 1994
ADESA ADESA Corporation
Capital Re Capital Re Corporation
Company Minnesota Power & Light Company and its Subsidiaries
CPI Consolidated Papers, Inc.
DRIP Automatic Dividend Reinvestment and Stock Purchase Plan
EPA Environmental Protection Agency
ESOP Employee Stock Ownership Plan
FERC Federal Energy Regulatory Commission
FPSC Florida Public Service Commission
Lehigh Lehigh Acquisition Corporation
LSPI Lake Superior Paper Industries
Minnesota Power Minnesota Power & Light Company and its Subsidiaries
MPUC Minnesota Public Utilities Commission
MW Megawatt(s)
National National Steel Pellet Co.
Reach All Reach All Partnership
Square Butte Square Butte Electric Cooperative
SSU Southern States Utilities, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Minnesota Power
Consolidated Balance Sheet
In Thousands
JuneSeptember 30, December 31,
1995 1994
Unaudited Audited
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Assets
Plant and Other Assets
Electric utility operations $ 786,387784,588 $ 784,931
Water utility operations 307,456313,727 295,451
Auto redistribution operations 100,575 -
Investments and corporate services 221,025 362,006212,350 360,121
---------- ----------
Total plant and other assets 1,314,868 1,442,3881,411,240 1,440,503
---------- ----------
Current Assets
Cash and cash equivalents 128,88342,467 27,001
Funds held by trustee 161,810 -
Trading securities 56,03353,919 74,046
Trade accounts receivable (less
reserve of $996$2,804 and $1,041) 47,849125,716 51,105
Notes and other accounts receivable 10,4738,053 61,654
Fuel, material and supplies 22,71824,168 26,405
Prepayments and other 22,31523,289 25,927
---------- ----------
Total current assets 450,081277,612 266,138
---------- ----------
Deferred Charges
Regulatory 79,04384,423 74,919
Other 28,16426,652 24,353
---------- ----------
Total deferred charges 107,207111,075 99,272
---------- ----------
Intangible Assets
Goodwill 120,590 1,885
Other 12,305 -
---------- ----------
Total intangible assets 132,895 1,885
---------- ----------
Total Assets $1,872,156$1,932,822 $1,807,798
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Capitalization and Liabilities
Capitalization
Common stock without par value,
65,000,000 shares authorized
31,305,96831,314,718 and 31,246,557
shares outstanding $ 372,634373,369 $ 371,178
Unearned ESOP shares (74,505)(73,394) (76,727)
Net unrealized gain (loss) on
securities investments 245802 (5,410)
Cumulative translation adjustment 10 -
Retained earnings 279,370279,960 272,646
---------- ----------
Total common stock equity 577,744580,747 561,687
Cumulative preferred stock 28,547 28,547
Redeemable serial preferred stock 20,000 20,000
Long-term debt 568,725622,417 601,317
---------- ----------
Total capitalization 1,195,0161,251,711 1,211,551
---------- ----------
Current Liabilities
Accounts payable 29,34594,341 36,792
Accrued taxes 42,77242,284 41,133
Accrued interest and dividends 14,21711,683 14,157
Notes payable 178,47089,450 54,098
Long-term debt due within one year 9,87810,703 12,814
Other 24,85535,905 23,799
---------- ----------
Total current liabilities 299,537284,366 182,793
---------- ----------
Deferred Credits
Accumulated deferred income taxes 164,604165,106 192,441
Contributions in aid of construction 91,19791,898 87,036
Regulatory 55,22153,772 55,996
Other 66,58185,969 77,981
---------- ----------
Total deferred credits 377,603396,745 413,454
---------- ----------
Total Capitalization and Liabilities $1,872,156$1,932,822 $1,807,798
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
-1-- 1 -
Minnesota Power
Consolidated Statement of Income
In Thousands Except Per Share Amounts - Unaudited
Quarter Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Operating Revenue and Income
Electric utility operations $118,417 $109,665 $237,865 $227,347$129,712 $110,683 $367,579 $338,030
Water utility operations 18,538 19,683 34,816 37,53117,606 17,289 52,422 54,822
Auto redistribution operations 30,381 - 30,381 -
Investments and corporate services 10,383 10,182 21,341 14,5208,422 12,783 29,762 27,304
-------- -------- -------- --------
Total operating revenue and
income 147,338 139,530 294,022 279,398186,121 140,755 480,144 420,156
-------- -------- -------- --------
Operating Expenses
Fuel and purchased power 44,113 37,112 84,422 80,12346,087 38,250 130,510 118,372
Operations 60,975 57,852 123,117 114,65675,696 58,901 198,812 174,392
Administrative and general 16,790 16,668 35,250 36,25329,768 14,776 65,017 50,200
Interest expense 11,388 11,083 22,489 21,99613,246 11,439 35,735 33,434
-------- -------- -------- --------
Total operating expenses 133,266 122,715 265,278 253,028164,797 123,366 430,074 376,398
-------- -------- -------- --------
Income (Loss) from Equity Investments 2,360 1,584 (3,908) 3,0482,339 1,247 (1,570) 4,296
-------- -------- -------- --------
Operating Income from Continuing Operations 16,432 18,399 24,836 29,41823,663 18,636 48,500 48,054
Income Tax Expense (Benefit) 5,509 5,628 (9,892) 7,1647,978 4,336 (1,915) 11,500
-------- -------- -------- --------
Income from Continuing Operations 10,923 12,771 34,728 22,25415,685 14,300 50,415 36,554
Income from Discontinued Operations 1,190 199 2,842 8433 899 2,874 983
-------- -------- -------- --------
Net Income 12,113 12,970 37,570 22,33815,718 15,199 53,289 37,537
Dividends on Preferred Stock 800 800 1,600 1,6002,400 2,400
-------- -------- -------- --------
Earnings Available for Common Stock $ 11,31314,918 $ 12,17014,399 $ 35,97050,889 $ 20,73835,137
======== ======== ======== ========
Average Shares of Common Stock 28,446 28,217 28,409 28,19528,512 28,258 28,443 28,216
Earnings Per Share of Common Stock
Continuing Operationsoperations $.52 $.48 $1.69 $ .351.22
Discontinued operations .00 .03 .10 .03
---- ---- ----- ------
Total $.52 $.51 $1.79 $ .43 $1.17 $ .74
Discontinued Operations .05 .01 .10 .00
----- ----- ----- -----
Total $ .40 $ .44 $1.27 $ .741.25
==== ==== ===== ===== ===== ===========
Dividends Per Share of Common Stock $ .51$.51 $.505 $1.02 $1.01$1.53 $1.515
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
-2-- 2 -
Minnesota Power
Consolidated Statement of Cash Flows
In Thousands - Unaudited
SixNine Months Ended
JuneSeptember 30,
1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 37,570 $ 22,33853,289 $37,537
Depreciation 27,575 22,623and amortization 40,269 34,393
Amortization of coal contract termination costs - 3,920
Deferred income taxes (29,101) 3,210(28,491) 4,584
Deferred investment tax credits (1,024) (902)(1,437) (1,811)
Pretax loss on disposal of discontinued
operations 1,7931,760 -
Changes in operating assets and liabilities
excludingnet of the effects of discontinued
operations and subsidiary acquisitions
Notes and accounts receivable 8,646 9,751(6,748) 9,130
Fuel, material and supplies (2,090) (3,507)(1,015) (4,770)
Accounts payable (1,325) (12,150)16,560 (9,577)
Other current assets and liabilities 8,221 (6,553)34,104 13,485
Other - net (2,514) 4,991
---------(8,388) 3,302
-------- -------
Cash from operating activities 47,751 43,721
---------99,903 90,193
-------- -------
Investing Activities
Proceeds from sale of investments in securities 112,175 17,42277,997 33,331
Cash from sale of discontinued operations 106,115 -
Funds held by trustee for ADESA acquisition (161,810)net of cash sold 107,633 -
Additions to investments (65,996) (32,985)(43,405) (63,110)
Additions to plant (40,906) (28,913)(73,053) (46,845)
Acquisition of subsidiaries - net of cash acquired (129,083) -
Changes to other assets - net 2,777 (16,335)
---------(447) (16,776)
-------- -------
Cash for investing activities (47,645) (60,811)
---------(60,358) (93,400)
-------- -------
Financing Activities
Issuance of common stock 1,467 6022,158 818
Issuance of long-term debt 9,000 17,70618,805 20,632
Changes in notes payable 124,372 27,97810,006 23,980
Reductions of long-term debt (2,217) (1,995)(9,074) (7,221)
Dividends on preferred and common stock (30,846) (30,287)
---------(45,974) (45,120)
-------- -------
Cash fromfor financing activities 101,776 14,004
---------(24,079) (6,911)
-------- -------
Change in Cash and Cash Equivalents 101,882 (3,086)15,466 (10,118)
Cash and Cash Equivalents at Beginning of Period 27,001 31,674
--------- -------- -------
Cash and Cash Equivalents at End of Period $ 128,883 $ 28,588
=========42,467 $21,556
======== =======
Supplemental Cash Flow Information
Cash paid during the period for
Interest (net of capitalized) $ 22,481 $ 22,55640,249 $40,408
Income taxes $ 11,893 $ 13,06220,534 $16,248
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
-3-- 3 -
Notes to Consolidated Financial Statements
The accompanying unaudited consolidated financial statements and notes should
be read in conjunction with the Company's 1994 Form 10-K. In the opinion of the
Company, 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. The income
statement information for prior periods has been reclassified to reflect the
discontinuance of the paper and pulp business. Financial statement information
may not be comparable between periods due to the purchase of ADESA on July 1,
1995.
Note 1. Business Segments
Thousands
Electric Water
Utility Utility
Consolidated Utility Operations Operations
------------ ------------------ ----------------------- ----------
Electric Coal
-------- ----
Quarter Ended September 30, 1995
- --------------------------------
Quarter Ended June 30, 1995
- ---------------------------
RevenueOperating revenue and income $147,338 $112,173 $6,244 $18,538$186,121 $122,032 $7,680 $17,606
Operation and other expense 109,152 86,413 4,574 12,305136,609 86,523 5,687 12,273
Depreciation and amortization
expense 12,726 9,598 392 2,64114,942 9,581 382 2,594
Interest expense 11,388 5,120 304 2,66713,246 5,027 342 2,735
Income from equity investments 2,360 - - -
-------- -------- ------ -------
Operating income
from continuing operations 16,432 11,042 974 925
Income tax expense (benefit) 5,509 4,515 242 448
-------- -------- ------ -------
Income from continuing operations 10,923 $ 6,527 $ 732 $ 477
======== ====== =======
Income from discontinued operations 1,190
--------
Net income $ 12,113
========
Quarter Ended June 30, 1994
- ---------------------------
Revenue and income $139,530 $102,978 $6,687 $19,683
Operation and other expense 100,239 74,126 5,107 12,257
Depreciation expense 11,393 8,655 332 2,364
Interest expense 11,083 5,219 254 2,957
Income from equity investments 1,5842,339 - - -
-------- -------- ------ -------
Operating income (loss)
from continuing operations 18,399 14,978 994 2,10523,663 20,901 1,269 4
Income tax expense (benefit) 5,628 6,513 233 8027,978 8,809 318 (161)
-------- -------- ------ -------
Income from
continuing operations 15,685 $ 12,092 $ 951 $ 165
======== ====== =======
Income from
discontinued operations 33
--------
Net income $ 15,718
========
Quarter Ended September 30, 1994
- --------------------------------
Operating revenue and income $140,755 $104,032 $6,651 $17,289
Operation and other expense 100,325 75,228 4,888 11,833
Depreciation and amortization
expense 11,602 8,858 318 2,348
Interest expense 11,439 4,912 265 3,150
Income from equity investments 1,247 - - -
-------- -------- ------ -------
Operating income (loss)
from continuing operations 18,636 15,034 1,180 (42)
Income tax expense (benefit) 4,336 6,169 326 2
-------- -------- ------ -------
Income (loss) from
continuing operations 12,77114,300 $ 8,4658,865 $ 761854 $ 1,303(44)
======== ====== =======
Income from
discontinued operations 199899
--------
Net income $ 12,97015,199
========
Auto
Redistribution Investments and
Operations Corporate Services
------------------------------------------- ----------------------
Portfolio,
Reinsurance Real
& Other Real Estate
----------- -----------------
Quarter Ended September 30, 1995
- --------------------------------
Quarter Ended June 30, 1995
- ---------------------------
Revenue
Operating revenue and income $ 5,945 $4,438$30,381 $4,049 $4,373
Operation and other expense 2,368 3,49225,650 2,755 3,721
Depreciation and amortization
expense 352,291 34 60
Interest expense 3,297 -907 4,234 1
Income from equity investments 2,360- 2,339 -
------- ------ ------
Operating income (loss)
from continuing operations 2,605 8861,533 (635) 591
Income tax expense (benefit) (288) 592856 (2,136) 292
------- ------ ------
Income from
continuing operations $ 2,893677 $1,501 $ 294299
======= ====== ======
Income from
discontinued operations
Net income
Quarter Ended JuneSeptember 30, 1994
- ---------------------------
Revenue--------------------------------
Operating revenue and income $ 1,267 $8,915- $4,903 $7,880
Operation and other expense 2,467 6,282- 2,621 5,755
Depreciation and amortization
expense 1 41- 42 36
Interest expense 2,651 2- 3,108 4
Income from equity investments 1,584- 1,247 -
------- ------ ------
Operating income (loss)
from continuing operations (2,268) 2,590- 379 2,085
Income tax expense (benefit) (2,166) 246- (1,830) (331)
------- ------ ------
Income (loss) from
continuing operations $ (102) $2,344- $2,209 $2,416
======= ====== ======
Income from
discontinued operations
Net income
-4-- 4 -
Note 1. Business Segments (Continued)
Thousands
Electric Water
Utility Utility
Consolidated Utility Operations Operations
------------ ------------------ ----------------------- ----------
Electric Coal
-------- ----
Nine Months Ended September 30, 1995
- ------------------------------------
Six Months Ended June 30, 1995
- ------------------------------
RevenueOperating revenue and income $ 294,022 $224,768 $13,097480,144 $346,802 $20,777 $ 34,81652,422
Operation and other expense 217,462 168,103 9,955 23,975354,070 254,626 15,642 36,248
Depreciation and amortization
expense 25,327 19,153 733 5,25240,269 28,734 1,115 7,846
Interest expense 22,489 10,257 558 5,18435,735 15,284 900 7,919
Loss from equity investments (3,908)(1,570) - - -
---------- -------- ------- --------
Operating income (loss)
from continuing operations 24,836 27,255 1,851 40548,500 48,158 3,120 409
Income tax expense (benefit) (9,892) 11,623 458 60(1,915) 20,431 776 (101)
---------- -------- ------- --------
Income from
continuing operations 34,72850,415 $ 15,63227,727 $ 1,3932,344 $ 345510
======== ======= ========
Income from
discontinued operations 2,8422,874
----------
Net income $ 37,57053,289
==========
Total assets $1,872,156 $929,253 $33,039 $339,227$1,932,822 $933,749 $33,435 $326,177
Accumulated depreciation $ 604,884 $488,040 $17,851617,532 $497,125 $18,340 $100,904
Accumulated amortization $ 98,8211,949 $ - $ - $ -
Construction work in progress $ 22,67169,135 $ 9,65312,488 $ - $ 13,018
Six20,258
Nine Months Ended JuneSeptember 30, 1994
- ------------------------------
Revenue------------------------------------
Operating revenue and income $ 279,398 $214,078 $13,269420,156 $318,111 $19,919 $ 37,53154,822
Operation and other expense 208,241 158,076 10,276 23,434308,571 233,307 15,163 35,269
Depreciation and amortization
expense 22,791 17,315 661 4,72334,393 26,173 979 7,071
Interest expense 21,996 10,269 497 5,76433,434 15,181 762 8,913
Income from equity investments 3,0484,296 - - -
---------- -------- ------- --------
Operating income (loss)
from continuing operations 29,418 28,418 1,835 3,61048,054 43,450 3,015 3,569
Income tax expense (benefit) 7,164 12,252 491 1,35511,500 18,421 817 1,357
---------- -------- ------- --------
Income (loss) from
continuing operations 22,25436,554 $ 16,16625,029 $ 1,3442,198 $ 2,2552,212
======== ======= ========
Income from
discontinued operations 84983
----------
Net income $ 22,33837,537
==========
Total assets $1,783,130 $909,068 $27,457 $353,789$1,786,356 $908,798 $27,816 $354,365
Accumulated depreciation $ 572,392 $459,269 $16,908584,505 $467,426 $17,300 $ 93,46595,968
Accumulated amortization $ 362 $ - $ - $ -
Construction work in progress $ 40,63344,229 $ 22,69929,269 $ - $ 17,93414,960
Auto
Redistribution Investments and
Operations Corporate Services
------------------------------------------- ----------------------
Portfolio,
Reinsurance Real
& Other Real Estate
----------- -----------------
Nine Months Ended September 30, 1995
- ------------------------------------
Six Months Ended June 30, 1995
- ------------------------------
Revenue
Operating revenue and income $30,381 $ 12,63816,686 $ 8,70313,076
Operation and other expense 4,803 10,626 25,650 7,557 14,347
Depreciation and amortization
expense 69 1202,291 103 180
Interest expense 6,488 2907 10,722 3
Loss from equity investments (3,908) - (1,570) -
------- -------- ---------------
Operating income (loss)
from continuing operations (2,630) (2,045)1,533 (3,266) (1,454)
Income tax expense (benefit) (4,610) (17,423) 856 (6,746) (17,131)
------- -------- ---------------
Income from
continuing operations $ 1,980 $15,378677 $ 3,480 $ 15,677
======= ======== ===============
Income from
discontinued operations
Net income
Total assets $538,195 $32,442$343,267 $244,595 $ 51,599
Accumulated depreciation $ 172957 $ 206 $ -
Accumulated amortization $ 1,297 $ - $ 652
Construction work in progress $ 36,389 $ - $ -
Nine Months Ended September 30, 1994
- ------------------------------------
Operating revenue and income $ - $ 1,078 $ 26,226
Operation and other expense - 7,994 16,838
Depreciation and amortization
expense - 44 126
Interest expense - 8,569 9
Income from equity investments - 4,296 -
------- -------- --------
Operating income (loss)
from continuing operations - (11,233) 9,253
Income tax expense (benefit) - (9,095) -
------- -------- --------
Income (loss) from
continuing operations $ - $ (2,138) $ 9,253
======= ======== ========
Income from
discontinued operations
Net income
Total assets $ - $302,659 $ 35,036
Accumulated depreciation $ - $ 42 $ -
Accumulated amortization $ - $ - $ 362
Construction work in progress $ - $ - Six Months Ended June 30, 1994
- ------------------------------
Revenue and income $ (3,826) $18,346
Operation and other expense 5,372 11,083
Depreciation expense 2 90
Interest expense 5,461 5
Income from equity investments 3,048 -
-------- -------
Operating income (loss)
from continuing operations (11,613) 7,168
Income tax expense (benefit) (7,265) 331
-------- -------
Income (loss) from
continuing operations $ (4,348) $ 6,837
======== =======
Income from discontinued operations
Net income
Total assets $300,480 $36,208
Accumulated depreciation $ 4 $ -
Construction work in progress $ - $ -
Purchased July 1, 1995.
Includes an $8.5 million pre-tax provision for exiting the equipment manufacturing business.
Includes $3.7 million of minority interest relating to the recognition of tax benefits. (See noteNote
4.)
Includes $18.4 million of tax benefits. (See noteNote 4.)
Includes a $10.1 million pre-tax loss from the write-off of an investment.
Includes $3.6 million of net income related to escrow funds.
Includes $156.1$157.7 million related to operations which were discontinued in 1995.
Includes $2.7$3.8 million related to operations which were discontinued in 1995.
-5-- 5 -
Note 2. Securities Investments
JuneSeptember 30, 1995 ----------------------------------------December 31, 1994
------------------------------------- ---------------------------------------
Gross Unrealized Gross Unrealized
Summary of ---------------- Fair ---------------- Summary ofFair
Securities Cost Gain (Loss) Value Cost Gain (Loss) Value
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
In Thousands
Trading $ 56,033
Available-for-sale
Common stock $ 3,243 $ - $ (770) 2,473
Preferred stock 82,792 3,078 (2,904) 82,966
------- ------ ------- --------
$86,035 $3,078 $(3,674) 85,439
Held-to-maturity
Leveraged preferred stock $ 2,069 2,069
--------
Total securities investments $143,541
========
December 31,1994
----------------------------------------
Gross Unrealized Fair
----------------
Summary of Securities Cost Gain (Loss) Value
- ----------------------------------------------------------------------------
In Thousands
Trading $ 53,919 $ 74,046
Available-for-sale
Common stock $ 2,599 $ - $ (597) 2,002 $ 10,636 $ 86 $(1,748) 8,974
Preferred stock 74,356 2,706 (1,901) 75,161 117,860 2,747 (3,893) 116,714
------- ------ ------- -------- -------- ------ ------- --------
$76,955 $2,706 $(2,498) 77,163 $128,496 $2,833 $(5,641) 125,688
Held-to-maturity
Leveraged
preferred
stock $ 2,130 2,130 $ 2,013 2,013
-------- --------
Total securities
investments $133,212 $201,747
======== ========
The net unrealized gain (loss) on securities investments on the balance sheet
includes the Company's share of Capital Re's unrealized holding gains of
$594,000$680,000 at JuneSeptember 30, 1995, and $3.8 million of unrealized holding losses
at December 31, 1994.
Quarter Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Trading securities
Change in net unrealized holding gain
(loss)
included in earnings $ 10870 $ (772)941 $ 781850 $ 651,007
Available-for-sale securities
Proceeds from sales $32,552 $7,195 $59,019 $17,422$18,978 $15,908 $77,997 $33,331
Gross realized gains $ 1,301557 $ 116337 $ 1,5752,131 $ 243580
Gross realized (losses) $(1,186) $ (393) $(1,605)(949) $ (683)(616) $(2,554) $(1,299)
Note 3. Square Butte Purchased Power Contract
The Company has a contract to purchase power and energy from Square Butte.
Under the terms of the contract which extends through 2007, the Company is
purchasing 71 percent of the output from a generating plant which is capable of
generating up to 455470 MW. Reductions to about 49 percent of the output are
provided for in the contract and, at the option of Square Butte, could begin
after a five-year advance notice to the Company.
The cost of the power and energy is a proportionate share of Square Butte's
fixed obligations and variable operating costs, based on the percentage of the
total output purchased by the Company. The annual fixed obligations of the
Company to Square Butte are $19.4 million from 1995 through 1999. The variable
operating costs are not incurred unless production takes place. The Company is
responsible for paying all costs and expenses of Square Butte if not paid by
Square Butte when due. These obligations and responsibilities of the Company
are absolute and unconditional whether or not any power is actually delivered
to the Company.
-6-- 6 -
Note 4. Income Tax Expense
Quarter Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
Schedule of Income Tax Expense (Benefit) 1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
In Thousands
Charged to continuing operations
Current tax
Federal $ 1,0405,206 $ 4,5403,976 $ 3,8669,072 $ 6,17710,153
State 493 1,555 1,621 2,186
--------2,574 1,543 4,195 3,729
------- ------- ------- --------
7,780 5,519 13,267 13,882
------- 1,533 6,095 5,487 8,363
--------------- ------- -------- -------
Deferred tax
Federal 3,598 261 (12,300) 2801,200 (21) (11,100) 259
State 781 (267) (2,055) (576)
--------(590) (253) (2,645) (830)
------- ------- ------- --------
610 (274) (13,745) (571)
------- 4,379 (6) (14,355) (296)
--------------- ------- -------- -------
Deferred tax credits (403) (461) (1,024) (903)
--------(412) (909) (1,437) (1,811)
------- ------- ------- --------
-------
Income taxes ontax - continuing operations 5,509 5,628 (9,892) 7,164
--------7,978 4,336 (1,915) 11,500
------- ------- ------- -------- -------
Charged to discontinued operations
Current tax
Federal 13,502 (1,262)- (760) 13,396 (2,638)(3,398)
State 4,209 (376)- (220) 4,192 (785)
--------(1,006)
------- ------- ------- --------
- (980) 17,588 (4,404)
------- 17,711 (1,638) 17,588 (3,423)
--------------- ------- -------- -------
Deferred tax
Federal (12,870) 1,371- 1,269 (11,851) 2,7003,969
State (3,195) 409- 378 (2,895) 807
--------1,186
------- ------- ------- --------
- 1,647 (14,746) 5,155
------- (16,065) 1,780 (14,746) 3,507
--------------- ------- --------
-------
Income taxes ontax - discontinued operations 1,646 142- 667 2,842 84
--------751
------- ------- ------- -------- -------
Total income tax expense (benefit) $ 7,1557,978 $ 5,7705,003 $ (7,050)927 $ 7,248
========12,251
======= ======= ======= ======== =======
In March 1995 based on the results of a project which analyzed the economic
feasibility of realizing future tax benefits available to the Company, the
board of directors of Lehigh directed the management of Lehigh to dispose of
Lehigh's assets in a manner that would maximize utilization of tax benefits.
With this new directive in place, Lehigh recognized $18.4 million of income in
the first quarter of 1995 by reducing a portion of the valuation reserve that
offsets the deferred tax assets. The Company's portion of that income is $14.7
million, or 52 cents per share.
-7-- 7 -
Note 5. Discontinued Operations
On June 30, 1995, Minnesota Power sold its interest in the paper and pulp
business to CPI for $118 million in cash, plus CPI's assumption of certain debt
and lease obligations. The Company is still committed to a maximum guaranty of
$90 million to ensure a portion of LSPI's $33.4 million annual lease obligation
for equipment under an operating lease extending to 2012. However, CPI has
agreed to indemnify the Company for any payments the Company may make as a
result of the Company's existing obligation relating to the LSPI operating
lease.
The sale price is subject to adjustment upon completion of audits of the
paper and pulp business.
The financial results of the paper and pulp business including the loss on
disposition have been accounted for as discontinued operations.
Quarter Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
Summary of Discontinued Operations 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
In Thousands
RevenueOperating revenue and income $22,285 $12,774$15,068 $44,324 $23,475
=======$38,541
======= ======= =======
Equity in earnings $ 5,554897 $ 2007,496 $ 7,241 $ 579
=======1,731
======= ======= =======
Income from operations $ 4,6291,566 $ 3417,476 $ 7,477 $ 1681,734
Income tax expense (1,921) (142) (3,117) (84)667 3,117 751
------- ------- -------
-------
2,708 199 4,360 84
-------899 4,359 983
------- ------- -------
Loss on disposal (1,793)$33 - (1,793)(1,760) -
Income tax benefit 275- - 275 -
--- ------- ------- -------
-------
(1,518)33 - (1,518)(1,485) -
---------- ------- ------- -------
Income from discontinued operations $33 $ 1,190899 $ 1992,874 $ 2,842 $ 84
=======983
=== ======= ======= =======
- 8 -
Note 6. Subsequent Event
EffectiveAcquisition of ADESA
On July 1, 1995, Minnesota Power became an 80 percent owner of ADESA for $167
million in cash. The Company accounted for the acquisition as a purchase. The
transaction resulted in additional goodwill of approximately $115 million,
which will be amortized over a 40 year period. The Company has included ADESA
headquartered in Indianapolis, Indiana, owns and
operates auto redistribution facilities and performs related services through
which used cars and other vehicles are sold to franchised automobile dealers
and licensed used car dealers. Sellers at ADESA's auctions include domestic and
foreign auto manufacturers, car dealers, fleet/lease companies, banks and
finance companies. Proceeds fromits consolidated financial statements since the saledate of the paper and pulp business
combined with proceeds from the sale of securities investments were used to
fund the purchase of ADESA.
In February 1995 the Company signed a merger agreement with ADESA, as well as,
employment agreements and putacquisition.
Put and call agreements with ADESA's four top managers. The put and call agreementsmanagers provide ADESA management
the right to sell to Minnesota Power, and Minnesota Power the right to
purchase, ADESA management's 20 percent retained ownership interest in ADESA,
in increments during the years 1997, 1998 and 1999, at a price based on ADESA's
financial performance.
ProThe following unaudited pro forma financial statements reflectingsummary presents the consolidated results of
operations of the Company for the nine months ended September 30, 1995 and
1994, as if the acquisition of ADESA had occurred on January 1 of the
respective periods. The information is not necessarily indicative of the
financial position or operating results that would have occurred had the
acquisition been consummated at the beginning of the respective periods, nor is
it necessarily indicative of future operating results. It has been prepared
from, and should be read in conjunction with, the historical consolidated
financial statements and related notes thereto of ADESA forMinnesota Power and ADESA. To
prepare the interim period ended June 30, 1995, will
be filed as an amendment topro forma data, certain adjustments have been made which include:
(i) the reduction of investment income resulting from utilization of the
Company's Form 8-K filed July 12, 1995. The
amendment will be filed on or before September 8, 1995, pursuantcash and investments to Form 8-K,
Item 7. instructions.
-8-finance the acquisition; (ii) the
amortization of goodwill and other intangible assets; (iii) the change in
depreciation expense resulting from purchase accounting; and (iv) the tax
effects of the adjustments.
Nine Months Ended
September 30,
Summary Pro Forma Financial Information 1995 1994
- ---------------------------------------------------------------------------
In Thousands
Operating revenue and income $536,972 $487,461
======== ========
Income from continuing operations $ 49,721 $ 37,274
======== ========
Net income $ 52,595 $ 38,257
======== ========
Earnings per share of common stock
from continuing operations $ 1.66 $ 1.24
======== ========
Total earnings per share of common stock $ 1.76 $ 1.27
======== ========
- 9 -
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Minnesota Power has operations in four business areas: (1) electric utility
operations, which include electric, gas and coal mining operations; (2) water
utility operations, which include water wastewater and sanitation services;wastewater; (3) an auto
redistribution business acquired on July 1, 1995; and (4) investments and
corporate services, which include a financial guaranty reinsurance company, a
real estate company in Florida and investments in securities; and (4) an auto redistribution business that was acquired July 1,
1995.securities.
Earnings per share of common stock for the quarter ended JuneSeptember 30, 1995,
were 4052 cents compared to 4451 cents for the quarter ended June 30,same period in 1994. LowerHigher earnings
in 1995 are primarily attributed to higher expenses due to scheduled maintenance in
electric utility operations and lower consumption levels andincreased sales in water
utility operations. However, earnings from the electric utility.
Earnings from the securities portfolio and reinsurance business, andcombined with
the addition of the auto redistribution business, also made positive
contributions to 1995 earnings. Earnings in 1994 included the operations of the
paper and pulp business improved substantially inwhich was sold on June 30, 1995. A single large
commercial land sale contributed to 1994 real estate results.
Earnings per share of common stock for the sixnine months ended JuneSeptember 30,
1995, were $1.27$1.79 compared to 74 cents$1.25 for the quarter ended June 30,same period in 1994. The most
significant factor contributing to the higher earnings in 1995 was the
recognition of tax benefits associated with Lehighreal estate which contributed 52
cents to earnings per share. Earnings in 1995 also reflect the improved
performance of the Company's securities portfolio, higher paper and pulp prices, andthe addition of the auto
redistribution business as of July 1, 1995, increased electric sales to
industrial customers and other power suppliers, and higher paper and pulp
prices before the paper and pulp business was sold. These earnings were offset
in part by lower water consumption levels at SSUin Florida and an 18 cent per share
provision associated with exiting the truck-mounted lifting equipment business.
Earnings in 1994 include 13 cents per share from the recognition of escrow
funds associated with Lehighreal estate and a 21 cent per share write-off of an
investment.
Quarter Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
Earnings Per Share 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------
Continuing Operations
Electric Utility Operations
Electric $.21 $.28$.40 $.30 $ .52 $.54.92 $ .84
Coal .03 .03 .05 .05.08 .08
---- ---- ----- ----
.24 .31 .57 .59-----
.43 .33 1.00 .92
---- ---- ----- ---------
Water Utility Operations .01 .05 .01.00 .02 .08
---- ---- ----- -----
Auto Redistribution Operations .03 - .03 -
---- ---- ----- -----
Investments and Corporate Services
Portfolio and reinsurance .07 .10 .01 .26 (.12).33 (.02)
Real estate .01 .08 .54 .24.09 .55 .33
Other operations (.01) (.02) (.21) (.05)(.03) (.04) (.24) (.09)
---- ---- ----- ----
.10 .07 .59 .07-----
.05 .15 .64 .22
---- ---- ----- ---------
Total Continuing Operations .35 .43 1.17 .74.52 .48 1.69 1.22
---- ---- ----- ---------
Discontinued Operations .05 .01- .03 .10 .00.03
---- ---- ----- ---------
Total Earnings Per Share $.40 $.44 $1.27 $.74$.52 $.51 $1.79 $1.25
==== ==== ===== =========
-9-- 10 -
Results of Operations
Comparison of the Quarter Ended JuneSeptember 30, 1995 and 1994.
Electric utility operations. Operating revenue and income from electric utility
operations were higher in 1995 compared to 1994 primarily because of a 1525
percent increase in kilowatt-hour sales. Although sales to industrial customers. National
resumed operations in August 1994all retail customers
were higher, sales for resale were up 62 percent due to warm summer weather and
required significantly more amounts of
electricity in 1995. Overall electric sales increased 7 percent.demand from other power suppliers. Fuel and purchased power expenses
were higher in 1995 due to increased demand for electricity. Operations
expenses included higher scheduled maintenance costs and customer service
expenses.expenses tempered by lower payroll costs associated with an early retirement
offering to certain electric utility employees. Coal operations contributed net
income of $732,000$951,000 in 1995 and $761,000$854,000 in 1994 to electric utility operations.
Revenue from electric sales to taconite customers accounted for 3634 percent of
operating revenue and income from electric utility operations in 1995 compared
to 3435 percent in 1994. Revenue from electric sales to paper and other wood
products companies accounted for 1312 percent of operating revenue and income
from electric utility operations in 1995 compared to 14 percent in 1994.
Water utility operations. RevenueOperating revenue and income from water utility
operations were up slightly in 1995 due to increased water sales in the
Carolinas and Wisconsin. Sales in Florida were down in 1995 due in part to reduced irrigation demand and the
December 1994 sale of SSU's Venice Gardens assets.assets, abnormally high rainfall
which reduced irrigation demand, and customer water conservation efforts. It is
expected that the loss of customers as a result of the Venice Gardens transactionsale will
be offset when the purchase of Orange Osceola Utilities, Inc. is complete.completed. The
transactionpurchase, which was approved by the FPSC on October 10, 1995, is expected to
occurclose in the third quarter oflate 1995.
In June 1995 SSU filed a request with the FPSC for an $18.1$18.6 million annual
increase in water and wastewater treatment rates. InterimSSU requested interim rates
of $12.4 million are expected(annualized) to be in effecteffective in October 1995. On October 6,
1995, and will bethe FPSC denied SSU's request for interim rates. Reasons for denial
included the fact the FPSC was unable to determine interim rates based on
stand-alone rates since SSU filed its request based on uniform rates, as well
as concerns over projected financial information on which the request was
based. However, the FPSC recognized the unfairness of denying interim rates
based upon this reason when, at the time SSU filed its rate case, SSU was
unaware of the need for inclusion in its filing of a stand-alone rate
structure. On October 23, 1995, SSU filed an appeal with the Florida First
District Court of Appeals of the FPSC's October 6, 1995, denial of SSU's
request for interim rates based on uniform rates. SSU's appeal requests
expedited consideration by the court. SSU also intends to refile in early
November 1995 information which would permit an $8 million to $12 million
(annualized) interim rate increase. The interim rates, if approved by the FPSC,
would become effective within sixty days of the filing, subject to refund with
interest.
Auto redistribution operations. The Company purchased an 80 percent interest in
ADESA on July 1, 1995. Results from ADESA's auto redistribution operations are
included for the first time in the Company's consolidated financial statements
for the period ended September 30, 1995. Approximately 119,000 cars, in total,
were sold at ADESA's 17 auction sites in the United States and Canada, which
represents a 14 percent increase from the approximately 104,000 cars sold in
the third quarter of 1994.
Investments and corporate services. In 1995 improved market conditions enhanced
the securities portfolio and reinsurance business results. A single large commercial land
sale contributedSecurities
investments totaling $60 million
- 11 -
were sold to 1994partially fund the July 1, 1995, purchase of ADESA. The lower
income from real estate results.is due primarily to the timing of commercial real
estate sales in Florida.
Discontinued operations. Operating results of the paper and pulp business as
well as the disposition of that business have been included in discontinued
operations.
Significantly higher paper and pulp prices increased earnings in
1995.
Comparison of the SixNine Months Ended JuneSeptember 30, 1995 and 1994.
Electric utility operations. Operating revenue and income from electric utility
operations were higher in 1995 compared to 1994 due to interim rates in effect
since March 1, 1994, and a 13an 11 percent increase
in kilowatt-hour sales and to industrial customers due to National resuming operationsnew rates in August 1994.
Overall electric sales increased 4 percent.effect since June 1, 1995. Coal
operations contributed $1.4$2.3 million and $1.3$2.2 million of net income in 1995 and
1994, respectively, to electric utility operations.
Revenue from electric sales to taconite customers accounted for 3736 percent of
operating revenue and income from electric utility operations in 1995 compared
to 33 percent in 1994. During 1995 taconite customers purchased 22 percent more
electricity from Minnesota Power than in 1994. Revenue from electric sales to
paper and other wood products companies accounted for 13 percent of operating
revenue and income from electric utility operations in 1995 compared to 14
percent in 1994.
Water utility operations. Operating revenue and income from water utility
operations were down in 1995 due in part to reduced irrigation demand and the December 1994 sale of SSU's
Venice Gardens assets.assets, abnormally high rainfall which reduced irrigation demand
and customer water conservation efforts. It is expected that the loss of
customers as a result of the Venice -10-
Gardens transactionsale will be offset when the
purchase of Orange Osceola Utilities, Inc. is completed. The transactionpurchase, which
was approved by the FPSC on October 10, 1995, is expected to occurclose in late
1995.
Auto redistribution operations. Financial results from the third
quarterauto redistribution
operations reflect the three months of operations since the Company acquired
ADESA on July 1, 1995.
Investments and corporate services. Earnings from investments and corporate
services were higher in 1995 primarily due to the recognition of $18.4 million
of tax benefits by Lehigh, the Company's real estate business. In March 1995
based on the results of a project which analyzed the economic feasibility of
realizing future tax benefits available to the Company, the board of directors
of Lehigh directed the management of Lehigh to dispose of Lehigh's assets in a
manner that would maximize utilization of tax benefits. The Company's portion
of the tax benefits reflected asin income is $14.7 million, or 52 cents per
share.million. Earnings in 1994
include 13 cents per share from the recognition of escrow funds associated with
Lehigh.
The performance of the Company's securities portfolio improved significantly
over 1994 due to improved market conditions. Securities investments totaling
$60 million were sold to partially fund the July 1, 1995, purchase of ADESA. In
the first quarter of 1994 the Company wrote off a $10.1 million securities
investment. In March 1995, the Company recorded a $5 million after-tax
provision loweringin anticipation of exiting Reach All. The provision lowered 1995
earnings per share by 18 cents in
anticipation of exiting Reach All.cents. It is expected that the liquidation of Reach
All will be completed during third quarterin late 1995.
Discontinued operations. Operating results of the paper and pulp business as
well as the disposition of that business have been included in discontinued
operations. Significantly higher paper and pulp prices increased earnings in
1995.
- 12 -
Liquidity and Financial PositionCondition
Reference is made to the Consolidated Statement of Cash Flows for the sixnine
months ended JuneSeptember 30, 1995 and 1994, for purposes of the following
discussion.
Cash flow activities. Cash from operating activities was affected by a number
of factors representative of normal operations.operations and three months of auto
distribution operations since the July 1, 1995, acquisition of ADESA.
Cash from investing activities included proceeds from the sale of the paper and
pulp business and proceeds from the sale of a portion of the securities
portfolio. The majorityportfolio that were used to fund the purchase of these proceeds were placed in cash and cash
equivalents to repay notes payable issued in anticipation of the ADESA
acquisition closing on July 1, 1995.
Cash from financing activities increased due to the issuance of notes payable
to temporarily finance the ADESA acquisition on July 1, 1995. The proceeds from
these notes payable were held in trust until July 3, 1995.
Working capital, if and when needed, generally is provided by the sale of
commercial paper. In addition, securities investments can be liquidated to
provide funds for reinvestment in existing businesses or acquisition of new
businesses, and approximately 900,000 original issue shares of common stock are
available for issuance through the DRIP.
ADESA's auctions finance aA substantial amount of theirADESA's working capital needs
with accounts payable dueis generated internally because
payments made by vehicle purchasers are generally available to sellers for vehicles sold at the auctions.
Typically,satisfy ADESA's
payment obligations to vehicle sellers. ADESA is paid immediately when an automobile is auctioned and title
is delivered. In certain instances, a seller does not have physical possession
of the title when a car is auctioned. In such instances, when ADESA receives
the title, it then pays the seller and submits a billdeposits the
purchaser's check only at the time title is delivered. A consequence of this
sequence of events is that the ADESA check issued to the buyer, resulting
in a short-term need for borrowings.seller sometimes
clears before the bank into which ADESA delivers title fordeposits the vehicle
against payment therefor.purchaser's check makes
available the funds represented by that check. ADESA also pays automobile manufacturers for vehicles
sold at factory sales which requireshas an $18 million line of
credit to meet the short-term working capital untilrequirements incident to this
timing difference. ADESA also utilizes the buyers'line of credit in connection with
factory sales. In factory sales, ADESA auctions vehicles provided by automobile
manufacturers. ADESA generally is required to pay the manufacturers for the
auctioned vehicles with electronic fund transfers before the checks have cleared.
-11-
received by
ADESA from the purchasers clear.
ADESA, through its wholly-owned subsidiary, Automotive Finance Corporation
(AFC), also offers short-term on-site financing for dealers to purchase
automobiles at auctions in exchange for a security interest in those
automobiles. The financing is provided through the earlier of the date the
dealer sells the automobile or a general borrowing term of 30-60 days. As a
result, ADESAAFC has a $40 million revolving line of credit to meet its short-term
operational
requirements.
Capital requirements. Consolidated capital expenditures for the sixnine months
ended JuneSeptember 30, 1995, totaled $38$73 million. These expenditures include $23.1$32
million for electric utility operations, of which $5.6$6.3 million was for coal
operations, $14.2$22 million for water utility operations, $18 million for auto
auction site relocation and development, and $700,000 for the pulp production plant.discontinued
operations. Internally generated funds were the primary source for funding
these expenditures.
The construction forecast for the remainder of 1995 was revised following the
sale of the paper and pulp business and the July 1, 1995, purchase of ADESA.
Total 1995 capital expenditures are expected to be $120 million which include
$51 million for the relocation and development of auto auction sites.
Internally generated funds and a $52 million revolving line of credit at ADESA
are expected to finance the majority of the expenditures.
PART II. OTHER INFORMATION
Item 5. Other Information
Reference is made to the Company's 1994 Form 10-K for background information on
the following updates. Unless otherwise indicated, cited references are to the
Company's 1994 Form 10-K.
Ref. Page 2. - Last Paragraph
Lakehead Pipe Line Company, Limited Partnership, a natural gas pipe line
company, became a Firm Large Power Customer of the Company on June 30, 1995,
when the MPUC approved a six-year electric service agreement for 16.5 MW
through April 30, 2001.
Ref. Page 3.13 -
First Partial Paragraph
As of July 15, 1995, the minimum annual revenue the Company would collect under
contracts with the Firm Large Power Customers, assuming no electric energy use
by these customers, is estimated to be $119.0, $98.4, $95.5, $82.9 and $63.9
million during the years 1995, 1996, 1997, 1998 and 1999, respectively.
Ref. Pages 3 and 4. - Table -ContractTable-Contract Status offor Minnesota Power Firm Large
Power Customers
Ref. 10-Q for the quarter ended March 31, 1995, Page 10.
Ref. 10-Q for the quarter ended June 30, 1995, Page 12.
Blandin Paper has a contract amendment pending with- On September 14, 1995, the MPUC approved an amendment for
contract demand of between 39.8 MW and 43.7 MW and incremental demand of
between 13.2 MW and 15.2 MW for the period April 1995 through October 1995.
LSPI - became 100 percent owned by CPI on June 30, 1995, when the Company and
Pentair Duluth Corp. each sold their 50 percent interest.
Potlatch Corp. - Cloquet - On July 24, 1995, the MPUC approved a contract
amendment retroactive to May 1995 for incremental demand of between 2.3 MW and
3.3 MW through October 1995.
-12-
Lakehead Pipe Line Company, Limited Partnership (Lakehead) - On June 30, 1995,
the MPUC approved a six-year electric service agreement for 12.25 MW of
contract demand and 4.25 MW of incremental demand through April 30, 2001.
Lakehead Pipe Line Company, Inc. serves as the general partner in conducting
the operations of Lakehead. Minnesota Power serves Lakehead's pumping
stations located in Deer River and Floodwood, Minnesota.
Ref. Page 4. -Table - Contract Status of Minnesota Power Purchased Power
Contracts
Ref. 10-Q for the quarter ended March 31, 1995, Page 10.
Add the following information to the table entitled "Contract Status of
Minnesota Power Purchased Power Contracts:"
Entity Contract MW Contract Period
------ ----------- ---------------
Participation Power Purchases
- -----------------------------
Basin Electric Power Cooperative 50 July 1, 1995, through December 31, 1995
Firm Power Purchases
- --------------------
Ontario Hydro 100 July 1, 1995, through December 31, 1995
50 May 1, 1995, through December 31, 1995
Ref. Page 4. - Insert New Paragraph after Table - Contract Status of Minnesota
Power Purchased Power Contracts
Ref. 10-Q for the quarter ended March 31, 1995, Page 10. - Last Paragraph
On June 30, 1995, the MPUC approved a new five year amendment to the Electric
Service and Interconnection Agreement between the Company and LTV Steel Mining
Company (LTV). The amended Electric Service and Interconnection Agreement,
along with a purchased power agreement between the Company and LTV provides for
a shared reserves arrangement under which 210 MW is added to the Company's
capacity and from which LTV's entire 130 MW load is provided on a firm power
replacement service basis. The amendment expires April 30, 2000. FERC approval
sought by LTV on the purchased power agreement remains pending.
Ref. Page 5. - Table - Contract Status of Minnesota Power Capacity Sales
Contracts
The following information updates Northern States Power Company and Cooperative
Power Association in the table entitled "Contract Status of Minnesota Power
Capacity Sales Contracts:"
Utility Contract MW Contract Period
------- ----------- ---------------
Firm Power Sales
- ----------------
Northern States Power Company 200 May 1, 1995, through October 31, 1995
150 May 1, 1996, through October 31, 1996
Cooperative Power Association 10 May 1, 1995, through October 31, 1995
-13-
Ref. Page 8. - Insert after First Paragraph
Ref. 10-Q for the quarter ended March 31, 1995, Page 11. - Last Paragraph
On August 7, 1995, the Company filed comments with the FERC relating to the
Notice of Proposed Rulemaking on Open Access Non-Discriminatory
Transmission Services by Public Utilities and Transmitting Utilities.
Ref. Page 8. - Fourth and Fifth Paragraphs
The Company's compliance filing was filed on March 27, 1995, with the MPUC. In
an order dated May 31, 1995, the MPUC approved the filing with the exception of
the Company's refunding plan. Final rates were implemented for sales on and
after June 1, 1995. The Company proposed different refund levels by rate class
based on the final rate design ordered. The MPUC ordered equal rate refund
levels by class and on June 30, 1995, five Firm Large Power Customers requested
reconsideration. The MPUC denied this request in an August 1, 1995 order. The
date of refund will be delayed until at least mid-September, depending on
whether the Firm Large Power Customer intervenors seek judicial review.
As of June 30, 1995, the Company had reserved $4.8 million of interim rate
revenue for anticipated refunds.
Ref. Page 8. - First Paragraph and Ref. Page 12. - Fifth Paragraph
Ref. 10-Q for the quarter ended March 31, 1995, Page 11. - First Paragraph
Ref. 10-Q for the quarter ended June 30, 1995, Page 14. - Fourth Paragraph
FERC operating licenses for two of the Company's hydroelectric facilities are
currently undergoing relicensing at the FERC. A final application to relicense
the Pillager Project was filed with the FERC on May 12, 1995, and was
officially accepted by the FERC on October 2, 1995. The FERC will next perform
an environmental analysis of the Pillager Project, which will define the scope
of further review and relicensing activity. On July 13, 1995, the FERC issued a
thirty (30) year license to the Company a final 30-year license for the St. Louis River Project. The newProject, which
license, is being reviewed byif implemented, would reduce the economic benefits of the Project to
the Company. The Company and any other interested party, may pursue reconsiderationparties filed motions for
rehearing on certain aspects of the licensing order. On October 5, 1995, the
Company filed a motion for clarification of the status of the license under procedures established pursuant to federal regulations.and, in
the alternative, for stay of the license conditions until a final,
nonappealable order is issued by the FERC.
Ref. Page 9.8. - Insert after Fourth and Fifth Paragraphs
Ref. 10-Q for the quarter ended June 30, 1995, Page 14. - Second Paragraph
On August 24, 1995, the Firm Large Power Customers filed with the Minnesota
Court of Appeals an appeal of the MPUC's May 1995 decision. On September 8,
1995, the Company requested that the MPUC initiated an "Investigation into Structural and
Regulatory Issues inorder a partial stay of refunding
until the Electric Industry." The MPUC's investigation seeks
input from all interested parties regarding a wide range of issues related to
increased retail competition, including whether there is a need for changinglegal proceedings are concluded. On October 26, 1995, the current system of regulation; state and federal jurisdictional questions;
unbundling of generation, transmission and distribution rates; cost recovery
for stranded investments; reliability and technical issues; energy efficiency;
renewable resource development; and exclusive service areas. The Company and 27
other parties filed comments on July 7, 1995. Reply comments are due on August
28, 1995.MPUC denied
the Company's request. The Company expects this investigation to conclude some timerefund approximately $5 million,
including interest, in 1996,
at which time policy recommendations may be made byDecember 1995 to customers based on interim rate revenue
collected during the MPUC. The Company is
unable to predict the outcome of the MPUC investigation or its impact on the
Company.
Ref. Page 9. - Insert after Fifth Paragraph
On June 16, 1995, Superior Water, Light and Power Company filed an application
with the Public Service Commission of Wisconsin for authority to increase
electric, gas, and water rates. The overall increase in revenue being requested
is $1.4 million or 3.33 percent.period March 1, 1994 through May 31, 1995.
Ref. 10-Q for the quarter ended March 31, 1995, Page 12. - Second Paragraph
InRef. 10-Q for the quarter ended June 30, 1995, Page 14. - Last Paragraph
Of the Company extended215 electric utility employees eligible for the early retirement plan,
to an additional 91
electric utility employees age 53 and 54 with 10 or more years of service. The
offer was open until July 31,
-14-
1995, and those employees who accepted it must retire by August 15. As of
July 31, 1995, 181178 employees accepted the early retirement offer.offer representing a 12 percent
reduction of the electric business workforce. The Company estimatesplan which has a cost of
approximately $15 million will be amortized over 3 years.
Ref. Page 12. - Fourth Paragraph
On August 30, 1995, Minnesota Power submitted a request to the Minnesota
Pollution Control Agency (MPCA) to delete permit language requiring additional
work that was scheduled to begin during the second quarter of 1995. A response
to this request is expected from the MPCA in November 1995.
Ref. Page 14. - First Paragraph
On October 10, 1995, the FPSC approved the purchase by SSU of Orange Osceola
Utilities, Inc. The purchase is expected to close in late 1995.
- 14 -
Ref. Page 14. - Last Paragraph
Ref. 8-K dated October 6, 1995, Page 1. - First and Second Paragraph
On October 19, 1995, the FPSC ordered SSU to refund, within 90 days of the date
of the order, approximately $10 million to customers who paid more since
October 1993 under uniform rates than they would have paid under stand-alone
rates. This action by the FPSC is in response to a decision by the Florida
First District Court of Appeals issued on April 6, 1995, that the planFPSC lacked
statutory authority to approve the implementation of uniform rates in its 1993
Order absent a finding that the localities subject to the uniform rates were
served by a functionally related system. The FPSC order does not permit SSU to
collect $10 million from customers who paid less under uniform rates. SSU
believes that it is improper for the FPSC to order a refund to one group of
customers without permitting SSU to recover the refund from the remaining
customers because the First District Court of Appeals only addressed the issue
of alleged over-payment by some service areas under the uniform rate design and
not SSU's total revenue requirement. SSU intends to request FPSC
reconsideration of the order, and if unsuccessful, believes it probable SSU
will cost approximately $15 million.prevail on appeal.
Ref. Page 15. - Third Full Paragraph
Ref. 8-K dated July 12, 1995, Page 1. - Fourth Paragraph
Ref. 8-K dated October 6, 1995, Page 1. - Third Paragraph
On October 23, 1995, SSU filed an appeal with the Florida First Partial Paragraph
In JuneDistrict Court
of Appeals of the FPSC's October 6, 1995, denial of SSU's request for interim
rates based on uniform rates. SSU's appeal requests expedited consideration by
the court. SSU also intends to refile in early November 1995 information which
would permit an $8 million to $12 million interim rate increase on an annual
basis based on stand-alone rates. If approved by the FPSC, votedthe interim rates
would become effective within sixty days of the filing, subject to assume jurisdiction over SSU facilities
statewide and thus to regard SSU as a single system rather than as a utility
made up of more than 150 systems. An appeal of this decision by various
counties is anticipated.refund with
interest.
Ref. Page 15. - Last Paragraph
On July 31, 1995, the Circuit Court of South Carolina issued an order affirming
the South Carolina Public Service Commission's (SCPSC) July 1994 order which
denied Heater of Seabrook's request for an annual rate increase. An appeal to
the South Carolina Supreme Court is expected to be filed in November 1995.
Ref. Page 16. - First Full Paragraph
In AprilOn July 31, 1995, Hernando County Boardthe Circuit Court of County CommissionersSouth Carolina issued an order vacating
the SCPSC's December 1994 order which among other things, purports to require SSU to file a rate proceeding
with Hernando County. SSU continues to dispute Hernando County's jurisdiction
and authority to issue such orders. SSU amended its complaint in the Hernando
County Circuit Court to include adenied Upstate Heater Utilities'
(Upstate) request for stayan annual rate increase. The case was remanded to the
SCPSC for the establishment of rates which are fair and reasonable.
On September 6, 1995, the County's April order.SCPSC issued a second final order granting an annual
increase of $8,000. Upstate filed a motion for reconsideration on October 2,
1995.
Ref. Page 15.16. - Insert after Second Full Paragraph
Ref. 10-Q for the quarter ended March 31,June 30, 1995, Page 12.15. - Fifth and Sixth
Paragraphs
In JuneFourth Full Paragraph
On August 1, 1995, the First District CourtNorth Carolina Utilities Commission (NCUC) issued an
order granting Heater Utilities interim rates of Appeals denied SSU's and$262,000 annually. A final
order is anticipated in November 1995.
On August 29, 1995, Heater Utilities filed with the FPSC's
motionsNCUC for rehearing and certification. In July 1995, SSU filedapproval of a
noticesurcharge that would allow Heater Utilities to recover $297,000 in additional
testing costs required by the EPA in
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excess of appeal tocosts included in the Supreme Court of Florida. SSU filed its brief supporting its
appeal on July 28,current rate structure. A final order is
anticipated in December 1995.
Ref. Page 16. - SecondThird Full Paragraph
Hearings with respect to Heater Utilities' FebruaryOn October 12, 1995, rate filing which
requested a $314,000 annual increase concluded in July 1995. The North Carolina
Utilities Commission is expected to issuethe NCUC issued a final order in September 1995.granting Brookwood Water
Corporation an $85,000 annual increase.
Ref. Page 17. - FourthThird Full Paragraph
In March 1995SSU has determined that the administrative order issued in August 1994 for SSU'stoxicity test failures at the Woodmere facilities in the Beacon Hills service area
in Duval County, Florida are presumably due to inappropriate salt water test
species. A request was satisfactorily closed after additional bioassay testing conducted between
September 1994 andfiled with the EPA in February 1995 metto change testing
requirements to fresh water species for consistency with the Florida Department
of Environmental Protection Agency
requirements.(FDEP) wastewater permit for the Woodmere
facilities, since the body of water affected is a fresh water body. A permit
renewal application will be filed with the FDEP in November 1995 since the
permitting authority was delegated by the EPA to the FDEP in May 1995. It is
expected that the FDEP will allow fresh water test species and that the EPA
Administrative Order will no longer be applicable.
Ref. Page 19.17. - FirstFifth Full Paragraph
and Last Partial ParagraphTwo consent orders have resulted in total penalties of $4,000 to date in 1995.
One additional consent order with a proposed penalty of approximately $9,500 is
being negotiated with the FDEP.
Ref. 10-Q for the quarter ended March 31, 1995, Page 7.18. - Second Paragraph and
Page 13. -Insert after First Paragraph
In June 1995Auto Redistribution Operations
The grand opening of ADESA's new Boston auction site, the prospective buyer of Reach All announced heworld's largest
indoor auto-auction facility, was unableheld on September 29, 1995. The site has 12
auction lanes and expects to secure acceptable financing. Assell 4,000 vehicles a result, Reach All's assets were placed into
receivership with liquidation expected to be completed in the third quarter of
1995. A provision for exiting this business was recorded in the first quarter
of 1995.
Ref. Page 26. - Item 10. Directorsweek and Executive Officers of the Registrant
D. Michael Hockett, president of ADESA, was elected to the Company's Board of
Directors on July 26, 1995, pursuant to the Agreementeventually will
employ about 500 full and Plan of Merger
between the Company and ADESA. Mr. Hockett, age 52, has served as president,
chief executive officer and director of ADESA since its inception in February
1992. In addition, until February 1992 Mr. Hockett
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served as the president of each of the corporations which operated ADESA
Birmingham, ADESA Memphis, ADESA Lexington and ADESA Cincinnati-Dayton from the
respective dates of inception, the earliest of which was in 1986.
In July 1995, John Cirello, age 52, was elected president of SSU, chairman of
Heater Utilities, Inc., a board member of Topeka Group, Inc., and an executive
vice president of Minnesota Power. Mr. Cirello was president of Environmental
Engineering Services, Inc. from February 1995 through July 1995, president of
Metcalf & Eddy Services from September 1992 through January 1995, and vice
president at Chemical Waste Management from April 1988 through June 1992.part time employees.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
Report on Form 8-K/A dated and filed May 25,September 8, 1995, with respect to
Item 7. Financial Statements and Exhibits.
Report on Form 8-K dated and filed July 12,October 6, 1995, with respect to Item
2.
Acquisition and Disposition of Assets, Item 5. Other Events and Item
7. Financial Statements and Exhibits.
-16-Information.
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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.
Minnesota Power & Light Company
-------------------------------
(Registrant)
August 11,October 30, 1995 D. G. Gartzke
---------------------------------------------------------------
D. G. Gartzke
Senior Vice President - Finance
and Chief Financial Officer
August 11,October 30, 1995 Mark A. Schober
---------------------------------------------------------------
Mark A. Schober
Corporate Controller
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