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, 1997
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,
32,958,01433,126,189 shares outstanding
as of April 30,July 31, 1997
Minnesota Power & Light Company
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
March 31,June 30, 1997 and December 31, 1996 1
Consolidated Statement of Income -
Quarter and Six Months Ended March 31,June 30, 1997
and 1996 2
Consolidated Statement of Cash Flows -
QuarterSix Months Ended March 31,June 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 78
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 1013
Item 6. Exhibits and Reports on Form 8-K 1114
Signatures 1215
Definitions
The following abbreviations or acronyms are used in the text.
Abbreviation
or Acronym Term
- ------------------ ------------------------------------------------------------------------------ ----------------------------------------------------
1996 Form 10-K Minnesota Power's Annual Report on Form 10-K for
the Year Ended December 31, 1996
ADESA ADESA Corporation
AFC Automotive Finance Corporation
Americas' Water Americas' Water Services Corporation
BNI Coal BNI Coal, Ltd.
Common Stock Minnesota Power & Light Company's common stock
Company Minnesota Power & Light Company and its Subsidiaries
DOJ United States Department of Justice
DRIP Dividend Reinvestment and Stock Purchase Plan
EPA United States Environmental Protection Agency
ESOP Employee Stock Ownership Plan
FERC Federal Energy Regulatory Commission
Heater Heater Utilities, Inc.
IRS Internal Revenue Service
ISI Instrumentation Services, Inc.
Florida Water Florida Water Services Corporation
FPSC Florida Public Service Commission
Lehigh Lehigh Acquisition Corporation
Minnesota Power Minnesota Power & Light Company and its Subsidiaries
MPUC Minnesota Public Utilities Commission
MW Megawatt(s)
MP Water Resources MP Water Resources Group, Inc.
NCUC North Carolina Utilities Commission
Palm Coast Palm Coast Holdings, Inc.
PSCW Public Service Commission of Wisconsin
SCPSC South Carolina Public Service Commission
Square Butte Square Butte Electric Cooperative
SWL&P Superior Water, Light and Power Company
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Minnesota Power
Consolidated Balance Sheet
In Thousands
March 31,June 30, December 31,
1997 1996
Unaudited Audited
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Assets
Plant and Other Assets
Electric operations $ 792,239788,754 $ 796,055
Water services 319,904322,325 323,869
Automotive services 164,369166,384 167,274
Investments 234,261246,741 236,509
------------ ------------
Total plant and other assets 1,510,7731,524,204 1,523,707
------------ ------------
Current Assets
Cash and cash equivalents 58,85168,140 40,095
Trading securities 95,498108,173 86,819
Trade accounts receivable (less reserve
of $8,250$9,109 and $6,568) 207,208180,635 144,060
Notes and other accounts receivable 19,42518,532 20,719
Fuel, material and supplies 23,79625,489 23,221
Prepayments and other 15,49316,590 17,195
------------ ------------
Total current assets 420,271417,559 332,109
------------ ------------
Deferred Charges
Regulatory 78,40175,037 83,496
Other 30,36633,098 27,086
------------ ------------
Total deferred charges 108,767108,135 110,582
------------ ------------
Intangible Assets
Goodwill 164,739162,593 166,986
Other 11,98411,491 12,665
------------ ------------
Total intangible assets 176,723174,084 179,651
------------ ------------
Total Assets $ 2,216,5342,223,982 $ 2,146,049
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Capitalization and Liabilities
Capitalization
Common stock without par value, 65,000,00065,000 shares
authorized 32,934,95833,101 and 32,758,31032,758 shares outstanding $ 399,185404,089 $ 394,187
Unearned ESOP shares (68,213)(67,301) (69,124)
Net unrealized gain on securities investments 7333,358 2,752
Cumulative translation adjustment 86(107) 73
Retained earnings 282,787285,743 282,960
------------ ------------
Total common stock equity 614,578625,782 610,848
Cumulative preferred stock 11,492 11,492
Redeemable serial preferred stock 20,000 20,000
Company obligated mandatorily redeemable preferred
securities of subsidiary MP&L Capital I
which holds solely Company Junior Subordinated
Debentures 75,000 75,000
Long-term debt 683,834671,263 694,423
------------ ------------
Total capitalization 1,404,9041,403,537 1,411,763
------------ ------------
Current Liabilities
Accounts payable 106,53596,600 72,787
Accrued taxes 61,55149,891 48,813
Accrued interest and dividends 10,02913,899 14,851
Notes payable 174,793205,998 155,726
Long-term debt due within one year 25,17824,660 7,208
Other 36,62831,699 37,598
------------ ------------
Total current liabilities 414,714422,747 336,983
------------ ------------
Deferred Credits
Accumulated deferred income taxes 148,875147,261 148,931
Contributions in aid of construction 99,090102,703 98,378
Regulatory 63,88163,368 64,394
Other 85,07084,366 85,600
------------ ------------
Total deferred credits 396,916397,698 397,303
------------ ------------
Total Capitalization and Liabilities $ 2,216,5342,223,982 $ 2,146,049
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
-1-
Minnesota Power
Consolidated Statement of Income
In Thousands Except Per Share Amounts - Unaudited
Quarter Ended
March 31,
1997 1996
- ------------------------------------------------------------------------------
Operating Revenue and Income
Electric operations $ 131,457 $ 131,501
Water services 20,648 19,227
Automotive services 60,510 39,693
Investments 9,458 12,255
----------- -----------
Total operating revenue and income 222,073 202,676
----------- -----------
Operating Expenses
Fuel and purchased power 44,029 43,643
Operations 138,379 119,822
Interest expense 17,308 14,160
----------- -----------
Total operating expenses 199,716 177,625
----------- -----------
Income from Equity Investment 4,042 3,777
----------- -----------
Operating Income 26,399 28,828
Distributions on Redeemable
Preferred Securities of Subsidiary 1,509 201
Income Tax Expense 8,796 10,324
----------- -----------
Net Income 16,094 18,303
Dividends on Preferred Stock 487 800
----------- -----------
Earnings Available for Common Stock $ 15,607 $ 17,503
=========== ===========
Average Shares of Common Stock 30,223 28,786
Earnings Per Share of Common Stock $ .52 $ .61
Dividends Per Share of Common Stock $ .51 $ .51
- ------------------------------------------------------------------------------
Minnesota Power
Consolidated Statement of Income
In Thousands Except Per Share Amounts - Unaudited
Quarter Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Operating Revenue and Income
Electric operations $ 129,658 $ 129,219 $ 261,115 $ 260,718
Water services 22,431 23,050 43,079 42,277
Automotive services 64,388 45,215 124,898 84,908
Investments 13,949 11,019 23,407 23,275
---------- ---------- ---------- ---------
Total operating revenue and income 230,426 208,503 452,499 411,178
---------- ---------- ---------- ---------
Operating Expenses
Fuel and purchased power 45,987 48,291 90,016 91,934
Operations 138,860 127,593 277,239 247,413
Interest expense 16,061 14,357 33,369 28,517
---------- ---------- ---------- ---------
Total operating expenses 200,908 190,241 400,624 367,864
---------- ---------- ---------- ---------
Income from Equity Investment 3,279 2,832 7,321 6,609
---------- ---------- ---------- ---------
Operating Income 32,797 21,094 59,196 49,923
Distributions on Redeemable
Preferred Securities of Subsidiary 1,510 1,509 3,019 1,711
Income Tax Expense 12,564 4,753 21,360 15,077
---------- ---------- ---------- ---------
Net Income 18,723 14,832 34,817 33,135
Dividends on Preferred Stock 487 634 974 1,434
---------- ---------- ---------- ---------
Earnings Available for Common Stock $ 18,236 $ 14,198 $ 33,843 $ 31,701
========== ========== ========== =========
Average Shares of Common Stock 30,430 29,053 30,323 28,919
Earnings Per Share of Common Stock $ .60 $ .49 $ 1.12 $ 1.10
Dividends Per Share of Common Stock $ .51 $ .51 $ 1.02 $ 1.02
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
-2-
Minnesota Power
Consolidated Statement of Cash Flows
In Thousands - Unaudited
Quarter Ended
March 31,
1997 1996
- --------------------------------------------------------------------------------
Operating Activities
Net income $ 16,094 $18,303
Income from equity investment (4,042) (3,777)
Depreciation and amortization 17,961 16,216
Deferred income taxes (438) (742)
Deferred investment tax credits (493) (623)
Pre-tax gain on sale of plant (3,376) (1,073)
Changes in operating assets and liabilities
Trading securities (8,679) (5,948)
Notes and accounts receivable (59,378) (45,776)
Fuel, material and supplies (575) 3,584
Accounts payable 33,748 33,532
Other current assets and liabilities 8,648 24,279
Other - net 3,315 5,342
--------- --------
Cash from operating activities 2,785 43,317
--------- --------
Investing Activities
Proceeds from sale of investments in
securities 11,882 7,849
Proceeds from sale of plant 4,375 -
Additions to investments (7,809) (672)
Additions to plant (8,558) (25,427)
Changes to other assets - net 966 250
--------- --------
Cash from (for) investing activities 856 (18,000)
--------- --------
Financing Activities
Issuance of common stock 4,935 4,546
Issuance of long-term debt 76,000 77,108
Issuance of Company obligated mandatorily
redeemable preferred securities of
subsidiary MP&L Capital I - net - 72,638
Changes in notes payable - net 19,067 (53,821)
Reductions of long-term debt (68,620) (81,217)
Dividends on preferred and common stock (16,267) (15,878)
--------- --------
Cash from financing activities 15,115 3,376
--------- --------
Change in Cash and Cash Equivalents 18,756 28,693
Cash and Cash Equivalents at Beginning of Period 40,095 31,577
--------- --------
Cash and Cash Equivalents at End of Period $ 58,851 $ 60,270
========= ========
Supplemental Cash Flow Information
Cash paid during the period for
Interest (net of capitalized) $ 18,366 $ 17,781
Income taxes $ 2,362 $ 2,844
- --------------------------------------------------------------------------------
Minnesota Power
Consolidated Statement of Cash Flows
In Thousands - Unaudited
Six Months Ended
June 30,
1997 1996
- -------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 34,817 $ 33,135
Income from equity investment - net of dividends received (7,093) (6,413)
Depreciation and amortization 35,830 32,511
Deferred income taxes 1,360 (1,515)
Deferred investment tax credits (862) (839)
Pre-tax gain on sale of plant (4,388) (1,073)
Changes in operating assets and liabilities
Trading securities (21,354) (36,312)
Notes and accounts receivable (31,914) (53,488)
Fuel, material and supplies (2,268) 531
Accounts payable 23,813 24,201
Other current assets and liabilities (5,168) (3,460)
Other - net 4,008 12,429
--------- --------
Cash from (for) operating activities 26,781 (293)
--------- --------
Investing Activities
Proceeds from sale of investments in securities 31,345 14,640
Proceeds from sale of plant 6,385 5,311
Additions to investments (33,355) (45,508)
Additions to plant (26,591) (45,427)
Changes to other assets - net 1,203 6,443
--------- --------
Cash from (for) investing activities (21,013) (64,541)
--------- --------
Financing Activities
Issuance of long-term debt 131,067 190,134
Issuance of Company obligated mandatorily redeemable
preferred securities of subsidiary MP&L Capital I - net - 72,270
Issuance of common stock 9,745 9,015
Changes in notes payable - net 50,272 (9,588)
Reductions of long-term debt (136,776) (116,455)
Redemption of preferred stock - (17,568)
Dividends on preferred and common stock (32,031) (31,119)
--------- --------
Cash from financing activities 22,277 96,689
--------- --------
Change in Cash and Cash Equivalents 28,045 31,855
Cash and Cash Equivalents at Beginning of Period 40,095 31,577
--------- --------
Cash and Cash Equivalents at End of Period $ 68,140 $ 63,432
========= ========
Supplemental Cash Flow Information
Cash paid during the period for
Interest (net of capitalized) $ 33,825 $ 25,352
Income taxes $ 15,490 $ 17,182
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
-3-
Notes to Consolidated Financial Statements
The accompanying unaudited consolidated financial statements and notes should be
read in conjunction with the Company's 1996 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.
Note 1. Business Segments
In Thousands
Investments
------------------- Corporate
Electric Water Automotive Portfolio & Real Charges
Consolidated Operations Services Services Reinsurance Estate & Other
------------ ---------- -------- ---------- ----------- ------ ---------
Quarter Ended March 31,June 30, 1997
- ---------------------------
Operating revenue and income $230,426 $129,658 $ 22,431 $ 64,388 $ 4,483 $9,526 $ (60)
Operation and other expense 166,978 96,571 13,156 49,360 487 5,952 1,452
Depreciation and amortization
expense 17,869 11,210 3,217 3,333 - 37 72
Interest expense 16,061 5,329 2,760 2,705 - 279 4,988
Income from equity investment 3,279 - - - 3,279 - -
-------- -------- -------- -------- ------- ------- -------
Operating income (loss) 32,797 16,548 3,298 8,990 7,275 3,258 (6,572)
Distributions on redeemable
preferred securities of
subsidiary 1,510 414 - - - - 1,096
Income tax expense (benefit) 12,564 6,096 1,028 4,756 2,555 1,414 (3,285)
-------- -------- -------- -------- ------- ------- -------
Net income (loss) $ 18,723 $ 10,038 $ 2,270 $ 4,234 $ 4,720 $ 1,844 $(4,383)
======== ======== ======== ======== ======= ======= =======
Quarter Ended June 30, 1996
- ---------------------------
Operating revenue and income $208,503 $129,219 $ 23,050 $ 45,215 $ 4,736 $6,605 $ (322)
Operation and other expense 159,589 102,218 13,926 37,026 731 3,845 1,843
Depreciation and amortization
expense 16,295 10,512 3,070 2,705 - 8 -
Interest expense 14,357 5,537 3,057 2,017 - 486 3,260
Income from equity investment 2,832 - - - 2,832 - -
-------- -------- -------- -------- ------- ------- --------
Operating income (loss) 21,094 10,952 2,997 3,467 6,837 2,266 (5,425)
Distributions on redeemable
preferred securities of
subsidiary 1,509 403 - - - - 1,106
Income tax expense (benefit) 4,753 3,593 1,010 2,002 928 (782) (1,998)
-------- -------- -------- -------- ------- ------- ------
Net income (loss) $ 14,832 $ 6,956 $ 1,987 $ 1,465 $ 5,909 $ 3,048 $(4,533)
======== ======== ======== ======== ======= ======= =======
- ---------------------
Includes $460 of minority interest.
Includes $762 of minority interest.
Includes $2 million of tax benefits (see Note 4).
-4-
Note 1. Business Segments Continued
In Thousands
Investments
------------------- Corporate
Electric Water Automotive Portfolio & Real Charges
Consolidated Operations Services Services Reinsurance Estate & Other
------------ ---------- -------- ---------- ----------- ------ ---------
Six Months Ended June 30, 1997
Operating revenue and income $ 222,073452,499 $ 131,457261,115 $ 20,64843,079 $ 60,510124,898 $ 4,9499,177 $14,357 $ 4,831 $ (322)(127)
Operation and other expense 164,447 94,872 14,046 47,856 537 3,844 3,292331,425 191,443 27,202 97,216 1,024 9,796 4,744
Depreciation and amortization
expense 17,961 11,163 3,177 3,51035,830 22,373 6,394 6,843 - 38 7375 145
Interest expense 17,308 5,381 2,700 2,355 255 297 6,32033,369 10,710 5,460 5,060 - 576 11,563
Income from equity investment 4,0427,321 - - - 4,0427,321 - -
---------- --------- --------- --------- --------- -------- -------
Operating income (loss) 26,399 20,041 725 6,789 8,199 652 (10,007)59,196 36,589 4,023 15,779 15,474 3,910 (16,579)
Distributions on redeemable
preferred securities of
subsidiary 1,509 4203,019 834 - - - - 1,0892,185
Income tax expense (benefit) 8,796 7,399 314 3,589 2,891 317 (5,714)21,360 13,495 1,342 8,345 5,446 1,731 (8,999)
---------- --------- --------- --------- --------- -------- -------
Net income (loss) $ 16,09434,817 $ 12,22222,260 $ 4112,681 $ 3,2007,434 $ 5,30810,028 $ 335 $(5,382)2,179 $(9,765)
========== ========= ========= ========= ========= ======== =======
Total assets $2,216,534$2,223,982 $ 982,630977,056 $ 342,832371,201 $ 540,093522,625 $ 263,746289,088 $ 85,40963,252 $ 1,824760
Accumulated depreciation $ 670,881685,609 $ 541,863550,809 $ 121,214125,466 $ 7,8049,334 - - -
Accumulated amortization $ 10,51212,177 - - $ 9,42511,017 - $ 1,0871,160 -
Construction work in progress $ 32,84244,606 $ 11,44719,551 $ 10,86613,591 $ 10,52911,464 - - -
QuarterSix Months Ended March 31,June 30, 1996
Operating revenue and income $ 202,676411,178 $ 131,501260,718 $ 19,22742,277 $ 39,69384,908 $ 3,8698,605 $15,281 $ 8,676 $ (290)(611)
Operation and other expense 147,249 95,307 11,518 34,202 523 3,213 2,486306,836 197,523 25,444 71,228 1,254 7,058 4,329
Depreciation and amortization
expense 16,216 10,499 3,137 2,55032,511 21,011 6,207 5,255 - 3038 -
Interest expense 14,160 5,598 3,287 1,29128,517 11,212 6,344 3,308 1 2 3,981488 7,164
Income from equity investment 3,7776,609 - - - 3,7776,609 - -
---------- --------- --------- --------- --------- -------- --------
Operating income (loss) 28,828 20,097 1,285 1,650 7,122 5,431 (6,757)49,923 30,972 4,282 5,117 13,959 7,697 (12,104)
Distributions on redeemable
preferred securities of
subsidiary 201 771,711 480 - - - - 1241,231
Income tax expense (benefit) 10,324 7,773 450 662 1,969 2,363 (2,893)15,077 11,367 1,459 2,664 2,897 1,581 (4,891)
---------- --------- --------- --------- --------- -------- -------------
Net income (loss) $ 18,30333,135 $ 12,24719,125 $ 8352,823 $ 9882,453 $ 5,15311,062 $ 3,068 $(3,988)6,116 $(8,444)
========== ========= ========= ========= ========= ======== =======
Total assets $2,027,708$2,108,031 $ 990,018983,971 $ 340,312359,172 $ 429,604453,561 $ 210,973243,952 $ 55,22565,710 $ 1,5761,665
Accumulated depreciation $ 631,694646,609 $ 518,311527,425 $ 110,536115,162 $ 2,8474,022 - - -
Accumulated amortization $ 4,1955,819 - - $ 3,3984,949 - $ 797870 -
Construction work in progress $ 55,49155,559 $ 12,83513,769 $ 14,88017,816 $ 27,77623,974 - - -
- ----------------------
Includes $544 of minority interest.
Includes $1.5 million of minority interest.
Includes $2 million of tax benefits (see Note 4).
-4--5-
Note 2. Regulatory Matters
FPSC Refund Order in Connection with 1991 Rate Case. Responding to a Florida
Supreme Court decision addressing the issue of retroactive ratemaking with
respect to another company, in March 1996 the FPSC voted to reconsider an
October 1995 order (Refund Order) which would have required Florida Water to
refund about $13$15 million, which includes interest, to customers who paid more
since October 1993 under uniform rates than they would have paid under
stand-alone rates. Under the Refund Order, the collection through a surcharge of
the $13$15 million from customers who paid less under uniform rates was not
permitted. The Refund Order was in response to the Florida First District Court
of Appeals (Court of Appeals) reversal in April 1995 of the 1993 FPSC order
which imposed uniform rates for most of Florida Water's service areas in
Florida. With "uniform rates," all customers in the uniform rate areas pay the
same rates for water and wastewater services. Uniform rates are an alternative
to "stand-alone" rates which are calculated based on the cost of serving each
service area. The FPSC reconsidered the Refund Order, but in August 1996 upheldthe
FPSC issued an order upholding by a 3 to 2 vote its decision to order refunds
without offsetting surcharges. Florida Water filed an appeal of this decision
with the Court of Appeals.
A
decision on the appeal is anticipated by the end of 1997. The Company continues
to believe that it is improper for the FPSC to order a refund to one group of
customers without permitting recovery of a similar amount from the remaining
customers sinceOn June 17, 1997 the Court of Appeals affirmedreversed the Company's totalFPSC's August 1996 order. The
Court of Appeals determined that the FPSC's order directing the refund without
permitting an offsetting surcharge was not permissible because it did not
comport with principles of equity or with existing Florida Supreme Court
precedent. The Court of Appeals remanded the matter back to the FPSC for
reconsideration, and directed the FPSC to consider requests for intervention
from the various customer groups impacted by any potential surcharges. The
issues to be considered on remand relate to rate design and do not involve any
adjustment to Florida Water's revenue requirement for operations in Florida. Norequirement. The Company has not recorded
a provision for refund has been
recorded.in connection with this case. The Company is unable to
predict the outcome of this matter.
Florida Water's 1995 Rate Case. Florida Water requested an $18.1 million rate
increase in June 1995.1995 for all water and wastewater customers of Florida Water
regulated by the FPSC. On October 30, 1996 the FPSC issued its final order in
the Florida Water rate case. The final order established water and wastewater
rates for all customers of Florida Water regulated by the FPSC. The new rates, which became effective onas of
September 20, 1996, resulted in an annualized increase in revenue of
approximately $11.1 million. This increase included, and was not in addition to,
the $7.9 million increase in annualized revenue granted as interim rates
effective on January 23, 1996. The FPSC approved a new rate structure called
"capband," which replaces uniform rates. With capband rates, areas with similar
cost of service are grouped into one of a number of rate bands, and all
customers within a given band are charged the same rate. This rate structure is
designed so that a customer's bill will not exceed a certain "cap" unless the
customer's usage exceeds an assumed level. On November 1, 1996 Florida Water
filed with the Court of Appeals an appeal of the FPSC's final order seeking
judicial review of issues relating to the amount of investment in utility
facilities recoverable in rates from current customers. Other parties to the
rate case also filed appeals with the Court of Appeals regarding the FPSC's
final order. The Company is unable to predict the outcome of this matter.
Effective June 13, 1997 Florida law provides thatWater resumed collecting pre-existing Allowance
for Funds Prudently Invested (AFPI) charges. AFPI represents the accrued
carrying cost of certain non-used and useful property excluded from rate base
and is collected as a one-time charge to certain new rates be
implemented,water and wastewater
customers. The recovery of AFPI charges at certain Florida Water service areas
was reduced or eliminated in the FPSC's October 1996 final order issued in
connection with Florida Water's 1995 rate case. In April 1997 the FPSC, acting
on Florida Water's motion, allowed recovery of pre-existing AFPI charges for
these service areas, subject to refund whilewith interest in the order is under appeal.
Florida Jurisdictional Issues. In Juneevent of an adverse
court ruling in the appeal of the 1995 the FPSC issued an order assuming
jurisdiction overrate case. Florida Water facilities statewide followingestimates
approximately $1 million, on an investigationannual basis, will be collected and accounted
for as deferred revenue pending results of all of Florida Water's facilities. Several counties in Florida appealed this
FPSC decision to the Court of Appeals. In December 1996 the Court of Appeals
issued an opinion reversing the FPSC order. In January 1997 the Court of Appeals
denied motions for rehearing. No further appeals were filed.appeal.
Hernando County Rates. As required by Hernando County, on April 14, 1997
Florida Water filed for a rate change with the Hernando County Board of
Commissioners. Florida Water filed for an annual interim rate reduction of
$258,780 (-3.3 percent) and a final rate increase of $123,897 (1.6 percent).
On June 14, 1997 the final rate increase Florida Water requested became
effective automatically by operation of law because Hernando County failed to
take action on the rates within the prescribed statutory period.
-6-
Note 2. Regulatory Matters (Continued)
In July 1997 Florida Water reached a settlement agreement with Hernando County
regarding the rate case Florida Water filed in April 1997. Under the
settlement agreement, new rates will be effective September 1, 1997 and are
expected to result in $6.3 million of revenue on an annual basis, a $1.6 million
decrease from current revenue levels implemented on June 14, 1997. Rates will
then be increased January 1, 1999 to result in $7.2 million in revenue on an
annual basis. Florida Water has also agreed not to file for new rates with
Hernando County prior to September 2000. All litigation was dismissed by both
parties.
Florida Water's settlement agreement with Hernando County supersedes the FPSC's
February 14, 1997 the FPSC issued an order which requiresrequired Florida Water to charge rates to
customers in Hernando County based on a modified stand-alone rate structure instead of the uniform rate structure set
by the FPSC in the 1991 rate case and currently in effect. The imposition of
this rate structure would reduce Florida Water revenue by $1.6 million on a
prospective annual basis.structure.
Hillsborough County Rates. On February 28,July 2, 1997 Florida Water filed for a motionrate change
with the FPSC for reconsideration of this order. Florida Water's February 28, 1997
request for reconsideration of this order was heard on May 6, 1997, at which
time the FPSC indicated the request would be denied.Hillsborough County Utilities Department. Florida Water plans on
appealing this denial whenfiled for an
annual interim rate increase of $848,845 (43.1 percent) and a final rate
increase of $877,607 (44.6 percent). Interim rates are anticipated to become
effective 45 days from the written order is received. Sincedate of the order
involves a rate reduction, Florida Water believes that, under FPSC rules, the
FPSC must grant a stay of this rate reduction pending the outcome of any
appeals.filing. The Company is unable to predict
the outcome of this matter.
Since Hernando County has assumed jurisdiction over Florida Water's rates within
the county,case.
Index Filings. In July 1997 Florida Water filed a ratetwo index filings which if
approved will increase in April 1997 as requestedrevenue by Hernando County. Final rates resulting in $8 million in annualized revenues for$436,000. Approval is expected on or about
October 1, 1997. Under Florida law water and wastewater services, if approved by Hernando County, would result in a
$124,000 netutilities may make an
annual increase from current revenue levels. By law, the County
must take action by June 1997 on Florida Water's request for interim rates.
-5-
index filing designed to recover inflationary costs associated with
operation and maintenance expense.
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 470 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 $20.1 million from 1997 through 2001. 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.
Note 4. Income Tax Expense
Quarter Ended
March 31,
Schedule of Income Tax Expense (Benefit) 1997 1996
- --------------------------------------------------------------------------------
In Thousands
Current tax
Federal $ 8,208 $ 8,859
Foreign (353) (101)
State 1,872 2,931
-------- ---------
9,727 11,689
-------- ---------
Deferred tax
Federal (149) (12)
State (289) (730)
-------- ---------
(438) (742)
-------- ---------
Deferred tax credits (493) (623)
-------- ---------
Total income tax expense $ 8,796 $ 10,324
- --------------------------------------------------------------------------------
-6-
Quarter Ended Six Months Ended
June 30, June 30,
Schedule of Income Tax Expense (Benefit) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
In Thousands
Current tax
Federal $ 8,881 $ 4,030 $ 16,461 $ 12,888
Foreign 743 551 1,096 450
State 1,511 1,162 3,305 4,093
------- -------- -------- --------
11,135 5,743 20,862 17,431
------- -------- -------- --------
Deferred tax
Federal 2,115 1,143 1,966 1,131
State (317) 84 (606) (646)
------- -------- -------- --------
1,798 1,227 1,360 485
------- -------- -------- --------
Change in valuation allowance - (2,000) - (2,000)
------- -------- -------- --------
Deferred tax credits (369) (217) (862) (839)
------- -------- -------- --------
Total income tax expense $12,564 $ 4,753 $ 21,360 $ 15,077
- -------------------------------------------------------------------------------------------------------------------
-7-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Minnesota Power has operations in four business segments: (1) electric
operations, which include electric and gas services, and coal mining; (2) water
services, which include water and wastewater services; (3) automotive services,
which include auctions, a finance company and an auto transport company; and (4)
investments, which include a securities portfolio, a 21 percent equity
investment in a financial guaranty reinsurance company, and real estate
operations.
Earnings per share of common stock for the quarter ended March 31,June 30, 1997 were 5260
cents compared to 6149 cents for the quarter ended March 31,June 30, 1996. Significant
increases from electric operations and automotive services were the primary
contributors to higher earnings in 1997. Higher earnings from electric
operations include compensation from the Company's sale of its rights to
microwave frequencies and property tax relief from the State of Minnesota.
Automotive services earnings are higher due to a 28 percent increase in the
number of cars sold at ADESA's auctions and the expansion of AFC's floor plan
financing business. In 1996 portfolio and reinsurance included a one-time tax
benefit for an IRS audit adjustment.
Earnings per share of common stock for the six months ended June 30, 1997 were
$1.12 compared to $1.10 for the six months ended June 30, 1996. Earnings in 1997
reflect a significant increase in automotive services due to a 28 percent
increase in the number of cars sold at ADESA's auctions and the expansion of
ADESA's automobile auction operations and AFC's dealer floor plan financing business. 1997 earnings also reflect a solid
performance from electric operations and consistent performance by the portfolio
and reinsurance partportion of the investments segment,segment. In 1996 portfolio and
reinsurance included a decrease in earnings from water services due to a
loss incurred by ISI.one-time tax benefit for an IRS audit adjustment.
Corporate charges and other reflect increased debt service costs due toas a result of
the higher balance of commercial paper in 1997 and a full quartersix months of distributions
with respect to the Cumulative Quarterly Income Preferred Securities issued in
March 1996. Earnings in 1996 reflectinclude a gain in water services from the sale of
water assets and a significant gain from the sale of a real estate joint venture interest by the real estate part of the investments segment.
Quarter Ended March 31,
Earnings Per Share 1997 1996
- -------------------------------------------------------------------------------
Electric Operations $ .40 $ .41
Water Services .01 .03
Automotive Services .11 .03
Investments
Portfolio and reinsurance .18 .18
Real estate .01 .11
----- -----
.19 .29
Corporate Charges and Other (.19) (.15)
----- -----
Total Earnings Per Share $ .52 $ .61
- -------------------------------------------------------------------------------estate.
Quarter Ended Six Months Ended
June 30, June 30,
Earnings Per Share 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
Electric Operations $ .32 $ .23 $ .72 $ .64
Water Services .08 .07 .09 .10
Automotive Services .14 .05 .25 .08
Investments
Portfolio and reinsurance .15 .20 .33 .38
Real estate .06 .10 .07 .21
------ ------ ------ -------
.21 .30 .40 .59
Corporate Charges and Other (.15) (.16) (.34) (.31)
------ ------ ------ -------
Total Earnings Per Share $ .60 $ .49 $ 1.12 $ 1.10
- -------------------------------------------------------------------------------------------------------------
Consolidated Financial Comparison
of the Quarters Ended March 31,June 30, 1997 and 1996.
Operating Revenue and Income. Electric operations operating revenue and income was down slightly comparedup $21.9 million (10.5 percent) due primarily
to 1996 due to a 2 percent decrease in total
kilowatthour sales. The decrease is attributed to a decline in sales to other
power suppliers due to the fact that less power was available for resale. The
decrease was partially offset by an increase in sales to large power taconite
and paper customers because of more favorable winter weather conditions allowing
higher production of taconite pellets compared to 1996 and an increased demand
for paper.
Water services operating revenue and income was 7 percent higher in 1997
primarily because of increased rates approved by the FPSC in September 1996. A
$1.1 million pre-tax gain from the sale of water assets was included in 1996.
Automotive Services. The addition of eight automobile auction sites during 1996
was the primary factor that contributed to the 52 percent increase in automotive
services operating revenue and income and the 29 percent increase in the number of cars sold. The expansion of AFC's dealer financing businesssold at ADESA's auctions. An increase in
real estate sales also contributed to higherthe increase in operating revenue and
income.
Investments operating revenueFuel and incomepurchased power were down $2.3 million (4.8 percent) because of a 16
percent decrease in generation at the Company's coal fired generating stations
due to unscheduled outages and a 9 percent reduction in power purchased from
other suppliers. The price of purchased power was lower in 1997substantially higher per
megawatthour because 1996 included
$3.7 million fromof a limited supply available for purchase and additional
transmission fees assessed for the saledelivery of Lehigh's joint venture investment in a resort and
golf course.
-7-power within the Midwest.
-8-
Operations expenses were $18.6up $11.3 million higher in 1997. The increase reflects
$8.7 million(8.8 percent), reflecting the
expansion of expenses from the eightADESA's automobile auction sites added by ADESA
in 1996. The expansion ofoperations, AFC, and the 1996 additions of ISI and Palm Coast,
increased operations expense $4.9 million in 1997.Coast.
Interest expense was higher in 1997 due primarily to a higher balance of
commercial paper usedpaper.
Income tax expense was significantly higher in 1997 due to fund the $11.7 million
increase in operating income and the recognition of a $2 million tax benefit by
Lehigh in 1996.
Consolidated Financial Comparison
Six Months Ended June 30, 1997 and 1996.
Operating revenue and income was up $41.3 million (10 percent), primarily due to
the addition of ADESA's nine new auction sites and increased car sales at
existing ADESA auctions. Also, revenue from water services was higher in 1997
because of increased rates approved by the FPSC effective in September 1996. The
increase was partially offset by lower revenue following the sale of two water
systems by Heater in 1996. A $1.1 million pre-tax gain on the sale of one water
system in South Carolina was recognized in March 1996.
Operations expenses were up $29.8 million (12.1 percent). The increase reflected
$14.1 million of expenses from the eight automobile auction sites added by ADESA
in 1996 and one auction site added in 1997. The expansion of automotive services.AFC, and
acquisitions of ISI and Palm Coast, also increased operations expense in 1997.
Interest expense was higher in 1997 due primarily to more commercial paper
issued.
Distributions on redeemable preferred securities of subsidiary arewere higher in
1997 because the securities were outstanding for the entire quartersix months in 1997 compared
to less than one monthfour months in 1996.
Income tax expense was significantly higher in 1997 due to the $9.3 million
increase in operating income and the recognition of a $2 million tax benefit by
Lehigh in 1996.
Business Segment Comparison
of the Quarters Ended March 31,June 30, 1997 and 1996.
Electric Operations. Operating revenue and income was up slightly in 1997.
Proceeds from electric operations was
down slightly comparedthe sale of rights to 1996 duemicrowave frequencies and the sale of river
land to the State of Minnesota offset a 2decline in revenue from an 11 percent
decrease in total kilowatthour sales. The decrease is attributed to a declineKilowatthour sales for resale by MPEX, the
Company's power marketing division, were down 40 percent in sales to other power suppliers1997 due to the fact that less
power available for resale. Less power was available for resale. The decrease was
partially offset by an increase in sales to large power taconite and paper
customers because of more favorable winter weather conditions allowing higher production of taconite pellets compared to 1996prices
for purchased power, various generating unit outages, reduction in transmission
capability damaged by severe spring storms in the Midwest and an increased demand for
paper.less hydro
generation in Canada. While revenue from MPEX sales was lower in 1997, higher
profit margins were realized on these sales.
Revenue from electric sales to taconite customers accounted for 3231 percent of
electric operating revenue in 1997 compared to 3133 percent in 1996. Electric
sales to paper and other wood-products companies accounted for 12 percent of
electric operating revenue in 1997 and 11 percent in 1996. Sales to other power
suppliers accounted for 312 percent of electric operating revenue in 1997
compared to 515 percent in 1996.
Total electric operating expenses decreased by $5.2 million in 1997 including a
$2.3 million decrease in fuel and purchased power because of reduced
kilowatthour sales. Recent reform of the Minnesota property tax system also
reduced operating expenses in 1997.
Water Services. Operating revenue and income from water services was lower in
1997 primarily due to lower revenue following the sale of two water systems by
Heater in 1996 and lower consumption by customers in Florida and North Carolina.
Operating expenses were also lower because of ongoing cost controls and improved
operating efficiency.
-9-
Automotive Services. Operating revenue and income was $19.2 million higher in
1997 due primarily to the addition of nine new automobile auction sites and
increased sales at existing sites. ADESA sold 204,000 cars in 1997 compared to
160,000 in 1996. Growth of AFC's floor plan financing business and increased
transport business also increased revenue and income. Operating expenses were
higher in 1997 because of the addition of nine auction sites and increased
activity at existing sites. The expansion of AFC's floor plan financing
business also contributed to higher operating expenses.
Investments.
- Securities Portfolio and Reinsurance. The Company's securities portfolio
and reinsurance continued to perform well in 1997 as in 1996. Capital Re's
contribution to earnings increased in 1997. A one-time tax benefit for an
IRS audit adjustment was included in 1996.
- Real Estate Operations. Revenue was up in 1997 as a result of additional
sales of properties at Palm Coast. Expenses also were higher due to
expanded operations. The recognition of $2 million of tax benefits at
Lehigh in 1996 made real estate's contribution to net income higher in 1996
than 1997.
Business Segment Comparison
Six Months Ended June 30, 1997 and 1996.
Electric Operations. Operating revenue and income from electric operations was
up slightly in 1997. Proceeds from the sale of rights to microwave frequencies
and the sale of river land to the State of Minnesota offset a decline in revenue
resulting from a 7 percent decrease in total kilowatthour sales. The decrease
is attributed to a decline in sales to other power suppliers due to less
power available for resale. Less power was available because of higher prices
for purchased power, various generating unit outages, reduction in transmission
capability damaged by severe spring storms in the Midwest and less hydro
generation in Canada. The decrease in kilowatt sales was partially offset by
an increase in sales to paper customers because of a higher demand for paper.
Revenue from electric sales to taconite customers accounted for 32 percent of
electric operating revenue in 1997 and 1996. Electric sales to paper and other
wood-products companies accounted for 12 percent of electric operating revenue
in 1997 and 11 percent in 1996. Sales to other power suppliers accounted for 10
percent of electric operating revenue in 1997 compared to 12 percent in 1996.
Total electric operating expenses decreased by $5.2 million in 1997 including a
$1.9 million decrease in fuel and purchased power because of reduced
kilowatthour sales. Lower property taxes due to the 1997 reform of the Minnesota
property tax system and lower interest charges also contributed to the cost
reductions in 1997 operating expenses.
Water Services. Operating revenue and income from water services was higher in
1997 primarily because of increased rates approved by the FPSC in 1996 for
Florida Water customers. The increase was partially offset by lesslower revenue
following the sale of two water systems by Heater in 1996. The first quarter of 1996 included
aA $1.1 million
pre-tax gain on the sale of one water system in South Carolina.
ISI, whichCarolina was acquiredrecognized in
April 1996, increased revenue by $1.0 million and
operating expenses by $1.6 million in 1997.March 1996.
Automotive Services. TheOperating revenue and income was $40 million higher in 1997
due primarily to the addition of eightnine new automobile auction sites during 1996
wasand increased
sales at existing sites. ADESA sold 391,000 cars in 1997 compared to 305,000 in
1996. Growth of AFC's floor plan financing business, increased transport
business and a gain on the primary factor that contributed to the 52 percent increase in operatingsale of an auction also increased revenue and incomeincome.
Operating expenses were higher in 1997 because of the addition of nine auction
sites and the 29 percent increase in the number of cars sold.increased activity at existing sites. The expansion of AFC's dealerfloor
plan financing business also contributed to higher operating revenue and income. The eight additional automobile auction sites
increased operating expenses by $8.7 million in 1997.expenses.
-10-
Investments.
- Securities Portfolio and Reinsurance. The Company's securities portfolio
and reinsurance earned an annualized after tax return of 10.18.6 percent in
1997 compared to 9.29.8 percent in 1996. A one-time tax benefit for an IRS
audit adjustment was included in 1996.
- Real Estate Operations. Revenue was down in 1997 as a result of
fluctuations in sales from quartercompared to quarter. Revenue in 1996 which
included $3.7 million from the sale of Lehigh's joint venture investment in
a resort and golf course. Also, theThe April 1996 acquisition of Palm Coast
increased 1997 operating expenses by $1.3 million.
-8-
revenue and expenses. The recognition of $2
million of tax benefits at Lehigh in 1996 made real estate's contribution
to net income higher in 1996 than 1997.
Liquidity and Financial Position
Reference is made to the Consolidated Statement of Cash Flows for the threesix months
ended March 31,June 30, 1997 and 1996, for purposes of the following discussion.
Cash Flow Activities. Cash from operating activities was affected by a number of
factors representative of normal operations.
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 4 million original issue shares of common stockCommon Stock
are available for issuance through the DRIP.
On May 1, 1997 AFC has sold an additional $25a total of $75 million of receivables to a third party purchaser
since December 1996, including $25 million in total $75 million.May 1997. Under the terms of thea
five year agreement, the purchaser agrees to make reinvestments up toinvestments aggregating $100
million, at any one time outstanding, to the extent that such reinvestmentsinvestments are
supported by eligible receivables. Proceeds from the sale of the receivables
were used to repay borrowings from the Company.
In June 1997 Minnesota Power refinanced $10 million of industrial development
revenue bonds and $29 million of pollution control bonds with $39 million of
Variable Rate Demand Revenue Refunding Bonds Series 1997A due June 1, 2020,
Series 1997B and Series 1997C due June 1, 2013 and Series 1997D due December 1,
2007. A total of $36.5 million of the transaction was completed in June and
July. The remaining $2.5 million of the refinancing is expected to be completed
by October 1997. In May 1997 MP Water Resources' $30 million 10.44% long-term
note payable was refinanced with $24 million of Florida Water's First Mortgage
Bonds, 8.01% Series due May 30, 2017 and $6 million of internally generated
funds.
Capital Requirements. Consolidated capital expenditures for the threesix months ended
March 31,June 30, 1997 totaled $15.1$34 million. These expenditures include $7.7$17 million for
electric operations, $5.7$10 million for water services and $1.7$7 million for
automotive services. Internally generated funds were the primary source for
funding electric and water operation expenditures. ADESA issued
long-term debt to finance its capital expenditures.
New Accounting Standard.Standards
In FebruaryJune 1997 the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 128130 (SFAS 128)130), "Reporting Comprehensive Net
Income", effective for fiscal years beginning after December 15, 1997. While
earlier application is permitted, the Company does not intend to do so. SFAS 130
establishes standards for reporting and display of comprehensive income in a
full set of general-purpose financial statements. Comprehensive income is
defined as the change in equity during a period from all transactions and other
events from nonowner sources. The adoption of SFAS 130 is not expected to impact
the Company's financial position or results of operations.
-11-
Also in June 1997 the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information", effective for fiscal years beginning after
December 15, 1997. SFAS 131 requires the reporting of certain information about
operating segments of an enterprise. The Company believes that it is already in
compliance with SFAS 131 in all material respects.
In February 1997 the FASB issued SFAS 128, "Earnings per Share," effective for
financial statements for both interim and annual periods ending after December
15, 1997. Earlier application is not permitted. SFAS 128 specifies the
computation, presentation and disclosure requirements for earnings per share
(EPS). The objective of the new standard is to simplify the computation of EPS
and make the U.S. standard for this computation more compatible with the EPS
standards of other countries and with that of the International Accounting
Standards Committee. The adoption of SFAS 128 is expected to be immaterial to
the Company's results of operations.
-9-
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Shareholders on May 13, 1997.
(b) Not applicable.
(c) The election of directors and the appointment of independent accountants
were voted on at the Annual Meeting of Shareholders.
The results were as follows:
Votes
Withheld or Broker
Directors Votes For Against Abstentions Nonvotes
--------- --------- ------- ----------- --------
Kathleen A. Brekken 28,796,594 615,305 - -
Merrill K. Cragun 28,883,406 528,493 - -
Dennis E. Evans 28,747,266 664,633 - -
Peter J. Johnson 28,926,407 485,492 - -
George L. Mayer 28,883,321 528,578 - -
Paula F. McQueen 28,887,327 524,572 - -
Robert S. Nickoloff 28,795,894 616,005 - -
Jack I. Rajala 28,897,584 514,315 - -
Edwin L. Russell 28,820,997 590,902 - -
Arend J. Sandbulte 28,814,709 597,190 - -
Nick Smith 28,850,785 561,114 - -
Bruce W. Stender 28,900,628 511,271 - -
Donald C. Wegmiller 28,842,900 568,999 - -
Independent Accountants
-----------------------
Price Waterhouse LLP 28,773,751 273,435 364,713 -
(d) Not applicable.
-12-
Item 5. Other Information
Reference is made to the Company's 1996 Form 10-K for background information on
the following updates. Unless otherwise indicated, cited references are to the
Company's 1996 Form 10-K.
Ref. Page 4. - Table - Contract Status for Minnesota Power Large Power Customers
On May 2, 1997 the MPUC approved a new Large Power contract with Inland Steel
Mining Co. (Inland). The agreement provides for Minnesota Power to remain
Inland's sole electric supplier through December 31, 2007.
Ref. Page 8.13. - Fifth Paragraph
On March 14,June 30, 1997 the Public Service CommissionNCUC approved the transfer of Wisconsin approved SWL&P's
requestLaGrange Waterworks
Corporation (LaGrange) to serve potential natural gasHeater. The Company has agreed to exchange 96,000
shares of Common Stock for the outstanding shares of LaGrange. The public staff
of the NCUC and the City of Fayetteville filed requests for reconsideration
of the NCUC's approval of the transfer. LaGrange provides water services to
approximately 5,300 customers near Fayetteville, NC.
Ref. Page 13. - Following the Sixth Paragraph
On June 2, 1997 operations officially began at MP Water Resources' newly formed
subsidiary, Americas' Water Services Corporation (Americas' Water). Americas'
Water, which is headquartered in Chicago, Illinois, offers management,
operations and maintenance contract services and expertise to governments and
industries throughout the Solon Springs and
Bennett, Wisconsin areas. The projectAmericas. MP Water Resources is expected to cost $1.5 million and will
be funded in part through a surcharge to new customers inwholly owned
subsidiary of the expansion area
over a five-year period.Company.
Ref. Page 14. - Second Paragraph
SinceRef. 10-Q for the quarter ended March 31, 1997, Page 5 - Fourth and Fifth
Paragraphs
Ref. 10-Q for the quarter ended March 31, 1997, Page 10 - Third Paragraph
As required by Hernando County, has assumed jurisdiction overon April 14, 1997 Florida Water'sWater filed for a rate
change with the Hernando County Board of Commissioners. Florida Water filed for
an annual interim rate reduction of $258,780 (-3.3 percent) and a final rate
increase of $123,897 (1.6 percent). On June 14, 1997 the final rate increase
Florida Water requested became effective automatically by operation of law
because Hernando County failed to take action on the rates within the
county,prescribed statutory period.
In July 1997 Florida Water reached a settlement agreement with Hernando County
regarding the rate case Florida Water filed in April 1997. Under the
settlement agreement, new rates will be effective September 1, 1997 and
are expected to result in $6.3 million of revenue on an annual basis, a
$1.6 million decrease from current revenue levels implemented on June 14,
1997. Rates will then be increased January 1, 1999 to result in $7.2
million in revenue on an annual basis. Florida Water has also agreed not to file
for new rates with Hernando County prior to September 2000. All litigation was
dismissed by both parties.
Florida Water's settlement agreement with Hernando County supersedes the FPSC's
February 14, 1997 order which required Florida Water to charge rates to
customers in Hernando County based on a modified stand-alone rate structure.
Ref. Page 14. - Following the Second Paragraph
On July 2, 1997 Florida Water filed for a rate change with the Hillsborough
County Utilities Department. The Company filed for an annual interim rate
increase in Aprilof $848,845 (43.1 percent) and a final rate increase of $877,607 (44.6
percent). Interim rates are anticipated to become effective 45 days from the
date of the filing. The Company is unable to predict the outcome of this case.
In July 1997 as requestedFlorida Water filed two index filings which if approved will
increase revenue by Hernando County. Final rates resulting in $8 million in annualized revenues for$436,000. Approval is expected on or about October 1, 1997.
Under Florida law water and wastewater services, if approved by Hernando County, would result in a
$124,000 netutilities may make an annual increase from current revenue levels. By law, the County
must take action by June 1997 on Florida Water's request for interim rates.
Ref. Page 15. - Sixth Paragraph
On April 14, 1997 the DOJ, on behalf of the EPA, served Florida Waterindex
filing designed to recover inflationary costs associated with a
complaint in a civil action in the U.S. District Court for the Middle District
of Florida (District Court). The suit seeks civil penalties of not to exceed
$25,000 per day for each alleged violation of effluent limitations in the
National Pollutant Discharge Elimination System permits occurring at the
University Shoresoperation and
Seaboard wastewater facilities from February 1992 through
March 1994. Florida Water timely filed with the District Court the answer to the
complaint on May 5, 1997.maintenance expense.
Ref. Page 16. - Fourth Paragraph
OnRef. 10-Q for the quarter ended March 31, 1997, Page 10 - Last Paragraph
On May 15, 1997 ADESA signed a letter agreement to participate in a joint
venture to openacquired 100 percent of a new automobile auction in
Sacramento, California. The Sacramento site is on 37 acres with five auction
lanes.
On March 31, 1997 ADESA
sold its Sarasota/Bradenton auction facilities in Florida in favor of
emphasizing its Jacksonville and South Florida auctions.
-10--13-
-------------------------------------
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 (Reform Act), the Company is hereby filing
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made by
or on behalf of the Company 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", "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 the control of the Company and may cause actual
results to differ materially from those contained in forward-looking statements:
(i) prevailing governmental policies and regulatory actions, including those of
the FERC, the MPUC, the FPSC, the NCUC, the SCPSC and the PSCW, with respect to
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 present or prospective wholesale and retail
competition (including but not limited to retail wheeling and transmission
costs); (ii) economic and geographic factors including political and economic
risks; (iii) changes in and compliance with environmental and safety laws and
policies; (iv) weather conditions; (v) population growth rates and demographic
patterns; (vi) competition for retail and wholesale customers; (vii) pricing and
transportation of commodities; (viii) market demand, including structural market
changes; (ix) changes in tax rates or policies or in rates of inflation; (x)
changes in project costs; (xi) unanticipated changes in operating expenses and
capital expenditures; (xii) capital market conditions; (xiii) competition for
new energy development opportunities; and (xiv) legal and administrative
proceedings (whether civil or criminal) and settlements that influence the
business and profitability of the Company.
Any forward-looking statements speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such 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 such factors, nor can it assess the impact of any
such factor on the business or the extent to which any factor, or combination of
factors, may cause results to differ materially from those contained in any
forward-looking statement.
-------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4 SecondThird Supplemental Indenture, dated as of March 31,May 28, 1997, between
Southern States Utilities, Inc.(now (now Florida Water Services
Corporation) and Nationsbank of Georgia, National Association
(now SunTrust Bank, Central Florida, N.A.), as Trustee.
27 Financial Data Schedule
(b) Reports on Form 8-K.
Report on Form 8-K dated and filed March 19,June 23, 1997 with respect to Item 7.
Financial Statements and Exhibits.
-11-5.
Other Events.
-14-
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)
May 9,August 7, 1997 D. G. Gartzke
-------------------------------
D. G. Gartzke
Senior Vice President - Finance
and Chief Financial Officer
May 9,August 7, 1997 Mark A. Schober
-------------------------------
Mark A. Schober
Controller
-12--15-