Securities and Exchange Commission
Washington, D.C. 20549
FORM 11-K
(Mark One)
/X/ Annual Report Pursuant to Section 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended December 31, 1994
or
/ / Transition Report Pursuant to Section 15(d) of the Securities Exchange Act
of 1934
For the transition period from _____ to _____
Commission File No. 1-3548
Minnesota Power and Affiliated Companies
Employee Stock Ownership Plan
and Trust
(Full Title of the Plan)
------------------------
Minnesota Power & Light Company
30 West Superior Street
Duluth, Minnesota 55802
(Name of issuer of securities
held pursuant to the Plan and
the address of its principal
executive office)
------------------------
Report of Independent Accountants
To the Participants and Administrator
of the Minnesota Power and Affiliated
Companies Employee Stock Ownership
Plan and Trust
In our opinion, the accompanying statements of net assets available for plan
benefits and the related statements of changes in net assets available for plan
benefits present fairly, in all material respects, the net assets available for
plan benefits of the Minnesota Power and Affiliated Companies Employee Stock
Ownership Plan and Trust at December 31, 1994, and 1993, and the changes in net
assets available for plan benefits for the years then ended, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Plan's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The additional information included in Schedules I
and II is presented for purposes of additional analysis and is not a required
part of the basic financial statements but is additional information required
by the Employee Retirement Income Security Act of 1974. Such information has
been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Price Waterhouse LLP
Minneapolis, Minnesota
June 16, 1995
1
Minnesota Power and Affiliated Companies
Employee Stock Ownership Plan and Trust
Statement of Net Assets Available for Plan Benefits
December 31,
1994 1993
---- ----
Assets, at fair value
Investment in Minnesota Power & Light Company
Common Stock (4,695,393 and 4,758,889
shares at cost of $110,088,503 and
$111,125,700, respectively) $118,558,673 $155,853,615
Contributions receivable from Company 1,176,044 1,001,547
Cash and cash equivalents 3,626 216,745
------------ ------------
Total Assets 119,738,343 157,071,907
------------ ------------
Liabilities
Accounts payable and accrued
administrative expenses 64 11
Accrued interest expense 1,173,014 1,175,251
Long-term debt 86,702,208 89,420,832
------------ ------------
Total Liabilities 87,875,286 90,596,094
------------ ------------
Net assets available for plan benefits $ 31,863,057 $ 66,475,813
============ ============
The accompanying notes are an integral part of these statements.
2
Minnesota Power and Affiliated Companies
Employee Stock Ownership Plan and Trust
Statement of Changes in Net Assets Available for Plan Benefits
December 31,
1994 1993
---- ----
Sources of net assets
Dividend income $ 9,556,565 $ 9,483,824
Company contributions 3,548,603 1,521,322
Interest income 28,669 18,804
----------- -----------
13,133,837 11,023,950
Application of net assets
Participants' withdrawals (2,950,822) (2,611,091)
Transfers to pension plan (601,386) (628,335)
Interest expense (9,002,116) (9,049,995)
Net unrealized depreciation of
investments (35,172,345) (7,158,768)
Net realized gain (loss) on
sales of securities (14,944) 179
Administrative expenses (4,980) (15,815)
------------ ------------
Decrease in net assets (34,612,756) (8,439,875)
Net assets available for plan benefits
Beginning of year 66,475,813 74,915,688
----------- -----------
End of year $31,863,057 $66,475,813
=========== ===========
The accompanying notes are an integral part of these statements.
3
Minnesota Power and Affiliated Companies
Employee Stock Ownership Plan and Trust
Notes to Financial Statements
Note 1 - Description of the Plan
The Minnesota Power and Affiliated Companies Employee Stock Ownership Plan
and Trust (ESOP) provides eligible employees of Minnesota Power & Light Company
(Minnesota Power); Superior Water, Light and Power Company; and Topeka Group
Incorporated (collectively, the Companies) with Minnesota Power common stock
(Common Stock) ownership benefits. The ESOP is a defined contribution plan that
is subject to the provisions of the Employee Retirement Income Security Act of
1974 (ERISA). At December 31, 1994, there were 1,748 participants in the ESOP.
Basic Account
For each ESOP year before 1983, participants' Basic Accounts received
shares of Common Stock purchased with incremental investment credit
contributions. For each ESOP year from 1983 to 1986, shares of Common Stock
purchased with payroll-based tax credit contributions were allocated to each
ESOP participant's Basic Account. Contributions to the participant's Basic
Accounts ceased after ESOP year 1986, due to the repeal of the payroll tax
credit.
All participants are fully vested in these shares purchased with the
investment and payroll-based credits. These shares can be withdrawn if the
participant terminates employment or if the shares have been in the ESOP for 7
years. Every December each participant is required to make an election to
receive dividends on their shares either in cash or reinvest them in Common
Stock held in the ESOP.
Special Account
Beginning in 1985 the Companies received a tax deduction for cash
dividends paid to participants on their ESOP shares. The Companies contributed
to the ESOP an amount equal to the estimated income tax benefit of the dividend
deduction associated with shares in the Basic Account. Shares of Common Stock
purchased with these contributions were allocated to the participants' Special
Account. All participants are fully vested in these shares which can be
withdrawn when the participants terminate employment. Dividends on these shares
are automatically reinvested in Common Stock held in the ESOP.
4
First Suspense Account
In 1989 the ESOP was amended to enable the ESOP Trustee (as defined below)
to establish a leveraged First Suspense Account. Employees become eligible to
participate after one year of service with the Companies. The First Suspense
Account originally consisted of 633,849 shares of Common Stock purchased for
the benefit of eligible ESOP participants with proceeds from a 15 year $16.5
million loan (First Loan) bearing interest at 9.125%. This loan was obtained by
the ESOP Trustee on December 29, 1989, and guaranteed by Minnesota Power. The
First Suspense Account provides that as the First Loan is repaid, shares of
Common Stock in the First Suspense Account are allocated to each participant's
account based on the ratio of a participant's annual compensation to the annual
compensation of all participants. In any year that the value of the shares
credited to a participant's account is less than 2% of the participant's annual
compensation, the Companies will contribute additional shares to make up the
difference. Shares of Common Stock are also allocated to participants' accounts
through reinvested dividends paid on the shares in the First Suspense Account.
All participants are fully vested after 5 years of continuous service with the
Companies.
Second Suspense Account
Minnesota Power amended the ESOP again in 1990 to enable the ESOP Trustee
to establish a leveraged Second Suspense Account and borrow an additional $75
million (Second Loan) for the purpose of acquiring 2,830,188 newly issued
shares of Common Stock from Minnesota Power for the benefit of eligible ESOP
participants. Under this amendment eligible participants with Basic Accounts
are allocated shares with a value at least equal to: (a) dividends payable on
shares held by those participants in the ESOP who do not elect to receive
dividends in cash, and (b) tax savings generated from the deductibility of
dividends paid on all shares held in the ESOP as of August 4, 1989. Pursuant to
this amendment, the ESOP Trustee issued a promissory note to Minnesota Power
for $75 million at a 10.25% interest rate with a term not to exceed 25 years.
Administration
The ESOP is administered for the Companies by the Employee Benefit Plans
Committee (the Committee). The mailing address of the Committee is 30 West
Superior Street, Duluth, Minnesota 55802. The Committee is authorized to make
rules and regulations as it may deem necessary to carry out the provisions of
the ESOP and to employ investment managers (as defined by ERISA), attorneys,
accountants, and such other persons as it shall deem necessary or desirable in
the administration of the ESOP. The Committee consists of 12 members who were
appointed by the Board of Directors of Minnesota Power. The Board of Directors
has the power to remove members of the Committee from office. Members of the
Committee receive no compensation for their services with respect to the ESOP.
5
As of June 1, 1995, the Committee members, all employees of Minnesota
Power, and their respective titles are as follows:
Name Title
---- -----
Robert D. Edwards Executive Vice President and President -
Minnesota Power - Electric (1)
Roger P. Engle Vice President - Customer Operations
David G. Gartzke Senior Vice President - Finance and Chief
Financial Officer
Eugene G. McGillis Vice President; President of Superior Water,
Light and Power Company
Stephen D. Sherner Vice President - Power Marketing and Delivery
Geraldine R. VanTassel Vice President - Corporate Resource Planning
Mark A. Schober Corporate Controller
Philip R. Halverson General Counsel and Corporate Secretary
Dennis L. Hollingsworth Assistant Vice President - Corporate Development
Lori A. Collard Director - Marketing
Donald J. Shippar Director - Human Resources
Jeweleon W. Tuominen Supervisor - Benefits Accounting and
Administration
- --------------------
(1) Committee Chairman
Mellon Bank, N.A., (Mellon Bank) acts as trustee (ESOP Trustee) for the
ESOP. The ESOP Trustee's main office is located at Mellon Bank Center,
Pittsburgh, Pennsylvania 15258-0001. The ESOP Trustee carries blanket bond
insurance in the amount of $100,000,000. Minnesota Power maintains the
participants' records and issues quarterly reports to each participant showing
the status of individual accounts.
ESOP Termination
The Companies reserve the right to reduce, suspend or discontinue their
contributions to the ESOP or to terminate the ESOP in its entirety subject to
the provisions of ERISA. In the event that the ESOP is terminated, the
Committee may require that the accounts of all participants and beneficiaries
be distributed as soon after the termination date as the Committee deems
practicable, regardless of the length of time Common Stock has been allocated
to any account.
Contributions
The Companies' contribution for each year shall be paid to the ESOP
Trustee either in cash or in Common Stock. Subject to a statutory maximum, the
expenses incidental to establishing and administering the ESOP may be deducted
from the Companies' contributions to the ESOP or income earned by the shares
held in the ESOP. Expenses not attributable to such sources are payable by the
Companies. No fees or charges will be payable by any ESOP participant.
6
Transfers
Upon retirement, participants may elect to transfer the vested amount of
their ESOP account balances to the Minnesota Power and Affiliated Companies
Retirement Plan A or Plan B.
Note 2 - Summary of Accounting Policies
The ESOP uses the accrual basis of accounting and accordingly reflects
income in the year earned and expenses when incurred. Investments are reported
at their fair value based on quoted market price.
Note 3 - Repayment of Loans
The ESOP Trustee will repay principal and interest on the First Loan and
Second Loan with dividends paid on the shares of Common Stock in each suspense
account and with certain employer contributions to the ESOP. The shares of
Common Stock acquired by the ESOP Trustee will be held in the First Suspense
Account and Second Suspense Account and allocated to the accounts of ESOP
participants as the First Loan and Second Loan are repaid. Under current tax
law, the Companies expect to realize tax savings from the two transactions.
The First Loan was obtained from a third party lender and is guaranteed by
the Companies with 442,382 unallocated shares of Common Stock pledged as
collateral at December 31, 1994. Principal payments for the First Loan are
scheduled as follows:
$16.5 Million 9.125% Loan
--------------------------
1995 $ 326,576
1996 744,194
1997 897,865
1998 1,069,203
1999 1,259,977
2000 - 2004 9,487,891
-----------
$13,785,706
===========
The Second Loan was obtained from Minnesota Power. There are 2,460,777
unallocated shares of Common Stock pledged as collateral at December 31, 1994.
Principal payments for the Second Loan are scheduled as follows; however,
prepayments can be made without penalty.
$75 Million 10.25% Loan
--------------------------
2011 $12,916,502
2012 15,000,000
2013 15,000,000
2014 15,000,000
2015 15,000,000
-----------
$72,916,502
===========
7
Note 4 - Federal Income Tax Status
A favorable determination letter was obtained from the Internal Revenue
Service stating that the ESOP, as amended and restated effective January 1,
1985, qualifies as an employee stock ownership plan under Section 401(a) of the
Internal Revenue Code of 1986. As required by the Internal Revenue Service, the
Committee filed an application for a determination letter from the Internal
Revenue Service for the changes made to the ESOP in subsequent years on March
31, 1995.
Note 5 - Investments
The ESOP's investments, at December 31, are presented in the following
table:
Minnesota Power 1994 1993
Common Stock Allocated Unallocated Allocated Unallocated
- --------------- --------- ----------- --------- -----------
Number of Shares 1,792,234 2,903,159 1,704,255 3,054,634
Cost $33,362,089 $76,726,414 $30,404,884 $ 80,720,816
Market $45,253,908 $73,304,765 $55,814,351 $100,039,264
8
Schedule I
Minnesota Power and Affiliated Companies
Employee Stock Ownership Plan and Trust
Schedule of Transactions in Excess of
5% of Fair Value of Plan Assets
for the Year Ended December 31, 1994
Aggregate Purchase
Price and Market
Value on Number of
Description of Purchases Transaction Dates Transactions
Mellon Bank Temporary Investment Fund $4,025,253 414
Aggregate
--------------------------------------
Net
Cost of Gain/ Number of
Description of Sales Asset Sales Price (Loss) Transactions
Mellon Bank Temporary
Investment Fund $4,238,374 $4,238,374 0 58
Schedule II
Minnesota Power and Affiliated Companies
Employee Stock Ownership Plan and Trust
Schedule of Investments Held
December 31, 1994
Description Cost Fair Value
Minnesota Power & Light Company
Common Stock <F1> $110,088,503 $118,558,673
- ------------------
<FN>
<F1>Party-in-interest
</FN>
9
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Employee Benefit Plans Committee has duly caused this annual report to be
signed on its behalf by the undersigned hereunto duly authorized.
Minnesota Power and Affiliated Companies
Employee Stock Ownership Plan
and Trust
----------------------------------------
(Name of Plan)
June 23, 1995 By R.D. Edwards
----------------------------------
R.D. Edwards
Chairman,
Employee Benefit Plans Committee
10