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 JUNE 30, 1998
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 1-3548
MINNESOTA POWER, INC.
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,
33,866,616 shares outstanding
as of July 31, 1998
MINNESOTA POWER, INC.
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
June 30, 1998 and December 31, 1997 1
Consolidated Statement of Income -
Quarter Ended and Six Months Ended
June 30, 1998 and 1997 2
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1998 and 1997 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
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
- ------------------ --------------------------------------------------
1997 Form 10-K Minnesota Power's Annual Report on Form 10-K for
the Year Ended December 31, 1997
ADESA ADESA Corporation
AFC Automotive Finance Corporation
Boswell Boswell Energy Center
Common Stock Minnesota Power, Inc.'s common stock
Company Minnesota Power, Inc. and its subsidiaries
DRIP Dividend Reinvestment and Stock Purchase Plan
ESOP Employee Stock Ownership Plan
FERC Federal Energy Regulatory Commission
Heater Heater Utilities, Inc.
Florida Water Florida Water Services Corporation
FPSC Florida Public Service Commission
kWh Kilowatthour(s)
Minnesota Power Minnesota Power, Inc. and its subsidiaries
MPUC Minnesota Public Utilities Commission
MW Megawatt(s)
NCUC North Carolina Utilities Commission
Palm Coast Palm Coast Holdings, Inc.
PSCW Public Service Commission of Wisconsin
Square Butte Square Butte Electric Cooperative
SWL&P Superior Water, Light and Power Company
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", "believes", "estimates",
"expects", "intends", "plans", "predicts", "projects", "will likely result",
"will continue", or similar expressions) are not statements of historical facts
and may be forward-looking. Forward-looking statements involve estimates,
assumptions, and uncertainties and are qualified in their entirety by reference
to, and are accompanied by, the following important factors, which are difficult
to predict, contain uncertainties, are beyond the control of the Company and may
cause actual results to differ materially from those contained in
forward-looking statements:
- prevailing governmental policies and regulatory actions, including
those of the FERC, the MPUC, the FPSC, the NCUC 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
other capital investments, and present or prospective wholesale and
retail competition (including but not limited to retail wheeling
and transmission costs);
- economic and geographic factors including political and economic
risks;
- changes in and compliance with environmental and safety laws and
policies;
- weather conditions;
- population growth rates and demographic patterns;
- competition for retail and wholesale customers;
- Year 2000 issues;
- pricing and transportation of commodities;
- market demand, including structural market changes;
- changes in tax rates or policies or in rates of inflation;
- changes in project costs;
- unanticipated changes in operating expenses and capital
expenditures;
- capital market conditions;
- competition for new energy development opportunities; and
- legal and administrative proceedings (whether civil or criminal)
and settlements that influence the business and profitability of
the Company.
Any forward-looking statement 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.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MINNESOTA POWER
CONSOLIDATED BALANCE SHEET
Millions
JUNE 30, DECEMBER 31,
1998 1997
Unaudited Audited
- --------------------------------------------------------------------------------
ASSETS
PLANT AND INVESTMENTS
Electric operations $ 776.7 $ 783.5
Water services 323.7 322.2
Automotive services 177.6 167.1
Investments 260.5 252.9
--------- --------
Total plant and investments 1,538.5 1,525.7
--------- --------
CURRENT ASSETS
Cash and cash equivalents 63.1 41.8
Trading securities 133.2 123.5
Accounts receivable (less allowance of
$17.6 and $12.6) 253.6 158.5
Fuel, material and supplies 23.0 25.0
Prepayments and other 24.3 19.9
--------- --------
Total current assets 497.2 368.7
--------- --------
OTHER ASSETS
Goodwill 173.0 158.9
Deferred regulatory charges 60.4 64.4
Other 50.0 54.6
--------- --------
Total other assets 283.4 277.9
--------- --------
TOTAL ASSETS $ 2,319.1 $2,172.3
- --------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock without par value, 130.0
shares authorized;
33.8 and 33.6 shares outstanding $ 430.4 $416.0
Unearned ESOP shares (64.2) (65.9)
Net unrealized gain on securities investments 5.9 5.5
Cumulative foreign translation adjustment (3.3) (0.8)
Retained earnings 304.5 296.1
--------- --------
Total common stock equity 673.3 650.9
Cumulative preferred stock 11.5 11.5
Redeemable serial preferred stock 20.0 20.0
Company obligated mandatorily redeemable
preferred securities of subsidiary
MP&L Capital I which holds solely Company
Junior Subordinated Debentures 75.0 75.0
Long-term debt 681.9 685.4
--------- --------
Total capitalization 1,461.7 1,442.8
--------- --------
CURRENT LIABILITIES
Accounts payable 151.7 78.7
Accrued taxes, interest and dividends 63.7 67.3
Notes payable 187.8 129.1
Long-term debt due within one year 4.5 4.7
Other 41.7 45.3
--------- --------
Total current liabilities 449.4 325.1
--------- --------
OTHER LIABILITIES
Accumulated deferred income taxes 152.8 151.3
Contributions in aid of construction 104.7 102.6
Deferred regulatory credits 58.7 60.7
Other 91.8 89.8
--------- --------
Total other liabilities 408.0 404.4
--------- --------
TOTAL CAPITALIZATION AND LIABILITIES $ 2,319.1 $2,172.3
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
-1-
MINNESOTA POWER
CONSOLIDATED STATEMENT OF INCOME
Millions Except Per Share Amounts - Unaudited
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
- --------------------------------------------------------------------------------
OPERATING REVENUE AND INCOME
Electric operations $ 140.7 $ 129.7 $ 274.8 $ 261.1
Water services 25.0 22.4 45.7 43.1
Automotive services 84.8 64.4 161.5 124.9
Investments 18.7 13.9 33.9 23.4
------- -------- ------- -------
Total operating revenue
and income 269.2 230.4 515.9 452.5
------- -------- ------- -------
OPERATING EXPENSES
Fuel and purchased power 53.7 46.0 103.4 90.0
Operations 160.5 138.9 312.9 277.2
Interest expense 15.6 16.0 35.5 33.4
------- -------- ------- -------
Total operating expenses 229.8 200.9 451.8 400.6
------- -------- ------- -------
INCOME FROM EQUITY INVESTMENTS 3.7 3.3 7.9 7.3
------- -------- ------- -------
OPERATING INCOME 43.1 32.8 72.0 59.2
DISTRIBUTIONS ON REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY 1.5 1.5 3.0 3.0
INCOME TAX EXPENSE 18.8 12.6 27.7 21.4
------- -------- ------- -------
NET INCOME 22.8 18.7 41.3 34.8
DIVIDENDS ON PREFERRED STOCK 0.5 0.5 1.0 1.0
------- -------- ------- -------
EARNINGS AVAILABLE FOR COMMON STOCK $ 22.3 $ 18.2 $ 40.3 $ 33.8
======= ======== ======= =======
AVERAGE SHARES OF COMMON STOCK 31.3 30.5 31.2 30.4
BASIC AND DILUTED
EARNINGS PER SHARE OF COMMON STOCK $0.71 $0.60 $1.29 $1.12
DIVIDENDS PER SHARE OF COMMON STOCK $0.51 $0.51 $1.02 $1.02
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
-2-
MINNESOTA POWER
CONSOLIDATED STATEMENT OF CASH FLOWS
Millions - Unaudited
SIX MONTHS ENDED
JUNE 30,
1998 1997
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 41.3 $ 34.8
Income from equity investments - net of
dividends received (7.6) (7.1)
Depreciation and amortization 37.2 35.8
Deferred income taxes 0.4 1.4
Deferred investment tax credits (0.6) (0.9)
Pre-tax gain on sale of property (0.3) (4.4)
Changes in operating assets and liabilities
Trading securities (9.7) (21.3)
Notes and accounts receivable (95.1) (31.9)
Fuel, material and supplies 2.0 (2.3)
Accounts payable 73.0 23.8
Other current assets and liabilities (11.6) (5.1)
Other - net 11.8 4.0
------ ------
Cash from operating activities 40.8 26.8
------ ------
INVESTING ACTIVITIES
Proceeds from sale of investments in
securities 27.0 31.3
Proceeds from sale of property 1.0 6.4
Additions to investments (26.2) (33.4)
Additions to plant (33.0) (35.8)
Acquisition of subsidiaries - net of
cash acquired (23.8) -
Other - net 0.2 10.4
------ ------
Cash for investing activities (54.8) (21.1)
------ ------
FINANCING ACTIVITIES
Issuance of common stock 13.3 9.7
Issuance of long-term debt 2.1 131.1
Changes in notes payable - net 58.7 50.3
Reductions of long-term debt (5.8) (136.8)
Dividends on preferred and common stock (33.0) (32.0)
------ ------
Cash from financing activities 35.3 22.3
------ ------
CHANGE IN CASH AND CASH EQUIVALENTS 21.3 28.0
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 41.8 40.1
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 63.1 $ 68.1
====== ======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for
Interest - net of capitalized $ 37.4 $ 33.8
Income taxes $ 24.7 $ 15.5
- --------------------------------------------------------------------------------
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 1997 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
Millions
Investments
--------------------
Electric Water Automotive Portfolio & Real Corporate
Consolidated Operations Services Services Reinsurance Estate Charges
- -------------------------------------------------------------------------------------------------------------------
For the Quarter Ended
June 30, 1998
- ---------------------
Operating revenue and income $ 269.2 $140.7 $25.0 $84.8 $ 6.1 $12.6 $ -
Operation and other expense 195.5 107.2 15.4 61.9 0.7 6.9 <F1> 3.4
Depreciation and amortization
expense 18.7 11.9 2.8 3.9 - - 0.1
Interest expense 15.6 5.5 2.5 2.6 - - 5.0
Income from equity investments 3.7 - - - 3.7 - -
------- ------ ----- ----- ----- ----- -----
Operating income (loss) 43.1 16.1 4.3 16.4 9.1 5.7 (8.5)
Distributions on redeemable
preferred securities of
subsidiary 1.5 0.5 - - - - 1.0
Income tax expense (benefit) 18.8 5.9 1.5 7.9 4.5 2.7 (3.7)
------- ------ ----- ----- ----- ----- -----
Net income (loss) $ 22.8 $ 9.7 $ 2.8 $ 8.5 $ 4.6 $ 3.0 $(5.8)
======= ====== ===== ===== ===== ===== =====
For the Quarter Ended
June 30, 1997
- ---------------------
Operating revenue and income $ 230.4 $129.7 $22.4 $64.4 $ 4.5 $ 9.5 $(0.1)
Operation and other expense 167.1 96.7 13.2 49.4 0.5 5.9 <F1> 1.4
Depreciation and amortization
expense 17.8 11.2 3.2 3.3 - - 0.1
Interest expense 16.0 5.3 2.7 2.7 - 0.3 5.0
Income from equity investments 3.3 - - - 3.3 - -
------- ------ ----- ----- ----- ----- -----
Operating income (loss) 32.8 16.5 3.3 9.0 7.3 3.3 (6.6)
Distributions on redeemable
preferred securities of
subsidiary 1.5 0.4 - - - - 1.1
Income tax expense (benefit) 12.6 6.1 1.0 4.8 2.6 1.4 (3.3)
------- ------ ----- ----- ----- ----- -----
Net income (loss) $ 18.7 $ 10.0 $ 2.3 $ 4.2 $ 4.7 $ 1.9 $(4.4)
======= ====== ===== ===== ===== ===== =====
- -------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Includes $0.7 million of minority interest in 1998 ($0.5 million in 1997).
</FN>
-4-
NOTE 1. BUSINESS SEGMENTS CONTINUED
Millions
Investments
----------------------
Electric Water Automotive Portfolio & Real Corporate
Consolidated Operations Services Services Reinsurance Estate Charges
- -------------------------------------------------------------------------------------------------------------------
For the Six Months Ended
June 30, 1998
- ------------------------
Operating revenue and income $ 515.9 $274.8 $ 45.7 $ 161.5 $ 13.2 $20.7 $ -
Operation and other expense 379.1 208.0 29.3 122.0 1.6 11.8 <F1> 6.4
Depreciation and amortization
expense 37.2 23.7 5.7 7.5 - 0.1 0.2
Interest expense 35.5 11.1 5.1 4.8 - - 14.5
Income from equity investments 7.9 - - - 7.9 - -
--------- ------ ------ ------- ------- ----- ------
Operating income (loss) 72.0 32.0 5.6 27.2 19.5 8.8 (21.1)
Distributions on redeemable
preferred securities of
subsidiary 3.0 0.9 - - - - 2.1
Income tax expense (benefit) 27.7 11.9 2.1 13.3 8.4 4.0 (12.0)
--------- ------ ------ ------- ------- ----- ------
Net income (loss) $ 41.3 $ 19.2 $ 3.5 $ 13.9 $ 11.1 $ 4.8 $(11.2)
========= ====== ====== ======= ======= ===== ======
Total assets $ 2,319.1 $977.3 $387.3 $ 583.6 $ 301.8 $68.7 $ 0.4
Accumulated depreciation $ 728.7 $581.7 $130.7 $ 16.3 - - -
Accumulated amortization $ 19.2 - - $ 17.7 - $ 1.5 -
Construction work in progress $ 48.2 $ 17.6 $ 14.0 $ 16.6 - - -
For the Six Months Ended
June 30, 1997
- ------------------------
Operating revenue and income $ 452.5 $261.1 $ 43.1 $ 124.9 $ 9.2 $14.3 $ (0.1)
Operation and other expense 331.4 191.4 27.2 97.2 1.0 9.8 <F1> 4.8
Depreciation and amortization
expense 35.8 22.4 6.4 6.8 - 0.1 0.1
Interest expense 33.4 10.7 5.5 5.1 - 0.5 11.6
Income from equity investments 7.3 - - - 7.3 - -
--------- ------ ------ ------- ------- ----- ------
Operating income (loss) 59.2 36.6 4.0 15.8 15.5 3.9 (16.6)
Distributions on redeemable
preferred securities of
subsidiary 3.0 0.8 - - - - 2.2
Income tax expense (benefit) 21.4 13.5 1.3 8.4 5.5 1.7 (9.0)
--------- ------ ------ ------- ------- ----- ------
Net income (loss) $ 34.8 $ 22.3 $ 2.7 $ 7.4 $ 10.0 $ 2.2 $ (9.8)
========= ====== ====== ======= ======= ===== ======
Total assets $ 2,224.0 $977.1 $371.2 $ 522.6 $ 289.1 $63.2 $ 0.8
Accumulated depreciation $ 685.6 $550.8 $125.5 $ 9.3 - - -
Accumulated amortization $ 12.2 - - $ 11.0 - $ 1.2 -
Construction work in progress $ 44.6 $ 19.5 $ 13.6 $ 11.5 - - -
- -------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Includes $1.2 million of minority interest in 1998 ($0.5 million in 1997).
</FN>
-5-
NOTE 2. REGULATORY MATTERS
FLORIDA WATER 1991 RATE CASE REFUNDS. In 1995 the Florida First District Court
of Appeals (Court of Appeals) reversed a 1993 FPSC order establishing uniform
rates for most of Florida Water's service areas. With "uniform rates," all
customers in each uniform rate area pay the same rates for water and wastewater
services. In response to the Court of Appeals' order, in August 1996 the FPSC
ordered Florida Water to issue refunds to those customers who paid more since
October 1993 under uniform rates than they would have paid under stand-alone
rates. This order did not permit a balancing surcharge to customers who paid
less under uniform rates. Florida Water appealed, and the Court of Appeals ruled
in June 1997 that the FPSC could not order refunds without balancing surcharges.
In response to the Court of Appeals' ruling, the FPSC issued an order on January
26, 1998 that would not require Florida Water to refund about $12.5 million,
which included interest, to customers who paid more under uniform rates.
In the same January 26, 1998 order, the FPSC required Florida Water to refund
$2.5 million, the amount paid by customers in the Spring Hill service area from
January 1996 through June 1997 under uniform rates which exceeded the amount
these customers would have paid under a modified stand-alone rate structure. No
balancing surcharge was permitted. The FPSC ordered this refund because Spring
Hill customers continued to pay uniform rates after other customers began paying
modified stand-alone rates effective January 1996 pursuant to the FPSC's interim
rate order in Florida Water's 1995 Rate Case. The FPSC did not include Spring
Hill in this interim rate order because Hernando County had assumed jurisdiction
over Spring Hill's rates. In June 1997 Florida Water reached an agreement with
Hernando County to revert prospectively to stand-alone rates for Spring Hill
customers.
Customer groups which paid more under uniform rates have appealed the FPSC's
January 26, 1998 order, arguing that they are entitled to a refund because the
FPSC had no authority to order uniform rates. The Company has appealed the $2.5
million refund order. Initial briefs were filed by all parties on May 22, 1998.
Upon issuance of the June 10, 1998 opinion of the Court of Appeals with respect
to Florida Water's 1995 Rate Case (see next paragraph) in which the court
reversed its previous ruling that the FPSC was without authority to order
uniform rates, other customer groups supporting the FPSC's January 1998 order
filed a motion with the Court of Appeals seeking dismissal of the appeal by
customer groups seeking refunds. Customers seeking refunds have filed a motion
requesting authority to amend their briefs. No provision for refund has been
recorded. The Company is unable to predict the timing or outcome of the appeals
process.
FLORIDA WATER 1995 RATE CASE. Florida Water requested an $18.1 million rate
increase in June 1995 for all water and wastewater customers of Florida Water
regulated by the FPSC. In October 1996 the FPSC issued its final order approving
an $11.1 million annual increase. In November 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.
In the course of the appeals process, on its own initiative the FPSC
reconsidered an issue in its initial decision and, in June 1997, allowed Florida
Water to resume collecting approximately $1 million, on an annual basis, in new
customer connection fees. On June 10, 1998 the Court of Appeals ruled in Florida
Water's favor on all material issues appealed by Florida Water and remanded the
matter back to the FPSC for action consistent with the Court's order. The Court
of Appeals also overturned its decision in Florida Water's 1991 Rate Case which
had required a "functional relationship" between service areas as a precondition
to implementation of uniform rates. Parties opposed to the Court of Appeals'
reversal of its previous decision regarding uniform rates have requested
rehearing. The Company is unable to predict the timing or outcome of these
proceedings.
HILLSBOROUGH COUNTY RATES. In July 1997 Florida Water filed with the
Hillsborough County Utilities Department a request for an annual interim revenue
increase of $0.8 million and a final increase of $0.9 million. Interim rates
became effective in August 1997. Hearings have concluded. A final decision is
anticipated in the third quarter of 1998. The Company is unable to predict the
outcome of this case.
-6-
NOTE 2. REGULATORY MATTERS CONTINUED
NORTH CAROLINA UTILITIES COMMISSION. In September 1997 Heater filed with the
NCUC for an annual rate increase of $1.1 million for its water and wastewater
customers. On May 13, 1998 the NCUC issued an order authorizing a rate
increase of $0.3 million. The test year was adjusted for post-test year
customer growth and consumption which substantially decreased the annual rate
increase required. Heater does not plan to appeal this order.
NOTE 3. TOTAL COMPREHENSIVE INCOME
For the quarter ended June 30, 1998 total comprehensive income was $21.1 million
($21.3 million for the quarter ended June 30, 1997). For the six months ended
June 30, 1998 total comprehensive income was $39.2 million ($35.4 million for
the six months ended June 30, 1997). The difference between total comprehensive
income and net income was unrealized gains and losses on securities classified
as available-for-sale, and cumulative foreign translation adjustments.
NOTE 4. INCOME TAX EXPENSE
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
- --------------------------------------------------------------------------------
Millions
Current tax
Federal $ 12.6 $ 8.9 $ 20.4 $16.5
Foreign 1.8 0.7 2.6 1.1
State 2.4 1.5 4.9 3.3
------ ------ ------ -----
16.8 11.1 27.9 20.9
------ ------ ------ -----
Deferred tax
Federal 2.6 2.1 1.2 2.0
State (0.3) (0.3) (0.8) (0.6)
------ ------ ------ -----
2.3 1.8 0.4 1.4
------ ------ ------ -----
Deferred tax credits (0.3) (0.3) (0.6) (0.9)
------ ------ ------ -----
Total income tax expense $ 18.8 $ 12.6 $ 27.7 $21.4
- --------------------------------------------------------------------------------
NOTE 5. ACQUISITIONS
ADESA acquired the assets of Greater Lansing Auto Auction in Lansing, Michigan
and I-55 Auto Auction in St Louis, Missouri on April 30, 1998, and Ark-La-Tex
Auto Auction in Shreveport, Louisiana on May 27, 1998 for a combined purchase
price of $23.8 million. The acquisitions were accounted for using the purchase
method and resulted in goodwill of $16.3 million which will be amortized over a
40 year period. Financial results for these three auctions have been included in
the Company's consolidated financial statements since the dates of acquisition.
Pro forma financial results have not been presented due to immateriality. The
Company used internally generated funds and issued commercial paper to acquire
these assets. ADESA now owns and operates 28 vehicle auction facilities.
-7-
NOTE 6. SQUARE BUTTE PURCHASED POWER CONTRACT
The Company has had a power purchase agreement with Square Butte since 1977.
Square Butte, a North Dakota cooperative corporation, owns a 455 MW coal-fired
generating unit (Unit) near Center, North Dakota. The Unit is adjacent to a
generating unit owned by Minnkota Power Cooperative, Inc. (Minnkota), a North
Dakota cooperative corporation whose Class A members are also members of Square
Butte. Minnkota serves as operator of the Unit and also purchases power from
Square Butte.
In May 1998 the Company and Square Butte entered into a new power purchase
agreement (1998 Agreement), replacing the 1977 agreement. The Company extended
by 20 years, through January 1, 2027, its access to Square Butte's low-cost
electricity and eliminated its unconditional obligation to pay all of Square
Butte's costs if not paid by Square Butte when due. The 1998 Agreement was
reached in conjunction with termination of Square Butte's previous leveraged
lease financing arrangement and refinancing of associated debt.
Similar to the 1977 agreement, the Company is initially entitled to
approximately 71 percent of the Unit's output under the 1998 Agreement. After
2005 and upon compliance with a two-year advance notice requirement, Minnkota
has the option to reduce the Company's entitlement by 5 percent annually, to a
minimum of 50 percent.
Under the 1998 Agreement, the Company is obligated to pay its pro rata share of
Square Butte's costs based upon Unit output entitlement. The Company's payment
obligation is suspended if Square Butte fails to deliver any power, whether
produced or purchased, for a period of one year. The Company's obligation under
the 1977 agreement was absolute and unconditional whether or not any power was
delivered. Square Butte's fixed costs consist primarily of debt service. At June
30, 1998 Square Butte had total debt outstanding of $343.4 million. Total annual
debt service for Square Butte is expected to be approximately $36 million in
1999 through 2002 and $23 million in 2003. Variable operating costs include the
price of coal purchased from BNI Coal, a subsidiary of Minnesota Power, under a
long-term contract. The Company's payments to Square Butte are approved as
purchased power expenses for ratemaking purposes by both the MPUC and FERC.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MINNESOTA POWER is a broadly diversified service company with 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 a network of vehicle
auctions, a finance company and an auto transport company; and (4) Investments,
which include a securities portfolio, a 21 percent equity investment in a
specialty insurance and reinsurance company, and real estate operations.
Corporate Charges represent general corporate expenses, including interest, not
specifically allocated to any one business segment.
CONSOLIDATED OVERVIEW
All of the Company's business segments have performed well during 1998
reflecting ongoing operational improvements and business growth. Earnings per
share of common stock were $0.71 for the quarter ended June 30, 1998 ($0.60 for
the quarter ended June 30, 1997) and $1.29 for the six months ended June 30,
1998 ($1.12 for the six months ended June 30, 1997).
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
- --------------------------------------------------------------------------------
Millions
Net Income
Electric Operations $ 9.7 $ 10.0 $ 19.2 $ 22.3
Water Services 2.8 2.3 3.5 2.7
Automotive Services 8.5 4.2 13.9 7.4
Investments 7.6 6.6 15.9 12.2
Corporate Charges (5.8) (4.4) (11.2) (9.8)
------ ------ ------ ------
$ 22.8 $ 18.7 $ 41.3 $ 34.8
====== ====== ====== ======
- --------------------------------------------------------------------------------
Basic and Diluted
Earnings Per Share of Common Stock $ 0.71 $0.60 $1.29 $ 1.12
Average Shares of Common Stock - Millions 31.3 30.5 31.2 30.4
- --------------------------------------------------------------------------------
The following summarizes significant events that led to the 22 percent and 19
percent increase in net income for the quarter and six months ended June 30,
1998, respectively.
- ELECTRIC OPERATIONS. Net income from Electric Operations reflected strong
sales to other power suppliers during the quarter and six months ended June
30, 1998; however, additional operating and purchased power expenses were
incurred because of scheduled maintenance outages at major generating
facilities and higher priced purchased power. The scheduled maintenance has
positioned the Company to meet anticipated strong electric demand during
the rest of 1998. Higher priced purchased power was attributed to increased
demand in the Midwest as a result of storms and hot weather. Net income in
1998 also reflected fewer sales to residential electric and gas customers
due to the unusually mild winter and warm spring. In 1997 the Company
recorded gains from the sale of certain land and other property.
- WATER SERVICES. Net income from Water Services was higher in 1998 due
primarily to customer growth, increased consumption and operating
efficiencies. Increased sales of water resulting from drought conditions in
Florida during the second quarter of 1998 helped to offset lower sales in
the first quarter of 1998 because of record rainfall.
- AUTOMOTIVE SERVICES. The significant increase in net income from
Automotive Services was driven by more vehicle sales, and the expansion and
maturing of recently opened loan production offices in the floorplan
financing business. The Company has added three new auction facilities and
nine loan production offices in 1998.
- INVESTMENTS. The increase in net income from Investments was attributable
to four large sales at Palm Coast and the sale of a partnership interest in
a development at Lehigh.
-9-
COMPARISON OF THE QUARTERS ENDED JUNE 30, 1998 AND 1997.
ELECTRIC OPERATIONS. Operating revenue and income from Electric Operations were
$11.0 million higher in 1998, even though kilowatthour sales remained at similar
levels. This increase was primarily attributable to higher sales prices for
power sold to other power suppliers. Average wholesale prices from Company sales
were up approximately 60 percent from 1997 as a result of a supply shortage from
storms and hot weather in the Midwest. In addition, revenue from retail and
wholesale customers was higher in 1998 due to an increase in the fuel clause
component. The fuel clause component was higher to allow recovery of the cost of
replacement power needed during scheduled outages at Square Butte and Boswell.
Demand revenue from large power customers was lower in 1998 as a result of
successful renegotiation of contracts which extended the term, but in turn
reduced the demand charge component. Operating revenue and income in 1997
included $2.8 million in pre-tax gains from the sale of rights to microwave
frequencies in accordance with a federal mandate and the sale of property along
the St. Louis River to ensure the preservation of wilderness lands. Total
operating expenses were $11.4 million higher in 1998 due to a $7.7 million
increase in fuel and purchased power expense. Fuel expense was about $1.7
million higher because of more steam generation. Purchased power expense
increased $6.0 million because of higher prices in the market. Operations
expenses were $3.5 million higher due to scheduled outages at Boswell,
consulting services and amortization of deferred Conservation Improvement
Programs costs. Property taxes were $0.7 million lower in 1998 due to the reform
of the Minnesota property tax system. Income tax expense was $0.2 million
lower in 1998 because of lower operating income.
Revenue from electric sales to taconite customers accounted for 30 percent of
electric operating revenue and income in 1998 (31 percent in 1997). Electric
sales to paper and pulp mills accounted for 11 percent of electric operating
revenue and income in 1998 (12 percent in 1997). Sales to other power suppliers
accounted for 16 percent of electric operating revenue and income in 1998 (12
percent in 1997).
WATER SERVICES. Operating revenue and income from Water Services were $2.6
million higher in 1998 due primarily to increased revenue from non-regulated
water subsidiaries. Consumption, which was up 19 percent in 1998, reflected a
September 1997 acquisition of a water utility in North Carolina and drought
conditions in Florida. Total operating expenses were $1.6 million higher in 1998
due to marginal costs related to increased revenue from non-regulated water
subsidiaries. Income tax expense was $0.5 million higher in 1998 because of
increased operating income.
AUTOMOTIVE SERVICES. Operating revenue and income from Automotive Services were
$20.4 million higher in 1998 due to a 16 percent increase in vehicle sales, and
the expansion and maturing of AFC's floorplan financing business. At ADESA
auction facilities 236,000 vehicles were sold in 1998 (204,000 in 1997). ADESA
added three new auction facilities in 1998. AFC opened six additional loan
production offices in 1998. Total operating expenses were up $13.0 million
due to expenses associated with increased vehicle sales and the expansion of
the floorplan financing business. Income tax expense was $3.1 million higher
in 1998 because of increased operating income.
INVESTMENTS.
- SECURITIES PORTFOLIO AND REINSURANCE. Operating revenue and income were
$1.6 million higher in 1998 due to improved performance by the securities
portfolio. Income from equity investments included $3.9 million in 1998
($3.3 million in 1997) from the Company's investment in Capital Re.
Together, the Company's securities portfolio and its equity investment in
Capital Re earned an annualized after-tax return of 8.6 percent in 1998
(7.3 percent in 1997). Income tax expense was $1.9 million higher in 1998
because of increased operating income.
- REAL ESTATE OPERATIONS. Operating revenue and income from Real Estate
Operations were $3.1 million higher in 1998 due primarily to two large
sales at Palm Coast and the sale of a partnership interest in a development
at Lehigh. Combined, the three sales contributed $6.4 million to revenue in
1998. Total operating expenses (excluding minority interest) were $0.5
million higher in 1998 due to expenses associated with the three large
sales. Income tax expense was $1.3 million higher in 1998 because of
increased operating income.
-10-
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997.
ELECTRIC OPERATIONS. Operating revenue and income from Electric Operations were
$13.7 million higher in 1998, even though kilowatthour sales remained at similar
levels. This increase was primarily attributable to higher sales prices for
power sold to other power suppliers. Average wholesale prices from Company
sales were up approximately 40 percent from 1997 as a result of a supply
shortage from storms and hot weather in the Midwest. In addition, revenue from
retail and wholesale customers was higher in 1998 due to an increase in the fuel
clause component. The fuel clause component was higher to allow recovery of the
cost of replacement power needed during scheduled outages at Square Butte and
Boswell. Demand revenue from large power customers was lower in 1998 as a result
of successful renegotiation of contracts which extended the term, but in turn
reduced the demand charge component. Revenue from residential and gas customers
was $2.8 million lower in 1998 because of the unusually mild winter and warm
spring. Operating revenue and income in 1997 included $3.7 million in pre-tax
gains from the sale of rights to microwave frequencies in accordance with a
federal mandate and the sale of property along the St. Louis River to ensure the
preservation of wilderness lands. Total operating expenses were $18.3 million
higher in 1998 due to a $13.4 million increase in fuel and purchased power
expense. Fuel expense was about $1.8 million higher because of more steam
generation. Purchased power expense increased $11.6 million because of higher
prices in the market, more sales to other power suppliers, scheduled outages at
Square Butte and Boswell, and less hydro generation. Dry winter and spring
conditions reduced the Company's hydro supply. Operations expenses were $4.5
million higher due to scheduled outages at Boswell, consulting services
and amortization of deferred Conservation Improvement Programs costs. Property
taxes were $1.8 million lower in 1998 due to the reform of the Minnesota
property tax system. Income tax expense was $1.6 million lower in 1998 because
of lower operating income.
Revenue from electric sales to taconite customers accounted for 31 percent of
electric operating revenue and income in 1998 (32 percent in 1997). Electric
sales to paper and pulp mills accounted for 11 percent of electric operating
revenue and income in 1998 (12 percent in 1997). Sales to other power suppliers
accounted for 13 percent of electric operating revenue and income in 1998 (10
percent in 1997).
WATER SERVICES. Operating revenue and income from Water Services were $2.6
million higher in 1998 due primarily to increased revenue from non-regulated
water subsidiaries. Consumption, which was up 5 percent in 1998, reflected a
September 1997 acquisition of a water utility in North Carolina. Increased sales
of water resulting from drought conditions in Florida during the second quarter
of 1998 helped to offset lower sales in the first quarter of 1998 because of
record rainfall. Total operating expenses were $1.0 million higher in 1998
because of additional costs related to increased revenue from non-regulated
water subsidiaries. Income tax expense was $0.8 million higher in 1998 because
of increased operating income.
AUTOMOTIVE SERVICES. Operating revenue and income from Automotive Services were
$36.6 million higher in 1998 due to a 15 percent increase in vehicle sales, and
the expansion and maturing of AFC's floorplan financing business. At ADESA
auction facilities 450,000 vehicles were sold in 1998 (391,000 in 1997). ADESA
added three new auction facilities during 1998. AFC had 63 loan production
offices at June 30, 1998 (50 at June 30, 1997). Nine additional loan production
offices were opened during 1998. In 1997 operating revenue and income included a
gain from the sale of an auction facility. Total operating expenses were up
$25.2 million due to expenses associated with increased vehicle sales and the
expansion of the floorplan financing business. Income tax expense was $4.9
million higher in 1998 because of increased operating income.
INVESTMENTS.
- SECURITIES PORTFOLIO AND REINSURANCE. Operating revenue and income were
$4.0 million higher in 1998 due to $3.9 million of dividend income received
from a venture capital investment. Income from equity investments included
$8.1 million in 1998 ($7.3 million in 1997) from the Company's investment
in Capital Re. Together, the Company's securities portfolio and its equity
investment in Capital Re earned an annualized after-tax return of 7.2
percent in 1998 (8.6 percent in 1997). Income tax expense was $2.9 million
higher in 1998 because of increased operating income.
-11-
- REAL ESTATE OPERATIONS. Operating revenue and income from Real Estate
Operations were $6.4 million higher in 1998 due primarily to four large
sales at Palm Coast and the sale of a partnership interest in a development
at Lehigh. Combined, the five sales contributed $11.5 million to revenue in
1998. Total operating expenses (excluding minority interest) were $0.8
million higher in 1998 due to expenses associated with the five large
sales. Income tax expense was $2.3 million higher in 1998 because of
increased operating income.
LIQUIDITY AND FINANCIAL POSITION
CASH FLOW ACTIVITIES. Cash flow from operations improved during the six months
ended June 30, 1998 due to the continued focus on the management of working
capital throughout the Company. Cash from operating activities was also 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 Stock
are available for issuance through the DRIP.
A substantial amount of ADESA's working capital is generated internally from
payments made by vehicle purchasers. However, ADESA utilizes proceeds from the
sale of commercial paper issued by the Company to meet short-term working
capital requirements arising from the timing of payment obligations to vehicle
sellers and the availability of funds from vehicle purchasers. During the sales
process, ADESA does not typically take title to vehicles.
AFC also uses proceeds from the sale of commercial paper issued by the Company
to meet its operational requirements. AFC offers short-term on-site financing
for dealers to purchase vehicles at auctions in exchange for a security interest
in those vehicles. The financing is provided through the earlier of the date the
dealer sells the vehicle or a general borrowing term of 30 - 90 days. At June
30, 1998 AFC had sold $144.0 million ($124.0 million at December 31, 1997) of
receivables on a revolving basis to a third party purchaser. Under an agreement,
the purchaser agrees to purchase up to $225.0 million of receivables on a
revolving basis. Proceeds from the sale of the receivables are used to repay
borrowings from the Company and fund vehicle inventory purchases for AFC's
customers.
Significant changes in accounts receivable, accounts payable and notes payable
balances at June 30, 1998 compared to December 31, 1997 were due to increased
sales activity by Automotive Services. Typically auction volumes are down during
the winter months and in December because of the holidays. As a result, both
ADESA and AFC had lower receivables and fewer payables at year end.
Effective May 8, 1998 AFC executed an Administration Agreement with ADT
Automotive, Inc. (ADT) which has led to an arrangement whereby AFC will provide
floorplan financing services at 26 ADT auctions. AFC expects that these new
office locations will be opened during the last half of 1998. Start-up costs are
not expected to be material.
In May 1998 the Company filed a shelf registration statement with the Securities
and Exchange Commission (SEC) pursuant to Rule 415 under the Securities Act of
1933 with respect to 3.0 million original issue shares of Common Stock. The
registration statement was declared effective by the SEC on May 18, 1998. The
Company expects to sell the registered Common Stock from time to time as
warranted by market conditions and the Company's capital requirements. The offer
and sale of such shares shall be made only by means of a prospectus.
ADESA acquired the assets of Greater Lansing Auto Auction in Lansing, Michigan
and I-55 Auto Auction in St. Louis, Missouri on April 30, 1998, and Ark-La-Tex
Auto Auction in Shreveport, Louisiana on May 27, 1998 for a combined purchase
price of $23.8 million. The Company used internally generated funds and issued
commercial paper to acquire these assets.
-12-
CAPITAL REQUIREMENTS. Consolidated capital expenditures for the six months ended
June 30, 1998 totaled $33.0 million ($35.8 million in 1997). Expenditures for
1998 included $17.2 million for Electric Operations, $7.1 million for Water
Services and $8.7 million for Automotive Services. Internally generated funds
were the primary source for funding these expenditures.
YEAR 2000. The Year 2000 issue relates to computer systems that recognize the
year in a date field using only the last two digits. Unless corrected, the Year
2000 may be interpreted as 1900 causing errors or shutdowns in computer systems.
In the ordinary course of business, Minnesota Power has recently replaced, or is
in the process of replacing, many of its major computer systems with new systems
that are represented by the vendors to be Year 2000 compliant. These updated
systems handle important aspects of Minnesota Power's operations, including
energy management, customer information and financial management. A project team
has been coordinating a comprehensive review of the Company's software and
embedded microprocessor-based systems for possible Year 2000 compliance
concerns. Systems so identified are being prioritized, and remediated and tested
accordingly. The review has included communications with key outside entities
with which the Company interacts. Contingency plans are also being developed for
certain critical business processes. The Company estimates its cost to prepare
for the Year 2000 will be $6 million to $10 million over the next two years and
that its systems will be substantially compliant by July 1999.
The electric industry is unique in its reliance on the integrity of the power
pool grid to support and maintain reliable, efficient operations. The Company's
preparation for the Year 2000 is linked to the Year 2000 compliance efforts of
other utilities as well as those of major customers whose loads support the
integrity of the power pool grid. Minnesota Power is coordinating its Year 2000
efforts with the plans established by the North American Electric Reliability
Council under the direction of the U.S. Department of Energy and is also working
with a utility industry consortium to obtain and share utility-specific Year
2000 compliance information. The main external Year 2000 risk identified by the
Company's other business segments is the potential loss of electrical supply.
The Year 2000 issue may impact other entities with which the Company transacts
business. The Company cannot estimate or predict the potential adverse
consequences, if any, that could result from such entities' failure to address
this issue.
NEW ACCOUNTING STANDARD. In June 1998 the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), effective for fiscal
years beginning after June 15, 1999. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at fair value. SFAS 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset the
related results on the hedged item in the income statement, and requires that a
company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting treatment. SFAS 133 must be applied
to derivative instruments and certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after December
31, 1997. SFAS 133 is not expected to have a material impact on the Company upon
adoption.
-13-
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 12, 1998.
(b) Not applicable.
(c) The election of directors, the appointment of independent accountants, and
the amendment of the Company's Articles of Incorporation to change the
Company's legal name to Minnesota Power, Inc. and to increase the amount of
authorized Common Stock 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 28,976,676 269,773 - -
Merrill K. Cragun 28,967,389 279,060 - -
Dennis E. Evans 28,926,282 320,167 - -
Peter J. Johnson 29,023,561 222,888 - -
George L. Mayer 28,990,439 256,010 - -
Paula F. McQueen 29,000,969 245,480 - -
Jack I. Rajala 28,992,886 253,583 - -
Edwin L. Russell 28,973,264 273,185 - -
Arend J. Sandbulte 28,970,832 275,617 - -
Nick Smith 28,985,657 260,792 - -
Bruce W. Stender 29,012,964 233,485 - -
Donald C. Wegmiller 28,965,912 280,537 - -
Independent Accountants
-----------------------
Price Waterhouse LLP, now
PricewaterhouseCoopers
LLP 28,750,558 190,903 304,988 -
Amendment of Articles of
Incorporation
------------------------
Change Company legal name
to Minnesota Power, Inc. 28,255,438 582,985 408,026 -
Increase amount of
authorized Common Stock 26,286,541 2,104,021 855,887 -
(d) Not applicable.
-14-
ITEM 5. OTHER INFORMATION
Reference is made to the Company's 1997 Form 10-K for background information on
the following updates. Unless otherwise indicated, cited references are to the
Company's 1997 Form 10-K.
Ref. Page 3. - Last Paragraph
As of August 1, 1998 the minimum annual revenue the Company would collect under
contracts with these large power customers, assuming no electric energy use by
these customers, is estimated to be $105.5, $79.4, $71.2, $67.8 and $57.4
million during the years 1998, 1999, 2000, 2001 and 2002, respectively. Based on
past experiences and projected operating levels, the Company believes revenue
from these large power customers will be substantially in excess of the minimum
contract amounts.
Ref. Page 4. - Table - Contract Status for Minnesota Power Large Power Customers
On June 11, 1998 the MPUC approved a contract amendment which provides for the
Company to continue to meet all of Hibbing Taconite Company's electric
requirements through December 2008.
Ref. Page 11. - Table - National Pollutant Discharge Elimination System Permits
A renewal application permit for the Boswell Energy Center was submitted to the
Minnesota Pollution Control Agency on June 27, 1997. A new permit is expected
to be issued in the third quarter of 1998.
Ref. Page 13. - Regulatory Issues - Florida Public Service Commission -
1991 Rate Case Refunds
On May 22, 1998 initial briefs were filed by all parties who appealed the FPSC's
January 26, 1998 order that would not require Florida Water to refund about
$12.5 million, which included interest, to customers who paid more under uniform
rates. Upon issuance of the June 10, 1998 opinion of the Court of Appeals with
respect to Florida Water's 1995 Rate Case (see next paragraph) in which the
court reversed its previous ruling that the FPSC was without authority to order
uniform rates, other customer groups supporting the FPSC's January 1998 order
filed a motion with the Court of Appeals seeking dismissal of the appeal by
customer groups seeking refunds. Customers seeking refunds have filed a motion
requesting authority to amend their briefs. No provision for refund has been
recorded. The Company is unable to predict the timing or outcome of the appeals
process.
Ref. Page 13. - Regulatory Issues - Florida Public Service Commission -
1995 Rate Case
With respect to Florida Water's 1995 rate case, on June 10, 1998 the Court of
Appeals ruled in Florida Water's favor on all material issues appealed by
Florida Water and remanded the matter back to the FPSC for action consistent
with the Court's order. The Court of Appeals also overturned its decision in
Florida Water's 1991 Rate Case which had required a "functional relationship"
between service areas as a precondition to implementation of uniform rates.
Parties opposed to the Court of Appeals' reversal of its previous decision
regarding uniform rates have requested rehearing. The Company is unable to
predict the timing or outcome of these proceedings.
Ref. Page 14. - Regulatory Issues - North Carolina Utilities Commission
Ref. Form 10-Q for the quarter ended March 31, 1998, Page 10. - Fifth Paragraph
On May 13, 1998 the NCUC issued a final order granting Heater a rate increase of
$0.3 million for its water and wastewater customers. Heater had requested an
annual rate increase of $1.1 million; however, the test year was adjusted for
post-test year customer growth and consumption which substantially decreased
the annual rate increase required. Heater does not plan to appeal this order.
-15-
Ref. Page 14-15. - Environmental Matters - University Shores and Seaboard
Facilities
On May 13, 1998 the DOJ filed a motion that noted (i) the 30-day public comment
period on the Consent Decree executed by Florida Water, the DOJ and the EPA as a
settlement of the complaint filed in 1997 with respect to alleged violation of
effluent limitations in the National Pollutant Discharge Elimination System
permits occurring at the University Shores and Seaboard wastewater facilities
from February 1992 through March 1994, expired on May 11, 1998 and (ii) no
protests had been filed. The motion also requested entry of the Consent Decree.
The Consent Decree was entered by the U.S. District Court for the Middle
District of Florida on May 20, 1998.
Ref. Page 15. - Automotive Services - ADESA
Ref. Page 22. - Table - ADESA Auctions
Ref. Form 10-Q for the quarter ended March 31, 1998, Page 10. - Sixth Paragraph
ADESA acquired the assets of Greater Lansing Auto Auction in Lansing, Michigan
and I-55 Auto Auction in St. Louis, Missouri on April 30, 1998, and Ark-La-Tex
Auto Auction in Shreveport, Louisiana on May 27, 1998. ADESA now owns and
operates 28 vehicle auction facilities. AFC has loan production offices at the
Lansing and St. Louis facilities and is expected to add an office at the
Shreveport facility. AFC currently has 63 loan production offices.
Ref. Page 15. - Automotive Services - Automotive Finance Corporation
Effective May 8, 1998 AFC executed an Administration Agreement with ADT
Automotive, Inc. (ADT) which has lead to an arrangement whereby AFC will provide
floorplan financing services at 26 ADT auctions. AFC expects that these new
office locations will be opened during the last half of 1998. Start-up costs are
not expected to be material.
----------------------
As noted in the Company's Proxy Statement for the 1998 Annual Meeting of
Shareholders held on May 12, 1998, proposals submitted by shareholders pursuant
to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, (1934 Act)
for inclusion in the Company's Proxy Statement and form of proxy for the 1999
Annual Meeting of Shareholders scheduled for May 11, 1999 must be received by
the Secretary of the Company by no later than November 20, 1998. Pursuant to
recently amended Rule 14a-4(c)(1) under the 1934 Act, after February 1, 1999,
notice to the Company of a shareholder proposal submitted or to be submitted for
consideration at the 1999 Annual Meeting other than pursuant to Rule 14a-8 under
the 1934 Act will be considered untimely and the persons named in the proxies
solicited by the Board of Directors for the 1999 Annual Meeting of Shareholders
may exercise discretionary voting power with respect to any such matter.
----------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10 Power Purchase and Sale Agreement between the Company and Square
Butte Electric Cooperative, dated as of May 29, 1998
27 Financial Data Schedule
(b) Reports on Form 8-K.
Report on Form 8-K dated and filed May 15, 1998 with respect to Item 5.
Other Events.
Report on Form 8-K dated and filed June 3, 1998 with respect to Item 5.
Other Events and Item 7. Financial Statements and Exhibits.
-16-
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, Inc.
--------------------------------
(Registrant)
August 7, 1998 D. G. Gartzke
--------------------------------
D. G. Gartzke
Senior Vice President - Finance
and Chief Financial Officer
August 7, 1998 Mark A. Schober
--------------------------------
Mark A. Schober
Controller
-17-
EXHIBIT INDEX
Exhibit Number
10 Power Purchase and Sale Agreement between the Company and
Square Butte Electric Cooperative, dated as of May 29, 1998
27 Financial Data Schedule