<PAGE>
Securities and Exchange Commission
Washington, D.C. 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, 1995
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 1-3548
Minnesota Power & Light Company
A Minnesota Corporation
IRS Employer Identification No. 41-0418150
30 West Superior Street
Duluth, Minnesota 55802
Telephone - (218) 722-2641
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Common Stock, no par value,
31,308,015 shares outstanding
as of July 31, 1995
<PAGE>
Minnesota Power & Light Company
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
June 30, 1995 and December 31, 1994 1
Consolidated Statement of Income -
Quarter and Six Months ended June 30, 1995 and 1994 2
Consolidated Statement of Cash Flows -
Six Months ended June 30, 1995 and 1994 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE>
Definitions
The following abbreviations or acronyms are used in the text.
Abbreviation
or Acronym Term
- --------------- -------------------------------------------------------
1994 Form 10-K Minnesota Power's Annual Report on Form 10-K for the
Year Ended December 31, 1994
ADESA ADESA Corporation
Capital Re Capital Re Corporation
Company Minnesota Power & Light Company and its Subsidiaries
CPI Consolidated Papers, Inc.
DRIP Automatic Dividend Reinvestment and Stock Purchase Plan
ESOP Employee Stock Ownership Plan
FERC Federal Energy Regulatory Commission
FPSC Florida Public Service Commission
Lehigh Lehigh Acquisition Corporation
LSPI Lake Superior Paper Industries
Minnesota Power Minnesota Power & Light Company and its Subsidiaries
MPUC Minnesota Public Utilities Commission
MW Megawatt(s)
National National Steel Pellet Co.
Reach All Reach All Partnership
Square Butte Square Butte Electric Cooperative
SSU Southern States Utilities, Inc.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Minnesota Power
Consolidated Balance Sheet
In Thousands
<CAPTION>
June 30, December 31,
1995 1994
Unaudited Audited
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Plant and Other Assets
Electric utility operations $ 786,387 $ 784,931
Water utility operations 307,456 295,451
Investments and corporate services 221,025 362,006
---------- ----------
Total plant and other assets 1,314,868 1,442,388
---------- ----------
Current Assets
Cash and cash equivalents 128,883 27,001
Funds held by trustee 161,810 -
Trading securities 56,033 74,046
Trade accounts receivable (less reserve of $996
and $1,041) 47,849 51,105
Notes and other accounts receivable 10,473 61,654
Fuel, material and supplies 22,718 26,405
Prepayments and other 22,315 25,927
---------- ----------
Total current assets 450,081 266,138
---------- ----------
Deferred Charges
Regulatory 79,043 74,919
Other 28,164 24,353
---------- ----------
Total deferred charges 107,207 99,272
---------- ----------
Total Assets $1,872,156 $1,807,798
- ------------------------------------------------------------------------------------------
Capitalization and Liabilities
Capitalization
Common stock without par value, 65,000,000 shares
authorized 31,305,968 and 31,246,557 shares
outstanding $ 372,634 $ 371,178
Unearned ESOP shares (74,505) (76,727)
Net unrealized gain (loss) on securities investments 245 (5,410)
Retained earnings 279,370 272,646
---------- ----------
Total common stock equity 577,744 561,687
Cumulative preferred stock 28,547 28,547
Redeemable serial preferred stock 20,000 20,000
Long-term debt 568,725 601,317
---------- ----------
Total capitalization 1,195,016 1,211,551
---------- ----------
Current Liabilities
Accounts payable 29,345 36,792
Accrued taxes 42,772 41,133
Accrued interest and dividends 14,217 14,157
Notes payable 178,470 54,098
Long-term debt due within one year 9,878 12,814
Other 24,855 23,799
---------- ----------
Total current liabilities 299,537 182,793
---------- ----------
Deferred Credits
Accumulated deferred income taxes 164,604 192,441
Contributions in aid of construction 91,197 87,036
Regulatory 55,221 55,996
Other 66,581 77,981
---------- ----------
Total deferred credits 377,603 413,454
---------- ----------
Total Capitalization and Liabilities $1,872,156 $1,807,798
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this statement.
-1-
<PAGE>
<TABLE>
Minnesota Power
Consolidated Statement of Income
In Thousands Except Per Share Amounts - Unaudited
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenue and Income
Electric utility operations $118,417 $109,665 $237,865 $227,347
Water utility operations 18,538 19,683 34,816 37,531
Investments and corporate services 10,383 10,182 21,341 14,520
-------- -------- -------- --------
Total operating revenue and income 147,338 139,530 294,022 279,398
-------- -------- -------- --------
Operating Expenses
Fuel and purchased power 44,113 37,112 84,422 80,123
Operations 60,975 57,852 123,117 114,656
Administrative and general 16,790 16,668 35,250 36,253
Interest expense 11,388 11,083 22,489 21,996
-------- -------- -------- --------
Total operating expenses 133,266 122,715 265,278 253,028
-------- -------- -------- --------
Income (Loss) from Equity Investments 2,360 1,584 (3,908) 3,048
-------- -------- -------- --------
Operating Income from Continuing
Operations 16,432 18,399 24,836 29,418
Income Tax Expense (Benefit) 5,509 5,628 (9,892) 7,164
-------- -------- -------- --------
Income from Continuing Operations 10,923 12,771 34,728 22,254
Income from Discontinued Operations 1,190 199 2,842 84
-------- -------- -------- --------
Net Income 12,113 12,970 37,570 22,338
Dividends on Preferred Stock 800 800 1,600 1,600
-------- -------- -------- --------
Earnings Available for Common Stock $ 11,313 $ 12,170 $ 35,970 $ 20,738
======== ======== ======== ========
Average Shares of Common Stock 28,446 28,217 28,409 28,195
Earnings Per Share of Common Stock
Continuing Operations $ .35 $ .43 $1.17 $ .74
Discontinued Operations .05 .01 .10 .00
----- ----- ----- -----
Total $ .40 $ .44 $1.27 $ .74
===== ===== ===== =====
Dividends Per Share of Common Stock $ .51 $.505 $1.02 $1.01
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this statement.
-2-
<PAGE>
<TABLE>
Minnesota Power
Consolidated Statement of Cash Flows
In Thousands - Unaudited
<CAPTION>
Six Months Ended
June 30,
1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 37,570 $ 22,338
Depreciation 27,575 22,623
Amortization of coal contract termination costs - 3,920
Deferred income taxes (29,101) 3,210
Deferred investment tax credits (1,024) (902)
Pretax loss on disposal of discontinued operations 1,793 -
Changes in operating assets and liabilities
excluding the effects of discontinued operations
Notes and accounts receivable 8,646 9,751
Fuel, material and supplies (2,090) (3,507)
Accounts payable (1,325) (12,150)
Other current assets and liabilities 8,221 (6,553)
Other - net (2,514) 4,991
--------- --------
Cash from operating activities 47,751 43,721
--------- --------
Investing Activities
Proceeds from sale of investments in securities 112,175 17,422
Cash from sale of discontinued operations 106,115 -
Funds held by trustee for ADESA acquisition (161,810) -
Additions to investments (65,996) (32,985)
Additions to plant (40,906) (28,913)
Changes to other assets - net 2,777 (16,335)
--------- --------
Cash for investing activities (47,645) (60,811)
--------- --------
Financing Activities
Issuance of common stock 1,467 602
Issuance of long-term debt 9,000 17,706
Changes in notes payable 124,372 27,978
Reductions of long-term debt (2,217) (1,995)
Dividends on preferred and common stock (30,846) (30,287)
--------- --------
Cash from financing activities 101,776 14,004
--------- --------
Change in Cash and Cash Equivalents 101,882 (3,086)
Cash and Cash Equivalents at Beginning of Period 27,001 31,674
--------- --------
Cash and Cash Equivalents at End of Period $ 128,883 $ 28,588
========= ========
Supplemental Cash Flow Information
Cash paid during the period for
Interest (net of capitalized) $ 22,481 $ 22,556
Income taxes $ 11,893 $ 13,062
- ---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this statement.
-3-
<PAGE>
Notes to Consolidated Financial Statements
The accompanying unaudited consolidated financial statements and notes should
be read in conjunction with the Company's 1994 Form 10-K. In the opinion of the
Company, all adjustments necessary for a fair statement of the results for the
interim periods have been included. The results of operations for an interim
period may not give a true indication of results for the year. The income
statement information for prior periods has been reclassified to reflect the
discontinuance of the paper and pulp business.
Note 1. Business Segments
Thousands
<TABLE>
<CAPTION>
Electric Water Utility
Consolidated Utility Operations Operations
------------ ------------------ -------------
Electric Coal
-------- ----
<S> <C> <C> <C> <C>
Quarter Ended June 30, 1995
- ---------------------------
Revenue and income $147,338 $112,173 $6,244 $18,538
Operation and other expense 109,152 86,413 4,574 12,305
Depreciation expense 12,726 9,598 392 2,641
Interest expense 11,388 5,120 304 2,667
Income from equity investments 2,360 - - -
-------- -------- ------ -------
Operating income
from continuing operations 16,432 11,042 974 925
Income tax expense (benefit) 5,509 4,515 242 448
-------- -------- ------ -------
Income from continuing operations 10,923 $ 6,527 $ 732 $ 477
======== ====== =======
Income from discontinued operations 1,190
--------
Net income $ 12,113
========
Quarter Ended June 30, 1994
- ---------------------------
Revenue and income $139,530 $102,978 $6,687 $19,683
Operation and other expense 100,239 74,126 5,107 12,257
Depreciation expense 11,393 8,655 332 2,364
Interest expense 11,083 5,219 254 2,957
Income from equity investments 1,584 - - -
-------- -------- ------ -------
Operating income (loss)
from continuing operations 18,399 14,978 994 2,105
Income tax expense (benefit) 5,628 6,513 233 802
-------- -------- ------ -------
Income (loss) from
continuing operations 12,771 $ 8,465 $ 761 $ 1,303
======== ====== =======
Income from discontinued operations 199
--------
Net income $ 12,970
========
<CAPTION>
Investments and
Corporate Services
-----------------------------
Portfolio,
Reinsurance
& Other Real Estate
----------- -----------
<S> <C> <C>
Quarter Ended June 30, 1995
- ---------------------------
Revenue and income $ 5,945 $4,438
Operation and other expense 2,368 3,492
Depreciation expense 35 60
Interest expense 3,297 -
Income from equity investments 2,360 -
------- ------
Operating income
from continuing operations 2,605 886
Income tax expense (benefit) (288) 592
------- ------
Income from continuing operations $ 2,893 $ 294
======= ======
Income from discontinued operations
Net income
Quarter Ended June 30, 1994
- ---------------------------
Revenue and income $ 1,267 $8,915
Operation and other expense 2,467 6,282
Depreciation expense 1 41
Interest expense 2,651 2
Income from equity investments 1,584 -
------- ------
Operating income (loss)
from continuing operations (2,268) 2,590
Income tax expense (benefit) (2,166) 246
------- ------
Income (loss) from
continuing operations $ (102) $2,344
======= ======
Income from discontinued operations
Net income
</TABLE>
-4-
<PAGE>
Note 1. Business Segments (Continued)
Thousands
<TABLE>
<CAPTION>
Electric Water Utility
Consolidated Utility Operations Operations
------------ ------------------ -------------
Electric Coal
-------- ----
<S> <C> <C> <C> <C>
Six Months Ended June 30, 1995
- ------------------------------
Revenue and income $ 294,022 $224,768 $13,097 $ 34,816
Operation and other expense 217,462 168,103 9,955 23,975
Depreciation expense 25,327 19,153 733 5,252
Interest expense 22,489 10,257 558 5,184
Loss from equity investments (3,908) - - -
---------- -------- ------- --------
Operating income (loss)
from continuing operations 24,836 27,255 1,851 405
Income tax expense (benefit) (9,892) 11,623 458 60
---------- -------- ------- --------
Income from continuing operations 34,728 $ 15,632 $ 1,393 $ 345
======== ======= ========
Income from discontinued operations 2,842
----------
Net income $ 37,570
==========
Total assets $1,872,156 $929,253 $33,039 $339,227
Accumulated depreciation $ 604,884 $488,040 $17,851 $ 98,821
Construction work in progress $ 22,671 $ 9,653 $ - $ 13,018
Six Months Ended June 30, 1994
- ------------------------------
Revenue and income $ 279,398 $214,078 $13,269 $ 37,531
Operation and other expense 208,241 158,076 10,276 23,434
Depreciation expense 22,791 17,315 661 4,723
Interest expense 21,996 10,269 497 5,764
Income from equity investments 3,048 - - -
---------- -------- ------- --------
Operating income (loss)
from continuing operations 29,418 28,418 1,835 3,610
Income tax expense (benefit) 7,164 12,252 491 1,355
---------- -------- ------- --------
Income (loss) from
continuing operations 22,254 $ 16,166 $ 1,344 $ 2,255
======== ======= ========
Income from discontinued operations 84
----------
Net income $ 22,338
==========
Total assets $1,783,130 <F6> $909,068 $27,457 $353,789
Accumulated depreciation $ 572,392 <F7> $459,269 $16,908 $ 93,465
Construction work in progress $ 40,633 $ 22,699 $ - $ 17,934
<CAPTION>
Investments and
Corporate Services
-----------------------------
Portfolio,
Reinsurance
& Other Real Estate
----------- -----------
<S> <C> <C>
Six Months Ended June 30, 1995
- ------------------------------
Revenue and income $ 12,638 $ 8,703
Operation and other expense 4,803 10,626 <F2>
Depreciation expense 69 120
Interest expense 6,488 2
Loss from equity investments (3,908) <F1> -
-------- -------
Operating income (loss)
from continuing operations (2,630) (2,045)
Income tax expense (benefit) (4,610) (17,423) <F3>
-------- -------
Income from continuing operations $ 1,980 $15,378
======== =======
Income from discontinued operations
Net income
Total assets $538,195 $32,442
Accumulated depreciation $ 172 $ -
Construction work in progress $ - $ -
Six Months Ended June 30, 1994
- ------------------------------
Revenue and income $ (3,826) <F4> $18,346 <F5>
Operation and other expense 5,372 11,083
Depreciation expense 2 90
Interest expense 5,461 5
Income from equity investments 3,048 -
-------- -------
Operating income (loss)
from continuing operations (11,613) 7,168
Income tax expense (benefit) (7,265) 331
-------- -------
Income (loss) from
continuing operations $ (4,348) $ 6,837
======== =======
Income from discontinued operations
Net income
Total assets $300,480 $36,208
Accumulated depreciation $ 4 $ -
Construction work in progress $ - $ -
<FN>
<F1> Includes an $8.5 million pre-tax provision for exiting the equipment
manufacturing business.
<F2> Includes $3.7 million of minority interest relating to the recognition of
tax benefits. (See note 4.)
<F3> Includes $18.4 million of tax benefits. (See note 4.)
<F4> Includes a $10.1 million pre-tax loss from the write-off of an investment.
<F5> Includes $3.6 million of net income related to escrow funds.
<F6> Includes $156.1 million related to operations which were discontinued in 1995.
<F7> Includes $2.7 million related to operations which were discontinued in 1995.
</FN>
</TABLE>
-5-
<PAGE>
Note 2. Securities Investments
<TABLE>
<CAPTION>
June 30, 1995
----------------------------------------
Gross Unrealized Fair
----------------
Summary of Securities Cost Gain (Loss) Value
- ----------------------------------------------------------------------------
In Thousands
<S> <C> <C> <C> <C>
Trading $ 56,033
Available-for-sale
Common stock $ 3,243 $ - $ (770) 2,473
Preferred stock 82,792 3,078 (2,904) 82,966
------- ------ ------- --------
$86,035 $3,078 $(3,674) 85,439
Held-to-maturity
Leveraged preferred stock $ 2,069 2,069
--------
Total securities investments $143,541
========
<CAPTION>
December 31,1994
----------------------------------------
Gross Unrealized Fair
----------------
Summary of Securities Cost Gain (Loss) Value
- ----------------------------------------------------------------------------
In Thousands
<S> <C> <C> <C> <C>
Trading $ 74,046
Available-for-sale
Common stock $ 10,636 $ 86 $(1,748) 8,974
Preferred stock 117,860 2,747 (3,893) 116,714
-------- ------ ------- --------
$128,496 $2,833 $(5,641) 125,688
Held-to-maturity
Leveraged preferred stock $ 2,013 2,013
--------
Total securities investments $201,747
========
</TABLE>
The net unrealized gain (loss) on securities investments on the balance sheet
includes the Company's share of Capital Re's unrealized holding gains of
$594,000 at June 30, 1995, and $3.8 million of unrealized holding losses at
December 31, 1994.
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trading securities
Change in net unrealized holding gain (loss)
included in earnings $ 108 $ (772) $ 781 $ 65
Available-for-sale securities
Proceeds from sales $32,552 $7,195 $59,019 $17,422
Gross realized gains $ 1,301 $ 116 $ 1,575 $ 243
Gross realized (losses) $(1,186) $ (393) $(1,605) $ (683)
</TABLE>
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 455 MW. Reductions to about 49 percent of the output are
provided for in the contract and, at the option of Square Butte, could begin
after a five-year advance notice to the Company.
The cost of the power and energy is a proportionate share of Square Butte's
fixed obligations and variable operating costs, based on the percentage of the
total output purchased by the Company. The annual fixed obligations of the
Company to Square Butte are $19.4 million from 1995 through 1999. The variable
operating costs are not incurred unless production takes place. The Company is
responsible for paying all costs and expenses of Square Butte if not paid by
Square Butte when due. These obligations and responsibilities of the Company
are absolute and unconditional whether or not any power is actually delivered
to the Company.
-6-
<PAGE>
Note 4. Income Tax Expense
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
Schedule of Income Tax Expense (Benefit) 1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------
In Thousands
<S> <C> <C> <C> <C>
Charged to continuing operations
Current tax
Federal $ 1,040 $ 4,540 $ 3,866 $ 6,177
State 493 1,555 1,621 2,186
-------- ------- -------- -------
1,533 6,095 5,487 8,363
-------- ------- -------- -------
Deferred tax
Federal 3,598 261 (12,300) 280
State 781 (267) (2,055) (576)
-------- ------- -------- -------
4,379 (6) (14,355) (296)
-------- ------- -------- -------
Deferred tax credits (403) (461) (1,024) (903)
-------- ------- -------- -------
Income taxes on continuing operations 5,509 5,628 (9,892) 7,164
-------- ------- -------- -------
Charged to discontinued operations
Current tax
Federal 13,502 (1,262) 13,396 (2,638)
State 4,209 (376) 4,192 (785)
-------- ------- -------- -------
17,711 (1,638) 17,588 (3,423)
-------- ------- -------- -------
Deferred tax
Federal (12,870) 1,371 (11,851) 2,700
State (3,195) 409 (2,895) 807
-------- ------- -------- -------
(16,065) 1,780 (14,746) 3,507
-------- ------- -------- -------
Income taxes on discontinued operations 1,646 142 2,842 84
-------- ------- -------- -------
Total income tax expense (benefit) $ 7,155 $ 5,770 $ (7,050) $ 7,248
======== ======= ======== =======
</TABLE>
In March 1995 based on the results of a project which analyzed the economic
feasibility of realizing future tax benefits available to the Company, the
board of directors of Lehigh directed the management of Lehigh to dispose of
Lehigh's assets in a manner that would maximize utilization of tax benefits.
With this new directive in place, Lehigh recognized $18.4 million of income in
the first quarter of 1995 by reducing a portion of the valuation reserve that
offsets the deferred tax assets. The Company's portion of that income is $14.7
million, or 52 cents per share.
-7-
<PAGE>
Note 5. Discontinued Operations
On June 30, 1995, Minnesota Power sold its interest in the paper and pulp
business to CPI for $118 million in cash, plus CPI's assumption of certain debt
and lease obligations. The Company is still committed to a maximum guaranty of
$90 million to ensure a portion of LSPI's $33.4 million annual lease obligation
for equipment under an operating lease extending to 2012. However, CPI has
agreed to indemnify the Company for any payments the Company may make as a
result of the Company's existing obligation relating to the LSPI operating
lease. The sale price is subject to adjustment upon completion of audits of the
paper and pulp business.
The financial results of the paper and pulp business including the loss on
disposition have been accounted for as discontinued operations.
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
Summary of Discontinued Operations 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------
In Thousands
<S> <C> <C> <C> <C>
Revenue and income $22,285 $12,774 $44,324 $23,475
======= ======= ======= =======
Equity in earnings $ 5,554 $ 200 $ 7,241 $ 579
======= ======= ======= =======
Income from operations $ 4,629 $ 341 $ 7,477 $ 168
Income tax expense (1,921) (142) (3,117) (84)
------- ------- ------- -------
2,708 199 4,360 84
------- ------- ------- -------
Loss on disposal (1,793) - (1,793) -
Income tax benefit 275 - 275 -
------- ------- ------- -------
(1,518) - (1,518) -
------- ------- ------- -------
Income from discontinued operations $ 1,190 $ 199 $ 2,842 $ 84
======= ======= ======= =======
</TABLE>
Note 6. Subsequent Event
Effective July 1, 1995, Minnesota Power became an 80 percent owner of ADESA for
$167 million in cash. ADESA, headquartered in Indianapolis, Indiana, owns and
operates auto redistribution facilities and performs related services through
which used cars and other vehicles are sold to franchised automobile dealers
and licensed used car dealers. Sellers at ADESA's auctions include domestic and
foreign auto manufacturers, car dealers, fleet/lease companies, banks and
finance companies. Proceeds from the sale of the paper and pulp business
combined with proceeds from the sale of securities investments were used to
fund the purchase of ADESA.
In February 1995 the Company signed a merger agreement with ADESA, as well as,
employment agreements and put and call agreements with ADESA's four top
managers. The put and call agreements provide ADESA management the right to
sell to Minnesota Power, and Minnesota Power the right to purchase, ADESA
management's 20 percent retained ownership interest in ADESA, in increments
during the years 1997, 1998 and 1999, at a price based on ADESA's financial
performance.
Pro forma financial statements reflecting the acquisition of ADESA and
financial statements of ADESA for the interim period ended June 30, 1995, will
be filed as an amendment to the Company's Form 8-K filed July 12, 1995. The
amendment will be filed on or before September 8, 1995, pursuant to Form 8-K,
Item 7. instructions.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Minnesota Power has operations in four business areas: (1) electric utility
operations, which include electric, gas and coal mining operations; (2) water
utility operations, which include water, wastewater and sanitation services;
(3) investments and corporate services, which include a financial guaranty
reinsurance company, a real estate company in Florida and investments in
securities; and (4) an auto redistribution business that was acquired July 1,
1995.
Earnings per share of common stock for the quarter ended June 30, 1995, were 40
cents compared to 44 cents for the quarter ended June 30, 1994. Lower earnings
in 1995 are attributed to higher expenses due to scheduled maintenance in
electric utility operations and lower consumption levels and sales in water
utility operations. However, earnings from the portfolio, reinsurance business,
and paper and pulp business improved substantially in 1995. A single large
commercial land sale contributed to 1994 real estate results.
Earnings per share of common stock for the six months ended June 30, 1995, were
$1.27 compared to 74 cents for the quarter ended June 30, 1994. The most
significant factor contributing to the higher earnings in 1995 was the
recognition of tax benefits associated with Lehigh which contributed 52 cents
to earnings per share. Earnings in 1995 also reflect the improved performance
of the Company's securities portfolio, higher paper and pulp prices, and
increased electric sales to industrial customers offset in part by lower water
consumption levels at SSU and an 18 cent per share provision associated with
exiting the truck-mounted lifting equipment business. Earnings in 1994 include
13 cents per share from the recognition of escrow funds associated with Lehigh
and a 21 cent per share write-off of an investment.
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
Earnings Per Share 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Continuing Operations
Electric Utility Operations
Electric $.21 $.28 $ .52 $.54
Coal .03 .03 .05 .05
---- ---- ----- ----
.24 .31 .57 .59
---- ---- ----- ----
Water Utility Operations .01 .05 .01 .08
---- ---- ----- ----
Investments and Corporate Services
Portfolio and reinsurance .10 .01 .26 (.12)
Real estate .01 .08 .54 .24
Other operations (.01) (.02) (.21) (.05)
---- ---- ----- ----
.10 .07 .59 .07
---- ---- ----- ----
Total Continuing Operations .35 .43 1.17 .74
---- ---- ----- ----
Discontinued Operations .05 .01 .10 .00
---- ---- ----- ----
Total Earnings Per Share $.40 $.44 $1.27 $.74
==== ==== ===== ====
</TABLE>
-9-
<PAGE>
Results of Operations
Comparison of the Quarter Ended June 30, 1995 and 1994.
Electric utility operations. Operating revenue and income from electric utility
operations were higher in 1995 compared to 1994 primarily because of a 15
percent increase in kilowatt-hour sales to industrial customers. National
resumed operations in August 1994 and required significantly more amounts of
electricity in 1995. Overall electric sales increased 7 percent. Fuel and
purchased power expenses were higher in 1995 due to increased demand for
electricity. Operations included higher scheduled maintenance costs and
customer service expenses. Coal operations contributed net income of $732,000
in 1995 and $761,000 in 1994 to electric utility operations.
Revenue from electric sales to taconite customers accounted for 36 percent of
revenue and income from electric utility operations in 1995 compared to 34
percent in 1994. Revenue from electric sales to paper and other wood products
companies accounted for 13 percent of revenue and income from electric utility
operations in 1995 compared to 14 percent in 1994.
Water utility operations. Revenue and income from water utility operations were
down in 1995 due in part to reduced irrigation demand and the December 1994
sale of SSU's Venice Gardens assets. It is expected that the loss of customers
as a result of the Venice Gardens transaction will be offset when the purchase
of Orange Osceola Utilities, Inc. is complete. The transaction is expected to
occur in the third quarter of 1995.
In June 1995 SSU filed a request with the FPSC for an $18.1 million annual
increase in rates. Interim rates of $12.4 million are expected to be in effect
in October 1995 and will be subject to refund with interest.
Investments and corporate services. In 1995 improved market conditions enhanced
the portfolio and reinsurance business results. A single large commercial land
sale contributed to 1994 real estate results.
Discontinued operations. Operating results of the paper and pulp business as
well as the disposition of that business have been included in discontinued
operations. Significantly higher paper and pulp prices increased earnings in
1995.
Comparison of the Six Months Ended June 30, 1995 and 1994.
Electric utility operations. Operating revenue and income from electric utility
operations were higher in 1995 compared to 1994 due to interim rates in effect
since March 1, 1994, and a 13 percent increase in kilowatt-hour sales to
industrial customers due to National resuming operations in August 1994.
Overall electric sales increased 4 percent. Coal operations contributed $1.4
million and $1.3 million of net income in 1995 and 1994, respectively, to
electric utility operations.
Revenue from electric sales to taconite customers accounted for 37 percent of
revenue and income from electric utility operations in 1995 compared to 33
percent in 1994. Revenue from electric sales to paper and other wood products
companies accounted for 13 percent of revenue and income from electric utility
operations in 1995 compared to 14 percent in 1994.
Water utility operations. Operating revenue and income from water utility
operations were down in 1995 due in part to reduced irrigation demand and the
December 1994 sale of SSU's Venice Gardens assets. It is expected that the loss
of customers as a result of the Venice
-10-
<PAGE>
Gardens transaction will be offset when the purchase of Orange Osceola
Utilities, Inc. is completed. The transaction is expected to occur in the third
quarter of 1995.
Investments and corporate services. Earnings from investments and corporate
services were higher in 1995 primarily due to the recognition of $18.4 million
of tax benefits by Lehigh, the Company's real estate business. In March 1995
based on the results of a project which analyzed the economic feasibility of
realizing future tax benefits available to the Company, the board of directors
of Lehigh directed the management of Lehigh to dispose of Lehigh's assets in a
manner that would maximize utilization of tax benefits. The Company's portion
of the tax benefits reflected as income is $14.7 million, or 52 cents per
share. Earnings in 1994 include 13 cents per share from the recognition of
escrow funds associated with Lehigh.
The performance of the Company's securities portfolio improved significantly
over 1994 due to improved market conditions. In the first quarter of 1994 the
Company wrote off a $10.1 million investment. In March 1995, the Company
recorded a $5 million provision, lowering earnings per share by 18 cents in
anticipation of exiting Reach All. It is expected that the liquidation of Reach
All will be completed during third quarter 1995.
Discontinued operations. Operating results of the paper and pulp business as
well as the disposition of that business have been included in discontinued
operations. Significantly higher paper and pulp prices increased earnings in
1995.
Liquidity and Financial Position
Reference is made to the Consolidated Statement of Cash Flows for the six
months ended June 30, 1995 and 1994, for purposes of the following discussion.
Cash flow activities. Cash from operating activities was affected by a number
of factors representative of normal operations.
Cash from investing activities included proceeds from the sale of the paper and
pulp business and proceeds from the sale of a portion of the securities
portfolio. The majority of these proceeds were placed in cash and cash
equivalents to repay notes payable issued in anticipation of the ADESA
acquisition closing on July 1, 1995.
Cash from financing activities increased due to the issuance of notes payable
to temporarily finance the ADESA acquisition on July 1, 1995. The proceeds from
these notes payable were held in trust until July 3, 1995.
Working capital, if and when needed, generally is provided by the sale of
commercial paper. In addition, securities investments can be liquidated to
provide funds for reinvestment in existing businesses or acquisition of new
businesses, and approximately 900,000 original issue shares of common stock are
available for issuance through the DRIP.
ADESA's auctions finance a substantial amount of their working capital needs
with accounts payable due to sellers for vehicles sold at the auctions.
Typically, ADESA is paid immediately when an automobile is auctioned and title
is delivered. In certain instances, a seller does not have physical possession
of the title when a car is auctioned. In such instances, when ADESA receives
the title, it then pays the seller and submits a bill to the buyer, resulting
in a short-term need for borrowings. ADESA delivers title for the vehicle
against payment therefor. ADESA also pays automobile manufacturers for vehicles
sold at factory sales which requires short-term working capital until the
buyers' checks have cleared.
-11-
<PAGE>
ADESA also offers short-term on-site financing for dealers to purchase
automobiles at auctions in exchange for a security interest in those
automobiles. The financing is provided through the earlier of the date the
dealer sells the automobile or a general borrowing term of 30-60 days. As a
result, ADESA has a $40 million revolving line of credit to meet its short-term
operational requirements.
Capital requirements. Consolidated capital expenditures for the six months
ended June 30, 1995, totaled $38 million. These expenditures include $23.1
million for electric utility operations, of which $5.6 million was for coal
operations, $14.2 million for water utility operations and $700,000 for the
pulp production plant. Internally generated funds were the primary source for
funding these expenditures.
The construction forecast for the remainder of 1995 was revised following the
sale of the paper and pulp business and the July 1, 1995, purchase of ADESA.
Total 1995 capital expenditures are expected to be $120 million which include
$51 million for the relocation and development of auto auction sites.
Internally generated funds and a $52 million revolving line of credit at ADESA
are expected to finance the majority of the expenditures.
PART II. OTHER INFORMATION
Item 5. Other Information
Reference is made to the Company's 1994 Form 10-K for background information on
the following updates. Unless otherwise indicated, cited references are to the
Company's 1994 Form 10-K.
Ref. Page 2. - Last Paragraph
Lakehead Pipe Line Company, Limited Partnership, a natural gas pipe line
company, became a Firm Large Power Customer of the Company on June 30, 1995,
when the MPUC approved a six-year electric service agreement for 16.5 MW
through April 30, 2001.
Ref. Page 3. - First Partial Paragraph
As of July 15, 1995, the minimum annual revenue the Company would collect under
contracts with the Firm Large Power Customers, assuming no electric energy use
by these customers, is estimated to be $119.0, $98.4, $95.5, $82.9 and $63.9
million during the years 1995, 1996, 1997, 1998 and 1999, respectively.
Ref. Pages 3 and 4. - Table -Contract Status of Minnesota Power Firm Large
Power Customers
Ref. 10-Q for the quarter ended March 31, 1995, Page 10.
Blandin Paper has a contract amendment pending with the MPUC for contract
demand of between 39.8 MW and 43.7 MW and incremental demand of between 13.2 MW
and 15.2 MW for April 1995 through October 1995.
LSPI - became 100 percent owned by CPI on June 30, 1995, when the Company and
Pentair Duluth Corp. each sold their 50 percent interest.
Potlatch Corp. - Cloquet - On July 24, 1995, the MPUC approved a contract
amendment retroactive to May 1995 for incremental demand of between 2.3 MW and
3.3 MW through October 1995.
-12-
<PAGE>
Lakehead Pipe Line Company, Limited Partnership (Lakehead) - On June 30, 1995,
the MPUC approved a six-year electric service agreement for 12.25 MW of
contract demand and 4.25 MW of incremental demand through April 30, 2001.
Lakehead Pipe Line Company, Inc. serves as the general partner in conducting
the operations of Lakehead. Minnesota Power serves Lakehead's pumping
stations located in Deer River and Floodwood, Minnesota.
Ref. Page 4. -Table - Contract Status of Minnesota Power Purchased Power
Contracts
Ref. 10-Q for the quarter ended March 31, 1995, Page 10.
Add the following information to the table entitled "Contract Status of
Minnesota Power Purchased Power Contracts:"
<TABLE>
<CAPTION>
Entity Contract MW Contract Period
------ ----------- ---------------
<S> <C> <C>
Participation Power Purchases
- -----------------------------
Basin Electric Power Cooperative 50 July 1, 1995, through December 31, 1995
Firm Power Purchases
- --------------------
Ontario Hydro 100 July 1, 1995, through December 31, 1995
50 May 1, 1995, through December 31, 1995
</TABLE>
Ref. Page 4. - Insert New Paragraph after Table - Contract Status of Minnesota
Power Purchased Power Contracts
Ref. 10-Q for the quarter ended March 31, 1995, Page 10. - Last Paragraph
On June 30, 1995, the MPUC approved a new five year amendment to the Electric
Service and Interconnection Agreement between the Company and LTV Steel Mining
Company (LTV). The amended Electric Service and Interconnection Agreement,
along with a purchased power agreement between the Company and LTV provides for
a shared reserves arrangement under which 210 MW is added to the Company's
capacity and from which LTV's entire 130 MW load is provided on a firm power
replacement service basis. The amendment expires April 30, 2000. FERC approval
sought by LTV on the purchased power agreement remains pending.
Ref. Page 5. - Table - Contract Status of Minnesota Power Capacity Sales
Contracts
The following information updates Northern States Power Company and Cooperative
Power Association in the table entitled "Contract Status of Minnesota Power
Capacity Sales Contracts:"
<TABLE>
<CAPTION>
Utility Contract MW Contract Period
------- ----------- ---------------
<S> <C> <C>
Firm Power Sales
- ----------------
Northern States Power Company 200 May 1, 1995, through October 31, 1995
150 May 1, 1996, through October 31, 1996
Cooperative Power Association 10 May 1, 1995, through October 31, 1995
</TABLE>
-13-
<PAGE>
Ref. Page 8. - Insert after First Paragraph
Ref. 10-Q for the quarter ended March 31, 1995, Page 11. - Last Paragraph
On August 7, 1995, the Company filed comments with the FERC relating to the
Notice of Proposed Rulemaking on Open Access Non-Discriminatory
Transmission Services by Public Utilities and Transmitting Utilities.
Ref. Page 8. - Fourth and Fifth Paragraphs
The Company's compliance filing was filed on March 27, 1995, with the MPUC. In
an order dated May 31, 1995, the MPUC approved the filing with the exception of
the Company's refunding plan. Final rates were implemented for sales on and
after June 1, 1995. The Company proposed different refund levels by rate class
based on the final rate design ordered. The MPUC ordered equal rate refund
levels by class and on June 30, 1995, five Firm Large Power Customers requested
reconsideration. The MPUC denied this request in an August 1, 1995 order. The
date of refund will be delayed until at least mid-September, depending on
whether the Firm Large Power Customer intervenors seek judicial review.
As of June 30, 1995, the Company had reserved $4.8 million of interim rate
revenue for anticipated refunds.
Ref. Page 8. - First Paragraph and Ref. Page 12. - Fifth Paragraph
Ref. 10-Q for the quarter ended March 31, 1995, Page 11. - First Paragraph
On July 13, 1995, the FERC issued to the Company a final 30-year license for
the St. Louis River Project. The new license is being reviewed by the Company.
The Company, and any other interested party, may pursue reconsideration of the
license under procedures established pursuant to federal regulations.
Ref. Page 9. - Insert after Fourth Paragraph
On May 8, 1995, the MPUC initiated an "Investigation into Structural and
Regulatory Issues in the Electric Industry." The MPUC's investigation seeks
input from all interested parties regarding a wide range of issues related to
increased retail competition, including whether there is a need for changing
the current system of regulation; state and federal jurisdictional questions;
unbundling of generation, transmission and distribution rates; cost recovery
for stranded investments; reliability and technical issues; energy efficiency;
renewable resource development; and exclusive service areas. The Company and 27
other parties filed comments on July 7, 1995. Reply comments are due on August
28, 1995. The Company expects this investigation to conclude some time in 1996,
at which time policy recommendations may be made by the MPUC. The Company is
unable to predict the outcome of the MPUC investigation or its impact on the
Company.
Ref. Page 9. - Insert after Fifth Paragraph
On June 16, 1995, Superior Water, Light and Power Company filed an application
with the Public Service Commission of Wisconsin for authority to increase
electric, gas, and water rates. The overall increase in revenue being requested
is $1.4 million or 3.33 percent.
Ref. 10-Q for the quarter ended March 31, 1995, Page 12. - Second Paragraph
In June 1995 the Company extended the early retirement plan to an additional 91
electric utility employees age 53 and 54 with 10 or more years of service. The
offer was open until July 31,
-14-
<PAGE>
1995, and those employees who accepted it must retire by August 15. As of
July 31, 1995, 181 employees accepted the early retirement offer. The
Company estimates that the plan will cost approximately $15 million.
Ref. Page 15. - First Partial Paragraph
In June 1995 the FPSC voted to assume jurisdiction over SSU facilities
statewide and thus to regard SSU as a single system rather than as a utility
made up of more than 150 systems. An appeal of this decision by various
counties is anticipated.
Ref. Page 15. - First Full Paragraph
In April 1995 Hernando County Board of County Commissioners issued an order
which, among other things, purports to require SSU to file a rate proceeding
with Hernando County. SSU continues to dispute Hernando County's jurisdiction
and authority to issue such orders. SSU amended its complaint in the Hernando
County Circuit Court to include a request for stay of the County's April order.
Ref. Page 15. - Insert after Second Full Paragraph
Ref. 10-Q for the quarter ended March 31, 1995, Page 12. - Fifth and Sixth
Paragraphs
In June 1995, the First District Court of Appeals denied SSU's and the FPSC's
motions for rehearing and certification. In July 1995, SSU filed a notice of
appeal to the Supreme Court of Florida. SSU filed its brief supporting its
appeal on July 28, 1995.
Ref. Page 16. - Second Full Paragraph
Hearings with respect to Heater Utilities' February 1995 rate filing which
requested a $314,000 annual increase concluded in July 1995. The North Carolina
Utilities Commission is expected to issue a final order in September 1995.
Ref. Page 17. - Fourth Full Paragraph
In March 1995 the administrative order issued in August 1994 for SSU's
facilities in the Beacon Hills service area in Duval County, Florida was
satisfactorily closed after additional bioassay testing conducted between
September 1994 and February 1995 met Environmental Protection Agency
requirements.
Ref. Page 19. - First Full Paragraph and Last Partial Paragraph
Ref. 10-Q for the quarter ended March 31, 1995, Page 7. - Second Paragraph and
Page 13. - First Paragraph
In June 1995 the prospective buyer of Reach All announced he was unable to
secure acceptable financing. As a result, Reach All's assets were placed into
receivership with liquidation expected to be completed in the third quarter of
1995. A provision for exiting this business was recorded in the first quarter
of 1995.
Ref. Page 26. - Item 10. Directors and Executive Officers of the Registrant
D. Michael Hockett, president of ADESA, was elected to the Company's Board of
Directors on July 26, 1995, pursuant to the Agreement and Plan of Merger
between the Company and ADESA. Mr. Hockett, age 52, has served as president,
chief executive officer and director of ADESA since its inception in February
1992. In addition, until February 1992 Mr. Hockett
-15-
<PAGE>
served as the president of each of the corporations which operated ADESA
Birmingham, ADESA Memphis, ADESA Lexington and ADESA Cincinnati-Dayton from the
respective dates of inception, the earliest of which was in 1986.
In July 1995, John Cirello, age 52, was elected president of SSU, chairman of
Heater Utilities, Inc., a board member of Topeka Group, Inc., and an executive
vice president of Minnesota Power. Mr. Cirello was president of Environmental
Engineering Services, Inc. from February 1995 through July 1995, president of
Metcalf & Eddy Services from September 1992 through January 1995, and vice
president at Chemical Waste Management from April 1988 through June 1992.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
Report on Form 8-K/A dated and filed May 25, 1995, with respect to Item 7.
Financial Statements and Exhibits.
Report on Form 8-K dated and filed July 12, 1995, with respect to Item 2.
Acquisition and Disposition of Assets, Item 5. Other Events and Item
7. Financial Statements and Exhibits.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Minnesota Power & Light Company
-------------------------------
(Registrant)
August 11, 1995 D. G. Gartzke
--------------------------------
D. G. Gartzke
Senior Vice President - Finance
and Chief Financial Officer
August 11, 1995 Mark A. Schober
--------------------------------
Mark A. Schober
Corporate Controller
-17-
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MINNESOTA
POWER'S CONSOLIDATED BALANCE SHEET, STATEMENT OF INCOME, AND STATEMENT OF CASH
FLOW FOR THE PERIOD ENDED JUNE 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,093,843
<OTHER-PROPERTY-AND-INVEST> 221,025
<TOTAL-CURRENT-ASSETS> 450,081
<TOTAL-DEFERRED-CHARGES> 107,207
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,872,156
<COMMON> 372,634
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 279,370
<TOTAL-COMMON-STOCKHOLDERS-EQ> 577,744
0
48,547
<LONG-TERM-DEBT-NET> 568,725
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 178,470
<LONG-TERM-DEBT-CURRENT-PORT> 9,878
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 414,532
<TOT-CAPITALIZATION-AND-LIAB> 1,872,156
<GROSS-OPERATING-REVENUE> 294,022
<INCOME-TAX-EXPENSE> (9,892)<F1>
<OTHER-OPERATING-EXPENSES> 242,789
<TOTAL-OPERATING-EXPENSES> 265,278
<OPERATING-INCOME-LOSS> 24,836
<OTHER-INCOME-NET> (1,066)<F2>
<INCOME-BEFORE-INTEREST-EXPEN> 60,059
<TOTAL-INTEREST-EXPENSE> 22,489
<NET-INCOME> 37,570
1,600
<EARNINGS-AVAILABLE-FOR-COMM> 35,970
<COMMON-STOCK-DIVIDENDS> 29,246
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 47,751
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27
<FN>
<F1> Includes tax benefits related to Lehigh Acquisition Corporation,
Minnesota Power's real estate company.
<F2> Includes Loss from Equity Investments and Income from Discontinued
Operations.
</FN>
</TABLE>
