<PAGE>
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 September 30, 1996
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 1-3548
Minnesota Power & Light Company
A Minnesota Corporation
IRS Employer Identification No. 41-0418150
30 West Superior Street
Duluth, Minnesota 55802
Telephone - (218) 722-2641
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Common Stock, no par value,
32,571,548 shares outstanding
as of September 30, 1996
<PAGE>
Minnesota Power & Light Company
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
September 30, 1996 and December 31, 1995 1
Consolidated Statement of Income -
Quarter and Nine Months Ended September 30, 1996
and 1995 2
Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
Definitions
The following abbreviations or acronyms are used in the text.
Abbreviation
or Acronym Term
- --------------------- -----------------------------------------------------
1995 Form 10-K Minnesota Power's Annual Report on Form 10-K for
the Year Ended December 31, 1995
ADESA ADESA Corporation
Common Stock Minnesota Power & Light Company's common stock
Company Minnesota Power & Light Company and its Subsidiaries
CPI Consolidated Papers, Inc.
DRIP 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
Minnesota Power Minnesota Power & Light Company and its Subsidiaries
MPUC Minnesota Public Utilities Commission
MW Megawatt(s)
Orange Osceola Orange Osceola Utilities
QUIPS Quarterly Income Preferred Securities
Seabrook Heater of Seabrook, Inc.
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>
September 30, December 31,
1996 1995
Unaudited Audited
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Plant and Other Assets
Electric operations $ 796,929 $ 800,477
Water operations 320,130 323,182
Automobile auctions 154,126 123,632
Investments 240,398 201,360
----------- -----------
Total plant and other assets 1,511,583 1,448,651
----------- -----------
Current Assets
Cash and cash equivalents 36,938 31,577
Trading securities 78,658 40,007
Trade accounts receivable (less reserve of $5,276 and $3,325) 181,952 128,072
Notes and other accounts receivable 21,185 12,220
Fuel, material and supplies 25,235 26,383
Prepayments and other 18,475 13,706
----------- -----------
Total current assets 362,443 251,965
----------- -----------
Deferred Charges
Regulatory 80,171 88,631
Other 26,495 25,037
----------- -----------
Total deferred charges 106,666 113,668
----------- -----------
Intangible Assets
Goodwill 152,127 120,245
Other 12,818 13,096
----------- -----------
Total intangible assets 164,945 133,341
----------- -----------
Total Assets $ 2,145,637 $ 1,947,625
- -------------------------------------------------------------------------------------------------------------------
Capitalization and Liabilities
Capitalization
Common stock without par value, 65,000,000 shares authorized
32,571,548 and 31,467,650 shares outstanding $ 389,698 $ 377,684
Unearned ESOP shares (70,129) (72,882)
Net unrealized gain on securities investments 1,640 3,206
Cumulative translation adjustment (389) (177)
Retained earnings 280,073 276,241
----------- -----------
Total common stock equity 600,893 584,072
Cumulative preferred stock 11,492 28,547
Redeemable serial preferred stock 20,000 20,000
Company obligated mandatorily redeemable preferred securities of
subsidiary MP&L Capital I which holds solely Company Junior
Subordinated Debentures 75,000 -
Long-term debt 638,845 639,548
----------- -----------
Total capitalization 1,346,230 1,272,167
----------- -----------
Current Liabilities
Accounts payable 88,163 68,083
Accrued taxes 46,407 40,999
Accrued interest and dividends 10,016 14,471
Notes payable 150,508 96,218
Long-term debt due within one year 64,745 9,743
Other 39,233 27,292
----------- -----------
Total current liabilities 399,072 256,806
----------- -----------
Deferred Credits
Accumulated deferred income taxes 164,344 164,737
Contributions in aid of construction 97,478 98,167
Regulatory 55,762 57,950
Other 82,751 97,798
----------- -----------
Total deferred credits 400,335 418,652
----------- -----------
Total Capitalization and Liabilities $ 2,145,637 $ 1,947,625
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
-1-
</TABLE>
<PAGE>
<TABLE>
Minnesota Power
Consolidated Statement of Income
In Thousands Except Per Share Amounts - Unaudited
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenue and Income
Electric operations $ 133,480 $ 131,036 $ 394,200 $ 371,486
Water operations 20,848 16,678 63,124 50,093
Automobile auctions 50,464 30,492 135,372 30,492
Investments 10,358 7,915 33,631 28,074
--------- ---------- --------- ---------
Total operating revenue and income 215,150 186,121 626,327 480,145
--------- ---------- --------- ---------
Operating Expenses
Fuel and purchased power 50,937 46,087 142,871 130,510
Operations 90,676 75,696 263,741 198,812
Administrative and general 38,571 29,768 112,918 65,018
Interest expense 16,074 13,246 44,593 35,735
--------- ---------- --------- ---------
Total operating expenses 196,258 164,797 564,123 430,075
--------- ---------- --------- ---------
Income (Loss) from Equity Investments 2,832 2,339 9,441 (1,570)
--------- ---------- --------- ---------
Operating Income from Continuing Operations 21,724 23,663 71,645 48,500
Income Tax Expense (Benefit) 2,701 7,978 17,777 (1,915)
--------- ---------- --------- ---------
Income from Continuing Operations 19,023 15,685 53,868 50,415
Income from Discontinued Operations - 33 - 2,874
--------- ---------- --------- ---------
Net Income 19,023 15,718 53,868 53,289
Dividends on Preferred Stock 487 800 1,921 2,400
Distributions on Company Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary
MP&L Capital I which holds solely Company Junior
Subordinated Debentures 1,509 - 3,220 -
--------- ---------- --------- ---------
Earnings Available for Common Stock $ 17,027 $ 14,918 $ 48,727 $ 50,889
========= ========== ========= =========
Average Shares of Common Stock 29,428 28,512 29,091 28,443
Earnings Per Share of Common Stock
Continuing operations $ .58 $ .52 $ 1.68 $ 1.69
Discontinued operations - .00 - .10
------ ------ ------ ------
Total $ .58 $ .52 $ 1.68 $ 1.79
====== ====== ====== ======
Dividends Per Share of Common Stock $ .51 $ .51 $ 1.53 $ 1.53
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
-2-
</TABLE>
<PAGE>
<TABLE>
Minnesota Power
Consolidated Statement of Cash Flows
In Thousands - Unaudited
<CAPTION>
Nine Months Ended
September 30,
1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 53,868 $ 53,289
Depreciation and amortization 49,310 40,269
Deferred income taxes (5,161) (28,491)
Deferred investment tax credits (1,503) (1,437)
Pre-tax gain on sale of plant (1,073) -
Pre-tax loss on disposal of discontinued operations - 1,760
Changes in operating assets and liabilities
excluding the effects of discontinued operations
Trading securities (38,652) 20,127
Notes and accounts receivable (55,426) (6,748)
Fuel, material and supplies 1,208 (1,015)
Accounts payable 12,522 16,560
Other current assets and liabilities 7,986 13,977
Other - net 17,150 (8,388)
---------- ---------
Cash from operating activities 40,229 99,903
---------- ---------
Investing Activities
Proceeds from sale of investments in securities 32,488 77,997
Proceeds from sale of plant 5,311 -
Proceeds from sale of discontinued operations - 107,633
Additions to investments (84,138) (43,405)
Additions to plant (71,894) (73,053)
Acquisition of subsidiaries - net of cash acquired (44,013) (129,083)
Changes to other assets - net 5,358 (447)
---------- ---------
Cash for investing activities (156,888) (60,358)
---------- ---------
Financing Activities
Issuance of long-term debt 190,549 18,805
Issuance of Company obligated mandatorily
redeemable preferred securities of MP&L Capital I - net 72,270 -
Issuance of common stock 14,271 2,158
Changes in notes payable 51,063 10,006
Reductions of long-term debt (139,042) (9,074)
Redemption of preferred stock (17,568) -
Dividends on preferred and common stock (49,523) (45,974)
---------- ---------
Cash from (for) financing activities 122,020 (24,079)
---------- ---------
Change in Cash and Cash Equivalents 5,361 15,466
Cash and Cash Equivalents at Beginning of Period 31,577 27,001
---------- ---------
Cash and Cash Equivalents at End of Period $ 36,938 $ 42,467
========== =========
Supplemental Cash Flow Information
Cash paid during the period for
Interest (net of capitalized) $ 43,164 $ 40,249
Income taxes $ 17,338 $ 20,534
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
-3-
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
The accompanying unaudited consolidated financial statements and notes should be
read in conjunction with the Company's 1995 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 way
in which the Company currently reports information regarding its businesses.
Financial statement information is not comparable between periods due to the
purchase of 80 percent of ADESA in July 1995 and the purchase of the remaining
20 percent in 1996.
Note 1. Business Segments
In Thousands
<TABLE>
<CAPTION>
Investments
-------------------- Corporate
Electric Water Automobile Portfolio & Real Charges
Consolidated Operations Operations Auctions <F1> Reinsurance Estate & Other
------------ ---------- ---------- ------------ ------------ ------ ---------
Quarter Ended September 30, 1996
- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue and income $215,150 $133,480 $ 20,848 $ 50,464 $5,334 $ 5,345 $ (321)
Operation and other expense 163,386 100,073 13,637 42,395 732 4,623<F2> 1,926
Depreciation and amortization
expense 16,798 10,412 3,079 3,299 - 8 -
Interest expense 16,074 5,681 3,112 2,880 - 363 4,038
Income from equity investments 2,832 - - - 2,832 - -
-------- -------- -------- -------- ------ ------- -------
Operating income (loss) 21,724 17,314 1,020 1,890 7,434 351 (6,285)
Income tax expense (benefit) 2,701 6,343 292 1,158 2,202 (3,553)<F3> (3,741)
-------- -------- -------- -------- ------ ------- -------
Net income $ 19,023 $ 10,971 $ 728 $ 732 $5,232 $ 3,904 $(2,544)
======== ======== ======== ======== ====== ======= ========
Quarter Ended September 30, 1995
- --------------------------------
Operating revenue and income $186,121 $131,036 $ 16,678 $ 30,492 $3,813 $ 4,373 $ (271)
Operation and other expense 136,609 92,902 11,699 25,650 593 3,721 2,044
Depreciation and amortization
expense 14,942 10,089 2,502 2,291 - 60 -
Interest expense 13,246 5,650 2,497 907 2 1 4,189
Income from equity investments 2,339 - - - 2,339 - -
-------- -------- -------- -------- ------ ------- -------
Operating income (loss)
from continuing operations 23,663 22,395 (20) 1,644 5,557 591 (6,504)
Income tax expense (benefit) 7,978 9,187 (123) 856 1,468 292 (3,702)
-------- -------- -------- -------- ------ ------- -------
Income (loss) from
continuing operations 15,685 $ 13,208 $ 103 $ 788 $4,089 $ 299 $(2,802)
======== ======== ======== ====== ======= =======
Income from
discontinued operations 33
--------
Net income $ 15,718
========
- ------------------------
<FN>
<F1> Purchased 80 percent on July 1, 1995, another 3 percent on January 31, 1996 and the remaining 17 percent on
August 21, 1996.
<F2> Includes $800,000 of minority interest relating to the recognition of tax benefits. (See Note 3.)
<F3> Includes $4 million of tax benefits. (See Note 3.)
</FN>
</TABLE>
-4-
<PAGE>
Note 1. Business Segments (Continued)
In Thousands
<TABLE>
<CAPTION>
Investments
---------------------- Corporate
Electric Water Automobile Portfolio & Real Charges
Consolidated Operations Operations Auctions <F1> Reinsurance Estate & Other
------------ ---------- ---------- ------------ ------------ ------ ---------
Nine Months Ended September 30, 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue and income $ 626,327 $ 394,200 $ 63,124 $135,372 $ 13,939 $ 20,626 $ (934)
Operation and other expense 470,220 297,594 39,081 113,623 1,986 11,681<F2> 6,255
Depreciation and amortization
expense 49,310 31,424 9,286 8,554 - 46 -
Interest expense 44,593 16,897 9,456 6,188 1 851 11,200
Income from equity investments 9,441 - - - 9,441 - -
---------- --------- --------- -------- --------- -------- --------
Operating income (loss) 71,645 48,285 5,301 7,007 21,393 8,048 (18,389)
Income tax expense (benefit) 17,777 17,710 1,750 3,822 5,099 (1,972)<F3> (8,632)
---------- --------- --------- -------- --------- -------- --------
Net income $ 53,868 $ 30,575 $ 3,551 $ 3,185 $ 16,294 $ 10,020 $ (9,757)
========== ========= ========= ======== ========= ======== ========
Total assets $2,145,637 $ 980,187 $ 339,544 $479,254 $ 260,658 $ 84,202 $ 1,792
Accumulated depreciation $ 661,643 $ 536,707 $ 119,272 $ 5,664 - - -
Accumulated amortization $ 6,970 - - $ 6,028 - $ 942 -
Construction work in progress $ 38,279 $ 11,813 $ 14,786 $ 11,680 - - -
Nine Months Ended September 30, 1995
Operating revenue and income $ 480,145 $ 371,486 $ 50,093 $ 30,492 $ 16,775 $ 13,076 $ (1,777)
Operation and other expense 354,071 271,672 34,448 25,650 2,243 14,347<F2> 5,711
Depreciation and amortization
expense 40,269 30,225 7,573 2,291 - 180 -
Interest expense 35,735 16,720 7,483 907 6 3 10,616
Income (loss) from
equity investments (1,570) - - - 6,958 - (8,528)<F4>
---------- --------- --------- -------- --------- -------- --------
Operating income (loss)
from continuing operations 48,500 52,869 589 1,644 21,484 (1,454) (26,632)
Income tax expense (benefit) (1,915) 22,020 (170) 856 3,418 (17,131)<F3> (10,908)
---------- --------- --------- -------- --------- -------- --------
Income (loss) from
continuing operations 50,415 $ 30,849 $ 759 $ 788 $ 18,066 $ 15,677 $(15,724)
========= ========= ======== ========= ======== ========
Income from
discontinued operations 2,874
----------
Net income $ 53,289
==========
Total assets $1,932,822 $ 997,599 $ 308,348 $343,267 $ 229,592 $ 53,266 $ 750
Accumulated depreciation $ 617,532 $ 519,862 $ 96,713 $ 957 - - -
Accumulated amortization $ 1,949 - - $ 1,297 - $ 652 -
Construction work in progress $ 69,135 $ 12,488 $ 20,258 $ 36,389 - - -
<FN>
<F1> Purchased 80 percent on July 1, 1995, another 3 percent on January 31, 1996 and the remaining 17 percent on August 21, 1996.
<F2> Includes $1.2 and $3.7 million of minority interest relating to the recognition of tax benefits in 1996 and 1995,
respectively. (See Note 3.)
<F3> Includes $6 and $18.4 million of tax benefits in 1996 and 1995, respectively. (See Note 3.)
<F4> Includes an $8.5 million pre-tax provision for exiting the equipment manufacturing business.
</FN>
</TABLE>
-5-
<PAGE>
Note 2. Regulatory Matters
FPSC Refund Order in Connection with 1993 Rate Case. On August 14, 1996 the FPSC
ordered SSU to refund about $10 million, including interest, to certain
customers who had paid more to SSU under a uniform rate structure than they
would have paid under a stand-alone rate structure during the period September
1993 to January 1996. In so ruling, the FPSC determined that a February 1996
decision of the Florida Supreme Court in GTE Florida v. FPSC did not render a
refund requirement unlawful independent of an offsetting surcharge. SSU believes
that the GTE Florida decision substantiates SSU's claim that it would be
unlawful for the FPSC to order a refund to certain customers who paid more under
uniform rates without also permitting SSU to recover the refund amount from
remaining customers who paid less. SSU has recorded no provision for refund. On
September 3, 1996 SSU appealed the FPSC's order to the First District Court of
Appeals. A decision on this appeal is anticipated in early 1998.
SSU's 1995 Rate Case. SSU implemented new water and wastewater rates on
September 20, 1996 that will result in an annualized increase of approximately
$11.1 million in revenue. SSU requested an $18.1 million rate increase in June
1995. Approved interim rates of $7.9 million on an annualized basis have been in
effect since January 23, 1996. Though a final order has not yet been issued by
the FPSC, SSU anticipates that it will appeal certain aspects of the FPSC
decision.
Note 3. Income Tax Expense
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
Schedule of Income Tax Expense (Benefit) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
In Thousands
<S> <C> <C> <C> <C>
Charged to continuing operations
Current tax
Federal $ 5,560 $ 4,904 $18,452 $ 8,272
Foreign 408 428 853 1,153
State 1,041 2,448 5,136 3,842
------- ------- ------- -------
7,009 7,780 24,441 13,267
------- ------- ------- -------
Deferred tax
Federal 176 1,200 1,307 4,724
State 179 (590) (468) (69)
------- ------- ------- -------
355 610 839 4,655
------- ------- ------- -------
Change in valuation allowance (4,000) - (6,000) (18,400)
------- ------- ------- -------
Deferred tax credits (663) (412) (1,503) (1,437)
------- ------- ------- -------
Income tax - continuing operations 2,701 7,978 17,777 (1,915)
------- ------- ------- -------
Charged to discontinued operations
Current tax
Federal - - - 13,396
State - - - 4,192
------- ------- ------- -------
- - - 17,588
------- ------- ------- -------
Deferred tax
Federal - - - (11,851)
State - - - (2,895)
------- ------- ------- -------
- - - (14,746)
------- ------- ------- -------
Income tax - discontinued operations - - - 2,842
------- ------- ------- -------
Total income tax expense $ 2,701 $ 7,978 $17,777 $ 927
======= ======= ======= =======
</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. Based on
this directive, Lehigh recognized $18.4 million of income in the first quarter
of 1995 by reducing the valuation reserve which offsets deferred tax assets. In
May 1996 an additional $2 million of income was recognized and in September 1996
$4 million of income was recognized based on a management review of the
appropriateness of the valuation reserve. Additional unrealized net deferred tax
assets of $2.2 million resulting from the original purchase of Lehigh are
included on the Company's balance sheet. These assets are fully offset by the
deferred tax asset valuation allowance because under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," it is currently
"more likely than not" that the value of these assets will not be realized.
Management reviews the appropriateness of the valuation allowance quarterly.
-6-
<PAGE>
Note 4. Square Butte Purchased Power Contract
The Company has a contract to purchase power and energy from Square Butte. Under
the terms of the contract which extends through 2007, the Company is purchasing
71 percent of the output from a generating plant which is capable of generating
up to 470 MW. Reductions to about 49 percent of the output are provided for in
the contract and, at the option of Square Butte, could begin after a five-year
advance notice to the Company.
The cost of the power and energy is a proportionate share of Square Butte's
fixed obligations and variable operating costs, based on the percentage of the
total output purchased by the Company. The annual fixed obligations of the
Company to Square Butte are $19.4 million from 1996 through 2000. The variable
operating costs are not incurred unless production takes place. The Company is
responsible for paying all costs and expenses of Square Butte if not paid by
Square Butte when due. These obligations and responsibilities of the Company are
absolute and unconditional whether or not any power is actually delivered to the
Company.
Note 5. Preferred Stock
On May 13, 1996 Minnesota Power redeemed all of the 170,000 outstanding shares
of its Serial Preferred Stock, $7.36 Series. The redemption price was $103.34
per share plus accrued and unpaid dividends in the amount of $.86 per share.
Proceeds from the QUIPS financing in March 1996 were used to redeem the shares.
Note 6. Mandatorily Redeemable Preferred Securities of MP&L Capital I
MP&L Capital I (Trust) was established as a wholly owned business trust of the
Company for the purpose of issuing common and preferred securities (Trust
Securities). On March 20, 1996 the Trust publicly issued three million 8.05%
Cumulative Quarterly Income Preferred Securities (QUIPS), representing preferred
beneficial interests in the assets held by the Trust, indirectly resulting in
net proceeds to the Company of $72.3 million. Holders of the QUIPS are entitled
to receive quarterly distributions at an annual rate of 8.05 percent of the
liquidation preference value of $25 per security. The Company is the owner of
all the common trust securities, which constitute approximately 3 percent of the
aggregate liquidation amount of all the Trust Securities. The sole asset of the
Trust is $77.5 million of 8.05% Junior Subordinated Debentures, Series A, Due
2015 (Subordinated Debentures) issued by the Company, interest on which is
deductible by the Company for income tax purposes. The Trust will use interest
payments received on the Subordinated Debentures it holds to make the quarterly
cash distributions on the QUIPS.
The QUIPS are subject to mandatory redemption upon repayment of the Subordinated
Debentures at maturity or upon redemption. The Company has the option at any
time on or after March 20, 2001, to redeem the Subordinated Debentures, in whole
or in part. The Company also has the option, upon the occurrence of certain
events, (i) to redeem at any time the Subordinated Debentures, in whole but not
in part, which would result in the redemption of all the Trust Securities, or
(ii) to terminate the Trust and cause the pro rata distribution of the
Subordinated Debentures to the holders of the Trust Securities.
In addition to the Company's obligations under the Subordinated Debentures, the
Company has guaranteed, on a subordinated basis, payment of distributions on the
Trust Securities, to the extent the Trust has funds available to pay such
distributions, and has agreed to pay all of the expenses of the Trust (such
additional obligations collectively, the Back-up Undertakings). Considered
together, the Back-up Undertakings constitute a full and unconditional guarantee
by the Company of the Trust's obligations under the QUIPS.
Note 7. Long-Term Debt
On May 30, 1996 ADESA issued $90 million of 7.70% Senior Notes, Series A, Due
2006 in a private placement offering. Proceeds were used by ADESA to repay
existing indebtedness, including borrowings under ADESA's revolving bank credit
agreement, floating rate option notes and certain borrowings from Minnesota
Power.
In June 1996 Lehigh obtained a $20 million adjustable rate revolving line of
credit due in 2003. The proceeds were used to partially finance the acquisition
of real estate near Palm Coast, Florida.
-7-
<PAGE>
Note 8. Common Stock
Shareholder Rights Plan. On July 24, 1996 the Board of Directors of the Company
adopted a rights plan (Rights Plan) pursuant to which it declared a dividend
distribution of one preferred share purchase right (Right) for each outstanding
share of Common Stock to shareholders of record at the close of business on July
24, 1996 (the Record Date) and authorized the issuance of one Right with respect
to each share of Common Stock that becomes outstanding between the Record Date
and July 23, 2006, or such earlier time as the Rights are redeemed.
Each Right will be exercisable to purchase one one-hundredth of a share of
Junior Serial Preferred Stock A, without par value, at an exercise price of $90,
subject to adjustment, following a distribution date which shall be the earlier
to occur of (i) 10 days following a public announcement that a person or group
(Acquiring Person) has acquired, or obtained the right to acquire, beneficial
ownership of 15 percent or more of the outstanding shares of Common Stock (Stock
Acquisition Date) or (ii) 15 business days (or such later date as may be
determined by the Board of Directors prior to the time that any person becomes
an Acquiring Person) following the commencement of, or a public announcement of
an intention to make, a tender or exchange offer if, upon consummation thereof,
such person would meet the 15 percent threshold.
Subject to certain exempt transactions, in the event that the 15 percent
threshold is met, each holder of a Right (other than the Acquiring Person) will
thereafter have the right to receive, upon exercise at the then current exercise
price of the Right, Common Stock (or, in certain circumstances, cash, property
or other securities of the Company) having a value equal to two times the
exercise price of the Right. If, at any time following the Stock Acquisition
Date, the Company is acquired in a merger or other business combination
transaction or 50 percent or more of the Company's assets or earning power are
sold, each Right will entitle the holder (other than the Acquiring Person) to
receive, upon exercise at the then current exercise price of the Right, common
stock of the acquiring or surviving company having a value equal to two times
the exercise price of the Right. Certain stock acquisitions will also trigger a
provision permitting the Board of Directors to exchange each Right for one share
of Common Stock.
The Rights are nonvoting and expire on July 23, 2006, unless redeemed by the
Company at a price of $.01 per Right at any time prior to the time a person
becomes an Acquiring Person. The Board of Directors has authorized the
reservation of one million shares of Junior Serial Preferred Stock A for
issuance under the Rights Plan in the event of exercise of the Rights.
Stock Option and Award Plans. In May 1996 Company shareholders approved an
Executive Long-Term Incentive Compensation Plan (the Executive Plan) and a
Director Long-Term Stock Incentive Plan (the Director Plan), both effective
January 1, 1996.
The Executive Plan allows for the grant of up to 2.1 million shares of Common
Stock to key employees of the Company. Such grants may be in the form of stock
options and other awards, including stock appreciation rights, restricted stock,
performance units and performance shares. In January 1996 the Company granted
non-qualified stock options to purchase 132,542 shares of Common Stock and
granted 176,616 performance shares. Additionally, 24,000 restricted shares of
Common Stock were granted, with the restriction expiring over a four-year
period. Pursuant to the Director Plan each nonemployee director receives an
annual grant of 725 stock options and a biennial grant of performance shares
equal to $10,000 in value of Common Stock on the date of grant. The Director
Plan provides for the grant of up to 150,000 shares of Common Stock.
The exercise price for stock options is equal to the market value of the Common
Stock on the date of a grant. Stock options may be exercised 50 percent on the
first anniversary date of the grant and the remaining 50 percent on the second
anniversary, and expire on the tenth anniversary. Grants of performance shares
are earned over multi-year time periods upon the achievement of performance
objectives.
The Company has elected to recognize compensation cost for its stock-based
compensation plans in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Generally, no compensation
expense is recognized for stock options with exercise prices equal to the market
value of the underlying shares of stock at the date of the grant. Compensation
cost is recognized over the vesting periods for performance and restricted share
awards based on the market value of the underlying shares of stock.
-8-
<PAGE>
Note 9. Acquisitions
Minority Interest in ADESA. On August 21, 1996 the Company acquired the
remaining 17 percent ownership interest of ADESA from the ADESA management
shareholders. The acquisition of ADESA has been accounted for as a purchase.
Acquired goodwill and other intangible assets associated with this acquisition
are being amortized on a straight line basis over periods not exceeding 40
years. The acquisition was funded from proceeds received from the issuance of
commercial paper.
Auto Auctions in Texas. On September 30, 1996 Minnesota Power exchanged 473,006
shares of Common Stock for all the outstanding shares of common stock of Alamo
Auto Auction, Inc. and Alamo Auto Auction Houston, Inc. The Common Stock was
issued by the Company and delivered to the sellers in a private placement
transaction that has been accounted for as a pooling of interests. The two new
auto auction businesses are located in San Antonio and Houston, Texas. The San
Antonio site is on 48 acres and has five auction lanes. The Houston site is on 9
acres, has two auction lanes and recently commenced operations. Given the
relatively small size of the transaction, the prior period consolidated
financial statements have not been restated and separate results of operations
are not presented.
Note 10. Discontinued Operations
On June 30, 1995 Minnesota Power sold its interest in 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 Nine Months Ended
September 30, September 30,
Summary of Discontinued Operations 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
In Thousands
<S> <C> <C> <C> <C>
Operating revenue and income - - $ 44,324
========
Equity in earnings - - $ 7,496
========
Income from operations - - $ 7,476
Income tax expense - - 3,117
--------
- - 4,359
--------
Loss on disposal - $ 33 - (1,760)
Income tax benefit - - - 275
----- --------
- 33 - (1,485)
----- --------
Income from discontinued operations - $ 33 - $ 2,874
===== ========
</TABLE>
The Company is still committed to a maximum guaranty of $95 million to ensure a
portion of a $33.4 million annual lease obligation for paper mill equipment
under an operating lease extending to 2012. The purchaser of the Company's paper
and pulp business, CPI, has agreed to indemnify the Company for any payments the
Company may make as a result of the Company's obligation relating to this
operating lease.
-9-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Minnesota Power has operations in four business segments: (1) electric
operations, which include electric and gas services, and coal mining; (2) water
operations, which include water and wastewater services; (3) automobile
auctions, which also include a finance company and an auto transport company;
and (4) investments, which include real estate operations in Florida, a 21
percent equity investment in a financial guaranty reinsurance company, and a
securities portfolio.
Earnings per share of common stock for the quarter ended September 30, 1996 were
58 cents compared to 52 cents for the quarter ended September 30, 1995. Higher
earnings in 1996 were attributed primarily to the performance of the Company's
portfolio and real estate investments offset in part by a decrease in
earnings from electric operations.
Earnings per share of common stock for the nine months ended September 30, 1996
were $1.68 compared to $1.79 for the nine months ended September 30, 1995.
Although 1996 includes increased earnings from water operations, a gain
resulting from the sale of certain water operations, the inclusion of automobile
auctions and improvement in real estate operations (excluding the recognition of
tax benefits), higher earnings in 1995 were attributed to the 52 cent per share
recognition of tax benefits associated with real estate operations offset in
part by an 18 cent per share provision associated with exiting the truck-mounted
lifting equipment business. The sale of the Company's paper and pulp business
was included in 1995 as discontinued operations.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
Earnings Per Share 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Continuing Operations
Electric Operations $ .36 $.44 $ 1.00 $1.03
Water Operations .02 .01 .12 .03
Automobile Auctions .03 .03 .11 .03
Investments
Portfolio and reinsurance .18 .15 .56 .64
Real estate .14 .01 .35 .55
----- ---- ------- -----
.32 .16 .91 1.19
Corporate Charges and Other (.15) (.12) (.46) (.59)
----- ---- ------- ------
Total Continuing Operations .58 .52 1.68 1.69
Discontinued Operations - .00 - .10
----- ---- ------- ------
Total Earnings Per Share $ .58 $.52 $ 1.68 $ 1.79
===== ==== ======= ======
</TABLE>
Results of Operations
Comparison of the Quarters Ended September 30, 1996 and 1995.
Electric Operations. Operating revenue and income from electric operations were
higher in 1996 compared to 1995. Total kilowatthour sales increased 13 percent
due to the Company's marketing of energy to other power suppliers.
Revenue from electric sales to taconite customers accounted for 32 percent of
electric operating revenue in 1996 compared to 34 percent in 1995. Electric
sales to paper and other wood-products companies accounted for 11 percent of
electric operating revenue in 1996 and 12 percent in 1995. Sales to other power
suppliers accounted for 17 percent of electric operating revenue in 1996
compared to 13 percent in 1995.
-10-
<PAGE>
Although revenue from electric operations was higher, earnings for the quarter
ended September 30, 1996 were lower reflecting efforts in preparing for and
meeting the more competitive challenges of today's electric utility industry.
New industrial rates were lower on average while expenses associated with
marketing new products and improving customer service were higher. Also, the
average revenue per kilowatthour sold to other power suppliers was lower in 1996
due to cooler summer weather compared to 1995 and more competitive wholesale
pricing. Additionally, 1996 expenses include three months of amortization
associated with the 1995 early retirement plan compared to two months in 1995.
Water Operations. Operating revenue and income from water operations were higher
in 1996 due to increased sales and higher rates. SSU added 17,000 new water and
wastewater customers as a result of the December 1995 purchase of the assets of
Orange Osceola in Florida. On September 20, 1996 SSU implemented new water and
wastewater rates that will result in an annualized increase of approximately
$11.1 million in revenue. Approved interim rates of $7.9 million on an
annualized basis have been in effect since January 23, 1996. Operating costs
also increased in 1996 due to the additional customers from the purchase of
Orange Osceola.
Automobile Auctions. Higher operating revenue and income from ADESA in 1996 is
attributed to 32,000 more cars being sold. Many of these cars received ancillary
services, such as transportation, reconditioning, and bodywork. Also, three
additional auction sites were purchased during the quarter. Operating expenses
include significant start-up costs at two other new locations added in 1996,
relocation costs for three existing auction operations and additional costs
associated with reorganization following the purchase of the remaining minority
interest in ADESA from ADESA's management shareholders.
Investments.
- Securities Portfolio and Reinsurance. The Company's securities portfolio
and reinsurance performed well in 1996. Even though the average portfolio
balance has been smaller because a portion of the portfolio was sold in
1995 to fund the purchase of ADESA, a favorable market has helped achieve
good returns.
- Real Estate Operations. Land sales increased due to additional property
available for sale following the acquisition of Palm Coast in April 1996.
In addition, the recognition of $4 million of tax benefits at Lehigh
contributed to a strong quarter for the Company's real estate business in
1996.
Comparison of the Nine Months Ended September 30, 1996 and 1995.
Electric Operations. Operating revenue and income from electric operations were
higher in 1996 compared to 1995 due to a 19 percent increase in total
kilowatthour sales. The increase in sales is attributed primarily to the
Company's marketing of energy to other power suppliers as well as extreme winter
weather in 1996 compared to the milder winter in 1995.
Revenue from electric sales to taconite customers accounted for 32 percent of
electric operating revenue in 1996 compared to 35 percent in 1995. Electric
sales to paper and other wood-products companies accounted for 11 percent of
electric operating revenue in 1996 and 13 percent in 1995. Sales to other power
suppliers accounted for 14 percent of electric operating revenue in 1996
compared to 9 percent in 1995.
Revenue from sales of electricity was up in 1996, but provided lower margins
due to the cooler summer weather in 1996 and more competitive wholesale pricing.
Square Butte, one of Minnesota Power's low priced sources of energy, produced 34
percent more energy in 1996, while in 1995 it was down for scheduled
maintenance. Costs associated with the early retirement offering in mid-1995 are
being amortized over three years. Expenses in 1996 included nine months of
amortization, while 1995 included only two months. Scheduled maintenance
expenses were higher in 1996.
-11-
<PAGE>
Water Operations. Operating revenue and income from water operations were higher
in 1996 due to the $1.1 million pre-tax gain from the sale of Seabrook's assets
in South Carolina, the addition of 17,000 new water and wastewater customers as
a result of the December 1995 purchase of the assets of Orange Osceola in
Florida, and SSU's implementation of a $7.9 million interim rate increase
effective January 23, 1996. Operating costs also increased in 1996 due to the
additional customers from the purchase of Orange Osceola.
Automobile Auctions. Automobile auction operations were profitable despite
severe winter weather on the east coast which limited auction sales in January
1996. Operating revenue and income has been strong in 1996 as a result of
increased ancillary services, such as transportation, reconditioning, and
bodywork. New auctions began operations at Jacksonville, Florida and Newark, New
Jersey in 1996. Start-up costs associated with these new sites have had a
negative impact on profitability of this segment and are expected to continue
having such an impact on results through 1996. ADESA's wholly owned subsidiary,
Automotive Finance Corporation, continues to grow and contribute to results.
Collectively, the other auction sites have performed well in 1996.
Consolidated operating expenses in 1996 are significantly higher due to the
inclusion of ADESA's operations following its purchase by the Company in July
1995.
Investments.
- Securities Portfolio and Reinsurance. The Company's securities portfolio
and reinsurance performed well in 1996. Even though the average portfolio
balance has been smaller because a portion of the portfolio was sold in
1995 to fund the purchase of ADESA, a favorable market has helped achieve
good returns.
- Real Estate Operations. Revenue in 1996 includes $3.7 million from the
sale of Lehigh's joint venture in a resort and golf course. Based on a
management quarterly review of the appropriateness of the valuation reserve
which offsets deferred tax assets, Lehigh recognized $6 million of tax
benefits in 1996 and $18.4 million of tax benefits in 1995. The Company's
portion of the tax benefits reflected as net income was $4.8 million in
1996 and $14.7 million in 1995.
Corporate Charges and Other. In March 1995 the Company recorded a $5 million
provision, lowering earnings per share by 18 cents, in anticipation of exiting
the truck-mounted lifting equipment business.
Discontinued Operations. Income from discontinued operations in 1995 reflects
the operating results of the paper and pulp business which was sold in June
1995.
Liquidity and Financial Position
Reference is made to the Consolidated Statement of Cash Flows for the nine
months ended September 30, 1996 and 1995, for purposes of the following
discussion. Automobile auction operations are included as of July 1995.
Cash Flow Activities. Cash from operating activities was affected by a number of
factors representative of normal operations.
Working capital, if and when needed, generally is provided by the sale of
commercial paper. In August 1996, commercial paper was also used to finance the
purchase of the minority interest of ADESA. In addition, securities investments
can be liquidated to provide funds for reinvestment in existing businesses or
acquisition of new businesses, and approximately 5 million original issue shares
of common stock are available for issuance through the DRIP.
MP&L Capital I (Trust) was established as a wholly owned business trust of the
Company for the purpose of issuing common and preferred securities. On March 20,
1996 the Trust publicly issued three million 8.05% Cumulative Quarterly Income
Preferred Securities (QUIPS), representing preferred beneficial interests in the
assets held by the Trust, indirectly resulting in net proceeds to the Company of
$72.3 million. The net proceeds to the Company were used to retire approximately
$56 million of commercial paper and approximately $17 million were used to
redeem all of the outstanding shares of the Company's Serial Preferred Stock,
$7.36 Series, on May 13, 1996.
-12-
<PAGE>
On May 30, 1996 ADESA issued $90 million of 7.70% Senior Notes, Series A, Due
2006 in a private placement offering. Proceeds were used by ADESA to repay
existing indebtedness, including borrowings under ADESA's revolving bank credit
agreement, floating rate option notes and certain borrowings from Minnesota
Power.
In June 1996 Lehigh obtained a $20 million adjustable rate revolving line of
credit due in 2003. The proceeds were used to partially finance the acquisition
of real estate near Palm Coast, Florida.
On June 24, 1996 the Company's registration with the Securities and Exchange
Commission became effective with respect to 5 million additional shares of
Common Stock for offer and sale pursuant to the DRIP. Previously available to
registered holders and electric utility customers, the DRIP has been amended,
effective July 2, 1996, to, among other things, expand the customer feature and
allow any interested investor to enroll in the plan with an initial investment
of $250. Capital raised through the sale of new issue shares under the DRIP is
expected to be used for general corporate purposes.
On September 30, 1996 Minnesota Power exchanged 473,006 shares of Common Stock
for all the outstanding shares of common stock of Alamo Auto Auction, Inc. and
Alamo Auto Auction Houston, Inc. The Common Stock was issued by the Company and
delivered to the sellers in a private placement transaction that has been
accounted for as a pooling of interests.
Capital Requirements. Consolidated capital expenditures for the nine months
ended September 30, 1996 totaled $77 million. These expenditures include $27
million for electric operations, $14 million for water operations and $36
million for automobile auction operations. Internally generated funds were the
primary source for funding electric and water operation expenditures. ADESA
issued long-term debt to finance its capital expenditures.
PART II. OTHER INFORMATION
Item 5. Other Information
Reference is made to the Company's 1995 Form 10-K for background information on
the following updates. Unless otherwise indicated, cited references are to the
Company's 1995 Form 10-K.
Ref. Page 4 and 5. - Table-Contract Status for Minnesota Power Large Power
Customers
Potlatch - Brainerd and Potlatch - Cloquet (Potlatch) combined into a new
contract their previously separate contracts and extended the contract period
through 2002. The new contract has contract demand of 28.5 MW (22 MW contract
and 6.5 MW incremental demand) from July 1996 through October 1997, 16 MW (11.9
MW contract and 4.1 MW incremental demand) through December 2000 and 10 MW
through December 2002. The contract also provides for economy energy,
incremental production service and replacement firm power service. The MPUC
approved this contract on September 26, 1996.
Ref. Page 9. - Second Full Paragraph and Page 13. - Fourth Paragraph
Ref. 10-Q for the quarter ended March 31, 1996, Page 10. - Second Paragraph
Ref. 10-Q for the quarter ended June 30, 1996, Page 14. - Third Paragraph
On June 27, 1996 the Company filed in the U.S. Court of Appeals for the District
of Columbia Circuit a petition for review of the order issued by the FERC
granting a new license for the Company's St. Louis River Project. On June 28,
1996 separate petitions for review were filed in the same court by the U.S.
Department of the Interior and the Fond du Lac Band of Lake Superior Chippewa,
two intervenors in the licensing proceedings. The issues to be resolved concern
the terms and conditions of the license which will govern the Company's
operation and maintenance of the project. By an order issued on July 3, 1996 the
court consolidated the three petitions for review. On October 16, 1996 the
Company filed with the court an unopposed motion for a procedural schedule
pursuant to which the briefing of the issues would be completed on May 17, 1997.
-13-
<PAGE>
Ref. Page 10. - Fourth Paragraph
Ref. 10-Q for the quarter ended March 31, 1996, Page 10. - Fifth Paragraph
Ref. 10-Q for the quarter ended June 30, 1996, Page 14. - Fourth Paragraph
The wholesale transmission tariff filed on April 16, 1996, in anticipation of
new rules governing open access transmission for wholesale service, became
effective on June 16, 1996, subject to refund pending a hearing before an
Administrative Law Judge and final FERC approval. A hearing previously scheduled
for January 14, 1997 has been deferred pending discussions which could resolve
some or all of the issues in the proceeding. As required by Order No. 888, the
Company filed with the FERC on July 9, 1996 a tariff for open access
transmission service incorporating the terms and conditions of the FERC's pro
forma tariff with appropriate modifications. In further compliance with Order
No. 888, the Company also filed with the FERC information setting forth
separately the rates for power sales and transmission services which are bundled
together in the rate schedules and tariffs for wholesale customers taking
requirements service from the Company. On October 16, 1996 the FERC accepted the
informational filing.
---------------------------------
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), Minnesota Power 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) of the
Company made by or on behalf of the Company which are made orally, whether in
presentations, in response to questions or otherwise. Any statements that
express, or involve discussion 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 "will likely result," "are expected to," "will
continue," "is anticipated," "estimated," "projection," "outlook,") are not
historical facts and may be forward-looking and, accordingly, such statements
involve estimates, assumptions, and uncertainties which could cause actual
results to differ materially from those expressed in the forward-looking
statements. Accordingly, any such statements are qualified in their entirety by
reference to, and are accompanied by, the following important factors that could
cause the Company's actual results to differ materially from those contained in
forward-looking statements of the Company made by or on behalf of the Company.
The Company cautions that the following important factors could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company.
Furthermore, 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 or statements 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 each such factor on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.
Some important factors that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements include
prevailing governmental policies and regulatory actions with respect to allowed
rates of return, industry and rate structure, acquisition and disposal of assets
and facilities, operation and construction of plant facilities, recovery of
purchased power, and present or prospective wholesale and retail competition
(including but not limited to retail wheeling and transmission costs).
The business and profitability of the Company are also influenced by 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, pricing and transportation of commodities, market demand
for energy from plants or facilities, changes in tax rates or policies or in
rates of inflation, unanticipated development project delays or changes in
project costs, unanticipated changes in operating expenses and capital
expenditures,
-14-
<PAGE>
capital market conditions, competition for new energy development
opportunities, and legal and administrative proceedings (whether civil, such
as environmental, or criminal) and settlements.
All such factors are difficult to predict, contain uncertainties which may
materially affect results, and are beyond the control of the Company.
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 dated and filed August 2, 1996 with respect to Item 5.
Other Events and Item 7. Financial Statements and Exhibits.
Report on Form 8-K dated and filed August 23, 1996 with respect to Item 5.
Other Events.
Report on Form 8-K dated September 5, 1996 and filed September 6, 1996 with
respect to Item 4. Changes in Registrant's Certifying Accountant and Item
7. Financial Statements and Exhibits.
Report on Form 8-K dated and filed October 3, 1996 with respect to Item 5.
Other Events.
-15-
<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)
October 29, 1996 D. G. Gartzke
-------------------------------
D. G. Gartzke
Senior Vice President - Finance
and Chief Financial Officer
October 29, 1996 Mark A. Schober
-------------------------------
Mark A. Schober
Corporate Controller
-16-
<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 SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,117,059
<OTHER-PROPERTY-AND-INVEST> 394,524
<TOTAL-CURRENT-ASSETS> 362,443
<TOTAL-DEFERRED-CHARGES> 106,666
<OTHER-ASSETS> 164,945
<TOTAL-ASSETS> 2,145,637
<COMMON> 389,698
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 280,073
<TOTAL-COMMON-STOCKHOLDERS-EQ> 600,893
75,000
31,492
<LONG-TERM-DEBT-NET> 638,845
<SHORT-TERM-NOTES> 150,508
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 64,745
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 515,276
<TOT-CAPITALIZATION-AND-LIAB> 2,145,637
<GROSS-OPERATING-REVENUE> 626,327
<INCOME-TAX-EXPENSE> 17,777
<OTHER-OPERATING-EXPENSES> 519,530
<TOTAL-OPERATING-EXPENSES> 564,123
<OPERATING-INCOME-LOSS> 71,645
<OTHER-INCOME-NET> 9,441
<INCOME-BEFORE-INTEREST-EXPEN> 98,461
<TOTAL-INTEREST-EXPENSE> 44,593
<NET-INCOME> 53,868
5,141<F1>
<EARNINGS-AVAILABLE-FOR-COMM> 48,727
<COMMON-STOCK-DIVIDENDS> 44,382
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 40,229
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.68
<FN>
<F1>Includes $3,220,000 for distribution on Company Obligated Mandatorily
Redeemable Preferred Securities of MP&L Capital I.
</FN>
</TABLE>
