Securities and Exchange Commission Washington, DC 20549 FORM 10-Q (Mark One) /X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1997 or / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 1-3548 Minnesota Power & Light Company A Minnesota Corporation IRS Employer Identification No. 41-0418150 30 West Superior Street Duluth, Minnesota 55802 Telephone - (218) 722-2641 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Common Stock, no par value, 32,958,014 shares outstanding as of April 30, 1997
Minnesota Power & Light Company Index Page Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheet - March 31, 1997 and December 31, 1996 1 Consolidated Statement of Income - Quarter Ended March 31, 1997 and 1996 2 Consolidated Statement of Cash Flows - Quarter Ended March 31, 1997 and 1996 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. Other Information Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12
Definitions The following abbreviations or acronyms are used in the text. Abbreviation or Acronym Term - ------------------ ------------------------------------------------------- 1996 Form 10-K Minnesota Power's Annual Report on Form 10-K for the Year Ended December 31, 1996 ADESA ADESA Corporation AFC Automotive Finance Corporation BNI Coal BNI Coal, Ltd. Common Stock Minnesota Power & Light Company's common stock Company Minnesota Power & Light Company and its Subsidiaries DOJ United States Department of Justice DRIP Dividend Reinvestment and Stock Purchase Plan EPA United States Environmental Protection Agency ESOP Employee Stock Ownership Plan FERC Federal Energy Regulatory Commission Heater Heater Utilities, Inc. ISI Instrumentation Services, Inc. Florida Water Florida Water Services Corporation FPSC Florida Public Service Commission Lehigh Lehigh Acquisition Corporation Minnesota Power Minnesota Power & Light Company and its Subsidiaries MPUC Minnesota Public Utilities Commission MW Megawatt(s) NCUC North Carolina Utilities Commission Palm Coast Palm Coast Holdings, Inc. PSCW Public Service Commission of Wisconsin SCPSC South Carolina Public Service Commission Square Butte Square Butte Electric Cooperative SWL&P Superior Water, Light and Power Company
PART I. FINANCIAL INFORMATION Item 1. Financial Statements <TABLE> Minnesota Power Consolidated Balance Sheet In Thousands <CAPTION> March 31, December 31, 1997 1996 Unaudited Audited - ------------------------------------------------------------------------------------------------------ <S> <C> <C> Assets Plant and Other Assets Electric operations $ 792,239 $ 796,055 Water services 319,904 323,869 Automotive services 164,369 167,274 Investments 234,261 236,509 ------------ ------------ Total plant and other assets 1,510,773 1,523,707 ------------ ------------ Current Assets Cash and cash equivalents 58,851 40,095 Trading securities 95,498 86,819 Trade accounts receivable (less reserve of $8,250 and $6,568) 207,208 144,060 Notes and other accounts receivable 19,425 20,719 Fuel, material and supplies 23,796 23,221 Prepayments and other 15,493 17,195 ------------ ------------ Total current assets 420,271 332,109 ------------ ------------ Deferred Charges Regulatory 78,401 83,496 Other 30,366 27,086 ------------ ------------ Total deferred charges 108,767 110,582 ------------ ------------ Intangible Assets Goodwill 164,739 166,986 Other 11,984 12,665 ------------ ------------ Total intangible assets 176,723 179,651 ------------ ------------ Total Assets $ 2,216,534 $ 2,146,049 - ----------------------------------------------------------------------------------------------------------------- Capitalization and Liabilities Capitalization Common stock without par value, 65,000,000 shares authorized 32,934,958 and 32,758,310 shares outstanding $ 399,185 $ 394,187 Unearned ESOP shares (68,213) (69,124) Net unrealized gain on securities investments 733 2,752 Cumulative translation adjustment 86 73 Retained earnings 282,787 282,960 ------------ ------------ Total common stock equity 614,578 610,848 Cumulative preferred stock 11,492 11,492 Redeemable serial preferred stock 20,000 20,000 Company obligated mandatorily redeemable preferred securities of subsidiary MP&L Capital I which holds solely Company Junior Subordinated Debentures 75,000 75,000 Long-term debt 683,834 694,423 ------------ ------------ Total capitalization 1,404,904 1,411,763 ------------ ------------ Current Liabilities Accounts payable 106,535 72,787 Accrued taxes 61,551 48,813 Accrued interest and dividends 10,029 14,851 Notes payable 174,793 155,726 Long-term debt due within one year 25,178 7,208 Other 36,628 37,598 ------------ ------------ Total current liabilities 414,714 336,983 ------------ ------------ Deferred Credits Accumulated deferred income taxes 148,875 148,931 Contributions in aid of construction 99,090 98,378 Regulatory 63,881 64,394 Other 85,070 85,600 ------------ ------------ Total deferred credits 396,916 397,303 ------------ ------------ Total Capitalization and Liabilities $ 2,216,534 $ 2,146,049 - ----------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. </TABLE> -1-
Minnesota Power Consolidated Statement of Income In Thousands Except Per Share Amounts - Unaudited Quarter Ended March 31, 1997 1996 - ------------------------------------------------------------------------------ Operating Revenue and Income Electric operations $ 131,457 $ 131,501 Water services 20,648 19,227 Automotive services 60,510 39,693 Investments 9,458 12,255 ----------- ----------- Total operating revenue and income 222,073 202,676 ----------- ----------- Operating Expenses Fuel and purchased power 44,029 43,643 Operations 138,379 119,822 Interest expense 17,308 14,160 ----------- ----------- Total operating expenses 199,716 177,625 ----------- ----------- Income from Equity Investment 4,042 3,777 ----------- ----------- Operating Income 26,399 28,828 Distributions on Redeemable Preferred Securities of Subsidiary 1,509 201 Income Tax Expense 8,796 10,324 ----------- ----------- Net Income 16,094 18,303 Dividends on Preferred Stock 487 800 ----------- ----------- Earnings Available for Common Stock $ 15,607 $ 17,503 =========== =========== Average Shares of Common Stock 30,223 28,786 Earnings Per Share of Common Stock $ .52 $ .61 Dividends Per Share of Common Stock $ .51 $ .51 - ------------------------------------------------------------------------------ The accompanying notes are an integral part of this statement. -2-
Minnesota Power Consolidated Statement of Cash Flows In Thousands - Unaudited Quarter Ended March 31, 1997 1996 - -------------------------------------------------------------------------------- Operating Activities Net income $ 16,094 $18,303 Income from equity investment (4,042) (3,777) Depreciation and amortization 17,961 16,216 Deferred income taxes (438) (742) Deferred investment tax credits (493) (623) Pre-tax gain on sale of plant (3,376) (1,073) Changes in operating assets and liabilities Trading securities (8,679) (5,948) Notes and accounts receivable (59,378) (45,776) Fuel, material and supplies (575) 3,584 Accounts payable 33,748 33,532 Other current assets and liabilities 8,648 24,279 Other - net 3,315 5,342 --------- -------- Cash from operating activities 2,785 43,317 --------- -------- Investing Activities Proceeds from sale of investments in securities 11,882 7,849 Proceeds from sale of plant 4,375 - Additions to investments (7,809) (672) Additions to plant (8,558) (25,427) Changes to other assets - net 966 250 --------- -------- Cash from (for) investing activities 856 (18,000) --------- -------- Financing Activities Issuance of common stock 4,935 4,546 Issuance of long-term debt 76,000 77,108 Issuance of Company obligated mandatorily redeemable preferred securities of subsidiary MP&L Capital I - net - 72,638 Changes in notes payable - net 19,067 (53,821) Reductions of long-term debt (68,620) (81,217) Dividends on preferred and common stock (16,267) (15,878) --------- -------- Cash from financing activities 15,115 3,376 --------- -------- Change in Cash and Cash Equivalents 18,756 28,693 Cash and Cash Equivalents at Beginning of Period 40,095 31,577 --------- -------- Cash and Cash Equivalents at End of Period $ 58,851 $ 60,270 ========= ======== Supplemental Cash Flow Information Cash paid during the period for Interest (net of capitalized) $ 18,366 $ 17,781 Income taxes $ 2,362 $ 2,844 - -------------------------------------------------------------------------------- The accompanying notes are an integral part of this statement. -3-
Notes to Consolidated Financial Statements The accompanying unaudited consolidated financial statements and notes should be read in conjunction with the Company's 1996 Form 10-K. In the opinion of the Company, all adjustments necessary for a fair statement of the results for the interim periods have been included. The results of operations for an interim period may not give a true indication of results for the year. Note 1. Business Segments In Thousands <TABLE> <CAPTION> Investments ------------------- Corporate Electric Water Automotive Portfolio & Real Charges Consolidated Operations Services Services Reinsurance Estate & Other ------------ ---------- -------- ---------- ----------- ------ --------- <S> <C> <C> <C> <C> <C> <C> <C> Quarter Ended March 31, 1997 Operating revenue and income $ 222,073 $ 131,457 $ 20,648 $ 60,510 $ 4,949 $ 4,831 $ (322) Operation and other expense 164,447 94,872 14,046 47,856 537 3,844 3,292 Depreciation and amortization expense 17,961 11,163 3,177 3,510 - 38 73 Interest expense 17,308 5,381 2,700 2,355 255 297 6,320 Income from equity investment 4,042 - - - 4,042 - - ---------- --------- --------- --------- --------- -------- ------- Operating income (loss) 26,399 20,041 725 6,789 8,199 652 (10,007) Distributions on redeemable preferred securities of subsidiary 1,509 420 - - - - 1,089 Income tax expense (benefit) 8,796 7,399 314 3,589 2,891 317 (5,714) ---------- --------- --------- --------- --------- -------- ------- Net income (loss) $ 16,094 $ 12,222 $ 411 $ 3,200 $ 5,308 $ 335 $(5,382) ========== ========= ========= ========= ========= ======== ======= Total assets $2,216,534 $ 982,630 $ 342,832 $ 540,093 $ 263,746 $ 85,409 $ 1,824 Accumulated depreciation $ 670,881 $ 541,863 $ 121,214 $ 7,804 - - - Accumulated amortization $ 10,512 - - $ 9,425 - $ 1,087 - Construction work in progress $ 32,842 $ 11,447 $ 10,866 $ 10,529 - - - Quarter Ended March 31, 1996 Operating revenue and income $ 202,676 $ 131,501 $ 19,227 $ 39,693 $ 3,869 $ 8,676 $ (290) Operation and other expense 147,249 95,307 11,518 34,202 523 3,213 2,486 Depreciation and amortization expense 16,216 10,499 3,137 2,550 - 30 - Interest expense 14,160 5,598 3,287 1,291 1 2 3,981 Income from equity investment 3,777 - - - 3,777 - - ---------- --------- --------- --------- --------- -------- -------- Operating income (loss) 28,828 20,097 1,285 1,650 7,122 5,431 (6,757) Distributions on redeemable preferred securities of subsidiary 201 77 - - - - 124 Income tax expense (benefit) 10,324 7,773 450 662 1,969 2,363 (2,893) ---------- --------- --------- --------- --------- -------- ------- Net income (loss) $ 18,303 $ 12,247 $ 835 $ 988 $ 5,153 $ 3,068 $(3,988) ========== ========= ========= ========= ========= ======== ======= Total assets $2,027,708 $ 990,018 $ 340,312 $ 429,604 $ 210,973 $ 55,225 $ 1,576 Accumulated depreciation $ 631,694 $ 518,311 $ 110,536 $ 2,847 - - - Accumulated amortization $ 4,195 - - $ 3,398 - $ 797 - Construction work in progress $ 55,491 $ 12,835 $ 14,880 $ 27,776 - - - </TABLE> -4-
Note 2. Regulatory Matters FPSC Refund Order in Connection with 1991 Rate Case. Responding to a Florida Supreme Court decision addressing the issue of retroactive ratemaking with respect to another company, in March 1996 the FPSC voted to reconsider an October 1995 order (Refund Order) which would have required Florida Water to refund about $13 million, which includes interest, to customers who paid more since October 1993 under uniform rates than they would have paid under stand-alone rates. Under the Refund Order, the collection through a surcharge of the $13 million from customers who paid less under uniform rates was not permitted. The Refund Order was in response to the Florida First District Court of Appeals (Court of Appeals) reversal in April 1995 of the 1993 FPSC order which imposed uniform rates for most of Florida Water's service areas in Florida. With "uniform rates," all customers in the uniform rate areas pay the same rates for water and wastewater services. Uniform rates are an alternative to "stand-alone" rates which are calculated based on the cost of serving each service area. The FPSC reconsidered the Refund Order, but in August 1996 upheld by a 3 to 2 vote its decision to order refunds without offsetting surcharges. Florida Water filed an appeal of this decision with the Court of Appeals. A decision on the appeal is anticipated by the end of 1997. The Company continues to believe that it is improper for the FPSC to order a refund to one group of customers without permitting recovery of a similar amount from the remaining customers since the Court of Appeals affirmed the Company's total revenue requirement for operations in Florida. No provision for refund has been recorded. The Company is unable to predict the outcome of this matter. Florida Water's 1995 Rate Case. Florida Water requested an $18.1 million rate increase in June 1995. On October 30, 1996 the FPSC issued its final order in the Florida Water rate case. The final order established water and wastewater rates for all customers of Florida Water regulated by the FPSC. The new rates, which became effective on September 20, 1996, resulted in an annualized increase in revenue of approximately $11.1 million. This increase included, and was not in addition to, the $7.9 million increase in annualized revenue granted as interim rates effective on January 23, 1996. The FPSC approved a new rate structure called "capband," which replaces uniform rates. With capband rates, areas with similar cost of service are grouped into one of a number of rate bands, and all customers within a given band are charged the same rate. This rate structure is designed so that a customer's bill will not exceed a certain "cap" unless the customer's usage exceeds an assumed level. On November 1, 1996 Florida Water filed with the Court of Appeals an appeal of the FPSC's final order seeking judicial review of issues relating to the amount of investment in utility facilities recoverable in rates from current customers. Other parties to the rate case also filed appeals with the Court of Appeals regarding the FPSC's final order. The Company is unable to predict the outcome of this matter. Florida law provides that the new rates be implemented, subject to refund, while the order is under appeal. Florida Jurisdictional Issues. In June 1995 the FPSC issued an order assuming jurisdiction over Florida Water facilities statewide following an investigation of all of Florida Water's facilities. Several counties in Florida appealed this FPSC decision to the Court of Appeals. In December 1996 the Court of Appeals issued an opinion reversing the FPSC order. In January 1997 the Court of Appeals denied motions for rehearing. No further appeals were filed. Hernando County Rates. On February 14, 1997 the FPSC issued an order which requires Florida Water to charge rates to customers in Hernando County based on a modified stand-alone rate structure instead of the uniform rate structure set by the FPSC in the 1991 rate case and currently in effect. The imposition of this rate structure would reduce Florida Water revenue by $1.6 million on a prospective annual basis. On February 28, 1997 Florida Water filed a motion with the FPSC for reconsideration of this order. Florida Water's February 28, 1997 request for reconsideration of this order was heard on May 6, 1997, at which time the FPSC indicated the request would be denied. Florida Water plans on appealing this denial when the written order is received. Since the order involves a rate reduction, Florida Water believes that, under FPSC rules, the FPSC must grant a stay of this rate reduction pending the outcome of any appeals. The Company is unable to predict the outcome of this matter. Since Hernando County has assumed jurisdiction over Florida Water's rates within the county, Florida Water filed a rate increase in April 1997 as requested by Hernando County. Final rates resulting in $8 million in annualized revenues for water and wastewater services, if approved by Hernando County, would result in a $124,000 net annual increase from current revenue levels. By law, the County must take action by June 1997 on Florida Water's request for interim rates. -5-
Note 3. Square Butte Purchased Power Contract The Company has a contract to purchase power and energy from Square Butte. Under the terms of the contract which extends through 2007, the Company is purchasing 71 percent of the output from a generating plant which is capable of generating up to 470 MW. Reductions to about 49 percent of the output are provided for in the contract and, at the option of Square Butte, could begin after a five-year advance notice to the Company. The cost of the power and energy is a proportionate share of Square Butte's fixed obligations and variable operating costs, based on the percentage of the total output purchased by the Company. The annual fixed obligations of the Company to Square Butte are $20.1 million from 1997 through 2001. The variable operating costs are not incurred unless production takes place. The Company is responsible for paying all costs and expenses of Square Butte if not paid by Square Butte when due. These obligations and responsibilities of the Company are absolute and unconditional whether or not any power is actually delivered to the Company. Note 4. Income Tax Expense Quarter Ended March 31, Schedule of Income Tax Expense (Benefit) 1997 1996 - -------------------------------------------------------------------------------- In Thousands Current tax Federal $ 8,208 $ 8,859 Foreign (353) (101) State 1,872 2,931 -------- --------- 9,727 11,689 -------- --------- Deferred tax Federal (149) (12) State (289) (730) -------- --------- (438) (742) -------- --------- Deferred tax credits (493) (623) -------- --------- Total income tax expense $ 8,796 $ 10,324 - -------------------------------------------------------------------------------- -6-
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Minnesota Power has operations in four business segments: (1) electric operations, which include electric and gas services, and coal mining; (2) water services, which include water and wastewater services; (3) automotive services, which include auctions, a finance company and an auto transport company; and (4) investments, which include a securities portfolio, a 21 percent equity investment in a financial guaranty reinsurance company, and real estate operations. Earnings per share of common stock for the quarter ended March 31, 1997 were 52 cents compared to 61 cents for the quarter ended March 31, 1996. Earnings in 1997 reflect a significant increase in automotive services due to the expansion of ADESA's automobile auction operations and AFC's dealer floor plan financing business. 1997 earnings also reflect a solid performance from electric operations, consistent performance by the portfolio and reinsurance part of the investments segment, and a decrease in earnings from water services due to a loss incurred by ISI. Corporate charges and other reflect increased debt service costs due to the higher balance of commercial paper in 1997 and a full quarter of distributions with respect to the Cumulative Quarterly Income Preferred Securities issued in March 1996. Earnings in 1996 reflect a gain from the sale of water assets and a significant gain from the sale of a real estate joint venture interest by the real estate part of the investments segment. Quarter Ended March 31, Earnings Per Share 1997 1996 - ------------------------------------------------------------------------------- Electric Operations $ .40 $ .41 Water Services .01 .03 Automotive Services .11 .03 Investments Portfolio and reinsurance .18 .18 Real estate .01 .11 ----- ----- .19 .29 Corporate Charges and Other (.19) (.15) ----- ----- Total Earnings Per Share $ .52 $ .61 - ------------------------------------------------------------------------------- Consolidated Financial Comparison of the Quarters Ended March 31, 1997 and 1996. Operating Revenue and Income. Electric operations operating revenue and income was down slightly compared to 1996 due to a 2 percent decrease in total kilowatthour sales. The decrease is attributed to a decline in sales to other power suppliers due to the fact that less power was available for resale. The decrease was partially offset by an increase in sales to large power taconite and paper customers because of more favorable winter weather conditions allowing higher production of taconite pellets compared to 1996 and an increased demand for paper. Water services operating revenue and income was 7 percent higher in 1997 primarily because of increased rates approved by the FPSC in September 1996. A $1.1 million pre-tax gain from the sale of water assets was included in 1996. Automotive Services. The addition of eight automobile auction sites during 1996 was the primary factor that contributed to the 52 percent increase in automotive services operating revenue and income and the 29 percent increase in the number of cars sold. The expansion of AFC's dealer financing business also contributed to higher operating revenue and income. Investments operating revenue and income was lower in 1997 because 1996 included $3.7 million from the sale of Lehigh's joint venture investment in a resort and golf course. -7-
Operations expenses were $18.6 million higher in 1997. The increase reflects $8.7 million of expenses from the eight automobile auction sites added by ADESA in 1996. The expansion of AFC, and the 1996 additions of ISI and Palm Coast, increased operations expense $4.9 million in 1997. Interest expense was higher in 1997 due primarily to a higher balance of commercial paper used to fund the expansion of automotive services. Distributions on redeemable preferred securities of subsidiary are higher in 1997 because the securities were outstanding for the entire quarter in 1997 compared to less than one month in 1996. Business Segment Comparison of the Quarters Ended March 31, 1997 and 1996. Electric Operations. Operating revenue and income from electric operations was down slightly compared to 1996 due to a 2 percent decrease in total kilowatthour sales. The decrease is attributed to a decline in sales to other power suppliers due to the fact that less power was available for resale. The decrease was partially offset by an increase in sales to large power taconite and paper customers because of more favorable winter weather conditions allowing higher production of taconite pellets compared to 1996 and an increased demand for paper. Revenue from electric sales to taconite customers accounted for 32 percent of electric operating revenue in 1997 compared to 31 percent in 1996. Electric sales to paper and other wood-products companies accounted for 12 percent of electric operating revenue in 1997 and 11 percent in 1996. Sales to other power suppliers accounted for 3 percent of electric operating revenue in 1997 compared to 5 percent in 1996. Water Services. Operating revenue and income from water services was higher in 1997 primarily because of increased rates approved by the FPSC in 1996 for Florida Water customers. The increase was offset by less revenue following the sale of two water systems by Heater in 1996. The first quarter of 1996 included a $1.1 million pre-tax gain on the sale of one water system in South Carolina. ISI, which was acquired in April 1996, increased revenue by $1.0 million and operating expenses by $1.6 million in 1997. Automotive Services. The addition of eight automobile auction sites during 1996 was the primary factor that contributed to the 52 percent increase in operating revenue and income and the 29 percent increase in the number of cars sold. The expansion of AFC's dealer financing business also contributed to higher operating revenue and income. The eight additional automobile auction sites increased operating expenses by $8.7 million in 1997. Investments. - Securities Portfolio and Reinsurance. The Company's securities portfolio and reinsurance earned an annualized after tax return of 10.1 percent in 1997 compared to 9.2 percent in 1996. - Real Estate Operations. Revenue was down in 1997 as a result of fluctuations in sales from quarter to quarter. Revenue in 1996 included $3.7 million from the sale of Lehigh's joint venture investment in a resort and golf course. Also, the April 1996 acquisition of Palm Coast increased 1997 operating expenses by $1.3 million. -8-
Liquidity and Financial Position Reference is made to the Consolidated Statement of Cash Flows for the three months ended March 31, 1997 and 1996, for purposes of the following discussion. Cash Flow Activities. Cash from operating activities was affected by a number of factors representative of normal operations. Working capital, if and when needed, generally is provided by the sale of commercial paper. In addition, securities investments can be liquidated to provide funds for reinvestment in existing businesses or acquisition of new businesses, and approximately 4 million original issue shares of common stock are available for issuance through the DRIP. On May 1, 1997 AFC sold an additional $25 million of receivables to a third party purchaser, in total $75 million. Under the terms of the five year agreement, the purchaser agrees to make reinvestments up to $100 million to the extent that such reinvestments are supported by eligible receivables. Proceeds from the sale of the receivables were used to repay borrowings from the Company. Capital Requirements. Consolidated capital expenditures for the three months ended March 31, 1997 totaled $15.1 million. These expenditures include $7.7 million for electric operations, $5.7 million for water services and $1.7 million for automotive services. Internally generated funds were the primary source for funding electric and water operation expenditures. ADESA issued long-term debt to finance its capital expenditures. New Accounting Standard. In February 1997 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share," effective for financial statements for both interim and annual periods ending after December 15, 1997. Earlier application is not permitted. SFAS 128 specifies the computation, presentation and disclosure requirements for earnings per share (EPS). The objective of the new standard is to simplify the computation of EPS and make the U.S. standard for this computation more compatible with the EPS standards of other countries and with that of the International Accounting Standards Committee. The adoption of SFAS 128 is expected to be immaterial to the Company's results of operations. -9-
PART II. OTHER INFORMATION Item 5. Other Information Reference is made to the Company's 1996 Form 10-K for background information on the following updates. Unless otherwise indicated, cited references are to the Company's 1996 Form 10-K. Ref. Page 4. - Table - Contract Status for Minnesota Power Large Power Customers On May 2, 1997 the MPUC approved a new Large Power contract with Inland Steel Mining Co. (Inland). The agreement provides for Minnesota Power to remain Inland's sole electric supplier through December 31, 2007. Ref. Page 8. - Fifth Paragraph On March 14, 1997 the Public Service Commission of Wisconsin approved SWL&P's request to serve potential natural gas customers in the Solon Springs and Bennett, Wisconsin areas. The project is expected to cost $1.5 million and will be funded in part through a surcharge to new customers in the expansion area over a five-year period. Ref. Page 14. - Second Paragraph Since Hernando County has assumed jurisdiction over Florida Water's rates within the county, Florida Water filed a rate increase in April 1997 as requested by Hernando County. Final rates resulting in $8 million in annualized revenues for water and wastewater services, if approved by Hernando County, would result in a $124,000 net annual increase from current revenue levels. By law, the County must take action by June 1997 on Florida Water's request for interim rates. Ref. Page 15. - Sixth Paragraph On April 14, 1997 the DOJ, on behalf of the EPA, served Florida Water with a complaint in a civil action in the U.S. District Court for the Middle District of Florida (District Court). The suit seeks civil penalties of not to exceed $25,000 per day for each alleged violation of effluent limitations in the National Pollutant Discharge Elimination System permits occurring at the University Shores and Seaboard wastewater facilities from February 1992 through March 1994. Florida Water timely filed with the District Court the answer to the complaint on May 5, 1997. Ref. Page 16. - Fourth Paragraph On March 31, 1997 ADESA signed a letter agreement to participate in a joint venture to open a new automobile auction in Sacramento, California. The Sacramento site is on 37 acres with five auction lanes. On March 31, 1997 ADESA sold its Sarasota/Bradenton auction facilities in Florida in favor of emphasizing its Jacksonville and South Florida auctions. -10-
------------------------------------- Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (Reform Act), the Company is hereby filing cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those projected in forward-looking statements (as such term is defined in the Reform Act) made by or on behalf of the Company in this quarterly report on Form 10-Q, in presentations, in response to questions or otherwise. Any statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "anticipates", "estimates", "expects", "intends", "plans", "predicts", "projects", "will likely result", "will continue", or similar expressions) are not statements of historical facts and may be forward-looking. Forward-looking statements involve estimates, assumptions, and uncertainties and are qualified in their entirety by reference to, and are accompanied by, the following important factors, which are difficult to predict, contain uncertainties, are beyond the control of the Company and may cause actual results to differ materially from those contained in forward-looking statements: (i) prevailing governmental policies and regulatory actions, including those of the FERC, the MPUC, the FPSC, the NCUC, the SCPSC and the PSCW, with respect to allowed rates of return, industry and rate structure, acquisition and disposal of assets and facilities, operation, and construction of plant facilities, recovery of purchased power, and present or prospective wholesale and retail competition (including but not limited to retail wheeling and transmission costs); (ii) economic and geographic factors including political and economic risks; (iii) changes in and compliance with environmental and safety laws and policies; (iv) weather conditions; (v) population growth rates and demographic patterns; (vi) competition for retail and wholesale customers; (vii) pricing and transportation of commodities; (viii) market demand, including structural market changes; (ix) changes in tax rates or policies or in rates of inflation; (x) changes in project costs; (xi) unanticipated changes in operating expenses and capital expenditures; (xii) capital market conditions; (xiii) competition for new energy development opportunities; and (xiv) legal and administrative proceedings (whether civil or criminal) and settlements that influence the business and profitability of the Company. Any forward-looking statements speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. ------------------------------------- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4 Second Supplemental Indenture, dated as of March 31, 1997, between Southern States Utilities, Inc.(now Florida Water Services Corporation) and Nationsbank of Georgia, National Association (now SunTrust Bank, Central Florida, N.A.), as Trustee. 27 Financial Data Schedule (b) Reports on Form 8-K. Report on Form 8-K dated and filed March 19, 1997 with respect to Item 7. Financial Statements and Exhibits. -11-
Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Minnesota Power & Light Company ------------------------------- (Registrant) May 9, 1997 D. G. Gartzke ------------------------------- D. G. Gartzke Senior Vice President - Finance and Chief Financial Officer May 9, 1997 Mark A. Schober ------------------------------- Mark A. Schober Controller -12-