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, 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,
33,347,421 shares outstanding
as of September 30, 1997
MINNESOTA POWER & LIGHT COMPANY
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
September 30, 1997 and December 31, 1996 1
Consolidated Statement of Income -
Quarter and Nine Months Ended September 30, 1997
and 1996 2
Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 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 13
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
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
AFPI Allowance for Funds Prudently Invested
Americas' Water Americas' Water Services Corporation
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
ESOP Employee Stock Ownership Plan
FERC Federal Energy Regulatory Commission
Heater Heater Utilities, Inc.
IRS Internal Revenue Service
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
MPCA Minnesota Pollution Control Agency
MPUC Minnesota Public Utilities Commission
MW Megawatt(s)
MP Water Resources MP Water Resources Group, Inc.
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
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MINNESOTA POWER
CONSOLIDATED BALANCE SHEET
IN THOUSANDS
September 30, December 31,
1997 1996
Unaudited Audited
- -------------------------------------------------------------------------------------------------------------------
Assets
Plant and Other Assets
Electric operations $ 781,485 $ 796,055
Water services 326,203 323,869
Automotive services 163,270 167,274
Investments 254,959 236,509
------------ ------------
Total plant and other assets 1,525,917 1,523,707
------------ ------------
Current Assets
Cash and cash equivalents 70,960 40,095
Trading securities 114,245 86,819
Trade accounts receivable (less reserve of $9,787and $6,568) 202,267 144,060
Notes and other accounts receivable 20,038 20,719
Fuel, material and supplies 26,322 23,221
Prepayments and other 24,440 17,195
------------ ------------
Total current assets 458,272 332,109
------------ ------------
Deferred Charges
Regulatory 71,829 83,496
Other 37,316 27,086
------------ ------------
Total deferred charges 109,145 110,582
------------ ------------
Intangible Assets
Goodwill 161,432 166,986
Other 10,843 12,665
------------ ------------
Total intangible assets 172,275 179,651
------------ ------------
Total Assets $ 2,265,609 $ 2,146,049
- -------------------------------------------------------------------------------------------------------------------
Capitalization and Liabilities
Capitalization
Common stock without par value, 65,000 shares authorized
33,347 and 32,758 shares outstanding $ 410,167 $ 394,187
Unearned ESOP shares (66,390) (69,124)
Net unrealized gain on securities investments 5,536 2,752
Cumulative translation adjustment (100) 73
Retained earnings 293,109 282,960
------------ ------------
Total common stock equity 642,322 610,848
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 667,191 694,423
------------ ------------
Total capitalization 1,416,005 1,411,763
------------ ------------
Current Liabilities
Accounts payable 123,739 72,787
Accrued taxes 50,263 48,813
Accrued interest and dividends 10,153 14,851
Notes payable 191,132 155,726
Long-term debt due within one year 24,541 7,208
Other 47,182 37,598
------------ ------------
Total current liabilities 447,010 336,983
------------ ------------
Deferred Credits
Accumulated deferred income taxes 146,197 148,931
Contributions in aid of construction 106,113 98,378
Regulatory 62,894 64,394
Other 87,390 85,600
------------ ------------
Total deferred credits 402,594 397,303
------------ ------------
Total Capitalization and Liabilities $ 2,265,609 $ 2,146,049
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
- 1 -
MINNESOTA POWER
CONSOLIDATED STATEMENT OF INCOME
IN THOUSANDS EXCEPT PER SHARE AMOUNTS - UNAUDITED
Quarter Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Operating Revenue and Income
Electric operations $ 140,328 $ 133,480 $ 401,443 $ 394,200
Water services 21,919 20,848 64,998 63,124
Automotive services 65,399 50,464 190,297 135,372
Investments 18,537 10,358 41,944 33,631
---------- ---------- ---------- ---------
Total operating revenue and income 246,183 215,150 698,682 626,327
---------- ---------- ---------- ---------
Operating Expenses
Fuel and purchased power 51,661 50,937 141,677 142,871
Operations 141,598 129,247 418,837 376,659
Interest expense 15,889 16,074 49,258 44,593
---------- ---------- ---------- ---------
Total operating expenses 209,148 196,258 609,772 564,123
---------- ---------- ---------- ---------
Income from Equity Investment 3,280 2,832 10,601 9,441
---------- ---------- ---------- ---------
Operating Income 40,315 21,724 99,511 71,645
Distributions on Redeemable
Preferred Securities of Subsidiary 1,509 1,509 4,528 3,220
Income Tax Expense 15,594 2,701 36,954 17,777
---------- ---------- ---------- ---------
Net Income 23,212 17,514 58,029 50,648
Dividends on Preferred Stock 488 487 1,462 1,921
---------- ---------- ---------- ---------
Earnings Available for Common Stock $ 22,724 $ 17,027 $ 56,567 $ 48,727
========== ========== ========== =========
Average Shares of Common Stock 30,725 29,428 30,518 29,091
Earnings Per Share of Common Stock $ .73 $ .58 $1.85 $ 1.68
Dividends Per Share of Common Stock $ .51 $ .51 $1.53 $ 1.53
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
-2-
MINNESOTA POWER
CONSOLIDATED STATEMENT OF CASH FLOWS
IN THOUSANDS - UNAUDITED
Nine Months Ended
September 30,
1997 1996
- -------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 58,029 $ 50,648
Income from equity investment - net of dividends received (10,216) (8,884)
Depreciation and amortization 53,134 49,310
Deferred income taxes 856 (5,161)
Deferred investment tax credits (1,352) (1,503)
Pre-tax gain on sale of plant (4,388) (1,073)
Changes in operating assets and liabilities
Trading securities (27,426) (38,652)
Notes and accounts receivable (54,905) (55,426)
Fuel, material and supplies (3,101) 1,208
Accounts payable 50,849 12,522
Other current assets and liabilities (970) 7,986
Other - net 7,303 17,150
--------- --------
Cash from operating activities 67,813 28,125
--------- --------
Investing Activities
Proceeds from sale of investments in securities 40,269 32,488
Proceeds from sale of plant 6,385 5,311
Additions to investments (42,906) (75,254)
Additions to plant (31,852) (71,894)
Acquisition of subsidiaries - net of cash acquired - (44,013)
Changes to other assets - net (1,095) 5,358
--------- --------
Cash for investing activities (29,199) (148,004)
--------- --------
Financing Activities
Issuance of long-term debt 145,671 190,549
Issuance of Company obligated mandatorily redeemable
preferred securities of subsidiary MP&L Capital I - net - 72,270
Issuance of common stock 14,863 14,271
Changes in notes payable - net 35,168 51,063
Reductions of long-term debt (155,571) (139,042)
Redemption of preferred stock - (17,568)
Dividends on preferred and common stock (47,880) (46,303)
--------- --------
Cash from (for) financing activities (7,749) 125,240
--------- --------
Change in Cash and Cash Equivalents 30,865 5,361
Cash and Cash Equivalents at Beginning of Period 40,095 31,577
--------- --------
Cash and Cash Equivalents at End of Period $ 70,960 $ 36,938
========= ========
Supplemental Cash Flow Information
Cash paid during the period for
Interest (net of capitalized) $ 48,622 $ 43,164
Income taxes $ 20,755 $ 17,338
- -------------------------------------------------------------------------------------------------------------------
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
Investments
------------------- Corporate
Electric Water Automotive Portfolio & Real Charges
Consolidated Operations Services Services Reinsurance Estate & Other
------------ ---------- -------- ---------- ----------- ------ -------
Quarter Ended
September 30, 1997
- ---------------------------
Operating revenue and income $246,183 $140,328 $ 21,919 $ 65,399 $ 5,125 $ 13,352 $ 60
Operation and other expense 176,955 100,826 14,652 50,879 456 6,625 3,517
Depreciation and amortization
expense 16,304 11,223 1,542 3,430 - 36 73
Interest expense 15,889 5,298 2,863 2,385 - 197 5,146
Income from equity investment 3,280 - - - 3,280 - -
-------- -------- -------- -------- ------- -------- -------
Operating income (loss) 40,315 22,981 2,862 8,705 7,949 6,494 (8,676)
Distributions on redeemable
preferred securities of
subsidiary 1,509 411 - - - - 1,098
Income tax expense (benefit) 15,594 9,002 976 4,515 2,785 2,914 (4,598)
-------- -------- -------- -------- ------- -------- -------
Net income (loss) $ 23,212 $ 13,568 $ 1,886 $ 4,190 $ 5,164 $ 3,580 $(5,176)
======== ======== ======== ======== ======= ======== =======
Quarter Ended
September 30, 1996
- --------------------------------
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 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 investment 2,832 - - - 2,832 - -
-------- -------- -------- -------- ------- -------- --------
Operating income (loss) 21,724 17,314 1,020 1,890 7,434 351 (6,285)
Distributions on redeemable
preferred securities of
subsidiary 1,509 424 - - - - 1,085
Income tax expense (benefit) 2,701 6,343 292 1,158 2,202 (3,553) (3,741)
-------- -------- -------- -------- ------- -------- ------
Net income (loss) $ 17,514 $ 10,547 $ 728 $ 732 $ 5,232 $ 3,904 $(3,629)
======== ======== ======== ======== ======= ======== =======
- -------------------
Includes $895 of minority interest.
Includes $976 of minority interest.
Includes $4,000 of tax benefits (see Note 4).
-4-
NOTE 1. BUSINESS SEGMENTS (CONTINUED)
In Thousands
Investments
------------------ Corporate
Electric Water Automotive Portfolio & Real Charges
Consolidated Operations Services Services Reinsurance Estate & Other
------------ ---------- -------- -------- ----------- ------ -------
Nine Months Ended
September 30, 1997
- ----------------------------
Operating revenue and income $ 698,682 $ 401,443 $ 64,998 $ 190,297 $ 14,302 $ 27,709 $ (67)
Operation and other expense 508,380 292,269 41,854 148,095 1,480 16,421 8,261
Depreciation and amortization
expense 52,134 33,596 7,936 10,273 - 111 218
Interest expense 49,258 16,008 8,323 7,445 - 773 16,709
Income from equity investment 10,601 - - - 10,601 - -
---------- --------- --------- --------- --------- -------- --------
Operating income (loss) 99,511 59,570 6,885 24,484 23,423 10,404 (25,255)
Distributions on redeemable
preferred securities of
subsidiary 4,528 1,245 - - - - 3,283
Income tax expense (benefit) 36,954 22,497 2,318 12,860 8,231 4,645 (13,597)
---------- --------- --------- --------- --------- -------- --------
Net income (loss) $ 58,029 $ 35,828 $ 4,567 $ 11,624 $ 15,192 $ 5,759 $(14,941)
========== ========= ========= ========= ========= ======== ========
Total assets $2,265,609 $ 998,419 $ 376,479 $ 522,462 $ 301,796 $ 65,778 $ 675
Accumulated depreciation $ 700,548 $ 560,384 $ 129,632 $ 10,532 - - -
Accumulated amortization $ 13,976 - - $ 12,744 - $ 1,232 -
Construction work in progress $ 35,653 $ 13,367 $ 15,082 $ 7,204 - - -
Nine Months Ended
September 30, 1996
- ----------------------------
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 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 investment 9,441 - - - 9,441 - -
---------- --------- --------- --------- --------- -------- ---------
Operating income (loss) 71,645 48,285 5,301 7,007 21,393 8,048 (18,389)
Distributions on redeemable
preferred securities of
subsidiary 3,220 904 - - - - 2,316
Income tax expense (benefit) 17,777 17,710 1,750 3,822 5,099 (1,972) (8,632)
---------- --------- --------- --------- --------- -------- ------
Net income (loss) $ 50,648 $ 29,671 $ 3,551 $ 3,185 $ 16,294 $ 10,020 $(12,073)
========== ========= ========= ========= ========= ======== ========
Total assets $2,145,637 $ 980,187 $ 361,207 $ 479,253 $ 260,084 $ 63,114 $ 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 - - -
- -----------------------------
Includes $1,440 of minority interest.
Includes $2,505 of minority interest.
Includes $6,000 of tax benefits (see Note 4).
- 5 -
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 its
October 1995 order (Refund Order) which required Florida Water to refund about
$15 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 $15 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 the FPSC issued an order
upholding by a 3 to 2 vote its decision to order refunds without offsetting
surcharges and required Florida Water to implement a modified stand-alone rate
structure.
On June 17, 1997 the Court of Appeals reversed the FPSC's August 1996 order. The
Court of Appeals determined that the FPSC's order directing the refund without
permitting an offsetting surcharge was not permissible because it did not
comport with principles of equity or with existing Florida Supreme Court
precedent. The Court of Appeals remanded the matter back to the FPSC for
reconsideration, and directed the FPSC to consider requests for intervention
from the various customer groups impacted by any potential surcharges. On
October 7, 1997 the FPSC voted to provide notice to Florida Water's customers of
the potential refund or surcharge and to require all parties to submit briefs
concerning refund and surcharge issues by November 5, 1997. The issues to be
considered on remand relate to rate design and do not involve any adjustment to
Florida Water's revenue requirement.
In July 1997, after the Court of Appeals remanded the Refund Order back to the
FPSC, Spring Hill customers in Hernando County filed a petition with the FPSC
requesting that Florida Water be ordered to refund $2.5 million, the amount paid
by the Spring Hill service area from January 1996 through June 1997 under
uniform rates (established by the FPSC in the 1991 Rate Case) which is in excess
of the amount which would have been paid under modified stand-alone rates.
Because Hernando County had assumed jurisdiction over Spring Hill's rates,
Spring Hill was not included as part of Florida Water's 1995 Rate Case in which
the FPSC ordered interim rates effective January 1996 based on modified
stand-alone rates. The Company has not recorded a provision for refund in
connection with this matter and is unable to predict its outcome.
FLORIDA WATER'S 1995 RATE CASE. Florida Water requested an $18.1 million rate
increase in June 1995 for all water and wastewater customers of Florida Water
regulated by the FPSC. On October 30, 1996 the FPSC issued its final order
(October 1996 Order) in the Florida Water rate case. The new rates, which became
effective as of 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.
Effective June 13, 1997 Florida Water resumed collecting pre-existing Allowance
for Funds Prudently Invested (AFPI) charges. AFPI represents the carrying cost
of certain non-used and useful property excluded from rate base and is collected
as a one-time charge to certain new water and wastewater customers. The recovery
of AFPI charges for certain Florida Water service areas was reduced or
eliminated in the FPSC's October 1996 final order issued in connection with
Florida Water's 1995 rate case. In April 1997 the FPSC, acting on Florida
Water's motion, reversed its previous decision and again allowed recovery of
pre-existing AFPI charges for these service areas, subject to refund with
interest in
- 6-
NOTE 2. REGULATORY MATTERS (CONTINUED)
the event of an adverse court ruling in the appeal of the 1995 rate case. In its
answer brief filed in the Court of Appeals on August 21, 1997 the FPSC conceded
that its treatment of AFPI in its October 1996 Order was in error and requested
the Court of Appeals to remand the AFPI issue to the FPSC for final disposition.
Florida Water estimates approximately $1 million, on an annual basis, will be
collected and accounted for as deferred revenue pending results of the appeal.
The appeal process in the 1995 Rate Case may take as long as another nine
months. The Company is unable to predict the outcome of these matters.
HERNANDO COUNTY RATES. As required by Hernando County, on April 14, 1997 Florida
Water filed for an annual rate increase of $123,897 (1.6 percent) with the
Hernando County Board of Commissioners. On June 14, 1997 the final rate
increase Florida Water requested became effective automatically by operation of
law because Hernando County failed to take action on the rates within the
prescribed statutory period.
In July 1997 Florida Water reached a settlement agreement with Hernando County
regarding the rate case Florida Water filed in April 1997. Under the settlement
agreement, new rates became effective September 1, 1997 and are expected to
result in $6.3 million of revenue on an annual basis, a $1.6 million decrease
from the revenue levels implemented on June 14, 1997. Rates will then be
increased January 1, 1999 to result in $7.2 million in revenue on an annual
basis. Florida Water also agreed not to file for new rates with Hernando County
prior to September 2000.
HILLSBOROUGH COUNTY RATES. On July 2, 1997 Florida Water filed for a rate change
with the Hillsborough County Utilities Department. Florida Water filed for an
annual interim rate increase of $848,845 (43.1 percent) and a final rate
increase of $877,607 (44.6 percent). Interim rates became effective on August
18, 1997. Final rates are anticipated in the first quarter of 1998. The Company
is unable to predict the outcome of this case.
NORTH CAROLINA UTILITIES COMMISSION. On September 30, 1997 Heater filed with the
NCUC for a $1.1 million annual increase for its water and wastewater customers.
Hearings are expected to occur in March 1998 with a final order anticipated in
May 1998. The Company is unable to predict the outcome of this case.
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.
- 7 -
NOTE 4. INCOME TAX EXPENSE
Quarter Ended Nine Months Ended
Schedule of Income Tax Expense September 30, September 30,
(Benefit) 1997 1996 1997 1996
- --------------------------------------------------------------------------------
In Thousands
Current tax
Federal $ 12,984 $ 5,560 $ 29,129 $ 18,452
Foreign 1,205 408 2,617 853
State 2,399 1,041 5,704 5,136
-------- -------- -------- --------
16,588 7,009 37,450 24,441
-------- -------- -------- --------
Deferred tax
Federal (99) 176 1,867 1,307
State (405) 179 (1,011) (468)
-------- -------- -------- --------
(504) 355 856 839
-------- -------- -------- --------
Change in valuation
allowance - (4,000) - (6,000)
-------- -------- -------- --------
Deferred tax credits (490) (663) (1,352) (1,503)
-------- -------- -------- --------
Total income
tax expense $ 15,594 $ 2,701 $ 36,954 $ 17,777
- --------------------------------------------------------------------------------
- 8 -
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 September 30, 1997 were
73 cents compared to 58 cents for the quarter ended September 30, 1996. Electric
operations and automotive services were the primary contributors to higher
earnings in 1997. As in 1996, earnings from electric operations in 1997
reflected strong demand for electricity by the Company's industrial customers.
Higher earnings from electric operations also reflected increased margins on
MPEX's sales to other power suppliers, the sale of rights to microwave
frequencies and property tax relief from the State of Minnesota. Automotive
services earnings are higher due to a 34 percent increase in the number of cars
sold at ADESA's auctions and the expansion of AFC's floorplan financing
business.
Earnings per share of common stock for the nine months ended September 30, 1997
were $1.85 compared to $1.68 for the nine months ended September 30, 1996.
Earnings in 1997 reflect a significant increase in automotive services due to a
30 percent increase in the number of cars sold at ADESA's auctions and the
expansion of AFC's floorplan financing business. 1997 earnings also reflect a
solid performance from electric operations and water services, and consistent
performance, net of one-time adjustments in 1996, by the investments segment.
Corporate charges and other reflect increased debt service costs as a result of
the higher balance of commercial paper in 1997 and nine months of distributions
with respect to the Cumulative Quarterly Income Preferred Securities issued in
March 1996. In 1996 water services included a gain from the sale of water
assets, portfolio and reinsurance included a one-time tax benefit from an IRS
audit adjustment, and real estate included the recognition of tax benefits and
the sale of a joint venture.
Quarter Ended Nine Months Ended
September 30, September 30,
Earnings Per Share 1997 1996 1997 1996
- --------------------------------------------------------------------------------
Electric Operations $ .44 $ .36 $ 1.16 $ 1.00
Water Services .06 .02 .15 .12
Automotive Services .14 .03 .39 .11
Investments
Portfolio and
reinsurance .16 .18 .49 .56
Real estate .12 .14 .19 .35
------ ------ ------ -------
.28 .32 .68 .91
Corporate Charges
and Other (.19) (.15) (.53) (.46)
------ ------ ------ -------
Total Earnings Per Share $ .73 $ .58 $ 1.85 $ 1.68
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL COMPARISON
QUARTERS ENDED SEPTEMBER 30, 1997 AND 1996.
OPERATING REVENUE AND INCOME for 1997 was up $31 million (14.4 percent) due
primarily to an increase in the number of cars sold at ADESA's auctions, AFC's
floorplan financing business and increased real estate sales. As in 1996,
electric operations in 1997 reflected strong demand for electricity by the
Company's industrial customers and significant MPEX sales to other power
suppliers due to high demand during the summer months. Electric operations in
1997 also included proceeds from the Company's sale of its rights to microwave
frequencies.
- 9 -
FUEL AND PURCHASED POWER were up $0.7 million (1.4 percent) in 1997 because of a
2.4 percent increase in generation at the Company's coal fired generating
stations and higher prices for purchased power. The price of purchased power was
substantially higher per megawatthour because of competitive pricing and
additional transmission fees assessed for the delivery of power within the
Midwest.
OPERATIONS EXPENSES were up $12.4 million (9.6 percent) in 1997 reflecting
increased sales activity in automotive services and real estate.
INTEREST EXPENSE was down in 1997 due to lower interest rates on debt refinanced
during 1997.
INCOME TAX EXPENSE was significantly higher in 1997 due to the $18.6 million
increase in operating income and the recognition of a $4 million tax benefit by
Lehigh in 1996.
CONSOLIDATED FINANCIAL COMPARISON
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.
OPERATING REVENUE AND INCOME was up $72.4 million (11.6 percent) in 1997,
primarily due to the addition of ADESA's nine new auction sites and increased
sales at existing ADESA auctions. Electric operations in 1997 reflected
continued strong demand for electricity by the Company's industrial customers
and MPEX sales to other power suppliers. In addition, proceeds from the sale by
electric operations of microwave frequencies and river land added to operating
revenue and income. Revenue from water services was higher in 1997 because of
increased rates approved by the FPSC effective in September 1996. The increase
was partially offset by lower revenue following the sale of two water systems by
Heater in March and December 1996. The March 1996 sale resulted in a $1.1
million pre-tax gain. The increase in operating revenue and income from
investments reflected a $7.1 million (34.3 percent) increase in real estate
sales.
OPERATIONS EXPENSES were up $42.2 million (11.2 percent) in 1997. The increase
is due primarily to increased sales activity in automotive services and real
estate.
INTEREST EXPENSE was higher in 1997 due primarily to more commercial paper
issued.
DISTRIBUTIONS ON REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY were higher in
1997 because the securities were outstanding for the nine months in 1997
compared to less than seven months in 1996.
INCOME TAX EXPENSE was significantly higher in 1997 due to the $27.9 million
increase in operating income and the recognition of a $6 million tax benefit by
Lehigh in 1996.
BUSINESS SEGMENT COMPARISON
QUARTERS ENDED SEPTEMBER 30, 1997 AND 1996.
ELECTRIC OPERATIONS. Operating revenue and income was up 5.1 percent in 1997
which reflected strong demand for electricity by the Company's industrial
customers and proceeds from the sale of rights to microwave frequencies. Total
kilowatthour sales (down 9.2 percent) reflected a 25 percent decrease in sales
for resale by MPEX. MPEX sales were lower because less power was available and
prices were higher. While total revenue from MPEX sales was lower in 1997,
higher profit margins were realized on these sales.
Revenue from electric sales to taconite customers accounted for 29 percent of
electric operating revenue in 1997 compared to 32 percent in 1996. Electric
sales to paper and other wood-products companies accounted for 11 percent of
electric operating revenue in 1997 and 1996. Sales to other power suppliers
accounted for 15 percent of electric operating revenue in 1997 compared to 17
percent in 1996.
Total electric operating expenses increased only $1.2 million in 1997. The
increase included a $0.7 million increase in fuel and purchased power due to a
2.4 percent increase in generation at the Company's coal-fired generating
stations and higher prices for purchased power. Recent reform of the Minnesota
property tax system reduced operating expenses in 1997.
- 10 -
WATER SERVICES. Operating revenue and income from water services was higher
in 1997 primarily due to Florida Water's implementation of final rates in
September 1996 and additional customers in Florida and North Carolina.
Operating expenses were higher due to start-up costs associated with the
Company's unregulated subsidiaries, ISI and Americas' Water.
AUTOMOTIVE SERVICES. Operating revenue and income was $14.9 million higher in
1997 due primarily to increased sales at ADESA auction sites. ADESA sold 203,000
cars in 1997 compared to 151,000 in 1996. Growth of AFC's floorplan financing
business and increased transport business also increased revenue and income.
Operating expenses were higher in 1997 because of increased sales activity at
ADESA. The expansion of AFC's floorplan financing business also contributed to
higher operating expenses.
INVESTMENTS.
- SECURITIES PORTFOLIO AND REINSURANCE. The Company's securities
portfolio and reinsurance continued to perform well in 1997 as in 1996.
- REAL ESTATE OPERATIONS. Revenue was up in 1997 as a result of additional
sales of properties at Lehigh and Palm Coast. Net income in 1996 included
the recognition of $4 million of tax benefits at Lehigh.
BUSINESS SEGMENT COMPARISON
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.
ELECTRIC OPERATIONS. Operating revenue and income from electric operations was
up slightly in 1997. Electric operations in 1997 reflected continued strong
demand for electricity by the Company's industrial customers and MPEX sales to
other power suppliers. In addition, proceeds from the sale of rights to
microwave frequencies and the sale of river land to the State of Minnesota
offset a decline in revenue resulting from an 8 percent decrease in total
kilowatthour sales. The decrease is attributable to a decline in sales to other
power suppliers due to less power available for resale. Less power was available
because of higher prices for purchased power, various generating unit outages,
reduction in transmission capability damaged by severe spring storms in the
Midwest and less hydro generation in Canada. The decrease in kilowatthour sales
was partially offset by an increase in sales to paper customers because of a
higher demand for paper.
Revenue from electric sales to taconite customers accounted for 31 percent of
electric operating revenue in 1997 and 32 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 12 percent of electric operating revenue in 1997 compared to 14
percent in 1996.
Total electric operating expenses decreased by $4 million in 1997. The decrease
is primarily attributable to lower fuel and purchased power expenses because of
reduced kilowatthour sales and lower property taxes due to the 1997 reform of
the Minnesota property tax system. Lower interest charges also contributed to
the cost reductions in 1997 operating expenses.
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 partially offset by lower revenue
following the sale of two water systems by Heater in March and December 1996.
The March 1996 sale resulted in a $1.1 million pre-tax gain.
AUTOMOTIVE SERVICES. Operating revenue and income was $54.9 million higher in
1997 due primarily to increased sales at ADESA auction sites. ADESA sold 594,000
cars in 1997 compared to 456,000 in 1996. Growth of AFC's floorplan financing
business, increased transport business and a gain on the sale of an auction also
increased revenue and income. Operating expenses were higher in 1997 because of
increased sales activity at ADESA auction sites. The expansion of AFC's
floorplan financing business also contributed to higher operating expenses.
- 11 -
INVESTMENTS.
- SECURITIES PORTFOLIO AND REINSURANCE. The Company's securities portfolio
and reinsurance earned an annualized after-tax return of 8.1 percent in
1997 compared to 9 percent in 1996. A one-time tax benefit for an IRS audit
adjustment was included in 1996.
- REAL ESTATE OPERATIONS. Revenue was up in 1997 compared to 1996 due to
increased sales at Lehigh and Palm Coast. 1996 included $3.7 million from
the sale of Lehigh's joint venture investment in a resort and golf course.
The April 1996 acquisition of Palm Coast increased 1997 operating revenue
and expenses. Net income in 1996 included the recognition of $6 million of
tax benefits at Lehigh.
LIQUIDITY AND FINANCIAL POSITION
Reference is made to the Consolidated Statement of Cash Flows for the nine
months ended September 30, 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.
AFC sold $50 million of receivables to a third party purchaser during 1997, a
total of $100 million since December 1996. Under the terms of a five-year
agreement amended in August 1997, the purchaser agrees to purchase additional
receivables aggregating $225 million, at any one time outstanding, to the extent
that such purchases are supported by eligible receivables. Proceeds from the
sale of the receivables were used to repay borrowings from the Company and fund
car inventory purchases for AFC's customers.
In June 1997 Minnesota Power refinanced $10 million of industrial development
revenue bonds and $29 million of pollution control bonds with $39 million of
Variable Rate Demand Revenue Refunding Bonds Series 1997A due June 1, 2020,
Series 1997B and Series 1997C due June 1, 2013 and Series 1997D due December 1,
2007. A total of $36.5 million of the transaction was completed in June and
July. The remaining $2.5 million of the refinancing was completed in October
1997. In May 1997 MP Water Resources' $30 million 10.44% long-term note payable
was refinanced with $24 million of Florida Water's First Mortgage Bonds, 8.01%
Series due May 30, 2017 and $6 million of internally generated funds.
CAPITAL REQUIREMENTS. Consolidated capital expenditures for the nine months
ended September 30, 1997 totaled $46.6 million compared to $76.6 million for the
same period in 1996. Expenditures in 1997 include $23.8 million for electric
operations, $14.9 million for water services and $7.9 million for automotive
services. Internally generated funds were the primary source for funding capital
expenditures.
- 12 -
NEW ACCOUNTING STANDARDS
In June 1997 the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Net
Income", effective for fiscal years beginning after December 15, 1997. SFAS 130
establishes standards for reporting comprehensive income and its components in a
full set of general purpose financial statements. SFAS 130 will require the
Company to report a total for comprehensive income which includes, among other
things, unrealized holding gains and losses on securities classified as
available-for-sale under SFAS 115, "Accounting for Certain Investments in Debt
and Equity Securities" and foreign currency translation adjustments accounted
for under SFAS 52, "Foreign Currency Translation".
Also in June 1997 the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information," effective for fiscal years beginning after
December 15, 1997. SFAS 131 requires the reporting of certain information about
operating segments of an enterprise. The Company believes that it is already in
compliance with SFAS 131 in all material respects.
In February 1997 the FASB issued SFAS 128, "Earnings per Share." SFAS 128
addresses the computation and disclosure of earnings per share amounts when a
company has stock options, awards, warrants and/or convertible securities
outstanding. SFAS 128 is effective for periods ending after December 15, 1997
and is not expected to have a material impact on the Company upon adoption.
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 11. - Table - Summary of National Pollutant Discharge Elimination
System Permits
Facility Issue Date Expiration Date
- -------- ---------- ---------------
Boswell February 4, 1993 December 31, 1997 (1)
General Office Building/Lake
Superior Plaza May 1, 1995 December 31, 1997 (2)
- --------------------
(1) On June 27, 1997 a renewal application for this permit was submitted to the
MPCA. A new permit is expected to be issued in the fourth quarter of 1997.
Permits are extended by the timely filing of a renewal application which
stays the expiration of the previously issued permit.
(2) On July 1, 1997 a renewal application for this permit was submitted to the
MPCA. A new permit is expected to be issued in the fourth quarter of 1997.
Ref. Page 13. - Fifth Paragraph
Ref. 10-Q for the quarter ended June 30, 1997, Page 13 - Second Paragraph
On September 10, 1997 the transaction between Heater and the shareholders of
LaGrange Waterworks Corporation closed after the NCUC issued an order denying
the request for reconsideration filed by the public staff of the NCUC and the
City of Fayetteville.
- 13 -
Ref. Page 13. - Last Paragraph
Ref. 8-K dated June 23, 1997, Page 1 - Fourth Paragraph
FLORIDA WATER'S 1995 RATE CASE. In April 1997 the FPSC, acting on Florida
Water's motion, reversed its previous decision and again allowed recovery of
pre-existing AFPI charges for certain Florida Water service areas, subject to
refund with interest in the event of an adverse court ruling in the appeal of
the 1995 rate case. In its answer brief filed in the Court of Appeals on August
21, 1997 the FPSC conceded that its treatment of AFPI in its October 1996 Order
was in error and requested the Court of Appeals to remand the AFPI issue to the
FPSC for final disposition. Florida Water estimates approximately $1 million, on
an annual basis, will be collected and accounted for as deferred revenue pending
results of the appeal.
The appeal process in the 1995 Rate Case may take as long as another nine
months. The Company is unable to predict the outcome of this matter.
Ref. Page 14. - First Paragraph
Ref. 8-K dated June 23, 1997, Page 1 - Second Paragraph
FPSC REFUND ORDER IN CONNECTION WITH 1991 RATE CASE. On October 7, 1997 the FPSC
voted to provide notice to Florida Water's customers of the potential refund or
surcharge and to require all parties to submit briefs concerning refund and
surcharge issues by November 5, 1997. The issues to be considered on remand
relate to rate design and do not involve any adjustment to Florida Water's
revenue requirement.
In July 1997, after the Court of Appeals remanded the Refund Order back to the
FPSC, Spring Hill customers in Hernando County filed a petition with the FPSC
requesting that Florida Water be ordered to refund $2.5 million, the amount paid
by the Spring Hill service area from January 1996 through June 1997 under
uniform rates (established by the FPSC in the 1991 Rate Case) which is in excess
of the amount which would have been paid under modified stand-alone rates.
Because Hernando County had assumed jurisdiction over Spring Hill's rates,
Spring Hill was not included as part of Florida Water's 1995 Rate Case in which
the FPSC ordered interim rates effective January 1996 based on modified
stand-alone rates. The Company has not recorded a provision for refund in
connection with this matter and is unable to predict its outcome.
Ref. Page 14. - Insert Following Fourth Paragraph
NORTH CAROLINA UTILITIES COMMISSION
On September 30, 1997 Heater filed with the NCUC for a $1.1 million annual
increase for its water and wastewater customers. Hearings are expected to occur
in March 1998 with a final order anticipated in May 1998. The Company is unable
to predict the outcome of this case.
Ref. Page 15. - Sixth Paragraph
Ref. 10-Q for the quarter ended March 31, 1997, Page 10. - Fifth Paragraph
With respect to the DOJ's complaint in a civil action in the U.S. District Court
for the Middle District of Florida (District Court) regarding Florida Water's
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, a trial is
anticipated to begin in mid-1998. The District Court has established a discovery
deadline of January 15, 1998 for all parties. At this time, Florida Water is
continuing to pursue settlement as well as prepare for trial in the event a
reasonable settlement cannot be reached.
- 14 -
-------------------------------------
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
10 Second Amendment to Receivables Purchase Agreement, dated as of
August 15, 1997, among AFC Funding Corporation, as Seller,
Automotive Finance Corporation, as Servicer, Pooled Accounts
Receivable Capital Corporation, as Purchaser, and Nesbitt Burns
Securities Inc., as Agent.
27 Financial Data Schedule.
99 Minnesota Power Consolidated Statement of Income for the 12
Months Ended September 30, 1997 and 1996.
(b) Reports on Form 8-K. - None.
- 15 -
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 31, 1997 D. G. Gartzke
-------------------------------
D. G. Gartzke
Senior Vice President - Finance
and Chief Financial Officer
October 31, 1997 Mark A. Schober
-------------------------------
Mark A. Schober
Controller
- 16 -
EXHIBIT INDEX
Exhibit
Number
-------
10 Second Amendment to Receivables Purchase Agreement, dated as of
August 15, 1997, among AFC Funding Corporation, as Seller,
Automotive Finance Corporation, as Servicer, Pooled Accounts
Receivable Capital Corporation, as Purchaser, and Nesbitt Burns
Securities Inc., as Agent.
27 Financial Data Schedule.
99 Minnesota Power Consolidated Statement of Income for the 12
Months Ended September 30, 1997 and 1996.
Exhibit 10
[AFC Funding Corporation]
SECOND AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT
This SECOND AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT (this
"Amendment"), dated as of August 15, 1997, is among AFC Funding Corporation, an
Indiana corporation ("Seller"), Automotive Finance Corporation, an Indiana
corporation ("AFC"), POOLED ACCOUNTS RECEIVABLE CAPITAL CORPORATION, a Delaware
Corporation ("Purchaser"), and NESBITT BURNS SECURITIES, INC., a Delaware
Corporation, as Agent for Purchaser (in such capacity, "Agent").
RECITALS
1. Seller, AFC, Purchaser and Agent are parties to the Receivables
Purchase Agreement, dated as of December 31, 1996, as amended (the "Agreement"),
pursuant to which Purchaser has agreed to purchase undivided percentage
ownership interests with regard to the Participation (such term, and the other
capitalized terms used in this Amendment without definition, having the meanings
assigned to such terms in the Agreement) from Seller from time to time.
2. Seller has requested Purchaser and Agent to amend specified terms of
the Agreement to increase the maximum Purchase Limit, and Purchaser and Agent,
on the basis of their independent credit review and other such factors as they
consider appropriate, are willing to amend such terms.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. Amendment to the Agreement.
--------------------------
1.1 The definition of "Purchase Limit" in Exhibit I to the Agreement is
hereby amended by substituting "$225,000,000" for "$100,000,000" where the
latter appears in that definition.
SECTION 2. Conditions to Effectiveness.
---------------------------
2.1 This Amendment shall become effective on the date hereof, provided
that (i) each of the parties hereto (or, in the case of Purchaser, Agent on its
behalf) shall have received counterparts of this Amendment executed by each of
the other parties hereto (including facsimile signature pages), (ii) the Surety
Bond Provider shall have acknowledged and accepted this Amendment as required by
Section 4.04 of the Insurance Agreement and (iii) each of the Rating Agencies
shall have acknowledged that this Amendment
shall not result in a downgrade or withdrawal of the ratings of the Commercial
Paper.
2.2 The delivery to any Rating Agency of an executed copy of this
Amendment shall constitute conclusive evidence that Sections 2.1(i) and (ii)
shall have been satisfied.
SECTION 3. Effect of Amendment; Ratification. Except as
specifically amended hereby, the Agreement shall remain in full force and
effect and is hereby ratified and confirmed in all respects.
SECTION 4. Counterparts. This Amendment may be executed in
any number of counterparts and by different parties on separate counterparts,
and each counterpart shall be deemed to be an original, and all such
counterparts shall together constitute but one and the same instrument.
SECTION 5. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the internal laws of the State of Indiana
without regard to any otherwise applicable conflict of laws principles.
SECTION 6. Section Headings. The various headings of this
Amendment are inserted for convenience only and shall not affect the meaning or
interpretation of this Amendment or the Agreement or any provision hereof
or thereof.
[Signatures begin on next page]
- 2 -
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
AFC FUNDING CORPORATION
By: /s/ Jeffrey K. Harty
---------------------
Name:
Title:
AUTOMOTIVE FINANCE CORPORATION
By: /s/ Jeffrey K. Harty
---------------------
Name:
Title:
POOLED ACCOUNTS RECEIVABLE CAPITAL
CORPORATION
By: /s/ Dwight Jenkins
---------------------
Name: Dwight Jenkins
Title: Vice President
NESBITT BURNS SECURITIES, INC., as Agent
By: /s/ Jeffrey J. Phillips
------------------------
Name: Jeffrey J. Phillips
Title: Managing Director
By: /s/ Thomas C. Wright
---------------------
Name: Thomas C. Wright
Title: Sr. Executive Vice President
Acknowledged and Accepted
this day of August, 1997
CAPITAL MARKETS ASSURANCE CORPORATION
By: /s/ Steve Cooke
-----------------
Name: Steve Cooke
Title: VP
UT
1,000
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
PER-BOOK
1,107,688
418,229
458,272
109,145
172,275
2,265,609
410,167
0
293,109
642,322
75,000
31,492
667,191
191,132
0
0
24,541
0
0
0
572,977
2,265,609
698,682
36,954
560,514
609,772
99,511
6,073
107,287
49,258
58,029
1,462
56,567
46,418
0
67,813
1.85
1.85
Includes $10,601 of Income from Equity Investment and $4,528 for Distributions
on Redeemable Preferred Securities of Subsidiary.
Exhibit 99
MINNESOTA POWER
CONSOLIDATED STATEMENT OF INCOME
FOR THE 12 MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
In Thousands Except Per Share Amounts - Unaudited
1997 1996
- -------------------------------------------------------------------------------
Operating Revenue and Income
Electric Operations $ 536,433 $ 526,172
Water Services 87,104 79,184
Automotive Services 238,866 166,440
Investments 56,880 47,304
----------- -----------
Total Operating Revenue and Income 919,283 819,100
----------- -----------
Operating Expenses
Fuel and Purchased Power 189,734 189,321
Operations 554,284 501,930
Interest Expense 66,780 56,898
----------- -----------
Total Operating Expenses 810,798 748,149
----------- -----------
Income from Equity Investment 12,970 15,207
----------- -----------
Operating Income from Continuing Operations 121,455 86,158
Distributions on Redeemable
Preferred Securities of Subsidiary 6,037 3,220
Income Tax Expense 38,816 20,847
----------- -----------
Income from Continuing Operations 76,602 62,091
Income from Discontinued Operations - (26)
----------- -----------
Net Income 76,602 62,065
Dividends on Preferred Stock 1,949 2,721
----------- -----------
Earnings Available for Common Stock $ 74,653 $ 59,344
=========== ===========
Average Shares of Common Stock 30,389 28,969
Earnings Per Share of Common Stock $ 2.45 $ 2.05
- -------------------------------------------------------------------------------
