T
|
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
|
£
|
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
|
Minnesota
|
41-0418150
|
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
Large
Accelerated Filer T
|
Accelerated
Filer £
|
Non-Accelerated
Filer £
|
Page
|
||||
Definitions
|
4
|
|||
Safe
Harbor Statement Under the Private Securities
Litigation Reform Act of 1995
|
5
|
|||
Part
I.
|
Financial
Information
|
|||
Item
1.
|
Financial
Statements
|
|||
Consolidated
Balance Sheet -
|
||||
September
30, 2007 and December 31, 2006
|
6
|
|||
Consolidated
Statement of Income -
|
||||
Quarter
and Nine Months Ended September 30, 2007 and 2006
|
7
|
|||
Consolidated
Statement of Cash Flows -
|
||||
Nine
Months Ended September 30, 2007 and 2006
|
8
|
|||
Notes
to Consolidated Financial Statements
|
9
|
|||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
20
|
||
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
32
|
||
Item
4.
|
Controls
and Procedures
|
33
|
||
Part
II.
|
Other
Information
|
|||
Item
1.
|
Legal
Proceedings
|
34
|
||
Item
1A.
|
Risk
Factors
|
34
|
||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
34
|
||
Item
3.
|
Defaults
Upon Senior Securities
|
34
|
||
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
34
|
||
Item
5.
|
Other
Information
|
34
|
||
Item
6.
|
Exhibits
|
35
|
||
Signatures
|
36
|
Abbreviation
or Acronym
|
Term
|
2006
Form 10-K
|
ALLETE’s
Annual Report on Form 10-K for the Year Ended December 31,
2006
|
AFUDC
|
Allowance
for Funds Used During Construction
|
ALLETE
|
ALLETE,
Inc.
|
ALLETE
Properties
|
ALLETE
Properties, LLC
|
AREA
|
Arrowhead
Regional Emission Abatement Plan
|
ATC
|
American
Transmission Company LLC
|
BNI
Coal
|
BNI
Coal, Ltd.
|
Boswell
|
Boswell
Energy Center
|
Company
|
ALLETE,
Inc. and its subsidiaries
|
DOC
|
Minnesota
Department of Commerce
|
EITF
|
Emerging
Issues Task Force Issue No.
|
EPA
|
Environmental
Protection Agency
|
ESOP
|
Employee
Stock Ownership Plan
|
FASB
|
Financial
Accounting Standards Board
|
FERC
|
Federal
Energy Regulatory Commission
|
FIN
|
FASB
Interpretations
|
GAAP
|
Accounting
Principles Generally Accepted in the United States of
America
|
Heating
Degree Days
|
Measure
of the extent to which the average daily temperature is below 65
degrees
Fahrenheit, increasing demand for heating
|
Laskin
|
Laskin
Energy Center
|
Minnesota
Power
|
An
operating division of ALLETE, Inc.
|
Minnkota
Power
|
Minnkota
Power Cooperative, Inc.
|
MISO
|
Midwest
Independent Transmission System Operator, Inc.
|
Moody’s
|
Moody’s
Investors Service, Inc.
|
MPCA
|
Minnesota
Pollution Control Agency
|
MPUC
|
Minnesota
Public Utilities Commission
|
MW
|
Megawatt(s)
|
Note
___
|
Note
___ to the consolidated financial statements in this Form
10-Q
|
NOX
|
Nitrogen
Oxide
|
Palm
Coast Park
|
Palm
Coast Park development project in northeast Florida
|
Palm
Coast Park District
|
Palm
Coast Park Community Development District
|
PSCW
|
Public
Service Commission of Wisconsin
|
Resource
Plan
|
Integrated
Resource Plan
|
SEC
|
Securities
and Exchange Commission
|
SFAS
|
Statement
of Financial Accounting Standards No.
|
SO2
|
Sulfur
Dioxide
|
Square
Butte
|
Square
Butte Electric Cooperative
|
Standard
& Poor’s
|
Standard
& Poor’s Ratings Group, a division of McGraw-Hill
Companies
|
SWL&P
|
Superior
Water, Light and Power Company
|
Taconite
Harbor
|
Taconite
Harbor Energy Center
|
Town
Center
|
Town
Center at Palm Coast development project in northeast
Florida
|
Town
Center District
|
Town
Center at Palm Coast Community Development District
|
WDNR
|
Wisconsin
Department of Natural Resources
|
·
|
our
ability to successfully implement our strategic
objectives;
|
·
|
our
ability to manage expansion and integrate acquisitions;
|
·
|
prevailing
governmental policies, regulatory actions, and legislation including
those
of the United States Congress, state legislatures, the FERC, the
MPUC, the
PSCW, and various local and county regulators, and city administrators,
about allowed rates of return, financings, industry and rate structure,
acquisition and disposal of assets and facilities, real estate
development, operation and construction of plant facilities, recovery
of
purchased power and capital investments, present or prospective
wholesale
and retail competition (including but not limited to transmission
costs),
zoning and permitting of land held for resale and environmental
regulation;
|
·
|
effects
of restructuring initiatives in the electric industry;
|
·
|
economic
and geographic factors, including political and economic
risks;
|
·
|
changes
in and compliance with laws and policies;
|
·
|
weather
conditions;
|
·
|
natural
disasters and pandemic diseases;
|
·
|
war
and acts of terrorism;
|
·
|
wholesale
power market conditions;
|
·
|
population
growth rates and demographic patterns;
|
·
|
effects
of competition, including competition for retail and wholesale
customers;
|
·
|
changes
in the real estate market;
|
·
|
pricing
and transportation of commodities;
|
·
|
changes
in tax rates or policies or in rates of inflation;
|
·
|
unanticipated
project delays or changes in project costs;
|
·
|
availability
of construction materials and skilled construction labor for capital
projects;
|
·
|
unanticipated
changes in operating expenses and capital expenditures;
|
·
|
global
and domestic economic conditions;
|
·
|
our
ability to access capital markets and bank financing;
|
·
|
changes
in interest rates and the performance of the financial
markets;
|
·
|
our
ability to replace a mature workforce and retain qualified, skilled
and
experienced personnel; and
|
·
|
the
outcome of legal and administrative proceedings (whether civil
or
criminal) and settlements that affect the business and profitability
of
ALLETE.
|
PART
I.
|
FINANCIAL
INFORMATION
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
September
30,
|
December
31,
|
||||||||
|
|
|
2007
|
2006
|
|||||
Assets
|
|||||||||
Current
Assets
|
|||||||||
Cash
and Cash Equivalents
|
$
|
61.4
|
$
|
44.8
|
|||||
Short-Term
Investments
|
70.4
|
104.5
|
|||||||
Accounts
Receivable (Less Allowance of $1.0 at September 30, 2007
|
|||||||||
and
$1.1 at December 31, 2006)
|
61.8
|
70.9
|
|||||||
Inventories
|
48.6
|
43.4
|
|||||||
Prepayments
and Other
|
25.4
|
23.8
|
|||||||
|
Deferred
Income Taxes
|
|
–
|
|
0.3
|
||||
Total
Current Assets
|
267.6
|
287.7
|
|||||||
Property,
Plant and Equipment - Net
|
1,033.8
|
921.6
|
|||||||
Investments
|
206.4
|
189.1
|
|||||||
Other
Assets
|
|
138.7
|
|
135.0
|
|||||
Total
Assets
|
$
|
1,646.5
|
$
|
1,533.4
|
|||||
Liabilities
and Shareholders' Equity
|
|||||||||
Liabilities
|
|||||||||
Current
Liabilities
|
|||||||||
Accounts
Payable
|
$
|
52.0
|
$
|
53.5
|
|||||
Accrued
Taxes
|
13.8
|
23.3
|
|||||||
Accrued
Interest
|
5.9
|
8.6
|
|||||||
Long-Term
Debt Due Within One Year
|
29.4
|
29.7
|
|||||||
Deferred
Profit on Sales of Real Estate
|
5.3
|
4.1
|
|||||||
|
Other
|
|
23.2
|
|
24.3
|
||||
Total
Current Liabilities
|
129.6
|
143.5
|
|||||||
Long-Term
Debt
|
409.0
|
359.8
|
|||||||
Deferred
Income Taxes
|
137.3
|
130.8
|
|||||||
Other
Liabilities
|
237.1
|
226.1
|
|||||||
Minority
Interest
|
|
9.0
|
|
7.4
|
|||||
Total
Liabilities
|
922.0
|
867.6
|
|||||||
Commitments
and Contingencies
|
|
|
|
|
|||||
Shareholders'
Equity
|
|||||||||
Common
Stock Without Par Value, 43.3 Shares Authorized, 30.8 and
30.4
|
|||||||||
Shares
Outstanding
|
460.0
|
438.7
|
|||||||
Unearned
ESOP Shares
|
(66.1)
|
(71.9)
|
|||||||
Accumulated
Other Comprehensive Loss
|
(7.5)
|
(8.8)
|
|||||||
Retained
Earnings
|
|
338.1
|
|
307.8
|
|||||
|
Total
Shareholders' Equity
|
|
724.5
|
|
665.8
|
||||
Total
Liabilities and Shareholders' Equity
|
$
|
1,646.5
|
$
|
1,533.4
|
Quarter
Ended
|
Nine
Months Ended
|
|||||||||
September
30,
|
September
30,
|
|||||||||
|
|
2007
|
2006
|
2007
|
2006
|
|||||
Operating
Revenue
|
$
|
200.8
|
$
|
199.1
|
$
|
629.4
|
$
|
569.9
|
||
Operating
Expenses
|
||||||||||
Fuel
and Purchased Power
|
91.8
|
79.5
|
262.4
|
211.9
|
||||||
Operating
and Maintenance
|
72.1
|
68.7
|
231.3
|
220.0
|
||||||
|
Depreciation
|
|
12.2
|
|
12.2
|
|
35.8
|
|
36.6
|
|
|
|
Total
Operating Expenses
|
|
176.1
|
|
160.4
|
|
529.5
|
|
468.5
|
Operating
Income from Continuing Operations
|
|
24.7
|
|
38.7
|
|
99.9
|
|
101.4
|
||
Other
Income (Expense)
|
||||||||||
Interest
Expense
|
(6.3)
|
(7.3)
|
(18.7)
|
(20.1)
|
||||||
Equity
Earnings in ATC
|
3.2
|
1.0
|
9.3
|
1.0
|
||||||
|
Other
|
|
3.2
|
|
2.7
|
|
11.9
|
|
7.8
|
|
|
|
Total
Other Income (Expense)
|
|
0.1
|
|
(3.6)
|
|
2.5
|
|
(11.3)
|
Income
from Continuing Operations Before Minority
|
||||||||||
Interest
and Income Taxes
|
24.8
|
35.1
|
102.4
|
90.1
|
||||||
Income
Tax Expense
|
8.1
|
12.1
|
35.4
|
32.6
|
||||||
Minority
Interest
|
|
0.2
|
|
1.1
|
|
1.6
|
|
3.2
|
||
Income
from Continuing Operations
|
16.5
|
21.9
|
65.4
|
54.3
|
||||||
Loss
from Discontinued Operations
|
|
–
|
|
(0.1)
|
|
–
|
|
(0.5)
|
||
Net
Income
|
$
|
16.5
|
$
|
21.8
|
$
|
65.4
|
$
|
53.8
|
||
Average
Shares of Common Stock
|
||||||||||
Basic
|
28.5
|
27.8
|
28.2
|
27.7
|
||||||
|
Diluted
|
|
28.5
|
|
27.9
|
|
28.3
|
|
27.8
|
|
Basic
Earnings Per Share of Common Stock
|
||||||||||
Continuing
Operations
|
$
|
0.58
|
$
|
0.78
|
$
|
2.31
|
$
|
1.96
|
||
|
Discontinued
Operations
|
|
–
|
|
–
|
|
–
|
|
(0.02)
|
|
$
|
0.58
|
$
|
0.78
|
$
|
2.31
|
$
|
1.94
|
|||
Diluted
Earnings Per Share of Common Stock
|
||||||||||
Continuing
Operations
|
$
|
0.58
|
$
|
0.78
|
$
|
2.31
|
$
|
1.95
|
||
|
Discontinued
Operations
|
|
–
|
|
–
|
|
–
|
|
(0.02)
|
|
|
|
$
|
0.58
|
$
|
0.78
|
$
|
2.31
|
$
|
1.93
|
|
Dividends
Per Share of Common Stock
|
$
|
0.4100
|
$
|
0.3625
|
$
|
1.2300
|
$
|
1.0875
|
Nine
Months Ended
|
||||||
September
30,
|
||||||
|
|
2007
|
2006
|
|||
Operating
Activities
|
||||||
Net
Income
|
$
|
65.4
|
$
|
53.8
|
||
Loss
from Discontinued Operations
|
-
|
0.5
|
||||
Income
from Equity Investments, net of dividends
|
(1.9)
|
(0.2)
|
||||
Gain
on Sale of Assets
|
(2.1)
|
-
|
||||
Depreciation
|
35.8
|
36.6
|
||||
Deferred
Income Taxes
|
3.8
|
19.3
|
||||
Minority
Interest
|
1.6
|
3.2
|
||||
Stock
Compensation Expense
|
1.5
|
1.4
|
||||
Bad
Debt Expense
|
0.8
|
0.4
|
||||
Changes
in Operating Assets and Liabilities
|
||||||
Accounts
Receivable
|
11.3
|
17.3
|
||||
Inventories
|
(5.2)
|
(10.0)
|
||||
Prepayments
and Other
|
(1.6)
|
0.2
|
||||
Accounts
Payable
|
(6.1)
|
(13.5)
|
||||
Other
Current Liabilities
|
(14.5)
|
(6.3)
|
||||
Other
Assets
|
0.1
|
(4.8)
|
||||
Other
Liabilities
|
9.5
|
5.7
|
||||
|
Net
Operating Activities for Discontinued Operations
|
|
-
|
|
(13.1)
|
|
|
|
Cash
from Operating Activities
|
|
98.4
|
|
90.5
|
Investing
Activities
|
||||||
Proceeds
from Sale of Available-For-Sale Securities
|
374.3
|
483.9
|
||||
Payments
for Purchase of Available-For-Sale Securities
|
(340.2)
|
(488.6)
|
||||
Changes
to Investments
|
(18.0)
|
(35.3)
|
||||
Additions
to Property, Plant and Equipment
|
(136.7)
|
(53.3)
|
||||
Proceeds
from Sale of Assets
|
1.4
|
-
|
||||
Other
|
3.0
|
(10.5)
|
||||
|
Net
Investing Activities from Discontinued Operations
|
|
-
|
|
2.2
|
|
|
|
Cash
for Investing Activities
|
|
(116.2)
|
|
(101.6)
|
Financing
Activities
|
||||||
Issuance
of Common Stock
|
19.9
|
12.5
|
||||
Issuance
of Debt
|
110.3
|
77.8
|
||||
Payments
of Long-Term Debt
|
(61.4)
|
(81.4)
|
||||
Dividends
on Common Stock and Distributions to Minority Shareholders
|
(34.4)
|
(32.6)
|
||||
|
Net
Decrease in Book Overdrafts
|
|
-
|
|
(3.4)
|
|
|
|
Cash
from (for) Financing Activities
|
|
34.4
|
|
(27.1)
|
Change
in Cash and Cash Equivalents
|
16.6
|
(38.2)
|
||||
Cash
and Cash Equivalents at Beginning of Period
|
|
44.8
|
|
89.6
|
||
Cash
and Cash Equivalents at End of Period
|
$
|
61.4
|
$
|
51.4
|
September
30,
|
December
31,
|
|
Inventories
|
2007
|
2006
|
Millions
|
||
Fuel
|
$21.7
|
$18.9
|
Materials
and Supplies
|
26.9
|
24.5
|
Total
Inventories
|
$48.6
|
$43.4
|
Consolidated
Statement of Cash Flows
Supplemental
Disclosure
For
the Nine Months Ended September 30,
|
2007
|
2006
|
Millions
|
||
Cash
Paid During the Period for
|
||
Interest
– Net of Amounts Capitalized
|
$24.0
|
$21.9
|
Income
Taxes
|
$29.3
|
$16.9
|
Noncash
Investing Activities
|
||
Accounts
Payable for Capital Additions to
|
||
Property
Plant and Equipment
|
$4.6
|
–
|
Energy
|
||||||
Nonregulated
|
||||||
Regulated
|
Energy
|
Investment
|
Real
|
|||
Consolidated
|
Utility
|
Operations
|
In
ATC
|
Estate
|
Other
|
|
Millions
|
||||||
For
the Quarter Ended September 30, 2007
|
||||||
Operating
Revenue
|
$200.8
|
$179.0
|
$16.9
|
–
|
$4.8
|
$0.1
|
Fuel
and Purchased Power
|
91.8
|
91.8
|
–
|
–
|
–
|
–
|
Operating
and Maintenance
|
72.1
|
52.6
|
15.4
|
–
|
3.4
|
0.7
|
Depreciation
|
12.2
|
11.0
|
1.1
|
–
|
0.1
|
–
|
Operating
Income (Loss) from Continuing Operations
|
24.7
|
23.6
|
0.4
|
–
|
1.3
|
(0.6)
|
Interest
Expense
|
(6.3)
|
(5.3)
|
(0.6)
|
–
|
(0.1)
|
(0.3)
|
Equity
Earnings in ATC
|
3.2
|
–
|
–
|
$3.2
|
–
|
–
|
Other
Income
|
3.2
|
1.0
|
0.5
|
–
|
–
|
1.7
|
Income
from Continuing Operations Before Minority Interest and Income
Taxes
|
24.8
|
19.3
|
0.3
|
3.2
|
1.2
|
0.8
|
Income
Tax Expense (Benefit)
|
8.1
|
6.3
|
(0.3)
|
1.3
|
0.4
|
0.4
|
Minority
Interest
|
0.2
|
–
|
–
|
–
|
0.2
|
–
|
Income
from Continuing Operations
|
16.5
|
$13.0
|
$0.6
|
$1.9
|
$0.6
|
$0.4
|
Loss
from Discontinued Operations – Net of Tax
|
–
|
|||||
Net
Income
|
$16.5
|
|||||
For
the Quarter Ended September 30, 2006
|
||||||
Operating
Revenue
|
$199.1
|
$168.1
|
$15.9
|
–
|
$15.1
|
–
|
Fuel
and Purchased Power
|
79.5
|
79.5
|
–
|
–
|
–
|
–
|
Operating
and Maintenance
|
68.7
|
49.7
|
13.6
|
–
|
4.9
|
$
0.5
|
Depreciation
|
12.2
|
11.1
|
1.0
|
–
|
0.1
|
–
|
Operating
Income (Loss) from Continuing Operations
|
38.7
|
27.8
|
1.3
|
–
|
10.1
|
(0.5)
|
Interest
Expense
|
(7.3)
|
(5.0)
|
(1.0)
|
–
|
–
|
(1.3)
|
Equity
Earnings in ATC
|
1.0
|
–
|
–
|
$1.0
|
–
|
–
|
Other
Income
|
2.7
|
0.1
|
0.9
|
–
|
–
|
1.7
|
Income
from Continuing Operations Before Minority Interest and Income
Taxes
|
35.1
|
22.9
|
1.2
|
1.0
|
10.1
|
(0.1)
|
Income
Tax Expense (Benefit)
|
12.1
|
9.2
|
0.1
|
0.4
|
3.9
|
(1.5)
|
Minority
Interest
|
1.1
|
–
|
–
|
–
|
1.1
|
–
|
Income
from Continuing Operations
|
21.9
|
$13.7
|
$1.1
|
$0.6
|
$5.1
|
$1.4
|
Loss
from Discontinued Operations – Net of Tax
|
(0.1)
|
|||||
Net
Income
|
$21.8
|
NOTE
2.
|
BUSINESS
SEGMENTS (Continued)
|
Energy
|
||||||
Nonregulated
|
||||||
Regulated
|
Energy
|
Investment
|
Real
|
|||
Consolidated
|
Utility
|
Operations
|
in
ATC
|
Estate
|
Other
|
|
Millions
|
||||||
For
the Nine Months Ended September 30, 2007
|
||||||
Operating
Revenue
|
$629.4
|
$538.2
|
$49.9
|
–
|
$41.0
|
$0.3
|
Fuel
and Purchased Power
|
262.4
|
262.4
|
–
|
–
|
–
|
–
|
Operating
and Maintenance
|
231.3
|
170.7
|
44.7
|
–
|
14.1
|
1.8
|
Depreciation
|
35.8
|
32.3
|
3.3
|
–
|
0.1
|
0.1
|
Operating
Income (Loss) from Continuing Operations
|
99.9
|
72.8
|
1.9
|
–
|
26.8
|
(1.6)
|
Interest
Expense
|
(18.7)
|
(15.7)
|
(1.4)
|
–
|
(0.3)
|
(1.3)
|
Equity
Earnings in ATC
|
9.3
|
–
|
–
|
$9.3
|
–
|
–
|
Other
Income
|
11.9
|
2.4
|
3.2
|
–
|
–
|
6.3
|
Income
from Continuing Operations Before Minority Interest and Income
Taxes
|
102.4
|
59.5
|
3.7
|
9.3
|
26.5
|
3.4
|
Income
Tax Expense
|
35.4
|
21.6
|
0.3
|
3.7
|
9.7
|
0.1
|
Minority
Interest
|
1.6
|
–
|
–
|
–
|
1.6
|
–
|
Income
from Continuing Operations
|
65.4
|
$37.9
|
$3.4
|
$5.6
|
$15.2
|
$3.3
|
Loss
from Discontinued Operations – Net of Tax
|
–
|
|||||
Net
Income
|
$65.4
|
|||||
At
September 30, 2007
|
||||||
Total
Assets
|
$1,646.5
|
$1,264.5
|
$78.9
|
$65.0
|
$86.7
|
$151.4
|
Property,
Plant and Equipment – Net
|
$1,033.8
|
$983.1
|
$47.3
|
–
|
–
|
$3.4
|
Accumulated
Depreciation
|
$843.2
|
$799.3
|
$42.1
|
–
|
–
|
$1.8
|
Capital
Expenditures
|
$141.3
|
$140.2
|
$1.1
|
–
|
–
|
–
|
For
the Nine Months Ended September 30, 2006
|
||||||
Operating
Revenue
|
$569.9
|
$477.0
|
$48.7
|
–
|
$44.0
|
$0.2
|
Fuel
and Purchased Power
|
211.9
|
211.9
|
–
|
–
|
–
|
–
|
Operating
and Maintenance
|
220.0
|
162.7
|
41.8
|
–
|
13.2
|
2.3
|
Depreciation
|
36.6
|
33.3
|
3.1
|
–
|
0.1
|
0.1
|
Operating
Income (Loss) from Continuing Operations
|
101.4
|
69.1
|
3.8
|
–
|
30.7
|
(2.2)
|
Interest
Expense
|
(20.1)
|
(15.0)
|
(2.0)
|
–
|
–
|
(3.1)
|
Equity
Earned in ATC
|
1.0
|
–
|
–
|
$1.0
|
–
|
–
|
Other
Income
|
7.8
|
0.6
|
1.2
|
–
|
–
|
6.0
|
Income
from Continuing Operations Before Minority Interest and Income
Taxes
|
90.1
|
54.7
|
3.0
|
1.0
|
30.7
|
0.7
|
Income
Tax Expense (Benefit)
|
32.6
|
21.2
|
0.1
|
0.4
|
11.8
|
(0.9)
|
Minority
Interest
|
3.2
|
–
|
–
|
–
|
3.2
|
–
|
Income
from Continuing Operations
|
54.3
|
$33.5
|
$2.9
|
$0.6
|
$15.7
|
$1.6
|
Loss
from Discontinued Operations – Net of Tax
|
(0.5)
|
|||||
Net
Income
|
$53.8
|
|||||
At
September 30, 2006
|
||||||
Total
Assets
|
$1,400.9
|
$1,009.9
|
$78.9
|
$35.2
|
$84.9
|
$192.0
|
Property,
Plant and Equipment – Net
|
$877.9
|
$822.6
|
$50.5
|
–
|
–
|
$4.8
|
Accumulated
Depreciation
|
$816.5
|
$775.9
|
$39.0
|
–
|
–
|
$1.6
|
Capital
Expenditures
|
$53.3
|
$52.5
|
$0.8
|
–
|
–
|
–
|
September
30,
|
December
31,
|
|
Investments
|
2007
|
2006
|
Millions
|
||
Real
Estate Assets
|
$86.7
|
$89.8
|
Debt
and Equity Securities
|
46.4
|
36.4
|
Investment
in ATC
|
65.0
|
53.7
|
Emerging
Technology Investments
|
8.3
|
9.2
|
Total
Investments
|
$206.4
|
$189.1
|
September
30,
|
December
31,
|
||
Real
Estate Assets
|
|
2007
|
2006
|
Millions
|
|||
Land
Held for Sale Beginning Balance
|
$58.0
|
$48.0
|
|
Additions
during period:
|
Capitalized
Improvements
|
6.9
|
18.8
|
Purchases
|
–
|
1.4
|
|
Deductions
during period:
|
Cost
of Real Estate Sold
|
(5.9)
|
(10.2)
|
Land
Held for Sale Ending Balance
|
59.0
|
58.0
|
|
Long-Term
Finance Receivables
|
14.3
|
18.3
|
|
Other
(a)
|
|
13.4
|
13.5
|
Total
Real Estate Assets
|
|
$86.7
|
$89.8
|
ALLETE's
Interest in ATC
|
|||||||
As
of September 30, 2007
|
|||||||
Millions
|
|||||||
Equity
Investment Balance at December 31, 2006
|
$53.7
|
||||||
2007
Investments
|
8.7
|
||||||
Equity
in Earnings
|
9.3
|
||||||
Earnings
Distributions
|
|
|
|
|
|
(6.7)
|
|
Equity
Investment Balance at September 30, 2007
|
|
$65.0
|
NOTE
5.
|
OTHER
INCOME (EXPENSE)
|
Quarter
Ended
|
Nine
Months Ended
|
|||
September
30,
|
September
30,
|
|||
|
2007
|
2006
|
2007
|
2006
|
Millions
|
||||
Gain
(Loss) on Emerging Technology Investments
|
$(0.2)
|
$0.1
|
$(1.0)
|
$(1.1)
|
AFUDC
–
Equity
|
1.0
|
0.1
|
2.2
|
0.2
|
Investment
and Other Income
|
2.4
|
2.5
|
10.7
|
8.7
|
Total
Other Income
|
$3.2
|
$2.7
|
$11.9
|
$7.8
|
NOTE
6.
|
INCOME
TAX EXPENSE
|
Quarter
Ended
|
Nine
Months Ended
|
||||||||
September
30,
|
September
30,
|
||||||||
|
2007
|
2006
(a)
|
2007
|
2006
(a)
|
|||||
Millions
|
|||||||||
Current
Tax Expense
|
|||||||||
Federal
|
$
|
2.5
|
$
|
(15.2)
|
$
|
24.5
|
$
|
5.2
|
|
|
State
|
|
0.7
|
|
3.3
|
|
7.1
|
|
8.1
|
3.2
|
(11.9)
|
31.6
|
13.3
|
||||||
Deferred
Tax Expense (Benefit)
|
|||||||||
Federal
|
3.5
|
24.3
|
2.2
|
20.8
|
|||||
|
State
|
|
1.7
|
|
–
|
|
2.4
|
|
(0.5)
|
5.2
|
24.3
|
4.6
|
20.3
|
||||||
Deferred
Tax Credits
|
|
(0.3)
|
|
(0.3)
|
|
(0.8)
|
|
(1.0)
|
|
Income
Tax Expense from Continuing Operations
|
8.1
|
12.1
|
35.4
|
32.6
|
|||||
Income
Tax Benefit from Discontinued Operations
|
|
–
|
|
–
|
|
–
|
|
(0.3)
|
|
Total
Income Tax Expense
|
$
|
8.1
|
$
|
12.1
|
$
|
35.4
|
$
|
32.3
|
(a)
|
Included
a current federal tax benefit of $24.3 million and a deferred federal
tax
expense of $24.3 million related to the Kendall County
refund.
|
NOTE
7.
|
DISCONTINUED
OPERATIONS
|
Quarter
Ended
|
Nine
Months Ended
|
|
Discontinued
Operations
|
September
30,
|
September
30,
|
Summary
Income Statement
|
2006
|
2006
|
Millions
|
||
Loss
on Disposal
|
||
Water
Services
|
$(0.1)
|
$(0.8)
|
Income
Tax Benefit
|
||
Water
Services
|
–
|
0.3
|
Net
Loss on Disposal
|
(0.1)
|
(0.5)
|
Loss
from Discontinued Operations
|
$(0.1)
|
$(0.5)
|
Accumulated
Other Comprehensive
|
September
30,
|
|
Income
(Loss) – Net of Tax
|
2007
|
2006
|
Millions
|
||
Unrealized
Gain on Securities
|
$4.4
|
$2.7
|
Defined
Benefit Pension and Other Postretirement Plans
|
(11.9)
|
–
|
Additional
Pension Liability
|
–
|
(14.9)
|
Total
Accumulated Other Comprehensive Loss
|
$(7.5)
|
$(12.2)
|
NOTE
9.
|
EARNINGS
PER SHARE
|
|
2007
|
|
|
2006
|
|
|
Reconciliation
of Basic and Diluted
|
Dilutive
|
Dilutive
|
||||
Earnings
Per Share
|
Basic
|
Securities
|
Diluted
|
Basic
|
Securities
|
Diluted
|
Millions
Except Per Share Amounts
|
||||||
For
the Quarter Ended September 30,
|
||||||
Income
from Continuing Operations
|
$16.5
|
–
|
$16.5
|
$21.9
|
–
|
$21.9
|
Common
Shares
|
28.5
|
–
|
28.5
|
27.8
|
0.1
|
27.9
|
Per
Share from Continuing Operations
|
$0.58
|
–
|
$0.58
|
$0.78
|
–
|
$0.78
|
For
the Nine Months Ended September 30,
|
||||||
Income
from Continuing Operations
|
$65.4
|
–
|
$65.4
|
$54.3
|
–
|
$54.3
|
Common
Shares
|
28.2
|
0.1
|
28.3
|
27.7
|
0.1
|
27.8
|
Per
Share from Continuing Operations
|
$2.31
|
–
|
$2.31
|
$1.96
|
–
|
$1.95
|
NOTE
10.
|
PENSION
AND OTHER POSTRETIREMENT BENEFIT
PLANS
|
Postretirement
|
||||
Pension
|
Health
and Life
|
|||
Components
of Net Periodic Benefit Expense
|
2007
|
2006
|
2007
|
2006
|
Millions
|
||||
For
the Quarter Ended September 30,
|
||||
Service
Cost
|
$1.3
|
$2.3
|
$1.2
|
$1.1
|
Interest
Cost
|
5.7
|
5.5
|
2.1
|
1.9
|
Expected
Return on Plan Assets
|
(7.7)
|
(7.1)
|
(1.6)
|
(1.4)
|
Amortization
of Prior Service Costs
|
0.2
|
0.1
|
–
|
–
|
Amortization
of Net Loss
|
0.8
|
1.2
|
0.4
|
0.4
|
Amortization
of Transition Obligation
|
–
|
–
|
0.6
|
0.6
|
Net
Periodic Benefit Expense
|
$0.3
|
$2.0
|
$2.7
|
$2.6
|
For
the Nine Months Ended September 30,
|
||||
Service
Cost
|
$3.9
|
$6.9
|
$3.1
|
$3.3
|
Interest
Cost
|
17.1
|
16.6
|
5.8
|
5.6
|
Expected
Return on Plan Assets
|
(23.0)
|
(21.4)
|
(4.8)
|
(4.2)
|
Amortization
of Prior Service Costs
|
0.5
|
0.5
|
–
|
–
|
Amortization
of Net Loss
|
2.4
|
3.6
|
0.7
|
1.3
|
Amortization
of Transition Obligation
|
–
|
(0.1)
|
1.8
|
1.8
|
Net
Periodic Benefit Expense
|
$0.9
|
$6.1
|
$6.6
|
$7.8
|
NOTE
11.
|
COMMITMENTS,
GUARANTEES AND CONTINGENCIES
(Continued)
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
|
|
·
|
Regulated
Utility includes retail and wholesale rate regulated electric,
natural gas and water services in northeastern Minnesota and northwestern
Wisconsin under the jurisdiction of state and federal regulatory
authorities.
|
|
·
|
Nonregulated
Energy Operations includes our coal mining activities in North
Dakota, approximately 50 MW of nonregulated generation and Minnesota
land sales.
|
|
·
|
Investment
in ATC includes our equity ownership interest in
ATC.
|
Quarter
Ended
|
Nine
Months Ended
|
||||||
September
30,
|
September
30,
|
||||||
Kilowatthours
Sold
|
2007
|
2006
|
2007
|
2006
|
|||
Millions
|
|||||||
Regulated
Utility
|
|||||||
Retail
and Municipals
|
|||||||
Residential
|
258.8
|
263.0
|
832.1
|
800.1
|
|||
Commercial
|
360.5
|
361.7
|
1,033.6
|
1,005.9
|
|||
Municipals
|
255.7
|
248.6
|
751.3
|
684.0
|
|||
Industrial
|
1,775.8
|
1,836.9
|
5,215.2
|
5,429.1
|
|||
|
|
Other
|
21.5
|
20.8
|
62.8
|
59.4
|
|
Total
Retail and Municipals
|
2,672.3
|
2,731.0
|
7,895.0
|
7,978.5
|
|||
|
Other
Power Suppliers
|
571.9
|
584.3
|
1,608.8
|
1,604.9
|
||
Total
Regulated Utility
|
3,244.2
|
3,315.3
|
9,503.8
|
9,583.4
|
|||
Nonregulated
Energy Operations
|
60.7
|
60.4
|
184.2
|
181.3
|
|||
|
|
|
3,304.9
|
3,375.7
|
9,688.0
|
9,764.7
|
Quarter
Ended
|
Nine
Months Ended
|
|||||||
September
30,
|
September
30,
|
|||||||
Real
Estate
|
2007
|
2006
|
2007
|
2006
|
||||
Revenue
and Sales Activity (a)
|
Qty
|
Amount
|
Qty
|
Amount
|
Qty
|
Amount
|
Qty
|
Amount
|
Dollars
in Millions
|
||||||||
Town
Center Sales
|
||||||||
Commercial
Sq. Ft.
|
50,000
|
$1.8
|
114,300
|
$3.6
|
474,476
|
$14.5
|
364,995
|
$9.8
|
Residential
Units
|
–
|
–
|
356
|
3.8
|
130
|
1.6
|
542
|
9.4
|
Palm
Coast Park
|
||||||||
Commercial
Sq. Ft.
|
–
|
–
|
–
|
–
|
40,000
|
2.0
|
–
|
–
|
Residential
Units
|
–
|
–
|
200
|
3.0
|
406
|
11.1
|
200
|
3.0
|
Other
Land Sales
|
||||||||
Acres
(b)
|
83
|
3.0
|
242
|
4.9
|
450
|
8.9
|
708
|
20.4
|
Contract
Sales Price (c)
|
4.8
|
15.3
|
38.1
|
42.6
|
||||
Revenue
Recognized from Previously Deferred Sales
|
0.1
|
1.0
|
2.4
|
5.3
|
||||
Deferred
Revenue
|
(1.1)
|
(2.9)
|
(4.2)
|
(6.8)
|
||||
Adjustments
(d)
|
|
–
|
|
0.6
|
|
–
|
|
(0.9)
|
Revenue
from Land Sales
|
3.8
|
14.0
|
36.3
|
40.2
|
||||
Other
Revenue
|
|
1.0
|
|
1.1
|
|
4.7
|
|
3.8
|
|
|
$4.8
|
|
$15.1
|
|
$41.0
|
|
$44.0
|
(c)
|
Reflected
total contract sales price on closed land
transactions.
|
(d)
|
Contributed
development dollars, which are credited to cost of real estate
sold.
|
|
·
|
increased
electric sales to residential, commercial and municipal customers,
as well
as increased gas sales at SWL&P due to colder weather in the first
quarter of 2007;
|
|
·
|
rate
increases, effective January 1, 2007, at
SWL&P;
|
|
·
|
commencement
of current revenue cost recovery on AREA project environmental
capital
expenditures; and
|
|
·
|
higher
AFUDC related to increased capital
expenditures.
|
|
·
|
scheduled
outage at Boswell Unit 3;
|
|
·
|
scheduled
outages at Laskin Unit 1 and Taconite Harbor Unit 2 relating to
AREA plan
environmental upgrades; and
|
|
·
|
unplanned
outages at Boswell Unit 4.
|
Real
Estate
|
||
Pending
Contracts (a,
b)
|
Contract
|
|
At
September 30, 2007
|
Quantity
(c)
|
Sales
Price
|
Dollars
in Millions
|
||
Town
Center
|
||
Commercial
Sq. Ft.
|
331,724
|
$10.1
|
Residential
Units
|
910
|
14.6
|
Palm
Coast Park
|
||
Commercial
Sq. Ft.
|
–
|
–
|
Residential
Units
|
1,981
|
39.1
|
Other
Land
|
||
Acres
|
183
|
9.4
|
|
|
$73.2
|
(a)
|
During
the first nine months of 2007, there were two contracts canceled
at Town
Center ($3.2 million) and three contracts canceled at Lehigh ($3.7
million) in the “Other Land” category
above.
|
(b)
|
Pending
contracts are contracts for which the due diligence period has
ended, and
the contract deposit is non-refundable subject to performance by
the
seller.
|
(c)
|
Acreage
amounts are approximate and shown on a gross basis, including wetlands
and
minority interest. Acreage amounts may vary due to platting or
surveying
activity. Wetland amounts vary by property and are often not formally
determined prior to sale. Commercial square feet and residential
units are
estimated and include minority interest. The actual property allocation
at
full build-out may be different than these
estimates.
|
Summary
of Development Projects
|
||||
For
the Nine Months Ended
|
Total
|
Residential
|
Commercial
|
|
September
30, 2007
|
Ownership
|
Acres
(a)
|
Units
(b)
|
Sq.
Ft. (b, c)
|
Town
Center
|
80%
|
|||
At
December 31, 2006
|
1,356
|
2,222
|
2,705,310
|
|
Property
Sold
|
(91)
|
(130)
|
(474,476)
|
|
Change
in Estimate (a)
|
|
17
|
177
|
51,688
|
|
|
1,282
|
2,269
|
2,282,522
|
Palm
Coast Park
|
100%
|
|||
At
December 31, 2006
|
4,337
|
3,760
|
3,156,800
|
|
Property
Sold
|
(863)
|
(406)
|
(40,000)
|
|
Change
in Estimate (a)
|
|
112
|
–
|
–
|
|
|
3,586
|
3,354
|
3,116,800
|
Ormond
Crossings
|
100%
|
|||
At
December 31, 2006
|
5,960
|
(d)
|
(d)
|
|
Change
in Estimate (a)
|
|
8
|
||
|
|
5,968
|
(a)
|
Acreage
amounts are approximate and shown on a gross basis, including wetlands
and
minority interest. Acreage amounts may vary due to platting or
surveying
activity. Wetland amounts vary by property and are often not formally
determined prior to sale.
|
(b)
|
Estimated
and includes minority interest. The actual property breakdown at
full
build-out may be different than these
estimates.
|
(c)
|
Includes
industrial, office, institutional and retail square
footage.
|
(d)
|
A
development order approval from the City of Ormond Beach was received
in
December 2006, for up to 3,700 residential units and 5 million
commercial
square feet. A development order from Flagler County is currently
under
review, and if approved, Ormond Crossings will receive entitlements
for up
to 700 additional residential units. Actual build-out, however,
will consider market demand as well as infrastructure and mitigation
costs.
|
Summary
of Other Land Inventories
|
|||||||
For
the Nine Months Ended
|
|||||||
September
30, 2007
|
Ownership
|
Total
|
Mixed
Use
|
Residential
|
Commercial
|
Agricultural
|
|
Acres
(a)
|
|||||||
Palm
Coast Holdings
|
80%
|
||||||
At
December 31, 2006
|
2,136
|
1,404
|
346
|
247
|
139
|
||
Property
Sold
|
(78)
|
(59)
|
–
|
(19)
|
–
|
||
|
Change
in Estimate (a)
|
(666)
|
(474)
|
(244)
|
101
|
(49)
|
|
|
|
1,392
|
871
|
102
|
329
|
90
|
|
Lehigh
|
80%
|
||||||
At
December 31, 2006
|
223
|
–
|
140
|
74
|
9
|
||
|
Change
in Estimate (a)
|
–
|
–
|
–
|
–
|
–
|
|
|
|
223
|
–
|
140
|
74
|
9
|
|
Cape
Coral
|
100%
|
||||||
At
December 31, 2006
|
30
|
–
|
1
|
29
|
–
|
||
|
Property
Sold
|
(8)
|
–
|
–
|
(8)
|
–
|
|
|
|
22
|
–
|
1
|
21
|
–
|
|
Other
(b)
|
100%
|
||||||
At
December 31, 2006
|
934
|
–
|
–
|
–
|
934
|
||
Property
Sold
|
(364)
|
–
|
–
|
–
|
(364)
|
||
|
Change
in Estimate (a)
|
|
(113)
|
–
|
–
|
–
|
(113)
|
|
|
|
457
|
–
|
–
|
–
|
457
|
(a)
|
Acreage
amounts are approximate and shown on a gross basis, including wetlands
and
minority interest. Acreage amounts may vary due to platting or
surveying
activity. Wetland amounts vary by property and are often not formally
determined prior to sale. The actual property allocation at full
build-out
may be different than these
estimates.
|
(b)
|
Includes
land located in Palm Coast, Florida not included in development
projects.
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Continued)
|
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
PART
II.
|
OTHER
INFORMATION
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
ITEM
1A.
|
RISK
FACTORS
|