ALLETE(US:ALE)2024-10-29 23:02Part I. Financial Information Consolidated Financial Statements (Unaudited) The company presents its unaudited consolidated balance sheet, income statement, and cash flow statement for the period ended September 30, 2024 Consolidated Balance Sheet Total assets increased to $6.74 billion, driven by growth in Property, Plant and Equipment, while total equity saw a slight decrease Consolidated Balance Sheet Highlights (in Millions) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $6,737.2 | $6,656.4 | | Total Current Assets | $483.4 | $468.1 | | Property, Plant and Equipment – Net | $5,112.8 | $5,013.4 | | Total Liabilities | $3,344.6 | $3,249.3 | | Long-Term Debt | $1,743.7 | $1,679.9 | | Total Equity | $3,391.9 | $3,406.6 | Consolidated Statement of Income Net income decreased to $45.0 million in Q3 2024, impacted by merger costs and the absence of a large 2023 arbitration gain Quarterly Financial Performance (in Millions, except EPS) | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Total Operating Revenue | $407.2 | $378.8 | | Operating Income | $45.3 | $36.0 | | Net Income Attributable to ALLETE | $45.0 | $85.9 | | Diluted EPS | $0.78 | $1.49 | Nine-Month Financial Performance (in Millions, except EPS) | Metric | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | | Total Operating Revenue | $1,165.0 | $1,477.1 | | Operating Income | $122.0 | $137.8 | | Net Income Attributable to ALLETE | $128.7 | $195.6 | | Diluted EPS | $2.23 | $3.41 | Consolidated Statement of Cash Flows Operating cash flow decreased to $367.3 million for the nine-month period, while investing cash use increased Cash Flow Summary (Nine Months Ended Sep 30, in Millions) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Cash from Operating Activities | $367.3 | $520.0 | | Cash used in Investing Activities | ($219.9) | ($200.6) | | Cash used in Financing Activities | ($115.8) | ($228.4) | | Change in Cash | $31.6 | $91.0 | Notes to Consolidated Financial Statements Notes detail key accounting policies, regulatory matters, the pending merger, and segment performance updates - The company is evaluating the SEC's final rule on climate-related disclosures, which is currently stayed pending judicial review29 - ALLETE plans to adopt ASU 2023-07 for enhanced segment disclosures in its 2024 Form 10-K30 Management's Discussion and Analysis (MD&A) Management analyzes financial results, segment performance, and strategic outlook, highlighting impacts from the pending merger - Net income for the first nine months of 2024 was $128.7 million, significantly lower than $195.6 million in 2023, attributed to $19.5 million in after-tax merger transaction costs and a prior-year gain128 Comparison of the Quarters Ended September 30, 2024 and 2023 Q3 2024 net income was impacted by a sharp decline at ALLETE Clean Energy, offsetting stable Regulated Operations results - Regulated Operations utility revenue decreased by $3.8 million due to lower fuel adjustment recoveries and transmission revenue131 - ALLETE Clean Energy's operating revenue increased by $19.9 million due to the sale of the Whitetail wind project in 2024140 - Corporate and Other revenue increased by $12.3 million, mainly from higher sales of renewable energy projects at New Energy144 Comparison of the Nine Months Ended September 30, 2024 and 2023 Nine-month net income fell significantly due to a drop at ALLETE Clean Energy and $19.5 million in merger transaction costs - Regulated Operations utility revenue increased by $9.5 million, driven by interim rates and higher fuel adjustment recoveries148 - ALLETE Clean Energy's operating revenue fell by $327.9 million, primarily because 2023 included large project sales158 - Corporate and Other net income was significantly impacted by $19.5 million in after-tax merger transaction costs164 Outlook The company maintains a 5-7% long-term EPS growth target, focusing on its regulated utility business and major transmission projects - The company has a long-term objective of achieving 5% to 7% consolidated EPS growth168 - Regulated Operations are expected to comprise approximately 75% of total consolidated net income in 2024169 - The MPUC approved the settlement in the 2024 Minnesota General Rate Case, resulting in a $33.97 million net rate increase and a 9.78% return on equity173 - Major transmission projects are underway, including the North Plains Connector, the Duluth Loop Reliability Project, and the HVDC Transmission System Project ($800M-$900M cost)182183184 Liquidity and Capital Resources The company maintains a strong liquidity position and investment-grade credit ratings despite a negative outlook revision from S&P Capital Structure (as of Sep 30, 2024) | Component | Amount (Millions) | Percentage | | :--- | :--- | :--- | | ALLETE Equity | $2,831.2 | 54% | | Non-Controlling Interest | $560.7 | 11% | | Short-Term and Long-Term Debt | $1,794.4 | 35% | | Total Capitalization | $5,187.0 | 100% | - On May 7, 2024, S&P Global Ratings revised its outlook on ALLETE to negative from stable due to the pending merger, but affirmed all ratings198 - Capital expenditures for the first nine months of 2024 totaled $229.5 million, up from $182.0 million in the same period of 2023200 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks include commodity prices and interest rates, managed through regulatory mechanisms and debt structure - Exposure to commodity price risk in regulated operations is largely mitigated through fuel adjustment clauses and other rate recovery mechanisms206 - A hypothetical 100 basis point increase in interest rates would increase annual pre-tax interest expense by approximately $0.3 million209 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective with no material changes to internal controls - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2024210 - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls211 Part II. Other Information Risk Factors Key risks are concentrated around the pending merger, including completion uncertainty, transaction costs, and potential litigation - There is no assurance if or when the merger will be completed, with a potential termination fee of $116 million payable by ALLETE under certain circumstances215 - The company has incurred $19.5 million in after-tax transaction costs through September 30, 2024, and expects to incur additional material expenses219 - The company has received demand letters and has been subject to complaints related to the merger, which could result in substantial costs220221 Mine Safety Disclosures Information regarding mine safety violations is provided in Exhibit 95 of the Form 10-Q - Information concerning mine safety violations as required by the Dodd-Frank Act is included in Exhibit 95 to this Form 10-Q223 Exhibits This section lists all exhibits filed with the Form 10-Q, including merger agreements, certifications, and XBRL data