ALLETE(US:ALE)2024-05-09 10:07Part I. Financial Information This section provides the company's unaudited financial statements, detailed notes, and management's discussion and analysis of financial performance Consolidated Financial Statements This section presents the unaudited Consolidated Balance Sheet, Statement of Income, Statement of Comprehensive Income, Statement of Cash Flows, and Statement of Equity for the quarterly period ended March 31, 2024 Consolidated Financial Statements - Unaudited The unaudited financial statements for Q1 2024 show decreased total operating revenue and net income attributable to ALLETE, with a slight decrease in total assets Consolidated Statement of Income Highlights (Q1 2024 vs Q1 2023) | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | Change | | :--- | :--- | :--- | :--- | | Total Operating Revenue | $403.3 | $564.9 | -28.6% | | Operating Income | $47.3 | $48.3 | -2.1% | | Net Income Attributable to ALLETE | $50.7 | $58.2 | -12.9% | | Diluted Earnings Per Share | $0.88 | $1.02 | -13.7% | Consolidated Balance Sheet Highlights (As of March 31, 2024) | Metric | March 31, 2024 (Millions) | Dec 31, 2023 (Millions) | | :--- | :--- | :--- | | Total Assets | $6,604.6 | $6,656.4 | | Total Liabilities | $3,195.6 | $3,249.3 | | Total ALLETE Equity | $2,823.0 | $2,809.6 | - Cash provided by operating activities decreased to $60.1 million for the three months ended March 31, 2024, from $92.4 million in the same period of 202316 Notes to Consolidated Financial Statements The notes provide critical details supporting the financial statements, including a merger agreement, regulatory proceedings, and segment performance - On May 5, 2024, ALLETE entered into a merger agreement for $67.00 in cash per share, valuing the transaction at approximately $3.9 billion102103 - Minnesota Power reached a settlement for a $33.97 million rate increase and a 9.78% return on equity in its 2024 Minnesota General Rate Case33 - New EPA rules regulating GHG emissions for power plants, issued April 25, 2024, will apply to ALLETE's facilities, with compliance costs potentially material6970 Net Income Attributable to ALLETE by Business Segment (Q1 2024 vs Q1 2023) | Business Segment | Q1 2024 (Millions) | Q1 2023 (Millions) | | :--- | :--- | :--- | | Regulated Operations | $44.2 | $40.6 | | ALLETE Clean Energy | $3.8 | $8.5 | | Corporate and Other | $2.7 | $9.1 | | Total | $50.7 | $58.2 | Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Q1 2024 financial results, detailing segment performance, strategic outlook, and liquidity - Q1 2024 net income was $50.7 million ($0.88/share), down from $58.2 million ($1.02/share) in Q1 2023, impacted by a $3.9 million interim rate refund reserve and $1.2 million in merger transaction costs111 - Regulated Operations net income rose to $44.2 million from $40.6 million, driven by interim rates at Minnesota Power112 - ALLETE Clean Energy's net income fell to $3.8 million from $8.5 million due to outages at its Caddo and Diamond Spring wind facilities112 - Corporate and Other net income decreased to $2.7 million from $9.1 million, impacted by lower earnings from solar projects and merger-related costs113 Comparison of the Three Months Ended March 31, 2024 and 2023 This section details quarterly results, showing increased Regulated Operations revenue and decreased ALLETE Clean Energy revenue due to a project sale - Regulated Operations revenue increased by $25.7 million, driven by $11.2 million from interim rates, an $8.4 million increase in fuel adjustment clause revenue, and a $7.8 million increase from higher kWh sales116 Regulated Utility kWh Sales (Millions) | Customer Class | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Industrial | 1,798 | 1,658 | 8.4% | | Residential | 306 | 321 | (4.7)% | | Commercial | 338 | 347 | (2.6)% | | Total Regulated Utility | 3,324 | 3,150 | 5.5% | - ALLETE Clean Energy's operating revenue decreased by $182.4 million, primarily due to the 2023 sale of the Northern Wind project and a network outage near the Caddo wind facility in 2024122 Outlook The company reaffirms its long-term EPS growth objective and plans significant transmission investments to support renewable energy integration - The company has a long-term objective of achieving 5% to 7% consolidated EPS growth129 - ALLETE expects to invest in major transmission projects, including the ~$3.2 billion North Plains Connector, the $800-$900 million HVDC modernization, and the ~$970 million-$1.35 billion Northland Reliability Project140142143 - Minnesota Power has issued RFPs for up to 300 MW of solar and 400 MW of wind energy to comply with Minnesota's 100% carbon-free energy mandate by 2040135136131 - Transaction costs related to the pending merger agreement are expected to be material for the remainder of 2024129 Liquidity and Capital Resources ALLETE maintains a strong liquidity position with available credit lines, though S&P revised its outlook to negative due to the pending merger Capital Structure as of March 31, 2024 | Component | Amount (Millions) | Percentage | | :--- | :--- | :--- | | ALLETE Equity | $2,823.0 | 54% | | Non-Controlling Interest | $585.5 | 11% | | Short-Term and Long-Term Debt | $1,797.3 | 35% | | Total | $5,206.3 | 100% | - On May 7, 2024, S&P Global Ratings revised its outlook on ALLETE to negative from stable due to the pending merger, while affirming its 'BBB' issuer credit rating155 Quantitative and Qualitative Disclosures about Market Risk The company manages market risks from investments, commodity prices, and interest rates, with commodity risk largely mitigated by regulatory recovery - The company's exposure to commodity price risk for its regulated utilities is significantly mitigated by regulatory frameworks allowing for the recovery of fuel and natural gas costs from customers161 - A 100 basis point increase in interest rates would result in a pre-tax interest expense increase of $1.2 million, based on variable rate debt outstanding as of March 31, 2024163 Controls and Procedures Management concluded that ALLETE's disclosure controls and procedures were effective as of March 31, 2024, 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 March 31, 2024164 - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls165 Part II. Other Information This section covers legal proceedings, updated risk factors, mine safety disclosures, and a list of exhibits Legal Proceedings Information regarding material legal and regulatory proceedings is incorporated by reference from specific notes in the Consolidated Financial Statements - Information regarding material legal and regulatory proceedings is incorporated by reference from Note 2 and Note 6 of the Consolidated Financial Statements166 Risk Factors This section updates risk factors, introducing new risks specifically related to the pending merger agreement, including completion uncertainty and transaction costs - A new set of risk factors has been introduced related to the pending merger agreement with Alloy Parent LLC168 - Key merger-related risks include the possibility that the merger may not be completed, potential disruption to business operations, and substantial transaction fees and costs, which were $1.2 million after-tax through March 31, 2024169171172 Mine Safety Disclosures Information concerning mine safety violations and other regulatory matters is included in Exhibit 95 of the Form 10-Q - Information regarding mine safety violations under the Federal Mine Safety and Health Act of 1977 is provided in Exhibit 95 to this Form 10-Q174 Exhibits This section lists all exhibits filed with the Form 10-Q, including the Agreement and Plan of Merger and CEO/CFO certifications - The Agreement and Plan of Merger, dated May 5, 2024, is filed as Exhibit 2.1176