SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
/X/ Annual Report Pursuant to Section 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended DECEMBER 31, 2003
or
/ / Transition Report Pursuant to Section 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
------------- -------------
Commission File No. 1-3548
MINNESOTA POWER AND AFFILIATED COMPANIES
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
(Full Title of the Plan)
---------------------------------
ALLETE, Inc.
30 West Superior Street
Duluth, Minnesota 55802-2093
(Name of issuer of securities
held pursuant to the Plan and
the address of its principal
executive office)
---------------------------------
INDEX
PAGE
Report of Independent Registered Public Accounting Firm 1
Statement of Net Assets Available for Benefits -
December 31, 2003 and 2002 2
Statement of Changes in Net Assets Available for Benefits -
Year Ended December 31, 2003 3
Notes to Financial Statements 4
Supplemental Schedules
Schedule I: Schedule of Assets (Held at End of Year) -
December 31, 2003 11
Schedule II: Schedule of Reportable Transactions in
Excess of 5% of Fair Value of Plan Assets -
Year Ended December 31, 2003 12
Signatures 13
Note: Other schedules required by 29 CFR 2520.103.10 of the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974 have been omitted
because they are not applicable.
ALLETE 2003 RSOP Form 11-K
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and Administrator of the
Minnesota Power and Affiliated Companies
Retirement Savings and Stock Ownership Plan
In our opinion, the accompanying statement of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Minnesota Power and Affiliated Companies Retirement Savings and Stock
Ownership Plan (the "Plan") at December 31, 2003 and 2002, and the changes in
net assets available for benefits for the year ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States) and auditing standards generally accepted in the United States
of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules, Schedule of
Assets (Held at End of Year) - December 31, 2003 and Schedule of Reportable
Transactions - Year Ended December 31, 2003, are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. These supplemental schedules are the
responsibility of the Plan's management. These supplemental schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
May 28, 2004
ALLETE 2003 RSOP Form 11-K 1
MINNESOTA POWER AND AFFILIATED COMPANIES
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
Thousands
DECEMBER 31,
2003 2002
--------------------------------------------------------------------------------
ASSETS
Investments
Participant Funds $249,857 $194,160
Unallocated Funds 106,608 85,644
--------------------------------------------------------------------------------
356,465 279,804
--------------------------------------------------------------------------------
Contributions Receivable
Participant 337 291
Employer 799 715
--------------------------------------------------------------------------------
1,136 1,006
--------------------------------------------------------------------------------
Cash 2 3
--------------------------------------------------------------------------------
357,603 280,813
--------------------------------------------------------------------------------
LIABILITIES
Accrued Interest 2,386 2,389
Long-Term Debt 71,182 73,441
--------------------------------------------------------------------------------
73,568 75,830
--------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS $284,035 $204,983
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
2 ALLETE 2003 RSOP Form 11-K
MINNESOTA POWER AND AFFILIATED COMPANIES
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Thousands
YEAR ENDED DECEMBER 31, 2003
--------------------------------------------------
PARTICIPANT UNALLOCATED
FUNDS FUNDS TOTAL
----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend Income $ 5,957 $ 4,096 $ 10,053
Interest Income 151 - 151
Net Appreciation in Fair Value of Investments 51,810 28,262 80,072
Other 282 - 282
----------------------------------------------------------------------------------------------------------------
58,200 32,358 90,558
----------------------------------------------------------------------------------------------------------------
CONTRIBUTIONS
Participant 7,239 - 7,239
Employer - 2,094 2,094
Rollover 183 - 183
----------------------------------------------------------------------------------------------------------------
7,422 2,094 9,516
----------------------------------------------------------------------------------------------------------------
DEDUCTIONS
Participants' Withdrawals (11,723) - (11,723)
Interest Expense - (7,262) (7,262)
Administrative Expenses - (80) (80)
----------------------------------------------------------------------------------------------------------------
(11,723) (7,342) (19,065)
----------------------------------------------------------------------------------------------------------------
TRANSFERS AND ALLOCATIONS
Transfers to Retirement Plans (1,957) - (1,957)
Allocations to Participants 3,394 (3,394) 0
----------------------------------------------------------------------------------------------------------------
1,437 (3,394) (1,957)
----------------------------------------------------------------------------------------------------------------
NET INCREASE 55,336 23,716 79,052
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of Year 194,053 10,930 204,983
----------------------------------------------------------------------------------------------------------------
End of Year $249,389 $34,646 $284,035
----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
ALLETE 2003 RSOP Form 11-K 3
MINNESOTA POWER AND AFFILIATED COMPANIES
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF THE PLAN
The Minnesota Power and Affiliated Companies Retirement Savings and Stock
Ownership Plan (RSOP or Plan) is a contributory defined contribution plan
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended (ERISA), and qualifies as an employee stock ownership plan and
profit sharing plan. At December 31, 2003 there were 1,904 participants in the
RSOP. Participating affiliated companies (collectively, the Companies) at
December 31, 2003 included:
- ALLETE, Inc. (ALLETE, or Company)
- Minnesota Power (an operating division of ALLETE)
- Superior Water, Light and Power Company
- Enventis Telecom, Inc.
- MP Affiliate Resources, Inc.
The RSOP provides eligible employees of the Companies an opportunity to save for
retirement by electing to make before-tax and after-tax contributions through
payroll deduction, and directing the contributions into various 401(k)
investment options. (See Participant Investment Options.) The RSOP also provides
eligible employees of the Companies employee stock ownership benefits in ALLETE
common stock (Common Stock).
BASIS OF PRESENTATION
Participant funds represent the participants' 401(k) investment funds and shares
allocated to participants in the ALLETE RSOP Stock Fund. Unallocated funds
represent unallocated shares in the ALLETE RSOP Stock Fund.
ADMINISTRATION
The Plan is administered for the Companies by the Employee Benefit Plans
Committee (Committee). The mailing address of the Committee is 30 West Superior
Street, Duluth, Minnesota 55802-2093. The Committee consists of 10 members who
were appointed by the Board of Directors of ALLETE. The Board of Directors has
the power to remove members of the Committee from office. Members of the
Committee receive no compensation for their services with respect to the Plan.
The responsibility of the Committee includes the determination of compliance
with the Plan's eligibility requirements as well as the administration and
payment of benefits in a manner consistent with the terms of the Plan and
applicable law. The Committee has the authority to establish, modify and repeal
policies and procedures as it may deem necessary to carry out the provisions of
the Plan. The Committee also has the authority to designate persons to carry out
fiduciary responsibilities (other than trustee responsibilities) under the Plan.
The Committee has the power to appoint an investment manager or managers (as
defined by ERISA), attorneys, accountants and such other persons as it shall
deem necessary or desirable in the administration of the Plan. Administration
fees and expenses of agents, outside experts, consultants and investment
managers are paid by the Companies or the Plan. The Plan charges participants
who take plan loans or use the Plan's self-directed account feature for expenses
relating to such loans or accounts.
American Express Retirement Services, a service group of American Express
Financial Advisors Inc., and American Express Trust Company (collectively,
American Express) is the service provider for the Plan handling participant
recordkeeping and certain other administrative responsibilities. American
Express allows the Plan to value accounts daily and gives participants greater
flexibility with regard to investment of their account balances. American
Express Trust Company (Trustee), which is located at 994 AXP Financial Center,
Minneapolis, Minnesota, 55474-0507, is the trustee for the Plan. The Trustee
carries $25 million of blanket bond insurance and $5 million of professional
liability insurance.
4 ALLETE 2003 RSOP Form 11-K
PARTICIPANT INVESTMENT OPTIONS
The Plan's 401(k) investment fund options at December 31, 2003 are listed below.
Detailed descriptions of the investment options and risk profiles are available
in the corresponding fund's prospectus.
- ALLETE Stock Fund
- AllianceBernstein Growth and Income Fund
- American Express Trust Bond Index Fund II
- American Express Trust Emerging Growth Fund II
- American Express Trust Income Fund II
- American Express Trust Small Cap Equity Index Fund II
- The Artisan International Fund
- AXP New Dimensions Fund
- Fidelity Magellan Fund
- Janus Balanced Fund
- Oppenheimer Developing Markets Fund
- Royce Low-Priced Stock Fund
- Templeton Foreign Fund
- Vanguard Institutional Index Fund
- Vanguard Mid-Cap Index Fund
Participants may also establish a self-directed brokerage account which allows
the participant to make investments in or transfers to a wide range of
securities, including publicly traded stock, bonds and mutual funds.
Participants that have a self-directed brokerage account pay an annual fee in
addition to any trading fees incurred upon investment changes. Participants may
change their level of contribution, change their investment election for future
contributions and make transfers between investment options at any time by
contacting American Express.
EMPLOYEE STOCK OWNERSHIP BENEFITS - ALLETE RSOP STOCK FUND
Eligible employees of the Companies receive Common Stock ownership benefits in
the ALLETE RSOP Stock Fund. These benefits are primarily funded by payments made
by the Plan on two loans (see First Suspense Account and Second Suspense
Account). Shares of Common Stock are allocated to eligible employees as provided
by the Plan (see Basic Account, Special Account, Partnership Account, Bargaining
Unit Account and Matching Account). The shares of Common Stock allocated to a
participant's ALLETE RSOP Stock Fund come from the First and Second Loan
Suspense Accounts, as determined by ALLETE. Each participant's account value,
however, is determined on a unit basis and consists of both Common Stock and
cash. (See Note 4.) The unit value is adjusted each business day to reflect
investment results including cash.
With the exception of a participant's Pre-1989 Basic Account, dividends are
automatically reinvested in Common Stock held in the ALLETE RSOP Stock Fund.
Participants with a Pre-1989 Basic Account may make an election at any time to
receive dividends paid on their Pre-1989 Basic Account in cash. Units within a
participant's Pre-1989 Basic Account can be withdrawn at any time, while all
other units within a participant's ALLETE RSOP Stock Fund can be withdrawn when
the participant reaches age 59 1/2 or terminates employment. Participants may
transfer all or any part of their ALLETE RSOP Stock Fund excluding their
Pre-1989 Basic Account to other 401(k) investments options at any time.
FIRST SUSPENSE ACCOUNT. In 1989 the RSOP was amended to establish a leveraged
First Suspense Account. The First Suspense Account originally consisted of
633,849 shares of Common Stock purchased for the benefit of eligible Plan
participants with proceeds from a 15-year $16.5 million loan (First Loan)
bearing interest at 9.125%. This loan was obtained on December 29, 1989, and is
guaranteed by ALLETE. Effective June 28, 2002 this loan was refinanced by
LaSalle Bank National Association with a variable interest rate equal to LIBOR
plus 1.75% fixed for 30, 60, 90 or 180 days at ALLETE's option. At December 31,
2003 the interest rate was 2.92%. The First Suspense Account provides that as
the First Loan is repaid, shares of Common Stock in the First Suspense Account
are allocated to each participant's various ALLETE RSOP Stock Fund accounts
based on the applicable allocation methods as defined in the Plan and summarized
below.
ALLETE 2003 RSOP Form 11-K 5
SECOND SUSPENSE ACCOUNT. The RSOP was again amended in 1990 to establish a
leveraged Second Suspense Account and borrow an additional $75 million (Second
Loan) to acquire 2,830,188 newly issued shares of Common Stock from ALLETE for
the benefit of active Plan participants with a Basic Account. Under this
amendment, active participants with a Basic Account are allocated shares to
their Special Account with a value at least equal to: (a) dividends payable on
shares held by those participants in the Plan and (b) tax savings generated from
the deductibility of dividends paid on all shares of Common Stock held in the
RSOP as of August 4, 1989. In accordance with this amendment, the trustee issued
a promissory note to ALLETE for $75 million at a 10.25% interest rate with a
term not to exceed 25 years.
BASIC ACCOUNT. Participants' Basic Accounts received shares of Common Stock
purchased with incremental investment tax credit contributions and payroll-based
tax credit contributions. Contributions to the participants' Basic Accounts
ceased after 1986.
SPECIAL ACCOUNT. For the years 1985 through 1989, the Companies received a tax
deduction for cash dividends paid to participants on ALLETE RSOP Stock Fund
shares in their Basic Account. The Companies contributed to the ALLETE RSOP
Stock Fund an amount equal to the estimated income tax benefit of the dividend
deduction associated with shares in the Basic Account. Shares of Common Stock
purchased with these contributions were allocated to the participants' Special
Account.
PARTNERSHIP ACCOUNT. Since 1989 partnership allocations have been made to each
nonunion participant's Partnership Account based on the ratio of a participant's
annual compensation to the annual compensation of all eligible participants. If
the value of the shares credited to a participant's Partnership Account is less
than 3.5 percent of the participant's eligible annual compensation, the
Companies will contribute additional shares to make up the difference.
BARGAINING UNIT ACCOUNT. Quarterly non-elective allocations are made to the
ALLETE RSOP Stock Fund equal to 0.75 percent of each union participant's
eligible compensation.
MATCHING ACCOUNT. Quarterly matching allocations are made to the ALLETE RSOP
Stock Fund equal to 50 percent of each nonunion participant's 401(k) before-tax
contributions, disregarding contributions in excess of 4 percent of the
participant's periodic pay for the period (8 percent for Enventis Telecom, Inc.
employees).
CONTRIBUTIONS
PARTICIPANT CONTRIBUTIONS to the Plan consist of the following:
- BEFORE-TAX CONTRIBUTIONS. Before-tax contributions consist of salary
reduction contributions, results sharing contributions and flexible dollar
contributions. Total before-tax contributions in 2003 could not exceed
$12,000 for participants less than age 50 or $14,000 for participants at
least age 50, as permitted under Section 401(k) of the Internal Revenue
Code of 1986.
- SALARY REDUCTION CONTRIBUTIONS. Salary reduction contributions are equal
to an amount the participant has elected to reduce his or her
compensation pursuant to a salary reduction agreement.
- RESULTS SHARING CONTRIBUTIONS. Results sharing contributions are equal
to the portion (up to 100 percent) of the Results Sharing Award the
participant irrevocably agrees to forgo and that, pursuant to the ALLETE
Results Sharing Program, would otherwise be paid to the participant.
- FLEXIBLE DOLLAR CONTRIBUTIONS. Nonunion participants may make flexible
dollar contributions equal to the portion (up to 100 percent) of
flexible dollars the participant irrevocably agrees to forgo and that,
pursuant to the Minnesota Power and Affiliated Companies Flexible
Compensation Plan, would otherwise be used for other benefits or paid to
the participant.
6 ALLETE 2003 RSOP Form 11-K
- VOLUNTARY CONTRIBUTIONS (AFTER-TAX CONTRIBUTIONS). Each participant is
also allowed to make voluntary after-tax contributions to the Plan
through payroll deductions. Total voluntary contributions made by a
participant shall not exceed 25 percent of the participant's
compensation per pay period.
- ROLLOVERS. Contributions by participants may also be made through
rollovers from other qualified plans.
EMPLOYER CONTRIBUTIONS for each year are paid to the Trustee either in cash or
in Common Stock. Expenses incurred in discretionary activities relating to the
design, formation and modification of the Plan (commonly characterized as
"settlor" functions) are paid by the Companies.
VESTING AND FORFEITURE ACCOUNT
As of July 1, 2001 all contributions plus actual earnings thereon are fully
vested and nonforfeitable. A forfeiture account, which consists of previously
forfeited nonvested accounts, totaled $33,000 at December 31, 2003 ($114,000 at
December 31, 2002) and is invested in American Express Trust Income Fund II.
Dollars from the forfeiture account will be used to reduce future Plan expenses.
DISTRIBUTIONS AND WITHDRAWALS
A participant may elect at any time to receive in cash future dividends paid on
Common Stock shares in their ALLETE RSOP Stock Fund Pre-1989 Basic Account and
ALLETE Stock Fund.
Prior to termination a participant may withdraw at any time all or any part of
their:
- Plan accounts, if the participant has attained age 59 1/2;
- After-tax account, regardless of the participant's age; or
- Pre-1989 Basic Account, regardless of the participant's age.
When participants terminate employment, become disabled or die, they or their
beneficiaries may elect to receive all or any part of their Plan accounts.
TRANSFERS TO RETIREMENT PLANS. Upon retirement, participants may elect to
transfer their Plan account balances to the Minnesota Power and Affiliated
Companies Retirement Plan A or Plan B, if the participant is receiving a benefit
from one of these retirement plans. The amount of transfers to these retirement
plans totaled $1,957,000 for 2003.
LOAN PROGRAM. The Plan allows participants to borrow money from their Plan
accounts. The maximum amount a participant may borrow is equal to the lesser of
(a) the participant's aggregate before-tax account, after-tax account and
rollover account balances, (b) 50 percent of their total Plan balance, or (c)
$50,000. The loans may not be less than $1,000. The loans are for terms up to
five years for a general purpose loan and ten years for the acquisition of a
primary residence. A fixed interest rate of the prime rate plus 1 percent on the
first day of the month that the loan is originated is charged until the loan is
repaid. As loans are repaid, generally through payroll deductions, principal and
interest amounts are redeposited into the participant's Plan accounts.
Participants are required to pay a $50 loan application fee to cover the cost of
processing the loan.
PLAN TERMINATION
The Companies reserve the right to reduce, suspend or discontinue their
contributions to the Plan at any time or to terminate the Plan in its entirety
subject to the provisions of ERISA and the Internal Revenue Code of 1986 (Code).
If the Plan is terminated, all of the account balances of the participants will
be distributed in accordance with the terms of the Plan.
ALLETE 2003 RSOP Form 11-K 7
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
The Plan uses the accrual basis of accounting and, accordingly, reflects income
in the year earned and expenses when incurred. Common stock and mutual fund
investments are reported at their fair value based on quoted market prices.
Collective fund investments are reported at net asset value which approximates
fair value. Participants' loans are reported at estimated fair value which
represents outstanding principal and any related accrued interest.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and changes therein, and disclosure of contingent assets and
liabilities at the date of the financial statements. Actual results could differ
from those estimates.
The Plan presents, in the statement of changes in net assets available for
benefits, the net appreciation (depreciation) in the fair value of its
investments which consists of the realized gains or losses and the unrealized
appreciation (depreciation) on those investments.
The Plan invests in various funds that are a combination of stocks, bonds and
other investment securities. Investment securities are exposed to various risks
such as interest rate, market and credit risks. Due to the level of risk
associated with certain investment securities, it is at least reasonably
possible that changes in the values of investment securities will occur in the
near term and that such changes could materially affect the amounts reported in
the statement of net assets available for benefits.
The financial information for prior periods has been reclassified to present
comparable information for all periods.
NOTE 3 - FEDERAL INCOME TAX STATUS
A favorable determination letter dated March 23, 2004 was obtained from the
Internal Revenue Service stating that the RSOP, as amended and restated
effective January 1, 2002, qualified as an employee stock ownership plan and a
profit sharing plan under Section 401(a) of the Code.
The Plan has subsequently been amended and the Committee continues to believe
that the Plan is currently designed and being operated in compliance with the
applicable requirements of the Code. Therefore, no provision for income taxes
has been included in the Plan's financial statements.
8 ALLETE 2003 RSOP Form 11-K
NOTE 4 - INVESTMENTS
FAIR/NET ASSET VALUE OF INVESTMENTS
REPRESENTING 5 PERCENT OR MORE OF ASSETS
AS OF DECEMBER 31, 2003 2002
-------------------------------------------------------------------------------------------------------------------
Thousands
ALLETE RSOP Stock Fund $217,334 $172,386
ALLETE Stock Fund 27,453 20,889
American Express Trust Income Fund II 32,575 27,526
Other Investments 79,103 59,003
-------------------------------------------------------------------------------------------------------------------
$356,465 $279,804
-------------------------------------------------------------------------------------------------------------------
NUMBER OF FAIR
ALLETE RSOP STOCK FUND SHARES COST VALUE
-------------------------------------------------------------------------------------------------------------------
Thousands
December 31, 2003 Allocated - Common Stock 3,587 $40,296 $109,772
Cash 954 954
-------------------------------------------------------------------------------------------------------------------
41,250 110,726
-------------------------------------------------------------------------------------------------------------------
Unallocated - Common Stock 3,432 45,249 105,001
Cash 1,607 1,607
-------------------------------------------------------------------------------------------------------------------
46,856 106,608
-------------------------------------------------------------------------------------------------------------------
$88,106 $217,334
-------------------------------------------------------------------------------------------------------------------
December 31, 2002 Allocated - Common Stock 3,803 $41,924 $ 86,259
Cash 483 483
-------------------------------------------------------------------------------------------------------------------
42,407 86,742
-------------------------------------------------------------------------------------------------------------------
Unallocated - Common Stock 3,702 48,711 83,958
Cash 1,686 1,686
-------------------------------------------------------------------------------------------------------------------
50,397 85,644
-------------------------------------------------------------------------------------------------------------------
$92,804 $172,386
-------------------------------------------------------------------------------------------------------------------
For the ALLETE Stock Fund and the ALLETE RSOP Stock Fund, each participant's
account value is determined on a unit basis and consists of both Common Stock
and cash. The unit value is adjusted each business day to reflect investment
results including cash.
ALLETE STOCK FUND ALLETE RSOP STOCK FUND
------------------------- ----------------------------
AS OF DECEMBER 31, 2003 2002 2003 2002
-------------------------------------------------------------------------------------------------------------------
Thousands
Number of Units 2,408 2,457 9,140 9,553
Common Stock $26,977 $20,443 $109,772 $86,259
Cash 476 446 954 483
-------------------------------------------------------------------------------------------------------------------
Net Value $27,453 $20,889 $110,726 $86,742
-------------------------------------------------------------------------------------------------------------------
ALLETE 2003 RSOP Form 11-K 9
NOTE 5 - REPAYMENT OF LOANS
The Trustee repays principal and interest on the First Loan and Second Loan with
dividends paid on the shares of Common Stock in each suspense account and with
certain employer contributions to the Plan. The shares of Common Stock acquired
by the Trustee are held in the First Suspense Account and Second Suspense
Account, and allocated to the accounts of Plan participants as the First Loan
and Second Loan are repaid.
The First Loan was obtained from a third party lender and is guaranteed by
ALLETE with 61,704 unallocated shares of Common Stock in the Plan pledged as
collateral at December 31, 2003. The lender has no rights against shares that
are allocated under the Plan. In December 2003 the Plan made a principal payment
of $2,259,000 on the First Loan. The First Loan has one remaining principal
payment of $1,364,000 due in December 2004.
The Second Loan was obtained from ALLETE. There were 3,369,688 unallocated
shares of Common Stock in the Plan pledged as collateral at December 31, 2003.
Prepayments can be made without penalty. The lender has no rights against shares
that are allocated under the Plan.
PRINCIPAL PAYMENTS
$75 MILLION 10.25% LOAN
-----------------------------------
Thousands
2011 $ 9,818
2012 15,000
2013 15,000
2014 15,000
2015 15,000
-----------------------------------
$69,818
-----------------------------------
NOTE 6 - SUBSEQUENT EVENT
In October 2003 ALLETE's Board of Directors approved a plan to spin off to
ALLETE shareholders its Automotive Services business which will become a
publicly traded company doing business as ADESA, Inc. (ADESA).The spin-off is
expected to take the form of a tax-free stock dividend to ALLETE's shareholders,
who would receive a pro rata number of shares of ADESA common stock for each
share of ALLETE Common Stock they own. The spin-off is subject to the approval
of the final plan by ALLETE's Board of Directors, favorable market conditions,
receipt of tax opinions, satisfaction of SEC requirements and other customary
conditions, and is expected to occur in the third quarter of 2004.
Participants in the ALLETE RSOP Stock Fund and the ALLETE Stock Fund are
expected to receive a pro rata share of ADESA common stock based on the
unitization formula used to determine a participant's equivalent number of
ALLETE shares on the date of the spin-off. The Company is in the process of
developing plans for participants to make decisions about these shares of ADESA.
Subsequent to the spin-off of ADESA, the RSOP will have a significant amount of
cash generated from the sale of ADESA stock received in the spin-off on a pro
rata basis for the unallocated shares. The RSOP intends to use this cash to
purchase ALLETE Common Stock, and federal income tax laws generally provide up
to 90 days to complete this purchase. To facilitate the RSOP's purchase of
ALLETE Common Stock, the Company has requested IRS approval to extend the
purchase period to approximately 600 days. The IRS ruling on this request is
expected later in 2004.
10 ALLETE 2003 RSOP Form 11-K
SCHEDULE I
MINNESOTA POWER AND AFFILIATED COMPANIES
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
AS OF DECEMBER 31, 2003
Thousands
(a) (b) (c) (d) (e)
FAIR/
DESCRIPTION OF NET ASSET
IDENTITY OF ISSUER INVESTMENT COST VALUE
----------------------------------------------------------------------------------------------------------------------------
ALLETE RSOP STOCK FUND
* ALLETE, Inc. Common Stock - 7,019 Shares $85,545 $214,773
* American Express Money Market II Money Market 2,561 2,561
----------------------------------------------------------------------------------------------------------------------------
Total ALLETE RSOP Stock Fund $88,106 217,334
----------------------------------------------------------------------------------------------------------------------------
ALLETE STOCK FUND
* ALLETE, Inc. Common Stock - 882 Shares 26,977
* American Express Money Market II Money Market 476
----------------------------------------------------------------------------------------------------------------------------
Total ALLETE Stock Fund 27,453
----------------------------------------------------------------------------------------------------------------------------
COLLECTIVE FUND SECURITIES
* American Express Trust Bond Index Fund II Collective Fund - 176 Shares 2,410
* American Express Trust Income Fund II Collective Fund - 1,367 Shares 32,575
* American Express Trust Small Cap Equity Index Fund II Collective Fund - 65 Shares 1,087
* American Express Trust Emerging Growth Fund II Collective Fund - 318 Shares 5,659
----------------------------------------------------------------------------------------------------------------------------
Total Collective Fund Securities 41,731
----------------------------------------------------------------------------------------------------------------------------
MUTUAL FUND SECURITIES
AllianceBernstein Growth and Income Fund Mutual Fund - 476 Shares 1,615
Artisan International Fund Mutual Fund - 180 Shares 3,409
* AXP New Dimensions Fund Mutual Fund - 29 Shares 699
Fidelity Magellan Fund Mutual Fund - 147 Shares 14,360
Janus Balanced Fund Mutual Fund - 597 Shares 11,906
Oppenheimer Developing Markets Fund Mutual Fund - 221 Shares 4,552
Royce Low-Priced Stock Fund Mutual Fund - 714 Shares 9,986
Templeton Foreign Fund Mutual Fund - 56 Shares 596
Vanguard Institutional Index Fund Mutual Fund - 141 Shares 14,359
Vanguard Mid-Cap Index Fund Mutual Fund - 403 Shares 5,288
----------------------------------------------------------------------------------------------------------------------------
Total Mutual Fund Securities 66,770
----------------------------------------------------------------------------------------------------------------------------
SELF-DIRECTED BROKERAGE ACCOUNTS 869
----------------------------------------------------------------------------------------------------------------------------
* PARTICIPANT LOANS Loans Receivable from
Participants - 5% to 10.5% 2,308
----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $356,465
----------------------------------------------------------------------------------------------------------------------------
* Party in Interest
Not required for participant directed transactions.
ALLETE 2003 RSOP Form 11-K 11
SCHEDULE II
MINNESOTA POWER AND AFFILIATED COMPANIES
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
SCHEDULE OF REPORTABLE TRANSACTIONS
IN EXCESS OF 5% OF FAIR VALUE OF PLAN ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2003
Thousands
(a) (b) (c) (d) (e) (f) (g) (h) (i)
CURRENT NET
IDENTITY OF DESCRIPTION PURCHASE SELLING LEASE EXPENSE COST OF VALUE GAIN OR
PARTY INVOLVED OF ASSET PRICE PRICE RENTAL INCURRED ASSET OF ASSET (LOSS)
----------------------------------------------------------------------------------------------------------------------------
ALLETE, Inc. Common
Stock $5,640 - - - - $5,640 -
ALLETE, Inc. Common
Stock - $15,608 - - $7,110 $15,608 $8,498
----------------------------------------------------------------------------------------------------------------------------
Excludes participant directed transactions which are not required on this schedule.
12 ALLETE 2003 RSOP Form 11-K
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Employee Benefit Plans Committee has duly caused this annual report to be signed
on its behalf by the undersigned hereunto duly authorized.
Minnesota Power and Affiliated Companies
Retirement Savings and Stock Ownership Plan
---------------------------------------------
(Name of Plan)
June 4, 2004 By Donald J. Shippar
------------------------------------------------
Donald J. Shippar
Chairman, Employee Benefit Plans Committee
ALLETE 2003 RSOP Form 11-K 13
INDEX TO EXHIBITS
EXHIBIT
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a - Consent of Independent Registered Public Accounting Firm
ALLETE 2003 RSOP Form 11-K
EXHIBIT a
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-110740) of ALLETE, Inc. of our report dated May
28, 2004 relating to the financial statements and supplemental schedules of the
Minnesota Power and Affiliated Companies Retirement Savings and Stock Ownership
Plan, which appears in this Form 11-K.
PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
June 2, 2004