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, 2000
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
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST
(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 Accountants 1
Statement of Net Assets Available for Benefits -
December 31, 2000 and 1999 2
Statement of Changes in Net Assets Available for Benefits -
Year Ended December 31, 2000 and 1999 3
Notes to Financial Statements 4
Supplemental Schedules
Schedule I: Schedule of Assets (Held at End of Year) 8
Schedule II: Schedule of Reportable Transactions in
Excess of 5% of Fair Value of Plan Assets 8
Signatures 9
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Administrator of
the Minnesota Power and Affiliated
Companies Employee Stock Ownership
Plan and Trust
In our opinion, the accompanying statements of net assets available for benefits
and the related statements 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 Employee Stock Ownership Plan
and Trust (the "Plan") at December 31, 2000 and 1999, and the changes in net
assets available for benefits for the year ended 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 auditing standards
generally accepted in the United States of America, which 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) and Schedule of Reportable Transactions, 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. The 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
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
June 8, 2001
ALLETE 2000 ESOP Form 11-K 1
MINNESOTA POWER AND AFFILIATED COMPANIES
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
Thousands
DECEMBER 31,
2000 1999
------------------------------------------------------------------------------------------------------------------
ASSETS
Investment in ALLETE, Inc. Common Stock $200,461 $139,512
Contributions Receivable from Company 1,095 1,095
Interest Receivable - 11
Cash and Cash Equivalents 435 489
------------------------------------------------------------------------------------------------------------------
201,991 141,107
------------------------------------------------------------------------------------------------------------------
LIABILITIES
Accrued Interest Expense 1,095 1,095
Long-Term Debt 77,399 78,871
------------------------------------------------------------------------------------------------------------------
78,494 79,966
------------------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS $123,497 $ 61,141
------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
2 ALLETE 2000 ESOP Form 11-K
MINNESOTA POWER AND AFFILIATED COMPANIES
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Thousands
YEAR ENDED
DECEMBER 31,
2000 1999
------------------------------------------------------------------------------------------------------------------
ADDITIONS
Dividend Income $ 8,722 $ 8,858
Company Contributions 1,669 1,594
Net Appreciation in Fair Value of Investments 63,597 -
Interest Income 44 39
------------------------------------------------------------------------------------------------------------------
74,032 10,491
------------------------------------------------------------------------------------------------------------------
DEDUCTIONS
Participants' Withdrawals 3,380 3,122
Transfers to Pension Plan 308 856
Interest Expense 7,984 8,100
Net Depreciation in Fair Value of Investments - 41,655
Administrative Expenses 4 3
------------------------------------------------------------------------------------------------------------------
11,676 53,736
------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) 62,356 (43,245)
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of Year 61,141 104,386
------------------------------------------------------------------------------------------------------------------
End of Year $123,497 $ 61,141
------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
ALLETE 2000 ESOP Form 11-K 3
MINNESOTA POWER AND AFFILIATED COMPANIES
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF THE PLAN
The Minnesota Power and Affiliated Companies Employee Stock Ownership
Plan and Trust (ESOP) provides eligible employees of the participating
affiliated companies, ALLETE, Inc. (ALLETE), Minnesota Power (a business unit of
ALLETE), Superior Water, Light and Power Company, Minnesota Power Telecom, Inc.,
Electric Outlet, Inc. and MP Affiliate Resources, Inc., (collectively, the
Companies) with ALLETE common stock (Common Stock) ownership benefits. The ESOP
is a noncontributory defined contribution plan that is subject to the provisions
of the Employee Retirement Income Security Act of 1974, as amended (ERISA). At
December 31, 2000 there were 1,549 participants in the ESOP.
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.
All participants' Basic Accounts are fully vested. These shares can be
withdrawn at any time. Every December participants are required to make an
election to receive dividends on their shares either in cash or reinvest them in
Common Stock held in the ESOP.
SPECIAL ACCOUNT
For the years 1985 through 1989, the Companies received a tax deduction
for cash dividends paid to participants on ESOP shares in their Basic Account.
The Companies contributed to the ESOP 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. All participants are fully
vested in these shares which can be withdrawn when the participants terminate
employment. Dividends on these shares are automatically reinvested in Common
Stock held in the ESOP.
FIRST SUSPENSE ACCOUNT
In 1989 the ESOP was amended to enable the ESOP Trustee (as defined
below) to establish a leveraged First Suspense Account. Employees become
eligible to participate after one year of service with the Companies. The First
Suspense Account originally consisted of 633,849 shares of Common Stock
purchased for the benefit of eligible ESOP participants with proceeds from a 15
year $16.5 million loan (First Loan) bearing interest at 9.125%. This loan was
obtained by the ESOP Trustee on December 29, 1989, and guaranteed by ALLETE. 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
account based on the ratio of a participant's annual compensation to the annual
compensation of all participants. In any year that the value of the shares
credited to a participant's account is less than 2% of the participant's annual
compensation, the Companies will contribute additional shares to make up the
difference. Shares of Common Stock are also allocated to participants' accounts
for reinvested dividends paid on the shares in the First Suspense Account. All
participants are fully vested after 5 years of continuous service with the
Companies.
4 ALLETE 2000 ESOP Form 11-K
SECOND SUSPENSE ACCOUNT
The ESOP was again amended in 1990 to enable the ESOP Trustee to
establish a leveraged Second Suspense Account and borrow an additional $75
million (Second Loan) for the purpose of acquiring 2,830,188 newly issued shares
of Common Stock from ALLETE for the benefit of active ESOP 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 ESOP who do
not elect to receive dividends in cash, and (b) tax savings generated from the
deductibility of dividends paid on all shares held in the ESOP as of August 4,
1989. Pursuant to this amendment, the ESOP Trustee issued a promissory note to
ALLETE for $75 million at a 10.25% interest rate with a term not to exceed 25
years.
A participant who resigns or is dismissed from employment with any of
the Companies shall forfeit the nonvested portion of his or her ESOP accounts as
of the last day of the year in which the participant incurs a fifth consecutive
one-year break in service. Forfeitures will first be used by the ESOP to meet
the contribution of the 2% annual compensation requirement. Second, forfeitures
will be allocated to the payment of expenses. Third, remaining forfeitures, if
any, will be reallocated to the accounts of remaining participants as of the
last day of the year in which the forfeiture occurs.
ADMINISTRATION
The ESOP 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 is authorized to
make rules and regulations as it may deem necessary to carry out the provisions
of the ESOP and to employ investment managers (as defined by ERISA), attorneys,
accountants and such other persons as it shall deem necessary or desirable in
the administration of the ESOP. The Committee consists of 11 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 ESOP.
As of June 1, 2001 the members of the Committee, all employees of
ALLETE and/or Minnesota Power, and their respective titles are as follows:
Name Title
--------------------------------------------------------------------------------
Robert D. Edwards * Executive Vice President ALLETE and
President and Chief Executive Officer Minnesota Power
David G. Gartzke Senior Vice President - Finance and
Chief Financial Officer ALLETE
Philip R. Halverson Vice President, General Counsel and Secretary
Brenda J. Flayton Vice President - Human Resources
Claudia R. Scott Welty Vice President - Information Technology
Mark A. Schober Vice President and Controller
Donald J. Shippar Chief Operating Officer - Minnesota Power
Roger P. Engle Vice President - Minnesota Power and
President and Chief Operating Officer - Superior
Water, Light and Power Company
Lori A. Collard President - Electric Outlet, Inc.
Alan R. Hodnik General Manager - Thermal Generation Operations
Jeweleon W. Tuominen Manager - Executive Compensation and Employee Benefits
--------------------------------------------------------------------------------
* Committee Chairman
ALLETE 2000 ESOP Form 11-K 5
Mellon Bank N.A. (Mellon Bank) acts as trustee (ESOP Trustee) for the
ESOP. The ESOP Trustee's main office is located at One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258-0001. The ESOP Trustee carries blanket bond
insurance in the amount of $100 million. ALLETE maintains the participants'
records and issues quarterly reports to each participant showing the status of
individual accounts.
ESOP TERMINATION
The Companies reserve the right to reduce, suspend or discontinue their
contributions to the ESOP or to terminate the ESOP in its entirety subject to
the provisions of ERISA. In the event that the ESOP is terminated, the Committee
may require that the accounts of all participants and beneficiaries be
distributed as soon after the termination date as the Committee deems
practicable, regardless of the length of time Common Stock has been allocated to
any account.
CONTRIBUTIONS
The Companies' contributions for each year shall be paid to the ESOP
Trustee either in cash or in Common Stock. Subject to a statutory maximum, the
expenses incidental to establishing and administering the ESOP may be deducted
from the Companies' contributions to the ESOP or income earned by the shares
held in the ESOP. Expenses not attributable to such sources are payable by the
Companies. No fees or charges will be payable by any ESOP participant.
TRANSFERS
Upon retirement, participants may elect to transfer the vested amount
of their ESOP account balances to the Minnesota Power and Affiliated Companies
Retirement Plan A or Plan B.
FORFEITED ACCOUNTS
At December 31, 2000 and December 31, 1999 there were no forfeited
nonvested accounts.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
The ESOP uses the accrual basis of accounting and, accordingly,
reflects income in the year earned and expenses when incurred. Investments are
reported at their fair value based on the quoted market price.
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 and liabilities;
- disclose contingent liabilities at the date of the financial
statements; and
- report amounts of revenue and expense during the reporting period.
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
investment which consists of the realized gains or losses and the unrealized
appreciation (depreciation) on those investments.
NOTE 3 - FEDERAL INCOME TAX STATUS
A favorable determination letter dated January 30, 1996 was obtained
from the Internal Revenue Service stating that the ESOP, as amended and restated
effective January 1, 1992, qualifies as an employee stock ownership plan under
Section 401(a) of the Internal Revenue Code of 1986.
6 ALLETE 2000 ESOP Form 11-K
NOTE 4 - INVESTMENTS
NUMBER OF
ALLETE COMMON STOCK SHARES COST MARKET
-------------------------------------------------------------------------------------------------
Thousands
December 31, 2000 Allocated 3,865 $34,070 $ 95,896
Unallocated 4,214 62,784 104,565
-------------------------------------------------------------------------------------------------
8,079 $96,854 $200,461
-------------------------------------------------------------------------------------------------
December 31, 1999 Allocated 3,763 $32,868 $ 63,738
Unallocated 4,474 64,450 75,774
-------------------------------------------------------------------------------------------------
8,237 $97,318 $139,512
-------------------------------------------------------------------------------------------------
NOTE 5 - REPAYMENT OF LOANS
The ESOP 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 ESOP. The shares of
Common Stock acquired by the ESOP Trustee are held in the First Suspense Account
and Second Suspense Account, and allocated to the accounts of ESOP participants
as the First Loan and Second Loan are repaid. Under current tax law, the
Companies expect to realize tax savings from the two transactions.
The First Loan was obtained from a third party lender and is guaranteed
by ALLETE with 372,086 unallocated shares of Common Stock pledged as collateral
at December 31, 2000. The lender has no rights against shares once they are
allocated under the ESOP.
PRINCIPAL PAYMENTS
$16.5 MILLION 9.125% LOAN
-----------------------------
Thousands
2001 $1,708
2002 1,969
2003 2,259
2004 1,540
-----------------------------
$7,476
-----------------------------
The Second Loan was obtained from ALLETE. There were 3,842,040
unallocated shares of Common Stock pledged as collateral at December 31, 2000.
Prepayments can be made without penalty. The lender has no rights against shares
once they are allocated under the ESOP.
PRINCIPAL PAYMENTS
$75 MILLION 10.25% LOAN
-----------------------------
Thousands
2011 $ 9,923
2012 15,000
2013 15,000
2014 15,000
2015 15,000
-----------------------------
$69,923
-----------------------------
ALLETE 2000 ESOP Form 11-K 7
SCHEDULE I
MINNESOTA POWER AND AFFILIATED COMPANIES
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
AS OF DECEMBER 31, 2000
Thousands
(a) (b) (c) (d) (e)
FAIR/
DESCRIPTION OF CONTRACT
IDENTITY OF ISSUER INVESTMENT COST VALUE
---------------------------------------------------------------------------------------------------------------------
* ALLETE, Inc. Common Stock - 8,079 Shares $96,854 $200,461
---------------------------------------------------------------------------------------------------------------------
* Party-in-interest
SCHEDULE II
MINNESOTA POWER AND AFFILIATED COMPANIES
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
SCHEDULE OF REPORTABLE TRANSACTIONS
IN EXCESS OF 5% OF FAIR VALUE OF PLAN ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2000
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 $3,632 - - - - $3,632 -
ALLETE, Inc. Common
Stock - $3,696 - - $3,696 $3,696 -
---------------------------------------------------------------------------------------------------------------------
8 ALLETE 2000 ESOP 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
Employee Stock Ownership Plan
and Trust
-------------------------------------------
(Name of Plan)
June 13, 2001 By R.D. Edwards
-------------------------------------------
R.D. Edwards
Chairman,
Employee Benefit Plans Committee
ALLETE 2000 ESOP Form 11-K 9