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, 2001
or
/ / Transition Report Pursuant to Section 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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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, 2001 and 2000 2
Statement of Changes in Net Assets Available for Benefits -
Year Ended December 31, 2001 and 2000 3
Notes to Financial Statements 4
Supplemental Schedules
Schedule I: Schedule of Assets (Held at End of Year) -
December 31, 2001 9
Schedule II: Schedule of Reportable Transactions in
Excess of 5% of Fair Value of Plan Assets -
Year Ended December 31, 2001 9
Signatures 10
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, 2001 and 2000, and the changes in net
assets available for benefits for the years then 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) - December 31, 2001 and Schedule of Reportable
Transactions - Year Ended December 31, 2001, 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
May 31, 2002
ALLETE 2001 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,
2001 2000
-----------------------------------------------------------------------------------------------------------------
ASSETS
Investment in ALLETE, Inc. Common Stock $ 198,472 $ 200,461
Contributions Receivable from Company 804 1,095
Cash and Cash Equivalents 1,613 435
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200,889 201,991
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LIABILITIES
Accrued Interest Expense 2,389 1,095
Long-Term Debt 75,692 77,399
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78,081 78,494
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NET ASSETS AVAILABLE FOR BENEFITS $ 122,808 $ 123,497
-----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
2 ALLETE 2001 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,
2001 2000
------------------------------------------------------------------------------------------------------------------
ADDITIONS
Dividend Income $ 8,548 $ 8,722
Company Contributions 1,578 1,669
Net Appreciation in Fair Value of Investments 3,037 63,597
Interest Income 27 44
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13,190 74,032
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DEDUCTIONS
Participants' Withdrawals 5,268 3,380
Transfers to Pension Plan 740 308
Interest Expense 7,850 7,984
Administrative Expenses 21 4
------------------------------------------------------------------------------------------------------------------
13,879 11,676
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NET (DECREASE) INCREASE (689) 62,356
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of Year 123,497 61,141
------------------------------------------------------------------------------------------------------------------
End of Year $ 122,808 $ 123,497
------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
ALLETE 2001 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 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, 2001 there were 1,754 participants in the ESOP.
Participating affiliated companies (collectively, the Companies) include:
- ALLETE, Inc. (ALLETE)
- Minnesota Power (an operating division of ALLETE)
- Superior Water, Light and Power Company
- Minnesota Power Telecom, Inc. (now Enventis Telecom, Inc.)
- Electric Outlet, Inc. which was doing business as Electric Odyssey
- MP Affiliate Resources, Inc.
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
various ESOP accounts based on the applicable allocation methods as defined in
the Plan and summarized below. Shares of Common Stock are also allocated to
participants' ESOP accounts for reinvested dividends paid on the shares in the
First Suspense Account.
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. Shares of Common Stock are also allocated to participants' ESOP accounts
for reinvested dividends paid on the shares in the Second Suspense Account.
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.
Every December participants are required to make an election to receive
dividends on shares in their Pre-1989 Basic Account either in cash or reinvest
them in Common Stock held in the ESOP. Dividends on all other shares within a
participant's Basic Account are automatically reinvested in Common Stock held in
the ESOP. Shares within a participant's Pre-1989 Basic Account can be withdrawn
at any
4 ALLETE 2001 ESOP Form 11-K
time, while all other shares within a participant's Basic Account can be
withdrawn when the participant terminates employment.
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. Dividends on these shares are
automatically reinvested in Common Stock held in the ESOP. Shares within the
participant's Special Account can be withdrawn when the participant terminates
employment.
PARTNERSHIP ACCOUNT
Since 1989 ALLETE has been making partnership allocations to each
nonunion participant's Partnership 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 Partnership Account is
less than 2 percent of the participant's annual compensation, the Companies will
contribute additional shares to make up the difference. Dividends on these
shares are automatically reinvested in Common Stock held in the ESOP. Shares for
partnership allocations are included in each participant's Partnership Account
and will come from the First and Second Loan Suspense Accounts, as determined by
ALLETE. Except as provided in (1) and (2), distributions from a participant's
Partnership Account may not occur earlier than the fifth annual anniversary of
the participant's termination of employment. However,
(1) If the termination of employment occurred after the participant
attained the age of 65 with five or more years of continuous
service, or due to the participant's death or total disability, the
Partnership Account may be distributed immediately.
(2) If the termination of employment occurred after the participant
completed ten or more years of continuous services, the Partnership
Account may be distributed at any time after the participant attains
age 50.
BARGAINING UNIT ACCOUNT
Effective April 1, 2001 ALLETE began making quarterly non-elective
allocations to the ESOP equal to 0.75 percent of each union participant's
compensation. Shares for bargaining unit allocations are included in each union
participant's Bargaining Unit Account and will come from the First and Second
Loan Suspense Accounts, as determined by ALLETE. Prior to April 1, 2001 the
non-elective contributions equal to 0.75 percent of each union participant's
compensation, were made to the participant's 401(k) before-tax account.
Dividends on these shares are automatically reinvested in Common Stock held in
the ESOP. Shares within the participant's Bargaining Unit Account can be
withdrawn when the participant terminates employment.
MATCHING ACCOUNT
Effective July 1, 2001 ALLETE began making quarterly matching
allocations to the ESOP 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 (6 percent for Electric
Outlet, Inc. employees; 8 percent for Enventis Telecom, Inc. employees). Shares
for matching allocations are included in each participant's Matching Account and
will come from the First and Second Loan Suspense Accounts, as determined by
ALLETE. Dividends on these shares are automatically reinvested in Common Stock
held in the ESOP. Shares within the participant's Matching Account can be
withdrawn when the participant terminates employment.
ALLETE 2001 ESOP Form 11-K 5
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 amount of their
ESOP 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.
VESTING AND FORFEITED ACCOUNTS
At June 30, 2001 forfeited nonvested accounts totaled $32,526. These
accounts were used to reduce Plan expenses in 2002. Effective July 1, 2001 all
participant accounts are fully vested and nonforfeitable regardless of the
participant's length of service. At December 31, 2000 there were no forfeited
nonvested accounts.
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 12 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, 2002 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
Chief Executive Officer - Minnesota Power
Roger P. Engle Vice President - Minnesota Power and
President and Chief Operating Officer - Superior Water,
Light and Power Company
Brenda J. Flayton Vice President - Human Resources
Philip R. Halverson Vice President, General Counsel and Secretary
Alan R. Hodnik General Manager - Thermal Generation Operations -
Minnesota Power
David J. McMillan Senior Vice President -
Strategic Accounts and Government Relations -
Minnesota Power
Patrick K. Mullen Vice President - Minnesota Power
Mark A. Schober Vice President and Controller
Claudia R. Scott Welty Vice President - Information Technology
Donald J. Shippar President and Chief Operating Officer - Minnesota Power
Jeweleon W. Tuominen Manager - Executive Compensation and Employee Benefits
James K. Vizanko Vice President, Chief Financial Officer and Treasurer
--------------------------------------------------------------------------------
* Committee Chairman
6 ALLETE 2001 ESOP Form 11-K
For 2001 Mellon Bank N.A. (Mellon Bank) acted 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 carried blanket
bond insurance in the amount of $100 million. ALLETE maintained the
participants' records and issued 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.
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. As required by the Internal
Revenue Service, on February 28, 2002 the Committee filed an application for a
determination letter from the Internal Revenue Service to be effective July 1,
2001 for the changes made to the ESOP in subsequent years. Management believes
that the ESOP is in compliance with the Code, therefore no provision for income
taxes has been included in the ESOP's financial statements.
NOTE 4 - INVESTMENTS
NUMBER OF
ALLETE COMMON STOCK SHARES COST MARKET
-------------------------------------------------------------------------------------------------
Thousands
December 31, 2001 Allocated 3,895 $ 48,939 $ 98,161
Unallocated 3,981 43,106 100,311
-------------------------------------------------------------------------------------------------
7,876 $ 92,045 $ 198,472
-------------------------------------------------------------------------------------------------
December 31, 2000 Allocated 3,865 $ 48,137 $ 95,896
Unallocated 4,214 48,717 104,565
-------------------------------------------------------------------------------------------------
8,079 $ 96,854 $ 200,461
-------------------------------------------------------------------------------------------------
ALLETE 2001 ESOP Form 11-K 7
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 275,126 unallocated shares of Common Stock in the ESOP pledged as
collateral at December 31, 2001. The lender has no rights against shares once
they are allocated under the ESOP.
PRINCIPAL PAYMENTS
$16.5 MILLION 9.125% LOAN
-----------------------------------
Thousands
2002 $ 1,969
2003 2,259
2004 1,540
-----------------------------------
$ 5,768
-----------------------------------
The Second Loan was obtained from ALLETE. There were 3,705,476
unallocated shares of Common Stock in the ESOP pledged as collateral at December
31, 2001. 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 $ 9,924
2012 15,000
2013 15,000
2014 15,000
2015 15,000
-----------------------------------
$ 69,924
-----------------------------------
NOTE 6 - SUBSEQUENT EVENT
Effective January 1, 2002 the ESOP and the Minnesota Power and
Affiliated Companies Supplemental Retirement Plan (SRP) were merged into one
plan called the Minnesota Power and Affiliated Companies Retirement Savings and
Stock Ownership Plan (RSOP). Under the RSOP, participants have the same benefits
as provided under the ESOP and the SRP. The RSOP provides participating
employees an opportunity to save for retirement by electing to make before-tax
and after-tax contributions through payroll deduction. It also provides an
opportunity to participate directly in ALLETE's financial results through
ownership of ALLETE Common Stock. Effective with the merging of the two plans
American Express Retirement Services, a service group of American Express
Financial Advisors Inc., and American Express Trust Company became the new
service provider for the RSOP. American Express Trust Company, which is located
at 994 AXP Financial Center, Minneapolis, Minnesota, 55474-0507, acts as the
trustee for the RSOP.
8 ALLETE 2001 ESOP Form 11-K
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, 2001
Thousands
(a) (b) (c) (d) (e)
FAIR/
DESCRIPTION OF CONTRACT
IDENTITY OF ISSUER INVESTMENT COST VALUE
-------------------------------------------------------------------------------------------------------------------
* ALLETE, Inc. Common Stock - 7,876 Shares $92,045 $198,472
-------------------------------------------------------------------------------------------------------------------
* 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, 2001
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 $4,143 - - - - $4,143 -
ALLETE, Inc. Common
Stock - $4,568 - - $4,568 $4,568 -
-------------------------------------------------------------------------------------------------------------------
ALLETE 2001 ESOP Form 11-K 9
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 4, 2002 By R.D. Edwards
----------------------------------------------
R.D. Edwards
Chairman,
Employee Benefit Plans Committee
10 ALLETE 2001 ESOP Form 11-K