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, 2002
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
(Formerly Minnesota Power and Affiliated Companies
Supplemental Retirement 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 Accountants 1
Statement of Net Assets Available for Benefits -
December 31, 2002 and 2001 2
Statement of Changes in Net Assets Available for Benefits -
Year Ended December 31, 2002 3
Notes to Financial Statements 4
Supplemental Schedules
Schedule I: Schedule of Assets (Held at End of Year) -
December 31, 2002 11
Schedule II: Schedule of Reportable Transactions in
Excess of 5% of Fair Value of
Plan Assets - Year Ended
December 31, 2002 12
Signatures 13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Administrator of the
Minnesota Power and Affiliated Companies
Retirement Savings and Stock Ownership Plan
In our opinion, the accompanying statements 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, 2002 and 2001, and the changes in
net assets available for benefits for the year ended December 31, 2002 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, 2002 and Schedule of Reportable
Transactions - Year Ended December 31, 2002, 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.
As described in Note 1, effective January 1, 2002 the Minnesota Power and
Affiliated Companies Employee Stock Ownership Plan merged into the Minnesota
Power and Affiliated Companies Supplemental Retirement Plan, which was then
renamed the Minnesota Power and Affiliated Companies Retirement Savings and
Stock Ownership Plan.
PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
June 19, 2003
ALLETE 2002 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,
2002 2001
--------------------------------------------------------------------------------------------
ASSETS
Investments
Participant Funds $193,078 $109,330
Unallocated Funds 83,958 -
Contributions Receivable
Participant 291 274
Employer 715 -
Cash and Cash Equivalents 2,771 2,511
--------------------------------------------------------------------------------------------
280,813 112,115
--------------------------------------------------------------------------------------------
LIABILITIES
Accrued Interest 2,389 -
Long-Term Debt 73,441 -
--------------------------------------------------------------------------------------------
75,830 -
--------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS $204,983 $112,115
--------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
2 ALLETE 2002 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, 2002
-------------------------------------------------------
PARTICIPANT UNALLOCATED
FUNDS FUNDS TOTAL
--------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME (LOSS)
Dividend Income $ 5,806 $ 4,361 $ 10,167
Interest Income 325 8 333
Net Depreciation in Fair Value of Investments (21,581) (9,504) (31,085)
--------------------------------------------------------------------------------------------------------------------
(15,450) (5,135) (20,585)
--------------------------------------------------------------------------------------------------------------------
CONTRIBUTIONS
Participant 8,703 - 8,703
Employer - 2,154 2,154
Rollover 861 - 861
--------------------------------------------------------------------------------------------------------------------
9,564 2,154 11,718
--------------------------------------------------------------------------------------------------------------------
TRANSFER IN OF ESOP NET ASSETS 98,161 24,647 122,808
TRANSFERS TO RETIREMENT PLANS (2,261) - (2,261)
PARTICIPANTS' WITHDRAWALS (11,154) - (11,154)
ALLOCATIONS TO PARTICIPANTS 3,078 (3,078) 0
INTEREST EXPENSE - (7,538) (7,538)
ADMINISTRATIVE EXPENSE - (120) (120)
--------------------------------------------------------------------------------------------------------------------
NET INCREASE 81,938 10,930 92,868
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of Year 112,115 - 112,115
--------------------------------------------------------------------------------------------------------------------
End of Year $194,053 $10,930 $204,983
--------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
ALLETE 2002 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
Effective January 1, 2002 the Minnesota Power and Affiliated Companies
Supplemental Retirement Plan (SRP) and the Minnesota Power and Affiliated
Companies Employee Stock Ownership Plan (ESOP) were merged into one plan called
the Minnesota Power and Affiliated Companies Retirement Savings and Stock
Ownership Plan (RSOP or Plan) with the surviving plan being the plan that was
previously named the SRP. The RSOP is a 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. At December 31, 2002
there were 1,981 participants in the RSOP. Participating affiliated companies
(collectively, the Companies) include:
- ALLETE, Inc. (ALLETE)
- Minnesota Power (an operating division of ALLETE)
- Superior Water, Light and Power Company
- Enventis Telecom, Inc.
- Electric Outlet, Inc. which was doing business as Electric Odyssey
- MP Affiliate Resources, Inc.
Under the RSOP, participants have the same benefits as were provided under the
SRP and the ESOP. 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 Plan's 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. Prior to the merger
of the SRP and the ESOP, unallocated shares were held in the ESOP.
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 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 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
rules and regulations 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.
4 ALLETE 2002 RSOP Form 11-K
Effective with the merger of the SRP and the ESOP, American Express Retirement
Services, a service group of American Express Financial Advisors Inc., and
American Express Trust Company (collectively, American Express) became the new
service provider for the Plan handling participant recordkeeping and certain
other administrative responsibilities which formerly were handled by Minnesota
Power's Benefits Accounting and Administration Department. The move to 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.
PARTICIPANT INVESTMENT OPTIONS
The Plan's 401(k) investment fund options at December 31, 2002 are listed below.
Detailed descriptions of the investment options and risk profiles are available
in the corresponding fund's prospectus.
- ALLETE Stock Fund
- Alliance Growth and Income
- 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 II
- The Artisan International Fund
- AXP New Dimension 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. The ALLETE RSOP Stock Fund represents and refers to
the assets previously held in the ESOP. These benefits are primarily funded by
two loans (see First Suspense Account and Second Suspense Account). Shares of
Common Stock are allocated to eligible employees as allowed 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. The price per unit was established on February 1, 2002 at $10.
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 dollars to other 401(k) investments options at any time.
ALLETE 2002 RSOP Form 11-K 5
FIRST SUSPENSE ACCOUNT. In 1989 the former ESOP was amended to enable the
trustee at the time 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 by the trustee 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, 2002 the interest
rate was 3.15%. 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.
SECOND SUSPENSE ACCOUNT. The former ESOP was again amended in 1990 to enable the
trustee at the time 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
held in the ESOP 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.
Starting in 2002 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 (6 percent for Electric Outlet, Inc.
employees; 8 percent for Enventis Telecom, Inc. employees).
6 ALLETE 2002 RSOP Form 11-K
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 2002 could not
exceed $11,000 for participants less than age 50 or $12,000 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)
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.
- 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. Expenses incurred in the
management and administration of the Plan, including expenses incurred by the
Trustee in the performance of its services, may be paid or reimbursed from the
Plan's assets to the extent not paid by the Companies. 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.
VESTING AND FORFEITURE ACCOUNT
As of July 1, 2001 all contributions plus actual earnings thereon are fully
vested and nonforfeitable. A forfeiture account consisting of previously
forfeited nonvested accounts totaled $114,000 at December 31, 2002 ($30,000 at
December 31, 2001). The Plan received forfeited dollars totaling $165,000 from
the ESOP at the merger date. Dollars from the forfeiture account will be used to
reduce future Plan expenses.
ALLETE 2002 RSOP Form 11-K 7
DISTRIBUTIONS AND WITHDRAWALS
A participant may elect at any time to receive in cash the 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 $2,261,000 for 2002.
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 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.
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. 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
investment 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.
8 ALLETE 2002 RSOP Form 11-K
NOTE 3 - INVESTMENTS
DECEMBER 31,
--------------------------------------------------------
2002 2001
----------------------- -----------------------
FAIR/ FAIR/
INVESTMENTS REPRESENTING NET ASSET NET ASSET
5 PERCENT OR MORE OF ASSETS SHARES VALUE SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
Thousands
ALLETE Stock Fund 901 $ 20,443 963 $ 24,262
ALLETE RSOP Stock Fund 7,505 170,217 - -
American Express Trust Income Fund I - - 303 17,577
American Express Trust Income Fund II 1,200 27,526 - -
Fidelity Magellan Fund 156 12,354 166 17,259
Vanguard Institutional Index Fund 140 11,255 138 14,442
Janus Balanced Fund 609 10,890 577 11,321
The Meridian Value Fund - - 199 6,461
BlackRock Small Cap Growth Equity Portfolio - - 467 6,173
Other Investments - 24,351 - 11,835
-------------------------------------------------------------------------------------------------------------------
$277,036 $109,330
-------------------------------------------------------------------------------------------------------------------
Party in Interest
As of December 31, 2002 no guaranteed investment contracts remained in the Plan
and therefore there are no reserves against the contract value for credit risk
of the contract issuer or otherwise. The Plan's assets during 2002 and 2001
included guaranteed investment contracts with crediting interest rates ranging
from 5.88 percent to 6.67 percent. The crediting interest rate was agreed upon
with the issuer upon initiation of the contract. The contract that expired in
2002 had a yield of 5.88 percent. Outstanding contracts at December 31, 2001 had
an aggregate contract value of $2,404,000 with an average yield of 7.84 percent.
NUMBER OF FAIR
ALLETE RSOP STOCK FUND SHARES COST VALUE
-------------------------------------------------------------------------------------------------------------------
Thousands
December 31, 2002 Allocated 3,803 $41,924 $ 86,259
Unallocated 3,702 48,711 83,958
-------------------------------------------------------------------------------------------------------------------
7,505 $90,635 $170,217
-------------------------------------------------------------------------------------------------------------------
For the ALLETE Stock Fund and the ALLETE RSOP Stock Fund, each participant's
account value is determined on a unit basis. The price per unit was established
on February 1, 2002 at $10. The unit value is adjusted each business day to
reflect investment results including cash. At December 31, 2002 the ALLETE Stock
Fund consisted of 2,456,655 units with a net value of $20,889,000 ($20,443,000
of Common Stock and $446,000 of cash). At December 31, 2002 the ALLETE RSOP
Stock Fund consisted of 9,553,077 units with a net value of $86,741,000
($86,259,000 of Common Stock and $482,000 of cash).
ALLETE 2002 RSOP Form 11-K 9
NOTE 4 - FEDERAL INCOME TAX STATUS
As required by the Internal Revenue Service (IRS), the Committee will file by
September 15, 2003, an application for a determination letter from the IRS to be
effective January 1, 2002 for the RSOP.
A favorable determination letter dated July 26, 2002 was obtained from the IRS
stating that the ESOP, as amended and restated effective July 1, 2001, qualified
as an employee stock ownership plan under Section 401(a) of the Internal Revenue
Code of 1986 (Code).
A favorable determination letter dated June 4, 2003 was obtained from the IRS
stating that the SRP, as amended and restated effective January 1, 2001,
qualified as a profit sharing plan under Section 401(a) of the Code.
The Committee believes that the Plan is currently designed and is 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.
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 165,579 unallocated shares of Common Stock in the Plan pledged as
collateral at December 31, 2002. The lender has no rights against shares that
are allocated under the Plan.
PRINCIPAL PAYMENTS
$16.5 MILLION
VARIABLE RATE LOAN
-----------------------------------
Thousands
2003 $2,259
2004 1,364
-----------------------------------
$3,623
-----------------------------------
The Second Loan was obtained from ALLETE. There were 3,536,277 unallocated
shares of Common Stock in the Plan pledged as collateral at December 31, 2002.
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
-----------------------------------
10 ALLETE 2002 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, 2002
Thousands
(a) (b) (c) (d) (e)
FAIR/
DESCRIPTION OF NET ASSET
IDENTITY OF ISSUER INVESTMENT COST VALUE
----------------------------------------------------------------------------------------------------------------------
COMMON STOCK
* ALLETE, Inc. - RSOP Stock Fund Common Stock - 7,505 Shares $90,635 $170,217
* ALLETE, Inc. - Stock Fund Common Stock - 901 Shares 20,443
Allegheny Energy, Inc. Common Stock - 1 Shares 8
AT&T Wireless Services, Inc. Common Stock - 0.5 Shares 3
Calpine Corporation Common Stock - 0.3 Shares 1
E*Trade Group, Inc. Common Stock - 1 Shares 5
Peregrine Pharmaceuticals, Inc. Common Stock - 52 Shares 40
Reliant Resources, Inc. Common Stock - 3 Shares 10
Scientific-Atlanta, Inc. Common Stock - 0.2 Shares 2
Target Corporation Common Stock - 0.3 Shares 10
Xcel Energy Inc. Common Stock - 1 Shares 11
----------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK 190,750
----------------------------------------------------------------------------------------------------------------------
COLLECTIVE FUND SECURITIES
* American Express Trust Bond Index Fund II Collective Fund - 143 Shares 1,888
* American Express Trust Income Fund II Collective Fund - 1,200 Shares 27,526
* American Express Trust Small Cap Equity Index II Collective Fund - 25 Shares 285
* American Express Trust Emerging Growth Fund II Collective Fund - 336 Shares 4,951
----------------------------------------------------------------------------------------------------------------------
TOTAL COLLECTIVE FUND SECURITIES 34,650
----------------------------------------------------------------------------------------------------------------------
MUTUAL FUND SECURITIES
Alliance Growth and Income Fund Mutual Fund - 215 Shares 562
Artisan International Fund Mutual Fund - 165 Shares 2,447
AXP New Dimension Fund Mutual Fund - 16 Shares 314
Berger Mid Cap Value Fund Mutual Fund - 0.6 Shares 9
Bjurman, Barry Micro-Cap Growth Fund Mutual Fund - 0.5 Shares 10
Fidelity Magellan Fund Mutual Fund - 156 Shares 12,354
FMI Focus Fund Mutual Fund - 0.5 Shares 11
Janus Balanced Fund Mutual Fund - 609 Shares 10,890
MEVC Draper Fisher Jurvetson Fund I, Inc. Mutual Fund - 0.5 Shares 4
Oakmark Equity and Income Fund Mutual Fund - 1 Shares 20
Oppenheimer Developing Markets Fund Mutual Fund - 152 Shares 1,952
Royce Low-Priced Stock Fund Mutual Fund - 643 Shares 176
Templeton Foreign Fund Mutual Fund - 21 Shares 6,269
The Merger Fund Mutual Fund - 0.1 Shares 2
Vanguard Institutional Index Fund Mutual Fund - 140 Shares 11,255
Vanguard Mid-Cap Index Fund Mutual Fund - 314 Shares 3,098
----------------------------------------------------------------------------------------------------------------------
TOTAL MUTUAL FUND SECURITIES 49,373
----------------------------------------------------------------------------------------------------------------------
* PARTICIPANT LOANS Loans Receivable from
Participants - 5.25% to 10.5% 2,263
----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $277,036
----------------------------------------------------------------------------------------------------------------------
* Party in Interest
-------------------------
Not required for participant directed transactions.
ALLETE 2002 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, 2002
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 $7,186 - - - - $7,186 -
ALLETE, Inc. Common
Stock - $14,726 - - $6,274 $14,726 $8,452
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Party in Interest
12 ALLETE 2002 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
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(Name of Plan)
June 20, 2003 By Donald J. Shippar
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Donald J. Shippar
Chairman, Employee Benefit Plans Committee
ALLETE 2002 RSOP Form 11-K 13
INDEX TO EXHIBITS
EXHIBIT
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a - Consent of Independent Accountants
ALLETE 2002 RSOP Form 11-K
EXHIBIT a
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-26755) of ALLETE, Inc. of our report dated June
19, 2003 relating to the financial statements of the Minnesota Power and
Affiliated Companies Retirement Savings and Stock Ownership Plan (formerly the
Minnesota Power and Affiliated Companies Supplemental Retirement Plan), which
appears in this Form 11-K.
PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
June 20, 2003