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, 2006
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
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 2
Statement of Net Assets Available for Benefits -
December 31, 2006 and 2005 3
Statement of Changes in Net Assets Available for Benefits -
Year Ended December 31, 2006 4
Notes to Financial Statements 5
Schedule I: Schedule of Assets (Held at End of Year) -
December 31, 2006 12
Signatures 13
Note: Other schedules required by 29 CFR 2520.103.10 of the U.S. Department
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.
1 ALLETE 2006 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
We have audited the accompanying Statement of Net Assets Available for Benefits
of the Minnesota Power and Affiliated Companies Retirement Savings and Stock
Ownership Plan (the "Plan") as of December 31, 2006 and 2005, and the related
statement of changes in net assets available for benefits for the year ended
December 31, 2006. 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 audit.
We conducted our audit of these statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States). 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. An audit also includes 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2006 and 2005, and the changes in its net assets available for
benefits for the year ended December 31, 2006, in conformity with accounting
principles generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule, Schedule of
Assets (Held at End of Year) - December 31, 2006, is presented for the purpose
of additional analysis and is not a required part of the basic financial
statements but is 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. This supplemental schedule is the
responsibility of the Plan's management. The supplemental schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ Reilly, Penner & Benton LLP
Milwaukee, Wisconsin
June 15, 2007
ALLETE 2006 RSOP Form 11-K 2
MINNESOTA POWER AND AFFILIATED COMPANIES
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
Thousands
DECEMBER 31,
2006 2005
------------------------------------------------------------------------------------------------------------------
ASSETS
Investments
Participant Funds $314,595 $288,352
Unallocated Funds 117,217 116,402
------------------------------------------------------------------------------------------------------------------
431,812 404,754
------------------------------------------------------------------------------------------------------------------
Contributions Receivable
Participant 214 207
Employer 1,087 946
------------------------------------------------------------------------------------------------------------------
1,301 1,153
------------------------------------------------------------------------------------------------------------------
Cash 1 1
------------------------------------------------------------------------------------------------------------------
433,114 405,908
------------------------------------------------------------------------------------------------------------------
LIABILITIES
Accrued Interest 1,398 2,387
Accrued Administrative Expenses - 124
Long-Term Debt 69,818 69,818
------------------------------------------------------------------------------------------------------------------
71,216 72,329
------------------------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS $361,898 $333,579
------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
3 ALLETE 2006 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, 2006
----------------------------------------------------
PARTICIPANT UNALLOCATED
FUNDS FUNDS TOTAL
------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend Income $ 11,382 $ 3,754 $ 15,136
Interest Income 196 - 196
Net Appreciation in Fair Value of Investments 20,777 6,649 27,426
Other 506 - 506
------------------------------------------------------------------------------------------------------------------
32,861 10,403 43,264
------------------------------------------------------------------------------------------------------------------
CONTRIBUTIONS
Participant 8,132 - 8,132
Employer - 1,764 1,764
Rollover 542 - 542
------------------------------------------------------------------------------------------------------------------
8,674 1,764 10,438
------------------------------------------------------------------------------------------------------------------
DEDUCTIONS
Participants' Withdrawals (20,175) - (20,175)
Interest Expense - (5,459) (5,459)
Administrative Expenses (2) (18) (20)
Redemption Fees (8) - (8)
------------------------------------------------------------------------------------------------------------------
(20,185) (5,477) (25,662)
------------------------------------------------------------------------------------------------------------------
TRANSFERS AND ALLOCATIONS
Transfer in of Subsidiary Net Assets 5,860 - 5,860
Transfers to Retirement Plans (5,581) - (5,581)
Allocations to Participants 4,640 (4,640) -
------------------------------------------------------------------------------------------------------------------
4,919 (4,640) 279
------------------------------------------------------------------------------------------------------------------
NET INCREASE 26,269 2,050 28,319
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of Year 287,111 46,468 333,579
------------------------------------------------------------------------------------------------------------------
End of Year $313,380 $48,518 $361,898
------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
ALLETE 2006 RSOP Form 11-K 4
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(ERISA), as amended, and qualifies as an employee stock ownership plan and
profit sharing plan. At December 31, 2006, there were 1,892 participants in the
RSOP. Participating affiliated companies (collectively, the Companies) at
December 31, 2006, included:
- ALLETE, Inc. (ALLETE or Company)
- Minnesota Power (an operating division of ALLETE)
- Superior Water, Light and Power Company
- MP Affiliate Resources, Inc.
Effective October 30, 2006, assets held in the Florida Water Services
Corporation Contributory Profit Sharing Plan were merged with the RSOP. Florida
Water Services Corporation, a wholly owned subsidiary of ALLETE, discontinued
its operations in 2004.
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 to be allocated to the participants in the ALLETE
RSOP Stock Fund in the future.
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 are all employees of the Companies and receive no compensation for
their services with respect to the Plan.
Committee responsibilities include determining 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 deems 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. The Companies or the
Plan pays administration fees and expenses of agents, outside experts,
consultants and investment managers. The Plan charges participants who take
participant loans or use the Plan's self-managed brokerage account feature for
expenses relating to such loans or accounts.
5 ALLETE 2006 RSOP Form 11-K
NOTE 1 - DESCRIPTION OF THE PLAN (CONTINUED)
Wachovia Retirement Services (Wachovia) a service group of Wachovia Corporation
and Wachovia Bank, National Association, is the service provider for the Plan
and handles participant recordkeeping, asset custody, trustee and certain other
administrative responsibilities. Wachovia allows the Plan to value accounts
daily and provides participants with on-line capability to direct the investment
of their account balances. Wachovia Bank, N.A. (Trustee), which is located at
1525 West W.T. Harris Boulevard, Charlotte, North Carolina 28262-8522 is the
trustee for the Plan. The Trustee carries $20 million of blanket bond insurance
and $20 million of professional liability insurance.
On June 1, 2006, Wachovia Bank, N.A. purchased the defined contribution
recordkeeping business of Ameriprise Financial, Inc., the parent company of
Ameriprise Financial Services, Inc. and Ameriprise Trust Company. Ameriprise
Retirement Services, a service group of Ameriprise Financial Services, Inc. and
Ameriprise Trust Company, was the service provider for the Plan, and Ameriprise
Trust Company was the trustee for the Plan. Ameriprise continued to provide
recordkeeping and directed trustee services for the Plan until April 1, 2007,
when the transition to Wachovia was completed.
PARTICIPANT INVESTMENT OPTIONS
The Plan's 401(k) investment fund options at December 31, 2006, are listed
below. Detailed descriptions of the investment options and risk profiles are
available in the corresponding fund's prospectus.
- ALLETE Stock Fund
- RiverSource Trust Bond Index Fund II
- RiverSource Trust Income Fund II
- RiverSource Trust Small Cap Equity Index Fund II
- Artisan International Fund
- Dodge & Cox Stock Fund
- Dodge & Cox International Fund
- HighMark Small Cap Value Fund
- MainStay Large Cap Growth Fund
- The Oakmark Equity and Income Fund
- Oppenheimer Developing Markets Fund
- Vanguard Institutional Index Fund
- Vanguard Mid-Cap Index Fund
- William Blair Small Cap Growth Fund
Participants may also establish a self-managed brokerage account, which allows
the participant to make investments in or transfers to a wide range of
securities, including publicly traded stocks, bonds and mutual funds.
Participants who have a self-managed 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
elections for future contributions and make transfers between investment options
at any time by contacting Wachovia.
FUND TRANSFER RESTRICTIONS. In 2006, the Vanguard Mid-Cap Index Fund and the
Vanguard Institutional Index Fund began restricting participants from purchasing
shares in these funds for a period of 60 days from the date the participants
transfer shares out of these funds.
REDEMPTION FEES. Certain mutual funds charge redemption fees that are paid out
of the participant's account. A redemption fee is charged when shares are
transferred or exchanged out of the fund before the fund's minimum holding
period has been met.
SUMMARY OF EFFECTIVE REDEMPTION MINIMUM
REDEMPTION FEES BY FUND DATE FEE HOLDING PERIOD
------------------------------------------------------------------------------------------------------------------
Artisan International Fund June 1, 2005 2% 90 days
Oppenheimer Developing Markets June 1, 2005 2% 30 days
William Blair Small Cap Growth Fund June 1, 2005 1% 60 days
------------------------------------------------------------------------------------------------------------------
ALLETE 2006 RSOP Form 11-K 6
NOTE 1 - DESCRIPTION OF THE PLAN (CONTINUED)
EMPLOYEE STOCK OWNERSHIP BENEFITS - ALLETE RSOP STOCK FUND
ALLETE sponsors a leveraged employee stock ownership plan (ESOP) within the
RSOP. 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 a loan (see Loan 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, Matching Account
and Results Sharing Account). The shares of Common Stock allocated to a
participant's ALLETE RSOP Stock Fund come from the Loan Account, 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.
Dividends are automatically reinvested in Common Stock held in the ALLETE RSOP
Stock Fund. However, participants may make an election, at any time, to receive
cash dividends paid on certain eligible shares. Units within a participant's
Basic Pre-1989 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 Basic
Pre-1989 Account, to other 401(k) investment options at any time. Effective
January 1, 2007, participants may transfer their Basic Pre-1989 Account to other
401(k) investment options at any time.
LOAN ACCOUNT. The RSOP was amended in 1990 to establish a leveraged Loan Account
and borrow $75 million (RSOP Loan) to acquire 2,830,188 newly issued shares of
Common Stock (1,886,792 shares adjusted for stock splits) from ALLETE for the
benefit of eligible participants. 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, a promissory note was issued to ALLETE for $75
million at a 10.25% interest rate with a term not to exceed 25 years. In 2006,
the RSOP loan was refinanced at a 6% interest rate. The Loan Account may also
provide for other allocation types as determined by the Company.
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 eligible shares in the Basic Account. Shares of Common
Stock purchased with these contributions were allocated to the participants'
Special Account.
PARTNERSHIP ACCOUNT. For the years 1989 through 2005, partnership allocations
were made to each nonunion participant's Partnership Account as a fixed
percentage of each eligible participant's annual salary, plus, to the extent of
any additional value to be allocated in the plan year, an amount based on the
ratio of the participant's annual compensation to the annual compensation of all
eligible participants. Shares credited to participants' Partnership Accounts as
a fixed-percentage partnership allocation for the years 1989 through 2001 had a
value equal to 2% of annual compensation; the fixed-percentage partnership
allocation for the years 2002 through 2005 and prorated for the period from
January 1 through September 30, 2006 was 3.5% of annual compensation. Since
October 1, 2006, the fixed-percentage partnership allocation to each nonunion
participant hired before October 1, 2006 has ranged from 6% to 12% of annual
compensation depending on the participant's age. The fixed-percentage
Partnership allocation to each nonunion participant hired on or after October 1,
2006 is 6% of annual compensation.
BARGAINING UNIT ACCOUNT. Quarterly non-elective allocations are made to the
ALLETE RSOP Stock Fund equal to 1% of each union participant's eligible
compensation.
7 ALLETE 2006 RSOP Form 11-K
NOTE 1 - DESCRIPTION OF THE PLAN (CONTINUED)
MATCHING ACCOUNT. For nonunion participants hired before October 1, 2006,
quarterly matching allocations were made to the ALLETE RSOP Stock Fund equal to
50% of each nonunion participant's 401(k) before-tax contributions, disregarding
contributions in excess of 4% of the participant's periodic pay for the period
through October 1, 2006. Thereafter, quarterly matching allocations are equal to
100% of each nonunion participant's 401(k) before-tax contributions and
effective January 1, 2007 Roth 401(k) contributions, disregarding contributions
in excess of 4% of the participant's periodic pay for the period.
For nonunion participants hired on or after October 1, 2006, quarterly matching
allocations are made to the ALLETE RSOP Stock Fund equal to 100% of each
nonunion participant's 401(k) before-tax contributions and effective January 1,
2007 Roth 401(k) contributions, disregarding contributions in excess of 5% of
the participant's periodic pay for the period.
RESULTS SHARING ACCOUNT. Beginning with the results sharing award earned for
2006, allocations are made to the ALLETE RSOP Stock Fund equal to 50% of each
nonunion and union participant's Results Sharing Award.
FLORIDA WATER ACCOUNT. Effective October 30, 2006, $5.8 million of assets held
in the Florida Water Services Corporation Contributory Profit Sharing Plan
(Florida Water Plan) were merged with the RSOP.
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 2006 could not
exceed $15,000 for participants less than age 50 or $20,000 for
participants at least age 50, as permitted under Section 401(k) of the
Internal Revenue Code (Code).
- 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 50 percent) of the Results Sharing
Award the participant irrevocably elects to forgo and that,
pursuant to the ALLETE Results Sharing Program, would otherwise be
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 may not exceed 25% of the participant's compensation in any
pay period.
- ROLLOVERS. Contributions by participants may also be made through
rollovers from other qualified plans or individual retirement accounts.
- ROTH 401(K) CONTRIBUTIONS. Participants may make the following types of
contributions to the Plan on an after-tax basis in the form of Roth
401(k) Contributions:
- ROTH SALARY REDUCTION CONTRIBUTIONS. Effective January 1, 2007,
salary reduction contributions are equal to an amount the
participant has elected to reduce his or her compensation pursuant
to a salary reduction agreement.
- ROTH RESULTS SHARING CONTRIBUTIONS. Beginning with the award earned
for 2007, results sharing contributions are equal to the portion
(up to 50%) of the Results Sharing Award the participant
irrevocably elects to forgo and that, pursuant to the ALLETE
Results Sharing Program, would otherwise be paid to the
participant.
Roth 401(k) contributions are in lieu of part or all of the before-tax
contributions participants are otherwise eligible to make.
ALLETE 2006 RSOP Form 11-K 8
NOTE 1 - DESCRIPTION OF THE PLAN (CONTINUED)
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. In 2005, the Plan was amended to allow distribution
checks issued and outstanding for more than 180 days (unclaimed benefits) to be
redeposited into the Plan and treated as forfeitures. The forfeiture account
consists of previously forfeited nonvested accounts and unclaimed benefits,
totaling $273,000 at December 31, 2006 ($30,000 at December 31, 2005) and is
invested in RiverSource Trust Income Fund II. Dollars from the forfeiture
account may be used to reduce future Plan expenses. The forfeiture account
increased in 2006 primarily due to the merger of the Florida Water Plan into the
RSOP.
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 Basic Pre-1989 or Basic
Post-1989 Account and ALLETE Stock Fund.
Prior to termination, participants 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 $5,581,294 for 2006.
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% of their total Plan balance, or (c) $50,000,
less the largest outstanding loan balance owed in the prior 12-month period. 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% 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
re-deposited 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 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
9 ALLETE 2006 RSOP Form 11-K
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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 on disposed
investments and the unrealized appreciation (depreciation) on those investments
owned at year end.
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.
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.
An application for a new determination letter for the RSOP, as amended and
restated effective January 1, 2007, was filed with the Internal Revenue Service
on January 31, 2007. 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.
NOTE 4 - INVESTMENTS
FAIR/NET ASSET VALUE OF INVESTMENTS
REPRESENTING 5% OR MORE OF ASSETS
AT DECEMBER 31, 2006 2005
-----------------------------------------------------------------------------------------------------------------------
Thousands
ALLETE RSOP Stock Fund $200,298 $198,783
RiverSource Trust Income Fund II $45,093 $44,356
ALLETE Stock Fund $28,308 $28,499
Vanguard Institution Index Fund $28,092 $26,446
The Oakmark Equity and Income Fund $21,430 $20,438
-----------------------------------------------------------------------------------------------------------------------
NUMBER OF FAIR
ALLETE RSOP STOCK FUND SHARES COST VALUE
-----------------------------------------------------------------------------------------------------------------------
Thousands
December 31, 2006 Allocated - Common Stock 1,766 $48,958 $82,184
Money Market 897 897
-----------------------------------------------------------------------------------------------------------------------
49,855 83,081
-----------------------------------------------------------------------------------------------------------------------
Unallocated - Common Stock 2,475 37,993 115,192
Money Market 2,025 2,025
-----------------------------------------------------------------------------------------------------------------------
40,018 117,217
-----------------------------------------------------------------------------------------------------------------------
$89,873 $200,298
-----------------------------------------------------------------------------------------------------------------------
December 31, 2005 Allocated - Common Stock 1,855 $48,615 $81,606
Money Market 775 775
-----------------------------------------------------------------------------------------------------------------------
49,390 82,381
-----------------------------------------------------------------------------------------------------------------------
Unallocated - Common Stock 2,612 40,103 114,952
Money Market 1,450 1,450
------------------------------------------------------------------------------------------------------------------------
41,553 116,402
-----------------------------------------------------------------------------------------------------------------------
$90,943 $198,783
-----------------------------------------------------------------------------------------------------------------------
ALLETE 2006 RSOP Form 11-K 10
NOTE 4 - INVESTMENTS (CONTINUED)
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 invested in a money market fund. The unit value is adjusted each
business day to reflect investment results including cash.
ALLETE STOCK FUND ALLETE RSOP STOCK FUND
--------------------------------------------------------------------------------
AT DECEMBER 31, 2006 2005 2006 2005
-----------------------------------------------------------------------------------------------------------------------
Thousands
Number of Units 4,834 5,139 13,348 13,996
Common Stock $28,167 $27,989 $82,184 $81,606
Money Market 141 510 897 775
-----------------------------------------------------------------------------------------------------------------------
Net Value $28,308 $28,499 $83,081 $82,381
-----------------------------------------------------------------------------------------------------------------------
NOTE 5 - REPAYMENT OF LOAN
The Trustee repays principal and interest on the RSOP Loan with dividends paid
on the shares of Common Stock in the Loan Account and with certain employer
contributions to the Plan. The shares of Common Stock acquired by the Trustee
are held in the Loan Account, and allocated to the accounts of Plan participants
as the RSOP Loan is repaid.
The RSOP Loan was obtained from ALLETE. There were 2,475,120 unallocated shares
of Common Stock in the Plan pledged as collateral at December 31, 2006.
Prepayments of principal can be made without penalty. The lender has no rights
to shares that are allocated under the Plan.
PRINCIPAL PAYMENTS
$70 MILLION 6% LOAN
----------------------------------
Thousands
2007 $ 1,700
2008 1,800
2009 1,900
2010 2,000
2011 2,100
2012 10,318
2013 12,500
2014 12,500
2015 12,500
2016 12,500
----------------------------------
$69,818
----------------------------------
NOTE 6 - DEPARTMENT OF LABOR EXAMINATION
In October 2005, the U.S. Department of Labor (DOL) began an examination of the
RSOP and in June 2006 the DOL advised the Company of its findings. In response
to the DOL's request, the Company and Trustee made several minor amendments to
the RSOP, promissory note and trust agreement. The Company reimbursed the
Trustee for administrative expenses in the amount of $2,371 including interest.
The Company believes that it has satisfied all of the DOL's requests.
11 ALLETE 2006 RSOP Form 11-K
SCHEDULE I
MINNESOTA POWER AND AFFILIATED COMPANIES
RETIREMENT SAVINGS AND STOCK OWNERSHIP PLAN
PLAN NUMBER 002 / EMPLOYER IDENTIFICATION NUMBER 41-0418150
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
FORM 5500 SCHEDULE H LINE 4I
AT DECEMBER 31, 2006
Thousands
(a) (b) (c) (d) (e)
DESCRIPTION OF CURRENT
IDENTITY OF ISSUER INVESTMENT COST VALUE
-----------------------------------------------------------------------------------------------------------------------
ALLETE RSOP STOCK FUND
* ALLETE, Inc. Common Stock - 4,241 Shares $86,951 $197,376
* RiverSource Money Market II Money Market 2,922 2,922
-----------------------------------------------------------------------------------------------------------------------
Total ALLETE RSOP Stock Fund $89,873 200,298
-----------------------------------------------------------------------------------------------------------------------
ALLETE STOCK FUND
* ALLETE, Inc. Common Stock - 606 Shares 28,167
RiverSource Money Market II Money Market 141
-----------------------------------------------------------------------------------------------------------------------
Total ALLETE Stock Fund 28,308
-----------------------------------------------------------------------------------------------------------------------
COLLECTIVE FUND SECURITIES
* RiverSource Trust Bond Index Fund II Collective Fund - 399 Shares 6,029
* RiverSource Trust Income Fund II Collective Fund - 1,692 Shares 45,093
* RiverSource Trust Small Cap Equity Index Fund II Collective Fund - 117 Shares 2,827
-----------------------------------------------------------------------------------------------------------------------
Total Collective Fund Securities 53,949
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MUTUAL FUND SECURITIES
Artisan International Fund Mutual Fund - 326 Shares 9,446
Dodge & Cox International Mutual Fund - 159 Shares 6,960
Dodge & Cox Stock Fund Mutual Fund - 112 Shares 17,112
Highmark Small Cap Value Fund Mutual Fund - 659 Shares 11,697
Mainstay Large Cap Growth Fund Mutual Fund - 673 Shares 3,977
The Oakmark Equity and Income Fund Mutual Fund - 828 Shares 21,430
Oppenheimer Developing Markets Fund Mutual Fund - 483 Shares 19,921
Vanguard Institutional Index Fund Mutual Fund - 217 Shares 28,092
Vanguard Mid-Cap - Institutional Fund Mutual Fund - 635 Shares 12,602
William Blair Small Cap Growth Fund Mutual Fund - 442 Shares 11,476
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Total Mutual Fund Securities 142,713
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SELF-MANAGED BROKERAGE ACCOUNTS 3,800
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* PARTICIPANT LOANS Loans Receivable from
Participants - 5% to 13.65% 2,744
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TOTAL INVESTMENTS $431,812
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* Party in Interest
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Not required for participant directed transactions.
ALLETE 2006 RSOP Form 11-K 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, ALLETE,
Inc., as plan administrator, 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
By: ALLETE, Inc., its Plan Administrator
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June 25, 2007 Donald J. Shippar
-------------------------------------------------
Donald J. Shippar
Chairman, President and Chief Executive Officer
13 ALLETE 2006 RSOP Form 11-K
INDEX TO EXHIBITS
EXHIBIT
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a - Consent of Independent Registered Public Accounting Firm
ALLETE 2006 RSOP Form 11-K
EXHIBIT a
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement (No.
333-124455) on Form S-8 of ALLETE, Inc. of our report dated June 15, 2007, with
respect to the statements of net assets available for benefits of the Minnesota
Power and Affiliated Companies Retirement Savings and Stock Ownership Plan for
the years ended December 31, 2006 and 2005, the related statements of changes in
net assets available for benefits for the year ended December 31, 2006, and the
related supplemental schedules as of December 31, 2006, which report appears in
the December 31, 2006, annual report on Form 11-K of the Minnesota Power and
Affiliated Companies Retirement Savings and Stock Ownership Plan.
Reilly, Penner & Benton LLP
Reilly, Penner & Benton LLP
Milwaukee, Wisconsin
June 15, 2007