Allete Jonathan A. Hill ACG2021 SECTION 008

1
AlleteJonathan A. HillACG2021 SECTION 008
2
Executive Summary

• Allete is returning to its core business
  (Energy). In the past 2 years Allete has been
  selling off its water businesses in Florida and
  is preparing to spin-off ADESA (Automotive
  services). Allete has been paying down its
  long-term debt. By paying down the debt, Allete
  is putting the shareholders interest above the
  creditors. Allete pays a 4 dividend. So even
  though the stock price has not risen, there is a
  steady income from the stock. By selling off its
  non-core business, the Board of Directors is
  trying to realize the value of the assets being
  sold for the investors.
• Allete is going back to what it does best, and
  will focus on its core business - Energy. The
  Board of Directors seem to have the Investors
  best interest in mind. Allete is returning to a
  pure-play Energy company.
• Annual report link
• http//www.allete.com/corp/annualreport/2002AR.pdf

3
Part A. Introduction

• CEO David G. Gartzke
• Corporate Headquarters in Duluth MN
• Last Annual report was December 31, 2002
• Supplies Energy in MN, and Automotive Services in
  North America.
• MN is main state for Energy Production, and
  Vehicle Services throughout North America.

4
Part A. Audit Report

• PricewaterhouseCoopers LLP is the Independent
  Auditors
• The Independent auditors stated that using
  generally accepted audit practices, that Allete
  has provided the information fairly. That the
  information contained was the responsibility of
  Alletes Management.

5
Part A. Stock Market Information

• Alletes stock 31.75
• Twelve month trading range of the companys stock
  was 18.86 to 33.92
• Dividend per share 0.26 last quarter
• Above information is from 02/23/2004
• Your opinion about the company stock as an
  investment? BUY

6
Part B. Industry Situation and Company Plans

• Allete has several lines of business. Allete
  started as Minnesota Power and expanded from
  there. Allete owned a lot of Floridas
  independent water companies, but started selling
  the water companies in 2002. Allete started
  building ADESA, which is the automotive auction
  company throughout North America. ADESA has done
  so well, that the board of directors is spinning
  ADESA off onto it own.

7
The board of directors is trying to realize the
shareholders value with the sale of the water
companies and the spin-off of ADESA. Alletes
Future plans include The spin-off of ADESA
(Automotive Services), finish the sale of the
water companies in FL, and to focus on its core
services. This is from the annual report,
www.fool.com, www.hoovers.com,
biz.yahoo.com http//finance.yahoo.com/q/h?sALE h
ttp//www.hoovers.com/free/search/simple/xmillion/
allete/--ID__11004--/free-co-factsheet.xhtml
8
Part C. Income Statement

• The format is most like a multistep.
• As seen below, the dollar amount has decreased
  from 2001 to 2002. This is because of the sale
  of assets and operations.

9
Part C. Balance Sheet

• 2002 shows a decrease in Assets and Liabilities.
  This is due to the sale of assets and paying off
  of the liabilities. This has increased
  Shareholder equity, which is what the board of
  directors wanted to do. The liabilities
  decreased the most.

10
Part C. Statement of Cash Flows

• Cash flows from operations were more than net
  income for the past two years.
• The company is shrinking by selling off the parts
  that are not as profitable and focusing on its
  core business. The company has sold off
  property, plant and equipment in the water
  business, and is spinning off its automotive
  business. The company's primary source of income
  will be from the Energy business.
• The companies primary financing is from Long-term
  debt.
• Overall, cash has increased over the past two
  years?

11
Part D. Accounting Policies

• The significant accounting policies
• Uncollectibles and allowance for Doubtful
  Accounts
• Impairment of Goodwill and Long-lived assets
• Pension and postretirement Health and Life
  Actuarial Assumptions
• Valuation of Investments
• The topics of the notes to the financial
  statements
• Business Segments
• Operations and Significant Accounting Policy
• Goodwill and other Intangibles
• Acquisitions
• Financial Instruments
• Investment in ACE
• Jointly owned Electric Facility
• Regulatory Matters
• Discontinued Operations
• Long-term Debt
• Short-term borrowings and Compensating Balances

12

• The topics of the notes to the financial
  statements (Cont.)
• Preferred Stock
• Commitments, Guarantees, and Contingencies
• Mandatory Redeemable Preferred Securities of
  Subsidiary
• Common Stock and Earnings Per Share
• Income Tax Expense
• Other comprehensive income
• Pension and other postretirement benefit plans
• Employee stock and incentive plan
• Quarterly financial data

13
Part E. Financial AnalysisLiquidity Ratios

• Working Capital
• 2002 - (79.8 Million)
• 2001 - 191 Million
• Current Ratio
• 2002 - .89
• 2001 - 1.27
• Receivable turnover
• 2002 - 3.41
• 2001 - 3.05
• Average days sales uncollected
• 2002 - .009
• 2001 - .008
• Inventory turnover
• 2002 - 6.5
• 2001 - 7.3
• Average days inventory on hand
• 2002 - .018
• 2001 - .02

• 2002 showed a large decrease in working capital.
• The current ratio dropped below 1.
• This can be contributed to the cash and trading
  securities decrease from 2001 to 2002. During
  this time the company paid down long-term debt.
• The rest of the numbers remained about the same.
  This shows that Average days sales is less than
  1.
• Alletes power and automotive services do not
  require much inventory, therefore there is very
  little on hand.

14
Part E. Financial AnalysisProfitability Ratios

• Profit margin
• 2002 - .09
• 2001 - .09
• Asset turnover
• 2002 - 46.9
• 2001 - 49.2
• Return on assets
• 2002 - 4.3
• 2001 - 4.5
• Return on equity
• 2002 - 11.4
• 2001 - 13.3

• The profit margin remained the same.
• The asset turnover dropped slightly.
• Return on assets dropped slightly.
• Return on equity dropped some.
• This shows that with Allete selling of
  assets/companies, Allete is still keeping their
  profit margin, and has had a slight dip on
  returns for what is left of the assets and
  equity. This information along with the cost of
  selling the assets/companies should explain the
  decrease.

15
Part E. Financial AnalysisSolvency Ratio

• Debt to equity 2002 - 1.49
• Debt to equity 2001 - 1.80
• The drop in the debt to equity shows that Allete
  is paying off its debts.
• The long-term debt has been reduced, by paying
  cash and selling assets for more than what they
  are worth.

16
Part E. Financial AnalysisMarket Strength Ratios

• P/E 2002 - 13.5
• P/E 2001 - 13.9
• Dividend yield 2002 - 4.9
• Dividend yield 2001 - 4.2
• The P/E has remained about the same.
• The dividend yield has increased slightly.
• The change in P/E and dividend yield can be
  contributed to a low closing price on the stock.
  The stock closed in the low range compared to the
  year before. The stock price might show the
  result of the sale of the water systems in
  Florida.