ALLETE Inc (ALE) 2004 Q4 法說會逐字稿

Good day and welcome, everyone, to this conference call announcing Allete's fourth quarter 2004 financial results. Today's call is being recorded. Your line will be muted for the presentation and then we will conduct a question and answer period. (OPERATOR INSTRUCTIONS)

This conference may contain forward-looking statements within the meaning of federal Securities laws, including statements concerning business strategies and their intended results and similar statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

The forward-looking statements in the earnings release distributed this morning, reflect management's best judgment at this time. But all such statements are subject to numerous risks and uncertainties which could cause actual results to differ materially from those expressed in or implied by the statement therein.

Additional information concerning potential factors that could affect future financial results is included in the Company's annual report and from time to time in the Company's filings with the SEC.

At this time I would like to introduce the President and Chief Executive Officer, Mr. Donald J. Shippar. Please go ahead, sir.

Thank you for joining us this morning. Joining me is Allete's Chief Financial Officer, Jim Vizanko.

Today we reported our financial results for 2004. Excluding two one-time items, Allete's income from continuing operations increased by 29 percent over 2003. We're very pleased with the financial performance of our core businesses and how they exceeded our original 2004 expectations. 2004 was a transforming year for Allete.

During the year we spun-off a (indiscernible) out to our shareholders, we sold our remaining Florida and North Carolina water assets, we further reduced debt on our balance sheet and we negotiated an agreement that will allow us to eliminate the earnings drag we've been incurring with the Kendall County facility.

We recently sold our last remaining water services business in Georgia, so we are now out of that business all together.

All in all we've strengthened our balance sheet and successfully completed transactions that put us in great shape as we move forward. I'm personally very excited about the future of Allete.

We are pleased to report that we have received unqualified opinions from our independent accountants on both our financial statements and for internal controls over our financial reporting. They identified no material weaknesses at any of our businesses.

At this time Jim will provide you with the financial highlights for 2004.

Thank you, Don, and good morning, everyone. For the year, net income from the regulated utility business was up $4.9 million, or 13 percent from last year. Most of this increase is directly attributable to the 8 percent increase in electricity sales to our large power customers.

During the year, we incurred $3 million of after-tax expenses related to the planned maintenance outage at the Square Butte plant, which is $1 million lower than we originally anticipated. Two million dollars of these expenses occurred in the third quarter, and the remaining $1 million occurred in the fourth. Outage expenses and higher pension and benefit costs over 2003 were more than offset by lower expenses at the regulated utility business.

Within non-regulated energy operations, the Kendall County facility lost about $8 million after tax, which is about the same as in 2003. The Taconite Harbor facility earned less than in 2003, due to a fourth quarter outage, lower margins and higher SO-2 allowance expenses.

Net income from BNI Coal was about the same year over year. In total, non-regulated energy operations posted a $300,000 loss in 2004, compared with $3.7 million of net income in 2003.

Net income for our real estate business was $14.7 million, up 4 percent from the prior year. During 2004, we recorded total revenue of $42 million, of which $36 million came from the sale of property, which is similar to 2003.

In 2004, we sold 1,479 acres and 211 lots, compared with 1,394 acres and 265 lots the year before.

Operating expenses were down $1.7 million, or 9 percent from 2003, reflecting a lower cost of property sold. As of the end of 2004, we had $71 million worth of future land sales under contract, including $30 million for properties in the Town Center project. We expect to close these contracts over multiple years.

Within the other business segment, the Emerging Technology portfolio net loss was $5.7 million in 2004, primarily due to impairment write-downs and our change to the equity method of accounting for these investments during the year. This loss is $3.7 million more than in 2003.

Unallocated interest expense was $6.6 million after tax, which is $9.8 million lower than in 2003, primarily due to lower debt balances. In the third quarter we recorded a $10.9 million after tax, one-time charge for the early repayment of debt. In the fourth quarter we recorded an $11.5 million after tax, one-time gain related to the sale of ADESA shares that were held by the Allete ESOP. I'll tell you more about this in a moment.

To summarize, the two large one-time items; the debt prepayment expense and the gain on sale of shares held by the ESOP, basically offset each other for the year.

Excluding these items, the other business segment improved by $7.2 million after tax over 2003, primarily because of the $9.8 million interest expense improvement, less the $3.7 million of additional Emerging Technology portfolio losses.

Net income from discontinued operations was $73.1 million this year, versus $206.6 million in 2003. The decrease year over year is mostly due to two factors. First, we had a full year of income from ADESA in 2003, versus a partial year in 2004, due to their IPO in June and spin-off in September. Secondly, we had more income from operations and gains on water system sales in 2003 than in 2004. This year we also accrued $5 million after tax for an arbitration award related to a contractual gain sharing provision for a water system that was sold in 2003.

Our balance sheet remains very strong. At year-end we had $194 million of unrestricted cash and $390 million of long-term debt. Our debt to total capital ratio is 38 percent. During the fourth quarter of 2004, the Trustee of Allete ESOP sold all of the 3.3 million shares of ADESA stock it had received from the spin-off for a total of $65.9 million. By December 31, the ESOP Trustee had purchased 1 million shares of Allete common stock and had $30.3 million of cash available to purchase additional shares. This cash is reported as restricted cash on our balance sheet. At year-end, the ESOP held 2 million unallocated shares in trust, and those shares are not included in the earnings per share calculation.

During January of '05, the ESOP Trustee purchased an additional 500,000 shares of Allete common stock and had $8.9 million of cash available to purchase additional shares.

Turning to 2005, we expect to see continued strong electric sales in our regulated utility business. Earnings from the non-regulated energy business will improve after the closing of the Kendall County transaction. We anticipate consistent and growing earnings from our real estate business. We will incur lower interest expense in 2005 because of the debt that was either repaid or refinanced during 2004. As I mentioned a moment ago, the share balance for our earnings-per-share calculation will decline.

Taking all these factors into account, and excluding an expected one-time charge associated with the Kendall County transaction, and any earnings from investments we may make in Gulf initiatives, we expect that Allete’s 2005 earnings-per-share from continuing operations will increase 45 to 50 percent over 2004. Remember that our 2004 base excludes the one-time charge for the early repayment debt and the one-time gain for the ADESA stock sales by the ESOP.

For your information, we plan to file our 10-K tomorrow. And it will include expanded disclosure for our real estate business.

Don.

As Jim mentioned, our businesses are poised for a strong 2005 and our balance sheet is very strong. Allete’s Board of Directors has endorsed a strategy predicated on providing consistent earnings growth to continue our track record of superior total shareholder returns. Our strategy is to enhance the profitability of our existing businesses while pursuing earnings growth opportunities.

A significant piece of our strategy is to mitigate the losses we have been incurring from the Kendall County merchant power plant, for the agreement we have negotiated is a major accomplishment. We have filed for approval of the transaction and are still on track to close in April of this year.

Going forward, we will evaluate growth opportunities within our regulated and non-regulated energy businesses through merger, acquisition, or asset additions in our region. In addition to managing its current real estate inventory, Allete Properties will focus on identifying, acquiring, and entitling vacant lands in the coastal southeast United States.

As many of you know, Allete has a long history of both acquiring and selling companies in a variety of industries, and these activities have contributed significantly to our financial results over time. We will continue to seek diversified growth opportunities in order to mitigate potential long-term downside exposure to industrial customers in our regulated utility business and to provide additional earnings growth.

At this time, Jim and I will be happy to take your questions.

(OPERATOR INSTRUCTIONS) Jay Hatfield, Zimmer Lucas

I just wanted to clarify the earnings base per share from continuing operations. I’m getting like $1.37.

That’s right. The reported, from continued operations, our adjusted number for the one-time events is $1.36.

$1.36. Okay, so I use that to calculate the 45, the 50 percent growth number?

Yes.

And also, can you just talk about -- can you give us any sense for the likely growth rates in your segments from ’04 to ’05?

We don’t break that down, but, as I mentioned, we expect consistent and growing earnings from real estate. We expect the energy business to have continued strong sales. Other than that, we don’t break the separate pieces down. And obviously, interest expense will be lower this year over last year.

That’s great.

Dave Parker, Robert W. Baird

Congratulations. As we go forward, and the business segments settle down, I’m sure it will make it a little easier for me anyways to do all the ins and outs and maybe also reflect Jay’s comments, but congratulations on a good transition year.

A question Don brought up in just a comment, I wanted to see if he could follow up on, just activities and trying to find additional land in Florida, any thoughts or any progress update you can give us there?

Well, not really any progress updates, David. As we mentioned, we are continuing to look for and identify additional properties down in Florida that would fit into the strategy that we’ve had for several years to find wild land properties and then entitle and ultimately permit zone and plot those properties for sale to developers. Other than that, there’s really nothing new to specifically report.

Is your scope, or the focus I guess, or the scope of your focus more geographically close to where you’re at right now, or does that not depend on that, Don?

Geographically close to where we are now.

All right. Second question, I guess, the emerging technology, the $3.7 million after-tax charge, I guess I was sort of looking at that as sort of an unusual item. Is that a fair assumption going into 2005? We shouldn’t expect that kind of a loss again?

That’s right. And the $3.7 million is what the amount was over 2003. The actual charge in ’04 was $5.7 million. And what we should expect, now we’re accounting for those under the equity method, the funds, and the funds could have some variance, depending upon how they write assets up or down or companies that go public. But right now we don’t expect anything, Dave.

Okay. I just thought that was one of the positives in. I guess the number for Kendall County, which you laid out, which was just shy of -- it was $8 million after tax, Jim. So I guess we ought to look for a quarter or so of bad drag and then that goes away the rest of 2005?

Yes. I mean the impact of that is we would have a quarter of losses and that would go away and then we’ll have the reduction in cash, the earnings on that cash as well.

The tech guy, Harbor Outage, was that a substantial maintenance outage, or was that something -- the increased costs we saw in the fourth quarter? Is that something that will replicate itself in ’05, Jim?

It’s just a regular boiler turbine outage on one of the units, a regular scheduled outage for the fourth quarter.

That kind of level of maintenance, Don, does that reoccur every couple of years or is that an annual kind of checkup?

Typically, that would be on somewhere around a 3 to 4-year cycle.

All right. That’s what I thought. Okay. And Square Butte, obviously we know that was a major outage. Any reason why that came in so much under your expectations as far as the cost at Square Butte?

As you said, it was a big outage. We put in a whole new boiler control system and a whole new control system on both ends of the D.C. line. And so there is a substantial amount of dollars spent there. It did come in under, but again a lot of investment was made in that facility.

Okay. And then last, but not least, I’m sure, Sarbanes-Oxley and increased costs there as well. I’m sure you spend a lot of money legally wrapping up sales of businesses, etc. Any kind of deltas or anything you can point to us there on costs that were in the 2004 number and may not be in the 2005 number?

The cost of the spin are discontinued, most of the costs. There were some costs that were incurred for our reverse stock split that would not be reoccurring. We have reduced the corporate staff some because, again, the spin-off of ADESA that will make for better numbers going forward. Also, the other cost with selling the assets would be in discontinued, the (indiscernible) assets. So there certainly are some advantages. There are some more corporate expense and the reverse stock split certainly would –-

Come out. Sarbanes-Oxley, some people are spending anywhere from $1 to $3 million in this past year. Is that a similar experience you’ve had or was it not that much?

I don’t know the exact number offhand, David, but that certainly will be another reduction. It’s not like you don’t have to do it anymore. There are still ongoing costs with testing, but we expect that to come down.

Okay, good. Thanks very much and congratulations again.

Stephen Rountose, Talent Capital

I wanted to see if you could clarify a couple of things on the real estate side. You had mentioned that you’ve got $71 million of property sales under contract.

Yes.

And I guess 31 of that is in the Town Center program?

$30 million, yes.

$30 million is in the Town Center program. Okay, what’s the corresponding acreage and book value for those property sales?

I don’t have that. That’s something that we don’t plan on disclosing the exact property that goes with those pieces.

Okay. I mean how can we think about this? I guess historically what have you done on a kind of dollar-per-acreage? And I guess you’ve historically gotten three to four times the book value of your land?

That’s right. If you look at the numbers that were presented today, the $36 million of revenue for the year, 2004, associated just with the land sales, and 1,479 acres, if you do that math, it’s about $24,000 an acre revenue. If you look at what our average basis is in our land, not the land that was sold in ’04, but our average base is about $2,700 an acre. Our basis in ’04, the land we sold, was a little bit higher. It was about $4,400 an acre. So with that, for what we sold in ’04, we received about 5.5 times our basis.

Okay. And is that a good proxy for what you see going forward?

Well, a lot depends -- obviously for real estate, it depends on location, what we paid for it, how old it is, whether it becomes commercial land, entitlements. As I mentioned, we are disclosing much more in the K. The K will be out tomorrow. The K disclosed is by project. We’re disclosing acres by project. So you can see the total acres for Palm Coast. We’re disclosing now how much commercial versus residential for some parcels of land. So we’re providing more disclosure, as you’ll see tomorrow, as far as the real estate. I think to help everyone make a determination of what it’s worth, because we’re not putting out disclosure what we think it’s worth, but at least to assist people, to provide more information to do that analysis.

Okay. And you said historically you expect kind of $15 million a year from the -- or $10 to $15 million a year, from the real estate operations in net income?

Yes.

(Indiscernible) target changed?

The last couple of years have been $14 million kind of range. If you go back a few more years, a little bit under that. And I think we’re very comfortable saying that we expect consistent and growing earnings from that business segment.

Okay. So you think that’s roughly still the right range to use? It may grow slightly, but that’s a pretty good range?

Yes, that’s certainly consistent with what we’ve had the last couple of years.

Okay. On the ESOP, you had –- and I just want to make sure, because you ran through it kind of quickly, that the ESOP reported a million shares and has $33 million left to repurchase shares?

That’s right.

And that was as of the year-end ’04?

That’s right.

Do you know what they are currently?

Well, for January, they repurchased .5 million shares during the month of January, an additional .5 million, and at the end of January we had $8.9 million of cash.

That was 8.9?

Yes.

Okay.

Michael Sufransky, Onyx Options

Turning to your balance sheet, I noticed that quarter-over-quarter your shareholders equity went down by approximately $32 million, or a little more than $1 a share. Can you explain while making 15 cents for the quarter that actually happened?

It’s because of the accounting for the ESOP. It’s because of the share repurchase and the selling of ADESA stock causes that balance sheet impact. It’s not because of earnings or dividends.

It’s nothing to do with your operations?

No.

And I see also there is an entry of restricted cash. What’s that made up of?

That’s made up of the cash in the ESOP plan. At the end of the year, the ESOP plan held $30 million that was available to buy a lead stock.

Okay. And I saw on your last Q you were waiting for some sort of a ruling, because you sold the ADESA stock, an extension of how long you actually had to go out and buy that?

Yes. We received that ruling and it allows us, May of ’06, to do that. But right now we have, at the end of January, about $9 million left. So it will take a significant less time than next year.

Is there a reason you wanted that ruling rather than do it all right now?

We got the ruling because without the ruling we would have 90 days from September to complete the sale of ADESA and the repurchase of Allete. In our estimates of the volumes of the stocks at that time, we didn’t think we could get that accomplished with the 90 days. So that’s why we got the private letter ruling.

David Lorbor, Pirate Capital

What are you anticipated cash needs in exiting the Kendall facility?

Cash needs are a payment to consolation is $73 million and after tax, a receipt of a tax refund, it will be $47 million.

Okay. Currently the balance sheet over capital, what are your plans with the cash generation and what is your strategy for use of that cash going forward I guess away from the dividend that you announced on Friday?

The use of the cash and the underleveraged balance sheet (ph), our plan is to grow the business. Our strategy is to invest in the businesses we have and to look other businesses as well.

You look into other businesses, what do you think the most attractive markets are? I mean right now, the real estate markets in Florida, are you finding attractive land values and/or are you finding any other businesses that you are interested in making acquisitions on?

As we mentioned, we are looking in Florida. We think there are some attractive additional parcels down there. Obviously, the price and the cost is a factor, but we’re continuing to look there and still have a real interest down there in additional properties.

As far as the other businesses, we have resources involved and looking at and screening other potential opportunities. At this point, we don’t have anything obviously at the point where we’re making any announcements or any specific areas.

What do you expect shares outstanding for 2005?

The expected shares, to go through generally the math, the biggest impact is going to be with the repurchase –- the ESOP shares. The ESOP shares, we bought 1 million shares in the last half of ’04. So that had a small impact on ’04. It will have a full impact on ’05. We also bought back .5 million shares in January. We’ll spend the $9 million in February or however long it takes to repurchase or to buy Allete’s shares as well. Those shares will have almost a full year effect for ’05 as well. And then the only difference is the shares that we issue, the shares that we issue for dividend reinvestment, optional share, and shareholders benefit plans, options, those types of things. So it’s on the one side the shares are going down because of the ESOP unallocated shares, offset some by shares that we’ll issue.

As far as the number, we don’t plan on disclosing that number, but certainly we do expect shares to decline and we do expect that to contribute to earnings-per-share growth.

Okay. Back to a previous caller’s question on the real estate and previous guidance of three to four times book, given the shift of the markets and of where your land is now located, given much more so located in the Palm Coast area, has that inherently created a shift in also the valuation of the real estate? And while in 2004 we saw around 5.5 times your cost basis, or your book value, can we anticipate that 5.5 times actually increasing as that land is developed? And how can we look at that going forward?

I mean you’re certainly correct and the real estate market is a very favorable market in Florida for us right now. As far as shifting of that, it depends on the type of property we sell, where the property is, it depends on what our basis is. Some of our land that we sell has lower basis than others because of when we bought it, where we bought it, that type of thing. But I think generally, certainly the trend has been good. The trend has been good for our Florida real estate market. We have $71 million under contract. The Palm Coast area is one of the fastest growing areas in the country. So we’re certainly very positive about Florida real estate, but on the other side not wanting to get hooked or locked into a 5 times, 6 times, 4 times, free time type of number. But the trend is very good.

When you release some more data tomorrow, will you be also leasing the percent useable of acreage as well as what will be defined as residential, commercial, industrial, and whatnot?

We’re defining the residential, commercial, and in some places into square foot in some of the properties. We are not breaking out how much is wetlands versus highlands, mainly because that sometimes changes over time and some pieces of land we don’t officially determine that or determine that until it’s sold. But there is more disclosure about commercial, residential square foot, as well as acres.

Can you go through some of the disclosure this morning?

We prefer to wait until you see the entire piece. We have done some. I think what we’ve done on that call that we have not done in the past, we pulled some information from the K. As far as revenues from land sales, it’s something we haven’t disclosed, the acres that we’ve sold. We have not debased those acres. So some of it, and the backlog, some of these things are new disclosures, you just see a little bit additional I think than what we’ve done. I guess we’d prefer for people to look at the whole package instead of going through all of the details.

You bet. Will you speak on the land sales that have been contracted? When you earn contracts on those, are you JVing with anyone as far as the developments of those lands or are you purely selling the land to developers?

We have some things with developers that we share in some of the profits of the final development. We do have some of that. In as far as partners, we have, on some of our land, we do have minority interest, we do have some partners on some of our land as well. We have since 1991.

Matt Byrd, Highbridge

Allete’s Board of Directors and management have a history of creating shareholder value for its shareholders. When the Company wasn’t getting credit for its water utilities and auction business, you divested the -- sold the water utility and then spun off the auction business. I mean it looks like, feels like, we’re in the same position all over again. We have a very valuable asset in Allete holdings, but perceptionally you’re still viewed as a utility. What, are you, as management, going to do to help realize the value from the real estate holdings that’s not being pursued by the market right now?

The immediate thing that we’re trying to do is more disclosure. As you’ll see in the K, and as we’ve talked about disclosure of acres, disclosure of what we think the ultimate use of the land is, our first path, or attempt at that, is disclosure. And we’ll see what happens from there. But I think our first thought is to try to disclose more and to help people determine on their own what the value of this property is.

Jim, will we see sell side coverage from analysts that cover more real estate-type of companies so there’s a better understanding of the value of those holdings?

Yes, and we’ve had some conversations with some folks that cover us have brought in some real estate analysts to be a part of that coverage and was part of that conversation. Some of that has not been written about, but we’re starting to see that. Some of our sell side are bringing in real estate analysts from their firm as well.

And will we have more access to the management team of the lead holdings going forward?

I think our plan, as far as more information is, again, to help people determine what the value is. It could be (indiscernible) of the land discussions. I think it will be similar to what we did with ADESA.

Okay.

I don’t think we ever envisioned like we didn’t have with (indiscernible), it will be a central clearinghouse for the information. It won’t be three different IR departments. But, yes, there will certainly be access to more information, access to tours, access to other things with the real estate.

Looking into the future, is this a division you might want to carve out or IPO?

I think it’s way too early to speculate about that. As Jim said, we’re clearly trying to get more disclosure and help people get a better understanding of what we have down there. That’s really where we are right now.

Okay. And then just on the water asset sale, what was the price on the water service from Georgia?

The price was nominal. It was under $1 million.

Okay.

Essentially no gain or loss on our books as well.

James Belezo, DA Davidson & Company

Would you review the number of acres sold in 2004, 2003, and the number of lots?

Sure. In 2003, the acres were 1,394, the lots --

That was 1 -- how many again, 1 --?

1,394.

Okay.

And the lots in 2003 were 265.

Okay.

In 2004, the acres were 1,479 and 211 lots.

Okay. The $1.36 that was referenced in a question before versus the $1.37 from a continuing operations per share that’s found on your press release, what’s the difference between those two figures?

The difference is the two large one-time revenue -- or income as well as expense. We have taken out the $11.5 million ESOP gain and taken out the $10.9 million expense for the prepayment of debt.

Okay.

So essentially, we take it down 600,000, which is worth about a penny. And that’s fully diluted. So it’s $1.37 full diluted reported from continuing versus $1.36 with those two adjustments.

Okay. And that’s $1.36 fully diluted too?

Yes.

Are you able to give revenues by segment? You give in your press release today -- you gave net income by segment. Are you able to give revenues?

Yes. In the K, there are revenues by segment, segments being regulated utility, non-regulated utility, real estate, and other. So you’ll see in there, as I mentioned this morning, the total revenue from real estate was $42 million in ’04.

In ’04 for the whole year.

Yes. And that’s where we broke out from that $36 million was from land sales.

Okay. And you aren’t ready to give those revenue figures out today by segment?

No. It’ll be all the Q, which will be available tomorrow.

Okay. And the shares outstanding at year-end, can you give that figure out?

The average for earnings for 2004 was 28.4 for diluted.

I understand that, but the actual shares outstanding at the end of the year, calculating a book volume.

The actual shares, as of February 1, 2005, they are $29.677 million.

(OPERATOR INSTRUCTIONS) David, Ramas, Copia Capital

A couple of questions for you. As you talk about using the balance sheet to grow the business, should we assume that’s mostly going to be real estate or will you look at other things as well, including adding the utility business?

Other things as well. As we said, we are looking within the utility, the regulated and non-regulated, the real estate also, and then other businesses that would not be in either one of those areas.

From a debt-to-cap perspective, do you have sort of a targeted range on the balance sheet that you’d like to see that move up to? Do you want to invest to get to 50 percent debt, 40 percent -- is there a number you are sort of looking at?

Well, we’re at 38 now. I think the average for utility is closer to 60. So I think we have some room between 40 to 60 if we were to acquire something, either with that or to assume some debt. But I don’t’ think we have a target. Right now we’re not taking that to 60 percent because then we essentially have this additional cash than what we have now.

Okay. In terms of share repurchase, obviously there’s been a lot done to the ESOP. It doesn’t sound like you’re going to look at taking any of your excess debt capacity or cash to buy back shares, is that fair?

That’s fair. Not right now, no.

Dave Parker, Robert W. Baird

The $71 million in land sales contracts, is there any color that you can lay out as far as what the income stream may look from those and how many acres are included in those sales, or is that something that’s got to come out in the K, or maybe not going to be disclosed at all?

It’s not disclosed at all. As far as what the gain would be, I mean our basis is relatively low on the land. But, no, there is no plan to disclose the acres that are associated with that, Dave.

Or just the time frame, $71 million all to be recovered in three or four years, or is that a shorter period of time, Jim?

Well, it’s spread over multiple years. I think if we were to have -- in 2004, we had $36 million from the sale of property.

Right.

So if everything else was exactly the same, we’d sell half.

All right.

Rob Matton, Schneider Capital.

I was just wondering if you might be able to comment, based on other similar residential development projects in the Palm Coast area, do you guys have a sense or range of what residential lot prices are in that area?

We don’t try and go and get into that area because again I think, as we’ve said, the location of those different parcels or different lots is so important to the overall price, whether they’re, again, on water, whether they’re near a commercial development, whether they’re near major highways, the corridor, growth areas, etc., golf courses. So we really don’t try to put a number, if you will, on residential average lot sale, any of that, just because they’re so location sensitive.

Okay. Are there other major developments in the area that you’re aware of that you would consider to be similar quality overall that we might be able to do our own research on?

We don’t have anything we could tell you at this point on that. I mean that’s something we could perhaps find or do some research on our own to --

Pardon me. Other than, there are certainly other parcels for sale in the area. I certainly wish to caveat, I think as Don mentioned, and that’s it’s location specific and the type of property and titlement of the property. But, yes, I think for any piece of property you can try to do some comparables and get an idea of what our property is worth. And that’s what we’re trying to disclose a little bit more so that people can see where their acres are, see what some things -- other than the exact location to get at least some general flavor for what our property would be worth.

And then keep in mind too, we’re selling to developers and blocks of property who ultimately then do the development on those lots and sell them. So ours is, in essence, a wholesale transaction to a developer because we’re not actually doing the home building or the commercial office building. That’s being done by other developers. So that’s not an area that we’re directly involved in.

Okay.

And I know there’s quite a bit of information available on the Internet as far where property is, whether it’s the sales for, statistics on how fast the county is growing, the number of land permits, permits granted, that type of thing.

Yes, I’ve done a little research there in terms of what residential lots are selling for, but there’s just a pretty wide range. If there are other developments that you thought were similar, it might help narrow the range a little bit.

Again, it’s hard because if you look at Town Center for example, it has some unique characteristics to it. We’re developing a Town Center within the city of Palm Coast. You look at Palm Coast Park and that again has some unique characteristics with where it’s located and the way that the different residential, commercial, industrial will be plotted and developed. So they all have some, I guess, unique characteristics, depending on where they are and what type of building will ultimately be performed there. It’s not -- again, it’s difficult to make direct comparisons to other developments in those cases.

Michael Lapipe, Hibernia

Basic question, I just want to catch up on a couple of things on the utility. What was your earned ROE for ’04? What is your allowed ROE? What’s kind of a rough estimate for the rate base in your allowed equity component?

Allowed ROE in Minnesota is 11.6 percent. And we expect to earn right around 11.6 percent on the regulated utility.

Jim, on the rate base?

The rate base is about $500 million. About half of that is equity.

Jay Hatfield, Zimmer Lucas

I just wanted to ask a little bit more with regard to kind of look at the valuation of the land on your balance sheet. Should we look to the sales that you make every year? Is that indicative of what you could sell your entire holdings for? Are those properties that you have spent some time getting zoned and also are attractive in the current market? And that might not be reflective of the balance of the property.

Well, as time goes on, certainly one component is the fluctuation of general values in land and in land in Florida. So if the land continues to grow in value, we would certainly expect each piece to have a bigger contribution to earnings, as well as, as we develop things, we make land more valuable. As we put some parcels in, the parcel next to it gets more valuable because there’s a Wal-Mart or there’s the new Town Center, some new buildings for government, whatever. So we tend to sell things off as we add more value to the parcels that are remaining. And at least in the past, we’ve certainly seen price appreciation to make each piece more valuable as time goes on as well.

And I think the entitlements are an important piece in that, of course, once the property is entitled and plotted, then obviously it has a lot more value than a piece of property that isn’t entitled and plotted. Again, not all of our property is entitled. And so that has a factor that plays into it also.

Is there a market, other buyers, who are approaching you to buy your whole block of holdings? Or would there be some sort of discount for the fact that it’s a pretty large land holding in that area?

Certainly, the people approach us for pieces. Certainly, people want a commercial piece. They want residential. Some people want larger pieces. As far as a discount, certainly. It depends upon what entitlements, depending on how the land is. I mean that’s why we continue to want to be in this business and not to sell out today for a certain price because we believe we can add value with entitlements, selling pieces off, and price appreciation of the property over time.

If we see one of your properties sell at a certain per-acre value, we shouldn’t necessarily apply it to the whole package, right? Because it’s not like you could necessarily then just put it on the Internet that we have a whole block for sale and get that type of price.

That’s right. Two things with that. One is leaping to the whole thing is worth that. There would be a discount for a buyer. Plus, that one piece of property that we sold may be less valuable than other pieces. We may have sold a piece, the very high basis that has very little value because of location and other things. So, as we go forward with our disclosure, there has to be some thought around each quarter numbers. There could be a quarter where we get a large value per acre or not so large where when we look at annual time periods, or longer time periods, it kind of works out. But in quarter-to-quarter, we could have some unusual things that can’t be multiplied times 16,000 acres to get an answer for what the whole thing is worth.

Okay. That’s very helpful.

James Belezo, DA Davidson & Company

Historically, you’ve been able to tell us what the cost basis of the land under development was and the cost basis of the commercial real estate. Can you give that out as of year-end what those figures are?

As of year-end, the value of the land piece, which is a part of our investment piece on the balance sheet, was $47.2 million. And that represented, in total, 17,298 acres.

Okay. That’s great. And on the other piece?

The other piece of real estate?

Yes, don’t you have commercial properties and have a cost basis of that?

That’s the total land. Then also, we have a shopping center that’s $18.2 million and we have $9.7 million of receivables, financing for our land. So the total of our real estate investment at the end of the year was a little over $75 million.

That’s helpful.

Stephen Rountose, Talent Capital

I’m sorry. My question has been answered.

Mr. Shippar, there are no further questions at this time. I’d like to turn the conference back to you for any additional or closing remarks.

Thank you. All of us at Allete, the employees, the management, and the Board of Directors, are excited and enthused as we begin 2005. Our Company is strong, both financially and operationally, and we have additional opportunities ahead of us. We’re committed to delivering value to our shareholders. Thanks again for your time this morning and we look forward to speaking to you again when we announce our first quarter results in April.

That concludes today’s conference. We do thank you for your participation.