MARK
A. SCHOBER
Senior
Vice President and
Chief
Financial Officer
October
30, 2009
VIA
EDGAR TRANSMISSION
Mr. H.
Christopher Owings
Assistant
Director
United
States Securities and Exchange Commission
Division
of Corporation Finance
100 F
Street, N.E.
Washington,
D.C. 20549
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RE:
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ALLETE, Inc – File No.
001-03548
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·
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Form
10-K for Fiscal Year Ended December 31, 2008; Filed
02/13/09
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·
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Amendment
No. 1 to Form 10-K for the Fiscal Year Ended December 31, 2008; Filed
02/26/09
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·
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Definitive
Proxy Statement on Schedule 14A; Filed
03/24/09
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·
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Form
10-Q for the Fiscal Quarter Ended March 31, 2009; Filed
05/01/09
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·
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Form
10-Q for the Fiscal Quarter Ended June 30, 2009; Filed
08/05/09
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Dear Mr.
Owings:
ALLETE,
Inc. (Company, we, us, our) has reviewed the Securities and Exchange Commission
(SEC) staff letter of comment dated September 30, 2009, concerning the
above-referenced filings. For the convenience of the staff of the SEC, the
staff’s comments are included, followed by the Company’s
response.
Form 10-K for the Fiscal
Year Ended December 31, 2008
Item 1. Business, page
7
General
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1.
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Please
discuss the extent to which your business is seasonal and how the
seasonality of your business may affect your
operations.
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Response
In our
December 31, 2009, Form 10-K, and future filings, we will include the following
disclosures unless facts and circumstances that exist at that time require us to
modify the language.
Due to
the high concentration of industrial sales, Minnesota Power is not subject to
significant seasonal fluctuations. The operations of our industrial customers
are not typically subject to significant seasonal variations.
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2.
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Please
discuss in greater detail the competition you face with respect to your
electric and gas operations. For example, please provide an estimate of
the number of competitors and your competitive position, if known or
reasonably available to you. Also, please discuss the principal methods of
competition, and any positive and negative factors pertaining to your
competitive position. We note your current “Competition” discussion on
page 17.
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Response
In our
December 31, 2009, Form 10-K, and future filings, we will include discussion
regarding competition similar to the following.
Retail
energy sales in Minnesota and Wisconsin are made to customers in assigned
service territories. As a result, most retail electric customers in Minnesota do
not have the ability to choose their electric supplier. Large energy users
outside of a municipality of 2 MW and above may be allowed to choose a supplier
upon MPUC approval. Minnesota Power serves 10 Large Power facilities over 10 MW,
none of which have engaged in a competitive rate process. Two customers
within the past 15-years that are over 2 MW but less than 10 MW under our Large
Light & Power tariff have participated in a competitive rate process with
neighboring electric cooperatives but were ultimately retained by Minnesota
Power. Retail electric and natural gas customers in Wisconsin do not have
the ability to choose their energy supplier. In both states, however,
electricity may compete with other forms of energy. Customers may also choose to
generate their own electricity, or substitute other fuels for their
manufacturing processes.
For the
year ended December 31, 2008, 8 percent of the Company’s energy sales were
wholesale sales to municipal customers in Minnesota and private utilities in
Wisconsin by contract under a formula rate approved by FERC. These customers
have the right to seek an energy supply from any wholesale electric service
provider upon contract expiration.
The FERC
has continued with its efforts to promote a more competitive wholesale market
through open-access transmission and other means. As a result, our sales to
other power suppliers and our purchases to supply our retail and wholesale load
are in the competitive market.
1
Employees, page
19
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3.
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We
note your disclosure that the labor contract covering 635 employees of
Minnesota Power and SWL&P has expired and that negotiations on a new
contract have continued through June 30, 2009. We also note in footnote
five of your financial statements for the fiscal quarter ended
June 30, 2009 that the matter has progressed to arbitration and
arbitration is set for October 2009. Please generally discuss the main
concessions the union is seeking and to the extent material, please
discuss the possible affects on your operations if the union was able to
win all or a majority of the concessions it is seeking. Please also
discuss what your anticipated timeframe for resolution will
be.
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Response
In our
September 30, 2009, Form 10-Q we will include the following and will continue to
address this issue in future filings if unresolved.
Minnesota
Power, SWL&P and IBEW Local 31, continue to work under contract extensions
of the agreements which expired on January 31, 2009. On April 10, 2009,
IBEW Local 31 requested binding arbitration in accordance with the provisions of
the contracts. The contracts also provide Minnesota Power and SWL&P
with the protections of no strike clauses. The sole matter in dispute that would
add cost to the agreement is wage adjustments; although the parties have not
reached an agreement on this issue, the economic gap between the parties would
not be considered material. The Company is also seeking changes to existing
benefit plans. Arbitration hearings took place October 5, 2009, with final
resolution expected in December 2009. We remain optimistic that we will achieve
a fair and equitable result in both agreements.
Item 1A. Risk Factors, page
21
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Our operations could
be significantly impacted by initiatives designed to reduce…, page
21
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4.
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We
note your disclosure that you are participating in research and study
initiatives to mitigate the potential impact of carbon emissions
regulation on our business. Please discuss here or in your Management’s
Discussion and Analysis of Financial Condition and Results of Operations
section the research and study initiatives you are referring to and how
they may mitigate the potential impact of carbon emissions regulation on
your business.
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Response
In our
December 31, 2009, Form 10-K, and future filings, when speaking of our efforts
to track or mitigate the potential impact of carbon emissions, we will include a
statement regarding our research and study initiatives similar to the following,
in Item 1A. Risk
Factors.
We participate in
several research and study initiatives aimed at mitigating the potential impact
of carbon emissions regulation on our business. Our goals are carbon emissions
reduction and avoidance through use of renewable energy sources where possible,
as well as implementation of efficiency and conservation efforts. In developing
strategies for our comprehensive approach to reducing our carbon emissions, we
participate in and fund organizations and studies to further this goal.
By equipping us with
technical knowledge needed to plan our future generation profile, our
involvement in technology development and implementation is expected to mitigate
the potential impact of carbon emissions regulation on our business.
2
As an
example, we
commissioned a study with the University of Minnesota titled: Assessment of Carbon Flows
Associated with Forest Management and Biomass Procurement for the Laskin Biomass
Facility. This study was the first of its kind to comprehensively look at
the carbon lifecycle as it relates to burning biomass for electrical generation
in the region.
We participate in an
Electric Power Research Institute – CoalFleet for Tomorrow project, which looks
at advanced clean coal generation and carbon capture research and assessment.
This provides Minnesota Power the ability to assess what technologies and when
they may be available that will best fit the economic fuels that are available
in our region.
We
participate in research through the Partnership for CO2 Capture.
It is looking at CO2 capture
technology through research conducted at the Energy and Environmental Research
Center, University of North Dakota. Minnesota Power is a partner, along
with a number of other utilities, technology providers, and consultants, to
further research CO2 capture
techniques, operational issues, and costs. The partnership is funded by the
members as well as the Department of Energy.
We cannot
predict whether our participation in any of these activities will result in a
benefit to ALLETE or impact the future financial position or results of
operations of the Company.
Items 7. Management’s
Discussion and Analysis of Financial Conditions…, page 26
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Investments and Other,
page 27
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2008 Compared to 2007,
page 26
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5.
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Please
expand your discussion to provide a more detailed discussion of your
operating results by explaining the changes in operation and cash flow
amounts between the periods, so that your readers may better understand
your operations. This discussion should not simply repeat information that
is available from the face of the financial statements, but should instead
explain the reasons behind the period-to-period changes. In this regard,
where you identify intermediate causes of changes in your operating
results, please be sure to fully describe the reasons underlying these
causes. For example, you state that a decrease in revenue at ALLETE
Properties was a result of “[w]eaker real estate market conditions in
Florida.” In this regard, you should revise to disclose what you mean by
“weaker real estate market conditions.” Similarly, please revise the
remainder of your “Results of Operations” section appropriately. For
additional guidance, please refer to SEC Release 33-8350, available on the
SEC website at
www.sec.gov/rules/interp/33-8350.htm.
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Response
In our
September 30, 2009, Form 10-Q we will include the following expanded discussion
for our Investments and Other segment. We will continue to include similar
expanded discussions in future filings.
3
COMPARISON
OF THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
Investments
and Other
Operating
revenue decreased $12.2 million, or 18 percent, from 2008 primarily due
to a $13.0 million reduction in sales revenue at ALLETE Properties. During the
first nine months of 2009, ALLETE Properties sold approximately 19 acres of
properties located outside of our three main development projects for $2.2
million; no other sales were made in 2009 due to the continued lack of demand
for our properties as a result of poor real estate market conditions in Florida.
During the first nine months of 2008, ALLETE Properties sold approximately 52
acres of property located outside of our three main development projects for
$4.6 million and recognized $2.6 million of previously deferred revenue
under percentage of completion accounting. Revenue at ALLETE Properties in 2008
also included a pre-tax gain of $4.5 million resulting from the sale of a retail
shopping center in Winter Haven, Florida.
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ALLETE
Properties
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2009
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2008
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Revenue
and Sales Activity
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Qty
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Amt
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Qty
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Amt
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Dollars
in Millions
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Revenue
from Land Sales
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Acres
(a)
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19
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$2.2
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52
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$4.6
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Contract
Sales Price (b)
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2.2
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4.6
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Revenue
Recognized from Previously Deferred Sales
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–
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2.6
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Deferred
Revenue
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(0.6)
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–
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Revenue
from Land Sales
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1.6
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7.2
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Other
Revenue (c)
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0.3
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7.7
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Total
ALLETE Properties Revenue
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$1.9
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$14.9
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(a)
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Acreage
amounts are shown on a gross basis, including wetlands and non-controlling
interest.
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(b)
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Reflects
total contract sales price on closed land transactions. Land sales are
recorded using a percentage-of-completion
method.
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(c)
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Included
a $4.5 million pre-tax gain from the sale of a shopping center in Winter
Haven, Florida in 2008.
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BNI Coal,
which operates under a cost-plus contract, recorded additional revenue of $2.9
million as a result of higher expenses (See Operating Expenses).
Operating
expenses decreased $7.0 million, or 11 percent, from 2008 reflecting
decreased expenses at ALLETE Properties due to both lower cost of land sold and
reductions in general and administrative expenses. Expenses incurred as a result
of a planned maintenance outage at a non-regulated generating facility in the
third quarter of 2008 also contributed to the decrease in 2009. Partially
offsetting these decreases was an increase in expense at BNI Coal due to higher
permitting costs relating to mining expansion, reclamation bonding, and dragline
repairs in 2009.
4
Interest expense
increased $2.5 million from 2008 primarily due to a decrease in the
proportion of ALLETE interest expense assigned to Minnesota Power. Interest
Expense reflected in our Investments and Other segment consists of ALLETE
interest expense not provided for in the regulatory orders for Minnesota Power
and SWL&P. We record interest expense for Minnesota Power based on Minnesota
Power’s most recently authorized capital structure. Effective August 1, 2008,
the proportion of interest expense assigned to Minnesota Power decreased to
reflect the authorized capital structure inherent in interim rates that
commenced on that date. Interest expense was also higher in 2009 as 2008
included a $0.6 million reversal of interest expense previously accrued due to
the closing of a tax year.
Other income
decreased $11.8 million from 2008 primarily due to a $6.8 million gain in
the first quarter of 2008, realized from the sale of certain available-for-sale
securities to reallocate investments to meet defined investment allocations
based upon an approved investment strategy, increased losses in our Emerging
Technology Investments in 2009 of $2.0 million, lower earnings on excess cash in
2009 of $1.6 million, and $1.4 million of interest income related to tax
benefits recognized in the third quarter of 2008.
Outlook, page
32
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Investments and Other,
page 36
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6.
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We
note your disclosure at the bottom of page 37 that you believe that your
Florida properties continue to have long-term value. We also note your
disclosure on page 35 in your Form 10-Q for the fiscal quarter ended June
30, 2009 that you believe the long-term prospects for your Florida
properties is favorable. In light of the current status of the real estate
market in Florida and across the United States, please discuss the basis
for your beliefs. Also, please discuss the extent to which your
consolidated results of operations, financial condition and liquidity will
be affected if the weakness in the Florida real estate market continues
for an extended period of time and you are unable to develop and/or sell
these properties.
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Response
In our
September 30, 2009, Form 10-Q, we will include the following expanded discussion
of our Florida real estate properties and we will continue to include similar
expanded discussions, as appropriate, in future filings.
Although
weak real estate market conditions currently exist, we continue to believe the
long-term prospects for our properties are favorable. In 2009, we commissioned
an independent real estate advisory firm to do a study on the State of Florida,
northeast Florida, and our specific major land developments (Town Center, Palm
Coast Park, and Ormond Crossings) compared to the major competing developments
in the region.
The study
projected that northeastern Florida is expected to capture an increased portion
of the state’s anticipated population growth, with the most significant growth
in St. Johns and Flagler Counties (the location of our major
developments). In addition, national demographic trends should have a
positive impact on Florida’s long-term outlook. Based on a comparison of our
three major developments compared with major competing developments in the
region, the study concluded that our properties are well-positioned. Therefore,
we believe our properties have long-term value and we have the ability to hold
these properties, if needed, until the market improves.
5
Should
current weak market conditions continue for an extended period of time, the
impact on our future operations would be the continuation of little to no sales
while still incurring operating expenses such as community development district
assessments and property taxes. This could result in annual net losses for
ALLETE Properties similar to 2009, which are projected to be approximately $5
million.
Liquidity and Capital
Resources, page 38
Securities, page
39
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7.
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We
note your disclosure that you sold three series of first mortgage bonds
into the private-placement market between February 2008 and December 2008
and one series in January 2009. Please clarify if these securities were
registered or unregistered. If unregistered, please provide the
information required under Item 701 of Regulation S-K. If these securities
were registered please indicate what registration statements these
securities were registered under. Please refer to Item 5 of Form
10-K.
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Response
The First
Mortgage Bonds that were sold into the private placement market between February
2008 and January 2009, in transactions exempt from registration under Section
4(2) of the Securities Act of 1933, as amended, to institutional accredited
investors.
As
revised in our September 30, 2009, Form 10-Q and for future filings, we will
include the information required under Item 701 of Regulation S-K as seen
below:
In
January 2009, we issued $42.0 million in principal amount of unregistered First
Mortgage Bonds (Bonds) in the private placement market. The Bonds mature January
15, 2019, and carry a coupon rate of 8.17 percent. We have the option to prepay
all or a portion of the Bonds at our discretion, subject to a make-whole
provision. The Bonds are subject to additional terms and conditions which are
customary for this type of transaction. We are using the proceeds from the sale
of the Bonds to fund utility capital expenditures and for general corporate
purposes. The Bonds were sold in reliance on exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended, to institutional
accredited investors.
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8.
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We
note that on page 38 under “Financing Activities” you disclose that you
issued 1.8 million shares of common stock for net proceeds of $71.1
million, but on page 40 under “Securities” you indicate that you issued
1.56 million shares of common stock under your February 19, 2008
distribution agreement with KCCI, Inc. for net proceeds of $60.8 million.
Please explain if these are the same transactions and, if not, please
advise if the 1.8 million shares of common stock that were issued were
registered or unregistered. If unregistered, please provide the
information required under Item 701 of Regulation S-K. If these shares
were registered please indicate what registration statement these
securities were registered under. If the 1.56 million and 1.8 million
issuances are part of the same transaction, please reconcile the
difference in the amount of shares issued and the amount of net
proceeds.
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Response
The 1.8
million shares of common stock that were issued for net proceeds of $71.1
million included the 1.56 million shares of common stock that were issued under
the February 19, 2008, distribution agreement with KCCI,
Inc.
6
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Shares
Issued
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Net
Proceeds
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Distribution
Agreement with KCCI, Inc.
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1.56
million
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$60.8
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Invest
Direct (our direct stock purchase and dividend reinvestment plan),
Employee Stock Purchase Plan, &
Retirement
Savings and Stock Ownership Plan
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0.24
million
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$10.3
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1.80
million
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$71.1
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All of
the 1.8 million shares of common stock have been registered under the following
registration statements:
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Registration
Statement No.
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Distribution
Agreement with KCCI, Inc.
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333-147965
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Invest
Direct
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333-150681
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Employee
Stock Purchase Plan
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333-105225
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Retirement
Savings and Stock Ownership Plan
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333-124455
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As
disclosed in our September 30, 2009, Form 10-Q below and in future filings we
will include in “Financing Activities” a more detailed discussion of the changes
in securities for the year.
Cash from
financing activities was $52.5 million for the nine months ended September 30,
2009 ($133.3 million for the nine months ended September 30, 2008). Cash
from financing activities was lower in 2009 than 2008 due to less debt issuance
which was partially offset by the issuance of 2.3 million shares of common
stock with net proceeds of $53.7 million.
In
February 2008, we entered into a Distribution Agreement with KCCI, Inc., with
respect to the issuance and sale of up to 2.5 million shares of our common
stock. In February 2009, we amended and restated the Distribution Agreement with
KCCI, Inc., such that it now provides for the issuance and sale of up to 5.0
million shares of our common stock, without par value. The shares may be offered
for sale, from time to time, in accordance with the terms of the agreement
pursuant to Registration Statement No. 333-147965. For the nine months ended
September 30, 2009, 1.5 million shares of common stock were issued under this
agreement resulting in net proceeds of $44.2 million.
In March
2009, we contributed 463,000 shares of ALLETE common stock, with an aggregate
value of $12.0 million, to our pension plan. On May 19, 2009, we registered the
463,000 shares of ALLETE common stock with the SEC pursuant to Registration
Statement No. 333-147965.
Year to
date we have issued 0.3 million shares of common stock through Invest Direct,
Employee Stock Purchase Plan and Retirement Savings and Stock Ownership Plan
resulting in net proceeds of $9.5 million. These shares of common stock were
registered under the following Registration Statement Nos. 333-150681,
333-105225, and 333-124455, respectively.
7
Contractual Obligations,
page 40
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9.
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We
note your statement that you are unable to predict contribution levels to
your defined benefit pension or post-retirement health and life plans
after 2009. We also note on page 79 under Note 14 to your financial
statements that the fair value of your pension plan assets went from
$405.6 million at December 31, 2007 to $273.7 million at the end of
December 31, 2008 and your pension obligations at December 31, 2008 was
$440.4 million. Please discuss why you are unable to predict your
contribution levels past 2009 and the actions you are taking to address
the unfunded portion of your pension obligations. Please discuss in your
“Liquidity and Capital Resources” section how the large increase in the
unfunded portion of your pension obligations may affect your financial
condition, liquidity and
operations.
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Response
Based on
developments in 2009, including guidance issued by the US Treasury Department in
March, we are in a better position to predict future contribution levels. In our
September 30, 2009, Form 10-Q, we will include the following expanded discussion
to our “Liquidity and Capital Resources” section, and we will continue to
include similar expanded discussion, as appropriate, in future
filings.
The
funded status of the pension and other postretirement benefit obligations refers
to the difference between plan assets and estimated obligations under the
plans. The funded status may change over time due to several factors,
including contribution levels, assumed discount rates and actual and assumed
rates of return on plan assets. During 2008 the unfunded status of ALLETE’s
pension and postretirement benefit plans increased significantly, to $255.0
million at December 31, 2008, primarily due to a decline in the value of plan
assets.
Management
considers various factors when making funding decisions such as regulatory
changes, actuarially determined minimum contribution requirements, and
contributions required to avoid benefit restrictions for the pension
plans. Estimated pension contributions for years 2010 through 2014 are
approximately $25 million per year, and are based on estimates and assumptions
that are subject to change. Funding for the other postretirement benefit plans
is impacted by utility regulatory requirements. Estimated postretirement
contributions for years 2010 through 2014 are approximately $11 million per
year, and are based on estimates and assumptions that are subject to change.
Based on the estimated contributions for the pension and other postretirement
benefit plans and the sources of cash as described above, we do not anticipate
these obligations to have a material impact on our financial condition or
liquidity.
8
Item 15. Exhibits and
Financial Statements Schedules, page 45
Exhibit 10 – Material
Contracts
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10.
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We
note that several of your material contracts, including Exhibits 10(c),
10(d)(1), 10(e) and 10(g) listed on your Exhibit Index are noted as being
filed without appendices and exhibits. While Item 601(b)(2) of Regulation
S-K permits you to provide omitted information supplementally upon
request, there is not a similar provision in Item 601(b)(10) of Regulation
S-K. Please confirm that you will re-file a complete copy of these
agreements with your next periodic report or advise why it is not
appropriate for you to do so.
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Response
Exhibits
10(c), 10(d)(1), and 10(g) will be filed with our December 31, 2009, Form 10-K.
Our December 31, 2008, Form 10-K does not list an Exhibit 10(e). However, it
does list Exhibits 10(e)1 and 10(e)2 which were filed in their
entirety.
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11.
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We
note that Exhibit 10(d)(3), “Second Amendment to Fourth Amended and
Restated Committed Facility Letter dated December 14, 2008”: is not filed
with your Form 10-K and there is no cross-reference to the filing that
contains this exhibit. Please advise what filing contains this
exhibit.
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Response
The
Second Amendment to Fourth Amended and Restated Committed Facility Letter dated,
December 14, 2006, was originally filed as Exhibit 10(d)(3) to the 2006
Form 10-K, File No. 1-3548. This cross-reference will be added to our December
31, 2009, Form 10-K, and future filings, as applicable.
Consolidated
Financial Statements, page 50
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12.
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Tell
us your consideration of the applicability of the footnote disclosure
requirements in Rule
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4-08(e)(3)(i)
and (ii) of Regulation S-X. Also tell us whether Schedule I is required
pursuant to Rules 5-04 and 12-04 of Regulation S-X. In responding to the
comment, please tell us the amount of restricted net assets of
consolidated and unconsolidated subsidiaries as defined in
Rule
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4-08(e)(3)
of Regulation S-X, and how you compute this amount. Confirm that future
filings will be revised to address these disclosure requirements, as
applicable.
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Response
Neither
Schedule I pursuant to Rules 5-04 and 12-04 or the disclosures required by Rule
4-08(e)(3)(i) and (ii) of Regulation S-X are applicable to ALLETE as total
restricted net assets of consolidated and unconsolidated subsidiaries as well as
ALLETE’s equity in the undistributed earnings of 50 percent or less owned
persons accounted for by the equity method do not exceed 25 percent of ALLETE’s
consolidated net assets as of December 31, 2008.
9
BNI Coal,
Inc. is the only ALLETE subsidiary that has a restriction on its ability to
transfer assets to ALLETE, and that restricted amount is $15.5 million. In
addition, we have $6.0 million of undistributed earnings from our investment in
the American Transmission Company LLC, an entity that we have an approximate 8
percent ownership interest in and account for under the equity method. In total,
restricted subsidiary net assets and undistributed earnings from entities
accounted for under the equity method are 2.6 percent of consolidated net assets
at December 31, 2008.
It should
be noted that ALLETE is an operating company as its primary business, Minnesota
Power, is a division of ALLETE and not a subsidiary.
Definitive Proxy Statement
on Schedule 14A
General
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13.
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Please
provide the disclosure required under Item 407(e)(4) regarding
compensation committee interlocks and insider participation or advise why
you are not required to do so.
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Response
Pursuant
to Item 407(e)(4), we were only required to disclose the identity of the members
of the compensation committee, because no 2008 transactions or relationships
triggered a disclosure obligation. In accordance with the
Compensation and Disclosure Interpretations relating to Regulation S-K, No.
233.02 (published March 13, 2007), we omitted the Item 407(e)(4) caption
(“Compensation Committee Interlocks and Insider Participation”).
Related Person Transactions
and Director Independence Determinations, page 9
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14.
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We
note your statement that “[t]he Corporate Governance Committee examined
all transactions between Directors and the Company…” Please confirm that
you examined all transactions between the company and executive officers
or other related parties and please disclose the information required
under Item 404 of Regulation S-K with respect to any related party
transaction that falls within the scope of Item 404 of Regulation
S-K.
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Response
There
were no transactions between the company and executive officers or other related
parties (other than directors) in 2008 that would fall within the scope of Item
404.
To the
extent applicable, we will make a statement to this effect in our 2010 Proxy
Statement and future filings.
10
Compensation Discussion and
Analysis, page 13
Process for Determining
Executive Compensation, page 19
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15.
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Please
discuss the extent to which the Compensation Committee has the discretion
to approve the vesting or payout of awards under each of your performance
oriented compensation programs absent the attainment of the
pre-established performance goals tied to each of your compensation
programs.
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Response
Subject
to the relevant plan documents, the Compensation Committee has full discretion
to determine the terms and conditions of awards under the Annual Incentive Plan,
including the discretion to increase, reduce, or eliminate awards regardless of
whether applicable performance goals have been achieved. The Long-Term Incentive
Compensation Plan ("LTIP") is intended to provide performance-based compensation
within the meaning of Internal Revenue Code section 162(m); therefore, the
Compensation Committee has the discretion to reduce or eliminate LTIP awards,
but not the ability to increase awards or provide any payment on awards for
which applicable performance goals have not been achieved. Effective January 1,
2009, the Results Sharing program has been discontinued. While the Results
Sharing program was in effect, the Compensation Committee did not have
discretion to increase, reduce, or eliminate Results Sharing awards if
applicable performance goals were achieved.
To the
extent applicable, we will include a similar statement in our 2010 Proxy
Statement and future filings.
Role of Management, page
19
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16.
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We
note that Mr. Shippar recommends compensation levels to the Compensation
Committee based, in part, on Mr. Shippar’s assessment of each executives
performance. Please discuss the specific elements of individual
performance or contribution that you have taken into consideration. See
Item 402(b)(2)(vii) of Regulation
S-K.
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Response
At the
beginning of each year Mr. Shippar works with each Named Executive Officer to
identify individual goals that are aligned with corporate objectives, strategic
plan objectives and individual department objectives that are unique to each
Named Executive Officer’s position and scope of responsibility. Individual goals
pertain to meeting financial targets, leading and overseeing major projects,
operational efficiencies, reliability, compliance, safety, and leadership
succession and effectiveness. Mr. Shippar documents each Named Executive
Officer’s performance during the year describing accomplishments, areas of
strength, and areas for development. For each Named Executive Officer (other
than himself), Mr. Shippar bases his evaluation on an individual written
self-assessment completed by the Named Executive Officer, his knowledge of the
individual’s accomplishments, and discussions with the Named Executive
Officer.
To the
extent applicable, we will include a similar statement in our 2010 Proxy
Statement and future filings.
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Additionally,
we acknowledge that:
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We
are responsible for the adequacy and accuracy of the disclosure in our
filings;
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SEC
comments or changes to disclosure in response to SEC staff comments do not
foreclose the SEC from taking any action with respect to our filings;
and
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We
may not assert SEC staff comments as a defense in any proceeding initiated
by the SEC or any person under the federal securities laws of the United
States.
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If you
have any further questions or would like to discuss our responses, please
contact me at (218) 723-3975, or Steve DeVinck, Controller, at (218)
723-3920.
Sincerely,
/s/ Mark A. Schober
Mark A.
Schober
Senior
Vice President and Chief Financial Officer
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