10-K 1 form10k123102.txt FORM 10-K 12/31/02 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 ----------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______
Commission Name of Registrant, State of Incorporation, IRS Employer File Number Address of Principal Executive Offices and Telephone Number Identification Number ----------- ----------------------------------------------------------- --------------------- 1-9894 ALLIANT ENERGY CORPORATION 39-1380265 (a Wisconsin corporation) 4902 N. Biltmore Lane Madison, Wisconsin 53718 Telephone (608)458-3311 0-4117-1 INTERSTATE POWER AND LIGHT COMPANY 42-0331370 (an Iowa corporation) Alliant Energy Tower Cedar Rapids, Iowa 52401 Telephone (319)786-4411 0-337 WISCONSIN POWER AND LIGHT COMPANY 39-0714890 (a Wisconsin corporation) 4902 N. Biltmore Lane Madison, Wisconsin 53718 Telephone (608)458-3311
This combined Form 10-K is separately filed by Alliant Energy Corporation, Interstate Power and Light Company and Wisconsin Power and Light Company. Information contained in the Form 10-K relating to Interstate Power and Light Company and Wisconsin Power and Light Company is filed by such registrant on its own behalf. Each of Interstate Power and Light Company and Wisconsin Power and Light Company makes no representation as to information relating to registrants other than itself. Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Title of Class Exchange on Which Registered -------------- ---------------------------- Alliant Energy Corporation Common Stock, $.01 Par Value New York Stock Exchange Alliant Energy Corporation Common Stock Purchase Rights New York Stock Exchange Interstate Power and Light Company 7-7/8% Quarterly Debt Capital Securities New York Stock Exchange (Subordinated Deferrable Interest Debentures) Wisconsin Power and Light Company 4.50% Preferred Stock, No Par Value American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: Wisconsin Power and Light Company Preferred Stock (Accumulation without Par Value) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Exchange Act). Alliant Energy Corporation Yes [X] No [ ] Interstate Power and Light Company Yes [ ] No [X] Wisconsin Power and Light Company Yes [ ] No [X] The aggregate market value of the voting and non-voting common equity held by nonaffiliates as of June 28, 2002: Alliant Energy Corporation $2.32 billion Interstate Power and Light Company $-- Wisconsin Power and Light Company $-- Number of shares outstanding of each class of common stock as of Feb. 28, 2003:
Alliant Energy Corporation Common stock, $0.01 par value, 92,658,243 shares outstanding Interstate Power and Light Company Common stock, $2.50 par value, 13,370,788 shares outstanding (all of which are owned beneficially and of record by Alliant Energy Corporation) Wisconsin Power and Light Company Common stock, $5 par value, 13,236,601 shares outstanding (all of which are owned beneficially and of record by Alliant Energy Corporation)
DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statements relating to Alliant Energy Corporation's and Wisconsin Power and Light Company's 2003 Annual Meetings of Shareowners are, or will be upon filing with the Securities and Exchange Commission, incorporated by reference into Part III hereof. 2
TABLE OF CONTENTS Page Number ------ Part I Item 1. Business 6 Item 2. Properties 23 Item 3. Legal Proceedings 25 Item 4. Submission of Matters to a Vote of Security Holders 26 Executive Officers of the Registrants 26 Part II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters 29 Item 6. Selected Financial Data 30 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 32 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 56 Item 8. Financial Statements and Supplementary Data 56 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 124 Part III Item 10. Directors and Executive Officers of the Registrants 124 Item 11. Executive Compensation 124 Item 12. Security Ownership of Certain Beneficial Owners and Management 125 Item 13. Certain Relationships and Related Transactions 126 Item 14. Controls and Procedures 126 Part IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 126 Signatures 134 Certifications 137 Exhibit Index 143
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DEFINITIONS Certain abbreviations or acronyms used in the text and notes of this report are defined below: Abbreviation or Acronym Definition ----------------------- ---------- AFUDC Allowance for Funds Used During Construction Alliant Energy Alliant Energy Corporation ANR ANR Pipeline APB Accounting Principles Board Opinion ATC American Transmission Company LLC Btu British Thermal Unit CAA Clean Air Act Calpine Calpine Corporation Capstone Capstone Turbine Corporation Cargill Cargill Incorporated Cargill-Alliant Cargill-Alliant, LLC CIPCO Central Iowa Power Cooperative Corporate Services Alliant Energy Corporate Services, Inc. DAEC Duane Arnold Energy Center DNR Department of Natural Resources DOE U.S. Department of Energy Dth Dekatherm EAC Energy Adjustment Clause EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization EIP 2002 Equity Incentive Plan EITF Emerging Issues Task Force EITF Issue 02-3 Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities EITF Issue 98-10 Accounting for Contracts Involved in Energy Trading and Risk Management Activities Enermetrix Enermetrix, Inc. EPA U.S. Environmental Protection Agency EPS Earnings Per Average Common Share EWG Exempt Wholesale Generator FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission FIN FASB Interpretation No. FIN 45 Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others FIN 46 Consolidation of Variable Interest Entities FUCO Foreign Utility Company GAAP Accounting Principles Generally Accepted in the U.S. ICC Illinois Commerce Commission IES IES Industries Inc. IESU IES Utilities Inc. Integrated Services Alliant Energy Integrated Services Company International Alliant Energy International, Inc. Investments Alliant Energy Investments, Inc. IPC Interstate Power Company IP&L Interstate Power and Light Company IRS Internal Revenue Service ISO Independent System Operator IUB Iowa Utilities Board Kewaunee Kewaunee Nuclear Power Plant KV Kilovolt KW Kilowatt KWh Kilowatt-hour 4 Abbreviation or Acronym Definition ----------------------- ---------- LTEIP Long-Term Equity Incentive Plan MAIN Mid-America Interconnected Network, Inc. MAPP Mid-Continent Area Power Pool McLeod McLeodUSA Incorporated MD&A Management's Discussion and Analysis of Financial Condition and Results of Operations MG&E Madison Gas & Electric Company MGP Manufactured Gas Plants Moody's Moody's Investors Service MPUC Minnesota Public Utilities Commission MW Megawatt MWh Megawatt-hour NEIL Nuclear Electric Insurance Limited NEPA National Energy Policy Act of 1992 NERC North American Electric Reliability Council NGPL Natural Gas Pipeline Co. of America NMC Nuclear Management Company, LLC NNG Northern Natural Gas Company NOx Nitrogen Oxides NRC Nuclear Regulatory Commission NWPA Nuclear Waste Policy Act of 1982 PSCW Public Service Commission of Wisconsin PUHCA Public Utility Holding Company Act of 1935 Resources Alliant Energy Resources, Inc. SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards SFAS 115 Accounting for Certain Investments in Debt and Equity Securities SFAS 133 Accounting for Derivative Instruments and Hedging Activities SFAS 143 Accounting for Asset Retirement Obligations SmartEnergy SmartEnergy, Inc. South Beloit South Beloit Water, Gas and Electric Company Southern Hydro Southern Hydro Partnership STB U.S. Surface Transportation Board Synfuel Alliant Energy Synfuel LLC TBD To Be Determined TRANSLink TRANSLink Transmission Company LLC Transportation Alliant Energy Transportation, Inc. U.S. United States of America WEPCO Wisconsin Electric Power Company Whiting Whiting Petroleum Corporation WP&L Wisconsin Power and Light Company WPLH WPL Holdings, Inc. WPSC Wisconsin Public Service Corporation WUHCA Wisconsin Utility Holding Company Act
5 FORWARD-LOOKING STATEMENTS Refer to "Forward-Looking Statements" in MD&A for information and disclaimers regarding forward-looking statements contained in this Annual Report on Form 10-K. PART I This Annual Report on Form 10-K includes information relating to Alliant Energy, IP&L and WP&L (as well as Resources and Corporate Services). Where appropriate, information relating to a specific entity has been segregated and labeled as such. At Dec. 31, 2002, the assets and liabilities of Alliant Energy's oil and gas (Whiting), Australian (including Southern Hydro) and affordable housing businesses were classified as held for sale. The operating results for these non-regulated businesses for all periods presented have been separately classified and reported as discontinued operations in Alliant Energy's Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this Annual Report. Refer to Note 16 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information. On Jan. 1, 2002, IPC merged with and into IESU and IESU changed its name to IP&L. IP&L's Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this Annual Report illustrate the impact of the merger as if it had occurred as of Jan. 1, 2000. ITEM 1. BUSINESS A. GENERAL In April 1998, IES, WPLH and IPC completed a merger resulting in Alliant Energy. The primary first tier subsidiaries of Alliant Energy include: IP&L, WP&L, Resources and Corporate Services. Among various other regulatory constraints, Alliant Energy is operating as a registered public utility holding company subject to the limitations imposed by PUHCA. Alliant Energy was incorporated in Wisconsin in 1981. A brief description of the primary first-tier subsidiaries of Alliant Energy is as follows: 1) IP&L - incorporated in Iowa in 1925 as Iowa Railway and Light Corporation. IP&L is a public utility engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and the provision of steam services in selective markets, in Iowa, Minnesota and Illinois. In Iowa, non-exclusive franchises, which cover the use of streets and alleys for public utility facilities in incorporated communities, are granted for a maximum of 25 years by a majority vote of local qualified residents. At Dec. 31, 2002, IP&L supplied electric and gas service to 526,284 and 234,853 (excluding transportation and other) customers, respectively. In 2002, 2001 and 2000, IP&L had no single customer for which electric, gas and/or steam sales accounted for 10% or more of IP&L's consolidated revenues. 2) WP&L - incorporated in Wisconsin in 1917 as Eastern Wisconsin Electric Company, is a public utility engaged principally in the generation, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and the provision of water services in selective markets. Nearly all of WP&L's customers are located in south and central Wisconsin. WP&L operates in municipalities pursuant to permits of indefinite duration, which are regulated by Wisconsin law. At Dec. 31, 2002, WP&L supplied electric and gas service to 430,406 and 170,123 (excluding transportation and other) customers, respectively. WP&L also had 19,527 water customers. In 2002, 2001 and 2000, WP&L had no single customer for which electric, gas and/or water sales accounted for 10% or more of WP&L's consolidated revenues. WPL Transco LLC is a wholly-owned subsidiary of WP&L and holds WP&L's investment in ATC. WP&L also owns all of the outstanding capital stock of South Beloit, a public utility supplying electric, gas and water service, principally in Winnebago County, Illinois, which was incorporated in 1908. 3) RESOURCES - incorporated in 1988 in Wisconsin, the majority of Alliant Energy's non-regulated investments are organized under Resources. Resources' significant wholly-owned subsidiaries at Dec. 31, 2002 include International, Alliant Energy Generation, Inc., Integrated Services, Investments, Transportation, Whiting and SmartEnergy. Refer to "D. Information Relating to Non-regulated Operations" for additional details. 4) CORPORATE SERVICES - subsidiary formed to provide administrative services to Alliant Energy and its subsidiaries as required under PUHCA. 6 Refer to Note 13 of the "Notes to Consolidated Financial Statements" for further discussion of business segments, which information is incorporated herein by reference. B. INFORMATION RELATING TO ALLIANT ENERGY ON A CONSOLIDATED BASIS 1) EMPLOYEES As of Dec. 31, 2002, Alliant Energy had the following employees (full-time and part-time):
Percentage Number of Number of of Workforce Number of Bargaining Unit Bargaining Covered by Employees Employees Agreements Agreements ------------- ----------------- -------------- ---------------- IP&L 1,692 1,426 7 84% WP&L 1,541 1,456 1 94% Resources: International (a) 3,135 -- -- -- Integrated Services 647 -- -- -- Investments (a) 246 81 5 33% Other 83 -- -- -- Corporate Services 1,626 -- -- -- ------------- ----------------- -------------- 8,970 2,963 13 33% ============= ================= ==============
(a) Includes employees of Alliant Energy's discontinued operations, which represented approximately 2% of total employees at Dec. 31, 2002. In 2003, five bargaining agreements expire representing approximately 51% of employees covered under bargaining agreements and 17% of total Alliant Energy employees. Alliant Energy has not experienced any significant work stoppage problems in the past. While negotiations have commenced, Alliant Energy is currently unable to predict the outcome of these negotiations. 2) CAPITAL EXPENDITURE AND INVESTMENT PLANS Refer to "Liquidity and Capital Resources - Construction and Acquisition Expenditures" in MD&A for discussion of anticipated construction and acquisition expenditures for 2003-2005. Refer to "C. Information Relating to Domestic Utility Operations - 1) Electric Utility Operations - Power Supply" for information related to IP&L's and WP&L's plans for the development of new electric generation in Iowa and Wisconsin, respectively. 3) REGULATION Alliant Energy operates as a registered public utility holding company subject to regulation by the SEC under PUHCA. Alliant Energy and its subsidiaries are subject to the regulatory provisions of PUHCA, including provisions relating to the issuance and sales of securities, acquisitions and sales of certain utility properties, acquisitions and retention of interests in non-utility businesses and the services provided by Corporate Services to Alliant Energy and its subsidiaries. Alliant Energy is subject to regulation by the PSCW. The PSCW regulates, among other things, the type and amount of Alliant Energy's investments in non-utility businesses. WP&L is also subject to regulation by the PSCW as to retail utility rates and service, accounts, issuance and use of proceeds of securities, certain additions and extensions to facilities and in other respects. WP&L is required to file a rate case with the PSCW at least every two years based on a forward-looking test year period. IP&L operates under the jurisdiction of the IUB. The IUB has authority to regulate rates and standards of service, to prescribe accounting requirements and to approve the location and construction of electric generating facilities having a capacity in excess of 25,000 KW. Requests for rate relief are based on historical test periods, adjusted for certain known and measurable changes. The IUB must decide on requests for rate relief within 10 months of the date of the application for which relief is filed or the interim prices granted become permanent. Interim rates, if allowed, are permitted to become effective, subject to refund, no later than 90 days after the rate increase application is filed. 7 IP&L is also subject to regulation by the MPUC. Requests for rate relief can be based on either historical or projected data. The MPUC must reach a final decision within 10 months. Interim rates are permitted. The MPUC also has jurisdiction to approve IP&L's capital structure on an annual basis. In addition, IP&L and South Beloit are subject to regulation by the ICC for retail utility rates and service, accounts, issuance and use of proceeds of securities, certain additions and extensions to facilities and in other respects. Requests for rate relief must be decided within 11 months. FERC has jurisdiction under the Federal Power Act over certain of the electric utility facilities and operations, wholesale rates and accounting practices of IP&L and WP&L, and in certain other respects. In addition, certain natural gas facilities and operations of IP&L and WP&L are subject to the jurisdiction of FERC under the Natural Gas Act. With respect to environmental matters, the EPA administers certain federal statutes and has delegated the administration of other environmental initiatives to the applicable state environmental agencies. In addition, the state agencies have jurisdiction over air and water quality standards associated with certain electric generation and the level and flow of water, safety and other matters pertaining to hydroelectric generation. IP&L and WP&L are directly and indirectly subject to the jurisdiction of the NRC, with respect to DAEC and Kewaunee, respectively, and to the jurisdiction of the DOE with respect to the disposal of nuclear fuel and other radioactive wastes from DAEC and Kewaunee. At Dec. 31, 2002, Alliant Energy's remaining investment authority under the 100% of consolidated retained earnings PUHCA order was approximately $200 million of future EWG and/or FUCO investments with financings that have recourse to the parent company in addition to certain commitments already made. The electricity industry in Brazil, as it relates to Alliant Energy's unconsolidated investments, is regulated by the Brazilian federal government, acting through the Ministry of Mines and Energy, which has exclusive authority over the electricity sector through regulatory powers assigned to it. Regulatory policy for the sector is implemented by an autonomous national electric energy agency (Agencia Nacional de Energia Eletrica or "ANEEL"), which delegates certain functions to agencies based in certain states of Brazil. However, ANEEL cannot delegate any authority regarding tariffs to state agencies. In January 2003, a new Minister of Mines and Energy was appointed thus the comprehensive review of the regulatory process and policies that was underway in 2002 has ceased and a new plan has since been announced. This plan includes a pooling of generation so that all companies will have access to lower energy prices, use of a different inflation index for purposes of tariff setting and aid from the national development bank. Although details of the plan are unknown at this time, Alliant Energy believes the plan will not have a material adverse impact on Alliant Energy's investments in Brazil. Refer to Note 2 of Alliant Energy's "Notes to Consolidated Financial Statements" and "Rates and Regulatory Matters" in MD&A for additional information regarding regulation and utility rate matters. 4) STRATEGIC ACTIONS Refer to "Strategic Actions" in MD&A for a discussion of various strategic actions Alliant Energy is taking to strengthen its financial profile. C. INFORMATION RELATING TO DOMESTIC UTILITY OPERATIONS Alliant Energy realized 50%, 44%, 4% and 2% of its 2002 electric utility revenues in Iowa, Wisconsin, Minnesota and Illinois, respectively. Approximately 91% of the electric revenues were regulated by the respective state commissions while the other 9% were regulated by FERC. Alliant Energy realized 50%, 44%, 3% and 3% of its 2002 gas utility revenues in Iowa, Wisconsin, Minnesota and Illinois, respectively. IP&L realized 91%, 7% and 2% of its 2002 electric utility revenues in Iowa, Minnesota and Illinois, respectively. Approximately 96% of IP&L's 2002 electric revenues were regulated by the respective state commissions while the other 4% were regulated by FERC. IP&L realized 93%, 5% and 2% of its 2002 gas utility revenues in Iowa, Minnesota and Illinois, respectively. WP&L realized 98% of its 2002 electric utility revenues in Wisconsin and 2% 8 in Illinois. Approximately 84% of WP&L's 2002 electric revenues were regulated by the PSCW or the ICC while the other 16% were regulated by FERC. WP&L realized 97% of its 2002 gas utility revenues in Wisconsin and 3% in Illinois. 1) ELECTRIC UTILITY OPERATIONS General - The utilities provide electric service in Iowa, southern and central Wisconsin, southern Minnesota and northern and northwestern Illinois. The number of electric customers and communities served by each utility at Dec. 31, 2002 was as follows:
Retail Customers Wholesale Customers Other Customers Communities Served ----------------- ----------------------- -------------------- ---------------------- IP&L 524,956 10 1,318 760 WP&L 428,390 30 1,986 602 ----------------- ----------------------- -------------------- ---------------------- 953,346 40 3,304 1,362 ================= ======================= ==================== ======================
2002 electric utility operations accounted for 80% and 81% of operating revenues and 90% and 90% of operating income for IP&L and WP&L, respectively. Electric sales are seasonal to some extent with the annual peak normally occurring in the summer months. In 2002, the maximum peak hour demands for IP&L and WP&L were 3,097 MW on July 8, 2002 and 2,674 MW on Aug. 1, 2002, respectively. In 2002, the maximum peak hour demand for Alliant Energy was 5,729 MW on July 8, 2002, which was the coincident peak of the entire Alliant Energy system. IP&L and WP&L are members of the MAIN Regional Reliability Council which is one of the 10 regional members of NERC. Each regional member of NERC is responsible for maintaining reliability in its area through coordination of planning and operations. In 2001, IP&L and five other electric utility companies filed an application with FERC to create TRANSLink, a for-profit, transmission-only company. In April 2002, FERC conditionally approved the formation of TRANSLink and TRANSLink's participation in the Midwest ISO. In June 2002, TRANSLink Development Co. LLC was formed to oversee the start-up activities for TRANSLink. In the fourth quarter of 2002, three additional electric utility companies joined TRANSLink. Current plans call for IP&L to contribute transmission assets of 69 KV and greater, which have an estimated net book value of approximately $226 million (as of Dec. 31, 2002), to TRANSLink in exchange for a yet to be determined combination of a corresponding ownership interest in TRANSLink and cash. IP&L filed for the necessary state approvals in the fourth quarter of 2002. TRANSLink is currently expected to be operational in the third quarter of 2003 and will be the transmission network provider to approximately 7.7 million customers in 13 states. The PSCW issued a final ruling in October 2002 regarding incremental electric transmission costs, which allows Wisconsin utilities, including WP&L, to continue to defer any such costs related to retail service for five years with deferred amounts included in future base rate cases. During this period, changes in electric transmission costs will have no material impact on WP&L's results of operations. WP&L, including South Beloit, transferred its transmission assets with no gain or loss (approximate net book value of $186 million) to a transmission-only company, ATC, on Jan. 1, 2001. WP&L received a tax-free cash distribution of $75 million from ATC and had a $112 million equity investment in ATC, with an ownership percentage of approximately 26.6% at Dec. 31, 2002. This transfer has not resulted in a significant impact on WP&L's financial condition or results of operations since FERC allows ATC to earn a return on the contributed assets comparable to the return formerly allowed WP&L by the PSCW and FERC. In addition, incremental start-up and ongoing transmission costs are being recovered in rates. During 2002, ATC returned approximately 80% of its earnings to the equity holders and, although no assurance can be given, Alliant Energy anticipates ATC will continue with this policy in the future. ATC realizes its revenues from the provision of transmission services to both participants in ATC as well as non-participants. ATC is a transmission-owning member of the Midwest ISO and the MAIN Regional Reliability Council. IP&L maintains and operates transmission and substation facilities connecting with its high voltage transmission systems pursuant to a non-cancelable operation agreement (the Operating Agreement) with CIPCO. The Operating 9 Agreement, which will terminate on Dec. 31, 2035, provides for the joint use of certain transmission facilities of IP&L and CIPCO. IP&L has transmission interconnections at various locations with nine other transmission owning utilities in the Midwest. WP&L transferred its transmission and substation facilities to ATC on Jan. 1, 2001 and ATC has transmission interconnections at various locations. These interconnections enhance the overall reliability of the Alliant Energy transmission system and provide access to multiple sources of economic and emergency energy. Refer to "Properties" for additional information regarding electric properties. Fuel - Refer to the Electric Operating Information tables for details on the sources of electric energy for Alliant Energy, IP&L and WP&L from 1998 to 2002. The average cost of fuel per million Btu's used for electric generation was as follows:
IP&L WP&L ---------------------------------------- ---------------------------------------- 2002 2001 2000 2002 2001 2000 ---------------------------------------- ---------------------------------------- Coal $1.067 $0.991 $0.981 $1.262 $1.146 $1.152 Nuclear 0.572 0.608 0.594 0.457 0.423 0.424 All Fuels 1.032 1.046 1.014 1.234 1.158 1.115
Coal - Alliant Energy, through Corporate Services, IP&L and WP&L, has entered into contracts with different suppliers to ensure that a specified supply of coal is available at known prices for IP&L and WP&L for 2003 through 2006. These contracts provide for a portfolio of coal supplies that cover approximately 94%, 68%, 49% and 23% of the total utilities' estimated coal supply needs for 2003 through 2006, respectively. Management believes this portfolio of coal supplies represents a reasonable balance between the risks of insufficient supplies and those associated with larger open positions subject to price volatility in the coal markets. Remaining coal requirements will be met from either future contracts or purchases in the spot market. The majority of the coal utilized by IP&L and WP&L is from the Wyoming Powder River Basin. A majority of this coal is transported by rail-car directly from Wyoming to IP&L's and WP&L's generating stations, with the remainder transported from Wyoming to the Mississippi River by rail-car and then via barges to the final destination. As protection against interruptions in coal deliveries, IP&L and WP&L maintain average coal inventories of 30 to 50 days for generating stations with year-round deliveries and 30 to 150 days (depending upon time of the year) for generating stations with seasonal deliveries. Average delivered fossil fuel costs are expected to increase in the future due to price/rate structures and adjustment provisions in existing coal and transportation contracts and recent coal market trends. Existing coal contracts with terms of greater than one year have fixed future year prices that generally reflect recent upward market trends. Other factors which may impact coal prices are related to changes in various associated laws and regulations. For example, sulfur dioxide and NOx emission restrictions and other environmental limitations on generating stations have increased significantly and proposed additional restrictions (including some for mercury emissions), if enacted, will likely further increase the difficulty and cost of obtaining adequate coal supplies. Rate adjustment provisions in transportation contracts are primarily based on changes in the Rail Cost Adjustment Factor as published by the STB. Refer to Note 1(j) for discussion of IP&L's and WP&L's rate recovery of fuel costs, Note 10(a) for information on coal derivatives and Note 11(b) for details relating to coal purchase commitments in the "Notes to Consolidated Financial Statements." Purchased-Power - During 2002, approximately 23% and 30% of IP&L's and WP&L's total MWh requirements, respectively, were met through purchased-power. Refer to Notes 3 and 11(b) of the "Notes to Consolidated Financial Statements" for details relating to purchased-power commitments. Nuclear - Alliant Energy owns interests in two nuclear facilities, DAEC and Kewaunee. DAEC, a 580 MW (net capacity) boiling water reactor plant, is operated by the NMC under contract to IP&L, which has a 70% ownership interest in the plant. The owners of DAEC are responsible for the decommissioning of the plant. The DAEC operating license expires in 2014. Kewaunee, a 532 MW (net capacity) pressurized water reactor plant, is operated by the NMC under contract to WPSC and is jointly owned by WPSC (59%) 10 and WP&L (41%). WPSC and WP&L are responsible for the decommissioning of the plant. The Kewaunee operating license expires in 2013. WPSC is considering whether or not to seek extension of the operating license to 2033. Alliant Energy Nuclear LLC, a non-utility subsidiary of Alliant Energy, has a 20% ownership interest in the NMC. The purpose of the NMC is to consolidate operation of the nuclear plants owned by the NMC partners and to provide similar capability for other nuclear plant operators and owners. Consolidation of operation by the NMC is expected to sustain long-term safety, optimize reliability and improve the operational performance of the nuclear generating plants. The NMC currently operates eight nuclear generating units at six sites. The NMC partners continue to individually own their plants through their utility subsidiaries, are entitled to energy generated at the plants and retain the financial obligations for the safe operation, maintenance and decommissioning of the plants. As co-owners of nuclear generating units, IP&L and WP&L are subject to the jurisdiction of the NRC. The NRC has broad supervisory and regulatory jurisdiction over the construction and operation of nuclear reactors, particularly with regard to public health, safety and environmental considerations. The operation and design of nuclear power plants is under constant review by the NRC. IP&L's and WP&L's anticipated nuclear-related construction expenditures for 2003-2005 are approximately $70 million and $32 million, respectively. Kewaunee is subject to additional inspections related to reactor vessel head cracking found at other pressurized water reactor plants. After evaluating the cost of continued required inspections of the existing reactor vessel head, WPSC and WP&L have submitted a construction authorization request to the PSCW for replacement of the reactor vessel head. The replacement is scheduled to occur during the fall 2004 refueling outage at a total cost of approximately $20 million (WP&L's share is approximately $8 million). In 2001, a steam generator replacement was completed at Kewaunee. On Feb. 25, 2002, the NRC issued an order to all licensees formalizing their requirements for additional security resulting from the Sept. 11, 2001 terrorist attacks on the U.S. Prior to this order, the additional security measures were voluntary based on NRC guidance. The NMC, as operator of DAEC and Kewaunee, responded to the NRC and has fully implemented the additional security measures. The issue of cost recovery for DAEC is being addressed in IP&L's pending retail rate case. In December 2001, the PSCW authorized WP&L to defer incremental costs for security measures and insurance premiums related to the Sept. 11, 2001 terrorist attacks. WP&L began deferring the increased costs in December 2001 and the issue of cost recovery is being addressed in WP&L's pending 2003 retail rate case. In 2000, the NRC issued expanded performance measures, which raised several areas of concern with Kewaunee's operations. Addressing the NRC's concerns and ensuring that Kewaunee operates in accordance with current industry and regulatory standards resulted in additional operating costs. WP&L has deferred $5.5 million of such costs at Dec. 31, 2002. The incremental and deferred amounts are currently being collected in WP&L's 2002 retail rate increase. Public liability for nuclear accidents is governed by the Price-Anderson Act of 1988 as amended (Act), which sets a statutory limit of $9.55 billion for liability to the public for a single nuclear power plant incident and requires nuclear power plant operators to provide financial protection for this amount. As required, IP&L provides this financial protection for a nuclear incident at DAEC through a combination of liability insurance ($300 million) and industry-wide retrospective payment plans ($9.25 billion). Under the industry-wide plan, each operating licensed nuclear reactor in the U.S. is subject to an assessment in the event of a nuclear incident at any nuclear plant in the U.S. IP&L, as a 70% owner of DAEC, could be assessed a maximum of $61.7 million per nuclear incident, with a maximum of $7 million per incident per year, if losses relating to the incident exceeded $300 million. These limits are subject to adjustments for changes in the number of participants and inflation in future years. Similarly, WP&L, as a 41% owner of Kewaunee, is subject to an overall assessment of approximately $36.1 million per incident, not to exceed $4.1 million payable in any given year. The Act expired on Aug. 1, 2002, with no impact to IP&L or WP&L as existing nuclear power plants are covered under the insurance system of the Act for the remainder of their operating lives. It is anticipated that extension or renewal of the Act will apply only to new construction. Currently there is legislation pending in the U.S. Congress that includes extensions of the Act, increasing the statutory limit for liability to the public for a single nuclear power plant incident and increasing the maximum annual assessment per incident. 11 IP&L and WP&L are members of NEIL, which provides $1.5 billion of insurance coverage for DAEC and $1.8 billion for Kewaunee on certain property losses for property damage, decontamination and premature decommissioning. The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair and premature decommissioning. NEIL also provides separate coverage for additional expenses incurred during certain outages. Owners of nuclear generating stations insured through NEIL are subject to retroactive premium adjustments if losses exceed accumulated reserve funds. NEIL's accumulated reserve funds are currently sufficient to more than cover its exposure in the event of a single incident under the primary and excess property damage or additional expense coverages. However, IP&L could be assessed annually a maximum of $3.3 million for NEIL primary property, $3.2 million for NEIL excess property and $2.4 million for NEIL additional expenses if losses exceed the accumulated reserve funds. WP&L could be assessed annually a maximum of $1.7 million for NEIL primary property, $3.3 million for NEIL excess property and $1.0 million for NEIL additional expense coverage. IP&L and WP&L are not currently aware of any losses that they believe are likely to result in an assessment. In the event of a catastrophic loss at DAEC or Kewaunee, the amount of insurance available may not be adequate to cover property damage, decontamination and premature decommissioning. Uninsured losses, to the extent not recovered through rates, would be borne by IP&L or WP&L, as the case may be, and could have a material adverse effect on their financial condition and results of operations. The NWPA assigned responsibility to the DOE to establish a facility for the ultimate disposition of high level waste and spent nuclear fuel and authorized the DOE to enter into contracts with parties for the disposal of such material beginning in 1998, in exchange for payments by contract holders. IP&L (for DAEC) and WPSC (for Kewaunee) entered into such contracts and have made the agreed payments to the Nuclear Waste Fund held by the U.S. Treasury. The companies were subsequently notified by the DOE that it was not able to begin acceptance of spent nuclear fuel by the 1998 deadline. Furthermore, the DOE has experienced significant delays in its efforts and material acceptance is now expected to occur no earlier than 2010 with the possibility of further delay being likely. Alliant Energy continues to monitor and evaluate its options for recovery of damages due to the DOE's delay in accepting spent nuclear fuel. The DOE is currently preparing an application to license a permanent spent fuel storage facility in the Yucca Mountain area of Nevada. The NWPA also assigned responsibility for interim storage of spent nuclear fuel to generators of such spent nuclear fuel, such as IP&L and WPSC. In accordance with this responsibility, IP&L and WPSC have been and will continue storing spent nuclear fuel on site at DAEC and Kewaunee, respectively, until removal of all spent nuclear fuel by the DOE to its permanent repository occurs. Interim storage activities at reactor sites, regardless of DOE delays or acceptance schedules, will extend after final reactor shutdown. Construction of a dry cask storage facility by IP&L at DAEC has been completed and transfer of used fuel into the facility is expected to begin in 2003. The storage facility will provide assurance that both the operating and post-shutdown storage needs of DAEC are satisfied. Kewaunee has sufficient fuel storage capacity to store all of the fuel it will generate through 2009. No decisions have been made concerning additional storage capacity needed beyond 2009. The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandates that each state must take responsibility for the storage of low-level radioactive waste produced within its borders. The States of Iowa and Wisconsin are members of the six-state Midwest Interstate Low-Level Radioactive Waste Compact (Compact), which is responsible for development of any new disposal capability within the Compact member states. Disposal facilities located near Barnwell, South Carolina and Clive, Utah continue to accept the low-level waste from DAEC and Kewaunee, thereby minimizing the amount of low-level waste stored on-site. Given technological advances, waste compaction and the reduction in the amount of waste generated, DAEC and Kewaunee each have on-site storage capability sufficient to store low-level waste expected to be generated over at least the next 10 years. While the operators of DAEC and Kewaunee are unable to predict how long these facilities will continue to accept their waste, continuing access to these facilities expands their on-site storage capability indefinitely. WPSC purchases uranium concentrates, conversion services, enrichment services, and fabrication services for nuclear fuel assemblies at Kewaunee. New fuel assemblies replace used assemblies that are removed from the reactor every 18 months and placed in storage at the plant site pending removal by the DOE. Uranium concentrates, conversion services, and enrichment services are purchased at spot market prices, through a bid process, or using existing contracts. Conversion services are complete for the nuclear fuel reload scheduled in 2003. WPSC has contracted for a fixed quantity of enrichment 12 services through 2004. Additional enrichment services will be acquired under an existing contract or by purchases on the spot market. WPSC has contracted for fuel fabrication services for the next six reloads. WPSC's uranium inventory policy is to maintain sufficient inventory for up to two reloads of fuel. At Dec. 31, 2002, approximately 160,000 pounds of yellowcake (a processed form of uranium ore) or its equivalent was held in inventory for the plant. Each refueling requires approximately 500,000 pounds of yellowcake. In 2003, approximately 825,000 pounds of yellowcake will be acquired to meet the requirements of the inventory policy. Uranium and enrichment services for the Spring 2003 refueling outage at DAEC have been completed. IP&L believes that an ample supply of uranium and enrichment services will be available in the future and intends to continue its strategy of purchasing such uranium and enrichment services as necessary on the spot market and/or via medium length (less than five years) contracts to meet its generation requirements. These sources of supply will be used to meet delivery requirements for an early 2005 refueling outage. Arrangements for the fabrication of nuclear fuel are in place through the 2011 refueling of DAEC. Additional discussions of various other nuclear issues relating to DAEC and Kewaunee are included in Notes 1, 3, 9, 10(c), 11(e), 11(f) and 12 of the "Notes to Consolidated Financial Statements." Power Supply - Wisconsin enacted electric reliability legislation in 1998 (Wisconsin Reliability Act) with the goal of assuring reliable electric energy for Wisconsin. The law allows the construction of merchant power plants in the state and streamlines the regulatory approval process for building new generation and transmission facilities. The PSCW is authorized to order construction of new transmission facilities, based on the findings of its regional transmission constraint study, through Dec. 31, 2004. In October 2001, the PSCW approved the construction of a 345 KV transmission line, which will improve transmission import capabilities in Wisconsin. Re-approval of the project due to significant cost increases is expected during the summer of 2003 by the PSCW. WP&L notes that it may take time for new transmission and power plant projects to be approved and built in Wisconsin. In 2000, WP&L and Calpine announced an agreement whereby Calpine would build, own and operate a 600 MW natural gas-fired combined cycle power plant in Wisconsin at WP&L's Rock River plant (Riverside project). WP&L has entered into a purchased-power agreement for 453 MW of this plant's output, which is anticipated to be available prior to the time of the 2004 summer peak demand. Construction began in September 2002 and is expected to assist WP&L in meeting its growing demands for electricity, to place a greater reliance on generation physically located in Wisconsin versus power purchased from outside of Wisconsin and to help WP&L maintain the required 18% reserve margin in Wisconsin. The Iowa Legislature passed a bill in 2001 to encourage construction of new generating facilities in Iowa. In 2001, Alliant Energy's subsidiaries announced their interest in developing new electric generation capacity in Iowa and Wisconsin over the next 10 years with an estimated investment of $2.5 billion. IP&L announced a willingness to develop up to 1,200 MW of new electric generation over the next 10 years. Currently, Alliant Energy's Power Iowa plan includes adding approximately 550 MW of natural gas-fired generation (500 MW by 2004), 100 MW of capacity generated from renewable energy sources by December 2003, researching options for an additional 500-600 MW of generation and increases in energy efficiency through energy conservation and process improvements at various commercial and industrial customer locations. In January 2003, the IUB approved IP&L's siting certificate for a 500 MW natural gas-fired plant in Mason City, Iowa and construction began. In addition, in December 2002, IP&L began purchasing approximately 57 MW of capacity from a wind generation facility in Iowa. In Wisconsin, Alliant Energy's current plans are to install approximately 800 MW of additional electric generation over the next 10 years, including approximately 500-700 MW of base and/or intermediate generation and approximately 100-300 MW of simple-cycle gas generation. WP&L currently anticipates meeting its 2003 power supply requirements, including the required 18% reserve margin, through a variety of incremental power supply resources which include, but are not limited to, renegotiated purchased-power contracts from current suppliers utilizing existing firm transmission rights to replace currently expiring purchased-power contracts and additional power purchases from existing generating units located within and outside of Wisconsin. The largest challenge that WP&L faces in securing power supply resources necessary to meet its 2003 requirements is the lack of available incremental firm transmission service to import additional power 13 supply resources into WP&L's load-serving area from bulk power supply sources outside of Wisconsin. While Alliant Energy currently expects to meet utility customer demands in 2003, unanticipated reliability issues could still arise in the event of unexpected power plant outages, transmission system outages or extended periods of extremely hot weather. Refer to "Liquidity and Capital Resources - Construction and Acquisition Expenditures" in MD&A for additional information. Electric Environmental Matters - Alliant Energy is regulated in environmental matters by a number of federal, state and local agencies. Such regulations are the result of a number of environmental laws passed by the U.S. Congress, state legislatures and local governments and enforced by federal, state and local agencies. The laws impacting Alliant Energy's operations include, but are not limited to, the Safe Drinking Water Act; Clean Water Act; CAA, as amended by the CAA Amendments of 1990; National Environmental Policy Act; Toxic Substances Control Act; Emergency Planning and Community Right-to-Know Act; Resource Conservation and Recovery Act; Comprehensive Environmental Response, Compensation and Liability Act of 1980; NWPA; Occupational Safety and Health Act; and NEPA. Alliant Energy regularly obtains federal, state and local permits to assure compliance with the environmental protection laws and regulations. Costs associated with such compliance have increased in recent years and are expected to increase moderately in the future. In February 2003, WP&L's Columbia Energy Center (Columbia) received a Notice of Violation from the Wisconsin DNR for exceeding limits in its Wisconsin Pollutant Discharge Elimination System permit, which requires Columbia to sample its discharge to test for acute and chronic toxicity. In its most recent permit, Columbia was to identify what was causing the toxicity issue through an evaluation and develop a reduction plan. The evaluation was performed and Columbia developed a reduction plan that identified carbon dioxide injection as the treatment to reduce the aluminum concentrations. The Wisconsin DNR did not approve this method of treatment and directed Columbia to revise the reduction plan, at which time Columbia began evaluating a number of treatment alternatives and physical evaluation. WP&L has been working with the Wisconsin DNR to resolve this issue. While it is possible that the Wisconsin DNR may subsequently seek to impose a civil penalty, WP&L believes it can resolve this issue to the Wisconsin DNR's satisfaction in a manner that will not have a material adverse effect on its financial condition or results of operations. Refer to "Liquidity and Capital Resources - Environmental" in MD&A and Note 11(e) of the "Notes to Consolidated Financial Statements" for further discussion of electric environmental matters. 14
Alliant Energy Corporation ------------------------------------------------------------------------------------------------------------------------------------ Electric Operating Information (Utility Only) 2002 2001 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $626,947 $599,074 $567,283 $541,714 $532,676 Commercial 376,365 373,145 349,019 329,487 317,704 Industrial 526,804 543,471 501,155 476,140 477,241 --------------------------------------------------------------------------- Total from ultimate customers 1,530,116 1,515,690 1,417,457 1,347,341 1,327,621 Sales for resale 160,335 184,507 173,148 155,801 199,128 Other 62,083 56,359 57,431 45,796 40,693 --------------------------------------------------------------------------- Total $1,752,534 $1,756,556 $1,648,036 $1,548,938 $1,567,442 =========================================================================== ------------------------------------------------------------------------------------------------------------------------------------ Electric Sales (000s MWh): Residential 7,616 7,344 7,161 7,024 6,826 Commercial 5,542 5,464 5,364 5,260 4,943 Industrial 12,297 12,469 13,092 13,036 12,718 --------------------------------------------------------------------------- Total from ultimate customers 25,455 25,277 25,617 25,320 24,487 Sales for resale 4,805 4,936 4,906 5,566 7,189 Other 197 168 174 162 158 --------------------------------------------------------------------------- Total 30,457 30,381 30,697 31,048 31,834 =========================================================================== ------------------------------------------------------------------------------------------------------------------------------------ Customers (End of Period): Residential 822,229 807,754 799,603 790,669 781,127 Commercial 128,212 125,539 123,833 122,509 121,027 Industrial 2,905 2,826 2,773 2,730 2,618 Other 3,344 3,324 3,316 3,282 3,267 --------------------------------------------------------------------------- Total 956,690 939,443 929,525 919,190 908,039 =========================================================================== ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Electric Data: Maximum peak hour demand (MW) 5,729 5,677 5,397 5,233 5,228 Sources of electric energy (000s MWh): Coal and gas 18,349 18,662 19,139 19,078 19,119 Purchased power 8,596 8,727 8,058 8,619 10,033 Nuclear 5,012 4,116 4,675 4,362 4,201 Other 379 452 427 528 504 --------------------------------------------------------------------------- Total 32,336 31,957 32,299 32,587 33,857 =========================================================================== Revenue per KWh from ultimate customers (cents) 6.01 6.00 5.53 5.32 5.42 ------------------------------------------------------------------------------------------------------------------------------------
15
Interstate Power and Light Company ------------------------------------------------------------------------------------------------------------------------------------ Electric Operating Information 2002 2001 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $355,072 $350,946 $337,615 $328,218 $333,906 Commercial 229,639 234,876 221,820 212,540 208,980 Industrial 315,494 335,680 311,070 305,022 314,470 ------------------------------------------------------------------------ Total from ultimate customers 900,205 921,502 870,505 845,780 857,356 Sales for resale 34,513 53,320 57,433 53,050 70,592 Other 30,136 28,284 27,907 23,501 24,790 ------------------------------------------------------------------------ Total $964,854 $1,003,106 $955,845 $922,331 $952,738 ======================================================================== ------------------------------------------------------------------------------------------------------------------------------------ Electric Sales (000s MWh): Residential 4,184 4,026 4,010 3,913 3,862 Commercial 3,392 3,342 3,333 3,280 3,045 Industrial 7,843 7,931 8,404 8,466 8,225 ------------------------------------------------------------------------ Total from ultimate customers 15,419 15,299 15,747 15,659 15,132 Sales for resale 1,151 1,412 1,678 2,314 2,697 Other 103 107 111 108 99 ------------------------------------------------------------------------ Total 16,673 16,818 17,536 18,081 17,928 ======================================================================== ------------------------------------------------------------------------------------------------------------------------------------ Customers (End of Period): Residential 446,202 439,508 437,425 434,978 430,793 Commercial 76,856 75,132 74,483 73,813 73,170 Industrial 1,898 1,836 1,799 1,783 1,709 Other 1,328 1,359 1,393 1,389 1,407 ------------------------------------------------------------------------ Total 526,284 517,835 515,100 511,963 507,079 ======================================================================== ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Electric Data: Maximum peak hour demand (MW) 3,097 3,104 3,021 2,930 2,902 Sources of electric energy (000s MWh): Coal and gas 10,219 10,343 11,065 10,892 10,203 Purchased power 4,134 4,595 4,041 5,183 6,110 Nuclear 3,202 2,697 3,117 2,548 2,682 Other 127 171 179 240 216 ------------------------------------------------------------------------ Total 17,682 17,806 18,402 18,863 19,211 ======================================================================== Revenue per KWh from ultimate customers (cents) 5.84 6.02 5.53 5.40 5.67 ------------------------------------------------------------------------------------------------------------------------------------
16
Wisconsin Power and Light Company ------------------------------------------------------------------------------------------------------------------------------------ Electric Operating Information 2002 2001 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $271,875 $248,128 $229,668 $213,496 $198,770 Commercial 146,726 138,269 127,199 116,947 108,724 Industrial 211,310 207,791 190,085 171,118 162,771 ------------------------------------------------------------------------ Total from ultimate customers 629,911 594,188 546,952 501,561 470,265 Sales for resale 125,822 131,187 115,715 102,751 128,536 Other 31,947 28,075 29,524 22,295 15,903 ------------------------------------------------------------------------ Total $787,680 $753,450 $692,191 $626,607 $614,704 ======================================================================== ------------------------------------------------------------------------------------------------------------------------------------ Electric Sales (000s MWh): Residential 3,432 3,318 3,151 3,111 2,964 Commercial 2,150 2,122 2,031 1,980 1,898 Industrial 4,454 4,538 4,688 4,570 4,493 ------------------------------------------------------------------------ Total from ultimate customers 10,036 9,978 9,870 9,661 9,355 Sales for resale 3,654 3,524 3,228 3,252 4,492 Other 94 61 63 54 59 ------------------------------------------------------------------------ Total 13,784 13,563 13,161 12,967 13,906 ======================================================================== ------------------------------------------------------------------------------------------------------------------------------------ Customers (End of Period): Residential 376,027 368,246 362,178 355,691 350,334 Commercial 51,356 50,407 49,350 48,696 47,857 Industrial 1,007 990 974 947 909 Other 2,016 1,965 1,923 1,893 1,860 ------------------------------------------------------------------------ Total 430,406 421,608 414,425 407,227 400,960 ======================================================================== ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Electric Data: Maximum peak hour demand (MW) 2,674 2,696 2,508 2,397 2,292 Sources of electric energy (000s MWh): Coal and gas 8,130 8,319 8,074 8,186 8,916 Purchased power 4,462 4,132 4,017 3,436 3,923 Nuclear 1,810 1,419 1,558 1,814 1,519 Other 252 281 248 288 288 ------------------------------------------------------------------------ Total 14,654 14,151 13,897 13,724 14,646 ======================================================================== Revenue per KWh from ultimate customers (cents) 6.28 5.95 5.54 5.19 5.03 ------------------------------------------------------------------------------------------------------------------------------------
17 2) GAS UTILITY OPERATIONS The utilities provide gas service in Iowa, southern and central Wisconsin, southern Minnesota and northern and northwestern Illinois. The number of gas customers and communities served by each utility at Dec. 31, 2002 was as follows:
Transportation and Retail Customers Other Customers Communities Served ------------------- ---------------------- ----------------------- IP&L 234,853 219 253 WP&L 170,123 254 233 ------------------- ---------------------- ----------------------- 404,976 473 486 =================== ====================== =======================
2002 gas utility operations accounted for 18% and 18% of operating revenues and 7% and 9% of operating income for IP&L and WP&L, respectively, which include providing gas services to retail and transportation customers. In providing gas commodity service to retail customers, Corporate Services administers a diversified portfolio of transportation and storage contracts on behalf of IP&L and WP&L. Transportation contracts with NNG, NGPL and ANR allow access to gas supplies located in the U.S. and Canada. Arrangements with Firm Citygate Supplies (FCS) provide IP&L and WP&L with gas delivered directly to their service territories. The maximum daily delivery capacity of the individual utilities for 2002 was as follows (in Dths):
NNG NGPL ANR FCS Total --------------- -------------- --------------- ----------------- --------------- IP&L 198,641 89,932 61,737 22,000 372,310 WP&L 90,056 -- 146,467 34,000 270,523
IP&L and WP&L maintain purchase agreements with over 30 suppliers of natural gas from all gas producing regions of the U.S. and Canada. The majority of the gas supply contracts are for terms of six months or less, with the remaining supply contracts having terms up to two years. The utilities' gas supply commitments are index-based. In addition to sales of natural gas to retail customers, IP&L and WP&L provide transportation service to commercial and industrial customers by moving customer-owned gas through their distribution systems to the customers' meter. Revenues are collected for this service pursuant to transportation tariffs. The gas sales of IP&L and WP&L follow a seasonal pattern. There is an annual base load of gas used for cooking, heating and other purposes, with a large heating peak occurring during the winter season. Natural gas obtained from producers, marketers and brokers, as well as gas in storage, is utilized to meet the peak heating season requirements. Storage contracts allow IP&L and WP&L to purchase gas in the summer, store the gas in underground storage fields and deliver it in the winter. Gas storage met approximately 20% and 16% of IP&L's and WP&L's annual gas requirements in 2002, respectively. Refer to Note 1(j) for information relating to utility natural gas cost recovery, Note 10(a) for information on natural gas derivatives and Note 11(b) for discussion of natural gas commitments in the "Notes to Consolidated Financial Statements." Gas Environmental Matters - Refer to Note 11(e) of the "Notes to Consolidated Financial Statements" for discussion of gas environmental matters. 18
Alliant Energy Corporation ------------------------------------------------------------------------------------------------------------------------------------ Gas Operating Information (Utility Only) 2002 2001 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $218,746 $270,248 $245,697 $185,090 $175,603 Commercial 111,343 141,121 127,104 89,118 85,842 Industrial 25,177 31,262 27,752 21,855 20,204 Transportation/other 38,720 45,246 14,395 18,256 13,941 ----------------------------------------------------------------- Total $393,986 $487,877 $414,948 $314,319 $295,590 ================================================================= ------------------------------------------------------------------------------------------------------------------------------------ Gas Sales (000s Dths): Residential 30,931 29,580 32,026 30,309 28,378 Commercial 19,348 18,055 19,696 18,349 17,760 Industrial 5,373 5,344 5,350 5,963 5,507 Transportation/other 47,386 48,539 43,931 46,954 52,389 ----------------------------------------------------------------- Total 103,038 101,518 101,003 101,575 104,034 ================================================================= ------------------------------------------------------------------------------------------------------------------------------------ Customers at End of Period (Excluding Transportation/Other): Residential 358,384 353,430 351,990 347,533 342,586 Commercial 45,793 45,480 44,654 44,289 43,825 Industrial 799 951 953 1,037 982 ----------------------------------------------------------------- Total 404,976 399,861 397,597 392,859 387,393 ================================================================= ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Gas Data: Revenue per Dth sold (excluding transportation/other) $6.38 $8.35 $7.02 $5.42 $5.45 Purchased gas costs per Dth sold (excluding transportation/other) $4.02 $6.31 $4.88 $3.30 $3.22 ------------------------------------------------------------------------------------------------------------------------------------
19
Interstate Power and Light Company ------------------------------------------------------------------------------------------------------------------------------------ Gas Operating Information 2002 2001 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $124,237 $162,575 $149,493 $115,428 $110,430 Commercial 61,222 82,463 72,592 53,548 51,944 Industrial 18,197 22,355 19,171 15,778 14,308 Transportation/other 11,239 13,621 8,540 8,795 7,171 ------------------------------------------------------------------ Total $214,895 $281,014 $249,796 $193,549 $183,853 ================================================================== ------------------------------------------------------------------------------------------------------------------------------------ Gas Sales (000s Dths): Residential 18,068 17,826 19,257 18,239 17,442 Commercial 10,774 10,483 11,101 10,578 10,475 Industrial 4,070 4,147 3,874 4,443 4,085 Transportation/other 28,814 31,673 30,251 33,717 39,441 ------------------------------------------------------------------ Total 61,726 64,129 64,483 66,977 71,443 ================================================================== ------------------------------------------------------------------------------------------------------------------------------------ Customers at End of Period (Excluding Transportation/Other): Residential 206,808 205,065 205,300 203,518 201,521 Commercial 27,607 27,649 27,071 26,909 26,767 Industrial 438 441 440 461 476 ------------------------------------------------------------------ Total 234,853 233,155 232,811 230,888 228,764 ================================================================== ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Gas Data: Revenue per Dth sold (excluding transportation/other) $6.19 $8.24 $7.05 $5.55 $5.52 Purchased gas cost per Dth sold (excluding transportation/other) $4.11 $6.20 $4.89 $3.41 $3.20 ------------------------------------------------------------------------------------------------------------------------------------ Wisconsin Power and Light Company ------------------------------------------------------------------------------------------------------------------------------------ Gas Operating Information 2002 2001 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $94,509 $107,673 $96,204 $69,662 $65,173 Commercial 50,121 58,658 54,512 35,570 33,898 Industrial 6,980 8,907 8,581 6,077 5,896 Transportation/other 27,481 31,625 5,855 9,461 6,770 ------------------------------------------------------------------ Total $179,091 $206,863 $165,152 $120,770 $111,737 ================================================================== ------------------------------------------------------------------------------------------------------------------------------------ Gas Sales (000s Dths): Residential 12,863 11,754 12,769 12,070 10,936 Commercial 8,574 7,572 8,595 7,771 7,285 Industrial 1,303 1,197 1,476 1,520 1,422 Transportation/other 18,572 16,866 13,680 13,237 12,948 ------------------------------------------------------------------ Total 41,312 37,389 36,520 34,598 32,591 ================================================================== ------------------------------------------------------------------------------------------------------------------------------------ Customers at End of Period (Excluding Transportation/Other): Residential 151,576 148,365 146,690 144,015 141,065 Commercial 18,186 17,831 17,583 17,380 17,058 Industrial 361 510 513 576 506 ------------------------------------------------------------------ Total 170,123 166,706 164,786 161,971 158,629 ================================================================== ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Gas Data: Revenue per Dth sold (excluding transportation/other) $6.67 $8.54 $6.97 $5.21 $5.34 Purchased gas cost per Dth sold (excluding transportation/other) $3.89 $6.47 $4.69 $3.00 $3.13 ------------------------------------------------------------------------------------------------------------------------------------
20 D. INFORMATION RELATING TO NON-REGULATED OPERATIONS Resources manages a portfolio of wholly-owned subsidiaries and additional investments through distinct platforms: International, Non-regulated Generation, Integrated Services, Investments and Energy Technologies. In November 2002, Alliant Energy announced its commitment to pursue the sale of, or other exit strategies for, Whiting, its investments in Australia and its affordable housing business. Refer to Note 16 in Alliant Energy's "Notes to Consolidated Financial Statements" for additional information. Resources intends to focus on its International and Non-regulated Generation businesses as its primary long-term strategic platforms and will continue reviewing for ways to narrow its strategic focus and business platforms. International - has invested in energy generation and distribution companies and projects in select growing markets. Currently, International has investments in Brazil, China and New Zealand and a loan to a development project in Mexico. International has focused on these locations because of its belief that they offer a growing demand for energy and are receptive to foreign investment. International also has developed partnerships with other entities that have intimate knowledge of each local market's business trends and customs. In addition, Alliant Energy has investments in Australia that it is in the process of selling. Refer to Note 9 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information related to Alliant Energy's investments in foreign entities. Non-regulated Generation - Alliant Energy Generation, Inc., was formed to build a portfolio of competitive generating assets across the U.S., focusing primarily on the Upper Midwest. Alliant Energy expects to build this portfolio through a combination of strategic acquisitions, partnerships and development projects. Given the status of the current non-regulated generation market, Alliant Energy's initial investments in this market will focus on facilities with underlying long-term purchased-power agreements. While Alliant Energy believes there are strong acquisition opportunities in the existing non-regulated generation market, it will continue to be patient, prudent and diligent in its pursuit of such opportunities. Synfuel has an equity interest in a synthetic fuel processing facility. The synthetic fuel project generates operating losses at its fuel processing facility, which are more than offset by tax credits and the tax benefit of the losses generated. Refer to "Liquidity and Capital Resources - Construction and Acquisition Expenditures" in MD&A for additional information including an announcement in February 2003 regarding the purchase of a generation facility. Integrated Services - provides a wide range of energy and environmental services for commercial, industrial, institutional, educational and governmental customers. It offers large energy users an array of services to maximize customers' productivity, profitability and energy efficiency, and provides solutions for waste remediation and other environmental engineering and consulting services. Integrated Services includes: Cogenex Corporation (Cogenex), Industrial Energy Applications, Inc. (IEA), Heartland Energy Group, Inc. (HEG), RMT, Inc. (RMT) and Alliant Energy Integrated Services Company - Energy Solutions L.L.C. (Energy Solutions). Cogenex and IEA provide business customers with on-site energy services. HEG offers commodities-based energy services primarily related to supplying natural gas and owns several natural gas and oil gathering systems in Texas. RMT is an environmental and engineering consulting company that serves clients nationwide in a variety of industrial market segments and specializes in consulting on solid and hazardous waste management, ground water quality protection, industrial design and hygiene engineering, and air and water pollution control. RMT is marketing SmartBurn, which is a large-scale emissions-reducing program for coal-burning facilities, to other U.S. companies. Energy Solutions provides energy consulting services to commercial, industrial and institutional customers. Investments - subsidiaries and investments include Transportation and Investments. Transportation is a holding company whose wholly-owned subsidiaries include the Cedar Rapids and Iowa City Railway Company (CRANDIC), which is a short-line railway that provides freight service between Cedar Rapids and Iowa City; IEI Barge Services, Inc. (Barge), which provides barge terminal and hauling services on the Mississippi River; and Williams Bulk Transfer Inc. (Williams) and Transfer Services, Inc. (Transfer), which provide transfer and storage services. Investments is a holding company whose primary wholly-owned subsidiary includes Iowa Land and Building Company (Iowa Land) which is organized to pursue real estate and economic development activities in IP&L's service territory. Investments also has direct and indirect equity interests in various small real estate and economic development ventures, primarily concentrated in Cedar Rapids, Iowa, and holds other passive investments, including an equity interest in McLeod, an integrated telecommunications and services provider. Alliant Energy is in the process of selling Whiting and its affordable housing business. 21 Energy Technologies - Resources has invested in energy technologies by purchasing equity interests in Capstone, a microturbine producer; Nth Power Technologies Fund II, LP, a venture capital fund specializing in emerging energy-technology companies; and several other modest investments in emerging energy technology businesses. These ventures allow Alliant Energy to provide its customers with new technologies that are smaller in scale than more traditional generation technologies, such as microturbines, fuel cells, solar concepts and wind turbines. Mass Marketing has held interests in energy marketing businesses. In January 2003, Alliant Energy committed to a plan to sell SmartEnergy, an internet-based retailer, and Alliant Energy is in the process of disbanding its Mass Marketing business unit. E. DISCLOSURE CONCERNING WEBSITE ACCESS TO REPORTS Alliant Energy makes its periodic and current reports, and amendments to those reports, available, free of charge, on its website at www.alliantenergy.com/investors on the same day as such material is electronically filed with, or furnished to, the SEC. Alliant Energy is not including the information contained on its website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. 22 ITEM 2. PROPERTIES IP&L IP&L's principal electric generating stations at Dec. 31, 2002, were as follows:
Name and Location Primary Fuel 2002 Summer Capability of Station Type in KWs ------------------------------------------------------------------ --------------- -------------------------------------- Duane Arnold Energy Center, Palo, IA Nuclear 393,050 (1) Ottumwa Generating Station, Ottumwa, IA Coal 345,690(2) Prairie Creek Station, Cedar Rapids, IA Coal 194,560 Sutherland Station, Marshalltown, IA Coal 142,700 Sixth Street Station, Cedar Rapids, IA Coal 49,510 Burlington Generating Station, Burlington, IA Coal 215,060 George Neal Unit 3, Sioux City, IA Coal 144,200(3) George Neal Unit 4, Sioux City, IA Coal 138,640(4) Dubuque Units 2, 3 and 4, Dubuque, IA Coal 77,070 M. L. Kapp Plant Units 1 and 2, Clinton, IA Coal 238,300 Lansing Units 1, 2, 3 and 4, Lansing, IA Coal 317,130 Louisa Unit 1, Louisa, IA Coal 28,000(5) ----------- Total Coal 1,890,860 Marshalltown Combustion Turbines, Marshalltown, IA Oil 167,500 Centerville Combustion Turbines, Centerville, IA Oil 53,660 Montgomery Combustion Turbine Unit 1, Montgomery, MN Oil 20,210 Fox Lake Plant Combustion Turbine Unit 4, Sherburn, MN Oil 20,070 Lime Creek Plant Combustion Turbine Units 1 and 2, Mason City, IA Oil 72,960 Diesel Stations, in IA/MN Oil 18,350 ----------- Total Oil 352,750 Grinnell Station, Grinnell, IA Gas 25,630 Agency Street Combustion Turbines, West Burlington, IA Gas 66,990 Burlington Combustion Turbines, Burlington, IA Gas 66,730 Red Cedar Combustion Turbine, Cedar Rapids, IA Gas 17,380 Fox Lake Plant Units 1, 2 and 3, Sherburn, MN Gas 106,870 ----------- Total Gas 283,600 ------------ Total generating capability 2,920,260 ============
All KWs shown below represent the 2002 summer generating capability. (1) Represents IP&L's 70% ownership interest in this 561,500 KW generating station, which is operated by IP&L. (2) Represents IP&L's 48% ownership interest in this 720,190 KW generating station, which is operated by IP&L. (3) Represents IP&L's 28% ownership interest in this 515,000 KW generating station, which is operated by MidAmerican Energy Company. (4) Represents IP&L's 21.5% ownership interest in this 644,000 KW generating station, which is operated by MidAmerican Energy Company. (5) Represents IP&L's 4% ownership interest in this 700,000 KW generating station, which is operated by MidAmerican Energy Company. IP&L owns 7,068 miles of electric transmission lines and 801 substations, substantially all located in Iowa, Minnesota and Illinois. IP&L's principal properties are suitable for their intended use and are held subject to the liens of indentures relating to its bonds. 23 WP&L WP&L's principal electric generating stations at Dec. 31, 2002, were as follows:
Name and Location Primary Fuel 2002 Summer Capability of Station Type in KWs ----------------------------------------------------------- --------------- -------------------------------------- Kewaunee Nuclear Power Plant, Kewaunee, WI Nuclear 217,300 (1) Nelson Dewey Generating Station, Cassville, WI Coal 222,460 Edgewater Generating Station #3, Sheboygan, WI Coal 76,000 Edgewater Generating Station #4, Sheboygan, WI Coal 230,520 (2) Edgewater Generating Station #5, Sheboygan, WI Coal 314,340 (3) Columbia Energy Center, Portage, WI Coal 502,130 (4) ------------- Total Coal 1,345,450 Blackhawk Generating Station, Beloit, WI Gas 54,500 Rock River Generating Station, Beloit, WI Gas 147,830 Rock River Combustion Turbine, Beloit, WI Gas 150,330 South Fond du Lac Combustion Turbine Units 2 and 3, Fond du Lac, WI Gas 167,670 Sheepskin Combustion Turbine, Edgerton, WI Gas 37,920 ------------- Total Gas 558,250 Kilbourn Hydro Plant, Wisconsin Dells, WI Hydro 7,000 Prairie du Sac Hydro Plant, Prairie du Sac, WI Hydro 15,000 Petenwell/Castle Rock Hydro Plants, Wisconsin Rapids, WI Hydro 6,000 (5) ------------- Total Hydro 28,000 ------------- Total generating capability 2,149,000 =============
All KWs shown below represent the 2002 summer generating capability. (1) Represents WP&L's 41% ownership interest in this 530,000 KW generating station, which is operated by WPSC. (2) Represents WP&L's 68.2% ownership interest in this 338,000 KW generating station, which is operated by WP&L. (3) Represents WP&L's 75% ownership interest in this 419,120 KW generating station, which is operated by WP&L. (4) Represents WP&L's 46.2% ownership interest in this 1,086,860 KW generating station, which is operated by WP&L. (5) WP&L has a 50% ownership interest in this 18,000 KW hydro plant, which is operated by Wisconsin River Power Company, but has a contract to purchase only one-third of the plant's output. WP&L owns 158 distribution substations located adjacent to the communities served, substantially all located in Wisconsin. WP&L's transmission assets were transferred to ATC in 2001. Substantially all of WP&L's facilities are suitable for their intended use and are held subject to the lien of its First Mortgage Bond indenture. Refer to "C. Information Relating to Domestic Utility Operations - 1) Electric Utility Operations - General" in "Business" for information related to WP&L's investment in ATC. 24 Resources Resources' principal properties at Dec. 31, 2002 were as follows: 1. International - owns nine combined heat and power facilities located in China with an aggregate generating capacity of approximately 475 MW. 2. Non-regulated Generation - turbines and related generation equipment for use in future generation projects. 3. Integrated Services - standby generation, cogeneration, steam production and propane air systems and owns an interest in an oil gathering system and natural gas gathering systems, which had 500 miles and 213 miles, respectively, of pipeline in Texas. 4. Investments - CRANDIC has 112 railroad track miles all located within Iowa. ITEM 3. LEGAL PROCEEDINGS Alliant Energy In October 2000, Alliant Energy and WP&L filed a federal lawsuit seeking declaratory relief regarding whether certain provisions of WUHCA are unconstitutional as a violation of the interstate commerce and equal protection provisions of the U.S. Constitution. Alliant Energy and WP&L are challenging the provisions of WUHCA which restrict ownership in utility holding companies, limit the investments those companies can make and place significant restrictions on companies that invest in Wisconsin utility holding companies. Alliant Energy and WP&L also requested that the court consider the constitutionality of issues related to the asset cap on non-utility investments imposed by WUHCA. Alliant Energy and WP&L were seeking only declaratory relief and not damages in the litigation. In February 2001, the lawsuit was dismissed based on lack of allegations of "injury in fact." Alliant Energy and WP&L filed a motion for reconsideration with the court, which was denied in April 2001. Alliant Energy and WP&L appealed the lower court's rulings to the 7th Circuit Court of Appeals. In January 2002, the 7th Circuit reversed the district court's decision and remanded the case back to the district court for hearing. In May 2002, the district judge granted the state's motion for summary judgment and dismissed Alliant Energy's and WP&L's case. Alliant Energy and WP&L appealed the district court's decision to the 7th Circuit Court of Appeals in June 2002. Briefing of the appeal has been completed, with a decision expected in the second quarter of 2003. Alliant Energy and WP&L cannot currently predict the outcome of this litigation. Alliant Energy received an adverse ruling in 1999 from a U.S. district court dealing with an income tax refund claim Alliant Energy filed relating to capital losses disallowed under audit by the IRS. The district court also disallowed certain related deductions allowed by the IRS to reduce a tax refund due to Alliant Energy related to another tax issue. Alliant Energy appealed the district court's ruling and the government appealed the decision which led to the tax refund due to Alliant Energy. In June 2001, the U.S. Court of Appeals for the 8th Circuit ruled in Alliant Energy's favor with respect to both tax issues. In July 2001, the government filed a petition for rehearing with the U.S. Court of Appeals related to the capital losses allowed in the 8th Circuit opinion. The 8th Circuit denied the appeal in September 2001 and remanded the case back to the district court for entry of judgment. The federal government decided not to pursue the ruling in favor of Alliant Energy of the U.S. Court of Appeals for the 8th Circuit with respect to these two tax issues. As a result, Alliant Energy recorded the applicable tax benefit and interest income in the fourth quarter of 2001 related to these events. An additional potential refund of approximately $14 million, plus interest, was also being contested by the government. However, the district court ruled in favor of the federal government in July 2002 on such issue. Alliant Energy has appealed the most recent district court decision. An adverse decision on appeal would not result in Alliant Energy recording any charges to earnings as the potential refund simply represents a gain contingency. Subsequently, the government filed a cross appeal, which it later decided not to pursue and voluntarily moved for its dismissal. Alliant Energy is awaiting a decision from the 8th Circuit Court of Appeals. IP&L IP&L has appealed to the Iowa State Board of Tax Review, an agency of the State of Iowa, regarding assessments of Iowa property tax made by the Director of the Iowa Department of Revenue and Finance. The appeals involve assessments for the years 1994 through 1998 and seek reduction of the assessments reflecting the true value of the operating property of the companies. At the present time, IP&L cannot predict what impact, if any, the appeals process will have on its financial condition or results of operations. 25 WP&L - None Environmental Matters The information required by Item 3 with regards to environmental matters is included in "C. Information Relating to Domestic Utility Operations - 1) Electric Utility Operations" in "Business," "Liquidity and Capital Resources - Environmental" in MD&A and Note 11(e) of the "Notes to Consolidated Financial Statements," which information is incorporated herein by reference. Rate Matters The information required by Item 3 with regards to rate matters is included in Note 2 of Alliant Energy's "Notes to Consolidated Financial Statements" and "Rates and Regulatory Matters" in MD&A, which information is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS IP&L At IP&L's annual meeting of shareowners held on Oct. 9, 2002, Alan B. Arends, Katharine C. Lyall, Singleton B. McAllister and Anthony R. Weiler were elected as directors of IP&L for terms expiring in 2005. Alliant Energy voted all of the outstanding shares of common stock of IP&L (consisting of 13,370,788 shares) in favor of the election of these individuals. The following are the other directors of IP&L whose terms of office continued after the 2002 annual meeting: Erroll B. Davis, Jr., Lee Liu, Robert W. Schlutz and Wayne H. Stoppelmoor, with terms expiring in 2003; and Jack B. Evans, Joyce L. Hanes, David A. Perdue and Judith D. Pyle, with terms expiring in 2004. EXECUTIVE OFFICERS OF THE REGISTRANTS ------------------------------------- The executive officers of Alliant Energy, IP&L and WP&L as of the date of this filing are as follows (figures following the names represent the officer's age as of Dec. 31, 2002): Executive Officers of Alliant Energy Erroll B. Davis, Jr., 58, was elected Chairman of the Board effective April --------------- 2000, has served as President and Chief Executive Officer (CEO) since 1990 and has been a board member since 1988. William D. Harvey, 53, was elected Executive Vice President (EVP)-Generation ----------------- effective April 1998. James E. Hoffman, 49, was elected EVP-Business Development effective April ---------------- 1998. Eliot G. Protsch, 49, was elected EVP-Energy Delivery effective April 1998. ---------------- Barbara J. Swan, 51, was elected EVP and General Counsel effective October --------------- 1998. She previously served as Vice President (VP)-General Counsel from 1994 to 1998 at WP&L. Thomas M. Walker, 55, was elected EVP and Chief Financial Officer (CFO) ---------------- effective April 1998. Pamela J. Wegner, 55, was elected EVP-Shared Solutions effective October ---------------- 1998. She previously served as VP-Information Services and Administration from 1994 to 1998 at WP&L. Dundeana K. Doyle, 44, was elected VP-Infrastructure Security effective ----------------- January 2002. She previously served as VP-Customer Operations since December 2000 at IESU and WP&L, VP-Customer Services and Operations from 1999 to 2000 at IESU and WP&L, VP-Customer Operations from 1998 to 1999 at IESU and VP-Customer Services from 1998 to 1999 at WP&L. Thomas L. Hanson, 49, was elected VP and Treasurer effective April 2002. He ---------------- previously served as Managing Director-Generation Services since 2001 and General Manager-Business and Financial Performance, Generation from 1998 to 2001. John E. Kratchmer, 40, was elected VP-Controller and Chief Accounting Officer ----------------- effective October 2002. He previously served as Corporate Controller and Chief Accounting Officer since October 2000 and Assistant Controller from 1998 to 2000. Barbara A. Siehr, 51, was elected VP-Financial Planning and Strategic ---------------- Projects effective October 2002. She previously served as Managing Director-Operations and Operations Services since December 2000, General Manager-Operations East from 1999 to 2000 and General Manager-Engineering/Operations Services from 1998 to 1999. 26 F. J. Buri, 48, was elected Corporate Secretary effective April 2002. He ---------- previously served as Senior Attorney since June 1999. Prior to joining Alliant Energy, he was General Counsel and Secretary from 1996 to 1999 at Universal Savings Bank, N.A. None of the executive officers listed above is related to any member of the Board of Directors or nominee for director or any other executive officer. Mr. Davis has an employment agreement with Alliant Energy pursuant to which his term of office is established. All other executive officers have no definite terms of office and serve at the pleasure of the Board of Directors. Additional Officers of Alliant Energy Enrique Bacalao, 53, was elected Assistant Treasurer effective November --------------- 1998. Prior to joining Alliant Energy, he was VP, Corporate Banking from 1995 to 1998 at the Chicago Branch of The Industrial Bank of Japan, Limited. Eric D. Mott, 35, was elected Assistant Treasurer effective December 2001. ------------ He previously served as Manager-Investor Relations and Trust Fund Investment Management since December 2000 and Senior Treasury Analyst from 1998 to 2000. Joan M. Thompson, 45, was elected Assistant Controller effective June 2000. ---------------- She previously served as Manager-IESU and IPC Accounting since February 1999 and Manager-IESU Accounting from 1998 to 1999. Patricia L. Reininger, 50, was elected Assistant Corporate Secretary --------------------- effective January 2003. She previously served as Executive Administrative Assistant since August 2000. Prior to joining Alliant Energy, she was Assistant to the Chairperson and Assistant Corporate Secretary from 1993 to 1999 at Sentry Insurance. Executive Officers of IP&L Erroll B. Davis, Jr., 58, was elected Chairman of the Board effective April --------------- 2000 and CEO effective April 1998. Mr. Davis is also an officer of Alliant Energy and WP&L. Eliot G. Protsch, 49, was elected President effective April 1998. Mr. ---------------- Protsch is also an officer of Alliant Energy and WP&L. William D. Harvey, 53, was elected EVP-Generation effective October 1998. ----------------- Mr. Harvey is also an officer of Alliant Energy and WP&L. Barbara J. Swan, 51, was elected EVP and General Counsel effective October --------------- 1998. Ms. Swan is also an officer of Alliant Energy and WP&L. Thomas M. Walker, 55, was elected EVP and CFO in 1996. Mr. Walker is also an ---------------- officer of Alliant Energy and WP&L. Pamela J. Wegner, 55, was elected EVP-Shared Solutions effective October ---------------- 1998. Ms. Wegner is also an officer of Alliant Energy and WP&L. Dundeana K. Doyle, 44, was elected VP-Infrastructure Security effective ----------------- January 2002. Ms. Doyle is also an officer of Alliant Energy and WP&L. Vern A. Gebhart, 49, was elected VP-Customer Operations effective January --------------- 2002. He previously served as Managing Director-Strategic Projects and Capital Control since 2000 and Director-Strategic Projects and Capital Control from 1998 to 2000 at Alliant Energy. Mr. Gebhart is also an officer of WP&L. Thomas L. Hanson, 49, was elected VP and Treasurer effective April 2002. Mr. ---------------- Hanson is also an officer of Alliant Energy and WP&L. John E. Kratchmer, 40, was elected VP-Controller and Chief Accounting Officer ----------------- effective October 2002. Mr. Kratchmer is also an officer of Alliant Energy and WP&L. Daniel L. Mineck, 54, was elected VP-Performance Engineering and ---------------- Environmental effective October 1998. He previously served as Assistant VP-Corporate Engineering since 1996. Mr. Mineck is also an officer of WP&L. Barbara A. Siehr, 51, was elected VP-Financial Planning and Strategic ---------------- Projects effective October 2002. Ms. Siehr is also an officer of Alliant Energy and WP&L. Kim K. Zuhlke, 49, was elected VP-Engineering, Sales and Marketing effective ------------- September 1999. He previously served as VP-Customer Operations since October 1998. Mr. Zuhlke is also an officer of WP&L. F. J. Buri, 48, was elected Corporate Secretary effective April 2002. Mr. ---------- Buri is also an officer of Alliant Energy and WP&L. None of the executive officers listed above is related to any member of the Board of Directors or nominee for director or any other executive officer. Mr. Davis has an employment agreement with Alliant Energy pursuant to which 27 his term of office is established. All other executive officers have no definite terms of office and serve at the pleasure of the Board of Directors. Additional Officers of IP&L Enrique Bacalao, 53, was elected Assistant Treasurer effective November 1998. --------------- Mr. Bacalao is also an officer of Alliant Energy and WP&L. Steven F. Price, 50, was elected Assistant Treasurer effective April 1998. --------------- Mr. Price is also an officer of WP&L. Patricia L. Reininger, 50, was elected Assistant Corporate Secretary --------------------- effective January 2003. Ms. Reininger is also an officer of Alliant Energy and WP&L. Daniel L. Siegfried, 43, was elected Assistant Corporate Secretary effective ------------------- April 1998. He also serves as Senior Attorney for Alliant Energy. Executive Officers of WP&L Erroll B. Davis, Jr., 58, was elected Chairman of the Board effective April -------------------- 2000 and CEO effective April 1998. Mr. Davis is also an officer of Alliant Energy and IP&L. William D. Harvey, 53, was elected President effective April 1998. Mr. ----------------- Harvey is also an officer of Alliant Energy and IP&L. Eliot G. Protsch, 49, was elected EVP-Energy Delivery effective October ---------------- 1998. He previously served as Senior VP from 1993 to 1998 at WP&L. Mr. Protsch is also an officer of Alliant Energy and IP&L. Barbara J. Swan, 51, was elected EVP and General Counsel effective October --------------- 1998. She previously served as VP-General Counsel from 1994 to 1998 at WP&L. Ms. Swan is also an officer of Alliant Energy and IP&L. Thomas M. Walker, 55, was elected EVP and CFO effective October 1998. Mr. ---------------- Walker is also an officer of Alliant Energy and IP&L. Pamela J. Wegner, 55, was elected EVP-Shared Solutions effective October ---------------- 1998. She previously served as VP-Information Services and Administration from 1994 to 1998 at WP&L. Ms. Wegner is also an officer of Alliant Energy and IP&L. Dundeana K. Doyle, 44, was elected VP-Infrastructure Security effective ----------------- January 2002. Ms. Doyle is also an officer of Alliant Energy and IP&L. Vern A. Gebhart, 49, was elected VP-Customer Operations effective January --------------- 2002. Mr. Gebhart is also an officer of IP&L. Thomas L. Hanson, 49, was elected VP and Treasurer effective April 2002. Mr. ---------------- Hanson is also an officer of Alliant Energy and IP&L. John E. Kratchmer, 40, was elected VP-Controller and Chief Accounting Officer ----------------- effective October 2002. Mr. Kratchmer is also an officer of Alliant Energy and IP&L. Daniel L. Mineck, 54, was elected VP-Performance Engineering and ---------------- Environmental effective April 1998. Mr. Mineck is also an officer of IP&L. Barbara A. Siehr, 51, was elected VP-Financial Planning and Strategic ---------------- Projects effective October 2002. Ms. Siehr is also an officer of Alliant Energy and IP&L. Kim K. Zuhlke, 49, was elected VP-Engineering, Sales & Marketing effective ------------- September 1999. He previously served as VP-Customer Operations since April 1998 at WP&L and since October 1998 at IESU and as VP-Customer Services and Sales from 1993 to 1998 at WP&L. Mr. Zuhlke is also an officer of IP&L. F. J. Buri, 48, was elected Corporate Secretary effective April 2002. Mr. ---------- Buri is also an officer of Alliant Energy and IP&L. None of the executive officers listed above is related to any member of the Board of Directors or nominee for director or any other executive officer. Mr. Davis has an employment agreement with Alliant Energy pursuant to which his term of office is established. All other executive officers have no definite terms of office and serve at the pleasure of the Board of Directors. Additional Officers of WP&L Enrique Bacalao, 53, was elected Assistant Treasurer effective November --------------- 1998. Mr. Bacalao is also an officer of Alliant Energy and IP&L. Steven F. Price, 50, was elected Assistant Treasurer effective April 1998. --------------- Mr. Price is also an officer of IP&L. Patricia L. Reininger, 50, was elected Assistant Corporate Secretary --------------------- effective January 2003. Ms. Reininger is also an officer of Alliant Energy and IP&L. 28 PART II ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Alliant Energy's common stock trades on the New York Stock Exchange under the symbol "LNT." Quarterly sales price ranges and dividends with respect to Alliant Energy's common stock were as follows:
2002 2001 ----------------------------------------- --------------------------------------- Quarter High Low Dividend High Low Dividend ------- ---- --- -------- ---- --- -------- First $31.01 $28.67 $0.50 $33.20 $28.75 $0.50 Second 30.85 24.75 0.50 32.67 28.20 0.50 Third 25.77 16.35 0.50 31.49 27.90 0.50 Fourth 19.89 14.28 0.50 32.29 27.50 0.50 Year 31.01 14.28 2.00 33.20 27.50 2.00
Stock closing price at Dec. 31, 2002: $16.55 Although Alliant Energy's practice has been to pay cash dividends on its common stock quarterly, the timing of payment and amount of future dividends are necessarily dependent upon future earnings, capital requirements, general financial condition, general business conditions, the ability of Alliant Energy's subsidiaries to pay dividends and other factors. Effective with the dividend declared and paid in the first quarter of 2003, Alliant Energy reduced its targeted annual common stock dividend from $2.00 to $1.00 per share. At Dec. 31, 2002, there were approximately 55,470 holders of record of Alliant Energy's stock, including holders in Alliant Energy's Shareowner Direct Plan. Alliant Energy is the sole common shareowner of all 13,370,788 shares of IP&L common stock currently outstanding. During 2002 and 2001, IP&L paid dividends on its common stock of $82 million and $80 million, respectively, to its parent. Under certain circumstances, IP&L has the right under terms of its subordinated deferrable interest debentures to extend interest payments for periods not to exceed 20 consecutive quarters. It is IP&L's current intent not to exercise such right. In the event IP&L did exercise this right, it would limit IP&L's ability to pay dividends, among other things. Alliant Energy is the sole common shareowner of all 13,236,601 shares of WP&L common stock currently outstanding. During both 2002 and 2001, WP&L paid dividends on its common stock of $60 million to its parent. WP&L's dividends are restricted to the extent that such dividend would reduce the common stock equity ratio to less than 25%. The PSCW has ordered that it must approve the payment of dividends by WP&L to Alliant Energy that are in excess of the level forecasted in the rate order ($62 million), if such dividends would reduce WP&L's average common equity ratio below 44.67% of total capitalization. The dividends paid by WP&L to Alliant Energy since the rate order was issued have not exceeded such level. IP&L and WP&L each have common stock dividend payment restrictions based on their respective bond indentures and the terms of their preferred stock. 29
ITEM 6. SELECTED FINANCIAL DATA Alliant Energy Corporation ------------------------------------------------------------------------------------------------------------------------------------ Financial Information 2002 (1) 2001 (1) 2000 (1) 1999 (2) 1998 (3) ------------------------------------------------------------------------------------------------------------------------------------ (dollars in thousands, except per share data) Income Statement Data: Operating revenues $2,608,812 $2,624,676 $2,279,674 $2,048,158 $2,053,318 Income from continuing operations 76,269 126,245 330,915 154,334 95,437 Income from discontinued operations, net of tax 30,612 58,985 51,039 42,247 1,238 Income before cumulative effect of changes in accounting principle, net of tax 106,881 185,230 381,954 196,581 96,675 Cumulative effect of changes in accounting principle, net of tax -- (12,868) 16,708 -- -- Net income 106,881 172,362 398,662 196,581 96,675 ------------------------------------------------------------------------------------------------------------------------------------ Common Stock Data: Earnings per average common share (diluted): Income from continuing operations $0.84 $1.57 $4.18 $1.98 $1.24 Income from discontinued operations $0.34 $0.73 $0.64 $0.53 $0.02 Cumulative effect of changes in accounting principle -- ($0.16) $0.21 -- -- Net income $1.18 $2.14 $5.03 $2.51 $1.26 Common shares outstanding at year-end (000s) 92,304 89,682 79,010 78,984 77,630 Dividends declared per common share $2.00 $2.00 $2.00 $2.00 $2.00 Market value per share at year-end $16.55 $30.36 $31.88 $27.50 $32.25 Book value per share at year-end (4) $19.89 $21.39 $25.79 $27.29 $20.69 ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Financial Data: Construction and acquisition expenditures $656,792 $713,061 $845,454 $418,371 $313,033 Total assets at year-end (4) $7,001,395 $6,237,925 $6,733,766 $6,075,683 $4,959,337 Long-term obligations, net $2,784,216 $2,586,044 $2,128,496 $1,660,558 $1,713,649 Times interest earned before income taxes (5) 1.64X 1.99X 4.35X 3.05X 2.40X Capitalization ratios: Common equity (4) 39% 43% 50% 57% 49% Preferred stock 5% 2% 3% 3% 4% Long-term debt, excluding current portion 56% 55% 47% 40% 47% ---------------------------------------------------------------- Total 100% 100% 100% 100% 100% ================================================================ ------------------------------------------------------------------------------------------------------------------------------------
(1) Refer to "MD&A - Alliant Energy Results of Operations" for a discussion of the 2002, 2001 and 2000 results of operations. (2) Includes $25 million ($0.32 per diluted share) of net income from gains on sales of McLeod stock. (3) Results reflect the recording of $54 million of pre-tax merger-related charges. (4) Alliant Energy adjusts the carrying value of its investments in McLeod to its estimated fair value, pursuant to the applicable accounting rules. At December 31, 2002, 2001, 2000, 1999 and 1998, the carrying amount reflected an unrealized gain (loss) of approximately $1 million, ($13) million, $543 million, $1.1 billion and $291 million, respectively, with a net of tax increase (decrease) to common equity of $0.4 million, ($9) million, $317 million, $640 million and $170 million, respectively. (5) Represents income from continuing operations before income taxes plus preferred dividend requirements of subsidiaries plus interest expense divided by interest expense. 30
IP&L 2002 2001 2000 1999 1998 ---- ----------------------------------------------------------------------------- (in thousands) Operating revenues $1,211,608 $1,316,250 $1,234,007 $1,142,801 $1,162,819 Earnings available for common stock 88,015 94,656 99,724 93,896 77,278 Cash dividends declared on common stock 81,790 80,340 80,339 120,509 27,612 Total assets 2,738,406 2,426,314 2,524,802 2,415,068 2,446,315 Long-term obligations, net 902,243 922,941 792,323 836,486 872,517
Alliant Energy is the sole common shareowner of all 13,370,788 shares of IP&L's common stock outstanding. As such, earnings per share data is not disclosed herein. The 1998 financial results reflect the recording of $31 million of pre-tax merger-related charges.
WP&L 2002 2001 2000 1999 1998 ---- ------------------------------------------------------------------------------ (in thousands) Operating revenues $972,078 $965,353 $862,381 $752,505 $731,448 Earnings available for common stock 77,614 70,180 68,126 67,520 32,264 Cash dividends declared on common stock 59,645 60,449 -- 58,353 58,341 Total assets 1,984,597 1,875,800 1,857,024 1,766,135 1,685,150 Long-term obligations, net 523,308 523,183 569,309 471,648 471,554
Alliant Energy is the sole common shareowner of all 13,236,601 shares of WP&L's common stock outstanding. As such, earnings per share data is not disclosed herein. The 1998 financial results reflect the recording of $17 million of pre-tax merger-related charges. 31 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Statements contained in this report that are not of historical fact are forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, such statements. Some, but not all, of the risks and uncertainties include: factors listed in "Other Matters - Other Future Considerations;" weather effects on sales and revenues; economic and political conditions in Alliant Energy's domestic and international service territories; federal, state and international regulatory or governmental actions, including the ability to obtain adequate and timely rate relief, including recovery of operating costs and earning reasonable rates of return, and to pay expected levels of dividends; Alliant Energy's proposed asset divestitures at expected values and on expected timelines; unanticipated construction and acquisition expenditures; issues related to the supply of purchased electricity and price thereof including the ability to recover purchased-power and fuel costs through rates; risks related to the operations of Alliant Energy's nuclear facilities; costs associated with Alliant Energy's environmental remediation efforts and with environmental compliance generally; developments that adversely impact Alliant Energy's ability to implement its strategic plan; improved results from Alliant Energy's Brazil investments and no material adverse changes in the rates allowed by the Brazilian regulators; improved performance by Alliant Energy's other non-regulated businesses as a whole; no material permanent declines in the fair market value of, or expected cash flows from, Alliant Energy's investments; continued access to the capital markets; Alliant Energy's ability to continue cost controls and operational efficiencies; Alliant Energy's ability to identify and successfully complete proposed acquisitions and development projects; access to technological developments; employee workforce factors, including changes in key executives, collective bargaining agreements or work stoppages; and changes in the rate of inflation. Alliant Energy assumes no obligation, and disclaims any duty, to update the forward-looking statements in this report. STRATEGIC ACTIONS In November 2002, Alliant Energy's Board of Directors approved five strategic actions designed to maintain a strong credit profile for Alliant Energy, strengthen its balance sheet and position Alliant Energy for improved long-term financial performance. The five strategic actions, which signaled a shift to less aggressive growth targets driven primarily by Alliant Energy's utility operations, included: 1. A commitment to pursue the sale of, or other exit strategies for, a number of non-regulated businesses, including Alliant Energy's oil and gas (Whiting), Australian (including Southern Hydro) and affordable housing businesses. For accounting purposes, such businesses have been classified as available for sale, and the operating results of these businesses have been separately classified and reported as discontinued operations, in Alliant Energy's Consolidated Financial Statements. Alliant Energy anticipates strengthening its liquidity position by up to $800 million to $1 billion from reductions in consolidated debt and increasing its cash and temporary cash investment balances as a result of these transactions. The amount of proceeds ultimately received from these divestitures, and the timing of the completion of the transactions, are subject to a variety of factors, including the transaction structures Alliant Energy utilizes to exit these businesses. In January 2003, Alliant Energy also decided to sell SmartEnergy which was classified as held and used, and its operating results were included in continuing operations, in Alliant Energy's Consolidated Financial Statements. Refer to Note 16 of Alliant Energy's "Notes to Consolidated Financial Statements" for further discussion. 2. A reduction in Alliant Energy's targeted annual common stock divided from $2.00 per share to $1.00 per share, effective with the dividend declared and paid in the first quarter of 2003. 3. Reductions in Alliant Energy's aggregated anticipated 2002 and 2003 construction and acquisition expenditures by approximately $400 million. 4. A plan to raise approximately $200 to $300 million of common equity in 2003, dependent on market conditions. Alliant Energy expects to direct the majority of the proceeds towards additional capital investments in its regulated domestic utilities. 5. The implementation of additional cost control measures to be accomplished through Alliant Energy's new Six Sigma program, the operation of its new enterprise resource planning system that was placed in service in October 2002 and by a heightened focus on operating its domestic utility business in a manner that aligns operating expenses with the revenues granted in its various rate filings. 32 Alliant Energy is continuing in its efforts to implement these strategic actions. Refer to "Other Matters - Other Future Considerations - Asset Sales" for discussion of an agreement Alliant Energy recently entered into related to the sale of its Australian business. RATES AND REGULATORY MATTERS Overview - Alliant Energy has two primary utility subsidiaries, IP&L and -------- WP&L. IP&L was formed as a result of the merger of IPC with and into IESU effective Jan. 1, 2002. WP&L has one utility subsidiary, South Beloit. As a public utility holding company with significant utility assets, Alliant Energy competes in an ever-changing utility industry. Electric energy generation, transmission and distribution are in a period of fundamental change resulting from legislative, regulatory, economic and technological changes. These changes impact competition in the electric wholesale and retail markets as customers of electric utilities are being offered alternative suppliers. Such competitive pressures could result in electric utilities losing customers and incurring stranded costs (i.e., assets and other costs rendered unrecoverable as the result of competitive pricing), which would be borne by security holders if the costs cannot be recovered from customers. Alliant Energy's utility subsidiaries are currently subject to regulation by FERC, and state regulation in Iowa, Wisconsin, Minnesota and Illinois. FERC regulates competition in the electric wholesale power generation market and each state regulates whether to permit retail competition, the terms of such retail competition and the recovery of any portion of stranded costs that are ultimately determined to have resulted from retail competition. Alliant Energy cannot predict the timing of a restructured electric industry or the impact on its financial condition or results of operations but does believe it is well-positioned to compete in a deregulated competitive market. Although Alliant Energy ultimately believes that the electric industry will be deregulated, the pace of deregulation in its primary retail electric service territories has been delayed due to more recent developments in the industry. Certain Recent Developments - In July 2002, FERC issued a notice of proposed --------------------------- rules intended to standardize the wholesale electric market, which has generated significant industry discussion. Although Alliant Energy believes that standardization of the wholesale electric market is appropriate and would benefit market participants, there may be significant changes to the proposed rules before they are adopted. Therefore, Alliant Energy cannot determine the impact the final rules will have on its results of operations or financial condition. Alliant Energy's merger-related price freezes expired in April 2002 in all of its primary domestic utility jurisdictions and it is currently addressing the recovery of its utility cost increases through numerous rate filings. WP&L has received final orders in two of its rate cases and IP&L and WP&L currently have four other rate cases pending. Details of these rate cases are as follows (dollars in millions):
Expected Interim Interim Final Final Final Utility Filing Increase Increase Effective Increase Effective Effective Case Type Date Requested Granted (1) Date Granted Date Date Notes -------------- ------- -------------- ----------- ------------ ----------- ---------- ----------- ----------------- ------- WP&L: 2002 retail E/G/W Aug. 2001 $104 $49 April 2002 $82 Sept. 2002 N/A (2) 2003 retail E/G/W May 2002 101 TBD TBD TBD TBD April 2003 2004 retail E/G/W March 2003 65 TBD TBD TBD TBD Jan. 2004 Wholesale E Feb. 2002 6 6 April 2002 3 Jan. 2003 N/A (3) IP&L retail E March 2002 82 15 July 2002 TBD TBD June 2003 (4) IP&L retail G July 2002 20 17 Oct. 2002 TBD TBD July 2003 ----------- ------------ ---------- Total $378 $87 $85 =========== ============ ==========
(1) Interim rate relief is implemented, subject to refund, pending determination of final rates. (2) In its September 2002 final order, the PSCW increased the authorized return on common equity from 11.7% to 12.3%. (3) In the fourth quarter of 2002, WP&L reached a settlement agreement with certain wholesale customers for an annual increase of $3 million and a refund of amounts previously collected in excess of the settlement. The settlement agreement was approved by FERC in January 2003. At Dec. 31, 2002, WP&L had reserved all amounts related to the anticipated refund. 33 (4) In accordance with the interim rate relief rules in Iowa, IP&L only requested interim rate relief of $22 million. A significant portion of the rate increases included in the previous table reflect the recovery of anticipated increased costs incurred by IP&L and WP&L, or costs they expect to incur, thus the increase in revenues related to these cost increases would not result in a corresponding increase in income. IP&L, WP&L and South Beloit are currently in the process of determining what other rate case filings may be necessary in 2003. WP&L's retail electric rates are based on annual forecasted fuel and purchased-power costs. Under PSCW rules, WP&L can seek emergency rate increases if the annual costs are more than 3% higher than the estimated costs used to establish rates. For 2001 and 2002, any collections in excess of costs incurred must be refunded, with interest. Accordingly, WP&L has established a reserve due to overcollection of past fuel and purchased-power costs and expects to refund such amount in 2003. The final ruling from the PSCW could result in an increase or decrease to the reserve that has been recorded. The PSCW has issued new rules relating to the collection of fuel and purchased-power costs by Wisconsin utilities, including WP&L. The new rules and related procedures are intended, among other things, to significantly reduce regulatory lag for the utilities and customers related to the timing of the recovery of increased or decreased fuel and purchased-power costs. Purchased-power capacity costs will now be included in base rates. A process will also exist whereby the utilities can seek deferral treatment of capacity, transmission and emergency costs between base rate cases. The new rules are expected to be implemented for WP&L with its pending 2003 retail rate case. In 2002, IP&L filed with the IRS for a change in method of accounting for tax purposes for 1987 through 2001 that would allow a current deduction related to mixed service costs. Such costs had previously been capitalized and depreciated for tax purposes over the appropriate tax lives. This change would create a significant current tax benefit which has not been reflected in IP&L's results of operations pending a decision from the IUB on the required rate making treatment of the benefit. There would be no material negative impact on IP&L's results of operations or financial position should the IUB and/or IRS reject IP&L's proposal. ALLIANT ENERGY RESULTS OF OPERATIONS Unless otherwise noted, all "per share" references in the Results of Operations section refer to earnings per diluted share. Refer to Note 1(a) of Alliant Energy's "Notes to Consolidated Financial Statements" for discussion of the various components of Alliant Energy's business. Alliant Energy Overview - Alliant Energy's EPS for 2002, 2001 and 2000 were ----------------------- as follows:
2002 2001 2000 ---------- --------- ---------- Income from continuing operations $0.84 $1.57 $4.18 Income from discontinued operations 0.34 0.73 0.64 Cumulative effect of changes in accounting principle -- (0.16) 0.21 ---------- --------- ---------- Net income $1.18 $2.14 $5.03 ========== ========= ==========
Income from continuing operations in 2002 and 2001 included $0.46 per share and $0.26 per share, respectively, of valuation charges incurred in its non-regulated businesses. Income from continuing operations in 2000 included $2.37 per share of non-cash income related to Alliant Energy's adoption of SFAS 133. In addition to the higher valuation charges, the lower 2002 income from continuing operations was primarily the result of lower earnings from Alliant Energy's non-regulated businesses. This was primarily due to a net loss of $47 million from Alliant Energy's Brazil investments in 2002, compared to a net loss of $24 million in 2001, lower earnings from Alliant Energy's Mass Marketing business and higher interest expense. Improved results from Alliant Energy's China and New Zealand businesses partially offset the lower non-regulated results. Income from Alliant Energy's domestic utility business increased slightly in 2002 as higher electric and gas margins were largely offset by increased operating expenses and a higher effective income tax rate. 34 Domestic Electric Utility Margins - Electric margins and MWh sales for --------------------------------- Alliant Energy were as follows (in thousands):
Revenues and Costs MWhs Sold ------------------------------------------------------ -------------------------------------------- 2002 2001 * 2000 ** 2002 2001 * 2000 ** ------------ ------------ ------- ------------ ------ ------- --------- ------- --------- -------- Residential $626,947 $599,074 5% $567,283 6% 7,616 7,344 4% 7,161 3% Commercial 376,365 373,145 1% 349,019 7% 5,542 5,464 1% 5,364 2% Industrial 526,804 543,471 (3%) 501,155 8% 12,297 12,469 (1%) 13,092 (5%) ------------ ------------ ------------ ------- --------- --------- Total from ultimate customers 1,530,116 1,515,690 1% 1,417,457 7% 25,455 25,277 1% 25,617 (1%) Sales for resale 160,335 184,507 (13%) 173,148 7% 4,805 4,936 (3%) 4,906 1% Other 62,083 56,359 10% 57,431 (2%) 197 168 17% 174 (3%) ------------ ------------ ------------ ------- --------- --------- Total revenues/sales 1,752,534 1,756,556 -- 1,648,036 7% 30,457 30,381 -- 30,697 (1%) ======= ========= ========= Electric production fuels expense 286,474 292,002 (2%) 271,073 8% Purchased-power expense 362,501 403,166 (10%) 294,818 37% ------------ ------------ ------------ Margin $1,103,559 $1,061,388 4% $1,082,145 (2%) ============ ============ ============
* Reflects the percent change from 2001 to 2002. ** Reflects the percent change from 2000 to 2001. To comply with FERC regulatory requirements governing transmission systems, WP&L transferred its transmission assets to ATC on Jan. 1, 2001, in exchange for cash and an equity ownership in ATC. The wheeling expenses from ATC included in electric margin in 2002 and 2001 were offset by equity income (WP&L accounts for its investment in ATC under the equity method), reduced other operation and maintenance expenses and lower depreciation expense, resulting in no significant net income impact due to the formation of ATC. On a comparable basis, electric margin increased $42.2 million, or 4%, and $9.6 million, or 1%, for 2002 and 2001, respectively. The 2002 increase was primarily due to the impact of rate increases implemented in 2002, more favorable weather conditions, lower purchased-power and fuel costs and continued modest retail customer growth. These increases were partially offset by reduced energy conservation revenues (which were largely offset by lower energy conservation expense) and the impact of a sluggish economy. The 2001 increase was primarily due to lower purchased-power and fuel costs impacting margin, increased residential and commercial sales due to more favorable weather conditions in 2001 compared to 2000 and continued retail customer growth. These items were partially offset by $10 million of income recorded in 2000 for a change in estimate of WP&L's utility services rendered but unbilled at month-end due to the implementation of a refined estimation process and lower industrial sales, largely due to impacts of a slowing economy. Gas Utility Margins - Gas margins and Dth sales for Alliant Energy were as ------------------- follows (in thousands):
Revenues and Costs Dths Sold ---------------------------------------------------- -------------------------------------------------- 2002 2001 * 2000 ** 2002 2001 * 2000 ** ----------- ----------- -------- ----------- ------- ---------- ---------- -------- ---------- -------- Residential $218,746 $270,248 (19%) $245,697 10% 30,931 29,580 5% 32,026 (8%) Commercial 111,343 141,121 (21%) 127,104 11% 19,348 18,055 7% 19,696 (8%) Industrial 25,177 31,262 (19%) 27,752 13% 5,373 5,344 1% 5,350 -- Transportation/other 38,720 45,246 (14%) 14,395 214% 47,386 48,539 (2%) 43,931 10% ----------- ----------- ----------- ---------- ---------- ---------- Total revenues/sales 393,986 487,877 (19%) 414,948 18% 103,038 101,518 1% 101,003 1% ========== ========== ========== Cost of utility gas sold 248,994 360,911 (31%) 278,734 29% ----------- ----------- ----------- Margin $144,992 $126,966 14% $136,214 (7%) =========== =========== ===========
* Reflects the percent change from 2001 to 2002. ** Reflects the percent change from 2000 to 2001. Gas revenues and cost of utility gas sold were unusually high in 2001 due to increased natural gas prices in the first half of 2001. Due to Alliant Energy's rate recovery mechanisms for gas costs, these price differences alone had little impact on gas margin. Gas margin increased $18.0 million, or 14%, and decreased $9.2 million, or 7%, for 2002 and 2001, respectively. The 2002 increase was largely due to the impact of several rate increases implemented in 2002, improved results from WP&L's performance-based commodity cost recovery program (which are shared by ratepayers and shareowners), continued modest retail customer growth and the negative impact high gas prices in early 2001 had on gas consumption during that period. These increases were partially offset by reduced energy conservation revenues (which were largely offset by lower energy conservation expenses). The 2001 decrease was largely due to lower retail sales primarily related to the unusually high gas prices in early 2001 as some customers either chose alternative fuel sources or used less natural gas, the impact of the slowing economy and losses associated with performance-based commodity costs at WP&L. Alliant Energy realized 35 pre-tax income of $0, $4.0 million and $2 million from weather hedges it had in place in 2002, 2001 and 2000, respectively, which is recorded in "Miscellaneous, net" in the Consolidated Statements of Income. Refer to Note 1(j) of Alliant Energy's "Notes to Consolidated Financial Statements" for information relating to utility fuel and natural gas cost recovery. Refer to Note 2 of Alliant Energy's "Notes to Consolidated Financial Statements" and "Rates and Regulatory Matters" for discussion of various rate filings. Non-regulated and Other Revenues - Details regarding Alliant Energy's -------------------------------- non-regulated and other revenues are as follows (in millions): 2002 2001 2000 ------------- ------------- ------------- Integrated Services $259 $242 $172 International 103 85 -- Mass Marketing 47 7 1 Investments 26 27 29 Other (includes eliminations) 27 19 15 ------------- ------------- ------------- $462 $380 $217 ============= ============= ============= The 2002 Integrated Services increase was primarily due to higher natural gas sales, partially offset by decreased gas prices and lower energy services revenues. The increased International revenues for 2002 were primarily due to the 2001 acquisitions of additional combined heat and power facilities in China. Mass Marketing revenues for 2002 increased due to the fourth quarter 2001 acquisition of a controlling interest in SmartEnergy, an energy services company operating in competitive energy markets. The 2001 Integrated Services increase was primarily due to acquisitions in the third and fourth quarters of 2000 of various energy services businesses. The 2001 International increase resulted from the December 2000 change from the equity method of accounting to the consolidation method for an investment in China and the addition of five combined heat and power facilities to Alliant Energy's China portfolio during the fifteen months prior to Dec. 31, 2001. Other Operating Expenses - Other operation and maintenance expenses were as ------------------------ follows (in millions): 2002 2001 2000 ------------- ------------- ------------- Utility $555 $509 $497 Integrated Services 242 229 158 International 83 69 4 Mass Marketing 57 8 2 Investments 15 16 18 Other (includes eliminations) 5 (3) 8 ------------- ------------- ------------- $957 $828 $687 ============= ============= ============= The 2002 utility increase was primarily due to increased fossil and nuclear generation, employee benefit and energy delivery expenses, partially offset by lower energy conservation expenses and decreased uncollectible customer account balances. Alliant Energy is addressing these cost increases in various utility rate proceedings that are currently pending. The 2001 utility increase was primarily due to higher transmission wheeling and other costs in Alliant Energy's energy delivery business unit, increased nuclear operating costs (partially due to a planned refueling outage at Kewaunee in 2001), higher uncollectible customer account balances largely due to the unusually high gas prices earlier in the year and higher costs in the generation business unit. These increases were partially offset by the impact of the formation of ATC earlier in 2001, as discussed in "Domestic Electric Utility Margins." The Integrated Services, International and Mass Marketing variances were largely driven by the same factors impacting the revenue variances discussed previously. The Mass Marketing 2002 increase was also impacted by increases in the provisions for uncollectible accounts at SmartEnergy in 2002. Charges of $5 million and $2 million are included in "Other" in 2002 and 2001, respectively, for cancelled generation projects in Alliant Energy's Non-regulated Generation business unit. The 2001 Integrated Services increase was partially offset by a one-time charge of $4 million related to a loss on a contract in 2000. Depreciation and amortization expense increased $8.0 million and $5.9 million in 2002 and 2001, respectively. Contributing to both increases were utility property additions, acquisitions at the non-regulated businesses and 36 increased regulatory and software amortizations. Increased earnings on the WP&L nuclear decommissioning trust fund also contributed to the 2002 increase. The 2002 increase was partially offset by lower expenses due to: a decrease of $14 million from implementation of lower depreciation rates at IP&L on Jan. 1, 2002, resulting from an updated depreciation study; lower decommissioning expense based on reduced retail funding levels at WP&L; and the elimination of $5 million of goodwill amortization expense in compliance with new accounting rules effective in 2002. The 2001 increase was partially offset by the impact of the formation of ATC in 2001, as discussed in "Domestic Electric Utility Margins," and lower earnings on the WP&L nuclear decommissioning trust fund. The accounting for earnings on the nuclear decommissioning trust fund results in no net income impact. Miscellaneous, net income increases for earnings on the trust fund and the corresponding offset is recorded through depreciation expense at WP&L. Taxes other than income taxes increased $2.1 million and $4.4 million in 2002 and 2001, respectively, primarily due to increased property taxes in 2002 and increased gross receipts and payroll taxes in 2001. Interest Expense and Other - Interest expense increased $0.9 million and -------------------------- $17.5 million in 2002 and 2001, respectively. Both increases were impacted by higher non-regulated borrowings, partially offset by the impact of lower interest rates on Alliant Energy's variable rate borrowings. The 2002 increase was also partially offset by lower short-term debt borrowings at the Alliant Energy parent level, largely due to the impact of proceeds received in November 2001 from a common equity offering. Alliant Energy recorded income tax and associated interest income of $0.13 per share in 2001 related to a ruling in a tax refund case. The federal government decided in the fourth quarter of 2001 not to pursue the ruling in favor of Alliant Energy by the U.S. Court of Appeals for the 8th Circuit dealing with capital losses disallowed under audit by the IRS and certain related deductions. An additional potential refund of approximately $14 million, plus interest, remains a contested issue in this case. Alliant Energy cannot offer any assurance it will be successful in obtaining this additional refund and has not recognized any income for the potential additional refund. Equity income (loss) from Alliant Energy's unconsolidated investments was as follows (in millions): 2002 2001 2000 ------------- -------------- ------------- ATC (began operations 1/01) $14 $15 $-- New Zealand 4 -- 3 China* 2 2 1 Cargill-Alliant (sold in 2002) 1 7 15 Synfuel (began operations 5/02) (13) -- -- Brazil (23) (4) 3 Other 2 (1) (3) ------------- ------------- ------------- ($13) $19 $19 ============= ============= ============= * Majority of investments are accounted for under the consolidation method. Equity income from unconsolidated investments decreased $32 million in 2002. The differences in income from New Zealand during the three years were largely due to the 2001 results being depressed because of drought conditions. The lower earnings in 2002 and 2001 at Cargill-Alliant were impacted by fewer weather-related trading opportunities and less volatile market prices. Refer to "Liquidity and Capital Resources - Sales of Non-strategic Assets" for discussion relating to Alliant Energy's sale of this investment in 2002. In the second quarter of 2002, Synfuel, a direct subsidiary of Resources, purchased an equity interest in a synthetic fuel processing facility. The synthetic fuel project generates operating losses at its fuel processing facility, which are more than offset by tax credits and the tax benefit of the losses the project generates. All tax benefits are included in "Income taxes" in Alliant Energy's Consolidated Statements of Income. The lower 2002 results from the Brazil investments were largely due to losses incurred by Alliant Energy's investment in a gas-fired generating plant, charges incurred in 2002 related to the recovery of the impacts of rationing and other prior costs and higher interest expense. The loss from the generating plant was due to the impact of a significant decline in the currency rates associated with the debt issued to finance the plant and a depressed wholesale energy market in 2002. Increased electric sales volumes in 2002 compared to 2001, largely due to the impacts of the drought-driven rationing program that was in place for approximately seven months in 2001 compared to only two months in 2002, partially offset the lower Brazil earnings. The 2001 Brazil results included a charge related to the impacts of a settlement reached between the Brazilian government and the distribution companies on the economic resolution of various cost recovery issues. 37 Refer to Note 9 of Alliant Energy's "Notes to Consolidated Financial Statements" for discussion of the asset valuation charges recorded by Alliant Energy in 2002 related to its McLeod available-for-sale securities. On July 1, 2000, Alliant Energy adopted SFAS 133 for its consolidated entities. Related to the adoption, Alliant Energy recorded a $321.3 million pre-tax gain from the designation of a portion of Alliant Energy's McLeod holdings as trading securities. This gain related to the unrealized appreciation in value of approximately 27% of Alliant Energy's McLeod holdings that were designated as trading as of the adoption date. Miscellaneous, net income decreased $12.7 million and $26.7 million in 2002 and 2001, respectively. The 2002 decrease was due to the recording of pre-tax asset valuation charges of $10 million and $9 million related to Alliant Energy's Energy Technologies and Enermetrix investments, respectively, lower interest income (the 2001 results included $10 million from tax settlements), a pre-tax goodwill impairment charge of $7 million at SmartEnergy and gains from asset sales realized in 2001. These decreases were partially offset by lower pre-tax, non-cash SFAS 133 valuation charges of $29 million, related to the net change in the value of the McLeod trading securities and the derivative component of Resources' exchangeable senior notes, and increased earnings on WP&L's nuclear decommissioning trust fund. The 2001 decrease was largely due to higher pre-tax, non-cash SFAS 133 valuation charges of $33 million related to the net change in the value of the McLeod trading securities and the derivative component of Resources' exchangeable senior notes, reduced nuclear decommissioning trust fund earnings and lower gains from asset sales. These decreases were partially offset by higher interest income, including the $10 million from tax settlements in 2001. Alliant Energy realized $0, $4 million and $2 million of income from weather hedges in 2002, 2001 and 2000, respectively. Refer to Note 10(a) of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information related to the exchangeable senior notes embedded derivative, the McLeod trading securities and the cumulative effect of changes in accounting principle. Income Taxes - The effective income tax rates for Alliant Energy's continuing ------------ operations were 30.5%, 27.6% and 40.1% in 2002, 2001 and 2000, respectively. Refer to Note 5 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information. Income from Discontinued Operations - The 2002 decrease of $28 million in ----------------------------------- income from discontinued operations was largely due to lower earnings from Alliant Energy's oil and gas (Whiting) business due to lower prices, higher operating expenses and lower gains from dispositions of oil and gas properties in 2002 compared to 2001. Tax adjustments recorded in 2002 related to Alliant Energy's decision to sell its Australian (Southern Hydro) and affordable housing businesses also contributed to the lower income. The 2002 decrease was partially offset by higher oil and gas sales volumes at Whiting and higher earnings from Southern Hydro due to increased generation and sales of renewable energy credits earned through the generation of hydropower. The 2001 increase in income was largely due to non-cash SFAS 133 income in 2001 related to the valuation of electricity derivatives at Southern Hydro and higher earnings from Whiting which resulted from higher gas prices earlier in 2001, increased oil and gas sales volumes and income from a reduction in the estimated dismantlement cost of an offshore oil and gas platform. The 2001 increase was partially offset by approximately $16 million of income from gains on the sale of 1.3 million shares of McLeod in 2000 by Alliant Energy's affordable housing business. Refer to Note 16 of Alliant Energy's "Notes to Consolidated Financial Statements" for further discussion of Alliant Energy's discontinued operations. IP&L RESULTS OF OPERATIONS Overview - IP&L's earnings available for common stock decreased $6.6 million -------- and $5.1 million in 2002 and 2001, respectively. The 2002 decrease was primarily due to increased operating expenses, a higher effective income tax rate and lower interest income, partially offset by higher electric and gas margins. The 2001 decrease was primarily due to increased operating expenses and lower electric and gas margins, partially offset by a lower effective income tax rate and higher interest income. 38 Electric Utility Margins - Electric margins and MWh sales for IP&L were as ------------------------ follows (in thousands):
Revenues and Costs MWhs Sold --------------------------------------------------- --------------------------------------------- 2002 2001 * 2000 ** 2002 2001 * 2000 ** ---------- ------------ -------- ---------- ------- -------- --------- -------- -------- ------- Residential $355,072 $350,946 1% $337,615 4% 4,184 4,026 4% 4,010 -- Commercial 229,639 234,876 (2%) 221,820 6% 3,392 3,342 1% 3,333 -- Industrial 315,494 335,680 (6%) 311,070 8% 7,843 7,931 (1%) 8,404 (6%) ---------- ------------ ---------- -------- --------- -------- Total from ultimate customers 900,205 921,502 (2%) 870,505 6% 15,419 15,299 1% 15,747 (3%) Sales for resale 34,513 53,320 (35%) 57,433 (7%) 1,151 1,412 (18%) 1,678 (16%) Other 30,136 28,284 7% 27,907 1% 103 107 (4%) 111 (4%) ---------- ------------ ---------- -------- --------- -------- Total revenues/sales 964,854 1,003,106 (4%) 955,845 5% 16,673 16,818 (1%) 17,536 (4%) ======== ========= ======== Electric production fuels expense 153,982 171,280 (10%) 157,865 8% Purchased-power expense 145,292 185,860 (22%) 147,879 26% ---------- ------------ ---------- Margin $665,580 $645,966 3% $650,101 (1%) ========== ============ ==========
* Reflects the percent change from 2001 to 2002. ** Reflects the percent change from 2000 to 2001. Electric margin increased $19.6 million, or 3%, and decreased $4.1 million, or 1%, for 2002 and 2001, respectively. The 2002 increase was primarily due to the impact of the interim retail rate increase, lower purchased-power capacity costs, more favorable weather conditions and continued modest retail customer growth. These increases were partially offset by reduced energy conservation revenues of $10 million and the impacts of a sluggish economy. The 2001 decrease was primarily due to reduced energy conservation revenues of $5 million and lower sales largely due to impacts of a slowing economy, partially offset by decreased purchased-power capacity costs and continued retail customer growth. For both 2002 and 2001, the reduced energy conservation revenues were largely offset by lower energy conservation expenses. Gas Utility Margins - Gas margins and Dth sales for IP&L were as follows (in ------------------- thousands):
Revenues and Costs Dths Sold -------------------------------------------------- ------------------------------------------- 2002 2001 * 2000 ** 2002 2001 * 2000 ** ---------- ---------- -------- ----------- ------- --------- -------- ------- -------- ------- Residential $124,237 $162,575 (24%) $149,493 9% 18,068 17,826 1% 19,257 (7%) Commercial 61,222 82,463 (26%) 72,592 14% 10,774 10,483 3% 11,101 (6%) Industrial 18,197 22,355 (19%) 19,171 17% 4,070 4,147 (2%) 3,874 7% Transportation/other 11,239 13,621 (17%) 8,540 59% 28,814 31,673 (9%) 30,251 5% ---------- ---------- ----------- --------- -------- -------- Total revenues/sales 214,895 281,014 (24%) 249,796 12% 61,726 64,129 (4%) 64,483 (1%) ========= ======== ======== Cost of gas sold 138,875 207,088 (33%) 171,603 21% ---------- ---------- ----------- Margin $76,020 $73,926 3% $78,193 (5%) ========== ========== ===========
* Reflects the percent change from 2001 to 2002. ** Reflects the percent change from 2000 to 2001. Gas revenues and cost of gas sold were unusually high in 2001 due to the increased natural gas prices in the first half of 2001. Such fluctuations alone had no impact on IP&L's gas margin given its rate recovery mechanism for gas costs. Gas margin increased $2.1 million, or 3%, and decreased $4.3 million, or 5%, for 2002 and 2001, respectively. The 2002 increase was primarily due to the impact of the interim retail rate increase and the negative impact high gas prices in early 2001 had on gas consumption during that period, partially offset by reduced energy conservation revenues of $4 million. The 2001 decrease was largely due to lower retail sales primarily related to unusually high gas prices earlier in 2001 as some customers either chose alternative fuel sources or used less natural gas, the impact of the slowing economy and reduced energy conservation revenues. For both 2002 and 2001, the reduced energy conservation revenues were largely offset by lower energy conservation expenses. Refer to Note 1(j) of Alliant Energy's "Notes to Consolidated Financial Statements" for information relating to utility fuel and natural gas cost recovery. Refer to Note 2 of Alliant Energy's "Notes to Consolidated Financial Statements" and "Rates and Regulatory Matters" for discussion of IP&L's rate filings. Other Operating Expenses - Other operation and maintenance expenses increased ------------------------ $16.6 million and $14.2 million for 2002 and 2001, respectively. The 2002 increase was primarily due to increased fossil and nuclear generation, employee benefit and energy delivery expenses. These increases were partially offset by lower energy conservation expenses of $11 million and decreased uncollectible customer account balances. The 2001 increase was primarily due to higher transmission wheeling and other energy delivery costs, fossil and nuclear generation costs and uncollectible customer account 39 balances largely due to the unusually high gas prices earlier in 2001 and a downturn in the economy. These increases were partially offset by one-time fees in 2000 related to the transfer from the MAPP reliability region to the MAIN region and a decrease of $3 million in energy conservation expenses. Depreciation and amortization expenses decreased $2.4 million and increased $5.0 million for 2002 and 2001, respectively. The 2002 decrease was primarily due to a $14 million reduction in depreciation expense from implementation of lower depreciation rates on Jan. 1, 2002, resulting from an updated depreciation study, largely offset by property additions. The 2001 increase was primarily due to property additions and amortization of software. Interest Expense and Other - Miscellaneous, net income decreased $3.9 million -------------------------- and increased $6.0 million for 2002 and 2001, respectively, primarily due to higher interest income in 2001 and income from weather hedges in 2001. IP&L realized $5 million and $4 million in interest income from tax settlements in 2001 and 2000, respectively. The 2002 decrease was partially offset by higher income from sales of non-commodity products and services. Income Taxes - The effective income tax rates were 40.7%, 35.1% and 38.7% in ------------ 2002, 2001 and 2000, respectively. Refer to Note 5 of IP&L's "Notes to Consolidated Financial Statements" for additional information. WP&L RESULTS OF OPERATIONS Overview - WP&L's earnings available for common stock increased $7.4 million -------- and $2.1 million in 2002 and 2001, respectively. The 2002 increase was primarily due to higher electric and gas margins, partially offset by increased operating expenses. The 2001 increase was primarily due to higher electric margins and a lower effective income tax rate, partially offset by increased operating expenses and lower gas margins. Electric Utility Margins - Electric margins and MWh sales for WP&L were as ------------------------ follows (in thousands):
Revenues and Costs MWhs Sold --------------------------------------------------- ------------------------------------------- 2002 2001 * 2000 ** 2002 2001 * 2000 ** ---------- ----------- ------- ----------- -------- -------- -------- ------- -------- ------- Residential $271,875 $248,128 10% $229,668 8% 3,432 3,318 3% 3,151 5% Commercial 146,726 138,269 6% 127,199 9% 2,150 2,122 1% 2,031 4% Industrial 211,310 207,791 2% 190,085 9% 4,454 4,538 (2%) 4,688 (3%) ---------- ----------- ----------- -------- -------- ------- Total from ultimate customers 629,911 594,188 6% 546,952 9% 10,036 9,978 1% 9,870 1% Sales for resale 125,822 131,187 (4%) 115,715 13% 3,654 3,524 4% 3,228 9% Other 31,947 28,075 14% 29,524 (5%) 94 61 54% 63 (3%) ---------- ----------- ----------- -------- -------- ------- Total revenues/sales 787,680 753,450 5% 692,191 9% 13,784 13,563 2% 13,161 3% ======== ======== ======= Electric production fuels expense 132,492 120,722 10% 113,208 7% Purchased-power expense 217,209 217,306 -- 146,939 48% ---------- ----------- ----------- Margin $437,979 $415,422 5% $432,044 (4%) ========== =========== ===========
* Reflects the percent change from 2001 to 2002. ** Reflects the percent change from 2000 to 2001. Due to the formation of ATC on Jan. 1, 2001, the wheeling expenses from ATC included in electric margin in 2002 and 2001 were offset by equity income (WP&L accounts for its investment in ATC under the equity method), reduced other operation and maintenance expenses and lower depreciation expense, resulting in no significant net income impact due to the formation of ATC. On a comparable basis, electric margin increased $22.6 million, or 5%, and $13.8 million, or 3%, during 2002 and 2001, respectively. The 2002 increase was primarily due to the implementation of various rate increases in 2002, continued modest retail customer growth and more favorable weather conditions in 2002 compared to 2001, partially offset by the sluggish economy. The 2001 increase was primarily due to lower purchased-power and fuel costs impacting margin, increased residential and commercial sales due to more favorable weather conditions in 2001 compared to 2000 and continued retail customer growth. These items were partially offset by $10 million of income recorded in 2000 for a change in estimate of utility services rendered but unbilled at month-end due to the implementation of a refined estimation process and lower industrial sales, largely due to impacts of a slowing economy. 40 Gas Utility Margins - Gas margins and Dth sales for WP&L were as follows (in ------------------- thousands):
Revenues and Costs Dths Sold -------------------------------------------------- -------------------------------------------- 2002 2001 * 2000 ** 2002 2001 * 2000 ** --------- ----------- --------- --------- -------- --------- -------- ------- -------- -------- Residential $94,509 $107,673 (12%) $96,204 12% 12,863 11,754 9% 12,769 (8%) Commercial 50,121 58,658 (15%) 54,512 8% 8,574 7,572 13% 8,595 (12%) Industrial 6,980 8,907 (22%) 8,581 4% 1,303 1,197 9% 1,476 (19%) Transportation/other 27,481 31,625 (13%) 5,855 440% 18,572 16,866 10% 13,680 23% --------- ----------- --------- --------- -------- -------- Total revenues/sales 179,091 206,863 (13%) 165,152 25% 41,312 37,389 10% 36,520 2% ========= ======== ======== Cost of gas sold 110,119 153,823 (28%) 107,131 44% --------- ----------- --------- Margin $68,972 $53,040 30% $58,021 (9%) ========= =========== =========
* Reflects the percent change from 2001 to 2002. ** Reflects the percent change from 2000 to 2001. Gas revenues and cost of gas sold were unusually high in 2001 due to the large increase in natural gas prices in the first half of 2001. Due to WP&L's rate recovery mechanisms for gas costs, these increases alone had little impact on gas margin. Gas margin increased $15.9 million, or 30%, and decreased $5.0 million, or 9%, during 2002 and 2001, respectively. The 2002 increase was largely due to the implementation of a rate increase in 2002, improved results from WP&L's performance-based commodity cost recovery program, continued modest retail customer growth and the negative impact high gas prices in early 2001 had on gas consumption during that period. The 2001 decrease was largely due to lower retail sales primarily related to unusually high gas prices earlier in 2001 as some customers either chose alternative fuel sources or used less natural gas, the impact of the slowing economy and lower results from WP&L's performance-based commodity cost recovery program. Refer to Note 1(j) of Alliant Energy's "Notes to Consolidated Financial Statements" for information relating to utility fuel and natural gas cost recovery. Refer to Note 2 of Alliant Energy's "Notes to Consolidated Financial Statements" and "Rates and Regulatory Matters" for discussion of WP&L's rate filings. Other Operating Expenses - Due to the formation of ATC in 2001, WP&L incurred ------------------------ $10 million of operation and maintenance expenses in 2000 that were not incurred in 2001. On a comparable basis, other operation and maintenance expenses increased $29.2 million and $7.6 million for 2002 and 2001, respectively. The 2002 increase was largely due to higher fossil generation, employee benefit, energy conservation, and energy delivery expenses. The 2001 increase was primarily due to higher nuclear operating costs (partially due to a planned refueling outage at Kewaunee in the fourth quarter of 2001), higher uncollectible customer account balances largely due to the unusually high gas prices earlier in the year and higher other administrative and general costs. These items were partially offset by decreased fossil plant maintenance expenses. Depreciation and amortization expenses increased $7.1 million and decreased $10.8 million for 2002 and 2001, respectively. The 2002 increase was largely due to higher regulatory and software amortizations. Increased earnings on the nuclear decommissioning trust fund were largely offset by lower decommissioning expense based on reduced retail funding levels. The 2001 decrease was primarily due to the impact of the formation of ATC and decreased earnings on the nuclear decommissioning trust fund, partially offset by increased expense due to property additions. The accounting for earnings on the nuclear decommissioning trust funds results in no net income impact. Interest income is increased for earnings on the trust fund, which is offset in depreciation expense. Taxes other than income taxes increased $3.3 million for 2001 due to increased gross receipts and payroll taxes. Interest Expense and Other - Interest expense decreased $3.3 million in 2002 -------------------------- due to lower average interest rates on the outstanding borrowings. Interest income increased $13.5 million and decreased $5.0 million in 2002 and 2001, respectively, due to differences in earnings on the nuclear decommissioning trust fund. Equity income from unconsolidated investments increased $15.0 million in 2001, largely due to ATC beginning operations on Jan. 1, 2001. Miscellaneous, net income decreased $7.3 million in 2002 primarily due to lower income from sales of non-commodity products and services and income realized from weather hedges in 2001. Income Taxes - The effective income tax rates were 35.6%, 35.9% and 37.5% in ------------ 2002, 2001 and 2000, respectively. Refer to Note 5 of WP&L's "Notes to Consolidated Financial Statements" for additional information. 41 LIQUIDITY AND CAPITAL RESOURCES Overview - Alliant Energy's recent and proposed financing activities have -------- been and will be undertaken against a backdrop of increased market concerns about general economic conditions and corporate governance issues as well as risks associated with particular sectors of the economy, including the energy industry. As a result of these factors, capital markets have become more restrictive. The commercial paper market, for example, has become more limited for many companies in terms of the amounts of available capital and the corresponding maturities. Medium- and long-term debt markets have become sensitive to increased credit ratings volatility and to a heightened perception of liquidity risk in the energy sector. As a result, investors have become more selective and have differentiated among otherwise comparable issuers in a way that has made the financing process more challenging. In response to these changing market conditions, Alliant Energy is working closely with its financial advisors and others to access the capital it needs to operate its businesses. Based on its strong cash flows coupled with actions Alliant Energy expects to take to strengthen its balance sheet, Alliant Energy currently believes it will be able to secure the capital it requires to implement its refined strategic plan. Alliant Energy believes its ability to secure additional capital will be significantly enhanced by the completion of the actions addressed in "Strategic Actions," including the divestiture of selected businesses. Alliant Energy's capital requirements are primarily attributable to its utility subsidiaries' construction and acquisition programs, Resources' acquisition and investment opportunities and its debt maturities. Alliant Energy's utility subsidiaries anticipate financing their construction expenditures, including new electric generation facilities, during 2003-2005 through internally generated funds supplemented, when necessary, by outside financing. Funding for Resources' acquisition and investment expenditures over that same period of time is expected to be accomplished with a combination of external financings, sales of assets and internally generated funds. In 2001, Alliant Energy and Resources received SEC approval for their ongoing program of external financing, credit support arrangements and other related proposals for the period through Dec. 31, 2004. Among other things, the approval authorized Alliant Energy directly or through financing subsidiaries to issue common and preferred stock, unsecured long-term debt securities and other equity-linked securities up to an amount of $1.5 billion; to provide guarantees and credit support for obligations of its subsidiaries up to an amount of $3 billion; to enter into hedging transactions to manage interest rate costs and risk exposure; and to increase its aggregate investment limit in EWGs and FUCOs to 100% of consolidated retained earnings. The approval, among other things, also authorized Resources to provide guarantees and credit support for obligations of non-utility subsidiaries up to an amount of $600 million outstanding at any one time and to spend up to $800 million to construct or acquire energy assets that are incidental to the energy marketing and oil and gas productions of its subsidiaries. Alliant Energy's ability to undertake any such financings contemplated by the SEC's order is dependent on its ability to access the capital markets as described above. Cash Flows - Selected information from Alliant Energy's, IP&L's and WP&L's ---------- Consolidated Statements of Cash Flows was as follows (in thousands):
Alliant Energy IP&L WP&L ---------------------------------- --------------------------------- -------------------------------- Cash flows from (used for): 2002 2001 2000 2002 2001 2000 2002 2001 2000 ---------------------------------- --------------------------------- -------------------------------- Operating activities $544,040 $426,111 $393,090 $250,430 $305,948 $267,564 $223,750 $135,886 $174,060 Financing activities 84,090 170,525 513,063 6,286 (102,086) (77,716) (27,685) (19,176) 987 Investing activities (632,658) (656,262) (869,253) (250,727) (203,838) (189,862) (187,795) (116,832) (174,880)
In 2002, Alliant Energy's cash flows from operating activities increased primarily due to changes in working capital; cash flows from financing activities decreased primarily due to proceeds from the issuance of common stock in 2001, partially offset by a net increase in the amount of preferred stock outstanding at IP&L; and cash flows used for investing activities decreased primarily due to lower construction and acquisition expenditures partially offset by proceeds received in 2001 from the transfer of WP&L's transmission assets to ATC. In 2001, Alliant Energy's cash flows from financing activities decreased primarily due to net changes in amount of debt issued and retired, partially offset by proceeds from the issuance of common stock in 2001; and cash flows used for investing activities decreased primarily due to lower non-regulated investments. In 2002, IP&L's cash flows from operating activities decreased primarily due to changes in working capital; cash flows used for financing activities decreased due to a net increase in the amount of preferred stock outstanding and a capital contribution of $60 million by Alliant Energy; and cash flows used for investing activities increased due to increased levels of construction expenditures. In 2001, IP&L's cash flows from operating 42 activities increased primarily due to changes in working capital; cash flows used for financing activities increased due to the net changes in the amount of debt issued and retired; and cash flows used for investing activities increased due to higher levels of construction expenditures. In 2002, WP&L's cash flows from operating activities increased due to changes in working capital; and cash flows used for investing activities increased primarily due to proceeds received from the transfer of WP&L's transmission assets to ATC in 2001. In 2001, WP&L's cash flows from operating activities decreased due to changes in working capital; cash flows used for financing activities increased due to common stock dividends paid in 2001 as no dividends were declared in 2000 due to management of WP&L's capital structure, partially offset by a capital contribution of $35 million by Alliant Energy and changes in debt issued and retired; cash flows used for investing activities decreased in 2001 primarily due to proceeds received from the transfer of WP&L's transmission assets to ATC. Common Equity - In November 2002, Alliant Energy announced its intentions to ------------- raise approximately $200 million to $300 million of common equity in 2003, dependent on market conditions. The proceeds are expected to be used to fund the Power Iowa initiative and other regulated domestic utility needs. The PSCW has indicated it will require an additional equity infusion by Alliant Energy into WP&L during 2003. Alliant Energy anticipates the final PSCW order, which is expected to be issued in the second quarter of 2003, will also include a customer refund provision if the timing and/or amount of the equity infusion differs from the assumptions included in the WP&L rate case. Preferred Stock - In September 2002, IP&L redeemed all of its then --------------- outstanding shares of preferred stock at an aggregate redemption price of $58.3 million. In December 2002, IP&L issued six million shares of preferred stock at $25.00 per share in a private placement. IP&L used the net proceeds of approximately $145 million to repay its short-term debt and for general corporate purposes, including to fund capital expenditures and to repay other debt. Debt - In June 2002, Alliant Energy received approval (through Dec. 31, 2004) ---- from the SEC to issue and sell up to an aggregate amount of $1 billion of short-term debt outstanding at any one time and to guarantee borrowings by Resources in an aggregate amount that would not exceed $700 million at any one time in addition to its other guarantee authority. In addition, IP&L received SEC approval to issue short-term debt in a principal amount which would not at any one time exceed $300 million. Alliant Energy discontinued the use of its utility money pool in 2002 and WP&L and IP&L are now meeting any short-term borrowing needs by issuing commercial paper and borrowing on bank lines of credit, respectively. Alliant Energy and its subsidiaries are party to various credit facilities and other borrowing arrangements, some of which are summarized below. In addition to the specific covenants detailed below under the 364-day revolving credit agreements, Alliant Energy's facilities and borrowing arrangements contain various customary terms and conditions, including required capitalization, net worth and interest coverage requirements, maintenance requirements related to bonded property and cross-default provisions. At Dec. 31, 2002, Alliant Energy and its subsidiaries were in compliance with the financial ratios and covenant requirements under their respective credit facilities and borrowing arrangements. The aggregate borrowing capacity under short-term credit agreements of Alliant Energy and its subsidiaries at Dec. 31, 2002 was $845 million. At Dec. 31, 2002, the total amount borrowed under these facilities was $281 million leaving unused capacity of $564 million. In addition, Resources had a $250 million standby credit facility at Dec. 31, 2002 as discussed below. There are no borrowings currently outstanding under such facility. Alliant Energy also had $28 million of short-term borrowings outstanding at Dec. 31, 2002 related to various generation projects in China. In October 2002, Alliant Energy completed the syndication of three 364-day revolving credit facilities totaling $915 million, available for direct borrowing or to support commercial paper, which replaced the former facilities that totaled $900 million in borrowing availability. The three facilities consist of a $565 million facility for Alliant Energy (at the parent company level), which was reduced to $450 million at the end of 2002, a $200 million facility for IP&L and a $150 million facility for WP&L. Availability under the Alliant Energy credit facility will be further reduced by the proceeds of asset sales in excess of 5% of Alliant Energy's consolidated assets in any 12-month period commencing October 2002 and up to $50 million from the proceeds of an issuance of equity securities in excess of $300 million. These new credit facility agreements contain various covenants, including the following: 43
Covenant Description Covenant Requirement Status at Dec. 31, 2002 ------------------------------------------ ------------------------- -------------------------- Alliant Energy: Consolidated debt-to-capital ratio * Less than 65% 59.6% Consolidated net worth * At least $1.4 billion $1.8 billion EBITDA interest coverage ratio * At least 2.5x 3.6x IP&L debt-to-capital ratio Less than 58% 47.9% WP&L debt-to-capital ratio Less than 58% 40.7%
* In compliance with the agreements, results of discontinued operations have been included in the covenant calculations. The debt component of the capital ratios includes long- and short-term debt (excluding trade payables), capital lease obligations, letters of credit and guarantees of the foregoing and unfunded vested benefits under pension plans. The equity component excludes accumulated other comprehensive income (loss). Alliant Energy is also subject to a PUHCA requirement whereby Alliant Energy's common equity balance must be at least 30% of its total consolidated capitalization, including short-term debt. Alliant Energy's common equity ratio as of Dec. 31, 2002, as computed under such requirement, was 35.8%. In December 2002, Resources secured a 364-day $250 million standby credit facility. Designed as a bridge to enhance Alliant Energy's short-term liquidity position until it receives the expected proceeds from the assets it plans to sell in 2003, the availability under the facility is reduced by amounts realized on such asset sales. At Dec. 31, 2002, there were no borrowings outstanding under this credit facility. Also in December 2002, Whiting finalized a secured revolving $200 million credit facility which will mature in December 2005. At Dec. 31, 2002, Whiting had $185 million of borrowings outstanding under this facility at an interest rate of 3.63%, which was included in "Long-term debt" on Alliant Energy's Consolidated Balance Sheet. Information regarding commercial paper and bank facility borrowings at Dec. 31, 2002 was as follows (dollars in millions):
Alliant Energy (Parent) WP&L -------------------------- ------------- Commercial paper outstanding $135.5 $60.0 Weighted average maturity of commercial paper 2 days 34 days Discount rates on commercial paper 1.95% 1.6% Bank facility borrowings $85.0 -- Interest rates on bank facility borrowings 2.3-2.4% --
As a result of the Moody's downgrade of Alliant Energy's commercial paper in January 2003 to P-3, Alliant Energy's ability to issue commercial paper at the parent company level has been reduced, requiring greater reliance on bank lines. In addition to funding working capital needs, the availability of short-term financing provides the companies flexibility in the issuance of long-term securities. The level of short-term borrowing fluctuates based on seasonal corporate needs, the timing of long-term financing and capital market conditions. At Dec. 31, 2002, IP&L and WP&L were authorized by the applicable federal or state regulatory agencies to issue short-term debt of $180 million and $240 million, respectively. The $240 million borrowing authority for WP&L includes $85 million for general corporate purposes, an additional $100 million should WP&L no longer sell its utility receivables and an additional $55 million should WP&L need to repurchase its variable rate demand bonds. In December 2002, Resources issued $300 million of 9.75% senior notes due 2013 in a private placement. The notes are unconditionally guaranteed by Alliant Energy. Resources used the proceeds to repay short-term debt. At Dec. 31, 2002, Alliant Energy, IP&L and WP&L had $783 million, $175 million and $255 million, respectively, of long-term debt that will mature prior to Dec. 31, 2007. The $783 million at Alliant Energy represents long-term debt maturities of $47 million in 2003, $106 million in 2004, $337 million in 2005, $68 million in 2006 and $225 million in 2007. Depending upon market conditions, it is currently anticipated that a majority of the maturing debt will be refinanced with the issuance of long-term securities. 44 Refer to "Construction and Acquisition Expenditures" for information regarding a credit facility Resources entered into in February 2003 relating to the purchase of a non-regulated power plant. Refer to Note 8 of the "Notes to Consolidated Financial Statements" for additional information on short- and long-term debt. Credit Ratings and Balance Sheet - Access to the long- and short-term capital -------------------------------- and credit markets, and costs of external financing, are dependent on creditworthiness. Alliant Energy is committed to taking the necessary steps required to maintain strong credit ratings and to strengthen its balance sheet. Refer to "Strategic Actions" for a discussion of specific actions being taken in this regard. Although Alliant Energy believes such actions will enable it to strengthen its balance sheet and maintain strong credit ratings, no assurance can be given that it will be able to maintain its existing credit ratings. If Alliant Energy's credit ratings are downgraded in the future, then Alliant Energy's borrowing costs may increase and its access to capital markets may be limited. If access to capital markets becomes significantly constrained, then Alliant Energy's results of operations and financial condition could be materially adversely affected. In December 2002 and January 2003, Standard & Poor's and Moody's, respectively, issued revised credit ratings as follows (long-term debt ratings only apply to senior debt):
Standard & Poor's Moody's --------------------- -------------- IP&L Secured long-term debt A- A3 Unsecured long-term debt BBB Baa1 Commercial paper A-2 P-2 Corporate BBB+ Baa1 WP&L Secured long-term debt A A1 Unsecured long-term debt BBB+ A2 Commercial paper A-2 P-1 Corporate A- A2 Resources (a) Unsecured long-term debt BBB Baa3 Commercial paper A-2 P-3 Corporate BBB+ Baa3 Alliant Energy Unsecured long-term debt BBB Not rated Commercial paper A-2 P-3 Corporate BBB+ Not rated All Entities Outlook Negative Stable
(a) Resources' debt is fully and unconditionally guaranteed by Alliant Energy. Ratings Triggers - The long-term debt of Alliant Energy and its subsidiaries ---------------- is not subject to any repayment requirements as a result of credit rating downgrades or so-called "ratings triggers." However, certain lease agreements do contain such ratings triggers. The threshold for these triggers varies among the applicable leases. If the payments were accelerated under all the affected leases it would result in accelerated payments of approximately $45 million. In addition, the amount of proceeds available to IP&L and WP&L from their sale of utility customer accounts receivable programs could be reduced in the aggregate by approximately $20 million in the event of certain credit rating downgrades at the Alliant Energy parent company level. Alliant Energy and its subsidiaries are also parties to various agreements, including purchased-power agreements, fuel contracts and corporate guarantees that may be deemed to be in default in the event of certain credit rating downgrades. In the event of such a default, Alliant Energy or its subsidiaries may be able to cure the default in a number of ways, including posting letters of credit equal to the amount of the exposure, unwinding the contract or paying the obligation. Sale of Accounts Receivable - Refer to Note 4 of Alliant Energy's "Notes to --------------------------- Consolidated Financial Statements" for information on Alliant Energy's sale of accounts receivable program. Off-Balance Sheet Arrangements - Alliant Energy utilizes synthetic leases to ------------------------------ finance its corporate headquarters, corporate aircraft, certain utility railcars and a utility radio dispatch system. Synthetic leases provide favorable financing rates to Alliant Energy while allowing it to maintain operating control of its leased assets. Several of Alliant Energy's synthetic leases involve the use of unconsolidated structured finance or variable interest entities. Alliant Energy has guarantees outstanding related to the residual value of these synthetic leases. Alliant Energy does not currently anticipate entering into any additional synthetic leases. Alliant Energy also uses variable interest entities for its utility sale of accounts receivable program whereby IP&L and WP&L use proceeds from the sale of the accounts receivable and unbilled revenues to maintain flexibility in their capital structures, take advantage of favorable short-term interest rates and finance a portion of their long-term cash needs. The sale of 45 accounts receivables generates a significant amount of short-term financing for IP&L and WP&L. If this financing alternative were not available, IP&L and WP&L anticipate they would have enough short-term borrowing capacity to compensate. Refer to "Ratings Triggers" for the impact of credit rating downgrades on Alliant Energy and its subsidiaries related to these synthetic leases and accounts receivable sales program. Beginning in the third quarter of 2003, under FIN 46 it is reasonably possible that Alliant Energy could be considered the primary beneficiary of certain variable interest entities utilized for its synthetic lease financings and receivable sales program and could be required to consolidate the operating results and associated assets and liabilities of the variable interest entities in its financial statements. Alliant Energy is in the process of evaluating the potential impacts of FIN 46. Alliant Energy is also currently evaluating the structure of its synthetic leases and receivable sales program to determine if these structures can be modified to qualify for off-balance sheet treatment under FIN 46. Contractual Obligations - Alliant Energy's long-term contractual cash ----------------------- obligations as of Dec. 31, 2002 were as follows (in millions):
2003 2004 2005 2006 2007 Thereafter Total -------- --------- ------- --------- ------- ------------ --------- Long-term debt (Note 8) and capital lease obligations (Note 3) $62 $122 $347 $104 $227 $2,303 $3,165 Operating leases (Note 3) 45 76 95 99 123 384 822 Purchase obligations (Note 11(b)) 286 110 68 30 18 27 539 -------- --------- ------- --------- ------- ------------ --------- $393 $308 $510 $233 $368 $2,714 $4,526 ======== ========= ======= ========= ======= ============ ========= IP&L's long-term contractual cash obligations as of Dec. 31, 2002 were as follows (in millions): 2003 2004 2005 2006 2007 Thereafter Total -------- --------- ------- --------- ------- ------------ --------- Long-term debt (Note 8) and capital lease obligations (Note 3) $20 $16 $13 $96 $109 $663 $917 Operating leases (Note 3) 9 7 10 3 3 33 65 Purchase obligations (Note 11(b)) 99 25 14 6 4 -- 148 -------- --------- ------- --------- ------- ------------ --------- $128 $48 $37 $105 $116 $696 $1,130 ======== ========= ======= ========= ======= ============ ========= WP&L's long-term contractual cash obligations as of Dec. 31, 2002 were as follows (in millions): 2003 2004 2005 2006 2007 Thereafter Total -------- --------- ------- --------- ------- ------------ --------- Long-term debt (Note 8) $-- $62 $88 $-- $105 $269 $524 Operating leases (Note 3) 27 61 75 76 76 335 650 Purchase obligations (Note 11(b)) 86 47 26 15 15 27 216 -------- --------- ------- --------- ------- ------------ --------- $113 $170 $189 $91 $196 $631 $1,390 ======== ========= ======= ========= ======= ============ =========
At Dec. 31, 2002, long-term debt and capital lease obligations as noted in the previous tables were included on the respective Consolidated Balance Sheets. In addition, at Dec. 31, 2002, there were various other long-term liabilities and deferred credits included on the respective Consolidated Balance Sheets that, due to the nature of the liabilities, the timing of payments cannot be estimated and are therefore excluded from the tables. Operating leases and purchase obligations are amounts committed under contract which were not recorded on the respective Consolidated Balance Sheets at Dec. 31, 2002, in accordance with GAAP. Purchase obligations represent normal business contracts used to ensure adequate purchased-power, coal and natural gas supplies and to minimize exposure to market price fluctuations. In connection with Alliant Energy's, IP&L's and WP&L's construction and acquisition programs, they also enter into commitments related to such programs on an ongoing basis. Sales of Non-strategic Assets - In the third quarter of 2002, Alliant Energy ----------------------------- completed the sale of its 50% ownership interest in its Cargill-Alliant electricity-trading joint venture to Cargill. The sale proceeds were approximately $19.3 million, the book value of Alliant Energy's share of the joint venture. As noted earlier, the strategic actions currently being executed by Alliant Energy will focus on additional potential sales of non-strategic assets, among other items. Refer to "Strategic Actions," "Other Matters - Other Future Considerations" and Note 16 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional discussion on the potential impact of future asset sales. Credit Risk - Credit risk is inherent in Alliant Energy's operations and ----------- relates to the risk of loss resulting from non-performance of contractual obligations by a counterparty. Alliant Energy maintains credit risk 46 oversight and sets limits and policies with regards to its counterparties, which management believes minimizes its overall credit risk exposure. However, there is no assurance that such policies will protect Alliant Energy against all losses from non-performance by counterparties. Environmental - Alliant Energy's pollution abatement programs are subject to ------------- continuing review and are periodically revised due to changes in environmental regulations, construction plans and escalation of construction costs. While management cannot precisely forecast the effect of future environmental regulations on operations, it has taken steps to anticipate the future while also meeting the requirements of current environmental regulations. Alliant Energy's facilities are subject to state and federal requirements of the CAA, including meeting ambient air quality standards. As a result of a new rate-of-progress rule developed by the Wisconsin DNR, and based on existing technology, Alliant Energy estimates the total aggregate capital investments necessary by WP&L to comply with the new rules will be approximately $19 million in 2003 through 2007. Alliant Energy is also currently addressing various other potential federal and state environmental rulemakings and activities, including: 1) proposed revisions to the Wisconsin Administrative Code concerning the amount of heat that WP&L's generating stations can discharge into Wisconsin waters which could have a significant impact on WP&L's operation of its Wisconsin generating facilities; 2) potential new rules that may be pursued by the EPA and the states in the Alliant Energy service territory related to various air emissions; 3) the multiple requests WP&L has received from the EPA related to the historical operation of WP&L's major coal-fired generating units, which requests have been the precursor to penalties and additional capital requirements in some cases involving similar requests to other electric generating facilities; 4) the New Source Review reforms published by the EPA in December 2002; 5) several other legislative and regulatory proposals regarding the control of emissions of air pollutants and greenhouse gases from a variety of sources, including generating facilities; and 6) the July 2002 request from the Wisconsin DNR that WP&L submit a written plan for facility closure of the Rock River Generating Station landfill and clean-up of its support ponds and all areas where coal combustion waste is present. Alliant Energy cannot presently predict the final outcome of these proposals or actions, but believes that required capital investments and/or modifications resulting from them could be significant. Alliant Energy believes that prudent expenses incurred by IP&L and WP&L likely would be recovered in rates from its customers. Refer to Note 11(e) of the "Notes to Consolidated Financial Statements" for further discussion of environmental matters. Construction and Acquisition Expenditures - Capital expenditures, investments ----------------------------------------- and financing plans are continually reviewed, approved and updated as part of Alliant Energy's ongoing strategic planning and annual budgeting processes. In addition, material capital expenditures and investments are subject to a rigorous cross-functional review prior to approval. Changes in Alliant Energy's anticipated construction and acquisition expenditures may result from a number of reasons including economic conditions, regulatory requirements, ability to obtain adequate and timely rate relief, the level of Alliant Energy's profitability, Alliant Energy's desire to maintain strong credit ratings and reasonable capitalization ratios, variations in sales, changing market conditions and new opportunities. As noted in "Strategic Actions," Alliant Energy recently reduced its anticipated construction and acquisition expenditure levels in order to strengthen its balance sheet. Alliant Energy believes its capital control processes adequately reduce the risks associated with large capital expenditures and investments. Alliant Energy currently anticipates construction and acquisition expenditures as follows (in millions):
2003 2004-2005 ------------- ------------- Domestic utility: IP&L utility infrastructure and reliability investments $230 $560 IP&L Power Iowa program* 220 80 WP&L utility infrastructure and reliability investments 160 410 Non-regulated domestic generation 130 10 Other non-regulated business development 80 70 ------------- ------------- Total from continuing operations 820 1,130 Discontinued operations 80 -- ------------- ------------- Total $900 $1,130 ============= =============
* Excludes approximately $109 million in 2003 for potential purchase of turbines and related equipment from affiliates. 47 Alliant Energy has not entered into contractual commitments relating to the majority of its anticipated capital expenditures. As a result, Alliant Energy does have discretion as to the eventual level of capital expenditures incurred and it closely monitors and updates such estimates on an ongoing basis based on numerous economic and other factors. In September 2002, the IUB approved a settlement agreement establishing advance rate making principles for the proposed 500 MW natural gas-fired plant IP&L plans to construct in Mason City, Iowa as part of its Power Iowa initiative to develop new electric generation capacity in Iowa. The settlement establishes, among other things, a set depreciation period whereby IP&L is ensured of recovering the estimated $400 million cost of its investment over 28 years based on a fixed 12.23% return on the common equity component. In January 2003, the IUB approved IP&L's siting certificate for the Mason City plant and construction began. The plant is scheduled to be in service prior to the 2004 summer peak demand. Given the status of the current non-regulated generation market, Alliant Energy's initial investments in this market will focus on facilities with underlying long-term purchased-power agreements. While Alliant Energy believes there are excellent acquisition opportunities in the existing non-regulated generation market, it will continue to be patient, prudent and diligent in its pursuit of such opportunities. Consistent with this approach, in February 2003, Resources announced the purchase of a 309 MW, non-regulated, natural gas-fired power plant in Wisconsin for $109 million, which Resources financed with a $73 million 8-year secured credit facility, which is non-recourse to Alliant Energy. At Feb. 28, 2003, Resources had $60 million of borrowings outstanding under this facility, at an interest rate of approximately 5%, and an $11 million letter of credit related to a purchased- power agreement. The entire power output of the facility is sold under contract to Milwaukee-based We Energies through June 2008. OTHER MATTERS Market Risk Sensitive Instruments and Positions - Alliant Energy's primary ----------------------------------------------- market risk exposures are associated with interest rates, commodity prices, equity prices and currency exchange rates. Alliant Energy has risk management policies to monitor and assist in controlling these market risks and uses derivative instruments to manage some of the exposures. Interest Rate Risk - Alliant Energy is exposed to risk resulting from changes in interest rates as a result of its issuance of variable-rate debt, utility customer accounts receivable sale program and variable-rate leasing agreements. Alliant Energy manages its interest rate risk by limiting its variable interest rate exposure and by continuously monitoring the effects of market changes on interest rates. Alliant Energy also uses interest rate swap and interest rate forward agreements to assist in the management of its interest exposure. In the event of significant interest rate fluctuations, management would take actions to minimize the effect of such changes on Alliant Energy's results of operations and financial condition. Assuming no change in Alliant Energy's, IP&L's and WP&L's consolidated financial structure, if variable interest rates were to average 100 basis points higher (lower) in 2003 than in 2002, interest expense and pre-tax earnings would increase (decrease) by approximately $9.4 million, $1.5 million and $2.5 million, respectively. These amounts were determined by considering the impact of a hypothetical 100 basis point increase (decrease) in interest rates on Alliant Energy's, IP&L's and WP&L's consolidated variable-rate debt held, the amount outstanding under the utility customer accounts receivable sale program and variable-rate lease balances at Dec. 31, 2002. Commodity Risk - Non-trading - Alliant Energy is exposed to the impact of market fluctuations in the commodity price and transportation costs of electricity and natural gas products it markets. Alliant Energy employs established policies and procedures to manage its risks associated with these market fluctuations including the use of various commodity derivatives. Alliant Energy's exposure to commodity price risks in its utility business is significantly mitigated by the current rate making structures in place for the recovery of its electric fuel and purchased energy costs as well as its cost of natural gas purchased for resale. Refer to Note 1(j) of Alliant Energy's "Notes to Consolidated Financial Statements" for further discussion. WP&L periodically utilizes gas commodity derivative instruments to reduce the impact of price fluctuations on gas purchased and injected into storage during the summer months and withdrawn and sold at current market prices during the winter months. The gas commodity swaps in place approximate the forecasted storage withdrawal plan during this period. Therefore, market price fluctuations that result in an increase or decrease in the value of the physical commodity are substantially offset by changes in the value of the gas commodity swaps. To the extent actual storage withdrawals vary from forecasted withdrawals, WP&L has physical commodity price exposure. A 10% 48 increase (decrease) in the price of gas would not have a significant impact on the combined fair market value of the gas in storage and related swap arrangements in place at Dec. 31, 2002. IP&L also utilizes natural gas commodity derivative instruments to mitigate the risk of rising prices. Since the IUB allows for the prudently incurred costs associated with these instruments and the underlying supply of natural gas to be recovered from ratepayers, IP&L does not have significant natural gas commodity risk exposure. Whiting, currently accounted for as a discontinued operation, is exposed to market risk in the pricing of its oil and gas production. Historically, prices received for oil and gas production have been volatile because of seasonal weather patterns, supply and demand factors, transportation availability and price, and general economic conditions. Worldwide political developments have historically also had an impact on oil prices. Whiting periodically utilizes oil and gas swaps, costless collars and long-term delivery contracts to mitigate the impact of oil and gas price fluctuations. Historically, Alliant Energy has hedged or contracted approximately 50% of its oil and gas volumes. The actual level of hedging or contracting utilized is based on management's assessment of the prudency of hedging given current market conditions and other factors and is reviewed on an ongoing basis. Based on Whiting's estimated oil and gas sales in 2003, and the hedging and delivery contracts outstanding for such period, a sustained 10% increase (decrease) in oil and gas prices would impact Alliant Energy's pre-tax 2003 earnings by approximately $9.9 million. Southern Hydro, currently accounted for as a discontinued operation, owns and operates hydroelectric generation facilities in the state of Victoria in Australia. These generation facilities operate as peaking units. Under the rules of the Australian market, Southern Hydro must sell all of its production into a spot market in which the price changes every five minutes and is set on the average of each half hour. Electricity prices in this market can and have been very volatile. In order to manage the electricity commodity price risk associated with anticipated sales into the spot market, Southern Hydro enters into a variety of electricity derivative contracts with terms of up to five years. The value of these derivative instruments can change significantly as a result of changes in forward electricity prices. These instruments do not qualify for hedge accounting under SFAS 133. Accordingly, per GAAP, changes in the fair value of these derivatives, which are non-cash valuation adjustments, must be reported in Southern Hydro's earnings. Alliant Energy believes Southern Hydro's ownership of the physical generating facilities that are not marked-to-market, combined with the electricity derivative contracts, act as an economic hedge to volatile electricity prices, such that Southern Hydro's net economic exposure to volatile electricity prices over the next five years is managed within reasonable limits. Southern Hydro manages market risks inherent in its business through established derivative trading and risk management policies and tools. The principal tool utilized in managing the risks associated with volatile prices is a five to 40-day Earnings-at-Risk (EAR) model which calculates EAR to a 95% confidence level. At December 31, 2002, the estimated EAR for Southern Hydro for expected earnings in 2003 was approximately $0.9 million. Equity Price Risk - IP&L and WP&L maintain trust funds to fund their anticipated nuclear decommissioning costs. At Dec. 31, 2002 and 2001, these funds were invested primarily in domestic equity and debt instruments. Fluctuations in equity prices or interest rates will not affect Alliant Energy's consolidated results of operations as such fluctuations are recorded in equally offsetting amounts of investment income and depreciation (WP&L) or interest (IP&L) expense when they are realized. In 2001, WP&L entered into a four-year hedge on equity assets in its nuclear decommissioning trust fund. Refer to Note 10(c) of Alliant Energy's "Notes to Consolidated Financial Statements" for further discussion. Currency Risk - Alliant Energy has investments in various countries where the net investments are not hedged, including Australia, Brazil, China and New Zealand. As a result, these investments are subject to currency exchange risk with fluctuations in currency exchange rates. At Dec. 31, 2002, Alliant Energy had a cumulative foreign currency translation loss, net of any tax benefits realized, of $165 million, which related to decreases in value of the Brazil real of $152 million, New Zealand dollar of $11 million and Australian dollar of $2 million in relation to the U.S. dollar. This loss is recorded in "Accumulated other comprehensive loss" on Alliant Energy's Consolidated Balance Sheets. Based on Alliant Energy's investments at Dec. 31, 2002, a 10% sustained increase/decrease over the next 12 months in the foreign exchange rates of Australia, Brazil, China and New Zealand would result in a corresponding increase/decrease in the cumulative foreign currency translation loss of $57 million. Alliant Energy's equity income (loss) from its foreign investments is also impacted by fluctuations in currency exchange rates. In addition, Alliant Energy has currency exchange risk associated with the debt issued to finance a thermal plant constructed by Alliant Energy and its Brazilian partners. In 2002, Alliant Energy recorded pre-tax charges of $6.5 million related to its share of the foreign currency transaction losses on such debt. Based on the loan balance and 49 currency rates at Dec. 31, 2002, a 10% change in the currency rates would result in a $1.9 million after-tax increase (decrease) in net income. Refer to Notes 1(n) and 10 of Alliant Energy's "Notes to Consolidated Financial Statements" for further discussion of Alliant Energy's derivative financial instruments. Accounting Pronouncements - On Oct. 25, 2002, the EITF reached a consensus on ------------------------- EITF Issue 02-3. Alliant Energy's natural gas trading business, NG Energy Trading, LLC (NG Energy), is impacted by EITF Issue 02-3, which requires that all sales of energy and the related cost of energy purchased under contracts that meet the definition of energy trading contracts under EITF Issue 98-10 and that are derivatives under SFAS 133 must be reflected on a net basis in the income statement for all periods presented. Under the guidance of EITF Issue 98-10, Alliant Energy reported its energy trading contracts and related gas in storage at fair market value, and reported related revenues and expenses on a gross basis in the income statement. EITF Issue 02-3 also rescinded EITF Issue 98-10 on a prospective basis. Accordingly, any new contracts entered into after Oct. 25, 2002 must be reported on a historical cost basis rather than at fair market value unless the contract meets the definition of a derivative under SFAS 133. Alliant Energy adopted EITF Issue 02-3 on Jan. 1, 2003 for all contracts that were in place and storage gas acquired prior to Oct. 25, 2002, and will reclassify prior period trading contracts on a net basis in the income statement for 2003. The impact of transitioning from reporting inventory and existing contracts that are not derivatives under SFAS 133 at fair value to historical cost will be reported in net income in the first quarter of 2003 and is not expected to be material due to the relatively small size of the NG Energy business. Had Alliant Energy presented its trading activities in the income statement on a net basis rather than a gross basis, for 2002, 2001 and 2000, "Non-regulated and other" revenues and "Other operation and maintenance" expenses would have both decreased $125 million, $49 million and $9 million, respectively, with no impact on net income. In November 2002, the FASB issued FIN 45 which requires disclosures by a guarantor about its obligations under certain guarantees that it has issued. FIN 45 also requires recognizing, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The recognition and measurement provisions of FIN 45 are effective on a prospective basis for guarantees issued or modified after Dec. 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after Dec. 15, 2002. Alliant Energy does not anticipate FIN 45 will have a material impact on its financial condition or results of operations. Refer to Note 11(d) of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information on guarantees. In January 2003, the FASB issued FIN 46 which addresses consolidation by business enterprises of variable interest entities. FIN 46 requires consolidation where there is a controlling financial interest in a variable interest entity or where the variable interest entity does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. Alliant Energy will apply the provisions of FIN 46 prospectively for all variable interest entities created after Jan. 31, 2003. For variable interest entities created before Jan. 31, 2003, Alliant Energy will be required to consolidate all entities in which it is a primary beneficiary beginning in the third quarter of 2003. It is reasonably possible the implementation of FIN 46 will require that certain variable interest entities be included on Alliant Energy's Consolidated Balance Sheets. Refer to Notes 3 and 4 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information on variable interest entities related to synthetic leases and the utility customer accounts receivable sale program, respectively. SFAS 143, which provides accounting and disclosure requirements for retirement obligations associated with long-lived assets, was effective Jan. 1, 2003. SFAS 143 requires that the present value of retirement costs for which Alliant Energy has a legal obligation be recorded as liabilities with an equivalent amount added to the asset cost. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity settles the obligation for its recorded amount or incurs a gain or loss. The adoption of SFAS 143 will have no impact on IP&L's and WP&L's earnings, as the effects will be offset by the establishment of regulatory assets or liabilities pursuant to SFAS 71, "Accounting for the Effects of Certain Types of Regulation." Alliant Energy has completed a detailed assessment of the specific applicability and implications of SFAS 143. The scope of SFAS 143 as it relates to Alliant Energy primarily includes decommissioning costs for DAEC and Kewaunee. It also applies to a smaller extent to several other regulated and non-regulated assets including, but not limited to, active ash landfills, water intake facilities, underground storage tanks, groundwater wells, 50 transmission and distribution equipment, easements, leases and the dismantlement of certain hydro facilities. Other than DAEC and Kewaunee, Alliant Energy's asset retirement obligations as of Jan. 1, 2003 are not significant. Prior to January 2003, IP&L and WP&L recorded nuclear decommissioning charges in accumulated depreciation on their Consolidated Balance Sheets. Upon adoption of SFAS 143, IP&L and WP&L will reverse approximately $125 million and $175 million, respectively, previously recorded in accumulated depreciation and will record liabilities of approximately $250 million and $175 million, respectively. The difference between amounts previously recorded and the net SFAS 143 liability will be deferred as a regulatory asset and is expected to approximate $125 million and $0 for IP&L and WP&L, respectively. IP&L and WP&L have previously recognized removal costs as a component of depreciation expense and accumulated depreciation for other non-nuclear assets in accordance with regulatory rate recovery. As of Dec. 31, 2002, IP&L and WP&L estimate that they have approximately $250 million and $150 million, respectively, of such regulatory liabilities recorded in "Accumulated depreciation" on their Consolidated Balance Sheets. In 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which replaced SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144 also applies to discontinued operations. SFAS 144 requires that those long-lived assets classified as held for sale be measured at the lower of their carrying amount or the fair value less cost to sell, and that no depreciation, depletion and amortization shall be recorded while an asset is classified as held for sale. Discontinued operations are no longer measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a planned disposal transaction that is probable of being completed within one year. If the criteria to classify operations as held for sale are subsequently no longer met, the assets classified as held for sale shall be reclassified as held and used in the period the held for sale criteria are no longer met. Alliant Energy adopted SFAS 144 on January 1, 2002. Refer to Note 16 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information about Alliant Energy's application of SFAS 144 in the fourth quarter of 2002 as relates to various assets it is planning to sell. Alliant Energy does not expect the various other new accounting pronouncements not mentioned above that were effective in 2002 to have a material impact on Alliant Energy's results of operations or financial condition. Critical Accounting Policies - Based on historical experience and various ---------------------------- other factors, Alliant Energy believes the policies identified below are critical to its business and the understanding of its results of operations as they require critical estimates be made based on the assumptions and judgment of management. The preparation of consolidated financial statements requires management to make various estimates and assumptions that affect revenues, expenses, assets, liabilities and the disclosure of contingencies. The results of these estimates and judgments form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and judgments. Alliant Energy's management has discussed these critical accounting policies with the Audit Committee of its Board of Directors. Refer to Note 1 of Alliant Energy's "Notes to Consolidated Financial Statements" for a discussion of Alliant Energy's accounting policies and the estimates and assumptions used in the preparation of the consolidated financial statements. Regulatory Assets and Liabilities - Alliant Energy's domestic utility business is regulated by various federal and state regulatory agencies. As a result, the regulated utilities qualify for the application of SFAS 71. SFAS 71 recognizes that the actions of a regulator can provide reasonable assurance of the existence of an asset or liability. Regulatory assets or liabilities arise as a result of a difference between GAAP and the accounting principles imposed by the regulatory agencies. Regulatory assets generally represent incurred costs that have been deferred as they are probable of recovery in customer rates. Regulatory liabilities generally represent obligations to make refunds to customers for various reasons. Alliant Energy's utility subsidiaries recognize regulatory assets and liabilities in accordance with the rulings of their federal and state regulators and future regulatory rulings may impact the carrying value and accounting treatment of Alliant Energy's regulatory assets and liabilities. Alliant Energy periodically assesses whether the regulatory assets are probable of future recovery by considering factors such as regulatory environment changes, recent rate orders issued by the applicable regulatory agencies and the status of any pending or potential deregulation legislation. The assumptions and judgments used by regulatory authorities continue to have an impact on the recovery of costs, the rate of return on 51 invested capital and the timing and amount of assets to be recovered by rates. A change in these assumptions may result in a material impact on Alliant Energy's results of operations. Refer to Note 1(c) of Alliant Energy's "Notes to Consolidated Financial Statements" for further discussion. Asset Valuations - Long-Lived Assets - Alliant Energy's Consolidated Balance Sheets include ----------------- significant long-lived assets, which are not subject to recovery under SFAS 71. As a result, Alliant Energy must generate future cash flows from such assets in a non-regulated environment to ensure the carrying value is not impaired. Many of these assets are the result of capital investments which have been made in recent years and have not yet reached a mature life cycle. Alliant Energy assesses the carrying amount and potential impairment of these assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors Alliant Energy considers in determining if an impairment review is necessary include a significant underperformance of the assets relative to historical or projected future operating results, a significant change in Alliant Energy's use of the acquired assets or business strategy related to such assets, and significant negative industry or economic trends. When Alliant Energy determines an impairment review is necessary, a comparison is made between the expected undiscounted future cash flows and the carrying amount of the asset. If the carrying amount of the asset is the larger of the two balances, an impairment loss is recognized equal to the amount the carrying amount of the asset exceeds the fair value of the asset. The fair value is determined by the use of quoted market prices, appraisals, or the use of valuation techniques such as expected discounted future cash flows. Alliant Energy must make assumptions regarding these estimated future cash flows and other factors to determine the fair value of the respective assets. Alliant Energy has made payments of $156 million for turbines and related generation equipment at Dec. 31, 2002 and has also entered into commitments for an additional $84 million. Alliant Energy expects to utilize approximately $124 million of such equipment in its first Power Iowa generation project and is currently reviewing various other potential generation projects to utilize the remaining $116 million of equipment. As a result, Alliant Energy has assessed the recoverability of the $116 million equipment cost compared to the future anticipated cash flows from the generation projects under review. The future anticipated cash flows is a significant estimate. Alliant Energy has no current intentions to sell any of this equipment. If a decision was made to sell such equipment, the recoverability of the equipment cost would be assessed by comparing the future anticipated sales proceeds to the carrying value of the equipment. Investments - Alliant Energy's Consolidated Balance Sheets include ----------- investments in several available-for-sale securities accounted for in accordance with SFAS 115. Alliant Energy monitors any unrealized losses from such investments to determine if the loss is considered to be a temporary or permanent decline. The determination as to whether the investment is temporarily versus permanently impaired requires considerable judgment. When the investment is considered permanently impaired, the previously recorded unrealized loss would be recorded directly to the income statement as a realized loss. Alliant Energy incurred pre-tax valuation charges under the provisions of SFAS 115 of $27 million and $10 million related to its McLeod and Energy Technologies investments, respectively, in 2002. Alliant Energy's Consolidated Balance Sheets also contain various other investments that are evaluated for recoverability when indicators of impairment may exist. Resources holds a non-controlling interest in five Brazilian electric utility companies accounted for under the equity method of accounting. The recoverability of these equity method investments is assessed by comparing the future anticipated local currency cash flows from these investments and the carrying value of these investments. The future anticipated cash flows currently include anticipated periodic distributions that, when aggregated, exceed the carrying value of these investments. The future anticipated cash flows represents a significant estimate. The $214 million carrying value of Alliant Energy's Brazil investments has been reduced by $210 million of pre-tax cumulative foreign currency translation losses. The net of tax balance of $152 million has been recorded in "Accumulated other comprehensive loss" on Alliant Energy's Consolidated Balance Sheet at Dec. 31, 2002. Cumulative foreign currency translation losses are reflected in Alliant Energy's results of operations only if the related investment is sold or substantially liquidated. If Alliant Energy would decide to exit these Brazil investments in the future, the recoverability of these equity method investments would be assessed by comparing the future anticipated sales proceeds to the carrying value. Alliant Energy has no current intention of exiting these Brazil investments. Resources' investment in Mexico consists of a loan receivable (including accrued interest income) from a Mexican development company. The loan accrues interest at 8.75% and is secured by the undeveloped land of the resort community. Repayment of the loan principal and interest will be based on a portion of the proceeds from the sales of real estate in the resort 52 community and therefore is dependent on the successful development of the project and the ability to sell real estate. The recoverability of this loan receivable is currently assessed by comparing the fair value of the undeveloped land of the resort community used to secure the loan and the carrying value of the loan including accrued interest income. Based on an independent appraisal that indicated the fair value of the collateral was less than the loan balance plus accrued interest, Alliant Energy recorded a valuation allowance of approximately $7 million in the second quarter of 2002 and ceased accruing interest income on the loan. Based on an updated independent appraisal, Alliant Energy reversed the valuation allowance in the fourth quarter of 2002 and resumed accruing interest income on the loan. The fair value of such collateral is a significant estimate. Refer to Note 9 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information concerning Alliant Energy's investments in Brazil and Mexico. Alliant Energy announced its intentions to sell various businesses in November 2002 and is currently accounting for them as assets held for sale and discontinued operations. The estimated sales proceeds, less costs to sell, for each business exceeded the carrying value of each business as of Dec. 31, 2002. Alliant Energy will continue to monitor the estimated sales proceeds of its assets held for sale as they relate to the respective carrying values. Refer to Note 16 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information. Goodwill - As a result of the adoption of SFAS 142, "Goodwill and Other -------- Intangible Assets," on Jan. 1, 2002, Alliant Energy is required to evaluate its goodwill for impairment at least annually and more frequently when indicators of impairment may exist. At Dec. 31, 2002, Alliant Energy had $66 million of net goodwill (including $41 million, $10 million and $9 million within its Cogenex, China and SmartEnergy reporting units, respectively) on its Consolidated Balance Sheet. If the fair value of a reporting unit is less than its carrying value, including goodwill, a goodwill impairment charge may be necessary. Alliant Energy estimates the fair value of its reporting units utilizing a combination of market value indicators and the expected discounted future cash flows. This process requires the use of significant management estimates and judgments regarding cash flow assumptions from future sales, operating costs and discount rates over an indefinite life. Alliant Energy's cash flow assumptions are derived using a combination of historical trends, internal budgets, strategic plans and other market information. Each reporting unit is evaluated separately based on the nature of its operations and therefore the assumptions vary by reporting unit relative to its applicable circumstances. To determine its discount rates, Alliant Energy utilizes the capital asset pricing model which is based upon market comparables adjusted for company-specific risk. In the event market comparables are not available, Alliant Energy utilizes expected industry returns based upon published information. In the fourth quarter of 2002, Alliant Energy recorded a pre-tax goodwill impairment charge related to SmartEnergy of $7 million. Derivative Financial Instruments - Alliant Energy uses derivative financial instruments to hedge exposures to fluctuations in interest rates, certain commodity prices, volatility in a portion of natural gas sales volumes due to weather and to mitigate the equity price volatility associated with certain investments in equity securities. Alliant Energy does not use such instruments for speculative purposes. To account for these derivative instruments in accordance with the applicable accounting rules, Alliant Energy must determine the fair value of its derivatives. In accordance with SFAS 133, the fair value of all derivative instruments are recognized as either assets or liabilities in the balance sheet with the changes in their value recognized in earnings for the non-regulated businesses, unless specific hedge accounting criteria are met. For IP&L and WP&L, changes in the derivatives fair values are generally recorded as regulatory assets or liabilities. If an established, quoted market exists for the underlying commodity of the derivative instrument, Alliant Energy uses the quoted market price to value the derivative instrument. For other derivatives, Alliant Energy estimates the value based upon other quoted prices or acceptable valuation methods. Alliant Energy also reviews the nature of its contracts for the purchase and sale of non-financial assets to assess whether the contracts meet the definition of a derivative and the requirements to follow hedge accounting as allowed by the applicable accounting rules. The determination of derivative status and valuations involves considerable judgment. The majority of Alliant Energy's derivative transactions are in its regulated domestic utility business and based on the fuel and natural gas cost recovery mechanisms in place, as well as other specific regulatory authorizations, changes in fair market values of such derivatives generally have no impact on Alliant Energy's results of operations. Alliant Energy does have an embedded derivative within its exchangeable senior notes that is impacted by the value of McLeod stock. Changes in the fair value of this derivative impact Alliant Energy's results of operations and the changes did have a material impact on Alliant Energy's 2001 results of operations. However, given a significant decline in the value of the McLeod stock, Alliant Energy does not expect changes in the fair value of this derivative to have a material impact on Alliant Energy's results of operations in the foreseeable future. In 53 addition, Alliant Energy has a small investment in a gas trading business. Such business accounted for all of its trading transactions under EITF Issue 98-10 through 2002 and adopted the provisions of EITF Issue 02-3 on Jan. 1, 2003 (and for new transactions after Oct. 25, 2002). However, due to the insignificant size of this business, Alliant Energy does not expect this accounting change to have a material impact on Alliant Energy's results of operations in the future. Unbilled Revenues - Unbilled revenues are primarily associated with Alliant Energy's utility operations. Energy sales to individual customers are based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, amounts of energy delivered to customers since the date of the last meter reading are estimated and the corresponding estimated unbilled revenue is recorded. The unbilled revenue estimate is based on daily generation volumes, estimated customer usage by class, weather impacts, line losses and the most recent customer rates. Such process involves the use of various estimates, thus significant changes in the estimates could have a material impact on Alliant Energy's results of operations. Accounting for Pensions - Alliant Energy accounts for pensions under SFAS 87, "Employers' Accounting for Pensions." Under these rules, certain assumptions are made which represent significant estimates. There are many factors involved in determining an entity's pension liabilities and costs each period including assumptions regarding employee demographics (including age, life expectancies, compensation levels), discount rates, assumed rate of returns and funding. Changes made to the plan provisions may also impact current and future pension costs. Alliant Energy's assumptions are supported by historical data and reasonable projections and are reviewed annually with an outside actuary firm and an investment consulting firm. As of Dec. 31, 2002, Alliant Energy was using a 6.75% discount rate and a 9% annual rate of return on investments. In selecting an assumed discount rate, Alliant Energy reviews various corporate Aa bond indices. The 9% annual rate of return is consistent with Alliant Energy's historical returns and is based on projected long-term equity and bond returns, maturities and asset allocations. A 100 basis point change in the discount rate would result in approximate changes of $79 million and $7 million in Alliant Energy's qualified pension benefit obligation and pension expense, respectively. A 100 basis point change in the rate of return would result in an approximate change of $4 million in qualified pension expense. Other Future Considerations - In addition to items discussed earlier in MD&A, --------------------------- the following items could impact Alliant Energy's future financial condition or results of operations: Asset Sales - It is possible Alliant Energy could record material gains, losses, accounting adjustments or other charges and/or income related to its planned asset divestitures discussed in "Strategic Actions." Alliant Energy is not able to predict or estimate what such items may be at this time. Refer to Note 16 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information. Alliant Energy announced in March 2003 that it entered into an agreement with New Zealand-based Meridian Energy Limited for the sale of Alliant Energy's Australian investment, primarily made up of Alliant Energy's ownership of Southern Hydro. The sale price will be approximately $350 million. This amount includes the repayment of approximately $145 million in debt in Australia. On an after-tax basis, the sale will result in net cash proceeds to Alliant Energy of approximately $165 million. The transaction is expected to close by the end of April 2003 and is subject to customary closing conditions. Retirement Benefits - Alliant Energy's qualified pension and other postretirement benefit expenses for 2003 are currently expected to be approximately $18 million higher than in 2002, primarily due to unfavorable asset returns, a reduction in the discount rate used to value plan benefit obligations and expected increases in retiree medical costs. Alliant Energy will pursue the possible recovery of the utility portion of these cost increases, which represents a significant majority of the increase, in any rate filings it has in its various jurisdictions Exchangeable Senior Notes - At Dec. 31, 2002, the carrying amount of the debt component of Resources' exchangeable senior notes was $40.1 million, consisting of the par value of $402.5 million, less unamortized debt discount of $362.4 million. The terms of the exchangeable senior notes require Resources to pay interest on the par value of the notes at 7.25% from February 2000 to February 2003, and at 2.5% thereafter until maturity in February 2030. As explained in Note 10(a) of Alliant Energy's "Notes to Consolidated Financial Statements," Resources accounted for the net proceeds from the issuance of the notes as two separate components, a debt component and an embedded derivative component. In accordance with SFAS 133, Alliant Energy determined the initial carrying value of the debt component by subtracting the fair value of the derivative component from the net proceeds realized from the issuance of the exchangeable senior notes. This resulted in a very low initial carrying amount of the debt component which results in the recording of interest expense at an effective rate of 26.8% of the 54 carrying amount of the debt component. For 2002, interest expense on the notes was $13.2 million. Interest payments in excess of interest expense are recorded as a reduction of the carrying amount of the debt component. As a result of the higher interest payments for the first three years, the carrying amount of the debt component declined until it reached $37.8 million in February 2003, and then gradually increases over the next 27 years to the ultimate repayment amount of $402.5 million in 2030. Interest expense on the debt component of the notes will be $10.2 million in 2003, 2004 and 2005. If the existing McLeod shares would ever be cancelled, the notes would remain outstanding until maturity. Enterprise Resource Planning (ERP) System - Alliant Energy implemented a new ERP system in October 2002 which will result in annual amortization expense of approximately $11 million for five years. Alliant Energy is seeking rate recovery of the utility portion of the amortized expenses which represents a significant majority of the amortized expenses. 55 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and Qualitative Disclosures About Market Risk are reported under "Other Matters - Market Risk Sensitive Instruments and Positions" in MD&A. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Alliant Energy Page Number -------------- ----------- Report of Management 57 Independent Auditors' Report 58 Consolidated Statements of Income for the Years Ended Dec. 31, 2002, 2001 and 2000 59 Consolidated Balance Sheets as of Dec. 31, 2002 and 2001 60 Consolidated Statements of Cash Flows for the Years Ended Dec. 31, 2002, 2001 and 2000 62 Consolidated Statements of Capitalization as of Dec. 31, 2002 and 2001 63 Consolidated Statements of Changes in Common Equity for the Years Ended Dec. 31, 2002, 2001 and 2000 64 Notes to Consolidated Financial Statements 65 IP&L ---- Independent Auditors' Report 94 Consolidated Statements of Income for the Years Ended Dec. 31, 2002, 2001 and 2000 95 Consolidated Balance Sheets as of Dec. 31, 2002 and 2001 96 Consolidated Statements of Cash Flows for the Years Ended Dec. 31, 2002, 2001 and 2000 98 Consolidated Statements of Capitalization as of Dec. 31, 2002 and 2001 99 Consolidated Statements of Changes in Common Equity for the Years Ended Dec. 31, 2002, 2001 and 2000 100 Notes to Consolidated Financial Statements 101 WP&L ---- Independent Auditors' Report 109 Consolidated Statements of Income for the Years Ended Dec. 31, 2002, 2001 and 2000 110 Consolidated Balance Sheets as of Dec. 31, 2002 and 2001 111 Consolidated Statements of Cash Flows for the Years Ended Dec. 31, 2002, 2001 and 2000 113 Consolidated Statements of Capitalization as of Dec. 31, 2002 and 2001 114 Consolidated Statements of Changes in Common Equity for the Years Ended Dec. 31, 2002, 2001 and 2000 115 Notes to Consolidated Financial Statements 116
Refer to Note 15 of Alliant Energy's, IP&L's and WP&L's "Notes to Consolidated Financial Statements" for the quarterly financial data required by Item 8. 56 ALLIANT ENERGY CORPORATION REPORT ON THE FINANCIAL INFORMATION Alliant Energy Corporation management is responsible for the information and representations contained in the financial statements and in other sections of this Annual Report. The consolidated financial statements that follow have been prepared in accordance with accounting principles generally accepted in the United States of America. In addition to selecting appropriate accounting principles, management is responsible for the manner of presentation and for the reliability of the financial information. In fulfilling that responsibility, it is necessary for management to make estimates based on currently available information and judgments of current conditions and circumstances. Through a well-developed system of internal controls, management seeks to ensure the integrity and objectivity of the financial information presented in this report. This system of internal controls is designed to provide reasonable assurance that the assets of the company are safeguarded and that the transactions are executed according to management's authorizations and are recorded in accordance with the appropriate accounting principles. The Board of Directors participates in the financial information reporting process through its Audit Committee. /s/ Erroll B. Davis, Jr. ------------------------ Erroll B. Davis, Jr. Chairman, President and Chief Executive Officer /s/ Thomas M. Walker -------------------- Thomas M. Walker Executive Vice President and Chief Financial Officer /s/ John E. Kratchmer --------------------- John E. Kratchmer Vice President-Controller and Chief Accounting Officer March 18, 2003 57 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareowners of Alliant Energy Corporation: We have audited the accompanying consolidated balance sheets and statements of capitalization of Alliant Energy Corporation and subsidiaries (the "Company") as of December 31, 2002 and 2001, and related consolidated statements of income, cash flows and changes in common equity for each of the three years in the period ended December 31, 2002. Our audit also included the supplemental schedule listed in Item 15(a)(2). These financial statements and the supplemental schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the supplemental schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such supplemental schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 10 to the financial statements, on July 1, 2000, the Company changed its method of accounting for derivative instruments to adopt Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended ("SFAS 133"), and on January 1, 2001, the Company's equity method investees changed their method of accounting for derivative instruments to adopt SFAS 133. /s/ DELOITTE & TOUCHE LLP ------------------------- Milwaukee, Wisconsin March 18, 2003 58
ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Operating revenues: Electric utility $1,752,534 $1,756,556 $1,648,036 Gas utility 393,986 487,877 414,948 Non-regulated and other 462,292 380,243 216,690 ----------------- ----------------- ----------------- 2,608,812 2,624,676 2,279,674 ----------------- ----------------- ----------------- --------------------------------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 303,625 310,689 288,621 Purchased power 362,501 403,166 294,818 Cost of utility gas sold 248,994 360,911 278,734 Other operation and maintenance 957,144 828,125 686,976 Depreciation and amortization 310,617 302,643 296,732 Taxes other than income taxes 104,236 102,184 97,823 ----------------- ----------------- ----------------- 2,287,117 2,307,718 1,943,704 ----------------- ----------------- ----------------- --------------------------------------------------------------------------------------------------------------------------------- Operating income 321,695 316,958 335,970 ----------------- ----------------- ----------------- --------------------------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 186,538 185,604 168,149 Interest income from loans to discontinued operations, net (15,959) (9,938) (7,195) Equity (income) loss from unconsolidated investments 12,825 (18,799) (19,468) Allowance for funds used during construction (7,696) (11,144) (8,761) Preferred dividend requirements of subsidiaries 6,172 6,720 6,713 Impairment of available-for-sale securities of McLeodUSA Inc. 27,218 - - Gain on reclassification of investment - - (321,349) Miscellaneous, net 220 (12,497) (39,214) ----------------- ----------------- ----------------- 209,318 139,946 (221,125) ----------------- ----------------- ----------------- --------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 112,377 177,012 557,095 ----------------- ----------------- ----------------- --------------------------------------------------------------------------------------------------------------------------------- Income taxes 36,108 50,767 226,180 ----------------- ----------------- ----------------- --------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations 76,269 126,245 330,915 ----------------- ----------------- ----------------- --------------------------------------------------------------------------------------------------------------------------------- Income from discontinued operations, net of tax (Note 16) 30,612 58,985 51,039 ----------------- ----------------- ----------------- --------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of changes in accounting principle, net of tax 106,881 185,230 381,954 ----------------- ----------------- ----------------- --------------------------------------------------------------------------------------------------------------------------------- Cumulative effect of changes in accounting principle, net of tax - (12,868) 16,708 ----------------- ----------------- ----------------- --------------------------------------------------------------------------------------------------------------------------------- Net income $106,881 $172,362 $398,662 ================= ================= ================= --------------------------------------------------------------------------------------------------------------------------------- Average number of common shares outstanding (basic) 90,897 80,498 79,003 ================= ================= ================= --------------------------------------------------------------------------------------------------------------------------------- Earnings per average common share (basic): Income from continuing operations $0.84 $1.57 $4.19 Income from discontinued operations 0.34 0.73 0.65 Cumulative effect of changes in accounting principle - (0.16) 0.21 ----------------- ----------------- ----------------- Net income $1.18 $2.14 $5.05 ================= ================= ================= --------------------------------------------------------------------------------------------------------------------------------- Average number of common shares outstanding (diluted) 90,959 80,636 79,193 ================= ================= ================= --------------------------------------------------------------------------------------------------------------------------------- Earnings per average common share (diluted): Income from continuing operations $0.84 $1.57 $4.18 Income from discontinued operations 0.34 0.73 0.64 Cumulative effect of changes in accounting principle - (0.16) 0.21 ----------------- ----------------- ----------------- Net income $1.18 $2.14 $5.03 ================= ================= ================= --------------------------------------------------------------------------------------------------------------------------------- Dividends declared per common share $2.00 $2.00 $2.00 ================= ================= ================= --------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS December 31, ASSETS 2002 2001 -------------------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Utility: Electric plant in service $5,295,381 $5,123,781 Gas plant in service 613,122 597,494 Other plant in service 530,456 517,938 Accumulated depreciation (3,573,407) (3,374,867) ----------------- ---------------- Net plant 2,865,552 2,864,346 Construction work in progress 263,096 111,069 Other, net 68,340 62,194 ----------------- ---------------- Total utility 3,196,988 3,037,609 ----------------- ---------------- Non-regulated and other, net: International 171,179 157,743 Non-regulated generation 156,699 60,411 Integrated Services 73,983 79,202 Investments 54,303 56,647 Corporate Services and other 76,055 50,566 ----------------- ---------------- Total non-regulated and other 532,219 404,569 ----------------- ---------------- 3,729,207 3,442,178 ----------------- ---------------- -------------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 63,872 68,400 Restricted cash 9,686 34,421 Accounts receivable: Customer, less allowance for doubtful accounts of $12,721 and $8,340 81,277 43,411 Unbilled utility revenues 50,624 71,388 Other, less allowance for doubtful accounts of $845 and $319 60,107 72,912 Income tax refunds receivable 97,469 25,401 Production fuel, at average cost 63,126 54,707 Materials and supplies, at average cost 58,603 54,401 Gas stored underground, at average cost 62,797 57,114 Regulatory assets 46,076 19,632 Assets of discontinued operations (Note 16) 944,328 540,187 Other 76,183 66,882 ----------------- ---------------- 1,614,148 1,108,856 ----------------- ---------------- -------------------------------------------------------------------------------------------------------------------- Investments: Investments in unconsolidated foreign entities 373,816 508,145 Nuclear decommissioning trust funds 344,892 332,953 Investment in ATC and other 217,992 243,804 ----------------- ---------------- 936,700 1,084,902 ----------------- ---------------- -------------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 302,365 241,973 Deferred charges and other 418,975 360,016 ----------------- ---------------- 721,340 601,989 ----------------- ---------------- -------------------------------------------------------------------------------------------------------------------- Total assets $7,001,395 $6,237,925 ================= ================ -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (Continued) December 31, CAPITALIZATION AND LIABILITIES 2002 2001 ------------------------------------------------------------------------------------------------------------------ (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock - $0.01 par value - authorized 200,000,000 shares; outstanding 92,304,220 and 89,682,334 shares, respectively $923 $897 Additional paid-in capital 1,293,919 1,239,793 Retained earnings 758,187 832,293 Accumulated other comprehensive loss (209,943) (152,434) Shares in deferred compensation trust - 239,467 and 71,958 shares at an average cost of $28.80 and $30.68 per share, respectively (6,896) (2,208) ------------------ ------------------ Total common equity 1,836,190 1,918,341 ------------------ ------------------ Cumulative preferred stock of subsidiaries, net 205,063 113,953 Long-term debt (excluding current portion) 2,637,803 2,457,941 ------------------ ------------------ 4,679,056 4,490,235 ------------------ ------------------ ------------------------------------------------------------------------------------------------------------------ Current liabilities: Current maturities and sinking funds 46,591 10,506 Variable rate demand bonds 55,100 55,100 Commercial paper 195,500 68,389 Other short-term borrowings 113,721 84,318 Accounts payable 286,690 221,823 Accrued taxes 106,015 87,099 Liabilities of discontinued operations (Note 16) 134,999 60,913 Other 187,902 174,224 ------------------ ------------------ 1,126,518 762,372 ------------------ ------------------ ------------------------------------------------------------------------------------------------------------------ Other long-term liabilities and deferred credits: Accumulated deferred income taxes 626,417 607,552 Accumulated deferred investment tax credits 54,375 59,398 Pension and other benefit obligations 181,010 96,496 Environmental liabilities 48,730 45,144 Other 241,864 133,617 ------------------ ------------------ 1,152,396 942,207 ------------------ ------------------ ------------------------------------------------------------------------------------------------------------------ Minority interest 43,425 43,111 ------------------ ------------------ ------------------------------------------------------------------------------------------------------------------ Commitments and contingencies (Note 11) ------------------------------------------------------------------------------------------------------------------ Total capitalization and liabilities $7,001,395 $6,237,925 ================== ================== ------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2002 2001 2000 ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $106,881 $172,362 $398,662 Adjustments to reconcile net income to net cash flows from operating activities: Income from discontinued operations, net of tax (30,612) (58,985) (51,039) Depreciation and amortization 310,617 302,643 296,732 Other amortizations 51,567 52,724 63,214 Deferred tax expense (benefit) and investment tax (credit) 9,145 (20,099) 111,103 Losses (gains) on dispositions of assets, net 123 (4,446) (11,780) Equity loss (income) from unconsolidated investments, net 12,825 (18,799) (19,468) Distributions from equity method investments 21,671 16,961 7,389 Non-cash valuation charges 66,379 33,706 2,897 Cumulative effect of changes in accounting principle, net of tax - 12,868 (16,708) Gain on reclassification of investment - - (321,349) Other (29,594) (5,297) (2,922) Other changes in assets and liabilities: Accounts receivable 3,010 79,470 (133,776) Income tax refunds receivable (72,067) (6,485) (5,917) Gas stored underground (5,683) (15,755) (18,208) Accounts payable 38,788 (52,827) 96,012 Accrued taxes 18,915 11,734 3,392 Manufactured gas plants insurance refunds - (21,541) - Other 42,075 (52,123) (5,144) -------------- --------------- -------------- Net cash flows from operating activities 544,040 426,111 393,090 -------------- --------------- -------------- ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Common stock dividends (180,987) (158,231) (157,964) Proceeds from issuance of common stock 56,066 288,553 1,069 Proceeds from issuance of preferred stock of subsidiary 144,602 - - Redemption of preferred stock of subsidiary (56,389) - - Net change in Resources' credit facility (383,610) 63,110 181,652 Proceeds from issuance of exchangeable senior notes - - 402,500 Proceeds from issuance of other long-term debt 300,023 513,530 107,747 Reductions in other long-term debt (20,818) (145,359) (53,572) Net change in commercial paper and other short-term borrowings 200,145 (320,449) 147,277 Net change in loans to discontinued operations 49,320 (39,556) (87,112) Other (24,262) (31,073) (28,534) ---------------- --------------- -------------- Net cash flows from financing activities 84,090 170,525 513,063 ---------------- --------------- -------------- ----------------------------------------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Construction and acquisition expenditures: Regulated domestic utilities (404,736) (340,789) (304,656) Non-regulated businesses (218,282) (332,253) (529,675) Corporate Services and other (33,774) (40,019) (11,123) Nuclear decommissioning trust funds (22,923) (22,100) (22,100) Proceeds from formation of ATC and other asset dispositions 27,644 107,934 30,890 Other 19,413 (29,035) (32,589) ---------------- --------------- -------------- Net cash flows used for investing activities (632,658) (656,262) (869,253) ---------------- --------------- -------------- ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments (4,528) (59,626) 36,900 ---------------- --------------- -------------- ----------------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 68,400 128,026 91,126 ---------------- --------------- -------------- ----------------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $63,872 $68,400 $128,026 ================ =============== ============== ----------------------------------------------------------------------------------------------------------------------------------- Supplemental cash flows information: Cash paid during the period for: Interest $184,146 $180,356 $158,850 ================ =============== ============== Income taxes, net of refunds $29,359 $70,895 $117,226 ================ =============== ============== Noncash investing and financing activities: Capital lease obligations incurred and other $19,101 $19,967 $20,419 ================ =============== ============== ----------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 2002 2001 -------------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Common equity $1,836,190 $1,918,341 ----------------- ----------------- -------------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock of subsidiaries, net (Note 7(b)) 205,063 113,953 ----------------- ----------------- -------------------------------------------------------------------------------------------------------------------------------- Long-term debt: First Mortgage Bonds: 7.75%, due 2004 62,000 62,000 1.85% variable rate at December 31, 2002 to 7.6% fixed rate, due 2005 88,000 88,000 7-1/4% to 8%, due 2007 52,450 52,450 1.6% variable rate at December 31, 2002, due 2014 8,500 8,500 1.85% to 2.1% variable rate at December 31, 2002, due 2015 30,600 30,600 8-5/8%, due 2021 20,000 20,000 7-5/8%, due 2023 94,000 94,000 8.6%, due 2027 70,000 70,000 ----------------- ----------------- 425,550 425,550 Collateral Trust Bonds: 7.25%, due 2006 60,000 60,000 6-7/8%, due 2007 55,000 55,000 6%, due 2008 50,000 50,000 5.5% to 7%, due 2023 69,400 69,400 ----------------- ----------------- 234,400 234,400 Pollution Control Revenue Bonds: 5.75% to 6.35%, partially retired in 2002, due 2003 to 2012 14,930 15,490 2.8% variable rate at December 31, 2002 to 6.35% fixed rate, due 2003 to 2023 10,100 10,100 4.05% to 4.30% through 2004 fixed/variable rate, due 2005 to 2023 25,900 25,900 ----------------- ----------------- 50,930 51,490 Other long-term debt: Senior notes, 9.75%, due 2013 300,000 - Senior notes, 7%, due 2011 300,000 300,000 Senior notes, 7.375%, due 2009 250,000 250,000 Senior notes, 8.59%, due 2004 24,000 24,000 Exchangeable senior notes, 7.25% through February 2003, 2.5% thereafter, due 2030 402,500 402,500 Senior debentures, 6-5/8% to 6-3/4%, due 2009 to 2011 335,000 335,000 Debentures, 5.7% to 7-5/8%, due 2007 to 2010 265,000 265,000 Whiting credit facility, 3.63% at December 31, 2002, due 2005 185,000 - Subordinated deferrable interest debentures, 7-7/8%, due 2025 50,000 50,000 Multifamily housing revenue bonds, 1.75% variable rate at December 31, 2002, due 2036 34,075 34,075 Multifamily housing revenue bonds, 7% to 7.55%, due 2003 to 2024 4,755 4,841 Resources' credit facility, 3% to 3.45% at December 31, 2001, retired in 2002 - 383,610 Other, 1% to 11.34%, due 2003 to 2045 251,841 116,814 ----------------- ----------------- 3,113,051 2,877,280 ----------------- ----------------- Less: Current maturities (46,591) (10,506) Variable rate demand bonds (55,100) (55,100) Unamortized debt discount, net (373,557) (353,733) ----------------- ----------------- Total long-term debt (excluding current portion) 2,637,803 2,457,941 ----------------- ----------------- -------------------------------------------------------------------------------------------------------------------------------- Total capitalization $4,679,056 $4,490,235 ================= ================= -------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY Accumulated Other Shares in Additional Comprehensive Deferred Total Common Paid-In Retained Income Compensation Common Stock Capital Earnings (Loss) Trust Equity ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) 2000: Beginning balance (a) $790 $942,408 $577,464 $634,903 $- $2,155,565 Net income 398,662 398,662 Unrealized holding losses on securities, net of tax of ($77,853) (105,292) (105,292) Less: adjustment for gain on reclassification of investments included in net income, net of tax of $134,053 187,296 187,296 Less: reclassification adjustment for other gains included in net income, net of tax of $8,426 16,370 16,370 ---------- ------------ Net unrealized losses on securities (308,958) (308,958) ---------- ------------ Foreign currency translation adjustments (50,400) (50,400) ---------- ------------ Unrealized holding losses on derivatives due to cumulative effect of a change in accounting principle, net of tax of ($4,693) (6,582) (6,582) Other unrealized holding losses on derivatives, net of tax of ($2,560) (3,427) (3,427) Less: reclassification adjustment for losses included in net income, net of tax of ($4,502) (6,331) (6,331) ---------- ------------ Net unrealized losses on qualifying derivatives (3,678) (3,678) ---------- ------------ Total comprehensive income 35,626 Common stock dividends (157,964) (157,964) Common stock issued 5,096 (851) 4,245 ----------- ----------- --------- ---------- -------- ------------ Ending balance 790 947,504 818,162 271,867 (851) 2,037,472 2001: Net income 172,362 172,362 Unrealized holding losses on securities, net of tax of ($240,579) (343,285) (343,285) Less: reclassification adjustment for gains included in net income, net of tax of $-- 259 259 ---------- ------------ Net unrealized losses on securities (343,544) (343,544) ---------- ------------ Foreign currency translation adjustments (66,830) (66,830) ---------- ------------ Minimum pension liability adjustments, net of tax of ($11,022) (16,378) (16,378) ---------- ------------ Unrealized holding losses on derivatives, net of tax of ($1,569) (1,003) (1,003) Less: reclassification adjustment for losses included in net income, net of tax of ($2,078) (3,454) (3,454) ---------- ------------ Net unrealized gains on qualifying derivatives 2,451 2,451 ---------- ------------ Total comprehensive loss (251,939) Common stock dividends (158,231) (158,231) Common stock issued 107 292,289 (1,357) 291,039 ----------- ----------- --------- ---------- -------- ------------ Ending balance 897 1,239,793 832,293 (152,434) (2,208) 1,918,341 2002: Net income 106,881 106,881 Unrealized holding losses on securities, net of tax of ($8,544) (11,069) (11,069) Less: reclassification adjustment for losses included in net income, net of tax of ($14,393) (23,146) (23,146) ---------- ------------ Net unrealized gains on securities 12,077 12,077 ---------- ------------ Foreign currency translation adjustments, net of tax (37,785) (37,785) ---------- ------------ Minimum pension liability adjustments, net of tax of ($18,874) (27,226) (27,226) ---------- ------------ Unrealized holding losses on derivatives, net of tax of ($2,765) (2,671) (2,671) Less: reclassification adjustment for gains included in net income, net of tax of $1,658 1,904 1,904 ---------- ------------ Net unrealized losses on qualifying derivatives (4,575) (4,575) ---------- ------------ Total comprehensive income 49,372 Common stock dividends (180,987) (180,987) Common stock issued 26 58,338 (4,688) 53,676 Redemption of preferred stock of subsidiary (4,212) (4,212) --------- ----------- --------- ---------- -------- ------------ Ending balance $923 $1,293,919 $758,187 ($209,943) ($6,896) $1,836,190 ========= =========== ========= ========== ======== ============ ------------------------------------------------------------------------------------------------------------------------------------ (a) Accumulated other comprehensive income (loss) at December 31, 1999 consisted of $644,481 of net unrealized gains on securities and ($9,578) of foreign currency translation adjustments. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
64 ALLIANT ENERGY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) General - The consolidated financial statements include the accounts of Alliant Energy and its consolidated subsidiaries. Alliant Energy is an investor-owned public utility holding company, whose primary subsidiaries are IP&L, WP&L, Resources and Corporate Services. On Jan. 1, 2002, IPC merged with and into IESU and IESU changed its name to IP&L. Since IPC and IESU were both wholly-owned operating subsidiaries of Alliant Energy, the transaction had no impact on the consolidated financial statements. IP&L and WP&L are utility subsidiaries that are engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and the provision of steam and water services in Iowa, Wisconsin, Minnesota and Illinois. Resources (through its numerous direct and indirect subsidiaries) is comprised of various business units: International, Non-regulated Generation, Integrated Services, Investments and Energy Technologies. International holds interests in global partnerships to develop energy generation, delivery and infrastructure in growing international markets, including Australia, Brazil, China and New Zealand. Alliant Energy is, however, currently in the process of selling its investments in Australia. Non-regulated Generation intends to build or acquire a portfolio of competitive electric generating assets in select business areas of the U.S. Integrated Services provides a wide range of energy and environmental services for commercial, industrial, institutional, educational and governmental customers. Investments includes ownership of an oil and gas production company, transportation companies, affordable-housing properties and various other investments. Alliant Energy is, however, currently in the process of selling its oil and gas and affordable housing businesses. Energy Technologies invests in leading-edge energy technologies, such as microturbines, fuel cells, solar concepts and wind turbines. Mass Marketing has interests in energy marketing businesses. In January 2003, Alliant Energy committed to a plan to sell SmartEnergy, an internet-based energy retailer, and Alliant Energy is in the process of disbanding its Mass Marketing business unit. Corporate Services is the subsidiary formed to provide administrative services to Alliant Energy and its subsidiaries as required under PUHCA. At Dec. 31, 2002, the assets and liabilities of Alliant Energy's oil and gas (Whiting), Australian (including Southern Hydro) and affordable housing businesses were classified as held for sale. The operating results for these non-regulated businesses for all periods presented have been separately classified and reported as discontinued operations in Alliant Energy's Consolidated Financial Statements and Notes to Consolidated Financial Statements. Refer to Note 16 for additional information. The consolidated financial statements reflect investments in controlled subsidiaries on a consolidated basis. All significant intercompany balances and transactions, other than certain energy-related transactions affecting the utility subsidiaries, have been eliminated from the consolidated financial statements. Such energy-related transactions not eliminated are made at prices that approximate market value and the associated costs are recoverable from customers through the rate making process. The consolidated financial statements are prepared in conformity with GAAP, which give recognition to the rate making and accounting practices of FERC and state commissions having regulatory jurisdiction. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect: a) the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements; and b) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain prior period amounts have been reclassified on a basis consistent with the current year presentation. Unconsolidated investments for which Alliant Energy has at least a 20% non-controlling voting interest are generally accounted for under the equity method of accounting. These investments are stated at acquisition cost, increased or decreased for Alliant Energy's equity in net income or loss, which is included in "Equity (income) loss from unconsolidated investments" in the Consolidated Statements of Income and decreased for any dividends received. These investments are also increased or decreased for Alliant Energy's proportionate share of the investee's other comprehensive income (loss), which is included in "Accumulated other comprehensive loss" on the Consolidated Balance Sheets. Investments that do not meet the criteria for consolidation or the equity method of accounting are accounted for under the cost method. Refer to Note 9 for discussion of Alliant Energy's cost method investments that are marked-to-market in accordance with SFAS 115. 65 (b) Regulation - Alliant Energy is a registered public utility holding company subject to regulation by the SEC under PUHCA. The utility subsidiaries are subject to regulation under PUHCA, FERC and their respective state regulatory commissions. (c) Regulatory Assets and Liabilities - Alliant Energy is subject to the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation," which provides that rate-regulated public utilities record certain costs and credits allowed in the rate making process in different periods than for non-regulated entities. These are deferred as regulatory assets or accrued as regulatory liabilities and are recognized in the Consolidated Statements of Income at the time they are reflected in rates. As of Dec. 31, 2002, IP&L and WP&L had approximately $7 million and $6 million, respectively, of regulatory assets that were not earning returns. At Dec. 31, 2002 and 2001, regulatory assets and liabilities were comprised of the following items (in millions):
Regulatory Assets Regulatory Liabilities ----------------------- ------------------------- 2002 2001 2002 2001 ---------- --------- ----------- ---------- Tax-related (Note 1(d)) $177.6 $115.3 $83.8 $15.1 Environmental-related 64.9 63.1 5.1 5.2 Energy efficiency program costs 46.7 39.9 -- -- Other 59.2 43.3 22.3 11.4 ---------- --------- ----------- ---------- $348.4 $261.6 $111.2 $31.7 ========== ========= =========== ==========
If a portion of the utility subsidiaries' operations becomes no longer subject to the provisions of SFAS 71 as a result of competitive restructuring or otherwise, a write-down of related regulatory assets would be required, unless some form of transition cost recovery is established by the appropriate regulatory body that would meet the requirements under GAAP for continued accounting as regulatory assets during such recovery period. In addition, each utility subsidiary would be required to determine any impairment of other assets and write-down such assets to their fair value. (d) Income Taxes - Alliant Energy is subject to the provisions of SFAS 109, "Accounting for Income Taxes," and follows the liability method of accounting for deferred income taxes, which requires the establishment of deferred tax assets and liabilities, as appropriate, for all temporary differences between the tax basis of assets and liabilities and the amounts reported in the consolidated financial statements. Deferred taxes are recorded using currently enacted tax rates. Except as noted below, income tax expense includes provisions for deferred taxes to reflect the tax effects of temporary differences between the time when certain costs are recorded in the accounts and when they are deducted for tax return purposes. As temporary differences reverse, the related accumulated deferred income taxes are reversed to income. Investment tax credits have been deferred and are subsequently credited to income over the average lives of the related property. Other tax credits reduce income tax expense in the year claimed and are generally related to nonconventional fuel and research and development. Consistent with Iowa rate making practices for IP&L, deferred tax expense is not recorded for certain temporary differences (primarily related to utility property, plant and equipment). As the deferred taxes become payable (over periods exceeding 30 years for some generating plant differences) they are recovered through rates. Accordingly, IP&L has recorded deferred tax liabilities and regulatory assets for certain temporary differences, as identified in Note 1(c). In Wisconsin, the PSCW has allowed rate recovery of deferred taxes on all temporary differences since August 1991. WP&L established a regulatory asset associated with those temporary differences occurring prior to August 1991 that will be recovered in future rates through 2007. (e) Common Shares Outstanding - A reconciliation of the weighted average common shares outstanding used in the basic and diluted earnings per share calculation was as follows:
Weighted average common shares outstanding: 2002 2001 2000 -------------- ------------- ------------- Basic earnings per share calculation 90,896,885 80,497,823 79,002,643 Effect of dilutive securities 62,177 138,006 190,134 -------------- ------------- ------------- Diluted earnings per share calculation 90,959,062 80,635,829 79,192,777 ============== ============= =============
66 In 2002, 2001 and 2000, 3,338,978, 1,501,854, and 1,358,597 options, respectively, to purchase shares of common stock, with average exercise prices of $29.67, $31.08, and $30.27, respectively, were excluded from the calculation of diluted earnings per share as the exercise prices were greater than the average market price. (f) Temporary Cash Investments and Restricted Cash - Temporary cash investments are stated at cost, which approximates market value, and are considered cash equivalents for the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows. These investments consist of short-term liquid investments that have maturities of less than 90 days from the date of acquisition. At Dec. 31, 2002 and 2001, restricted cash was primarily related to borrowing requirements for the construction of various power plants in China. (g) Depreciation of Utility Property, Plant and Equipment - The utility subsidiaries use a combination of remaining life, straight-line and sum-of-the-years-digits depreciation methods as approved by their respective regulatory commissions. The remaining life of DAEC, of which IP&L is a co-owner, is based on the NRC license end-of-life of 2014. The remaining depreciable life of Kewaunee, of which WP&L is a co-owner, is based on the PSCW approved revised end-of-life of 2010. Depreciation expense related to the decommissioning of DAEC and Kewaunee is discussed in Note 11(f). The average rates of depreciation for electric and gas properties, consistent with current rate making practices, were as follows:
IP&L WP&L --------------------------------- --------------------------------- 2002 2001 2000 2002 2001 2000 ---------- ----------- ---------- ---------- ----------- ---------- Electric 3.4% 3.5% 3.5% 3.6% 3.7% 3.6% Gas 2.9% 3.6% 3.5% 4.1% 4.1% 4.1%
(h) Property, Plant and Equipment - Utility plant (other than acquisition adjustments) is recorded at original cost, which includes overhead, administrative costs and AFUDC. At Dec. 31, 2002 and 2001, IP&L had $22.0 million and $23.2 million, respectively, of acquisition adjustments, net of accumulated amortization, included in utility plant ($4.9 million and $5.2 million, respectively, of such balances are currently being recovered in IP&L's rates). The aggregate gross AFUDC recovery rates, computed in accordance with the prescribed regulatory formula, were as follows: 2002 2001 2000 ------- ------- ------- IP&L 6.9% 7.7% 6.6% WP&L 2.6% 7.9% 10.8% Non-regulated property, plant and equipment is recorded at original cost. The majority of the non-regulated property, plant and equipment is depreciated using the straight-line method over periods ranging from five to 20 years. Upon retirement or sale of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in "Miscellaneous, net" in the Consolidated Statements of Income. Ordinary retirements of utility plant, including removal costs less salvage value, are charged to accumulated depreciation upon removal from utility plant accounts and no gain or loss is recognized. (i) Operating Revenues - Revenues from IP&L and WP&L are primarily from the sale and delivery of electricity and natural gas and are recorded under the accrual method of accounting and recognized upon delivery. Revenues from Alliant Energy's non-regulated businesses are primarily from the sale of energy or services and are recognized based on output delivered or services provided as specified under contract terms. Alliant Energy accrues revenues for services rendered but unbilled at month-end. In 2000, Alliant Energy recorded an increase of $10 million at WP&L in the estimate of utility services rendered but unbilled at month-end due to the implementation of refined estimation processes. (j) Utility Fuel Cost Recovery - IP&L's retail tariffs provide for subsequent adjustments to its electric and natural gas rates for changes in the cost of fuel, purchased energy and natural gas purchased for resale. Changes in the under/over collection of these costs are reflected in "Electric and steam production fuels" and "Cost of utility gas sold" in the Consolidated Statements of Income. The cumulative effects are reflected on the Consolidated Balance Sheets as a current regulatory asset or liability, pending automatic reflection in future billings to customers. At IP&L, purchased-power capacity costs are not recovered from electric customers through EACs. Recovery of these costs must be addressed in base rates in a formal rate proceeding. WP&L's retail electric rates are based on annual forecasted fuel and purchased-power costs. Under PSCW rules, WP&L can seek emergency rate increases if the annual costs are more than 3% higher than the estimated 67 costs used to establish rates. Any collections in excess of costs incurred will be refunded, with interest. Accordingly, WP&L has established a reserve due to overcollection of past fuel and purchased-power costs and expects to refund such amount in 2003. WP&L has a gas performance incentive which includes a sharing mechanism whereby 50% of all gains and losses relative to current commodity prices, as well as other benchmarks, are retained by WP&L, with the remainder refunded to or recovered from customers. (k) Nuclear Refueling Outage Costs - The IUB allows IP&L to collect, as part of its base revenues, funds to offset other operation and maintenance expenditures incurred during refueling outages at DAEC. As these revenues are collected, an equivalent amount is charged to other operation and maintenance expense with a corresponding credit to a reserve. During a refueling outage, the reserve is reversed to offset the refueling outage expenditures. Operating expenses incurred during refueling outages at Kewaunee are expensed by WP&L as incurred. Scheduled refueling outages occurred most recently at DAEC and Kewaunee in Spring and late 2001, respectively. The next scheduled refueling outages at DAEC and Kewaunee are anticipated to commence in Spring 2003. (l) Nuclear Fuel - Nuclear fuel for DAEC is leased. Annual nuclear fuel lease expenses include the cost of fuel, based on the quantity of heat produced for the generation of electricity, plus the lessor's interest costs related to fuel in the reactor and administrative expenses. Nuclear fuel for Kewaunee is recorded at its original cost and is amortized to expense based upon the quantity of heat produced for the generation of electricity. This accumulated amortization assumes spent nuclear fuel will have no residual value. Estimated future disposal costs of such fuel are expensed based on KWhs generated. Refer to Note 3 for additional information on DAEC's nuclear fuel lease. (m) Translation of Foreign Currency - Assets and liabilities of international investments, where the local currency is the functional currency, have been translated at year-end exchange rates and related income statement results have been translated using average exchange rates prevailing during the year. Adjustments resulting from translation, including gains and losses on intercompany foreign currency transactions which are long-term in nature, and which Alliant Energy does not intend to settle in the foreseeable future, have been recorded in "Accumulated other comprehensive loss" on Alliant Energy's Consolidated Balance Sheets. (n) Derivative Financial Instruments - Alliant Energy uses derivative financial instruments to hedge exposures to fluctuations in interest rates, certain electric and gas commodity prices and volatility in a portion of natural gas sales volumes due to weather. Alliant Energy also utilizes derivatives to mitigate the equity price volatility associated with certain investments in equity securities. Alliant Energy does not use such instruments for speculative purposes. The fair value of all derivatives are recorded as assets or liabilities on the Consolidated Balance Sheets and gains and losses related to derivatives that are designated as, and qualify as hedges, are recognized in earnings when the underlying hedged item or physical transaction is recognized in income. Gains and losses related to derivatives that do not qualify for, or are not designated in hedge relationships, are recognized in earnings immediately. The majority of Alliant Energy's derivative transactions are in its regulated domestic utility business and based on the fuel and natural gas cost recovery mechanisms in place, as well as other specific regulatory authorizations, changes in fair market values of such derivatives generally have no impact on Alliant Energy's results of operations. Alliant Energy has a number of commodity purchase and sales contracts that have been designated, and qualify for, the normal purchase and sale exception in SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of SFAS 133." Based on this designation, these contracts are not accounted for as derivative instruments. Alliant Energy is exposed to losses related to financial instruments in the event of counterparties' non-performance. Alliant Energy has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate its exposure to counterparty credit risk. Alliant Energy is not aware of any material exposure to counterparty credit risk. Refer to Note 10 for further discussion of Alliant Energy's derivative financial instruments. (o) Accounting for Stock Options - At Dec. 31, 2002, Alliant Energy had two stock-based incentive compensation plans, which are described more fully in Note 6(b). Alliant Energy accounts for stock options issued under these plans under the recognition and measurement principles of APB 25, "Accounting for Stock Issued to Employees." No stock-based compensation cost is reflected in net income in Alliant Energy's Consolidated Statements of Income, as all options granted under those plans had an exercise price equal to the quoted market price of the underlying common stock on the date of grant. Alliant Energy adopted the disclosure provisions of SFAS 148 "Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS 123," effective for financial statements for fiscal years 68 ending after Dec. 15, 2002. The effect on net income and EPS if Alliant Energy had applied the fair value recognition provisions of SFAS 123, "Accounting for Stock-Based Compensation," to the stock options issued under these plans was as follows (in thousands):
2002 2001 2000 ------------- ------------- ------------- Net income, as reported $106,881 $172,362 $398,662 Less: stock-based compensation expense, net of tax 2,541 2,446 1,284 ------------- ------------- ------------- Pro forma net income $104,340 $169,916 $397,378 ============= ============= ============= EPS (basic): As reported $1.18 $2.14 $5.05 Pro forma $1.15 $2.11 $5.03 EPS (diluted): As reported $1.18 $2.14 $5.03 Pro forma $1.15 $2.11 $5.02
(p) Pension Plan - For the defined benefit pension plan sponsored by Corporate Services, Alliant Energy allocates pension costs and contributions to IP&L, WP&L, Resources and the parent company based on labor costs of plan participants and any additional minimum pension liability based on each group's funded status. (q) Asset Valuations - Long-lived assets, excluding goodwill and regulatory assets, are reviewed for possible impairment whenever events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Impairment is indicated if the carrying value of an asset exceeds its undiscounted future cash flows. An impairment charge is recognized equal to the amount the carrying value exceeds the asset's fair value. The fair value is determined by the use of quoted market prices, appraisals, or the use of other valuation techniques such as expected discounted future cash flows. Goodwill represents the excess of the purchase price over the fair value of the identifiable net tangible and intangible assets acquired in a business combination. Effective January 1, 2002 with the adoption of SFAS 142, "Goodwill and Other Intangible Assets," goodwill is required to be evaluated for impairment at least annually and more frequently if indicators of impairment exist. If the fair value of a reporting unit is less than its carrying value, including goodwill, an impairment charge may be necessary. The fair value of reporting units is determined by utilizing a combination of market value indicators and expected discounted future cash flows. Refer to Note 14 for additional information. If events or circumstances indicate the carrying value of investments accounted for under the equity method of accounting may not be recoverable, potential impairment is assessed by comparing the future anticipated cash flows from these investments to their carrying values. The estimated fair value less cost to sell of assets held for sale are compared each reporting period to their carrying values. Impairment charges are recorded for equity method investments and assets held for sale if the carrying value of such asset exceeds the future anticipated cash flows or the estimated fair value less cost to sell, respectively. (2) UTILITY RATE MATTERS In 2002, IP&L filed electric and gas rate cases in Iowa. Interim rates, subject to refund, were granted for $15 million and $17 million for electric and gas, respectively. IP&L expects final rates to be in place in June 2003 for the electric case and July 2003 for the gas case. Although it is possible that final rates could be lower than interim rates, IP&L does not believe this to be probable and therefore has not recorded any reserves related to potential refund obligations. In 2002 and 2001, WP&L had an electric fuel cost recovery mechanism that required WP&L to refund any overcollection of fuel and purchased-power costs. WP&L has recorded the necessary reserve for refunds at Dec. 31, 2002 and 2001. In 2002, WP&L filed a rate case with FERC related to its electric wholesale customers. An interim rate increase, subject to refund, of $6 million annually was granted effective April 2002. The case was subsequently settled with final rates of $3 million annually. At Dec. 31, 2002, WP&L recorded a reserve for the difference between interim and final rates. 69 (3) LEASES IP&L has a capital lease covering its 70% undivided interest in nuclear fuel purchased for DAEC. Annual nuclear fuel lease expenses (included in "Electric and steam production fuels" in the Consolidated Statements of Income) for 2002, 2001 and 2000 were $15.5 million, $14.1 million and $16.0 million, respectively. Alliant Energy's operating lease rental expenses, which include certain purchased-power agreements, for 2002, 2001 and 2000 were $45.1 million, $40.4 million and $24.5 million, respectively. The purchased-power agreements total below includes $463 million and $78 million, respectively, related to a new plant (Riverside) currently under development and the RockGen plant, both in Wisconsin. The Riverside plant is expected to be placed in-service in 2004. The synthetic leases relate to the financing of the corporate headquarters, corporate aircraft, utility railcars and a utility radio dispatch system that were not included on Alliant Energy's Consolidated Balance Sheets. Alliant Energy has guaranteed the residual value of its synthetic leases totaling $76 million in the aggregate. The guarantees extend through the maturity of each respective underlying lease with remaining terms up to 13 years. Residual value guarantees have been included in the future minimum lease payments noted in the table below (in millions):
2003 2004 2005 2006 2007 Thereafter Total -------------------------------------------------------------------- Operating leases: Certain purchased-power agreements $18.7 $51.8 $66.3 $67.6 $69.0 $308.6 $582.0 Synthetic leases 10.0 12.1 19.3 24.6 49.0 31.0 146.0 Other 16.3 12.2 9.3 6.3 5.2 44.2 93.5 -------------------------------------------------------------------- Total operating leases $45.0 $76.1 $94.9 $98.5 $123.2 $383.8 $821.5 ====================================================================
Present Less: value of net amount minimum representing capital lease 2003 2004 2005 2006 2007 Thereafter Total interest payments ------- -------- -------- ------- -------- ------------ -------- -------------- -------------- Capital leases $15.1 $15.8 $9.8 $35.5 $1.7 $1.2 $79.1 $9.3 $69.8
In January 2003, the FASB issued FIN 46 which addresses consolidation by business enterprises of variable interest entities, commonly referred to as "special purpose entities." FIN 46 requires consolidation where there is a controlling financial interest in a variable interest entity or where the variable interest entity does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. Alliant Energy will apply the provisions of FIN 46 prospectively for all variable interest entities created after Jan. 31, 2003. For variable interest entities created before Jan. 31, 2003, Alliant Energy will be required to consolidate all variable interest entities in which it is the primary beneficiary beginning in the third quarter of 2003. It is reasonably possible the implementation of FIN 46 will require that certain variable interest entities associated with these synthetic leases be included on Alliant Energy's Consolidated Balance Sheets. Alliant Energy is in the process of analyzing each synthetic lease in accordance with FIN 46. Alliant Energy does not anticipate the adoption of FIN 46 will have a material impact on its results of operations given it estimates the fair market value of the underlying assets is not materially less than the remaining lease obligations at Dec. 31, 2002. (4) UTILITY ACCOUNTS RECEIVABLE Utility customer accounts receivable, including unbilled revenues, arise primarily from the sale of electricity and natural gas. At Dec. 31, 2002 and 2001, the utility subsidiaries were serving a diversified base of residential, commercial and industrial customers and did not have any significant concentrations of credit risk. Alliant Energy's utility subsidiaries participate in a combined utility customer accounts receivable sale program whereby IP&L and WP&L may sell up to a combined maximum amount of $250 million (there are no individual subsidiary limits) of their respective accounts receivable to a third-party financial institution on a limited recourse basis through wholly-owned and consolidated variable interest entities. Corporate Services acts as a collection agent for the buyer and receives a fee for collection services that approximates fair value. The agreement expires in April 2006 and is subject to annual renewal or renegotiation for a longer period thereafter. Under terms of the agreement, the third-party financial institution purchases the receivables initially for the face amount. On a monthly basis, this sales price is adjusted, resulting in payments to the third-party financial institution of an amount that varies based on interest rates and length of time the sold receivables remain outstanding. Collections on sold receivables are used to purchase additional receivables from the utility subsidiaries. 70 At Dec. 31, 2002 and 2001, Alliant Energy had sold $202 million and $178 million of receivables, respectively. In 2002, 2001 and 2000, Alliant Energy received $2.3 billion, $2.2 billion and $1.6 billion, respectively, in aggregate proceeds from the sale of accounts receivable. The utility subsidiaries use proceeds from the sale of accounts receivable and unbilled revenues to maintain flexibility in their capital structures, take advantage of favorable short-term rates and finance a portion of their long-term cash needs. Alliant Energy paid fees associated with these sales of $4.2 million, $7.9 million and $9.0 million in 2002, 2001 and 2000, respectively. Alliant Energy and its utility subsidiaries account for the sale of accounts receivable to the third-party financial institution as sales under SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Retained receivables are available to the third-party financial institution to pay any fees or expenses due it, and to absorb all credit losses incurred on any of the sold receivables. Beginning in the third quarter of 2003 under FIN 46, it is reasonably possible that Alliant Energy could be considered the primary beneficiary given the current structure of the variable interest entities related to the program, and could be required to consolidate the operating results and associated assets and liabilities of the variable interest entities in its financial statements. Based on the receivables sold at Dec. 31, 2002, consolidation of the variable interest entities would have resulted in an additional $202 million in accounts receivable and related debt recorded on Alliant Energy's Consolidated Balance Sheet. Alliant Energy is currently evaluating the structure of its receivable sales program to determine if this structure can be modified to qualify for off-balance sheet treatment under FIN 46. (5) INCOME TAXES The components of income taxes for Alliant Energy were as follows (in millions):
2002 2001 2000 ------------- ------------- ------------- Current tax expense: Federal $19.4 $51.3 $92.1 State 21.6 16.2 24.0 Deferred tax expense (benefit): Federal 16.8 (9.3) 97.6 State (2.5) (5.6) 18.0 Foreign tax expense 5.5 4.2 0.2 Amortization of investment tax credits (5.2) (5.2) (4.5) Research and development tax credits (4.5) -- -- Nonconventional fuel credits (14.9) (0.5) (0.9) Other tax credits (0.1) (0.3) (0.3) ------------- ------------- ------------- $36.1 $50.8 $226.2 ============= ============= =============
Included in "Cumulative effect of changes in accounting principle, net of tax" in the Consolidated Statements of Income for 2001 and 2000 was income tax (benefit) expense of ($5.5) million and $9.8 million, respectively, related to the adoption of SFAS 133 by an equity method foreign affiliate of Alliant Energy on Jan. 1, 2001 and by Alliant Energy's consolidated subsidiaries on July 1, 2000, respectively. The overall effective income tax rates shown in the following table were computed by dividing total income tax expense by income from continuing operations before income taxes and preferred dividend requirements of subsidiaries.
2002 2001 2000 ------------- ------------- -------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 9.7 5.6 6.6 Foreign operations 7.4 (0.8) -- Adjustment of prior period taxes 1.0 (11.6) (0.6) Effect of rate making on property related differences 0.1 2.3 0.9 Research and development tax credits (3.8) -- -- Amortization of investment tax credits (4.4) (3.1) (1.0) Nonconventional fuel credits (12.6) (0.3) (0.2) Other items, net (1.9) 0.5 (0.6) ------------- ------------- -------------- Overall effective income tax rate 30.5% 27.6% 40.1% ============= ============= ==============
71 The accumulated deferred income tax (assets) and liabilities included on the Consolidated Balance Sheets at Dec. 31 arise from the following temporary differences (in millions): 2002 2001 ------------- ------------- Property related $647.2 $548.8 Exchangeable senior notes 140.8 129.7 Decommissioning (33.1) (28.6) Other (128.5) (42.3) ------------- ------------- $626.4 $607.6 ============= ============= At Dec. 31, 2002, 2001 and 2000, Alliant Energy had not recorded U.S. tax provisions of approximately $16.3 million, $6.8 million and $3.8 million, respectively, relating to approximately $46.6 million, $19.5 million and $10.9 million, respectively, of unremitted earnings from foreign investments as these earnings are expected to be reinvested indefinitely. U.S. and foreign sources of income (loss) from continuing operations before income taxes were as follows (in millions):
2002 2001 2000 ------------- ------------- ------------ U.S. sources $115.3 $156.0 $543.7 Foreign sources (2.9) 21.0 13.4 ------------- ------------- ------------ Income from continuing operations before income taxes $112.4 $177.0 $557.1 ============= ============= ============
(6) BENEFIT PLANS (a) Pension Plans and Other Postretirement Benefits - Alliant Energy has several non-contributory defined benefit pension plans that cover a significant number of its employees. Benefits are based on the employees' years of service and compensation. Alliant Energy also provides certain postretirement health care and life benefits to eligible retirees. In general, the health care plans are contributory with participants' contributions adjusted regularly and the life insurance plans are non-contributory. The weighted-average assumptions at the measurement date of Sept. 30 were as follows:
Qualified Pension Benefits Other Postretirement Benefits -------------------------------------- ------------------------------------ 2002 2001 2000 2002 2001 2000 ------------ ------------- ----------- ---------- ---------- ----------- Discount rate 6.75% 7.25% 8.00% 6.75% 7.25% 8.00% Expected return on plan assets 9% 9% 9% 9% 9% 9% Rate of compensation increase 3.5-4.5% 3.5-4.5% 3.5-4.5% 3.5% 3.5% 3.5% Medical cost trend on covered charges: Initial trend rate N/A N/A N/A 10.8% 12.0% 9.0% Ultimate trend rate N/A N/A N/A 5% 5% 5%
The components of Alliant Energy's qualified pension benefits and other postretirement benefits costs were as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------ ---------------------------------- 2002 2001 2000 2002 2001 2000 ---------- ---------- -------- --------- --------- --------- Service cost $12.9 $11.0 $11.1 $5.5 $4.0 $3.7 Interest cost 39.7 38.2 36.7 12.7 10.6 9.8 Expected return on plan assets (41.8) (48.5) (45.7) (5.5) (6.1) (5.3) Amortization of: Transition obligation (asset) (2.0) (2.4) (2.4) 3.7 3.7 3.9 Prior service cost 2.7 2.7 2.6 (0.3) (0.3) (0.3) Actuarial loss (gain) 2.1 (1.5) (1.0) 0.5 (1.5) (1.9) ---------- ---------- -------- --------- --------- --------- $13.6 ($0.5) $1.3 $16.6 $10.4 $9.9 ========== ========== ======== ========= ========= =========
72 The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A 1% change in the medical trend rates for 2002, holding all other assumptions constant, would have the following effects (in millions):
1% Increase 1% Decrease -------------- --------------- Effect on total of service and interest cost components $1.9 ($1.7) Effect on postretirement benefit obligation $19.4 ($17.3)
A reconciliation of the funded status of Alliant Energy's plans to the amounts recognized on Alliant Energy's Consolidated Balance Sheets at Dec. 31 was as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ----------------------------- -------------------------------- 2002 2001 2002 2001 ------------ ------------- ------------- -------------- Change in benefit obligation: Net benefit obligation at beginning of year $553.3 $483.6 $174.5 $130.7 Service cost 12.9 11.0 5.5 4.0 Interest cost 39.7 38.2 12.7 10.6 Plan participants' contributions -- -- 1.8 1.9 Plan amendments 1.1 -- (0.9) -- Actuarial loss 33.0 56.6 34.3 40.7 Gross benefits paid (31.5) (36.1) (12.2) (13.4) ------------ ------------- ------------- -------------- Net benefit obligation at end of year 608.5 553.3 215.7 174.5 ------------ ------------- ------------- -------------- Change in plan assets: Fair value of plan assets at beginning of year 483.3 556.3 73.8 83.0 Actual return on plan assets (25.1) (36.9) (7.2) (6.8) Employer contributions 40.0 -- 11.1 9.1 Plan participants' contributions -- -- 1.8 1.9 Gross benefits paid (31.5) (36.1) (12.2) (13.4) ------------ ------------- ------------- -------------- Fair value of plan assets at end of year 466.7 483.3 67.3 73.8 ------------ ------------- ------------- -------------- Funded status at end of year (141.8) (70.0) (148.4) (100.7) Unrecognized net actuarial loss 172.1 74.2 63.4 16.8 Unrecognized prior service cost 19.9 21.5 (0.9) (0.9) Unrecognized net transition obligation (asset) (1.4) (3.3) 36.7 41.1 ------------ ------------- ------------- -------------- Net amount recognized at end of year $48.8 $22.4 ($49.2) ($43.7) ============ ============= ============= ============== Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $70.4 $45.5 $2.3 $2.1 Accrued benefit cost (21.6) (23.1) (51.5) (45.8) Additional minimum liability (90.0) (36.1) -- -- Intangible asset 16.5 8.7 -- -- Accumulated other comprehensive loss 73.5 27.4 -- -- ------------ ------------- ------------- -------------- Net amount recognized at measurement date 48.8 22.4 (49.2) (43.7) ------------ ------------- ------------- -------------- Contributions paid after 9/30 and prior to 12/31 -- -- 4.0 2.5 ------------ ------------- ------------- -------------- Net amount recognized at 12/31 $48.8 $22.4 ($45.2) ($41.2) ============ ============= ============= ==============
73 The benefit obligation and fair value of plan assets for the postretirement welfare plans with benefit obligations in excess of plan assets were $213.9 million and $64.3 million, respectively, at Sept. 30, 2002 and $167.8 million and $64.5 million, respectively, at Sept. 30, 2001. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the qualified pension plans with accumulated benefit obligations in excess of plan assets were $452.4 million, $418.8 million and $313.2 million, respectively, at Sept. 30, 2002 and $293.9 million, $283.7 million and $225.7 million, respectively, at Sept. 30, 2001. Alliant Energy's net periodic benefit cost is primarily included in "Other operation and maintenance" in the Consolidated Statements of Income. For the various Alliant Energy pension and postretirement plans, Alliant Energy common stock represented less than 1% of total plan investments at Dec. 31, 2002 and 2001. Alliant Energy sponsors several non-qualified pension plans that cover certain current and former key employees. At both Dec. 31, 2002 and 2001, the funded balances of such plans totaled approximately $4 million, none of which consisted of Alliant Energy common stock. Alliant Energy's pension benefit obligation under these plans was $38.2 million and $34.4 million at Dec. 31, 2002 and 2001, respectively. Alliant Energy's pension expense under these plans was $4.3 million, $3.4 million, and $3.6 million in 2002, 2001 and 2000, respectively. Alliant Energy has various life insurance policies that cover certain key employees and directors. At Dec. 31, 2002 and 2001, the cash surrender value of these investments was $32 million and $30 million, respectively. Under Alliant Energy's deferred compensation plans, certain key employees and directors can defer part or all of their current compensation in company stock or interest accounts, which are held in grantor trusts. At Dec. 31, 2002 and 2001, the fair market value of the trusts totaled approximately $4.9 million and $2.2 million, respectively, the majority of which consisted of Alliant Energy common stock. A significant number of Alliant Energy employees also participate in defined contribution pension plans (401(k) and Employee Stock Ownership plans). Alliant Energy's contributions to the plans, which are based on the participants' level of contribution, were $9.2 million, $8.2 million, and $8.1 million in 2002, 2001 and 2000, respectively. (b) Equity Incentive Plans - In 2002, Alliant Energy shareowners approved the EIP that permits the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and performance units to key employees. At Dec. 31, 2002, non-qualified stock options were outstanding under this plan. The maximum number of shares of Alliant Energy common stock that may be issued under the plan is 4 million. Alliant Energy also has an LTEIP that permits the grant of incentive stock options, non-qualified stock options, restricted stock, performance shares and performance units to key employees. At Dec. 31, 2002, non-qualified stock options, restricted stock and performance shares were outstanding. The maximum number of shares of Alliant Energy common stock that may be issued under the plan is 3.8 million. This plan expires January 2004, at which time no further grants may be made under this plan. Options granted to date under the plans were granted at the quoted market price of the shares on the date of grant, vest over three years and expire no later than 10 years after the grant date. Options become fully vested upon retirement and remain exercisable at any time prior to their expiration date, or for three years after the effective date of the retirement, whichever period is shorter. Participants' options that are not vested become forfeited when participants leave Alliant Energy and their vested options expire after three months. A summary of the stock option activity was as follows:
2002 2001 2000 ------------------------- ------------------------- ----------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------------------------- ------------------------- ----------------------- Outstanding at beginning of year 2,917,229 $30.03 2,265,862 $29.67 1,543,028 $30.32 Options granted 945,863 27.79 721,072 31.14 899,094 28.59 Options exercised -- -- (42,432) 29.87 (15,486) 30.03 Options forfeited (20,956) 29.41 (27,273) 30.07 (160,774) 29.90 -------------- ------------- ------------ Outstanding at end of year 3,842,136 29.48 2,917,229 30.03 2,265,862 29.67 ============== ============= ============ Exercisable at end of year 2,242,187 29.93 1,593,047 29.94 962,073 30.12
74 The range of exercise prices for the options outstanding at Dec. 31, 2002 was $27.50 to $31.56. The weighted-average remaining contractual life of outstanding options at Dec. 31, 2002, 2001 and 2000 was 7.4 years, 7.7 years and 8.3 years, respectively. The value of the options granted during the year using the Black-Scholes pricing method was as follows:
2002 2001 2000 ------------- ------------ ------------ Value of options $9.14 $4.30 $7.71 Volatility 40.6% 18.9% 32.7% Risk free interest rate 5.0% 5.0% 5.7% Expected life 10 years 10 years 10 years Expected dividend yield 6.0% 6.6% 6.3%
At Dec. 31, 2002 and 2001, Alliant Energy had 1,745 and 61,137 shares of restricted stock outstanding, respectively. Any unvested shares of restricted stock become fully vested upon retirement. Participants' unvested restricted stock is forfeited when the participant leaves Alliant Energy. Compensation cost, which is recognized over the three-year restriction period, was $0.2 million, $0.6 million and $0.6 million in 2002, 2001 and 2000, respectively. The payout to key employees of Corporate Services for performance shares is contingent upon achievement over a three-year period of specified earnings per share growth and total return to shareowners of Alliant Energy compared with an investor-owned utility peer group. The payout to key employees of Resources is contingent upon achievement over a three-year period of specified Resources earnings per share growth. Performance shares are paid out in shares of Alliant Energy's common stock or a combination of cash and stock and are modified by a performance multiplier, which ranges from zero to two, based on the performance criteria. Performance shares have an intrinsic value equal to the quoted market price of a share on the date of grant. Pursuant to APB 25, Alliant Energy accrues the plan expense over the three-year period the services are performed and recognized (income) expense of ($1.6) million, $2.4 million and $0.4 million in 2002, 2001 and 2000, respectively. (7) COMMON AND PREFERRED STOCK (a) Common Stock - The number of shares of common stock issued by Alliant Energy under its various stock plans was as follows:
2002 2001 2000 ---------------- ---------------- ---------------- Beginning balance 89,682,334 79,010,114 78,984,014 Shares issued: Public offering -- 9,775,000 -- Shareowner Direct Plan 1,877,032 668,379 5,666 401(k) Savings Plan 689,336 161,239 -- Equity incentive plans 55,518 67,602 20,434 ---------------- ---------------- ---------------- Ending balance 92,304,220 89,682,334 79,010,114 ================ ================ ================
In November 2001, Alliant Energy completed a public offering of its common stock generating net proceeds of approximately $263 million which were used to repay short-term debt. From January 2000 to June 2001, Alliant Energy satisfied its requirements under the Shareowner Direct Plan (dividend reinvestment and stock purchase plan) by acquiring Alliant Energy common stock on the open market, rather than through original issue. In 2000, 5,666 shares of common stock were issued related to an adjustment of a prior acquisition of oil and gas properties. At Dec. 31, 2002 and 2001, Alliant Energy had a total of 6.8 million and 2.6 million shares, respectively, available for issuance in the aggregate, pursuant to its Shareowner Direct Plan, LTEIP, EIP and 401(k) Savings Plan. Alliant Energy has a Shareowner Rights Plan whereby rights will be exercisable only if a person or group acquires, or announces a tender offer to acquire, 15% or more of Alliant Energy's common stock. Each right will initially entitle shareowners to buy one-half of one share of Alliant Energy's common stock. The rights will only be exercisable in multiples of two at an initial price of $95.00 per full share, subject to adjustment. If any shareowner acquires 15% or more of the outstanding common stock of Alliant Energy, each right (subject to limitations) will entitle its holder to purchase, at the right's then current exercise price, a number of common shares of Alliant Energy or of the acquirer having a market value at the time of twice the right's per full share exercise price. The Board of Directors is also authorized to reduce the 15% ownership threshold to not less than 10%. Alliant Energy's utility subsidiaries each have dividend payment restrictions based on their respective bond indentures, the terms of their outstanding preferred stock and state regulatory limitations applicable to them. WP&L's 75 preferred stock restricts dividends to the extent that such dividend would reduce the common stock equity ratio to less than 25%. In its September 2002 rate order, the PSCW stated it must approve the payment of dividends by WP&L to Alliant Energy in excess of the level forecasted in the order ($62 million annually) if such dividends would reduce WP&L's common equity ratio below 44.67% of total capitalization. In accordance with the IUB order authorizing the IP&L merger, IP&L must inform the IUB if its common equity ratio falls below 42% of total capitalization. As of Dec. 31, 2002, Alliant Energy's utility subsidiaries were in compliance with all such dividend restrictions. In 2002, 11 non-employee directors received 1,000 shares each of Alliant Energy common stock through the Shareowner Direct Plan as part of the directors' compensation program, for a total of approximately $337,000. In 2001, 14 non-employee directors received up to 1,000 shares each of Alliant Energy common stock through the Shareowner Direct Plan, for a total of approximately $338,000. In 2000, 12 non-employee directors received up to $20,000 each in Alliant Energy common stock, for a total of approximately $222,000. (b) Preferred Stock - In September 2002, IP&L redeemed all of its then outstanding shares of preferred stock. In December 2002, IP&L issued six million shares of preferred stock at $25.00 per share in a private placement. IP&L used the net proceeds of approximately $145 million to repay its short-term debt and for general corporate purposes, including to fund capital expenditures and to repay other debt. The fair market value of Alliant Energy's cumulative preferred stock of subsidiaries, based upon the market yield of similar securities and quoted market prices, at Dec. 31, 2002 and 2001 was $198 million and $99 million, respectively. Information related to the carrying value of Alliant Energy's cumulative preferred stock of subsidiaries, net at Dec. 31 was as follows (in millions):
2002 2001 ------------ ------------- Par/Stated Authorized Shares Mandatory Value Shares Outstanding Series Redemption ----- ------ ----------- ------ ---------- $25 16,000,000 6,000,000 8.375% No $150.0 $-- $100 * 449,765 4.40% - 6.20% No 45.0 45.0 $25 * 599,460 6.50% No 15.0 15.0 $50 466,406 ** 366,406 4.30% - 6.10% No -- 18.3 $50 *** 216,381 4.36% - 7.76% No -- 10.8 $50 *** 545,000 6.40% $50 / share -- 27.3 ------------ ------------- 210.0 116.4 Less: unamortized expenses (4.9) (2.4) ------------ ------------- $205.1 $114.0 ============ =============
* 3,750,000 authorized shares in total. ** Fully retired in 2002. *** 2,000,000 authorized shares in total, fully retired in 2002. (8) DEBT (a) Short-Term Debt - To provide short-term borrowing flexibility and security for commercial paper outstanding, Alliant Energy and its subsidiaries maintain bank lines of credit, of which most require a fee. Alliant Energy discontinued the use of its utility money pool in 2002 and WP&L and IP&L are now meeting any short-term borrowing needs they have by issuing commercial paper and borrowing on its bank lines of credit, respectively. At Dec. 31, 2001, IP&L and WP&L had money pool borrowings of $38.0 million and $90.8 million, respectively. Information regarding short-term debt was as follows (dollars in millions):
2002 2001 ---------------- ------------- At Dec. 31: Commercial paper outstanding $195.5 $68.4 Discount rates on commercial paper 1.6-1.9% 2.4-3.2% Bank facility borrowings $85.0 $-- Interest rates on bank facility borrowings 2.3-2.4% N/A Short-term borrowings at foreign subsidiaries $28.7 $84.3 Interest rates on foreign short-term borrowings 5.3-6.9% 5.6-6.9% For the year ended: Average amount of short-term debt (based on daily outstanding balances) $337.9 $274.1 Average interest rates on short-term debt 2.7% 4.8%
76 (b) Long-Term Debt - The former IESU indentures securing its First Mortgage and Collateral Trust Bonds constitute direct first mortgage liens and a second lien while First Mortgage Bonds remain outstanding, respectively, upon substantially all tangible public utility property of IP&L (excluding those of the former IPC). WP&L's and the former IPC's First Mortgage Bonds are secured by substantially all of their utility plant. IP&L, WP&L and Resources also maintain indentures relating to the issuance of unsecured debt securities. In December 2002, Resources issued $300 million of 9.75% senior notes due 2013 in a private placement. The notes are unconditionally guaranteed by Alliant Energy. Resources used the proceeds to repay short-term debt. In November 2001, Resources issued $300 million of senior notes at a fixed interest rate of 7%, due 2011. The notes are fully and unconditionally guaranteed by Alliant Energy. Resources used the proceeds to repay other Resources' debt. In March 2001, IP&L issued $200 million of senior unsecured debentures at a fixed interest rate of 6-3/4%, due 2011. IP&L used the proceeds to repay short- and long-term debt. Debt maturities for 2003 to 2007 are $47 million, $106 million, $337 million, $68 million and $225 million, respectively. Depending upon market conditions, it is currently anticipated that a majority of the maturing debt will be refinanced with the issuance of long-term securities. The carrying value of Alliant Energy's long-term debt (including current maturities and variable rate demand bonds) at Dec. 31, 2002 and 2001 was $2.7 billion and $2.5 billion, respectively. The fair market value, based upon the market yield of similar securities and quoted market prices, at Dec. 31, 2002 and 2001 was $2.9 billion and $2.6 billion, respectively. (9) INVESTMENTS AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of Alliant Energy's current assets and current liabilities approximates fair value because of the short maturity of such financial instruments. Since IP&L and WP&L are subject to regulation, any gains or losses related to the difference between the carrying amount and the fair value of their financial instruments may not be realized by Alliant Energy's shareowners. Information relating to various investments held by Alliant Energy at Dec. 31 that are marked-to-market as a result of SFAS 115 were as follows (in millions):
2002 2001 ---------------------------------- ----------------------------------- Unrealized Unrealized Carrying/Fair Gains, Net of Carrying/Fair Gains/(Losses), Value Tax Value Net of Tax ----------------- ---------------- ---------------- ------------------ Available-for-sale securities: Nuclear decommissioning trust funds: Debt securities $206 $9 $191 $3 Equity securities 139 13 142 42 Total 345 22 333 45 Investment in McLeod 2 -- 14 (9) Various other investments 19 3 23 1 Trading securities: Investment in McLeod 1 (a) 6 (a)
(a) Adjustments to the trading securities are reflected in earnings in the "Miscellaneous, net" line in the Consolidated Statements of Income. Nuclear Decommissioning Trust Funds - At Dec. 31, 2002, $114 million, $43 million and $49 million of the debt securities mature in 2003-2010, 2011-2020 and 2021-2049, respectively. The fair value of the nuclear decommissioning trust funds was, as reported by the trustee, adjusted for the tax effect of unrealized gains and losses. Net unrealized holding gains were recorded as part of accumulated provision for depreciation of related plant assets. The funds realized gains from the sales of securities of $10.4 million, $2.0 million and $5.0 million in 2002, 2001 and 2000, respectively (cost of the investments based on specific identification was $111.1 million, $169.8 million and $213.4 million, respectively, and proceeds from the sales were $121.5 million, $171.8 million and $218.4 million, respectively). 77 Investment in McLeod - Alliant Energy has investments in the common stock of McLeod, a telecommunications company. In accordance with SFAS 115, the carrying values of the investments are adjusted to estimated fair value based upon McLeod's closing price at the end of each quarter. Changes in fair value of investments designated as available-for-sale securities are reported in other comprehensive income, and impact current earnings when gains or losses are realized through sale or if a decline in value is determined to be "other-than-temporary." Changes in fair value of investments designated as trading securities are reflected in earnings in the "Miscellaneous, net" line in the Consolidated Statements of Income. Upon the adoption of SFAS 133 in 2000 for the embedded derivative related to McLeod stock in Resources' exchangeable senior notes (refer to Note 10(a) for additional information), Alliant Energy designated a portion of its McLeod investments as trading securities. As result of this change in designation to trading securities, in 2000, Alliant Energy reclassified $321.3 million of unrealized appreciation ($187.3 million after-tax) from accumulated other comprehensive income to net income. In 2000, Alliant Energy recognized miscellaneous income of $23.8 million for pre-tax gains realized upon sales of McLeod available-for-sale securities, for which the appreciation was previously reflected in accumulated other comprehensive income. On Jan. 31, 2002, McLeod filed a pre-negotiated plan of reorganization in a Chapter 11 bankruptcy proceeding and the trading of McLeod's common stock was suspended by Nasdaq. Consequently, Alliant Energy discontinued accounting for its investment in McLeod under the provisions of SFAS 115 and reduced the cost basis of its investments to the last quoted market price on Jan. 30, 2002. In June 2002, Alliant Energy received from McLeod under its plan of reorganization an initial distribution of approximately 3.3 million shares of new common stock and classified 0.9 million and 2.4 million shares (0.1 million shares were received by discontinued operations) as trading and available-for-sale securities, respectively. With the receipt of the new McLeod common shares and the resumption of trading on Nasdaq, Alliant Energy resumed accounting for its McLeod investments under SFAS 115 and adjusted its cost basis to the quoted market price on the date the shares were received. As a result of these events, Alliant Energy recognized pre-tax impairment charges in 2002 for available-for-sale securities totaling $27.2 million. Investments in Foreign Entities - The geographic concentration of Alliant Energy's significant continuing foreign investments at Dec. 31 was as follows (in millions):
Brazil China New Zealand Mexico Total --------- ---------- --------------- ---------- --------- 2002 ---- Unconsolidated $214 $19 $86 $55 $374 Consolidated -- 161 -- -- 161 --------- ---------- --------------- ---------- --------- Total $214 $180 $86 $55 $535 ========= ========== =============== ========== ========= 2001 ---- Unconsolidated $378 $21 $68 $41 $508 Consolidated -- 146 -- -- 146 --------- ---------- --------------- ---------- --------- Total $378 $167 $68 $41 $654 ========= ========== =============== ========== =========
Brazil - Resources holds a non-controlling interest in five Brazilian ------ electric utility companies through several direct investments accounted for under the equity method of accounting. At Dec. 31, 2002 and 2001, Resources' direct investments included a 49.9% direct ownership interest in GIPAR, S.A., an electric utility holding company; a 39.4% direct ownership interest in Companhia Forca e Luz Cataguazes - Leopoldina, S.A. (Cataguazes), an electric utility; a 45.6% direct ownership interest in Energisa, S.A., an energy development company; a 49.9% direct ownership interest in Pbpart - SE 1 Ltda., an electric utility holding company; and a 50.0% (49.7% at Dec. 31, 2001) direct ownership interest in Usina Termeletrica de Juiz de Fora S.A., a thermal power plant. China - Resources' consolidated investments included a controlling interest ----- in Peak Pacific Investment Company, Ltd., a company that develops investment opportunities in generation infrastructure projects in China, and Anhui New Energy Heat & Power Co., Ltd., a combined heat and power facility. Resources' unconsolidated investments included a 50.0% ownership interest in Jiaxing JIES Power & Heat Co., Ltd. and a 30.0% ownership interest in Tongxiang TIES Power & Heat Co., Ltd. Both of these combined heat and power facilities are accounted for under the equity method. 78 New Zealand - Resources' investments included a 20.4% ownership interest in ----------- TrustPower Ltd., a New Zealand hydro and wind generation utility company, which is accounted for under the equity method and several other smaller investments accounted for under the cost method. Mexico - Resources' investment in Mexico consisted of a loan receivable ------ (including accrued interest income) from a Mexican development company. Under provisions of the loan, Resources has agreed to lend up to $65 million to support the development of a resort community near the Baja peninsula. The loan accrues interest at 8.75% and is secured by the undeveloped land of the resort community. Repayment of the loan principal and interest will be based on a portion of the proceeds from the sales of real estate in the resort community and therefore is dependent on the successful development of the project and the ability to sell real estate. Alliant Energy may also realize royalty income on the real estate sales once the loan is repaid. Investment in ATC - At Dec. 31, 2002 and 2001, WP&L had ownership interests in ATC of approximately 26.6% and 26.5%, respectively, and accounts for this investment under the equity method. Pursuant to various agreements, WP&L receives a range of transmission services from ATC. WP&L provides operation, maintenance, and various transitional and construction services to ATC. WP&L and ATC also bill each other for use of shared facilities owned by each party. ATC billed WP&L $38.7 million and $36.4 million in 2002 and 2001, respectively. WP&L billed ATC $18.1 million and $18.4 million in 2002 and 2001, respectively, and recorded equity earnings of $14.3 million and $14.6 million in 2002 and 2001, respectively. Unconsolidated Equity Investments - Summary financial information from Alliant Energy's unconsolidated equity investments' financial statements is as follows (in millions):
2002 * 2001 2000 ------------ ------------ ---------- Operating revenues $1,440.6 $2,214.1 $1,194.3 Operating income 159.8 138.2 42.5 Net income (loss) 36.6 52.1 69.7 As of Dec. 31: Current assets 383.0 454.5 Non-current assets 1,976.4 2,117.0 Current liabilities 435.9 519.3 Non-current liabilities 505.1 557.0 Minority interest 133.4 213.5
* Alliant Energy's investment in Cargill-Alliant was sold in 2002. (10) DERIVATIVE FINANCIAL INSTRUMENTS (a) Accounting for Derivative Instruments and Hedging Activities - Alliant Energy records derivative instruments at fair value on the balance sheet as assets or liabilities and changes in the derivatives' fair values for non-regulated entities in earnings unless specific hedge accounting criteria are met. For IP&L and WP&L, changes in the derivatives' fair values are generally recorded as regulatory assets or liabilities. The PSCW issued a letter to WP&L in August 2002 authorizing accounting for its derivatives in such manner. At Dec. 31, 2002 and 2001, Alliant Energy had $6.4 million and $6.5 million, respectively, of derivative assets included in "Other current assets" on its Consolidated Balance Sheets and $9.1 million and $3.6 million, respectively, of derivative liabilities included in "Other current liabilities" on its Consolidated Balance Sheets. At Dec. 31, 2001, Alliant Energy also had $0.4 million of derivative liabilities included in "Other long-term liabilities and deferred credits" on its Consolidated Balance Sheets. In the first quarter of 2001, Alliant Energy recorded a net loss of $12.9 million (all related to discontinued operations) for a cumulative effect of a change in accounting principle representing the impact of adopting SFAS 133 as of Jan. 1, 2001 at Alliant Energy's equity method investees. This transition adjustment represents Alliant Energy's share of the difference between the carrying amount of Southern Hydro's electricity derivative contracts under the applicable accounting principles in effect at Dec. 31, 2000, and the carrying values of these electricity derivative contracts as determined in accordance with SFAS 133 as of Jan. 1, 2001. In the third quarter of 2000, Alliant Energy recorded net income of $16.7 million for a cumulative effect of a change in accounting principle representing the impact of adopting SFAS 133 as of July 1, 2000 at Alliant 79 Energy's consolidated subsidiaries. This transition adjustment was primarily the result of the difference between the carrying amount of Resources' exchangeable senior notes issued in February 2000 (due in 2030) under the applicable accounting principles in effect at June 30, 2000, and the carrying values of the debt and embedded derivative components of the notes as determined in accordance with SFAS 133 as of July 1, 2000. Transition adjustments relating to Alliant Energy's other derivative instruments had no material impact on net income. During 2001 and 2000, $0.1 million of net gains (includes $0.1 million of net losses from discontinued operations) and $6.7 million of net losses (includes $1.3 million of net losses from discontinued operations), respectively, included in the cumulative effect of a change in accounting principle component of accumulated other comprehensive income (loss) were reclassified into earnings, resulting in remaining balances of $0 and $0.1 million at Dec. 31, 2001 and 2000, respectively. Cash Flow Hedging Instruments - During 2002 and 2001, Alliant Energy held ----------------------------- various derivative instruments designated as cash flow hedging instruments. WP&L utilized gas commodity financial swap arrangements to reduce the impact of price fluctuations on gas purchased and injected into storage during the summer months and withdrawn and sold at current market prices during the winter months pursuant to the natural gas cost incentive sharing mechanism with customers in Wisconsin. IP&L and WP&L utilized physical coal purchase contracts, which did not qualify for the normal purchase and sale exception, to manage the price of anticipated coal purchases and sales. In 2002 and 2001, a net loss of $0.1 million (includes a net gain of $0.1 million from discontinued operations) and a net gain of $2.0 million (includes a net gain of $2.1 million from discontinued operations), respectively, were recognized relating to the amount of hedge ineffectiveness in accordance with SFAS 133. In 2002 and 2001, Alliant Energy did not exclude any components of the derivative instruments' gain or loss from the assessment of hedge effectiveness and in 2001 reclassified a loss of $0.9 million (all continuing operations) into earnings as a result of the discontinuance of hedges. At Dec. 31, 2002, the maximum length of time over which Alliant Energy hedged its exposure to the variability in future cash flows for forecasted transactions was six months (three months for continuing operations) and Alliant Energy estimated that losses of $3.3 million (includes losses of $3.5 million for discontinued operations) will be reclassified from accumulated other comprehensive income (loss) into earnings in 2003 as the hedged transactions affect earnings. Other Derivatives Not Designated in Hedge Relationships - Alliant Energy's ------------------------------------------------------- derivatives that were not designated in hedge relationships during 2002 and/or 2001 included the embedded derivative component of Resources' exchangeable senior notes, electricity price collars, and physical coal and gas contracts not designated in hedge relationships. At maturity, the holders of Resources' exchangeable senior notes are paid the higher of the principal amount of the notes or an amount based on the value of McLeod common stock. SFAS 133 requires that Alliant Energy split the initial value of the notes into debt and derivative components. The payment feature tied to McLeod stock is considered an embedded derivative under SFAS 133 that must be accounted for as a separate derivative instrument. This component is classified as a derivative liability on the Consolidated Balance Sheets. Subsequent changes in the fair value of the option are reflected as increases or decreases in Alliant Energy's reported net income. The carrying amount of the host debt security, classified as long-term debt, is adjusted for amortization of the debt discount in accordance with the interest method as prescribed by APB 21, "Interest on Receivables and Payables." Changes in the fair value of the McLeod shares designated as trading are reflected as increases or decreases in Alliant Energy's net income. These trading gains or losses are expected to correspond with, and partially offset, changes in the intrinsic value of the embedded derivative component of Resources' exchangeable senior notes. Changes in the time value portion of the derivative component will result in non-cash increases or decreases to Alliant Energy's net income. Included in "Miscellaneous, net" in Alliant Energy's Consolidated Statements of Income for 2002, 2001 and 2000 was expense of $5.0 million, $215.1 million and $102.5 million, respectively, related to the change in value of the McLeod trading securities, partially offset by income of $0.4 million, $181.6 million and $101.8 million, respectively, related to the change in value of the derivative component of the exchangeable senior notes. 80 Electricity price collars were used to manage utility energy costs during supply/demand imbalances. Physical coal and gas contracts that do not qualify for the normal purchase and sale exception were used to manage the price of anticipated coal and gas purchases and sales. (b) Weather Derivatives - Alliant Energy uses weather derivatives to reduce the impact of weather volatility on its natural gas sales volumes. In 2002 and 2001, Corporate Services, as agent for IP&L and WP&L, entered into non-exchange traded options based on heating degree days in which Corporate Services receives payment from the counterparty if actual heating degree days are less than the strike price in the contract. Corporate Services paid premiums to enter into these contracts, which are amortized to expense over the contract period. Alliant Energy has used the intrinsic value method to account for these weather derivatives. (c) Nuclear Decommissioning Trust Fund Investments - Historically, WP&L has entered into combinations of options to mitigate the effect of significant market fluctuations on its common stock investments in its nuclear decommissioning trust funds. The derivative transactions are designed to protect the portfolio's value while allowing the funds to earn a total return modestly in excess of long-term expectations over the hedge period. Fair value changes of these instruments do not impact net income as they are recorded as equally offsetting changes in the investment in nuclear decommissioning trust funds and accumulated depreciation. (d) Energy-trading Contracts - Resources is the majority owner of a natural gas marketing operation, NG Energy Trading, LLC (NG). NG enters into financial and physical contracts for the sale, purchase, storage, transportation and loan of natural gas. NG accounts for all its positions, including gas in storage, at estimated fair value, with changes in fair value reported in earnings. Alliant Energy adopted EITF Issue 02-3 effective Jan. 1, 2003 for all contracts that were in place and storage gas acquired prior to Oct. 25, 2002, and will reclassify prior period trading contracts on a net basis in its Consolidated Statements of Income commencing in January 2003. (11) COMMITMENTS AND CONTINGENCIES (a) Construction and Acquisition Expenditures - Certain commitments have been made in connection with 2003 capital expenditures. During 2003, total construction and acquisition expenditures relating to continuing operations are estimated to be approximately $820 million. (b) Purchased-Power, Coal and Natural Gas Contracts - Alliant Energy, through its subsidiaries Corporate Services, IP&L and WP&L, has entered into purchased-power, coal and natural gas supply, transportation and storage contracts. Certain purchased-power commitments are considered operating leases and are therefore not included here, but are included in Note 3. The natural gas supply commitments are all index-based. Alliant Energy expects to supplement its coal and natural gas supplies with spot market purchases as needed. The table includes commitments for "take-or-pay" contracts which result in dollar commitments with no associated tons or Dths. At Dec. 31, 2002, Alliant Energy's minimum commitments were as follows (dollars and Dths in millions; MWhs and tons in thousands):
Purchased-power Coal Natural gas ----------------------- ------------------------- ------------------------- Dollars MWhs Dollars Tons Dollars Dths ---------- --------- ---------- ---------- ----------- ---------- 2003 $114.5 2,752 $81.1 9,889 $90.7 6 2004 15.5 361 57.6 9,301 36.5 -- 2005 2.0 -- 40.2 6,130 26.0 -- 2006 2.0 -- 12.7 898 15.0 -- 2007 0.1 -- 3.6 -- 14.7 -- Thereafter 0.4 -- -- -- 26.4 --
(c) Legal Proceedings - Alliant Energy is involved in legal and administrative proceedings before various courts and agencies with respect to matters arising in the ordinary course of business. Although unable to predict the outcome of these matters, Alliant Energy believes that appropriate reserves have been established and final disposition of these actions will not have a material adverse effect on its financial condition or results of operations. (d) Guarantees and Commitments - At Dec. 31, 2002 and 2001, Alliant Energy had guarantees outstanding to support unconsolidated affiliate and third-party financing arrangements of approximately $4 million and $14 million, respectively. Such guarantees are not included on Alliant Energy's Consolidated Balance Sheets. At Dec. 31, 2002, the remaining term of the guarantees and the underlying debt was five years. Refer to Note 3 for discussion of Alliant Energy's residual value guarantees of its synthetic leases. 81 In the third quarter of 2002, Alliant Energy sold its 50% ownership interest in its Cargill-Alliant electricity-trading joint venture to Cargill. Under the purchase and sale agreement ("Agreement"), Alliant Energy agreed to indemnify Cargill from expenses resulting from the breach of the representations and warranties made by Alliant Energy as of the closing date, and for the breach of its obligations under the Agreement. While the indemnification does not include a maximum limit, Alliant Energy believes the likelihood of having to make any material cash payments under this indemnification is remote. At Dec. 31, 2002, there were no claims related to the indemnification. In November 2002, the FASB issued FIN 45 which requires disclosures by a guarantor about its obligations under certain guarantees that it has issued. FIN 45 also requires recognizing, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The recognition and measurement provisions of FIN 45 are effective on a prospective basis for guarantees issued or modified after Dec. 31, 2002. Alliant Energy does not anticipate FIN 45 will have a material impact on its financial condition or results of operations. (e) Environmental Liabilities - Alliant Energy had recorded the following environmental liabilities, and regulatory assets associated with certain of these liabilities, at Dec. 31 (in millions):
Environmental liabilities 2002 2001 Regulatory assets 2002 2001 ------------------------- ----------- ----------- ----------------- ---------- ----------- MGP sites $49.3 $43.9 MGP sites $54.1 $50.2 NEPA 6.6 8.2 NEPA 7.9 9.7 Other 0.2 0.4 Other 2.9 3.2 ----------- ----------- ----------- ----------- $56.1 $52.5 $64.9 $63.1 =========== =========== =========== ===========
MGP Sites - IP&L and WP&L have current or previous ownership interests in 43 --------- and 14 sites, respectively, previously associated with the production of gas for which they may be liable for investigation, remediation and monitoring costs relating to the sites. IP&L and WP&L have received letters from state environmental agencies requiring no further action at eight and five sites, respectively. IP&L and WP&L are working pursuant to the requirements of various federal and state agencies to investigate, mitigate, prevent and remediate, where necessary, the environmental impacts to property, including natural resources, at and around the sites in order to protect public health and the environment. IP&L and WP&L record environmental liabilities based upon periodic studies, most recently updated in the third quarter of 2002, related to the MGP sites. Such amounts are based on the best current estimate of the remaining amount to be incurred for investigation, remediation and monitoring costs for those sites where the investigation process has been or is substantially completed, and the minimum of the estimated cost range for those sites where the investigation is in its earlier stages. It is possible that future cost estimates will be greater than current estimates as the investigation process proceeds and as additional facts become known. The amounts recognized as liabilities are reduced for expenditures made and are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their fair value. Management currently estimates the range of remaining costs to be incurred for the investigation, remediation and monitoring of all utility subsidiary sites to be approximately $37 million to $64 million. Under the current rate making treatment approved by the PSCW, the MGP expenditures of WP&L, net of any insurance proceeds, are deferred and collected from gas customers over a five-year period after new rates are implemented. The MPUC also allows the deferral of MGP-related costs applicable to the Minnesota sites and IP&L has been successful in obtaining approval to recover such costs in rates in Minnesota. The IUB has permitted utilities to recover prudently incurred costs. Regulatory assets have been recorded by IP&L and WP&L, which reflect the probable future rate recovery, where applicable. Considering the current rate treatment, and assuming no material change therein, IP&L and WP&L believe that the clean-up costs incurred for these MGP sites will not have a material adverse effect on their respective financial conditions or results of operations. Settlement has been reached with all of IP&L's and WP&L's insurance carriers regarding reimbursement for their MGP-related costs. Insurance recoveries available at Dec. 31, 2002 for IP&L and WP&L were $4.5 million and $2.1 million, respectively. Pursuant to their applicable rate making treatment, IP&L has recorded its recoveries in "Other long-term liabilities and deferred credits" and WP&L has recorded its recoveries as an offset against its regulatory assets. In February 2001, the IUB issued an order directing IP&L to refund its insurance recoveries related to former IESU MGP sites. Under 82 the refund plan, IP&L returned 90% of the recoveries to customers of the former IESU in 2001 and retained 10%. NEPA - NEPA requires owners of nuclear power plants to pay a special ---- assessment into a "Uranium Enrichment Decontamination and Decommissioning Fund." The assessment is based upon prior nuclear fuel purchases. IP&L and WP&L recover the costs associated with this assessment through EACs and fuel costs, respectively, over the period the costs are assessed. Alliant Energy continues to pursue relief from this assessment through litigation. (f) Decommissioning of DAEC and Kewaunee - The IUB, in its interim electric rate order effective July 2002, allows IP&L to recover $11 million annually for its share of the cost to decommission DAEC. FERC, in its most recent interim wholesale rate order effective April 2002, allows WP&L to recover $3 million annually for its share of the cost to decommission Kewaunee. Both interim orders are subject to refund, pending determination of final rates. The PSCW, in an order effective Jan. 1, 2002, eliminated WP&L's recovery from retail customers for the cost to decommission Kewaunee, due to the trust fund being adequately funded. Decommissioning expense is included in "Depreciation and amortization" in the Consolidated Statements of Income and the cumulative amount is included in "Accumulated depreciation" on the Consolidated Balance Sheets to the extent recovered through rates. Additional information relating to the decommissioning of DAEC and Kewaunee was as follows (dollars in millions):
DAEC Kewaunee ------------------------- ---------------------- Assumptions relating to current rate recovery amounts: Alliant Energy's share of estimated decommissioning cost $374.3 $263.2 Year dollars in 2002 2002 Method to develop estimate Site-specific study Site-specific study Annual inflation rate 4.20% 6.50% Decommissioning method Prompt dismantling Prompt dismantling and removal and removal Year decommissioning to commence 2014 2013 After-tax return on external investments: Qualified 7.10% 6.12% Non-qualified 4.70% 5.14% External trust fund balance at Dec. 31, 2002 $121.2 $223.7 Internal reserve at Dec. 31, 2002 $21.7 $-- After-tax earnings on external trust funds in 2002 $3.8 $19.7
The interim rate recovery amounts for DAEC only include an inflation estimate through 2005. Both IP&L and WP&L are funding all rate recoveries for decommissioning into external trust funds and funding on a tax-qualified basis to the extent possible. In accordance with their respective regulatory requirements, IP&L and WP&L record the earnings on the external trust funds as interest income with a corresponding entry to interest expense at IP&L and to depreciation expense at WP&L. The earnings accumulate in the external trust fund balances and in accumulated depreciation on utility plant. SFAS 143, which provides accounting and disclosure requirements for retirement obligations associated with long-lived assets, was adopted by Alliant Energy on Jan. 1, 2003. SFAS 143 requires that the present value of retirement costs for which Alliant Energy has a legal obligation be recorded as liabilities with an equivalent amount added to the asset cost. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity settles the obligation for its recorded amount or incurs a gain or loss. The adoption of SFAS 143 will have no impact on IP&L's and WP&L's earnings, as the effects will be offset by the establishment of regulatory assets or liabilities pursuant to SFAS 71. Alliant Energy has completed a detailed assessment of the specific applicability and implications of SFAS 143. The scope of SFAS 143 as it relates to Alliant Energy primarily includes decommissioning costs for DAEC and Kewaunee. It also applies to a smaller extent to several other regulated and non-regulated assets including, but not limited to, active ash landfills, water intake facilities, underground storage tanks, groundwater wells, transmission and distribution equipment, easements, leases and the dismantlement of certain hydro facilities. Other than DAEC and Kewaunee, Alliant Energy's asset retirement obligations as of Jan. 1, 2003 are not significant. 83 Prior to January 2003, IP&L and WP&L recorded nuclear decommissioning charges in accumulated depreciation on their Consolidated Balance Sheets. Upon adoption of SFAS 143, IP&L and WP&L will reverse approximately $125 million and $175 million, respectively, previously recorded in accumulated depreciation and will record liabilities of approximately $250 million and $175 million, respectively. The difference between amounts previously recorded and the net SFAS 143 liability will be deferred as a regulatory asset and is expected to approximate $125 million and $0 for IP&L and WP&L, respectively. IP&L and WP&L have previously recognized removal costs as a component of depreciation expense and accumulated depreciation for other non-nuclear assets in accordance with regulatory rate recovery. As of Dec. 31, 2002, IP&L and WP&L estimate that they have approximately $250 million and $150 million, respectively, of such regulatory liabilities recorded in "Accumulated depreciation" on their Consolidated Balance Sheets. (12) JOINTLY-OWNED ELECTRIC UTILITY PLANT Under joint ownership agreements with other Iowa and Wisconsin utilities, the utility subsidiaries have undivided ownership interests in jointly-owned electric generating stations. IP&L also has joint ownership agreements related to transmission facilities. Each of the respective owners is responsible for the financing of its portion of the construction costs. KWh generation and operating expenses are divided on the same basis as ownership with each owner reflecting its respective costs in its Consolidated Statements of Income. Information relative to the utility subsidiaries' ownership interest in these facilities at Dec. 31, 2002 was as follows (dollars in millions):
Accumulated Construction Fuel Ownership Plant in Provision for Work-In- Type Interest % Service Depreciation Progress ---------- ----------------- --------------- --------------- ---------------- IP&L ---- DAEC Nuclear 70.0 $543.3 $318.5 $25.2 Ottumwa Coal 48.0 190.9 118.2 0.7 Neal Unit 4 Coal 21.5 85.3 59.4 0.2 Neal Unit 3 Coal 28.0 59.9 36.9 1.9 Louisa Unit 1 Coal 4.0 25.0 14.9 0.1 --------------- --------------- ---------------- 904.4 547.9 28.1 --------------- --------------- ---------------- WP&L ---- Edgewater Unit 5 Coal 75.0 234.8 112.9 0.4 Columbia Energy Center Coal 46.2 187.5 110.3 1.6 Kewaunee Nuclear 41.0 172.6 120.9 6.8 Edgewater Unit 4 Coal 68.2 60.0 36.1 1.6 --------------- --------------- ---------------- 654.9 380.2 10.4 --------------- --------------- ---------------- $1,559.3 $928.1 $38.5 =============== =============== ================
(13) SEGMENTS OF BUSINESS Alliant Energy's principal business segments are: o Regulated domestic utilities - consists of IP&L and WP&L, serving customers in Iowa, Wisconsin, Minnesota and Illinois, and includes three segments: a) electric operations; b) gas operations; and c) other, which includes the steam and water businesses and the unallocated portions of the utility business. Various line items in the following tables are not allocated to the electric and gas segments for management reporting purposes and therefore are included in "Total Regulated Domestic Utilities." o Non-regulated businesses - represents the operations of Resources, its subsidiaries and Alliant Energy's investment in Cargill-Alliant (sold in 2002), and is broken down into two segments: a) International (Int'l) and b) other, which includes the operations of the Integrated Services, Investments, Non-regulated Generation, Energy Technologies and Mass Marketing business units described in Note 1(a); the operations of Resources (the non-regulated holding company); and any non-regulated reconciling/eliminating entries. o Other - includes the operations of Alliant Energy (the parent company) and Corporate Services, as well as any Alliant Energy parent company reconciling/eliminating entries. 84 Intersegment revenues were not material to Alliant Energy's operations and there was no single customer whose revenues were 10% or more of Alliant Energy's consolidated revenues. Refer to Note 9 for a breakdown of Alliant Energy's international investments by country. Certain financial information relating to Alliant Energy's significant business segments and products and services was as follows (in millions):
Regulated Domestic Utilities Non-regulated Businesses -------------------------------------- ------------------------------- Alliant Energy Electric Gas Other Total Int'l Other Total Other Consolidated ------------------------------------------------------------------------------------------------------------------------------------ 2002 ---- Operating revenues $1,752.5 $394.0 $37.2 $2,183.7 $103.2 $328.6 $431.8 ($6.7) $2,608.8 Depreciation and amortization 250.6 27.9 3.9 282.4 11.2 17.0 28.2 -- 310.6 Operating income (loss) 299.2 26.2 8.2 333.6 9.7 (21.1) (11.4) (0.5) 321.7 Interest expense, net of AFUDC 100.0 44.9 31.6 76.5 2.3 178.8 Interest income from loans to discontinued operations, net -- (6.0) (10.0) (16.0) -- (16.0) Equity (income) loss from unconsolidated investments (17.6) 17.1 13.3 30.4 -- 12.8 Preferred dividends 6.2 -- -- -- -- 6.2 Impairment of available-for-sale securities of McLeodUSA Inc. -- -- 27.2 27.2 -- 27.2 Miscellaneous, net (27.9) 3.4 25.4 28.8 (0.6) 0.3 Income tax expense (benefit) 107.1 (12.1) (54.6) (66.7) (4.3) 36.1 Income from continuing operations 165.8 (37.6) (54.0) (91.6) 2.1 76.3 Income from discontinued operations, net of tax -- 10.5 20.1 30.6 -- 30.6 Net income (loss) 165.8 (27.1) (33.9) (61.0) 2.1 106.9 Total assets 3,676.5 574.9 474.8 4,726.2 1,009.6 1,250.8 2,260.4 14.8 7,001.4 Investments in equity method subsidiaries 125.1 -- -- 125.1 297.1 29.1 326.2 0.3 451.6 Construction and acquisition expenditures 371.3 28.6 4.8 404.7 65.5 152.8 218.3 33.8 656.8 ------------------------------------------------------------------------------------------------------------------------------------
Regulated Domestic Utilities Non-regulated Businesses --------------------------------------- ------------------------------ Alliant Energy Electric Gas Other Total Int'l Other Total Other Consolidated ----------------------------------------------------------------------------------------------------------------------------------- 2001 ---- Operating revenues $1,756.6 $487.9 $37.1 $2,281.6 $85.4 $263.3 $348.7 ($5.6) $2,624.7 Depreciation and amortization 245.6 28.8 3.2 277.6 8.3 16.7 25.0 -- 302.6 Operating income (loss) 306.1 11.2 7.5 324.8 7.4 (13.3) (5.9) (1.9) 317.0 Interest expense, net of AFUDC 100.5 54.6 9.6 64.2 9.8 174.5 Interest income from loans to discontinued operations, net -- (0.1) (9.8) (9.9) -- (9.9) Equity (income) loss from unconsolidated investments (15.6) 4.1 (7.2) (3.1) (0.1) (18.8) Preferred dividends 6.7 -- -- -- -- 6.7 Miscellaneous, net (25.9) (2.8) 20.7 17.9 (4.6) (12.6) Income tax expense (benefit) 94.2 (22.7) (12.3) (35.0) (8.4) 50.8 Income from continuing operations 164.9 (25.7) (14.3) (40.0) 1.4 126.3 Income from discontinued operations, net of tax -- 11.3 47.7 59.0 -- 59.0 Cumulative effect of a change in accounting principle, net of tax -- (12.9) -- (12.9) -- (12.9) Net income (loss) 164.9 (27.3) 33.4 6.1 1.4 172.4 Total assets 3,336.6 506.4 465.0 4,308.0 858.6 995.9 1,854.5 75.4 6,237.9 Investments in equity method subsidiaries 119.2 -- -- 119.2 448.3 32.6 480.9 -- 600.1 Construction and acquisition expenditures 298.7 36.9 5.2 340.8 173.0 159.3 332.3 40.0 713.1 -----------------------------------------------------------------------------------------------------------------------------------
85
Regulated Domestic Utilities Non-regulated Businesses ---------------------------------------- ------------------------------- Alliant Energy Electric Gas Other Total Int'l Other Total Other Consolidated ------------------------------------------------------------------------------------------------------------------------------------ 2000 ---- Operating revenues $1,648.0 $415.0 $33.4 $2,096.4 $ -- $186.0 $186.0 ($2.7) $2,279.7 Depreciation and amortization 252.6 27.7 3.1 283.4 3.7 9.6 13.3 -- 296.7 Operating income (loss) 330.6 26.6 4.5 361.7 (7.8) (18.1) (25.9) 0.2 336.0 Interest expense, net of AFUDC 103.1 38.8 9.0 47.8 8.5 159.4 Interest income from loans to discontinued operations, net -- -- (7.2) (7.2) -- (7.2) Equity income from unconsolidated investments (0.5) (5.8) (13.2) (19.0) -- (19.5) Preferred dividends 6.7 -- -- -- -- 6.7 Gain on reclassification of investments -- -- (321.3) (321.3) -- (321.3) Miscellaneous, net (23.3) (8.9) (4.3) (13.2) (2.7) (39.2) Income tax expense 107.9 (14.2) 132.2 118.0 0.3 226.2 Income from continuing operations 167.8 (17.7) 186.7 169.0 (5.9) 330.9 Income from discontinued operations, net of tax -- (0.5) 51.6 51.1 -- 51.1 Cumulative effect of a change in accounting principle, net of tax -- -- 16.7 16.7 -- 16.7 Net income (loss) 167.8 (18.2) 255.0 236.8 (5.9) 398.7 Total assets 3,402.2 554.4 427.2 4,383.8 631.0 1,702.3 2,333.3 16.7 6,733.8 Investments in equity method subsidiaries 6.5 -- -- 6.5 389.0 29.5 418.5 -- 425.0 Construction and acquisition expenditures 265.9 35.8 3.0 304.7 395.6 134.1 529.7 11.1 845.5 ------------------------------------------------------------------------------------------------------------------------------------
Products and Services --------------------- Non-regulated and Other Revenues ----------------------------------------------------------------------------------------------------------- Integrated Year Services International Mass Marketing Investments Other Total ----------------------------------------------------------------------------------------------------------- (in millions) 2002 $258.8 $103.2 $46.9 $26.1 $27.3 $462.3 2001 241.9 85.4 6.8 26.6 19.5 380.2 2000 172.3 -- 0.7 28.5 15.2 216.7
(14) GOODWILL AND OTHER INTANGIBLE ASSETS Alliant Energy adopted SFAS 142 on Jan. 1, 2002, which resulted in goodwill no longer being subject to amortization. Had SFAS 142 been adopted Jan. 1, 2000, net income for 2001 and 2000 would have increased $4 million and $1 million, respectively, and basic and diluted EPS would have increased $0.05 and $0.02 per share, respectively. Certain information regarding net goodwill and other intangible assets included on Alliant Energy's Consolidated Balance Sheets at Dec. 31 was as follows (in millions):
2002 2001 ----------- ----------- Net goodwill Deferred charges and other (consolidated investments) $66 $66 Investments in unconsolidated foreign entities (equity method investments) 9 7 Net other intangible assets Deferred charges and other (consolidated investments) 19 20 Investments in unconsolidated foreign entities (equity method investments) 22 35 Investment in ATC and other (equity method investments) 25 --
In January 2003, Alliant Energy committed to a plan to sell its interest in SmartEnergy by year-end. In the fourth quarter of 2002, Alliant Energy recorded a SFAS 142 after-tax non-cash goodwill impairment charge related to SmartEnergy of $4.5 million primarily due to less favorable market conditions. The fair value of SmartEnergy's goodwill was estimated using a combination of the expected discounted future cash flows and market value 86 indicators. The impairment charge was recorded in continuing operations, "Miscellaneous, net," in Alliant Energy's Consolidated Statement of Income for 2002. (15) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) All "per share" references refer to earnings per diluted share. Summation of the individual quarters may not equal annual totals due to rounding.
2002 2001 ---------------------------------------- --------------------------------------- March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 ---------- --------- --------- --------- ---------- --------- -------- -------- (in millions, except per share data) Operating revenues $608.6 $570.9 $709.4 $719.9 $805.6 $571.0 $631.1 $617.0 Operating income 63.1 58.7 128.3 71.6 69.4 54.3 125.2 68.1 Income (loss) from continuing operations (8.4) (6.7) 43.9 47.5 18.6 8.6 53.2 45.8 Income (loss) from discontinued operations, net of tax 18.1 13.1 0.8 (1.4) 3.5 29.1 16.1 10.3 Cumulative effect of a change in accounting principle, net of tax -- -- -- -- (12.9) -- -- -- Net income 9.7 6.3 44.7 46.1 9.2 37.7 69.3 56.1 EPS: Income (loss) from continuing operations (0.09) (0.07) 0.48 0.52 0.23 0.11 0.67 0.54 Income (loss) from discontinued operations 0.20 0.14 0.01 (0.01) 0.05 0.37 0.20 0.12 Cumulative effect of a change in accounting principle -- -- -- -- (0.16) -- -- -- Net income 0.11 0.07 0.49 0.51 0.12 0.48 0.87 0.66
(16) DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE Alliant Energy announced in November 2002 its commitment to pursue the sale of, or other exit strategies for, certain non-regulated businesses in 2003. In the fourth quarter of 2002, Alliant Energy applied the provisions of SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," to certain of its assets which were held for sale. SFAS 144 requires that a long-lived asset classified as held for sale be measured at the lower of its carrying amount or fair value, less costs to sell, and to cease depreciation, depletion and amortization. At Dec. 31, 2002, Alliant Energy's oil and gas (Whiting), Australian (including Southern Hydro) and affordable housing businesses have been classified as held for sale. Alliant Energy currently plans to complete the sales by year-end. The operating results for these businesses have been separately classified and reported as discontinued operations in Alliant Energy's Consolidated Financial Statements. A summary of the components of discontinued operations in Alliant Energy's Consolidated Statements of Income was as follows (in thousands):
2002 2001 2000 -------------- ------------ ------------- Operating revenues $185,576 $152,664 $125,310 Operating expenses 140,037 99,598 80,224 Interest expense and other 15,466 (14,992) (18,589) -------------- ------------ ------------- Income before income taxes 30,073 68,058 63,675 Income tax expense (benefit) (539) 9,073 12,636 -------------- ------------ ------------- Income from discontinued operations, net of tax $30,612 $58,985 $51,039 ============== ============ =============
Alliant Energy's Australian business enters into electricity derivative contracts that have not been designated as hedges (as defined by SFAS 133) to manage the electricity commodity price risk associated with anticipated sales into the spot market. Approximately $16 million of income is included in "Interest expense and other" for both 2002 and 2001 in the previous table related to the change in the fair value of these electricity derivative contracts during these respective periods. In 2000, Alliant Energy's affordable housing business sold a portion of its investment in McLeod, resulting in a pre-tax gain of approximately $24 million included in "Interest expense and other" in the previous table. At Dec. 31, 2002, Alliant Energy's affordable housing business owned approximately 0.1 million shares of McLeod. "Income tax expense (benefit)" in the previous table includes approximately $10 million, $10 million and $7 million of affordable housing 87 tax credits earned by Alliant Energy's affordable housing business during 2002, 2001 and 2000, respectively. These tax credits had a significant impact on the effective tax rate of Alliant Energy's discontinued operations. A summary of the components of assets and liabilities of discontinued operations on Alliant Energy's Consolidated Balance Sheets at Dec. 31 was as follows (in thousands):
2002 2001 ------------- ------------ Assets of discontinued operations: Property, plant and equipment, net $644,137 $420,619 Current assets 99,044 45,217 Investments 6,824 60,442 Deferred charges and other 194,323 13,909 ------------- ------------ Total assets of discontinued operations $944,328 $540,187 ============= ============ Liabilities of discontinued operations: Current liabilities 65,885 28,521 Other long-term liabilities and deferred credits 68,990 32,125 Minority interest 124 267 ------------- ------------ Total liabilities of discontinued operations 134,999 60,913 ------------- ------------ Net assets of discontinued operations $809,329 $479,274 ============= ============
In March 2002, Alliant Energy acquired a controlling interest in Southern Hydro and therefore changed from the equity method of accounting to the consolidation method at such time. A summary of the components of cash flows for discontinued operations for the years ended Dec. 31 was as follows (in thousands):
2002 2001 2000 ------------- ------------ ------------ Net cash flows from operating activities $84,118 $51,562 $44,844 Net cash flows from financing activities 141,234 32,079 99,338 Net cash flows used for investing activities (215,583) (87,051) (145,573) ------------- ------------ ------------ Net increase (decrease) in cash and temporary cash investments 9,769 (3,410) (1,391) Cash and temporary cash investments at beginning of period 5,261 8,671 10,062 ------------- ------------ ------------ Cash and temporary cash investments at end of period $15,030 $5,261 $8,671 ============= ============ ============ Supplemental cash flows information: Cash paid during the period for: Interest $14,693 $6,350 $4,878 ============= ============ ============ Income taxes, net of refunds ($7,712) ($3,331) ($331) ============= ============ ============
(17) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS Alliant Energy has fully and unconditionally guaranteed the payment of principal and interest on various debt securities issued by Resources and, as a result, is required to present condensed consolidating financial statements. No other Alliant Energy subsidiaries are guarantors of Resources' debt securities. Alliant Energy's condensed consolidating financial statements are as follows: 88
Alliant Energy Corporation Condensed Consolidating Statements of Income for the Years Ended December 31, 2002 and 2001 Alliant Energy Other Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy -------------------------------------------------------------------- Year Ended December 31, 2002 (in thousands) ---------------------------- Operating revenues: Electric utility $- $- $1,752,534 $- $1,752,534 Gas utility - - 393,986 - 393,986 Non-regulated and other - 431,819 356,286 (325,813) 462,292 -------------------------------------------------------------------- - 431,819 2,502,806 (325,813) 2,608,812 -------------------------------------------------------------------- Operating expenses: Electric and steam production fuels - - 303,570 55 303,625 Purchased power - - 362,501 - 362,501 Cost of utility gas sold - - 248,994 - 248,994 Other operation and maintenance 2,116 408,419 846,988 (300,379) 957,144 Depreciation and amortization 7 28,242 288,577 (6,209) 310,617 Taxes other than income taxes - 6,517 99,031 (1,312) 104,236 -------------------------------------------------------------------- 2,123 443,178 2,149,661 (307,845) 2,287,117 -------------------------------------------------------------------- Operating income (loss) (2,123) (11,359) 353,145 (17,968) 321,695 -------------------------------------------------------------------- Interest expense and other: Interest expense 5,640 76,486 116,344 (11,932) 186,538 Interest income from loans to discontinued operations, net - (15,959) - - (15,959) Equity (income) loss from unconsolidated investments (941) 31,337 (17,571) - 12,825 Allowance for funds used during construction - - (8,480) 784 (7,696) Preferred dividend requirements of subsidiaries - - 6,172 - 6,172 Impairment of available-for-sale securities of McLeodUSA Inc. - 27,218 - - 27,218 Miscellaneous, net (109,236) 27,218 (17,167) 99,405 220 -------------------------------------------------------------------- (104,537) 146,300 79,298 88,257 209,318 -------------------------------------------------------------------- Income (loss) from continuing operations before income taxes 102,414 (157,659) 273,847 (106,225) 112,377 -------------------------------------------------------------------- Income tax expense (benefit) (4,467) (66,442) 107,959 (942) 36,108 -------------------------------------------------------------------- Income (loss) from continuing operations 106,881 (91,217) 165,888 (105,283) 76,269 -------------------------------------------------------------------- Income from discontinued operations, net of tax - 30,612 - - 30,612 -------------------------------------------------------------------- Net income (loss) $106,881 ($60,605) $165,888 ($105,283) $106,881 ==================================================================== Year Ended December 31, 2001 ---------------------------- Operating revenues: Electric utility $- $- $1,756,556 $- $1,756,556 Gas utility - - 487,877 - 487,877 Non-regulated and other - 348,611 310,520 (278,888) 380,243 -------------------------------------------------------------------- - 348,611 2,554,953 (278,888) 2,624,676 -------------------------------------------------------------------- Operating expenses: Electric and steam production fuels - - 310,689 - 310,689 Purchased power - - 403,166 - 403,166 Cost of utility gas sold - - 360,911 - 360,911 Other operation and maintenance 3,609 322,599 772,246 (270,329) 828,125 Depreciation and amortization - 25,052 277,591 - 302,643 Taxes other than income taxes - 6,897 103,408 (8,121) 102,184 -------------------------------------------------------------------- 3,609 354,548 2,228,011 (278,450) 2,307,718 -------------------------------------------------------------------- Operating income (loss) (3,609) (5,937) 326,942 (438) 316,958 -------------------------------------------------------------------- Interest expense and other: Interest expense 14,281 64,096 117,707 (10,480) 185,604 Interest income from loans to discontinued operations, net - (9,938) - - (9,938) Equity (income) loss from unconsolidated investments (7,237) 4,138 (15,700) - (18,799) Allowance for funds used during construction - - (11,144) - (11,144) Preferred dividend requirements of subsidiaries - - 6,720 - 6,720 Miscellaneous, net (177,151) 18,026 (30,285) 176,913 (12,497) -------------------------------------------------------------------- (170,107) 76,322 67,298 166,433 139,946 -------------------------------------------------------------------- Income (loss) from continuing operations before income taxes 166,498 (82,259) 259,644 (166,871) 177,012 -------------------------------------------------------------------- Income tax expense (benefit) (5,864) (37,573) 94,642 (438) 50,767 -------------------------------------------------------------------- Income (loss) from continuing operations 172,362 (44,686) 165,002 (166,433) 126,245 -------------------------------------------------------------------- Income from discontinued operations, net of tax - 58,985 - - 58,985 -------------------------------------------------------------------- Income before cumulative effect of a change in accounting principle, net of tax 172,362 14,299 165,002 (166,433) 185,230 -------------------------------------------------------------------- Cumulative effect of a change in accounting principle, net of tax - (12,868) - - (12,868) -------------------------------------------------------------------- Net income $172,362 $1,431 $165,002 ($166,433) $172,362 ====================================================================
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Alliant Energy Corporation Condensed Consolidating Statement of Income for the Year Ended December 31, 2000 Alliant Energy Other Consolidated Parent Alliant Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ---------------------------------------------------------------------- Operating revenues: (in thousands) Electric utility $- $- $1,648,036 $- $1,648,036 Gas utility - - 414,948 - 414,948 Non-regulated and other - 185,952 294,507 (263,769) 216,690 ---------------------------------------------------------------------- - 185,952 2,357,491 (263,769) 2,279,674 ---------------------------------------------------------------------- Operating expenses: Electric and steam production fuels - - 288,621 - 288,621 Purchased power - - 294,818 - 294,818 Cost of utility gas sold - - 278,734 - 278,734 Other operation and maintenance 703 192,472 751,888 (258,087) 686,976 Depreciation and amortization - 13,350 283,382 - 296,732 Taxes other than income taxes - 6,069 98,379 (6,625) 97,823 ---------------------------------------------------------------------- 703 211,891 1,995,822 (264,712) 1,943,704 ---------------------------------------------------------------------- Operating income (loss) (703) (25,939) 361,669 943 335,970 ---------------------------------------------------------------------- Interest expense and other: Interest expense 17,350 47,832 121,250 (18,283) 168,149 Interest income from loans to discontinued operations, net - (7,195) - - (7,195) Equity income from unconsolidated investments (14,653) (4,311) (504) - (19,468) Allowance for funds used during construction - - (8,761) - (8,761) Preferred dividend requirements of subsidiaries - - 6,713 - 6,713 Gain on reclassification of investment - (321,349) - - (321,349) Miscellaneous, net (407,484) (13,234) (31,790) 413,294 (39,214) ---------------------------------------------------------------------- (404,787) (298,257) 86,908 395,011 (221,125) ---------------------------------------------------------------------- Income from continuing operations before income taxes 404,084 272,318 274,761 (394,068) 557,095 ---------------------------------------------------------------------- Income taxes 5,422 112,820 106,996 942 226,180 ---------------------------------------------------------------------- Income from continuing operations 398,662 159,498 167,765 (395,010) 330,915 ---------------------------------------------------------------------- Income from discontinued operations, net of tax - 51,039 - - 51,039 ---------------------------------------------------------------------- Income before cumulative effect of a change in accounting principle, net of tax 398,662 210,537 167,765 (395,010) 381,954 ---------------------------------------------------------------------- Cumulative effect of a change in accounting principle, net of tax - 16,673 35 - 16,708 ---------------------------------------------------------------------- Net income $398,662 $227,210 $167,800 ($395,010) $398,662 ====================================================================== Alliant Energy Corporation Condensed Consolidating Balance Sheet as of December 31, 2002 Alliant Energy Other Consolidated Parent Alliant Energy Consolidating Alliant ASSETS Company Resources Subsidiaries Adjustments Energy Property, plant and equipment: ---------------------------------------------------------------------- Utility: (in thousands) Electric plant in service $- $- $5,295,381 $- $5,295,381 Gas plant in service - - 613,122 - 613,122 Other plant in service - - 530,456 - 530,456 Accumulated depreciation - - (3,573,407) - (3,573,407) Construction work in progress - - 263,096 - 263,096 Other, net - - 68,340 - 68,340 ---------------------------------------------------------------------- Total utility - - 3,196,988 - 3,196,988 ---------------------------------------------------------------------- Non-regulated and other, net: Non-regulated generation - 156,699 - - 156,699 Other - 300,128 75,503 (111) 375,520 ---------------------------------------------------------------------- Total non-regulated and other - 456,827 75,503 (111) 532,219 ---------------------------------------------------------------------- - 456,827 3,272,491 (111) 3,729,207 ---------------------------------------------------------------------- Current assets: Income tax refunds receivable 18,175 72,882 6,412 - 97,469 Regulatory assets - - 46,076 - 46,076 Assets of discontinued operations - 944,328 - - 944,328 Other 254,461 219,028 489,181 (436,395) 526,275 ---------------------------------------------------------------------- 272,636 1,236,238 541,669 (436,395) 1,614,148 ---------------------------------------------------------------------- Investments: Consolidated subsidiaries 1,817,341 - 10 (1,817,351) - Investments in unconsolidated foreign entities - 373,816 - - 373,816 Other 11,660 56,357 494,867 - 562,884 ---------------------------------------------------------------------- 1,829,001 430,173 494,877 (1,817,351) 936,700 ---------------------------------------------------------------------- Deferred charges and other - 137,202 611,721 (27,583) 721,340 ---------------------------------------------------------------------- Total assets $2,101,637 $2,260,440 $4,920,758 ($2,281,440) $7,001,395 ======================================================================
90
Alliant Energy Corporation Condensed Consolidating Balance Sheet (Continued) as of December 31, 2002 Alliant Energy Other Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------------------ CAPITALIZATION AND LIABILITIES (in thousands) Capitalization: Common stock and additional paid-in capital $1,294,842 $232,743 $906,261 ($1,139,004) $1,294,842 Retained earnings 758,187 114,838 773,556 (888,394) 758,187 Accumulated other comprehensive loss (209,943) (166,947) (42,996) 209,943 (209,943) Shares in deferred compensation trust (6,896) - - - (6,896) ------------------------------------------------------------------------------ Total common equity 1,836,190 180,634 1,636,821 (1,817,455) 1,836,190 ------------------------------------------------------------------------------ Cumulative preferred stock of subsidiaries, net - - 205,063 - 205,063 Long-term debt (excluding current portion) 24,000 1,290,205 1,323,598 - 2,637,803 ------------------------------------------------------------------------------ 1,860,190 1,470,839 3,165,482 (1,817,455) 4,679,056 ------------------------------------------------------------------------------ Current liabilities: Current maturities and sinking funds - 41,511 5,080 - 46,591 Commercial paper 135,500 - 60,000 - 195,500 Other short-term borrowings 85,000 194,482 79,003 (244,764) 113,721 Accounts payable 1,534 61,503 223,653 - 286,690 Accrued taxes 9,743 14,149 82,123 - 106,015 Liabilities of discontinued operations - 134,999 - - 134,999 Other 6,419 122,395 305,819 (191,631) 243,002 ------------------------------------------------------------------------------ 238,196 569,039 755,678 (436,395) 1,126,518 ------------------------------------------------------------------------------ Other long-term liabilities and deferred credits: Accumulated deferred income tax expense (benefit) (3,198) 137,263 492,352 - 626,417 Pension and other benefit obligations 6,328 4,348 170,334 - 181,010 Other 121 35,526 336,912 (27,590) 344,969 ------------------------------------------------------------------------------ 3,251 177,137 999,598 (27,590) 1,152,396 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ Minority interest - 43,425 - - 43,425 ------------------------------------------------------------------------------ Total capitalization and liabilities $2,101,637 $2,260,440 $4,920,758 ($2,281,440) $7,001,395 ============================================================================== Alliant Energy Corporation Condensed Consolidating Balance Sheet as of December 31, 2001 ASSETS Property, plant and equipment: Utility: Electric plant in service $- $- $5,123,781 $- $5,123,781 Gas plant in service - - 597,494 - 597,494 Other plant in service - - 517,938 - 517,938 Accumulated depreciation - - (3,374,867) - (3,374,867) Construction work in progress - - 111,069 - 111,069 Other, net - - 62,194 - 62,194 ------------------------------------------------------------------------------ Total utility - - 3,037,609 - 3,037,609 ------------------------------------------------------------------------------ Non-regulated and other, net: Non-regulated generation - 60,411 - - 60,411 Other - 295,255 49,014 (111) 344,158 ------------------------------------------------------------------------------ Total non-regulated and other - 355,666 49,014 (111) 404,569 ------------------------------------------------------------------------------ - 355,666 3,086,623 (111) 3,442,178 ------------------------------------------------------------------------------ Current assets: Income tax refunds receivable 7,552 11,438 6,411 - 25,401 Regulatory assets - - 19,632 - 19,632 Assets of discontinued operations - 540,187 - - 540,187 Other 180,962 231,008 337,582 (225,916) 523,636 ------------------------------------------------------------------------------ 188,514 782,633 363,625 (225,916) 1,108,856 ------------------------------------------------------------------------------ Investments: Consolidated subsidiaries 1,793,737 - - (1,793,737) - Investments in unconsolidated foreign entities - 508,145 - - 508,145 Other 32,814 66,028 477,929 (14) 576,757 ------------------------------------------------------------------------------ 1,826,551 574,173 477,929 (1,793,751) 1,084,902 ------------------------------------------------------------------------------ Deferred charges and other 3,661 120,005 511,537 (33,214) 601,989 ------------------------------------------------------------------------------ Total assets $2,018,726 $1,832,477 $4,439,714 ($2,052,992) $6,237,925 ==============================================================================
91
Alliant Energy Corporation Condensed Consolidating Balance Sheet (Continued) as of December 31, 2001 Alliant Energy Other Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------ CAPITALIZATION AND LIABILITIES (in thousands) Capitalization: Common stock and additional paid-in capital $1,240,690 $232,743 $789,002 ($1,021,745) $1,240,690 Retained earnings 832,293 175,443 749,102 (924,545) 832,293 Accumulated other comprehensive loss (152,434) (140,137) (12,297) 152,434 (152,434) Shares in deferred compensation trust (2,208) - - - (2,208) ------------------------------------------------------------------ Total common equity 1,918,341 268,049 1,525,807 (1,793,856) 1,918,341 ------------------------------------------------------------------ Cumulative preferred stock of subsidiaries, net - - 113,953 - 113,953 Long-term debt (excluding current portion) 24,000 1,105,792 1,328,149 - 2,457,941 ------------------------------------------------------------------ 1,942,341 1,373,841 2,967,909 (1,793,856) 4,490,235 ------------------------------------------------------------------ Current liabilities: Current maturities and sinking funds - 9,946 560 - 10,506 Commercial paper 68,389 - - - 68,389 Other short-term borrowings - 84,318 - - 84,318 Accounts payable - 35,969 185,949 (95) 221,823 Accrued taxes - 9,712 77,387 - 87,099 Liabilities of discontinued operations - 60,913 - - 60,913 Other 4,341 46,670 404,134 (225,821) 229,324 ------------------------------------------------------------------ 72,730 247,528 668,030 (225,916) 762,372 ------------------------------------------------------------------ Other long-term liabilities and deferred credits: Accumulated deferred income tax expense (benefit) (4,033) 152,196 459,389 - 607,552 Pension and other benefit obligations 7,555 3,539 85,402 - 96,496 Other 133 12,262 258,984 (33,220) 238,159 ------------------------------------------------------------------ 3,655 167,997 803,775 (33,220) 942,207 ------------------------------------------------------------------ ------------------------------------------------------------------ Minority interest - 43,111 - - 43,111 ------------------------------------------------------------------ Total capitalization and liabilities $2,018,726 $1,832,477 $4,439,714 ($2,052,992) $6,237,925 ================================================================== Alliant Energy Corporation Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2002 Alliant Energy Other Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------ (in thousands) Net cash flows from operating activities $107,594 $89,116 $458,785 ($111,455) $544,040 ------------------------------------------------------------------ Cash flows from (used for) financing activities: Common stock dividends (180,987) - (141,435) 141,435 (180,987) Proceeds from issuance of common stock 56,066 - - - 56,066 Proceeds from issuance of preferred stock of subsidiary - - 144,602 - 144,602 Redemption of preferred stock of subsidiary - - (56,389) - (56,389) Net change in Resources' credit facility - (383,610) - - (383,610) Proceeds from issuance of other long-term debt - 300,023 - - 300,023 Reductions in other long-term debt - (20,258) (560) - (20,818) Net change in commercial paper and other short-term borrowings 76,106 153,795 (31,695) 1,939 200,145 Net change in loans to discontinued operations - 49,320 - - 49,320 Other 1,417 (15,760) 105,431 (115,350) (24,262) ------------------------------------------------------------------ Net cash flows from (used for) financing activities (47,398) 83,510 19,954 28,024 84,090 ------------------------------------------------------------------ Cash flows used for investing activities: Construction and acquisition expenditures: Regulated domestic utilities - - (404,736) - (404,736) Non-regulated businesses - (218,282) - - (218,282) Corporate Services and other (50) - (33,724) - (33,774) Proceeds from dispositions of assets 19,349 8,295 - - 27,644 Other (85,872) 24,859 (27,867) 85,370 (3,510) ------------------------------------------------------------------ Net cash flows used for investing activities (66,573) (185,128) (466,327) 85,370 (632,658) ------------------------------------------------------------------ Net increase (decrease) in cash and temporary cash investments (6,377) (12,502) 12,412 1,939 (4,528) ------------------------------------------------------------------ Cash and temporary cash investments at beginning of period 6,381 60,751 3,207 (1,939) 68,400 ------------------------------------------------------------------ Cash and temporary cash investments at end of period $4 $48,249 $15,619 $- $63,872 ================================================================== Supplemental cash flows information: Cash paid (refunded) during the period for: Interest $5,244 $74,933 $103,969 $- $184,146 ================================================================== Income taxes, net of refunds ($2,183) ($46,033) $77,575 $- $29,359 ================================================================== Noncash investing and financing activities: Capital lease obligations incurred $- $- $19,101 $- $19,101 ==================================================================
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Alliant Energy Corporation Condensed Consolidating Statements of Cash Flows for the Years Ended December 31, 2001 and 2000 Alliant Energy Other Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ----------------------------------------------------------------- Year Ended December 31, 2001 (in thousands) ---------------------------- Net cash flows from (used for) operating activities $155,559 ($10,090) $453,795 ($173,153) $426,111 ----------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends (158,231) - (140,789) 140,789 (158,231) Proceeds from issuance of common stock 288,553 - - - 288,553 Net change in Resources' credit facility - 63,110 - - 63,110 Proceeds from issuance of other long-term debt - 313,530 200,000 - 513,530 Reductions in other long-term debt - (9,249) (136,110) - (145,359) Net change in commercial paper and other short-term borrowings (265,496) (54,953) - - (320,449) Net change in loans to discontinued operations - (39,556) - - (39,556) Other 46,777 (30,112) (16,850) (30,888) (31,073) ----------------------------------------------------------------- Net cash flows from (used for) financing activities (88,397) 242,770 (93,749) 109,901 170,525 ----------------------------------------------------------------- Cash flows used for investing activities: Construction and acquisition expenditures: Regulated domestic utilities - - (340,789) - (340,789) Non-regulated businesses - (332,253) - - (332,253) Corporate Services - - (40,019) - (40,019) Proceeds from formation of ATC and other asset dispositions - 32,117 75,817 - 107,934 Other (61,355) 2,922 (54,015) 61,313 (51,135) ----------------------------------------------------------------- Net cash flows used for investing activities (61,355) (297,214) (359,006) 61,313 (656,262) ----------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments 5,807 (64,534) 1,040 (1,939) (59,626) ----------------------------------------------------------------- Cash and temporary cash investments at beginning of period 574 125,285 2,167 - 128,026 ----------------------------------------------------------------- Cash and temporary cash investments at end of period $6,381 $60,751 $3,207 ($1,939) $68,400 ================================================================= Supplemental cash flows information: Cash paid (refunded) during the period for: Interest $12,461 $60,772 $107,123 $- $180,356 ================================================================= Income taxes, net of refunds ($10,258) ($32,015) $113,168 $- $70,895 ================================================================= Noncash investing and financing activities: Capital lease obligations incurred and other $- $- $19,967 $- $19,967 ================================================================= Year Ended December 31, 2000 ---------------------------- Net cash flows from (used for) operating activities $391,284 ($23,712) $427,241 ($401,723) $393,090 ----------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends (157,964) - (80,340) 80,340 (157,964) Proceeds from issuance of common stock 1,069 - - - 1,069 Net change in Resources' credit facility - 181,652 - - 181,652 Proceeds from issuance of exchangeable senior notes - 402,500 - - 402,500 Proceeds from issuance of other long-term debt - 7,747 100,000 - 107,747 Reductions in other long-term debt - (501) (53,071) - (53,572) Net change in commercial paper and other short-term borrowings 48,060 99,217 - - 147,277 Net change in loans to discontinued operations - (87,112) - - (87,112) Other 3,385 (13,962) (23,212) 5,255 (28,534) ----------------------------------------------------------------- Net cash flows from (used for) financing activities (105,450) 589,541 (56,623) 85,595 513,063 ----------------------------------------------------------------- Cash flows used for investing activities: Construction and acquisition expenditures: Regulated domestic utilities - - (304,656) - (304,656) Non-regulated businesses - (529,675) - - (529,675) Corporate Services and other - - (11,123) - (11,123) Proceeds from dispositions of assets 2,281 25,273 3,336 - 30,890 Other (316,188) 8,834 (63,463) 316,128 (54,689) ----------------------------------------------------------------- Net cash flows used for investing activities (313,907) (495,568) (375,906) 316,128 (869,253) ----------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments (28,073) 70,261 (5,288) - 36,900 ----------------------------------------------------------------- Cash and temporary cash investments at beginning of period 28,647 55,024 7,455 - 91,126 ----------------------------------------------------------------- Cash and temporary cash investments at end of period $574 $125,285 $2,167 $- $128,026 ================================================================= Supplemental cash flows information: Cash paid (refunded) during the period for: Interest $17,220 $44,135 $97,495 $- $158,850 ================================================================= Income taxes, net of refunds ($2,350) ($20,560) $140,136 $- $117,226 ================================================================= Noncash investing and financing activities: Capital lease obligations incurred and other $- $- $20,419 $- $20,419 =================================================================
93 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareowners of Interstate Power and Light Company: We have audited the accompanying consolidated balance sheets and statements of capitalization of Interstate Power and Light Company and subsidiaries (the "Company") as of December 31, 2002 and 2001, and related consolidated statements of income, cash flows and changes in common equity for each of the three years in the period ended December 31, 2002. Our audit also included the supplemental schedule listed in Item 15(a)(2). These financial statements and the supplemental schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the supplemental schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such supplemental schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ DELOITTE & TOUCHE LLP ------------------------- Milwaukee, Wisconsin March 18, 2003 94
INTERSTATE POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2002 2001 2000 ----------------------------------------------------------------------------------------------------------------- (in thousands) Operating revenues: Electric utility $964,854 $1,003,106 $955,845 Gas utility 214,895 281,014 249,796 Steam 31,859 32,130 28,366 ----------------- ----------------- ----------------- 1,211,608 1,316,250 1,234,007 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 171,133 189,967 175,413 Purchased power 145,292 185,860 147,879 Cost of gas sold 138,875 207,088 171,603 Other operation and maintenance 339,214 322,644 308,434 Depreciation and amortization 146,137 148,494 143,471 Taxes other than income taxes 64,846 62,783 62,592 ----------------- ----------------- ----------------- 1,005,497 1,116,836 1,009,392 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Operating income 206,111 199,414 224,615 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 67,458 68,149 67,234 Allowance for funds used during construction (5,057) (6,391) (3,396) Miscellaneous, net (9,461) (13,377) (7,370) ----------------- ----------------- ----------------- 52,940 48,381 56,468 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Income before income taxes 153,171 151,033 168,147 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Income taxes 62,294 52,967 65,020 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Net income 90,877 98,066 103,127 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Preferred dividend requirements 2,862 3,410 3,403 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Earnings available for common stock $88,015 $94,656 $99,724 ================= ================= ================= ----------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
95
INTERSTATE POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS December 31, ASSETS 2002 2001 ---------------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Electric plant in service $3,451,547 $3,344,188 Gas plant in service 326,470 316,613 Steam plant in service 59,737 59,452 Other plant in service 195,328 182,868 Accumulated depreciation (2,163,371) (2,046,756) ----------------- ----------------- Net plant 1,869,711 1,856,365 Construction work in progress 166,350 73,241 Other, net 50,529 44,110 ----------------- ----------------- 2,086,590 1,973,716 ----------------- ----------------- ---------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 6,076 87 Accounts receivable: Customer, less allowance for doubtful accounts of $894 and $1,564 42,647 19,950 Associated companies 79,105 4,718 Other, less allowance for doubtful accounts of $388 and $319 27,898 25,497 Production fuel, at average cost 36,852 32,083 Materials and supplies, at average cost 28,821 29,121 Gas stored underground, at average cost 19,450 18,447 Regulatory assets 18,077 14,469 Prepayments and other 13,941 9,498 ----------------- ----------------- 272,867 153,870 ----------------- ----------------- ---------------------------------------------------------------------------------------------------------------- Investments: Nuclear decommissioning trust funds 121,158 117,159 Other 13,492 15,157 ----------------- ----------------- 134,650 132,316 ----------------- ----------------- ---------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 199,691 132,109 Deferred charges and other 44,608 34,303 ----------------- ----------------- 244,299 166,412 ----------------- ----------------- ---------------------------------------------------------------------------------------------------------------- Total assets $2,738,406 $2,426,314 ================= ================= ---------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
96
INTERSTATE POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS (Continued) December 31, CAPITALIZATION AND LIABILITIES 2002 2001 -------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock - $2.50 par value - authorized 24,000,000 shares; 13,370,788 shares outstanding $33,427 $33,427 Additional paid-in capital 477,701 422,461 Retained earnings 374,428 368,203 Accumulated other comprehensive loss (18,887) (2,131) ------------------ ----------------- Total common equity 866,669 821,960 ------------------ ----------------- Cumulative preferred stock, not mandatorily redeemable 145,100 29,139 Cumulative preferred stock, mandatorily redeemable - 24,850 Long-term debt (excluding current portion) 855,389 860,068 ------------------ ----------------- 1,867,158 1,736,017 ------------------ ----------------- -------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds 5,080 560 Notes payable to associated companies - 38,047 Accounts payable 83,126 49,574 Accounts payable to associated companies 41,537 21,194 Accrued interest 14,628 14,715 Accrued taxes 62,135 70,747 Accumulated refueling outage provision 13,845 5,614 Other 40,946 46,102 ------------------ ----------------- 261,297 246,553 ------------------ ----------------- -------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 313,308 268,010 Accumulated deferred investment tax credits 31,135 34,491 Pension and other benefit obligations 88,449 40,573 Regulatory liabilities 78,995 8,520 Environmental liabilities 39,849 38,206 Other 58,215 53,944 ------------------ ----------------- 609,951 443,744 ------------------ ----------------- -------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 11) -------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $2,738,406 $2,426,314 ================== ================= -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
97
INTERSTATE POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $90,877 $98,066 $103,127 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 146,137 148,494 143,471 Amortization of leased nuclear fuel 14,781 12,702 13,867 Amortization of deferred energy efficiency expenditures 3,956 17,032 25,610 Deferred tax benefits and investment tax credits 18,735 (15,155) (14,486) Refueling outage provision 8,232 (3,628) 7,787 Other 641 93 1,468 Other changes in assets and liabilities: Accounts receivable (99,485) 78,640 (57,532) Accounts payable 30,510 (36,958) 49,111 Accrued taxes (8,612) 8,744 3,096 Adjustment clause balances (7,881) 25,962 (10,252) Manufactured gas plants insurance refunds - (21,541) - Other 52,539 (6,503) 2,297 --------------- --------------- --------------- Net cash flows from operating activities 250,430 305,948 267,564 --------------- --------------- --------------- --------------------------------------------------------------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends (81,790) (80,340) (80,339) Preferred stock dividends (2,862) (3,410) (3,403) Capital contribution from parent 60,000 - - Redemption of preferred stock (56,389) - - Proceeds from issuance of preferred stock 144,602 - - Proceeds from issuance of long-term debt - 200,000 - Reductions in long-term debt (560) (89,110) (51,196) Net change in short-term borrowings (38,047) (131,266) 73,169 Principal payments under capital lease obligations (14,328) (9,122) (15,813) Other (4,340) 11,162 (134) --------------- --------------- --------------- Net cash flows from (used for) financing activities 6,286 (102,086) (77,716) --------------- --------------- --------------- --------------------------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Utility construction expenditures (247,815) (193,757) (171,753) Nuclear decommissioning trust funds (6,831) (6,008) (6,008) Other 3,919 (4,073) (12,101) --------------- --------------- --------------- Net cash flows used for investing activities (250,727) (203,838) (189,862) --------------- --------------- --------------- --------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments 5,989 24 (14) --------------- --------------- --------------- --------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 87 63 77 --------------- --------------- --------------- --------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $6,076 $87 $63 =============== =============== =============== --------------------------------------------------------------------------------------------------------------------- Supplemental cash flows information: Cash paid during the period for: Interest $64,430 $63,886 $57,040 =============== =============== =============== Income taxes, net of refunds $39,024 $61,134 $82,254 =============== =============== =============== Noncash investing and financing activities: Capital lease obligations incurred and other $19,101 $19,967 $20,419 =============== =============== =============== --------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
98
INTERSTATE POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 2002 2001 ---------------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Common equity $866,669 $821,960 ------------------- -------------------- ---------------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock: Par/Stated Authorized Shares Mandatory Value Shares Outstanding Series Redemption ----- ------ ----------- ------ ---------- $25 16,000,000 6,000,000 8.375% No 150,000 - $50 * 100,000 6.10% No - 5,000 $50 * 146,406 4.80% No - 7,320 $50 * 120,000 4.30% No - 6,000 $50 ** 216,381 4.36% - 7.76% No - 10,819 $50 ** 545,000 6.40% $50 / share - 27,250 ------------------- -------------------- 150,000 56,389 Less: Unamortized expenses (4,900) (2,400) ------------------- -------------------- 145,100 53,989 ------------------- -------------------- * 466,406 authorized shares in total, fully retired in 2002. ** 2,000,000 authorized shares in total, fully retired in 2002. ---------------------------------------------------------------------------------------------------------------------------------- Long-term debt: Collateral Trust Bonds: 7.25% series, due 2006 60,000 60,000 6-7/8% series, due 2007 55,000 55,000 6% series, due 2008 50,000 50,000 7% series, due 2023 50,000 50,000 5.5% series, due 2023 19,400 19,400 ------------------- -------------------- 234,400 234,400 First Mortgage Bonds: 7-1/4% series, due 2007 27,450 27,450 8% series, due 2007 25,000 25,000 8-5/8% series, due 2021 20,000 20,000 7-5/8% series, due 2023 94,000 94,000 ------------------- -------------------- 166,450 166,450 Pollution Control Revenue Bonds: 5.75%, due 2003, partially retired in 2002 2,680 3,240 6.25%, due 2009 1,000 1,000 6.30%, due 2010 5,600 5,600 6.35%, due 2012 5,650 5,650 Variable rate (2.8% at December 31, 2002), due 2003 to 2010 10,100 10,100 Variable/fixed rate series 1998 (4.25% to 4.30% through 2003), due 2005 to 2023 14,950 14,950 Variable/fixed rate series 1999 (4.05% to 4.20% through 2004), due 2010 to 2013 10,950 10,950 ------------------- -------------------- 50,930 51,490 Senior debentures, 6-5/8% to 6-3/4%, due 2009 to 2011 335,000 335,000 Subordinated deferrable interest debentures, 7-7/8%, due 2025 50,000 50,000 Other, 5.34% at December 31, 2002, due 2006 28,000 28,000 ------------------- -------------------- 864,780 865,340 ------------------- -------------------- Less: Current maturities (5,080) (560) Unamortized debt discount, net (4,311) (4,712) ------------------- -------------------- 855,389 860,068 ------------------- -------------------- ---------------------------------------------------------------------------------------------------------------------------------- Total capitalization $1,867,158 $1,736,017 =================== ==================== ---------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
99
INTERSTATE POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY Accumulated Additional Other Total Common Paid-In Retained Comprehensive Common Stock Capital Earnings Loss Equity ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) 2000: Beginning balance $33,427 $422,011 $334,502 $- $789,940 Earnings available for common stock 99,724 99,724 Unrealized holding gains on derivatives due to cumulative effect of a change in accounting principle, net of tax of $38 54 54 Other unrealized holding gains on derivatives, net of tax of $151 212 212 Less: reclassification adjustment for gains included in earnings available for common stock, net of tax of $201 284 284 ------------ ------------- Net unrealized losses on qualifying derivatives (18) (18) ------------ ------------- Total comprehensive income 99,706 Common stock dividends (80,339) (80,339) Amortization of preferred stock issuance costs and other (58) (58) ------------ ------------ ------------- ------------ ------------- Ending balance 33,427 421,953 353,887 (18) 809,249 2001: Earnings available for common stock 94,656 94,656 Reclassification adjustment for losses included in earnings available for common stock related to derivatives qualified as hedges, net of tax of ($12) 18 18 Minimum pension liability adjustment, net of tax of ($1,469) (2,131) (2,131) ------------- Total comprehensive income 92,543 Common stock dividends (80,340) (80,340) Amortization of preferred stock issuance costs and other 508 508 ------------ ------------ ------------- ------------ ------------- Ending balance 33,427 422,461 368,203 (2,131) 821,960 2002: Earnings available for common stock 88,015 88,015 Minimum pension liability adjustment, net of tax of ($11,844) (16,756) (16,756) ------------- Total comprehensive income 71,259 Common stock dividends (81,790) (81,790) Amortization of preferred stock issuance costs and other (548) (548) Capital contribution from parent 60,000 60,000 Redemption of preferred stock (4,212) (4,212) ------------ ------------ ------------- ------------ ------------- Ending balance $33,427 $477,701 $374,428 ($18,887) $866,669 ============ ============ ============= ============ ============= ----------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
100 INTERSTATE POWER AND LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Except as modified below, the Alliant Energy "Notes to Consolidated Financial Statements" are incorporated by reference insofar as they relate to IP&L and incorporate the disclosures relating to IP&L contained in the following notes of the Alliant Energy "Notes to Consolidated Financial Statements":
Summary of Significant Accounting Policies Note 1(a) 3rd and 4th paragraphs, 1(b), 1(c), 1(d), 1(f) to 1(l), 1(n), 1(p), 1(q) Utility Rate Matters Note 2 Leases Note 3 Utility Accounts Receivable Note 4 Common and Preferred Stock Note 7 Debt Note 8(a) 1st paragraph, 8(b) 1st and 2nd paragraphs Investments Note 9 1st paragraph Derivative Financial Instruments Note 10(a) 1st paragraph, "Cash Flow Hedging Instruments" 1st paragraph, "Other Derivatives Not Designated in Hedge Relationships" 4th paragraph; 10(b) Commitments and Contingencies Note 11(b) 1st paragraph, 11(c), 11(e) "MGP Sites" and "NEPA," 11(f) Jointly-Owned Electric Utility Plant Note 12
The notes that follow herein set forth additional specific information for IP&L and are numbered to be consistent with the Alliant Energy "Notes to Consolidated Financial Statements." (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) General - The consolidated financial statements include the accounts of IP&L and its consolidated subsidiaries. IP&L is a direct subsidiary of Alliant Energy and is engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and the provision of steam services in Iowa, Minnesota and Illinois. The merger of IPC with and into IESU was approved by their respective shareowners in April 2001 and by the SEC in October 2001. The merger was effective Jan. 1, 2002 and IESU changed its name to IP&L. Each share of IPC common stock outstanding was cancelled without payment and each share of IPC preferred stock outstanding was cancelled and converted into the right to receive one share of a new class of IESU Class A preferred stock with substantially identical designations, rights and preferences as the previously outstanding IPC preferred stock. IPC and IESU were both wholly-owned operating subsidiaries of Alliant Energy. As such, the transaction was accounted for as a common control merger. The consolidated financial statements and notes to consolidated financial statements illustrate the impact of the merger as if it had occurred as of Jan. 1, 2000. (c) Regulatory Assets and Liabilities - At Dec. 31, 2002 and 2001, regulatory assets and liabilities were comprised of the following items (in millions):
Regulatory Assets Regulatory Liabilities ----------------------- ----------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ----------- Tax-related $152.6 $86.3 $69.2 $-- Environmental-related 45.9 44.4 4.5 4.7 Energy efficiency program costs 8.1 6.0 -- -- Other 11.2 9.9 5.3 3.8 ---------- ---------- ---------- ----------- $217.8 $146.6 $79.0 $8.5 ========== ========== ========== ===========
(d) Income Taxes - Alliant Energy files a consolidated federal income tax return. Under the terms of an agreement between Alliant Energy and its subsidiaries, the subsidiaries calculate their respective federal income tax provisions and make payments to or receive payments from Alliant Energy as if they were separate taxable entities. 101 (3) LEASES IP&L's operating lease rental expenses for 2002, 2001 and 2000 were $12.4 million, $11.7 million and $11.6 million, respectively. The synthetic leases relate to the financing of the utility railcars that were not included on IP&L's Consolidated Balance Sheets. IP&L has guaranteed the residual value of its synthetic leases totaling $6.8 million in the aggregate. The guarantees extend through the maturity of each respective underlying lease with remaining terms up to seven years. Residual value guarantees have been included in the future minimum lease payments noted in the table below (in millions):
Present Less: value of amount net minimum representing capital lease 2003 2004 2005 2006 2007 Thereafter Total interest payments ------- -------- ------- -------- -------- ----------- --------- -------------- ------------- Operating leases $8.9 $6.5 $4.5 $3.0 $2.4 $30.1 $55.4 n/a n/a Synthetic leases 0.4 0.5 5.1 0.3 0.3 2.7 9.3 n/a n/a Capital leases 15.1 15.8 9.8 35.5 1.7 1.2 79.1 $9.3 $69.8
(4) UTILITY ACCOUNTS RECEIVABLE At Dec. 31, 2002 and 2001, IP&L had sold $86 million and $90 million of receivables, respectively. In 2002, 2001 and 2000, IP&L received $1.1 billion, $1.1 billion and $0.7 billion, respectively, in aggregate proceeds from the sale of accounts receivable. IP&L paid fees associated with these sales of $2.0 million, $3.9 million and $4.0 million in 2002, 2001 and 2000, respectively. (5) INCOME TAXES The components of income taxes for IP&L were as follows (in millions):
2002 2001 2000 -------------- ------------- -------------- Current tax expense: Federal $28.2 $57.3 $63.3 State 17.8 11.0 16.4 Deferred tax expense (benefit): Federal 22.8 (9.7) (9.0) State (0.7) (2.1) (2.9) Research and development tax credits (2.2) -- -- Amortization of investment tax credits and other (3.6) (3.5) (2.8) -------------- ------------- -------------- $62.3 $53.0 $65.0 ============== ============= ==============
The overall effective income tax rates shown in the following table were computed by dividing total income tax expense by income before income taxes.
2002 2001 2000 ------------- ------------- -------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 7.0 4.5 5.4 Effect of rate making on property related differences 1.3 3.9 3.8 Adjustment of prior period taxes 0.8 (5.5) (2.8) Amortization of investment tax credits (2.2) (2.5) (2.3) Other items, net (1.2) (0.3) (0.4) ------------- ------------- -------------- Overall effective income tax rate 40.7% 35.1% 38.7% ============= ============= ==============
102 The accumulated deferred income tax (assets) and liabilities included on the Consolidated Balance Sheets at Dec. 31 arise from the following temporary differences (in millions): 2002 2001 ------------- ------------- Property related $418.9 $327.8 Other (105.6) (59.8) ------------- ------------- $313.3 $268.0 ============= ============= (6) BENEFIT PLANS (a) Pension Plans and Other Postretirement Benefits - Substantially all of IP&L's employees are covered by three non-contributory defined benefit pension plans. For the defined benefit pension plan sponsored by Corporate Services, Alliant Energy allocates pension costs and contributions to IP&L based on labor costs of plan participants and any additional minimum pension liability based on each group's funded status. The weighted-average assumptions at the measurement date of Sept. 30 were as follows:
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------ --------------------------------------- 2002 2001 2000 2002 2001 2000 ----------- ------------------------ ----------- ----------- --------------- Discount rate 6.75% 7.25% 8.00% 6.75% 7.25% 8.00% Expected return on plan assets 9% 9% 9% 9% 9% 9% Rate of compensation increase 3.5% 3.5% 3.5% N/A N/A N/A Medical cost trend on covered charges: Initial trend rate N/A N/A N/A 10.8% 12.0% 9.0% Ultimate trend rate N/A N/A N/A 5% 5% 5%
The components of IP&L's qualified pension benefits and other postretirement benefits costs were as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------- ---------------------------------- 2002 2001 2000 2002 2001 2000 --------- ----------- --------- -------- --------- --------- Service cost $4.2 $3.4 $3.5 $1.8 $1.5 $1.6 Interest cost 11.3 10.6 10.1 7.7 6.7 6.3 Expected return on plan assets (12.8) (14.4) (13.7) (4.0) (4.5) (3.8) Amortization of: Transition obligation (asset) (0.1) -- -- 2.6 2.6 2.8 Prior service cost 1.3 1.3 1.2 (0.2) (0.2) (0.3) Actuarial loss (gain) 0.3 (1.2) (1.0) 0.3 (0.9) (1.1) --------- ----------- --------- -------- --------- --------- $4.2 ($0.3) $0.1 $8.2 $5.2 $5.5 ========= =========== ========= ======== ========= =========
The pension benefit cost shown above (and in the following tables) represents only the pension benefit cost for bargaining unit employees of IP&L covered under the bargaining unit pension plans that are sponsored by IP&L. The benefit obligations and assets associated with IP&L's non-bargaining employees who are participants in other Alliant Energy plans are reported in Alliant Energy's consolidated financial statements and are not reported above. The pension benefit cost for IP&L's non-bargaining employees who are now participants in other Alliant Energy plans was $2.7 million, $1.2 million and $1.9 million for 2002, 2001 and 2000, respectively. In addition, Corporate Services provides services to IP&L. The allocated pension benefit costs associated with these services was $2.7 million, $2.1 million and $1.9 million for 2002, 2001 and 2000, respectively. The other postretirement benefit cost shown above for each period (and in the following tables) represents the other postretirement benefit cost for all IP&L employees. The allocated other postretirement benefit cost associated with Corporate Services for IP&L was $0.9 million, $0.5 million and $0.4 million for 2002, 2001 and 2000, respectively. 103 The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A 1% change in the medical trend rates for 2002, holding all other assumptions constant, would have the following effects (in millions):
1% Increase 1% Decrease ---------------- ---------------- Effect on total of service and interest cost components $1.1 ($0.9) Effect on postretirement benefit obligation $13.1 ($11.5)
A reconciliation of the funded status of IP&L's plans to the amounts recognized on IP&L's Consolidated Balance Sheets at Dec. 31 was as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ----------------------------- ------------------------------- 2002 2001 2002 2001 ------------ ------------ ------------- ------------- Change in benefit obligation: Net benefit obligation at beginning of year $154.9 $132.8 $107.6 $85.2 Service cost 4.2 3.4 1.8 1.5 Interest cost 11.3 10.6 7.7 6.7 Plan participants' contributions -- -- 0.3 0.3 Plan amendments 1.1 -- -- -- Actuarial loss 16.3 15.2 17.6 22.0 Gross benefits paid (7.1) (7.1) (6.8) (8.1) ------------ ------------ ------------- ------------- Net benefit obligation at end of year 180.7 154.9 128.2 107.6 ------------ ------------ ------------- ------------- Change in plan assets: Fair value of plan assets at beginning of year 145.3 163.1 56.0 63.7 Actual return on plan assets (6.5) (10.7) (5.7) (6.5) Employer contributions -- -- 6.8 6.6 Plan participants' contributions -- -- 0.3 0.3 Gross benefits paid (7.1) (7.1) (6.8) (8.1) ------------ ------------ ------------- ------------- Fair value of plan assets at end of year 131.7 145.3 50.6 56.0 ------------ ------------ ------------- ------------- Funded status at end of year (49.0) (9.6) (77.6) (51.6) Unrecognized net actuarial loss 43.8 8.5 38.3 11.5 Unrecognized prior service cost 11.0 11.2 (0.4) (0.7) Unrecognized net transition obligation (asset) (0.7) (0.8) 26.0 28.5 ------------ ------------ ------------- ------------- Net amount recognized at end of year $5.1 $9.3 ($13.7) ($12.3) ============ ============ ============= ============= Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $5.9 $9.3 $0.8 $0.8 Accrued benefit cost (0.8) -- (14.5) (13.1) Additional minimum liability (24.1) (2.6) -- -- Intangible asset 11.0 2.3 -- -- Accumulated other comprehensive loss 13.1 0.3 -- -- ------------ ------------ ------------- ------------- Net amount recognized at measurement date 5.1 9.3 (13.7) (12.3) ------------ ------------ ------------- ------------- Contributions paid after 9/30 and prior to 12/31 -- -- 2.9 1.5 ------------ ------------ ------------- ------------- Net amount recognized at 12/31 $5.1 $9.3 ($10.8) ($10.8) ============ ============ ============= =============
The projected benefit obligation, accumulated benefit obligation, and fair value of assets for pension plans with the accumulated benefit obligation in excess of plan assets are $180.7 million, $150.7 million and $131.7 million, respectively, as of Sept. 30, 2002 and $37.3 million, $30.4 million and $29.1 million, respectively, as of Sept. 30, 2001. In addition to the additional minimum liability in the table above, Corporate Services allocated an additional minimum liability at Dec. 31, 2002 and 2001 of $24.0 million and $0, respectively. 104 Alliant Energy sponsors several non-qualified pension plans that cover certain current and former key employees. The pension expense allocated to IP&L for these plans was $2.7 million, $2.1 million and $2.3 million in 2002, 2001 and 2000, respectively. IP&L has various life insurance policies that cover certain key employees and directors. At both Dec. 31, 2002 and 2001, the cash surrender value of these investments was $9 million. A significant number of IP&L employees also participate in defined contribution pension plans (401(k) and Employee Stock Ownership plans). IP&L's contributions to the plans, which are based on the participants' level of contribution, were $2.0 million, $2.3 million and $2.5 million in 2002, 2001 and 2000, respectively. (7) COMMON AND PREFERRED STOCK (b) Preferred Stock - The carrying value of IP&L's cumulative preferred stock at Dec. 31, 2002 and 2001 was $145 million and $54 million, respectively. The fair market value, based upon the market yield of similar securities and quoted market prices, at Dec. 31, 2002 and 2001 was $150 million and $50 million, respectively. (8) DEBT (a) Short-Term Debt - Information regarding IP&L's short-term debt was as follows (dollars in millions):
2002 2001 ------------- -------------- At Dec. 31: Money pool borrowings $-- $38.0 Interest rates on money pool borrowings N/A 2.4% For the year ended: Average amount of short-term debt (based on daily outstanding balances) $35.2 $31.2 Average interest rates on short-term debt 2.6% 5.9%
(b) Long-Term Debt - IP&L's debt maturities for 2003 to 2007 are $5.1 million, $0, $2.7 million, $60.0 million and $107.5 million, respectively. The carrying value of IP&L's long-term debt (including current maturities) at Dec. 31, 2002 and 2001 was $860 million and $861 million, respectively. The fair market value, based upon the market yield of similar securities and quoted market prices, at Dec. 31, 2002 and 2001 was $920 million and $872 million, respectively. (9) INVESTMENTS AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS Information relating to various investments held by IP&L at Dec. 31 that are marked-to-market as a result of SFAS 115 was as follows (in millions):
2002 2001 --------------------------- -------------------------- Carrying/ Unrealized Carrying/ Unrealized Fair Gains, Fair Gains, Value Net of Tax Value Net of Tax ------------ -------------- ------------ ------------- Available-for-sale securities: Nuclear decommissioning trust funds: Debt securities $75 $4 $69 $1 Equity securities 46 8 48 19 ------------ -------------- ------------ ------------- Total $121 $12 $117 $20 ============ ============== ============ =============
Nuclear Decommissioning Trust Funds - At Dec. 31, 2002, $39 million, $19 million and $17 million of the debt securities mature in 2003-2010, 2011-2020 and 2021-2035, respectively. The funds realized gains/(losses) from the sales of securities of $0.1 million, ($0.1) million and ($0.2) million in 2002, 2001 and 2000, respectively (cost of the investments based on specific identification was $18.9 million, $22.4 million and $11.3 million and proceeds from the sales were $19.0 million, $22.3 million and $11.1 million, respectively). 105 (11) COMMITMENTS AND CONTINGENCIES (a) Construction and Acquisition Expenditures - Certain commitments have been made in connection with 2003 capital expenditures. During 2003, total construction and acquisition expenditures are estimated to be approximately $450 million. (b) Purchased-Power, Coal and Natural Gas Contracts - Based on the System Coordination and Operating Agreement, Alliant Energy annually allocates purchased-power contracts to IP&L and WP&L. Such process considers factors such as resource mix, load growth and resource availability. However, for 2003, system-wide purchased-power contracts of $45.1 million (1.6 million MWh) have not yet been directly assigned to IP&L and WP&L since the specific needs of each utility is not yet known. Refer to Note 18 for additional information. Coal contract quantities are directly assigned to specific plants at IP&L and WP&L based on various factors including projected heat input requirements, combustion compatibility and efficiency. However, for 2003-2006, system-wide coal contracts of $56.1 million (7.8 million tons), $37.5 million (7.6 million tons), $28.0 million (4.7 million tons) and $8.2 million (0.9 million tons), respectively, have not yet been directly assigned to IP&L and WP&L since the specific needs of each utility is not yet known. At Dec. 31, 2002, IP&L's minimum commitments were as follows (dollars and Dths in millions; MWhs and tons in thousands):
Purchased-power Coal Natural gas ---------------------- ------------------------ ------------------------- Dollars MWhs Dollars Tons Dollars Dths --------- --------- ---------- ---------- ----------- ---------- 2003 $38.1 937 $18.0 2,078 $42.5 4 2004 7.5 142 13.1 1,714 4.2 -- 2005 2.0 -- 10.9 1,386 1.0 -- 2006 2.0 -- 3.2 -- 0.9 -- 2007 0.1 -- 2.3 -- 1.4 -- Thereafter 0.4 -- -- -- -- --
(e) Environmental Liabilities - IP&L had recorded the following environmental liabilities, and regulatory assets associated with certain of these liabilities, at Dec. 31 (in millions):
Environmental Liabilities Regulatory Assets ------------------------------- ----------------------------- 2002 2001 2002 2001 ------------- ------------- ------------ ------------ MGP sites $42.4 $39.5 $41.1 $38.5 NEPA 4.1 5.1 4.8 5.7 Other 0.1 0.3 -- 0.2 ------------- ------------- ------------ ------------ $46.6 $44.9 $45.9 $44.4 ============= ============= ============ ============
MGP Sites - Management currently estimates the range of remaining costs to be --------- incurred for the investigation, remediation and monitoring of all IP&L's sites to be approximately $31 million to $57 million. 106 (13) SEGMENTS OF BUSINESS IP&L is a regulated domestic utility, serving customers in Iowa, Minnesota and Illinois, and includes three segments: a) electric operations; b) gas operations; and c) other, which includes the steam business and the unallocated portions of the utility business. Various line items in the following tables are not allocated to the electric and gas segments for management reporting purposes and therefore are included in "Total." Intersegment revenues were not material to IP&L's operations and there was no single customer whose revenues were 10% or more of IP&L's consolidated revenues. Certain financial information relating to IP&L's significant business segments was as follows (in millions):
Electric Gas Other Total ------------------------------------------------------------------------------------------------------------------------------ 2002 ---- Operating revenues $964.9 $214.9 $31.8 $1,211.6 Depreciation and amortization 133.3 10.2 2.6 146.1 Operating income 185.1 14.1 6.9 206.1 Interest expense, net of AFUDC 62.4 Miscellaneous, net (9.5) Income tax expense 62.3 Net income 90.9 Preferred dividends 2.9 Earnings available for common stock 88.0 Total assets 2,186.6 315.4 236.4 2,738.4 Construction and acquisition expenditures 226.8 17.9 3.1 247.8 ------------------------------------------------------------------------------------------------------------------------------ 2001 ---- Operating revenues $1,003.1 $281.0 $32.2 $1,316.3 Depreciation and amortization 134.1 12.4 2.0 148.5 Operating income 184.5 8.7 6.2 199.4 Interest expense, net of AFUDC 61.7 Miscellaneous, net (13.4) Income tax expense 53.0 Net income 98.1 Preferred dividends 3.4 Earnings available for common stock 94.7 Total assets 2,010.1 280.7 135.5 2,426.3 Construction and acquisition expenditures 170.8 20.1 2.9 193.8 ------------------------------------------------------------------------------------------------------------------------------ 2000 ---- Operating revenues $955.8 $249.8 $28.4 $1,234.0 Depreciation and amortization 129.7 11.8 2.0 143.5 Operating income 207.4 14.4 2.8 224.6 Interest expense, net of AFUDC 63.8 Miscellaneous, net (7.3) Income tax expense 65.0 Net income 103.1 Preferred dividends 3.4 Earnings available for common stock 99.7 Total assets 2,055.6 328.3 140.9 2,524.8 Construction and acquisition expenditures 150.4 20.6 0.8 171.8
107 (15) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) Summation of the individual quarters may not equal annual totals due to rounding.
2002 2001 ---------------------------------------- --------------------------------------- March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 ---------- --------- --------- --------- ---------- --------- -------- --------- (in millions) Operating revenues $278.8 $269.3 $351.5 $312.0 $395.4 $303.4 $343.5 $274.0 Operating income 38.2 34.2 96.6 37.2 40.0 32.8 92.9 33.7 Net income 12.9 15.8 45.0 17.2 15.7 12.2 51.3 18.9 Earnings available for common stock 12.0 14.9 44.3 16.8 14.8 11.3 50.5 18.1
(18) RELATED PARTIES IP&L and WP&L have entered into a System Coordination and Operating Agreement. The agreement, which has been approved by FERC, provides a contractual basis for coordinated planning, construction, operation and maintenance of the interconnected electric generation and transmission systems of IP&L and WP&L. In addition, the agreement allows the interconnected system to be operated as a single entity with off-system capacity sales and purchases made to market excess system capability or to meet system capability deficiencies. Such sales and purchases are allocated among IP&L and WP&L based on procedures included in the agreement. The sales amounts allocated to IP&L were $27.3 million, $40.6 million and $41.7 million for 2002, 2001 and 2000, respectively. The purchases allocated to IP&L were $138.8 million, $183.1 million and $134.7 million for 2002, 2001 and 2000, respectively. The procedures were approved by both FERC and all state regulatory bodies having jurisdiction over these sales. Under the agreement, IP&L and WP&L are fully reimbursed for any generation expense incurred to support the sale to an affiliate or to a non-affiliate. Any margins on sales to non-affiliates are distributed to IP&L and WP&L in proportion to each utility's share of electric production at the time of the sale. Pursuant to a service agreement approved by the SEC under PUHCA, IP&L receives various administrative and general services from an affiliate, Corporate Services. These services are billed to IP&L at cost based on payroll and other expenses incurred by Corporate Services for the benefit of IP&L. These costs totaled $182.1 million, $149.5 million and $146.8 million for 2002, 2001 and 2000, respectively, and consisted primarily of employee compensation, benefits and fees associated with various professional services. At Dec. 31, 2002 and 2001, IP&L had a net intercompany payable to Corporate Services of $39.1 million and $33.6 million, respectively. 108 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareowners of Wisconsin Power and Light Company: We have audited the accompanying consolidated balance sheets and statements of capitalization of Wisconsin Power and Light Company and subsidiaries (the "Company") as of December 31, 2002 and 2001, and related consolidated statements of income, cash flows and changes in common equity for each of the three years in the period ended December 31, 2002. Our audit also included the supplemental schedule listed in Item 15(a)(2). These financial statements and the supplemental schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the supplemental schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such supplemental schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ DELOITTE & TOUCHE LLP ------------------------- Milwaukee, Wisconsin March 18, 2003 109
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2002 2001 2000 ----------------------------------------------------------------------------------------------------------------- (in thousands) Operating revenues: Electric utility $787,680 $753,450 $692,191 Gas utility 179,091 206,863 165,152 Water 5,307 5,040 5,038 ----------------- ----------------- ----------------- 972,078 965,353 862,381 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Operating expenses: Electric production fuels 132,492 120,722 113,208 Purchased power 217,209 217,306 146,939 Cost of gas sold 110,119 153,823 107,131 Other operation and maintenance 215,689 186,477 188,967 Depreciation and amortization 136,232 129,098 139,911 Taxes other than income taxes 32,874 32,504 29,163 ----------------- ----------------- ----------------- 844,615 839,930 725,319 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Operating income 127,463 125,423 137,062 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 40,202 43,483 44,644 Interest income (21,590) (8,109) (13,143) Equity income from unconsolidated investments (17,022) (15,535) (552) Allowance for funds used during construction (2,639) (4,753) (5,365) Miscellaneous, net 2,864 (4,391) (2,841) ----------------- ----------------- ----------------- 1,815 10,695 22,743 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Income before income taxes 125,648 114,728 114,319 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Income taxes 44,724 41,238 42,918 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Income before cumulative effect of a change in accounting principle, net of tax 80,924 73,490 71,401 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Cumulative effect of a change in accounting principle, net of tax - - 35 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Net income 80,924 73,490 71,436 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Preferred dividend requirements 3,310 3,310 3,310 ----------------- ----------------- ----------------- ----------------------------------------------------------------------------------------------------------------- Earnings available for common stock $77,614 $70,180 $68,126 ================= ================= ================= ----------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
110
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS December 31, ASSETS 2002 2001 ------------------------------------------------------------------------------------------------------------------ (in thousands) Property, plant and equipment: Electric plant in service $1,843,834 $1,779,593 Gas plant in service 286,652 280,881 Water plant in service 33,062 32,497 Other plant in service 242,329 243,121 Accumulated depreciation (1,410,036) (1,328,111) ----------------- ----------------- Net plant 995,841 1,007,981 Construction work in progress 96,746 37,828 Other, net 17,811 18,085 ----------------- ----------------- 1,110,398 1,063,894 ----------------- ----------------- ------------------------------------------------------------------------------------------------------------------ Current assets: Cash and temporary cash investments 8,577 307 Accounts receivable: Customer, less allowance for doubtful accounts of $1,770 and $1,543 7,977 33,190 Associated companies 21,484 3,676 Other, less allowance for doubtful accounts of $458 and $- 18,191 16,571 Production fuel, at average cost 18,980 17,314 Materials and supplies, at average cost 22,133 20,669 Gas stored underground, at average cost 16,679 22,187 Regulatory assets 27,999 5,163 Prepaid gross receipts tax 27,388 25,673 Other 8,599 7,855 ----------------- ----------------- 178,007 152,605 ----------------- ----------------- ------------------------------------------------------------------------------------------------------------------ Investments: Nuclear decommissioning trust funds 223,734 215,794 Investment in ATC and other 133,043 127,941 ----------------- ----------------- 356,777 343,735 ----------------- ----------------- ------------------------------------------------------------------------------------------------------------------ Other assets: Regulatory assets 102,674 109,864 Deferred charges and other 236,741 205,702 ----------------- ----------------- 339,415 315,566 ----------------- ----------------- ------------------------------------------------------------------------------------------------------------------ Total assets $1,984,597 $1,875,800 ================= ================= ------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS (Continued) December 31, CAPITALIZATION AND LIABILITIES 2002 2001 -------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock - $5 par value - authorized 18,000,000 shares; 13,236,601 shares outstanding $66,183 $66,183 Additional paid-in capital 325,603 264,603 Retained earnings 399,302 381,333 Accumulated other comprehensive loss (24,108) (10,167) ------------------ ----------------- Total common equity 766,980 701,952 ------------------ ----------------- Cumulative preferred stock 59,963 59,963 Long-term debt (excluding current portion) 468,208 468,083 ------------------ ----------------- 1,295,151 1,229,998 ------------------ ----------------- -------------------------------------------------------------------------------------------------------------------- Current liabilities: Variable rate demand bonds 55,100 55,100 Commercial paper 60,000 - Notes payable to associated companies - 90,816 Accounts payable 90,869 94,091 Accounts payable to associated companies 43,276 25,231 Accrued taxes 19,353 2,057 Regulatory liabilities 16,938 7,619 Other 29,064 25,543 ------------------ ----------------- 314,600 300,457 ------------------ ----------------- -------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 191,894 206,245 Accumulated deferred investment tax credits 23,241 24,907 Pension and other benefit obligations 58,921 18,175 Customer advances 36,555 34,178 Other 64,235 61,840 ------------------ ----------------- 374,846 345,345 ------------------ ----------------- -------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 11) -------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $1,984,597 $1,875,800 ================== ================= -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $80,924 $73,490 $71,436 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 136,232 129,098 139,911 Amortization of nuclear fuel 6,486 4,554 5,066 Amortization of deferred energy efficiency expenditures 21,179 14,361 14,361 Deferred tax benefits and investment tax credits (5,562) (6,791) (12,077) Equity income from unconsolidated investments, net (17,022) (15,535) (552) Distributions from equity method investments 13,199 8,450 992 Other (22,160) (10,539) (15,451) Other changes in assets and liabilities: Accounts receivable 5,785 14,408 (29,733) Accounts payable (11,676) (20,549) 36,265 Accrued taxes 17,296 (1,225) (3,257) Other (931) (53,836) (32,901) ---------------- --------------- --------------- Net cash flows from operating activities 223,750 135,886 174,060 ---------------- --------------- --------------- --------------------------------------------------------------------------------------------------------------------------- Cash flows used for financing activities: Common stock dividends (59,645) (60,449) - Preferred stock dividends (3,310) (3,310) (3,310) Capital contribution from parent 61,000 35,000 - Proceeds from issuance of long-term debt - - 100,000 Reductions in long-term debt - (47,000) (1,875) Net change in short-term borrowings (30,816) 61,572 (96,505) Other 5,086 (4,989) 2,677 ---------------- --------------- --------------- Net cash flows used for financing activities (27,685) (19,176) 987 ---------------- --------------- --------------- --------------------------------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Utility construction expenditures (156,921) (147,032) (131,640) Nuclear decommissioning trust funds (16,092) (16,092) (16,092) Proceeds from formation of ATC and other asset dispositions - 75,600 961 Other (14,782) (29,308) (28,109) ---------------- --------------- --------------- Net cash flows used for investing activities (187,795) (116,832) (174,880) ---------------- --------------- --------------- --------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments 8,270 (122) 167 ---------------- --------------- --------------- --------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 307 429 262 ---------------- --------------- --------------- --------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $8,577 $307 $429 ================ =============== =============== --------------------------------------------------------------------------------------------------------------------------- Supplemental cash flows information: Cash paid during the period for: Interest $39,540 $43,237 $40,455 ================ =============== =============== Income taxes, net of refunds $35,875 $54,161 $54,676 ================ =============== =============== --------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 2002 2001 ------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Common equity $766,980 $701,952 ------------------ ------------------ ------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock: Cumulative, without par value, not mandatorily redeemable - authorized 3,750,000 shares, maximum aggregate stated value $150,000,000: $100 stated value - 4.50% series, 99,970 shares outstanding 9,997 9,997 $100 stated value - 4.80% series, 74,912 shares outstanding 7,491 7,491 $100 stated value - 4.96% series, 64,979 shares outstanding 6,498 6,498 $100 stated value - 4.40% series, 29,957 shares outstanding 2,996 2,996 $100 stated value - 4.76% series, 29,947 shares outstanding 2,995 2,995 $100 stated value - 6.20% series, 150,000 shares outstanding 15,000 15,000 $25 stated value - 6.50% series, 599,460 shares outstanding 14,986 14,986 ------------------ ------------------ 59,963 59,963 ------------------ ------------------ ------------------------------------------------------------------------------------------------------------------------- Long-term debt: First Mortgage Bonds: 1984 Series A, variable rate (1.6% at December 31, 2002), due 2014 8,500 8,500 1988 Series A, variable rate (2.1% at December 31, 2002), due 2015 14,600 14,600 1991 Series A, variable rate (1.85% at December 31, 2002), due 2015 16,000 16,000 1991 Series B, variable rate (1.85% at December 31, 2002), due 2005 16,000 16,000 1992 Series W, 8.6%, due 2027 70,000 70,000 1992 Series X, 7.75%, due 2004 62,000 62,000 1992 Series Y, 7.6%, due 2005 72,000 72,000 ------------------ ------------------ 259,100 259,100 Debentures, 7%, due 2007 105,000 105,000 Debentures, 5.7%, due 2008 60,000 60,000 Debentures, 7-5/8%, due 2010 100,000 100,000 ------------------ ------------------ 524,100 524,100 ------------------ ------------------ Less: Variable rate demand bonds (55,100) (55,100) Unamortized debt discount, net (792) (917) ------------------ ------------------ 468,208 468,083 ------------------ ------------------ ------------------------------------------------------------------------------------------------------------------------- Total capitalization $1,295,151 $1,229,998 ================== ================== ------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
114
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY Accumulated Additional Other Total Common Paid-In Retained Comprehensive Common Stock Capital Earnings Loss Equity ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) 2000: Beginning balance $66,183 $229,438 $303,476 $-- $599,097 Earnings available for common stock 68,126 68,126 Unrealized holding losses on derivatives due to cumulative effect of a change in accounting principle, net of tax of ($430) (642) (642) Other unrealized holding losses on derivatives, net of tax of ($3,634) (5,151) (5,151) Less: reclassification adjustment for losses included in earnings available for common stock, net of tax of ($769) (1,085) (1,085) -------------- ----------- Net unrealized losses on qualifying derivatives (4,708) (4,708) -------------- ----------- Total comprehensive income 63,418 Stock options exercised 78 78 ----------- ----------- ------------ -------------- ----------- Ending balance 66,183 229,516 371,602 (4,708) 662,593 2001: Earnings available for common stock 70,180 70,180 Minimum pension liability adjustment, net of tax of ($9,552) (14,248) (14,248) Unrealized holding gains on derivatives, net of tax of $3,932 5,952 5,952 Less: reclassification adjustment for losses included in earnings available for common stock, net of tax of ($1,676) (2,837) (2,837) -------------- ----------- Net unrealized gains on qualifying derivatives 8,789 8,789 -------------- ----------- Total comprehensive income 64,721 Common stock dividends (60,449) (60,449) Stock options exercised 87 87 Capital contribution from parent 35,000 35,000 ----------- ----------- ------------ -------------- ----------- Ending balance 66,183 264,603 381,333 (10,167) 701,952 2002: Earnings available for common stock 77,614 77,614 Minimum pension liability adjustment, net of tax of ($6,823) (10,177) (10,177) Unrealized holding losses on derivatives, net of tax of ($92) (137) (137) Less: reclassification adjustment for gains included in earnings available for common stock, net of tax of $2,432 3,627 3,627 -------------- ----------- Net unrealized losses on qualifying derivatives (3,764) (3,764) -------------- ----------- Total comprehensive income 63,673 Common stock dividends (59,645) (59,645) Capital contribution from parent 61,000 61,000 ----------- ----------- ------------ -------------- ----------- Ending balance $66,183 $325,603 $399,302 ($24,108) $766,980 =========== =========== ============ ============== =========== ------------------------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
115 WISCONSIN POWER AND LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Except as modified below, the Alliant Energy "Notes to Consolidated Financial Statements" are incorporated by reference insofar as they relate to WP&L and incorporate the disclosures relating to WP&L contained in the following notes of the Alliant Energy "Notes to Consolidated Financial Statements":
Summary of Significant Accounting Policies Note 1(a) 3rd and 4th paragraphs, 1(b), 1(c), 1(d), 1(f) to 1(l), 1(n), 1(p), 1(q) Utility Rate Matters Note 2 Leases Note 3 Utility Accounts Receivable Note 4 Common and Preferred Stock Note 7 Debt Note 8(a) 1st paragraph, 8(b) 1st paragraph Investments Note 9 1st paragraph, "Investment in ATC" Derivative Financial Instruments Note 10(a) 1st paragraph, "Cash Flow Hedging Instruments" 1st paragraph, "Other Derivatives Not Designated in Hedge Relationships" 4th paragraph; 10(b); 10(c) Commitments and Contingencies Note 11(b) 1st paragraph, 11(c), 11(e) "MGP Sites" and "NEPA," 11(f) Jointly-Owned Electric Utility Plant Note 12
The notes that follow herein set forth additional specific information for WP&L and are numbered to be consistent with the Alliant Energy "Notes to Consolidated Financial Statements." (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) General - The consolidated financial statements include the accounts of WP&L and its principal consolidated subsidiaries WPL Transco LLC and South Beloit. WP&L is a direct subsidiary of Alliant Energy and is engaged principally in the generation, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and the provision of water services. Nearly all of WP&L's retail customers are located in south and central Wisconsin. (c) Regulatory Assets and Liabilities - At Dec. 31, 2002 and 2001, regulatory assets and liabilities were comprised of the following items (in millions):
Regulatory Assets Regulatory Liabilities ---------------------- ----------------------- 2002 2001 2002 2001 ---------- ---------- ----------- ---------- Energy efficiency program costs $38.6 $33.9 $-- $-- Tax-related 25.0 29.0 14.6 15.1 Environmental-related 19.0 18.7 0.6 0.5 Other 48.1 33.4 17.0 7.6 ---------- ---------- ----------- ---------- $130.7 $115.0 $32.2 $23.2 ========== ========== =========== ==========
(d) Income Taxes - Alliant Energy files a consolidated federal income tax return. Under the terms of an agreement between Alliant Energy and its subsidiaries, the subsidiaries calculate their respective federal income tax provisions and make payments to or receive payments from Alliant Energy as if they were separate taxable entities. (3) LEASES WP&L's operating lease rental expenses, which include certain purchased-power agreements, for 2002, 2001 and 2000 were $24.5 million, $23.4 million and $7.9 million, respectively. The purchased-power agreements below include $463 million and $78 million, respectively, related to a new plant (Riverside) currently under development and the RockGen plant, both in Wisconsin. The Riverside plant is expected to be placed in-service in 2004. The synthetic leases relate to the financing of the utility railcars and a utility radio dispatch system that were not included on WP&L's Consolidated Balance Sheets. WP&L has guaranteed the residual value of its synthetic leases totaling $14.3 million in the aggregate. The guarantees extend through the maturity of each respective underlying lease with remaining terms 116 up to 13 years. Residual value guarantees have been included in the future minimum lease payments noted in the table below (in millions):
2003 2004 2005 2006 2007 Thereafter Total -------- -------- -------- -------- -------- ----------- --------- Certain purchased-power agreements $18.7 $51.8 $66.3 $67.6 $69.0 $308.6 $582.0 Synthetic leases 6.4 7.6 7.5 7.4 5.5 25.5 59.9 Other 2.0 1.1 1.2 1.0 1.0 2.2 8.5 -------- -------- -------- -------- -------- ----------- --------- $27.1 $60.5 $75.0 $76.0 $75.5 $336.3 $650.4 ======== ======== ======== ======== ======== =========== =========
(4) UTILITY ACCOUNTS RECEIVABLE At Dec. 31, 2002 and 2001, WP&L had sold $116 million and $88 million of receivables, respectively. In 2002, 2001 and 2000, WP&L received $1.2 billion, $1.1 billion and $0.9 billion, respectively, in aggregate proceeds from the sale of accounts receivable. WP&L paid fees associated with these sales of $2.2 million, $4.0 million and $5.0 million in 2002, 2001 and 2000, respectively. (5) INCOME TAXES The components of income taxes for WP&L were as follows (in millions):
2002 2001 2000 ------------- ------------- ------------- Current tax expense: Federal $42.8 $36.8 $44.5 State 9.7 11.2 10.5 Deferred tax expense (benefit): Federal (5.0) (4.6) (9.9) State 1.2 (0.4) (0.3) Amortization of investment tax credits (1.8) (1.8) (1.9) Research and development tax credits (2.2) -- -- ------------- ------------- ------------- $44.7 $41.2 $42.9 ============= ============= =============
The overall effective income tax rates shown in the following table were computed by dividing total income tax expense by income before income taxes.
2002 2001 2000 ------------- -------------- -------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 6.1 6.4 6.0 Adjustment of prior period taxes (1.1) (2.8) (0.8) Amortization of investment tax credits (1.4) (1.6) (1.6) Amortization of excess deferred taxes (1.4) (1.5) (1.3) Research and development tax credits (1.8) -- -- Other items, net 0.2 0.4 0.2 ------------- -------------- -------------- Overall effective income tax rate 35.6% 35.9% 37.5% ============= ============== ==============
The accumulated deferred income tax (assets) and liabilities included on the Consolidated Balance Sheets at Dec. 31 arise from the following temporary differences (in millions): 2002 2001 --------------- --------------- Property related $201.2 $200.8 Minimum pension liability (16.4) (9.6) Decommissioning (25.2) (20.8) Other 32.3 35.8 --------------- --------------- $191.9 $206.2 =============== =============== 117 (6) BENEFIT PLANS (a) Pension Plans and Other Postretirement Benefits - Substantially all of WP&L's employees are covered by two non-contributory defined benefit pension plans. For the defined benefit pension plan sponsored by Corporate Services, Alliant Energy allocates pension costs and contributions to WP&L based on labor costs of plan participants and any additional minimum pension liability based on each group's funded status. The weighted-average assumptions at the measurement date of Sept. 30 were as follows:
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------- ---------------------------------------- 2002 2001 2000 2002 2001 2000 ------------ ----------- ------------ ----------- ------------- --------------- Discount rate 6.75% 7.25% 8.00% 6.75% 7.25% 8.00% Expected return on plan assets 9% 9% 9% 9% 9% 9% Rate of compensation increase 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% Medical cost trend on covered charges: Initial trend rate N/A N/A N/A 10.8% 12.0% 9.0% Ultimate trend rate N/A N/A N/A 5% 5% 5%
The components of WP&L's qualified pension benefits and other postretirement benefits costs were as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits -------------------------------------- --------------------------------- 2002 2001 2000 2002 2001 2000 ---------- ----------- ---------- -------- -------- --------- Service cost $3.6 $2.8 $3.0 $2.4 $1.6 $1.4 Interest cost 10.1 9.2 8.9 4.4 3.6 3.3 Expected return on plan assets (12.2) (13.7) (12.9) (1.6) (1.7) (1.6) Amortization of: Transition obligation (asset) (1.7) (2.1) (2.1) 1.1 1.2 1.2 Prior service cost 0.4 0.5 0.4 -- -- -- Actuarial loss (gain) 1.5 -- -- 0.1 (0.6) (0.8) ---------- ----------- ---------- -------- -------- --------- $1.7 ($3.3) ($2.7) $6.4 $4.1 $3.5 ========== =========== ========== ======== ======== =========
The pension benefit cost shown above (and in the following tables) represents only the pension benefit cost for bargaining unit employees of WP&L covered under the bargaining unit pension plan that is sponsored by WP&L. The benefit obligations and assets associated with WP&L's non-bargaining employees who are participants in other Alliant Energy plans are reported in Alliant Energy's consolidated financial statements and are not reported above. The pension benefit (income) cost for WP&L's non-bargaining employees who are now participants in other Alliant Energy plans was $0.3 million, ($1.5) million and ($1.3) million for 2002, 2001 and 2000, respectively. In addition, Corporate Services provides services to WP&L. The allocated pension benefit costs associated with these services was $1.7 million, $1.3 million and $1.3 million for 2002, 2001 and 2000, respectively. The other postretirement benefit cost shown above for each period (and in the following tables) represents the other postretirement benefit cost for all WP&L employees. The allocated other postretirement benefit cost associated with Corporate Services for WP&L was $0.5 million, $0.3 million and $0.3 million for 2002, 2001 and 2000, respectively. The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A one percent change in the medical trend rates for 2002, holding all other assumptions constant, would have the following effects (in millions):
1% Increase 1% Decrease ------------------- ---------------------- Effect on total of service and interest cost components $0.6 ($0.6) Effect on postretirement benefit obligation $5.6 ($5.1)
118 A reconciliation of the funded status of WP&L's plans to the amounts recognized on WP&L's Consolidated Balance Sheets at Dec. 31 was as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ----------------------------- ------------------------------- 2002 2001 2002 2001 ------------ ------------ -------------- ------------ Change in benefit obligation: Net benefit obligation at beginning of year $139.2 $115.9 $60.5 $42.3 Service cost 3.6 2.8 2.4 1.6 Interest cost 10.1 9.2 4.4 3.6 Plan participants' contributions -- -- 1.5 1.6 Actuarial loss 10.3 18.3 13.2 16.6 Gross benefits paid (7.2) (7.0) (5.4) (5.2) ------------ ------------ -------------- ------------ Net benefit obligation at end of year 156.0 139.2 76.6 60.5 ------------ ------------ -------------- ------------ Change in plan assets: Fair value of plan assets at beginning of year 138.8 156.3 17.8 19.4 Actual return on plan assets (8.1) (10.5) (1.4) (0.5) Employer contributions 30.0 -- 4.2 2.5 Plan participants' contributions -- -- 1.5 1.6 Gross benefits paid (7.2) (7.0) (5.4) (5.2) ------------ ------------ -------------- ------------ Fair value of plan assets at end of year 153.5 138.8 16.7 17.8 ------------ ------------ -------------- ------------ Funded status at end of year (2.5) (0.4) (59.9) (42.7) Unrecognized net actuarial loss 63.5 34.3 20.4 4.4 Unrecognized prior service cost 3.4 3.9 (0.1) (0.2) Unrecognized net transition obligation (asset) -- (1.7) 11.5 12.6 ------------ ------------ -------------- ------------ Net amount recognized at end of year $64.4 $36.1 ($28.1) ($25.9) ============ ============ ============== ============ Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $64.4 $36.1 $1.5 $1.3 Accrued benefit cost -- -- (29.6) (27.2) ------------ ------------ -------------- ------------ Net amount recognized at measurement date 64.4 36.1 (28.1) (25.9) ------------ ------------ -------------- ------------ Contributions paid after 9/30 and prior to 12/31 -- -- 1.0 1.1 ------------ ------------ -------------- ------------ Net amount recognized at 12/31 $64.4 $36.1 ($27.1) ($24.8) ============ ============ ============== ============
The benefit obligation and fair value of plan assets for the postretirement welfare plans with benefit obligations in excess of plan assets were $74.7 million and $13.7 million, respectively, as of Sept. 30, 2002 and $53.8 million and $8.5 million, respectively, as of Sept. 30, 2001. At Dec. 31, 2002 and 2001, Corporate Services allocated an additional minimum liability of $41.3 million and $0 million, respectively. Alliant Energy sponsors several non-qualified pension plans that cover certain current and former key employees. The pension expense allocated to WP&L for these plans was $1.5 million, $1.0 million and $1.2 million in 2002, 2001 and 2000, respectively. WP&L has various life insurance policies that cover certain key employees and directors. At Dec. 31, 2002 and 2001, the cash surrender value of these investments was $10 million and $9 million, respectively. A significant number of WP&L employees also participate in defined contribution pension plans (401(k) plans). WP&L's contributions to the plans, which are based on the participants' level of contribution, were $2.2 million, $2.1 million and $2.1 million in 2002, 2001 and 2000, respectively. (7) COMMON AND PREFERRED STOCK (b) Preferred Stock - The carrying value of WP&L's cumulative preferred stock at both Dec. 31, 2002 and 2001 was $60 million. The fair market value, based upon the market yield of similar securities and quoted market prices, at Dec. 31, 2002 and 2001 was $48 million and $49 million, respectively. 119 (8) DEBT (a) Short-Term Debt - Information regarding WP&L's short-term debt was as follows (dollars in millions):
2002 2001 -------------- -------------- At Dec. 31: Commercial paper outstanding $60.0 $-- Discount rates on commercial paper 1.6% N/A Money pool borrowings $-- $90.8 Interest rates on money pool borrowings N/A 2.4% For the year ended: Average amount of short-term debt (based on daily outstanding balances) $57.4 $23.8 Average interest rates on short-term debt 1.8% 3.7%
(b) Long-Term Debt - WP&L's debt maturities for 2003 to 2007 are $0, $62.0 million, $88.0 million, $0, and $105.0 million, respectively. The carrying value of WP&L's long-term debt (including variable rate demand bonds) at both Dec. 31, 2002 and 2001 was $523 million. The fair market value, based upon the market yield of similar securities and quoted market prices, at Dec. 31, 2002 and 2001 was $574 million and $548 million, respectively. (9) INVESTMENTS AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS Information relating to various investments held by WP&L at Dec. 31 that are marked-to-market as a result of SFAS 115 was as follows (in millions):
2002 2001 --------------------------- -------------------------- Carrying/ Unrealized Carrying/ Unrealized Fair Gains, Fair Gains, Value Net of Tax Value Net of Tax ------------ -------------- ------------ ------------- Available-for-sale securities: Nuclear decommissioning trust funds: Debt securities $131 $5 $122 $2 Equity securities 93 5 94 23 ------------ -------------- ------------ ------------- Total $224 $10 $216 $25 ============ ============== ============ =============
Nuclear Decommissioning Trust Funds - At Dec. 31, 2002, $75 million, $24 million and $32 million of the debt securities mature in 2003-2010, 2011-2020 and 2021-2049, respectively. The funds realized gains from the sales of securities of $10.3 million, $2.1 million and $5.2 million in 2002, 2001 and 2000, respectively (cost of the investments based on specific identification was $92.2 million, $147.4 million and $202.1 million and proceeds from the sales were $102.5 million, $149.5 million and $207.3 million, respectively). Unconsolidated Equity Investments - Summary financial information from WP&L's unconsolidated equity investments' financial statements is as follows (in millions): 2002 2001 2000 ---------- ----------- ---------- Operating revenues $211.7 $180.3 $5.3 Operating income 75.7 65.8 1.3 Net income 59.5 55.9 1.6 As of Dec. 31: Current assets 44.7 59.5 Non-current assets 774.4 681.4 Current liabilities 50.8 39.3 Non-current liabilities 7.5 4.4 120 (11) COMMITMENTS AND CONTINGENCIES (a) Construction and Acquisition Expenditures - Certain commitments have been made in connection with 2003 capital expenditures. During 2003, total construction and acquisition expenditures are estimated to be approximately $160 million. (b) Purchased-Power, Coal and Natural Gas Contracts - Based on the System Coordination and Operating Agreement, Alliant Energy annually allocates purchased-power contracts to IP&L and WP&L. Such process considers factors such as resource mix, load growth and resource availability. However, for 2003, system-wide purchased-power contracts of $45.1 million (1.6 million MWh) have not yet been directly assigned to IP&L and WP&L since the specific needs of each utility is not yet known. Refer to Note 18 for additional information. Coal contract quantities are directly assigned to specific plants at IP&L and WP&L based on various factors including projected heat input requirements, combustion compatibility and efficiency. However, for 2003-2006, system-wide coal contracts of $56.1 million (7.8 million tons), $37.5 million (7.6 million tons), $28.0 million (4.7 million tons) and $8.2 million (0.9 million tons), respectively, have not yet been directly assigned to IP&L and WP&L since the specific needs of each utility is not yet known. At Dec. 31, 2002, WP&L's minimum commitments were as follows (dollars and Dths in millions; MWhs and tons in thousands):
Purchased-power Coal Natural gas ----------------------- ----------------------- ------------------------- Dollars MWhs Dollars Tons Dollars Dths --------- ---------- --------- ---------- ----------- ---------- 2003 $31.3 219 $6.9 -- $48.1 2 2004 8.0 219 6.9 -- 32.3 -- 2005 -- -- 1.3 -- 25.0 -- 2006 -- -- 1.3 -- 14.1 -- 2007 -- -- 1.3 -- 13.3 -- Thereafter -- -- -- -- 26.4 --
(e) Environmental Liabilities - WP&L had recorded the following environmental liabilities, and regulatory assets associated with certain of these liabilities, at Dec. 31 (in millions):
Environmental Liabilities Regulatory Assets ---------------------------- ---------------------------- 2002 2001 2002 2001 ------------ ------------- ------------ ------------ MGP sites $6.9 $4.4 $13.0 $11.7 NEPA 2.5 3.1 3.1 4.0 Other -- -- 2.9 3.0 ------------ ------------- ------------ ------------ $9.4 $7.5 $19.0 $18.7 ============ ============= ============ ============
MGP Sites - Management currently estimates the range of remaining costs to be --------- incurred for the investigation, remediation and monitoring of all WP&L's sites to be approximately $6 million to $7 million. (13) SEGMENTS OF BUSINESS WP&L is a regulated domestic utility, serving customers in Wisconsin and Illinois, and includes three segments: a) electric operations; b) gas operations; and c) other, which includes the water business and the unallocated portions of the utility business. Various line items in the following tables are not allocated to the electric and gas segments for management reporting purposes and therefore are included in "Total." In 2002 and 2001, gas revenues included $22 million and $21 million, respectively, for sales to the electric segment. All other intersegment revenues were not material to WP&L's operations and there was no single customer whose revenues were 10% or more of WP&L's consolidated revenues. Certain financial information relating to WP&L's significant business segments was as follows (in millions): 121
Electric Gas Other Total ------------------------------------------------------------------------------------------------------------------------------ 2002 ---- Operating revenues $787.7 $179.1 $5.3 $972.1 Depreciation and amortization 117.3 17.7 1.2 136.2 Operating income 114.1 12.0 1.4 127.5 Interest expense, net of AFUDC 37.6 Interest income (21.6) Equity income from unconsolidated investments (17.0) Miscellaneous, net 2.9 Income tax expense 44.7 Net income 80.9 Preferred dividends 3.3 Earnings available for common stock 77.6 Total assets 1,426.7 259.5 298.4 1,984.6 Investments in equity method subsidiaries 121.7 121.7 Construction and acquisition expenditures 144.6 10.6 1.7 156.9 ------------------------------------------------------------------------------------------------------------------------------ 2001 ---- Operating revenues $753.5 $206.9 $5.0 $965.4 Depreciation and amortization 111.5 16.4 1.2 129.1 Operating income 121.6 2.5 1.3 125.4 Interest expense, net of AFUDC 38.7 Interest income (8.1) Equity income from unconsolidated investments (15.5) Miscellaneous, net (4.4) Income tax expense 41.2 Net income 73.5 Preferred dividends 3.3 Earnings available for common stock 70.2 Total assets 1,323.9 224.5 327.4 1,875.8 Investments in equity method subsidiaries 117.3 117.3 Construction and acquisition expenditures 127.9 16.8 2.3 147.0 ------------------------------------------------------------------------------------------------------------------------------ 2000 ---- Operating revenues $692.2 $165.2 $5.0 $862.4 Depreciation and amortization 122.9 15.9 1.1 139.9 Operating income 123.2 12.2 1.7 137.1 Interest expense, net of AFUDC 39.3 Interest income (13.1) Equity income from unconsolidated investments (0.5) Miscellaneous, net (2.9) Income tax expense 42.9 Net income 71.4 Preferred dividends 3.3 Earnings available for common stock 68.1 Total assets 1,344.9 226.1 286.0 1,857.0 Investments in equity method subsidiaries 4.8 4.8 Construction and acquisition expenditures 114.2 15.1 2.3 131.6
122 (15) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) Summation of the individual quarters may not equal annual totals due to rounding.
2002 2001 ---------------------------------------- --------------------------------------- March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 ---------- --------- --------- --------- ---------- --------- -------- --------- (in millions) Operating revenues $229.5 $217.5 $249.0 $276.1 $317.2 $204.1 $228.3 $215.8 Operating income 24.1 28.6 35.4 39.3 37.0 23.4 36.2 28.8 Net income 15.7 12.8 19.2 33.2 19.3 11.6 19.9 22.8 Earnings available for common stock 14.9 12.0 18.3 32.4 18.4 10.7 19.0 22.0
(18) RELATED PARTIES IP&L and WP&L have entered into a System Coordination and Operating Agreement. The agreement, which has been approved by FERC, provides a contractual basis for coordinated planning, construction, operation and maintenance of the interconnected electric generation and transmission systems of IP&L and WP&L. In addition, the agreement allows the interconnected system to be operated as a single entity with off-system capacity sales and purchases made to market excess system capability or to meet system capability deficiencies. Such sales and purchases are allocated among IP&L and WP&L based on procedures included in the agreement. The sales amounts allocated to WP&L were $26.9 million, $32.1 million and $28.6 million for 2002, 2001 and 2000, respectively. The purchases allocated to WP&L were $205.8 million, $209.2 million and $130.7 million for 2002, 2001 and 2000, respectively. The procedures were approved by both FERC and all state regulatory bodies having jurisdiction over these sales. Under the agreement, IP&L and WP&L are fully reimbursed for any generation expense incurred to support the sale to an affiliate or to a non-affiliate. Any margins on sales to non-affiliates are distributed to IP&L and WP&L in proportion to each utility's share of electric production at the time of the sale. Pursuant to a service agreement approved by the SEC under PUHCA, WP&L receives various administrative and general services from an affiliate, Corporate Services. These services are billed to WP&L at cost based on payroll and other expenses incurred by Corporate Services for the benefit of WP&L. These costs totaled $117.7 million, $107.0 million and $103.4 million for 2002, 2001 and 2000, respectively, and consisted primarily of employee compensation, benefits and fees associated with various professional services. At Dec. 31, 2002 and 2001, WP&L had a net intercompany payable to Corporate Services of $31.1 million and $32.2 million, respectively. 123 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS ALLIANT ENERGY The information required by Item 10 relating to directors and nominees for election of directors at the 2003 Annual Meeting of Shareowners is incorporated herein by reference to the relevant information under the caption "Election of Directors" in Alliant Energy's Proxy Statement for the 2003 Annual Meeting of Shareowners (the 2003 Alliant Energy Proxy Statement), which will be filed with the SEC within 120 days after the end of Alliant Energy's fiscal year. The information required by Item 10 relating to the timely filing of reports under Section 16 of the Securities Exchange Act of 1934 is incorporated herein by reference to the relevant information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2003 Alliant Energy Proxy Statement. Information regarding executive officers of Alliant Energy may be found in Part I of this report under the caption "Executive Officers of the Registrants." IP&L IP&L's directors are identical to those of Alliant Energy. The information required by Item 10 relating to directors and nominees for election of directors at the 2003 Annual Meeting of Shareowners is incorporated herein by reference to the relevant information included under the caption "Election of Directors" in the 2003 Alliant Energy Proxy Statement, which will be filed with the SEC within 120 days after the end of IP&L's fiscal year. The information required by Item 10 relating to the timely filing of reports under Section 16 of the Securities Exchange Act of 1934 is incorporated herein by reference to the relevant information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2003 Alliant Energy Proxy Statement. Information regarding executive officers of IP&L may be found in Part I of this report under the caption "Executive Officers of the Registrants." WP&L The information required by Item 10 relating to directors and nominees for election of directors at the 2003 Annual Meeting of Shareowners is incorporated herein by reference to the relevant information under the caption "Election of Directors" in WP&L's Proxy Statement for the 2003 Annual Meeting of Shareowners (the 2003 WP&L Proxy Statement), which will be filed with the SEC within 120 days after the end of WP&L's fiscal year. The information required by Item 10 relating to the timely filing of reports under Section 16 of the Securities Exchange Act of 1934 is incorporated herein by reference to the relevant information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2003 WP&L Proxy Statement. Information regarding executive officers of WP&L may be found in Part I of this report under the caption "Executive Officers of the Registrants." ITEM 11. EXECUTIVE COMPENSATION ALLIANT ENERGY The information required by Item 11 is incorporated herein by reference to the relevant information under the captions "Compensation of Directors," "Compensation of Executive Officers," "Stock Options," "Long-Term Incentive Awards," "Certain Agreements" and "Retirement and Employee Benefit Plans" in the 2003 Alliant Energy Proxy Statement, which will be filed with the SEC within 120 days after the end of Alliant Energy's fiscal year. IP&L The directors as well as the CEO and the four other most highly compensated executive officers for IP&L are the same as for WP&L. Therefore, the information required by Item 11 is incorporated herein by reference to the relevant information under the captions "Compensation of Directors," "Compensation of Executive Officers," "Stock Options," "Long-Term Incentive Awards," "Certain Agreements" and "Retirement and Employee Benefit Plans" in the 2003 WP&L Proxy Statement, which will be filed with the SEC within 120 days after the end of IP&L's fiscal year. 124 WP&L The information required by Item 11 is incorporated herein by reference to the relevant information under the captions "Compensation of Directors," "Compensation of Executive Officers," "Stock Options," "Long-Term Incentive Awards," "Certain Agreements" and "Retirement and Employee Benefit Plans" in the 2003 WP&L Proxy Statement, which will be filed with the SEC within 120 days after the end of WP&L's fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ALLIANT ENERGY Information regarding Alliant Energy's equity compensation plans as of Dec. 31, 2002 was as follows:
(c) (a) (b) Number of securities Number of securities Weighted-average remaining available for to be issued upon exercise price of future issuance under exercise of outstanding equity compensation plans outstanding options, options, warrants (excluding securities Plan Category warrants and rights and rights reflected in column (a)) ----------------------------------- ---------------------- -------------------- ----------------------------- Equity compensation plans approved by shareowners 4,325,172 (1) $29.44 3,226,517 (2) Equity compensation plans not approved by shareowners N/A (3) N/A N/A (4) ---------------------- -------------------- ----------------------------- Total 4,325,172 $29.44 3,226,517 ====================== ==================== =============================
(1) Represents performance shares and options to purchase shares of Alliant Energy common stock granted under the Alliant Energy LTEIP and EIP. The performance shares are paid out in shares of Alliant Energy common stock or a combination of cash and stock and are modified by a performance multiplier, which ranges from zero to two, based on the performance criteria. The performance shares included in column (a) of the table reflect an assumed payout at a performance multiplier of two. (2) All of the available shares under the LTEIP and EIP may be issued upon the exercise of stock options or may be issued as awards in the form of stock appreciation rights, restricted stock, restricted stock units, performance shares or performance units. Excludes 1,745 shares of restricted common stock previously issued and outstanding for which the restrictions have not lapsed. (3) As of Dec. 31, 2002, there have been 239,467 shares of Alliant Energy common stock issued under the Alliant Energy Key Employee Deferred Compensation Plan (KEDCP) and the Alliant Energy Deferred Compensation Plan for Directors (DDCP) described below. (4) There is no limit on the number of shares of Alliant Energy common stock that may be issued under the KEDCP and the DDCP. Deferred Compensation Plans - Alliant Energy maintains an unfunded KEDCP under which participants may defer up to 100% of base salary, incentive compensation and eligible supplemental executive retirement plan payments. Participants who have made the maximum allowed contribution to the Alliant Energy 401(k) Savings Plan may receive an additional credit to the deferred compensation plan. Alliant Energy also maintains an unfunded DDCP under which directors may elect to defer all or part of their retainer fee. Key employees and directors may elect to have their deferrals credited to an interest account or a company stock account, which are held in grantor trusts. Payments from the company stock account will be made in shares of Alliant Energy common stock. The remainder of the information required by Item 12 is incorporated herein by reference to the relevant information under the caption "Ownership of Voting Securities" in the 2003 Alliant Energy Proxy Statement, which will be filed with the SEC within 120 days after the end of Alliant Energy's fiscal year. IP&L To IP&L's knowledge, no shareowner beneficially owned 5% or more of IP&L's 8.375% Cumulative Preferred Stock as of Dec. 31, 2002. None of the directors or executive officers of IP&L own any shares of IP&L's 8.375% Cumulative Preferred Stock. 125 WP&L The information required by Item 12 is incorporated herein by reference to the relevant information under the caption "Ownership of Voting Securities" in the 2003 WP&L Proxy Statement, which will be filed with the SEC within 120 days after the end of WP&L's fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. ITEM 14. CONTROLS AND PROCEDURES Within 90 days prior to the date of filing this Annual Report on Form 10-K, Alliant Energy, IP&L and WP&L carried out evaluations, under the supervision and with the participation of their management, including their CEO, CFO and Disclosure Committee, of the effectiveness of the design and operation of Alliant Energy's, IP&L's and WP&L's disclosure controls and procedures pursuant to the requirements of the Securities Exchange Act of 1934, as amended. Based on those evaluations, the CEO and the CFO concluded that Alliant Energy's, IP&L's and WP&L's disclosure controls and procedures were effective as of the date of such evaluation. There have been no significant changes in Alliant Energy's, IP&L's and WP&L's internal controls, or in other factors that could significantly affect internal controls, subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Consolidated Financial Statements - Refer to "Index to Financial --------------------------------- Statements" in Item 8 Financial Statements and Supplementary Data. (a) (2) Financial Statement Schedules - Schedule II. Valuation and Qualifying ----------------------------- Accounts and Reserves NOTE: All other schedules are omitted because they are not applicable or not required, or because that required information is shown either in the consolidated financial statements or in the notes thereto. (a) (3) Exhibits Required by Securities and Exchange Commission ------------------------------------------------------- Regulation S-K - The following Exhibits are filed herewith or incorporated -------------- herein by reference. 2.1 Agreement and Plan of Merger, dated as of March 15, 2000, as amended on Nov. 29, 2000, between IP&L (formerly IESU) and IPC (incorporated by reference to Appendix A to the joint proxy statement/prospectus of IP&L, dated Feb. 13, 2001 (Registration No. 333-53846)) 3.1 Restated Articles of Incorporation of Alliant Energy, as amended (incorporated by reference to Exhibit 3.2 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1999) 3.2 Bylaws of Alliant Energy, as amended, effective as of Jan. 30, 2001 (incorporated by reference to Exhibit 3.2 to Alliant Energy's Form 10-K for the year 2000) 3.3 Restated Articles of Incorporation of WP&L, as amended (incorporated by reference to Exhibit 3.1 to WP&L's Form 10-Q for the quarter ended June 30, 1994) 3.4 Bylaws of WP&L, as amended, effective as of Jan. 30, 2001 (incorporated by reference to Exhibit 3.4 to WP&L's Form 10-K for the year 2000) 3.5 Restated Articles of Incorporation of IP&L (incorporated by reference to Exhibit 3.1 to IP&L's Form 10-Q for the quarter ended Sept. 30, 2002) 3.5a Articles of Amendment to IP&L's Restated Articles of Incorporation 126 3.6 Bylaws of IP&L, as amended, effective as of Jan. 30, 2001 (incorporated by reference to Exhibit 3.6 to IP&L's Form 10-K for the year 2000) 4.1 Rights Agreement, dated Jan. 20, 1999, between Alliant Energy and Wells Fargo Bank Minnesota, N.A., successor (incorporated by reference to Exhibit 4.1 to Alliant Energy's Registration Statement on Form 8-A, dated Jan. 20, 1999) 4.2 Indenture of Mortgage or Deed of Trust dated Aug. 1, 1941, between WP&L and U.S. Bank National Association (U.S. Bank) and Robert T. Jones, successor, as Trustees, filed as Exhibit 7(a) in File No. 2-6409, and the indentures supplemental thereto dated, respectively, Jan. 1, 1948, Sept. 1, 1948, June 1, 1950, April 1, 1951, April 1, 1952, Sept. 1, 1953, Oct. 1, 1954, March 1, 1959, May 1, 1962, Aug. 1, 1968, June 1, 1969, Oct. 1, 1970, July 1, 1971, April 1, 1974, Dec. 1, 1975, May 1, 1976, May 15, 1978, Aug. 1, 1980, Jan. 15, 1981, Aug. 1, 1984, Jan. 15, 1986, June 1, 1986, Aug. 1, 1988, Dec. 1, 1990, Sept. 1, 1991, Oct. 1, 1991, March 1, 1992, May 1, 1992, June 1, 1992 and July 1, 1992 (Second Amended Exhibit 7(b) in File No. 2-7361; Amended Exhibit 7(c) in File No. 2-7628; Amended Exhibit 7.02 in File No. 2-8462; Amended Exhibit 7.02 in File No. 2-8882; Second Amendment Exhibit 4.03 in File No. 2-9526; Amended Exhibit 4.03 in File No. 2-10406; Amended Exhibit 2.02 in File No. 2-11130; Amended Exhibit 2.02 in File No. 2-14816; Amended Exhibit 2.02 in File No. 2-20372; Amended Exhibit 2.02 in File No. 2-29738; Amended Exhibit 2.02 in File No. 2-32947; Amended Exhibit 2.02 in File No. 2-38304; Amended Exhibit 2.02 in File No. 2-40802; Amended Exhibit 2.02 in File No. 2-50308; Exhibit 2.01(a) in File No. 2-57775; Amended Exhibit 2.02 in File No. 2-56036; Amended Exhibit 2.02 in File No. 2-61439; Exhibit 4.02 in File No. 2-70534; Amended Exhibit 4.03 in File No. 2-70534; Exhibit 4.02 in File No. 33-2579; Amended Exhibit 4.03 in File No. 33-2579; Amended Exhibit 4.02 in File No. 33-4961; Exhibit 4.24 in File No. 33-45726, Exhibit 4.25 in File No. 33-45726, Exhibit 4.26 in File No. 33-45726, Exhibit 4.27 in File No. 33-45726, Exhibit 4.1 to WP&L's Form 8-K dated March 9, 1992, Exhibit 4.1 to WP&L's Form 8-K dated May 12, 1992, Exhibit 4.1 to WP&L's Form 8-K dated June 29, 1992 and Exhibit 4.1 to WP&L's Form 8-K dated July 20, 1992) 4.3 Indenture, dated as of June 20, 1997, between WP&L and U.S. Bank, as Trustee, relating to debt securities (incorporated by reference to Exhibit 4.33 to Amendment No. 2 to WP&L's Registration Statement on Form S-3 (Registration No. 33-60917)) 4.4 Officers' Certificate, dated as of June 25, 1997, creating WP&L's 7% debentures due June 15, 2007 (incorporated by reference to Exhibit 4 to WP&L's Form 8-K, dated June 25, 1997) 4.5 Officers' Certificate, dated as of Oct. 27, 1998, creating WP&L's 5.7% debentures due Oct. 15, 2008 (incorporated by reference to Exhibit 4 to WP&L's Form 8-K, dated Oct. 27, 1998) 4.6 Officers' Certificate, dated as of March 1, 2000, creating WP&L's 7-5/8% debentures due March 1, 2010 (incorporated by reference to Exhibit 4 to WP&L's Form 8-K, dated March 1, 2000) 4.7 Indenture of Mortgage and Deed of Trust, dated as of Sept. 1, 1993, between IP&L and Bank One Trust Company, National Association (Bank One Trust), successor, as Trustee (incorporated by reference to Exhibit 4(c) to IP&L's Form 10-Q for the quarter ended Sept. 30, 1993), and the indentures supplemental thereto dated, respectively, Oct. 1, 1993, Nov. 1, 1993, March 1, 1995, Sept. 1, 1996 and April 1, 1997 (Exhibit 4(d) in IP&L's Form 10-Q dated Nov. 12, 1993, Exhibit 4(e) in IP&L's Form 10-Q dated Nov. 12, 1993, Exhibit 4(b) in IP&L's Form 10-Q dated May 12, 1995, Exhibit 4(c)(i) in IP&L's Form 8-K dated Sept. 19, 1996 and Exhibit 4(a) in IP&L's Form 10-Q dated May 14, 1997) 4.8 Indenture or Deed of Trust dated as of Feb. 1, 1923, between IP&L and Bank One Trust, successor and Lawrence Dillard, successor, as Trustees (incorporated by reference to Exhibit B-1 to File No. 2-1719), and the indentures supplemental thereto dated, respectively, May 1, 1940, May 2, 1940, Oct. 1, 1945, Oct. 2, 1945, Jan. 1, 1948, Sept. 1, 1950, Feb. 1, 1953, Oct. 2, 1953, Aug. 1, 1957, Sept. 1, 1962, June 1, 1967, Feb. 1, 1973, Feb. 1, 1975, July 1, 1975, Sept. 2, 1975, March 10, 1976, Feb. 1, 1977, Jan. 1, 1978, March 1, 1979, March 1, 1980, May 31, 1986, July 1, 1991, Sept. 1, 1992 and Dec. 1, 1994 (Exhibit B-1-k in File No. 2-4921, Exhibit B-1-l in File No. 2-4921, Exhibit 7(m) in File No. 2-8053, Exhibit 7(n) in File No. 2-8053, Exhibit 7(o) in File No. 2-8053, Exhibit 4(e) in 127 File No. 33-3995, Exhibit 4(b) in File No. 2-10543, Exhibit 4(q) in File No. 2-10543, Exhibit 2(b) in File No. 2-13496, Exhibit 2(b) in File No. 2-20667, Exhibit 2(b) in File No. 2-26478, Exhibit 2(b) in File No. 2-46530, Exhibit 2(aa) in File No. 2-53860, Exhibit 2(bb) in File No. 2-54285, Exhibit 2(bb) in File No. 2-57510, Exhibit 2(cc) in File No. 2-57510, Exhibit 2(ee) in File No. 2-60276, Exhibit 2 in File No. 0-849, Exhibit 2 in File No. 0-849, Exhibit 2 in File No. 0-849, Exhibit 4(g) in File No. 33-3995, Exhibit 4(h) in File No. 0-849, Exhibit 4(m) in File No. 0-849 and Exhibit 4(f) in File No. 0-4117-1) 4.9 Indenture (For Unsecured Subordinated Debt Securities), dated as of Dec. 1, 1995, between IP&L and Bank One Trust, successor, as Trustee (incorporated by reference to Exhibit 4(i) to IP&L's Amendment No. 1 to Registration Statement, File No. 33-62259) 4.10 Indenture (For Senior Unsecured Debt Securities), dated as of Aug. 1, 1997, between IP&L and Bank One Trust, successor, as Trustee (incorporated by reference to Exhibit 4(j) to IP&L's Registration Statement, File No. 333-32097) 4.11 Officer's Certificate, dated as of Aug. 4, 1997, creating IP&L's 6-5/8% Senior Debentures, Series A, due 2009 (incorporated by reference to Exhibit 4.12 to IP&L's Form 10-K for the year 2000) 4.12 Officers' Certificate, dated as of March 6, 2001, creating IP&L's 6-3/4% Series B Senior Debentures due 2011 (incorporated by reference to Exhibit 4 to IP&L's Form 8-K, dated March 6, 2001) 4.13 The Original through the Nineteenth Supplemental Indentures of IP&L, successor, to JPMorgan Chase Bank and James P. Freeman, successor, as Trustee, dated Jan. 1, 1948 securing First Mortgage Bonds (incorporated by reference to Exhibits 4(b) through 4(t) to IPC's Registration Statement No. 33-59352 dated March 11, 1993) 4.14 Twentieth Supplemental Indenture of IP&L, successor, to JPMorgan Chase Bank and James P. Freeman, successor, as Trustees, dated May 15, 1993 (incorporated by reference to Exhibit 4(u) to IPC's Registration Statement No. 33-59352 dated March 11, 1993) 4.15 Twenty-First Supplemental Indenture of IP&L, successor, to JPMorgan Chase Bank and James P. Freeman, as Trustees, dated Dec. 31, 2001 (incorporated by reference to Exhibit 4.3 to IP&L's Form 8-K, dated Jan. 1, 2002) 4.16 Indenture, dated as of Nov. 4, 1999, among Resources, Alliant Energy, as Guarantor, and U.S. Bank, as Trustee (incorporated by reference to Exhibit 4.1 to Resources' and Alliant Energy's Registration Statement on Form S-4 (Registration No. 333-92859)), and the indentures supplemental thereto dated, respectively, Nov. 4, 1999, Feb. 1, 2000 and Nov. 15, 2001 (Exhibit 4.2 in Registration No. 333-92859, Exhibit 99.4 in Alliant Energy's Form 8-K dated Feb. 1, 2000 and Exhibit 4.4 in Resources' and Alliant Energy's Registration Statement on Form S-4 (Registration No. 333-75020)) 4.16a Fourth Supplemental Indenture, dated as of Dec. 26, 2002, among Resources, Alliant Energy, as Guarantor, and U.S. Bank, as Trustee 4.17 Registration Rights Agreement, dated as of Dec. 26, 2002, among Resources, Alliant Energy, Merrill Lynch, Pierce, Fenner & Smith Inc., Utehdahl Capital Partners, L.P. and The Williams Capital Group, L.P. 4.18 Registration Rights Agreement, dated as of Dec. 20, 2002, between IP&L and Robert W. Baird & Co. Inc. 10.1 364-Day Credit Agreement, dated as of Oct. 11, 2002, among Alliant Energy, the Banks named therein and Bank One, NA, as administrative agent and issuer of Letters of Credit (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended Sept. 30, 2002) 10.2 Credit Agreement, dated as of Oct. 11, 2002, among IP&L, the Banks named therein and Citibank, N.A., as administrative agent (incorporated by reference to Exhibit 10.2 to IP&L's 10-Q for the quarter ended Sept. 30, 2002) 10.3 Credit Agreement, dated as of Oct. 11, 2002, among WP&L, the Banks named therein and Citibank, N.A., as administrative agent (incorporated by reference to Exhibit 10.3 to WP&L's 10-Q for the quarter ended Sept. 30, 2002) 128 10.4 364-Day Credit Agreement, dated as of Dec. 27, 2002, among Resources, as Borrower, and Alliant Energy, Heartland Properties, Inc. and International, as Guarantors and the Lenders Named therein and Merrill Lynch Capital Corporation, as Administrative Agent 10.5 Credit Agreement, dated as of Dec. 20, 2002, among Whiting, as Borrower, the Financial Institutions Listed on Schedule 1.1 thereto, as Banks, Bank One, NA, as Administrative Agent, and Wachovia Bank, National Association, as Syndication Agent 10.5a First Amendment to Credit Agreement, dated as of Jan. 7, 2003, by and among Whiting, Bank One, NA, as Administrative Agent and each of the Financial Institutions a Party thereto 10.6 Service Agreement by and among WP&L, South Beloit, IP&L and Corporate Services (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.7 Service Agreement by and among Resources, IPC Development Company, Inc. and Corporate Services (incorporated by reference to Exhibit 10.2 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.8 System Coordination and Operating Agreement dated April 11, 1997, among IP&L, WP&L and Corporate Services (incorporated by reference to Exhibit 10.3 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.9 Joint Power Supply Agreement among WPSC, WP&L, and MG&E, dated Feb. 2, 1967 (incorporated by reference to Exhibit 4.09 of WPSC in File No. 2-27308) 10.9a Amendment No. 1 to Joint Power Supply Agreement dated Feb. 2, 1967 among WPSC, WP&L, and MG&E (incorporated by reference to Exhibit 10.1 to WP&L's Form 10-Q for the quarter ended Sept. 30, 2001) 10.10 Joint Power Supply Agreement among WPSC, WP&L, and MG&E, dated July 26, 1973 (incorporated by reference to Exhibit 5.04A of WPSC in File No. 2-48781) 10.11 Basic Generating Agreement, Unit 4, Edgewater Generating Station, dated June 5, 1967, between WP&L and WPSC (incorporated by reference to Exhibit 4.10 of WPSC in File No. 2-27308) 10.12 Agreement for Construction and Operation of Edgewater 5 Generating Unit, dated Feb. 24, 1983, between WP&L, WEPCO and WPSC (incorporated by reference to Exhibit 10C-1 to WPSC's Form 10-K for the year 1983 (File No. 1-3016)) 10.12a Amendment No. 1 to Agreement for Construction and Operation of Edgewater 5 Generating Unit, dated Dec. 1, 1988 (incorporated by reference to Exhibit 10C-2 to WPSC's Form 10-K for the year 1988 (File No. 1-3016)) 10.13 Revised Agreement for Construction and Operation of Columbia Generating Plant among WPSC, WP&L, and MG&E, dated July 26, 1973 (incorporated by reference to Exhibit 5.07 of WPSC in File No. 2-48781) 10.14 Operating and Transmission Agreement between CIPCO and IP&L (incorporated by reference to Exhibit 10(q) to IP&L's Form 10-K for the year 1990) 10.15 DAEC Ownership Participation Agreement dated June 1, 1970 between CIPCO, Corn Belt Power Cooperative and IP&L (incorporated by reference to Exhibit 5(kk) to IP&L's Registration Statement, File No. 2-38674) 10.16 DAEC Operating Agreement dated June 1, 1970 between CIPCO, Corn Belt Power Cooperative and IP&L (incorporated by reference to Exhibit 5(ll) to IP&L's Registration Statement, File No. 2-38674) 10.17 DAEC Agreement for Transmission, Transformation, Switching, and Related Facilities dated June 1, 1970 between CIPCO, Corn Belt Power Cooperative and IP&L (incorporated by reference to Exhibit 5(mm) to IP&L's Registration Statement, File No. 2-38674) 129 10.18 Basic Generating Agreement dated April 16, 1975 between Iowa Public Service Company, Iowa Power and Light Company, Iowa-Illinois Gas and Electric Company and IP&L for the joint ownership of Ottumwa Generating Station-Unit 1 (OGS-1) (incorporated by reference to Exhibit 1 to IP&L's Form 10-K for the year 1977) 10.18a Addendum Agreement to the Basic Generating Agreement for OGS-1 dated Dec. 7, 1977 between Iowa Public Service Company, Iowa-Illinois Gas and Electric Company, Iowa Power and Light Company and IP&L for the purchase of 15% ownership in OGS-1 (incorporated by reference to Exhibit 3 to IP&L's Form 10-K for the year 1977) 10.19 Second Amended and Restated Credit Agreement dated as of Sept. 17, 1987 between Arnold Fuel, Inc. and Bank One Trust, successor, and the Amended and Restated Consent and Agreement dated as of Sept. 17, 1987 by IP&L (incorporated by reference to Exhibit 10(j) to IP&L's Form 10-K for the year 1987) 10.20 Asset Contribution Agreement between ATC and WEPCO, WP&L, WPSC, MG&E, Edison Sault Electric Company and South Beloit, dated as of Dec. 15, 2000 (incorporated by reference to Exhibit 10.15 to Alliant Energy's Form 10-K for the year 2000) 10.20a Addenda to the Asset Contribution Agreement between ATC and WEPCO, WP&L, WPSC, MG&E, Edison Sault Electric Company and South Beloit, dated as of Dec. 15, 2000 (incorporated by reference to Exhibit 10.15a to Alliant Energy's Form 10-K for the year 2000) 10.21 Operating Agreement of ATC, dated as of Jan. 1, 2001 (incorporated by reference to Exhibit 10.16 to Alliant Energy's Form 10-K for the year 2000) 10.22# Alliant Energy LTEIP, as amended (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1999) 10.23# Alliant Energy EIP (incorporated by reference to Exhibit 4.2 to Alliant Energy's Registration Statement on Form S-8 (Registration No. 333-88304)) 10.24# Alliant Energy 1998 Officer Incentive Compensation Plan (incorporated by reference to Exhibit 10.16 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.25# Alliant Energy KEDCP (incorporated by reference to Exhibit 4.2 to Alliant Energy's Registration Statement on Form S-8 dated Dec. 1, 2000) 10.26# KEDCP (incorporated by reference to Exhibit 10(n) to IES's Form 10-K for the year 1987) 10.26a# Amendments to Key Employee Deferred Compensation Agreement for Key Employees (incorporated by reference to Exhibit 10(v) to IES's Form 10-Q for the quarter ended March 31, 1990) 10.27# DDCP, as amended and restated effective Jan. 1, 2000, amended Nov. 14, 2001 (incorporated by reference to Exhibit 10.22 to Alliant Energy's Form 10-K for the year 2001) 10.28# IP&L Irrevocable Trust Agreement dated April 30, 1990 (incorporated by reference to Exhibit 99.f to IPC's Form 10-K for the year 1993) 10.29# IP&L Irrevocable Trust Agreement dated December 1997 (incorporated by reference to Exhibit 99.7 to IPC's Form 10-K for the year 1997) 10.30# Alliant Energy Grantor Trust for Deferred Compensation Agreements (Key Employees) (incorporated by reference to Exhibit 4.4 to Alliant Energy's Registration Statement on Form S-8 (Registration No. 33-51126)) 10.31# Alliant Energy Grantor Trust for Deferred Compensation Agreements (Directors) (incorporated by reference to Exhibit 4.3 to Alliant Energy's Registration Statement on Form S-8 (Registration No. 33-51126)) 10.32# Form of Supplemental Retirement Agreement (SRA) (incorporated by reference to Exhibit 10.15 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 130 10.33# Form of SRA (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended June 30, 2002) 10.34# Supplemental Retirement Plan (incorporated by reference to Exhibit 10(l) to IES's Form 10-K for the year 1987) 10.35# Alliant Energy Excess Plan (incorporated by reference to Exhibit 10.33 to Alliant Energy's Form 10-K for the year 2000) 10.36# SRA by and between Alliant Energy and E.B. Davis, Jr., W.D. Harvey, J.E. Hoffman, E.G. Protsch, B.J. Swan, P.J. Wegner and T.M. Walker (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended March 31, 2000) 10.37# Key Executive Employment and Severance Agreement (KEESA), dated March 29, 1999, by and between Alliant Energy and Erroll B. Davis, Jr. (incorporated by reference to Exhibit 10.2 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.38# KEESA, dated March 29, 1999, by and between Alliant Energy and each of J.E. Hoffman, W.D. Harvey, E.G. Protsch, P.J. Wegner, T.M. Walker and B.J. Swan (incorporated by reference to Exhibit 10.3 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.39# KEESA, dated March 29, 1999, by and between Alliant Energy and each of T.L. Aller, D.K. Doyle, D.L. Mineck, and K.K. Zuhlke; dated April 23, 2002, by and between Alliant Energy and V.A. Gebhart; dated May 22, 2002, by and between Alliant Energy and T.L. Hanson (incorporated by reference to Exhibit 10.4 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.40# Employment Agreement by and between Alliant Energy and Erroll B. Davis, Jr., amended and restated as of March 29, 1999 (incorporated by reference to Exhibit 10.5 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.41# Executive Tenure Compensation Plan as revised November 1992 (incorporated by reference to Exhibit 10A to Alliant Energy's Form 10-K for the year 1992) 10.41a# Amendment to Executive Tenure Compensation Plan adopted Feb. 23, 1998 (incorporated by reference to Exhibit 10.19a to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 21 Subsidiaries of Alliant Energy and WP&L 23 Independent Auditors' Consent for Alliant Energy 99.1 Written Statement of the Chairman, President and CEO Pursuant to 18 U.S.C. Section 1350 for Alliant Energy 99.2 Written Statement of the EVP and CFO Pursuant to 18 U.S.C. Section 1350 for Alliant Energy 99.3 Written Statement of the Chairman and CEO Pursuant to 18 U.S.C. Section 1350 for IP&L 99.4 Written Statement of the EVP and CFO Pursuant to 18 U.S.C. Section 1350 for IP&L 99.5 Written Statement of the Chairman and CEO Pursuant to 18 U.S.C. Section 1350 for WP&L 99.6 Written Statement of the EVP and CFO Pursuant to 18 U.S.C. Section 1350 for WP&L Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrants agree to furnish to the SEC, upon request, any instrument defining the rights of holders of unregistered long-term debt not filed as an exhibit to this Form 10-K. No such instrument authorizes securities in excess of 10% of the total assets of Alliant Energy, WP&L or IP&L, as the case may be. Documents incorporated by reference to filings made by Alliant Energy under the Securities Exchange Act of 1934, as amended, are under File No. 1-9894. Documents incorporated by reference to filings made by WP&L under the Securities Exchange Act of 1934, as amended, are under File No. 0-337. Documents incorporated by reference to filings made by IES under the Securities Exchange Act of 1934, as amended, are under File No. 1-9187. Documents incorporated by reference to filings made by IP&L under the 131 Securities Exchange Act of 1934, as amended, are under File No. 0-4117-1. Documents incorporated by reference to filings made by IPC under the Securities Exchange Act of 1934, as amended, are under File No. 1-3632. # - A management contract or compensatory plan or arrangement. (b) Reports on Form 8-K ------------------- Alliant Energy Alliant Energy filed a Current Report on Form 8-K, dated Dec. 26, 2002, reporting (under Items 5 and 7) that it issued a press release announcing that Resources completed a private placement of $300 million in senior notes in accordance with Rule 144A under the Securities Act of 1933. Alliant Energy filed a Current Report on Form 8-K, dated Dec. 20, 2002, reporting (under Items 5 and 7) that it issued two press releases announcing that: 1) IP&L completed a private placement of $150 million of preferred stock in accordance with Rule 144A under the Securities Act of 1933; and 2) Whiting closed a revolving credit facility with a current maximum borrowing availability of $200 million which matures on Dec. 20, 2005. Alliant Energy filed a Current Report on Form 8-K, dated Dec. 16, 2002, reporting (under Item 5) that, among other things, it: 1) will, as early as the fourth quarter of 2002, be required under SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," to classify the assets of Whiting, its investments in Australia and its affordable housing business as held for sale and their operations as discontinued operations; 2) may also be required to record accounting adjustments, other charges and/or income in the fourth quarter of 2002 and/or in 2003 related to these proposed divestitures; 3) had engaged its current independent auditors, Deloitte & Touche LLP, to reaudit its financial statements for the years ended Dec. 31, 2001 and 2000 as a result of the aforementioned reclassifications; and 4) continues to pursue various financing transactions, the proceeds of which will be used to repay short-term debt and for other general corporate purposes, to enhance its liquidity position. Alliant Energy filed a Current Report on Form 8-K, dated Nov. 22, 2002, reporting (under Items 5 and 7) that it issued a press release announcing that its Board of Directors approved five strategic actions designed to maintain strong credit ratings, strengthen its balance sheet and position it for improved long-term financial performance and providing updated 2003 earnings guidance based on these actions. IP&L IP&L filed a Current Report on Form 8-K, dated Dec. 20, 2002, reporting (under Items 5 and 7) that Alliant Energy issued a press release announcing that IP&L completed a private placement of $150 million of preferred stock in accordance with Rule 144A under the Securities Act of 1933. WP&L - None. 132 SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Additions ----------------------------------- Balance, Charged to Charged to Other Balance, Description Jan. 1 Expense Accounts (1) Deductions (2) Dec. 31 ------------------------------------------------------------------------------------------------------------------------------- (in thousands) Valuation and Qualifying Accounts Which are Deducted in the Balance Sheet From the Assets to Which They Apply: Accumulated Provision for Uncollectible Accounts: ------------------------------------------------- Alliant Energy -------------- Year ended Dec. 31, 2002 $9,045 $15,659 $1,244 $12,072 $13,876 Year ended Dec. 31, 2001 4,341 9,613 2,368 7,277 9,045 Year ended Dec. 31, 2000 3,048 3,644 1,616 3,967 4,341 IP&L ---- Year ended Dec. 31, 2002 $1,883 $3,115 $-- $3,716 $1,282 Year ended Dec. 31, 2001 1,316 7,206 -- 6,639 1,883 Year ended Dec. 31, 2000 1,841 3,273 -- 3,798 1,316 WP&L ---- Year ended Dec. 31, 2002 $1,543 $4,067 $1,244 $4,626 $2,228 Year ended Dec. 31, 2001 8 37 1,498 -- 1,543 Year ended Dec. 31, 2000 6 2 -- -- 8 Note: The above provisions relate to various customer, notes and other receivable balances included in various line items on the respective Consolidated Balance Sheets. Other Reserves: Accumulated Provision for Injuries & Damages, Workers' Compensation, Litigation and Other Miscellaneous Reserves: ----------------------------------------------------------------------------------------------------------------- Alliant Energy -------------- Year ended Dec. 31, 2002 $7,596 $10,221 $-- $4,079 $13,738 Year ended Dec. 31, 2001 12,489 3,047 -- 7,940 7,596 Year ended Dec. 31, 2000 8,963 8,505 -- 4,979 12,489 IP&L ---- Year ended Dec. 31, 2002 $4,618 $4,551 $-- $1,994 $7,175 Year ended Dec. 31, 2001 4,825 1,712 -- 1,919 4,618 Year ended Dec. 31, 2000 5,123 2,766 -- 3,064 4,825 WP&L ---- Year ended Dec. 31, 2002 $2,574 $4,011 $-- $1,732 $4,853 Year ended Dec. 31, 2001 2,689 1,266 -- 1,381 2,574 Year ended Dec. 31, 2000 2,994 1,282 -- 1,587 2,689
(1) Accumulated provision for uncollectible accounts: In 2001, Resources acquired SmartEnergy and assumed a provision of $0.9 million. In 2000, Alliant Energy acquired EUA Cogenex Corporation and assumed a provision of $1.6 million. In accordance with its regulatory treatment, certain amounts provided by WP&L are recorded in regulatory assets. (2) Deductions are of the nature for which the reserves were created. In the case of the accumulated provision for uncollectible accounts, deductions from this reserve are reduced by recoveries of amounts previously written off. 133 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 25th day of March 2003. ALLIANT ENERGY CORPORATION By: /s/ Erroll B. Davis, Jr. ------------------------ Erroll B. Davis, Jr. Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 25th day of March 2003.
/s/ Erroll B. Davis, Jr. Chairman, President, Chief Executive Officer and Director (Principal Executive Officer) ----------------------------- Erroll B. Davis, Jr. /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer (Principal Financial Officer) ----------------------------- Thomas M. Walker /s/ John E. Kratchmer Vice President-Controller and Chief Accounting Officer (Principal Accounting Officer) ----------------------------- John E. Kratchmer /s/ Alan B. Arends Director /s/ David A. Perdue Director ----------------------------- -------------------------------- Alan B. Arends David A. Perdue /s/ Jack B. Evans Director /s/ Judith D. Pyle Director ----------------------------- -------------------------------- Jack B. Evans Judith D. Pyle /s/ Joyce L. Hanes Director /s/ Robert W. Schlutz Director ----------------------------- -------------------------------- Joyce L. Hanes Robert W. Schlutz /s/ Lee Liu Director /s/ Wayne H. Stoppelmoor Director ----------------------------- -------------------------------- Lee Liu Wayne H. Stoppelmoor /s/ Katharine C. Lyall Director /s/ Anthony R. Weiler Director ----------------------------- -------------------------------- Katharine C. Lyall Anthony R. Weiler /s/ Singleton B. McAllister Director ----------------------------- Singleton B. McAllister
134 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 25th day of March 2003. INTERSTATE POWER AND LIGHT COMPANY By: /s/ Erroll B. Davis, Jr. ------------------------ Erroll B. Davis, Jr. Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 25th day of March 2003.
/s/ Erroll B. Davis, Jr. Chairman, Chief Executive Officer and Director (Principal Executive Officer) ----------------------------- Erroll B. Davis, Jr. /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer (Principal Financial Officer) ----------------------------- Thomas M. Walker /s/ John E. Kratchmer Vice President-Controller and Chief Accounting Officer (Principal Accounting Officer) ----------------------------- John E. Kratchmer /s/ Alan B. Arends Director /s/ David A. Perdue Director ----------------------------- -------------------------------- Alan B. Arends David A. Perdue /s/ Jack B. Evans Director /s/ Judith D. Pyle Director ----------------------------- -------------------------------- Jack B. Evans Judith D. Pyle /s/ Joyce L. Hanes Director /s/ Robert W. Schlutz Director ----------------------------- -------------------------------- Joyce L. Hanes Robert W. Schlutz /s/ Lee Liu Director /s/ Wayne H. Stoppelmoor Director ----------------------------- -------------------------------- Lee Liu Wayne H. Stoppelmoor /s/ Katharine C. Lyall Director /s/ Anthony R. Weiler Director ----------------------------- -------------------------------- Katharine C. Lyall Anthony R. Weiler /s/ Singleton B. McAllister Director ----------------------------- Singleton B. McAllister
135 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 25th day of March 2003. WISCONSIN POWER AND LIGHT COMPANY By: /s/ Erroll B. Davis, Jr. ------------------------ Erroll B. Davis, Jr. Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 25th day of March 2003.
/s/ Erroll B. Davis, Jr. Chairman, Chief Executive Officer and Director (Principal Executive Officer) ----------------------------- Erroll B. Davis, Jr. /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer (Principal Financial Officer) ----------------------------- Thomas M. Walker /s/ John E. Kratchmer Vice President-Controller and Chief Accounting Officer (Principal Accounting Officer) ----------------------------- John E. Kratchmer /s/ Alan B. Arends Director /s/ David A. Perdue Director ----------------------------- -------------------------------- Alan B. Arends David A. Perdue /s/ Jack B. Evans Director /s/ Judith D. Pyle Director ----------------------------- -------------------------------- Jack B. Evans Judith D. Pyle /s/ Joyce L. Hanes Director /s/ Robert W. Schlutz Director ----------------------------- -------------------------------- Joyce L. Hanes Robert W. Schlutz /s/ Lee Liu Director /s/ Wayne H. Stoppelmoor Director ----------------------------- -------------------------------- Lee Liu Wayne H. Stoppelmoor /s/ Katharine C. Lyall Director /s/ Anthony R. Weiler Director ----------------------------- -------------------------------- Katharine C. Lyall Anthony R. Weiler /s/ Singleton B. McAllister Director ----------------------------- Singleton B. McAllister
136 CERTIFICATIONS I, Erroll B. Davis, Jr., certify that: 1. I have reviewed this annual report on Form 10-K of Alliant Energy Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Erroll B. Davis, Jr. ------------------------ Erroll B. Davis, Jr. Chairman, President and Chief Executive Officer 137 I, Thomas M. Walker, certify that: 1. I have reviewed this annual report on Form 10-K of Alliant Energy Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Thomas M. Walker -------------------- Thomas M. Walker Executive Vice President and Chief Financial Officer 138 I, Erroll B. Davis, Jr., certify that: 1. I have reviewed this annual report on Form 10-K of Interstate Power and Light Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Erroll B. Davis, Jr. ------------------------ Erroll B. Davis, Jr. Chairman and Chief Executive Officer 139 I, Thomas M. Walker, certify that: 1. I have reviewed this annual report on Form 10-K of Interstate Power and Light Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Thomas M. Walker -------------------- Thomas M. Walker Executive Vice President and Chief Financial Officer 140 I, Erroll B. Davis, Jr., certify that: 1. I have reviewed this annual report on Form 10-K of Wisconsin Power and Light Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Erroll B. Davis, Jr. ------------------------ Erroll B. Davis, Jr. Chairman and Chief Executive Officer 141 I, Thomas M. Walker, certify that: 1. I have reviewed this annual report on Form 10-K of Wisconsin Power and Light Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Thomas M. Walker -------------------- Thomas M. Walker Executive Vice President and Chief Financial Officer 142 ALLIANT ENERGY CORPORATION INTERSTATE POWER AND LIGHT COMPANY WISCONSIN POWER AND LIGHT COMPANY Exhibit Index to Annual Report on Form 10-K For the fiscal year ended Dec. 31, 2002
Exhibit Number Description ------ ----------- 3.5a Articles of Amendment to IP&L's Restated Articles of Incorporation 4.16a Fourth Supplemental Indenture, dated as of Dec. 26, 2002, among Resources, Alliant Energy, as Guarantor, and U.S. Bank, as Trustee 4.17 Registration Rights Agreement, dated as of Dec. 26, 2002, among Resources, Alliant Energy, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Utehdahl Capital Partners, L.P. and The Williams Capital Group, L.P. 4.18 Registration Rights Agreement, dated as of Dec. 20, 2002, between IP&L and Robert W. Baird & Co. Incorporated 10.4 364-Day Credit Agreement, dated as of Dec. 27, 2002, among Resources, as Borrower, and Alliant Energy, Heartland Properties, Inc. and International, as Guarantors and the Lenders Named therein and Merrill Lynch Capital Corporation, as Administrative Agent 10.5 Credit Agreement, dated as of Dec. 20, 2002, among Whiting, as Borrower, the Financial Institutions Listed on Schedule 1.1 thereto, as Banks, Bank One, NA, as Administrative Agent, and Wachovia Bank, National Association, as Syndication Agent 10.5a First Amendment to Credit Agreement, dated as of Jan. 7, 2003, by and among Whiting, Bank One, NA, as Administrative Agent and each of the Financial Institutions a Party thereto 21 Subsidiaries of Alliant Energy and WP&L 23 Independent Auditors' Consent for Alliant Energy 99.1 Written Statement of the Chairman, President and CEO Pursuant to 18 U.S.C. Section 1350 for Alliant Energy 99.2 Written Statement of the EVP and CFO Pursuant to 18 U.S.C. Section 1350 for Alliant Energy 99.3 Written Statement of the Chairman and CEO Pursuant to 18 U.S.C. Section 1350 for IP&L 99.4 Written Statement of the EVP and CFO Pursuant to 18 U.S.C. Section 1350 for IP&L 99.5 Written Statement of the Chairman and CEO Pursuant to 18 U.S.C. Section 1350 for WP&L 99.6 Written Statement of the EVP and CFO Pursuant to 18 U.S.C. Section 1350 for WP&L
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