-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LIWDbFS3LXqeYQT9/gcFoMZn+hmvl0wuG45P+O32jntWnDZCqcXnQJPu32H0a1RW taF+xT1sftoZz8ylOkTRGQ== 0000897069-99-000422.txt : 19990817 0000897069-99-000422.hdr.sgml : 19990817 ACCESSION NUMBER: 0000897069-99-000422 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANT ENERGY CORP CENTRAL INDEX KEY: 0000352541 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 391380265 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-73138 FILM NUMBER: 99690814 BUSINESS ADDRESS: STREET 1: 222 WEST WSHNGTON AVENUE CITY: MADISON STATE: WI ZIP: 53703 BUSINESS PHONE: 6082523110 MAIL ADDRESS: STREET 1: P O BOX 2568 CITY: MADISON STATE: WI ZIP: 53701-2568 FORMER COMPANY: FORMER CONFORMED NAME: INTERSTATE ENERGY CORP DATE OF NAME CHANGE: 19980427 FORMER COMPANY: FORMER CONFORMED NAME: WPL HOLDINGS INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IES UTILITIES INC CENTRAL INDEX KEY: 0000052485 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 420331370 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04117 FILM NUMBER: 99690815 BUSINESS ADDRESS: STREET 1: 200 FIRST ST SE STREET 2: IES TOWER CITY: CEDAR RAPIDS STATE: IA ZIP: 52401 BUSINESS PHONE: 3193984411 FORMER COMPANY: FORMER CONFORMED NAME: IOWA ELECTRIC LIGHT & POWER CO DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IOWA RAILWAY & LIGHT CORP DATE OF NAME CHANGE: 19670629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WISCONSIN POWER & LIGHT CO CENTRAL INDEX KEY: 0000107832 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 390714890 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00337 FILM NUMBER: 99690816 BUSINESS ADDRESS: STREET 1: 222 W WASHINGTON AVE CITY: MADISON STATE: WI ZIP: 53703 BUSINESS PHONE: 6082523311 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 or [X] 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) 222 West Washington Avenue Madison, Wisconsin 53703 Telephone (608)252-3311 0-4117-1 IES UTILITIES INC. 42-0331370 (an Iowa corporation) Alliant Energy Tower Cedar Rapids, Iowa 52401 Telephone (319)398-4411 0-337 WISCONSIN POWER AND LIGHT COMPANY 39-0714890 (a Wisconsin corporation) 222 West Washington Avenue Madison, Wisconsin 53703 Telephone (608)252-3311 Interstate Energy Corporation (Former name of Alliant Energy Corporation)
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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past (90) days. Yes X No _____ This combined Form 10-Q is separately filed by Alliant Energy Corporation, IES Utilities Inc. and Wisconsin Power and Light Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. Number of shares outstanding of each class of common stock as of July 31, 1999: Alliant Energy Corporation Common stock, $.01 par value, 78,457,664 shares outstanding IES Utilities Inc. 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) CONTENTS Page ---- Part I. Financial Information 4 Item 1. Consolidated Financial Statements 4 Alliant Energy Corporation: Consolidated Statements of Income for the Three and Six Months Ended June 30, 1999 and 1998 4 Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998 7 Notes to Consolidated Financial Statements 8 IES Utilities Inc.: Consolidated Statements of Income for the Three and Six Months Ended June 30, 1999 and 1998 10 Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 11 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998 13 Notes to Consolidated Financial Statements 14 Wisconsin Power and Light Company: Consolidated Statements of Income for the Three and Six Months Ended June 30, 1999 and 1998 15 Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 16 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998 18 Notes to Consolidated Financial Statements 19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk 38 Part II. Other Information 38 Item 4. Submission of Matters to a Vote of Security Holders 38 Item 6. Exhibits and Reports on Form 8-K 41 Signatures 42 2 DEFINITIONS Certain abbreviations or acronyms used in the text and notes of this combined Form 10-Q are defined below: Abbreviation or Acronym Definition - ----------------------- ---------- ADEQ Arkansas Department of Environmental Quality Alliant Energy Alliant Energy Corporation Cargill Cargill Incorporated CEMS Continuous Emission Monitoring System Corporate Services Alliant Energy Corporate Services, Inc. Dth Dekatherm EAC Energy Adjustment Clause EPA United States Environmental Protection Agency FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission IDNR Iowa Department of Natural Resources IESU IES Utilities Inc. IPC Interstate Power Company ITC Independent Transmission Company IUB Iowa Utilities Board Kewaunee Kewaunee Nuclear Power Plant McLeod McLeodUSA Inc. MD&A Management's Discussion and Analysis of Financial Condition and Results of Operations Midwest ISO Midwest Independent System Operator MW Megawatt MWH Megawatt-Hour NERC North American Electric Reliability Council NOx Nitrogen Oxides NSP Northern States Power Company OCA Office of Consumer Advocate PGA Purchased Gas Adjustment PSCW Public Service Commission of Wisconsin PUHCA Public Utility Holding Company Act of 1935 Resources Alliant Energy Resources, Inc. RTO Regional Transmission Organization SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards SkyGen SkyGen Energy LLC Whiting Whiting Petroleum Corporation WP&L Wisconsin Power and Light Company WPSC Wisconsin Public Service Corporation WUHCA Wisconsin Utility Holding Company Act 3 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months For the Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Operating revenues: Electric utility $ 366,152 $ 380,414 $ 717,490 $ 738,165 Gas utility 46,200 45,267 179,885 175,313 Nonregulated and other 73,762 65,331 135,594 133,817 -------------- -------------- -------------- -------------- 486,114 491,012 1,032,969 1,047,295 -------------- -------------- -------------- -------------- - -------------------------------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 53,360 69,538 118,763 139,094 Purchased power 72,440 73,417 124,505 129,563 Cost of utility gas sold 22,666 23,907 104,009 101,186 Other operation 148,291 158,679 278,657 316,033 Maintenance 31,934 33,389 55,746 58,647 Depreciation and amortization 70,475 72,857 144,115 142,690 Taxes other than income taxes 26,690 26,598 53,929 53,575 -------------- -------------- -------------- -------------- 425,856 458,385 879,724 940,788 -------------- -------------- -------------- -------------- - -------------------------------------------------------------------------------------------------------------------------------- Operating income 60,258 32,627 153,245 106,507 -------------- -------------- -------------- -------------- - -------------------------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 34,715 32,231 68,114 63,155 Allowance for funds used during construction (1,782) (1,638) (3,716) (3,141) Preferred dividend requirements of subsidiaries 1,677 1,675 3,353 3,349 Miscellaneous, net (37,065) 11,035 (43,834) 7,159 -------------- -------------- -------------- -------------- (2,455) 43,303 23,917 70,522 -------------- -------------- -------------- -------------- - -------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 62,713 (10,676) 129,328 35,985 -------------- -------------- -------------- -------------- - -------------------------------------------------------------------------------------------------------------------------------- Income taxes 24,167 (1,578) 49,039 16,208 -------------- -------------- -------------- -------------- - -------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 38,546 $ (9,098) $ 80,289 $ 19,777 ============== ============== ============== ============== - -------------------------------------------------------------------------------------------------------------------------------- Average number of common shares outstanding 78,214 76,800 77,997 76,689 ============== ============== ============== ============== - -------------------------------------------------------------------------------------------------------------------------------- Earnings per average common share (basic and diluted) $ 0.49 $ (0.12) $ 1.03 $ 0.26 ============== ============== ============== ============== - -------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
4 ALLIANT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS
June 30, 1999 December 31, ASSETS (Unaudited) 1998 - -------------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Utility - Plant in service - Electric $ 4,923,657 $ 4,866,152 Gas 522,436 515,074 Other 432,694 409,711 ---------------- ---------------- 5,878,787 5,790,937 Less - Accumulated depreciation 2,985,592 2,852,605 ---------------- ---------------- 2,893,195 2,938,332 Construction work in progress 128,757 119,032 Nuclear fuel, net of amortization 54,762 44,316 ---------------- ---------------- 3,076,714 3,101,680 Other property, plant and equipment, net of accumulated depreciation and amortization of $191,728 and $178,248, respectively 357,856 355,100 ---------------- ---------------- 3,434,570 3,456,780 ---------------- ---------------- - -------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 29,403 31,827 Accounts receivable: Customer, less allowance for doubtful accounts of $2,201 and $2,518, respectively 84,415 102,966 Other, less allowance for doubtful accounts of $807 and $490, respectively 25,734 26,054 Notes receivable, less allowance for doubtful accounts of $114 and $120, respectively 5,579 13,392 Income tax refunds receivable 18,399 14,826 Production fuel, at average cost 42,323 54,140 Materials and supplies, at average cost 55,081 53,490 Gas stored underground, at average cost 12,518 26,013 Regulatory assets 25,139 30,796 Prepaid gross receipts tax 21,912 22,222 Other 17,663 15,941 ---------------- ---------------- 338,166 391,667 ---------------- ---------------- - -------------------------------------------------------------------------------------------------------------- Investments: Investment in McLeodUSA Inc. 527,800 320,280 Nuclear decommissioning trust funds 251,475 225,803 Investment in foreign entities 133,745 68,882 Other 52,977 54,776 ---------------- ---------------- 965,997 669,741 ---------------- ---------------- - -------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 272,086 284,467 Deferred charges and other 166,317 156,682 ---------------- ---------------- 438,403 441,149 ---------------- ---------------- - -------------------------------------------------------------------------------------------------------------- Total assets $ 5,177,136 $ 4,959,337 ================ ================ - -------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
5 ALLIANT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30, 1999 December 31, CAPITALIZATION AND LIABILITIES (Unaudited) 1998 - ------------------------------------------------------------------------------------------------------------------------ (in thousands, except share amounts) Capitalization: Common stock - $.01 par value - authorized 200,000,000 shares; outstanding 78,424,441 and 77,630,043 shares, respectively $ 784 $ 776 Additional paid-in capital 926,242 905,130 Retained earnings 539,769 537,372 Accumulated other comprehensive income 300,613 163,017 ----------------- ----------------- Total common equity 1,767,408 1,606,295 ----------------- ----------------- Cumulative preferred stock of subsidiaries: Par/Stated Authorized Shares Mandatory Value Shares Outstanding Series Redemption $ 100 * 449,765 4.40% - 6.20% No 44,977 44,977 $ 25 * 599,460 6.50% No 14,986 14,986 $ 50 466,406 366,406 4.30% - 6.10% No 18,320 18,320 $ 50 ** 216,381 4.36% - 7.76% No 10,819 10,819 $ 50 ** 545,000 6.40% Yes *** 27,250 27,250 ----------------- ----------------- 116,352 116,352 Less: unamortized expenses (2,784) (2,854) ----------------- ----------------- Total cumulative preferred stock of subsidiaries 113,568 113,498 ----------------- ----------------- Long-term debt (excluding current portion) 1,514,498 1,543,131 ----------------- ----------------- 3,395,474 3,262,924 ----------------- ----------------- * 3,750,000 authorized shares in total between the two classes ** 2,000,000 authorized shares in total between the two classes *** $53.20 mandatory redemption price - ------------------------------------------------------------------------------------------------------------------------ Current liabilities: Current maturities and sinking funds 53,740 63,414 Variable rate demand bonds 56,975 56,975 Commercial paper 125,500 64,500 Notes payable 50,024 51,784 Capital lease obligations 12,277 11,978 Accounts payable 145,888 204,297 Accrued taxes 84,622 84,921 Other 107,544 111,685 ----------------- ----------------- 636,570 649,554 ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------------ Other long-term liabilities and deferred credits: Accumulated deferred income taxes 774,492 691,624 Accumulated deferred investment tax credits 74,585 77,313 Environmental liabilities 68,917 68,399 Customer advances 35,416 37,171 Capital lease obligations 25,611 13,755 Other 166,071 158,597 ----------------- ----------------- 1,145,092 1,046,859 ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------------ Total capitalization and liabilities $ 5,177,136 $ 4,959,337 ================= ================= - ------------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
6 ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended June 30, 1999 1998 - ------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $ 80,289 $ 19,777 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 144,115 142,690 Amortization of nuclear fuel 9,142 8,555 Amortization of deferred energy efficiency expenditures 13,250 14,443 Deferred taxes and investment tax credits (8,487) (13,075) Refueling outage provision 4,412 (9,341) Impairment of oil and gas properties - 6,746 (Gain) loss on disposition of assets, net (37,591) (1,020) Other 1,502 4,998 Other changes in assets and liabilities: Accounts receivable 18,871 25,338 Notes receivable 7,813 6,396 Production fuel 11,817 242 Gas stored underground 13,495 22,232 Accounts payable (58,409) (35,181) Accrued taxes (299) (6,049) Adjustment clause balances (9,240) 5,791 Benefit obligations and other 13,094 28,786 ----------------- ---------------- Net cash flows from operating activities 203,774 221,328 ----------------- ---------------- - ------------------------------------------------------------------------------------------------- Cash flows used for financing activities: Common stock dividends declared (77,892) (63,649) Dividends payable 287 (15,806) Proceeds from issuance of common stock 20,888 10,634 Net change in Alliant Energy Resources, Inc. credit facility 15,495 71,587 Proceeds from issuance of other long-term debt 12,144 2,516 Reductions in other long-term debt (67,016) (1,262) Net change in short-term borrowings 59,240 (42,525) Principal payments under capital lease obligations (6,869) (8,116) Other (2) (36) ----------------- ---------------- Net cash flows used for financing activities (43,725) (46,657) ----------------- ---------------- - ------------------------------------------------------------------------------------------------- Cashflows used for investing activities: Construction and acquisition expenditures: Utility (105,054) (93,508) Nonregulated businesses (78,654) (63,928) Nuclear decommissioning trust funds (17,658) (15,863) Proceeds from disposition of assets 47,209 3,997 Shared savings expenditures (10,594) (3,117) Other 2,278 2,138 ----------------- ---------------- Net cash flows used for investing activities (162,473) (170,281) ----------------- ---------------- - ------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments (2,424) 4,390 ----------------- ---------------- - ------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 31,827 27,329 ----------------- ---------------- - ------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $ 29,403 $ 31,719 ================= ================ - ------------------------------------------------------------------------------------------------- Supplemental cash flow information: Cash paid during the period for: Interest $ 68,166 $ 62,132 ================= ================ Income taxes $ 56,130 $ 45,435 ================= ================ Noncash investing and financing activities: Capital lease obligations incurred $ 18,252 $ 1,271 ================= ================ - ------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
7 ALLIANT ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. At the Annual Shareowners meeting on May 19, 1999, the shareowners approved a proposal to change the name of the corporation from Interstate Energy Corporation to Alliant Energy Corporation. The name change was effective May 20, 1999. The interim consolidated financial statements included herein have been prepared by Alliant Energy, without audit, pursuant to the rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although management believes that the disclosures are adequate to make the information presented not misleading. The consolidated financial statements include Alliant Energy and its consolidated subsidiaries (WP&L, IESU, IPC, Resources and Corporate Services). These financial statements should be read in conjunction with the financial statements and the notes thereto included in Alliant Energy's, IESU's and WP&L's latest Annual Report on Form 10-K. In the opinion of management, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of (a) the consolidated results of operations for the three and six months ended June 30, 1999 and 1998, (b) the consolidated financial position at June 30, 1999 and December 31, 1998, and (c) the consolidated statement of cash flows for the six months ended June 30, 1999 and 1998, have been made. Because of the seasonal nature of IESU's, WP&L's and IPC's operations, results for the three and six months ended June 30, 1999 are not necessarily indicative of results that may be expected for the year ending December 31, 1999. Certain prior period amounts have been reclassified on a basis consistent with the 1999 presentation. 2. Alliant Energy's comprehensive income (loss), and the components of other comprehensive income (loss), net of taxes, were as follows (in thousands):
For the Three Months For the Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 ------------ ---------- ------------ ---------- Net income (loss) $ 38,546 ($ 9,098) $ 80,289 $19,777 Other comprehensive income (loss): Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period, net of tax (1) 84,742 (20,358) 159,773 41,471 Less: reclassification adjustment for gains included in net income, net of tax (2) (21,324) -- (21,324) -- ------------ ---------- ------------ ---------- Net unrealized gains (losses) 63,418 (20,358) 138,449 41,471 ------------ ---------- ------------ ---------- Foreign currency translation adjustments (239) 1 (853) 56 ------------ ---------- ------------ ---------- Other comprehensive income (loss) 63,179 (20,357) 137,596 41,527 ============ ========== ============ ========== Comprehensive income (loss) $101,725 ($29,455) $217,885 $61,304 ============ ========== ============ ========== (1) Primarily due to quarterly adjustments to the estimated fair value of Alliant Energy's investment in McLeod. 8 (2) The second quarter 1999 earnings included a pre-tax gain of $33.8 million ($0.27 per share) from the sale of approximately 640,000 shares of McLeod stock held by Alliant Energy. Following completion of the May 1999 sale, Alliant Energy still held beneficial ownership in approximately 9.6 million shares of McLeod stock. McLeod declared a 2-for-1 stock split effective July 1999.
IESU and WP&L had no comprehensive income in the periods presented. 3. Certain financial information relating to Alliant Energy's significant business segments is presented below:
Alliant ------------------------------------------- Regulated Domestic Utilities Nonregulated Energy ------------------------------------------- Electric Gas Other Total Businesses Other Consolidated ---------------------------------------------------------------------------------------- (in thousands) Three Months Ended June 30, 1999 Operating revenues $366,152 $46,200 $7,820 $420,172 $66,595 ($653) $486,114 Operating income (loss) 56,155 (2,018) 1,529 55,666 4,101 491 60,258 Net income (loss) 17,138 21,560 (152) 38,546 Three Months Ended June 30, 1998 Operating revenues $380,414 $45,267 $7,424 $433,105 $58,305 ($398) $491,012 Operating income (loss) 38,826 (7,404) 1,327 32,749 689 (811) 32,627 Net loss (3,024) (2,925) (3,149) (9,098) Six Months Ended June 30, 1999 Operating revenues $717,490 $179,885 $17,024 $914,399 $119,794 ($1,224) $1,032,969 Operating income 124,770 21,921 3,883 150,574 2,265 406 153,245 Net income (loss) 61,905 19,654 (1,270) 80,289 Six Months Ended June 30, 1998 Operating revenues $738,165 $175,313 $15,833 $929,311 $118,627 ($643) $1,047,295 Operating income (loss) 94,664 14,971 3,158 112,793 (4,810) (1,476) 106,507 Net income (loss) 30,153 (6,925) (3,451) 19,777
Resources' (i.e., the nonregulated businesses) assets increased $263 million during the first six months of 1999, primarily due to the increase in market value of its investment in McLeod and additional investments in foreign entities. Intersegment revenues were not material to Alliant Energy's operations and there was no single customer whose revenues exceeded 10% or more of Alliant Energy's consolidated revenues. 4. The provisions for income taxes are based on the estimated annual effective tax rate, which differs from the federal statutory rate of 35% principally due to: state income taxes, tax credits, effects of utility rate making and certain nondeductible expenses. 5. At June 30, 1999, Alliant Energy had $133.7 million of investments in foreign entities on its Consolidated Balance Sheets that primarily included investments in several New Zealand utility entities and investments in several generation facilities in China. Alliant Energy accounts for the China investments under the equity method and the other investments under the cost method. The geographic concentration of Alliant Energy's investments in foreign entities at June 30, 1999, included investments of approximately $96.2 million in New Zealand, $37.0 million in China and $0.5 million in other countries. 9
IES UTILITIES INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating revenues: Electric utility $ 142,209 $ 147,640 $ 282,226 $ 288,290 Gas utility 22,012 20,921 83,308 81,316 Steam and other 6,572 6,172 14,524 13,405 --------------- --------------- --------------- --------------- 170,793 174,733 380,058 383,011 --------------- --------------- --------------- --------------- - ----------------------------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 12,285 21,284 38,873 51,933 Purchased power 27,142 25,768 40,292 36,817 Cost of gas sold 11,623 10,782 49,535 48,439 Other operation 45,167 44,869 92,607 91,871 Maintenance 12,572 13,960 22,477 24,951 Depreciation and amortization 25,481 23,907 50,963 48,242 Taxes other than income taxes 12,468 12,407 25,083 24,713 --------------- --------------- --------------- --------------- 146,738 152,977 319,830 326,966 --------------- --------------- --------------- --------------- - ----------------------------------------------------------------------------------------------------------------------------- Operating income 24,055 21,756 60,228 56,045 --------------- --------------- --------------- --------------- - ----------------------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 14,434 12,955 27,638 26,030 Allowance for funds used during construction (535) (801) (1,384) (1,566) Miscellaneous, net (2,499) 4,167 (3,355) 4,446 --------------- --------------- --------------- --------------- 11,400 16,321 22,899 28,910 --------------- --------------- --------------- --------------- - ----------------------------------------------------------------------------------------------------------------------------- Income before income taxes 12,655 5,435 37,329 27,135 --------------- --------------- --------------- --------------- - ----------------------------------------------------------------------------------------------------------------------------- Income taxes 5,611 2,474 15,828 12,515 --------------- --------------- --------------- --------------- - ----------------------------------------------------------------------------------------------------------------------------- Net income 7,044 2,961 21,501 14,620 --------------- --------------- --------------- --------------- - ----------------------------------------------------------------------------------------------------------------------------- Preferred dividend requirements 229 229 457 457 --------------- --------------- --------------- --------------- - ----------------------------------------------------------------------------------------------------------------------------- Earnings available for common stock $ 6,815 $ 2,732 $ 21,044 $ 14,163 =============== =============== =============== =============== - ----------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
10 IES UTILITIES INC. CONSOLIDATED BALANCE SHEETS
June 30, 1999 December 31, ASSETS (Unaudited) 1998 - ---------------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Utility - Plant in service - Electric $ 2,163,280 $ 2,140,322 Gas 200,955 198,488 Steam 55,794 55,797 Common 126,385 106,940 ----------------- ----------------- 2,546,414 2,501,547 Less - Accumulated depreciation 1,266,117 1,209,204 ----------------- ----------------- 1,280,297 1,292,343 Construction work in progress 44,849 48,991 Leased nuclear fuel, net of amortization 37,804 25,644 ----------------- ----------------- 1,362,950 1,366,978 Other property, plant and equipment, net of accumulated depreciation and amortization of $2,021 and $1,948, respectively 5,549 5,623 ----------------- ----------------- 1,368,499 1,372,601 ----------------- ----------------- - ---------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 2,195 4,175 Temporary cash investments with associated companies - 53,729 Accounts receivable: Customer, less allowance for doubtful accounts of $593 and $1,058, respectively 5,420 16,703 Associated companies 1,718 2,662 Other, less allowance for doubtful accounts of $672 and $357, respectively 9,036 10,346 Production fuel, at average cost 11,445 11,863 Materials and supplies, at average cost 25,050 25,591 Gas stored underground, at average cost 3,798 12,284 Regulatory assets 16,790 23,487 Prepayments and other 10,788 4,185 ----------------- ----------------- 86,240 165,025 ----------------- ----------------- - ---------------------------------------------------------------------------------------------------------------- Investments: Nuclear decommissioning trust funds 99,459 91,691 Other 6,457 6,019 ----------------- ----------------- 105,916 97,710 ----------------- ----------------- - ---------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 130,217 137,908 Deferred charges and other 15,038 15,734 ----------------- ----------------- 145,255 153,642 ----------------- ----------------- - ---------------------------------------------------------------------------------------------------------------- Total assets $ 1,705,910 $ 1,788,978 ================= ================= - ---------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
11 IES UTILITIES INC. CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30, 1999 December 31, CAPITALIZATION AND LIABILITIES (Unaudited) 1998 - -------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) 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 279,042 279,042 Retained earnings 237,783 275,372 ------------------ ----------------- Total common equity 550,252 587,841 Cumulative preferred stock, not mandatorily redeemable - $50 par value - authorized 466,406 shares; 366,406 shares outstanding 18,320 18,320 Long-term debt (excluding current portion) 550,952 602,020 ------------------ ----------------- 1,119,524 1,208,181 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds 51,196 50,140 Capital lease obligations 12,263 11,965 Notes payable to associated companies 29,706 - Accounts payable 23,733 43,953 Accounts payable to associated companies 20,140 22,487 Accrued payroll and vacations 7,546 6,365 Accrued interest 10,817 12,045 Accrued taxes 47,128 55,295 Accumulated refueling outage provision 11,017 6,605 Environmental liabilities 5,448 5,660 Other 7,823 17,617 ------------------ ----------------- 226,817 232,132 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 221,362 224,510 Accumulated deferred investment tax credits 27,963 29,243 Environmental liabilities 28,243 29,195 Pension and other benefit obligations 28,317 25,655 Capital lease obligations 25,541 13,679 Other 28,143 26,383 ------------------ ----------------- 359,569 348,665 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $ 1,705,910 $ 1,788,978 ================== ================= - -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
12 IES UTILITIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended June 30, 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ (in thousands) Cash flows from operating activities: Net income $ 21,501 $ 14,620 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 50,963 48,242 Amortization of leased nuclear fuel 6,092 5,549 Amortization of deferred energy efficiency expenditures 9,518 10,103 Deferred taxes and investment tax credits (6,745) (4,040) Refueling outage provision 4,412 (9,341) Other 529 536 Other changes in assets and liabilities: Accounts receivable 13,537 26,121 Gas stored underground 8,486 15,056 Accounts payable (22,567) (10,188) Accrued taxes (8,167) (13,734) Adjustment clause balances (8,488) 2,157 Benefit obligations and other 10,397 20,444 ------------------- ------------------ Net cash flows from operating activities 79,468 105,525 ------------------- ------------------ - ------------------------------------------------------------------------------------------------------------------------ Cash flows used for financing activities: Common stock dividends declared (58,633) (18,840) Dividends payable (4,840) 4,840 Preferred stock dividends (457) (457) Reductions in long-term debt (50,140) (140) Net change in short-term borrowings 29,706 - Principal payments under capital lease obligations (6,869) (8,116) Other (3) - ------------------- ------------------ Net cash flows used for financing activities (91,236) (22,713) ------------------- ------------------ - ------------------------------------------------------------------------------------------------------------------------ Cash flows used for investing activities: Utility construction expenditures (41,173) (42,404) Nuclear decommissioning trust funds (3,004) (3,004) Other 236 100 ------------------- ------------------ Net cash flows used for investing activities (43,941) (45,308) ------------------- ------------------ - ------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash and temporary cash investments (55,709) 37,504 ------------------- ------------------ - ------------------------------------------------------------------------------------------------------------------------ Cash and temporary cash investments at beginning of period 57,904 230 ------------------- ------------------ - ------------------------------------------------------------------------------------------------------------------------ Cash and temporary cash investments at end of period $ 2,195 $ 37,734 =================== ================== - ------------------------------------------------------------------------------------------------------------------------ Supplemental cash flow information: Cash paid during the period for: Interest $ 24,714 $ 24,702 =================== ================== Income taxes $ 30,824 $ 33,468 =================== ================== Noncash investing and financing activities - Capital lease obligations incurred $ 18,252 $ 1,271 =================== ================== - ------------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
13 IES UTILITIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Except as modified below, the Alliant Energy Notes to Consolidated Financial Statements are incorporated by reference insofar as they relate to IESU. Alliant Energy Note 5 does not relate to IESU and, therefore, is not incorporated by reference. 1. The interim consolidated financial statements included herein have been prepared by IESU, without audit, pursuant to the rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although management believes that the disclosures are adequate to make the information presented not misleading. The consolidated financial statements include IESU and its consolidated wholly-owned subsidiary, IES Ventures Inc. IESU is a subsidiary of Alliant Energy. These financial statements should be read in conjunction with the financial statements and the notes thereto included in IESU's latest Annual Report on Form 10-K. In the opinion of management, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of (a) the consolidated results of operations for the three and six months ended June 30, 1999 and 1998, (b) the consolidated financial position at June 30, 1999 and December 31, 1998, and (c) the consolidated statement of cash flows for the six months ended June 30, 1999 and 1998, have been made. Because of the seasonal nature of IESU's operations, results for the three and six months ended June 30, 1999 are not necessarily indicative of results that may be expected for the year ending December 31, 1999. Certain prior period amounts have been reclassified on a basis consistent with the 1999 presentation. 14 WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months For the Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------ (in thousands) Operating revenues: Electric utility $ 150,510 $ 154,314 $ 300,455 $ 305,624 Gas utility 15,358 16,943 67,151 67,261 Water 1,248 1,252 2,500 2,428 --------------- --------------- --------------- --------------- 167,116 172,509 370,106 375,313 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Operating expenses: Electric production fuels 26,014 29,471 53,380 58,368 Purchased power 28,425 30,238 52,424 58,839 Cost of gas sold 5,798 8,515 36,979 39,229 Other operation 35,432 39,894 61,540 73,897 Maintenance 13,775 14,479 22,879 24,447 Depreciation and amortization 28,407 31,580 59,546 60,838 Taxes other than income taxes 7,355 7,504 15,057 15,215 --------------- --------------- --------------- --------------- 145,206 161,681 301,805 330,833 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Operating income 21,910 10,828 68,301 44,480 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Interest expense and other: Interest expense 10,078 8,984 19,943 17,367 Allowance for funds used during construction (1,109) (742) (2,032) (1,398) Miscellaneous, net 1,996 3,142 (2,348) 1,276 --------------- --------------- --------------- --------------- 10,965 11,384 15,563 17,245 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Income (loss) before income taxes 10,945 (556) 52,738 27,235 --------------- --------------- --------------- --------------- - --------------------------------------------------------------------------------------- ---------------------------------- Income taxes 3,992 677 19,497 10,870 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Net income (loss) 6,953 (1,233) 33,241 16,365 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Preferred dividend requirements 828 828 1,656 1,656 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Earnings available for common stock $ 6,125 $ (2,061) $ 31,585 $ 14,709 =============== =============== =============== =============== - ------------------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
15 WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS
June 30, 1999 December 31, ASSETS (Unaudited) 1998 - --------------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Utility - Plant in service - Electric $ 1,863,733 $ 1,839,545 Gas 248,576 244,518 Water 26,769 26,567 Common 222,206 219,268 ----------------- ----------------- 2,361,284 2,329,898 Less - Accumulated depreciation 1,231,444 1,168,830 ----------------- ----------------- 1,129,840 1,161,068 Construction work in progress 72,024 56,994 Nuclear fuel, net of amortization 16,958 18,671 ----------------- ----------------- 1,218,822 1,236,733 Other property, plant and equipment, net of accumulated depreciation and amortization of $49 and $44, respectively 627 630 ----------------- ----------------- 1,219,449 1,237,363 ----------------- ----------------- - --------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 4,279 1,811 Accounts receivable: Customer 5,092 13,372 Associated companies 1,869 3,019 Other 8,378 8,298 Income tax refunds receivable 10,844 2,715 Production fuel, at average cost 15,477 20,105 Materials and supplies, at average cost 22,154 20,025 Gas stored underground, at average cost 7,801 10,738 Regulatory assets 3,707 3,707 Prepaid gross receipts tax 21,912 22,222 Other 1,399 4,272 ----------------- ----------------- 102,912 110,284 ----------------- ----------------- - --------------------------------------------------------------------------------------------------------------- Investments: Nuclear decommissioning trust funds 152,015 134,112 Other 15,408 15,960 ----------------- ----------------- 167,423 150,072 ----------------- ----------------- - --------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 73,244 76,284 Deferred charges and other 121,508 111,147 ----------------- ----------------- 194,752 187,431 ----------------- ----------------- - --------------------------------------------------------------------------------------------------------------- Total assets $ 1,684,536 $ 1,685,150 ================= ================= - --------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
16 WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30, 1999 December 31, CAPITALIZATION AND LIABILITIES (Unaudited) 1998 - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Capitalization: Common stock - $5 par value - authorized 18,000,000 shares; 13,236,601 shares outstanding $ 66,183 $ 66,183 Additional paid-in capital 199,438 199,438 Retained earnings 296,718 294,309 ------------------- ------------------ Total common equity 562,339 559,930 ------------------- ------------------ Cumulative preferred stock, not mandatorily redeemable without par value - authorized 3,750,000 shares, maximum aggregate stated value $150,000,000: $100 stated value - 449,765 shares outstanding 44,977 44,977 $25 stated value - 599,460 shares outstanding 14,986 14,986 ------------------- ------------------ Total cumulative preferred stock 59,963 59,963 ------------------- ------------------ Long-term debt (excluding current portion) 414,626 414,579 ------------------- ------------------ 1,036,928 1,034,472 ------------------- ------------------ - ----------------------------------------------------------------------------------------------------------------------------------- Current liabilities: Variable rate demand bonds 56,975 56,975 Notes payable 50,000 50,000 Notes payable to associated companies 59,035 26,799 Accounts payable 62,920 84,754 Accounts payable to associated companies 21,790 20,315 Accrued payroll and vacations 8,227 5,276 Accrued interest 4,240 6,863 Other 8,014 14,600 ------------------- ------------------ 271,201 265,582 ------------------- ------------------ - ----------------------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 240,909 245,489 Accumulated deferred investment tax credits 32,240 33,170 Customer advances 32,687 34,367 Environmental liabilities 11,366 11,683 Other 59,205 60,387 ------------------- ------------------ 376,407 385,096 ------------------- ------------------ - ----------------------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $ 1,684,536 $ 1,685,150 =================== ================== - ----------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
17 WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended June 30, 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $ 33,241 $ 16,365 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 59,546 60,838 Amortization of nuclear fuel 3,050 3,006 Deferred taxes and investment tax credits (4,258) (1,736) Other (620) (3,927) Other changes in assets and liabilities: Accounts receivable 9,350 20,317 Income tax refunds receivable (8,129) (11,224) Production fuel 4,628 2,402 Gas stored underground 2,937 5,732 Accounts payable (20,359) 154 Benefit obligations and other (7,192) 14,869 --------------------- --------------------- Net cash flows from operating activities 72,194 106,796 --------------------- --------------------- - -------------------------------------------------------------------------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends (29,176) (29,170) Preferred stock dividends (1,656) (1,656) Net change in short-term borrowings 32,236 (23,697) --------------------- --------------------- Net cash flows from (used for) financing activities 1,404 (54,523) --------------------- --------------------- - -------------------------------------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Utility construction expenditures (48,600) (38,980) Nuclear decommissioning trust funds (14,654) (12,859) Shared savings expenditures (7,723) (3,021) Other (153) 2,023 --------------------- --------------------- Net cash flows used for investing activities (71,130) (52,837) --------------------- --------------------- - -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments 2,468 (564) --------------------- --------------------- - -------------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 1,811 2,492 --------------------- --------------------- - -------------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $ 4,279 $ 1,928 ===================== ===================== - -------------------------------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Cash paid during the period for: Interest $ 21,860 $ 13,085 ===================== ===================== Income taxes $ 32,885 $ 22,784 ===================== ===================== - -------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
18 WISCONSIN POWER AND LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Except as modified below, the Alliant Energy Notes to Consolidated Financial Statements are incorporated by reference insofar as they relate to WP&L. Alliant Energy Note 5 does not relate to WP&L and, therefore, is not incorporated by reference. 1. The interim consolidated financial statements included herein have been prepared by WP&L, without audit, pursuant to the rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although management believes that the disclosures are adequate to make the information presented not misleading. The consolidated financial statements include WP&L and its consolidated subsidiary. WP&L is a subsidiary of Alliant Energy. These financial statements should be read in conjunction with the financial statements and the notes thereto included in WP&L's latest Annual Report on Form 10-K. In the opinion of management, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of (a) the consolidated results of operations for the three and six months ended June 30, 1999 and 1998, (b) the consolidated financial position at June 30, 1999 and December 31, 1998, and (c) the consolidated statement of cash flows for the six months ended June 30, 1999 and 1998, have been made. Because of the seasonal nature of WP&L's operations, results for the three and six months ended June 30, 1999 are not necessarily indicative of results that may be expected for the year ending December 31, 1999. Certain prior period amounts have been reclassified on a basis consistent with the 1999 presentation. 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Alliant Energy was formed as the result of a three-way merger involving WPL Holdings, Inc., IES Industries Inc. and IPC that was completed in April 1998. The first tier subsidiaries of Alliant Energy include: WP&L, IESU, IPC, 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. This MD&A includes information relating to Alliant Energy, IESU and WP&L (as well as IPC, Resources and Corporate Services). Where appropriate, information relating to a specific entity has been segregated and labeled as such. The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this report as well as the financial statements, notes and MD&A included in Alliant Energy's, IESU's and WP&L's latest Annual Report on Form 10-K. FORWARD-LOOKING STATEMENTS Statements contained in this report (including MD&A) 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. From time to time, Alliant Energy, IESU or WP&L may make other forward-looking statements within the meaning of the federal securities laws that involve judgments, assumptions and other uncertainties beyond the control of such companies. These forward-looking statements may include, among others, statements concerning revenue and cost trends, cost recovery, cost reduction strategies and anticipated outcomes, pricing strategies, changes in the utility industry, planned capital expenditures, financing needs and availability, statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar comments concerning matters that are not historical facts. Investors and other users of the forward-looking statements are cautioned that such statements are not a guarantee of future performance and that 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 weather effects on sales and revenues, competitive factors, general economic conditions in the relevant service territory, federal and state regulatory or government actions, resolution of issues being addressed by the Wisconsin legislature relating to proposed amendments to WUHCA, unanticipated construction and acquisition expenditures, issues related to stranded costs and the recovery thereof, the operations of Alliant Energy's nuclear facilities, unanticipated issues or costs associated with achieving Year 2000 compliance, the ability of Alliant Energy to successfully integrate its operations and unanticipated costs associated therewith, unanticipated difficulties in achieving expected synergies from the merger, unanticipated costs associated with certain environmental remediation efforts being undertaken by Alliant Energy, technological developments, employee workforce factors, including changes in key executives, collective bargaining agreements or work stoppages, political, legal and economic conditions in foreign countries Alliant Energy has investments in and changes in the rate of inflation. UTILITY INDUSTRY OUTLOOK A summary of the current regulatory environment is included in the Form 10-K filed by Alliant Energy, IESU and WP&L for the year ended December 31, 1998. Set forth below are several developments relating to such regulatory environment. Across the nation, approximately half of the states have passed legislation or issued regulatory rulings granting customers the right to choose their electric energy supplier. At the federal level, a number of proposals to restructure the electric industry are currently under consideration. However, there continues to be a lack of consensus over how restructuring should be implemented and how much control the federal government should have over this process. Until one of the proposals gains significant bipartisan support, there is unlikely to be final federal action to either facilitate or force states to open electricity markets to competition. 20 The IUB has been reviewing all forms of competition in the electric utility industry for several years. A group comprised of the IUB, Alliant Energy, MidAmerican Energy Company, rural electric cooperatives, municipal utilities and Iowans for Choice in Electricity (a diverse group of industrial customers, marketers, such as Enron, and a low income customer representative, among others) endorsed a bill to allow for such competition that was introduced in the Iowa Legislature in March 1999. The bill was opposed by the OCA, which is charged by Iowa law with representation of all consumers generally. While the bill did not pass, it will by operation of Iowa General Assembly rules remain alive in the General Assembly upon adjournment in the spring of its 1999 regular session. By operation of House rules, it will be re-referred to the House Commerce Committee and will again be inserted into the legislative process in the Second Regular Session of the 78th General Assembly (2000). "Reliability 2000" legislation was introduced in Wisconsin in the second quarter of 1999. This legislation includes, among other items, a relaxation of the non-utility asset limitations included in the WUHCA and the formation of a Wisconsin transmission company (Transco) for those investor-owned utilities who elect to take advantage of the new asset cap law. If passed, it is anticipated that the three large Wisconsin investor-owned electric utilities, including WP&L, would have incentives to include their transmission systems in the Transco. Should the legislation pass, Alliant Energy would review the possible inclusion of the transmission systems of IESU and IPC in the Transco as well. The Transco, structured as a single-purpose corporation, would operate as a member of the Midwest ISO. It would be a public utility, as defined under Wisconsin law, with a board of directors comprised of one representative from each utility having at least a 10% ownership interest in the Transco. Smaller utilities could combine their transmission assets with others to reach the minimum level for board membership. In addition, the original members of the board would select four at-large directors. Alliant Energy is unable to predict whether the Reliability 2000 legislation will be enacted. As a result, it has also been reviewing various other initiatives as it relates to the future of its transmission system. Such initiatives include: a. ITC - In November 1998, Alliant Energy and NSP announced plans to develop an ITC to provide electric transmission services to the Upper Midwest. Based on the merger announcement between NSP and New Century Energies Inc. as well as NSP's recent announcement to join the Midwest ISO in some capacity, the companies are no longer proceeding with the development of the ITC in the manner previously contemplated. b. Midwest ISO - Alliant Energy had originally filed to participate in the Midwest ISO, which was conditionally approved by the FERC on September 16, 1998. However, as a result of the earlier decision to form the ITC with NSP, Alliant Energy withdrew its Midwest ISO membership. In August 1999, Alliant Energy informed the Midwest ISO that it will rejoin the Midwest ISO in some capacity (i.e., as part of the Wisconsin Transco, as an integrated utility or as part of a regional independent transmission company). In addition, in May 1999, FERC issued a Notice of Proposed Rulemaking (NOPR) concerning the development of RTOs. The proposed rules outline the requirements for utilities to voluntarily turn over control of their transmission system to a regional entity either by leasing the system to an RTO, or by outright divestiture. FERC's timeline is to have a final rule issued by January 1, 2000, and have the RTOs in operation by the end of 2001. Alliant Energy is currently reviewing the NOPR. Each of the utilities complies with the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation." SFAS 71 provides that rate-regulated public utilities record certain costs and credits allowed in the rate making process in different periods than for nonregulated entities. These are deferred as regulatory assets or regulatory liabilities and are recognized in the consolidated statements of income at the time they are reflected in rates. If a portion of the utility subsidiaries' operations becomes no longer subject to the provisions of SFAS 71 as a result of competitive restructurings or otherwise, a write-down of related regulatory assets and possibly other charges would be required, unless some form of transition cost recovery is established by the appropriate regulatory body that would meet the requirements under generally accepted accounting principles for continued accounting as regulatory assets during such recovery period. In addition, each utility subsidiary would be required to determine 21 any impairment of other assets and write-down any impaired assets to their fair value. The utility subsidiaries believe they currently meet the requirements of SFAS 71. ALLIANT ENERGY RESULTS OF OPERATIONS Overview - Second Quarter Results Alliant Energy reported net income of $38.5 million, or $0.49 per share (basic and diluted), for the second quarter of 1999, compared with a loss of $9.1 million, or $0.12 per share (basic and diluted), for the second quarter of 1998. The second quarter 1999 earnings included a pre-tax gain of $33.8 million ($0.27 per share) from the sale of approximately 640,000 shares of McLeod stock held by Alliant Energy. Higher electric and natural gas margins from Alliant Energy's utility operations and improved earnings from Alliant Energy's diversified operations also contributed to the increase in earnings. These items, however, were partially offset by higher utility operation and maintenance expenses, largely due to outages at several generating facilities and higher employee benefits costs, and increased utility depreciation expenses in 1999. The 1998 results included approximately $35 million of pre-tax merger-related expenses ($0.28 per share). Alliant Energy's utility operations reported net income of approximately $17.1 million for the second quarter of 1999 compared with a loss of $3.0 million (income of $14.8 million excluding merger-related expenses) for the same period in 1998. The increase in utility earnings resulted primarily from higher electric and natural gas margins. Higher operation and maintenance expenses (excluding merger-related expenses) and depreciation expense partially offset the increased earnings. The higher electric margins stemmed primarily from separate $15 million rate increases implemented at WP&L in July 1998 and early March 1999 to recover higher purchased power and transmission costs. A 4% increase in sales to retail customers, largely due to continued economic growth in Alliant Energy's service territory, also contributed to the higher electric margins. Lower margins from sales to off-system customers partially offset the increase. The increase in operation and maintenance expenses resulted primarily from higher operating costs at Alliant Energy's generating facilities, largely due to outages at several facilities, and an increase in employee benefits costs. Such items were partially offset by lower costs in 1999 due to merger-related operating efficiencies. Alliant Energy's diversified (nonregulated) operations reported net income of $21.6 million in the second quarter of 1999 compared to a net loss of $2.9 million ($1.8 million excluding merger-related expenses) for the same period in 1998. The increased earnings were largely due to the gain on the sale of the McLeod shares. Improved results from Alliant Energy's electric trading joint venture also contributed to the increase. 22 Electric Utility Operations Electric margins and MWH sales for Alliant Energy for the three months ended June 30 were as follows:
Revenues and Costs MWHs Sold (in thousands) (in thousands) ---------------------------- ---------------------------- 1999 1998 Change 1999 1998 Change ------------- ------------- --------- ------------- ------------- --------- Residential $ 123,379 $ 120,708 2% 1,575 1,525 3% Commercial 77,534 74,762 4% 1,251 1,167 7% Industrial 116,780 118,451 (1%) 3,239 3,150 3% ------------- ------------- ------------- ------------- Total from ultimate customers 317,693 313,921 1% 6,065 5,842 4% Sales for resale 37,364 56,957 (34%) 1,339 2,036 (34%) Other 11,095 9,536 16% 39 37 5% ------------- ------------- ------------- ------------- Total 366,152 380,414 (4%) 7,443 7,915 (6%) ============= ============= ========= Electric production fuels 49,827 66,387 (25%) Purchased power 72,440 73,417 (1%) ------------- ------------- Margin $ 243,885 $ 240,610 1% ============= ============= ========= Electric margins and MWH sales for Alliant Energy for the six months ended June 30 were as follows: Revenues and Costs MWHs Sold (in thousands) (in thousands) ---------------------------- ---------------------------- 1999 1998 Change 1999 1998 Change ------------- ------------- --------- ------------- ------------- --------- Residential $ 253,659 $ 247,777 2% 3,385 3,237 5% Commercial 149,557 146,794 2% 2,495 2,352 6% Industrial 219,381 224,854 (2%) 6,314 6,150 3% ------------- ------------- ------------- ------------- Total from ultimate customers 622,597 619,425 1% 12,194 11,739 4% Sales for resale 73,578 99,769 (26%) 2,684 3,706 (28%) Other 21,315 18,971 12% 81 80 1% ------------- ------------- ------------- ------------- Total 717,490 738,165 (3%) 14,959 15,525 (4%) ============= ============= ========= Electric production fuels 111,136 132,089 (16%) Purchased power 124,505 129,563 (4%) ------------- ------------- Margin $ 481,849 $ 476,513 1% ============= ============= =========
Electric margin increased $3.3 million, or 1%, and $5.3 million, or 1%, for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998. The increases were primarily due to separate $15 million annual rate increases implemented at WP&L in July 1998 and early March 1999 to recover higher purchased power and transmission costs, and 4% increases in sales to retail customers. The sales increases resulted from continued economic growth within Alliant Energy's service territory. In addition, more favorable weather conditions in the first quarter of 1999 also contributed to the six-month increase. Partially offsetting the increase in electric margin for both periods, were: 1) decreased sales to off-system customers, and 2) decreased recoveries of $1.6 million and $6.3 million of concurrent and previously deferred expenditures for Iowa-mandated energy efficiency program costs for the three- and six-month periods, respectively. Recoveries for energy efficiency program costs are in accordance with IUB orders (a portion of these recoveries is also amortized to expense in other operation expenses). The second quarter of 1998 margin also included $3.2 million of revenues collected from WP&L customers for a surcharge related to Kewaunee (a corresponding amount was included in depreciation and amortization expense). 23 IESU's and IPC's electric tariffs include EAC's that are designed to currently recover the costs of fuel and the energy portion of purchased power billings. Gas Utility Operations Gas margins and Dth sales for the three months ended June 30 were as follows:
Revenues and Costs Dekatherms Sold (in thousands) (in thousands) --------------------------- --------------------------- 1999 1998 Change 1999 1998 Change ------------- ------------- --------- ------------ ------------- --------- Residential $ 26,602 $ 25,999 2% 3,969 3,779 5% Commercial 12,495 11,936 5% 2,532 2,352 8% Industrial 3,649 3,030 20% 1,038 820 27% Transportation and other 3,454 4,302 (20%) 10,834 11,953 (9%) ------------- ------------- ------------ ------------- Total 46,200 45,267 2% 18,373 18,904 (3%) ============ ============= ========= Cost of gas sold 22,666 23,907 (5%) ------------- ------------- Margin $ 23,534 $ 21,360 10% ============= ============= ========= Gas margins and Dth sales for the six months ended June 30 were as follows: Revenues and Costs Dekatherms Sold (in thousands) (in thousands) --------------------------- --------------------------- 1999 1998 Change 1999 1998 Change ------------- ------------- --------- ------------ ------------- --------- Residential $ 109,041 $ 106,292 3% 18,805 17,557 7% Commercial 51,654 51,134 1% 11,091 10,466 6% Industrial 10,416 10,158 3% 2,957 2,661 11% Transportation and other 8,774 7,729 14% 25,443 26,744 (5%) ------------- ------------- ------------ ------------- Total 179,885 175,313 3% 58,296 57,428 2% ============ ============= ========= Cost of gas sold 104,009 101,186 3% ------------- ------------- Margin $ 75,876 $ 74,127 2% ============= ============= =========
Gas margin increased $2.2 million, or 10%, and increased $1.7 million, or 2%, for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, primarily due to more favorable weather conditions in 1999. The six-month increase was partially offset by a reduction of $1.2 million in recoveries of Iowa-mandated energy efficiency costs and gas cost adjustments at IPC. Refer to "Interest Expense and Other" for a discussion of income realized from a weather hedge in the first quarter of 1999. IESU's and IPC's gas tariffs include PGA clauses that are designed to currently recover the cost of utility gas sold. 24 Nonregulated and Other Revenues Nonregulated and other revenues for the three and six months ended June 30 were as follows (in thousands):
For the three months For the six months ended June 30, ended June 30, 1999 1998 1999 1998 ------------ ------------ -------------- ------------- Environmental and engineering services $ 18,962 $ 16,687 $ 35,135 $ 33,324 Oil and gas production 16,608 17,477 29,442 34,624 Nonregulated energy 14,892 9,682 25,067 23,127 Transportation, rents and other 12,059 10,751 22,123 20,427 Steam 6,894 6,381 15,155 13,826 Affordable housing 3,099 3,100 6,172 6,061 Water 1,248 1,253 2,500 2,428 ------------ ------------ -------------- ------------- $ 73,762 $ 65,331 $135,594 $ 133,817 ============ ============ ============== =============
Nonregulated energy revenues increased by $5.2 million and $1.9 million for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, primarily due to the second quarter 1999 acquisition of a small oil gathering and transportation business in Texas. Oil and gas production revenues declined $5.2 million for the six-month period, due to lower sales volumes and gas prices, partially offset by an increase in oil prices. Environmental and engineering services revenues increased $2.3 million and $1.8 million for the three- and six-month periods due to an increase in construction management services. Operating Expenses Other operation expenses for the three and six months ended June 30 were as follows (in thousands):
For the three months For the six months ended June 30, ended June 30, 1999 1998 1999 1998 ------------- -------------- ------------- -------------- Utility - WP&L / IESU / IPC $ 98,383 $ 113,193 $ 186,212 $ 215,940 Nonregulated and other 49,908 45,486 92,445 100,093 ------------- -------------- ------------- -------------- $ 148,291 $ 158,679 $ 278,657 $ 316,033 ============= ============== ============= ==============
Other operation expenses at the utility subsidiaries decreased $14.8 million and $29.7 million for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, primarily due to incurring pre-tax merger-related expenses of $20.1 million and $29.8 million in 1998, respectively, and lower costs in 1999 due to operating efficiencies associated with the merger. Such decreases were partially offset by increased expenses for employee benefits, nuclear operations and Year 2000 readiness efforts. Maintenance expenses at the utility subsidiaries decreased $1.6 million and $3.2 million for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998 primarily due to lower nuclear maintenance expenses partially offset by expenses associated with outages at several generating facilities. Other operation expenses at the nonregulated businesses increased $4.4 million and decreased $7.6 million for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998. The three-month increase was primarily due to expenses associated with the increase in construction management services and the acquisition of the oil gathering and transportation business. Pre-tax merger-related expenses of $1.2 million for both the three and six months ended June 30, 1998, contributed to a decrease in other operation expenses in 1999. Also contributing to the decrease for the six months ended June 30, 1999, were lower operation expenses in the gas 25 marketing business and a $6.7 million asset impairment charge in the first quarter of 1998 at Whiting. Partially offsetting the six-month decrease were the increased expenses from the oil gathering and transportation business. Depreciation and amortization expense decreased $2.4 million and increased $1.4 million for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998. The decrease for the three months ended June 30, 1999 was primarily due to reduced earnings in WP&L's nuclear decommissioning trust fund, which was offset entirely in "Miscellaneous, net," and the $3.2 million Kewaunee surcharge in the second quarter of 1998 at WP&L (recorded in depreciation and amortization expense with a corresponding increase in revenues resulting in no earnings impact). Higher depreciation expense related to property additions partially offset the decrease. Interest Expense and Other Interest expense increased $2.5 million and $5.0 million for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, due to higher nuclear decommissioning trust fund interest expense at IESU, which was offset entirely in "Miscellaneous, net." In addition, higher utility and nonregulated borrowings outstanding during 1999 contributed to the increase for the six months ended June 30, 1999. The accounting for earnings on the nuclear decommissioning trust funds results in no net income impact. Miscellaneous, net income increases for earnings on the nuclear decommissioning funds at both WP&L and IESU. In accordance with their respective regulatory requirements, the corresponding offset is recorded as depreciation expense at WP&L and interest expense at IESU. Miscellaneous, net income increased $48.1 million and $51.0 million for the three and six months ended June 30, 1999, respectively. Alliant Energy realized a pre-tax gain of $33.8 million in the second quarter of 1999 from the sale of approximately 640,000 shares of McLeod stock. The three and six months ended June 30, 1998, included $13.5 million and $13.7 million of pre-tax merger-related expenses. Also contributing to the increase for the three and six months ended June 30, 1999, were improved operating results from Alliant Energy's electric trading joint venture and for the six months ended June 30, 1999, $2.5 million of income realized from settlement of a weather hedge at WP&L for the November 1, 1998 to March 31, 1999 heating season. Partially offsetting these increases were lower earnings on Alliant Energy's nuclear decommissioning trust funds. Income Taxes Alliant Energy's income tax expense increased $25.7 million and $32.8 million for the three and six months ended June 30, 1999, respectively, compared with the same periods last year, primarily due to higher pre-tax income. The six-month increase was partially offset by a lower effective income tax rate. IESU RESULTS OF OPERATIONS Overview - Second Quarter Results IESU's earnings available for common stock increased $4.1 million for the three months ended June 30, 1999, compared with the same period in 1998. The increased earnings were primarily due to $10.3 million of pre-tax merger-related expenses incurred during the three months ended June 30, 1998. Higher electric margins also contributed to the increase. Such increases were partially offset by higher operation and maintenance expenses (excluding merger-related expenses), and higher depreciation and amortization expense. 26 Electric Utility Operations Electric margins and MWH sales for IESU for the three months ended June 30 were as follows:
Revenues and Costs MWHs Sold (in thousands) (in thousands) --------------------------- --------------------------- 1999 1998 Change 1999 1998 Change ------------- ------------- --------- ------------ ------------- --------- Residential $ 51,226 $ 50,269 2% 595 571 4% Commercial 38,884 37,255 4% 618 564 10% Industrial 43,211 44,498 (3%) 1,292 1,238 4% ------------- ------------- ------------ ------------- Total from ultimate customers 133,321 132,022 1% 2,505 2,373 6% Sales for resale 6,382 13,251 (52%) 341 532 (36%) Other 2,506 2,367 6% 11 10 10% ------------- ------------- ------------ ------------- Total 142,209 147,640 (4%) 2,857 2,915 (2%) ============ ============= ========= Electric production fuels 8,752 18,133 (52%) Purchased power 27,142 25,768 5% ------------- ------------- Margin $ 106,315 $ 103,739 2% ============= ============= ========= Electric margins and MWH sales for IESU for the six months ended June 30 were as follows: Revenues and Costs MWHs Sold (in thousands) (in thousands) --------------------------- --------------------------- 1999 1998 Change 1999 1998 Change ------------- ------------- --------- ------------ ------------- --------- Residential $ 105,579 $ 104,838 1% 1,288 1,234 4% Commercial 77,432 74,866 3% 1,246 1,147 9% Industrial 81,093 84,737 (4%) 2,474 2,401 3% ------------- ------------- ------------ ------------- Total from ultimate customers 264,104 264,441 -- 5,008 4,782 5% Sales for resale 12,735 18,963 (33%) 682 721 (5%) Other 5,387 4,886 10% 21 21 -- ------------- ------------- ------------ ------------- Total 282,226 288,290 (2%) 5,711 5,524 3% ============ ============= ========= Electric production fuels 31,247 44,928 (30%) Purchased power 40,292 36,817 9% ------------- ------------- Margin $ 210,687 $ 206,545 2% ============= ============= =========
Electric margin increased $2.6 million, or 2%, and $4.1 million, or 2%, for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, primarily due to increases of 6% and 5%, respectively, in sales volumes to retail customers due to continued economic growth in the service territory. More favorable weather conditions in 1999 also contributed to the six-month increase. Increased purchased power capacity costs in both periods partially offset the increases. Sales for resale decreased significantly for the three- and six-month periods, primarily due to various resale customers of IESU selecting another utility as their electricity provider effective in early 1999 and lower sales from the merger-related joint sales agreement. IESU does not anticipate the loss of the resale customers will have a material impact on its electric margins in the future. Under the joint sales agreement, the margins resulting from Alliant Energy's off-system sales are allocated among IESU, IPC and WP&L. Off-system sales revenues are passed through IESU's EAC and therefore have no impact on electric margin. IESU's electric tariffs include EAC's that are designed to currently recover the costs of fuel and the energy portion of purchased power billings. 27 Gas Utility Operations Gas margins and Dth sales for IESU for the three months ended June 30 were as follows:
Revenues and Costs Dekatherms Sold (in thousands) (in thousands) --------------------------- --------------------------- 1999 1998 Change 1999 1998 Change ------------- ------------- --------- ------------ ------------- --------- Residential $ 13,034 $ 12,994 -- 1,783 1,793 (1%) Commercial 5,968 5,513 8% 1,146 1,060 8% Industrial 2,033 1,530 33% 605 431 40% Transportation and other 977 884 11% 2,267 2,500 (9%) ------------- ------------- ------------ ------------- Total 22,012 20,921 5% 5,801 5,784 -- ============ ============= ========= Cost of gas sold 11,623 10,782 8% ------------- ------------- Margin $ 10,389 $ 10,139 2% ============= ============= ========= Gas margins and Dth sales for IESU for the six months ended June 30 were as follows: Revenues and Costs Dekatherms Sold (in thousands) (in thousands) --------------------------- --------------------------- 1999 1998 Change 1999 1998 Change ------------- ------------- --------- ------------ ------------- --------- Residential $ 52,195 $ 50,996 2% 8,638 8,417 3% Commercial 23,938 23,505 2% 5,035 4,936 2% Industrial 4,836 4,692 3% 1,478 1,345 10% Transportation and other 2,339 2,123 10% 5,462 5,736 (5%) ------------- ------------- ------------ ------------- Total 83,308 81,316 2% 20,613 20,434 1% ============ ============= ========= Cost of gas sold 49,535 48,439 2% ------------- ------------- Margin $ 33,773 $ 32,877 3% ============= ============= ========= Gas margin increased $0.3 million, or 2%, and $0.9 million, or 3%, for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, primarily due to more favorable weather conditions in 1999. IESU's gas tariffs include PGA clauses that are designed to currently recover the cost of gas sold. Operating Expenses IESU's other operation expenses increased $0.3 million and $0.7 million for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, largely due to increased expenses for employee pension and benefits, nuclear operations and Year 2000 readiness efforts. Such increases were largely offset by pre-tax merger-related expenses of $6.1 million and $7.9 million incurred during the three and six months ended June 30, 1998, respectively. In addition, merger-related operating efficiencies realized in 1999 also contributed to a reduction in other operation expenses. IESU's maintenance expenses decreased $1.4 million and $2.5 million for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, primarily due to reduced nuclear maintenance expenses. IESU's depreciation and amortization expense increased $1.6 million and $2.7 million for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, primarily due to property additions. 28 Interest Expense and Other Interest expense increased $1.5 million and $1.6 million for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, due to higher nuclear decommissioning trust fund interest expense, which was offset entirely in "Miscellaneous, net." A decrease in interest expense resulting from lower borrowings outstanding during 1999 partially offset the increase. The accounting for earnings on the nuclear decommissioning trust funds results in no net income impact. Miscellaneous, net income increases for earnings on the trust fund and the corresponding offset is recorded as interest expense. Miscellaneous, net income increased $6.7 million and $7.8 million for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, primarily due to $4.2 million and $4.4 million of pre-tax merger-related expenses incurred during the three and six months ended June 30, 1998, respectively. Also contributing to the increase was the nuclear decommissioning trust fund interest previously described. Income Taxes IESU's income tax expense increased $3.1 million and $3.3 million for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, primarily due to higher taxable income. A lower effective income tax rate in 1999, primarily due to a reduction in flow-through depreciation expense and nondeductible merger expenses in 1998, partially offset the six-month increase. WP&L RESULTS OF OPERATIONS Overview - Second Quarter Results WP&L's earnings available for common stock increased $8.2 million for the three months ended June 30, 1999, compared with the same period in 1998. The increased earnings were primarily due to $10.6 million of pre-tax merger-related expenses incurred during the three months ended June 30, 1998, and higher electric margins. Higher operation and maintenance expenses (excluding merger-related expenses) and increased interest expense partially offset the increase. Electric Utility Operations Electric margins and MWH sales for WP&L for the three months ended June 30 were as follows: Revenues and Costs MWHs Sold (in thousands) (in thousands) --------------------------- --------------------------- 1999 1998 Change 1999 1998 Change ------------- ------------- --------- ------------ ------------- --------- Residential $ 49,660 $ 47,950 4% 717 698 3% Commercial 29,445 27,764 6% 494 472 5% Industrial 41,880 41,606 1% 1,115 1,112 -- ------------- ------------- ------------ ------------- Total from ultimate customers 120,985 117,320 3% 2,326 2,282 2% Sales for resale 23,937 33,898 (29%) 762 1,105 (31%) Other 5,588 3,096 80% 14 14 -- ------------- ------------- ------------ ------------- Total 150,510 154,314 (2%) 3,102 3,401 (9%) ============ ============= ========= Electric production fuels 26,014 29,471 (12%) Purchased power 28,425 30,238 (6%) ------------- ------------- Margin $ 96,071 $ 94,605 2% ============= ============= ========= 29 Electric margins and MWH sales for WP&L for the six months ended June 30 were as follows: Revenues and Costs MWHs Sold (in thousands) (in thousands) --------------------------- --------------------------- 1999 1998 Change 1999 1998 Change ------------- ------------- --------- ------------ ------------- --------- Residential $ 103,549 $ 97,704 6% 1,518 1,456 4% Commercial 56,461 53,368 6% 959 931 3% Industrial 81,479 78,675 4% 2,201 2,153 2% ------------- ------------- ------------ ------------- Total from ultimate customers 241,489 229,747 5% 4,678 4,540 3% Sales for resale 48,866 69,302 (29%) 1,575 2,520 (38%) Other 10,100 6,575 54% 29 31 (6%) ------------- ------------- ------------ ------------- Total 300,455 305,624 (2%) 6,282 7,091 (11%) ============ ============= ========= Electric production fuels 53,380 58,368 (9%) Purchased power 52,424 58,839 (11%) ------------- ------------- Margin $ 194,651 $ 188,417 3% ============= ============= =========
Electric margin increased $1.5 million, or 2%, and $6.2 million, or 3%, for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, primarily due to separate $15 million annual rate increases implemented in July 1998 and early March 1999 to recover higher purchased power and transmission costs. Sales to retail customers increased 2% and 3% for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, primarily due to economic strength in the service territory. More favorable weather conditions in 1999 also contributed to the six-month sales increase. Other revenues increased for both periods due to conservation programs for which WP&L receives a return on its invested capital. Lower income from off-system sales, due to increased transmission constraints and implementation of the merger-related joint sales agreement, partially offset these items. Under the joint sales agreement, the margins resulting from Alliant Energy's off-system sales are allocated among IESU, IPC and WP&L. The second quarter of 1998 margin also included $3.2 million of revenues for a surcharge related to Kewaunee (a corresponding amount was included in depreciation and amortization expense). Gas Utility Operations Gas margins and Dth sales for WP&L for the three months ended June 30 were as follows:
Revenues and Costs Dekatherms Sold (in thousands) (in thousands) --------------------------- --------------------------- 1999 1998 Change 1999 1998 Change ------------- ------------- --------- ------------ ------------- --------- Residential $ 8,670 $ 8,979 (3%) 1,470 1,490 (1%) Commercial 4,290 4,506 (5%) 991 998 (1%) Industrial 662 784 (16%) 178 198 (10%) Transportation and other 1,736 2,674 (35%) 2,695 2,643 2% ------------- ------------- ------------ ------------- Total 15,358 16,943 (9%) 5,334 5,329 -- ============ ============= ========= Cost of gas sold 5,798 8,515 (32%) ------------- ------------- Margin $ 9,560 $ 8,428 13% ============= ============= ========= 30 Gas margins and Dth sales for WP&L for the six months ended June 30 were as follows: Revenues and Costs Dekatherms Sold (in thousands) (in thousands) --------------------------- --------------------------- 1999 1998 Change 1999 1998 Change ------------- ------------- --------- ------------ ------------- --------- Residential $ 39,930 $ 39,989 -- 7,327 6,717 9% Commercial 19,390 19,743 (2%) 4,484 4,119 9% Industrial 3,166 3,458 (8%) 837 800 5% Transportation and other 4,665 4,071 15% 6,738 6,473 4% ------------- ------------- ------------ ------------- Total 67,151 67,261 -- 19,386 18,109 7% ============ ============= ========= Cost of gas sold 36,979 39,229 (6%) ------------- ------------- Margin $ 30,172 $ 28,032 8% ============= ============= =========
Gas margin increased $1.1 million, or 13%, and $2.1 million, or 8%, for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998. The increase for the three months was primarily due to more favorable contributions to gas margin in 1999 from WP&L's gas cost sharing mechanism. The increase for the six months resulted primarily from increased sales due to customer growth and colder weather in the first quarter of 1999. Refer to "Interest Expense and Other" for a discussion of income realized from a weather hedge in the first quarter of 1999. Operating Expenses Other operation expenses decreased $4.5 million and $12.4 million for the three and six months ended June 30, 1999, respectively, compared to the same periods in 1998, primarily due to $6.1 million and $9.3 million of pre-tax merger-related expenses incurred during 1998, lower transmission and distribution expenses and lower costs due to merger-related operating efficiencies. Such expenses were partially offset by increased conservation expense. Maintenance expenses decreased $0.7 million and $1.6 million for the three and six months ended June 30, 1999, respectively, due to lower transmission and distribution maintenance expenses, which were partially offset by increased operating costs at WP&L's generating facilities, largely due to several outages. Depreciation and amortization expense decreased $3.2 million and $1.3 million for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, primarily due to reduced earnings on the nuclear decommissioning trust fund (offset entirely in "Miscellaneous, net") and the second quarter 1998 Kewaunee surcharge. These decreases were partially offset by increased property additions. The accounting for earnings on the nuclear decommissioning trust funds results in no net income impact. Miscellaneous, net income increases for earnings on the trust fund and the corresponding offset is recorded as depreciation expense. Interest Expense and Other Interest expense increased $1.1 million and $2.6 million for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, primarily due to higher borrowings outstanding in 1999. Miscellaneous, net income increased $1.1 million and $3.6 million for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, due to $4.5 million and $4.6 million of pre-tax merger-related expenses incurred in 1998. Also contributing to the six-month increase was $2.5 million of pre-tax income realized in the first quarter of 1999 from settlement of a weather hedge for the November 1, 1998, to March 31, 1999, heating season. Partially offsetting such increases were reduced earnings on the nuclear decommissioning trust fund. 31 Income Taxes Income taxes increased $3.3 million and $8.6 million for the three and six months ended June 30, 1999, respectively, compared with the same periods in 1998, due to higher pre-tax income. A lower effective income tax rate partially offset the six-month increase. LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities at Alliant Energy decreased $18 million for the six months ended June 30, 1999, compared with the same period in 1998, primarily due to changes in working capital, which were partially offset by changes in net income, the refueling outage provision and deferred taxes and investment tax credits. Cash flows used for financing activities decreased $3 million for the six months ended June 30, 1999, compared with the same period in 1998, primarily as a result of proceeds from the issuance of common stock, partially offset by changes in the amount of debt outstanding. Cash flows used for investing activities decreased $8 million for the six months ended June 30, 1999, compared with the same period in 1998, due to increased proceeds from the disposition of assets, which were partially offset by increased levels of construction and acquisition expenditures. Cash flows from operating activities at IESU decreased $26 million for the six months ended June 30, 1999, compared with the same period in 1998, primarily due to changes in working capital, partially offset by changes in the refueling outage provision and net income. Cash flows used for financing activities increased $69 million for the six months ended June 30, 1999, compared with the same period in 1998, due to a reduction in the amount of debt outstanding in 1999 and increased common stock dividends as no dividend payments were made in the last three quarters of 1998 due to merger-related tax considerations. As a result, the dividend payment in the first quarter of 1999 was larger than IESU's historical quarterly payment. Cash flows from operating activities at WP&L decreased $35 million for the six months ended June 30, 1999, compared with the same period in 1998, primarily due to changes in working capital, which were partially offset by higher net income. Cash flows used for financing activities decreased $56 million for the six months ended June 30, 1999, compared with the same period in 1998, primarily due to changes in the amount of short-term borrowings. Cash flows used for investing activities increased $18 million for the six months ended June 30, 1999, compared with the same period in 1998, primarily due to increased construction expenditures. Future Considerations At June 30, 1999, Alliant Energy had an investment in the stock of McLeod, a telecommunications company, valued at $527.8 million (based on a June 30, 1999 closing price of $55.00 per share and compared to a cost basis of $28.4 million). McLeod declared a 2-for-1 stock split which was effective in July 1999. Pursuant to the applicable accounting rules, the carrying value of this investment is adjusted to the estimated fair value each quarter based on the closing price at the end of the quarter. The adjustments do not impact net income as the unrealized gains or losses, net of taxes, are recorded directly to the common equity section of the balance sheet and are a component of other comprehensive income. In addition, any such gains or losses are reflected in current earnings only at the time they are realized through a sale. Alliant Energy entered into an agreement in November 1998 with McLeod whereby Alliant Energy's ability to sell the McLeod stock is subject to various restrictions. Under PUHCA, certain investments of Alliant Energy in exempt wholesale generators and foreign utility companies are limited to 50% of Alliant Energy's consolidated retained earnings. Alliant Energy is pursuing making the necessary regulatory filings requesting an increase in this limitation. Under WUHCA, there is an asset cap provision that generally limits non-utility assets in a utility holding company to 25% of utility assets. This provision is currently limiting Alliant Energy's ability to make additional investments in its non-utility businesses. Members of Energize Wisconsin (Alliant Energy, NSP, Wisconsin Energy Corporation, Wisconsin Gas Company and WPSC) have been working with various interest groups on a set of proposals that would provide significant asset cap relief for Wisconsin utility holding companies. Such legislation was introduced in the second quarter of 1999. In 32 addition to seeking legislative relief, Alliant Energy has also been seeking a regulatory increase in its limitation under the statutory language as currently enacted. As part of this regulatory process, the PSCW granted Alliant Energy interim relief from the asset cap limitations in the third quarter of 1999. Such relief temporarily removed the asset cap provision for non-utility assets currently held by Alliant Energy and granted the company $75 million above the current asset cap limit for new non-utility investments. Alliant Energy is continuing to pursue permanent regulatory relief under the current statutory language. If Alliant Energy is unable to obtain permanent legislative or regulatory relief from the WUHCA provisions, it may be forced to divest certain assets to stay in compliance. Under terms of comprehensive restructuring legislation passed in New Zealand, Alliant Energy is required to sell a portion of its current New Zealand utility investments. Alliant Energy realized a pre-tax gain of $2.4 million in July 1999 on the sale of a portion of these investments and anticipates it will realize additional gains on the remaining sales. Whiting has entered into an agreement to sell 50%-100% of its interest in an offshore oil and gas production property (the percentage interest sold is based on the buyer having the option to make various installment payments to Whiting). Whiting expects to realize a pre-tax gain on the sale in the second half of 1999 of approximately $3 (50%) million to $6 (100%) million. As part of the transaction, Whiting does retain the liability for certain dismantlement and abandonment costs associated with the properties. Such costs are currently estimated at $13 million and have been fully accrued by Whiting. Financing and Capital Structure At June 30, 1999, Resources had $268 million of commercial paper outstanding and backed by its 3-Year Credit Agreement with interest rates ranging from 4.88%-5.35%. Resources intends to continue issuing commercial paper backed by this facility, and no conditions existed at June 30, 1999 that would prevent the issuance of commercial paper or direct borrowings on its bank lines. Accordingly, this debt is classified as long-term. On March 23, 1999, IPC issued $7.7 million of pollution control revenue bonds due January 1, 2013. The proceeds were used to refinance $7.7 million of 6.375% pollution control revenue bonds that were due serially 1999-2007. The new bonds have a fixed interest rate of 4.20% for the first five years. Thereafter, IPC will have the option to reset the interest rate at one of three variable short-term interest rates or at a new long-term interest rate, based on the then prevailing market conditions, provided the rate does not exceed 12% per annum. On March 1, 1999, IESU retired $50 million of Series Z, 7.6% First Mortgage Bonds due in March 1999. Internally generated funds were used to retire the bonds. On February 11, 1999, IPC issued $3.25 million of pollution control revenue bonds due February 1, 2010. The proceeds were used to retire $3.25 million of 6.375% pollution control revenue bonds that were due serially 1999-2007. The new bonds have a fixed interest rate of 4.05% for the first five years. Thereafter, IPC will have the option to reset the interest rate at one of three variable short-term interest rates or at a new long-term interest rate, based on the then prevailing market conditions, provided the rate does not exceed 12% per annum. Capital Requirements Nuclear Facilities On April 7, 1998, the PSCW approved WPSC's application for replacement of the two steam generators at Kewaunee. The total cost of replacing the steam generators would be approximately $90.7 million, with WP&L's share of the cost being approximately $37.2 million. The replacement work originally planned for the spring of 2000 is now scheduled for the fall of 2001 and will take approximately 60 days. The delay is attributable to the inability of the steam generator manufacturer to meet the spring 2000 delivery schedule. Delays in meeting the delivery schedule did not allow for steam generator replacement to occur prior to the start of the summer weather in 2000. Therefore, the decision was made to store the steam generators after they are received and wait until the next scheduled refueling outage in the fall of 2001. It is anticipated that the delay will not adversely impact the reliability of Kewaunee in the interim. Plans to shutdown the plant for a spring 2000 refueling remain unchanged. Rates and Regulatory Matters In May 1998, the PSCW approved the deferral by WP&L of certain costs associated with its Year 2000 program. In November 1998, as amended in May 1999, WP&L filed for rate recovery of $12.2 million related to the Wisconsin retail portion of Year 2000 costs. In accordance with the order received from the PSCW, WP&L began deferring its 33 Year 2000 project costs, other than internal labor and associated overheads (approximately $6.5 million of expenditures had been deferred as of June 30, 1999). However, the PSCW ruled at an oral hearing in early August 1999 that it will not allow WP&L to recover any of its Year 2000 program costs in rates. WP&L has filed a motion asking the PSCW to reconsider its decision and, if necessary, will file an appeal in district court. Pending final resolution of the issue, WP&L expects to record a pre-tax reserve of $6.5 million in the third quarter of 1999 relating to the costs it had deferred as of June 30, 1999. WP&L will also record a reserve for the Year 2000 program expenditures it incurs after June 30, 1999. Refer to "Other Matters - Year 2000" for a further discussion of Alliant Energy's Year 2000 program. In January 1999, WP&L made a filing with the PSCW proposing to begin deferring, on January 1, 1999, all costs associated with the EPA's required NOx emission reductions. In connection with a statewide docket to investigate compliance issues associated with the EPA's NOx emission reductions, on March 30, 1999, the PSCW authorized deferral of all non-labor related costs incurred after March 30, 1999. However, the utilities are not allowed to defer costs of replacement power associated with NOx compliance. WP&L has requested expedited approval to start construction of NOx reduction investments at several generating units operated by WP&L and has requested recovery of all the NOx reduction costs through a surcharge mechanism. WP&L anticipates receiving a final order in this proceeding in the first quarter of 2000. No assurance can be given as to what relief, if any, will be granted by the PSCW. Refer to the "Other Matters - Environmental" section for a further discussion of the NOx issue. Pursuant to PSCW requirements, WP&L recognizes annual demand side management expense based on: 1) an annual fixed expenditure amount as approved by the PSCW in the rate making process, and 2) PSCW approved amortization of any difference in historical demand side management expenditures and associated rate recoveries of such costs. Effective with WP&L's rates implemented April 29, 1997, the annual rate recovery for demand side management expenses (and the associated demand side management expense) was reduced to $6.9 million reflecting annual demand side management expenditures of $14.4 million reduced by a two-year amortization of prior period expenditures which were less than the associated rate recoveries ($7.5 million per year). At the completion of the two-year amortization period, the annual demand side management expense to be recognized by WP&L returned to the $14.4 million level. Given the price freeze WP&L has in effect in Wisconsin, the annual rate recovery of demand side management expense is still $6.9 million. The OCA has requested certain financial information related to the electric utility operations within the state of Iowa for IESU and IPC and the gas utility operations within the state of Iowa for IPC. IESU and IPC responded to the data requests in a timely manner. It is unknown if additional data requests will be received by either IESU or IPC. While IESU and IPC cannot predict the outcome of this process, such data requests could lead to an effort by the OCA to seek a rate reduction for one or both of IESU and IPC in Iowa. OTHER MATTERS Year 2000 A summary of Alliant Energy's Year 2000 program is included in the Form 10-K filed by Alliant Energy, IESU and WP&L for the year ended December 31, 1998. Set forth below are developments relating to the Year 2000 program. Remediation and Testing Year 2000 remediation and testing has been completed for all mission-critical operational areas of Alliant Energy, which include generating stations, substations, transmission and distribution substations, natural gas distribution systems, system and distribution operating centers, customer inquiry, customer billing and all key building infrastructure. As of July 31, 1999, Alliant Energy was still expecting an upgrade from one information technology vendor. Alliant Energy considers the potential impact on the Year 2000 program from this upgrade to be minimal as operational contingency plans have already been developed and deployed. Alliant Energy has complied with the NERC's requirements for completing remediation and testing of mission-critical systems by June 30, 1999, without exceptions, and has filed the required letter with NERC informing them of such compliance. 34 A. Embedded Systems - All post-remediation testing for assessing Year 2000 compliance has been completed. Remaining work includes minor upgrades on less than 5 miscellaneous non-critical systems. B. Information Technology - As of June 30, 1999, approximately 98% of Alliant Energy's applications have been remediated and tested and all remediation and testing has been completed for Alliant Energy's infrastructure components, customer information systems and financial systems. Alliant Energy has also initiated an independent validation and verification process for all mission-critical mainframe applications. This process started in June 1999, and is expected to be finished by September 1, 1999. Costs to Address Year 2000 Compliance Alliant Energy's historical Year 2000 project expenditures as well as CURRENT ESTIMATES for the remaining costs to be incurred on the project are as follows (incremental costs, in millions):
Description Total IESU WP&L Other ------------- ----------- ----------- ----------- Costs incurred from 1/1/98 - 12/31/98 $ 8.7 $ 4.8 $ 3.2 $ 0.7 Costs incurred from 1/1/99 - 3/31/99 5.2 2.3 1.9 1.0 Costs incurred from 4/1/99 - 6/30/99 6.5 1.8 2.4 2.3 Current estimate of remaining costs 11.0 3.6 6.2 1.2 ------------- ----------- ----------- ----------- Total $ 31.4 $ 12.5 $ 13.7 $ 5.2 ============= =========== =========== ===========
In addition, Alliant Energy estimates it incurred $3 million in costs for internal labor and associated overheads in 1998 and anticipates expenditures of $6 million in 1999 ($3.5 million was incurred in the first two quarters of 1999). The total estimated project cost has decreased from the figures reported in the Form 10-K due to lower than anticipated remediation costs and a reduction in the contingency estimate. In accordance with an order received from the PSCW, WP&L is deferring its Year 2000 project costs, other than internal labor and associated overheads (approximately $6.5 million of the expenditures incurred at WP&L from January 1, 1998 through June 30, 1999 have been deferred). Refer to the "Liquidity and Capital Resources - Rates and Regulatory Matters" section for a discussion of the status of the filing WP&L made with the PSCW for rate recovery of a portion of its Year 2000 program costs, including a recent PSCW ruling which disallowed WP&L's requested recovery of such costs. Risks and Contingency Planning Alliant Energy continues to work on refining and implementing its Year 2000 contingency plan. The planning process includes three components: 1) base contingency planning, 2) emergency preparedness, and 3) electric and gas industry-wide coordination. The base contingency planning phase involves the development of operating procedures to handle the malfunction of a specific device. This work was completed in the first quarter of 1999. The emergency preparedness phase involves the development of operating procedures to handle the malfunction of major business processes. This work started in late 1998 and will continue through early December 1999. The electric and gas industry-wide coordination is a major focus of Alliant Energy's efforts in preparation for industry-wide drills which are being coordinated by NERC. As part of its contingency planning process, NERC scheduled two nation-wide electric utility industry drills in April 1999 and September 1999. These drills focus on safe and reliable electrical system operations with the partial loss of telecommunications. The April 1999 NERC drill was successful. All contingency plans worked as anticipated, however, some procedures and manual data forms will be refined to enhance efficiency. In addition to these NERC drills, Alliant Energy has conducted two internal drills, the first of which was completed in March 1999. In June 1999, Alliant Energy had its own functional drill that focused on communications and 35 involved exercising 200 contingency scripts, 11 information technology applications and over 250 employees. Communication and contingency plans generally worked according to plan and efficiency enhancements will be made for future drills. Alliant Energy also has three additional internal drills planned. An August 1999 full-scale drill will be conducted in which key employees will test and critique Alliant Energy's contingency plans. Two other internal drills will be scheduled after the September NERC drill. Alliant Energy also retained an outside third party to assess and evaluate its Year 2000 program and such study did not find any material deficiencies in the program. Summary Alliant Energy believes its plan is adequate to secure Year 2000 readiness of its critical systems. Nevertheless, achieving Year 2000 readiness is subject to many risks and uncertainties. If Alliant Energy, or third parties, fail to achieve Year 2000 readiness with respect to critical systems and, as such, there are systematic problems, there could be a material adverse effect on Alliant Energy's results of operations and financial condition. Market Risk Sensitive Instruments and Positions Whiting 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. In the past, Alliant Energy generally has not utilized derivative instruments designed to reduce its exposure to these price fluctuations. However, during the first quarter of 1999, Alliant Energy entered into a limited amount of commodity derivative transactions to fix the ultimate sales price for approximately two-thirds of Whiting's anticipated gas production for 1999. At June 30, 1999, the estimated fair value of the outstanding agreements would have resulted in a settlement payment by Alliant Energy of approximately $2.4 million. WP&L settled the weather insurance agreement it entered into for the November 1, 1998, to March 31, 1999, heating season and recognized income of $2.5 million in the first quarter of 1999 relating to such settlement. At June 30, 1999, Alliant Energy had an investment in the stock of McLeod, a telecommunications company, valued at $527.8 million (based on a June 30, 1999 closing price of $55.00 per share and compared to a cost basis of $28.4 million). McLeod declared a 2-for-1 stock split which was effective in July 1999. Pursuant to the applicable accounting rules, the carrying value of this investment is adjusted to the estimated fair value each quarter based on the closing price at the end of the quarter. Alliant Energy entered into an agreement in November 1998 with McLeod whereby Alliant Energy's ability to sell the McLeod stock is subject to various restrictions. Alliant Energy has a 50% interest in an electricity trading joint venture with Cargill. Guarantees of approximately $61 million have been issued of which approximately $14 million were outstanding at June 30, 1999. Under the terms of the joint venture agreement, any payments required under the guarantees would be shared by Alliant Energy and Cargill on a 50/50 basis to the extent the joint venture is not able to reimburse the guarantor for payments made under the guarantee. Accounting Pronouncements In June 1999, the FASB issued SFAS 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS 137 amended SFAS 133's effective date to fiscal years beginning after June 15, 2000 (January 1, 2001 for Alliant Energy). Also, SFAS 137 amended the date required to recognize all derivatives embedded in hybrid instruments that were issued, acquired, or substantively modified from December 31, 1997 to December 31, 1998. 36 Environmental A summary of Alliant Energy's environmental issues is included in the Form 10-K filed by Alliant Energy, IESU and WP&L for the year ended December 31, 1998. Set forth below are several developments relating to Alliant Energy's environmental issues. In October 1998, the EPA issued a final rule requiring 22 states, including Wisconsin, to modify their state implementation plans to address the ozone transport issue. However, a federal appeals court on May 25, 1999, delayed indefinitely the implementation of the rule. Should the courts find in favor of EPA, the implementation of the rule would likely require WP&L to reduce its NOx emissions at all of its plants to a fleet average of .15 lbs/mmbtu by 2003. WP&L is following this issue closely and continues to evaluate various options to meet the emission levels. Based on existing technology, the preliminary estimates indicate that capital investments would be in the range of $150 to $215 million. Refer to the "Liquidity and Capital Resources - Rates and Regulatory Matters" section for a discussion of a filing WP&L made with the PSCW regarding seeking rate recovery of these costs. On February 28, 1998, the EPA issued the final report to Congress on the Study of Hazardous Air Pollutant Emissions from Electric Utility Steam Generating Units regarding hazardous air pollutant emissions from electric utilities (the HAPs report). The HAPs report concluded that mercury emissions from coal-fired generating plants were a concern. However, the EPA does not believe they have sufficient information regarding such emissions. To remedy this lack of information, the EPA required IESU, WP&L, IPC and all other applicable electric utilities in the U.S. to start collecting information regarding the types and amount of mercury emitted as of January 1, 1999. To better understand mercury emissions, the EPA also required WP&L to conduct stack tests at several of its generating stations in the fall of 1999. In addition, the Wisconsin legislature has introduced legislation that would require the control and reduction of mercury emissions from coal-fired generating plants. Although the control of mercury emissions from generating plants is uncertain at this time, Alliant Energy believes that the capital investments and/or modifications required to control mercury emissions could be significant. In March 1998 and January 1999, IPC received Notices of Intent to Sue from an environmental group alleging certain violations of effluent limits, established pursuant to the Clean Water Act, at IPC's generating facility in Clinton, Iowa. On May 14, 1998, IPC received from the IDNR an inspection report and notice of violation addressing the same and other concerns as were raised by the environmental group. On May 4, 1999, IPC received a letter from the IDNR indicating it does not anticipate taking any enforcement action regarding this issue. Therefore, management believes that any likely actions resulting from this matter will not have a material adverse effect on IPC's financial position or results of operations. Pursuant to an internal review of operations in 1998, IPC discovered that Unit No. 6 at its generating facility in Dubuque, Iowa required a Clean Air Act Acid Rain permit and CEMS. IPC has informed its environmental regulators and has installed the CEMS and obtained the permit. Pursuant to its internal review, IPC also identified and disclosed to regulators a potentially similar situation at its Lansing, Iowa generating facility. In the second quarter of 1999, EPA determined that Lansing units 1 and 2 are affected units. Therefore, IPC will be installing CEMS and applying for Acid Rain permits for these units by December 1, 1999. IPC may be subject to a penalty for not having installed the CEMS and for not having obtained the permits previously. However, IPC believes that any likely actions resulting from this matter will not have a material adverse effect on its financial position or results of operations. On February 4, 1999, Whiting received a Notice of Violation letter from the ADEQ, citing Whiting for flaring sour gas in excess of permit limits and not having a valid permit. In June 1999, the ADEQ sent Whiting a Consent Administrative Order proposing a voluntary civil penalty of $225,000 for Whiting's alleged emission violations. Whiting is presently negotiating with the ADEQ to offset as much of the fine as possible by participating in or funding an approved mitigation project. Management believes that any likely actions resulting from this matter will not have a material adverse effect on Whiting's financial position or results of operations. 37 Alliant Energy has been notified by the EPA that it is a Potentially Responsible Party (PRP) with respect to environmental impacts identified at the MIG/DeWane Landfill Superfund Site. Alliant Energy is participating in the initiation of an Alternate Dispute Resolution process to allocate liability associated with the investigation and remediation of the site. It is not possible at this time to reasonably estimate the amount of any obligation associated with the site because allocation among the PRPs, and concurrence of the regulatory authorities, have not yet advanced to the stage where a reasonable estimate can be made. However, management believes that any likely action resulting from this matter will not have a material adverse effect on Alliant Energy's financial position or results of operations. Power Supply In July 1998, Alliant Energy and SkyGen announced an agreement whereby SkyGen would build, own and operate a power plant in southeastern Wisconsin capable of producing up to 450 MW of electricity. Under the agreement, Alliant Energy will purchase the capacity to meet the electric needs of its utility customers, as outlined by the Wisconsin Reliability Act. Recent developments for the 450 MW SkyGen project include an appeal to the EPA Appeals Board on the NOx mitigation. The appeal, if successful, would require selective catalytic reduction to be used for NOx mitigation instead of dry low NOx burners. Management currently believes that the EPA will rule in favor of SkyGen, but is unable to predict when the power plant may be in-service. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Quantitative and Qualitative Disclosures About Market Risk are reported under Item 2. MD&A "Other Matters - Market Risk Sensitive Instruments and Positions." PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ALLIANT ENERGY At Alliant Energy's annual meeting of shareowners held on May 19, 1999, Alan B. Arends, Rockne G. Flowers, Katharine C. Lyall, Robert D. Ray and Anthony R. Weiler were elected as directors of Alliant Energy for terms expiring in 2002. The following sets forth certain information with respect to the election of these directors at the annual meeting. Name of Nominee Votes For Votes Withheld - --------------- --------- -------------- Alan B. Arends 61,341,679 1,776,251 Rockne G. Flowers 61,334,647 1,783,283 Katharine C. Lyall 61,312,326 1,805,604 Robert D. Ray 61,155,262 1,962,668 Anthony R. Weiler 61,335,067 1,782,863 38 The following table sets forth the other directors of Alliant Energy whose terms of office continued after the 1999 annual meeting. Name of Director Year in Which Term Expires - ---------------- -------------------------- Erroll B. Davis, Jr. 2000 Lee Liu 2000 Milton E. Neshek 2000 Robert W. Schlutz 2000 Wayne H. Stoppelmoor 2000 Joyce L. Hanes 2001 Arnold M. Nemirow 2001 Jack R. Newman 2001 Judith D. Pyle 2001 David Q. Reed 2001 * * In July 1999, Mr. Reed resigned from the Alliant Energy board of directors. Also at Alliant Energy's annual meeting of shareowners held on May 19, 1999, the following matters were submitted to a vote of shareowners.
Votes Votes Votes Broker For Against Abstain Non-Votes --- ------- ------- --------- Approval of the name change from Interstate Energy Corporation to Alliant Energy Corporation 59,300,156 2,537,051 1,280,719 4 Approval of the Long-Term Equity Incentive Plan, as amended 47,566,918 12,721,346 2,829,660 6
WP&L At WP&L's annual meeting of shareowners held on May 26, 1999, Alan B. Arends, Rockne G. Flowers, Katharine C. Lyall, Robert D. Ray and Anthony R. Weiler were elected as directors of WP&L for terms expiring in 2002. The following sets forth certain information with respect to the election of these directors at the annual meeting. Name of Nominee Votes For Votes Withheld - --------------- --------- -------------- Alan B. Arends 13,597,997 6,409 Rockne G. Flowers 13,597,546 6,860 Katharine C. Lyall 13,597,726 6,680 Robert D. Ray 13,597,504 6,902 Anthony R. Weiler 13,598,106 6,300 39 The following table sets forth the other directors of WP&L whose terms of office continued after the 1999 annual meeting. Name of Director Year in Which Term Expires - ---------------- -------------------------- Erroll B. Davis, Jr. 2000 Lee Liu 2000 Milton E. Neshek 2000 Robert W. Schlutz 2000 Wayne H. Stoppelmoor 2000 Joyce L. Hanes 2001 Arnold M. Nemirow 2001 Jack R. Newman 2001 Judith D. Pyle 2001 David Q. Reed 2001 * * In July 1999, Mr. Reed resigned from the WP&L board of directors. IESU At IESU's annual meeting of shareowners held on May 24, 1999, Alan B. Arends, Rockne G. Flowers, Katharine C. Lyall, Robert D. Ray and Anthony R. Weiler were elected as directors of IESU for terms expiring in 2002. Alliant Energy voted all of the outstanding shares of common stock of IESU (consisting of 13,370,778 shares) in favor of the election of the aforementioned individuals. The following table sets forth the other directors of IESU whose terms of office continued. Name of Director Year in Which Term Expires - ---------------- -------------------------- Erroll B. Davis, Jr. 2000 Lee Liu 2000 Milton E. Neshek 2000 Robert W. Schlutz 2000 Wayne H. Stoppelmoor 2000 Joyce L. Hanes 2001 Arnold M. Nemirow 2001 Jack R. Newman 2001 Judith D. Pyle 2001 David Q. Reed 2001 * * In July 1999, Mr. Reed resigned from the IESU board of directors. 40 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: The following Exhibits are filed herewith. 3.1 Form of Amendment to Restated Articles of Incorporation of Alliant Energy Corporation 3.2 Restated Articles of Incorporation of Alliant Energy Corporation, as amended 10.1 Long-Term Equity Incentive Plan, as amended 10.2 Consulting Agreement by and between Alliant Energy Corporation and Wayne H. Stoppelmoor 27.1 Financial Data Schedule for Alliant Energy Corporation at and for the period ended June 30, 1999 27.2 Financial Data Schedule for IES Utilities Inc. at and for the period ended June 30, 1999 27.3 Financial Data Schedule for Wisconsin Power and Light Company at and for the period ended June 30, 1999 (b) Reports on Form 8-K: None. 41 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Alliant Energy Corporation, IES Utilities Inc. and Wisconsin Power and Light Company have each duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 13th day of August 1999.
ALLIANT ENERGY CORPORATION - -------------------------- Registrant By: /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer Thomas M. Walker (Principal Financial Officer) By: /s/ John E. Ebright Vice President-Controller (Principal Accounting Officer) John E. Ebright IES UTILITIES INC. - ------------------ Registrant By: /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer Thomas M. Walker (Principal Financial Officer) By: /s/ John E. Ebright Vice President-Controller (Principal Accounting Officer) John E. Ebright WISCONSIN POWER AND LIGHT COMPANY - --------------------------------- Registrant By: /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer Thomas M. Walker (Principal Financial Officer) By: /s/ John E. Ebright Vice President-Controller (Principal Accounting Officer) John E. Ebright
42 EX-3.1 2 AMENDED AND RESTATED ARTICLES OF INCORPO Exhibit 3.1 ARTICLES OF AMENDMENT TO RESTATED ARTICLES OF INCORPORATION OF INTERSTATE ENERGY CORPORATION Article I of the corporation's Restated Articles of Incorporation is hereby amended in its entirety to provide as follows: The name of the corporation is Alliant Energy Corporation. EX-3.2 3 RESTATED ARTICLES OF INCORPORATION Exhibit 3.2 RESTATED ARTICLES OF INCORPORATION OF ALLIANT ENERGY CORPORATION Pursuant to Section 180.1007 of the Wisconsin Business Corporation Law, these Restated Articles of Incorporation shall supersede and take the place of the corporation's heretofore existing Restated Articles of Incorporation and all prior amendments thereto. ARTICLE I The name of the corporation is Alliant Energy Corporation. ARTICLE II The period of existence of the corporation shall be perpetual. ARTICLE III The corporation is organized for the purpose of engaging in any lawful activities within the purposes for which corporations may be organized under Chapter 180 of the Wisconsin Statutes, as amended from time to time. ARTICLE IV The corporation shall have authority to issue two hundred million (200,000,000) shares of common stock, $.01 par value. ARTICLE V No holder of any capital stock of the corporation shall have any preemptive right to purchase, acquire to subscribe to any capital stock or other securities issued or sold by the Corporation, including any such capital stock or securities now or hereafter authorized. ARTICLE VI The address of the registered office of the Corporation is 222 West Washington Avenue, P. O. Box 2568, Madison, Wisconsin 53701-2568, and the name of the registered agent of the Corporation at such address is Edward M. Gleason. ARTICLE VII The corporation reserves the right to increase or decrease its authorized capital stock or any class or series thereof, or to reclassify the same. ARTICLE VIII The number of directors constituting the Board of Directors shall be as fixed from time to time by the Bylaws of the Corporation, but shall not be less than seven (7). Each director shall be a stockholder of the Corporation. The directors of the Corporation shall be divided into three classes as nearly equal in number as possible, to serve for staggered three-year terms or until their respective successors are duly elected and qualified. The initial directors of the Corporation shall be those persons who, at the time of the effectiveness of the merger of the Corporation's subsidiary, WPL Acquisitions, Inc., into the Corporation's subsidiary, Wisconsin Power and Light Company, are serving as directors of Wisconsin Power and Light Company, each to hold office for the term for which such person was elected a director of Wisconsin Power and Light Company. Beginning with the Corporation's annual meeting of stockholders in 1988, the successors of the class of directors whose terms shall then expire shall be elected to hold office for a term expiring a the third annual meeting of stockholders after their election or until their respective successors are duly elected and qualified. If, at any annual meeting of stockholders, directors of more than one class are to be elected, each class of directors to be elected at such meeting shall be nominated and voted for in a separate election. Any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, shall be filled until the next succeeding annual meeting of stockholders by the majority vote of the directors then in office, even if less than a quorum. * * * EX-10.1 4 LONG-TERM EQUITY INCENTIVE PLAN Exhibit 10.1 ALLIANT ENERGY CORPORATION LONG-TERM EQUITY INCENTIVE PLAN AS AMENDED Article 1. Establishment, Purpose, and Duration 1.1 Establishment of the Plan. Alliant Energy Corporation, a Wisconsin corporation (hereinafter referred to as the "Company"), hereby establishes an incentive compensation plan to be known as the "Alliant Energy Corporation Long-Term Equity Incentive Plan" (hereinafter referred to as the "Plan"), as set forth in this document. The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Restricted Stock, Performance Units, and Performance Shares. The Plan became effective as of January 23, 1994 (the "Effective Date"), and shall remain in effect as provided in Section 1.3 herein. 1.2 Purpose of the Plan. The purpose of the Plan is to promote the success and enhance the value of the Company by linking the personal interests of Participants to those of Company shareowners, and by providing Participants with an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Participants upon whose judgment, interest, and special effort the successful conduct of its operation largely is dependent. 1.3 Duration of the Plan. The Plan commenced on the Effective Date, as described in Section 1.1 herein, and shall remain in effect, subject to the right of the Board of Directors to terminate the Plan at any time pursuant to Article 13 herein, until all Shares subject to it shall have been purchased or acquired according to the Plan's provisions. However, in no event may an Award be granted under the Plan on or after January 22, 2004. Article 2. Definitions Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized: (a) "Award" means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options, Restricted Stock, Performance Units, or Performance Shares. (b) "Award Agreement" means an agreement entered into by each Participant and the Company setting forth the terms and provisions applicable to Awards granted to Participants under this Plan. (c) "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security as a result of an agreement, arrangement or understanding to vote such security if the agreement, arrangement or understanding: (i) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Exchange Act and (ii) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report). (d) "Board" or "Board of Directors" means the Board of Directors of the Company. (e) "Cause" means the admission by or the conviction of the Participant of an act of fraud, embezzlement, theft, or other criminal act constituting a felony under U.S. laws involving moral turpitude. The Board of Directors, by majority vote, shall make the determination of whether Cause exists. (f) "Change in Control" means the occurrence of any one of the events set forth in the following paragraphs: (i) any Person (other than (A) the Company or any Subsidiary, (B) a trustee or other fiduciary holding securities under any employee benefit plan of the Company or any Subsidiary, (C) an underwriter temporarily holding securities pursuant to an offering of such securities or (D) a corporation owned, directly or indirectly, by the shareowners of the Company in substantially the same proportions as their ownership of stock in the Company ("Excluded Persons")) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates after January 20, 1999, pursuant to express authorization by the Board that refers to this exception) representing 20% or more of either the then outstanding Shares or the combined voting power of the Company's then outstanding voting securities; or (ii) the following individuals cease for any reason to constitute a majority of the number of Directors of the Company then serving: (A) individuals who, on January 20, 1999, constituted the Board and (B) any new Director (other than a Director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act) whose appointment or election by the Board or nomination for election by the Company's shareowners was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors on January 20, 1999, or whose appointment, election or nomination for election was previously so approved (collectively the "Continuing Directors"); provided, however, that individuals who are appointed to the Board pursuant to or in accordance with the terms of an agreement relating to a merger, consolidation, or share exchange involving the Company (or any Subsidiary) shall not be Continuing Directors for purposes of the Plan until after such individuals are first nominated for election by a vote of at least two-thirds (2/3) of the then Continuing Directors and are thereafter elected as Directors by the shareowners of the Company at a meeting of shareowners held following consummation of such merger, consolidation or share exchange; and, provided further, that in the event the failure of any such Persons appointed to the Board to be Continuing Directors results in a Change in Control, the subsequent -2- qualification of such Persons as Continuing Directors shall not alter the fact that a Change in Control occurred; or (iii) the Company after January 20, 1999 consummates a merger, consolidation or share exchange with any other corporation or issues voting securities in connection with a merger, consolidation or share exchange involving the Company (or any Subsidiary), other than (A) a merger, consolidation or share exchange which results in the voting securities of the Company outstanding immediately prior to such merger, consolidation or share exchange continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger, consolidation or share exchange, or (B) a merger, consolidation or share exchange effected to implement a recapitalization of the Company (or similar transaction) in which no Person (other than an Excluded Person) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates after January 20, 1999, pursuant to express authorization by the Board that refers to this exception) representing 20% or more of either the then outstanding Shares or the combined voting power of the Company's then outstanding voting securities; or (iv) the shareowners of the Company approve a plan of complete liquidation or dissolution of the Company or the Company effects a sale or disposition of all or substantially all of its assets (in one transaction or a series of related transactions within any period of 24 consecutive months), other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity at least 75% of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportions as their ownership of the Company immediately prior to such sale. Notwithstanding the foregoing, no "Change in Control" shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the record holders of the Shares immediately prior to such transaction or series of transactions continue to own, directly or indirectly, in the same proportions as their ownership in the Company, an entity that owns all or substantially all of the assets or voting securities of the Company immediately following such transaction or series of transactions. (g) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (h) "Committee" means the committee, as specified in Article 3, appointed by the Board to administer the Plan. (i) "Company" means Alliant Energy Corporation, a Wisconsin corporation, or any successor thereto as provided in Article 16 herein. -3- (j) "Director" means any individual who is a member of the Board of Directors of the Company. (k) "Disability" shall have the meaning ascribed to such term in the Alliant Energy Cash Balance Plan. (l) "Dividend Equivalent" means a contingent right to be paid dividends declared with respect to outstanding Option grants, pursuant to the terms of Section 6.5 herein. (m) "Employee" means any nonunion employee of the Company or of the Company's Subsidiaries. Directors who are not otherwise employed by the Company shall not be considered Employees under this Plan. (n) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor Act thereto. (o) "Fair Market Value" means the Fair Market Value of the Shares determined by such methods or procedures as shall be established from time to time by the Committee; provided, however, that so long as the Shares are traded in a public market, Fair Market Value means the average of the high and low prices of a Share in the principal market for the Shares on the specified date (or, if no sales occurred on such date, the last preceding date on which sales occurred). (p) "Incentive Stock Option" or "ISO" means an option to purchase Shares, granted under Article 6 herein, which is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code, or any successor provision thereto. (q) "Named Executive Officer" means a Participant who, as of the date of vesting and/or payout of an Award, is one of the group of "covered employees," as defined in Section 162(m) of the Code and the regulations promulgated thereunder. (r) "Nonqualified Stock Option" or "NQSO" means an option to purchase Shares, granted under Article 6 herein, which is not an Incentive Stock Option. (s) "Option" means an Incentive Stock Option or a Nonqualified Stock Option. (t) "Option Price" means the price at which a Share may be purchased by a Participant pursuant to an Option, as determined by the Committee. (u) "Participant" means an Employee who has outstanding an Award granted under the Plan. (v) "Performance Unit" means an Award granted to an Employee, as described in Article 8 herein. (w) "Performance Share" means an Award granted to an Employee, as described in Article 8 herein. -4- (x) "Period of Restriction" means the period during which the transfer of Shares of Restricted Stock is limited in some way (based on the passage of time, the achievement of performance goals, or the occurrence of other events as determined by the Committee, at its discretion), and the Shares are subject to a substantial risk of forfeiture, as provided in Article 7 herein. (y) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). (z) "Restricted Stock" means an Award granted to a Participant pursuant to Article 7 herein. (aa) "Retirement" shall have the meaning ascribed to such term in the Alliant Energy Cash Balance Plan. (ab) "Shares" means the shares of common stock of the Company. (ac) "Subsidiary" means any corporation, partnership, venture, or other entity in which the Company, directly or indirectly, has at least an eighty percent (80%) ownership interest. Article 3. Administration 3.1 The Committee. The Plan shall be administered by the Compensation and Personnel Committee of the Board or by any other Committee appointed by the Board consisting of not less than two (2) Directors. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board of Directors. The Committee shall be comprised solely of Directors who qualify as "Non-Employee Directors" pursuant to Rule 16b-3 under the Exchange Act and as "outside directors" pursuant to Section 162(m) of the Code and the regulations thereunder. 3.2 Authority of the Committee. The Committee shall have full power except as limited by law or by the Articles of Incorporation or Bylaws of the Company, and subject to the provisions herein, to designate Employees to be Participants in the Plan; to determine the size and types of Awards; to determine the terms and conditions of such Awards in a manner consistent with the Plan; to determine whether, to what extent, and under what circumstances, Awards granted to Participants may be settled or exercised in cash, Shares or other property; to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan's administration; and (subject to the provisions of Article 13 herein) to amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. As permitted by law, the Committee may delegate its authorities as identified hereunder. 3.3 Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders or resolutions of the Board shall be final, conclusive, and binding on all persons, including the Company, its shareowners, Employees, Participants, and their estates and beneficiaries. -5- Article 4. Shares Subject to the Plan 4.1 Number of Shares. Subject to adjustment as provided in Section 4.3 herein, the total number of Shares available for grant under the Plan shall be 3,800,000. Of this number, up to 400,000 Shares (subject to adjustment as provided in Section 4.3 herein) may be granted as Restricted Stock. These Shares may be either authorized but unissued or reacquired Shares. The following rules will apply for purposes of the determination of the number of Shares available for grant under the Plan: (a) While an Award is outstanding, it shall be counted against the authorized pool of Shares, regardless of its vested status. (b) The grant of an Option or Restricted Stock shall reduce the Shares available for grant under the Plan by the number of Shares subject to such Award. (c) The Committee shall in each case determine the appropriate number of Shares to deduct from the authorized pool in connection with the grant of Performance Units and/or Performance Shares. (d) Unless otherwise determined by the Committee, the grant of an award opportunity under Article 8 of this Plan shall not reduce the authorized pool; provided, however, that payout of such opportunity in the form of Shares shall reduce the authorized pool by such number of Shares. (e) To the extent that an Award is settled in cash rather than in Shares, the authorized Share pool shall be credited with the appropriate number of Shares represented by the cash settlement of the Award, as determined at the sole discretion of the Committee. 4.2 Lapsed Awards. If any Award granted under this Plan is canceled, terminates, expires, or lapses for any reason, any Shares subject to such Award again shall be available for the grant of an Award under the Plan. 4.3 Adjustments in Authorized Shares. In the event of any merger, reorganization, consolidation, recapitalization, repurchase, separation, liquidation, stock dividend, share exchange, split-up, spin-off, Share combination, or other change in the corporate structure of the Company affecting the Shares, such adjustment shall be made in the number and class of securities which may be delivered under the Plan, and in the number and class of and/or price of securities subject to outstanding Awards granted under the Plan, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; provided that the number of securities subject to any Award shall always be a whole number; and provided further that the Committee may, in its sole discretion, limit any such adjustment in order to qualify a transaction in which the Company or any affiliate is a party for pooling-of-interests accounting treatment. Article 5. Eligibility and Participation 5.1 Eligibility. Persons eligible to participate in this Plan include all active Employees of the Company and its Subsidiaries, as determined by the Committee, including Employees who are members of the Board, but excluding Directors who are not Employees. -6- 5.2 Actual Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible Employees those to whom Awards shall be granted and shall determine the nature and amount of each Award. Article 6. Stock Options 6.1 Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Employees at any time and from time to time as shall be determined by the Committee. The Committee shall have discretion in determining the number of Shares subject to Options granted to each Participant; provided, however, that the maximum number of Shares subject to Options which may be granted to any single Participant during the term of the Plan is 300,000 (subject to adjustment as provided in Section 4.3 herein). The Committee may grant ISOs, NQSOs, or a combination thereof. 6.2 Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine. The Award Agreement also shall specify whether the Option is intended to be an ISO within the meaning of Section 422 of the Code, or a NQSO whose grant is intended not to fall under the Code provisions of Section 422. 6.3 Option Price. The Option Price for each grant of an Option under this Section 6.3 shall be at least equal to one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted. In addition, the Committee may grant Options which have Option Prices that increase over time, upon such terms as the Committee, in its sole discretion, deems appropriate. 6.4 Duration of Options. Each Option shall expire at such time as the Committee shall determine at the time of grant; provided, however, that no Option shall be exercisable later than the tenth (10th) anniversary date of its grant. 6.5 Dividend Equivalents. Simultaneous with the grant of an Option, the Participant receiving the Option may be granted, at no additional cost, Dividend Equivalents. Each Dividend Equivalent shall entitle the Participant to receive a contingent right to be paid an amount equal to the dividends declared on a Share on all record dates occurring during the period between the grant date of an Option and the date as specified by the Committee. The underlying value of each Dividend Equivalent shall accrue as a book entry in the name of each Participant holding the Dividend Equivalent. Payout of the accrued value of a Dividend Equivalent shall occur only pursuant to the terms and conditions as specified by the Committee. 6.6 Exercise of Options. Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant. 6.7 Payment. Options shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. The Option Price upon exercise of any Option shall be payable to the Company in full either: (a) in cash or its equivalent, or (b) by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Option Price, or (c) by a combination of (a) and (b). -7- Notwithstanding the foregoing, the Committee also may allow cashless exercises as permitted under Federal Reserve Board's Regulation T, subject to such procedures as the Committee may deem appropriate. As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant's name, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s). 6.8 Termination of Employment Due to Death, Disability, or Retirement. (a) Termination by Death. In the event the employment of a Participant is terminated by reason of death, all outstanding Options granted to that Participant shall immediately vest one hundred percent (100%), and shall remain exercisable at any time prior to their expiration date, or for one (1) year after the date of death, whichever period is shorter, by such person or persons as shall have been named as the Participant's beneficiary, or by such persons that have acquired the Participant's rights under the Option by will or by the laws of descent and distribution. (b) Termination by Disability. In the event the employment of a Participant is terminated by reason of Disability, all outstanding Options granted to that Participant shall immediately vest one hundred percent (100%) as of the date the Committee determines the definition of Disability to have been satisfied, and shall remain exercisable at any time prior to their expiration date, or for one (1) year after the date that the Committee determines the definition of Disability to have been satisfied, whichever period is shorter. (c) Termination by Retirement. In the event the employment of a Participant is terminated by reason of Retirement, all outstanding Options granted to that Participant shall immediately vest one hundred percent (100%), and shall remain exercisable at any time prior to their expiration date, or for three (3) years after the effective date of Retirement, whichever period is shorter. (d) Employment Termination Followed by Death. In the event that a Participant's employment terminates by reason of Disability or Retirement, and within the exercise period following such termination the Participant dies, then the remaining exercise period under outstanding Options shall equal the longer of: (i) one (1) year following death; or (ii) the remaining portion of the exercise period which was triggered by the employment termination. Such Options shall be exercisable by such person or persons who shall have been named as the Participant's beneficiary, or by such persons who have acquired the Participant's rights under the Option by will or by the laws of descent and distribution. (e) Exercise Limitations on ISOs. In the case of ISOs, the tax treatment prescribed under Section 422 of the Code may not be available if the Options are not exercised within the Section 422 prescribed time periods after each of the various types of employment termination. 6.9 Termination of Employment for Other Reasons. If the employment of a Participant shall terminate for any reason other than the reasons set forth in Section 6.8 (and other than for Cause), -8- all Options held by the Participant which are not vested as of the effective date of employment termination immediately shall be forfeited to the Company (and shall once again become available for grant under the Plan). However, the Committee, in its sole discretion, shall have the right to immediately vest all or any portion of such Options, subject to such terms as the Committee, in its sole discretion, deems appropriate. Options which are vested as of the effective date of employment termination may be exercised by the Participant within the period beginning on the effective date of employment termination, and ending three (3) months after such date. If the employment of a Participant shall be terminated by the Company for Cause, all outstanding Options held by the Participant immediately shall be forfeited to the Company and no additional exercise period shall be allowed, regardless of the vested status of the Options. 6.10 Nontransferability of Options. Except as otherwise provided by the Committee, no Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided by the Committee, all Options granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant, or, if permissible under applicable law, by such Participant's guardian or legal representative. Article 7. Restricted Stock 7.1 Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to eligible Employees in such amounts as the Committee shall determine. 7.2 Restricted Stock Agreement. Each Restricted Stock grant shall be evidenced by a Restricted Stock Agreement that shall specify the Period of Restriction, or Periods, the number of Restricted Stock Shares granted, and such other provisions as the Committee shall determine. 7.3 Transferability. Except as provided in this Article 7, the Shares of Restricted Stock granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Restricted Stock Agreement, or upon earlier satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the Restricted Stock Agreement. All rights with respect to the Restricted Stock granted to a Participant under the Plan shall be available during his or her lifetime only to such Participant. 7.4 Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock, restrictions based upon the achievement of specific performance goals (Company-wide, divisional, and/or individual), and/or restrictions under applicable Federal or state securities laws; and may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions. -9- 7.5 Certificate Legend. In addition to any legends placed on certificates pursuant to Section 7.4 herein, each certificate representing Shares of Restricted Stock granted pursuant to the Plan may bear the following legend: "The sale or other transfer of the Shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer as set forth in the Alliant Energy Corporation Long-Term Equity Incentive Plan, and in a Restricted Stock Agreement. A copy of the Plan and such Restricted Stock Agreement may be obtained from Alliant Energy Corporation." The Company shall have the right to retain the certificates representing Shares of Restricted Stock in the Company's possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied. 7.6 Removal of Restrictions. Except as otherwise provided in this Article 7, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after the last day of the Period of Restriction. Once the Shares are released from the restrictions, the Participant shall be entitled to have the legend required by Section 7.5 removed from his or her Share certificate. 7.7 Voting Rights. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares. 7.8 Dividends and Other Distributions. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may be credited with all regular cash dividends paid with respect to all Shares while they are so held. Except as provided in the succeeding sentence, all other cash dividends and other distributions paid with respect to Shares of Restricted Stock may be credited to Participants subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid. If any such dividends or distributions are paid in Shares, the Shares shall be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid. Subject to the succeeding paragraph, all dividends credited to a Participant shall be paid to the Participant within forty-five (45) days following the full vesting of the Shares of Restricted Stock with respect to which such dividends were earned. 7.9 Termination of Employment Due to Death, Disability, or Retirement. In the event the employment of a Participant is terminated by reason of death, Disability, or Retirement, all outstanding Shares of Restricted Stock shall immediately vest one hundred percent (100%) as of the date of employment termination (in the case of Disability, the date employment terminates shall be deemed to be the date that the Committee designates as the date the definition of Disability has been satisfied). The holder of the certificates of Restricted Stock shall be entitled to have any nontransferability legends required under Sections 7.4 and 7.5 of this Plan removed from the Share certificates. 7.10 Termination of Employment for Other Reasons. If the employment of a Participant shall terminate for any reason other than those specifically set forth in Section 7.9 herein, during the applicable Period of Restriction, all Shares of Restricted Stock still subject to restriction as of the -10- effective date of employment termination immediately shall be forfeited and returned to the Company; provided, however, that the Committee may waive in whole or in part any or all remaining restrictions with respect to such Shares, upon such terms as the Committee, in its sole discretion, deems appropriate. Article 8. Performance Units and Performance Shares 8.1 Grant of Performance Units/Shares. Subject to the terms of the Plan, Performance Units and Performance Shares may be granted to eligible Employees at any time and from time to time, as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Performance Units and Performance Shares granted to each Participant; provided, however, that unless and until the Committee determines that a grant of Performance Units and/or Shares shall not be designed to qualify for the "performance-based" exemption under Code Section 162(m), the maximum payout to any Named Executive Officer with respect to Performance Units and/or Performance Shares granted in any one fiscal year of the Company shall be four hundred thousand dollars ($400,000). 8.2 Value of Performance Units/Shares. Each Performance Unit shall have an initial value that is established by the Committee at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the date of grant. The Committee shall set performance goals in its discretion which, depending on the extent to which they are met, will determine the number and/or value of Performance Units/Shares that will be paid out to the Participants. The time period during which the performance goals must be met shall be called a "Performance Period." Performance Periods shall, in all cases, exceed six (6) months in length. Unless and until the Committee proposes for shareowner vote a change in the general performance measures, the attainment of which shall determine the number and/or value of Performance Units and/or Performance Shares granted under the Plan, the Company or Subsidiary performance measure to be used for purposes of grants to Named Executive Officers shall be chosen from among the following alternatives: (a) Return on equity; (b) Total shareowner return (share price appreciation plus dividends); (c) Net income; (d) Earnings per share; and/or (e) Cash flow. The Committee shall have sole discretion to alter the governing performance measures, subject to shareowner approval, to the extent required in order to comply with Section 162(m) of the Code. Notwithstanding the foregoing, in the event the Committee determines it is advisable to grant Performance Units and/or Performance Shares which shall not qualify for the "performance-based" exemption under Code Section 162(m), the Committee may make such grants without satisfying the requirements of Code Section 162(m). 8.3 Earning of Performance Units/Shares. After the applicable Performance Period has ended, the holder of Performance Units/Shares shall be entitled to receive payout on the number and -11- value of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance goals have been achieved. 8.4 Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units/Shares shall be made in a single lump sum, within seventy-five (75) calendar days following the close of the applicable Performance Period. The Committee, in its sole discretion, may pay earned Performance Units/Shares in the form of cash or in Shares (or in a combination thereof), which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period. Such Shares may be granted subject to any restrictions deemed appropriate by the Committee. Participants shall be entitled to receive any dividends declared with respect to Shares which have been earned in connection with grants of Performance Units and/or Performance Shares which have been earned, but not yet distributed to Participants. (Such dividends shall be subject to the same accrual, forfeiture, and payout restrictions as apply to dividends earned with respect to Shares of Restricted Stock, as set forth in Section 7.8 herein.) In addition, Participants may, at the discretion of the Committee, be entitled to exercise their voting rights with respect to such Shares. 8.5 Termination of Employment Due to Death, Disability, Retirement, or Involuntary Termination Without Cause. In the event the employment of a Participant is terminated by reason of death, Disability, Retirement, or involuntary termination without Cause during a Performance Period, the Participant shall receive a prorated payout of the Performance Units/Shares. The prorated payout shall be determined by the Committee, in its sole discretion, and shall be based upon the length of time that the Participant held the Performance Units/Shares during the Performance Period, and shall further be adjusted based on the achievement of the preestablished performance goals. Payment of earned Performance Units/Shares shall be made at the same time payments are made to Participants who did not terminate employment during the applicable Performance Period. 8.6 Termination of Employment for Other Reasons. In the event that a Participant's employment terminates for any reason other than those reasons set forth in Section 8.5 herein, all Performance Units/Shares shall be forfeited by the Participant to the Company. 8.7 Nontransferability. Except as otherwise provided by the Committee, Performance Units/Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided by the Committee, a Participant's rights under the Plan shall be exercisable during the Participant's lifetime only by the Participant or the Participant's legal representative. Article 9. Beneficiary Designation Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. The spouse of a married Participant -12- domiciled in a community property jurisdiction shall join in any designation of beneficiary or beneficiaries other than the spouse. Article 10. Deferrals The Committee may permit a Participant to defer such Participant's receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant by virtue of the exercise of an Option or the lapse or waiver of restrictions with respect to Restricted Stock, or the satisfaction of any requirements or goals with respect to Performance Units/Shares. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals. Article 11. Rights of Employees 11.1 Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company. For purposes of the Plan, transfer of employment of a Participant between the Company and any one of its Subsidiaries, or vice versa, (or between Subsidiaries) shall not be deemed a termination of employment. 11.2 Participation. No Employee shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award. Article 12. Change in Control 12.1 Acceleration Upon a Change in Control. Upon the occurrence of a Change in Control, unless otherwise specifically prohibited by the terms of Article 17 herein: (a) Any and all Options granted hereunder shall become immediately exercisable; (b) Any Period of Restriction and restrictions imposed on Restricted Shares shall lapse; (c) The target payout opportunity attainable under all outstanding Performance Units and Performance Shares shall be deemed to have been fully earned for the entire Performance Period(s) as of the effective date of the Change in Control, and there shall be paid out in cash to Participants within thirty (30) days following the effective date of the Change in Control a pro rata portion of such target payout opportunity based on the number of complete and partial calendar months within the Performance Period which had elapsed as of such effective date; provided, however, that there shall not be an accelerated payout with respect to Performance Units or Performance Shares which were granted less than six (6) months prior to the effective date of the Change in Control; and (d) Subject to Article 13 herein, the Committee shall have the authority to make any modifications to the Awards as determined by the Committee to be appropriate before the effective date of the Change in Control. 12.2 Pooling Limitations. The Committee may, in its sole discretion, amend, modify or rescind the provisions of Section 12.1 if it determines that the operation of Section 12.1 may prevent a -13- transaction in which the Company or any affiliate is a party from being accounted for on a pooling-of-interests basis. Article 13. Amendment, Modification, and Termination 13.1 Amendment, Modification, and Termination. The Board may, at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part. The Committee shall not have the authority to cancel outstanding Awards and issue substitute Awards in replacement thereof. 13.2 Awards Previously Granted. No termination, amendment, or modification of the Plan shall (except as otherwise expressly contemplated by the Plan for Awards granted after January 20, 1999) adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award. Article 14. Withholding 14.1 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes (including the Participant's FICA obligation) required by law to be withheld with respect to any taxable event arising from, or as a result of, any Awards to Participants under this Plan. 14.2 Share Withholding. With respect to withholding required upon the exercise of Options, upon the lapse of restrictions on Restricted Stock, or upon any other taxable event arising as a result of Awards granted hereunder, Participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares (or deliver to the Company previously acquired Shares) having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which is required to be withheld in connection with the transaction. The Committee may establish such procedures as it deems appropriate for the settling of withholding obligations with Shares. Article 15. Indemnification Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. -14- Article 16. Successors All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. Article 17. Restrictions on Share Transferability In addition to any restrictions imposed pursuant to the Plan, all certificates for Shares delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange or market upon which such Shares are then listed or traded, and any applicable Federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. Article 18. Legal Construction 18.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 18.2 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 18.3 Requirements of Law. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 18.4 Governing Law. To the extent not preempted by Federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Wisconsin. EX-10.2 5 CONSULTING AGREEMENT EXHIBIT 10.2 ALLIANT ENERGY CORPORATION CONSULTING AGREEMENT FOR WAYNE H. STOPPELMOOR THIS AGREEMENT by and between Alliant Energy Corporation f/k/a Interstate Energy Corporation, a Wisconsin corporation (the "Company"), and Wayne H. Stoppelmoor (the "Consultant"), dated as of the 21st day of April, 1998. WHEREAS, the merger of WPL Holdings, Inc., IES Industries Inc., and Interstate Power Company (the "Merger") is to be consummated as of the date hereof (the "Merger Date"); and WHEREAS, the Consultant recently retired as the chief executive officer of Interstate Power Company; and WHEREAS, the Company wishes to provide for the continuing services to the Company of the Consultant following the Merger Date, and the Consultant wishes to serve the Company in the capacity of a consultant following the Merger Date, on the terms and conditions set forth in this Agreement: NOW, THEREFORE, it is hereby agreed as follows: 1. Consulting Period. The Company shall engage the Consultant, and the Consultant shall serve the Company as a consultant, on the terms and conditions set forth in this Agreement, for the period commencing on the Merger Date and ending on the date immediately preceding the third anniversary of the Merger Date, or if earlier, on the last day of the month in which occurs the date of the Consultant's death or his permanent and total disability (the "Consulting Period"). 2. Consulting Duties. a. Consultancy. The Consultant shall be prepared to serve and shall serve as a consultant to the Chief Executive Officer of the Company, performing such consulting services as the Chief Executive Officer may reasonably request from time to time, for the compensation described in Section 3 hereof. b. Duties. During the Consulting Period, the Consultant shall devote the necessary time and effort required to perform his duties hereunder and shall report to the Chief Executive Officer of the Company. The Consultant's services hereunder shall be performed primarily at the executive offices of the Company located in Dubuque, Iowa, subject to such reasonable business travel as shall be appropriate. c. Office. For the performance of the duties provided herein, the Consultant shall be provided an executive office, with shared secretarial support, at the executive offices of the Company located in Dubuque, Iowa, for the Consulting Period. d. Director Status. The Consultant shall remain eligible to serve as a director of the Company during the Consulting Period and shall serve as Vice Chairman of the Board during the first two years of the Consulting Period, but during the Consulting Period, the Consultant shall not be eligible to receive any retainers or fees otherwise payable to the Consultant in his capacity as a director of the Company. Notwithstanding the foregoing, the Consultant shall be eligible to participate in the Directors Charitable Award Program and the Directors Life Insurance Program to the extent such programs are offered during his term as a director of the Company. 3. Consulting Fee. a. Annual Retainer. The Consultant shall receive an annual fee ("Annual Retainer") payable monthly in arrears, of $324,500 during each of the first two years of the Consulting Period. The Retainer for the third year shall be $200,000, payable as described above. The Annual Retainer is subject to upward adjustment by the Board of Directors of the Company. b. Additional Compensation. During the first two years of the Consulting Period, the Consultant shall be eligible to participate in compensation plans equivalent to those provided by the Company for the Chairman of the Company's Board of Directors and the Chief Executive Officer of the Company, subject to the final approval of the Compensation Committee of the Board of Directors of the Company. c. Expense Reimbursement; and Conferences. The Consultant shall be reimbursed for reasonable expenses incurred in the performance of his consulting duties hereunder when such expenses are submitted in accordance with Company rules and procedures. The Consultant is requested to attend, on behalf of the Company, the EEI Annual Meeting and the South West Electric Conference. d. Death or Disability. Upon the death or disability of the Consultant during the Consulting Period, the Company shall pay to the Consultant or, in the case of the Consultant's death, to the Consultant's designated beneficiaries (or, if there is no such beneficiary, to the Consultant's surviving spouse, or if the Consultant is not survived by a spouse, to the Consultant's estate or legal representative), in a lump sum, in cash within thirty (30) days after the date of death or disability, the sum of the following amounts: (1) any portion of the Consultant's consulting fee that has been earned but not yet been paid; and (2) any unreimbursed expenses. -2- 4. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Consultant's (and/or the Consultant's spouse or dependants) continuing or future participation, as a retired senior executive officer of Interstate Power Company, in any plan, program, policy or practice provided by Interstate Power Company for the benefit of its retired senior executives, for which the Consultant may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Consultant may have, as a retired senior executive officer, under any contract or agreement with the Company or any of its affiliated companies, including without limitation, any supplemental retirement benefit and any business or travel accident insurance plan or program. Vested benefits and other amounts that the Consultant is otherwise entitled, as a retired senior executive officer, to receive under any plan, policy, practice or program of, or any contract or agreement with, the Company or any of its affiliated companies on or after the Merger Date shall be payable in accordance with the terms of each such plan, policy, practice, program, contract or agreement, as the case may be. The Consultant agrees that during the Consulting Period he shall not be entitled to any benefits as an "employee" of the Company or its affiliated companies or to participate in any plan or arrangement offered to "employees" of the Company or its affiliated companies, except for the benefits the Consultant is entitled to receive as a retired senior executive officer of Interstate Power Company. 5. Confidential Information. The Consultant shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies and their respective businesses that the Consultant obtained during the Consultant's employment by Interstate Power Company or any of its affiliated companies, or during the Consulting Period, and that is not public knowledge (other than as a result of the Consultant's disclosure of such information). The Consultant shall not communicate, divulge or disseminate Confidential Information at any time during the Consulting Period, or during the five (5) year period thereafter, except with the prior written consent of the Company or as otherwise required by law or legal process. In no event shall any asserted violation of the provisions of this Section constitute a basis for deferring or withholding any amounts otherwise payable to the Consultant under this Agreement. 6. Tax Payments and Reporting. a. The Consultant recognizes that the payments provided under this Agreement including without limitation those provided pursuant to Section 3 may result in taxable income to the Consultant which the Company will report to its appropriate taxing authorities. The Consultant agrees that he is not an employee of the Company and further agrees to pay all necessary and appropriate income and self-employment taxes on such income as an independent contractor and, in the event a taxing authority on audit (or otherwise) recharacterizes the Consultant's relationship with the Company as an employee/employer relationship rather than an independent contractor arrangement, the Consultant agrees to reimburse the Company in an amount equal to the amount of any tax refund the Consultant may receive as a result of such recharacterization. The Consultant shall cooperate fully with -3- the Company in resisting any efforts any taxing authority may undertake to recharacterize the Consultant's relationship with the Company as other than a consulting arrangement. b. Notwithstanding any other provision of this Agreement, if any portion of any payment or award pursuant to this Agreement, (in the aggregate "Total Payments"), would constitute an "excess parachute payment," under Section 280G of the Internal Revenue Code of 1986 as amended (the "Code") then any Additional Compensation to be paid or awarded to the Consultant pursuant to Section 3(b) of this Agreement shall be reduced such that the value of the aggregate Total Payments that the Consultant is entitled to receive shall be One Dollar ($1) less than the maximum amount which the Consultant is entitled to receive without becoming subject to the tax imposed by Section 4999 (or any successor provision) of the Code or which the Company may pay without loss of deduction under Section 280G(a) of the Code (or any successor provision). For purposes of this Agreement, the terms "excess parachute payment" and "parachute payment" shall have the meanings assigned to them in Section 280G of the Code (or any successor provision), and such "parachute payment" shall be valued as provided therein. Present value for purposes of this Agreement shall be calculated in accordance with Section 1274(d) of the Code (or any successor provision). Within fifteen (15) days following notice by the Company to the Consultant of its belief that there is a payment or award due the Consultant which will result in an excess parachute payment, the Consultant and the Company, at the Company's expense, shall obtain the opinion (which need not be unqualified) of nationally recognized tax counsel selected by the Company's independent auditors and acceptable to the Consultant in his sole discretion (which may be regular outside counsel to the Company), which opinion sets forth (i) the amount of the Base Period Income, (ii) the amount and present value of Total Payments and (iii) the amount and present value of any excess parachute payments determined without regard to the limitations of this paragraph (b) of Section 6. As used in this Agreement, the term "Base Period Income" means an amount equal to the Consultant's "annualized includable compensation for the base period" as defined in Section 280G(d)(1) of the Code (or any successor provision). For purposes of such opinion, the value of any noncash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code (or any successor provisions), which determination shall be evidenced in a certificate of such auditors addressed to the Company and the Consultant. If such opinion determines that there would be an excess parachute payment, any Additional Compensation determined by such counsel to be includable in Total Payments shall be reduced or eliminated as specified by the Consultant in writing delivered to the Company within thirty (30) days of his receipt of such opinion or, if the Consultant fails to so notify the Company, then as the Company shall reasonably determine, so that under the bases of calculations set forth in such opinion there will be no excess parachute payment. In no event shall the operation of this paragraph result in a reduction of Total Payments below the amount of the Annual Retainer specified in paragraph 3(a). If such legal counsel so requests in connection with the opinion required by this paragraph (b) of Section 6, the Consultant and the company shall obtain, at the Company's expense, and the legal counsel may rely on in providing the opinion, the advice of a firm of recognized executive compensation consultants as to the reasonableness of any item of compensation to be received by the Consultant. If the provisions of Sections 280G and 4999 -4- of the Code (or any successor provisions) are repealed without succession, then this paragraph (b) of Section 6 shall be of no further force or effect. c. If, notwithstanding the provisions of paragraph (b) of Section 6, it is ultimately determined by a court or pursuant to a final determination by the Internal Revenue Service that any portion of Total Payments is subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any successor provision), the Company shall pay to the Consultant an additional amount (the "Gross-Up Payment") such that the net amount retained by the Consultant after deduction of any Excise Tax and any interest charges or penalties in respect of the imposition of such Excise Tax (but not any federal, state or local income tax) on the Total Payments, and any federal, state and local income tax and Excise Tax upon the payment provided for by this paragraph (c) of section 6, shall be equal to the Total Payments. For purposes of determining the amount of the Gross-Up Payment, the Consultant shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of the Consultant's domicile for income tax purposes on the date the Gross-Up Payment is made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. 7. Attorneys' Fees. The Company agrees to pay, as incurred, to the fullest extent permitted by law, all legal fees and expenses that the Consultant may reasonably incur as a result of any contest (regardless of the outcome) by the Company, the Consultant or others of the validity or enforceability of or liability under, or otherwise involving, any provision of this Agreement, together with interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code (or any successor provision). 8. Successors. a. This Agreement is personal to the Consultant and, without the prior written consent of the Company, shall not be assignable by the Consultant. This Agreement shall inure to the benefit of and be enforceable by the Consultant's legal representatives. b. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. c. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean both the Company as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise. -5- 9. Full Settlement. The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Consultant or others. The amounts payable by the Company under this Agreement shall not be offset or reduced by any amounts otherwise receivable by the Consultant from any source. 10. Indemnification. The Company shall, to the fullest extent permitted by Iowa law, indemnify the Consultant from, and hold him harmless against, any and all liabilities, costs and expenses (including, without limitation, fees and expenses of legal counsel and/or other experts) incurred by reason of any claim, suit or action brought against the Consultant as a direct or indirect result of any act, omission, or failure to act, by or on behalf of the Consultant while providing the services contemplated by this Agreement for the Company or for any affiliate thereof, except for any act or omission that constitutes willful gross misconduct by the Consultant. The obligation of the Company under this Section 10 shall be in addition to and not in derogation of any other indemnification by the Company that the Consultant may be entitled to under other arrangements with the Company or any affiliate of the Company, or any coverage the Consultant is entitled to under any directors and officers insurance policy maintained by the Company or any affiliate of the Company. 11. Miscellaneous. a. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Iowa, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives. b. All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by facsimile, addressed as follows: If to the Consultant: Mr. Wayne H. Stoppelmoor 7798 Timmerman Drive East Dubuque, Illinois 61025 -6- If to the Company: Interstate Energy Corporation 222 West Washington Avenue P.O. Box 2568 Madison, Wisconsin 53701-2568 Attn: General Counsel or to such other address as either party furnishes to the other in writing in accordance with this paragraph (b). Notices and communications shall be effective when actually received by the addressee. c. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. d. The Consultant's or the Company's failure to insist upon strict compliance with any provision of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. e. Except as provided in Section 4, Consultant and the Company acknowledge that this Agreement supersedes any other agreement between the Consultant and the Company or Interstate Power Company concerning the subject matter hereof, including, without limitation, any change in control protection agreements between the Consultant and Interstate Power Company. f. The rights and benefits of the Consultant under this Agreement may not be anticipated, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Consultant to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Consultant in the event of insolvency or bankruptcy. g. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument. h. The respective rights and obligations of the parties hereto shall survive any expiration and/or termination of the Consulting Period and/or this Agreement for any reason to the extent necessary to effect the intended provision of such rights and obligations. IN WITNESS WHEREOF, the Consultant has hereunto set the Consultant's hand and, pursuant to the authorization of the Board of Directors, the Company has caused this -7- Agreement to be executed in its name on its behalf, all as of the day and year first above written. CONSULTANT ALLIANT ENERGY CORPORATION __________________________________ By:_________________________________ WAYNE H. STOPPELMOOR Name: ____________________________________ Title: -8- EX-27.1 6 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 1999 FINANCIAL STATEMENTS INCLUDED IN ALLIANT CORPORATION'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000352541 ALLIANT ENERGY CORPORATION 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 PER-BOOK 3,076,714 1,323,853 338,166 166,317 272,086 5,177,136 784 926,242 840,382 1,767,408 24,466 89,102 1,514,498 50,024 56,975 125,500 53,740 0 25,611 12,277 1,457,535 5,177,136 1,032,969 49,039 897,724 897,724 153,245 47,550 200,795 68,114 83,642 3,353 80,289 77,892 90,708 203,774 1.03 1.03 Includes $300,613 of Accumulated Other Comprehensive Income Income tax expense is not included in Operating Expense in the Consolidated Statements of Income.
EX-27.2 7 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE JUNE 30, 1999 FINANCIAL STATEMENTS INCLUDED IN IES UTILITIES INC'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000052485 IES UTILITIES INC. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 PER-BOOK 1,362,950 111,465 86,240 15,038 130,217 1,705,910 33,427 279,042 237,783 550,252 0 18,320 550,252 29,706 0 0 51,196 0 25,541 12,263 467,680 1,705,910 380,058 15,828 319,830 319,830 60,228 4,739 64,967 27,638 21,501 457 21,044 58,633 42,684 79,468 0 0 Income tax expense is not included in Operating Expense in the Consolidated Statements of Income. Earnings per share of common stock is not reflected because all common shares are held by Alliant Energy Corporation.
EX-27.3 8 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE JUNE 30, 1999 FINANCIAL STATEMENTS INCLUDED IN WISCONSIN POWER AND LIGHT COMPANY'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000107832 WISCONSIN POWER AND LIGHT COMPANY 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 PER-BOOK 1,218,822 168,050 102,912 121,508 73,244 1,684,536 66,183 199,438 296,718 562,339 0 59,963 414,626 109,035 56,975 0 0 0 0 0 481,598 1,684,536 370,106 19,497 301,805 301,805 68,301 4,380 72,681 19,943 33,241 1,656 31,585 29,176 33,304 72,194 0 0 Income tax expense is not included in Operating Expense in the Consolidated Statements of Income. Earnings per share of common stock is not reflected because all common shares are held by Alliant Energy Corporation.
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