-----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, P6zE2qPGcHxl5pp790XghqBl0hJFP7AcK6si5k6K0fkZn7tQjEc8OB5d56TKU23g nuKnL36DNqrCBBjygpNhLg== 0000897069-99-000523.txt : 19991102 0000897069-99-000523.hdr.sgml : 19991102 ACCESSION NUMBER: 0000897069-99-000523 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19991101 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-K/A SEC ACT: SEC FILE NUMBER: 002-73138 FILM NUMBER: 99738801 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-K/A SEC ACT: SEC FILE NUMBER: 001-04117 FILM NUMBER: 99738802 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-K/A SEC ACT: SEC FILE NUMBER: 000-00337 FILM NUMBER: 99738803 BUSINESS ADDRESS: STREET 1: 222 W WASHINGTON AVE CITY: MADISON STATE: WI ZIP: 53703 BUSINESS PHONE: 6082523311 10-K/A 1 FORM 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 TO [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______ Name of Registrant, State of Incorporation, Address of Commission Principal Executive IRS Employer File Number 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 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) Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Title of Class Exchange on Which Registered -------------- ---------------------------- Alliant Energy Corporation Common Stock, $.01 Par Value New York Stock Exchange Alliant Energy Corporation Common Stock Purchase Rights New York Stock Exchange IES Utilities Inc. 7-7/8% Quarterly Debt Capital Securities New York Stock Exchange (Subordinated Deferrable Interest Debentures)
Securities registered pursuant to Section 12 (g) of the Act: Title of Class -------------- IES Utilities Inc. 4.80% Cumulative Preferred Stock, Par Value $50 per share Wisconsin Power and Light Company Preferred Stock (Accumulation without Par Value) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. Yes X No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [ ] This combined Form 10-K/A 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. The aggregate market value of the voting and non-voting common equity held by nonaffiliates as of January 31, 1999: Alliant Energy Corporation $2.24 billion IES Utilities Inc. $0 Wisconsin Power and Light Company $0 Number of shares outstanding of each class of common stock as of January 31, 1999: Alliant Energy Corporation Common Stock, $.01 par value, 77,667,444 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 Interstate 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 Interstate Energy Corporation) DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statements relating to Alliant Energy Corporation's 1999 Annual Meeting of Shareowners and Wisconsin Power and Light Company's 1999 Annual Meeting of Shareowners are, or will upon filing with the Securities and Exchange Commission, be incorporated by reference into Part III hereof. 2 The undersigned registrants hereby amend Items 8 and 14 of their combined Annual Report on Form 10-K for the year ended December 31, 1998 to provide in their entirety as follows: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Interstate Energy Corporation Page Number Report of Management 5 Report of Independent Public Accountants 6 Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 7 Consolidated Balance Sheets, December 31, 1998 and 1997 8 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 10 Consolidated Statements of Capitalization, December 31, 1998 and 1997 11 Consolidated Statements of Changes in Common Equity for the Years Ended December 31, 1998, 1997 and 1996 13 Notes to Consolidated Financial Statements 14 IES Utilities Inc. Report of Independent Public Accountants 38 Consolidated Statements of Income and Retained Earnings for the Years Ended December 31, 1998, 1997 and 1996 39 Consolidated Balance Sheets, December 31, 1998 and 1997 40 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 42 Consolidated Statements of Capitalization, December 31, 1998 and 1997 43 Notes to Consolidated Financial Statements 44 Wisconsin Power and Light Company Report of Independent Public Accountants 52 Consolidated Statements of Income and Retained Earnings for the Years Ended December 31, 1998, 1997 and 1996 53 Consolidated Balance Sheets, December 31, 1998 and 1997 54 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 56 Consolidated Statements of Capitalization, December 31, 1998 and 1997 57 Notes to Consolidated Financial Statements 58 Refer to Note 16 of IEC's, IESU's and WP&L's "Notes to Consolidated Financial Statements" for the quarterly financial data required by this Item. 3 INTERSTATE ENERGY CORPORATION FINANCIAL SECTION 4 INTERSTATE ENERGY CORPORATION REPORT ON THE FINANCIAL INFORMATION Interstate Energy Corporation management is responsible for the information and representations contained in the financial statements and in certain other sections of this Annual Report. The consolidated financial statements that follow have been prepared in accordance with generally accepted accounting principles. In addition to selecting appropriate accounting principles, management is responsible for the manner of presentation and for the reliability of the financial information. In fulfilling that responsibility, it is necessary for management to make estimates based on currently available information and judgments of current conditions and circumstances. Through a well-developed system of internal controls, management seeks to ensure the integrity and objectivity of the financial information presented in this report. This system of internal controls is designed to provide reasonable assurance that the assets of the company are safeguarded and that the transactions are executed according to management's authorizations and are recorded in accordance with the appropriate accounting principles. The Board of Directors participates in the financial information reporting process through its Audit Committee. Erroll B. Davis Jr. President and Chief Executive Officer Interstate Energy Corporation Thomas M. Walker Executive Vice President and Chief Financial Officer Interstate Energy Corporation John E. Ebright Vice President - Controller Interstate Energy Corporation January 29, 1999 5 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareowners of Interstate Energy Corporation: We have audited the accompanying consolidated balance sheets and statements of capitalization of Interstate Energy Corporation (a Wisconsin Corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, cash flows and changes in common equity for each of the three years in the period ended December 31, 1998. These financial statements and the supplemental schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and supplemental schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Interstate Energy Corporation and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31,1998, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin, January 29, 1999 (except with respect to the matters discussed in Notes 5c and 17, as to which the date is October 29, 1999) 6
INTERSTATE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Operating revenues: Electric utility $ 1,567,442 $ 1,515,753 $ 1,440,375 Gas utility 295,590 393,907 375,955 Nonregulated and other 267,842 390,967 416,510 ----------------- ----------------- ---------------- 2,130,874 2,300,627 2,232,840 ----------------- ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 297,685 280,558 256,609 Purchased power 255,332 256,306 231,014 Cost of utility gas sold 166,453 259,222 240,324 Other operation 620,234 681,977 696,596 Maintenance 122,737 123,121 111,657 Depreciation and amortization 279,505 259,663 232,363 Taxes other than income taxes 105,626 103,397 98,838 ----------------- ----------------- ---------------- 1,847,572 1,964,244 1,867,401 ----------------- ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Operating income 283,302 336,383 365,439 ----------------- ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 129,363 122,563 113,321 Allowance for funds used during construction (6,812) (5,274) (5,574) Preferred dividend requirements of subsidiaries 6,699 6,693 6,687 Miscellaneous, net (736) (13,910) (11,843) ----------------- ----------------- ---------------- 128,514 110,072 102,591 ----------------- ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Income before income taxes 154,788 226,311 262,848 ----------------- ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Income taxes 58,113 81,733 105,760 ----------------- ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Income from continuing operations 96,675 144,578 157,088 ----------------- ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Discontinued operations: Loss on disposal of subsidiary, net of applicable tax benefit of $575 - - (1,297) ----------------- ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Net income $ 96,675 $ 144,578 $ 155,791 ================= ================= ================ - -------------------------------------------------------------------------------------------------------------------- Average number of common shares outstanding 76,912 76,210 75,481 ================= ================= ================ - -------------------------------------------------------------------------------------------------------------------- Earnings per average common share (basic and diluted): Income from continuing operations $ 1.26 $ 1.90 $ 2.08 Discontinued operations - - (0.02) ----------------- ----------------- ---------------- Net income $ 1.26 $ 1.90 $ 2.06 ================= ================= ================ - -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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INTERSTATE ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS December 31, ASSETS 1998 1997 - ----------------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Utility - Plant in service - Electric $ 4,866,152 $ 4,733,222 Gas 515,074 495,155 Other 409,711 366,395 ----------------- ----------------- 5,790,937 5,594,772 Less - Accumulated depreciation 2,852,605 2,631,582 ----------------- ----------------- 2,938,332 2,963,190 Construction work in progress 119,032 86,511 Nuclear fuel, net of amortization 44,316 55,777 ----------------- ----------------- 3,101,680 3,105,478 Other property, plant and equipment, net of accumulated depreciation and amortization of $178,248 and $139,920, respectively 355,100 329,264 ----------------- ----------------- 3,456,780 3,434,742 ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 31,827 27,329 Accounts receivable: Customer, less allowance for doubtful accounts of $2,518 and $2,400, respectively 102,966 123,545 Other, less allowance for doubtful accounts of $490 and $224, respectively 26,054 20,824 Notes receivable 13,392 23,410 Production fuel, at average cost 54,140 40,656 Materials and supplies, at average cost 53,490 49,845 Gas stored underground, at average cost 26,013 32,364 Regulatory assets 27,089 36,330 Prepaid gross receipts tax 22,222 22,153 Other 30,767 35,786 ----------------- ----------------- 387,960 412,242 ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Investments: Investment in McLeodUSA Inc. 320,280 328,022 Nuclear decommissioning trust funds 225,803 190,238 Investment in foreign entities 68,882 57,072 Other 54,776 49,319 ----------------- ----------------- 669,741 624,651 ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 341,684 352,365 Deferred charges and other 103,172 99,550 ----------------- ----------------- 444,856 451,915 ----------------- ----------------- Total assets $ 4,959,337 $ 4,923,550 ================= ================= - ----------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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INTERSTATE ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (CONTINUED) December 31, CAPITALIZATION AND LIABILITIES 1998 1997 - ----------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock $ 776 $ 765 Additional paid-in capital 905,130 868,903 Retained earnings 537,372 581,376 Accumulated other comprehensive income 163,017 173,512 ------------------ ------------------ Total common equity 1,606,295 1,624,556 ------------------ ------------------ Cumulative preferred stock of subsidiaries, net 113,498 113,369 Long-term debt (excluding current portion) 1,543,131 1,467,903 ------------------ ------------------ 3,262,924 3,205,828 ------------------ ------------------ - ----------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds 63,414 18,329 Variable rate demand bonds 56,975 56,975 Commercial paper 64,500 114,500 Notes payable 51,784 42,000 Capital lease obligations 11,978 13,197 Accounts payable 204,297 192,634 Accrued taxes 84,921 78,923 Other 111,685 133,233 ------------------ ------------------ 649,554 649,791 ------------------ ------------------ - ----------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 691,624 719,899 Accumulated deferred investment tax credits 77,313 82,862 Environmental liabilities 68,399 70,955 Customer advances 37,171 36,619 Capital lease obligations 13,755 23,634 Other 158,597 133,962 ------------------ ------------------ 1,046,859 1,067,931 ------------------ ------------------ - ----------------------------------------------------------------------------------------------------------- Commitments and Contingencies (Note 12) - ----------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $ 4,959,337 $ 4,923,550 ================== ================== - ----------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
9
INTERSTATE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $ 96,675 $ 144,578 $ 155,791 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 279,505 259,663 232,363 Amortization of nuclear fuel 17,869 18,308 21,336 Amortization of deferred energy efficiency expenditures 27,083 15,786 6,669 Deferred taxes and investment tax credits (27,720) (11,661) 14,715 Refueling outage provision (4,001) 9,290 (6,374) Impairment of oil and gas properties 9,678 9,902 - Impairment of regulatory assets 8,969 - - Other (3,616) 5,468 (6,777) Other changes in assets and liabilities: Accounts receivable 15,349 18,638 (13,935) Notes receivable 10,018 (3,621) 14,663 Production fuel (13,484) 2,814 271 Materials and supplies (3,645) (874) 5,615 Gas stored underground 6,351 (6,603) (4,170) Accounts payable 11,663 (27,726) 33,505 Accrued taxes 5,998 13,375 (11,676) Benefit obligations and other 31,070 16,152 9,280 --------------- -------------- -------------- Net cash flows from operating activities 467,762 463,489 451,276 --------------- -------------- -------------- - -------------------------------------------------------------------------------------------------------------- Cash flows used for financing activities: Common stock dividends declared (140,679) (145,631) (143,344) Dividends payable (15,458) 285 310 Proceeds from issuance of common stock 33,832 15,535 17,393 Net change in Alliant Energy Resources, Inc. credit facility 70,492 9,908 47,860 Proceeds from issuance of other long-term debt 77,544 295,000 61,370 Reductions in other long-term debt (27,663) (146,590) (20,679) Net change in short-term borrowings (40,216) (109,884) 16,654 Principal payments under capital lease obligations (13,250) (12,964) (19,108) Other (2,333) (2,410) (2,336) --------------- -------------- -------------- Net cash flows used for financing activities (57,731) (96,751) (41,880) --------------- -------------- -------------- - -------------------------------------------------------------------------------------------------------------- Cashflows used for investing activities: Construction and acquisition expenditures: Utility (269,133) (256,760) (297,196) Other (102,925) (71,280) (115,078) Deferred energy efficiency expenditures - (13,344) (24,792) Nuclear decommissioning trust funds (20,305) (17,435) (15,994) Proceeds from disposition of assets 16,677 15,993 69,838 Shared savings expenditures (27,780) (17,610) (5,196) Other (2,067) (1,790) (18,026) --------------- -------------- -------------- Net cash flows used for investing activities (405,533) (362,226) (406,444) --------------- -------------- -------------- - -------------------------------------------------------------------------------------------------------------- Net increase in cash and temporary cash investments 4,498 4,512 2,952 --------------- -------------- -------------- - -------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 27,329 22,817 19,865 --------------- -------------- -------------- - -------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $ 31,827 $ 27,329 $ 22,817 =============== ============== ============== - -------------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Cash paid during the period for: Interest $ 126,376 $ 117,255 $ 107,970 =============== ============== ============== Income taxes $ 84,916 $ 69,272 $ 111,006 =============== ============== ============== Noncash investing and financing activities: Capital lease obligations incurred $ 1,426 $ 16,781 $ 14,281 =============== ============== ============== - -------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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INTERSTATE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1998 1997 - --------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Common equity: Common stock - $.01 par value - authorized 200,000,000 shares; outstanding 77,630,043 and 76,481,102 shares, respectively $ 776 $ 765 Additional paid-in capital 905,130 868,903 Retained earnings 537,372 581,376 Accumulated other comprehensive income 163,017 173,512 ---------------- ---------------- 1,606,295 1,624,556 ---------------- ---------------- - --------------------------------------------------------------------------------------------------------------- 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 (2,854) (2,983) ---------------- ---------------- 113,498 113,369 ---------------- ---------------- * 3,750,000 authorized shares in total ** 2,000,000 authorized shares in total *** $53.20 mandatory redemption price - --------------------------------------------------------------------------------------------------------------- Long-term debt: IES Utilities Inc. - Collateral Trust Bonds: 7.65% series, due 2000 50,000 50,000 7.25% series, due 2006 60,000 60,000 6-7/8% series, due 2007 55,000 55,000 6% series, due 2008 50,000 50,000 7% series, due 2023 50,000 50,000 5.5% series, due 2023 19,400 19,400 ---------------- ---------------- 284,400 284,400 First Mortgage Bonds: Series Y, 8-5/8%, due 2001 60,000 60,000 Series Z, 7.6%, due 1999 50,000 50,000 9-1/8% series, due 2001 21,000 21,000 7-1/4% series, due 2007 30,000 30,000 ---------------- ---------------- 161,000 161,000 Pollution control obligations: 5.75%, due serially 1999 to 2003 3,136 3,276 5.95%, retired in 1998 - 10,000 Variable rate (4.20% at December 31, 1998), due 2000 to 2010 11,100 11,100 Variable/fixed rate series 1998 (4.25% through 2003), due 2023 10,000 - ---------------- ---------------- 24,236 24,376 Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025 50,000 50,000 Senior Debentures, 6-5/8%, due 2009 135,000 135,000 ---------------- ---------------- Total IES Utilities Inc. 654,636 654,776 ---------------- ----------------
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INTERSTATE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CAPITALIZATION (Continued) December 31, 1998 1997 - --------------------------------------------------------------------------------------------------------------- (in thousands) Wisconsin Power and Light Company - First Mortgage Bonds: Series L, 6.25%, retired in 1998 $ - $ 8,899 1984 Series A, variable rate (3.85% at December 31, 1998), due 2014 8,500 8,500 1988 Series A, variable rate (4.20% at December 31, 1998), due 2015 14,600 14,600 1990 Series V, 9.3%, due 2025 27,000 27,000 1991 Series A-D, variable rate (5.15% at December 31, 1998), due 2000 to 2015 33,875 33,875 1992 Series W, 8.6%, due 2027 90,000 90,000 1992 Series X, 7.75%, due 2004 62,000 62,000 1992 Series Y, 7.6%, due 2005 72,000 72,000 ---------------- ---------------- 307,975 316,874 Unsecured Debt: Debentures, 7%, due 2007 105,000 105,000 Debentures, 5.7%, due 2008 60,000 - ---------------- ---------------- Total Wisconsin Power and Light Company 472,975 421,874 ---------------- ---------------- Interstate Power Company - First Mortgage Bonds: 8% series, due 2007 25,000 25,000 8-5/8% series, due 2021 25,000 25,000 7-5/8% series, due 2023 94,000 94,000 ---------------- ---------------- 144,000 144,000 Pollution Control Revenue Bonds: 5.95%, retired in 1998 - 5,850 6-3/8%, due serially 1999 to 2007 10,950 11,400 5.75%, due 2003 1,000 1,000 6.25%, due 2009 1,000 1,000 6.30%, due 2010 5,600 5,600 6.35%, due 2012 5,650 5,650 Variable/fixed rate series 1998 (4.30% through 2003), due 2005 to 2008 4,950 - ---------------- ---------------- 29,150 30,500 ---------------- ---------------- Total Interstate Power Company 173,150 174,500 ---------------- ---------------- Alliant Energy Resources, Inc. - Credit facility (5.15% - 5.85% at December 31, 1998) 252,505 182,013 Multifamily Housing Revenue Bonds issued by various housing and community development authorities, 4.20% - 7.55%, due 2004 to 2024 35,494 36,503 Other subsidiaries' debt, 0% - 10.75%, due 1999 to 2042 57,579 56,795 ---------------- ---------------- Total Alliant Energy Resources, Inc. 345,578 275,311 ---------------- ---------------- Interstate Energy Corporation - 8.59% Senior notes, due 2004 24,000 24,000 ---------------- ---------------- 1,670,339 1,550,461 ---------------- ---------------- Less: Current maturities (63,414) (18,329) Variable rate demand bonds (56,975) (56,975) Unamortized debt premium and (discount), net (6,819) (7,254) ---------------- ---------------- Total long-term debt 1,543,131 1,467,903 ---------------- ---------------- - --------------------------------------------------------------------------------------------------------------- Total capitalization $ 3,262,924 $ 3,205,828 ================ ================ - --------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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INTERSTATE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY Accumulated Additional Other Total Common Paid-In Retained Comprehensive Common Stock Capital Earnings Income (Loss) Equity - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) 1996: Beginning balance $ 750 $ 832,670 $ 569,982 $ - $ 1,403,402 Comprehensive income: Net income 155,791 155,791 Other comprehensive loss net of tax: Minimum pension liability adjustment (a) (809) (809) ------------- Total comprehensive income 154,982 Common stock dividends (143,344) (143,344) Common stock issued 8 18,447 18,455 Treasury stock (269) (269) -------------- ------------- -------------- --------------- ------------- Ending balance 758 850,848 582,429 (809) 1,433,226 1997: Comprehensive income: Net income 144,578 144,578 Other comprehensive income (loss): Unrealized gain on securities, net of tax (b) 174,688 174,688 Foreign currency translation adjustment (20) (20) Minimum pension liability adjustment, net of tax (a) (347) (347) ------------- Total comprehensive income 318,899 Common stock dividends (145,631) (145,631) Common stock issued 7 18,138 18,145 Treasury stock (83) (83) -------------- ------------- -------------- --------------- ------------- Ending balance 765 868,903 581,376 173,512 1,624,556 1998: Comprehensive income: Net income 96,675 96,675 Other comprehensive income (loss): Unrealized loss on securities, net of tax (b) (4,589) (4,589) Foreign currency translation adjustment (7,062) (7,062) Minimum pension liability adjustment, net of tax (a) 1,156 1,156 ------------- Total comprehensive income 86,180 Common stock dividends (140,679) (140,679) Common stock issued 11 36,263 36,274 Treasury stock (36) (36) -------------- ------------- -------------- --------------- ------------- Ending balance $ 776 $ 905,130 $ 537,372 $ 163,017 $ 1,606,295 ============== ============= ============== =============== ============= - ---------------------------------------------------------------------------------------------------------------------------------- (a) Net of tax expense (benefit) of $(565), $(243) and $808 in 1996, 1997 and 1998, respectively. (b) Net of tax expense (benefit) of $124,271 and $(3,218) in 1997 and 1998, respectively. The accompanying Notes to Condolidated Financial Statements are an intergral part of these statements.
13 INTERSTATE ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (a) General - The Consolidated Financial Statements include the accounts of Interstate Energy Corporation (IEC) and its consolidated subsidiaries. IEC resulted from the April 1998 merger between WPL Holdings, Inc. (WPLH), IES Industries Inc. (IES) and Interstate Power Company (IPC) (refer to Note 2 for a discussion of the merger). IEC is an investor-owned holding company currently doing business as Alliant Energy Corporation whose subsidiaries are IES Utilities Inc. (IESU), Wisconsin Power and Light Company (WP&L), IPC, Alliant Energy Resources, Inc. (Alliant Energy Resources) and Alliant Energy Corporate Services, Inc. (Alliant Energy Corporate Services). IESU, WP&L and IPC are engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and water and steam services in selective markets. The principal markets of IESU, WP&L and IPC are located in Iowa, Wisconsin, Minnesota and Illinois. Alliant Energy Resources (through its numerous direct and indirect subsidiaries) provides energy products and services to domestic and international markets; provides industrial services including environmental, engineering and transportation services; invests in affordable housing initiatives; and invests in various other strategic initiatives. Alliant Energy Corporate Services is the subsidiary formed to provide administrative services to IEC and its subsidiaries as required under the Public Utility Holding Company Act of 1935 (PUHCA). The consolidated financial statements reflect investments in controlled subsidiaries on a consolidated basis. All significant intercompany balances and transactions, other than certain energy-related transactions affecting IESU, WP&L and IPC, have been eliminated from the Consolidated Financial Statements. Such energy-related transactions are made at prices that approximate market value and the associated costs are recoverable from customers through the rate making process. The financial statements are prepared in conformity with generally accepted accounting principles, which give recognition to the rate making and accounting practices of the Federal Energy Regulatory Commission (FERC) and state commissions having regulatory jurisdiction. Unconsolidated investments for which IEC has at least a 20% voting interest are generally accounted for under the equity method of accounting. These investments are stated at acquisition cost, increased or decreased for IEC's equity in net income or loss, which is included in "Miscellaneous, net" in the Consolidated Statements of Income and decreased for any dividends received. Investments that do not meet the criteria for consolidation or the equity method of accounting are accounted for under the cost method. The preparation of the financial statements requires management to make estimates and assumptions that affect: 1) the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and 2) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain prior period amounts have been reclassified on a basis consistent with the current year presentation. (b) Regulation - IEC is a registered public utility holding company subject to regulation by the Securities and Exchange Commission (SEC) under the PUHCA. IESU, WP&L and IPC are subject to regulation by the FERC and their respective state regulatory commissions (Iowa Utilities Board (IUB), Public Service Commission of Wisconsin (PSCW), Minnesota Public Utilities Commission (MPUC) and Illinois Commerce Commission (ICC)). (c) Regulatory Assets - IESU, WP&L and IPC are subject to the provisions of Statement of Financial Accounting Standards, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). SFAS 71 provides that rate-regulated public utilities record certain costs and credits allowed in the rate making process in different periods than for unregulated entities. These are 14 deferred as regulatory assets or regulatory liabilities and are recognized in the Consolidated Statements of Income at the time they are reflected in rates. At December 31, 1998 and 1997, regulatory assets of $368.8 million and $388.7 million, respectively, were comprised of the following items (in millions):
IESU WP&L IPC -------------------- --------------------- ------------------ 1998 1997 1998 1997 1998 1997 ---------- --------- ---------- ---------- -------- --------- Tax-related (Note 1(d)) $81.4 $80.3 $49.3 $55.5 $29.8 $29.7 Energy efficiency program costs 39.8 59.4 53.5 29.5 25.9 30.0 Environmental liabilities (Note 12(f)) 35.2 42.9 19.5 22.2 17.5 6.2 Other 5.0 17.0 11.2 13.6 0.7 2.4 ---------- --------- ---------- ---------- -------- --------- Total $161.4 $199.6 $133.5 $120.8 $73.9 $68.3 ========== ========= ========== ========== ======== =========
Refer to the individual notes referenced above for a further discussion of certain items reflected in regulatory assets. Regulators allow IESU and IPC to earn a return on energy efficiency program costs but not on the other regulatory assets. In Wisconsin, WP&L is allowed to earn a return on all regulatory assets other than those associated with manufactured gas plants (MGP). If a portion of IESU's, WP&L's or IPC's operations become no longer subject to the provisions of SFAS 71 as a result of competitive restructuring or otherwise, a write-down of related regulatory assets would be required, unless some form of transition cost recovery is established by the appropriate regulatory body that would meet the requirements under generally accepted accounting principles for continued accounting as regulatory assets during such recovery period. In addition, IESU, WP&L or IPC would be required to determine any impairment to other assets and write-down such assets to their fair value. (d) Income Taxes - IEC follows the liability method of accounting for deferred income taxes, which requires the establishment of deferred tax assets and liabilities, as appropriate, for all temporary differences between the tax basis of assets and liabilities and the amounts reported in the financial statements. Deferred taxes are recorded using currently enacted tax rates as shown in Note 6. Except as noted below, income tax expense includes provisions for deferred taxes to reflect the tax effects of temporary differences between the time when certain costs are recorded in the accounts and when they are deducted for tax return purposes. As temporary differences reverse, the related accumulated deferred income taxes are reversed to income. Investment tax credits have been deferred and are subsequently credited to income over the average lives of the related property. As part of the affordable housing business, IEC is eligible to claim affordable housing credits. These tax credits reduce current federal taxes to the extent IEC has consolidated taxes payable. Consistent with Iowa rate making practices for IESU and IPC, deferred tax expense is not recorded for certain temporary differences (primarily related to utility property, plant and equipment). As the deferred taxes become payable (over periods exceeding 30 years for some generating plant differences) they are recovered through rates. Accordingly, IESU and IPC have recorded deferred tax liabilities and regulatory assets for certain temporary differences, as identified in Note 1(c). In Wisconsin, the PSCW has allowed rate recovery of deferred taxes on all temporary differences since August 1991. WP&L established a regulatory asset associated with temporary differences occurring prior to August 1991, which is recovered through rates. (e) Common Shares Outstanding - The weighted average common shares outstanding used in the calculation of basic earnings per share for IEC were 76,912,219; 76,209,935 and 75,480,539 for 1998, 1997 and 1996, respectively. The common stock shares used for calculating diluted earnings per share for IEC were 76,928,631; 76,212,073 and 75,484,281 for 1998, 1997 and 1996, respectively. 15 (f) Temporary Cash Investments - Temporary cash investments are stated at cost, which approximates market value, and are considered cash equivalents for the Consolidated Statements of Cash Flows. These investments consist of short-term liquid investments that have maturities of less than 90 days from the date of acquisition. (g) Depreciation of Utility Property, Plant and Equipment - IESU, WP&L and IPC use a combination of remaining life and straight-line depreciation methods as approved by their respective regulatory commissions. The remaining life of the Duane Arnold Energy Center (DAEC), IESU's nuclear generating facility, is based on the Nuclear Regulatory Commission (NRC) license life of 2014. The remaining life of the Kewaunee Nuclear Power Plant (Kewaunee), of which WP&L is a co-owner, is based on the PSCW approved revised end-of-life of 2002 (prior to May 1997 the calculation was based on the NRC license life of 2013). Depreciation expense related to the decommissioning of DAEC and Kewaunee is discussed in Note 12(h). WP&L implemented higher depreciation rates effective January 1, 1997. The average rates of depreciation for electric and gas properties of IESU, WP&L and IPC, consistent with current rate making practices, were as follows:
IESU WP&L IPC ---------------------------------- ---------------------------------- --------------------------------- 1998 1997 1996 1998 1997 1996 1998 1997 1996 ---------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- ---------- Electric 3.5% 3.5% 3.5% 3.6% 3.6% 3.3% 3.6% 3.6% 3.6% Gas 3.5% 3.5% 3.5% 3.8% 3.8% 3.7% 3.4% 3.4% 3.4%
(h) Property, Plant and Equipment - Utility plant (other than acquisition adjustments at IESU of $26.8 million, net of accumulated amortization, recorded at cost) is recorded at original cost, which includes overhead and administrative costs and an allowance for funds used during construction (AFUDC). The AFUDC, which represents the cost during the construction period of funds used for construction purposes, is capitalized as a component of the cost of utility plant. The amount of AFUDC applicable to debt funds and to other (equity) funds, a non-cash item, is computed in accordance with the prescribed FERC formula. These capitalized costs are recovered in rates as the cost of the utility plant is depreciated. The aggregate gross rates used were as follows: 1998 1997 1996 ------------------- ------------------ ------------------- IESU 8.9% 6.7% 5.5% WP&L 5.2% 6.2% 10.2% IPC 7.0% 6.0% 5.8% Other property, plant and equipment is recorded at original cost. Upon retirement or sale of other property and equipment, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in "Miscellaneous, net" in the Consolidated Statements of Income. Normal repairs, maintenance and minor items of utility plant and other property, plant and equipment are expensed. Ordinary retirements of utility plant, including removal costs less salvage value, are charged to accumulated depreciation upon removal from utility plant accounts and no gain or loss is recognized. (i) Restatement of Consolidated Financial Statements / Oil and Gas Properties - During the third quarter of 1998, IEC's oil and gas subsidiary, Whiting Petroleum Corporation (Whiting), changed its accounting method for oil and gas properties from the full cost method to the successful efforts method. While both methods are acceptable under generally accepted accounting principles, successful efforts is the preferred method. Management believes that the successful efforts method more accurately presents the results of Whiting's exploration, development and production activities and minimizes asset impairments caused by temporary declines in oil and gas prices, which may not be representative of overall or long-term markets or management's estimate of fair market value. As a result, impairments will only be recognized under the successful efforts method when there has been a permanent decline in the fair value of the oil and gas properties. As required by generally accepted accounting principles, all prior period financial statements of IEC presented herein have been restated to reflect the change in accounting method. 16 Under the successful efforts method of accounting, Whiting capitalizes all costs related to property acquisitions and successful exploratory wells, all development costs and the costs of support equipment and facilities. Unproved leasehold costs are capitalized and are reviewed periodically for impairment. All costs related to unsuccessful exploratory wells are expensed when such wells are determined to be non-productive and other exploration costs, including geological and geophysical costs, are expensed as incurred. Depreciation, depletion and amortization of proved oil and gas properties is determined on a field-by-field basis using the unit-of-production method over the life of the remaining proved reserves. Estimated costs (net of salvage value) of site remediation, including offshore platform dismantlement, are included in the depreciation and depletion calculation. Proved oil and gas properties are reviewed on a field-by-field basis whenever events or circumstances indicate that the carrying value of such properties may be impaired. The cumulative effect of the restatement at January 1, 1994, was an after-tax reduction in retained earnings of $2.7 million. The restated net income amounts for 1994 through 1997 are as follows (in thousands): 1997 1996 1995 1994 ------------ ------------ ------------ ------------ Net income prior to restatement $ 154,290 $ 158,675 $ 147,806 $ 150,281 Adjustment for change in accounting method for oil and gas properties from the full cost method to the successful efforts method (9,712) (2,884) (1,835) (4,391) ------------ ------------ ------------ ------------ Restated net income $ 144,578 $ 155,791 $ 145,971 $ 145,890 ============ ============ ============ ============ The restated earnings per average common share (basic and diluted) for 1994 through 1997 are as follows:
1997 1996 1995 1994 ------------ ------------ ------------ ------------ Earnings per average common share prior to restatement (basic and diluted) $ 2.02 $ 2.10 $ 1.97 $ 2.04 Adjustment for change in accounting method for oil and gas properties from the full cost method to the successful efforts method (0.12) (0.04) (0.02) (0.06) ------------ ------------ ------------ ------------ Restated earnings per average common share (basic and diluted) $ 1.90 $ 2.06 $ 1.95 $ 1.98 ============ ============ ============ ============
(j) Operating Revenues - IEC accrues revenues for services rendered but unbilled at month-end in order to more properly match revenues with expenses. In accordance with an order from the PSCW, effective January 1, 1998, off-system gas sales for WP&L are included in the Consolidated Statements of Income as a reduction of the cost of gas sold rather than as gas revenues. In 1997, off-system gas sales were included in the Consolidated Statements of Income as gas revenue. (k) Utility Fuel Cost Recovery - IESU's and IPC's tariffs provide for subsequent adjustments to its electric and natural gas rates for changes in the cost of fuel and purchased energy and in the cost of natural gas purchased for resale. Changes in the under/over collection of these costs are reflected in "Electric and steam production fuels" and "Cost of utility gas sold" in the Consolidated Statements of Income. The cumulative effects are reflected on the Consolidated Balance Sheets as a current asset or current liability, pending automatic reflection in future billings to customers. At IESU and IPC, purchased capacity costs are not recovered from electric customers through energy adjustment clauses. Recovery of these costs must be addressed in base rates in a formal rate proceeding. WP&L's retail electric rates are based in part on forecasted fuel and purchased-power costs. Under PSCW rules, 17 Wisconsin utilities can seek emergency rate increases if the annual costs are more than 3% higher than the estimated costs used to establish rates. WP&L has a gas performance incentive which includes a sharing mechanism whereby 40% of all gains and losses relative to current commodity prices, as well as other benchmarks, are retained by WP&L rather than refunded to or recovered from customers. (l) Nuclear Refueling Outage Costs - The IUB allows IESU to collect, as part of its base revenues, funds to offset other operating and maintenance expenditures incurred during refueling outages at DAEC. As these revenues are collected, an equivalent amount is charged to other operating and maintenance expenses with a corresponding credit to a reserve. During a refueling outage, the reserve is reversed to offset the refueling outage expenditures. Operating expenses incurred during refueling outages at Kewaunee are expensed by WP&L as incurred. (m) Nuclear Fuel - Nuclear fuel for DAEC is leased. Annual nuclear fuel lease expenses include the cost of fuel, based on the quantity of heat produced for the generation of electric energy, plus the lessor's interest costs related to fuel in the reactor and administrative expenses. Nuclear fuel for Kewaunee is recorded at its original cost and is amortized to expense based upon the quantity of heat produced for the generation of electricity. This accumulated amortization assumes spent nuclear fuel will have no residual value. Estimated future disposal costs of such fuel are expensed based on kilowatt-hours generated. (n) Translation of Foreign Currency - Assets and liabilities of international investments where the local currency is the functional currency have been translated at year-end exchange rates and related income statement results have been translated using average exchange rates prevailing during the year. Adjustments resulting from translation have been recorded in other comprehensive income. (o) Comprehensive Income - On January 1, 1998, IEC adopted SFAS 130, "Reporting Comprehensive Income." SFAS 130 establishes standards for reporting of comprehensive income and its components in a full set of general purpose financial statements. SFAS 130 requires reporting a total for comprehensive income which includes, in addition to net income: (1) unrealized holding gains/losses on securities classified as available-for-sale under SFAS 115; (2) foreign currency translation adjustments accounted for under SFAS 52; and (3) minimum pension liability adjustments made pursuant to SFAS 87. Refer to the "Consolidated Statements of Changes in Common Equity" for additional information regarding comprehensive income. (p) Derivative Financial Instruments - From time to time, IEC enters into interest rate swaps to reduce exposure to interest rate fluctuations in connection with short and variable rate long-term debt issues. The swap's cash flows correspond with those of the underlying exposures. The related costs associated with these agreements are amortized over their respective lives as components of interest expense. IEC, through its consolidated subsidiaries, currently utilizes derivative financial and commodity instruments to reduce price risk inherent in its gas and electric activities on a very limited basis and such instruments may not be used for trading purposes. The costs or benefits associated with any such hedging activities are recognized when the related purchase or sale transactions are completed. (2) MERGER: On April 21, 1998, IES, WPLH and IPC completed a three-way merger (Merger) forming IEC. Each outstanding share of common stock of IES, WPLH and IPC was exchanged for 1.14, 1.0 and 1.11 shares, respectively, of IEC 18 common stock resulting in the issuance of approximately 77 million shares of IEC common stock, $.01 par value per share. The outstanding debt and preferred stock securities of IEC and its subsidiaries were not affected by the Merger. In connection with the Merger, the number of authorized shares of IEC common stock was increased to 200,000,000. The Merger was accounted for as a pooling of interests and the accompanying Consolidated Financial Statements, along with the related notes, are presented as if the companies were combined as of the earliest period presented. As part of the pooling, the accrued pension liability (and offsetting regulatory asset), of IES was recomputed using the method used by WPLH and IPC to recognize deferred asset gains. In addition, IPC adopted unbilled revenues as part of the pooling to conform to the revenue accounting method used by WPLH and IES. Neither of these adjustments had any income statement impact for the periods presented in this report. Operating revenues and net income for the three months ended March 31, 1998, and for the years ended December 31, 1997, and December 31, 1996, were as follows (in millions):
WPLH IES IPC IEC ------------ ------------ ------------ ------------- Three months ended March 31, 1998 Operating revenues $229.5 $241.7 $85.1 $556.3 Net income $15.8 $8.1 $5.0 $28.9 Year ended December 31, 1997 Operating revenues $978.7 $990.1 $331.8 $2,300.6 Net income $61.3 $56.6 $26.7 $144.6 Year ended December 31, 1996 Operating revenues $932.8 $973.9 $326.1 $2,232.8 Net income $71.9 $58.0 $25.9 $155.8
The financial results of IES have been restated for all periods presented to reflect a change in accounting method for Whiting's oil and gas properties implemented in the third quarter of 1998 from the full cost method to the successful efforts method. See Note 1(i) for additional information. In addition, the operating revenues of WPLH and IES for the 1998 and 1997 periods presented have been adjusted to reflect the financial results of a joint venture between the two companies as a consolidated subsidiary. (3) LEASES: IESU has a capital lease covering its 70% undivided interest in nuclear fuel purchased for DAEC. Future purchases of fuel may also be added to the fuel lease. This lease provides for annual one-year extensions and IESU intends to continue exercising such extensions. Interest costs under the lease are based on commercial paper costs incurred by the lessor. IESU is responsible for the payment of taxes, maintenance, operating cost, risk of loss and insurance relating to the leased fuel. The lessor has a $45 million credit agreement with a bank supporting the nuclear fuel lease. The agreement continues on a year-to-year basis, unless either party provides at least a three-year notice of termination; no such notice of termination has been provided by either party. Annual nuclear fuel lease expenses (included in "Electric and steam production fuels" in the Consolidated Statements of Income) for 1998, 1997 and 1996 were $14.2 million, $16.6 million and $18.2 million, respectively. IEC's operating lease rental expenses for 1998, 1997 and 1996 were $21.6 million, $20.3 million and $20.0 million, respectively. IEC's future minimum lease payments by year are as follows (in thousands): 19 Capital Operating Year Leases Leases ------------------------------------- --------------- --------------- 1999 $ 12,293 $ 23,075 2000 8,051 19,743 2001 4,338 14,183 2002 2,674 9,649 2003 561 7,333 Thereafter 141 29,961 --------------- --------------- 28,058 $ 103,944 =============== Less: Amount representing interest 2,325 --------------- Present value of net minimum capital lease payments $ 25,733 =============== (4) UTILITY ACCOUNTS RECEIVABLE: Utility customer accounts receivable, including unbilled revenues, arise primarily from the sale of electricity and natural gas. At December 31, 1998, IEC was serving a diversified base of residential, commercial and industrial customers and did not have any significant concentrations of credit risk. Separate accounts receivable financing arrangements exist for two of IEC's utility subsidiaries, IESU and WP&L, which are similar in most important aspects. In both cases, the utility subsidiaries sell up to a pre-determined maximum amount of accounts receivable to a financial institution on a limited recourse basis, including sales to customers and to other public, municipal and cooperative utilities, as well as billings to the co-owners of the jointly-owned electric generating plants that the utility subsidiaries operate. The amounts are discounted at the then-prevailing market rate and additional administrative fees are payable according to the activity levels undertaken. All billing and collection functions remain the responsibility of the respective utilities. Specifics of the two agreements include (dollars in millions): IESU WP&L -------------- ----------- Year agreement expires 1999 1999 Maximum amount of receivables that can be sold $65 $150 Effective 1998 all-in cost 6.02% 5.95% Average monthly sale of receivables - 1998 $63 $83 - 1997 $65 $92 Receivables sold at December 31, 1998 $55 $75 (5) INVESTMENTS: (a) McLeodUSA Inc. (McLeod) - At December 31, 1998, IEC had the following investment in McLeod, a telecommunications company (in millions): Shares Cost Fair Market Value ----------- ---------- ------------------- Class A common stock 9.0 $ 29.1 $ 282.0 Unexercised vested options, net of cost to exercise 1.3 - 38.3 ----------- ---------- ------------------- 10.3 $ 29.1 $ 320.3 =========== ========== =================== Pursuant to the provisions of SFAS 115, IEC's investment in McLeod is considered an available-for-sale security thus the carrying value of the investment is adjusted to the estimated fair value each quarter based on the closing price at the end of the quarter. The adjustment does not impact earnings as the unrealized gains or losses, net of taxes, are recorded directly to the common equity section of the Consolidated Balance Sheets. In addition, any such gains or losses are reflected in current earnings only at the time they are realized through a sale. IEC entered into an agreement in November 1998 with McLeod whereby IEC's ability to sell the McLeod stock is subject to various restrictions. 20 (b) Foreign Entities - At December 31, 1998, IEC had $68.9 million of investments in foreign entities on its Consolidated Balance Sheets that included: 1) investments in several generation facilities in China; 2) investments in several New Zealand utility entities; and 3) an investment in an international venture capital fund. IEC accounts for the China investments under the equity method and the other investments under the cost method. The geographic concentration of IEC's investments in foreign entities at December 31, 1998, included investments of approximately $36.1 million in China, $32.3 million in New Zealand and $0.5 million in other countries. (c) Alliant Energy Resources - Summary financial information for Alliant Energy Resources was as follows (in millions): December 31, December 31, 1998 1997 ------------ ------------ Current assets $92.1 $92.7 Non-current assets 777.1 745.8 Current liabilities 63.6 101.4 Non-current liabilities (excludes minority interest) 160.3 153.9 Minority interest 6.2 5.4 Refer to the "Nonregulated Businesses" column of Note 14 for summary income statement data of Alliant Energy Resources. (6) INCOME TAXES: The components of federal and state income taxes for IEC for the years ended December 31 were as follows (in millions):
1998 1997 1996 --------------- -------------- --------------- Current tax expense $ 92.5 $ 99.6 $ 96.9 Deferred tax expense (22.2) (6.1) 20.3 Amortization of investment tax credits (5.6) (5.6) (5.6) Affordable housing tax credits (6.6) (6.2) (5.8) --------------- -------------- --------------- $ 58.1 $ 81.7 $ 105.8 =============== ============== ===============
The overall effective income tax rates shown below for the years ended December 31 were computed by dividing total income tax expense by income before income taxes and preferred dividend requirements of subsidiaries.
1998 1997 1996 -------------- -------------- ------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 8.0 6.4 6.5 Affordable housing tax credits (4.1) (2.7) (2.2) Amortization of investment tax credits (3.4) (2.4) (2.1) Adjustment of prior period taxes (0.4) (2.2) 1.0 Merger expenses 2.4 0.5 1.2 Oil and gas production credits (1.6) (0.6) (0.5) Other items, net 0.1 1.1 0.3 -------------- -------------- ------------- Overall effective income tax rate 36.0% 35.1% 39.2% ============== ============== =============
21 The accumulated deferred income taxes (assets) and liabilities as set forth below on the Consolidated Balance Sheets at December 31 arise from the following temporary differences (in millions): 1998 1997 --------------- -------------- Property related $ 677.7 $ 654.7 McLeod investment 121.1 124.3 Investment tax credit related (43.0) (46.1) Decommissioning related (33.4) (31.7) Other (30.8) 18.7 --------------- -------------- $ 691.6 $ 719.9 =============== ============== (7) BENEFIT PLANS: (a) Pension Plans and Other Postretirement Benefits - IEC adopted SFAS 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" in 1998. IEC has several non-contributory defined benefit pension plans that cover substantially all of its employees who are subject to a collective bargaining agreement. Plan benefits are generally based on years of service and compensation during the employees' latter years of employment. Eligible employees of IEC that are not subject to a collective bargaining agreement are covered by the Alliant Energy Cash Balance Pension Plan, a non-contributory defined benefit pension plan. During each year of service, IEC credits each participant's account with a benefit credit equal to 5% of base pay as well as a guaranteed minimum interest credit equal to 4%. The projected unit credit actuarial cost method was used to compute pension cost and the accumulated and projected benefit obligations. IEC's policy is to fund all of the pension plans at an amount that is at least equal to the minimum funding requirements mandated by the Employee Retirement Income Security Act of 1974, as amended (ERISA), and that does not exceed the maximum tax deductible amount for the year. IEC also provides certain other postretirement benefits to retirees, including medical benefits for retirees and their spouses (and Medicare Part B reimbursement for certain retirees) and, in some cases, retiree life insurance. IESU's and IPC's funding of other postretirement benefits generally approximates the annual rate recovery of such costs, while WP&L's funding generally approximates the maximum tax deductible amount on an annual basis. The weighted-average assumptions as of the measurement date of September 30 are as follows:
Qualified Pension Benefits Other Postretirement Benefits ----------------------------------- -------------------------------------- 1998 1997 1996 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- -------------- Discount rate 6.75% 7.25% 7.50% 6.75% 7.25% 7.50% Expected return on plan assets 9% 8-9% 8-9% 9% 8-9% 8-9% Rate of compensation increase 3.5-4.5% 3.5-5.0% 3.5-5.0% 3.5% 3.5% 3.5%-4.5% Medical cost trend on covered charges: Initial trend range N/A N/A N/A 8% 8% 8-9% Ultimate trend range N/A N/A N/A 5.0-6.0% 5.0-6.5% 5.0-6.5% The components of IEC's qualified pension benefits and other postretirement benefits costs are as follows (in millions): Qualified Pension Benefits Other Postretirement Benefits ------------------------------------ --------------------------------- 1998 1997 1996 1998 1997 1996 ---------- ---------- --------- ------- -------- --------- Service cost $ 13.8 $ 13.1 $ 13.4 $ 5.1 $ 4.7 $ 4.9 Interest cost 35.4 32.2 30.0 9.7 9.8 9.6 Expected return on plan assets (47.2) (39.0) (36.8) (3.7) (2.6) (1.9) Amortization of: Transition obligation (asset) (2.4) (2.4) (2.4) 4.7 4.9 5.0 Prior service cost 2.8 2.5 1.7 (0.3) (0.3) (0.3) Actuarial (gain) / loss (0.9) - 0.4 (1.2) (0.2) (0.1) ---------- ----------- --------- ------- -------- --------- Total $ 1.5 $ 6.4 $ 6.3 $ 14.3 $ 16.3 $ 17.2 ========== ========== ========= ======= ======== =========
22 During 1998, 1997 and 1996, IEC recognized an additional $10.3 million, $5.1 million and $4.7 million, respectively, of costs in accordance with SFAS 88. The charges were for severance and early retirement programs in the respective years. In addition, during 1998 and 1997, IEC recognized $10.2 million and $1.7 million, respectively, of curtailment charges relating to IEC's other postretirement benefits. The amounts include a December 1998 early retirement program. The measurement date for accounting purposes is September 30 for IEC as disclosed above. Prior to the Merger, WPLH, IPC and IES used December 31, November 1 and September 30 measurement dates, respectively. The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A one percent change in the medical trend rates for 1998, holding all other assumptions constant, would have the following effects (in millions):
1 Percent Increase 1 Percent Decrease --------------------- --------------------- Effect on total of service and interest cost components $2.3 ($1.8) Effect on postretirement benefit obligation $15.6 ($13.0)
A reconciliation of the funded status of IEC's plans to the amounts recognized on IEC's Consolidated Balance Sheets at December 31 is presented below (in millions):
Qualified Pension Benefits Other Postretirement Benefits ---------------------------- -------------------------------- 1998 1997 1998 1997 ----------- ------------ ------------ -------------- Change in benefit obligation: Net benefit obligation at beginning of year $ 474.2 $ 426.6 $ 146.4 $ 136.5 Service cost 13.8 13.1 5.1 4.7 Interest cost 35.4 32.2 9.7 9.8 Plan participants' contributions - - 1.3 1.4 Plan amendments (2.5) 11.8 - - Actuarial (gain) / loss 24.8 13.7 (3.6) 1.0 Curtailments (3.0) 2.5 1.9 0.7 Special termination benefits 10.7 5.1 - - Gross benefits paid (25.0) (30.8) (7.5) (7.7) ----------- ------------ ------------ -------------- Net benefit obligation at end of year 528.4 474.2 153.3 146.4 ----------- ------------ ------------ -------------- Change in plan assets: Fair value of plan assets at beginning of year 529.1 482.6 50.7 37.2 Actual return on plan assets 2.2 72.5 2.5 3.7 Employer contributions - 4.8 7.0 16.1 Plan participants' contributions - - 1.3 1.4 401(h) assets recognized - - 1.1 - Gross benefits paid (25.0) (30.8) (7.5) (7.7) ----------- ------------ ------------ -------------- Fair value of plan assets at end of year 506.3 529.1 55.1 50.7 ----------- ------------ ------------ -------------- Funded status at end of year (22.1) 54.9 (98.2) (95.7) Unrecognized net actuarial (gain) / loss 30.3 (56.9) (7.5) (4.0) Unrecognized prior service cost 25.8 32.1 (1.7) (2.3) Unrecognized net transition obligation (asset) (10.6) (13.0) 60.6 73.2 ----------- ------------ ------------ -------------- Net amount recognized at end of year $ 23.4 $ 17.1 $ (46.8) $ (28.8) =========== ============ ============ ============== Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $ 38.9 $ 42.7 $ 0.9 $ 0.9 Accrued benefit cost (15.5) (25.6) (47.7) (29.7) Additional minimum liability (7.7) - - - Intangible asset 7.7 - - - ----------- ------------ ------------ -------------- Net amount recognized at measurement date 23.4 17.1 (46.8) (28.8) ----------- ------------ ------------ -------------- Contributions paid after 9/30 and prior to 12/31 - - 6.8 - ----------- ------------ ------------ -------------- Net amount recognized at 12/31/98 $ 23.4 $ 17.1 $ (40.0) $ (28.8) =========== ============ ============ ==============
23 The benefit obligation and fair value of plan assets for the postretirement welfare plans with benefit obligations in excess of plan assets were $146.5 million and $45.3 million, respectively, as of September 30, 1998 and $139.8 million and $46.3 million, respectively, as of the prior measurement date. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with benefit obligations in excess of plan assets were $250.5 million, $241.1 million and $217.9 million, respectively, as of September 30, 1998. IEC also sponsors several non-qualified pension plans which cover certain current and former officers. Funding of such plans at December 31, 1998, totaled approximately $4 million. IEC's pension benefit obligation under these plans was $25.8 million and $18.7 million at December 31, 1998 and 1997, respectively. IEC's pension expense under these plans was $4.5 million, $3.7 million, and $2.0 million in 1998, 1997 and 1996, respectively. A significant number of IEC employees also participate in defined contribution pension plans (401(k) plans). IEC's contributions to the plans, which are based on the participants' level of contribution, were $7.7 million, $5.5 million and $4.9 million in 1998, 1997 and 1996, respectively. (b) Long-Term Equity Incentive Plan - IEC has a long-term equity incentive plan which permits the grant of non-qualified stock options, incentive stock options, restricted stock, performance shares and performance units to key employees. As of December 31, 1998, only non-qualified stock options and performance units had been granted to key employees. The maximum number of shares of IEC common stock that may be issued under the plan may not exceed one million. Options are granted at the fair market value of the shares on the date of grant and vest over three years. Options outstanding will expire no later than 10 years after the grant date. The first options were granted in 1995 and became exercisable in January 1998. All options granted prior to the consummation of the Merger were issued by WPLH. A summary of the stock option activity for 1998, 1997 and 1996 is as follows:
1998 1997 1996 ----------------------- ----------------------- ----------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ----------------------- ----------------------- ----------------------- Outstanding at beginning of year 191,800 $28.98 114,150 $29.56 41,900 $27.50 Options granted 636,451 31.32 77,650 28.12 72,250 30.75 Options exercised (8,900) 28.59 - - - - Options forfeited (68,267) 30.49 - - - - ----------------------- ----------------------- ----------------------- Outstanding at end of year 751,084 $30.83 191,800 $28.98 114,150 $29.56 ======================= ======================= ======================= Exercisable at end of year 38,250 $27.50 - -
The range of exercise prices for the options outstanding at December 31, 1998 was $27.50 to $31.56. 24 The value of the options at the grant date using the Black-Scholes pricing method is as follows:
1998 1997 1996 ------------ ------------ ------------ Value of options based on Black-Scholes model $4.93 $3.30 $3.47 Volatility 21% 15% 16% Risk free interest rate 5.75% 6.43% 5.56% Expected life 10 years 10 years 10 years Expected dividend yield 7.0% 7.0% 7.0%
IEC follows Accounting Principles Board (APB) Opinion 25, "Accounting for Stock Issued to Employees," to account for stock options. No compensation cost is recognized because the option exercise price is equal to the market price of the underlying stock on the date of grant. Had compensation cost for the plan been determined based on the Black-Scholes value at the grant dates for awards as prescribed by SFAS 123 "Accounting for Stock-Based Compensation," pro forma net income and earnings per share would have been: 1998 1997 1996 ----------- ----------- ----------- Net income (in millions) $93.5 $144.3 $155.5 Earnings per share (basic and diluted) $1.22 $1.89 $2.06 The performance units represent accumulated dividends on the shares underlying the non-qualified stock options and are expensed over a three-year vesting period based on the annual dividend rate at the grant date. The performance unit payout is contingent upon three-year performance criteria. The cost of this program in 1998, 1997 and 1996 was not significant. (8) COMMON, PREFERRED AND PREFERENCE STOCK: (a) Common Stock - During 1998, 1997 and 1996, IEC issued 890,035; 687,962 and 777,649 shares of common stock under its various stock plans, respectively. Shares issued prior to the Merger consummation by IES and IPC have been adjusted for the applicable conversion ratios. In addition, 260,039 shares were issued in 1998 in connection with the acquisition of oil and gas properties. At December 31, 1998, IEC had a total of 4.0 million shares available for issuance pursuant to its Shareowner Direct Plan, Long-Term Equity Incentive Plan and 401(k) Savings Plan. IEC has declared a quarterly dividend of 50 cents per share each quarter since the consummation of the Merger. During 1998, 1997 and 1996, IEC reacquired 1,133 shares, 3,278 shares and 10,771 shares, respectively, of its common stock on the open market. Such shares were reacquired by IES prior to the consummation of the Merger and have been adjusted for the IES conversion ratio. These shares were subsequently issued to various IEC directors and employees. At December 31, 1998, no shares remained held as treasury stock. In October 1998, the Board of Directors of IEC adopted a new Shareowner Rights Plan (new plan) to replace IEC's former plan that expired on February 22, 1999. The new plan was approved on January 15, 1999 by the SEC. On January 20, 1999, the Board of Directors declared a dividend of one common share purchase right (right) on each outstanding share of IEC's common stock which was issued on February 22, 1999 to coincide with the expiration of the former plan. Rights under the new plan will be exercisable only if a person or group acquires, or announces a tender offer to acquire, 15% or more of IEC's common stock. Each right will initially entitle shareowners to buy one-half of one share of IEC's common stock. The rights will only be exercisable in multiples of two at an initial price of $95.00 per full share, subject to adjustment. If any shareowner acquires 15% or more of the outstanding common stock of IEC, each right (subject to limitations) will entitle its holder to purchase, at the right's then current exercise price, a number of common shares of IEC or of the acquirer having a market value at the time of twice the right's per full share exercise price. The Board of Directors is also authorized to reduce the 15% thresholds to not less than 10%. 25 In rate order UR-110, the PSCW ordered that it must approve the payment of dividends by WP&L to IEC that are in excess of the level forecasted in the rate order ($58.3 million), if such dividends would reduce WP&L's average common equity ratio below 52.00% of total capitalization. The dividends paid by WP&L to IEC since the rate order was issued have not exceeded the level forecasted in the rate order. (b) Preferred and Preference Stock - In 1993, IPC issued 545,000 shares of 6.40%, $50 par value preferred stock with a final redemption date of May 1, 2022. Under the provisions of the mandatory sinking fund, beginning in 2003, IPC is required to redeem annually $1.4 million of 6.40% preferred stock (27,250 shares). (9) DEBT: (a) Short-Term Debt IEC maintains committed bank lines of credit, most of which are at the bank prime rates, to obtain short-term borrowing flexibility, including pledging lines of credit as security for any commercial paper outstanding. Amounts available under these lines of credit totaled $150 million as of December 31, 1998. Commitment fees are paid to maintain these lines and there are no conditions which restrict the unused lines of credit. Alliant Energy Resources also maintains a credit agreement with various banking institutions. The unborrowed portion of this agreement is also used to support Alliant Energy Resources' commercial paper program. The amount available under this agreement as of December 31, 1998, was $150 million. Information regarding short-term debt and lines of credit is as follows (in millions):
1998 1997 1996 ---------------- --------------- --------------- As of year end-- Commercial paper outstanding $64.5 $114.5 $198.2 Notes payable outstanding $51.8 $42.0 $68.3 Discount rates on commercial paper 5.10-6.55% 5.82-5.90% 5.35-6.05% Interest rates on notes payable 5.44-7.00% 5.00-5.90% 5.28-6.59% For the year ended-- Average amount of short-term debt (based on daily outstanding balances) $126.6 $211.0 $207.9 Average interest rate on short-term debt 5.55% 5.61% 5.57%
(b) Long-Term Debt IESU's Indentures and Deeds of Trust securing its First Mortgage Bonds constitute direct first mortgage liens upon substantially all tangible public utility property. IESU's Indenture and Deed of Trust securing its Collateral Trust Bonds constitutes a second lien on substantially all tangible public utility property while First Mortgage Bonds remain outstanding. Substantially all of WP&L's and IPC's utility plant is secured by its First Mortgage Bonds. WP&L also maintains an unsecured indenture relating to the issuance of debt securities. In addition, IEC's long-term debt includes unsecured debentures, notes payable and revenue bonds related to its affordable housing properties. Alliant Energy Resources is a party to a 3-Year Credit Agreement with various banking institutions. The agreement extends through October 2000, with one-year extensions available upon agreement by the parties. Unused borrowing availability under this agreement is also used to support Alliant Energy Resources' commercial paper program. A combined maximum of $450 million of borrowings under this agreement and the commercial paper program may be outstanding at any one time. Interest rates and maturities are set at the time of borrowing. The rates are based upon quoted market prices and the maturities are less than one year. At December 31, 1998, Alliant Energy Resources had $253 million of commercial paper outstanding backed by this facility with interest rates ranging from 5.15%-5.85%. (See Note 11(a) for a discussion of several interest rate swaps Alliant Energy Resources has entered into relative to $200 million of short-term borrowings under, or backed by, this agreement). Alliant Energy Resources intends to continue issuing commercial paper backed by this facility and no conditions existed at December 31, 1998 that would prevent the issuance of commercial paper or direct borrowings on its bank lines. Accordingly, this debt is classified as long-term. 26 Debt maturities (excluding periodic sinking fund requirements, which will not require additional cash expenditures) for 1999 to 2003 are $318.1 million, $56.0 million, $84.7 million, $3.8 million and $9.3 million, respectively. Depending upon market conditions, it is currently anticipated that a majority of the maturing debt will be refinanced with the issuance of long-term securities. Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A) for a further discussion of IEC's debt. (10) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used to estimate the fair value of each class of financial instruments: o Current Assets and Current Liabilities - The carrying amount approximates fair value because of the short maturity of such financial instruments. o Nuclear Decommissioning Trust Funds - The carrying amount represents the fair value of these trust funds, as reported by the trustee. The balance of the "Nuclear decommissioning trust funds" as shown on the Consolidated Balance Sheets included $43.0 million and $35.7 million of net unrealized gains at December 31, 1998 and December 31, 1997, respectively, on the investments held in the trust funds. The accumulated reserve for decommissioning costs was adjusted by a corresponding amount. o Cumulative Preferred Stock - Based upon the market yield of similar securities and quoted market prices. o Long-Term Debt - Based upon the market yield of similar securities and quoted market prices. o Investment in McLeod - Pursuant to the provisions of SFAS 115, the carrying value of the McLeod investment is adjusted to estimated fair value based on the closing price at the end of the quarter. o Investments in New Zealand - Fair value of the New Zealand investments are generally based on quoted market prices. The following table presents the carrying amount and estimated fair value of certain financial instruments for IEC as of December 31 (in millions):
1998 1997 --------------------------- ---------------------------- Carrying Fair Carrying Fair Value Value Value Value ------------ ----------- ------------ ----------- Nuclear decommissioning trust funds $ 226 $ 226 $ 190 $ 190 Cumulative preferred stock 113 109 113 105 Long-term debt, including current portion 1,664 1,753 1,543 1,600 Investment in McLeod (Note 5(a)) 320 320 328 328 Investments in New Zealand (Note 5(b)) 32 44 34 33
Since IESU, WP&L and IPC are subject to regulation, any gains or losses related to the difference between the carrying amount and the fair value of its financial instruments may not be realized by IEC's shareowners. (11) DERIVATIVE FINANCIAL INSTRUMENTS: IEC, through its consolidated subsidiaries, has historically had only limited involvement with derivative financial instruments and has not used them for speculative purposes. They have been used to manage well-defined interest rate and commodity price risks. (a) Interest Rate Swaps and Forward Contracts - At December 31, 1998, Alliant Energy Resources had two interest rate swap agreements outstanding (both expiring in April 2000 with the bank having a 1-year extension option for one of the agreements) each with a notional amount of $100 million. WP&L also had two interest rate swap agreements outstanding (both expiring in 2000) at December 31, 1998, and the combined notional amount of the two agreements was $30 million. These agreements were entered into in order to reduce the impact of changes in variable interest rates by converting variable rate borrowings into fixed rate borrowings thus all agreements require Alliant Energy Resources and WP&L to pay a fixed rate and receive a variable rate. Had Alliant Energy Resources and WP&L terminated the agreements at December 31, 1998, they would have had to make payments of $2.9 million and $0.3 million, respectively. 27 On September 14, 1998, WP&L entered into an interest rate forward contract related to the anticipated issuance of $60 million of debentures. The securities were issued on October 30, 1998, and the forward contract was settled, which resulted in a cash payment of $1.5 million by WP&L. (b) Gas Commodities Instruments - WP&L uses gas commodity swaps to reduce the impact of price fluctuations on gas purchased and injected into storage during the summer months and withdrawn and sold at current market prices during the winter months. The notional amount of gas commodity swaps outstanding as of December 31, 1998, was 5.8 million dekatherms. Had WP&L terminated all of the agreements existing at December 31, 1998, it would have realized an estimated gain of $0.8 million. (c) Electricity Trading Joint Venture - IEC has a 50% interest in an electricity trading joint venture with Cargill Incorporated (Cargill) which is accounted for under the equity method of accounting. The joint venture's trading activities principally consist of marketing and trading over-the-counter contracts for the purchase and sale of electricity. The majority of the forward contracts represent commitments to purchase or sell electricity at fixed prices in the future and require settlement by physical delivery of electricity or are netted out in accordance with industry trading standards. The value-at-risk of the joint venture for its forward contracts outstanding at December 31, 1998, was not significant. (12) COMMITMENTS AND CONTINGENCIES: (a) Construction and Acquisition Program - Plans for IEC's construction and acquisition program can be found elsewhere in this report in the "Liquidity and Capital Resources - Capital Requirements" section of MD&A. (b) Purchased-Power, Coal and Natural Gas Contracts IEC has entered into purchased-power capacity and coal contracts and its minimum commitments are as follows (dollars in millions, megawatt-hours (MWHs) and tons in thousands): Coal (including transportation Purchased-Power costs) --------------------------- -------------------------------- Dollars MWHs Dollars Tons ----------- ------------ ------------- --------------- 1999 $ 104.0 1,691 $ 49.2 11,560 2000 102.4 1,571 24.6 4,457 2001 71.0 925 15.7 2,695 2002 43.5 280 5.4 1,036 2003 36.2 280 0.3 95 IEC is in the process of negotiating several new coal contracts. In addition, it expects to supplement its coal contracts with spot market purchases to fulfill its future fossil fuel needs. IEC also has various natural gas supply, transportation and storage contracts outstanding. The minimum dekatherm commitments, in millions, for 1999-2003 are 194.8, 162.8, 146.8, 122.3 and 95.1, respectively. The minimum dollar commitments for 1999-2003, in millions, are $158.7, $95.9, $83.5, $58.8 and $46.1, respectively. The gas supply commitments are all index-based. IEC expects to supplement its natural gas supply with spot market purchases as needed. (c) Information Technology Services - In May 1998, IEC entered into an agreement, expiring in 2004, with Electronic Data Systems Corporation (EDS) for information technology services. IEC's anticipated operating and capital expenditures under the agreement for 1999 are estimated to total approximately $21 million. Future costs under the agreement are variable and are dependent upon IEC's level of usage of technological services from EDS. 28 (d) Financial Guarantees and Commitments IEC has financial guarantees, which were generally issued to support third-party borrowing arrangements and similar transactions, amounting to $18.1 million outstanding at December 31, 1998. Such guarantees are not reflected in the consolidated financial statements. Management believes that the likelihood of IEC having to make any material cash payments under these agreements is remote. In addition, as part of IEC's electricity trading joint venture with Cargill, Cargill has made guarantees to certain counterparties regarding the performance of contracts entered into by the joint venture. Guarantees of approximately $50 million have been issued of which approximately $5 million were outstanding at December 31, 1998. Under the terms of the joint venture agreement, any payments required under the guarantees would be shared by IEC 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. As of December 31, 1998, Alliant Energy Resources had extended commitments to provide $7.2 million in nonrecourse, fixed rate, permanent financing to developers which are secured by affordable housing properties. IEC anticipates other lenders will ultimately finance these properties. (e) Nuclear Insurance Programs- Public liability for nuclear accidents is governed by the Price Anderson Act of 1988, which sets a statutory limit of $9.8 billion for liability to the public for a single nuclear power plant incident and requires nuclear power plant operators to provide financial protection for this amount. As required, IESU provides this financial protection for a nuclear incident at DAEC through a combination of liability insurance ($200 million) and industry-wide retrospective payment plans ($9.6 billion). Under the industry-wide plan, each operating licensed nuclear reactor in the United States is subject to an assessment in the event of a nuclear incident at any nuclear plant in the United States. The owners of DAEC could be assessed a maximum of $88.1 million per nuclear incident, with a maximum of $10 million per incident per year (of which IESU's 70 % ownership portion would be approximately $61.7 million and $7 million, respectively) if losses relating to the incident exceeded $200 million. These limits are subject to adjustments for changes in the number of participants and inflation in future years. On a similar note, WP&L, as a 41% owner of Kewaunee, is subject to an overall assessment of approximately $36.1 million per incident, not to exceed $4.1 million payable in any given year. IESU and WP&L are members of Nuclear Electric Insurance Limited (NEIL). NEIL provides $1.9 billion of insurance coverage for IESU and $1.8 billion for WP&L on certain property losses for property damage, decontamination and premature decommissioning. The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair and premature decommissioning. NEIL also provides separate coverage for additional expense incurred during certain outages. Owners of nuclear generating stations insured through NEIL are subject to retroactive premium adjustments if losses exceed accumulated reserve funds. NEIL's accumulated reserve funds are currently sufficient to more than cover its exposure in the event of a single incident under the primary and excess property damage or additional expense coverages. However, IESU could be assessed annually a maximum of $1.9 million for NEIL primary property, $3.5 million for NEIL excess property and $0.7 million for NEIL additional expenses if losses exceed the accumulated reserve funds. WP&L could be assessed annually a maximum of $1.1 million for NEIL primary property, $2.0 million for NEIL excess property and $0.6 million for NEIL additional expense coverage. IESU and WP&L are not aware of any losses that they believe are likely to result in an assessment. In the unlikely event of a catastrophic loss at Kewaunee or DAEC, the amount of insurance available may not be adequate to cover property damage, decontamination and premature decommissioning. Uninsured losses, to the extent not recovered through rates, would be borne by IEC and could have a material adverse effect on IEC's financial position and results of operations. (f) Environmental Liabilities - IEC has recorded environmental liabilities of approximately $78.4 million on its Consolidated Balance Sheets at December 31, 1998. IEC's significant environmental liabilities are discussed below. 29 Manufactured Gas Plant Sites IESU, WP&L and IPC all have current or previous ownership interests in properties previously associated with the production of gas at MGP sites for which they may be liable for investigation, remediation and monitoring costs relating to the sites. A summary of information relating to the sites is as follows:
IESU WP&L IPC Number of known sites for which liability may exist 34 14 9 Liability recorded at December 31, 1998 (millions) $26.6 $7.7 $17.5 Regulatory asset recorded at December 31, 1998 (millions) $26.6 $14.1 $17.5
The companies are working pursuant to the requirements of various federal and state agencies to investigate, mitigate, prevent and remediate, where necessary, the environmental impacts to property, including natural resources, at and around the sites in order to protect public health and the environment. The companies each believe that they have completed the remediation at various sites, although they are still in the process of obtaining final approval from the applicable environmental agencies for some of these sites. Each company records environmental liabilities based upon periodic studies, most recently updated in the fourth quarter of 1998, related to the MGP sites. Such amounts are based on the best current estimate of the remaining amount to be incurred for investigation, remediation and monitoring costs for those sites where the investigation process has been or is substantially completed, and the minimum of the estimated cost range for those sites where the investigation is in its earlier stages. It is possible that future cost estimates will be greater than current estimates as the investigation process proceeds and as additional facts become known. The amounts recognized as liabilities are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their fair value. Management currently estimates the range of remaining costs to be incurred for the investigation, remediation and monitoring of all IEC sites to be approximately $35 million to $66 million. IESU, WP&L and IPC currently estimate their share of the remaining costs to be incurred to be approximately $17 million to $36 million, $5 million to $9 million and $13 million to $21 million, respectively. Under the current rate making treatment approved by the PSCW, the MGP expenditures of WP&L, net of any insurance proceeds, are deferred and collected from gas customers over a five-year period after new rates are implemented. The MPUC also allows the deferral of MGP-related costs applicable to the Minnesota sites and IPC has been successful in obtaining approval to recover such costs in rates in Minnesota. While the IUB does not allow for the deferral of MGP-related costs, it has permitted utilities to recover prudently incurred costs. As a result, regulatory assets have been recorded by each company which reflect the probable future rate recovery, where applicable. Considering the current rate treatment, and assuming no material change therein, IESU, WP&L and IPC believe that the clean-up costs incurred for these MGP sites will not have a material adverse effect on their respective financial positions or results of operations. In April 1996, IESU filed a lawsuit against certain of its insurance carriers seeking reimbursement for its MGP-related costs. Settlement has been reached with all its carriers and all issues have been resolved. In 1994, IPC filed a lawsuit against certain of its insurance carriers to recover its MGP-related costs. Settlements have been reached with eight carriers. IPC is continuing its pursuit of additional recoveries but is unable to predict the amount of any additional recoveries they may realize. Amounts received from insurance carriers are being deferred by IESU and IPC pending a determination of the regulatory treatment of such recoveries. WP&L has settled with all of its carriers. 30 National Energy Policy Act of 1992 The National Energy Policy Act of 1992 requires owners of nuclear power plants to pay a special assessment into a "Uranium Enrichment Decontamination and Decommissioning Fund." The assessment is based upon prior nuclear fuel purchases. IESU is recovering the costs associated with this assessment through its electric fuel adjustment clauses over the period the costs are assessed. IESU's 70% share of the future assessment at December 31, 1998 was $7.8 million and has been recorded as a liability with a related regulatory asset for the unrecovered amount. WP&L had a regulatory asset and a liability of $5.4 million and $4.6 million recorded at December 31, 1998, respectively. IEC continues to pursue relief from this assessment through litigation. Oil and Gas Properties Dismantlement and Abandonment Costs Whiting is responsible for certain dismantlement and abandonment costs related to various off-shore oil and gas platforms (and related on-shore plants and equipment), the most significant of which is located off the coast of California. Whiting estimates the total costs for these properties to be approximately $13 million and the most significant expenditures are not expected to be incurred until 2004. In accordance with applicable accounting requirements, Whiting has accrued these costs resulting in a recorded liability of $13 million at December 31, 1998. (g) Spent Nuclear Fuel - The Nuclear Waste Policy Act of 1982 assigned responsibility to the U.S. Department of Energy (DOE) to establish a facility for the ultimate disposition of high level waste and spent nuclear fuel and authorized the DOE to enter into contracts with parties for the disposal of such material beginning in January 1998. IESU and WP&L entered into such contracts and have made the agreed payments to the Nuclear Waste Fund held by the U.S. Treasury. The companies were subsequently notified by the DOE that it was not able to begin acceptance of spent nuclear fuel by the January 31, 1998 deadline. Furthermore, the DOE has experienced significant delays in its efforts and material acceptance is now expected to occur no earlier than 2010 with the possibility of further delay being likely. IEC has participated in several litigation proceedings against the DOE on this issue and the respective courts have affirmed the DOE's responsibility for spent nuclear fuel acceptance. IEC is evaluating its options for recovery of damages due to the DOE's delay in accepting spent nuclear fuel. The Nuclear Waste Policy Act of 1982 assigns responsibility for interim storage of spent nuclear fuel to generators of such spent nuclear fuel, such as IESU and WP&L. In accordance with this responsibility, IESU and WP&L have been storing spent nuclear fuel on site at DAEC and Kewaunee, respectively, since plant operations began. IESU will have to increase its spent fuel storage capacity at DAEC to store all of the spent fuel that will be produced before the current license expires in 2014. To provide assurance that both the operating and post-shutdown storage needs are satisfied, construction of a dry cask modular facility is being contemplated. With minor modifications, Kewaunee would have sufficient fuel storage capacity to store all of the fuel it will generate through the end of the license life in 2013. No decisions have been made concerning post-shutdown storage needs. Legislation is being considered on the federal level that would, among other provisions, expand the DOE's permanent spent nuclear fuel storage to include interim storage for spent nuclear fuel as early as 2002. This legislation has been submitted in the U.S. House. The prospects for passage by the U.S. Congress, and subsequent successful implementation by the DOE, are uncertain at this time. (h) Decommissioning of DAEC and Kewaunee - Pursuant to the most recent electric rate case order, the IUB and PSCW allow IESU and WP&L to recover $6 million and $16 million annually for their share of the cost to decommission DAEC and Kewaunee, respectively. Decommissioning expense is included in "Depreciation and amortization" in the Consolidated Statements of Income and the cumulative amount is included in "Accumulated depreciation" on the Consolidated Balance Sheets to the extent recovered through rates. 31 Additional information relating to the decommissioning of DAEC and Kewaunee includes (dollars in millions):
DAEC Kewaunee ------------------------- -------------------------- Assumptions relating to current rate recovery figures: IEC's share of estimated decommissioning cost $252.8 $189.7 Year dollars in 1993 1998 Method to develop estimate NRC minimum formula Site-specific study Annual inflation rate 4.91% 5.83% Decommissioning method Prompt dismantling and Prompt dismantling and removal removal Year decommissioning to commence 2014 2013 Average after-tax return on external investments 6.82% 6.21% External trust fund balance at December 31, 1998 $91.7 $134.1 Internal reserve at December 31, 1998 $21.7 - After-tax earnings on external trust funds in 1998 $2.7 $5.2
The rate recovery figures for DAEC only included an inflation estimate through 1997. Both IESU and WP&L are funding all rate recoveries for decommissioning into external trust funds and funding on a tax-qualified basis to the extent possible. All of the rate recovery assumptions are subject to change in future regulatory proceedings. In accordance with their respective regulatory requirements, IESU and WP&L record the earnings on the external trust funds as interest income with a corresponding entry to interest expense at IESU and to depreciation expense at WP&L. The earnings accumulate in the external trust fund balances and in accumulated depreciation on utility plant. IESU's 70% share of the estimated cost to decommission DAEC based on the most recent site-specific study completed in 1998 is $334.2 million, in 1998 dollars. This study includes the costs to terminate DAEC's NRC license and to return the site to a greenfield condition. IESU's 70% share of the estimated cost to decommission DAEC based on the most recent NRC minimum formula is $347.0 in 1997 dollars. The NRC minimum formula is intended to apply only to the cost of terminating DAEC's NRC license. The additional decommissioning expense funding requirements which should result from these updated studies are not reflected in IESU's rates. (i) Legal Proceedings - IEC is involved in legal and administrative proceedings before various courts and agencies with respect to matters arising in the ordinary course of business. Although unable to predict the outcome of these matters, IEC believes that appropriate reserves have been established and final disposition of these actions will not have a material adverse effect on its financial position or results of operations. (13) JOINTLY-OWNED ELECTRIC UTILITY PLANT: Under joint ownership agreements with other Iowa and Wisconsin utilities, IESU, WP&L and IPC have undivided ownership interests in jointly-owned electric generating stations and related transmission facilities. Each of the respective owners is responsible for the financing of its portion of the construction costs. Kilowatt-hour generation and operating expenses are divided on the same basis as ownership with each owner reflecting its respective costs in its Consolidated Statements of Income. Information relative to IESU's, WP&L's and IPC's ownership interest in these facilities at December 31, 1998 is as follows (dollars in millions): 32
1998 1997 --------- ------------- -------- -------- ------------- ------- Accumulated Accumulated In-service Plant Provision Plant Provision Ownership Date MW Plant in for in for Interest % Capacity Service Depreciation CWIP Service Depreciation CWIP - -------------------- ----------- --------- --------- -- --------- ------------- -------- -- -------- ------------- ------- IESU Coal: Ottumwa Unit 1 48.0 1981 716 $193.1 $102.7 $0.8 $191.6 $96.6 $ - Neal Unit 3 28.0 1975 515 59.0 32.4 0.1 60.8 30.6 0.1 Nuclear: DAEC 70.0 1974 520 507.1 247.2 1.4 500.6 230.8 2.8 --------- ------------- -------- -------- ------------- ------- Total IESU $759.2 $382.3 $2.3 $753.0 $358.0 $2.9 WP&L Coal: Columbia Energy 1975 & Center 46.2 1978 1,023 $161.5 $93.8 $1.4 $161.4 $89.2 $0.8 Edgewater Unit 4 68.2 1969 330 52.4 30.8 0.4 51.5 29.5 1.0 Edgewater Unit 5 75.0 1985 380 229.0 85.9 0.2 229.4 79.8 0.1 Nuclear: Kewaunee Nuclear Power Plant 41.0 1974 535 132.2 93.7 6.4 132.0 86.6 0.3 --------- ------------- ------- --------- ------------ ------- Total WP&L $575.1 $304.2 $8.4 $574.3 $285.1 $2.2 IPC Coal: Neal Unit 4 21.5 1979 640 $82.1 $48.4 $1.5 $82.2 $45.8 $ - Louisa Unit 1 4.0 1983 738 24.7 11.7 - 24.7 10.9 - --------- ------------- ------- --------- ------------ ------- Total IPC $106.8 $60.1 $1.5 $106.9 $56.7 $ - --------- ------------- ------- --------- ------------ ------- Total IEC $1,441.1 $746.6 $12.2 $1,434.2 $699.8 $5.1 ========= ============= ======= ========= ============ =======
(14) SEGMENTS OF BUSINESS: In 1998, IEC adopted SFAS 131, "Disclosures About Segments of an Enterprise and Related Information." IEC's principal business segments are: o Regulated domestic utilities - consists of IEC's three regulated utility operating companies (IESU, WP&L, and IPC) serving customers in Iowa, Wisconsin, Minnesota and Illinois. The regulated domestic utility business is broken down into three segments which are: 1) electric operations; 2) gas operations; and 3) other, which includes the water and steam businesses as well as the unallocated portions of the utility business. o Nonregulated businesses - represents the operations of Alliant Energy Resources and its subsidiaries. This includes the company's domestic and international energy products and services businesses; industrial services, which includes environmental, engineering and transportation services; investments in affordable housing initiatives; and investments in various other strategic initiatives. o Other - includes the operations of IEC's parent company and Alliant Energy Corporate Services, as well as any reconciling/eliminating entries. Intersegment revenues were not material to IEC's operations and there was no single customer whose revenues exceeded 10% or more of IEC's consolidated revenues. Refer to Note 5(b) for a breakdown of IEC's international investments by country. 33 Certain financial information relating to IEC's significant business segments and products and services is presented below:
Regulated Domestic Utilities ----------------------------------------------- Nonregulated IEC Electric Gas Other Total Businesses Other Consolidated - ------------------------------------------------------------------------------------------------------------------------------- (in thousands) 1998 Operating revenues $1,567,442 $295,590 $31,235 $1,894,267 $238,676 ($2,069) $2,130,874 Depreciation and amortization expense 219,364 23,683 2,623 245,670 33,835 - 279,505 Operating income (loss) 271,511 16,027 5,598 293,136 (8,608) (1,226) 283,302 Interest expense, net 96,951 96,951 23,298 2,302 122,551 Preferred and preference 6,699 6,699 - - 6,699 dividends Net (income) loss from equity (858) (858) 2,197 - 1,339 method subsidiaries Miscellaneous, net (other than equity income/loss) 3,545 3,545 (7,973) 2,353 (2,075) Income tax expense (benefit) 77,257 77,257 (17,232) (1,912) 58,113 Net income (loss) 109,542 109,542 (8,898) (3,969) 96,675 Total assets 3,202,837 458,832 469,822 4,131,491 869,261 (41,415) 4,959,337 Investments in equity method subsidiaries 5,189 5,189 49,446 - 54,635 Construction and acquisition expenditures 233,638 33,200 2,295 269,133 102,925 - 372,058 - ------------------------------------------------------------------------------------------------------------------------------- 1997 - ---- Operating revenues $1,515,753 $393,907 $30,882 $1,940,542 $361,961 ($1,876) $2,300,627 Depreciation and amortization expense 201,742 21,553 2,432 225,727 33,936 - 259,663 Operating income (loss) 316,880 29,330 2,169 348,379 (6,818) (5,178) 336,383 Interest expense, net 95,734 95,734 23,197 (1,642) 117,289 Preferred and preference dividends 6,693 6,693 - - 6,693 Net (income) loss from equity method subsidiaries (32) (32) 849 - 817 Miscellaneous, net (other than equity income/loss) (8,257) (8,257) (8,282) 1,812 (14,727) Income tax expense (benefit) 101,739 101,739 (18,616) (1,390) 81,733 Net income (loss) 152,502 152,502 (3,966) (3,958) 144,578 Total assets 3,142,910 448,845 485,225 4,076,980 838,504 8,066 4,923,550 Investments in equity method subsidiaries 5,694 5,694 39,175 - 44,869 Construction and acquisition expenditures 217,023 33,984 5,753 256,760 71,280 - 328,040
34
Regulated Domestic Utilities ----------------------------------------------- Nonregulated IEC Electric Gas Other Total Businesses Other Consolidated - ------------------------------------------------------------------------------------------------------------------------------- (in thousands) 1996 - ---- Operating revenues $1,440,375 $375,955 $24,008 $1,840,338 $393,963 ($1,461) $2,232,840 Depreciation and amortization expense 180,989 18,124 1,891 201,004 31,359 - 232,363 Operating income (loss) 326,370 40,521 7,001 373,892 (6,666) (1,787) 365,439 Interest expense, net 86,084 86,084 17,859 3,804 107,747 Preferred and preference dividends 6,687 6,687 - - 6,687 Net (income) loss from equity method subsidiaries (372) (372) 18 - (354) Miscellaneous, net (other than equity income/loss) (1,390) (1,390) (9,968) (131) (11,489) Income tax expense (benefit) 115,033 115,033 (12,724) 3,451 105,760 Net income (loss) from continuing operations 167,850 167,850 (1,851) (8,911) 157,088 Discontinued operations - - (1,297) - (1,297) Net income (loss) 167,850 167,850 (3,148) (8,911) 155,791 Total assets 3,122,761 511,110 452,885 4,086,756 546,690 6,380 4,639,826 Investments in equity method subsidiaries 6,110 6,110 11,163 - 17,273 Construction and acquisition expenditures 247,323 34,738 15,135 297,196 115,078 - 412,274 Products and Services - --------------------- Revenues ---------------------------------------------------------------------------------------------------------------------- Regulated Domestic Utilities Nonregulated Businesses ------------------------------------ --------------------------------------------------------------------------------- Environmental Total Transportation, and Engineering Oil and Nonregulated Rents and Nonregulated Gas Year Electric Gas Other Services Production Energy Other Businesses - -------------------------------------------- --------------------------------------------------------------------------------- (in thousands) 1998 $1,567,442 $295,590 $31,235 $72,616 $64,622 $40,536 $60,902 $238,676 1997 1,515,753 393,907 30,882 78,105 68,922 151,128 63,806 361,961 1996 1,440,375 375,955 24,008 84,859 65,724 192,217 51,163 393,963
(15) DISCONTINUED OPERATIONS: IEC's financial statements reflect the discontinuance of operations of its utility energy and marketing consulting business in 1995. During 1996, IEC recognized a loss of $1.3 million, net of applicable income tax benefit, associated with the final disposition of the business. 35 (16) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited):
Quarter Ended * ------------------------------------------------------------------------ March 31 June 30 September 30 December 31 ----------------- ---------------- ------------------ ----------------- (in thousands, except per share data) 1998** - ------ Operating revenues $556,283 $491,012 $555,313 $528,266 Operating income 73,880 32,627 122,196 54,599 Net income (loss) 28,875 (9,098) 51,704 25,194 Earnings per average common share (basic and diluted) 0.38 (0.12) 0.67 0.33 1997 - ---- Operating revenues $663,650 $493,842 $556,858 $586,277 Operating income 92,319 56,987 120,297 66,780 Net income 40,688 19,799 54,969 29,122 Earnings per average common share (basic and diluted) 0.54 0.26 0.72 0.38 * Financial results have been restated for all quarters presented with the exception of the third and fourth quarter of 1998 to reflect a change in accounting method for IEC's oil and gas properties implemented in the third quarter of 1998 from the full cost method to the successful efforts method. See Note 1(i) for additional information. **Net income for 1998 was impacted by the recording of approximately $10 million, $35 million, $6 million and $3 million of pre-tax merger-related expenses in the first, second, third and fourth quarters, respectively.
(17) SUBSEQUENT EVENT: 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. 36 IES UTILITIES INC. FINANCIAL SECTION 37 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareowners of IES Utilities Inc.: We have audited the accompanying consolidated balance sheets and statements of capitalization of IES Utilities Inc. (an Iowa corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1998. These financial statements and the supplemental schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and supplemental schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IES Utilities Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin January 29, 1999 38
IES UTILITIES INC. CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------- (in thousands) Operating revenues: Electric utility $ 639,423 $ 604,270 $ 574,273 Gas utility 141,279 183,517 160,864 Steam and other 26,228 26,191 19,842 ---------------- ---------------- ---------------- 806,930 813,978 754,979 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 113,181 108,344 84,579 Purchased power 71,637 74,098 88,350 Cost of gas sold 84,642 126,631 103,877 Other operation 187,932 161,418 148,051 Maintenance 52,040 53,833 45,869 Depreciation and amortization 93,965 89,754 84,975 Taxes other than income taxes 48,537 46,130 43,603 ---------------- ---------------- ---------------- 651,934 660,208 599,304 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Operating income 154,996 153,770 155,675 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 52,354 52,791 43,714 Allowance for funds used during construction (3,351) (2,309) (2,103) Miscellaneous, net 2,589 2,279 7,243 ---------------- ---------------- ---------------- 51,592 52,761 48,854 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Income before income taxes 103,404 101,009 106,821 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Income taxes 41,494 42,216 43,092 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Net income 61,910 58,793 63,729 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Preferred dividend requirements 914 914 914 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Earnings available for common stock $ 60,996 $ 57,879 $ 62,815 ================ ================ ================ - -------------------------------------------------------------------------------------------------------- IES UTILITIES INC. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Year Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------- (in thousands) Balance at beginning of year $ 233,216 $ 231,337 $ 212,522 Net income 61,910 58,793 63,729 Cash dividends declared on common stock (18,840) (56,000) (44,000) Cash dividends declared on preferred stock (914) (914) (914) ---------------- ---------------- ---------------- Balance at end of year $ 275,372 $ 233,216 $ 231,337 ================ ================ ================ - -------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
39
IES UTILITIES INC. CONSOLIDATED BALANCE SHEETS December 31, ASSETS 1998 1997 - ----------------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Utility - Plant in service - Electric $ 2,140,322 $2,072,866 Gas 198,488 187,098 Steam 55,797 55,374 Common 106,940 90,342 ----------------- ----------------- 2,501,547 2,405,680 Less - Accumulated depreciation 1,209,204 1,115,261 ----------------- ----------------- 1,292,343 1,290,419 Construction work in progress 48,991 38,923 Leased nuclear fuel, net of amortization 25,644 36,731 ----------------- ----------------- 1,366,978 1,366,073 Other property, plant and equipment, net of accumulated depreciation and amortization of $1,948 and $1,709, respectively 5,623 5,762 ----------------- ----------------- 1,372,601 1,371,835 ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 4,175 230 Temporary cash investments with associated companies 53,729 - Accounts receivable: Customer, less allowance for doubtful accounts of $1,058 and $630, respectively 16,703 29,259 Associated companies 2,662 907 Other, less allowance for doubtful accounts of $357 and $224, respectively 10,346 9,235 Production fuel, at average cost 11,863 10,579 Materials and supplies, at average cost 25,591 22,976 Gas stored underground, at average cost 12,284 17,192 Regulatory assets 23,487 36,330 Prepayments and other 4,185 11,680 ----------------- ----------------- 165,025 138,388 ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Investments: Nuclear decommissioning trust funds 91,691 77,882 Other 6,019 5,167 ----------------- ----------------- 97,710 83,049 ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 137,908 163,264 Deferred charges and other 15,734 12,393 ----------------- ----------------- 153,642 175,657 ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- $ 1,788,978 $1,768,929 ================= ================= - ----------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
40
IES UTILITIES INC. CONSOLIDATED BALANCE SHEETS (CONTINUED) December 31, CAPITALIZATION AND LIABILITIES 1998 1997 - -------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock $ 33,427 $ 33,427 Additional paid-in capital 279,042 279,042 Retained earnings 275,372 233,216 ------------------ ----------------- Total common equity 587,841 545,685 Cumulative preferred stock, not mandatorily redeemable 18,320 18,320 Long-term debt (excluding current portion) 602,020 651,848 ------------------ ----------------- 1,208,181 1,215,853 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds 50,140 140 Capital lease obligations 11,965 13,183 Accounts payable 43,953 60,546 Accounts payable to associated companies 22,487 2,736 Accrued payroll and vacations 6,365 7,615 Accrued interest 12,045 12,230 Accrued taxes 55,295 58,996 Accumulated refueling outage provision 6,605 10,606 Environmental liabilities 5,660 4,054 Other 17,617 11,533 ------------------ ----------------- 232,132 181,639 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 224,510 238,829 Accumulated deferred investment tax credits 29,243 31,838 Environmental liabilities 29,195 38,256 Pension and other benefit obligations 25,655 17,334 Capital lease obligations 13,679 23,548 Other 26,383 21,632 ------------------ ----------------- 348,665 371,437 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 12) - -------------------------------------------------------------------------------------------------------------------- $ 1,788,978 $ 1,768,929 ================== ================= - -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
41
IES UTILITIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------ (in thousands) Cash flows from operating activities: Net income $ 61,910 $ 58,793 $ 63,729 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 93,965 89,754 84,975 Amortization of leased nuclear fuel 12,513 14,774 16,491 Amortization of deferred energy efficiency expenditures 18,707 10,987 5,453 Deferred taxes and investment tax credits (17,921) (16,059) 7,763 Refueling outage provision (4,001) 9,290 (6,374) Impairment of regulatory assets 8,969 - - Other (346) 3,952 4,602 Other changes in assets and liabilities: Accounts receivable 9,690 (5,670) (6,200) Production fuel (1,284) 2,743 (1,168) Materials and supplies (2,615) (1,261) 4,811 Gas stored underground 4,908 (3,740) (551) Accounts payable 3,158 (11,198) 12,147 Accrued taxes (3,701) 18,043 (9,416) Adjustment clause balances 8,829 5,354 (13,900) Benefit obligations and other 13,332 14,538 8,293 ----------------- ----------------- ----------------- Net cash flows from operating activities 206,113 190,300 170,655 ----------------- ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from (used for) financing activities: Common stock dividends declared (18,840) (56,000) (44,000) Dividends payable 4,840 - - Preferred stock dividends (914) (914) (914) Proceeds from issuance of long-term debt 10,000 190,000 60,000 Reductions in long-term debt (10,140) (63,140) (15,140) Net change in short-term borrowings - (135,000) 25,112 Principal payments under capital lease obligations (13,250) (12,964) (19,108) Other (137) (871) (420) ----------------- ----------------- ----------------- Net cash flows from (used for) financing activities (28,441) (78,889) 5,530 ----------------- ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------------------ Cash flows used for investing activities: Construction expenditures (115,371) (108,966) (143,648) Deferred energy efficiency expenditures - (8,450) (16,857) Nuclear decommissioning trust funds (6,008) (6,008) (6,008) Other 1,381 635 (798) ----------------- ----------------- ----------------- Net cash flows used for investing activities (119,998) (122,789) (167,311) ----------------- ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash and temporary cash investments 57,674 (11,378) 8,874 ----------------- ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------------------ Cash and temporary cash investments at beginning of period 230 11,608 2,734 ----------------- ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------------------ Cash and temporary cash investments at end of period $ 57,904 $ 230 $ 11,608 ================= ================= ================= - ------------------------------------------------------------------------------------------------------------------------------ Supplemental cash flow information: Cash paid during the period for: Interest $ 50,177 $ 46,377 $ 44,275 ================= ================= ================= Income taxes $ 41,017 $ 41,422 $ 45,383 ================= ================= ================= Noncash investing and financing activities - Capital lease obligations incurred $ 1,426 $ 16,781 $ 14,281 ================= ================= ================= - ------------------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
42
IES UTILITIES INC. CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Common equity: 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 275,372 233,216 ------------------ ------------------ 587,841 545,685 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock: Cumulative, par value $50 per share, not mandatorily redeemable - authorized 466,406 shares; 366,406 shares outstanding: 6.10% series, 100,000 shares outstanding 5,000 5,000 4.80% series, 146,406 shares outstanding 7,320 7,320 4.30% series, 120,000 shares outstanding 6,000 6,000 ------------------ ------------------ 18,320 18,320 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Long-term debt: Collateral Trust Bonds: 7.65% series, due 2000 50,000 50,000 7.25% series, due 2006 60,000 60,000 6-7/8% series, due 2007 55,000 55,000 6% series, due 2008 50,000 50,000 7% series, due 2023 50,000 50,000 5.5% series, due 2023 19,400 19,400 ------------------ ------------------ 284,400 284,400 First Mortgage Bonds: Series Y, 8-5/8%, due 2001 60,000 60,000 Series Z, 7.6%, due 1999 50,000 50,000 9-1/8% series, due 2001 21,000 21,000 7-1/4% series, due 2007 30,000 30,000 ------------------ ------------------ 161,000 161,000 Pollution control obligations: 5.75%, due serially 1999 to 2003 3,136 3,276 5.95%, retired in 1998 - 10,000 Variable rate (4.20% at December 31, 1998), due 2000 to 2010 11,100 11,100 Variable/fixed rate series 1998 (4.25% through 2003), due 2023 10,000 - ------------------ ------------------ 24,236 24,376 Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025 50,000 50,000 Senior Debentures, 6-5/8%, due 2009 135,000 135,000 ------------------ ------------------ 654,636 654,776 ------------------ ------------------ Less: Current maturities (50,140) (140) Unamortized debt premium and (discount), net (2,476) (2,788) ------------------ ------------------ 602,020 651,848 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- $ 1,208,181 $ 1,215,853 ================== ================== - ---------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
43 IES UTILITIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Except as modified below, the Interstate Energy Corporation (IEC) Notes to Consolidated Financial Statements are incorporated by reference insofar as they relate to IES Utilities Inc. (IESU). IEC Notes 1(e), 1(i), 1(n), 5, 8, 11 and 15 do not relate to IESU and, therefore, are not incorporated by reference. (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (a) General - The Consolidated Financial Statements include the accounts of IESU and its consolidated subsidiaries. IESU is a subsidiary of IEC. IEC is currently doing business as Alliant Energy Corporation. IESU is engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and steam services. All of IESU's retail customers are located in Iowa. IESU's principal consolidated subsidiary is IES Ventures Inc. (o) Comprehensive Income - IESU had no other comprehensive income in the periods presented. (3) LEASES: IESU's operating lease rental expenses for 1998, 1997 and 1996 were $9.0 million, $8.3 million and $9.0 million, respectively. IESU's future minimum lease payments by year are as follows (in thousands): Capital Operating Year Leases Leases ------------------------------------ --------------- ---------------- 1999 $ 12,278 $ 9,053 2000 8,037 7,750 2001 4,324 4,852 2002 2,660 2,511 2003 547 1,868 Thereafter 108 2,325 --------------- ---------------- 27,954 $ 28,359 ================ Less: Amount representing interest 2,310 Present value of net minimum --------------- capital lease payments $ 25,644 =============== (6) INCOME TAXES: The components of federal and state income taxes for IESU for the years ended December 31 were as follows (in millions):
1998 1997 1996 ---------------- -------------- --------------- Current tax expense $ 59.4 $ 58.3 $ 35.3 Deferred tax expense (15.3) (13.5) 10.4 Amortization of investment tax credits (2.6) (2.6) (2.6) ---------------- -------------- --------------- $ 41.5 $ 42.2 $ 43.1 ================ ============== ===============
44 The overall effective income tax rates shown below for the years ended December 31 were computed by dividing total income tax expense by income before income taxes.
1998 1997 1996 ------------- ------------- ------------ Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 6.6 7.0 6.9 Effect of ratemaking on property related differences 1.5 3.5 2.9 Amortization of investment tax credits (2.5) (2.6) (2.5) Adjustment of prior period taxes (1.4) (1.4) (3.3) Other items, net 0.9 0.3 1.3 ------------- ------------- ------------ Overall effective income tax rate 40.1% 41.8% 40.3% ============= ============= ============
The accumulated deferred income taxes (assets) and liabilities as set forth below on the Consolidated Balance Sheets at December 31 arise from the following temporary differences (in millions): 1998 1997 --------------- -------------- Property related $ 275.7 $ 269.9 Investment tax credit related (20.8) (22.7) Decommissioning related (15.9) (15.7) Other (14.5) 7.3 --------------- -------------- $ 224.5 $ 238.8 =============== ============== (7) BENEFIT PLANS: (a) Pension Plans and Other Postretirement Benefits IESU adopted Statement of Financial Accounting Standards (SFAS) 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" in 1998. IESU has a non-contributory defined benefit pension plan that covers substantially all of its employees who are subject to a collective bargaining agreement. Plan benefits are generally based on years of service and compensation during the employees' latter years of employment. Effective in 1998, eligible employees of IESU that are not subject to a collective bargaining agreement are covered by the Alliant Energy Cash Balance Pension Plan, a non-contributory defined benefit pension plan. The projected unit credit actuarial cost method was used to compute pension cost and the accumulated and projected benefit obligations. IESU's policy is to fund the pension plan at an amount that is at least equal to the minimum funding requirements mandated by the Employee Retirement Income Security Act of 1974 (ERISA) and that does not exceed the maximum tax deductible amount for the year. IESU also provides certain other postretirement benefits to retirees, including medical benefits for retirees and their spouses (and Medicare Part B reimbursement for certain retirees) and, in some cases, retiree life insurance. IESU's funding of other postretirement benefits generally approximates the annual rate recovery of such costs. The weighted-average assumptions as of the measurement date of September 30 are as follows:
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------ --------------------------------------- 1998 1997 1996 1998 1997 1996 ----------- ------------------------ ----------- --------------------------- Discount rate 6.75% 7.25% 7.50% 6.75% 7.25% 7.50% Expected return on plan assets 9% 9% 9% 9% 9% 9% Rate of compensation increase 3.5% 4.75% 4.75% N/A N/A N/A Medical cost trend on covered charges: Initial trend range N/A N/A N/A 8% 8% 9% Ultimate trend range N/A N/A N/A 6.0% 6.5% 6.5%
45 The components of IESU's qualified pension benefits and other postretirement benefits costs are as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------- ---------------------------------- 1998 1997 1996 1998 1997 1996 ---------- ---------- --------- -------- -------- --------- Service cost $ 2.9 $ 5.4 $ 5.4 $ 1.5 $ 1.5 $ 1.7 Interest cost 8.0 14.1 12.4 4.2 3.5 3.6 Expected return on plan assets (11.3) (15.1) (14.6) (1.1) (0.7) (0.4) Amortization of: Transition obligation (asset) (0.2) (0.3) (0.3) 1.9 1.9 2.0 Prior service cost 0.9 1.8 1.3 - - - Actuarial gain (0.4) - (0.1) - - - ---------- ---------- --------- -------- -------- --------- Total $ (0.1) $ 5.9 $ 4.1 $ 6.5 $ 6.2 $ 6.9 ========== ========== ========= ======== ======== =========
During 1997 and 1996, IESU recognized an additional $3.8 million and $4.5 million, respectively, of costs in accordance with SFAS 88. The charges were for severance and early retirement programs in the respective years. In addition, during 1998, IESU recognized $1.2 million of curtailment charges relating to IESU's other postretirement benefits. The amounts include a December 1998 early retirement program. The pension benefit cost shown above (and in the following tables) for 1998 represents only the pension benefit cost for bargaining unit employees of IESU covered under the bargaining unit pension plan that is sponsored by IESU. The pension benefit cost for IESU's non-bargaining employees who are now participants in other IEC plans was $2.7 million for 1998, including a special charge of $1.9 million for severance and early retirement window programs. In addition, Alliant Energy Corporate Services, Inc. (Alliant Energy Corporate Services) provides services to IESU. The allocated pension benefit costs associated with these services was $0.5 million for 1998. The other postretirement benefit cost shown above for each period (and in the following tables) represents the other postretirement benefit cost for all IESU employees. The allocated other postretirement benefit cost associated with Alliant Energy Corporate Services for IESU was $0.2 million for 1998. The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A one percent change in the medical trend rates for 1998, holding all other assumptions constant, would have the following effects (in millions):
1 Percent 1 Percent Increase Decrease --------------- --------------- Effect on total of service and interest cost components $1.2 ($0.9) Effect on postretirement benefit obligation $9.2 ($7.4)
46 A reconciliation of the funded status of IESU's plans to the amounts recognized on IESU's Consolidated Balance Sheets at December 31 is presented below (in millions):
Qualified Pension Benefits Other Postretirement Benefits ----------------------------- ------------------------------- 1998 1997 1998 1997 ------------ ------------ ------------- ------------- Change in benefit obligation: Net benefit obligation at beginning of year $ 206.1 $ 179.4 $ 50.8 $ 48.0 Transfer of obligation (to)/from other IEC plans (99.1) - 2.3 - Service cost 2.9 5.4 1.5 1.5 Interest cost 8.0 14.1 4.2 3.5 Plan participants' contributions - - 0.4 0.3 Plan amendments - 7.4 - - Actuarial (gain) / loss 2.2 6.2 8.2 - Curtailments - 2.5 0.4 - Special termination benefits - 3.8 - - Gross benefits paid (7.0) (12.7) (2.6) (2.5) ------------ ------------ ------------- ------------- Net benefit obligation at end of year 113.1 206.1 65.2 50.8 ------------ ------------ ------------- ------------- Change in plan assets: Fair value of plan assets at beginning of year 225.7 205.7 19.9 12.3 Transfer of assets to other IEC plans (97.5) - - - Actual return on plan assets (2.5) 32.7 0.1 2.4 Employer contributions - - 2.7 7.4 Plan participants' contributions - - 0.4 0.3 401(h) assets recognized - - 1.2 - Gross benefits paid (7.0) (12.7) (2.6) (2.5) ------------ ------------ ------------- ------------- Fair value of plan assets at end of year 118.7 225.7 21.7 19.9 ------------ ------------ ------------- ------------- Funded status at end of year 5.6 19.6 (43.5) (30.9) Unrecognized net actuarial (gain) / loss (7.3) (41.7) 5.7 (4.3) Unrecognized prior service cost 9.8 20.1 (0.3) - Unrecognized net transition obligation (asset) (1.6) (2.6) 25.9 29.1 ------------ ------------ ------------- ------------- Net amount recognized at end of year $ 6.5 $ (4.6) $ (12.2) $ (6.1) ============ ============ ============= ============= Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $ 6.5 $ - $ - $ - Accrued benefit cost - (4.6) (12.2) (6.1) ------------ ------------ ------------- ------------- Net amount recognized at measurement date 6.5 (4.6) (12.2) (6.1) ------------ ------------ ------------- ------------- Contributions paid after 9/30 and prior to 12/31 - - 3.6 - ------------ ------------ ------------- ------------- Net amount recognized at 12/31/98 $ 6.5 $ (4.6) $ (8.6) $ (6.1) ============ ============ ============= =============
IEC sponsors a non-qualified pension plan which covers certain current and former officers. The pension expense allocated to IESU for this plan was $1.4 million, $2.3 million and $0.8 million in 1998, 1997 and 1996, respectively. IESU employees also participate in defined contribution pension plans (401(k) plans) covering substantially all employees. IESU's contributions to the plans, which are based on the participants' level of contribution, were $2.8 million, $1.2 million and $1.5 million in 1998, 1997 and 1996, respectively. 47 (9) DEBT: (a) Short-Term Debt - Information regarding short-term debt is as follows (dollars in millions):
1998 1997 1996 --------------- --------------- --------------- As of end of year - Commercial paper outstanding - - $ 110.0 Notes payable outstanding - - $ 25.0 Discount rates on commercial paper N/A N/A 5.37-6.05% Interest rates on notes payable N/A N/A 6.20-6.59% For the year ended - Average amount of short-term debt (based on daily outstanding balances) - $ 88.4 $ 120.1 Average interest rate on short-term debt N/A 5.58% 5.52%
(b) Long-Term Debt - Debt maturities (excluding periodic sinking fund requirements, which will not require additional cash expenditures) for 1999 to 2003 are $50.1 million, $51.2 million, $81.5 million, $0.6 million and $4.1 million, respectively. Depending upon market conditions, it is currently anticipated that a majority of the maturing debt will be refinanced with the issuance of long-term securities. Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A) for a further discussion of IESU's debt. (10) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used to estimate the fair value of each class of financial instruments: o Current Assets and Current Liabilities - The carrying amount approximates fair value because of the short maturity of such financial instruments. o Nuclear Decommissioning Trust Funds - The carrying amount represents the fair value of these trust funds, as reported by the trustee. The balance of the "Nuclear decommissioning trust funds" as shown on the Consolidated Balance Sheets included $24.3 million and $19.3 million of net unrealized gains at December 31, 1998 and December 31, 1997, respectively, on the investments held in the trust funds. The accumulated reserve for decommissioning costs was adjusted by a corresponding amount. o Cumulative Preferred Stock - Based upon the market yield of similar securities and quoted market prices. o Long-Term Debt - Based upon the market yield of similar securities and quoted market prices. The following table presents the carrying amount and estimated fair value of certain financial instruments for IESU as of December 31 (in millions):
1998 1997 --------------------------- ---------------------------- Carrying Fair Carrying Fair Value Value Value Value ------------ ----------- ------------ ----------- Nuclear decommissioning trust funds $ 92 $ 92 $ 78 $ 78 Cumulative preferred stock 18 15 18 13 Long-term debt, including current portion 652 687 652 678
48 Since IESU is subject to regulation, any gains or losses related to the difference between the carrying amount and the fair value of its financial instruments may not be realized by IESU's parent. (12) COMMITMENTS AND CONTINGENCIES: (b) Purchased-Power, Coal and Natural Gas Contracts IESU has entered into purchased-power capacity and coal contracts and its minimum commitments are as follows (dollars in millions, megawatt-hours (MWHs) and tons in thousands): Coal Purchased-Power (including transportation costs) --------------------------- -------------------------------- Dollars MWHs Dollars Tons ----------- ------------ ------------- --------------- 1999 $ 6.9 220 $ 14.1 2,028 2000 4.8 - 9.9 1,162 2001 5.0 - 6.4 885 2002 2.8 - 0.5 135 2003 2.9 - 0.2 45 IESU is in the process of negotiating several new coal contracts. In addition, it expects to supplement its coal contracts with spot market purchases to fulfill its future fossil fuel needs. IESU also has various natural gas supply, transportation and storage contracts outstanding. The minimum dekatherm commitments, in millions, for 1999-2003 are 90.0, 79.5, 78.8, 75.0 and 70.0, respectively. The minimum dollar commitments for 1999-2003, in millions, are $56.4, $35.9, $33.6, $27.6 and $26.2, respectively. The gas supply commitments are all index-based. IESU expects to supplement its natural gas supply with spot market purchases as needed. (c) Information Technology Services - In May 1998, IEC entered into an agreement, expiring in 2004, with Electronic Data Systems Corporation (EDS) for information technology services. IESU's anticipated operating and capital expenditures under the agreement for 1999 are estimated to total approximately $17.6 million. Future costs under the agreement are variable and are dependent upon IESU's level of usage of technological services from EDS. (d) Financial Guarantees and Commitments IESU has financial guarantees, which were generally issued to support third-party borrowing arrangements and similar transactions, amounting to $17.9 million outstanding at December 31, 1998. Such guarantees are not reflected in the consolidated financial statements. Management believes that the likelihood of IESU having to make any material cash payments under these agreements is remote. 49 (16) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited):
Quarter Ended ------------------------------------------------------------------------ March 31 June 30 September 30 December 31 ----------------- --------------- ----------------- ------------------ (in thousands) 1998 * Operating revenues $208,278 $174,733 $222,190 $201,729 Operating income 34,289 21,756 69,940 29,011 Net income 11,660 2,961 30,637 16,652 Earnings available for common stock 11,431 2,732 30,408 16,425 1997 Operating revenues $226,398 $169,623 $205,711 $212,246 Operating income 32,588 26,574 63,987 30,621 Net income 11,851 6,891 28,636 11,415 Earnings available for common stock 11,622 6,662 28,407 11,188 * Earnings in 1998 were impacted by the recording of approximately $2 million, $10 million, $3 million and $2 million of pre-tax merger-related expenses in the first, second, third and fourth quarters, respectively.
50 WISCONSIN POWER AND LIGHT COMPANY FINANCIAL SECTION 51 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareowners of Wisconsin Power and Light Company: We have audited the accompanying consolidated balance sheets and statements of capitalization of Wisconsin Power and Light Company (a Wisconsin corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1998. These financial statements and the supplemental schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and supplemental schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wisconsin Power and Light Company and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin January 29, 1999 52
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 1998 1997 1996 - --------------------------------------------------------------------------------------------------------- (in thousands) Operating revenues: Electric utility $ 614,704 $ 634,143 $ 589,482 Gas utility 111,737 155,883 165,627 Water 5,007 4,691 4,166 ---------------- ---------------- ---------------- 731,448 794,717 759,275 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Operating expenses: Electric production fuels 120,485 116,812 114,470 Purchased power 113,936 125,438 81,108 Cost of gas sold 61,409 99,267 104,830 Other operation 143,666 131,398 140,339 Maintenance 49,912 48,058 46,492 Depreciation and amortization 119,221 104,297 84,942 Taxes other than income taxes 30,169 30,338 29,206 ---------------- ---------------- ---------------- 638,798 655,608 601,387 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Operating income 92,650 139,109 157,888 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 36,584 32,607 31,472 Allowance for funds used during construction (3,049) (2,775) (3,208) Miscellaneous, net (1,129) (3,796) (6,669) ---------------- ---------------- ---------------- 32,406 26,036 21,595 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Income before income taxes 60,244 113,073 136,293 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Income taxes 24,670 41,839 53,808 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Net income 35,574 71,234 82,485 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Preferred dividend requirements 3,310 3,310 3,310 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Earnings available for common stock $ 32,264 $ 67,924 $ 79,175 ================ ================ ================ - --------------------------------------------------------------------------------------------------------- WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Year Ended December 31, 1998 1997 1996 - --------------------------------------------------------------------------------------------------------- (in thousands) Balance at beginning of year $ 320,386 $ 310,805 $ 297,717 Net income 35,574 71,234 82,485 Cash dividends declared on common stock (58,341) (58,343) (66,087) Cash dividends declared on preferred stock (3,310) (3,310) (3,310) ---------------- ---------------- ---------------- Balance at end of year $ 294,309 $ 320,386 $ 310,805 ================ ================ ================ - --------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
53
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS December 31, ASSETS 1998 1997 - -------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Utility - Plant in service - Electric $ 1,839,545 $ 1,790,641 Gas 244,518 237,856 Water 26,567 24,864 Common 219,268 195,815 ---------------- ---------------- 2,329,898 2,249,176 Less - Accumulated depreciation 1,168,830 1,065,726 ---------------- ---------------- 1,161,068 1,183,450 Construction work in progress 56,994 42,312 Nuclear fuel, net of amortization 18,671 19,046 ---------------- ---------------- 1,236,733 1,244,808 Other property, plant and equipment, net of accumulated depreciation and amortization of $44 for both years 630 684 ---------------- ---------------- 1,237,363 1,245,492 ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 1,811 2,492 Accounts receivable: Customer 13,372 20,928 Associated companies 3,019 5,017 Other 8,298 11,589 Production fuel, at average cost 20,105 18,857 Materials and supplies, at average cost 20,025 19,274 Gas stored underground, at average cost 10,738 12,504 Prepaid gross receipts tax 22,222 22,153 Other 6,987 4,824 ---------------- ---------------- 106,577 117,638 ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Investments: Nuclear decommissioning trust funds 134,112 112,356 Other 15,960 14,877 ---------------- ---------------- 150,072 127,233 ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 133,501 120,826 Deferred charges and other 57,637 53,415 ---------------- ---------------- 191,138 174,241 ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- $ 1,685,150 $ 1,664,604 ================ ================ - -------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
54
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS (CONTINUED) December 31, CAPITALIZATION AND LIABILITIES 1998 1997 - -------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock $ 66,183 $ 66,183 Additional paid-in capital 199,438 199,170 Retained earnings 294,309 320,386 ------------------ ----------------- Total common equity 559,930 585,739 ------------------ ----------------- Cumulative preferred stock, not mandatorily redeemable 59,963 59,963 Long-term debt (excluding current portion) 414,579 354,540 ------------------ ----------------- 1,034,472 1,000,242 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities - 8,899 Variable rate demand bonds 56,975 56,975 Commercial paper - 81,000 Notes payable 50,000 - Notes payable to associated companies 26,799 - Accounts payable 84,754 85,617 Accounts payable to associated companies 20,315 - Accrued payroll and vacations 5,276 12,221 Accrued interest 6,863 6,317 Other 14,600 25,162 ------------------ ----------------- 265,582 276,191 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 245,489 251,709 Accumulated deferred investment tax credits 33,170 35,039 Customer advances 34,367 34,240 Environmental liabilities 11,683 13,738 Other 60,387 53,445 ------------------ ----------------- 385,096 388,171 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 12) - -------------------------------------------------------------------------------------------------------------------- $ 1,685,150 $ 1,664,604 ================== ================= - -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
55
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $ 35,574 $ 71,234 $ 82,485 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 119,221 104,297 84,942 Amortization of nuclear fuel 5,356 3,534 4,845 Deferred taxes and investment tax credits (7,529) 3,065 6,306 (Gain) loss on disposition of other property and equipment 38 710 (5,676) Other (2,127) (2,033) (2,270) Other changes in assets and liabilities: Accounts receivable 12,845 (3,314) (250) Production fuel (1,248) (3,016) (1,216) Materials and supplies (751) 641 696 Gas stored underground 1,766 (2,512) (3,673) Prepaid gross receipts tax (69) (2,764) (1,087) Accounts payable 19,452 (7,102) 10,291 Benefit obligations and other (5,207) (12,809) 16,834 ---------------- ---------------- ---------------- Net cash flows from operating activities 177,321 149,931 192,227 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------------------------- Cash flows used for financing activities: Common stock dividends (58,341) (58,343) (66,087) Preferred stock dividends (3,310) (3,310) (3,310) Proceeds from issuance of long-term debt 60,000 105,000 - Reductions in long-term debt (8,899) (55,000) (5,000) Net change in short-term borrowings (4,201) 11,500 (3,000) Other (1,966) (2,601) - ---------------- ---------------- ---------------- Net cash flows used for financing activities (16,717) (2,754) (77,397) ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Construction expenditures (117,143) (119,232) (123,942) Nuclear decommissioning trust funds (14,297) (11,427) (9,986) Additions to nuclear fuel (4,981) (3,212) (5,344) Proceeds from sale of other property and equipment 53 4 36,613 Shared savings expenditures (24,355) (17,610) (5,196) Other (562) 2,625 (7,479) ---------------- ---------------- ---------------- Net cash flows used for investing activities (161,285) (148,852) (115,334) ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------------------------- Net decrease in cash and temporary cash investments (681) (1,675) (504) ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 2,492 4,167 4,671 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $ 1,811 $ 2,492 $ 4,167 ================ ================ ================ - --------------------------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Cash paid during the period for: Interest $ 33,368 $ 32,955 $ 29,092 ================ ================ ================ Income taxes $ 31,951 $ 37,407 $ 48,622 ================ ================ ================ - --------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
56
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Common equity: Common stock - $5.00 par value - authorized 18,000,000 shares; 13,236,601 shares outstanding $ 66,183 $ 66,183 Additional paid-in capital 199,438 199,170 Retained earnings 294,309 320,386 ------------------ ------------------ 559,930 585,739 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock: Cumulative, without par value, not mandatorily redeemable - authorized 3,750,000 shares, maximum aggregate stated value $150,000,000: $100 stated value - 4.50% series, 99,970 shares outstanding 9,997 9,997 $100 stated value - 4.80% series, 74,912 shares outstanding 7,491 7,491 $100 stated value - 4.96% series, 64,979 shares outstanding 6,498 6,498 $100 stated value - 4.40% series, 29,957 shares outstanding 2,996 2,996 $100 stated value - 4.76% series, 29,947 shares outstanding 2,995 2,995 $100 stated value - 6.20% series, 150,000 shares outstanding 15,000 15,000 $25 stated value - 6.50% series, 599,460 shares outstanding 14,986 14,986 ------------------ ------------------ 59,963 59,963 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Long-term debt: First Mortgage Bonds: Series L, 6.25%, retired in 1998 - 8,899 1984 Series A, variable rate (3.85% at December 31, 1998), due 2014 8,500 8,500 1988 Series A, variable rate (4.20% at December 31, 1998), due 2015 14,600 14,600 1990 Series V, 9.3%, due 2025 27,000 27,000 1991 Series A, variable rate (5.15% at December 31, 1998), due 2015 16,000 16,000 1991 Series B, variable rate (5.15% at December 31, 1998), due 2005 16,000 16,000 1991 Series C, variable rate (5.15% at December 31, 1998), due 2000 1,000 1,000 1991 Series D, variable rate (5.15% at December 31, 1998), due 2000 875 875 1992 Series W, 8.6%, due 2027 90,000 90,000 1992 Series X, 7.75%, due 2004 62,000 62,000 1992 Series Y, 7.6%, due 2005 72,000 72,000 ------------------ ------------------ 307,975 316,874 Debentures, 7%, due 2007 105,000 105,000 Debentures, 5.7%, due 2008 60,000 - ------------------ ------------------ 472,975 421,874 ------------------ ------------------ Less: Current maturities - (8,899) Variable rate demand bonds (56,975) (56,975) Unamortized debt premium and (discount), net (1,421) (1,460) ------------------ ------------------ 414,579 354,540 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- $ 1,034,472 $ 1,000,242 ================== ================== - ---------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
57 WISCONSIN POWER AND LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Except as modified below, the Interstate Energy Corporation (IEC) Notes to Consolidated Financial Statements are incorporated by reference insofar as they relate to Wisconsin Power and Light Company (WP&L). IEC Notes 1(e), 1(i), 1(n), 5, 8(b), 11(c), and 15 do not relate to WP&L and, therefore, are not incorporated by reference. (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (a) General - The Consolidated Financial Statements include the accounts of WP&L and its consolidated subsidiaries. WP&L is a subsidiary of IEC. IEC is currently doing business as Alliant Energy Corporation. WP&L is engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and water services. Nearly all of WP&L's retail customers are located in south and central Wisconsin. WP&L's principal consolidated subsidiary is South Beloit Water, Gas and Electric Company. (o) Comprehensive Income - WP&L had no other comprehensive income in the periods presented. (3) LEASES: WP&L's operating lease rental expenses for 1998, 1997 and 1996 were $6.4 million, $5.5 million and $5.3 million, respectively. WP&L's future minimum lease payments by year are as follows (in thousands): Operating Year Leases ---------------------- ------------------ 1999 $ 7,772 2000 6,948 2001 5,925 2002 5,303 2003 4,146 Thereafter 26,042 ------------------ $ 56,136 ================== (6) INCOME TAXES: The components of federal and state income taxes for WP&L for the years ended December 31 were as follows (in millions):
1998 1997 1996 ---------------- -------------- --------------- Current tax expense $ 32.2 $ 38.8 $ 47.5 Deferred tax expense (5.6) 4.9 8.2 Amortization of investment tax credits (1.9) (1.9) (1.9) ---------------- -------------- --------------- $ 24.7 $ 41.8 $ 53.8 ================ ============== ===============
58 The overall effective income tax rates shown below for the years ended December 31 were computed by dividing total income tax expense by income before income taxes.
1998 1997 1996 -------------- -------------- ------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 7.8 5.7 6.1 Amortization of investment tax credits (3.1) (1.7) (1.4) Adjustment of prior period taxes - (2.1) 0.4 Merger expenses 2.5 0.3 0.4 Amortization of excess deferred taxes (2.5) (1.3) (1.3) Other items, net 1.3 1.1 0.3 -------------- -------------- ------------- Overall effective income tax rate 41.0% 37.0% 39.5% ============== ============== =============
The accumulated deferred income taxes (assets) and liabilities as set forth below on the Consolidated Balance Sheets at December 31 arise from the following temporary differences (in millions): 1998 1997 --------------- -------------- Property related $ 282.7 $ 287.2 Investment tax credit related (22.2) (23.5) Decommissioning related (17.5) (16.0) Other 2.5 4.0 --------------- -------------- $ 245.5 $ 251.7 =============== ============== (7) BENEFIT PLANS: (a) Pension Plans and Other Postretirement Benefits WP&L adopted Statement of Financial Accounting Standard (SFAS) 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" in 1998. WP&L has a noncontributory, defined benefit pension plan covering substantially all employees who are subject to a collective bargaining agreement. The benefits are based upon years of service and levels of compensation. Effective in 1998, eligible employees of WP&L that are not subject to a collective bargaining agreement are covered by the Alliant Energy Cash Balance Pension Plan, a non-contributory defined benefit pension plan. The projected unit credit actuarial cost method was used to compute pension cost and the accumulated and projected benefit obligations. WP&L's policy is to fund the pension cost in an amount that is at least equal to the minimum funding requirements mandated by the Employee Retirement Income Security Act of 1974 (ERISA), and that does not exceed the maximum tax deductible amount for the year. WP&L also provides certain other postretirement benefits to retirees, including medical benefits for retirees and their spouses (and Medicare Part B reimbursement for certain retirees) and, in some cases, retiree life insurance. WP&L's funding of other postretirement benefits generally approximates the maximum tax deductible amount on an annual basis. The weighted-average assumptions as of the measurement date of September 30 are as follows:
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------- ---------------------------------------- 1998 1997 1996 1998 1997 1996 ------------ ----------- ------------ ------------------------ --------------- Discount rate 6.75% 7.25% 7.50% 6.75% 7.25% 7.50% Expected return on plan assets 9% 9% 9% 9% 9% 9% Rate of compensation increase 3.5% 3.5-4.5% 3.5-4.5% 3.5% 3.5% 3.5-4.5% Medical cost trend on covered charges: Initial trend range N/A N/A N/A 8% 8% 9% Ultimate trend range N/A N/A N/A 5% 5% 5%
59 The components of WP&L's qualified pension benefits and other postretirement benefits costs are as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------- ---------------------------------- 1998 1997 1996 1998 1997 1996 ---------- ----------- --------- -------- -------- --------- Service cost $ 3.2 $ 4.8 $ 5.1 $ 1.7 $ 1.8 $ 1.8 Interest cost 8.5 13.9 13.6 2.6 3.3 3.4 Expected return on plan assets (12.8) (19.2) (17.9) (1.5) (1.1) (1.0) Amortization of: Transition obligation (asset) (2.1) (2.4) (2.4) 1.3 1.5 1.5 Prior service cost 0.5 0.4 0.3 - - - Actuarial (gain)/loss - - 0.5 (1.1) (0.3) - ---------- ----------- --------- -------- -------- --------- Total $ (2.7) $ (2.5) $ (0.8) $ 3.0 $ 5.2 $ 5.7 ========== =========== ========= ======== ======== =========
During 1998 and 1997, WP&L recognized an additional $0.6 million and $1.3 million, respectively, of costs in accordance with SFAS 88. The charges were for severance and early retirement programs in the respective years. In addition, during 1998 and 1997, WP&L recognized $3.6 million and $1.7 million, respectively, of curtailment charges relating to WP&L's other postretirement benefits. The amounts include a December 1998 early retirement program. The pension benefit cost shown above (and in the following table) for 1998 represents only the pension benefit cost for bargaining unit employees of WP&L covered under the bargaining unit pension plan that is sponsored by WP&L. The pension benefit cost for WP&L's non-bargaining employees who are now participants in other IEC plans was $3.0 million for 1998, including a special charge of $3.6 for severance and early retirement window programs. In addition, Alliant Energy Corporate Services, Inc. (Alliant Energy Corporate Services) provides services to WP&L. The allocated pension benefit costs associated with these services was $0.6 million for 1998. The other postretirement benefit cost shown above for each period (and in the following tables) represents the other postretirement benefit cost for all WP&L employees. The allocated other postretirement benefit cost associated with Alliant Energy Corporate Services for WP&L was $0.2 million for 1998. The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A one percent change in the medical trend rates for 1998, holding all other assumptions constant, would have the following effects (in millions):
1 Percent 1 Percent Decrease Increase ------------------- ---------------------- Effect on total of service and interest cost components $0.3 ($0.3) Effect on postretirement benefit obligation $1.7 ($1.7)
60 A reconciliation of the funded status of WP&L's plans to the amounts recognized on WP&L's Consolidated Balance Sheets at December 31 is presented below (in millions):
Qualified Pension Benefits Other Postretirement Benefits ---------------------------- ------------------------------- 1998 1997 1998 1997 ----------- ------------ -------------- ------------ Change in benefit obligation: Net benefit obligation at beginning of year $ 205.1 $ 189.6 $ 47.1 $ 46.6 Transfer of obligations to other IEC plans (91.9) - - - Service cost 3.2 4.8 1.7 1.8 Interest cost 8.5 13.9 2.6 3.3 Plan participants' contributions - - 0.8 1.0 Plan amendments - 4.4 - - Actuarial (gain) / loss 12.2 2.9 (9.7) (2.7) Curtailments - - 0.7 0.6 Special termination benefits 0.6 1.3 - - Gross benefits paid (5.4) (11.8) (2.9) (3.5) ----------- ------------ -------------- ------------ Net benefit obligation at end of year 132.3 205.1 40.3 47.1 ----------- ------------ -------------- ------------ Change in plan assets: Fair value of plan assets at beginning of year 244.4 218.9 16.1 13.8 Transfer of assets to other IEC plans (100.2) - - - Actual return on plan assets (1.3) 36.2 1.1 1.9 Employer contributions - 1.1 - 2.9 Plan participants' contributions - - 0.8 1.0 Gross benefits paid (5.4) (11.8) (2.9) (3.5) ----------- ------------ -------------- ------------ Fair value of plan assets at end of year 137.5 244.4 15.1 16.1 ----------- ------------ -------------- ------------ Funded status at end of year 5.2 39.3 (25.2) (31.0) Unrecognized net actuarial (gain) / loss 26.0 0.8 (17.0) (8.3) Unrecognized prior service cost 5.1 7.8 (0.2) (0.3) Unrecognized net transition obligation (asset) (7.9) (12.0) 17.2 21.0 ----------- ------------ -------------- ------------ Net amount recognized at end of year $ 28.4 $ 35.9 $ (25.2) $ (18.6) =========== ============ ============== ============ Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $ 28.4 $ 35.9 $ 0.4 $ 0.3 Accrued benefit cost - - (25.6) (18.9) ----------- ------------ -------------- ------------ Net amount recognized at measurement date 28.4 35.9 (25.2) (18.6) ----------- ------------ -------------- ------------ Contributions paid after 9/30 and prior to 12/31 - - 2.1 - ----------- ------------ -------------- ------------ Net amount recognized at 12/31/98 $ 28.4 $ 35.9 $ (23.1) $ (18.6) =========== ============ ============== ============
IEC sponsors a non-qualified pension plan which covers certain current and former officers. The pension expense allocated to WP&L for this plan was $0.8 million, $0.5 million and $0.5 million in 1998, 1997 and 1996, respectively. WP&L employees also participate in defined contribution pension plans (401(k) plans) covering substantially all employees. WP&L's contributions to the plans, which are based on the participants' level of contribution, were $2.4 million, $2.8 million and $1.8 million in 1998, 1997 and 1996, respectively. The benefit obligation and fair value of plan assets for the postretirement welfare plans with benefit obligations in excess of plan assets were $33.4 million and $6.2 million as of September 31, 1998 and $40.6 million and $7.7 million, respectively, as of the prior measurement date. 61 (9) DEBT: (a) Short-Term Debt - Information regarding short-term debt is as follows (in millions):
1998 1997 1996 -------------- -------------- -------------- As of year end-- Commercial paper outstanding - $81.0 $59.5 Notes payable outstanding $50.0 - $10.0 Money pool borrowings $26.8 - - Discount rates on commercial paper N/A 5.82-5.90% 5.35-5.65% Interest rates on notes payable 5.44% N/A 5.95% Interest rate on money pool borrowings 5.17% N/A N/A For the year ended-- Average amount of short-term debt (based on daily outstanding balances) $48.4 $49.2 $33.9 Average interest rate on short-term debt 5.55% 5.64% 5.86%
(b) Long-Term Debt - Debt maturities (excluding periodic sinking fund requirements, which will not require additional cash expenditures) for 1999 to 2003 are $0, $1.9 million, $0, $0 and $0, respectively. Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A) for a further discussion of WP&L's debt. (10) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used to estimate the fair value of each class of financial instruments: o Current Assets and Current Liabilities - The carrying amount approximates fair value because of the short maturity of such financial instruments. o Nuclear Decommissioning Trust Funds - The carrying amount represents the fair value of these trust funds, as reported by the trustee. The balance of the "Nuclear decommissioning trust funds" as shown on the Consolidated Balance Sheets included $18.7 million and $16.4 million of net unrealized gains at December 31, 1998 and December 31, 1997, respectively, on the investments held in the trust funds. The accumulated reserve for decommissioning costs was adjusted by a corresponding amount. o Cumulative Preferred Stock - Based upon the market yield of similar securities and quoted market prices. o Long-Term Debt - Based upon the market yield of similar securities and quoted market prices. The following table presents the carrying amount and estimated fair value of certain financial instruments for WP&L as of December 31 (in millions):
1998 1997 --------------------------- ---------------------------- Carrying Fair Carrying Fair Value Value Value Value ------------ ----------- ------------ ----------- Nuclear decommissioning trust funds $ 134 $ 134 $ 112 $ 112 Cumulative preferred stock 60 55 60 52 Long-term debt, including current portion 472 513 420 449
Since WP&L is subject to regulation, any gains or losses related to the difference between the carrying amount and the fair value of its financial instruments may not be realized by WP&L's parent. 62 (12) COMMITMENTS AND CONTINGENCIES: (b) Purchased-Power, Coal and Natural Gas Contracts WP&L has entered into purchased-power capacity and coal contracts and its minimum commitments are as follows (dollars in millions, megawatt-hours (MWHs) and tons in thousands): Coal Purchased-Power (including transportation costs) --------------------------- -------------------------------- Dollars MWHs Dollars Tons ----------- ------------ ------------- --------------- 1999 $ 62.3 1,290 $ 22.2 6,124 2000 66.0 1,509 10.1 2,986 2001 52.4 864 8.4 1,600 2002 31.8 219 4.4 750 2003 24.3 219 - - WP&L is in the process of negotiating several new coal contracts. In addition, it expects to supplement its coal contracts with spot market purchases to fulfill its future fossil fuel needs. WP&L also has various natural gas supply, transportation and storage contracts outstanding. The minimum dekatherm commitments, in millions, for 1999-2003 are 70.3, 59.7, 45.4, 31.5 and 24.5, respectively. The minimum dollar commitments for 1999-2003, in millions, are $42.8, $32.5, $27.1, $24.7 and $17.0, respectively. The gas supply commitments are all index-based. WP&L expects to supplement its natural gas supply with spot market purchases as needed. (c) Information Technology Services - In May 1998, IEC entered into an agreement, expiring in 2004, with Electronic Data Systems Corporation (EDS) for information technology services. WP&L's anticipated operating and capital expenditures under the agreement for 1999 are estimated to total approximately $2.8 million. Future costs under the agreement are variable and are dependent upon WP&L's level of usage of technological services from EDS. 63 (16) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited):
------------------------------------------------------------------------ Quarter Ended ------------------------------------------------------------------------ March 31 June 30 September 30 December 31 ----------------- --------------- ----------------- ------------------ (in thousands) 1998* Operating revenues $202,803 $172,509 $176,130 $180,006 Operating income 33,651 10,828 29,696 18,475 Net income (loss) 17,598 (1,233) 12,677 6,532 Earnings available for common stock 16,770 (2,061) 11,850 5,705 1997 Operating revenues $231,005 $176,065 $180,192 $207,455 Operating income 45,413 20,882 34,158 38,656 Net income 23,351 11,044 15,236 21,603 Earnings available for common stock 22,523 10,216 14,409 20,776 *Earnings for 1998 were impacted by the recording of approximately $3 million, $11 million, $2 million and $1 million of pre-tax merger-related expenses in the first, second, third and fourth quarters, respectively.
64 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Consolidated Financial Statements Refer to Index to Financial Statements at Item 8. "Financial Statements and Supplementary Data." (a) (2) Financial Statement Schedules Report of Independent Public Accountants on Schedules Schedule II. Valuation and Qualifying Accounts and Reserves (Previously filed) NOTE: All other schedules are omitted because they are not applicable or not required, or because that required information is shown either in the consolidated financial statements or in the notes thereto. (a) (3) Exhibits Required by Securities and Exchange Commission Regulation S-K The following Exhibits are filed herewith or incorporated herein by reference. Documents indicated by an asterisk (*) are incorporated herein by reference. 2.1* Agreement and Plan of Merger, dated as of November 10, 1995, by and among WPL Holdings, Inc., IES Industries Inc., Interstate Power Company and AMW Acquisition, Inc. (incorporated by reference to Exhibit 2.1 to IEC's Current Report on Form 8-K, dated November 10, 1995) 2.2* Amendment No. 1 to Agreement and Plan of Merger and Stock Option Agreements, dated May 22, 1996, by and among WPL Holdings, Inc., IES Industries Inc., Interstate Power Company, a Delaware corporation, AMW Acquisition, Inc., WPLH Acquisition Co. and Interstate Power Company, a Wisconsin corporation (incorporated by reference to Exhibit 2.1 to IEC's Current Report on Form 8-K, dated May 22, 1996) 2.3* Amendment No. 2 to Agreement and Plan of Merger, dated August 16, 1996, by and among WPL Holdings, Inc., IES Industries Inc., Interstate Power Company, a Delaware corporation, WPLH Acquisition Co. and Interstate Power Company, a Wisconsin corporation (incorporated by reference to Exhibit 2.1 to IEC's Current Report on Form 8-K, dated August 15, 1996) 3.1* Restated Articles of Incorporation of Interstate Energy Corporation, as amended (incorporated by reference to Exhibit 3.2 to IEC's Current Report on Form 8-K, dated April 21, 1998) 3.2 Bylaws of Interstate Energy Corporation, effective as of January 20, 1999+ 3.3* Restated Articles of Incorporation of Wisconsin Power & Light Company, as amended (incorporated by reference to Exhibit 3.1 to WP&L's Form 10-Q for the quarter ended June 30, 1994) 3.4 Bylaws of Wisconsin Power and Light Company, effective as of January 20, 1999+ 3.5* Amended and Restated Articles of Incorporation of IES Utilities Inc. (incorporated by reference to Exhibit 3.5 to IESU's Form 10-Q for the quarter ended June 30, 1998) 65 3.6 Bylaws of IES Utilities Inc., effective as of January 20, 1999+ 4.1* Indenture of Mortgage or Deed of Trust dated August 1, 1941, between WP&L and First Wisconsin Trust Company and George B. Luhman, as Trustees, filed as Exhibit 7(a) in File No. 2-6409, and the indentures supplemental thereto dated, respectively, January 1, 1948, September 1, 1948, June 1, 1950, April 1, 1951, April 1, 1952, September 1, 1953, October 1, 1954, March 1, 1959, May 1, 1962, August 1, 1968, June 1, 1969, October 1, 1970, July 1, 1971, April 1, 1974, December 1, 1975, May 1, 1976, May 15, 1978, August 1, 1980, January 15, 1981, August 1, 1984, January 15, 1986, June 1, 1986, August 1, 1988, December 1, 1990, September 1, 1991, October 1, 1991, March 1, 1992, May 1, 1992, June 1, 1992 and July 1, 1992 (Second Amended Exhibit 7(b) in File No. 2-7361; Amended Exhibit 7(c) in File No. 2-7628; Amended Exhibit 7.02 in File No. 2-8462; Amended Exhibit 7.02 in File No. 2-8882; Second Amendment Exhibit 4.03 in File No. 2-9526; Amended Exhibit 4.03 in File No. 2-10406; Amended Exhibit 2.02 in File No. 2-11130; Amended Exhibit 2.02 in File No. 2-14816; Amended Exhibit 2.02 in File No. 2-20372; Amended Exhibit 2.02 in File No. 2-29738; Amended Exhibit 2.02 in File No. 2-32947; Amended Exhibit 2.02 in File No. 2-38304; Amended Exhibit 2.02 in File No. 2-40802; Amended Exhibit 2.02 in File No. 2-50308; Exhibit 2.01(a) in File No. 2-57775; Amended Exhibit 2.02 in File No. 2-56036; Amended Exhibit 2.02 in File No. 2-61439; Exhibit 4.02 in File No. 2-70534; Amended Exhibit 4.03 File No. 2-70534; Exhibit 4.02 in File No. 33-2579; Amended Exhibit 4.03 in File No. 33-2579; Amended Exhibit 4.02 in File No. 33-4961; Exhibit 4B to WP&L's Form 10-K for the year ended December 31, 1988, Exhibit 4.1 to WP&L's Form 8-K dated December 10, 1990, Amended Exhibit 4.26 in File No. 33-45726, Amended Exhibit 4.27 in File No.33-45726, Exhibit 4.1 to WP&L's Form 8-K dated March 9, 1992, Exhibit 4.1 to WP&L's Form 8-K dated May 12, 1992, Exhibit 4.1 to WP&L's Form 8-K dated June 29, 1992 and Exhibit 4.1 to WP&L's Form 8-K dated July 20, 1992) 4.2* Rights Agreement, dated January 20, 1999, between Interstate Energy Corporation and Firstar Bank Milwaukee, N.A. (incorporated by reference to Exhibit 4.1 to IEC's Registration Statement on Form 8-A, dated January 20, 1999) 4.3* Indenture, dated as of June 20, 1997, between WP&L and Firstar Trust Company, as Trustee, relating to debt securities (incorporated by reference to Exhibit 4.33 to Amendment No. 2 to WP&L's Registration Statement on Form S-3 (Registration No. 33-60917)) 4.4* Officers' Certificate, dated as of June 25, 1997, creating the 7% debentures due June 15, 2007 of WP&L (incorporated by reference to Exhibit 4 to WP&L's Current Report on Form 8-K, dated June 25, 1997) 4.5* Officers' Certificate, dated as of October 27, 1998, creating the 5.70% debentures due October 15, 2008 of WP&L (incorporated by reference to Exhibit 4 to WP&L's Current Report on Form 8-K, dated October 27, 1998) 66 4.6* Indenture of Mortgage and Deed of Trust, dated as of September 1, 1993, between IES Utilities Inc. (formerly Iowa Electric Light and Power Company (IE)) and The First National Bank of Chicago, as Trustee (Mortgage) (incorporated by reference to Exhibit 4(c) to IESU's Form 10-Q for the quarter ended September 30, 1993) 4.7* Supplemental Indentures to the Mortgage: IESU/IES Number Dated as of File Reference Exhibit ---------- --------------------- -------------------------- --------- First October 1, 1993 Form 10-Q, 11/12/93 4(d) Second November 1, 1993 Form 10-Q, 11/12/93 4(e) Third March 1, 1995 Form 10-Q, 5/12/95 4(b) Fourth September 1, 1996 Form 8-K, 9/19/96 4(c)(i) Fifth April 1, 1997 Form 10-Q, 5/14/97 4(a) 4.8* Indenture of Mortgage and Deed of Trust, dated as of August 1, 1940, between IES Utilities Inc. (formerly IE) and The First National Bank of Chicago, Trustee (1940 Indenture) (incorporated by reference to Exhibit 2(a) to IESU's Registration Statement, File No. 2-25347) 4.9* Supplemental Indentures to the 1940 Indenture:
IESU Number Dated as of File Reference Exhibit ------------------- ---------------------- --------------------------- --------- First March 1, 1941 2-25347 2(a) Second July 15, 1942 2-25347 2(a) Third August 2, 1943 2-25347 2(a) Fourth August 10, 1944 2-25347 2(a) Fifth November 10, 1944 2-25347 2(a) Sixth August 8, 1945 2-25347 2(a) Seventh July 1, 1946 2-25347 2(a) Eighth July 1, 1947 2-25347 2(a) Ninth December 15, 1948 2-25347 2(a) Tenth November 1, 1949 2-25347 2(a) Eleventh November 10, 1950 2-25347 2(a) Twelfth October 1, 1951 2-25347 2(a) Thirteenth March 1, 1952 2-25347 2(a) Fourteenth November 5, 1952 2-25347 2(a) Fifteenth February 1, 1953 2-25347 2(a) Sixteenth May 1, 1953 2-25347 2(a) Seventeenth November 3, 1953 2-25347 2(a) Eighteenth November 8, 1954 2-25347 2(a) Nineteenth January 1, 1955 2-25347 2(a) Twentieth November 1, 1955 2-25347 2(a) Twenty-first November 9, 1956 2-25347 2(a) Twenty-second November 6, 1957 2-25347 2(a) Twenty-third November 4, 1958 2-25347 2(a) Twenty-fourth November 3, 1959 2-25347 2(a) Twenty-fifth November 1, 1960 2-25347 2(a) Twenty-sixth January 1, 1961 2-25347 2(a) Twenty-seventh November 7, 1961 2-25347 2(a) Twenty-eighth November 6, 1962 2-25347 2(a) Twenty-ninth November 5, 1963 2-25347 2(a) 67 Thirtieth November 4, 1964 2-25347 2(a) Thirty-first November 2, 1965 2-25347 2(a) Thirty-second September 1, 1966 Form 10-K, 1966 4.10 Thirty-third November 30, 1966 Form 10-K, 1966 4.10 Thirty-fourth November 7, 1967 Form 10-K, 1967 4.10 Thirty-fifth November 5, 1968 Form 10-K, 1968 4.10 Thirty-sixth November 1, 1969 Form 10-K, 1969 4.10 Thirty-seventh December 1, 1970 Form 8-K, 12/70 1 Thirty-eighth November 2, 1971 2-43131 2(g) Thirty-ninth May 1, 1972 Form 8-K, 5/72 1 Fortieth November 7, 1972 2-56078 2(i) Forty-first November 7, 1973 2-56078 2(j) Forty-second September 10, 1974 2-56078 2(k) Forty-third November 5, 1975 2-56078 2(l) Forty-fourth July 1, 1976 Form 8-K, 7/76 1 Forty-fifth November 1, 1976 Form 8-K, 12/76 1 Forty-sixth December 1, 1977 2-60040 2(o) Forty-seventh November 1, 1978 Form 10-Q, 6/30/79 1 Forty-eighth December 1, 1979 Form S-16, 2-65996 2(q) Forty-ninth November 1, 1981 Form 10-Q, 3/31/82 2 Fiftieth December 1, 1980 Form 10-K, 1981 4(s) Fifty-first December 1, 1982 Form 10-K, 1982 4(t) Fifty-second December 1, 1983 Form 10-K, 1983 4(u) Fifty-third December 1, 1984 Form 10-K, 1984 4(v) Fifty-fourth March 1, 1985 Form 10-K, 1984 4(w) Fifty-fifth March 1, 1988 Form 10-Q, 5/12/88 4(b) Fifty-sixth October 1, 1988 Form 10-Q, 11/10/88 4(c) Fifty-seventh May 1, 1991 Form 10-Q, 8/13/91 4(d) Fifty-eighth March 1, 1992 Form 10-K, 1991 4(c) Fifty-ninth October 1, 1993 Form 10-Q, 11/12/93 4(a) Sixtieth November 1, 1993 Form 10-Q, 11/12/93 4(b) Sixty-first March 1, 1995 Form 10-Q, 5/12/95 4(a) Sixty-second September 1, 1996 Form 8-K, 9/19/96 4(f) Sixty-third April 1, 1997 Form 10-Q, 5/14/97 4(b)
4.10* Indenture or Deed of Trust dated as of February 1, 1923, between IES Utilities Inc. (successor to Iowa Southern Utilities Company (IS) as result of merger of IS and IE) and The Northern Trust Company (The First National Bank of Chicago, successor) and Harold H. Rockwell (Richard D. Manella, successor), as Trustees (1923 Indenture) (incorporated by reference to Exhibit B-1 to File No. 2-1719) 4.11* Supplemental Indentures to the 1923 Indenture: Dated as of File Reference Exhibit ------------------------ ----------------- ----------- May 1, 1940 2-4921 B-1-k May 2, 1940 2-4921 B-1-l October 1, 1945 2-8053 7(m) October 2, 1945 2-8053 7(n) January 1, 1948 2-8053 7(o) September 1, 1950 33-3995 4(e) February 1, 1953 2-10543 4(b) October 2, 1953 2-10543 4(q) August 1, 1957 2-13496 2(b) September 1, 1962 2-20667 2(b) 68 June 1, 1967 2-26478 2(b) February 1, 1973 2-46530 2(b) February 1, 1975 2-53860 2(aa) July 1, 1975 2-54285 2(bb) September 2, 1975 2-57510 2(bb) March 10, 1976 2-57510 2(cc) February 1, 1977 2-60276 2(ee) January 1, 1978 0-849 2 March 1, 1979 0-849 2 March 1, 1980 0-849 2 May 31, 1986 33-3995 4(g) July 1, 1991 0-849 4(h) September 1, 1992 0-849 4(m) December 1, 1994 0-4117-1 4(f) 4.12* Indenture (For Unsecured Subordinated Debt Securities), dated as of December 1, 1995, between IES Utilities Inc. and The First National Bank of Chicago, as Trustee (Subordinated Indenture) (incorporated by reference to Exhibit 4(i) to IESU's Amendment No. 1 to Registration Statement, File No. 33-62259) 4.13* Indenture (For Senior Unsecured Debt Securities), dated as of August 1, 1997, between IES Utilities Inc. and The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 4(j) to IESU's Registration Statement, File No. 333-32097) 4.14* The Original through the Nineteenth Supplemental Indentures of Interstate Power Company to The Chase Manhattan Bank and Carl E. Buckley and C. J. Heinzelmann, as Trustees, dated January 1, 1948 securing First Mortgage Bonds (incorporated by reference to Exhibits 4(b) through 4(t) to IPC's Registration Statement No. 33-59352 dated March 11, 1993) 4.15* Twentieth Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank and C. J. Heinzelmann, as Trustees, dated May 15, 1993 (incorporated by reference to Exhibit 4(u) to IPC's Registration Statement No. 33-59352 dated March 11, 1993) 10.1* Service Agreement by and among Wisconsin Power & Light Company, South Beloit Water, Gas and Electric Company, IES Utilities Inc., Interstate Power Company, and Alliant Services Company (incorporated by reference to Exhibit 10.1 to IEC's Form 10-Q for the quarter ended June 30, 1998) 10.2* Service Agreement by and among Alliant Industries, Inc., IPC Development Company, Inc. and Alliant Services Company (incorporated by reference to Exhibit 10.2 to IEC's Form 10-Q for the quarter ended June 30, 1998) 10.3* System Coordination and Operating Agreement dated April 11, 1997, among IES Utilities Inc., Interstate Power Company, Wisconsin Power & Light Company and Alliant Services, Inc. (incorporated by reference to Exhibit 10.3 to IEC's Form 10-Q for the quarter ended June 30, 1998) 10.4* Joint Power Supply Agreement among Wisconsin Public Service Corporation, Wisconsin Power and Light Company, and Madison Gas and Electric Company, dated February 2, 1967 (incorporated by reference to Exhibit 4.09 of Wisconsin Public Service Corporation in File No. 2-27308) 10.5* Joint Power Supply Agreement among Wisconsin Public Service Corporation, Wisconsin Power and Light Company, and Madison Gas and Electric Company, dated July 26, 1973 (incorporated by 69 reference to Exhibit 5.04A of Wisconsin Public Service Corporation in File No. 2-48781) 10.6* Basic Generating Agreement, Unit 4, Edgewater Generating Station, dated June 5, 1967, between Wisconsin Power and Light Company and Wisconsin Public Service Corporation (incorporated by reference to Exhibit 4.10 of Wisconsin Public Service Corporation in File No. 2-27308) 10.7* Agreement for Construction and Operation of Edgewater 5 Generating Unit, dated February 24, 1983, between Wisconsin Power and Light Company, Wisconsin Electric Power Company and Wisconsin Public Service Corporation (incorporated by reference to Exhibit 10C-1 to Wisconsin Public Service Corporation's Form 10-K for the year ended December 31, 1983 (File No. 1-3016)) 10.7a* Amendment No. 1 to Agreement for Construction and Operation of Edgewater 5 Generating Unit, dated December 1, 1988 (incorporated by reference to Exhibit 10C-2 to Wisconsin Public Service Corporation's Form 10-K for the year ended December 31, 1988 (File No. 1-3016)) 10.8* Revised Agreement for Construction and Operation of Columbia Generating Plant among Wisconsin Public Service Corporation, Wisconsin Power and Light Company, and Madison Gas and Electric Company, dated July 26, 1973 (incorporated by reference to Exhibit 5.07 of Wisconsin Public Service Corporation in File No. 2-48781) 10.9* Operating and Transmission Agreement between Central Iowa Power Cooperative and IESU (incorporated by reference to Exhibit 10(q) to IESU's Form 10-K for the year 1990) 10.10* Duane Arnold Energy Center Ownership Participation Agreement dated June 1, 1970 between Central Iowa Power Cooperative, Corn Belt Power Cooperative and IESU (incorporated by reference to Exhibit 5(kk) to IESU's Registration Statement, File No. 2-38674) 10.11* Duane Arnold Energy Center Operating Agreement dated June 1, 1970 between Central Iowa Power Cooperative, Corn Belt Power Cooperative and IESU (incorporated by reference to Exhibit 5(ll) to IESU's Registration Statement, File No. 2-38674) 10.12* Duane Arnold Energy Center Agreement for Transmission, Transformation, Switching, and Related Facilities dated June 1, 1970 between Central Iowa Power Cooperative, Corn Belt Power Cooperative and IESU (incorporated by reference to Exhibit 5(mm) to IESU's Registration Statement, File No. 2-38674) 10.13* Basic Generating Agreement dated April 16, 1975 between Iowa Public Service Company, Iowa Power and Light Company, Iowa-Illinois Gas and Electric Company and IESU for the joint ownership of Ottumwa Generating Station-Unit 1 (OGS-1) (incorporated by reference to Exhibit 1 to IESU's Form 10-K for the year 1977) 10.13a* Addendum Agreement to the Basic Generating Agreement for OGS-1 dated December 7, 1977 between Iowa Public Service Company, Iowa-Illinois Gas and Electric Company, Iowa Power and Light Company and IESU for the purchase of 15% ownership in OGS-1 (incorporated by reference to Exhibit 3 to IESU's Form 10-K for the year 1977) 10.14* Second Amended and Restated Credit Agreement dated as of September 17, 1987 between Arnold Fuel, Inc. and the First National Bank of Chicago and the Amended and Restated Consent and Agreement dated as of September 17, 1987 by IESU (incorporated by reference to Exhibit 10(j) to IESU's Form 10-K for the year 1987) 10.15#* Form of Supplemental Retirement Agreement (incorporated by reference to Exhibit 10.15 to IEC's Form 10-Q for the quarter ended June 30, 1998) 70 10.16#* Interstate Energy Corporation 1998 Officer Incentive Compensation Plan (incorporated by reference to Exhibit 10.16 to IEC's Form 10-Q for the quarter ended June 30, 1998) 10.17#* Interstate Energy Corporation Long-Term Incentive Program, revised July 1, 1998 (incorporated by reference to Exhibit 10.17 to IEC's Form 10-Q for the quarter ended June 30, 1998) 10.18#* Alliant Services Company Key Employee Deferred Compensation Plan (incorporated by reference to Exhibit 10.18 to IEC's Form 10-Q for the quarter ended June 30, 1998) 10.19#* Executive Tenure Compensation Plan as revised November 1992 (incorporated by reference to Exhibit 10A to IEC's Form 10-K for the year ended December 31, 1992) 10.19a#* Amendment to Executive Tenure Compensation Plan adopted February 23, 1998 (incorporated by reference to Exhibit 10.19a to IEC's Form 10-Q for the quarter ended June 30, 1998) 10.20#* Forms of Deferred Compensation Plans, as amended June, 1990 (incorporated by reference to Exhibit 10C to IEC's Form 10-K for the year ended December 31, 1990) 10.20a#* Officer's Deferred Compensation Plan II, as adopted September 1992 (incorporated by reference to Exhibit 10C.1 to IEC's Form 10-K for the year ended December 31, 1992) 10.20b#* Officer's Deferred Compensation Plan III, as adopted January 1993 (incorporated by reference to Exhibit 10C.2 to IEC's Form 10-K for the year ended December 31, 1993) 10.21#* Deferred Compensation Plan for Directors, as amended January 17, 1995 (incorporated by reference to Exhibit 10I to IEC's Form 10-K for the year ended December 31, 1995) 10.22#* Interstate Energy Corporation Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to IEC's Form 10-Q for the quarter ended June 30, 1994) 10.23#* Key Executive Employment and Severance Agreement by and between Interstate Energy Corporation and Erroll B. Davis, Jr. (incorporated by reference to Exhibit 4.2 to IEC's Form 10-Q for the quarter ended June 30, 1994) 10.23a#* Key Executive Employment and Severance Agreement by and between Interstate Energy Corporation and each of W.D. Harvey and E.G. Protsch (incorporated by reference to Exhibit 4.3 to IEC's Form 10-Q for the quarter ended June 30, 1994) 10.24#* Key Executive Employment and Severance Agreement by and between Interstate Energy Corporation and each of E.M. Gleason, B.J. Swan, D.A. Doyle, P.J. Wegner, C. Fulenwider and K.K. Zuhlke (incorporated by reference to Exhibit 4.4 to IEC's Form 10-Q for the quarter ended June 30, 1994) 10.25#* Severance Agreement by and between Interstate Energy Corporation and Lance W. Ahearn (incorporated by reference to Exhibit 10N to IEC's Form 10-K for the year ended December 31, 1997) 10.26#* Severance Agreement by and between Interstate Energy Corporation and Anthony J. Amato (incorporated by reference to Exhibit 10.28 to IEC's Form 10-Q for the quarter ended June 30, 1998) 10.27#* Early Retirement Agreement, dated as of October 7, 1998, by and between Interstate Energy Corporation et al. and Michael R. Chase (incorporated by reference to Exhibit 10.1 to IEC's Form 10-Q for the quarter ended September 30, 1998) 10.28#* Employment Agreement, dated as of April 21, 1998, by and between Interstate Energy Corporation and Erroll B. Davis, Jr. (incorporated by reference to Exhibit 10.1 to IEC's Form 8-K dated April 21, 1998) 71 10.29#* Employment Agreement, dated as of April 21, 1998, by and between Interstate Energy Corporation and Lee Liu (incorporated by reference to Exhibit 10.2 to IEC's Form 8-K dated April 21, 1998) 10.30#* Supplemental Retirement Plan (incorporated by reference to Exhibit 10(l) to IES's Form 10-K for the year ended December 31, 1987) 10.31#* Key Employee Deferred Compensation Plan (incorporated by reference to Exhibit 10(n) to IES's Form 10-K for the year ended December 31, 1987) 10.31a#* Amendments to Key Employee Deferred Compensation Agreement for Key Employees (incorporated by reference to Exhibit 10(v) to IES's Form 10-Q for the quarter ended March 31, 1990) 10.32#* Executive Guaranty Plan (incorporated by reference to Exhibit 10(p) to IES's Form 10-K for the year ended December 31, 1987) 10.33#* Executive Change of Control Severance Agreement - CEO (incorporated by reference to Exhibit 10(a) to IES's Form 10-Q for the quarter ended September 30, 1996) 10.34#* Executive Change of Control Severance Agreement - Vice Presidents (incorporated by reference to Exhibit 10(b) to IES's Form 10-Q for the quarter ended September 30, 1996) 10.35#* Executive Change of Control Severance Agreement - Other Officers (incorporated by reference to Exhibit 10(c) to IES's Form 10-Q for the quarter ended September 30, 1996) 10.36#* Amendments to Key Employee Deferred Compensation Agreement for Directors (incorporated by reference to Exhibit 10(u) to IES's Form 10-Q for the quarter ended March 31, 1990) 10.37#* IES Industries Inc. Grantor Trust for Director Retirement Plan (incorporated by reference to Exhibit 10(c) to IES's Form 10-Q for the quarter ended September 30, 1997) 10.38#* IES Industries Inc. Grantor Trust for Deferred Compensation Agreements (incorporated by reference to Exhibit 10(d) to IES's Form 10-Q for the quarter ended September 30, 1997) 10.39#* IES Industries Inc. Grantor Trust for Supplemental Retirement Agreements (incorporated by reference to Exhibit 10(e) to IES's Form 10-Q for the quarter ended September 30, 1997) 10.40#* IES Utilities Inc. Grantor Trust for Deferred Compensation Agreements (incorporated by reference to Exhibit 10(f) to IES's Form 10-Q for the quarter ended September 30, 1997) 10.41#* IES Utilities Inc. Grantor Trust for Supplemental Retirement Agreements (incorporated by reference to Exhibit 10(g) to IES's Form 10-Q for the quarter ended September 30, 1997) 10.42#* Interstate Power Company Irrevocable Trust Agreement dated April 30, 1990 (incorporated by reference to Exhibit 99.f to IPC's Form 10-K for the year ended December 31, 1993) 10.43#* Interstate Power Company Amended Deferred Compensation Plan as amended through January 30, 1990 (incorporated by reference to Exhibit 99.e to IPC's Form 10-K for the year ended December 31, 1993) 10.44#* Interstate Power Company Supplemental Retirement Plan as amended and restated November 10, 1995 and December 9, 1997 (incorporated by reference to Exhibit 99.5 to IPC's Form 10-K for the year ended December 31, 1997) 72 10.45#* Interstate Power Company Irrevocable Trust Agreement dated December 1997 (incorporated by reference to Exhibit 99.7 to IPC's Form 10-K for the year ended December 31, 1997) 10.46# Early Retirement Agreement, dated as of December 4, 1998, by and between Interstate Energy Corporation et al. and Richard R. Ewers+ 10.47 Stockholders' Agreement entered into as of November 18, 1998, by and among McLeodUSA Incorporated, Alliant Energy Investments, Inc. (formerly known as IES Investments Inc.) and certain other principal stockholders of McLeodUSA Incorporated+ 21 Subsidiaries of Interstate Energy Corporation+ 23 Consent of Independent Public Accountants for Interstate Energy Corporation 27.1 Financial Data Schedule for Interstate Energy Corporation at and for the period ended December 31, 1998+ 27.2 Restated Financial Data Schedule for Interstate Energy Corporation at and for the period ended June 30, 1998+ 27.3 Restated Financial Data Schedule for Interstate Energy Corporation at and for the period ended March 31, 1998+ 27.4 Restated Financial Data Schedule for Interstate Energy Corporation at and for the period ended June 30, 1997+ 27.5 Restated Financial Data Schedule for Interstate Energy Corporation at and for the period ended March 31, 1997+ 27.6 Restated Financial Data Schedule for Interstate Energy Corporation at and for the period ended December 31, 1996+ 27.7 Financial Data Schedule for IES Utilities Inc. at and for the period ended December 31, 1998+ 27.8 Restated Financial Data Schedule for IES Utilities Inc. at and for the period ended March 31, 1998+ 27.9 Restated Financial Data Schedule for IES Utilities Inc. at and for the period ended December 31, 1997+ 27.10 Restated Financial Data Schedule for IES Utilities Inc. at and for the period ended March 31, 1997+ 27.11 Restated Financial Data Schedule for IES Utilities Inc. at and for the period ended December 31, 1996+ 27.12 Financial Data Schedule for Wisconsin Power and Light Company at and for the period ended December 31, 1998+ + Previously filed. Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrants agree to furnish to the Securities and Exchange Commission, upon request, any instrument defining the rights of holders of unregistered long-term debt not filed as an exhibit to this Form 10-K. No such instrument authorizes securities in excess of 10% of the total assets of IEC, WP&L or IESU, as the case may be. Documents incorporated by reference to filings made by IEC under the Securities Exchange Act of 1934, as 73 amended, are under File No. 1-9894. Documents incorporated by reference to filings made by WP&L under the Securities Exchange Act of 1934, as amended, are under File No. 0-337. Documents incorporated by reference to filings made by IES under the Securities Exchange Act of 1934, as amended, are under File No. 1-9187. Documents incorporated by reference to filings made by IESU under the Securities Exchange Act of 1934, as amended, are under File No. 0-4117-1. Documents incorporated by reference to filings made by IPC under the Securities Exchange Act of 1934, as amended, are under File No. 1-3632. # - A management contract or compensatory plan or arrangement. (b) Reports on Form 8-K Wisconsin Power and Light Company filed a Current Report on Form 8-K, dated October 27, 1998, reporting (under Item 5) that on October 27, 1998, Wisconsin Power and Light Company agreed to sell $60,000,000 principal amount of its 5.70% Debentures due October 15, 2008 in a public offering. Interstate Energy Corporation filed a Current Report on Form 8-K, dated January 20, 1999, reporting (under Item 5) that on January 20, 1999 the Board of Directors of Interstate Energy Corporation adopted a series of amendments to the Bylaws of Interstate Energy Corporation. Interstate Energy Corporation filed a Current Report on Form 8-K, dated January 20, 1999, reporting (under Item 5) that on January 20, 1999, the Board of Directors of Interstate Energy Corporation declared a dividend of one common share purchase right for each outstanding share of common stock, $.01 par value, of Interstate Energy Corporation. The description and terms of the common share purchase rights are set forth in a Rights Agreement dated January 20, 1999 between Interstate Energy Corporation and Firstar Bank Milwaukee, N.A., as Rights Agent. IESU - none. 74 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Alliant Energy Corporation, IES Utilities Inc. and Wisconsin Power and Light Company have each duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized on the 1st day of November 1999. ALLIANT ENERGY CORPORATION - -------------------------- Registrant By:/s/ John E. Ebright Vice President-Controller (Principal Accounting John E. Ebright Officer) IES UTILITIES INC. - ------------------ Registrant By:/s/ John E. Ebright Vice President-Controller (Principal Accounting John E. Ebright Officer) WISCONSIN POWER AND LIGHT COMPANY - --------------------------------- Registrant By:/s/ John E. Ebright Vice President-Controller (Principal Accounting John E. Ebright Officer) 75 EX-23 2 CONSENT OF INDEPENDANT PUBLIC ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports on the consolidated financial statements of Interstate Energy Corporation (name changed to Alliant Energy Corporation as of May 20, 1999) included in this Form 10-K/A into Interstate Energy Corporation's previously filed Registration Statements on Form S-8 (Nos. 333-41485 and 333-46735) and Form S-3 (Nos. 333-26627 and 333-87883). ARTHUR ANDERSEN LLP Milwaukee, Wisconsin October 29, 1999 -----END PRIVACY-ENHANCED MESSAGE-----