UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 ------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ <TABLE> <CAPTION> Commission Name of Registrant, State of Incorporation, IRS Employer File Number Address of Principal Executive Offices and Telephone Number Identification Number - ----------- ----------------------------------------------------------- --------------------- <S> <C> <C> 1-9894 ALLIANT ENERGY CORPORATION 39-1380265 (a Wisconsin corporation) 222 West Washington Avenue Madison, Wisconsin 53703 Telephone (608)252-3311 0-4117-1 IES UTILITIES INC. 42-0331370 (an Iowa corporation) Alliant Energy Tower Cedar Rapids, Iowa 52401 Telephone (319)398-4411 0-337 WISCONSIN POWER AND LIGHT COMPANY 39-0714890 (a Wisconsin corporation) 222 West Washington Avenue Madison, Wisconsin 53703 Telephone (608)252-3311 </TABLE> Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No ------- ------- This combined Form 10-Q is separately filed by Alliant Energy Corporation, IES Utilities Inc. and Wisconsin Power and Light Company. Information contained in the quarterly report relating to IES Utilities Inc. and Wisconsin Power and Light Company is filed by such registrant on its own behalf. Each of IES Utilities Inc. and Wisconsin Power and Light Company makes no representation as to information relating to registrants other than itself. Number of shares outstanding of each class of common stock as of July 31, 2001: Alliant Energy Common stock, $.01 par value, 79,106,573 Corporation shares outstanding IES Utilities Inc. Common stock, $2.50 par value, 13,370,788 shares outstanding (all of which are owned beneficially and of record by Alliant Energy Corporation) Wisconsin Power and Common stock, $5 par value, 13,236,601 shares Light Company outstanding (all of which are owned beneficially and of record by Alliant Energy Corporation)
CONTENTS <TABLE> <CAPTION> Page ---- <S> <C> <C> Part I. Financial Information 4 Item 1. Consolidated Financial Statements 4 Alliant Energy Corporation: --------------------------- Consolidated Statements of Income for the Three and Six Months Ended June 30, 2001 and 2000 4 Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000 7 Notes to Consolidated Financial Statements 8 IES Utilities Inc.: ------------------- Consolidated Statements of Income for the Three and Six Months Ended June 30, 2001 and 2000 16 Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 17 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000 19 Notes to Consolidated Financial Statements 20 Wisconsin Power and Light Company: ---------------------------------- Consolidated Statements of Income for the Three and Six Months Ended June 30, 2001 and 2000 22 Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 23 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000 25 Notes to Consolidated Financial Statements 26 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 28 Item 3. Quantitative and Qualitative Disclosures About Market Risk 40 Part II. Other Information 41 Item 1. Legal Proceedings 41 Item 4. Submission of Matters to a Vote of Security Holders 41 Item 6. Exhibits and Reports on Form 8-K 43 Signatures 44 </TABLE> 2
DEFINITIONS <TABLE> <CAPTION> Certain abbreviations or acronyms used in the text and notes of this combined Form 10-Q are defined below: <S> <C> Abbreviation or Acronym Definition - ----------------------- ---------- Alliant Energy...................................... Alliant Energy Corporation ATC................................................. American Transmission Company, LLC Capstone............................................ Capstone Turbine Corporation Cargill-Alliant..................................... Cargill-Alliant, L.L.C. Corporate Services.................................. Alliant Energy Corporate Services, Inc. Dth................................................. Dekatherm EAC................................................. Energy Adjustment Clause FAC................................................. Fuel Adjustment Clause FASB................................................ Financial Accounting Standards Board IESU................................................ IES Utilities Inc. IPC................................................. Interstate Power Company IRS................................................. Internal Revenue Service IUB................................................. Iowa Utilities Board Kewaunee............................................ Kewaunee Nuclear Power Plant MAIN................................................ Mid-America Interconnected Network, Inc. MAPP................................................ Mid-Continent Area Power Pool McLeod.............................................. McLeodUSA Incorporated MD&A................................................ Management's Discussion and Analysis of Financial Condition and Results of Operations MW.................................................. Megawatt MWh................................................. Megawatt-Hour NRC................................................. Nuclear Regulatory Commission OCA................................................. Office of Consumer Advocate PGA................................................. Purchased Gas Adjustment PSCW................................................ Public Service Commission of Wisconsin PUHCA............................................... Public Utility Holding Company Act of 1935 Resources........................................... Alliant Energy Resources, Inc. SEC................................................. Securities and Exchange Commission SFAS................................................ Statement of Financial Accounting Standards South Beloit........................................ South Beloit Water, Gas & Electric Company U.S. ............................................... United States Whiting............................................. Whiting Petroleum Corporation WP&L................................................ Wisconsin Power and Light Company WUHCA............................................... Wisconsin Utility Holding Company Act </TABLE> 3
<TABLE> <CAPTION> PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) <S> <C> <C> <C> <C> Operating revenues: Electric utility $435,487 $393,843 $847,430 $767,465 Gas utility 63,432 54,653 353,250 184,787 Non-regulated and other 112,922 75,389 263,874 145,695 ------------- ------------- ------------- ------------- 611,841 523,885 1,464,554 1,097,947 ------------- ------------- ------------- ------------- - ------------------------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 77,962 64,113 153,146 133,385 Purchased power 111,114 74,792 209,847 137,137 Cost of utility gas sold 42,066 31,869 280,324 113,982 Other operation and maintenance 196,986 188,362 435,182 358,040 Depreciation and amortization 86,154 77,970 170,776 153,881 Taxes other than income taxes 29,541 26,612 57,985 52,965 ------------- ------------- ------------- ------------- 543,823 463,718 1,307,260 949,390 ------------- ------------- ------------- ------------- - ------------------------------------------------------------------------------------------------------------------------- Operating income 68,018 60,167 157,294 148,557 ------------- ------------- ------------- ------------- - ------------------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 47,587 41,794 97,331 82,412 Contingent interest on indexed senior notes - (39,493) - - Equity income from unconsolidated investments (8,739) (1,565) (19,078) (2,708) Allowance for funds used during construction (3,170) (2,885) (5,472) (4,639) Preferred dividend requirements of subsidiaries 1,680 1,678 3,360 3,356 Gain on sale of McLeodUSA Inc. stock - - - (10,206) Miscellaneous, net (3,956) (7,678) (5,106) (19,732) ------------- ------------- ------------- ------------- 33,402 (8,149) 71,035 48,483 ------------- ------------- ------------- ------------- - ------------------------------------------------------------------------------------------------------------------------- Income before income taxes 34,616 68,316 86,259 100,074 ------------- ------------- ------------- ------------- - ------------------------------------------------------------------------------------------------------------------------- Income taxes 11,316 26,038 29,574 38,476 ------------- ------------- ------------- ------------- - ------------------------------------------------------------------------------------------------------------------------- Net income $23,300 $42,278 $56,685 $61,598 ============= ============= ============= ============= - ------------------------------------------------------------------------------------------------------------------------- Average number of common shares outstanding (diluted) 79,175 79,012 79,187 79,223 ============= ============= ============= ============= - ------------------------------------------------------------------------------------------------------------------------- Earnings per average common share (basic and diluted) $0.29 $0.54 $0.72 $0.78 ============= ============= ============= ============= - ------------------------------------------------------------------------------------------------------------------------- Dividends declared per common share $0.50 $0.50 $1.00 $1.00 ============= ============= ============= ============= - ------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 4
<TABLE> <CAPTION> ALLIANT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS June 30, 2001 December 31, ASSETS (Unaudited) 2000 - ---------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> Property, plant and equipment: Utility - Plant in service - Electric $4,953,101 $5,203,069 Gas 582,459 574,390 Other 501,949 474,116 ---------------- ---------------- 6,037,509 6,251,575 Less - Accumulated depreciation 3,283,129 3,296,546 ---------------- ---------------- 2,754,380 2,955,029 Construction work in progress 168,289 130,856 Nuclear fuel, net of amortization 58,158 61,935 ---------------- ---------------- 2,980,827 3,147,820 Other property, plant and equipment, net of accumulated depreciation and amortization of $222,375 and $209,072, respectively 650,241 571,487 ---------------- ---------------- 3,631,068 3,719,307 ---------------- ---------------- - ---------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 88,836 148,415 Restricted cash 44,179 3,512 Accounts receivable: Customer, less allowance for doubtful accounts of $4,478 and $3,762, respectively 93,738 122,895 Unbilled utility revenues 60,932 124,515 Other, less allowance for doubtful accounts of $639 and $484, respectively 34,775 45,829 Production fuel, at average cost 40,840 46,627 Materials and supplies, at average cost 56,485 55,930 Gas stored underground, at average cost 27,696 41,359 Regulatory assets 18,235 29,348 Prepaid gross receipts tax 24,381 23,088 Other 62,796 69,463 ---------------- ---------------- 552,893 710,981 ---------------- ---------------- - ---------------------------------------------------------------------------------------------------------- Investments: Investment in available-for-sale securities of McLeodUSA Inc. 185,516 569,951 Investment in trading securities of McLeodUSA Inc. 71,761 220,912 Investments in unconsolidated foreign entities 540,393 507,655 Nuclear decommissioning trust funds 315,303 307,940 Other 252,583 132,203 ---------------- ---------------- 1,365,556 1,738,661 ---------------- ---------------- - ---------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 268,020 270,779 Deferred charges and other 288,871 294,038 ---------------- ---------------- 556,891 564,817 ---------------- ---------------- - ---------------------------------------------------------------------------------------------------------- Total assets $6,106,408 $6,733,766 ================ ================ - ---------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 5
<TABLE> <CAPTION> ALLIANT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (Continued) June 30, 2001 December 31, CAPITALIZATION AND LIABILITIES (Unaudited) 2000 - ------------------------------------------------------------------------------------------------------------------ (in thousands, except share amounts) <S> <C> <C> Capitalization: Common stock - $0.01 par value - authorized 200,000,000 shares; outstanding 79,049,994 and 79,010,114 shares, respectively $790 $790 Additional paid-in capital 949,609 947,504 Retained earnings 795,863 818,162 Accumulated other comprehensive income (loss) (36,395) 271,867 Shares in deferred compensation trust - 67,018 and 28,825 shares at an average cost of $30.79 and $29.52 per share, respectively (2,063) (851) ------------------ ------------------ Total common equity 1,707,804 2,037,472 ------------------ ------------------ Cumulative preferred stock of subsidiaries, net 113,871 113,790 Long-term debt (excluding current portion) 2,262,147 1,910,116 ------------------ ------------------ 4,083,822 4,061,378 ------------------ ------------------ - ------------------------------------------------------------------------------------------------------------------ Current liabilities: Current maturities and sinking funds 31,045 92,477 Variable rate demand bonds 55,100 55,100 Commercial paper 243,611 283,885 Notes payable 56 50,067 Other short-term borrowings 85,882 110,783 Accounts payable 203,895 296,959 Accrued taxes 71,090 87,484 Other 162,356 177,580 ------------------ ------------------ 853,035 1,154,335 ------------------ ------------------ - ------------------------------------------------------------------------------------------------------------------ Other long-term liabilities and deferred credits: Accumulated deferred income taxes 751,533 931,675 Accumulated deferred investment tax credits 61,672 67,364 Pension and other benefit obligations 68,244 65,399 Environmental liabilities 62,359 64,532 Derivative liability 43,863 181,925 Other 181,880 207,158 ------------------ ------------------ 1,169,551 1,518,053 ------------------ ------------------ - ------------------------------------------------------------------------------------------------------------------ Total capitalization and liabilities $6,106,408 $6,733,766 ================== ================== - ------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 6
<TABLE> <CAPTION> ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, 2001 2000 - ---------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> Cash flows from operating activities: Net income $56,685 $61,598 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 170,776 153,881 Amortization of nuclear fuel 8,514 8,903 Amortization of deferred energy efficiency expenditures 13,370 12,908 Deferred tax benefits and investment tax credits (13,882) (4,818) Gains on dispositions of assets, net (6,584) (11,950) Equity income from unconsolidated investments, net (19,078) (2,708) Other 503 (6,137) Other changes in assets and liabilities: Accounts receivable 103,794 12,867 Accounts payable (86,559) (8,578) Benefit obligations and other (6,701) (17,211) ------------------ ------------------ Net cash flows from operating activities 220,838 198,755 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends declared (78,984) (78,987) Net change in Resources' credit facility 142,500 49,152 Proceeds from issuance of exchangeable senior notes - 402,500 Proceeds from issuance of other long-term debt 202,459 117,866 Reductions in other long-term debt (70,154) (61,793) Net change in other short-term borrowings (168,657) (24,332) Other (36,142) (20,016) ------------------ ------------------ Net cash flows from (used for) financing activities (8,978) 384,390 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Construction and acquisition expenditures: Utility operations (163,799) (136,347) Non-regulated businesses and other (197,181) (517,991) Nuclear decommissioning trust funds (17,658) (17,658) Proceeds from formation of ATC and other asset dispositions 106,538 14,994 Other 661 (7,943) ------------------ ------------------ Net cash flows used for investing activities (271,439) (664,945) ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------- Net decrease in cash and temporary cash investments (59,579) (81,800) ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 148,415 113,669 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $88,836 $31,869 ================== ================== - ---------------------------------------------------------------------------------------------------------- Supplemental cash flows information: Cash paid during the period for: Interest $95,352 $76,759 ================== ================== Income taxes $53,270 $60,073 ================== ================== Noncash investing and financing activities: Capital lease obligations incurred and other $19,664 $277 ================== ================== - ---------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 7
ALLIANT ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The interim consolidated financial statements included herein have been prepared by Alliant Energy, without audit, pursuant to the rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although management believes that the disclosures are adequate to make the information presented not misleading. The consolidated financial statements include Alliant Energy and its consolidated subsidiaries (including IESU, WP&L, IPC, Resources and Corporate Services). These financial statements should be read in conjunction with the financial statements and the notes thereto included in Alliant Energy's, IESU's and WP&L's latest Annual Report on Form 10-K. In the opinion of management, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of (a) the consolidated results of operations for the three and six months ended June 30, 2001 and 2000, (b) the consolidated financial position at June 30, 2001 and December 31, 2000, and (c) the consolidated statement of cash flows for the six months ended June 30, 2001 and 2000, have been made. Because of the seasonal nature of Alliant Energy's utility operations, results for the three and six months ended June 30, 2001 are not necessarily indicative of results that may be expected for the year ending December 31, 2001. Certain prior period amounts have been reclassified on a basis consistent with the 2001 presentation. 2. Alliant Energy's comprehensive income (loss), and the components of other comprehensive income (loss), net of taxes, were as follows (in thousands): <TABLE> <CAPTION> For the Three Months For the Six Months Ended June 30, Ended June 30, 2001 2000 2001 2000 -------------- -------------- --------------- ------------- <S> <C> <C> <C> <C> Net income $23,300 $42,278 $56,685 $61,598 Other comprehensive income (loss): Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period, net of tax (1) (102,465) (215,621) (230,085) 68,837 Less: reclassification adjustment for gains included in net income, net of tax (2) -- -- -- 6,328 -------------- -------------- --------------- ------------- Net unrealized gains (losses) on securities (102,465) (215,621) (230,085) 62,509 -------------- -------------- --------------- ------------- Foreign currency translation adjustments (20,052) (19,135) (69,795) (18,218) -------------- -------------- --------------- ------------- Unrealized losses on derivatives qualified as hedges: Unrealized holding losses arising during period, net of tax (12,434) -- (12,164) -- Less: reclassification adjustment for gains (losses) included in net income, net of tax 15 -- (3,782) -- -------------- -------------- --------------- ------------- Net unrealized losses on qualifying derivatives (12,449) -- (8,382) -- -------------- -------------- --------------- ------------- Other comprehensive income (loss) (134,966) (234,756) (308,262) 44,291 -------------- -------------- --------------- ------------- Comprehensive income (loss) ($111,666) ($192,478) ($251,577) $105,889 ============== ============== =============== ============= </TABLE> (1) Primarily due to quarterly adjustments to the estimated fair value of Alliant Energy's investments in available-for-sale securities of McLeod and Capstone. (2) The first quarter 2000 earnings included a pre-tax gain of $10.2 million ($0.08 per basic and diluted share) from the sale of 450,000 shares of McLeod stock held by Alliant Energy. Alliant Energy still owned approximately 56 million shares of McLeod stock as of June 30, 2001. 8
3. Various differences exist between segment reporting information for the non-regulated businesses and Resources' information in Alliant Energy's condensed consolidating financial statements in Note 8 due to Alliant Energy's investment in Cargill-Alliant being recorded on Alliant Energy's parent-only books for legal reporting, but included with the non-regulated businesses information for segment reporting (Alliant Energy considers this business as part of its non-regulated business for management reporting). The "Net income (loss)" line item was impacted. The "Net income (loss)" line item is not allocated to the electric and gas segments for management reporting purposes and therefore is included in "Other." Intersegment revenues were not material to Alliant Energy's operations. Certain financial information relating to Alliant Energy's significant business segments is presented below: <TABLE> <CAPTION> Regulated Domestic Utilities Non- Alliant --------------------------------------------------- regulated Energy Electric Gas Other Total Businesses Other Consolidated ------------------------------------------------------------------------------------------------ (in thousands) <S> <C> <C> <C> <C> <C> <C> <C> Three Months Ended June 30, 2001 - -------------------------------- Operating revenues $435,487 $63,432 $8,618 $507,537 $105,888 ($1,584) $611,841 Operating income (loss) 59,709 (5,097) 1,589 56,201 11,579 238 68,018 Net income (loss) 22,065 22,065 3,577 (2,342) 23,300 Three Months Ended June 30, 2000 - -------------------------------- Operating revenues $393,843 $54,653 $7,422 $455,918 $68,629 ($662) $523,885 Operating income (loss) 61,034 (4,746) 740 57,028 3,251 (112) 60,167 Net income 20,042 20,042 21,972 264 42,278 Six Months Ended June 30, 2001 - ------------------------------ Operating revenues $847,430 $353,250 $19,414 $1,220,094 $246,800 ($2,340) $1,464,554 Operating income 116,283 14,384 2,481 133,148 23,460 686 157,294 Net income (loss) 55,393 55,393 4,758 (3,466) 56,685 Six Months Ended June 30, 2000 - ------------------------------ Operating revenues $767,465 $184,787 $15,578 $967,830 $131,304 ($1,187) $1,097,947 Operating income (loss) 124,872 14,105 2,520 141,497 7,194 (134) 148,557 Net income (loss) 59,109 59,109 5,860 (3,371) 61,598 </TABLE> Resources' (i.e., the non-regulated businesses) assets decreased $506 million during the first six months of 2001, primarily due to the decrease in market value of its investment in McLeod. Non-regulated income for the three and six months ended June 30, 2001 included after-tax charges to net income of $4.6 million and $7.4 million, respectively, for non-cash valuation adjustments related to Alliant Energy's obligation under certain 30-year exchangeable senior notes. Non-regulated income for the three months ended June 30, 2000 included a reversal of the $24.8 million after-tax non-cash charge to net income recorded in the first quarter of 2000 relating to the valuation of the 30-year exchangeable senior notes. 4. The provisions for income taxes are based on the estimated annual effective tax rate, which differs from the federal statutory rate of 35 percent principally due to state income taxes, tax credits, effects of utility rate making and certain non-deductible expenses. 9
5. In January 2001, Resources acquired a stake in another Brazilian electric utility. As of June 30, 2001, the total investment in this Brazilian electric utility was approximately $98 million, of which approximately $60 million was paid in January 2001 and the remainder is expected to be paid by the end of the first quarter of 2002. This investment is accounted for under the equity method of accounting. WP&L, including South Beloit, transferred its transmission assets with no gain or loss (approximate net book value of $177 million) to ATC on January 1, 2001. In the second quarter of 2001, WP&L received cash of $75 million and at June 30, 2001, had a $109 million equity investment in ATC, with an ownership percentage of approximately 26 percent. WP&L accounts for its investment in ATC under the equity method. 6. Alliant Energy continues to utilize derivative instruments to manage its exposures to various market risks as described in Alliant Energy's, IESU's and WP&L's Annual Report on Form 10-K for the year ended December 31, 2000. The following information supplements, and should be read in conjunction with, Note 10(a) in Alliant Energy's "Notes to Consolidated Financial Statements" in the 2000 Annual Report on Form 10-K. For the six months ended June 30, 2001, income of $4.1 million was recognized relating to the amount of hedge ineffectiveness in accordance with SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." As of June 30, 2001, the maximum length of time over which Alliant Energy is hedging its exposure to the variability in future cash flows for forecasted transactions is 9 months and Alliant Energy estimates that gains of $0.9 million will be reclassified from accumulated other comprehensive income into earnings within the twelve months between July 1, 2001 and June 30, 2002 as the hedged transactions affect earnings. Included in "Miscellaneous, net" in Alliant Energy's Consolidated Statements of Income for the six months ended June 30, 2001 was expense of $149.2 million related to the change in value of the McLeod trading securities, partially offset by income of $138.1 million related to the change in value of the derivative component of the exchangeable senior notes. 7. In March 2001, IESU issued $200 million of senior unsecured debentures at a fixed interest rate of 6-3/4%, due 2011. IESU used a portion of the net proceeds to repay short-term debt and long-term debt, and a portion will be used to retire $21 million of long-term debt maturing in the third quarter of 2001. 8. Alliant Energy has fully and unconditionally guaranteed the payment of principal and interest on various debt issued by Resources and, as a result, is required to present condensed consolidating financial statements. No other Alliant Energy subsidiaries are guarantors of Resources' debt issuances. Alliant Energy's condensed consolidating financial statements are as follows: 10
<TABLE> <CAPTION> Alliant Energy Corporation Condensed Consolidating Statements of Income Three Months Ended June 30, 2001 and 2000 (in thousands) Alliant Other Energy Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Three Months Ended June 30, 2001 - -------------------------------- Operating revenues: Electric utility $- $- $435,487 $- $435,487 Gas utility - - 63,432 - 63,432 Non-regulated and other - 105,887 72,624 (65,589) 112,922 ------------------------------------------------------------------------ - 105,887 571,543 (65,589) 611,841 ------------------------------------------------------------------------ Operating expenses: Electric and steam production fuels - - 77,962 - 77,962 Purchased power - - 111,114 - 111,114 Cost of utility gas sold - - 42,066 - 42,066 Other operation and maintenance 304 73,270 186,306 (62,894) 196,986 Depreciation and amortization - 16,950 69,204 - 86,154 Taxes other than income taxes - 4,088 28,049 (2,596) 29,541 ------------------------------------------------------------------------ 304 94,308 514,701 (65,490) 543,823 ------------------------------------------------------------------------ Operating income (loss) (304) 11,579 56,842 (99) 68,018 ------------------------------------------------------------------------ Interest expense and other: Interest expense 2,837 17,136 29,895 (2,281) 47,587 Equity income from unconsolidated investments (2,091) (3,095) (3,553) - (8,739) Allowance for funds used during construction - - (3,170) - (3,170) Preferred dividend requirements of subsidiaries - - 1,680 - 1,680 Miscellaneous, net (24,851) (443) (5,247) 26,585 (3,956) ------------------------------------------------------------------------ (24,105) 13,598 19,605 24,304 33,402 ------------------------------------------------------------------------ Income (loss) before income taxes 23,801 (2,019) 37,237 (24,403) 34,616 ------------------------------------------------------------------------ Income tax expense (benefit) 501 (4,237) 15,152 (100) 11,316 ------------------------------------------------------------------------ Net income (loss) $23,300 $2,218 $22,085 ($24,303) $23,300 ======================================================================== Three Months Ended June 30, 2000 - -------------------------------- Operating revenues: Electric utility $- $- $393,843 $- $393,843 Gas utility - - 54,653 - 54,653 Non-regulated and other - 68,629 76,670 (69,910) 75,389 ------------------------------------------------------------------------ - 68,629 525,166 (69,910) 523,885 ------------------------------------------------------------------------ Operating expenses: Electric and steam production fuels - - 64,113 - 64,113 Purchased power - - 74,792 - 74,792 Cost of utility gas sold - - 31,869 - 31,869 Other operation and maintenance 352 52,466 202,881 (67,337) 188,362 Depreciation and amortization - 9,836 68,134 - 77,970 Taxes other than income taxes - 3,076 25,566 (2,030) 26,612 ------------------------------------------------------------------------ 352 65,378 467,355 (69,367) 463,718 ------------------------------------------------------------------------ Operating income (loss) (352) 3,251 57,811 (543) 60,167 ------------------------------------------------------------------------ Interest expense and other: Interest expense 3,865 12,103 29,810 (3,984) 41,794 Contingent interest on indexed senior notes - (39,493) - - (39,493) Equity (income) loss from unconsolidated investments (2,453) 1,083 (195) - (1,565) Allowance for funds used during construction - - (2,885) - (2,885) Preferred dividend requirements of subsidiaries - - 1,678 - 1,678 Miscellaneous, net (44,250) (1,845) (5,985) 44,402 (7,678) ------------------------------------------------------------------------ (42,838) (28,152) 22,423 40,418 (8,149) ------------------------------------------------------------------------ Income (loss) before income taxes 42,486 31,403 35,388 (40,961) 68,316 ------------------------------------------------------------------------ Income tax expense (benefit) 208 11,025 15,348 (543) 26,038 ------------------------------------------------------------------------ Net income (loss) $42,278 $20,378 $20,040 ($40,418) $42,278 ======================================================================== </TABLE> 11
<TABLE> <CAPTION> Alliant Energy Corporation Condensed Consolidating Statements of Income Six Months Ended June 30, 2001 and 2000 (in thousands) Alliant Other Energy Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ---------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Six Months Ended June 30, 2001 - ------------------------------ Operating revenues: Electric utility $- $- $847,430 $- $847,430 Gas utility - - 353,250 - 353,250 Non-regulated and other - 246,800 138,528 (121,454) 263,874 ------------------------------------------------------------------------- - 246,800 1,339,208 (121,454) 1,464,554 ------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels - - 153,146 - 153,146 Purchased power - - 209,847 - 209,847 Cost of utility gas sold - - 280,324 - 280,324 Other operation and maintenance 304 182,582 369,173 (116,877) 435,182 Depreciation and amortization - 32,118 138,658 - 170,776 Taxes other than income taxes - 8,640 53,882 (4,537) 57,985 ------------------------------------------------------------------------- 304 223,340 1,205,030 (121,414) 1,307,260 ------------------------------------------------------------------------- Operating income (loss) (304) 23,460 134,178 (40) 157,294 ------------------------------------------------------------------------- Interest expense and other: Interest expense 7,855 35,313 61,296 (7,133) 97,331 Equity income from unconsolidated investments (5,094) (5,492) (8,492) - (19,078) Allowance for funds used during construction - - (5,472) - (5,472) Preferred dividend requirements of subsidiaries - - 3,360 - 3,360 Miscellaneous, net (60,163) 290 (9,256) 64,023 (5,106) ------------------------------------------------------------------------- (57,402) 30,111 41,436 56,890 71,035 ------------------------------------------------------------------------- Income (loss) before income taxes 57,098 (6,651) 92,742 (56,930) 86,259 ------------------------------------------------------------------------- Income tax expense (benefit) 413 (8,098) 37,299 (40) 29,574 ------------------------------------------------------------------------- Net income (loss) $56,685 $1,447 $55,443 ($56,890) $56,685 ========================================================================= Six Months Ended June 30, 2000 - ------------------------------ Operating revenues: Electric utility $- $- $767,465 $- $767,465 Gas utility - - 184,787 - 184,787 Non-regulated and other - 131,304 131,167 (116,776) 145,695 ------------------------------------------------------------------------- - 131,304 1,083,419 (116,776) 1,097,947 ------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels - - 133,385 - 133,385 Purchased power - - 137,137 - 137,137 Cost of utility gas sold - - 113,982 - 113,982 Other operation and maintenance 414 99,886 369,923 (112,183) 358,040 Depreciation and amortization - 17,834 136,047 - 153,881 Taxes other than income taxes - 6,390 50,551 (3,976) 52,965 ------------------------------------------------------------------------- 414 124,110 941,025 (116,159) 949,390 ------------------------------------------------------------------------- Operating income (loss) (414) 7,194 142,394 (617) 148,557 ------------------------------------------------------------------------- Interest expense and other: Interest expense 7,492 23,467 59,986 (8,533) 82,412 Equity (income) loss from unconsolidated investments (2,601) 180 (287) - (2,708) Allowance for funds used during construction - - (4,639) - (4,639) Preferred dividend requirements of subsidiaries - - 3,356 - 3,356 Gain on sale of McLeodUSA Inc. stock - (10,206) - - (10,206) Miscellaneous, net (69,496) (5,294) (16,752) 71,810 (19,732) ------------------------------------------------------------------------- (64,605) 8,147 41,664 63,277 48,483 ------------------------------------------------------------------------- Income (loss) before income taxes 64,191 (953) 100,730 (63,894) 100,074 ------------------------------------------------------------------------- Income tax expense (benefit) 2,593 (5,123) 41,623 (617) 38,476 ------------------------------------------------------------------------- Net income (loss) $61,598 $4,170 $59,107 ($63,277) $61,598 ========================================================================= </TABLE> 12
<TABLE> <CAPTION> Alliant Energy Corporation Condensed Consolidating Balance Sheet As of June 30, 2001 (in thousands) Alliant Other Energy Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> ASSETS Property, plant and equipment: Utility - Plant in service - Electric $- $- $4,953,101 $- $4,953,101 Other - - 1,084,408 - 1,084,408 ------------------------------------------------------------------- - - 6,037,509 - 6,037,509 Less - Accumulated depreciation - - 3,283,129 - 3,283,129 Construction work in progress - - 168,289 - 168,289 Nuclear fuel, net of amortization - - 58,158 - 58,158 Other property, plant and equipment, net - 617,523 32,829 (111) 650,241 ------------------------------------------------------------------- - 617,523 3,013,656 (111) 3,631,068 ------------------------------------------------------------------- Current assets: Cash and temporary cash investments 12,783 46,059 29,994 - 88,836 Restricted cash - 43,084 1,095 - 44,179 Accounts receivable, net 2,330 86,127 185,463 (84,475) 189,445 Production fuel, at average cost - 879 39,961 - 40,840 Materials and supplies, at average cost - 4,132 52,353 - 56,485 Gas stored underground, at average cost - 2,781 24,915 - 27,696 Regulatory assets - - 18,235 - 18,235 Other 79,998 35,089 89,411 (117,321) 87,177 ------------------------------------------------------------------- 95,111 218,151 441,427 (201,796) 552,893 ------------------------------------------------------------------- Investments: Consolidated subsidiaries 1,834,660 - - (1,834,660) - Investment in available-for-sale securities of McLeodUSA Inc. - 185,516 - - 185,516 Investment in trading securities of McLeodUSA Inc. - 71,761 - - 71,761 Other 35,912 618,594 453,788 (15) 1,108,279 ------------------------------------------------------------------- 1,870,572 875,871 453,788 (1,834,675) 1,365,556 ------------------------------------------------------------------- ------------------------------------------------------------------- Deferred charges and other - 95,252 461,639 - 556,891 ------------------------------------------------------------------- Total assets $1,965,683 $1,806,797 $4,370,510 ($2,036,582) $6,106,408 =================================================================== CAPITALIZATION AND LIABILITIES Capitalization: Common stock and additional paid-in capital $950,399 $232,743 $753,457 ($986,200) $950,399 Retained earnings 795,967 175,459 709,411 (884,974) 795,863 Accumulated other comprehensive income (loss) (36,395) (37,254) 859 36,395 (36,395) Shares in deferred compensation trust (2,063) - - - (2,063) ------------------------------------------------------------------- Total common equity 1,707,908 370,948 1,463,727 (1,834,779) 1,707,804 ------------------------------------------------------------------- Cumulative preferred stock of subsidiaries, net - - 113,871 - 113,871 Long-term debt (excluding current portion) 24,000 856,544 1,381,603 - 2,262,147 ------------------------------------------------------------------- 1,731,908 1,227,492 2,959,201 (1,834,779) 4,083,822 ------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds - 9,485 21,560 - 31,045 Notes payable - 56 - - 56 Other short-term borrowings - 85,882 - - 85,882 Accounts payable 474 44,669 243,226 (84,474) 203,895 Accrued taxes - 11,556 59,534 - 71,090 Other 231,601 64,359 282,430 (117,323) 461,067 ------------------------------------------------------------------- 232,075 216,007 606,750 (201,797) 853,035 ------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes (6,373) 247,941 509,965 - 751,533 Derivative liability - 43,863 - - 43,863 Other 8,073 71,494 294,594 (6) 374,155 ------------------------------------------------------------------- 1,700 363,298 804,559 (6) 1,169,551 ------------------------------------------------------------------- Total capitalization and liabilities $1,965,683 $1,806,797 $4,370,510 ($2,036,582) $6,106,408 =================================================================== </TABLE> 13
<TABLE> <CAPTION> Alliant Energy Corporation Condensed Consolidating Balance Sheet As of December 31, 2000 (in thousands) Alliant Other Energy Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> ASSETS Property, plant and equipment: Utility - Plant in service - Electric $- $- $5,203,069 $- $5,203,069 Other - - 1,048,506 - 1,048,506 ------------------------------------------------------------------- - - 6,251,575 - 6,251,575 Less - Accumulated depreciation - - 3,296,546 - 3,296,546 Construction work in progress - - 130,856 - 130,856 Nuclear fuel, net of amortization - - 61,935 - 61,935 Other property, plant and equipment, net - 553,911 17,687 (111) 571,487 ------------------------------------------------------------------- - 553,911 3,165,507 (111) 3,719,307 ------------------------------------------------------------------- Current assets: Cash and temporary cash investments 574 133,957 13,884 - 148,415 Restricted cash - 2,866 646 - 3,512 Accounts receivable, net 2,955 113,261 274,103 (97,080) 293,239 Production fuel, at average cost - 1,379 45,248 - 46,627 Materials and supplies, at average cost - 2,086 53,844 - 55,930 Gas stored underground, at average cost - 2,983 38,376 - 41,359 Regulatory assets - - 29,348 - 29,348 Other 220,628 27,309 60,179 (215,565) 92,551 ------------------------------------------------------------------- 224,157 283,841 515,628 (312,645) 710,981 ------------------------------------------------------------------- Investments: Consolidated subsidiaries 1,884,976 - - (1,884,976) - Investment in available-for-sale securities of McLeodUSA Inc. - 569,951 - - 569,951 Investment in trading securities of McLeodUSA Inc. - 220,912 - - 220,912 Other 30,511 579,803 337,484 - 947,798 ------------------------------------------------------------------- 1,915,487 1,370,666 337,484 (1,884,976) 1,738,661 ------------------------------------------------------------------- ------------------------------------------------------------------- Deferred charges and other - 104,339 460,478 - 564,817 ------------------------------------------------------------------- Total assets $2,139,644 $2,312,757 $4,479,097 ($2,197,732) $6,733,766 =================================================================== CAPITALIZATION AND LIABILITIES Capitalization: Common stock and additional paid-in capital $948,294 $232,684 $753,392 ($986,076) $948,294 Retained earnings 818,266 174,012 724,889 (899,005) 818,162 Accumulated other comprehensive income (loss) - 276,591 (4,724) - 271,867 Shares in deferred compensation trust (851) - - - (851) ------------------------------------------------------------------- Total common equity 1,765,709 683,287 1,473,557 (1,885,081) 2,037,472 ------------------------------------------------------------------- Cumulative preferred stock of subsidiaries, net - - 113,790 - 113,790 Long-term debt (excluding current portion) 24,000 731,736 1,154,380 - 1,910,116 ------------------------------------------------------------------- 1,789,709 1,415,023 2,741,727 (1,885,081) 4,061,378 ------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds - 10,917 81,560 - 92,477 Notes payable 50,000 67 - - 50,067 Other short-term borrowings - 110,783 - - 110,783 Accounts payable 12,554 53,463 328,022 (97,080) 296,959 Accrued taxes - 21,916 65,568 - 87,484 Other 285,012 49,259 397,859 (215,565) 516,565 ------------------------------------------------------------------- 347,566 246,405 873,009 (312,645) 1,154,335 ------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes (6,415) 411,614 526,476 - 931,675 Derivative liability - 181,925 - - 181,925 Other 8,784 57,790 337,885 (6) 404,453 ------------------------------------------------------------------- 2,369 651,329 864,361 (6) 1,518,053 ------------------------------------------------------------------- Total capitalization and liabilities $2,139,644 $2,312,757 $4,479,097 ($2,197,732) $6,733,766 =================================================================== </TABLE> 14
<TABLE> <CAPTION> Alliant Energy Corporation Condensed Consolidating Statements of Cash Flows Six Months Ended June 30, 2001 and 2000 (in thousands) Alliant Energy Other Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Six Months Ended June 30, 2001 - ------------------------------ Net cash flows from (used for) operating activities $39,996 $41,479 $199,613 ($60,250) $220,838 ------------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends declared (78,984) - (70,922) 70,922 (78,984) Net change in Resources' credit facility - 142,500 - - 142,500 Proceeds from issuance of other long-term debt - 2,459 200,000 - 202,459 Reductions in other long-term debt - (9,594) (60,560) - (70,154) Net change in other short-term borrowings (103,274) (65,383) - - (168,657) Other 140,580 (40,358) (139,599) 3,235 (36,142) ------------------------------------------------------------------- Net cash flows from (used for) financing activities (41,678) 29,624 (71,081) 74,157 (8,978) ------------------------------------------------------------------- Cash flows from (used for) investing activities: Construction and acquisition expenditures: Utility operations - - (163,799) - (163,799) Non-regulated businesses and other - (197,181) - - (197,181) Proceeds from formation of ATC and other asset dispositions - 31,895 74,643 - 106,538 Other 13,891 6,285 (23,266) (13,907) (16,997) ------------------------------------------------------------------- Net cash flows from (used for) investing activities 13,891 (159,001) (112,422) (13,907) (271,439) ------------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments 12,209 (87,898) 16,110 - (59,579) ------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 574 133,957 13,884 - 148,415 ------------------------------------------------------------------- Cash and temporary cash investments at end of period $12,783 $46,059 $29,994 $- $88,836 =================================================================== Supplemental cash flows information: Cash paid (refunded) during the period for: Interest $8,135 $35,502 $51,715 $- $95,352 =================================================================== Income taxes $1,702 ($11,360) $62,928 $- $53,270 =================================================================== Noncash investing and financing activities: Capital lease obligations incurred and other $- $- $19,664 $- $19,664 =================================================================== Six Months Ended June 30, 2000 - ------------------------------ Net cash flows from (used for) operating activities $60,082 $1,420 $203,887 ($66,634) $198,755 ------------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends declared (78,987) - (40,170) 40,170 (78,987) Net change in Resources' credit facility - 49,152 - - 49,152 Proceeds from issuance of exchangeable senior notes - 402,500 - - 402,500 Proceeds from issuance of other long-term debt - 17,866 100,000 - 117,866 Reductions in other long-term debt - (10,597) (51,196) - (61,793) Net change in other short-term borrowings (24,330) (2) - - (24,332) Other 38,288 (13,240) (47,124) 2,060 (20,016) ------------------------------------------------------------------- Net cash flows from (used for) financing activities (65,029) 445,679 (38,490) 42,230 384,390 ------------------------------------------------------------------- Cash flows from (used for) investing activities: Construction and acquisition expenditures: Utility operations - - (136,347) - (136,347) Non-regulated businesses and other - (513,485) (4,506) - (517,991) Proceeds from dispositions of assets - 13,568 1,426 - 14,994 Other (23,305) 1,243 (27,943) 24,404 (25,601) ------------------------------------------------------------------- Net cash flows from (used for) investing activities (23,305) (498,674) (167,370) 24,404 (664,945) ------------------------------------------------------------------- Net decrease in cash and temporary cash investments (28,252) (51,575) (1,973) - (81,800) ------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 28,647 65,086 19,936 - 113,669 ------------------------------------------------------------------- Cash and temporary cash investments at end of period $395 $13,511 $17,963 $- $31,869 =================================================================== Supplemental cash flows information: Cash paid (refunded) during the period for: Interest $7,492 $19,796 $49,471 $- $76,759 =================================================================== Income taxes ($101) ($358) $60,532 $- $60,073 =================================================================== Noncash investing and financing activities: Capital lease obligations incurred $- $- $277 $- $277 =================================================================== </TABLE> 15
<TABLE> <CAPTION> IES UTILITIES INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> <C> <C> Operating revenues: Electric utility $185,095 $148,327 $340,226 $294,035 Gas utility 31,233 27,445 158,429 86,874 Steam 7,390 6,185 17,033 13,172 --------------- --------------- ----------------- --------------- 223,718 181,957 515,688 394,081 --------------- --------------- ----------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 38,172 28,995 64,924 61,634 Purchased power 43,617 17,718 76,443 31,140 Cost of gas sold 21,720 16,964 125,223 55,038 Other operation and maintenance 57,916 56,939 117,539 110,705 Depreciation and amortization 27,550 26,849 55,076 53,699 Taxes other than income taxes 12,250 12,057 23,206 23,932 --------------- --------------- ----------------- --------------- 201,225 159,522 462,411 336,148 --------------- --------------- ----------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------- Operating income 22,493 22,435 53,277 57,933 --------------- --------------- ----------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 12,934 12,584 26,035 25,595 Allowance for funds used during construction (1,590) (573) (2,579) (1,063) Miscellaneous, net (2,336) (1,415) (4,388) (6,166) --------------- --------------- ----------------- --------------- 9,008 10,596 19,068 18,366 --------------- --------------- ----------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 13,485 11,839 34,209 39,567 --------------- --------------- ----------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------- Income taxes 5,305 5,294 13,337 16,912 --------------- --------------- ----------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------- Net income 8,180 6,545 20,872 22,655 --------------- --------------- ----------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------- Preferred dividend requirements 229 229 457 457 --------------- --------------- ----------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------- Earnings available for common stock $7,951 $6,316 $20,415 $22,198 =============== =============== ================= =============== - ------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 16
<TABLE> <CAPTION> IES UTILITIES INC. CONSOLIDATED BALANCE SHEETS June 30, 2001 December 31, ASSETS (Unaudited) 2000 - -------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> Property, plant and equipment: Utility - Plant in service - Electric $2,278,922 $2,253,695 Gas 225,888 221,949 Steam 59,554 59,416 Common 164,146 146,536 ----------------- ----------------- 2,728,510 2,681,596 Less - Accumulated depreciation 1,449,731 1,392,766 ----------------- ----------------- 1,278,779 1,288,830 Construction work in progress 87,782 58,352 Leased nuclear fuel, net of amortization 44,137 45,836 ----------------- ----------------- 1,410,698 1,393,018 Other property, plant and equipment, net of accumulated depreciation and amortization of $2,403 and $2,239, respectively 6,042 6,189 ----------------- ----------------- 1,416,740 1,399,207 ----------------- ----------------- - -------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 9,478 6,755 Temporary cash investments with associated companies 41,840 - Accounts receivable: Customer, less allowance for doubtful accounts of $608 and $587, respectively 9,975 54,660 Associated companies 1,528 2,696 Other, less allowance for doubtful accounts of $517 and $373, respectively 8,521 17,329 Production fuel, at average cost 11,022 11,088 Materials and supplies, at average cost 24,302 26,232 Gas stored underground, at average cost 7,187 19,290 Adjustment clause balances - 14,776 Regulatory assets 6,306 14,839 Prepayments and other 2,805 3,442 ----------------- ----------------- 122,964 171,107 ----------------- ----------------- - -------------------------------------------------------------------------------------------------------------- Investments: Nuclear decommissioning trust funds 115,558 112,172 Other 6,281 6,276 ----------------- ----------------- 121,839 118,448 ----------------- ----------------- - -------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 115,697 117,574 Deferred charges and other 16,689 12,970 ----------------- ----------------- 132,386 130,544 ----------------- ----------------- - -------------------------------------------------------------------------------------------------------------- Total assets $1,793,929 $1,819,306 ================= ================= - -------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 17
<TABLE> <CAPTION> IES UTILITIES INC. CONSOLIDATED BALANCE SHEETS (Continued) June 30, 2001 December 31, CAPITALIZATION AND LIABILITIES (Unaudited) 2000 - -------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) <S> <C> <C> Capitalization: Common stock - $2.50 par value - authorized 24,000,000 shares; 13,370,788 shares outstanding $33,427 $33,427 Additional paid-in capital 279,042 279,042 Retained earnings 258,927 267,829 Accumulated other comprehensive loss - (18) ------------------ ----------------- Total common equity 571,396 580,280 ------------------ ----------------- Cumulative preferred stock 18,320 18,320 Long-term debt (excluding current portion) 696,870 469,771 ------------------ ----------------- 1,286,586 1,068,371 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds 21,560 81,560 Capital lease obligations 16,620 12,651 Notes payable to associated companies - 101,095 Accounts payable 29,996 65,898 Accounts payable to associated companies 30,101 30,375 Accrued interest 14,303 10,843 Accrued taxes 45,457 48,069 Other 22,297 28,921 ------------------ ----------------- 180,334 379,412 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 212,330 224,164 Accumulated deferred investment tax credits 23,607 25,063 Environmental liabilities 27,601 29,521 Pension and other benefit obligations 25,162 26,884 Capital lease obligations 27,517 33,185 Other 10,792 32,706 ------------------ ----------------- 327,009 371,523 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $1,793,929 $1,819,306 ================== ================= - -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 18
<TABLE> <CAPTION> IES UTILITIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, 2001 2000 - ----------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> Cash flows from operating activities: Net income $20,872 $22,655 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 55,076 53,699 Amortization of leased nuclear fuel 5,687 6,730 Amortization of deferred energy efficiency expenditures 8,143 7,319 Deferred taxes and investment tax credits (7,804) (616) Refueling outage provision (6,097) 4,811 Other (227) (309) Other changes in assets and liabilities: Accounts receivable 54,661 12,699 Gas stored underground 12,103 3,085 Accounts payable (32,594) 1,727 Adjustment clause balances 17,760 9,482 Manufactured gas plants insurance refunds (21,181) - Benefit obligations and other (7,197) (7,499) ----------------- ----------------- Net cash flows from operating activities 99,202 113,783 ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends declared (29,317) (29,316) Preferred stock dividends (457) (457) Proceeds from issuance of long-term debt 200,000 - Reductions in long-term debt (60,560) (51,196) Net change in short-term borrowings (101,095) 27,797 Principal payments under capital lease obligations (4,933) (5,239) Other 8,630 (229) ----------------- ----------------- Net cash flows from (used for) financing activities 12,268 (58,640) ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Utility construction expenditures (61,007) (53,783) Nuclear decommissioning trust funds (3,004) (3,004) Other (2,896) 249 ----------------- ----------------- Net cash flows used for investing activities (66,907) (56,538) ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments 44,563 (1,395) ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 6,755 5,720 ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $51,318 $4,325 ================= ================= - ----------------------------------------------------------------------------------------------------------------- Supplemental cash flows information: Cash paid during the period for: Interest $22,477 $24,317 ================= ================= Income taxes $24,387 $24,158 ================= ================= Noncash investing and financing activities - Capital lease obligations incurred and other $19,664 $277 ================= ================= - ----------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 19
IES UTILITIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Except as modified below, the Alliant Energy Notes to Consolidated Financial Statements are incorporated by reference insofar as they relate to IESU. 1. The interim consolidated financial statements included herein have been prepared by IESU, without audit, pursuant to the rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although management believes that the disclosures are adequate to make the information presented not misleading. IESU is a subsidiary of Alliant Energy. These financial statements should be read in conjunction with the financial statements and the notes thereto included in IESU's latest Annual Report on Form 10-K. In the opinion of management, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of (a) the consolidated results of operations for the three and six months ended June 30, 2001 and 2000, (b) the consolidated financial position at June 30, 2001 and December 31, 2000, and (c) the consolidated statement of cash flows for the six months ended June 30, 2001 and 2000, have been made. Because of the seasonal nature of IESU's operations, results for the three and six months ended June 30, 2001 are not necessarily indicative of results that may be expected for the year ending December 31, 2001. 2. IESU's comprehensive income, and the components of other comprehensive income, net of taxes, were as follows (in thousands): <TABLE> <CAPTION> For the Three Months For the Six Months Ended June 30, Ended June 30, 2001 2000 2001 2000 --------------------------------- --------------------------------- <S> <C> <C> <C> <C> Earnings available for common stock $7,951 $6,316 $20,415 $22,198 Other comprehensive income: Reclassification adjustment for losses included in earnings available for common stock related to derivatives qualified as hedges, net of tax -- -- 18 -- --------------- --------------- --------------- --------------- Other comprehensive income -- -- 18 -- --------------- --------------- --------------- --------------- Comprehensive income $7,951 $6,316 $20,433 $22,198 =============== =============== =============== =============== </TABLE> 20
3. Certain financial information relating to IESU's significant business segments is presented below. Intersegment revenues were not material to IESU's operations. <TABLE> <CAPTION> Electric Gas Other Total ----------------------------------------------------------------- (in thousands) <S> <C> <C> <C> <C> Three Months Ended June 30, 2001 - -------------------------------- Operating revenues $185,095 $31,233 $7,390 $223,718 Operating income (loss) 22,331 (1,059) 1,221 22,493 Earnings available for common stock 7,951 7,951 Three Months Ended June 30, 2000 - -------------------------------- Operating revenues $148,327 $27,445 $6,185 $181,957 Operating income (loss) 24,092 (1,992) 335 22,435 Earnings available for common stock 6,316 6,316 Six Months Ended June 30, 2001 - ------------------------------ Operating revenues $340,226 $158,429 $17,033 $515,688 Operating income 42,435 8,914 1,928 53,277 Earnings available for common stock 20,415 20,415 Six Months Ended June 30, 2000 - ------------------------------ Operating revenues $294,035 $86,874 $13,172 $394,081 Operating income 50,777 5,422 1,734 57,933 Earnings available for common stock 22,198 22,198 </TABLE> 4. On April 23, 2001, shareowners of IESU and IPC approved, among other things, the merger of IPC with and into IESU. The merger is currently expected to be completed by January 1, 2002. 21
<TABLE> <CAPTION> WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------ (in thousands) <S> <C> <C> <C> <C> Operating revenues: Electric utility $178,297 $173,111 $368,688 $335,487 Gas utility 24,605 19,515 150,237 74,801 Water 1,228 1,239 2,381 2,409 --------------- --------------- --------------- --------------- 204,130 193,865 521,306 412,697 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Operating expenses: Electric production fuels 28,195 26,703 63,267 50,501 Purchased power 50,796 38,063 103,166 71,820 Cost of gas sold 15,825 9,638 122,077 44,967 Other operation and maintenance 45,072 54,319 90,707 100,184 Depreciation and amortization 32,281 32,599 64,846 64,976 Taxes other than income taxes 8,553 7,417 16,859 14,628 --------------- --------------- --------------- --------------- 180,722 168,739 460,922 347,076 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Operating income 23,408 25,126 60,384 65,621 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Interest expense and other: Interest expense 11,330 11,228 22,526 22,136 Equity income from unconsolidated investments (3,497) (199) (8,347) (291) Allowance for funds used during construction (1,323) (2,088) (2,440) (3,150) Miscellaneous, net (1,785) (2,154) (1,304) (6,141) --------------- --------------- --------------- --------------- 4,725 6,787 10,435 12,554 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Income before income taxes 18,683 18,339 49,949 53,067 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Income taxes 7,132 7,041 19,132 19,898 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Net income 11,551 11,298 30,817 33,169 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Preferred dividend requirements 828 828 1,656 1,656 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Earnings available for common stock $10,723 $10,470 $29,161 $31,513 =============== =============== =============== =============== - ------------------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 22
<TABLE> <CAPTION> WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS June 30, 2001 December 31, ASSETS (Unaudited) 2000 - --------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> Property, plant and equipment: Utility - Plant in service - Electric $1,721,358 $2,007,974 Gas 276,483 273,457 Water 29,815 29,869 Common 233,328 223,921 ----------------- ------------------ 2,260,984 2,535,221 Less - Accumulated depreciation 1,291,978 1,380,723 ----------------- ------------------ 969,006 1,154,498 Construction work in progress 60,179 59,133 Nuclear fuel, net of amortization 14,021 16,099 ----------------- ------------------ 1,043,206 1,229,730 Other property, plant and equipment, net of accumulated depreciation and amortization of $195 for both periods 379 369 ----------------- ------------------ 1,043,585 1,230,099 ----------------- ------------------ - --------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 6,245 2,584 Accounts receivable: Customer 55,197 51,769 Associated companies 781 2,211 Other 9,927 13,865 Production fuel, at average cost 12,721 17,811 Materials and supplies, at average cost 22,000 21,639 Gas stored underground, at average cost 15,844 13,876 Prepaid gross receipts tax 24,381 23,088 Other 15,770 6,397 ----------------- ------------------ 162,866 153,240 ----------------- ------------------ - --------------------------------------------------------------------------------------------------------------- Investments: Nuclear decommissioning trust funds 199,745 195,768 Other 123,183 14,362 ----------------- ------------------ 322,928 210,130 ----------------- ------------------ - --------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 87,802 88,721 Deferred charges and other 174,710 174,834 ----------------- ------------------ 262,512 263,555 ----------------- ------------------ - --------------------------------------------------------------------------------------------------------------- Total assets $1,791,891 $1,857,024 ================= ================== - --------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 23
<TABLE> <CAPTION> WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS (Continued) June 30, 2001 December 31, CAPITALIZATION AND LIABILITIES (Unaudited) 2000 - -------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) <S> <C> <C> Capitalization: Common stock - $5 par value - authorized 18,000,000 shares; 13,236,601 shares outstanding $66,183 $66,183 Additional paid-in capital 229,597 229,516 Retained earnings 370,011 371,602 Accumulated other comprehensive income (loss) 859 (4,708) ------------------ ----------------- Total common equity 666,650 662,593 ------------------ ----------------- Cumulative preferred stock 59,963 59,963 Long-term debt (excluding current portion) 514,286 514,209 ------------------ ----------------- 1,240,899 1,236,765 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Current liabilities: Variable rate demand bonds 55,100 55,100 Notes payable to associated companies 25,027 29,244 Accounts payable 78,114 120,155 Accounts payable to associated companies 35,742 32,442 Other 28,012 36,266 ------------------ ----------------- 221,995 273,207 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 219,994 222,819 Accumulated deferred investment tax credits 25,754 29,472 Customer advances 33,350 34,815 Environmental liabilities 7,527 7,564 Other 42,372 52,382 ------------------ ----------------- 328,997 347,052 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $1,791,891 $1,857,024 ================== ================= - -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 24
<TABLE> <CAPTION> WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------ (in thousands) <S> <C> <C> Cash flows from operating activities: Net income $30,817 $33,169 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 64,846 64,976 Amortization of nuclear fuel 2,827 2,173 Deferred taxes and investment tax credits (6,014) (6,721) Equity income from unconsolidated investments, net (8,347) (291) Other (4,756) (6,230) Other changes in assets and liabilities: Accounts receivable 1,940 8,651 Accounts payable (37,440) (9,579) Benefit obligations and other 2,264 540 --------------------- ------------------- Net cash flows from operating activities 46,137 86,688 --------------------- ------------------- - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from (used for) financing activities: Common stock dividends (30,752) - Preferred stock dividends (1,656) (1,656) Proceeds from issuance of long-term debt - 100,000 Net change in short-term borrowings (4,217) (96,958) Other 82 (1,319) --------------------- ------------------- Net cash flows from (used for) financing activities (36,543) 67 --------------------- ------------------- - ------------------------------------------------------------------------------------------------------------------------------ Cash flows used for investing activities: Utility construction expenditures (66,259) (60,214) Nuclear decommissioning trust funds (14,654) (14,654) Proceeds from formation of ATC 74,643 - Other 337 (6,846) --------------------- ------------------- Net cash flows used for investing activities (5,933) (81,714) --------------------- ------------------- - ------------------------------------------------------------------------------------------------------------------------------ Net increase in cash and temporary cash investments 3,661 5,041 --------------------- ------------------- - ------------------------------------------------------------------------------------------------------------------------------ Cash and temporary cash investments at beginning of period 2,584 3,555 --------------------- ------------------- - ------------------------------------------------------------------------------------------------------------------------------ Cash and temporary cash investments at end of period $6,245 $8,596 ===================== =================== - ------------------------------------------------------------------------------------------------------------------------------ Supplemental cash flows information: Cash paid during the period for: Interest $22,160 $18,418 ===================== =================== Income taxes $30,617 $30,016 ===================== =================== - ------------------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 25
WISCONSIN POWER AND LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Except as modified below, the Alliant Energy Notes to Consolidated Financial Statements are incorporated by reference insofar as they relate to WP&L. 1. The interim consolidated financial statements included herein have been prepared by WP&L, without audit, pursuant to the rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although management believes that the disclosures are adequate to make the information presented not misleading. The consolidated financial statements include WP&L and its consolidated subsidiaries, including WPL Transco LLC and South Beloit. WP&L is a subsidiary of Alliant Energy. These financial statements should be read in conjunction with the financial statements and the notes thereto included in WP&L's latest Annual Report on Form 10-K. In the opinion of management, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of (a) the consolidated results of operations for the three and six months ended June 30, 2001 and 2000, (b) the consolidated financial position at June 30, 2001 and December 31, 2000, and (c) the consolidated statement of cash flows for the six months ended June 30, 2001 and 2000, have been made. Because of the seasonal nature of WP&L's operations, results for the three and six months ended June 30, 2001 are not necessarily indicative of results that may be expected for the year ending December 31, 2001. 2. WP&L's comprehensive income, and the components of other comprehensive income, net of taxes, were as follows (in thousands): <TABLE> <CAPTION> For the Three Months For the Six Months Ended June 30, Ended June 30, 2001 2000 2001 2000 ------------------------------- ------------------------------ <S> <C> <C> <C> <C> Earnings available for common stock $10,723 $10,470 $29,161 $31,513 Other comprehensive income: Unrealized gains on derivatives qualified as hedges: Unrealized holding gains arising during period, net of tax 837 -- 1,801 -- Less: reclassification adjustment for gains (losses) included in earnings available for common stock, net of tax 15 -- (3,766) -- -------------- --------------- -------------- -------------- Net unrealized gains on qualifying derivatives 822 -- 5,567 -- -------------- --------------- -------------- -------------- Other comprehensive income 822 -- 5,567 -- -------------- --------------- -------------- -------------- Comprehensive income $11,545 $10,470 $34,728 $31,513 ============== =============== ============== ============== </TABLE> 26
3. Certain financial information relating to WP&L's significant business segments is presented below. Intersegment revenues were not material to WP&L's operations. <TABLE> <CAPTION> Electric Gas Other Total ------------------------------------------------------------------ (in thousands) <S> <C> <C> <C> <C> Three Months Ended June 30, 2001 - -------------------------------- Operating revenues $178,297 $24,605 $1,228 $204,130 Operating income (loss) 26,165 (3,125) 368 23,408 Earnings available for common stock 10,723 10,723 Three Months Ended June 30, 2000 - -------------------------------- Operating revenues $173,111 $19,515 $1,239 $193,865 Operating income (loss) 25,737 (1,017) 406 25,126 Earnings available for common stock 10,470 10,470 Six Months Ended June 30, 2001 - ------------------------------ Operating revenues $368,688 $150,237 $2,381 $521,306 Operating income 56,836 2,995 553 60,384 Earnings available for common stock 29,161 29,161 Six Months Ended June 30, 2000 - ------------------------------ Operating revenues $335,487 $74,801 $2,409 $412,697 Operating income 56,796 8,039 786 65,621 Earnings available for common stock 31,513 31,513 </TABLE> 27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The primary first tier subsidiaries of Alliant Energy include: WP&L, IESU, IPC, Resources and Corporate Services. Among various other regulatory constraints, Alliant Energy is operating as a registered public utility holding company subject to the limitations imposed by PUHCA. This MD&A includes information relating to Alliant Energy, IESU and WP&L (as well as IPC, Resources and Corporate Services). Where appropriate, information relating to a specific entity has been segregated and labeled as such. The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this report as well as the financial statements, notes and MD&A included in Alliant Energy's, IESU's and WP&L's latest Annual Report on Form 10-K. FORWARD-LOOKING STATEMENTS Statements contained in this report (including MD&A) that are not of historical fact are forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, such statements. Some, but not all, of the risks and uncertainties include: factors listed in the "Outlook" section; weather effects on sales and revenues; general economic conditions in the utility subsidiaries' service territories; federal, state and international regulatory or government actions, including issues associated with the deregulation of the domestic utility industry and the setting of rates and recovery of costs; unanticipated construction and acquisition expenditures; issues related to stranded costs and the recovery thereof; unanticipated issues related to the supply of purchased electricity and price thereof; unexpected issues related to the operations of Alliant Energy's nuclear facilities; unanticipated costs associated with certain environmental remediation efforts being undertaken by Alliant Energy; Alliant Energy's ability to successfully implement its growth strategy, including the acquisition and operation of foreign companies; unanticipated developments that adversely impact Alliant Energy's strategy to grow its non-regulated businesses; material changes in the value of Alliant Energy's investments in McLeod and Capstone; technological developments; employee workforce factors, including changes in key executives, collective bargaining agreements or work stoppages; political, legal, economic and exchange rate conditions in foreign countries in which Alliant Energy has investments; and changes in the rate of inflation. UTILITY INDUSTRY REVIEW A summary of the current regulatory environment is included in the Form 10-K filed by Alliant Energy, IESU and WP&L for the year ended December 31, 2000. Set forth below are several developments relating to such regulatory environment that have occurred since the start of the current year. Rates and Regulatory Matters - In January 2001, the IUB issued an - ---------------------------- order requiring IESU and IPC to file a joint fuel procurement plan in May 2001 for the purpose of evaluating the reasonableness of the Iowa utilities' fuel procurement contracts. This filing was completed in May 2001. While IESU and IPC cannot predict the outcome of this process, hearings are scheduled for October 2001. In April 2001, the OCA requested certain financial information from IESU related to the electric utility operations within the state of Iowa. IESU filed its response with the OCA in June 2001. In July 2001, the OCA requested certain financial information from IPC related to the electric utility operations within the state of Iowa. IPC is in the process of preparing its responses. While IESU and IPC cannot predict the outcomes of this process, such data requests could lead to an effort by the OCA to seek an electric rate reduction for IESU and/or IPC in Iowa. In December 2000, WP&L requested a $73 million annual retail electric rate increase from the PSCW to cover increases in WP&L's 2001 fuel costs due to the continued increases in natural gas prices which impact WP&L's generation costs, and the increased costs of purchased-power. The PSCW approved a $46 million interim retail electric rate increase effective February 8, 2001, which was replaced with a $58 million final increase effective June 19, 2001. The final order includes a refund provision for fuel costs collected in rates that are in excess of actual fuel costs incurred. In July 2001, WP&L 28
filed a motion for rehearing, alleging that the PSCW committed material factual and legal errors in the final order relating to the recovery of certain costs and the refund mechanism. In August 2001, the PSCW denied the request for rehearing. In 2000, the NRC raised several areas of concern with Kewaunee's operations. Addressing the concerns raised by the NRC is expected to result in additional operating costs to WP&L in 2001 of approximately $8 million. Additional operating costs to WP&L over the period of 2002 through 2005 are estimated to be approximately $25 million. In April 2001, the PSCW approved the deferral of such incremental costs incurred after March 27, 2001. In July 2001, WP&L requested a $19.2 million retail electric rate increase from the PSCW to recover a portion of the costs associated with the increased Kewaunee operating costs, and the replacement of the steam generators at Kewaunee (scheduled to be replaced during an estimated 71-day outage beginning in September 2001). WP&L expects that the remainder of the additional operating costs related to Kewaunee will be recovered through future base rate filings with the PSCW. The NRC has indicated that, with the actions already taken at Kewaunee, the only remaining issues relating to that facility are of a low safety significance. The expenditures at Kewaunee that were not deferred and which are not subject to the rate increase request did not have a material impact on earnings. The last of Alliant Energy's price freezes related to its 1998 three-way merger will expire in the second quarter of 2002. In August 2001, WP&L filed a request with the PSCW for new base rates, which focus on investments in reliability, customer service, technology and environmental upgrades, as well as investments in its infrastructure. The filing applies to retail electric ($85.9 million), natural gas ($26.1 million) and water ($1.1 million) rates. WP&L expects that any rate increases will take effect some time after April 14, 2002. WP&L also plans to file a request later in 2001 for new wholesale electric base rates. IESU and IPC are in the process of reviewing whether they will need to file electric and/or gas base rate cases with the IUB in the first half of 2002. At this time, there are no plans for filing new base rate cases in Illinois or Minnesota. Alliant Energy complies with the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation." SFAS 71 provides that rate-regulated public utilities record certain costs and credits allowed in the rate making process in different periods than for non-regulated entities. These are deferred as regulatory assets or accrued as regulatory liabilities and are recognized in the Consolidated Statements of Income at the time they are reflected in rates. If a portion of the utility's operations no longer complies with SFAS 71, a write-down of related regulatory assets and possibly other charges would be required, unless some form of transition cost recovery is established by the appropriate regulatory body that meets the requirements under generally accepted accounting principles for continued accounting as regulatory assets during such recovery period. In addition, each utility would be required to determine any impairment of other assets and write-down any impaired assets to their fair value. Alliant Energy believes its utility subsidiaries currently meet the requirements of SFAS 71. ALLIANT ENERGY RESULTS OF OPERATIONS Unless otherwise noted, all "per share" references in the Results of Operations section refer to earnings per diluted share. Overview - Second Quarter Results - Alliant Energy reported net - --------------------------------- income of $23.3 million, or $0.29 per share, for the second quarter of 2001, compared to net income of $42.3 million, or $0.54 per share, for the second quarter of 2000. Both periods included non-cash valuation adjustments related to Alliant Energy's obligation under certain 30-year exchangeable senior notes - a charge of $0.06 per share was recorded in the second quarter of 2001 while the second quarter of 2000 included income of $0.31 per share to reverse charges recorded in the first quarter of 2000. The earnings increase of $0.13 per share, excluding the non-cash valuation adjustments, was largely due to higher earnings from Alliant Energy's non-regulated operations, led by another significant increase in earnings from Alliant Energy's oil and gas business. Improved results from Alliant Energy's Brazil investments, the impact of lower interest rates and an increase in earnings from utility operations also contributed to the higher earnings. These items were partially offset by interest and amortization expenses from several recent acquisitions by Alliant Energy's integrated services business and increased corporate expenses at the Alliant Energy parent. 29
Second quarter 2001 utility earnings were $22.1 million ($0.28 per share) compared to $20.0 million ($0.25 per share) for the same period in 2000. The increase was primarily due to lower operating expenses. The non-regulated businesses reported net income of $3.6 million ($0.04 per share) in the second quarter of 2001, which included the non-cash valuation charge of $4.6 million ($0.06 per share), compared to net income of $22.0 million ($0.27 per share) in the second quarter of 2000, which included the non-cash valuation income of $24.8 million ($0.31 per share). Excluding these non-cash adjustments, Resources' earnings increased $0.14 per share. Earnings per share from Whiting increased from $0.04 per share in 2000 to $0.15 per share in 2001. Such increase was due to higher gas prices, increased oil and gas sales volumes and a gain realized on an asset sale. Improved results at the International business unit ($0.02 per share) were largely due to the Brazil investments, partially offset by a slight decrease in earnings from the China investments. Decreased earnings at the Integrated Services business unit ($0.04 per share) were largely due to additional goodwill amortization and interest expense from several acquisitions completed in December 2000. The impact of lower interest rates on Resources' variable rate borrowings also contributed to the increased earnings. Electric Utility Operations - Electric margins and MWh sales for - --------------------------- Alliant Energy for the three months ended June 30 were as follows: <TABLE> <CAPTION> Revenues and Costs MWhs Sold (in thousands) (in thousands) -------------------------------- -------------------------------- 2001 2000 Change 2001 2000 Change --------------- --------------- ---------- --------------- --------------- ---------- <S> <C> <C> <C> <C> <C> <C> Residential $135,034 $127,945 6% 1,549 1,535 1% Commercial 95,421 83,674 14% 1,330 1,260 6% Industrial 147,483 127,209 16% 3,217 3,367 (4%) --------------- --------------- --------------- --------------- Total from ultimate customers 377,938 338,828 12% 6,096 6,162 (1%) Sales for resale 46,783 43,717 7% 1,246 1,160 7% Other 10,766 11,298 (5%) 44 41 7% --------------- --------------- --------------- --------------- Total revenues/sales 435,487 393,843 11% 7,386 7,363 -- =============== =============== Electric production fuels expense 73,428 60,167 22% Purchased power expense 111,114 74,792 49% --------------- --------------- Margin $250,945 $258,884 (3%) =============== =============== </TABLE> Electric margins and MWh sales for Alliant Energy for the six months ended June 30 were as follows: <TABLE> <CAPTION> Revenues and Costs MWhs Sold (in thousands) (in thousands) -------------------------------- -------------------------------- 2001 2000 Change 2001 2000 Change --------------- --------------- ---------- --------------- --------------- ---------- <S> <C> <C> <C> <C> <C> <C> Residential $284,721 $262,940 8% 3,520 3,357 5% Commercial 180,475 161,524 12% 2,661 2,537 5% Industrial 264,150 238,753 11% 6,200 6,488 (4%) --------------- --------------- --------------- --------------- Total from ultimate customers 729,346 663,217 10% 12,381 12,382 -- Sales for resale 95,206 77,611 23% 2,502 2,365 6% Other 22,878 26,637 (14%) 86 88 (2%) --------------- --------------- --------------- --------------- Total revenues/sales 847,430 767,465 10% 14,969 14,835 1% =============== =============== Electric production fuels expense 141,701 125,713 13% Purchased power expense 209,847 137,137 53% --------------- --------------- Margin $495,882 $504,615 (2%) =============== =============== </TABLE> 30
Electric margin decreased $7.9 million, or 3%, and $8.7 million, or 2%, for the three- and six-month periods, respectively, primarily due to $10 million of income recorded in the second quarter of 2000 for a change in estimate of WP&L's utility services rendered but unbilled at month-end. This was largely offset by the impact of electric sales growth, including increased sales to higher-margin residential and commercial customers, and lower purchased-power costs in 2001. Also contributing to the six-month decrease were reduced energy conservation revenues. Favorable weather conditions yielded an estimated $11 million electric margin increase for the six months ended June 30, 2001, compared with the same period last year, when milder than normal weather conditions prevailed. Due to the formation of ATC on January 1, 2001, electric margin for the three and six months ended June 30, 2001 included expenses of $7 million and $14 million, respectively. Such expenses were offset by equity income, lower depreciation expense and reduced other operation and maintenance expenses, resulting in no significant net income impact due to the formation of ATC. Refer to Note 5 of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 1. for additional information related to ATC. IESU's and IPC's electric tariffs include EAC's that are designed to currently recover the costs of fuel and the energy portion of purchased-power billings. Under PSCW rules, WP&L can seek emergency rate increases if the annual fuel and purchased-power costs are more than 3 percent higher than the estimated costs used to establish rates. Refer to "Utility Industry Review - Rates and Regulatory Matters" for discussion of an IUB fuel investigation and a WP&L FAC filing. Gas Utility Operations - Gas margins and Dth sales for Alliant - ---------------------- Energy for the three months ended June 30 were as follows: <TABLE> <CAPTION> Revenues and Costs Dths Sold (in thousands) (in thousands) -------------------------------- ------------------------------- 2001 2000 Change 2001 2000 Change --------------- --------------- ----------- -------------- --------------- ----------- <S> <C> <C> <C> <C> <C> <C> Residential $34,337 $32,597 5% 3,645 4,354 (16%) Commercial 16,710 15,466 8% 2,213 2,657 (17%) Industrial 5,410 3,716 46% 892 898 (1%) Transportation/other 6,975 2,874 143% 10,638 9,604 11% --------------- --------------- -------------- --------------- Total revenues/sales 63,432 54,653 16% 17,388 17,513 (1%) ============== =============== Cost of utility gas sold 42,066 31,869 32% --------------- --------------- Margin $21,366 $22,784 (6%) =============== =============== </TABLE> Gas margins and Dth sales for Alliant Energy for the six months ended June 30 were as follows: <TABLE> <CAPTION> Revenues and Costs Dths Sold (in thousands) (in thousands) ---------------------------------- ------------------------------- 2001 2000 Change 2001 2000 Change ----------------- --------------- ----------- -------------- --------------- ----------- <S> <C> <C> <C> <C> <C> <C> Residential $200,894 $112,208 79% 19,225 17,428 10% Commercial 105,765 55,036 92% 11,272 10,433 8% Industrial 20,033 10,550 90% 2,522 2,586 (2%) Transportation/other 26,558 6,993 280% 24,597 22,001 12% ----------------- --------------- -------------- --------------- Total revenues/sales 353,250 184,787 91% 57,616 52,448 10% ============== =============== Cost of utility gas sold 280,324 113,982 146% ----------------- --------------- Margin $72,926 $70,805 3% ================= =============== </TABLE> Gas revenues and cost of utility gas sold increased significantly for the three- and six-month periods due to the large increase in natural gas prices. Gas margin decreased $1.4 million, or 6%, and increased $2.1 million, or 3%, for the three and six months ended June 30, 2001, respectively, compared with the same periods in 2000. Gas margins for both periods were reduced due to 31
impacts of the higher natural gas costs as some customers either chose alternative fuel sources or used less natural gas. Contributing to the six-month increase were increased sales volumes from more favorable weather conditions in 2001 which contributed an estimated $9 million increase in gas margin, partially offset by losses associated with current commodity costs at WP&L, which are shared by ratepayers and shareowners. IESU's and IPC's gas tariffs include PGA clauses that are designed to currently recover the cost of utility gas sold. Non-regulated and Other Revenues - Details regarding Alliant - -------------------------------- Energy's non-regulated and other revenues and data relating to Whiting's oil and gas operations for the three and six months ended June 30 were as follows: <TABLE> <CAPTION> Three Months Six Months ------------------------------------ ------------------------------------ Non-regulated and other revenues (in thousands): 2001 2000 2001 2000 ---------------- ----------------- ------------------ --------------- <S> <C> <C> <C> <C> Integrated Services $48,210 $30,949 $132,410 $64,383 Investments: Whiting (oil and gas) 36,356 26,605 79,131 45,799 Other 6,526 5,746 12,497 11,071 International 9,654 -- 15,941 -- Other 12,176 12,089 23,895 24,442 ---------------- ----------------- ------------------ --------------- $112,922 $75,389 $263,874 $145,695 ================ ================= ================== =============== Three Months Six Months ------------------------------------ ----------------------------------- 2001 2000 2001 2000 ----------------- ---------------- ------------------ --------------- Whiting's volumes sold (in thousands): Oil (barrels) 532 393 1,097 728 Gas (thousand cubic feet) 4,460 4,180 8,782 7,891 Whiting's product prices: Oil $25.15 $25.78 $25.34 $25.51 Gas $4.26 $3.54 $5.12 $3.04 </TABLE> The increased Integrated Services revenues were due to acquisitions in the third and fourth quarters of 2000 of various energy services businesses and higher natural gas prices. Ongoing acquisitions of additional oil and gas properties had a significant impact on the increased Whiting sales volumes. The 2001 International revenues resulted from the December 2000 change from the equity method of accounting to the consolidation method for an investment in China. Other Operating Expenses - Other operation and maintenance - ------------------------ expenses for the three and six months ended June 30 were as follows (in thousands): <TABLE> <CAPTION> Three Months Six Months ----------------------------------- ----------------------------------- 2001 2000 2001 2000 --------------- ---------------- ---------------- --------------- <S> <C> <C> <C> <C> Utility $125,538 $136,445 $255,627 $259,206 Integrated Services 45,457 32,001 125,642 61,516 Investments: Whiting (oil and gas) 11,366 9,384 23,096 16,733 Other 4,139 4,577 8,211 8,965 International 7,664 875 16,129 2,224 Other 2,822 5,080 6,477 9,396 --------------- ---------------- ---------------- --------------- $196,986 $188,362 $435,182 $358,040 =============== ================ ================ =============== </TABLE> Other operation and maintenance expenses at the utility subsidiaries decreased $10.9 million and $3.6 million for the three- and six-month periods, respectively, primarily due to costs incurred in 2000 for: 1) a scheduled refueling outage at 32
Kewaunee; and 2) one-time fees associated with the transfer of the Iowa utility business from the MAPP reliability region to the MAIN region. Administrative and general expenses contributed to the three-month decrease while they partially offset the six-month decrease. Higher fossil-plant maintenance expenses partially offset the three-month decrease. The Integrated Services increases were primarily due to expenses associated with the acquisitions of the various energy services businesses and the higher natural gas costs. The increase at Whiting was primarily due to the increased production volumes. The International increases were primarily due to the December 2000 change from the equity method of accounting to the consolidation method for an investment in China. Depreciation and amortization expense increased $8.2 million and $16.9 million for the three- and six-month periods, respectively, primarily due to the acquisitions at the non-regulated businesses, utility property additions and increased amortization expenses. Taxes other than income taxes increased $2.9 million and $5.0 million for the three- and six-month periods, respectively, primarily due to increased payroll, gross receipts and property taxes. Interest Expense and Other - Interest expense increased $5.8 - -------------------------- million and $14.9 million for the three- and six-month periods, respectively, primarily due to higher non-regulated and utility borrowings to fund Alliant Energy's strategic growth initiatives, including Resources' investment in a Brazilian electric utility in January 2001 of approximately $60 million. The impact of lower interest rates on Alliant Energy's variable rate borrowings partially offset these increases. In the second quarter of 2000, Alliant Energy reversed a first quarter 2000 charge of $39.5 million for contingent interest relating to Alliant Energy's obligation under certain 30-year exchangeable senior notes. Equity income (loss) from Alliant Energy's unconsolidated investments for the three and six months ended June 30 was as follows (in thousands): <TABLE> <CAPTION> Three Months Six Months ---------------------------------- ---------------------------------- 2001 2000 2001 2000 ---------------------------------- ---------------------------------- <S> <C> <C> <C> <C> ATC $3,242 $-- $8,026 $-- Cargill-Alliant 2,091 2,453 5,094 2,601 Australia/New Zealand 2,702 1,368 4,923 1,368 China 988 (27) 2,391 248 Brazil 185 (1,965) (1,295) (739) Other (469) (264) (61) (770) ---------------- ---------------- ----------------- -------------- $8,739 $1,565 $19,078 $2,708 ================ ================ ================= ============== </TABLE> Equity income from unconsolidated investments increased $7.2 million and $16.4 million for the three- and six-month periods, respectively, primarily due to ATC beginning operations on January 1, 2001 and a first quarter 2000 acquisition in Australia. All of Alliant Energy's remaining prospective tariff adjustments in Brazil were implemented in the second quarter of 2001, resulting in improved results in Brazil for the three-month period. The six-month increase was also impacted by higher earnings from Alliant Energy's energy-trading joint venture with Cargill-Alliant due to more buyers turning to energy experts to help them find stable, reliable sources of supply in the wake of volatile energy costs. Refer to "Outlook" for additional information regarding Brazil. Alliant Energy sold 450,000 shares of its investment in McLeod in the first quarter of 2000, resulting in a pre-tax gain of $10.2 million, or $0.08 per share. Miscellaneous, net income decreased $3.7 million and $14.6 million for the three- and six-month periods, respectively, primarily due to charges of $64.1 million and $149.2 million for the three and six months ended June 30, 2001, respectively, related to the change in value of the McLeod trading securities, partially offset by income of $57.2 million and $138.1 million, respectively, related to the change in value of the derivative component of Resources' exchangeable senior notes. Such decreases were partially offset by a $3 million gain on the sale of properties at Whiting in the second quarter of 2001. Also contributing to the six-month decrease were $4.1 million of 33
interest income recognized at IESU in the first quarter of 2000 from a tax settlement and income realized from weather hedges at WP&L in the first quarter of 2000. Income Taxes - The effective income tax rates were 31.2% and - ------------ 33.0% for the three- and six-month periods ended June 30, 2001, respectively, compared with 37.2% for the same periods last year. The decrease for both periods was primarily due to higher tax credits. IESU RESULTS OF OPERATIONS Overview - Second Quarter Results - IESU's earnings available for - --------------------------------- common stock increased $1.6 million for the three months ended June 30, 2001, compared with the same period in 2000, primarily due to an increased electric margin and a lower effective income tax rate, partially offset by higher other operation and maintenance expenses. Electric Utility Operations - Electric margins and MWh sales for - --------------------------- IESU for the three months ended June 30 were as follows: <TABLE> <CAPTION> Revenues and Costs MWhs Sold (in thousands) (in thousands) ---------------------------------- ------------------------------- 2001 2000 Change 2001 2000 Change ----------------- --------------- ----------- -------------- --------------- ----------- <S> <C> <C> <C> <C> <C> <C> Residential $58,227 $50,192 16% 600 582 3% Commercial 51,906 41,783 24% 697 643 8% Industrial 59,972 46,021 30% 1,273 1,302 (2%) ----------------- --------------- -------------- --------------- Total from ultimate customers 170,105 137,996 23% 2,570 2,527 2% Sales for resale 11,338 7,294 55% 296 254 17% Other 3,652 3,037 20% 10 10 -- ----------------- --------------- -------------- --------------- Total revenues/sales 185,095 148,327 25% 2,876 2,791 3% ============== =============== Electric production fuels expense 33,638 25,049 34% Purchased power expense 43,617 17,718 146% ----------------- --------------- Margin $107,840 $105,560 2% ================= =============== </TABLE> Electric margins and MWh sales for IESU for the six months ended June 30 were as follows: <TABLE> <CAPTION> Revenues and Costs MWhs Sold (in thousands) (in thousands) --------------------------------- ------------------------------- 2001 2000 Change 2001 2000 Change ---------------- --------------- ----------- -------------- --------------- ----------- <S> <C> <C> <C> <C> <C> <C> Residential $116,876 $105,134 11% 1,335 1,266 5% Commercial 93,801 82,009 14% 1,334 1,276 5% Industrial 102,098 88,226 16% 2,432 2,515 (3%) ---------------- --------------- -------------- --------------- Total from ultimate customers 312,775 275,369 14% 5,101 5,057 1% Sales for resale 20,387 12,497 63% 547 501 9% Other 7,064 6,169 15% 20 21 (5%) ---------------- --------------- -------------- --------------- Total revenues/sales 340,226 294,035 16% 5,668 5,579 2% ============== =============== Electric production fuels expense 53,479 53,961 (1%) Purchased power expense 76,443 31,140 145% ---------------- --------------- Margin $210,304 $208,934 1% ================ =============== </TABLE> Electric margin increased $2.3 million, or 2%, and $1.4 million, or 1%, for the three- and six-month periods, respectively, primarily due to electric sales growth, including increased sales to higher-margin residential and commercial customers, partially offset by increased purchased-power capacity costs. Also contributing to the six-month increase were more favorable 34
weather conditions in the first quarter of 2001 compared to the first quarter of 2000, when milder than normal weather conditions prevailed. IESU's electric tariffs include EAC's that are designed to currently recover the costs of fuel and the energy portion of purchased-power billings. Refer to "Utility Industry Review - Rates and Regulatory Matters" for discussion of an IUB fuel investigation. Gas Utility Operations - Gas margins and Dth sales for IESU for - ---------------------- the three months ended June 30 were as follows: <TABLE> <CAPTION> Revenues and Costs Dths Sold (in thousands) (in thousands) ---------------------------------- ------------------------------- 2001 2000 Change 2001 2000 Change ----------------- --------------- ----------- -------------- --------------- ----------- <S> <C> <C> <C> <C> <C> <C> Residential $17,061 $16,642 3% 1,703 2,048 (17%) Commercial 7,933 7,617 4% 986 1,217 (19%) Industrial 3,626 2,187 66% 611 571 7% Transportation/other 2,613 999 162% 2,314 2,184 6% ----------------- --------------- -------------- --------------- Total revenues/sales 31,233 27,445 14% 5,614 6,020 (7%) ============== =============== Cost of gas sold 21,720 16,964 28% ----------------- --------------- Margin $9,513 $10,481 (9%) ================= =============== </TABLE> Gas margins and Dth sales for IESU for the six months ended June 30 were as follows: <TABLE> <CAPTION> Revenues and Costs Dths Sold (in thousands) (in thousands) ---------------------------------- ------------------------------- 2001 2000 Change 2001 2000 Change ----------------- --------------- ----------- -------------- --------------- ----------- <S> <C> <C> <C> <C> <C> <C> Residential $94,480 $53,856 75% 9,126 8,104 13% Commercial 48,496 25,319 92% 5,243 4,689 12% Industrial 10,041 5,288 90% 1,375 1,382 (1%) Transportation/other 5,412 2,411 124% 5,458 5,102 7% ----------------- --------------- -------------- --------------- Total revenues/sales 158,429 86,874 82% 21,202 19,277 10% ============== =============== Cost of gas sold 125,223 55,038 128% ----------------- --------------- Margin $33,206 $31,836 4% ================= =============== </TABLE> Gas revenues and cost of gas sold increased significantly for the three- and six-month periods due to the large increase in natural gas prices. Such increases had no impact on IESU's gas margin given its rate recovery mechanism for gas costs. Gas margin decreased $1.0 million, or 9%, and increased $1.4 million, or 4%, for the three and six months ended June 30, 2001, respectively. Gas margins for both time periods were negatively impacted by higher natural gas costs as some customers either chose alternative fuel sources or used less natural gas. The six-month increase was largely due to more favorable weather conditions in the first quarter of 2001 compared with the first quarter of 2000. IESU's gas tariffs include PGA clauses that are designed to currently recover the cost of gas sold. Other Operating Expenses - IESU's other operation and maintenance - ------------------------ expenses increased $1.0 million and $6.8 million for the three- and six-month periods, respectively, primarily due to increased energy delivery, fossil-plant maintenance and nuclear expenses, partially offset by reduced administrative and general expenses and one-time fees incurred in the second quarter of 2000 associated with the transfer from the MAPP reliability region to the MAIN region. 35
Interest Expense and Other - Miscellaneous, net income increased - -------------------------- $0.9 million and decreased $1.8 million for the three- and six-month periods, respectively. The six-month decrease was primarily due to interest income recognized from a tax settlement in the first quarter of 2000, partially offset by increases in other interest income. Income Taxes - The effective income tax rates were 39.3% and - ------------ 39.0% for the three and six months ended June 30, 2001, respectively, compared with 44.7% and 42.7%, respectively, for the same periods last year. The decrease for both periods was due to decreases in property-related temporary differences for which deferred taxes are not provided pursuant to rate making principles. WP&L RESULTS OF OPERATIONS Overview - Second Quarter Results - WP&L's earnings available for - --------------------------------- common stock increased $0.3 million for the three months ended June 30, 2001, compared with the same period in 2000, primarily due to reduced operating expenses, largely offset by reduced electric and gas margins. Electric Utility Operations - Electric margins and MWh sales for - --------------------------- WP&L for the three months ended June 30 were as follows: <TABLE> <CAPTION> Revenues and Costs MWhs Sold (in thousands) (in thousands) ---------------------------------- ------------------------------- 2001 2000 Change 2001 2000 Change ----------------- --------------- ----------- -------------- --------------- ----------- <S> <C> <C> <C> <C> <C> <C> Residential $54,635 $54,563 -- 702 669 5% Commercial 33,603 32,240 4% 499 463 8% Industrial 53,705 52,063 3% 1,160 1,205 (4%) ----------------- --------------- -------------- --------------- Total from ultimate customers 141,943 138,866 2% 2,361 2,337 1% Sales for resale 32,529 29,061 12% 883 773 14% Other 3,825 5,184 (26%) 17 13 31% ----------------- --------------- -------------- --------------- Total revenues/sales 178,297 173,111 3% 3,261 3,123 4% ============== =============== Electric production fuels expense 28,195 26,703 6% Purchased power expense 50,796 38,063 33% ----------------- --------------- Margin $99,306 $108,345 (8%) ================= =============== </TABLE> Electric margins and MWh sales for WP&L for the six months ended June 30 were as follows: <TABLE> <CAPTION> Revenues and Costs MWhs Sold (in thousands) (in thousands) ---------------------------------- ------------------------------- 2001 2000 Change 2001 2000 Change ----------------- --------------- ----------- -------------- --------------- ----------- <S> <C> <C> <C> <C> <C> <C> Residential $121,213 $112,109 8% 1,609 1,507 7% Commercial 68,130 61,935 10% 1,041 966 8% Industrial 101,973 93,333 9% 2,256 2,332 (3%) ----------------- --------------- -------------- --------------- Total from ultimate customers 291,316 267,377 9% 4,906 4,805 2% Sales for resale 67,872 54,018 26% 1,728 1,562 11% Other 9,500 14,092 (33%) 33 35 (6%) ----------------- --------------- -------------- --------------- Total revenues/sales 368,688 335,487 10% 6,667 6,402 4% ============== =============== Electric production fuels expense 63,267 50,501 25% Purchased power expense 103,166 71,820 44% ----------------- --------------- Margin $202,255 $213,166 (5%) ================= =============== </TABLE> Electric margin decreased $9.0 million, or 8%, and $10.9 million, or 5%, for the three- and six-month periods, respectively, 36
primarily due to a second quarter 2000 change in estimate of WP&L's utility services rendered but unbilled at month-end of $10 million, the impact of the formation of ATC and lower energy conservation revenues. Such decreases were partially offset by electric sales growth, including increased sales to higher-margin residential and commercial customers. More favorable weather conditions in the first quarter of 2001 compared to the first quarter of 2000, when milder than normal weather conditions prevailed, also partially offset the six-month decrease. Refer to "Utility Industry Review - Rates and Regulatory Matters" for discussion of a WP&L FAC filing in December 2000. Due to the formation of ATC on January 1, 2001, electric margin for the three and six months ended June 30, 2001 included expenses of $7 million and $14 million, respectively. Such expenses were offset by equity income, lower depreciation expense and reduced other operation and maintenance expenses, resulting in no significant net income impact due to the formation of ATC. Refer to Note 5 of Alliant Energy's "Notes to Consolidated Financial Statements" in Item 1. for additional information related to ATC. Under PSCW rules, WP&L can seek emergency rate increases if the annual fuel and purchased-power costs are more than 3 percent higher than the estimated costs used to establish rates. Gas Utility Operations - Gas margins and Dth sales for WP&L for - ---------------------- the three months ended June 30 were as follows: <TABLE> <CAPTION> Revenues and Costs Dths Sold (in thousands) (in thousands) ---------------------------------- ------------------------------- 2001 2000 Change 2001 2000 Change ----------------- --------------- ----------- -------------- --------------- ----------- <S> <C> <C> <C> <C> <C> <C> Residential $12,931 $11,470 13% 1,470 1,694 (13%) Commercial 6,963 5,920 18% 979 1,117 (12%) Industrial 1,085 906 20% 156 192 (19%) Transportation/other 3,626 1,219 197% 3,150 2,772 14% ----------------- --------------- -------------- --------------- Total revenues/sales 24,605 19,515 26% 5,755 5,775 -- ============== =============== Cost of gas sold 15,825 9,638 64% ----------------- --------------- Margin $8,780 $9,877 (11%) ================= =============== </TABLE> Gas margins and Dth sales for WP&L for the six months ended June 30 were as follows: <TABLE> <CAPTION> Revenues and Costs Dths Sold (in thousands) (in thousands) ---------------------------------- ------------------------------- 2001 2000 Change 2001 2000 Change ----------------- --------------- ----------- -------------- --------------- ----------- <S> <C> <C> <C> <C> <C> <C> Residential $80,024 $44,483 80% 7,578 6,987 8% Commercial 43,959 23,226 89% 4,663 4,467 4% Industrial 6,751 3,638 86% 736 779 (6%) Transportation/other 19,503 3,454 465% 8,554 6,841 25% ----------------- --------------- -------------- --------------- Total revenues/sales 150,237 74,801 101% 21,531 19,074 13% ============== =============== Cost of gas sold 122,077 44,967 171% ----------------- --------------- Margin $28,160 $29,834 (6%) ================= =============== </TABLE> Gas revenues and cost of gas sold increased significantly for the three- and six-month periods due to the large increase in natural gas prices. Gas margin decreased $1.1 million, or 11%, and $1.7 million, or 6%, for the three- and six-month periods, respectively, primarily due to impacts of the higher natural gas costs as some customers either chose alternative fuel sources or used less natural gas. Also contributing to the six-month decrease were losses associated with current commodity costs, which are shared by ratepayers and shareowners, partially offset by increased natural gas sales due to more favorable weather conditions in the first quarter of 2001 compared to the first quarter of 2000. 37
Other Operating Expenses - Other operation and maintenance - ------------------------ expenses decreased $9.2 million and $9.5 million for the three- and six-month periods, respectively, primarily due to lower nuclear expenses and the impact of the formation of ATC. The lower nuclear expenses were primarily due to a planned second quarter 2000 refueling outage at Kewaunee. Taxes other than income taxes increased $1.1 million and $2.2 million for the three- and six-month periods, respectively, due to increased gross receipts and payroll taxes. Interest Expense and Other - Equity income from unconsolidated - -------------------------- investments increased $3.3 million and $8.1 million for the three- and six-month periods, respectively, due to ATC beginning operations on January 1, 2001. Miscellaneous, net income decreased $4.8 million for the six-month period primarily due to income realized from weather hedges in the first quarter of 2000. Income Taxes - The effective income tax rates were 38.2% and 38.3% for the - ------------ three and six months ended June 30, 2001, respectively, compared with 38.4% and 37.5%, respectively, for the same periods last year. LIQUIDITY AND CAPITAL RESOURCES Cash Flows for Six-Month Periods - Alliant Energy's cash flows from - -------------------------------- operating activities increased $22 million primarily due to changes in working capital; cash flows from financing activities decreased $393 million primarily due to net changes in the amount of debt outstanding; and cash flows used for investing activities decreased $394 million primarily due to the January 2000 Brazil investment. IESU's cash flows from operating activities decreased $15 million primarily due to a scheduled nuclear refueling outage in the second quarter of 2001 and cash flows from financing activities increased $71 million primarily due to changes in the amount of debt outstanding. WP&L's cash flows from operating activities decreased $41 million primarily due to changes in working capital; cash flows used for financing activities increased $37 million primarily due to the payment of common stock dividends in 2001; and cash flows used for investing activities decreased $76 million due to proceeds received from the transfer of its transmission assets to ATC. WP&L did not declare a common stock dividend in 2000 as part of the management of its capital structure. Long-Term Debt - Refer to Note 7 of Alliant Energy's "Notes to - -------------- Consolidated Financial Statements" in Item 1. for discussion of long-term debt issued by IESU in March 2001. Sale of Accounts Receivable - To maintain flexibility in its - --------------------------- capital structure and to take advantage of favorable short-term rates, IESU and WP&L use proceeds from the sale of accounts receivable and unbilled revenues to finance a portion of their long-term cash needs. Alliant Energy and the utility subsidiaries received all necessary approvals in late March 2001 for a combined accounts receivable sale program whereby each utility, including IPC, sells its respective receivables on a limited recourse basis through wholly-owned special purpose entities to an affiliated financing entity, which in turn sells the receivables to an outside investor. The new program became operational in the second quarter of 2001 and replaces the previously existing programs for IESU and WP&L. Investments - Under PUHCA, certain investments of Alliant Energy - ----------- in exempt wholesale generators and foreign utility companies are limited to 50 percent of Alliant Energy's consolidated retained earnings. In May 2001, Alliant Energy filed an application with the SEC to request, among other things, aggregate investment authority with respect to exempt wholesale generators and foreign utility companies in the amount of $1.75 billion. The application is currently under review with the SEC. Alliant Energy expects the SEC will approve an increase in Alliant Energy's investment authority from 50 percent to 100 percent of consolidated retained earnings in the third quarter of 2001 and reserve jurisdiction over the increase to $1.75 billion to a later date. In July 2001, Alliant Energy and Resources made another on-going, routine filing with the SEC requesting, among other things, approval for a program of external financing, credit support agreements and other related proposals for the period through December 31, 2004. 38
Construction and Acquisition Expenditures - To help ensure - ----------------------------------------- electric service reliability for its customers, Alliant Energy has announced a program called PowerPledge, which is designed to increase Alliant Energy's power supply, upgrade existing systems and use more renewable energy sources. Through this program, Alliant Energy's utility subsidiaries plan to invest $2 billion over the next five years (beginning in 2001) in utility infrastructure designed to improve reliability. Alliant Energy's subsidiaries also announced their interest in developing new electric power generation capacity in Iowa and Wisconsin over the next 10 years with an estimated investment of $2.5 billion. In Iowa, IESU announced a willingness to develop up to 1,200 MW of new electric power generation over the next 10 years. In Wisconsin, WP&L announced plans to develop up to 800 MW of new electric power generation over the next 10 years. The Wisconsin plans include the addition of 500 MW of coal-fired and 100 MW of natural gas-fired generation by 2006 and an additional 200 MW of combined-cycle gas generation by 2011. Both the Iowa and Wisconsin proposals are subject to various conditions, including the receipt of applicable regulatory approval and the receipt of a reasonable return on IESU's and WP&L's investments. OTHER MATTERS Refer to Note 4 of IESU's "Notes to Consolidated Financial Statements" in Item 1. for discussion of a merger between IESU and IPC that is currently expected to be completed by January 1, 2002. Market Risk Sensitive Instruments and Positions Alliant Energy's primary market risk exposures are associated with interest rates, commodity prices, equity prices and currency exchange rates. Alliant Energy has risk management policies to monitor and assist in controlling these market risks and uses derivative instruments to manage some of the exposures. Alliant Energy's market risks have not changed materially from the market risks reported in the 2000 Form 10-K, except as noted below. Equity Price Risk - At June 30, 2001 and December 31, 2000, Alliant Energy - ----------------- had an investment in the stock of McLeod, a publicly traded telecommunications company, valued at $257 million and $791 million, respectively. In addition to the equity risk associated with the investment in McLeod, Alliant Energy also has equity risk related to the option liability embedded within Resources' exchangeable senior notes. A 10 percent increase (decrease) in the quoted market price at June 30, 2001 and December 31, 2000 would not have a significant impact on net income as any resulting increase (decrease) in the value of the option would be substantially offset by a corresponding increase (decrease) in the value of the McLeod shares classified as trading (valued at $72 million and $221 million at June 30, 2001 and December 31, 2000, respectively). At June 30, 2001 and December 31, 2000, the McLeod available-for-sale securities were valued at $185 million and $570 million, respectively. A 10 percent increase (decrease) in the quoted market price at June 30, 2001 and December 31, 2000 would have increased (decreased) the value of the investment of the available-for-sale securities by $19 million and $57 million, respectively. Currency Risk - Alliant Energy has investments in various - ------------- countries where the net investments are not hedged, including Australia, Brazil, China and New Zealand. As a result, these investments are subject to currency exchange risk with fluctuations in currency exchange rates. At June 30, 2001 and December 31, 2000, Alliant Energy had a cumulative foreign currency translation loss of $130 million and $60 million, respectively, recorded in "Accumulated other comprehensive income" on its Consolidated Balance Sheets that primarily related to decreases in value of the Brazil real, New Zealand dollar and Australian dollar in relation to the U.S. dollar. Based on Alliant Energy's investments at June 30, 2001 and December 31, 2000, a 10 percent sustained increase (decrease) over the next 12 months in the foreign exchange rates of Australia, Brazil, China and New Zealand would increase (decrease) the cumulative foreign currency translation gain/loss by $47 million and $46 million, respectively. Accounting Pronouncements In July 2001, the FASB issued SFAS 141, "Business Combinations," which requires that, among other things, all business combinations be accounted for under the purchase method for business combinations initiated after June 30, 2001. Use of the pooling-of-interests method is no longer permitted. 39
In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets," which will result in goodwill no longer being amortized to earnings. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value-based test. The amortization of goodwill existing as of June 30, 2001 ceases upon adoption of SFAS 142, which will be January 1, 2002 for Alliant Energy. Alliant Energy has not yet fully quantified the impacts of SFAS 142 on its financial condition or results of operations. OUTLOOK Alliant Energy currently estimates that earnings per share from continuing operations for 2001 will be in the $2.40 to $2.55 range. Drivers for Alliant Energy's 2001 earnings estimate include, but are not limited to: normal weather conditions in its utility service territories; continued economic development and sales growth in its utility service territories; continued cost control and operational efficiencies in its utility operations; ability to recover its purchased-power and fuel costs, both domestically and internationally; ability to offset start-up and growth-related interest expenses in its non-regulated businesses with sales of non-strategic assets and to redeploy such proceeds into more strategic earnings-generating investments; continued improved profitability of its international investments; continued improved profitability of its non-regulated businesses as a whole, including oil and gas, electricity trading, integrated energy and transportation services; stable oil and gas prices; and other stable business conditions. In addition, the accuracy of the earnings estimate is further subject to future developments relating to Alliant Energy's utility investments in Brazil. Brazil is experiencing drought conditions, which will have a negative impact on Alliant Energy's 2001 earnings given that the large majority of generation in Brazil is hydroelectric. However, Alliant Energy expects to be able to mitigate a significant portion of this negative earnings impact as a result of its current ability to sell its excess energy into the wholesale power market. The Brazilian government is currently reviewing the make-up of such market in Brazil and thus it is possible that changes in current government regulations could be forthcoming. Assuming Alliant Energy can continue to sell its excess energy into the market under the current government regulations, Alliant Energy still expects the impact its Brazilian investments will have on its 2001 earnings will be minimal. In addition, several of Alliant Energy's other non-regulated businesses continue to generate strong earnings which also should offset some or all of the impact of the Brazil drought. Alliant Energy's strategic plan includes aggressively investing in generation and other energy-related projects; better connecting with customers through enhanced service reliability, value-added products and services, and e-business initiatives; and growing the non-regulated side of its business through partnerships and acquisitions in generation projects, international markets and other strategic initiatives. Alliant Energy believes that successful implementation of these strategies will contribute significantly to Alliant Energy achieving its targeted annual growth rate in earnings from continued operations of 7 to 10 percent. Alliant Energy expects its non-regulated businesses to contribute 25 percent of such earnings within the next several years. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and Qualitative Disclosures About Market Risk are reported under Item 2. MD&A "Other Matters - Market Risk Sensitive Instruments and Positions." 40
PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In an effort to grow and expand as a Wisconsin-based company, Alliant Energy and WP&L filed a federal lawsuit in October 2000, seeking declaratory relief regarding whether certain provisions of WUHCA are unconstitutional as a violation of the interstate commerce and equal protection provisions of the U.S. constitution. Alliant Energy and WP&L are challenging the provisions of WUHCA which restrict ownership in utility holding companies, limit the investments those companies can make and place significant restrictions on companies that invest in Wisconsin utility holding companies. Alliant Energy and WP&L also requested that the court consider the constitutionality of issues related to the asset cap on non-utility investments imposed by WUHCA. Alliant Energy and WP&L were seeking only declaratory relief and not damages in the litigation. In February 2001, the lawsuit was dismissed based on lack of allegations of "injury in fact." Alliant Energy and WP&L filed a motion for reconsideration with the court, which was denied in April 2001. Alliant Energy and WP&L have appealed the lower court's rulings to the 7th Circuit Court of Appeals. Briefing of the appeal will be concluded by mid-August, with a decision expected by Fall 2002. Alliant Energy and WP&L cannot currently predict the outcome of this litigation. Alliant Energy received an adverse ruling in 1999 from a U.S. district court judge dealing with an income tax refund claim Alliant Energy filed relating to capital losses disallowed under audit by the IRS. The district court judge also disallowed certain related deductions allowed by the IRS as an offset against a tax refund due to Alliant Energy. Alliant Energy appealed the district court's ruling and the IRS appealed the decision which led to the tax refund due to Alliant Energy. In June 2001, the U.S. Court of Appeals for the Eighth Circuit ruled in Alliant Energy's favor with respect to both tax issues. In July 2001, the government filed a petition for rehearing with the U.S. Court of Appeals related to the capital losses allowed in the Eighth Circuit opinion. Alliant Energy believes the resolution of these issues will not have a material adverse impact on its financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ALLIANT ENERGY At Alliant Energy's annual meeting of shareowners held on May 23, 2001, Jack B. Evans, Joyce L. Hanes, David A. Perdue and Judith D. Pyle were elected as directors of Alliant Energy for terms expiring in 2004. The following sets forth certain information with respect to the election of these directors at the annual meeting. Name of Nominee Votes For Votes Withheld - --------------- --------- -------------- Jack B. Evans 66,623,375 1,231,621 Joyce L. Hanes 66,508,598 1,346,398 David A. Perdue 66,537,899 1,317,097 Judith D. Pyle 66,553,302 1,301,694 The following table sets forth the other directors of Alliant Energy whose terms of office continued after the 2001 annual meeting. <TABLE> <CAPTION> Name of Director Year in Which Term Expires - ---------------- -------------------------- <S> <C> Alan B. Arends 2002 Katharine C. Lyall 2002 Anthony R. Weiler 2002 Erroll B. Davis, Jr. 2003 Lee Liu 2003 Robert W. Schlutz 2003 Wayne H. Stoppelmoor 2003 </TABLE> Effective as of the date of the annual meeting, Rockne G. Flowers and Milton E. Neshek both retired and Arnold M. Nemirow resigned from the Alliant Energy board of directors. 41
WP&L At WP&L's annual meeting of shareowners held on May 30, 2001, Jack B. Evans, Joyce L. Hanes, David A. Perdue and Judith D. Pyle were elected as directors of WP&L for terms expiring in 2004. The following sets forth certain information with respect to the election of these directors at the annual meeting. Name of Nominee Votes For Votes Withheld - --------------- --------- -------------- Jack B. Evans 13,594,143 3,402 Joyce L. Hanes 13,593,660 3,885 David A. Perdue 13,593,974 3,571 Judith D. Pyle 13,594,171 3,374 The following table sets forth the other directors of WP&L whose terms of office continued after the 2001 annual meeting. <TABLE> <CAPTION> Name of Director Year in Which Term Expires - ---------------- -------------------------- <S> <C> Alan B. Arends 2002 Katharine C. Lyall 2002 Anthony R. Weiler 2002 Erroll B. Davis, Jr. 2003 Lee Liu 2003 Robert W. Schlutz 2003 Wayne H. Stoppelmoor 2003 </TABLE> Effective as of the date of the annual meeting, Rockne G. Flowers and Milton E. Neshek both retired and Arnold M. Nemirow resigned from the WP&L board of directors. IESU At IESU's annual meeting of shareowners held on May 16, 2001, Jack B. Evans, Joyce L. Hanes, David A. Perdue and Judith D. Pyle were elected as directors of IESU for terms expiring in 2004. Alliant Energy voted all of the outstanding shares of common stock of IESU (consisting of 13,370,788 shares) in favor of the election of the aforementioned individuals. The following table sets forth the other directors of IESU whose terms of office continued after the 2001 annual meeting. <TABLE> <CAPTION> Name of Director Year in Which Term Expires - ---------------- -------------------------- <S> <C> Alan B. Arends 2002 Katharine C. Lyall 2002 Anthony R. Weiler 2002 Erroll B. Davis, Jr. 2003 Lee Liu 2003 Robert W. Schlutz 2003 Wayne H. Stoppelmoor 2003 </TABLE> Effective as of the date of the annual meeting, Rockne G. Flowers and Milton E. Neshek both retired and Arnold M. Nemirow resigned from the IESU board of directors. 42
A special meeting of shareowners of IESU was convened on April 3, 2001, was adjourned, and reconvened on April 23, 2001. At the meeting, Alliant Energy voted all of the outstanding shares of common stock of IESU (consisting of 13,370,788 shares) in favor of the following matters. In addition, the following matters were submitted to a vote of preferred shareowners. <TABLE> <CAPTION> 4.30% Series 4.80% Series 6.10% Series ------------------ ------------------- ------------------- <S> <C> <C> <C> Approval and adoption of the Agreement and Plan of Merger, dated as of March 15, 2000, as amended, by and between IESU and IPC Votes for 112,058 74,882 69,558 Votes against 340 14,440 874 Votes abstain -- 1,702 177 Broker non-votes -- -- -- Approval and adoption of the amendment to IESU's Amended and Restated Articles of Incorporation creating the class of new IESU Class A preferred stock Votes for 112,058 74,877 69,050 Votes against 340 14,328 1,524 Votes abstain -- 1,819 35 Broker non-votes -- -- -- Approval and adoption of the amendment to IESU's Amended and Restated Articles of Incorporation changing IESU's name to Interstate Power and Light Company upon the effectiveness of the merger Votes for 111,058 74,748 69,135 Votes against 1,340 14,442 874 Votes abstain -- 1,834 600 Broker non-votes -- -- -- </TABLE> ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: --------- None. (b) Reports on Form 8-K: -------------------- Alliant Energy - None. IESU - None. WP&L - None. 43
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Alliant Energy Corporation, IES Utilities Inc. and Wisconsin Power and Light Company have each duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 10th day of August 2001. <TABLE> <CAPTION> ALLIANT ENERGY CORPORATION - -------------------------- Registrant <S> <C> By: /s/ John E. Kratchmer Corporate Controller and Chief Accounting Officer - ------------------------- John E. Kratchmer (Principal Accounting Officer and Authorized Signatory) IES UTILITIES INC. - ------------------ Registrant By: /s/ John E. Kratchmer Corporate Controller and Chief Accounting Officer - ------------------------- John E. Kratchmer (Principal Accounting Officer and Authorized Signatory) WISCONSIN POWER AND LIGHT COMPANY - --------------------------------- Registrant By: /s/ John E. Kratchmer Corporate Controller and Chief Accounting Officer - ------------------------- John E. Kratchmer (Principal Accounting Officer and Authorized Signatory) </TABLE> 44