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, 2002 ------------- 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) 4902 N. Biltmore Lane Madison, Wisconsin 53718 Telephone (608)458-3311 0-4117-1 INTERSTATE POWER AND LIGHT COMPANY 42-0331370 (an Iowa corporation) Alliant Energy Tower Cedar Rapids, Iowa 52401 Telephone (319)786-4411 0-337 WISCONSIN POWER AND LIGHT COMPANY 39-0714890 (a Wisconsin corporation) 4902 N. Biltmore Lane Madison, Wisconsin 53718 Telephone (608)458-3311 </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, Interstate Power and Light Company and Wisconsin Power and Light Company. Information contained in the quarterly report relating to Interstate Power and Light Company and Wisconsin Power and Light Company is filed by such registrant on its own behalf. Each of Interstate Power and Light Company and Wisconsin Power and Light Company makes no representation as to information relating to registrants other than itself. <TABLE> <CAPTION> Number of shares outstanding of each class of common stock as of July 31, 2002: <S> <C> Alliant Energy Corporation Common stock, $0.01 par value, 90,949,653 shares outstanding Interstate Power and Light Company Common stock, $2.50 par value, 13,370,788 shares outstanding (all of which are owned beneficially and of record by Alliant Energy Corporation) Wisconsin Power and Light Company Common stock, $5 par value, 13,236,601 shares outstanding (all of which are owned beneficially and of record by Alliant Energy Corporation) </TABLE>
<TABLE> <CAPTION> TABLE OF CONTENTS 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, 2002 and 2001 4 Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001 7 Notes to Consolidated Financial Statements 8 Interstate Power and Light Company: ----------------------------------- Consolidated Statements of Income for the Three and Six Months Ended June 30, 2002 and 2001 17 Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001 18 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001 20 Notes to Consolidated Financial Statements 21 Wisconsin Power and Light Company: ---------------------------------- Consolidated Statements of Income for the Three and Six Months Ended June 30, 2002 and 2001 23 Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001 24 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001 26 Notes to Consolidated Financial Statements 27 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 29 Item 3. Quantitative and Qualitative Disclosures About Market Risk 44 Part II. Other Information 44 Item 1. Legal Proceedings 44 Item 4. Submission of Matters to a Vote of Security Holders 45 Item 6. Exhibits and Reports on Form 8-K 47 Signatures 48 </TABLE> 2
<TABLE> <CAPTION> DEFINITIONS Certain abbreviations or acronyms used in the text and notes of this combined Form 10-Q are defined below: Abbreviation or Acronym Definition - ----------------------- ---------- <S> <C> Alliant Energy.............................. Alliant Energy Corporation ATC......................................... American Transmission Company LLC Capstone.................................... Capstone Turbine Corporation Cargill..................................... Cargill Incorporated Cargill-Alliant............................. Cargill-Alliant, LLC Corporate Services.......................... Alliant Energy Corporate Services, Inc. Dth......................................... Dekatherm EITF........................................ Emerging Issues Task Force Enermetrix.................................. Enermetrix, Inc. EPA......................................... U.S. Environmental Protection Agency EPS......................................... Earnings Per Average Common Share FASB........................................ Financial Accounting Standards Board FERC........................................ Federal Energy Regulatory Commission GAAP........................................ Accounting Principles Generally Accepted in the U.S. ICC......................................... Illinois Commerce Commission IESU........................................ IES Utilities Inc. IPC......................................... Interstate Power Company IP&L........................................ Interstate Power and Light Company IRS......................................... Internal Revenue Service ISO......................................... Independent System Operator IUB......................................... Iowa Utilities Board KV.......................................... Kilovolt McLeod...................................... McLeodUSA Incorporated MD&A........................................ Management's Discussion and Analysis of Financial Condition and Results of Operations MG&E........................................ Madison Gas & Electric Company MPUC........................................ Minnesota Public Utilities Commission MW.......................................... Megawatt MWh......................................... Megawatt-hour PSCW........................................ Public Service Commission of Wisconsin PUHCA....................................... Public Utility Holding Company Act of 1935 Resources................................... Alliant Energy Resources, Inc. SEC......................................... Securities and Exchange Commission SFAS........................................ Statement of Financial Accounting Standards SFAS 115.................................... Accounting for Certain Investments in Debt and Equity Securities SFAS 133.................................... Accounting for Derivative Instruments and Hedging Activities Southern Hydro.............................. Southern Hydro Partnership TBD......................................... To Be Determined TRANSLink................................... TRANSLink Transmission Company LLC 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, 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands, except per share amounts) <S> <C> <C> <C> <C> Operating revenues: Electric utility $412,650 $435,487 $783,412 $847,430 Gas utility 65,366 63,432 193,607 353,250 Non-regulated and other 137,199 112,922 274,433 263,874 ------------- -------------- ------------- ------------- 615,215 611,841 1,251,452 1,464,554 ------------- -------------- ------------- ------------- - ---------------------------------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 75,148 77,962 137,758 153,146 Purchased power 90,681 111,114 163,018 209,847 Cost of utility gas sold 38,719 42,066 122,475 280,324 Other operation and maintenance 227,635 196,986 466,438 435,182 Depreciation, depletion and amortization 85,577 86,154 172,309 170,776 Taxes other than income taxes 27,624 29,541 57,190 57,985 ------------- -------------- ------------- ------------- 545,384 543,823 1,119,188 1,307,260 ------------- -------------- ------------- ------------- - ---------------------------------------------------------------------------------------------------------------------------------- Operating income 69,831 68,018 132,264 157,294 ------------- -------------- ------------- ------------- - ---------------------------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 50,822 47,587 97,829 97,331 Equity (income) loss from unconsolidated investments 6,926 (30,926) (16,785) (23,853) Allowance for funds used during construction (1,696) (3,170) (3,350) (5,472) Preferred dividend requirements of subsidiaries 1,682 1,680 3,364 3,360 Impairment of available-for-sale securities of McLeodUSA Inc. 6,044 - 27,218 - Miscellaneous, net (1,991) (3,956) 574 (5,106) ------------- -------------- ------------- ------------- 61,787 11,215 108,850 66,260 ------------- -------------- ------------- ------------- - ---------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 8,044 56,803 23,414 91,034 ------------- -------------- ------------- ------------- - ---------------------------------------------------------------------------------------------------------------------------------- Income taxes 1,729 19,082 7,356 31,246 ------------- -------------- ------------- ------------- - ---------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of a change in accounting principle, net of tax 6,315 37,721 16,058 59,788 ------------- -------------- ------------- ------------- - ---------------------------------------------------------------------------------------------------------------------------------- Cumulative effect of a change in accounting principle, net of tax - - - (12,868) ------------- -------------- ------------- ------------- - ---------------------------------------------------------------------------------------------------------------------------------- Net income $6,315 $37,721 $16,058 $46,920 ============= ============== ============= ============= - ---------------------------------------------------------------------------------------------------------------------------------- Average number of common shares outstanding (diluted) 90,553 79,175 90,304 79,187 ============= ============== ============= ============= - ---------------------------------------------------------------------------------------------------------------------------------- Earnings per average common share (basic and diluted): Income before cumulative effect of a change in accounting principle $0.07 $0.48 $0.18 $0.75 Cumulative effect of a change in accounting principle - - - (0.16) ------------- -------------- ------------- ------------- Net income $0.07 $0.48 $0.18 $0.59 ============= ============== ============= ============= - ---------------------------------------------------------------------------------------------------------------------------------- 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 (UNAUDITED) June 30, December 31, ASSETS 2002 2001 - ---------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> Property, plant and equipment: Utility: Electric plant in service $5,237,117 $5,123,781 Gas plant in service 607,764 597,494 Other plant in service 537,301 517,938 Accumulated depreciation (3,501,099) (3,374,867) --------------- --------------- Net plant 2,881,083 2,864,346 Construction work in progress 139,541 111,069 Nuclear fuel, net of amortization 44,863 54,811 Other, net 9,201 7,383 --------------- --------------- Total utility 3,074,688 3,037,609 --------------- --------------- Non-regulated and other: Investments: Whiting 503,468 396,860 Affordable housing, transportation and other 262,592 253,121 International 259,049 169,522 Non-regulated generation 111,072 60,445 Integrated Services 109,335 104,740 Corporate Services and other 70,337 55,784 Accumulated depreciation, depletion and amortization (250,654) (215,284) --------------- --------------- Total non-regulated and other 1,065,199 825,188 --------------- --------------- 4,139,887 3,862,797 --------------- --------------- - ---------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 73,397 86,618 Restricted cash 32,153 43,726 Accounts receivable: Customer, less allowance for doubtful accounts of $9,219 and $8,598, respectively 60,829 66,192 Unbilled utility revenues 67,467 71,388 Other, less allowance for doubtful accounts of $2,361 and $319, respectively 71,194 73,855 Income tax refunds receivable 67,595 29,474 Production fuel, at average cost 58,370 54,707 Materials and supplies, at average cost 55,245 54,401 Gas stored underground, at average cost 41,223 57,114 Other 124,092 89,367 --------------- --------------- 651,565 626,842 --------------- --------------- - ---------------------------------------------------------------------------------------------------- Investments: Investments in unconsolidated foreign entities 431,907 572,555 Nuclear decommissioning trust funds 338,435 332,953 Investment in ATC and other 244,472 249,013 --------------- --------------- 1,014,814 1,154,521 --------------- --------------- - ---------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 319,721 241,973 Deferred charges and other 547,273 361,549 --------------- --------------- 866,994 603,522 --------------- --------------- - ---------------------------------------------------------------------------------------------------- Total assets $6,673,260 $6,247,682 =============== =============== - ---------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 5
<TABLE> <CAPTION> ALLIANT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued) June 30, December 31, CAPITALIZATION AND LIABILITIES 2002 2001 - --------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) <S> <C> <C> Capitalization: Common stock - $0.01 par value - authorized 200,000,000 shares; outstanding 90,752,554 and 89,682,334 shares, respectively $908 $897 Additional paid-in capital 1,272,883 1,239,793 Retained earnings 758,460 832,293 Accumulated other comprehensive loss (189,728) (152,434) Shares in deferred compensation trust - 217,690 and 71,958 shares at an average cost of $30.00 and $30.68 per share, respectively (6,531) (2,208) -------------------- -------------------- Total common equity 1,835,992 1,918,341 -------------------- -------------------- Cumulative preferred stock of subsidiaries, net 114,041 113,953 Long-term debt (excluding current portion) 2,637,848 2,457,941 -------------------- -------------------- 4,587,881 4,490,235 -------------------- -------------------- - --------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds 44,509 10,506 Variable rate demand bonds 55,100 55,100 Commercial paper 242,106 68,389 Other short-term borrowings 28,448 84,318 Accounts payable 237,104 245,480 Accrued interest 37,205 35,713 Accrued taxes 104,150 90,413 Other 189,973 149,818 -------------------- -------------------- 938,595 739,737 -------------------- -------------------- - --------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 692,325 632,472 Accumulated deferred investment tax credits 57,037 59,398 Pension and other benefit obligations 96,306 96,496 Environmental liabilities 48,253 49,144 Other 210,976 136,822 -------------------- -------------------- 1,104,897 974,332 -------------------- -------------------- - --------------------------------------------------------------------------------------------------------------------- Minority interest 41,887 43,378 -------------------- -------------------- - --------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $6,673,260 $6,247,682 ==================== ==================== - --------------------------------------------------------------------------------------------------------------------- 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, 2002 2001 - ----------------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> Cash flows from operating activities: Net income $16,058 $46,920 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation, depletion and amortization 172,309 170,776 Amortization of nuclear fuel 10,417 8,514 Amortization of deferred energy efficiency expenditures 9,030 20,551 Deferred tax benefits and investment tax credits (6,110) (12,210) Gains on dispositions of assets, net (81) (6,584) Equity income from unconsolidated investments, net (16,785) (23,853) Distributions from equity method investments 11,812 3,517 Impairment of available-for-sale securities of McLeodUSA Inc. 27,218 - Other non-cash valuation charges 25,423 11,088 Cumulative effect of a change in accounting principle, net of tax - 12,868 Other (7,521) (10,585) Other changes in assets and liabilities: Accounts receivable 11,944 103,794 Income tax refunds receivable (38,121) (1,556) Gas stored underground 15,891 13,663 Accounts payable 2,874 (86,559) Accrued taxes 13,737 (16,394) Other changes in working capital 28,401 (9,595) -------------------- -------------------- Net cash flows from operating activities 276,496 224,355 -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends (89,891) (78,984) Proceeds from issuance of common stock 28,711 515 Net change in Resources' credit facility 192,761 142,500 Proceeds from issuance of other long-term debt 30,906 202,459 Reductions in other long-term debt (19,999) (70,154) Net change in other short-term borrowings 31,484 (168,657) Other (6,089) (36,657) -------------------- -------------------- Net cash flows from (used for) financing activities 167,883 (8,978) -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Construction and acquisition expenditures: Non-regulated businesses (266,216) (197,181) Regulated domestic utilities (173,774) (148,276) Corporate Services and other (16,903) (15,523) Nuclear decommissioning trust funds (17,658) (17,658) Proceeds from formation of ATC and other asset dispositions 1,762 106,538 Other 15,189 (2,856) -------------------- -------------------- Net cash flows used for investing activities (457,600) (274,956) -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------- Net decrease in cash and temporary cash investments (13,221) (59,579) -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 86,618 148,415 -------------------- -------------------- - ----------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $73,397 $88,836 ==================== ==================== - ----------------------------------------------------------------------------------------------------------------------- Supplemental cash flows information: Cash paid during the period for: Interest $95,213 $95,352 ==================== ==================== Income taxes, net of refunds $4,528 $53,270 ==================== ==================== Noncash investing and financing activities: Capital lease obligations incurred and other $473 $19,664 ==================== ==================== - ----------------------------------------------------------------------------------------------------------------------- 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 GAAP 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 IP&L, WP&L, 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, IP&L'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, 2002 and 2001, (b) the consolidated financial position at June 30, 2002 and December 31, 2001, and (c) the consolidated statement of cash flows for the six months ended June 30, 2002 and 2001, have been made. Because of the seasonal nature of Alliant Energy's utility operations, results for the three and six months ended June 30, 2002 are not necessarily indicative of results that may be expected for the year ending December 31, 2002. 2. Alliant Energy's comprehensive loss, and the components of other comprehensive loss, net of taxes, for the three and six months ended June 30 were as follows (in thousands): <TABLE> <CAPTION> Three Months Six Months ---------------------------- ----------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------- <S> <C> <C> <C> <C> Net income $6,315 $37,721 $16,058 $46,920 Other comprehensive loss: Unrealized gains (losses) on securities: Unrealized holding losses arising during period, net of tax (1) (4,810) (102,465) (10,160) (230,085) Less: reclassification adjustment for losses included in net income, net of tax (2) (3,538) -- (19,723) -- ------------ ------------ ------------ ------------- Net unrealized gains (losses) on securities (1,272) (102,465) 9,563 (230,085) ------------ ------------ ------------ ------------- Foreign currency translation adjustments (50,257) (21,138) (43,385) (68,730) ------------ ------------ ------------ ------------- Unrealized gains (losses) on derivatives qualified as hedges: Unrealized holding losses arising during period, net of tax (631) (758) (66) (488) Less: reclassification adjustment for gains (losses) included in net income, net of tax (651) 15 3,406 (3,782) ------------ ------------ ------------ ------------- Net unrealized gains (losses) on qualifying derivatives 20 (773) (3,472) 3,294 ------------ ------------ ------------ ------------- Other comprehensive loss (51,509) (124,376) (37,294) (295,521) ------------ ------------ ------------ ------------- Comprehensive loss ($45,194) ($86,655) ($21,236) ($248,601) ============ ============ ============ ============= </TABLE> (1) Primarily due to quarterly adjustments to the estimated fair value of Alliant Energy's investments in McLeod (refer to Note 8 for additional information) and Capstone. (2) The three- and six-month 2002 earnings include after-tax losses of $3.5/$16.5 million and $0/$3.2 million related to asset valuation charges for Alliant Energy's McLeod (available-for-sale securities) and Capstone investments, respectively. 8
3. Certain financial information relating to Alliant Energy's significant business segments is presented below. Intersegment revenues were not material to Alliant Energy's operations. Details related to Alliant Energy's results of operations are discussed in MD&A, including certain SFAS 133 valuation income/charges and various asset valuation charges. <TABLE> <CAPTION> Regulated Domestic Utilities Non-regulated Businesses Alliant ----------------------------------------- -------------------------------- Energy Electric Gas Other Total Whiting Other Total Other Consolidated -------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Three Months Ended June 30, 2002 - -------------------------------- Operating revenues $412,650 $65,366 $8,728 $486,744 $30,775 $99,576 $130,351 ($1,880) $615,215 Operating income (loss) 61,941 (783) 1,597 62,755 6,334 761 7,095 (19) 69,831 Net income (loss) 26,930 4,568 (18,314) (13,746) (6,869) 6,315 Three Months Ended June 30, 2001 - -------------------------------- Operating revenues $435,487 $63,432 $8,618 $507,537 $36,356 $69,532 $105,888 ($1,584) $611,841 Operating income (loss) 59,709 (5,097) 1,589 56,201 14,478 (2,899) 11,579 238 68,018 Net income (loss) 22,065 11,502 6,496 17,998 (2,342) 37,721 Six Months Ended June 30, 2002 - ------------------------------ Operating revenues $783,412 $193,607 $18,068 $995,087 $52,623 $206,991 $259,614 ($3,249) $1,251,452 Operating income (loss) 108,348 12,645 4,056 125,049 6,116 1,302 7,418 (203) 132,264 Net income (loss) 53,907 4,612 (33,459) (28,847) (9,002) 16,058 Six Months Ended June 30, 2001 - ------------------------------ Operating revenues $847,430 $353,250 $19,414 $1,220,094 $79,131 $167,669 $246,800 ($2,340) $1,464,554 Operating income (loss) 116,283 14,384 2,481 133,148 34,977 (11,517) 23,460 686 157,294 Cumulative effect of a change in accounting principle, net of tax -- -- (12,868) (12,868) -- (12,868) Net income (loss) 55,393 24,503 (29,510) (5,007) (3,466) 46,920 </TABLE> 4. The provisions for income taxes are based on the estimated annual effective tax rate, which differs from the federal statutory rate of 35% principally due to state income taxes, the impact of foreign income and associated taxes, tax credits, effects of utility rate making and certain non-deductible expenses. 5. Alliant Energy continues to utilize derivative instruments to manage its exposures to various market risks as described in Alliant Energy's, IP&L's and WP&L's Annual Report on Form 10-K for the year ended December 31, 2001. 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 Form 10-K for the year ended December 31, 2001. For the six months ended June 30, 2002, $0.1 million of income was recognized in connection with hedge ineffectiveness in accordance with SFAS 133. At June 30, 2002, the maximum length of time over which Alliant Energy hedged its exposure to the variability in future cash flows for forecasted transactions was nine months and Alliant Energy estimates that losses of $2.4 million will be reclassified from accumulated other comprehensive loss into earnings within the twelve months between July 1, 2002 and June 30, 2003 as the hedged transactions affect earnings. 9
6. A reconciliation of the weighted average common shares outstanding used in the basic and diluted earnings per share calculation for the three and six months ended June 30 was as follows: <TABLE> <CAPTION> Three Months Six Months ------------------------------- ------------------------------- 2002 2001 2002 2001 ------------- -------------- ------------- ------------- <S> <C> <C> <C> <C> Weighted average common shares outstanding: Basic earnings per share calculation 90,470,080 79,053,921 90,217,146 79,040,909 Effect of dilutive securities 82,978 121,548 86,395 145,966 Diluted earnings per share calculation 90,553,058 79,175,469 90,303,541 79,186,875 </TABLE> Options to purchase shares of common stock were excluded from the calculation of diluted earnings per share as the exercise prices were greater than the average market price for the three and six months ended June 30 as follows: <TABLE> <CAPTION> Three Months Six Months ------------------------------- ------------------------------- 2002 2001 2002 2001 ------------- -------------- ------------- ------------- <S> <C> <C> <C> <C> Options to purchase shares of common stock 3,830,442 1,116,278 2,830,765 1,092,203 Average exercise price $29.50 $31.51 $29.94 $31.53 </TABLE> 7. Alliant Energy adopted SFAS 142, "Goodwill and Other Intangible Assets," as of January 1, 2002, which resulted in goodwill no longer being subject to amortization. Consolidated goodwill and other intangible assets are not material to Alliant Energy, and are primarily included in "Deferred charges and other" on the Consolidated Balance Sheets. Had SFAS 142 been adopted January 1, 2001, for the three and six months ended June 30, 2001, net income would have increased $1.1 million and $1.9 million, respectively, and basic and diluted EPS would have increased $0.01 and $0.02 per share, respectively. 8. On January 31, 2002, McLeod filed a pre-negotiated plan of reorganization in a Chapter 11 bankruptcy proceeding and the trading of McLeod's common stock was suspended by Nasdaq. Subsequently, Alliant Energy discontinued accounting for its investment in McLeod under the provisions of SFAS 115 and adjusted its cost basis to the last quoted market price on January 30, 2002. Alliant Energy's cost basis in its available-for-sale securities was reduced from $28 million at December 31, 2001 to a new cost basis of $7 million at January 31, 2002. As a result, the cumulative unrealized pre-tax loss of $21 million (including an unrealized pre-tax loss of $8 million accumulated from January 1, 2002 to January 30, 2002) associated with its previously classified available-for-sale securities was reclassified to earnings in the first quarter of 2002. Alliant Energy's McLeod shares designated as trading securities at December 31, 2001 were also adjusted in the first quarter of 2002 to a new cost basis of $3 million at January 31, 2002 resulting in a pre-tax charge to earnings in the first quarter of 2002 of $3 million. In June 2002, Alliant Energy received from McLeod under its plan of reorganization an initial distribution of approximately 3.3 million shares of new common stock of McLeod. Alliant Energy classified 0.9 million and 2.4 million shares of the initial distribution it received as trading and available-for-sale securities, respectively. With the receipt of the new McLeod common shares and the resumption of trading on Nasdaq of McLeod's common stock in the second quarter of 2002, Alliant Energy resumed accounting for its McLeod investment under SFAS 115 and adjusted its cost basis to the quoted market price on the date the shares were received. Alliant Energy's cost basis in the available-for-sale securities was reduced from $7 million at January 31, 2002 to a new cost basis of $1 million. Alliant Energy's McLeod shares designated as trading securities at January 30, 2002 were initially adjusted in the second quarter of 2002 to a new cost basis of $1 million. The pre-tax charges to earnings recorded in the second quarter of 2002 associated with the resumption of SFAS 115 accounting were $6 million and $2 million for the available-for-sale and trading securities, respectively. 10
9. Alliant Energy has a loan receivable (including accrued interest income) from a Mexican development company in connection with development of a resort community in Mexico. In accordance with SFAS 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures - an Amendment of FASB Statement No. 114," Alliant Energy recorded a valuation allowance on this loan in the second quarter of 2002. The recorded investment in the loan at June 30, 2002 and December 31, 2001 was as follows (in millions): June 30, 2002 December 31, 2001 ----------------- ------------------- Gross loan receivable $45 $41 Less: Valuation allowance 7 -- ----------------- ------------------- Net loan receivable $38 $41 ================= =================== Subsequent to establishing the valuation allowance, Alliant Energy will cease accruing interest income on the loan until the applicable contractual amounts to be paid on the loan become probable. 10. Alliant Energy has fully and unconditionally guaranteed the payment of principal and interest on various debt securities issued by Resources and, as a result, is required to present condensed consolidating financial statements. No other Alliant Energy subsidiaries are guarantors of Resources' debt securities. Alliant Energy's condensed consolidating financial statements are as follows: 11
<TABLE> <CAPTION> Alliant Energy Corporation Condensed Consolidating Statements of Income for the Three Months Ended June 30, 2002 and 2001 Alliant Energy Other Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy --------------------------------------------------------------------- Three Months Ended June 30, 2002 (in thousands) - -------------------------------- <S> <C> <C> <C> <C> <C> Operating revenues: Electric utility $- $- $412,650 $- $412,650 Gas utility - - 65,366 - 65,366 Non-regulated and other - 130,351 83,609 (76,761) 137,199 --------------------------------------------------------------------- - 130,351 561,625 (76,761) 615,215 --------------------------------------------------------------------- Operating expenses: Electric and steam production fuels - - 75,148 - 75,148 Purchased power - - 90,681 - 90,681 Cost of utility gas sold - - 38,719 - 38,719 Other operation and maintenance 424 99,025 203,620 (75,434) 227,635 Depreciation, depletion and amortization - 20,304 65,273 - 85,577 Taxes other than income taxes - 3,926 25,009 (1,311) 27,624 --------------------------------------------------------------------- 424 123,255 498,450 (76,745) 545,384 --------------------------------------------------------------------- Operating income (loss) (424) 7,096 63,175 (16) 69,831 --------------------------------------------------------------------- Interest expense and other: Interest expense 973 23,588 27,789 (1,528) 50,822 Equity (income) loss from unconsolidated investments 321 10,084 (3,479) - 6,926 Allowance for funds used during construction - - (1,696) - (1,696) Preferred dividend requirements of subsidiaries - - 1,682 - 1,682 Impairment of available-for-sale securities of McLeodUSA Inc. - 6,044 - - 6,044 Miscellaneous, net (14,793) (770) (1,360) 14,932 (1,991) --------------------------------------------------------------------- (13,499) 38,946 22,936 13,404 61,787 --------------------------------------------------------------------- Income (loss) before income taxes 13,075 (31,850) 40,239 (13,420) 8,044 --------------------------------------------------------------------- Income tax expense (benefit) 6,760 (18,312) 13,297 (16) 1,729 --------------------------------------------------------------------- Net income (loss) $6,315 ($13,538) $26,942 ($13,404) $6,315 ===================================================================== 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, depletion 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) (25,282) (3,553) - (30,926) Allowance for funds used during construction - - (3,170) - (3,170) Preferred dividend requirements of subsidiaries - - 1,680 - 1,680 Miscellaneous, net (39,272) (443) (5,247) 41,006 (3,956) --------------------------------------------------------------------- (38,526) (8,589) 19,605 38,725 11,215 --------------------------------------------------------------------- Income (loss) before income taxes 38,222 20,168 37,237 (38,824) 56,803 --------------------------------------------------------------------- Income tax expense (benefit) 501 3,529 15,152 (100) 19,082 --------------------------------------------------------------------- Net income (loss) $37,721 $16,639 $22,085 ($38,724) $37,721 ===================================================================== </TABLE> 12
<TABLE> <CAPTION> Alliant Energy Corporation Condensed Consolidating Statements of Income for the Six Months Ended June 30, 2002 and 2001 Alliant Energy Other Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy --------------------------------------------------------------------- Six Months Ended June 30, 2002 (in thousands) - ------------------------------ <S> <C> <C> <C> <C> <C> Operating revenues: Electric utility $- $- $783,412 $- $783,412 Gas utility - - 193,607 - 193,607 Non-regulated and other - 259,614 159,909 (145,090) 274,433 -------------------------------------------------------------------- - 259,614 1,136,928 (145,090) 1,251,452 -------------------------------------------------------------------- Operating expenses: Electric and steam production fuels - - 137,758 - 137,758 Purchased power - - 163,018 - 163,018 Cost of utility gas sold - - 122,475 - 122,475 Other operation and maintenance 931 207,250 399,894 (141,637) 466,438 Depreciation, depletion and amortization - 37,320 134,989 - 172,309 Taxes other than income taxes - 7,626 52,964 (3,400) 57,190 -------------------------------------------------------------------- 931 252,196 1,011,098 (145,037) 1,119,188 -------------------------------------------------------------------- Operating income (loss) (931) 7,418 125,830 (53) 132,264 -------------------------------------------------------------------- Interest expense and other: Interest expense 1,732 43,815 55,330 (3,048) 97,829 Equity (income) loss from unconsolidated investments 550 (9,362) (7,973) - (16,785) Allowance for funds used during construction - - (3,350) - (3,350) Preferred dividend requirements of subsidiaries - - 3,364 - 3,364 Impairment of available-for-sale securities of McLeodUSA Inc. - 27,218 - - 27,218 Miscellaneous, net (27,551) 8,258 (8,630) 28,497 574 -------------------------------------------------------------------- (25,269) 69,929 38,741 25,449 108,850 -------------------------------------------------------------------- Income (loss) before income taxes 24,338 (62,511) 87,089 (25,502) 23,414 -------------------------------------------------------------------- Income tax expense (benefit) 8,280 (34,020) 33,149 (53) 7,356 -------------------------------------------------------------------- Net income (loss) $16,058 ($28,491) $53,940 ($25,449) $16,058 ==================================================================== 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, depletion 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) (10,267) (8,492) - (23,853) Allowance for funds used during construction - - (5,472) - (5,472) Preferred dividend requirements of subsidiaries - - 3,360 - 3,360 Miscellaneous, net (50,398) 290 (9,256) 54,258 (5,106) -------------------------------------------------------------------- (47,637) 25,336 41,436 47,125 66,260 -------------------------------------------------------------------- Income (loss) before income taxes 47,333 (1,876) 92,742 (47,165) 91,034 -------------------------------------------------------------------- Income tax expense (benefit) 413 (6,426) 37,299 (40) 31,246 -------------------------------------------------------------------- Income (loss) before cumulative effect of a change in accounting principle, net of tax 46,920 4,550 55,443 (47,125) 59,788 -------------------------------------------------------------------- Cumulative effect of a change in accounting principle, net of tax - (12,868) - - (12,868) -------------------------------------------------------------------- Net income (loss) $46,920 ($8,318) $55,443 ($47,125) $46,920 ==================================================================== </TABLE> 13
<TABLE> <CAPTION> Alliant Energy Corporation Condensed Consolidating Balance Sheet as of June 30, 2002 Alliant Energy Other Consolidated Parent Alliant Energy Consolidating Alliant ASSETS Company Resources Subsidiaries Adjustments Energy --------------------------------------------------------------------- Property, plant and equipment: (in thousands) <S> <C> <C> <C> <C> <C> Utility: Electric plant in service $- $- $5,237,117 $- $5,237,117 Other plant in service - - 1,145,065 - 1,145,065 Accumulated depreciation - - (3,501,099) - (3,501,099) Construction work in progress - - 139,541 - 139,541 Nuclear fuel, net of amortization - - 44,863 - 44,863 Other, net - - 9,201 - 9,201 --------------------------------------------------------------------- Total utility - - 3,074,688 - 3,074,688 --------------------------------------------------------------------- Non-regulated and other: Whiting - 503,468 - - 503,468 International - 259,049 - - 259,049 Other - 485,700 67,747 (111) 553,336 Accumulated depreciation, depletion and amortization - (246,879) (3,775) - (250,654) --------------------------------------------------------------------- Total non-regulated and other - 1,001,338 63,972 (111) 1,065,199 --------------------------------------------------------------------- - 1,001,338 3,138,660 (111) 4,139,887 --------------------------------------------------------------------- Current assets: Restricted cash - 31,757 396 - 32,153 Notes receivable, net - 20,101 2,269 - 22,370 Income tax refunds receivable 1,764 59,420 6,411 - 67,595 Production fuel, at average cost - 4,748 53,622 - 58,370 Materials and supplies, at average cost - 5,005 50,240 - 55,245 Gas stored underground, at average cost - 18,161 23,062 - 41,223 Derivative assets - 10,071 5,598 - 15,669 Other 237,457 208,126 216,040 (302,683) 358,940 --------------------------------------------------------------------- 239,221 357,389 357,638 (302,683) 651,565 --------------------------------------------------------------------- Investments: Consolidated subsidiaries 1,712,653 - - (1,712,653) - Investment in McLeodUSA Inc. - 1,379 - - 1,379 Other 30,431 498,796 484,223 (15) 1,013,435 --------------------------------------------------------------------- 1,743,084 500,175 484,223 (1,712,668) 1,014,814 --------------------------------------------------------------------- Other assets: Regulatory assets - - 319,721 - 319,721 Derivative assets - 27,729 - - 27,729 Deferred charges and other 1,950 290,885 252,487 (25,778) 519,544 --------------------------------------------------------------------- 1,950 318,614 572,208 (25,778) 866,994 --------------------------------------------------------------------- Total assets $1,984,255 $2,177,516 $4,552,729 ($2,041,240) $6,673,260 =====================================================================
CAPITALIZATION AND LIABILITIES Capitalization: Common stock and additional paid-in capital $1,273,791 $232,743 $789,493 ($1,022,236) $1,273,791 Retained earnings 758,460 146,953 733,311 (880,264) 758,460 Accumulated other comprehensive loss (189,728) (172,843) (16,885) 189,728 (189,728) Shares in deferred compensation trust (6,531) - - - (6,531) --------------------------------------------------------------------- Total common equity 1,835,992 206,853 1,505,919 (1,712,772) 1,835,992 --------------------------------------------------------------------- Cumulative preferred stock of subsidiaries, net - - 114,041 - 114,041 Long-term debt (excluding current portion) 24,000 1,288,145 1,325,703 - 2,637,848 --------------------------------------------------------------------- 1,859,992 1,494,998 2,945,663 (1,712,772) 4,587,881 --------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds - 41,829 2,680 - 44,509 Commercial paper 115,735 126,371 - - 242,106 Other short-term borrowings - 28,448 195,278 (195,278) 28,448 Accrued taxes - 17,807 86,343 - 104,150 Derivative liabilities - 3,520 14,585 - 18,105 Other 3,029 176,729 428,924 (107,405) 501,277 --------------------------------------------------------------------- 118,764 394,704 727,810 (302,683) 938,595 --------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income tax expense (benefit) (1,540) 191,666 502,199 - 692,325 Other 7,039 54,261 377,057 (25,785) 412,572 --------------------------------------------------------------------- 5,499 245,927 879,256 (25,785) 1,104,897 --------------------------------------------------------------------- --------------------------------------------------------------------- Minority interest - 41,887 - - 41,887 --------------------------------------------------------------------- Total capitalization and liabilities $1,984,255 $2,177,516 $4,552,729 ($2,041,240) $6,673,260 ===================================================================== </TABLE> 14
<TABLE> <CAPTION> Alliant Energy Corporation Condensed Consolidating Balance Sheet as of December 31, 2001 Alliant Energy Other Consolidated Parent Alliant Energy Consolidating Alliant ASSETS Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------------ Property, plant and equipment: (in thousands) <S> <C> <C> <C> <C> <C> Utility: Electric plant in service $- $- $5,123,781 $- $5,123,781 Other plant in service - - 1,115,432 - 1,115,432 Accumulated depreciation - - (3,374,867) - (3,374,867) Construction work in progress - - 111,069 - 111,069 Nuclear fuel, net of amortization - - 54,811 - 54,811 Other, net - - 7,383 - 7,383 ------------------------------------------------------------------------ Total utility - - 3,037,609 - 3,037,609 ------------------------------------------------------------------------ Non-regulated and other: Whiting - 396,860 - - 396,860 International - 169,522 - - 169,522 Other - 422,830 51,371 (111) 474,090 Accumulated depreciation, depletion and amortization - (212,927) (2,357) - (215,284) ------------------------------------------------------------------------ Total non-regulated and other - 776,285 49,014 (111) 825,188 ------------------------------------------------------------------------ - 776,285 3,086,623 (111) 3,862,797 ------------------------------------------------------------------------ Current assets: Restricted cash - 42,909 817 - 43,726 Notes receivable, net - 11,684 1,966 - 13,650 Income tax refunds receivable 7,552 15,511 6,411 - 29,474 Production fuel, at average cost - 5,310 49,397 - 54,707 Materials and supplies, at average cost - 4,611 49,790 - 54,401 Gas stored underground, at average cost - 16,480 40,634 - 57,114 Derivative assets - 544 5,961 - 6,505 Other 184,623 190,614 251,158 (259,130) 367,265 ------------------------------------------------------------------------ 192,175 287,663 406,134 (259,130) 626,842 ------------------------------------------------------------------------ Investments: Consolidated subsidiaries 1,793,737 - - (1,793,737) - Investment in McLeodUSA Inc. - 20,739 - - 20,739 Other 32,814 623,053 477,929 (14) 1,133,782 ------------------------------------------------------------------------ 1,826,551 643,792 477,929 (1,793,751) 1,154,521 ------------------------------------------------------------------------ Other assets: Regulatory assets - - 241,973 - 241,973 Deferred charges and other - 124,737 236,812 - 361,549 ------------------------------------------------------------------------ - 124,737 478,785 - 603,522 ------------------------------------------------------------------------ Total assets $2,018,726 $1,832,477 $4,449,471 ($2,052,992) $6,247,682 ========================================================================
CAPITALIZATION AND LIABILITIES Capitalization: Common stock and additional paid-in capital $1,240,690 $232,743 $789,002 ($1,021,745) $1,240,690 Retained earnings 832,293 175,443 749,102 (924,545) 832,293 Accumulated other comprehensive loss (152,434) (140,137) (12,297) 152,434 (152,434) Shares in deferred compensation trust (2,208) - - - (2,208) ------------------------------------------------------------------------ Total common equity 1,918,341 268,049 1,525,807 (1,793,856) 1,918,341 ------------------------------------------------------------------------ Cumulative preferred stock of subsidiaries, net - - 113,953 - 113,953 Long-term debt (excluding current portion) 24,000 1,105,792 1,328,149 - 2,457,941 ------------------------------------------------------------------------ 1,942,341 1,373,841 2,967,909 (1,793,856) 4,490,235 ------------------------------------------------------------------------ Current liabilities: Current maturities and sinking funds - 9,946 560 - 10,506 Commercial paper 68,389 - - - 68,389 Other short-term borrowings - 84,318 - - 84,318 Accrued taxes - 13,026 77,387 - 90,413 Derivative liabilities - 2,463 1,152 - 3,615 Other 4,474 107,356 629,796 (259,130) 482,496 ------------------------------------------------------------------------ 72,863 217,109 708,895 (259,130) 739,737 ------------------------------------------------------------------------ Other long-term liabilities and deferred credits: Accumulated deferred income tax expense (benefit) (4,033) 177,116 459,389 - 632,472 Other 7,555 21,033 313,278 (6) 341,860 ------------------------------------------------------------------------ 3,522 198,149 772,667 (6) 974,332 ------------------------------------------------------------------------ ------------------------------------------------------------------------ Minority interest - 43,378 - - 43,378 ------------------------------------------------------------------------ Total capitalization and liabilities $2,018,726 $1,832,477 $4,449,471 ($2,052,992) $6,247,682 ======================================================================== </TABLE> 15
<TABLE> <CAPTION> Alliant Energy Corporation Consolidating Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001 Alliant Energy Other Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy -------------------------------------------------------------------- Six Months Ended June 30, 2002 (in thousands) - ------------------------------ <S> <C> <C> <C> <C> <C> Net cash flows from (used for) operating activities ($8,931) $38,672 $273,630 ($26,875) $276,496 -------------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends (89,891) - (69,731) 69,731 (89,891) Proceeds from issuance of common stock 28,711 - - - 28,711 Net change in Resources' credit facility - 192,761 - - 192,761 Proceeds from issuance of other long-term debt - 30,906 - - 30,906 Net change in other short-term borrowings 47,346 (15,862) - - 31,484 Other (26,482) (18,497) 16,018 2,873 (26,088) -------------------------------------------------------------------- Net cash flows from (used for) financing activities (40,316) 189,308 (53,713) 72,604 167,883 -------------------------------------------------------------------- Cash flows from (used for) investing activities: Construction and acquisition expenditures: Non-regulated businesses - (266,216) - - (266,216) Regulated domestic utilities - - (173,774) - (173,774) Corporate Services and other - - (16,903) - (16,903) Other 43,837 28,997 (29,751) (43,790) (707) -------------------------------------------------------------------- Net cash flows from (used for) investing activities 43,837 (237,219) (220,428) (43,790) (457,600) -------------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments (5,410) (9,239) (511) 1,939 (13,221) -------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 6,381 66,012 16,164 (1,939) 86,618 -------------------------------------------------------------------- Cash and temporary cash investments at end of period $971 $56,773 $15,653 $- $73,397 ==================================================================== Supplemental cash flows information: Cash paid during the period for: Interest $1,618 $43,350 $50,245 $- $95,213 ==================================================================== Income taxes, net of refunds $- $77 $4,451 $- $4,528 ==================================================================== Noncash investing and financing activities: Capital lease obligations incurred $- $- $473 $- $473 ==================================================================== Six Months Ended June 31, 2001 - ------------------------------ Net cash flows from (used for) operating activities $39,996 $44,785 $199,824 ($60,250) $224,355 -------------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends (78,984) - (70,922) 70,922 (78,984) Proceeds from issuance of common stock 515 - - - 515 Net change in Resources' credit facility - 142,500 - - 142,500 Proceeds from issuance of other long-term debt - 2,459 200,000 - 202,459 Net change in other short-term borrowings (103,274) (65,383) - - (168,657) Other 140,065 (49,952) (200,159) 3,235 (106,811) -------------------------------------------------------------------- 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: Non-regulated businesses - (197,181) - - (197,181) Regulated domestic utilities - - (148,276) - (148,276) Corporate Services - - (15,523) - (15,523) Other 13,891 34,874 51,166 (13,907) 86,024 -------------------------------------------------------------------- Net cash flows from (used for) investing activities 13,891 (162,307) (112,633) (13,907) (274,956) -------------------------------------------------------------------- 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, net of refunds $1,702 ($11,360) $62,928 $- $53,270 ==================================================================== Noncash investing and financing activities: Capital lease obligations incurred and other $- $- $19,664 $- $19,664 ==================================================================== </TABLE> 16
<TABLE> <CAPTION> INTERSTATE POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, 2002 2001 2002 2001 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> <C> <C> Operating revenues: Electric utility $226,266 $257,190 $425,269 $478,742 Gas utility 35,512 38,827 107,254 203,013 Steam 7,500 7,390 15,550 17,033 --------------- --------------- ---------------- -------------- 269,278 303,407 548,073 698,788 --------------- --------------- ---------------- -------------- - -------------------------------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 43,360 49,767 75,702 89,879 Purchased power 37,062 60,318 65,221 106,681 Cost of gas sold 22,210 26,241 68,570 158,247 Other operation and maintenance 80,037 80,465 160,693 164,919 Depreciation and amortization 36,341 36,923 72,552 73,812 Taxes other than income taxes 16,103 16,900 33,019 32,486 --------------- --------------- ---------------- -------------- 235,113 270,614 475,757 626,024 --------------- --------------- ---------------- -------------- - -------------------------------------------------------------------------------------------------------------------------------- Operating income 34,165 32,793 72,316 72,764 --------------- --------------- ---------------- -------------- - -------------------------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 16,718 17,102 32,992 34,580 Allowance for funds used during construction (1,437) (1,847) (2,417) (3,032) Miscellaneous, net (3,271) (2,541) (3,699) (4,752) --------------- --------------- ---------------- -------------- 12,010 12,714 26,876 26,796 --------------- --------------- ---------------- -------------- - -------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 22,155 20,079 45,440 45,968 --------------- --------------- ---------------- -------------- - -------------------------------------------------------------------------------------------------------------------------------- Income taxes 6,354 7,922 16,764 18,127 --------------- --------------- ---------------- -------------- - -------------------------------------------------------------------------------------------------------------------------------- Net income 15,801 12,157 28,676 27,841 --------------- --------------- ---------------- -------------- - -------------------------------------------------------------------------------------------------------------------------------- Preferred dividend requirements 853 852 1,708 1,704 --------------- --------------- ---------------- -------------- - -------------------------------------------------------------------------------------------------------------------------------- Earnings available for common stock $14,948 $11,305 $26,968 $26,137 =============== =============== ================ ============== - -------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 17
<TABLE> <CAPTION> INTERSTATE POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, December 31, ASSETS 2002 2001 - ------------------------------------------------------------------------------------------------------------------ (in thousands) <S> <C> <C> Property, plant and equipment: Electric plant in service $3,410,064 $3,344,188 Gas plant in service 320,652 316,613 Steam plant in service 59,683 59,452 Other plant in service 194,017 182,868 Accumulated depreciation (2,117,836) (2,046,756) ------------------ ----------------- Net plant 1,866,580 1,856,365 Construction work in progress 94,137 73,241 Leased nuclear fuel, net of amortization 30,344 37,407 Other, net 8,497 6,703 ------------------ ----------------- 1,999,558 1,973,716 ------------------ ----------------- - ------------------------------------------------------------------------------------------------------------------ Current assets: Cash 8,840 8,962 Accounts receivable: Customer, less allowance for doubtful accounts of $1,441 and $1,564, respectively 24,232 19,950 Associated companies 11,663 4,718 Other, less allowance for doubtful accounts of $640 and $319, respectively 14,527 25,497 Production fuel, at average cost 37,675 32,083 Materials and supplies, at average cost 29,529 29,121 Gas stored underground, at average cost 7,995 18,447 Regulatory assets 17,013 12,495 Prepayments and other 12,536 11,472 ------------------ ----------------- 164,010 162,745 ------------------ ----------------- - ------------------------------------------------------------------------------------------------------------------ Investments: Nuclear decommissioning trust funds 119,708 117,159 Other 15,105 15,157 ------------------ ----------------- 134,813 132,316 ------------------ ----------------- - ------------------------------------------------------------------------------------------------------------------ Other assets: Regulatory assets 201,376 132,109 Deferred charges and other 28,190 31,103 ------------------ ----------------- 229,566 163,212 ------------------ ----------------- - ------------------------------------------------------------------------------------------------------------------ Total assets $2,527,947 $2,431,989 ================== ================= - ------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 18
<TABLE> <CAPTION> INTERSTATE POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued) June 30, December 31, CAPITALIZATION AND LIABILITIES 2002 2001 - -------------------------------------------------------------------------------------------------------------------- (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 422,427 422,461 Retained earnings 355,001 368,203 Accumulated other comprehensive loss (2,131) (2,131) ------------------ ----------------- Total common equity 808,724 821,960 ------------------ ----------------- Cumulative preferred stock, not mandatorily redeemable 29,139 29,139 Cumulative preferred stock, mandatorily redeemable 24,939 24,850 Long-term debt (excluding current portion) 857,558 860,068 ------------------ ----------------- 1,720,360 1,736,017 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds 2,680 560 Capital lease obligations 14,468 15,292 Notes payable to associated companies 63,092 38,047 Accounts payable 42,138 55,249 Accounts payable to associated companies 32,813 38,255 Accrued interest 15,718 14,715 Accrued taxes 60,773 70,747 Other 41,504 36,424 ------------------ ----------------- 273,186 269,289 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 322,742 268,010 Accumulated deferred investment tax credits 32,964 34,491 Pension and other benefit obligations 44,538 40,573 Environmental liabilities 35,196 38,206 Capital lease obligations 15,925 22,171 Other 83,036 23,232 ------------------ ----------------- 534,401 426,683 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $2,527,947 $2,431,989 ================== ================= - -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 19
<TABLE> <CAPTION> INTERSTATE POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, 2002 2001 - ---------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> Cash flows from operating activities: Net income $28,676 $27,841 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 72,552 73,812 Amortization of leased nuclear fuel 7,537 5,687 Amortization of deferred energy efficiency expenditures 1,849 13,370 Deferred tax benefits and investment tax credits (4,617) (9,397) Refueling outage provision 3,972 (6,097) Other 457 258 Other changes in assets and liabilities: Accounts receivable (257) 90,675 Gas stored underground 10,452 15,429 Accounts payable (11,749) (44,433) Accrued taxes (9,974) (3,213) Adjustment clause balances (6,301) 18,371 Manufactured gas plants insurance refunds - (21,181) Other changes in working capital 47,553 975 ---------------- ---------------- Net cash flows from operating activities 140,150 162,097 ---------------- ---------------- - ---------------------------------------------------------------------------------------------------- Cash flows used for financing activities: Common stock dividends (40,170) (40,170) Preferred stock dividends (1,708) (1,704) Proceeds from issuance of long-term debt - 200,000 Reductions in long-term debt (560) (60,560) Net change in short-term borrowings 25,045 (169,314) Principal payments under capital lease obligations (7,156) (4,933) Other 54 8,680 ---------------- ---------------- Net cash flows used for financing activities (24,495) (68,001) ---------------- ---------------- - ---------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Utility construction expenditures (104,743) (82,017) Nuclear decommissioning trust funds (3,004) (3,004) Other (8,030) (5,947) ---------------- ---------------- Net cash flows used for investing activities (115,777) (90,968) ---------------- ---------------- - ---------------------------------------------------------------------------------------------------- Net increase (decrease) in cash (122) 3,128 ---------------- ---------------- - ---------------------------------------------------------------------------------------------------- Cash at beginning of period 8,962 9,626 ---------------- ---------------- - ---------------------------------------------------------------------------------------------------- Cash at end of period $8,840 $12,754 ================ ================ - ---------------------------------------------------------------------------------------------------- Supplemental cash flows information: Cash paid during the period for: Interest $30,578 $29,555 ================ ================ Income taxes, net of refunds $ - $30,586 ================ ================ Noncash investing and financing activities: Capital lease obligations incurred and other $473 $19,664 ================ ================ - ---------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 20
INTERSTATE 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 IP&L. 1. The interim consolidated financial statements included herein have been prepared by IP&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 GAAP have been condensed or omitted, although management believes that the disclosures are adequate to make the information presented not misleading. The merger of IPC with and into IESU was effective January 1, 2002 and IESU changed its name to IP&L. These statements are prepared on the basis of accounting as a common control merger and reflect the combination of IESU and IPC, both direct subsidiaries of Alliant Energy. IP&L is a direct subsidiary of Alliant Energy. These financial statements should be read in conjunction with IP&L's pro forma combined financial statements and notes thereto included in IP&L's Current Report on Form 8-K dated January 1, 2002, as amended by IP&L's Current Report on Form 8-K/A. 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, 2002 and 2001, (b) the consolidated financial position at June 30, 2002 and December 31, 2001, and (c) the consolidated statement of cash flows for the six months ended June 30, 2002 and 2001, have been made. Because of the seasonal nature of IP&L's operations, results for the three and six months ended June 30, 2002 are not necessarily indicative of results that may be expected for the year ending December 31, 2002. 2. IP&L's comprehensive income, and the components of other comprehensive income, net of taxes, for the three and six months ended June 30 were as follows (in thousands): <TABLE> <CAPTION> Three Months Six Months --------------------------------- --------------------------------- 2002 2001 2002 2001 --------------- --------------- --------------- --------------- <S> <C> <C> <C> <C> Earnings available for common stock $14,948 $11,305 $26,968 $26,137 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 $14,948 $11,305 $26,968 $26,155 =============== =============== =============== =============== </TABLE> 21
3. Certain financial information relating to IP&L's significant business segments is presented below. Intersegment revenues were not material to IP&L's operations. <TABLE> <CAPTION> Electric Gas Other Total ------------------------------------------------------- (in thousands) <S> <C> <C> <C> <C> Three Months Ended June 30, 2002 -------------------------------- Operating revenues $226,266 $35,512 $7,500 $269,278 Operating income (loss) 33,497 (655) 1,323 34,165 Earnings available for common stock 14,948 Three Months Ended June 30, 2001 -------------------------------- Operating revenues $257,190 $38,827 $7,390 $303,407 Operating income (loss) 33,544 (1,972) 1,221 32,793 Earnings available for common stock 11,305 Six Months Ended June 30, 2002 ------------------------------ Operating revenues $425,269 $107,254 $15,550 $548,073 Operating income 61,395 7,525 3,396 72,316 Earnings available for common stock 26,968 Six Months Ended June 30, 2001 ------------------------------ Operating revenues $478,742 $203,013 $17,033 $698,788 Operating income 59,447 11,389 1,928 72,764 Earnings available for common stock 26,137 </TABLE> 22
<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, 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------ (in thousands) <S> <C> <C> <C> <C> Operating revenues: Electric utility $186,384 $178,297 $358,143 $368,688 Gas utility 29,854 24,605 86,353 150,237 Water 1,228 1,228 2,518 2,381 --------------- --------------- --------------- --------------- 217,466 204,130 447,014 521,306 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Operating expenses: Electric production fuels 31,787 28,195 62,056 63,267 Purchased power 53,620 50,796 97,797 103,166 Cost of gas sold 16,509 15,825 53,905 122,077 Other operation and maintenance 50,432 45,072 101,539 90,707 Depreciation and amortization 28,932 32,281 62,438 64,846 Taxes other than income taxes 7,596 8,553 16,546 16,859 --------------- --------------- --------------- --------------- 188,876 180,722 394,281 460,922 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Operating income 28,590 23,408 52,733 60,384 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Interest expense and other: Interest expense 9,952 11,330 20,148 22,526 Equity income from unconsolidated investments (3,486) (3,497) (7,873) (8,347) Allowance for funds used during construction (259) (1,323) (933) (2,440) Miscellaneous, net 2,667 (1,785) (3,474) (1,304) --------------- --------------- --------------- --------------- 8,874 4,725 7,868 10,435 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Income before income taxes 19,716 18,683 44,865 49,949 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Income taxes 6,927 7,132 16,331 19,132 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Net income 12,789 11,551 28,534 30,817 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Preferred dividend requirements 828 828 1,656 1,656 --------------- --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Earnings available for common stock $11,961 $10,723 $26,878 $29,161 =============== =============== =============== =============== - ------------------------------------------------------------------------------------------------------------------------------ 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 (UNAUDITED) June 30, December 31, ASSETS 2002 2001 - --------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> Property, plant and equipment: Electric plant in service $1,827,053 $1,779,593 Gas plant in service 287,112 280,881 Water plant in service 33,075 32,497 Other plant in service 250,526 243,121 Accumulated depreciation (1,383,263) (1,328,111) ----------------- ------------------ Net plant 1,014,503 1,007,981 Construction work in progress 45,404 37,828 Nuclear fuel, net of amortization 14,519 17,404 Other, net 704 681 ----------------- ------------------ 1,075,130 1,063,894 ----------------- ------------------ - --------------------------------------------------------------------------------------------------------------- Current assets: Cash 2,990 4,389 Accounts receivable: Customer, less allowance for doubtful accounts of $894 and $1,543, respectively 9,958 33,190 Associated companies 719 3,676 Other, less allowance for doubtful accounts of $1,721 and $-, respectively 23,809 16,571 Production fuel, at average cost 15,948 17,314 Materials and supplies, at average cost 20,711 20,669 Gas stored underground, at average cost 15,067 22,187 Prepaid gross receipts tax 26,531 25,673 Other 9,012 13,018 ----------------- ------------------ 124,745 156,687 ----------------- ------------------ - --------------------------------------------------------------------------------------------------------------- Investments: Nuclear decommissioning trust funds 218,727 215,794 Investment in ATC and other 128,185 127,941 ----------------- ------------------ 346,912 343,735 ----------------- ------------------ - --------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 118,345 109,864 Deferred charges and other 202,990 205,702 ----------------- ------------------ 321,335 315,566 ----------------- ------------------ - --------------------------------------------------------------------------------------------------------------- Total assets $1,868,122 $1,879,882 ================= ================== - --------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 24
<TABLE> <CAPTION> WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued) June 30, December 31, CAPITALIZATION AND LIABILITIES 2002 2001 - --------------------------------------------------------------------------------------------------------------------- (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 264,603 264,603 Retained earnings 378,649 381,333 Accumulated other comprehensive loss (14,753) (10,167) ------------------ ----------------- Total common equity 694,682 701,952 ------------------ ----------------- Cumulative preferred stock 59,963 59,963 Long-term debt (excluding current portion) 468,145 468,083 ------------------ ----------------- 1,222,790 1,229,998 ------------------ ----------------- - --------------------------------------------------------------------------------------------------------------------- Current liabilities: Variable rate demand bonds 55,100 55,100 Notes payable to associated companies 65,601 90,816 Accounts payable 89,579 98,173 Accounts payable to associated companies 25,859 36,678 Accrued taxes 19,477 2,057 Other 52,322 33,162 ------------------ ----------------- 307,938 315,986 ------------------ ----------------- - --------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 195,825 206,245 Accumulated deferred investment tax credits 24,074 24,907 Customer advances 33,434 34,178 Pension and other benefit obligations 18,347 18,175 Other 65,714 50,393 ------------------ ----------------- 337,394 333,898 ------------------ ----------------- - --------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $1,868,122 $1,879,882 ================== ================= - --------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 25
<TABLE> <CAPTION> WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, 2002 2001 - -------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> Cash flows from operating activities: Net income $28,534 $30,817 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 62,438 64,846 Amortization of nuclear fuel 2,880 2,827 Amortization of deferred energy efficiency expenditures 7,181 7,181 Deferred tax benefits and investment tax credits (5,631) (6,014) Equity income from unconsolidated investments, net (7,873) (8,347) Distributions from equity method investments 7,482 211 Other (5,779) (4,756) Other changes in assets and liabilities: Accounts receivable 18,951 1,940 Gas stored underground 7,120 (1,968) Accounts payable (14,967) (37,440) Accrued taxes 17,420 (2,503) Other changes in working capital 26,444 (446) ------------------ ------------------ Net cash flows from operating activities 144,200 46,348 ------------------ ------------------ - -------------------------------------------------------------------------------------------------------------- Cash flows used for financing activities: Common stock dividends (29,562) (30,752) Preferred stock dividends (1,656) (1,656) Net change in short-term borrowings (25,215) (4,217) Other - 82 ------------------ ------------------ Net cash flows used for financing activities (56,433) (36,543) ------------------ ------------------ - -------------------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Utility construction expenditures (69,031) (66,259) Nuclear decommissioning trust funds (14,654) (14,654) Proceeds from formation of ATC - 74,643 Other (5,481) 126 ------------------ ------------------ Net cash flows used for investing activities (89,166) (6,144) ------------------ ------------------ - -------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash (1,399) 3,661 ------------------ ------------------ - -------------------------------------------------------------------------------------------------------------- Cash at beginning of period 4,389 2,584 ------------------ ------------------ - -------------------------------------------------------------------------------------------------------------- Cash at end of period $2,990 $6,245 ================== ================== - -------------------------------------------------------------------------------------------------------------- Supplemental cash flows information: Cash paid during the period for: Interest $19,668 $22,160 ================== ================== Income taxes, net of refunds $4,396 $30,617 ================== ================== - -------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. </TABLE> 26
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 GAAP 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. WP&L is a direct 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, 2002 and 2001, (b) the consolidated financial position at June 30, 2002 and December 31, 2001, and (c) the consolidated statement of cash flows for the six months ended June 30, 2002 and 2001, have been made. Because of the seasonal nature of WP&L's operations, results for the three and six months ended June 30, 2002 are not necessarily indicative of results that may be expected for the year ending December 31, 2002. 2. WP&L's comprehensive income, and the components of other comprehensive income (loss), net of taxes, for the three and six months ended June 30 were as follows (in thousands): <TABLE> <CAPTION> Three Months Six Months ---------------------------------- --------------------------------- 2002 2001 2002 2001 ---------------- ---------------- ---------------- --------------- <S> <C> <C> <C> <C> Earnings available for common stock $11,961 $10,723 $26,878 $29,161 Other comprehensive income (loss): Unrealized gains (losses) on derivatives qualified as hedges: Unrealized holding gains (losses) arising during period, net of tax (521) 837 (299) 1,801 Less: reclassification adjustment for gains (losses) included in earnings available for common stock, net of tax -- 15 4,287 (3,766) ---------------- ---------------- ---------------- --------------- Net unrealized gains (losses) on qualifying derivatives (521) 822 (4,586) 5,567 ---------------- ---------------- ---------------- --------------- Other comprehensive income (loss) (521) 822 (4,586) 5,567 ---------------- ---------------- ---------------- --------------- Comprehensive income $11,440 $11,545 $22,292 $34,728 ================ ================ ================ =============== </TABLE> 27
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, 2002 -------------------------------- Operating revenues $186,384 $29,854 $1,228 $217,466 Operating income (loss) 28,444 (128) 274 28,590 Earnings available for common stock 11,961 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 Six Months Ended June 30, 2002 ------------------------------ Operating revenues $358,143 $86,353 $2,518 $447,014 Operating income 46,953 5,120 660 52,733 Earnings available for common stock 26,878 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 </TABLE> 28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The primary first tier subsidiaries of Alliant Energy include: IP&L, WP&L, Resources and Corporate Services. Among various other regulatory constraints, Alliant Energy is operating as a registered public utility holding company subject to the limitations imposed by PUHCA. This MD&A includes information relating to Alliant Energy, IP&L and WP&L (as well as Resources and Corporate Services). Where appropriate, information relating to a specific entity has been segregated and labeled as such. 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, IP&L'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 "Other Matters - Other Future Considerations" and in "Future Earnings Outlook;" weather effects on sales and revenues; general economic and political conditions in Alliant Energy's domestic service territories; federal, state and international regulatory or governmental actions, including issues associated with the deregulation of the domestic utility industry, the ability to obtain adequate and timely rate relief and the payment of dividends; 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 and with environmental compliance generally; unanticipated developments that adversely impact Alliant Energy's strategy to grow its non-regulated businesses; Alliant Energy's ability to identify and successfully complete acquisitions, development projects and proposed asset divestitures; improved results from Alliant Energy's Brazil investments, as well as continued growth in earnings from its China investments; unanticipated shifts in earnings at Whiting; enhanced performance by Alliant Energy's other non-regulated businesses as a whole; no material permanent declines in the fair market value of, or expected cash flows from, Alliant Energy's investments; 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 Alliant Energy has investments in; and changes in the rate of inflation. Alliant Energy assumes no obligation, and disclaims any duty, to update the forward-looking statements in this report. UTILITY INDUSTRY REVIEW A summary of the regulatory environment is included in the Form 10-K filed by Alliant Energy, IP&L and WP&L for the year ended December 31, 2001. Set forth below are several recent developments relating to the regulatory environment. Overview - In September 2001, six electric utility companies, including IESU - -------- and IPC, filed an application with FERC to create TRANSLink, a for-profit, transmission-only company. In April 2002, FERC conditionally approved the formation of TRANSLink and TRANSLink's participation in the Midwest ISO. In June 2002, TRANSLink Development Co. LLC was formed to oversee the start-up activities for TRANSLink. Current plans call for IP&L to contribute transmission assets of 69 KV and greater, which have an estimated net book value of approximately $244 million, to TRANSLink in exchange for a corresponding ownership interest in TRANSLink. The TRANSLink proposal is also subject to receipt of all required state regulatory approvals. TRANSLink is currently expected to be operational in 2003. 29
On July 31, 2002, FERC issued a notice of proposed rules intended to standardize the wholesale electric market. While Alliant Energy believes that standardization of the wholesale electric market is necessary and will benefit market participants, Alliant Energy does not currently believe the proposed rules would have a material impact on Alliant Energy. Rates and Regulatory Matters - Alliant Energy's merger-related price freezes - ---------------------------- expired in April 2002 in all of its primary domestic utility jurisdictions and it is currently addressing the recovery of its utility cost increases through numerous rate filings. Alliant Energy currently has the following five rate cases outstanding (dollars in millions): <TABLE> <CAPTION> Interim Interim Utility Filing Increase Increase Effective Case Type Date Requested Granted* Date Notes - ---------------- --------- ----------------- ------------- ------------ ------------- -------------------------------------------- <S> <C> <C> <C> <C> <C> <C> WP&L: 2002 retail E/G/W August 2001 $85 $49 April 2002 ** 2003 retail E/G/W May 2002 59 TBD TBD Anticipate either interim or final rates to be effective in January 2003. Wholesale E February 2002 6 6 April 2002 IP&L retail E March 2002 82 15 July 2002 *** IP&L retail G July 2002 20 TBD TBD *** ------------- ------------ Total $252 $70 ============= ============ </TABLE> * Interim rate relief is implemented subject to refund, pending determination of final rates. ** The PSCW held oral hearings in early August to decide the contested issues in the case. Such tentative decisions included the granting of a 12.3% return on common equity (as compared to the 11.7% current return). An estimate of the overall final rate increase to be granted is not yet available. A final order is expected to be issued in September 2002. *** As required by statute, the IUB must decide on requests for interim and final rate relief within 90 days and 10 months after the rate increase application is filed, respectively. IP&L only requested interim rate relief of $22 million in its retail electric case. While Alliant Energy still expects to receive reasonable rate increases in all of these cases, the anticipated timing of when certain increases will occur has been delayed versus prior estimates. Alliant Energy continues to make significant investments in its utility infrastructure to continue providing safe and reliable utility service. As a result, delays in the timing and implementation of the anticipated rate increases continue to apply short-term downward pressure on earnings. In March 2002, WP&L filed with the PSCW to refund approximately $4 million to customers based on lower than projected fuel and purchased-power costs in 2001. In addition, in March 2002, WP&L filed with and received approval from the PSCW for a decrease in retail electric rates of approximately $19 million, effective March 23, 2002, based on lower projected 2002 fuel and purchased-power costs. The refund amounts ultimately provided by WP&L are subject to PSCW approval, expected in the third quarter of 2002. WP&L has recorded the necessary reserves for refunds at June 30, 2002. The PSCW has recently issued new rules relating to the collection of fuel and purchased-power costs by Wisconsin utilities, including WP&L. The new rules are intended, among other things, to significantly reduce regulatory lag for the utilities related to the timing of the recovery of increased fuel and purchased-power costs. Purchased-power capacity costs will now be included in base rates. A process will also exist whereby the utilities can seek deferral treatment of capacity, transmission and emergency costs between base rate cases. The new rules are expected to be implemented for WP&L beginning in January 2003. 30
In January 2001, the IUB issued an order requiring IESU and IPC to file a joint fuel procurement plan for the purpose of evaluating the reasonableness of the Iowa utilities' fuel procurement contracts. In April 2002, the IUB issued an order, which found no reason to require a refund of past fuel and purchased-power cost collections or disallow recovery of ongoing collections. However, the IUB indicated it will continue to examine in other forums several issues related to purchased-power contracts, the design of the fuel cost recovery mechanism and long-term planning practices. IP&L cannot presently predict the impact, if any, this matter may have on its financial condition and results of operations. 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's EPS for the second - --------------------------------- quarter of 2002 and 2001 were as follows: <TABLE> <CAPTION> 2002 2001 -------- ---------- <S> <C> <C> EPS per GAAP $0.07 $0.48 Less: Non-cash SFAS 133 income related to the valuation of electricity derivatives held by Southern Hydro 0.07 0.21 Non-cash SFAS 133 valuation charges related to Resources' 30-year exchangeable senior notes (0.02) (0.06) Valuation charge related to Alliant Energy's McLeod investment (available-for-sale securities) (0.04) -- -------- ---------- Adjusted EPS * $0.06 $0.32** ======== ========== </TABLE> * Adjusted EPS is a non-GAAP measure of accounting and should be evaluated in connection with GAAP information. ** Does not foot due to rounding. The second quarter 2002 decrease in adjusted earnings was due to a decrease in earnings from Alliant Energy's non-regulated businesses of $0.26 per share. Earnings from utility operations increased $0.06 per share due to higher electric and gas margins and a lower effective income tax rate, partially offset by higher operating expenses. The increased utility earnings were offset by higher expenses at the parent company. A breakdown of Alliant Energy's non-regulated adjusted EPS for the three and six months ended June 30 is as follows (the adjustments to GAAP EPS in the previous table were all recorded at Alliant Energy's non-regulated businesses): <TABLE> <CAPTION> Three Months Six Months -------------------------------------- ------------------------------------- 2002* 2001 Variance 2002* 2001 Variance --------- --------- ----------- --------- --------- ----------- <S> <C> <C> <C> <C> <C> <C> Investments business unit $0.10 $0.19 ($0.09) $0.12 $0.37 ($0.25) International business unit (0.18) (0.11) (0.07) (0.32) (0.21) (0.11) Integrated Services business unit (0.06) (0.04) (0.02) (0.13) (0.04) (0.09) Generation and Trading business unit (0.01) 0.01 (0.02) (0.03) -- (0.03) Other (0.03) 0.03 (0.06) (0.08) 0.01 (0.09) --------- --------- ----------- --------- --------- ----------- Total adjusted EPS ($0.18) $0.08 ($0.26) ($0.44) $0.13 ($0.57) ========= ========= =========== ========= ========= =========== </TABLE> * The 2002 EPS figures have been computed based on the average shares outstanding in 2001 as it is Alliant Energy's practice to report the dilutive impact of increased shares outstanding as a separate earnings variance item. The lower earnings from the Investments business unit were largely due to lower oil and gas prices and higher depletion expense at Whiting. The second quarter 2001 Whiting results also included income from a gain on an asset sale. These items were partially offset by higher gas volumes. The lower results from the International business unit were primarily due to lower results from Alliant Energy's Brazil investments, partially offset by 31
improved results from Alliant Energy's Australia and China investments. The decreased Brazil results were due to lower electric sales resulting from the slower than anticipated recovery in electricity usage following the recently lifted drought-related rationing program; a charge of $0.03 per share related to the recovery of the impacts of rationing and other prior costs; losses incurred by a thermal plant recently constructed by Alliant Energy and its Brazilian partners due to the depressed wholesale power market and the impact of a decline in the currency rate on the debt issued to finance the plant; and higher interest expense. The increased results from Australia were largely due to higher sales volumes. The higher results from China were primarily due to earnings from additional generation facilities added to Alliant Energy's China portfolio during the last year. The Integrated Services business unit recorded an asset valuation charge of $0.05 per share in the second quarter of 2002 related to its loan receivable from a Mexican development company in connection with the development of a resort community near the Baja peninsula in Mexico. This was partially offset by lower interest expense and the elimination of goodwill amortization expense in compliance with new accounting rules effective in 2002. The lower Generation and Trading results were due to lower earnings from Alliant Energy's electricity-trading joint venture (refer to "Liquidity and Capital Resources - Sales of Non-strategic Assets" for additional information). Domestic Electric Utility Operations - Electric margins and MWh sales for - ------------------------------------ Alliant Energy for the three months ended June 30 were as follows (in thousands): <TABLE> <CAPTION> Revenues and Costs MWhs Sold --------------------------------------- ------------------------------------- 2002 2001 Change 2002 2001 Change --------------------------------------- ------------------------------------- <S> <C> <C> <C> <C> <C> <C> Residential $135,032 $135,034 -- 1,643 1,549 6% Commercial 90,209 95,421 (5%) 1,339 1,330 1% Industrial 134,314 147,483 (9%) 3,153 3,217 (2%) ----------------------------- -------------------------- Total from ultimate customers 359,555 377,938 (5%) 6,135 6,096 1% Sales for resale 38,970 46,783 (17%) 1,219 1,246 (2%) Other 14,125 10,766 31% 42 44 (5%) ----------------------------- -------------------------- Total revenues/sales 412,650 435,487 (5%) 7,396 7,386 -- ========================== Electric production fuels expense 70,980 73,428 (3%) Purchased-power expense 90,681 111,114 (18%) ----------------------------- Margin $250,989 $250,945 -- ============================= </TABLE> Electric margins and MWh sales for Alliant Energy for the six months ended June 30 were as follows (in thousands): <TABLE> <CAPTION> Revenues and Costs MWhs Sold --------------------------------------- ------------------------------------- 2002 2001 Change 2002 2001 Change --------------------------------------- ------------------------------------- <S> <C> <C> <C> <C> <C> <C> Residential $272,279 $284,721 (4%) 3,516 3,520 -- Commercial 168,001 180,475 (7%) 2,635 2,661 (1%) Industrial 242,394 264,150 (8%) 5,999 6,200 (3%) ------------------------------ -------------------------- Total from ultimate customers 682,674 729,346 (6%) 12,150 12,381 (2%) Sales for resale 75,380 95,206 (21%) 2,422 2,502 (3%) Other 25,358 22,878 11% 86 86 -- ------------------------------ -------------------------- Total revenues/sales 783,412 847,430 (8%) 14,658 14,969 (2%) ========================== Electric production fuels expense 129,741 141,701 (8%) Purchased-power expense 163,018 209,847 (22%) ------------------------------ Margin $490,653 $495,882 (1%) ============================== </TABLE> Electric margin increased slightly and decreased $5.2 million, or 1%, for the three- and six-month periods, respectively. The three-month increase was primarily due to the impact of more favorable weather conditions, two interim rate increases implemented in the second quarter of 2002 and continued retail customer growth. These items were offset by the effect of a continuing sluggish economy in the upper Midwest, which reduced Alliant Energy's electric industrial sales 2%, and reduced energy conservation 32
revenues. The six-month decrease was primarily related to decreased retail sales due to the sluggish economy, which reduced Alliant Energy's industrial sales 3%, and reduced energy conservation revenues. Such items were partially offset by continued retail customer growth, interim rate increases implemented in the second quarter of 2002 and decreased purchased-power costs impacting margin. The reduced energy conservation revenues in both periods were largely offset by lower energy conservation expenses. Refer to "Utility Industry Review - Rates and Regulatory Matters" for discussion of various rate filings. Gas Utility Operations - Gas margins and Dth sales for Alliant Energy for the - ---------------------- three months ended June 30 were as follows (in thousands): <TABLE> <CAPTION> Revenues and Costs Dths Sold --------------------------------------- ------------------------------------ 2002 2001 Change 2002 2001 Change --------------------------------------- ------------------------------------ <S> <C> <C> <C> <C> <C> <C> Residential $34,991 $34,337 2% 4,731 3,645 30% Commercial 16,956 16,710 1% 2,903 2,213 31% Industrial 4,076 5,410 (25%) 882 892 (1%) Transportation/other 9,343 6,975 34% 10,339 10,638 (3%) ----------------------------- ------------------------- Total revenues/sales 65,366 63,432 3% 18,855 17,388 8% ========================= Cost of utility gas sold 38,719 42,066 (8%) ----------------------------- Margin $26,647 $21,366 25% ============================= </TABLE> Gas margins and Dth sales for Alliant Energy for the six months ended June 30 were as follows (in thousands): <TABLE> <CAPTION> Revenues and Costs Dths Sold --------------------------------------- ------------------------------------- 2002 2001 Change 2002 2001 Change --------------------------------------- ------------------------------------- <S> <C> <C> <C> <C> <C> <C> Residential $111,577 $200,894 (44%) 18,150 19,225 (6%) Commercial 54,952 105,765 (48%) 10,733 11,272 (5%) Industrial 10,117 20,033 (49%) 2,351 2,522 (7%) Transportation/other 16,961 26,558 (36%) 23,153 24,597 (6%) ---------------------------- -------------------------- Total revenues/sales 193,607 353,250 (45%) 54,387 57,616 (6%) ========================== Cost of utility gas sold 122,475 280,324 (56%) ---------------------------- Margin $71,132 $72,926 (2%) ============================ </TABLE> Gas revenues and cost of utility gas sold decreased significantly for the six-month period due to the large decrease in natural gas prices from the first half of 2001. Due to Alliant Energy's rate recovery mechanisms for gas costs, these decreases alone had little impact on gas margin. Gas margin increased $5.3 million, or 25%, and decreased $1.8 million, or 2%, for the three- and six-month periods, respectively. The three-month increase was primarily due to the impact of more favorable weather conditions in the second quarter of 2002 and continued retail customer growth, partially offset by the effect of the sluggish economy. The six-month decrease was primarily due to reduced energy conservation revenues and the impact of lower sales resulting from extremely mild weather in the first quarter of 2002 and the sluggish economy. These items were partially offset by increased sales from continued retail customer growth and improved performance related to WP&L's performance-based commodity cost recovery program. The reduced energy conservation revenues were largely offset by lower energy conservation expenses. Refer to "Utility Industry Review - Rates and Regulatory Matters" for discussion of various rate filings. 33
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): 2002 2001 2002 2001 --------------- -------------- ---------------- ------------- <S> <C> <C> <C> <C> Integrated Services $45,022 $48,210 $102,228 $132,410 Investments: Whiting 30,775 36,356 52,623 79,131 Other 11,567 11,966 22,353 22,576 International 33,553 9,654 61,405 15,941 Other 16,282 6,736 35,824 13,816 --------------- -------------- ---------------- ------------- $137,199 $112,922 $274,433 $263,874 =============== ============== ================ ============= </TABLE> <TABLE> <CAPTION> Three Months Six Months ------------------------------- ------------------------------- 2002 2001 2002 2001 -------------- --------------- --------------- -------------- <S> <C> <C> <C> <C> Whiting's volumes sold (in thousands): Oil (barrels) 549 532 1,015 1,097 Gas (Dth) 5,356 4,460 10,299 8,782 Whiting's average product prices: Oil (per barrel) $22.38 $25.15 $20.60 $25.34 Gas (per Dth) $3.22 $4.26 $2.80 $5.12 </TABLE> The decreased Integrated Services revenues were primarily due to decreased gas revenues resulting from lower natural gas prices and lower sales as a result of the sluggish economy. Reduced revenues at Whiting were primarily due to lower oil and gas prices, partially offset by higher gas volumes. International revenues increased primarily due to the third quarter 2001 acquisitions of additional combined heat and power facilities in China and Alliant Energy acquiring a controlling interest in Southern Hydro in March 2002, changing from the equity method of accounting to the consolidation method at such time. Other revenues increased primarily due to the fourth quarter 2001 acquisition of a controlling interest in SmartEnergy, Inc., an energy services company operating in competitive energy markets. 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 ------------------------------ ------------------------------ 2002 2001 2002 2001 ------------- -------------- -------------- ------------- <S> <C> <C> <C> <C> Utility $130,469 $125,538 $262,232 $255,627 Integrated Services 42,826 45,457 95,448 125,642 Investments: Whiting 11,895 11,366 23,637 23,096 Other 7,111 7,035 13,977 14,098 International 24,041 7,664 46,514 16,129 Other (includes eliminations) 11,293 (74) 24,630 590 ------------- -------------- -------------- ------------- $227,635 $196,986 $466,438 $435,182 ============= ============== ============== ============= </TABLE> The utility increases were primarily due to increased fossil-fuel and nuclear generation expenses and increased employee benefits expenses, partially offset by reduced energy conservation expenses. Alliant Energy's remaining price freezes (which were implemented in connection with the three-way merger in 1998) expired in April 2002. Alliant Energy is addressing the recovery of its utility cost increases related to ongoing investments to continue providing safe and reliable utility service through rate filings in Wisconsin, Iowa and with FERC in 2002 (refer to "Utility Industry Review - Rates and Regulatory Matters" for additional information). The Integrated 34
Services, International and Other variances were largely driven by the same factors impacting the revenue variances discussed earlier. Depreciation, depletion and amortization expense decreased $0.6 million and increased $1.5 million for the three- and six-month periods, respectively. Items contributing to lower expense for the three- and six-month periods included: decreases of $3.4 million and $6.8 million, respectively, from the implementation of lower depreciation rates at IP&L on January 1, 2002, resulting from an updated depreciation study; lower decommissioning expense based on reduced retail funding levels at WP&L ; and the elimination of $1.4 million and $2.4 million, respectively, of goodwill amortization expense in compliance with new accounting rules effective in 2002. These items were largely offset by the impacts of property additions and higher depletion expense at Whiting, largely due to ongoing acquisitions of additional oil and gas properties. Interest Expense and Other - 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 ---------------------------- ---------------------------- 2002 2001 2002 2001 ------------- ------------- -------------- ------------ <S> <C> <C> <C> <C> Australia/New Zealand $144 $24,889 $21,254 $9,698 ATC 3,061 3,242 7,174 8,026 China* 157 988 475 2,391 Cargill-Alliant (321) 2,091 (550) 5,094 Brazil (7,230) 185 (8,924) (1,295) Other (2,737) (469) (2,644) (61) ------------- ------------- -------------- ------------ ($6,926) $30,926 $16,785 $23,853 ============= ============= ============== ============ </TABLE> * Majority of investments are accounted for under the consolidation method. Equity income from unconsolidated investments decreased $37.9 million and $7.1 million for the three- and six-month periods. The Australia/New Zealand variances were primarily due to changes in non-cash SFAS 133 valuation income associated with electricity derivatives at Southern Hydro. As noted earlier, Alliant Energy began accounting for its investment in Southern Hydro under the consolidation method in March 2002. The second quarter of 2001 included $25.3 million of such pre-tax income and the six-month period included a pre-tax increase of $13.5 million of non-cash SFAS 133 valuation income. The losses at Cargill-Alliant were due to fewer weather-related trading opportunities. Refer to "Overview - Second Quarter Results" for discussion of the factors responsible for the lower Brazil results. Refer to Note 8 of Alliant Energy's Notes to Consolidated Financial Statements for discussion of the asset valuation charges recorded by Alliant Energy in the first and second quarters of 2002 related to its McLeod available-for-sale securities. Miscellaneous, net income decreased $2.0 million and $5.7 million for the three- and six-month periods, respectively, due to the recording of pre-tax asset valuation charges related to Alliant Energy's investments in -- Enermetrix (Q1/$8.5 million); loan receivable from a Mexican development company in connection with development of a resort community in Mexico (Q2/$6.9 million); and Capstone (Q1/$5.0 million) -- and gains from sales of Whiting oil and gas properties realized in 2001. These items were partially offset in the three- and six-month periods by pre-tax, non-cash SFAS 133 valuation income of $8.3 million and $15.4 million, respectively, related to Southern Hydro's electricity derivatives after the investment was consolidated in March 2002 and lower pre-tax, non-cash SFAS 133 valuation charges of $4.5 million and $6.0 million, respectively, related to the derivative component of Alliant Energy's exchangeable senior notes and McLeod trading securities. Income Taxes - The effective income tax rates were 17.8% and 27.5% for the - ------------ three- and six-month periods ended June 30, 2002, respectively, compared with 32.6% and 33.1% for the same periods last year. The decrease for both periods was primarily due to higher tax credits and decreases in property-related temporary differences for which deferred taxes are not provided pursuant to rate making principles. 35
Cumulative Effect of a Change in Accounting Principle - In the first quarter - ----------------------------------------------------- of 2001, Alliant Energy recorded a charge of $12.9 million relating to the adoption of SFAS 133 on January 1, 2001 at Southern Hydro. IP&L RESULTS OF OPERATIONS Overview - Second Quarter Results - Earnings available for common stock - --------------------------------- increased $3.6 million, primarily due to more favorable weather and a lower effective income tax rate, partially offset by a continuing sluggish economy in the upper Midwest. Electric Utility Operations - Electric margins and MWh sales for IP&L for the - --------------------------- three months ended June 30 were as follows (in thousands): <TABLE> <CAPTION> Revenues and Costs MWhs Sold --------------------------------------- ---------------------------------- 2002 2001 Change 2002 2001 Change --------------------------------------- ---------------------------------- <S> <C> <C> <C> <C> <C> <C> Residential $76,432 $80,399 (5%) 897 847 6% Commercial 54,191 61,818 (12%) 810 831 (3%) Industrial 80,467 93,778 (14%) 2,008 2,057 (2%) ---------------------------- ------------------------ Total from ultimate customers 211,090 235,995 (11%) 3,715 3,735 (1%) Sales for resale 8,400 14,254 (41%) 350 363 (4%) Other 6,776 6,941 (2%) 26 27 (4%) ---------------------------- ------------------------ Total revenues/sales 226,266 257,190 (12%) 4,091 4,125 (1%) ======================== Electric production fuels expense 39,194 45,233 (13%) Purchased-power expense 37,062 60,318 (39%) ---------------------------- Margin $150,010 $151,639 (1%) ============================ </TABLE> Electric margins and MWh sales for IP&L for the six months ended June 30 were as follows (in thousands): <TABLE> <CAPTION> Revenues and Costs MWhs Sold --------------------------------------- ----------------------------------- 2002 2001 Change 2002 2001 Change --------------------------------------- ----------------------------------- <S> <C> <C> <C> <C> <C> <C> Residential $152,397 $163,508 (7%) 1,919 1,911 -- Commercial 100,272 112,345 (11%) 1,598 1,620 (1%) Industrial 143,334 162,177 (12%) 3,842 3,944 (3%) ---------------------------- ------------------------ Total from ultimate customers 396,003 438,030 (10%) 7,359 7,475 (2%) Sales for resale 16,398 27,334 (40%) 658 774 (15%) Other 12,868 13,378 (4%) 54 53 2% ---------------------------- ------------------------ Total revenues/sales 425,269 478,742 (11%) 8,071 8,302 (3%) ======================== Electric production fuels expense 67,685 78,434 (14%) Purchased-power expense 65,221 106,681 (39%) ---------------------------- Margin $292,363 $293,627 -- ============================ </TABLE> Electric margin decreased $1.6 million, or 1%, and $1.3 million, for the three- and six-month periods, respectively, primarily due to reduced energy conservation revenues of $4.2 million and $9.3 million, respectively, and the sluggish economy, partially offset by increased sales from continued retail customer growth. More favorable weather conditions and decreased purchased-power capacity costs partially offset the three- and six-month decreases, respectively. The reduced energy conservation revenues in both periods were largely offset by lower energy conservation expenses. Refer to "Utility Industry Review - Rates and Regulatory Matters" for discussion of IP&L's rate filings. 36
Gas Utility Operations - Gas margins and Dth sales for IP&L for the three - ---------------------- months ended June 30 were as follows (in thousands): <TABLE> <CAPTION> Revenues and Costs Dths Sold --------------------------------------- ---------------------------------- 2002 2001 Change 2002 2001 Change --------------------------------------- ---------------------------------- <S> <C> <C> <C> <C> <C> <C> Residential $20,517 $21,406 (4%) 2,706 2,175 24% Commercial 9,499 9,747 (3%) 1,553 1,234 26% Industrial 3,116 4,325 (28%) 685 736 (7%) Transportation/other 2,380 3,349 (29%) 6,347 7,488 (15%) ---------------------------- ------------------------ Total revenues/sales 35,512 38,827 (9%) 11,291 11,633 (3%) ======================== Cost of gas sold 22,210 26,241 (15%) ---------------------------- Margin $13,302 $12,586 6% ============================ </TABLE> Gas margins and Dth sales for IP&L for the six months ended June 30 were as follows (in thousands): <TABLE> <CAPTION> Revenues and Costs Dths Sold --------------------------------------- ----------------------------------- 2002 2001 Change 2002 2001 Change --------------------------------------- ----------------------------------- <S> <C> <C> <C> <C> <C> <C> Residential $64,377 $120,870 (47%) 10,644 11,647 (9%) Commercial 31,002 61,806 (50%) 6,049 6,609 (8%) Industrial 6,583 13,282 (50%) 1,569 1,786 (12%) Transportation/other 5,292 7,055 (25%) 14,273 16,043 (11%) ---------------------------- ------------------------- Total revenues/sales 107,254 203,013 (47%) 32,535 36,085 (10%) ========================= Cost of gas sold 68,570 158,247 (57%) ---------------------------- Margin $38,684 $44,766 (14%) ============================ </TABLE> Gas revenues and cost of gas sold decreased significantly for the six-month period due to the large decrease in natural gas prices from the first half of 2001. Such decreases alone had no impact on IP&L's gas margin given its rate recovery mechanism for gas costs. Gas margin decreased $6.1 million, or 14%, for the six-month period primarily due to reduced energy conservation revenues of $4.2 million and the impact of lower sales resulting from extremely mild weather in the first quarter of 2002 and the sluggish economy. The reduced energy conservation revenues were largely offset by lower energy conservation expenses. Refer to "Utility Industry Review - Rates and Regulatory Matters" for discussion of IP&L's rate filings. Other Operating Expenses - Other operation and maintenance expenses decreased - ------------------------ $0.4 million and $4.2 million for the three- and six-month periods, respectively, primarily due to a decrease in energy conservation expenses of $3.5 million and $11.2 million, respectively, partially offset by increased fossil-fuel and nuclear generation expenses. Depreciation and amortization expense decreased $0.6 million and $1.3 million for the three- and six-month periods primarily due to $3.4 million and $6.8 million, respectively, from implementation of the lower depreciation rates on January 1, 2002, resulting from an updated depreciation study, largely offset by property additions. Income Taxes - The effective income tax rates were 28.7% and 36.9% for the - ------------ three- and six-month periods ended June 30, 2002, respectively, compared with 39.5% and 39.4% for the same periods last year. The decreases were primarily due to decreases in property-related temporary differences for which deferred taxes are not provided pursuant to rate making principles. 37
WP&L RESULTS OF OPERATIONS Overview - Second Quarter Results - Earnings available for common stock - --------------------------------- increased $1.2 million, primarily due to higher gas and electric margins, partially offset by higher generation expenses. Electric Utility Operations - Electric margins and MWh sales for WP&L for the - --------------------------- three months ended June 30 were as follows (in thousands): <TABLE> <CAPTION> Revenues and Costs MWhs Sold --------------------------------------- ----------------------------------- 2002 2001 Change 2002 2001 Change --------------------------------------- ----------------------------------- <S> <C> <C> <C> <C> <C> <C> Residential $58,600 $54,635 7% 746 702 6% Commercial 36,018 33,603 7% 530 499 6% Industrial 53,847 53,705 -- 1,145 1,160 (1%) --------------------------- ------------------------- Total from ultimate customers 148,465 141,943 5% 2,421 2,361 3% Sales for resale 30,570 32,529 (6%) 870 883 (1%) Other 7,349 3,825 92% 15 17 (12%) --------------------------- ------------------------- Total revenues/sales 186,384 178,297 5% 3,306 3,261 1% ========================= Electric production fuels expense 31,787 28,195 13% Purchased-power expense 53,620 50,796 6% --------------------------- Margin $100,977 $99,306 2% =========================== </TABLE> Electric margins and MWh sales for WP&L for the six months ended June 30 were as follows (in thousands): <TABLE> <CAPTION> Revenues and Costs MWhs Sold --------------------------------------- ----------------------------------- 2002 2001 Change 2002 2001 Change --------------------------------------- ----------------------------------- <S> <C> <C> <C> <C> <C> <C> Residential $119,882 $121,213 (1%) 1,597 1,609 (1%) Commercial 67,729 68,130 (1%) 1,037 1,041 -- Industrial 99,060 101,973 (3%) 2,157 2,256 (4%) ---------------------------- ------------------------ Total from ultimate customers 286,671 291,316 (2%) 4,791 4,906 (2%) Sales for resale 58,982 67,872 (13%) 1,763 1,728 2% Other 12,490 9,500 31% 32 33 (3%) ---------------------------- ------------------------ Total revenues/sales 358,143 368,688 (3%) 6,586 6,667 (1%) ======================== Electric production fuels expense 62,056 63,267 (2%) Purchased-power expense 97,797 103,166 (5%) ---------------------------- Margin $198,290 $202,255 (2%) ============================ </TABLE> Electric margin increased $1.7 million, or 2%, and decreased $4.0 million, or 2%, for the three- and six-month periods, respectively. The three-month increase was primarily due to two interim rate increases implemented in the second quarter of 2002, more favorable weather conditions and continued retail customer growth, partially offset by the effect of a continuing sluggish economy. The six-month decrease was primarily due to the sluggish economy, partially offset by several interim rate increases implemented in the second quarter of 2002 and continued retail customer growth. The economic slowdown had the most significant impact on industrial sales, which decreased 1% and 4% for the three- and six-month periods, respectively. Refer to "Utility Industry Review - Rates and Regulatory Matters" for information on WP&L's rate filings. 38
Gas Utility Operations - Gas margins and Dth sales for WP&L for the three - ---------------------- months ended June 30 were as follows (in thousands): <TABLE> <CAPTION> Revenues and Costs Dths Sold --------------------------------------- ---------------------------------------- 2002 2001 Change 2002 2001 Change --------------------------------------- ---------------------------------------- <S> <C> <C> <C> <C> <C> <C> Residential $14,474 $12,931 12% 2,025 1,470 38% Commercial 7,457 6,963 7% 1,350 979 38% Industrial 960 1,085 (12%) 197 156 26% Transportation/other 6,963 3,626 92% 3,992 3,150 27% --------------------------- ---------------------------- Total revenues/sales 29,854 24,605 21% 7,564 5,755 31% ============================ Cost of gas sold 16,509 15,825 4% --------------------------- Margin $13,345 $8,780 52% =========================== </TABLE> Gas margins and Dth sales for WP&L for the six months ended June 30 were as follows (in thousands): <TABLE> <CAPTION> Revenues and Costs Dths Sold --------------------------------------- -------------------------------------- 2002 2001 Change 2002 2001 Change --------------------------------------- -------------------------------------- <S> <C> <C> <C> <C> <C> <C> Residential $47,200 $80,024 (41%) 7,506 7,578 (1%) Commercial 23,950 43,959 (46%) 4,684 4,663 -- Industrial 3,534 6,751 (48%) 782 736 6% Transportation/other 11,669 19,503 (40%) 8,880 8,554 4% --------------------------- ---------------------------- Total revenues/sales 86,353 150,237 (43%) 21,852 21,531 1% ============================ Cost of gas sold 53,905 122,077 (56%) --------------------------- Margin $32,448 $28,160 15% =========================== </TABLE> Gas revenues and cost of gas sold decreased significantly for the six-month period due to the large decrease in natural gas prices from the first half of 2001. Due to WP&L's rate recovery mechanism for gas costs, these decreases alone had little impact on gas margin. Gas margin increased $4.6 million, or 52%, and $4.3 million, or 15%, for the three- and six-month periods, respectively. The three-month increase was primarily due to increased sales from continued retail customer growth and more favorable weather conditions. The six-month increase was primarily due to improved performance related to WP&L's performance-based commodity cost recovery program and the continued retail customer growth. Refer to "Utility Industry Review - Rates and Regulatory Matters" for information on WP&L's rate filings. Other Operating Expenses - Other operation and maintenance expenses increased - ------------------------ $5.4 million and $10.8 million for the three- and six-month periods, respectively, resulting from higher fossil-fuel and nuclear generation expenses and increased employee benefits expenses. Depreciation and amortization expense decreased $3.3 million and $2.4 million for the three- and six-month periods, respectively, primarily due to lower decommissioning expense based on reduced retail funding levels, partially offset by property additions. Earnings on the nuclear decommissioning trust fund decreased and increased for the three- and six-month periods, respectively. The accounting for earnings on the nuclear decommissioning trust fund results in no net income impact. Miscellaneous, net income is increased for earnings on the trust fund, which is offset in depreciation expense. Interest Expense and Other - Interest expense decreased $1.4 million and $2.4 - -------------------------- million for the three- and six-month periods, respectively, primarily due to the impact of lower interest rates on WP&L's variable rate borrowings. Miscellaneous, net income decreased $4.5 million and increased $2.2 million for the three- and six-month periods, respectively. The three-month decrease was primarily due to decreased earnings on the nuclear decommissioning trust 39
fund and lower income from the sale of non-utility value-added products and services. The six-month increase was primarily due to increased earnings on the nuclear decommissioning trust fund. Income Taxes - The effective income tax rates were 35.1% and 36.4% for the - ------------ three- and six-month periods ended June 30, 2002, respectively, compared with 38.2% and 38.3%, respectively, for the same periods last year. LIQUIDITY AND CAPITAL RESOURCES Cash Flows for the Six-Month Periods - In spite of lower earnings, Alliant - ------------------------------------ Energy's cash flows from operating activities increased $52 million primarily due to changes in working capital and various non-cash charges recorded in the first six months of 2002; cash flows from financing activities increased $177 million primarily due to changes in the amount of debt issued and retired; and cash flows used for investing activities increased $183 million primarily due to increased construction and acquisition expenditures and proceeds received from the transfer of WP&L's transmission assets to ATC in the second quarter of 2001. IP&L's cash flows from operating activities decreased $22 million primarily due to changes in working capital; cash flows used for financing activities decreased $44 million primarily due to changes in the amount of debt issued and retired; and cash flows used for investing activities increased $25 million primarily due to increased construction and acquisition expenditures. WP&L's cash flows from operating activities increased $98 million primarily due to changes in working capital; cash flows used for financing activities increased $20 million primarily due to changes in the amount of debt issued and retired; and cash flows used for investing activities increased $83 million, primarily due to proceeds received from its asset transfer to ATC in the second quarter of 2001. Short-Term Debt - In June 2002, Alliant Energy received approval (through - --------------- December 31, 2004) from the SEC to issue and sell up to an aggregate amount of $1 billion of short-term debt outstanding at any one time and to guarantee borrowings by Resources in an aggregate amount that would not exceed $700 million at any one time. In addition, IP&L received SEC approval to issue short-term debt in a principal amount which would not at any one time exceed $300 million. Modification of the utility money pool agreement in certain respects was approved by the MPUC in June 2002 and approvals from the SEC and the ICC are still pending. In July 2002, WP&L withdrew from the utility money pool and, to meet its short-term borrowing needs, began issuing its own commercial paper (rated P-1 by Moody's) at rates similar to the money pool rates. In August 2002, Resources entered into a $100 million credit agreement extending through November 2002. This facility is a bridge financing associated with a $300 million medium-term Resources financing expected to be completed later in 2002. In addition, Alliant Energy contemplates a $300 million long-term debt financing to also be completed later in 2002. Proceeds of the two longer-term transactions will be used to repay the $100 million bridge facility, and the remainder will be used to reduce other short-term borrowings. These transactions will enable Alliant Energy to lengthen the maturity profile of its overall debt portfolio and take advantage of historically low interest rates. Environmental - A summary of Alliant Energy's environmental matters is - ------------- included in the Form 10-K filed by Alliant Energy, IP&L and WP&L for the year ended December 31, 2001. Alliant Energy's, IP&L's and WP&L's environmental matters have not changed materially from those reported in the 2001 Form 10-K, except as described below. In December 2000, February 2001 and June 2002, the EPA requested certain information relating to the historical operation of WP&L's major coal-fired generating units in Wisconsin. WP&L has responded to all requests and has not yet received a final response from the EPA. In some cases involving similar EPA requests from other electric generating facilities, penalties and capital expenditures have resulted. In addition, on a broader basis, the EPA has assessed the impact of investments in utility generation capacity, energy efficiency and environmental protection, as well as reviewed proposed multi-pollutant legislation, and will be recommending clarifications and revisions to the process in the future. Alliant Energy cannot presently predict what impact, if any, these issues may have on its financial condition or results of operations. However, any required remedial action resulting from these matters could be significant. 40
Construction and Acquisition Expenditures - Alliant Energy currently - ----------------------------------------- anticipates the following construction and acquisition expenditures in 2002 and 2003 (in millions): <TABLE> <CAPTION> 2002 2003 ------------- ------------- <S> <C> <C> Domestic utility business: Power Iowa $20 $320 * Other utility infrastructure and reliability investments 410 500 Non-regulated generation 210 40 Oil and gas 170 130 Energy-related international 90 110 Other non-regulated business development 100 100 ------------- ------------- Total $1,000 $1,200 ** ============= ============= </TABLE> * Includes approximately $130 million for potential purchase of turbines and related equipment from an affiliate. ** Alliant Energy has not entered into firm commitments relating to all of the anticipated capital expenditures in the above table, thus Alliant Energy does have some discretion as to the eventual level of capital expenditures incurred and it closely monitors and updates such estimates on an ongoing basis based on numerous economic and other factors. Alliant Energy is executing a focused strategic growth plan, with the majority of its investments in its utility business, regulated and non-regulated generation projects and oil and gas investments. Alliant Energy considers generation to be one of its core competencies and a key growth area of its business in the coming years. Alliant Energy will only make investments in regulated generation investments if it is assured in advance by the applicable regulators of receiving an appropriate rate of return on such investments. Under the Power Iowa program, IP&L announced plans in April 2002 to build a 500 MW natural gas-fired facility in Iowa which is expected to be operational in 2004. IP&L currently estimates it will cost nearly $400 million to construct the plant. IP&L has made the necessary regulatory filing with the IUB related to this project and the construction of the plant is contingent on the outcome of such filing. Given the status of the current non-regulated generation market, Alliant Energy's initial investments in this market will focus on facilities with underlying long-term purchased-power agreements. While Alliant Energy believes there are excellent acquisition opportunities in the existing non-regulated generation market, it will continue to be patient, prudent and diligent in its pursuit of such opportunities. Consistent with this approach, Alliant Energy announced in July 2002 its decision to purchase a $109 million, 309 MW, non-regulated, natural gas-fired power plant in Wisconsin, which Resources expects to finance with a significant portion of non-recourse debt. The entire power output of the facility is sold under contract to Milwaukee-based WE Energies through June 2008. The transaction is expected to close in the fourth quarter of 2002. Alliant Energy will also continue to invest significantly in its oil and gas business to gain the necessary scale to enable Alliant Energy to consider various strategic alternatives. Alliant Energy's investments in its Integrated Services businesses will be minimal over the next 18 months as Alliant Energy focuses on improving the results of the existing operations. Alliant Energy plans to make additional investments in China and limited investments in New Zealand/Australia over the next 18 months. The China investments are expected to be financed with cash flows generated internally by existing China investments and any remaining balances funded with non-recourse debt. Alliant Energy currently does not contemplate making any additional new investments in Brazil over the next 18 months as it continues its focus on improving the operations and results from its current Brazil investments. Post-rationing sales have not yet recovered to levels anticipated by Alliant Energy but it still expects them to begin returning to pre-rationing levels by the end of 2002 with robust sales growth commencing in 2003. The comprehensive review of the electric industry, including the wholesale power market, being performed by the Brazilian government continues and reforms are expected to be fully implemented in the next six to nine months. Alliant Energy expects to begin realizing benefits from these initiatives later this year, with more significant benefits anticipated in 2003. While Alliant Energy has a comprehensive plan in place to improve the results of its Brazil 41
investments and it remains committed to such investments, Alliant Energy's long-term commitment is dependent on improved performance of these investments. Balance Sheet and Credit Ratings - Alliant Energy remains committed to taking - -------------------------------- the necessary steps to ensure it has a strong balance sheet and strong credit ratings as a means of ensuring its long-term success. Alliant Energy continues to evaluate various debt and equity financing alternatives and expects to meet its future capital requirements with cash generated from operations, external financings and sales of non-strategic assets. Sales of Non-strategic Assets - In July 2002, Alliant Energy announced an - ----------------------------- agreement to sell to Cargill its 50% ownership interest in its electricity-trading joint venture with Cargill at a price equivalent to Alliant Energy's May 31, 2002 investment book value of approximately $19.3 million. The performance of Cargill-Alliant after May 31, 2002 and before the closing will not impact the purchase price. Pending federal regulatory approval, the transaction is expected to close by Fall of 2002. Consistent with Alliant Energy's objectives to narrow its existing strategic platforms, Alliant Energy continues to evaluate the sale of various other non-strategic assets. Such sales will enable Alliant Energy to continue to refine its strategic focus and to redeploy the proceeds to Alliant Energy's strategic growth platforms and/or reduce debt levels. Alliant Energy is committed, and has the financial strength, to take the necessary time to maximize the value from such asset sales. Preferred Stock - In August 2002, IP&L filed an application with the SEC - --------------- requesting authority under PUHCA to issue and sell one or more series of trust preferred securities having a stated per share liquidation preference and/or one or more new series of IP&L preferred stock in a combined aggregate amount not to exceed $200 million outstanding at any one time. IP&L also intends to redeem all of its currently outstanding shares of preferred stock in the third quarter of 2002. OTHER MATTERS Market Risk Sensitive Instruments and Positions - Alliant Energy's primary - ----------------------------------------------- market risk exposures are associated with interest rates, commodity prices, equity prices and currency exchange rates. Alliant Energy has risk management policies to monitor and assist in controlling these market risks and uses derivative instruments to manage some of the exposures. A summary of Alliant Energy's market risks is included in the Form 10-K filed by Alliant Energy, IP&L and WP&L for the year ended December 31, 2001. Alliant Energy's market risks have not changed materially from those reported in the 2001 Form 10-K, except as described below. 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, 2002, Alliant Energy had a cumulative foreign currency translation loss of $170 million, which related to decreases in value of the Brazil real of $152 million, New Zealand dollar of $17 million and Australian dollar of $1 million in relation to the U.S. dollar. This loss is recorded in "Accumulated other comprehensive loss" on its Consolidated Balance Sheets. Based on Alliant Energy's investments at June 30, 2002, a 10% 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 loss by $59 million. Alliant Energy's equity income (loss) from its foreign investments is also impacted by fluctuations in currency exchange rates. In addition, Alliant Energy has currency exchange risk associated with the debt issued to finance a thermal plant recently constructed by Alliant Energy and its Brazilian partners. In the second quarter of 2002, Alliant Energy recorded a $3.6 million pre-tax charge related to foreign currency transaction losses on such debt. Based on the loan balance and currency rates at June 30, 2002, a 10% change in the currency rates would result in a $1.5 million after-tax increase (decrease) in net income. Accounting Pronouncements - In June 2002, the FASB issued SFAS - ------------------------- 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities, and requires liabilities to be recognized when incurred rather than when an entity commits to an exit plan as is the case under the current accounting rules. Alliant Energy must apply the provisions of SFAS 146 for exit and disposal activities initiated after December 31, 2002, with early application encouraged. Alliant Energy does not anticipate SFAS 146 will have a material impact on its financial condition or results of operations. 42
In June 2002, the EITF reached consensus on a portion of Issue 02-03, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." EITF 02-03 is effective for financial statements issued for periods ending after July 15, 2002, and requires all mark-to-market gains and losses on energy trading contracts to be shown net in the income statement. Such change will not impact earnings and Alliant Energy does not anticipate it will have a material impact on the components of its income statements based on its current operations. Critical Accounting Policies - A summary of Alliant Energy's critical - ---------------------------- accounting policies is included in the Form 10-K filed by Alliant Energy, IP&L and WP&L for the year ended December 31, 2001. Alliant Energy's critical accounting policies have not changed materially from those reported in the 2001 Form 10-K. Other Future Considerations - In addition to items discussed earlier in MD&A, - --------------------------- the following items could impact Alliant Energy's future financial condition or results of operations: WP&L has provided energy conservation services to its customers for many years through a program called Shared Savings. In July 2002, the Wisconsin governor vetoed legislation that would have extended this program beyond 2002. Alliant Energy is diligently pursuing various administrative and regulatory solutions to ensure it realizes financial benefits related to energy conservation programs in 2003 and beyond, similar to what it has realized in recent years. Alliant Energy is currently unable to predict the outcome of such efforts. Alliant Energy will also continue to explore various other income-generating conservation alternatives to add to its existing portfolio of products and services. Alliant Energy currently expects to generate income of approximately $0.09 per diluted share from its Wisconsin shared savings program in 2002. FUTURE EARNINGS OUTLOOK Alliant Energy has revised its 2002 adjusted earnings guidance to a range of $1.35 to $1.55 per diluted share from its previous guidance of $2.10 to $2.30. Certain significant factors contributed to Alliant Energy providing updated 2002 adjusted earnings guidance. These factors include: changes in the anticipated timing and amount of utility rate relief that may be realized in 2002, a continued sluggish economy, the impact of lower than anticipated oil and gas prices and volumes, the elimination of previously anticipated earnings from Alliant Energy's electricity-trading joint venture given the pending sale of such investment and the lower than anticipated second quarter results. Alliant Energy incurred one-time asset valuation charges of $0.10 per diluted share in the first quarter of 2002 and one-time asset valuation and other charges of approximately $0.08 per diluted share in the second quarter of 2002. Such items are included in the updated earnings guidance. The guidance does not include the impact of certain non-cash SFAS 133 valuation adjustments, asset valuation charges recorded in the first half of 2002 of $0.18 per diluted share related to Alliant Energy's McLeod investment, certain gains/losses realized from any potential sales of non-strategic assets or additional asset valuation charges that Alliant Energy may incur in the second half of 2002. Alliant Energy views its performance in the first half of 2002 as an aberration and expects to return in 2003 to earnings performance more consistent with its performance in the previous three years. Alliant Energy currently estimates adjusted earnings for 2003 of $2.40 to $2.60 per diluted share. The guidance does not include the impact of certain non-cash SFAS 133 valuation adjustments, gains/losses realized from potential sales of non-strategic assets or asset valuation charges that Alliant Energy may incur in 2003. The guidance also assumes Alliant Energy will not experience in 2003 a repeat of certain events that created downward earnings pressures in 2002. These events include significant regulatory lag as it relates to the implementation of utility rate increases following four-year base rate freezes in its various jurisdictions; extremely mild weather and depressed oil and gas prices experienced in the first quarter of 2002; lower sales in Brazil due to electricity rationing resulting from drought conditions and the slower than expected recovery to normal sales levels; negative impacts of a sluggish economy on Alliant Energy's utility and integrated services businesses; and significant regulatory and political uncertainties in Brazil, including an unstable wholesale power market. 43
Drivers for Alliant Energy's earnings estimates include, but are not limited to: o Normal weather conditions in its domestic and international utility service territories o Economic development and sales growth in its utility service territories o Continuing cost controls and operational efficiencies in its utility operations o Ability of its utility subsidiaries to recover their operating costs, and to earn a reasonable rate of return, in current and future rate proceedings o Ability to recover its purchased-power and fuel costs, both domestically and internationally o Improved results of its Brazil investments through factors discussed elsewhere as well as the continued growth in earnings from its China investments o Improved earnings from Whiting from current levels, including the stability of oil and gas prices and continued successful execution of its acquisition strategy o Improved results of its other non-regulated businesses as a whole o No additional material permanent declines in the fair market value of, or expected cash flows from, Alliant Energy's investments o Other stable business conditions, including an improving economy Alliant Energy's strategic plan includes 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, oil and gas investments, international markets and other strategic initiatives. Alliant Energy realized 15 and 10 percent of its adjusted earnings from its non-regulated businesses in 2001 and 2000, respectively, and its goal is to have such businesses contribute more than 25 percent of its adjusted earnings within the next three years. Alliant Energy believes that successful implementation of its strategies will contribute significantly to Alliant Energy achieving above average long-term annual growth rates in adjusted earnings. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and Qualitative Disclosures About Market Risk are reported under Item 2 MD&A "Other Matters - Market Risk Sensitive Instruments and Positions." PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In October 2000, Alliant Energy and WP&L filed a federal lawsuit seeking declaratory relief regarding whether certain provisions of WUHCA are unconstitutional as a violation of the interstate commerce and equal protection provisions of the U.S. constitution. Alliant Energy and WP&L are challenging the provisions of WUHCA which restrict ownership in utility holding companies, limit the investments those companies can make and place significant restrictions on companies that invest in Wisconsin utility holding companies. Alliant Energy and WP&L also requested that the court consider the constitutionality of issues related to the asset cap on non-utility investments imposed by WUHCA. Alliant Energy and WP&L were seeking only declaratory relief and not damages in the litigation. In February 2001, the lawsuit was dismissed based on lack of allegations of "injury in fact." Alliant Energy and WP&L filed a motion for reconsideration with the court, which was denied in April 2001. Alliant Energy and WP&L appealed the lower court's rulings to the 7th Circuit Court of Appeals. In January 2002, the 7th Circuit reversed the district court's decision and remanded the case back to the district court for hearing. In May 2002, the district judge granted the state's motion for summary judgment and dismissed Alliant Energy's and WP&L's case. Alliant Energy and WP&L appealed the district court's decision to the 7th Circuit Court of Appeals in June 2002. Briefing of the appeal is underway, with a decision expected in the first quarter of 2003. Alliant Energy and WP&L cannot currently predict the outcome of this litigation. 44
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 to reduce a tax refund due to Alliant Energy related to another tax issue. 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 8th Circuit ruled in Alliant Energy's favor with respect to both tax issues. In July 2001, the government filed a petition for rehearing with the U.S. Court of Appeals related to the capital losses allowed in the 8th Circuit opinion. The 8th Circuit denied the appeal in September 2001 and remanded the case back to the district court for entry of judgment. The government could have petitioned the U.S. Supreme Court to hear the case; such petition had to be filed by the end of December 2001. The federal government decided not to pursue the ruling in favor of Alliant Energy of the U.S. Court of Appeals for the 8th Circuit with respect to these two tax issues. As a result, Alliant Energy recorded the applicable tax benefit and interest income in the fourth quarter of 2001 related to these events. An additional potential refund of approximately $14 million, plus interest, was also being contested by the government. However, the district court ruled in favor of the federal government in July 2002 on such issue. Alliant Energy will appeal the most recent district court decision. An adverse decision on appeal would not result in Alliant Energy recording any charges to earnings as the potential refund simply represents a gain contingency. In the second quarter of 1999, WP&L received a demand for arbitration from MG&E pursuant to the terms of joint plant operating agreements between the parties regarding issues of ownership and operation of the Columbia Energy Center. In March 2001, an arbitration panel issued its decision upholding WP&L's position that the plant was well-operated and maintained and in compliance with the terms of the joint plant operating agreements. MG&E moved the state court to certify the arbitration decision, which the court did in December 2001. In February 2002, MG&E filed a motion in the court challenging the sufficiency of resolutions passed by Alliant Energy in conjunction with the arbitration decision. In March 2002, the motion was heard by the court and the judge agreed with MG&E's position, resulting in Alliant Energy having to modify the language of its original resolution. WP&L will not appeal the court's order. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ALLIANT ENERGY At Alliant Energy's annual meeting of shareowners held on May 15, 2002, Alan B. Arends, Katharine C. Lyall, Singleton B. McAllister and Anthony R. Weiler were elected as directors of Alliant Energy for terms expiring in 2005. The following sets forth certain information with respect to the election of these directors at the annual meeting. Name of Nominee Votes For Votes Withheld - --------------- --------- -------------- Alan B. Arends 73,798,101 2,287,177 Katharine C. Lyall 73,735,868 2,349,410 Singleton B. McAllister 73,752,502 2,332,776 Anthony R. Weiler 74,236,424 1,848,854 45
The following table sets forth the other directors of Alliant Energy whose terms of office continued after the 2002 annual meeting. Name of Director Year in Which Term Expires - ---------------- -------------------------- Erroll B. Davis, Jr. 2003 Lee Liu 2003 Robert W. Schlutz 2003 Wayne H. Stoppelmoor 2003 Jack B. Evans 2004 Joyce L. Hanes 2004 David A. Perdue 2004 Judith D. Pyle 2004 Also at Alliant Energy's annual meeting of shareowners held on May 15, 2002, the following matter was submitted to a vote of shareowners. <TABLE> <CAPTION> Votes Votes Votes Broker For Against Abstain Non-Votes --- ------- ------- --------- <S> <C> <C> <C> <C> Approval of the Alliant Energy 2002 Equity Incentive Plan 64,521,148 8,933,882 2,630,248 -- </TABLE> WP&L At WP&L's annual meeting of shareowners held on May 22, 2002, Alan B. Arends, Katharine C. Lyall, Singleton B. McAllister and Anthony R. Weiler were elected as directors of WP&L for terms expiring in 2005. The following sets forth certain information with respect to the election of these directors at the annual meeting. Name of Nominee Votes For Votes Withheld - --------------- --------- -------------- Alan B. Arends 13,666,109 3,783 Katharine C. Lyall 13,665,387 4,505 Singleton B. McAllister 13,666,035 3,857 Anthony R. Weiler 13,665,795 4,097 The following table sets forth the other directors of WP&L whose terms of office continued after the 2002 annual meeting. Name of Director Year in Which Term Expires - ---------------- -------------------------- Erroll B. Davis, Jr. 2003 Lee Liu 2003 Robert W. Schlutz 2003 Wayne H. Stoppelmoor 2003 Jack B. Evans 2004 Joyce L. Hanes 2004 David A. Perdue 2004 Judith D. Pyle 2004 46
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: The following Exhibits are filed herewith or incorporated by --------- reference. Documents indicated by an asterisk (*) are incorporated herein by reference. 10.1 Form of Supplemental Retirement Agreement 10.2* Alliant Energy 2002 Equity Incentive Plan (incorporated by reference to Exhibit 4.2 to Alliant Energy's Registration Statement on Form S-8 (Registration No. 333-88304)) 99.1 Written Statement of the Chairman, President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 for Alliant Energy 99.2 Written Statement of the Executive Vice President and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 for Alliant Energy 99.3 Written Statement of the Chairman and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 for IP&L 99.4 Written Statement of the Executive Vice President and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 for IP&L 99.5 Written Statement of the Chairman and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 for WP&L 99.6 Written Statement of the Executive Vice President and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 for WP&L (b) Reports on Form 8-K: -------------------- Alliant Energy Alliant Energy filed a Current Report on Form 8-K, dated June 12, 2002, reporting (under Item 4) that on June 12, 2002, its Board of Directors, upon the recommendation of its Audit Committee, dismissed Arthur Andersen LLP as its independent accountants and engaged Deloitte & Touche LLP to serve as its independent accountants for 2002. IP&L IP&L filed a Current Report on Form 8-K, dated June 12, 2002, reporting (under Item 4) that on June 12, 2002, its Board of Directors, upon the recommendation of its Audit Committee, dismissed Arthur Andersen LLP as its independent accountants and engaged Deloitte & Touche LLP to serve as its independent accountants for 2002. IP&L filed a Current Report on Form 8-K, dated April 18, 2002, disclosing (under Items 5 and 7) certain historical financial information for IP&L. WP&L WP&L filed a Current Report on Form 8-K, dated June 12, 2002, reporting (under Item 4) that on June 12, 2002, its Board of Directors, upon the recommendation of its Audit Committee, dismissed Arthur Andersen LLP as its independent accountants and engaged Deloitte & Touche LLP to serve as its independent accountants for 2002. 47
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Alliant Energy Corporation, Interstate Power and Light Company 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 9th day of August 2002. <TABLE> <CAPTION> <S> <C> ALLIANT ENERGY CORPORATION - -------------------------- Registrant By: /s/ John E. Kratchmer Corporate Controller and Chief Accounting Officer - ------------------------------- John E. Kratchmer (Principal Accounting Officer and Authorized Signatory) INTERSTATE 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) 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> 48