Alliant Energy - 10-Q quarterly report FY

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

or

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 Form 10-Q 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.

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 [   ]

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act). Yes [   ]    No [X]

Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Exchange Act).

Number of shares outstanding of each class of common stock as of Oct. 31, 2005:

TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ALLIANT ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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ALLIANT ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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ALLIANT ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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ALLIANT ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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ALLIANT ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(a) General - The interim condensed consolidated financial statements included herein have been prepared by Alliant Energy Corporation (Alliant Energy), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S.) of America (GAAP) have been condensed or omitted, although management believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements include Alliant Energy and its consolidated subsidiaries (including Interstate Power and Light Company (IPL), Wisconsin Power and Light Company (WPL), Alliant Energy Resources, Inc. (Resources) and Alliant Energy Corporate Services, Inc. (Corporate Services)). These financial statements should be read in conjunction with the financial statements and the notes thereto included in Alliant Energy’s, IPL’s and WPL’s latest combined 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 the condensed consolidated results of operations for the three and nine months ended Sep. 30, 2005 and 2004, the condensed consolidated financial position at Sep. 30, 2005 and Dec. 31, 2004, and the condensed consolidated statements of cash flows for the nine months ended Sep. 30, 2005 and 2004 have been made. Because of the seasonal nature of Alliant Energy’s utility operations, results for the three and nine months ended Sep. 30, 2005 are not necessarily indicative of results that may be expected for the year ending Dec. 31, 2005. A change in management’s estimates or assumptions could have a material impact on Alliant Energy’s financial condition and results of operations during the period in which such change occurred. Certain prior period amounts have been reclassified on a basis consistent with the current period presentation. Such reclassifications relate to the reporting of assets and liabilities held for sale and discontinued operations pursuant to Statement of Financial Accounting Standards (SFAS) 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). Unless otherwise noted, the notes herein have been revised to reflect information related only to continuing operations for all periods presented.

(b) Regulatory Assets and Liabilities - In April 2005, WPL received approval from the Public Service Commission of Wisconsin (PSCW) to defer, beginning April 15, 2005, incremental fuel-related costs associated with the extension of an unplanned outage at the Kewaunee Nuclear Power Plant (Kewaunee), which occurred from February 2005 to early July 2005. The PSCW also approved the deferral of incremental operation and maintenance costs related to the unplanned outage. At Sep. 30, 2005, Alliant Energy and WPL had $19 million recorded in “Other assets - regulatory assets” on their respective Condensed Consolidated Balance Sheets related to these incremental costs.

WPL also has received approval from the PSCW to defer all gains, losses, and transaction costs associated with the sale of Kewaunee. In July 2005, WPL completed the sale of its interest in Kewaunee and recognized a loss (excluding the benefits of the non-qualified decommissioning trust assets discussed below), including transaction costs, of $16 million from the sale, which was recorded in “Other assets - regulatory assets” on Alliant Energy’s and WPL’s respective Condensed Consolidated Balance Sheets at Sep. 30, 2005.

In June 2005, WPL received approval from the PSCW to return the retail portion of the Kewaunee-related non-qualified decommissioning trust assets to customers over a two-year period through reduced rates that were effective beginning in July 2005. Determination of the amount of the wholesale portion of the refund is being addressed in WPL’s current wholesale rate case. At Sep. 30, 2005, Alliant Energy and WPL had $51 million recorded in “Current liabilities - regulatory liabilities,” and $26 million in “Other long-term liabilities and deferred credits - regulatory liabilities” on their respective Condensed Consolidated Balance Sheets related to these non-qualified decommissioning trust assets. Refer to Notes 10 and 11 for further discussion of Kewaunee.

In August 2005, WPL received approval from the PSCW to defer, beginning Aug. 3, 2005, incremental purchased power energy costs associated with coal conservation efforts at WPL due to domestic coal delivery disruptions. The domestic coal delivery disruptions were caused by railroad train derailments in Wyoming that caused damage to heavily-used joint railroad lines that supply coal to numerous generating facilities in the U.S., including facilities owned by WPL. At Sep. 30, 2005, Alliant Energy and WPL had $8 million recorded in “Other assets - regulatory assets” on their respective Condensed Consolidated Balance Sheets related to these incremental costs.

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In 2002, IPL filed with the Internal Revenue Service (IRS) for a change in method of accounting for tax purposes for 1987 through 2001 that would allow a current deduction related to mixed service costs. IPL had previously capitalized and depreciated such costs for tax purposes over the appropriate tax lives. This change would create a significant current tax benefit that has not been reflected in IPL’s results of operations pending a decision from the Iowa Utilities Board (IUB) on the required ratemaking treatment of the benefit. In its April 2003 order, the IUB approved IPL’s proposed accounting treatment to defer the tax savings as a regulatory liability resulting from the change of accounting method until the IRS audit on this issue is complete. The ratemaking impact will be addressed once the issue is resolved with the IRS. In August 2005, the IRS issued a revenue ruling which would effectively disallow a significant portion of the deduction initially claimed. As a result of the IRS ruling, IPL reduced its estimate of the regulatory liability associated with the anticipated tax savings and increased its current and deferred tax liabilities associated with the mixed service cost deduction. Alliant Energy is currently evaluating various options regarding this issue and does not anticipate any material negative impact on Alliant Energy’s or IPL’s results of operations or financial position related to this adverse revenue ruling.

Refer to Note 7 for information regarding material changes in IPL’s and WPL’s regulatory assets and liabilities during 2005 due to changes in fair value of derivative instruments.

(c) Common Shares Outstanding - A reconciliation of the weighted average common shares outstanding used in the basic and diluted earnings per average common share (EPS) calculation for the three and nine months ended Sep. 30 was as follows (in thousands):

The following options to purchase shares of common stock were excluded from the calculation of diluted EPS as the exercise prices were greater than the average market price for the three and nine months ended Sep. 30:

(d) Accounting for Stock-Based Compensation - The effect on net income and EPS for the three and nine months ended Sep. 30 if Alliant Energy had applied the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation” (SFAS 123), to awards issued under its stock-based incentive compensation plans was as follows (dollars in millions):

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In April 2005, the SEC announced the adoption of a new rule that amends the compliance dates for revised SFAS 123 guidance, “Share-Based Payment,” (SFAS 123(R)). The SEC’s new rule does not change the accounting required by SFAS 123(R), only the compliance dates of the standard. Alliant Energy is required to adopt SFAS 123(R) by Jan. 1, 2006 and does not anticipate the impacts on its financial condition or results of operations will be material given its limited use of stock options historically and its decision to discontinue using stock options entirely effective Jan. 1, 2005.

(e) Interest Income and Other - The other (income) and deductions included in “Interest income and other” in Alliant Energy’s Condensed Consolidated Statements of Income for the three and nine months ended Sep. 30 were as follows (in millions):

(f) Property, Plant and Equipment - In the second quarter of 2005, Alliant Energy completed the construction and began commercial operations of its 300 megawatt (MW), simple-cycle, natural gas-fired Sheboygan Falls Energy Facility (SFEF) near Sheboygan Falls, Wisconsin, which facility is leased to WPL. The facility is being depreciated using the straight-line method over its estimated useful life of 35 years. Alliant Energy capitalized interest of $0 and $3.4 million for the three and nine months ended Sep. 30, 2005, and $1.4 million and $3.8 million for the three and nine months ended Sep. 30, 2004, respectively, related to SFEF. Alliant Energy and WPL record SFEF in “Property, plant and equipment - non-regulated and other - Non-regulated Generation” and “Property, plant and equipment - Leased SFEF”, respectively, on their Condensed Consolidated Balance Sheets. Refer to WPL’s Note 16 for additional information on WPL’s capital lease related to SFEF.

Alliant Energy’s comprehensive income, and the components of other comprehensive income, net of taxes, for the three and nine months ended Sep. 30 were as follows (in millions):

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The provision for income taxes for earnings from continuing operations is based on an estimated annual effective tax rate that excludes the impact of significant unusual or infrequently occurring items, discontinued operations or extraordinary items. The effective tax rate typically differs from the federal statutory rate of 35% principally due to state income taxes, the impact of foreign income and associated tax, tax credits, effects of utility ratemaking and certain non-deductible expenses. In addition, the provision for income taxes for earnings from continuing operations for the three and nine months ended Sep. 30, 2005 included the reversal of approximately $6 million and $14 million, respectively, of deferred tax asset valuation allowances originally recorded prior to 2005 related to Alliant Energy’s anticipated ability to utilize certain capital losses prior to their expiration. Alliant Energy also reduced “Accumulated other comprehensive loss” on Alliant Energy’s Condensed Consolidated Balance Sheet by $27 million during the third quarter of 2005 as a result of reversing previously recorded deferred tax asset valuation allowances related to foreign currency translation losses that are subject to capital loss carryover limitations. Based on additional information that became available in 2005, Alliant Energy now believes it will generate sufficient capital gains in the future to utilize the tax benefits of all its capital losses, resulting in the reversal of these deferred tax asset valuation allowances.

Alliant Energy recorded $40 million and $17 million of deferred tax assets in the second and third quarters of 2005, respectively, on non-cash asset valuation charges related to its Brazil investments. Alliant Energy recorded $41 million of deferred tax assets in the second quarter of 2005 on non-cash asset valuation charges related to its China investments and reversed $11 million of the deferred tax assets in the third quarter of 2005 in connection with the reversal of a portion of the previously incurred non-cash asset valuation charges related to its China investments. Because Alliant Energy currently believes it will generate sufficient capital gains in the future to utilize tax capital losses that may be generated related to these non-cash asset valuation charges, no valuation allowance was provided against the deferred tax assets. Income tax expense (benefit) related to the non-cash asset valuation adjustments for its China and Brazil investments were included in “Income (loss) from discontinued operations, net of tax” and “Income tax expense (benefit),” respectively, in Alliant Energy’s Condensed Consolidated Statements of Income. Refer to Notes 6 and 10 for further discussion of the non-cash asset valuation adjustments related to Alliant Energy’s Brazil and China investments, respectively.

The components of Alliant Energy’s qualified and non-qualified pension benefits and other postretirement benefits costs for the three and nine months ended Sep. 30 were as follows (in millions):

In addition, in the second quarter of 2005, Alliant Energy eliminated certain corporate and operations support positions. As a result, Alliant Energy recognized special termination benefits costs related to its pension and other postretirement benefits plans of $0.6 million and $1.8 million, respectively, in the second quarter of 2005. Alliant Energy received approval from the PSCW to defer $1.5 million of these costs until WPL’s next rate case and therefore has recorded the deferred costs in “Other assets - regulatory assets” on its Condensed Consolidated Balance Sheet.

Alliant Energy estimates that funding for the pension and other postretirement benefits plans for 2005 will be approximately $10 million and $20 million, of which approximately $9 million and $13 million, respectively, has been contributed through Sep. 30, 2005.

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(a) Short-term Debt - In August 2005, Alliant Energy, IPL and WPL completed the re-syndication of three revolving credit facilities totaling $650 million ($100 million for Alliant Energy at the parent company level, $300 million for IPL and $250 million for WPL), which support commercial paper and are available for direct borrowings. The re-syndication extended the terms of the facilities to August 2010. In June 2005, IPL obtained state authority for borrowing under its five-year facility from the Minnesota Public Utilities Commission (MPUC). In June 2005, WPL obtained authority from the PSCW for borrowing under its former five-year facility and expects to extend that authority to its new facility later in 2005. Information regarding commercial paper at Sep. 30, 2005 was as follows (dollars in millions):

(b) Long-term Debt - Resources completed the following debt retirements during the nine months ended Sep. 30, 2005 and 2004 and incurred pre-tax debt repayment premiums and charges for unamortized debt expenses related to these debt retirements that are recorded in “Loss on early extinguishment of debt” in Alliant Energy’s Condensed Consolidated Statements of Income as follows (dollars in millions):

In October 2005, Resources announced it will retire $75 million of its 7% senior notes due 2011 in the fourth quarter of 2005.

In August 2005, Resources’ wholly-owned New Zealand subsidiary issued NZ$140 million of redeemable preference shares due 2008, secured by its New Zealand investments. Holders of the redeemable preference shares will receive semi-annual cash dividends of approximately NZ$4.8 million. Given their characteristics, the redeemable preference shares are reported as “Long-term debt, net (excluding current portion)” on Alliant Energy’s Condensed Consolidated Balance Sheet and accrued dividends are reported as “Interest expense” in Alliant Energy’s Condensed Consolidated Statements of Income. The approximate US$97 million of proceeds from this transaction were remitted to Resources and were used for general corporate purposes, including debt reduction.

In June 2005, Resources’ wholly-owned subsidiary, Sheboygan Power, LLC, issued $70 million of 5.06% non-recourse senior notes due 2025, which are secured by SFEF. The proceeds were used in August 2005 to assist with the retirement of Resources’ remaining $104 million of 7.375% senior notes due 2009.

In August 2005, WPL redeemed its $16 million, 1991 Series B variable rate first mortgage bonds. In July 2005, WPL redeemed its $72 million, 7.6% first mortgage bonds with the issuance of short-term debt which was later reduced with the proceeds from the sale of its interest in Kewaunee. In July 2005, IPL issued $50 million of 5.50% senior debentures due 2025 and used the proceeds in August 2005 to retire its $50 million, 7% collateral trust bonds due 2023.

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(a) Investments in Foreign Entities - The geographic concentration of Alliant Energy’s unconsolidated foreign investments was as follows (in millions):

Brazil - Resources holds a non-controlling interest in five Brazilian electric utility companies and a natural gas-fired generating facility through several direct investments accounted for under the equity method of accounting. In accordance with Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock,” Alliant Energy recorded pre-tax, non-cash asset valuation charges related to its Brazilian investments of $96 million and $40 million (after-tax charges of $56 million and $23 million, or $0.48 per share and $0.20 per share) in the second and third quarters of 2005, respectively, in Alliant Energy’s Condensed Consolidated Statements of Income as a result of a decline in the fair value of these Brazil investments that was determined to be other than temporary. The charges reduced the local currency carrying amount of Alliant Energy’s investments in Brazil to their estimated local currency fair value and do not reflect the impact of pre-tax foreign currency translation losses ($79 million at Sep. 30, 2005) recorded in “Accumulated other comprehensive loss” on Alliant Energy’s Condensed Consolidated Balance Sheet. If Alliant Energy commits to a plan in the future to dispose of its Brazil investments, it would evaluate the investments for impairment at that time by including the cumulative translation losses in the carrying amount. Alliant Energy estimated the fair value of its Brazil investments by using a combination of market value indicators and the expected discounted future U.S. dollar cash flows converted to local currencies at the foreign currency exchange rate at the end of each respective quarter. The declines in fair value resulted primarily from the impact of significant changes in the spread between the foreign currency exchange rate at the end of the quarter and both past and projected future rates; consideration of updated market and other information Alliant Energy received from its financial advisor and its Brazilian partners in the second and third quarters of 2005; and an assessment of potential outcomes of the various strategic alternatives being evaluated by Alliant Energy. The updated market and other information includes the impact on the anticipated future cash flows to be generated by Alliant Energy’s Brazil investments of increasing debt levels and changes in inflation assumptions. The decrease in Alliant Energy’s investments in Brazil from Dec. 31, 2004 to Sep. 30, 2005 was due to pre-tax, non-cash valuation charges, partially offset by the impact of changes in currency exchange rates and undistributed earnings.

In April 2005, as a result of an arbitration dispute and the subsequent signing of a settlement agreement, Alliant Energy received a non-refundable deposit for the potential sale of its 50% direct interest in Usina Termelétrica de Juiz de Fora S.A. (Juiz de Fora), a natural-gas fired generating facility, to Cat-Leo Construcoes, Industria e Servicos de Energia S.A (Cat-Leo Servicos). As of Sep. 30, 2005, the sale was still pending and the non-refundable deposit of $13 million was recorded in “Current liabilities - other” on Alliant Energy’s Condensed Consolidated Balance Sheet.

In September 2005, Alliant Energy received a final decision on a second arbitration dispute with its Brazilian partners that entitles Alliant Energy to restitution, including interest, of approximately $8 million. Alliant Energy plans to seek enforcement of this award through the Brazilian court system. Alliant Energy is not able to predict the ultimate outcome of this matter and cannot provide any assurance it will be able to obtain enforcement of this award. Therefore, it has not recorded the potential benefits of this award at Sep. 30, 2005.

New Zealand - Resources’ investments include a 23.8% ownership interest in TrustPower Ltd. (TrustPower), a hydro and wind generation utility company, and a 5.0% ownership interest in Infratil Ltd., an infrastructure development company. Based on the exchange rates and trading prices at Sep. 30, 2005 and Dec. 31, 2004, the TrustPower investment fair value was $305 million and $306 million, and the carrying value was $91 million and $89 million, respectively. The Infratil Ltd. investment is marked-to-market at each balance sheet date in accordance with SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities.” At Sep. 30, 2005, Alliant Energy had recorded an after-tax unrealized gain of $13 million in “Accumulated other comprehensive loss” on Alliant Energy’s Condensed Consolidated Balance Sheet related to its investment in Infratil Ltd.

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(b) Unconsolidated Equity Investments - Equity (income) loss from Alliant Energy’s unconsolidated investments accounted for under the equity method of accounting for the three and nine months ended Sep. 30 was as follows (in millions):

(a) Accounting for Derivative Instruments and Hedging Activities - Alliant Energy records derivative instruments at fair value on the balance sheet as assets or liabilities and changes in the derivatives’ fair values related to its domestic utilities (IPL and WPL) are generally recorded as regulatory assets or liabilities. At Sep. 30, 2005 and Dec. 31, 2004, current derivative assets and liabilities were included on the Condensed Consolidated Balance Sheets as follows (in millions):

Changes in the derivatives’ fair values at IPL and WPL during 2005 were primarily due to the impact of significant increases in natural gas prices and additional gas contracts entered into in 2005 to mitigate pricing volatility for IPL’s and WPL’s customers.

(b) Weather Derivatives - In the second quarter of 2005, IPL and WPL each entered into separate electric weather derivative agreements to reduce the impact of weather volatility on their respective electric margins. The term of both agreements was June 1, 2005 through Aug. 31, 2005. IPL and WPL use the intrinsic value method to account for weather derivatives and record all gains and losses from these weather derivatives as adjustments to their respective electric utility revenues. The actual cooling degree days in June 2005 were higher than those specified in the contracts, resulting in IPL and WPL accruing the maximum amount of liabilities to the counterparty under the agreements of $5.5 million and $3.5 million, respectively, in the second quarter of 2005. No gains or losses from these weather derivatives were recorded in the third quarter of 2005. IPL and WPL paid the counterparty the maximum amounts under their respective agreements in September 2005. IPL’s and WPL’s ratepayers do not share in the gains/losses realized from the weather hedges. IPL and WPL did not enter into electric weather derivatives in 2004.

(a) Purchase Obligations - Alliant Energy, through its subsidiaries Corporate Services, IPL and WPL, has entered into purchased power, coal, and natural gas supply, transportation and storage contracts for its domestic utility business. As of Sep. 30, 2005, minimum future commitments related to its domestic utility business for purchased power (excluding operating leases), coal and natural gas were $802 million, $318 million and $541 million, respectively. Refer to Note 11 for details on a long-term purchased power agreement entered into upon WPL’s sale of its interest in Kewaunee in July 2005.

In addition to the purchased power contracts noted previously, Alliant Energy has agreements related to the Riverside and RockGen plants that meet the criteria as operating leases given that, over their contract terms, Alliant Energy has exclusive rights to all or a substantial portion of the output from these facilities. At Sep. 30, 2005, Alliant Energy’s future minimum operating lease payments were $408 million and $58 million related to the Riverside and RockGen plant agreements, respectively.

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(b) Guarantees and Indemnifications - In the second quarter of 2005, Alliant Energy agreed to indemnify the buyer of its energy services business for losses resulting from potential breaches of Alliant Energy’s representations and warranties and obligations under the sale agreement. The indemnification is limited to approximately $18 million and expires in October 2006. Alliant Energy believes the likelihood of having to make any material cash payments under the sale agreement is remote. Refer to Note 10 for information on a $4.1 million payment made by Alliant Energy in June 2005 under its guarantee outstanding to support a third-party financing arrangement related to its biomass facility. In the third quarter of 2005, WPL provided certain indemnifications associated with the recent sale of its interest in Kewaunee for losses resulting from potential breaches of WPL’s representations and warranties and obligations under the sale agreement. The indemnifications are limited to approximately $12 million and expire in July 2006. WPL believes the likelihood of having to make material cash payments under this indemnification is remote. Refer to Note 11 for information regarding an additional indemnity issued by WPL related to its sale of Kewaunee.

Certain financial information relating to Alliant Energy’s business segments is as follows. Gas revenues included $23 million and $4 million for the three months ended Sep. 30, 2005 and 2004, and $48 million and $20 million for the nine months ended Sep. 30, 2005 and 2004, respectively, for sales to the electric segment. All other intersegment revenues were not material to Alliant Energy’s operations.

* Int’l = International

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Alliant Energy has completed the disposal, or is currently pursuing the disposal, of numerous non-regulated and domestic utility businesses and other assets in order to strengthen its financial profile and narrow its strategic focus and risk profile. At Sep. 30, 2005 (or at previous dates for those businesses already disposed), the following businesses qualified as assets held for sale as defined by SFAS 144:

Certain assets and liabilities of the businesses/properties listed in the previous table have been classified as held for sale on Alliant Energy’s Condensed Consolidated Balance Sheets at Sep. 30, 2005 and Dec. 31, 2004. The operating results of the non-regulated businesses listed in the previous table have been separately classified and reported as discontinued operations in Alliant Energy’s Condensed Consolidated Statements of Income. The operating results of the domestic utility businesses/properties listed in the previous table have not been reported as discontinued operations.

A summary of the components of discontinued operations in Alliant Energy’s Condensed Consolidated Statements of Income for the three and nine months ended Sep. 30 was as follows (in millions):

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In accordance with impairment tests for long-lived assets to be disposed of by sale within SFAS 144 and impairment tests for goodwill within SFAS 142, “Goodwill and Other Intangible Assets” (SFAS 142), Alliant Energy recorded additional pre-tax, non-cash asset valuation charges of $90.1 million (includes $10.9 million related to goodwill), net of allocation to minority interest, in the second quarter of 2005 related to its China business as the estimated fair value, less anticipated selling costs, was below the carrying value of its China investments. The fair value of these investments deteriorated significantly during the second quarter of 2005 as a result of various developments including, but not limited to: (i) updated analyses of the China asset portfolio, including changes in the anticipated divestiture timelines and in the market and sales-related information received from Alliant Energy’s financial advisors; (ii) updated market information, including terms of recent sales of similar assets in this market; and (iii) diminution in Alliant Energy’s outlook for short-term progress regarding higher tariff relief for past and future increases in coal and transportation prices, and the impact of the related uncertainties in the marketplace regarding this issue.

In accordance with impairment tests for long-lived assets to be disposed of by sale within SFAS 144, Alliant Energy reversed $25.2 million, net of allocation to minority interest, of previously recorded pre-tax, non-cash asset valuation charges in the third quarter of 2005 as the estimated fair value, less anticipated selling costs, was above the carrying value of its China investments at Sep. 30, 2005. The fair value of these investments was based upon updated market information from recent negotiated deals and bid information received from potential buyers for these investments.

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A summary of the components of assets and liabilities held for sale on Alliant Energy’s Condensed Consolidated Balance Sheets was as follows (in millions):

(a) Resources’ investment in Mexico at Dec. 31, 2004 consisted of a secured loan receivable (including accrued interest income) of $82.5 million from a Mexican development company, LDM Utility Co., S.A. de C.V. (LDMU), to build the utility infrastructure of a master planned resort community. In February 2005, Resources completed the transfer of ownership and control of the project by acquiring a 97% interest in LDMU for an immaterial cash expenditure. Effective with the transfer of ownership, Alliant Energy removed the loan receivable from “Investments” and recorded $83 million in “Property, plant and equipment, net” related to the real estate, golf course and utility assets owned by LDMU.

A summary of the components of cash flows for discontinued operations for the nine months ended Sep. 30 was as follows (in millions):

Cash and temporary cash investments at the end of the period in the table above were included in “Current assets - assets held for sale” on Alliant Energy’s Condensed Consolidated Balance Sheets. The cash flows for discontinued operations in the table above have not been included in Alliant Energy’s Condensed Consolidated Statements of Cash Flows.

Alliant Energy has also entered into an agreement to sell IPL’s 70% interest in the Duane Arnold Energy Center (DAEC), a 598 MW nuclear generating facility near Palo, Iowa in order to further narrow its strategic focus. However, these assets did not qualify as assets held for sale or discontinued operations at Sep. 30, 2005. Refer to Note 12 for further discussion.

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In July 2005, WPL completed the sale of its interest in Kewaunee to a subsidiary of Dominion Resources, Inc. (Dominion) and received proceeds of $75 million (after $4 million of post-closing adjustments), which it used for debt reduction. The sale proceeds are subject to further adjustments for an indemnity issued by WPL to cover certain potential costs Dominion may incur related to the unplanned outage at Kewaunee earlier in 2005. WPL recognized a $6 million obligation, the maximum exposure under the indemnity at closing, all of which was outstanding at Sep. 30, 2005. As of the closing date, WPL’s share of the carrying value of the Kewaunee assets and liabilities sold was as follows (in millions).

* Includes nuclear fuel, net of amortization

The sale of Kewaunee resulted in a loss of approximately $16 million (excluding the benefits of the non-qualified decommissioning trust assets discussed below), which included the proceeds from the sale less the net assets identified in the previous table, adjusted by an estimate for the fair value of the indemnity and transaction-related closing costs. The loss was reflected as a regulatory asset given the PSCW approved the deferral of any loss and related costs of sale. Because the loss realized is expected to be recovered from customers, WPL does not expect this transaction will have a significant impact on its results of operations.

WPL previously established two decommissioning funds to cover the eventual decommissioning of Kewaunee. Upon the sale closing, Dominion received WPL’s qualified decommissioning trust assets, which had a value of $172 million as of closing, and assumed responsibility for the eventual decommissioning of Kewaunee. WPL retained ownership of the non-qualified decommissioning trust assets, which had a value of $83 million as of closing. In July 2005, WPL liquidated the retail portion of $60 million of its non-qualified decommissioning trust assets and used a majority of the proceeds to repay short-term debt. At Sep. 30, 2005, the wholesale portion of WPL’s non-qualified decommissioning trust assets equaled $23 million and was recorded in “Nuclear decommissioning trust funds” on Alliant Energy’s and WPL’s Condensed Consolidated Balance Sheets. Refer to Note 1(b) for a discussion of WPL’s plans to refund the non-qualified decommissioning trust assets to its retail and wholesale customers.

Upon closing of the sale, WPL entered into a long-term purchased power agreement with Dominion to purchase energy and capacity at prices similar to what costs would have been had current ownership continued. The purchased power agreement extends through 2013, at which time Kewaunee’s current operating license will expire. As of Sep. 30, 2005, WPL’s future minimum payments related to this agreement are $18 million from October through December 2005, $75 million for 2006, $79 million for 2007, $71 million for 2008, $83 million for 2009 and $296 million for 2010 through 2013. These amounts are included in the purchased power commitments included in Note 8(a). In April 2004, WPL entered into an exclusivity agreement with Dominion. Under this agreement, if Dominion decides to extend the operating license of Kewaunee, Dominion must negotiate only with WPL and Wisconsin Public Service Corporation for new purchased power agreements for the parties’ respective share of the plant output that would extend beyond Kewaunee’s current operating license termination date. The exclusivity period extends until December 2011. Under the purchased power agreement, if Kewaunee is off-line for a forced outage during the term of the agreement, Dominion has the obligation to provide replacement power to WPL or pay performance damages to WPL based on the amount of energy not delivered and the price of energy in the market at the Kewaunee pricing location during the forced outage.

WPL’s assets and liabilities related to the Kewaunee sale agreement as of Dec. 31, 2004 have been reclassified as held for sale on Alliant Energy’s and WPL’s Condensed Consolidated Balance Sheets. Refer to Note 10 for further discussion.

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In July 2005, IPL signed a definitive agreement to sell its 70% ownership interest in DAEC to FPL Energy Duane Arnold, LLC (FPL Energy), a subsidiary of FPL Group, Inc. As part of the agreement, FPL Energy agreed to purchase IPL’s interest in the nuclear generating facility and related inventories (nuclear fuel and material and supplies) for approximately $380 million. In addition, the agreement contemplates that IPL’s affiliates will sell other related assets to FPL Energy for an additional $7 million. The purchase price is subject to various adjustments at closing. The agreement also contemplates that IPL will transfer the equivalent of $203 million of nuclear decommissioning trust assets and cash to FPL Energy at closing in connection with FPL Energy assuming responsibility for the eventual decommissioning of the facility. In the third quarter of 2005, IPL liquidated the equity investments of its non-qualified decommissioning trust fund into short-term fixed income investments and entered into a hedge on the equity investments of its qualified decommissioning trust fund to protect against equity price risk associated with these investments. IPL will also make cash payments to FPL Energy at closing in connection with FPL Energy’s assumption of certain other liabilities related to DAEC. In addition, the purchase price will be reduced by $128,000 for each day that the closing occurs after Jan. 31, 2006. Pending various regulatory approvals, including those from the IUB, PSCW, MPUC, Illinois Commerce Commission (ICC), Federal Energy Regulatory Commission (FERC) and Nuclear Regulatory Commission (NRC), and the satisfaction of other closing conditions, the transaction is expected to be completed in the first quarter of 2006. The IUB began a hearing in November 2005 regarding the proposed sale transaction; however, the IUB may not issue a decision until January 2006.

The cash proceeds, after certain transaction costs, from the sale are currently expected to exceed IPL’s carrying value of the net assets being sold. The regulatory treatment of such gain, net of transaction costs, will be addressed as part of the regulatory approval process for the proposed sale, thus IPL is unable to determine if the sale will have a significant impact on its operating results. As of Sep. 30, 2005, IPL’s share of the carrying value of the assets and liabilities included within the sale agreement was as follows (in millions):

As of Sep. 30, 2005, IPL’s assets and liabilities related to the proposed sale of DAEC did not meet the criteria to be classified as held for sale due to uncertainties inherent in the regulatory approval process.

In the third quarter of 2005, IPL entered into a long-term purchased power agreement with FPL Energy to buy energy and capacity from DAEC, which agreement is also contingent upon regulatory approvals. The purchased power agreement extends through February 2014, concurrent with expiration of DAEC’s current operating license. The structure of the purchased power agreement is anticipated to result in costs for IPL’s electric customers that are lower than would be anticipated under IPL’s continued ownership. The fixed monthly capacity payment in the agreement corresponds to IPL’s projected revenue requirement, which would continue to be reflected in its base rates. The monthly variable payment to FPL Energy varies directly with the amount of energy delivered to IPL, which is based on a target capacity factor of 90%. If in a given month, FPL Energy delivers less than the energy amount corresponding to the 90% capacity factor, there will be a reduction in the energy payment by IPL to reflect the lower fuel consumption as well as a corresponding adjustment in the capacity payment to FPL Energy to proportionally compensate IPL for the under-delivery. This will ultimately result in a reduction in the DAEC component of the energy adjustment clause recovered from customers. The converse is also true if the delivered energy exceeds the target amount. Under the purchased power agreement, if DAEC is off-line for a planned or forced outage during the term of the agreement, FPL Energy has the option, but not the obligation, to provide replacement power to IPL. However, if FPL Energy does not deliver energy to IPL for an entire month, IPL has no obligation to make any payments to FPL Energy for that month.

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Alliant Energy’s AROs primarily relate to the decommissioning costs for DAEC. Refer to Note 12 for information regarding the proposed sale of IPL’s interest in DAEC. Refer to Note 11 for information regarding the ARO related to the decommissioning costs for Kewaunee that were assumed by Dominion in the third quarter of 2005. Pursuant to SFAS 143, “Accounting for Asset Retirement Obligations” (SFAS 143), a reconciliation of the changes in AROs associated with long-lived assets is as follows (in millions):

In March 2005, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations-an interpretation of FASB Statement No. 143” (FIN 47), which clarifies the term “conditional AROs,” as discussed in SFAS 143, and when an entity would have sufficient information to reasonably estimate the fair value of an ARO. Alliant Energy continues to evaluate the implications of FIN 47 and is required to adopt the guidance by Dec. 31, 2005.

After making an ongoing exhaustive effort, Alliant Energy concluded it was unable to obtain the information necessary from the counterparties for the Riverside and RockGen plant agreements to determine whether the counterparties are

variable interest entities per FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities” (FIN 46R), and if Alliant Energy is the primary beneficiary. These agreements are currently accounted for as operating leases. The counterparties sell some or all of their generating capacity to WPL, and can sell their energy output to both WPL and IPL. Alliant Energy’s maximum exposure to loss from these agreements is undeterminable due to the inability to obtain the necessary information to complete such evaluation. The costs related to these agreements for the three and nine months ended Sep. 30 were as follows (in millions):

*The Riverside plant was placed in service in June 2004.

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 Alliant Energy subsidiaries are guarantors of Resources’ debt securities. The “Other Alliant Energy Subsidiaries” column includes amounts for IPL, WPL and Corporate Services. Alliant Energy’s condensed consolidating financial statements are as follows:

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Alliant Energy Corporation Condensed Consolidating Statements of Income (Unaudited)