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 March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission Name of Registrant, State of Incorporation, IRS Employer
File Address of Principal Executive Offices and Identification
Number Telephone Number Number
- -----------------------------------------------------------------------
1-9894 ALLIANT ENERGY CORPORATION 39-1380265
(a Wisconsin corporation)
222 West Washington Avenue
Madison, Wisconsin 53703
Telephone (608)252-3311
0-4117-1 IES UTILITIES INC. 42-0331370
(an Iowa corporation)
Alliant Energy Tower
Cedar Rapids, Iowa 52401
Telephone (319)398-4411
0-337 WISCONSIN POWER AND LIGHT COMPANY 39-0714890
(a Wisconsin corporation)
222 West Washington Avenue
Madison, Wisconsin 53703
Telephone (608)252-3311
Indicate by check mark whether the registrants (1) have filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrants were required
to file such reports), and (2) have been subject to such filing
requirements for the past (90) days. Yes [ X ] No [ ]
This combined Form 10-Q is separately filed by Alliant Energy
Corporation, IES Utilities Inc. and Wisconsin Power and Light
Company. Information contained in the quarterly report relating
to IES Utilities Inc. and Wisconsin Power and Light Company is
filed by such registrant on its own behalf. Each of IES
Utilities Inc. and Wisconsin Power and Light Company makes no
representation as to information relating to registrants other
than itself.
Number of shares outstanding of each class of common stock as of
April 30, 2000:
Alliant Energy Common stock, $.01 par value, 79,002,896
Corporation shares outstanding
IES Utilities Inc. Common stock, $2.50 par value, 13,370,788
shares outstanding (all of which are owned
beneficially and of record by Alliant Energy
Corporation)
Wisconsin Power and Common stock, $5 par value, 13,236,601 shares
Light Company outstanding (all of which are owned
beneficially and of record by Alliant Energy
Corporation)
CONTENTS
Page
----
Part I. Financial Information 4
Item 1. Consolidated Financial Statements 4
Alliant Energy Corporation:
---------------------------
Consolidated Statements of Income for the Three Months Ended
March 31, 2000 and 1999 4
Consolidated Balance Sheets as of March 31, 2000 and December 31,
1999 5
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 7
Notes to Consolidated Financial Statements 8
IES Utilities Inc.:
-------------------
Consolidated Statements of Income for the Three Months Ended
March 31, 2000 and 1999 11
Consolidated Balance Sheets as of March 31, 2000 and December 31,
1999 12
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 14
Notes to Consolidated Financial Statements 15
Wisconsin Power and Light Company:
----------------------------------
Consolidated Statements of Income for the Three Months Ended
March 31, 2000 and 1999 16
Consolidated Balance Sheets as of March 31, 2000 and December 31,
1999 17
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 19
Notes to Consolidated Financial Statements 20
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
Part II. Other Information 32
Item 6. Exhibits and Reports on Form 8-K 32
Signatures 35
-2-
DEFINITIONS
Certain abbreviations or acronyms used in the text and notes of
this combined Form 10-Q are defined below:
Abbreviation or Acronym Definition
- ----------------------- ----------
Alliant Energy Alliant Energy Corporation
ATC American Transmission Company, LLC
CEMS Continuous Emission Monitoring System
Corporate Services Alliant Energy Corporate Services, Inc.
Dth Dekatherm
EAC Energy Adjustment Clause
EPA United States Environmental Protection
Agency
FERC Federal Energy Regulatory Commission
IES IES Industries Inc.
IESU IES Utilities Inc.
International Alliant Energy International, Inc.
Investments Alliant Energy Investments, Inc.
IPC Interstate Power Company
ISCO Alliant Energy Industrial Services, Inc.
ISO Independent System Operator
IUB Iowa Utilities Board
MAIN Mid-America Interconnected Network, Inc.
MAPP Mid-Continent Area Power Pool
McLeod McLeodUSA Incorporated
MD&A Management's Discussion and
Analysis of Financial Condition and
Results of Operations
MWH Megawatt-Hour
OCA Office of Consumer Advocate
PGA Purchased Gas Adjustment
PSCW Public Service Commission of Wisconsin
PUHCA Public Utility Holding Company Act
of 1935
Resources Alliant Energy Resources, Inc.
RTO Regional Transmission Organization
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting
Standards
Transportation Alliant Energy Transportation, Inc.
Whiting Whiting Petroleum Corporation
WP&L Wisconsin Power and Light Company
WPLH WPL Holdings, Inc.
-3-
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ALLIANT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months Ended March 31,
2000 1999
- -----------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
Operating revenues:
Electric utility $373,622 $351,338
Gas utility 130,134 133,684
Non-regulated and other 117,094 61,833
-------------------- -------------------
620,850 546,855
-------------------- -------------------
- -----------------------------------------------------------------------------------------------------------------
Operating expenses:
Electric and steam production fuels 69,272 65,404
Purchased power 62,345 52,065
Cost of utility gas sold 82,113 81,343
Other operation 186,537 130,365
Maintenance 29,929 23,812
Depreciation and amortization 75,911 73,640
Taxes other than income taxes 26,353 27,239
-------------------- -------------------
532,460 453,868
-------------------- -------------------
- -----------------------------------------------------------------------------------------------------------------
Operating income 88,390 92,987
-------------------- -------------------
- -----------------------------------------------------------------------------------------------------------------
Interest expense and other:
Interest expense 40,618 33,400
Contingent interest on indexed senior notes 39,493 -
Allowance for funds used during construction (1,754) (1,934)
Preferred dividend requirements of subsidiaries 1,678 1,676
Gain on sale of McLeodUSA Inc. stock (10,206) -
Miscellaneous, net (13,197) (6,771)
-------------------- -------------------
56,632 26,371
-------------------- -------------------
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes 31,758 66,616
-------------------- -------------------
- -----------------------------------------------------------------------------------------------------------------
Income taxes 12,438 24,872
-------------------- -------------------
- -----------------------------------------------------------------------------------------------------------------
Net income $19,320 $41,744
==================== ===================
- -----------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding 78,996 77,780
==================== ===================
- -----------------------------------------------------------------------------------------------------------------
Earnings per average common share (basic and diluted) $0.24 $0.54
==================== ===================
- -----------------------------------------------------------------------------------------------------------------
Dividends declared per common share $0.50 $0.50
==================== ===================
- -----------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-4-
ALLIANT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31,
2000 December 31,
ASSETS (Unaudited) 1999
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $5,068,008 $5,032,675
Gas 547,306 540,874
Other 460,354 458,547
---------------- -----------------
6,075,668 6,032,096
Less - Accumulated depreciation 3,144,273 3,077,459
---------------- -----------------
2,931,395 2,954,637
Construction work in progress 130,088 119,276
Nuclear fuel, net of amortization 54,995 54,363
---------------- -----------------
3,116,478 3,128,276
Other property, plant and equipment, net of accumulated
depreciation and amortization of $191,244 and $184,722, respectively 403,941 357,758
---------------- -----------------
3,520,419 3,486,034
---------------- -----------------
- ---------------------------------------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments 47,500 113,669
Accounts receivable:
Customer, less allowance for doubtful accounts
of $1,942 and $2,253, respectively 66,615 67,299
Unbilled utility revenues 34,120 48,033
Other, less allowance for doubtful accounts
of $1,131 and $954, respectively 28,204 30,095
Production fuel, at average cost 42,893 49,657
Materials and supplies, at average cost 52,818 52,440
Gas stored underground, at average cost 5,933 23,151
Regulatory assets 29,464 33,439
Prepaid gross receipts tax 15,648 20,864
Other 45,087 47,339
---------------- -----------------
368,282 485,986
---------------- -----------------
- ---------------------------------------------------------------------------------------------------------------
Investments:
Investment in McLeodUSA Inc. 1,607,180 1,123,790
Investments in foreign entities 578,572 198,055
Nuclear decommissioning trust funds 276,216 271,258
Other 69,627 59,866
---------------- -----------------
2,531,595 1,652,969
---------------- -----------------
- ---------------------------------------------------------------------------------------------------------------
Other assets:
Regulatory assets 261,427 263,610
Deferred charges and other 196,094 187,084
---------------- -----------------
457,521 450,694
---------------- -----------------
- ---------------------------------------------------------------------------------------------------------------
Total assets $6,877,817 $6,075,683
================ =================
- ---------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-5-
ALLIANT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
March 31,
2000 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1999
- --------------------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
Capitalization:
Common stock - $.01 par value - authorized 200,000,000 shares;
outstanding 79,000,744 and 78,984,014 shares, respectively $790 $790
Additional paid-in capital 946,033 942,408
Retained earnings 557,286 577,464
Accumulated other comprehensive income 913,950 634,903
Shares acquired for deferred compensation trust - 24,552 shares at
an average cost of $29.52 per share (725) -
----------------- -----------------
Total common equity 2,417,334 2,155,565
----------------- -----------------
Cumulative preferred stock of subsidiaries, net 113,677 113,638
Long-term debt (excluding current portion) 2,019,502 1,486,765
----------------- -----------------
4,550,513 3,755,968
----------------- -----------------
- --------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities and sinking funds 5,692 54,795
Variable rate demand bonds 55,100 55,100
Commercial paper 300,785 374,673
Notes payable 54 50,046
Capital lease obligations 13,285 13,321
Accounts payable 167,275 191,149
Accrued interest 38,805 24,818
Accrued taxes 105,191 78,825
Other 74,466 90,898
----------------- -----------------
760,653 933,625
----------------- -----------------
- --------------------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 1,197,431 1,018,482
Accumulated deferred investment tax credits 71,647 71,857
Environmental liabilities 63,839 65,327
Pension and other benefit obligations 63,181 61,988
Other 170,553 168,436
----------------- -----------------
1,566,651 1,386,090
----------------- -----------------
- --------------------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $6,877,817 $6,075,683
================= =================
- --------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-6-
ALLIANT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended March 31,
2000 1999
- ----------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Net income $19,320 $41,744
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 75,911 73,640
Amortization of nuclear fuel 4,841 5,024
Amortization of deferred energy efficiency expenditures 7,280 7,930
Deferred taxes and investment tax credits (20,075) (1,799)
Refueling outage provision 2,421 2,415
Gain on disposition of assets, net (10,644) (1,771)
Contingent interest on indexed senior notes 39,493 -
Other (4,283) (299)
Other changes in assets and liabilities:
Accounts receivable 16,488 9,774
Production fuel 6,764 9,743
Gas stored underground 17,218 13,524
Accounts payable (23,874) (40,708)
Accrued interest 13,987 311
Accrued taxes 26,366 21,924
Benefit obligations and other 14,506 28,700
----------------- -----------------
Net cash flows from operating activities 185,719 170,152
----------------- -----------------
- ----------------------------------------------------------------------------------------------------
Cash flows from (used for) financing activities:
Common stock dividends declared (39,498) (38,834)
Proceeds from issuance of common stock 514 8,538
Net change in Resources' credit facility (4,848) 42,995
Proceeds from issuance of other long-term debt 510,957 11,994
Reductions in other long-term debt (51,672) (62,310)
Net change in other short-term borrowings (119,032) (2,257)
Principal payments under capital lease obligations (1,882) (3,369)
Other (14,078) 113
----------------- -----------------
Net cash flows from (used for) financing activities 280,461 (43,130)
----------------- -----------------
- ----------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
Construction and acquisition expenditures:
Utility (60,447) (41,638)
Non-regulated businesses (457,213) (49,198)
Nuclear decommissioning trust funds (15,437) (15,437)
Proceeds from disposition of assets 11,054 3,022
Shared savings program (5,873) (4,247)
Other (4,433) 2,832
----------------- -----------------
Net cash flows used for investing activities (532,349) (104,666)
----------------- -----------------
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash investments (66,169) 22,356
----------------- -----------------
- ----------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period 113,669 31,827
----------------- -----------------
- ----------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $47,500 $54,183
================= =================
- ----------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid during the period for:
Interest $25,795 $31,952
================= =================
Income taxes $3,092 $4,600
================= =================
Noncash investing and financing activities:
Capital lease obligations incurred $222 $1,414
================= =================
- ----------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-7-
ALLIANT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The interim consolidated financial statements included herein
have been prepared by Alliant Energy, without audit, pursuant
to the rules and regulations of the SEC. Accordingly, certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted,
although management believes that the disclosures are adequate
to make the information presented not misleading. The
consolidated financial statements include Alliant Energy and
its consolidated subsidiaries (including IESU, WP&L, IPC,
Resources and Corporate Services). These financial statements
should be read in conjunction with the financial statements
and the notes thereto included in Alliant Energy's, IESU's and
WP&L's latest Annual Report on Form 10-K.
In the opinion of management, all adjustments, which are
normal and recurring in nature, necessary for a fair
presentation of (a) the consolidated results of operations for
the three months ended March 31, 2000 and 1999, (b) the
consolidated financial position at March 31, 2000 and December
31, 1999, and (c) the consolidated statement of cash flows for
the three months ended March 31, 2000 and 1999, have been
made. Because of the seasonal nature of IESU's, WP&L's and
IPC's operations, results for the three months ended March 31,
2000 are not necessarily indicative of results that may be
expected for the year ending December 31, 2000. Certain prior
period amounts have been reclassified on a basis consistent
with the 2000 presentation.
2. Alliant Energy's comprehensive income, and the components of
other comprehensive income, net of taxes, were as follows (in
thousands):
For the Three
Months Ended
March 31,
2000 1999
-------- --------
Net income $19,320 $41,744
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains arising during 284,458 75,031
period, net of tax (1)
Less: reclassification adjustment for gains
included in net income,
net of tax (2) (6,328) --
-------- --------
Net unrealized gains 278,130 75,031
-------- --------
Foreign currency translation adjustments 917 (614)
-------- --------
Other comprehensive income 279,047 74,417
-------- --------
Comprehensive income $298,367 $116,161
======== ========
(1) Primarily due to quarterly adjustments to the estimated fair
value of Alliant Energy's investment in McLeod.
(2) The first quarter 2000 earnings included a pre-tax gain of
$10.2 million ($0.08 per share) from the sale of 150,000
shares of McLeod stock held by Alliant Energy. Alliant
Energy still held beneficial ownership in approximately 19
million shares of McLeod stock as of March 31, 2000. (The
McLeod shares in this note do not reflect McLeod's 3-for-1
stock split effective April 24, 2000).
IESU and WP&L had no comprehensive income in the periods
presented.
-8-
3. Certain financial information relating to Alliant Energy's
significant business segments is presented below:
---------------------------------------------
Regulated Domestic Utilities Alliant
--------------------------------------------- Non-regulated Energy
Electric Gas Other Total Businesses Other Consolidated
--------------------------------------------------------------------------------------
(in thousands)
Three Months Ended
March 31, 2000
--------------
Operating revenues $373,622 $130,134 $8,157 $511,913 $109,463 ($526) $620,850
Operating income (loss) 63,839 18,850 1,780 84,469 3,943 (22) 88,390
Net income (loss) 39,067 (16,112) (3,635) 19,320
Three Months Ended
March 31, 1999
--------------
Operating revenues $351,338 $133,684 $9,204 $494,226 $53,199 ($570) $546,855
Operating income (loss) 68,615 23,939 2,354 94,908 (1,836) (85) 92,987
Net income (loss) 44,767 (1,906) (1,117) 41,744
Non-regulated earnings for the three months ended March 31,
2000 included a $24.8 million after-tax non-cash charge to net
income to recognize an increase in Alliant Energy's obligation
relating to its 30-year exchangeable senior notes issued in
February 2000. Resources' (i.e., the non-regulated
businesses) assets increased $881 million during the first
three months of 2000, primarily due to the increase in market
value of its investment in McLeod and Alliant Energy's recent
investment in various Brazilian utilities. On January 25,
2000, Resources acquired a stake in four Brazilian electric
utilities for a total of approximately $347 million.
Intersegment revenues were not material to Alliant Energy's
operations.
4. The provisions for income taxes are based on the estimated
annual effective tax rate, which differs from the federal
statutory rate of 35% principally due to: state income taxes,
tax credits, effects of utility rate making and certain
non-deductible expenses.
5. At March 31, 2000, Alliant Energy had $579 million of
investments in foreign entities on its Consolidated Balance
Sheet that primarily included investments in various Brazilian
electric utilities, investments in various New Zealand and
Australian utility entities, investments in various generation
facilities in China and an investment in secured debentures of
a development project in Mexico. The Brazil and China
investments are accounted for under the equity method and the
New Zealand and Australian investments are accounted for under
the cost method. The geographic concentration of Alliant
Energy's investments in foreign entities at March 31, 2000,
included investments of approximately $357 million in Brazil,
$138 million in New Zealand and Australia, $69 million in
China, $14 million in Mexico and $1 million in other
countries.
6. Summary financial information for Resources was as follows (in
thousands):
March 31,
2000
-------------
Current assets $96,253
Non-current assets 2,633,389
Current liabilities 199,341
Non-current liabilities 686,209
(excludes minority interest)
Minority interest (primarily 7,107
real estate joint ventures)
-9-
Refer to the "Non-regulated Businesses" column of Note 3 for
summary income statement data of Resources. Alliant Energy
has not presented separate financial statements for Resources
because it is a wholly-owned subsidiary of Alliant Energy and
because management has determined that such information is not
material to holders of senior notes of Resources. Alliant
Energy has fully and unconditionally guaranteed the payment of
principal and interest on the senior notes.
7. On February 1, 2000, Resources completed a private placement
of $402.5 million of exchangeable senior notes due 2030. The
exchangeable senior notes have a stated interest rate of 7.25%
through February 15, 2003 and 2.5% thereafter and are
exchangeable for cash based upon a percentage of the value of
McLeod Class A Common Stock. Refer to "Liquidity and Capital
Resources - Future Considerations" for a further discussion.
WP&L issued $100 million of senior unsecured debentures in
March 2000 at a fixed interest rate of 7-5/8%, due 2010. The
net proceeds from the sale of the debentures were primarily
used to repay short-term debt.
-10-
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months Ended March 31,
2000 1999
- ----------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating revenues:
Electric utility $145,708 $140,017
Gas utility 59,429 61,296
Steam and other 6,987 7,952
---------------------- ---------------------
212,124 209,265
---------------------- ---------------------
- ----------------------------------------------------------------------------------------------------------------------
Operating expenses:
Electric and steam production fuels 32,639 26,589
Purchased power 13,422 13,150
Cost of gas sold 38,074 37,912
Other operation 43,273 47,439
Maintenance 10,493 9,904
Depreciation and amortization 26,850 25,482
Taxes other than income taxes 11,875 12,616
---------------------- ---------------------
176,626 173,092
---------------------- ---------------------
- ----------------------------------------------------------------------------------------------------------------------
Operating income 35,498 36,173
---------------------- ---------------------
- ----------------------------------------------------------------------------------------------------------------------
Interest expense and other:
Interest expense 13,011 13,204
Allowance for funds used during construction (490) (849)
Miscellaneous, net (4,750) (857)
---------------------- ---------------------
7,771 11,498
---------------------- ---------------------
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 27,727 24,675
---------------------- ---------------------
- ----------------------------------------------------------------------------------------------------------------------
Income taxes 11,616 10,216
---------------------- ---------------------
- ----------------------------------------------------------------------------------------------------------------------
Net income 16,111 14,459
---------------------- ---------------------
- ----------------------------------------------------------------------------------------------------------------------
Preferred dividend requirements 229 229
---------------------- ---------------------
- ----------------------------------------------------------------------------------------------------------------------
Earnings available for common stock $15,882 $14,230
====================== =====================
- ----------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-11-
IES UTILITIES INC.
CONSOLIDATED BALANCE SHEETS
March 31,
2000 December 31,
ASSETS (Unaudited) 1999
- --------------------------------------------------------------------------------------------------------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $2,208,987 $2,196,895
Gas 209,610 207,769
Steam 59,931 59,929
Common 149,514 147,845
----------------- -----------------
2,628,042 2,612,438
Less - Accumulated depreciation 1,339,604 1,311,996
----------------- -----------------
1,288,438 1,300,442
Construction work in progress 44,485 37,572
Leased nuclear fuel, net of amortization 36,150 39,284
----------------- -----------------
1,369,073 1,377,298
Other property, plant and equipment, net of accumulated
depreciation and amortization of $2,131 and $2,094, respectively 5,444 5,481
----------------- -----------------
1,374,517 1,382,779
----------------- -----------------
- --------------------------------------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments 4,760 5,720
Accounts receivable:
Customer, less allowance for doubtful accounts
of $497 and $824, respectively 10,638 14,130
Associated companies 2,854 5,696
Other, less allowance for doubtful accounts
of $989 and $817, respectively 9,599 12,864
Income tax refunds receivable - 6,007
Production fuel, at average cost 12,555 12,312
Materials and supplies, at average cost 24,429 24,722
Gas stored underground, at average cost 1,851 11,462
Adjustment clause balances 3,584 11,099
Regulatory assets 16,167 18,569
Prepayments and other 2,891 2,921
----------------- -----------------
89,328 125,502
----------------- -----------------
- --------------------------------------------------------------------------------------------------------------
Investments:
Nuclear decommissioning trust funds 108,583 105,056
Other 6,121 6,119
----------------- -----------------
114,704 111,175
----------------- -----------------
- --------------------------------------------------------------------------------------------------------------
Other assets:
Regulatory assets 117,269 123,031
Deferred charges and other 12,288 13,321
----------------- -----------------
129,557 136,352
----------------- -----------------
- --------------------------------------------------------------------------------------------------------------
Total assets $1,708,106 $1,755,808
================= =================
- --------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-12-
IES UTILITIES INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
March 31,
2000 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1999
- --------------------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
Capitalization:
Common stock - $2.50 par value - authorized 24,000,000
shares; 13,370,788 shares outstanding $33,427 $33,427
Additional paid-in capital 279,042 279,042
Retained earnings 254,177 252,953
------------------ -----------------
Total common equity 566,646 565,422
Cumulative preferred stock 18,320 18,320
Long-term debt (excluding current portion) 551,142 551,079
------------------ -----------------
1,136,108 1,134,821
------------------ -----------------
- --------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities and sinking funds 196 51,196
Capital lease obligations 13,272 13,307
Notes payable to associated companies 72,770 56,946
Accounts payable 27,454 41,273
Accounts payable to associated companies 10,068 17,438
Accrued payroll and vacations 8,162 7,816
Accrued interest 11,923 10,833
Accrued taxes 53,482 44,259
Other 16,862 15,802
------------------ -----------------
214,189 258,870
------------------ -----------------
- --------------------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 225,875 225,961
Accumulated deferred investment tax credits 27,191 26,682
Environmental liabilities 24,905 26,292
Pension and other benefit obligations 27,395 27,734
Capital lease obligations 22,878 25,977
Other 29,565 29,471
------------------ -----------------
357,809 362,117
------------------ -----------------
- --------------------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $1,708,106 $1,755,808
================== =================
- --------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-13-
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended March 31,
2000 1999
- --------------------------------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Net income $16,111 $14,459
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 26,850 25,482
Amortization of leased nuclear fuel 3,357 3,499
Amortization of deferred energy efficiency expenditures 4,402 6,064
Deferred taxes and investment tax credits (258) (473)
Refueling outage provision 2,421 2,415
Other 147 146
Other changes in assets and liabilities:
Accounts receivable 9,599 (456)
Gas stored underground 9,611 6,397
Accounts payable (21,189) (22,393)
Accrued taxes 9,223 9,185
Adjustment clause balances 7,515 4,809
Benefit obligations and other 9,053 3,952
------------------ -------------------
Net cash flows from operating activities 76,842 53,086
------------------ -------------------
- --------------------------------------------------------------------------------------------------------------------------
Cash flows used for financing activities:
Common stock dividends declared (14,658) (43,976)
Dividends payable - (4,840)
Preferred stock dividends (229) (229)
Reductions in long-term debt (51,000) (50,000)
Net change in short-term borrowings 15,824 9,694
Principal payments under capital lease obligations (1,882) (3,369)
Other - (3)
------------------ -------------------
Net cash flows used for financing activities (51,945) (92,723)
------------------ -------------------
- --------------------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
Utility construction expenditures (24,241) (16,621)
Nuclear decommissioning trust funds (1,502) (1,502)
Other (114) 441
------------------ -------------------
Net cash flows used for investing activities (25,857) (17,682)
------------------ -------------------
- --------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and temporary cash investments (960) (57,319)
------------------ -------------------
- --------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period 5,720 57,904
------------------ -------------------
- --------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $4,760 $585
================== ===================
- --------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid (refunded) during the period for:
Interest $10,496 $13,989
================== ===================
Income taxes ($528) $7,334
================== ===================
Noncash investing and financing activities - Capital lease obligations incurred $222 $1,414
================== ===================
- --------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-14-
IES UTILITIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Except as modified below, the Alliant Energy Notes to
Consolidated Financial Statements are incorporated by
reference insofar as they relate to IESU.
1. The interim consolidated financial statements included herein
have been prepared by IESU, without audit, pursuant to the
rules and regulations of the SEC. Accordingly, certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted,
although management believes that the disclosures are adequate
to make the information presented not misleading. IESU is a
subsidiary of Alliant Energy. These financial statements
should be read in conjunction with the financial statements
and the notes thereto included in IESU's latest Annual Report
on Form 10-K.
In the opinion of management, all adjustments, which are
normal and recurring in nature, necessary for a fair
presentation of (a) the consolidated results of operations for
the three months ended March 31, 2000 and 1999, (b) the
consolidated financial position at March 31, 2000 and December
31, 1999, and (c) the consolidated statement of cash flows for
the three months ended March 31, 2000 and 1999, have been
made. Because of the seasonal nature of IESU's operations,
results for the three months ended March 31, 2000 are not
necessarily indicative of results that may be expected for the
year ending December 31, 2000. Certain prior period amounts
have been reclassified on a basis consistent with the 2000
presentation.
2. Certain financial information relating to IESU's significant
business segments is presented below. Intersegment revenues were
not material to IESU's operations.
Electric Gas Other Total
--------------------------------------------
(in thousands)
Three Months Ended March 31, 2000
- ---------------------------------
Operating revenues $145,708 $59,429 $6,987 $212,124
Operating income 26,685 7,413 1,400 35,498
Earnings available for common stock 15,882
Three Months Ended March 31, 1999
- ---------------------------------
Operating revenues $140,017 $61,296 $7,952 $209,265
Operating income 25,337 8,947 1,889 36,173
Earnings available for common stock 14,230
-15-
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months Ended March 31,
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating revenues:
Electric utility $162,376 $149,944
Gas utility 55,286 51,794
Water 1,170 1,252
---------------------- ---------------------
218,832 202,990
---------------------- ---------------------
- ---------------------------------------------------------------------------------------------------------------------
Operating expenses:
Electric production fuels 23,798 27,366
Purchased power 33,757 24,000
Cost of gas sold 35,329 31,181
Other operation 32,115 26,108
Maintenance 13,750 9,103
Depreciation and amortization 32,377 31,139
Taxes other than income taxes 7,211 7,702
---------------------- ---------------------
178,337 156,599
---------------------- ---------------------
- ---------------------------------------------------------------------------------------------------------------------
Operating income 40,495 46,391
---------------------- ---------------------
- ---------------------------------------------------------------------------------------------------------------------
Interest expense and other:
Interest expense 10,908 9,865
Allowance for funds used during construction (1,062) (923)
Miscellaneous, net (4,079) (4,344)
---------------------- ---------------------
5,767 4,598
---------------------- ---------------------
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 34,728 41,793
---------------------- ---------------------
- ---------------------------------------------------------------------------------------------------------------------
Income taxes 12,857 15,505
---------------------- ---------------------
- ---------------------------------------------------------------------------------------------------------------------
Net income 21,871 26,288
---------------------- ---------------------
- ---------------------------------------------------------------------------------------------------------------------
Preferred dividend requirements 828 828
---------------------- ---------------------
- ---------------------------------------------------------------------------------------------------------------------
Earnings available for common stock $21,043 $25,460
====================== =====================
- ---------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-16-
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
March 31,
2000 December 31,
ASSETS (Unaudited) 1999
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $1,938,668 $1,921,624
Gas 262,248 258,132
Water 27,858 27,770
Common 217,777 218,607
----------------- -----------------
2,446,551 2,426,133
Less - Accumulated depreciation 1,297,223 1,266,366
----------------- -----------------
1,149,328 1,159,767
Construction work in progress 69,401 66,784
Nuclear fuel, net of amortization 18,846 15,079
----------------- -----------------
1,237,575 1,241,630
Other property, plant and equipment, net of accumulated
depreciation and amortization of $169 for both periods 639 608
----------------- -----------------
1,238,214 1,242,238
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments 23,990 3,555
Accounts receivable:
Customer 13,461 22,061
Associated companies 2,357 5,067
Other 11,554 10,984
Production fuel, at average cost 16,932 20,663
Materials and supplies, at average cost 21,392 20,439
Gas stored underground, at average cost 3,083 8,624
Prepaid gross receipts tax 15,648 20,864
Other 4,261 9,275
----------------- -----------------
112,678 121,532
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------------
Investments:
Nuclear decommissioning trust funds 167,633 166,202
Other 14,868 15,272
----------------- -----------------
182,501 181,474
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------------
Other assets:
Regulatory assets 88,368 82,161
Deferred charges and other 150,113 138,730
----------------- -----------------
238,481 220,891
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------------
Total assets $1,771,874 $1,766,135
================= =================
- ---------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-17-
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
March 31,
2000 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1999
- ---------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
Capitalization:
Common stock - $5 par value - authorized 18,000,000
shares; 13,236,601 shares outstanding $66,183 $66,183
Additional paid-in capital 229,438 229,438
Retained earnings 324,519 303,476
----------------- -----------------
Total common equity 620,140 599,097
----------------- -----------------
Cumulative preferred stock 59,963 59,963
Long-term debt (excluding current portion) 514,092 414,673
----------------- -----------------
1,194,195 1,073,733
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities 1,875 1,875
Variable rate demand bonds 55,100 55,100
Notes payable to associated companies 633 125,749
Accounts payable 83,178 88,245
Accounts payable to associated companies 24,008 25,306
Accrued taxes 20,377 6,539
Other 25,712 23,744
----------------- -----------------
210,883 326,558
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 232,699 235,838
Accumulated deferred investment tax credits 30,851 31,311
Customer advances 32,896 34,643
Environmental liabilities 10,879 10,861
Other 59,471 53,191
----------------- -----------------
366,796 365,844
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $1,771,874 $1,766,135
================= =================
- ---------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-18-
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended March 31,
2000 1999
- ------------------------------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Net income $21,871 $26,288
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 32,377 31,139
Amortization of nuclear fuel 1,484 1,525
Deferred taxes and investment tax credits (3,224) (1,578)
Other (2,854) (1,617)
Other changes in assets and liabilities:
Accounts receivable 10,740 5,529
Accounts payable (6,365) (17,717)
Accrued taxes 13,838 15,762
Benefit obligations and other 27,644 24,287
--------------------- ----------------------
Net cash flows from operating activities 95,511 83,618
--------------------- ----------------------
- ------------------------------------------------------------------------------------------------------------------------
Cash flows used for financing activities:
Common stock dividends - (14,588)
Preferred stock dividends (828) (828)
Proceeds from issuance of long-term debt 100,000 -
Net change in short-term borrowings (125,116) (25,697)
Other (1,320) -
--------------------- ----------------------
Net cash flows used for financing activities (27,264) (41,113)
--------------------- ----------------------
- ------------------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
Utility construction expenditures (26,950) (18,967)
Nuclear decommissioning trust funds (13,935) (13,935)
Shared savings program (6,016) (2,519)
Other (911) 601
--------------------- ----------------------
Net cash flows used for investing activities (47,812) (34,820)
--------------------- ----------------------
- ------------------------------------------------------------------------------------------------------------------------
Net increase in cash and temporary cash investments 20,435 7,685
--------------------- ----------------------
- ------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period 3,555 1,811
--------------------- ----------------------
- ------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $23,990 $9,496
===================== ======================
- ------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid (refunded) during the period for:
Interest $7,949 $8,468
===================== ======================
Income taxes $2,227 ($357)
===================== ======================
- ------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
-19-
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Except as modified below, the Alliant Energy Notes to
Consolidated Financial Statements are incorporated by
reference insofar as they relate to WP&L.
1. The interim consolidated financial statements included herein
have been prepared by WP&L, without audit, pursuant to the
rules and regulations of the SEC. Accordingly, certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted,
although management believes that the disclosures are adequate
to make the information presented not misleading. The
consolidated financial statements include WP&L and its
consolidated subsidiary. WP&L is a subsidiary of Alliant
Energy. These financial statements should be read in
conjunction with the financial statements and the notes
thereto included in WP&L's latest Annual Report on Form 10-K.
In the opinion of management, all adjustments, which are
normal and recurring in nature, necessary for a fair
presentation of (a) the consolidated results of operations for
the three months ended March 31, 2000 and 1999, (b) the
consolidated financial position at March 31, 2000 and December
31, 1999, and (c) the consolidated statement of cash flows for
the three months ended March 31, 2000 and 1999, have been
made. Because of the seasonal nature of WP&L's operations,
results for the three months ended March 31, 2000 are not
necessarily indicative of results that may be expected for the
year ending December 31, 2000. Certain prior period amounts
have been reclassified on a basis consistent with the 2000
presentation.
2. Certain financial information relating to WP&L's significant
business segments is presented below. Intersegment revenues
were not material to WP&L's operations.
Electric Gas Other Total
-------------------------------------------
(in thousands)
Three Months Ended March 31, 2000
Operating revenues $162,376 $55,286 $1,170 $218,832
Operating income 31,059 9,056 380 40,495
Earnings available for common stock 21,043
Three Months Ended March 31, 1999
Operating revenues $149,944 $51,794 $1,252 $202,990
Operating income 35,349 10,577 465 46,391
Earnings available for common stock 25,460
-20-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Alliant Energy was formed as the result of a three-way merger
involving WPLH, IES and IPC that was completed in April 1998.
The primary first tier subsidiaries of Alliant Energy include:
WP&L, IESU, IPC, Resources and Corporate Services. Among various
other regulatory constraints, Alliant Energy is operating as a
registered public utility holding company subject to the
limitations imposed by PUHCA. This MD&A includes information
relating to Alliant Energy, IESU and WP&L (as well as IPC,
Resources and Corporate Services). Where appropriate,
information relating to a specific entity has been segregated and
labeled as such. The following discussion and analysis should be
read in conjunction with the Consolidated Financial Statements
and Notes to Consolidated Financial Statements included in this
report as well as the financial statements, notes and MD&A
included in Alliant Energy's, IESU's and WP&L's latest Annual
Report on Form 10-K.
FORWARD-LOOKING STATEMENTS
Statements contained in this report (including MD&A) that are not
of historical fact are forward-looking statements intended to
qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. From time to
time, Alliant Energy, IESU or WP&L may make other forward-looking
statements within the meaning of the federal securities laws that
involve judgments, assumptions and other uncertainties beyond the
control of such companies. These forward-looking statements may
include, among others, statements concerning revenue and cost
trends, cost recovery, cost reduction strategies and anticipated
outcomes, pricing strategies, changes in the utility industry,
planned capital expenditures, financing needs and availability,
statements of expectations, beliefs, future plans and strategies,
anticipated events or trends and similar comments concerning
matters that are not historical facts. Investors and other users
of the forward-looking statements are cautioned that such
statements are not a guarantee of future performance and that
such forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ
materially from those expressed in, or implied by, such
statements. Some, but not all, of the risks and uncertainties
include weather effects on sales and revenues, competitive
factors, general economic conditions in the relevant service
territory, federal and state regulatory or government actions,
including issues associated with the deregulation of the utility
industry, unanticipated construction and acquisition
expenditures, issues related to stranded costs and the recovery
thereof, the operations of Alliant Energy's nuclear facilities,
unanticipated costs associated with certain environmental
remediation efforts being undertaken by Alliant Energy,
unanticipated issues relating to establishing a transmission
company, material changes in the value of Alliant Energy's
investment in McLeod, technological developments, employee
workforce factors, including changes in key executives,
collective bargaining agreements or work stoppages, political,
legal and economic conditions in foreign countries Alliant Energy
has investments in and changes in the rate of inflation.
UTILITY INDUSTRY OUTLOOK
A summary of the current regulatory environment is included in
the Form 10-K filed by Alliant Energy, IESU and WP&L for the year
ended December 31, 1999. Set forth below are several
developments relating to such regulatory environment.
Across the nation, approximately half of the states (including
Illinois) have passed legislation or issued regulatory rulings
granting customers the right to choose their electric energy
supplier. Legislation that would allow customers to choose their
electric energy supplier was introduced in Iowa in 2000 but was
never voted upon. At the federal level, a number of proposals to
restructure the electric industry are currently under
consideration. However, there continues to be a lack of
consensus over how restructuring should be implemented and how
much control the federal government should have over this
process. Until one of the proposals gains significant bipartisan
support, Alliant Energy believes there is unlikely to be final
federal action to either facilitate or force states to open
electricity markets to competition.
"Reliability 2000" legislation was enacted in Wisconsin in 1999.
This legislation included, among other items, the formation of a
-21-
Wisconsin transmission company for those Wisconsin utility
holding companies who elect to take advantage of the new asset
cap law. WP&L currently expects to transfer its transmission
assets to the transmission company (American Transmission
Company, or ATC) and it is expected that the net book value of
such assets will become the new carrying value within ATC,
resulting in no gain or loss for WP&L. The PSCW has not yet
determined the exact scope of the assets that must be transferred
to the ATC. A final ruling on such matter is expected in June
2000.
WP&L does not expect this transfer to result in a significant
impact on its financial condition or results of operations
because it believes the FERC will allow WP&L to earn a return on
the contributed assets comparable to the return currently allowed
by the PSCW and FERC. WP&L will not be able to determine its
exact ownership percentage in ATC until it is known which
entities will participate in ATC, and the valuation of the assets
each participant contributes is completed. However, WP&L expects
its ownership interest to exceed 20%, but be less than 50%. As a
result, WP&L expects to account for its investment in ATC under
the equity method. It is currently anticipated that ATC's
dividend policy will support a return of a significant portion of
these earnings to the participants. ATC will realize its
revenues from the provision of transmission services to both
participants in the ATC as well as nonparticipants. ATC is
expected to begin operations on January 1, 2001.
In December 1999, FERC issued Order 2000 which outlines
requirements for utilities to voluntarily turn over operational
control of their transmission system to a regional entity.
FERC's timeline is to have the RTOs in operation by the end of
2001. Alliant Energy's current plans to contribute its Wisconsin
transmission assets to ATC, in exchange for an equity interest,
and to participate in the Midwest ISO are expected to comply with
the provisions of Order 2000. In March 2000, FERC approved
Alliant Energy's membership in the Midwest ISO as well as WP&L's
transfer of its transmission assets.
Each of the utilities complies with the provisions of SFAS 71,
"Accounting for the Effects of Certain Types of Regulation." SFAS
71 provides that rate-regulated public utilities record certain
costs and credits allowed in the rate making process in different
periods than for non-regulated entities. These are deferred as
regulatory assets or regulatory liabilities and are recognized in
the consolidated statements of income at the time they are
reflected in rates. If a portion of the utility subsidiaries'
operations becomes no longer subject to the provisions of SFAS 71
as a result of competitive restructurings or otherwise, a
write-down of related regulatory assets and possibly other
charges would be required, unless some form of transition cost
recovery is established by the appropriate regulatory body that
would meet the requirements under generally accepted accounting
principles for continued accounting as regulatory assets during
such recovery period. In addition, each utility subsidiary would
be required to determine any impairment of other assets and
write-down any impaired assets to their fair value. The utility
subsidiaries believe they currently meet the requirements of SFAS
71 and will continue to monitor and assess this as the various
utility industry restructuring initiatives progress.
ALLIANT ENERGY RESULTS OF OPERATIONS
Overview - Alliant Energy reported net income of $19.3 million,
or $0.24 per share (basic and diluted), for the first quarter of
2000, compared to net income of $41.7 million, or $0.54 per share
(basic and diluted), for the first quarter of 1999. The first
quarter 2000 earnings included a $24.8 million, or $0.31 per
share, non-cash charge to net income to recognize an increase in
Alliant Energy's obligation relating to its 30-year exchangeable
senior notes issued in February. Refer to "Interest Expense and
Other" and "Liquidity and Capital Resources - Future
Considerations" for a further discussion of the $24.8 million
non-cash charge.
Alliant Energy's increase in earnings, excluding the non-cash
charge, was due to several factors, including: a pre-tax gain of
$10.2 million realized from the sale of 150,000 shares of Alliant
Energy's investment in McLeod; increased earnings from Alliant
Energy's oil and gas and industrial services businesses; and
income realized from settlement of a utility tax issue. These
items were partially offset by: higher utility operating
expenses, largely due to scheduled outages at several generating
plants and higher energy conservation expenses; the impact of
milder weather conditions in the first quarter of 2000 compared
to the comparable period in 1999; and increased interest expense
to fund Alliant Energy's strategic growth initiatives.
-22-
First quarter 2000 utility earnings were $39.1 million ($0.49 per
share) compared to $44.8 million ($0.57 per share) for the same
period in 1999. The decrease resulted primarily from higher
operation and maintenance expenses ($0.08 per share), lower
natural gas margins ($0.03 per share) and higher depreciation
expense ($0.02 per share). These items were offset partially by
interest income realized from a tax settlement ($0.03 per share)
and a higher electric margin ($0.02 per share).
The higher operation and maintenance expenses were due to costs
associated with scheduled outages at several generating plants,
higher energy conservation expenses and increased nuclear
operating expenses. Alliant Energy estimates that the milder
weather conditions resulted in lower earnings of approximately
$0.06 per share ($0.03 electric; $0.03 gas) in the first quarter
of 2000 compared to the comparable period in 1999. The higher
overall electric margin was due to a rate recovery adjustment
implemented at WP&L in March 1999 to recover higher
purchased-power and transmission costs as well as increased sales
to retail customers due to continued economic strength in Alliant
Energy's utility service territory. These items were offset
partially by continued higher purchased power costs at WP&L.
Resources reported a net loss of $16.1 million, or ($0.20) per
share, in the first quarter of 2000, which included the $24.8
million ($0.31 per share) non-cash charge related to the senior
notes issued in February. Resources reported a net loss of $1.9
million, or ($0.02) per share, for the first quarter of 1999.
The increase in non-regulated earnings, excluding the non-cash
charge, was substantially due to the gain realized on the sale of
the McLeod shares ($0.08 per share) and the increased earnings
from Alliant Energy's oil and gas ($0.06 per share) and
industrial services ($0.02 per share) businesses. These items
were offset partially by higher net interest expense ($0.03 per
share) to fund strategic growth initiatives, including the recent
$347 million investment in several Brazilian electric utilities.
Refer to "Liquidity and Capital Resources - Future
Considerations" for a further discussion of the Brazilian
investments.
Electric Utility Operations - Electric margins and MWH sales for
- ---------------------------
Alliant Energy for the three months ended March 31 were as follows:
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
------------------------ ----------------------
2000 1999 Change 2000 1999 Change
------------ ----------- -------- ---------- ---------- -------
Residential $134,995 $130,280 4% 1,821 1,810 1%
Commercial 77,850 72,023 8% 1,278 1,244 3%
Industrial 111,544 102,601 9% 3,120 3,076 1%
------------ ----------- ---------- ----------
Total from ultimate customers 324,389 304,904 6% 6,219 6,130 1%
Sales for resale 33,894 36,214 (6%) 1,205 1,345 (10%)
Other 15,339 10,220 50% 48 41 17%
------------ ----------- ---------- ----------
Total revenues/sales 373,622 351,338 6% 7,472 7,516 (1%)
========== ==========
Electric production fuels
expense 65,545 61,309 7%
Purchased power expense
62,345 52,065 20%
------------ -----------
Margin $245,732 $237,964 3%
============ ===========
Electric margin increased $7.8 million, or 3%, for the first
quarter of 2000, compared with the same period in 1999. The
increase was primarily due to a $15 million rate recovery
adjustment implemented at WP&L in March 1999 to recover higher
purchased-power and transmission costs, an increase in sales to
retail customers due to continued economic strength in Alliant
Energy's service territory and higher other revenues primarily
due to WP&L conservation programs for which WP&L receives a
return on its invested capital. Higher purchased-power costs and
the impact of milder weather conditions partially offset these
items.
IESU's and IPC's electric tariffs include EAC's that are designed
to currently recover the costs of fuel and the energy portion of
purchased-power billings.
-23-
Gas Utility Operations - Gas margins and Dth sales for Alliant
- ----------------------
Energy for the three months ended March 31 were as follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
------------------------ ---------------------
2000 1999 Change 2000 1999 Change
------------ ----------- -------- ---------- ---------- -------
Residential $79,611 $82,439 (3%) 13,073 14,836 (12%)
Commercial 39,570 39,159 1% 7,776 8,559 (9%)
Industrial 6,834 6,767 1% 1,688 1,919 (12%)
Transportation/other 4,119 5,319 (23%) 12,398 14,609 (15%)
------------ ----------- ---------- ----------
Total revenues/sales 130,134 133,684 (3%) 34,935 39,923 (12%)
========== ==========
Cost of gas sold 82,113 81,343 1%
------------ -----------
Margin $48,021 $52,341 (8%)
============ ===========
Gas margin decreased $4.3 million, or 8%, for the first quarter
of 2000, compared with the same period in 1999, primarily due to
reduced natural gas sales due to milder weather.
IESU's and IPC's gas tariffs include PGA clauses that are
designed to currently recover the cost of utility gas sold.
Non-regulated and Other Revenues - Non-regulated and other
- --------------------------------
revenues for the three months ended March 31 were as follows (in
thousands):
2000 1999
-------- --------
ISCO $80,221 $29,407
Oil and gas (Whiting) 19,195 12,833
Steam 7,340 8,262
Transportation 4,788 5,224
Other 5,550 6,107
--------- ---------
$117,094 $61,833
======== =========
ISCO revenues increased significantly in the first quarter of
2000, compared with the same period in 1999, primarily due to the
second quarter 1999 acquisition of an oil gathering and
transportation business in Texas. Oil and gas revenues increased
due to higher oil and gas prices, partially offset by reduced gas
volumes.
Other Operating Expenses - Other operation expenses for the three
- --------------------------
months ended March 31 were as follows (in thousands):
2000 1999
------------ ----------
Utility - IESU / WP&L / IPC $93,860 $87,829
ISCO 76,183 26,443
Oil and gas (Whiting) 7,349 7,534
Transportation 2,363 1,984
Other 6,782 6,575
------------ ----------
$186,537 $130,365
============ ==========
Other operation expenses at the utility subsidiaries increased $6
million in the first quarter of 2000, compared with the same
period in 1999, primarily due to higher energy conservation,
nuclear operating and transmission and distribution expenses.
These items were partially offset by expenses incurred in 1999
relating to Alliant Energy's Year 2000 readiness program. Other
operation expenses at ISCO increased $50 million in the first
quarter of 2000, compared with the same period in 1999, primarily
due to expenses associated with the acquisition of the oil
gathering and transportation business.
-24-
Maintenance expenses increased $6.1 million primarily due to
costs associated with scheduled outages at several of Alliant
Energy's generating plants and increased transmission and
distribution maintenance expenses.
Depreciation and amortization expense increased $2.3 million in
the first quarter of 2000, compared with the same period in 1999,
primarily as a result of utility property additions.
Interest Expense and Other - Interest expense increased $7.2
- --------------------------
million in the first quarter of 2000, compared with the same
period in 1999, primarily due to higher utility and non-regulated
borrowings to fund Alliant Energy's strategic growth initiatives,
including Resources' $347 million investment in several Brazilian
electric utilities in January 2000.
Alliant Energy recorded $39.5 million of contingent interest on
indexed senior notes in the first quarter of 2000 to recognize an
increase in Alliant Energy's obligation relating to Resources'
issuance of $402.5 million of exchangeable 30-year senior notes
in February. The amount payable upon maturity of the notes is
generally the higher of: a) the original principal amount, as
adjusted for any accrued interest or distributions on the common
stock of McLeod; or, b) the current market value of the shares of
McLeod stock attributable to the exchangeable senior notes.
Specific accounting principles govern the exchangeable senior
notes. Due to the exchange feature of the senior notes, any
increase in the value of McLeod stock above $77.23 per share
results in a corresponding increase in Alliant Energy's
obligation under the senior notes. Current accounting principles
do not allow the increases in market value of Alliant Energy's
McLeod holdings to be reflected in earnings, but require a charge
against earnings to reflect the corresponding increase in Alliant
Energy's obligation under the senior notes. The closing price of
the McLeod stock at March 31, 2000 was $84.81; thus, the senior
notes were reported at approximately $442 million at March 31,
2000. The non-cash charge recorded as a result of this increase
did not impact earnings from operations nor will it impact
Alliant Energy's ability to pay dividends. If the McLeod stock
price closes below $84.81 per share on June 30, 2000, Alliant
Energy in the second quarter will reverse the proportionate share
of the non-cash charge recorded in the first quarter. (The
McLeod stock prices in this paragraph do not reflect McLeod's
3-for-1 stock split that was effective April 24, 2000). Refer to
"Liquidity and Capital Resources - Future Considerations" for a
further discussion.
Alliant Energy sold 150,000 shares of its investment in McLeod in
the first quarter of 2000, resulting in a pre-tax gain of $10.2
million (the 150,000 shares have not been adjusted for the
3-for-1 stock split).
Miscellaneous, net income increased $6.4 million for the first
quarter of 2000, compared with the same period in 1999, primarily
due to increased interest income, including $4.1 million realized
from a tax settlement at IESU.
Income Taxes - Income tax expense decreased $12.4 million for the
- ------------
first quarter of 2000, compared with the same period in 1999,
primarily due to lower taxable income. The effective income tax
rates for the first quarter of 2000 and 1999 were 37.2% and
36.4%, respectively.
IESU RESULTS OF OPERATIONS
Overview - IESU's earnings available for common stock increased
- ---------
$1.7 million for the first quarter of 2000, compared with the
same period in 1999. The increased earnings for 2000 were
primarily due to reduced other operation expenses and income
realized from settlement of a tax issue. Lower electric and gas
margins partially offset these items.
-25-
Electric Utility Operations - Electric margins and MWH sales for
- ---------------------------
IESU for the three months ended March 31 were as follows:
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
------------------------ ---------------------
2000 1999 Change 2000 1999 Change
------------ ----------- -------- ---------- ---------- -------
Residential $54,942 $54,353 1% 684 693 (1%)
Commercial 40,226 38,548 4% 632 628 1%
Industrial 42,205 37,882 11% 1,214 1,182 3%
------------ ----------- ---------- ----------
Total from ultimate customers 137,373 130,783 5% 2,530 2,503 1%
Sales for resale 5,203 6,353 (18%) 247 341 (28%)
Other 3,132 2,881 9% 10 10 --
------------ ----------- ---------- ----------
Total revenues/sales 145,708 140,017 4% 2,787 2,854 (2%)
========== ==========
Electric production fuels
expense 28,912 22,494 29%
Purchased power expense 13,422 13,150 2%
------------ -----------
Margin $103,374 $104,373 (1%)
============ ===========
Electric margin decreased $1.0 million, or 1%, for the first
quarter of 2000, compared with the same period in 1999. The
decrease was primarily due to reduced recoveries of approximately
$2.5 million in concurrent and previously deferred expenditures
for Iowa-mandated energy efficiency programs and the impact of
milder weather conditions. Economic growth in the service
territory and reduced purchased-power capacity costs partially
offset these items. The recovery for energy efficiency programs
in Iowa is in accordance with IUB orders (a portion of these
recoveries is offset as they are also amortized to expense in
other operation expense).
IESU's electric tariffs include EAC's that are designed to
currently recover the costs of fuel and the energy portion of
purchased-power billings.
Gas Utility Operations - Gas margins and Dth sales for IESU for
- -----------------------
the three months ended March 31 were as follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
------------------------ ---------------------
2000 1999 Change 2000 1999 Change
------------ ----------- -------- ---------- ---------- -------
Residential $37,214 $39,161 (5%) 6,055 6,855 (12%)
Commercial 17,702 17,970 (1%) 3,472 3,889 (11%)
Industrial 3,101 2,803 11% 811 873 (7%)
Transportation/other 1,412 1,362 4% 2,919 3,195 (9%)
------------ ----------- ---------- ----------
Total revenues/sales 59,429 61,296 (3%) 13,257 14,812 (10%)
========== ==========
Cost of gas sold 38,074 37,912 --
------------ -----------
Margin $21,355 $23,384 (9%)
============ ===========
Gas margin decreased $2.0 million, or 9%, for the first quarter
of 2000, compared with the same period in 1999, primarily due to
reduced natural gas sales due to milder weather.
IESU's gas tariffs include PGA clauses that are designed to
currently recover the cost of gas sold.
Other Operating Expenses - IESU's other operation expenses
- -------------------------
decreased $4.2 million in the first quarter of 2000, compared
with the same period in 1999, primarily due to a $2.6 million
decrease in energy efficiency expenses, expenses incurred in 1999
on IESU's Year 2000 readiness efforts and lower employee benefits
costs. Higher nuclear operating expenses partially offset these
items.
-26-
Interest Expense and Other - Miscellaneous, net income increased
- --------------------------
$3.9 million in the first quarter of 2000, compared with the same
period in 1999, primarily due to $4.1 million of interest income
realized from a tax settlement.
Income Taxes - IESU's income tax expense increased $1.4 million
- ------------
for the first quarter of 2000, compared with the same period in
1999, primarily due to higher taxable income. The effective
income tax rates were 41.9% and 41.4% in the first quarter of
2000 and 1999, respectively.
WP&L RESULTS OF OPERATIONS
Overview - WP&L's earnings available for common stock decreased
- ---------
$4.4 million for the first quarter of 2000, compared with the
same period in 1999, primarily due to higher other operation and
maintenance expenses, partially offset by a higher electric
margin.
Electric Utility Operations - Electric margins and MWH sales for
- ----------------------------
WP&L for the three months ended March 31 were as follows:
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
------------------------ ---------------------
2000 1999 Change 2000 1999 Change
------------ ----------- -------- ---------- ---------- -------
Residential $57,546 $53,889 7% 838 801 5%
Commercial 29,695 27,016 10% 503 465 8%
Industrial 41,270 39,599 4% 1,127 1,087 4%
------------ ----------- ---------- ----------
Total from ultimate customers 128,511 120,504 7% 2,468 2,353 5%
Sales for resale 24,957 24,929 -- 789 813 (3%)
Other 8,908 4,511 97% 21 15 40%
------------ ----------- ---------- ----------
Total revenues/sales 162,376 149,944 8% 3,278 3,181 3%
========== ==========
Electric production fuels
expense 23,798 27,366 (13%)
Purchased power expense 33,757 24,000 41%
------------ -----------
Margin $104,821 $98,578 6%
============ ===========
Electric margin increased $6.2 million, or 6%, for the first
quarter of 2000, compared with the same period in 1999. The
increase was primarily due to a $15 million rate recovery
adjustment implemented in March 1999 to recover higher
purchased-power and transmission costs, a 5% increase in sales to
retail customers primarily due to continued economic strength in
the service territory and higher other revenues due to
conservation programs for which WP&L receives a return on its
invested capital. Higher purchased-power costs and the impact of
milder weather conditions partially offset these items. Refer to
"Liquidity and Capital Resources - Rates and Regulatory Matters"
for a discussion of a rate filing WP&L made to request recovery
of its increased purchased power and transmission costs.
Gas Utility Operations - Gas margins and Dth sales for WP&L for
- -----------------------
the three months ended March 31 were as follows:
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
------------------------ ---------------------
2000 1999 Change 2000 1999 Change
------------ ----------- -------- ---------- ---------- -------
Residential $33,013 $31,260 6% 5,293 5,857 (10%)
Commercial 17,306 15,100 15% 3,350 3,493 (4%)
Industrial 2,732 2,504 9% 587 659 (11%)
Transportation/other 2,235 2,930 (24%) 4,069 4,043 1%
------------ ----------- ---------- ----------
Total revenues/sales 55,286 51,794 7% 13,299 14,052 (5%)
========== ==========
Cost of gas sold 35,329 31,181 13%
------------ -----------
Margin $19,957 $20,613 (3%)
============ ===========
-27-
Gas margin decreased $0.7 million, or 3%, for the first quarter
of 2000, compared with the same period in 1999, primarily due to
reduced natural gas sales resulting from milder weather.
Other Operating Expenses - Other operation expenses increased
- -------------------------
$6.0 million for the first quarter of 2000, compared with the
same period in 1999, due to higher energy conservation, nuclear
operating and transmission and distribution expenses.
Maintenance expenses increased $4.6 million for the first quarter
of 2000 compared with the first quarter of 1999 primarily due to
costs associated with scheduled outages at several generating
plants and higher transmission and distribution maintenance
expenses.
Interest Expense and Other - Interest expense increased $1.0
- --------------------------
million for the first quarter of 2000, compared with the same
period in 1999, primarily due to additional debt outstanding in
the first quarter of 2000.
Income Taxes - WP&L's income tax expense decreased $2.6 million
- ------------
for the first quarter of 2000, compared with the same period in
1999, due to lower taxable income. The effective income tax
rates were 37.0% and 37.1% in the first quarter of 2000 and 1999,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities at Alliant Energy increased
$16 million for the first quarter of 2000, compared with the same
period in 1999, primarily due to changes in working capital.
Cash flows from financing activities increased $324 million for
the first quarter of 2000, compared with the same period in 1999,
primarily as a result of changes in the amount of debt
outstanding. Cash flows used for investing activities increased
$428 million for the first quarter of 2000, compared with the
same period in 1999, due to increased levels of construction and
acquisition expenditures primarily in the non-regulated
businesses.
Cash flows from operating activities at IESU increased $24
million for the first quarter of 2000, compared with the same
period in 1999, primarily due to changes in working capital.
Cash flows used for financing activities decreased $41 million
for the first quarter of 2000, compared with the same period in
1999, due to decreased common stock dividends in 2000. The
dividend payment in the first quarter of 1999 was larger than
IESU's historical quarterly payment as no dividend payments were
made in the last three quarters of 1998 due to merger-related tax
considerations. Cash flows used for investing activities
increased $8 million for the first quarter of 2000, compared with
the same period in 1999, due to increased levels of construction
expenditures.
Cash flows from operating activities at WP&L increased $12
million for the first quarter of 2000, compared with the same
period in 1999, primarily due to changes in working capital.
Cash flows used for financing activities decreased $14 million
for the first quarter of 2000, compared with the same period in
1999, as WP&L did not declare a common stock dividend in the
first quarter of 2000 as part of its management of its capital
structure. Cash flows used for investing activities increased
$13 million for the first quarter of 2000, compared with the same
period in 1999, primarily due to increased levels of construction
expenditures.
Future Considerations
On February 1, 2000, Resources completed a private placement of
$402.5 million of exchangeable senior notes due 2030. The
exchangeable senior notes have a stated interest rate of 7.25%
through February 15, 2003 and 2.5% thereafter and are
exchangeable for cash based upon a percentage of the value of
McLeod Class A Common Stock. Alliant Energy has agreed to fully
and unconditionally guarantee the payment of principal and
interest on the exchangeable senior notes.
The exchangeable senior notes have certain accounting
consequences for Alliant Energy that affect reported earnings.
Alliant Energy records its investment in McLeod stock at its fair
value, with changes in fair value, net of income tax effects,
recorded directly to the common equity section of the
Consolidated Balance Sheets as a component of "Accumulated other
comprehensive income." Any such changes in fair value are
reflected in current earnings only at the time they are actually
-28-
realized through a sale. However, applicable accounting rules
require Alliant Energy to record in its Consolidated Statements
of Income any increase or decrease in the settlement value (i.e.,
the amount payable upon maturity) of the exchangeable senior
notes that results from changes in the market value of McLeod
stock. The settlement value of the exchangeable senior notes at
any point in time is generally (assuming no deferrals of interest
payments) the higher of: (a) the original principal amount plus
accrued interest less cash dividends or other distributions on
the McLeod stock; or (b) the current market value of the shares
of McLeod stock attributable to the exchangeable senior notes.
Accordingly, any increase or decrease in the settlement value of
the exchangeable senior notes will be recorded as subtractions
from, or additions to, Alliant Energy's reported net income as
"contingent interest on indexed senior notes."
The market price of the McLeod stock has been volatile and has
fluctuated over a wide range since McLeod's initial public
offering. A significant increase in the market value of McLeod
stock would significantly decrease Alliant Energy's reported net
income. Similarly, a significant decrease in the market value of
McLeod stock would significantly increase Alliant Energy's
reported net income, subject to the condition that the settlement
value of the exchangeable senior notes will not be reduced below
the original principal amount plus accrued interest less cash
dividends or other distributions on the McLeod stock. These
increases and decreases in reported income in Alliant Energy's
Consolidated Statements of Income will be non-cash in nature and
will be reflected on Alliant Energy's Consolidated Balance Sheets
as increases and decreases in long-term debt. Alliant Energy
would recognize a non-cash charge to net income of approximately
$3.3 million for each $1/share increase in McLeod's stock price
above $77.23/share as relates to the 5.2 million shares of McLeod
stock attributable to the exchangeable senior notes. (McLeod
stock price and share information set forth herein are not
adjusted for McLeod's 3-for-1 stock split effective April 24,
2000). Refer to "Alliant Energy Results of Operations - Interest
Expense and Other" for a discussion of a non-cash charge Alliant
Energy recorded in the first quarter of 2000. This impact on
earnings is expected to be mitigated somewhat once Alliant Energy
adopts SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities." Refer to "Other Matters - Accounting
Pronouncements" for a further discussion.
On January 25, 2000, Resources acquired a stake in four Brazilian
electric utilities serving more than 820,000 customers for a
total investment of approximately $347 million. As part of this
investment, Resources acquired a 49.1% ownership interest in
Companhia Forca e Luz Cataguazes-Leopoldina (Cataguazes), an
electric utility. Cataguazes owns a majority stake in CENF,
another electric utility company, as well as a majority interest
in Energisa S.A., an energy development company. As part of the
same investment, Resources directly acquired a 45.6% interest in
Energisa S.A. itself, which holds majority stakes in two
regulated utilities (Energipe and Celb). As part owner of
Cataguazes, Resources will hold both indirect and direct
interests in Energisa S.A. The investment is anticipated to
dilute Alliant Energy's earnings per share by approximately 3% in
2000, with positive contributions to earnings expected in
subsequent years. Resources, through its wholly owned
subsidiary, International, initially financed the Brazil
investment with cash made available through the internal transfer
of existing non-regulated corporate assets. Resources has
entered into a shareholders agreement with the Brazilian
companies, which would allow it to name two directors to the
boards of each company and its subsidiaries. The agreement will
also provide Resources with a role in selecting each company's
management team, along with voting rights relating to critical
issues at the Brazilian companies and their subsidiaries. The
investment will be accounted for under the equity method.
As a result of a sale by Whiting of its interest in an offshore
oil and gas production property in the fourth quarter of 1999,
Whiting has a potential gain contingency of $500,000 relating to
the sale that will be resolved in the fourth quarter of 2000.
Such gain contingency has not yet been recognized in income.
Financing and Capital Structure
WP&L issued $100 million of senior unsecured debentures in March
2000 at a fixed interest rate of 7-5/8%, due 2010. The net
proceeds from the sale of the debentures were primarily used to
repay short-term debt.
Refer to "Liquidity and Capital Resources - Future
Considerations" for a discussion of $402.5 million of exchangeable
senior notes issued by Resources in February 2000.
-29-
Capital Requirements
Refer to the "Other Matters - Environmental" section for a
discussion of various issues impacting Alliant Energy's future
capital requirements.
Rates and Regulatory Matters
In February and April of 2000, the OCA requested certain
financial information related to the electric utility operations
within the state of Iowa from IESU and IPC, respectively. IESU
has responded to its data requests and IPC is in the process of
preparing its responses. While IESU and IPC cannot predict the
outcome of this process, such data requests could lead to an
effort by the OCA to seek an electric rate reduction for IESU
and/or IPC in Iowa.
WP&L's retail electric rates are based in part on forecasted fuel
and purchased-power costs. Under PSCW rules, WP&L can seek
emergency rate increases if the annual costs are more than 3%
higher than the estimated costs used to establish rates. If
WP&L's earnings exceed its authorized return on equity, the
incremental revenues collected causing the excessive return are
subject to refund. WP&L does not believe any revenues collected
to-date are subject to refund. In December 1999, WP&L requested
a $26 million retail electric rate increase to reflect higher
purchased power and transmission costs. Effective May 5, 2000,
the PSCW granted WP&L a $16.5 million annual retail electric rate
increase.
In April 2000, the intervenors who had appealed the PSCW's order
to grant WP&L rate recovery of $6.3 million of it Year 2000
program expenditures withdrew their appeal. WP&L began
recovering such costs in May 2000.
OTHER MATTERS
Labor Issues
The collective bargaining agreements at Alliant Energy cover
approximately 52% of all Alliant Energy employees. In the first
quarter of 2000, two agreements that had expired in 1999 were
ratified and the parties have reached tentative agreement on the
remaining three agreements that had expired in 1999. Once these
three agreements are ratified, all expired agreements will be
renewed and there are no significant agreements expiring in
2000.
Market Risk Sensitive Instruments and Positions
Alliant Energy's primary market risk exposures are associated
with interest rates, commodity prices, equity prices and currency
exchange rates. Alliant Energy has risk management policies to
monitor and assist in controlling these market risks and uses
derivative instruments to manage some of the exposures. Alliant
Energy's market risks have not changed materially from the market
risks reported in the 1999 Form 10-K, except as noted below.
Equity Price Risk - At March 31, 2000 and December 31, 1999,
- -----------------
Alliant Energy had an investment in the stock of McLeod, a
publicly traded telecommunications company, valued at $1,607
million and $1,124 million, respectively. A 10% increase
(decrease) in the quoted market price at March 31, 2000 and
December 31, 1999 would have increased (decreased) the value of
the investment by approximately $161 million and $112 million,
respectively.
Currency Risk - Alliant Energy has investments in various
- --------------
countries where the net investments are not hedged, including
Australia, Brazil, China, New Zealand, and Singapore. As a
result, these investments are subject to currency exchange risk
with fluctuations in currency exchange rates. At March 31, 2000
and December 31, 1999, Alliant Energy had a cumulative foreign
currency translation loss of $8.7 million and $9.6 million,
respectively, recorded in "Accumulated other comprehensive
income" on its Consolidated Balance Sheets. Based on Alliant
Energy's investments at March 31, 2000 and December 31, 1999, a
10% sustained increase/decrease over the next twelve months in
the foreign exchange rates of Australia, Brazil, China, New
Zealand and Singapore would decrease/increase the cumulative
foreign currency translation loss by $54.5 million and $17.2
million, respectively. The significant increase in the March 31
amount is primarily due to Resources' $347 million investment in
Brazil in January 2000.
-30-
Accounting Pronouncements
In June 1998, the FASB issued SFAS 133. The Statement
establishes accounting and reporting standards requiring that
every derivative instrument be recorded on the balance sheet as
either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results
on the hedged item in the income statement, and requires that a
company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting.
SFAS 133 is effective for fiscal years beginning after June 15,
2000 and must be applied to (a) derivative instruments and (b)
certain derivative instruments embedded in hybrid contracts that
were issued, acquired or substantively modified after
December 31, 1998 (effective dates noted are as amended by
SFAS 137). Alliant Energy has organized a cross-functional
project team to assist in implementing SFAS 133. The team
consists of both Alliant Energy employees and a consultant that
has been engaged to support the project. The team has
substantially completed Alliant Energy's inventory of financial
instruments, commodity contracts and other commitments for the
purpose of identifying and assessing all of Alliant Energy's
derivatives and has begun the process of estimating the fair
value of the derivatives, designating certain derivatives as
hedges and assessing the effectiveness of those derivatives
designated as hedges. Although all effects of implementing
SFAS 133 have not yet been quantified, it could increase
volatility in earnings and other comprehensive income. However,
earnings volatility related to Resources' exchangeable senior
notes is expected to decrease subsequent to the adoption of SFAS
133.
SFAS 133 will require Alliant Energy to split the value of
Resources' exchangeable senior notes into a debt component and a
derivative component. Any changes in the fair value of the
derivative component subsequent to the SFAS 133 adoption date
will be reflected as an increase or decrease in Alliant Energy's
reported net income. At the date of initial adoption, SFAS 133
provides Alliant Energy a one-time ability to transfer any of
Alliant Energy's available-for-sale securities to the trading
category. Alliant Energy expects to transfer approximately 25%
of its shares of McLeod stock to trading upon adoption of SFAS
133. As a result, Alliant Energy expects to report a significant
gain from the one-time transfer of these McLeod shares to
trading; the amount of the gain cannot be determined until the
adoption date as it will be based on the value of McLeod stock at
such time. The gain recognized will be based on the appreciation
in the shares transferred, which is currently recognized as a
component of "Accumulated other comprehensive income" on Alliant
Energy's Consolidated Balance Sheets.
Changes subsequent to the SFAS 133 adoption date in the fair
value of the shares of McLeod stock transferred to trading will
be reflected as an increase or decrease in Alliant Energy's
reported net income and are expected to at least partially offset
changes in the fair value of the derivative component of the
exchangeable senior notes. However, there may be periods with
significant non-cash increases or decreases to Alliant Energy's
net income pertaining to the exchangeable senior notes and the
shares of McLeod stock classified as trading. At the date of
initial adoption, Alliant Energy will also recognize a one-time
increase or decrease to income to reflect the cumulative effect
of a change in accounting principle for the difference between
(a) the current fair value of the derivative component plus the
carrying amount of the debt component, and (b) the carrying
amount of the exchangeable senior notes under current accounting
principles. This amount cannot be determined until the adoption
date.
Alliant Energy has certain fixed price commodity contracts for
the future purchase or sale of natural gas, coal and oil that
meet the derivative criteria in the Statement. Alliant Energy
also has other financial derivative contracts it uses in both its
utility and non-regulated activities. Alliant Energy intends to
designate these contracts as hedges of the underlying purchases
or sales and will record derivative assets and liabilities on its
balance sheet based on the fair value of the contracts at the
adoption date. Such amounts will be substantially offset by an
amount that will be recorded in 'Accumulated other comprehensive
income" on Alliant Energy's Consolidated Balance Sheets. The
fair values will fluctuate over time due to changes in the
underlying commodity prices.
-31-
Alliant Energy is analyzing various alternatives relating to the
possible early adoption of SFAS 133 in 2000. SFAS 133 may only
be adopted on the first day of any quarter prior to the required
adoption date (i.e., January 1, 2001 for Alliant Energy).
Environmental
A summary of Alliant Energy's environmental issues is included in
the Form 10-K, filed by Alliant Energy, IESU and WP&L for the
year ended December 31, 1999. Set forth below are several
developments relating to Alliant Energy's environmental issues.
Pursuant to an internal review of operations in 1998, IPC
discovered that Unit No. 6 at its generating facility in Dubuque,
Iowa required a Clean Air Act Acid Rain permit and CEMS. IPC has
informed its environmental regulators and has installed the CEMS
and obtained the permit. Pursuant to its internal review, IPC
also identified and disclosed to regulators a potentially similar
situation at its Lansing, Iowa generating facility. In the
second quarter of 1999, the EPA determined that Lansing units 1
and 2 are affected units. Therefore, in the third quarter of
1999, IPC installed the CEMS at both of these facilities and in
December 1999 IPC submitted its certification to the EPA for the
Lansing facility. IPC received a settlement offer from the EPA,
dated December 3, 1999, to settle the matter for $550,000. IPC
has since responded with a counteroffer, and the parties have
reached an agreement in principle which contemplates a civil
penalty payment and the performance of a supplemental
environmental project with a combined value of approximately
$400,000. IPC has established the necessary liability for the
expected settlement obligation relating to this issue.
Power Supply
Alliant Energy transferred its IESU and IPC regional reliability
membership from the MAPP reliability region to the MAIN region
effective in May 2000. Given WP&L is already a member of MAIN,
this will give Alliant Energy additional operating flexibility
and will eliminate duplicate reporting requirements. Alliant
Energy will continue to participate in the MAPP Regional
Transmission Committee and the MAPP Power and Energy Market
Committee.
On April 25, 2000, Alliant Energy issued a request for proposal
(RFP) for a contract to construct a 500-600 megawatt power plant
in Wisconsin. The construction of the facility will assist
Alliant Energy in meeting its growing demands for electricity,
will enable Alliant Energy to place a greater reliance on
internal generation versus purchased power and will also help
Alliant Energy maintain the required 18% reserve margin in
Wisconsin. The proposed timeline includes proposals due in June
2000 and construction beginning in the second quarter of 2001.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following Exhibits are filed herewith or
- --------------
incorporated herein by reference. Documents indicated by an
asterisk (*) are incorporated herein by reference.
3.1* Bylaws of Alliant Energy, as amended, effective as of
March 15, 2000 (incorporated by reference to Exhibit 3.2
to Alliant Energy's Form 10-K for the year 1999)
3.2* Bylaws of WP&L, as amended, effective as of March 15,
2000 (incorporated by reference to Exhibit 3.4 to WP&L's
Form 10-K for the year 1999)
3.3* Bylaws of IESU, as amended, effective as of March 15,
2000 (incorporated by reference to Exhibit 3.6 to IESU's
Form 10-K for the year 1999)
-32-
4.1* Officers' Certificate, dated as of March 1, 2000,
creating WP&L's 7-5/8% debentures due March 1, 2010
(incorporated by reference to Exhibit 4 to WP&L's Form
8-K, dated March 1, 2000)
4.2* Indenture, relating to Resources' debt securities, dated
as of November 4, 1999, among Resources, Alliant Energy,
as Guarantor, and Firstar Bank, N.A., as Trustee,
(incorporated by reference to Exhibit 4.1 to Resources'
and Alliant Energy's Registration Statement on Form S-4
(Registration No. 333-92859), and the indentures
supplemental thereto dated, respectively, November 4,
1999 and February 1, 2000 (Exhibit 4.2 in File No.
33-92859 and Exhibit 99.4 in Alliant Energy's Form 8-K
dated February 1, 2000)
4.3* Registration Rights Agreement, related to Resources'
exchangeable senior notes due 2030, dated as of February
1, 2000, among Resources, Alliant Energy and Merrill
Lynch, Pierce, Fenner & Smith Incorporated (incorporated
by reference to Exhibit 99.5 to Alliant Energy's Form
8-K dated February 1, 2000)
4.4* Purchase Agreement, relating to Resources' exchangeable
senior notes due 2030, dated as of January 26, 1999,
among Resources, Alliant Energy and Merrill Lynch,
Pierce, Fenner & Smith Incorporated (incorporated by
reference to Exhibit 99.2 to Alliant Energy's Form 8-K
dated February 1, 2000)
10.1 Supplemental Retirement Agreement
10.2 Third Amended and Restated November 1998 Stockholders'
Agreement entered into as of March 10, 2000, by and
among McLeod, Alliant Energy, Investments and certain
other principal stockholders of McLeod
10.3 Third Amended and Restated January 1999 Stockholders'
Agreement entered into as of March 10, 2000, by and
among McLeod, Alliant Energy, Investments and certain
other principal stockholders of McLeod
27.1 Financial Data Schedule for Alliant Energy Corporation
at and for the period ended March 31, 2000
27.2 Financial Data Schedule for IES Utilities Inc. at and
for the period ended March 31, 2000
27.3 Financial Data Schedule for Wisconsin Power and Light
Company at and for the period ended March 31, 2000
(b) Reports on Form 8-K:
- ------------------------
Alliant Energy
Alliant Energy filed a Current Report on Form 8-K, dated January
25, 2000, as amended by Alliant Energy's Current Report on Form
8-K/A dated January 25, 2000, reporting (under Item 5) that on
January 25, 2000, Alliant Energy issued a press release
announcing that Resources agreed to acquire a significant stake
in four Brazilian electric utilities.
Alliant Energy filed a Current Report on Form 8-K, dated January
26, 2000, reporting (under Item 5) that on January 26, 2000,
Alliant Energy issued a press release pursuant to Rule 135c under
the Securities Act of 1933 announcing certain proposed
unregistered offerings. The press release announces that
Resources intends to offer approximately $350 million aggregate
principal amount of exchangeable senior notes due 2030 in a
private placement in accordance with Rule 144A under the
Securities Act of 1933.
-33-
Alliant Energy filed a Current Report on Form 8-K, dated February
1, 2000, reporting (under Item 5) that on February 1, 2000,
Alliant Energy issued a press release announcing its earnings for
the fourth quarter and the fiscal year ended December 31, 1999.
Alliant Energy filed a Current Report on Form 8-K, dated February
1, 2000, reporting (under Item 5) that on February 1, 2000,
Alliant Energy issued a press release pursuant to Rule 135c under
the Securities Act of 1933 announcing that Resources completed a
private placement of 5,940,960 exchangeable senior notes in the
aggregate principal amount of $402.5 million in accordance with
Rule 144A under the Securities Act of 1933.
Alliant Energy filed a Current Report on Form 8-K, dated February
1, 2000, reporting (under Item 5) certain accounting consequences
for Alliant Energy related to the issuance of 5,940,960
exchangeable senior notes due 2030 in the aggregate principal
amount of $402.5 million by Resources.
WP&L
WP&L filed a Current Report on Form 8-K, dated February 25, 2000,
reporting (under Item 5) certain financial results for the year
ended December 31, 1999.
WP&L filed a Current Report on Form 8-K, dated March 1, 2000,
reporting (under Item 5) that on March 1, 2000, WP&L agreed to
sell $100 million principal amount of its 7-5/8% Debentures due
March 1, 2010 in a public offering.
IESU - None.
-34-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Alliant Energy Corporation, IES Utilities Inc. and
Wisconsin Power and Light Company have each duly caused this
report to be signed on its behalf by the undersigned thereunto
duly authorized on the 11th day of May 2000.
ALLIANT ENERGY CORPORATION
Registrant
By: /s/ Daniel A. Doyle Vice President-Chief Accounting and Financial
- ----------------------- Planning Officer (Principal Accounting Officer)
Daniel A. Doyle
IES UTILITIES INC.
Registrant
By: /s/ Daniel A. Doyle Vice President-Chief Accounting and Financial
- ----------------------- Planning Officer (Principal Accounting Officer)
Daniel A. Doyle
WISCONSIN POWER AND LIGHT COMPANY
Registrant
By: /s/ Daniel A. Doyle Vice President-Chief Accounting and Financial
- ----------------------- Planning Officer (Principal Accounting Officer)
Daniel A. Doyle
-35-