Exhibit 99.2
SCRIPT FOR Q1 2003 EARNINGS RELEASE CONFERENCE CALL
04/28/2003
CONFERENCE COORDINATOR:
(Introduction to the call)...Thank you for holding, ladies and gentlemen,
and welcome to the Alliant Energy first quarter 2003 earnings conference
call. At this time, all lines are in a listen-only mode. I would now
like to turn the call over to your host, Mr. Eric Mott, Assistant
Treasurer of Alliant Energy.
ERIC MOTT
Good morning, and thank you for joining us today for Alliant Energy
Corporation's first quarter 2003 earnings conference call. We welcome
those of you who are joining us on the phone, and also those of you who
are joining us via the Web site. We appreciate your participation.
With me today are Erroll Davis, Alliant Energy's Chairman, President and
Chief Executive Officer, and Tom Walker, Executive Vice President and
Chief Financial Officer, as well as various other senior executives of
the organization.
This call is open to the general public and media but our content and
answers are primarily designed for the financial community, including
institutional investors and investment analysts. We will have a formal
question and answer period following some prepared remarks by Erroll
Davis and Tom Walker. We will take as many questions as we can within
the one-hour time frame for today's call.
As most of you are aware, earlier this morning, we issued a news release
announcing Alliant Energy's first quarter 2003 earnings and affirming
our 2003 earnings guidance for earnings from continuing operations. If
you haven't seen the release, a copy of it is available on our Web site
at www.alliantenergy.com in the news section.
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Let me briefly point out the structure of today's news release.
Effective this quarter, we are now reporting our earnings exclusively on
a GAAP basis and are no longer reporting adjusted earnings. The GAAP
results consist of three components: earnings from continuing
operations, earnings from discontinued operations and the cumulative
effect of changes in accounting principles. Alliant Energy's management
believes earnings from continuing operations provides a more meaningful
representation of the company's fundamental earnings capacity on a going
forward basis.
Before we begin, I would like to remind you that the remarks we make on
this call and our answers to your questions include forward-looking
statements. These forward-looking statements are subject to risks that
could cause actual results to be materially different. Those risks
include, among others, matters discussed in Alliant Energy's press
release issued this morning and in Alliant Energy's filings with the
Securities and Exchange Commission. We disclaim any obligation to
update these forward-looking statements.
That said, I will now turn over the call to Erroll Davis.
ERROLL DAVIS:
Thanks, Eric. Good morning. And thank you for participating in our call
this morning.
As Eric noted, we are no longer reporting earnings on an adjusted
earnings basis, so it is important to us that you understand how we
interpret the results for the first quarter.
The bottom line is that we are pleased with our first quarter results.
They were slightly ahead of our internal plans and they allow me to
affirm our 2003 earnings guidance for continuing operations.
I am also quite pleased to report that we have made very significant
progress in executing the plan we outlined in November to strengthen our
financial profile.
Admittedly, executing certain steps of our strategic plan - more
specifically, the process of divesting certain assets -- has made some
of our financial reporting more complex. Combining this with our focus
on GAAP accounting has created a challenge in communicating our results
in simple and understandable terms. This conference call provides an
excellent tool for us to engage in a more in-depth discussion, so I'm
thankful for the opportunity to do so today.
Today, Alliant Energy reported first quarter 2003 income from continuing
operations of $14.6 million or 16 cents per share, compared to a $7.8
million loss, or a loss of 9 cents per share, in the same period last
year. On a GAAP basis, Alliant Energy reported a modest net loss of
$500,000, or 1 cent per share, in the first quarter of 2003 which
encompasses earnings from discontinued operations, including a
write-down of certain assets prior to their sale, and the impact of the
adoption of two new accounting principles in addition to our earnings
from continuing operations. This compares to net income of $9.7 million
or earnings per share of 11 cents on a GAAP basis in the first quarter
of 2002. However, as we are in the process of selling and updating the
market values of our discontinued assets, we do not find this comparison
very meaningful.
To put it in simple terms, last year in the first quarter we generated a
loss from continuing operations but reported net income on a GAAP
basis. This year in the first quarter, we generated income from
continuing operations but reported a net loss on a GAAP basis. The
reason I'm encouraged by our performance in the first quarter is
two-fold. First, the net loss was obviously primarily due to the
valuation adjustments and selling costs we recorded within our
discontinued operations. Second, the other major factor is the impact
of adopting two new accounting principles. The important take-away is
that the foundation upon which we are building our future -- our
continuing operations -- produced improved results in the first quarter
of 2003 compared to the first quarter of 2002. I believe this 25-cent
per share improvement in earnings from continuing operations shows we
are making progress in improving our financial performance and
delivering value to our shareowners.
As we have previously discussed, 2003 will be a transition year. As
expected and as forecasted, our non-regulated operations did not
contribute positively to earnings from continuing operations in the
first quarter. But also, as expected, we significantly reduced the
loss. Would we be satisfied with this performance on a longer-term
basis? Absolutely not. Is the trend heading in the right direction?
Absolutely.
The news from the first quarter is positive for our utility operations.
Sales have improved due to more favorable weather conditions and a
slowly improving economy, as evidenced by a two percent increase in
electric sales to industrial customers as compared to the first quarter
of 2002.
We also continue to receive much-needed rate relief and I would note
that the most recent decisions are not reflected in our first quarter
numbers. This additional revenue is critical not only to our financial
success, but also equally critical to our ability to continue to provide
our customers with the safe, reliable and environmentally sound utility
service they deserve. We presented strong cases in each jurisdiction
and -- while we did not receive the total amount we requested - and we
never do -- the amounts we did receive are in line with the estimates we
had included in our 2003 guidance.
On April 4th, we received the final order in our 2003 Wisconsin retail
rate case. The Public Service Commission of Wisconsin granted total
rate relief in Wisconsin Power and Light's electric, gas and water cases
of $81.1 million and authorized a return on common equity of 12.0
percent. There was no interim rate relief in this case so this is all
incremental revenue. We also expect to update our $65.1 million revenue
increase request for 2004 in May to reflect the results of this most
recent case. We expect that the Wisconsin Commission will provide a
final order in the 2004 case early in 2004.
In March of this year, Wisconsin Power and Light filed a $4.7 million
rate increase request for its rural electric cooperative wholesale
customers with the Federal Energy Regulatory Commission. We expect our
proposed rates to be implemented in July 2003, subject to refund.
In Iowa, the Iowa Utilities Board granted an additional $10.6 million in
our retail electric rate case. Combined with the interim increase of
$15.5 million granted last summer, the total increase was $26.1 million
with an authorized rate of return on common equity of 11.15 percent.
New rates are expected to go into effect in June.
The final order in our $20 million retail natural gas case in Iowa is
expected in May. We received interim relief in that case of $17 million
last July.
For a number of reasons, we have decided not to file a 2002 test year
retail electric case this year in Iowa. First, the case would have been
modest and second, we wanted to ensure that the case we intend to file
in 2004 would not be delayed awaiting a decision on a case filed this
year. As part of our 2004 case, we will begin recovering the costs
associated with the $400 million, and let me clarify that it is $400
million and not $450 million as inadvertently noted in a press release
we issued last Friday, 500-megawatt combined cycle natural gas plant
currently under construction in Iowa. This will be our first plant to
be covered by the provisions of legislation passed in 2001 providing
pre-approval of rate principles. The principles related to this plant
include a 12.23 percent ROE and a 27-year depreciation schedule.
Operationally, our domestic utilities are performing well and we
continue to receive excellent ratings in national customer satisfaction
surveys. Our domestic utilities form the foundation of Alliant Energy...
and it is a strong foundation indeed.
The financial performance of Alliant Energy Resources is not yet at
acceptable levels, but has shown improvement. The significant
improvement in the first quarter results versus the same period last
year was primarily due to the absence of $0.26 per share of asset
valuation charges which were recorded in the first quarter of 2002. We
did realize improvements in the results of the underlying operations of
many of our non-regulated businesses which is encouraging. However,
these improvements were largely offset by higher interest expense.
I did also want to touch briefly on the performance of our Brazilian
investments. The utilities that make up our Brazilian investments have
made operational improvements over the past year. Unfortunately, these
improvements have not yet resulted in the level of improved financial
performance we expect given several factors, including the significant
impact of rising interest costs. Financial performance in the first
quarter was essentially flat as compared to the first quarter of 2002.
While we do not expect our Brazil investment to be profitable in 2003,
we expect to see significant improvements in their financial performance
as we move through the year. Key drivers for improved results from our
Brazil investments include: sales growth, the continued implementation
of rate increases, reduced line losses and improved collections of
customer receivables. In addition, we incurred significant one-time
charges related to our Brazil investments in 2002. Finally, the
significant improvements in the foreign exchange rate which we have seen
thus far in 2003 will have a positive impact on our anticipated 2003
results. As previously indicated, if we do not see marked improvement
in the financial performance of our Brazilian investments by the end of
2003, we will re-evaluate our commitment to the Brazil market at that
time.
Another issue that you may have read about is the shareowner lawsuit
filed last week by a law firm that specializes in class action lawsuits.
This suit alleges, among other things, that Alliant Energy and certain
officers, including me, made false and misleading statements related to
Alliant Energy's expected performance of our various non-regulated
business units.
I am not going to say much on this issue, as it involves a legal
proceeding.
But I would like to emphasize that we categorically deny all of the
allegations included in this complaint. At Alliant Energy, our core
values include honesty and integrity. These values guide our accounting
practices as well as our communications with our shareowners, customers,
employees, regulators and the general public. In fact, we continually
exercise an open and honest approach when communicating all news...
whether it's positive or negative. As with any legal proceeding, we
will address this case in the appropriate legal forum thus, as a result,
and will not be discussing this matter further in the Q&A session of
this call.
And, I will again note that even in the face of such a suit, we will
continue providing earnings guidance and we are presently affirming our
previous guidance for 2003.
Finally, I would like to address the steps we have already successfully
executed as part of the plan we announced last November. But before I
do so, I would ask Tom Walker, our CFO, to provide an update on our
short-term borrowing position, cash flows, capitalization ratios and
capital expenditures.
TOM WALKER:
Thanks, Erroll.
As of April 25, we had short-term debt outstanding at Alliant Energy
Corporation of $290 million, which consists of $190 million of
commercial paper and $100 million drawn on bank lines, leaving us with
available facility liquidity of $160 million. In addition, we have a
standby facility available at Alliant Energy Resources. Our domestic
utilities had $145 million of commercial paper outstanding with
available facility liquidity of approximately $140 million.
We are in the preliminary stages of preparing our cash flow statements
that will be included in our Form 10-Q filing in May. While these
statements are not yet final, preliminary indications are that cash
flows from continuing operations are higher in the first quarter of 2003
compared to the same period in 2002. Our targeted consolidated cash
flows from continuing operations for 2003 is a range of $500 to $575
million.
Our consolidated unadjusted capitalization ratio at the end of the first
quarter was 61% total debt to capital. Our targeted capitalization
ratio for year-end 2003 after the planned divestiture of assets,
corresponding debt reduction and planned common stock offering is in the
low 50% range for total debt to capital.
I would also like to address one of the other key components of our plan
- keeping a tight control of capital expenditures. Our capital
expenditures for continuing operations in the first quarter were $284
million. Our capital expenditure forecast for continuing operations
for full-year 2003 remains $820 million, consisting of $610 million at
the utilities and $210 million at Alliant Energy Resources. For 2004
and 2005, we project capital expenditures of roughly $1.1 billion over
that two-year period, with roughly 90 percent of that amount devoted to
our regulated domestic utilities.
I'll now turn it back over to Erroll to discuss the other steps we are
taking to strengthen our financial profile.
ERROLL DAVIS:
Thanks, Tom. I am proud of the success we have already achieved in
executing our plan. In any plan, there is execution risk. In detailing
what we have already accomplished, I hope you will agree that through
our actions, we have demonstrated that the level of execution risk in
our plan is manageable.
In March, we announced an agreement with New Zealand-based Meridian
Energy to sell Alliant Energy's Australian investment, primarily made up
of Alliant Energy's ownership of Southern Hydro. The sale price is
approximately $350 million. This amount includes the repayment of
approximately $145 million in debt in Australia. On an after-tax basis,
the sale will result in net cash proceeds to Alliant Energy of
approximately $165 million. As a result of this transaction,
approximately $310 million will be available to Alliant Energy for debt
reduction. This is the first major step in meeting our $800 million to
$1 billion debt reduction plan through the divestiture of certain
businesses. The transaction is expected to close on Wednesday of this
week.
We are also making solid progress on the divestitures of our affordable
housing, oil and gas and SmartEnergy businesses. While we were required
under the applicable accounting rules to record $26 million of after-tax
valuation adjustments in the first quarter related to the $1 billon of
assets we plan to divest, we were also precluded by those same rules
from recording the gain we expect to realize two days from now on the
sale of our Australian business. We currently estimate that this gain
will be nearly double the amount of the valuation adjustments we
recorded in the first quarter. While the recording of the $26 million
of valuation adjustments was the largest driver in our having a GAAP net
loss for the first quarter, clearly this is just a timing issue between
the first and second quarters. Again, we remain confident we can
reduce debt levels by the $800 million to $1 billion we projected in our
November 22 plan resulting from the proceeds from our proposed asset
divestitures.
Earlier this month, we filed a shelf registration with the Securities
and Exchange Commission covering up to $400 million of securities for
Alliant Energy Corporation and Alliant Energy Resources and an
additional $150 million for Interstate Power and Light. As we have
discussed, our plan includes a $200-300 million equity offering that we
now expect to complete in the second half of this year.
And the final component of our plan is strict cost control, and I assure
you we are making significant progress on that front as well. One of
our key initiatives, our Six Sigma program is being implemented and
through this well-recognized process, we have identified a host of
projects that will result in more efficient operations.
In this transition year of 2003, our quarter-to-quarter results will, of
course, be important but more important will be the foundation we lay
and the longer-term trends we establish. And, as I've just detailed,
the trends are quite positive. We are successfully executing our plan
and remain committed to exercising the discipline necessary to continue
on this path toward meeting our objectives and delivering increased
shareowner value.
As I mentioned at the start, we are now focused on earnings from
continuing operations. In that regard, our 2003 earnings guidance from
continuing operations is $1.45 to $1.65 per share. This is unchanged
from our previous guidance and includes guidance from our domestic
regulated utility operations of between $1.75 and $1.95 per share.
We continue to face significant challenges and know the road before us
will not be easy. We are pleased with our successful execution on our
more narrowly focused business strategy to date, but are far from
satisfied. Our management team remains steady, focused and resolved. As
I look back over the last two quarters, I take great pride in the
approach our employees have adopted and their seemingly endless ability
to confront and conquer whatever challenges are placed before them. In
closing, let me assure you that this is a team, from top to bottom, that
is focused on meeting our commitments both to our customers and to our
shareowners. And, we are starting to see the positive fruits of that
focus.
ERIC MOTT:
Thanks, Erroll. At this time, we would like to open up the call to
questions from members of the investment community, including
institutional investors and investment analysts. We will take as many
questions as we can within the one-hour time frame for this morning's
call. I would now like to turn the call over to the operator for the
question and answer session. (Eric turns call over to the operator who
explains how to get into the queue to ask questions).
Q&A:
ERIC MOTT:
This concludes our call. I would like to take this time to thank you for
your participation this morning and for your continued support of
Alliant Energy. A replay of the call will be available through May 2,
2003, at 800-642-1687 (domestic) or 706-645-9291 (international).
Callers should reference conference ID #9594554.
In addition, an archive of the conference call and a script of the
prepared remarks made on the call will be available on the investor's
section of the company's Web site at www.alliantenergy.com/investors
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later today.
Thank you.