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 September 30, 2000
------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
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Commission Name of Registrant, State of Incorporation, IRS Employer
File Number Address of Principal Executive Offices and Telephone Number Identification Number
----------- ----------------------------------------------------------- ----------------------
<S> <C> <C>
1-9894 ALLIANT ENERGY CORPORATION 39-1380265
(a Wisconsin corporation)
222 West Washington Avenue
Madison, Wisconsin 53703
Telephone (608)252-3311
0-4117-1 IES UTILITIES INC. 42-0331370
(an Iowa corporation)
Alliant Energy Tower
Cedar Rapids, Iowa 52401
Telephone (319)398-4411
0-337 WISCONSIN POWER AND LIGHT COMPANY 39-0714890
(a Wisconsin corporation)
222 West Washington Avenue
Madison, Wisconsin 53703
Telephone (608)252-3311
</TABLE>
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject
to such filing requirements for the past 90 days. Yes X No
------ -------
This combined Form 10-Q is separately filed by Alliant Energy Corporation,
IES Utilities Inc. and Wisconsin Power and Light Company. Information
contained in the quarterly report relating to IES Utilities Inc. and
Wisconsin Power and Light Company is filed by such registrant on its own
behalf. Each of IES Utilities Inc. and Wisconsin Power and Light Company
makes no representation as to information relating to registrants other than
itself.
Number of shares outstanding of each class of common stock as of October 31,
2000:
Alliant Energy Corporation Common stock, $.01 par value, 79,007,414
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 Light Company Common stock, $5 par value, 13,236,601 shares
outstanding (all of which are owned
beneficially and of record by Alliant Energy
Corporation)
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CONTENTS
Page
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Part I. Financial Information 4
Item 1. Consolidated Financial Statements 4
Alliant Energy Corporation:
---------------------------
Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 2000 and 1999 4
Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 5
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 7
Notes to Consolidated Financial Statements 8
IES Utilities Inc.:
-------------------
Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 2000 and 1999 15
Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 16
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 18
Notes to Consolidated Financial Statements 19
Wisconsin Power and Light Company:
----------------------------------
Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 2000 and 1999 21
Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 22
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 24
Notes to Consolidated Financial Statements 25
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 27
Item 3. Quantitative and Qualitative Disclosures About Market Risk 41
Part II. Other Information 41
Item 1. Legal Proceedings 41
Item 6. Exhibits and Reports on Form 8-K 41
Signatures 43
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DEFINITIONS
Certain abbreviations or acronyms used in the text and notes of this combined Form 10-Q are defined below:
Abbreviation or Acronym Definition
----------------------- ----------
<S> <C>
Alliant Energy...................................... Alliant Energy Corporation
APB................................................. Accounting Principle Board Opinion
ATC................................................. American Transmission Company, LLC
Capstone............................................ Capstone Turbine Corporation
CEMS................................................ Continuous Emission Monitoring System
CMS Energy.......................................... CMS Energy Corporation
Corporate Services.................................. Alliant Energy Corporate Services, Inc.
DAEC................................................ Duane Arnold Energy Center
Dth ................................................ Dekatherm
EAC................................................. Energy Adjustment Clause
EITF................................................ Emerging Issues Task Force
EPA ................................................ United States Environmental Protection Agency
FERC................................................ Federal Energy Regulatory Commission
IESU................................................ IES Utilities Inc.
Investments ........................................ Alliant Energy Investments, Inc.
IPC................................................. Interstate Power Company
ISCO................................................ Alliant Energy Industrial Services, Inc.
ISO................................................. Independent System Operator
IUB................................................. Iowa Utilities Board
Kewaunee ........................................... Kewaunee Nuclear Power Plant
kV.................................................. Kilovolt
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
MPUC................................................ Minnesota Public Utilities Commission
MWH ................................................ Megawatt-Hour
NMC................................................. Nuclear Management Company, LLC
NOx ................................................ Nitrogen Oxides
NRC................................................. Nuclear Regulatory Commission
NSP................................................. Northern States Power Company
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
South Beloit ....................................... South Beloit Water, Gas & Electric Company
Transportation ..................................... Alliant Energy Transportation, Inc.
U.S. ............................................... United States
WDNR ............................................... Wisconsin Department of Natural Resources
WEPCO............................................... Wisconsin Electric Power Company
Whiting ............................................ Whiting Petroleum Corporation
WP&L ............................................... Wisconsin Power and Light Company
WPSC................................................ Wisconsin Public Service Corporation
WUHCA............................................... Wisconsin Utility Holding Company Act
</TABLE>
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<TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ALLIANT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
Operating revenues:
<S> <C> <C> <C> <C>
Electric utility $480,763 $475,423 $1,248,228 $1,192,913
Gas utility 41,369 33,473 226,156 213,357
Non-regulated and other 136,290 89,440 377,453 225,035
------------- ------------- ------------ ------------
658,422 598,336 1,851,837 1,631,305
------------- ------------- ------------ ------------
Operating expenses:
Electric and steam production fuels 80,605 80,250 213,990 199,013
Purchased power 85,553 74,802 222,690 199,308
Cost of utility gas sold 22,660 14,458 136,642 118,468
Other operation and maintenance 223,752 196,644 677,260 531,047
Depreciation and amortization 79,625 74,542 233,506 218,656
Taxes other than income taxes 26,206 26,839 79,171 80,767
------------- ------------- ------------ ------------
518,401 467,535 1,563,259 1,347,259
------------- ------------- ------------ ------------
Operating income 140,021 130,801 288,578 284,046
------------- ------------- ------------ ------------
Interest expense and other:
Interest expense 45,040 32,232 127,452 100,347
Allowance for funds used during construction (2,186) (1,667) (6,825) (5,383)
Preferred dividend requirements of subsidiaries 1,679 1,677 5,035 5,029
Gain on reclassification of investments (321,349) - (321,349) -
Gains on sales of McLeodUSA Inc. stock - - (10,206) (33,826)
Miscellaneous, net (18,106) (15,521) (40,546) (25,528)
------------- ------------- ------------ ------------
(294,922) 16,721 (246,439) 40,639
------------- ------------- ------------ ------------
Income before income taxes 434,943 114,080 535,017 243,407
------------- ------------- ------------ ------------
Income taxes 175,403 42,585 213,879 91,623
------------- ------------- ------------ ------------
Income before cumulative effect of a change in
accounting principle 259,540 71,495 321,138 151,784
------------- ------------- ------------ ------------
Cumulative effect of a change in accounting
principle, net of tax 16,708 - 16,708 -
------------- ------------- ------------ ------------
Net income $276,248 $71,495 $337,846 $151,784
============= ============= ============ ============
Average number of common shares outstanding-basic 79,004 78,569 79,001 78,187
============= ============= ============ ============
Earnings per average common share - basic:
Income before cumulative effect of a change
in accounting principle $3.29 $0.91 $4.07 $1.94
Cumulative effect of a change in accounting
principle 0.21 - 0.21 -
------------- ------------- ------------ ------------
Net income $3.50 $0.91 $4.28 $1.94
============= ============= ============ ============
Average number of common shares outstanding-
diluted 79,160 78,571 79,202 78,191
============= ============= ============ ============
Earnings per average common share - diluted:
Income before cumulative effect of a change
in accounting principle $3.28 $0.91 $4.06 $1.94
Cumulative effect of a change in accounting
principle 0.21 - 0.21 -
------------- ------------- ------------ ------------
Net income $3.49 $0.91 $4.27 $1.94
============= ============= ============ ============
Dividends declared per common share $0.50 $0.50 $1.50 $1.50
============= ============= ============ ============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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<CAPTION>
ALLIANT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30,
2000 December 31,
ASSETS (Unaudited) 1999
----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Property, plant and equipment:
Utility -
Plant in service -
Electric $5,158,283 $5,032,675
Gas 565,054 540,874
Other 462,159 458,547
-------------------- --------------------
6,185,496 6,032,096
Less - Accumulated depreciation 3,258,295 3,077,459
-------------------- --------------------
2,927,201 2,954,637
Construction work in progress 142,603 119,276
Nuclear fuel, net of amortization 46,568 54,363
-------------------- --------------------
3,116,372 3,128,276
Other property, plant and equipment, net of accumulated
depreciation and amortization of $204,187 and $184,722, respectively 474,657 357,758
-------------------- --------------------
3,591,029 3,486,034
-------------------- --------------------
----------------------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments 71,269 113,669
Accounts receivable:
Customer, less allowance for doubtful accounts
of $2,783 and $2,253, respectively 77,589 67,299
Unbilled utility revenues 59,874 48,033
Other, less allowance for doubtful accounts
of $465 and $954, respectively 19,101 30,095
Production fuel, at average cost 54,416 49,657
Materials and supplies, at average cost 55,662 52,440
Gas stored underground, at average cost 45,933 23,151
Regulatory assets 29,562 33,439
Prepaid gross receipts tax 16,760 20,864
Other 55,608 47,339
-------------------- --------------------
485,774 485,986
-------------------- --------------------
----------------------------------------------------------------------------------------------------------------------------------
Investments:
Investment in available-for-sale securities of McLeodUSA Inc. 588,642 1,123,790
Investment in trading securities of McLeodUSA Inc. 223,726 --
Investments in foreign entities 529,581 198,055
Nuclear decommissioning trust funds 291,280 271,258
Other 173,412 59,866
-------------------- --------------------
1,806,641 1,652,969
-------------------- --------------------
----------------------------------------------------------------------------------------------------------------------------------
Other assets:
Regulatory assets 255,795 263,610
Deferred charges and other 208,202 187,084
-------------------- --------------------
463,997 450,694
-------------------- --------------------
----------------------------------------------------------------------------------------------------------------------------------
Total assets $6,347,441 $6,075,683
==================== ====================
----------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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<CAPTION>
ALLIANT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 30,
2000 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1999
------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
Capitalization:
<S> <C> <C>
Common stock - $.01 par value - authorized 200,000,000 shares;
outstanding 79,010,970 and 78,984,014 shares, respectively $790 $790
Additional paid-in capital 947,498 942,408
Retained earnings 796,835 577,464
Accumulated other comprehensive income 333,850 634,903
Shares acquired for deferred compensation trust - 27,516 shares
at an average cost of $29.47 per share (811) -
--------------------- ---------------------
Total common equity 2,078,162 2,155,565
--------------------- ---------------------
Cumulative preferred stock of subsidiaries, net 113,752 113,638
Long-term debt (excluding current portion) 1,591,859 1,486,765
--------------------- ---------------------
3,783,773 3,755,968
--------------------- ---------------------
------------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities and sinking funds 92,704 54,795
Variable rate demand bonds 55,100 55,100
Commercial paper 412,755 374,673
Notes payable 35,034 50,046
Accounts payable 184,675 191,149
Accrued interest 39,035 24,818
Accrued taxes 119,309 78,825
Other 129,252 104,219
--------------------- ---------------------
1,067,864 933,625
--------------------- ---------------------
------------------------------------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 957,998 1,018,482
Accumulated deferred investment tax credits 68,719 71,857
Derivative liability 185,976 -
Environmental liabilities 66,260 65,327
Pension and other benefit obligations 62,582 61,988
Other 154,269 168,436
--------------------- ---------------------
1,495,804 1,386,090
--------------------- ---------------------
------------------------------------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $6,347,441 $6,075,683
===================== =====================
------------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30,
2000 1999
---------------------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net income $337,846 $151,784
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 233,506 218,656
Amortization of nuclear fuel 13,907 14,099
Amortization of deferred energy efficiency expenditures 19,065 19,433
Deferred taxes and investment tax credits 117,229 (14,281)
Refueling outage provision 7,372 6,193
Gains on dispositions of assets, net (18,390) (44,534)
Gain on reclassification of investments (321,349) -
Cumulative effect of a change in accounting principle, net of tax (16,708) -
Equity income from unconsolidated investments, net (12,598) (3,443)
Other (3,459) (3,069)
Other changes in assets and liabilities:
Accounts receivable (11,137) (4,255)
Notes receivable 5,965 7,193
Income tax refunds receivable (3,891) 1,270
Production fuel (4,759) 6,152
Gas stored underground (22,782) 558
Prepaid gross receipts tax 4,104 5,650
Accounts payable (6,474) (25,910)
Accrued payroll and vacations 2,134 6,056
Accrued interest 14,217 2,326
Accrued taxes 40,484 15,299
Adjustment clause balances (2,408) (17,228)
Benefit obligations and other (11,637) 24,810
-------------------- --------------------
Net cash flows from operating activities 360,237 366,759
-------------------- --------------------
---------------------------------------------------------------------------------------------------------------
Cash flows from (used for) financing activities:
Common stock dividends declared (118,475) (117,121)
Proceeds from issuance of common stock 817 28,652
Net change in Resources' credit facility 51,652 76,995
Proceeds from issuance of exchangeable senior notes 402,500 -
Proceeds from issuance of other long-term debt 118,649 12,162
Reductions in other long-term debt (63,282) (73,784)
Net change in other short-term borrowings (28,550) 30,233
Principal payments under capital lease obligations (8,611) (9,461)
Other (15,501) 179
-------------------- --------------------
Net cash flows from (used for) financing activities 339,199 (52,145)
-------------------- --------------------
---------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
Construction and acquisition expenditures:
Utility (212,440) (182,039)
Non-regulated businesses (564,568) (131,374)
Nuclear decommissioning trust funds (19,879) (19,879)
Proceeds from disposition of assets 69,355 71,718
Shared savings program (15,819) (15,219)
Other 1,515 (620)
-------------------- --------------------
Net cash flows used for investing activities (741,836) (277,413)
-------------------- --------------------
---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash investments (42,400) 37,201
-------------------- --------------------
---------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period 113,669 31,827
-------------------- --------------------
---------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $71,269 $69,028
==================== ====================
---------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid during the period for:
Interest $111,202 $93,854
==================== ====================
Income taxes $61,298 $89,773
==================== ====================
Noncash investing and financing activities:
Capital lease obligations incurred $338 $23,793
==================== ====================
---------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The interim consolidated financial statements included herein have been
prepared by Alliant Energy, without audit, pursuant to the rules and
regulations of the SEC. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted, although management believes that the disclosures
are adequate to make the information presented not misleading. The
consolidated financial statements include Alliant Energy and its
consolidated subsidiaries (including IESU, WP&L, IPC, Resources and
Corporate Services). These financial statements should be read in
conjunction with the financial statements and the notes thereto included
in Alliant Energy's, IESU's and WP&L's latest Annual Report on Form 10-K.
In the opinion of management, all adjustments, which are normal and
recurring in nature, necessary for a fair presentation of (a) the
consolidated results of operations for the three and nine months ended
September 30, 2000 and 1999, (b) the consolidated financial position at
September 30, 2000 and December 31, 1999, and (c) the consolidated
statement of cash flows for the nine months ended September 30, 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 and nine months ended
September 30, 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.
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2. Alliant Energy's comprehensive income (loss), and the components of other
comprehensive income (loss), net of taxes, were as follows (in thousands):
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<CAPTION>
For the Three Months Ended For the Nine Months
September 30, Ended September 30,
2000 1999 2000 1999
--------------- -- -------------- --------------- --- -------------
<S> <C> <C> <C> <C>
Net income $276,248 $71,495 $337,846 $151,784
Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period, net of tax (1) (132,251) 177,896 (63,414) 337,669
Less: adjustment for gain on reclassification of
investments included in net income, net of tax (2) (187,296) -- (187,296) --
Less: reclassification adjustment for other gains
included in net income, net of tax (3) (238) -- (6,566) (21,324)
--------------- -------------- --------------- -------------
Net unrealized gains (losses) on securities (319,785) 177,896 (257,276) 316,345
--------------- -------------- --------------- -------------
Foreign currency translation adjustments (22,335) (2,884) (40,553) (3,737)
--------------- -------------- --------------- -------------
Unrealized losses on derivatives qualified as hedges:
Unrealized holding losses arising during period due
to cumulative effect of a change in accounting
principle, net of tax (6,582) -- (6,582) --
Other unrealized holding losses arising during
period, net of tax (177) -- (177) --
Less: reclassification adjustment for losses
included in net income, net of tax 3,535 -- 3,535 --
--------------- -------------- --------------- -------------
Net unrealized losses on qualifying derivatives (3,224) -- (3,224) --
--------------- -------------- --------------- -------------
Other comprehensive income (loss) (345,344) 175,012 (301,053) 312,608
--------------- -------------- --------------- -------------
Comprehensive income (loss) ($69,096) $246,507 $36,793 $464,392
=============== ============== =============== =============
</TABLE>
(1) Primarily due to quarterly adjustments to the estimated fair value of
Alliant Energy's investments in McLeod and Capstone. Alliant Energy
invested $10 million in Capstone in March 2000. Capstone and Resources also
entered into a non-exclusive distribution agreement in which Resources will
act as a distributor for Capstone's MicroTurbine power generation systems
and solutions.
(2) Prior to the adoption of SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities," changes in the fair value of all of Alliant
Energy's McLeod stock holdings had been recorded in the accumulated other
comprehensive income component of common equity on Alliant Energy's
Consolidated Balance Sheets, as these securities had been classified as
available-for-sale. With the adoption of SFAS 133 on July 1, 2000, Alliant
Energy designated 15.6 million of its beneficial ownership in approximately
57 million shares of McLeod stock as trading securities. Alliant Energy
recorded pre-tax net income of $321 million in the third quarter of 2000,
relating to the unrealized appreciation in value of the 15.6 million
shares. Subsequent changes in the fair value of the shares designated as
trading will be reflected as increases or decreases in Alliant Energy's net
income. Refer to Note 10 for additional information.
(3) The first quarter 2000 earnings included a pre-tax gain of $10.2 million
($0.08 per basic and diluted share) from the sale of 450,000 shares (as
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adjusted for the 3-for-1 stock split effective April 2000) of McLeod stock
held by Alliant Energy. The second quarter 1999 earnings included a pre-tax
gain of $33.8 million ($0.27 per basic and diluted share) from the sale of
approximately 3,840,000 shares (as adjusted for both the 2-for-1 stock
split effective July 1999 and the 3-for-1 stock split effective April 2000)
of McLeod stock held by Alliant Energy. Alliant Energy still held
beneficial ownership in approximately 57 million shares of McLeod stock as
of September 30, 2000.
3. Certain financial information relating to Alliant Energy's significant
business segments is presented below:
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------------------------------------------------------
Regulated Domestic Utilities Alliant
------------------------------------------------------ Non-regulated Energy
Electric Gas Other Total Businesses Other Consolidated
--------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Three Months Ended
September 30, 2000
------------------
Operating revenues $480,763 $41,369 $8,507 $530,639 $128,485 ($702) $658,422
Operating income (loss) 143,962 (2,938) 1,613 142,637 (2,704) 88 140,021
Net income (loss) 68,378 208,038 (168) 276,248
Three Months Ended
September 30, 1999
------------------
Operating revenues $475,423 $33,473 $6,892 $515,788 $83,069 ($521) $598,336
Operating income (loss) 137,795 (4,906) (71) 132,818 (1,969) (48) 130,801
Net income 62,805 7,359 1,331 71,495
Nine Months Ended
September 30, 2000
------------------
Operating revenues $1,248,228 $226,156 $24,085 $1,498,469 $355,257 ($1,889) $1,851,837
Operating income (loss) 268,834 11,167 4,133 284,134 4,490 (46) 288,578
Net income (loss) 127,487 213,898 (3,539) 337,846
Nine Months Ended
September 30, 1999
------------------
Operating revenues $1,192,913 $213,357 $23,916 $1,430,186 $202,863 ($1,744) $1,631,305
Operating income 262,565 17,015 3,812 283,392 296 358 284,046
Net income 124,710 27,013 61 151,784
</TABLE>
Net income for the three and nine months ended September 30, 2000 included
$204 million (primarily all at Alliant Energy's non-regulated businesses)
relating to Alliant Energy's adoption of a new accounting pronouncement,
SFAS 133, on July 1, 2000. Refer to Note 10 for additional information.
Resources' (i.e., the non-regulated businesses) assets increased $241
million during the first nine months of 2000, primarily due to Alliant
Energy's investment in various Brazilian utilities and the increase in
market value of its investment in Capstone, partially offset by the
decrease in market value of its investment in McLeod. 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. The adoption of SFAS 133
will increase Alliant Energy's 2000 effective tax rate.
5. At September 30, 2000, Alliant Energy had $530 million of investments in
foreign entities on its Consolidated Balance Sheet that primarily included
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investments in various Brazilian electric utilities, investments in
various New Zealand utility entities, an Australian generation entity,
investments in various generation facilities in China and an investment in
secured debentures of a development project in Mexico. The Brazil, China,
Australia and a portion of the New Zealand investments are accounted for
under the equity method. The remainder of the New Zealand investments are
accounted for under the cost method. The geographic concentration of
Alliant Energy's investments in foreign entities at September 30, 2000,
included investments of approximately $351 million in Brazil, $88 million
in New Zealand and Australia, $73 million in China and $18 million in
Mexico.
6. Summary financial information for Resources was as follows (in
thousands):
September 30, 2000
------------------
Current assets $139,862
Non-current assets 1,949,544
Current liabilities 297,402
Non-current liabilities (excludes minority interest) 648,853
Minority interest (primarily real estate joint ventures) 7,452
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. As of July 1, 2000, with the
adoption of SFAS 133, the exchangeable senior notes are classified as two
separate components on the Consolidated Balance Sheets as long-term debt
and derivative liability. (Refer to Note 10.)
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.
8. EITF 99-2, "Accounting for Weather Derivatives," requires the use of the
intrinsic value method to account for weather derivatives. In August
2000, WP&L entered into a non-exchange traded weather floor with a
contract period from November 1, 2000 to March 31, 2001 that requires the
counterparty pay WP&L $11,000 per heating degree-day less than 5,600
during the contract period. The maximum payout amount by the counterparty
on this floor is $7,000,000. WP&L paid a premium to enter into this
contract, which is being amortized to expense over the contract period.
WP&L will account for this contract as a degree-day swap, using the
intrinsic value method, in accordance with EITF 99-2.
9. A reconciliation of the weighted average common shares outstanding used in
the basic and diluted earnings per share calculation was as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding:
Basic earnings per share calculation 79,003,569 78,568,537 79,000,683 78,187,413
Effect of dilutive securities 156,164 2,383 201,033 3,322
------------------------------------- -------------------------------------
Diluted earnings per share calculation 79,159,733 78,570,920 79,201,716 78,190,735
===================================== =====================================
</TABLE>
For the nine months ended September 30, 2000, 1,644,377 options to purchase
shares of common stock, with an average exercise price of $30.15, were
excluded from the calculation of diluted earnings per share as the exercise
prices were greater than the average market price.
-11-
<PAGE>
10. Alliant Energy adopted SFAS 133 as of July 1, 2000. SFAS 133 requires that
every derivative instrument be recorded on the balance sheet as an asset or
liability measured at its fair value and that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met.
SFAS 133 requires that as of the date of initial adoption, the difference
between the fair market value of derivative instruments recorded on the
balance sheet and the previous carrying amount of those derivatives be
reported in net income or other comprehensive income, as appropriate, as
the cumulative effect of a change in accounting principle in accordance
with APB 20, "Accounting Changes." In the third quarter of 2000, Alliant
Energy recorded net income of $16.7 million for a cumulative effect of a
change in accounting principle representing the impact of adopting SFAS 133
as of July 1, 2000. This transition adjustment was primarily the result of
the difference between the carrying amount of the exchangeable senior notes
issued in February 2000 under the applicable accounting principles in
effect at June 30, 2000, and the carrying values of the debt and derivative
components of the notes as determined in accordance with SFAS 133 as of
July 1, 2000. Transition adjustments relating to Alliant Energy's other
derivative instruments had no material impact on net income.
A limited number of Alliant Energy's fixed price commodity contracts are
defined as derivatives under SFAS 133. The fair market values of these
derivative instruments have been recorded as assets and liabilities on the
balance sheet and in the transition adjustment in accordance with the
transition provisions of SFAS 133. Future changes in the fair market values
of these instruments, to the extent that the hedges are effective at
mitigating the underlying commodity risk, will be recorded in other
comprehensive income. At the date the underlying transaction occurs, the
amounts accumulated in other comprehensive income will be reported in the
Consolidated Statements of Income. To the extent that the hedges are not
effective, the ineffective portion of the changes in fair market value will
be recorded directly in earnings.
The financial statement impact of recording the various SFAS 133
transactions at July 1, 2000 was as follows (in millions):
<TABLE>
<CAPTION>
Amount
Financial Statement Account Financial Statement Increase (Decrease)
----------------------------------------------------- ------------------------ -------------------------
<S> <C> <C>
Other assets Balance sheet $2.0
Other liabilities (a) Balance sheet 302.2
Cumulative effect of a change in accounting principle
(other comprehensive income) Balance sheet (6.6)
Other comprehensive income (b) Balance sheet (187.3)
Long-term debt (c) Balance sheet (310.3)
Cumulative effect of a change in accounting principle Income statement 16.7
Pre-tax gain on transfer to trading account (d) Income statement 321.4
Deferred tax expense (d) Income statement 134.1
</TABLE>
(a) Includes the embedded derivative component of Resources' exchangeable
senior notes of $283.7 million
(b) Represents the net of tax reduction to other comprehensive income
resulting from the classification of approximately 15.6 million shares
of McLeod as trading securities (equal to net amount of two line items
in (d))
(c) Adjustment to the debt component of Resources' exchangeable senior notes
(d) Gain and tax expenses associated with the transfer of approximately 15.6
million shares of McLeod from available-for-sale securities to trading
securities
During the third quarter of 2000, $3.5 million of net losses included in
the cumulative effect of a change in accounting principle component of
accumulated other comprehensive income were reclassified into earnings,
resulting in a remaining balance of ($3.1) million as of September 30, 2000.
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
-12-
<PAGE>
controlling these market risks and uses derivative instruments to manage
some of the exposures. As of September 30, 2000, Alliant Energy held
derivative instruments designated as cash flow hedging instruments and
other derivatives.
The cash flow hedging instruments are comprised of natural gas swaps and
coal purchase and sales contracts which are used to manage the price of
anticipated coal purchases and sales. WP&L utilizes gas commodity swap
arrangements for the purpose of mitigating the impact of price fluctuations
on gas purchased and injected into storage during the summer months and
withdrawn and sold at current prices during the winter months pursuant to
the natural gas cost incentive sharing mechanism with customers in
Wisconsin. The gas commodity swaps in place hedge the forecasted sales of
natural gas withdrawn from storage during this period.
For the three and nine months ended September 30, 2000, a net gain of
approximately $70,000 was recognized in earnings (recorded in gas revenues)
representing the amount of hedge ineffectiveness. Alliant Energy did not
exclude any components of the derivative instruments' gain or loss from the
assessment of hedge effectiveness and there were no reclasses into earnings
as a result of the discontinuance of hedges. As of September 30, 2000, the
maximum length of time over which Alliant Energy is hedging its exposure to
the variability in future cash flows for forecasted transactions is nine
months and Alliant Energy estimates that losses of $3.1 million will be
reclassified from accumulated other comprehensive income into earnings
within the 12 months between October 1, 2000 and September 30, 2001 as the
hedged transactions affect earnings.
Alliant Energy's derivatives that have not been designated in hedge
relationships include the embedded derivative component of Resources'
exchangeable senior notes, oil swaps and collars, natural gas swaps,
electricity price collars and an equity put option.
At maturity, the holders of Resources' exchangeable senior notes are paid
the higher of the principal amount of the notes or an amount based on the
value of McLeod common stock. SFAS 133 requires that Alliant Energy split
the value of the notes into a debt component and a derivative component.
The payment feature tied to McLeod stock is considered an embedded
derivative under SFAS 133 that must be accounted for as a separate
derivative instrument. This component is classified as a derivative
liability on the Consolidated Balance Sheets. Subsequent changes in the
fair market value of the option will be reflected as an increase or
decrease in Alliant Energy's reported net income. The carrying amount of
the host debt security, classified as long-term debt, will be adjusted for
amortization of the debt discount in accordance with the interest method as
prescribed by APB 21, "Interest on Receivables and Payables."
Prior to the adoption of SFAS 133, changes in fair value of all of Alliant
Energy's McLeod stock holdings had been recorded in the accumulated other
comprehensive income component of common equity on Alliant Energy's
Consolidated Balance Sheets, as these securities had been classified as
available-for-sale. With the adoption of SFAS 133, Alliant Energy
designated 15.6 million of its beneficial ownership in approximately 57
million shares of McLeod stock as trading securities. Subsequent changes
in the fair value of the shares designated as trading will be reflected as
increases or decreases in Alliant Energy's net income. These trading gains
or losses are expected to correspond with and substantially offset changes
in the intrinsic value of the derivative component of Resources'
exchangeable senior notes. Changes in the time value portion of the
derivative component will result in non-cash increases or decreases to
Alliant Energy's net income.
Included in "Miscellaneous, net" in Alliant Energy's Consolidated
Statements of Income for both the three and nine months ended September 30,
2000, was expense of $99.7 million related to the third quarter change in
value of the McLeod trading securities, largely offset by income of $97.8
million related to the third quarter change in value of the derivative
component of the exchangeable senior notes.
Whiting is exposed to commodity price risk in the pricing of its oil and
gas production. Alliant Energy utilizes oil swaps and collars and natural
gas swaps, which have not been designated in hedge relationships, to
mitigate the impact of oil and gas price fluctuations. These derivatives
are recorded at their fair market value as a component of derivative
liability on the Consolidated Balance Sheets and as a component of
non-regulated and other revenues in the Consolidated Statements of Income.
-13-
<PAGE>
Alliant Energy's utility businesses use electricity price collars, which
have not been designated in hedge relationships, to manage energy costs
during supply/demand imbalances. As of September 30, 2000, these
derivatives were recorded at their fair market value as derivative assets,
derivative liabilities and regulatory assets on the Consolidated Balance
Sheets in Iowa, and as derivative assets and derivative liabilities on the
Consolidated Balance Sheets and purchased power expense in the Consolidated
Statements of Income in Wisconsin.
Alliant Energy has a written put option, which gives the counterparty the
right to sell approximately 6 billion of Cataguazes' Preferred A Shares to
Alliant Energy Holdings do Brasil Limitada. This option expires in January
2001, has not been designated in a hedge relationship and was acquired as
part of Alliant Energy's investment in Brazil. As of September 30, 2000,
this derivative was recorded at its fair market value as a derivative
liability on the Consolidated Balance Sheets and changes in the fair market
value of the option since the date of the investment in Brazil have been
recorded as a component of miscellaneous, net in the Consolidated
Statements of Income.
-14-
<PAGE>
<TABLE>
<CAPTION>
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating revenues:
<S> <C> <C> <C> <C>
Electric utility $202,899 $206,148 $496,934 $488,374
Gas utility 20,893 16,648 107,767 99,956
Steam 7,126 5,532 20,298 20,056
-------------- ---------------- ----------------- ------------------
230,918 228,328 624,999 608,386
-------------- ---------------- ----------------- ------------------
----------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Electric and steam production fuels 26,806 31,064 88,440 69,937
Purchased power 28,324 22,057 59,464 62,349
Cost of gas sold 13,253 8,777 68,291 58,313
Other operation and maintenance 48,160 56,370 158,865 171,453
Depreciation and amortization 26,856 25,481 80,555 76,444
Taxes other than income taxes 11,630 12,452 35,562 37,535
-------------- ---------------- ----------------- ------------------
155,029 156,201 491,177 476,031
-------------- ---------------- ----------------- ------------------
----------------------------------------------------------------------------------------------------------------------------------
Operating income 75,889 72,127 133,822 132,355
-------------- ---------------- ----------------- ------------------
----------------------------------------------------------------------------------------------------------------------------------
Interest expense and other:
Interest expense 12,613 11,765 38,208 39,403
Allowance for funds used during construction (764) (424) (1,827) (1,808)
Miscellaneous, net 305 (213) (5,861) (3,568)
-------------- ---------------- ----------------- ------------------
12,154 11,128 30,520 34,027
-------------- ---------------- ----------------- ------------------
----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 63,735 60,999 103,302 98,328
-------------- ---------------- ----------------- ------------------
----------------------------------------------------------------------------------------------------------------------------------
Income taxes 26,373 25,521 43,285 41,349
-------------- ---------------- ----------------- ------------------
----------------------------------------------------------------------------------------------------------------------------------
Net income 37,362 35,478 60,017 56,979
-------------- ---------------- ----------------- ------------------
----------------------------------------------------------------------------------------------------------------------------------
Preferred dividend requirements 229 229 686 686
-------------- ---------------- ----------------- ------------------
----------------------------------------------------------------------------------------------------------------------------------
Earnings available for common stock $37,133 $35,249 $59,331 $56,293
============== ================ ================= ==================
----------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
IES UTILITIES INC.
CONSOLIDATED BALANCE SHEETS
September 30,
2000 December 31,
ASSETS (Unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
<S> <C> <C>
Electric $2,234,056 $2,196,895
Gas 217,774 207,769
Steam 59,988 59,929
Common 141,221 147,845
------------------- --------------------
2,653,039 2,612,438
Less - Accumulated depreciation 1,379,402 1,311,996
------------------- --------------------
1,273,637 1,300,442
Construction work in progress 62,508 37,572
Leased nuclear fuel, net of amortization 29,341 39,284
------------------- --------------------
1,365,486 1,377,298
Other property, plant and equipment, net of accumulated
depreciation and amortization of $2,203 and $2,094, respectively 5,625 5,481
------------------- --------------------
1,371,111 1,382,779
------------------- --------------------
-----------------------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments 6,615 5,720
Accounts receivable:
Customer, less allowance for doubtful accounts
of $321 and $824, respectively 23,514 14,130
Associated companies 2,581 5,696
Other, less allowance for doubtful accounts
of $323 and $817, respectively 10,217 12,864
Production fuel, at average cost 12,803 12,312
Materials and supplies, at average cost 24,812 24,722
Gas stored underground, at average cost 23,819 11,462
Adjustment clause balances 9,561 11,099
Regulatory assets 17,100 18,569
Prepayments and other 2,814 8,928
------------------- --------------------
133,836 125,502
------------------- --------------------
-----------------------------------------------------------------------------------------------------------------------------------
Investments:
Nuclear decommissioning trust funds 114,848 105,056
Other 6,104 6,119
------------------- --------------------
120,952 111,175
------------------- --------------------
-----------------------------------------------------------------------------------------------------------------------------------
Other assets:
Regulatory assets 117,236 123,031
Deferred charges and other 13,108 13,321
------------------- --------------------
130,344 136,352
------------------- --------------------
-----------------------------------------------------------------------------------------------------------------------------------
Total assets $1,756,243 $1,755,808
=================== ====================
-----------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
IES UTILITIES INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 30,
2000 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1999
-------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
<S> <C> <C>
Capitalization:
Common stock - $2.50 par value - authorized 24,000,000
shares; 13,370,788 shares outstanding $33,427 $33,427
Additional paid-in capital 279,042 279,042
Retained earnings 268,309 252,953
Accumulated other comprehensive income 8 -
-------------------- --------------------
Total common equity 580,786 565,422
-------------------- --------------------
Cumulative preferred stock 18,320 18,320
Long-term debt (excluding current portion) 469,708 551,079
-------------------- --------------------
1,068,814 1,134,821
-------------------- --------------------
-------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities and sinking funds 81,560 51,196
Capital lease obligations 12,057 13,307
Notes payable to associated companies 77,004 56,946
Accounts payable 38,875 41,273
Accounts payable to associated companies 24,086 17,438
Accrued interest 12,928 10,833
Accrued taxes 63,452 44,259
Other 27,419 23,618
-------------------- --------------------
337,381 258,870
-------------------- --------------------
-------------------------------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 220,524 225,961
Accumulated deferred investment tax credits 25,699 26,682
Environmental liabilities 30,186 26,292
Pension and other benefit obligations 26,183 27,734
Capital lease obligations 17,284 25,977
Other 30,172 29,471
-------------------- --------------------
350,048 362,117
-------------------- --------------------
-------------------------------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $1,756,243 $1,755,808
==================== ====================
-------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months
Ended September 30,
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net income $60,017 $56,979
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 80,555 76,444
Amortization of leased nuclear fuel 10,281 9,518
Amortization of deferred energy efficiency expenditures 10,611 12,668
Deferred taxes and investment tax credits (8,656) (7,417)
Refueling outage provision 7,372 6,193
Gain on disposition of assets, net (1,517) -
Other 1,661 877
Other changes in assets and liabilities:
Accounts receivable (3,622) (4,102)
Gas stored underground (12,357) 1,643
Accounts payable 4,250 (14,021)
Accrued taxes 19,193 12,224
Adjustment clause balances 1,538 (15,009)
Benefit obligations and other 6,293 14,580
------------------- --------------------
Net cash flows from operating activities 175,619 150,577
------------------- --------------------
------------------------------------------------------------------------------------------------------------------------------------
Cash flows used for financing activities:
Common stock dividends declared (43,975) (73,292)
Dividends payable (229) (4,840)
Preferred stock dividends (686) (686)
Reductions in long-term debt (51,196) (50,140)
Net change in short-term borrowings 20,058 6,626
Principal payments under capital lease obligations (8,611) (9,461)
Other - (19)
------------------- --------------------
Net cash flows used for financing activities (84,639) (131,812)
------------------- --------------------
------------------------------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
Utility construction expenditures (85,123) (66,753)
Nuclear decommissioning trust funds (4,506) (4,506)
Proceeds from disposition of assets 1,528 -
Other (1,984) 35
------------------- --------------------
Net cash flows used for investing activities (90,085) (71,224)
------------------- --------------------
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash investments 895 (52,459)
------------------- --------------------
------------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period 5,720 57,904
------------------- --------------------
------------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $6,615 $5,445
=================== ====================
------------------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid during the period for:
Interest $30,912 $34,825
=================== ====================
Income taxes $31,562 $41,052
=================== ====================
Noncash investing and financing activities - Capital lease obligations incurred $338 $23,793
=================== ====================
------------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
-18-
<PAGE>
IES UTILITIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Except as modified below, the Alliant Energy Notes to Consolidated
Financial Statements are incorporated by reference insofar as they relate
to IESU.
1. The interim consolidated financial statements included herein have been
prepared by IESU, without audit, pursuant to the rules and regulations of
the SEC. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
although management believes that the disclosures are adequate to make the
information presented not misleading. IESU is a subsidiary of Alliant
Energy. These financial statements should be read in conjunction with the
financial statements and the notes thereto included in IESU's latest
Annual Report on Form 10-K.
In the opinion of management, all adjustments, which are normal and
recurring in nature, necessary for a fair presentation of (a) the
consolidated results of operations for the three and nine months ended
September 30, 2000 and 1999, (b) the consolidated financial position at
September 30, 2000 and December 31, 1999, and (c) the consolidated
statement of cash flows for the nine months ended September 30, 2000 and
1999, have been made. Because of the seasonal nature of IESU's
operations, results for the three and nine months ended September 30, 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. IESU's comprehensive income, and the components of other comprehensive
income, net of taxes, were as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months
September 30, Ended September 30,
2000 1999 2000 1999
---------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Earnings available for common stock $37,133 $35,249 $59,331 $56,293
Other comprehensive income:
Unrealized gains (losses) on derivatives qualified as
hedges:
Unrealized holding gains arising during period
due to cumulative effect of a change in
accounting principle, net of tax 51 -- 51 --
Other unrealized holding losses arising during
period, net of tax (43) -- (43) --
---------------- -------------- -------------- --------------
Net unrealized gains on qualifying derivatives 8 -- 8 --
---------------- -------------- -------------- --------------
Other comprehensive income 8 -- 8 --
---------------- -------------- -------------- --------------
Comprehensive income $37,141 $35,249 $59,339 $56,293
================ ============== ============== ==============
</TABLE>
-19-
<PAGE>
3. Certain financial information relating to IESU's significant business
segments is presented below. Intersegment revenues were not material to
IESU's operations.
<TABLE>
<CAPTION>
Electric Gas Other Total
------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Three Months Ended September 30, 2000
-------------------------------------
Operating revenues $202,899 $20,893 $7,126 $230,918
Operating income (loss) 75,638 (854) 1,105 75,889
Earnings available for common stock 37,133
Three Months Ended September 30, 1999
-------------------------------------
Operating revenues $206,148 $16,648 $5,532 $228,328
Operating income (loss) 75,418 (2,760) (531) 72,127
Earnings available for common stock 35,249
Nine Months Ended September 30, 2000
------------------------------------
Operating revenues $496,934 $107,767 $20,298 $624,999
Operating income 126,415 4,568 2,839 133,822
Earnings available for common stock 59,331
Nine Months Ended September 30, 1999
------------------------------------
Operating revenues $488,374 $99,956 $20,056 $608,386
Operating income 124,558 5,292 2,505 132,355
Earnings available for common stock 56,293
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating revenues:
<S> <C> <C> <C> <C>
Electric utility $183,088 $173,561 $518,575 $474,016
Gas utility 15,169 11,869 89,970 79,020
Water 1,378 1,360 3,787 3,860
----------------- ------------------ ------------------ -----------------
199,635 186,790 612,332 556,896
----------------- ------------------ ------------------ -----------------
------------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Electric production fuels 33,198 30,994 83,699 84,374
Purchased power 41,299 34,704 113,119 87,129
Cost of gas sold 6,431 2,636 51,398 39,614
Other operation and maintenance 41,855 46,050 142,039 130,470
Depreciation and amortization 32,655 32,446 97,631 91,992
Taxes other than income taxes 7,285 7,506 21,913 22,563
----------------- ------------------ ------------------ -----------------
162,723 154,336 509,799 456,142
----------------- ------------------ ------------------ -----------------
------------------------------------------------------------------------------------------------------------------------------------
Operating income 36,912 32,454 102,533 100,754
----------------- ------------------ ------------------ -----------------
------------------------------------------------------------------------------------------------------------------------------------
Interest expense and other:
Interest expense 11,191 10,352 33,327 30,295
Allowance for funds used during construction (1,154) (1,279) (4,304) (3,311)
Miscellaneous, net (1,117) 110 (7,549) (2,239)
----------------- ------------------ ------------------ -----------------
8,920 9,183 21,474 24,745
----------------- ------------------ ------------------ -----------------
------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 27,992 23,271 81,059 76,009
----------------- ------------------ ------------------ -----------------
------------------------------------------------------------------------------------------------------------------------------------
Income taxes 10,445 9,082 30,343 28,579
----------------- ------------------ ------------------ -----------------
------------------------------------------------------------------------------------------------------------------------------------
Net income 17,547 14,189 50,716 47,430
----------------- ------------------ ------------------ -----------------
------------------------------------------------------------------------------------------------------------------------------------
Preferred dividend requirements 827 827 2,483 2,483
----------------- ------------------ ------------------ -----------------
------------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of a change in
accounting principle 16,720 13,362 48,233 44,947
----------------- ------------------ ------------------ -----------------
------------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of a change in accounting
principle, net of tax 35 - 35 -
----------------- ------------------ ------------------ -----------------
------------------------------------------------------------------------------------------------------------------------------------
Earnings available for common stock $16,755 $13,362 $48,268 $44,947
================= ================== ================== =================
------------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
September 30,
2000 December 31,
ASSETS (Unaudited) 1999
----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
<S> <C> <C>
Electric $1,991,341 $1,921,624
Gas 270,743 258,132
Water 29,331 27,770
Common 226,011 218,607
-------------------- --------------------
2,517,426 2,426,133
Less - Accumulated depreciation 1,360,419 1,266,366
-------------------- --------------------
1,157,007 1,159,767
Construction work in progress 58,101 66,784
Nuclear fuel, net of amortization 17,227 15,079
-------------------- --------------------
1,232,335 1,241,630
Other property, plant and equipment, net of accumulated
depreciation and amortization of $494 and $169, respectively 318 608
-------------------- --------------------
1,232,653 1,242,238
-------------------- --------------------
----------------------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments 5,836 3,555
Accounts receivable:
Customer 22,008 22,061
Associated companies 1,986 5,067
Other 6,004 10,984
Production fuel, at average cost 17,521 20,663
Materials and supplies, at average cost 22,876 20,439
Gas stored underground, at average cost 16,613 8,624
Prepaid gross receipts tax 16,760 20,864
Other 7,784 9,275
-------------------- --------------------
117,388 121,532
-------------------- --------------------
----------------------------------------------------------------------------------------------------------------------------------
Investments:
Nuclear decommissioning trust funds 176,432 166,202
Other 14,406 15,272
-------------------- --------------------
190,838 181,474
-------------------- --------------------
----------------------------------------------------------------------------------------------------------------------------------
Other assets:
Regulatory assets 82,973 82,161
Deferred charges and other 161,336 138,730
-------------------- --------------------
244,309 220,891
-------------------- --------------------
----------------------------------------------------------------------------------------------------------------------------------
Total assets $1,785,188 $1,766,135
==================== ====================
----------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 30,
2000 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
Capitalization:
<S> <C> <C>
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 351,743 303,476
Accumulated other comprehensive loss (1,321) -
-------------------- --------------------
Total common equity 646,043 599,097
-------------------- --------------------
Cumulative preferred stock 59,963 59,963
Long-term debt (excluding current portion) 514,170 414,673
-------------------- --------------------
1,220,176 1,073,733
-------------------- --------------------
-----------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities 1,875 1,875
Variable rate demand bonds 55,100 55,100
Notes payable to associated companies 25,560 125,749
Accounts payable 76,535 88,245
Accounts payable to associated companies 23,779 25,306
Other 36,417 30,283
-------------------- --------------------
219,266 326,558
-------------------- --------------------
-----------------------------------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 225,829 235,838
Accumulated deferred investment tax credits 29,932 31,311
Customer advances 33,816 34,643
Environmental liabilities 8,386 10,861
Other 47,783 53,191
-------------------- --------------------
345,746 365,844
-------------------- --------------------
-----------------------------------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $1,785,188 $1,766,135
==================== ====================
-----------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months
Ended September 30,
2000 1999
----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net income $50,716 $47,430
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 97,631 91,992
Amortization of nuclear fuel 3,626 4,581
Deferred taxes and investment tax credits (9,614) (8,962)
Other (8,666) (2,119)
Other changes in assets and liabilities:
Accounts receivable 8,114 7,721
Production fuel 3,142 3,608
Gas stored underground (7,989) (679)
Prepaid gross receipts tax 4,104 5,650
Accounts payable (13,237) (10,616)
Benefit obligations and other (1,287) (6,611)
------------------------ ------------------------
Net cash flows from operating activities 126,540 131,995
------------------------ ------------------------
----------------------------------------------------------------------------------------------------------------------------------
Cash flows used for financing activities:
Common stock dividends - (43,765)
Preferred stock dividends (2,483) (2,483)
Proceeds from issuance of long-term debt 100,000 -
Net change in short-term borrowings (100,189) 346
Capital contribution from parent - 30,000
Other (1,319) -
------------------------ ------------------------
Net cash flows used for financing activities (3,991) (15,902)
------------------------ ------------------------
----------------------------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
Utility construction expenditures (92,521) (88,421)
Nuclear decommissioning trust funds (15,373) (15,373)
Shared savings program (14,698) (11,880)
Other 2,324 743
------------------------ ------------------------
Net cash flows used for investing activities (120,268) (114,931)
------------------------ ------------------------
----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and temporary cash investments 2,281 1,162
------------------------ ------------------------
----------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period 3,555 1,811
------------------------ ------------------------
----------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $5,836 $2,973
======================== ========================
----------------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid during the period for:
Interest $30,087 $27,614
======================== ========================
Income taxes $35,686 $40,686
======================== ========================
----------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
-24-
<PAGE>
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, South Beloit.
WP&L is a subsidiary of Alliant Energy. These financial statements should
be read in conjunction with the financial statements and the notes thereto
included in WP&L's latest Annual Report on Form 10-K.
In the opinion of management, all adjustments, which are normal and
recurring in nature, necessary for a fair presentation of (a) the
consolidated results of operations for the three and nine months ended
September 30, 2000 and 1999, (b) the consolidated financial position at
September 30, 2000 and December 31, 1999, and (c) the consolidated
statement of cash flows for the nine months ended September 30, 2000 and
1999, have been made. Because of the seasonal nature of WP&L's
operations, results for the three and nine months ended September 30, 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. WP&L's comprehensive income, and the components of other comprehensive
loss, net of taxes, were as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months
September 30, Ended September 30,
2000 1999 2000 1999
---------------- -- -------------- -------------- -- ------------
<S> <C> <C> <C> <C>
Earnings available for common stock $16,755 $13,362 $48,268 $44,947
Other comprehensive loss:
Unrealized losses on derivatives qualified as hedges:
Unrealized holding losses arising during period
due to cumulative effect of a change in
accounting principle, net of tax (642) -- (642) --
Other unrealized holding losses arising during
period, net of tax (747) -- (747) --
Less: reclassification adjustment for losses
included in net income, net tax 68 -- 68 --
-------------- -------------- -------------- --------------
Net unrealized losses on qualifying derivatives (1,321) -- (1,321) --
-------------- -------------- -------------- --------------
Other comprehensive loss (1,321) -- (1,321) --
-------------- -------------- -------------- --------------
Comprehensive income $15,434 $13,362 $46,947 $44,947
============== ============== ============== ==============
</TABLE>
-25-
<PAGE>
3. Certain financial information relating to WP&L's significant business
segments is presented below. Intersegment revenues were not material to
WP&L's operations.
<TABLE>
<CAPTION>
Electric Gas Other Total
------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Three Months Ended September 30, 2000
-------------------------------------
Operating revenues $183,088 $15,169 $1,378 $199,635
Operating income (loss) 38,436 (2,032) 508 36,912
Earnings available for common stock 16,755
Three Months Ended September 30, 1999
-------------------------------------
Operating revenues $173,561 $11,869 $1,360 $186,790
Operating income (loss) 33,857 (1,863) 460 32,454
Earnings available for common stock 13,362
Nine Months Ended September 30, 2000
------------------------------------
Operating revenues $518,575 $89,970 $3,787 $612,332
Operating income 95,232 6,007 1,294 102,533
Earnings available for common stock 48,268
Nine Months Ended September 30, 1999
------------------------------------
Operating revenues $474,016 $79,020 $3,860 $556,896
Operating income 91,746 7,702 1,306 100,754
Earnings available for common stock 44,947
</TABLE>
-26-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The primary first tier subsidiaries of Alliant Energy include: WP&L, IESU,
IPC, Resources and Corporate Services. Among various other regulatory
constraints, Alliant Energy is operating as a registered public utility
holding company subject to the limitations imposed by PUHCA. This MD&A
includes information relating to Alliant Energy, IESU and WP&L (as well as
IPC, Resources and Corporate Services). Where appropriate, information
relating to a specific entity has been segregated and labeled as such. The
following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial
Statements included in this report as well as the financial statements, notes
and MD&A included in Alliant Energy's, IESU's and WP&L's latest Annual Report
on Form 10-K.
FORWARD-LOOKING STATEMENTS
Statements contained in this report (including MD&A) that are not of
historical fact are forward-looking statements intended to qualify for the
safe harbors from liability established by the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed in, or implied by, such statements. Some, but not all, of the
risks and uncertainties include 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 and the
setting of rates, 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,
Alliant Energy's ability to successfully implement its growth strategy,
including the acquisition and operation of foreign companies, unanticipated
issues relating to establishing a transmission company, material changes in
the value of Alliant Energy's investments in McLeod and Capstone,
technological developments, employee workforce factors, including changes in
key executives, collective bargaining agreements or work stoppages,
political, legal, economic and exchange rate conditions in foreign countries
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 Wisconsin
transmission company for those Wisconsin utility holding companies who elect
to take advantage of the asset cap law and others who elect to join. WP&L
currently expects to transfer its transmission assets to the transmission
company (American Transmission Company, or ATC) on January 1, 2001 and it is
expected that the net book value of such assets (approximately $170 million)
will become the new carrying value of its investment in ATC, resulting in no
gain or loss for WP&L. In July 2000, the PSCW issued a ruling indicating
that facilities with voltages of 50 kV and above are considered transmission
facilities for purposes of transferring assets to ATC. At this time, Alliant
Energy has decided not to contribute IESU's and IPC's transmission assets to
ATC. Refer to Part II, Item 1, "Legal Proceedings" for information regarding
a federal lawsuit challenging certain provisions of WUHCA.
-27-
<PAGE>
WP&L does not expect this transfer to result in a significant impact on its
financial condition or results of operations because it believes 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's ownership percentage
will be approximately 23% and WP&L will account for its investment in ATC
under the equity method. Although no assurance can be given, 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 ATC as
well as nonparticipants. ATC is currently 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 to ATC. In September 2000, FERC approved the transfer of South
Beloit's (WP&L's wholly-owned subsidiary) electric transmission facilities to
ATC.
Alliant Energy is reviewing, with several other utilities, the viability of
developing an Independent Transmission Company for various Midwest utilities
not included in the ATC, including IESU and IPC. The present schedule is to
develop a business plan and if it is deemed acceptable by the applicable
parties, to make the necessary filings with FERC and the various states by
mid-2001.
Alliant Energy complies with the provisions of SFAS 71, "Accounting for the
Effects of Certain Types of Regulation." SFAS 71 provides that
rate-regulated public utilities record certain costs and credits allowed in
the rate making process in different periods than for non-regulated
entities. These are deferred as regulatory assets or regulatory liabilities
and are recognized in the consolidated statements of income at the time they
are reflected in rates. If a portion of the utility's operations 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 would be required to determine any impairment of other assets
and write-down any impaired assets to their fair value. Alliant Energy
believes that its utility subsidiaries currently meet the requirements of
SFAS 71.
ALLIANT ENERGY RESULTS OF OPERATIONS
Unless otherwise noted, all "per share" references in the Alliant Energy
Results of Operations section refer to earnings per diluted share.
Overview - Third Quarter Results - Alliant Energy reported net income of
--------------------------------
$276.2 million, or $3.49 per share, for the third quarter of 2000, compared
to $71.5 million, or $0.91 per share, for the third quarter of 1999. Third
quarter 2000 earnings included $204 million of net income, or $2.58 per
share, relating to Alliant Energy's adoption of a new accounting
pronouncement, SFAS 133, on July 1, 2000. Excluding such income, third
quarter 2000 earnings were $0.91 per share, which was the same as the prior
year.
Earnings in the third quarter benefited from lower utility operation and
maintenance expenses and increased earnings from Alliant Energy's oil and gas
business. Such items were offset by increased interest expense to fund
Alliant Energy's strategic growth initiatives, a decrease in electric utility
margin and lower gains from asset sales in New Zealand.
-28-
<PAGE>
Third quarter 2000 utility earnings were $68.4 million ($0.86 per share)
compared to $62.8 million ($0.80 per share) for the same period in 1999. The
increase resulted primarily from lower operation and maintenance expenses
($0.11 per share) partially offset by a decrease in electric utility margin
($0.05 per share).
Resources reported net income of $208.0 million ($2.63 per share) in the
third quarter of 2000, including the $204 million related to the adoption of
SFAS 133. Net income for the third quarter of 1999 was $7.4 million ($0.09
per share). Excluding SFAS 133 income, earnings were $4.0 million ($0.05 per
share) in the third quarter of 2000. The lower earnings for Resources,
excluding the impact of SFAS 133, were due to higher interest expense ($0.07
per share) to fund Alliant Energy's strategic growth initiatives, a one-time
charge ($0.03 per share) related to a loss on a contract at Alliant Energy's
industrial services business and lower gains ($0.03 per share) from sales of
certain investments in New Zealand completed during both quarters. Third
quarter 2000 earnings benefited from higher earnings from Alliant Energy's
oil and gas operations ($0.05 per share) and improved operations from the
remainder of Alliant Energy's non-regulated businesses ($0.04 per share).
Electric Utility Operations - Electric margins and MWH sales for Alliant
---------------------------
Energy for the three months ended September 30 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
---------------------------------- --------------------------------
2000 1999 Change 2000 1999 Change
----------------- --------------- ----------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Residential $171,160 $169,507 1% 2,059 2,076 (1%)
Commercial 102,705 103,111 -- 1,467 1,511 (3%)
Industrial 140,647 139,984 -- 3,320 3,435 (3%)
----------------- --------------- --------------- ---------------
Total from ultimate customers 414,512 412,602 -- 6,846 7,022 (3%)
Sales for resale 52,452 49,158 7% 1,253 1,500 (16%)
Other 13,799 13,663 1% 40 41 (2%)
----------------- --------------- --------------- ---------------
Total revenues/sales 480,763 475,423 1% 8,139 8,563 (5%)
=============== ===============
Electric production fuels expense 76,432 76,629 --
Purchased power expense 85,553 74,802 14%
----------------- ---------------
Margin $318,778 $323,992 (2%)
================= ===============
</TABLE>
Electric margins and MWH sales for Alliant Energy for the nine months ended
September 30 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
--------------------------------- --------------------------------
2000 1999 Change 2000 1999 Change
---------------- --------------- ----------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Residential $434,100 $423,166 3% 5,416 5,461 (1%)
Commercial 264,229 252,668 5% 4,004 4,005 --
Industrial 379,400 359,365 6% 9,807 9,749 1%
---------------- --------------- --------------- ---------------
Total from ultimate customers 1,077,729 1,035,199 4% 19,227 19,215 --
Sales for resale 130,063 122,736 6% 3,618 4,184 (14%)
Other 40,436 34,978 16% 129 123 5%
---------------- --------------- --------------- ---------------
Total revenues/sales 1,248,228 1,192,913 5% 22,974 23,522 (2%)
=============== ===============
Electric production fuels expense 202,145 187,765 8%
Purchased power expense 222,690 199,308 12%
---------------- ---------------
Margin $823,393 $805,840 2%
================ ===============
</TABLE>
Electric margin decreased $5.2 million, or 2%, and increased $17.6 million,
or 2%, for the three and nine months ended September 30, 2000, respectively,
compared with the same periods in 1999. The three-month decrease stemmed
from milder weather conditions in the third quarter of 2000 and a change in
-29-
<PAGE>
estimate of Alliant Energy's utility services rendered but unbilled at
month-end, which had a favorable impact of approximately $9 million in the
third quarter of 1999. Third quarter earnings benefited by continued
economic growth in Alliant Energy's utility service territory and increased
capacity sales.
The nine-month increase was primarily due to the following factors:
(a) Economic growth in Alliant Energy's service territory.
(b) Increased capacity sales.
(c) Increased revenues from WP&L's conservation programs.
(d) A $15 million annual rate recovery adjustment implemented in March 1999
at WP&L to recover higher purchased-power and transmission costs.
(e) Changes in estimates of utility services rendered but unbilled at
month-end of approximately $10 million in Wisconsin in 2000, partially
offset by approximately $9 million in Iowa in 1999.
These items were partially offset by milder weather conditions in 2000 and
higher purchased-power and transmission costs in the first four months of
2000 at WP&L. Rate recovery of WP&L's higher purchased-power and
transmission costs did not begin until May 2000.
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.
Gas Utility Operations - Gas margins and Dth sales for Alliant Energy for the
----------------------
three months ended September 30 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
---------------------------------- -------------------------------
2000 1999 Change 2000 1999 Change
----------------- --------------- ----------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Residential $21,662 $17,774 22% 2,153 2,178 (1%)
Commercial 12,512 8,888 41% 1,761 1,582 11%
Industrial 5,273 4,526 17% 1,009 1,228 (18%)
Transportation/other 1,922 2,285 (16%) 9,409 10,192 (8%)
----------------- --------------- -------------- ---------------
Total revenues/sales 41,369 33,473 24% 14,332 15,180 (6%)
============== ===============
Cost of gas sold 22,660 14,458 57%
----------------- ---------------
Margin $18,709 $19,015 (2%)
================= ===============
</TABLE>
Gas margins and Dth sales for Alliant Energy for the nine months ended
September 30 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
---------------------------------- -------------------------------
2000 1999 Change 2000 1999 Change
----------------- --------------- ----------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Residential $133,870 $126,815 6% 19,580 20,983 (7%)
Commercial 67,548 60,542 12% 12,194 12,673 (4%)
Industrial 15,823 14,942 6% 3,595 4,185 (14%)
Transportation/other 8,915 11,058 (19%) 31,411 35,635 (12%)
----------------- --------------- -------------- ---------------
Total revenues/sales 226,156 213,357 6% 66,780 73,476 (9%)
============== ===============
Cost of gas sold 136,642 118,468 15%
----------------- ---------------
Margin $89,514 $94,889 (6%)
================= ===============
</TABLE>
Gas margin decreased $0.3 million, or 2%, and $5.4 million, or 6%, for the
three and nine months ended September 30, 2000, respectively, compared with
the same periods in 1999, primarily due to the decline in sales resulting
from milder weather.
-30-
<PAGE>
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 and nine months ended September 30, 2000 were as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
-------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
ISCO $87,276 $52,213 $247,126 $119,113
Oil and gas (Whiting) 29,412 18,661 75,212 48,102
Steam 7,459 5,804 21,335 20,959
Transportation 5,202 5,772 15,207 16,214
Other 6,941 6,990 18,573 20,647
-------------- ---------------- ---------------- ---------------
$136,290 $89,440 $377,453 $225,035
============== ================ ================ ===============
</TABLE>
Non-regulated and other revenues increased $46.9 million and $152.4 million
for the three and nine months ended September 30, 2000, respectively,
compared with the same periods in 1999, primarily due to increased revenues
at ISCO related to the 1999 acquisition of an oil gathering and
transportation business in Texas and increased oil and gas revenues at
Whiting due to higher oil and gas prices and oil volumes. The nine-month
decrease was partially offset by reduced gas volumes.
Other Operating Expenses - Other operation and maintenance expenses for the
------------------------
three and nine months ended September 30, 2000 were as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
-------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Utility - IESU / WP&L / IPC $108,291 $122,499 $367,497 $362,338
ISCO 95,097 54,536 252,083 115,191
Oil and gas (Whiting) 9,823 7,966 26,555 22,625
Transportation 2,806 2,309 8,363 7,150
Other 7,735 9,334 22,762 23,743
-------------- ---------------- ---------------- ---------------
$223,752 $196,644 $677,260 $531,047
============== ================ ================ ===============
</TABLE>
Other operation and maintenance expenses at the utility subsidiaries
decreased $14.2 million and increased $5.2 million for the three and nine
months ended September 30, 2000, respectively, compared with the same periods
in 1999. The three-month decrease was primarily due to lower operating
expenses at Alliant Energy's transmission and distribution and generation
business units as well as reduced administrative and general expenses. The
nine-month increase was primarily due to a planned second quarter 2000
refueling outage at Kewaunee, $3 million of one-time fees related to the
transfer of the Iowa utility businesses from the MAPP reliability region to
the MAIN region and increased energy conservation expense at WP&L. Such
increases were partially offset by reduced administrative and general
expenses and lower employee benefit costs. Expenses incurred in 1999
relating to Alliant Energy's Year 2000 readiness program also impacted the
comparisons.
Other operation and maintenance expenses at ISCO increased $40.6 million and
$136.9 million for the three and nine months ended September 30, 2000,
respectively, compared with the same periods in 1999, primarily due to
expenses associated with the acquisition of the oil gathering and
transportation business and increased operating expenses at Alliant Energy's
environmental and engineering services business, including a one-time charge
of $4 million related to a loss on a contract.
-31-
<PAGE>
Depreciation and amortization expense increased $5.1 million and $14.9
million for the three and nine months ended September 30, 2000, respectively,
compared with the same periods in 1999, primarily due to utility property
additions and acquisitions at the non-regulated businesses, increased
earnings in the WP&L nuclear decommissioning trust fund (offset entirely in
"Miscellaneous, net") and increased amortization expenses.
Interest Expense and Other - Interest expense increased $12.8 million and
--------------------------
$27.1 million for the three and nine months ended September 30, 2000,
respectively, compared with the same periods in 1999, primarily due to higher
non-regulated and utility borrowings to fund Alliant Energy's strategic
growth initiatives, including Resources' $347 million investment in several
Brazilian electric utilities in January 2000.
On July 1, 2000, Alliant Energy adopted SFAS 133. Related to the adoption,
Alliant Energy recorded a $321.3 million gain related to the designation of a
portion of Alliant Energy's McLeod holdings as "trading securities." This
gain related to the unrealized appreciation in value of approximately 27% of
Alliant Energy's McLeod holdings. Alliant Energy will reflect in earnings
all future changes in the value of the shares of McLeod stock designated as
trading, which is expected to substantially offset the earnings impact of
corresponding changes in the value of the derivative component of the 30-year
exchangeable senior notes issued by Resources in February 2000.
Alliant Energy sold 450,000 shares (as adjusted for the 3-for-1 stock split
effective April 2000) of its investment in McLeod in the first quarter of
2000, resulting in a pre-tax gain of $10.2 million. Alliant Energy sold
approximately 3,840,000 shares (as adjusted for the 2-for-1 stock split
effective July 1999 and the 3-for-1 stock split effective April 2000) of its
investment in McLeod in the second quarter of 1999, resulting in a pre-tax
gain of $33.8 million.
Miscellaneous, net income increased $2.6 million and $15.0 million for the
three and nine months ended September 30, 2000, respectively, compared with
the same periods in 1999, primarily due to a change in the value of the
derivative component of Resources' exchangeable senior notes derivative,
increased interest income (including $4 million recognized in the first
quarter of 2000 from a tax settlement at IESU), increased earnings from
Alliant Energy's electricity trading business, increased equity income from
Alliant Energy's other unconsolidated investments, gains on sales of various
investments and increased nuclear decommissioning trust fund earnings.
Increases for both periods were partially offset by the decrease in value of
the McLeod trading securities and lower gains from sales of certain
investments in New Zealand completed during both periods. Refer to Note 10
of Alliant Energy's Notes to Consolidated Financial Statements for additional
information related to the exchangeable senior notes derivative and the
McLeod trading securities.
Income Taxes - Income tax expense increased $132.8 million and $122.3 million
------------
for the three and nine months ended September 30, 2000, respectively,
compared with the same periods in 1999, primarily due to changes in taxable
income and higher effective income tax rates. The effective income tax rates
were 40.2% and 39.6%, for the three and nine months ended September 30, 2000,
compared with 36.8% and 36.9%, respectively, for the same periods last year.
The higher rates in 2000 were due to the impact of the adoption of SFAS 133.
Cumulative effective of a change in accounting principle - Refer to Note 10
--------------------------------------------------------
of Alliant Energy's Notes to Consolidated Financial Statements.
IESU RESULTS OF OPERATIONS
Overview - Third Quarter Results - IESU's earnings available for common stock
--------------------------------
increased $1.9 million for the three months ended September 30, 2000,
compared with the same period in 1999, primarily due to reduced other
operation and maintenance expenses, partially offset by a lower electric
margin.
-32-
<PAGE>
Electric Utility Operations - Electric margins and MWH sales for IESU for the
---------------------------
three months ended September 30 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
--------------------------------- -------------------------------
2000 1999 Change 2000 1999 Change
---------------- --------------- ----------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Residential $78,004 $76,739 2% 822 818 --
Commercial 56,326 58,716 (4%) 732 781 (6%)
Industrial 55,517 56,796 (2%) 1,239 1,312 (6%)
---------------- --------------- -------------- ---------------
Total from ultimate customers 189,847 192,251 (1%) 2,793 2,911 (4%)
Sales for resale 9,378 10,373 (10%) 247 385 (36%)
Other 3,674 3,524 4% 10 9 11%
---------------- --------------- -------------- ---------------
Total revenues/sales 202,899 206,148 (2%) 3,050 3,305 (8%)
============== ===============
Electric production fuels expense 22,633 27,442 (18%)
Purchased power expense 28,324 22,057 28%
---------------- ---------------
Margin $151,942 $156,649 (3%)
================ ===============
</TABLE>
Electric margins and MWH sales for IESU for the nine months ended September
30 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
---------------------------------- -------------------------------
2000 1999 Change 2000 1999 Change
----------------- --------------- ----------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Residential $183,138 $182,318 -- 2,088 2,106 (1%)
Commercial 138,335 136,148 2% 2,008 2,027 (1%)
Industrial 143,743 137,889 4% 3,754 3,786 (1%)
----------------- --------------- -------------- ---------------
Total from ultimate customers 465,216 456,355 2% 7,850 7,919 (1%)
Sales for resale 21,875 23,108 (5%) 748 1,068 (30%)
Other 9,843 8,911 10% 30 29 3%
----------------- --------------- -------------- ---------------
Total revenues/sales 496,934 488,374 2% 8,628 9,016 (4%)
============== ===============
Electric production fuels expense 76,595 58,689 31%
Purchased power expense 59,464 62,349 (5%)
----------------- ---------------
Margin $360,875 $367,336 (2%)
================= ===============
</TABLE>
Electric margin decreased $4.7 million, or 3%, and $6.5 million, or 2%, for
the three and nine months ended September 30, 2000, respectively, compared
with the same periods in 1999, primarily due to milder weather conditions in
2000 and a change in estimate recorded in 1999 of IESU's utility services
rendered but unbilled at month-end of approximately $5 million. Also
contributing to the nine-month decrease were reduced recoveries of
approximately $4.8 million in concurrent and previously deferred expenditures
for Iowa-mandated energy efficiency programs. 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 and maintenance expense). Increased sales due to economic growth
in IESU's service territory partially offset the decreased margin each period.
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.
-33-
<PAGE>
Gas Utility Operations - Gas margins and Dth sales for IESU for the three
----------------------
months ended September 30 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
---------------------------------- -------------------------------
2000 1999 Change 2000 1999 Change
----------------- --------------- ----------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Residential $10,406 $8,913 17% 908 988 (8%)
Commercial 5,788 3,787 53% 744 608 22%
Industrial 3,840 2,988 29% 740 820 (10%)
Transportation/other 859 960 (11%) 2,091 2,250 (7%)
----------------- --------------- -------------- ---------------
Total revenues/sales 20,893 16,648 25% 4,483 4,666 (4%)
============== ===============
Cost of gas sold 13,253 8,777 51%
----------------- ---------------
Margin $7,640 $7,871 (3%)
================= ===============
</TABLE>
Gas margins and Dth sales for IESU for the nine months ended September 30
were as follows:
<TABLE>
<CAPTION>
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
---------------------------------- -------------------------------
2000 1999 Change 2000 1999 Change
----------------- --------------- ----------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Residential $64,262 $61,108 5% 9,011 9,626 (6%)
Commercial 31,107 27,725 12% 5,433 5,643 (4%)
Industrial 9,128 7,824 17% 2,122 2,298 (8%)
Transportation/other 3,270 3,299 (1%) 7,194 7,712 (7%)
----------------- --------------- -------------- ---------------
Total revenues/sales 107,767 99,956 8% 23,760 25,279 (6%)
============== ===============
Cost of gas sold 68,291 58,313 17%
----------------- ---------------
Margin $39,476 $41,643 (5%)
================= ===============
</TABLE>
Gas margin decreased $0.2 million, or 3%, and $2.2 million, or 5%, for the
three and nine months ended September 30, 2000, respectively, compared with
the same periods in 1999. The nine-month decrease was 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 and maintenance expenses
------------------------
decreased $8.2 million and $12.6 million for the three and nine months ended
September 30, 2000, respectively, compared with the same periods in 1999.
The three-month decrease was primarily due to reduced administrative and
general expenses and lower transmission and distribution expenses. The
nine-month decrease was primarily due to a decrease of $4.2 million in energy
efficiency expenses, reduced administrative and general expenses, lower
employee benefits costs and lower transmission and distribution expenses.
Partially offsetting the nine-month decrease were one-time fees related to
the transfer from the MAAP reliability region to the MAIN region. Expenses
incurred in 1999 relating to IESU's Year 2000 readiness program also impacted
the comparisons.
IESU's depreciation and amortization expense increased $1.4 million and $4.1
million for the three and nine months ended September 30, 2000, respectively,
compared with the same periods in 1999, primarily due to property additions.
Interest Expense and Other - Miscellaneous, net income decreased $0.5 million
--------------------------
and increased $2.3 million for the three and nine months ended September 30,
2000, respectively, compared with the same periods in 1999. The nine-month
increase was primarily due to $4.1 million of interest income recognized from
a tax settlement in the first quarter of 2000, partially offset by a decrease
in nuclear decommissioning trust fund earnings.
-34-
<PAGE>
Income Taxes - IESU's income tax expense increased $0.9 million and $1.9
------------
million for the three and nine months ended September 30, 2000, respectively,
compared with the same periods last year, primarily due to increased taxable
income. The effective income tax rates were 41.4% and 41.9% for the three
and nine months ended September 30, 2000, respectively, compared with 41.8%
and 42.1%, respectively, for the same periods last year.
WP&L RESULTS OF OPERATIONS
Overview - Third Quarter Results - WP&L's earnings available for common stock
---------
increased $3.4 million for the three months ended September 30, 2000,
compared with the same period in 1999. The increased earnings were primarily
due to reduced other operation and maintenance expenses, largely due to
expenses incurred in 1999 for WP&L's Year 2000 readiness program.
Electric Utility Operations - Electric margins and MWH sales for WP&L for the
---------------------------
three months ended September 30 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
---------------------------------- -------------------------------
2000 1999 Change 2000 1999 Change
----------------- --------------- ----------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Residential $61,816 $60,399 2% 872 885 (1%)
Commercial 34,228 32,028 7% 563 543 4%
Industrial 48,801 44,732 9% 1,201 1,186 1%
----------------- --------------- -------------- ---------------
Total from ultimate customers 144,845 137,159 6% 2,636 2,614 1%
Sales for resale 32,084 30,769 4% 838 879 (5%)
Other 6,159 5,633 9% 13 14 (7%)
----------------- --------------- -------------- ---------------
Total revenues/sales 183,088 173,561 5% 3,487 3,507 (1%)
============== ===============
Electric production fuels expense 33,198 30,994 7%
Purchased power expense 41,299 34,704 19%
----------------- ---------------
Margin $108,591 $107,863 1%
================= ===============
</TABLE>
Electric margins and MWH sales for WP&L for the nine months ended September
30 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
--------------------------------- -------------------------------
2000 1999 Change 2000 1999 Change
---------------- --------------- ----------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Residential $173,925 $163,948 6% 2,379 2,403 (1%)
Commercial 96,163 88,489 9% 1,529 1,502 2%
Industrial 142,134 126,211 13% 3,533 3,387 4%
---------------- --------------- -------------- ---------------
Total from ultimate customers 412,222 378,648 9% 7,441 7,292 2%
Sales for resale 86,102 79,635 8% 2,400 2,454 (2%)
Other 20,251 15,733 29% 48 43 12%
---------------- --------------- -------------- ---------------
Total revenues/sales 518,575 474,016 9% 9,889 9,789 1%
============== ===============
Electric production fuels expense 83,699 84,374 (1%)
Purchased power expense 113,119 87,129 30%
---------------- ---------------
Margin $321,757 $302,513 6%
================ ===============
</TABLE>
Electric margin increased $0.7 million, or 1%, and $19.2 million, or 6%, for
the three and nine months ended September 30, 2000, respectively, compared
with the same periods in 1999. The three-month increase was primarily due to
increased sales to retail customers due to economic growth in the service
territory, largely offset by milder weather conditions in the third quarter
of 2000.
-35-
<PAGE>
The nine-month increase was primarily due to the following factors:
(a) The favorable impact of approximately $10 million due to a change in
estimate recorded in the second quarter of 2000 of WP&L's utility
services rendered but unbilled at month-end.
(b) A $15 million rate recovery adjustment implemented in March 1999 to
recover higher purchased-power and transmission costs.
(c) Increased revenues from conservation programs.
(d) Increased sales to retail customers due to economic growth in the
service territory.
These items were partially offset by milder weather conditions in 2000 and
higher purchased-power and transmission costs in the first four months of
2000. Rate recovery of the higher purchased-power and transmission costs did
not begin until May 2000.
Gas Utility Operations - Gas margins and Dth sales for WP&L for the three
----------------------
months ended September 30 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
---------------------------------- -------------------------------
2000 1999 Change 2000 1999 Change
----------------- --------------- ----------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Residential $8,312 $6,459 29% 939 852 10%
Commercial 5,604 4,128 36% 854 769 11%
Industrial 872 694 26% 144 171 (16%)
Transportation/other 381 588 (35%) 2,772 2,804 (1%)
----------------- --------------- -------------- ---------------
Total revenues/sales 15,169 11,869 28% 4,709 4,596 2%
============== ===============
Cost of gas sold 6,431 2,636 144%
----------------- ---------------
Margin $8,738 $9,233 (5%)
================= ===============
</TABLE>
Gas margins and Dth sales for WP&L for the nine months ended September 30
were as follows:
<TABLE>
<CAPTION>
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
---------------------------------- -------------------------------
2000 1999 Change 2000 1999 Change
----------------- --------------- ----------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Residential $52,795 $46,389 14% 7,926 8,179 (3%)
Commercial 28,830 23,518 23% 5,321 5,253 1%
Industrial 4,510 3,860 17% 923 1,008 (8%)
Transportation/other 3,835 5,253 (27%) 9,613 9,542 1%
----------------- --------------- -------------- ---------------
Total revenues/sales 89,970 79,020 14% 23,783 23,982 (1%)
============== ===============
Cost of gas sold 51,398 39,614 30%
----------------- ---------------
Margin $38,572 $39,406 (2%)
================= ===============
</TABLE>
Gas margin decreased $0.5 million, or 5%, and $0.8 million, or 2%, for the
three and nine months ended September 30, 2000, respectively, compared with
the same periods in 1999.
Other Operating Expenses - Other operation and maintenance expenses decreased
------------------------
$4.2 million and increased $11.6 million for the three and nine months ended
September 30, 2000, respectively, compared to the same periods in 1999. The
three-month decrease was primarily due to expenses incurred in 1999 for
WP&L's Year 2000 readiness program. The nine-month increase was primarily due
to the planned second quarter 2000 refueling outage at Kewaunee and increased
energy conservation expense, partially offset by expenses incurred in 1999
for WP&L's Year 2000 readiness program and lower employee benefits costs.
-36-
<PAGE>
Depreciation and amortization expense increased $5.6 million for the nine
months ended September 30, 2000 compared with the same period in 1999,
primarily due to increased earnings on the nuclear decommissioning trust fund
(offset entirely in "Miscellaneous, net"). The accounting for earnings on
the nuclear decommissioning trust funds results in no net income impact.
Miscellaneous, net income increases for earnings on the trust fund and the
corresponding offset is recorded as depreciation expense.
Interest Expense and Other - Interest expense increased $0.8 million and $3.0
--------------------------
million for the three and nine months ended September 30, 2000, respectively,
compared with the same periods in 1999, primarily due to higher borrowings
outstanding in 2000.
Miscellaneous, net income increased $1.2 million and $5.3 million for the
three and nine months ended September 30, 2000, respectively, compared with
the same periods in 1999, due to increased earnings on the nuclear
decommissioning trust fund.
Income Taxes - Income taxes increased $1.4 million and $1.8 million for the
------------
three and nine months ended September 30, 2000, respectively, compared with
the same periods in 1999, primarily due to changes in pre-tax income. The
three-month increase was partially offset by a lower effective income tax
rate. The effective income tax rates were 37.3% and 37.4% for the three and
nine months ended September 30, 2000, respectively, compared with 39.0% and
37.6%, respectively, for the same periods last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities at Alliant Energy decreased $7 million
for the nine months ended September 30, 2000, compared with the same period
in 1999, primarily due to changes in working capital. Cash flows from
financing activities increased $391 million for the nine months ended
September 30, 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 $464 million for the nine months ended
September 30, 2000, compared with the same period in 1999, due to increased
levels of construction and acquisition expenditures, primarily in the
non-regulated businesses, including the $347 million invested in Brazil in
January 2000.
Cash flows from operating activities at IESU increased $25 million for the
nine months ended September 30, 2000, compared with the same period in 1999,
primarily due to changes in working capital. Cash flows used for financing
activities decreased $47 million for the nine months ended September 30,
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 $19
million for the nine months ended September 30, 2000, compared with the same
period in 1999, due to increased levels of construction expenditures.
Cash flows from operating activities at WP&L decreased $5 million for the
nine months ended September 30, 2000, compared with the same period in 1999,
primarily due to changes in working capital. Cash flows used for financing
activities decreased $12 million for the nine months ended September 30,
2000, compared with the same period in 1999, as WP&L did not declare a common
stock dividend during the first nine months of 2000 due to management of its
capital structure. This was offset by a capital contribution of $30 million
from Alliant Energy in 1999. Cash flows used for investing activities
increased $5 million for the nine months ended September 30, 2000, compared
with the same period in 1999, primarily due to increased levels of
construction expenditures.
Future Considerations
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
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<PAGE>
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 holds both indirect and direct interests
in Energisa S.A. Resources has entered into a shareholders agreement with
the Brazilian companies, which permits it to name two directors to the boards
of each company and its subsidiaries. The agreement also provides 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 is 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.
Alliant Energy's strategic plan includes pursuing three fundamental
strategies: aggressively invest, better connect with customers and grow the
business quickly. Alliant Energy expects that these strategies will contribute
significantly to its annual earnings growth target of 7 to 10 percent.
Refer to Notes 7 and 10 of Alliant Energy's Notes to Consolidated Financial
Statements for a discussion of $402.5 million of exchangeable senior notes
issued by Resources in February 2000.
Refer to Part II, Item 1, "Legal Proceedings" for information regarding a
federal lawsuit challenging certain provisions of WUHCA.
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 Notes 7 and 10 of Alliant Energy's Notes to Consolidated Financial
Statements for a discussion of $402.5 million of exchangeable senior notes
issued by Resources in February 2000.
Capital Requirements
Refer to "Other Matters - Environmental" for a discussion of various issues
impacting Alliant Energy's future capital requirements.
Nuclear Facilities
In February 1999, Alliant Energy, NSP, WPSC and WEPCO announced the formation
of the NMC to sustain long-term safety, optimize reliability and improve the
operational performance of their nuclear generating plants. Combined, the
NMC members operate seven nuclear generating units at five plants. In
October 1999, Alliant Energy received approval from the SEC, under PUHCA, to
form Alliant Energy Nuclear LLC, whose purpose is solely to invest in the
NMC. Such investment has been made and Alliant Energy Nuclear LLC now has a
25% ownership interest in the NMC. In November 1999, the NMC members applied
to the NRC to allow the NMC to operate the plants owned or co-owned by the
four utilities. Applications to the PSCW, MPUC and the SEC to allow the
purchase of operating services were also made at that time. In May 2000, the
NRC approved the transfer of operating authority to the NMC for DAEC and
Kewaunee which was completed for both plants in August 2000. The utilities
will continue to own their respective plants, be entitled to energy generated
at the plants and retain the financial obligations for their safe operation,
maintenance and decommissioning.
In October 2000, the NMC members and CMS Energy announced their intention of
adding CMS Energy as a fifth investor in the NMC. This will reduce Alliant
Energy Nuclear LLC's ownership interest in the NMC from 25% to 20%. CMS
Energy has also indicated its intention for its utility subsidiary, Consumers
Power Company, to transfer operating authority to and enter into a service
agreement with the NMC for operation of the Palisades Nuclear Plant, to be
effective July 2001.
Rates and Regulatory Matters
In February and April 2000, the OCA requested certain financial information
related to the electric utility operations within the state of Iowa from IESU
and IPC, respectively. IESU and IPC have responded to its data requests
-38-
<PAGE>
including follow-up requests in May and June 2000. Additionally, in August
2000, the OCA requested similar financial information from IESU and IPC for a
non-calendar year period. IESU has responded to this data request and IPC is
expected to finalize its response in November 2000. 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 its Year 2000 program expenditures
withdrew their appeal. WP&L began recovering such costs in May 2000 and is
amortizing the deferred costs as the amounts are recovered in rates.
OTHER MATTERS
Labor Issues
The collective bargaining agreements at Alliant Energy cover approximately
50% of all Alliant Energy employees. All agreements that had expired in 1999
and 2000 have been ratified and renewed. There are no other 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.
Commodity Risk - Non-trading - Whiting is exposed to market risk in the
----------------------------
pricing of its oil and gas production. Historically, prices received for oil
and gas production have been volatile because of seasonal weather patterns,
supply and demand factors, transportation availability and price, and general
economic conditions. Worldwide political developments have historically also
had an impact on oil prices. Periodically, Alliant Energy utilizes oil and
gas swaps and forward contracts to mitigate the impact of oil and gas price
fluctuations. Based on Whiting's estimated gas and crude oil sales in 2000,
and the swaps and forward contracts in place at September 30, 2000, a 10%
increase/decrease in gas and crude oil prices for that period would impact
Alliant Energy's pre-tax 2000 earnings by approximately $8.5 million. A 10%
increase/decrease in prices during 1999 would have impacted Alliant Energy's
1999 pre-tax earnings by approximately $3.0 million as relates to the
commodity derivative instruments outstanding during 1999.
Equity Price Risk - At September 30, 2000 and December 31, 1999, Alliant
-----------------
Energy had an investment in the stock of McLeod, a publicly traded
telecommunications company, valued at $812 million and $1,124 million,
respectively. In addition to the equity risk associated with the investment
in McLeod, Alliant Energy also has equity risk related to the option
liability embedded within Resources' exchangeable senior notes. Refer to
Notes 7 and 10 of Alliant Energy's Notes to Consolidated Financial Statements
for further discussion. A 10% increase (decrease) in the quoted market price
of McLeod at September 30, 2000 would not have a significant impact on net
income as any resulting increase (decrease) in the value of the option would
be substantially offset by a corresponding increase (decrease) in the value
of the McLeod shares classified as trading. At September 30, 2000, the
McLeod available-for-sale securities were valued at $589 million. A 10%
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<PAGE>
increase (decrease) in the quoted market prices would have increased
(decreased) the value of the investment by approximately $59 million. At
September 30, 2000 and December 31, 1999, Alliant Energy also had various
investments accounted for under both the equity and cost methods, in publicly
traded utility companies in New Zealand and Australia (equity method only at
September 30, 2000) which were valued at $64 million and $97 million,
respectively. A 10% increase (decrease) in the quoted market prices at
September 30, 2000 and December 31, 1999 would have increased (decreased) the
value of the investment by approximately $6.4 million and $9.7 million,
respectively. In the second quarter of 2000, Capstone completed its initial
public offering and Alliant Energy's $10 million investment in Capstone was
valued at $104 million at September 30, 2000. A 10% increase (decrease) in
the quoted market price at September 30, 2000 would have increased
(decreased) the value of the investment by approximately $10.4 million.
Currency Risk - Alliant Energy has investments in various countries where the
-------------
net investments are not hedged, including Australia, Brazil, China and New
Zealand. As a result, these investments are subject to currency exchange
risk with fluctuations in currency exchange rates. At September 30, 2000 and
December 31, 1999, Alliant Energy had a cumulative foreign currency
translation loss of $50.1 million and $9.6 million, respectively, recorded in
"Accumulated other comprehensive income" on its Consolidated Balance Sheets.
The increase in the cumulative foreign currency translation loss is primarily
due to declines in New Zealand, Brazil and Australia exchange rates. Based
on Alliant Energy's investments at September 30, 2000 and December 31, 1999,
a 10% sustained increase (decrease) over the next twelve months in the
foreign exchange rates of Australia, Brazil, China and New Zealand would
increase (decrease) the cumulative foreign currency translation loss by $46.7
million and $17.2 million, respectively. The significant increase in the
cumulative translation adjustment account at September 30 is primarily due to
the increase in the amount of Resources' investment in Brazil at September
30, 2000 compared with December 31, 1999.
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 informed environmental regulatory
agencies, installed the CEMS and obtained the associated required 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 were 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 responded with a counteroffer, and the parties
reached an agreement in principle which contemplated a civil penalty payment
and the performance of a supplemental environmental project with a combined
value of approximately $400,000. In September 2000, a consent order was
signed, and in October 2000, the civil penalty was paid and the supplemental
environmental project was completed.
In October 1998, the EPA issued a final rule requiring 22 states, including
Wisconsin, to modify their state implementation plans to address the NOx
issue. On May 25, 1999, a federal appeals court delayed indefinitely the
implementation of the rule. On March 3, 2000, the court affirmed EPA's NOx
rule for the affected states. However, the court found that the EPA had
failed to explain how Wisconsin contributes significantly to non-attainment
in any other state and therefore vacated the rule for Wisconsin. This
decision was appealed by some of the affected states. On June 22, 2000, the
lower court's ruling was upheld by the U.S. Court of Appeals and Wisconsin is
still excluded.
Although Wisconsin is not included in the federal rule, Wisconsin is still
subject to the Clean Air Act due to its non-attainment status with respect to
the one-hour ozone standard in the Lake Michigan region. WDNR has developed
a rule that contains a plan for the state to meet the one-hour ozone
attainment standard. The plan focuses on rate of progress requirements that
are specified by the Clean Air Act for the years 2002, 2005 and 2007. The
rule requires NOx reductions in an Ozone Control Region consisting of
counties that are currently in non-attainment of the one-hour ozone standard
which includes WP&L's Edgewater power plant. Alliant Energy is currently
evaluating various alternatives to achieve the proposed reductions and
continues to evaluate various options to reduce the emission levels. Based
on existing technology, the preliminary estimates are that capital
investments in the range of $30 million to $40 million could be required.
-40-
<PAGE>
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.
Because WP&L is already a member of MAIN, this transfer should provide
Alliant Energy additional operating flexibility to 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 for a
contract to construct a 500-600 megawatt power plant in Wisconsin. The
construction of the facility is expected to assist Alliant Energy in meeting
its growing demands for electricity, to enable Alliant Energy to place a
greater reliance on internal generation versus purchased-power and to help
Alliant Energy maintain the required 18% reserve margin in Wisconsin.
Proposals were received in June 2000 and are currently being evaluated.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Quantitative and Qualitative Disclosures About Market Risk are reported under
Item 2. MD&A "Other Matters - Market Risk Sensitive Instruments and
Positions."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In an effort to grow and expand as a Wisconsin-based company, Alliant Energy
filed a federal lawsuit on October 11, 2000, seeking declaratory relief
regarding whether certain provisions of WUHCA are unconstitutional as a
violation of the interstate commerce and equal protection provisions.
Alliant Energy is challenging the provisions of WUHCA which restrict
ownership in utility holding companies, limit the investments those companies
can make and place significant restrictions on companies that invest in
Wisconsin utility holding companies. Alliant Energy has also requested that
the court consider the constitutionality of issues related to the asset cap.
Alliant Energy is seeking only declaratory relief and not damages in the
litigation. No assurance can be given that Alliant Energy will be successful
in the litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following Exhibits are filed herewith.
10.1 Amendment No. 1 to 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, dated as of July 7, 2000
10.2 Amendment No. 1 to 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, dated as of July 7, 2000
27.1 Financial Data Schedule for Alliant Energy Corporation at and for
the period ended September 30, 2000
27.2 Financial Data Schedule for IES Utilities Inc. at and for the period
ended September 30, 2000
27.3 Financial Data Schedule for Wisconsin Power and Light Company at and
for the period ended September 30, 2000
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<PAGE>
(b) Reports on Form 8-K:
Alliant Energy - None.
WP&L - None.
IESU - None.
-42-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Alliant
Energy Corporation, IES Utilities Inc. and Wisconsin Power and Light Company
have each duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 10th day of November 2000.
ALLIANT ENERGY CORPORATION
--------------------------
Registrant
By: /s/ John E. Kratchmer Corporate Controller and Chief Accounting Officer
------------------------- (Principal Accounting Officer and Authorized
John E. Kratchmer Signatory)
IES UTILITIES INC.
------------------
Registrant
By: /s/ John E. Kratchmer Corporate Controller and Chief Accounting Officer
------------------------- (Principal Accounting Officer and Authorized
John E. Kratchmer Signatory)
WISCONSIN POWER AND LIGHT COMPANY
---------------------------------
Registrant
By: /s/ John E. Kratchmer Corporate Controller and Chief Accounting Officer
------------------------- (Principal Accounting Officer and Authorized
John E. Kratchmer Signatory)
-43-
