NG-03-0344, Annual Financial Reports
| ML031360712 | |
| Person / Time | |
|---|---|
| Site: | Duane Arnold  |
| Issue date: | 05/09/2003 |
| From: | Peifer M Nuclear Management Co |
| To: | Document Control Desk, Office of Nuclear Reactor Regulation |
| References | |
| A-105, A-118e, NG-03-0344 | |
| Download: ML031360712 (111) | |
Text
NuEl Committed to Nuclear Excelenv,, Duane Arnold Energy Center Operated by Nuclear Management Company, LLC May 9, 2003 IO CFR 50.71 (b)
NG-03-0344 Director, Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Attn.: Document Control Desk Mail Station 0-P1-17 Washington, DC 20555-0001
Subject:
Duane Arnold Energy Center Docket No: 50-331 Op. License No: DPR-49 2002 Annual Financial Reports File: A- 18e, A-105
Dear Sir:
Enclosed are the 2002 Annual Reports for the owners of the Duane Arnold Energy Center, including Interstate Power and Light Company (Alliant Energy), Central Iowa Power Cooperative, and Corn Belt Power Cooperative. The reports are being submitted in accordance with the requirements of 10 CFR 50.71(b).
There are no new commitments made in this letter.
Should you have any questions regarding this matter, please contact this office.
Sincerely, Mark A.Pfer Site Vice President
Enclosures:
- 1) Alliant Energy 2002 Annual Report
- 2) Central Iowa Power Cooperative 2002 Annual Report
- 3) Corn Belt Power Cooperative 2002 Annual Report cc: J. Dyer (Region III) (w/a)
Darl Hood (NRC-NRR) (w/a)
NRC Resident Office - DAEC (w/a)
S. Hamed (Nv/o)
IRMS (w/o)
- Palo, Iowa 52324-9785 Telephone: 319.851.7611 yk C.CO Il
iA 1 Financial overview 2 Alliant Energy at a glance 3 Letter to shareowners 6 Frequently asked shareowner questions 9 Financial information 63 Board of Directors 64 Senior management team 65 Officers Surprises, uncertainty and more surprises characterized our industry in 2002.
66 Shareowner information Credit markets tightened and stock prices tumbled.
Alliant Energy was certainly not immune to this turbulence. We faced the global challenges ... and we confronted others specific to our company alone.
In response to these obstacles, we've increased our collective focus. We've concentrated our attention on operating our businesses even more efficiently, upholding a solid credit profile, strengthening our balance sheet and refining our non-regulated business model. And we're focusing on the potential and possibilities of a very different future, rather than the issues and problems we faced in the past. 0 ABOUT US Alliant Energy Corporation, headquartered in Madison, Wis., is an energy holding company traded on the New York Stock Exchange under the symbol "LNT." The company is focused on three primary business lines: domestic utilities, international utilities in select countries and the non-regulated U.S. generation market.
This annualreport containsforward-looking statements. These statements sbould be conisidered in liglt of the disclaimer on page i 0.
S (Dollarsin millions, except persharedata) 2002 2001 Change Operating revenues $2,609 $2,625 (1%)
Net income:
Income from continuing operations $76 $126 (40%)
Income from discontinued operations $31 $59 (47%)
Cumulative effect of a change in accounting principle $- ($13) N/A Net income under U.S. Generally Accepted Accounting Principles (GAAP) $107 $172 (38%)
Adjustments to GAAP net income (a) $14 $23 N/A Adjusted net income (b) $121 $195 (38%)
Diluted earnings per average common share:
Income from continuing operations $0.84 $1.57 (46%)
Income from discontinued operations $0.34 $0.73 (53%)
Cumulative effect of a change in accounting principle S- ($0.16) N/A GAAP earnings per share $1.18 $2.14 (45%)
Adjustments to GAAP earnings per share (a) $0.15 $0.28 N/A Adjusted earnings per share (b) $1.33 $2.42 (45%)
Domestic utility electric sales from ultimate customers (thousands of MWh) 25,455 25,277 1%
Total domestic utility electric sales (thousands of MWh) 30,457 30,381 Utility gas sold and transported (thousands of dekatherms) 103,038 101,518 1%
Construction and acquisition expenditures (c) $657 $713 (8%)
Total assets at year-end $7,001 $6,238 12%
Common shares outstanding at year-end (inthousands) 92,304 89,682 3%
Dividends declared per common share (d) $2.00 $2.00 -
Market value per share at year-end $16.55 $30.36 (45%)
Book value per share at year-end $19.89 $21.39 (7%)
(a) Details related to adjustments are as follows (in calculating adjusted earnings, positive 2002 2001 numbers are added to GAAP earnings and negative numbers are subtracted from GAAP earnings): Net Income EPS Net Income EPS McLeodUSA asset valuation charge $17 $0.18 $- $_
(excludedas gainsfrom sales ofAfcLeodUSA stock have also been excluded in the past)
Southern Hydro SFAS 133 impact (I1) (0.12) 2 0.02 (non-cash valuation adjustmentexcluded)
Senior notes (PHONES) / McLeodUSA trading securities SFAS 133 valuation charge 3 0.03 21 0.26 (non-cash valuation adjustmentexcluded)
Australian tax adjustments (e) 8 0.09 - -
(a US. tax provision was recorded on Alliant Energys Australianearnings, includingpast unremittedearningc given Aiant Energy no longer intends to reinvest such earnings indefinitely)
Affordable housing tax adjustments (e) I 0.01 (charges related to Alliant Energy no longer being able to state that it is more likely than not to utilizepast net operating lossesfrom this businessforfuture tax benefits)
Discontinuing depreciation, depletion and amortization of assets held for sale (e) (4) (0.04) - -
(under the applicable accounting rules, Alliant Energy discontinued rrcording these expensesfor its oil and gas, affordable housing and Australian businesses effective Dec. 1 2002) $14 $0.15 $23 $0.28 (b)Adjusted net income and carnings per share are non-GAAP measures of accounting and should be evaluated in connection with GAAP information. Alliast Energy believes the presentation of adjusted results provides investors with another measure to consider, in conjunction with the GAAP results, which could provide a meaningful comparison of Alliant Energy's performance by eliminating non-cashlother charges and income that may affect comparability between years and may impact an assessment of Alliant Energy's ongoing performance. The adjustments made to Alliant Energy's GAAP results for 2002 and 2001 all relate to its non-regulated operations (Alliant Energy Resources).
(c)These amounts do not include construction and acquisition expenditures for discontinued operations of $214 million and $105 million for 2002 and 2001, respectively.
(d) Effective with the dividend declared and paid in the first quarter of 2003. Alliant Energy's targeted annual common stock dividend was reduced from $2.00 to $1.00 per share.
(e)Adjustments resulting from Alliant Energy's November 2002 announcemenr stating its intent to sell various assets in 2003. These adjustments do not reflect core operating results of the ongoing businesses.
The financial data should be read in conjunction with the audited financial statements and related notes ofAlliant Energy. The reported financial data are not necessarily indicative of future operafing results or financial position.
ALLIANT ENERGY 2002 ANNUAL REPORT I
&*1 ALLIANT
" ENERGY. A T A G L A N C E r-xnwr 2002 STATISTICS
-Domestic utility operations Maximum peak hour demand 5,729 MW Our regulated domestic utility subsidiaries - Interstate Power and Light Number of electric customers 956,690 Company and Wisconsin Power and Light Company - provide reliable Number of gas custoners 404,976 electric and natural gas service to 1.4 million customers in Total utility electric sales 30,457 Iowa, Wisconsin, Minnesota and Illinois. Using a mix (thousands of MWh j of fossil-fuel, nuclear, wind, hydroelectric and biomass Utility gas sold and transported 103,038 sources, our utilities manufacture and market (thousands ofDth) electric energy S from more than Sources of utility Electric Eli-ctric power 30 generation operating revenues sales mix solarces 25% 27%
facilities across 18% 0% R,i,eni d 57% Prwed In:al the Midwest. Ida
- 2% ,,gasNKS Offrr, Z-18% 1 5~~~5 Carl tor%
C-m-eriW 80% 16%
tire,, 1%
S: fr = 1% Othe, rle Ode,
- Non-regulated businesses e ALLIANT OTHER OPERATIONS*
LJ ENERGY. Integrated Services: Alliant Energy Integrated Alliant Energy Resources, Inc., the parent company of Resources Services Company provides a wide range of Alliant Energy's non-regulated businesses, is focused on energy and environmental services for commer-energy-based investments in key international markets and developing non-regu- cial, industrial and institutional customers.
lated generation in targeted areas of the United States. Alliant Energy Resources Services include energy infrastructure, energy procurement, environmental engineering and also holds interests in additional energy-related and other businesses, but is in the construction management, energy planning, process of exiting certain businesses as we continue to narrow our strategic focus. and gas management.
Investnents: We own the Cedar Rapids and KEY ILATFORMS Iowa City (CRANDIC) Railway Co. and International: We have established partnerships to develop energy generation several other relatively small transportation, and delivery systems in targeted areas. We have energy investments in Brazil, telecommunications and real estate invest-ments. In late 2002, we decided to sell our China and New Zealand. We also have operations in Australia, but are in the oil and gas company (Whiting Petroleum process of exiting this market. Corporation), as well as our affordable housing Non-regulated generation: Alliant Energy Generation, Inc. was formed to businesses (induding Heartland Properties, Inc.).
build or acquire a portfolio of competitive electric generating assets in select areas of the United States. Early in 2003, this subsidiary acquired the Neenah Energy Energy Technologies: This division helps to develop environmentally sotnd energy Facility in Wisconsin. The entire output of the plant (309 MW) is sold to solutions by investing in leading-edge energy Milwaukee-based We Energies under a contract that extends through June 2008. technologies, such as microturbines, fuel cells, solar concepts and wind turbines.
' In 2002, we exited he dectricity-tlading business by selling out interest in Cargill-Alliant, LLC.
In early 2003, we announced our intent to sell ot interest in SnarEnergy, Inc., an Internet-based energy retailer.
p I Support services LLIANT Alliant Energy Corporate Services, Inc. supports the other areas of the company with traditional "EN IERGY, administrative functions, including accounting and finance, fuel procurement, supply chain, public Corrrorate Services relations, information technology, human resources, labor relations, infrastructure security, and environmental and safety management.
2 ALLIANT ENERGY 2002 ANNUAL REPORT CO}
2002 was a difficult and turbulent year. Our domestic utilities delivered slightly improved results It was turbulent for the general economy, in 2002 over 2001, as GAAP net income was $165.8 million
- ;difficult for the energy industry in general compared to $164.9 million in 2001. Higher electric and gas and certainly challenging for Alliant margins were largely offset by the impacts of increased Energy in particular. operating expenses and a higher effective income tax rate.
Our 2002 earnings were significantly I note with great pride that, throughout the turbulent lower than we expected. In fact, they were energy markets of 2002, the operational performance of our
- 8. Das, Jc Errorl flat-out disappointing. Last year, our net utilities remained very strong. Our employees have proven Presidentind income dropped 38% from 2001 levels. To that they are able to stay focused and committed amid CEO repair our balance sheet, we even had to unusual pressure. In fact, our utility customers' satisfaction make the painful decision to reduce our annual targeted levels actually increased in 2002 over their already high levels common stock dividend rate. in 2001.
These are not the results any of us have come to expect However, there was little positive news on the non-from Alliant Energy. regulated side of the business.
Undoubtedly, many events contributed to our poor In stark contrast to Alliant Energy Resources' significant financial performance. The economic decline that began in contributions to earnings in both 2000 and 2001, our non-2001 continued last year and lingers on today. The events of regulated businesses reported a net loss in 2002. On a GAAP Sept. 11 still haunt our national policies, world politics and basis, the net loss was $61.0 million versus net income of the international economy. The energy industry was further $6.1 million in 2001. On an adjusted basis, Alliant Energy hammered by a crisis of confidence, which vas driven by the Resources had a net loss of $46.9 million in 2002, as collapse of Enron and worsened by the meltdown of Arthur opposed to net income of $28.9 million in 2001.
Andersen and scandals in the energy-trading industry. A variety of factors contributed to 2002's disappointing Eventually, utilities faced the most precarious capital and non-regulated results. For example, Whiting Petroleum credit markets I've ever seen. reported weaker earnings due to But while there were problems throughout the industry, reduced oil and gas prices, at Alliant Energy, we also had issues all our own. Our lower volumes and higher investment in Brazil again produced dismal results. Several operating expenses. Oil other key non-regulated businesses also didn't live up to our and gas prices were expectations. And we juggled multiple rate cases in our stronger in the ote with great domestic regulated utility jurisdictions. latter half of 2002, pride that, throughout Obviously, we cannot control everything that affects but not nearly the turbulent energy Alliant Energy's performance. But we are responsible for strong enough to restoring earnings performance to the levels you expect and make up for the markets of 2002, the deserve. Thus, in November, we announced a plan to reduction from operational performance strengthen our financial position. Since that time, we have the record highs been focused on executing that plan. And, as you'll read, we of early 2001. of our utilities remained are making progress. Our investment very strong.
in Brazil has clearly 2002 financial performance been a drag on earnings Alliant Energy reported 2002 net income of$ 106.9 for the last several years.
million and earnings per share of $1.18 under generally While I acknowledge these accepted accounting principles (GAAP), down from $172.4 negative results are unacceptable million and $2.14 per share for 2001. On an adjusted basis, going forward, there are signs of improvement as evidenced our net income was $121.0 million and earnings per share by fourth quarter 2002 results. Although our Brazil utilities were $1.33, wvhich is down from $195.1 million and $2.42 have yet to turn the corner to profitability, we believe they per share in 2001. are headed in the right direction.
ALLIANT ENERGY 2002 ANNUAL REPORT 3
S *' 0 Electricity sales volumes throughout Brazil are starting to obvious that we needed to retain more cash for operations trend upward as drought-driven rationing programs are now and debt service. Maintaining our dividend at its former rate a problem of the past. Additionally, similar to our domestic was simply no longer feasible. And, while you may disagree utility operations, our Brazil utilities have excellent customer with some of the decisions we've made in the past, I'm sure service records and are highly regarded for environmental we all agree that preserving the company's financial health is stewardship. in the best interest of all stakeholders.
Despite improvement late in 2002, we will not make any Another important step in our plan to improve our capital investments in Brazil in 2003, and will re-evaluate financial position is refining our strategic plan. In other our continued commitment to this market if we have not words, we've made a deliberate decision to narrow our seen significant improvement in the financial performance of business focus. Our primary objective remains unchanged:
this business by the end of the year. to continue providing our domestic regulated customers in Although our investment in Brazil clearly didn't meet our the Upper Midwest with the energy they both want and expectations, our investments in China, Australia and New need ... and to do so in the safest, most cost-effective and Zealand did, as they each produced improved results over environmentally sensitive manner possible. We have never 2001 results. In fact, together, they generated $19.1 million wavered from this commitment.
in GAAP earnings and $15.8 million in adjusted earnings in But on the non-regulated side of the business, we are 2002. Unfortunately, these contributions were more than making some visible changes. We're focusing on increasing offset by the losses in Brazil. non-regulated generation capacity in certain regions in the United States and refining our international strategy to Our comprehensive plan energy-based investments in a few select markets.
Rather than continuing to reflect on the difficulties of Toward this end, we are divesting other non-regulated, 2002, I want to focus on the actions we're taking to ensure non-core investments. These businesses include Whiting improved performance in 2003 and beyond. Petroleum; our affordable housing businesses; our Australian As announced last November, we're implementing a investment; and SmartEnergy, our budding mass marketing number of necessary - but difficult - actions in order to business. We are encouraged by the interest potential buyers strengthen our balance sheet and improve our financial have shown in these assets, and plan to complete these position. divestitures by the end of the year.
The most a!gonizing of those As noted in my November letter to you, we also plan to actions swas reducing our issue between $200 and $300 million in additional common I ~~~ani iual common stock equity later this year, subject to market conditions.
dividend to While we're taking some steps to raise capital, we're also shareowners from taking others to conserve it. For example, we reduced our
^ : - l~~~1 Non-reuae $2 to $1 per capital expenditure budgets for 2002 and 2003. Some sizable busin:
\ share. While we expenditures, including utility infrastructure and reliability recognize the investments, are still expected on the domestic regulated side importance most of our business, as we remain steadfast in our commitment shareowners to meet the energy needs of our domestic utility customers.
78%Utilicy place on the However, discretionary expenditures have been minimized or eliminated. Clearly, we must make some investment in our operations income that our dividends provide, it remaining non-regulated operations in order for them to KE A__ to tb)ecame painfully provide long-term earnings growth. However, in recognition of current market conditions and our more focused approach, we will naturally seek to expand our remaining Total assets (as ofDec. 31, 2002; excluding assets ofdiscontinued operations) 4 ALLIANT ENERGY 2002 ANNUAL REPORT Coz-
non-regulated businesses at a much slower pace than originally anticipated.Wihmrtan9%ste We will not, for example, With more than 90% system In 2002, Plantpeddler, a Our utilities developed a borw nif ar ampl availability, our coal-burning Cresco, Iowa-based greenhouse combustion-optimizing program for facilities delivered reliable business, took advantage of cool-burning plants that has been finance future growth. It service and surpassed industry some of our utilities' energy- proven to reduce nitrogen-oxide will come organically by averages in2002.
efficiency programs to keep emissions by between 50% and investing retained earnings. its business growing. 70%. Alliant Energy Resources is We also continue to now marketing the program, which engage in prudent cost we've coined SmartBurn, to other control, emphasizing U.S. companies. (Pictured: Barbara process improvements Robins and Dana Maas) through both our Six Sigma program and the Enterprise Resource Planning system we placed into service last year. leadership and guidance through both the good times and There's no question that cost cutting has been hard on our the challenging times. I offer a special thanks to Mr. Liu for employees, as they've been asked to do more with less. But - his distinguished service as the first Chairman of the Board even in the face of this challenge - our employees have and in his most recent role as Vice Chairman of the Board of continued to exceed our customers' expectations on a daily Alliant Energy.
basis. I am proud of their flexibility and resilience, and also In closing, I want to express the resolve of your in their ability to adapt and thrive in an ever-changing management team to meet the challenges we are facing in market ... in an ever-changing industry. 2003. Although I have been displeased with our short-term performance, I have never been discouraged about Alliant Looking ahead Energy's long-term potential. I've never sold any of my LNT As is the case every year, 2003 will certainly present new shares, nor do I intend to do so in the foreseeable future. I challenges. As I write these words, war in the Middle East firmly believe in Alliant Energy and the outstanding people seems inevitable. On the domestic front, great uncertainty who work here.
remains about the direction of the economy. And, at Alliant As we continue through 2003, we'll go about proving Energy, we have issues of our own. our resiliency, strong character and solid earnings potential While we have made progress in receiving rate relief in our to you - our shareowners - and to the customers and regulated jurisdictions, there is much more work to be done. communities we are privileged to serve.
We are encouraged by the market interest in the businesses On behalf of the entire Board of Directors, I thank you we wish to divest, but still must close the deals. We have for your continued support in these most challenging of made progress in Brazil, but have not yet turned the corner times. 0 to profitability.
Success rarely comes easily. But we know what must be Sincerely, done. WVe are focused on effectively executing our plan and
- ultimately - improving the value of your investment.
On a personal note, I'd like to thank and bid farewell to long-time Board members Lee Liu and Joyce Hanes, Erroll B. Davis, Jr.
who will retire following our 2003 Annual Meeting of Chairman, President and CEO Shareowners. Combined, they have given nearly 70 years March 18, 2003 of service to this company and have provided impeccable ALLIANT ENERGY 2002 ANNUAL REPORT
I I I I Straight talk with Erroll Davis How wouldyot characterize the And we have made progress. We continue to maintain financialcondition ofAlliant Energy? investment-grade credit ratings with both Moody's and S&P, and we successfully obtained credit facilities and Our 2002 earnings were not good, but our overall financings totaling almost $2 billion in the fourth quarter financial condition remains solid.
of 2002, thereby strengthening our liquidity position and I could write volumes on the chain of events that demonstrating our ability to access capital markets even in contributed to the challenges of 2002. But the highlights at the most adverse times.
Alliant Energy included multiple rate cases on the domestic Looking back, 2002 presented an opportunity for us to regulated side of our business and challenges in our Brazil sharpen our approach and build on our strong fundamentals.
investments on the non-regulated side. Additionally, the And we seized that opportunity. Today we are a more entire industry was tested by economic recession, backlash focused company. We're focused on successfully implement-from corporate scandals and the virtual collapse of credit ing our refined strategic plan to improve the value of your markets throughout the utility sector. In 2000, one in 20 investment.
utilities had junk bond status. Today that number is one in five.
In this volatile environment, even the slightest of bad In lastyear'sannual report,yot talked at news can cause market values to fall. And our stock price - lenigth abottyour strategicplant. How would as well as those of many other diversified utilities - dropped you characterizethat plan today?
dramatically during 2002. In 2002, our total return to Our strategic plan originally called for a narrowing of shareowners was a negative 40.3%, while the total focus. The difference today is the pace and scope of that shareowner return from the Standard and Poor's (S&P) refinement have been accelerated. We will continue to be a Utilities Index was a negative 30%. diversified energy company with domestic utility holdings as But we didn't just sit idly by and the foundation of our business. Because our four-state
_ .,,________ wait for things to turn around. utility service territory is generally not considered a high- or In resp(:onse to weak even modest-growth energy market, prudent diversification earn ings performance, simply must continue to be a part of our strategic mix.
,e developed a However, we are in the process of narrowing our non-comprehensive Domestic electric plan to regulated business portfolio to primarily include energy-based investments in targeted international markets and and natural-gas utilities strengthen our competitive generation assets in select regions of the United balance sheet States. With this change, ve're reducing our overall risk are the foundation of and improve profile. We are now seeking to achieve more moderate - but our financial solid and less volatile - growth. Additionally, we continue Alliant Energy and a fundamentals. to be focused on improving cash flow, reducing debt and core business platform The primary strengthening our financial profile. Obviously, we also steps in our plan remain committed to maintaining both operational going forward. include reducing excellence and high levels of customer satisfaction in all of our targeted our businesses.
cor nmon stock divide nd rate, divesting Whiy didyou redtce the dividend?
certain non-core businesses, While our targeted dividend payout ratio had been issuing common equity, reducing significantly above the industry average for a number of our 2002 and 2003 capital expenditure budgets and years, our plan was to maintain that generous dividend and implementing additional cost-control measures.
"grow" into a more typical payout ratio over time.
Obviously, we understood that we could not sustain a 6 ALLIANT ENERGY 2002 ANNUAL REPORT
it' : .
I I-1 _s I-targeted dividend payout ratio of near or even greater than 100% of In 2002, Alliant Energy In September 2002, Alliant Through our Second Nature-earnings. employees continued to deliver Energy participated in an program, utility customers can However, early in 2002, exceptional customer service. emergency responders' drill purchase electricity from renewable we believed that our weak National surveys ranked Alliant in Tomah, Wis., to procice energy sources. A 2003 study by earnings performance was Energy's utilities second in the procedures in the event of a the National Renewable Energy Lab an aberration, and we Midwest and eighth among the natural or man-made disaster. ranked Second Nature the seventh-could continue to be 74 largest utilities in the nation largest renewable energy program patient and wait for in terms of overall customer in the United States.
earnings growth from our satisfaction. (Picturec: Ernest non-regulated businesses. Wite, Customer Service CoordinatorJ The reality is that, in 2000 and 2001, it would have been nearly impossible to maintain our previous dividend payout with utility earnings How long will it be untilyou return to alone. We were able to maintain the dividend, however, the earnings levels of2000 and 2001?
because of the growth of our non-regulated earnings. When these earnings declined in 2002, the market sent clear signals Given the state of the present economy, one thing is to us that it believed we could not sustain our dividend. clear: It will not happen overnight, and we are not yet in In order to maintain solid credit ratings and strengthen a position to make such a prediction. Obviously, issuing our balance sheet, we could no longer afford to take the time new common equity and adopting a more focused to grow into an average targeted dividend payout. We also approach to our strategic plan will play a role in our could not afford for this to be an issue in our 2003 stock performance for 2003. While quarter-to-quarter and offering. Thus, we decided to lower the targeted dividend year-to-year results are important, our focus will continue and retain more cash for debt service and operations. to be on long-term, sustainable growth, resulting in This was a very difficult, but necessary, decision. We increased shareovner value over time.
certainly regret the impact this reduction may have on you.
However, maintaining the financial health of our company is Are you planning to exit the in the best interest of all stakeholders - you, our domestic utility industry?
shareowners, as well as our customers, communities, vendors Absolutely not! Domestic electric and natural-gas and employees. utilities are the foundation of Alliant Energy and a core business platform going forward. Today, we provide Will the dividend be restored to its previous 1.4 million customers in the Upper Midwest with safe, level when earningsreturn to higher levels? reliable and environmentally sound energy. We take that Alliant Energy's Board of Directors reviews the targeted responsibility very seriously.
dividend policy on an ongoing basis and assesses a wide As part of our effort to narrow our strategic focus, range of issues regarding whether or not to change the we do intend, however, to pursue selling our water targeted dividend. While we fully understand how utilities as soon as practicable.
important the dividend is to investors, at this time, we cannot make any commitments about what our dividend will be in the future.
However, we believe our dividend is sustainable at its current targeted annual rate of $1 per common share. And, as our earnings grow in the future, we will again review and consider updating our dividend policy.
ALLIANT ENERGY 2002 ANNUAL REPORT 7
0 0 0' 0 0 How is the company progressingin receiving Areyou eliminatingall ofyour rate reliefacross its regulatedservice territories? non-regulatedbusin7esses?
We are very proud of our utilities' record of operational No. We remain committed to a much narrower scope of excellence. That does, of course, take money. Therefore, our diversified businesses primarily centered around two growth utility subsidiaries have filed requests for rate increases in platforms: energy-based investments in key international both Iowa and Wisconsin to recover these costs and secure a markets and non-regulated generation assets in select regions fair rate of return for shareowners. of the United States. In 2000 and 2001, our non-regulated Our utilities have received fair decisions on interim relief businesses contributed significantly to earnings, which in in Iowa and Wisconsin since our utility rate freezes ended in turn, contributed significantly to our financial success in 2002, and reasonable final decisions on two retail cases in those years.
Wisconsin. We expect to receive a final decision on our That said, we are working to harvest the value of the non-Iowa utility's retail electric and gas cases in the second regulated businesses that are not part of our long-term core quarter. strategy or that are subject to significant earnings volatility.
Our utilities expect to file additional cases in various The timing of these moves is subject to the marketplace, but jurisdictions and continue to promote new policies over the we hope to finalize the sale of Whiting Petroleum, our coming months. While not always popular, it is necessary. affordable housing businesses, our Australian investment and For example, when Interstate Power and Light Company's SmartEnergy by the end of 2003. We are also exploring exits new, and much needed, natural gas-fired plant comes on-line from other non-core investments and subsidiaries.
in Iowa during the summer of 2004, it will immediately begin providing benefits to customers. Under legislation How wouldyou describe your passed in Iowa in 2001, we know in advance what the responsibilitiesas a corporate citizen?
ratemaking principles for the plant will be, which is a Our business starts with the customer. Therefore, significant positive step. Absent this new legislation, it outstanding customer service is our primary objective. That would have been unlikely we could have made this said, we also recognize our responsibility to provide you, our important investment. In short, investments in reliability shareowners, with a fair return on your investment. We also that provide benefits to customers go hand-in-hand with the support community events, economic development process to recover the cost. This will continue to result in programs and environmental stewardship efforts. Through Alliant Energy working to promote policies that encourage the Alliant Energy Foundation, we reach out to customers investment in utility generation infrastructure and also in and communities through innovative and strategic-giving filing rate cases.
programs. Additionally, we provide competitive salaries and In general, our experience in the most recent rate cases benefits, as well as a safe and diverse work environment for shows that regulators are very committed to striking the all of our employees.
appropriate balance betveen providing reasonable rates for But any comments on corporate responsibility would customers and fair returns for investors.
certainly not be complete without noting that all publicly traded companies must recognize that truthfulness and You've been pointinigto problems in Brazil transparency are vital not only to their own credibility and for more than ayear. Why don'tyou simply stability, but also to the effectiveness of their organizations.
sell that investment? And it's not as much about policies and new rules as it is We believe selling our investment in Brazil at this time about people. Ultimately, it is the people within corporations would not produce results that reflect its long-term value. - particularly senior management - who must instill ethical Thus, selling now would not be a prudent or responsible philosophies and practices into the organization's very business decision. Further, as evidenced by stronger culture. In spite of difficult and trying times, at Alliant fourth quarter 2002 results, we have made progress on the Energy, we continue to do just that.
operations side of the business. We also have received significant rate relief at one of our utilities there. In short, while the financial results in Brazil have been disappointing to date, there are many reasons to expect improved financial performance in 2003.
8 ALLIANT ENERGY 2002 ANNUAL REPORT
Filnancil information C 0 N T E N T S 10 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Forward-Looking Statements 10 Strategic Actions 11 Rates and Regulatory Matters 12 Results of Operations 16 Liquidity and Capital Resources 23 Other Matters 29 Report on the Financial Information 29 Independent Auditors' Report 30 Consolidated Financial Statements 30 Consolidated Statements of Income 31 Consolidated Balance Sheets 33 Consolidated Statements of Cash Flows 34 Consolidated Statements of Capitalization 35 Consolidated Statements of Changes in Common Equity 36 Notes to Consolidated Financial Statements 60 Selected Financial and Operating Statistics 62 Definitions ALLIANT ENERGY 2002 ANNUAL REPORT 9
Managements Discussion and Analysis of FinancialCondition and Results of Operations Strategic Actions A listing of abbreviations andacronyms used in In November 2002, Alliant Energy's Board of Directors approved the text and notes of this report is on page 62. five strategic actions designed to maintain a strong credit profile for Alliant Energy, strengthen its balance sheet and position Alliant Energy for improved long-term financial performance.
The five strategic actions, which signaled a shift to less aggressive Forward-Looking Statements growth targets driven primarily by Alliant Energy's utiliry operations, included:
Statements contained in this report that are not of historical fact are forward-looking statements intended to qualify for the 1. A commitment to pursue the sale of, or other exit strategies safe harbors from liability established by the Private Securities for, a number of non-regulated businesses, including Alliant Litigation Reform Act of 1995. Such forward-looking Energy's oil and gas (Whiting), Australian (including Southern statements are subject to risks and uncertainties that could Hydro) and affordable housing businesses. For accounting cause actual results to differ materially from those expressed in, purposes, such businesses have been classified as available for or implied by, such statements. Some, but not all, of the risks sale, and the operating results of these businesses have been and uncertainties include: factors listed in "Other Matters - separately classified and reported as discontinued operations, Other Future Considerations;" weather effects on sales and in the Consolidated Financial Statements. Alliant Energy anticipates strengthening its liquidiry position by up to $800 revenues; economic and political conditions in Alliant Energy's million to $1 billion from reductions in consolidated debt and domestic and international service territories; federal, state and increasing its cash and temporary cash investment balances as international regulatory or governmental actions, including the a result of these transactions. The amount of proceeds ability to obtain adequate and timely rate relief, including ultimately received from these divestitures, and the timing of recovery of operating costs and earning reasonable rates of the completion of the transactions, are subject to a variety of return, and to pay expected levels of dividends; Alliant Energy's factors, including the transaction structures Alliant Energy proposed asset divestitures at expected values and on expected utilizes to exit these businesses. In January 2003, Alliant timelines; unanticipated construction and acquisition Energy also decided to sell SmartEnergy which was classified expenditures; issues related to the supply of purchased as held and used, and its operating results were included in electricity and price thereof including the ability to recover continuing operations, in the Consolidated Financial purchased-power and fuel costs through rates; risks related to Statements. Refer to Note 16 of the "Notes to Consolidated the operations of Alliant Energy's nuclear facilities; costs Financial Statements" for further discussion.
associated with Alliant Energy's environmental remediation
- 2. A reduction in Alliant Energy's targeted annual common stock efforts and with environmental compliance generally; divided from $2.00 per share to $1.00 per share, effective with developments that adversely impact Alliant Energy's ability to the dividend declared and paid in the first quarter of 2003.
implement its strategic plan; improved results from Alliant Energy's Brazil investments and no material adverse changes in 3. Reductions in Alliant Energy's aggregated anticipated 2002 the rates allowed by the Brazilian regulators; improved and 2003 construction and acquisition expenditures by performance by Alliant Energy's other non-regulated businesses approximately $400 million.
as a whole; no material permanent declines in the fair market 4. A plan to raise approximately $200 to $300 million of value of, or expected cash flows from, Alliant Energy's common equity in 2003, dependent on market conditions.
investments; continued access to the capital markets; Alliant Alliant Energy expects to direct the majority of the proceeds Energy's ability to continue cost controls and operational towards additional capital investments in its regulated efficiencies; Alliant Energy's ability to identify and successfully domestic utilities.
complete proposed acquisitions and development projects;
- 5. The implementation of additional cost control measures to be access to technological developments; employee workforce accomplished through Alliant Energy's new Six Sigma factors, including changes in key executives, collective program, the operation of its new enterprise resource planning bargaining agreements or work stoppages; and changes in the system that was placed in service in October 2002 and by a rate of inflation. Alliant Energy assumes no obligation, and heightened focus on operating its domestic utility business in disclaims any duty, to update the forward-looking statements a manner that aligns operating expenses with the revenues in this report. granted in its various rate filings.
Alliant Energy is continuing in its efforts to implement these strategic actions. Refer to "Other Matters - Other Future Considerations - Asset Sales" for discussion of an agreement Alliant Energy recently entered into related to the sale of its Australian business.
10 ALLIANT ENERGY 2002 ANNUAL REPORT
Rates and Regulatory Matters Overview - Alliant Energy has two primary utility subsidiaries, IP&L and WP&L. IP&L was formed as a result of the merger of IPC with and into IESU effective Jan. 1, 2002. WP&L has one utility subsidiary, South Beloit.
As a public utility holding company with significant utility assets, Alliant Energy competes in an ever-changing utility industry.
Electric energy generation, transmission and distribution are in a period of fundamental change resulting from legislative, regulatory, economic and technological changes. These changes impact competition in the electric wholesale and retail markets as customers of electric utilities are being offered alternative suppliers. Such competitive pressures could result in electric utilities losing customers and incurring stranded costs (i.e., assets and other costs rendered unrecoverable as the result of competitive pricing), which would be borne by security holders if the costs cannot be recovered from customers.
Alliant Energy's utility subsidiaries are currently subject to regulation by FERC, and state regulation in Iowa, Wisconsin, Minnesota and Illinois. FERC regulates competition in the electric wholesale power generation market and each state regulates whether to permit retail competition, the terms of such retail competition and the recovery of any portion of stranded costs that are ultimately determined to have resulted from retail competition. Alliant Energy cannot predict the timing of a restructured electric industry or the impact on its financial condition or results of operations but does believe it is well-positioned to compete in a deregulated competitive market. Although Alliant Energy ultimately believes that the electric industry will be deregulated, the pace of deregulation in its primary retail electric service territories has been delayed due to more recent developments in the industry.
Certain Recent Developments - In July 2002, FERC issued a notice of proposed rules intended to standardize the wholesale electric market, which has generated significant industry discussion. Although Alliant Energy believes that standardization of the wholesale electric market is appropriate and would benefit market participants, there may be significant changes to the proposed rules before they are adopted. Therefore, Alliant Energy cannot determine the impact the final rules will have on its results of operations or financial condition.
Alliant Energy's merger-related price freezes expired in April 2002 in all of its primary domestic utility jurisdictions and it is currently addressing the recovery of its utility cost increases through numerous rate filings. WP&L has received final orders in two of its rate cases and IP&L and WP&L currently have four other rate cases pending. Details of these rate cases are as follows (dollars in millions):
InteFim Interim Final Final Expected Final Utility Filing Increase Increase Effective Increase Effective Effective Case Type Date Requested Granted (1) Date Granted Date Date Notes WP&L:
2002 retail E/G/N Aug.2001 $104 $49 April 2002 $82 Sept. 2002 N/A (21 2003 retail E/G/W May 2002 101 TBD TBD TBD TBD April 2003 2004 retail E/G/W March 2003 65 TBD TBD TBD TBD Jan. 2004 Wholesale E Feb. 2002 6 6 April 2002 3 Jan. 2003 N/A 13)
IP&L retail E March 2002 82 15 July 2002 TBD TBD June 2003 (41 IP&L retail G July 2002 20 17 Oct. 2002 TBD TBD July 2003 Total $378 $87 $85 (1) Interim rate relief is implemented, subject to refund, pending determination of final rates.
(2) In its September 2002 final order, the PSCW increased the authorized return on common equity from 11.7% to 12.3%.
(3) In the fourth quarter of 2002, WP&L reached a settlement agreement with certain wholesale customers for an annual increase of
$3 million and a refund of amounts previously collected in excess of the settlement. The settlement agreement was approved by FERC in January 2003. At Dec. 31, 2002, WP&L had reserved all amounts related to the anticipated refund.
(4) In accordance with the interim rate relief rules in lowa, IP&L only requested interim rate relief of $22 million.
ALLIANT ENERGY 2002 ANNUAL REPORT 11
Management's Discussion and Analysis of FinancialCondition and Results of Operations (contiiied)
A significant portion of the rate increases included in the Results of Operations previous table reflect the recovery of anticipated increased costs Unless otherwise noted, all "per share" references in the Results incurred by IP&L and WP&L, or costs they expect to incur, of Operations section refer to earnings per diluted share. Refer thus the increase in revenues related to these cost increases to Note I (a) of the "Notes to Consolidated Financial would not result in a corresponding increase in income. IP&L, Statements" for discussion of the various components of Alliant WP&L and South Beloit are currently in the process of Energy's business.
determining what other rate case filings may be necessary in 2003. Overview - Alliant Energy's EPS for 2002, 2001 and 2000 were as follows:
WP&L's retail electric rates are based on annual forecasted fuel and purchased-power costs. Under PSCW rules, WP&L can 2002 2001 2000 seek emergency rate increases if the annual costs are more than 3% higher than the estimated costs used to establish rates. For Income from continuing operations S0.84 $1.57 $4.18 2001 and 2002, any collections in excess of costs incurred must Income from discontinued operations 0.34 0.73 0.64 be refunded, with interest. Accordingly, WP&L has established Cumulative effect of changes in a reserve due to overcollection of past fuel and purchased- accounting principle - (0.16) 0.21 power costs and expects to refund such amount in 2003. The Net income $1.18 $2.14 $5.03 final ruling from the PSCW could result in an increase or decrease to the reserve that has been recorded.
Income from continuing operations in 2002 and 2001 The PSCW has issued new rules relating to the collection of included $0.46 per share and $0.26 per share, respectively, of fuel and purchased-pover costs by Wisconsin utilities, valuation charges incurred in its non-regulated businesses.
including WP&L. The new rules and related procedures are Income from continuing operations in 2000 included $2.37 intended, among other things, to significantly reduce per share of non-cash income related to Alliant Energy's regulatory lag for the utilities and customers related to the adoption of SFAS 133, Accounting for Derivative Instruments timing of the recovery of increased or decreased fuel and and Hedging Activities." In addition to the higher valuation purchased-power costs. Purchased-power capacity costs will charges, the lower 2002 income from continuing operations now be included in base rates. A process will also exist was primarily the result of lower earnings from Alliant Energy's whereby the utilities can seek deferral treatment of capacity, non-regulated businesses. This was primarily due to a net loss transmission and emergency costs between base rate cases. The of $47 million from Alliant Energys Brazil investments in new rules are expected to be implemented for WP&L with its 2002, compared to a net loss of $24 million in 2001, lower pending 2003 retail rate case. earnings from Alliant Energy's Mass Marketing business and higher interest expense. Improved results from Alliant Energy's In 2002, IP&L filed with the IRS for a change in method of China and New Zealand businesses partially offset the lower accounting for tax purposes for 1987 through 2001 that would non-regulated results. Income from Alliant Energy's domestic allow a current deduction related to mixed service costs. Such utility business increased slightly in 2002 as higher electric and costs had previously been capitalized and depreciated for tax gas margins were largely offset by increased operating expenses purposes over the appropriate tax lives. This change would and a higher effective income tax rate.
create a significant current tax benefit which has not been reflected in Alliant Energy's results of operations pending a decision from the IUB on the required rate making treatment of the benefit. There would be no material negative impact on Alliant Energy's results of operations or financial position should the IUB and/or IRS reject IP&L's proposal.
12 ALLIANT ENERGY 2002 ANNUAL REPORT
Domestic Electric Utility Margins - Electric margins and MWh sales for Alliant Energy were as follows (in thousands):
Revenues and Costs MWhs Sold 2002 2001 2000 2002 2001
- 2000 Residential $626,947 $599,074 5% $567,283 6% 7,616 7,344 4% 7,161 3%
Commercial 376,365 373.145 1% 349,019 7% 5,542 5,464 1% 5,364 2%
Industrial 526,804 543,471 (3%) 501,155 8% 12,297 12,469 (1%) 13,092 (5%)
Total from ultimate customers 1,530,116 1,515,690 1% 1,417,457 7% 25,455 25,277 1% 25,617 (1%)
Sales for resale 160,335 184,507 (13%) 173,148 7% 4,805 4,936 (3%) 4,906 1%
Other 62,083 56,359 10% 57,431 12%) 197 168 17% 174 (3%)
Total revenues/sales 1,752,534 1,756,556 - 1,648,036 7% 30,457 30,381 - 30,697 (1%)
Electric production fuels expense 286,474 292,002 (2%) 271,073 8%
Purchased-power expense 36Z501 403,166 (10%) 294,818 37%
Margin $1,103,559 $1,061,388 4% $1,082,145 (2%)
- Reflects the percent change from 2001 to 2002. **Reflects the percent change from 2000 to 2001.
To comply with FERC regulatory requirements governing transmission systems, WP&L transferred its transmission assets to ATC on Jan. 1, 2001, in exchange for cash and an equity ownership in ATC. The wheeling expenses from ATC included in electric margin in 2002 and 2001 were offset by equity income (WP&L accounts for its investment in ATC under the equity method), reduced other operation and maintenance expenses and lower depreciation expense, resulting in no significant net income impact due to the formation of ATC. On a comparable basis, electric margin increased $42.2 million, or 4%, and $9.6 million, or 1%, for 2002 and 2001, respectively. The 2002 increase was primarily due to the impact of rate increases implemented in 2002, more favorable weather conditions, lower purchased-power and fuel costs and continued modest retail customer growth. These increases were partially offset by reduced energy conservation revenues (which were largely offset by lower energy conservation expense) and the impact of a sluggish economy. The 2001 increase was primarily due to lower purchased-power and fuel costs impacting margin, increased residential and commercial sales due to more favorable weather conditions in 2001 compared to 2000 and continued retail customer growth. These items were partially offset by $10 million of income recorded in 2000 for a change in estimate of WP&Ls utility services rendered but unbilled at month-end due to the implementation of a refined estimation process and lower industrial sales, largely due to impacts of a slowing economy.
Gas Utility Margins - Gas margins and Dth sales for Alliant Energy were as follows (in thousands):
Revenues and Costs Dths Sold 2002 2001 2000 2002 2001 2000 Residential $218,746 $270,248 119%) $245,697 10% 30,931 29,580 5% 32,026 18%)
Commercial 111,343 141,121 (21%) 127,104 11% 19,348 18,055 7% 19,696 (8%)
Industrial 25,177 31,262 (19%) 27,752 13% 5,373 5,344 1% 5,350 -
Transportation/other 38,720 45,246 (14%) 14,395 214% 47,386 48,539 (2%) 43.931 10%
Total revenues/sales 393,986 487,877 (19%) 414,948 18% 103,038 101,518 1% 101,003 1%
Cost of utility gas sold 248,994 360,911 (31%) 278,734 29%
Margin $144,992 $126,966 14% $136,214 (7%)
- Reflects the percent change from 2001 to 2002. ** Reflects the percent change from 2000 to 2001.
Gas revenues and cost of utility gas sold were unusually high in 2001 due to increased natural gas prices in the first half of 2001.
Due to Alliant Energy's rate recovery mechanisms for gas costs, these price differences alone had little impact on gas margin. Gas margin increased $18.0 million, or 14%, and decreased $9.2 million, or 7%, for 2002 and 2001, respectively. The 2002 increase was largely due to the impact of several rate increases implemented in 2002, improved results from WP&Is performance-based commodity cost recovery program (which are shared by ratepayers and shareowners), continued modest retail customer growth and the negative impact high gas prices in early 2001 had on gas consumption during that period. These increases were partially offset by reduced energy conservation revenues (which were largely offset by lower energy conservation expenses). The 2001 decrease was ALLIANT ENERGY 2002 ANNUAL REPORT 13
Managements Discussion andAnalysis of FinancialCondition and Results of Operations(cotizued) largely due to lower retail sales primarily related to the Other Operating Expenses - Other operation and unusually high gas prices in early 2001 as some customers maintenance expenses were as follows (in millions):
either chose alternative fuel sources or used less natural gas, the impact of the slowing economy and losses associated with 2002 2001 2000 performance-based commodity costs at WP&L. Alliant Energy Utility S555 $509 $497 realized pre-tax income of $0, $4 million and $2 million from Integrated Services 242 229 158 weather hedges it had in place in 2002, 2001 and 2000, International 83 69 4 respectively, which is recorded in "Miscellaneous, net" in the Mass Marketing 57 8 2 Consolidated Statements of Income. Investments 15 16 18 Other includes eliminationsl 5 131 8 Refer to Note (j) of the "Notes to Consolidated Financial S957 $828 $687 Statements" for information relating to utility fuel and natural gas cost recovery. Refer to Note 2 of the "Notes to Consolidated Financial Statements" and "Rates and Regulatory The 2002 utility increase was primarily due to increased fossil Matters" for discussion of various rate filings. and nuclear generation, employee benefit and energy delivery expenses, partially offset by lower energy conservation expenses Non-regulated and Other Revenues - Details regarding and decreased uncollectible customer account balances. Alliant Alliant Energy's non-regulated and other revenues are as follows Energy is addressing these cost increases in various utility rate (in millions):
proceedings that are currently pending. The 2001 utility increase was primarily due to higher transmission wheeling and 2002 2001 2000 other costs in Alliant Energy's energy delivery business unit, Integrated Services S259 $242 $172 increased nuclear operating costs (partially due to a planned International 103 85 refueling outage at Kewaunee in 2001), higher uncollectible Mass Marketing 47 7 1 customer account balances largely due to the unusually high gas prices earlier in the year and higher costs in the generation Investments 26 27 29 business unit. These increases were partially offset by the Other includes eliminations) 27 19 15 impact of the formation of ATC earlier in 2001, as discussed in
$462 $380 $217 "Domestic Electric Utility Margins."
The Integrated Services, International and Mass Marketing The 2002 Integrated Services increase was primarily due to variances were largely driven by the same factors impacting the higher natural gas sales, partially offset by decreased gas prices revenue variances discussed previously. The Mass Marketing and lower energy services revenues. The increased 2002 increase was also impacted by increases in the provisions International revenues for 2002 were primarily due to the 2001 for uncollectible accounts at SmartEnergy in 2002. Charges of acquisitions of additional combined heat and power facilities in $5 million and $2 million are included in "Other" in 2002 and China. Mass Marketing revenues for 2002 increased due to 2001, respectively, for cancelled generation projects in Alliant the fourth quarter 2001 acquisition of a controlling interest in Energy's Non-regulated Generation business unit. The 2001 SmartEnergy, an energy services company operating in Integrated Services increase was partially offset by a one-time competitive energy markets. The 2001 Integrated Services charge of $4 million related to a loss on a contract in 2000.
increase was primarily due to acquisitions in the third and fourth quarters of 2000 of various energy services businesses.
The 2001 International increase resulted from the December 2000 change from the equity method of accounting to the consolidation method for an investment in China and the addition of five combined heat and power facilities to Alliant Energy's China portfolio during the fifteen months prior to Dec. 31, 2001.
14 ALLIANT ENERGY 2002 ANNUAL REPORT
Depreciation and amortization expense increased $8.0 million Equity income (loss) from Alliant Energy's unconsolidated and $5.9 million in 2002 and 2001, respectively. Contributing investments was as follows (in millions):
to both increases were utility property additions, acquisitions at the non-regulated businesses and increased regulatory and 2002 2001 2000 softvare amortizations. Increased earnings on the WP&L ATC (began operations 1/01) $14 $15 $-
nuclear decommissioning trust fund also contributed to the New Zealand 4 _ 3 2002 increase. The 2002 increase was partially offset by lower expenses due to: a decrease of $14 million from China* 2 2 1 implementation of lower depreciation rates at IP&L on Jan. 1, Cargill-Alliant (sold in 2002) 1 7 15 2002, resulting from an updated depreciation study; lower Synfuel (began operations 5/02) (13) - -
decommissioning expense based on reduced retail funding Brazil (23) (41 3 levels at WP&L; and the elimination of $5 million of goodwill amortization expense in compliance with new accounting rules Other 2 (11 (3) effective in 2002. The 2001 increase was partially offset by the (S13) $19 $19 impact of the formation of ATC in 2001, as discussed in
- Majority of investments are accounted for under the consolidation
'Domestic Electric Utility Margins," and lower earnings on the method.
WP&L nuclear decommissioning trust fund. The accounting for earnings on the nuclear decommissioning trust fund results in no net income impact. Miscellaneous, net income increases Equity income from unconsolidated investments decreased $32 for earnings on the trust fund and the corresponding offset is million in 2002. The differences in income from New Zealand recorded through depreciation expense at WP&L. during the three years were largely due to the 2001 results being depressed because of drought conditions. The lower Taxes other than income taxes increased $2.1 million and earnings in 2002 and 2001 at Cargill-Alliant were impacted by
$4.4 million in 2002 and 2001, respectively, primarily due to fewer weather-related trading opportunities and less volatile increased property taxes in 2002 and increased gross receipts market prices. Refer to "Liquidity and Capital Resources -
and payroll taxes in 2001. Sales of Non-strategic Assets" for discussion relating to Alliant Energys sale of this investment in 2002. In the second quarter Interest Expense and Other - Interest expense increased $0.9 of 2002, Synfuel, a direct subsidiary of Resources, purchased million and $17.5 million in 2002 and 2001, respectively.
an equity interest in a synthetic fuel processing facility. The Both increases were impacted by higher non-regulated synthetic fuel project generates operating losses at its fuel borrowings, partially offset by the impact of lower interest rates processing facility, which are more than offset by tax credits on Alliant Energy's variable rate borrowings. The 2002 and the tax benefit of the losses the project generates. All tax increase was also partially offset by lower short-term debt benefits are included in "Income taxes" in the Consolidated borrowings at the Alliant Energy parent level, largely due to the Statements of Income. The lower 2002 results from the Brazil impact of proceeds received in November 2001 from a investments were largely due to losses incurred by Alliant common equity offering.
Energy's investment in a gas-fired generating plant, charges Alliant Energy recorded income tax and associated interest incurred in 2002 related to the recovery of the impacts of income of $0.13 per share in 2001 related to a ruling in a tax rationing and other prior costs and higher interest expense.
refund case. The federal government decided in the fourth The loss from the generating plant was due to the impact of a quarter of 2001 not to pursue the ruling in favor of Alliant significant decline in the currency rates associated with the Energy by the U.S. Court of Appeals for the 8th Circuit debt issued to finance the plant and a depressed wholesale dealing with capital losses disallowed under audit by the IRS energy market in 2002. Increased electric sales volumes in and certain related deductions. An additional potential refund 2002 compared to 2001, largely due to the impacts of the of approximately $14 million, plus interest, remains a drought-driven rationing program that was in place for contested issue in this case. Alliant Energy cannot offer any approximately seven months in 2001 compared to only two assurance it will be successful in obtaining this additional months in 2002, partially offset the lower Brazil earnings. The refund and has not recognized any income for the potential 2001 Brazil results included a charge related to the impacts of a additional refund. settlement reached between the Brazilian government and the distribution companies on the economic resolution of various cost recovery issues.
ALLIANT ENERGY 2002 ANNUAL REPORT 15
Managements Discussion andAnalysis of FinancialCondition and Results of Operations(contintued)
Refer to Note 9 of the 'Notes to Consolidated Financial Income Taxes -The effective income tax rates for Alliant Statements" for discussion of the asset valuation charges Energy's continuing operations were 30.5%, 27.6% and 40.1%
recorded by Alliant Energy in 2002 related to its McLeod in 2002, 2001 and 2000, respectively. Refer to Note 5 of the available-for-sale securities. "Notes to Consolidated Financial Statements" for additional information.
On July 1, 2000, Alliant Energy adopted SFAS 133 for its consolidated entities. Related to the adoption, Alliant Energy Income from Discontinued Operations - The 2002 decrease recorded a $321.3 million pre-tax gain from the designation of of $28 million in income from discontinued operations was a portion of Alliant Energy's McLeod holdings as trading largely due to lower earnings from Alliant Energy's oil and gas securities. This gain related to the unrealized appreciation in (Whiting) business due to lower prices, higher operating value of approximately 27% of Alliant Energy's McLeod expenses and lower gains from dispositions of oil and gas holdings that were designated as trading as of the adoption properties in 2002 compared to 2001. Tax adjustments date. recorded in 2002 related to Alliant Energy's decision to sell its Australian (Southern Hydro) and affordable housing businesses Miscellaneous, net income decreased $12.7 million and $26.7 also contributed to the lower income. The 2002 decrease was million in 2002 and 2001, respectively. The 2002 decrease was partially offset by higher oil and gas sales volumes at NVhiting due to the recording of pre-tax asset valuation charges of $10 and higher earnings from Southern Hydro due to increased million and $9 million related to Alliant Energy's Energy generation and sales of renewable energy credits earned Technologies and Enermetrix, Inc. investments, respectively, through the generation of hydropower. The 2001 increase in lower interest income (the 2001 results included $10 million income was largely due to non-cash SFAS 133 income in 2001 from tax settlements), a pre-tax goodwill impairment charge of related to the valuation of electricity derivatives at Southern
$7 million at SmartEnergy and gains from asset sales realized in Hydro and higher earnings from Whiting which resulted from 2001. These decreases were partially offset by lower pre-tax, higher gas prices earlier in 2001, increased oil and gas sales non-cash SFAS 133 valuation charges of $29 million, related to volumes and income from a reduction in the estimated the net change in the value of the McLeod trading securities dismantlement cost of an offshore oil and gas platform. The and the derivative component of Resources' exchangeable 2001 increase was partially offset by approximately $16 million senior notes, and increased earnings on WP&L's nuclear of income from gains on the sale of 1.3 million shares of decommissioning trust fund. The 2001 decrease was largely McLeod in 2000 by Alliant Energy's affordable housing due to higher pre-tax, non-cash SFAS 133 valuation charges of business. Refer to Note 16 of the "Notes to Consolidated
$33 million related to the net change in the value of the Financial Statements" for further discussion of Alliant Energy's McLeod trading securities and the derivative component of discontinued operations.
Resources' exchangeable senior notes, reduced nuclear decommissioning trust find earnings and lower gains from asset sales. These decreases were partially offset by higher Liquidity and Capital Resources interest income, including the $10 million from tax settlements Overview - Alliant Energy's recent and proposed financing in 2001. Alliant Energy realized $0, $4 million and $2 million activities have been and will be undertaken against a backdrop of income from weather hedges in 2002, 2001 and 2000, of increased market concerns about general economic respectively. conditions and corporate governance issues as well as risks associated with particular sectors of the economy, including the Refer to Note 10(a) of the Notes to Consolidated Financial energy industry. As a result of these factors, capital markets Statements" for additional information related to the have become more restrictive. The commercial paper market, exchangeable senior notes embedded derivative, the McLeod for example, has become more limited for many companies in trading securities and the cumulative effect of changes in terms of the amounts of available capital and the corresponding accounting principle. maturities. Medium- and long-term debt markets have become sensitive to increased credit ratings volatility and to a 16 ALLIANT ENERGY 2002 ANNUAL REPORT
heightened perception of liquidity risk in the energy sector. Cash Flows - Selected information from the Consolidated As a result, investors have become more selective and have Statements of Cash Flows was as follows (in thousands):
differentiated among otherwise comparable issuers in a way that has made the financing process more challenging. In Cash flows from (used for): 2002 2001 2000 response to these changing market conditions, Alliant Energy is Operating activities $544,040 $426,111 $393,090 working closely with its financial advisors and others to access Financing activities 84,090 170,525 513,063 the capital it needs to operate its businesses. Based on its strong cash flows coupled with actions Alliant Energy expects Investing activities (632,658) (656,262) (869,253) to take to strengthen its balance sheet, Alliant Energy currently believes it will be able to secure the capital it requires to In 2002, Alliant Energy's cash flows from operating activities implement its refined strategic plan. Alliant Energy believes its increased primarily due to changes in working capital; cash ability to secure additional capital will be significantly flows from financing activities decreased primarily due to enhanced by the completion of the actions addressed in proceeds from the issuance of common stock in 2001, partially "Strategic Actions," including the divestiture of selected offset by a net increase in the amount of preferred stock businesses.
outstanding at IP&L; and cash flows used for investing Alliant Energy's capital requirements are primarily attributable activities decreased primarily due to lower construction and to its utility subsidiaries' construction and acquisition acquisition expenditures partially offset by proceeds received in programs, Resources' acquisition and investment opportunities 2001 from the transfer of WP&L's transmission assets to ATC.
and its debt maturities. Alliant Energy's utility subsidiaries In 2001, Alliant Energy's cash flows from financing activities anticipate financing their construction expenditures, including decreased primarily due to net changes in amount of debt new electric generation facilities, during 2003-2005 through issued and retired, partially offset by proceeds from the internally generated funds supplemented, when necessary, by issuance of common stock in 2001; and cash flows used for outside financing. Funding for Resources' acquisition and investing activities decreased primarily due to lower non-investment expenditures over that same period of time is regulated investments.
expected to be accomplished with a combination of external Common Equity - In November 2002, Alliant Energy financings, sales of assets and internally generated funds.
announced its intentions to raise approximately $200 million In 2001, Alliant Energy and Resources received SEC approval to $300 million of common equity in 2003, dependent on for their ongoing program of external financing, credit support market conditions. The proceeds are expected to be used to arrangements and other related proposals for the period fund the Power Iowa initiative and other regulated domestic through Dec. 31, 2004. Among other things, the approval utility needs. The PSCW has indicated it will require an authorized Alliant Energy directly or through financing additional equity infusion by Alliant Energy into WP&L subsidiaries to issue common and preferred stock, unsecured during 2003. Alliant Energy anticipates the final PSCW order, long-term debt securities and other equity-linked securities up which is expected to be issued in the second quarter of 2003, to an amount of $1.5 billion; to provide guarantees and credit will also include a customer refund provision if the timing support for obligations of its subsidiaries up to an amount of and/or amount of the equity infusion differs from the
$3 billion; to enter into hedging transactions to manage assumptions included in the WP&L rate case.
interest rate costs and risk exposure; and to increase its Preferred Stock - In September 2002, IP&L redeemed all of aggregate investment limit in Exempt Wholesale Generators its then outstanding shares of preferred stock at an aggregate and Foreign Utility Companies to 100% of consolidated redemption price of $58.3 million. In December 2002, IP&L retained earnings. The approval, among other things, also issued six million shares of preferred stock at $25.00 per share authorized Resources to provide guarantees and credit support in a private placement. IP&L used the net proceeds of for obligations of non-utility subsidiaries up to an amount of approximately $145 million to repay its short-term debt and
$600 million outstanding at any one time and to spend up to for general corporate purposes, including to fund capital
$800 million to construct or acquire energy assets that are expenditures and to repay other debt.
incidental to the energy marketing and oil and gas productions of its subsidiaries. Alliant Energy's ability to undertake any such financings contemplated by the SEC's order is dependent on its ability to access the capital markets as described above.
ALLIANT ENERGY 2002 ANNUAL REPORT 17
Managements Discussion andAnalysis of FinancialCondition and Results of Operations(continued)
Debt - In June 2002, Alliant Energy received approval (through Dec. 31, 2004) from the SEC to issue and sell up to an aggregate amount of $1 billion of short-term debt outstanding at any one time and to guarantee borrowings by Resources in an aggregate amount that would not exceed $700 million at any one time in addition to its other guarantee authority. In addition, IP&L received SEC approval to issue short-term debt in a principal amount which would not at any one time exceed $300 million. Alliant Energy discontinued the use of its utility money pool in 2002 and WP&L and IP&L are now meeting any short-term borrowing needs by issuing commercial paper and borrowing on bank lines of credit, respectively.
Alliant Energy and its subsidiaries are party to various credit facilities and other borroving arrangements, some of which are summarized below. In addition to the specific covenants detailed below under the 364-day revolving credit agreements, Alliant Energy's facilities and borrowing arrangements contain various customary terms and conditions, including required capitalization, net worth and interest coverage requirements, maintenance requirements related to bonded property and cross-default provisions. At Dec. 31, 2002, Alliant Energy and its subsidiaries were in compliance with the financial ratios and covenant requirements under their respective credit facilities and borrowing arrangements. The aggregate borrowing capacity under short-term credit agreements of Alliant Energy and its subsidiaries at Dec. 31, 2002 was $845 million. At Dec. 31, 2002, the total amount borrowed under these facilities was $281 million leaving unused capacity of $564 million. In addition, Resources had a $250 million standby credit facility at Dec. 31, 2002 as discussed below. There are no borrowings currently outstanding under such facility. Alliant Energy also had
$28 million of short-term borrowings outstanding at Dec. 31, 2002 related to various generation projects in China.
In October 2002, Alliant Energy completed the syndication of three 364-day revolving credit facilities totaling $915 million, available for direct borrowing or to support commercial paper, which replaced the former facilities that totaled $900 million in borrowing availability. The three facilities consist of a $565 million facility for Alliant Energy (at the parent company level), which was reduced to $450 million at the end of 2002, a $200 million facility for IP&L and a $150 million facility for WP&L. Availability under the Alliant Energy credit facility will be further reduced by the proceeds of asset sales in excess of 5% of Alliant Energy's consolidated assets in any 12-month period commencing October 2002 and up to $50 million from the proceeds of an issuance of equity securities in excess of $300 million. These new credit facility agreements contain various covenants, including the following:
Covenant Description Covenant Requirement Status at Dec. 31, 2002 Alliant Energy:
Consolidated debt-to-capital ratio* Less than 55% 59.6%
Consolidated net worth* At least $1.4 billion $1.8 billion E8ITDA interest coverage ratio At least 2.5x 3.6x IP&L debt-to-capital ratio Less than 58% 47.9%
WP&L debt-to-capital ratio Less than 58% 40.7%
- In compliance with the agreements, results of discontinued operations have been included inthe covenant calculations.
The debt component of the capital ratios includes long- and short-term debt (excluding trade payables), capital lease obligations, letters of credit and guarantees of the foregoing and unfunded vested benefits under pension plans. The equity component excludes accumulated other comprehensive income (loss). Alliant Energy is also subject to a PUHCA requirement whereby Alliant Energy's common equity balance must be at least 30% of its total consolidated capitalization, including short-term debt. Alliant Energy's common equity ratio as of Dec. 31, 2002, as computed under such requirement, was 35.8%.
In December 2002, Resources secured a 364-day $250 million standby credit facility. Designed as a bridge to enhance Alliant Energy's short-term liquidity position until it receives the expected proceeds from the assets it plans to sell in 2003, the availability under the facility is reduced by amounts realized on such asset sales. At Dec. 31, 2002, there were no borrowings outstanding under this credit facility. Also in December 2002, Whiting finalized a secured revolving $200 million credit facility which will mature in December 2005. At Dec. 31, 2002, Whiting had $185 million of borrowings outstanding under this facility at an interest rate of 3.63%, which was included in "Long-term debt" on the Consolidated Balance Sheet.
18 ALLIANT ENERGY 2002 ANNUAL REPORT
Information regarding commercial paper and bank facility borrowings at Dec. 31, 2002 was as follows (dollars in millions):
Alliant Energy (Parent) WP&L Commercial paper outstanding $135.5 $60.0 Weighted average maturity of commercial paper 2days 34 days Discount rates on commercial paper 1.95% 1.6%
Bank facility borrowings $85.0 Interest rates on bank facility borrowings 2.3-2.4%
As a result of the Moody's Investors Service (Moody's) Refer to "Construction and Acquisition Expenditures" for downgrade of Alliant Energy's commercial paper in January information regarding a credit facility Resources entered into in 2003 to P-3, Alliant Energy's ability to issue commercial paper February 2003 relating to the purchase of a non-regulated at the parent company level has been reduced, requiring greater power plant. Refer to Note 8 of the "Notes to Consolidated reliance on bank lines. In addition to funding working capital Financial Statements" for additional information on short- and needs, the availability of short-term financing provides the long-term debt.
companies flexibility in the issuance of long-term securities.
The level of short-term borrowing fluctuates based on seasonal Credit Ratings and Balance Sheet - Access to the long- and corporate needs, the timing of long-term financing and capital short-term capital and credit markets, and costs of external market conditions. At Dec. 31, 2002, IP&L and WP&L were financing, are dependent on creditworthiness. Alliant Energy authorized by the applicable federal or state regulatory agencies is committed to taking the necessary steps required to maintain to issue short-term debt of $180 million and $240 million, strong credit ratings and to strengthen its balance sheet. Refer respectively. The $240 million borrowing authority for WP&L to Strategic Actions" for a discussion of specific actions being includes $85 million for general corporate purposes, an taken in this regard. Although Alliant Energy believes such additional $100 million should WP&L no longer sell its utility actions will enable it to strengthen its balance sheet and receivables and an additional $55 million should WP&L need maintain strong credit ratings, no assurance can be given that it to repurchase its variable rate demand bonds. will be able to maintain its existing credit ratings. If Alliant Energy's credit ratings are downgraded in the future, then In December 2002, Resources issued $300 million of 9.75% Alliant Energy's borrowing costs may increase and its access to senior notes due 2013 in a private placement. The notes are capital markets may be limited. If access to capital markets unconditionally guaranteed by Alliant Energy. Resources used becomes significantly constrained, then Alliant Energy's results the proceeds to repay short-term debt. of operations and financial condition could be materially adversely affected.
At Dec. 31, 2002, Alliant Energy had $783 million of long-term debt that will mature prior to Dec. 31, 2007, which represents maturities of $47 million in 2003, $106 million in 2004, $337 million in 2005, $68 million in 2006 and $225 million in 2007. Depending upon market conditions, it is currently anticipated that a majority of the maturing debt will be refinanced with the issuance of long-term securities.
ALLIANT ENERGY 2002 ANNUAL REPORT 19
Managements Discussion andAnalysis of FinancialCondition and Results of Operations(conitinied)
In December 2002 and January 2003, Standard & Poor's and Moody's, respectively, issued revised credit ratings as follows (long-term debt ratings only apply to senior debt):
Standard & Poor's Moody's IP&L Secured long-term debt A- A3 Unsecured long-term debt BBB Baal Commercial paper A-2 P-2 Corporate BBB+ Baal WP&L Secured long-term debt A Al Unsecured long-term debt BBB+ A2 Commercial paper A-2 P-1 Corporate A- A2 Resources (a) Unsecured long-term debt BBB Baa3 Commercial paper A-2 P-3 Corporate BBB+ Baa3 Alliant Energy Unsecured long-term debt BBB Not rated Commercial paper A-2 P-3 Corporate BBB+ Not rated All Entities Outlook Negative Stable (a) Resources' debt is fully and unconditionally guaranteed by Alliant Energy.
Ratings Triggers - The long-term debt of Alliant Energy and involve the use of unconsolidated structured finance or variable its subsidiaries is not subject to any repayment requirements as interest entities. Alliant Energy has guarantees outstanding a result of credit rating downgrades or so-called "ratings related to the residual value of these synthetic leases. Alliant triggers." However, certain lease agreements do contain such Energy does not currently anticipate entering into any ratings triggers. The threshold for these triggers varies among additional synthetic leases. Alliant Energy also uses variable the applicable leases. If the payments were accelerated under interest entities for its utility sale of accounts receivable all the affected leases it would result in accelerated payments of program whereby IP&L and WP&L use proceeds from the sale approximately $45 million. In addition, the amount of of the accounts receivable and unbilled revenues to maintain proceeds available to IP&L and WP&L from their sale of flexibility in their capital structures, take advantage of favorable utility customer accounts receivable programs could be reduced short-term interest rates and finance a portion of their long-in the aggregate by approximately $20 million in the event of term cash needs. The sale of accounts receivables generates a certain credit rating downgrades at the Alliant Energy parent significant amount of short-term financing for IP&L and company level. Alliant Energy and its subsidiaries are also WP&L. If this financing alternative were not available, IP&L parties to various agreements, including purchased-power and WP&L anticipate they would have enough short-term agreements, fuel contracts and corporate guarantees that may borrowing capacity to compensate. Refer to "Ratings Triggers" be deemed to be in default in the event of certain credit rating for the impact of credit rating downgrades on Alliant Energy downgrades. In the event of such a default, Alliant Energy or and its subsidiaries related to these synthetic leases and its subsidiaries may be able to cure the default in a number of accounts receivable sales program.
ways, including posting letters of credit equal to the amount of the exposure, unwinding the contract or paying the obligation. Beginning in the third quarter of 2003, under FIN 46, "Consolidation of Variable Interest Entities," it is reasonably Sale of Accounts Receivable - Refer to Note 4 of the "Notes possible that Alliant Energy could be considered the primary to Consolidated Financial Statements" for information on beneficiary of certain variable interest entities utilized for its Alliant Energy's sale of accounts receivable program. synthetic lease financings and receivable sales program and could be required to consolidate the operating results and Off-Balance Sheet Arrangements - Alliant Energy utilizes associated assets and liabilities of the variable interest entities in synthetic leases to finance its corporate headquarters, corporate its financial statements. Alliant Energy is in the process of aircraft, certain utility railcars and a utility radio dispatch evaluating the potential impacts of FIN 46. Alliant Energy system. Synthetic leases provide favorable financing rates to is also currently evaluating the structure of its synthetic leases Alliant Energy while allowing it to maintain operating control and receivable sales program to determine if these structures of its leased assets. Several of Alliant Energy's synthetic leases can be modified to qualify for off-balance sheet treatment under FIN 46.
20 ALLIANT ENERGY 2002 ANNUAL REPORT
Contractual Obligations - Alliant Energy's long-term contractual cash obligations as of Dec. 31, 2002 were as follows (in millions):
2003 2004 2005 2006 2007 Thereafter Total Long-term debt (Note 8)and capital lease obligations (Note 3) $62 $122 $347 $104 $227 $2,303 $3,165 Operating leases (Note 3) 45 76 95 99 123 384 822 Purchase obligations (Note 11(b)) 286 110 68 30 18 27 539
$393 $308 $510 $233 $368 $2,714 $4,526 At Dec. 31, 2002, long-term debt and capital lease obligations management cannot precisely forecast the effect of future as noted in the previous table were included on the environmental regulations on operations, it has taken steps to Consolidated Balance Sheets. In addition, at Dec. 31, 2002, anticipate the future while also meeting the requirements of there were various other long-term liabilities and deferred current environmental regulations.
credits included on the Consolidated Balance Sheets that, due to the nature of the liabilities, the timing of payments cannot Alliant Energy's facilities are subject to state and federal be estimated and are therefore excluded from the tables. requirements of the Clean Air Act, including meeting ambient Operating leases and purchase obligations are amounts air quality standards. As a result of a new rate-of-progress rule committed under contract which were not recorded on the developed by the Wisconsin DNR, and based on existing Consolidated Balance Sheets at Dec. 31, 2002, in accordance technology, Alliant Energy estimates the total aggregate capital with GAAP. Purchase obligations represent normal business investments necessary by WP&L to comply with the new rules contracts used to ensure adequate purchased-power, coal and will be approximately $19 million in 2003 through 2007.
natural gas supplies and to minimize exposure to market price Alliant Energy is also currently addressing various other fluctuations. In connection with Alliant Energy's construction potential federal and state environmental rulemakings and and acquisition programs, it also enters into commitments activities, including: 1) proposed revisions to the Wisconsin related to such programs on an ongoing basis. Administrative Code concerning the amount of heat that WP&L's generating stations can discharge into Wisconsin Sales of Non-strategic Assets - In the third quarter of 2002, waters which could have a significant impact on WP&L's Alliant Energy completed the sale of its 50% ownership operation of its Wisconsin generating facilities; 2) potential interest in its Cargill-Alliant electricity-trading joint venture to nev rules that may be pursued by the EPA and the states in the Cargill. The sale proceeds were approximately $19.3 million, Alliant Energy service territory related to various air emissions; the book value of Alliant Energy's share of the joint venture. 3) the multiple requests WP&L has received from the EPA As noted earlier, the strategic actions currently being executed related to the historical operation of WP&L's major coal-fired by Alliant Energy will focus on additional potential sales of generating units, which requests have been the precursor to non-strategic assets, among other items. Refer to "Strategic penalties and additional capital requirements in some cases Actions," "Other Matters - Other Future Considerations" and involving similar requests to other electric generating facilities; Note 16 of the "Notes to Consolidated Financial Statements" 4) the New Source Review reforms published by the EPA in for additional discussion on the potential impact of future asset December 2002; 5) several other legislative and regulatory sales. proposals regarding the control of emissions of air pollutants and greenhouse gases from a variety of sources, including Credit Risk - Credit risk is inherent in Alliant Energy's generating facilities; and 6) the July 2002 request from the operations and relates to the risk of loss resulting from non- Wisconsin DNR that WP&L submit a written plan for facility performance of contractual obligations by a counterparty. closure of the Rock River Generating Station landfill and Alliant Energy maintains credit risk oversight and sets limits clean-up of its support ponds and all areas where coal and policies with regards to its counterparties, which combustion waste is present. Alliant Energy cannot presently management believes minimizes its overall credit risk exposure. predict the final outcome of these proposals or actions, but However, there is no assurance that such policies will protect believes that required capital investments and/or modifications Alliant Energy against all losses from non-performance by resulting from them could be significant. Alliant Energy counterparties. believes that prudent expenses incurred by IP&L and WP&L likely would be recovered in rates from its customers.
Environmental - Alliant Energy's pollution abatement programs are subject to continuing review and are periodically Refer to Note 11 (e) of the 'Notes to Consolidated Financial revised due to changes in environmental regulations, Statements" for further discussion of environmental matters.
construction plans and escalation of construction costs. While ALLIANT ENERGY 2002 ANNUAL REPORT 21
Managements Discuission andAnalysis of FinancialCondition and Results of Operations (conitinued)
Construction and Acquisition Expenditures - Capital expenditures, investments and financing plans are continually reviewed, approved and updated as part of Alliant Energy's ongoing strategic planning and annual budgeting processes. In addition, material capital expenditures and investments are subject to a rigorous cross-functional review prior to approval. Changes in Alliant Energy's anticipated construction and acquisition expenditures may result from a number of reasons including economic conditions, regulatory requirements, ability to obtain adequate and timely rate relief, the level of Alliant Energy's profitability, Alliant Energy's desire to maintain strong credit ratings and reasonable capitalization ratios, variations in sales, changing market conditions and new opportunities. As noted in "Strategic Actions," Alliant Energy recently reduced its anticipated construction and acquisition expenditure levels in order to strengthen its balance sheet. Alliant Energy believes its capital control processes adequately reduce the risks associated with large capital expenditures and investments. Alliant Energy currently anticipates construction and acquisition expenditures as follows (in millions):
2003 2004-2005 Domestic utility:
IP&L utility infrastructure and reliability investments $230 $560 IP&L Power Iowa program* 220 80 WP&L utility infrastructure and reliability investments 160 410 Non-regulated domestic generation 130 10 Other non-regulated business development 80 70 Total from continuing operations 820 1.130 Discontinued operations 80 Total $800 $1,130 Excludes approximately $109 million in2003 for potential purchase of turbines and related equipment from affiliates.
Alliant Energy has not entered into contractual commitments relating to the majority of its anticipated capital expenditures. As a result, Alliant Energy does have discretion as to the eventual level of capital expenditures incurred and it closely monitors and updates such estimates on an ongoing basis based on numerous economic and other factors.
In September 2002, the IUB approved a settlement agreement establishing advance rate making principles for the proposed 500 MW natural gas-fired plant IP&L plans to construct in Mason City, Iowa as part of its Power Iowa initiative to develop new electric generation capacity in Iowa. The settlement establishes, among other things, a set depreciation period whereby IP&L is ensured of recovering the estimated $400 million cost of its investment over 28 years based on a fixed 12.23% return on the common equity component. In January 2003, the IUB approved IP&L's siting certificate for the Mason City plant and construction began. The plant is scheduled to be in service prior to the 2004 summer peak demand.
Given the status of the current non-regulated generation market, Alliant Energy's initial investments in this market will focus on facilities with underlying long-term purchased-power agreements. While Alliant Energy believes there are excellent acquisition opportunities in the existing non-regulated generation market, it will continue to be patient, prudent and diligent in its pursuit of such opportunities. Consistent wvith this approach, in February 2003, Resources announced the purchase of a 309 MV, non-regulated, natural gas-fired power plant in Wisconsin for $109 million, which Resources financed with a $73 million 8-year secured credit facility, which is non-recourse to Alliant Energy. Ar Feb. 28, 2003, Resources had $60 million of borrowings outstanding under this facility, at an interest rate of approximately 5%, and an $11 million letter of credit related to a purchased-power agreement.
The entire power output of the facility is sold under contract to Milaukee-based We Energies through June 2008.
22 ALLIANT ENERGY 2002 ANNUAL REPORT
Other Matters Market Risk Sensitive Instruments and Positions - Alliant combined fair market value of the gas in storage and related Energys primary market risk exposures are associated with swap arrangements in place at Dec. 31, 2002. IP&L also interest rates, commodity prices, equity prices and currency utilizes natural gas commodity derivative instruments to exchange rates. Alliant Energy has risk management policies to mitigate the risk of rising prices. Since the IUB allows for the monitor and assist in controlling these market risks and uses prudently incurred costs associated with these instruments and derivative instruments to manage some of the exposures. the underlying supply of natural gas to be recovered from ratepayers, IP&L does not have significant natural gas Interest Rate Risk - Alliant Energy is exposed to risk resulting commodity risk exposure.
from changes in interest rates as a result of its issuance of variable-rate debt, utility customer accounts receivable sale Whiting, currently accounted for as a discontinued operation, program and variable-rate leasing agreements. Alliant Energy is exposed to market risk in the pricing of its oil and gas manages its interest rate risk by limiting its variable interest rate production. Historically, prices received for oil and gas exposure and by continuously monitoring the effects of market production have been volatile because of seasonal weather changes on interest rates. Alliant Energy also uses interest rate patterns, supply and demand factors, transportation availability swap and interest rate forvard agreements to assist in the and price, and general economic conditions. Worldwide management of its interest exposure. In the event of significant political developments have historically also had an impact on interest rate fluctuations, management would take actions to oil prices. Whiting periodically utilizes oil and gas swaps, minimize the effect of such changes on Alliant Energy's results costless collars and long-term delivery contracts to mitigate the of operations and financial condition. Assuming no change in impact of oil and gas price fluctuations. Historically, Alliant Alliant Energy's consolidated financial structure, if variable Energy has hedged or contracted approximately 50% of its oil interest rates were to average 100 basis points higher (lower) in and gas volumes. The actual level of hedging or contracting 2003 than in 2002, interest expense and pre-tax earnings utilized is based on management's assessment of the prudency would increase (decrease) by approximately $9.4 million. This of hedging given current market conditions and other factors amount was determined by considering the impact of a and is reviewed on an ongoing basis. Based on Whiting's hypothetical 100 basis point increase (decrease) in interest rates estimated oil and gas sales in 2003, and the hedging and on Alliant Energy's consolidated variable-rate debt held, the delivery contracts outstanding for such period, a sustained 10%
amount outstanding under the utility customer accounts increase (decrease) in oil and gas prices would impact Alliant receivable sale program and variable-rate lease balances at Dec. Energy's pre-tax 2003 earnings by approximately $9.9 million.
31, 2002.
Southern Hydro, currently accounted for as a discontinued Commodity Risk - Non-trading - Alliant Energy is exposed operation, owns and operates hydroelectric generation facilities to the impact of market fluctuations in the commodity price in the state of Victoria in Australia. These generation facilities and transportation costs of electricity and natural gas products operate as peaking units. Under the rules of the Australian it markets. Alliant Energy employs established policies and market, Southern Hydro must sell all of its production into a procedures to manage its risks associated with these market spot market in which the price changes every five minutes and fluctuations including the use of various commodity is set on the average of each half hour. Electricity prices in this derivatives. Alliant Energy's exposure to commodity price risks market can and have been very volatile. In order to manage in its utility business is significantly mitigated by the current the electricity commodity price risk associated with anticipated rate making structures in place for the recovery of its electric sales into the spot market, Southern Hydro enters into a variety fuel and purchased energy costs as well as its cost of natural gas of electricity derivative contracts with terms of up to five years.
purchased for resale. Refer to Note (j) of the "Notes to The value of these derivative instruments can change Consolidated Financial Statements" for further discussion. significantly as a result of changes in forward electricity prices.
These instruments do not qualify for hedge accounting under WP&L periodically utilizes gas commodity derivative SFAS 133. Accordingly, per GAAP, changes in the fair value of instruments to reduce the impact of price fluctuations on gas these derivatives, which are non-cash valuation adjustments, purchased and injected into storage during the summer months must be reported in Southern Hydro's earnings. Alliant Energy and withdrawn and sold at current market prices during the believes Southern Hydro's ownership of the physical generating winter months. The gas commodity swaps in place facilities that are not marked-to-market, combined with the approximate the forecasted storage withdrawal plan during this electricity derivative contracts, act as an economic hedge to period. Therefore, market price fluctuations that result in an volatile electricity prices, such that Southern Hydro's net increase or decrease in the value of the physical commodity are economic exposure to volatile electricity prices over the next substantially offset by changes in the value of the gas five years is managed within reasonable limits. Southern commodity swaps. To the extent actual storage withdrawals Hydro manages market risks inherent in its business through vary from forecasted withdrawals, WP&L has physical established derivative trading and risk management policies and commodity price exposure. A 10% increase (decrease) in the tools. The principal tool utilized in managing the risks price of gas would not have a significant impact on the ALLIANT ENERGY 2002 ANNUAL REPORT 23
Managements Discussion andAnalysis of FinancialCondition and Results of Operations(conitinued) associated with volatile prices is a five to 40-day Earnings-ar- definition of energy trading contracts under EITF Issue Risk (EAR) model which calculates EAR to a 95% confidence 98-10, "Accounting for Contracts Involved in Energy Trading level. At December 31, 2002, the estimated EAR for Southern and Risk Management Activities," and that are derivatives Hydro for expected earnings in 2003 was approximately $0.9 under SFAS 133 must be reflected on a net basis in the income million. statement for all periods presented. Under the guidance of EITF Issue 98-10, Alliant Energy reported its energy trading Equity Price Risk - IP&L and WP&L maintain trust funds to contracts and related gas in storage at fair market value, and fund their anticipated nuclear decommissioning costs. At Dec.
reported related revenues and expenses on a gross basis in the 31, 2002 and 2001, these funds were invested primarily in income statement. EITF Issue 02-3 also rescinded EITF Issue domestic equity and debt instruments. Fluctuations in equity 98-10 on a prospective basis. Accordingly, any new contracts prices or interest rates will not affect Alliant Energy's entered into after Oct. 25, 2002 must be reported on a consolidated results of operations as such fluctuations are historical cost basis rather than at fair market value unless the recorded in equally offsetting amounts of investment income contract meets the definition of a derivative under SFAS 133.
and depreciation (WP&L) or interest (IP&L) expense when Alliant Energy adopted EITF Issue 02-3 on Jan. 1, 2003 for all they are realized. In 2001, WP&L entered into a four-year contracts that were in place and storage gas acquired prior to hedge on equity assets in its nuclear decommissioning trust Oct. 25, 2002, and will reclassify prior period trading contracts fund. Refer to Note 10(c) of the "Notes to Consolidated on a net basis in the income statement for 2003. The impact Financial Statements" for further discussion.
of transitioning from reporting inventory and existing contracts Currency Risk - Alliant Energy has investments in various that are not derivatives under SFAS 133 at fair value to countries where the net investments are not hedged, including historical cost will be reported in net income in the first Australia, Brazil, China and New Zealand. As a result, these quarter of 2003 and is not expected to be material due to the investments are subject to currency exchange risk with relatively small size of the NG business. Had Alliant Energy fluctuations in currency exchange rates. At Dec. 31, 2002, presented its trading activities in the income statement on a net Alliant Energy had a cumulative foreign currency translation basis rather than a gross basis, for 2002, 2001 and 2000, loss, net of any tax benefits realized, of $165 million, which "Non-regulated and other" revenues and "Other operation and related to decreases in value of the Brazil real of $152 million, maintenance" expenses would have both decreased $125 New Zealand dollar of $11 million and Australian dollar of $2 million, $49 million and $9 million, respectively, with no million in relation to the U.S. dollar. This loss is recorded in impact on net income.
"Accumulated other comprehensive loss" on the Consolidated In November 2002, the FASB issued FIN 45, "Guarantor's Balance Sheets. Based on Alliant Energy's investments at Dec.
Accounting and Disclosure Requirements for Guarantees, 31, 2002, a 10% sustained increase/decrease over the next 12 Including Indirect Guarantees of Indebtedness to Others,"
months in the foreign exchange rates of Australia, Brazil, China which requires disclosures by a guarantor about its obligations and New Zealand would result in a corresponding under certain guarantees that it has issued. FIN 45 also increase/decrease in the cumulative foreign currency translation requires recognizing, at the inception of a guarantee, a liability loss of $57 million. Alliant Energy's equity income (loss) from for the fair value of the obligation undertaken in issuing the its foreign investments is also impacted by fluctuations in guarantee. The recognition and measurement provisions of currency exchange rates. In addition, Alliant Energy has FIN 45 are effective on a prospective basis for guarantees issued currency exchange risk associated with the debt issued to or modified after Dec. 31, 2002. The disclosure requirements finance a thermal plant constructed by Alliant Energy and its of FIN 45 are effective for financial statements of interim or Brazilian partners. In 2002, Alliant Energy recorded pre-tax annual periods ending after Dec. 15, 2002. Alliant Energy charges of $6.5 million related to its share of the foreign does not anticipate FIN 45 will have a material impact on its currency transaction losses on such debt. Based on the loan financial condition or results of operations. Refer to Note balance and currency rates at Dec. 31, 2002, a 10% change in 11 (d) of the "Notes to Consolidated Financial Statements" for the currency rates would result in a $1.9 million after-tax additional information on guarantees.
increase (decrease) in net income.
In January 2003, the FASB issued FIN 46 which addresses Refer to Notes (n) and 10 of the "Notes to Consolidated consolidation by business enterprises of variable interest Financial Statements" for further discussion of Alliant Energy's entities. FIN 46 requires consolidation where there is a derivative financial instruments.
controlling financial interest in a variable interest entity or Accounting Pronouncements - On Oct. 25, 2002, the EITF where the variable interest entity does not have sufficient reached a consensus on EITF Issue 02-3, "Issues Related to equiry at risk to finance its activities without additional Accounting for Contracts Involved in Energy Trading and Risk subordinated financial support from other parties. Alliant Management Activities." Alliant Energy's natural gas trading Energy will apply the provisions of FIN 46 prospectively for all business, NG Energy Trading, LLC (NG), is impacted by variable interest entities created after Jan. 31, 2003. For EITF Issue 02-3, which requires that all sales of energy and the variable interest entities created before Jan. 31, 2003, Alliant related cost of energy purchased under contracts that meet the Energy will be required to consolidate all entities in which it is 24 ALLIANT ENERGY 2002 ANNUAL REPORT
a primary beneficiary beginning in the third quarter of 2003. Assets and for Long-Lived Assets to Be Disposed Of." SFAS It is reasonably possible the implementation of FIN 46 will 144 also applies to discontinued operations. SFAS 144 require that certain variable interest entities be included on the requires that those long-lived assets classified as held for sale be Consolidated Balance Sheets. Refer to Notes 3 and 4 of the measured at the lower of their carrying amount or the fair "Notes to Consolidated Financial Statements" for additional value less cost to sell, and that no depreciation, depletion and information on variable interest entities related to synthetic amortization shall be recorded while an asset is classified as leases and the utility customer accounts receivable sale held for sale. Discontinued operations are no longer measured program, respectively. at net realizable value or include amounts for operating losses that have not yet occurred. SFAS 144 also broadens the SFAS 143, "Accounring for Asset Retirement Obligations,"
reporting of discontinued operations to include all components which provides accounting and disclosure requirements for of an entity with operations that can be distinguished from the retirement obligations associated with long-lived assets, was rest of the entity and that will be eliminated from the ongoing effective Jan. 1, 2003. SFAS 143 requires that the present operations of the entity in a planned disposal transaction that is value of retirement costs for which Alliant Energy has a legal probable of being completed within one year. If the criteria to obligation be recorded as liabilities with an equivalent amount classify operations as held for sale are subsequently no longer added to the asset cost. The liability is accreted to its present met, the assets classified as held for sale shall be reclassified as value each period and the capitalized cost is depreciated over held and used in the period the held for sale criteria are no the useful life of the related asset. Upon settlement of the longer met. Alliant Energy adopted SFAS 144 on January 1, liability, an entity settles the obligation for its recorded amount 2002. Refer to Note 16 of the "Notes to Consolidated or incurs a gain or loss. The adoption of SFAS 143 will have Financial Statements" for additional information about Alliant no impact on IP&Us and WP&L's earnings, as the effects will Energy's application of SFAS 144 in the fourth quarter of 2002 be offset by the establishment of regulatory assets or liabilities as relates to various assets it is planning to sell.
pursuant to SFAS 71, "Accounting for the Effects of Certain Types of Regulation." Alliant Energy does not expect the various other new accounting pronouncements not mentioned above that were Alliant Energy has completed a detailed assessment of the effective in 2002 to have a material impact on its results of specific applicability and implications of SFAS 143. The scope operations or financial condition.
of SFAS 143 as it relates to Alliant Energy primarily includes decommissioning costs for DAEC and Kewaunee. It also Critical Accounting Policies - Based on historical experience applies to a smaller extent to several other regulated and non- and various other factors, Alliant Energy believes the policies regulated assets including, but not limited to, active ash identified below are critical to its business and the landfills, water intake facilities, underground storage tanks, understanding of its results of operations as they require critical groundwater wells, transmission and distribution equipment, estimates be made based on the assumptions and judgment of easements, leases and the dismantlement of certain hydro management. The preparation of consolidated financial facilities. Other than DAEC and Kewaunee, Alliant Energy's statements requires management to make various estimates and asset retirement obligations as of Jan. 1, 2003 are not assumptions that affect revenues, expenses, assets, liabilities and significant. the disclosure of contingencies. The results of these estimates and judgments form the basis for making judgments about the Prior to January 2003, IP&L and WP&L recorded nuclear carrying values of assets and liabilities that are not readily decommissioning charges in accumulated depreciation on their apparent from other sources. Actual results may differ from Consolidated Balance Sheets. Upon adoption of SFAS 143, these estimates and judgments. Alliant Energy's management IP&L and WP&L will reverse approximately $125 million and has discussed these critical accounting policies with the Audit
$175 million, respectively, previously recorded in accumulated Committee of its Board of Directors. Refer to Note 1 of the depreciation and will record liabilities of approximately $250 "Notes to Consolidated Financial Statements" for a discussion million and $175 million, respectively. The difference between of Alliant Energy's accounting policies and the estimates and amounts previously recorded and the net SFAS 143 liability assumptions used in the preparation of the consolidated will be deferred as a regulatory asset and is expected to financial statements.
approximate $125 million and $0 for IP&L and WP&L, respectively. Regulatory Assets and Liabilities - Alliant Energy's domestic utility business is regulated by various federal and state IP&L and WP&L have previously recognized removal costs as regulatory agencies. As a result, the regulated utilities qualify a component of depreciation expense and accumulated for the application of SFAS 71. SFAS 71 recognizes that the depreciation for other non-nuclear assets in accordance with actions of a regulator can provide reasonable assurance of the regulatory rate recovery. As of Dec. 31, 2002, IP&L and existence of an asset or liability. Regulatory assets or liabilities WP&L estimate that they have approximately $250 million arise as a result of a difference between GAAP and the and $150 million, respectively, of such regulatory liabilities accounting principles imposed by the regulatory agencies.
recorded in "Accumulated depreciation" on their Consolidated Regulatory assets generally represent incurred costs that have Balance Sheets.
been deferred as they are probable of recovery in customer In 2001, the FASB issued SFAS 144, "Accounting for the rates. Regulatory liabilities generally represent obligations to Impairment or Disposal of Long-Lived Assets" which replaced make refunds to customers for various reasons.
SFAS 121, "Accounting for the Impairment of Long-Lived ALLIANT ENERGY 2002 ANNUAL REPORT 25
Managements Discussion andAnalysis of FinancialCondition and Results of Operations (conztinued)
Alliant Energy's utility subsidiaries recognize regulatory assets $116 million equipment cost compared to the future and liabilities in accordance with the rulings of their federal anticipated cash flows from the generation projects under and state regulators and future regulatory rulings may impact review. The future anticipated cash flows is a significant the carrying value and accounting treatment of Alliant Energy's estimate. Alliant Energy has no current intentions to sell any regulatory assets and liabilities. Alliant Energy periodically of this equipment. If a decision was made to sell such assesses whether the regulatory assets are probable of future equipment, the recoverability of the equipment cost would be recovery by considering factors such as regulatory environment assessed by comparing the future anticipated sales proceeds to changes, recent rate orders issued by the applicable regulatory the carrying value of the equipment.
agencies and the status of any pending or potential Investments -The Consolidated Balance Sheets include deregulation legislation. The assumptions and judgments used investments in several available-for-sale securities accounted for by regulatory authorities continue to have an impact on the in accordance with SFAS 115, Accounting for Certain recovery of costs, the rate of return on invested capital and the Investments in Debt and Equity Securities." Alliant Energy timing and amount of assets to be recovered by rates. A monitors any unrealized losses from such investments to change in these assumptions may result in a material impact on determine if the loss is considered to be a temporary or Alliant Energy's results of operations. Refer to Note I (c) of permanent decline. The determination as to whether the the "Notes to Consolidated Financial Statements" for further investment is temporarily versus permanently impaired requires discussion.
considerable judgment. When the investment is considered Asset Valuations - permanently impaired, the previously recorded unrealized loss Long-Lived Assets - The Consolidated Balance Sheets include would be recorded directly to the income statement as a significant long-lived assets, which are not subject to recovery realized loss. Alliant Energy incurred pre-tax valuation charges under SFAS 71. As a result, Alliant Energy must generate under the provisions of SFAS I 15 of $27 million and $10 future cash flows from such assets in a non-regulated million related to its MicLeod and Energy Technologies environment to ensure the carrying value is not impaired. investments, respectively, in 2002. The Consolidated Balance Many of these assets are the result of capital investments which Sheets also contain various other investments that are evaluated have been made in recent years and have not yet reached a for recoverability when indicators of impairment may exist.
mature life cycle. Alliant Energy assesses the carrying amount Resources holds a non-controlling interest in five Brazilian and potential impairment of these assets whenever events or electric utility companies accounted for under the equity changes in circumstances indicate that the carrying value may method of accounting. The recoverability of these equity not be recoverable. Factors Alliant Energy considers in method investments is assessed by comparing the future determining if an impairment review is necessary include a anticipated local currency cash flows from these investments significant underperformance of the assets relative to historical and the carrying value of these investments. The future or projected future operating results, a significant change in anticipated cash flows currently include anticipated periodic Alliant Energy's use of the acquired assets or business strategy distributions that, when aggregated, exceed the carrying value related to such assets, and significant negative industry or of these investments. The future anticipated cash flows economic trends. When Alliant Energy determines an represents a significant estimate. The $214 million carrying impairment review is necessary, a comparison is made between value of Alliant Energy's Brazil investments has been reduced the expected undiscounted future cash flows and the carrying by $210 million of pre-tax cumulative foreign currency amount of the asset. If the carrying amount of the asset is the translation losses. The net of tax balance of $152 million has larger of the two balances, an impairment loss is recognized been recorded in "Accumulated other comprehensive loss" on equal to the amount the carrying amount of the asset exceeds the Consolidated Balance Sheet at Dec. 31, 2002. Cumulative the fair value of the asset. The fair value is determined by the foreign currency translation losses are reflected in Alliant use of quoted market prices, appraisals, or the use of valuation Energy's results of operations only if the related investment is techniques such as expected discounted future cash flows.
sold or substantially liquidated. If Alliant Energy would decide Alliant Energy must make assumptions regarding these to exit these Brazil investments in the future, the recoverability estimated future cash flows and other factors to determine the of these equity method investments would be assessed by fair value of the respective assets.
comparing the future anticipated sales proceeds to the carrying Alliant Energy has made payments of $156 million for turbines value. Alliant Energy has no current intention of exiting these and related generation equipment at Dec. 31, 2002 and has Brazil investments.
also entered into commitments for an additional $84 million.
Resources' investment in Mexico consists of a loan receivable Alliant Energy expects to utilize approximately $124 million of (including accrued interest income) from a Mexican such equipment in its first Power Iowa generation project and development company. The loan accrues interest at 8.75% and is currently reviewing various other potential generation is secured by the undeveloped land of the resort community.
projects to utilize the remaining $116 million of equipment.
Repayment of the loan principal and interest will be based on a As a result, Alliant Energy has assessed the recoverability of the 26 ALLIANT ENERGY 2002 ANNUAL REPORT
portion of the proceeds from the sales of real estate in the Derivative Financial Instruments - Alliant Energy uses resort community and therefore is dependent on the successful derivative financial instruments to hedge exposures to development of the project and the ability to sell real estate. fluctuations in interest rates, certain commodity prices, The recoverability of this loan receivable is currently assessed volatility in a portion of natural gas sales volumes due to by comparing the fair value of the undeveloped land of the weather and to mitigate the equity price volatility associated resort community used to secure the loan and the carrying with certain investments in equity securities. Alliant Energy value of the loan including accrued interest income. Based on does not use such instruments for speculative purposes. To an independent appraisal that indicated the fair value of the account for these derivative instruments in accordance with the collateral was less than the loan balance plus accrued interest, applicable accounting rules, Alliant Energy must determine the Alliant Energy recorded a valuation allowance of approximately fair value of its derivatives. In accordance with SFAS 133, the
$7 million in the second quarter of 2002 and ceased accruing fair value of all derivative instruments are recognized as either interest income on the loan. Based on an updated independent assets or liabilities in the balance sheet with the changes in their appraisal, Alliant Energy reversed the valuation allowance in value recognized in earnings for the non-regulated businesses, the fourth quarter of 2002 and resumed accruing interest unless specific hedge accounting criteria are met. For IP&L income on the loan. The fair value of such collateral is a and WP&L, changes in the derivatives fair values are generally significant estimate. Refer to Note 9 of the "Notes to recorded as regulatory assets or liabilities. If an established, Consolidated Financial Statements" for additional information quoted market exists for the underlying commodity of the concerning Alliant Energy's investments in Brazil and Mexico. derivative instrument, Alliant Energy uses the quoted market price to value the derivative instrument. For other derivatives, Alliant Energy announced its intentions to sell various Alliant Energy estimates the value based upon other quoted businesses in November 2002 and is currently accounting for prices or acceptable valuation methods. Alliant Energy also them as assets held for sale and discontinued operations. The reviews the nature of its contracts for the purchase and sale of estimated sales proceeds, less costs to sell, for each business non-financial assets to assess whether the contracts meet the exceeded the carrying value of each business as of Dec. 31, definition of a derivative and the requirements to follow hedge 2002. Alliant Energy will continue to monitor the estimated accounting as allowed by the applicable accounting rules. The sales proceeds of its assets held for sale as they relate to the determination of derivative status and valuations involves respective carrying values. Refer to Note 16 of the "Notes to considerable judgment.
Consolidated Financial Statements" for additional information.
The majority of Alliant Energy's derivative transactions are in Goodwill - As a result of the adoption of SFAS 142, "Goodwill its regulated domestic utility business and based on the fuel and Other Intangible Assets," on Jan. 1, 2002, Alliant Energy and natural gas cost recovery mechanisms in place, as well as is required to evaluate its goodwill for impairment at least other specific regulatory authorizations, changes in fair market annually and more frequently when indicators of impairment values of such derivatives generally have no impact on Alliant may exist. At Dec. 31, 2002, Alliant Energy had $66 million Energy's results of operations. Alliant Energy does have an of net goodwill (including $41 million, $10 million and $9 embedded derivative within its exchangeable senior notes that million within its Cogenex, China and SmartEnergy reporting is impacted by the value of McLeod stock. Changes in the fair units, respectively) on its Consolidated Balance Sheet. If the value of this derivative impact Alliant Energy's results of fair value of a reporting unit is less than its carrying value, operations and the changes did have a material impact on including goodwill, a goodwill impairment charge may be Alliant Energy's 2001 results of operations. However, given a necessary. Alliant Energy estimates the fair value of its significant decline in the value of the McLeod stock, Alliant reporting units utilizing a combination of market value Energy does not expect changes in the fair value of this indicators and the expected discounted future cash flows. This derivative to have a material impact on Alliant Energy's results process requires the use of significant management estimates of operations in the foreseeable future. In addition, Alliant and judgments regarding cash flow assumptions from future Energy has a small investment in a gas trading business. Such sales, operating costs and discount rates over an indefinite life.
business accounted for all of its trading transactions under Alliant Energy's cash flov assumptions are derived using a EITF Issue 98-10 through 2002 and adopted the provisions of combination of historical trends, internal budgets, strategic EITF Issue 02-3 on Jan. 1, 2003 (and for new transactions plans and other market information. Each reporting unit is after Oct. 25, 2002). However, due to the insignificant size of evaluated separately based on the nature of its operations and this business, Alliant Energy does not expect this accounting therefore the assumptions vary by reporting unit relative to its change to have a material impact on Alliant Energy's results of applicable circumstances. To determine its discount rates, operations in the future.
Alliant Energy utilizes the capital asset pricing model which is based upon market comparables adjusted for company-specific Unbifled Revenues - Unbilled revenues are primarily risk. In the event market comparables are not available, Alliant associated with Alliant Energy's utility operations. Energy sales Energy utilizes expected industry returns based upon published to individual customers are based on the reading of their information. In the fourth quarter of 2002, Alliant Energy meters, which occurs on a systematic basis throughout the recorded a pre-tax goodwill impairment charge related to month. At the end of each month, amounts of energy SmartEnergy of $7 million. delivered to customers since the date of the last meter reading ALLIANT ENERGY 2002 ANNUAL REPORT 27
Managements Discussion and Analysis of FinancialCondition and Results of Operations(conitinued) are estimated and the corresponding estimated unbilled $165 million. The transaction is expected to close by the end revenue is recorded. The unbilled revenue estimate is based on of April 2003 and is subject to customary closing conditions.
daily generation volumes, estimated customer usage by class, Retirement Benefits - Alliant Energy's qualified pension and weather impacts, line losses and the most recent customer rates.
other postretirement benefit expenses for 2003 are currently Such process involves the use of various estimates, thus expected to be approximately $18 million higher than in 2002, significant changes in the estimates could have a material primarily due to unfavorable asset returns, a reduction in the impact on Alliant Energy's results of operations.
discount rate used to value plan benefit obligations and Accounting for Pensions - Alliant Energy accounts for expected increases in retiree medical costs. Alliant Energy will pensions under SFAS 87, "Employers' Accounting for pursue the possible recovery of the utility portion of these cost Pensions." Under these rules, certain assumptions are made increases, which represents a significant majority of the which represent significant estimates. There are many factors increase, in any rate filings it has in its various jurisdictions.
involved in determining an entity's pension liabilities and costs Exchangeable Senior Notes - At Dec. 31, 2002, the carrying each period including assumptions regarding employee amount of the debt component of Resources' exchangeable demographics (including age, life expectancies, compensation senior notes was $40.1 million, consisting of the par value of levels), discount rates, assumed rate of returns and funding.
$402.5 million, less unamortized debt discount of $362.4 Changes made to the plan provisions may also impact current million. The terms of the exchangeable senior notes require and future pension costs. Alliant Energy's assumptions are Resources to pay interest on the par value of the notes at supported by historical data and reasonable projections and are 7.25% from February 2000 to February 2003, and at 2.5%
reviewed annually with an outside actuary firm and an thereafter until maturity in February 2030. As explained in investment consulting firm. As of Dec. 31, 2002, Alliant Note 10(a) of the "Notes to Consolidated Financial Energy was using a 6.75% discount rate and a 9% annual rate Statements," Resources accounted for the net proceeds from of return on investments. In selecting an assumed discount the issuance of the notes as two separate components, a debt rate, Alliant Energy reviews various corporate Aa bond indices.
component and an embedded derivative component. In The 9% annual rate of return is consistent with Alliant accordance with SFAS 133, Alliant Energy determined the Energy's historical returns and is based on projected long-term initial carrying value of the debt component by subtracting the equity and bond returns, maturities and asset allocations. A fair value of the derivative component from the net proceeds 100 basis point change in the discount rate would result in realized from the issuance of the exchangeable senior notes.
approximate changes of $79 million and $7 million in Alliant This resulted in a very low initial carrying amount of the debt Energy's qualified pension benefit obligation and pension component which results in the recording of interest expense at expense, respectively. A 100 basis point change in the rate of an effective rate of 26.8% of the carrying amount of the debt return would result in an approximate change of $4 million in component. For 2002, interest expense on the notes was $13.2 qualified pension expense.
million. Interest payments in excess of interest expense are Other Future Considerations - In addition to items discussed recorded as a reduction of the carrying amount of the debt earlier in MD&A, the following items could impact Alliant component. As a result of the higher interest payments for the Energy's future financial condition or results of operations: first three years, the carrying amount of the debt component declined until it reached $37.8 million in February 2003, and Asset Sales - It is possible Alliant Energy could record material then gradually increases over the next 27 years to the ultimate gains, losses, accounting adjustments or other charges and/or repayment amount of $402.5 million in 2030. Interest income related to its planned asset divestitures discussed in expense on the debt component of the notes will be $10.2 "Strategic Actions." Alliant Energy is not able to predict or million in 2003, 2004 and 2005. If the existing McLeod estimate what such items may be at this time. Refer to Note shares would ever be cancelled, the notes would remain 16 of the "Notes to Consolidated Financial Statements" for outstanding until maturity.
additional information.
Enterprise Resource Planning (ERP) System - Alliant Energy Alliant Energy announced in March 2003 that it entered into implemented a new ERP system in October 2002 which will an agreement with New Zealand-based Meridian Energy result in annual amortization expense of approximately $ 11 Limited for the sale of Alliant Energv's Australian investment, million for five years. Alliant Energy is seeking rate recovery of primarily made up of Alliant Energy's ownership of Southern the utility portion of the amortized expenses which represents a Hydro. The sale price will be approximately $350 million.
significant majority of the amortized expenses.
This amount includes the repayment of approximately $145 million in debt in Australia. On an after-tax basis, the sale will result in net cash proceeds to Alliant Energy of approximately 28 ALLIANT ENERGY 2002 ANNUAL REPORT
Report on the Financial Information Independent Auditors' Report Alliant Energy Corporation management is responsible for the To the Board of Directors and Shareowners of Alliant Energy information and representations contained in the financial Corporation:
statements and in other sections of this Annual Report. The consolidated financial statements that follow have been We have audited the accompanying consolidated balance sheets prepared in accordance with accounting principles generally and statements of capitalization of Alliant Energy Corporation accepted in the United States. In addition to selecting and subsidiaries (the "Company") as of December 31, 2002 appropriate accounting principles, management is responsible and 2001, and related consolidated statements of income, cash for the manner of presentation and for the reliability of the flows and changes in common equity for each of the three financial information. In fulfilling that responsibility, it is years in the period ended December 31, 2002. These financial necessary for management to make estimates based on statements are the responsibility of the Company's currently available information and judgments of current management. Our responsibility is to express an opinion on conditions and circumstances. these financial statements based on our audits.
Through a well-developed system of internal controls, We conducted our audits in accordance with auditing management seeks to ensure the integrity and objectivity of the standards generally accepted in the United States of America.
financial information presented in this report. This system of Those standards require that we plan and perform the audit to internal controls is designed to provide reasonable assurance obtain reasonable assurance about whether the financial that the assets of the company are safeguarded and that the statements are free of material misstatement. An audit includes transactions are executed according to managements examining, on a test basis, evidence supporting the amounts authorizations and are recorded in accordance with the and disclosures in the financial statements. An audit also appropriate accounting principles. includes assessing the accounting principles used and significant estimates made by management, as well as The Board of Directors participates in the financial evaluating the overall financial statement presentation. We information reporting process through its Audit Committee. believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2001, and the results Erroll B. Davis, Jr.
of its operations and its cash flows for each of the three years in Chairman, President and Chief Executive Officer the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 10 to the financial statements, on July 1, Thomas M. Walker 2000, the Company changed its method of accounting for Executive Vice President and Chief Financial Officer derivative instruments to adopt Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended ("SFAS 133"), and on January 1, 2001, the Company's equity method investees changed their method of accounting for derivative John E. Kratchmer instruments to adopt SFAS 133.
Vice President-Controller and Chief Accounting Officer DELOITTE & TOUCHE LLP March 18, 2003 Milwaukee, Wisconsin March 18, 2003 ALLIANT ENERGY 2002 ANNUAL REPORT 29
ConsolidatedFinancialStatements Consolidated Statements of Income Year Ended December 31, 2002 2001 2000 (inthousands, except per share amounts)
Operating revenues:
Electric utility $1,752,534 $1.756,556 $1,648,036 Gas utility 393,986 487,877 414,948 Non-regulated and other 462,292 380,243 216,690 2,608,812 2,624,676 2,279,674 Operating expenses:
Electric and steam production fuels 303,625 310,689 288,621 Purchased power 362,501 403,166 294,818 Cost of utility gas sold 248,994 360,911 278,734 Other operation and maintenance 957,144 828,125 686,976 Depreciation and amortization 310,617 302,643 296,732 Taxes other than income taxes 104,236 102,184 97,823 2,287,117 2,307.718 1,943,704 Operating income 321,695 316,958 335,970 Interest expense and other:
Interest expense 186,538 185,604 168,149 Interest income from loans to discontinued operations, net (15,959) 19,938) (7,195)
Equity (income) loss from unconsolidated investments 12,825 (18,799) (19,468)
Allowance for funds used during construction (7,696) (11,144) (8,761)
Preferred dividend requirements of subsidiaries 6,172 6,720 6,713 Impairment of available-for-sale securities of McLeodUSA Inc. 27,218 - -
Gain on reclassification of investment - - (321,349)
Miscellaneous, net 220 (12.4971 (39,214) 209,318 139,946 (221,125)
Income from continuing operations before income taxes 112,377 177,012 557,095 Income taxes 36,108 50,767 226,180 Income from continuing operations 76,269 126,245 330,915 Income from discontinued operations, net of tax (Note 16) 30,612 58,985 51,039 Income before cumulative effect of changes in accounting principle, net of tax 106,881 185.230 381,954 Cumulative effect of changes inaccounting principle, net of tax - (12.868) 16,708 Net income S106,881 $172,362 $398,662 Average number of common shares outstanding (basic) 90,897 80,498 79,003 Earnings per average common share (basic):
Income from continuing operations $0.84 $1.57 $4.19 Income from discontinued operations 0.34 0.73 0.65 Cumulative effect of changes in accounting principle - (0.16) 0.21 Net income $1.18 $2.14 $5.05 Average number of common shares outstanding (diluted) 90,959 80.636 79,193 Earnings per average common share (diluted):
Income from continuing operations SO.84 $1.57 $4.18 Income from discontinued operations 0.34 0.73 0.64 Cumulative effect of changes in accounting principle - (0.16) 0.21 Net income $1.18 $2.14 $5.03 Dividends declared per common share S2.00 $2.00 $2.00 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
30 ALLIANT ENERGY 2002 ANNUAL REPORT
Consolidated Balance Sheets December 31, ASSETS 2002 2001 (inthousands)
Property, plant and equipment:
Utility:
Electric plant inservice $5,295,381 $5,123,781 Gas plant in service 613,122 597,494 Other plant in service 530,456 517,938 Accumulated depreciation (3,573,407) (3,374.867)
Net plant 2,865,552 2,864,346 Construction work in progress 263,096 111,069 Other, net 68,340 62,194 Total utility, 3,196,988 3,037,609 Non-regulated and other, net:
International 171,179 157,743 Non-regulated generation 156,699 60,411 Integrated Services 73,983 79,202 Investments 54,303 56,647 Corporate Services and other 76,055 50,566 Total non-regulated and other 532,219 404,569 3,729,207 3,442,178 Current assets:
Cash and temporary cash investments 63,872 68,400 Restricted cash 9,686 34,421 Accounts receivable:
Customer, less allowance for doubtful accounts of $12,721 and $8,340 81,277 43,411 Unbilled utility revenues 50,624 71,388 Other, less allowance for doubtful accounts of $845 and $319 60,107 72,912 Income tax refunds receivable 97,469 25,401 Production fuel, at average cost 63,126 54.707 Materials and supplies, at average cost 58,603 54,401 Gas stored underground, at average cost 62,797 57,114 Regulatory assets 46,076 19,632 Assets of discontinued operations (Note 16) 944,328 540,187 Other 76,183 66,882 1,614,148 1,108,856 Investments:
Investments inunconsolidated foreign entities 373,816 508,145 Nuclear decommissioning trust funds 344,892 332,953 Investment inATC and other 217,992 243,804 936,700 1,084,902 Other assets:
Regulatory assets 302,365 241,973 Deferred charges and other 418,975 360,016 721,340 601.989 Total assets $7,001,395 $6,237,925 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ALLIANT ENERGY 2002 ANNUAL REPORT 31
ConsolidatedFinancialStatements (con tinized)
Consolidated Balance Sheets (continued)
December 31, CAPITALIZATION AND LIABILITIES 2002 2001 (inthousands, except share amounts)
Capitalization (See Consolidated Statements of Capitalization):
Common stock - $0.01 par value -authorized 200,000,000 shares; outstanding 92,304,220 and 89,682,334 shares, respectively $923 $897 Additional paid-in capital 1,293,919 1,239,793 Retained earnings 758,187 832,293 Accumulated other comprehensive loss (209,943) (152.434)
Shares indeferred compensation trust -239,467 and 71,958 shares at an average cost of $28.80 and $30.68 per share, respectively (6,896) (2,208)
Total common equity 1,835,190 1,918,341 Cumulative preferred stock of subsidiaries, net 205,063 113,953 Long-term debt (excluding current portion) 2,637,803 2,457.941 4,679,056 4,490,235 Current liabilities:
Current maturities and sinking funds 46,591 10,506 Variable rate demand bonds 55,100 55,100 Commercial paper 195,500 68,389 Other short-term borrowings 113,721 84,318 Accounts payable 286,690 221,823 Accrued taxes 106,015 87,099 Liabilities of discontinued operations (Note 16) 134,999 60,913 Other 187,902 174,224 1,126,518 762,372 Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 626,417 607,552 Accumulated deferred investment tax credits 54,375 59,398 Pension and other benefit obligations 181,010 96,496 Environmental liabilities 48,730 45,144 Other 241,864 133,617 1,152,396 942,207 Minority interest 43,425 43,111 Commitments and contingencies (Note 11)
Total capitalization and liabilities $7,001,395 $6,237,925 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
32 ALLIANT ENERGY 2002 ANNUAL REPORT
Consolidated Statements of Cash Flows
- Year Ended December 31, 2002 2001 2000 (inthousands)
Cash flows from operating activities:
Net income $106,B81 $172,362 $398,662 Adjustments to reconcile net income to net cash flows from operating activities:
Income from discontinued operations, net of tax 130,612) (58,9851 (51,039)
Depreciation and amortization 310,617 302,643 296,732 Other amortizations 51,567 52,724 63,214 Deferred tax expense (benefit) and investment tax (credit) 9,145 (20,099) 111,103 Losses (gains) on dispositions of assets, net 123 (4,446) (11,780)
Equity loss (income) from unconsolidated investments, net 12,825 (18,799) (19,468)
Distributions from equity method investments 21,671 16,961 7,389 Non-cash valuation charges 66,379 33,706 2,897 Cumulative effect of changes inaccounting principle, net of tax 12,868 (16,708)
Gain on reclassification of investment (321,349)
Other (29,594) (5,297) (2,9221 Other changes in assets and liabilities:
Accounts receivable 3,010 79,470 (133,776)
Income tax refunds receivable (72,067) (6,485) (5.917)
Gas stored underground (5,683) (15.755) (18,208)
Accounts payable 38,788 (52.827) 96,012 Accrued taxes 18,915 11,734 3,392 Manufactured gas plants insurance refunds (21,541)
Other 42,075 (52.123) (5,144)
Net cash flows from operating activities 544,040 426,111 393,090 Cash flows from financing activities:
Common stock dividends (180,987) (158,231) (157,964)
Proceeds from issuance of common stock 56,066 288,553 1,069 Proceeds from issuance of preferred stock of subsidiary 144,602 Redemption of preferred stock of subsidiary (56,389)
Net change in Resources' credit facility (383,610) 63,110 181,652 Proceeds from issuance of exchangeable senior notes 402,500 Proceeds from issuance of other long-term debt 300,023 513,530 107,747 Reductions inother long-term debt (20,818) (145,359) (53,572)
Net change in commercial paper and other short-term borrowings 200,145 (320,449) 147,277 Net change in loans to discontinued operations 49,320 (39,556) (87,112)
Other (24,262) (31,073) (28,534)
Net cash flows from financing activities 84,090 170,525 513,063 Cash flows used for investing activities:
Construction and acquisition expenditures:
Regulated domestic utilities (404,736) (340,789) (304,656)
Non-regulated businesses (218,282) (332,2531 (529,675)
Corporate Services and other (33,774) (40,019) (11,123)
Nuclear decommissioning trust funds (22,923) (22,100) (22,100)
Proceeds from formation of ATC and other asset dispositions 27,644 107,934 30,890 Other 19,413 (29,035) (32,589)
Net cash flows used for investing activities 1632,658) (656,262) (869,253)
Net increase (decrease) in cash and temporary cash investments (4,528) (59,626) 36,900 Cash and temporary cash investments at beginning of period 68,400 128,026 91,126 Cash and temporary cash investments at end of period $63,872 $68,400 $128,026 Supplemental cash flows information:
Cash paid during the period for:
Interest $184,146 $180,356 $158,850 Income taxes, net of refunds $29,359 $70,895 $117,226 Noncash investing and financing activities:
Capital lease obligations incurred and other $19,101 $19,967 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ALLIANT ENERGY 2002 ANNUAL REPORT 33
ConsolidatedFinancialStatements (conitinued)
Consolidated Statements of Capitalization December 31, 2002 2001 (inthousands)
Common equity $1,836,190 $1,918,341 Cumulative preferred stock of subsidiaries, net (Note 7(b)) 205,063 113,953 Long-term debt:
First Mortgage Bonds:
7.75%, due 2004 62,000 62,000 1.85% variable rate at December 31, 2002 to 7.6% fixed rate, due 2005 88,000 88,000 7-1/4% to 8%, due 2007 52,450 52,450 1.6% variable rate at December 31, 2002, due 2014 8,500 8,500 1.85% to 2.1 %variable rate at December 31, 2002, due 2015 30,600 30,600 8-5/8%, due 2021 20,000 20,000 7-5/8%, due 2023 94,000 94,000 8.6%, due 2027 70,000 70,000 425,550 425,550 Collateral Trust Bonds:
7.25%, due 2006 60,000 60,000 6-7/8%, due 2007 55,000 55,000 6%, due 2008 50,000 50,000 5.5% to 7%, due 2023 69,400 69.400 234,400 234,400 Pollution Control Revenue Bonds:
5.75% to 6.35%, partially retired in 2002, due 2003 to 2012 14,930 15,490 2.8% variable rate at December 31, 2002 to 6.35% fixed rate, due 2003 to 2023 10,100 10,100 4.05% to 4.30% through 2004 fixed/variable rate, due 2005 to 2023 25,900 25,900 50,930 51,490 Other long-term debt:
Senior notes, 9.75%. due 2013 300,000 Senior notes, 7%, due 2011 300,000 300,000 Senior notes, 7.375%, due 2009 250,000 250,000 Senior notes. 8.59%, due 2004 24,000 24,000 Exchangeable senior notes, 7.25% through February 2003, 2.5% thereafter, due 2030 402,500 402,500 Senior debentures, 6-5/8% to 6-3/4%, due 2009 to 2011 335,000 335,000 Debentures, 5.7% to 7-5/8%, due 2007 to 2010 265,000 265,000 Whiting credit facility, 3.63% at December 31, 2002, due 2005 185,000 Subordinated deferrable interest debentures, 7-7/8%, due 2025 50,000 50,000 Multifamily housing revenue bonds, 1.75% variable rate at December 31, 2002, due 2036 34,075 34,075 Multifamily housing revenue bonds, 7%to 7.55%, due 2003 to 2024 4,755 4,841 Resources' credit facility, 3%to 3.45% at December 31, 2001, retired in 2002 383,610 Other, 1%to 11.34%, due 2003 to 2045 251,841 116,814 3,113,051 2,877,280 Less:
Current maturities (46,591) (10,506)
Variable rate demand bonds (55,100) (55,100)
Unamortized debt discount, net (373,557) (353,733)
Total long-term debt (excluding current portion) 2,637,803 2,457,941 Total capitalization S4,679,056 $4,490,235 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
34 ALLIANT ENERGY 2002 ANNUAL REPORT
Consolidated Statements of Changes in Common Equity Accumulated Shares in Additional Other Deferred Total Common Paid-In Retained Comprehensive Compensation Common Stock Capital Earnings Income (Loss) Trust Equity (inthousands) 2000:
Beginning balance (a) $790 $942,408 $577,464 $634,903 $- $2,155,565 Net income 398,662 398,662 Unrealized holding losses on securities, net of tax of ($77,853) (105,292) (105,292)
Less: adjustment for gain on reclassification of investments included innet income, net of tax of $134,053 187,296 187,296 Less: reclassification adjustment for other gains included in net income, net of tax of $8,426 16,370 16,370 Net unrealized losses on securities (308,958) (308,958)
Foreign currency translation adjustments (50.400) (50,400)
Unrealized holding losses on derivatives due to cumulative effect of a change inaccounting principle, net of tax of ($4,693) (6,582) (6,582)
Other unrealized holding losses on derivatives, net of tax of ($2,560) (3.427) (3,427)
Less: reclassification adjustment for losses included in net income, net of tax of ($4,502) (6,331) (6,331)
Net unrealized losses on qualifying derivatives (3,678) (3,678)
Total comprehensive income 35,626 Common stock dividends (157,964) (157,964)
Common stock issued 5,096 (851) 4,245 Ending balance 790 947,504 818,162 271,867 (851) 2,037,472 2001:
Net income 172,362 172,362 Unrealized holding losses on securities, net of tax of ($240,579) (343,285) (343,285)
Less: reclassification adjustment for gains included innet income, net of tax of $- 259 259 Net unrealized losses on securities (343,544) (343,544)
Foreign currency translation adjustments (66,830) (66,830)
Minimum pension liability adjustments, net of tax of ($11,022) (16,378) (16,378)
Unrealized holding losses on derivatives, net of tax of ($1,569) (1,003) (1,003)
Less: reclassification adjustment for losses included in net income, net of tax of ($2,078) (3,454) (3,454)
Net unrealized gains on qualifying derivatives 2,451 2,451 Total comprehensive loss (251,9391 Common stock dividends (158,231) (158,231)
Common stock issued 107 292,289 _ (1,357) 291,039 Ending balance 897 1,239,793 832,293 (152.434) (2,208) 1,918,341 2002:
Net income 106,881 106,881 Unrealized holding losses on securities, net of tax of ($8,544) (11,069) (11,069)
Less: reclassification adjustment for losses included in net income, net of tax of ($14,393) (23,146) (23,146)
Net unrealized gains on securities 12,077 12,077 Foreign currency translation adjustments, net of tax (37,785) (37,785)
Minimum pension liability adjustments, net of tax of ($18,874) (27,226) (27,226)
Unrealized holding losses on derivatives, net of tax of ($2,765) (Z671) (2,671)
Less: reclassification adjustment for gains included in net income, net of tax of $1,658 1,904 1,904 Net unrealized losses on qualifying derivatives (4.575) (4,575)
Total comprehensive income 49,372 Common stock dividends (180,987) (180,987)
Common stock issued 26 58,338 (4,688) 53,676 Redemption of preferred stock of subsidiary (4,212) (4,212)
Ending balance $923 $1,293,919 S758,187 ($209,943) ($6,896) $1,836,190 (a) Accumulated other comprehensive income (loss) at December 31, 1999 consisted of $644,481 of net unrealized gains on securities and ($9,578) of foreign currency translation adjustments.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ALLIANT ENERGY 2002 ANNUAL REPORT 35
Notes to ConsolidatedFinancialStatements (1) Summary of Significant Accounting Policies (a) General - The consolidated financial statements include the The consolidated financial statements reflect investments in accounts of Alliant Energy and its consolidated subsidiaries. controlled subsidiaries on a consolidated basis. All significant Alliant Energy is an investor-owned public utility holding intercompany balances and transactions, other than certain company, whose primary subsidiaries are IP&L, WP&L, energy-related transactions affecting the utility subsidiaries, Resources and Corporate Services. On Jan. 1, 2002, IPC have been eliminated from the consolidated financial merged with and into IESU and IESU changed its name to statements. Such energy-related transactions not eliminated are IP&L. Since IPC and IESU were both wholly-owned made at prices that approximate market value and the operating subsidiaries of Alliant Energy, the transaction had no associated costs are recoverable from customers through the impact on the consolidated financial statements. IP&L and rate making process. The consolidated financial statements are WP&L are utility subsidiaries that are engaged principally in prepared in conformity with GAAP, which give recognition to the generation, transmission, distribution and sale of electric the rate making and accounting practices of FERC and state energy; the purchase, distribution, transportation and sale of commissions having regulatory jurisdiction. The preparation natural gas; and the provision of steam and water services in of the consolidated financial statements requires management Iowa, Wisconsin, Minnesota and Illinois. Resources (through to make estimates and assumptions that affect: a) the reported its numerous direct and indirect subsidiaries) is comprised of amounts of assets and liabilities and the disclosure of various business units: International, Non-regulated contingent assets and liabilities at the date of the financial Generation, Integrated Services, Investments and Energy statements; and b) the reported amounts of revenues and Technologies. International holds interests in global expenses dtiring the reporting period. Actual results could partnerships to develop energy generation, delivery and differ from those estimates. Certain prior period amounts have infrastructure in growing international markets, including been reclassified on a basis consistent with the current year Australia, Brazil, China and New Zealand. Alliant Energy is, presentation.
however, currently in the process of selling its investments in Australia. Non-regulated Generation intends to build or Unconsolidated investments for which Alliant Energy has at acquire a portfolio of competitive electric generating assets in least a 20% non-controlling voting interest are generally select business areas of the U.S. Integrated Services provides a accounted for under the equity method of accounting. These wide range of energy and environmental services for investments are stated at acquisition cost, increased or commercial, industrial, institutional, educational and decreased for Alliant Energy's equity in net income or loss, governmental customers. Investments includes ownership of which is included in "Equity (income) loss from an oil and gas production company, transportation companies, unconsolidated investments" in the Consolidated Statements of affordable-housing properties and various other investments. Income and decreased for any dividends received. These Alliant Energy is, however, currently in the process of selling its investments are also increased or decreased for Alliant Energy's oil and gas and affordable housing businesses. Energy proportionate share of the investee's other comprehensive Technologies invests in leading-edge energy technologies, such income (loss), which is included in "Accumulated other as microturbines, fuel cells, solar concepts and wind turbines. comprehensive loss" on the Consolidated Balance Sheets.
Mass Marketing has interests in energy marketing businesses. Investments that do not meet the criteria for consolidation or In January 2003, Alliant Energy committed to a plan to sell the equity method of accounting are accounted for under the SmartEnergy, an internet-based energy retailer, and Alliant cost method. Refer to Note 9 for discussion of Alliant Energy's Energy is in the process of disbanding its Mass Marketing cost method investments that are marked-to-market in business unit. Corporate Services is the subsidiary formed to accordance with SFAS 115, "Accounting for Certain provide administrative services to Alliant Energy and its Investments in Debt and Equity Securities."
subsidiaries as required under PUHCA.
(b) Regulation - Alliant Energy is a registered public utility At Dec. 31, 2002, the assets and liabilities ofAlliant Energy's holding company subject to regulation by the SEC under oil and gas (Whiting), Australian (including Southern Hydro) PUHCA. The utility subsidiaries are subject to regulation and affordable housing businesses were classified as held for under PUHCA, FERC and their respective state regulatory sale. The operating results for these non-regulated businesses commissions.
for all periods presented have been separately classified and reported as discontinued operations in the Consolidated Financial Statements and Notes to Consolidated Financial Statements. Refer to Note 16 for additional information.
36 ALLIANT ENERGY 2002 ANNUAL REPORT
(c) Regulatory Assets and Liabilities - Alliant Energy is subject to the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation," which 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 accrued as regulatory liabilities and are recognized in the Consolidated Statements of Income at the time they are reflected in rates. As of Dec. 31, 2002, IP&L and WP&L had approximately $7 million and $6 million, respectively, of regulatory assets that were not earning returns. At Dec. 31, 2002 and 2001, regulatory assets and liabilities were comprised of the following items (in millions):
Regulatory Assets Regulatory Liabilities 2002 2001 2002 2001 Tax-related (Note 1(d)) S177.6 $115.3 $83.8 $15.1 Environmental-related 64.9 63 1 5.1 5.2 Energy efficiency program costs 46.7 39.9 - -
Other 59.2 43.3 22.3 11.4
$348.4 $261.6 $111.2 $31.7 If a portion of the utility subsidiaries' operations becomes no longer subject to the provisions of SFAS 71 as a result of competitive restructuring or otherwise, a write-down of related regulatory assets would be required, unless some form of transition cost recovery is established by the appropriate regulatory body that would meet the requirements under GAAP for continued accounting as regulatory assets during such recovery period. In addition, each utility subsidiary would be required to determine any impairment of other assets and write-down such assets to their fair value.
(d) Income Taxes - Alliant Energy is subject to the provisions of SFAS 109, Accounting for Income Taxes," and follows the liability method of accounting for deferred income taxes, which requires the establishment of deferred tax assets and liabilities, as appropriate, for all temporary differences between the tax basis of assets and liabilities and the amounts reported in the consolidated financial statements. Deferred taxes are recorded using currently enacted tax rates.
Except as noted below, income tax expense includes provisions for deferred taxes to reflect the tax effects of temporary differences between the time when certain costs are recorded in the accounts and when they are deducted for tax return purposes. As temporary differences reverse, the related accumulated deferred income taxes are reversed to income. Investment tax credits have been deferred and are subsequently credited to income over the average lives of the related property. Other tax credits reduce income tax expense in the year claimed and are generally related to nonconventional fuel and research and development.
Consistent with Iowa rate making practices for IP&L, deferred tax expense is not recorded for certain temporary differences (primarily related to utility property, plant and equipment). As the deferred taxes become payable (over periods exceeding 30 years for some generating plant differences) they are recovered through rates. Accordingly, IP&L has recorded deferred tax liabilities and regulatory assets for certain temporary differences, as identified in Note I (c). In Wisconsin, the PSCW has allowed rate recovery of deferred taxes on all temporary differences since August 1991. WP&L established a regulatory asset associated with those temporary differences occurring prior to August 1991 that will be recovered in future rates through 2007.
(e) Common Shares Outstanding - A reconciliation of the weighted average common shares outstanding used in the basic and diluted earnings per share calculation was as follows:
Weighted average common shares outstanding: 2002 2001 2000 Basic earnings per share calculation 90,896,885 80,497,823 79,002,643 Effect of dilutive securities 62,177 138,006 190,134 Diluted earnings per share calculation 90,959,062 80,635,829 79,192,777 ALLIANT ENERGY 2002 ANNUAL REPORT 37
Notes to ConsolidatedFinancialStatements (continuied)
In 2002, 2001 and 2000, 3,338,978, 1,501,854, and 1,358,597 options, respectively, to purchase shares of common stock, with average exercise prices of $29.67, $31.08, and $30.27, respectively, were excluded from the calculation of diluted earnings per share as the exercise prices were greater than the average market price.
(f) Temporary Cash Investments and Restricted Cash - Temporary cash investments are stated at cost, which approximates market value, and are considered cash equivalents for the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows.
These investments consist of short-term liquid investments that have maturities of less than 90 days from the date of acquisition. At Dec. 31, 2002 and 2001, restricted cash was primarily related to borrowing requirements for the construction of various power plants in China.
(g) Depreciation of Utility Property, Plant and Equipment - The utility subsidiaries use a combination of remaining life, straight-line and sum-of-the-years-digits depreciation methods as approved by their respective regulatory commissions. The remaining life of DAEC, of which IP&L is a co-owner, is based on the Nuclear Regulatory Commission license end-of-life of 2014. The remaining depreciable life of Kewaunee, of which WP&L is a co-owner, is based on the PSCW approved revised end-of-life of 2010.
Depreciation expense related to the decommissioning of DAEC and Kewaunee is discussed in Note 11 (f). The average rates of depreciation for electric and gas properties, consistent with current rate making practices, were as follows:
IP&L WP&L 2002 2001 2000 2002 2001 2000 Electric 3.4% 3.5% 3.5% 3.6% 3.7% 3.6%
Gas 2.9% 3.6% 3.5% 4.1% 4.1% 4.1%
(h) Property, Plant and Equipment - Utility plant (other (i) Operating Revenues - Revenues from IP&L and WP&L than acquisition adjustments) is recorded at original cost, are primarily from the sale and delivery of electricity and which includes overhead, administrative costs and AFUDC. At natural gas and are recorded under the accrual method of Dec. 31, 2002 and 2001, IP&L had $22.0 million and $23.2 accounting and recognized upon delivery. Revenues from million, respectively, of acquisition adjustments, net of Alliant Energy's non-regulated businesses are primarily from accumulated amortization, included in utility plant ($4.9 the sale of energy or services and are recognized based on million and $5.2 million, respectively, of such balances are output delivered or services provided as specified under currently being recovered in IP&L's rates). The aggregate gross contract terms. Alliant Energy accrues revenues for services AFUDC recovery rates, computed in accordance with the rendered but unbilled at month-end. In 2000, Alliant Energy prescribed regulatory formula, were as follows: recorded an increase of $10 million at WP&L in the estimate of utility services rendered but unbilled at month-end due to 2002 2001 2000 the implementation of refined estimation processes.
IP&L 6.9% 7.7% 6.6%
WP&L 2.6% 7.9% 10.8% (j) Utility Fuel Cost Recovery - IP&L's retail tariffs provide for subsequent adjustments to its electric and natural gas rates for changes in the cost of fuel, purchased energy and natural Non-regulated property, plant and equipment is recorded at gas purchased for resale. Changes in the under/over collection original cost. The majority of the non-regulated property, of these costs are reflected in "Electric and steam production plant and equipment is depreciated using the straight-line fuels" and "Cost of utility gas sold" in the Consolidated method over periods ranging from five to 20 years. Upon Statements of Income. The cumulative effects are reflected on retirement or sale of property and equipment, the cost and the Consolidated Balance Sheets as a current regulatory asset or related accumulated depreciation are removed from the liability, pending automatic reflection in future billings to accounts and any gain or loss is included in "Miscellaneous, customers. At IP&L, purchased-power capacity costs are not net" in the Consolidated Statements of Income. Ordinary recovered from electric customers through EACs. Recovery of retirements of utility plant, including removal costs less salvage these costs must be addressed in base rates in a formal rate value, are charged to accumulated depreciation upon removal proceeding.
from utility plant accounts and no gain or loss is recognized.
38 ALLIANT ENERGY 2002 ANNUAL REPORT
NVP&L's retail electric rates are based on annual forecasted fuel (n) Derivative Financial Instruments - Alliant Energy uses and purchased-power costs. Under PSCW rules, WP&L can derivative financial instruments to hedge exposures to seek emergency rate increases if the annual costs are more than fluctuations in interest rates, certain electric and gas 3% higher than the estimated costs used to establish rates. Any commodity prices and volatility in a portion of natural gas sales collections in excess of costs incurred will be refunded, with volumes due to weather. Alliant Energy also utilizes derivatives interest. Accordingly, WP&L has established a reserve due to to mitigate the equity price volatility associated with certain overcollection of past fuel and purchased-power costs and investments in equity securities. Alliant Energy does not use expects to refund such amount in 2003. WP&L has a gas such instruments for speculative purposes. The fair value of all performance incentive which includes a sharing mechanism derivatives are recorded as assets or liabilities on the whereby 50% of all gains and losses relative to current Consolidated Balance Sheets and gains and losses related to commodity prices, as well as other benchmarks, are retained by derivatives that are designated as, and qualify as hedges, are WP&L, with the remainder refunded to or recovered from recognized in earnings when the underlying hedged item or customers. physical transaction is recognized in income. Gains and losses related to derivatives that do not qualify for, or are not (k) Nuclear Refueling Outage Costs - The IUB allows IP&L designated in hedge relationships, are recognized in earnings to collect, as part of its base revenues, funds to offset other immediately. The majority of Alliant Energy's derivative operation and maintenance expenditures incurred during transactions are in its regulated domestic utility business and refueling outages at DAEC. As these revenues are collected, an based on the fuel and natural gas cost recovery mechanisms in equivalent amount is charged to other operation and place, as well as other specific regulatory authorizations, maintenance expense with a corresponding credit to a reserve. changes in fair market values of such derivatives generally have During a refueling outage, the reserve is reversed to offset the no impact on Alliant Energy's results of operations. Alliant refueling outage expenditures. Operating expenses incurred Energy has a number of commodity purchase and sales during refueling outages at Kewaunee are expensed by WP&L contracts that have been designated, and qualify for, the as incurred. Scheduled refueling outages occurred most normal purchase and sale exception in SFAS 138, "Accounting recently at DAEC and Kewaunee in Spring and late 2001, for Certain Derivative Instruments and Certain Hedging respectively. The next scheduled refueling outages at DAEC Activities - an Amendment of SFAS 133." Based on this and Kewaunee are anticipated to commence in Spring 2003. designation, these contracts are not accounted for as derivative instruments.
(I) Nuclear Fuel - Nuclear fuel for DAEC is leased. Annual nuclear fuel lease expenses include the cost of fuel, based on Alliant Energy is exposed to losses related to financial the quantity of heat produced for the generation of electricity, instruments in the event of counterparties' non-performance.
plus the lessor's interest costs related to fuel in the reactor and Alliant Energy has established controls to determine and administrative expenses. Nuclear fuel for Kevaunee is recorded monitor the creditworthiness of counterparties in order to at its original cost and is amortized to expense based upon the mitigate its exposure to counterparty credit risk. Alliant quantity of heat produced for the generation of electricity. Energy is not aware of any material exposure to counterparty This accumulated amortization assumes spent nuclear fuel will credit risk. Refer to Note 10 for further discussion of Alliant have no residual value. Estimated future disposal costs of such Energy's derivative financial instruments.
fuel are expensed based on KWhs generated. Refer to Note 3 for additional information on DAEC's nuclear fuel lease. (o) Accounting for Stock Options - At Dec. 31, 2002, Alliant Energy had two stock-based incentive compensation plans, (m) Translation of Foreign Currenc - Assets and liabilities of which are described more fully in Note 6(b). Alliant Energy international investments, where the local currency is the accounts for stock options issued under these plans under the functional currency, have been translated at year-end exchange recognition and measurement principles of APB 25, rates and related income statement results have been translated "Accounting for Stock Issued to Employees." No stock-based using average exchange rates prevailing during the year. compensation cost is reflected in net income in the Adjustments resulting from translation, including gains and Consolidated Statements of Income, as all options granted losses on intercompany foreign currency transactions which are under those plans had an exercise price equal to the quoted long-term in nature, and which Alliant Energy does not intend market price of the underlying common stock on the date of to settle in the foreseeable future, have been recorded in grant. Alliant Energy adopted the disclosure provisions of "Accumulated other comprehensive loss" on the Consolidated Balance Sheets.
ALLIANT ENERGY 2002 ANNUAL REPORT 39
Notes to ConsolidatedFinancialStatements (conztiniued)
SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS 123," effective for financial statements for fiscal years ending after Dec. 15, 2002. The effect on net income and EPS if Alliant Energy had applied the fair value recognition provisions of SFAS 123, "Accounting for Stock-Based Compensation," to the stock options issued under these plans was as follows (in thousands):
2002 2001 2000 Net income, as reported S106,881 $172,362 $398,662 Less: stock-based compensation expense, net of tax 2,541 2,446 1.284 Pro forma net income S104,340 $169,916 $397,378 EPS (basic):
As reported $1.18 $2.14 $5.05 Pro forma $1.15 $2.11 $5.03 EPS (diluted):
As reported S1.18 $2.14 $5.03 Pro forma S1.15 $2.11 $5.02 (p) Pension Plan - For the defined benefit pension plan If events or circumstances indicate the carrying value of sponsored by Corporate Services, Alliant Energy allocates investments accounted for under the equity method of pension costs and contributions to IP&L, WP&L, Resources accounting may not be recoverable, potential impairmenc is and the parent company based on labor costs of plan assessed by comparing the future anticipated cash flows from participants and any additional minimum pension liability these investments to their carrying values. The estimated fair based on each group's funded status. value less cost to sell of assets held for sale are compared each reporting period to their carrying values. Impairment charges (q) Asset Valuations - Long-lived assets, excluding goodwill are recorded for equity method investments and assets held for and regulatory assets, are reviewed for possible impairment sale if the carrying value of such asset exceeds the future whenever events or changes in circumstances indicate the anticipated cash flows or the estimated fair value less cost to carrying value of the assets may not be recoverable. sell, respectively.
Impairment is indicated if the carrying value of an asset exceeds its undiscounted future cash flows. An impairment charge is (2) Utility Rate Matters recognized equal to the amount the carrying value exceeds the asset's fair value. The fair value is determined by the use of In 2002, IP&L filed electric and gas rate cases in Iowa.
quoted market prices, appraisals, or the use of other valuation Interim rates, subject to refund, were granted for $15 million techniques such as expected discounted future cash flows. and $17 million for electric and gas, respectively. IP&L expects final rates to be in place in June 2003 for the electric Goodwill represents the excess of the purchase price over the case and July 2003 for the gas case. Although it is possible that fair value of the identifiable net tangible and intangible assets final rates could be lower than interim rates, IP&L does not acquired in a business combination. Effective January 1, 2002 believe this to be probable and therefore has not recorded any with the adoption of SFAS 142, "Goodwill and Other reserves related to potential refund obligations.
Intangible Assets," goodwill is required to be evaluated for impairment at least annually and more frequently if indicators In 2002 and 2001, WP&L had an electric fuel cost recovery of impairment exist. If the fair value of a reporting unit is less mechanism that required WP&L to refund any overcollection than its carrying value, including goodwill, an impairment of fuel and purchased-power costs. WP&L has recorded the charge may be necessary. The fair value of reporting units is necessary reserve for refunds at Dec. 31, 2002 and 2001. In determined by utilizing a combination of market value 2002, WP&L filed a rate case with FERC related to its electric indicators and expected discounted future cash flows. Refer to wholesale customers. An interim rate increase, subject to Note 14 for additional information. refund, of $6 million annually was granted effective April 2002. The case was subsequently settled with final rates of $3 million annually. At Dec. 31, 2002, WP&L recorded a reserve for the difference between interim and final rates.
40 ALLIANT ENERGY 2002 ANNUAL REPORT
(3) Leases IP&L has a capital lease covering its 70% undivided interest in nuclear fuel purchased for DAEC. Annual nuclear fuel lease expenses (included in "Electric and steam production fuels" in the Consolidated Statements of Income) for 2002, 2001 and 2000 were $15.5 million, $14.1 million and $16.0 million, respectively. Alliant Energy's operating lease rental expenses, which include certain purchased-power agreements, for 2002, 2001 and 2000 were $45.1 million, $40.4 million and $24.5 million, respectively. The purchased-power agreements total below includes $463 million and $78 million, respectively, related to a new plant (Riverside) currently under development and the RockGen plant, both in Wisconsin. The Riverside plant is expected to be placed in-service in 2004. The synthetic leases relate to the financing of the corporate headquarters, corporate aircraft, utility railcars and a utility radio dispatch system that were not included on the Consolidated Balance Sheets. Alliant Energy has guaranteed the residual value of its synthetic leases totaling $76 million in the aggregate. The guarantees extend through the maturity of each respective underlying lease with remaining terms up to 13 years. Residual value guarantees have been included in the future minimum lease payments noted in the table below (in millions):
2003 2004 2005 2006 2007 Thereafter Total Operating leases:
Certain purchased-power agreements $18.7 $51.8 $66.3 $67.6 $69.0 $308.6 $582.0 Synthetic leases 10.0 12.1 19.3 24.6 49.0 31.0 146.0 Other 16.3 12.2 9.3 6.3 5.2 44.2 93.5 Total operating leases $45.0 $76.1 $94.9 $98.5 $123.2 $383.8 $821.5 Present Less: value of net amount minimum representing capital lease 2003 2004 2005 2006 2007 Thereafter Total interest payments Capital leases $15.1 $15.8 $9.8 $35.5 $1.7 $1.2 $79.1 $9.3 $69.8 In January 2003, the FASB issued FIN 46, "Consolidation of gas. At Dec. 31, 2002 and 2001, the utility subsidiaries were Variable Interest Entities," which addresses consolidation by serving a diversified base of residential, commercial and business enterprises of variable interest entities, commonly industrial customers and did not have any significant referred to as "special purpose entities." FIN 46 requires concentrations of credit risk.
consolidation where there is a controlling financial interest in a Alliant Energy's utility subsidiaries participate in a combined variable interest entity or where the variable interest entity does utility customer accounts receivable sale program whereby not have sufficient equity at risk to finance its activities without IP&L and WP&L may sell up to a combined maximum additional subordinated financial support from other parties.
amount of $250 million of their respective accounts receivable Alliant Energy will apply the provisions of FIN 46 to a third-party financial institution on a limited recourse basis prospectively for all variable interest entities created after Jan.
through wholly-owned and consolidated variable interest 31, 2003. For variable interest entities created before Jan. 31, entities. Corporate Services acts as a collection agent for the 2003, Alliant Energy will be required to consolidate all variable buyer and receives a fee for collection services that interest entities in which it is the primary beneficiary beginning approximates fair value. The agreement expires in April 2006 in the third quarter of 2003. It is reasonably possible the and is subject to annual renewal or renegotiation for a longer implementation of FIN 46 will require that certain variable period thereafter. Under terms of the agreement, the third-interest entities associated with these synthetic leases be party financial institution purchases the receivables initially for included on the Consolidated Balance Sheets. Alliant Energy is the face amount. On a monthly basis, this sales price is in the process of analyzing each synthetic lease in accordance adjusted, resulting in payments to the third-party financial with FIN 46. Alliant Energy does not anticipate the adoption institution of an amount that varies based on interest rates and of FIN 46 will have a material impact on its results of length of time the sold receivables remain outstanding.
operations given it estimates the fair market value of the Collections on sold receivables are used to purchase additional underlying assets is not materially less than the remaining lease receivables from the utility subsidiaries.
obligations at Dec. 31, 2002.
At Dec. 31, 2002 and 2001, Alliant Energy had sold $202 (4) Utility Accounts Receivable million and $178 million of receivables, respectively. In 2002, Utility customer accounts receivable, including unbilled 2001 and 2000, Alliant Energy received $2.3 billion, $2.2 revenues, arise primarily from the sale of electricity and natural billion and $1.6 billion, respectively, in aggregate proceeds ALLIANT ENERGY 2002 ANNUAL REPORT 41
Notes to ConsolidatedFinancialStatements (coztinuied) from the sale of accounts receivable. The utility subsidiaries use proceeds from the sale of accounts receivable and unbilled revenues to maintain flexibility in their capital structures, take advantage of favorable short-term rates and finance a portion of their long-term cash needs. Alliant Energy paid fees associated with these sales of $4.2 million, $7.9 million and $9.0 million in 2002, 2001 and 2000, respectively.
Alliant Energy and its utility subsidiaries account for the sale of accounts receivable to the third-party financial institution as sales under SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Retained receivables are available to the third-party financial institution to pay any fees or expenses due it, and to absorb all credit losses incurred on any of the sold receivables. Beginning in the third quarter of 2003 under FIN 46, it is reasonably possible that Alliant Energy could be considered the primary beneficiary given the current structure of the variable interest entities related to the program, and could be required to consolidate the operating results and associated assets and liabilities of the variable interest entities in its financial statements. Based on the receivables sold at Dec. 31, 2002, consolidation of the variable interest entities would have resulted in an additional $202 million in accounts receivable and related debt recorded on the Consolidated Balance Sheet. Alliant Energy is currently evaluating the structure of its receivable sales program to determine if this structure can be modified to qualify for off-balance sheet treatment under FIN 46.
(5) Income Taxes The components of income taxes for Alliant Energy were as follows (in millions):
2002 2001 2000 Current tax expense:
Federal S19.4 $51.3 592.1 State 21.6 16.2 24.0 Deferred tax expense (benefit):
Federal 16.8 (9.3) 97.6 State (2.5) (5.6) 18.0 Foreign tax expense 5.5 4.2 0.2 Amortization of investment tax credits (5.2) (5.2) (4-5)
Research and development tax credits (4.5)
Nonconventional fuel credits (14.9) (0.5) (0.9)
Other tax credits (0.1) (0.31 (0.3)
S36.1 $50.8 $226.2 Included in "Cumulative effect of changes in accounting principle, net of tax" in the Consolidated Statements of Income for 2001 and 2000 vas income tax (benefit) expense of ($5.5) million and $9.8 million, respectively, related to the adoption of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" by an equity method foreign affiliate of Alliant Energy on Jan. 1, 2001 and by Alliant Energy's consolidated subsidiaries on July 1, 2000, respectively.
The overall effective income tax rates shown in the following table were computed by dividing total income tax expense by income from continuing operations before income taxes and preferred dividend requirements of subsidiaries.
2002 2001 2000 Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefits 9.7 5.6 6.6 Foreign operations 7.4 (0.81 Adjustment of prior period taxes 1.0 (11.6) 10.6)
Effect of rate making on property related differences 0.1 2.3 0.9 Research and development tax credits (3.8)
Amortization of investment tax credits (4.4) (3.1) (1.0)
Nonconventional fuel credits (12.61 (0.3) (0.2)
Other items, net (1.9) 0.5 (0.6)
Overall effective income tax rate 30.5% 27.6% 40.1%
42 ALLIANT ENERGY 2002 ANNUAL REPORT
The accumulated deferred income tax (assets) and liabilities $6.8 million and $3.8 million, respectively, relating to included on the Consolidated Balance Sheets at Dec. 31 arise approximately $46.6 million, $19.5 million and $10.9 million, from the following temporary differences (in millions): respectively, of unremitted earnings from foreign investments as these earnings are expected to be reinvested indefinitely.
2002 2001 Property related $647.2 $548.8 U.S. and foreign sources of income (loss) from continuing Exchangeable senior notes 140.8 129.7 operations before income taxes were as follows (in millions):
Decommissioning (33.1) (28.6) 2002 2001 2000 Other (128.5) (42.3) U.S. sources $115.3 $156.0 $543.7
$626.4 $607.6 Foreign sources (2.9) 21.0 13.4 Income from continuing At Dec. 31, 2002, 2001 and 2000, Alliant Energy had not operations before income taxes $112.4 $177.0 $557.1 recorded U.S. tax provisions of approximately $16.3 million, (6) Benefit Plans (a) Pension Plans and Other Postretirement Benefits - Alliant Energy has several non-contributory defined benefit pension plans that cover a significant number of its employees. Benefits are based on the employees' years of service and compensation. Alliant Energy also provides certain postretirement health care and life benefits to eligible retirees. In general, the health care plans are contributory with participants' contributions adjusted regularly and the life insurance plans are non-contributory. The weighted-average assumptions at the measurement date of Sept. 30 were as follows:
Qualified Pension Benefits Other Postretirement Benefits 2002 2001 2000 2002 2001 2000 Discount rate 6.75% 7.25% 8.00% 6.75% 7.25% 8.00%
Expected return on plan assets 9% 9% 9% 9% 9% 9%
Rate of compensation increase 3.5-4.5% 3.5-4.5% 3.5-4.5% 3.5% 3.5% 3.5%
Medical cost trend on covered charges:
Initial trend rate N/A N/A N/A 10.8% 12.0% 9.0%
Ultimate trend rate N/A N/A N/A 5% 5% 5%
The components of Alliant Energy's qualified pension benefits and other postretirement benefits costs were as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits 2002 2001 2000 2002 2001 2000 Service cost $12.9 $11.0 $11.1 $5.5 $4.0 $3.7 Interest cost 39.7 38.2 36.7 12.7 10.6 9.8 Expected return on plan assets (41.8) (48.51 (45.7) (5.5) (6.1) (5.3)
Amortization of:
Transition obligation (asset) (2.0) (2.4) (2.4) 3.7 3.7 3.9 Prior service cost 27 2.7 2.6 (0.3) (0.3) (0.3)
Actuarial loss (gain) 2.1 (1.5) (1.0) 0.5 (1.5) (1.9)
$13.6 ($0.5) $1.3 $16.6 $10.4 $9.9 ALLIANT ENERGY 2002 ANNUAL REPORT 43
Notes to ConsolidatedFinancialStatements (conztizued)
The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A 1% change in the medical trend rates for 2002, holding all other assumptions constant, would have the following effects (in millions):
1%Increase 1%Decrease Effect on total of service and interest cost components $1.9 ($1.7)
Effect on postretirement benefit obligation $19.4 ($17.3)
A reconciliation of the funded sratus of Alliant Energy's plans to the amounts recognized on the Consolidated Balance Sheets at Dec. 31 vas as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits 2002 2001 2002 2001 Change inbenefit obligation:
Net benefit obligation at beginning of year S553.3 $483.6 $174.5 $130.7 Service cost 12.9 11.0 5.5 4.0 Interest cost 39.7 38.2 12.7 10.6 Plan participants' contributions - - 1.8 1.9 Plan amendments 1.1 - (0.9) -
Actuarial loss 33.0 56.6 34.3 40.7 Gross benefits paid (31.51 (36.1) (12.2) (13.41 Net benefit obligation at end of year 608.5 553.3 215.7 174.5 Change in plan assets:
Fair value of plan assets at beginning of year 483.3 556.3 73.8 83.0 Actual return on plan assets (25.11 (36.91 (7.2) (6.8)
Employer contributions 40.0 - 11.1 9.1 Plan participants' contributions - - 1.8 1.9 Gross benefits paid (31.5) (36.1) (12.2) (13.41 Fair value of plan assets at end of year 466.7 483.3 67.3 73.8 Funded status at end of year (141.8) (70.01 (148.4) (100.71 Unrecognized net actuarial loss 172.1 74.2 63.4 16.8 Unrecognized prior service cost 19.9 21.5 (0.9) (0.9)
Unrecognized net transition obligation (asset) (1.4) (3.31 36.7 41.1 Net amount recognized at end of year S48.8 $22.4 (S49.21 ($43.71 Amounts recognized on the Consolidated Balance Sheets consist of:
Prepaid benefit cost $70.4 $45.5 $2.3 $2.1 Accrued benefit cost (21.6) (23.1) (51.5) (45.8)
Additional minimum liability (90.0) (36.11 Intangible asset 16.5 8.7 Accumulated other comprehensive loss 73.5 27.4 Net amount recognized at measurement date 48.8 22.4 (49.2) (43.7)
Contributions paid after 9/30 and prior to 12/31 - - 4.0 2.5 Net amount recognized at 12/31 S48.8 $22.4 (S45.2) ($41.2) 44 ALLIANT ENERGY 2002 ANNUAL REPORT
The benefit obligation and fair value of plan assets for the postretirement welfare plans with benefit obligations in excess of plan assets were $213.9 million and $64.3 million, respectively, at Sept. 30, 2002 and $167.8 million and $64.5 million, respectively, at Sept.
30, 2001. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the qualified pension plans with accumulated benefit obligations in excess of plan assets were $452.4 million, $418.8 million and $313.2 million, respectively, at Sept. 30, 2002 and $293.9 million, $283.7 million and $225.7 million, respectively, at Sept. 30, 2001. Alliant Energy's net periodic benefit cost is primarily included in "Other operation and maintenance" in the Consolidated Statements of Income. For the various Alliant Energy pension and postretirement plans, Alliant Energy common stock represented less than 1% of total plan investments at Dec. 31, 2002 and 2001.
Alliant Energy sponsors several non-qualified pension plans that cover certain current and former key employees. At both Dec. 31, 2002 and 2001, the funded balances of such plans totaled approximately $4 million, none of which consisted of Alliant Energy common stock. Alliant Energy's pension benefit obligation under these plans was $38.2 million and $34.4 million at Dec. 31, 2002 and 2001, respectively. Alliant Energy's pension expense under these plans was $4.3 million, $3.4 million, and $3.6 million in 2002, 2001 and 2000, respectively.
Alliant Energy has various life insurance policies that cover certain key employees and directors. At Dec. 31, 2002 and 2001, the cash surrender value of these investments was $32 million and $30 million, respectively. Under Alliant Energy's deferred compensation plans, certain key employees and directors can defer part or all of their current compensation in company stock or interest accounts, which are held in grantor trusts. At Dec. 31, 2002 and 2001, the fair market value of the trusts totaled approximately $4.9 million and $2.2 million, respectively, the majority of which consisted of Alliant Energy common stock. A significant number of Alliant Energy employees also participate in defined contribution pension plans (401 (k) and Employee Stock Ownership plans). Alliant Energy's contributions to the plans, which are based on the participants' level of contribution, were $9.2 million, $8.2 million, and
$8.1 million in 2002, 2001 and 2000, respectively.
(b) Equity Incentive Plans - In 2002, Alliant Energy shareowners approved the 2002 Equity Incentive Plan (EIP) that permits the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and performance units to key employees. At Dec. 31, 2002, non-qualified stock options were outstanding under this plan. The maximum number of shares of Alliant Energy common stock that may be issued under the plan is 4 million.
Alliant Energy also has a Long-Term Equity Incentive Plan (LTEIP) that permits the grant of incentive stock options, non-qualified stock options, restricted stock, performance shares and performance units to key employees. At Dec. 31, 2002, non-qualified stock options, restricted stock and performance shares were outstanding. The maximum number of shares of Alliant Energy common stock that may be issued under the plan is 3.8 million. This plan expires January 2004, at which time no further grants may be made under this plan.
Options granted to date under the plans were granted at the quoted market price of the shares on the date of grant, vest over three years and expire no later than 10 years after the grant date. Options become fully vested upon retirement and remain exercisable at any time prior to their expiration date, or for three years after the effective date of the retirement, whichever period is shorter.
Participants' options that are not vested become forfeited when participants leave Alliant Energy and their vested options expire after three months. A summary of the stock option activity was as follows:
2002 2001 2000 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding at beginning of year 2,917.229 $30.03 2,265,862 $29.67 1,543,028 $30.32 Options granted 945,863 27.79 721,072 31.14 899,094 28.59 Options exercised - - (42,432) 29.87 (15,486) 30.03 Options forfeited (20,956) 29.41 (27,273) 30.07 (160,774) 29.90 Outstanding at end of year 3,842,136 29.48 2,917,229 30.03 2,265,862 29.67 Exercisable at end of year 2,242,187 29.93 1,593,047 29.94 962.073 30.12 ALLIANT ENERGY 2002 ANNUAL REPORT 45
Notes to ConsolidatedFinancialStatements (continued)
The range of exercise prices for the options outstanding at Dec. (7) Common and Preferred Stock 31, 2002 was $27.50 to $31.56. The weighted-average (a) Common Stock - The number of shares of common stock remaining contractual life of outstanding options at Dec. 31, issued by Alliant Energy under its various stock plans vas as 2002, 2001 and 2000 was 7.4 years, 7.7 years and 8.3 years, follows:
respectively. The value of the options granted during the year using the Black-Scholes pricing method was as follows: 2002 2001 2000 Beginning balance 89,682,334 79,010,114 78,984,014 2002 2001 2000 Shares issued:
Value of options S9.14 $4.30 $7.71 Public offering - 9,775,000 Volatility 40.6% 18.9% 32.7%
Shareowner Direct Plan 1,877,032 668,379 5,666 Risk free interest rate 5.0% 5.0% 5.7%
401(k) Savings Plan 689,336 161,239 -
Expected life 10 years 1O yeats 10years Equity incentive plans 55,518 67,602 20,434 Expected dividend yield 6.0% 6.6% 6.3%
Ending balance 92,304,220 89,682,334 79,010.114 At Dec. 31, 2002 and 2001, Alliant Energy had 1,745 and In November 2001, Alliant Energy completed a public offering 61,137 shares of restricted stock outstanding, respectively. Any of its common stock generating net proceeds of approximately unvested shares of restricted stock become fully vested upon
$263 million which were used to repay short-term debt. From retirement. Participants' unvested restricted stock is forfeited January 2000 to June 2001, Alliant Energy satisfied its when the participant leaves Alliant Energy. Compensation requirements under the Shareowner Direct Plan (dividend cost, which is recognized over the three-year restriction period, reinvestment and stock purchase plan) by acquiring Alliant was $0.2 million, $0.6 million and $0.6 million in 2002, 2001 Energy common stock on the open market, rather than and 2000, respectively. through original issue. In 2000, 5,666 shares of common The payout to key employees of Corporate Services for stock were issued related to an adjustment of a prior performance shares is contingent upon achievement over a acquisition of oil and gas properties. At Dec. 31, 2002 and three-year period of specified earnings per share growth and 2001, Alliant Energy had a total of 6.8 million and 2.6 million shares, respectively, available for issuance in the aggregate, total return to shareowners of Alliant Energy compared with an pursuant to its Shareowner Direct Plan, LTEIP, EIP and 401(k) investor-owned utility peer group. The payout to key Savings Plan.
employees of Resources is contingent upon achievement over a three-year period of specified Resources earnings per share Alliant Energy has a Shareowner Rights Plan whereby rights growth. Performance shares are paid out in shares of Alliant will be exercisable only if a person or group acquires, or Energy's common stock or a combination of cash and stock announces a tender offer to acquire, 15% or more of Alliant and are modified by a performance multiplier, which ranges Energy's common stock. Each right will initially entitle from zero to two, based on the performance criteria. shareowners to buy one-half of one share of Alliant Energy's Performance shares have an intrinsic value equal to the quoted common stock. The rights will only be exercisable in multiples market price of a share on the date of grant. Pursuant to APB of two at an initial price of $95.00 per full share, subject to 25, Alliant Energy accrues the plan expense over the three-year adjustment. If any shareowner acquires 15% or more of the period the services are performed and recognized (income) outstanding common stock of Alliant Energy, each right expense of ($1.6) million, $2.4 million and $0.4 million in (subject to limitations) will entitle its holder to purchase, at the 2002, 2001 and 2000, respectively. right's then current exercise price, a number of common shares of Alliant Energy or of the acquirer having a market value at the time of twice the right's per full share exercise price. The Board of Directors is also authorized to reduce the 15%
ownership threshold to not less than 10%.
Alliant Energy's utility subsidiaries each have dividend payment restrictions based on their respective bond indentures, the terms of their outstanding preferred stock and state regulatory limitations applicable to them. WP&Lls preferred stock restricts dividends to the extent that such dividend would 46 ALLIANT ENERGY 2002 ANNUAL REPORT
reduce the common stock equity ratio to less than 25%. In its September 2002 rate order, the PSCW stated it must approve the payment of dividends by WP&L to Alliant Energy in excess of the level forecasted in the order ($62 million annually) if such dividends vould reduce WP&L's common equity ratio below 44.67% of total capitalization. In accordance with the IUB order authorizing the IP&L merger, IP&L must inform the IUB if its common equity ratio falls below 42% of total capitalization. As of Dec. 31, 2002, Alliant Energy's utility subsidiaries were in compliance with all such dividend restrictions.
In 2002, 11 non-employee directors received 1,000 shares each of Alliant Energy common stock through the Shareowner Direct Plan as part of the directors' compensation program, for a total of approximately $337,000. In 2001, 14 non-employee directors received up to 1,000 shares each of Alliant Energy common stock through the Shareowner Direct Plan, for a total of approximately $338,000.
In 2000, 12 non-employee directors received up to $20,000 each in Alliant Energy common stock, for a total of approximately
$222,000.
(b) Preferred Stock - In September 2002, IP&L redeemed all of its then outstanding shares of preferred stock. In December 2002, IP&L issued six million shares of preferred stock at $25.00 per share in a private placement. IP&L used the net proceeds of approximately $145 million to repay its short-term debt and for general corporate purposes, including to fund capital expenditures and to repay other debt. The fair market value of Alliant Energy's cumulative preferred stock of subsidiaries, based upon the market yield of similar securities and quoted market prices, at Dec. 31, 2002 and 2001 was $198 million and $99 million, respectively.
Information related to the carrying value of Alliant Energy's cumulative preferred stock of subsidiaries, net at Dec. 31 was as follows (in millions):
2002 2001 Par/Stated Authorized Shares Mandatory Value Shares Outstanding Series Redemption
$25 16.000,000 6.000,000 8.375% No S150.0 $-
$100 449,765 4.40% -6.20% No 45.0 45.0
$25 599,460 6.50% No 15.0 15.0
$50 466,406 366,406 4.30% -6.10% No - 18.3
$50 ... 216,381 4.36%-7.76% No - 10.8
$50 ... 545,000 6.40% $50 / share - 27.3 210.0 116.4 Less: unamortized expenses (4.9) (2.4)
$205.1 $114.0 3,750,000 authorized shares intotal. Fully retired in 2002. 2,000,000 authorized shares in total, fully retired in2002.
(8) Debt (a) Short-Term Debt - To provide short-term borrowing flexibility and security for commercial paper outstanding, Alliant Energy and its subsidiaries maintain bank lines of credit, of which most require a fee. Alliant Energy discontinued the use of its utility money pool in 2002 and WP&L and IP&L are now meeting any short-term borrowing needs they have by issuing commercial paper and borrowing on its bank lines of credit, respectively. At Dec. 31, 2001, IP&L and WP&L had money pool borrowings of $38.0 million and $90.8 million, respectively. Information regarding short-term debt was as follows (dollars in millions):
2002 2001 At Dec. 31:
Commercial paper outstanding $195.5 $68.4 Discount rates on commercial paper 1.6-1.9% 2.4-3.2%
Bank facility borrowings $85.0 $-
Interest rates on bank facility borrowings 2.3-2.4% N/A Short-term borrowings at foreign subsidiaries $28.7 $84.3 Interest rates on foreign short-term borrowings 5.3-6.9% 5.6-6.9%
For the year ended:
Average amount of short-term debt (based on daily outstanding balances) $337.9 $274.1 Average interest rates on short-term debt 27% 4.8%
ALLIANT ENERGY 2002 ANNUAL REPORT 47
Notes to ConsolidatedFinancialStatements (conttinu{ed)
(b) Long-Term Debt - The former IESU indentures securing its First Mortgage and Collateral Trust Bonds constitute direct first mortgage liens and a second lien while First Mortgage Bonds remain outstanding, respectively, upon substantially all tangible public utility property of IP&L (excluding those of the former IPC). WlP&Lls and the former IPC's First Mortgage Bonds are secured by substantially all of their utility plant. IP&L, WIP&L and Resources also maintain indentures relating to the issuance of unsecured debt securities.
In December 2002, Resources issued $300 million of 9.75% senior notes due 2013 in a private placement. The notes are unconditionally guaranteed by Alliant Energy. Resources used the proceeds to repay short-term debt. In November 2001, Resources issued $300 million of senior notes at a fixed interest rate of 7%, due 2011. The notes are fully and unconditionally guaranteed by Alliant Energy. Resources used the proceeds to repay other Resources' debt. In March 2001, IP&L issued $200 million of senior unsecured debentures at a fixed interest rate of 6-3/4%, due 2011. IP&L used the proceeds to repay short- and long-term debt.
Debt maturities for 2003 to 2007 are $47 million, $106 million, $337 million, $68 million and $225 million, respectively.
Depending upon market conditions, it is currently anticipated that a majority of the maturing debt will be refinanced with the issuance of long-term securities.
The carrying value of Alliant Energy's long-term debt (including current maturities and variable rate demand bonds) at Dec. 31, 2002 and 2001 was $2.7 billion and $2.5 billion, respectively. The fair market value, based upon the market yield of similar securities and quoted market prices, at Dec. 31, 2002 and 2001 was $2.9 billion and $2.6 billion, respectively.
(9) Investments and Estimated Fair Value of Financial Instruments The carrying amount of Alliant Energy's current assets and current liabilities approximates fair value because of the short maturity of such financial instruments. Since IP&L and WP&L are subject to regulation, any gains or losses related to the difference between the carrying amount and the fair value of their financial instruments may not be realized by Alliant Energy's shareowners. Information relating to various investments held by Alliant Energy at Dec. 31 that are marked-to-market as a result of SFAS 115 were as follows (in millions):
2002 2001 Unrealized Unrealized Carrying/Fair Gains, Carrying/Fair GainsALosses),
Value Net of Tax Value Net of Tax Available-for-sale securities:
Nuclear decommissioning trust funds:
Debt securities $206 S9 $191 $3 Equity securities 139 13 142 42 Total 345 22 333 45 Investment in McLeod 2 - 14 (9)
Various other investments 19 3 23 1 Trading securities:
Investment in McLeod 1 (a) 6 (al (a) Adjustments to the trading securities are reflected inearnings in the Miscellaneous, net" line inthe Consolidated Statements of Income.
Nuclear Decommissioning Trust Funds - At Dec. 31, 2002, $114 million, $43 million and $49 million of the debt securities mature in 2003-2010, 2011-2020 and 2021-2049, respectively. The fair value of the nuclear decommissioning trust funds was, as reported by the trustee, adjusted for the tax effect of unrealized gains and losses. Net unrealized holding gains were recorded as part of accumulated provision for depreciation of related plant assets. The funds realized gains from the sales of securities of $10.4 million, $2.0 million and $5.0 million in 2002, 2001 and 2000, respectively (cost of the investments based on specific identification was $111.1 million, $169.8 million and $213.4 million, respectively, and proceeds from the sales were $121.5 million, $171.8 million and $218.4 million, respectively).
48 ALLIANT ENERGY 2002 ANNUAL REPORT
Investment in McLeod - Alliant Energy has investments in the common stock of McLeod, a telecommunications company. In accordance with SFAS 115, the carrying values of the investments are adjusted to estimated fair value based upon McLeod's closing price at the end of each quarter. Changes in fair value of investments designated as available-for-sale securities are reported in other comprehensive income, and impact current earnings when gains or losses are realized through sale or if a decline in value is determined to be "other-than-temporary." Changes in fair value of investments designated as trading securities are reflected in earnings in the "Miscellaneous, net" line in the Consolidated Statements of Income.
Upon the adoption of SFAS 133 in 2000 for the embedded derivative related to McLeod stock in Resources' exchangeable senior notes (refer to Note 10(a) for additional information), Alliant Energy designated a portion of its McLeod investments as trading securities. As result of this change in designation to trading securities, in 2000, Alliant Energy reclassified $321.3 million of unrealized appreciation ($187.3 million after-tax) from accumulated other comprehensive income to net income. In 2000, Alliant Energy recognized miscellaneous income of $23.8 million for pre-tax gains realized upon sales of McLeod available-for-sale securities, for which the appreciation was previously reflected in accumulated other comprehensive income.
On Jan. 31, 2002, McLeod filed a pre-negotiated plan of reorganization in a Chapter 11 bankruptcy proceeding and the trading of McLeod's common stock vas suspended by Nasdaq. Consequently, Alliant Energy discontinued accounting for its investment in McLeod under the provisions of SFAS 115 and reduced the cost basis of its investments to the last quoted market price on Jan. 30, 2002. In June 2002, Alliant Energy received from McLeod under its plan of reorganization an initial distribution of approximately 3.3 million shares of new common stock and classified 0.9 million and 2.4 million shares (0.1 million shares were received by discontinued operations) as trading and available-for-sale securities, respectively. With the receipt of the new McLeod common shares and the resumption of trading on Nasdaq, Alliant Energy resumed accounting for its McLeod investments under SFAS 115 and adjusted its cost basis to the quoted market price on the date the shares were received. As a result of these events, Alliant Energy recognized pre-tax impairment charges in 2002 for available-for-sale securities totaling $27.2 million.
Investments in Foreign Entities - The geographic concentration of Alliant Energy's significant continuing foreign investments at Dec. 31 was as follows (in millions):
Brazil China New Zealand Mexico Total 2002 Unconsolidated $214 $19 $86 $55 $374 Consolidated - 161 - - 161 Total $214 $180 S86 $55 $535 2001 Unconsolidated $378 $21 $68 $41 $508 Consolidated - 146 - - 146 Total $378 $167 $68 $41 $654 Brazil - Resources holds a non-controlling interest in five Brazilian electric utility companies through several direct investments accounted for under the equity method of accounting. At Dec. 31, 2002 and 2001, Resources' direct investments included a 49.9%
direct ownership interest in GIPAR, S.A., an electric utility holding company; a 39.4% direct ownership interest in Companhia Forca e Luz Cataguazes - Leopoldina, S.A. (Cataguazes), an electric utility; a 45.6% direct ownership interest in Energisa, S-A., an energy development company; a 49.9% direct ownership interest in Pbpart - SE 1 Ltda., an electric utility holding company; and a 50.0%
(49.7% at Dec. 31, 2001) direct ownership interest in UsinaTermeletrica deJuiz de Fora S.A., a thermal power plant.
China - Resources' consolidated investments included a controlling interest in Peak Pacific Investment Company, Ltd., a company that develops investment opportunities in generation infrastructure projects in China, and Anhui New Energy Heat & Power Co.,
Ltd., a combined heat and power facility. Resources' unconsolidated investments included a 50.0% ownership interest in Jiaxing JIES Power & Heat Co., Ltd. and a 30.0% ownership interest in Tongxiang TIES Power & Heat Co., Ltd. Both of these combined heat and power facilities are accounted for under the equity method.
ALLIANT ENERGY 2002 ANNUAL REPORT 49
Notes to ConsolidatedFinancialStatements (continuzied)
New Zealand - Resources' investments included a 20.4% (10) Derivative Financial Instruments ownership interest in TrustPower Ltd., a New Zealand hydro (a) Accounting for Derivative Instruments and Hedging and wind generation utility company, which is accounted for Activities - Alliant Energy records derivative instruments at fair under the equity method and several other smaller investments value on the balance sheet as assets or liabilities and changes in accounted for under the cost method. the derivatives' fair values for non-regulated entities in earnings Mexico - Resources' investment in Mexico consisted of a loan unless specific hedge accounting criteria are met. For IP&L receivable (including accrued interest income) from a Mexican and WP&L, changes in the derivatives' fair values are generally development company. Under provisions of the loan, recorded as regulatory assets or liabilities. The PSCW issued a Resources has agreed to lend up to $65 million to support the letter to WP&L in August 2002 authorizing accounting for its development of a resort community near the Baja peninsula. derivatives in such manner.
The loan accrues interest at 8.75% and is secured by the At Dec. 31, 2002 and 2001, Alliant Energy had $6.4 million undeveloped land of the resort community. Repayment of the and $6.5 million, respectively, of derivative assets included in loan principal and interest will be based on a portion of the "Other current assets" on its Consolidated Balance Sheets and proceeds from the sales of real estate in the resort community
$9.1 million and $3.6 million, respectively, of derivative and therefore is dependent on the successful development of liabilities included in "Other current liabilities" on its the project and the ability to sell real estate. Alliant Energy Consolidated Balance Sheets. At Dec. 31, 2001, Alliant may also realize royalty income on the real estate sales once the Energy also had $0.4 million of derivative liabilities included in loan is repaid. "Other long-term liabilities and deferred credits" on its Investment in ATC - At Dec. 31, 2002 and 2001, WP&L had Consolidated Balance Sheets.
ownership interests in ATC of approximately 26.6% and In the first quarter of 2001, Alliant Energy recorded a net loss 26.5%, respectively, and accounts for this investment under the of$12.9 million (all related to discontinued operations) for a equity method. Pursuant to various agreements, WP&L cumulative effect of a change in accounting principle receives a range of transmission services from ATC. WP&L representing the impact of adopting SFAS 133 as of Jan. 1, provides operation, maintenance, and various transitional and 2001 at Alliant Energy's equity method investees. This construction services to ATC. WP&L and ATC also bill each transition adjustment represents Alliant Energy's share of the other for use of shared facilities owned by each party. ATC difference between the carrying atnount of Southern Hydro's billed WP&L $38.7 million and $36.4 million in 2002 and electricity derivative contracts under the applicable accounting 2001, respectively. WP&L billed ATC $18.1 million and principles in effect at Dec. 31, 2000, and the carrying values of
$18.4 million in 2002 and 2001, respectively, and recorded these electricity derivative contracts as determined in equity earnings of $14.3 million and $14.6 million in 2002 accordance with SFAS 133 as of Jan. 1, 2001.
and 2001, respectively.
In the third quarter of 2000, Alliant Energy recorded net Unconsolidated Equity Investments - Summary financial income of $16.7 million for a cumulative effect of a change in information from Alliant Energy's unconsolidated equity accounting principle representing the impact of adopting SFAS investments' financial statements is as follows (in millions):
133 as of July 1, 2000 at Alliant Energy's consolidated 2002
- 2001 2000 subsidiaries. This transition adjustment was primarily the result of the difference between the carrying amount of Operating revenues $1,440.6 $2,214.1 $1,194.3 Resources' exchangeable senior notes issued in February 2000 Operating income 159.8 138.2 42.5 (due in 2030) under the applicable accounting principles in Net income (loss) 36.6 52.1 69.7 effect at June 30, 2000, and the carrying values of the debt and As of Dec. 31: embedded derivative components of the notes as determined in Current assets 383.0 454.5 accordance with SFAS 133 as of July 1, 2000. Transition Non-current assets 1,976.4 2,117.0 adjustments relating to Alliant Energy's other derivative instruments had no material impact on net income.
Current liabilities 435.9 519.3 Non-current liabilities 505.1 557.0 Minority interest 133.4 213.5
- Alliant Energy's investment in Cargill-Alliant was sold in 2002.
50 ALLIANT ENERGY 2002 ANNUAL REPORT
During 2001 and 2000, $0.1 million of net gains (includes At maturity, the holders of Resources' exchangeable senior
$0.1 million of net losses from discontinued operations) and notes are paid the higher of the principal amount of the notes
$6.7 million of net losses (includes $1.3 million of net losses or an amount based on the value of McLeod common stock.
from discontinued operations), respectively, included in the SFAS 133 requires that Alliant Energy split the initial value of cumulative effect of a change in accounting principle the notes into debt and derivative components. The payment component of accumulated other comprehensive income (loss) feature tied to McLeod stock is considered an embedded were reclassified into earnings, resulting in remaining balances derivative under SFAS 133 that must be accounted for as a of $0 and $0.1 million at Dec. 31, 2001 and 2000, separate derivative instrument. This component is classified as respectively. a derivative liability on the Consolidated Balance Sheets.
Subsequent changes in the fair value of the option are reflected Cash Flow Hedging Instruments - During 2002 and 2001, as increases or decreases in Alliant Energy's reported net Alliant Energy held various derivative instruments designated income. The carrying amount of the host debt security, as cash flow hedging instruments. WP&L utilized gas classified as long-term debt, is adjusted for amortization of the commodity financial swap arrangements to reduce the impact debt discount in accordance with the interest method as of price fluctuations on gas purchased and injected into storage prescribed by APB 21, "Interest on Receivables and Payables."
during the summer months and withdrawn and sold at current market prices during the winter months pursuant to the Changes in the fair value of the McLeod shares designated as natural gas cost incentive sharing mechanism with customers in trading are reflected as increases or decreases in Alliant Energy's Wisconsin. IP&L and WP&L utilized physical coal purchase net income. These trading gains or losses are expected to contracts, which did not qualify for the normal purchase and correspond with, and partially offset, changes in the intrinsic sale exception, to manage the price of anticipated coal value of the embedded derivative component of Resources' purchases and sales. exchangeable senior notes. Changes in the time value portion of the derivative component will result in non-cash increases or In 2002 and 2001, a net loss of $0.1 million (includes a net decreases to Alliant Energy's net income. Included in gain of $0.1 million from discontinued operations) and a net "Miscellaneous, net" in the Consolidated Statements of Income gain of $2.0 million (includes a net gain of $2.1 million from for 2002, 2001 and 2000 was expense of $5.0 million, $215.1 discontinued operations), respectively, were recognized relating million and $102.5 million, respectively, related to the change to the amount of hedge ineffectiveness in accordance with in value of the McLeod trading securities, partially offset by SFAS 133. In 2002 and 2001, Alliant Energy did not exclude income of $0.4 million, $181.6 million and $101.8 million, any components of the derivative instruments' gain or loss respectively, related to the change in value of the derivative from the assessment of hedge effectiveness and in 2001 component of the exchangeable senior notes.
reclassified a loss of $0.9 million (all continuing operations) into earnings as a result of the discontinuance of hedges. At Electricity price collars were used to manage utility energy costs Dec. 31, 2002, the maximum length of time over which during supply/demand imbalances. Physical coal and gas Alliant Energy hedged its exposure to the variability in future contracts that do not qualify for the normal purchase and sale cash flows for forecasted transactions was six months (three exception were used to manage the price of anticipated coal months for continuing operations) and Alliant Energy and gas purchases and sales.
estimated that losses of $3.3 million (includes losses of $3.5 million for discontinued operations) will be reclassified from (b) Weather Derivatives - Alliant Energy uses weather accumulated other comprehensive income (loss) into earnings derivatives to reduce the impact of weather volatility on its in 2003 as the hedged transactions affect earnings. natural gas sales volumes. In 2002 and 2001, Corporate Services, as agent for IP&L and WP&L, entered into non-Other Derivatives Not Designated in Hedge Relationships - exchange traded options based on heating degree days in which Alliant Energy's derivatives that were not designated in hedge Corporate Services receives payment from the counterparty if relationships during 2002 and/or 2001 included the embedded actual heating degree days are less than the strike price in the derivative component of Resources' exchangeable senior notes, contract. Corporate Services paid premiums to enter into these electricity price collars, and physical coal and gas contracts not contracts, which are amortized to expense over the contract designated in hedge relationships. period. Alliant Energy has used the intrinsic value method to account for these weather derivatives.
ALLIANT ENERGY 2002 ANNUAL REPORT 51
Notes to ConsolidatedFinancialStatements (co utiniied)
(c) Nuclear Decommissioning Trust Fund Investments - Historically, WP&L has entered into combinations of options to mitigate the effect of significant market fluctuations on its common stock investments in its nuclear decommissioning trust funds. The derivative transactions are designed to protect the portfolio's value while allowing the funds to earn a total return modestly in excess of long-term expectations over the hedge period. Fair value changes of these instruments do not impact net income as they are recorded as equally offsetting changes in the investment in nuclear decommissioning trust funds and accumulated depreciation.
(d) Energy-trading Contracts - Resources is the majority owner of a natural gas marketing operation, NG Energy Trading, LLC (NG). NG enters into financial and physical contracts for the sale, purchase, storage, transportation and loan of natural gas. NG accounts for all its positions, including gas in storage, at estimated fair value, with changes in fair value reported in earnings. Alliant Energy adopted EITF Issue 02-3, "Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities," effective Jan. 1, 2003 for all contracts that were in place and storage gas acquired prior to Oct. 25, 2002, and will reclassify prior period trading contracts on a net basis in its Consolidated Statements of Income commencing in January 2003.
(11) Commitments and Contingencies (a) Construction and Acquisition Expenditures - Certain commitments have been made in connection with 2003 capital expenditures. During 2003, total construction and acquisition expenditures relating to continuing operations are estimated to be approximately $820 million.
(b) Purchased-Power, Coal and Natural Gas Contracts - Alliant Energy, through its subsidiaries Corporate Services, IP&L and WP&L, has entered into purchased-power, coal and natural gas supply, transportation and storage contracts. Certain purchased-power commitments are considered operating leases and are therefore not included here, but are included in Note 3. The natural gas supply commitments are all index-based. Alliant Energy expects to supplement its coal and natural gas supplies with spot market purchases as needed. The table includes commitments for "take-or-pay" contracts which result in dollar commitments with no associated tons or Dths. At Dec. 31, 2002, Alliant Energy's minimum commitments were as follows (dollars and Dths in millions; MWhs and tons in thousands):
Purchased-power Coal Natural gas Dollars MWhs Dollars Tons Dollars Dths 2003 $114.5 2,752 $81.1 9,889 $90.7 6 2004 15.5 361 57.6 9,301 36.5 -
2005 2.0 - 40.2 6,130 26.0 -
2006 2.0 - 12.7 898 15.0 -
2007 0.1 - 3.6 - 14.7 -
Thereafter 0.4 - - - 26.4 -
(c) Legal Proceedings - Alliant Energy is involved in legal and administrative proceedings before various courts and agencies with respect to matters arising in the ordinary course of business. Although unable to predict the otitcome of these matters, Alliant Energy believes that appropriate reserves have been established and final disposition of these actions will not have a material adverse effect on its financial condition or results of operations.
(d) Guarantees and Commitments - At Dec. 31, 2002 and 2001, Alliant Energy had guarantees outstanding to support unconsolidated affiliate and third-party financing arrangements of approximately $4 million and $14 million, respectively. Such guarantees are not included on the Consolidated Balance Sheets. At Dec. 31, 2002, the remaining term of the guarantees and the underlying debt was five years. Refer to Note 3 for discussion of Alliant Energy's residual value guarantees of its synthetic leases.
In the third quarter of 2002, Alliant Energy sold its 50% ownership interest in its Cargill-Alliant electricity-trading joint venture to Cargill. Under the purchase and sale agreement (Agreement'), Alliant Energy agreed to indemnify Cargill from expenses resulting from the breach of the representations and warranties made by Alliant Energy as of the closing date, and for the breach of its obligations under the Agreement. While the indemnification does not include a maximum limit, Alliant Energy believes the likelihood of having to make any material cash payments tnder this indemnification is remote. At Dec. 31, 2002, there were no claims related to the indemnification.
52 ALLIANT ENERGY 2002 ANNUAL REPORT
In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others," which requires disclosures by a guarantor about its obligations under certain guarantees that it has issued. FIN 45 also requires recognizing, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The recognition and measurement provisions of FIN 45 are effective on a prospective basis for guarantees issued or modified after Dec. 31, 2002. Alliant Energy does not anticipate FIN 45 will have a material impact on its financial condition or results of operations.
(e) Environmental Liabilities - Alliant Energy had recorded the following environmental liabilities, and regulatory assets associated with certain of these liabilities, at Dec. 31 (in millions):
Environmental liabilities 2002 2001 Regulatory assets 2002 2001 MGP sites $49.3 $43.9 MGP sites $54.1 $50.2 NEPA 6.6 8.2 NEPA 7.9 9.7 Other 0.2 0.4 Other 2.9 3.2
$56.1 $52.5 $64.9 $63.1 MGP Sites - IP&L and WP&L have current or previous Under the current rate making treatment approved by the ownership interests in 43 and 14 sites, respectively, previously PSCW, the MGP expenditures of WP&L, net of any insurance associated with the production of gas for which they may be proceeds, are deferred and collected from gas customers over a liable for investigation, remediation and monitoring costs five-year period after new rates are implemented. The MPUC relating to the sites. IP&L and WP&L have received letters also allows the deferral of MGP-related costs applicable to the from state environmental agencies requiring no further action Minnesota sites and IP&L has been successful in obtaining at eight and five sites, respectively. IP&L and WP&L are approval to recover such costs in rates in Minnesota. The IUB working pursuant to the requirements of various federal and has permitted utilities to recover prudently incurred costs.
state agencies to investigate, mitigate, prevent and remediate, Regulatory assets have been recorded by IP&L and WP&L, where necessary, the environmental impacts to property, which reflect the probable future rate recovery, where including natural resources, at and around the sites in order to applicable. Considering the current rate treatment, and protect public health and the environment. assuming no material change therein, IP&L and WP&L believe that the clean-up costs incurred for these MGP sites IP&L and WP&L record environmental liabilities based upon will not have a material adverse effect on their respective periodic studies, most recently updated in the third quarter of financial conditions or results of operations.
2002, related to the MGP sites. Such amounts are based on the best current estimate of the remaining amount to be Settlement has been reached with all of IP&L's and WP&L's incurred for investigation, remediation and monitoring costs insurance carriers regarding reimbursement for their MGP-for those sites where the investigation process has been or is related costs. Insurance recoveries available at Dec. 31, 2002 substantially completed, and the minimum of the estimated for IP&L and WP&L were $4.5 million and $2.1 million, cost range for those sites where the investigation is in its earlier respectively. Pursuant to their applicable rate making stages. It is possible that future cost estimates will be greater treatment, IP&L has recorded its recoveries in "Other long-than current estimates as the investigation process proceeds and term liabilities and deferred credits" and WP&L has recorded as additional facts become known. The amounts recognized as its recoveries as an offset against its regulatory assets. In liabilities are reduced for expenditures made and are adjusted as February 2001, the IUB issued an order directing IP&L to further information develops or circumstances change. Costs refund its insurance recoveries related to former IESU MGP of future expenditures for environmental remediation sites. Under the refund plan, IP&L returned 90% of the obligations are not discounted to their fair value. Management recoveries to customers of the former IESU in 2001 and currently estimates the range of remaining costs to be incurred retained 10%.
for the investigation, remediation and monitoring of all utility subsidiary sites to be approximately $37 million to $64 million.
ALLIANT ENERGY 2002 ANNUAL REPORT 53
Notes to ConsolidatedFinancialStatements (conztinuzed)
NEPA - NEPA requires owners of nuclear power plants to pay a special assessment into a "Uranium Enrichment Decontamination and Decommissioning Fund." The assessment is based upon prior nuclear fuel purchases. IP&L and WP&L recover the costs associated xvith this assessment through EACs and fuel costs, respectively, over the period the costs are assessed. Alliant Energy continues to pursue relief from this assessment through litigation.
(f) Decommissioning of DAEC and Kewaunee - The IUB, in its interim electric rate order effective July 2002, allows IP&L to recover $11 million annually for its share of the cost to decommission DAEC. FERC, in its most recent interim wholesale rate order effective April 2002, allows WP&L to recover $3 million annually for its share of the cost to decommission Kewauniee. Both interim orders are subject to refund, pending determination of final rates. The PSC%, in an order effective Jan. 1, 2002, eliminated WP&L's recovery from retail customers for the cost to decommission Kewaunee, due to the trust fund being adequately funded.
Decommissioning expense is included in "Depreciation and amortization" in the Consolidated Statements of Income and the cumulative amount is included in "Accumulated depreciation" on the Consolidated Balance Sheets to the extent recovered through rates.
Additional information relating to the decommissioning of DAEC and Kewaunee was as follows (dollars in millions):
DAEC Kewaunee Assumptions relating to current rate recovery amounts:
Alliant Energy's share of estimated decommissioning cost $374.3 $263.2 Year dollars in 2002 2002 Method to develop estimate Site-specific study Site-specific study Annual inflation rate 4.20% 6-50%
Decommissioning method Prompt dismantling Prompt dismantling and removal and removal Year decommissioning to commence 2014 2013 After-tax return on external investments:
Qualified 7.10% 6.12%
Non-qualified 4.70% 5.14%
External trust fund balance at Dec. 31, 2002 $121.2 $223.7 Internal reserve at Dec. 31, 2002 $21.7 $-
After-tax earnings on external trust funds in2002 $3.8 $19.7 The interim rate recovery amounts for DAEC only include an inflation estimate through 2005. Both IP&L and VP&L are funding all rate recoveries for decommissioning into external trust funds and funding on a tax-qualified basis to the extent possible. In accordance with their respective regulatory requirements, IP&L and WP&L record the earnings on the external trust funds as interest income with a corresponding entry to interest expense at IP&L and to depreciation expense at WP&L. The earnings accumulate in the external trust fund balances and in accumulated depreciation on utility plant.
SFAS 143, "Accounting for Asset Retirement Obligations," which provides accounting and disclosure requirements for retirement obligations associated with long-lived assets, wvas adopted by Alliant Energy on Jan. 1, 2003. SFAS 143 requires that the present value of retirement costs for which Alliant Energy has a legal obligation be recorded as liabilities with an equivalent amount added to the asset cost. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity settles the obligation for its recorded amount or incurs a gain or loss. The adoption of SFAS 143 will have no impact on IP&L's and WP&L's earnings, as the effects xill be offset by the establishment of regulatory assets or liabilities pursuant to SFAS 71.
Alliant Energy has completed a detailed assessment of the specific applicability and implications of SFAS 143. The scope of SFAS 143 as it relates to Alliant Energy primarily includes decommissioning costs for DAEC and Kewaunee. It also applies to a smaller extent to several other regulated and non-regulated assets including, bit not limited to, active ash landfills, water intake facilities, underground storage tanks, groundwater wells, transmission and distribution equipment, easements, leases and the dismantlement of certain hydro facilities. Other than DAEC and Kewatilee, Alliant Energy's asset retiremenit obligations as ofJan. 1, 2003 are not significant.
54 ALLIANT ENERGY 2002 ANNUAL REPORT
Prior to January 2003, IP&L and WP&L recorded nuclear decommissioning charges in accumulated depreciation on their Consolidated Balance Sheets. Upon adoption of SFAS 143, IP&L and WP&L will reverse approximately $125 million and $175 million, respectively, previously recorded in accumulated depreciation and will record liabilities of approximately $250 million and
$175 million, respectively. The difference between amounts previously recorded and the net SFAS 143 liability will be deferred as a regulatory asset and is expected to approximate $125 million and $0 for IP&L and WP&L, respectively.
IP&L and WP&L have previously recognized removal costs as a component of depreciation expense and accumulated depreciation for other non-nuclear assets in accordance with regulatory rate recovery. As of Dec. 31, 2002, IP&L and WP&L estimate that they have approximately $250 million and $150 million, respectively, of such regulatory liabilities recorded in "Accumulated depreciation" on their Consolidated Balance Sheets.
(12) Jointly-Owned Electric Utility Plant Under joint ownership agreements with other Iowa and Wisconsin utilities, the utility subsidiaries have undivided ownership interests in jointly-owned electric generating stations. IP&L also has joint ownership agreements related to transmission facilities. Each of the respective owners is responsible for the financing of its portion of the construction costs. KWh generation and operating expenses are divided on the same basis as ownership with each owner reflecting its respective costs in its Consolidated Statements of Income.
Information relative to the utility subsidiaries' ownership interest in these facilities at Dec. 31, 2002 was as follows (dollars in millions):
Accumulated Construction Fuel Ownership Plant in Provision for Work-In-Type Interest % Service Depreciation Progress IP&L DAEC Nuclear 70.0 $543.3 $318.5 $25.2 Ottumwa Coal 48.0 190.9 118.2 0.7 Neal Unit 4 Coal 21.5 85.3 59.4 0.2 Neal Unit 3 Coal 28.0 59.9 36.9 1.9 Louisa Unit 1 Coal 4.0 25.0 14.9 0.1 904.4 547.9 28.1 WP&L Edgewater Unit 5 Coal 75.0 234.8 112.9 0.4 Columbia Energy Center Coal 46.2 187.5 110.3 1.6 Kewaunee Nuclear 41.0 172.6 120.9 6.8 Edgewater Unit 4 Coal 68.2 60.0 36.1 1.6 654.9 380.2 10.4
$1,559.3 $928.1 $38.5 (13) Segments of Business Alliant Energy's principal business segments are:
Regulated domestic utilities - consists of IP&L and WP&L, serving customers in Iowa, Wisconsin, Minnesota and Illinois, and includes three segments: a) electric operations; b) gas operations; and c) other, which includes the steam and water businesses and the unallocated portions of the utility business. Various line items in the following tables are not allocated to the electric and gas segments for management reporting purposes and therefore are included in "Total Regulated Domestic Utilities."
- Non-regulated businesses - represents the operations of Resources, its subsidiaries and Alliant Energy's investment in Cargill-Alliant (sold in 2002), and is broken down into two segments: a) International (Int'l) and b) other, which includes the operations of the Integrated Services, Investments, Non-regulated Generation, Energy Technologies and Mass Marketing business units described in Note 1(a); the operations of Resources (the non-regulated holding company); and any non-regulated reconciling/eliminating entries.
- Other - includes the operations of Alliant Energy (the parent company) and Corporate Services, as well as any Alliant Energy parent company reconciling/eliminating entries.
ALLIANT ENERGY 2002 ANNUAL REPORT 55
Notes to ConsolidatedFinancialStatements (conztiniued)
Intersegment revenues vere not material to Alliant Energy's operations and there was no single customer vhose revenues vere 10% or more of Alliant Energy's consolidated revenues. Refer to Note 9 for a breakdown of Alliant Energy's international investments by country. Certain financial information relating to Alliant Energy's significant business segments and products and services vas as follovs (in millions):
Regulated Domestic Utilities Non-regulated Businesses Alliant Energy Electric Gas Other Total Int'l Other Total Other Consolidated 2002 Operating revenues $1,752.5 $394.0 $37.2 $2,183.7 S103.2 S328.6 $431.8 (S6.7) S2,608.8 Depreciation and amortization 250.6 27.9 3.9 282.4 11.2 17.0 28.2 - 310.6 Operating income (loss) 299.2 26.2 8.2 333.6 9.7 (21.1) (11.4) (0.5) 321.7 Interest expense, net of AFUDC 100.0 44.9 31.6 76.5 2.3 178.8 Interest income from loans to discontinued operations, net - (6.0) (10.0) (16.0) - (16.0)
Equity (income) loss from unconsolidated investments (17.6) 17.1 13.3 30.4 - 12.8 Preferred dividends 6.2 - - - - 6.2 Impairment of available-for-sale securities of McLeodUSA Inc. - - 27.2 27.2 - 27.2 Miscellaneous, net (27.9) 3.4 25.4 28.8 (0.6) 0.3 Income tax expense (benefit) 107.1 (12.1) (54.6) (66.7) (4.3) 36.1 Income from continuing operations 165.8 (37.6) (54.0) (91.6) 2.1 76.3 Income from discontinued operations, net of tax - 10.5 20.1 30.6 - 30.6 Net income (loss) 165.8 (27.1) (33.9) (61.0) 2.1 106.9 Total assets 3,676.5 574.9 474.8 4,726.2 1,009.6 1,250.8 2,260.4 14.8 7,001.4 Investments inequity method subsidiaries 125.1 - - 125.1 297.1 29.1 326.2 0.3 451.6 Construction and acquisition expenditures 371.3 28.6 4.8 404.7 65.5 152.8 218.3 33.8 656.8 Regulated Domestic Utilities Non-regulated Businesses Alliant Energy Electric Gas Other Total Int'l Other Total Other Consolidated 2001 Operating revenues $1,756.6 $487.9 $37.1 $2,281.6 $85.4 $263.3 $348.7 ($5.6) $2,624.7 Depreciation and amortization 245.6 28.8 3.2 277.6 8.3 16.7 25.0 - 302.6 Operating income (loss) 306.1 11.2 7.5 324.8 74 (13.3) (5.9) 1.9) 317.0 Interest expense, net of AFUDC 100.5 54.6 9.6 64.2 9.8 174.5 Interest income from loans to discontinued operations, net - (0.1) (9.8) - (9.9) - (9.9)
Equity (income) loss from unconsolidated investments (15.6) 4.1 (7.2) (3.1) (0.1) (18.8)
Preferred dividends 6.7 - - - - 6.7 Miscellaneous, net (25.9) (2.8) 20.7 17.9 (4.61 (12.6)
Income tax expense (benefit) 94.2 (22.7) (12.3) (35.0) (8.4) 50.8 Income from continuing operations 164.9 (25.7) (14.3) (40.0) 1.4 126.3 Income from discontinued operations, net of tax - 11.3 47.7 59.0 - 59.0 Cumulative effect of a change in accounting principle, net of tax - (12.9) - (12.9) - (12.9)
Net income (loss) 164.9 (27.3) 33.4 6.1 1.4 172.4 Total assets 3,336.6 506.4 465.0 4,308.0 858.6 995.9 1,854.5 75.4 6,237.9 Investments inequity method subsidiaries 119.2 - - 119.2 448.3 32.6 480.9 - 600.1 Construction and acquisition expenditures 298.7 36.9 5.2 340.8 173.0 159.3 332.3 40.0 713.1 56 ALLIANT ENERGY 2002 ANNUAL REPORT
Regulated Domestic Utilities Non-regulated Businesses Alliant Energy Electric Gas Other Total Int'l Other Total Other Consolidated 2000 Operating revenues $1,648.0 $415.0 $33.4 $2,096.4 $- $186.0 $186.0 ($2.7) $2,279.7 Depreciation and amortization 252.6 27.7 3.1 283.4 3.7 9.6 13.3 - 296.7 Operating income (loss) 330.6 26.6 4.5 361.7 (7.8) 118.1) (25.9) 0.2 336.0 Interest expense, net of AFUDC 103.1 38.8 9.0 47.8 8.5 159.4 Interest income from loans to discontinued operations, net - - (7.2) (7.2) - (7.2)
Equity income from unconsolidated investments 10.5) (5.8) (13.2) (19.0) - (19.5)
Preferred dividends 6.7 - - - - 6.7 Gain on reclassification of investments - - (321.3) (321.3) - (321.3)
Miscellaneous, net (23.3) (8.9) (4.3) (13.2) (2.7) (39.2)
Income tax expense 107.9 (14.2) 132.2 118.0 0.3 226.2 Income from continuing operations 167.8 (17.7) 186.7 169.0 (5.9) 330.9 Income from discontinued operations, net of tax - (0.5) 51.6 51.1 - 51.1 Cumulative effect of a change in accounting principle, net of tax - - 16.7 16.7 - 16.7 Net income (loss) 167.8 (18.2) 255.0 236.8 (5.9) 398.7 Total assets 3,402.2 554.4 427.2 4,383.8 631.0 1,702.3 2,333.3 16.7 6,733.8 Investments inequity method subsidiaries 6.5 - - 6.5 389.0 29.5 418.5 - 425.0 Construction and acquisition expenditures 265.9 35.8 3.0 304.7 395.6 134.1 529.7 11.1 845.5 Products and Services Non-regulated and Other Revenues Integrated Year Services International Mass Marketing Investments Other Total (inmillions) 2002 $258.8 S103.2 $46.9 $26.1 $27.3 $462.3 2001 241.9 85.4 6.8 26.6 19.5 380.2 2000 172.3 - 0.7 28.5 15.2 216.7 (14) Goodwill and Other Intangible Assets Alliant Energy adopted SFAS 142 on Jan. 1, 2002, which resulted in goodwill no longer being subject to amortization. Had SFAS 142 been adopted Jan. 1, 2000, net income for 2001 and 2000 would have increased $4 million and $1 million, respectively, and basic and diluted EPS would have increased $0.05 and $0.02 per share, respectively. Certain information regarding net goodwill and other intangible assets included on the Consolidated Balance Sheets at Dec. 31 was as follows (in millions):
2002 2001 Net goodwill Deferred charges and other (consolidated investments) $66 $66 Investments in unconsolidated foreign entities (equity method investments) 9 7 Net other intangible assets Deferred charges and other (consolidated investments) 19 20 Investments in unconsolidated foreign entities (equity method investments) 22 35 Investment inATC and other (equity method investments) 25 ALLIANT ENERGY 2002 ANNUAL REPORT 57
Notes to ConsolidatedFinancialStatements (contizued)
In January 2003, Alliant Energy committed to a plan to sell its interest in SmartEnergy by year-end. In the fourth quarter of 2002, Alliant Energy recorded a SFAS 142 after-tax non-cash goodwill impairment charge related to SmartEnergy of $4.5 million primarily due to less favorable market conditions. The fair value of SmartEnergy's goodwill was estimated using a combination of the expected discounted future cash flows and market value indicators. The impairment charge was recorded in continuing operations, "Miscellaneous, net," in Alliant Energy's Consolidated Statement of Income for 2002.
(15) Selected Consolidated Quarterly Financial Data (Unaudited)
All "per share" references refer to earnings per diluted share. Summation of the individual quarters may not equal annual totals due to rounding.
2002 2001 March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 (inmillions, except per share datal Operating revenues $608.6 $570.9 S709.4 $719.9 $805.6 $571.0 $631.1 $617.0 Operating income 63.1 58.7 128.3 71.6 69.4 54.3 125.2 68.1 Income (loss) from continuing operations (8.4) (6.7) 43.9 47.5 18.6 8.6 53.2 45.8 Income (loss) from discontinued operations, net of tax 18.1 13.1 0.8 11.4) 3.5 29.1 16.1 10.3 Cumulative effect of a change in accounting principle, net of tax - - - - (12.9) - - -
Net income 9.7 6.3 44.7 46.1 9.2 37.7 69.3 56.1 EPS:
Income (loss) from continuing operations (0.09) (0.07) 0.48 0.52 0.23 0.11 0.67 0.54 Income (loss) from discontinued operations 0.20 0.14 0.01 (0.01) 0.05 0.37 0.20 0.12 Cumulative effect of a change in accounting principle - - - - (0.161 - - -
Net income 0.11 0.07 0.49 0.51 0.12 0.48 0.87 0.66 (16) Discontinued Operations and Assets Held for Sale Alliant Energy announced in November 2002 its commitment to pursue the sale of, or other exit strategies for, certain non-regulated businesses in 2003. In the fourth quarter of 2002, Alliant Energy applied the provisions of SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," to certain of its assets which were held for sale. SFAS 144 requires that a long-lived asset classified as held for sale be measured at the lower of its carrying amount or fair value, less costs to sell, and to cease depreciation, depletion and amortization. At Dec. 31, 2002, Alliant Energy's oil and gas (Whiting), Australian (including Southern Hydro) and affordable housing businesses have been classified as held for sale. Alliant Energy currently plans to complete the sales by year-end.
The operating results for these businesses have been separately classified and reported as discontinued operations in the Consolidated Financial Statements. A summary of the components of discontinued operations in the Consolidated Statements of Income was as follows (in thousands):
2002 2001 2000 Operating revenues $185.576 $152,664 $125,310 Operating expenses 140,037 99.598 80,224 Interest expense and other 15,466 (14,992) (18,589)
Income before income taxes 30,073 68.058 63,675 Income tax expense (benefit) (539) 9,073 12,636 Income from discontinued operations, net of tax S30,612 $58,985 $51,039 58 ALLIANT ENERGY 2)02 ANNUAL REPORT
Alliant Energy's Australian business enters into electricity derivative contracts that have not been designated as hedges (as defined by SFAS 133) to manage the electricity commodity price risk associated with anticipated sales into the spot market. Approximately $16 million of income is included in "Interest expense and other" for both 2002 and 2001 in the previous table related to the change in the fair value of these electricity derivative contracts during these respective periods. In 2000, Alliant Energy's affordable housing business sold a portion of its investment in McLeod, resulting in a pre-tax gain of approximately $24 million included in Interest expense and other" in the previous table. At Dec. 31, 2002, Alliant Energy's affordable housing business owned approximately 0.1 million shares of McLeod. Income tax expense (benefit)" in the previous table includes approximately $10 million, $10 million and
$7 million of affordable housing tax credits earned by Alliant Energy's affordable housing business during 2002, 2001 and 2000, respectively. These tax credits had a significant impact on the effective tax rate of Alliant Energy's discontinued operations.
A summary of the components of assets and liabilities of discontinued operations on the Consolidated Balance Sheets at Dec. 31 was as follows (in thousands):
2002 2001 Assets of discontinued operations:
Property, plant and equipment, net $644,137 $420,619 Current assets 99,044 45,217 Investments 6,824 60,442 Deferred charges and other 194,323 13,909 Total assets of discontinued operations $944,328 $540,187 Liabilities of discontinued operations:
Current liabilities $65,885 $28,521 Other long-term liabilities and deferred credits 68,990 32,125 Minority interest 124 267 Total liabilities of discontinued operations 134,999 60,913 Net assets of discontinued operations $809,329 $479,274 In March 2002, Alliant Energy acquired a controlling interest in Southern Hydro and therefore changed from the equiry method of accounting to the consolidation method at such time.
A summary of the components of cash flows for discontinued operations for the years ended Dec. 31 was as follows (in thousands):
2002 2001 2000 Net cash flows from operating activities $84,118 $51,562 $44,844 Net cash flows from financing activities 141.234 32,079 99,338 Net cash flows used for investing activities (215,583) (87,051) (145,573)
Net increase (decrease) in cash and temporary cash investments 9,769 (3,4101 (1,3911 Cash and temporary cash investments at beginning of period 5,261 8,671 10,062 Cash and temporary cash investments at end of period $15,030 $5,261 $8,671 Supplemental cash flows information:
Cash paid during the period for:
Interest $14,693 $6,350 $4,878 Income taxes, net of refunds ($7,712) ($3,331) ($3311 ALLIANT ENERGY 2002 ANNUAL REPORT 59
Selected Financialand Operating Statistics FINANCIAL INFORMATION 2002(1) 2001 (1) 2000(1) 1999(2) 1998(3)
(dollars inthousands, except per share data)
Income Statement Data:
Operating revenues $2,608,812 $2,624,676 $2,279,674 $2,048,158 $2,053,318 Income from continuing operations 76,269 126,245 330,915 154,334 95,437 Income from discontinued operations, net of tax 30,612 58,985 51,039 42,247 1,238 Income before cumulative effect of changes inaccounting principle, net of tax 106,881 185,230 381,954 196,581 96,675 Cumulative effect of changes inaccounting principle, net of tax - (12,868) 16,708 - -
Net income 106,881 172.362 398,662 196,581 96,675 Common Stock Data:
Earnings per average common share (diluted):
Income from continuing operations $0.84 $1.57 $4.18 $1.98 $1.24 Income from discontinued operations $0.34 $0.73 $0.64 $0.53 $0.02 Cumulative effect of changes inaccounting principle - ($0.16) $0.21 - -
Net income S1.18 $2.14 $5.03 $2.51 $1.26 Common shares outstanding at year-end (O0s) 92,304 89,682 79,010 78,984 77,630 Dividends declared per common share S2.00 $2.00 $2.00 $2.00 $2.00 Market value per share at year-end $16.55 $30.36 $31.88 $27.50 $32.25 Book value per share at year-end (4) $19.89 $21.39 $25.79 $27.29 $20.69 Other Selected Financial Data:
Construction and acquisition expenditures $656,792 $713,061 $845,454 $418,371 $313,033 Total assets at year-end (4) $7,001,395 $6,237,925 $6,733,766 $6,075,683 $4,959,337 Long-term obligations, net $2,784,216 $2,586,044 $2,128,496 $1,660,558 $1,713,649 Times interest earned before income taxes (5) 1.64X 1.99X 4.35X 3.05X 2.40X Capitalization ratios:
Common equity (41 39% 43% 50% 57% 49%
Preferred stock 5% 2% 3% 3% 4%
Long-term debt, excluding current portion 56% 55% 47% 40% 47%
Total 100% 100% 100% 100% 100%
(1) Refer to "MD&A -Results of Operations" for adiscussion of the 2002, 2001 and 2000 results of operations.
(2) Includes $25 million ($0.32 per diluted share) of net income from gains on sales of McLeod stock.
(3) Results reflect the recording of $54 million of pre-tax merger-related charges.
(4) Alliant Energy adjusts the carrying value of its investments inMcLeod to its estimated fair value, pursuant to the applicable accounting rules. At December 31, 2002, 2001, 2000, 1999 and 1998, the carrying amount reflected an unrealized gain (loss) of approximately $1million, ($13) million, $543 million, $1.1 billion and $291 million, respectively, with a net of tax increase (decrease) to common equity of $0.4 million, ($9) million, $317 million, $640 million and $170 million, respectively.
(5) Represents income from continuing operations before income taxes plus preferred dividend requirements of subsidiaries plus interest expense divided by interest expense.
60 ALLIANT ENERGY 2002 ANNUAL REPORT
ELECTRIC OPERATING INFORMATION (UTILITY ONLY) 2002 2001 2000 1999 1998 Operating Revenues (000s):
Residential $626,947 $599,074 $567,283 $541.714 $532,676 Commercial 376,365 373,145 349,019 329,487 317,704 Industrial 526,804 543,471 501,155 476,140 477,241 Total from ultimate customers 1,530,116 1,515,690 1,417,457 1,347,341 1,327,621 Sales for resale 160,335 184,507 173,148 155,801 199,128 Other 62,083 56,359 57,431 45,796 40,693 Total S1.752,534 $1,756,556 $1,648,036 $1,548,938 $1,567,442 Electric Sales (000s MWh):
Residential 7,616 7,344 7,161 7,024 6,826 Commercial 5,542 5,464 5,364 5,260 4,943 Industrial 12,297 12,469 13,092 13,036 12,718 Total from ultimate customers 25,455 25,277 25,617 25,320 24,487 Sales for resale 4,805 4,936 4,906 5,566 7,189 Other 197 168 174 162 158 Total 30,457 30,381 30,697 31,048 31,834 Customers (End of Period):
Residential 822,229 807,754 799,603 790,669 781,127 Commercial 128,212 125,539 123,833 122,509 121,027 Industrial 2,905 2,826 2,773 2,730 2,618 Other 3,344 3,324 3.316 3,282 3,267 Total 956,690 939,443 929,525 919,190 908,039 Other Selected Electric Data:
Maximum peak hour demand MW) 5,729 5,677 5,397 5,233 5,228 Sources of electric energy (000s MWh):
Coal and gas 18,349 18,662 19,139 19,078 19,119 Purchased power 8,596 8,727 8,058 8,619 10,033 Nuclear 5,012 4,116 4,675 4,362 4,201 Other 379 452 427 528 504 Total 32,336 31,957 32,299 32,587 33,857 Revenue per KWh from ultimate customers (cents) 6.01 6.00 5.53 5.32 5.42 GAS OPERATING INFORMATION (UTILITY ONLY) 2002 2001 2000 1999 1998 Operating Revenues (000s):
Residential $218,746 $270,248 $245,697 $185,090 $175,603 Commercial 111,343 141,121 127,104 89,118 85,842 Industrial 25,177 31,262 27,752 21,855 20,204 Transportation/other 38,720 45,246 14,395 18,256 13,941 Total $393,986 $487,877 $414,948 $314.319 $295,590 Gas Sales (000s Dths):
Residential 30,931 29,580 32,026 30,309 28,378 Commercial 19,348 18,055 19,696 18.349 17,760 Industrial 5,373 5,344 5,350 5,963 5,507 Transportation/other 47,386 48,539 43,931 46,954 52,389 Total 103,038 101,518 101.003 101,575 104,034 Customers at End of Period (Excluding Transportation/Other):
Residential 358,384 353.430 351,990 347,533 342,586 Commercial 45,793 45,480 44,654 44,289 43,825 Industrial 799 951 953 1,037 982 Total 404,976 399,861 397,597 392,859 387,393 Other Selected Gas Data:
Revenue per Dth sold (excluding transportation/other) $6.38 $8.35 $7.02 $5.42 $5.45 Purchased gas costs per Dth sold (excluding transportation/other) $4.02 $6.31 $4.88 $3.30 $3.22 ALLIANT ENERGY 2002 ANNUAL REPORT 61
Definitions Certain abbreviationsor acronyms utsed in the text and notes of this report are defined below:
AFUDC .............................................. Allowance for Funds Used During Construction Alliant Energy ......................................... Alliant Energy Corporation APB ................................................. Accounting Principles Board Opinion ATC ................................................. American Transmission Company LLC Cargill ............................................... Cargill Incorporated Cargill-Alliant ......................................... Cargill-Alliant, LLC Corporate Services ...................................... Alliant Energy Corporate Services, Inc.
DAEC ............................................... Duane Arnold Energy Center DNR ................................................ Department of Natural Resources Dth ................................................. Dekatherm EAC ................................................. Energy Adjustment Clause EBITDA ............................................. Earnings Before Interest, Taxes, Depreciation and Amortization EITF ................................................ Emerging Issues Task Force EPA ................................................. U.S. Environmental Protection Agency EPS ................................................. Earnings Per Average Common Share FASB ................................................ Financial Accounting Standards Board FERC............................................... Federal Energy Regulatory Commission FIN ................................................. FASB Interpretation No.
GAAP ............................................... Accounting Principles Generally Accepted in the U.S.
ICC ................................................. Illinois Commerce Commission IESU ................................................ IES Utilities Inc.
Integrated Services ...................................... Alliant Energy Integrated Services Company International .......................................... Alliant Energy International, Inc.
Investments ........................................... Alliant Energy Investments, Inc.
IPC ................................................. Interstate Power Company IP&L ................................................ Interstate Power and Light Company IRS.................................................. Internal Revenue Service IUB ................................................. Iova Utilities Board Kewaunee .......................................... Kewaunee Nuclear Power Plant KWh ................................................ Kilowatt-hour McLeod .............................................. McLeodUSA Incorporated MD&A .............................................. Management's Discussion and Analysis of Financial Condition and Results of Operations MGP ................................................ Manufactured Gas Plants MPUC............................................... Minnesota Public Utilities Commission MW ................................................. Megawatt MWh ................................................ Megawatt-hour NEPA............................................... National Energy Policy Act of 1992 PSCW ............................................... Public Service Commission of Wisconsin PUHCA ............................................ Public Utility Holding Company Act of 1935 Resources ............................................. Alliant Energy Resources, Inc.
SEC ................................................. Securities and Exchange Commission SFAS ................................................ Statement of Financial Accounting Standards SmartEnergyr. ......................................... SmartEnergy, Inc.
South Beloit.......................................... South Beloit Water, Gas and Electric Company Southern Hydro....................................... Southern Hydro Partnership Synfuel ............................................... Alliant Energy Synfuel LLC TBD ................................................ To Be Determined U.S.................................................. United States of America Whiting .............................................. Whiting Petroleum Corporation WP&L ............................................... Wisconsin Power and Light Company 62 ALLIANT ENERGY 2002 ANNUAL REPORT
S*I
- I
- I'
_ ERROLL B. DAVIS, JR. SINGLETON B. MCALLISTER
- Chairman ofthe Board Directorsince 2001 Age 58 ' Age 50 Directorsince1982 Ms. McAllister is a parcner with Patton Boggs LLP, a Mr. Davis became President and Chief Executive Officer of Washington, D.C-based law firm working in the public Alliant Energy Corporation when the company was formed in policy area and with business law groups. From 1996 until carly 2001, Ms. McAllister was General Counsel for the 1998 by the merger of WPL Holdings, Inc.; IES Industries United States Agency for International Development. She Inc.; and Interstate Power Company. He became Chairman of the Board in 2000. He first joined Wisconsin Power and Light Company (a was also a partner at Reed, Smith, Shaw and McClay, where she specialized in subsidiary of Aliant Energy) in 1978. He is a member of the Boards of Directors government relations and corporate law.
of BP p.l.c.; PPG Industries, Inc.; Electric Power Research Institute, and the Edison Electric Institute, where he also serves as Chairman. DAVID A. PERDUE Directorsince 2001 Age 53 LEE LIU ii- Vice Chairman of the Board Mr. Perdue served as Chairman and Chief Executivc Officer Age 69 of Pillowtex Corporation, a textie manufacturing company g ; Directorsince 1981 located in Kannapolis, N.C., from July 2002 to March 2003.
Prior to this position, he was President and Chief Execurive Mr. Liu served as Chairman of the Board of the company Officer of the Reebok Brand for Reebok International from April 1998 until April 2000. He was Chairman of the Limited. Prior to joining Reebok in 1998, he was Senior Vice Prcsident of Board and Chief Executive Officer of IES Industries Inc. (a Operations at Haggar, Inc.
predecessor to the company) prior to 1998. Mr. Liu held a number of professional, management and executive positions after joining Iowa i- i Electric Light and Power Company in 1957. He is a Director of Principal JUDITH D. PYLE Financial Group and Eastman Chemical Company. Directorsince 1992 Age 59 ALAN B. ARENDS S v . Ms. Pyle is Vice Chair of The Pyle Group, a financial services Dirrctorsince 1993 company located in Madison, Wis. Prior to assuming her Age 69 current position, Ms. Pyle served as Vice Chair and Senior Vice President of Corporate Marketing of Rayovac Corp.
Mr. Arends is Chairman of the Board of Directors of Alliance (a battery and lighting products manufacturer), based in Benefit Group Financial Services Corp., an Albert Lea, Madison, Wis. In addition, Ms. Pyle is Vice Chair of Georgette Elinger, Inc.
Minn.-based employee bencfits company that he founded in and a Dirctor of Unick, Inc.
1983.
ROBERT W. SCHLUTZ
. JACK B. EVANS Direetor since 1989 k Directorsince 2000 Age 66 Age 54 Mr. Schlut is President of Schlutz Enterprises, a diversified I Mr. Evans is a Director and, since 1996, has served as farming and retailing business in Columbus Junction, Iowa.
LA President ofThe Hall-Perrine Foundation, a private A ^ =1 philanthropic corporation in Cedar Rapids, Iowa. Previously, Mr. Evans was President and Chief Operating Officer of SCI Financial Group, Inc., a regional financial services firm. Mr. . :WAYNE
. -. 11. STOPPELMOOR Evans is a Director of Gazette Communications, the Federal Reserve Bank of Diretor since 1986 Chicago and Nuveen Institutional Advisory Corp., and Vice Chairman and a Age 68 Director of United Fire and Casualty Company.
-A tXp2Dy- Mr. Stoppelmoor served as Vice Chairman of the Board of
- - JOYCE L. HANES the company from April 1998 until April 2000. He was Chairman, President and Chief Executive Officer of Interstate Age 70 Power Company (a predecessor of Alliant Energy) from 1986 until his retirement in 1997.
Ms. Hanes has been a Director of Midwest Wholesale, Inc.,
a products wholesaler in Mason City, Iowa, since 1970 and Board Chair since December 1997, having previously served - ANTHONY R. WEILER as Board Chair from 1986 to 1988. She is also a Director of Director since 1979 Iowa Srudent Loan Liquidity Corp. Age 66
- \;Ej:
o ML Weiler is a consultant for several home furnishings KATHARINE C. LYALL organizations. Prior to assuming his current position, Mr.
Directorsince 1986 Weiler had been a Senior Vice President for Heilig-Meyrs Age 61 Company, a national furniture retailer headquartered in Richmond, Va. He is a Director of she Retail Home
- 5, {] Ms. Lyall is President of the University of Wisconsin System Furnishings Foundation.
in Madison, VELs.In addition to her administrative position, she is a professor of economics at the Universiy of Ages are as ofDec. 31 2002. Each eletion date represents thefirstyearofBoard Wisconsin-Madison. She serves on the Boards of Directors affiliation with a company that ultimately became partof she Alliant Energyfamily of the Kemper National Insurance Companies, M&l Corporation and the Carnegie Foundation for the Advancement of Teaching.
ALLIANT ENERGY 2002 ANNUAL REPORT 63
AUDIT COMMITTEE Erroll B. Davis, Jr.
Jack B. Evans (Chair) Chairman. President and Chief Executive Officer Alan B. Arends Katharine C. Lyall Singleton B. McAllister Responsible for development of the business niodel for Alliant Energy and the execution of the company's KzI long-term strategic plan.
David A. Perdue
-fJj COMPENSATION AND PERSONNEL COMMITTEE Judith D. Pyle (Chair) William D. Harvey Alan B. Arends Executive Vice President-Generation Jack B. Evans President. Wisconsin Power and Light Company David A. Perdue Responsible for the operations of Alliant Energy's generation activities, including fossil-fuel, nuclear and NOMINATING AND renewable power. Oversees operations at Wisconsin GOVERNANCE COMMITTEE Power and Light Company.
Anthony R Weiler (Chair)
Joyce L. Hanes Katharine C. Lyall James E. Hoffman Singleton B. McAllister Executive Vice President-BusinessDevelopment Robert W. Schlutz President. Alliant Energy Resources, Inc.
Oversees all international and non-regulated ENVIRONMENTAL, subsidiaries. Also has responsibility for shaping and NUCLEAR, HEALTH AND implementing Alliant Energy's e-business strategies SAFETY COMMITTEE and initiatives.
Robert W. Schlutz (Chair)
Joyce L Hanes Judith D. Pyle Eliot G. Protsch Anthony R Weiler Executive Vice President-EnergyDelivery President, Interstate Pouerand Light Company CAPITAL APPROVAL Responsible for utility energy delivery services, COMMITTEE marketing activities and customer relations. Oversees Erroll B. Davis, Jr. (Chair)'
operations at Interstate Posver and Light Company, Jack B. Evans including the company's interest in the Duane Arnold Judith D. Pyle nuclear plant.
Anthony R Weiler Barbara J. Swan
- Non-voting committee member Executive Vice Presidentand General Counsel Responsible for legal matters involving Alliant Energy Corp. and its utility and non-utility subsidiaries. Also oversees government and regulatory relations, corporate communications, advertising, community affairs and strategic planning.
Thomas M. Walker Executive Vice President and ChiefFinancialOfficer Responsible for accounting, finance, investor relations and shareowner services. Also oversees the financial activities in all business units and subsidiary companies.
Pamela J. Wegner Executive Vice President-SharedSolutions President, Alliant Energy CorporateServices, Inc.
Responsible for environmental, health and safety procedures and strategies; infrastructure security; human resources; labor relations; information technology; supply chain; facilities; and project management.
64 ALLIANT ENERGY 2002 ANNUAL REPORT
ALLIANT ENERGY ALLIANT ENERGY ALLIANT ENERGY CORPORATION OFFICERS CORPORATE SERVICES RESOURCES OFFICERS*
OFFICERS*
Erroll B. Davis, Jr., 58 [1978] Erroll B. Davis, Jr., 58 [1978]
Chairman, President Erroll B. Davis, Jr., 58 [1978] Chairman and and Chief Executive Officer Chief Executive Officer Chief Executive Officer Wiiam D. Harvey, 53 [1986] Pamela J.Wegner, 55 [1993] James E. Hoffman, 49 [1995]
Executive Vice President- President President Generation William D. Harvey, 53 [1986] William D. Harvey, 53 [1986]
(President, Wisconsin Power Executive Vice President- Executive Vice President and Light Company) Generation Eliot G. Protsch, 49 [1978]
James E. Hoffman, 49 [19951 James E. Hoffman, 49 [1995] Executive Vice President Executive Vice President- Executive Vice President-Business Development Thomas M. Walker, 55 [1996]
Business Development (President, Alliant Energy Chief Financial Officer Eliot G. Protsch, 49 [1978]
Resources, Inc.) Thomas L. Aller, 53 [1993]
Executive Vice President-Eliot G. Protsch, 49 [1978] Vice President Energy Delivery Executive Vice Presidenr- (President, Alliant Energy BarbaraJ. Swan, 51 [1987] Investments, Inc.)
Energy Delivery Executive Vice President (President, Interstate Power Charles Castine, 53 [1998]
and General Counsel and Light Company) Vice President Thomas M. Walker, 55 [1996] (President, Alliant Energy BarbaraJ. Swan, 51 [1987]
Executive Vice President Integrated Services Company)
Executive Vice President and Chief Financial Officer and General Counsel Dundeana K Doyle, 44 [1984]
Dundeana K Doyle, 44 [1984] Vice President-Thomas M.Walker, 55 [1996]
Vice President- Infrastructure Security Executive Vice President Infrastructure Security and Chief Financial Officer Thomas L Hanson, 49 [1980]
Ven A. Gebhart. 49 [1975] Vice President and Treasurer PamelaJ.Wegner, 55 [1993]
Vice President-Executive Vice President- John E. Kratchmer, 40 [1985]
Customer Operations Shared Solutions Vice President-Controller (President, Alliant Energy Thomas L Hanson, 49 [1980] and ChiefAccounting Officer Corporate Services, Inc.) Vice President and Treasurer Michael P. Maley, 44 [2001]
Dundeana K. Doyle, 44 [1984] John E. Kratchmer, 40 [1985] Vice President Vice President- Vice President-Controller (President, Alliant Energy Infrastructure Security and ChiefAccounting Officer Generation, Inc.)
Thomas L. Hanson, 49 [1980] Daniel L. Mineck, 54 [1970] John K Peterson, 50 [1998]
Vice President and Treasurer Vice President-Performance Vice President Engineering and Environmental (President, Alliant Energy Ages are as of Dec. 31, 2002.
John E. Kratchmer, 40 [1985]
Vice President-Controller and Barbara A. Siehr, 51 [1976] International, Inc.) Dates in brackets represent the Vice President-Financial year each person joined a ChiefAccounting Officer BarbaraA. Siehr, 51 [19761 company that ultimately became Planning and Strategic Projects Vice President-Financial part of the Alliant Energy family.
Barbara A. Siehr, 51 [1976]
Vice President-Financial Kim K Zuhlke, 49 [1978] Planning and Strategic Projects
'Alliant Energy Corporate Planning and Strategic Projects Vice President-Engineering, F.J. Buri, 48 [1999] Services, Inc. provides internal Sales and Marketing support to all business units E J. Buri, 48 [1999] Corporate Secretary within the company.
Corporate Secretary F. J. Buri, 48 [1999] Daniel L. Siegfried, 43 [1992] "Alliant Energy Resources, Inc.
Corporate Secretary Assistant Corporate Secretary is the parent of the cornpany's Joan M. Thompson, 45 [1977]
non-regulated businesses.
Assistant Controller Kent M. Ragsdale, 53 [1985]tt LindaJ.Wentzel, 54 [1978]t Assistant Corporate Secretary Assistant Corporate Secretary tMs. Wentzel retired on March Linda). Wentzel, 54 [1978]t 18, 2003. Patricia L Reininger Assistant Corporate Secretary Linda J.Wentzel, 54 [1978]t Enrique Bacalao, 53 [1998] was appointed Assistant Assistant Corporate Secretary Corporate Secretary, effective Jan.
Enrique Bacalao, 53 [1998] Assistant Treasurer 13, 2003.
Assistant Treasurer Enrique Bacalao, 53 [1998] Steven E Price, 50 [1984] ttMr. Ragsdale was appointed Assistant Treasurer Assistant Treasurer General Counsel of TransLink Eri D. Mot, 35 [19961 Development Company LLC, Assistant Treasurer Steven E Price, 50 [1984]
effective Jan. 8, 2003.
Assistant Treasurer ALLIANT ENERGY 2002 ANNUAL REPORT 65
ANALYST INQUIRIES STOCK EXCHANGE LISTINGS Inquiries from the financial communlitv nmaybe directed to:
Stock Trading Newspaper Eric lott exchange symbol abbreviation Assistant Treasurer Alliant Energy - Common New York LNT AlliantEngy P.O. Box 77007 Stock Exchange Madison, WI 53707-1007 Wisconsin Power American WlS_PR WI P&L pf Phone: (608) 458-3391 and Light Company Stock Exchange Fax: (608) 458-4824
- 4.50% Preferred E-mail: ericnott@alliantenergy.com All other Wisconsin Power and Light Company preferred series and all preferred STOCK TRANSFER AGENT AND REGISTRAR series of Interstate Power and Light Company are traded on the over-the-counter For Alliant Energy common stock and all preferred stock of market Wisconisin Power and Light Company and Iterstate Power and Light Company, contact:
Alliant Energy Corporation Attn: Shareowner Services COMMON STOCK QUARTERLY PRICE RANGES AND DIVIDENDS P.O. Box 2568 2002 2001 Madison, WI 53701-2568 Vritten inquiries should be mailed to this address as ell.
Quarter High Low Dividend High Low Dividend First $31.01 $28.67 $.50 $33.20 $28.75 DUPLICATE MAILINGS
$.50 If you receive duplicate mailings of proxies, dividend checks or Second $30.85 $24.75 .50 $32.67 $28.20 .50 other nmailings because ofslight differences in the registration of your Third $25.77 $16.35 .50 $31.49 $27.90 .50 accounts, please call Shareoviner Services for instructions on combining Fourth $19.89 $14.28 .50 $32.29 $27.50 .50 your accounits. To reduce the volume of paper you receive from us, you nmayvish to consider electronic access.
Year S31.01 S14.28 $2.00 S33.20 S27.50 $2.00 ELECTRONIC ACCESS Alliant Energy Corporation 2002 year-end common stock price: $16.55 Witli 24-hour access sia the WXeb, shareowncrs can look up accourit balance information and SEC filings, examnine reinvestment details, obtain payment information, vriew statemiients, vote their proxies, TARGETED ANNUAL 2003 RECORD AND DIVIDEND find tax information or open a new account at any time. Go to DIVIDEND RATE PAYMENT DATES wiu'talliantenergy.con,click oti 'Investors" and then "Shareosner Alliant Energy's 2003 Scrsices.' Follow instructions for first-tirine visitors.
Anticipated record and payment dates are targeted annual dividend as follows: rate is $1per common SIIAREOWNER INFORMATION share. The company's anniual report and quarterly nesvsletter focLIs on the COMMON STOCK sharcowner auidience. Your questions ad ideas are always wvelcome.
Alliant Energy Record dates Payment dates Please direct them to Shareovner Services.
Corporation had Jan. 31 Feb. 15 55,470 shareowners SIIAREOWNER DIRECT PLAN Apr. 30 May 15 as of Dec. 31, 2002.
The Plait is available to all shareoswners of rccord, first-time insestors, Shareowner records July31 Aug. 15 cuistomers, vendors and employees. Through the Plan, shareowners may are maintained in the buy common stock directly through the company without paying any Oct. 31 Nov. 15 corporate general office brokerage commissions, fees or service charges.
in Madison, Wis.
Ftill details are in the prospectus, which cani be obtained through our
\X5cb site or by calling Sharcoswner Services.
STREET-NAME ACCOUNTS Shareoswners shose stock is hield by banks or brokerage firmis aiid svho DIRECT DEPOSIT vish to receive quarterly reports directly front the companiy should contact Shareowsners who are riot reinvestinig their dividends through the Shareowvner Services to be placed on the mailing list. Ieports also may be Plan may choose to have their qLuarterly dividend electronically obtained throuigh the "Investors" section ofoLir Wcb site. deposited in their checkitig or savings accotint through this service.
Electronic deposit nmay be arraniged by contacting Shareowsner Senrices.
ANNUAL MtEETING The 2003 Annuial M1eeting of Shareowners will be held at the Alliaiit SHAREOWNER SERVICES Energy Center of Dane Cointy, Nadison, \Vis., on Wednesday. NMay 28, 2003, The conspany's Shareosvner Services representatives are available to at I p.m., Central Daylight Time. assist you from 8:30 a.m. to 4:30 pim. (Central Standard Time) each buisiniess day.
FORM 10-K INFORMIATION N1adison, Wis., area: (608) 458-3110 Upon request, the companiy will provide, withotit charge, copies tof the Toll-free: 1-800-356-5343 Annual Report on Form 10-K for the year enided Dec. 31, 2002, as filcd with the Securities and Exchange Cotmmission. All reports filed wyith the SEC also Internet address: uuuallantene-,.corn(click otin Investors")
are available through the "Investors" sectioinof our \Vcb sire.
66 ALLIANT ENERGY 20)2 ANNUAL REPORT
Our Vision To be the customer's first choice for energy solutions.
Our Mission To exceed the customer's expectations for comfort, security and productivity around the world.
The Alliant Energy Way We value S.E.R.V.I.C.E.
Safety. We do not compromise the safety of employees or the general public.
Employees. We value a diverse workplace that fosters employee growth and development.
Responsibility. We are committed to the environment and the communities we are privileged to serve.
Value. We create value for our shareowners and focus on profitable growth.
Integrity. We vow to be ethical, open and honest. We maintain personal accountability for our actions and behavior.
Customer Focus. We are results-oriented and deliver on our promises.
Excellence. We value operational excellence and encourage innovation and creativity. We act quickly and are willing to embrace changes and take risks in pursuit of excellence.
Alliant Energy Worldwide Headquarters 4902 North Biltmore Lane P.O. Box 77007 Madison, WI 53707-1007 General information: 1.800.ALLIANT ShareoNvner services: 1.800.356.5343 Operating Headquarters 200 First St., S.E.
Cedar Rapids, IA 52401 1.800.373.1303 1000 Nfain St.
Dubuque, IA 52001 1.800.611.9330 Current information about Alliant Energy is available on the Web at WWv.a/lianteneirfcomn.
L NT The common stock of Alliant Energy Corp. istraded on NYSE the New York Stock Exchange under the symbol LNT
© 2003AlliantEnergy
thinking globally acting locally N
0 0
N
Headquartered in Cedar Rapids, Iowa, Central Iowa Power Cooperative (CIPCO) is a consumer-owned, not-for-profit cooperative. Its purpose is to create value for its member/owners as their preferred business partner in the production and packaging of energy services to rural and subur-ban markets. Factors influencing CIPCO's ability to supply power and energy are constantly changing, and many of these are beyond the borders of the territory we serve.
The generation and transmission system built by CIPCO and its members is strong and reliable.
With planning and foresight, CIPCO has grown to meet the needs of its members who serve over 250,000 Iowans. This process has never been simple, but the decisions made today are shaped by far reaching factors. Regional, nation-al, and global events weigh in on long term deci-sions and influence the day-to-day operations of the Cooperative.
Thinking globally while acting locally becomes the model by which CIPCO's board of directors, man-agement, and staff gather information, consider choices and make decisions for the continued suc-cess of the Cooperative.
central iowa power cooperative 12002 annual report C596 I table of contents Message from the President and CEO ................................... page 2-4 CIPCO at a Glance ................................... page 5 Generation and Transmission Activity ................................... page 6 Perspectives ................. ..... ...................... .................. ...page 77..
Eastern Iowa Light and Power Cooperative ................................... page 8-9 Linn County Rural Electric Cooperative ................................... page 10-11
.~~~~~~~~ I page 12-13 T.lP. Rural Electric Cooperative ...................................
Consumers Energy ................................... page 14-15 2002 In Review ................................... page 16-17 Board of Directors ................................... page 18 Executive Committee ................................... page 19 Executive Staff................................... page 20 System Managers ................................... page 21 Financial Highlights ................................... page 22 Independent Auditors' Report ................................... page 23 Consolidated Balance Sheets ................................... page 24 Consolidated Statements of Revenues & Expenses. page 25 Consolidated Statements of Members' Equity ................................... page 26 Consolidated Statements of Cash Flows ................................... page 27 Notes to Consolidated Statements ................................... page 28-33 Ten Year Financial Summary ................................... page 34-35 Member Cooperative Operating Statistics ................................... page 36-37 A Touchstone Energy Cooperative ___
thinking globally acting locally a message from the president and ceo It is incumbent upon the leadership of any corporation to set the course and establish guideposts for the direction of the organiza-.
tion. Many leaders exhaust their energy and resources in an effort to fine tune the business models which provided historic success. At CIPCO, our leadership model balances the repetition of past suc-cesses with the search for creating new ways to approach our busi-ness. One could say that we take a global perspective and apply what we learn within a local context.
In searching for the new, we are influenced by many factors. We examine research and development throughout the marketplace and attend forums and meetings with the purpose of expanding our knowledge to bring the best power delivery model to our cus-tomers.
However, before asking our team to dedicate themselves to the suc-cess of CIPCO, a plan must be developed. Early in 2002 manage-ment presented to the Competitive Environment Committee of the Board an outline of priority elements as the focal point for a work plan to move us into the future. These points will offer a template Keith Wirt, President for measurement of success and as a guide for keeping our focus Dennis Murdock, CEO centered on significant strategies.
A Touchstone Energy' Cooperative ___
central iowa power cooperative 12002 annual report 1 F1:-
These points are Asset assets. We also recognize that Competitive Posturing. This cat-Strategies, Financial Strength, the development of state policy egory includes review of all mar-Competitive Posturing, and will affect our future decisions keting plans and programs and a Organizational Development. regarding utility resources. reassessment of the tools, The second priority as estab- resources and the staff talents Asset Strategies anticipated that lished by the Committee was to associated with the delivery of the ownership and operations of improve upon the Financial programs and service to the the utility assets would be driven Strength of the cooperative. membership.
more by federal initiatives than local interest. The objectives set CIPCO had been successful in Finally, the Committee endorsed for 2002 were to follow the devel- achieving strong investment- an effort focused on opment of these federal initia- grade credit ratings from Organizational Development. Over tives and analyze the effect of Standard & Poors and Fitch. With the next several years, CIPCO will these efforts on CIPCO's opera- the anticipated addition of coop- be exposed to a significant num-tion. Included in this element of erative-owned generation ber of retirements in its manage-the plan are considerations of resources and the uncertainty in ment ranks. Plans will call for plant additions, development or the credit markets, it is imperative attention to developing an organ-refinement of existing intercon- that we maintain this recognition ization capable of dealing with nection agreements, as well as as a strong financial credit. and benefiting from these oppor-initiatives for green power portfo- The third element of the 2002 tunities of significant change with-lios and distributed generation work plan is categorized as in the organization itself.
A Touchstone Energy' Cooperative jr__
thinking globally acting locally Summit Lake (0.8%)
Louisa County \
(7.8%)
We have accomplished a number of 2002 work plan goals. These were Fair Station reported to the Board of Directors over the course of the year. A few #1 -
(10.2%)
of the more significant successes are reported in this Annual Report.
Interchange (19.7%)
These accomplishments are the result of a solid team effort. CIPCO's (13 business model continues to be shaped by the elements of an evolv-Council Bluffs #3 ing regulatory agenda and the new financial reality of marketplace (18.0%)
failures stemming from the false starts in customer choice.
sources of energy We believe that CIPCO has made significant advances in becoming a stronger cooperative and is better prepared to deal with the ever-changing environment in which our business operates. We will build on our defined strategies and incorporate day-by-day changes that the future presents. Strategic planning and tactical decisions will always be made within the context of our member neighborhoods and national and global conditions.
X'hlza Dennis udock, CEO Keith Wirt, President Central Iowa Power Cooperative Central Iowa Power Cooperative utility plant investment A Touchstone Energy' Cooperative ___
central iowa power cooperative 12002 annual report CORRad cipco at a glance As of December 31, 2002 Energy Sales .............. 2,959,374 MWh Total Operating Revenue .............. $130,061,964 Net Margin .............. $4,547,555 Total Assets .............. $336,980,625
- 93 94 95 96 97 98 99 00 01 02 Average System Rate ...... 42 Mills/kWh peak demand energy sales Member Distribution Systems .............. 14 Margin 3 5% rMember Services 1.6%
Total Retail Consumers Gen. &Admin. 3.8%l 1
- Taxes & ns. 0.1%
(approximate number of meters) .............. 115,000 Transmission 5.4%- i n_
Approximate Population Interest Energy Served .............. 250,000 11.1%
42.2%
2002 Peak Demand .............. 558 MW Depr. & Decom Miles of Transmission Line ........... 2,000 12.5%
Employees (including affiliated Generation 19.8%
and subsidiary companies) ............. 121 average system rate operating expenses A Touchstone Energy' Cooperative jr__
thinking globally acting locally I generation and transmission activity r~~~~~~~~~.
I Ht:
Eleven blades, each two feet in diameter, make quick work of trees in need of side-trimming. The 34kV line feeding CIPCO headquarters' serv-ice substation was cleared with this device.
A Touchstone Energye Cooperative ____
central iowa power cooperative 12002 annual report c:
perspectives It is undeniable that a forward direction in any broad scale economic endeavor includes thoughtful assessment of seemingly disconnected factors. Subtle shifts in national consumer behavior, housing markets in neighboring states, or demand for HDTV are just a few examples of remote economic variables that have a profound impact on our immediate energy picture.
These variables, coupled with geography, infrastructure, and in some cases, cultural realities, present unique challenges to cooperatives within the CIPCO family. Understanding and interpreting these conditions and taking steps to exploit opportunities is the very definition of entrepreneurship. And it is the strength of the co-op model to share these experi-ences in order to better serve customers and present a position of strength in a competitive environment.
This report explores just a few case studies of cooperatives within the CIPCO service territory. System managers relate their experiences and describe the importance of looking Top: Neil Safety Longseth, Council, Executive presents Director CEO Dennis of the Iowa-Illinois Murdock with a plaque beyond their surroundings and having a global view. recognizing ClPCO's million hour milestone without a lost-timr- A:_LXI Anln Wh-itoontrn crn inr z A-o rime IJuly. IvI,aule. uLJIlry supVlVLs UIperadLtJJIo uar Il,le, (left) and Ken Viasman and Neil. Bottom: Utility operations supervisors Tom Freml (left) and Dale VerHelst with Neil.
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thinking globally acting locally eastern iowa light and power cooperative The Eastern Iowa Light and Power Cooperative (Eastern) serves a large portion of the Mississippi river area. The co-op has many loads with successful commercial enterprises, such as grain elevators, that benefit from close proximity to the river. They have also enjoyed solid growth in suburban areas, especially in Muscatine and Davenport.
"We've always been active in economic development and have pro-vided engineering and management support. We also participate in and fund activities in these communities," said Mel Nicholas, CEO for Eastern. "The places where we have branch operations are where we Melvin Nicholas, CEO, Eastern Iowa are most active. When we provide a consistent supporting role, as in Light and Power Cooperative the Iowa Area Development Group (IADG), we can be counted on for effective economic recruiting."
Mr. Nicholas said concentration on his co-op's core business has lead to consistency and a more stable forecast for sustaining community support. The benefit is that communities become strong through planning, and they tend to value things like education, which results in long-term economic growth. "For a short period, we pursued a diver-sification strategy in security systems, satellite dishes, and computers to offset some of the economic swings we were seeing with commer-cial and residential loads," Nicholas said. "This was not successful, so we went back to our core business and kept our focus on what really
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central iowa power cooperative 12002 annual report CI 1 makes us profitable: healthy communities that are attractive to busi-nesses and industries in search of a home."
Eastern gets 75 percent of its business from the industrial load sector, which makes the co-op run "more like an investor-owned utility in terms of load compensation," Nicholas said. "We have to look at our exposure in these areas and always be prepared for the ripple effect of things like foreign steel dumping or rising scrap metal costs and other changes in the manufacturing industry. In some cases, we can help our customers get through with creative financing solutions. We have helped ourselves by diversifying our customer base and partici-pating in search groups in the metals industry, pharmaceutical, food processing, and plastic molding industries."
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thinking globally acting locally linn county rural electric cooperative The pressure to perform is great, but the rewards to exceptional performance are even greater. The Linn County Rural Electric Cooperative (Linn County REC) has a fair concentration of interna-tional players in its service area, and this has been a big influence on growth and planning strategies.
"We have businesses with international ties in our service territory,"
says Kim Colberg, CEO of Linn County REC. "Businesses such as Integrated DNA, the National Advanced Driving Simulator (NADS),
and Rockwell are just a few examples. When there are new busi-nesses scouting locations and examining infrastructure support and Kim Colberg, CEO, Linn County incentives, you can be certain we will be graded on our perform- Rural Electric Cooperative ance and track record with these types of companies."
Many of Linn County REC's customers are on the front line of new policy and procedure protocols relating to disaster recovery and planning. "Our industrial customers have prompted us to become more conscious and take our planning to a different level,"
Colberg said. "We used to be satisfied with our procedures for outage related support. Now we look at what we need to do if we lose the electric system."
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central iowa power cooperative 12002 annual report CIP6 These considerations are boilerplate items that companies expect, especially if an interruption impacts mission critical operations.
"How we would run our internal communications, computer systems, and information network to members was not a complete plan,"
Colberg said. "Now we have a resource book that points out areas we need to address in different scenarios. It addresses the best way to maintain a communications and service continuum in the event of a problem."
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thinking globally acting locally t.i.p. rural electric cooperative By virtue of the 1-80 route, the TI.P. Rural Electric Cooperative has built a large portion of its load with customers who rely on this major U.S. artery.
"Anybody who depends on travel and has to distribute their products across the U.S. will benefit from the services our customers are offer-ing," says Darrel Heetland, CEO of T.I.P. "1-80 is a big plus for motels, inns, restaurants, truck stops, and outlet malls."
The range of T.I.P. participation extends beyond this East-West inter-state as well. Their impeccable service record with Victor Plastics, a Darrel Heetland, CEO, T:.P Rural major supplier to various Iowa industries, paved the way for Victor's Electric Cooperative choice to expand into the Linn County REC service area (North Liberty). "In the cooperative world, the definitions of market area and service area are constantly being redefined to accommodate the reali-ties of overlap and the momentum of global interconnectedness."
On the macro level, Heetland devotes a large portion of T.l.P.'s inter-ests to economic development groups. "These groups are the cata-lysts for growth," Heetland observed. "The community is an interwov-en fabric of partnerships that have a common goal. An example would be our work with the Brooklyn Industrial Park."
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S.U I
central iowa power cooperative 12002 annual report C116 T.l.P. purchased the 32 acres for the park, the City of Brooklyn provid-ed the sewer and water (the Brooklyn Mutual Telephone Company received a revolving fund grant which they loaned to the city at zero interest to fund the water and sewer) and annexed the land and made it a tax increment financing (TIF) district. The TIF taxes can pay for long-range improvements at the site. The Poweshiek County Savings Bank made a monetary donation, and Manatts Inc. (a Brooklyn-based construction company) along with a RISE (Revitalize lowa's Sound Economy) grant from the Department of Transportation helped pave the street for the site. This grant paid 50 percent of the paving costs, and Manatts Inc. gave a 10 percent discount to the city and held the balance at no interest until lots were sold. Brooklyn Municipal Utilities extended gas service to the park at no cost.
"You can see that the sum of the parts is greater than the whole,"
Heetland said. "It takes a lot of work, but it pays off in the end."
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thinking globally acting locally consumers energy Consumers Energy allocated considerable time and resources to re-discover its core values in 2002. Integrity and trustworthiness received great focus, since these values lead to open and honest dialogue between employees and members and create a feedback loop that supports a high level of service.
Keeping one hand on the pulse of their customers has fostered trust between Consumers Energy and its members."We have always put the member-customer's agenda ahead of our own," says Brian Heithoff, Consumers Energy CEO/System Manager. "Whenever there Brian Heithoff, CEO, Consumers is a contact with our members, we send a survey to find out how we Energy performed. Understanding what our members think of us today shapes how we see the future. . .their perception of the co-op and the services received guide our brand and define our image." -r In addition to providing these response mechanisms, Consumers Energy publishes a monthly newsletter and encourages feedback on ~:
.", ,-ji. 1 - 'j, their website. "We are trying to be collaborative with our members and poll opinions on certain issues to give us a perspective that's beyond the geographic confines of our offices," Heithoff said. "That way, we can be responsive and offer flexible solutions to our market area and service territory. As the world is becoming more complex, S.
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central iowa power cooperative 12002 annual report
=X; i ^ different energy needs arise and our members are expecting us to consult and advise on all energy issues."
Consumers Energy has responded to membership demands for diver-sification. Their broader role of energy delivery encompasses electric, natural gas, and possibly propane distribution. In 2001, Consumers went head to head against MidAmerican Energy in Ankeny, making it the first time in Iowa history that natural gas companies competed for residential customers. "We see ourselves as being in the energy deliv-ery and energy management cooperative business," Heithoff said.
"By expanding our core business to include a broader service and expertise portfolio, we can answer the specific interests and needs of our members and customers. From retail establishments to residential areas, all of our services are underscored by solid personal relation-ships."
Consumers is also part of cutting edge television broadcast technolo-gy. "We service a state-of-the-art digital transmitter antenna just north of Ankeny that reaches a huge market in Central Iowa and broadcasts more than five stations to more than a million homes," Heithoff said.
"Our involvement in this project is a result of being in contact with economic development committees throughout our service territory."
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thinking globally acting locally 2002 in review ASSET STRATEGIES
- Implemented the new Financial Forecast geothermal heat pump units across the
- Continued to evaluate the regional trans- Model system mission and independent system operator
- Joined 10 other G&Ts to pursue the issues Indenture process with the Rural Utilities Economic Development
- Invested in upgrades and replacement of Service
- Awarded rate discounts to Linn County transmission line and substation facilities
- Revised board policies for annual budget- Rural Electric Cooperative, Marion; to assure reliability of the operating system ed operating margin of 3%, payment of Consumers Energy, Marshalltown; and
- Committed to ownership of 60 MW in 75% of current year's margin in next calen- Pella Cooperative Electric, Pella for five MidAmerican Energy's 790 MW Council dar year and payment of deferred patron- new development projects across the sys-Bluffs #4 Generation Station age on not less than 10 year or more than tem 15 year roll
- Pursued participation in renewable energy
- Facilitated a grant for a new manufacturing opportunities
- Completed initial assessment of risk on an facility in the service territory of enterprise basis for power supply, trans- Maquoketa Valley Electric Cooperative, mission, catastrophic events, member/cus- Anamosa FINANCIAL STRENGTHS tomer revenues, financial structure and liq-uidity, management and governance sys-
- Authorized application for a grant from the
- Developed new relationship with CoBank tems, and mergers and acquisitions USDA REDL&G program for two projects with $25 million line of credit and refi- in the service territory nanced with CoBank the variable rate
- Reimbursed members over $32,000 for loans at a reduced rate COMPETITIVE POSTURING participation in trade shows and economic
- Submitted generation loans for $56 million Marketing Programs development organizations and $110 million for Council Bluffs #4 par-ticipation
- Developed and approved new marketing programs Relationships
- Received approval of $22 million transmis-sion loan
- Performed several member co-op satisfac-
- Iowa Department of Economic tion and market research studies Development - CEO Dennis Murdock invit-
- Realigned investment portfolio to reduce
- Returned over $1.4 million in marketing ed to participate in committee of business volatility and increase current yield rebates and $1.5 million in wholesale leaders to provide recommendations on
- Upgraded to an A Positive investment power bill credits to the member co-ops stimulating the economic growth of Iowa credit rating by Standard & Poors and a BBB+ Positive rating by Fitch
- Installed record number of air-source and B,
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central iowa power cooperative 12002 annual report fmdff
- Iowa Capital Investment Corporation- Allows member systems to run a retail rate CEO Dennis Murdock appointed to serve calculation on-line on the Board of Directors of the company
- Assembling Site Characteristics of member created by the Iowa Legislature in 2002 systems commercial and industrial loads that is responsible for the development of enabling them to scale for new or expand-the Fund of Funds Venture Capital pool ing member loads and was elected Chairman of this group
- Piloted a Disaster Recovery Focus -
- Increased number of one-on-one visits to Provides backup for in-house computer member systems at all levels - board of systems directors, system managers, communica-tions personnel, system planners, and mar-
- Upgraded all meeting resources in Cedar keting professionals Rapids, Des Moines and Creston
- Developed new Internet/Intranet site
- Supported programs of the national ORGANIZATIONAL DEVELOPMENT branding effort, Touchstone Energy'
- Conducted diversity training for all
- Partnered with the Institute for Character employees Development in Character Counts pro-
- Business Tune-Up' Training - 18 profes-gram for the communities of the member sional CIPCO employees participated in systems training focused on improving perform-ance in four (4)fundamental elements of business: People, Plans, Process, and Technology Profit.
- Tested MV-Web Pilot - Opens metering
- Achieved 1,000,000 hours0 days <br />0 hours <br />0 weeks <br />0 months <br /> worked without data to staff via web browser a lost-time workplace injury
- Added Voice Over IP (VOIP) Pilot - Uses the communication backbone for data already in existence and piggybacks the voice traffic of the offices
- Developed On-Line Rate Calculator -
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thinking globally acting locally I board of directors Tom Bass, Norman Van Zante, Kenneth Hastings, Duane Armstead, Allan Duffe, Donald Williams, Wayne Wilcox, Dale Walkup, Dick Bishop, and Bob Collins.
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central iowa power cooperative 12002 annual report Co executive committee Dennis Murdock, Executive Vice President & CEO; Melvin Neil, Assistant Secretary/Treasurer; Denise Guy-Himes, Executive Assistant; Wayne Hornocker, Secretaryl Treasurer; Keith Wirt, President; Marvin Focht, Vice President.
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thinking globally acting locally I executive staff Left to Right: Craig Fricke, Vice President of Corporate Planning and Business Development; Pat Murphy, Assistant Vice President of Business Development; Richard Anderson, Vice President of Utility Operations; James Fogt, Vice President of Corporate Operations.
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central iowa power cooperative 12002 annual report CI system managers U__s Ne-Top row, left to right: 1. Duane Dinville, Southwest Iowa Service Cooperative (SWISCO), Coming; 2. Martin Gardner, East-Central Iowa Rural Electric Cooperative, Urbana; 3. Kim Colberg, Linn County Rural Electric Cooperative, Marion; 4. Melvin Nicholas, Eastem Iowa Light and Power Cooperative, Wilton; 5. John Smith, Pella Cooperative Electric Association, Pella;
- 6. Brian Heithoff, Consumers Energy, Marshalltown; 7. Clarence Moshier, Farmers Electric Cooperative, Inc., Greenfield; 8.
James Lauzon, Maquoketa Valley Electric Cooperative, Anamosa; 9. Tim Stewart, Rideta Electric Cooperative, Inc., Mount Ayr; 10. Roger Wieck, Midland Power Cooperative, Jefferson; 11. Darrel Heetland, TI.P Rural Electric Cooperative, Brooklyn; 12. Cozy Nelsen, Guthrie County Rural Electric Cooperative, Guthrie Center; 13. Tom Killebrew, Clarke Electric Cooperative, Inc., Osceola;
- Dave Ferris, SIMECA.
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thinking globally acting locally financial highlights Amid much turmoil in the utility Although the financial markets Interest Earned Ratio (TIER) for industry, CIPCO continued to fol- continued their decline in value 2002 was 1.32 and the Debt low its strategic initiatives which during 2002, CIPCO showed Service Coverage (DSC) was 1.19.
produced a net margin of $4.5 mil- improved investment performance Both of these ratios are in excess lion for 2002. Energy sales contin- from last year. Significant progress of the minimum requirements for ued to increase with 2002 sales was made on the initiative to debt compliance, which are 1.05 totaling $124.3 million after mar- realign the investment portfolio in for TIER and 1.00 for DSC.
keting rebates. MWh sales order to reduce volatility and CIPCO's equity to asset ratio increased 8.3 percent in 2002 to a increase the current yield. The decreased to 15.8 percent.
total of 2,959,374 MWh. Revenue decrease in investments and notes per kilowatt-hour remained steady receivable shown on the balance at 42 mills/kWh. sheet is a temporary change that resulted when approximately $11 Purchased power costs declined million of investments were liqui-8% in 2002 following years of dated late in the year and the pro-increased costs. With CIPCO pur-ceeds were in cash equivalents chasing 33% of its energy require-pending reinvestment.
ments during the year, purchased power costs are a significant com- With a positive net margin, ponent of the total operating CIPCO's ratios showed improve-expenses. ment in 2002. CIPCO's Times
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annual report central iowa power cooperative 12002 Cd independent 2500 Ruan Center 666 Grand Des Avenue Moines, IA 50309 atuiditors' report RepOt
,pendent Auditors' Inde Board of Directors and Stockholders The f Central Cer tral Iowa power Cooperative.
operat ets o n We have audited the accompanyin' conliat (hCoeratvaS of e embTere 31,-
Cooperat1ve and subsidare rvnu d lo1,a powerad consolidated statemnso ened:atese cn-
)2 201, ad the related flows for the years then 20( ndes members eqitnadash COOPeav'smn pe responlsibilitY of the exipidated financial saemetsare the opnon on these consolidatedi so toearessa
- ~ ~~ ~saement.urrsosbltis enral ac based on our audits.ndrd firlancial statemnents standards enerll plnan in accoracewThoadiin er the Je cnduced ur audits Thsestndrd accpnte Unidu Stte of Amnerica.
ted ssurance about w examining, the arUait ttotimaeassatlement. An audit includesin the finan-d onm fre iacesttement msthemunt an disclosures nda tesf t e Ienc sofr teing easis ig princip the a00n n au i aing ial statemr entsar as well as evt provide a rea-nts,ent We believe that our audits a sign presetation.
all fnncialsatmn opinion.
solfnal basi for our referred to above present h cosoidteifnacilftaements Iowa power Inaorbpole respectsted financial poasition of Central nalmtea fairy, n h eut as of December 31 02ad20, then ended in Conformity Cooperaive ansubsidiaries tercsflwfothyears UnitedSaeofA ri.
oteoperations and in the generally accepted wi-thei coperan principles FebruarY 14, 2003 ocstn nry ooeaie__
~
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REPORT 0)1( 2002 A Touchstone Energy' Cooperative
cipco and subsidiaries I Consolidated Balance Sheets
- December 31, 2002 and 2001 2002 2001 2002 2001 Assets (Note 6) Capitalization and Liabilities Electric utility plant, at cost (Notes 2 and 9): Capitalization:
In service $ 400,769,104 394,111,157 Members' equity:
Less accumulated depreciation 215,572,510 204,656,680 Membership fees $ 1,500 1,500 185,196,594 189,454,477 Patronage capital 27,079,344 28,579,344 Construction work in progress 8,992,859 5,364,089 Nuclear fuel, at cost less accumulated Accumulated other amortization of $80,177,080 in 2002 comprehensive loss (7,939,015) (1,957,469) and $75,923,404 in 2001 11,235,879 10,717,180 Other (Note 5) 33,950,228 29,402,673 Net electric utility plant 205,425,332 205,535,746 Total members' equity 53,092,057 56,026,048 Non-utility property, at cost less Long-term debt, less current accumulated depreciation of $434,731 maturities (Note 6) 224,121,910 218,889,113 in 2002 and $381,318 in 2001 (Note 3) 560,643 610,433 Total capitalization 277,213,967 274,915,161 Investments and notes receivable:
Investments in associated and other Current liabilities:
organizations 27,598,840 19,432,352 Current maturities of long-term Investments-decommissioning debt (Note 6) 12,778,360 12,031,743 trust fund (Note 4) 17,852,449 18,036,875 Accounts payable 7,676,060 6,330,484 Other investments (Note 4) 21,353,793 39,475,284 Accrued property taxes 2,818,187 2,815,560 Notes receivable 2,780,793 4,037,616 Other accrued expenses 748,265 769,042 Total investments and notes receivable 69,585,875 80,982,127 Total current liabilities 24,020,872 21,946,829 Current assets:
Cash and cash equivalents 40,625,379 21,573,191 Other liabilities:
Accounts receivable, members 10,414,131 10,424,084 Decommissioning reserves 34,117,835 30,748,955 Other receivables 1,619,431 2,015,051 Special assessment 1,170,770 1,439,490 Fossil fuel, materials and supplies 6,314,222 4,661,533 Deferred taxes (Note 8) 375,898 909,539 Prepaid expenses 12,419 50,402 Other 81,283 81,921 Interest receivable 62,159 91,533 Deferred charges 827,256 2,658,305 Total other liabilities 35,745,786 33,179,905 Total current assets 59,874,997 41,474,099 Commitments and contingent Deferred charges 1,533,778 1,439,490 liabilities (Note 10)
Total assets $ 336,980,625 330,041,895 Total capitalization and liabilities $ 336,980,625 330,041,895 See Accompanying Notes to Consolidated Financial Statements.
2 o 2 A Touchstone Energy' Cooperative ____
RI:PORT
Consolidated Statements of Revenue & Expenses
- December 31, 2002 and 2001 ICi p CO and s u b si d iar i e s 2002 2001 Operating revenue:
Electric:
Energy sales $ 124,280,430 114,830,422 Rent of property 4,375,579 4,684,747 Miscellaneous 770,188 1,790,983 Other 635,767 1,111,450 Total operating revenue 130,061,964 122,417,602 Operating expenses:
Purchased power 35,565,787 38,715,073 Operations:
Production plant - fuel 18,565,761 18,544,915 Production plant - other 17,745,198 16,240,333 Transmission plant 5,535,696 4,931,928 Maintenance:
Production plant 7,734,395 6,576,807 Transmission plant 1,431,659 1,548,683 Member services 2,058,712 2,198,274 Administrative and general 4,913,904 5,606,032 Depreciation and amortization 12,673,670 11,960,331 Decommissioning provision 3,368,880 1,303,700 Property and other taxes and insurance 856,936 792,362 Other 235,537 217,864 Total operating expenses 110,686,135 108,636,302 Net operating margin 19,375,829 13,781,300 Other (expense) revenue:
Investment loss (1,276,656) (1,904,747)
Unrealized loss on investments of Iowa Capital Corporation (Note 1(i)) (257,888) (4,609,859)
Patronage capital allocations 138,183 201,972 Miscellaneous income, net 6,726 455,976 Total other (expense) revenue (1,389,635) (5,856,658)
Net margin before interest charges and income taxes 17,986,194 7,924,642 Interest charges:
Interest on long-term debt 14,224,394 14,704,395 Allowance for borrowed funds used during construction (27,169) (217,628)
Net interest charges 14,197,225 14,486,767 Net margin (loss) before income taxes 3,788,969 (6,562,125)
Income tax benefit (Note 8):
Current income tax benefit (655,431) (139,880)
Deferred income tax benefit (103,155) (1,843,234)
Total income tax benefit (758,586) (1,983,114)
Net margin (loss) $ 4,547,555 (4,579,011)
See Accompanying Notes to Consolidated Financial Statements. M -
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2002 REPORT
ci pco and subsi d i ar ie s I Consolidated Statements of Members' Equity
- December 31, 2002 and 2001 Accumulated other Total Membership Patronage comprehensive members' fees capital income (loss) Other equity Balance at December 31, 2000 $ 1,500 25,574,194 6,211,055 37,981,684 69,768,433 Comprehensive (loss) income:
Net loss - - - (4,579,011) (4,579,011)
Investments held by Cooperative:
Unrealized gains (losses) arising during the year on securities available-for-sale (net of tax benefit of $4,971,892) - - (13,728,763) - (13,728,763)
Realized losses on securities available-for-sale - - 5,560,239 5,560,239 Total comprehensive (loss) income - - (8,168,524) (4,579,011) (12,747,535)
Patronage capital paid - (994,850) - - (994,850)
Patronage capital allocated - 4,000,000 - (4,000,000) -
Balance at December 31, 2001 1,500 28,579,344 (1,957,469) 29,402,673 56,026,048 Comprehensive income (loss):
Net margin - - - 4,547,555 4,547,555 Investments held by Cooperative:
Unrealized gains (losses) arising during the year on securities available-for-sale (net of tax benefit of $430,486) - - (10,017,263) - (10,017,263)
Realized losses on securities available-for-sale - - 4,035,717 - 4,035,717 Total comprehensive income (loss) - - (5,981,546) 4,547,555 (1,433,991)
Patronage capital paid - (1,500,000) - - (1,500,000)
Balance at December 31, 2002 $ 1,500 27,079,344 (7,939,015) 33,950,228 53,092,057 See Accompanying Notes to Consolidated Financial Statements.
I 2002 A Totchstone Energye Cooperative ___
REPORT
Consolidated Statements of Cash Flows
- December 31, 2002 and 2001 Ci p co and subsidiaries 2002 2001 2002 2001 Cash flows from operating activities: Cash flows from investing activities:
Additions to electric utility plant, net $ (12,213,674) (12,131,953)
Net margin (loss) $ 4,547,555 (4,579,011) (4,030)
Additions to non-utility property, net (3,622)
Adjustments to reconcile net margin (loss) Purchases of investments-decommissioning to net cash provided by operating activities: trust fund and other investments (43,694,065) (33,579,513)
Depreciation and amortization 12,896,199 12,143,045 Sales of investments-decommissioning trust Amortization of deferred charges 2,340,217 2,003,616 fund and other investments 46,527,588 45,465,291 Interest and dividend income reinvested (4,542,712) (1,215,643)
Amortization of nuclear fuel 4,253,676 3,603,237 Purchases of nuclear fuel (4,772,375) (1,593,380)
Decommissioning provision 3,368,880 1,303,700 Purchase of investments in associated and Patronage capital allocations not other organizations (175,000) received in cash (251,292) (161,849) Receipt of prior years' patronage capital Loss on disposal of investments- allocation 116,766 200,088 decommissioning trust fund Sales of investments in associated and other organizations 123,824 164,254 and other investments 6,966,730 8,330,532 Decrease (increase) in notes receivable 395,063 (834,123)
Gain on disposal of investments-Net cash used in investing activities (18,063,207) (3,704,009) decommissioning trust fund Cash flows from financing activities:
and other investments (2,681,064) (2,505,803) Principal payments on long-term debt (12,020,586) (11,474,936)
Unrealized loss on Proceeds from long-term borrowings 18,000,000 5,400,000 investments of Iowa Patronage capital paid (1,500,000) (994,850)
Capital Corporation 257,888 4,609,859 Net cash provided by (used in)
Increase in receivables (13,870) (2,039,956) financing activities 4,479,414 (7,069,786)
(Increase) decrease in fossil fuel, Net increase in cash and cash equivalents 19,052,188 6,814,802 materials and supplies (1,652,689) 233,755 Cash and cash equivalents at beginning of year 21,573,191 14,758,389 Decrease in prepayments Cash and cash equivalents at end of year $ 40,625,379 21,573,191 and interest receivable 67,357 224,876 Refueling outage and other costs Supplemental disclosure of cash deferred (603,456) (2,689,465) flow information:
Increase (decrease) in accounts Cash payments for interest $ 14,153,494 14,486,767 payable, accrued liabilities, and other liabilities 1,816,813 (561,428)
Deferred tax benefit (103,155) (1,843,234)
Other 1,426,192 (483,277)
Net cash provided by operating activities 32,635,981 17,588,597 A Touchstone Energy' Cooperative ____
2002 REPORT
ci pco an d sub si diar i es I Notes to Consolidated Financial Statements
- December 31, 2002 and 2001 Note 1: Summary of Significant Accounting Policies missioning reserve sufficient to cover the Cooperative's share of decommission-(a) Basis of Accounting ing costs by the year 2014. Amounts funded are included in the Cooperative's The consolidated financial statements include the accounts of Central Iowa service rates. At December 31, 2002, the Cooperative has $17,852,449 in invest-Power Cooperative (the Cooperative) and its majority owned subsidiaries, Central ments set aside for decommissioning in a legally restricted external trust fund and Iowa Energy Cooperative (CIECO) and Iowa Capital Corporation (ICC). has also designated $16,265,386 of other investments for decommissioning.
The Cooperative is an electric generation and transmission cooperative providing (e) Non-utility Property wholesale electric service to its 14 members. CIECO invests in joint ventures pri- Non-utility property is carried at cost less accumulated depreciation.
marily with members of the Cooperative. ICC is an investment company incorpo- Depreciation is computed by the straight-line method over the estimated useful rated for the purpose of advancing economic development in the state of Iowa. lives of the respective assets, which range from 5 to 10 years for equipment.
All significant intercompany balances and transactions have been eliminated in (f) Allowance for Funds Used During Construction consolidation. The allowance for funds used during construction represents the estimated The accounting records of the Cooperative are maintained in accordance with cost, during the period of construction, of borrowed funds used for construction the Uniform System of Accounts prescribed by the Rural Utilities Service (RUS). purposes. The composite rates used to calculate the allowance for 2002 and 2001 The Cooperative is not subject to external regulation other than by the RUS. were approximately 1.7 percent and 7.7 percent, respectively.
Distribution of margins of the Cooperative, CIECO and ICC (collectively, the Company) are made in accordance with the provisions of the Code of Iowa. (g) Nuclear Fuel The cost of nuclear fuel, including capitalized interest and taxes, is being (b) Use of Estimates amortized to fuel expense on the basis of the number of units of thermal energy The preparation of financial statements in conformity with accounting stan- produced in relationship to the total thermal units expected to be produced over dards generally accepted in the United States of America requires management to the life of the fuel. Nuclear fuel expense includes a provision for estimated spent make estimates and assumptions that affect the reported amounts of assets and nuclear fuel disposal cost which is being collected currently from members.
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during (h) Fossil Fuel, Materials and Supplies Fossil fuel, materials and supplies are stated at moving average cost.
the reporting period. Actual results could differ from those estimates.
(c) Electric Utility Plant Ii) Investments and Notes Receivable Depreciation of electric utility plant in service is provided over the estimated Investments in associated organizations consist primarily of approximately useful lives of the respective assets on the straight-line basis. Maintenance and $5,412,000 in capital term certificates issued by National Rural Utilities repair of property and replacement and renewal of items determined to be less Cooperative Finance Corporation (CFC) and memberships in other cooperatives.
than units of property are charged to expense. Replacement and renewal of items These investments are stated at cost, adjusted for patronage capital allocations.
considered to be units of property are charged to the property accounts. At the Investments in other organizations consist primarily of investments in private time properties are disposed of, the original cost, plus cost of removal less sal- equity funds which are accounted for using the cost method.
vage of such property, is charged to accumulated depreciation. Investments - decommissioning trust fund is a legally restricted external trust fund and consists primarily of corporate and other bonds and notes, common and (d) Nuclear Decommissioning preferred stock and money market funds, which are carried at market value with Based upon the Nuclear Regulatory Commission (NRC) DECON option (which net unrealized gains and losses reported in members' equity until realized.
provides for the removal or decontamination of all equipment and structures nec- Other investments consist primarily of U.S. Treasury bonds, other bonds and essary to permit release of the property for unrestricted use), the Cooperative's notes, common and preferred stock and money market funds which are carried at share of the year 2014 costs to decommission the Duane Arnold Energy Center fair value with net unrealized gains and losses reported in members' equity until (DAEC) is estimated at $112,900,000 in 2002 dollars. The Cooperative includes a realized. Also included in other investments are ICC's investments in common provision for disposal of spent fuel in its nuclear fuel expense. stock which are carried at market value or estimated fair value, with unrealized The NRC minimum formula estimate is being used as the basis for decom- gains and losses reported in the statement of revenue and expenses in accor-missioning funding. For purposes of developing a decommissioning funding dance with accounting principles generally accepted in the United States of method, the Cooperative assumes decommissioning costs will escalate at an America for investment companies.
annual rate of 4 percent and the average return on investments will be approxi- Notes receivable include notes from an affiliated joint venture in the amount mately 8 percent. The method assumes decommissioning will start in 2014, the of $2,080,734 and $2,235,840 at December 31, 2002 and 2001, respectively. These anticipated plant shutdown date. The method is designed to accumulate decom- notes bear interest at 6.45 percent to 8.80 percent, and are due in quarterly install-2002 A Touchstone Energy' Cooperative __
REPORT
Notes to Consolidated Financial Statements
- December 31, 2002 and 2001 Ci p co and s u b si diaries ments of $68,700 including interest through 2019. Other notes receivable include a Goodwill and intangible assets not subject to amortization are tested annually non-interest bearing note with a balance of $700,000 with annual installments of for impairment, and are tested for impairment more frequently if events and cir-
$100,000 through 2009. The note was discounted using a 6.55 percent interest cumstances indicate that the asset might be impaired. An impairment loss is rec-rate. Also included is a note receivable of $150,348 at December 31, 2002 which ognized to the extent that the carrying amount exceeds the asset's fair value.
bears interest at 3.00 percent, and is due in monthly installments of $826 through Prior to the adoption of SFAS No. 144, the Company accounted for long-lived 2023. assets in accordance with SFAS No. 121, Accounting for Impairment of Long-(j) Pension Plan Lived Assets to be Disposed of.
The Company's policy is to fund pension costs accrued. (n) Fair Value of Financial Instruments Fair value estimates, methods, and assumptions are set forth below.
(k) Deferred Charges Deferred charges consist principally of a special assessment established by Cash and Cash Equivalents, Accounts and Other Receivables, Interest the Energy Policy Act of 1992 for decontamination and decommissioning of the Receivable and Accounts Payable Department of Energy enrichment facilities. The special assessment costs are The carrying amount approximates fair value because of the short-term being recovered through rates over 15 years ending in 2007. Deferred charges nature of these instruments.
also includes costs associated with securing energy purchase contracts for 2003 Investments and Notes Receivable and 2004. The amount of these costs to be amortized in 2003 has been reflected It was not practicable to estimate the fair value of investments in associated as a current asset on the balance sheet. and other organizations. The investments in associated organizations are (I) Cash Equivalents carried at their original cost, adjusted for patronage capital allocations. The Cash equivalents of $38,905,082 and $19,408,876 at December 31, 2002 and untraded capital term certificates currently bear interest at 3 percent to 5 2001, respectively, consist primarily of CFC commercial paper, deposits made into percent and primarily mature in 2020 through 2080. The patronage capital the interest bearing RUS cushion of credit and money market funds. For purposes allocations are non interest-bearing and mature based upon the granting of the statements of cash flows, the Company considers all highly liquid invest- cooperatives' policies. The investments in untraded other organizations are ments with maturities of three months or less at the date of purchase to be cash accounted for on the equity method.
equivalents. The fair value of investments-decommissioning trust fund and other invest-(m) Impairment of Long-Lived Assets and Long-Lived Assets to Be ments are based on quoted market prices published in financial newspapers Disposed Of or quotations received from securities dealers. At December 31, 2002, the SFAS No.144 provides a single accounting model for long-lived assets to be estimated fair value of investments-decommissioning trust fund and other disposed of. SFAS No. 144 also changes the criteria for classifying an asset as held investments were $17,852,449 and $21,353,793, respectively. The carrying for sale; and broadens the scope of businesses to be disposed of that qualify for value of the notes receivable approximates the fair value.
reporting as discontinued operations and changes the timing of recognizing losses Long-Term Debt on such operations. The Company adopted SFAS No. 144 on January 1, 2002. The The fair value of long-term debt is calculated by discounting scheduled cash adoption of SFAS No. 144 did not affect the Company's financial statements. flows through maturity using estimated market discount rates. The discount In accordance with SFAS No. 144, long-lived assets, such as property, plant, rate is estimated using the rates currently offered for long-term debt of simi-and equipment, and purchased intangibles subject to amortization, are reviewed lar remaining maturities. At December 31, 2002, the Company estimated the for impairment whenever events or changes in circumstances indicate that the fair value of its long-term debt as $255,000,000.
carrying amount of an asset may not be recoverable. Recoverability of assets to Limitations be held and used is measured by a comparison of the carrying amount of an Fair value estimates are made at a specific point in time, based on relevant asset to estimated undiscounted future cash flows expected to be generated by market information and information about the financial instrument. Because the asset. If the carrying amount of an asset exceeds its estimated future cash no market exists for a portion of the Company's financial instruments, fair flows, an impairment charge is recognized by the amount by which the carrying value estimates are based on judgments regarding current economic condi-amount of the asset exceeds the fair value of the asset. Assets to be disposed of tions, risk characteristics of various financial instruments, and other factors.
would be separately presented in the balance sheet and reported at the lower of These estimates are subjective in nature and involve uncertainties and mat-the carrying amount or fair value less costs to sell, and are no longer depreciated. ters of significant judgment and, therefore, cannot be determined with preci-The assets and liabilities of a disposed group classified as held for sale would be sion. Changes in assumptions could significantly affect the estimates.
presented separately in the appropriate asset and liability sections of the balance sheet.
2 00 2 A Touchstone Energy' Cooperative ____
REPORT
ci pco and subsidiaries INotes to Consolidated Financial Statements
- December 31, 2002 and 2001 (o) Recently Issued Accounting Standards In June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the assets. The Company also records a corresponding asset that is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company is required to adopt SFAS No. 143 on January 1, 2003. Because of the exten-sive effort needed to evaluate the impact of adopting SFAS No. 143, it is not practicable to reasonably estimate the impact of adopting the Statement on the Company's financial statements at the date of this report.
(p) Reclassifications Certain amounts previously reported in prior year's financial statements have been reclassified to conform with current year's presentation.
Note 2: Electric Utility Plant in Service The major classes of electric utility plant in service at December 31, 2002 and 2001 and depreciation and amortization for 2002 and 2001 are as follows:
Depreciation and Composite Cost amortization rates 2002 2001 2002 2001 %
Intangible plant $ 1,386,474 1,383,908 114,867 114,727 4.00 Production plant 252,489,393 252,265,193 8,638,135 7,964,375 3.10-20.00 Transmission plant 137,610,089 131,463,786 3,481,573 3,417,177 2.75 Distribution plant 454,256 454,256 12,913 12,913 2.75 General plant 8,828,892 8,544,014 595,299 580,947 3.00-16.00 Electric utility plant in service $400,769,104 394,111,157 12,842,787 12,090,139 Note 3: Non-utility Property At December 31, 2002, and 2001, non-utility property consists of the following:
Cost 2002 2001 Equipment $ 706,781 703,158 Other property 288,593 288,593
$ 995,374 991,751 M
200 2 A Touchstone Energy' Cooperative ____
REPORT
Notes to Consolidated Financial Statements
- December 31, 2002 and 2001 Ci p CO and s u b si d iar i e s Note 4: Investments At December 31, 2002 and 2001, investments-decommissioning trust fund and other investments were classified as available-for-sale and consisted of the following:
Decommissioning Trust Fund Other Investments Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value 2002 Other bonds and notes $ - - - 4,433,853 - 1,047,553 3,386,300 Common and preferred stock* 6,089,311 669,114 540,421 6,218,004 27,508,789 73,464 9,614,760 17,967,493 Money market funds 3,399,160 - - 3,399,160 - - - -
Other investments 8,235,285 - - 8,235,285 - - -
Totals $ 17,723,756 669,114 540,421 17,852,449 31,942,642 73,464 10,662,313 21,353,793 2001 Other bonds and notes $ - - - - 15,634,906 822,110 39,113 16,417,903 Common and preferred stock* 7,801,679 2,245,038 473,792 9,572,925 29,506,565 1,295,742 7,958,968 22,843,339 Money market funds 2,906,735 - - 2,906,735 214,042 - - 214,042 Other investments 5,500,000 57,215 - 5,557,215 - - -
Totals $ 16,208,414 2,302,253 473,792 18,036,875 45,355,513 2,117,852 7,998,081 39,475,284
- Other investments at December 31, 2002 and 2001 includes ICC's investment in common stock with a market value of approximately $4,041,000 and
$3,299,000, respectively; in 2002 and 2001 approximately $258,000 and $4,610,000, respectively, of unrealized losses have been included in the Statements of Revenue and Expenses in accordance with accounting principles generally accepted in the United States of America for investment companies.
Note 5: Members' Equity-Other At December 31, 2002, and 2001, members' equity-other consists of the following:
2002 2001 Unallocated margin (loss) $ 4,547,555 (4,579,011)
Reserve for contingent losses 21,902,673 26,481,684 Surplus 7,500,000 7,500,000
$ 33,950,228 29,402,673 The reserve for contingent losses is a discretionary reserve established by the Company for unexpected future losses.
A Touchstone Energy' Cooperative 1 N 2 0 0 2 REPORT
cipco and subsidiaries INotes to Consolidated Financial Statements December 31, 2002 and 2001 Note 6: Long-term Debt Louisa County, Iowa, 4.65% Pollution At December 31, 2002, and 2001, long-term Control Revenue Bonds guaranteed by CFC, debt consists of the following: due in annual installment of $305,000, 2002 2001 maturing on December 15, 2003 305,000 600,000 RUS, 2% and 5% mortgage notes payable, National Cooperative Services Corporation, due in quarterly installments approximating 6.45% to 8.80% mortgage notes payable,
$1,700,000 adjusted quarterly, including due in quarterly installments approximating interest, maturing through June 2031 $ 52,501,076 56,764,423 $68,700, including interest, maturing Federal Financing Bank (FFB), 4.665% to through 2019 2,080,734 2,175,840 10.584% mortgage notes payable, guaranteed by the RUS, due in quarterly Total long-term debt 236,900,270 230,920,856 installments approximating $3,964,000, Less current maturities 12,778,360 12,031,743 including interest, maturing from Total long-term debt, less current maturities $ 224,121,910 218,889,113 December 2010 through 2029 42,674,374 145,574,105 CFC, 5.90% to 6.05% mortgage notes payable, The aggregate maturities of long-term debt for each of the five years subse-due in quarterly installments approximating quent to December 31, 2002 are as follows: 2003, $12,778,360; 2004, $13,139,607;
$467,000 , including interest, maturing from 2005, $28,722,988; 2006, $13,921,930; and 2007, $13,486,835.
December 2006 through April 2020 11,642,326 15,591,101 At December 31, 2002, the Cooperative had available a $10,000,000 short-term CFC, variable interest rate (4.70% at line of credit agreement with CFC with no borrowings outstanding at December December 31, 2001) notes payable, due in 31, 2002 and 2001. The Cooperative also has an available $25,000,000 variable line quarterly installments approximating of credit agreement with CoBank with $15,000,000 outstanding at December 31,
$180,000 adjusted quarterly, including interest, 2002.
maturing in March 2031 - 8,921,686 All assets of the Company are pledged to secure the long-term debt to RUS, CoBank, variable interest rate (fixed through FFB, CFC and CoBank.
March 2003 at 2.98%) note payable, with As of December 31, 2002, FFB has approved a loan guarantee commitment monthly interest and quarterly principal for the Cooperative in the amount of $22,000,000. Funds under the loan commit-installments ranging from $56,000 to ment are not available for advancement until the Cooperative has completed all
$166,000, maturing March 31, 2032 11,600,949 - conditions of the loan guarantee agreement. The Cooperative had not completed CoBank, variable interest rate (fixed through all conditions as of December 31, 2002.The proceeds of the guaranteed loan will March 2003 at 3.14%) line of credit, with be used to finance new transmission projects.
interest installments due monthly and principal due at December 31, 2005 15,000,000 -
Note 7: Pension Plan Cooperative members, variable interest rate The Company participates in a multi-employer pension plan which covers (3.850% at December 31, 2002) unsecured notes substantially all employees. The accumulated plan benefits and net assets of the payable, due in quarterly installments plan are not determined or allocated separately by individual employer. Pension approximating $9,800, including interest, expense for the years ended December 31, 2002 and 2001 amounted to approxi-maturing on December 31, 2005 110,811 143,701 mately $567,000 and $544,000; respectively.
City of Council Bluffs, Iowa 6.125% Pollution Control Revenue Bonds guaranteed by CFC, due in semi-annual installments ranging Note 8: Income Tax Status from $85,000 to $110,000, maturing on The Cooperative is a nonprofit corporation under the laws of Iowa and is December 1, 2007 985,000 1,150,000 exempt from federal and state income taxes under applicable tax laws.
CIECO is organized as a taxable cooperative under the laws of Iowa and ICC is a for-profit corporation under the laws of Iowa.
Deferred tax assets and liabilities related to temporary differences between the financial statement bases and income tax bases of assets and liabilities at December 31, 2002 and 2001 are as follows:
2 00 2 A Touchstone Energy' Cooperative ____
REPORT
Notes to Consolidated Financial Statements
- December 31, 2002 and 2001 Ci p co and s u b si d iar i e s Federal and State authorities. Recent amendments to the Federal Clean Air Act 2002 2001 require utilities, including the Cooperative, to comply with more restrictive emis-sions standards commencing in 1996. The Cooperative is recovering any Net deferred tax liability: increased costs resulting from compliance with the environmental legislation Financial statement gain on through increased rates.
transfer of investment $ 777,700 777,700 The Price-Anderson Amendments Act of 1988 (1988 Act) sets a statutory limit Unrealized (loss) gains in market (401,802) 131,839 of $9.55 billion for liability to the public for a single nuclear power plant incident value of investments and requires nuclear power plant operators to provide financial protection for this Net deferred tax liability $ 375,898 909,539 amount. The DAEC provides this financial protection through a combination of
$300 million of insurance and $9.25 billion of industry-wide retrospective payment plans. Under the industry-wide plans, DAEC could be assessed a maximum of At December 31, 2002 and 2001, CIECO had established a net deferred tax lia- $88.1 million per nuclear incident, with a maximum of $10 million per year (of which the Cooperative's 20 percent ownership portion would be $17.6 million and bility of $350,577 and $781,063, respectively against the net unrealized gain in fair value of investments recorded in accumulated other comprehensive income $2 million, respectively), if losses relating to the accidents exceeded $300 million.
The Act expired on August 1, 2002, with no impact to the Cooperative. Existing (loss).
Income taxes for 2002 and 2001 differ from the expense computed using the nuclear power plants, including DAEC, are covered under the insurance system of the Act for the remainder of their operating lives. Extension or renewal of the Act 34% statutory rate as follows:
applies only to new construction. Currently there is legislation in Congress that 2002 2001 includes extensions of the Act, increasing the statutory limit for liability to the Income taxes at the statutory rate $ 1,288,249 (2,231,123) public for a single nuclear power plant incident and increasing the maximum State taxes, net of federal benefit (78,422) (518,542) annual assessment per incident.
Loss (income) of the The Cooperative, as 20 percent owner of DAEC is a member of Nuclear Cooperative - tax exempt (1,732,641) 468,079 Electric Insurance Limited (NEIL). NEIL provides $430 million of insurance cover-Other (235,772) 298,472 age for the Cooperative on certain property damage, decontamination and prema-ture decommissioning. The proceeds from this insurance, however, must first be
$ (758,586) (1,983,114) used for reactor stabilization and site decontamination before the insurance can be used for plant repair and premature decommissioning. NEIL further provides Note 9: Jointly owned Electric Utility Plant separate coverage for additional expense incurred during certain outages. Owners The Cooperative's share of jointly owned generating facilities as of December of nuclear generating stations insured through NEIL are subject to retroactive pre-31, 2002, is reflected in the following table. These facilities provide approximately mium adjustments if losses exceed accumulated reserve funds. NEIL's accumulat-60% of the Cooperative's total generating capacity. The Cooperative is required to ed reserve funds are currently sufficient to cover its exposure in the event of a sin-provide financing for its share of the units. The Cooperative's share of expenses gle incident under the primary and excess property damage or additional expense associated with these units is included with the appropriate operating expenses in coverages. However, the Cooperative could be assessed annually a maximum of the statements of revenue and expenses. The following table provides the net bal- $0.94 million for NEIL primary property, $0.91 million for NEIL excess property ance recorded in the Electric-Utility Plant by facility, at December 31, 2002. and $0.69 million for NEIL additional expenses if losses exceed the accumulated reserve funds. The Cooperative is not aware of any losses that they believe are Percentage Capacity Electric likely to result in an assessment.
Facility Ownership MW Utility Plant, Net In the unlikely event of a catastrophic loss at DAEC, the amount of insurance available may not be adequate to cover property damage, decontamination and DAEC 20.0% 118 $60,374,655 premature decommissioning. Uninsured losses, to the extent not recovered Council Bluffs Unit No. 3 11.5% 79 17,164,018 through rates, would be borne by the DAEC owners and could have a material Louisa Generating Station 4.6% 32 13,356,502 adverse effect on the Company's financial position and results of operations.
The Cooperative has entered into a joint operating agreement with Note 10: Commitments and Contingent Liabilities MidAmerican Energy to construct a coal-fired generation plant to be completed in The Cooperative's operations and activities with respect to its coal-fired facili- 2007. The Cooperative's share of costs for the construction of the plant is estimat-ties are subject to developing environmental legislation and regulations by ed to be $96,000,000.
20 0 2 A Touchstone Energy' Cooperative ____
REPORT
cipco and subsidiaries ITen Year Financial Summary-Unaudited 2002 2002 2001 2000 1999 1998
SUMMARY
OF OPERATIONS Operating revenue $ 130,061,964 122,417,602 109,559,924 102,538,259 100,809,254 Operating expenses and interest:
Purchased power 35,565,787 38,715,073 29,043,582 21,381,342 16,789,263 Operations, maintenance and other 51,248,246 48,060,530 46,666,599 45,855,099 46,752,390 Member services 2,058,712 2,198,274 2,052,334 2,225,602 1,452,306 Administrative and general"' 4,913,904 5,606,032 4,807,670 10,345,072 3,578,046 Depreciation and amortization 12,673,670 11,960,331 12,045,902 11,616,967 11,561,393 Decommissioning provision 3,368,880 1,303,700 4,175,592 3,696,936 3,219,840 Property and other taxes and insurance 856,936 792,362 768,854 683,723 602,289 Net interest charges 14,197,225 14,486,767 14,905,455 15,545,755 15,991,060 Total operating expenses and interest 124,883,360 123,123,069 114,465,988 111,350,496 99,946,587 Operating margin (deficit) 5,178,604 (705,467) (4,906,064) (8,812,237) 862,667 Other (expense) revenue (1,389,635) (5,856,658) 8,713,367 18,255,025 4,847,371 Income taxes 758,586 1,983,114 (1,273,261) (3,925,370)
Net (loss) margin $ 4,547,555 (4,579,011) 2,534,042 5,517,418 5,710,038 ASSETS Electric utility plant $ 501,174,922 486,115,830 473,807,918 460,595,676 448,048,533 Less accumulated depreciation and amortization 295,749,590 280,580,084 266,304,129 251,357,632 237,433,340 Net electric utility plant 205,425,332 205,535,746 207,503,789 209,238,044 210,615,193 Net non-utility plant, investments, and notes receivable 70,146,518 81,592,560 114,846,839 125,406,557 93,530,915 Current assets 59,874,997 41,474,099 32,435,966 38,775,134 48,216,714 Deferred charges 1,533,778 1,439,490 1,673,665 2,006,332 8,417,290 Total assets $ 336,980,625 330,041,895 356,460,259 375,426,067 360,780,112 CAPITALIZATION AND LIABILITIES Members' equity $ 53,092,057 56,026,048 69,768,433 81,394,946 70,653,802 Long-term debt 224,121,910 218,889,113 225,669,647 233,417,244 242,583,793 Current liabilities 24,020,872 21,946,829 22,094,783 21,553,988 20,223,123 Decommissioning reserves 34,1 17,835 30,748,955 29,445,255 25,269,663 21,572,727 Special assessment and other liabilities 1,627,951 2,430,950 9,482,141 13,790,226 5,746,667 Total capitalization and liabilities $ 336,980,625 330,041,895 356,460,259 375,426,067 360,780,112 M
2002 A Touchstone Energy' Cooperative __i_
REPORT
Ten Year Financial Summary - Unauditedl cipco and subsidiaries 1997 1996 1995 1994 1993 91,200,299 91,732,592 89,037,508 85,028,734 85,785,058 12,844,702 8,519,525 6,606,936 6,118,306 9,492,228 45,026,208 47,860,033 50,991,054 48,633,354 43,099,230 1,344,865 1,214,659 1,420,792 1,082,301 1,086,483 3,709,180 3,134,472 2,936,127 3,039,463 3,795,594 11,757,936 11,476,590 10,449,639 11,375,564 10,799,746 2,476,040 2,132,340 1,824,330 1,594,812 1,770,725 664,729 678,479 756,618 113,741 102,099 15,218,091 14,470,081 14,786,377 14,097,906 15,061,130 93,041,751 89,486,179 89,771,873 86,055,447 85,207,235 (1,841,452) 2,246,413 (734,365) (1,026,713) 577,823 6,855,843 4,220,667 3,043,818 2,936,268 1,887,856 5,014,391 6,467,080 2,309,453 1,909,555 2,465,679 444,800,113 435,847,094 413,216,505 397,021,724 384,457,411 224,256,871 209,131,696 194,007,022 180,772,357 168,641,832 220,543,242 226,715,398 219,209,483 216,249,367 215,815,579 76,809,728 54,619,045 36,957,633 33,248,839 30,267,892 42,677,841 42,287,705 51,290,287 37,169,726 36,184,307 (1) Beginning in 1994, certain salaries, 8,809,531 9,342,892 9,803,040 11,001,268 6,442,156 benefits, and other costs previously classified as administrative and gener-348,840,342 332,965,040 317,260,443 297,669,200 288,709,934 al have been reclassified as member services or operations, maintenance and other to be more reflective of the services provided. Year 1993 has not 64,424,325 56,870,129 43,282,394 39,465,790 37,745,673 been reclassified on a comparative 239,854,400 231,480,716 235,124,252 221,732,790 215,429,551 basis as it was not practical. In 1999, 20,400,913 22,993,410 22,346,204 21,758,749 22,728,477 approximately $6.2 million relates to 18,352,887 15,876,847 13,744,507 11,920,177 10,325,365 debt repricing costs written off in 5,807,817 5,743,938 2,763,086 2,791,694 2,480,868 accordance with RUS' approval.
348,840,342 332,965,040 317,260,443 297,669,200 288,709,934 MEO A Touchstone Energy' Cooperative __
20 02 REPORT
ci p co and subsi d iar i e s I Member Cooperative Operating Statistics - Unaudited 2002 Clarke Consumers East-Central Eastern Farmers Guthrie
SUMMARY
OF OPERATIONS:
Operating Revenue $ 7,626,682 8,032,815 13,604,002 57,873,563 8,952,439 7,696,805 Purchased Power 3,746,148 4,592,354 8,086,508 45,767,866 5,386,040 4,294,630 Operating Expenses 2,530,873 2,381,971 3,211,908 6,178,870 2,058,699 1,534,376 Depreciation 567,629 558,516 986,213 2,357,037 547,641 366,852 Tax Expense 194,812 13,549 8,960 Interest Expense 520,819 419,850 794,093 1,501,142 531,036 346,832 Total Cost - Electric Service = 7,365,469 8,147,503 13,092,271 55,804,915 8,523,416 6,551,650 Operating Margins 261,213 (114,688) 511,731 2,068,648 429,023 1,145,155 Non-operating Margins & Capital Credits 91,903 231,665 360,448 1,269,218 202,400 (860,886)
Margins $ 353,116 116,977 872,179 3,337,866 631,423 284,269 ASSETS AND OTHER DEBITS:
Total Utility Plant $ 22,634,856 19,098,274 33,086,570 82,364,111 20,676,223 15,691,969 Accumulated Depreciation & Amortization 8,195,678 6,508,830 8,697,425 26,367,060 5,830,902 6,555,983 Net Utility Plant 14,439,178 12,589,444 24,389,145 55,997,051 14,845,321 9,135,986 Property & Investments 2,351,406 1,933,266 4,297,611 9,614,157 3,454,553 1,165,995 Current & Accrued Assets 2,042,295 1,854,597 5,284,748 11,064,740 1,933,216 3,124,329 Deferred Debits 9,969 24,283 25,837 59,651 36,440 143,331 Total Assets & Other Debits $ 18,842,848 16,401,590 33,997,341 76,735,599 20,269,530 13,569,641 LIABILITIES AND OTHER CREDITS:
Margins & Equities $ 6,662,669 5,622,798 15,676,937 39,601,005 7,988,760 6,414,034 Long Term Debt 11,019,710 9,587,339 15,821,428 29,258,475 10,524,680 5,998,514 Current & Accrued Liabilities 980,255 1,169,827 2,129,657 7,281,052 1,615,552 829,855 Deferred Credits & Misc. Oper. Reserves 180,214 21,626 369,319 595,067 140,538 327,238 Total Liabilities & Other Credits $ 18,842,848 16,401,590 33,997,341 76,735,599 20,269,530 13,569,641 OTHER STATISTICS:
Miles of Line 1,798 1,125 2,215 4,636 1,792 1,385 Consumers Served 4,841 4,809 7,857 21,835 4,643 4,392 Consumers Per Mile 2.7 4.3 3.5 4.7 2.6 3.2 kWhs Sold per Consumer 15,253 17,726 19,785 56,894 23,700 20,618 MWh Sales 73,838 85,243 155,454 1,242,285 110,039 90,554 Annual Revenue per Consumer $1,575 $1,670 $1,731 $2,650 $1,928 $1,752 Plant Investment per Consumer $4,676 $3,971 $4,211 $3,772 $4,453 $3,573
2 00 2 A Touchstone Energy' Cooperative ____
REPORT
Member Cooperative Operating Statistics - Unaudited Ci p co and subsidiaries Linn Maquoketa Midland* Pella Rideta sWIsco T. 1.P. Total 24,982,677 19,984,739 16,873,844 4,732,646 4,316,296 4,831,115 9,766,088 189,273,711 15,038,843 13,149,767 10,130,078 2,756,218 2,131,382 2,455,591 6,223,433 123,758,858 4,419,491 3,991,736 3,524,309 958,993 1,206,238 1,527,488 2,145,618 35,670,570 1,365,794 1,238,638 1,387,233 279,180 340,823 385,492 597,246 10,978,294 700,721 626,201 15,808 104,886 4,316 5,195 300,288 1,974,736 1,802,712 945,376 1,118,201 275,858 324,429 289,326 693,518 9,563,192 23,327,561 19,951,718 16,175,629 4,375,135 4,007,188 4,663,092 9,960,103 181,945,650 1,655,116 33,021 698,215 357,511 309,108 168,023 (194,015) 7,328,061 748,741 557,556 387,778 71,724 118,408 127,991 478,611 3,785,557 2,403,857 590,577 1,085,993 429,235 427,516 296,014 284,596 11,113,618 51,398,539 42,097,395 43,521,080 11,210,474 13,480,567 13,021,727 22,451,063 390,732,848 9,825,830 16,035,649 14,080,160 3,191,516 4,310,302 4,952,915 6,702,494 121,254,744 41,572,709 26,061,746 29,440,920 8,018,958 9,170,265 8,068,812 15,748,569 269,478,104 5,383,587 6,435,335 4,804,084 1,155,415 1,279,552 1,616,679 3,276,457 46,768,097 4,139,640 3,696,630 6,847,902 2,198,351 982,357 1,278,956 6,281,647 50,729,408 (513,111) 0 35,692 72,459 1,185 1,450 86,969 (15,845) 50,582,825 36,193,711 41,128,598 11,445,183 11,433,359 10,965,897 25,393,642 366,959,764 12,291,754 16,445,727 18,027,667 4,427,477 4,184,686 4,215,338 11,892,061 153,450,913 34,855,668 16,546,022 20,120,551 6,286,333 6,628,858 6,196,640 11,824,394 184,668,612 2,713,403 2,746,766 2,857,515 531,209 488,833 518,469 1,285,010 25,147,403 722,000 455,196 122,865 200,164 130,982 35,450 392,177 3,692,836 50,582,825 36,193,711 41,128,598 11,445,183 11,433,359 10,965,897 25,393,642 366,959,764 1,952 3,108 2,851 610 1,208 1,365 1,756 25,801 18,023 13,786 8,832 2,903 2,682 3,033 5,881 103,517 9.2 4.4 3.1 4.8 2.2 2.2 3.3 4.0 15,928 17,220 24,576 17,720 16,019 15,112 20,315 26,649 287,069 237,395 217,059 51,442 42,964 45,834 119,475 2,758,651
$1,386 $1,450 $1,911 $1,630 $1,609 $1,593 $1,661 $1,828
$2,852 $3,054 $4,928 $3,862 $5,026 $4,293 $3,818 $3,775 A Touchstone Energy' Cooperative ___
2 002 REPORT
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