-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A9qm160R4cw+cdTJfiUJhkIuCtekADh6VAkpXZFkK8QxYAryUxsLm3xmyykQAfv7 xVchWjQmJ2JNH8Ax+VUesg== 0000107832-00-000027.txt : 20000411 0000107832-00-000027.hdr.sgml : 20000411 ACCESSION NUMBER: 0000107832-00-000027 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WISCONSIN POWER & LIGHT CO CENTRAL INDEX KEY: 0000107832 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 390714890 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-00337 FILM NUMBER: 582575 BUSINESS ADDRESS: STREET 1: 222 W WASHINGTON AVE CITY: MADISON STATE: WI ZIP: 53703 BUSINESS PHONE: 6082523311 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IES UTILITIES INC CENTRAL INDEX KEY: 0000052485 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 420331370 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04117 FILM NUMBER: 582576 BUSINESS ADDRESS: STREET 1: 200 FIRST ST SE STREET 2: IES TOWER CITY: CEDAR RAPIDS STATE: IA ZIP: 52401 BUSINESS PHONE: 3193984411 FORMER COMPANY: FORMER CONFORMED NAME: IOWA ELECTRIC LIGHT & POWER CO DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IOWA RAILWAY & LIGHT CORP DATE OF NAME CHANGE: 19670629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANT ENERGY CORP CENTRAL INDEX KEY: 0000352541 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 391380265 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09894 FILM NUMBER: 582577 BUSINESS ADDRESS: STREET 1: 222 WEST WSHNGTON AVENUE CITY: MADISON STATE: WI ZIP: 53703 BUSINESS PHONE: 6082523110 MAIL ADDRESS: STREET 1: P O BOX 2568 CITY: MADISON STATE: WI ZIP: 53701-2568 FORMER COMPANY: FORMER CONFORMED NAME: INTERSTATE ENERGY CORP DATE OF NAME CHANGE: 19980427 FORMER COMPANY: FORMER CONFORMED NAME: WPL HOLDINGS INC DATE OF NAME CHANGE: 19920703 10-K 1 1999 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______ Commission Name of Registrant, State of Incorporation, IRS Employer File Address of Principal Executive Offices and Identification Number Telephone Number Number - ---------- -------------------------------------------- ------------------ 1-9894 ALLIANT ENERGY CORPORATION 39-1380265 (a Wisconsin corporation) 222 West Washington Avenue Madison, Wisconsin 53703 Telephone (608)252-3311 0-4117-1 IES UTILITIES INC. 42-0331370 (an Iowa corporation) Alliant Energy Tower Cedar Rapids, Iowa 52401 Telephone (319)398-4411 0-337 WISCONSIN POWER AND LIGHT COMPANY 39-0714890 (a Wisconsin corporation) 222 West Washington Avenue Madison, Wisconsin 53703 Telephone (608)252-3311 Securities registered pursuant to Section 12 (b) of the Act: Name of Each Exchange on Which Title of Class Registered ---------------------------- ----------------------- Alliant Energy Common Stock, $.01 Par Value New York Stock Exchange Corporation Alliant Energy Common Stock Purchase Rights New York Stock Exchange Corporation IES Utilities Inc. 7-7/8% Quarterly Debt New York Stock Exchange Capital Securities (Subordinated Deferrable Interest Debentures) Wisconsin Power and 4.50% Preferred Stock, No American Stock Exchange Light Company Par Value Securities registered pursuant to Section 12 (g) of the Act: Title of Class -------------- IES Utilities Inc. 4.80% Cumulative Preferred Stock, Par Value $50 per share Wisconsin Power and Preferred Stock (Accumulation without Par Value) Light Company Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. Yes [X] No[ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [ ] This combined Form 10-K is separately filed by Alliant Energy Corporation, IES Utilities Inc. and Wisconsin Power and Light Company. Information contained in the annual report relating to Wisconsin Power and Light Company and IES Utilities Inc. is filed by such registrant on its own behalf. Each of Wisconsin Power and Light Company and IES Utilities Inc. makes no representation as to information relating to registrants other than itself. The aggregate market value of the voting and non-voting common equity held by nonaffiliates as of January 31, 2000: Alliant Energy Corporation $2.34 billion IES Utilities Inc. $-- Wisconsin Power and Light Company $-- Number of shares outstanding of each class of common stock as of January 31, 2000: Alliant Energy Common Stock, $.01 par value, 79,000,744 Corporation shares outstanding IES Utilities Inc. Common Stock, $2.50 par value, 13,370,788 shares outstanding (all of which are owned beneficially and of record by Alliant Energy Corporation) Wisconsin Power and Common Stock, $5 par value, 13,236,601 shares Light Company outstanding (all of which are owned beneficially and of record by Alliant Energy Corporation) DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statements relating to Alliant Energy Corporation's 2000 Annual Meeting of Shareowners and Wisconsin Power and Light Company's 2000 Annual Meeting of Shareowners are, or will upon filing with the Securities and Exchange Commission, be incorporated by reference into Part III hereof. 2 TABLE OF CONTENTS Page Number ------ Part I Item 1. Business 6 Item 2. Properties 20 Item 3. Legal Proceedings 23 Item 4. Submission of Matters to a Vote of Security Holders 23 Part II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters 24 Item 6. Selected Financial Data 25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 27 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 56 Item 8. Financial Statements and Supplementary Data 56 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 116 Part III Item 10. Directors and Executive Officers of the Registrants 116 Item 11. Executive Compensation 120 Item 12. Security Ownership of Certain Beneficial Owners and Management 120 Item 13. Certain Relationships and Related Transactions 120 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 121 Signatures 130 3 DEFINITIONS Certain abbreviations or acronyms used in the text and notes of this report are defined below: Abbreviation or Acronym Definition - ----------------------- -------------------------------------------- ADEQ Arkansas Department of Environmental Quality AFUDC Allowance for Funds Used During Construction Alliant Energy Alliant Energy Corporation ANR ANR Pipeline APB Accounting Principles Board Opinion ATC American Transmission Company, LLC Btu British Thermal Unit Capital Square Capital Square Financial Corporation Cargill Cargill Incorporated CEMS Continuous Emission Monitoring System CIPCO Central Iowa Power Cooperative Corporate Services Alliant Energy Corporate Services, Inc. CWIP Construction Work-In-Progress DAEC Duane Arnold Energy Center DOE United States Department of Energy Dth Dekatherm EAC Energy Adjustment Clause EDS Electronic Data Systems Corporation EITF Emerging Issues Task Force EPA United States Environmental Protection Agency ERISA Employee Retirement Income Security Act of 1974, as amended FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission ICC Illinois Commerce Commission IES IES Industries Inc. IESU IES Utilities Inc. International Alliant Energy International, Inc. Investments Alliant Energy Investments, Inc. IPC Interstate Power Company IRS Internal Revenue Service ISCO Alliant Energy Industrial Services, Inc. ISO Independent System Operator IUB Iowa Utilities Board Kewaunee Kewaunee Nuclear Power Plant KW Kilowatt KWH Kilowatt-Hour LTEIP Long-Term Equity Incentive Plan MAIN Mid-America Interconnected Network, Inc. MAPP Mid-Continent Area Power Pool McLeod McLeodUSA Incorporated 4 Abbreviation or Acronym Definition - ----------------------- ------------------------------------------------ MD&A Management's Discussion and Analysis of Financial Condition and Results of Operations MG&E Madison Gas & Electric Company MGP Manufactured Gas Plants MPUC Minnesota Public Utilities Commission MW Megawatt MWH Megawatt-Hour NEIL Nuclear Electric Insurance Limited NEPA National Energy Policy Act of 1992 NERC North American Electric Reliability Council NGPL Natural Gas Pipeline Co. of America NMC Nuclear Management Company, LLC NNG Northern Natural Gas Company NOPR Notice of Proposed Rulemaking NOx Nitrogen Oxides NRC Nuclear Regulatory Commission NSP Northern States Power Company NYMEX New York Mercantile Exchange OCA Office of Consumer Advocate PCB Polychlorinated Biphenyl PGA Purchased Gas Adjustment PRP Potentially Responsible Party PSCW Public Service Commission of Wisconsin PUHCA Public Utility Holding Company Act of 1935 Resources Alliant Energy Resources, Inc. RTO Regional Transmission Organization SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards SkyGen SkyGen Energy LLC SO2 Sulfur Dioxide South Beloit South Beloit Water, Gas and Electric Company SOS Standard Offer Service Transportation Alliant Energy Transportation, Inc. U.S. United States USEC United States Enrichment Corporation WDNR Wisconsin Department of Natural Resources WEPCO Wisconsin Electric Power Company Whiting Whiting Petroleum Corporation WP&L Wisconsin Power and Light Company WPLH WPL Holdings, Inc. WPSC Wisconsin Public Service Corporation WUHCA Wisconsin Utility Holding Company Act 5 FORWARD-LOOKING STATEMENTS Refer to the "Forward-Looking Statements" section in Item 7. MD&A for information and disclaimers regarding forward-looking statements contained in this Annual Report on Form 10-K. PART I This Annual Report on Form 10-K includes information relating to Alliant Energy, IESU and WP&L (as well as IPC, Resources and Corporate Services). Where appropriate, information relating to a specific entity has been segregated and labeled as such. ITEM 1. BUSINESS A. GENERAL - ---------- Alliant Energy was formed as the result of a three-way merger involving WPLH, IES and IPC that was completed in April 1998. The primary first tier subsidiaries of Alliant Energy include: WP&L, IESU, IPC, Resources and Corporate Services. Among various other regulatory constraints, Alliant Energy is operating as a registered public utility holding company subject to the limitations imposed by PUHCA. Alliant Energy was incorporated in Wisconsin in 1981. A brief description of the primary first-tier subsidiaries of Alliant Energy is as follows: 1) IESU - incorporated in Iowa in 1925 as Iowa Railway and Light Corporation. IESU is a public utility engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and the provision of steam services in selective markets, in the State of Iowa. In Iowa, non-exclusive franchises, which cover the use of streets and alleys for public utility facilities in incorporated communities, are granted for a maximum of twenty-five years by a majority vote of local qualified residents. At December 31, 1999, IESU supplied electric and gas service to approximately 345,000 and 181,000 customers, respectively. In 1999, 1998 and 1997, IESU had no single customer for which electric and/or gas sales accounted for 10% or more of IESU's consolidated revenues. 2) WP&L - incorporated in Wisconsin in 1917 as the Eastern Wisconsin Electric Company, is a public utility engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and the provision of water services in selective markets. Nearly all of WP&L's customers are located in south and central Wisconsin. WP&L operates in municipalities pursuant to permits of indefinite duration which are regulated by Wisconsin law. At December 31, 1999, WP&L supplied electric and gas service to approximately 407,000 and 162,000 customers, respectively. WP&L also has approximately 19,000 water customers. In 1999, 1998 and 1997, WP&L had no single customer for which electric and/or gas sales accounted for 10% or more of WP&L's consolidated revenues. WP&L owns all of the outstanding capital stock of South Beloit, a public utility supplying electric, gas and water service, principally in Winnebago County, Illinois, which was incorporated in 1908. WP&L also owns varying interests in several other subsidiaries and investments which are not material to WP&L's operations. 3) IPC - incorporated in 1925 under the laws of the State of Delaware. IPC is a public utility engaged principally in the generation, transmission, distribution and sale of electric energy and the purchase, distribution, transportation and sale of natural gas in the States of Iowa, Minnesota and Illinois. At December 31, 1999, IPC provided electric and gas service to approximately 167,000 and 50,000 customers, respectively. In 1999, 1998 and 1997, IPC had no single customer for which electric and/or gas sales accounted for 10% or more of IPC's consolidated revenues. 6 4) RESOURCES - incorporated in 1988 in Wisconsin and the majority of Alliant Energy's non-regulated investments are organized under Resources. Resources' wholly-owned subsidiaries include ISCO, International, Investments, Transportation and Capital Square. These businesses include domestic and international energy products and services businesses; industrial services, which includes environmental, engineering and transportation services; investments in affordable housing initiatives; and investments in various other strategic initiatives. Alliant Energy also has a 50% ownership interest in a joint venture, which is managed by Resources, with Cargill, named Cargill-Alliant LLC. 5) CORPORATE SERVICES - subsidiary formed to provide administrative services to Alliant Energy and its subsidiaries as required under PUHCA. Refer to Note 14 of the "Notes to Consolidated Financial Statements" for a further discussion of Alliant Energy's business segments. B. INFORMATION RELATING TO ALLIANT ENERGY ON A CONSOLIDATED BASIS - ----------------------------------------------------------------- EMPLOYEES As of December 31, 1999, Alliant Energy had the following employees (full-time and part-time): Number of Bargaining Number of Number of Unit Bargaining Employees Employees Agreements ----------- -------------- ----------- IESU 1,809 1,112 6 WP&L 1,586 1,473 1 IPC 612 506 3 Resources 997 85 5 Corporate Services 1,213 -- -- ----------- -------------- ----------- Alliant Energy Total 6,217 3,176 15 =========== ============== =========== Refer to the "Other Matters - Labor Issues" section in Item 7. MD&A for additional discussion of Alliant Energy's collective bargaining agreements. CAPITAL EXPENDITURE AND INVESTMENT AND FINANCING PLANS Refer to the "Liquidity and Capital Resources" section in Item 7. MD&A for a discussion of anticipated construction and acquisition expenditures for 2000-2004 and details regarding the financing of future capital requirements. REGULATION Alliant Energy operates as a registered public utility holding company subject to regulation by the SEC under PUHCA. Alliant Energy and its subsidiaries are subject to the regulatory provisions of PUHCA, including provisions relating to the issuance and sales of securities, acquisitions and sales of certain utility properties, acquisitions and retention of interests in non-utility businesses and the services provided by Corporate Services to Alliant Energy and its subsidiaries. Alliant Energy is subject to regulation by the PSCW. The PSCW regulates, among other things, the type and amount of Alliant Energy's investments in non-utility businesses. WP&L is also subject to regulation by the PSCW as to retail utility rates and service, accounts, issuance and use of proceeds of securities, certain additions and extensions to facilities and in other respects. WP&L is generally required to file a rate case with the PSCW every two years with requests for rate relief based on a forward-looking test year period. However, as one of the conditions for approval of the merger, the PSCW has required WP&L to freeze on a post-merger basis retail electric, natural gas and water rates for a period of four years. 7 IESU and IPC operate under the jurisdiction of the IUB. The IUB has authority to regulate rates and standards of service, to prescribe accounting requirements and to approve the location and construction of electric generating facilities having a capacity in excess of 25,000 KW. Requests for rate relief are based on historical test periods, adjusted for certain known and measurable changes. The IUB must decide on requests for rate relief within 10 months of the date of the application for which relief is filed or the interim prices granted become permanent. Interim rates, if allowed, are permitted to become effective, subject to refund, no later than 90 days after the rate increase application is filed. Notwithstanding this process, IESU and IPC agreed to a four-year price cap effective with the merger as part of the merger approval process. IPC is also subject to regulation by the MPUC. Requests for rate relief can be based on either historical or projected data. The MPUC must reach a final decision within 10 months. Interim rates are permitted. The MPUC also has jurisdiction to approve IPC's capital structure on an annual basis. In addition, South Beloit and IPC are subject to regulation by the ICC for retail utility rates and service, accounts, issuance and use of proceeds of securities, certain additions and extensions to facilities and in other respects. Requests for rate relief must be decided within 11 months. The FERC has jurisdiction under the Federal Power Act over certain of the electric utility facilities and operations, wholesale rates and accounting practices of IESU, WP&L and IPC, and in certain other respects. In addition, certain natural gas facilities and operations of the companies are subject to the jurisdiction of the FERC under the Natural Gas Act. With respect to environmental matters, the EPA administers certain federal statutes and has delegated the administration of other environmental initiatives to the applicable state environmental agencies. In addition, the state agencies have jurisdiction over air and water quality standards associated with fossil fuel fired electric generation and the level and flow of water, safety and other matters pertaining to hydroelectric generation. WP&L and IESU are subject to the jurisdiction of the NRC, with respect to Kewaunee in the case of WP&L and the DAEC in the case of IESU, and to the jurisdiction of the DOE with respect to the disposal of nuclear fuel and other radioactive wastes from Kewaunee and the DAEC. Refer to Item 7. MD&A for additional information regarding regulation and Alliant Energy's rate matters. C. INFORMATION RELATING TO UTILITY OPERATIONS - --------------------------------------------- Alliant Energy realized 55%, 40%, 3% and 2% of its electric utility revenues in 1999 in Iowa, Wisconsin, Minnesota and Illinois, respectively. Approximately 90% of the electric revenues were regulated by the respective state commissions while the other 10% were regulated by the FERC. Alliant Energy realized 57%, 37%, 3% and 3% of its gas utility revenues in Iowa, Wisconsin, Minnesota and Illinois, respectively, during the same period. IESU realized 100% of its electric and gas utility retail revenues in 1999 in Iowa. Approximately 95% of the electric revenues in 1999 were regulated by the IUB while the other 5% were regulated by the FERC. WP&L realized 98% of its electric utility revenues in 1999 in Wisconsin and 2% in Illinois. Approximately 84% of the electric revenues in 1999 were regulated by the PSCW or the ICC while the other 16% were regulated by the FERC. WP&L realized 96% of its gas utility revenues in 1999 in Wisconsin and 4% in Illinois during the same period. IPC realized 75%, 19% and 6% of its electric utility revenues in 1999 in Iowa, Minnesota and Illinois, respectively. Approximately 92% of the electric revenues were regulated by the respective state commissions while the other 8% were regulated by the FERC. IPC realized 69%, 23% and 8% of its gas utility revenues in Iowa, Minnesota and Illinois, respectively, during the same period. UTILITY INDUSTRY OUTLOOK Refer to the "Utility Industry Outlook" section in Item 7. MD&A for a discussion of various competitive issues impacting utility operations. 8 ELECTRIC UTILITY OPERATIONS General As of December 31, 1999, Alliant Energy's utility subsidiaries provided electricity to approximately 919,000 retail customers in approximately 1,358 communities in Iowa, southern and central Wisconsin, northern and northwestern Illinois and southern Minnesota. The approximate number of electric retail customers, communities and wholesale customers served for each of the individual utilities at December 31, 1999 was as follows: Retail Communities Wholesale Customers Served Customers ---------- ------------ -------------- IESU 345,000 525 5 WP&L 407,000 599 28 IPC 167,000 234 10 Electric utility operations accounted for 78.4%, 83.3% and 86.0% of operating revenues and 92.6%, 89.9% and 91.6% of operating income for IESU, WP&L and IPC, respectively, for the year ended December 31, 1999. Electric sales are seasonal to some extent with the annual peak normally occurring in the summer months. In 1999, the maximum peak hour demand for IESU was 1,990 MW and occurred on July 27, 1999. For WP&L and IPC, the maximum peak hour demands were 2,397 MW on July 23, 1999 and 1,015 MW on July 29, 1999, respectively. IESU maintains and operates transmission and substation facilities connecting with its high voltage transmission systems pursuant to a non-cancelable operation agreement (the Operating Agreement) with CIPCO. The Operating Agreement, which will terminate on December 31, 2035, provides for the joint use of certain transmission facilities of IESU and CIPCO. Alliant Energy has transmission interconnections at various locations with twelve other transmission owning utilities in the Midwest. These interconnections enhance the overall reliability of the Alliant Energy transmission system and provide access to multiple sources of economic and emergency power and energy. IESU and IPC are currently full members of MAPP. WP&L is a member of the MAPP Regional Transmission Group. MAPP is one of the ten regional members of the NERC. Each regional member of NERC is responsible for maintaining reliability in its area through coordination of planning and operations. WP&L is also a full member of MAIN, another regional member of NERC. IESU and IPC are currently exploring the possibility of transitioning from the MAPP reliability region to MAIN so all of Alliant Energy will belong to the same reliability region. Alliant Energy is unable to predict the outcome of this issue at this time. Refer to the "Utility Industry Outlook" section in Item 7. MD&A for additional information regarding the future of Alliant Energy's transmission business. Refer to Item 2. "Properties" for additional information regarding electric facilities. 9 Fuel The average cost of fuel per million Btu's used for electric generation by IESU, WP&L and IPC for the years 1999, 1998 and 1997 was as follows: Nuclear Coal All Fuels ------------- ------------- ------------ IESU - 1999 $0.581 $0.899 $0.914 - 1998 0.605 0.885 0.887 - 1997 0.650 0.958 0.945 WP&L - 1999 0.431 1.144 1.034 - 1998 0.450 1.171 1.085 - 1997 0.450 1.175 1.129 IPC - 1999 N/A 1.273 1.320 - 1998 N/A 1.287 1.344 - 1997 N/A 1.340 1.414 Refer to the Electric Operating Information tables for details on the sources of electric energy for Alliant Energy, IESU and WP&L during 1995 to 1999. Coal Corporate Services, as an agent of IESU, WP&L and IPC, has negotiated several agreements with different suppliers to ensure that a specified supply of coal is available at known prices for the respective utilities for calendar years 2000, 2001, and 2002. These contracts, in combination with existing agreements, provide for a portfolio of coal supplies that cover approximately 100%, 60% and 10% of the three utilities' estimated coal supply needs for the years 2000 through 2002, respectively. Management believes this portfolio of coal supplies represents a reasonable balance between ensuring an adequate supply and ensuring that the prices paid for coal is at the then current market conditions. Remaining coal requirements will be met from either future contracts or purchases in the spot market. The majority of the coal utilized by Alliant Energy is from the Wyoming Powder River Basin. A majority of this coal is transported by rail-car directly from Wyoming to Alliant Energy's generating facilities, with the remainder transported from Wyoming to the Mississippi River by rail-car and then via barges to the final destination. As protection against interruptions in coal deliveries, Alliant Energy maintains average coal inventories at its generating stations of 40 to 50 days for stations with year-round deliveries and 30 to 150 days (depending upon time of the year) for stations with seasonal deliveries. Alliant Energy anticipates that its average fossil fuel costs will likely increase in the future due to price/rate adjustment provisions in existing coal and transportation contracts. Price adjustment provisions in existing coal contracts are primarily based on changes in various indices (e.g. U.S. Department of Labor Statistics Producer Price Indices and Consumer Price Indices). Other factors which impact coal price adjustment provisions are mine labor agreements and, if enacted, changes in various laws and regulations. Rate adjustment provisions in transportation contracts are primarily based on changes in the Rail Cost Adjustment Factor as published by the U.S. Surface Transportation Board. In addition, fuel sulfur restrictions and other environmental limitations have increased significantly and will likely further increase the difficulty and cost of obtaining adequate coal supplies. See Note 1(j) of the "Notes to Consolidated Financial Statements" for a discussion of the utilities' rate recovery of fuel costs. Refer to Note 12(b) of the "Notes to Consolidated Financial Statements" for details relating to Alliant Energy's coal purchase commitments. 10 Purchased Power During the year ended December 31, 1999, approximately 25.0%, 25.0% and 32.3% of IESU's, WP&L's and IPC's total MWH requirements, respectively, were met through purchased power. Refer to Note 12(b) of the "Notes to Consolidated Financial Statements" for details relating to purchase power commitments. Nuclear General - Alliant Energy owns interests in two nuclear facilities, - ------- Kewaunee and DAEC. Kewaunee, a 532 MW (net capacity) pressurized water reactor plant, is operated by WPSC and is jointly owned by WPSC (41.2%), WP&L (41.0%) and MG&E (17.8%). The Kewaunee operating license expires in 2013. DAEC, a 535 MW (net capacity) boiling water reactor plant, is operated by IESU which has a 70% ownership interest in the plant. The DAEC operating license expires in 2014. See Item 7. MD&A "Liquidity and Capital Resources - Capital Requirements - Nuclear Facilities" for a discussion of an agreement between WPSC and MG&E regarding future ownership of Kewaunee as well as Alliant Energy's participation in the NMC. As co-owners of nuclear generating units, IESU and WP&L are subject to the jurisdiction of the NRC. The NRC has broad supervisory and regulatory jurisdiction over the construction and operation of nuclear reactors, particularly with regard to public health, safety and environmental considerations. The operation and design of nuclear power plants is under constant review by the NRC. IESU and WP&L have complied with and are currently complying with all NRC requests for data relating to these reviews. As a result of such reviews, further changes in operations or modifications of equipment may be required, the cost of which cannot currently be estimated. IESU's and WP&L's anticipated nuclear-related construction expenditures for 2000-2004 are approximately $59 million and $35 million, respectively. Refer to "Liquidity and Capital Resources - Capital Requirements" in Item 7. MD&A for a further discussion. Under the Price-Anderson Amendments Act of 1988 (1988 Act), IESU and WP&L currently have the benefit of public liability coverage which would compensate the public in the event of an accident at a commercial nuclear power plant. The 1988 Act permits such coverage to rise with increased availability of nuclear insurance and the changing number of operating nuclear plants subject to retroactive premium assessments. The 1988 Act provides for inflation indexing (Consumer Price Index every fifth year) of the retroactive premium assessments. As an outgrowth of the Three Mile Island Nuclear Power Plant experience, nuclear plant owners have initiated a cooperative insurance program designed to help cover business interruption expenses for participating utilities arising from a possible nuclear plant event. IESU and WP&L are participants in this program. This type of insurance is an industry response intended to lessen the cost burden on customers in the event of a lengthy plant shutdown. In the unlikely event of a catastrophic loss at Kewaunee or DAEC, the amount of insurance available may not be adequate to cover property damage, decontamination and premature decommissioning. Uninsured losses, to the extent not recovered through rates, would be borne by WP&L or IESU and could have a material adverse effect on their financial condition and results of operations. Refer to Note 12(e) of the "Notes to Consolidated Financial Statements" for a further discussion of the nuclear insurance issue. Kewaunee - WPSC purchases uranium concentrates, conversion services, - -------- enrichment services, and fabrication services for nuclear fuel assemblies at Kewaunee. New fuel assemblies replace used assemblies that are removed from the reactor every 18 months and placed in storage at the plant site pending removal by the DOE. Uranium concentrates, conversion services, and enrichment services are purchased at spot market prices, through a bid process, or using existing contracts. Conversion services are complete for nuclear fuel reloads in 2000, 2001 and 2003. A fixed quantity of enrichment services are contracted through the year 2004. Additional enrichment services will be acquired under a contract which is in effect for the life of the plant or by purchases on the spot market. Fuel fabrication services are contracted well into the next decade and contain contractual clauses covering force majeure and termination provisions. A uranium inventory policy requires that sufficient inventory exist for up to two reactor reloads of fuel. As of December 31, 1999, 983,000 pounds of yellowcake or its equivalent were held in inventory for the plant. DAEC - A contract for enrichment services and enriched uranium product - ---- was signed with the USEC in 1995. This contract is effective through 11 September of 2001. Fabrication of the nuclear fuel is being performed by General Electric Company for fuel through the 2011 refueling of DAEC. IESU believes that an ample supply of uranium and enrichment services will be available in the future and intends to purchase such uranium and enrichment services as necessary on the spot market and/or via medium length (less than five years) contracts to supplement its current contracts and meet its generation requirements. Additional discussions of various other nuclear issues relating to Kewaunee and DAEC are included in Item 7. MD&A and the "Notes to Consolidated Financial Statements." Power Supply Refer to "Other Matters - Power Supply" in Item 7. MD&A for a discussion of power supply concerns. Electric Environmental Matters Alliant Energy is regulated in environmental matters by a number of federal, state and local agencies. Such regulations are the result of a number of environmental laws passed by the U.S. Congress, state legislatures and local governments and enforced by federal, state and local agencies. The laws impacting Alliant Energy's operations include, but are not limited to, the Clean Water Act; Safe Drinking Water Act; Clean Air Act, as amended by the Clean Air Act Amendments of 1990; National Environmental Policy Act; Toxic Substances Control Act; Emergency Planning and Community Right-to-Know Act; Resource Conservation and Recovery Act; Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as amended by the Superfund Amendments and Reauthorization Act of 1986; Nuclear Waste Policy Act of 1982; Occupational Safety and Health Act; and the National Energy Policy Act of 1992. Alliant Energy regularly obtains federal, state and local permits to assure compliance with the environmental protection laws and regulations. Costs associated with such compliance have increased in recent years and are expected to increase moderately in the future. Refer to "Other Matters - Environmental" in Item 7. MD&A and Note 12 of the "Notes to Consolidated Financial Statements" for a further discussion of electric environmental matters. 12
Alliant Energy Corporation - ----------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Electric Operating Information (Utility Only) - ----------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (000s): Residential $541,714 $532,676 $521,574 $506,784 $509,970 Commercial 329,487 317,704 307,941 296,345 290,990 Industrial 476,140 477,241 455,912 428,726 412,711 ----------------------------------------------------------------------- Total from ultimate customers 1,347,341 1,327,621 1,285,427 1,231,855 1,213,671 Sales for resale 155,801 199,128 192,346 181,365 143,726 Other 45,796 40,693 37,980 27,155 24,271 ----------------------------------------------------------------------- Total $1,548,938 $1,567,442 $1,515,753 $1,440,375 $1,381,668 ======================================================================= - ---------------------------------------------------------------------------------------------------------------------------------- Electric Sales (000s MWH): Residential 7,024 6,826 6,851 6,826 6,860 Commercial 5,260 4,943 4,844 4,720 4,661 Industrial 13,036 12,718 12,320 11,666 11,360 ----------------------------------------------------------------------- Total from ultimate customers 25,320 24,487 24,015 23,212 22,881 Sales for resale 5,566 7,189 6,768 7,459 5,001 Other 162 158 161 161 163 ---------------------------------------------------------------------- Total 31,048 31,834 30,944 30,832 28,045 ======================================================================= - ----------------------------------------------------------------------------------------------------------------------------------- Customers (End of Period): Residential 790,669 781,127 772,100 762,665 751,998 Commercial 122,509 121,027 119,463 117,846 116,228 Industrial 2,730 2,618 2,555 2,472 2,418 Other 3,282 3,267 3,281 3,207 2,749 ----------------------------------------------------------------------- Total 919,190 908,039 897,399 886,190 873,393 ======================================================================= - ----------------------------------------------------------------------------------------------------------------------------------- Other Selected Electric Data: Maximum peak hour demand (MW) (1) 5,233 5,228 5,045 4,953 5,032 Sources of electric energy (000s MWH): Coal and gas 19,078 19,119 17,423 17,014 17,606 Purchased power 8,619 10,033 10,660 10,895 7,416 Nuclear 4,362 4,201 3,874 4,054 4,166 Other 528 504 565 392 349 ----------------------------------------------------------------------- Total 32,587 33,857 32,522 32,355 29,537 ======================================================================= Revenue per KWH from ultimate customers (in cents) 5.32 5.42 5.35 5.31 5.30 - ----------------------------------------------------------------------------------------------------------------------------------- (1) 1999 data represents the coincident peak of the entire Alliant Energy system. 1998 to 1995 data represents a summation of the individual peak demands of IESU, WP&L and IPC thus they do not represent the coincident peak of the entire Alliant Energy system.
13
IES Utilities Inc. - ----------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Electric Operating Information - ----------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (000s): Residential $230,422 $232,662 $227,496 $213,838 $217,351 Commercial 176,251 168,672 162,626 153,163 150,722 Industrial 181,740 181,369 177,890 160,477 148,529 ----------------------------------------------------------------------- Total from ultimate customers 588,413 582,703 568,012 527,478 516,602 Sales for resale 28,479 45,453 25,719 37,384 35,356 Other 11,058 11,267 10,539 9,411 8,513 ----------------------------------------------------------------------- Total $627,950 $639,423 $604,270 $574,273 $560,471 ======================================================================= - ----------------------------------------------------------------------------------------------------------------------------------- Electric Sales (000s MWH): Residential 2,685 2,661 2,682 2,642 2,690 Commercial 2,658 2,465 2,378 2,315 2,296 Industrial 5,072 4,872 4,743 4,436 4,248 ----------------------------------------------------------------------- Total from ultimate customers 10,415 9,998 9,803 9,393 9,234 Sales for resale 1,392 1,763 794 1,746 1,586 Other 40 42 43 46 50 ----------------------------------------------------------------------- Total 11,847 11,803 10,640 11,185 10,870 ======================================================================= - ----------------------------------------------------------------------------------------------------------------------------------- Customers (End of Period): Residential 293,433 290,348 288,387 286,315 284,154 Commercial 49,952 49,489 48,962 48,593 48,196 Industrial 715 705 711 703 695 Other 449 479 442 437 444 ----------------------------------------------------------------------- Total 344,549 341,021 338,502 336,048 333,489 ======================================================================= - ----------------------------------------------------------------------------------------------------------------------------------- Other Selected Electric Data: Maximum peak hour demand (MW) 1,990 1,965 1,854 1,833 1,824 Sources of electric energy (000s MWH): Coal and gas 6,543 6,417 5,499 4,936 5,759 Purchased power 3,104 3,385 2,789 4,177 3,013 Nuclear 2,548 2,682 2,904 2,753 2,611 Other 226 199 164 44 24 ----------------------------------------------------------------------- Total 12,421 12,683 11,356 11,910 11,407 ======================================================================= Revenue per KWH from ultimate customers (in cents) 5.65 5.83 5.79 5.62 5.59 - -----------------------------------------------------------------------------------------------------------------------------------
14
Wisconsin Power and Light Company - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Electric Operating Information - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $213,496 $198,770 $199,633 $201,690 $199,850 Commercial 116,947 108,724 107,132 105,319 102,129 Industrial 171,118 162,771 152,073 143,734 140,562 ------------------------------------------------------------------------ Total from ultimate customers 501,561 470,265 458,838 450,743 442,541 Sales for resale 102,751 128,536 160,917 131,836 97,350 Other 22,295 15,903 14,388 6,903 6,433 ------------------------------------------------------------------------ Total $626,607 $614,704 $634,143 $589,482 $546,324 ======================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Electric Sales (000s MWH): Residential 3,111 2,964 2,974 2,980 2,938 Commercial 1,980 1,898 1,878 1,814 1,773 Industrial 4,570 4,493 4,256 3,986 3,873 ------------------------------------------------------------------------ Total from ultimate customers 9,661 9,355 9,108 8,780 8,584 Sales for resale 3,252 4,492 5,824 5,246 3,109 Other 54 59 60 57 54 ------------------------------------------------------------------------ Total 12,967 13,906 14,992 14,083 11,747 ======================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Customers (End of Period): Residential 355,691 350,334 343,637 336,933 329,643 Commercial 48,696 47,857 46,823 45,669 44,730 Industrial 947 909 855 815 795 Other 1,893 1,860 1,875 1,820 1,342 ------------------------------------------------------------------------ Total 407,227 400,960 393,190 385,237 376,510 ======================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Electric Data: Maximum peak hour demand (MW) 2,397 2,292 2,253 2,124 2,197 Sources of electric energy (000s MWH): Coal and gas 8,186 8,916 8,587 8,687 8,323 Purchased power 3,436 3,923 5,744 4,494 2,227 Nuclear 1,814 1,519 970 1,301 1,555 Other 288 288 355 303 308 ------------------------------------------------------------------------ Total 13,724 14,646 15,656 14,785 12,413 ======================================================================== Revenue per KWH from ultimate customers (in cents) 5.19 5.03 5.04 5.13 5.16 - ------------------------------------------------------------------------------------------------------------------------------------
15 GAS UTILITY OPERATIONS As of December 31, 1999, Alliant Energy's utility subsidiaries provided retail natural gas service to approximately 393,000 customers in approximately 488 communities in Iowa, southern and central Wisconsin, northern and northwestern Illinois and southern Minnesota. The approximate number of customers and communities served for each of the individual utilities at December 31, 1999 was as follows: Gas Customers Communities Served ---------------- ---------------------- IESU 181,000 212 WP&L 162,000 235 IPC 50,000 41 Gas utility operations accounted for 18.2%, 16.0% and 14.0% of operating revenues and 5.2%, 8.9% and 8.4% of operating income for IESU, WP&L and IPC, respectively, for the year ended December 31, 1999. These operations include providing gas services to transportation and retail customers. In providing gas commodity service to retail customers, Alliant Energy administers a diversified portfolio of transportation and storage contracts on behalf of each of the three utilities. Transportation contracts with NNG, NGPL and ANR allow access to gas supplies located in the U.S. and Canada. Non-traditional arrangements provide IESU and WP&L with gas delivered directly to their service territories. The maximum daily delivery capacity of the individual utilities for the year ended December 31, 1999 was as follows:
NNG NGPL ANR Non-Traditional Total --------------- -------------- --------------- ----------------- --------------- IESU 143,996 Dth 62,619 Dth 61,737 Dth 11,500 Dth 279,852 Dth WP&L 75,056 Dth -- 132,124 Dth 46,400 Dth 253,580 Dth IPC 52,595 Dth 29,750 Dth -- -- 82,345 Dth
IESU, WP&L and IPC maintain purchase agreements with over 50 suppliers of natural gas from all gas producing regions of the U.S. and Canada. Approximately half of the gas supply contracts are for terms of six months or less, with the remaining supply contracts having terms up to two years. The utilities' gas supply commitments are index-based. In addition to sales of natural gas to retail customers, IESU, WP&L and IPC provide transportation service to commercial and industrial customers by moving customer-owned gas through Alliant Energy's distribution system to the customers' meter. Revenues are collected for this service pursuant to transportation tariffs. The gas sales of the utility subsidiaries follow a seasonal pattern. There is an annual base load of gas used for cooking, heating and other purposes, with a large heating peak occurring during the winter season. Producers, marketers and brokers, as well as storage contracts, supply natural gas to meet the peak heating season requirements. Storage contracts allow the utilities to purchase gas in the summer, store the gas in underground storage fields and deliver it in the winter. Gas storage met approximately 19%, 26% and 25% of IESU's, WP&L's and IPC's annual gas requirements in 1999, respectively. Refer to Note 1(j) of the "Notes to Consolidated Financial Statements" for a discussion of Alliant Energy's rate recovery mechanisms for its natural gas costs and Note 12(b) of the "Notes to Consolidated Financial Statements" for a discussion of Alliant Energy's gas commitments. Gas Environmental Matters Refer to Note 12(f) of the "Notes to Consolidated Financial Statements" for a discussion of gas environmental matters. 16
Alliant Energy Corporation - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Gas Operating Information (Utility Only) - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $185,090 $175,603 $225,542 $216,268 $179,761 Commercial 89,118 85,842 115,858 108,187 87,951 Industrial 21,855 20,204 27,393 27,569 30,462 Transportation/other 18,256 13,941 25,114 23,931 21,952 ------------------------------------------------------------------- Total $314,319 $295,590 $393,907 $375,955 $320,126 =================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Gas Sales (000s Dekatherms): Residential 30,309 28,378 33,894 37,165 33,827 Commercial 18,349 17,760 21,142 22,613 20,599 Industrial 5,963 5,507 6,217 6,856 6,381 Transportation/other 46,954 52,389 56,719 55,240 54,267 ------------------------------------------------------------------- Total 101,575 104,034 117,972 121,874 115,074 =================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Customers at End of Period (Excluding Transportation/Other): Residential 347,533 342,586 337,956 331,919 326,005 Commercial 44,289 43,825 43,316 42,658 42,095 Industrial 1,037 982 963 1,022 1,059 ------------------------------------------------------------------- Total 392,859 387,393 382,235 375,599 369,159 =================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Gas Data: Revenue per dekatherm sold (excluding transportation/other) $5.42 $5.45 $6.02 $5.28 $4.90 Purchased gas costs per dekatherm sold (excluding transportation/other) $3.30 $3.22 $4.23 $3.61 $3.31 - ------------------------------------------------------------------------------------------------------------------------------------
17
IES Utilities Inc. - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Gas Operating Information - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $88,302 $86,821 $110,663 $97,708 $84,562 Commercial 40,459 39,928 54,383 46,966 40,390 Industrial 11,543 10,422 13,961 12,256 8,790 Transportation/other 5,521 4,108 4,510 3,934 3,550 ------------------------------------------------------------------- Total $145,825 $141,279 $183,517 $160,864 $137,292 =================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Gas Sales (000s Dekatherms): Residential 13,778 13,803 16,317 17,680 16,302 Commercial 8,077 8,272 9,602 10,323 9,534 Industrial 3,291 3,089 3,318 3,796 3,098 Transportation/other 10,236 11,316 10,321 10,341 10,871 ------------------------------------------------------------------- Total 35,382 36,480 39,558 42,140 39,805 =================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Customers at End of Period (Excluding Transportation/Other): Residential 158,705 157,135 155,859 154,457 152,873 Commercial 21,661 21,530 21,431 21,364 21,193 Industrial 383 398 399 417 404 ------------------------------------------------------------------- Total 180,749 179,063 177,689 176,238 174,470 =================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Gas Data: Revenue per dekatherm sold (excluding transportation/other) $5.58 $5.45 $6.12 $4.94 $4.62 Purchased gas cost per dekatherm sold (excluding transportation/other) $3.51 $3.36 $4.33 $3.27 $3.15 - ------------------------------------------------------------------------------------------------------------------------------------ Wisconsin Power and Light Company - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Gas Operating Information - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $69,662 $65,173 $84,513 $90,382 $70,382 Commercial 35,570 33,898 45,456 46,703 35,411 Industrial 6,077 5,896 8,378 11,410 17,984 Transportation/other 9,461 6,770 17,536 17,132 15,388 ------------------------------------------------------------------- Total $120,770 $111,737 $155,883 $165,627 $139,165 =================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Gas Sales (000s Dekatherms): Residential 12,070 10,936 12,770 14,297 12,690 Commercial 7,771 7,285 8,592 9,167 8,245 Industrial 1,520 1,422 1,714 1,997 2,144 Transportation/other 13,237 12,948 17,595 18,567 16,870 ------------------------------------------------------------------- Total 34,598 32,591 40,671 44,028 39,949 =================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Customers at End of Period (Excluding Transportation/Other): Residential 144,015 141,065 137,827 133,580 129,576 Commercial 17,380 17,058 16,653 16,083 15,724 Industrial 576 506 488 529 566 ------------------------------------------------------------------- Total 161,971 158,629 154,968 150,192 145,866 =================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Gas Data: Revenue per dekatherm sold (excluding transportation/other) $5.21 $5.34 $6.00 $5.83 $5.36 Purchased gas cost per dekatherm sold (excluding transportation/other) $3.00 $3.13 $4.30 $4.12 $3.64 - ------------------------------------------------------------------------------------------------------------------------------------
18 D. INFORMATION RELATING TO NON-REGULATED OPERATIONS - --------------------------------------------------- Resources is a holding company whose wholly-owned subsidiaries at December 31, 1999 included Investments, Transportation, Capital Square, International and ISCO. Resources is managed through five distinct platforms: Investments, International, Industrial Services, Cargill-Alliant and Mass Markets. Investments Platform - Investments is a holding company whose primary wholly-owned subsidiaries include Heartland Properties, Inc. (HPI), Iowa Land and Building Company (Iowa Land) and Village Lakeshares Inc. (Lakeshares). HPI is responsible for performing asset management and facilitating the development and financing of high quality, affordable housing in Alliant Energy's utility service territory. HPI has a majority ownership interest in approximately 60 such properties. Capital Square provides mortgage-banking services to facilitate HPI's development and financing efforts in the affordable housing market. Iowa Land is organized to pursue real estate and economic development activities in IESU's service territory. Lakeshares is a holding company for resort properties in Iowa. Investments also has direct and indirect equity interests in various real estate ventures, primarily concentrated in Cedar Rapids, and holds other passive investments including an equity interest in McLeod. Refer to Note 10 of the "Notes to Consolidated Financial Statements" for a further discussion of the McLeod investment. Whiting is organized to purchase, develop and produce crude oil and natural gas. (Although Whiting is a wholly-owned subsidiary of ISCO, Whiting is identified under the Investments platform for management purposes.) Transportation is a holding company whose wholly-owned subsidiaries include the Cedar Rapids and Iowa City Railway Company (CRANDIC), Williams Bulk Transfer Inc. (Williams) and Transfer Services, Inc. (Transfer). CRANDIC is a short-line railway that renders freight service between Cedar Rapids and Iowa City. Williams' and Transfer's operations include transloading and storage services. Transportation also has a 75% equity investment in IEI Barge Services, Inc. (Barge) which provides barge terminal and hauling service on the Mississippi River. International Platform - International is a holding company for Resources' international investments whose wholly-owned subsidiaries include Alliant International New Zealand Limited (New Zealand), Alliant Energy Australia Pty Ltd. (Australia), Grandelight Holding Ltd. (Grandelight), Interstate Energy Corporation Pte Ltd. (IECP), Alliant Energy Renewable Resources Ltd. (AERR), Alliant Energy Brazil, Inc. (Brazil) and Alliant Energy de Mexico L.L.C. (Mexico). New Zealand has equity investments in several New Zealand utility entities. Australia has an equity investment in a holding company whose primary investments are infrastructure and utility companies in Australia. Grandelight has a 67% equity investment in Peak Pacific Investment Company Ltd. (Peak Pacific). Peak Pacific has been formed to develop investment opportunities in generation infrastructure projects in China. IECP has a 50% equity investment in two individual cogeneration facilities in China. AERR has been formed for the purpose of investing in international renewable resource projects. Mexico is organized to provide utility-related services to a resort community in Mexico, of which International has an investment in secured debentures. Refer to Note 16 of the "Notes to Consolidated Financial Statements" for a discussion of Alliant Energy's investment in Brazil completed in early 2000. Industrial Services Platform - ISCO is a holding company for Resources' industrial service companies whose primary wholly-owned subsidiaries include Industrial Energy Applications, Inc. (IEA), Heartland Energy Group, Inc. (HEG) and RMT, Inc. (RMT). IEA offers facilities-based energy services for customers, including standby generation, cogeneration, steam production and propane air systems. IEA also provides energy consulting services for customers and owns natural gas and oil gathering systems, both in Texas. HEG offers commodities-based energy services primarily related to supplying natural gas. RMT is a Madison, Wisconsin based environmental and engineering consulting company that serves clients nationwide in a variety of industrial market segments. RMT specializes in consulting on solid and hazardous waste management, ground water quality protection, industrial design and hygiene engineering, and air and water pollution control. Cargill-Alliant Platform - Alliant Energy also has a 50% ownership interest, which Resources manages, in a joint venture with Cargill, named Cargill-Alliant, to market electricity and risk management services to wholesale customers. Mass Markets Platform - Mass markets is a business unit of Resources which provides products and services designed to meet the comfort, security and productivity needs of residential and small commercial customers. 19 ITEM 2. PROPERTIES WP&L WP&L's principal electric generating stations at December 31, 1999, were as follows:
Name and Location Primary Fuel 1999 Summer Capability of Station Type in Kilowatts - ------------------------------------------------------ --------------- ----------------------------------------- Kewaunee Nuclear Power Plant, Kewaunee, WI Nuclear 207,100 (1) Nelson Dewey Generating Station, Cassville, WI Coal 226,000 Edgewater Generating Station #3, Sheboygan, WI Coal 76,000 Edgewater Generating Station #4, Sheboygan, WI Coal 237,300 (2) Edgewater Generating Station #5, Sheboygan, WI Coal 306,000 (3) Columbia Energy Center, Portage, WI Coal 494,400 (4) ------------- Total Coal 1,339,700 Blackhawk Generating Station, Beloit, WI Gas 58,000 Rock River Generating Station, Beloit, WI Gas 164,000 Rock River Combustion Turbine, Beloit, WI Gas 148,000 South Fond du Lac Combustion Turbine Units 2 and 3, Fond du Lac, WI Gas 169,000 Sheepskin Combustion Turbine, Edgerton, WI Gas 37,000 ------------- Total Gas 576,000 Kilbourn Hydro Plant, Wisconsin Dells, WI Hydro 9,000 Prairie du Sac Hydro Plant, Prairie du Sac, WI Hydro 30,000 Petenwell/Castle Rock Hydro Plants, Wisconsin Rapids, WI Hydro 13,300 (5) Shawano Hydro, Shawano, WI Hydro 409 ------------- Total Hydro 52,709 ------------- Total generating capability 2,175,509 ============= All KWs shown below represent the 1999 summer generating capability. (1) Represents WP&L's 41% ownership interest in this 505,000 KW generating station, which is operated by WPSC. (2) Represents WP&L's 68.2% ownership interest in this 348,000 KW generating station, which is operated by WP&L. (3) Represents WP&L's 75% ownership interest in this 408,000 KW generating station, which is operated by WP&L. (4) Represents WP&L's 46.2% ownership interest in this 1,070,000 KW generating station, which is operated by WP&L. (5) Represents WP&L's 33.3% ownership interest in this 40,000 KW hydro plant, which is operated by Wisconsin River Power Company.
WP&L owns 2,787 miles of electric transmission lines and 279 substations located adjacent to the communities served, of which substantially all are in Wisconsin. Substantially all of WP&L's facilities are subject to the lien of its First Mortgage Bond indenture and are suitable for their intended use. 20 IESU IESU's principal electric generating stations at December 31, 1999, were as follows:
Name and Location Primary Fuel 1999 Summer Capability of Station Type in Kilowatts - -------------------------------------------------- ---- --------------- ---------------------------------------- Duane Arnold Energy Center, Palo, Iowa Nuclear 364,000 (1) Ottumwa Generating Station, Ottumwa, Iowa Coal 324,000 (2) Prairie Creek Station, Cedar Rapids, Iowa Coal 214,750 Sutherland Station, Marshalltown, Iowa Coal 143,000 Sixth Street Station, Cedar Rapids, Iowa Coal 65,000 Burlington Generating Station, Burlington, Iowa Coal 211,800 George Neal Unit 3, Sioux City, Iowa Coal 144,200 (3) ------------- Total Coal 1,102,750 Peaking Turbines, Marshalltown, Iowa Oil 216,400 Centerville Combustion Turbines, Centerville, Iowa Oil 62,000 Diesel Stations, all in Iowa Oil 8,300 ------------- Total Oil 286,700 Grinnell Station, Grinnell, Iowa Gas 30,000 Agency Street Combustion Turbines, West Burlington, Iowa Gas 76,700 Burlington Combustion Turbines, Burlington, Iowa Gas 68,000 Red Cedar Combustion Turbine, Cedar Rapids, IA Gas 22,700 ------------- Total Gas 197,400 ------------- Total generating capability 1,950,850 ============= All KWs shown below represent the 1999 summer generating capability. (1) Represents IESU's 70% ownership interest in this 520,000 KW generating station, which is operated by IESU. (2) Represents IESU's 48% ownership interest in this 675,000 KW generating station, which is operated by IESU. (3) Represents IESU's 28% ownership interest in this 515,000 KW generating station, which is operated by MidAmerican Energy Company.
IESU owns 4,448 miles of electric transmission lines and 578 substations, substantially all located in Iowa. IESU's principal properties are suitable for their intended use and are held subject to liens of indentures relating to its bonds. 21 IPC IPC's principal electric generating stations at December 31, 1999, were as follows:
Name and Location Primary Fuel 1999 Summer Capability of Station Type in Kilowatts - ------------------------------------------------------------- --------------- ------------------------------------- Dubuque Units 2, 3 and 4, Dubuque, IA Coal 81,500 M. L. Kapp Plant Units 1 and 2, Clinton, IA Coal 254,900 Lansing Units 1, 2, 3 and 4, Lansing, IA Coal 321,000 George Neal Unit 4, Sioux City, IA Coal 141,900 (1) Louisa Unit 1, Louisa, IA Coal 28,400 (2) ------------- Total Coal 827,700 Fox Lake Plant Units 1, 2 and 3, Sherburn, MN Gas 113,500 Montgomery Combustion Turbine Unit 1, Montgomery, MN Oil 22,200 Fox Lake Plant Combustion Turbine Unit 4, Sherburn, MN Oil 21,300 Lime Creek Plant Combustion Turbine Units 1 and 2, Mason City, IA Oil 70,400 Dubuque Diesel Units 1 and 2, Dubuque, IA Oil 4,600 Hills Diesel Units 1 and 2, Hills, MN Oil 4,000 Lansing Diesel Units 1 and 2, Lansing, IA Oil 2,000 New Albin Diesel Unit 1, New Albin, IA Oil 700 ------------- Total Oil 125,200 ------------- Total generating capability 1,066,400 ============= All KWs shown below represent the 1999 summer generating capability. (1) Represents IPC's 21.5% ownership interest in this 660,000 KW generating station, which is operated by MidAmerican Energy Company. (2) Represents IPC's 4% ownership interest in this 710,000 KW generating station, which is operated by MidAmerican Energy Company.
IPC owns 2,562 miles of electric transmission lines and 224 substations located in Iowa, Illinois and Minnesota. Substantially all of IPC's facilities are subject to the lien of its bond indenture securing IPC's outstanding First Mortgage Bonds and are suitable for their intended use. Resources Resources' principal properties as of December 31, 1999 were as follows: Whiting - owns oil and gas properties at various locations within the U.S. Proven developed reserves were 9.6 million barrels of oil and 97.4 million Dth of gas. HPI - provides affordable housing in Wisconsin and the Midwest and has a majority ownership in approximately 60 properties. IEA - offers standby generation, cogeneration, steam production and propane air systems. IEA's natural gas gathering system and oil gathering system had 66 miles and 188 miles, respectively, of pipeline in Texas. CRANDIC - has 107 railroad track miles all located within Iowa. Investments - has real estate ventures with 248,000 square feet of office space primarily in Cedar Rapids, Iowa. 22 ITEM 3. LEGAL PROCEEDINGS Alliant Energy On July 15, 1999, the PSCW found that Alliant Energy was in violation of the PSCW's merger order because after Alliant Energy exercised its right to withdraw from the Midwest ISO, it had no proposal on file with the PSCW either to be in an ISO or to spin off its transmission assets (Alliant Energy has subsequently rejoined the Midwest ISO). The PSCW deferred consideration of any remedies. Both Alliant Energy and the intervenors in the proceeding had appealed the PSCW's decision to the Dane County Circuit Court however the intervenors have since withdrawn their appeal. Alliant Energy's appeal is still pending. Alliant Energy received an adverse ruling in 1999 from a U.S. district court judge dealing with an income tax refund claim Alliant Energy filed relating to capital losses disallowed under audit by the IRS. The district court judge also disallowed certain related deductions allowed by the IRS as an offset against a tax refund due to Alliant Energy. Alliant Energy has appealed the district court's ruling and such appeal is pending. The IRS has appealed the decision which led to the tax refund due to Alliant Energy and this appeal is also pending. Alliant Energy believes the resolution of these issues will not have a material adverse impact on its financial condition or results of operations. WP&L In the second quarter of 1999, WP&L received a demand for arbitration from MG&E pursuant to the terms of joint plant operating agreements between the parties regarding issues of ownership and operation of the Columbia Energy Center. In September 1999, a Wisconsin Circuit Court judge ruled that some of MG&E's claims were arbitrable. The parties have selected the arbitrators and the procedural schedule is being developed. WP&L believes MG&E's claims are without merit and will be vigorously defending its position. Environmental Matters The information required by Item 3 with regards to environmental matters is included in Notes 12(f) and 12(g) of Item 8. "Notes to Consolidated Financial Statements," and "Other Matters - Environmental" in Item 7. MD&A, which information is incorporated herein by reference. Rate Matters The information required by Item 3 with regards to rate matters is included in "Liquidity and Capital Resources - Rates and Regulatory Matters" in Item 7. MD&A, which information is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANTS Information relating to the executive officers of Alliant Energy, IESU and WP&L is included in Item 10. Directors and Executive Officers of the Registrants. 23 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Alliant Energy's common stock trades on the New York Stock Exchange under the symbol "LNT." Quarterly sales price ranges and dividends with respect to Alliant Energy's common stock were as follows (amounts for periods prior to the consummation of the merger represent data for WPLH):
1999 1998 -------------------------------------------- ------------------------------------------- Quarter High Low Dividend High Low Dividend First $32 3/8 $26 3/8 $0.50 $33 7/8 $31 1/2 $0.50 Second 30 7/8 26 1/2 0.50 35 3/8 29 5/8 0.50 Third 30 1/16 26 3/4 0.50 32 1/8 28 0.50 Fourth 28 13/16 25 3/16 0.50 34 29 3/4 0.50 ----------- ----------- ------------- ----------- ----------- ----------- Year $32 3/8 $25 3/16 $2.00 $35 3/8 $28 $2.00 =========== =========== ============= =========== =========== ===========
Stock closing price at December 31, 1999: $27 1/2 Although Alliant Energy's practice has been to pay common stock dividends quarterly, the timing of payment and amount of future dividends are necessarily dependent upon earnings, financial requirements and other factors. At December 31, 1999, there were approximately 66,886 holders of record of Alliant Energy's stock including underlying holders in Alliant Energy's Shareowner Direct Plan. Alliant Energy is the sole common shareowner of all 13,370,788 shares of IESU Common Stock currently outstanding. During 1999, 1998 and 1997, IESU declared dividends on its common stock of $88 million, $19 million and $56 million, respectively, to its parent. No dividend payments were made in the last three quarters of 1998 due to merger-related tax considerations. As a result, the dividend payment in the first quarter of 1999 was larger than IESU's historical quarterly payment. IESU has the right under the terms of its Subordinated Deferrable Interest Debentures, so long as an Event of Default (as defined therein) has not occurred and is not continuing, to extend the interest payment period at any time and from time to time on the Subordinated Deferrable Interest Debentures to a period not exceeding 20 consecutive quarters. If IESU exercises its right to extend the interest payment period, IESU may not, during any such extended interest payment period, declare or pay dividends on, or redeem, purchase or acquire, or make any liquidation payment with respect to, any of its capital stock or make any guarantee payment with respect to the foregoing. IESU does not intend to exercise its right to extend the interest payment period. Alliant Energy is the sole common shareowner of all 13,236,601 shares of WP&L common stock currently outstanding. During 1999, 1998 and 1997, WP&L paid dividends on its common stock of $58 million each year to its parent. WP&L's common stock dividends are restricted to the extent that such dividends would reduce the common stock equity ratio to less than 25%. Under rate order UR-110, the PSCW ordered that it must approve the payment of dividends by WP&L to Alliant Energy that are in excess of the level forecasted in the rate order ($58.3 million), if such dividends would reduce WP&L's average common equity ratio below 52.00% of total capitalization. The dividends paid by WP&L to Alliant Energy since the rate order was issued have not exceeded the level forecasted in the rate order. Alliant Energy's utility subsidiaries each have common stock dividend restrictions based on their respective bond indentures and articles of incorporation. Each utility has restrictions on the payment of common stock dividends that are commonly found with preferred stock. In addition, IESU's and IPC's ability to pay common stock dividends is restricted based on requirements associated with sinking funds. 24
ITEM 6. SELECTED FINANCIAL DATA Alliant Energy Corporation - ------------------------------------------------------------------------------------------------------------------------------------ 1999 (1) 1998 (2) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Financial Information (Dollars in thousands except for per share data) - ------------------------------------------------------------------------------------------------------------------------------------ Income Statement Data: Operating revenues $2,197,963 $2,130,874 $2,300,627 $2,232,840 $1,976,807 Operating expenses 1,821,428 1,847,572 1,964,244 1,867,401 1,611,875 Operating income 376,535 283,302 336,383 365,439 364,932 Income from continuing operations 196,581 96,675 144,578 157,088 159,157 Discontinued operations -- -- -- (1,297) (13,186) Net income 196,581 96,675 144,578 155,791 145,971 - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock Data: Weighted average common shares outstanding (000s) 78,352 76,912 76,210 75,481 74,680 Return on average common equity (3) 10.5% 6.0% 9.5% 11.0% 10.5% Per Share Data: Income from continuing operations $2.51 $1.26 $1.90 $2.08 $2.13 Discontinued operations -- -- -- ($0.02) ($0.18) Earnings per average common share (basic and diluted) $2.51 $1.26 $1.90 $2.06 $1.95 Dividends declared per common share (4) $2.00 $2.00 $2.00 $1.97 $1.94 Book value at year-end (3) $27.29 $20.69 $21.24 $18.91 $18.70 Market value at year-end (4) $27.50 $32.25 $33.13 $28.13 $30.63 - ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Financial Data: Construction and acquisition expenditures $478,573 $372,058 $328,040 $412,274 $375,184 Total assets at year-end (3) $6,075,683 $4,959,337 $4,923,550 $4,639,826 $4,476,406 Long-term obligations, net $1,660,558 $1,713,649 $1,604,305 $1,444,355 $1,357,755 Times interest earned before income taxes (5) 3.38X 2.25X 2.90X 3.38X 3.36X Capitalization Ratios: Common equity (3) 57% 49% 51% 52% 51% Preferred and preference stock 3% 4% 3% 4% 4% Long-term debt, excluding current portion 40% 47% 46% 44% 45% --------------------------------------------------------------------- Total 100% 100% 100% 100% 100% ===================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ (1) The 1999 financial results reflect pre-tax gains of $40 million realized from sales of McLeod stock. (2) The 1998 financial results reflect the recording of $54 million of pre-tax merger-related charges. (3) In the third quarter of 1997, Alliant Energy began adjusting the carrying value of its investments in McLeod to its estimated fair value, pursuant to the applicable accounting rules. At December 31, 1999, the adjustment reflected an unrealized gain of approximately $1.1 billion with a net of tax increase to common equity of $640 million. At December 31, 1998, the adjustment reflected an unrealized gain of approximately $291 million with a net of tax increase to common equity of $170 million. (4) Represents data for WPLH for periods prior to the consummation of the merger. (5) Represents income before income taxes plus preferred dividend requirements of subsidiaries plus interest expense divided by interest expense.
25 IESU
Year Ended December 31, 1999 1998 1997 1996 1995 -------------------------------------------------------------------------------- (in thousands) Operating revenues $800,696 $806,930 $813,978 $754,979 $709,826 Earnings available for common stock 65,532 60,996 57,879 62,815 58,364 Cash dividends declared on common stock 87,951 18,840 56,000 44,000 43,000 Total assets 1,755,808 1,788,978 1,768,929 1,765,044 1,697,803 Long-term obligations, net 641,559 677,804 688,719 560,199 517,538 The 1998 financial results reflect the recording of $17 million of pre-tax merger-related charges. WP&L Year Ended December 31, 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------- (in thousands) Operating revenues $752,505 $731,448 $794,717 $759,275 $689,672 Earnings available for common stock 67,520 32,264 67,924 79,175 75,342 Cash dividends declared on common stock 58,353 58,341 58,343 66,087 56,778 Total assets 1,766,135 1,685,150 1,664,604 1,677,814 1,641,165 Long-term obligations, net 471,648 471,554 420,414 370,634 375,574 The 1998 financial results reflect the recording of $17 million of pre-tax merger-related charges.
26 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Alliant Energy was formed as the result of a three-way merger involving WPLH, IES and IPC that was completed in April 1998. The primary first tier subsidiaries of Alliant Energy include: WP&L, IESU, IPC, Resources and Corporate Services. Among various other regulatory constraints, Alliant Energy is operating as a registered public utility holding company subject to the limitations imposed by PUHCA. This MD&A includes information relating to Alliant Energy, IESU and WP&L (as well as IPC, Resources and Corporate Services). Where appropriate, information relating to a specific entity has been segregated and labeled as such. FORWARD-LOOKING STATEMENTS Statements contained in this report (including MD&A) that are not of historical fact are forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. From time to time, Alliant Energy, IESU or WP&L may make other forward-looking statements within the meaning of the federal securities laws that involve judgments, assumptions and other uncertainties beyond the control of such companies. These forward-looking statements may include, among others, statements concerning revenue and cost trends, cost recovery, cost reduction strategies and anticipated outcomes, pricing strategies, changes in the utility industry, planned capital expenditures, financing needs and availability, statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar comments concerning matters that are not historical facts. Investors and other users of the forward-looking statements are cautioned that such statements are not a guarantee of future performance and that such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, such statements. Some, but not all, of the risks and uncertainties include weather effects on sales and revenues, competitive factors, general economic conditions in the relevant service territory, federal and state regulatory or government actions, including issues associated with the deregulation of the utility industry, unanticipated construction and acquisition expenditures, issues related to stranded costs and the recovery thereof, the operations of Alliant Energy's nuclear facilities, unanticipated costs associated with certain environmental remediation efforts being undertaken by Alliant Energy, unanticipated issues relating to establishing a transmission company, material changes in the value of Alliant Energy's investment in McLeod, technological developments, employee workforce factors, including changes in key executives, collective bargaining agreements or work stoppages, political, legal and economic conditions in foreign countries Alliant Energy has investments in and changes in the rate of inflation. UTILITY INDUSTRY OUTLOOK As a holding company with significant utility assets, Alliant Energy competes in an ever-changing utility industry. Set forth below is an overview of this evolving marketplace. Electric energy generation, transmission and distribution are in a period of fundamental change in the manner in which customers obtain, and energy suppliers provide, energy services. As legislative, regulatory, economic and technological changes occur, electric utilities are facing increased numbers of alternative suppliers. Such competitive pressures could result in loss of customers and an incurrence of stranded costs (i.e., assets and other costs rendered unrecoverable as the result of competitive pricing). To the extent stranded costs cannot be recovered from customers, they would be borne by security holders. Across the nation, approximately half of the states (including Illinois) have passed legislation or issued regulatory rulings granting customers the right to choose their electric energy supplier. Legislation that would allow customers to choose their electric energy supplier is expected to be introduced in Iowa in 2000. At the federal level, a number of proposals to restructure the electric industry are currently under consideration. However, there continues to be a lack of consensus over how restructuring should be implemented and how much control the federal government should have over this process. Until one of the proposals gains significant bipartisan support, there is unlikely to be final federal action to either facilitate or force states to open electricity markets to competition. 27 Alliant Energy realized 55%, 40%, 3% and 2% of its electric utility revenues in 1999 in Iowa, Wisconsin, Minnesota and Illinois, respectively. Approximately 90% of the electric revenues were regulated by the respective state commissions while the other 10% were regulated by the FERC. Alliant Energy realized 57%, 37%, 3% and 3% of its gas utility revenues in Iowa, Wisconsin, Minnesota and Illinois, respectively, during the same period. IESU realized 100% of its electric and gas utility retail revenues in 1999 in Iowa. Approximately 95% of the electric revenues in 1999 were regulated by the IUB while the other 5% were regulated by the FERC. WP&L realized 98% of its electric utility revenues in 1999 in Wisconsin and 2% in Illinois. Approximately 84% of the electric revenues in 1999 were regulated by the PSCW or the ICC while the other 16% were regulated by the FERC. WP&L realized 96% of its gas utility revenues in 1999 in Wisconsin and 4% in Illinois. Federal Regulation IESU, WP&L and IPC are subject to regulation by the FERC. NEPA addresses several matters designed to promote competition in the electric wholesale power generation market. FERC has issued final rules (FERC Orders 888/888-A and 889/889-A) requiring electric utilities to open their transmission lines to other wholesale buyers and sellers of electricity. In response to FERC Orders 888 and 888-A, Corporate Services, on behalf of IESU, WP&L and IPC, has filed Open Access Transmission Tariffs that comply with the orders. In response to FERC Orders 889 and 889-A, IESU, WP&L and IPC are participating in a regional Open Access Same-Time Information System. FERC Order 888 permits utilities to seek recovery of legitimate, prudent and verifiable stranded costs associated with providing open access transmission services. FERC does not have jurisdiction over retail distribution and, consequently, the final FERC rules do not provide for the recovery of stranded costs resulting from retail competition. The various states retain jurisdiction over the question of 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. In May 1999, FERC issued a NOPR concerning the development of RTOs. The proposed rules outline the requirements for utilities to voluntarily turn over control of their transmission system to a regional entity either by leasing the system to an RTO or by outright divestiture. In December 1999, FERC issued Order 2000 which implemented the proposed rules with minor modifications. FERC's timeline is to have the RTOs in operation by the end of 2001. Alliant Energy is involved with other utilities and industry groups in reviewing Order 2000 and has submitted a joint petition to FERC seeking further clarification of the operating and ownership limitations that will be imposed on the RTOs. Alliant Energy's current plans to contribute its Wisconsin transmission assets to ATC, in exchange for an equity interest, and participate in the Midwest ISO are expected to comply with the provisions of Order 2000. Alliant Energy and the utility subsidiaries cannot predict the long-term consequences of these rules on their financial condition or results of operations. State Regulation Iowa - IESU and IPC are subject to regulation by the IUB. The IUB has been - ---- reviewing all forms of competition in the electric utility industry for several years. A group comprised of the IUB, Alliant Energy, MidAmerican Energy Company, rural electric cooperatives, municipal utilities and Iowans for Choice in Electricity (a diverse group of industrial customers, marketers, such as Enron, and a low income customer representative, among others) endorsed a bill to allow for such competition that was introduced in the Iowa Legislature in March 1999. The bill was opposed by the OCA, which is charged by Iowa law with representation of all consumers generally. While the bill did not pass, by operation of House rules, it was re-referred to the House Commerce Committee and was again inserted into the legislative process in the Second Regular Session of the 78th General Assembly (2000). As of March 1, 2000, the bill has been approved by both the Iowa House and Senate Commerce Committees and will be addressed by the legislature in full. The bill would allow choice of electric suppliers for all customers on October 1, 2002. It would freeze IESU's and IPC's Iowa regulated prices at January 2000 levels. It would allow, however, for investor-owned utilities to propose 28 increases due to exogenous factors (for example, environmental compliance costs) in the generation cost component. Assigned service territories would be maintained for the delivery function. Delivery prices would be regulated, with the option available to propose performance based rate making. Prices for generation and other retail services would not be regulated, except for SOS pricing starting October 2002 for all residential customers and non-residential customers with annual usage of fewer than 75,000 KWHs. Pricing for SOS would initially be at levels equivalent to prices as they exist today and would remain at such levels until at least December 31, 2005 for SOS customers. The IUB would be able to terminate SOS if it were to determine several conditions existed, including, most importantly, that effective competition existed such that regulation was no longer necessary. If the IUB continues SOS past December 31, 2005, then prices would be based upon competitive bids. There are no price protections for non-residential customers with usage greater than 75,000 KWH annually, with the exception of transitional service. Transitional service would exist for no longer than one year, until October 1, 2003, at prices the IUB determines to be "just and reasonable." Currently existing automatic fuel adjustment clauses for recovery of fuel costs would be eliminated no later than October 2002. A "nuclear-only" fuel adjustment would be permitted with increased prices effective if an electric company's nuclear plant is not operational due to exogenous factors. Transition or stranded cost is the difference between the revenues that would have been collected pursuant to an electric company's revenue requirement existing as of January 1, 2000, and market prices for the period 2002 through 2005. These differences would be afforded 80% recovery in the first twelve months of choice, with 70%, 60%, and 50% in each subsequent twelve-month period. Effective October 1, 2006, transition cost recovery would end. In lieu of accepting this transition cost recovery mechanism, an electric utility would be entitled under the proposed legislation to elect to divest itself of its generation assets, including power supply contracts. In such case, the utility would be given an opportunity to be "made whole" for recovery of embedded costs with the possibility for shareowners to retain 50% of the amount realized from the sale of the assets beyond the sum of depreciated book value and unfunded decommissioning. A divestiture plan would be filed with the IUB no later than January 1, 2001, with IUB approval or modification by July 1, 2001. The utility would have until September 30, 2001 to revoke its election. Costs of start-up, including computer systems and employee transition costs, would be recoverable over a ten-year period, as approved by the IUB. The difference between regulatory assets and liabilities would be fully recoverable as a delivery charge. Nuclear decommissioning costs would be fully recoverable. While Alliant Energy supports the proposed legislation in its current form, it is unable to predict if this legislation will be enacted in 2000, what modifications, if any, may be made to the proposed bill or what actions Alliant Energy may take in response to the legislation should it be enacted. In the first quarter of 1999, the IUB conducted workshops concerning the unbundling of natural gas rates for all Iowa customers as well as allowing choice of the supplier of the natural gas for the small volume natural gas customers. IESU's and IPC's natural gas costs are a "flow-through cost item" in that they are automatically reflected in future billings to customers. Such collections are reconciled on an annual basis to ensure that they neither over- nor under-collect their actual gas commodity costs. Consequently, Alliant Energy does not currently realize any margins or income with respect to its provision of the gas commodity. Alliant Energy expects to continue to be made whole for such gas costs if the gas rates are unbundled. Even if Alliant Energy's gas commodity sales were to decline in a customer choice environment, its margins and income would not be expected to be impacted by such decreases in commodity sales. The delivery function of Alliant Energy's gas business in Iowa will likely continue to be regulated on a cost of service basis, as currently is the case. As a result, assuming no significant change in the regulatory posture, the delivery function would continue to generate comparable margins and income to that currently generated, regardless of what entity provides the gas commodity to the customer. On March 3, 2000, the IUB issued an order indicating that the IUB prefers to allow each utility to design a tariff in order to remove barriers to a competitive option for small volume customers. The IUB will also seek comments from the utility companies before approving any tariff filings. Wisconsin - WP&L is subject to regulation by the PSCW. The PSCW's inquiries - --------- into the future structure of the natural gas and electric utility industries are ongoing. The stated goal of the PSCW regarding natural gas service is "to accommodate competition but not create it." The PSCW has followed a measured approach to restructuring the natural gas industry in Wisconsin. The PSCW has determined that customer classes will be deregulated (i.e., the gas utility would no longer have an obligation to procure gas commodity for customers, but 29 would still have a delivery obligation) in a step-wise manner, after each class has been demonstrated to have a sufficient number of gas suppliers available. The short-term goals of the PSCW's electric restructuring process are to ensure reliability of the state's electric system and development of a robust wholesale electric market. The long-term goal is to establish prerequisite safeguards to protect customers prior to allowing retail customer choice. There are no other restructuring working groups currently active in Wisconsin. In May 1998, the PSCW reactivated Docket No. 05-BU-101 with the objective of examining the degree of separation which should be required as a matter of policy between utility and non-utility activities involving the various state utilities. Final hearings were held in February 2000 and the PSCW ruled that utilities can continue to offer non-utility services to customers and affiliates and that utilities must continue to fully allocate their costs to such non-utility activities. It is anticipated that there will be legislative proposals introduced in the 2001-2002 legislative session on issues dealing with restructuring of the electric utility industry. It is not possible to predict at this time the scope or the possibility of enactment of such proposals. "Reliability 2000" legislation was enacted in Wisconsin in 1999. This legislation included, among other items, a relaxation of the non-utility asset limitations included in the WUHCA and the formation of a Wisconsin transmission company for those Wisconsin utility holding companies who elect to take advantage of the new asset cap law. Alliant Energy has agreed to contribute WP&L's transmission assets to the transmission company (American Transmission Company, or ATC) in exchange for an equity interest in ATC. WP&L made several federal and state regulatory filings and commitments in the fourth quarter of 1999 relating to its participation in ATC. ATC's sole business will be to provide reliable, economic transmission service to all customers in a fair and equitable manner. ATC will plan, construct, operate, maintain and expand transmission facilities it will own to provide for adequate and reliable transmission of power. It will provide comparable service to all customers, including Alliant Energy, and it will support effective competition in energy markets without favoring any market participant. Formation of the company will require federal and state regulatory approvals. ATC will be regulated by FERC for all rate terms and conditions of service. ATC will be a transmission-owning member of the Midwest ISO and will transfer operational control of the transmission systems to the Midwest ISO. ATC will be a public utility, as defined under Wisconsin law, with a board of directors comprised of one representative from each utility having at least a 10% ownership interest in ATC. Smaller utilities could combine their transmission assets with others to reach the minimum level for board membership. In addition, the shareowners of ATC will select four at-large directors that can not be employed or engaged in energy businesses. The PSCW has not yet determined the exact scope of the assets that must be transferred to the ATC. Pending the final determination by the PSCW, WP&L estimates it will transfer approximately $150 million in plant assets at net book value to the ATC when it becomes operational in late 2000. Alliant Energy is also reviewing the possible contribution of IESU's and IPC's transmission assets to ATC as well. Alliant Energy estimates the net book value of such plant assets to approximate $220 million. While Alliant Energy will realize its proportionate share of ATC's earnings, it is not yet known what the overall financial impact of Alliant Energy's participation in ATC will be. Minnesota - IPC is subject to regulation by the MPUC. The MPUC established an - --------- Electric Competition Working Group in April 1995. On October 28, 1997, the Working Group issued a report and recommendations on retail competition. The MPUC reviewed the report and directed its staff to develop an electric utility restructuring plan and timeline. The MPUC has recently solicited comments on restructuring principles from stakeholders in the process. It does not appear that any comprehensive restructuring legislation will be passed in 2000. The MPUC has also initiated Docket E-999/CI-1261 to investigate the appropriate classification of transmission assets in Minnesota. Illinois - WP&L and IPC are subject to regulation by the ICC. In December - -------- 1997, the State of Illinois passed electric deregulation legislation requiring customer choice of electric suppliers for non-residential customers with loads of four MW or larger and for approximately one-third of all other non-residential customers starting October 1, 1999. All remaining non-residential customers will be eligible for customer choice beginning 30 December 31, 2000 and all residential customers will be eligible for customer choice beginning May 1, 2002. The new legislation is not expected to have a significant impact on Alliant Energy's financial condition or results of operations given the relatively small size of Alliant Energy's Illinois operations. As of December 31, 1999, no eligible Alliant Energy customer had selected another electric supplier. Accounting Implications Each of the utilities complies with the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation." SFAS 71 provides that rate-regulated public utilities record certain costs and credits allowed in the rate making process in different periods than for non-regulated entities. These are deferred as regulatory assets or regulatory liabilities and are recognized in the consolidated statements of income at the time they are reflected in rates. If a portion of the utility subsidiaries' operations becomes no longer subject to the provisions of SFAS 71 as a result of competitive restructurings or otherwise, a write-down of related regulatory assets and possibly other charges would be required, unless some form of transition cost recovery is established by the appropriate regulatory body that would meet the requirements under generally accepted accounting principles for continued accounting as regulatory assets during such recovery period. In addition, each utility subsidiary would be required to determine any impairment of other assets and write-down any impaired assets to their fair value. The utility subsidiaries believe they currently meet the requirements of SFAS 71 and will continue to monitor and assess this as the various utility industry restructuring initiatives progress. Positioning for a Competitive Environment Alliant Energy and its subsidiaries cannot currently predict the long-term consequences of the competitive and restructuring issues described above on their financial condition or results of operations. The major objective is to allow the company to compete successfully in a competitive, deregulated utility industry. The strategy for dealing with these emerging issues includes seeking growth opportunities, forming strategic alliances with other energy-related businesses, continuing to offer quality customer service, initiating ongoing cost reductions and productivity enhancements and developing new products and services. As competitive forces shape the energy-services industry, energy providers are being challenged to increase growth and profits. Because Alliant Energy expects consumption of electricity and natural gas to grow only modestly within Alliant Energy's domestic utility service territories, Alliant Energy has entered several energy-services markets that it expects will provide opportunities for new sources of growth. Alliant Energy, through its subsidiary Resources, has established new distinct platforms to complement its existing non-regulated investments, which are designed to meet customer needs. These platforms and existing investments include: Investments: Resources' existing investments include an oil and gas ----------- production company, a short-line railroad, a barge company, an affordable housing company, various real estate joint ventures and an equity stake in an independent telecommunications provider. International: International is a partner in developing, or seeking to ------------- develop, energy generation and infrastructure in New Zealand, Australia, China, Mexico and Brazil, markets which have been selected because of their growth potential. Industrial Services: ISCO is a provider of energy and environmental -------------------- services designed to maximize productivity for industrial and large commercial customers. This platform consists of four units: Energy Planning; Energy Management; Energy Applications, which provides facilities-based and commodities-based energy solutions; and RMT, Inc., an environmental management and engineering firm with offices throughout the U.S. and the United Kingdom. Cargill-Alliant: Alliant Energy has an energy-trading joint venture with --------------- Cargill that combines the risk-management and commodity trading expertise of Cargill with Alliant Energy's low-cost electricity generation and transmission business experience. Cargill-Alliant officially began operations in 1997 and has an initial term though October 2002. The term automatically renews for successive five-year periods unless either party notifies the other at least one year prior to the then expiring term. Mass Markets: Resources is a provider of products and services designed ------------- to meet the comfort, security and productivity needs of residential and small commercial customers. Resources currently offers home appliance and furnace warranties and a variety of home energy, safety and security products through its "Power House" catalog. Such products are marketed directly to customers, through the mail with the catalog and over the Internet. Resources expects to continue pursuing opportunities in these markets, which it believes has a growth potential as industry deregulation allows more customers to choose their energy suppliers in an open market. 31 Alliant Energy believes that each of these platforms provide prospects for growth both individually and collectively as the competitive energy-services marketplace evolves. Alliant Energy expects that these strategies will contribute significantly to its annual earnings growth target of 4-6% from its business operations. Resources is expected to contribute 25% of such earnings within the next 3-5 years. ALLIANT ENERGY RESULTS OF OPERATIONS Overview - Alliant Energy's earnings for each of the last three years were as - -------- follows (in thousands, except per share amounts):
1999 1998 1997 -------------- ------------- -------------- Net income $196,581 $96,675 $144,578 Average number of common shares outstanding 78,352 76,912 76,210 Earnings per average common share (basic and diluted) $2.51 $1.26 $1.90 Pre-tax merger expenses -- $54,045 $2,448
The significant increase in Alliant Energy's 1999 earnings compared to 1998 was due to increased earnings from non-regulated operations of $0.60 per share (of which $0.32 per share was attributable to sales of McLeod stock), higher electric and natural gas margins from utility operations and lower utility operation and maintenance expenses. Higher depreciation (excluding hedge losses in WP&L's nuclear decommissioning trust fund) and interest expenses partially offset these items. The 1998 results also included approximately $54 million of pre-tax merger-related expenses ($0.45 per share). The 1999 utility earnings were $161.1 million ($2.06 per share) compared to $109.5 million ($1.42 per share) for 1998. The increase in utility earnings resulted primarily from higher electric and natural gas margins ($0.24 and $0.04 per share, respectively), lower operation and maintenance expenses ($0.09 per share) and income realized from weather hedges ($0.04 per share). Higher depreciation (excluding hedge losses in WP&L's nuclear decommissioning trust fund) and interest expenses ($0.10 and $0.02 per share, respectively) and a higher effective income tax rate ($0.02 per share) partially offset these items. The 1998 utility results included approximately $0.42 per share of merger-related expenses. Resources reported net income of $37.8 million ($0.48 per share) in 1999 compared to a net loss of $8.9 million (($0.12) per share) for 1998. The 1999 earnings included gains realized from several asset sales, including approximately 7% of Alliant Energy's investment in McLeod ($0.32 per share), oil and gas properties at Whiting ($0.08 per share) and certain New Zealand electric distribution investments ($0.05 per share). Earnings from Alliant Energy's electricity trading joint venture ($0.06 per share), improved operating results from Whiting ($0.03 per share) and improved earnings from Alliant Energy's other non-regulated businesses ($0.03 per share) also contributed to the increased earnings. The 1998 results for Resources also included merger-related expenses ($0.03 per share). The 1998 utility earnings were $109.5 million compared to $152.5 million for 1997. The decrease in 1998 utility earnings resulted primarily from merger-related expenses, higher purchased-power and transmission costs at WP&L, a 15.7% decrease in retail natural gas sales largely due to milder weather conditions in 1998 compared to 1997, a $9 million regulatory asset write-off at IESU, increased expenses for Year 2000 readiness efforts, higher insurance-related expenses and increased depreciation expenses. These decreases were partially offset by a 2% increase in retail electricity sales volumes, largely due to continued economic growth within Alliant Energy's service territory, lower purchased-power capacity costs at IESU and IPC, reduced employee benefits costs and lower costs in 1998 due to merger-related operating efficiencies. A loss incurred on the disposition of an investment in 1997 at IESU also enhanced the 1998 earnings compared to 1997. 32 Resources reported net losses of $8.9 million and $4.0 million in 1998 and 1997, respectively. The increased loss in 1998 was due to merger-related expenses, lower oil and gas prices at Whiting, continuing expenses for new business development in international and domestic markets, higher interest expense to fund Alliant Energy's growth and a modest loss from Alliant Energy's electricity trading joint venture. A tax benefit realized in 1997 from a donation of securities to Alliant Energy's charitable foundation also contributed to the lower earnings in 1998 compared to 1997. Increased earnings from Alliant Energy's industrial services businesses as well as gains realized on asset sales partially offset these items. Electric Utility Operations - Electric margins and MWH sales for Alliant - ---------------------------- Energy for 1999, 1998 and 1997 were as follows:
Revenues and Costs MWHs Sold (in thousands) (in thousands) --------------------------------------------------- -------------------------------------------- 1999 1998 * 1997 ** 1999 1998 * 1997 ** ------------ ------------ ------- ----------- ----- --------- --------- ------- -------- ------ Residential $541,714 $532,676 2% $521,574 2% 7,024 6,826 3% 6,851 -- Commercial 329,487 317,704 4% 307,941 3% 5,260 4,943 6% 4,844 2% Industrial 476,140 477,241 -- 455,912 5% 13,036 12,718 3% 12,320 3% ------------ ------------ ----------- --------- --------- -------- Total from ultimate customers 1,347,341 1,327,621 1% 1,285,427 3% 25,320 24,487 3% 24,015 2% Sales for resale 155,801 199,128 (22%) 192,346 4% 5,566 7,189 (23%) 6,768 6% Other 45,796 40,693 13% 37,980 7% 162 158 3% 161 (2%) ------------ ------------ ----------- --------- --------- -------- Total revenues 1,548,938 1,567,442 (1%) 1,515,753 3% 31,048 31,834 (2%) 30,944 3% ========= ========= ======== Electric production fuels expense 247,136 283,866 (13%) 265,105 7% Purchased power expense 255,446 255,332 -- 256,306 -- ------------ ------------ ----------- Margin $1,046,356 $1,028,244 2% $994,342 3% ============ ============ =========== * Reflects the % change from 1998 to 1999. ** Reflects the % change from 1997 to 1998.
Electric margin increased $18.1 million, or 2%, and $33.9 million, or 3%, for 1999 and 1998, respectively. The 1999 increase was primarily due to separate $15 million annual rate adjustments implemented at WP&L in July 1998 and March 1999 to recover higher purchased-power and transmission costs, a favorable $9 million change in estimate of Alliant Energy's utility services rendered but unbilled at month-end based on refinements made to Alliant Energy's estimation process in 1999 and an increase in retail sales of 3% due to more favorable weather conditions and economic growth in the service territory. Partially offsetting these increases were reduced recoveries of approximately $14 million in concurrent and previously deferred expenditures for Iowa-mandated energy efficiency programs, lower sales to off-system and wholesale customers, higher purchased-power capacity costs in Iowa and $3.2 million of revenues collected from WP&L customers in 1998 for a surcharge related to Kewaunee. The recovery for energy efficiency programs in Iowa is in accordance with IUB orders (a portion of these recoveries is offset as they are also amortized to expense in other operation expense). The lower sales to off-system and wholesale customers were primarily due to lower wholesale customer contractual commitments and transmission constraints. The increase in electric margin for 1998 was primarily due to the increased recovery of $26 million of concurrent and previously deferred expenditures for Iowa-mandated energy efficiency programs, reduced purchased-power capacity costs at IESU and IPC, higher sales volumes to retail customers and WP&L's reliance on more costly purchased-power in the first six months of 1997 due to various power plant outages, particularly Kewaunee. The increased sales volumes were primarily due to continued economic growth within the Alliant Energy service territory. These increases were partially offset by a lower margin at WP&L and a rate decrease implemented at IPC in 1997. The lower margin at WP&L was due to the regulatory lag associated with the rate recovery of higher purchased-power and transmission costs, a rate decrease implemented in 1997 and lower off-system sales income. 33 IESU's and IPC's electric tariffs include EAC's that are designed to currently recover the costs of fuel and the energy portion of purchased-power billings (see Note 1(j) of the "Notes to Consolidated Financial Statements" for discussion of the EAC). Gas Utility Operations - Gas margins and Dth sales for Alliant Energy for - ---------------------- 1999, 1998 and 1997 were as follows:
Revenues and Costs Dekatherms Sold (in thousands) (in thousands) -------------------------------------------------- ----------------------------------------------- 1999 1998 * 1997 ** 1999 1998 * 1997 ** ----------- ---------- ------ ----------- ------- --------- --------- ------- ---------- -------- Residential $185,090 $175,603 5% $225,542 (22%) 30,309 28,378 7% 33,894 (16%) Commercial 89,118 85,842 4% 115,858 (26%) 18,349 17,760 3% 21,142 (16%) Industrial 21,855 20,204 8% 27,393 (26%) 5,963 5,507 8% 6,217 (11%) Transportation/other 18,256 13,941 31% 25,114 (44%) 46,954 52,389 (10%) 56,719 (8%) ----------- ---------- ----------- --------- --------- ---------- Total revenues 314,319 295,590 6% 393,907 (25%) 101,575 104,034 (2%) 117,972 (12%) ========= ========= ========== Cost of gas sold 180,519 166,453 8% 259,222 (36%) ----------- ---------- ----------- Margin $133,800 $129,137 4% $134,685 (4%) =========== ========== =========== * Reflects the % change from 1998 to 1999. ** Reflects the % change from 1997 to 1998.
Gas margin increased $4.7 million, or 4%, and decreased $5.5 million, or 4%, for 1999 and 1998, respectively. The 1999 increase was primarily due to higher retail sales due to customer growth and more favorable weather conditions in 1999. The sales increase was partially offset by decreased recoveries of $2.6 million from the recovery of concurrent and previously deferred energy efficiency expenditures for Iowa-mandated energy efficiency program costs in accordance with IUB orders (a portion of these recoveries is offset as they are also amortized to expense in other operation expense). Refer to "Interest Expense and Other" for a discussion of income realized from two gas weather hedges at WP&L in 1999. The decrease in gas margin in 1998 was primarily due to a 12% decrease in Dth sales, largely due to milder weather, and a rate reduction implemented in April 1997 at WP&L. An increase in revenues of $6.3 million from the recovery of energy efficiency expenditures in Iowa and gas cost adjustments at IPC partially offset the sales decrease. IESU's and IPC's gas tariffs include PGA clauses that are designed to currently recover the cost of utility gas sold (see Note 1(j) of the "Notes to Consolidated Financial Statements" for a discussion of the PGA). Non-regulated and Other Revenues - Non-regulated and other revenues for 1999, - -------------------------------- 1998 and 1997 were as follows (in millions): 1999 1998 1997 --------- --------- --------- ISCO $196 $127 $245 Oil and gas (Whiting) 63 65 69 Steam 28 27 29 Transportation 22 22 21 Other 26 27 27 --------- --------- --------- $335 $268 $391 ========= ========= ========= The revenues for ISCO increased significantly in 1999 primarily due to the second quarter 1999 acquisition of an oil gathering and transportation business in Texas and increased demand for environmental and engineering services. Such increases were partially offset by reduced activity in the energy marketing business. The revenues for ISCO declined significantly in 1998 compared to 1997 primarily due to decreased low-margin gas marketing activities and the transfer of the electricity trading business to the Cargill joint venture in July 1997. Alliant Energy's investment in the joint venture is accounted for under the equity method of accounting. 34 Other Operating Expenses - Other operation expenses for 1999, 1998 and 1997 - -------------------------- were as follows (in millions): 1999 1998 1997 ---------- --------- --------- Utility - IESU / WP&L / IPC $366 $421 $358 ISCO 183 117 239 Oil and gas (Whiting) 35 38 40 Transportation 8 8 8 Other 32 36 37 ---------- --------- --------- $624 $620 $682 ========== ========= ========= Other operation expenses at the utility subsidiaries decreased $55 million in 1999 primarily due to the nonrecurrence of $34 million of merger-related expenses incurred in 1998, lower energy efficiency expenses of $17 million in Iowa, a 1998 write-off of $9 million of certain employee benefits related regulatory assets at IESU, decreased transmission and distribution expenses, lower operating costs at Alliant Energy's generating plants, reduced insurance-related expenses and lower costs in 1999 due to merger-related operating efficiencies. The merger-related expenses were primarily for employee retirements ($15 million), separations ($13 million) and relocations ($4 million). These decreases were partially offset by higher costs for employee incentive compensation, energy conservation expense at WP&L and employee benefits. Other operation expenses at ISCO increased $66 million in 1999 primarily due to expenses associated with the acquisition of the oil gathering and transportation business and the increased demand for environmental and engineering services, partially offset by lower operation expenses in the energy marketing business. Other operation expenses at ISCO decreased $122 million in 1998 primarily due to the formation of the Cargill joint venture. Other operation expenses at the utility subsidiaries increased $63 million in 1998 primarily due to the merger-related expenses, increased energy efficiency expenses in Iowa, the regulatory asset write-off at IESU, higher administrative and general expenses at WP&L, higher insurance-related expenses and increased expenses for Year 2000 readiness efforts. The increase was partially offset by reduced employee benefit expenses, reduced energy conservation expense at WP&L, lower costs resulting from merger-related operating efficiencies and reduced nuclear operation expenses at IESU. The regulatory asset write-off resulted from IESU assessing in the fourth quarter of 1998 how certain employee benefit costs were recovered in the rate making process in Iowa. Based on such review, IESU concluded it could no longer meet the required "probable" standard for SFAS 71. The 1999 decrease in maintenance expenses was primarily due to reduced nuclear and transmission and distribution maintenance expenses. Such decreases were partially offset by increased expenses for Alliant Energy's Year 2000 readiness program and higher expenses at Alliant Energy's fossil-fueled generating plants. Maintenance expenses were flat in 1998 primarily due to reduced expenses at fossil-fueled plants, which were virtually offset by increased maintenance at the nuclear plants. Depreciation and amortization expense decreased $0.4 million and increased $19.8 million in 1999 and 1998, respectively. The 1999 decrease was primarily due to reduced earnings in WP&L's nuclear decommissioning trust fund (offset entirely in "Miscellaneous, net"), lower depletion expense at Whiting and the $3.2 million Kewaunee surcharge in 1998 at WP&L (recorded in depreciation and amortization expense with a corresponding increase in revenues resulting in no earnings impact). These items were largely offset by increases in depreciation expense due to utility property additions. The increase in 1998 was due to utility property additions and the Kewaunee surcharge. 35 Interest Expense and Other - Interest expense increased $6.9 million and $6.8 - -------------------------- million in 1999 and 1998, respectively, due to higher utility and non-regulated borrowings. Also contributing to the 1999 increase was higher nuclear decommissioning trust fund interest expense at IESU, which was offset entirely in "Miscellaneous, net." Contributing to the 1998 increase was an adjustment to decrease interest expense in 1997 relating to a tax audit settlement at WP&L. The accounting for earnings on the nuclear decommissioning trust funds results in no net income impact. Miscellaneous, net income increases for earnings on the nuclear decommissioning funds at both WP&L and IESU. In accordance with their respective regulatory requirements, the corresponding offset is recorded through depreciation expense at WP&L and interest expense at IESU. Alliant Energy sold approximately 7% (1.4 million shares, as adjusted for McLeod's 2-for-1 stock split in July 1999) of its investment in McLeod in 1999, resulting in pre-tax gains of approximately $40 million. Miscellaneous, net income increased $35.2 million and decreased $13.2 million in 1999 and 1998, respectively. The 1999 increase was due to the following factors: (a) $17 million of merger-related expenses incurred in 1998 for the services of Alliant Energy's advisors and costs related to Alliant Energy's merger-related name change. (b) Gains of $10 million and $6 million realized from the sales of several oil and gas properties at Whiting and certain New Zealand electric distribution investments, respectively. (c) A $7 million increase in pre-tax earnings from Alliant Energy's electricity trading joint venture. (d) $5 million of income realized from weather hedges at WP&L. Refer to Note 11(d) of the "Notes to Consolidated Financial Statements" for a further discussion. (e) These items were partially offset by a decrease of $11 million in earnings on Alliant Energy's nuclear decommissioning trust funds. The 1998 decrease in miscellaneous, net income was due to the merger-related expenses and a modest loss from Alliant Energy's electricity trading joint venture, partially offset by gains on asset sales in 1998. The 1997 results also included a loss incurred on the disposition of an investment at IESU. Income Taxes - The effective income tax rates for Alliant Energy were 37.2%, - ------------- 36.0% and 35.1% in 1999, 1998 and 1997, respectively. See Note 6 of the "Notes to Consolidated Financial Statements" for a discussion of the changes. IESU RESULTS OF OPERATIONS Overview - IESU's earnings available for common stock increased $4.5 million - --------- and $3.1 million in 1999 and 1998, respectively. The increased earnings for 1999 were primarily due to $17 million of merger-related expenses in 1998, a $9 million regulatory asset write-off in 1998, a change in estimate of IESU's unbilled revenues and reduced maintenance expenses. Such increases were partially offset by higher depreciation and amortization expense, increased administrative and general expenses and a higher effective income tax rate. The increased earnings for 1998 were primarily due to a 2% increase in retail electric sales volumes, largely due to continued economic growth in IESU's service territory, lower purchased-power capacity costs, reduced employee benefits costs and lower costs in 1998 due to merger-related operating efficiencies. A loss incurred on the disposition of an investment in 1997 also improved 1998 earnings compared to 1997. Partially offsetting the higher 1998 earnings were merger-related expenses, the regulatory asset write-off described above, decreased retail natural gas sales resulting from milder weather, increased depreciation and amortization expenses and increased expenses for Year 2000 readiness efforts. 36 Electric Utility Operations - Electric margins and MWH sales for IESU for - --------------------------- 1999, 1998 and 1997 were as follows:
Revenues and Costs MWHs Sold (in thousands) (in thousands) -------------------------------------------------- -------------------------------------------- 1999 1998 * 1997 ** 1999 1998 * 1997 ** ---------- ---------- ------- ----------- ------ -------- --------- ------- -------- ------ Residential $230,422 $232,662 (1%) $227,496 2% 2,685 2,661 1% 2,682 (1%) Commercial 176,251 168,672 4% 162,626 4% 2,658 2,465 8% 2,378 4% Industrial 181,740 181,369 -- 177,890 2% 5,072 4,872 4% 4,743 3% ---------- ---------- ----------- -------- --------- -------- Total from ultimate customers 588,413 582,703 1% 568,012 3% 10,415 9,998 4% 9,803 2% Sales for resale 28,479 45,453 (37%) 25,719 77% 1,392 1,763 (21%) 794 122% Other 11,058 11,267 (2%) 10,539 7% 40 42 (5%) 43 (2%) ---------- ---------- ----------- -------- --------- -------- Total revenues 627,950 639,423 (2%) 604,270 6% 11,847 11,803 -- 10,640 11% ======== ========= ======== Electric production fuels expense 80,079 99,362 (19%) 92,891 7% Purchased power expense 82,402 71,637 15% 74,098 (3%) ---------- ---------- ----------- Margin $465,469 $468,424 (1%) $437,281 7% ========== ========== =========== * Reflects the % change from 1998 to 1999. ** Reflects the % change from 1997 to 1998.
Electric margin decreased $3.0 million, or 1%, and increased $31.1 million, or 7%, for 1999 and 1998, respectively. The 1999 decrease was primarily due to reduced recoveries of approximately $4 million in concurrent and previously deferred expenditures for Iowa-mandated energy efficiency programs and increased purchased-power capacity costs. The recovery for energy efficiency programs in Iowa is in accordance with IUB orders (a portion of these recoveries is offset as they are also amortized to expense in other operation expense). Sales for resale decreased significantly in 1999 primarily due to various resale customers of IESU selecting another utility as their electricity provider effective in early 1999. The loss of such customers has not had a material impact on IESU's electric margins. Sales to retail customers increased primarily due to continued economic growth in IESU's service territory and more favorable weather conditions. The 1999 electric margin also benefited from a favorable $5 million change in estimate of IESU's utility services rendered but unbilled at month-end based on refinements made to IESU's estimation process in 1999. The 1998 increase was primarily due to the increased recovery of approximately $15 million of concurrent and previously deferred expenditures for Iowa-mandated energy efficiency programs, increases in sales volumes to retail customers due to economic growth in the service territory and reduced purchased-power capacity costs. Sales for resale increased significantly for 1998 as a result of the implementation of a merger-related joint sales agreement during the second quarter of 1998 (off-system sales revenues are passed through IESU's energy adjustment clause and therefore have no impact on electric margin). Refer to "Liquidity and Capital Resources - Rates and Regulatory Matters" for a further discussion. IESU's electric tariffs include EAC's that are designed to currently recover the costs of fuel and the energy portion of purchased-power billings. Refer to Note 1(j) of Alliant Energy's "Notes to Consolidated Financial Statements" for discussion of the EAC. 37 Gas Utility Operations - Gas margins and Dth sales for IESU for 1999, 1998 and - ---------------------- 1997 were as follows:
Revenues and Costs Dekatherms Sold (in thousands) (in thousands) ------------------------------------------------ ------------------------------------------- 1999 1998 * 1997 ** 1999 1998 * 1997 ** --------- --------- ------ ----------- ------- ------- ------- ------- -------- -------- Residential $88,302 $86,821 2% $110,663 (22%) 13,778 13,803 -- 16,317 (15%) Commercial 40,459 39,928 1% 54,383 (27%) 8,077 8,272 (2%) 9,602 (14%) Industrial 11,543 10,422 11% 13,961 (25%) 3,291 3,089 7% 3,318 (7%) Transportation/other 5,521 4,108 34% 4,510 (9%) 10,236 11,316 (10%) 10,321 10% --------- --------- ----------- ------- ------- -------- Total revenues 145,825 141,279 3% 183,517 (23%) 35,382 36,480 (3%) 39,558 (8%) ======= ======= ======== Cost of gas sold 88,308 84,642 4% 126,631 (33%) --------- --------- ----------- Margin $57,517 $56,637 2% $56,886 -- ========= ========= =========== * Reflects the % change from 1998 to 1999. ** Reflects the % change from 1997 to 1998.
Gas margin increased $0.9 million, or 2%, and decreased $0.2 million for 1999 and 1998, respectively. The 1999 increase was primarily due to increased retail sales from more favorable weather conditions in 1999. The decrease in 1998 was primarily from reduced sales as a result of milder weather, which was substantially offset by the increased recovery of $4.2 million of concurrent and previously deferred energy efficiency expenditures for Iowa-mandated energy efficiency program costs in accordance with IUB orders (a portion of these recoveries is offset as they are also amortized to expense in other operation expenses). IESU's gas tariffs include PGA clauses that are designed to currently recover the cost of gas sold. Refer to Alliant Energy's Note 1(j) of the "Notes to Consolidated Financial Statements" for discussion of the PGA. Other Operating Expenses - IESU's other operation expenses decreased $13.5 - ------------------------ million and increased $26.5 million for 1999 and 1998, respectively. The 1999 decrease was primarily due to $10.5 million of merger-related expenses in 1998, a $9 million regulatory asset write-off in 1998, a $4 million decrease in energy efficiency expenses and merger-related operating efficiencies realized in 1999. The merger-related expenses were primarily for employee retirements, separations and relocations. The regulatory asset write-off resulted from IESU assessing in the fourth quarter of 1998 how certain employee benefit costs were recovered in the rate making process in Iowa. Based on such review, IESU concluded it could no longer meet the required "probable" standard for SFAS 71. Such decreases were partially offset by increased costs for employee incentive compensation and higher employee benefit costs. The 1998 increase was primarily due to higher merger-related expenses, increased energy efficiency expenses, the regulatory asset write-off mentioned above and increased Year 2000 readiness costs. These items were partially offset by lower nuclear operation expenses, reduced employee pension and benefit costs and lower costs resulting from merger-related operating efficiencies. Maintenance expenses decreased $3.5 million and $1.8 million in 1999 and 1998, respectively. The decrease in 1999 was primarily due to reduced nuclear maintenance expenses and lower transmission and distribution maintenance expenses, partially offset by increased Year 2000 readiness costs and higher fossil-fueled maintenance expenses. The decrease in 1998 was due to reduced fossil-fueled maintenance expenses, which were partially offset by higher nuclear maintenance expenses. Depreciation and amortization expenses increased $7.1 million and $4.2 million for 1999 and 1998, respectively, primarily due to property additions and amortization of software. 38 Interest Expense and Other - Interest expense decreased $0.5 million and $0.4 - -------------------------- million in 1999 and 1998, respectively. The 1999 decrease was primarily due to lower average amounts of debt outstanding which was partially offset by higher nuclear decommissioning trust fund interest expense, which was offset entirely in "Miscellaneous, net." The accounting for earnings on the nuclear decommissioning trust funds results in no net income impact. Miscellaneous, net income increases for earnings on the trust fund and the corresponding offset is recorded as interest expense. Miscellaneous, net income increased $6.4 million and decreased $0.3 million for 1999 and 1998, respectively. The increase in 1999 resulted primarily from $6.0 million of merger-related expenses in 1998 and higher nuclear decommissioning trust fund earnings, which were partially offset by a gain on an asset sale in 1998. The 1998 decrease resulted primarily from merger-related expenses, which were substantially offset by the loss incurred on disposition of an investment in 1997 and a gain on an asset sale in 1998. Income Taxes - The effective income tax rates were 42.6%, 40.1% and 41.8% in - ------------ 1999, 1998 and 1997, respectively. See Note 6 of the "Notes to Consolidated Financial Statements" for a discussion of the changes. WP&L RESULTS OF OPERATIONS Overview - WP&L's earnings available for common stock increased $35.3 million - --------- and decreased $35.7 million in 1999 and 1998, respectively. The increased earnings for 1999 were primarily due to $17.3 million of merger-related expenses in 1998, higher electric and natural gas margins, reduced other operation and maintenance expenses and income realized from weather hedges. Such increases were partially offset by increased depreciation and amortization expense (excluding hedge losses in WP&L's nuclear decommissioning trust fund) and higher interest expense. The decreased earnings for 1998 were primarily due to merger-related expenses, higher purchased-power and transmission costs, higher depreciation and amortization expenses, decreased retail natural gas sales largely due to milder weather, higher insurance-related expenses, higher interest expense and a higher effective tax rate. These decreases were partially offset by a 3% increase in retail electric sales volumes, largely due to continued economic growth in the service territory, reduced employee pension and benefit costs and lower costs in 1998 due to merger-related operating efficiencies. Electric Utility Operations - Electric margins and MWH sales for WP&L for - --------------------------- 1999, 1998 and 1997 were as follows:
Revenues and Costs MWHs Sold (in thousands) (in thousands) --------------------------------------------------- ------------------------------------------- 1999 1998 * 1997 ** 1999 1998 * 1997 ** ---------- ---------- ------- ----------- -------- -------- -------- ------- -------- ------- Residential $213,496 $198,770 7% $199,633 -- 3,111 2,964 5% 2,974 -- Commercial 116,947 108,724 8% 107,132 1% 1,980 1,898 4% 1,878 1% Industrial 171,118 162,771 5% 152,073 7% 4,570 4,493 2% 4,256 6% ---------- ---------- ----------- -------- -------- -------- Total from ultimate customers 501,561 470,265 7% 458,838 2% 9,661 9,355 3% 9,108 3% Sales for resale 102,751 128,536 (20%) 160,917 (20%) 3,252 4,492 (28%) 5,824 (23%) Other 22,295 15,903 40% 14,388 11% 54 59 (8%) 60 (2%) ---------- ---------- ----------- -------- -------- -------- Total revenues 626,607 614,704 2% 634,143 (3%) 12,967 13,906 (7%) 14,992 (7%) ======== ======== ======== Electric production fuels expense 110,521 120,485 (8%) 116,812 3% Purchased power expense 107,598 113,936 (6%) 125,438 (9%) ---------- ---------- ----------- Margin $408,488 $380,283 7% $391,893 (3%) ========== ========== =========== * Reflects the % change from 1998 to 1999. ** Reflects the % change from 1997 to 1998.
Electric margin increased $28.2 million, or 7%, and decreased $11.6 million, or 3%, during 1999 and 1998, respectively. The 1999 increase was primarily due to separate $15 million annual rate adjustments implemented at WP&L in 39 July 1998 and March 1999 to recover higher purchased-power and transmission costs. An increase in retail sales of 3% due to more favorable weather and economic growth within WP&L's service territory also contributed to the increase. Partially offsetting the 1999 increase were lower sales to off-system and wholesale customers due to transmission constraints and decreased contractual commitments and $3.2 million of revenues collected in 1998 for a surcharge related to Kewaunee. The 1998 decline in margin was due to regulatory lag associated with rate recovery of higher purchased-power and transmission costs, a rate decrease of 2.4% implemented in April 1997 and lower off-system sales income. These items were partially offset by WP&L's reliance on more costly purchased-power in the first six months of 1997 due to various power plant outages, particularly Kewaunee, and a 3% increase in retail sales. Gas Utility Operations - Gas margins and Dth sales for WP&L for 1999, 1998 and - ---------------------- 1997 were as follows:
Revenues and Costs Dekatherms Sold (in thousands) (in thousands) ----------------------------------------------- ---------------------------------------- 1999 1998 * 1997 ** 1999 1998 * 1997 ** --------- ---------- ------ ---------- ------- ------- -------- ------ ------- ------- Residential $69,662 $65,173 7% $84,513 (23%) 12,070 10,936 10% 12,770 (14%) Commercial 35,570 33,898 5% 45,456 (25%) 7,771 7,285 7% 8,592 (15%) Industrial 6,077 5,896 3% 8,378 (30%) 1,520 1,422 7% 1,714 (17%) Transportation/other 9,461 6,770 40% 17,536 (61%) 13,237 12,948 2% 17,595 (26%) --------- ---------- ---------- ------- -------- ------- Total revenues 120,770 111,737 8% 155,883 (28%) 34,598 32,591 6% 40,671 (20%) ======= ======== ======= Cost of gas sold 64,073 61,409 4% 99,267 (38%) --------- ---------- ---------- Margin $56,697 $50,328 13% $56,616 (11%) ========= ========== ========== * Reflects the % change from 1998 to 1999. ** Reflects the % change from 1997 to 1998.
Gas margin increased $6.4 million, or 13%, and declined $6.3 million, or 11%, during 1999 and 1998, respectively. The 1999 increase was due to increased sales resulting from customer growth of approximately 2% and more favorable weather conditions in 1999. The 1998 decrease was primarily due to a reduction in sales resulting from milder weather and an average retail rate reduction of 2.2% implemented in April 1997. Refer to Note 1(i) of Alliant Energy's "Notes to Consolidated Financial Statements" for discussion of an accounting change implemented in 1998. Refer to "Interest Expense and Other" for a discussion of income realized from two gas weather hedges in 1999. Refer to Note 1(j) of Alliant Energy's "Notes to Consolidated Financial Statements" for a discussion of a gas cost adjustment mechanism in place at WP&L. The impact on the results of operations from such mechanism was not significant in any of the periods presented. Other Operating Expenses - Other operation expenses decreased $17.2 million - ------------------------ and increased $12.3 million for 1999 and 1998, respectively. The 1999 decrease was primarily due to $11.2 million of merger-related expenses in 1998 for employee retirements, separations and relocations, reduced insurance-related expenses, lower operating costs at WP&L's generating plants, lower transmission and distribution expenses and lower costs due to merger-related operating efficiencies. Such items were partially offset by increased costs for energy conservation, employee incentive compensation and employee benefits expenses. The 1998 increase was primarily due to merger-related expenses, higher insurance-related expenses and an increase in other administrative and general expenses. Such items were partially offset by reduced employee pension and benefits expenses, reduced conservation expense and lower costs from merger-related operating efficiencies. Maintenance expenses decreased $4.3 million in 1999. The decrease was primarily due to lower nuclear expenses and reduced transmission and distribution maintenance expenses. Such decreases were partially offset by increased expenses associated with Year 2000 readiness efforts. 40 Depreciation and amortization expense decreased $6.2 million and increased $14.9 million for 1999 and 1998, respectively. The 1999 decrease was due to reduced earnings in the nuclear decommissioning trust fund (offset entirely in "Miscellaneous, net") and the $3.2 million Kewaunee surcharge in 1998. These items were partially offset by the impact of property additions. The 1998 increase was due to property additions, higher Kewaunee depreciation (refer to "Liquidity and Capital Resources - Capital Requirements - Nuclear Facilities" for additional information) and the Kewaunee surcharge. The accounting for earnings on the nuclear decommissioning trust funds results in no net income impact. Miscellaneous, net income is increased for earnings on the trust fund, which is offset in depreciation expense. Interest Expense and Other - Interest expense increased $4.4 million and $4.0 - -------------------------- million in 1999 and 1998, respectively. The 1999 increase was primarily due to higher short-term borrowings and the 1998 increase was primarily due to an adjustment to decrease interest expense in 1997 relating to a tax audit settlement and increased borrowings during 1998. Miscellaneous, net income decreased $3.0 million and $2.7 million in 1999 and 1998, respectively. The 1999 decrease was primarily due to lower earnings on the nuclear decommissioning trust fund, partially offset by $6.1 million of merger-related expenses in 1998 and pre-tax income of $5 million recognized in 1999 associated with the settlement of gas weather hedges. See Note 11(d) of the "Notes to Consolidated Financial Statements" for additional information relating to the gas weather hedges. The 1998 decrease was primarily due to merger-related expenses, which was partially offset by higher earnings on the nuclear decommissioning trust fund. Income Taxes - The effective income tax rates were 39.2%, 41.0% and 37.0% in - ------------- 1999, 1998 and 1997, respectively. See Note 6 of the "Notes to Consolidated Financial Statements" for a discussion of the changes. LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities at Alliant Energy decreased $45 million for the year ended December 31, 1999, compared with the same period in 1998, primarily due to changes in working capital. Cash flows used for financing activities decreased $161 million for the year ended December 31, 1999, compared with the same period in 1998, primarily as a result of changes in the amount of debt outstanding. Cash flows used for investing activities increased $39 million for the year ended December 31, 1999, compared with the same period in 1998, due to increased levels of construction and acquisition expenditures, which were partially offset by increased proceeds from dispositions of assets. Cash flows from operating activities at IESU decreased $44 million for the year ended December 31, 1999, compared with the same period in 1998, primarily due to changes in working capital. Cash flows used for financing activities increased $71 million for the year ended December 31, 1999, compared with the same period in 1998, due to increased common stock dividends in 1999 as no dividend payments were made in the last three quarters of 1998 due to merger-related tax considerations. As a result, the dividend payment in the first quarter of 1999 was larger than IESU's historical quarterly payment. Cash flows used for investing activities decreased $6 million for the year ended December 31, 1999, compared with the same period in 1998, due to decreased levels of construction expenditures. Cash flows from operating activities at WP&L decreased $14 million for the year ended December 31, 1999, compared with the same period in 1998, primarily due to changes in working capital, partially offset by higher net income. Cash flows used for financing activities decreased $34 million for the year ended December 31, 1999, compared with the same period in 1998, primarily due to a capital contribution of $30 million from Alliant Energy. Cash flows used for investing activities increased $17 million for the year ended December 31, 1999, compared with the same period in 1998, primarily due to increased construction expenditures. Future Considerations The capital requirements of Alliant Energy are primarily attributable to its utility subsidiaries' construction and acquisition programs, its debt maturities and business opportunities of Resources. It is anticipated that future capital requirements of Alliant Energy will be met by cash generated from operations, sale of investments and external financing. The level of cash generated from operations is partially dependent upon economic 41 conditions, legislative activities, environmental matters and timely regulatory recovery of utility costs. Alliant Energy's liquidity and capital resources will be affected by costs associated with environmental and regulatory issues. Emerging competition in the utility industry could also impact Alliant Energy's liquidity and capital resources, as discussed previously in the "Utility Industry Outlook" section. Alliant Energy had certain off-balance sheet financial guarantees and commitments outstanding at December 31, 1999. They generally consist of third-party borrowing arrangements and lending commitments, guarantees of financial performance of syndicated affordable housing properties and guarantees relating to Alliant Energy's electricity trading joint venture. Refer to Note 12(d) of the "Notes to Consolidated Financial Statements" for additional details. Under PUHCA, certain investments of Alliant Energy in exempt wholesale generators and foreign utility companies are limited to 50% of Alliant Energy's consolidated retained earnings. Alliant Energy is pursuing making the necessary regulatory filings requesting an increase in this limitation. Under WUHCA, there historically was an asset cap provision that had generally limited non-utility assets in a utility holding company to 25% of utility assets. This provision limited Alliant Energy's ability to make additional investments in its non-utility businesses. The Reliability 2000 legislation that was enacted in Wisconsin in 1999 provides Wisconsin utility holding companies significant asset cap relief once they meet certain conditions relating to the formation of a transmission company, as discussed in the "Utility Industry Outlook" section. Alliant Energy believes it has met all such conditions and is now operating under the new law. Under the provisions of the new law, assets related to the provision of various energy-related, environmental engineering and telecommunications services are no longer included in the calculation of either utility or non-utility assets. Alliant Energy expects to pursue various potential business development opportunities, including international as well as domestic investments, and is devoting resources to such efforts. Foreign investments may carry a higher level of risk than Alliant Energy's traditional domestic utility investments or Resources' domestic investments. Such risks could include foreign government actions, foreign economic and currency risks and others. It is anticipated that Alliant Energy will strive to select investments where the international and other risks are both understood and manageable. At December 31, 1999, Resources had approximately $198 million of investments in foreign entities. At December 31, 1999, IESU, WP&L and IPC did not have any foreign investments. On February 1, 2000, Resources completed a private placement of exchangeable senior notes due 2030, which were issued in the original aggregate principal amount of $402.5 million. The exchangeable senior notes have an interest rate of 7.25% through February 15, 2003 and 2.5% thereafter. The exchangeable senior notes are exchangeable for cash based upon a percentage of the value of McLeod Class A Common Stock. Alliant Energy has agreed to fully and unconditionally guarantee the payment of principal and interest on the exchangeable senior notes. The proceeds will be used to repay commercial paper issued to capitalize Resources' wholly-owned exempt telecommunications company and, indirectly through an internal transfer of assets, to assist in funding the recent investment in Brazil, as well as for general corporate purposes. The exchangeable senior notes may have certain accounting consequences for Alliant Energy that may affect reported earnings. As disclosed in Note 10 of the "Notes to Consolidated Financial Statements," Alliant Energy records its investment in McLeod stock at its fair value, with changes in fair value, net of income tax effects, recorded directly to the common equity section of the Consolidated Balance Sheets as a component of "Accumulated other comprehensive income." Any such changes in fair value are reflected in current earnings only at the time they are actually realized through a sale. However, applicable accounting rules require Alliant Energy to record in its Consolidated Statements of Income any increase or decrease in the settlement value (i.e., the amount payable upon maturity) of the exchangeable senior notes that results from changes in the market value of McLeod stock. The settlement value of the exchangeable senior notes at any point in time is generally (assuming no deferrals of interest payments) the higher of: (a) the original principal amount plus accrued interest less cash dividends or other distributions on the McLeod stock; or (b) the current market value of the shares of McLeod stock attributable to the exchangeable senior notes. Accordingly, any increase or decrease in the settlement value of the exchangeable senior notes will be recorded as subtractions from, or additions to, Alliant Energy's reported net income. 42 The market price of the McLeod stock has been volatile and has fluctuated over a wide range since the initial public offering. A significant increase in the market value of McLeod stock would significantly decrease Alliant Energy's reported net income. Similarly, a significant decrease in the market value of McLeod stock would significantly increase Alliant Energy's reported net income, subject to the condition that the settlement value of the exchangeable senior notes will not be reduced below the original principal amount plus accrued interest less cash dividends or other distributions on the McLeod stock. These increases and decreases in reported investment income in Alliant Energy's Consolidated Statements of Income will be non-cash in nature and will be reflected on Alliant Energy's Consolidated Balance Sheets as increases and decreases in long-term debt. Alliant Energy would recognize a non-cash charge to net income of approximately $3.3 million for each $1/share increase in McLeod's stock price above $77.23/share as relates to the 5.2 million shares of McLeod stock attributable to the exchangeable senior notes. This impact on earnings will be mitigated somewhat once Alliant Energy adopts SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as discussed further below. Alliant Energy may choose to adopt SFAS 133 early. See "Other Matters - Accounting Pronouncements" for additional information relating to SFAS 133. SFAS 133 will require Alliant Energy to split the value of the exchangeable senior notes into a debt component and a derivative component. Any changes in the fair value of the derivative component subsequent to the SFAS 133 adoption date will be reflected as an increase or decrease in Alliant Energy's reported net income. At the date of initial adoption, SFAS 133 provides Alliant Energy a one-time ability to transfer any of Alliant Energy's available-for-sale securities, including a portion of its shares of McLeod stock, to the trading category. At the date of any such transfer from available-for-sale to trading, Alliant Energy would recognize in income the appreciation in the shares transferred. Although Alliant Energy is not required to hold a number of shares of McLeod stock equal to the number of exchangeable senior notes outstanding, if Alliant Energy does so and if Alliant Energy elects to make this transfer from available-for-sale to trading, changes subsequent to the SFAS 133 adoption date in the fair value of the shares of McLeod stock so transferred will be reflected as an increase or decrease in Alliant Energy's reported net income. Changes in the market value of the McLeod stock are expected to at least partially offset changes in the fair value of the derivative component of the exchangeable senior notes; however, there may be periods with significant non-cash increases or decreases to Alliant Energy's net income pertaining to the exchangeable senior notes and the related shares of McLeod stock. On January 25, 2000, Resources acquired a stake in four Brazilian electric utilities serving more than 820,000 customers for a total investment of approximately $347 million. As part of this investment, Resources acquired a 49.1% ownership interest in Companhia Forca e Luz Cataguazes-Leopoldina (Cataguazes), an electric utility. Cataguazes owns a majority stake in CENF, another electric utility company, as well as a majority interest in Energisa S.A., an energy development company. As part of the same investment, Resources directly acquired a 45.6% interest in Energisa S.A. itself, which holds majority stakes in two regulated utilities (Energipe and Celb). As part owner of Cataguazes, Resources will hold both indirect and direct interests in Energisa S.A. The investment is anticipated to dilute Alliant Energy's earnings per share by approximately 3% in 2000, with positive contributions to earnings expected in subsequent years. Resources, through its wholly owned subsidiary, International, initially financed the Brazil investment with cash made available through the internal transfer of existing non-regulated corporate assets. Resources has entered into a shareholders agreement with the Brazilian companies, which would allow it to name two directors to the boards of each company and its subsidiaries. The agreement will also provide Resources with a role in selecting each company's management team, along with voting rights relating to critical issues at the Brazilian companies and their subsidiaries. The investment will be accounted for under the equity method. Alliant Energy entered into an agreement in November 1998, as amended, with McLeod whereby Alliant Energy's ability to sell the McLeod stock is subject to various restrictions. The agreement provides that until December 31, 2001, Alliant Energy and its affiliates generally may not sell or otherwise dispose of shares of McLeod stock beneficially owned by Alliant Energy and its affiliates, other than to a subsidiary of Alliant Energy, without the prior written consent of the Board of Directors of McLeod. However, the amended agreement provides that the Board of Directors of McLeod may permit Alliant Energy and its affiliates to sell a specified number of shares of McLeod stock per quarter during specified time periods. In addition, if Alliant Energy and its affiliates are not provided the opportunity to sell, on an annual basis, an aggregate number of shares of McLeod stock equal to 15% of the shares of McLeod stock owned by Alliant Energy and its affiliates as of December 31, 1998, then Alliant Energy may terminate the amended November 1998 agreement. 43 In the first quarter of 2000, the Alliant Energy Board of Directors approved a draft Agreement and Plan of Merger to merge IESU and IPC. The new company will be named Interstate Power and Light Company and it is anticipated the merger will be completed by late 2000 or early 2001. Alliant Energy expects to be able to achieve cost savings and enhanced customer service from the merger. Financing and Capital Structure Access to the long-term and short-term capital and credit markets, and costs of external financing, are dependent on creditworthiness. The debt ratings of Alliant Energy and certain subsidiaries by Moody's and Standard & Poor's are as follows:
Moody's Standard & Poor's ----------------- ------------------- IESU - Secured long-term debt A2 A+ - Unsecured long-term debt A3 A WP&L - Secured long-term debt Aa2 AA - Unsecured long-term debt Aa3 A+ IPC - Secured long-term debt A1 A+ Resources - Commercial paper (a) P1 A1 - Unsecured long-term debt (a) A3 A Alliant Energy - Commercial paper (b) P1 A1
(a) Resources' debt is fully and unconditionally guaranteed by Alliant Energy. (b) IESU, WP&L and IPC participate in a utility money pool that is funded, as needed, through the issuance of commercial paper by Alliant Energy. Interest expense and other fees are allocated based on borrowing amounts. The PSCW has restricted WP&L from lending money to non-utility affiliates and non-Wisconsin utilities. As a result, WP&L is prohibited from lending money to the utility money pool but is able to borrow money from the utility money pool. On November 9, 1999, Resources issued $250 million of 7-3/8% senior notes due 2009 in a private placement. The notes are fully and unconditionally guaranteed by Alliant Energy. The net proceeds from the debt offering have been used to repay outstanding commercial paper, as it becomes due, that has been backed by Resources' 3-Year Credit Agreement. Other than periodic sinking fund requirements, which will not require additional cash expenditures, the following long-term debt (in millions) will mature prior to December 31, 2004: IESU WP&L Alliant Energy-Parent Resources IPC Total - --------------------------------------------------------------------------- $137.4 $63.9 $24.0 $12.6 $1.0 $238.9 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. On August 24, 1999, WP&L filed an application with the PSCW for authority to issue up to $100 million of debentures for the purpose of refinancing existing debt. Approval was granted in February 2000 and the senior unsecured debentures were issued in March 2000 at a fixed interest rate of 7-5/8%, due 2010. The amount of short-term borrowings authorized by the PSCW will be reduced by the same $100 million. On November 25, 1998, IESU and IPC received authority from the SEC under PUHCA to issue $200 million and $80 million of long-term debt securities, respectively. The companies continually evaluate their future financing needs and will make any necessary regulatory filings as needed. The various charter provisions of the entities identified below authorize and limit the aggregate amount of additional shares of Cumulative Preferred Stock and Cumulative Preference Stock that may be issued. At December 31, 1999, the companies could have issued the following additional shares of Cumulative Preferred or Preference Stock: IESU WP&L IPC ----------------------------------- Cumulative Preferred 100,000 2,700,775 1,238,619 Cumulative Preference 700,000 -- 2,000,000 44 For interim financing, IESU, WP&L and IPC were authorized by the applicable federal or state regulatory agency to issue short-term debt at December 31, 1999 as follows (in millions): IESU WP&L IPC ----------------------------- Regulatory authorization $150 $128 $50 Short-term debt outstanding - money pool $57 $126 $39 At December 31, 1999, there was no short-term debt outstanding with external parties at the utility subsidiaries. In addition to the $222 million of commercial paper Alliant Energy issued to fund the utility money pool and $139 million of commercial paper at Resources, Alliant Energy had an additional $64 million of short-term debt outstanding at December 31, 1999. In addition to providing for ongoing working capital needs, this availability of short-term financing provides the companies flexibility in the issuance of long-term securities. The level of short-term borrowing fluctuates based on seasonal corporate needs, the timing of long-term financing and capital market conditions. To maintain flexibility in its capital structure and to take advantage of favorable short-term rates, IESU and WP&L also use proceeds from the sale of accounts receivable and unbilled revenues to finance a portion of their long-term cash needs. Alliant Energy anticipates that short-term debt will continue to be available at reasonable costs due to current ratings by independent utility analysts and credit rating services. In December 1999, Alliant Energy, IESU, WP&L and IPC filed an application with the SEC for approval of a combined accounts receivable program whereby each utility will sell their respective receivables through wholly-owned special purpose entities to an affiliated financing entity, which in turn will sell the receivables to an outside investor. The new program would replace the existing programs for IESU and WP&L, and would function the same in most respects. Approvals from the SEC and the necessary state commissions are expected in the second quarter of 2000. Resources is a party to a revolving 3-Year Credit Agreement with various banking institutions. The agreement extends through October 2000, with one-year extensions available upon agreement by the parties. Unused borrowing availability under this agreement is also used to support Resources' commercial paper program. A combined maximum of $450 million of borrowings under this agreement and the commercial paper program may be outstanding at any one time. Interest rates and maturities are set at the time of borrowing. The rates are based upon quoted market prices and the maturities are less than one year. At December 31, 1999, Resources had $139 million of commercial paper outstanding and backed by its 3-Year Credit Agreement with discount rates ranging from 5.90%-6.32%. Resources intends to continue issuing commercial paper backed by this facility, and no conditions existed at December 31, 1999, that would prevent the issuance of commercial paper or direct borrowings on its bank lines. As a result, Alliant Energy had been classifying this debt as long-term. However, since this agreement expires in October 2000, beginning in October 1999 this debt (including commercial paper backed by this facility) was classified as short-term. In October 1999, Resources extended its revolving 364-Day Credit Agreement with various banking institutions through October 2000. The unborrowed portion of this agreement is also used to support Resources' commercial paper program. A combined maximum of $150 million of borrowings under this agreement and commercial paper backed by this facility may be outstanding at any one time. Interest rates and maturities are set at the time of borrowing. The rates are based upon quoted market prices and the maturities are less than one year. There were no borrowings outstanding under this facility at December 31, 1999 and no conditions existed that would prevent the issuance of commercial paper or direct borrowings under this agreement. In addition to the aforementioned borrowing capability under Resources' credit agreements, Alliant Energy has $250 million of committed bank lines of credit, of which none was utilized at December 31, 1999, available for direct borrowing or to support commercial paper. Commitment fees are paid to maintain these lines and there are no conditions which restrict the unused lines of credit. From time to time, Alliant Energy may borrow from banks and other financial institutions on uncommitted "as-offered" credit lines in lieu of commercial paper, and has agreements with several financial institutions for such borrowings. There are no commitment fees associated with these agreements and there were no borrowings outstanding under these agreements at December 31, 1999. 45 Alliant Energy made a filing with the SEC in February 1999 under PUHCA to provide Alliant Energy with, among other things, broad authorization over the next three years to issue stock and debt, provide guarantees, acquire energy-related assets and enter into interest rate hedging transactions. Approval of the filing was received from the SEC in August 1999. Given the above financing flexibility, including Alliant Energy's access to both the debt and equity securities markets, management believes it has the necessary financing capabilities in place to adequately finance its capital requirements for the foreseeable future. Capital Requirements General - Capital expenditure and investment and financing plans are subject - ------- to continual review and change. The capital expenditure and investment programs may be revised significantly as a result of many considerations, including changes in economic conditions, variations in actual sales and load growth compared to forecasts, requirements of environmental, nuclear and other regulatory authorities, acquisition and business combination opportunities, the availability of alternate energy and purchased-power sources, the ability to obtain adequate and timely rate relief, escalations in construction costs and conservation and energy efficiency programs. Construction and acquisition expenditures for Alliant Energy for the year ended December 31, 1999 and 1998 were $479 million and $372 million, respectively. Alliant Energy's anticipated construction and acquisition expenditures for 2000 are estimated to be approximately $939 million, consisting of approximately $484 million for energy-related international investments, $319 million in its utility operations and $136 million for new business development initiatives at Resources. The significant increase in construction and acquisition expenditures in international investments relates to Resources' recent investment in Brazil. See "Liquidity and Capital Resources - Future Considerations" for information relating to the Brazil investment. Alliant Energy's anticipated utility construction and acquisition expenditures for 2000 is made up of 46% for electric transmission and distribution, 23% for electric generation, 17% for information technology and 14% for miscellaneous electric, gas, water and steam projects. The level of 2000 domestic and international investments could vary significantly from the estimates noted here depending on actual investment opportunities, timing of the opportunities and the receipt of regulatory approvals to exceed limitations in place under PUHCA. It is expected that Alliant Energy will spend approximately $1.4 billion on utility construction and acquisition expenditures during 2001-2004, including expenditures to comply with NOx emissions reductions in Wisconsin as discussed in "Other Matters - Environmental." It is expected that Resources will invest in energy products and services in domestic and international markets, industrial services initiatives and other strategic initiatives during 2001-2004. IESU's construction and acquisition expenditures for the years ended December 31, 1999 and 1998 were $107 million and $115 million, respectively. IESU's anticipated construction and acquisition expenditures for 2000 are estimated to be approximately $115 million, of which 45% is for electric transmission and distribution, 26% for electric generation, 15% for information technology and the remaining 14% represents miscellaneous electric, gas, steam and general expenditures. IESU's levels of utility construction and acquisition expenditures are projected to be $127 million in 2001, $117 million in 2002, $118 million in 2003 and $123 million in 2004. WP&L's construction and acquisition expenditures for the years ended December 31, 1999 and 1998 were $132 million and $117 million, respectively. WP&L's anticipated construction and acquisition expenditures for 2000 are estimated to be approximately $143 million, of which 45% is for electric transmission and distribution, 25% for electric generation, 15% for information technology and the remaining 15% represents miscellaneous electric, gas, water and general expenditures. WP&L's construction and acquisition expenditures are projected to be $166 million in 2001, $181 million in 2002, $192 million in 2003 and $136 million in 2004, which include expenditures to comply with NOx emissions reductions as discussed in "Other Matters - Environmental." Alliant Energy anticipates financing utility construction expenditures during 2000-2004 through internally generated funds supplemented, when required, by outside financing. Funding of Resources' construction and acquisition expenditures over that same period of time is expected to be completed with a combination of external financings, sales of investments and internally generated funds. 46 Nuclear Facilities - Alliant Energy owns interests in two nuclear facilities, - -------------------- Kewaunee and DAEC. Kewaunee, a 532 MW pressurized water reactor plant, is operated by WPSC and is jointly owned by WPSC (41.2%), WP&L (41.0%), and MG&E (17.8%). The Kewaunee operating license expires in 2013. DAEC, a 535 MW boiling water reactor plant, is operated by IESU which has a 70% ownership interest in the plant. The DAEC operating license expires in 2014. On April 7, 1998, the PSCW approved WPSC's application for replacement of the two steam generators at Kewaunee. The total cost of replacing the steam generators will be approximately $90.7 million, with WP&L's share of the cost being approximately $37.2 million. The replacement work originally planned for the spring of 2000 is now scheduled for the fall of 2001 and will take approximately 60 days. The delay is attributable to the inability of the steam generator manufacturer to meet the spring 2000 delivery schedule. Delays in meeting the delivery schedule did not allow for steam generator replacement to occur prior to the start of the summer weather in 2000. Therefore, the decision was made to store the steam generators after they are received and wait until the next scheduled refueling outage in the fall of 2001. It is anticipated that the delay will not adversely impact the reliability of Kewaunee in the interim. Plans to shutdown the plant for a spring 2000 refueling remain unchanged. On July 2, 1998, the PSCW approved an agreement between the owners of Kewaunee which provides for WPSC to assume the 17.8% Kewaunee ownership share currently held by MG&E prior to work beginning on the replacement of steam generators. On September 29, 1998, WPSC and MG&E finalized an arrangement in which WPSC will acquire MG&E's 17.8% share of Kewaunee. This agreement, the closing of which is contingent upon regulatory approval and the steam generator replacement in the fall of 2001, will give WPSC 59.0% ownership in Kewaunee. After the change in ownership, WPSC and WP&L will be responsible for the decommissioning of the plant. WPSC and WP&L are discussing revisions to the joint power supply agreement which will govern operation of the plant after the ownership change takes place. Prior to the July 2, 1998 PSCW decision, the PSCW had directed the owners of Kewaunee to record depreciation and decommissioning cost levels based on an expected plant end-of-life of 2002 versus a license end-of-life of 2013. This was prompted by the uncertainty regarding the expected useful life of the plant without steam generator replacement. This level of depreciation will remain in effect until the steam generator replacement is completed at which time the entire plant will be depreciated over 8.5 years using an accelerated method. In February 1999, Alliant Energy, NSP, WPSC and WEPCO announced the formation of the NMC to sustain long-term safety, optimize reliability and improve the operational performance of their nuclear generating plants. Combined, the NMC members operate seven nuclear generating units at five plants. In October 1999, Alliant Energy received approval from the SEC, under PUHCA, to form Alliant Energy Nuclear LLC, whose purpose is solely to invest in the NMC. Such investment has been made and Alliant Energy Nuclear LLC now has a 25% ownership interest in the NMC. In November 1999, the NMC members applied to the NRC to allow the NMC to operate the plants owned or co-owned by the four utilities. Applications to the PSCW, MPUC and the SEC to allow the purchase of operating services were also made at that time. These approvals are required if the applicable utilities choose to transfer their operating license to, and take operating services from, the NMC. As presently proposed, the NMC would operate the plants, but the utilities would continue to own their plants, be entitled to energy generated at the plants and retain the financial obligations for the safe operation, maintenance and decommissioning of the plants. For additional information related to Kewaunee and DAEC, see Notes 1, 3, 10, 12 and 13 of the "Notes to Consolidated Financial Statements." Refer to the "Other Matters - Environmental" section for a discussion of various issues impacting Alliant Energy's future capital requirements. Rates and Regulatory Matters FERC - In November 1997, as part of its merger approval, FERC accepted a - ------ proposal by IESU, WP&L, and IPC, which provides for a four-year freeze on wholesale electric prices beginning with the effective date of the merger. In association with the merger, IESU, WP&L and IPC entered into a System Coordination and Operating Agreement which became effective with the consummation of the merger. The agreement, which has been approved by the FERC, provides a contractual basis for coordinated planning, construction, operation and maintenance of the interconnected electric generation and 47 transmission systems of the three utility companies. In addition, the agreement allows the interconnected system to be operated as a single control area with off-system capacity sales and purchases made to market excess system capability or to meet system capability deficiencies. Such sales and purchases are allocated among the three utility companies based on procedures included in the agreement. The procedures were approved by both the FERC and all state regulatory bodies having jurisdiction over these sales. IESU - In September 1997, IESU agreed with the IUB to provide Iowa customers a - ---- four-year retail electric and gas price freeze commencing on the effective date of the merger. The agreement excluded price changes due to government-mandated programs (such as energy efficiency cost recovery), the electric fuel adjustment clause and PGA clause and unforeseen dramatic changes in operations. In addition, the price freeze does not preclude a review by either the IUB or OCA into whether IESU is exceeding a reasonable return on common equity. Refer to the "Utility Industry Outlook" section for a discussion of legislation introduced in Iowa regarding restructuring the electric utility industry. In the first quarter of 2000, the OCA requested certain financial information related to the electric utility operations within the state of Iowa for IESU. IESU is in the process of preparing responses to the data requests. While IESU cannot predict the outcome of this process, such data requests could lead to an effort by the OCA to seek an electric rate reduction for IESU in Iowa. IESU has received similar requests from the OCA in the past. Under provisions of the IUB rules, IESU is currently recovering the costs it has incurred for its energy efficiency programs. Generally, the costs incurred through July 1997 are being recovered over various four-year periods. Statutory changes implemented by the IUB in 1997 allowed IESU to begin concurrent recovery of its prospective expenditures on August 1, 1997. The implementation of these changes will gradually eliminate the regulatory asset that was created under the prior rate making mechanism as these costs are recovered. WP&L - In connection with its approval of the merger, the PSCW accepted a WP&L - ---- proposal to freeze rates for four years commencing on the effective date of the merger. A re-opening of an investigation into WP&L's rates during the rate freeze period, for both cost increases and decreases, may occur only for single events that are not merger-related and have a revenue requirement impact of $4.5 million or more. In addition, the electric fuel adjustment clause and PGA clause are not affected by the rate freezes. In February 2000, the PSCW issued an order allowing WP&L to defer certain incremental costs it incurs after February 16, 2000 relating to the development of the ATC. The retail electric rates are based in part on forecasted fuel and purchased-power costs. Under PSCW rules, Wisconsin utilities can seek emergency rate increases if the annual costs are more than 3% higher than the estimated costs used to establish rates. In March 1998, WP&L requested an electric rate increase to cover purchased-power and transmission costs that had increased due to transmission constraints and electric reliability concerns in the Midwest. Effective July 16, 1998, the PSCW granted a retail electric rate increase of $14.8 million annually. In November 1998, WP&L requested an electric rate increase to cover additional increases in purchased-power and transmission costs. In early March 1999, the PSCW granted a retail electric rate increase of $14.5 million annually. If WP&L's earnings exceed its authorized return on equity, the incremental revenues collected causing the excessive return are subject to refund. In December 1999, WP&L requested a $26 million retail electric rate increase to reflect higher purchased power costs and to cover transmission costs that have increased due to transmission constraints. While the most current request is still pending, WP&L anticipates receiving an order in the second quarter of 2000. In May 1998, the PSCW approved the deferral by WP&L of certain costs associated with its Year 2000 program. In November 1998, WP&L filed for rate recovery of the Wisconsin retail portion of its Year 2000 costs. In accordance with the order received from the PSCW, WP&L began deferring its Year 2000 project costs, other than internal labor and associated overheads. In November 1999, the PSCW allowed WP&L rate recovery of $6.3 million of its Year 2000 program expenditures, but it denied rate recovery of the first $4.5 million. These costs were expensed in 1999. The PSCW's decision has been appealed by certain intervenors in Dane County district court and such appeal is pending. 48 In January 1999, WP&L made a filing with the PSCW proposing to begin deferring, on January 1, 1999, all costs associated with the EPA's required NOx emission reductions. In connection with a statewide docket to investigate compliance issues associated with the EPA's NOx emission reductions, on March 30, 1999, the PSCW authorized deferral of all non-labor related costs incurred after March 30, 1999. However, the utilities are not allowed to defer costs of replacement power associated with NOx compliance. WP&L requested expedited approval to start construction of NOx reduction investments at several generating units operated by WP&L and in the third quarter of 1999 received approval from the PSCW for limited NOx related expenditures at one of its generating units. WP&L has also requested recovery of all the NOx reduction costs through a surcharge mechanism. In March 2000, the PSCW issued an order approving WP&L's NOx compliance plans and granted the recovery of costs incurred to comply with EPA NOx regulations over ten years using a straight-line depreciation method. Recovery of such costs will begin with rate changes after the rate freeze expires. The depreciation lives will be reviewed every two years. Refer to the "Other Matters - Environmental" section for a further discussion of the NOx issue. In rate order UR-110, the PSCW approved new rates effective April 29, 1997. On average, WP&L's retail electric rates under the new rate order declined by 2.4% and retail gas rates declined by 2.2%. Refer to "Capital Requirements - Nuclear Facilities" for a discussion of several PSCW rulings regarding Kewaunee. IPC - In September 1997, IPC agreed with the IUB to provide Iowa customers a - --- four-year retail electric and gas price freeze commencing on the effective date of the merger. The agreement excluded price changes due to government-mandated programs (such as energy efficiency cost recovery), the electric fuel adjustment clause and PGA clause and unforeseen dramatic changes in operations. In addition, the price freeze does not preclude a review by either the IUB or OCA into whether IPC is exceeding a reasonable return on common equity. IPC also agreed with the MPUC and ICC to four-year and three-year rate freezes, respectively, commencing on the effective date of the merger. Refer to the "Utility Industry Outlook" section for a discussion of legislation introduced in Iowa regarding restructuring the electric utility industry. IPC is also recovering its energy efficiency costs in Iowa in a similar manner as IESU and began its concurrent cost recovery in October 1997. Assuming capture of the merger-related synergies and no significant legislative or regulatory changes negatively affecting its utility subsidiaries, Alliant Energy does not expect the merger-related electric and gas price freezes to have a material adverse effect on its financial condition or results of operations. OTHER MATTERS Year 2000 Alliant Energy had no significant embedded equipment, computer system or other malfunctions during the critical December 31, 1999 to January 1, 2000 date rollover or the February 28, 2000 to February 29, 2000 date rollover. Alliant Energy will continue to monitor for any supply chain issues into the second quarter of 2000. Alliant Energy's historical Year 2000 project expenditures were as follows (incremental costs, in millions):
Description Total IESU WP&L Other - -------------------------------------------- ------------- ----------- ----------- ------------ Costs incurred from 1/1/98 - 12/31/98 $8.7 $4.8 $3.2 $0.7 Costs incurred from 1/1/99 - 12/31/99 18.6 7.6 7.1 3.9 ------------- ----------- ----------- ------------ Total $27.3 $12.4 $10.3 $4.6 ============= =========== =========== ============
In addition, Alliant Energy estimates it incurred $7 million and $3 million in 1999 and 1998, respectively, of costs for internal labor and associated overheads. Alliant Energy does not expect to incur any significant incremental costs in 2000 on its Year 2000 readiness program. Refer to "Liquidity and Capital Resources - Rates and Regulatory Matters" for a discussion of the filing WP&L made with the PSCW for rate recovery of a portion of its Year 2000 program costs. 49 Labor Issues The status of the collective bargaining agreements at each of the utilities at December 31, 1999 was as follows: IESU WP&L IPC ---------------------- Number of collective bargaining agreements 6 1 3 Percentage of workforce covered by agreements 61% 93% 83% The collective bargaining agreements at Alliant Energy cover approximately 51% of all Alliant Energy employees. In 1999, eight agreements expired and four of these agreements have been ratified and four are still being negotiated (three at IPC and one at IESU). The agreements still being negotiated have been extended and represent 42% of employees covered under bargaining agreements and 22% of total Alliant Energy employees. In 2000, two contracts expire representing approximately 1% of employees covered under bargaining agreements and less than 1% of total Alliant Energy employees. Alliant Energy has not experienced any significant work stoppage problems in the past. While negotiations are continuing, Alliant Energy is currently unable to predict the outcome of these negotiations. Market Risk Sensitive Instruments and Positions Alliant Energy's primary market risk exposures are associated with interest rates, commodity prices, equity prices and currency exchange rates. Alliant Energy has risk management policies to monitor and assist in controlling these market risks and uses derivative instruments to manage some of the exposures. Interest Rate Risk - Alliant Energy is exposed to risk resulting from changes - ------------------ in interest rates as a result of its issuance of variable-rate debt. Alliant Energy manages its interest rate risk by limiting its variable interest rate exposure and by continuously monitoring the effects of market changes in interest rates. Alliant Energy has also historically used interest rate swap and interest rate forward agreements to assist in the management of its interest exposure. If variable interest rates were to average 1% higher (lower) in 2000 than in 1999, interest expense and pre-tax earnings would increase (decrease) by approximately $5.1 million. Comparatively, if variable interest rates had averaged 1% higher (lower) in 1999 than in 1998, interest expense and pre-tax earnings would have increased (decreased) by approximately $4.5 million. These amounts were determined by considering the impact of a hypothetical 1% increase (decrease) in interest rates on the variable-rate debt and related derivative instruments held by Alliant Energy as of December 31, 1999 and 1998. In the event of significant interest rate fluctuations, management would take actions to minimize the effect of such changes on Alliant Energy's results of operations. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in Alliant Energy's financial structure. Commodity Risk - Non-trading - Alliant Energy is exposed to the impact of - ---------------------------- market fluctuations in the commodity price and transportation costs of electricity, natural gas and oil products it markets. Alliant Energy employs established policies and procedures to manage its risks associated with these market fluctuations including the use of various commodity derivatives. Alliant Energy's exposure to commodity price risks in its utility business is significantly mitigated by the current rate making structures in place for the recovery of its electric fuel and purchased energy costs as well as its cost of natural gas purchased for resale. Refer to Note 1(j) of the "Notes to Consolidated Financial Statements" for a further discussion. From time to time, WP&L utilizes gas commodity swap arrangements for the purpose of mitigating the impact of price fluctuations on gas purchased and injected into storage during the summer months and withdrawn and sold at current prices during the winter months. The gas commodity swaps in place approximate the forecasted storage withdrawal plan during this period. Therefore, market price fluctuations that result in an increase or decrease in the value of the physical commodity are offset by changes in the value of the gas commodity swaps. A 10% increase/decrease in the price of gas would have an insignificant impact on the combined fair market value of the gas in storage and related swap arrangements in place as of December 31, 1999 and 1998. Whiting is exposed to market risk in the pricing of its oil and gas production. Historically, prices received for oil and gas production have been volatile because of seasonal weather patterns, supply and demand factors, transportation availability and price, and general economic conditions. 50 Worldwide political developments have historically also had an impact on oil prices. Periodically, Alliant Energy utilizes oil and gas swaps and forward contracts to mitigate the impact of oil and gas price fluctuations. Based on Whiting's estimated gas and crude oil sales in 2000, and the swaps and forward contracts in place at December 31, 1999, a 10% increase/decrease in gas and crude oil prices for that period would impact Alliant Energy's pre-tax 2000 earnings by approximately $3.8 million. A 10% increase/decrease in prices during 1999 would have impacted Alliant Energy's 1999 pre-tax earnings by approximately $3.0 million as relates to the commodity derivative instruments outstanding during 1999. Commodity Risk - Trading - Alliant Energy is exposed to market risks through - -------------- its electricity commodity trading business, which is primarily conducted through Alliant Energy's 50/50 joint venture with Cargill. The joint venture's trading activities principally consist of marketing and trading over-the-counter forward contracts for the purchase and sale of electricity. The majority of the forward contracts represent commitments to purchase or sell electricity at fixed prices in the future and require settlement by physical delivery of electricity or are netted out in accordance with industry trading standards. The market prices used to determine fair values reflect the joint ventures' best estimate considering various factors, including closing exchanges and over-the-counter quotations, time value and volatility factors. The joint venture manages the market risks inherent in its trading activities through established trading and risk management policies and tools. The principal tool utilized is a one-day variance/covariance value-at-risk model with assessment adjustments made based on weather, transmission availability, generation outages and other factors. The estimated one-day market Value at Risk (VAR) for the joint venture as of December 31, 1999 and 1998 was $0.3 million and $0.7 million, respectively, which were calculated with a 99% confidence level. The low, average and high VAR in 1999 were $0.1 million, $0.3 million and $1.5 million, respectively. Equity Price Risk - Alliant Energy maintains trust funds at IESU and WP&L to - ----------------- fund its anticipated nuclear decommissioning costs. As of December 31, 1999 and 1998, these funds were invested primarily in domestic equity and debt instruments. WP&L has entered into an equity collar that uses options to mitigate the effect of significant market fluctuations on its common stock investments. Alliant Energy's exposure to fluctuations in equity prices or interest rates will not affect its consolidated results of operations as such fluctuations are recorded in equally offsetting amounts of investment income and depreciation (WP&L) or interest (IESU) expense when they are realized. At December 31, 1999 and 1998, Alliant Energy had an investment in the stock of McLeod, a publicly traded telecommunications company, valued at $1,124 million and $320 million, respectively. A 10% increase (decrease) in the quoted market price at December 31 would have increased (decreased) the value of the investment at December 31, 1999 and 1998 by approximately $112 million and $32 million, respectively. Refer to Note 10 of the "Notes to Consolidated Financial Statements" for a discussion of how Alliant Energy accounts for its investment in McLeod. At December 31, 1999 and 1998, Alliant Energy had various investments, accounted for under the cost method of accounting, in publicly traded utility companies in New Zealand and Australia which were valued at $97 million and $3 million, respectively. A 10% increase (decrease) in the quoted market prices at December 31 would have increased (decreased) the value of the investment at December 31, 1999 and 1998 by approximately $9.7 million and $0.3 million, respectively. Currency Risk - Alliant Energy has investments in various countries where the - -------------- net investments are not hedged, including Australia, Brazil, China, New Zealand, and Singapore. As a result, these investments are subject to currency exchange risk with fluctuations in currency exchange rates. At December 31, 1999 and 1998, Alliant Energy had a cumulative foreign currency translation loss of $9.6 million and $7.1 million, respectively, recorded in "Accumulated other comprehensive income" on its Consolidated Balance Sheets that primarily related to decreases in value of the New Zealand dollar in relation to the U.S. Dollar. Based on Alliant Energy's investments at December 31, 1999 and 1998, a 10% sustained increase/decrease over the next twelve months in the foreign exchange rates of Australia, Brazil, China, New Zealand and Singapore would decrease/increase the cumulative foreign currency translation loss by $17.2 million and $6.4 million, respectively. Refer to Notes 1(n) and 11 of the "Notes to Consolidated Financial Statements" for a further discussion of Alliant Energy's derivative financial instruments. 51 Accounting Pronouncements In June 1998, the FASB issued SFAS 133. The Statement establishes accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS 133 is effective for fiscal years beginning after June 15, 2000 and must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired or substantively modified after December 31, 1998 (effective dates noted are as amended by SFAS 137). Alliant Energy has organized a cross-functional project team to assist in implementing SFAS 133. The team consists of both Alliant Energy employees and a consultant that has been engaged to support the project. The team has begun to inventory financial instruments, commodity contracts and other commitments with the purpose of identifying and assessing all of Alliant Energy's derivatives. Although the impact of implementing SFAS 133 has not yet been quantified, it could increase volatility in earnings and other comprehensive income. Alliant Energy is analyzing various alternatives relating to the possible early adoption of SFAS 133 in 2000. SFAS 133 may only be adopted on the first day of any quarter prior to the required adoption date. Accounting for Obligations Associated with the Retirement of Long-Lived Assets The staff of the SEC has questioned certain of the current accounting practices of the electric utility industry, including IESU and WP&L, regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in financial statements of electric utilities. In response to these questions, the FASB has a project on its agenda to review the accounting for obligations associated with the retirement of long-lived assets, including decommissioning of nuclear power plants. If current electric utility industry accounting practices for nuclear power plant decommissioning are changed, the annual provision for decommissioning could increase relative to 1999, and the estimated cost for decommissioning could be recorded as a liability (rather than as accumulated depreciation), with recognition of an increase in the cost of the related nuclear power plant. Assuming no significant change in regulatory treatment, IESU and WP&L do not believe that such changes, if required, would have an adverse effect on their financial condition or results of operations due to their ability to recover decommissioning costs through rates. Inflation Alliant Energy, IESU and WP&L do not expect the effects of inflation at current levels to have a significant effect on their financial condition or results of operations. Environmental The pollution abatement programs of IESU, WP&L, IPC and Resources are subject to continuing review and are revised from time to time due to changes in environmental regulations, changes in construction plans and escalation of construction costs. While management cannot precisely forecast the effect of future environmental regulations on Alliant Energy's operations, it has taken steps to anticipate the future while also meeting the requirements of current environmental regulations. The Clean Air Act Amendments of 1990 (Act) require emission reductions of SO2, NOx and other air pollutants to achieve reductions of atmospheric chemicals believed to cause acid rain. IESU, WP&L and IPC have met the provisions of Phase I of the Act and Phase II of the Act. The Act also governs SO2 allowances, which are defined as an authorization for an owner to emit one ton of SO2 into the atmosphere. IESU, WP&L and IPC are reviewing their options to ensure they will have sufficient allowances to offset their emissions in the future and believe that the potential costs of complying with these provisions of Title IV of the Act will not have a material adverse impact on their financial condition or results of operations. The Act and other federal laws also require the EPA to study and regulate, if necessary, additional issues that potentially affect the electric utility industry, including emissions relating to ozone transport, mercury and particulate control as well as modifications to the PCB rules. In July 1997, 52 the EPA issued final rules that would tighten the National Ambient Air Quality Standards for ozone and particulate matter emissions and in June 1998, the EPA modified the PCB rules. Alliant Energy cannot predict the long-term consequences of these rules on its financial condition or results of operations. In October 1998, the EPA issued a final rule requiring 22 states, including Wisconsin, to modify their state implementation plans to address the ozone transport issue. However, on May 25, 1999, a federal appeals court delayed indefinitely the implementation of the rule. On March 3, 2000, the federal appeals court affirmed EPA's NOx rule for the affected states. However, the court found that the EPA had failed to explain how Wisconsin contributes significantly to non-attainment in any other state thus it has vacated the rule as relates to Wisconsin. Given the EPA could still appeal this decision, and Alliant Energy is still reviewing the recent court order, Alliant Energy is unable to predict the final outcome of this issue. The implementation of the rule would likely require WP&L to reduce its NOx emissions at all of its plants to a fleet average of .15 lbs/mmbtu by 2003. WP&L is following this issue closely and continues to evaluate various options to meet the emission levels. Based on existing technology, the preliminary estimates indicate that capital investments would be in the range of $150 million to $215 million. Refer to the "Liquidity and Capital Resources - Rates and Regulatory Matters" section for a discussion of a filing WP&L made with the PSCW regarding seeking rate recovery of these costs. Revisions to the Wisconsin Administrative Code have been proposed that could have a significant impact on WP&L's operation of the Rock River Generating Station in Beloit, Wisconsin. The proposed revisions will affect the amount of heat that the generating station can discharge into the Rock River. WP&L cannot presently predict the final outcome of the rule, but believes that, as the rule is currently proposed, the capital investments and/or modifications required to meet the proposed discharge limits could be significant. On February 28, 1998, the EPA issued the final report to Congress on the Study of Hazardous Air Pollutant Emissions from Electric Utility Steam Generating Units regarding hazardous air pollutant emissions from electric utilities (the HAPs report). The HAPs report concluded that mercury emissions from coal-fired generating plants were a concern. However, the EPA does not believe it has sufficient information regarding such emissions. To remedy this lack of information, the EPA required IESU, WP&L, IPC and all other applicable electric utilities in the U.S. to start collecting information regarding the types and amount of mercury emitted as of January 1, 1999. To better understand mercury emissions, the EPA required WP&L to conduct stack tests at several of its generating stations. Both stations selected have completed their stack testing. Although the control of mercury emissions from generating plants is uncertain at this time, Alliant Energy believes that the capital investments and/or modifications required to control mercury emissions could be significant. Pursuant to an internal review of operations in 1998, IPC discovered that Unit No. 6 at its generating facility in Dubuque, Iowa required a Clean Air Act Acid Rain permit and CEMS. IPC has informed its environmental regulators and has installed the CEMS and obtained the permit. Pursuant to its internal review, IPC also identified and disclosed to regulators a potentially similar situation at its Lansing, Iowa generating facility. In the second quarter of 1999, the EPA determined that Lansing units 1 and 2 are affected units. Therefore, in the third quarter of 1999, IPC installed the CEMS at both of these facilities and in December 1999 IPC submitted its certification to the EPA for the Lansing facility. IPC has received a settlement offer from the EPA, dated December 3, 1999, to settle the matter for $550,000. IPC has since responded with a counter offer and negotiations continue. On February 4, 1999, Whiting received a Notice of Violation letter from the ADEQ, citing Whiting for flaring sour gas in excess of permit limits and not having a valid permit. In June 1999, the ADEQ sent Whiting a Consent Administrative Order proposing a voluntary civil penalty of $225,000 for Whiting's alleged emission violations. The consent agreement was finalized on November 9, 1999, resulting in a civil penalty of $99,000, Whiting performing two mitigation projects, installing an air monitor to run for one full year and submitting a Title V permit. WP&L has been notified by the EPA that it is a PRP with respect to environmental impacts identified at the MIG/DeWane Landfill Superfund Site. WP&L is participating in the initiation of an alternate dispute resolution process to allocate liability associated with the investigation and remediation of the site. Management believes that any likely action resulting from this matter will not have a material adverse effect on WP&L's financial condition or results of operations. 53 IPC has been notified by the EPA that it is a PRP with respect to environmental impacts identified at the Missouri Electric Works, Inc. (MEW) site in Cape Girardeau, Missouri. IPC has been served with a complaint filed by the MEW Site Trust Fund, the PRP group involved in investigating and remediating the site, for response costs incurred by the PRP group. IPC believes that it is not liable as a PRP for this site because it did not arrange for the disposal of any waste materials at the site. IPC has filed an answer to the complaint, discovery is ongoing and settlement discussions continue. WP&L has been notified by Monroe County, Wisconsin that it is a PRP with respect to environmental impacts identified at the Monroe County Interim Landfill in Sparta, Wisconsin. WP&L has provided a summary of records and documents relating to waste disposal at the landfill to Monroe County. WP&L cannot currently estimate what liability, if any, it may have with respect to this site. A global treaty has been negotiated that could require reductions of greenhouse gas emissions from utility plants. In November 1998, the U.S. signed the treaty and agreed with the other countries to resolve all remaining issues by the end of 2000. At this time, management is unable to predict whether the U.S. Congress will ratify the treaty. Given the uncertainty of the treaty ratification and the ultimate terms of the final regulations, management cannot currently estimate the impact the implementation of the treaty would have on Alliant Energy's operations. The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandates that each state must take responsibility for the storage of low-level radioactive waste produced within its borders. The States of Iowa and Wisconsin are members of the six-state Midwest Interstate Low-Level Radioactive Waste Compact (Compact) which is responsible for development of any new disposal capability within the Compact member states. In June 1997, the Compact commissioners voted to discontinue work on a proposed waste disposal facility in the State of Ohio because the expected cost of such a facility was comparably higher than other options currently available. Dwindling waste volumes and continued access to existing disposal facilities were also reasons cited for the decision. A disposal facility located near Barnwell, South Carolina continues to accept the low-level waste and IESU and WP&L currently ship the waste each produces to such site, thereby minimizing the amount of low-level waste stored on-site. Given technological advances, waste compaction and the reduction in the amount of waste generated, DAEC and Kewaunee each have on-site storage capability sufficient to store low-level waste expected to be generated over at least the next ten years. While Alliant Energy is unable to predict how long the Barnwell facility will continue to accept its waste, continuing access to this facility expands Alliant Energy's on-site storage capability indefinitely. See Notes 12(f) and 12(g) of the "Notes to Consolidated Financial Statements" for a further discussion of Alliant Energy's environmental issues. Power Supply Wisconsin enacted electric reliability legislation in 1998 (Wisconsin Reliability Act) with the goal of assuring reliable electric energy for Wisconsin. The law allows the construction of merchant power plants in the state and streamlines the regulatory approval process for building new generation and transmission facilities. As a requirement of the legislation, the PSCW completed a regional transmission constraint study. The PSCW is authorized to order construction of new transmission facilities, based on the findings of its constraint study, through December 31, 2004. On September 24, 1997, the PSCW ordered WP&L and two other Wisconsin utilities to arrange for additional electric capacity to help maintain reliable service for their customers. In July 1998, Alliant Energy and SkyGen announced an agreement whereby SkyGen would build, own and operate a power plant in Wisconsin capable of producing up to 450 MW of electricity. Under the agreement, Alliant Energy will purchase the capacity to meet the electric needs of its utility customers, as outlined by the Wisconsin Reliability Act. A third party filed an appeal to the EPA Appeals Board on the issue of NOx mitigation. In the fourth quarter of 1999, the WDNR issued a revised air permit which was appealed again by the third party. In March 2000, the EPA denied the third party's final appeal which finalizes the air permitting process and allows for construction of the plant. The EPA appeal process resulted in the SkyGen project being delayed until the summer of 2001. Alliant Energy has made other contractual commitments to 54 ensure an 18% reserve margin in 2000, as required for Wisconsin. Part of this effort includes purchased power contracts at higher costs than the SkyGen power, including purchasing power from 54 portable diesel generators that will be located at various substation locations within WP&L's service territory. These higher costs are included in a rate increase requested by WP&L in December 1999 as discussed in "Liquidity and Capital Resources - Rates and Regulatory Matters - WP&L." IESU and IPC are currently exploring the possibility of transitioning from the MAPP reliability region to MAIN so all of Alliant Energy will belong to the same reliability region. Alliant Energy is unable to predict the outcome of this issue at this time. Alliant Energy notes that it will take time for new transmission and power plant projects to be approved and built in Wisconsin. While Alliant Energy currently expects to meet customer demands in 2000, unanticipated reliability issues could still arise in the event Wisconsin experiences unexpected power plant outages, transmission system outages or extended periods of extremely hot weather. 55 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and Qualitative Disclosures About Market Risk are reported under Item 7. MD&A "Other Matters - Market Risk Sensitive Instruments and Positions." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Alliant Energy Page Number Report of Management 57 Report of Independent Public Accountants 58 Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997 59 Consolidated Balance Sheets as of December 31, 1999 and 1998 60 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 62 Consolidated Statements of Capitalization as of December 31, 1999 and 1998 63 Consolidated Statements of Changes in Common Equity for the Years Ended December 31, 1999, 1998 and 1997 65 Notes to Consolidated Financial Statements 66 IESU Report of Independent Public Accountants 88 Consolidated Statements of Income and Retained Earnings for the Years Ended December 31, 1999, 1998 and 1997 89 Consolidated Balance Sheets as of December 31, 1999 and 1998 90 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 92 Consolidated Statements of Capitalization as of December 31, 1999 and 1998 93 Notes to Consolidated Financial Statements 94 WP&L Report of Independent Public Accountants 102 Consolidated Statements of Income and Retained Earnings for the Years Ended December 31, 1999, 1998 and 1997 103 Consolidated Balance Sheets as of December 31, 1999 and 1998 104 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 106 Consolidated Statements of Capitalization as of December 31, 1999 and 1998 107 Notes to Consolidated Financial Statements 108
Refer to Note 15 of Alliant Energy's, IESU's and WP&L's "Notes to Consolidated Financial Statements" for the quarterly financial data required by this Item. 56 ALLIANT ENERGY CORPORATION REPORT ON THE FINANCIAL INFORMATION Alliant Energy Corporation management is responsible for the information and representations contained in the financial statements and in other sections of this Annual Report. The consolidated financial statements that follow have been prepared in accordance with generally accepted accounting principles. In addition to selecting appropriate accounting principles, management is responsible for the manner of presentation and for the reliability of the financial information. In fulfilling that responsibility, it is necessary for management to make estimates based on currently available information and judgments of current conditions and circumstances. Through a well-developed system of internal controls, management seeks to ensure the integrity and objectivity of the financial information presented in this report. This system of internal controls is designed to provide reasonable assurance that the assets of the company are safeguarded and that the transactions are executed according to management's authorizations and are recorded in accordance with the appropriate accounting principles. The Board of Directors participates in the financial information reporting process through its Audit Committee. /s/ Erroll B. Davis Jr. Erroll B. Davis Jr. President and Chief Executive Officer /s/ Thomas M. Walker Thomas M. Walker Executive Vice President and Chief Financial Officer /s/ Daniel A. Doyle Daniel A. Doyle Vice President - Chief Accounting and Financial Planning Officer January 28, 2000 57 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareowners of Alliant Energy Corporation: We have audited the accompanying consolidated balance sheets and statements of capitalization of Alliant Energy Corporation (a Wisconsin Corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, cash flows and changes in common equity for each of the three years in the period ended December 31, 1999. These financial statements and the supplemental schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and supplemental schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Alliant Energy Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31,1999, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Milwaukee, Wisconsin January 28, 2000 58
ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Operating revenues: Electric utility $1,548,938 $1,567,442 $1,515,753 Gas utility 314,319 295,590 393,907 Non-regulated and other 334,706 267,842 390,967 ----------------- ----------------- ------------------ 2,197,963 2,130,874 2,300,627 ----------------- ----------------- ------------------ - ------------------------------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 262,305 297,685 280,558 Purchased power 255,446 255,332 256,306 Cost of utility gas sold 180,519 166,453 259,222 Other operation 623,687 620,234 681,977 Maintenance 115,414 122,737 123,121 Depreciation and amortization 279,088 279,505 259,663 Taxes other than income taxes 104,969 105,626 103,397 ----------------- ----------------- ------------------ 1,821,428 1,847,572 1,964,244 ----------------- ----------------- ------------------ - ------------------------------------------------------------------------------------------------------------------------------- Operating income 376,535 283,302 336,383 ----------------- ----------------- ------------------ - ------------------------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 136,229 129,363 122,563 Allowance for funds used during construction (7,292) (6,812) (5,274) Preferred dividend requirements of subsidiaries 6,706 6,699 6,693 Gains on sales of McLeodUSA Inc. stock (40,272) - - Miscellaneous, net (35,903) (736) (13,910) ----------------- ----------------- ------------------ 59,468 128,514 110,072 ----------------- ----------------- ------------------ - ------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 317,067 154,788 226,311 ----------------- ----------------- ------------------ - ------------------------------------------------------------------------------------------------------------------------------- Income taxes 120,486 58,113 81,733 ----------------- ----------------- ------------------ - ------------------------------------------------------------------------------------------------------------------------------- Net income $196,581 $96,675 $144,578 ================= ================= ================== - ------------------------------------------------------------------------------------------------------------------------------- Average number of common shares outstanding 78,352 76,912 76,210 ================= ================= ================== - ------------------------------------------------------------------------------------------------------------------------------- Earnings per average common share (basic and diluted) $2.51 $1.26 $1.90 ================= ================= ================== - ------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS December 31, ASSETS 1999 1998 - ------------------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Utility - Plant in service - Electric $5,032,675 $4,866,152 Gas 540,874 515,074 Other 458,547 409,711 ---------------- ---------------- 6,032,096 5,790,937 Less - Accumulated depreciation 3,077,459 2,852,605 ---------------- ---------------- 2,954,637 2,938,332 Construction work in progress 119,276 119,032 Nuclear fuel, net of amortization 54,363 44,316 ---------------- ---------------- 3,128,276 3,101,680 Other property, plant and equipment, net of accumulated depreciation and amortization of $184,722 and $178,248, respectively 357,758 355,100 ---------------- ---------------- 3,486,034 3,456,780 ---------------- ---------------- - ------------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 113,669 31,827 Accounts receivable: Customer, less allowance for doubtful accounts of $2,253 and $2,518, respectively 67,299 47,952 Unbilled utility revenues 48,033 55,014 Other, less allowance for doubtful accounts of $954 and $490, respectively 30,095 26,054 Notes receivable, less allowance for doubtful accounts of $153 and $120, respectively 6,328 13,392 Income tax refunds receivable 14,611 14,826 Production fuel, at average cost 49,657 54,140 Materials and supplies, at average cost 52,440 53,490 Gas stored underground, at average cost 23,151 26,013 Regulatory assets 33,439 30,796 Prepaid gross receipts tax 20,864 22,222 Other 26,400 15,941 ---------------- ---------------- 485,986 391,667 ---------------- ---------------- - ------------------------------------------------------------------------------------------------------------------- Investments: Investment in McLeodUSA Inc. 1,123,790 320,280 Nuclear decommissioning trust funds 271,258 225,803 Investments in foreign entities 198,055 68,882 Other 59,866 54,776 ---------------- ---------------- 1,652,969 669,741 ---------------- ---------------- - ------------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 263,610 284,467 Deferred charges and other 187,084 156,682 ---------------- ---------------- 450,694 441,149 ---------------- ---------------- - ------------------------------------------------------------------------------------------------------------------- Total assets $6,075,683 $4,959,337 ================ ================ - ------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (Continued) December 31, CAPITALIZATION AND LIABILITIES 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock $790 $776 Additional paid-in capital 942,408 905,130 Retained earnings 577,464 537,372 Accumulated other comprehensive income 634,903 163,017 ------------------ ------------------ Total common equity 2,155,565 1,606,295 ------------------ ------------------ Cumulative preferred stock of subsidiaries, net 113,638 113,498 Long-term debt (excluding current portion) 1,486,765 1,543,131 ------------------ ------------------ 3,755,968 3,262,924 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds 54,795 63,414 Variable rate demand bonds 55,100 56,975 Commercial paper 374,673 64,500 Notes payable 50,046 51,784 Capital lease obligations 13,321 11,978 Accounts payable 191,149 204,297 Accrued taxes 78,825 84,921 Other 115,716 111,685 ------------------ ------------------ 933,625 649,554 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 1,018,482 691,624 Accumulated deferred investment tax credits 71,857 77,313 Environmental liabilities 65,327 68,399 Customer advances 38,096 37,171 Capital lease obligations 26,041 13,755 Other 166,287 158,597 ------------------ ------------------ 1,386,090 1,046,859 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Commitments and Contingencies (Note 12) - ---------------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $6,075,683 $4,959,337 ================== ================== - ---------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $196,581 $96,675 $144,578 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 279,088 279,505 259,663 Amortization of nuclear fuel 17,494 17,869 18,308 Amortization of deferred energy efficiency expenditures 25,435 27,083 15,786 Deferred taxes and investment tax credits (16,258) (27,720) (11,661) Refueling outage provision (5,150) (4,001) 9,290 Impairment of oil and gas properties 3,276 9,678 9,902 Impairment of regulatory assets - 8,969 - Gain on disposition of assets, net (61,667) (6,505) (1,463) Other 902 2,889 6,931 Other changes in assets and liabilities: Accounts receivable (16,407) 15,349 18,638 Notes receivable 7,064 10,018 (3,621) Production fuel 4,483 (13,484) 2,814 Accounts payable (13,148) 11,663 (27,726) Accrued taxes (6,096) 5,998 13,375 Benefit obligations and other 7,532 33,776 8,675 -------------- -------------- -------------- Net cash flows from operating activities 423,129 467,762 463,489 -------------- -------------- -------------- - --------------------------------------------------------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends declared (156,489) (140,679) (145,631) Dividends payable 13 (15,458) 285 Proceeds from issuance of common stock 36,491 33,832 15,535 Net change in Resources' credit facility (113,657) 70,492 9,908 Proceeds from issuance of other long-term debt 281,299 77,544 295,000 Reductions in other long-term debt (95,520) (27,663) (146,590) Net change in other short-term borrowings 169,587 (40,216) (109,884) Principal payments under capital lease obligations (12,887) (13,250) (12,964) Other (5,744) (2,333) (2,410) -------------- -------------- -------------- Net cash flows from (used for) financing activities 103,093 (57,731) (96,751) -------------- -------------- -------------- - --------------------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Construction and acquisition expenditures: Utility (285,668) (269,133) (256,760) Non-regulated businesses (192,905) (102,925) (71,280) Deferred energy efficiency expenditures - - (13,344) Nuclear decommissioning trust funds (22,100) (20,305) (17,435) Proceeds from disposition of assets 93,443 16,677 15,993 Shared savings program (35,846) (27,780) (17,610) Other (1,304) (2,067) (1,790) -------------- -------------- -------------- Net cash flows used for investing activities (444,380) (405,533) (362,226) -------------- -------------- -------------- - --------------------------------------------------------------------------------------------------------------- Net increase in cash and temporary cash investments 81,842 4,498 4,512 -------------- -------------- -------------- - --------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 31,827 27,329 22,817 -------------- -------------- -------------- - --------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $113,669 $31,827 $27,329 ============== ============== ============== - --------------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Cash paid during the period for: Interest $130,214 $126,376 $117,255 ============== ============== ============== Income taxes $141,150 $84,916 $69,272 ============== ============== ============== Noncash investing and financing activities: Capital lease obligations incurred $25,040 $1,426 $16,781 ============== ============== ============== - --------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1999 1998 - --------------------------------------------------------------------------- ------------------------------------ (in thousands, except share amounts) Common equity: Common stock - $.01 par value - authorized 200,000,000 shares; outstanding 78,984,014 and 77,630,043 shares, respectively $790 $776 Additional paid-in capital 942,408 905,130 Retained earnings 577,464 537,372 Accumulated other comprehensive income 634,903 163,017 ---------------- ----------------- 2,155,565 1,606,295 ---------------- ----------------- - ------------------------------------------------------------------------------------------------------------------ Cumulative preferred stock of subsidiaries: Par/Stated Authorized Shares Mandatory Value Shares Outstanding Series Redemption $ 100 * 449,765 4.40% - 6.20% No 44,977 44,977 $ 25 * 599,460 6.50% No 14,986 14,986 $ 50 466,406 366,406 4.30% - 6.10% No 18,320 18,320 $ 50 ** 216,381 4.36% - 7.76% No 10,819 10,819 $ 50 ** 545,000 6.40% Yes *** 27,250 27,250 ---------------- ----------------- 116,352 116,352 Less: unamortized expenses (2,714) (2,854) ---------------- ----------------- 113,638 113,498 ---------------- ----------------- * 3,750,000 authorized shares in total ** 2,000,000 authorized shares in total *** $53.20 mandatory redemption price - ------------------------------------------------------------------------------------------------------------------ Long-term debt: IES Utilities Inc. - Collateral Trust Bonds: 7.65% series, due 2000 50,000 50,000 7.25% series, due 2006 60,000 60,000 6-7/8% series, due 2007 55,000 55,000 6% series, due 2008 50,000 50,000 7% series, due 2023 50,000 50,000 5.5% series, due 2023 19,400 19,400 ---------------- ----------------- 284,400 284,400 First Mortgage Bonds: Series Y, 8-5/8%, due 2001 60,000 60,000 Series Z, 7.6%, retired in 1999 - 50,000 9-1/8% series, due 2001 21,000 21,000 7-1/4% series, due 2007 30,000 30,000 ---------------- ----------------- 111,000 161,000 Pollution control obligations: 5.75%, due serially 2000 to 2003 2,996 3,136 Variable rate (5.45% at December 31, 1999), due 2000 to 2010 11,100 11,100 Variable/fixed rate series 1998 (4.25% through 2003), due 2023 10,000 10,000 ---------------- ----------------- 24,096 24,236 Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025 50,000 50,000 Senior Debentures, 6-5/8%, due 2009 135,000 135,000 ---------------- ----------------- Total IES Utilities Inc. 604,496 654,636 ---------------- -----------------
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ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CAPITALIZATION (Continued) December 31, 1999 1998 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Wisconsin Power and Light Company - First Mortgage Bonds: 1984 Series A, variable rate (5.00% at December 31, 1999), due 2014 $8,500 $8,500 1988 Series A, variable rate (5.60% at December 31, 1999), due 2015 14,600 14,600 1990 Series V, 9.3%, due 2025 27,000 27,000 1991 Series A-D, variable rate (4.75% at December 31, 1999), due 2000 to 2015 33,875 33,875 1992 Series W, 8.6%, due 2027 90,000 90,000 1992 Series X, 7.75%, due 2004 62,000 62,000 1992 Series Y, 7.6%, due 2005 72,000 72,000 ----------------- ---------------- 307,975 307,975 Unsecured Debt: Debentures, 7%, due 2007 105,000 105,000 Debentures, 5.7%, due 2008 60,000 60,000 ----------------- ---------------- Total Wisconsin Power and Light Company 472,975 472,975 ----------------- ---------------- Interstate Power Company - First Mortgage Bonds: 8% series, due 2007 25,000 25,000 8-5/8% series, due 2021 25,000 25,000 7-5/8% series, due 2023 94,000 94,000 ----------------- ---------------- 144,000 144,000 Pollution Control Revenue Bonds: 6-3/8%, retired in 1999 - 10,950 5.75%, due 2003 1,000 1,000 6.25%, due 2009 1,000 1,000 6.30%, due 2010 5,600 5,600 6.35%, due 2012 5,650 5,650 Variable/fixed rate series 1998 (4.30% through 2003), due 2005 to 2008 4,950 4,950 Variable/fixed rate series 1999 (4.05% through 2004), due 2010 3,250 - Variable/fixed rate series 1999 (4.20% through 2004), due 2013 7,700 - ----------------- ---------------- 29,150 29,150 ----------------- ---------------- Total Interstate Power Company 173,150 173,150 ----------------- ---------------- Alliant Energy Resources, Inc. - Credit facility - 252,505 7-3/8% senior notes, due 2009 250,000 - Multifamily Housing Revenue Bonds issued by various housing and community development authorities, 4.75% - 7.55%, due 2000 to 2036 34,095 35,494 Other subsidiaries' debt, 0% - 10.75%, due 2000 to 2042 45,926 57,579 ----------------- ---------------- Total Alliant Energy Resources, Inc. 330,021 345,578 ----------------- ---------------- Alliant Energy Corporation - 8.59% senior notes, due 2004 24,000 24,000 ----------------- ---------------- 1,604,642 1,670,339 ----------------- ---------------- Less: Current maturities (54,795) (63,414) Variable rate demand bonds (55,100) (56,975) Unamortized debt premium and (discount), net (7,982) (6,819) ----------------- ---------------- Total long-term debt 1,486,765 1,543,131 ----------------- ---------------- - --------------------------------------------------------------------------------------------------------------------------- Total capitalization $3,755,968 $3,262,924 ================= ================ - --------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY Accumulated Additional Other Total Common Paid-In Retained Comprehensive Common Stock Capital Earnings Income (Loss) Equity - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) 1997: Beginning balance (a) $758 $850,848 $582,429 ($809) $1,433,226 Comprehensive income: Net income 144,578 144,578 Other comprehensive income (loss): Unrealized gains on securities, net of tax (b) 174,688 174,688 Foreign currency translation adjustments (20) (20) Minimum pension liability adjustment, net of tax (c) (347) (347) ------------- Total comprehensive income 318,899 Common stock dividends (145,631) (145,631) Common stock issued 7 18,138 18,145 Treasury stock (83) (83) -------------- ------------- ------------- --------------- ------------- Ending balance 765 868,903 581,376 173,512 1,624,556 1998: Comprehensive income: Net income 96,675 96,675 Other comprehensive income (loss): Unrealized losses on securities, net of tax (b) (4,589) (4,589) Foreign currency translation adjustments (7,062) (7,062) Minimum pension liability adjustment, net of tax (c) 1,156 1,156 ------------- Total comprehensive income 86,180 Common stock dividends (140,679) (140,679) Common stock issued 11 36,263 36,274 Treasury stock (36) (36) -------------- ------------- ------------- --------------- ------------- Ending balance 776 905,130 537,372 163,017 1,606,295 1999: Comprehensive income: Net income 196,581 196,581 Other comprehensive income (loss): Unrealized gains on securities: Unrealized holding gains arising during period, net of tax (b) 499,668 499,668 Less: reclassification adjustment for gains included in net income, net of tax of $14,986 (25,286) (25,286) --------------- ------------- Net unrealized gains 474,382 474,382 --------------- ------------- Foreign currency translation adjustments (2,496) (2,496) ------------- Total comprehensive income 668,467 Common stock dividends (156,489) (156,489) Common stock issued 14 37,278 37,292 -------------- ------------- ------------- --------------- ------------- Ending balance $790 $942,408 $577,464 $634,903 $2,155,565 ============== ============= ============= =============== ============= - ----------------------------------------------------------------------------------------------------------------------------------- (a) The beginning accumulated other comprehensive income (loss) balance was all related to Alliant Energy's minimum pension liability adjustment. (b) Net of tax expense (benefit) of $124,271, ($3,218) and $351,314 in 1997, 1998 and 1999, respectively. (c) Net of tax expense (benefit) of ($243) and $808 in 1997 and 1998, respectively. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
65 ALLIANT ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) General - The Consolidated Financial Statements include the accounts of Alliant Energy and its consolidated subsidiaries. Alliant Energy is an investor-owned holding company, incorporated in Wisconsin, whose primary subsidiaries are IESU, WP&L, IPC, Resources and Corporate Services. IESU, WP&L and IPC are engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and water and steam services in selective markets. The principal markets of IESU, WP&L and IPC are located in Iowa, Wisconsin, Minnesota and Illinois. Resources (through its numerous direct and indirect subsidiaries) provides energy products and services to domestic and international markets; provides industrial services including environmental, engineering and transportation services; invests in affordable housing initiatives; and invests in various other strategic initiatives. Corporate Services is the subsidiary formed to provide administrative services to Alliant Energy and its subsidiaries as required under PUHCA. The consolidated financial statements reflect investments in controlled subsidiaries on a consolidated basis. All significant intercompany balances and transactions, other than certain energy-related transactions affecting IESU, WP&L and IPC, have been eliminated from the Consolidated Financial Statements. Such energy-related transactions are made at prices that approximate market value and the associated costs are recoverable from customers through the rate making process. The financial statements are prepared in conformity with generally accepted accounting principles, which give recognition to the rate making and accounting practices of FERC and state commissions having regulatory jurisdiction. Certain prior period amounts have been reclassified on a basis consistent with the current year presentation. Unconsolidated investments for which Alliant Energy has at least a 20% voting interest are generally accounted for under the equity method of accounting. These investments are stated at acquisition cost, increased or decreased for Alliant Energy's equity in net income or loss, which is included in "Miscellaneous, net" in the Consolidated Statements of Income and decreased for any dividends received. Investments that do not meet the criteria for consolidation or the equity method of accounting are accounted for under the cost method. The preparation of the financial statements requires management to make estimates and assumptions that affect: a) the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements; and b) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (b) Regulation - Alliant Energy is a registered public utility holding company subject to regulation by the SEC under PUHCA. IESU, WP&L and IPC are subject to regulation by the FERC and their respective state regulatory commissions (IUB, PSCW, MPUC and ICC). (c) Regulatory Assets - IESU, WP&L and IPC are subject to the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation." SFAS 71 provides that rate-regulated public utilities record certain costs and credits allowed in the rate making process in different periods than for unregulated entities. These are deferred as regulatory assets or regulatory liabilities and are recognized in the Consolidated Statements of Income at the time they are reflected in rates. At December 31, 1999 and 1998, regulatory assets of $297.0 million and $315.3 million, respectively, were comprised of the following items (in millions):
IESU WP&L IPC -------------------- --------------------- ------------------ 1999 1998 1999 1998 1999 1998 ---------- --------- ---------- ---------- -------- --------- Tax-related (Note 1(d)) $83.0 $81.4 $43.4 $49.3 $29.7 $29.8 Energy efficiency program costs 22.2 39.8 7.0 -- 23.9 25.9 Environmental liabilities (Note 12(f)) 32.4 35.2 19.1 19.5 15.7 17.5 Other 4.0 5.0 16.4 11.2 0.2 0.7 ---------- --------- ---------- ---------- -------- --------- $141.6 $161.4 $85.9 $80.0 $69.5 $73.9 ========== ========= ========== ========== ======== =========
66 Refer to the individual notes referenced above for a further discussion of certain items reflected in regulatory assets. If a portion of IESU's, WP&L's or IPC's operations become 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 generally accepted accounting principles for continued accounting as regulatory assets during such recovery period. In addition, IESU, WP&L or IPC would be required to determine any impairment to other assets and write-down such assets to their fair value. (d) Income Taxes - Alliant Energy 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 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. As part of the affordable housing and oil and gas production businesses, Alliant Energy is eligible to claim certain tax credits. These tax credits reduce current federal taxes to the extent Alliant Energy has consolidated taxes payable. Consistent with Iowa rate making practices for IESU and IPC, 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, IESU and IPC have recorded deferred tax liabilities and regulatory assets for certain temporary differences, as identified in Note 1(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. Alliant Energy files a consolidated federal income tax return. Under the terms of an agreement between Alliant Energy and its subsidiaries, the subsidiaries calculate their respective federal income tax provisions and make payments to or receive payments from Alliant Energy as if they were separate taxable entities. (e) Common Shares Outstanding - Weighted average common shares outstanding used to calculate basic and diluted earnings per share for 1999, 1998 and 1997 were as follows:
Weighted Average 1999 1998 1997 - -------------------------------------------------------------------- ------------- ------------- ------------- Common shares outstanding - basic earnings per share calculation 78,352,186 76,912,219 76,209,935 Effect of dilutive securities 42,961 16,412 2,138 Common shares - diluted earnings per share calculation 78,395,147 76,928,631 76,212,073
In 1999, 1,275,355 options to purchase shares of common stock, with an average exercise price of $30.55, 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 - Temporary cash investments are stated at cost, which approximates market value, and are considered cash equivalents for 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. (g) Depreciation of Utility Property, Plant and Equipment - IESU, WP&L and IPC use a combination of remaining life and straight-line depreciation methods as approved by their respective regulatory commissions. The remaining life of DAEC, of which IESU is a co-owner, is based on the NRC license end-of-life of 2014. The remaining life of Kewaunee, of which WP&L is a co-owner, is based on the PSCW approved revised end-of-life of 2002 (prior to May 1997 the calculation was based on the NRC license end-of-life of 2013). Depreciation 67 expense related to the decommissioning of DAEC and Kewaunee is discussed in Note 12(h). The average rates of depreciation for electric and gas properties of IESU, WP&L and IPC, consistent with current rate making practices, were as follows:
IESU WP&L IPC ------------------------ ------------------------ ----------------------- 1999 1998 1997 1999 1998 1997 1999 1998 1997 ------------------------ ------------------------ ----------------------- Electric 3.5% 3.5% 3.5% 3.6% 3.6% 3.6% 3.6% 3.6% 3.6% Gas 3.5% 3.5% 3.5% 3.9% 3.8% 3.8% 3.6% 3.4% 3.4%
(h) Property, Plant and Equipment - Utility plant (other than acquisition adjustments) is recorded at original cost, which includes overhead and administrative costs and AFUDC. At December 31, 1999, IESU had $25.6 million of acquisition adjustments, net of accumulated amortization, included in utility plant ($6 million of such balance is currently being recovered in IESU's rates). AFUDC, which represents the cost during the construction period of funds used for construction purposes, is capitalized as a component of the cost of utility plant. The amount of AFUDC applicable to debt funds and to other (equity) funds, a non-cash item, is computed in accordance with the prescribed FERC formula. These capitalized costs are recovered in rates as the cost of the utility plant is depreciated. The aggregate gross rates used were as follows: 1999 1998 1997 ------------ ------------ ------------ IESU 7.9% 8.9% 6.7% WP&L 5.4% 5.2% 6.2% IPC 5.3% 7.0% 6.0% Other property, plant and equipment is recorded at original cost. Upon retirement or sale of other property and equipment, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in "Miscellaneous, net" in the Consolidated Statements of Income. Normal repairs, maintenance and minor items of utility plant and other property, plant and equipment are expensed. Ordinary retirements of utility plant, including removal costs less salvage value, are charged to accumulated depreciation upon removal from utility plant accounts and no gain or loss is recognized. (i) Operating Revenues - Alliant Energy accrues revenues for services rendered but unbilled at month-end in order to more properly match revenues with expenses. In the third quarter of 1999, Alliant Energy recorded a $9 million increase in the estimate of utility services rendered but unbilled at month-end. This change was a result of the implementation of a refined estimation process compared with the unbilled revenues recorded at June 30, 1999 using the estimation process in effect at that time. In accordance with an order from the PSCW, effective January 1, 1998, off-system gas sales for WP&L are included in the Consolidated Statements of Income as a reduction of the cost of gas sold rather than as gas revenues. Off-system gas sales at WP&L were $12.8 million, $11.5 million and $11.1 million in 1999, 1998 and 1997, respectively. (j) Utility Fuel Cost Recovery - IESU's and IPC's tariffs provide for subsequent adjustments to its electric and natural gas rates for changes in the cost of fuel and purchased energy and in the cost of natural gas purchased for resale. Changes in the under/over collection of these costs are reflected in "Electric and steam production fuels" and "Cost of utility gas sold" in the Consolidated Statements of Income. The cumulative effects are reflected on the Consolidated Balance Sheets as a current asset or current liability, pending automatic reflection in future billings to customers. At IESU and IPC, purchased capacity costs are not recovered from electric customers through energy adjustment clauses. Recovery of these costs must be addressed in base rates in a formal rate proceeding. WP&L's retail electric rates are based in part on forecasted fuel and purchased-power costs. Under PSCW rules, Wisconsin utilities can seek emergency rate increases if the annual costs are more than 3% higher than the estimated costs used to establish rates. WP&L has a gas performance incentive which includes a sharing mechanism whereby 40% of all gains and losses relative to current commodity prices, as well as other benchmarks, are retained by WP&L rather than refunded to or recovered from customers. 68 (k) Nuclear Refueling Outage Costs - The IUB allows IESU to collect, as part of its base revenues, funds to offset other operation and maintenance expenditures incurred during refueling outages at DAEC. As these revenues are collected, an equivalent amount is charged to other operation and maintenance expenses with a corresponding credit to a reserve. During a refueling outage, the reserve is reversed to offset the refueling outage expenditures. Operating expenses incurred during refueling outages at Kewaunee are expensed by WP&L as incurred. (l) Nuclear Fuel - Nuclear fuel for DAEC is leased. Annual nuclear fuel lease expenses include the cost of fuel, based on the quantity of heat produced for the generation of electric energy, plus the lessor's interest costs related to fuel in the reactor and administrative expenses. Nuclear fuel for Kewaunee is recorded at its original cost and is amortized to expense based upon the quantity of heat produced for the generation of electricity. This accumulated amortization assumes spent nuclear fuel will have no residual value. Estimated future disposal costs of such fuel are expensed based on kilowatt-hours generated. (m) Translation of Foreign Currency - Assets and liabilities of international investments, where the local currency is the functional currency, have been translated at year-end exchange rates and related income statement results have been translated using average exchange rates prevailing during the year. Adjustments resulting from translation have been recorded in other comprehensive income. (n) Derivative Financial Instruments - From time to time, Alliant Energy uses derivative financial instruments to hedge exposures to fluctuations in interest rates, certain commodity prices and volatility in a portion of natural gas sales volumes due to weather. These instruments are used to mitigate risks and are not to be used for speculative purposes. Under the deferral method of accounting, gains and losses related to derivatives that qualify as hedges are recognized in earnings when the underlying hedged item or physical transaction is recognized in income. Alliant Energy is exposed to losses related to financial instruments in the event of counterparties' nonperformance. Alliant Energy has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate its exposure to counterparty credit risk. Alliant Energy is not aware of any counterparties that will fail to meet their obligations. Refer to Note 11 for a further discussion of Alliant Energy's derivative financial instruments. (2) MERGER On April 21, 1998, IES, WPLH and IPC completed a merger forming Alliant Energy. The merger was accounted for as a pooling of interests and the accompanying Consolidated Financial Statements, along with the related notes, are presented as if the companies were combined as of the earliest period presented. In association with the merger, Alliant Energy eliminated 167 positions in 1998. As a result, Alliant Energy recorded $15 million of expenses during 1998 in "Other operation" expense related to the employee separation benefits to be paid to the impacted employees. The bulk of the positions eliminated were administrative in nature and resulted from no longer needing certain duplicative positions given the consolidation of the three companies. The departure dates for the impacted employees varied based on the need for their services during the transition period as well as certain other factors. The balance of the accrual at December 31, 1999 and 1998 was $1.0 million and $5.7 million, respectively. As of December 31, 1999, all of the terminated employees had actually left the organization. As of December 31, 1998, 156 of the terminated employees had actually left the organization. The balance remaining in the accrued liability at December 31, 1999 related to payments to certain terminated executives that were being paid out over a 18-36 month period pursuant to the terms of their respective severance agreements. The only significant adjustments made to the liability after the initial accrual were to reflect the actual payments of the employee separation benefits. In association with the merger, Alliant Energy entered into a three-year consulting agreement, which expires in the second quarter of 2001, with Wayne Stoppelmoor, the Chief Executive Officer of IPC prior to the consummation of the merger. Under the terms of the consulting agreement, Mr. Stoppelmoor, who also serves as Vice Chairman of Alliant Energy's Board of Directors, receives annual fees of $324,500, $324,500 and $200,000 for his services during the respective periods of the agreement. 69 (3) LEASES IESU has a capital lease covering its 70% undivided interest in nuclear fuel purchased for DAEC. Future purchases of fuel may also be added to the fuel lease. This lease provides for annual one-year extensions and IESU intends to continue exercising such extensions. Interest costs under the lease are based on commercial paper costs incurred by the lessor. IESU is responsible for the payment of taxes, maintenance, operating cost, risk of loss and insurance relating to the leased fuel. The lessor has a $45 million credit agreement with a bank supporting the nuclear fuel lease. The agreement continues on a year-to-year basis, unless either party provides at least a three-year notice of termination; no such notice of termination has been provided by either party. Annual nuclear fuel lease expenses (included in "Electric and steam production fuels" in the Consolidated Statements of Income) for 1999, 1998 and 1997 were $12.7 million, $14.2 million and $16.6 million, respectively. Alliant Energy's operating lease rental expenses for 1999, 1998 and 1997 were $24.6 million, $21.6 million and $20.3 million, respectively. Alliant Energy's future minimum lease payments by year are as follows (in millions):
Capital Operating Year Leases Leases - ------------------------------------------ --------------- ---------------- 2000 $15.6 $24.0 2001 10.6 20.1 2002 8.7 15.3 2003 4.3 12.9 2004 3.9 10.5 Thereafter 1.3 39.1 --------------- ---------------- 44.4 $121.9 ================ Less: Amount representing interest 5.0 --------------- Present value of net minimum capital lease payments $39.4 ===============
(4) UTILITY ACCOUNTS RECEIVABLE Utility customer accounts receivable, including unbilled revenues, arise primarily from the sale of electricity and natural gas. At December 31, 1999, Alliant Energy was serving a diversified base of residential, commercial and industrial customers and did not have any significant concentrations of credit risk. Similar accounts receivable financing arrangements exist for two of Alliant Energy's utility subsidiaries, IESU and WP&L. In both cases, the utility subsidiaries sell up to a pre-determined maximum amount of accounts receivable to a financial institution on a limited recourse basis. Accounts receivable sold include receivables arising from sales to customers and to other public, municipal and cooperative utilities, as well as from billings to the co-owners of the jointly-owned electric generating plants operated by utility subsidiaries of Alliant Energy. The amounts are discounted at the then-prevailing market rate and additional administrative fees are payable according to the activity levels undertaken. All billing and collection functions remain the responsibility of the respective utilities. Specifics of the two agreements include (dollars in millions):
IESU WP&L ----------- ----------- Year agreement expires 2000 2000 Maximum amount of receivables that can be sold $65 $150 Effective 1999 all-in cost 5.58% 5.58% Average monthly sale of receivables - 1999 $55 $73 - 1998 $63 $83 Receivables sold at December 31, 1999 $59 $67
For additional information on the accounts receivable programs, refer to the "Liquidity and Capital Resources - Financing and Capital Structure" section of MD&A. 70 (5) RESOURCES SUMMARY FINANCIAL INFORMATION Summary financial information for Resources was as follows (in millions):
December 31, 1999 December 31, 1998 --------------------- --------------------- Current assets $132.4 $92.1 Non-current assets 1,716.2 777.1 Current liabilities 197.7 63.6 Non-current liabilities (excludes minority interest) 502.8 160.3 Minority interest (primarily real estate joint ventures) 7.2 6.2
Refer to the "Non-regulated Businesses" column of Note 14 for summary income statement data of Resources. Alliant Energy has not presented separate financial statements for Resources because it is a wholly-owned subsidiary of Alliant Energy and because management has determined that such information is not material to holders of senior notes of Resources. Alliant Energy has fully and unconditionally guaranteed the payment of principal and interest on the senior notes. (6) INCOME TAXES The components of federal and state income taxes for Alliant Energy for the years ended December 31 were as follows (in millions): 1999 1998 1997 --------- --------- --------- Current tax expense $142.7 $92.5 $99.6 Deferred tax expense (10.8) (22.2) (6.1) Amortization of investment tax credits (5.5) (5.6) (5.6) Affordable housing tax credits (5.9) (6.6) (6.2) --------- --------- --------- $120.5 $58.1 $81.7 ========= ========= ========= The overall effective income tax rates shown below for the years ended December 31 were computed by dividing total income tax expense by income before income taxes and preferred dividend requirements of subsidiaries.
1999 1998 1997 ------------- -------------- ------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 6.4 8.0 6.4 Affordable housing tax credits (1.9) (4.1) (2.7) Amortization of investment tax credits (1.7) (3.4) (2.4) Adjustment of prior period taxes (1.7) (0.4) (2.2) Merger expenses -- 2.4 0.5 Oil and gas production credits (1.0) (1.6) (0.6) Property donation (0.3) (1.5) (1.1) Effect of rate making on property related differences 2.2 1.8 1.1 Other items, net 0.2 (0.2) 1.1 ------------- -------------- ------------- Overall effective income tax rate 37.2% 36.0% 35.1% ============= ============== =============
The accumulated deferred income taxes (assets) and liabilities as set forth below on the Consolidated Balance Sheets at December 31 arise from the following temporary differences (in millions): 1999 1998 --------- --------- Property related $669.5 $677.7 McLeod investment 455.1 121.1 Other (106.1) (107.2) --------- --------- $1,018.5 $691.6 ========= ========= 71 Deferred tax liabilities are not recognized for temporary differences related to investments in foreign subsidiaries and in unconsolidated foreign affiliates that are essentially permanent in duration. As of December 31, 1999, Alliant Energy had not recorded a U.S. tax provision of approximately $1.4 million relating to approximately $4.1 million of unremitted earnings from two of its investments in China as these earnings are expected to be reinvested permanently overseas in China. (7) BENEFIT PLANS (a) Pension Plans and Other Postretirement Benefits - Alliant Energy has several non-contributory defined benefit pension plans that cover substantially all of its employees who are subject to a collective bargaining agreement. Plan benefits are generally based on years of service and compensation during the employees' latter years of employment. Eligible employees of Alliant Energy that are not subject to a collective bargaining agreement are covered by the Alliant Energy Cash Balance Pension Plan, a non-contributory defined benefit pension plan. During each year of service, Alliant Energy credits each participant's account with a benefit credit equal to 5% of base pay as well as a guaranteed minimum interest credit equal to 4%. The projected unit credit actuarial cost method was used to compute pension cost and the accumulated and projected benefit obligations. Alliant Energy's policy is to fund all of the pension plans at an amount that is at least equal to the minimum funding requirements mandated by the Employee Retirement Income Security Act of 1974, as amended, and that does not exceed the maximum tax deductible amount for the year. Alliant Energy also provides certain other postretirement benefits to retirees, including medical benefits for retirees and their spouses (and Medicare Part B reimbursement for certain retirees) and, in some cases, retiree life insurance. IESU's and IPC's funding policy for other postretirement benefits is generally to fund an amount up to the cost calculated using SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," while WP&L's funding policy is generally to fund tax deductible amounts up to the incurred but unclaimed paid medical claim reserve and tax deductible amounts (if any) to the retiree medical account within the Cash Balance Pension Plan. The weighted-average assumptions as of the measurement date of September 30 are as follows:
Qualified Pension Benefits Other Postretirement Benefits -------------------------------------- ----------------------------------- 1999 1998 1997 1999 1998 1997 ------------ ------------- ---------- ---------- ---------- ----------- Discount rate 7.75% 6.75% 7.25% 7.75% 6.75% 7.25% Expected return on plan assets 9% 9% 8-9% 9% 9% 8-9% Rate of compensation increase 3.5-4.5% 3.5-4.5% 3.5-5.0% 3.5% 3.5% 3.5% Medical cost trend on covered charges: Initial trend range N/A N/A N/A 7% 8% 8% Ultimate trend range N/A N/A N/A 5% 5-6% 5.0-6.5% The components of Alliant Energy's qualified pension benefits and other postretirement benefits costs are as follows (in millions): Qualified Pension Benefits Other Postretirement Benefits ------------------------------------ --------------------------------- 1999 1998 1997 1999 1998 1997 ---------- ---------- -------- -------- -------- --------- Service cost $12.8 $13.8 $13.1 $5.5 $5.1 $4.7 Interest cost 35.6 35.4 32.2 10.4 9.7 9.8 Expected return on plan assets (46.2) (47.2) (39.0) (5.0) (3.7) (2.6) Amortization of: Transition obligation (asset) (2.4) (2.4) (2.4) 4.3 4.7 4.9 Prior service cost 2.5 2.8 2.5 (0.3) (0.3) (0.3) Actuarial loss (gain) 0.2 (0.9) -- (0.8) (1.2) (0.2) ---------- ---------- -------- -------- -------- -------- Total $2.5 $1.5 $6.4 $14.1 $14.3 $16.3 ========== ========== ======== ======== ======== =========
During 1998 and 1997, Alliant Energy recognized an additional $10.3 million and $5.1 million, respectively, of costs in accordance with SFAS 88. The charges were for severance and early retirement programs in the respective years. In addition, during 1999, 1998 and 1997, Alliant Energy recognized $0.5 million, $10.2 million and $1.7 million, respectively, of curtailment charges relating to Alliant Energy's other postretirement benefits. 72 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 one percent change in the medical trend rates for 1999, holding all other assumptions constant, would have the following effects (in millions):
1 Percent 1 Percent Increase Decrease --------------- --------------- Effect on total of service and interest cost components $2.5 ($2.0) Effect on postretirement benefit obligation $14.0 ($11.6)
A reconciliation of the funded status of Alliant Energy's plans to the amounts recognized on Alliant Energy's Consolidated Balance Sheets at December 31 is presented below (in millions):
Qualified Pension Benefits Other Postretirement Benefits ---------------------------- ------------------------------- 1999 1998 1999 1998 ----------- ------------ -------------- ------------- Change in benefit obligation: Net benefit obligation at beginning of year $528.4 $474.2 $153.3 $146.4 Service cost 12.8 13.8 5.5 5.1 Interest cost 35.6 35.4 10.4 9.7 Plan participants' contributions -- -- 1.5 1.3 Plan amendments -- (2.5) (2.5) -- Actuarial loss (gain) (60.7) 24.8 (29.9) (3.6) Curtailments -- (3.0) (0.3) 1.9 Special termination benefits -- 10.7 -- -- Gross benefits paid (35.1) (25.0) (10.2) (7.5) ----------- ------------ -------------- ------------- Net benefit obligation at end of year 481.0 528.4 127.8 153.3 ----------- ------------ -------------- ------------- Change in plan assets: Fair value of plan assets at beginning of year 506.3 529.1 55.1 50.7 Actual return on plan assets 54.7 2.2 8.2 2.5 Employer contributions -- -- 13.6 7.0 Plan participants' contributions -- -- 1.6 1.3 401(h) assets recognized -- -- -- 1.1 Gross benefits paid (35.1) (25.0) (10.2) (7.5) ----------- ------------ -------------- ------------- Fair value of plan assets at end of year 525.9 506.3 68.3 55.1 ----------- ------------ -------------- ------------- Funded status at end of year 44.9 (22.1) (59.5) (98.2) Unrecognized net actuarial loss (gain) (39.0) 30.3 (39.3) (7.5) Unrecognized prior service cost 23.2 25.8 (1.5) (1.7) Unrecognized net transition obligation (asset) (8.2) (10.6) 52.4 60.6 ----------- ------------ -------------- ------------- Net amount recognized at end of year $20.9 $23.4 ($47.9) ($46.8) =========== ============ ============== ============= Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $39.1 $38.9 $0.6 $0.9 Accrued benefit cost (18.2) (15.5) (48.5) (47.7) Additional minimum liability -- (7.7) -- -- Intangible asset -- 7.7 -- -- ----------- ------------ -------------- ------------- Net amount recognized at measurement date 20.9 23.4 (47.9) (46.8) ----------- ------------ -------------- ------------- Contributions paid after 9/30 and prior to 12/31 -- -- 6.9 6.8 ----------- ------------ -------------- ------------- Net amount recognized at 12/31 $20.9 $23.4 ($41.0) ($40.0) =========== ============ ============== =============
73 The benefit obligation and fair value of plan assets for the postretirement welfare plans with benefit obligations in excess of plan assets were $121.3 million and $58.7 million, respectively, as of September 30, 1999 and $146.5 million and $45.3 million, respectively, as of September 30, 1998. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with benefit obligations in excess of plan assets were $231.4 million, $225.9 million and $219.8 million, respectively, as of September 30, 1999 and $250.5 million, $241.1 million and $217.9 million, respectively, as of September 30, 1998. Alliant Energy also sponsors several non-qualified pension plans which cover certain current and former officers. At December 31, 1999 and 1998, the funded balances of such plans totaled approximately $5 million. Alliant Energy's pension benefit obligation under these plans was $28.0 million and $25.8 million at December 31, 1999 and 1998, respectively. Alliant Energy's pension expense under these plans was $2.5 million, $4.5 million, and $3.7 million in 1999, 1998 and 1997, respectively. A significant number of Alliant Energy employees also participate in defined contribution pension plans (401(k) plans). Alliant Energy's contributions to the plans, which are based on the participants' level of contribution, were $7.4 million, $7.7 million, and $5.5 million in 1999, 1998 and 1997, respectively. (b) Long-Term Equity Incentive Plan - Alliant Energy has a long-term equity incentive plan which permits the grant of non-qualified stock options, incentive stock options, restricted stock, performance shares and performance units to key employees. As of December 31, 1999, non-qualified stock options, restricted stock, performance shares and performance units had been granted to key employees. The maximum number of shares of Alliant Energy common stock that may be issued under the plan may not exceed 3.8 million (no awards may be granted on or after January 22, 2004). Options are granted at the fair market value of the shares on the date of grant. The options vest over three years and expire no later than 10 years after the grant date with the exception of participants that retire. Their 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 the participant leaves Alliant Energy and their vested options expire after three months. A summary of the stock option activity for 1999, 1998 and 1997 is as follows:
1999 1998 1997 ------------------------ ------------------------ ------------------------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------------------------ ------------------------ ------------------------ Outstanding at beginning of year 751,084 $30.83 191,800 $28.98 114,150 $29.56 Options granted 824,564 29.88 636,451 31.32 77,650 28.12 Options exercised -- -- 28.59 -- -- (8,900) Options forfeited (32,620) 30.55 30.49 -- -- (68,267) ------------------------ ------------------------ ------------------------ Outstanding at end of year 1,543,028 $30.32 751,084 $30.83 191,800 $28.98 ======================== ======================== ======================== Exercisable at end of year 333,782 $30.80 38,250 $27.50 -- --
The range of exercise prices for the options outstanding at December 31, 1999 was $27.50 to $31.56. The value of the options at the grant date using the Black-Scholes pricing method is as follows:
1999 1998 1997 ------------ ------------ ------------ Value of options based on Black-Scholes model $4.71 $4.93 $3.30 Volatility 20.2% 21% 15% Risk free interest rate 5.78% 5.75% 6.43% Expected life 10 years 10 years 10 years Expected dividend yield 6.69% 7.00% 7.00%
74 Alliant Energy follows APB 25, "Accounting for Stock Issued to Employees," to account for stock options. No compensation cost is recognized because the option exercise price is equal to the market price of the underlying stock on the date of grant. Had compensation cost for the plan been determined based on the Black-Scholes value at the grant dates for awards as prescribed by SFAS 123 "Accounting for Stock-Based Compensation," pro forma net income and earnings per share would have been: 1999 1998 1997 ------- -------- -------- Pro forma net income (in millions) $192.7 $93.5 $144.3 Pro forma earnings per share (basic and diluted) $2.46 $1.22 $1.89 In 1999, 65,752 shares of restricted stock were awarded, all of which were outstanding at December 31, 1999, and are restricted for a three-year period. Any unvested shares of restricted stock become fully vested upon retirement. Participants' restricted stock becomes forfeited when the participant leaves Alliant Energy. Alliant Energy follows APB 25 to account for restricted stock. Compensation cost, which is recognized over the three-year restriction period, was $0.4 million in 1999. Prior to the merger, various restricted stock awards were granted under the former IES Long-Term Incentive Plan. For most of the awards, restrictions lapsed effective with the merger. Compensation cost of $0.4 million, $1.3 million and $0.4 million was recognized in 1999, 1998 and 1997, respectively. The payout to key employees of Corporate Services for performance units/shares is contingent upon achievement of specified levels of total return to shareowners of Alliant Energy compared with an investor-owned utility peer group over a three-year period (the payout is contingent upon achievement of specified earnings growth for key employees of Resources). Performance units/shares are paid out in cash or shares of Alliant Energy's common stock and are modified by a performance multiplier, which ranges from 0 to 2.00 based on the three-year average performance criteria. Performance shares have an intrinsic value equal to the market price of a share on the date of grant and performance units represent accumulated dividends on the shares underlying the non-qualified stock options based on the annual dividend rate at the grant date. Pursuant to APB 25, Alliant Energy accrues the expenses for these plans over the three-year period the services are performed. Alliant Energy recognized $1.6 million, $0.2 million and $0.4 million of expense for these plans in 1999, 1998 and 1997, respectively. (8) COMMON, PREFERRED AND PREFERENCE STOCK (a) Common Stock - During 1999, 1998 and 1997, Alliant Energy issued 1,353,971 shares; 890,035 shares and 687,962 shares of common stock under its various stock plans, respectively. In addition, 260,039 shares were issued in 1998 in connection with the acquisition of oil and gas properties. At December 31, 1999, Alliant Energy had a total of 7.0 million shares available for issuance pursuant to its Shareowner Direct Plan, Long-Term Equity Incentive Plan and 401(k) Savings Plan. Alliant Energy has declared a quarterly dividend of 50 cents per share each quarter since the consummation of the merger. During 1998 and 1997, Alliant Energy reacquired 1,133 shares and 3,278 shares, respectively, of its common stock on the open market. The shares were reacquired by IES prior to the consummation of the merger and were subsequently issued to various Alliant Energy directors and employees. At December 31, 1999, no shares remained held as treasury stock. Alliant Energy has a Shareowner Rights Plan whereby rights will be exercisable only if a person or group acquires, or announces a tender offer to acquire, 15% or more of Alliant Energy's common stock. Each right will initially entitle shareowners to buy one-half of one share of Alliant Energy's common stock. The rights will only be exercisable in multiples of two at an initial price of $95.00 per full share, subject to adjustment. If any shareowner acquires 15% or more of the outstanding common stock of Alliant Energy, each right (subject to limitations) will entitle its holder to purchase, at the 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% thresholds to not less than 10%. 75 Alliant Energy's utility subsidiaries each have common stock dividend restrictions based on their respective bond indentures and articles of incorporation. Each utility has restrictions on the payment of common stock dividends that are commonly found with preferred stock. In addition, at IESU and IPC their ability to pay common stock dividends is restricted based on requirements associated with sinking funds. WP&L's common stock dividends are restricted to the extent that such dividend would reduce the common stock equity ratio to less than 25%. Also at WP&L, in rate order UR-110, the PSCW ordered that it must approve the payment of dividends by WP&L to Alliant Energy that are in excess of the level forecasted in the rate order ($58.3 million), if such dividends would reduce WP&L's average common equity ratio below 52.00% of total capitalization. The dividends paid by WP&L to Alliant Energy since the rate order was issued have not exceeded the level forecasted in the rate order. All non-employee directors are eligible to receive a 25% matching contribution in Alliant Energy common stock for limited cash purchases, up to $10,000, of Alliant Energy's common stock through Alliant Energy's Shareowner Direct Plan. Matching contributions of $2,500 each were made to nine directors in 1999. (b) Preferred and Preference Stock - In 1993, IPC issued 545,000 shares of 6.40%, $50 par value preferred stock with a final redemption date of May 1, 2022. Under the provisions of the mandatory sinking fund, beginning in 2003, IPC is required to redeem annually $1.4 million of 6.40% preferred stock (27,250 shares). The carrying value of Alliant Energy's cumulative preferred stock at December 31, 1999 and 1998 was $114 million and $113 million, respectively. The fair market value, based upon the market yield of similar securities and quoted market prices, at December 31, 1999 and 1998 was $97 million and $109 million, respectively. (9) DEBT (a) Short-Term Debt - Alliant Energy maintains committed bank lines of credit, most of which are at the bank prime rates, to obtain short-term borrowing flexibility, including pledging lines of credit as security for any commercial paper outstanding. Amounts available under these committed lines of credit totaled $250 million as of December 31, 1999. Commitment fees are paid to maintain these lines and there are no conditions which restrict the unused lines of credit. Resources also maintains a revolving credit agreement with various banking institutions. The unborrowed portion of this agreement is also used to support Resources' commercial paper program. The amount available under this agreement as of December 31, 1999, was $150 million. Resources is also party to a revolving 3-Year Credit Agreement with various banking institutions. The agreement extends through October 2000, with one-year extensions available upon agreement by the parties. Unused borrowing availability under this agreement is also used to support Resources' commercial paper program. A combined maximum of $450 million of borrowings under this agreement and the commercial paper program may be outstanding at any one time. Interest rates and maturities are set at the time of borrowing. The rates are based upon quoted market prices and the maturities are less than one year. At December 31, 1999, Resources had $139 million of commercial paper outstanding and backed by its 3-Year Credit Agreement with discount rates ranging from 5.90%-6.32%. Resources intends to continue issuing commercial paper backed by this facility and no conditions existed at December 31, 1999 that would prevent the issuance of commercial paper or direct borrowings on its bank lines. As a result, Alliant Energy had been classifying this debt as long-term. However, since this agreement expires in October 2000, beginning in October 1999 this debt (including commercial paper backed by this facility) is now being classified as short-term. 76 Information regarding short-term debt is as follows (dollars in millions):
1999 1998 1997 ---------------- ---------------- --------------- As of year end: Commercial paper outstanding $374.7 $64.5 $114.5 Notes payable outstanding $50.0 $51.8 $42.0 Discount rates on commercial paper 5.60-6.50% 5.10-6.55% 5.82-5.90% Interest rates on notes payable 6.30% 5.44-7.00% 5.00-5.90% For the year ended: Average amount of short-term debt (based on daily outstanding balances) $185.9 $126.6 $211.0 Average interest rate on short-term debt 5.44% 5.55% 5.61%
(b) Long-Term Debt - IESU's Indentures and Deeds of Trust securing its First Mortgage Bonds constitute direct first mortgage liens upon substantially all tangible public utility property. IESU's Indenture and Deed of Trust securing its Collateral Trust Bonds constitutes a second lien on substantially all tangible public utility property while First Mortgage Bonds remain outstanding. Substantially all of WP&L's and IPC's utility plant is secured by their First Mortgage Bonds. WP&L also maintains an unsecured indenture relating to the issuance of debt securities. In addition, Alliant Energy's long-term debt includes unsecured debentures, notes payable and revenue bonds related to its affordable housing properties. Debt maturities (excluding periodic sinking fund requirements, which will not require additional cash expenditures) for 2000 to 2004 are $54.8 million, $84.4 million, $2.4 million, $7.5 million and $89.8 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 at December 31, 1999 and 1998 was $1,597 million and $1,664 million, respectively. The fair market value, based upon the market yield of similar securities and quoted market prices, at December 31, 1999 and 1998 was $1,561 million and $1,753 million, respectively. Refer to MD&A for a further discussion of Alliant Energy's debt. (10) INVESTMENTS AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS Information relating to various investments and financial instruments held by Alliant Energy is as follows (in millions):
December 31, 1999 December 31, 1998 ------------------------------------- ----------------------------------- Gross Gross Unrealized Carrying Fair Unrealized Carrying Fair Gains/(Losses) Value Value Gains/(Losses) Value Value ----------- -------- ---------------- ----------- ------- ----------------- Nuclear decommissioning trust funds: Equity securities $112 $112 $80 $98 $98 $56 Debt securities 159 159 (4) 128 128 3 Total 271 271 76 226 226 59 Investment in McLeod 1,124 1,124 1,096 320 320 291 Investments in New Zealand/Australia 125 131 11 32 44 (0.1)
The fair market value of the New Zealand/Australia investments is generally based on quoted market prices. The difference in the carrying value and fair value relates to investments that are not marked to market under SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities." 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 IESU, WP&L and IPC are subject to regulation, any gains or losses related to the difference between the carrying amount and the fair value of its financial instruments may not be realized by Alliant Energy's shareowners. 77 Nuclear Decommissioning Trust Funds - As required by SFAS 115, IESU's and WP&L's debt and equity security investments in the nuclear decommissioning trust funds are classified as available for sale. The fair market value of the nuclear decommissioning trust funds is 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. The funds realized gains from the sales of securities of $6.6 million, $1.2 million and $0.2 million in 1999, 1998 and 1997, respectively (cost of the investments based on specific identification were $111.7 million, $71.9 million and $68.6 million, respectively). Investment in McLeod - Alliant Energy held 19.1 million and 20.6 million of shares of common stock (including 2.6 million unexercised vested options) in McLeod, a telecommunications company, at December 31, 1999 and 1998, respectively. The cost basis of the investment, net of the cost to exercise the options, was $28 million and $29 million at December 31, 1999 and 1998, respectively. McLeod declared a 2-for-1 stock split which was effective in July 1999 (the December 1998 shares have been adjusted for the split). Pursuant to the provisions of SFAS 115, Alliant Energy's investment in McLeod is considered an available-for-sale security thus the carrying value of the investment is adjusted to the estimated fair value each quarter based on the closing price at the end of the quarter. The adjustments do not impact earnings as the unrealized gains or losses, net of taxes, are recorded directly to the common equity section of the Consolidated Balance Sheets and are a component of "Accumulated other comprehensive income." In addition, any such gains or losses are reflected in current earnings only at the time they are realized through a sale. Alliant Energy sold approximately 7% (1.4 million shares, as adjusted for the stock split) of its investment in McLeod in 1999, resulting in pre-tax gains of $40.3 million (proceeds of $40.9 million less a cost basis of $0.6 million as computed under the first-in-first-out (FIFO) method). Alliant Energy entered into an agreement in November 1998, as amended, with McLeod whereby Alliant Energy's ability to sell the McLeod stock is subject to various restrictions. The agreement provides that until December 31, 2001, Alliant Energy and its affiliates generally may not sell or otherwise dispose of shares of McLeod stock beneficially owned by Alliant Energy and its affiliates, other than to a subsidiary of Alliant Energy, without the prior written consent of the Board of Directors of McLeod. However, the amended agreement provides that the Board of Directors of McLeod may permit Alliant Energy and its affiliates to sell a specified number of shares of McLeod stock per quarter during specified time periods. In addition, if Alliant Energy and its affiliates are not provided the opportunity to sell, on an annual basis, an aggregate number of shares of McLeod stock equal to 15% of the shares of McLeod stock owned by Alliant Energy and its affiliates as of December 31, 1998, then Alliant Energy may terminate the amended November 1998 agreement. Investments in Foreign Entities - Alliant Energy has investments in foreign entities on its Consolidated Balance Sheets that included investments in several New Zealand and Australian utility entities, investments in several generation facilities in China and an investment in secured debentures of a development project in Mexico. The New Zealand and Australian investments are accounted for under the cost method and the China investments are accounted for under the equity method. The geographic concentration of these investments at December 31 was as follows (in millions): 1999 1998 ---------- --------- New Zealand/Australia $125 $32 China 62 36 Mexico 10 -- Other 1 1 ---------- --------- $198 $69 ========== ========= Refer to Note 11 for a discussion of Alliant Energy's derivative financial instruments. (11) DERIVATIVE FINANCIAL INSTRUMENTS Information relating to derivative financial instruments utilized by Alliant Energy is as follows: (a) Interest Rate Swaps and Forward Contracts - In November 1999, Resources terminated its two interest rate swap agreements, each with notional amounts 78 of $100 million of debt. The agreements converted variable rate debt into fixed rate debt and Resources received an insignificant settlement payment upon termination which was recorded as an offset to interest expense. On November 1, 1999, Resources entered into an interest rate forward contract with a notional amount of $250 million related to the anticipated issuance of $250 million of senior notes. The senior notes were priced on November 4, 1999, and the forward contract was settled, which resulted in a cash payment of $2.5 million by Resources. Because the fair value of the change in the forward contract was highly correlated to the fair value of the change in the senior notes, the $2.5 million is being deferred as an adjustment to the carrying value of the notes and amortized into interest expense over the life of the senior notes, which mature in 2009. At December 31, 1999, WP&L had two interest rate swap agreements outstanding (both expiring in January 2000), with an aggregate notional amount of $30 million. The agreements converted variable rate debt into fixed rate debt. If WP&L had terminated the agreements at December 31, 1999, WP&L would have made an insignificant payment. Settlements on these swaps occurring during the year were recorded as a component of interest expense. (b) Utility Gas Commodities Instruments - WP&L uses gas commodity swaps to reduce the impact of price fluctuations on gas purchased and injected into storage during the summer months and withdrawn and sold at current market prices during the winter months. The notional amount of gas commodity swaps outstanding as of December 31, 1999 and 1998 was 1.9 million and 5.8 million dekatherms, respectively. Unrealized gains/losses are deferred and accounted for as hedges of the fair value of the gas in storage as the indexed price WP&L pays is highly correlated to the market price that WP&L will receive from customers under the current rate making structure. If WP&L had terminated all of the agreements existing at December 31, 1999 and 1998, WP&L would have realized an estimated gain of $0.1 million and $0.8 million, respectively, based on current NYMEX gas futures contracts adjusted for the proper basis differential. Settlements of these swaps are recorded as an adjustment to the cost of gas sold in the period that coincides with the withdrawal and sale of the hedged gas in storage. (c) Oil and Gas Commodities Instruments - Whiting is exposed to commodity price risk in the pricing of its oil and gas production. Alliant Energy entered into swap transactions in the third quarter of 1999 to hedge the ultimate sales price for approximately two-thirds of Whiting's anticipated gas production from November 1, 1999 through December 31, 2000. At December 31, 1999, the notional amount of these swaps was 13.4 million dekatherms and the estimated fair value was approximately $1.9 million. The fair value was determined based on the difference between the fixed price of the swaps and NYMEX futures prices, adjusted for the necessary basis differential. In December 1999, Alliant Energy entered into a crude oil swap to fix Whiting's ultimate sales price for 650 barrels per day from December 1, 1999 to December 31, 2000. At December 31, 1999, the estimated fair value of these swaps was approximately ($0.3) million, as determined by the difference between the fixed prices of the swaps and NYMEX futures prices for the appropriate delivery locations. Alliant Energy also used commodity derivative instruments to hedge a portion of the anticipated sales of Whiting's gas production during 1999. The notional amounts of these derivative instruments was 11,530,000 dekatherms, none of which were outstanding at December 31, 1999. The net settlements of such instruments resulted in Alliant Energy recognizing a pre-tax loss of $5.2 million in 1999. All of Whiting's gas and crude oil swaps are treated as hedges of the anticipated sales of Whiting's production as the notional amounts and fixed prices of these swaps are highly correlated to Whiting's volumes of production and the ultimate sales prices of such production. Settlements related to all of Whiting's swaps are recognized as income in the periods in which the swap is settled, which coincides with the sale of the hedged oil and gas production. (d) Weather Derivatives - WP&L uses weather derivatives to reduce the impact of weather volatility on its natural gas sales volumes. In September 1998, WP&L entered into a non-exchange traded "weather collar" with a contract period commencing on November 1, 1998 and ending on March 31, 1999. The maximum amount to be paid or received under the collar was $5,000,000. WP&L recognized a gain in "Miscellaneous, net" on this collar of $2.5 million in the first quarter of 1999 upon termination of the collar. In August 1999, WP&L entered into a non-exchange traded "weather collar" with a contract period commencing on November 1, 1999 and ending on March 31, 2000. The maximum payment amount is $5,000,000. Pursuant to the requirements of EITF-99-2, WP&L is accounting for this instrument using the intrinsic value method and recognized an unrealized gain in "Miscellaneous, net" of $2.4 million in the fourth quarter of 1999. 79 (e) Nuclear Decommissioning Trust Fund Investments - WP&L entered into an equity collar that uses written options to mitigate the effect of significant market fluctuations on its common stock investments in its nuclear decommissioning trust funds. The program is 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 two-year hedge period, which expires September 2000. The notional amount of the options was $78 million and $52 million at December 31, 1999 and 1998, respectively. The options are reported at fair market value each reporting period. These fair value changes do not impact net income as they are recorded as equally offsetting changes in the investment in nuclear decommissioning trust funds and accumulated depreciation. The option liability fair value exceeded the premium received by $17.8 million and $8.9 million at December 31, 1999 and December 31, 1998, respectively, as reported by the trustee. (12) COMMITMENTS AND CONTINGENCIES (a) Construction and Acquisition Program - Plans for Alliant Energy's construction and acquisition program can be found elsewhere in this report in the "Liquidity and Capital Resources - Capital Requirements" section of MD&A. (b) Purchased-Power, Coal and Natural Gas Contracts - Alliant Energy has entered into purchased-power capacity and coal contracts and its minimum commitments are as follows (dollars in millions, MWHs and tons in thousands): Coal Purchased-Power (including transportation) ------------------- ---------------------- Dollars MWHs Dollars Tons -------- --------- --------- ----------- 2000 $108.2 1,571 $63.2 16,227 2001 69.6 925 44.5 11,434 2002 47.0 280 19.6 5,991 2003 36.5 280 14.2 4,993 2004 25.2 219 11.7 3,878 Alliant Energy is in the process of negotiating several new coal contracts. In addition, it expects to supplement its coal contracts with spot market purchases to fulfill its future fossil fuel needs. Alliant Energy also has various natural gas supply, transportation and storage contracts outstanding. The minimum dekatherm commitments, in millions, for 2000-2004 are 185.6, 150.8, 133.2, 110.3 and 9.8, respectively. The minimum dollar commitments for 2000-2004, in millions, are $94.0, $70.3, $47.7, $40.0 and $3.2, respectively. The gas supply commitments are all index-based. Alliant Energy expects to supplement its natural gas supply with spot market purchases as needed. (c) Information Technology Services - Alliant Energy has an agreement, expiring in 2004, with EDS for information technology services. Alliant Energy's anticipated operating and capital expenditures under the agreement for 2000 are estimated to total approximately $16 million. Future costs under the agreement are variable and are dependent upon Alliant Energy's level of usage of technological services from EDS. (d) Financial Guarantees and Commitments - Alliant Energy has financial guarantees, which were generally issued to support third-party borrowing arrangements and similar transactions, amounting to $17 million and $18 million outstanding at December 31, 1999 and 1998, respectively. Such guarantees are not reflected in the consolidated financial statements. Management believes that the likelihood of Alliant Energy having to make any material cash payments under these agreements is remote. In addition, as part of Alliant Energy's electricity trading joint venture with Cargill, both Alliant Energy and Cargill have made guarantees to certain counterparties regarding the performance of contracts entered into by the joint venture. Revocable guarantees of approximately $95 million and $50 million have been issued, of which approximately $20 million and $5 million were outstanding at December 31, 1999 and 1998, respectively. Under the terms of the joint venture agreement, any payments required under the guarantees would be shared by Alliant Energy and Cargill on a 50/50 basis to the extent the joint venture is not able to reimburse the guarantor for payments made under the guarantee. 80 As of December 31, 1999 and 1998, Resources had extended commitments to provide $6.1 million and $19 million, respectively, in nonrecourse, permanent financing to developers which were secured by affordable housing properties. Alliant Energy anticipates other lenders will ultimately finance these properties. (e) Nuclear Insurance Programs - Public liability for nuclear accidents is governed by the Price Anderson Act of 1988, which sets a statutory limit of $9.5 billion for liability to the public for a single nuclear power plant incident and requires nuclear power plant operators to provide financial protection for this amount. As required, IESU provides this financial protection for a nuclear incident at DAEC through a combination of liability insurance ($200 million) and industry-wide retrospective payment plans ($9.3 billion). Under the industry-wide plan, each operating licensed nuclear reactor in the U.S. is subject to an assessment in the event of a nuclear incident at any nuclear plant in the U.S. The owners of DAEC could be assessed a maximum of $88.1 million per nuclear incident, with a maximum of $10 million per incident per year (of which IESU's 70% ownership portion would be approximately $61.7 million and $7 million, respectively) if losses relating to the incident exceeded $200 million. These limits are subject to adjustments for changes in the number of participants and inflation in future years. On a similar note, WP&L, as a 41% owner of Kewaunee, is subject to an overall assessment of approximately $36.1 million per incident, not to exceed $4.1 million payable in any given year. IESU and WP&L are members of NEIL, which provides $1.9 billion of insurance coverage for IESU and $1.8 billion for WP&L on certain property losses for property damage, decontamination and premature decommissioning. The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair and premature decommissioning. NEIL also provides separate coverage for additional expense incurred during certain outages. Owners of nuclear generating stations insured through NEIL are subject to retroactive premium adjustments if losses exceed accumulated reserve funds. NEIL's accumulated reserve funds are currently sufficient to more than cover its exposure in the event of a single incident under the primary and excess property damage or additional expense coverages. However, IESU could be assessed annually a maximum of $1.9 million for NEIL primary property, $2.8 million for NEIL excess property and $0.5 million for NEIL additional expenses if losses exceed the accumulated reserve funds. WP&L could be assessed annually a maximum of $1.1 million for NEIL primary property, $1.6 million for NEIL excess property and $0.4 million for NEIL additional expense coverage. IESU and WP&L are not aware of any losses that they believe are likely to result in an assessment. In the unlikely event of a catastrophic loss at Kewaunee or DAEC, the amount of insurance available may not be adequate to cover property damage, decontamination and premature decommissioning. Uninsured losses, to the extent not recovered through rates, would be borne by Alliant Energy and could have a material adverse effect on Alliant Energy's financial condition and results of operations. (f) Environmental Liabilities - Alliant Energy had recorded the following environmental liabilities, and regulatory assets associated with certain of these liabilities, as of December 31 (in millions):
1999 1998 ---------------------------------------------- ---------------------------------------------- Environmental liabilities IESU WP&L IPC Resources Total IESU WP&L IPC Resources Total ------- --------- -------- ------------ ------- ------- --------- ------- ------------ ------- MGP sites $24.5 $7.3 $16.2 -- $48.0 $26.6 $7.7 $17.5 -- $51.8 NEPA 7.0 4.1 -- -- 11.1 7.8 4.6 -- -- 12.4 Oil and gas properties -- -- -- $13.0 13.0 -- -- -- $13.0 13.0 Other 0.3 0.1 0.5 0.1 1.0 0.4 -- 0.6 0.2 1.2 ------- --------- -------- ------------ ------- ------- --------- ------- ------------ ------- $31.8 $11.5 $16.7 $13.1 $73.1 $34.8 $12.3 $18.1 $13.2 $78.4 ======= ========= ======== ============ ======= ======= ========= ======= ============ =======
1999 1998 ----------------------------------- ----------------------------------- Regulatory assets IESU WP&L IPC Total IESU WP&L IPC Total ------- ---------- ------- -------- ------- ---------- -------- ------- MGP sites $24.5 $14.2 $15.7 $54.4 $26.6 $14.1 $17.5 $58.2 NEPA 7.7 4.9 -- 12.6 8.4 5.4 -- 13.8 Other 0.2 -- -- 0.2 0.2 -- -- 0.2 ------- ---------- ------- -------- ------- ---------- -------- ------- $32.4 $19.1 $15.7 $67.2 $35.2 $19.5 $17.5 $72.2 ======= ========== ======= ======== ======= ========== ======== =======
Alliant Energy's significant environmental liabilities are discussed further below. 81 Manufactured Gas Plant Sites - IESU, WP&L and IPC have current or previous - ---------------------------- ownership interests in 34, 14 and 9 sites, respectively, previously associated with the production of gas for which they may be liable for investigation, remediation and monitoring costs relating to the sites. The companies are working pursuant to the requirements of various federal and state agencies to investigate, mitigate, prevent and remediate, where necessary, the environmental impacts to property, including natural resources, at and around the sites in order to protect public health and the environment. The companies each believe that they have completed the remediation at various sites, although they are still in the process of obtaining final approval from the applicable environmental agencies for some of these sites. Each company records environmental liabilities based upon periodic studies, most recently updated in the third quarter of 1999, related to the MGP sites. Such amounts are based on the best current estimate of the remaining amount to be incurred for investigation, remediation and monitoring costs for those sites where the investigation process has been or is substantially completed, and the minimum of the estimated cost range for those sites where the investigation is in its earlier stages. It is possible that future cost estimates will be greater than current estimates as the investigation process proceeds and as additional facts become known. The amounts recognized as liabilities are reduced for expenditures made and are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their fair value. Management currently estimates the range of remaining costs to be incurred for the investigation, remediation and monitoring of all Alliant Energy sites to be approximately $33 million to $61 million. IESU, WP&L and IPC currently estimate their share of the remaining costs to be incurred to be approximately $16 million to $33 million, $6 million to $8 million, and $11 million to $20 million, respectively. Under the current rate making treatment approved by the PSCW, the MGP expenditures of WP&L, net of any insurance proceeds, are deferred and collected from gas customers over a five-year period after new rates are implemented. The MPUC also allows the deferral of MGP-related costs applicable to the Minnesota sites and IPC has been successful in obtaining approval to recover such costs in rates in Minnesota. The IUB has permitted utilities to recover prudently incurred costs. As a result, regulatory assets have been recorded by each company which reflect the probable future rate recovery, where applicable. Considering the current rate treatment, and assuming no material change therein, IESU, WP&L and IPC believe that the clean-up costs incurred for these MGP sites will not have a material adverse effect on their respective financial conditions or results of operations. Settlement has been reached with all of IESU's and WP&L's insurance carriers regarding reimbursement for its MGP-related costs and all issues have been resolved. IPC has settled with all but one of its insurance carriers. The following insurance recoveries were available as of December 31 (in millions): 1999 1998 --------- -------- IESU $18.5 $18.5 IPC 5.3 4.8 WP&L 2.1 2.1 --------- -------- $25.9 $25.4 ========= ======== Pursuant to their applicable rate making treatment, IESU and IPC have recorded their recoveries in "Other long-term liabilities and deferred credits" and WP&L has recorded its recoveries as an offset against its regulatory assets. National Energy Policy Act of 1992 - 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. IESU is recovering the costs associated with this assessment through its electric fuel adjustment clauses over the period the costs are assessed. Alliant Energy continues to pursue relief from this assessment through litigation. Oil and Gas Properties Dismantlement and Abandonment Costs - Whiting is - ---------------------------------------------------------- responsible for certain dismantlement and abandonment costs related to various 82 off-shore oil and gas platforms (and related on-shore plants and equipment), the most significant of which is located off the coast of California. Whiting estimates the total costs for these properties to be approximately $13 million and the most significant expenditures are not expected to be incurred until 2004. In accordance with applicable accounting requirements, Whiting has accrued these costs. (g) Spent Nuclear Fuel - Nuclear Waste Policy Act of 1982 assigned responsibility to the DOE to establish a facility for the ultimate disposition of high level waste and spent nuclear fuel and authorized the DOE to enter into contracts with parties for the disposal of such material beginning in January 1998. IESU and WP&L entered into such contracts and have made the agreed payments to the Nuclear Waste Fund held by the U.S. Treasury. The companies were subsequently notified by the DOE that it was not able to begin acceptance of spent nuclear fuel by the January 31, 1998 deadline. Furthermore, the DOE has experienced significant delays in its efforts and material acceptance is now expected to occur no earlier than 2010 with the possibility of further delay being likely. Alliant Energy has participated in several litigation proceedings against the DOE on this issue and the respective courts have affirmed the DOE's responsibility for spent nuclear fuel acceptance. Alliant Energy is evaluating its options for recovery of damages due to the DOE's delay in accepting spent nuclear fuel. The Nuclear Waste Policy Act of 1982 assigns responsibility for interim storage of spent nuclear fuel to generators of such spent nuclear fuel, such as IESU and WP&L. In accordance with this responsibility, IESU and WP&L have been storing spent nuclear fuel on site at DAEC and Kewaunee, respectively, since plant operations began. IESU will have to increase its spent fuel storage capacity at DAEC to store all of the spent fuel that will be produced before the current license expires in 2014. To provide assurance that both the operating and post-shutdown storage needs are satisfied, construction of a dry cask storage facility is being planned. With minor modifications planned for 2001, Kewaunee would have sufficient fuel storage capacity to store all of the fuel it will generate through the end of the NRC license life in 2013. No decisions have been made concerning post-shutdown storage needs. Legislation is being considered on the federal level that would, among other provisions, expand the DOE's permanent spent nuclear fuel storage to include interim storage for spent nuclear fuel as early as 2003. This legislation has been passed in the U.S. Senate and submitted in the U.S. House. The prospects for the legislation being approved by the U.S. Senate and the President, and subsequent successful implementation by the DOE, are uncertain at this time. (h) Decommissioning of DAEC and Kewaunee - Pursuant to the most recent electric rate case order, the IUB and PSCW allow IESU and WP&L to recover $6 million and $16 million annually for their share of the cost to decommission DAEC and Kewaunee, respectively. 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 included in the most recent electric rate orders (dollars in millions):
DAEC Kewaunee ------------------------- ---------------------- Assumptions relating to current rate recovery figures: Alliant Energy's share of estimated decommissioning cost $252.8 $200.8 Year dollars in 1993 1999 Method to develop estimate NRC minimum formula Site-specific study Annual inflation rate 4.91% 5.83% Decommissioning method Prompt dismantling Prompt dismantling and removal and removal Year decommissioning to commence 2014 2013 After-tax return on external investments: Qualified 7.34% 5.62% Non-qualified 5.98% 6.97% External trust fund balance at December 31, 1999 $105.1 $166.2 Internal reserve at December 31, 1999 $21.7 -- After-tax earnings (losses) on external trust funds in 1999 $4.8 ($4.3)
83 The rate recovery figures for DAEC only included an inflation estimate through 1997. Both IESU and WP&L are funding all rate recoveries for decommissioning into external trust funds and funding on a tax-qualified basis to the extent possible. All of the rate recovery assumptions are subject to change in future regulatory proceedings. In accordance with their respective regulatory requirements, IESU and WP&L record the earnings on the external trust funds as interest income with a corresponding entry to interest expense at IESU and to depreciation expense at WP&L. The earnings accumulate in the external trust fund balances and in accumulated depreciation on utility plant. IESU's 70% share of the estimated cost to decommission DAEC based on the most recent site-specific study completed in 1998 is $334.2 million, in 1998 dollars. This study includes the costs to terminate DAEC's NRC license and to return the site to a greenfield condition. IESU's 70% share of the estimated cost to decommission DAEC based on the most recent NRC minimum formula, using the direct disposal method, is $351.2 million in 1998 dollars. The NRC minimum formula is intended to apply only to the cost of terminating DAEC's NRC license. The additional decommissioning expense funding requirements which should result from these updated studies are not reflected in IESU's rates. (i) 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 outcome 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. (13) JOINTLY-OWNED ELECTRIC UTILITY PLANT Under joint ownership agreements with other Iowa and Wisconsin utilities, IESU, WP&L and IPC have undivided ownership interests in jointly-owned electric generating stations and related transmission facilities. Each of the respective owners is responsible for the financing of its portion of the construction costs. Kilowatt-hour 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 IESU's, WP&L's and IPC's ownership interest in these facilities at December 31, 1999 is as follows (dollars in millions):
1999 1998 -------------------------------- ----------------------------- Plant Accumulated Accumulated Name-plate Provision Plant Provision Ownership In-service MW Plant in for in for Interest % Date Capacity Service Depreciation CWIP Service Depreciation CWIP - ------------------- ----------- -------- ----------- -- --------- ------------- -------- -------- ------------- ------- IESU Coal: Ottumwa Unit 1 48.0 1981 716 $195.3 $107.8 $0.5 $193.1 $102.7 $0.8 Neal Unit 3 28.0 1975 515 59.2 32.1 -- 59.0 32.4 0.1 Nuclear: DAEC 70.0 1974 520 515.8 264.4 8.6 507.1 247.2 1.4 --------- ------------- -------- -------- ------------- ------- Total IESU $770.3 $404.3 $9.1 $759.2 $382.3 $2.3 --------- ------------- -------- -------- ------------- ------- WP&L Coal: Columbia Energy 1975 & Center 46.2 1978 1,023 $163.2 $97.8 $2.6 $161.5 $93.8 $1.4 Edgewater Unit 4 68.2 1969 330 52.7 32.0 0.7 52.4 30.8 0.4 Edgewater Unit 5 75.0 1985 380 229.3 92.2 0.6 229.0 85.9 0.2 Nuclear: Kewaunee 41.0 1974 535 135.0 100.7 13.6 132.2 93.7 6.4 --------- ------------- ------- --------- ------------ ------- Total WP&L $580.2 $322.7 $17.5 $575.1 $304.2 $8.4 --------- ------------- ------- --------- ------------ ------- IPC Coal: Neal Unit 4 21.5 1979 640 $83.5 $51.1 $-- $82.1 $48.4 $1.5 Louisa Unit 1 4.0 1983 738 24.7 12.5 -- 24.7 11.7 -- --------- ------------- ------- --------- ------------ ------- Total IPC $108.2 $63.6 $-- $106.8 $60.1 $1.5 --------- ------------- ------- --------- ------------ ------- Total Alliant Energy $1,458.7 $790.6 $26.6 $1,441.1 $746.6 $12.2 ========= ============= ======= ========= ============ =======
84 (14) SEGMENTS OF BUSINESS Alliant Energy's principal business segments are: o Regulated domestic utilities - consists of Alliant Energy's three regulated utility operating companies (IESU, WP&L and IPC) serving customers in Iowa, Wisconsin, Minnesota and Illinois. The regulated domestic utility business is broken down into three segments which are: a) electric operations; b) gas operations; and c) other, which includes the water and steam businesses and the unallocated portions of the utility business. o Non-regulated businesses - represents the operations of Resources and its subsidiaries. This includes domestic and international energy products and services businesses; industrial services, which includes environmental, engineering and transportation services; investments in affordable housing initiatives; and investments in various other strategic initiatives. o Other - includes the operations of Alliant Energy's parent company and Corporate Services, as well as any reconciling/eliminating entries. Intersegment revenues were not material to Alliant Energy's operations and there was no single customer whose revenues exceeded 10% or more of Alliant Energy's consolidated revenues. Refer to Note 10 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 is presented below:
Regulated Domestic Utilities Non-regulated Alliant Energy ---------------------------------------------- Electric Gas Other Total Businesses Other Consolidated - ---------------------------------------------------------------------------------------------------------------------------- (in millions) 1999 Operating revenue $1,548.9 $ 314.3 $32.1 $1,895.3 $305.0 ($2.3) $2,198.0 Depreciation and amortization expense 219.3 25.2 2.9 247.4 31.7 -- 279.1 Operating income (loss) 345.1 27.4 5.3 377.8 (1.3) -- 376.5 Interest expense, net of AFUDC 100.7 100.7 24.8 3.4 128.9 Preferred and preference dividends 6.7 6.7 -- -- 6.7 Net (income) loss from equity method subsidiaries (0.3) (0.3) (2.9) 0.2 (3.0) Gains on sales of McLeod stock -- -- (40.3) -- (40.3) Miscellaneous, net (other than equity income/loss) (5.4) (5.4) (27.6) 0.1 (32.9) Income tax expense (benefit) 115.0 115.0 6.9 (1.4) 120.5 Net income (loss) 161.1 161.1 37.8 (2.3) 196.6 Total assets 3,321.8 477.6 385.2 4,184.6 1,848.6 42.5 6,075.7 Investments in equity method subsidiaries 5.7 5.7 74.0 -- 79.7 Construction and acquisition expenditures 246.9 35.5 3.3 285.7 192.1 0.8 478.6 - ----------------------------------------------------------------------------------------------------------------------------
85
Regulated Domestic Utilities Non-regulated Alliant Energy ------------------------------------------------ Electric Gas Other Total Businesses Other Consolidated - ---------------------------------------------------------------------------------------------------------------------------- (in millions) 1998 Operating revenues $1,567.5 $295.6 $31.2 $1,894.3 $238.7 ($2.1) $2,130.9 Depreciation and amortization expense 219.4 23.7 2.6 245.7 33.8 -- 279.5 Operating income (loss) 271.5 16.0 5.6 293.1 (8.6) (1.2) 283.3 Interest expense, net of AFUDC 97.0 97.0 23.3 2.3 122.6 Preferred and preference dividends 6.7 6.7 -- -- 6.7 Net (income) loss from equity method subsidiaries (0.9) (0.9) 2.2 -- 1.3 Miscellaneous, net (other than equity income/loss) 3.5 3.5 (8.0) 2.4 (2.1) Income tax expense (benefit) 77.2 77.2 (17.2) (1.9) 58.1 Net income (loss) 109.6 109.6 (8.9) (4.0) 96.7 Total assets 3,268.5 477.0 386.0 4,131.5 869.2 (41.4) 4,959.3 Investments in equity method subsidiaries 5.2 5.2 49.4 -- 54.6 Construction and acquisition expenditures 233.7 33.2 2.3 269.2 102.9 -- 372.1 - ----------------------------------------------------------------------------------------------------------------------------
Regulated Domestic Utilities Non-regulated Alliant Energy ------------------------------------------------ Electric Gas Other Total Businesses Other Consolidated - ---------------------------------------------------------------------------------------------------------------------------- (in millions) 1997 - ---- Operating revenues $1,515.7 $393.9 $30.9 $1,940.5 $362.0 ($1.9) $2,300.6 Depreciation and amortization expense 201.7 21.6 2.4 225.7 34.0 -- 259.7 Operating income (loss) 316.9 29.3 2.2 348.4 (6.8) (5.2) 336.4 Interest expense, net of AFUDC 95.7 95.7 23.2 (1.6) 117.3 Preferred and preference dividends 6.7 6.7 -- -- 6.7 Net (income) loss from equity method subsidiaries -- -- 0.8 -- 0.8 Miscellaneous, net (other than equity income/loss) (8.2) (8.2) (8.3) 1.8 (14.7) Income tax expense (benefit) 101.7 101.7 (18.6) (1.4) 81.7 Net income (loss) 152.5 152.5 (4.0) (3.9) 144.6 Total assets 3,262.3 471.5 343.2 4,077.0 838.5 8.1 4,923.6 Investments in equity method subsidiaries 5.7 5.7 39.2 -- 44.9 Construction and acquisition expenditures 217.0 34.0 5.7 256.7 71.3 -- 328.0 - ----------------------------------------------------------------------------------------------------------------------------
86
Products and Services Revenues ----------------------------------------------------------------------------------------------------------------- Regulated Domestic Utilities Non-regulated Businesses ------------------------------------ --------------------------------------------------------------------------- Total Industrial Oil and Gas Non-regulated Year Electric Gas Other Services Production Transportation Other Businesses - -------------------------------------------- --------------------------------------------------------------------------- (in millions) 1999 $1,548.9 $314.3 $32.1 $196.0 $62.6 $21.6 $24.8 $305.0 1998 1,567.5 295.6 31.2 127.2 64.6 22.0 24.9 238.7 1997 1,515.7 393.9 30.9 245.4 68.9 21.3 26.4 362.0
(15) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
Quarter Ended ------------------------------------------------------------------------ March 31 June 30 September 30 December 31 ----------------- ---------------- ------------------ ----------------- (in millions, except per share data) 1999 Operating revenues $546.9 $486.1 $598.3 $566.7 Operating income 93.0 60.2 130.8 92.5 Net income * 41.7 38.6 71.5 44.8 Earnings per average common share (basic and diluted) * 0.54 0.49 0.91 0.57 1998 Operating revenues $556.3 $491.0 $555.3 $528.3 Operating income 73.9 32.6 122.2 54.6 Net income (loss) ** 28.9 (9.1) 51.7 25.2 Earnings per average common share (basic and diluted) ** 0.38 (0.12) 0.67 0.33
* In the second and fourth quarters of 1999, Alliant Energy realized pre-tax gains on the sales of McLeod stock of approximately $34 million and $6 million, respectively. ** Net income for 1998 was impacted by the recording of approximately $10 million, $35 million, $6 million and $3 million of pre-tax merger-related expenses in the first, second, third and fourth quarters, respectively. (16) SUBSEQUENT EVENTS In January 2000, Resources acquired a non-controlling interest in four Brazilian electric utilities serving more than 820,000 customers for a total investment of approximately $347 million. On January 25, 2000, Resources committed to a private placement of exchangeable senior notes in the original aggregate principal amount of $402.5 million, due in 2030, with a closing date of February 1, 2000. The exchangeable senior notes have an interest rate of 7.25% through February 15, 2003 and 2.5% thereafter. The exchangeable senior notes are exchangeable for cash based upon the higher of the amount borrowed or the value of McLeod Class A Common Stock. Alliant Energy has agreed to fully and unconditionally guarantee the payment of principal and interest on the exchangeable senior notes. Refer to the "Liquidity and Capital Resources - Future Considerations" section of MD&A for additional details. 87 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareowners of IES Utilities Inc.: We have audited the accompanying consolidated balance sheets and statements of capitalization of IES Utilities Inc. (an Iowa corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1999. These financial statements and the supplemental schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and supplemental schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IES Utilities Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Milwaukee, Wisconsin January 28, 2000 88
IES UTILITIES INC. CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 1999 1998 1997 - -------------------------------------------------------------------------------------------------------- (in thousands) Operating revenues: Electric utility $627,950 $639,423 $604,270 Gas utility 145,825 141,279 183,517 Steam and other 26,921 26,228 26,191 ---------------- ---------------- ---------------- 800,696 806,930 813,978 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 95,247 113,181 108,344 Purchased power 82,402 71,637 74,098 Cost of gas sold 88,308 84,642 126,631 Other operation 174,417 187,932 161,418 Maintenance 48,504 52,040 53,833 Depreciation and amortization 101,053 93,965 89,754 Taxes other than income taxes 49,266 48,537 46,130 ---------------- ---------------- ---------------- 639,197 651,934 660,208 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Operating income 161,499 154,996 153,770 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 51,852 52,354 52,791 Allowance for funds used during construction (2,366) (3,351) (2,309) Miscellaneous, net (3,818) 2,589 2,279 ---------------- ---------------- ---------------- 45,668 51,592 52,761 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Income before income taxes 115,831 103,404 101,009 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Income taxes 49,385 41,494 42,216 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Net income 66,446 61,910 58,793 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Preferred dividend requirements 914 914 914 ---------------- ---------------- ---------------- - -------------------------------------------------------------------------------------------------------- Earnings available for common stock $65,532 $60,996 $57,879 ================ ================ ================ - -------------------------------------------------------------------------------------------------------- IES UTILITIES INC. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Year Ended December 31, 1999 1998 1997 - -------------------------------------------------------------------------------------------------------- (in thousands) Balance at beginning of year $275,372 $233,216 $231,337 Net income 66,446 61,910 58,793 Cash dividends declared on common stock (87,951) (18,840) (56,000) Cash dividends declared on preferred stock (914) (914) (914) ---------------- ---------------- ---------------- Balance at end of year $252,953 $275,372 $233,216 ================ ================ ================ - -------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
89
IES UTILITIES INC. CONSOLIDATED BALANCE SHEETS December 31, ASSETS 1999 1998 - -------------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Utility - Plant in service - Electric $2,196,895 $2,140,322 Gas 207,769 198,488 Steam 59,929 55,797 Common 147,845 106,940 ----------------- ----------------- 2,612,438 2,501,547 Less - Accumulated depreciation 1,311,996 1,209,204 ----------------- ----------------- 1,300,442 1,292,343 Construction work in progress 37,572 48,991 Leased nuclear fuel, net of amortization 39,284 25,644 ----------------- ----------------- 1,377,298 1,366,978 Other property, plant and equipment, net of accumulated depreciation and amortization of $2,094 and $1,948, respectively 5,481 5,623 ----------------- ----------------- 1,382,779 1,372,601 ----------------- ----------------- - -------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 5,720 4,175 Temporary cash investments with associated companies - 53,729 Accounts receivable: Customer, less allowance for doubtful accounts of $824 and $1,058, respectively 14,130 16,703 Associated companies 5,696 2,662 Other, less allowance for doubtful accounts of $817 and $357, respectively 12,864 10,346 Income tax refunds receivable 6,007 1,754 Production fuel, at average cost 12,312 11,863 Materials and supplies, at average cost 24,722 25,591 Gas stored underground, at average cost 11,462 12,284 Adjustment clause balances 11,099 - Regulatory assets 18,569 23,487 Prepayments and other 2,921 2,431 ----------------- ----------------- 125,502 165,025 ----------------- ----------------- - -------------------------------------------------------------------------------------------------------------- Investments: Nuclear decommissioning trust funds 105,056 91,691 Other 6,119 6,019 ----------------- ----------------- 111,175 97,710 ----------------- ----------------- - -------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 123,031 137,908 Deferred charges and other 13,321 15,734 ----------------- ----------------- 136,352 153,642 ----------------- ----------------- - -------------------------------------------------------------------------------------------------------------- Total assets $1,755,808 $1,788,978 ================= ================= - -------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
90
IES UTILITIES INC. CONSOLIDATED BALANCE SHEETS (CONTINUED) December 31, CAPITALIZATION AND LIABILITIES 1999 1998 - -------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock $33,427 $33,427 Additional paid-in capital 279,042 279,042 Retained earnings 252,953 275,372 ------------------ ----------------- Total common equity 565,422 587,841 Cumulative preferred stock, not mandatorily redeemable 18,320 18,320 Long-term debt (excluding current portion) 551,079 602,020 ------------------ ----------------- 1,134,821 1,208,181 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds 51,196 50,140 Capital lease obligations 13,307 11,965 Notes payable to associated companies 56,946 - Accounts payable 41,273 43,953 Accounts payable to associated companies 17,438 22,487 Accrued payroll and vacations 7,816 6,365 Accrued interest 10,833 12,045 Accrued taxes 44,259 55,295 Accumulated refueling outage provision 1,455 6,605 Environmental liabilities 5,530 5,660 Other 8,817 17,617 ------------------ ----------------- 258,870 232,132 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 225,961 224,510 Accumulated deferred investment tax credits 26,682 29,243 Environmental liabilities 26,292 29,195 Pension and other benefit obligations 27,734 25,655 Capital lease obligations 25,977 13,679 Other 29,471 26,383 ------------------ ----------------- 362,117 348,665 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 12) - -------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $1,755,808 $1,788,978 ================== ================= - -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
91
IES UTILITIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------ (in thousands) Cash flows from operating activities: Net income $66,446 $61,910 $58,793 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 101,053 93,965 89,754 Amortization of leased nuclear fuel 11,400 12,513 14,774 Amortization of deferred energy efficiency expenditures 16,000 18,707 10,987 Deferred taxes and investment tax credits (6,399) (17,921) (16,059) Refueling outage provision (5,150) (4,001) 9,290 Impairment of regulatory assets - 8,969 - Other 1,355 (346) 3,952 Other changes in assets and liabilities: Accounts receivable (2,979) 9,690 (5,670) Gas stored underground 822 4,908 (3,740) Accounts payable (7,729) 3,158 (11,198) Accrued taxes (11,036) (3,701) 18,043 Adjustment clause balances (14,530) 8,829 5,354 Benefit obligations and other 12,450 9,433 16,020 --------------- --------------- --------------- Net cash flows from operating activities 161,703 206,113 190,300 --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Cash flows used for financing activities: Common stock dividends declared (87,951) (18,840) (56,000) Dividends payable (4,840) 4,840 - Preferred stock dividends (914) (914) (914) Proceeds from issuance of long-term debt - 10,000 190,000 Reductions in long-term debt (50,140) (10,140) (63,140) Net change in short-term borrowings 56,946 - (135,000) Principal payments under capital lease obligations (12,887) (13,250) (12,964) Other (20) (137) (871) --------------- --------------- --------------- Net cash flows used for financing activities (99,806) (28,441) (78,889) --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Cash flows used for investing activities: Utility construction expenditures (107,342) (115,371) (108,966) Deferred energy efficiency expenditures - - (8,450) Nuclear decommissioning trust funds (6,008) (6,008) (6,008) Other (731) 1,381 635 --------------- --------------- --------------- Net cash flows used for investing activities (114,081) (119,998) (122,789) --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash and temporary cash investments (52,184) 57,674 (11,378) --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Cash and temporary cash investments at beginning of period 57,904 230 11,608 --------------- --------------- --------------- - ------------------------------------------------------------------------------------------------------------------------------ Cash and temporary cash investments at end of period $5,720 $57,904 $230 =============== =============== =============== - ------------------------------------------------------------------------------------------------------------------------------ Supplemental cash flow information: Cash paid during the period for: Interest $47,307 $50,177 $46,377 =============== =============== =============== Income taxes $70,779 $64,738 $41,422 =============== =============== =============== Noncash investing and financing activities- Capital lease obligations incurred $25,040 $1,426 $16,781 =============== =============== =============== - ------------------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
92
IES UTILITIES INC. CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Common equity: Common stock - $2.50 par value - authorized 24,000,000 shares; 13,370,788 shares outstanding $33,427 $33,427 Additional paid-in capital 279,042 279,042 Retained earnings 252,953 275,372 ------------------ ------------------ 565,422 587,841 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock: Cumulative, par value $50 per share, not mandatorily redeemable - authorized 466,406 shares; 366,406 shares outstanding: 6.10% series, 100,000 shares outstanding 5,000 5,000 4.80% series, 146,406 shares outstanding 7,320 7,320 4.30% series, 120,000 shares outstanding 6,000 6,000 ------------------ ------------------ 18,320 18,320 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Long-term debt: Collateral Trust Bonds: 7.65% series, due 2000 50,000 50,000 7.25% series, due 2006 60,000 60,000 6-7/8% series, due 2007 55,000 55,000 6% series, due 2008 50,000 50,000 7% series, due 2023 50,000 50,000 5.5% series, due 2023 19,400 19,400 ------------------ ------------------ 284,400 284,400 First Mortgage Bonds: Series Y, 8-5/8%, due 2001 60,000 60,000 Series Z, 7.6%, retired in 1999 - 50,000 9-1/8% series, due 2001 21,000 21,000 7-1/4% series, due 2007 30,000 30,000 ------------------ ------------------ 111,000 161,000 Pollution control obligations: 5.75%, due serially 2000 to 2003 2,996 3,136 Variable rate (5.45% at December 31, 1999), due 2000 to 2010 11,100 11,100 Variable/fixed rate series 1998 (4.25% through 2003), due 2023 10,000 10,000 ------------------ ------------------ 24,096 24,236 Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025 50,000 50,000 Senior Debentures, 6-5/8%, due 2009 135,000 135,000 ------------------ ------------------ 604,496 654,636 ------------------ ------------------ Less: Current maturities (51,196) (50,140) Unamortized debt premium and (discount), net (2,221) (2,476) ------------------ ------------------ 551,079 602,020 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Total capitalization $1,134,821 $1,208,181 ================== ================== - ---------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
93 IES UTILITIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Except as modified below, the Alliant Energy Notes to Consolidated Financial Statements are incorporated by reference insofar as they relate to IESU. (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) General - The Consolidated Financial Statements include the accounts of IESU and its consolidated subsidiaries. In the fourth quarter of 1999, IESU's subsidiaries were merged into IESU. IESU is a subsidiary of Alliant Energy and is engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and steam services. All of IESU's retail customers are located in Iowa. (i) Operating Revenues - IESU accrues revenues for services rendered but unbilled at month-end in order to more properly match revenues with expenses. In the third quarter of 1999, IESU recorded a $5 million increase in the estimate of utility services rendered but unbilled at month-end. This change was a result of the implementation of a refined estimation process compared with the unbilled revenues recorded at June 30, 1999 using the estimation process in effect at that time. (3) LEASES IESU's operating lease rental expenses for 1999, 1998 and 1997 were $8.9 million, $9.0 million and $8.3 million, respectively. IESU's future minimum lease payments by year are as follows (in millions):
Capital Operating Year Leases Leases - ----------------------------------------- --------------- ------------------ 2000 $15.6 $8.8 2001 10.5 7.1 2002 8.7 5.7 2003 4.3 5.2 2004 3.9 4.7 Thereafter 1.3 10.2 --------------- ------------------ 44.3 $41.7 ================== Less: Amount representing interest 5.0 --------------- Present value of net minimum capital lease payments $39.3 ===============
(6) INCOME TAXES The components of federal and state income taxes for IESU for the years ended December 31 were as follows (in millions):
1999 1998 1997 ---------------- -------------- --------------- Current tax expense $55.8 $59.4 $58.3 Deferred tax expense (3.8) (15.3) (13.5) Amortization of investment tax credits (2.6) (2.6) (2.6) ---------------- -------------- --------------- $49.4 $41.5 $42.2 ================ ============== ===============
The overall effective income tax rates shown below for the years ended December 31 were computed by dividing total income tax expense by income before income taxes.
1999 1998 1997 ------------- ------------- ------------ Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 7.0 6.6 7.0 Effect of rate making on property related differences 5.1 1.5 3.5 Amortization of investment tax credits (2.2) (2.5) (2.6) Adjustment of prior period taxes (2.7) (1.4) (1.4) Other items, net 0.4 0.9 0.3 ------------- ------------- ------------ Overall effective income tax rate 42.6% 40.1% 41.8% ============= ============= ============
94 The accumulated deferred income taxes (assets) and liabilities as set forth below on the Consolidated Balance Sheets at December 31 arise from the following temporary differences (in millions): 1999 1998 ----------- ----------- Property related $276.2 $275.7 Investment tax credit related (18.9) (20.8) Other (31.3) (30.4) ----------- ----------- $226.0 $224.5 =========== =========== (7) BENEFIT PLANS (a) Pension Plans and Other Postretirement Benefits - IESU has a non-contributory defined benefit pension plan that covers substantially all of its employees who are subject to a collective bargaining agreement. Plan benefits are generally based on years of service and compensation during the employees' latter years of employment. Effective in 1998, eligible employees of IESU that are not subject to a collective bargaining agreement are covered by the Alliant Energy Cash Balance Pension Plan, a non-contributory defined benefit pension plan. The projected unit credit actuarial cost method was used to compute pension cost and the accumulated and projected benefit obligations. IESU's policy is to fund the pension plan at an amount that is at least equal to the minimum funding requirements mandated by ERISA and that does not exceed the maximum tax deductible amount for the year. IESU also provides certain other postretirement benefits to retirees, including medical benefits for retirees and their spouses and, in some cases, retiree life insurance. IESU's funding policy for other postretirement benefits is generally to fund an amount up to the cost calculated using SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The weighted-average assumptions as of the measurement date of September 30 are as follows:
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------ --------------------------------------- 1999 1998 1997 1999 1998 1997 ----------- ---------- ---------- ----------- ----------- --------------- Discount rate 7.75% 6.75% 7.25% 7.75% 6.75% 7.25% Expected return on plan assets 9% 9% 9% 9% 9% 9% Rate of compensation increase 3.5% 3.5% 4.75% N/A N/A N/A Medical cost trend on covered charges: Initial trend range N/A N/A N/A 7% 8% 8% Ultimate trend range N/A N/A N/A 5% 6% 6.5%
95 The components of IESU's qualified pension benefits and other postretirement benefits costs are as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------- ---------------------------------- 1999 1998 1997 1999 1998 1997 --------- ----------- --------- -------- --------- --------- Service cost $2.6 $2.9 $5.4 $1.5 $1.5 $1.5 Interest cost 7.6 8.0 14.1 4.4 4.2 3.5 Expected return on plan assets (10.3) (11.3) (15.1) (2.0) (1.1) (0.7) Amortization of: Transition obligation (asset) (0.2) (0.2) (0.3) 1.8 1.9 1.9 Prior service cost 0.9 0.9 1.8 -- -- -- Actuarial gain -- (0.4) -- -- -- -- --------- ----------- --------- -------- --------- --------- Total $0.6 ($0.1) $5.9 $5.7 $6.5 $6.2 ========= =========== ========= ======== ========= =========
During 1997, IESU recognized an additional $3.8 million of costs in accordance with SFAS 88 for severance and early retirement programs. In addition, during 1998, IESU recognized $1.2 million of curtailment charges relating to IESU's other postretirement benefits. The pension benefit cost shown above (and in the following tables) for 1999 and 1998 represents only the pension benefit cost for bargaining unit employees of IESU covered under the bargaining unit pension plan that is sponsored by IESU. The pension benefit cost for IESU's non-bargaining employees who are now participants in other Alliant Energy plans was $0.9 million and $2.7 million for 1999 and 1998, respectively, including a special charge of $1.9 million in 1998 for severance and early retirement window programs. In addition, Corporate Services provides services to IESU. The allocated pension benefit costs associated with these services was $1.2 million and $0.5 million for 1999 and 1998, respectively. The other postretirement benefit cost shown above for each period (and in the following tables) represents the other postretirement benefit cost for all IESU employees. The allocated other postretirement benefit cost associated with Corporate Services for IESU was $0.4 million and $0.2 million for 1999 and 1998, respectively. 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 one percent change in the medical trend rates for 1999, holding all other assumptions constant, would have the following effects (in millions): 1 Percent 1 Percent Increase Decrease ---------- ---------- Effect on total of service and interest cost components $1.3 ($1.0) Effect on postretirement benefit obligation $8.4 ($6.8) 96 A reconciliation of the funded status of IESU's plans to the amounts recognized on IESU's Consolidated Balance Sheets at December 31 is presented below (in millions):
Qualified Pension Benefits Other Postretirement Benefits ----------------------------- ------------------------------- 1999 1998 1999 1998 ------------ ------------ ------------- ------------- Change in benefit obligation: Net benefit obligation at beginning of year $113.1 $206.1 $65.2 $50.8 Transfer of obligation (to)/from other Alliant Energy plans -- (99.1) -- 2.3 Service cost 2.6 2.9 1.5 1.5 Interest cost 7.6 8.0 4.4 4.2 Plan participants' contributions -- -- 0.4 0.4 Plan amendments -- -- (1.0) -- Actuarial loss (gain) (14.3) 2.2 (20.1) 8.2 Curtailments -- -- -- 0.4 Gross benefits paid (6.7) (7.0) (3.6) (2.6) ------------ ------------ ------------- ------------- Net benefit obligation at end of year 102.3 113.1 46.8 65.2 ------------ ------------ ------------- ------------- Change in plan assets: Fair value of plan assets at beginning of year 118.7 225.7 21.7 19.9 Transfer of assets to other Alliant Energy plans -- (97.5) -- -- Actual return on plan assets 14.1 (2.5) 5.6 0.1 Employer contributions -- -- 6.2 2.7 Plan participants' contributions -- -- 0.4 0.4 401(h) assets recognized -- -- -- 1.2 Gross benefits paid (6.7) (7.0) (3.6) (2.6) ------------ ------------ ------------- ------------- Fair value of plan assets at end of year 126.1 118.7 30.3 21.7 ------------ ------------ ------------- ------------- Funded status at end of year 23.8 5.6 (16.5) (43.5) Unrecognized net actuarial loss (gain) (25.4) (7.3) (18.6) 5.7 Unrecognized prior service cost 8.9 9.8 (0.3) (0.3) Unrecognized net transition obligation (asset) (1.4) (1.6) 23.6 25.9 ------------ ------------ ------------- ------------- Net amount recognized at end of year $5.9 $6.5 ($11.8) ($12.2) ============ ============ ============= ============= Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $5.9 $6.5 $-- $-- Accrued benefit cost -- -- (11.8) (12.2) ------------ ------------ ------------- ------------- Net amount recognized at measurement date 5.9 6.5 (11.8) (12.2) ------------ ------------ ------------- ------------- Contributions paid after 9/30 and prior to 12/31 -- -- 3.4 3.6 ------------ ------------ ------------- ------------- Net amount recognized at 12/31 $5.9 $6.5 ($8.4) ($8.6) ============ ============ ============= =============
Alliant Energy sponsors several non-qualified pension plans which cover certain current and former officers. The pension expense allocated to IESU for these plans was $0.8 million, $1.4 million and $2.3 million in 1999, 1998 and 1997, respectively. IESU employees also participate in defined contribution pension plans (401(k) plans) covering substantially all employees. IESU's contributions to the plans, which are based on the participants' level of contribution, were $2.0 million, $2.8 million and $1.2 million in 1999, 1998 and 1997, respectively. 97 (8) COMMON, PREFERRED AND PREFERENCE STOCK (b) Preferred and Preference Stock - The carrying value of IESU's cumulative preferred stock at December 31, 1999 and 1998 was $18 million. The fair market value, based upon the market yield of similar securities and quoted market prices, at December 31, 1999 and 1998 was $12 million and $15 million, respectively. (9) DEBT (a) Short-Term Debt - IESU participates in a utility money pool with WP&L and IPC that is funded, as needed, through the issuance of commercial paper by Alliant Energy. Interest expense and other fees are allocated based on borrowing amounts. Information regarding short-term debt is as follows (dollars in millions):
1999 1998 1997 --------------- --------------- --------------- As of year end: Money pool borrowings $56.9 $-- $-- Interest rate on money pool borrowings 5.84% N/A N/A For the year ended: Average amount of short-term debt (based on daily outstanding balances) $24.6 $-- $88.4 Average interest rate on short-term debt 5.24% N/A 5.58%
(b) Long-Term Debt - Debt maturities (excluding periodic sinking fund requirements, which will not require additional cash expenditures) for 2000 to 2004 are $51.2 million, $81.5 million, $0.6 million, $4.1 million and $0, 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 IESU's long-term debt at December 31, 1999 and 1998 was $602 million and $652 million, respectively. The fair market value, based upon the market yield of similar securities and quoted market prices, at December 31, 1999 and 1998 was $573 million and $687 million, respectively. (10) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS Information relating to other financial instruments held by IESU is as follows (in millions):
December 31, 1999 December 31, 1998 ------------------------------------- -------------------------------- Gross Gross Carrying Fair Unrealized Carrying Fair Unrealized Value Value Gains/(Losses) Value Value Gains ----------- -------- ---------------- ---------- -------- ------------ Nuclear decommissioning trust funds: Equity securities $47 $47 $35 $45 $45 $29 Debt securities 58 58 (1) 47 47 2 ----------- -------- ---------------- ---------- -------- ------------ Total $105 $105 $34 $92 $92 $31 =========== ======== ================ ========== ======== ============
The carrying amount of IESU's current assets and current liabilities approximates fair value because of the short maturity of such financial instruments. The nuclear decommissioning trust funds realized gains from the sales of securities of $2.5 million, $0.4 million and $0.1 million in 1999, 1998 and 1997, respectively (cost of the investments based on specific identification were $25.5 million, $14.3 million and $14.6 million, respectively). Since IESU is subject to regulation, any gains or losses related to the difference between the carrying amount and the fair value of its financial instruments may not be realized by IESU's parent. 98 (12) COMMITMENTS AND CONTINGENCIES (b) Purchased-Power, Coal and Natural Gas Contracts - Corporate Services has entered into purchased-power capacity contracts as agent for IESU, WP&L and IPC. Based on the System Coordination and Operating Agreement, Alliant Energy annually allocates purchased-power contracts to the individual utilities. Such process considers factors such as resource mix, load growth and resource availability and as a result of that process, IESU was not allocated any of the purchased-power contracts for 2000 to 2004. IESU has entered into a contract for the purchase of $9.3 million of capacity in 2000 from IPC. See Note 17 for additional information. In addition, Corporate Services has entered into various coal contracts as agent for IESU, WP&L and IPC. Contract quantities are allocated to specific plants at the individual utilities based on various factors including projected heat input requirements, combustion compatibility and efficiency. However, in 2000 and 2001, system-wide contracts of $24.6 million (6.5 million tons) and $12.5 million (3.6 million tons), respectively, have not yet been allocated to the individual utilities due to the need for additional analysis of combustion compatibility and efficiency. The minimum commitments directly assigned to IESU are as follows (dollars in millions, tons in thousands): Coal (including transportation) ----------------------- Dollars Tons ---------- ----------- 2000 $12.8 2,300 2001 10.4 1,556 2002 3.7 619 2003 3.3 520 2004 3.2 475 Corporate Services is in the process of negotiating several new coal contracts. In addition, it expects to supplement its coal contracts with spot market purchases to fulfill its future fossil fuel needs. IESU also has various natural gas supply, transportation and storage contracts outstanding. The minimum dekatherm commitments, in millions, for 2000-2004 are 93.8, 79.3, 72.1, 60.8 and 2.4, respectively. The minimum dollar commitments for 2000-2004, in millions, are $51.4, $39.0, $27.4, $23.5 and $1.3, respectively. The gas supply commitments are all index-based. IESU expects to supplement its natural gas supply with spot market purchases as needed. (c) Information Technology Services - Alliant Energy has an agreement, expiring in 2004, with EDS for information technology services. IESU's anticipated operating and capital expenditures under the agreement for 2000 are estimated to total approximately $13 million. Future costs under the agreement are variable and are dependent upon IESU's level of usage of technological services from EDS. (d) Financial Guarantees and Commitments - IESU has financial guarantees, which were generally issued to support third-party borrowing arrangements and similar transactions, amounting to $17 million and $18 million outstanding at December 31, 1999 and 1998, respectively. Such guarantees are not reflected in the consolidated financial statements. Management believes that the likelihood of IESU having to make any material cash payments under these agreements is remote. (14) SEGMENTS OF BUSINESS IESU is a regulated domestic utility, serving customers in Iowa, with three principal business segments: a) electric operations; b) gas operations; and c) other, which includes steam operations and the unallocated portions of the utility business. Intersegment revenues were not material to IESU's operations and there was no single customer whose revenues exceeded 10% or more of IESU's consolidated revenues. 99 Certain financial information relating to IESU's significant business segments is presented below:
Electric Gas Other Total - ------------------------------------------------------------------------------------------------------------ (in millions) 1999 Operating revenue $628.0 $145.8 $26.9 $800.7 Depreciation and amortization expense 91.0 8.2 1.9 101.1 Operating income 149.6 8.4 3.5 161.5 Interest expense, net of AFUDC 49.5 49.5 Net income from equity method subsidiaries -- -- Miscellaneous, net (other than equity income/loss) (3.8) (3.8) Income tax expense 49.4 49.4 Net income 66.4 66.4 Preferred and preference dividends 0.9 0.9 Earnings available for common stock 65.5 65.5 Total assets 1,449.2 201.1 105.5 1,755.8 Investments in equity method subsidiaries -- -- Construction and acquisition expenditures 92.7 13.8 0.8 107.3 - ------------------------------------------------------------------------------------------------------------ 1998 Operating revenue $639.4 $141.3 $26.2 $806.9 Depreciation and amortization expense 84.7 7.6 1.7 94.0 Operating income 143.4 7.6 4.0 155.0 Interest expense, net of AFUDC 49.0 49.0 Net income from equity method subsidiaries -- -- Miscellaneous, net (other than equity income/loss) 2.6 2.6 Income tax expense 41.5 41.5 Net income 61.9 61.9 Preferred and preference dividends 0.9 0.9 Earnings available for common stock 61.0 61.0 Total assets 1,440.8 201.2 147.0 1,789.0 Investments in equity method subsidiaries -- -- Construction and acquisition expenditures 100.5 14.1 0.8 115.4 - ------------------------------------------------------------------------------------------------------------ 1997 Operating revenue $604.3 $183.5 $26.2 $814.0 Depreciation and amortization expense 81.2 7.0 1.6 89.8 Operating income 138.1 13.0 2.7 153.8 Interest expense, net of AFUDC 50.5 50.5 Net loss from equity method subsidiaries 0.4 0.4 Miscellaneous, net (other than equity income/loss) 1.9 1.9 Income tax expense 42.2 42.2 Net income 58.8 58.8 Preferred and preference dividends 0.9 0.9 Earnings available for common stock 57.9 57.9 Total assets 1,441.9 211.7 115.3 1,768.9 Investments in equity method subsidiaries -- -- Construction and acquisition expenditures 89.4 15.3 4.3 109.0 - ------------------------------------------------------------------------------------------------------------
100 (15) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
Quarter Ended ------------------------------------------------------------------------ March 31 June 30 September 30 December 31 ----------------- --------------- ----------------- ------------------ (in millions) 1999 Operating revenues $209.3 $170.8 $228.3 $192.3 Operating income 36.2 24.1 72.1 29.1 Net income 14.4 7.0 35.5 9.5 Earnings available for common stock 14.2 6.8 35.3 9.2 1998 * Operating revenues $208.3 $174.7 $222.2 $201.7 Operating income 34.3 21.8 69.9 29.0 Net income 11.7 3.0 30.6 16.6 Earnings available for common stock 11.4 2.8 30.4 16.4
* Earnings in 1998 were impacted by the recording of approximately $2 million, $10 million, $3 million and $2 million of pre-tax merger-related expenses in the first, second, third and fourth quarters, respectively. (17) RELATED PARTY ISSUES In association with the merger, IESU, WP&L and IPC entered into a System Coordination and Operating Agreement which became effective with the merger. The agreement, which has been approved by FERC, provides a contractual basis for coordinated planning, construction, operation and maintenance of the interconnected electric generation and transmission systems of the three utility companies. In addition, the agreement allows the interconnected system to be operated as a single entity with off-system capacity sales and purchases made to market excess system capability or to meet system capability deficiencies. Such sales and purchases are allocated among the three utility companies based on procedures included in the agreement. The sales amounts allocated to IESU were $18.1 million and $18.0 million for 1999 and 1998, respectively. The purchases allocated to IESU were $71.3 million and $56.0 million for 1999 and 1998, respectively. The procedures were approved by both FERC and all state regulatory bodies having jurisdiction over these sales. Under the agreement, IESU, WP&L and IPC are fully reimbursed for any generation expense incurred to support the sale to an affiliate or to a non-affiliate. Any margins on sales to non-affiliates are distributed to the three utilities in proportion to each utility's share of electric production at the time of sale. Pursuant to a service agreement approved by the SEC under PUHCA, IESU receives various administrative and general services from an affiliate, Corporate Services. These services are billed to IESU at cost based on payroll and other expenses incurred by Corporate Services for the benefit of IESU. These costs totaled $93.9 million and $59.3 million for 1999 and 1998, respectively, and consisted primarily of employee compensation, benefits and fees associated with various professional services. Corporate Services began operations in May 1998 upon the consummation of the merger. At December 31, 1999 and 1998, IESU had an intercompany payable to Corporate Services of $16.4 million and $20.9 million, respectively. 101 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareowners of Wisconsin Power and Light Company: We have audited the accompanying consolidated balance sheets and statements of capitalization of Wisconsin Power and Light Company (a Wisconsin corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1999. These financial statements and the supplemental schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and supplemental schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wisconsin Power and Light Company and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Milwaukee, Wisconsin January 28, 2000 102
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 1999 1998 1997 - --------------------------------------------------------------------------------------------------------- (in thousands) Operating revenues: Electric utility $626,607 $614,704 $634,143 Gas utility 120,770 111,737 155,883 Water 5,128 5,007 4,691 ---------------- ---------------- ---------------- 752,505 731,448 794,717 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Operating expenses: Electric production fuels 110,521 120,485 116,812 Purchased power 107,598 113,936 125,438 Cost of gas sold 64,073 61,409 99,267 Other operation 126,479 143,666 131,398 Maintenance 45,652 49,912 48,058 Depreciation and amortization 113,037 119,221 104,297 Taxes other than income taxes 30,240 30,169 30,338 ---------------- ---------------- ---------------- 597,600 638,798 655,608 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Operating income 154,905 92,650 139,109 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 40,992 36,584 32,607 Allowance for funds used during construction (4,511) (3,049) (2,775) Miscellaneous, net 1,836 (1,129) (3,796) ---------------- ---------------- ---------------- 38,317 32,406 26,036 ---------------- ---------------- --------------- - --------------------------------------------------------------------------------------------------------- Income before income taxes 116,588 60,244 113,073 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Income taxes 45,758 24,670 41,839 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Net income 70,830 35,574 71,234 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Preferred dividend requirements 3,310 3,310 3,310 ---------------- ---------------- ---------------- - --------------------------------------------------------------------------------------------------------- Earnings available for common stock $67,520 $32,264 $67,924 ================ ================ ================ - --------------------------------------------------------------------------------------------------------- WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Year Ended December 31, 1999 1998 1997 - --------------------------------------------------------------------------------------------------------- (in thousands) Balance at beginning of year $294,309 $320,386 $310,805 Net income 70,830 35,574 71,234 Cash dividends declared on common stock (58,353) (58,341) (58,343) Cash dividends declared on preferred stock (3,310) (3,310) (3,310) ---------------- ---------------- ---------------- Balance at end of year $303,476 $294,309 $320,386 ================ ================ ================ - --------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
103
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS December 31, ASSETS 1999 1998 - --------------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Utility - Plant in service - Electric $1,921,624 $1,839,545 Gas 258,132 244,518 Water 27,770 26,567 Common 218,607 219,268 ----------------- ------------------ 2,426,133 2,329,898 Less - Accumulated depreciation 1,266,366 1,168,830 ----------------- ------------------ 1,159,767 1,161,068 Construction work in progress 66,784 56,994 Nuclear fuel, net of amortization 15,079 18,671 ----------------- ------------------ 1,241,630 1,236,733 Other property, plant and equipment, net of accumulated depreciation and amortization of $169 and $44, respectively 608 630 ----------------- ------------------ 1,242,238 1,237,363 ----------------- ------------------ - --------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 3,555 1,811 Accounts receivable: Customer 22,061 13,372 Associated companies 5,067 3,019 Other 10,984 8,298 Production fuel, at average cost 20,663 20,105 Materials and supplies, at average cost 20,439 20,025 Gas stored underground, at average cost 8,624 10,738 Regulatory assets 3,707 3,707 Prepaid gross receipts tax 20,864 22,222 Other 5,568 6,987 ----------------- ------------------ 121,532 110,284 ----------------- ------------------ - --------------------------------------------------------------------------------------------------------------- Investments: Nuclear decommissioning trust funds 166,202 134,112 Other 15,272 15,960 ----------------- ------------------ 181,474 150,072 ----------------- ------------------ - --------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 82,161 76,284 Deferred charges and other 138,730 111,147 ----------------- ------------------ 220,891 187,431 ----------------- ------------------ - --------------------------------------------------------------------------------------------------------------- Total assets $1,766,135 $1,685,150 ================= ================== - --------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
104
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS (CONTINUED) December 31, CAPITALIZATION AND LIABILITIES 1999 1998 - -------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock $66,183 $66,183 Additional paid-in capital 229,438 199,438 Retained earnings 303,476 294,309 ------------------ ----------------- Total common equity 599,097 559,930 ------------------ ----------------- Cumulative preferred stock, not mandatorily redeemable 59,963 59,963 Long-term debt (excluding current portion) 414,673 414,579 ------------------ ----------------- 1,073,733 1,034,472 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities 1,875 - Variable rate demand bonds 55,100 56,975 Notes payable - 50,000 Notes payable to associated companies 125,749 26,799 Accounts payable 88,245 84,754 Accounts payable to associated companies 25,306 20,315 Accrued payroll and vacations 7,499 5,276 Accrued interest 6,903 6,863 Other 15,881 14,600 ------------------ ----------------- 326,558 265,582 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 235,838 245,489 Accumulated deferred investment tax credits 31,311 33,170 Customer advances 34,643 34,367 Environmental liabilities 10,861 11,683 Other 53,191 60,387 ------------------ ----------------- 365,844 385,096 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 12) - -------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $1,766,135 $1,685,150 ================== ================= - -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
105
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $70,830 $35,574 $71,234 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 113,037 119,221 104,297 Amortization of nuclear fuel 6,094 5,356 3,534 Deferred taxes and investment tax credits (12,618) (7,529) 3,065 Other 2,432 (2,089) (1,323) Other changes in assets and liabilities: Accounts receivable (13,423) 12,845 (3,314) Accounts payable 8,482 19,452 (7,102) Benefit obligations and other (11,854) (5,509) (20,460) ---------------- --------------- ---------------- Net cash flows from operating activities 162,980 177,321 149,931 ---------------- --------------- ---------------- - ----------------------------------------------------------------------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends (58,353) (58,341) (58,343) Preferred stock dividends (3,310) (3,310) (3,310) Proceeds from issuance of long-term debt - 60,000 105,000 Reductions in long-term debt - (8,899) (55,000) Net change in short-term borrowings 48,950 (4,201) 11,500 Capital contribution from parent 30,000 - - Other - (1,966) (2,601) ---------------- --------------- ---------------- Net cash flows from (used for) financing activities 17,287 (16,717) (2,754) ---------------- --------------- ---------------- - ----------------------------------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Utility construction expenditures (131,915) (117,143) (119,232) Nuclear decommissioning trust funds (16,092) (14,297) (11,427) Shared savings program (31,085) (24,355) (17,610) Other 569 (5,490) (583) ---------------- --------------- ---------------- Net cash flows used for investing activities (178,523) (161,285) (148,852) ---------------- --------------- ---------------- - ----------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments 1,744 (681) (1,675) ---------------- --------------- ---------------- - ----------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 1,811 2,492 4,167 ---------------- --------------- ---------------- - ----------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $3,555 $1,811 $2,492 ================ =============== ================ - ----------------------------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Cash paid during the period for: Interest $38,330 $33,368 $32,955 ================ =============== ================ Income taxes $47,164 $31,951 $37,407 ================ =============== ================ - ----------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
106
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Common equity: Common stock - $5.00 par value - authorized 18,000,000 shares; 13,236,601 shares outstanding $66,183 $66,183 Additional paid-in capital 229,438 199,438 Retained earnings 303,476 294,309 ------------------ ------------------ 599,097 559,930 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock: Cumulative, without par value, not mandatorily redeemable - authorized 3,750,000 shares, maximum aggregate stated value $150,000,000: $100 stated value - 4.50% series, 99,970 shares outstanding 9,997 9,997 $100 stated value - 4.80% series, 74,912 shares outstanding 7,491 7,491 $100 stated value - 4.96% series, 64,979 shares outstanding 6,498 6,498 $100 stated value - 4.40% series, 29,957 shares outstanding 2,996 2,996 $100 stated value - 4.76% series, 29,947 shares outstanding 2,995 2,995 $100 stated value - 6.20% series, 150,000 shares outstanding 15,000 15,000 $25 stated value - 6.50% series, 599,460 shares outstanding 14,986 14,986 ------------------ ------------------ 59,963 59,963 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Long-term debt: First Mortgage Bonds: 1984 Series A, variable rate (5.00% at December 31, 1999), due 2014 8,500 8,500 1988 Series A, variable rate (5.60% at December 31, 1999), due 2015 14,600 14,600 1990 Series V, 9.3%, due 2025 27,000 27,000 1991 Series A, variable rate (4.75% at December 31, 1999), due 2015 16,000 16,000 1991 Series B, variable rate (4.75% at December 31, 1999), due 2005 16,000 16,000 1991 Series C, variable rate (4.75% at December 31, 1999), due 2000 1,000 1,000 1991 Series D, variable rate (4.75% at December 31, 1999), due 2000 875 875 1992 Series W, 8.6%, due 2027 90,000 90,000 1992 Series X, 7.75%, due 2004 62,000 62,000 1992 Series Y, 7.6%, due 2005 72,000 72,000 ------------------ ------------------ 307,975 307,975 Debentures, 7%, due 2007 105,000 105,000 Debentures, 5.7%, due 2008 60,000 60,000 ------------------ ------------------ 472,975 472,975 ------------------ ------------------ Less: Current maturities (1,875) - Variable rate demand bonds (55,100) (56,975) Unamortized debt premium and (discount), net (1,327) (1,421) ------------------ ------------------ 414,673 414,579 ------------------ ------------------ - ---------------------------------------------------------------------------------------------------------------------------- Total capitalization $1,073,733 $1,034,472 ================== ================== - ---------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
107 WISCONSIN POWER AND LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Except as modified below, the Alliant Energy Notes to Consolidated Financial Statements are incorporated by reference insofar as they relate to WP&L. (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) General - The Consolidated Financial Statements include the accounts of WP&L and its consolidated subsidiaries. WP&L is a subsidiary of Alliant Energy and is engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and water services. Nearly all of WP&L's retail customers are located in south and central Wisconsin. WP&L's principal consolidated subsidiary is South Beloit. (3) LEASES WP&L's operating lease rental expenses for 1999, 1998 and 1997 were $7.7 million, $6.4 million and $5.5 million, respectively. WP&L's future minimum lease payments by year are as follows (in millions): Operating Year Leases - ---------------- ------------- 2000 $8.0 2001 7.6 2002 6.2 2003 4.9 2004 4.5 Thereafter 25.3 ------------- $56.5 ============= (6) INCOME TAXES The components of federal and state income taxes for WP&L for the years ended December 31 were as follows (in millions):
1999 1998 1997 ------------ ---------- ---------- Current tax expense $58.4 $32.2 $38.8 Deferred tax expense (10.7) (5.6) 4.9 Amortization of investment tax credits (1.9) (1.9) (1.9) ------------ ---------- ---------- $45.8 $24.7 $41.8 ============ ========== ==========
The overall effective income tax rates shown below for the years ended December 31 were computed by dividing total income tax expense by income before income taxes.
1999 1998 1997 -------------- -------------- ------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 6.3 7.8 5.7 Amortization of investment tax credits (1.6) (3.1) (1.7) Adjustment of prior period taxes (0.3) -- (2.1) Merger expenses -- 2.5 0.3 Amortization of excess deferred taxes (1.3) (2.5) (1.3) Other items, net 1.1 1.3 1.1 -------------- -------------- ------------- Overall effective income tax rate 39.2% 41.0% 37.0% ============== ============== =============
108 The accumulated deferred income taxes (assets) and liabilities as set forth below on the Consolidated Balance Sheets at December 31 arise from the following temporary differences (in millions): 1999 1998 ----------- ----------- Property related $271.9 $282.7 Investment tax credit related (21.0) (22.2) Other (15.1) (15.0) ----------- ----------- $235.8 $245.5 =========== =========== (7) BENEFIT PLANS (a) Pension Plans and Other Postretirement Benefits - WP&L has a non-contributory, defined benefit pension plan that covers substantially all of its employees who are subject to a collective bargaining agreement. Plan benefits are generally based on years of service and levels of compensation. Effective in 1998, eligible employees of WP&L that are not subject to a collective bargaining agreement are covered by the Alliant Energy Cash Balance Pension Plan, a non-contributory defined benefit pension plan. The projected unit credit actuarial cost method was used to compute pension cost and the accumulated and projected benefit obligations. WP&L's policy is to fund the pension plan at an amount that is at least equal to the minimum funding requirements mandated by ERISA, and that does not exceed the maximum tax deductible amount for the year. WP&L also provides certain other postretirement benefits to retirees, including medical benefits for retirees and their spouses and, in some cases, retiree life insurance. WP&L's funding policy is generally to fund tax deductible amounts up to the incurred but unclaimed paid medical claim reserve and tax deductible amounts (if any) to the retiree medical account within the Cash Balance Pension Plan. The weighted-average assumptions as of the measurement date of September 30 are as follows:
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------- ---------------------------------------- 1999 1998 1997 1999 1998 1997 ------------ ----------- ------------ ---------- ------------ --------------- Discount rate 7.75% 6.75% 7.25% 7.75% 6.75% 7.25% Expected return on plan assets 9% 9% 9% 9% 9% 9% Rate of compensation increase 3.5% 3.5% 3.5-4.5% 3.5% 3.5% 3.5% Medical cost trend on covered charges: Initial trend range N/A N/A N/A 7% 8% 8% Ultimate trend range N/A N/A N/A 5% 5% 5%
109 The components of WP&L's qualified pension benefits and other postretirement benefits costs are as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------- ---------------------------------- 1999 1998 1997 1999 1998 1997 ---------- ----------- --------- -------- -------- --------- Service cost $3.8 $3.2 $4.8 $1.6 $1.7 $1.8 Interest cost 8.9 8.5 13.9 2.7 2.6 3.3 Expected return on plan assets (12.9) (12.8) (19.2) (1.5) (1.5) (1.1) Amortization of: Transition obligation (asset) (2.1) (2.1) (2.4) 1.2 1.3 1.5 Prior service cost 0.4 0.5 0.4 -- -- -- Actuarial loss (gain) 0.2 -- -- (0.9) (1.1) (0.3) ---------- ----------- --------- -------- -------- --------- Total ($1.7) ($2.7) ($2.5) $3.1 $3.0 $5.2 ========== =========== ========= ======== ======== =========
During 1998 and 1997, WP&L recognized an additional $0.6 million and $1.3 million, respectively, of costs in accordance with SFAS 88. The charges were for severance and early retirement programs in the respective years. In addition, during 1998 and 1997, WP&L recognized $3.6 million and $1.7 million, respectively, of curtailment charges relating to WP&L's other postretirement benefits. The pension benefit cost shown above (and in the following tables) for 1999 and 1998 represents only the pension benefit cost for bargaining unit employees of WP&L covered under the bargaining unit pension plan that is sponsored by WP&L. The pension benefit cost for WP&L's non-bargaining employees who are now participants in other Alliant Energy plans was ($1.8) million and $3.0 million for 1999 and 1998, respectively, including a special charge of $3.6 million in 1998 for severance and early retirement window programs. In addition, Corporate Services provides services to WP&L. The allocated pension benefit costs associated with these services was $1.2 million and $0.6 million for 1999 and 1998, respectively. The other postretirement benefit cost shown above for each period (and in the following tables) represents the other postretirement benefit cost for all WP&L employees. The allocated other postretirement benefit cost associated with Corporate Services for WP&L was $0.4 million and $0.2 million for 1999 and 1998, respectively. 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 one percent change in the medical trend rates for 1999, holding all other assumptions constant, would have the following effects (in millions):
1 Percent 1 Percent Increase Decrease -------------- --------------- Effect on total of service and interest cost components $0.3 ($0.3) Effect on postretirement benefit obligation $1.5 ($1.5)
110 A reconciliation of the funded status of WP&L's plans to the amounts recognized on WP&L's Consolidated Balance Sheets at December 31 is presented below (in millions):
Qualified Pension Benefits Other Postretirement Benefits ---------------------------- ------------------------------ 1999 1998 1999 1998 ------------ ------------ ------------- ----------- Change in benefit obligation: Net benefit obligation at beginning of year $132.3 $205.1 $40.3 $47.1 Transfer of obligations to other Alliant Energy plans -- (91.9) -- -- Service cost 3.8 3.2 1.6 1.7 Interest cost 8.9 8.5 2.7 2.6 Plan participants' contributions -- -- 1.2 0.8 Actuarial loss (gain) (20.8) 12.2 0.8 (9.7) Curtailments -- -- -- 0.7 Special termination benefits -- 0.6 -- -- Gross benefits paid (7.0) (5.4) (4.2) (2.9) ------------ ------------ ------------- ----------- Net benefit obligation at end of year 117.2 132.3 42.4 40.3 ------------ ------------ ------------- ----------- Change in plan assets: Fair value of plan assets at beginning of year 137.5 244.4 15.1 16.1 Transfer of assets to other Alliant Energy plans -- (100.2) -- -- Actual return on plan assets 17.1 (1.3) 1.8 1.1 Employer contributions -- -- 4.0 -- Plan participants' contributions -- -- 1.2 0.8 Gross benefits paid (7.0) (5.4) (4.2) (2.9) ------------ ------------ ------------- ----------- Fair value of plan assets at end of year 147.6 137.5 17.9 15.1 ------------ ------------ ------------- ----------- Funded status at end of year 30.4 5.2 (24.5) (25.2) Unrecognized net actuarial loss (gain) 0.8 26.0 (14.5) (17.0) Unrecognized prior service cost 4.7 5.1 (0.2) (0.2) Unrecognized net transition obligation (asset) (5.8) (7.9) 14.9 17.2 ------------ ------------ ------------- ----------- Net amount recognized at end of year $30.1 $28.4 ($24.3) ($25.2) ============ ============ ============= =========== Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $30.1 $28.4 $0.6 $0.4 Accrued benefit cost -- -- (24.9) (25.6) ------------ ------------ ------------- ----------- Net amount recognized at measurement date 30.1 28.4 (24.3) (25.2) ------------ ------------ ------------- ----------- Contributions paid after 9/30 and prior to 12/31 -- -- 1.0 2.1 ------------ ------------ ------------- ----------- Net amount recognized at 12/31 $30.1 $28.4 ($23.3) ($23.1) ============ ============ ============= ===========
Alliant Energy sponsors several non-qualified pension plans which cover certain current and former officers. The pension expense allocated to WP&L for these plans was $0.8 million, $0.8 million and $0.5 million in 1999, 1998 and 1997, respectively. WP&L employees also participate in defined contribution pension plans (401(k) plans) covering substantially all employees. WP&L's contributions to the plans, which are based on the participants' level of contribution, were $2.0 million, $2.4 million and $2.8 million in 1999, 1998 and 1997, respectively. 111 The benefit obligation and fair value of plan assets for the postretirement welfare plans with benefit obligations in excess of plan assets were $36.5 million and $8.4 million as of September 30, 1999 and $33.4 million and $6.2 million, respectively, as of September 30, 1998. (8) COMMON, PREFERRED AND PREFERENCE STOCK (b) Preferred and Preference Stock - The carrying value of WP&L's cumulative preferred stock at December 31, 1999 and 1998 was $60 million. The fair market value, based upon the market yield of similar securities and quoted market prices, at December 31, 1999 and 1998 was $49 million and $55 million, respectively. (9) DEBT (a) Short-Term Debt - WP&L participates in a utility money pool with IESU and IPC that is funded, as needed, through the issuance of commercial paper by Alliant Energy. Interest expense and other fees are allocated based on borrowing amounts. The PSCW has restricted WP&L from lending money to non-utility affiliates and non-Wisconsin utilities. As a result, WP&L is prohibited from lending money to the utility money pool but is able to borrow money from the utility money pool. Information regarding short-term debt is as follows (dollars in millions):
1999 1998 1997 -------------- -------------- -------------- As of year end: Commercial paper outstanding $-- $-- $81.0 Notes payable outstanding $-- $50.0 $-- Money pool borrowings $125.7 $26.8 $-- Discount rates on commercial paper N/A N/A 5.82-5.90% Interest rate on notes payable N/A 5.44% N/A Interest rate on money pool borrowings 5.84% 5.17% N/A For the year ended: Average amount of short-term debt (based on daily outstanding balances) $77.1 $48.4 $49.2 Average interest rate on short-term debt 5.22% 5.55% 5.64%
(b) Long-Term Debt - Debt maturities (excluding periodic sinking fund requirements, which will not require additional cash expenditures) for 2000 to 2004 are $1.9 million, $0, $0, $0 and $62.0 million, respectively. The carrying value of WP&L's long-term debt at December 31, 1999 and 1998 was $472 million. The fair market value, based upon the market yield of similar securities and quoted market prices, at December 31, 1999 and 1998 was $469 million and $513 million, respectively. (10) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS Information relating to other financial instruments held by WP&L is as follows (in millions):
December 31, 1999 December 31, 1998 ------------------------------------- -------------------------------- Gross Gross Carrying Fair Unrealized Carrying Fair Unrealized Value Value Gains/(Losses) Value Value Gains ----------- -------- ---------------- ---------- -------- ------------ Nuclear decommissioning trust funds: Equity securities $65 $65 $45 $53 $53 $27 Debt securities 101 101 (3) 81 81 1 ----------- -------- ---------------- ---------- -------- ------------ Total $166 $166 $42 $134 $134 $28 =========== ======== ================ ========== ======== ============
The carrying amount of WP&L's current assets and current liabilities approximates fair value because of the short maturity of such financial instruments. The nuclear decommissioning trust funds realized gains from the sales of securities of $4.1 million, $0.8 million and $0.1 million in 1999, 1998 and 1997, respectively (cost of the investments based on specific identification were $86.2 million, $57.6 million and $54.0 million, 112 respectively). Since WP&L is subject to regulation, any gains or losses related to the difference between the carrying amount and the fair value of its financial instruments may not be realized by WP&L's parent. (12) COMMITMENTS AND CONTINGENCIES (b) Purchased-Power, Coal and Natural Gas Contracts - Corporate Services has entered into purchased-power capacity contracts as agent for WP&L, IESU and IPC. Based on the System Coordination and Operating Agreement, Alliant Energy annually allocates purchased-power contracts to the individual utilities. Such process considers factors such as resource mix, load growth and resource availability. See Note 17 for additional information. In addition, Corporate Services has entered into various coal contracts as agent for WP&L, IESU and IPC. Contract quantities are allocated to specific plants at the individual utilities based on various factors including projected heat input requirements, combustion compatibility and efficiency. However, in 2000 and 2001, system-wide contracts of $24.6 million (6.5 million tons) and $12.5 million (3.6 million tons), respectively, have not yet been allocated to the individual utilities due to the need for additional analysis of combustion compatibility and efficiency. The minimum commitments directly assigned to WP&L are as follows (dollars in millions, tons in thousands): Coal Purchased-Power (including transportation) ------------------- ---------------------- Dollars MWHs Dollars Tons --------- -------- ---------- ---------- 2000 $79.8 1,509 $16.8 5,269 2001 59.2 864 14.0 4,557 2002 43.9 219 9.8 3,707 2003 33.4 219 5.4 2,957 2004 25.2 219 5.4 2,957 Corporate Services is in the process of negotiating several new coal contracts. In addition, it expects to supplement its coal contracts with spot market purchases to fulfill its future fossil fuel needs. WP&L also has various natural gas supply, transportation and storage contracts outstanding. The minimum dekatherm commitments, in millions, for 2000-2004 are 60.0, 44.9, 42.6, 34.6 and 7.4, respectively. The minimum dollar commitments for 2000-2004, in millions, are $27.9, $18.5, $14.6, $12.0 and $1.9, respectively. The gas supply commitments are all index-based. WP&L expects to supplement its natural gas supply with spot market purchases as needed. (c) Information Technology Services - Alliant Energy has an agreement, expiring in 2004, with EDS for information technology services. WP&L's anticipated operating and capital expenditures under the agreement for 2000 are estimated to total approximately $2 million. Future costs under the agreement are variable and are dependent upon WP&L's level of usage of technological services from EDS. (14) SEGMENTS OF BUSINESS WP&L is a regulated domestic utility, serving customers in Wisconsin and Illinois, with three principal business segments: a) electric operations; b) gas operations; and c) other, which includes water operations and the unallocated portions of the utility business. Intersegment revenues were not material to WP&L's operations and there was no single customer whose revenues exceeded 10% or more of WP&L's consolidated revenues. 113 Certain financial information relating to WP&L's significant business segments is presented below:
Electric Gas Other Total - ------------------------------------------------------------------------------------------------------------ (in millions) 1999 Operating revenue $626.6 $120.8 $5.1 $752.5 Depreciation and amortization expense 97.5 14.5 1.0 113.0 Operating income 139.3 13.8 1.8 154.9 Interest expense, net of AFUDC 36.5 36.5 Net income from equity method subsidiaries (0.7) (0.7) Miscellaneous, net (other than equity income/loss) 2.5 2.5 Income tax expense 45.8 45.8 Net income 70.8 70.8 Preferred and preference dividends 3.3 3.3 Earnings available for common stock 67.5 67.5 Total assets 1,310.5 200.3 255.3 1,766.1 Investments in equity method subsidiaries 5.2 5.2 Construction and acquisition expenditures 111.2 18.2 2.5 131.9 - ------------------------------------------------------------------------------------------------------------ 1998 Operating revenue $614.7 $111.7 $5.0 $731.4 Depreciation and amortization expense 104.7 13.6 0.9 119.2 Operating income 87.4 3.6 1.7 92.7 Interest expense, net of AFUDC 33.5 33.5 Net income from equity method subsidiaries (0.8) (0.8) Miscellaneous, net (other than equity income/loss) (0.3) (0.3) Income tax expense 24.7 24.7 Net income 35.6 35.6 Preferred and preference dividends 3.3 3.3 Earnings available for common stock 32.3 32.3 Total assets 1,276.4 195.9 212.9 1,685.2 Investments in equity method subsidiaries 5.2 5.2 Construction and acquisition expenditures 99.6 16.0 1.5 117.1 - ------------------------------------------------------------------------------------------------------------ 1997 Operating revenue $634.1 $155.9 $4.7 $794.7 Depreciation and amortization expense 91.2 12.3 0.8 104.3 Operating income (loss) 125.9 13.7 (0.5) 139.1 Interest expense, net of AFUDC 29.8 29.8 Net income from equity method subsidiaries (0.4) (0.4) Miscellaneous, net (other than equity income/loss) (3.3) (3.3) Income tax expense 41.8 41.8 Net income 71.2 71.2 Preferred and preference dividends 3.3 3.3 Earnings available for common stock 67.9 67.9 Total assets 1,270.9 193.6 200.1 1,664.6 Investments in equity method subsidiaries 5.7 5.7 Construction and acquisition expenditures 101.3 16.1 1.8 119.2 - ------------------------------------------------------------------------------------------------------------
114 (15) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
Quarter Ended ------------------------------------------------------------------------ March 31 June 30 September 30 December 31 ----------------- --------------- ----------------- ------------------ (in millions) 1999 Operating revenues $203.0 $167.1 $186.8 $195.6 Operating income 46.4 21.9 32.5 54.1 Net income 26.3 6.9 14.2 23.4 Earnings available for common stock 25.4 6.1 13.4 22.6 1998 * Operating revenues $202.8 $172.5 $176.1 $180.0 Operating income 33.7 10.8 29.7 18.5 Net income (loss) 17.6 (1.2) 12.7 6.5 Earnings available for common stock 16.8 (2.1) 11.9 5.7
*Earnings for 1998 were impacted by the recording of approximately $3 million, $11 million, $2 million and $1 million of pre-tax merger-related expenses in the first, second, third and fourth quarters, respectively. (17) RELATED PARTY ISSUES In association with the merger, IESU, WP&L and IPC entered into a System Coordination and Operating Agreement which became effective with the merger. The agreement, which has been approved by FERC, provides a contractual basis for coordinated planning, construction, operation and maintenance of the interconnected electric generation and transmission systems of the three utility companies. In addition, the agreement allows the interconnected system to be operated as a single entity with off-system capacity sales and purchases made to market excess system capability or to meet system capability deficiencies. Such sales and purchases are allocated among the three utility companies based on procedures included in the agreement. The sales amounts allocated to WP&L were $23.8 million and $23.6 million for 1999 and 1998, respectively. The purchases allocated to WP&L were $101.0 million and $70.0 million for 1999 and 1998, respectively. The procedures were approved by both the FERC and all state regulatory bodies having jurisdiction over these sales. Under the agreement, IESU, WP&L and IPC are fully reimbursed for any generation expense incurred to support a sale to an affiliate or to a non-affiliate. Any margins on sales to non-affiliates are distributed to the three utilities in proportion to each utility's share of electric production at the time of the sale. Pursuant to a service agreement approved by the SEC under PUHCA, WP&L received various administrative and general services from an affiliate, Corporate Services. These services are billed to WP&L at cost based on payroll and other expenses incurred by Corporate Services for the benefit of WP&L. These costs totaled $96.5 million and $53.9 million for 1999 and 1998, respectively, and consisted primarily of employee compensation, benefits and fees associated with various professional services. Corporate Services began operations in May 1998 upon the consummation of the merger. At December 31, 1999 and 1998, WP&L had an intercompany payable to Corporate Services of $24.7 million and $20.0 million, respectively. 115 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS ALLIANT ENERGY The information required by Item 10 relating to directors and nominees for election of directors at the 2000 Annual Meeting of Shareowners is incorporated herein by reference to the relevant information under the caption "Election of Directors" in Alliant Energy's Proxy Statement for the 2000 Annual Meeting of Shareowners (the 2000 Alliant Energy Proxy Statement), which has been filed with the SEC within 120 days after the end of Alliant Energy's fiscal year. The executive officers of Alliant Energy as of the date of this filing are as follows (figures following the names represent the officer's age as of December 31, 1999): Executive Officers of Alliant Energy Erroll B. Davis, Jr., 55, has served as President and Chief Executive - --------------------- Officer (CEO) since 1990 and has been a board member since 1988. William D. Harvey, 50, was elected Executive Vice President-Generation - ----------------- effective April 1998. Prior thereto, he served as Senior Vice President since 1993 at WP&L. James E. Hoffman, 46, was elected Executive Vice President-Business - ----------------- Development effective April 1998. Prior thereto, he served as Executive Vice President since 1996 at IES and Executive Vice President-Customer Service & Energy Delivery from 1995 to 1997 at IESU. Eliot G. Protsch, 46, was elected Executive Vice President-Energy - ----------------- Delivery effective April 1998. Prior thereto, he served as Senior Vice President since 1993 at WP&L. Barbara J. Swan, 48, was elected Executive Vice President and General - --------------- Counsel effective October 1998. She previously served as Vice President-General Counsel from 1994 to 1998 at WP&L. Thomas M. Walker, 52, was elected Executive Vice President and Chief - ----------------- Financial Officer (CFO) effective April 1998. Prior thereto, he served as Executive Vice President and CFO since 1996 at IES and IESU. Prior to joining Alliant Energy, he was Executive Vice President-Chief Financial and Administrative Officer and member of the Board of Directors from 1990 to 1995 at Information Resources, Inc. Pamela J. Wegner, 52, was elected Executive Vice President-Corporate - ---------------- Services effective October 1998. She previously served as Vice President-Information Services and Administration from 1994 to 1998 at WP&L. Daniel A. Doyle, 41, was elected Vice President-Chief Accounting and - --------------- Financial Planning Officer effective January 2000. He previously served as Vice President-Manufacturing and Energy Portfolio Services since October 1998 at WP&L and IESU and Vice President-Fossil Plants since April 1998 at WP&L. He has also served as Vice President-Power Production from 1996 to 1998 and Vice President-Finance, Controller and Treasurer from 1994 to 1996 at WP&L. John E. Ebright, 56, was elected Vice President-Special Projects - --------------- effective January 2000. He previously served as Vice President-Controller since April 1998 at Alliant Energy, IESU and WP&L and as Controller and Chief Accounting Officer from 1996 to 1998 at IES and IESU. Prior to joining Alliant Energy, he was Vice President and Controller from 1987 to 1996 at MidCon Corp., a subsidiary of Occidental Petroleum Corporation. 116 Edward M. Gleason, 59, has served as Vice President-Treasurer and - ----------------- Corporate Secretary since 1993. Susan J. Kosmo, 53, was elected Assistant Controller effective April - -------------- 1998. She previously served as Assistant Controller since 1995 at WP&L. John E. Kratchmer, 37, was elected Assistant Controller effective April - ----------------- 1998. He previously served as Manager of Financial Reporting and Property since 1996 and Manager of Financial Reporting from 1994 to 1996 at IES. Linda J. Wentzel, 51, was elected Assistant Corporate Secretary effective - ----------------- May 1998. She previously served as Executive Administrative Assistant since 1995 at Alliant Energy. Enrique Bacalao, 50, was elected Assistant Treasurer effective November - --------------- 1998. Prior to joining Alliant Energy, he was Vice President, Corporate Banking from 1995 to 1998 at the Chicago Branch of The Industrial Bank of Japan, Limited. NOTE: None of the executive officers listed above is related to any member of the Board of Directors or nominee for director or any other executive officer. Mr. Davis has an employment agreement with Alliant Energy pursuant to which his term of office is established. All other executive officers have no definite terms of office and serve at the pleasure of the Board of Directors. IESU IESU's directors are identical to Alliant Energy, but are elected by consent action. The information required by Item 10 relating to directors and nominees for election of directors at the 2000 Annual Meeting of Shareowners is incorporated herein by reference to the relevant information included under the caption "Election of Directors" in the 2000 Alliant Energy Proxy Statement, which has been filed with the SEC within 120 days after the end of IESU's fiscal year. The executive officers of IESU as of the date of this filing are as follows (figures following the names represent the officer's age as of December 31, 1999): Executive Officers of IESU Erroll B. Davis, Jr., 55, was elected CEO effective April 1998. Mr. - -------------------- Davis is also an officer of Alliant Energy and WP&L. Eliot G. Protsch, 46, was elected President effective April 1998. Mr. - ---------------- Protsch is also an officer of Alliant Energy and WP&L. William D. Harvey, 50, was elected Executive Vice President-Generation - ----------------- effective October 1998. Mr. Harvey is also an officer of Alliant Energy and WP&L. Barbara J. Swan, 48, was elected Executive Vice President and General - --------------- Counsel effective October 1998. Ms. Swan is also an officer of Alliant Energy and WP&L. Thomas M. Walker, 52, was elected Executive Vice President and CFO in - ----------------- 1996. Mr. Walker is also an officer of Alliant Energy and WP&L. Pamela J. Wegner, 52, was elected Executive Vice President-Corporate - ----------------- Services effective October 1998. Ms. Wegner is also an officer of Alliant Energy and WP&L. Dale R. Sharp, 59, was elected Senior Vice President-Transmission - ------------------ effective September 1999. He previously served as Senior Vice President-Engineering and Standards since October 1998 at IESU and WP&L. He has also served as Vice President-Engineering from 1996 to 1998 and Vice President-Power Production from 1995 to 1996 at IPC. Mr. Sharp is also an officer of WP&L. Daniel A. Doyle, 41, was elected Vice President-Chief Accounting and - ------------------- Financial Planning Officer effective January 2000. He previously served as Vice President-Manufacturing and Energy Portfolio Services since October 1998. Mr. Doyle is also an officer of Alliant Energy and WP&L. 117 Edward M. Gleason, 59, was elected Vice President-Treasurer and Corporate - ----------------- Secretary effective April 1998. Mr. Gleason is also an officer of Alliant Energy and WP&L. Dundeana K. Langer, 41, was elected Vice President-Customer Services and - ------------------ Operations effective September 1999. She previously served as Vice President-Customer Operations since April 1998 at IESU and Vice President-Customer Services since October 1998 at WP&L. She has also served as Assistant Vice President-Field Operations from 1997 to 1998, General Manager-Operations & Director Process Redesign Implementation from 1996 to 1997 and Team Leader-Energy Delivery Process Redesign Team from 1995 to 1996 at IESU. Ms. Langer is also an officer of WP&L. Daniel L. Mineck, 51, was elected Vice President-Performance Engineering - ---------------- and Environmental effective October 1998. He previously served as Assistant Vice President-Corporate Engineering since 1996 and Assistant Vice President-Nuclear from 1995 to 1996. Mr. Mineck is also an officer of WP&L. David L. Wilson, 53, was elected Vice President-Nuclear effective - --------------- September 1999. He previously served as Assistant Vice President-Nuclear since 1997, Facility Leader from 1996 to 1997 and Plant Manager from 1995 to 1996. Mr. Wilson is also an officer of WP&L. Kim K. Zuhlke, 46, was elected Vice President-Engineering, Sales and - -------------- Marketing effective September 1999. He previously served as Vice President-Customer Operations since October 1998. Mr. Zuhlke is also an officer of WP&L. Daniel L. Siegfried, 40, was elected Assistant Corporate Secretary - ------------------- effective April 1998. He also serves as Senior Attorney for Alliant Energy. Previously he served as Senior Environmental Counsel from 1992 to 1998 at IES. Linda J. Wentzel, 51, was elected Assistant Corporate Secretary effective - ----------------- May 1998. Ms. Wentzel is also an officer of Alliant Energy and WP&L. Enrique Bacalao, 50, was elected Assistant Treasurer effective November - --------------- 1998. Prior to joining IESU, he was Vice President, Corporate Banking from 1995 to 1998 at the Chicago Branch of The Industrial Bank of Japan, Limited. Mr. Bacalao is also an officer of Alliant Energy and WP&L. Steven F. Price, 47, was elected Assistant Treasurer effective April - ---------------- 1998. Mr. Price is also an officer of WP&L. Robert A. Rusch, 37, was elected Assistant Treasurer effective April - --------------- 1998. Mr. Rusch is also an officer of WP&L. NOTE: None of the executive officers listed above is related to any member of the Board of Directors or nominee for director or any other executive officer. Mr. Davis has an employment agreement with Alliant Energy pursuant to which his term of office is established. All other executive officers have no definite terms of office and serve at the pleasure of the Board of Directors. WP&L The information required by Item 10 relating to directors and nominees for election of directors at the 2000 Annual Meeting of Shareowners is incorporated herein by reference to the relevant information under the caption "Election of Directors" in WP&L's Proxy Statement for the 2000 Annual Meeting of Shareowners (the 2000 WP&L Proxy Statement), which will be filed with the SEC within 120 days after the end of WP&L's fiscal year. The executive officers of WP&L as of the date of this filing are as follows (figures following the names represent the officer's age as of December 31, 1999): 118 Executive Officers of WP&L Erroll B. Davis, Jr., 55, was elected CEO effective April 1998. He - -------------------- previously served as President and CEO of WP&L since 1988 and has been a board member of WP&L since 1984. Mr. Davis is also an officer of Alliant Energy and IESU. William D. Harvey, 50, was elected President effective April 1998. He - ------------------ previously served as Senior Vice President since 1993 at WP&L. Mr. Harvey is also an officer of Alliant Energy and IESU. Eliot G. Protsch, 46, was elected Executive Vice President-Energy - ---------------- Delivery effective October 1998. He previously served as Senior Vice President from 1993 to 1998 at WP&L. Mr. Protsch is also an officer of Alliant Energy and IESU. Barbara J. Swan, 48, was elected Executive Vice President and General - ---------------- Counsel effective October 1998. She previously served as Vice President-General Counsel from 1994 to 1998 at WP&L. Ms. Swan is also an officer of Alliant Energy and IESU. Thomas M. Walker, 52, was elected Executive Vice President and CFO - ---------------- effective October 1998. Mr. Walker is also an officer of Alliant Energy and IESU. Pamela J. Wegner, 52, was elected Executive Vice President-Corporate - ---------------- Services effective October 1998. She previously served as Vice President-Information Services and Administration from 1994 to 1998 at WP&L. Ms. Wegner is also an officer of Alliant Energy and IESU. Dale R. Sharp, 59, was elected Senior Vice President-Transmission - -------------- effective September 1999. He previously served as Senior Vice President-Engineering and Standards since October 1998 at WP&L and IESU. He has also served as Vice President-Engineering from 1996 to 1998 and Vice President-Power Production from 1995 to 1996 at IPC. Mr. Sharp is also an officer of IESU. Daniel A. Doyle, 41, was elected Vice President-Chief Accounting and - --------------- Financial Planning Officer effective January 2000. He previously served as Vice President-Manufacturing and Energy Portfolio Services since October 1998 at WP&L and IESU and Vice President-Fossil Plants since April 1998 at WP&L. He has also served as Vice President-Power Production from 1996 to 1998 and Vice President-Finance, Controller and Treasurer from 1994 to 1996 at WP&L. Mr. Doyle is also an officer of Alliant Energy and IESU. Edward M. Gleason, 59, was elected Vice President-Treasurer and Corporate - ----------------- Secretary effective April 1998. He previously served as Controller, Treasurer, and Corporate Secretary of WP&L since 1996 and Corporate Secretary of WP&L from 1993 to 1996. Mr. Gleason is also an officer of Alliant Energy and IESU. Dundeana K. Langer, 41, was elected Vice President-Customer Services and - ------------------ Operations effective September 1999. She previously served as Vice President-Customer Services since October 1998. Ms. Langer is also an officer of IESU. Daniel L. Mineck, 51, was elected Vice President-Performance Engineering - ---------------- and Environmental effective April 1998. Mr. Mineck is also an officer of IESU. David L. Wilson, 53, was elected Vice President-Nuclear effective - ---------------- September 1999. He previously served as Assistant Vice President-Nuclear since April 1998. Mr. Wilson is also an officer of IESU. Kim K. Zuhlke, 46, was elected Vice President-Engineering, Sales & - ------------- Marketing effective September 1999. He previously served as Vice President-Customer Operations since April 1998 at WP&L and since October 1998 at IESU and as Vice President-Customer Services and Sales from 1993 to 1998 at WP&L. Mr. Zuhlke is also an officer of IESU. 119 Linda J. Wentzel, 51, was elected Assistant Corporate Secretary effective - ----------------- May 1998. She previously served as Executive Administrative Assistant since 1995 at Alliant Energy. Ms. Wentzel is also an officer of Alliant Energy and IESU. Enrique Bacalao, 50, was elected Assistant Treasurer effective November - ---------------- 1998. Prior to joining WP&L, he was Vice President, Corporate Banking from 1995 to 1998 at the Chicago Branch of The Industrial Bank of Japan, Limited. Mr. Bacalao is also an officer of Alliant Energy and IESU. Steven F. Price, 47, was elected Assistant Treasurer effective April - --------------- 1998. He previously served as Assistant Corporate Secretary since 1992 at Alliant Energy and WP&L and as Assistant Treasurer since 1992 at Alliant Energy. Mr. Price is also an officer of IESU. Robert A. Rusch, 37, was elected Assistant Treasurer effective April - --------------- 1998. He previously served as Assistant Treasurer since 1995 at WP&L. Mr. Rusch is also an officer of IESU. NOTE: None of the executive officers listed above is related to any member of the Board of Directors or nominee for director or any other executive officer. Mr. Davis has an employment agreement with Alliant Energy pursuant to which his term of office is established. All other executive officers have no definite terms of office and serve at the pleasure of the Board of Directors. ITEM 11. EXECUTIVE COMPENSATION ALLIANT ENERGY The information required by Item 11 is incorporated herein by reference to the relevant information in the 2000 Alliant Energy Proxy Statement, which has been filed with the SEC within 120 days after the end of Alliant Energy's fiscal year. IESU The CEO and the four other most highly compensated executive officers for IESU are the same as for WP&L. Therefore, the information required by Item 11 is incorporated herein by reference to the relevant information in the 2000 WP&L Proxy Statement, which will be filed with the SEC within 120 days after the end of IESU's fiscal year. WP&L The information required by Item 11 is incorporated herein by reference to the relevant information in the 2000 WP&L Proxy Statement, which will be filed with the SEC within 120 days after the end of WP&L's fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ALLIANT ENERGY The information required by Item 12 is incorporated herein by reference to the relevant information under the caption "Ownership of Voting Securities" in the 2000 Alliant Energy Proxy Statement, which has been filed with the SEC within 120 days after the end of Alliant Energy's fiscal year. IESU To IESU's knowledge, no shareowner beneficially owned five percent or more of IESU's 4.80% Cumulative Preferred Stock as of December 31, 1999. None of the directors or executive officers of IESU own any shares of IESU's 4.80% Cumulative Preferred Stock. WP&L The information required by Item 12 is incorporated herein by reference to the relevant information under the caption "Ownership of Voting Securities" in the 2000 WP&L Proxy Statement, which will be filed with the SEC within 120 days after the end of WP&L's fiscal year. 120 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ALLIANT ENERGY The information required by Item 13 is incorporated herein by reference to the relevant information under the caption "Certain Agreements and Transactions" in the 2000 Alliant Energy Proxy Statement, which has been filed with the SEC within 120 days after the end of Alliant Energy's fiscal year. IESU The information required by Item 13 is incorporated herein by reference to the relevant information under the caption "Certain Agreements and Transactions" in the 2000 Alliant Energy Proxy Statement, which has been filed with the SEC within 120 days after the end of IESU's fiscal year. WP&L The information required by Item 13 is incorporated herein by reference to the relevant information under the caption "Certain Agreements and Transactions" in the 2000 WP&L Proxy Statement, which will be filed with the SEC within 120 days after the end of WP&L's fiscal year. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Consolidated Financial Statements --------------------------------- Refer to Index to Financial Statements at Item 8. "Financial Statements and Supplementary Data." (a) (2) Financial Statement Schedules ------------------------------ Report of Independent Public Accountants on Schedules Schedule II. Valuation and Qualifying Accounts and Reserves NOTE: All other schedules are omitted because they are not applicable or not required, or because that required information is shown either in the consolidated financial statements or in the notes thereto. (a) (3) Exhibits Required by Securities and Exchange Commission Regulation S-K ---------------------------------------------------------------------- The following Exhibits are filed herewith or incorporated herein by reference. Documents indicated by an asterisk (*) are incorporated herein by reference. 2.1* Agreement and Plan of Merger, dated as of November 10, 1995, by and among WPLH, IES, IPC and AMW Acquisition, Inc. (incorporated by reference to Exhibit 2.1 to Alliant Energy's Current Report on Form 8-K, dated November 10, 1995) 2.2* Amendment No. 1 to Agreement and Plan of Merger and Stock Option Agreements, dated May 22, 1996, by and among WPLH, IES, IPC, a Delaware corporation, AMW Acquisition, Inc., WPLH Acquisition Co. and IPC, a Wisconsin corporation (incorporated by reference to Exhibit 2.1 to Alliant Energy's Current Report on Form 8-K, dated May 22, 1996) 2.3* Amendment No. 2 to Agreement and Plan of Merger, dated August 16, 1996, by and among WPLH, IES, IPC, a Delaware corporation, WPLH Acquisition Co. and IPC, a Wisconsin corporation (incorporated by reference to Exhibit 2.1 to Alliant Energy's Current Report on Form 8-K, dated August 15, 1996) 3.1* Restated Articles of Incorporation of Alliant Energy, as amended (incorporated by reference to Exhibit 3.2 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1999) 3.2 Bylaws of Alliant Energy, as amended, effective as of March 15,2000 3.3* Restated Articles of Incorporation of WP&L, as amended (incorporated by reference to Exhibit 3.1 to WP&L's Form 10-Q for the quarter ended June 30, 1994) 121 3.4 Bylaws of WP&L, as amended, effective as of March 15, 2000 3.5* Amended and Restated Articles of Incorporation of IESU (incorporated by reference to Exhibit 3.5 to IESU's Form 10-Q for the quarter ended June 30, 1998) 3.6 Bylaws of IESU, as amended, effective as of March 15, 2000 4.1* Indenture of Mortgage or Deed of Trust dated August 1, 1941, between WP&L and First Wisconsin Trust Company (n/k/a Firstar Bank, N.A.) and George B. Luhman, as Trustees, filed as Exhibit 7(a) in File No. 2-6409, and the indentures supplemental thereto dated, respectively, January 1, 1948, September 1, 1948, June 1, 1950, April 1, 1951, April 1, 1952, September 1, 1953, October 1, 1954, March 1, 1959, May 1, 1962, August 1, 1968, June 1, 1969, October 1, 1970, July 1, 1971, April 1, 1974, December 1, 1975, May 1, 1976, May 15, 1978, August 1, 1980, January 15, 1981, August 1, 1984, January 15, 1986, June 1, 1986, August 1, 1988, December 1, 1990, September 1, 1991, October 1, 1991, March 1, 1992, May 1, 1992, June 1, 1992 and July 1, 1992 (Second Amended Exhibit 7(b) in File No. 2-7361; Amended Exhibit 7(c) in File No. 2-7628; Amended Exhibit 7.02 in File No. 2-8462; Amended Exhibit 7.02 in File No. 2-8882; Second Amendment Exhibit 4.03 in File No. 2-9526; Amended Exhibit 4.03 in File No. 2-10406; Amended Exhibit 2.02 in File No. 2-11130; Amended Exhibit 2.02 in File No. 2-14816; Amended Exhibit 2.02 in File No. 2-20372; Amended Exhibit 2.02 in File No. 2-29738; Amended Exhibit 2.02 in File No. 2-32947; Amended Exhibit 2.02 in File No. 2-38304; Amended Exhibit 2.02 in File No. 2-40802; Amended Exhibit 2.02 in File No. 2-50308; Exhibit 2.01(a) in File No. 2-57775; Amended Exhibit 2.02 in File No. 2-56036; Amended Exhibit 2.02 in File No. 2-61439; Exhibit 4.02 in File No. 2-70534; Amended Exhibit 4.03 in File No. 2-70534; Exhibit 4.02 in File No. 33-2579; Amended Exhibit 4.03 in File No. 33-2579; Amended Exhibit 4.02 in File No. 33-4961; Exhibit 4.24 in File No. 33-45726, Exhibit 4.25 in File No. 33-45726, Exhibit 4.26 in File No. 33-45726, Exhibit 4.27 in File No.33-45726, Exhibit 4.1 to WP&L's Form 8-K dated March 9, 1992, Exhibit 4.1 to WP&L's Form 8-K dated May 12, 1992, Exhibit 4.1 to WP&L's Form 8-K dated June 29, 1992 and Exhibit 4.1 to WP&L's Form 8-K dated July 20, 1992) 4.2* Rights Agreement, dated January 20, 1999, between Alliant Energy and Firstar Bank Milwaukee, N.A. (incorporated by reference to Exhibit 4.1 to Alliant Energy's Registration Statement on Form 8-A, dated January 20, 1999) 4.3* Indenture, dated as of June 20, 1997, between WP&L and Firstar Trust Company (n/k/a Firstar Bank, N.A.), as Trustee, relating to debt securities (incorporated by reference to Exhibit 4.33 to Amendment No. 2 to WP&L's Registration Statement on Form S-3 (Registration No. 33-60917)) 4.4* Officers' Certificate, dated as of June 25, 1997, creating WP&L's 7% debentures due June 15, 2007 (incorporated by reference to Exhibit 4 to WP&L's Current Report on Form 8-K, dated June 25, 1997) 4.5* Officers' Certificate, dated as of October 27, 1998, creating WP&L's 5.70% debentures due October 15, 2008 (incorporated by reference to Exhibit 4 to WP&L's Current Report on Form 8-K, dated October 27, 1998) 4.6* Officers' Certificate, dated as of March 1, 2000, creating WP&L's 7-5/8% debentures due March 1, 2010 (incorporated by reference to Exhibit 4 to WP&L's Current Report on Form 8-K, dated March 1, 2000) 122 4.7* Indenture of Mortgage and Deed of Trust, dated as of September 1, 1993, between IESU (formerly Iowa Electric Light and Power Company (IE)) and The First National Bank of Chicago, as Trustee (Mortgage) (incorporated by reference to Exhibit 4(c) to IESU's Form 10-Q for the quarter ended September 30, 1993), and the indentures supplemental thereto dated, respectively, October 1, 1993, November 1, 1993, March 1, 1995, September 1, 1996 and April 1, 1997 (Exhibit 4(d) in IESU's Form 10-Q dated November 12, 1993, Exhibit 4(e) in IESU's Form 10-Q dated November 12, 1993, Exhibit 4(b) in IESU's Form 10-Q dated May 12, 1995, Exhibit 4(c)(i) in IESU's Form 8-K dated September 19, 1996 and Exhibit 4(a) in IESU's Form 10-Q dated May 14, 1997) 4.8* Indenture of Mortgage and Deed of Trust, dated as of August 1, 1940, between IESU (formerly IE) and The First National Bank of Chicago, Trustee (1940 Indenture) (incorporated by reference to Exhibit 2(a) to IESU's Registration Statement, File No. 2-25347), and the indentures supplemental thereto dated, respectively, March 1, 1941, July 15, 1942, August 2, 1943, August 10, 1944, November 10, 1944, August 8, 1945, July 1, 1946, July 1, 1947, December 15, 1948, November 1, 1949, November 10, 1950, October 1, 1951, March 1, 1952, November 5, 1952, February 1, 1953, May 1, 1953, November 3, 1953, November 8, 1954, January 1, 1955, November 1, 1955, November 9, 1956, November 6, 1957, November 4, 1958, November 3, 1959, November 1, 1960, January 1, 1961, November 7, 1961, November 6, 1962, November 5, 1963, November 4, 1964, November 2, 1965, September 1, 1966, November 30, 1966, November 7, 1967, November 5, 1968, November 1, 1969, December 1, 1970, November 2, 1971, May 1, 1972, November 7, 1972, November 7, 1973, September 10, 1974, November 5, 1975, July 1, 1976, November 1, 1976, December 1, 1977, November 1, 1978, December 1, 1979, November 1, 1981, December 1, 1980, December 1, 1982, December 1, 1983, December 1, 1984, March 1, 1985, March 1, 1988, October 1, 1988, May 1, 1991, March 1, 1992, October 1, 1993, November 1, 1993, March 1, 1995, September 1, 1996 and April 1, 1997 (Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 4.10 in IESU's Form 10-K for the year 1966, Exhibit 4.10 in IESU's Form 10-K for the year 1966, Exhibit 4.10 in IESU's Form 10-K for the year 1967, Exhibit 4.10 in IESU's Form 10-K for the year 1968, Exhibit 4.10 in IESU's Form 10-K for the year 1969, Exhibit 1 in IESU's Form 8-K dated December 1970, Exhibit 2(g) in File No. 2-43131, Exhibit 1 in IESU's Form 8-K dated May 1972, Exhibit 2(i) in File No. 2-56078, Exhibit 2(j) in File No. 2-56078, Exhibit 2(k) in File No. 2-56078, Exhibit 2(l) in File No. 2-56078, Exhibit 1 in IESU's Form 8-K dated July 1976, Exhibit 1 in IESU's Form 8-K dated December 1976, Exhibit 2(o) in File No. 2-60040, Exhibit 1 in IESU's Form 10-Q dated June 30, 1979, Exhibit 2(q) in Form S-16 in File No. 2-65996, Exhibit 2 in IESU's Form 10-Q dated March 31, 1982, Exhibit 4(s) in IESU's Form 10-K for the year 1981, Exhibit 4(t) in IESU's Form 10-K for the year 1982, Exhibit 4(u) in IESU's Form 10-K for the year 1983, Exhibit 4(v) in IESU's Form 10-K for the year 1984, Exhibit 4(w) in IESU's Form 10-K for the year 1984, Exhibit 4(b) in IESU's Form 10-Q dated May 12, 1988, Exhibit 4(c) in IESU's Form 10-Q dated November 10, 1988, Exhibit 4(d) in IESU's Form 10-Q dated August 13, 1991, Exhibit 4(c) in IESU's Form 10-K for the year 1991, Exhibit 4(a) in IESU's Form 10-Q dated November 12, 1993, Exhibit 4(b) in IESU's Form 10-Q dated November 12, 1993, Exhibit 4(a) in IESU's Form 10-Q dated May 12, 1995, Exhibit 4(f) in IESU's Form 8-K dated September 19, 1996 and Exhibit 4(b) in IESU's Form 10-Q dated May 14, 1997) 4.9* Indenture or Deed of Trust dated as of February 1, 1923, between IESU (successor to Iowa Southern Utilities Company (IS) as result of merger of IS and IE) and The Northern Trust Company (The First National Bank of Chicago, successor) and Harold H. Rockwell (Richard D. Manella, successor), as Trustees 123 (1923 Indenture) (incorporated by reference to Exhibit B-1 to File No. 2-1719), and the indentures supplemental thereto dated, respectively, May 1, 1940, May 2, 1940, October 1, 1945, October 2, 1945, January 1, 1948, September 1, 1950, February 1, 1953, October 2, 1953, August 1, 1957, September 1, 1962, June 1, 1967, February 1, 1973, February 1, 1975, July 1, 1975, September 2, 1975, March 10, 1976, February 1, 1977, January 1, 1978, March 1, 1979, March 1, 1980, May 31, 1986, July 1, 1991, September 1, 1992 and December 1, 1994 (Exhibit B-1-k in File No. 2-4921, Exhibit B-1-l in File No. 2-4921, Exhibit 7(m) in File No. 2-8053, Exhibit 7(n) in File No. 2-8053, Exhibit 7(o) in File No. 2-8053, Exhibit 4(e) in File No. 33-3995, Exhibit 4(b) in File No. 2-10543, Exhibit 4(q) in File No. 2-10543, Exhibit 2(b) in File No. 2-13496, Exhibit 2(b) in File No. 2-20667, Exhibit 2(b) in File No. 2-26478, Exhibit 2(b) in File No. 2-46530, Exhibit 2(aa) in File No. 2-53860, Exhibit 2(bb) in File No. 2-54285, Exhibit 2(bb) in File No. 2-57510, Exhibit 2(cc) in File No. 2-57510, Exhibit 2(ee) in File No. 2-60276, Exhibit 2 in File No. 0-849, Exhibit 2 in File No. 0-849, Exhibit 2 in File No. 0-849, Exhibit 4(g) in File No. 33-3995, Exhibit 4(h) in File No. 0-849, Exhibit 4(m) in File No. 0-849 and Exhibit 4(f) in File No. 0-4117-1) 4.10* Indenture (For Unsecured Subordinated Debt Securities), dated as of December 1, 1995, between IESU and The First National Bank of Chicago, as Trustee (Subordinated Indenture) (incorporated by reference to Exhibit 4(i) to IESU's Amendment No. 1 to Registration Statement, File No. 33-62259) 4.11* Indenture (For Senior Unsecured Debt Securities), dated as of August 1, 1997, between IESU and The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 4(j) to IESU's Registration Statement, File No. 333-32097) 4.12* The Original through the Nineteenth Supplemental Indentures of IPC to The Chase Manhattan Bank and Carl E. Buckley and C. J. Heinzelmann, as Trustees, dated January 1, 1948 securing First Mortgage Bonds (incorporated by reference to Exhibits 4(b) through 4(t) to IPC's Registration Statement No. 33-59352 dated March 11, 1993) 4.13* Twentieth Supplemental Indenture of IPC to The Chase Manhattan Bank and C. J. Heinzelmann, as Trustees, dated May 15, 1993 (incorporated by reference to Exhibit 4(u) to IPC's Registration Statement No. 33-59352 dated March 11, 1993) 4.14* Indenture, relating to Resources' debt securities, dated as of November 4, 1999, among Resources, Alliant Energy, as Guarantor, and Firstar Bank, N.A., as Trustee, (incorporated by reference to Exhibit 4.1 to Resources' and Alliant Energy's Registration Statement on Form S-4 (Registration No. 333-92859), and the indentures supplemental thereto dated, respectively, November 4, 1999 and February 1, 2000 (Exhibit 4.2 in File No. 33-92859 and Exhibit 99.4 in Alliant Energy's Form 8-K dated February 1, 2000) 4.15* Registration Rights Agreement, related to Resources' 7-3/8% senior notes due 2009, dated as of November 9, 1999, among Resources, Alliant Energy, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc., ABN AMRO Incorporated and Barclays Capital Inc. (incorporated by reference to Exhibit 4.5 to Resources' and Alliant Energy's Registration Statement on Form S-4 (Registration No. 333-92859)) 4.16* Registration Rights Agreement, related to Resources' exchangeable senior notes due 2030, dated as of February 1, 2000, among Resources, Alliant Energy and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 99.5 to Alliant Energy's Current Report on Form 8-K dated February 1, 2000) 4.17* Purchase Agreement, relating to Resources' 7-3/8% senior notes due 2009, dated as of November 4, 1999, among Resources, Alliant Energy, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc., ABN AMRO Incorporated and Barclays Capital Inc. (incorporated by reference to Exhibit 4.4 to Resources' and Alliant Energy's Registration Statement on Form S-4 (Registration No. 333-92859)) 4.18* Purchase Agreement, relating to Resources' exchangeable senior notes due 2030, dated as of January 26, 1999, among Resources, Alliant Energy and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 99.2 to Alliant Energy's Current Report on Form 8-K dated February 1, 2000) 124 10.1* Service Agreement by and among WP&L, South Beloit, IESU, IPC, and Corporate Services (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.2* Service Agreement by and among Resources, IPC Development Company, Inc. and Corporate Services (incorporated by reference to Exhibit 10.2 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.3* System Coordination and Operating Agreement dated April 11, 1997, among IESU, IPC, WP&L and Corporate Services (incorporated by reference to Exhibit 10.3 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.4* Joint Power Supply Agreement among WPSC, WP&L, and MG&E, dated February 2, 1967 (incorporated by reference to Exhibit 4.09 of WPSC in File No. 2-27308) 10.5* Joint Power Supply Agreement among WPSC, WP&L, and MG&E, dated July 26, 1973 (incorporated by reference to Exhibit 5.04A of WPSC in File No. 2-48781) 10.6* Basic Generating Agreement, Unit 4, Edgewater Generating Station, dated June 5, 1967, between WP&L and WPSC (incorporated by reference to Exhibit 4.10 of WPSC in File No. 2-27308) 10.7* Agreement for Construction and Operation of Edgewater 5 Generating Unit, dated February 24, 1983, between WP&L, WEPCO and WPSC (incorporated by reference to Exhibit 10C-1 to WPSC's Form 10-K for the year 1983 (File No. 1-3016)) 10.7a* Amendment No. 1 to Agreement for Construction and Operation of Edgewater 5 Generating Unit, dated December 1, 1988 (incorporated by reference to Exhibit 10C-2 to WPSC's Form 10-K for the year 1988 (File No. 1-3016)) 10.8* Revised Agreement for Construction and Operation of Columbia Generating Plant among WPSC, WP&L, and MG&E, dated July 26, 1973 (incorporated by reference to Exhibit 5.07 of WPSC in File No. 2-48781) 10.9* Operating and Transmission Agreement between CIPCO and IESU (incorporated by reference to Exhibit 10(q) to IESU's Form 10-K for the year 1990) 10.10* DAEC Ownership Participation Agreement dated June 1, 1970 between CIPCO, Corn Belt Power Cooperative and IESU (incorporated by reference to Exhibit 5(kk) to IESU's Registration Statement, File No. 2-38674) 10.11* DAEC Operating Agreement dated June 1, 1970 between CIPCO, Corn Belt Power Cooperative and IESU (incorporated by reference to Exhibit 5(ll) to IESU's Registration Statement, File No. 2-38674) 10.12* DAEC Agreement for Transmission, Transformation, Switching, and Related Facilities dated June 1, 1970 between CIPCO, Corn Belt Power Cooperative and IESU (incorporated by reference to Exhibit 5(mm) to IESU's Registration Statement, File No. 2-38674) 10.13* Basic Generating Agreement dated April 16, 1975 between Iowa Public Service Company, Iowa Power and Light Company, Iowa-Illinois Gas and Electric Company and IESU for the joint ownership of Ottumwa Generating Station-Unit 1 (OGS-1) (incorporated by reference to Exhibit 1 to IESU's Form 10-K for the year 1977) 10.13a*Addendum Agreement to the Basic Generating Agreement for OGS-1 dated December 7, 1977 between Iowa Public Service Company, Iowa-Illinois Gas and Electric Company, Iowa Power and Light Company and IESU for the purchase of 15% ownership in OGS-1 (incorporated by reference to Exhibit 3 to IESU's Form 10-K for the year 1977) 125 10.14* Second Amended and Restated Credit Agreement dated as of September 17, 1987 between Arnold Fuel, Inc. and the First National Bank of Chicago and the Amended and Restated Consent and Agreement dated as of September 17, 1987 by IESU (incorporated by reference to Exhibit 10(j) to IESU's Form 10-K for the year 1987) 10.15 Second Amended and Restated November 1998 Stockholders' Agreement entered into as of December 17, 1999, by and among McLeod, Alliant Energy, Investments and certain other principal stockholders of McLeod 10.16 Second Amended and Restated January 1999 Stockholders' Agreement entered into as of December 17, 1999, by and among McLeod, Alliant Energy, Investments and certain other principal stockholders of McLeod 10.17#*Alliant Energy LTEIP, as amended (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1999) 10.18#*Alliant Energy 1998 Officer Incentive Compensation Plan (incorporated by reference to Exhibit 10.16 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.19#*Restricted Stock Agreement pursuant to the Alliant Energy LTEIP (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.20#*Corporate Services Key Employee Deferred Compensation Plan (incorporated by reference to Exhibit 10.18 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.21#*Key Employee Deferred Compensation Plan (incorporated by reference to Exhibit 10(n) to IES's Form 10-K for the year 1987) 10.21a#* Amendments to Key Employee Deferred Compensation Agreement for Key Employees (incorporated by reference to Exhibit 10(v) to IES's Form 10-Q for the quarter ended March 31, 1990) 10.22#*Alliant Energy Deferred Compensation Plan for Directors (incorporated by reference to Exhibit I-6 to Alliant Energy's Post-Effective Amendment No. 1 to Form U-1, File No. 70-8891) 10.23#*IES Grantor Trust for Director Retirement Plan (incorporated by reference to Exhibit 10(c) to IES's Form 10-Q for the quarter ended September 30, 1997) 10.24#* IES Grantor Trust for Deferred Compensation Agreements (incorporated by reference to Exhibit 10(d) to IES's Form 10-Q for the quarter ended September 30, 1997) 10.25#* IES Grantor Trust for Supplemental Retirement Agreements (incorporated by reference to Exhibit 10(e) to IES's Form 10-Q for the quarter ended September 30, 1997) 10.26#* IESU Grantor Trust for Deferred Compensation Agreements (incorporated by reference to Exhibit 10(f) to IES's Form 10-Q for the quarter ended September 30, 1997) 10.27#* IESU Grantor Trust for Supplemental Retirement Agreements (incorporated by reference to Exhibit 10(g) to IES's Form 10-Q for the quarter ended September 30, 1997) 126 10.28#* IPC Irrevocable Trust Agreement dated April 30, 1990 (incorporated by reference to Exhibit 99.f to IPC's Form 10-K for the year 1993) 10.29#* IPC Irrevocable Trust Agreement dated December 1997 (incorporated by reference to Exhibit 99.7 to IPC's Form 10-K for the year 1997) 10.30#* Form of Supplemental Retirement Agreement (incorporated by reference to Exhibit 10.15 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.31#* Supplemental Retirement Plan (incorporated by reference to Exhibit 10(l) to IES's Form 10-K for the year 1987) 10.32#* Executive Change of Control Severance Agreement - Vice Presidents (incorporated by reference to Exhibit 10(b) to IES's Form 10-Q for the quarter ended September 30, 1996) 10.33#*Key Executive Employment and Severance Agreement, dated March 29, 1999, by and between Alliant Energy and Erroll B. Davis, Jr. (incorporated by reference to Exhibit 10.2 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.34#*Key Executive Employment and Severance Agreement, dated March 29, 1999, by and between Alliant Energy and each of J.E. Hoffman, W.D. Harvey, E.G. Protsch, P.J. Wegner, T.M. Walker and B.J. Swan (incorporated by reference to Exhibit 10.3 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.35#*Key Executive Employment and Severance Agreement, dated March 29, 1999, by and between Alliant Energy and each of T.L. Aller, D.A. Doyle, E.M. Gleason, D.K. Langer, D.L. Mineck, D.R. Sharp and K.K. Zuhlke (incorporated by reference to Exhibit 10.4 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.36* Employment Agreement by and between Alliant Energy and Erroll B. Davis, Jr., amended and restated as of March 29, 1999 (incorporated by reference to Exhibit 10.5 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.37#* Employment Agreement, dated as of April 21, 1998, by and between Alliant Energy and Lee Liu (incorporated by reference to Exhibit 10.2 to Alliant Energy's Form 8-K dated April 21, 1998) 10.38#* Severance Agreement by and between Alliant Energy and Anthony J. Amato (incorporated by reference to Exhibit 10.28 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.39#* Executive Guaranty Plan (incorporated by reference to Exhibit 10(p) to IES's Form 10-K for the year 1987) 10.40#* Early Retirement Agreement, dated as of October 7, 1998, by and between Alliant Energy et al. and Michael R. Chase (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended September 30, 1998) 10.41#* Early Retirement Agreement, dated as of December 4, 1998, by and between Alliant Energy et al. and Richard R. Ewers (incorporated by reference to Exhibit 10.46 to Alliant Energy's Form 10-K for the year 1998) 10.42#* Consulting Agreement by and between Alliant Energy and Wayne H. Stoppelmoor (incorporated by reference to Exhibit 10.2 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1999) 10.43#* Executive Tenure Compensation Plan as revised November 1992 (incorporated by reference to Exhibit 10A to Alliant Energy's Form 10-K for the year 1992) 127 10.43a#* Amendment to Executive Tenure Compensation Plan adopted February 23, 1998 (incorporated by reference to Exhibit 10.19a to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 21 Subsidiaries of Alliant Energy 23 Consent of Independent Public Accountants for Alliant Energy 27.1 Financial Data Schedule for Alliant Energy at and for the period ended December 31, 1999 27.2 Financial Data Schedule for IESU at and for the period ended December 31, 1999 27.3 Financial Data Schedule for WP&L at and for the period ended December 31, 1999 Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrants agree to furnish to the SEC, upon request, any instrument defining the rights of holders of unregistered long-term debt not filed as an exhibit to this Form 10-K. No such instrument authorizes securities in excess of 10% of the total assets of Alliant Energy, WP&L or IESU, as the case may be. Documents incorporated by reference to filings made by Alliant Energy under the Securities Exchange Act of 1934, as amended, are under File No. 1-9894. Documents incorporated by reference to filings made by WP&L under the Securities Exchange Act of 1934, as amended, are under File No. 0-337. Documents incorporated by reference to filings made by IES under the Securities Exchange Act of 1934, as amended, are under File No. 1-9187. Documents incorporated by reference to filings made by IESU under the Securities Exchange Act of 1934, as amended, are under File No. 0-4117-1. Documents incorporated by reference to filings made by IPC under the Securities Exchange Act of 1934, as amended, are under File No. 1-3632. # - A management contract or compensatory plan or arrangement. (b) Reports on Form 8-K -------------------- Alliant Energy - None. IESU - None. WP&L - None. 128 ALLIANT ENERGY, IESU AND WP&L SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Additions - Balance, Charged to Balance, Description January 1 Expense Deductions (1) December 31 - ------------------------------------------------------------------------------------------------------------------- (in thousands) Valuation and Qualifying Accounts Which are Deducted in the Balance Sheet From the Assets to Which They Apply: Accumulated Provision for Uncollectible Accounts: Alliant Energy Year ended December 31, 1999 $3,128 $2,909 $2,677 $3,360 Year ended December 31, 1998 2,636 3,740 3,248 3,128 Year ended December 31, 1997 3,319 3,315 3,998 2,636 IESU Year ended December 31, 1999 $1,415 $2,268 $2,042 $1,641 Year ended December 31, 1998 854 2,840 2,279 1,415 Year ended December 31, 1997 757 2,439 2,342 854 WP&L Year ended December 31, 1999 $8 $-- $2 $6 Year ended December 31, 1998 12 -- 4 8 Year ended December 31, 1997 45 -- 33 12 Note: The above provisions relate to various customer, notes and other receivable balances included in various line items on the respective Consolidated Balance Sheets. Other Reserves: Accumulated Provision for Injuries & Damages, Workers' Compensation, Litigation and Other Miscellaneous Reserves: Alliant Energy Year ended December 31, 1999 $7,458 $5,479 $4,942 $7,995 Year ended December 31, 1998 6,400 7,738 6,680 7,458 Year ended December 31, 1997 4,616 3,728 1,944 6,400 IESU Year ended December 31, 1999 $3,129 $2,036 $2,547 $2,618 Year ended December 31, 1998 5,033 215 2,119 3,129 Year ended December 31, 1997 3,219 3,384 1,570 5,033 WP&L Year ended December 31, 1999 $2,799 $1,937 $1,742 $2,994 Year ended December 31, 1998 1 2,798 -- 2,799 Year ended December 31, 1997 -- 1 -- 1 Reserve for Merger-Related Employee Separation Charges: Alliant Energy Year ended December 31, 1999 $5,712 $-- $4,744 $968 Year ended December 31, 1998 -- 9,950 4,238 5,712 Year ended December 31, 1997 -- -- -- -- IESU Year ended December 31, 1999 $1,893 $-- $1,215 $678 Year ended December 31, 1998 -- 3,551 1,658 1,893 Year ended December 31, 1997 -- -- -- -- WP&L Year ended December 31, 1999 $766 $-- $766 $-- Year ended December 31, 1998 -- 867 101 766 Year ended December 31, 1997 -- -- -- -- (1) Deductions are of the nature for which the reserves were created. In the case of the accumulated provision for uncollectible accounts, deductions from this reserve are reduced by recoveries of amounts previously written off.
129 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 29th day of March 2000.
ALLIANT ENERGY CORPORATION By: /s/ Erroll B. Davis, Jr. Erroll B. Davis, Jr. President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 29th day of March 2000. /s/ Erroll B. Davis, Jr. President, Chief Executive Officer and Director (Principal Executive Officer) - ---------------------- Erroll B. Davis, Jr. /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer (Principal Financial Officer) - --------------------- Thomas M. Walker /s/ Daniel A. Doyle Vice President - Chief Accounting and Financial Planning Officer - -------------------- Daniel A. Doyle (Principal Accounting Officer) /s/ Alan B. Arends Director /s/ Milton E. Neshek Director - ----------------------------------------- ------------------------------------------- Alan B. Arends Milton E. Neshek /s/ Jack B. Evans Director /s/ Judith D.Pyle Director - ----------------------------------------- ------------------------------------------- Jack B. Evans Judith D. Pyle /s/ Rockne G. Flowers Director /s/ Robert D. Ray Director - ----------------------------------------- ------------------------------------------- Rockne G. Flowers Robert D. Ray /s/ Joyce L. Hanes Director /s/ Robert W. Schlutz Director - ----------------------------------------- ------------------------------------------- Joyce L. Hanes Robert W. Schlutz /s/ Lee Liu Director /s/ Wayne H. Stoppelmoor Director - ----------------------------------------- ------------------------------------------- Lee Liu Wayne H. Stoppelmoor /s/ Katharine C. Lyall Director /s/ Anthony R. Weiler Director - ----------------------------------------- ------------------------------------------- Katharine C. Lyall Anthony R. Weiler /s/ Arnold M. Nemirow Director - ----------------------------------------- Arnold M. Nemirow
130 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 29h day of March 2000.
IES UTILITIES INC. By: /s/ Erroll B. Davis, Jr. Erroll B. Davis, Jr. Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 29th day of March 2000. /s/ Erroll B. Davis, Jr. Chief Executive Officer and Director (Principal Executive Officer) - ---------------------- Erroll B. Davis, Jr. /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer (Principal Financial Officer) - --------------------- Thomas M. Walker /s/ Daniel A. Doyle Vice President - Chief Accounting and Financial Planning Officer - -------------------- Daniel A. Doyle (Principal Accounting Officer) /s/ Alan B. Arends Director /s/ Milton E. Neshek Director - ----------------------------------------- ------------------------------------------- Alan B. Arends Milton E. Neshek /s/ Jack B. Evans Director /s/ Judith D.Pyle Director - ----------------------------------------- ------------------------------------------- Jack B. Evans Judith D. Pyle /s/ Rockne G. Flowers Director /s/ Robert D. Ray Director - ----------------------------------------- ------------------------------------------- Rockne G. Flowers Robert D. Ray /s/ Joyce L. Hanes Director /s/ Robert W. Schlutz Director - ----------------------------------------- ------------------------------------------- Joyce L. Hanes Robert W. Schlutz /s/ Lee Liu Director /s/ Wayne H. Stoppelmoor Director - ----------------------------------------- ------------------------------------------- Lee Liu Wayne H. Stoppelmoor /s/ Katharine C. Lyall Director /s/ Anthony R. Weiler Director - ----------------------------------------- ------------------------------------------- Katharine C. Lyall Anthony R. Weiler /s/ Arnold M. Nemirow Director - ----------------------------------------- Arnold M. Nemirow
131 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 29th day of March 2000.
WISCONSIN POWER AND LIGHT COMPANY By: /s/ Erroll B. Davis, Jr. Erroll B. Davis, Jr. Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 29th day of March 2000. /s/ Erroll B. Davis, Jr. Chief Executive Officer and Director (Principal Executive Officer) - ---------------------- Erroll B. Davis, Jr. /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer (Principal Financial Officer) - --------------------- Thomas M. Walker /s/ Daniel A. Doyle Vice President - Chief Accounting and Financial Planning Officer - -------------------- Daniel A. Doyle (Principal Accounting Officer) /s/ Alan B. Arends Director /s/ Milton E. Neshek Director - ----------------------------------------- ------------------------------------------- Alan B. Arends Milton E. Neshek /s/ Jack B. Evans Director /s/ Judith D.Pyle Director - ----------------------------------------- ------------------------------------------- Jack B. Evans Judith D. Pyle /s/ Rockne G. Flowers Director /s/ Robert D. Ray Director - ----------------------------------------- ------------------------------------------- Rockne G. Flowers Robert D. Ray /s/ Joyce L. Hanes Director /s/ Robert W. Schlutz Director - ----------------------------------------- ------------------------------------------- Joyce L. Hanes Robert W. Schlutz /s/ Lee Liu Director /s/ Wayne H. Stoppelmoor Director - ----------------------------------------- ------------------------------------------- Lee Liu Wayne H. Stoppelmoor /s/ Katharine C. Lyall Director /s/ Anthony R. Weiler Director - ----------------------------------------- ------------------------------------------- Katharine C. Lyall Anthony R. Weiler /s/ Arnold M. Nemirow Director - ----------------------------------------- Arnold M. Nemirow
132 EXHIBIT INDEX
Exhibit Description 3.2 Bylaws of Alliant Energy, as amended, effective as of March 15, 2000 3.4 Bylaws of WP&L, as amended, effective as of March 15, 2000 3.6 Bylaws of IESU, as amended, effective as of March 15, 2000 10.15 Second Amended and Restated November 1998 Stockholders' Agreement entered into as of December 17, 1999, by and among McLeod, Alliant Energy, Investments and certain other principal stockholders of McLeod 10.16 Second Amended and Restated January 1999 Stockholders' Agreement entered into as of December 17, 1999, by and among McLeod, Alliant Energy, Investments and certain other principal stockholders of McLeod 21 Subsidiaries of Alliant Energy 23 Consent of Independent Public Accountants for Alliant Energy 27.1 Financial Data Schedule for Alliant Energy at and for the period ended December 31, 1999 27.2 Financial Data Schedule for IESU at and for the period ended December 31, 1999 27.3 Financial Data Schedule for WP&L at and for the period ended December 31, 1999
EX-3.2 2 BYLAWS OF ALLIANT ENERGY CORPORATION EXHIBIT 3.2 BYLAWS OF ALLIANT ENERGY CORPORATION Effective as of March 15, 2000 ARTICLE I OFFICES Section 1.1 PRINCIPAL AND BUSINESS OFFICES. - The Corporation may have such principal and other business offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the Corporation may require from time to time. Section 1.2 REGISTERED OFFICE. - The registered office of the Corporation required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical with the principal office in the State of Wisconsin, and the address of the registered office may be changed from time to time by the Board of Directors or by the registered agent. The business office of the registered agent of the Corporation shall be identical to such registered office. ARTICLE II SEAL Section 2.1 CORPORATE SEAL. - The corporate seal shall have inscribed thereon the name of the Corporation and the words "CORPORATE SEAL, WISCONSIN." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced. ARTICLE III SHAREOWNERS Section 3.1 ANNUAL MEETING. - The annual meeting of the shareowners (the "Annual Meeting") shall be held at such date and time as the Board of Directors may determine. In fixing a meeting date for any Annual Meeting, the Board of Directors may consider such factors as it deems relevant within the good faith exercise of its business judgment. At each Annual Meeting, the shareowners shall elect that number of directors equal to the number of directors in the class whose term expires at the time of such meeting. At any such Annual Meeting, only other business properly brought before the meeting in accordance with Section 3.14 of these Bylaws may be transacted. If the election of directors shall not be held on the date fixed as herein provided, for any Annual Meeting, or any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of shareowners (a "Special Meeting") as soon thereafter as is practicable. Section 3.2 SPECIAL MEETINGS. - A Special Meeting may be called only by (i) the Board of Directors or (ii) the Chief Executive Officer and shall be called by the Chief Executive Officer upon the demand, in accordance with this Section 3.2, of the holders of record of shares representing at least 10% of all the votes entitled to be cast on any issue proposed to be considered at the Special Meeting. (a) In order that the Corporation may determine the shareowners entitled to demand a Special Meeting, the Board of Directors may fix a record date to determine the shareowners entitled to make such a demand (the "Demand Record Date"). The Demand Record Date shall not precede the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors and shall not be more than ten days after the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors. Any shareowner of record seeking to have shareowners demand a Special Meeting shall, by sending written notice to the Secretary of the Corporation by hand or by certified or registered mail, return receipt requested, request the Board of Directors to fix a Demand Record Date. The Board of Directors shall promptly, but in all events within ten days after the date on which a valid request to fix a Demand Record Date is received, adopt a resolution fixing the Demand Record Date and shall make a public announcement of such Demand Record Date. If no Demand Record Date has been fixed by the Board of Directors within ten days after the date on which such request is received by the Secretary, the Demand Record Date shall be the 10th day after the first date on which a valid written request to set a Demand Record Date is received by the Secretary. To be valid, such written request shall set forth the purpose or purposes for which the Special Meeting is to be held, shall be signed by one or more shareowners of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareowner (or proxy or other representative) and shall set forth all information about each such shareowner and about the beneficial owner or owners, if any, on whose behalf the request is made that would be required to be set forth in a shareowner's notice described in paragraph (a) (ii) of Section 3.14 of these Bylaws. (b) In order for a shareowner or shareowners to demand a Special Meeting, a written demand or demands for a Special Meeting by the holders of record as of the Demand Record Date of shares representing at least 10% of all the votes entitled to be cast on any issue proposed to be considered at the Special Meeting must be delivered to the Corporation. To be valid, each written demand by a shareowner for a Special Meeting shall set forth the specific purpose or purposes for which the Special Meeting is to be held (which purpose or purposes shall be limited to the purpose or purposes set forth in the written request to set a Demand Record Date received by the Corporation pursuant to paragraph (b) of this Section 3.2), shall be signed by one or more persons who as of the Demand Record Date are shareowners of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareowner (or proxy or other representative), and shall set forth the name and address, as they appear in the Corporation's books, of each shareowner signing such demand and the class and number of shares of the Corporation which are owned of record and beneficially by each such shareowner, shall be sent to the Secretary by hand or by certified or registered mail, return receipt requested, and shall be received by the Secretary within seventy days after the Demand Record Date. (c) The Corporation shall not be required to call a Special Meeting upon shareowner demand unless, in addition to the documents required by paragraph (c) of this Section 3.2, the Secretary receives a written agreement signed by each Soliciting Shareowner (as defined below), pursuant to which each Soliciting Shareowner, jointly and severally, agrees to pay the Corporation's costs of holding the Special Meeting, including the costs of preparing and mailing proxy materials for the Corporation's own solicitation, provided that if each of the resolutions introduced by any Soliciting Shareowner at such meeting is adopted, and each of the individuals nominated by or on behalf of any Soliciting Shareowner for election as a director at such meeting is elected, then the Soliciting Shareowners shall not be required to pay such costs. For purposes of this paragraph (d), the following terms shall have the meanings set forth below: (i) "Affiliate" of any Person (as defined herein) shall mean any Person controlling, controlled by or under common control with such first Person. (ii) "Participant" shall have the meaning assigned to such term in Rule 14a-11 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (iii) "Person" shall mean any individual, firm, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity. (iv) "Proxy" shall have the meaning assigned to such term in Rule 14a-1 promulgated under the Exchange Act. (v) "Solicitation" shall have the meaning assigned to such term in Rule 14a-11 promulgated under the Exchange Act. (vi) "Soliciting Shareowner" shall mean, with respect to any Special Meeting demanded by a shareowner or shareowners, any of the following Persons: (A) if the number of shareowners signing the demand or demands of meeting delivered to the Corporation pursuant to paragraph (c) of this Section 3.2 is ten or fewer, each shareowner signing any such demand; (B) if the number of shareowners signing the demand or demands of meeting delivered to the Corporation pursuant to paragraph (c) of this Section 3.2 is more than ten, each Person who either (I) was a Participant in any Solicitation of such demand or demands or (II) at the time of the delivery to the Corporation of the documents described in paragraph (c) of this Section 3.2 had engaged or intends to engage in any Solicitation of Proxies for use at such Special Meeting (other than a Solicitation of Proxies on behalf of the Corporation); or (C) any Affiliate of a Soliciting Shareowner, if a majority of the directors then in office determine, reasonably and in good faith, that such Affiliate should be required to sign the written notice described in paragraph (c) of this Section 3.2 and/or the written agreement described in this paragraph (d) in order to prevent the purposes of this Section 3.2 from being evaded. (d) Except as provided in the following sentence, any Special Meeting shall be held at such hour and day as may be designated by whichever of the Board of Directors or the Chief Executive Officer shall have called such meeting. In the case of any Special Meeting called by the Chief Executive Officer upon the demand of shareowners (a "Demand Special Meeting"), such meeting shall be held at such hour and day as may be designated by the Board of Directors; provided, however, that the date of any Demand Special Meeting shall be not more than seventy days after the Meeting Record Date (as defined in Section 3.6 hereof); and provided further that in the event that the directors then in office fail to designate an hour and date for a Demand Special Meeting within ten days after the date that valid written demands for such meeting by the holders of record as of the Demand Record Date of shares representing at least 10% of all the votes entitled to be cast on each issue proposed to be considered at the Special Meeting are delivered to the Corporation (the "Delivery Date"), then such meeting shall be held at 2:00 P.M. local time on the 100th day after the Delivery Date or, if such 100th day is not a Business Day (as defined below), on the first preceding Business Day. In fixing a meeting date for any Special Meeting, the Board of Directors or the Chief Executive Officer may consider such factors as it or he deems relevant within the good faith exercise of its or his business judgment, including, without limitation, the nature of the action proposed to be taken, the facts and circumstances surrounding any demand for such meeting, and any plan of the Board of Directors to call an Annual Meeting or a Special Meeting for the conduct of related business. (e) The Corporation may engage regionally or nationally recognized independent inspectors of elections to act as an agent of the Corporation for the purpose of promptly performing a ministerial review of the validity of any purported written demand or demands for a Special Meeting received by the Secretary. For the purpose of permitting the inspectors to perform such review, no purported demand shall be deemed to have been delivered to the Corporation until the earlier of (i) five Business Days following receipt by the Secretary of such purported demand and (ii) such date as the independent inspectors certify to the Corporation that the valid demands received by the Secretary represent at least 10% of all the votes entitled to be cast on each issue proposed to be considered at the Special Meeting. Nothing contained in this paragraph (f) shall in any way be construed to suggest or imply that the Board of Directors or any shareowner shall not be entitled to contest the validity of any demand, whether during or after such five Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto). (f) For purposes of these Bylaws, "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of Wisconsin are authorized or obligated by law or executive order to close. Section 3.3 PLACE OF MEETING. - The Board of Directors or the Chief Executive Officer may designate any place, either within or without the State of Wisconsin, as the place for any Annual Meeting or any Special Meeting, or for any postponement thereof. If no designation is made, the place of meeting shall be the principal office of the Corporation. Any meeting may be adjourned to reconvene at any place designated by vote of the Board of Directors or determined by the Chief Executive Officer. Section 3.4 NOTICE OF MEETINGS - Written notice stating the date, time and place of any meeting of shareowners shall be delivered not less than ten days nor more than seventy days before the date of the meeting (unless a different time period is provided by the Wisconsin Business Corporation Law or the Articles of Incorporation), either personally or by mail, by or at the direction of the Chief Executive Officer or the Secretary, to each shareowner of record entitled to vote at such meeting and to such other persons as required by the Wisconsin Business Corporation Law. In the event of any Demand Special Meeting, such notice of meeting shall be sent not more than thirty days after the Delivery Date. For purposes of this Section 3.4, notice by "electronic transmission" (as such term is defined in Section 180.0103(7m) of the Wisconsin Business Corporation Law") shall be deemed to constitute written notice. Written notice pursuant to this Section 3.4 shall be deemed to be effective (a) when mailed, if mailed postpaid and addressed to the shareowner's address shown in the Corporation's current record of shareowners or (b) when electronically transmitted to the shareowner in a manner authorized by the shareowner. Unless otherwise required by the Wisconsin Business Corporation Law or the Articles of Incorporation, a notice of an Annual Meeting need not include a description of the purpose for which the meeting is called. In the case of any Special Meeting, (i) the notice of meeting shall describe any business that the Board of Directors shall have theretofore determined to bring before the meeting and (ii) in the case of a Demand Special Meeting, the notice of meeting (A) shall describe any business set forth in the statement of purpose of the demands received by the Corporation in accordance with Section 3.2 of these Bylaws and (B) shall contain all of the information required in the notice received by the Corporation in accordance with Section 3.14(b) of these Bylaws. If an Annual Meeting or Special Meeting is adjourned to a different date, time or place, the Corporation shall not be required to give notice of the new date, time or place if the new date, time or place is announced at the meeting before adjournment; provided, however, that if a new Meeting Record Date for an adjourned meeting is or must be fixed, the Corporation shall give notice of the adjourned meeting to persons who are shareowners as of the new Meeting Record Date. Section 3.5 WAIVER OF NOTICE - A shareowner may waive any notice required by the Wisconsin Business Corporation Law, the Articles of Incorporation or these Bylaws before or after the date and time stated in the notice. The waiver shall be in writing and signed by the shareowner entitled to the notice, contain the same information that would have been required in the notice under applicable provisions of the Wisconsin Business Corporation Law (except that the time and place of meeting need not be stated) and be delivered to the Corporation for inclusion in the corporate records. A shareowner's attendance at any Annual Meeting or Special Meeting, in person or by proxy, waives objection to all of the following: (a) lack of notice or defective notice of the meeting, unless the shareowner at the beginning of the meeting or promptly upon arrival objects to holding the meeting or transacting business at the meeting; and (b) consideration of a particular matter at the meeting that is not within the purpose described in the meeting notice, unless the shareowner objects to considering the matter when it is presented. Section 3.6 FIXING OF RECORD DATE. - The Board of Directors may fix in advance a date not less than ten days and not more than seventy days prior to the date of an Annual Meeting or Special Meeting as the record date for the determination of shareowners entitled to notice of, or to vote at, such meeting (the "Meeting Record Date"). In the case of any Demand Special Meeting, (i) the Meeting Record Date shall be not later than the 30th day after the Delivery Date and (ii) if the Board of Directors fails to fix the Meeting Record Date within thirty days after the Delivery Date, then the close of business on such 30th day shall be the Meeting Record Date. The shareowners of record on the Meeting Record Date shall be the shareowners entitled to notice of and to vote at the meeting. Except as provided by the Wisconsin Business Corporation Law for a court-ordered adjournment, a determination of shareowners entitled to notice of and to vote at an Annual Meeting or Special Meeting is effective for any adjournment of such meeting unless the Board of Directors fixes a new Meeting Record Date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. The Board of Directors may also fix in advance a date as the record date for the purpose of determining shareowners entitled to take any other action or determining shareowners for any other purpose. Such record date shall be not more than seventy days prior to the date on which the particular action, requiring such determination of shareowners, is to be taken. The record date for determining shareowners entitled to a distribution (other than a distribution involving a purchase, redemption or other acquisition of the Corporation's shares) or a share dividend is the date on which the Board of Directors authorizes the distribution or share dividend, as the case may be, unless the Board of Directors fixes a different record date. Section 3.7 SHAREOWNER LIST. - The Corporation shall have available, beginning two (2) days after the notice of the meeting is given for which the list was prepared and continuing to the date of the meeting, a complete record of each shareowner entitled to vote at such meeting, or any adjournment thereof, showing the address of and number of shares held by each shareowner. The shareowner list shall be available for inspection by any shareowner during normal business hours at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. The Corporation shall make the shareowners' list available at the meeting and any shareowner or his agent or attorney may inspect the list at any time the meeting or any adjournment thereof. Section 3.8 QUORUM AND VOTING REQUIREMENTS. (a) Shares entitled to vote as a separate voting group may take action on a matter at any Annual Meeting or Special Meeting only if a quorum of those shares exists with respect to that matter. If the Corporation has only one class of stock outstanding, such class shall constitute a separate voting group for purposes of this Section 3.8. Except as otherwise provided in the Articles of Incorporation or the Wisconsin Business Corporation Law, a majority of the votes entitled to be cast on the matter shall constitute a quorum of the voting group for action on that matter. Once a share is represented for any purpose at any Annual Meeting or Special Meeting, other than for the purpose of objecting to holding the meeting or transacting business at the meeting, it is considered present for purposes of determining whether a quorum exists for the remainder of the meeting and for any adjournment of that meeting unless a new Meeting Record Date is or must be set for the adjourned meeting. If a quorum exists, except in the case of the election of directors, action on a matter shall be approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Articles of Incorporation or the Wisconsin Business Corporation Law requires a greater number of affirmative votes. Unless otherwise provided in the Articles of Incorporation, each director to be elected shall be elected by a plurality of the votes cast by the shares entitled to vote in the election of directors at an Annual Meeting or Special Meeting at which a quorum is present. (b) The Board of Directors acting by resolution may postpone and reschedule any previously scheduled Annual Meeting or Special Meeting; provided, however, that a Demand Special Meeting shall not be postponed beyond the 100th day following the Delivery Date. Any Annual Meeting or Special Meeting may be adjourned from time to time, whether or not there is a quorum, (i) at any time, upon a resolution by shareowners if the votes cast in favor of such resolution by the holders of shares of each voting group entitled to vote on any matter theretofore properly brought before the meeting exceed the number of votes cast against such resolution by the holders of shares of each such voting group or (ii) at any time prior to the transaction of any business at such meeting, by the Chairperson of the Board or pursuant to a resolution of the Board of Directors. No notice of the time and place of adjourned meetings need be given except as required by the Wisconsin Business Corporation Law. At any adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 3.9 CONDUCT OF MEETING. - The Chairperson of the Board shall preside at each meeting of shareowners. In the absence of the Chairperson of the Board, such persons, in the following order, shall act as chair of the meeting; the Vice Chairperson of the Board, the Chief Executive Officer, the President, any Vice President, and the Director in attendance with the longest tenure in that office. The Secretary, or if absent, an Assistant Secretary, of the Company shall act as Secretary of each shareowner meeting. Section 3.10 PROXIES. - At any Annual Meeting or Special Meeting, a shareowner entitled to vote may vote his or her shares in person or by proxy. A shareowner entitled to vote at an Annual Meeting or Special Meeting may authorize another person to act for the shareowner by appointing the person as proxy. Without limiting the manner in which a shareowner may appoint a proxy, a shareowner or the shareowner's authorized officer, director, employee, agent or attorney-in-fact may use any of the following as a valid means to make such an appointment: (a) Appointment of a proxy in writing by signing or causing the shareowner's signature to be affixed to an appointment form by any reasonable means, including, but not limited to, by facsimile signature. (b) Appointment of a proxy by transmitting or authorizing the transmission of an electronic transmission of the appointment to the person who will be appointed as proxy or to a proxy solicitation firm, proxy support service organization or like agent authorized to receive the transmission by the person who will be appointed as proxy. Every electronic transmission shall contain, or be accompanied by, information that can be used to reasonably determine that the shareowner transmitted or authorized the transmission of the electronic transmission. Any person charged with determining whether a shareholder transmitted or authorized the transmission of the electronic transmission shall specify the information upon which the determination is made. An appointment of a proxy is effective when a signed appointment form or an electronic transmission of the appointment is received by the inspector of election or the officer or agent of the Corporation authorized to tabulate votes. An appointment is valid for eleven months unless a different period is expressly provided in the appointment. Unless otherwise provided, a proxy may be revoked any time before it is voted, either by appointing a new proxy in accordance with the Wisconsin Business Corporation Law or by oral notice given by the shareowner to the presiding officer during the meeting. The presence of a shareowner who has made an effective proxy appointment shall not itself constitute a revocation. The Board of Directors shall have the power and authority to make rules establishing presumptions as to the validity and sufficiency of proxies. Section 3.11 VOTING OF SHARES. - Except as provided in the Articles of Incorporation or statute, each outstanding share entitled to vote shall be entitled to one (1) vote upon each matter submitted to a vote at a meeting of shareowners. Section 3.12 VOTING OF SHARES BY CERTAIN HOLDERS. - Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the Bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by such person, either in person or by proxy, without a transfer of such shares into that person's name. Shares standing in the name of a trustee may be voted by such trustee, either in person or by proxy, without a transfer of such shares into the trustee's name. The Corporation may request evidence of such fiduciary status with respect to the vote, consent, waiver, or proxy appointment. Shares standing in the name of a receiver or trustee in bankruptcy may be voted by such receiver or trustee, and shares held by or under the control of a receiver may be voted by such receiver without the transfer of the shares into such person's name if authority so to do is contained in an appropriate order of the court by which such receiver was appointed. A pledgee, beneficial owner, or attorney-in-fact of the shares held in the name of a shareholder shall be entitled to vote such shares. The Corporation may request evidence of such signatory's authority to sign for the shareholder with respect to the vote, consent, waiver, or proxy appointment. Neither treasury shares nor shares held by another corporation, if a majority of the shares entitled to vote for the election of Directors of such other corporation is held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. Section 3.13 Action without Meeting. - Any action required or permitted by the Articles of Incorporation or these Bylaws or any provision of the Wisconsin Business Corporation Law to be taken at an Annual Meeting or Special Meeting may be taken without a meeting if a written consent or consents, describing the action so taken, is signed by all of the shareowners entitled to vote with respect to the subject matter thereof and delivered to the Corporation for inclusion in the corporate records. Section 3.14 Notice of Shareowner Business and Nomination of Directors. (a) Annual Meetings. (i) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the shareowners may be made at an Annual Meeting (A) pursuant to the Corporation's notice of meeting, (B) by or at the direction of the Board of Directors or (C) by any shareowner of the Corporation who is a shareowner of record at the time of giving of notice provided for in this Bylaw and who is entitled to vote at the meeting and complies with the notice procedures set forth in this Section 3.14. (ii) For nominations or other business to be properly brought before an Annual Meeting by a shareowner pursuant to clause (C) of paragraph (a)(i) of this Section 3.14, the shareowner must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareowner's notice shall be received by the Secretary of the Corporation at the principal offices of the Corporation not later than the earlier of (A) 45 days in advance of the first annual anniversary (the "Anniversary Date") of the date set forth in the Corporation's proxy statement for the prior year's Annual Meeting as the date on which the Corporation first mailed definitive proxy materials for the prior year's Annual Meeting and (B) the later of (x) the 70th day prior to such Annual Meeting and (y) the 10th day following the day on which public announcement of the date of such meeting is first made. Such shareowner's notice shall be signed by the shareowner of record who intends to make the nomination or introduce the other business (or his duly authorized proxy or other representative), shall bear the date of signature of such shareowner (or proxy or other representative) and shall set forth: (A) the name and address, as they appear on this Corporation's books, of such shareowner and the beneficial owner or owners, if any, on whose behalf the nomination or proposal is made; (B) the class and number of shares of the Corporation which are beneficially owned by such shareowner or beneficial owner or owners; (C) a representation that such shareowner is a holder of record of shares of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the nomination or introduce the other business specified in the notice; (D) in the case of any proposed nomination for election or re-election as a director, (I) the name and residence address of the person or persons to be nominated, (II) a description of all arrangements or understandings between such shareowner or beneficial owner or owners and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by such shareowner, (III) such other information regarding each nominee proposed by such shareowner as would be required to be disclosed in solicitations of proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Exchange Act, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors and (IV) the written consent of each nominee to be named in a proxy statement and to serve as a director of the Corporation if so elected; and (E) in the case of any other business that such shareowner proposes to bring before the meeting, (I) a brief description of the business desired to be brought before the meeting and, if such business includes a proposal to amend these Bylaws, the language of the proposed amendment, (II) such shareowner's and beneficial owner's or owners' reasons for conducting such business at the meeting and (III) any material interest in such business of such shareowner and beneficial owner or owners. (iii) Notwithstanding anything in the second sentence of paragraph (a)(ii) of this Section 3.14 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least 45 days prior to the Anniversary Date, a shareowner's notice required by this Section 3.14 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary at the principal offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (b) Special Meetings. Only such business shall be conducted at a Special Meeting as shall have been described in the notice of meeting sent to shareowners pursuant to Section 3.4 of these Bylaws. Nominations of persons for election to the Board of Directors may be made at a Special Meeting at which directors are to be elected pursuant to such notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any shareowner of the Corporation who (A) is a shareowner of record at the time of giving of such notice of meeting, (B) is entitled to vote at the meeting and (C) complies with the notice procedures set forth in this Section 3.14. Any shareowner desiring to nominate persons for election to the Board of Directors at such a Special Meeting shall cause a written notice to be received by the Secretary of the Corporation at the principal offices of the Corporation not earlier than ninety days prior to such Special Meeting and not later than the close of business on the later of (x) the 60th day prior to such Special Meeting and (y) the 10th day following the day on which public announcement is first made of the date of such Special Meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. Such written notice shall be signed by the shareowner of record who intends to make the nomination (or his duly authorized proxy or other representative), shall bear the date of signature of such shareowner (or proxy or other representative) and shall set forth: (A) the name and address, as they appear on the Corporation's books, of such shareowner and the beneficial owner or owners, if any, on whose behalf the nomination is made; (B) the class and number of shares of the Corporation which are beneficially owned by such shareowner or beneficial owner or owners; (C) a representation that such shareowner is a holder of record of shares of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the nomination specified in the notice; (D) the name and residence address of the person or persons to be nominated; (E) a description of all arrangements or understandings between such shareowner or beneficial owner or owners and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by such shareowner; (F) such other information regarding each nominee proposed by such shareowner as would be required to be disclosed in solicitations of proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Exchange Act, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors; and (G) the written consent of each nominee to be named in a proxy statement and to serve as a director of the Corporation if so elected. (c) General. (i) Only persons who are nominated in accordance with the procedures set forth in this Section 3.14 shall be eligible to serve as directors. Only such business shall be conducted at an Annual Meeting or Special Meeting as shall have been brought before such meeting in accordance with the procedures set forth in this Section 3.14. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 3.14 and, if any proposed nomination or business is not in compliance with this Section 3.14, to declare that such defective proposal shall be disregarded. (ii) For purposes of this Section 3.14, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (iii) Notwithstanding the foregoing provisions of this Section 3.14, a shareowner shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 3.14. Nothing in this Section 3.14 shall be deemed to limit the Corporation's obligation to include shareowner proposals in its proxy statement if such inclusion is required by Rule 14a-8 under the Exchange Act. ARTICLE IV BOARD OF DIRECTORS Section 4.1 GENERAL POWER. - The business and affairs of the Corporation shall be managed by its Board of Directors. Section 4.2 NUMBER. CLASSES & TERM. - The number of Directors of the Corporation shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the total number of Directors that the Corporation would have if there were no vacancies, but shall not be less than nine (9) nor more than thirteen (13). The Directors of the Corporation shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible. At each Annual Meeting, the successors to the class of Directors whose terms shall expire at the time of such Annual Meeting shall be elected to hold office until the third succeeding Annual Meeting, and until their successors are duly elected and qualified. Section 4.3 CHAIRPERSON OF THE BOARD. - The Chairperson of the Board if not designated as the Chief Executive Officer of the Company shall assist the Board in the formulation of policies and may make recommendations therefore. Information as to the affairs of the Company in addition to that contained in the regular reports shall be furnished to him or her on request. He or she may make suggestions and recommendations to the Chief Executive Officer regarding any matters relating to the affairs of the Company and shall be available for consultation and advice. Section 4.4 VICE CHAIRPERSON OF THE BOARD. - The Vice Chairperson of the Board shall assist the Board in the formulation of policies and make recommendations therefore. The Vice Chairperson shall have such other powers and duties as may be prescribed for him or her by the Chairperson of the Board or the Board of Directors. In the absence of or the inability of the Chairperson of the Board to act as Chairperson of the Board, the Vice Chairperson of the Board shall assume the powers and duties of the Chairperson of the Board. Section 4.5 QUALIFICATIONS AND REMOVAL. - No person who has attained 70 years of age shall be eligible for election or re-election to the Board of Directors. Any Director who has attained seventy (70) years of age shall resign from the Board of Directors effective as of the next Annual Meeting. For a period of five (5) years following April 21, 1998, no person, except any of the initial Directors serving as such on April 21, 1998, who is an executive officer or employee of the Corporation or any of its subsidiaries shall be eligible to serve as a Director of the Corporation; provided, however, that any individual serving as Chief Executive Officer of the Corporation shall be eligible to serve as a Director of the Corporation. In the event the Chief Executive Officer resigns or retires from his or her office or employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that the Chief Executive Officer is removed from his or her office by the Board of Directors, or is involuntarily terminated from employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that a Director experiences a change in their principal occupation or primary business affiliation, the Director must submit their resignation from the Board to the Nominating and Governance Committee. The Nominating and Governance Committee shall recommend to the Board of Directors whether the Board should accept such resignation. If the Nominating and Governance Committee recommends acceptance of the resignation, an affirmative vote of two-thirds of the remaining Directors holding office is required to affirm the Nominating and Governance Committee's recommendation. A resignation may be tendered by any Director at any meeting of the shareholders or of the Board of Directors, who shall at such meeting accept the same. Section 4.6 REGULAR MEETINGS. - Regular meetings of the Board of Directors shall be held at such time and place as may be determined by the Board of Directors, but in no event shall the Board meet less than once a year. Section 4.7 SPECIAL MEETINGS. - Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer or any two (2) Directors. The Chief Executive Officer or Secretary may fix any place, either within or without the State of Wisconsin, whether in person or by telecommunications, as the place for holding any special meeting. Section 4.8 NOTICE; WAIVER. - Notice of any meeting of the Board of Directors, unless otherwise provided pursuant to Section 4.6, shall be given at least forty-eight (48) hours prior to the meeting by written notice delivered personally or mailed to each Director at such address designed by each Director, by telegram or other form of wire or wireless communication. The notice need not describe the purpose of the meeting of the Board of Directors or the business to be transacted at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage prepared. Any Director may waive notice of any meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of business because the meeting is not lawfully called or convened. Section 4.9 QUORUM. - A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting to some other day without further notice. Section 4.10 MEETING PARTICIPATION. (a) Any or all members of the Board of Directors, or any committee thereof, may participate in a regular or special meeting by, or to conduct the meeting through, the use of any means of communication by which any of the following occurs: (i) All participating directors may simultaneously hear each other during the meeting. (ii) All communication during the meeting is immediately transmitted to each participating director, and each participating director is able to immediately send messages to all other participating directors. (b) If a meeting is conducted by the means of communication described herein, all participating directors shall be informed that a meeting is taking place at which official business may be transacted. (c) A director participating in a meeting by means of such communication is deemed to be present in person at the meeting. Section 4.11 ACTION WITHOUT MEETING. - Any action required or permitted to be taken at any meeting of the Directors of the Corporation or of any committee of the Board may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the Directors or all of the members of the Committee of Directors, as the case may be. Such consent shall have the same force and effect as a unanimous vote at a meeting and shall be filed with the Secretary of the Corporation to be included in the official records of the Corporation. The action taken is effective when the last Director signs the consent unless the consent specifies a different effective date. Section 4.12 PRESUMPTION OF ASSENT. - A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (a) the Director objects at the beginning of the meeting or promptly upon arrival to the holding of or transacting business at the meeting, (b) the Director's dissent or abstention shall be entered in the minutes of the meeting, (c) the Director shall file a written dissent or abstention to such action with the presiding officer of the meeting before the adjournment thereof or shall forward such dissent or abstention by registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the meeting, or (d) the Director shall file a written notice to the Secretary of the Corporation promptly after receiving the minutes of the meeting that the minutes failed to show the Director's dissention or abstention from the action taken. Such right to dissent or abstain shall not apply to a Director who voted in favor of such action. Section 4.13 VACANCIES. - Except as provided below, any vacancy occurring in the Board of Directors or on any Committee of the Board of Directors and any directorship to be filled by reason of an increase in the number of Directors may be filled by the affirmative vote of a majority of the Directors then in office, even if less than a quorum of the Board of Directors. For a period of time commencing on formation of Interstate Energy Corporation and expiring on the date of the third annual meeting of shareowners of the Corporation, the initially appointed IES, IPC and WPLH directors, each as a separate group, shall be entitled to nominate those persons who will be eligible to be appointed, elected or re-elected as IES, IPC and WPLH Directors. The Director or Directors so chosen shall hold office until the next election of the Class for which such Director or Directors shall have been chosen and until their successors shall have been duly elected and qualified. Section 4.14 COMPENSATION. - Compensation and expenses for attendance at a regular or special meeting of the Board of Directors, or at any committee meeting, shall be payable in such amounts as determined from time to time by the Board of Directors. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Directors who are full time employees or officers of the Corporation shall not receive any compensation. ARTICLE V COMMITTEES Section 5.1 COMMITTEES. - The Board of Directors may, by resolution passed by a majority of the whole Board, designate from their number various Committees from time to time as corporate needs may dictate. The Committees may make their own rules of procedure and shall meet where and as provided by such rules, or by resolution of the Board of Directors. A majority of the members of the Committee shall constitute a quorum for the transaction of business. Each Committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. The Committee may be authorized by the Board of Directors to perform specified functions, except that a committee may not do any of the following: (a) authorize distributions; (b) approve or propose to shareowners action that the Wisconsin Business Corporation Law requires to be approved by shareowners; (c) fill vacancies on the Board of Directors, or, unless the Board of Directors provides by resolution that vacancies on a committee shall be filled by the affirmative vote of the remaining committee members, on any Board committee; (d) amend the Corporation's Articles of Incorporation; (e) adopt, amend or repeal bylaws; (f) approve a plan of merger not requiring shareowner approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; and (h) authorize or approve the issuance or sale or contract for sale of shares or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits prescribed by the Board of Directors. Section 5.2 EXECUTIVE COMMITTEE. - An Executive Committee is hereby established and shall consist of at least three (3) members, including the Chairman of the Board. The Executive Committee shall possess all the powers and authority of the Board of Directors when said Board of Directors is not in session, except for the powers and authorities set forth in Section 5.1. Section 5.3 AUDIT COMMITTEE. - An Audit Committee is hereby established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The members of the Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.4 COMPENSATION AND PERSONNEL COMMITTEE. - A Compensation and Personnel Committee is hereby established and shall consist of at least three (3) Directors who are not and never have been officers, employees or legal counsel of the Company. The Chairperson and the members of the Compensation and Personnel Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at such times as it determines, but at least twice each year, and shall meet at the request of the Chairman of the Board, the Chief Executive Officer, or any Committee member. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.5 NOMINATING AND GOVERNANCE COMMITTEE. - A Nominating and Governance Committee shall be established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The Chairperson and the members of the Nominating and Governance Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. ARTICLE VI OFFICERS Section 6.1 OFFICERS. - The Board of Directors shall elect a Chief Executive Officer, a President, such number of Vice Presidents with such designations as the Board of Directors at the time may decide upon, a Secretary, a Treasurer and a Controller. The Chief Executive Officer may appoint such other officers and assistant officers as may be deemed necessary. The same person may simultaneously hold more than one such office. Section 6.2 TERM OF OFFICERS. - All Officers, unless sooner removed, shall hold their respective offices until their successors, willing to serve, shall have been elected but any Officer may be removed from Office at any time by the Board of Directors. Section 6.3 REMOVAL OF OFFICERS. - Any officer may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer shall not of itself create contract rights. Section 6.4 CHIEF EXECUTIVE OFFICER. - Subject to the control of the Board of Directors the Chief Executive Officer designated by the Board of Directors shall have and be responsible for the general management and direction of the business of the Corporation, shall establish the lines of authority and supervision of the Officers and employees of the Corporation, shall have the power to appoint and remove and discharge any and all agents and employees of the Corporation not elected or appointed directly by the Board of Directors. and shall assist the Board in the formulation of policies of the Corporation. The Chairperson of the Board, if Chief Executive Officer, may delegate any part of his or her duties to the President, or to one or more of the Vice Presidents of the Corporation. Section 6.5 PRESIDENT. - The President, when he or she is not designated as and does not have the powers of the Chief Executive Officer, shall have such other powers and duties as may from time to time be prescribed by the Board of Directors or be delegated to him or her by the Chairperson of the Board or the Chief Executive Officer. Section 6.6 VICE PRESIDENTS. - The Vice Presidents shall have such powers and duties as may be prescribed for him or her by the Board of Directors and the Chief Executive Officer. In the absence of or in the event of the death of the Chief Executive Officer and the President, the inability or refusal to act, or in the event for any reason it shall be impracticable for Chief Executive Officer and the President to act personally, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the Chief Executive Officer and the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer and the President. The execution of any instrument of the Corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her authority to act in the stead of the Chief Executive Officer and the President. Section 6.7 SECRETARY. - The Secretary shall attend all meetings of the Board of Directors, shall keep a true and faithful record thereof in proper books to be provided for that purpose, and shall be responsible for the custody and care of the corporate seal, corporate records and minute books of the Corporation, and of all other books, documents and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Secretary, or shall be placed in his or her custody by the Chief Executive Officer or by the Board of Directors. He or she shall also act as Secretary of all shareowners' meetings, and keep a record thereof. He or she shall, except as may be otherwise required by statute or by these bylaws, sign, issue and publish all notices required for meetings of shareowners and of the Board of Directors. He or she shall be responsible for the custody of the stock books of the Corporation and shall keep a suitable record of the addresses of shareowners. He or she shall also be responsible for the collection, custody and disbursement of the funds received for dividend reinvestment. He or she shall sign stock certificates, bonds and mortgages, and all other documents and papers to which his or her signature may be necessary or appropriate, shall affix the seal of the Corporation to all instruments requiring the seal, and shall have such other powers and duties as are commonly incidental to the office of Secretary, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.8 TREASURER. - The Treasurer shall have charge of, and be responsible for, the collection, receipt, custody and disbursement of the funds of the Corporation, and shall deposit its funds in the name of the Corporation in such banks or trust companies as he or she shall designate and shall keep a proper record of cash receipts and disbursements. He or she shall be responsible for the custody of such books, receipted vouchers and other books and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Treasurer, or shall be placed in his or her custody by the President, or by the Board of Directors. He or she shall sign checks, drafts, and other paper providing for the payment of money by the Corporation for operating purposes in the usual course or business. He or she may, in the absence of the Secretary and Assistant Secretaries sign stock certificates. The Treasurer shall have such other powers and duties as are commonly incidental to the office of Treasurer, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.9 CONTROLLER. - The Controller shall be the principal accounting Officer of the Corporation. He or she shall have general supervision over the books of accounts of the Corporation. He or she shall examine the accounts of all Officers and employees from time to time and as often as practicable, and shall see that proper returns are made of all receipts from all sources. All bills, properly made in detail and certified, shall be submitted to him or her, and he or she shall audit and approve the same if found satisfactory and correct, but he or she shall not approve any voucher unless charges covered by the voucher have been previously approved through work orders, requisition or otherwise by the head of the department in which it originated, or unless he or she shall be otherwise satisfied of its propriety and correctness. He or she shall have full access to all minutes, contracts, correspondence and other papers and records of the Corporation relating to its business matters, and shall be responsible for the custody of such books and documents as shall naturally belong in the custody of the Controller and as shall be placed in his or her custody by the President or by the Board of Directors. The Controller shall have such other powers and duties as are commonly incidental to the office of Controller, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.10 ASSISTANT OFFICERS. - The Assistant Secretaries, Assistant Treasurers, Assistant Controllers, and other Assistant Officers shall respectively assist the Secretary, Treasurer, Controller, and other Officers of the Corporation in the performance of the respective duties assigned to such principal Officer, and in assisting his or her principal Officer each assistant Officer shall to that extent and for such purpose have the same powers as his or her principal Officer. The powers and duties of any such principal Officer shall temporarily devolve upon an assistant Officer in case of the absence, disability, death, resignation or removal from office of such principal Officer. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 7.1 CERTIFICATES FOR SHARES. - Each certificate representing shares of the Corporation shall state upon the fact (a) that the Corporation is organized under the laws of the State of Wisconsin, (b) the name of the person to whom issued, (c) the number and class of shares, and the designation of the series, if any, which such certificate represents, and (d) the par value of each share, if any, and each such certificate shall otherwise be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board, or the Chief Executive Officer or the President and by the Secretary or an Assistant Secretary and shall be sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent and registrar. In case any officer or other authorized person who has signed or whose facsimile signature has been placed upon such certificate for the Corporation shall have ceased to be such officer or employee or agent before such certificate is issued, it may be issued by the Corporation with the same effect as if such person where an officer or employee or agent at the date of its issue. Each certificate for shares shall be consecutively numbered or otherwise identified. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. Section 7.2 TRANSFER OF SHARES. - Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by such person's legal representative, who shall furnish proper evidence of authority to transfer, or authorized attorney, by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. Subject to the provisions of Section 3.12 of Article III of these Bylaws, the person in whose name shares stand on the books of the Corporation shall be treated by the Corporation as the owner thereof for all purposes, including all rights deriving from such shares, and the Corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares, on the part of any other person, including (without limitation) a purchaser, assignee or transferee of such shares, or rights deriving from such shares, unless and until such purchaser, assignee, transferee or other person becomes the record holder of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. Except as provided in said Section 3.12 hereof, no such purchaser, assignee, transferee or other person shall be entitled to receive notice of the meetings of shareholders, to vote at such meetings, to examine the complete record of the shareholders entitled to vote at meetings, or to own, enjoy or exercise any other property or rights deriving from such shares against the Corporation, until such purchaser, assignee, transferee or other person has become the record holder of such shares. Section 7.3 LOST, DESTROYED OR STOLEN CERTIFICATES. - When the owner claims that certificates for shares have been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the Corporation has notice that such shares have been acquired by a bona fide purchaser, (b) files with the Corporation a sufficient indemnity bond if required by the Corporation and (c) satisfies such other reasonable requirements as may be provided by the Corporation. Section 7.4 STOCK REGULATIONS. - The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with law as it may deem expedient concerning the issue, transfer and registration of shares of the Corporation. ARTICLE VIII INDEMNIFICATION AND LIABILITY OF DIRECTOR AND OFFICERS Section 8.1 INDEMNIFICATION. - The Corporation shall, to the fullest extent permitted or required by Sections 180.0850 to 180.0859, inclusive, of the Wisconsin Business Corporation Law, including any amendments thereto (but in the case of any such amendment, only to the extent such amendment permits or requires the corporation to provide broader indemnification rights than prior to such amendment), indemnify its Directors, Officers, employees and agents against any and all Liabilities, and advance any and all reasonable Expenses, incurred thereby in any Proceeding to which any such Director, Officer, employee or agent is a Party because he or she is or was a Director, Officer, employee or agent of the Corporation. The rights to indemnification granted hereunder shall not be deemed exclusive of any other rights to indemnification against Liabilities or the advancement of Expenses which a Director, Officer, employee or agent may be entitled under any written agreement, Board resolution, vote of shareowners, the Wisconsin Business Corporation Law or otherwise. The Corporation may, but shall not be required to, supplement the foregoing rights to indemnification against Liabilities and advancement of Expenses under this Section 8.1 by the purchase of insurance on behalf of any one or more of such Directors, Officers, employees or agents, whether or not the Corporation would be obligated to indemnify or advance Expenses to such Director, Officer, employee or agent under this Section 8.1. All capitalized terms used in this Article VIII and not otherwise defined herein shall have the meaning set forth in Section 180.0850 of the Wisconsin Business Corporation Law. ARTICLE IX MISCELLANEOUS Section 9.1 FISCAL YEAR. - The fiscal year of the Corporation shall be the calendar year. Section 9.2 DIVIDENDS. - Subject to the provisions of law or the Articles of Incorporation, the Board of Directors may, at any regular or special meeting, declare dividends upon the capital stock of the Corporation payable out of surplus (whether earned or paid-in) or profits as and when they deem expedient. Before declaring any dividend there may be set apart out of surplus or profits such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for such other purposes as the directors shall deem conducive to the interests of the Corporation. Section 9.3 CONTRACTS, CHECKS, DRAFTS, DEEDS, LEASES AND OTHER INSTRUMENTS. - All contracts, checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. The Board may authorize by resolution any officer or officers to enter into and execute any contract or instrument of indebtedness in the name of the Corporation, and such authority may be general or confined to specific instances. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks or other depositories as the Treasurer may authorize. All contracts, deeds, mortgages, leases or instruments that require the corporate seal of the Corporation to be affixed thereto shall be signed by the President or a Vice President, and by the Secretary, or an Assistant Secretary, or by such other officer or officers, or person or persons, as the Board of Directors may be resolution prescribe. Section 9.4 VOTING OF SHARES OWNED BY THE CORPORATION. - Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of such other corporation by the Chief Executive Officer of the Corporation, if present, or if absent by any other officer of the Corporation who may be present. Whenever, in the judgment of the Chief Executive Officer, or if absent, of any officer, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned by the Corporation, such proxy or consent shall be executed in the name of the Corporation by the Chief Executive Officer or one of the officers of the Corporation and shall be attested by the Secretary or an Assistant Secretary of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by such other corporation and owned by the Corporation in the same manner as such share or shares might be voted by the Corporation. ARTICLE X AMENDMENT OR REPEAL OF BYLAWS Section 10.1 AMENDMENTS BY BOARD OF DIRECTORS. - Except as otherwise provided by the Wisconsin Business Corporation Law or the Articles of Incorporation, these Bylaws may be amended or repealed and new Bylaws may be adopted by the Board of Directors by the affirmative vote of a majority of the number of directors present at any meeting at which a quorum is in attendance; provided, however, that the shareowners in adopting, amending or repealing a particular bylaw may provide therein that the Board of Directors may not amend, repeal or readopt that bylaw. Section 10.2 IMPLIED AMENDMENT. - Any action taken or authorized by the shareowners or by the Board of Directors which would be inconsistent with the Bylaws then in effect but which is taken or authorized by affirmative vote of not less than the number of shares or the number of directors required to amend the Bylaws so that the Bylaws would be consistent with such action shall be given the same effect as though the Bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. - ------------------------------------------------------------------------------ I,_______________________, do hereby certify that I am the duly elected and acting _______________ Corporate Secretary of Alliant Energy Corporation, a Wisconsin corporation, organized under the laws of the State, and that I have access to the corporate records of said Company, and as such officer, I do further certify that the foregoing Bylaws were adopted as of March 15, 2000. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said Company this ____________ day of ___________________, _______. ___________________________________ EX-3.4 3 BYLAWS OF WISCONSIN POWER AND LIGHT COMPANY EXHIBIT 3.4 BYLAWS OF WISCONSIN POWER AND LIGHT COMPANY Effective as of March 15, 2000 ARTICLE I OFFICES Section 1.1 PRINCIPAL AND BUSINESS OFFICES. - The Corporation may have such principal and other business offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the Corporation may require from time to time. Section 1.2 REGISTERED OFFICE. - The registered office of the Corporation required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical with the principal office in the State of Wisconsin, and the address of the registered office may be changed from time to time by the Board of Directors or by the registered agent. The business office of the registered agent of the Corporation shall be identical to such registered office. ARTICLE II SEAL Section 2.1 CORPORATE SEAL. - The corporate seal shall have inscribed thereon the name of the Corporation and the words "CORPORATE SEAL, WISCONSIN." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced. ARTICLE III SHAREOWNERS Section 3.1. ANNUAL MEETING. - The Annual Meeting of Shareowners shall be held at such date and time as the Board of Directors may determine. The Board of Directors may designate any place, either within or without the State of Wisconsin, as the place for the Annual Meeting. If no designation is made, the place of the Annual Meeting shall be the principal office of the Corporation. The Annual Meeting shall be held for the purposes of electing Directors and of transacting such other business as may properly come before the meeting. Section 3.2 SPECIAL MEETINGS. - Special Meetings of the Shareowners may be called by the Board of Directors or the Chief Executive Officer. The Corporation shall call a Special Meeting of Shareowners in the event that the holders of at least ten percent (10%) of all of the votes entitled to be cast on any issue request a special meeting be held. Section 3.3 NOTICE OF MEETINGS - WAIVER. - Notice of the time and place of each Annual or Special Meeting of Shareowners shall be sent by mail to the recorded address of each shareowner not less than ten (10) days nor more than sixty (60) days before the date of the meeting, except in cases where other special method of notice may be required by statute, in which case the statutory method shall be followed. For purposes of this Section 3.3, notice by "electronic transmission" (as such term is defined in Section 180.0103(7m) of the Wisconsin Business Corporation Law") shall be deemed to constitute written notice. Written notice pursuant to this Section 3.3 shall be deemed to be effective (a) when mailed, if mailed postpaid and addressed to the shareowner's address shown in the Corporation's current record of shareowners or (b) when electronically transmitted to the shareowner in a manner authorized by the shareowner. The notice of a Special Meeting shall state the purpose of the meeting. If an Annual or Special Meeting of shareowners is adjourned to a different date, time or place, the Corporation shall not be required to give notice of the new date, time or place if the new date, time or place is announced at the meeting before adjournment; provided, however, that if a new record date for an adjourned meeting is or must be fixed, the Corporation shall give notice of the adjourned meeting to persons who are shareowners as of the new record date. Notice of any meeting of the shareowners may be waived by any shareowner Section 3.4 FIXING OF RECORD DATE. - For the purpose of determining shareowners entitled to notice of, or to vote at, any meeting of shareowners, or at any adjournment thereof, or shareowners entitled to receive payment of any dividend, or in order to make a determination of shareowners for any other lawful action, the Board of Directors may fix, in advance, a record date for such determination of shareowners. Such date in case of a meeting of shareowners or other lawful action shall not be more than seventy (70) days prior to the date of such meeting or lawful action. If no record date is fixed by the Board of Directors or by statute for the determination of shareowners entitled to demand a special meeting as contemplated in Section 3.2 hereof, the record date shall be the date that the first shareowner signs the demand. When a determination of shareowners entitled to vote at any meeting of shareowners has been made as provided in this section, such determination shall apply to any adjournment thereof unless the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting in which event the Board of Directors must fix a new record date. Section 3.5 SHAREOWNER LIST. - The Corporation shall have available, beginning two (2) days after the notice of the meeting is given for which the list was prepared and continuing to the date of the meeting, a complete record of each shareowner entitled to vote at such meeting, or any adjournment thereof, showing the address of and number of shares held by each shareowner. The shareowner list shall be available for inspection by any shareowner during normal business hours at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. The Corporation shall make the shareowners' list available at the meeting and any shareowner or his agent or attorney may inspect the list at any time the meeting or any adjournment thereof. Section 3.6 QUORUM AND VOTING REQUIREMENTS. - Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. A majority of the outstanding shares entitled to vote on a matter, represented in person or by proxy, shall constitute a quorum for action on that matter. If a quorum exists, except in the case of the election of directors, action on a matter shall be approved if the votes cast favoring the action exceed the votes cast opposing the action, unless the Corporation's Articles of Incorporation, any Bylaw adopted under authority granted in the Articles of Incorporation or statute requires a greater number of affirmative votes. Directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election of directors at a meeting at which a quorum is present. Though less than a quorum of the outstanding votes are represented at a meeting, a majority of the votes so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 3.7 CONDUCT OF MEETING. - The Chairperson of the Board shall preside at each meeting of shareowners. In the absence of the Chairperson of the Board, such persons, in the following order, shall act as chair of the meeting; the Vice Chairperson of the Board, the Chief Executive Officer, the President, any Vice President, the Director in attendance with the longest tenure in that office. The Secretary, or if absent, an Assistant Secretary, of the Company shall act as Secretary of each shareowner. Section 3.8 PROXIES. - At any Annual Meeting or Special Meeting, a shareowner entitled to vote may vote his or her shares in person or by proxy. A shareowner entitled to vote at an Annual Meeting or Special Meeting may authorize another person to act for the shareowner by appointing the person as proxy. Without limiting the manner in which a shareowner may appoint a proxy, a shareowner or the shareowner's authorized officer, director, employee, agent or attorney-in-fact may use any of the following as a valid means to make such an appointment: (a) Appointment of a proxy in writing by signing or causing the shareowner's signature to be affixed to an appointment form by any reasonable means, including, but not limited to, by facsimile signature. (b) Appointment of a proxy by transmitting or authorizing the transmission of an electronic transmission of the appointment to the person who will be appointed as proxy or to a proxy solicitation firm, proxy support service organization or like agent authorized to receive the transmission by the person who will be appointed as proxy. Every electronic transmission shall contain, or be accompanied by, information that can be used to reasonably determine that the shareowner transmitted or authorized the transmission of the electronic transmission. Any person charged with determining whether a shareholder transmitted or authorized the transmission of the electronic transmission shall specify the information upon which the determination is made. An appointment of a proxy is effective when a signed appointment form or an electronic transmission of the appointment is received by the inspector of election or the officer or agent of the Corporation authorized to tabulate votes. An appointment is valid for eleven months unless a different period is expressly provided in the appointment. Unless otherwise provided, a proxy may be revoked any time before it is voted, either by appointing a new proxy in accordance with the Wisconsin Business Corporation Law or by oral notice given by the shareowner to the presiding officer during the meeting. The presence of a shareowner who has made an effective proxy appointment shall not itself constitute a revocation. The Board of Directors shall have the power and authority to make rules establishing presumptions as to the validity and sufficiency of proxies. Section 3.9 VOTING OF SHARES. - Except as provided in the Articles of Incorporation or statute, each outstanding share entitled to vote shall be entitled to one (1) vote upon each matter submitted to a vote at a meeting of shareowners. Section 3.10 VOTING OF SHARES BY CERTAIN HOLDERS. - Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the Bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by such person, either in person or by proxy, without a transfer of such shares into that person's name. Shares standing in the name of a trustee may be voted by such trustee, either in person or by proxy, without a transfer of such shares into the trustee's name. The Corporation may request evidence of such fiduciary status with respect to the vote, consent, waiver, or proxy appointment. Shares standing in the name of a receiver or trustee in bankruptcy may be voted by such receiver or trustee, and shares held by or under the control of a receiver may be voted by such receiver without the transfer of the shares into such person's name if authority so to do is contained in an appropriate order of the court by which such receiver was appointed. A pledgee, beneficial owner, or attorney-in-fact of the shares held in the name of a shareholder shall be entitled to vote such shares. The Corporation may request evidence of such signatory's authority to sign for the shareholder with respect to the vote, consent, waiver, or proxy appointment. Neither treasury shares nor shares held by another corporation, if a majority of the shares entitled to vote for the election of Directors of such other corporation is held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. ARTICLE IV BOARD OF DIRECTORS Section 4.1 GENERAL POWER. - The business and affairs of the Corporation shall be managed by its Board of Directors. Section 4.2 NUMBER. CLASSES & TERM. - The number of Directors of the Corporation shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the total number of Directors that the Corporation would have if there were no vacancies, but shall not be less than nine (9) nor more than thirteen (13). The Directors of the Corporation shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible. At each Annual Meeting, the successors to the class of Directors whose terms shall expire at the time of such Annual Meeting shall be elected to hold office until the third succeeding Annual Meeting, and until their successors are duly elected and qualified. Section 4.3 CHAIRPERSON OF THE BOARD. - The Chairperson of the Board if not designated as the Chief Executive Officer of the Company shall assist the Board in the formulation of policies and may make recommendations therefore. Information as to the affairs of the Company in addition to that contained in the regular reports shall be furnished to him or her on request. He or she may make suggestions and recommendations to the Chief Executive Officer regarding any matters relating to the affairs of the Company and shall be available for consultation and advice. Section 4.4 VICE CHAIRPERSON OF THE BOARD. - The Vice Chairperson of the Board shall assist the Board in the formulation of policies and make recommendations therefore. The Vice Chairperson shall have such other powers and duties as may be prescribed for him or her by the Chairperson of the Board or the Board of Directors. In the absence of or the inability of the Chairperson of the Board to act as Chairperson of the Board, the Vice Chairperson of the Board shall assume the powers and duties of the Chairperson of the Board. Section 4.5 QUALIFICATIONS AND REMOVAL. - No person who has attained seventy (70) years of age shall be eligible for election or re-election to the Board of Directors. Any Director who has attained seventy (70) years of age shall resign from the Board of Directors effective as of the next Annual Meeting. For a period of five (5) years following April 21, 1998, no person, except any of the initial Directors serving as such on April 21, 1998, who is an executive officer or employee of the Corporation or any of its subsidiaries shall be eligible to serve as a Director of the Corporation; provided, however, that any individual serving as Chief Executive Officer of the Corporation shall be eligible to serve as a Director of the Corporation. In the event the Chief Executive Officer resigns or retires from his or her office or employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that the Chief Executive Officer is removed from his or her office by the Board of Directors, or is involuntarily terminated from employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that a Director experiences a change in their principal occupation or primary business affiliation, the Director must submit their resignation from the Board to the Nominating and Governance Committee. The Nominating and Governance Committee shall recommend to the Board of Directors whether the Board should accept such resignation. If the Nominating and Governance Committee recommends acceptance of the resignation, an affirmative vote of two-thirds of the remaining Directors holding office is required to affirm the Nominating and Governance Committee's recommendation. A resignation may be tendered by any Director at any meeting of the shareholders or of the Board of Directors, who shall at such meeting accept the same. Section 4.6 REGULAR MEETINGS. - Regular meetings of the Board of Directors shall be held at such time and place as may be determined by the Board of Directors, but in no event shall the Board meet less than once a year. Section 4.7 SPECIAL MEETINGS. - Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer or any two (2) Directors. The Chief Executive Officer or Secretary may fix any place, either within or without the State of Wisconsin, whether in person or by telecommunications, as the place for holding any special meeting. Section 4.8 NOTICE; WAIVER. - Notice of any meeting of the Board of Directors, unless otherwise provided pursuant to Section 4.6, shall be given at least forty-eight (48) hours prior to the meeting by written notice delivered personally or mailed to each Director at such address designed by each Director, by telegram or other form of wire or wireless communication. The notice need not describe the purpose of the meeting of the Board of Directors or the business to be transacted at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage prepared. Any Director may waive notice of any meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of business because the meeting is not lawfully called or convened. Section 4.9 QUORUM. - A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting to some other day without further notice. Section 4.10 MEETING PARTICIPATION. - (a) Any or all members of the Board of Directors, or any committee thereof, may participate in a regular or special meeting by, or to conduct the meeting through, the use of any means of communication by which any of the following occurs: 1) All participating directors may simultaneously hear each other during the meeting. 2) All communication during the meeting is immediately transmitted to each participating director, and each participating director is able to immediately send messages to all other participating directors. (b) If a meeting is conducted by the means of communication described herein, all participating directors shall be informed that a meeting is taking place at which official business may be transacted. (c) A director participating in a meeting by means of such communication is deemed to be present in person at the meeting. Section 4.11 ACTION WITHOUT MEETING. - Any action required or permitted to be taken at any meeting of the Directors of the Corporation or of any committee of the Board may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the Directors or all of the members of the Committee of Directors, as the case may be. Such consent shall have the same force and effect as a unanimous vote at a meeting and shall be filed with the Secretary of the Corporation to be included in the official records of the Corporation. The action taken is effective when the last Director signs the consent unless the consent specifies a different effective date. Section 4.12 PRESUMPTION OF ASSENT. - A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (a) the Director objects at the beginning of the meeting or promptly upon arrival to the holding of or transacting business at the meeting, (b) the Director's dissent or abstention shall be entered in the minutes of the meeting, (c) the Director shall file a written dissent or abstention to such action with the presiding officer of the meeting before the adjournment thereof or shall forward such dissent or abstention by registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the meeting, or (d) the Director shall file a written notice to the Secretary of the Corporation promptly after receiving the minutes of the meeting that the minutes failed to show the Director's dissention or abstention from the action taken. Such right to dissent or abstain shall not apply to a Director who voted in favor of such action. Section 4.13 VACANCIES. - Except as provided below, any vacancy occurring in the Board of Directors or on any Committee of the Board of Directors and any directorship to be filled by reason of an increase in the number of Directors may be filled by the affirmative vote of a majority of the Directors then in office, even if less than a quorum of the Board of Directors. For a period of time commencing on formation of Interstate Energy Corporation and expiring on the date of the third annual meeting of shareowners of the Corporation, the initially appointed IES, IPC and WPLH directors, each as a separate group, shall be entitled to nominate those persons who will be eligible to be appointed, elected or re-elected as IES, IPC and WPLH Directors. The Director or Directors so chosen shall hold office until the next election of the Class for which such Director or Directors shall have been chosen and until their successors shall have been duly elected and qualified. Section 4.14 COMPENSATION. - Compensation and expenses for attendance at a regular or special meeting of the Board of Directors, or at any committee meeting, shall be payable in such amounts as determined from time to time by the Board of Directors. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Directors who are full time employees or officers of the Corporation shall not receive any compensation. ARTICLE V COMMITTEES Section 5.1 COMMITTEES. - The Board of Directors may, by resolution passed by a majority of the whole Board, designate from their number various Committees from time to time as corporate needs may dictate. The Committees may make their own rules of procedure and shall meet where and as provided by such rules, or by resolution of the Board of Directors. A majority of the members of the Committee shall constitute a quorum for the transaction of business. Each Committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. The Committee may be authorized by the Board of Directors to perform specified functions, except that a committee may not do any of the following: (a) authorize distributions; (b) approve or propose to shareowners action that the Wisconsin Business Corporation Law requires to be approved by shareowners; (c) fill vacancies on the Board of Directors, or, unless the Board of Directors provides by resolution that vacancies on a committee shall be filled by the affirmative vote of the remaining committee members, on any Board committee; (d) amend the Corporation's Articles of Incorporation; (e) adopt, amend or repeal bylaws; (f) approve a plan of merger not requiring shareowner approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; and (h) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits prescribed by the Board of Directors. Section 5.2 EXECUTIVE COMMITTEE. An Executive Committee is hereby established and shall consist of at least three (3) members, including the Chairman of the Board. The Executive Committee shall possess all the powers and authority of the Board of Directors when said Board of Directors is not in session, except for the powers and authorities set forth in Section 5.1. Section 5.3 AUDIT COMMITTEE. - An Audit Committee is hereby established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The members of the Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.4 COMPENSATION AND PERSONNEL COMMITTEE - A Compensation and Personnel Committee is hereby established and shall consist of at least three (3) Directors who are not and never have been officers, employees or legal counsel of the Company. The Chairperson and the members of the Compensation and Personnel Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at such times as it determines, but at least twice each year, and shall meet at the request of the Chairman of the Board, the Chief Executive Officer, or any Committee member. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.5 NOMINATING AND GOVERNANCE COMMITTEE. - A Nominating and Governance Committee shall be established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The Chairperson and the members of the Nominating and Governance Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. ARTICLE VI OFFICERS Section 6.1 OFFICERS. - The Board of Directors shall elect a Chief Executive Officer, a President, such number of Vice Presidents with such designations as the Board of Directors at the time may decide upon, a Secretary, a Treasurer and a Controller. The Chief Executive Officer may appoint such other officers and assistant officers as may be deemed necessary. The same person may simultaneously hold more than one such office. Section 6.2 TERM OF OFFICERS. - All Officers, unless sooner removed, shall hold their respective offices until their successors, willing to serve, shall have been elected but any Officer may be removed from Office at any time by the Board of Directors. Section 6.3 REMOVAL OF OFFICERS. - Any officer may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer shall not of itself create contract rights. Section 6.4 CHIEF EXECUTIVE OFFICER. - Subject to the control of the Board of Directors the Chief Executive Officer designated by the Board of Directors shall have and be responsible for the general management and direction of the business of the Corporation, shall establish the lines of authority and supervision of the Officers and employees of the Corporation, shall have the power to appoint and remove and discharge any and all agents and employees of the Corporation not elected or appointed directly by the Board of Directors, and shall assist the Board in the formulation of policies of the Corporation. The Chairperson of the Board, if Chief Executive Officer, may delegate any part of his or her duties to the President, or to one or more of the Vice Presidents of the Corporation. Section 6.5 PRESIDENT. - The President, when he or she is not designated as and does not have the powers of the Chief Executive Officer, shall have such other powers and duties as may from time to time be prescribed by the Board of Directors or be delegated to him or her by the Chairperson of the Board or the Chief Executive Officer. Section 6.6 VICE PRESIDENTS. - The Vice Presidents shall have such powers and duties as may be prescribed for him or her by the Board of Directors and the Chief Executive Officer. In the absence of or in the event of the death of the Chief Executive Officer and the President, the inability or refusal to act, or in the event for any reason it shall be impracticable for the Chief Executive officer and the President to act personally, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the Chief Executive Officer and the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer and the President. The execution of any instrument of the Corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her authority to act in the stead of the Chief Executive Officer and the President. Section 6.7 SECRETARY. - The Secretary shall attend all meetings of the Board of Directors, shall keep a true and faithful record thereof in proper books to be provided for that purpose, and shall be responsible for the custody and care of the corporate seal, corporate records and minute books of the Corporation, and of all other books, documents and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Secretary, or shall be placed in his or her custody by the Chief Executive Officer or by the Board of Directors. He or she shall also act as Secretary of all shareowners' meetings, and keep a record thereof. He or she shall, except as may be otherwise required by statute or by these bylaws, sign, issue and publish all notices required for meetings of shareowners and of the Board of Directors. He or she shall be responsible for the custody of the stock books of the Corporation and shall keep a suitable record of the addresses of shareowners. He or she shall also be responsible for the collection, custody and disbursement of the funds received for dividend reinvestment. He or she shall sign stock certificates, bonds and mortgages, and all other documents and papers to which his or her signature may be necessary or appropriate, shall affix the seal of the Corporation to all instruments requiring the seal, and shall have such other powers and duties as are commonly incidental to the office of Secretary, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.8 TREASURER. - The Treasurer shall have charge of, and be responsible for, the collection, receipt, custody and disbursement of the funds of the Corporation, and shall deposit its funds in the name of the Corporation in such banks or trust companies as he or she shall designate and shall keep a proper record of cash receipts and disbursements. He or she shall be responsible for the custody of such books, receipted vouchers and other books and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Treasurer, or shall be placed in his or her custody by the President, or by the Board of Directors. He or she shall sign checks, drafts, and other paper providing for the payment of money by the Corporation for operating purposes in the usual course or business. He or she may, in the absence of the Secretary and Assistant Secretaries sign stock certificates. The Treasurer shall have such other powers and duties as are commonly incidental to the office of Treasurer, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.9 CONTROLLER. - The Controller shall be the principal accounting Officer of the Corporation. He or she shall have general supervision over the books of accounts of the Corporation. He or she shall examine the accounts of all Officers and employees from time to time and as often as practicable, and shall see that proper returns are made of all receipts from all sources. All bills, properly made in detail and certified, shall be submitted to him or her, and he or she shall audit and approve the same if found satisfactory and correct, but he or she shall not approve any voucher unless charges covered by the voucher have been previously approved through work orders, requisition or otherwise by the head of the department in which it originated, or unless he or she shall be otherwise satisfied of its propriety and correctness. He or she shall have full access to all minutes, contracts, correspondence and other papers and records of the Corporation relating to its business matters, and shall be responsible for the custody of such books and documents as shall naturally belong in the custody of the Controller and as shall be placed in his or her custody by the President or by the Board of Directors. The Controller shall have such other powers and duties as are commonly incidental to the office of Controller, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.10 ASSISTANT OFFICERS. - The Assistant Secretaries, Assistant Treasurers, Assistant Controllers, and other Assistant Officers shall respectively assist the Secretary, Treasurer, Controller, and other Officers of the Corporation in the performance of the respective duties assigned to such principal Officer, and in assisting his or her principal Officer each assistant Officer shall to that extent and for such purpose have the same powers as his or her principal Officer. The powers and duties of any such principal Officer shall temporarily devolve upon an assistant Officer in case of the absence, disability, death, resignation or removal from office of such principal Officer. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 7.1 CERTIFICATES FOR SHARES. - Each certificate representing shares of the Corporation shall state upon the fact (a) that the Corporation is organized under the laws of the State of Wisconsin, (b) the name of the person to whom issued, (c) the number and class of shares, and the designation of the series, if any, which such certificate represents, and (d) the par value of each share, if any, and each such certificate shall otherwise be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board, or the Chief Executive Officer or the President and by the Secretary or an Assistant Secretary and shall be sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent and registrar. In case any officer or other authorized person who has signed or whose facsimile signature has been placed upon such certificate for the Corporation shall have ceased to be such officer or employee or agent before such certificate is issued, it may be issued by the Corporation with the same effect as if such person where an officer or employee or agent at the date of its issue. Each certificate for shares shall be consecutively numbered or otherwise identified. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. Section 7.2. TRANSFER OF SHARES. - Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by such person's legal representative, who shall furnish proper evidence of authority to transfer, or authorized attorney, by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. Subject to the provisions of Section 3.10 of Article III of these Bylaws, the person in whose name shares stand on the books of the Corporation shall be treated by the Corporation as the owner thereof for all purposes, including all rights deriving from such shares, and the Corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares, on the part of any other person, including (without limitation) a purchaser, assignee or transferee of such shares, or rights deriving from such shares, unless and until such purchaser, assignee, transferee or other person becomes the record holder of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. Except as provided in said Section 3.10 hereof, no such purchaser, assignee, transferee or other person shall be entitled to receive notice of the meetings of shareholders, to vote at such meetings, to examine the complete record of the shareholders entitled to vote at meetings, or to own, enjoy or exercise any other property or rights deriving from such shares against the Corporation, until such purchaser, assignee, transferee or other person has become the record holder of such shares. Section 7.3 LOST, DESTROYED OR STOLEN CERTIFICATES. - When the owner claims that certificates for shares have been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the Corporation has notice that such shares have been acquired by a bona fide purchaser, (b) files with the Corporation a sufficient indemnity bond if required by the Corporation and (c) satisfies such other reasonable requirements as may be provided by the Corporation. Section 7.4 STOCK REGULATIONS. - The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with law as it may deem expedient concerning the issue, transfer and registration of shares of the Corporation. ARTICLE VIII INDEMNIFICATION AND LIABILITY OF DIRECTOR AND OFFICERS Section 8.1 INDEMNIFICATION. - The Corporation shall, to the fullest extent permitted or required by Sections 180.0850 to 180.0859, inclusive, of the Wisconsin Business Corporation Law, including any amendments thereto (but in the case of any such amendment, only to the extent such amendment permits or requires the corporation to provide broader indemnification rights than prior to such amendment), indemnify its Directors, Officers, employees and agents against any and all Liabilities, and advance any and all reasonable Expenses, incurred thereby in any Proceeding to which any such Director, Officer, employee or agent is a Party because he or she is or was a Director, Officer, employee or agent of the Corporation. The rights to indemnification granted hereunder shall not be deemed exclusive of any other rights to indemnification against Liabilities or the advancement of Expenses which a Director, Officer, employee or agent may be entitled under any written agreement, Board resolution, vote of shareowners, the Wisconsin Business Corporation Law or otherwise. The Corporation may, but shall not be required to, supplement the foregoing rights to indemnification against Liabilities and advancement of Expenses under this Section 8.1 by the purchase of insurance on behalf of any one or more of such Directors, Officers, employees or agents, whether or not the Corporation would be obligated to indemnify or advance Expenses to such Director, Officer, employee or agent under this Section 8.1. All capitalized terms used in this Article VIII and not otherwise defined herein shall have the meaning set forth in Section 180.0850 of the Wisconsin Business Corporation Law. ARTICLE IX MISCELLANEOUS Section 9.1 FISCAL YEAR. - The fiscal year of the Corporation shall be the calendar year. Section 9.2 DIVIDENDS. - Subject to the provisions of law or the Articles of Incorporation, the Board of Directors may, at any regular or special meeting, declare dividends upon the capital stock of the Corporation payable out of surplus (whether earned or paid-in) or profits as and when they deem expedient. Before declaring any dividend there may be set apart out of surplus or profits such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for such other purposes as the directors shall deem conducive to the interests of the Corporation. Section 9.3 CONTRACTS, CHECKS, DRAFTS, DEEDS, LEASES AND OTHER INSTRUMENTS. - All contracts, checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. The Board may authorize by resolution any officer or officers to enter into and execute any contract or instrument of indebtedness in the name of the Corporation, and such authority may be general or confined to specific instances. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks or other depositories as the Treasurer may authorize. All contracts, deeds, mortgages, leases or instruments that require the corporate seal of the Corporation to be affixed thereto shall be signed by the President or a Vice President, and by the Secretary, or an Assistant Secretary, or by such other officer or officers, or person or persons, as the Board of Directors may be resolution prescribe. Section 9.4 VOTING OF SHARES OWNED BY THE CORPORATION. - Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of such other corporation by the Chief Executive Officer of the Corporation, if present, or if absent by any other officer of the Corporation who may be present. Whenever, in the judgment of the Chief Executive Officer, or if absent, of any officer, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned by the Corporation, such proxy or consent shall be executed in the name of the Corporation by the Chief Executive Officer or one of the officers of the Corporation and shall be attested by the Secretary or an Assistant Secretary of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by such other corporation and owned by the Corporation in the same manner as such share or shares might be voted by the Corporation. ARTICLE X AMENDMENT OR REPEAL OF BYLAWS Section 10.1 AMENDMENTS BY BOARD OF DIRECTORS. - Except as otherwise provided by the Wisconsin Business Corporation Law or the Articles of Incorporation, these Bylaws may be amended or repealed and new Bylaws may be adopted by the Board of Directors by the affirmative vote of a majority of the number of directors present at any meeting at which a quorum is in attendance; provided, however, that the shareowners in adopting, amending or repealing a particular bylaw may provide therein that the Board of Directors may not amend, repeal or readopt that bylaw. Section 10.2 IMPLIED AMENDMENT. - Any action taken or authorized by the shareowners or by the Board of Directors which would be inconsistent with the Bylaws then in effect but which is taken or authorized by affirmative vote of not less than the number of shares or the number of directors required to amend the Bylaws so that the Bylaws would be consistent with such action shall be given the same effect as though the Bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. - ------------------------------------------------------------------------------ I,__________________ , do hereby certify that I am the duly elected and acting _______________ Corporate Secretary of Wisconsin Power and Light Company, a Wisconsin corporation, organized under the laws of the State, and that I have access to the corporate records of said Company, and as such officer, I do further certify that the foregoing Bylaws were adopted as of March 15, 2000. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said Company this ____________ day of ___________________, _______. ________________________________ EX-3.6 4 BYLAWS OF IES UTILITIES, INC. EXHIBIT 3.6 BYLAWS OF IES UTILITIES INC. Effective as of March 15, 2000 ARTICLE I OFFICES Section 1.1 PRINCIPAL AND BUSINESS OFFICES. - The principal office shall be in the City of Cedar Rapids, County of Linn, State of Iowa. The Corporation may have other offices, either within or without the State of Iowa, at such place or places as the Board of Directors may from time to time appoint or the business of the Corporation may require. Section 1.2 REGISTERED OFFICE. - The registered office of the Corporation required by the Iowa Business Corporation Act to be maintained in the State of Iowa may be, but need not be identical with the principal office in the State of Iowa, and the address of the registered office may be changed from time to time by the Board of Directors ARTICLE II SEAL Section 2.1 CORPORATE SEAL. - The corporate seal shall have inscribed thereon the name of the Corporation and the words "CORPORATE SEAL, IOWA." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced. ARTICLE III SHAREOWNERS Section 3.1. ANNUAL MEETING. - The Annual Meeting of Shareowners shall be held at such date and time as the Board of Directors may determine. The Board of Directors may designate any place for the Annual Meeting. If no designation is made, the place of the Annual Meeting shall be the principal office of the Corporation. The Annual Meeting shall be held for the purposes of electing Directors and of transacting such other business as may properly come before the meeting. Section 3.2 SPECIAL MEETINGS. - Special Meetings of the Shareowners may be called by the Board of Directors or the Chief Executive Officer. The Corporation shall call a Special Meeting of Shareowners in the event that the holders of at least ten percent (10%) of all of the votes entitled to be cast on any issue request a special meeting be held. Section 3.3 NOTICE OF MEETINGS - WAIVER. - Notice of the time and place of each Annual or Special Meeting of Shareowners shall be sent by mail to the recorded address of each shareowner not less than ten (10) days nor more than sixty (60) days before the date of the meeting, except in cases where other special method of notice may be required by statute, in which case the statutory method shall be followed. The notice of a Special Meeting shall state the purpose of the meeting. If an Annual or Special Meeting of shareowners is adjourned to a different date, time or place, the Corporation shall not be required to give notice of the new date, time or place if the new date, time or place is announced at the meeting before adjournment; provided, however, that if a new record date for an adjourned meeting is or must be fixed, the Corporation shall give notice of the adjourned meeting to persons who are shareowners as of the new record date. Notice of any meeting of the shareowners may be waived by any shareowner. Section 3.4 FIXING OF RECORD DATE. - For the purpose of determining shareowners entitled to notice of, or to vote at, any meeting of shareowners, or at any adjournment thereof, or shareowners entitled to receive payment of any dividend, or in order to make a determination of shareowners for any other lawful action, the Board of Directors may fix, in advance, a record date for such determination of shareowners. Such date in case of a meeting of shareowners or other lawful action shall not be less than ten (10) days nor more than seventy (70) days prior to the date of such meeting or lawful action. If no record date is fixed by the Board of Directors or by statute for the determination of shareowners entitled to demand a special meeting as contemplated in Section 3.2 hereof, the record date shall be the date that the first shareowner signs the demand. When a determination of shareowners entitled to vote at any meeting of shareowners has been made as provided in this section, such determination shall apply to any adjournment thereof unless the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting in which event the Board of Directors must fix a new record date. Section 3.5 SHAREOWNER LIST. - The Corporation shall have available, beginning two (2) days after the notice of the meeting is given for which the list was prepared and continuing to the date of the meeting, a complete record of each shareowner entitled to vote at such meeting, or any adjournment thereof, showing the address of and number of shares held by each shareowner. The shareowner list shall be available for inspection by any shareowner during normal business hours at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. The Corporation shall make the shareowners' list available at the meeting and any shareowner or his/her agent or attorney may inspect the list at any time the meeting or any adjournment thereof. Section 3.6 QUORUM AND VOTING REQUIREMENTS. - Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. A majority of the outstanding shares entitled to vote on a matter, represented in person or by proxy, shall constitute a quorum for action on that matter. If a quorum exists, except in the case of the election of Directors, action on a matter shall be approved if the votes cast favoring the action exceed the votes cast opposing the action, unless the Corporation's Articles of Incorporation, any Bylaw adopted under authority granted in the Articles of Incorporation or statute requires a greater number of affirmative votes. Directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election of directors at a meeting at which a quorum is present. Though less than a quorum of the outstanding votes are represented at a meeting, a majority of the votes so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 3.7 CONDUCT OF MEETING. - The Chairperson of the Board shall preside at each meeting of shareowners. In the absence of the Chairperson of the Board, such persons, in the following order, shall act as chair of the meeting; the Vice Chairperson of the Board, the Chief Executive Officer, the President, any Vice President, the Director in attendance with the longest tenure in that office. The Secretary, or if absent, an Assistant Secretary, of the company shall act as Secretary of each shareowner meeting. Section 3.8 PROXIES. - Any shareowner having the right to vote at a meeting of shareowners may exercise such right by voting in person or by proxy at such meeting. Such proxies shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. Section 3.9 VOTING OF SHARES. - Except as provided in the Articles of Incorporation or statute, each outstanding share entitled to vote shall be entitled to one (1) vote upon each matter submitted to a vote at a meeting of shareowners. Section 3.10 VOTING OF SHARES BY CERTAIN HOLDERS. - Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the Bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by such person, either in person or by proxy, without a transfer of such shares into that person's name. Shares standing in the name of a trustee may be voted by such trustee, either in person or by proxy, without a transfer of such shares into the trustee's name. The Corporation may request evidence of such fiduciary status with respect to the vote, consent, waiver, or proxy appointment. Shares standing in the name of a receiver or trustee in bankruptcy may be voted by such receiver or trustee, and shares held by or under the control of a receiver may be voted by such receiver without the transfer of the shares into such person's name if authority so to do is contained in an appropriate order of the court by which such receiver was appointed. A pledgee, beneficial owner, or attorney-in-fact of the shares held in the name of a shareholder shall be entitled to vote such shares. The Corporation may request evidence of such signatory's authority to sign for the shareholder with respect to the vote, consent, waiver, or proxy appointment. Neither treasury shares nor shares held by another corporation, if a majority of the shares entitled to vote for the election of Directors of such other corporation is held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. ARTICLE IV BOARD OF DIRECTORS Section 4.1 GENERAL POWER. - The business and affairs of the Corporation shall be managed by its Board of Directors. Section 4.2 NUMBER. CLASSES & TERM. - The number of Directors of the Corporation shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the total number of Directors that the Corporation would have if there were no vacancies, but shall not be less than nine (9) nor more than thirteen (13). The Directors of the Corporation shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible. At each Annual Meeting, the successors to the class of Directors whose terms shall expire at the time of such Annual Meeting shall be elected to hold office until the third succeeding Annual Meeting, and until their successors are duly elected and qualified. Section 4.3 CHAIRPERSON OF THE BOARD. - The Chairperson of the Board if not designated as the Chief Executive Officer of the Company shall assist the Board in the formulation of policies and may make recommendations therefore. Information as to the affairs of the Company in addition to that contained in the regular reports shall be furnished to him or her on request. He or she may make suggestions and recommendations to the Chief Executive Officer regarding any matters relating to the affairs of the Company and shall be available for consultation and advice. Section 4.4 VICE CHAIRPERSON OF THE BOARD. - The Vice Chairperson of the Board shall assist the Board in the formulation of policies and make recommendations therefore. The Vice Chairperson shall have such other powers and duties as may be prescribed for him or her by the Chairperson of the Board or the Board of Directors. In the absence of or the inability of the Chairperson of the Board to act as Chairperson of the Board, the Vice Chairperson of the Board shall assume the powers and duties of the Chairperson of the Board. Section 4.5 QUALIFICATIONS AND REMOVAL. - No person who has attained seventy (70) years of age shall be eligible for election or re-election to the Board of Directors. Any Director who has attained seventy (70) years of age shall resign from the Board of Directors effective as of the next Annual Meeting. For a period of five (5) years following April 21, 1998, no person, except any of the initial Directors serving as such on April 21, 1998, who is an executive officer or employee of the Corporation or any of its subsidiaries shall be eligible to serve as a Director of the Corporation; provided, however, that any individual serving as Chief Executive Officer of the Corporation shall be eligible to serve as a Director of the Corporation. In the event the Chief Executive Officer resigns or retires from his or her office or employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that the Chief Executive Officer is removed from his or her office by the Board of Directors, or is involuntarily terminated from employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that a Director experiences a change in their principal occupation or primary business affiliation, the Director must submit their resignation from the Board to the Nominating and Governance Committee. The Nominating and Governance Committee shall recommend to the Board of Directors whether the Board should accept such resignation. If the Nominating and Governance Committee recommends acceptance of the resignation, an affirmative vote of two-thirds of the remaining Directors holding office is required to affirm the Nominating and Governance Committee's recommendation. A resignation may be tendered by any Director at any meeting of the shareholders or of the Board of Directors, who shall at such meeting accept the same. Section 4.6 REGULAR MEETINGS. - Regular meetings of the Board of Directors shall be held at such time and place as may be determined by the Board of Directors, but in no event shall the Board meet less than once a year. Section 4.7 SPECIAL MEETINGS. - Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer or any two (2) Directors. The Chief Executive Officer or Secretary may fix any place, either within or without the State of Iowa, whether in person or by telecommunications, as the place for holding any special meeting. Section 4.8 NOTICE; WAIVER. - Notice of any meeting of the Board of Directors, unless otherwise provided pursuant to Section 4.6, shall be given at least forty-eight (48) hours prior to the meeting by written notice delivered personally or mailed to each Director at such address designed by each Director, by telegram or other form of wire or wireless communication. The notice need not describe the purpose of the meeting of the Board of Directors or the business to be transacted at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage prepared. Any Director may waive notice of any meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of business because the meeting is not lawfully called or convened. Section 4.9 QUORUM. - A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting to some other day without further notice. Section 4.10 MEETING PARTICIPATION. - (a) Any or all members of the Board of Directors, or any committee thereof, may participate in a regular or special meeting by, or to conduct the meeting through, the use of any means of communication by which any of the following occurs: 1) All participating directors may simultaneously hear each other during the meeting. 2) All communication during the meeting is immediately transmitted to each participating director, and each participating director is able to immediately send messages to all other participating directors. (b) If a meeting is conducted by the means of communication described herein, all participating directors shall be informed that a meeting is taking place at which official business may be transacted. (c) A director participating in a meeting by means of such communication is deemed to be present in person at the meeting. Section 4.11 ACTION WITHOUT MEETING. - Any action required or permitted to be taken at any meeting of the Directors of the Corporation or of any committee of the Board may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the Directors or all of the members of the Committee of Directors, as the case may be. Such consent shall have the same force and effect as a unanimous vote at a meeting and shall be filed with the Secretary of the Corporation to be included in the official records of the Corporation. The action taken is effective when the last Director signs the consent unless the consent specifies a different effective date. Section 4.12 PRESUMPTION OF ASSENT. - A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (a) the Director objects at the beginning of the meeting or promptly upon arrival to the holding of or transacting business at the meeting, (b) the Director's dissent or abstention shall be entered in the minutes of the meeting, (c) the Director shall file a written dissent or abstention to such action with the presiding officer of the meeting before the adjournment thereof or shall forward such dissent or abstention by registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the meeting, or (d) the Director shall file a written notice to the Secretary of the Corporation promptly after receiving the minutes of the meeting that the minutes failed to show the Director's dissention or abstention from the action taken. Such right to dissent or abstain shall not apply to a Director who voted in favor of such action. Section 4.13 VACANCIES. - Except as provided below, any vacancy occurring in the Board of Directors or on any Committee of the Board of Directors and any directorship to be filled by reason of an increase in the number of Directors may be filled by the affirmative vote of a majority of the Directors then in office, even if less than a quorum of the Board of Directors. For a period of time commencing on formation of Interstate Energy Corporation and expiring on the date of the third annual meeting of shareowners of the Corporation, the initially appointed IES, IPC and WPLH directors, each as a separate group, shall be entitled to nominate those persons who will be eligible to be appointed, elected or re-elected as IES, IPC and WPLH Directors. The Director or Directors so chosen shall hold office until the next election of the Class for which such Director or Directors shall have been chosen and until their successors shall have been duly elected and qualified. Section 4.14 COMPENSATION. - Compensation and expenses for attendance at a regular or special meeting of the Board of Directors, or at any committee meeting, shall be payable in such amounts as determined from time to time by the Board of Directors. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Directors who are full time employees or officers of the Corporation shall not receive any compensation. ARTICLE V COMMITTEES Section 5.1 COMMITTEES. - The Board of Directors may, by resolution passed by a majority of the whole Board, designate from their number various Committees from time to time as corporate needs may dictate. The Committees may make their own rules of procedure and shall meet where and as provided by such rules, or by resolution of the Board of Directors. A majority of the members of the Committee shall constitute a quorum for the transaction of business. Each Committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. The Committee may be authorized by the Board of Directors to perform specified functions, except that a committee may not do any of the following: (a) authorize distributions; (b) approve or propose to shareowners action that the Iowa Business Corporation Act requires to be approved by shareowners; (c) fill vacancies on the Board of Directors, or, unless the Board of Directors provides by resolution that vacancies on a committee shall be filled by the affirmative vote of the remaining committee members, on any Board committee; (d) amend the Corporation's Articles of Incorporation; (e) adopt, amend or repeal bylaws; (f) approve a plan of merger not requiring shareowner approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; and (h) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits prescribed by the Board of Directors. Section 5.2 EXECUTIVE COMMITTEE. An Executive Committee is hereby established and shall consist of at least three (3) members, including the Chairman of the Board. The Executive Committee shall possess all the powers and authority of the Board of Directors when said Board of Directors is not in session, except for the powers and authorities set forth in Section 5.1. Section 5.3 AUDIT COMMITTEE. - An Audit Committee is hereby established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The members of the Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.4 COMPENSATION AND PERSONNEL COMMITTEE - A Compensation and Personnel Committee is hereby established and shall consist of at least three (3) Directors who are not and never have been officers, employees or legal counsel of the Company. The Chairperson and the members of the Compensation and Personnel Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at such times as it determines, but at least twice each year, and shall meet at the request of the Chairman of the Board, the Chief Executive Officer, or any Committee member. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.5 NOMINATING AND GOVERNANCE COMMITTEE. - A Nominating and Governance Committee shall be established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The Chairperson and the members of the Nominating and Governance Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. ARTICLE VI OFFICERS Section 6.1 OFFICERS. - The Board of Directors shall elect a Chief Executive Officer, a President, such number of Vice Presidents with such designations as the Board of Directors at the time may decide upon, a Secretary, a Treasurer and a Controller. The Chief Executive Officer may appoint such other officers and assistant officers as may be deemed necessary. The same person may simultaneously hold more than one such office. Section 6.2 TERM OF OFFICERS. - All officers, unless sooner removed, shall hold their respective offices until their successors, willing to serve, shall have been elected but any officer may be removed from Office at any time by the Board of Directors. Section 6.3 REMOVAL OF OFFICERS. - Any officer may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer shall not of itself create contract rights. Section 6.4 CHIEF EXECUTIVE OFFICER. - Subject to the control of the Board of Directors the Chief Executive Officer designated by the Board of Directors shall have and be responsible for the general management and direction of the business of the Corporation, shall establish the lines of authority and supervision of the Officers and employees of the Corporation, shall have the power to appoint and remove and discharge any and all agents and employees of the Corporation not elected or appointed directly by the Board of Directors, and shall assist the Board in the formulation of policies of the Corporation. The Chairperson of the Board, if Chief Executive Officer, may delegate any part of his or her duties to the President, or to one or more of the Vice Presidents of the Corporation. Section 6.5 PRESIDENT. - The President, when he or she is not designated as and does not have the powers of the Chief Executive Officer, shall have such other powers and duties may from time to time be prescribed by the Board of Directors or be delegated to him or her by the Chairperson of the Board or the Chief Executive Officer. Section 6.6 VICE PRESIDENTS. - The Vice Presidents shall have such powers and duties as may be prescribed for him or her by the Board of Directors and the Chief Executive Officer. In the absence of or in the event of the death of the Chief Executive officer and the President, the , inability or refusal to act, or in the event for any reason it shall be impracticable for the Chief Executive Officer and the President to act personally, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the Chief Executive Officer and the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer and the President. The execution of any instrument of the Corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her authority to act in the stead of the Chief Executive Officer and the President. Section 6.7 SECRETARY. - The Secretary shall attend all meetings of the Board of Directors, shall keep a true and faithful record thereof in proper books to be provided for that purpose, and shall be responsible for the custody and care of the corporate seal, corporate records and minute books of the Corporation, and of all other books, documents and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Secretary, or shall be placed in his or her custody by the Chief Executive Officer or by the Board of Directors. He or she shall also act as Secretary of all shareowners' meetings, and keep a record thereof. He or she shall, except as may be otherwise required by statute or by these Bylaws, sign, issue and publish all notices required for meetings of shareowners and of the Board of Directors. He or she shall be responsible for the custody of the stock books of the Corporation and shall keep a suitable record of the addresses of shareowners. He or she shall also be responsible for the collection, custody and disbursement of the funds received for dividend reinvestment. He or she shall sign stock certificates, bonds and mortgages, and all other documents and papers to which his or her signature may be necessary or appropriate, shall affix the seal of the Corporation to all instruments requiring the seal, and shall have such other powers and duties as are commonly incidental to the office of Secretary, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.8 TREASURER. - The Treasurer shall have charge of, and be responsible for, the collection, receipt, custody and disbursement of the funds of the Corporation, and shall deposit its funds in the name of the Corporation in such banks or trust companies as he or she shall designate and shall keep a proper record of cash receipts and disbursements. He or she shall be responsible for the custody of such books, receipted vouchers and other books and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Treasurer, or shall be placed in his or her custody by the President, or by the Board of Directors. He or she shall sign checks, drafts, and other paper providing for the payment of money by the Corporation for operating purposes in the usual course or business. He or she may, in the absence of the Secretary and Assistant Secretaries sign stock certificates. The Treasurer shall have such other powers and duties as are commonly incidental to the office of Treasurer, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.9 CONTROLLER. - The Controller shall be the principal accounting Officer of the Corporation. He or she shall have general supervision over the books of accounts of the Corporation. He or she shall examine the accounts of all Officers and employees from time to time and as often as practicable, and shall see that proper returns are made of all receipts from all sources. All bills, properly made in detail and certified, shall be submitted to him or her, and he or she shall audit and approve the same if found satisfactory and correct, but he or she shall not approve any voucher unless charges covered by the voucher have been previously approved through work orders, requisition or otherwise by the head of the department in which it originated, or unless he or she shall be otherwise satisfied of its propriety and correctness. He or she shall have full access to all minutes, contracts, correspondence and other papers and records of the Corporation relating to its business matters, and shall be responsible for the custody of such books and documents as shall naturally belong in the custody of the Controller and as shall be placed in his or her custody by the President or by the Board of Directors. The Controller shall have such other powers and duties as are commonly incidental to the office of Controller, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.10 ASSISTANT OFFICERS. - The Assistant Secretaries, Assistant Treasurers, Assistant Controllers, and other Assistant Officers shall respectively assist the Secretary, Treasurer, Controller, and other Officers of the Corporation in the performance of the respective duties assigned to such principal Officer, and in assisting his or her principal Officer each assistant Officer shall to that extent and for such purpose have the same powers as his or her principal Officer. The powers and duties of any such principal Officer shall temporarily devolve upon an assistant Officer in case of the absence, disability, death, resignation or removal from office of such principal Officer. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 7.1 CERTIFICATES FOR SHARES. - Each certificate representing shares of the Corporation shall state upon the fact (a) that the Corporation is organized under the laws of the State of Iowa, (b) the name of the person to whom issued, (c) the number and class of shares, and the designation of the series, if any, which such certificate represents, and (d) the par value of each share, if any, and each such certificate shall otherwise be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board, or the Chief Executive Officer or the President and by the Secretary or an Assistant Secretary and shall be sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent and registrar. In case any officer or other authorized person who has signed or whose facsimile signature has been placed upon such certificate for the Corporation shall have ceased to be such officer or employee or agent before such certificate is issued, it may be issued by the Corporation with the same effect as if such person where an officer or employee or agent at the date of its issue. Each certificate for shares shall be consecutively numbered or otherwise identified. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. Section 7.2. TRANSFER OF SHARES. - Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by such person's legal representative, who shall furnish proper evidence of authority to transfer, or authorized attorney, by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. Subject to the provisions of Section 3.10 of Article III of these Bylaws, the person in whose name shares stand on the books of the Corporation shall be treated by the Corporation as the owner thereof for all purposes, including all rights deriving from such shares, and the Corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares, on the part of any other person, including (without limitation) a purchaser, assignee or transferee of such shares, or rights deriving from such shares, unless and until such purchaser, assignee, transferee or other person becomes the record holder of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. Except as provided in said Section 3.10 hereof, no such purchaser, assignee, transferee or other person shall be entitled to receive notice of the meetings of shareholders, to vote at such meetings, to examine the complete record of the shareholders entitled to vote at meetings, or to own, enjoy or exercise any other property or rights deriving from such shares against the Corporation, until such purchaser, assignee, transferee or other person has become the record holder of such shares. Section 7.3 LOST, DESTROYED OR STOLEN CERTIFICATES. - When the owner claims that certificates for shares have been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the Corporation has notice that such shares have been acquired by a bona fide purchaser, (b) files with the Corporation a sufficient indemnity bond if required by the Corporation and (c) satisfies such other reasonable requirements as may be provided by the Corporation. Section 7.4 STOCK REGULATIONS. - The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with law as it may deem expedient concerning the issue, transfer and registration of shares of the Corporation. ARTICLE VIII INDEMNIFICATION AND LIABILITY OF DIRECTOR AND OFFICERS Section 8.1 INDEMNIFICATION. - The Corporation shall, to the fullest extent permitted or required by the Iowa Business Corporation Act, including any amendments thereto (but in the case of any such amendment, only to the extent such amendment permits or requires the corporation to provide broader indemnification rights than prior to such amendment), indemnify its Directors, Officers, employees and agents against any and all Liabilities, and advance any and all reasonable Expenses, incurred thereby in any Proceeding to which any such Director, Officer, employee or agent is a Party because he or she is or was a Director, Officer, employee or agent of the Corporation. The rights to indemnification granted hereunder shall not be deemed exclusive of any other rights to indemnification against Liabilities or the advancement of Expenses which a Director, Officer, employee or agent may be entitled under any written agreement, Board resolution, vote of shareowners, the Iowa Business Corporation Act or otherwise. The Corporation may, but shall not be required to, supplement the foregoing rights to indemnification against Liabilities and advancement of Expenses under this Section 8.1 by the purchase of insurance on behalf of any one or more of such Directors, Officers, employees or agents, whether or not the Corporation would be obligated to indemnify or advance Expenses to such Director, Officer, employee or agent under this Section 8.1. ARTICLE IX MISCELLANEOUS Section 9.1 FISCAL YEAR. - The fiscal year of the Corporation shall be the calendar year. Section 9.2 DIVIDENDS. - Subject to the provisions of law or the Articles of Incorporation, the Board of Directors may, at any regular or special meeting, declare dividends upon the capital stock of the Corporation payable out of surplus (whether earned or paid-in) or profits as and when they deem expedient. Before declaring any dividend there may be set apart out of surplus or profits such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for such other purposes as the directors shall deem conducive to the interests of the Corporation. Section 9.3 CONTRACTS, CHECKS, DRAFTS, DEEDS, LEASES AND OTHER INSTRUMENTS. - All contracts, checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. The Board may authorize by resolution any officer or officers to enter into and execute any contract or instrument of indebtedness in the name of the Corporation, and such authority may be general or confined to specific instances. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks or other depositories as the Treasurer may authorize. All contracts, deeds, mortgages, leases or instruments that require the corporate seal of the Corporation to be affixed thereto shall be signed by the President or a Vice President, and by the Secretary, or an Assistant Secretary, or by such other officer or officers, or person or persons, as the Board of Directors may by resolution prescribe. Section 9.4 VOTING OF SHARES OWNED BY THE CORPORATION. - Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of such other corporation by the Chief Executive Officer of the Corporation, if present, or if absent by any other officer of the Corporation who may be present. Whenever, in the judgment of the Chief Executive Officer, or if absent, of any officer, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned by the Corporation, such proxy or consent shall be executed in the name of the Corporation by the Chief Executive Officer or one of the officers of the Corporation and shall be attested by the Secretary or an Assistant Secretary of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by such other corporation and owned by the Corporation in the same manner as such share or shares might be voted by the Corporation. ARTICLE X AMENDMENT OR REPEAL OF BYLAWS Section 10.1 AMENDMENTS BY BOARD OF DIRECTORS. - Except as otherwise provided by the Iowa Business Corporation Law or the Articles of Incorporation, these Bylaws may be amended or repealed and new Bylaws may be adopted by the Board of Directors by the affirmative vote of a majority of the number of directors present at any meeting at which a quorum is in attendance; provided, however, that the shareowners in adopting, amending or repealing a particular bylaw may provide therein that the Board of Directors may not amend, repeal or readopt that bylaw. Section 10.2 IMPLIED AMENDMENT. - Any action taken or authorized by the shareowners or by the Board of Directors which would be inconsistent with the Bylaws then in effect but which is taken or authorized by affirmative vote of not less than the number of shares or the number of directors required to amend the Bylaws so that the Bylaws would be consistent with such action shall be given the same effect as though the Bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. - ------------------------------------------------------------------- I, ___________________, do hereby certify that I am the duly elected and acting _______________ Corporate Secretary of IES Utilities Inc., an Iowa corporation, organized under the laws of the State, and that I have access to the corporate records of said Company,and as such officer, I do further certify that the foregoing Bylaws were adopted as of March 15, 2000. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said Company this ____________ day of ___________________, _______. ________________________________ EX-10.15 5 SECOND AMENDED AND RESTATED NOVEMBER 1998 EXHIBIT 10.15 SECOND AMENDED AND RESTATED NOVEMBER 1998 STOCKHOLDERS' AGREEMENT This Second Amended and Restated November 1998 Stockholders' Agreement (this "Agreement") is entered into as of December 17, 1999, by and among McLeodUSA Incorporated, a Delaware corporation (the "Company"); Alliant Energy Corporation, a Wisconsin corporation ("AEC"); IES Investments Inc., an Iowa corporation (n/k/a Alliant Energy Investments, Inc.) and indirect wholly owned subsidiary of AEC ("IES"); Heartland Properties, Inc., a Wisconsin corporation and indirect wholly owned subsidiary of AEC ("Heartland"); Alliant Energy Foundation, Inc., a Wisconsin corporation (non-profit) ("AEF" and together with AEC, IES and Heartland, the "AEC Entities"); Clark E. McLeod ("McLeod"); Mary E. McLeod (together with McLeod, the "McLeods"); and Richard A. Lumpkin ("Lumpkin") and each of the former shareholders of Consolidated Communications Inc. ("CCI") and certain permitted transferees of the former CCI shareholders in each case who are listed in Schedule I hereto (the "CCI Shareholders"). The AEC Entities, the McLeods, Lumpkin and the CCI Shareholders party hereto are referred to herein collectively as the "Principal Stockholders" and individually as a "Principal Stockholder." WHEREAS, the Company, IES, the McLeods, Lumpkin and the CCI Shareholders party hereto are parties to an Amended and Restated November 1998 Stockholders' Agreement, entered into as of September 15, 1999 (the "Amended and Restated November 1998 Stockholders' Agreement"); WHEREAS, the Company, IES, the McLeods, Lumpkin and the CCI Shareholders party hereto desire to add each of AEC, Heartland and AEF as a party to this Agreement and to make certain changes to permit transfers of Securities (as defined in Section 3.1(a)) by the AEC Entities to or among the Subsidiaries (as defined in Section 1.2) of AEC in accordance with the terms herein set forth; WHEREAS, the Company and the Principal Stockholders deem it to be in the best interests of the Company and its stockholders to provide for the continuity and stability of the business and policies of the Company on the terms and conditions hereinafter set forth; WHEREAS, concurrently with the execution and delivery of this Agreement, the Company, the Principal Stockholders and certain other stockholders of the Company are entering into an amendment and restatement of the Amended and Restated January 1999 Stockholders' Agreement, entered into as of September 15, 1999; and WHEREAS, the Company and the Principal Stockholders desire to amend and restate the Amended and Restated November 1998 Stockholders' Agreement in its entirety with the terms and conditions hereinafter set forth; NOW, THEREFORE, for and in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. VOTING AGREEMENT 1.1 Board of Directors For the period commencing on the Effective Date (as defined in Section 1.2) and ending on the Expiration Date (as defined in Section 1.2), each Principal Stockholder, for so long as each such Principal Stockholder beneficially and continuously owns at least five million (5,000,000) shares of the Company's Class A common stock, $.01 par value per share (the "Class A Common Stock"), subject to adjustment pursuant to Section 5.1, shall take or cause to be taken all such action within their respective power and authority as may be required: (a) to establish and maintain the authorized size of the Board of Directors of the Company (the "Board of Directors" or the "Board") at up to thirteen (13) directors; (b) to cause to be elected to the Board one (1) director designated by the AEC Entities, for so long as the AEC Entities collectively beneficially and continuously own at least five million (5,000,000) shares of the Class A Common Stock (subject to adjustment pursuant to Section 5.1); (c) to cause Lumpkin to be elected to the Board, for so long as Lumpkin and the CCI Shareholders collectively beneficially and continuously own at least five million (5,000,000)shares of the Class A Common Stock (subject to adjustment pursuant to Section 5.1); (d) to cause to be elected to the Board three (3) directors who are executive officers of the Company designated by McLeod, for so long as the McLeods collectively beneficially and continuously own at least five million (5,000,000) shares of the Class A Common Stock (subject to adjustment pursuant to Section 5.1); (e) to cause to be elected to the Board a director or directors nominated by the Board to replace a director or directors designated pursuant to paragraphs (b) through (d) above upon the earlier to occur of such designated director's or directors' resignation (and the acceptance of such resignation by the Board) and the expiration of such director's or directors' term as a result of any party or parties identified in paragraphs (b) through (d) above no longer collectively beneficially and continuously owning at least five million (5,000,000) shares of the Class A Common Stock (subject to adjustment pursuant to Section 5.1) at any time during the period commencing on the Effective Date and ending on the Expiration Date; it being understood that within three (3) business days following such time that the party or parties identified in paragraphs (b) through (d) above no longer collectively beneficially and continuously own at least five million (5,000,000) shares of the Class A Common Stock (subject to adjustment pursuant to Section 5.1) during such period, such party or parties shall use its or their respective best efforts to cause the director or directors designated by such party or parties to tender their immediate resignation to the Board which the Board may accept or reject; and (f) to cause to be elected to the Board, if and as nominated by the Board, up to eight (8) non-employee directors. For purposes of Section 1.1, (i) the McLeods shall be deemed to be a single Principal Stockholder, (ii) Lumpkin and all of the CCI Shareholders shall be deemed to be a single Principal Stockholder, and the CCI Shareholders shall be deemed to own shares "continuously" as long as the shares of the CCI Shareholders are owned by the CCI Shareholders or a CCI Permitted Transferee (as defined in Section 3.1), and (iii) the AEC Entities shall be deemed to be a single Principal Stockholder, and the AEC Entities shall be deemed to own shares "continuously" as long as the shares of the AEC Entities are owned by the AEC Entities or an AEC Permitted Transferee (as defined in Section 3.1). 1.2 Definitions For purposes of this Agreement, the following terms have the meanings indicated: (a) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (b) A person shall be deemed the "beneficial owner" of and shall be deemed to "beneficially own" any securities: (i) which such person or any of such person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing), or upon the exercise of conversion rights, exchange rights, other rights, warrants or options, or otherwise; (ii) which such person or any of such person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule 13d-3 under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing; or (iii) which are beneficially owned, directly or indirectly, by any other person (or any Affiliate or Associate thereof) with which such person or any of such person's Affiliates or Associates has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting or disposing of any voting securities of the Company. For purposes of the definition of "beneficial owner" and "beneficially own," the terms "agreement," "arrangement" and "understanding" shall not include this Agreement or the Second Amended and Restated January 1999 Stockholders' Agreement (as defined in Section 1.2). (c) "Effective Date" shall mean December 17, 1999. (d) "Expiration Date" shall mean December 31, 2001. (e) "Original Stockholders' Agreement" shall mean the Stockholders' Agreement, entered into as of June 14, 1997, as amended on September 19, 1997, by and among the Company, IES, the McLeods, Lumpkin and certain other stockholders. (f) "Second Amended and Restated January 1999 Stockholders' Agreement" shall mean the Second Amended and Restated January 1999 Stockholders' Agreement, entered into as of December 17, 1999, by and among the Company, the Principal Stockholders, M/C Investors L.L.C. and Media/Communications Partners III Limited Partnership. (g) "Stock Split" shall mean that certain two-for-one stock split in the form of a stock dividend paid on July 26, 1999 to stockholders of record on July 12, 1999 effected by the Company with respect to its Class A Common Stock. (h) "Subsidiary" or "Subsidiaries" shall mean a corporation, partnership, joint venture or other entity of which AEC owns, directly or indirectly, one hundred percent (100%) of the outstanding securities or other interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body. 2. STANDSTILL AEC hereby agrees that, prior to the Expiration Date, neither AEC nor any Affiliate of AEC will (and AEC will not assist or encourage others to), directly or indirectly, acquire or agree, offer, seek or propose to acquire, or cause to be acquired, ownership (including, but not limited to, beneficial ownership) of any securities issued by the Company or any of its subsidiaries, or any rights or options to acquire such ownership (including from a third party), except (a) to the extent expressly set forth in this Agreement, (b) as consented prior thereto in writing by the Board of Directors, (c) upon conversion of any Class B common stock, $.01 par value per share, of the Company into Class A Common Stock pursuant to the terms thereof, (d) with respect to transfers of equity securities between or among AEC and AEC's Subsidiaries consistent with the terms and conditions of this Agreement, or (e) with respect to the grant, vesting or exercise of stock options. 3. TRANSFERS OF SECURITIES 3.1 Restrictions on Transfers (a) Except as otherwise provided in this Section 3.1 or Section 3.2, each Principal Stockholder hereby severally agrees that until the Expiration Date, such Principal Stockholder will not offer, sell, contract to sell, grant any option to purchase, or otherwise dispose of, directly or indirectly, ("Transfer"), any equity securities of the Company or any other securities convertible into or exercisable for such equity securities ("Securities") beneficially owned by such Principal Stockholder (including distributions of Securities with respect to such Securities and Securities acquired as a result of a stock split with respect to such Securities) without submitting a written request to, and receiving the prior written consent of, the Board of Directors, provided, however, that (i) the AEC Entities may transfer Securities to or among any Subsidiary or Subsidiaries of AEC, and (ii) any CCI Shareholder may transfer Securities to any other CCI Shareholder, the spouse of a CCI Shareholder, or a lineal descendant of a CCI Shareholder (or a trust for the primary benefit of any one or more of a CCI Shareholder, the spouse of a CCI Shareholder, or a lineal descendant of a CCI Shareholder or a partnership or limited liability company owned and managed solely by one or more CCI Shareholders, spouses of CCI Shareholders and lineal descendants of CCI Shareholders), or, in the case of a CCI Shareholder that is a trust, to any beneficiary of such trust (or a trust for the primary benefit of such beneficiary or a partnership or limited liability company owned and managed solely by one or more CCI Shareholders, spouses of CCI Shareholders and lineal descendants of CCI Shareholders), in each case with respect to clause (i) and clause (ii), provided that (x) such transfer is done in accordance with the transfer restrictions applicable to such Securities under federal and state securities laws and (y) the transferee agrees to be bound by the terms hereof (as this Agreement may be amended or amended and restated from time to time) as a Principal Stockholder with respect to the shares being transferred pursuant to this Section (any such AEC Entity transferee pursuant to the foregoing proviso, an "AEC Permitted Transferee" and any such CCI Shareholder transferee pursuant to the foregoing proviso, a "CCI Permitted Transferee"), and any such transfer shall not constitute a "Transfer" for purposes of this Agreement. Notwithstanding the foregoing, no party hereto shall avoid the provisions of this Agreement by making one or more transfers to one or more AEC Permitted Transferees or CCI Permitted Transferees, as the case may be, and then at any time directly or indirectly disposing of all or any portion of such party's interest in any such AEC Permitted Transferee or CCI Permitted Transferee, as the case may be. In the event that the Board of Directors consents to any Transfer of Securities by a Principal Stockholder pursuant to this Section 3.1(a) upon the written request of such Principal Stockholder (the "Transferring Stockholder") and except as otherwise provided in Section 3.1(b) and Section 3.2, each other Principal Stockholder shall, notwithstanding the provisions of this Section 3.1(a), have the right to Transfer a percentage of the total number of Securities beneficially owned by such Principal Stockholder equal to the percentage of the total number of Securities beneficially owned by the Transferring Stockholder that the Board of Directors has consented may be Transferred by such Transferring Stockholder. The parties acknowledge that any Transfer pursuant to this Section 3.1(a) to which the Board of Directors has consented may be in connection with, or as part of, a private placement by the Company of, or other transaction involving, its Securities. (b) In addition to the provisions of Section 3.1(a), for the period commencing for the quarter ending December 31, 1999 and ending on the Expiration Date, the Board shall determine prior to the public release of the Company's consolidated financial results with respect to each such financial reporting quarter during such period, the aggregate number, if any, of shares of Class A Common Stock (not to exceed in the aggregate three hundred thousand (300,000) shares of Class A Common Stock per quarter, subject to adjustment pursuant to Section 5.1) that may be Transferred by the Principal Stockholders (the "Transfer Amount") during the period commencing on the third (3rd) business day and ending on the twenty-third (23rd) business day following such public release of the Company's quarterly or annual financial results or such other trading period designated or permitted by the Board with respect to the purchase and sale of its Securities (each such period, a "Transfer Period"). Notwithstanding the provisions of Section 3.1(a), each Principal Stockholder shall be entitled to Transfer during each Transfer Period, provided such Transfer is effected in accordance with all applicable federal and state securities laws, a number of shares of Class A Common Stock equal to thirty-three and one-third percent (33 1/3%) of the Transfer Amount, if any, for such Transfer Period (rounding down in the case of any fractional amount). Any portion of any Principal Stockholder's share of the Transfer Amount that such Principal Stockholder elects not to transfer during a Transfer Period shall be reallocated equally among the remaining Principal Stockholders who intend to Transfer shares of Class A Common Stock during such Transfer Period, and such remaining Principal Stockholders shall be entitled to Transfer such additional shares of Class A Common Stock during the Transfer Period, provided such Transfer is effected in accordance with all applicable federal and state securities laws. In no event shall any portion of a Transfer Amount that is not utilized by a Principal Stockholder during a Transfer Period be reallocated or otherwise credited to any subsequent Transfer Periods. (c) For the period commencing for the quarter ending December 31, 1999 and ending on the Expiration Date, the Company shall give each Principal Stockholder prompt written notice (in any event no later than fifty (50) days prior to the beginning of the applicable Transfer Period) of its determination of any Transfer Amount. Within seven (7) days of receipt of such notice, any Principal Stockholder that desires to Transfer shares of Class A Common Stock during such Transfer Period pursuant to Section 3.1(b) shall provide written notice to the Company of the number of shares of Class A Common Stock that such Principal Stockholder desires to Transfer pursuant to Section 3.1(b). Not later than seven (7) days after receipt of such responses, the Company shall notify all remaining Principal Stockholders of any Principal Stockholder's election not to Transfer the total number of shares of Class A Common Stock that such Principal Stockholder is entitled to Transfer during such Transfer Period. Any Principal Stockholder that desires to Transfer additional shares of Class A Common Stock equal to all or part of the remaining Transfer Amount shall notify the Company within seven (7) days of receipt of the Company's second notice. The Company shall allocate the remaining Transfer Amount in accordance with the provisions of Section 3.1(b) and shall notify the appropriate Principal Stockholders of such allocation no later than ten (10) days prior to the beginning of the Transfer Period. (d) For purposes of this Section 3.1, the McLeods shall be deemed to be a single Principal Stockholder, Lumpkin and all of the CCI Shareholders shall be deemed to be a single Principal Stockholder and the AEC Entities shall be deemed to be a single Principal Stockholder. 3.2 Registration Rights (a) In the event that the Board of Directors consents pursuant to Section 3.1(a) to a Principal Stockholder's request for a Transfer and in connection therewith, the Company agrees to register Securities with respect to such Transfer under the Securities Act of 1933, as amended (the "Securities Act"), the Company shall grant each other Principal Stockholder the opportunity (subject to reduction in the event the registered Transfer is underwritten) to register for Transfer under the Securities Act a percentage of the total number of Securities beneficially owned by such Principal Stockholder equal to the percentage of the total number of Securities beneficially owned by the Transferring Stockholder that such Transferring Stockholder is registering for Transfer under the Securities Act, on the same terms and conditions as the Transferring Stockholder (each Principal Stockholder registering, or indicating a desire to register, any Securities for Transfer under the Securities Act pursuant to this Section 3.2 being a "Registering Transferor"). (b) To the extent that the Company grants pursuant to Section 3.1(b) a Principal Stockholder the opportunity to register shares of Class A Common Stock for Transfer under the Securities Act, the Company shall grant each other Principal Stockholder the opportunity (subject to reduction in the event the registered Transfer is underwritten) to register an equal number of shares of Class A Common Stock for Transfer under the Securities Act on the same terms and conditions. (c) In the event the Company proposes to register any shares of Class A Common Stock under the Securities Act pursuant to an underwritten primary offering (other than pursuant to a registration statement on Form S-4 or Form S-8 or any successor forms thereto or other form which would not permit the inclusion of the shares of Class A Common Stock of the Principal Stockholders), the Company, as determined by the Board of Directors, shall give written notice to all Principal Stockholders of its intention to effect such a registration. Following any such notice, the Board of Directors shall undertake to determine the aggregate number, if any, of shares of Class A Common Stock held by the Principal Stockholders (not to exceed in the aggregate on a per year basis a number of shares of Class A Common Stock equal to fifteen percent (15%) of the total number of shares of Class A Common Stock beneficially owned by the Principal Stockholders as of December 31, 1998, subject to appropriate and proportionate adjustment as a result of the Stock Split and subject to adjustment pursuant to Section 5.1) to be registered by the Company under the Securities Act (the "Registrable Amount") for Transfer by the Principal Stockholders in connection with such offering. If the Board determines to register shares of Class A Common Stock held by the Principal Stockholders pursuant to this Section 3.2(c), the Company will promptly give written notice of such determination to all Principal Stockholders, and thereupon the Company will use commercially reasonable efforts to effect the registration of that portion of the Registrable Amount that the Registering Transferors indicate a desire to register. In the event the Registering Transferors indicate a desire to register a number of shares of Class A Common Stock that, in the aggregate, exceeds the Registrable Amount, the number of shares of Class A Common Stock that each Registering Transferor shall be entitled to register shall be reduced to the extent such number exceeds such Registering Transferor's pro rata share of the Registrable Amount based upon the ratio of the total number of Securities beneficially owned by such Registering Transferor to the total number of Securities beneficially owned by all Principal Shareholders. To the extent any portion of the Registrable Amount remains unallocated after such reductions, each Registering Transferor who has indicated a desire to register additional shares of Class A Common Stock shall be entitled to register an additional amount of Class A Common Stock equal to such Registering Transferor's pro rata portion of the remaining Registrable Amount based upon the ratio of the total number of Securities beneficially owned by such Registering Transferor to the total number of Securities beneficially owned by all Registering Transferors who have indicated a desire to register additional shares of Class A Common Stock. The reallocation procedure described in the preceding sentence shall be repeated until the entire Registrable Amount is allocated. All terms, conditions and rights with respect to such registration (including but not limited to any determination to reduce the Registrable Amount) shall be determined by the Board, provided that (i) the representations and warranties of a Principal Stockholder shall be customary taking into account, among other things, the nature of the offering and such Principal Stockholder's relationship with the Company, and (ii) the Company shall be responsible for all expenses with respect to such registration other than underwriting discounts and commissions allocable to the Class A Common Stock of the Registering Transferors, which underwriting discounts and commissions shall be the responsibility of the Registering Transferors. (d) In addition to the registration rights granted pursuant to Sections 3.2(a), (b) and (c), no more frequently than once during each of the calendar years ending December 31, 2000 and 2001 (each such year, an "Annual Period"), and upon either (i) the receipt of a written request of one or more Principal Stockholders or (ii) a determination by the Board of Directors, the Board shall undertake to determine the Registrable Amount, if any, for Transfer by the Principal Stockholders. If the Board determines to register shares of Class A Common Stock held by the Principal Stockholders pursuant to this Section 3.2(d), the Company will promptly give written notice of such determination to all Principal Stockholders, and thereupon the Company will use commercially reasonable efforts to effect the registration of that portion of the Registrable Amount that the Registering Transferors indicate a desire to register. In the event the Registering Transferors indicate a desire to register a number of shares of Class A Common Stock that, in the aggregate, exceeds the Registrable Amount, the number of shares of Class A Common Stock that each Registering Transferor shall be entitled to register shall be reduced to the extent such number exceeds such Registering Transferor's pro rata share of the Registrable Amount based upon the ratio of the total number of Securities beneficially owned by such Registering Transferor to the total number of Securities beneficially owned by all Principal Stockholders. To the extent any portion of the Registrable Amount remains unallocated after such reductions, each Registering Transferor who has indicated a desire to register additional shares of Class A Common Stock shall be entitled to register an additional amount of Class A Common Stock equal to such Registering Transferor's pro rata portion of the remaining Registrable Amount based upon the ratio of the total number of Securities beneficially owned by such Registering Transferor to the total number of Securities beneficially owned by all Registering Transferors who have indicated a desire to register additional shares of Class A Common Stock. The reallocation procedure described in the preceding sentence shall be repeated until the entire Registrable Amount is allocated. All terms, conditions and rights with respect to such registration (including but not limited to any determination to reduce the Registrable Amount) shall be determined by the Board, provided that (i) the representations and warranties of a Principal Stockholder shall be customary taking into account, among other things, the nature of the offering and such Principal Stockholder's relationship with the Company, and (ii) the Company shall be responsible for all expenses with respect to such registration other than underwriting discounts and commissions, which underwriting discounts and commissions shall be the responsibility of the Registering Transferors. (e) If the Board establishes a committee (a "Pricing Committee") to authorize and approve the price and any other terms of any Transfer of Securities registered under the Securities Act pursuant to this Section 3.2 in which Lumpkin or any CCI Shareholder is participating as a Registering Transferor, the Company will use its best efforts to cause Lumpkin to be nominated to such Pricing Committee. Notwithstanding any other provision of this Agreement, to the extent the Company has undertaken to register Securities of the Principal Stockholders pursuant to this Section 3.2, the Company may subsequently determine not to register such Securities and may either not file a registration statement or otherwise withdraw or abandon a registration statement previously filed with respect to the registration of such Securities. (f) For purposes of this Section 3.2, the McLeods shall be deemed to be a single Principal Stockholder, Lumpkin and all of the CCI Shareholders shall be deemed to be a single Principal Stockholder and the AEC Entities shall be deemed to be a single Principal Stockholder. 4. REPRESENTATIONS AND WARRANTIES 4.1 Representations and Warranties of Non-individual Stockholders Each non-individual Principal Stockholder hereby represents and warrants, as of the date of this Agreement, to the Company and to each other Principal Stockholder as follows: 4.1.1 Authorization Such Principal Stockholder has taken all action necessary for it to enter into this Agreement and to consummate the transactions contemplated hereby. 4.1.2 Binding Obligation This Agreement constitutes a valid and binding obligation of such Principal Stockholder, enforceable in accordance with its terms, except to the extent that such enforceability may be limited by bankruptcy, insolvency, and similar laws affecting the rights and remedies of creditors generally, and by general principles of equity and public policy; and each document and instrument to be executed by such Principal Stockholder pursuant hereto, when executed and delivered in accordance with the provisions hereof, shall be a valid and binding obligation of such Principal Stockholder, enforceable in accordance with its terms (with the aforesaid exceptions). 4.2 Representations and Warranties of Individual Stockholders Each Principal Stockholder who is an individual hereby represents and warrants, as of the date of this Agreement, to the Company and to each other Principal Stockholder as follows: 4.2.1 Power and Authority Such Principal Stockholder has the legal capacity and all other power and authority necessary to enter into this Agreement and to consummate the transactions contemplated hereby. 4.2.2 Binding Obligation This Agreement constitutes a valid and binding obligation of such Principal Stockholder, enforceable in accordance with its terms, except to the extent that such enforceability may be limited by bankruptcy, insolvency, and similar laws affecting the rights and remedies of creditors generally, and by general principles of equity and public policy; and each document and instrument to be executed by such Principal Stockholder pursuant hereto, when executed and delivered in accordance with the provisions hereof, shall be a valid and binding obligation of such Principal Stockholder, enforceable in accordance with its terms (with the aforesaid exceptions). 4.3 Representations and Warranties of the Company The Company hereby represents and warrants, as of the date of this Agreement, to each Principal Stockholder as follows: 4.3.1 Authorization The Company has taken all corporate action necessary for it to enter into this Agreement and to consummate the transactions contemplated hereby. 4.3.2 Binding Obligation This Agreement constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, except to the extent that such enforceability may be limited by bankruptcy, insolvency, and similar laws affecting the rights and remedies of creditors generally, and by general principles of equity and public policy; and each document and instrument to be executed by the Company pursuant hereto, when executed and delivered in accordance with the provisions hereof, shall be a valid and binding obligation of the Company, enforceable in accordance with its terms (with the aforesaid exceptions). 5. MISCELLANEOUS 5.1 Effect of Changes in Capitalization All share amounts of the Company's capital stock referred to in this Agreement shall be appropriately and proportionally adjusted for any recapitalization, reclassification, stock split-up, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Company, occurring after the date of this Agreement. 5.2 Additional Actions and Documents Each of the parties hereto hereby agrees to take or cause to be taken such further actions, to execute, deliver and file or cause to be executed, delivered and filed such further documents and instruments, and to obtain such consents, as may be necessary or as may be reasonably requested in order to fully effectuate the purposes, terms and conditions of this Agreement, whether before, at or after the Effective Date. 5.3 Entire Agreement; Termination of Original Stockholders' Agreement; Amendment Other than the Second Amended and Restated January 1999 Stockholders' Agreement with respect to the parties thereto and as set forth therein, this Agreement constitutes the entire agreement among the parties hereto as of the date hereof with respect to the specific matters contemplated herein, and it supersedes all prior oral or written agreements, commitments or understandings with respect to the matters provided for herein. The parties hereto further agree, confirm and acknowledge that the Original Stockholders' Agreement is terminated and of no force or effect. No amendment, modification or discharge of this Agreement shall be valid or binding unless set forth in writing and duly executed by the Company and by the party against whom enforcement of the amendment, modification, or discharge is sought. 5.4 Limitation on Benefit It is the explicit intention of the parties hereto that no person or entity other than the parties hereto is or shall be entitled to bring any action to enforce any provision of this Agreement against any of the parties hereto, and the covenants, undertakings and agreements set forth in this Agreement shall be solely for the benefit of, and shall be enforceable only by, the parties hereto or their respective successors, heirs, executors, administrators, legal representatives and permitted assigns. 5.5 Binding Effect; Specific Performance This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, heirs, executors, administrators, legal representatives and permitted assigns. No party shall assign this Agreement without the written consent of the other parties hereto; and such consent shall not be unreasonably withheld. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. 5.6 Governing Law This Agreement, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of Delaware (excluding the choice of law rules thereof). 5.7 Notices All notices, demands, requests, or other communications which may be or are required to be given, served, or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be hand-delivered or mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by telegram, telecopy, facsimile transmission or telex, addressed as follows: (i) If to the Company or to the McLeods: McLeodUSA Incorporated McLeodUSA Technology Park 6400 C Street, SW, P.O. Box 3177 Cedar Rapids, IA 52406-3177 Attention: Randall Rings Facsimile: (319) 790-7901 (ii) If to the AEC Entities: IES Investments Inc. (n/k/a Alliant Energy Investments,Inc.) 200 1st Street SE Cedar Rapids, IA 52401 Attention: James E. Hoffman Facsimile: (319) 398-4204 (iii) If to Lumpkin or any CCI Shareholder: P.O. Box 1234 Mattoon, IL 61938 Attention: Richard A. Lumpkin Facsimile: (217) 234-9934 with a copy to : Schiff Hardin & Waite 6600 Sears Tower Chicago, Illinois 60606 Attention: David R. Hodgman, Esq. Facsimile: (312) 258-5600 Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request, or communication which shall be hand-delivered, mailed, transmitted, telecopied or telexed in the manner described above, or which shall be delivered to a telegraph company, shall be deemed sufficiently given, served, sent, received or delivered for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, or the answerback being deemed conclusive, but not exclusive, evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation. 5.8 Termination Notwithstanding any other provision of this Agreement, if during any Annual Period the Board of Directors has not provided a Principal Stockholder a reasonable opportunity to Transfer Securities pursuant to Section 3.2 or consented to the written request of such Principal Stockholder or otherwise provided such Principal Stockholder a reasonable opportunity to Transfer (other than a transfer by a CCI Shareholder to a CCI Permitted Transferee and other than a transfer by the AEC Entities to an AEC Permitted Transferee) pursuant to Section 3.1(a) an aggregate number of shares of Class A Common Stock equal to not less than fifteen percent (15%) of the total number of shares of Class A Common Stock beneficially owned by such Principal Stockholder as of December 31, 1998, subject to appropriate and proportionate adjustment as a result of the Stock Split and subject to adjustment pursuant to Section 5.1, then such Principal Stockholder may terminate this Agreement as it applies to such terminating party by providing written notice of termination to all other parties no later than ten (10) business days following the end of such Annual Period, such that all rights and obligations hereunder shall cease, and this Agreement shall be of no further force or effect, with respect to the terminating party. Unless otherwise previously terminated by the Principal Stockholders pursuant to this Section 5.8, this Agreement shall terminate on the Expiration Date. For purposes of this Section 5.8, the McLeods shall be deemed to be a single Principal Stockholder, Lumpkin and all of the CCI Shareholders shall be deemed to be a single Principal Stockholder and the AEC Entities shall be deemed to be a single Principal Stockholder. 5.9 Publicity Each of the Principal Stockholders will use its reasonable best efforts to consult with the Company prior to issuing any press release, making any filing with any governmental entity or national securities exchange or making any other public dissemination of information by such Principal Stockholder within which this Agreement or the contents hereof are referenced or described. 5.10 Appointment of Representative Each of the CCI Shareholders hereby appoints Lumpkin, with power of substitution, as its exclusive agent to act on its behalf with respect to any and all actions to be taken under or amendments or modifications to be made to this Agreement (the "Representative"). The Representative shall take, and the CCI Shareholders agree that the Representative shall take, any and all actions which the Representative believes are necessary or advisable under this Agreement for and on behalf of each of the CCI Shareholders, as fully as if each of the CCI Shareholders were acting on its own behalf, including, without limitation, dealing with the Company and the other parties hereto with respect to all matters arising under this Agreement, entering into any amendment or modification to this Agreement deemed advisable by the Representative and taking any and all other actions specified in or contemplated by this Agreement. The Company and the other parties hereto shall have the right to rely upon all actions taken or not taken by the Representative pursuant to this Agreement, all of which actions or omissions shall be legally binding upon each of the CCI Shareholders. 5.11 Execution in Counterparts To facilitate execution, this Agreement may be executed in as many counterparts as may be required; and it shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, each party, or that the signatures of the persons required to bind any party, appear on one or more of the counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than a number of counterparts containing the respective signatures of, or on behalf of, all of the parties hereto. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Second Amended and Restated November 1998 Stockholders' Agreement, or have caused this Second Amended and Restated November 1998 Stockholders' Agreement to be duly executed and delivered on their behalf, as of the day and year first hereinabove set forth. MCLEODUSA INCORPORATED By: /s/ J. Lyle Patrick -------------------- Name: J. Lyle Patrick Title: Group Vice President/CFO /s/ Clark E. McLeod /s/ Mary E. McLeod -------------------- ------------------- Clark E. McLeod Mary E. McLeod ALLIANT ENERGY CORPORATION By: /s/ James E. Hoffman --------------------- Name: James E. Hoffman Title: Executive Vice President Business Development ALLIANT ENERGY FOUNDATION, INC. By: /s/ Edward M. Gleason --------------------- Name: Edward M. Gleason Title: Treasurer IES INVESTMENTS INC. (n/k/a ALLIANT ENERGY INVESTMENTS, INC.) By: /s/ James E. Hoffman --------------------- Name: James E. Hoffman Title: President, Alliant Energy Resources HEARTLAND PROPERTIES, INC. By: /s/ Henry Wertheimer -------------------- Name: Henry Wertheimer Title: Vice President/Treasurer /s/ Richard A. Lumpkin /s/ Gail G. Lumpkin - ------------------------- -------------------- Richard A. Lumpkin Gail G. Lumpkin Margaret Lumpkin Keon Trust Mary Lee Sparks Trust dated May 13, 1978 dated May 13, 1978 /s/ Margaret Lumpkin Keon /s/ Mary Lee Sparks - ------------------------- -------------------- Margaret Lumpkin Keon, as Trustee Mary Lee Sparks, as Trustee /s/ Steven L. Grissom ---------------------- Steven L. Grissom, as Trustee /s/ Mary Lee Sparks - ------------------- Mary Lee Sparks
The twelve trusts created under the Mary Green The twelve trusts created under the Richard Adamson Lumpkin Gallo Trust Agreement dated December 29, Lumpkin Grandchildren's Trust dated September 5, 1980, 1989 one for the benefit of each of: one for the benefit of each of: Joseph John Keon III, Joseph John Keon III, Katherine Stoddert Keon, Katherine Stoddert Keon, Lisa Anne Keon, Lisa Anne Keon, Margaret Lynley Keon, Margaret Lynley Keon, Pamela Keon Vitale, Pamela Keon Vitale, Susan Tamara Keon DeWyngaert, Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, Elizabeth Arabella Lumpkin, Anne Romayne Sparks, Anne Romayne Sparks, Barbara Lee Sparks, Barbara Lee Sparks, Christina Louise Sparks, and Christina Louise Sparks, and John Woodruff Sparks John Woodruff Sparks Bank One, Texas, N.A., Trustee Bank One, Texas, N.A., Trustee By: /s/ Frank A. Glispin By: /s/ Frank A. Glispin -------------------- -------------------- Name: Frank A. Glispin Name: Frank A. Glispin Title: Relationship Manager Title: Relationship Manager
The three trusts established by Richard The twelve 1990 Personal Income Trusts established Adamson Lumpkin under Trust Agreement dated by Margaret L. Keon, Mary Lee Sparks, and Richard A. February 6, 1970, one for the benefit of each of: Lumpkin, each dated April 20, 1990, one for the benefit of each of: Richard Anthony Lumpkin, Joseph John Keon III, Margaret Anne Keon, and Katherine Stoddert Keon, Mary Lee Sparks Lisa Anne Keon, Margaret Lynley Keon, Pamela Keon Vitale, Bank One, Texas, N.A., Trustee Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, By: /s/ Frank A. Glispin Anne Romayne Sparks, -------------------- Barbara Lee Sparks, Name: Frank A. Glispin Christina Louise Sparks, and Title: Relationship Manager John Woodruff Sparks /s/ David R. Hodgman --------------------- David R. Hodgman, Trustee /s/ Steven L. Grissom -------------------- Steven L. Grissom, Trustee
SCHEDULE I Richard A. Lumpkin Gail G. Lumpkin Margaret Lumpkin Keon, as Trustee under the Margaret Lumpkin Keon Trust dated May 13, 1978 Mary Lee Sparks and Steven L. Grissom, as Trustees of the Mary Lee Sparks Trust dated May 13, 1978 Mary Lee Sparks Bank One, Texas, N.A., as Trustee of the twelve trusts created under the Mary Green Lumpkin Gallo Trust Agreement dated December 29, 1989, one for the benefit of each of Joseph John Keon III, Katherine Stoddert Keon, Lisa Anne Keon, Margaret Lynley Keon, Pamela Keon Vitale, Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, Anne Romayne Sparks, Barbara Lee Sparks, Christina Louise Sparks, and John Woodruff Sparks Bank One, Texas, N.A., as Trustee of the twelve trusts created under the Richard Adamson Lumpkin Grandchildren's Trust dated September 5, 1980, one for the benefit of each of Joseph John Keon III, Katherine Stoddert Keon, Lisa Anne Keon, Margaret Lynley Keon, Pamela Keon Vitale, Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, Anne Romayne Sparks, Barbara Lee Sparks, Christina Louise Sparks, and John Woodruff Sparks Bank One, Texas, N.A., as Trustee of the three trusts established by Richard Adamson Lumpkin under the Trust Agreement dated February 6, 1970, one for the benefit of each of Richard Anthony Lumpkin, Margaret Anne Keon, and Mary Lee Sparks David R. Hodgman and Steven L. Grissom, as Trustees of the twelve 1990 Personal Income Trusts established by Margaret L. Keon, Mary Lee Sparks, and Richard A. Lumpkin, each dated April 20, 1990, one for the benefit of each of Joseph John Keon III, Katherine Stoddert Keon, Lisa Anne Keon, Margaret Lynley Keon, Pamela Keon Vitale, Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, Anne Romayne Sparks, Barbara Lee Sparks, Christina Louise Sparks, and John Woodruff Sparks EX-10.16 6 SECOND AMENDED AND RESTATED JANUARY 1999 EXHIBIT 10.16 SECOND AMENDED AND RESTATED JANUARY 1999 STOCKHOLDERS' AGREEMENT This Second Amended and Restated January 1999 Stockholders' Agreement (this "Agreement") is entered into as of December 17, 1999, by and among McLeodUSA Incorporated, a Delaware corporation (the"Company"); Alliant Energy Corporation, a Wisconsin corporation ("AEC"); IES Investments Inc., an Iowa corporation (n/k/a Alliant Energy Investments, Inc.) and indirect wholly owned subsidiary of AEC ("IES"); Heartland Properties, Inc., a Wisconsin corporation and indirect wholly owned subsidiary of AEC ("Heartland"); Alliant Energy Foundation, Inc., a Wisconsin corporation (non-profit) ("AEF" and together with AEC, IES and Heartland, the "AEC Entities"); Clark E. McLeod ("McLeod"); Mary E. McLeod (together with McLeod, the "McLeods"); Richard A. Lumpkin ("Lumpkin") and each of the former shareholders of Consolidated Communications Inc. ("CCI") and certain permitted transferees of the former CCI shareholders in each case who are listed in Schedule I hereto (the "CCI Shareholders"); and M/C Investors L.L.C., a Delaware limited liability company ("M/C Investors") and Media/Communications Partners III Limited Partnership, a Delaware limited partnership ("M/C Partners" and together with M/C Investors, the"M/C Stockholders"). The AEC Entities, the McLeods, Lumpkin and the CCI Shareholders party hereto are referred to herein collectively as the"Original Stockholders" and individually as an"Original Stockholder." WHEREAS, the Company, IES, the McLeods, Lumpkin, the CCI Shareholders party hereto and the M/C Stockholders are parties to an Amended and Restated January 1999 Stockholders' Agreement, entered into as of September 15, 1999 (the "Amended and Restated January 1999 Stockholders' Agreement"); WHEREAS, the Company, IES, the McLeods, Lumpkin, the CCI Shareholders party hereto and the M/C Stockholders desire to add each of AEC, Heartland and AEF as a party to this Agreement and to make certain other changes in accordance with the terms herein set forth; WHEREAS, the Company, the Original Stockholders and the M/C Stockholders deem it to be in the best interests of the Company and its stockholders to provide for the continuity and stability of the business and policies of the Company on the terms and conditions hereinafter set forth; WHEREAS, concurrently with execution and delivery of this Agreement, the Company and the Original Stockholders are entering into an amendment and restatement of the Amended and Restated November 1998 Stockholders' Agreement, entered into as of September 15, 1999; and WHEREAS, the Company, the Original Stockholders and the M/C Stockholders desire to amend and restate the Amended and Restated January 1999 Stockholders' Agreement in its entirety with the terms and conditions hereinafter set forth; NOW, THEREFORE, for and in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. [INTENTIONALLY DELETED] 2. VOTING AGREEMENT 2.1 Board of Directors For the period commencing on the Effective Date (as defined in Section 2.2) and ending on the Expiration Date (as defined in Section 2.2), each Original Stockholder and the M/C Stockholders, for so long as each such Original Stockholder and the M/C Stockholders beneficially and continuously owns at least five million (5,000,000) shares of the Company's Class A common stock, $.01 par value per share (the "Class A Common Stock"), subject to adjustment pursuant to Section 5.1, shall take or cause to be taken all such action within their respective power and authority as may be required: (a) to establish and maintain the authorized size of the Board of Directors of the Company (the "Board of Directors" or the "Board") at up to thirteen (13) directors; (b) to cause to be elected to the Board one (1) director designated by the AEC Entities, for so long as the AEC Entities collectively beneficially and continuously own at least five million (5,000,000) shares of Class A Common Stock (subject to adjustment pursuant to Section 5.1); (c) to cause Lumpkin to be elected to the Board, for so long as Lumpkin and the CCI Shareholders collectively beneficially and continuously own at least five million (5,000,000) shares of Class A Common Stock (subject to adjustment pursuant to Section 5.1); (d) to cause to be elected to the Board three (3) directors who are executive officers of the Company designated by McLeod, for so long as the McLeods collectively beneficially and continuously own at least five million (5,000,000) shares of Class A Common Stock (subject to adjustment pursuant to Section 5.1); (e) to cause to be elected to the Board one (1) director designated by the M/C Stockholders, for so long as the M/C Stockholders collectively beneficially and continuously own at least five million (5,000,000) shares of Class A Common Stock (subject to adjustment pursuant to Section 5.1); (f) to cause to be elected to the Board a director or directors nominated by the Board to replace a director or directors designated pursuant to paragraphs (b) through (e) above upon the earlier to occur of such designated director's or directors' resignation (and the acceptance of such resignation by the Board) and the expiration of such director's or directors' term as a result of any party or parties identified in paragraphs (b) through (e) above no longer collectively beneficially and continuously owning at least five million (5,000,000) shares of Class A Common Stock (subject to adjustment pursuant to Section 5.1) at any time during the period commencing on the Effective Date and ending on the Expiration Date; it being understood that within three (3) business days following such time that the party or parties identified in paragraphs (b) through (e) above no longer collectively beneficially and continuously own at least five million (5,000,000) shares of Class A Common Stock (subject to adjustment pursuant to Section 5.1) during such period, such party or parties shall use its or their respective best efforts to cause the director or directors designated by such party or parties to tender their immediate resignation to the Board which the Board may accept or reject; and (g) to cause to be elected to the Board, if and as nominated by the Board, up to seven (7) non-employee directors. For purposes of this Section 2.1, (i) the McLeods shall be deemed to be a single Original Stockholder of the Company, (ii) the M/C Stockholders shall be deemed to be a single stockholder of the Company, and the M/C Stockholders shall be deemed to own shares "continuously" as long as the shares of the M/C Stockholders are owned by the M/C Stockholders or an M/C Stockholder Permitted Transferee (as defined in Section 3.1), (iii) Lumpkin and all of the CCI Shareholders shall be deemed to be a single Original Stockholder of the Company, and the CCI Shareholders shall be deemed to own shares "continuously" as long as the shares of the CCI Shareholders are owned by the CCI Shareholders or a CCI Permitted Transferee (as defined in the Second Amended and Restated November 1998 Stockholders' Agreement (as defined in Section 2.2)), and (iv) the AEC Entities shall be deemed to be a single Original Stockholder of the Company, and the AEC Entities shall be deemed to own shares "continuously" as long as the shares of the AEC Entities are owned by the AEC Entities or an AEC Permitted Transferee (as defined in the Second Amended and Restated November 1998 Stockholders' Agreement). 2.2 Definitions For purposes of this Agreement, the following terms have the meanings indicated: (a) "Affiliate" and"Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (b) A person shall be deemed the "beneficial owner" of and shall be deemed to"beneficially own" any securities: (i) which such person or any of such person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing), or upon the exercise of conversion rights, exchange rights, other rights, warrants or options, or otherwise; (ii) which such person or any of such person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule 13d-3 under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing; or (iii) which are beneficially owned, directly or indirectly, by any other person (or any Affiliate or Associate thereof) with which such person or any of such person's Affiliates or Associates has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting or disposing of any voting securities of the Company. For purposes of the definition of "beneficial owner" and "beneficially own," the terms "agreement," "arrangement" and"understanding" shall not include this Agreement or the Second Amended and Restated November 1998 Stockholders' Agreement. (c) "Effective Date" shall mean December 17, 1999. (d) "Expiration Date" shall mean December 31, 2001. (e) "Merger" shall mean the merger of Ovation Communications, Inc. with and into Bravo Acquisition Corporation pursuant to the terms and conditions of the Merger Agreement. (f) "Merger Agreement" shall mean the Agreement and Plan of Merger, dated as of January 7, 1999, by and among the Company, Bravo Acquisition Corporation, Ovation Communications, Inc. and certain of the stockholders of Ovation Communications, Inc. (g) "Second Amended and Restated November 1998 Stockholders' Agreement" shall mean the Second Amended and Restated November 1998 Stockholders' Agreement, entered into as of December 17, 1999, by and among the Company and the Original Stockholders. (h) "Stock Split" shall mean that certain two-for-one stock split in the form of a stock dividend paid on July 26, 1999 to stockholders of record on July 12, 1999 effected by the Company with respect to its Class A Common Stock. 3. TRANSFERS OF SECURITIES 3.1 Restrictions on Transfers (a) Except as otherwise provided in this Section 3.1 or Section 3.2, the M/C Stockholders hereby agree that until the Expiration Date, the M/C Stockholders will not offer, sell, contract to sell, grant any option to purchase, or otherwise dispose of, directly or indirectly, ("Transfer"), any equity securities of the Company or any other securities convertible into or exercisable for such equity securities ("Securities") beneficially owned by such M/C Stockholders as a result of the Merger (including distributions of Securities with respect to such Securities and Securities acquired as a result of a stock split with respect to such Securities) without submitting a written request to, and receiving the prior written consent of, the Board of Directors; provided, however, that the M/C Stockholders may transfer Securities to any beneficial owner or Affiliate of the M/C Stockholders, in each case provided that (i) such transfer is done in accordance with the transfer restrictions applicable to such Securities under federal and state securities laws and (ii) the transferee agrees to be bound by the terms hereof (as this Agreement may be amended or amended and restated from time to time) as an M/C Stockholder with respect to the shares being transferred pursuant to this Section (any such M/C Stockholder transferee pursuant to the foregoing proviso, an"M/C Stockholder Permitted Transferee"), and any such transfer shall not constitute a"Transfer" for purposes of this Agreement. Notwithstanding the foregoing, no party hereto shall avoid the provisions of this Agreement by making one or more transfers to one or more M/C Stockholder Permitted Transferees and then at any time directly or indirectly disposing of all or any portion of such party's interest in any such M/C Stockholder Permitted Transferee. In the event that the Board of Directors consents to any Transfer of Securities by a Principal Stockholder (for purposes of this Agreement, the term "Principal Stockholder" shall have the same meaning as ascribed to such term in the Second Amended and Restated November 1998 Stockholders' Agreement) pursuant to Section 3.1(a) of the Second Amended and Restated November 1998 Stockholders' Agreement upon the written request of such Principal Stockholder (the"Transferring Principal Stockholder") during the period commencing on January 1, 2000 and ending on the Expiration Date and except as otherwise provided in Section 3.1(b) and Section 3.2 of this Agreement, the M/C Stockholders shall, notwithstanding the provisions of this Section 3.1(a), have the right to Transfer a percentage of the total number of Securities beneficially owned by the M/C Stockholders equal to the percentage of the total number of Securities beneficially owned by the Transferring Principal Stockholder that the Board of Directors has consented may be Transferred by such Transferring Principal Stockholder. In the event the Board of Directors consents to any Transfer of Securities by the M/C Stockholders pursuant to this Section 3.1(a) upon the written request of the M/C Stockholders (the "Transferring M/C Stockholders"), and except as otherwise provided in Section 3.1(b) and Section 3.2 of the Second Amended and Restated November 1998 Stockholders' Agreement, each Principal Stockholder shall, notwithstanding the provisions of Section 3.1(a) of the Second Amended and Restated November 1998 Stockholders' Agreement, have the right to Transfer a percentage of the total number of Securities beneficially owned by such Principal Stockholder equal to the percentage of the total number of Securities beneficially owned by the Transferring M/C Stockholders that the Board of Directors has consented may be Transferred by such Transferring M/C Stockholders. (b) In addition to the provisions of Section 3.1(a), for the period commencing for the quarter ending December 31, 1999 and ending on the Expiration Date, the Board shall determine prior to the public release of the Company's consolidated financial results with respect to each such financial reporting quarter during such period, the aggregate number, if any, of shares of Class A Common Stock (not to exceed in the aggregate one hundred thousand (100,000) shares of Class A Common Stock per quarter, subject to adjustment pursuant to Section 5.1) that may be Transferred by the M/C Stockholders (the "Transfer Amount") during the period commencing on the third (3rd) business day and ending on the twenty-third (23rd) business day following such public release of the Company's quarterly or annual financial results or such other trading period designated or permitted by the Board with respect to the purchase and sale of its Securities (each such period, a"Transfer Period"). Notwithstanding the provisions of Section 3.1(a), the M/C Stockholders shall be entitled to Transfer during each Transfer Period, provided such Transfer is effected in accordance with all applicable federal and state securities laws, a number of shares of Class A Common Stock equal to the Transfer Amount, if any, for such Transfer Period. In no event shall any portion of a Transfer Amount that is not utilized by the M/C Stockholders during a Transfer Period be reallocated or otherwise credited to any subsequent Transfer Periods. Notwithstanding the foregoing provisions of this Section 3.1(b), to the extent that the Company permits the Principal Stockholders the opportunity to Transfer shares of Class A Common Stock pursuant to Section 3.1(b) of the Second Amended and Restated November 1998 Stockholders' Agreement during the period commencing on January 1, 2000 and ending on the Expiration Date, the Company shall grant the M/C Stockholders the opportunity to Transfer on the same terms and conditions a number of shares of Class A Common Stock equal to the number of shares which each Principal Stockholder is entitled to Transfer pursuant to such Section 3.1(b), without considering those provisions of Section 3.1(b) of the Second Amended and Restated November 1998 Stockholders' Agreement relating to the reallocation of amounts among the Principal Stockholders. To the extent the Board determines a Transfer Amount with respect to the M/C Stockholders for any particular quarter pursuant to this Section 3.1(b), the Board shall determine an equal Transfer Amount for such quarter with respect to each Principal Stockholder pursuant to Section 3.1(b) of the Second Amended and Restated November 1998 Stockholders' Agreement. (c) For the period commencing for the quarter ending December 31, 1999 and ending on the Expiration Date, the Company shall give the M/C Stockholders prompt written notice (in any event no later than fifty (50) days prior to the beginning of the applicable Transfer Period) of its determination of any Transfer Amount. Within seven (7) days of receipt of such notice, the M/C Stockholders shall provide written notice to the Company of the number of shares of Class A Common Stock that the M/C Stockholders desire to Transfer pursuant to Section 3.1(b). (d) During the year ending December 31, 1999, to the extent the Company participates in a strategic transaction with an outside investor(s) pursuant to which such investor(s) acquires Securities of the Company at a premium to the then average trading price of the Company's Securities, and after the Company has been paid or otherwise received its consideration or proceeds from such transaction as determined by the Company, the Original Stockholders and the M/C Stockholders may be entitled to participate in such transaction on a pro rata basis as determined by the Board of Directors. (e) For purposes of this Section 3.1, the M/C Stockholders shall be deemed to be a single stockholder of the Company, the McLeods shall be deemed to be a single Principal Stockholder of the Company, Lumpkin and all of the CCI Shareholders shall be deemed to be a single Principal Stockholder of the Company and the AEC Entities shall be deemed to be a single Principal Stockholder of the Company. 3.2 Registration Rights (a) In the event that the Board of Directors consents pursuant to Section 3.1(a) of the Second Amended and Restated November 1998 Stockholders' Agreement to a Principal Stockholder's request for a Transfer during the period commencing on January 1, 2000 and ending on the Expiration Date and in connection therewith, the Company agrees to register Securities with respect to such Transfer under the Securities Act of 1933, as amended (the "Securities Act"), the Company shall grant the M/C Stockholders the opportunity (subject to reduction in the event the registered Transfer is underwritten) to register for Transfer under the Securities Act a percentage of the total number of Securities beneficially owned by the M/C Stockholders equal to the percentage of the total number of Securities beneficially owned by the Transferring Principal Stockholder that such Transferring Principal Stockholder is registering for Transfer under the Securities Act, on the same terms and conditions as the Transferring Principal Stockholder. In the event that the Board of Directors consents pursuant to Section 3.1(a) of this Agreement to the M/C Stockholders' request for a Transfer, and in connection therewith the Company agrees to register Securities with respect to such Transfer under the Securities Act, the Company shall grant each Principal Stockholder pursuant to Section 3.1(a) of the Second Amended and Restated November 1998 Stockholders' Agreement the opportunity (subject to reduction in the event the registered Transfer is underwritten) to register for Transfer under the Securities Act a percentage of the total number of Securities beneficially owned by such Principal Stockholder equal to the percentage of the total number of Securities beneficially owned by the Transferring M/C Stockholders that such Transferring M/C Stockholders are registering under the Securities Act, on the same terms and conditions as the Transferring M/C Stockholders. (b) To the extent that the Company grants pursuant to Section 3.1(b) of the Second Amended and Restated November 1998 Stockholders' Agreement a Principal Stockholder the opportunity to register shares of Class A Common Stock for Transfer under the Securities Act during the period commencing on January 1, 2000 and ending on the Expiration Date, the Company shall grant the M/C Stockholders the opportunity (subject to reduction in the event the registered Transfer is underwritten) to register an equal number of shares of Class A Common Stock for Transfer under the Securities Act on the same terms and conditions, without considering those provisions of Section 3.1(b) of the Second Amended and Restated November 1998 Stockholders' Agreement relating to the reallocation of amounts among the Principal Stockholders. To the extent that the Company grants pursuant to Section 3.1(b) of this Agreement the M/C Stockholders the opportunity to register shares of Class A Common Stock for Transfer under the Securities Act, the Company shall grant each Principal Stockholder pursuant to Section 3.1(b) of the Second Amended and Restated November 1998 Stockholders' Agreement the opportunity (subject to reduction in the event the registered Transfer is underwritten) to register an equal number of shares of Class A Common Stock for Transfer under the Securities Act on the same terms and conditions. (c) For the period commencing on January 1, 2000 and ending on the Expiration Date, in the event the Company proposes to register any shares of Class A Common Stock under the Securities Act pursuant to an underwritten primary offering (other than pursuant to a registration statement on Form S-4 or Form S-8 or any successor forms thereto or other form which would not permit the inclusion of the shares of Class A Common Stock of the M/C Stockholders), the Company, as determined by the Board of Directors, shall give written notice to the M/C Stockholders of its intention to effect such a registration. Following any such notice, the Board of Directors shall undertake to determine the aggregate number, if any, of shares of Class A Common Stock held by the M/C Stockholders (not to exceed in the aggregate on a per year basis a number of shares of Class A Common Stock equal to fifteen percent (15%) of the total number of shares of Class A Common Stock beneficially owned by the M/C Stockholders as of the Effective Time (as defined in the Merger Agreement) in connection with the consummation of the Merger, subject to appropriate and proportionate adjustment as a result of the Stock Split and subject to adjustment pursuant to Section 5.1) to be registered by the Company under the Securities Act (the"Registrable Amount") for Transfer by the M/C Stockholders in connection with such offering during such period. If the Board determines to register shares of Class A Common Stock held by the M/C Stockholders pursuant to this Section 3.2(c), the Company will promptly give written notice of such determination to the M/C Stockholders, and thereupon the Company will use commercially reasonable efforts to effect the registration of that portion of the Registrable Amount that the M/C Stockholders indicate a desire to register. All terms, conditions and rights with respect to such registration (including but not limited to any determination to reduce the Registrable Amount) shall be determined by the Board, provided that (i) the representations and warranties of the M/C Stockholders shall be customary taking into account, among other things, the nature of the offering and the M/C Stockholders' relationship with the Company, and (ii) the Company shall be responsible for all expenses with respect to such registration other than underwriting discounts and commissions allocable to the Class A Common Stock of the M/C Stockholders, which underwriting discounts and commissions shall be the responsibility of the M/C Stockholders. Notwithstanding the foregoing provisions of this Section 3.2(c), to the extent that the Company grants pursuant to Section 3.2(c) of the Second Amended and Restated November 1998 Stockholders' Agreement the Principal Stockholders the opportunity to register shares of Class A Common Stock for Transfer under the Securities Act during the period commencing on January 1, 2000 and ending on the Expiration Date, the Company shall grant the M/C Stockholders the opportunity to register shares of Class A Common Stock on a substantially similar basis. To the extent that the Company grants pursuant to Section 3.2(c) of this Agreement the M/C Stockholders the opportunity to register shares of Class A Common Stock for Transfer under the Securities Act, the Company shall grant each Principal Stockholder pursuant to Section 3.2(c) of the Second Amended and Restated November 1998 Stockholders' Agreement the opportunity to register shares of Class A Common Stock on a substantially similar basis. (d) In addition to the registration rights granted pursuant to Sections 3.2(a), (b) and (c), no more frequently than once during each of the calendar years ending December 31, 2000 and 2001 (each such year, an"Annual Period"), and upon either (i) the receipt of a written request of the M/C Stockholders or (ii) a determination by the Board of Directors, the Board shall undertake to determine the Registrable Amount, if any, for Transfer by the M/C Stockholders. If the Board determines to register shares of Class A Common Stock held by the M/C Stockholders pursuant to this Section 3.2(d), the Company will promptly give written notice of such determination to the M/C Stockholders, and thereupon the Company will use commercially reasonable efforts to effect the registration of that portion of the Registrable Amount that the M/C Stockholders indicate a desire to register. All terms, conditions and rights with respect to such registration (including but not limited to any determination to reduce the Registrable Amount) shall be determined by the Board, provided that (i) the representations and warranties of the M/C Stockholders shall be customary taking into account, among other things, the nature of the offering and the M/C Stockholders' relationship with the Company, and (ii) the Company shall be responsible for all expenses with respect to such registration other than underwriting discounts and commissions allocable to the Class A Common Stock of the M/C Stockholders, which underwriting discounts and commissions shall be the responsibility of the M/C Stockholders. Notwithstanding the foregoing provisions of this Section 3.2(d), to the extent that the Company grants pursuant to Section 3.2(d) of the Second Amended and Restated November 1998 Stockholders' Agreement the Principal Stockholders the opportunity to register shares of Class A Common Stock for Transfer under the Securities Act during the period commencing on January 1, 2000 and ending on the Expiration Date, the Company shall grant the M/C Stockholders the opportunity to register shares of Class A Common Stock on a substantially similar basis. To the extent that the Company grants pursuant to Section 3.2(d) of this Agreement the M/C Stockholders the opportunity to register shares of Class A Common Stock for Transfer under the Securities Act, the Company shall grant each Principal Stockholder pursuant to Section 3.2(d) of the Second Amended and Restated November 1998 Stockholders' Agreement the opportunity to register shares of Class A Common Stock on a substantially similar basis. (e) For purposes of this Section 3.2, the M/C Stockholders shall be deemed to be a single stockholder of the Company, the McLeods shall be deemed to be a single Principal Stockholder of the Company, Lumpkin and all of the CCI Shareholders shall be deemed to be a single Principal Stockholder of the Company and the AEC Entities shall be deemed to be a single Principal Stockholder of the Company. (f) Notwithstanding any other provision of this Agreement, to the extent the Company has undertaken to register Securities of the M/C Stockholders pursuant to this Section 3.2, the Company may subsequently determine not to register such Securities and may either not file a registration statement or otherwise withdraw or abandon a registration statement previously filed with respect to the registration of such Securities; provided that to the extent the Principal Stockholders are also participating in such registration, the M/C Stockholders and the Principal Stockholders will be treated on a substantially similar basis with respect to any such determination not to register Securities or the withdrawal or abandonment of a registration statement previously filed as contemplated by this Section 3.2(f). 4. REPRESENTATIONS AND WARRANTIES 4.1 Representations and Warranties of Non-individual Stockholders Each non-individual party to this Agreement hereby represents and warrants, as of the date of this Agreement, to the Company and to each other party as follows: 4.1.1 Authorization Such party has taken all action necessary for it to enter into this Agreement and to consummate the transactions contemplated hereby. 4.1.2 Binding Obligation This Agreement constitutes a valid and binding obligation of such party, enforceable in accordance with its terms, except to the extent that such enforceability may be limited by bankruptcy, insolvency, and similar laws affecting the rights and remedies of creditors generally, and by general principles of equity and public policy; and each document and instrument to be executed by such party pursuant hereto, when executed and delivered in accordance with the provisions hereof, shall be a valid and binding obligation of such party, enforceable in accordance with its terms (with the aforesaid exceptions). 4.2 Representations and Warranties of Individual Stockholders Each party to this Agreement who is an individual hereby represents and warrants, as of the date of this Agreement, to the Company and to each other party as follows: 4.2.1 Power and Authority Such party has the legal capacity and all other power and authority necessary to enter into this Agreement and to consummate the transactions contemplated hereby. 4.2.2 Binding Obligation This Agreement constitutes a valid and binding obligation of such party, enforceable in accordance with its terms, except to the extent that such enforceability may be limited by bankruptcy, insolvency, and similar laws affecting the rights and remedies of creditors generally, and by general principles of equity and public policy; and each document and instrument to be executed by such party pursuant hereto, when executed and delivered in accordance with the provisions hereof, shall be a valid and binding obligation of such party, enforceable in accordance with its terms (with the aforesaid exceptions). 4.3 Representations and Warranties of the Company The Company hereby represents and warrants, as of the date of this Agreement, to each party as follows: 4.3.1 Authorization The Company has taken all corporate action necessary for it to enter into this Agreement and to consummate the transactions contemplated hereby. 4.3.2 Binding Obligation This Agreement constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, except to the extent that such enforceability may be limited by bankruptcy, insolvency, and similar laws affecting the rights and remedies of creditors generally, and by general principles of equity and public policy; and each document and instrument to be executed by the Company pursuant hereto, when executed and delivered in accordance with the provisions hereof, shall be a valid and binding obligation of the Company, enforceable in accordance with its terms (with the aforesaid exceptions). 5. MISCELLANEOUS 5.1 Effect of Changes in Capitalization All share amounts of the Company's capital stock referred to in this Agreement shall be appropriately and proportionally adjusted for any recapitalization, reclassification, stock split-up, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Company, occurring after the date of this Agreement. 5.2 Additional Actions and Documents Each of the parties hereto hereby agrees to take or cause to be taken such further actions, to execute, deliver and file or cause to be executed, delivered and filed such further documents and instruments, and to obtain such consents, as may be necessary or as may be reasonably requested in order to fully effectuate the purposes, terms and conditions of this Agreement, whether before, at or after the Effective Date. 5.3 Entire Agreement; Amendment Other than the Second Amended and Restated November 1998 Stockholders' Agreement with respect to the parties thereto and as set forth therein, this Agreement constitutes the entire agreement among the parties hereto as of the date hereof with respect to the specific matters contemplated herein, and it supersedes all prior oral or written agreements, commitments or understandings with respect to the matters provided for herein. No amendment, modification or discharge of this Agreement shall be valid or binding unless set forth in writing and duly executed by the Company and by the party against whom enforcement of the amendment, modification or discharge is sought. Any amendment, modification or discharge of this Agreement to be enforced against the M/C Stockholders shall be valid and binding with respect to all M/C Stockholders if such amendment, modification or discharge is executed by those M/C Stockholders holding a majority of the shares of Class A Common Stock issued to the M/C Stockholders in the Merger (including distributions of Securities with respect to such Securities and Securities acquired as a result of a stock split with respect to such Securities). 5.4 Limitation on Benefit It is the explicit intention of the parties hereto that no person or entity other than the parties hereto is or shall be entitled to bring any action to enforce any provision of this Agreement against any of the parties hereto, and the covenants, undertakings and agreements set forth in this Agreement shall be solely for the benefit of, and shall be enforceable only by, the parties hereto or their respective successors, heirs, executors, administrators, legal representatives and permitted assigns. 5.5 Binding Effect; Specific Performance This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, heirs, executors, administrators, legal representatives and permitted assigns. No party shall assign this Agreement without the written consent of the other parties hereto; and such consent shall not be unreasonably withheld. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. 5.6 Governing Law This Agreement, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of Delaware (excluding the choice of law rules thereof). 5.7 Notices All notices, demands, requests, or other communications which may be or are required to be given, served, or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be hand-delivered or mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by telegram, telecopy, facsimile transmission or telex, addressed as follows: (i) If to the Company or to the McLeods: McLeodUSA Incorporated McLeodUSA Technology Park 6400 C Street, SW, P.O. Box 3177 Cedar Rapids, IA 52406-3177 Attention: Randall Rings Facsimile: (319) 790-7901 (ii) If to the AEC Entities: IES Investments Inc. (n/k/a Alliant Energy Investments, Inc.) 200 1st Street SE Cedar Rapids, IA 52401 Attention: James E. Hoffman Facsimile: (319) 398-4204 (iii) If to Lumpkin or any CCI Shareholder: P.O. Box 1234 Mattoon, IL 61938 Attention: Richard A. Lumpkin Facsimile: (217) 234-9934 with a copy to : Schiff Hardin & Waite 6600 Sears Tower Chicago, Illinois 60606 Attention: David R. Hodgman, Esq. Facsimile: (312) 258-5600 (iv) If to the M/C Stockholders: c/o Media/Communications Partners III Limited Partnership 75 State Street Boston, Massachusetts 02109 Attention: James F. Wade Facsimile: (617) 345-7201 with a copy to: Edwards & Angell, LLP 101 Federal Street Boston, MA 02110 Attention: Stephen O. Meredith, Esq. Facsimile: (617) 439-4170 Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request or communication which shall be hand-delivered, mailed, transmitted, telecopied or telexed in the manner described above, or which shall be delivered to a telegraph company, shall be deemed sufficiently given, served, sent, received or delivered for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, or the answerback being deemed conclusive, but not exclusive, evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation. 5.8 Termination (a) This Agreement shall terminate and be of no further force or effect as to an Original Stockholder (and not as to the Company and the M/C Stockholders) at such time as the Second Amended and Restated November 1998 Stockholders' Agreement shall terminate and be of no further force or effect with respect to such Original Stockholder. (b) If (i) during any Annual Period the Board of Directors has not provided the M/C Stockholders a reasonable opportunity to Transfer shares of Class A Common Stock pursuant to the registration of such shares under the Securities Act pursuant to Section 3.2 in an aggregate amount equal to not less than fifteen percent (15%) of the total number of shares of Class A Common Stock beneficially owned by the M/C Stockholders as of the Effective Time in connection with the consummation of the Merger, subject to appropriate and proportionate adjustment as a result of the Stock Split and subject to adjustment pursuant to Section 5.1 or (ii) after January 1, 2000, the Second Amended and Restated November 1998 Stockholders' Agreement has been terminated by all parties thereto, then the M/C Stockholders may terminate this Agreement by providing written notice of termination to all other parties (x) in the case of clause (b)(i) above, no later than thirty (30) days following the end of such Annual Period and (y) in the case of clause (b)(ii) above, at any time after January 1, 2000, such that all rights and obligations hereunder shall cease, and this Agreement shall be of no further force or effect. (c) Unless otherwise previously terminated by the M/C Stockholders pursuant to Section 5.8(b), this Agreement shall terminate on the Expiration Date. (d) For purposes of this Section 5.8, the M/C Stockholders shall be deemed to be a single stockholder of the Company, the McLeods shall be deemed to be a single Original Stockholder of the Company, Lumpkin and all of the CCI Shareholders shall be deemed to be a single Original Stockholder of the Company, and the AEC Entities shall be deemed to be a single Original Stockholder of the Company. 5.9 Publicity The M/C Stockholders will use their reasonable best efforts to consult with the Company prior to issuing any press release, making any filing with any governmental entity or national securities exchange or making any other public dissemination of information by the M/C Stockholders within which this Agreement or the contents hereof are referenced or described. 5.10 Appointment of Representative (a) Each of the M/C Stockholders hereby appoints M/C Partners, with power of substitution, as its exclusive agent to act on its behalf with respect to any and all actions to be taken under or amendments or modifications to be made to this Agreement (the"M/C Representative"). The M/C Representative shall take, and the M/C Stockholders agree that the M/C Representative shall take, any and all actions which the M/C Representative believes are necessary or advisable under this Agreement for and on behalf of each of the M/C Stockholders, as fully as if each of the M/C Stockholders was acting on its own behalf, including, without limitation, dealing with the Company and the other parties hereto with respect to all matters arising under this Agreement, entering into any amendment or modification to this Agreement deemed advisable by the M/C Representative and taking any and all other actions specified in or contemplated by this Agreement. The Company and the other parties hereto shall have the right to rely upon all actions taken or not taken by the M/C Representative pursuant to this Agreement, all of which actions or omissions shall be legally binding upon each of the M/C Stockholders. (b) Each of the CCI Shareholders hereby appoints Lumpkin, with power of substitution, as its exclusive agent to act on its behalf with respect to any and all actions to be taken under or amendments or modifications to be made to this Agreement (the"CCI Representative"). The CCI Representative shall take, and the CCI Shareholders agree that the CCI Representative shall take, any and all actions which the CCI Representative believes are necessary or advisable under this Agreement for and on behalf of each of the CCI Shareholders, as fully as if each of the CCI Shareholders was acting on its own behalf, including, without limitation, dealing with the Company and the other parties hereto with respect to all matters arising under this Agreement, entering into any amendment or modification to this Agreement deemed advisable by the CCI Representative and taking any and all other actions specified in or contemplated by this Agreement. The Company and the other parties hereto shall have the right to rely upon all actions taken or not taken by the CCI Representative pursuant to this Agreement, all of which actions or omissions shall be legally binding upon each of the CCI Shareholders. 5.11 Execution in Counterparts To facilitate execution, this Agreement may be executed in as many counterparts as may be required; and it shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, each party, or that the signatures of the persons required to bind any party, appear on one or more of the counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than a number of counterparts containing the respective signatures of, or on behalf of, all of the parties hereto. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Second Amended and Restated January 1999 Stockholders' Agreement, or have caused this Second Amended and Restated January 1999 Stockholders' Agreement to be duly executed and delivered on their behalf, as of the day and year first hereinabove set forth. MCLEODUSA INCORPORATED By: /s/ J. Lyle Patrick -------------------- Name: J. Lyle Patrick Title: Group Vice President/CFO /s/ Clark E. McLeod /s/ Mary E. McLeod ------------------- ------------------- Clark E. McLeod Mary E. McLeod M/C INVESTORS L.L.C. By: /s/ Peter H.O. Claudy --------------------- Name: Peter H.O. Claudy Title: Manager MEDIA/COMMUNICATIONS PARTNERS III LIMITED PARTNERSHIP By: M/C III L.L.C., its General Partner By: /s/ Peter H.O. Claudy --------------------- Name: Peter H.O. Claudy Title: Manager ALLIANT ENERGY CORPORATION, INC. By: /s/ James E. Hoffman -------------------- Name: James E. Hoffman Title: Executive Vice President Business Development ALLIANT ENERGY FOUNDATION By: /s/ Edward M. Gleason --------------------- Name: Edward M. Gleason Title: Treasurer IES INVESTMENTS INC. (n/k/a ALLIANT ENERGY INVESTMENTS, INC.) By: /s/ James E. Hoffman -------------------- Name: James E. Hoffman Title: President, Alliant Energy Resources HEARTLAND PROPERTIES, INC. By: /s/ Henry Wertheimer -------------------- Name: Henry Wertheimer Title: Vice President/Treasurer /s/ Richard A. Lumpkin /s/ Gail G. Lumpkin - ---------------------- -------------------- Richard A. Lumpkin Gail G. Lumpkin Margaret Lumpkin Keon Trust Mary Lee Sparks Trust dated May 13, 1978 dated May 13, 1978 /s/ Margaret Lumpkin Keon /s/ Mary Lee Sparks - ------------------------- -------------------- Margaret Lumpkin Keon, as Trustee Mary Lee Sparks, as Trustee /s/ Steven L. Grissom ---------------------- Steven L. Grissom, as Trustee /s/ Mary Lee Sparks - ------------------- Mary Lee Sparks
The twelve trusts created under the Mary Green The twelve trusts created under the Richard Adamson Lumpkin Gallo Trust Agreement dated December 29, Lumpkin Grandchildren's Trust dated September 5, 1980, 1989 one for the benefit of each of: one for the benefit of each of: Joseph John Keon III, Joseph John Keon III, Katherine Stoddert Keon, Katherine Stoddert Keon, Lisa Anne Keon, Lisa Anne Keon, Margaret Lynley Keon, Margaret Lynley Keon, Pamela Keon Vitale, Pamela Keon Vitale, Susan Tamara Keon DeWyngaert, Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, Elizabeth Arabella Lumpkin, Anne Romayne Sparks, Anne Romayne Sparks, Barbara Lee Sparks, Barbara Lee Sparks, Christina Louise Sparks, and Christina Louise Sparks, and John Woodruff Sparks John Woodruff Sparks Bank One, Texas, N.A., Trustee Bank One, Texas, N.A., Trustee By: /s/ Frank A. Glispin By: /s/ Frank A. Glispin -------------------- -------------------- Name: Frank A. Glispin Name: Frank A. Glispin Title: Relationship Manager Title: Relationship Manager
The three trusts established by Richard The twelve 1990 Personal Income Trusts established Adamson Lumpkin under Trust Agreement dated by Margaret L. Keon, Mary Lee Sparks, and Richard A. February 6, 1970, one for the benefit of each of: Lumpkin, each dated April 20, 1990, one for the benefit of each of: Richard Anthony Lumpkin, Joseph John Keon III, Margaret Anne Keon, and Katherine Stoddert Keon, Mary Lee Sparks Lisa Anne Keon, Margaret Lynley Keon, Pamela Keon Vitale, Bank One, Texas, N.A., Trustee Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, By: /s/ Frank A. Glispin Anne Romayne Sparks, -------------------- Barbara Lee Sparks, Name: Frank A. Glispin Christina Louise Sparks, and Title: Relationship Manager John Woodruff Sparks /s/ David R. Hodgman --------------------- David R. Hodgman, Trustee /s/ Steven L. Grissom -------------------- Steven L. Grissom, Trustee
SCHEDULE I Richard A. Lumpkin Gail G. Lumpkin Margaret Lumpkin Keon, as Trustee under the Margaret Lumpkin Keon Trust dated May 13, 1978 Mary Lee Sparks and Steven L. Grissom, as Trustees of the Mary Lee Sparks Trust dated May 13, 1978 Mary Lee Sparks Bank One, Texas, N.A., as Trustee of the twelve trusts created under the Mary Green Lumpkin Gallo Trust Agreement dated December 29, 1989, one for the benefit of each of Joseph John Keon III, Katherine Stoddert Keon, Lisa Anne Keon, Margaret Lynley Keon, Pamela Keon Vitale, Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, Anne Romayne Sparks, Barbara Lee Sparks, Christina Louise Sparks, and John Woodruff Sparks Bank One, Texas, N.A., as Trustee of the twelve trusts created under the Richard Adamson Lumpkin Grandchildren's Trust dated September 5, 1980, one for the benefit of each of Joseph John Keon III, Katherine Stoddert Keon, Lisa Anne Keon, Margaret Lynley Keon, Pamela Keon Vitale, Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, Anne Romayne Sparks, Barbara Lee Sparks, Christina Louise Sparks, and John Woodruff Sparks Bank One, Texas, N.A., as Trustee of the three trusts established by Richard Adamson Lumpkin under the Trust Agreement dated February 6, 1970, one for the benefit of each of Richard Anthony Lumpkin, Margaret Anne Keon, and Mary Lee Sparks David R. Hodgman and Steven L. Grissom, as Trustees of the twelve 1990 Personal Income Trusts established by Margaret L. Keon, Mary Lee Sparks, and Richard A. Lumpkin, each dated April 20, 1990, one for the benefit of each of Joseph John Keon III, Katherine Stoddert Keon, Lisa Anne Keon, Margaret Lynley Keon, Pamela Keon Vitale, Susan Tamara Keon DeWyngaert, Benjamin Iverson Lumpkin, Elizabeth Arabella Lumpkin, Anne Romayne Sparks, Barbara Lee Sparks, Christina Louise Sparks, and John Woodruff Sparks EX-21 7 AEC SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 ALLIANT ENERGY CORPORATION SUBSIDIARIES OF THE REGISTRANT The following are deemed to be significant subsidiaries of Alliant Energy Corporation as of December 31, 1999: Name of Subsidiary State of Incorporation IES Utilities Inc. Iowa Wisconsin Power and Light Company Wisconsin Interstate Power Company Delaware Alliant Energy Resources, Inc. Wisconsin Alliant Energy Investments, Inc. Iowa Heartland Properties, Inc. Wisconsin EX-23 8 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report on the consolidated financial statements of Alliant Energy Corporation included in this Alliant Energy Corporation Form 10-K into Alliant Energy Corporation's previously filed Registration Statements on Form S-8 (Nos. 333-41485, 333-46735 and 333-92783), Form S-3 (No. 333-26627) and Form S-4 (No. 333-92859). /s/ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Milwaukee, Wisconsin March 29, 2000 EX-27.1 9 FINANCIAL DATA SCHEDULE FOR ALLIANT ENERGY
UT This schedule contains summary financial information extracted from the December 31, 1999 Financial Statements included in Alliant Energy Corporation's Form 10-K and is qualified in its entirety by reference to such Financial Statements. 0000352541 ALLIANT ENERGY CORPORATION 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 PER-BOOK 3,128,276 2,010,727 485,986 187,084 263,610 6,075,683 790 942,408 1,212,367 2,155,565 24,536 89,102 1,486,765 50,046 55,100 374,673 54,795 0 26,041 13,321 1,745,739 6,075,683 2,197,963 120,486 1,821,428 1,821,428 376,535 83,467 460,002 136,229 203,287 6,706 196,581 156,489 112,196 423,129 2.51 2.51 Includes $634,903 of Accumulated Other Comprehensive Income. Income tax expense is not included in Operating Expense in the Consolidated Statements of Income.
EX-27.2 10 FINANCIAL DATA SCHEDULE FOR IES UTILITIES, INC.
UT This schedule contains summary financial information extracted from the December 31, 1999 Financial Statements included in IES Utilities Inc.'s Form 10-K and is qualified in its entirety by reference to such Financial Statements. 0000052485 IES UTILITIES INC. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 PER-BOOK 1,377,298 116,656 125,502 13,321 123,031 1,755,808 33,427 279,042 252,953 565,422 0 18,320 551,079 56,946 0 0 51,196 0 25,977 13,307 473,561 1,755,808 800,696 49,385 639,197 639,197 161,499 6,184 167,683 51,852 66,446 914 65,532 87,951 42,873 161,703 0 0 Income tax expense is not included in Operating Expense in the Consolidated Statements of Income. Earnings per share of common stock is not reflected because all common shares are held by Alliant Energy Corporation.
EX-27.3 11 FDS FOR WISCONSIN POWER & LIGHT
UT This schedule contains summary financial information extracted from the December 31, 1999 Financial Statements included in Wisconsin Power and Light Company's Form 10-K and is qualified in its entirety by reference to such Financial Statements. 0000107832 WISCONSIN POWER AND LIGHT COMPANY 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 PER-BOOK 1,241,630 182,082 121,532 138,730 82,161 1,766,135 66,183 229,438 303,476 599,097 0 59,963 414,673 125,749 55,100 0 1,875 0 0 0 509,678 1,766,135 752,505 45,758 597,600 597,600 154,905 2,675 157,580 40,992 70,830 3,310 67,520 58,353 34,150 162,980 0 0 Income tax expense is not included in Operating Expense in the Consolidated Statements of Income. Earnings per share of common stock is not reflected because all common shares are held by Alliant Energy Corporation.
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