UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Wisconsin Power and Light Company
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(Name of Registrant as Specified In Its Charter)
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SEC 1913 (3-99)
Your Vote is Important
Wisconsin Power and Light Company
Proxy Statement
Notice of 2002 Annual Meeting
and
2001 Annual Report
WISCONSIN POWER AND LIGHT COMPANY
ANNUAL MEETING OF SHAREOWNERS
DATE: May 22, 2002
TIME: 1:00 PM, Central Daylight Savings Time
LOCATION: Wisconsin Power and Light Company
Nile Meeting Room
4902 North Biltmore Lane
Madison,Wisconsin
SHAREOWNER INFORMATION NUMBERS
LOCAL CALLS (MADISON, WI AREA) 608-458-3110
TOLL FREE NUMBER.............. 800-356-5343
Wisconsin Power and Light
Company
4902 North Biltmore Lane
P. O. Box 2568
Madison, WI 53701-2568
Phone: 608-458-3110
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
Dear Wisconsin Power and Light Company Shareowner:
On Wednesday, May 22, 2002, Wisconsin Power and Light Company (the "Company")
will hold its 2002 Annual Meeting of Shareowners at the office of the Company,
4902 North Biltmore Lane, Nile Meeting Room, Madison, Wisconsin. The meeting
will begin at 1:00 p.m. Central Daylight Savings Time.
Only the sole common stock shareowner, Alliant Energy Corporation, and
preferred shareowners who owned stock at the close of business on March 28,
2002 may vote at this meeting. All shareowners are requested to be present at
the meeting in person or by proxy so that a quorum may be assured. At the
meeting, the Company's shareowners will:
1. Elect four directors for terms expiring at the 2005 Annual Meeting of
Shareowners; and
2. Attend to any other business properly presented at the meeting.
The Board of Directors of the Company presently knows of no other business to
come before the meeting.
Please sign and return the enclosed proxy card as soon as possible.
The 2001 Annual Report of the Company appears as Appendix A to this Proxy
Statement. The Proxy Statement and Annual Report have been combined into a
single document to improve the effectiveness of our financial communication and
to reduce costs, although the Annual Report does not constitute a part of the
Proxy Statement.
Any Wisconsin Power and Light Company preferred shareowner who desires to
receive a copy of the Alliant Energy Corporation 2001 Annual Report to
Shareowners may do so by calling the Shareowner Services Department at the
Shareowner Information Number shown at the front of this proxy statement or
writing to the Company at the address shown above.
By Order of the Board of Directors
/s/ F. J. Buri
F. J. Buri
Corporate Secretary
Dated and mailed on or about April 9, 2002
TABLE OF CONTENTS
Questions and Answers....................................................... 1
Election of Directors....................................................... 3
Meetings and Committees of the Board........................................ 6
Compensation of Directors................................................... 7
Ownership of Voting Securities.............................................. 9
Compensation of Executive Officers.......................................... 10
Stock Options............................................................... 12
Long-Term Incentive Awards.................................................. 13
Certain Agreements.......................................................... 14
Retirement and Employee Benefit Plans....................................... 15
Report of the Compensation and Personnel Committee on Executive Compensation 18
Report of the Audit Committee............................................... 21
Section 16(a) Beneficial Ownership Reporting Compliance..................... 22
Appendix A--Wisconsin Power and Light Company Annual Report................. A-1
QUESTIONS AND ANSWERS
1. Q: Why am I receiving these materials?
A: The Board of Directors of Wisconsin Power and Light Company (the
"Company") is providing these proxy materials to you in connection with
the Company's Annual Meeting of Shareowners (the "Annual Meeting"), which
will take place on Wednesday, May 22, 2002. As a shareowner, you are
invited to attend the Annual Meeting and are entitled to and requested to
vote on the proposal described in this proxy statement.
2. Q: What is Wisconsin Power and Light Company and how does it relate to
Alliant Energy Corporation?
A: The Company is a subsidiary of Alliant Energy Corporation ("AEC"), a
public utility holding company whose other primary first tier
subsidiaries include Interstate Power and Light Company ("IP&L), Alliant
Energy Resources, Inc. ("AER") and Alliant Energy Corporate Services,
Inc. ("Alliant Energy Corporate Services").
3. Q: Who is entitled to vote at the Annual Meeting?
A: Only shareowners of record at the close of business on March 28, 2002 are
entitled to vote at the Annual Meeting. As of the record date, 13,236,601
shares of common stock (owned solely by AEC) and 1,049,225 shares of
preferred stock, in seven series (representing 599,630 votes), were
issued and outstanding. Each share of Company common stock and Company
preferred stock, with the exception of the 6.50% Series, is entitled to
one vote per share. The 6.50% Series of Company preferred stock is
entitled to 1/4 vote per share.
4. Q: What may I vote on at the Annual Meeting?
A: You may vote on the election of four nominees to serve on the Company's
Board of Directors for terms expiring at the Annual Meeting of
Shareowners in the year 2005.
5. Q: How does the Board of Directors recommend I vote?
A: The Board of Directors recommends that you vote your shares FOR each of
the listed director nominees.
6. Q: How can I vote my shares?
A: You may vote either in person at the Annual Meeting or by appointing a
proxy. If you desire to appoint a proxy, then sign and date each proxy
card you receive and return it in the envelope provided. Appointing a
proxy will not affect your right to vote your shares if you attend the
Annual Meeting and desire to vote in person.
7. Q: How are votes counted?
A: In the election of directors, you may vote FOR all of the director
nominees or your vote may be WITHHELD with respect to one or more
nominees. If you return your signed proxy card but do not mark the boxes
showing how you wish to vote, your shares will be voted FOR all listed
director nominees.
8. Q: Can I change my vote?
A: You have the right to revoke your proxy at any time before the Annual
Meeting by:
. providing written notice to the Corporate Secretary of the Company and
voting in person at the Annual Meeting; or
. appointing a new proxy prior to the start of the Annual Meeting.
Attendance at the Annual Meeting will not cause your previously appointed
proxy to be revoked unless you specifically so request in writing.
9. Q: What shares are included on the proxy card(s)?
A: Your proxy card(s) covers all of your shares of the Company's preferred
stock.
10. Q: What does it mean if I get more than one proxy card?
A: If your shares are registered differently and are in more than one
account, then you will receive more than one card. Be sure to vote all of
your accounts to ensure that all of your shares are voted. The Company
encourages you to
1
have all accounts registered in the same name and address (whenever
possible). You can accomplish this by contacting the Company's Shareowner
Services Department at the Shareowner Information Numbers shown at the
front of this proxy statement.
11. Q: Who may attend the Annual Meeting?
A: All shareowners who owned shares of the Company's common and preferred
stock on March 28, 2002 may attend the Annual Meeting. You may indicate
on the enclosed proxy card your intention to attend the Annual Meeting
and return it with your signed proxy.
12. Q: How will voting on any other business be conducted?
A: The Board of Directors of the Company does not know of any business to be
considered at the 2002 Annual Meeting other than the election of four
directors. If any other business is properly presented at the Annual
Meeting, your signed proxy card gives authority to William D. Harvey, the
Company's President, and F. J. Buri, the Company's Corporate Secretary,
to vote on such matters in their discretion.
13. Q: Where and when will I be able to find the results of the voting?
A: The results of the voting will be announced at the Annual Meeting. You
may also call our Shareowner Services Department at the Shareowner
Information Numbers shown at the front of this proxy statement for the
results. The Company will also publish the final results in its Quarterly
Report on Form 10-Q for the second quarter of 2002 to be filed with the
Securities and Exchange Commission
14. Q: When are shareowner proposals for the 2003 Annual Meeting due?
A: All shareowner proposals to be considered for inclusion in the Company's
proxy statement for the 2003 Annual Meeting must be received at the
principal office of the Company by December 10, 2002. In addition, any
shareowner who intends to present a proposal from the floor at the 2003
Annual Meeting must submit the proposal in writing to the Corporate
Secretary of the Company no later than February 23, 2003.
15. Q: Who are the independent auditors of the Company and how are they
appointed?
A: Arthur Andersen LLP acted as independent auditors for the Company in
2001. Representatives of Arthur Andersen LLP are not expected to be
present at the meeting. The Board of Directors expects to appoint the
Company's independent auditors for 2002 later in 2002.
16. Q: Who will bear the cost of soliciting proxies for the Annual Meeting?
A: The Company will pay the cost of preparing, assembling, printing, mailing
and distributing these proxy materials. In addition to the mailing of
these proxy materials, the solicitation of proxies or votes may be made
in person, by telephone or by electronic communication by the Company's
officers and employees who will not receive any additional compensation
for these solicitation activities. The Company will pay to banks,
brokers, nominees and other fiduciaries their reasonable charges and
expenses incurred in forwarding the proxy materials to their principals.
17. Q: How can I obtain a copy of the Company's Annual Report on Form 10-K?
A: The Company will furnish without charge, to each shareowner who is
entitled to vote at the Annual Meeting and who makes a written request, a
copy of the Company's Annual Report on Form 10-K (without exhibits) as
filed with the Securities and Exchange Commission. Written requests for
the Form 10-K should be mailed to the Corporate Secretary of the Company
at the address on the first page of this proxy statement.
18. Q: If more than one shareowner lives in my household, how can I obtain an
extra copy of this proxy statement and Anual Report?
A. Pursuant to the rules of the SEC, services that deliver the Company's
communications to shareowners that hold their stock through a bank,
broker or other holder of record may deliver to multiple shareowners
sharing the same address a single copy of the Company's 2001 Annual
Report and proxy statement. Upon written or oral request, the Company
will deliver a separate copy of the 2001 Annual Report and proxy
statement to any shareowner at a shared address to which a single copy of
each document was delivered. You may notify the Company of your request
by calling or writing the Company's Shareowner Services Department at the
Shareowner Information Numbers shown at the front of this proxy statement
or at the address of the Company shown on the first page of this proxy
statement.
2
ELECTION OF DIRECTORS
Four directors will be elected this year for terms expiring in 2005. The
nominees for election as selected by the Nominating and Governance Committee of
the Company's Board of Directors are: Alan B. Arends, Katharine C. Lyall,
Singleton B. McAllister, and Anthony R. Weiler. Each of the nominees is
currently serving as a director of the Company. Each person elected as director
will serve until the Annual Meeting of Shareowners of the Company in 2005 or
until his or her successor has been duly elected and qualified.
Directors will be elected by a plurality of the votes cast at the meeting
(assuming a quorum is present). Consequently, any shares not voted at the
meeting, whether by abstention or otherwise, will have no effect on the
election of directors. The proxies solicited may be voted for a substitute
nominee or nominees if any of the nominees are unable to serve, or for good
reason will not serve, a contingency not now anticipated.
Brief biographies of the director nominees and continuing directors follow.
These biographies include their age (as of December 31, 2001), an account of
their business experience and the names of publicly-held and certain other
corporations of which they are also directors. Except as otherwise indicated,
each nominee and continuing director has been engaged in his or her present
occupation for at least the past five years.
NOMINEES
[PHOTO]
Alan B. Arends
ALAN B. ARENDS
Director Since 1998
Age 68
Nominated Term Expires
in 2005
Mr. Arends is Chairman of the Board of Directors of Alliance
Benefit Group Financial Services Corp., Albert Lea, Minnesota,
an employee benefits company that he founded in 1983. He has
served as a director of IP&L (or predecessor companies) since
1993 and of AEC and AER since 1998.
[PHOTO]
Katharine C. Lyall
KATHARINE C. LYALL
Director Since 1986
Age 60
Nominated Term Expires
in 2005
Ms. Lyall is President of the University of Wisconsin System
in Madison, Wisconsin. In addition to her administrative
position, she is a professor of economics at the University of
Wisconsin-Madison. She serves on the Boards of Directors of
the Kemper National Insurance Companies, M&I Corporation and
the Carnegie Foundation for the Advancement of Teaching. Ms.
Lyall has served as a director of AEC and AER since 1994 and
of IP&L (or predecessor companies) since 1998.
[PHOTO]
Singleton B. McAllister
SINGLETON B. MCALLISTER
Director Since 2001
Age 49
Nominated Term Expires
in 2005
Ms. McAllister is a partner with Patton Boggs LLP, a
Washington D.C.-based law firm working in the public policy
and business law areas. From 1996 until early 2001, Ms.
McAllister was General Counsel for the United States Agency
for International Development. She was also a partner at Reed,
Smith, Shaw and McClay where she specialized in government
relations and corporate law. Ms. McAllister has served as a
director of AEC, IP&L (or predecessor companies), and AER
since 2001.
3
[PHOTO] ANTHONY R. WEILER
Director Since 1998
Anthony R. Age 65
Weiler Nominated Term Expires
in 2005
Mr. Weiler is a consultant for several home furnishings
organizations. Prior to assuming his current position, Mr.
Weiler had been a Senior Vice President for Heilig-Meyers
Company, a national furniture retailer headquartered in
Richmond, Virginia. He is a Director of the Retail Home
Furnishings Foundation. Mr. Weiler has served as a director of
IP&L (or predecessor companies) since 1979 and of AEC and AER
since 1998. Mr. Weiler is the Chair of the Nominating and
Governance Committee.
The Board of Directors unanimously recommends a vote FOR all nominees for
election as directors.
CONTINUING DIRECTORS
[PHOTO] ERROLL B. DAVIS, JR.
Director Since 1984
Erroll B. Age 57
Davis, Jr. Term Expires in 2003
Mr. Davis has been President of AEC since January 1990 and was
elected President and Chief Executive Officer of AEC in July
1990. He was elected Chairman of the Board of AEC in April
2000. Mr. Davis joined the Company in 1978 and served as
President of the Company from 1987 until 1998. He was elected
Chief Executive Officer of the Company in 1988. Mr. Davis has
also served as Chief Executive Officer of AER and IP&L (or
predecessor companies) since 1998. He is a member of the
Boards of Directors of BP Amoco p.l.c., PPG Industries, Inc.,
Electric Power Research Institute and the Edison Electric
Institute. Mr. Davis has served as a director of AEC since
1982, of AER since 1988 and of IP&L (or predecessor companies)
since 1998. Mr. Davis is the Chair of the Capital Approval
Committee.
[PHOTO] JACK B. EVANS
Director Since 2000
Jack B. Evans Age 53
Term Expires in 2004
Mr. Evans is a Director and since 1996 has served as President
of The Hall-Perrine Foundation, a private philanthropic
corporation in Cedar Rapids, Iowa. Previously, Mr. Evans was
President and Chief Operating Officer of SCI Financial Group,
Inc., a regional financial services firm. Mr. Evans is a
director of Gazette Communications, the Federal Reserve Bank
of Chicago and Nuveen Institutional Advisory Corp., and Vice
Chairman and a director of United Fire and Casualty Company.
Mr. Evans has served as a director of AEC, IP&L (or
predecessor companies) and AER since 2000. Mr. Evans is Chair
of the Audit Committee.
[PHOTO] JOYCE L. HANES
Director Since 1998
Joyce L. Hanes Age 69
Term Expires in 2004
Ms. Hanes has been a Director of Midwest Wholesale, Inc., a
products wholesaler in Mason City, Iowa, since 1970 and
Chairman of the Board since December 1997, having previously
served as Chairman from 1986 to 1988. She is a director of
Iowa Student Loan Liquidity Corp. Ms. Hanes has served as a
director of IP&L (or predecessor companies) since 1982 and of
AEC and AER since 1998.
4
[PHOTO] LEE LIU
Director Since 1998
Lee Liu Age 68
Term Expires in 2003
Mr. Liu was elected Vice Chairman the Board of Directors of
the Company, AEC, IP&L and AER in January 2002. He served as
Chairman of the Board of the Company and AEC from April 1998
until April 2000 in accordance with the terms of his
employment agreement. He was Chairman of the Board and Chief
Executive Officer of IES Industries Inc. (a predecessor to
AEC) and Chairman of the Board and Chief Executive Officer of
IES Utilities Inc., a predecessor to IP&L, prior to 1998. Mr.
Liu held a number of professional, management and executive
positions after joining Iowa Electric Light and Power Company
(later known as IES Utilities Inc.) in 1957. He is a director
of Principal Financial Group and Eastman Chemical Company. Mr.
Liu has served as a director of IP&L (or predecessor
companies) since 1981 and of AEC and AER since 1998.
[PHOTO] DAVID A. PERDUE
Director Since 2001
David A. Perdue Age 52
Term Expires in 2004
Mr. Perdue is President and Chief Executive Officer of the
Reebok Brand for Reebok International Limited, a designer,
distributor and marketer of footwear, apparel and sports
equipment, located in Canton, Massachusetts. Prior to joining
Reebok in 1998, he was Senior Vice President of Operations at
Haggar, Inc. Mr. Perdue has served as a director of AEC, IP&L
(or predecessor companies) and AER since 2001.
[PHOTO] JUDITH D. PYLE
Director Since 1994
Judith D. Pyle Age 58
Term Expires in 2004
Ms. Pyle is Vice Chair of The Pyle Group, a financial services
company located in Madison, Wisconsin. Prior to assuming her
current position, Ms. Pyle served as Vice Chairman and Senior
Vice President of Corporate Marketing of Rayovac Corporation
(a battery and lighting products manufacturer), Madison,
Wisconsin. In addition, Ms. Pyle is Vice Chairman of Georgette
Klinger, Inc. and a director of Uniek, Inc. Ms. Pyle has
served as a director of AEC and AER since 1992 and of IP&L (or
predecessor companies) since 1998. Ms. Pyle is the Chair of
the Compensation and Personnel Committee.
[PHOTO] ROBERT W. SCHLUTZ
Robert W. Director Since 1998
Schlutz Age 65
Term Expires in 2003
Mr. Schlutz is President of Schlutz Enterprises, a diversified
farming and retailing business in Columbus Junction, Iowa. Mr.
Schlutz has served as a director of IP&L (or predecessor
companies) since 1989 and of AEC and AER since 1998. Mr.
Schlutz is the Chair of the Environmental, Nuclear, Health and
Safety Committee.
[PHOTO] WAYNE H. STOPPELMOOR
Wayne H. Director Since 1998
Stoppelmoor Age 67
Term Expires in 2003
Mr. Stoppelmoor served as Vice Chairman of the Board of the
Company and AEC from April 1998 until April 2000 in accordance
with the terms of his consulting agreement. Prior to 1998, he
was Chairman, President and Chief Executive Officer of
Interstate Power Company, a predecessor to IP&L. He retired as
Chief Executive Officer of Interstate Power Company in 1997.
Mr. Stoppelmoor has served as a director of IP&L (or
predecessor companies) since 1986 and of AEC and AER since
1998.
5
MEETINGS AND COMMITTEES OF THE BOARD
The full Board of Directors of the Company considers all major decisions of the
Company. However, the Board has established standing Audit; Compensation and
Personnel; Environmental, Nuclear, Health and Safety; Nominating and
Governance; and Capital Approval Committees so that certain important matters
can be addressed in more depth than may be possible in a full Board meeting.
The following is a description of each of these committees:
Audit Committee
The Audit Committee held two meetings in 2001. The Committee currently consists
of J. B. Evans (Chair), A. B. Arends, K. C. Lyall, S. B. McAllister and J. D.
Pyle. The Audit Committee recommends to the Board the appointment of
independent auditors; reviews the reports and comments of the independent
auditors; reviews the activities and reports of the Company's internal audit
staff; and, in response to the reports and comments of both the independent
auditors and internal auditors, recommends to the Board any action which the
Committee considers appropriate.
Compensation and Personnel Committee
The Compensation and Personnel Committee held three meetings in 2001. The
Committee currently consists of J. D. Pyle (Chair), A. B. Arends, J. B. Evans,
and D. A. Perdue. This Committee sets executive compensation policy;
administers the Company's Long-Term Equity Incentive Plan; reviews the
performance of and approves salaries for officers and certain other management
personnel; reviews and recommends to the Board new or changed employee benefit
plans; reviews major provisions of negotiated employment contracts; and reviews
human resource development programs.
Environmental, Nuclear, Health and Safety Committee
The Environmental, Nuclear, Health and Safety Committee held two meetings in
2001. The Committee currently consists of R. W. Schlutz (Chair), J. L. Hanes,
D. A. Perdue and A. R. Weiler. The Committee's responsibilities are to review
environmental policy and planning issues of interest to the Company, including
matters involving the Company before environmental regulatory agencies and
compliance with air, water and waste regulations. In addition, the Committee
reviews policies and operating issues related to the Company's nuclear
generating station investments including planning and funding for
decommissioning of the plants. The Committee also reviews health and safety
related policies, activities and operational issues as they affect employees,
customers and the general public.
Nominating and Governance Committee
The Nominating and Governance Committee held five meetings in 2001. The
Committee currently consists of A. R. Weiler (Chair), J. L. Hanes, K. C. Lyall,
S. B. McAllister and R. W. Schlutz. This Committee's responsibilities include
recommending and nominating new members of the Board; recommending committee
assignments and committee chairpersons; evaluating overall Board effectiveness;
preparing an annual report on Chief Executive Officer effectiveness; and
considering and developing recommendations to the Board of Directors on other
corporate governance issues. In nominating persons for election to the Board,
the Nominating and Governance Committee will consider nominees recommended by
shareowners. Any shareowner wishing to make a recommendation should write to
the Corporate Secretary of the Company, who will forward all recommendations to
the Committee. The Company's Bylaws also provide for shareowner nominations of
candidates for election as directors. These provisions require such nominations
to be made pursuant to timely notice (as specified in the Bylaws) in writing to
the Corporate Secretary of the Company.
Capital Approval Committee
The Capital Approval Committee held one meeting in 2001. The Committee
currently consists of J. B. Evans, J. D. Pyle and A. R. Weiler. Mr. Davis is
the Chair and a non-voting member of this Committee. The purpose of this
Committee is the evaluation of certain investment proposals where (a) an
iterative bidding process is required and/or (b) the required timelines for
such a proposal would not permit the proposal to be brought before a regular
meeting of the Board of Directors and/or a special meeting of the full Board of
Directors is not practical or merited.
The Board of Directors held six meetings during 2001. Each director attended at
least 83% of the aggregate number of meetings of the Board and Board committees
on which he or she served.
The Board and each committee conducts performance evaluations annually to
determine its effectiveness and suggests improvements for consideration and
implementation. In addition, Mr. Davis' performance as Chief Executive Officer
is also evaluated by the full Board on an annual basis.
6
COMPENSATION OF DIRECTORS
No retainer fees are paid to Mr. Davis for his service on the Company's Board
of Directors. In 2001, all other directors (the "non-employee directors"), each
of whom served on the Boards of the Company, AEC, IES Utilities Inc.,
Interstate Power Company and AER, received an annual retainer for service on
all five Boards consisting of $25,000 in cash and 1,000 shares of AEC common
stock. Travel expenses are paid for each meeting day attended. Beginning in
2002, the annual retainer for each non-employee director has been changed to
$30,000 in cash and 1,000 shares of AEC common stock for service on all four
Boards (AEC, IP&L AER and the Company). The directors have the option to
receive each amount outright (in cash and stock), to have each amount deposited
to their Shareowner Direct Plan account or to a director's Deferred
Compensation Account or any combination thereof.
Director's Deferred Compensation Plan
Under the Director's Deferred Compensation Plan, directors may elect to defer
all or part of their retainer fee. Amounts deposited to a Deferred Compensation
Interest Account receive an annual return based on the A-Utility Bond Rate with
a minimum return no less than the prime interest rate published in The Wall
Street Journal. The balance credited to a director's Deferred Compensation
Interest Account as of any date will be the accumulated deferred cash
compensation and interest that are credited to such account as of such date.
Amounts deposited to an AEC Stock Account, whether the cash portion or the
stock portion of the director's compensation, are treated as though invested in
the common stock of AEC and will be credited with dividends and those dividends
will be reinvested. Annually, the director may elect that the Deferred
Compensation Account will be paid in a lump sum or in annual installments for
up to ten years beginning in the year of or one tax year after retirement or
resignation from the Board.
Director's Charitable Award Program
AEC maintains a Director's Charitable Award Program for the members of its
Board of Directors beginning after three years of service. The purpose of the
Program is to recognize the interest of the Company and its directors in
supporting worthy institutions, and to enhance the Company's director benefit
program so that the Company is able to continue to attract and retain directors
of the highest caliber. Under the Program, when a director dies, the Company
and/or AEC will donate a total of $500,000 to one qualified charitable
organization, or divide that amount among a maximum of four qualified
charitable organizations, selected by the individual director. The individual
director derives no financial benefit from the Program. All deductions for
charitable contributions are taken by the Company or AEC, and the donations are
funded by the Company or AEC through life insurance policies on the directors.
Over the life of the Program, all costs of donations and premiums on the life
insurance policies, including a return of the Company's cost of funds, will be
recovered through life insurance proceeds on the directors. The Program, over
its life, will not result in any material cost to the Company or AEC.
Director's Life Insurance Program
AEC maintains a split-dollar Director's Life Insurance Program for non-employee
directors, beginning after three years of service, which provides a maximum
death benefit of $500,000 to each eligible director. Under the split-dollar
arrangement, directors are provided a death benefit only and do not have any
interest in the cash value of the policies. The Life Insurance Program is
structured to pay a portion of the total death benefit to AEC to reimburse AEC
for all costs of the program, including a return on its funds. The Life
Insurance Program, over its life, will not result in any material cost to AEC.
The imputed income allocations reported for each director in 2001 under the
Director's Life Insurance Program were as follows: A. B. Arends--$50, J. L.
Hanes--$50, K. C. Lyall--$395, J. D. Pyle--$50, W. H. Stoppelmoor--$828 and A.
R. Weiler--$50.
Pension Arrangements
Prior to April 1998, Mr. Liu participated in the IES Industries Inc. retirement
plan, which has been transferred to Alliant Energy Corporate Services. Mr.
Liu's benefits under the plan have been "grandfathered" to reflect the benefit
plan formula in effect in April 1998. See "Retirement and Employee Benefit
Plans--IES Industries Pension Plan."
Alliant Energy Corporate Services also maintains a non-qualified Supplemental
Retirement Plan ("SRP") for eligible former officers of IES Industries Inc. Mr.
Liu participates in the SRP. The SRP generally provides for payment of
supplemental retirement benefits equal to 75% of the officer's base salary in
effect at the date of retirement, reduced by benefits receivable under the
7
qualified retirement plan, for a period not to exceed 15 years following the
date of retirement. The SRP also provides for certain death benefits to be paid
to the officer's designated beneficiary and benefits if an officer becomes
disabled under the terms of the qualified retirement plan.
Certain Agreements
Mr. Stoppelmoor had a three-year consulting arrangement with AEC that expired
on April 21, 2001. Under the terms of his consulting arrangement, Mr.
Stoppelmoor received $200,000 in 2001 for consulting services. After April 21,
2001, Mr. Stoppelmoor became eligible to receive the annual compensation paid
to non-employee directors.
8
OWNERSHIP OF VOTING SECURITIES
All of the common stock of the Company is held by AEC. Listed in the following
table are the number of shares of AEC's common stock beneficially owned by the
executive officers listed in the Summary Compensation Table and all nominees
and directors of AEC and the Company, as well as the number of shares owned by
directors and executive officers as a group as of February 28, 2002. The
directors and executive officers of AEC and the Company as a group owned 1.8%
of the outstanding shares of AEC common stock on that date. No individual
director or officer owned more than 1% of the outstanding shares of AEC common
stock on that date. To the Company's knowledge, no shareowner beneficially
owned 5% or more of AEC's outstanding common stock as of December 31, 2001.
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED/(1)/
------------------------ ------------
Executives/(2)/
William D. Harvey.......................... 101,673/(3)/
Eliot G. Protsch........................... 110,831/(3)/
Thomas M. Walker........................... 64,939/(3)/
Pamela J. Wegner........................... 73,032/(3)/
Director Nominees
Alan B. Arends............................. 6,884/(3)/
Katharine C. Lyall......................... 13,540
Singleton B. McAllister.................... 1,543
Anthony R. Weiler.......................... 8,847/(3)/
Directors
Erroll B. Davis, Jr........................ 326,875/(3)/
Jack B. Evans.............................. 33,961/(3)/
Joyce L. Hanes............................. 7,505/(3)/
Lee Liu.................................... 191,969/(3)/
David A. Perdue............................ 2,681/(3)/
Judith D. Pyle............................. 11,047
Robert W. Schlutz.......................... 9,694/(3)/
Wayne H. Stoppelmoor....................... 132,604/(3)/
All Executives and Directors as a Group 1,587,493/(3)/
29 people, including those listed above.
/(1)/Total shares of AEC common stock outstanding as of February 28, 2002 were
90,135,503.
/(2)/Stock ownership of Mr. Davis is shown with the directors.
/(3)Included in the beneficially owned shares shown are indirect ownership
interests with shared voting and investment powers: Mr. Davis--7,601, Ms.
Hanes--550, Mr. Liu--19,755, Mr. Weiler--1,331, Mr. Harvey--2,365 and Mr.
Protsch--714; shares of common stock held in deferred compensation plans:
Mr. Arends--2,927, Mr. Davis--29,255, Mr. Evans--3,961, Ms. Hanes--183, Mr.
Perdue--2,681, Mr. Schlutz--3,961, Mr. Weiler--2,927, Mr. Harvey--7,510,
Mr. Protsch--18,112, Mr. Walker--13,621 and Ms. Wegner--3,106 (all
executive officers and directors as a group--109,498); and stock options
exercisable on or within 60 days of February 28, 2002: Mr.
Davis--264,714, Mr. Liu--148,849, Mr. Stoppelmoor--119,201, Mr.
Harvey--64,235, Mr. Protsch--64,235, Mr. Walker--48,322 and Ms.
Wegner--51,544 (all executive officers and directors as a
group--1,142,859). /
None of the directors or officers of the 5% or more of any class of the
Company own any shares of the Company's Company's preferred stock as of
preferred stock. To the Company's December 31, 2001.
knowledge, no shareowner beneficially
owned
9
COMPENSATION OF EXECUTIVE OFFICERS
The following Summary Compensation Table sets forth the total compensation paid
by AEC, the Company and AEC's subsidiaries to the Chief Executive Officer and
the four other most highly compensated executive officers of the Company for
all services rendered during 2001, 2000 and 1999.
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
--------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Awards Payouts -----------------
----------------------------------------------------
-----------------------------------
Securities
Restricted Underlying
Name and Other Annual Stock Options LTIP
Principal Position Year Base Salary Bonus Compensation/(1)/ Awards/(2)/ (Shares)/(3)/ Payouts All Other
- ----------------------------------------------------------------------------------------------------Compensation/(4)/
- ---------------------------------------------------------------------------------------------------------------------
Erroll B. Davis, Jr. 2001 $683,269 $489,364 $11,265 -- 108,592 $359,605 $50,284
Chairman, and Chief 2000 637,692 895,200 11,875 -- 111,912 196,711 52,619
Executive Officer 1999 580,000 440,220 12,526 -- 77,657 84,870 53,188
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
William D. Harvey 2001 274,616 161,233 4,061 -- 21,798 92,209 42,944
President 2000 264,615 206,541 4,234 -- 21,063 47,474 42,230
1999 254,423 116,535 4,565 $ 255,004 17,071 31,365 37,005
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Eliot G. Protsch 2001 274,616 143,688 893 -- 21,798 92,209 38,372
Executive 2000 264,615 214,942 1,423 -- 21,063 47,474 38,058
Vice President 1999 254,423 152,898 1,909 255,004 17,071 31,365 32,941
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Thomas M. Walker 2001 264,615 133,852 -- -- 21,005 88,597 6,207
Executive Vice 2000 254,616 190,026 -- -- 20,268 47,474 6,166
President & Chief 1999 244,808 148,960 -- -- 16,402 -- 6,531
Financial Officer
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Pamela J. Wegner 2001 264,615 124,312 2,267 -- 21,005 88,597 35,370
Executive 2000 254,608 180,285 2,416 -- 20,268 27,563 34,377
Vice President 1999 244,615 145,187 2,569 245,017 16,402 19,373 29,122
/(1)Other Annual Compensation for 2001 consists of income tax gross-ups for
reverse split-dollar life insurance. /
/(2)In 1999, restricted stock was awarded under the Alliant Energy Corporation
Long-Term Equity Incentive Plan as follows: Mr. Harvey--9,294 shares, Mr.
Protsch--9,294 shares and Ms. Wegner--8,930 shares. Dividends on shares of
restricted stock granted under the Long-Term Equity Incentive Plan are held
in escrow and reinvested in shares of common stock pending vesting of the
underlying restricted stock. If such restricted stock vests, then the
participant is also entitled to receive the common stock into which the
dividends on the restricted stock were reinvested. The amounts shown in the
table above represent the market value of the restricted stock on the date
of grant. The number of shares of restricted stock held by the officers
identified in the table and the market value of such shares as of December
31, 2001 were as follows: Mr. Harvey--9,294 shares ($282,166), Mr.
Protsch--9,294 shares ($282,166) and Ms. Wegner--8,930 shares ($271,115). /
/(3)/Awards made in 2001 were in combination with performance share awards as
described in the table entitled "Long-Term Incentive Awards in 2001".
10
/(4)/The table below shows the components of the compensation reflected under
this column for 2001:
- -----------------------------------------------------------------------------------------------
Erroll B. Davis, Jr. William D. Harvey Eliot G. Protsch Thomas M. Walker Pamela J. Wegner
- -----------------------------------------------------------------------------------------------
A. $20,498 $ 8,238 $ 8,238 $5,250 $ 6,573
- -----------------------------------------------------------------------------------------------
B. 12,466 7,121 6,861 0 4,359
- -----------------------------------------------------------------------------------------------
C. 12,302 5,127 1,162 0 2,862
- -----------------------------------------------------------------------------------------------
D. 5,018 998 651 957 957
- -----------------------------------------------------------------------------------------------
E. 0 21,460 21,460 0 20,619
- -----------------------------------------------------------------------------------------------
Total $50,284 $42,944 $38,372 $6,207 $35,370
- -----------------------------------------------------------------------------------------------
A. Matching contributions to 401(k) Plan and Deferred Compensation Plan
B. Split-dollar life insurance reportable income (the split-dollar insurance
premiums are calculated using the "foregone interest" method)
C. Reverse split-dollar life insurance
D. Life insurance coverage in excess of $50,000
E. Dividends earned in 2001 on restricted stock
11
STOCK OPTIONS
The following table sets forth certain information concerning stock options
granted during 2001 to the executives named below:
STOCK OPTION GRANTS IN 2001
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term/(2)/
--------------------------------------------------------------------------
% of Total
Options
Number of Granted
Securities to Exercise
Underlying Employees or Base
Options in Fiscal Price Expiration
Name Granted/(1)/ Year ($/Share) Date 5% 10%
- -----------------------------------------------------------------------------------------------
Erroll B. Davis, Jr. 108,592 15.1% $31.54 1/1/11 $5,579,457 $8,883,912
- -----------------------------------------------------------------------------------------------
William D. Harvey 21,798 3.0% 31.54 1/1/11 1,119,981 1,783,294
- -----------------------------------------------------------------------------------------------
Eliot G. Protsch 21,798 3.0% 31.54 1/1/11 1,119,981 1,783,294
- -----------------------------------------------------------------------------------------------
Thomas M. Walker 21,005 2.9% 31.54 1/1/11 1,079,237 1,718,419
- -----------------------------------------------------------------------------------------------
Pamela J. Wegner 21,005 2.9% 31.54 1/1/11 1,079,237 1,718,419
/(1)/Consists of non-qualified stock options to purchase shares of AEC common
stock granted pursuant to AEC's Long-Term Equity Incentive Plan. Options
were granted on January 2, 2001 and will have a three year vesting
schedule with one-third becoming exercisable on January 2, 2002, one-third
becoming exercisable on January 2, 2003 and the final one-third becoming
exercisable on January 2, 2004. Upon a "change in control" of AEC as
defined in the Plan or upon retirement, disability or death of the option
holder, the options will become immediately exercisable.
/(2)The hypothetical potential appreciation shown for the named executives is
required by rules of the Securities and Exchange Commission ("SEC"). The
amounts shown do not represent the historical or expected future
performance of AEC's common stock. In order for the named executives to
realize the potential values set forth in the 5% and 10% columns in the
table above, the price per share of AEC's common stock would be $51.38 and
$81.81, respectively, as of the expiration date of the options. /
The following table provides information for the executives named below
regarding the number and value of exercisable and unexercised options. None of
the executives exercised options in fiscal 2001.
OPTION VALUES AT DECEMBER 31, 2001
Number of Securities Underlying Value of Unexercised In-the-Money Options
Unexercised Options at Fiscal Year End at Year End/(1)/
---------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Erroll B. Davis, Jr. 264,714 109,699 $239,754 $66,028
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
William D. Harvey 64,235 21,553 58,612 12,427
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Eliot G. Protsch 64,235 21,553 58,612 12,427
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Thomas M. Walker 48,322 20,759 31,871 11,958
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Pamela J. Wegner 51,544 20,759 47,027 11,958
/(1)/Based on the closing per share price of Company common stock on December
31, 2001 of $30.36.
12
LONG-TERM INCENTIVE AWARDS
The following table provides information concerning long-term incentive awards
made to the executives named below in 2001.
LONG-TERM INCENTIVE AWARDS IN 2001
------------------------------------------------------------------------------
Estimated Future Payouts Under
Non-Stock Price-Based Plans
------------------------------
Number of Performance ------------ -------- --------
Shares, or Other
Units or Period Until
Other Rights Maturation Threshold Target Maximum
Name (#)/(1)/ or Payout (#) (#) (#)
-----------------------------------------------------------------------------
Erroll B. Davis, Jr. 22,804 1/1/04 11,402 22,804 45,608
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
William D. Harvey 4,360 1/1/04 2,180 4,360 8,720
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Eliot G. Protsch 4,360 1/1/04 2,180 4,360 8,720
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Thomas M. Walker 4,201 1/1/04 2,101 4,201 8,402
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Pamela J. Wegner 4,201 1/1/04 2,101 4,201 8,402
-----------------------------------------------------------------------------
/(1)Consists of performance shares awarded under AEC's Long-Term Equity
Incentive Plan. The payout from the performance shares is based on two
equally-weighted performance components: AEC's three-year Total Shareholder
Return (TSR) relative to an investor-owned utility peer group, and
annualized earnings per share growth versus internally set performance
hurdles contained in the Alliant Energy Strategic Plan during the
performance cycle ending December 31, 2003. Payouts are subject to
modification pursuant to a performance multiplier that ranges from 0 to
2.00, and will be made in shares of AEC common stock or a combination of
common stock and cash. /
13
CERTAIN AGREEMENTS
Mr. Davis has an employment agreement with AEC, pursuant to which he will serve
as the Chairman, President and Chief Executive Officer of AEC until the
expiration of his term of the agreement on April 21, 2003. Following the
expiration of the initial term of Mr. Davis' employment agreement, his
agreement will automatically renew for successive one-year terms, unless either
Mr. Davis or AEC gives prior written notice of his or its intent to terminate
the agreement. Mr. Davis will also serve as the Chief Executive Officer and a
director of each subsidiary of AEC, including the Company, during the term of
his employment agreement. Pursuant to Mr. Davis' employment agreement, he is
paid an annual base salary of not less than $450,000. Mr. Davis' current salary
under his employment agreement is $685,000. Mr. Davis also has the opportunity
to earn short-term and long-term incentive compensation (including stock
options, restricted stock and other long-term incentive compensation) and
receive supplemental retirement benefits (including continued participation in
the Company Executive Tenure Compensation Plan) and life insurance providing a
death benefit of three times his annual salary. If the employment of Mr. Davis
is terminated without cause (as defined in the employment agreement) or if Mr.
Davis terminates his employment for good reason (as defined in the employment
agreement), AEC or its affiliates will continue to provide the compensation and
benefits called for by the employment agreement through the end of the term of
such employment agreement (with incentive compensation based on the maximum
potential awards and with any stock compensation paid in cash), and all
unvested stock compensation will vest immediately. If Mr. Davis dies or becomes
disabled, or terminates his employment without good reason, during the term of
his respective employment agreement, AEC or its affiliates will pay to Mr.
Davis or his beneficiaries or estate all compensation earned through the date
of death, disability or such termination (including previously deferred
compensation and pro rata incentive compensation based upon the maximum
potential awards). If Mr. Davis is terminated for cause, AEC or its affiliates
will pay his base salary through the date of termination plus any previously
deferred compensation. Under Mr. Davis' employment agreement, if any payments
thereunder constitute an excess parachute payment under the Internal Revenue
Code (the "Code"), AEC will pay to Mr. Davis the amount necessary to offset the
excise tax and any applicable taxes on this additional payment.
AEC currently has in effect key executive employment and severance agreements
(the "KEESAs") with certain executive officers of AEC (including Messrs. Davis,
Harvey, Protsch, Walker and Ms. Wegner). The KEESAs provide that each executive
officer who is a party thereto is entitled to benefits if, within five years
after a change in control of AEC (as defined in the KEESAs), the officer's
employment is ended through (a) termination by AEC, other than by reason of
death or disability or for cause (as defined in the KEESAs), or (b) termination
by the officer due to a breach of the agreement by AEC or a significant change
in the officer's responsibilities, or (c) in the case of Mr. Davis' agreement,
termination by Mr. Davis following the first anniversary of the change of
control. The benefits provided are (a) a cash termination payment of two or
three times (depending on which executive is involved) the sum of the officer's
annual salary and his or her average annual bonus during the three years before
the termination and (b) continuation for up to five years of equivalent
hospital, medical, dental, accident, disability and life insurance coverage as
in effect at the time of termination. Each KEESA for executive officers below
the level of Executive Vice President provides that if any portion of the
benefits under the KEESA or under any other agreement for the officer would
constitute an excess parachute payment for purposes of the Code, benefits will
be reduced so that the officer will be entitled to receive $1 less than the
maximum amount which he or she could receive without becoming subject to the
20% excise tax imposed by the Code on certain excess parachute payments, or
which AEC may pay without loss of deduction under the Code. The KEESAs for the
Chief Executive Officer and the Executive Vice Presidents (including Messrs.
Davis, Harvey, Protsch and Walker and Ms. Wegner) provide that if any payments
thereunder or otherwise constitute an excess parachute payment, AEC will pay to
the appropriate officer the amount necessary to offset the excise tax and any
additional taxes on this additional payment. Mr. Davis' employment agreement as
described above limits benefits paid thereunder to the extent that duplicate
payments would be provided to him under his KEESA.
14
RETIREMENT AND EMPLOYEE BENEFIT PLANS
Alliant Energy Corporate Services Retirement Plans
Salaried employees (including officers) of the Company are eligible to
participate in a Retirement Plan maintained by Alliant Energy Corporate
Services. In 1998, the Retirement Plan was amended to implement a cash balance
format, thereby changing the benefit calculation formulas and adding a lump sum
distribution option for eligible participants. The Alliant Energy Cash Balance
Pension Plan bases a participant's defined benefit pension on the value of a
hypothetical account balance. For individuals participating in the Plan as of
August 1, 1998, a starting account balance was created equal to the present
value of the benefit accrued as of December 31, 1997, under the Plan's benefit
formula prior to the change to a cash balance approach. That formula provided a
retirement income based on years of credited service and final average
compensation for the 36 highest consecutive months, with a reduction for a
Social Security offset. In addition, individuals participating in the Plan as
of August 1, 1998 received a special one-time transition credit amount equal to
a specified percentage varying with age multiplied by credited service and base
pay.
For 1998 and thereafter, a participant receives annual credits to the account
equal to 5% of base pay (including certain incentive payments, pre-tax
deferrals and other items), plus an interest credit on all prior accruals equal
to 4% plus a potential share of the gain on the investment return on assets in
the trust investment for the year.
The life annuity payable under the Plan is determined by converting the
hypothetical account balance credits into annuity form. Individuals who were
participants in the Plan on August 1, 1998 are in no event to receive any less
than what would have been provided under the prior formula, had it continued,
if they terminate on or before August 1, 2008, and do not elect to commence
benefits before the age of 55.
All of the individuals listed in the Summary Compensation Table who participate
in the Plan (Messrs. Davis, Protsch and Harvey and Ms. Wegner) are
"grandfathered" under the prior plan benefit formula. Since their estimated
benefits under that formula are higher than under the Plan formula, utilizing
current assumptions, their benefits would currently be determined by the prior
plan benefit formula. The following table illustrates the estimated annual
benefits payable upon retirement at age 65 under the prior formula based on
average annual compensation and years of service. To the extent benefits under
the Plan are limited by tax law, any excess will be paid under the Unfunded
Excess Plan described below.
Retirement Plan Table
Average Annual Benefit After Specified Years in Plan
Annual --------------------------------------------
Compensation 15 20 25 30+
------------ -------- -------- -------- --------
$ 200,000 $ 55,000 $ 73,300 $ 91,700 $110,000
300,000 82,500 110,000 137,500 165,000
400,000 110,000 146,700 183,300 220,000
500,000 137,500 183,300 229,100 275,000
600,000 165,000 220,000 275,000 330,000
700,000 192,500 256,700 320,800 385,000
800,000 220,000 293,300 366,700 440,000
900,000 247,000 330,000 412,500 495,000
1,000,000 275,000 366,700 458,300 550,000
1,100,000 302,500 403,300 504,100 605,000
For purposes of the Plan, compensation means payment for services rendered,
including vacation and sick pay, and is substantially equivalent to the salary
amounts reported in the foregoing Summary Compensation Table. Plan benefits
depend upon length of Plan service (up to a maximum of 30 years), age at
retirement and amount of compensation (determined in accordance with the Plan)
and are reduced by up to 50% of Social Security benefits. The estimated
benefits in the table above do not reflect the Social Security offset. The
estimated benefits are computed on a straight-life annuity basis. Benefits will
be adjusted if the employee receives one of the optional forms of payment.
Credited
15
years of service under the Plan for covered persons named in the foregoing
Summary Compensation Table are as follows: Erroll B. Davis, Jr., 22 years;
Eliot G. Protsch, 22 years; William D. Harvey, 14 years; and Pamela J. Wegner,
7 years.
IES Industries Pension Plan
Prior to April 1998, Mr. Walker participated in the IES Industries retirement
plan (which has been merged into the Alliant Energy Cash Balance Plan). Plan
benefits payable to Mr. Walker have been "grandfathered" to reflect the benefit
plan formula in effect at that time. Since his estimated benefits under that
formula are higher than under the Plan formula, utilizing current assumptions,
his benefits would currently be determined by the prior plan benefit formula.
The following table illustrates the estimated annual benefits payable upon
retirement at age 65 under the prior formula for the average annual
compensation and years of service. To the extent benefits under the Plan are
limited by tax law, any excess will be paid under the Unfunded Excess Plan
described below.
Pension Plan Table
Average Annual Benefit After Specified Years in Plan
Annual --------------------------------------------
Compensation 15 20 25 30 35
------------ -------- -------- -------- -------- --------
$200,000 $ 43,709 $ 58,279 $ 72,849 $ 87,418 $101,988
300,000 66,959 89,279 111,599 133,918 156,238
400,000 90,209 120,279 150,348 180,418 210,488
500,000 113,459 151,279 189,099 226,918 264,738
600,000 136,709 182,279 227,849 273,418 318,988
For purposes of the Plan, compensation means payment for services rendered,
including vacation and sick pay, and is substantially equivalent to the salary
amounts reported in the foregoing Summary Compensation Table. Plan benefits
depend upon length of Plan service (up to a maximum of 35 years), age at
retirement and amount of compensation (determined in accordance with the Plan).
The estimated benefits are computed on a straight-life annuity basis. Benefits
will be adjusted if the employee receives one of the optional forms of payment.
Mr. Walker has five years of credited service under this plan.
Unfunded Excess Plan--Alliant Energy Corporate Services maintains an Unfunded
Excess Plan that provides funds for payment of retirement benefits above the
limitations on payments from qualified pension plans in those cases where an
employee's retirement benefits exceed the qualified plan limits. The Unfunded
Excess Plan provides an amount equal to the difference between the actual
pension benefit payable under the pension plan and what such pension benefit
would be if calculated without regard to any limitation imposed by the Code on
pension benefits or covered compensation.
Unfunded Executive Tenure Compensation Plan--Alliant Energy Corporate Services
maintains an Unfunded Executive Tenure Compensation Plan to provide incentive
for selected key executives to remain in the service of the Company by
providing additional compensation that is payable only if the executive remains
with the Company until retirement (or other termination if approved by the
Board of Directors). In the case of the Chief Executive Officer only, in the
event that the Chief Executive Officer (a) is terminated under his employment
agreement with AEC as described above other than for cause, death or disability
(as those terms are defined in the employment agreement), (b) terminates his
employment under the employment agreement for good reason (as such term is
defined in the employment agreement), or (c) is terminated as a result of a
failure of the employment agreement to be renewed automatically pursuant to its
terms (regardless of the reason for such non-renewal), then for purposes of the
Plan, the Chief Executive Officer shall be deemed to have retired at age 65 and
shall be entitled to benefits under the Plan. Any participant in the Plan must
be approved by the Board of Directors. Mr. Davis was the only active
participant in the Plan as of December 31, 2001. The Plan provides for monthly
payments to a participant after retirement (at or after age 65, or with Board
approval, prior to age 65) for 120 months. The payments will be equal to 25% of
the participant's highest average salary for any consecutive 36-month period.
If a participant dies prior to retirement or before 120 payments have been
made, the participant's beneficiary will receive monthly payments equal to 50%
of such amount for 120 months in the case of death before retirement, or if the
participant dies after retirement, 50% of such amount for the balance of the
120 months. Annual benefits of $160,000 would be payable to Mr. Davis upon
retirement, assuming he continues in Alliant Energy Corporate Services' service
until retirement at the same salary as was in effect on December 31, 2001.
16
Alliant Energy Corporate Services Supplemental Executive Retirement Plan
The Company maintains an unfunded Supplemental Executive Retirement Plan
("SERP") to provide incentive for key executives to remain in the service of
the Company by providing additional compensation that is payable only if the
executive remains with the Company until retirement, disability or death.
Participants in the SERP must be approved by the Compensation and Personnel
Committee of the Board. The SERP provides for payments of 60% of the
participant's average annual earnings (base salary and bonus) for the highest
paid three years out of the last ten years of the participant's employment
reduced by the sum of benefits payable to the officer from the officer's
defined benefit plan and the Unfunded Excess Plan. The normal retirement date
under the SERP is age 62 with at least ten years of service and early
retirement is at age 55 with at least ten years of service. If a participant
retires prior to age 62, the 60% payment under the SERP is reduced by 3% per
year for each year the participant's retirement date precedes his/her normal
retirement date. The actuarial reduction factor will be waived for senior
officers who have attained age 55 and have a minimum of ten years of service in
a senior executive position with the Company. Benefit payments under the SERP
will be made in a lump sum, or for the lifetime of the senior officer, with a
minimum of 12 years of payments if the participant dies after retirement. A
postretirement death benefit of one times the senior executive officer's final
average earnings at the time of retirement will be paid to the designated
beneficiary. Messrs. Davis, Harvey, Protsch and Walker and Ms. Wegner are
participants in the SERP. The following table shows payments under the SERP,
assuming a minimum of ten years of service at retirement age.
Supplemental Executive Retirement Plan Table
Annual Benefit After Specified Years in Plan
Average Annual --------------------------------------------
Compensation (less than)10 Years (greater than)10 Years*
------------ ------------------- -----------------------
$ 200,000 0 $120,000
300,000 0 180,000
400,000 0 240,000
500,000 0 300,000
600,000 0 360,000
700,000 0 420,000
800,000 0 480,000
900,000 0 540,000
1,000,000 0 600,000
1,100,000 0 660,000
- ----------
* Reduced by the sum of the benefit payable from the applicable defined benefit
or pension plan and the Unfunded Excess Plan.
Key Employee Deferred Compensation Plan--The Company maintains an unfunded Key
Employee Deferred Compensation Plan under which participants may defer up to
100% of base salary, incentive compensation and eligible SERP payments.
Participants who have made the maximum allowed contribution to the
Company-sponsored 401(k) Plan may receive an additional credit to the Deferred
Compensation Plan. The credit will be equal to 50% of the lesser of (a) the
amount contributed to the 401(k) Plan plus the amount deferred under this Plan,
or (b) 6% of base salary reduced by the amount of any matching contributions in
the 401(k) Plan. The employee may elect to have his deferrals credited to an
Interest Account or an AEC Stock Account. Deferrals and matching contributions
to the Interest Account receive an annual return based on the A-Utility Bond
Rate with a minimum return no less than the prime interest rate published in
The Wall Street Journal provided that the return may not be greater than 12% or
less than 6%. Deferrals and matching contributions credited to the Common Stock
Account are treated as though invested in the common stock of AEC and will be
credited with dividends and those dividends will be reinvested. The shares of
common stock identified as obligations under the Plan are held in a rabbi
trust. Payments from the Plan may be made in a lump sum or in annual
installments for up to ten years at the election of the participant.
Participants are selected by the Chief Executive Officer of Alliant Energy
Corporate Services. Messrs. Davis, Harvey, Protsch and Walker and Ms. Wegner
participate in the Plan.
17
REPORT OF THE COMPENSATION AND PERSONNEL
COMMITTEE ON EXECUTIVE COMPENSATION
To Our Shareowners:
The Compensation and Personnel Committee (the "Committee") of the Board of
Directors of the Company is currently comprised of four non-employee directors
(the same directors that comprise the AEC Compensation and Personnel
Committee). The following is a report prepared by these directors with respect
to compensation paid by AEC, the Company and AEC's other subsidiaries. The
Committee assesses the effectiveness and competitiveness of, approves the
design of and administers executive compensation programs within a consistent
total compensation framework for the Company. The Committee also reviews and
approves all salary arrangements and other remuneration for executives,
evaluates executive performance, and considers related matters. To support the
Committee in carrying out its mission, an independent consultant is engaged to
provide assistance to the Committee.
The Committee is committed to implementing an overall compensation program for
executives that furthers the Company's mission. Therefore, the Committee
adheres to the following compensation policies, which are intended to
facilitate the achievement of the Company's business strategies:
. Total compensation should enhance the Company's ability to attract,
retain and encourage the development of exceptionally knowledgeable and
experienced executives, upon whom, in large part, the successful
operation and management of the Company depends.
. Base salary levels should be targeted at a competitive market range of
base salaries paid to executives of comparable companies. Specifically,
the Committee targets the median (50th percentile) of base salaries paid
by a selected group of utility and general industry companies. Incentive
compensation programs should strengthen the relationship between pay and
performance by emphasizing variable, at-risk compensation that is
consistent with meeting predetermined Company, subsidiary, business unit
and individual performance goals. In addition, the Committee targets
incentive levels at the median (50th percentile) of incentive
compensation paid by a selected group of utility and general industry
companies.
Components of Compensation
The major elements of the Company's executive compensation program are base
salary, short-term (annual) incentives and long-term (equity) incentives. These
elements are addressed separately below. In setting the level for each major
component of compensation, the Committee considers all elements of an
executive's total compensation package, including employee benefit and
perquisite programs. The Committee's goal is to provide an overall compensation
package for each executive officer that is competitive to the packages offered
other similarly situated executives. The Committee has determined that total
executive compensation, including that for Mr. Davis, is in line with
competitive compensation of the comparison group of companies.
Base Salaries
The Committee annually reviews each executive's base salary. Base salaries are
targeted at a competitive market range (i.e., at the median level) when
comparing both utility and non-utility (general industry) data. The Committee
annually adjusts base salaries to recognize changes in the market, varying
levels of responsibility, prior experience and breadth of knowledge. Increases
to base salaries are driven primarily by market adjustments for a particular
salary level, which generally limits across-the-board increases. The Committee
does not consider individual performance factors in setting base salaries. The
Committee reviewed executive salaries for market comparability using utility
and general industry data contained in compensation surveys published by Edison
Electric Institute, American Gas Association and several compensation
consulting firms. Based on the foregoing, the Committee established the annual
salary for Mr. Davis at $685,000 for the 2001 fiscal year.
Short-Term Incentives
The Company's short-term (annual) incentive programs promote the Committee's
pay-for-performance philosophy by providing executives with direct financial
incentives in the form of annual cash bonuses tied to the achievement of
corporate, subsidiary, business unit and individual performance goals. Annual
bonus opportunities allow the Committee to communicate specific goals that are
of primary importance during the coming year and motivate executives to achieve
these goals. The Committee on an annual basis reviews and approves the programs'
18
performance goals, the relative weight assigned to each goal and the targeted
and maximum award levels. A description of the short-term incentive programs
available during 2001 to executive officers follows.
Alliant Energy Corporation Management Incentive Compensation Plan--In 2001, the
Alliant Energy Corporation Management Incentive Compensation Plan (the "MICP")
covered executives and was based on achieving annual targets in corporate
performance that included earnings per share ("EPS"), safety and environmental
targets for the utility businesses, and business unit and individual
performance goals. Target and maximum bonus awards under the MICP in 2001 were
set at the median of the utility and general industry market levels. The
Committee considered these targets to be achievable, but to require
above-average performance from each of the executives. The level of performance
achieved in each category determines actual payment of bonuses, as a percentage
of annual salary. Weighting factors are applied to the percentage achievement
under each category to determine overall performance. If a pre-determined EPS
target is not met, there is no bonus payment associated with the MICP. If the
threshold performance for any other performance target is not reached, there is
no bonus payment associated with that particular category. Once the designated
maximum performance is reached, there is no additional payment for performance
above the maximum level. The actual percentage of salary paid as a bonus,
within the allowable range, is equal to the weighted average percent
achievement for all the performance categories. Potential MICP awards range
from 0% to 100% of annual salary for eligible executives other than Mr. Davis.
The amounts paid under the MICP to eligible officers included in the Summary
Compensation Table are reflected in that table under the heading "Bonus".
In 2001, Mr. Davis was covered by the MICP. Awards for Mr. Davis under the MICP
in 2001 were based on corporate and strategic goal achievement in relation to
predetermined goals. For each plan year, the Committee determines the
performance apportionment for Mr. Davis. In 2001, that apportionment was 75%
for corporate performance and 25% for strategic goal performance. Corporate
performance is measured based on Company-wide EPS, environmental, diversity and
safety targets established at the beginning of the year. Strategic goals are
measured based on the achievement of certain specific goals, which included
strategy development and implementation, established for Mr. Davis by the
Committee. The 2001 MICP award range for Mr. Davis was from 0% to 150% of
annual salary. The award earned by Mr. Davis under the MICP for 2001 is set
forth in the Summary Compensation Table under the heading "Bonus".
Long-Term Incentives
The Committee strongly believes compensation for executives should include
long-term, at-risk pay to strengthen the alignment of the interests of the
shareowners and management. In this regard, the Alliant Energy Corporation
Long-Term Equity Incentive Plan permits grants of stock options, restricted
stock and performance units/shares with respect to AEC's common stock. The
Long-Term Equity Incentive Plan is administered by the AEC Compensation and
Personnel Committee. The Committee believes the Long-Term Equity Incentive Plan
balances the Company's annual compensation programs by emphasizing compensation
based on the long-term successful performance of the Company from the
perspective of AEC's shareowners. A description of the long-term incentive
programs available during 2001 to executive officers under the Long-Term Equity
Incentive Plan is set forth below.
Alliant Energy Corporation Long-Term Incentive Program--The Alliant Energy
Corporation Long-Term Incentive Program covered executives and consisted of the
following components in 2001: non-qualified stock options and performance
shares. Non-qualified stock options provide a reward that is directly tied to
the benefit AEC's shareowners receive from increases in the price of AEC's
common stock. The payout from the performance shares is based on two
equally-weighted performance components: AEC's three-year total return to
shareowners relative to an investor-owned utility peer group, and annualized
EPS growth versus internally set performance hurdles contained in the Alliant
Energy Strategic Plan. Thus, the two components of the Long-Term Incentive
Program (i.e., stock options and performance shares) provide incentives for
management to produce superior shareowner returns on both an absolute and
relative basis. During 2001, the AEC Compensation and Personnel Committee made
a grant of stock options and performance shares to various executive officers,
including Messrs. Davis, Harvey, Protsch and Walker and Ms. Wegner. All option
grants had per share exercise prices equal to the fair market value of a share
of AEC common stock on the date the grants were approved. Options vest on a
one-third basis at the beginning of each calendar year after grant and have a
ten-year term from the date of the grant. Executives in the Alliant Energy
Corporation Long-Term Equity Incentive Program were also granted performance
shares. Performance shares will be paid out in shares of AEC's common stock or
cash. The award will be modified by a performance multiplier, which ranges from
0 to 2.00 based on AEC performance.
In determining actual award levels under the Alliant Energy Corporation
Long-Term Equity Incentive Program, the AEC Compensation and Personnel
Committee was
19
primarily concerned with providing a competitive total compensation level to
officers. As such, award levels (including awards made to Mr. Davis) were based
on a competitive analysis of similarly sized utility companies that took into
consideration the market level of long-term incentives, as well as the
competitiveness of the total compensation package. Award ranges, as well as
individual award levels, were then established based on responsibility level
and market competitiveness. No corporate or individual performance measures
were reviewed in connection with the awards of options and performance shares.
Award levels were targeted to the median of the range of such awards paid by
comparable companies. The AEC Compensation and Personnel Committee did not
consider the amounts of options and performance shares already outstanding or
previously granted when making awards for 2001. Mr. Davis' awards in 2001 under
the Long-Term Incentive Program are shown in the tables under "Stock Option
Grants in 2001" and "Long-Term Incentive Awards in 2001".
Policy with Respect to the $1 Million Deduction Limit
Section 162(m) of the Code generally limits the corporate deduction for
compensation paid to executive officers named in the proxy statement to $1
million unless such compensation is based upon performance objectives meeting
certain regulatory criteria or is otherwise excluded from the limitation. Based
on the Committee's commitment to link compensation with performance as
described in this report, the Committee intends, in most instances, to qualify
future compensation paid to the Company's executive officers for deductibility
by the Company under Section 162(m) except in limited appropriate circumstances.
Conclusion
The Committee believes the existing executive compensation policies and
programs provide an appropriate level of competitive compensation for the
Company's executives. In addition, the Committee believes that the long- and
short-term performance incentives effectively align the interests of executives
and shareowners toward a successful future for the Company.
COMPENSATION AND PERSONNEL COMMITTEE
Judith D. Pyle (Chair)
Alan B. Arends
Jack B. Evans
David A. Perdue
20
REPORT OF THE AUDIT COMMITTEE
The Audit Committee (the "Committee") of the Board of Directors of the Company
is composed of five independent directors, each of whom is independent as
defined in the New York Stock Exchange's listing standards (the same directors
that comprise the AEC Audit Committee). The Committee operates under a written
charter adopted by the Board of Directors. The Committee recommends to the
Board of Directors the selection of the Company's independent auditors.
The Company's management ("management") is responsible for the Company's
internal controls and the financial reporting process, including the system of
internal controls. The Company's independent auditors are responsible for
expressing an opinion on the conformity of the Company's audited consolidated
financial statements with generally accepted accounting principles. The
Committee has reviewed and discussed the audited consolidated financial
statements with management and the independent auditors. The Committee has
discussed with the independent auditors matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication With Audit Committees).
The Company's independent auditors have provided to the Committee the written
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Committee discussed
with the independent auditors their independence. The Committee considered
whether the independent auditors provision of non-audit services is compatible
with maintaining the independent auditors independence. The fees to the
independent auditors for 2001 for the Company and AEC were as follows:
Audit Fees................... $936,324
Financial Information Systems
and Implementation Fees...... 0
All Other Fees:
Audit-Related Fees* $404,086
Tax Related Fees... 491,443
Other.............. 35,159
--------
Total All Other Fees......... 930,688
- ----------
*Audit-related fees include statutory audits of subsidiaries, benefit plan
audits, acquisition due diligence, accounting consultation, various attest
services under professional standards, assistance with registration statements,
comfort letters and consents.
The Committee discussed with the Company's internal and independent auditors
the overall scopes and plans for their respective audits. The Committee meets
with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, the evaluation of the
Company's internal controls and overall quality of the Company's financial
reporting.
Based on the Committee's reviews and discussions with management, the internal
auditors and the independent auditors referred to above, the Committee
recommended to the Board of Directors that the audited consolidated financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001 for filing with the SEC.
AUDIT COMMITTEE
Jack B. Evans (Chair)
Alan B. Arends
Katharine C. Lyall
Singleton B. McAllister
Judith D. Pyle
21
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
The Company's directors, its executive officers and certain other officers are
required to report their ownership of AEC's common stock and subsidiary
preferred stock and any changes in that ownership to the SEC and the New York
Stock Exchange. To the best of the Company's knowledge, all required filings in
2000 were properly made in a timely fashion. In making the above statements,
the Company has relied on the representations of the persons involved and on
copies of their reports filed with the SEC.
By Order of the Board of Directors
/s/ F. J. Buri
F. J. Buri
Corporate Secretary
22
APPENDIX A
WISCONSIN POWER AND LIGHT COMPANY
ANNUAL REPORT
For the Year Ended December 31, 2001
Contents Page
- -------- ----
Definitions.......................................................................... A-2
The Company.......................................................................... A-3
Selected Financial Data.............................................................. A-3
Management's Discussion and Analysis of Financial Condition and Results of Operations A-4
Report of Independent Public Accountants............................................. A-14
Consolidated Financial Statements
Consolidated Statements of Income................................................. A-15
Consolidated Balance Sheets....................................................... A-16
Consolidated Statements of Cash Flows............................................. A-18
Consolidated Statements of Capitalization......................................... A-19
Consolidated Statements of Changes in Common Equity............................... A-20
Notes to Consolidated Financial Statements........................................... A-21
Shareowner Information............................................................... A-34
Executive Officers................................................................... A-34
A-1
DEFINITIONS
Certain abbreviations or acronyms used in the text and notes of this report are
defined below:
Abbreviation or Acronym Definition
- ----------------------- ----------
AFUDC................ Allowance for Funds Used During Construction
Alliant Energy....... Alliant Energy Corporation
ATC.................. American Transmission Company, LLC
CAA.................. Clean Air Act
Corporate Services... Alliant Energy Corporate Services, Inc.
DNR.................. Department of Natural Resources
Dth.................. Dekatherm
Enron................ Enron Corporation
EPA.................. U.S. Environmental Protection Agency
FASB................. Financial Accounting Standards Board
FERC................. Federal Energy Regulatory Commission
ICC.................. Illinois Commerce Commission
IES.................. IES Industries Inc.
IESU................. IES Utilities Inc.
IPC.................. Interstate Power Company
IP&L................. Interstate Power and Light Company
ISO.................. Independent System Operator
Kewaunee............. Kewaunee Nuclear Power Plant
KWh.................. Kilowatt-hour
MD&A................. Management's Discussion and Analysis of Financial Condition and
Results of Operations
MGP.................. Manufactured Gas Plants
MW................... Megawatt
MWh.................. Megawatt-hour
NEPA................. National Energy Policy Act of 1992
NOx.................. Nitrogen Oxides
NRC.................. Nuclear Regulatory Commission
PSCW................. Public Service Commission of Wisconsin
PUHCA................ Public Utility Holding Company Act of 1935
Resources............ Alliant Energy Resources, Inc.
SEC.................. Securities and Exchange Commission
SFAS................. Statement of Financial Accounting Standards
SFAS 133............. Accounting for Derivative Instruments and Hedging Activities
South Beloit......... South Beloit Water, Gas and Electric Company
STB.................. Surface Transportation Board
Union Pacific........ Union Pacific Railroad
U.S.................. United States
WNRB................. Wisconsin Natural Resources Board
WP&L................. Wisconsin Power and Light Company
WPLH................. WPL Holdings, Inc.
A-2
WP&L filed a combined Form 10-K for 2001 with the SEC; such document included
the filings of WP&L's parent, Alliant Energy, IP&L and WP&L. Certain portions
of MD&A and the Notes to Consolidated Financial Statements included in this
WP&L Proxy Statement represent excerpts from the combined Form 10-K. As a
result, the disclosure included in this WP&L Proxy Statement at times includes
information relating to Alliant Energy, IP&L, Resources and/or Corporate
Services. All required disclosures for WP&L are included in this proxy
statement thus such additional disclosures represent supplemental information.
THE COMPANY
In April 1998, WPLH, IES and IPC completed a merger resulting in Alliant
Energy. The primary first tier subsidiaries of Alliant Energy include: WP&L,
IP&L, Resources and Corporate Services. IP&L was formed as a result of the
merger of IPC with and into IESU effective January 1, 2002.
WP&L was incorporated in Wisconsin in 1917 as the Eastern Wisconsin Electric
Company and is a public utility engaged principally in the generation,
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, 2001,
WP&L supplied electric and gas service to 421,608 and 167,209 customers,
respectively. WP&L also had 19,318 water customers. In 2001, 2000 and 1999,
WP&L had no single customer for which electric and/or gas sales accounted for
10% or more of WP&L's consolidated revenues. WPL Transco LLC was formed in
Wisconsin in 2000 and is the wholly-owned subsidiary of WP&L, which holds the
investment in ATC. 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 that are not
material to WP&L's operations.
WP&L is 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 based on a
forward-looking test year period. However, as one of the conditions for
approval of the 1998 merger which formed Alliant Energy, the PSCW has required,
with certain exception, that WP&L freeze for four years on a post-merger basis
retail electric, natural gas and water rates. The last of the rate freezes will
expire in April 2002. WP&L filed retail and wholesale base rate increase
requests in 2001 and the first quarter of 2002, respectively. Refer to "Utility
Industry Review--Rates and Regulatory Matters" in MD&A for further discussion.
Electric Operations--As of December 31, 2001, WP&L provided retail electric
service to 419,643 electric retail customers, 600 communities and 29 wholesale
customers. WP&L's electric utility operations accounted for 78% of operating
revenues and 97% of operating income for the year ended December 31, 2001.
Electric sales are seasonal to some extent with the annual peak normally
occurring in the summer months. In 2001, the maximum peak hour demand for WP&L
was 2,696 MW and occurred on July 31, 2001.
Gas Operations--As of December 31, 2001, WP&L provided retail natural gas
service to 167,209 gas customers in 233 communities. WP&L's gas utility
operations accounted for 21% of operating revenues and 2% of operating income
for the year ended December 31, 2001. WP&L's gas sales 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.
SELECTED FINANCIAL DATA
Year Ended December 31,
------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(in thousands)
Operating revenues..................... $ 965,353 $ 862,381 $ 752,505 $ 731,448 $ 794,717
Earnings available for common stock.... 70,180 68,126 67,520 32,264 67,924
Cash dividends declared on common stock 60,449 -- 58,353 58,341 58,343
Total assets........................... 1,879,882 1,857,024 1,766,135 1,685,150 1,664,604
Long-term obligations, net............. 523,183 569,309 471,648 471,554 420,414
Alliant Energy is the sole common shareowner of all 13,236,601 shares of WP&L's
common stock outstanding. As such, earnings per share data is not disclosed
herein. The 1998 financial results reflect the recording of $17 million of
pre-tax merger-related charges.
A-3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Statements contained in this report (including MD&A) that are not of historical
fact are forward-looking statements intended to qualify for the safe harbors
from liability established by the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed in,
or implied by, such statements. Some, but not all, of the risks and
uncertainties include: factors listed in "Other Matters--Other Future
Considerations;" weather effects on sales and revenues; general economic and
political conditions in WP&L's domestic service territories; federal and state
regulatory or governmental actions, including issues associated with the
deregulation of the domestic utility industry and the ability to obtain
adequate and timely rate relief; unanticipated construction and acquisition
expenditures; issues related to stranded costs and the recovery thereof;
unanticipated issues related to the supply of purchased electricity and price
thereof; unexpected issues related to the operations of Kewaunee; unanticipated
costs associated with certain environmental remediation efforts being
undertaken by WP&L and with environmental compliance generally; technological
developments; employee workforce factors, including changes in key executives,
collective bargaining agreements or work stoppages; and changes in the rate of
inflation. WP&L assumes no obligation, and disclaims any duty, to update the
forward-looking statements in this report.
UTILITY INDUSTRY REVIEW
Overview--WP&L has one utility subsidiary, South Beloit. As a public utility
with significant utility assets, WP&L competes in an ever-changing utility
industry. Electric energy generation, transmission and distribution are in a
period of fundamental change resulting from legislative, regulatory, economic
and technological changes. These changes impact competition in the electric
wholesale and retail markets as customers of electric utilities are being
offered alternative suppliers. Such competitive pressures could result in
electric utilities losing customers and incurring stranded costs (i.e., assets
and other costs rendered unrecoverable as the result of competitive pricing)
which would be borne by security holders if the costs cannot be recovered from
customers.
WP&L is currently subject to regulation by FERC, and state regulation in
Wisconsin and Illinois. FERC regulates competition in the electric wholesale
power generation market and each state regulates whether to permit retail
competition, the terms of such retail competition and the recovery of any
portion of stranded costs that are ultimately determined to have resulted from
retail competition. WP&L cannot predict the timing of a restructured electric
industry or the impact on its financial condition or results of operations but
does believe it is well-positioned to compete in a deregulated competitive
market. Although WP&L ultimately believes that the electric industry will be
deregulated, the pace of deregulation in its primary retail electric service
territories has been delayed due to events related to Enron and California's
restructured electric utility industry.
WP&L, including South Beloit, transferred its transmission assets with no gain
or loss (approximate net book value of $186 million) to ATC on January 1, 2001.
WP&L received a tax-free cash distribution of $75 million from ATC and had a
$110 million equity investment in ATC, with an ownership percentage of
approximately 26.5 percent at December 31, 2001. This transfer has not resulted
in a significant impact on WP&L's financial condition or results of operations
since FERC allows ATC to earn a return on the contributed assets comparable to
the return formerly allowed WP&L by the PSCW and FERC. During 2001, ATC
returned approximately 80 percent of its earnings to the equity holders and,
although no assurance can be given, WP&L anticipates ATC will continue with
this policy in the future. ATC realizes its revenues from the provision of
transmission services to both participants in ATC as well as non-participants.
ATC is a transmission-owning member of the Midwest ISO and the Mid-America
Interconnected Network, Inc. Regional Reliability Council.
WP&L complied with provisions of a FERC order requiring utilities to
voluntarily turn over operational control of their transmission systems to a
regional entity by the end of 2001 by WP&L's transfer of its transmission
assets to ATC and the participation of WP&L in the Midwest ISO, which was given
Regional Transmission Organization (RTO) status in December 2001. The Midwest
ISO began providing security coordination functions in December 2001 and began
offering transmission service in the first quarter of 2002 and WP&L now
receives all of its transmission services from the Midwest ISO.
A-4
Rates and Regulatory Matters--As part of its merger approval, FERC accepted a
proposal by WP&L which provides for a four-year freeze on wholesale electric
prices beginning with the effective date of the April 1998 merger forming
Alliant Energy. WP&L also agreed with the PSCW to provide customers a four-year
retail electric and gas price freeze (the ICC granted South Beloit a three-year
price freeze), with certain exceptions, which commenced on the effective date
of the April 1998 merger. As a result, the last of the price freezes impacting
WP&L will expire in April 2002.
In 2000, the NRC issued expanded performance measures which raised several
areas of concern with Kewaunee's operations. Kewaunee is a nuclear facility in
which WP&L has a 41 percent ownership interest. Addressing the NRC's concerns
and ensuring that Kewaunee operates in accordance with current industry and
regulatory standards resulted in additional operating costs to WP&L in 2001 of
approximately $8 million and WP&L is expected to incur an additional $21
million of incremental costs in 2002 through 2005. In April 2001, the PSCW
approved the deferral of such incremental costs incurred after March 27, 2001
(WP&L has deferred $5.5 million of such costs at December 31, 2001). In July
2001, WP&L requested a one-time $19 million retail electric rate increase from
the PSCW to recover a portion of the costs associated with the increased
Kewaunee operating costs and costs associated with the replacement of the steam
generators at Kewaunee. WP&L expects that the remainder of the additional
operating costs related to Kewaunee will be recovered through future base rate
filings with the PSCW.
In August 2001, WP&L filed a $114 million base rate increase request with the
PSCW related to its investments in reliability, customer service, technology
and environmental upgrades, as well as investments in its infrastructure. In
September 2001, WP&L filed a request with the PSCW to consolidate the $19
million request for increased Kewaunee operating costs with the new base rate
increase request of $114 million. These filings apply to retail electric ($105
million), natural gas ($26 million) and water ($2 million) rates. Also in
September 2001, WP&L filed a request with the PSCW, along with three other
Wisconsin utilities, for an increase in rates of $16 million for incremental
costs associated with the start-up and ongoing operations of ATC (WP&L has
deferred $5.9 million of such costs at December 31, 2001). In December 2001,
WP&L filed a request for interim rate relief related to such filings of
approximately $63 million ($41 million for retail electric, $21 million for
natural gas and $1 million for water rates) to be effective on April 14, 2002.
The interim level is generally based on PSCW staff adjustments recommended in a
recently completed audit. Reductions in purchased-power and fuel costs since
the initial filing constituted a significant portion of such adjustments. As a
result, these adjustments would have no impact on WP&L's financial condition or
results of operations. WP&L expects final rates to be implemented in the third
quarter of 2002 and to be set at levels higher than the interim levels, but
significantly lower than the original request, although no assurance can be
given. Also, in February 2002, WP&L filed a $6.2 million request with FERC for
new wholesale electric base rates. WP&L also plans to file a base rate increase
request with the PSCW in the second quarter of 2002 for its 2003 and 2004
rates. At this time, there are no plans for filing a new base rate case in
Illinois for South Beloit.
In December 2001, the PSCW authorized WP&L to defer incremental costs for
security measures and insurance premiums related to the September 11, 2001
terrorist attacks. WP&L began deferring the increased costs in December 2001
and the issue of cost recovery will be addressed in WP&L's future base rate
case proceedings.
In December 2000, WP&L requested a $73 million annual retail electric rate
increase from the PSCW to cover increases in WP&L's 2001 fuel and
purchased-power costs. The PSCW approved a $46 million interim increase
effective February 2001, which was replaced with a $58 million final increase
effective June 2001. Two customer groups filed an appeal to a Wisconsin state
court, challenging certain portions of the final order. This matter is still
pending in state court. The final order included a refund provision for costs
collected in rates that are in excess of actual costs incurred. In March 2002,
WP&L filed with the PSCW to refund approximately $4 million to customers based
on lower than projected fuel and purchased-power costs in 2001. The refund
amount ultimately provided by WP&L is subject to PSCW approval. WP&L had
recorded the necessary reserve for the 2001 refund at December 31, 2001. In
addition, in March 2002 WP&L filed with and received approval from the PSCW for
a decrease in retail electric rates of approximately $19 million based on lower
fuel and purchased-power costs.
WP&L believed Union Pacific was charging an excessive rate for transporting
low-sulfur coal from the Powder River Basin to the Edgewater Generating Station
located in Sheboygan, Wisconsin. To contest the rate, WP&L filed a rate case
with the STB and, upon the expiration of the existing contract, began moving
coal under a tariff rate beginning January 1, 2000. Following the STB's initial
decision, WP&L, as part of a negotiated settlement, received payments from
Union Pacific in 2001 of $4 million, covering the period from January 1, 2000
through October 22, 2001. While WP&L and Union Pacific
A-5
have agreed upon future rates, both parties have filed petitions for
reconsideration with the STB on certain aspects of its decision, which could
impact the final amount received by WP&L. The refund amount will also be
reviewed by the PSCW in conjunction with WP&L's 2001 fuel refund filing.
In connection with a statewide docket to investigate compliance issues
associated with the EPA's NOx emission reductions, in 1999 the PSCW authorized
deferral of all incremental NOx compliance costs excluding internal labor and
replacement purchased-power costs. The PSCW approved WP&L's compliance plans
and granted a 10-year straight-line depreciation method for NOx compliance
investments. WP&L has deferred $3.0 million of costs at December 31, 2001 and
anticipates recovery of these costs beginning with the base rate increase
request filed in 2001. The depreciation lives will be reviewed every two years.
RESULTS OF OPERATIONS
Overview--WP&L's earnings available for common stock increased $2.1 million and
$0.6 million in 2001 and 2000, respectively. The 2001 increase was primarily
due to higher electric margins and a lower effective income tax rate, partially
offset by increased operating expenses and lower gas margins. The 2000 increase
was primarily due to higher electric margins and a reduced effective income tax
rate, largely offset by increased operation and maintenance, depreciation and
amortization and interest expenses.
Weather did not have a material impact on WP&L's 2001 results as the benefits
from a colder than normal first quarter, high humidity levels for a portion of
the summer and income realized from a weather hedge WP&L had in place in the
fourth quarter largely offset the impact of an extremely mild fourth quarter.
Electric Utility Operations--Electric margins and MWh sales for WP&L for 2001,
2000 and 1999 were as follows (in thousands):
Revenues and Costs MWhs Sold
---------------------------------- ----------------------------
2001 2000 * 1999 ** 2001 2000 * 1999 **
-------- -------- -- -------- -- ------ ------ -- ------ --
Residential...................... $248,128 $229,668 8% $213,496 8% 3,318 3,151 5% 3,111 1%
Commercial....................... 138,269 127,199 9% 116,947 9% 2,122 2,031 4% 1,980 3%
Industrial....................... 207,791 190,085 9% 171,118 11% 4,538 4,688 (3)% 4,570 3%
-------- -------- -------- ------ ------ ------
Total from ultimate customers. 594,188 546,952 9% 501,561 9% 9,978 9,870 1% 9,661 2%
Sales for resale................. 131,187 115,715 13% 102,751 13% 3,524 3,228 9% 3,252 (1)%
Other............................ 28,075 29,524 (5)% 22,295 32% 61 63 (3)% 54 17%
-------- -------- -------- ------ ------ ------
Total revenues/sales.......... 753,450 692,191 9% 626,607 10% 13,563 13,161 3% 12,967 1%
====== ====== ======
Electric production fuels expense 120,722 113,208 7% 110,521 2%
Purchased-power expense.......... 217,306 146,939 48% 107,598 37%
-------- -------- --------
Margin........................ $415,422 $432,044 (4)% $408,488 6%
======== ======== ========
- ----------
* Reflects the percent change from 2000 to 2001. ** Reflects the percent change
from 1999 to 2000.
Due to the formation of ATC on January 1, 2001, electric margin in 2001
included wheeling expenses from ATC of $30 million. Such expenses were offset
by equity income (WP&L accounts for its investment in ATC under the equity
method), reduced other operation and maintenance expenses and lower
depreciation expense, resulting in no significant net income impact due to the
formation of ATC. On a comparable basis, electric margin increased $13.8
million, or 3%, and $23.6 million, or 6%, during 2001 and 2000, respectively.
The 2001 increase was primarily due to lower purchased-power and fuel costs
impacting margin, increased residential and commercial sales due to more
favorable weather conditions in 2001 compared to 2000 and continued retail
customer growth. These items were partially offset by $10 million of income
recorded in 2000 for a change in estimate of utility services rendered but
unbilled at month-end and lower industrial sales, largely due to impacts of a
slowing economy.
A-6
The 2000 increase was primarily due to increased sales to retail customers due
to continued economic growth in WP&L's service territory, the favorable $10
million change in estimate of utility services rendered but unbilled at
month-end and increased energy conservation revenues. These items were
partially offset by the impact of milder weather conditions in 2000 compared to
1999 and higher purchased-power and fuel costs.
Refer to Note 1(i) of the "Notes to Consolidated Financial Statements" for
information relating to utility fuel cost recovery. Refer to "Utility Industry
Review--Rates and Regulatory Matters" for information on WP&L's rate filings.
Gas Utility Operations--Gas margins and Dth sales for WP&L for 2001, 2000 and
1999 were as follows (in thousands):
Revenues and Costs Dths Sold
------------------------------------ -----------------------------
2001 2000 * 1999 ** 2001 2000 * 1999 **
-------- -------- --- -------- --- ------ ------ --- ------ --
Residential............. $107,673 $ 96,204 12% $ 69,662 38% 11,754 12,769 (8)% 12,070 6%
Commercial.............. 58,658 54,512 8% 35,570 53% 7,572 8,595 (12)% 7,771 11%
Industrial.............. 8,907 8,581 4% 6,077 41% 1,197 1,476 (19)% 1,520 (3)%
Transportation/other.... 31,625 5,855 440% 9,461 (38)% 16,866 13,680 23% 13,237 3%
-------- -------- -------- ------ ------ ------
Total revenues/sales. 206,863 165,152 25% 120,770 37% 37,389 36,520 2% 34,598 6%
====== ====== ======
Cost of gas sold........ 153,823 107,131 44% 64,073 67%
-------- -------- --------
Margin............... $ 53,040 $ 58,021 (9)% $ 56,697 2%
======== ======== ========
- ----------
* Reflects the percent change from 2000 to 2001. ** Reflects the percent change
from 1999 to 2000.
Gas revenues and cost of gas sold increased significantly for 2001 and 2000 due
to the large increase in natural gas prices in the first half of 2001 and last
half of 2000. Due to WP&L's rate recovery mechanisms for gas costs, these
increases alone had little impact on gas margin. Gas margin decreased $5.0
million, or 9%, and increased $1.3 million, or 2%, during 2001 and 2000,
respectively. The 2001 decrease was largely due to lower retail sales primarily
related to unusually high gas prices earlier in 2001 as some customers either
chose alternative fuel sources or used less natural gas, the impact of the
slowing economy and losses associated with current commodity costs, which are
shared by ratepayers and shareowners. The 2000 increase was largely due to more
favorable weather conditions in the 2000 heating season compared to 1999,
partially offset by reduced energy conservation revenues. WP&L realized pre-tax
income of $2 million, $2 million and $5 million from weather hedges it had in
place in 2001, 2000 and 1999, respectively, which is recorded in
"Miscellaneous, net" in WP&L's Consolidated Statements of Income. Refer to Note
1(i) of the "Notes to Consolidated Financial Statements" for information
relating to natural gas cost recovery.
Other Operating Expenses-- Due to the formation of ATC in 2001, WP&L incurred
$10 million of operation and maintenance expenses in 2000 that were not
incurred in 2001. On a comparable basis, other operation and maintenance
expenses increased $7.6 million and $16.8 million for 2001 and 2000,
respectively. The 2001 increase was primarily due to higher nuclear operating
costs (partially due to a planned refueling outage at Kewaunee in the fourth
quarter of 2001), higher uncollectible customer account balances largely due to
the unusually high gas prices earlier in the year and higher other
administrative and general costs. These items were partially offset by
decreased fossil-plant maintenance expenses. The 2000 increase was primarily
due to a planned refueling outage at Kewaunee, higher expenses in the energy
delivery business unit, increased energy conservation expense and increased
maintenance expenses. The 2000 increases were partially offset by expenses
incurred in 1999 relating to WP&L's Year 2000 program.
Depreciation and amortization expense decreased $10.8 million and increased
$26.9 million for 2001 and 2000, respectively. The 2001 decrease was primarily
due to the impact of the formation of ATC and decreased earnings on the nuclear
decommissioning trust fund, partially offset by increased expense due to
property additions. The 2000 increase was primarily due to increased earnings
in the nuclear decommissioning trust fund of approximately $20 million,
property additions and higher amortization expense. 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.
Taxes other than income taxes increased $3.3 million for 2001 due to increased
gross receipts and payroll taxes.
A-7
Interest Expense and Other--Interest expense increased $3.7 million in 2000 due
to higher interest rates and borrowings outstanding.
Equity income from unconsolidated investments increased $15.0 million for 2001,
largely due to ATC beginning operations on January 1, 2001.
Miscellaneous, net income decreased $3.5 million and increased $18.4 million in
2001 and 2000, respectively, primarily due to differences in earnings in the
nuclear decommissioning trust fund. WP&L realized $2 million, $2 million and $5
million of income from weather hedges in 2001, 2000 and 1999, respectively.
Income Taxes--The effective income tax rates were 35.9%, 37.5% and 39.2% in
2001, 2000 and 1999, respectively. Refer to Note 4 of the "Notes to
Consolidated Financial Statements" for additional information.
LIQUIDITY AND CAPITAL RESOURCES
Overview--Given WP&L's financing flexibility, including access to the debt
securities market, management believes it has the necessary financing
capabilities in place to adequately finance its capital requirements for the
foreseeable future. WP&L's capital requirements are primarily attributable to
its construction and acquisition programs and its debt maturities. WP&L expects
to meet its future capital requirements with cash generated from operations and
external financings. The level of cash generated from operations is partially
dependent on economic conditions, legislative activities and timely regulatory
recovery of utility costs. Liquidity and capital resources are also affected by
costs associated with environmental and regulatory issues.
Based on current expectations, WP&L plans to invest approximately $832 million
in various capital projects and investments in 2002-2006, including generation
projects and environmental compliance initiatives. These various investments
are described in detail below.
Cash Flows--In 2001, WP&L's cash flows from operating activities decreased $40
million due to changes in working capital. In 2001, WP&L's cash flows used for
financing activities increased $14 million due to common stock dividends paid
in 2001 as no dividends were declared in 2000 due to management of WP&L's
capital structure, partially offset by a capital contribution of $35 million by
the parent company and changes in debt issued and retired. Cash flows used for
investing activities decreased $57 million in 2001 due to proceeds received
from the transfer of WP&L's transmission assets to ATC which were partially
offset by increased levels of construction expenditures. In 2000, WP&L's cash
flows used for financing activities increased $20 million due to changes in
debt issued and retired and a capital contribution of $30 million in 1999 from
the parent company, partially offset by no common stock dividends declared in
2000 due to management of its capital structure.
Long-Term Debt--At December 31, 2001, WP&L had $150 million of long-term debt
that will mature prior to December 31, 2006. Depending on market conditions, it
is anticipated that a majority of the maturing debt will be refinanced with the
issuance of long-term securities. Refer to Note 7(b) of the "Notes to
Consolidated Financial Statements" for additional information on long-term debt.
Short-Term Debt--In addition to funding working capital needs, the availability
of short-term financing provides WP&L 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. At December 31, 2001, WP&L was authorized by the applicable federal
or state regulatory agency to issue short-term debt of $240 million.
WP&L participates 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 can only borrow money from the utility money pool.
A-8
WP&L anticipates that short-term debt will continue to be available at
reasonable costs due to current ratings by credit rating services. Refer to
Note 7(a) of the "Notes to Consolidated Financial Statements" for additional
information on short-term debt, including information on the utility money pool.
Debt Ratings--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 WP&L by Moody's and Standard & Poor's were as follows at
December 31, 2001:
Moody's Standard & Poor's
------- -----------------
Secured long-term debt.. Aa2 A+
Unsecured long-term debt Aa3 A-
Ratings Triggers--The long-term debt of WP&L is not subject to any repayment
requirements as a result of credit rating downgrades or so-called "ratings
triggers." However, certain lease agreements of WP&L do contain such ratings
triggers. The threshold for these triggers varies among the applicable leases.
If the payments were accelerated under all the affected leases it would result
in accelerated payments of less than $30 million.
Sale of Accounts Receivable--Refer to Note 3 of the "Notes to Consolidated
Financial Statements" for information on WP&L's sale of accounts receivable
program.
Financial Commitments--WP&L has various synthetic leases related to the
financing of certain utility railcars and a utility radio dispatch system.
Certain financings involve the use of unconsolidated structured finance or
special purpose entities. WP&L believes these financings are not material to
its liquidity or capital resources. WP&L also uses a consolidated special
purpose entity for its utility sale of accounts receivable program. WP&L does
not use special purpose entities for any other purpose. These financings are
all fully reported in Notes 2 and 3 of the "Notes to Consolidated Financial
Statements."
Credit Risk--Credit risk is inherent in WP&L's operations and relates to the
risk of loss resulting from non-performance of contractual obligations by a
counterparty. WP&L maintains credit risk oversight and sets limits and policies
with regards to its counterparties, which management believes minimizes its
overall credit risk exposure. However, there is no assurance that such policies
will protect WP&L against all losses from non-performance by counterparties.
Although WP&L had modest contracts with Enron, their bankruptcy has had an
insignificant impact on WP&L's day-to-day operations. WP&L has replaced certain
Enron contracts by entering into contracts with credit-worthy counterparties
where deemed necessary.
Environmental--WP&L's pollution abatement programs are subject to continuing
review and are periodically revised due to changes in environmental
regulations, construction plans and escalation of construction costs. While
management cannot precisely forecast the effect of future environmental
regulations on operations, it has taken steps to anticipate the future while
also meeting the requirements of current environmental regulations.
Wisconsin facilities are subject to state and federal requirements of the CAA,
including meeting ambient air quality standards. Based on modeling conducted
under the CAA by the Wisconsin DNR, an eastern portion of Wisconsin along Lake
Michigan, in which WP&L's Edgewater Generating Station is located, has been
designated as non-attainment with respect to the one-hour ozone air quality
standard. The Wisconsin DNR has developed a rate-of-progress (ROP) rule to
bring the area into attainment with the standard. The rule requires Edgewater
Generating Station to meet annual NOx emission reductions beginning in May 2003
and ending in May 2007. Thereafter, the May 2007 ozone emission standard will
apply to the facility. The Wisconsin DNR will determine the success of the ROP
rule through modeling. To date, the modeling data still indicates the area is
non-attainment with the one-hour ozone standard although recent data indicates
the air quality is improving. Based on existing technology, WP&L estimates the
capital investments required to meet the ROP rule through 2007 will be
approximately $15 million.
WP&L is also pursuing voluntary NOx reductions and along with Alliant Energy
has developed a unique and cost effective technology to reduce NOx emissions
from power generating facilities. The U.S. Department of Energy has awarded
Alliant Energy a $2.5 million federal grant for its innovation for leading edge
clean coal technologies.
A-9
Revisions to the Wisconsin Administrative Code have been proposed that could
have a significant impact on WP&L's operation of its Wisconsin generating
facilities. The proposed revisions would affect the amount of heat that WP&L's
generating stations can discharge into Wisconsin waters. WP&L cannot presently
predict the final outcome of the revisions but believes that, as the revisions
are currently proposed, capital investments and/or modifications required to
meet the proposed discharge limits could be significant.
In 2000, the EPA made a regulatory determination in favor of controlling
Hazardous Air Pollutant Emissions (HAPs) (including mercury) from electric
utilities, which was challenged by utility industry groups in two lawsuits
filed in February 2001. The court has since ruled in favor of the EPA in both
cases. The EPA is currently developing regulations that are expected to be in
place by 2004, with a compliance deadline of 2007. Although the level of
control of mercury and other HAPs from generating plants is uncertain at this
time, WP&L believes that capital investments and/or modifications that may be
required to control these emissions could be significant.
Also in 2000, the WNRB voted to allow the Wisconsin DNR to proceed with
rulemaking to reduce mercury emissions. WP&L and the other Wisconsin Utility
Association members have recommended to the WNRB a workable state-level mercury
emissions control program that protects reliability and does not disadvantage
Wisconsin when federal mercury rules are later developed. The Wisconsin DNR
issued the proposed rule in May 2001, which is expected to be modified in late
2002. WP&L cannot presently predict the final outcome of the regulation, but
believes that required capital investments and/or modifications to achieve
compliance with the regulation could be significant.
In December 2000 and February 2001, the EPA requested certain information
relating to the historical operation of WP&L's major coal-fired generating
units in Wisconsin. WP&L has responded to both requests and has not yet
received a response from the EPA. In some cases involving similar EPA requests
from other electric generating facilities, penalties and capital expenditures
have resulted. The U.S. Department of Justice is currently conducting a review
of this enforcement initiative to assess whether it is consistent with the CAA.
In addition, on a broader basis, the EPA is assessing the impact of investments
in utility generation capacity, energy efficiency and environmental protection,
as well as assessing proposed multi-pollutant legislation. Results of these
reviews are expected in mid-2002. WP&L cannot presently predict what impact, if
any, these issues may have on its financial condition or results of operations.
However, any required remedial action resulting from these matters could be
significant.
Refer to Note 10(d) of the "Notes to Consolidated Financial Statements" for
further discussion of environmental matters.
Construction and Acquisition Expenditures--Capital expenditures, investments
and financing plans are continually reviewed, approved and updated as part of
WP&L's ongoing strategic planning and annual budgeting processes. In addition,
material capital expenditures and investments are subject to a rigorous
cross-functional review prior to approval. Changes in WP&L's anticipated
construction and acquisition expenditures may result from a number of reasons
including economic conditions, regulatory requirements, ability to obtain
adequate and timely rate relief, the level of WP&L's profitability, variations
in sales, changing market conditions and new opportunities. WP&L anticipates
financing its construction expenditures, including new electric generation
facilities, during 2002-2006 through internally generated funds supplemented,
when necessary, by outside financing. WP&L believes it has a strong financial
position that provides it the ability to issue external financings at
competitive rates.
WP&L currently anticipates 2002 utility construction and acquisition
expenditures will be approximately $158 million. During 2003-2006, WP&L
currently anticipates to spend approximately $674 million for utility
construction and acquisition expenditures.
A-10
OTHER MATTERS
Market Risk Sensitive Instruments and Positions--WP&L's primary market risk
exposures are associated with interest rates, commodity prices and equity
prices. WP&L 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--WP&L is exposed to risk resulting from changes in interest
rates as a result of its issuance of variable-rate debt and its utility
accounts receivable sale program. WP&L manages its interest rate risk by
limiting its variable interest rate exposure and by continuously monitoring the
effects of market changes on interest rates. WP&L has also historically used
interest rate swap and interest rate forward agreements to assist in the
management of its interest exposure. In the event of significant interest rate
fluctuations, management would take actions to minimize the effect of such
changes on WP&L's results of operations and financial condition. Assuming no
change in WP&L's consolidated financial structure, if variable interest rates
were to average 100 basis points higher (lower) in 2002 than in 2001, interest
expense and pre-tax earnings would increase (decrease) by approximately $1.4
million. This amount was determined by considering the impact of a hypothetical
100 basis points increase (decrease) in interest rates on WP&L's variable-rate
debt held and the amount outstanding under its accounts receivable sale program
at December 31, 2001.
Commodity Risk--Non-trading--WP&L is exposed to the impact of market
fluctuations in the commodity price and transportation costs of electricity and
natural gas it markets. WP&L employs established policies and procedures to
manage its risks associated with these market fluctuations including the use of
various commodity derivatives. WP&L's exposure to commodity price risks 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(i) of the "Notes to
Consolidated Financial Statements" for further discussion.
WP&L periodically utilizes gas commodity derivative instruments 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 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 substantially offset by changes in the value of the gas
commodity swaps. To the extent actual storage withdrawals vary from forecasted
withdrawals, WP&L has physical commodity price exposure. A 10 percent increase
(decrease) in the price of gas would not have a significant impact on the
combined fair market value of the gas in storage and related swap arrangements
in place at December 31, 2001.
Equity Price Risk--WP&L maintains a trust fund to fund its anticipated nuclear
decommissioning costs. At December 31, 2001 and 2000, this fund was invested
primarily in domestic equity and debt instruments. Fluctuations in equity
prices or interest rates will not affect WP&L's consolidated results of
operations as such fluctuations are recorded in equally offsetting amounts of
investment income and depreciation expense when they are realized. In February
2001, WP&L entered into a four-year hedge on equity assets in its nuclear
decommissioning trust fund. Refer to Note 9(c) of the "Notes to Consolidated
Financial Statements" for further discussion.
Accounting Pronouncements--In July 2001, the FASB issued SFAS 141, "Business
Combinations," and SFAS 142, "Goodwill and Other Intangible Assets." SFAS 141
requires that all business combinations be accounted for using the purchase
method. Use of the pooling-of-interests method is no longer allowed. The
provisions of SFAS 141 were effective for all business combinations initiated
after June 30, 2001. SFAS 142 addresses the method of accounting for acquired
goodwill and other intangible assets upon, and subsequent to, the date of the
acquisition. Among other provisions, SFAS 142 eliminates the amortization of
goodwill and replaces it with periodic assessments of the realization of the
recorded goodwill and other intangible assets. WP&L did not incur goodwill or
other intangible assets impairment charges upon its adoption of SFAS 142.
In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. WP&L must adopt SFAS 143 no later than
January 1, 2003. With regards to the decommissioning of Kewaunee, SFAS 143 will
require WP&L to record at fair value the decommissioning liability and a
corresponding asset, which will then be depreciated over the remaining expected
service life of the plant's generating unit. Currently,
A-11
decommissioning amounts collected in rates and the investment earnings are
reported in accumulated depreciation. WP&L has not yet determined what other
assets may have associated retirement costs as defined by SFAS 143. WP&L does
not anticipate SFAS 143 will have a material impact on its financial condition
or results of operations.
In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. WP&L adopted
SFAS 144 on January 1, 2002. WP&L expects that the implementation of SFAS 144
will not have a material impact on its financial condition or results of
operations.
Critical Accounting Policies--WP&L believes the policies identified below are
critical to WP&L's business and the understanding of its results of operations.
The impact and any associated risks related to these policies on WP&L's
business are discussed throughout MD&A where applicable. Refer to Note 1 of the
"Notes to Consolidated Financial Statements" for detailed discussion on the
application of these and other accounting policies. The preparation of the
consolidated 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. WP&L evaluates its estimates on an ongoing basis
and bases them on a combination of historical experience and various other
assumptions that are believed to be reasonable under the circumstances. Actual
results could differ from those estimates. WP&L's critical accounting policies
that affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements are as follows:
Regulatory Assets and Liabilities--SFAS 71, "Accounting for the Effects of
Certain Types of Regulation," requires rate-regulated public utilities to
record certain costs and credits allowed in the rate making process in
different periods than for non-regulated entities. These costs and credits are
deferred as regulatory assets or accrued as regulatory liabilities and are
recognized in the Consolidated Statements of Income at the time they are
reflected in rates. WP&L recognizes regulatory assets and liabilities in
accordance with rulings of its federal and state regulators and future
regulatory rulings may impact the carrying value and accounting treatment of
WP&L's regulatory assets and liabilities. WP&L evaluates and revises the
accounting for its regulatory assets and liabilities on an ongoing basis, and
as new regulatory orders are issued, to properly account for its activities
under SFAS 71.
Derivative Financial Instruments--WP&L 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. WP&L does
not use such instruments for speculative purposes. To account for these
derivative instruments in accordance with the applicable accounting rules, WP&L
must determine the fair value of its derivatives. If an established, quoted
market exists for the underlying commodity of the derivative instrument, WP&L
uses the quoted market price to value the derivative instrument. For other
derivatives, WP&L estimates the value based upon other quoted prices or
acceptable valuation methods. WP&L also reviews the nature of its contracts for
the purchase and sale of non-financial assets to assess whether the contracts
meet the definition of a derivative and the requirements to follow hedge
accounting as allowed by the applicable accounting rules. The determination of
derivative status and valuations involves considerable judgment. WP&L reviews
the accounting for and subsequent valuation of its derivative instruments on an
ongoing basis.
Unbilled Revenues--WP&L accrues revenues for utility services rendered but
unbilled at month-end. The monthly accrual process includes the development of
various significant estimates, including the amount of natural gas and
electricity used by each customer class and the associated revenues generated.
Significant fluctuations in energy demand for the unbilled period or changes in
the composition of WP&L's customer classes could impact the accuracy of the
unbilled revenues estimate. WP&L updates the calculation each month and
performs a detailed review of the estimate each quarter.
Valuation of Assets--WP&L's balance sheet includes investments in several
available-for-sale securities accounted for in accordance with SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities." WP&L
monitors any unrealized losses from such investments to determine if the loss
is considered to be a temporary or permanent decline. The determination as to
whether the investment is temporarily versus permanently impaired requires
considerable judgment. When the investment is considered permanently impaired,
the previously recorded unrealized loss would be recorded directly to the
income statement as a realized loss.
A-12
Environmental Contingencies--WP&L has recorded various environmental
liabilities as noted in Note 10(d) of the "Notes to Consolidated Financial
Statements." Such environmental liabilities are estimated based upon historical
experience and periodic analyses of its various environmental remediation
sites. Such analyses estimate the environmental liability 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, additional facts become known, or
additional sites are identified and the liabilities are updated once such
information becomes available. For WP&L, changes in cost estimates may be
offset through rate recovery.
Other Future Considerations--In addition to items discussed earlier in MD&A,
the following items could impact WP&L's future financial condition or results
of operations:
WP&L's pension and other postretirement benefit expenses for 2002 are expected
to be approximately $9 million higher than in 2001, primarily due to
unfavorable asset returns, a reduction in the discount rate used to value plan
benefits and expected increases in retiree medical costs. These cost increases
will be addressed in rate filings in Wisconsin and with FERC in 2002.
WP&L has provided energy conservation services to its customers for many years
through a program called Shared Savings. WP&L earns incentives that are
recoverable in rates for assisting customers that make building or equipment
improvements to reduce energy usage. As a result of legislative changes, this
program may be reduced or eliminated in Wisconsin effective January 1, 2003.
WP&L is aggressively pursuing both regulatory and legislative changes to retain
some or all of the net income from this program in Wisconsin. If such efforts
are unsuccessful, WP&L would experience a reduction in net income in 2003
compared to income realized in 2001. WP&L is also pursuing the development of
additional demand-side management related programs within its service territory
to replace or increase this net income.
A-13
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, 2001 and 2000, 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, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 25, 2002
A-14
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
----------------------------
2001 2000 1999
-------- -------- --------
(in thousands)
Operating revenues:
Electric utility............................................................ $753,450 $692,191 $626,607
Gas utility................................................................. 206,863 165,152 120,770
Water....................................................................... 5,040 5,038 5,128
-------- -------- --------
965,353 862,381 752,505
-------- -------- --------
Operating expenses:
Electric production fuels................................................... 120,722 113,208 110,521
Purchased power............................................................. 217,306 146,939 107,598
Cost of gas sold............................................................ 153,823 107,131 64,073
Other operation and maintenance............................................. 186,477 188,967 172,131
Depreciation and amortization............................................... 129,098 139,911 113,037
Taxes other than income taxes............................................... 32,504 29,163 30,240
-------- -------- --------
839,930 725,319 597,600
-------- -------- --------
Operating income............................................................... 125,423 137,062 154,905
-------- -------- --------
Interest expense and other:
Interest expense............................................................ 43,483 44,644 40,992
Equity income from unconsolidated investments............................... (15,535) (552) (641)
Allowance for funds used during construction................................ (4,753) (5,365) (4,511)
Miscellaneous, net.......................................................... (12,500) (15,984) 2,477
-------- -------- --------
10,695 22,743 38,317
-------- -------- --------
Income before income taxes..................................................... 114,728 114,319 116,588
-------- -------- --------
Income taxes................................................................... 41,238 42,918 45,758
-------- -------- --------
Income before cumulative effect of a change in accounting principle, net of tax 73,490 71,401 70,830
-------- -------- --------
Cumulative effect of a change in accounting principle, net of tax.............. -- 35 --
-------- -------- --------
Net income..................................................................... 73,490 71,436 70,830
-------- -------- --------
Preferred dividend requirements................................................ 3,310 3,310 3,310
-------- -------- --------
Earnings available for common stock............................................ $ 70,180 $ 68,126 $ 67,520
======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
A-15
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------
ASSETS 2001 2000
------ ----------- -----------
(in thousands)
Property, plant and equipment:
Electric plant in service............... $ 1,779,593 $ 2,007,974
Gas plant in service.................... 280,881 273,457
Water plant in service.................. 32,497 29,869
Other plant in service.................. 243,121 223,921
Accumulated depreciation................ (1,328,111) (1,380,723)
----------- -----------
Net plant........................... 1,007,981 1,154,498
Construction work in progress........... 37,828 59,133
Nuclear fuel, net of amortization....... 17,404 16,099
Other, net.............................. 681 369
----------- -----------
1,063,894 1,230,099
----------- -----------
Current assets:
Cash and temporary cash investments..... 4,389 2,584
Accounts receivable:
Customer.............................. 33,190 51,769
Associated companies.................. 3,676 2,211
Other................................. 16,571 13,865
Production fuel, at average cost........ 17,314 17,811
Materials and supplies, at average cost. 20,669 21,639
Gas stored underground, at average cost. 22,187 13,876
Prepaid gross receipts tax.............. 25,673 23,088
Other................................... 13,018 6,397
----------- -----------
156,687 153,240
----------- -----------
Investments:
Nuclear decommissioning trust funds..... 215,794 195,768
Investment in ATC and other............. 127,941 14,362
----------- -----------
343,735 210,130
----------- -----------
Other assets:
Regulatory assets....................... 109,864 88,721
Deferred charges and other.............. 205,702 174,834
----------- -----------
315,566 263,555
----------- -----------
Total assets............................... $ 1,879,882 $ 1,857,024
=========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
A-16
CONSOLIDATED BALANCE SHEETS (Continued)
December 31,
----------------------
CAPITALIZATION AND LIABILITIES 2001 2000
----------------------------- ---------- ----------
(in thousands)
Capitalization (See Consolidated Statements of Capitalization):
Common stock................................................ $ 66,183 $ 66,183
Additional paid-in capital.................................. 264,603 229,516
Retained earnings........................................... 381,333 371,602
Accumulated other comprehensive loss........................ (10,167) (4,708)
---------- ----------
Total common equity..................................... 701,952 662,593
---------- ----------
Cumulative preferred stock.................................. 59,963 59,963
Long-term debt (excluding current portion).................. 468,083 514,209
---------- ----------
1,229,998 1,236,765
---------- ----------
Current liabilities:
Variable rate demand bonds.................................. 55,100 55,100
Notes payable to associated companies....................... 90,816 29,244
Accounts payable............................................ 98,173 120,155
Accounts payable to associated companies.................... 36,678 32,442
Other....................................................... 35,219 36,266
---------- ----------
315,986 273,207
---------- ----------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes........................... 206,245 222,819
Accumulated deferred investment tax credits................. 24,907 29,472
Customer advances........................................... 34,178 34,815
Pension and other benefit obligations....................... 18,175 --
Other....................................................... 50,393 59,946
---------- ----------
333,898 347,052
---------- ----------
Commitments and contingencies (Note 10)
Total capitalization and liabilities........................... $1,879,882 $1,857,024
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
A-17
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-------------------------------
2001 2000 1999
--------- --------- ---------
(in thousands)
Cash flows from operating activities:
Net income...................................................................... $ 73,490 $ 71,436 $ 70,830
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization................................................. 129,098 139,911 113,037
Amortization of nuclear fuel.................................................. 4,554 5,066 6,094
Deferred tax benefits and investment tax credits.............................. (6,791) (12,077) (12,618)
Equity income from unconsolidated investments, net............................ (15,535) (552) (641)
Distributions from equity method investments.................................. 8,450 992 248
Other......................................................................... (10,539) (15,451) 3,073
Other changes in assets and liabilities:
Accounts receivable........................................................... 14,408 (29,733) (13,423)
Accounts payable.............................................................. (20,891) 39,046 8,482
Benefit obligations and other................................................. (40,700) (21,797) (11,854)
--------- --------- ---------
Net cash flows from operating activities.................................. 135,544 176,841 163,228
--------- --------- ---------
Cash flows from (used for) financing activities:
Common stock dividends........................................................ (60,449) -- (58,353)
Preferred stock dividends..................................................... (3,310) (3,310) (3,310)
Proceeds from issuance of long-term debt...................................... -- 100,000 --
Reductions in long-term debt.................................................. (47,000) (1,875) --
Net change in short-term borrowings........................................... 61,572 (96,505) 48,950
Capital contribution from parent.............................................. 35,000 -- 30,000
Other......................................................................... (2,720) (1,242) --
--------- --------- ---------
Net cash flows from (used for) financing activities....................... (16,907) (2,932) 17,287
--------- --------- ---------
Cash flows used for investing activities:
Utility construction expenditures............................................. (147,032) (131,640) (131,915)
Nuclear decommissioning trust funds........................................... (16,092) (16,092) (16,092)
Proceeds from formation of ATC and other asset dispositions................... 75,600 961 237
Other......................................................................... (29,308) (28,109) (31,001)
--------- --------- ---------
Net cash flows used for investing activities.............................. (116,832) (174,880) (178,771)
--------- --------- ---------
Net increase (decrease) in cash and temporary cash investments................... 1,805 (971) 1,744
--------- --------- ---------
Cash and temporary cash investments at beginning of period....................... 2,584 3,555 1,811
--------- --------- ---------
Cash and temporary cash investments at end of period............................. $ 4,389 $ 2,584 $ 3,555
========= ========= =========
Supplemental cash flow information:
Cash paid during the period for:..............................................
Interest.................................................................. $ 43,237 $ 40,455 $ 38,330
========= ========= =========
Income taxes.............................................................. $ 54,161 $ 54,676 $ 47,164
========= ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
A-18
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31,
----------------------
2001 2000
---------- ----------
(in thousands,
except share amounts)
Common equity:
Common stock--$5 par value--authorized 18,000,000 shares;13,236,601 shares
outstanding........................................................................... $ 66,183 $ 66,183
Additional paid-in capital.............................................................. 264,603 229,516
Retained earnings....................................................................... 381,333 371,602
Accumulated other comprehensive loss.................................................... (10,167) (4,708)
---------- ----------
701,952 662,593
---------- ----------
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:
1990 Series V, 9.3%, retired in 2001................................................ -- 27,000
1984 Series A, variable rate (1.7% at December 31, 2001), due 2014.................. 8,500 8,500
1988 Series A, variable rate (1.85% at December 31, 2001), due 2015................. 14,600 14,600
1991 Series A, variable rate (1.9% at December 31, 2001), due 2015.................. 16,000 16,000
1991 Series B, variable rate (1.9% at December 31, 2001), due 2005.................. 16,000 16,000
1992 Series W, 8.6%, due 2027, partially retired in 2001............................ 70,000 90,000
1992 Series X, 7.75%, due 2004...................................................... 62,000 62,000
1992 Series Y, 7.6%, due 2005....................................................... 72,000 72,000
---------- ----------
259,100 306,100
Debentures, 7%, due 2007................................................................ 105,000 105,000
Debentures, 5.7%, due 2008.............................................................. 60,000 60,000
Debentures, 7 5/8%, due 2010............................................................ 100,000 100,000
---------- ----------
524,100 571,100
---------- ----------
Less:
Variable rate demand bonds.......................................................... (55,100) (55,100)
Unamortized debt discount, net...................................................... (917) (1,791)
---------- ----------
468,083 514,209
---------- ----------
Total capitalization....................................................................... $1,229,998 $1,236,765
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
A-19
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)
1999:
Beginning balance................................................ $66,183 $199,438 $294,309 $ -- $559,930
Earnings available for common stock........................... 67,520 67,520
Common stock dividends........................................ (58,353) (58,353)
Capital contribution from parent.............................. 30,000 30,000
------- -------- -------- --------- --------
Ending balance................................................... 66,183 229,438 303,476 -- 599,097
2000:
Comprehensive income:
Earnings available for common stock......................... 68,126 68,126
Other comprehensive income (loss):
Unrealized losses on derivatives qualified as hedges:
Unrealized holding losses arising during period
due to cumulative effect of a change in
accounting principle, net of tax of ($430)........... (642) (642)
Other unrealized holding losses arising during
period, net of tax of ($3,634)....................... (5,151) (5,151)
Less: reclassification adjustment for losses
included in earnings available for common
stock, net of tax of ($769).......................... (1,085) (1,085)
--------- --------
Net unrealized losses on qualifying derivatives........... (4,708) (4,708)
--------- --------
Total comprehensive income.................................. 63,418
Common stock issued........................................... 78 78
------- -------- -------- --------- --------
Ending balance................................................... 66,183 229,516 371,602 (4,708) 662,593
2001:
Comprehensive income:
Earnings available for common stock......................... 70,180 70,180
Other comprehensive income (loss):
Minimum pension liability adjustment, net of tax
of ($9,552)............................................. (14,248) (14,248)
Unrealized gains on derivatives qualified as
hedges:
Unrealized holding gains arising during
period, net of tax of $3,932......................... 5,952 5,952
Less: reclassification adjustment for losses
included in earnings available for common
stock, net of tax of ($1,676)........................ (2,837) (2,837)
--------- --------
Net unrealized gains on qualifying derivatives............ 8,789 8,789
--------- --------
Total comprehensive income.................................. 64,721
Common stock dividends........................................ (60,449) (60,449)
Common stock issued........................................... 87 87
Capital contribution from parent.............................. 35,000 35,000
------- -------- -------- --------- --------
Ending balance................................................... $66,183 $264,603 $381,333 ($ 10,167) $701,952
======= ======== ======== ========= ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
A-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General --The consolidated financial statements include the accounts of
WP&L and its principal consolidated subsidiaries WPL Transco LLC and South
Beloit. WP&L is a subsidiary of Alliant Energy and is engaged principally in
the generation, 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.
The consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the U.S., which give recognition to
the rate making and accounting practices of FERC and state commissions having
regulatory jurisdiction. The preparation of the consolidated 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. Certain prior period amounts
have been reclassified on a basis consistent with the current year presentation.
Unconsolidated investments for which WP&L has at least a 20 percent
non-controlling voting interest are generally accounted for under the equity
method of accounting. These investments are stated at acquisition cost,
increased or decreased for WP&L's equity in net income or loss, which is
included in "Equity income from unconsolidated investments" in the Consolidated
Statements of Income and decreased for any dividends received. These
investments are also increased or decreased for WP&L's proportionate share of
other comprehensive income, which is included in "Accumulated other
comprehensive loss" on the Consolidated Balance Sheets. Investments that do not
meet the criteria for consolidation or the equity method of accounting are
accounted for under the cost method. Refer to Note 8 for discussion of WP&L's
cost method investments that are marked-to-market as a result of SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities."
(b) Regulation--WP&L is subject to regulation under PUHCA, FERC, the PSCW and
the ICC.
(c) Regulatory Assets--WP&L is subject to the provisions of SFAS 71,
"Accounting for the Effects of Certain Types of Regulation," which provides
that rate-regulated public utilities record certain costs and credits allowed
in the rate making process in different periods than for non-regulated
entities. These are deferred as regulatory assets or accrued as regulatory
liabilities and are recognized in the Consolidated Statements of Income at the
time they are reflected in rates. At December 31, 2001 and 2000, regulatory
assets were comprised of the following items (in millions):
2001 2000
------ -----
Energy efficiency program costs....... $ 33.9 $19.8
Tax-related (Note 1(d))............... 29.0 37.6
Environmental liabilities (Note 10(d)) 18.7 16.6
Other................................. 33.4 18.4
------ -----
$115.0 $92.4
====== =====
If a portion of WP&L's operations becomes no longer subject to the provisions
of SFAS 71 as a result of competitive restructuring or otherwise, a write-down
of related regulatory assets would be required, unless some form of transition
cost recovery is established by the appropriate regulatory body that would meet
the requirements under accounting principles generally accepted in the U.S. for
continued accounting as regulatory assets during such recovery period. In
addition, WP&L would be required to determine any impairment of other assets
and write-down such assets to their fair value.
(d) Income Taxes--WP&L follows the liability method of accounting for deferred
income taxes, which requires the establishment of deferred tax assets and
liabilities, as appropriate, for all temporary differences between the tax
basis of assets and liabilities and the amounts reported in the consolidated
financial statements. Deferred taxes are recorded using currently enacted tax
rates.
A-21
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.
The PSCW has allowed rate recovery of deferred taxes on all temporary
differences since August 1991. WP&L established a regulatory asset associated
with those temporary differences occurring prior to August 1991 that will be
recovered in future rates through 2007.
Alliant Energy files a consolidated federal income tax return. Under the terms
of an agreement between Alliant Energy and WP&L, WP&L calculates its federal
income tax provisions and makes payments to or receives payments from Alliant
Energy as if it were a separate taxable entity.
(e) Temporary Cash Investments--Temporary cash investments are stated at cost,
which approximates market value, and are considered cash equivalents for the
Consolidated Balance Sheets and the Consolidated Statements of Cash Flows.
These investments consist of short-term liquid investments that have maturities
of less than 90 days from the date of acquisition.
(f) Depreciation of Utility Property, Plant and Equipment--WP&L uses a
combination of straight-line and sum-of-the-years-digits depreciation methods
as approved by the PSCW and ICC. The remaining depreciable life of Kewaunee, of
which WP&L is a co-owner, is based on the PSCW approved revised end-of-life of
2010. Depreciation expense related to the decommissioning of Kewaunee is
discussed in Note 10(e). The average rates of depreciation for electric and gas
properties, consistent with current rate making practices, were as follows:
2001 2000 1999
---- ---- ----
Electric 3.7% 3.6% 3.6%
Gas..... 4.1% 4.1% 3.9%
(g) Property, Plant and Equipment--Utility plant is recorded at original cost,
which includes overhead, administrative costs and AFUDC. WP&L's aggregate gross
AFUDC recovery rates used for 2001, 2000 and 1999, computed in accordance with
the prescribed regulatory formula, were 7.9%, 10.8% and 5.4%, respectively.
Other property, plant and equipment is recorded at original cost. Upon
retirement or sale of 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. 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.
(h) Operating Revenues--WP&L accrues revenues for services rendered but
unbilled at month-end. In 2000, WP&L recorded an increase of $10 million in the
estimate of utility services rendered but unbilled at month-end due to the
implementation of refined estimation processes.
(i) Utility Fuel Cost Recovery--WP&L's retail electric rates are based on
annual forecasted fuel and purchased-power costs. Under PSCW rules, WP&L can
seek emergency rate increases if the annual costs are more than three percent
higher than the estimated costs used to establish rates. Any collections in
excess of costs incurred in 2001 will be refunded in 2002, with interest.
Accordingly, WP&L established a reserve in 2001 due to overcollection of fuel
and purchased-power costs. WP&L has a gas performance incentive which includes
a sharing mechanism whereby 40 percent of all gains and losses relative to
current commodity prices, as well as other benchmarks, are retained by WP&L,
with the remainder refunded to or recovered from customers.
(j) Nuclear Refueling Outage Costs--Operating expenses incurred during
refueling outages at Kewaunee are expensed by WP&L as incurred. A scheduled
refueling outage occurred at Kewaunee in late 2001. The next scheduled
refueling outage at Kewaunee is anticipated to commence in Spring 2003.
A-22
(k) Nuclear Fuel--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 KWhs generated.
(l) Derivative Financial Instruments--WP&L 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. WP&L also utilizes derivatives to mitigate the equity price
volatility associated with certain investments in equity securities. WP&L does
not use such instruments for speculative purposes. The fair value of all
derivatives are recorded as assets or liabilities on the Consolidated Balance
Sheets and gains and losses related to derivatives that are designated as, and
qualify as hedges, are recognized in earnings when the underlying hedged item
or physical transaction is recognized in income. Gains and losses related to
derivatives that do not qualify for, or are not designated in hedge
relationships, are recognized in earnings immediately. WP&L has a number of
commodity purchase and sales contracts that have been designated, and qualify
for, the normal purchase and sale exception in SFAS 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities--an Amendment of
SFAS 133." Based on this designation, these contracts are not accounted for as
derivative instruments.
WP&L is exposed to losses related to financial instruments in the event of
counterparties' non-performance. WP&L has established controls to determine and
monitor the creditworthiness of counterparties in order to mitigate its
exposure to counterparty credit risk. WP&L has replaced certain Enron contracts
by entering into contracts with credit-worthy counterparties where deemed
necessary. WP&L is not aware of any material exposure to counterparty credit
risk.
Refer to Note 9 for further discussion of WP&L's derivative financial
instruments.
(2) LEASES
WP&L's operating lease rental expenses, which include certain purchased-power
operating leases, for 2001, 2000 and 1999 were $23.4 million, $7.9 million and
$7.7 million, respectively. The purchased-power leases below include $33
million in 2003 and a total amount of $423 million related to a new plant
(Riverside) currently under development in Wisconsin. At December 31, 2001,
WP&L's future minimum operating lease payments were as follows (in millions):
2002 2003 2004 2005 2006 Thereafter Total
----- ----- ----- ----- ----- ---------- ------
Certain purchased-power agreements....... $18.3 $51.4 $65.8 $67.2 $68.5 $290.6 $561.8
Financings using special purpose entities 2.7 2.7 2.7 2.7 2.7 15.7 29.2
Other.................................... 3.6 5.8 6.1 6.0 5.6 3.8 30.9
----- ----- ----- ----- ----- ------ ------
$24.6 $59.9 $74.6 $75.9 $76.8 $310.1 $621.9
===== ===== ===== ===== ===== ====== ======
WP&L has various synthetic leases related to the financing of certain utility
railcars and a utility radio dispatch system. Certain financings involve the
use of unconsolidated structured finance or special purpose entities. Based on
the magnitude of the amounts shown in the above table in "Financings using
special purpose entities," WP&L believes these financings are not material to
its liquidity or capital resources.
(3) UTILITY ACCOUNTS RECEIVABLE
Utility customer accounts receivable, including unbilled revenues, arise
primarily from the sale of electricity and natural gas. At December 31, 2001
and 2000, WP&L was serving a diversified base of residential, commercial and
industrial customers and did not have any significant concentrations of credit
risk.
WP&L participates in a combined accounts receivable sale program whereby IP&L
and WP&L may sell up to a combined maximum amount of $250 million (there are no
individual limits) of their respective accounts receivable to a third-party
financial institution on a limited recourse basis through wholly-owned and
consolidated special purpose entities. Corporate Services acts as a collection
agent for the buyer and receives a fee for collection services that
approximates fair value. The agreement expires in April 2004 and is subject to
annual renewal or renegotiation for a longer period thereafter. Under terms
A-23
of the agreement, the third-party financial institution purchases the
receivables initially for the face amount. On a monthly basis, this sales price
is adjusted, resulting in payments to the third-party financial institution of
an amount that varies based on interest rates and length of time the sold
receivables remain outstanding. Collections on sold receivables are used to
purchase additional receivables from the utility subsidiaries.
At December 31, 2001 and 2000, WP&L had sold $88 million and $89 million of
receivables, respectively. In 2001, 2000 and 1999, WP&L received approximately
$1.1 billion, $0.9 billion and $0.9 billion, respectively, in aggregate
proceeds from the sale of accounts receivable. WP&L uses proceeds from the sale
of accounts receivable and unbilled revenues to maintain flexibility in its
capital structure, take advantage of favorable short-term rates and finance a
portion of its long-term cash needs. WP&L paid fees associated with these sales
of $4.0 million, $5.0 million and $4.0 million in 2001, 2000 and 1999,
respectively.
WP&L accounts for the sale of accounts receivable to the third-party financial
institution as sales under SFAS 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." Retained receivables are
available to the third-party financial institution to pay any fees or expenses
due it, and to absorb all credit losses incurred on any of the sold receivables.
(4) INCOME TAXES
The components of income taxes for WP&L were as follows (in millions):
2001 2000 1999
----- ----- -----
Current tax expense:
Federal............................ $36.8 $44.5 $47.3
State.............................. 11.2 10.5 11.1
Deferred tax benefit:
Federal............................ (4.6) (9.9) (9.4)
State.............................. (0.4) (0.3) (1.3)
Amortization of investment tax credits (1.8) (1.9) (1.9)
----- ----- -----
$41.2 $42.9 $45.8
===== ===== =====
The overall effective income tax rates shown in the following table were
computed by dividing total income tax expense by income before income taxes.
2001 2000 1999
---- ---- ----
Statutory federal income tax rate.............. 35.0% 35.0% 35.0%
State income taxes, net of federal benefits. 6.4 6.0 6.3
Amortization of investment tax credits...... (1.6) (1.6) (1.6)
Adjustment of prior period taxes............ (2.8) (0.8) (0.3)
Amortization of excess deferred taxes....... (1.5) (1.3) (1.3)
Other items, net............................ 0.4 0.2 1.1
---- ---- ----
Overall effective income tax rate.............. 35.9% 37.5% 39.2%
==== ==== ====
The accumulated deferred income tax (assets) and liabilities included on the
Consolidated Balance Sheets at December 31 arise from the following temporary
differences (in millions):
2001 2000
------ ------
Property related...... $217.5 $260.5
Investment tax credits (16.7) (19.7)
Other................. 5.4 (18.0)
------ ------
$206.2 $222.8
====== ======
A-24
(5) PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Substantially all of WP&L's employees are covered by two non-contributory
defined benefit pension plans. Benefits are based on the employees' years of
service and compensation. WP&L also provides certain postretirement health care
and life benefits to eligible retirees. In general, the health care plans are
contributory with participants' contributions adjusted regularly and the life
insurance plans are non-contributory.
The weighted-average assumptions at the measurement date of September 30 were
as follows:
Other Postretirement
Qualified Pension Benefits Benefits
------------------------- -------------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
Discount rate......................... 7.25% 8.00% 7.75% 7.25% 8.00% 7.75%
Expected return on plan assets........ 9% 9% 9% 9% 9% 9%
Rate of compensation increase......... 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%
Medical cost trend on covered charges:
Initial trend rate................. N/A N/A N/A 12% 9% 7%
Ultimate trend rate................ N/A N/A N/A 5% 5% 5%
The components of WP&L's qualified pension benefits and other postretirement
benefits costs were as follows (in millions):
Other Postretirement
Qualified Pension Benefits Benefits
------------------------- -------------------
2001 2000 1999 2001 2000 1999
------- ------- ------- ----- ----- -----
Service cost..................... $ 2.8 $ 3.0 $ 3.8 $ 1.6 $ 1.4 $ 1.6
Interest cost.................... 9.2 8.9 8.9 3.6 3.3 2.7
Expected return on plan assets... (13.7) (12.9) (12.9) (1.7) (1.6) (1.5)
Amortization of:
Transition obligation (asset). (2.1) (2.1) (2.1) 1.2 1.2 1.2
Prior service cost............ 0.5 0.4 0.4 -- -- --
Actuarial loss (gain)......... -- -- 0.2 (0.6) (0.8) (0.9)
------- ------- ------- ----- ----- -----
($ 3.3) ($ 2.7) ($ 1.7) $ 4.1 $ 3.5 $ 3.1
======= ======= ======= ===== ===== =====
The pension benefit cost shown above (and in the following tables) 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 benefit
obligations and assets associated with WP&L's non-bargaining employees who are
participants in other Alliant Energy plans are reported in Alliant Energy's
consolidated financial statements and are not reported above. The pension
benefit income for WP&L's non-bargaining employees who are now participants in
other Alliant Energy plans was $1.5 million, $1.3 million and $1.8 million for
2001, 2000 and 1999, respectively. In addition, Corporate Services provides
services to WP&L. The allocated pension benefit costs associated with these
services was $1.3 million, $1.3 million and $1.2 million for 2001, 2000 and
1999, 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 $0.3 million, $0.3 million
and $0.4 million for 2001, 2000 and 1999, 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 2001, holding all other assumptions constant, would have the
following effects (in millions):
1 Percent Increase 1 Percent Decrease
------------------ ------------------
Effect on total of service and interest cost components $0.5 ($0.4)
Effect on postretirement benefit obligation............ $4.2 ($3.9)
A-25
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 was as follows (in
millions):
Other
Qualified Postretirement
Pension Benefits Benefits
--------------- ----------------
2001 2000 2001 2000
------ ------ ------- -------
Change in benefit obligation:
Net benefit obligation at beginning of year................... $115.9 $117.2 $ 42.3 $ 42.4
Service cost.................................................. 2.8 3.0 1.6 1.4
Interest cost................................................. 9.2 8.9 3.6 3.3
Plan participants' contributions.............................. -- -- 1.6 1.2
Actuarial loss (gain)......................................... 18.3 (6.2) 16.6 (1.3)
Gross benefits paid........................................... (7.0) (7.0) (5.2) (4.7)
------ ------ ------- -------
Net benefit obligation at end of year..................... 139.2 115.9 60.5 42.3
------ ------ ------- -------
Change in plan assets:
Fair value of plan assets at beginning of year................ 156.3 147.6 19.4 17.9
Actual return on plan assets.................................. (10.5) 15.7 (0.5) 1.5
Employer contributions........................................ -- -- 2.5 3.5
Plan participants' contributions.............................. -- -- 1.6 1.2
Gross benefits paid........................................... (7.0) (7.0) (5.2) (4.7)
------ ------ ------- -------
Fair value of plan assets at end of year.................. 138.8 156.3 17.8 19.4
------ ------ ------- -------
Funded status at end of year..................................... (0.4) 40.4 (42.7) (22.9)
Unrecognized net actuarial loss (gain)........................... 34.3 (8.2) 4.4 (15.0)
Unrecognized prior service cost.................................. 3.9 4.3 (0.2) (0.2)
Unrecognized net transition obligation (asset)................... (1.7) (3.7) 12.6 13.8
------ ------ ------- -------
Net amount recognized at end of year...................... $ 36.1 $ 32.8 ($ 25.9) ($ 24.3)
====== ====== ======= =======
Amounts recognized on the Consolidated Balance Sheets consist of:
Prepaid benefit cost.......................................... $ 36.1 $ 32.8 $ 1.3 $ 0.9
Accrued benefit cost.......................................... -- -- (27.2) (25.2)
------ ------ ------- -------
Net amount recognized at measurement date................. 36.1 32.8 (25.9) (24.3)
------ ------ ------- -------
Contributions paid after 9/30 and prior to 12/31................. -- -- 1.1 0.6
------ ------ ------- -------
Net amount recognized at 12/31............................ $ 36.1 $ 32.8 ($ 24.8) ($ 23.7)
====== ====== ======= =======
The benefit obligation and fair value of plan assets for the postretirement
welfare plans with benefit obligations in excess of plan assets were $53.8
million and $8.5 million, respectively, as of September 30, 2001 and $37.1
million and $9.5 million, respectively, as of September 30, 2000. For the
various pension and postretirement plans, Alliant Energy common stock
represented less than one percent of total plan investments at December 31,
2001 and 2000.
Alliant Energy sponsors several non-qualified pension plans that cover certain
current and former key employees. The pension expense allocated to WP&L for
these plans was $1.0 million, $1.2 million and $0.8 million in 2001, 2000 and
1999, respectively. At December 31, 2001 and 2000, the funded balances of such
plans did not consist of any Alliant Energy common stock.
WP&L has various life insurance policies that cover certain key employees and
directors. At December 31, 2001 and 2000, the cash surrender value of these
investments was $9 million and $8 million, respectively.
A significant number of WP&L employees also participate in defined contribution
pension plans (401(k) plans). WP&L's contributions to the plans, which are
based on the participants' level of contribution, were $2.1 million, $2.1
million and $2.0 million in 2001, 2000 and 1999, respectively.
A-26
(6) COMMON AND PREFERRED STOCK
(a) Common Stock--WP&L has common stock dividend restrictions based on its bond
indentures and articles of incorporation, and restrictions on the payment of
common stock dividends commonly found with preferred stock. 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 percent. Also 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 percent of
total capitalization. The dividends paid by WP&L to Alliant Energy since the
rate order was issued have not exceeded such level.
(b) Preferred Stock--The carrying value of WP&L's cumulative preferred stock at
December 31, 2001 and 2000 was $60 million. The fair market value, based upon
the market yield of similar securities and quoted market prices, at December
31, 2001 and 2000 was $49 million and $44 million, respectively.
(7) DEBT
(a) Short-Term Debt--WP&L and IP&L participate in a utility money pool, which
is funded, as needed, through the issuance of commercial paper by Alliant
Energy. Interest expense and other fees are allocated based on borrowed
amounts. The PSCW has restricted WP&L from lending money to non-utility
affiliates and non-Wisconsin utilities. As a result, WP&L can only borrow money
from the utility money pool. At December 31, 2001 and 2000, WP&L had money pool
borrowings of $90.8 million and $29.2 million, respectively. Information
regarding WP&L's short-term debt and lines of credit was as follows (dollars in
millions):
2001 2000 1999
----- ----- ------
At year end:
Money pool borrowings................................................... $90.8 $29.2 $125.7
Interest rates on money pool borrowings................................. 2.4% 6.6% 5.8%
For the year ended:
Average amount of short-term debt (based on daily outstanding balances). $23.8 $25.5 $ 77.1
Average interest rates on short-term debt............................... 3.7% 6.2% 5.2%
(b) Long-Term Debt--WP&L's First Mortgage Bonds are secured by substantially
all of its utility plant. WP&L also maintains unsecured indentures relating to
the issuance of debt securities. WP&L's debt maturities for 2002 to 2006 are
$0, $0, $62.0 million, $88.0 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 WP&L's long-term debt (including variable rate demand bonds) at
December 31, 2001 and 2000 was $523 million and $569 million, respectively. The
fair market value, based upon the market yield of similar securities and quoted
market prices, at December 31, 2001 and 2000 was $548 million and $584 million,
respectively.
(8) INVESTMENTS AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of WP&L's current assets and current liabilities
approximates fair value because of the short maturity of such financial
instruments. Since WP&L is subject to regulation, any gains or losses related
to the difference between the carrying amount and the fair value of their
financial instruments may not be realized by WP&L's parent. Information
relating to various investments held by Alliant Energy that are
marked-to-market as a result of SFAS 115 were as follows (in millions):
December 31, 2001 December 31, 2000
-------------------- --------------------
Carrying/ Unrealized Carrying/ Unrealized
Fair Gains, Fair Gains,
Value Net of Tax Value Net of Tax
--------- ---------- --------- ----------
Available-for-sale securities:
Nuclear decommissioning trust funds:
Debt securities.................. $122 $ 2 $115 $ 2
Equity securities................ 94 23 81 26
---- --- ---- ---
Total......................... $216 $25 $196 $28
==== === ==== ===
A-27
Nuclear Decommissioning Trust Funds--At December 31, 2001, $77 million, $21
million and $24 million of the debt securities mature in 2002-2010, 2011-2020
and 2021-2049, respectively. The fair value of the nuclear decommissioning
trust funds was as reported by the trustee, adjusted for the tax effect of
unrealized gains and losses. Net unrealized holding gains were recorded as part
of accumulated provision for depreciation. The funds realized gains/(losses)
from the sales of securities of $2.1 million, $5.2 million and ($10.4) million
in 2001, 2000 and 1999, respectively (cost of the investments based on specific
identification was $147.4 million, $202.1 million and $94.6 million,
respectively, and proceeds from the sales were $149.5 million, $207.3 million
and $84.2 million, respectively).
Investment in ATC--WP&L, including South Beloit, transferred its transmission
assets with no gain or loss (approximate net book value of $186 million) to ATC
on January 1, 2001. WP&L received a tax-free cash distribution of $75 million
from ATC and had a $110 million equity investment in ATC, with an ownership
percentage of approximately 26.5 percent at December 31, 2001. WP&L accounts
for its investment in ATC under the equity method.
Unconsolidated Equity Investments--Summary financial information from WP&L's
unconsolidated equity investments' financial statements is as follows (in
millions):
Ownership Less Than
or Equal to 50%
-------------------
2001 2000 1999
------ ----- ----
Income statement data (for the year ended):
Operating revenues...................... $212.3 $ 5.3 $5.6
Operating income........................ 65.8 1.3 1.3
Net income.............................. 55.9 1.6 3.0
2001 2000
------ -----
Balance sheet data (at December 31):
Current assets.......................... $ 63.3 $19.6
Non-current assets...................... 690.9 29.6
Current liabilities..................... 46.1 34.1
Non-current liabilities................. 10.7 0.7
(9) DERIVATIVE FINANCIAL INSTRUMENTS
(a) Accounting for Derivative Instruments and Hedging Activities--WP&L records
derivative instruments at fair value on the balance sheet as assets or
liabilities and changes in the derivatives' fair values in earnings unless
specific hedge accounting criteria are met.
Cash Flow Hedging Instruments--During 2001 and 2000, WP&L held derivative
instruments designated as cash flow hedging instruments. WP&L utilized gas
commodity financial swap arrangements 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
pursuant to the natural gas cost incentive sharing mechanism with customers in
Wisconsin. WP&L also utilized physical coal purchase contracts, which did not
qualify for the normal purchase and sale exception, to manage the price of
anticipated coal purchases and sales. For WP&L, these contracts are used to
manage costs within the forecasts used to set its electric rates.
In 2001 and 2000, a net loss of $0.1 million and a net gain of $0.4 million,
respectively, were recognized relating to the amount of hedge ineffectiveness
in accordance with SFAS 133. WP&L did not exclude any components of the
derivative instruments' gain or loss from the assessment of hedge effectiveness
and in 2001 reclassified a loss of $0.9 million into earnings as a result of
the discontinuance of hedges. At December 31, 2001, the maximum length of time
over which WP&L hedged its exposure to the variability in future cash flows for
forecasted transactions was three months and WP&L estimated that gains of $4.1
million will be reclassified from accumulated other comprehensive loss into
earnings in 2002 as the hedged transactions affect earnings. At December 31,
2000, the maximum length of time over which WP&L hedged its exposure to the
variability in future cash flows for forecasted transactions was ten months and
WP&L estimated that losses of $4.7 million would be reclassified from
accumulated other comprehensive loss into earnings in 2001 as the hedged
transactions affected earnings.
A-28
Other Derivatives Not Designated in Hedge Relationships--Alliant Energy's
derivatives that were not designated in hedge relationships during 2001 and/or
2000 included electricity price collars and physical coal contracts not
designated in hedge relationships. Electricity price collars were used to
manage utility energy costs during supply/demand imbalances. Physical coal
contracts that do not qualify for the normal purchase and sale exception were
used to manage the price of anticipated coal purchases and sales. These
contracts are used to manage costs within the forecasts used to set its
electric rates.
(b) Weather Derivatives--WP&L uses weather derivatives to reduce the impact of
weather volatility on its natural gas sales volumes. In 2001 and 2000, WP&L
entered into non-exchange traded options based on heating degree days in which
WP&L receives payment from the counterparty if actual heating degree days are
less than the strike price in the contract. WP&L paid premiums to enter into
these contracts, which are amortized to expense over the contract period. WP&L
has used the intrinsic value method to account for these weather derivatives.
(c) Nuclear Decommissioning Trust Fund Investments--Historically, WP&L has
entered into combinations of options to mitigate the effect of significant
market fluctuations on its common stock investments in its nuclear
decommissioning trust funds. The derivative transactions are designed to
protect the portfolio's value while allowing the funds to earn a total return
modestly in excess of long-term expectations over the hedge period. Fair value
changes of these instruments do not impact net income as they are recorded as
equally offsetting changes in the investment in nuclear decommissioning trust
funds and accumulated depreciation.
(10)COMMITMENTS AND CONTINGENCIES
(a) Construction and Acquisition Program--WP&L currently anticipates 2002
utility construction and acquisition expenditures will be approximately $158
million. During 2003-2006, WP&L currently anticipates to spend approximately
$674 million for utility construction and acquisition expenditures.
(b) Purchased-Power, Coal and Natural Gas Contracts--Alliant Energy, through
its subsidiaries (Corporate Services, IESU, WP&L and IPC), has entered into
purchased-power, coal and natural gas supply, transportation and storage
contracts. Certain purchased-power commitments are considered operating leases
and are therefore not included here, but are included in Note 2. 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. Refer to
Note 14 for additional information. Coal contract quantities are directly
assigned to specific plants at the individual utilities based on various
factors including projected heat input requirements, combustion compatibility
and efficiency. However, for 2002-2006, system-wide contracts of $48.1 million
(7.2 million tons), $50.0 million (7.6 million tons), $31.4 million (3.9
million tons), $22.8 million (2.7 million tons) and $8.2 million (0.9 million
tons), respectively, have not yet been directly assigned to the individual
utilities since the specific needs of each utility is not yet known. The
natural gas supply commitments are all index-based. Alliant Energy expects to
supplement its coal and natural gas supplies with spot market purchases as
needed. The table includes commitments for "take or pay" contracts which result
in dollar commitments with no associated MWhs, tons or Dths. WP&L's minimum
commitments are as follows (dollars and Dths in millions; MWhs and tons in
thousands):
Purchased-power Coal Natural gas
--------------- ------------ ------------
Dollars MWhs Dollars Tons Dollars Dths
------- ---- ------- ---- ------- ----
2002 $36.4 219 $9.8 716 $25.4 2
2003 17.8 219 5.6 -- 21.2 1
2004 6.2 219 5.6 -- 12.9 --
2005 -- -- -- -- 12.7 --
2006 -- -- -- -- 12.3 --
(c) Legal Proceedings--WP&L 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, WP&L 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.
A-29
(d) Environmental Liabilities--WP&L had recorded the following environmental
liabilities, and regulatory assets associated with certain of these
liabilities, at December 31 (in millions):
Environmental liabilities 2001 2000
------------------------- ---- ----
MGP sites........ $4.4 $4.5
NEPA............. 3.1 3.6
Other............ -- 0.1
---- ----
$7.5 $8.2
==== ====
Regulatory assets 2001 2000
----------------- ----- -----
MGP sites.... $11.7 $11.7
NEPA......... 4.0 4.4
Other........ 3.0 0.5
----- -----
$18.7 $16.6
===== =====
MGP Sites--WP&L has current or previous ownership interests in 14 sites
previously associated with the production of gas for which they may be liable
for investigation, remediation and monitoring costs relating to the sites. WP&L
has received letters from state environmental agencies requiring no further
action at five sites. WP&L is 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.
WP&L records environmental liabilities based upon periodic studies, most
recently updated in the third quarter of 2001, 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 WP&L's sites to be approximately
$4 million to $5 million.
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.
Regulatory assets have been recorded by WP&L, which reflect the probable future
rate recovery, where applicable. Considering the current rate treatment, and
assuming no material change therein, WP&L believes that the clean-up costs
incurred for these MGP sites will not have a material adverse effect on its
respective financial conditions or results of operations.
Settlement has been reached with all of WP&L's insurance carriers regarding
reimbursement for their MGP-related costs. Insurance recoveries available at
December 31, 2001 for WP&L were $2.1 million. Pursuant to its applicable rate
making treatment, 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. WP&L recovers the costs associated with this assessment over the
period the costs are assessed. WP&L continues to pursue relief from this
assessment through litigation.
A-30
(e) Decommissioning of DAEC and Kewaunee--Pursuant to the most recent electric
rate case orders, the PSCW allows WP&L to recover $16 million annually for its
share of the cost to decommission Kewaunee. 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 Kewaunee included in the most
recent electric rate order was as follows (dollars in millions):
Assumptions relating to current rate recovery amounts:
WP&L's share of estimated decommissioning cost..... $224.9
Year dollars in.................................... 2001
Method to develop estimate......................... Site-specific
study
Annual inflation rate.............................. 5.83%
Decommissioning method............................. Prompt
dismantling
and removal
Year decommissioning to commence................... 2013
After-tax return on external investments:
Qualified...................................... 5.62%
Non-qualified.................................. 6.97%
External trust fund balance at December 31, 2001...... $215.8
After-tax earnings on external trust funds in 2001.... $7.1
WP&L is 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 and levels will be addressed in WP&L's 2002 rate
case. In accordance with its respective regulatory requirements, WP&L records
the earnings on the external trust funds as interest income with a
corresponding entry to depreciation expense. The earnings accumulate in the
external trust fund balances and in accumulated depreciation on utility plant.
(11) JOINTLY-OWNED ELECTRIC UTILITY PLANT
Under joint ownership agreements with other Wisconsin utilities, WP&L has
undivided ownership interests in jointly-owned electric generating stations.
Each of the respective owners is responsible for the financing of its portion
of the construction costs. KWh generation and operating expenses are divided on
the same basis as ownership with each owner reflecting its respective costs in
its Consolidated Statements of Income. Information relative to WP&L's ownership
interest in these facilities at December 31, 2001 was as follows (dollars in
millions):
Accumulated Construction
Fuel Ownership Plant in Provision for Work-In-
Type Interest % Service Depreciation Progress
------- ---------- -------- ------------- ------------
Columbia Energy Center Coal 46.2 $174.3 $105.3 $1.7
Edgewater Unit 4...... Coal 68.2 57.1 34.3 1.4
Edgewater Unit 5...... Coal 75.0 232.2 106.2 2.5
Kewaunee.............. Nuclear 41.0 167.3 111.3 3.7
------ ------ ----
$630.9 $357.1 $9.3
====== ====== ====
Increases in utility plant in service balances for Kewaunee during 2001 were
largely due to the replacement of the steam generators, which is expected to
result in significant increases in generating capability compared to such
capability prior to undertaking such project.
A-31
(12) SEGMENTS OF BUSINESS
WP&L is a regulated domestic utility, serving customers in Wisconsin and
Illinois, and is broken down into three segments: a) electric operations; b)
gas operations; and c) other, which includes the water business and the
unallocated portions of the utility business. Various line items in the
following tables are not allocated to the electric and gas segments for
management reporting purposes and therefore are included in "Other."
Intersegment revenues were not material to WP&L's operations and there was no
single customer whose revenues were 10 percent or more of WP&L's consolidated
revenues. Certain financial information relating to WP&L's significant business
segments was as follows (in millions):
Electric Gas Other Total
--------- ------ ------- ---------
2001
Operating revenues........................... $ 753.5 $206.9 $ 5.0 $ 965.4
Depreciation and amortization................ 111.5 16.4 1.2 129.1
Operating income............................. 121.6 2.5 1.3 125.4
Interest expense, net of AFUDC............... 38.7 38.7
Equity income from unconsolidated investments (15.5) (15.5)
Miscellaneous, net........................... (12.5) (12.5)
Income tax expense........................... 41.2 41.2
Net income................................... 73.5 73.5
Preferred dividends.......................... 3.3 3.3
Earnings available for common stock.......... 70.2 70.2
Total assets................................. 1,323.9 224.5 331.5 1,879.9
Investments in equity method subsidiaries.... 117.3 117.3
Construction and acquisition expenditures.... 127.9 16.8 2.3 147.0
2000
Operating revenues........................... $ 692.2 $165.2 $ 5.0 $ 862.4
Depreciation and amortization................ 122.9 15.9 1.1 139.9
Operating income............................. 123.2 12.2 1.7 137.1
Interest expense, net of AFUDC............... 39.3 39.3
Equity income from unconsolidated investments (0.5) (0.5)
Miscellaneous, net........................... (16.0) (16.0)
Income tax expense........................... 42.9 42.9
Net income................................... 71.4 71.4
Preferred dividends.......................... 3.3 3.3
Earnings available for common stock.......... 68.1 68.1
Total assets................................. 1,344.9 226.1 286.0 1,857.0
Investments in equity method subsidiaries.... 4.8 4.8
Construction and acquisition expenditures.... 114.2 15.1 2.3 131.6
1999
Operating revenues........................... $ 626.6 $120.8 $ 5.1 $ 752.5
Depreciation and amortization................ 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
Equity income from unconsolidated investments (0.7) (0.7)
Miscellaneous, net........................... 2.5 2.5
Income tax expense........................... 45.8 45.8
Net income................................... 70.8 70.8
Preferred 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
A-32
(13) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
2001 (a) 2000
--------------------------------- ---------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- ------- -------- ------- -------- -------
(in millions)
Operating revenues................. $317.2 $204.1 $228.3 $215.8 $218.8 $193.9 $199.6 $250.1
Operating income................... 37.0 23.4 36.2 28.8 40.5 25.1 36.9 34.6
Net income......................... 19.3 11.6 19.9 22.8 21.9 11.3 17.6 20.6
Earnings available for common stock 18.4 10.7 19.0 22.0 21.0 10.5 16.8 19.8
- ----------
(a)Summation of the individual quarters may not equal annual totals due to
rounding.
(14) RELATED PARTY ISSUES
IESU, WP&L and IPC have entered into a System Coordination and Operating
Agreement. 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 $32.1 million, $28.6 million and $23.8
million for 2001, 2000 and 1999, respectively. The purchases allocated to WP&L
were $209.2 million, $130.7 million and $101.0 million for 2001, 2000 and 1999,
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 receives
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 $107.0 million, $103.4 million and $96.5 million for 2001, 2000 and
1999, respectively, and consisted primarily of employee compensation, benefits
and fees associated with various professional services. At December 31, 2001
and 2000, WP&L had an intercompany payable to Corporate Services of $33.5
million and $30.6 million, respectively.
A-33
SHAREOWNER INFORMATION
Market Information--The 4.50% series of preferred stock is listed on the
American Stock Exchange, with the trading symbol of WIS_P. All other series of
preferred stock are traded on the over-the-counter market. Seventy-one percent
of WP&L's individual preferred shareowners are Wisconsin residents.
Dividend Information--Preferred stock dividends paid per share for each quarter
during 2001 were as follows:
Series Dividend
------ --------
4.40% $1.10
4.50% $1.125
4.76% $1.19
4.80% $1.20
4.96% $1.24
6.20% $1.55
6.50% $0.40625
As authorized by the WP&L Board of Directors, preferred stock dividend record
and payment dates for 2002 are as follows:
Record Date Payment Date
----------- ------------
February 28 March 15
May 31..... June 15
August 30.. September 14
November 29 December 14
Stock Transfer Agent and Registrar
Alliant Energy Corporation
Shareowner Services
P.O. Box 2568
Madison, WI 53701-2568
Form 10-K Information--A copy of Form 10-K as filed with the SEC will be
provided without charge upon request. Requests may be directed to Shareowner
Services at the above address.
EXECUTIVE OFFICERS
Erroll B. Davis, Jr., 57, was elected Chairman of the Board effective April
2000 and Chief Executive Officer (CEO) effective April 1998. He previously
served as President and CEO since 1988 and has been a board member since 1984.
William D. Harvey, 52, was elected President effective April 1998. He
previously served as Senior Vice President since 1993.
Eliot G. Protsch, 48, was elected Executive Vice President-Energy Delivery
effective October 1998. He previously served as Senior Vice President from 1993
to 1998.
Barbara J. Swan, 50, was elected Executive Vice President and General Counsel
effective October 1998. She previously served as Vice President-General Counsel
from 1994 to 1998.
Thomas M. Walker, 54, was elected Executive Vice President and Chief Financial
Officer (CFO) effective October 1998. He previously served as Executive Vice
President and CFO since 1996 at IES and IESU.
Pamela J. Wegner, 54, was elected Executive Vice President-Shared Solutions
effective October 1998. She previously served as Vice President-Information
Services and Administration from 1994 to 1998.
A-34
Vern A. Gebhart, 48, was elected Vice President-Customer Operations effective
January 2002. He previously served as Managing Director-Strategic Projects and
Capital Control since 2000 at Alliant Energy, Director-Strategic Projects and
Capital Control from 1998 to 2000 at Alliant Energy and Director-Strategic
Projects and Capital Control from 1997 to 1998 at IES.
Edward M. Gleason, 61, was elected Vice President-Treasurer and Corporate
Secretary effective April 1998. He previously served as Controller, Treasurer,
and Corporate Secretary since 1996.
Dundeana K. Doyle, 43, was elected Vice President-Infrastructure Security
effective January 2002. She previously served as Vice President-Customer
Operations since December 2000, Vice President-Customer Services and Operations
from 1999 to 2000, Vice President-Customer Services from 1998 to 1999 and
Assistant Vice President-Field Operations from 1997 to 1998 at IESU.
Daniel L. Mineck, 53, was elected Vice President-Performance Engineering and
Environmental effective April 1998. He previously served as Assistant Vice
President-Corporate Engineering since 1996 at IESU.
Kim K. Zuhlke, 48, was elected Vice President-Engineering, Sales & Marketing
effective September 1999. He previously served as Vice President-Customer
Operations since April 1998 and as Vice President-Customer Services and Sales
from 1993 to 1998.
John E. Kratchmer, 39, was elected Corporate Controller and Chief Accounting
Officer effective October 2000. He previously served as Assistant Controller
since April 1998 at Alliant Energy and as Manager of Financial Reporting and
Property from 1996 to 1998 at IES.
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.
Additional Officers
Linda J. Wentzel, 53, was elected Assistant Corporate Secretary effective May
1998. She previously served as Executive Administrative Assistant since 1995 at
Alliant Energy.
Enrique Bacalao, 52, 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.
Steven F. Price, 49, was elected Assistant Treasurer effective April 1998. He
previously served as Assistant Corporate Secretary since 1992.
A-35
Wisconsin Power & Light Company P.O. BOX 2568
Madison, WI 53701-2568
WISCONSIN POWER AND LIGHT COMPANY
PO BOX 2568
MADISON WI 53701-2568
- --------------------------------------------------------------------------------
ANNUAL MEETING OF SHAREOWNERS - MAY 22, 2002
- --------------------------------------------------------------------------------
The undersigned appoints William D. Harvey and F.J. Buri, or either of them,
attorneys and proxies with the power of substitution to vote all shares of stock
of Wisconsin Power and Light Company, held of record in the name of the
undersigned at the close of business on March 28, 2002, at the Annual Meeting of
Shareowners of the Company to be held at 4902 N. Biltmore Lane, Madison,
Wisconsin on May 22, 2002 at 1:00 p.m., and at all adjournments thereof, upon
all matters that properly come before the meeting, including the matters
described in the Company's Notice of Annual Meeting of Shareowners dated April
9, 2002 and accompanying Proxy Statement, subject to any directions indicated on
the reverse side of this card.
This proxy is solicited on behalf of the Board of Directors of Wisconsin Power
and Light Company. This proxy when properly executed will be voted in the manner
directed herein by the shareowner. If no direction is made, the proxies will
vote "FOR" the election of all listed director nominees.
To access the Alliant Energy Corporation Annual Report and Proxy Statement
on the Internet, please open our site at www.alliantenergy.com. We
encourage you to check out our site to see how easy and convenient it is.
Click on the Annual Report button for the Annual Report/Proxy Statement.
You may print or just view these materials. Your Internet provider may have
usage charges associated with electronic access.
Wisconsin Power & Light Company
Shareowner Services
PO Box 2568
Madison WI 53701-2568
SHAREOWNER INFORMATION NUMBERS
Local Madison, WI1-608-458-3110
All Other Areas 1-800-356-5343
Indicate your vote by an (X) in the appropriate boxes.
ELECTION OF DIRECTORS
Withhold For All
For All For All Except(*)
Nominees for terms ending in 2005: [_] [_] [_]
01 Alan B. Arends
02 Katharine C. Lyall
03 Singleton B. McAllister
04 Anthony R. Weiler
* TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE AND MARK AN (X) IN THE "For All
Except" BOX.
Please date and sign your name(s) exactly as shown above and mail promptly in
the enclosed envelope.
Signature Date
----------------------------- ---------------------------
Signature Date
----------------------------- ---------------------------
Important: When signing as attorney, executor, administrator, trustee or
guardian, please give your full title as such. In the case of JOINT HOLDERS, all
should sign.
Please fold and detach Proxy Card at perforation if appointing a proxy by mail.
- --------------------------------------------------------------------------------
To all Wisconsin Power and Light Company Shareowners:
Please take a moment to vote your shares for the upcoming Annual Meeting of
Shareowners.
Above is your 2002 Wisconsin Power and Light Company proxy card. Please read
both sides of the proxy card, note your election, sign and date it. Detach and
return promptly in the enclosed self-addressed envelope. Whether or not you are
attending, we encourage you to vote your shares.
You are invited to attend the Annual Meeting of Shareowners on Wednesday, May
22, 2002 at 1:00 p.m. at the Alliant Energy Corporate Headquarters in the Nile
Meeting Room at 4902 N. Biltmore Lane, Madison, Wisconsin.