01—Abstract
Summary
Summary of the 10-K filed February 27, 2009. Cited figures are marked; the original filing is the authoritative source.
Alliant Energy Corporation (NYSE: LNT) is a regulated investor-owned public utility holding company headquartered in Madison, Wisconsin, providing electric and natural gas service to approximately 1 million electric and 400,000 gas customers in the Midwest through its utility subsidiaries Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company (WPL).
In 2008, net income was $288.0 milliona, or $2.61 per diluted share, compared with $425.3 million, or $3.78 per share, in 2007. The decline was driven mainly by the absence of a $123 million after-tax gain from IPL's 2007 sale of its electric transmission assets, June 2008 Midwest flooding that cost approximately $200 million, and lower sales from weak economic conditions. Operating revenues rose to $3.68 billion from $3.44 billion, and the Board set the expected 2009 annual dividend at $1.50 per share.
The company's strategy centers on a large infrastructure investment program, with capital expenditures of $1.31 billionb, $1.55 billion and $1.23 billion forecast for 2009, 2010 and 2011. Key projects include the Whispering Willow - East wind project, the proposed Sutherland #4 coal-fired facility, the Bent Tree wind project, and WPL's planned June 2009 purchase of the Neenah Energy Facility. The Public Service Commission of Wisconsin denied WPL's Nelson Dewey #3 construction application in December 2008, and WPL is evaluating alternatives.
Air-quality compliance spending is estimated at $1.8 billion to $2.0 billionc through 2019. Management expects 2009 pension costs and electric transmission charges at IPL to rise materially. The filing also highlights significant legal and financial risk.
The trustee for Resources' $402.5 milliond Exchangeable Senior Notes due 2030 alleges a default tied to asset transfers. If the company loses, it would record a pre-tax loss of about $364 million to $365 million and could face cross-default consequences under its credit facility and IPL's receivables sale program.
A separate ERISA class action concerns the cash balance pension plan. Management believes neither matter will have a material adverse effect, though the outcomes remain uncertain.
02—Key points
Key Highlights
- 2008 net income of $288.0 million ($2.61 per diluted share), down from $425.3 million ($3.78) in 2007, which included a $123 million after-tax gain on the sale of IPL's electric transmission assets.
- June 2008 Midwest flooding caused a total cost of approximately $200 million for 2008, with 2008 utility earnings reduced by about $0.23 per share; the property insurance policy covers up to $100 million.
- Capital expenditure plans of $1.31 billion (2009), $1.55 billion (2010) and $1.23 billion (2011), including new generation such as Whispering Willow - East (200 MW wind), Sutherland #4 (350 MW output share) and Bent Tree (200 MW wind).
- The PSCW denied WPL's Nelson Dewey #3 construction application in December 2008, with $36 million of capitalized costs recorded as regulatory assets pending rate recovery.
- Exchangeable Senior Notes litigation: a trustee default claim on $402.5 million of notes could require a pre-tax loss of about $365 million and trigger cross-defaults under credit facilities.
- Expected 2009 annual common dividend raised to $1.50 per share ($0.375 quarterly); 2008 dividend payout was 64% of utility earnings against a 60% to 70% target.
- Expected 2009 IPL transmission charges from ITC rising 67.5% over 2008 rates, adding an estimated $60 million to $70 million, expected to have a material adverse impact on results.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 27, 2009Financial Statements
| Revenue | $3.67B |
| Operating Expenses | $3.18B |
| Operating Income | $487.00M |
| Interest Expense | $125.80M |
| Net Income | $306.70M |
| EPS (Basic) | $2.61 |
| EPS (Diluted) | $2.61 |
| Shares Outstanding (Basic) | 110.17M |
| Shares Outstanding (Diluted) | 110.31M |
05—Questions
Frequently Asked Questions
Why did Alliant Energy's earnings decline in 2008?
Net income fell to $288.0 million from $425.3 million. The 2007 results included a $123 million after-tax gain on IPL's sale of its electric transmission assets. In 2008, the June Midwest flooding, lower sales from the slowing economy, and higher electric transmission service expenses from ITC all reduced earnings, partially offset by a lower effective income tax rate.
What is the risk from the Exchangeable Senior Notes litigation?
The trustee alleges Resources defaulted by transferring substantially all of its assets without complying with the Indenture. Alliant Energy and Resources dispute this and intend to vigorously defend. If the company loses and the notes are accelerated, it would have to repay the $402.5 million principal plus accrued interest and record a pre-tax loss of roughly $365 million, and cross-default provisions could terminate its credit facility and IPL's receivables sale program. Waivers prevent an Event of Default through March 31, 2009.
How is the company funding its large construction program?
The filing says 2009 capital expenditures will be funded with available cash, short-term debt and internally generated cash, with about $500 million of long-term debt issuances ($250 million each at IPL and WPL) planned for the second half of 2009. Funding for 2010 and 2011 will be determined later. Liquidity at year-end 2008 included $347 million of cash and $537 million of available revolving credit capacity.
What regulatory developments could affect future rates and returns?
IPL's Iowa retail rate case is expected in March 2009 to address transmission costs, emissions controls and pension costs. WPL plans an April 2009 electric and gas rate case with a 2010 test period. Iowa's HF 577 and Wisconsin's Act 7 allow advance rate-making principles for new generation, though the IUB set a 10.1% return on equity and a cost cap for Sutherland #4 while WPL did not accept the PSCW's Act 7 terms for Cedar Ridge.
What environmental compliance costs does the company face?
The multi-emission compliance plan estimates capital expenditures of about $1.8 billion to $2.0 billion from 2009 through 2019 for mercury, NOx and SO2 controls at IPL and WPL facilities. The company expects prudently incurred compliance costs to be recoverable in rates, but CAIR, CAVR, CAMR and potential greenhouse gas regulation remain uncertain and could require significant additional investment.
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