Alliant Energy Corp (LNT) 2003 Q1 法說會逐字稿

Thank you for holding, ladies and gentlemen, and welcome the Alliant Energy first quarter 2003 earnings conference call. At that time, all lines are in a listen-only mode. I would now like to turn the call over to your host Mr. Eric Mott. Assistant Treasurer of Alliant Energy.

Good morning, and thank you for joining us for Alliant Energy's Corporation first quarter 2003 earnings conference call. I would like to welcome you those who are joining outs phone today and joining us on our website. We certainly appreciate your participation. With me today are Erroll Davis, Alliant Energy Chairman, President and Chief Executive Officer and Tom Walker Executive Vice President and Chief Financial Officer as well as various other senior executives of the organization.

Our call today is opened to the general public and media but our content and answers are primarily designed for the financial community. Including institutional investors and investment analysts. We will have a formal question and answer period following some prepared remarks by Erroll Davis and Tom Walker. We'll take as many questions as we can within the one-hour time frame for today's call. As most of you are aware, earlier this morning , we issued a news release announcing Alliant Energy’s first quarter 2003 earnings and affirming our 2003 earnings guidance from earnings from continued operations. If you haven't seen a release, a copy is available on our website at WWW.Alliantenergy.com in the new section.

Let me briefly point out the instruction of the news release. Effective this quarter now reporting our earnings exclusively on a GAAP basis and no longer reporting adjusted earnings. The GAAP results consists of three components , earnings from continued operation, earnings from discontinued operation and the cumulative effect of changes and accounting principles. Alliant Energy's management believes earnings from continuing operations provides a more meaningful representation of the company's fundamental earnings capacity on a going-forward basis.

Before we begin, I would like to remind that you the remarks we make on this call and our answers to your questions include forward-looking statements. These forward-looking statements are subject to risk that could cause actual results to be materially different. Those risks include, among others Alliant Energy’s discussed in the press release this morning and in the filings with the securities and exchange commission. We disclaim any obligation to update these forward-looking statements. With that said I will now turn the call over to Erroll Davis.

Thank you very much, Eric, and good morning to all of you and once again, thank you for participating in our call this morning. As Eric noted, we are no longer reporting earnings on an adjusted earnings basis. So it is important to us that you understand how we interpret the results for the first quarter. So let me get right to the bottom line. And the bottom line is that we are pleased with our first quarter results. There are actually slightly ahead of our internal plans and the results allow us to affirm our 2003 earnings guidance for continuing operations.

I'm also quite pleased to report that we've made very significant progress in executing the plans we outlined to you in November, to strengthen our financial profile. Admittedly, executing certain steps of our strategic plan, more specifically , the process of the divesting certain assets has made simple our financial reporting more complex and when you combine that with a focus on GAAP accounting, this has created a challenge in communicating our results and in simple and understandable terms and we certainly understand that. So, this conference call does provide us an excellent tool for us to engage in a more in-depth discussion. So I am thankful again for the opportunity to do so today.

Today, as Eric noted, we reported first quarter 2003 income from continuing operation of $14.6 million or 16 cents is a share compared to a $7.8 million loss or a loss of 9 cents per share in the same period last year. If you go to a GAAP basis, a net loss of $5,000 or 1 cent per share in the first quarter which encompasses the first earnings of discontinuing operations which includes a write-down of certain assets of their sale as well as the impact of the adoption of two new accounting principles in addition to the earnings from continuing operations.

Now, on a GAAP basis, this compares to a net income of $9.7 million or earnings per share of 11 cents in the first quarter of 2002. However, as we for the process of selling and updating the market values of our discontinued assets, we are really not finding this GAAP comparison very meaningful. If you look at it in very simple terms, last year in the first quarter, we generated a loss of continuing operations but reported net income on a GAAP basis. This year in the first quarter we generated income from continuing operations, but we're reporting a net loss on a GAAP basis. The reason why we're all encouraged by our performance in the first quarter is two fold. First, the loss was obviously primarily due to the valuation adjustments and selling costs we reported (ph) within our discontinued operations. Second, the other major factor is the impact of adopting two new accounting principles.

Important take away is that the foundation in which we are building our continuing operations, produced improved results in the first quarter 2003 compared to the first quarter of 2002. I believe this 25 cent per share improvement and earnings in continuing operations shows that we are making progress and improving our financial performance and our commitment to deliver value to our shareholders.

As we've previously discussed, 2003 is going to be a transition year. As we expected and as we forecasted, our non-regulated operations did not contribute positively to earnings from continuing operations in the first quarter. But also as expected, and as forecasted, we significantly reduced the loss. Would we be satisfied with this performance to a longer term basis? Absolutely not, but is the trend heading in the right direction? Absolutely yes. The news from the first quarter is positive for our utility operations as well. Sales have improved due to more favorable weather conditions and is a slowly improving economy, as evidence of a 2% increase of electric sales to industrial customers as compared to the first quarter of 2002. We also continue to receive much needed rate relief, and I would note the two most recent decisions are not reflected in our first quarter numbers. This additional revenue is critical not only to our financial success, but also equally critical to our ability to continue to provide our customers with the safe, reliable, and environmentally sound utility service that they deserve and have come to expect as well. We presented strong cases in each jurisdiction, and while we did not receive the total amount we requested and we never do , the amount we did receive are in-line with the estimates we have concluded in w our 2003 guidance to you.

On April 4th, we received the final order in our 2003 Wisconsin retail case. Public service commissioner in Wisconsin granted total rate relief with Wisconsin power, lights, electric, gas, and water cases of $81.1 million and authorize a return on common equity of 12%. There was no interim relief in this case. So this is all incremental revenue. We also expect to update our $65.1 million revenue increase request for 2004. We expect do that in May to reflect the results of the 2003 case. We expect the Wisconsin commission will provide a final order in the 2004 case early in 2004.

In March of this year, we also -- Wisconsin power and light also filed a $4.7 million rate increase request. [inaudible] We expect our proposed rates to be implemented in July, subject to refund of course.

In the Iowa utilities board granted an additional $10.6 million in our retail electric case. Combined with the interim increase of $15.5 million granted last summer, the total increase was $26.1 million with an authorized rate of return on common equity of 11.15%, excuse me. New rates in Iowa are expected to go into effect in June. The final order in our $20 million retail natural gas case in Iowa is expected in May. We received interim relief in that case of $17 million last July. For a number of reason week, have decided not to file a 2002 test year retail electric case this year in Iowa. First, the case would have been modest at best, and second, we wanted to ensure that the case we do intend to file in 2004 would not be delayed awaiting a decision on a case filed this year. As part of our 2004 case, we will begin recovering the cost associated with the $400 million -- let me clarify that it is a $400 million and not a $450 million as inadvertently released in a price release facility. This is a 500-megawat combined cycle natural gas pipe currently under construction in Iowa.

This will be our first plant to be recovered by the provisions of legislation passed in 2001 providing pre-approval of rate principles. The principles related to this plant include a 12.23% ROE and a 27-year depreciation schedule, and again that will be reflected in our 2004 case.

Operationally, our domestic utilities are performing well, and we continue to receive excellent ratings in national customer satisfaction surveys. Our domestic utilities formed the foundation of Alliant Energy and it is a very strong foundation indeed. The financial performance of Alliant Energy, resources, is not yet at acceptable levels, but it has shown improvement. The significant improvement in the first quarter results versus the same period last year, was primarily due to the absence of 26 cents per share of assets charges that were recorded in the first quarter of 2002. We did realize improvements in the results of underlying operations of many of our non-regulated businesses, which is encouraging. However, these improvements were largely offset by higher interest expense. I did also want to touch briefly on the performance of our Brazilian investments. The utilities that make up our

Brazilian investments have made operational improvements over the past year, unfortunately, these improvements have not yet resulted in the level of improved financial performance we expect.

And this is due to several factors, including the significant impact of rising interest costs there. Financial performance in the first quarter in Brazil was essentially flat as compared to the first quarter of 2002. While we do not expect our Brazilian investment to be fully profitable in 2003, we do expect to see significant improvements in their financial performance as we move through the year. Drivers for this improved performance will include sales growth, a continued implementation of rate increases which we are receiving, reduce losses and improve customers -- of customer receivables.

In addition, we encourage significant one-time charges related to our Brazilian investment in 2002, which we do not expect to again receive in 2003. And lastly, the significant improvements in the foreign exchange rate, which we have seen thus far in 2003 are going to have a positive impact on our anticipated 2003 results. As previously indicated, we do not see marked improvement -- if we do not see marked improvement in the financial performance of our Brazilian investments by the end of 2003, we will reevaluate our commitment to the Brazilian market at that time. Another issue that you may have read about is the share owner lawsuit filed last week by a firm that seems to specialize in these types of class-action suits. This suit alleges , among other things, and Alliant Energy and certain officers including me, made false and misleading statement s relating to Alliant Energies expected performance of our non-regulated business unit. I am not going to say much on this issue as it does involve a legal proceeding but I want to emphasize we do categorically deny any allegations included in this, this complaint. At Alliant Energy our core values and will also include honesty and integrity.

These guide our accounting practices as well as our communications with our share owner , customers, employees, regulators and the general public. In fact, we continually exercise an open and honest approach when communicating all news whether it's positive or negative. As with any legal proceeding, we'll address this case in the appropriate legal form, thus as a result , I'm not going to take any questions on this in the Q&A session of this call. And again I will note that even in the face of such a suit, we continue -- we will continue to provide earnings guidance and we are presently affirming our previous guidance for 2003.

Finally, I want to address the steps we have already successfully executed as part of the plan we announced last November, but before I do that, I'm going to ask Tom Walker, our Chief Financial Officer to update on our short-term borrowing position, cash flow, capitalization ratios and capital expenditures. Tom ?

We had at Alliant Energy of $290 million, which consists of $190 million of commercial paper and $100 million draw down on bank one. This leaves us with availability of $160 million. In addition, we have a standby facility available at Alliant Energy resources. Our domestic utilities had $145 million of commercial paper outstanding with availability of approximately $140 million. We are in the preliminary stages of preparing our cash flow statements that will be included in our form 10-q filings in May.

While these statements are not yet final, preliminary conditions are that cash flows from continuing operations are higher in the first quarter of 2003 compared to the same period of 2002. Our targeted consolidated cash flows from continuing operations for 2003 is a range of $500 million to $575 million. Our consolidated unadjusted capitalization ratio at the end of first quarter was 61%, total debt to capital. Our targeted capitalization ratio for year end 2003, after the plan divestiture of assets or responding debt reduction and planned common stock offering is in the low 50% range of total debt capital. Also like to address one of the key components of our plan as keeping a tight control of capital expenditures.

Our capital expenditures for continuing operations in the first quarter were $284 million. Our capital expenditure’s forecast for continuing operations for full year 2003 remains $820 million insisting $610 million at the utilities and $210 million at Alliant Energy Resources. Our 2004 and 2005, we project capital expenditures of roughly $1.1 million over that two-year period with roughly 90% of that amount is devoted to our regulated domestic utilities I will now turn it back over to Erroll to discuss the steps we are taking to strengthen our financial profile.

Thanks, Tom. I am proud that we have achieved in our plan. In detailing what we have already accomplished, I hopeful agree through our actions we have demonstrated the level of execution risk in our plan is certainly manageable. For example in March this year, we announced an agreement with New Zealand -based MERIDIAN Energy to sell Australian's investment and primarily of made of Alliant Energies of southern hydro. The sale prices approximately $350 million. This amount includes the repayment of approximately $145 million in debt in Australia. On an after-tax basis, this sell will result in net proceed s of approximately $165 million. As a result of this transaction, approximately $310 million will be available for to Alliant Energy for debt reduction.

This is the first step in meeting our $800 million to $1 billion debt reduction plan to the divestiture of certain businesses. We expect to close this transaction on Wednesday of this week in two days. We are also making solid progress on the divestiture of our affordable housing , oil and gas, and Smart Energy businesses. While we were required under the applicable accounting rules to record $26 million of after-tax valuation adjustments in the of the first quarter related to the billion dollars of assets that we planned to divest, we were also precluded by those very same rules by recording of what we realized two days from now from the sell of our Australian business.

We currently estimate the gain of this will be double of evaluated adjustments in the first quarter. While the recording of the $26 million valuation adjustments was the largest driver in our having a GAAP net loss for the first quarter, clearly this is just a timing issue between the first and second quarters. Again, we remain confident we can reduce debt levels by the $800 million to one billion we projected in our November 26 plan, resulting from the proceeds from our proposed asset divestitures. Now, another part of that plan of course was the issue of equity.

Earlier this month, we filed a shelf registration with the Securities and Exchange Commission covering up to $400 million of securities for Alliant Energy corporation and Alliant Energy Resources and an additional $150 million for interstate power and light. As we have discussed, our plan includes a $200 million to $300 million equity offering that we now expect to complete in the second half of this year. And the final component of our plan is strict cost control, and I assure you we are making significant progress on that front as well.

One our key initiatives our Six Sigma program is implemented and through this well recognized process we have identified a whole host of projects that will result in more efficient at Alliant Energy. In this transition year of 2003, we fully understand of our quarter-to-quarter results will of course be important, but more important, will be the foundation that we lay and the long-term trends we establish. And as I've just detailed , the trends are clearly positive. We are successfully executing our plan and remain committed to exercising the discipline necessary to continue on this path toward meeting our objectives and delivering increased shareholder value.

As I mentioned at the start, we are now focused on earning from continuing operations. And that regard, our 2003 earnings guidance from continuing operation remains at $1.45 to $1.65 per share. This is unchanged from our previous guidance. And includes guidance for our domestic regulated utility operations between $1.75 and $1.95 per share.

We are aware we know they we are continuing to face significant challenges a we know the road before us will not always be easy. We are pleased however our successful execution on our more focused business strategy to date, but we are far from satisfied. Our team remains steady, focused and resolved. As a personally look back over the last few quarters, I take great pride in the approach our of employees have adopted and their seemingly ability to confront and conquer whatever challenges are before them. In closing, let me assure you a team from top to bottom that is focused on meeting our commitments, both it our customers, to our employees, and to our shareholders and we are starting to see the positive roots of that focus. Let me turn it now back to Eric, to discuss how we are going to handle the question and answer session.

Thanks, Erroll, at this time we would like to open the call to questions of investment community, including institutional investor and investment analysts. We'll take as many questions as we can within the one-hour time frame of this morning's call. I will now like to turn the call over to the operator, who will guide us through the question-and-answer session.

Thank you, sir. At this time, I would like to remind everyone, if you would like to answer a question, press star and then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. First question comes from Daniele Seitz with Salomon Smith Barney.

Good morning. I just have a couple of questions. Do you have the quarterly earnings of valuables that you can compare them with just operating, just discontinued operations for the next three quarters in '02?

We did not make quarterly forecasts.

No, I understand. Just for 2002, do you have the numbers that will correspond to continued operations ?

I do not have them right in front of me , Daniele.

Okay. I can -- later.

Yeah, last year's numbers will be in our 10K.

Okay. It seems that rate increases are being filed and the fairly large one in Brazil. Have you filed similar type of rate increases, other companies have filed 30% to 40% rate increases ?

The only company in Brazil was up for a five-year review was energy pa, and we have received our ruling on that and it a 35% increase due to the phasing rules down there. We'll be able to implement this year about 30% to 31% and let me say that that also exceeded the expectations that we in our budget.

We do have Sialpa(ph) coming up for its review later this year. But again , we are receiving -- we have already received a major increase by -- in Brazil, which will blow through the rest of the year there. With respect to the rate cases here, of course, our two major rate cases were finished but in the second quarter. Of this year. And so you'll start to see the impacts of those flowing through in the second half of this year. As I noted, the Wisconsin case was $81.1 million of entirely new revenue, which will start to flow through our financials.

Right.

In the second half of this year.

Thank you very much.

Once again, if you do have a question , police press star and the number one on your telephone keypad. There are no further questions at this time.

Let me, at some risk, let me ask a question myself because again as we said, one of the difficulties that we had in this transition year of course is to get you to understand our earnings, and I believe legitimate question may be that if you have 16 cents of earnings in the first quarter, why are you still comfortable with your full-year earnings guidance?

And the answer to that question is that if you look back in '01 and '02, you are particularly look at utility, 67% of our earnings in both years came in the third and fourth quarters of that year. And both of those were years without significant rate actions to a -- the degree that we have now. And so if you take that normal 67% for the utility in the second half of the year plus the robust rating increases that we will be factoring in, you can see how we reached the comfort level with the forecast that we have today.

With no more questions , this concludes our call today. I would like to take this time to thank you for your participation this morning and for your continued support of Alliant Energy. A replay of call will be available through May 2nd, 2003 at 800-642-1687 for domestic callers or 760-645-9291 for international callers. Callers need to reference conference id number, 9595454. In addition an archive of the conference call and the transcript prepared remarks on the call will be available on the company's website at WWW.Alliantenergy.com in the investor's section. Thank you.

Thank you for participating in today's conference. You may now disconnect.