Alliant Energy Corp (LNT) 2003 Q4 法說會逐字稿

Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy's year-end 2003 earnings and strategic update conference call. At this 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.

Thanks, Mandy and I thank all of you for joining us today in our conference call. I would certainly like to welcome those of you who are joining us on the phone today, also those of you who are joining us on the Web. We appreciate your participation.

With me today are Erroll Davis, Alliant Energy's Chairman and Chief Executive Officer; Bill Harvey, President and Chief Operating Officer; and Eliot Protsch, our Senior Executive Vice President and Chief Financial Officer. Various other senior executives of the organization are also with us today in the room.

Our call today is open to the general public and media, but our content and answers are primarily designed for the financial community. We will have a formal question-and-answer period following some prepared remarks by Erroll, Bill, and Eliot. We will take as many questions and 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 year-end and fourth-quarter 2003 earnings, our 2004 earnings guidance, and our 2004 and 2005 capital expenditure budget. If you have not seen the release, a copy of it is available on our website, at www.AlliantEnergy.com, in the investor section.

Our 2003 GAAP results consist of three components, earnings from continuing operations, earnings from discontinued operations, and the cumulative effect of changes in accounting principles. As we have previously stated, Alliant Energy's management believes earnings from continuing operations provide the most meaningful representation of the company's fundamental earnings capacity going forward.

Before we begin, I would like to remind you that the remarks we make on this call and our answers to your questions include forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters discussed in Alliant Energy's press release issued this morning and in Alliant Energy's 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 thank you for joining us today. I usually start of course by saying it is a pleasure to be here; and as I have learned over the last several years it is more of a pleasure when you have good news to report. And we do once again this quarter.

We are going to try and cover a number of topics in today's call. After some very brief opening comments, I'm going to turn the call over to Bill Harvey, our new President and Chief Operating Officer, to provide you an overview of our strategic focus going forward. Eliot Protsch, who was with us on the last call, will then discuss our 2003 financial results, our capital expenditure projections for 2004, and 2005, and also share with you our 2004 earnings guidance. I will then come back and provide some concluding remarks; and then we will move right on into the question-and-answer period.

Let me start by thanking and congratulating both Bill and Eliot for agreeing to accept even greater leadership roles within Alliant Energy. I am confident that the broad-based utility operational and financial experience they bring to the table will serve our stakeholders well into the future. The Board and I believe we have a very strong management team in place today and have taken the necessary steps to ensure that we have an equally strong one, if not better, going forward.

Understanding the context for specific actions is always important, but probably never more so than when evaluating U.S. energy markets. Over the past two years, we have seen dramatic developments in our business and a virtual seachange in how many within this industry define themselves. It is within that context that I will begin my remarks today.

In November of 2002, after Enron, after Arthur Andersen, after the California energy crisis, after tightened credit markets, and clearly some specific financial challenges of our own, we announced a series of strategic actions designed to improve our financial position. I very proud to be here today to tell you that we have successfully executed on each and every one of them.

We reduced our dividend to a sustainable level that is today providing a market-competitive yield. We have reduced our capital expenditures by $400 million over the 2002-2003 time frame, largely within our nonregulated businesses. We very successfully issued $318 million in new common equity last year, and we infused the proceeds into our domestic utility operations. We have implemented lean Six Sigma processes, which help us reduce costs and improve the efficiency of our operation. And we have reduced debt by $875 million in the 2003 through the divestiture of certain nonregulated assets. The last hurdle, of course, was crossed with the very successful execution of the Whiting Petroleum IPO last November.

The icing on the cake, if you will, was reporting this morning's strong financial results for 2003. We were acutely aware that we needed to turn things around in 2003, and we did just that. I don't want to steal all thunder from my colleagues this morning, but by reducing debt by $875 million, our debt to total capital ratio now stands at 48 percent, down from 60 percent at the end of 2002, a 12 percentage point decrease in one year.

We delivered a 58 percent total return to shareholders in 2003 and increased earnings per share from continuing operations by 62 percent over last year. We further narrowed our focus and announced a flexible yet balanced plan to build new generation to serve our domestic utility customers. Taken together, we believe these results are the very definition of successful execution. Without question the Alliant Energy team delivered in 2003.

Again, before I turn the call over to my colleagues, I want to make one last point. Alliant Energy continues to grow. In spite of our sale of approximately $1 billion worth of assets in the 2003, our assets are larger at the end of 2003 than they were at the beginning of the year. Let me now introduce Bill Harvey, our new President and COO.

Thanks, Erroll. It is great to be here with all of you today. With the successful execution of the five strategic actions that Erroll just discussed, let me begin to answer the question of what is next by discussing our updated strategic plan. Our strategic priorities for 2004 and beyond are rather straightforward. They are centered on three key themes, strategic focus, financial discipline, and successful execution. In short, we will build on our strengths.

As we have said before and will probably say again, our domestic utilities are not only the foundation of what we do and what we do well, they are also our future. We remain steadfast in our commitment to provide our customers with safe, reliable, and environmentally sound energy, a commitment we have delivered on year after year. And while we expect annual sales growth within our domestic utility service territory to be a modest 1 to 3 percent, we do expect to increase over time our earnings and cash flows by prudently investing in needed utility infrastructure.

As you know, the success of our utility business is directly linked to our ability to receive fair and supportive regulatory treatment. The current regulatory environment in our primary service territories is supportive, fair, and balanced for both customers and investors alike.

Also, as we have learned, we must maintain our commitment to financial prudence and discipline. We are committed to maintaining our investment-grade credit ratings and a strong balance sheet. We will seek modest yet sustainable growth with our domestic utility business serving as the primary growth engine. We are committed to delivering solid long-term returns to our shareowners and maintaining an impeccable say/do ratio.

Our domestic utilities are, of course, the key to our future growth and success. Let me emphasize again that our commitment to our domestic utility business has never wavered. It has always been our foundation, our focus, and our future. However, it is now also our primary growth platform.

Without question, our industry has changed. The market has changed, and we have changed with it. Not all of that change has been painless, but through this transformation we now have opportunities to invest and grow through our domestic utility business that simply did not exist just a few years ago. Whether it is progressive legislation, such as that passed in Iowa, which provides certainty surrounding the rate-making principles related to a rate-based utility plant, or the leaseback structure that has been approved in Wisconsin for an affiliate plant, regulatory certainty is increasing.

And with that, the potential for reasonable and known returns based on generation built to serve our domestic utility customers has been enhanced. As we announced with our domestic generation plans in December, we intend to put these enlightened policies to work for the benefit of our customers and our investors.

Just as our commitment to keeping the lights on is not new, our focus on a balanced, diversified portfolio approach to meeting customers' energy needs remained unchanged. Between now and 2010 we expect to add approximately 1,600 megawatts of nameplate generating capacity to our fleet, 985 megawatts in Iowa and 615 megawatts in Wisconsin. The new generation will be needed to meet increasing customer demand, to reduce reliance on purchased power agreements, and to mitigate the impacts of potential future plant retirements.

We will continue to purchase energy and capacity in the market and intend to remain a net purchaser of both, but at a reduced level. And when we do purchase power, we will focus our efforts on purchasing from in-state generating sources first. We believe this approach will work to the benefit of our customers and our investors.

We believe our plans can be financed and executed. They are modest, flexible, and financially viable. We are confident in our approach, because it reflects what we have already begun in Iowa and Wisconsin.

We have also refined the role of our Alliant Energy Generation business, as it will now focus to support the development, financing, and construction of generation to meet the needs of our domestic utility businesses. It will defer pursuit of new nonregulated generation projects or further acquisitions of existing toll generation at least for the near term.

We have narrowed the spectrum of businesses within our portfolio of nonregulated businesses, and their focus will be on operational excellence and improved financial performance. We expect them to enhance our earnings and to create shareowner value. We do not expect them to be users of significant additional capital. We will continue to have a mix of energy-related ongoing operating business platforms, but have only one growth platform, our domestic utilities.

Let me reiterate our goals for investors. We will seek predictable yet modest growth. Our risk profile will be more conservative, as demonstrated by both our business focus and our capital structure. We will focus on providing a solid and competitive dividend. Admittedly, to some this all sounds rather utility-based and boring; but to our investors we believe it sounds very exciting.

I would now like to turn the call over to Eliot Protsch, our Chief Financial Officer, to discuss our 2003 earnings and 2004 financial projections.

Thanks, Bill, and good morning, everyone. Let's get right to the numbers. Today we reported income and earnings-per-share from continuing operations for 2003 of 159.7 million and $1.57 per share, respectively. This compares very favorably to our 2002 results, when we earned $87.5 million or 97 cents per share. Thus, our earnings per share from continuing operations are up 62 percent over 2002.

With that level of improvement, many might conclude the numbers speak for themselves. But as you might suspect, we're not about to let that occur. Let's look at some high-level results, and then go into the details. I will start with the core and foundation of our business, our domestic utilities.

Our two domestic utilities, Wisconsin Power and Light and Interstate Power and Light, earned $2.17 per share in 2003, a much improved result from 2002 earnings of $1.82 per share. I would note that the $2.17 per share is computed based on the average shares outstanding at the end of 2002. It is Alliant Energy's practice to report the dilutive impacts of additional shares outstanding as a separate earnings variance item if it is material.

The increase in utility earnings was largely due to higher electric and gas margins, which were partially offset by higher utility operating expenses. The primary driver for the higher electric and gas margins was the impact of several electric and gas rate increases implemented over the course of 2002 and 2003. These increases, which I would emphasize were both fair and reasonable, allowed our utilities to recover a greater portion of their operating expenses for the year.

Our strong financial results of course could not have been achieved without the significant efforts and accomplishments of our employees within the generation and delivery components of our utility business. These operations are the heart and soul of our business, and we will continue our focus on operational excellence in 2004 and beyond.

Now on to nonregulated results. As was the case with our domestic utility business, I am pleased to report that the financial performance of our nonregulated businesses were also significantly improved in 2003 as compared to 2002. Our nonregulated businesses reported a loss of 28 cents per share from continuing operations in 2003, which included charges of 10 cents per share related to the use of asset sales proceeds for early debt reduction. The results were 60 cents per share better than our nonregulated results in 2002.

As we noted several times throughout the past year, we expected this level of improvement in our nonregulated businesses. However, we will not be satisfied until all of our businesses are profitable and earning an appropriate return on invested capital.

The significant improvement in our nonregulated financial results was, once again, largely due to improvements in the performance of our international business unit. Our international businesses posted a loss of 4 cents per share from continuing operations in 2003, compared to a loss of 41 cents per share in 2002, a 37 cent per share improvement. This was driven by a 36 cent per share improvement in the results from our Brazilian investment.

Let me briefly discuss a few of the factors that contributed to this improvement. Rate increases were implemented at all five of the Brazilian operating companies throughout 2003. Electric sales volumes increased approximately 7 percent in 2003 over 2002, and were also higher than the sales levels in the last year before rationing took effect in that country. Foreign currency rates improved in 2003 as well. While we have made significant progress in turning these investments around, I would note that we will not be satisfied until we have translated our progress into realizing a reasonable rate of return on our Brazilian investment.

In 2003 are in-country Brazil earnings were positive, but we still incurred a net loss of $14 million after allocated debt, capital, and overhead charges. However, I would emphasize that the $14 million loss compares favorably to a loss of 47 million in 2002. The results for the fourth quarter, which included allocated debt, capital, and overhead charges, were positive, which marks the first quarter that the bottom-line results have been positive since we made our initial investment in Brazil.

In addition, we have made progress on improving the in-country capital costs of our Brazilian investment by lowering interest expense on approximately 245 million of Brazilian based short and long-term debt, which has now been restructured into long-term debentures and commercial loans.

But challenges remain. While we were pleased with the significant improvement we realized in 2003, as it relates to the financial performance of our Brazilian investments, we are re-examining the operations and structure of our investments in order to accelerate operational and financial improvements. This includes further cost reductions and more advantageous forms of financing. To this end, we are currently discussing with our partners in Brazil various options to accomplish these goals. For example, we believe paying down debt rather than paying dividends to the shareowners of the Brazilian investments would result in much improved financial results.

As can be the case in any business relationship, our discussions with our partners in Brazil on these issues, and other challenges we have faced related to these investments, have strained our current relationship with our partners. Given the circumstances, this is certainly understandable. While we have taken measured legal action in Brazil to protect our minority shareowner rights, we are committed to working with our partners to reach reasonable resolution of these initiatives. I would emphasize that we have no intentions of trying to take control of these investments from our partners. They are award-winning operators and we clearly want to keep them in place.

On balance, we made great progress in Brazil in 2003. We are encouraged by the continuing recovery of the Brazilian economy and a steady return to pre-drought electric sales levels. Fitch Atlantic Ratings recently upgraded Brazil's power sector to stable from negative. Regulatory reforms continue and the currency has both strengthened and has been much less volatile this past year. We still have considerable work to do, but all of the effort that our team has dedicated to these issues is now beginning to bear fruit.

Our domestic integrated service businesses also posted improved results in 2003. Earnings from this business unit were 11 cents per share higher in 2003 as compared to 2002, mainly due to higher earnings from our energy and environmental service businesses.

As noted earlier, our overall nonregulated results were negatively impacted by 10 cents per share in charges related to the use of asset sale proceeds for early debt reduction. We will continue our debt reduction initiative in 2004, in order to further strengthen our financial profile.

Finally, the improvement in nonregulated results was also impacted by the fact that we only incurred non-cash asset valuations charges of 6 cents per share in 2003 compared to 41 cents per share in 2002. Overall, we are very proud of the improvements we have made on the nonregulated side of the business and believe this recent success will be a springboard to even greater improvement in 2004.

In summary, our utility operations and its financial performance continued to be strong and growing stronger. While our nonregulated operations continued to improve significantly. Nonetheless, our sense of accomplishment is overshadowed by our drive to build on this momentum and produce an even more successful 2004.

I will now touch on our domestic utility generation plan and the associated capital expenditures that we announced in December. After living through what has been a very challenging time in our industry's history, we very carefully reviewed the financial viability of our utility generation plan. Our plan for new generation is modest, as it will require capital investments of approximately $650 million over the next seven years to implement.

We have two significant sources of new generation capacity becoming available to us this summer. Our Wisconsin utility subsidiary has entered into an agreement with Calpine to purchase 453 MW from the soon to be completed Riverside generating facility in Beloit, Wisconsin. In addition, we are in the final stages of the construction of a 550 MW Emery generating facility in Mason City, Iowa, under our Power Iowa program for our Iowa utility subsidiary. Both of these facilities are scheduled to be placed in service in the second quarter of 2004. As a result, our needs for additional generation are not all immediate.

I also wanted to point out that the recovery of the applicable costs related to the Riverside facility is reflected in the rates that have become effective at WP&L in January 2004.

The recovery of the costs related to the Emery plant will be addressed in the electric rate case our Iowa utility plans to file later this quarter. The earnings guidance we have issued is based upon the expectation that the ratemaking principles associated with new legislation in Iowa will provide for the beginning of the cost recovery of this facility. Our interim rates will be effective within 90 days of the filing of the case, and we believe will reflect a 12.23 percent return on the common equity component of that new plant investment.

We announced earlier this month the site for the first Wisconsin plant under the generation plan, a 300 MW peaking facility to be located in Sheboygan, Wisconsin. Our current plan is to have this new facility online in 2005. Having already secured turbines for this project, we have already incurred roughly half of the approximately $150 million of capital expenditures required to construct this plant. Our planned capital expenditures for the generation component of our utility plan will increase over time. However, we will have the time and ability to adapt our plans to meet changing conditions. These condition changes could be related to demand in our service territories, environmental regulations, capital markets, regulatory support, or technology shifts.

Now let's turn to a discussion of our broader capital expenditure projections for 2004 and 2005. Our capital expenditures for continuing operations in 2003 were approximately 840 million. Of this amount, approximately 630 million were directed toward our domestic utility operations, and 110 million was the result of our purchase of a nonregulated natural gas-fired power plant in Wisconsin. Our capital expenditures are projected to be 700 million in 2004, and 610 million in 2005. Of those amounts, 87 percent in 2004 and 89 percent in 2005 will be directed toward our domestic utility operations. And as for the use of capital, approximately 68 percent will be for utility maintenance expenditures in 2004 and 84 percent in 2005.

Our utility growth capital expenditures will represent 19 percent of total CAPEX in '04 and 5 percent in 2005. The capital expenditures for utility growth are primarily related to new generation in our regulated utilities, or in Alliant Energy generation in support of the regulated utilities.

Our current plan includes capital expenditures of $90 million in 2004 and $70 million in 2005 in our nonregulated businesses. Of these totals, $50 million in 2004 and $30 million in 2005 will be used to make additional investments in our generation portfolio in China. However I want to emphasize that the dollars that are being invested into China will be generated through internal cash flow from our existing China investments or from nonrecourse debt.

Turning now to our balance sheet, our debt to total capital ratio continues to improve. At the end of 2003, it was approximately 48 percent, down from 60 percent at the end of 2002. We are obviously quite pleased with the progress we have made in this area. Going forward we are committed to maintaining a debt to capital ratio in the high 40 to low 50 percent range. We expect our cash flows from operations to be in a range of 500 million to 600 million in 2004. To the extent we require external sources of financing to fund capital expenditures, we intend on using an appropriate mix of debt and equity as we move forward.

Regarding liquidity in our short-term credit facilities, as of December 31, we had no short-term debt outstanding at Alliant Energy Corporation, leaving us with available facility liquidity of $200 million. Our domestic utilities had 108 million of commercial paper outstanding, with available facility liquidity of 342 million. We also had 242 million of cash available at year-end, giving us total available liquidity of over 775 million.

Finally the last topic that I will cover today is our 2004 earnings guidance. Our guidance for earnings from continuing operations in the 2004 is a range of $1.75 to 2 dollars per share, which includes guidance for domestic utility operations of $1.70 to $1.90 per share. We estimate incurring charges of at least 4 to 8 cents per share within our nonregulated businesses related to debt repayment premiums, which are reflected in this guidance. Clearly the opportunity to repurchase debt is helpful to our balance sheet and long-term financial strength, but it will impact our 2004 earnings performance.

You will note that the range for 2004 domestic utility guidance is down slightly compared to our 2003 earnings from domestic utilities of $1.94 per share. Given our strong focus on our utilities, that may come as a surprise to some. The primary factor affecting the comparison of 2003 and 2004 earnings is the full year effects of our equity offering completed in July of 2003. Our projected net income for our domestic utility business in 2004 is actually higher than the net income realized in 2003, but the EPS is lower due to the dilutive impact of our 2003 equity offering.

The ratemaking processing Iowa, which utilizes an historical test year, is also a factor in our earnings guidance for our utilities in 2004. This is not a criticism of the process or our regulators in Iowa. It is simply the reality of the state's regulatory formula. With the cost of the soon-to-be-completed $400 million Emory generating facility having its first opportunity to begin recovery of its cost in the upcoming rate case, each extra day it takes to obtain rate relief could cost our shareowners money. We hope and expect to move through this process in a timely manner, but we have used realistic assumptions in our guidance.

Offsetting the slight decrease in projected utility earnings per share are expected improved results in our nonregulated financial performance. Our nonregulated businesses lost 28 cents per share from continuing operations in 2003, which includes the 10 cents per share of charges related to debt repayment premiums. Our nonregulated financial performance has improved significantly in 2003, and we expect that progress to continue in 2004.

We firmly believe that our domestic utilities will be the primary driver in our future growth. While we will not be putting significant amounts of additional capital into our nonregulated businesses, we do expect these businesses will continue to improve and successfully contribute to the bottom line. Now I will turn the call back to Erroll for some closing remarks.

Thank you very much, Eliot and Bill, for your remarks. I will conclude very quickly so we can get to the questions and answers. While 2003, of course, marked the successful conclusion to the five strategic actions we announced in November 2002, the past is of course the past. 2004 ushers in several new strategic actions, as well as a continuing focus to build on the momentum generated last year.

Clearly there is still much work to do. However, the success we have enjoyed in meeting our most recent strategic challenges has energized this team to position the company for continued future success. We have learned much over the last two years, and the experience has made a stronger. It has made us more disciplined. And it has certainly steeled our resolve.

Throughout the industry turmoil and our own challenges, our domestic utility operations remain strong and steadfast. Our commitment is much more than keeping the lights on. It is about focusing on our strengths to provide a sound energy value to our customers and a solid return to our investors. It is about achieving balance between fuel sources, business diversification, growth, and predictability.

I want to thank our investors, our customers, and our employees for their patience and support as we have engineered this very successful turnaround in 2003. As you look back over the last five years, Alliant Energy has now outperformed the S&P 500 and the S&P 500 utility index. We remain committed to continued excellence going forward.

With that said, let me turn the call back to Eric to open up the question-and-answer session.

Thanks, Erroll. At this time we would like to open up the call to questions from members of the investment community. We will take as many questions as we can within the one-hour time frame for this morning's call. I think we have about 20 or 25 minutes available, and I would now like to turn the call over to the conference call operator, who will guide us through the question-and-answer session.

(OPERATOR INSTRUCTIONS) Dave Parker, Robert W. Baird.

Congratulations on -- I was going to use the term eventful year for 2003. I know 2002 was eventful too, but at least this was a positive eventful year. And obviously the stock has reflected that. So good moves. And this is a joke if anyone on the phone doesn't know my sense of humor, but hopefully these senior management changes don't mess up the positive momentum.

Well, several questions. First off, and thanks for the very detailed information you laid out, Eliot and Bill. Just a couple questions maybe for Bill or whoever wants to handle it. On the whole domestic utility buildout plan, we got the over 1000 MW becoming available in '04; the 300 MW in '05. You talk about the $650 million CAPEX plan over the last seven years. Is that mostly skewed towards the '08, '09, '10 era?

It is really leveled out over that entire period of time. Obviously the first facility in Iowa is the Emery station, which will go into service this year. That will be followed by a simple cycle project in Northeast Wisconsin at Sheboygan Falls, a very straightforward two-unit simple cycle project. That will also be followed shortly, I expect, by the announcement of some incremental wind generation in both Wisconsin and Iowa, but probably more heavily biased in Iowa. And later in the period, participation interest in some solid fuel facilities in both jurisdictions.

So it would be fair to characterize the flow of capital expenditures related to our generation expansion program as being very levelized over the entire period.

That leads me to my next question, '04's CAPEX of 700 million; '05 610. That ramped down too, because obviously you have several units coming on here at the front end of that period. '06, any kind of guess what sort of a levelized period of CAPEX will be as you're adding selectively to the utility, and then also doing the maintenance for the utility and nonregulated businesses?

I think would be fair to envision a very flat levelized capital expenditure profile for the utility business throughout that planning period.

Is it fair to say it is somewhere between 500 and 550, Bill? Or is that too low?

I think that is reasonable, but probably on the low end.

Okay.

I should point out, Dave, that between the three of us we have over 65 years of utility experience, and 41 of them will be in the two guys I leave behind. So if they do screw up it won’t be because of lack of experience.

That's right. A question or I don't know if you have this, -- they're available, do you know what the ROE for the utility business was in 2003?

I really don't have that (multiple speakers) get it over four jurisdictions.

Dave, this is Eliot. What I would comment on there is that you should expect them to vary by utilities for the reasons mentioned in the script, given the different approaches to test years and where we are at with our buildout cycles. But you will be able to extract that information from the 10-K.

That information will be in the 10-K.

Great. With the refinancing activities in Brazil, is there any less sensitivity to currency valuations from the Brazil operations?

We have one loan down there that continues to have exposures, and it is to a basket of currencies. It is related to the Juiz de Fora facility, and it's been pretty stable right now. That's less than $30 million. That is our total exposure there.

As you push a little bit your partners in-country in Brazil to maybe adopt a little different plan as far as free cash flow, I know you have looked at opportunities, I believe you have anyway; not to put words in your mouth. But that investment has been a little disappointing. Improving clearly, and congratulations first quarter finally. The first quarter having positive results, that's great. But what's the sales -- if, say, there were people looking around for assets, are there any? What may a value be there? Or would you not like to speculate?

Again, as we suggested earlier, that we would continue to monitor the performance of this investment. Let me say something on behalf of our partners, because many of the challenges that we have had in the Brazilian operation have been challenges from the outside; droughts, regulatory perturbations, and things of that nature. And through all of this have continued to be excellent operators, award-winning operators of those facilities. And that certainly shone through in 2003.

As Eliot mentioned, we made money in-country in 2003. We did not make enough to cover our debt service costs here for the entire year. But for the first time, starting in the fourth quarter, debt service costs have been covered as well. And so we're very pleased about that.

I think that in terms of value of the asset we really have not looked at that. We certainly have not sought any sale of that asset or actually had any robust discussions over it. So again, these are free markets, but we certainly haven't been approached by anyone. And we certainly have no current intentions to sell that asset.

With the margins going clearly in the right direction here, any thoughts, Erroll, on the dividend policy and when that may be revisited?

Again, we just went through a dividend review with our Board, both at its November meeting as well as at its January meeting. We have stated publicly that we have made a commitment to pay a market competitive dividend. Again, this means that generally we would be looking for payout ratios at approximately 60 to 70 percent of our utility earnings. Again, unlike in the past, we will continue to take the dividend to our utility earnings, not the total earnings of the corporation.

Again I appreciate our yield is a little low right now, but we are committed to paying a market competitive dividend. And we are probably in the sweet spot or in the ballpark at the moment.

Good. Last question, on the regulatory fronts. Thanks for the update on Iowa and what's happening there. Anything else that we should consider on the regulatory front? In a broader sense, any additional restructurings or asset valuation activities that we may expect in '04? And that is if for my questions.

Let me start, if I can. As I get senile I have difficulty with these multiple part questions, so you may have to remind me if I haven't addressed all of the parts of your question. Let me start with the asset valuations first.

We certainly don't have any sense right now of any impending write-offs. The only charges we were looking at were mentioned in the text, which as we pay down debt more quickly we tend to have to pay premiums, and those get into continuing operations, although in many ways they are associated with our discontinued operations.

But again on the regulatory front, we don't see any impending changes. We have certainly a significant case that we will be filing in Iowa, but House File 577 gives us comfort that we will receive appropriate regulatory treatment for the very significant investments that we are putting in place to serve our customers in Iowa. But other than that I don't see any particular changes or particular challenges.

Great. Thanks; congratulations again.

Jeff Cavillo (ph), Duquesne Capital.

Actually all my questions were asked, but congratulations on a great year.

Thank you very much; appreciate it.

Paul Dusankewicz (ph), Millennium Partners.

It's actually Andrea Feinstein. A couple quick questions. I apologize if I missed this. First with regards to Brazil, did you spell out for us what the gains were in the year on foreign exchange of the 36 cent improvement that you saw in that region?

We did not spell it out, but those gains would be modest. They're really immaterial, less than a couple million.

Okay, that is helpful. Thank you. Can you give me any insight on your thoughts on the bill that just got passed out of the lower Congress in Brazil, and how you think that affects the sector down there?

Again that was just passed, and Brazil, like the United States, is a very robust and participative democracy, so we really don't get excited by bills that get passed in one House. There have been discussions ongoing about regulatory reforms. Again we do note that one has been passed, but as I said it has got a long way to go before it becomes legislation.

We really have not here, at the parent level, studied all of the aspects of that bill. We will probably get -- we have people in-country of course who are monitoring those types of things and doing the appropriate lobbying to protect our interests. But at this point it is not something that is on the parent company radar.

Okay, so no sense if this did become legislation of whether it is positive, negative, neutral, (technical difficulty) like that? Okay. I just missed a couple of the numbers you had thrown out. You mentioned that your target cap structure, high 40 to low 50 percent, that is the total cap range. And I think you subsequently gave an operating cash flow number for the year, and I missed that number. Can you repeat that for me?

Let me turn this over to Eliot.

Our cash flow from operations for continuing operations guidance for '04 is 500 to 600 million, compared to an actual 420 million range for '03.

Can you remind me again, you had given guidance as to CAPEX for this year, I think, of 700 million for '04?

Yes, 700 million for '04.

And I think you mentioned then that a difference should be made up by a normalized combination of debt and equity. So the 1 to 200 million of incremental external financing you would need to fit that CAPEX number.

Yes.

And so I just wanted to clarify then that it is reasonable to expect you to come to the capital markets for equity sometime this year to help finance that.

We have no immediate plans to conduct any financings, as I think you also saw from -- or I should have referred to in my remarks, our liquidity position is rather strong at the moment. But we will be conducting some financings as we go through 2004. But at this point in time we have no immediate (technical difficulty) .

Right. But to the extent that you drew on that liquidity, it would be re-levering the balance sheet, which is not exactly what you're targeting to do, correct?

We will have a combination of use of cash and some external financing, as well as internal cash generation.

Okay, thanks. I will follow-up off-line.

David Grumhoff (ph), Copia (ph).

Congrats on a good year. In terms of your corporate expense, it looked like, versus where it was on the year, it was down a lot in the fourth quarter. It is that a continuing trend? Should we see that trending down a bit from the negative 12 million in net income that you had in '03? Or where will that number be as we look to '04?

The corporate line item I believe you're referring (multiple speakers) does relate to some tax adjustments. The 14 cent loss is comprised of the following items. Under the provisions of the Public Utility Holding Company Act, we are required to allocate tax benefits generated by the holding company to our utility and non-utility subsidiary companies. As a result, this transaction is simply a geography issue as relates to the consolidated numbers, as such benefits have been pushed down to these businesses and the parent company has an offsetting charge.

That might be one that you should perhaps follow-up with us off-line and take a look at the 10-K, and we can help you sort that out. But it really is kind of an intercompany allocation issue.

Can you give us an estimate of what you think it will for '04? Or what is in the guidance for '04?

The guidance in '04 is, of course, expressed on a net basis. The range that we have directed you to there is where we would expect to land. There's lots of tax issues that would have to sort its way through the numbers to arrive at the actual earnings per share.

So I guess the short answer is no, I'm not prepared to give you an explicit answer there. But note that we are going to have some debt prepayment premiums in '04 as well as '03; and all of those factors will find their way into that number. But the primary reason for the loss is that tax allocation.

I guess when I get to the '04 guidance, you have given us where the utility is going to be; and the difference is obviously going to be the non-reg versus the corporate. And is the non-reg -- now are you forecasting profits on the non-reg side? I am gathering that.

Yes.

Okay, so you think that you will be making money on the non-reg side?

Yes. If you look at the delta between the guidance that I gave you, you should see a number in the 8 cents per share range for AER, net of the holding company.

And there are certainly things that give us comfort even at this point in the year, such as a full year of the rate impact in Brazil, that we had five rate increases during the year in Brazil, and you will see the full-year impact of them. As we said, we're already profitable on a total company basis in the fourth quarter of 2003.

We are also looking at increases in China. Our industrial service business, our forecasts are based on booked quarters. Those are up quite substantially. So we are quite comfortable within the forecast there of our industrial services business as well.

So we are pretty comfortable that we're going to make money in our nonregulated businesses in 2004. That is not extraordinary. We have made money in the past in our nonregulated businesses, so we expect to do so again.

Okay. You talked about the peaker, the 300 MW peaker that you're building in Sheboygan for '05. You mentioned that you had already secured the turbines. Are those turbines in ratebase already? Or will those be added in the future?

They will be added in the future. They're not currently in ratebase. They're currently owned by Alliant Energy Generation.

And you'll just be able to move those over at cost?

The ratemaking conventions that I mentioned in part of my remarks, that are in place in Wisconsin, and if you are familiar with the Wisconsin Energy Power the Future Program, there would be no transfer of the assets from Alliant Energy Generation to the utility which takes place. Alliant Energy Generation will continue to own the assets.

Okay, great. Last question, can you tell us what the earnings were for synfuel for the year?

Four cents.

Great, thanks a lot for the time.

Barry Abramson, Gabelli & Co.

Good morning, and congratulations. Just a few minor questions because so much has been covered already. But first question --.

Barry, we have learned over the years that your questions are not minor. (multiple speakers) either.

Thank you. Well, in looking at the '04 earnings guidance, can you give a little more detail? For example, will there be any impact from weather versus the impact of weather in '03? Then also in the domestic utility guidance, are you assuming any significant impacts from economic conditions improving? Then also in the guidance, are we assuming about a midyear rate basing of the new Iowa plant?

Let me try and hit those if I can, starting with the last one. The rules in Iowa are that interim rates will be put in place 90 days after your filing. And we expect to file at the end of March. So again that is approximately correct in terms of your timing there.

With respect to weather, the weather in 2003 was a little mild, but not that abnormal. Our forecasts are always based on normal weather.

Economic conditions, the recovery in the Upper Midwest I think has been a bit slower than the national recovery. But again we're seeing positive signs. So we expect a continuing yet modest increase in economic activity across our service territories.

All rights, thanks. Just one other question to try to probe you again about the possible dividend increase. You mentioned that your guidance for dividend policy would be about a 60 to 70 percent payout ratio on utility earnings. If I multiply those numbers times the range of domestic utility earnings guidance that you gave us, of $1.70 to $1.90, I get a potential dividend range of $1.02 to $1.33. And the dividend today is $1. So my question, if you'll answer it, would be, does that make it seem more likely that a dividend increase can be considered by the Board in '04?

Let me say this, Barry, first. I am not sure I mentioned a potential dividend increase earlier. I did discuss it. I am not sure I mentioned a potential increase. As I said, we're certainly committed and we have to be committed to paying a competitive dividend. Clearly based on the range that you just articulated, that we are at the bottom of that range.

We still have some other things that we're dealing with in terms of debt levels and things of that nature. Clearly a modest increase in dividend would not necessarily or significantly impact that. But again these are the kinds of balancing decisions that we review each and every quarter with our Board. Again as I mentioned, we have just completed two reviews in November and in January, and we will continue that process throughout the year.

I have learned, one of the things you've learned when you have been here so long is you don't make forward projections about dividends unless the decision has been made. So obviously we have made no decision yet in this regard. But the only decision we have made is to continue to revisit it. Our commitment, of course, is to create shareowner value, which of course as you well know comes through market appreciation as well as through dividends. As we look back over the last five years, we found that we have in fact done an above-average job in doing that, in the course of balancing these decisions.

Okay, good. Thanks very much.

Leo Kelser (ph), Merrill Lynch.

I had a couple of quick debt questions. I was wondering if you could identify the year end debt balance? And then also, if possible, of the 875 million of debt reduction last year, can you identify how much of that was debt that went with assets that were sold, as opposed to corporate-level debt that was paid down? And if you have any guidance in terms of how much debt you expect to pay down in '04, that would be great too.

Let me try to give your a rundown on the debt reduction in '03. As you observed and we indicated, we reduced debt $875 million. The sources for that were as follows. Of the assets sold, 445 million was from that source. We redeemed and repurchased 73 million and 24 million of various notes at the AER and parent level, and paid down 334 million of short-term debt.

Our debt balance at 12/31/03 was $2.4 billion. And with respect to '04 debt reductions, we budgeted premiums of roughly 4 to 8 cents I believe, and we may be able to acquire somewhere in the 60 to $100 million range with that premium budget.

Great, thank you.

Vidula Murti, Zimmer-Lucas.

Early on in your presentation, you discussed some issues you're currently having with your partners in Brazil, in terms of litigation and things of this nature. Can you elaborate a little bit more exactly what that is relating to? And what potential timeline there may be for some kind of resolution?

I think one thing you have to understand is in Brazil, when we have spats we tend to be more public about it than we are in the United States. It's just really that, a disagreement and spat among partners. It has no impact on the operations. As I said, they are doing a wonderful job and the operations are moving forward in the direction that we had assumed.

The issue gets to how soon debts are paid down versus when do we pay out dividends; much like the last question that was discussed on paying dividends here in the U.S. So again although it is public, we expect to get DS (ph) with them. Any of you who are married know that partnerships are the most fragile of relationships, and every once in a while you are going to have a spat.

But the thing that we appreciate about Brazil is, again, I think we are open and honest with each other. As far as the operation is concerned, the macro factors are all positive; the operational improvements will continue. And we believe the financial performance will continue as well.

You indicated that you see in '04 some opportunities for additional financial restructuring in Brazil. Can you give us a sense as to what you see as the potential financial benefit that could result from that type of restructuring if achieved?

At this point I think it would be really premature to have any specific discussion on that. It's just that we have a lot of investments in various companies and other activities down there; and we are problem solving with our partners to find more effective and efficient ways to raise our return on invested capital.

I am actually sort of puzzled by your question, because we have done quite a bit of restructuring of debt down there. We in fact took about $245 million of different maturity debt, intermediate and short, and moved it out into long-term debt. There is a little discussions on the structure of Juiz de Fora, but again that is a small facility, and in the scope of things it is not large compared to what else is going on down there.

I may have simply misunderstood about something that has already been achieved, as opposed to something that is being contemplated.

We did a lot of restructuring to drive interest rates down, by moving short to long there; and that did happen. Also, interest rates are continuing to fall there. So other than that, again, we are just the normal investment, the normal managerial looks at how can we make things better? How can we accelerate operational and financial improvement? But there is no major restructuring plan.

When you talked about I think 240 or to $245 million which you changed the maturity on, what kind of a benefit do you anticipate being able to realize from that?

I don't have that one on the tip of my tongue. I know that we certainly exceeded our expectations of lowering interest costs in 2003. My sense is a lot of that material will make it into the 10-K. I just don't have it with me right now.

Okay, and a couple of last little things. Just to follow up on Andrea's questions, when you talked about your sources and uses, you indicated operating cash flow would be about 5 to 600 million; CAPEX is about 700 million; then you have the dividend requirement, which is approximately 110 or something like that. So it looks like we have about 2 to 300 million of potential deficiency. But you'll be retaining probably close to $100 million from just retained earnings in terms of equity. And you obviously have all the liquidity that you discussed. Is there an incremental DRIP program or some other stock plan that will augment the equity account in addition to retained earnings?

We are in the market all the time with original issue common stock through our dividend reinvestment and 401(k) plan. But as I think as I indicated in my remarks, we have pretty significant liquidity in place now. When you add all that up with our various DRIP issues and other contemplated financings, we believe we will be able to comfortably fund our CAPEX in 2004.

Can you quantify how much the various stock plans result, on a nominal dollar basis?

No, I don't think it is appropriate to go there. But we really should add for your benefit that we have other asset sales that will close in 2004. We previously disclosed Kewaunee nuclear plant transaction targeted for later this year; we have some remaining shares at Whiting that we have the flexibility to sell; and we recently announced our sale of the Beloit water utility and other opportunities in that regard. So again we believe we can comfortably finance our 2004 CAPEX, (technical difficulty) combination of everything I mentioned, and continue to improve our balance sheet (technical difficulty) other debt protection measures.

Thank you very much.

There are no further questions at this time. I would now like to turn the call back over to Mr. Mott.

With no more questions, this concludes our call today. I would like to take this time to thank everyone for their participation this morning and for your continued support of Alliant Energy. A replay of the call will be available through February 6, 2004, at 800-642-1687 domestically; and then 706-645-9291 internationally. Callers should reference conference ID number 4809848. In addition an archive of the conference call and a script of the prepared remarks we made on the call today will be available on the investors section of the company's website, at www.AlliantEnergy.com, in the investors section later today. Thank you.