UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

   

For the fiscal year ended December 31, 2003


or

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

   

For the transition period from ______ to _______


Commission Name of Registrant, State of Incorporation, IRS Employer
File Number Address of Principal Executive Offices and Telephone Number Identification Number
1-9894 ALLIANT ENERGY CORPORATION 39-1380265
  (a Wisconsin corporation)
  4902 N. Biltmore Lane
  Madison, Wisconsin 53718
  Telephone (608)458-3311
 
0-4117-1 INTERSTATE POWER AND LIGHT COMPANY 42-0331370
  (an Iowa corporation)
  Alliant Energy Tower
  Cedar Rapids, Iowa 52401
  Telephone (319)786-4411
 
0-337 WISCONSIN POWER AND LIGHT COMPANY 39-0714890
  (a Wisconsin corporation)
  4902 N. Biltmore Lane
  Madison, Wisconsin 53718
  Telephone (608)458-3311

This combined Form 10-K is separately filed by Alliant Energy Corporation, Interstate Power and Light Company and Wisconsin Power and Light Company. Information contained in the Form 10-K relating to Interstate Power and Light Company and Wisconsin Power and Light Company is filed by such registrant on its own behalf. Each of Interstate Power and Light Company and Wisconsin Power and Light Company makes no representation as to information relating to registrants other than itself.

Securities registered pursuant to Section 12 (b) of the Act:
    Name of Each Exchange
  Title of Class on Which Registered
Alliant Energy Corporation Common Stock, $0.01 Par Value New York Stock Exchange
Alliant Energy Corporation Common Stock Purchase Rights New York Stock Exchange
Interstate Power and Light Company 8.375% Series B Cumulative Preferred Stock, New York Stock Exchange
    $0.01 Par Value
Interstate Power and Light Company 7.10% Series C Cumulative Preferred Stock, New York Stock Exchange
    $0.01 Par Value
Wisconsin Power and Light Company 4.50% Preferred Stock, No Par Value American Stock Exchange

Securities registered pursuant to Section 12 (g) of the Act: Wisconsin Power and Light Company Preferred Stock
      (Accumulation without Par Value)

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Exchange Act).
Alliant Energy Corporation Yes [X] No [   ]  
Interstate Power and Light Company Yes [   ] No [X]  
Wisconsin Power and Light Company Yes [   ] No [X]  

The aggregate market value of the voting and non-voting common equity held by nonaffiliates as of June 30, 2003:
Alliant Energy Corporation $1.76 billion  
Interstate Power and Light Company $--  
Wisconsin Power and Light Company $--  

Number of shares outstanding of each class of common stock as of Feb. 27, 2004:
Alliant Energy Corporation Common stock, $0.01 par value, 111,274,686 shares outstanding
Interstate Power and Light Company Common stock, $2.50 par value, 13,370,788 shares outstanding (all of which
  are owned beneficially and of record by Alliant Energy Corporation)
Wisconsin Power and Light Company Common stock, $5 par value, 13,236,601 shares outstanding (all of which are
  owned beneficially and of record by Alliant Energy Corporation)

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statements relating to Alliant Energy Corporation’s and Wisconsin Power and Light Company’s 2004 Annual Meetings of Shareowners are, or will be upon filing with the Securities and Exchange Commission, incorporated by reference into Part III hereof.

TABLE OF CONTENTS

    Page Number
Part I Item 1. Business
Item 2. Properties 18 
  Item 3. Legal Proceedings 20 
Item 4. Submission of Matters to a Vote of Security Holders 21 
               Executive Officers of the Registrants 21 
Part II Item 5. Market for Registrants’ Common Equity and Related Stockholder Matters 22 
  Item 6. Selected Financial Data 23 
  Item 7. Management’s Discussion and Analysis of Financial Condition and
                 Results of Operations 25 
  Item 7A. Quantitative and Qualitative Disclosures About Market Risk 50 
  Item 8. Financial Statements and Supplementary Data 50 
  Item 9. Changes in and Disagreements With Accountants on Accounting and
                 Financial Disclosure 121 
  Item 9A. Controls and Procedures 121 
Part III Item 10. Directors and Executive Officers of the Registrants 121 
  Item 11. Executive Compensation 122 
  Item 12. Security Ownership of Certain Beneficial Owners and Management 123 
  Item 13. Certain Relationships and Related Transactions 124 
  Item 14. Principal Accountant Fees and Services 124 
Part IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 124 

DEFINITIONS

Certain abbreviations or acronyms used in the text and notes of this report are defined below:

Abbreviation or Acronym Definition
AEG Alliant Energy Generation
AFUDC Allowance for Funds Used During Construction
Alliant Energy Alliant Energy Corporation
APB Accounting Principles Board Opinion
ARO Asset Retirement Obligation
ATC American Transmission Company LLC
CAA Clean Air Act
Cargill-Alliant Cargill-Alliant, LLC
CIPCO Central Iowa Power Cooperative
Corporate Services Alliant Energy Corporate Services, Inc.
DAEC Duane Arnold Energy Center
DNR Department of Natural Resources
DOE U.S. Department of Energy
Dth Dekatherm
EAC Energy Adjustment Clause
EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization
EIP 2002 Equity Incentive Plan
EITF Emerging Issues Task Force
EITF Issue 02-3 Issues Related to Accounting for Contracts Involved in Energy Trading and Risk
  Management Activities
Emery Emery Generating Station
EPA U.S. Environmental Protection Agency
EPS Earnings Per Average Common Share
EWG Exempt Wholesale Generator
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
FIN FASB Interpretation No.
FIN 46 Consolidation of Variable Interest Entities
FSP FASB Staff Position
FUCO Foreign Utility Company
GAAP Accounting Principles Generally Accepted in the U.S.
IBEW International Brotherhood of Electrical Workers
ICC Illinois Commerce Commission
IES IES Industries Inc.
IESU IES Utilities Inc.
Integrated Services Alliant Energy Integrated Services Company
International Alliant Energy International, Inc.
Investments Alliant Energy Investments, Inc.
IPC Interstate Power Company
IP&L Interstate Power and Light Company
IPO Initial Public Offering
IRS Internal Revenue Service
ISO Independent System Operator
IUB Iowa Utilities Board
Kewaunee Kewaunee Nuclear Power Plant
KW Kilowatt
KWh Kilowatt-hour
LTEIP Long-Term Equity Incentive Plan
MAIN Mid-America Interconnected Network, Inc.
McLeod McLeodUSA Incorporated
MD&A Management's Discussion and Analysis of Financial Condition and Results of Operations
MG&E Madison Gas & Electric Company
MGP Manufactured Gas Plants

1

Abbreviation or Acronym Definition
Moody's Moody's Investors Service
MPUC Minnesota Public Utilities Commission
MW Megawatt
MWh Megawatt-hour
N/A Not Applicable
Neenah Alliant Energy Neenah, LLC
NEIL Nuclear Electric Insurance Limited
NEPA National Energy Policy Act of 1992
NERC North American Electric Reliability Council
NG Energy NG Energy Trading, LLC
NMC Nuclear Management Company, LLC
NOx Nitrogen Oxides
NRC Nuclear Regulatory Commission
NWPA Nuclear Waste Policy Act of 1982, as amended in 1987
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 115 Accounting for Certain Investments in Debt and Equity Securities
SFAS 133 Accounting for Derivative Instruments and Hedging Activities
SFAS 142 Goodwill and Other Intangible Assets
SFAS 143 Accounting for Asset Retirement Obligations
SFAS 149 Amendment of SFAS 133 on Derivative Instruments and Hedging Activities
SmartEnergy SmartEnergy, Inc.
South Beloit South Beloit Water, Gas and Electric Company
Southern Hydro Southern Hydro Partnership
Standard & Poor's Standard & Poor's Rating Services
Synfuel Alliant Energy Synfuel LLC
TBD To Be Determined
TRANSLink TRANSLink Transmission Company LLC
Transportation Alliant Energy Transportation, Inc.
U.S. United States of America
VEBA Voluntary Employees' Beneficiary Association
WEPCO Wisconsin Electric Power Company
WPC Whiting Petroleum Corporation
WP&L Wisconsin Power and Light Company
WPSC Wisconsin Public Service Corporation
WRPC Wisconsin River Power Company
WUHCA Wisconsin Utility Holding Company Act

2

FORWARD-LOOKING STATEMENTS
Refer to “Forward-Looking Statements” in MD&A for information and disclaimers regarding forward-looking statements contained in this Annual Report on Form 10-K.

PART I

This Annual Report on Form 10-K includes information relating to Alliant Energy, IP&L and WP&L (as well as Resources and Corporate Services). Where appropriate, information relating to a specific entity has been segregated and labeled as such. At Dec. 31, 2002, the assets and liabilities of Alliant Energy’s oil and gas (WPC), Australian (including Southern Hydro), affordable housing and SmartEnergy businesses were classified as held for sale. Alliant Energy completed the sale of the Australian, affordable housing and SmartEnergy businesses in 2003, as well as the sale of over 94% of the WPC stock. The operating results for these non-regulated businesses for all periods presented have been separately classified and reported as discontinued operations in Alliant Energy’s Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this Annual Report. Refer to Note 16 of Alliant Energy’s “Notes to Consolidated Financial Statements” for additional information.

ITEM 1. BUSINESS

A. GENERAL
The primary first tier subsidiaries of Alliant Energy include: IP&L, WP&L, Resources and Corporate Services. Among various other regulatory constraints, Alliant Energy is operating as a registered public utility holding company subject to the limitations imposed by PUHCA. Alliant Energy was incorporated in Wisconsin in 1981. A brief description of the primary first-tier subsidiaries of Alliant Energy is as follows:

1)     IP&L — incorporated in 1925 in Iowa as Iowa Railway and Light Corporation. IP&L is a public utility engaged principally in the generation, transmission, distribution and sale of electric energy; and the purchase, distribution, transportation and sale of natural gas in selective markets in Iowa, Minnesota and Illinois. In Iowa, non-exclusive franchises, which cover the use of streets and alleys for public utility facilities in incorporated communities, are granted for a maximum of 25 years by a majority vote of local qualified residents. At Dec. 31, 2003, IP&L supplied electric and gas service to 528,977 and 235,812 (excluding transportation and other) customers, respectively. IP&L also provides steam services to certain customers in one community in Iowa and various other energy-related products and services including construction management services for wind farms. In 2003, 2002 and 2001, IP&L had no single customer for which electric, gas, steam and/or other sales accounted for 10% or more of IP&L’s consolidated revenues.

2)     WP&L — incorporated in 1917 in Wisconsin as Eastern Wisconsin Electric Company. WP&L is a public utility engaged principally in the generation, distribution and sale of electric energy; and the purchase, distribution, transportation and sale of natural gas 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 Dec. 31, 2003, WP&L supplied electric and gas service to 436,976 and 172,615 (excluding transportation and other) customers, respectively. WP&L also provides water services in select markets and various other energy-related products and services including construction management services for wind farms. In 2003, 2002 and 2001, WP&L had no single customer for which electric, gas, water and/or other sales accounted for 10% or more of WP&L’s consolidated revenues. WPL Transco LLC is a wholly-owned subsidiary of WP&L and holds WP&L’s investment in ATC. WP&L also 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.

3)     RESOURCES — incorporated in 1988 in Wisconsin. The majority of Alliant Energy’s non-regulated investments are organized under Resources. Resources’ significant wholly-owned subsidiaries at Dec. 31, 2003 include AEG, International, Integrated Services, Neenah, Transportation and Synfuel. Refer to “D. Information Relating to Non-regulated Operations” for additional details.

4)     CORPORATE SERVICES — incorporated in 1997 in Iowa. Corporate Services was formed to provide administrative services to Alliant Energy and its subsidiaries as required under PUHCA.

Refer to Note 13 of the “Notes to Consolidated Financial Statements” for further discussion of business segments, which information is incorporated herein by reference.

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B. INFORMATION RELATING TO ALLIANT ENERGY ON A CONSOLIDATED BASIS

1) EMPLOYEES
As of Dec. 31, 2003, Alliant Energy’s consolidated subsidiaries had the following employees (full-time and part-time):

  Percentage
    Number of Number of of Workforce
  Number of Bargaining Unit Bargaining Covered by
  Employees Employees Agreements Agreements

IP&L 1,686  1,410  84%
WP&L 1,524  1,438  94%
Resources:
   International 3,239  --  --  -- 
   Integrated Services 652  --  --  -- 
   Other Investments 120  80  67%
   Other 29  --  --  -- 
Corporate Services 1,693  --  --  -- 
 
 
  8,943  2,928  13  33%
 
 

In September 2004, three bargaining agreements expire representing approximately 17% of employees covered under bargaining agreements and 6% of total Alliant Energy employees. WP&L’s bargaining agreement with IBEW Local 965 expired in 2003 and has not been renewed, which represents 49% of employees covered under bargaining agreements and 16% of total Alliant Energy employees. While negotiations continue on the WP&L bargaining agreement, Alliant Energy is currently unable to predict the outcome. Alliant Energy has not experienced any significant work stoppage problems in the past.

2) CAPITAL EXPENDITURE AND INVESTMENT PLANS
Refer to “Liquidity and Capital Resources — Construction and Acquisition Expenditures” in MD&A for discussion of anticipated construction and acquisition expenditures for 2004 and 2005.

3) REGULATION
PUHCA — Alliant Energy operates as a registered public utility holding company subject to regulation by the SEC under PUHCA. Regulation under PUHCA includes provisions relating to the issuance and sales of securities, acquisitions and sales of certain utility properties, acquisitions and retention of interests in non-utility businesses, including EWGs and FUCOs, and the services provided by Corporate Services to Alliant Energy and its subsidiaries. Under an SEC order, Alliant Energy has aggregate investment authority for EWGs and FUCOs equivalent to 100% of consolidated retained earnings as defined in the regulations. At Dec. 31, 2003, Alliant Energy’s remaining investment authority under this Order was approximately $267 million.

PSCW — Alliant Energy is subject to regulation by the PSCW. The PSCW regulates, among other things, the type and amount of Alliant Energy’s investments in non-utility businesses. WP&L is also subject to regulation by the PSCW regarding 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 required to file a rate case with the PSCW at least every two years based on a forward-looking test year period.

IUB — IP&L operates under the jurisdiction of the IUB. The IUB has authority to regulate rates and standards of service, to prescribe accounting requirements and to approve the location and construction of electric generating facilities having a capacity in excess of 25,000 KW. Requests for rate relief are based on historical test periods, adjusted for certain known and measurable changes. The IUB must decide on requests for rate relief within 10 months of the date of the application for which relief is filed or the interim prices granted become permanent. Interim rates, if allowed, are permitted to become effective, subject to refund, no later than 90 days after the rate increase application is filed.

MPUC — IP&L is also subject to regulation by the MPUC. Requests for rate relief can be based on either historical or projected data. The MPUC must reach a final decision within 10 months of filing for rate relief. Interim rates are permitted. The MPUC also has jurisdiction to annually approve IP&L’s capital structure.

4

ICC — IP&L and South Beloit are subject to regulation by the ICC for retail utility rates and service, accounts, issuance and use of proceeds of securities, certain additions and extensions to facilities and in other respects. Requests for rate relief must be decided within 11 months of filing.

FERC — FERC has jurisdiction under the Federal Power Act over certain of the electric utility facilities and operations, wholesale rates and accounting practices of IP&L and WP&L, and in certain other respects. In addition, certain natural gas facilities and operations of IP&L and WP&L are subject to the jurisdiction of FERC under the Natural Gas Act.

Environmental — The EPA administers certain federal regulatory programs and has delegated the administration of other environmental regulatory programs to the applicable state environmental agencies. In general, the state agencies have jurisdiction over safety, air and water quality, and waste handling standards associated with electric power generation, including the level and flow of water pertaining to hydroelectric generation. In certain cases, the state environmental agencies have delegated the administration of environmental programs to local agencies. In addition, International has investments that are subject to environmental regulations in the countries in which they operate.

Nuclear — IP&L and WP&L are directly and indirectly subject to the jurisdiction of the NRC, with respect to DAEC and Kewaunee, respectively. Among other things, the NRC regulates the disposal of nuclear fuel and other radioactive wastes.

Brazil — The electric industry in Brazil, as it relates to Alliant Energy’s unconsolidated investments, is regulated by the Brazilian federal government, acting through the Ministry of Mines and Energy, which has exclusive authority over the electric sector through its regulatory powers. Regulatory policy for the sector is implemented by an autonomous national electric energy agency (Agencia Nacional de Energia Eletrica or “ANEEL”), which delegates certain functions to agencies based in various states of Brazil. However, ANEEL cannot delegate any authority regarding tariffs to state agencies. In January 2003, a new Minister of Mines and Energy was appointed, resulting in the cessation of the ongoing comprehensive review of the regulatory process and policies that began in 2002. A new plan was announced in December 2003 (effective date as yet unspecified) which is intended to provide limited and balanced regulation of the generation and distribution of electric energy within the sectors of the Brazilian economy. Although all of the details and the precise timing of the plan are unknown at this time, Alliant Energy does not expect the plan will have a material adverse impact on Alliant Energy’s investments in Brazil.

Refer to Note 2 of Alliant Energy’s “Notes to Consolidated Financial Statements” and “Rates and Regulatory Matters” in MD&A for additional information regarding regulation and utility rate matters.

4) STRATEGIC OVERVIEW
Refer to “Strategic Overview” in MD&A for discussion of various strategic actions Alliant Energy has taken to strengthen its financial profile and information regarding Alliant Energy’s updated strategic plan.

C. INFORMATION RELATING TO DOMESTIC UTILITY OPERATIONS
Alliant Energy realized 48%, 47%, 3% and 2% of its 2003 electric utility revenues in Iowa, Wisconsin, Minnesota and Illinois, respectively. Approximately 90% was regulated by the respective state commissions while the other 10% was regulated by FERC. Alliant Energy realized 48%, 47%, 3% and 2% of its 2003 gas utility revenues in Iowa, Wisconsin, Minnesota and Illinois, respectively.

IP&L realized 92%, 6% and 2% of its 2003 electric utility revenues in Iowa, Minnesota and Illinois, respectively. Approximately 96% was regulated by the respective state commissions while the other 4% was regulated by FERC. IP&L realized 93%, 5% and 2% of its 2003 gas utility revenues in Iowa, Minnesota and Illinois, respectively. WP&L realized 99% of its 2003 electric utility revenues in Wisconsin and 1% in Illinois. Approximately 83% was regulated by the PSCW or the ICC while the other 17% was regulated by FERC. WP&L realized 97% of its 2003 gas utility revenues in Wisconsin and 3% in Illinois.

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1) DOMESTIC ELECTRIC UTILITY OPERATIONS
General — IP&L and WP&L provide electric service in Iowa, southern and central Wisconsin, southern Minnesota and northern and northwestern Illinois. The number of electric customers and communities served at Dec. 31, 2003 was as follows:

  Retail Customers Wholesale Customers Other Customers Communities Served

IP&L 527,650  1,318  760 
WP&L 434,941  30  2,005  601 

  962,591  39  3,323  1,361 

2003 electric utility operations accounted for 73% and 75% of operating revenues and 92% and 85% of operating income for IP&L and WP&L, respectively.

Electric sales are seasonal to some extent with the annual peak normally occurring in the summer months. In 2003, the maximum peak hour demands for IP&L and WP&L were 3,123 MW and 2,782 MW, respectively, both on Aug. 20, 2003. In 2003, the maximum peak hour demand for Alliant Energy was 5,887 MW on Aug. 20, 2003, which was the coincident peak of the entire Alliant Energy system.

Transmission Business — IP&L and WP&L are members of the MAIN Regional Reliability Council which is one of the 10 regional members of NERC. Each regional member of NERC is responsible for maintaining reliability in its area through coordination of planning and operations.

In 2002, IP&L filed for IUB and MPUC approval to transfer its transmission assets to TRANSLink, a proposed independent for-profit, transmission-only company. In November 2003, TRANSLink announced that upon direction of the participant utilities, formation of TRANSLink had been suspended due to continued regulatory and market uncertainty. IP&L continues to support the independent transmission company model but is not able to predict the ultimate outcome of the structure of its transmission business.

WP&L transferred its transmission assets with no gain or loss to a transmission-only company, ATC, on Jan. 1, 2001, and had an ownership percentage in ATC of approximately 25% at Dec. 31, 2003. 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 2003, ATC returned approximately 80% of its earnings to the equity holders and, although no assurance can be given, Alliant Energy anticipates ATC will continue this dividend payout ratio 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 MAIN Regional Reliability Council.

In 2002, the PSCW issued a final ruling regarding incremental electric transmission costs, such as ATC start-up costs and ongoing network transmission costs. This ruling allows Wisconsin utilities, including WP&L, to continue to defer any such costs related to retail service for five years with deferred amounts included in future base rates. Further, in December 2003, the PSCW issued a final order in WP&L’s 2004 retail rate case, which expanded the 2002 ruling allowing for the deferral of any retail transmission wheeling expenses that are different from amounts included in existing rates. During the remainder of this deferral period, changes in total retail electric transmission costs will have no material impact on WP&L’s results of operations.

IP&L and WP&L are members of the Midwest ISO, which is in the process of restructuring the bulk power market in its domain.  Such restructuring could have an impact on the costs associated with Alliant Energy serving its utility customers’ energy requirements. The Midwest ISO currently plans to implement the market restructuring effective Dec. 1, 2004. Given the anticipated regulatory treatment of any potential cost differences, Alliant Energy does not currently expect the ultimate outcome will have a material impact on its results of operations or financial condition.

The PSCW is authorized to order construction of new transmission facilities. In 2001, the PSCW approved the construction of a 345-kilovolt transmission line, which would be constructed by ATC and would improve transmission import capabilities in Wisconsin. Due to significant cost increases, the PSCW re-evaluated and re-approved the project in December 2003. Pending various other regulatory approvals, construction could begin as early as 2004 and the transmission line is expected to be in service in 2008.

6

IP&L maintains and operates transmission and substation facilities connecting with its high voltage transmission systems pursuant to a non-cancelable operation agreement (the Operating Agreement) with CIPCO. The Operating Agreement, which will terminate on Dec. 31, 2035, provides for the joint use of certain transmission facilities of IP&L and CIPCO. IP&L has transmission interconnections at various locations with nine other transmission owning utilities in the Midwest and ATC also has various transmission interconnections. These interconnections enhance the overall reliability of the Alliant Energy transmission system and provide access to multiple sources of economic and emergency energy.

In 2002, FERC issued a notice of proposed rules intended to standardize the wholesale electric market, which has generated significant industry discussion. Although Alliant Energy believes that standardization of the wholesale electric market is appropriate and would benefit market participants, there may be significant changes to the proposed rules before they are adopted. Therefore, Alliant Energy cannot determine the impact the final rules will have on its results of operations or financial condition.

Refer to “Properties” for additional information regarding electric properties.

Power Supply — Alliant Energy currently anticipates meeting its 2004 power supply requirements through a variety of incremental power supply resources including purchased-power contracts utilizing existing firm transmission rights and additional power purchases from existing generating units located within and outside of Alliant Energy’s service territory. While Alliant Energy currently expects to meet utility customer demands in 2004, unanticipated reliability issues could still arise in the event of unexpected delays in the construction of new generating and/or transmission facilities, power plant outages, transmission system outages or extended periods of extremely hot weather. Refer to “Strategic Overview — Updated Strategic Plan” in MD&A for discussion of Alliant Energy’s domestic utility generation plan.

Average Fuel Costs — Refer to the Electric Operating Information tables for details on the sources of electric energy for Alliant Energy, IP&L and WP&L from 2001 to 2003. The average cost of fuel per million British Thermal Units used for electric generation was as follows:

  IP&L WP&L

  2003 2002 2001 2003 2002 2001

Gas $5.884  $3.613  $4.721  $6.823  $4.066  $5.397 
Coal 1.072  1.067  0.991  1.224  1.262  1.146 
Nuclear 0.546  0.572  0.608  0.441  0.457  0.423 
All Fuels 1.088  1.032  1.046  1.370  1.234  1.158 

Coal — Alliant Energy, through Corporate Services, IP&L and WP&L, has entered into contracts with different suppliers to ensure that a specified supply of coal is available at known prices for IP&L and WP&L for 2004 through 2008. These contracts provide for a portfolio of coal supplies that cover approximately 96%, 76%, 54%, 21% and 11% of the total utilities’ estimated coal supply needs for 2004 through 2008, respectively. Management believes this portfolio of coal supplies represents a reasonable balance between the risks of insufficient supplies and those associated with larger open positions subject to price volatility in the coal markets. Remaining coal requirements will be met from either future contracts or purchases in the spot market.

The majority of the coal utilized by IP&L and WP&L is from the Wyoming Powder River Basin. A majority of this coal is transported by rail-car directly from Wyoming to IP&L’s and WP&L’s generating stations, with the remainder transported from Wyoming to the Mississippi River by rail-car and then via barges to the final destination. As protection against interruptions in coal deliveries, IP&L and WP&L maintain average coal inventories of 25 to 50 days for generating stations with year-round deliveries and 30 to 150 days (depending upon the time of year) for generating stations with seasonal deliveries.

Average delivered fossil fuel costs are expected to increase in the future due to price/rate structures and adjustment provisions in existing coal and transportation contracts and recent coal market trends. Existing coal contracts with terms of greater than one year have fixed future year prices that generally reflect recent upward market trends. Other factors which may impact coal prices are changes in various associated laws and regulations. For example, sulfur dioxide and NOx emission restrictions and other environmental limitations on generating stations have increased significantly and proposed additional restrictions (including mercury emissions), if enacted, will likely limit the ability to obtain, and further increase the cost of, adequate coal supplies. Rate adjustment provisions in transportation contracts are primarily based on changes in the Rail Cost Adjustment Factor as published by the U.S. Surface Transportation Board. Refer to Note 1(i) for discussion of IP&L’s and WP&L’s rate recovery of fuel costs, Note 10(a) for information on coal derivatives and Note 11(b) for details relating to coal purchase commitments in the “Notes to Consolidated Financial Statements.”

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Purchased-Power — During 2003, approximately 25% and 31% of IP&L’s and WP&L’s total MWh requirements, respectively, were met through purchased-power. Refer to Notes 3 and 11(b) of the “Notes to Consolidated Financial Statements” for details relating to purchased-power commitments and “Transmission Business” for discussion of proposed rules intended to standardize the wholesale electric market.

Nuclear — Summary — IP&L and WP&L own partial interests in two nuclear generating facilities, DAEC and Kewaunee, respectively, which are operated by the NMC under contract to the majority owners, which remain in effect until notice of termination is provided one year prior to such termination would be effective. Alliant Energy has a 20% ownership interest in the NMC. The NMC operates all nuclear plants owned by the NMC partners, which provides long-term safety, reliability and operational benefits for the plant owners. The NMC currently operates eight nuclear generating units at six sites but has no ownership interest in the plants it operates and bears no financial risk associated with operation of the plants. The plant owners retain all rights to the energy generated at the plants and all financial responsibility for their safe operation, maintenance and decommissioning. Certain details for DAEC and Kewaunee are as follows:

  DAEC Kewaunee

Rating, net electric capacity 583 MW (100%) 543 MW (100%)
Alliant Energy ownership IP&L - 70% WP&L - 41%
Other ownership CIPCO - 20%; Corn Belt WPSC - 59%
    Power Cooperative - 10%  
Reactor type Boiling water Pressurized water
NRC operating license expiration 2014 2013

DAEC License Renewal — IP&L has made no decision regarding license extension for DAEC. IP&L’s approach has been and continues to be to preserve the option of renewing the license and has directed that DAEC be operated and maintained in a manner that ensures license extension remains a viable option. Preserving DAEC’s license extension option will include ensuring adequate time is available for the possibility of preparing specific license renewal studies, submittal of study results for NRC review, evaluation of the results of the NRC’s review, and making a decision on whether and to what degree any license extension will be pursued.

Kewaunee Sale — Refer to Note 17 of Alliant Energy’s “Notes to Consolidated Financial Statements” for information on the sale of Kewaunee by WP&L and WPSC expected to be completed by fall 2004, pending various regulatory approvals.

Nuclear Operating Issues — The NRC has significant regulatory authority over the design and operation of nuclear generating facilities with regard to environmental considerations and public health and safety. Exercise of this authority by the NRC is continuous and responsive to any nuclear related issue.

In February 2002, the NRC issued an order to all licensees formalizing their requirements for additional security resulting from the Sept. 11, 2001 terrorist attacks on the U.S. Prior to this order, the additional security measures were voluntary, based on NRC guidance. The NMC, as operator of DAEC and Kewaunee, has fully implemented the immediate actions required and is in the process of completing longer term actions as required. In December 2001, the PSCW authorized WP&L to defer incremental costs for security measures and insurance premiums related to the Sept. 11, 2001 terrorist attacks. Both IP&L and WP&L are recovering the costs of the required immediate actions in their respective rates.

IP&L’s and WP&L’s share of anticipated nuclear-related construction expenditures at DAEC and Kewaunee for 2004 and 2005 are approximately $23 million and $19 million, respectively. These expenditures would be reduced for WP&L if the sale of its interest in Kewaunee is completed prior to the end of 2005.

Refueling Outages and Procurement of Nuclear Fuel — The NMC, acting on behalf of IP&L and the other DAEC owners, purchases uranium and enrichment services for DAEC using a combination of spot market and medium term contracts. This procurement is complete for the spring 2005 DAEC refueling outage. Arrangements for the fabrication of nuclear fuel are in place through the 2011 refueling of DAEC. WPSC purchases uranium concentrates and conversion, enrichment and fabrication services for nuclear fuel assemblies at Kewaunee. Sufficient fuel is in inventory for the fall 2004 refueling outage and additional fuel will be purchased in 2004 for the spring 2006 refueling outage. WPSC’s uranium inventory policy is to maintain sufficient inventory for up to two reloads of fuel. Refer to Note 1(j) of Alliant Energy’s “Notes to Consolidated Financial Statements” for information related to the timing of DAEC and Kewaunee refueling outages.

8

Nuclear Liability/Insurance — Liability for nuclear accidents is governed by the Price-Anderson Act of 1988 as amended (Act), which sets a statutory limit of $10.86 billion for liability to the public for a single nuclear power plant incident and requires nuclear power plant operators to provide financial protection for this amount. Financial protection for a nuclear incident is provided through a combination of liability insurance ($300 million) and industry-wide retrospective payment plans ($10.56 billion). Under the industry-wide plan, the owners of each operating licensed nuclear reactor in the U.S. are subject to an assessment in the event of a nuclear incident at any nuclear plant in the U.S. The applicability of the Act to IP&L and WP&L, as existing nuclear power plant owners, continues for the remainder of the operating lives of the plants they own. Alliant Energy expects the U.S. Congress will consider in 2004 coverage under the Act for new nuclear generating stations and increasing the statutory limits for liability to the public for a single nuclear power plant incident and the maximum annual assessment per incident for existing nuclear generating stations.

IP&L and WP&L are members of NEIL, which provides $2.0 billion and $1.8 billion of insurance coverage for DAEC and Kewaunee, respectively, for certain property losses for property damage, decontamination and premature decommissioning. The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair and premature decommissioning. NEIL also provides separate coverage for additional expenses incurred during certain outages. Owners of nuclear generating stations insured through NEIL are subject to retroactive premium adjustments if losses exceed accumulated reserve funds. NEIL’s accumulated reserve funds are currently sufficient to more than cover its exposure in the event of a single incident under the primary and excess property damage or additional expense coverages. However, IP&L and WP&L could be assessed if losses exceed the accumulated reserve funds. A summary of IP&L’s and WP&L’s share of maximum possible retrospective liability, property and additional expense assessments is as follows (in millions):

  DAEC Kewaunee

Price-Anderson Act liability $70.4/incident $41.2/incident
  $7.0/incident/year $4.1/incident/year
NEIL primary property $3.3/year $1.8/year
NEIL excess property $4.4/year $3.5/year
NEIL additional expense $2.4/year $1.0/year

These limits are subject to adjustments for changes in the number of participants and inflation in future years. In the event of a catastrophic loss at DAEC or Kewaunee, the amount of insurance available may not be adequate to cover property damage, decontamination and premature decommissioning. Uninsured losses, to the extent not recovered through rates, would be borne by IP&L or WP&L, as the case may be, and could have a material adverse effect on their respective financial condition and results of operations. IP&L and WP&L are not currently aware of any losses that they believe are likely to result in an assessment.

Spent Nuclear Fuel (High Level Waste) Disposal — NWPA assigned responsibility to the DOE to provide for the permanent disposal of spent nuclear fuel in exchange for payments by contract holders and also requires generators and owners of spent nuclear fuel to provide for interim storage until the fuel is accepted by the DOE. IP&L, on behalf of the DAEC owners, and WPSC, on behalf of the Kewaunee owners, entered into contracts with the DOE for this disposal service and have made the agreed payments to the Nuclear Waste Fund held by the U.S. Treasury. The contracts provided for this service to begin in 1998, however, the DOE has experienced delays in its efforts and acceptance is now expected to occur no earlier than 2010. The DOE is currently proceeding with the licensing phase for a permanent spent fuel storage facility in the Yucca Mountain area of Nevada.

In accordance with their interim storage responsibility, IP&L and WPSC have been and will continue storing spent nuclear fuel on site at DAEC and Kewaunee, respectively, until removal by the DOE to its permanent repository occurs. Interim storage activities at reactor sites, regardless of DOE delays or acceptance schedules, will extend after final reactor shutdown. Construction of a dry cask storage facility by IP&L at DAEC has been completed and transfer of approximately 10 years worth of spent nuclear fuel was completed in November 2003. The dry storage facility provides assurance that both the operating and post-shutdown storage needs of DAEC are satisfied. Kewaunee has sufficient fuel storage capacity to meet its operating storage needs through 2009. Additional storage facilities will be needed at Kewaunee by 2010 for full offload capability for future outages.

In January 2004, IP&L filed a claim against the U.S. government for recovery of damages due to the DOE’s delay in accepting spent nuclear fuel. IP&L is one of a number of utility companies with nuclear assets that has filed similar claims against the DOE for its failure to accept spent nuclear fuel in a timely manner. Determination and adjudication of the specific claim amount depends upon resolution of related court cases involving DOE acceptance rates and acceptance orders of spent nuclear fuel. Alliant Energy does not anticipate resolution of this issue until 2006 at the earliest and cannot currently predict the ultimate outcome.

9

Low-Level Radioactive Waste Disposal — The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandates that each state must take responsibility for the storage of low-level radioactive waste produced within its borders. However, disposal facilities located near Barnwell, South Carolina and Clive, Utah continue to accept the low-level waste from DAEC and Kewaunee, thereby minimizing the amount of low-level waste stored on-site and delaying the need for any action by individual states or groups of states to develop new facilities. While it is difficult to predict how long the South Carolina and Utah facilities will continue to accept low-level radioactive waste, DAEC and Kewaunee each have on-site storage capability for at least 10 years of waste generation beyond any date that both facilities might cease to accept such waste.

The costs associated with high- and low-level waste disposal and storage are currently recovered through the rates of Alliant Energy’s utility subsidiaries and therefore do not have a material impact on its results of operations or financial condition.

Additional Nuclear Discussion — Additional discussions of various other nuclear issues relating to DAEC and/or Kewaunee are included in Notes 1(g), 1(j), 3, 9, 10(c), 11(e), 11(f), 12, 17 and 18 of the “Notes to Consolidated Financial Statements.”

Electric Environmental Matters — Alliant Energy is regulated in environmental matters by federal, state and local agencies. Such regulations are the result of a number of environmental laws passed by the U.S. Congress, state legislatures and local governments and enforced by federal, state and local regulatory agencies. The laws impacting Alliant Energy’s operations include, but are not limited to, the Safe Drinking Water Act; Clean Water Act; CAA, as amended by the CAA Amendments of 1990; National Environmental Policy Act; Toxic Substances Control Act; Emergency Planning and Community Right-to-Know Act; Resource Conservation and Recovery Act; Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986; Endangered Species Act; NWPA; Occupational Safety and Health Act; and NEPA. Alliant Energy regularly obtains federal, state and local permits to assure compliance with the environmental protection laws and regulations. Costs associated with such compliance have increased in recent years and are expected to increase moderately in the future. Although Alliant Energy cannot guarantee rate recovery, it anticipates its prudently incurred utility costs will be recovered in future rates.

In February 2003, WP&L’s Columbia Energy Center (Columbia) received a Notice of Violation from the Wisconsin DNR for exceeding limits in its Wisconsin Pollutant Discharge Elimination System (WPDES) permit, which requires Columbia to sample its ash pond discharge and sanitary wastewater plant discharge for various parameters, including acute and chronic toxicity. The WPDES permit issued in 1998 required Columbia to identify what was causing the toxicity in its discharge through an evaluation and to develop a reduction plan. The evaluation was performed and Columbia developed a reduction plan that identified carbon dioxide injection as the treatment to reduce the aluminum concentrations. The Wisconsin DNR did not approve this method of treatment and directed Columbia to revise the reduction plan, at which time Columbia began evaluating a number of treatment alternatives and undertaking a physical evaluation. In November 2003, WP&L submitted a progress report to the Wisconsin DNR for the ash pond toxicity discharges along with plans for the sanitary wastewater treatment plant. In December 2003, a construction permit for the sanitary wastewater treatment plant was submitted to the Wisconsin DNR with an anticipated construction start date in spring 2004. While it is possible that the Wisconsin DNR may subsequently seek to impose a civil penalty for the discharge toxicity, WP&L believes it can resolve this issue to the Wisconsin DNR’s satisfaction in a manner that will not have a material adverse effect on its financial condition or results of operations. Refer to “Legal Proceedings” for further discussion.

Refer to “Liquidity and Capital Resources — Environmental” in MD&A and Note 11(e) of the “Notes to Consolidated Financial Statements” for further discussion of electric environmental matters.

10

Alliant Energy Corporation


Electric Operating Information
  (Domestic Utility Only) 2003 2002 2001 2000 1999

Operating Revenues (000s):
     Residential   $684,574   $626,947   $599,074   $567,283   $541,714  
     Commercial  409,704   376,365   373,145   349,019   329,487  
     Industrial  571,608   526,804   543,471   501,155   476,140  

       Total from retail customers  1,665,886   1,530,116   1,515,690   1,417,457   1,347,341  
     Sales for resale  195,822   160,335   184,507   173,148   155,801  
     Other  55,360   62,083   56,359   57,431   45,796  

       Total  $1,917,068   $1,752,534   $1,756,556   $1,648,036   $1,548,938  


Electric Sales (000s MWh):  
     Residential  7,565   7,616   7,344   7,161   7,024  
     Commercial  5,663   5,542   5,464   5,364   5,260  
     Industrial  12,345   12,297   12,469   13,092   13,036  

       Total from retail customers  25,573   25,455   25,277   25,617   25,320  
     Sales for resale  5,495   4,805   4,936   4,906   5,566  
     Other  184   197   168   174   162  

       Total  31,252   30,457   30,381   30,697   31,048  


Customers (End of Period):  
     Residential  830,559   822,229   807,754   799,603   790,669  
     Commercial  129,130   128,212   125,539   123,833   122,509  
     Industrial  2,902   2,905   2,826   2,773   2,730  
     Other  3,362   3,344   3,324   3,316   3,282  

       Total  965,953   956,690   939,443   929,525   919,190  


Other Selected Electric Data:  
     Maximum peak hour demand (MW)  5,887   5,729   5,677   5,397   5,233  
     Sources of electric energy (000s MWh): 
          Coal  18,451   17,674   18,190   18,669   18,585  
          Purchased power  9,155   8,596   8,727   8,058   8,619  
          Nuclear  4,498   5,012   4,116   4,675   4,362  
          Gas  631   675   472   470   493  
          Other  240   379   452   427   528  

            Total  32,975   32,336   31,957   32,299   32,587  

     Revenue per KWh from retail customers (cents)  6.51   6.01   6.00   5.53   5.32  

11

Interstate Power and Light Company


Electric Operating Information 2003 2002 2001 2000 1999

Operating Revenues (000s):
     Residential   $367,681   $355,072   $350,946   $337,615   $328,218  
     Commercial  239,362   229,639   234,876   221,820   212,540  
     Industrial  327,838   315,494   335,680   311,070   305,022  

       Total from retail customers  934,881   900,205   921,502   870,505   845,780  
     Sales for resale  40,249   34,513   53,320   57,433   53,050  
     Other  31,852   30,136   28,284   27,907   23,501  

       Total  $1,006,982   $964,854   $1,003,106   $955,845   $922,331  


Electric Sales (000s MWh):  
     Residential  4,155   4,184   4,026   4,010   3,913  
     Commercial  3,496   3,392   3,342   3,333   3,280  
     Industrial  7,750   7,843   7,931   8,404   8,466  

       Total from retail customers  15,401   15,419   15,299   15,747   15,659  
     Sales for resale  1,299   1,151   1,412   1,678   2,314  
     Other  102   103   107   111   108  

       Total  16,802   16,673   16,818   17,536   18,081  


Customers (End of Period):  
     Residential  448,719   446,202   439,508   437,425   434,978  
     Commercial  77,043   76,856   75,132   74,483   73,813  
     Industrial  1,888   1,898   1,836   1,799   1,783  
     Other  1,327   1,328   1,359   1,393   1,389  

       Total  528,977   526,284   517,835   515,100   511,963  


Other Selected Electric Data:  
     Maximum peak hour demand (MW)  3,123   3,097   3,104   3,021   2,930  
     Sources of electric energy (000s MWh): 
          Coal  10,232   9,889   9,997   10,701   10,460  
          Purchased power  4,503   4,134   4,595   4,041   5,183  
          Nuclear  2,791   3,202   2,697   3,117   2,548  
          Gas  227   330   346   364   432  
          Other  63   127   171   179   240  

            Total  17,816   17,682   17,806   18,402   18,863  

     Revenue per KWh from retail customers (cents)  6.07   5.84   6.02   5.53   5.40  

12

Wisconsin Power and Light Company


Electric Operating Information 2003 2002 2001 2000 1999

Operating Revenues (000s):
     Residential   $316,893   $271,875   $248,128   $229,668   $213,496  
     Commercial  170,342   146,726   138,269   127,199   116,947  
     Industrial  243,770   211,310   207,791   190,085   171,118  

       Total from retail customers  731,005   629,911   594,188   546,952   501,561  
     Sales for resale  155,573   125,822   131,187   115,715   102,751  
     Other  23,508   31,947   28,075   29,524   22,295  

       Total  $910,086   $787,680   $753,450   $692,191   $626,607  


Electric Sales (000s MWh):  
     Residential  3,410   3,432   3,318   3,151   3,111  
     Commercial  2,167   2,150   2,122   2,031   1,980  
     Industrial  4,595   4,454   4,538   4,688   4,570  

       Total from retail customers  10,172   10,036   9,978   9,870   9,661  
     Sales for resale  4,196   3,654   3,524   3,228   3,252  
     Other  82   94   61   63   54  

       Total  14,450   13,784   13,563   13,161   12,967  


Customers (End of Period):  
     Residential  381,840   376,027   368,246   362,178   355,691  
     Commercial  52,087   51,356   50,407   49,350   48,696  
     Industrial  1,014   1,007   990   974   947  
     Other  2,035   2,016   1,965   1,923   1,893  

       Total  436,976   430,406   421,608   414,425   407,227  


Other Selected Electric Data:  
     Maximum peak hour demand (MW)  2,782   2,674   2,696   2,508   2,397  
     Sources of electric energy (000s MWh): 
          Coal  8,219   7,785   8,193   7,968   8,125  
          Purchased power  4,652   4,462   4,132   4,017   3,436  
          Nuclear  1,707   1,810   1,419   1,558   1,814  
          Gas  404   345   126   106   61  
          Other  177   252   281   248   288  

            Total  15,159   14,654   14,151   13,897   13,724  

     Revenue per KWh from retail customers (cents)  7.19   6.28   5.95   5.54   5.19  

13

2) DOMESTIC GAS UTILITY OPERATIONS
IP&L and WP&L provide gas service in Iowa, southern and central Wisconsin, southern Minnesota and northern and northwestern Illinois. The number of gas customers and communities served at Dec. 31, 2003 were as follows:

    Transportation and  
  Retail Customers Other Customers Communities Served

IP&L 235,812  214  253 
WP&L 172,615  266  232 

  408,427  480  485 

2003 gas utility operations accounted for 21% and 22% of operating revenues and 8% and 13% of operating income for IP&L and WP&L, respectively, which include providing gas services to retail and transportation customers.

In providing gas commodity service to retail customers, Corporate Services administers a diversified portfolio of transportation and storage contracts on behalf of IP&L and WP&L. Transportation contracts with Northern Natural Gas Company (NNG), Natural Gas Pipeline Co. of America (NGPL) and ANR Pipeline (ANR) allow access to gas supplies located in the U.S. and Canada. Arrangements with Firm Citygate Supplies (FCS) provide IP&L and WP&L with gas delivered directly to their service territories. The maximum daily delivery capacity of the individual utilities for 2003 was as follows (in Dths):

  NNG NGPL ANR FCS Total

IP&L 198,641  89,932  56,680  22,000  367,253 
WP&L 100,056  --  146,467  39,000  285,523 

IP&L and WP&L maintain purchase agreements with over 30 suppliers of natural gas from all gas producing regions of the U.S. and Canada. The majority of the gas supply contracts are for terms of six months or less, with the remaining supply contracts having terms through 2004. IP&L’s and WP&L’s gas supply commitments are index-based.

In addition to sales of natural gas to retail customers, IP&L and WP&L provide transportation service to commercial and industrial customers by moving customer-owned gas through their distribution systems to the customers’ meters. Revenues are collected for this service pursuant to transportation tariffs.

The gas sales of IP&L and WP&L 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. Natural gas obtained from producers, marketers and brokers, as well as gas in storage, is utilized to meet the peak heating season requirements. Storage contracts allow IP&L and WP&L to purchase gas in the summer, store the gas in underground storage fields and deliver it in the winter. Gas storage met approximately 23% and 24% of IP&L’s and WP&L’s annual gas requirements in 2003, respectively.

Refer to Note 1(i) for information relating to utility natural gas cost recovery, Note 10(a) for information on natural gas derivatives and Note 11(b) for discussion of natural gas commitments in the “Notes to Consolidated Financial Statements.”

Gas Environmental Matters — Refer to Note 11(e) of the “Notes to Consolidated Financial Statements” for discussion of gas environmental matters.

14

Alliant Energy Corporation


Gas Operating Information (Domestic Utility Only) 2003 2002 2001 2000 1999

Operating Revenues (000s):
     Residential   $310,658   $218,746   $270,248   $245,697   $185,090  
     Commercial  162,651   111,343   141,121   127,104   89,118  
     Industrial  34,201   25,177   31,262   27,752   21,855  
     Transportation/other  59,416   38,720   45,246   14,395   18,256  

       Total  $566,926   $393,986   $487,877   $414,948   $314,319  


Gas Sales (000s Dths):  
     Residential  31,871   30,931   29,580   32,026   30,309  
     Commercial  19,947   19,348   18,055   19,696   18,349  
     Industrial  5,093   5,373   5,344   5,350   5,963  
     Transportation/other  48,978   47,386   48,539   43,931   46,954  

       Total  105,889   103,038   101,518   101,003   101,575  


Customers at End of Period (Excluding Transportation/Other):
     Residential  361,835   358,384   353,430   351,990   347,533  
     Commercial  45,826   45,793   45,480   44,654   44,289  
     Industrial  766   799   951   953   1,037  

       Total  408,427   404,976   399,861   397,597   392,859  


Other Selected Gas Data:  
     Revenue per Dth sold
       (excluding transportation/other)  $8.92   $6.38   $8.35   $7.02   $5.42  
     Purchased gas costs per Dth sold
       (excluding transportation/other)  $6.11   $4.02   $6.31   $4.88   $3.30  

15

Interstate Power and Light Company


Gas Operating Information 2003 2002 2001 2000 1999

Operating Revenues (000s):
     Residential   $173,598   $124,237   $162,575   $149,493   $115,428  
     Commercial  88,057   61,222   82,463   72,592   53,548  
     Industrial  24,595   18,197   22,355   19,171   15,778  
     Transportation/other  8,299   11,239   13,621   8,540   8,795  

       Total  $294,549   $214,895   $281,014   $249,796   $193,549  


Gas Sales (000s Dths):  
     Residential  19,074   18,068   17,826   19,257   18,239  
     Commercial  11,408   10,774   10,483   11,101   10,578  
     Industrial  3,911   4,070   4,147   3,874   4,443  
     Transportation/other  29,182   28,814   31,673   30,251   33,717  

       Total  63,575   61,726   64,129   64,483   66,977  


Customers at End of Period (Excluding Transportation/Other):
     Residential  207,921   206,808   205,065   205,300   203,518  
     Commercial  27,465   27,607   27,649   27,071   26,909  
     Industrial  426   438   441   440   461  

       Total  235,812   234,853   233,155   232,811   230,888  


Other Selected Gas Data:  
     Revenue per Dth sold
       (excluding transportation/other)  $8.32   $6.19   $8.24   $7.05   $5.55  
     Purchased gas cost per Dth sold
       (excluding transportation/other)  $5.99   $4.11   $6.20   $4.89   $3.41  

Wisconsin Power and Light Company


Gas Operating Information 2003 2002 2001 2000 1999

Operating Revenues (000s):
     Residential   $137,060   $94,509   $107,673   $96,204   $69,662  
     Commercial  74,594   50,121   58,658   54,512   35,570  
     Industrial  9,606   6,980   8,907   8,581   6,077  
     Transportation/other  51,117   27,481   31,625   5,855   9,461  

       Total  $272,377   $179,091   $206,863   $165,152   $120,770  


Gas Sales (000s Dths):  
     Residential  12,797   12,863   11,754   12,769   12,070  
     Commercial  8,539   8,574   7,572   8,595   7,771  
     Industrial  1,182   1,303   1,197   1,476   1,520  
     Transportation/other  19,796   18,572   16,866   13,680   13,237  

       Total  42,314   41,312   37,389   36,520   34,598  


Customers at End of Period (Excluding Transportation/Other):
     Residential  153,914   151,576   148,365   146,690   144,015  
     Commercial  18,361   18,186   17,831   17,583   17,380  
     Industrial  340   361   510   513   576  

       Total  172,615   170,123   166,706   164,786   161,971  


Other Selected Gas Data:  
     Revenue per Dth sold
       (excluding transportation/other)  $9.83   $6.67   $8.54   $6.97   $5.21  
     Purchased gas cost per Dth sold
       (excluding transportation/other)  $6.29   $3.89   $6.47   $4.69   $3.00  

16

D. INFORMATION RELATING TO NON-REGULATED OPERATIONS

Resources manages a portfolio of wholly-owned subsidiaries and additional investments through distinct platforms: Non-regulated Generation, International, Integrated Services and Other Investments. Resources intends to concentrate its strategic focus on the profitability and cash flow of these platforms and does not currently plan to invest significant capital in the growth of these platforms in the near term other than investments in Non-regulated Generation to support Alliant Energy’s domestic utility business. Refer to “Strategic Overview — Updated Strategic Plan” in MD&A for further discussion.

Non-regulated Generation — was originally formed to acquire, develop and operate a portfolio of competitive power generating assets across the U.S., focusing primarily on the Upper Midwest. In February 2003, Resources purchased a 309- MW, non-regulated, tolled, natural gas-fired power plant in Neenah, Wisconsin for $109 million, which Resources financed with a $73 million 8-year secured credit agreement ($55 million of borrowings were outstanding at Dec. 31, 2003), which is non-recourse to Alliant Energy. The entire power output of the facility is sold under contract to Milwaukee-based We Energies through June 2008. In December 2003, Alliant Energy announced that Non-regulated Generation will refine its focus to support the development, financing and construction of generation to meet the needs of Alliant Energy’s domestic utility business and will defer pursuit of other new non-regulated generation projects, other than potential projects to utilize existing equipment held by Non-regulated Generation, or further acquisitions of existing tolled generation in the near term.

International — has invested in energy generation and distribution companies and projects in select growing markets. Currently, International has investments in Brazil, China and New Zealand. International has developed local partnerships to obtain knowledge of each local market’s business trends and customs. Refer to Note 9 of Alliant Energy’s “Notes to Consolidated Financial Statements” for additional information related to Alliant Energy’s investments in foreign entities.

Integrated Services — provides a wide range of energy and environmental services for commercial, industrial, institutional, educational and governmental customers. It offers large energy users an array of services to maximize customers’ productivity, profitability and energy efficiency, and provides solutions for waste remediation and other environmental engineering and consulting services. Integrated Services includes: Cogenex Corporation (Cogenex), Industrial Energy Applications, Inc. (IEA), Heartland Energy Group, Inc. (HEG), RMT, Inc. (RMT) and Alliant Energy Integrated Services Company — Energy Solutions L.L.C. (Energy Solutions). Cogenex installs energy efficient equipment for business customers. IEA provides on-site energy services with small standby generators. HEG owns an interest in NG Energy, a gas marketing business, and owns several natural gas and oil gathering systems in Texas. RMT is an environmental and engineering consulting company that serves clients nationwide in a variety of industrial market segments and specializes in consulting on solid and hazardous waste management, site remediation, ground water quality monitoring and detection, and air quality control. RMT is marketing SmartBurn™, which is a large-scale emissions-reducing program for coal-burning facilities, to other U.S. companies. Energy Solutions provides energy consulting services.

Other Investments — represents various additional investments of Resources. Transportation is a holding company whose wholly-owned subsidiaries include the Cedar Rapids and Iowa City Railway Company (CRANDIC), which is a short-line railway that provides freight service between Cedar Rapids and Iowa City; IEI Barge Services, Inc., which provides barge terminal and hauling services on the Mississippi River; and Williams Bulk Transfer Inc. and Transfer Services, Inc., which provide transfer and storage services. Synfuel has an equity interest in a synthetic fuel processing facility. The synthetic fuel project generates operating losses at its fuel processing facility, which are more than offset by tax credits and the tax benefit of the losses generated. Investments is a holding company with direct and indirect interests in various small real estate and economic development ventures, primarily concentrated in Cedar Rapids, Iowa, and holds other passive investments, including an equity interest in McLeod, an integrated telecommunications and services provider. Resources also has a loan to a development project in Mexico, several modest investments in emerging energy technology businesses and approximately 6% of the outstanding shares of WPC that it intends to sell in 2004.

E. DISCLOSURE CONCERNING WEBSITE ACCESS TO REPORTS
Alliant Energy makes its periodic and current reports, and amendments to those reports, available, free of charge, on its website at www.alliantenergy.com/investors on the same day as such material is electronically filed with, or furnished to, the SEC. Alliant Energy is not including the information contained on its website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K.

17

ITEM 2. PROPERTIES

IP&L
IP&L’s principal electric generating stations at Dec. 31, 2003, were as follows:

Name and Location Primary Fuel 2003 Summer Capability
of Station Type in KWs

Duane Arnold Energy Center, Palo, IA   Nuclear       393,050 (1)
 
Ottumwa Generating Station, Ottumwa, IA  Coal  345,690 (2)
Prairie Creek Station, Cedar Rapids, IA  Coal  210,910  
Sutherland Station, Marshalltown, IA  Coal  147,090  
Sixth Street Station, Cedar Rapids, IA  Coal  59,150  
Burlington Generating Station, Burlington, IA  Coal  214,120  
George Neal Unit 3, Sioux City, IA  Coal  144,200 (3)
George Neal Unit 4, Sioux City, IA  Coal  138,640 (4)
Dubuque Units 2, 3 and 4, Dubuque, IA  Coal  78,020  
M. L. Kapp Plant Units 1 and 2, Clinton, IA  Coal  235,680  
Lansing Units 1, 2, 3 and 4, Lansing, IA  Coal  317,130  
Louisa Unit 1, Louisa, IA  Coal  28,000 (5)
 
 
       Total Coal         1,918,630  
 
Marshalltown Combustion Turbines, Marshalltown, IA  Oil  170,260  
Centerville Combustion Turbines, Centerville, IA  Oil  51,280  
Montgomery Combustion Turbine Unit 1, Montgomery, MN  Oil  19,920  
Fox Lake Plant Combustion Turbine Unit 4, Sherburn, MN  Oil  19,460  
Lime Creek Plant Combustion Turbine Units 1 and 2, 
   Mason City, IA  Oil  73,170  
Diesel Stations, in IA/MN  Oil  18,410  
 
 
       Total Oil         352,500  
 
Grinnell Station, Grinnell, IA  Gas  48,300  
Agency Street Combustion Turbines, West Burlington, IA  Gas  70,040  
Burlington Combustion Turbines, Burlington, IA  Gas  70,730  
Red Cedar Combustion Turbine, Cedar Rapids, IA  Gas  18,020  
Fox Lake Plant Units 1, 2 and 3, Sherburn, MN  Gas  109,530  
 
 
       Total Gas         316,620  
 
 
 
       Total generating capability         2,980,800  
 
 

All KWs shown below represent the 2003 summer generating capability.

(1)  

Represents IP&L’s 70% ownership interest in this 561,500 KW generating station, which is operated by the NMC, with IP&L as the contracting partner for NMC operation.

(2)  

Represents IP&L’s 48% ownership interest in this 720,190 KW generating station, which is operated by IP&L.

(3)  

Represents IP&L’s 28% ownership interest in this 515,000 KW generating station, which is operated by MidAmerican Energy Company (MidAmerican).

(4)  

Represents IP&L’s 21.5% ownership interest in summer 2003 in this 644,000 KW generating station, which is operated by MidAmerican. Effective Dec. 31, 2003, IP&L’s ownership interest in this generating station increased to 25.7%.

(5)  

Represents IP&L’s 4% ownership interest in this 700,000 KW generating station, which is operated by MidAmerican.

IP&L owns 7,078 miles of electric transmission lines and 795 substations, substantially all located in Iowa, Minnesota and Illinois. IP&L’s principal properties are suitable for their intended use and substantially all are held subject to the liens of indentures relating to its bonds. Refer to “Strategic Overview — Updated Strategic Plan” in MD&A for discussion of Alliant Energy’s domestic generation plan.

18

WP&L
WP&L’s principal electric generating stations at Dec. 31, 2003, were as follows:

Name and Location Primary Fuel 2003 Summer Capability
of Station Type in KWs

Kewaunee Nuclear Power Plant, Kewaunee, WI   Nuclear       218,940 (1)
 
Nelson Dewey Generating Station, Cassville, WI  Coal  223,120  
Edgewater Generating Station #3, Sheboygan, WI  Coal  75,590  
Edgewater Generating Station #4, Sheboygan, WI  Coal  230,346 (2)  
Edgewater Generating Station #5, Sheboygan, WI  Coal  316,800 (3)  
Columbia Energy Center, Portage, WI  Coal  507,304 (4)  
 
 
      Total Coal         1,353,160
 
Blackhawk Generating Station, Beloit, WI  Gas  52,670  
Necedah Combustion Turbine, Necedah, WI  Gas  7,500 (5)  
Rock River Generating Station, Beloit, WI  Gas  149,890  
Rock River Combustion Turbine, Beloit, WI  Gas  154,980  
South Fond du Lac Combustion Turbine 
    Units 2 and 3, Fond du Lac, WI  Gas  165,100  
Sheepskin Combustion Turbine, Edgerton, WI  Gas  36,790  
 
 
      Total Gas         566,930
 
Kilbourn Hydro Plant, Wisconsin Dells, WI  Hydro  9,000  
Prairie du Sac Hydro Plant, Prairie du Sac, WI  Hydro  21,000  
Petenwell/Castle Rock Hydro Plants, 
    Wisconsin Rapids, WI  Hydro  6,000 (6)  
 
 
      Total Hydro         36,000
 
 
 
      Total generating capability         2,175,030
 
 

All KWs shown below represent the 2003 summer generating capability.

(1)  

Represents WP&L’s 41% ownership interest in this 534,000 KW generating station, which is operated by the NMC, with WPSC as the contracting partner for NMC operation. Refer to Note 17 of Alliant Energy’s “Notes to Consolidated Financial Statements” for information on the proposed sale of Kewaunee by WP&L and WPSC.

(2)  

Represents WP&L’s 68.2% ownership interest in this 337,750 KW generating station, which is operated by WP&L.

(3)  

Represents WP&L’s 75% ownership interest in this 422,400 KW generating station, which is operated by WP&L.

(4)  

Represents WP&L’s 46.2% ownership interest in this 1,098,060 KW generating station, which is operated by WP&L.

(5)  

WP&L has a 50% ownership interest in this 15,000 KW combustion turbine, which is operated by WRPC, and has a contract to purchase one-half of the plant’s output.

(6)  

WP&L has a 50% ownership interest in this 18,000 KW hydro plant, which is operated by WRPC, but has a contract to purchase only one-third of the plant’s output.

WP&L owns 162 distribution substations located adjacent to the communities served, substantially all located in Wisconsin. WP&L's transmission assets were transferred to ATC in 2001. WP&L's principal properties are suitable for their intended use and substantially all are held subject to the lien of its First Mortgage Bond indenture. Refer to "Strategic Overview - Updated Strategic Plan" in MD&A for further discussion of Alliant Energy's domestic generation plan.

Resources
Resources’ principal properties at Dec. 31, 2003 were as follows:

1.

Non-regulated Generation — owns two gas and one steam turbines for use in future generation projects, and also owns a 309-MW, non-regulated, tolled, natural gas-fired power plant in Wisconsin.

2.

International — owns interests in 11 combined heat and power facilities located in China with an aggregate generating capacity of approximately 525 MW.

19

3.

Integrated Services — owns standby generation and steam production systems. Also has interests in oil and natural gas gathering systems, which have 500 miles and 213 miles, respectively, of pipeline in Texas.

4.

Other Investments — CRANDIC has 112 railroad track miles all located within Iowa, and owns 17 locomotives and 192 railcars.

ITEM 3. LEGAL PROCEEDINGS

Alliant Energy
In 2000, Alliant Energy and WP&L filed a federal lawsuit seeking declaratory relief regarding whether certain provisions of WUHCA are unconstitutional as a violation of the interstate commerce and equal protection provisions of the U.S. Constitution. Alliant Energy and WP&L challenged the provisions of WUHCA that restrict ownership in utility holding companies, limit the investments those companies can make, place significant restrictions on companies that invest in Wisconsin utility holding companies and impose an asset cap on non-utility investments. The district court ultimately dismissed the case on summary judgment grounds in May 2002. Alliant Energy and WP&L appealed the district court’s decision to the 7th Circuit Court of Appeals which ruled in May 2003 that it is unconstitutional to require public utility holding companies with Wisconsin utility subsidiaries to be incorporated in the state of Wisconsin. The remaining WUHCA provisions that Alliant Energy challenged were upheld as constitutional. Alliant Energy filed a petition with the U.S. Supreme Court asking it to review the case. The Supreme Court decided in January 2004 not to review the case which effectively ended this lawsuit.

Alliant Energy received an adverse ruling in 1999 from a U.S. district court dealing with an income tax refund claim Alliant Energy filed relating to capital losses disallowed under audit by the IRS. The district court also disallowed certain related deductions allowed by the IRS to reduce a tax refund due to Alliant Energy related to another tax issue. Alliant Energy appealed the district court’s ruling and the government appealed the decision that led to the tax refund due to Alliant Energy. In June 2001, the U.S. Court of Appeals for the 8th Circuit ruled in Alliant Energy’s favor with respect to both tax issues and ultimately remanded the case back to the district court for entry of judgment. The federal government decided not to pursue the 8th Circuit’s ruling in favor of Alliant Energy with respect to these two tax issues. As a result, Alliant Energy recorded the applicable tax benefit and interest income in 2001 related to these events. An additional potential refund of approximately $14 million, plus interest, was also contested by the government, resulting in the district court ruling in favor of the government in July 2002. Alliant Energy was not successful in its appeal of this decision. However, the adverse decision by the 8th Circuit did not result in Alliant Energy recording any charges to earnings, as the refund sought represented a gain contingency. As a result, Alliant Energy will receive a tax refund of approximately $20 million in 2004, which includes interest.

In the fourth quarter of 2003, the Wisconsin Environmental Law Advocates (WELA) filed a complaint in the U.S. District Court for the Western District of Wisconsin against WP&L and Alliant Energy alleging violations of the federal Clean Water Act at the Columbia generating station. The complaint seeks certain upgrades to Columbia’s wastewater treatment program, as well as unspecified penalties and attorney fees. In addition, the Wisconsin DNR has been pursuing enforcement of this same matter and has recently referred the matter to the Wisconsin Department of Justice (WDOJ). To date, no action has been filed by the State of Wisconsin; however, Alliant Energy expects a complaint to be filed in due course. Alliant Energy, WDOJ and WELA have initiated settlement discussions. Alliant Energy believes that the total cost to resolve any potential penalties and implement any required upgrades in this matter will not be material. Refer to "Electric Environmental Matters" in "Business" for further discussion.

IP&L — None.

WP&L — Refer to “Legal Proceedings — Alliant Energy” for information regarding joint Alliant Energy and WP&L lawsuits.

Environmental Matters
Additional information required by Item 3 with regards to environmental matters is included in “C. Information Relating to Domestic Utility Operations — 1) Domestic Electric Utility Operations” in “Business,” “Liquidity and Capital Resources — Environmental” in MD&A and Note 11(e) of the “Notes to Consolidated Financial Statements,” which information is incorporated herein by reference.

Rate Matters
The information required by Item 3 with regards to rate matters is included in "Business," Note 2 of Alliant Energy’s “Notes to Consolidated Financial Statements” and “Rates and Regulatory Matters” in MD&A, which information is incorporated herein by reference.

20

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.

EXECUTIVE OFFICERS OF THE REGISTRANTS
The executive officers of Alliant Energy, IP&L and WP&L as of the date of this filing are as follows (figures following the names represent the officer’s age as of Dec. 31, 2003):

Executive Officers of Alliant Energy
Erroll B. Davis, Jr., 59, was elected Chairman of the Board effective April 2000, has served as Chief Executive Officer (CEO) since 1990 and has been a board member since 1988. He previously also served as President from 1990 through 2003.
William D. Harvey, 54, was elected President and Chief Operating Officer (COO) effective January 2004. He previously served as Executive Vice President (EVP)-Generation since 1998.
Eliot G. Protsch, 50, was elected Senior EVP and Chief Financial Officer (CFO) effective January 2004. He previously served as EVP and CFO since September 2003 and as EVP-Energy Delivery from 1998 to September 2003.
James E. Hoffman, 50, was elected EVP-Business Development effective April 1998.
Barbara J. Swan, 52, was elected EVP and General Counsel effective October 1998.
Pamela J. Wegner, 56, was elected EVP-Strategy and Performance effective January 2004. She previously served as EVP-Shared Solutions since 1998.
Thomas L. Aller, 54, was elected Senior Vice President-Energy Delivery effective January 2004. He previously served as interim EVP-Energy Delivery since September 2003 and as Vice President (VP)-Investments at Resources from 1998 to 2003.
Thomas L. Hanson, 50, was elected VP and Treasurer effective April 2002. He previously served as Managing Director-Generation Services since 2001 and General Manager-Business and Financial Performance, Generation from 1998 to 2001.
John E. Kratchmer, 41, was elected VP-Controller and Chief Accounting Officer (CAO) effective October 2002. He previously served as Corporate Controller and Chief Accounting Officer since October 2000 and Assistant Controller from 1998 to 2000.

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.

Executive Officers of IP&L
Erroll B. Davis, Jr., 59, was elected Chairman of the Board effective April 2000 and CEO effective April 1998. Mr. Davis is also an officer of Alliant Energy and WP&L.
William D. Harvey, 54, was elected COO effective January 2004. Mr. Harvey is also an officer of Alliant Energy and WP&L.
Thomas L. Aller, 54, was elected President effective January 2004. Mr. Aller is also an officer of Alliant Energy and WP&L.
Eliot G. Protsch, 50, was elected CFO effective January 2004. He previously served as EVP and CFO since September 2003 and also as President from 1998 through 2003. Mr. Protsch is also an officer of Alliant Energy and WP&L.
Barbara J. Swan, 52, was elected EVP and General Counsel effective October 1998. Ms. Swan is also an officer of Alliant Energy and WP&L.
Thomas L. Hanson, 50, was elected VP and Treasurer effective April 2002. Mr. Hanson is also an officer of Alliant Energy and WP&L.
John E. Kratchmer, 41, was elected VP-Controller and CAO effective October 2002. Mr. Kratchmer is also an officer of Alliant Energy and WP&L.

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.

21

Executive Officers of WP&L
Erroll B. Davis, Jr., 59, was elected Chairman of the Board effective April 2000 and CEO effective April 1998. Mr. Davis is also an officer of Alliant Energy and IP&L.
William D. Harvey, 54, was elected COO effective January 2004. He previously served as President since 1998. Mr. Harvey is also an officer of Alliant Energy and IP&L.
Barbara J. Swan, 52, was elected President effective January 2004. She previously served as EVP and General Counsel since 1998. Ms. Swan is also an officer of Alliant Energy and IP&L.
Eliot G. Protsch, 50, was elected CFO effective January 2004. He previously served as EVP and CFO since September 2003. Mr. Protsch is also an officer of Alliant Energy and IP&L.
Thomas L. Aller, 54, was elected Senior VP-Energy Delivery effective January 2004. Mr. Aller is also an officer of Alliant Energy and IP&L.
Thomas L. Hanson, 50, was elected VP and Treasurer effective April 2002. Mr. Hanson is also an officer of Alliant Energy and IP&L.
John E. Kratchmer, 41, was elected VP-Controller and CAO effective October 2002. Mr. Kratchmer is also an officer of Alliant Energy and IP&L.

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.

PART II

ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Alliant Energy’s common stock trades on the New York Stock Exchange under the symbol “LNT.” Quarterly sales price ranges and dividends with respect to Alliant Energy’s common stock were as follows:

  2003 2002

Quarter High Low Dividend High Low Dividend
First $18.30  $14.98  $0.25  $31.01  $28.67  $0.50 
Second 20.60  16.03  0.25  30.85  24.75  0.50 
Third 22.70  18.69  0.25  25.77  16.35  0.50 
Fourth 25.09  21.94  0.25  19.89  14.28  0.50 
  Year 25.09  14.98  1.00  31.01  14.28  2.00 

Stock closing price at Dec. 31, 2003: $24.90

Although Alliant Energy’s practice has been to pay cash dividends on its common stock quarterly, the timing of payment and amount of future dividends are necessarily dependent upon future earnings, capital requirements, general financial condition, general business conditions, the ability of Alliant Energy’s subsidiaries to pay dividends and other factors.

At Dec. 31, 2003, there were approximately 53,231 holders of record of Alliant Energy’s stock, including holders through Alliant Energy’s Shareowner Direct Plan.

Alliant Energy is the sole common shareowner of all 13,370,788 shares of IP&L common stock currently outstanding. During 2003 and 2002, IP&L paid dividends on its common stock of $89 million and $82 million, respectively, to its parent. In accordance with the IUB order authorizing the IP&L merger, IP&L must inform the IUB if its common equity ratio falls below 42% of total capitalization. Alliant Energy is the sole common shareowner of all 13,236,601 shares of WP&L common stock currently outstanding. During 2003 and 2002, WP&L paid dividends on its common stock of $71 million and $60 million, respectively, to its parent. In its December 2003 rate order, the PSCW stated that WP&L may not pay annual common stock dividends, including pass-through of subsidiary dividends, in excess of $89 million to Alliant Energy if WP&L’s actual average common equity ratio, on a regulatory financial basis, is or will fall below the authorized level of 54.01%. WP&L’s dividends are also restricted to the extent that such dividend would reduce the common stock equity ratio to less than 25%. IP&L and WP&L each have common stock dividend payment restrictions based on their respective bond indentures and the terms of their outstanding preferred stock. At Dec. 31, 2003, IP&L and WP&L were in compliance with all such dividend restrictions.

22

ITEM 6. SELECTED FINANCIAL DATA

Alliant Energy Corporation


Financial Information 2003 (1) 2002 (1) 2001 (1) 2000 (2) 1999 (3)

  (dollars in thousands, except per share data)
Income Statement Data:
     Operating revenues   $3,128,187   $2,486,590   $2,634,230   $2,270,975   $2,048,158  
     Income from continuing operations  159,701   87,456   128,159   330,915   154,334  
     Income from discontinued operations, net of tax  29,825   19,425   57,071   51,039   42,247  
     Income before cumulative effect of changes in 
        accounting principles  189,526   106,881   185,230   381,954   196,581  
     Cumulative effect of changes in accounting 
        principles, net of tax  (5,983 ) --   (12,868 ) 16,708   --  
     Net income  183,543   106,881   172,362   398,662   196,581  

Common Stock Data:  
     Earnings per average common share (diluted): 
          Income from continuing operations  $1.57   $0.97   $1.59   $4.18   $1.98  
          Income from discontinued operations  $0.30   $0.21   $0.71   $0.64   $0.53  
          Cumulative effect of changes in accounting principles  ($0.06 ) --   ($0.16 ) $0.21   --  
          Net income  $1.81   $1.18   $2.14   $5.03   $2.51  
     Common shares outstanding at year-end (000s)  110,963   92,304   89,682   79,010   78,984  
     Dividends declared per common share  $1.00   $2.00   $2.00   $2.00   $2.00  
     Market value per share at year-end  $24.90   $16.55   $30.36   $31.88   $27.50  
     Book value per share at year-end (4)  $21.37   $19.89   $21.39   $25.79   $27.29  

Other Selected Financial Data:  
     Cash flows from operating activities (continuing operations)  $419,990   $555,338   $433,346   $393,090   $423,794  
     Construction and acquisition expenditures  $838,893   $656,752   $712,991   $845,454   $418,371  
     Total assets at year-end (4)  $7,775,446   $7,814,084   $6,971,735   $7,399,468   $6,663,175  
     Long-term obligations, net  $2,321,634   $2,784,216   $2,586,044   $2,128,496   $1,660,558  
     Times interest earned before income taxes (5)  2.20X   1.74X   2.03X   4.35X   3.05X  
     Capitalization ratios: 
          Common equity (4)  47 % 36 % 41 % 44 % 50 %
          Preferred stock  5 % 4 % 2 % 2 % 3 %
          Long- and short-term debt  48 % 60 % 57 % 54 % 47 %

               Total  100 % 100 % 100 % 100 % 100 %



(1)   Refer to "Alliant Energy Results of Operations" in MD&A for a discussion of the 2003, 2002 and 2001 results of operations.
(2)   Includes $204 million ($2.58 per diluted share) of non-cash net income related to Alliant Energy's adoption of SFAS 133 and $16 million ($0.20 per diluted share) of net income from gains on sales of McLeod stock.
(3)   Includes $25 million ($0.32 per diluted share) of net income from gains on sales of McLeod stock.
(4)   Alliant Energy adjusts the carrying value of its investments in McLeod to its estimated fair value, pursuant to the applicable accounting rules. At Dec. 31, 2003, 2002, 2001, 2000 and 1999, the carrying amount reflected an unrealized gain (loss) of approximately $2 million, $1 million, ($13) million, $543 million and $1.1 billion, respectively, with a net of tax increase (decrease) to common equity of $1 million, $0.4 million, ($9) million, $317 million and $640 million, respectively.
(5)   Represents income from continuing operations before income taxes plus preferred dividend requirements of subsidiaries plus interest expense divided by interest expense.

23

IP&L 2003 (1) 2002 (1) 2001 (1) 2000 1999

  (in thousands)
 
Operating revenues   $1,371,207   $1,242,410   $1,352,611   $1,234,007   $1,142,801  
Earnings available for common stock  87,137   88,015   94,656   99,724   93,896  
Cash dividends declared on common stock  89,144   81,790   80,340   80,339   120,509  
Cash flows from operating activities  321,918   250,430   305,948   267,564   227,363  
Total assets  3,599,040   3,158,695   2,818,467   2,886,974   2,742,986  
Long-term obligations, net  910,527   902,243   922,941   792,323   836,486  

(1)     Refer to “IP&L Results of Operations” in MD&A for a discussion of the 2003, 2002 and 2001 results of operations.

Alliant Energy is the sole common shareowner of all 13,370,788 shares of IP&L’s common stock outstanding. As such, earnings per share data is not disclosed herein.

WP&L 2003 (1) 2002 (1) 2001 (1) 2000 1999

  (in thousands)
 
Operating revenues   $1,216,981   $989,525   $993,716   $862,381   $752,505  
Earnings available for common stock  111,564   77,614   70,180   68,126   67,520  
Cash dividends declared on common stock  70,580   59,645   60,449   --   58,353  
Cash flows from operating activities  138,495   223,750   135,886   174,060   163,228  
Total assets  2,469,277   2,335,138   2,217,457   2,160,554   2,025,709  
Long-term obligations, net  453,509   523,308   523,183   569,309   471,648  

(1)     Refer to “WP&L Results of Operations” in MD&A for a discussion of the 2003, 2002 and 2001 results of operations.

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.

24

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS


FORWARD-LOOKING STATEMENTS

Statements contained in this report 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: weather effects on sales and revenues; economic and political conditions in Alliant Energy’s domestic and international service territories; federal, state and international regulatory or governmental actions, including the impact of potential energy-related legislation in Congress and the ability to obtain adequate and timely rate relief to allow for, among other things, the recovery of operating costs and the earning of reasonable rates of return, as well as the payment of expected levels of dividends; unanticipated construction and acquisition expenditures; unanticipated issues in connection with Alliant Energy’s construction of new generating facilities; issues related to purchased electric supplies and price thereof, including the ability to recover purchased-power and fuel costs through rates; issues related to electric transmission, including recovery of costs incurred, and federal legislation and regulation affecting such transmission; risks related to the operations of Alliant Energy’s nuclear facilities and unanticipated issues relating to the sale of Alliant Energy’s interest in Kewaunee; costs associated with Alliant Energy’s environmental remediation efforts and with environmental compliance generally; developments that adversely impact Alliant Energy’s ability to implement its strategic plan; the amount of premiums incurred in connection with Alliant Energy’s planned debt reductions; improved results from Alliant Energy’s Brazil investments and no material adverse changes in the rates allowed by the Brazilian regulators or from the expected utility sector reform currently being considered by Brazil regulators; improved performance by Alliant Energy’s other non-regulated businesses as a whole; no material permanent declines in the fair market value of, or expected cash flows from, Alliant Energy’s investments; Alliant Energy’s ability to continue cost controls and operational efficiencies; Alliant Energy’s ability to identify and successfully complete proposed acquisitions and development projects; access to technological developments; employee workforce factors, including changes in key executives, collective bargaining agreements or work stoppages; continued access to the capital markets; the ability to successfully complete ongoing tax audits and appeals with no material impact on Alliant Energy’s earnings or cash flows; inflation rates; and factors listed in “Other Matters — Other Future Considerations.” Alliant Energy assumes no obligation, and disclaims any duty, to update the forward-looking statements in this report.

STRATEGIC OVERVIEW

November 2002 Plan In 2003, Alliant Energy completed the plan it outlined in November 2002 to strengthen its financial profile. A summary of the five strategic actions completed under the plan follows.

o

Asset sales and related debt reduction -

o  

By July 2003, Alliant Energy had completed the sales of its Australian, affordable housing and SmartEnergy businesses.

o  

In November 2003, Alliant Energy completed an IPO of WPC, leaving Alliant Energy with a 5.76% ownership interest in WPC. Alliant Energy currently plans to divest its remaining interest in WPC during 2004, subject to market conditions.

o  

In 2003, Alliant Energy sold its water utility serving the Beloit area. Alliant Energy continues to pursue the sale of its water utilities serving the Ripon and South Beloit areas.

o  

As a result of the above completed asset sales, Alliant Energy reduced debt by approximately $875 million during 2003. Alliant Energy incurred charges to continuing operations of approximately $0.10 per diluted share in the fourth quarter of 2003 related to debt repayment premiums from long-term debt repurchases. Alliant Energy also had $242 million of cash and temporary cash investments as of Dec. 31, 2003.

o

Common equity offering - in July 2003, Alliant Energy sold 17.25 million shares (net proceeds of $318 million) of its common stock in a public offering and infused $200 million and $118 million into WP&L and IP&L, respectively, in support of their respective domestic utility generation and reliability initiatives.

o

Common stock dividend - Alliant Energy reduced its targeted annual common stock dividend from $2.00 per share to $1.00 per share effective with the dividend paid in the first quarter of 2003.

o

Anticipated construction and acquisition expenditures for 2002 and 2003 - Alliant Energy reduced such aggregate expenditures by approximately $400 million, largely in its non-regulated business, from the plan that existed earlier in 2002.

o

Cost control - Alliant Energy has implemented a comprehensive Lean Six Sigma program, which it expects to help reduce its operating costs and improve the efficiency of its operations.

25

Updated Strategic PlanAlliant Energy’s domestic utility business is its core business and the sole growth platform within its updated strategic plan. As a result, Alliant Energy views its domestic utility business as the area of its business that is expected to provide the larger share of its long-term earnings growth. It will also be the area of the business that Alliant Energy will invest the bulk of its capital in during 2004 and 2005. Alliant Energy’s remaining non-regulated businesses will serve as ongoing business platforms. Alliant Energy expects these businesses to contribute to its earnings growth, but to a lesser degree than its growth platform (i.e., domestic utility business). Alliant Energy does not expect to invest significant capital into these ongoing business platforms in 2004 and 2005. In addition, Alliant Energy’s Non-regulated Generation business has refined its focus to support the development, financing and construction of generation to meet the needs of Alliant Energy’s domestic utility business. Refer to “Liquidity and Capital Resources — Construction and Acquisition Expenditures” for additional information.

Alliant Energy’s updated strategy reflects the fact that it has investment opportunities in its domestic utility business that did not exist several years ago. Progressive legislation was passed in Iowa that provides companies with the necessary rate making principles — and resulting increased regulatory and investment certainty — prior to making certain generation investments in Iowa. Wisconsin also enacted legislation with the goal of assuring reliable electric energy for Wisconsin. The law allows the construction of merchant power plants in the state and streamlines the regulatory approval process for building new generation and transmission facilities. More recently, the PSCW approved a plan proposed by another Wisconsin utility which provides a similar level of investment certainty by leasing generation from an affiliate. These changes have enabled Alliant Energy to pursue additional generation investments in its domestic utility business to serve its customers and to provide shareowners with greater certainty regarding the returns on these investments.

In December 2003, Alliant Energy announced its updated domestic utility generation plan, which is expected to add a diversified portfolio of nameplate generation between 2004 and 2010 as follows (in MW):

  IP&L WP&L Total

Natural gas-fired generation 840  300  1,140 
Wind (purchased-power and/or generation) 130  100  230 
Coal --  200  200 
Other 15  15  30 

  Total 985  615  1,600 

Alliant Energy intends to add this new generation to meet increasing customer demand, reduce reliance on purchased-power agreements and mitigate the impacts of potential future plant retirements. Alliant Energy will continue to purchase energy and capacity in the market and intends to remain a net purchaser of both, but at a reduced level assuming the successful completion of these generation projects. Alliant Energy expects that 590 MW of the natural gas-fired generation will be installed as combustion turbines for peaking generation. The plan also reflects continued commitments to Alliant Energy’s energy efficiency and environmental protection programs. The capital expenditures associated with this plan are expected to be approximately $650 million over the seven-year period of 2004 to 2010.

IP&L is currently constructing a $400 million 550 MW natural gas-fired plant (Emery) near Mason City, Iowa under its Power Iowa program to develop new electric generation capacity in Iowa. The Emery plant is expected to be placed in-service late in the second quarter of 2004. The rate making principles established for this investment reflect, among other things, recovery of the investment over 28 years based on a fixed 12.23% return on the common equity component of this investment. In January 2004, Alliant Energy announced that Resources’ Non-regulated Generation business has assumed an option to purchase a site for a 300 MW natural gas-fired power plant outside Sheboygan Falls, Wisconsin. Subject to PSCW approval, Resources’ Non-regulated Generation business would construct and own the approximately $150 million plant (of which $75 million has been expended as of Dec. 31, 2003 to purchase two gas turbines) and lease the facility to WP&L. WP&L will operate the plant and utilize the plant’s output. With the appropriate timely regulatory approvals, Alliant Energy currently intends to have this facility placed in-service in 2005. Both the Emery and Sheboygan Falls facilities are included in the figures in the previous table. In addition, Calpine Corporation is currently constructing a 600 MW natural gas-fired combined cycle power plant in Wisconsin at WP&L’s Rock River plant (Riverside). WP&L has entered into a purchased-power agreement for 453 MW of this plant’s output and the plant is expected to be placed in-service prior to the 2004 summer peak demand.

RATES AND REGULATORY MATTERS

OverviewAlliant Energy has two primary utility subsidiaries, IP&L and WP&L. WP&L has one utility subsidiary, South Beloit. Alliant Energy’s utility subsidiaries are currently subject to federal regulation by FERC and state regulation in Iowa, Wisconsin, Minnesota and Illinois. Such regulatory oversight covers not only current facilities and operations, but also the utilities’ plans for construction and financing of new generation facilities and related activities.

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As a public utility holding company with significant utility assets, Alliant Energy conducts its utility operations in an ever-changing business environment. Electric energy generation, transmission and distribution are facing a period of fundamental change resulting from potential legislative, regulatory, economic and technological changes. These changes could impact competition in the electric wholesale and retail markets in the event customers of electric utilities are 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. FERC regulates competition in the electric wholesale power generation market and each state regulates whether to permit retail competition, the terms that would apply and the recovery of any portion of stranded costs that are ultimately determined to have resulted from retail competition. Alliant Energy cannot predict the timing of a restructured electric industry or the impact on its financial condition or results of operations. The pace of restructuring in its primary retail electric service territories has been delayed (and may continue to be delayed for a long period of time) due to uncertainty and developments in the industry.

Certain Recent Developments Details of Alliant Energy’s rate cases impacting its results of operations since 2001 are as follows (dollars in millions):

  Expected Return  
Interim Interim Final Final Final on  
  Utility Filing Increase Increase Effective Increase Effective Effective Common  
Case Type Date Requested Granted (1) Date Granted (1) Date Date Equity Notes

WP&L:
  2002 retail E/G/W 8/01 $104  $49  4/02 $82  9/02 N/A 12.3%  
  2003 retail E/G/W 5/02 123  --  N/A 81  4/03 N/A 12% (2)
  2004 retail E/G/W 3/03 87  --  N/A 14  1/04 N/A 12% (3)
  Wholesale E 2/02 4/02 1/03 N/A N/A (4)
  Wholesale E 3/03 7/03 2/04 N/A N/A
  South Beloit
     retail - IL G/W 10/03 N/A N/A  TBD TBD 9/04 TBD   
  2004 retail
     (fuel-only) E 2/04 16  TBD TBD  TBD TBD 8/04 N/A   
IP&L retail - IA E 3/02 82  15  7/02 26  5/03 N/A 11.15%  
IP&L retail - IA G 7/02 20  17  10/02 13  8/03 N/A 11.05% (4)
IP&L retail - MN E 5/03 7/03 TBD TBD 5/04 TBD   

(1)

Interim rate relief is implemented, subject to refund, pending determination of final rates. The final rate relief granted replaces the amount of interim rate relief granted.

(2)

A party representing selected commercial and industrial electric customers had appealed the rate case to a court, seeking remand back to the PSCW for further consideration on issues of revenue increase amount and rate design. In December 2003, the court denied the request for remand and affirmed the PSCW's earlier decision.

(3)

A number of factors contributed to the final rate relief being set lower than the original request, including lower projected fuel and purchased-power costs, reduced operation and maintenance costs, lower purchased-power incentive costs and reduced capital expenditures.

(4)

Since the final increase was lower than the interim relief granted, a refund to customers was made in 2003.

A significant portion of the rate increases included in the previous table reflect the recovery of increased costs incurred by IP&L and WP&L, or costs they expect to incur, thus the total increase in revenues related to these rate increases have not or are not expected to result in a corresponding increase in net income. IP&L expects to file for an Iowa electric rate increase in March 2004 which will include costs associated with the Emery plant currently under construction in interim rates pursuant to the rate making principles approved earlier. Refer to "Strategic Overview - Updated Strategic Plan" for further information regarding Emery.

WP&L's retail electric rates are based on annual forecasted fuel and purchased-power costs. Under PSCW rules, WP&L can seek rate increases if it experiences an extraordinary increase in the cost of fuel or if the annual costs are more than 3% higher than the estimated costs used to establish rates. Such rules were revised effective for 2003 for WP&L and significantly reduce the regulatory lag for Wisconsin utilities and customers related to the timing of changes in rates for increased or decreased fuel and purchased-power costs. The revised rules require that an interim increase/decrease in rates subject to increased/decreased fuel costs, if determined to be justified, be approved within 21 days of notice to customers. Any such change in rates would be effective prospectively, would require a refund with interest if final rates are determined to be lower than interim rates approved, and would not include a provision for collection of retroactive fuel cost variances. The revised rules also include a process whereby Wisconsin utilities can seek deferral treatment of emergency changes in fuel costs between fuel-only or base rate cases. Such deferrals would be subject to review, approval and recovery in future fuel-only or base rate cases.

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In 2002, IP&L filed with the IRS for a change in method of accounting for tax purposes for 1987 through 2001 that would allow a current deduction related to mixed service costs. Such costs had previously been capitalized and depreciated for tax purposes over the appropriate tax lives. This change would create a significant current tax benefit that has not been reflected in IP&L's results of operations pending a decision from the IUB on the required rate making treatment of the benefit. In its April 2003 order, the IUB approved IP&L's proposed accounting treatment to defer the tax savings resulting from the change of accounting method until the IRS audit on this issue is complete. The rate making impact will be addressed once the issue is resolved with the IRS, which is expected to occur in 2004. There would be no material negative impact on IP&L's results of operations or financial position should the IRS reject IP&L's proposal.

Energy-related legislation is currently pending in the U.S. Congress that, among other proposals, would repeal PUHCA. However, it is uncertain when or whether such legislation will be enacted or what impact it would have on Alliant Energy.

ALLIANT ENERGY RESULTS OF OPERATIONS

Unless otherwise noted, all "per share" references in the Results of Operations section refer to earnings per diluted share. Refer to Note 1(a) of Alliant Energy's "Notes to Consolidated Financial Statements" for discussion of the various components of Alliant Energy's business.

Overview - Alliant Energy's EPS was as follows:

  2003 2002 2001

Income from continuing operations   $1 .57 $0 .97 $1 .59
Income from discontinued operations  0 .30 0 .21 0 .71
Cumulative effect of changes in accounting principles  (0 .06) --   (0 .16)

Net income  $1 .81 $1 .18 $2 .14

Additional details regarding Alliant Energy’s net income were as follows (in millions):

  2003 2002 2001

Continuing operations:        
  Domestic utility operations  $197 .2 $165 .8 $164 .9
  Non-regulated (Resources)  (25 .7) (80 .4) (38 .1)
  Alliant Energy parent and other (primarily taxes, interest and 
     administrative and general)  (11 .8) 2 .1 1 .4

      Income from continuing operations  159 .7 87 .5 128 .2
Discontinued operations: 
  Operating results (includes SFAS 133 and tax adjustments)  27 .9 15 .9 57 .1
  Losses on sales of discontinued operations, net  (22 .9) --   --  
  Discontinuing depreciation, depletion and amortization of 
     assets held for sale  24 .8 3 .5 --  

      Income from discontinued operations  29 .8 19 .4 57 .1
      Cumulative effect of changes in accounting principles  (6 .0) --   (12 .9)

Net income  $183 .5 $106 .9 $172 .4

The 2003 increase in domestic utility income from continuing operations was largely due to higher electric and gas margins, which were partially offset by higher operating expenses. The significant improvement in Alliant Energy’s non-regulated results from continuing operations for 2003 was primarily due to improved results from its International and Integrated Services businesses and lower non-cash valuation charges of $0.35 per share, which were partially offset by $0.10 per share of charges in 2003 related to early debt reductions. Income from continuing operations for domestic utility operations increased slightly in 2002 as higher electric and gas margins were largely offset by increased operating expenses and a higher effective income tax rate. The lower 2002 results from continuing operations for Alliant Energy’s non-regulated businesses were primarily due to higher losses of $23 million from Alliant Energy’s Brazil investments, higher non-cash valuation charges of $0.15 per share and higher interest expense, partially offset by improved results from Alliant Energy’s China and New Zealand businesses. Alliant Energy incurred non-cash valuation charges of $0.06, $0.41 and $0.26 per share in 2003, 2002 and 2001, respectively. Refer to “Cumulative Effect of Changes in Accounting Principles” for discussion of the charges recorded in 2003 and 2001.

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Domestic Utility Electric MarginsElectric margins and MWh sales for Alliant Energy were as follows (in thousands):

  Revenues and Costs MWhs Sold
 
  2003 2002 * 2001 ** 2003 2002 * 2001 **
 
Residential   $684,574   $626,947   9 % $599,074   5 % 7,565   7,616   (1 %) 7,344   4 %
Commercial  409,704   376,365   9 % 373,145   1 % 5,663   5,542   2 % 5,464   1 %
Industrial  571,608   526,804   9 % 543,471   (3 %) 12,345   12,297   --   12,469   (1 %)
 
 
 
 
 
   Total from retail 
      customers  1,665,886   1,530,116   9 % 1,515,690   1 % 25,573   25,455   --   25,277   1 %
Sales for resale  195,822   160,335   22 % 184,507   (13 %) 5,495   4,805   14 % 4,936   (3 %)
Other  55,360   62,083   (11 %) 56,359   10 % 184   197   (7 %) 168   17 %
 
 
 
 
 
   Total revenues/sales  1,917,068   1,752,534   9 % 1,756,556   --   31,252   30,457   3 % 30,381   --  
   
 
 
Electric production 
   fuel and purchased- 
   power expense  730,594   651,813   12 % 695,168   (6 %)
 
 
 
   Margin  $1,186,474   $1,100,721   8 % $1,061,388   4 %
 
 
 
*

Reflects the % change from 2002 to 2003. ** Reflects the % change from 2001 to 2002.

Electric margin increased $85.8 million, or 8%, and $39.3 million, or 4%, for 2003 and 2002, respectively, primarily due to the impact of rate increases implemented in 2003 and 2002, including increased revenues to recover a significant portion of higher utility operating expenses, lower purchased-power and fuel costs impacting margins, the impact of WP&L implementing seasonal rates in 2003 for the first time and increased sales resulting from continued modest retail customer growth. The 2003 increase was also due to higher sales to non-retail customers, partially offset by milder weather conditions in 2003 compared to 2002. The 2002 increase was also due to more favorable weather conditions, partially offset by reduced energy conservation revenues (which were largely offset by lower energy conservation expenses) and the impact of a sluggish economy.

In April 2003, WP&L implemented seasonal electric rates that are designed to result in higher rates for the peak demand period from June 1 through Sept. 30 and lower rates in all other periods during each calendar year. As a result, total annual revenues are not expected to be impacted significantly. However, given the seasonal rates were not implemented in 2003 until April, the impact of seasonal rates increased electric margins by approximately $6 million in 2003 compared to 2002 when no seasonal rates were in effect. As a result, the first quarter of 2004 margins are expected to be negatively impacted in comparison to the 2003 margin for the same period by a similar amount.

Domestic Utility Gas MarginsGas margins and Dth sales for Alliant Energy were as follows (in thousands):

  Revenues and Costs Dths Sold
 
  2003 2002 * 2001 ** 2003 2002 * 2001 **
 
Residential   $310,658   $218,746   42 % $270,248   (19 %) 31,871   30,931   3 % 29,580   5 %
Commercial  162,651   111,343   46 % 141,121   (21 %) 19,947   19,348   3 % 18,055   7 %
Industrial  34,201   25,177   36 % 31,262   (19 %) 5,093   5,373   (5 %) 5,344   1 %
Transportation/other  59,416   38,720   53 % 45,246   (14 %) 48,978   47,386   3 % 48,539   (2 %)
 
 
 
 
 
   Total revenues/sales  566,926   393,986   44 % 487,877   (19 %) 105,889   103,038   3 % 101,518   1 %
 
 
 
Cost of gas sold  396,102   248,994   59 % 360,911   (31 %)
 
 
 
   Margin  $170,824   $144,992   18 % $126,966   14 %
 
 
 
*

Reflects the % change from 2002 to 2003. ** Reflects the % change from 2001 to 2002.

Gas revenues and cost of gas sold were higher in 2003 and 2001 as compared to 2002 primarily due to increased natural gas prices. Due to Alliant Energy’s rate recovery mechanisms for gas costs, these price differences alone had little impact on gas margin. Gas margin increased $25.8 million, or 18%, and $18.0 million, or 14%, for 2003 and 2002, respectively, primarily due to the impact of several rate increases implemented during 2003 and 2002, improved results of $3 million from WP&L’s performance-based gas commodity cost recovery program (benefits are shared by ratepayers and shareowners), and continued modest customer growth. The 2003 increase was also due to slightly more favorable weather conditions during the heating season in 2003 compared to 2002. The 2002 increase was also due to the negative impact high gas prices in early 2001 had on gas consumption during that period, partially offset by reduced energy conservation revenues (which were largely offset by lower energy conservation expenses).

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Refer to Note 1(i) of Alliant Energy’s “Notes to Consolidated Financial Statements” for information relating to utility fuel and natural gas cost recovery.

Domestic Utility Other RevenuesOther revenues for the domestic utilities increased $18.8 million and decreased $16.5 million for 2003 and 2002, respectively. The 2003 increase was largely due to increased revenues from WindConnect™, which includes Alliant Energy’s wind farm construction management projects. The 2002 decrease was primarily due to lower non-commodity products and services revenues. These 2003 and 2002 variances were largely offset by variances in other operation and maintenance expenses for the domestic utilities.

Non-regulated RevenuesDetails regarding Alliant Energy’s non-regulated revenues were as follows (in millions):

  2003 2002 2001

Integrated Services $382  $134  $193 
International 117  100  77 
Non-regulated Generation 15  --  -- 
Other (includes eliminations) 26  21  18 

  $540  $255  $288 

The 2003 Integrated Services increase was primarily due to increased gas revenues at Alliant Energy’s natural gas marketing business, NG Energy, largely due to the impact of a new accounting pronouncement, higher natural gas prices and increased volumes sold. Increased revenues at Alliant Energy’s energy and environmental services businesses also contributed to the increase. Refer to Note 10(d) of Alliant Energy’s “Notes to Consolidated Financial Statements” for further discussion of the impact of the new accounting pronouncement. The 2002 Integrated Services decrease was primarily due to decreased gas prices and lower energy services revenues. The increased International revenues for 2003 and 2002 were primarily due to acquisitions of additional combined heat and power facilities in China during 2001, 2002 and 2003. The 2003 Non-regulated Generation revenues were due to generation from a 309-MW, non-regulated, tolled, natural gas-fired power plant in Neenah, Wisconsin.

Other Operating ExpensesOther operation and maintenance expenses for the domestic utilities increased $78.5 million in 2003, primarily due to increases in the amortization of deferred costs that are now being recovered in rates and increased employee and retiree benefits (primarily compensation, medical and pension costs), WindConnect™ and nuclear expenses. The increased nuclear expenses resulted primarily from a planned refueling outage at Kewaunee in 2003. There was no refueling outage in 2002. These items were partially offset by lower fossil generation expenses due to the timing of boiler plant maintenance. The 2002 increase of $36.7 million was primarily due to increased fossil and nuclear generation expenses, employee and retiree benefits, transmission and distribution expenses and higher regulatory amortizations, partially offset by lower energy conservation and non-commodity products and services expenses and uncollectible account balances. A significant portion of these cost increases are being recovered as a result of the rate increases implemented during 2003 and 2002. Refer to “Rates and Regulatory Matters” for additional information.

Non-regulated operation and maintenance expenses were as follows (in millions):

  2003 2002 2001

Integrated Services $366  $119  $181 
International 90  77  59 
Non-regulated Generation 10 
Other (includes eliminations) 27  20  14 

  $493  $223  $259 

The Integrated Services, International and Non-regulated Generation variances were largely driven by the same factors impacting the revenue variances discussed previously. The 2003 Integrated Services increase was also due to an asset valuation charge of $6 million in 2003 related to a small waste-to-energy plant. Charges of $4 million, $5 million and $2 million are included in “Non-regulated Generation” in 2003, 2002 and 2001, respectively, for cancelled contracts and generation projects.

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Depreciation and amortization expense increased $23.0 million and decreased $12.2 million in 2003 and 2002, respectively. The 2003 increase was primarily due to utility property additions, an increase of $9.5 million in non-regulated depreciation and amortization due largely to acquisitions at the non-regulated businesses and higher contributions of $4 million to IP&L’s nuclear decommissioning trust fund. The 2002 decrease was primarily due to: a decrease of $14 million from implementation of lower depreciation rates at IP&L on Jan. 1, 2002, resulting from an updated depreciation study; lower decommissioning expense based on reduced retail funding levels at WP&L; and the elimination of $5 million of goodwill amortization expense in compliance with new accounting rules effective in 2002. These items were partially offset by utility property additions, acquisitions at the non-regulated businesses and increased software amortizations.

Taxes other than income taxes decreased $14.4 million in 2003 primarily due to decreased property taxes related to a 2003 property tax settlement and expiration of provisions which required additional payments in the early years of the revised property tax regulations in Iowa at IP&L. In 2003, IP&L settled a property tax appeal it had filed with the Iowa Department of Revenue and Finance. In addition to the benefits realized in 2003, IP&L expects to realize reductions in property tax expense of $5.1 million, $3.6 million and $2.1 million in 2004, 2005, and 2006 and thereafter, respectively, in comparison to what property tax expense would have been without the settlement. The impact of the settlement on ratepayers will be addressed in future rate making proceedings.

Interest Expense and OtherInterest expense increased $24.4 million and $0.7 million in 2003 and 2002, respectively. The 2003 increase was due to higher average borrowing rates at Resources due to an increase in the mix of long- versus short-term debt outstanding, higher credit facility fees at Resources and higher interest expense at the parent company. These items were partially offset by the impact of lower average borrowings at Resources. The 2002 increase was due to higher non-regulated borrowings, substantially offset by the impact of lower interest rates on Alliant Energy’s variable rate borrowings and lower short-term debt at the Alliant Energy parent level, largely due to the impact of proceeds received in 2001 from a common equity offering.

Loss on early extinguishment of debt in 2003 includes debt repayment premiums and charges for the unamortized debt expenses related to long-term debt retirements of $71.5 million of senior notes at Resources and $24.0 million of senior notes at the Alliant Energy parent company.

Equity (income) loss from Alliant Energy’s unconsolidated investments was as follows (in millions):

  2003 2002 2001

ATC   ($16 ) ($14 ) ($15 )
Brazil  (9 ) 23   4  
New Zealand  (8 ) (4 ) --  
WRPC  (5 ) (3 ) (1 )
Cargill-Alliant (sold in 2002)  --   (1 ) (7 )
Synfuel (began operations 5/02)  20   13   --  
Other  (1 ) (1 ) --  

   ($19 ) $13   ($19 )

Equity income from unconsolidated investments increased $32 million and decreased $32 million in 2003 and 2002, respectively. The improved results for Brazil during 2003 were primarily due to: rate increases implemented at all five of the Brazil operating companies throughout 2003; an increase in electric sales volumes of approximately 7% in 2003 compared to 2002; foreign currency transaction gains of $2.4 million and losses of $6.5 million during 2003 and 2002, respectively, related to approximately $40 million in debt at one of the Brazilian operating companies; and charges of $7.7 million during 2002 resulting from the receipt of regulatory orders related to the recovery of various costs. The lower 2002 results from the Brazil investments were also due to higher interest expense at the Brazil operating companies, partially offset by an approximate 5% increase in electric sales volumes during 2002 (a drought-driven rationing program was in place for seven months in 2001 and only two months in 2002). The 2001 Brazil results included a charge related to the impacts of a settlement reached between the Brazilian government and the distribution companies on the economic resolution of various cost recovery issues. The increased earnings from New Zealand during 2003 were primarily due to higher energy prices and gains on asset sales in 2003. The 2002 increased earnings from New Zealand were primarily due to the negative impacts of drought conditions in 2001. In 2002, Synfuel purchased an equity interest in a synthetic fuel processing facility. The synthetic fuel project generates operating losses at its fuel processing facility, which are more than offset by tax credits and the tax benefit of the losses the project generates. All tax benefits are included in “Income taxes” in Alliant Energy’s Consolidated Statements of Income. Refer to “Other Matters — Other Future Considerations” for further discussion of the tax credits associated with the Synfuel investment.

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AFUDC increased $13.0 million in 2003, primarily due to ongoing construction of the Emery plant. Preferred dividend requirements of subsidiaries increased $10.7 million in 2003 due to an increase in the aggregate amount of preferred stock outstanding at IP&L and a higher dividend rate. Refer to Note 9 of Alliant Energy’s “Notes to Consolidated Financial Statements” for discussion of the asset valuation charges recorded by Alliant Energy in 2002 related to its McLeod available-for-sale securities.

Miscellaneous, net income increased $22.9 million and decreased $4.7 million in 2003 and 2002, respectively, largely due to the recording of pre-tax asset valuation charges related to Alliant Energy’s investments in Enermetrix, Inc. ($8.5 million in 2002) and Energy Technologies ($2.8 million in 2003 and $10.3 million in 2002). The 2003 increase was also due to improvements in the non-cash valuation adjustments related to Alliant Energy’s McLeod trading securities, foreign currency transaction gains and gains from asset sales realized in 2003. These items were partially offset by lower interest income from loans to discontinued operations due to asset sales during 2003. The 2002 decrease was also impacted by lower interest income (the 2001 results included $10 million from tax settlements), gains from asset sales realized in 2001 and lower pre-tax, non-cash SFAS 133 valuation charges of $29 million, related to the net change in the value of the McLeod trading securities and the derivative component of Resources’ exchangeable senior notes. Refer to Note 1(p) of Alliant Energy’s “Notes to Consolidated Financial Statements” for further discussion.

Income TaxesThe effective income tax rates for Alliant Energy’s continuing operations were 28.9%, 31.2% and 27.8% in 2003, 2002 and 2001, respectively. Alliant Energy recorded tax benefits of $6.4 million in 2001 related to a court ruling on a federal tax case. Refer to Note 5 of Alliant Energy’s “Notes to Consolidated Financial Statements” for additional information.

Income from Discontinued Operations — Refer to “Overview” and Note 16 of Alliant Energy’s “Notes to Consolidated Financial Statements” for discussion of Alliant Energy’s discontinued operations.

Cumulative Effect of Changes in Accounting Principles In 2003, Alliant Energy recorded after-tax charges of $4 million and $2 million for the cumulative effect of changes in accounting principles related to the adoption on Jan. 1, 2003 of SFAS 143 and EITF Issue 02-3 within WPC and Integrated Services, respectively. Refer to Notes 10(d) and 10(a) of Alliant Energy’s “Notes to Consolidated Financial Statements” for further information on the EITF Issue 02-3 charge and for discussion of the charge incurred in 2001 for a cumulative effect of a change in accounting principle, respectively.

IP&L RESULTS OF OPERATIONS

OverviewIP&L’s earnings available for common stock decreased $0.9 million and $6.6 million in 2003 and 2002, respectively. The 2003 decrease was primarily due to increased other operation and maintenance, depreciation and amortization, and preferred dividend expenses, largely offset by higher electric and gas margins, lower property taxes and higher AFUDC. The 2002 decrease was primarily due to increased operating expenses, a higher effective income tax rate and lower interest income, partially offset by higher electric and gas margins.

Electric MarginsElectric margins and MWh sales for IP&L were as follows (in thousands):

  Revenues and Costs MWhs Sold
 
  2003 2002 * 2001 ** 2003 2002 * 2001 **
 
Residential   $367,681   $355,072   4 % $350,946   1 % 4,155   4,184   (1 %) 4,026   4 %
Commercial  239,362   229,639   4 % 234,876   (2 %) 3,496   3,392   3 % 3,342   1 %
Industrial  327,838   315,494   4 % 335,680   (6 %) 7,750   7,843   (1 %) 7,931   (1 %)
 
 
 
 
 
   Total from retail 
      customers  934,881   900,205   4 % 921,502   (2 %) 15,401   15,419   --   15,299   1 %
Sales for resale  40,249   34,513   17 % 53,320   (35 %) 1,299   1,151   13 % 1,412   (18 %)
Other  31,852   30,136   6 % 28,284   7 % 102   103   (1 %) 107   (4 %)
 
 
 
 
 
   Total revenues/sales  1,006,982   964,854   4 % 1,003,106   (4 %) 16,802   16,673   1 % 16,818   (1 %)
 
 
 
Electric production 
   fuel and purchased- 
   power expense  320,852   299,274   7 % 357,140   (16 %)
 
 
 
   Margin  $686,130   $665,580   3 % $645,966   3 %
 
 
 
*

Reflects the % change from 2002 to 2003. ** Reflects the % change from 2001 to 2002.


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Electric margin increased $20.6 million, or 3%, and $19.6 million, or 3%, for 2003 and 2002, respectively, primarily due to the impact of retail rate increases implemented during 2003 and 2002, including increased revenues to recover a significant portion of IP&L’s increased operating expenses, lower purchased-power capacity costs of $6 million, and increased sales resulting from continued modest retail customer growth. Higher sales to non-retail customers also contributed to the 2003 increase, which was partially offset by the impact of milder weather conditions in 2003 compared to 2002 and a sluggish economy. Also contributing to the 2002 increase were more favorable weather conditions in 2002 compared to 2001. The 2002 increase was partially offset by reduced energy conservation revenues of $10 million (which were largely offset by lower energy conservation expenses).

Gas MarginsGas margins and Dth sales for IP&L were as follows (in thousands):

  Revenues and Costs Dths Sold
 
  2003 2002 * 2001 ** 2003 2002 * 2001 **
 
Residential   $173,598   $124,237   40 % $162,575   (24 %) 19,074   18,068   6 % 17,826   1 %
Commercial  88,057   61,222   44 % 82,463   (26 %) 11,408   10,774   6 % 10,483   3 %
Industrial  24,595   18,197   35 % 22,355   (19 %) 3,911   4,070   (4 %) 4,147   (2 %)
Transportation/other  8,299   11,239   (26 %) 13,621   (17 %) 29,182   28,814   1 % 31,673   (9 %)
 
 
 
 
 
   Total revenues/sales  294,549   214,895   37 % 281,014   (24 %) 63,575   61,726   3 % 64,129   (4 %)
 
 
 
Cost of gas sold  209,817   138,875   51 % 207,088   (33 %)
 
 
 
   Margin  $84,732   $76,020   11 % $73,926   3 %
 
 
 
*

Reflects the % change from 2002 to 2003. ** Reflects the % change from 2001 to 2002.


Gas revenues and cost of gas sold were higher in 2003 and 2001 as compared to 2002 due to increased natural gas prices. These increases alone had no impact on IP&L’s gas margin given its rate recovery mechanism for gas costs. Gas margin increased $8.7 million, or 11%, and $2.1 million, or 3%, for 2003 and 2002, respectively, primarily due to the impact of a retail rate increase implemented during 2002. Also contributing to the 2003 increase were increased sales, primarily due to slightly more favorable weather conditions during the heating season in 2003 compared to 2002. Also contributing to the 2002 increase was the negative impact high gas prices in early 2001 had on gas consumption during that period, partially offset by reduced energy conservation revenues of $4 million (which were largely offset by lower energy conservation expenses).

Refer to Note 1(i) of Alliant Energy’s “Notes to Consolidated Financial Statements” for information relating to utility fuel and natural gas cost recovery.

Steam and Other Revenues — Steam and other revenues increased $7.0 million and decreased $5.8 million for 2003 and 2002, respectively. The 2003 increase was primarily due to increased construction management revenues from WindConnect™. The 2002 decrease was primarily due to lower non-commodity products and services revenues. These 2003 and 2002 variances were largely offset by variances in other operation and maintenance expenses.

Other Operating ExpensesOther operation and maintenance expenses increased $23.1 million and $8.0 million for 2003 and 2002, respectively. The 2003 increase was largely due to higher employee and retiree benefits (primarily compensation, medical and pension costs), WindConnect™ and steam production fuel costs. These items were partially offset by decreased transmission and distribution and generation expenses. The 2002 increase was largely due to increased generation, employee and retiree benefits and transmission and distribution expenses. These items were partially offset by lower expenses for energy conservation, non-commodity products and services and uncollectible customer account balances.

Depreciation and amortization expense increased $17.3 million and decreased $2.4 million for 2003 and 2002, respectively. The 2003 increase was largely due to higher amortization of software of $7 million, property additions and increased contributions of $4 million to the nuclear decommissioning trust fund. The 2002 decrease was largely due to a $14 million reduction in depreciation expense from implementation of lower depreciation rates on Jan. 1, 2002, resulting from an updated depreciation study, largely offset by property additions.

Taxes other than income taxes decreased $13.8 million for 2003 largely due to decreased property taxes, related to a 2003 property tax settlement and expiration of provisions which required additional payments in the early years of the revised property tax regulations in Iowa. Refer to “Alliant Energy Results of Operations — Other Operating Expenses” for further discussion.

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Interest Expense and Other AFUDC increased $11.6 million for 2003 due to ongoing construction of the Emery plant. Interest income and other decreased $5.6 million for 2002 largely due to IP&L realizing $5 million in interest income from tax settlements in 2001.

Income TaxesThe effective income tax rates were 41.4%, 40.7% and 35.1% in 2003, 2002 and 2001, respectively. Refer to Note 5 of IP&L’s “Notes to Consolidated Financial Statements” for additional information.

Preferred Dividend RequirementsPreferred dividend requirements increased $10.7 million for 2003 due to an increase in the aggregate amount of preferred stock outstanding and a higher dividend rate.

WP&L RESULTS OF OPERATIONS

OverviewWP&L’s earnings available for common stock increased $34.0 million and $7.4 million in 2003 and 2002, respectively, primarily due to higher electric and gas margins, partially offset by increased operating expenses.

Electric MarginsElectric margins and MWh sales for WP&L were as follows (in thousands):

  Revenues and Costs MWhs Sold
 
  2003 2002 * 2001 ** 2003 2002 * 2001 **
 
Residential   $316,893   $271,875   17 % $248,128   10 % 3,410   3,432   (1 %) 3,318   3 %
Commercial  170,342   146,726   16 % 138,269   6 % 2,167   2,150   1 % 2,122   1 %
Industrial  243,770   211,310   15 % 207,791   2 % 4,595   4,454   3 % 4,538   (2 %)
 
 
 
 
 
   Total from retail 
      customers  731,005   629,911   16 % 594,188   6 % 10,172   10,036   1 % 9,978   1 %
Sales for resale  155,573   125,822   24 % 131,187   (4 %) 4,196   3,654   15 % 3,524   4 %
Other  23,508   31,947   (26 %) 28,075   14 % 82   94   (13 %) 61   54 %
 
 
 
 
 
   Total revenues/sales  910,086   787,680   16 % 753,450   5 % 14,450   13,784   5 % 13,563   2 %
 
 
 
Electric production 
   fuel and purchased- 
   power expense  409,742   352,539   16 % 338,028   4 %
 
 
 
   Margin  $500,344   $435,141   15 % $415,422   5 %
 
 
 
*

Reflects the % change from 2002 to 2003. ** Reflects the % change from 2001 to 2002.


Electric margin increased $65.2 million, or 15%, and $19.7 million, or 5%, for 2003 and 2002, respectively, primarily due to the implementation of rate increases during 2003 and 2002, including increased revenues to recover a significant portion of WP&L’s increased operating expenses and increased sales from continued modest retail customer growth. Also contributing to the 2003 increase were the impact of WP&L implementing seasonal rates in 2003 for the first time, lower purchased-power and fuel costs impacting margin and higher sales to non-retail customers. These items were partially offset by lower energy conservation revenues and the impact of milder weather conditions in 2003 compared to 2002. Also contributing to the 2002 increase were more favorable weather conditions in 2002 compared to 2001, partially offset by the sluggish economy.

In April 2003, WP&L implemented seasonal electric rates that are designed to result in higher rates for the peak demand period from June 1 through Sept. 30 and lower rates in all other periods during each calendar year. As a result, total annual revenues are not expected to be impacted significantly. However, given the seasonal rates were not implemented in 2003 until April, the impact of seasonal rates increased electric margins by approximately $6 million in 2003 compared to 2002 when no seasonal rates were in effect. As a result, the first quarter of 2004 margins are expected to be negatively impacted in comparison to the 2003 margin for the same period by a similar amount.

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Gas MarginsGas margins and Dth sales for WP&L were as follows (in thousands):

  Revenues and Costs Dths Sold
 
  2003 2002 * 2001 ** 2003 2002 * 2001 **
 
Residential   $137,060   $94,509   45 % $107,673   (12 %) 12,797   12,863   (1 %) 11,754   9 %
Commercial  74,594   50,121   49 % 58,658   (15 %) 8,539   8,574   --   7,572   13 %
Industrial  9,606   6,980   38 % 8,907   (22 %) 1,182   1,303   (9 %) 1,197   9 %
Transportation/other  51,117   27,481   86 % 31,625   (13 %) 19,796   18,572   7 % 16,866   10 %
 
 
 
 
 
   Total revenues/sales  272,377   179,091   52 % 206,863   (13 %) 42,314   41,312   2 % 37,389   10 %
 
 
 
Cost of gas sold  186,285   110,119   69 % 153,823   (28 %)
 
 
 
   Margin  $86,092   $68,972   25 % $53,040   30 %
 
 
 
*

Reflects the % change from 2002 to 2003. ** Reflects the % change from 2001 to 2002.


Gas revenues and cost of gas sold were higher in 2003 and 2001 as compared to 2002 due to increased natural gas prices. These increases alone had little impact on WP&L’s gas margin given its rate recovery mechanism for gas costs. Gas margin increased $17.1 million, or 25%, and $15.9 million, or 30%, for 2003 and 2002, respectively, primarily due to the impact of rate increases implemented during 2003 and 2002, improved performance of $3 million from WP&L’s performance-based commodity cost recovery program (benefits are shared by ratepayers and shareowners), and continued modest customer growth. The 2002 increase was also due to the negative impact high gas prices in early 2001 had on gas consumption during that period.

Refer to Note 1(i) of Alliant Energy’s “Notes to Consolidated Financial Statements” for information relating to utility fuel and natural gas cost recovery.

Other Revenues — Other revenues increased $11.8 million and decreased $10.6 million for 2003 and 2002, respectively. The 2003 increase was primarily due to increased revenues from WindConnect™. The 2002 decrease was primarily due to decreased non-commodity products and services revenues. These 2003 and 2002 variances were largely offset by variances in other operation and maintenance expenses.

Other Operating Expenses Other operation and maintenance expenses increased $52.9 million and $28.7 million for 2003 and 2002, respectively. The 2003 increase was largely due to increases in the amortization of deferred costs that are now being recovered in rates, employee and retiree benefits (primarily compensation, medical and pension costs), WindConnect™ and nuclear expenses. The increased nuclear expenses resulted primarily from a planned refueling outage at Kewaunee in 2003. There was no refueling outage in 2002. These items were partially offset by lower fossil generation expenses. The 2002 increase was largely due to higher fossil generation, employee and retiree benefits, energy conservation, and transmission and distribution expenses, and higher regulatory amortization, partially offset by decreased non-commodity products and services expenses. A significant portion of these cost increases are being recovered as a result of the rate increases implemented during 2003 and 2002.

Depreciation and amortization expense decreased $3.8 million and $12.3 million for 2003 and 2002, respectively. The 2003 decrease was primarily due to lower software amortizations, partially offset by property additions. The 2002 decrease was largely due to lower decommissioning expense based on reduced retail funding levels, partially offset by higher software amortizations.

Interest Expense and OtherInterest expense decreased $2.3 million and $3.3 million for 2003 and 2002, respectively. The 2003 decrease was largely due to lower average borrowings outstanding. The 2002 decrease was largely due to lower average interest rates on the outstanding borrowings. Equity income from unconsolidated investments increased $3.7 million for 2003 due to higher earnings at WRPC and ATC.

Income TaxesThe effective income tax rates were 36.4%, 35.6% and 35.9% in 2003, 2002 and 2001, respectively. Refer to Note 5 of WP&L’s “Notes to Consolidated Financial Statements” for additional information.

LIQUIDITY AND CAPITAL RESOURCES

Overview Based on expected operating cash flows, coupled with actions Alliant Energy has taken and expects to take to strengthen its balance sheet, Alliant Energy believes it will be able to secure the capital it requires to implement its updated strategic plan. Alliant Energy believes its ability to secure additional capital has been significantly enhanced by the successful execution of the strategic actions it announced in November 2002. Refer to “Strategic Overview — November 2002 Plan” for further discussion.

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Alliant Energy’s capital requirements are primarily attributable to construction programs and its debt maturities. Cash flows from Alliant Energy’s utility subsidiaries are expected to cover dividends and capital expenditures related to infrastructure and reliability investments. The capital expenditures associated with building additional generation are expected to total $650 million through 2010 and are expected to be financed largely through external financings, supplemented by internally generated funds. In order to balance its capital structure, Alliant Energy may periodically issue additional common equity as well as debt.

Cash Flows Selected information from Alliant Energy’s, IP&L’s and WP&L’s Consolidated Statements of Cash Flows was as follows (in thousands):

  Alliant Energy IP&L WP&L

Cash flows from (used for): 2003 2002 2001 2003 2002 2001 2003 2002 2001

  Operating activities   $419,990   $555,338   $433,346   $321,918   $250,430   $305,948   $138,495   $223,750   $135,886  
  Financing activities  34,080   72,237   161,075   206,155   6,286   (102,086 ) (11,595 ) (27,685 ) (19,176 )
  Investing activities  (274,648 ) (632,602 ) (654,561 ) (532,087 ) (250,727 ) (203,838 ) (108,402 ) (187,795 ) (116,832 )

In 2003, Alliant Energy’s cash flows from operating activities decreased $135 million primarily due to changes in working capital caused largely by changes in the levels of accounts receivable sold and higher inventory balances, partially offset by higher net income. Cash flows from financing activities decreased $38 million primarily due to changes in the amounts of debt and preferred stock issued and retired, partially offset by proceeds from a 2003 common equity offering and lower common stock dividends due to the dividend reduction implemented in 2003. Cash flows used for investing activities decreased $358 million primarily due to proceeds from asset sales, partially offset by construction and acquisition expenditures associated with the construction of the Emery plant. In 2002, Alliant Energy’s cash flows from operating activities increased $122 million primarily due to changes in working capital. Cash flows from financing activities decreased $89 million primarily due to proceeds from the issuance of common stock in 2001, partially offset by a net increase in the amount of preferred stock outstanding at IP&L. Cash flows used for investing activities decreased $22 million primarily due to lower construction and acquisition expenditures, partially offset by proceeds received in 2001 from the transfer of WP&L’s transmission assets to ATC.

In 2003, IP&L’s cash flows from operating activities increased $71 million primarily due to changes in working capital caused largely by changes in the levels of accounts receivable sold. Cash flows from financing activities increased $200 million primarily due to a higher capital contribution from Alliant Energy in 2003 compared to 2002 and changes in the amount of debt and preferred stock issued and retired. Cash flows used for investing activities increased $281 million primarily due to construction and acquisition expenditures associated with the construction of the Emery plant. In 2002, IP&L’s cash flows from operating activities decreased $56 million primarily due to changes in working capital caused largely by changes in the levels of accounts receivable sold. Cash flows used for financing activities decreased $108 million due to a net increase in the amount of preferred stock outstanding and a capital contribution of $60 million by Alliant Energy. Cash flows used for investing activities increased $47 million due to increased levels of construction expenditures.

In 2003, WP&L’s cash flows from operating activities decreased $85 million primarily due to changes in working capital, partially offset by higher net income. Cash flows used for financing activities decreased $16 million primarily due to a higher capital contribution from Alliant Energy in 2003 compared to 2002, partially offset by changes in the amount of debt issued and retired. Cash flows used for investing activities decreased $79 million primarily due to proceeds from the sale of WP&L’s water utility serving the Beloit area and lower contributions to its nuclear decommissioning trust fund. In 2002, WP&L’s cash flows from operating activities increased $88 million due to changes in working capital and cash flows used for investing activities increased $71 million primarily due to proceeds received from the transfer of WP&L’s transmission assets to ATC in 2001.

Certain Regulatory Approvals/RequirementsPUHCA In 2001, Alliant Energy and Resources received SEC approval under an Omnibus Financing Order for their ongoing program of external financing, credit support arrangements and other related proposals for the period through Dec. 31, 2004. Among other things, the approval authorized Alliant Energy, directly or through financing subsidiaries, to issue common and preferred stock, unsecured long-term debt securities and other equity-linked securities up to an amount of $1.5 billion; to provide guarantees and credit support for obligations of its subsidiaries up to an amount of $3 billion; to enter into hedging transactions to manage interest rate costs and risk exposure; and to increase its aggregate investment limit in EWGs and FUCOs to 100% of consolidated retained earnings. The approval, among other things, also authorized Resources to provide guarantees and credit support for obligations of non-utility subsidiaries up to an amount of $600 million outstanding at any one time.

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In June 2002, Alliant Energy received approval (valid through Dec. 31, 2004) from the SEC to issue and sell up to an aggregate amount of $1 billion of short-term debt outstanding at any one time and to guarantee short-term borrowings by Resources in an aggregate amount that would not exceed $700 million at any one time in addition to its other guarantee authority granted in the Omnibus Financing Order discussed previously. In October 2002, IP&L received SEC approval (valid through Dec. 31, 2004) to issue short-term debt in a principal amount which would not at any one time exceed $300 million. Issuance of debt securities by WP&L is exempt from regulation under provisions of PUHCA.

In 2004, Alliant Energy and certain of its subsidiaries will file appropriate applications with the SEC for renewal of financing, guarantee and other authority required to accommodate its financing needs. Alliant Energy expects that such authority will be granted by the SEC on a timely basis.

Alliant Energy is also subject to a PUHCA requirement whereby Alliant Energy’s common equity balance must be at least 30% of its total consolidated capitalization, including short-term debt. Alliant Energy’s common equity ratio as of Dec. 31, 2003, as computed under this requirement, was 46.8%.

State Regulatory Agencies — At Dec. 31, 2003, IP&L and WP&L were authorized by the appropriate state regulatory agencies to issue short-term debt of $250 million and $240 million, respectively. The $240 million borrowing authority for WP&L includes $85 million for general corporate purposes, an additional $100 million should WP&L no longer sell its utility receivables and an additional $55 million should WP&L need to repurchase its variable rate bonds.

Shelf Registrations — In 2003, Alliant Energy and Resources, in a joint filing, and IP&L filed shelf registrations. The joint filing relates to proposed offerings, from time to time, of an aggregate amount of up to $400 million of Alliant Energy’s common stock, stock purchase contracts, and stock purchase units; and Resources’ senior unsecured debt securities inclusive of the full and unconditional guarantee by Alliant Energy of Resources’ debt securities. A total of $68 million of securities remains available under the joint shelf registration. The IP&L shelf registration relates to proposed offerings, from time to time, of an aggregate of up to $150 million of preferred stock, senior unsecured debt securities and collateral trust bonds. A total of $110 million of securities remains available under the IP&L shelf registration.

Cash and Temporary Cash Investments As of December 31, 2003, Alliant Energy and its subsidiaries had approximately $242 million of cash and temporary cash investments, of which approximately $67 million consisted of deposits in foreign bank accounts. Due to Alliant Energy electing permanent investment of earnings for federal income tax purposes for certain foreign subsidiaries, a majority of the cash held in foreign banks cannot be repatriated without material tax obligations. Alliant Energy plans to use a portion of this cash held in foreign bank accounts to invest in future capital projects in China.

Sale of Accounts Receivable Refer to Note 4 of the “Notes to Consolidated Financial Statements” for information on Alliant Energy’s sale of accounts receivable program.

Short-term Debt Alliant Energy and its subsidiaries are party to various credit facilities and other borrowing arrangements. In September 2003, Alliant Energy completed the syndication of three 364-day revolving credit facilities (facilities) totaling $650 million ($200 million for Alliant Energy at the parent company level, $250 million for IP&L and $200 million for WP&L), available for direct borrowing or to support commercial paper. Alliant Energy has the option to convert these facilities into one-year term loans. The facility at the parent company level is used to fund Resources and Corporate Services as well as its own needs. It is expected that Alliant Energy, IP&L and WP&L will be able to renew or replace these facilities on favorable terms when they mature in 2004. In addition to funding working capital needs, the availability of short-term financing provides the companies flexibility in the issuance of long-term securities. The level of short-term borrowing fluctuates based on seasonal corporate needs, the timing of long-term financings and capital market conditions. Information regarding commercial paper at Dec. 31, 2003 and during 2003 was as follows (dollars in millions):

  Alliant Parent    
  Energy Company IP&L WP&L

Commercial paper:        
  Amount outstanding at Dec. 31, 2003 $107.5  $--  $107.5  $-- 
  Weighted average maturity at Dec. 31, 2003 13 days N/A  13 days N/A 
  Discount rates at Dec. 31, 2003 1.20-1.22% N/A  1.20-1.22% N/A 
  Available capacity at Dec. 31, 2003 $542.5  $200.0  $142.5  $200.0 
  Average daily amount outstanding during 2003 $187.7  $97.4  $60.5  $29.8 
  Maximum daily amount outstanding during 2003 $346.5  $215.0  $190.0  $84.5 

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Alliant Energy’s, IP&L’s and WP&L’s credit facility agreements contain various covenants, including the following:

  Covenant Status at
Covenant Description (*) Requirement Dec. 31, 2003

Alliant Energy:    
   Consolidated debt-to-capital ratio Less than 65%  48.7%
   Consolidated net worth At least $1.4 billion  $2.4 billion 
   EBITDA interest coverage ratio At least 2.5x  3.6x 
IP&L debt-to-capital ratio Less than 58%  47.3%
WP&L debt-to-capital ratio Less than 58%  29.9%
(*)

In compliance with the agreements, results of discontinued operations have been included in the covenant calculations.


The debt component of the capital ratios includes long- and short-term debt (excluding non-recourse debt and trade payables), capital lease obligations, letters of credit and guarantees of the foregoing and unfunded vested benefits under qualified pension plans. The equity component excludes accumulated other comprehensive income (loss). The EBITDA component of the interest coverage ratio is calculated by adding back depreciation and amortization expense to operating income.

Alliant Energy’s credit facility contains a cross default provision providing it is a default under the credit facility if the majority-owned subsidiaries of Alliant Energy default on debt totaling $25 million or more. A default by a minority-owned affiliate would not create a cross default. A default by Alliant Energy or Resources would not be a cross default for WP&L or IP&L, nor would a default by either of the utilities create a cross default for the other utility.

Alliant Energy’s, IP&L’s and WP&L’s credit facilities contain negative pledge provisions, which generally prohibit placing liens on any of the property of Alliant Energy or its subsidiaries with certain exceptions, including among others, for the issuance of secured debt under first mortgage bond indentures by IP&L and WP&L, non-recourse project financing, purchase money liens, and liens on the ownership interests in or assets of foreign subsidiaries to secure not more than $200 million aggregate principal amount of foreign debt.

Alliant Energy’s, IP&L’s and WP&L’s credit facilities contain material adverse change (MAC) clauses. Before each extension of credit (each borrowing under the facilities), each borrower must represent and warrant that no MAC has occurred since December 31, 2002. A MAC is defined as a change that would create: (1) a MAC in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), condition (financial or otherwise) or prospects of the borrower or the borrower and its subsidiaries taken as a whole; (2) a material impairment of the ability of the borrower to perform its obligations under a credit facility agreement to which it is a party; or (3) a MAC upon the legality, validity, binding effect or enforceability against the borrower of any credit agreement to which it is a party.

Alliant Energy’s, IP&L’s and WP&L’s credit facilities contain provisions that require, during the term of the facilities, any proceeds from asset sales, with certain exclusions, in excess of 5% of their respective consolidated assets in any 12-month period be used to reduce commitments under their respective facilities. Exclusions include, among others, certain inter-company sales, certain sale and lease-back transactions and the WPC IPO.

Long-term Debt — In September 2003, IP&L issued $100 million of 5.875% unsecured senior debentures due 2018 and used the majority of the net proceeds to redeem $27.5 million of its 7.25% first mortgage bonds, $20 million of its 8.625% first mortgage bonds and $50 million of its 7.875% subordinated deferrable interest debentures. In October 2003, IP&L completed a $100 million issuance of 6.45% unsecured senior debentures due 2033 and used the majority of the net proceeds to redeem $94.0 million of its 7.625% first mortgage bonds.

In the fourth quarter of 2003, a portion of the proceeds from the WPC IPO were used to retire approximately $96 million of long-term debt, consisting of $24 million of Alliant Energy’s 8.59% senior notes (at parent company), $17.5 million of Resources’ 7% senior notes, $39 million of Resources’ 7.375% senior notes and $15 million of Resources’ 9.75% senior notes. Premiums of approximately $0.10 per share were incurred in the fourth quarter of 2003 related to these long-term debt repurchases. Alliant Energy estimates it will incur $0.04 to $0.08 per share of debt repayment premiums in 2004 related to additional long-term debt repurchases by Resources. Refer to “Strategic Overview — November 2002 Plan” for additional discussion of Alliant Energy’s debt reduction and other strategic actions to strengthen its financial profile.

In September 2003, WP&L retired $70 million of its 8.6% first mortgage bonds due 2027 largely from proceeds of a capital contribution from Alliant Energy.

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Refer to “Contractual Obligations” for the timing of Alliant Energy’s long-term debt maturities. 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. Refer to Note 8 of the “Notes to Consolidated Financial Statements” for additional information on short- and long-term debt.

Preferred Stock In September 2003, IP&L issued 1.6 million shares of 7.10% cumulative preferred stock at a price to the public of $25.00 per share in a public offering and received proceeds of approximately $38.7 million, which were used to reduce short-term debt.

Common Equity Refer to “Strategic Overview — November 2002 Plan” for discussion of a common equity offering completed by Alliant Energy in July 2003. Subject to market and other conditions, Alliant Energy intends to sell additional equity in 2004. These equity sales may involve traditional underwritten offerings, continuous equity offerings or other transactions. The purpose of these equity sales would be to fund, among other things, the recently announced domestic generation build-out program. In addition to such common equity offerings, Alliant Energy also issues new common shares through its Shareowner Direct (dividend reinvestment and stock purchase plan) and 401(k) Savings Plans and generally uses the proceeds from these issuances to assist in funding construction and acquisition expenditures and for general corporate purposes.

Credit Ratings and Balance Sheet Access to the capital and credit markets, and costs of obtaining external financing, are dependent on creditworthiness. Alliant Energy is committed to taking the necessary steps required to maintain investment-grade credit ratings and a strong balance sheet. Refer to “Strategic Overview — November 2002 Plan” for a discussion of specific actions taken in this regard. Although Alliant Energy believes the actions taken in 2003 to strengthen its balance sheet will enable it to maintain investment-grade credit ratings, no assurance can be given that it will be able to maintain its existing credit ratings. If Alliant Energy’s credit ratings are downgraded in the future, then Alliant Energy’s borrowing costs may increase and its access to capital markets may be limited.  If access to capital markets becomes significantly constrained, then Alliant Energy’s results of operations and financial condition could be materially adversely affected. Alliant Energy’s current credit ratings and outlook that were affirmed in January 2004 by both Standard & Poor’s and Moody’s are as follows (long-term debt ratings only apply to senior debt):

    Standard & Poor's Moody's

IP&L Secured long-term debt A- A3
  Unsecured long-term debt BBB Baa1
  Commercial paper A-2 P-2
  Corporate/issuer BBB+ Baa1
WP&L Secured long-term debt A A1
  Unsecured long-term debt BBB+ A2
  Commercial paper A-2 P-1
  Corporate/issuer A- A2
Resources (a) Unsecured long-term debt BBB Baa3
  Commercial paper Not rated P-3
  Corporate/issuer BBB+ Not rated
Alliant Energy Unsecured long-term debt BBB Not rated
  Commercial paper A-2 P-3
  Corporate/issuer BBB+ Not rated
All Entities Outlook Negative Stable
(a)

Resources' debt is fully and unconditionally guaranteed by Alliant Energy.


Ratings TriggersThe long-term debt of Alliant Energy and its subsidiaries is not subject to any repayment requirements as a result of explicit credit rating downgrades or so-called “ratings triggers.” Pre-existing ratings triggers in certain lease agreements were eliminated during 2003. However, Alliant Energy and its subsidiaries are parties to various agreements, including purchased-power agreements, fuel contracts, accounts receivable sale contracts and corporate guarantees that are dependent on maintaining investment-grade credit ratings.  In the event of a downgrade below investment-grade, Alliant Energy or its subsidiaries may need to provide credit support, such as letters of credit or cash collateral equal to the amount of the exposure, or may need to unwind the contract or pay the underlying obligation. Both IP&L and WP&L are party to accounts receivable sale agreements that provide that any respective utility downgraded below investment-grade becomes ineligible to sell receivables under the program. In the event of downgrades below investment-grade, management believes the credit facilities at Alliant Energy, IP&L and WP&L provide sufficient liquidity to cover counterparty credit support or collateral requirements under the various purchased-power, fuel and receivables sales agreements.

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Off-Balance Sheet Arrangements Alliant Energy utilizes off-balance sheet synthetic operating leases to finance its corporate headquarters, corporate aircraft, certain utility railcars and a utility radio dispatch system. Synthetic leases provide favorable financing rates to Alliant Energy while allowing it to maintain operating control of its leased assets. Refer to Note 3 of the “Notes to Consolidated Financial Statements” for future minimum lease payments under, and residual value guarantees by Alliant Energy, of these synthetic leases. Alliant Energy’s credit facility agreements prohibit it from entering into any additional synthetic leases. Alliant Energy uses special purpose entities for its limited recourse utility sale of accounts receivable program whereby IP&L and WP&L use proceeds from the sale of the accounts receivable and unbilled revenues to maintain flexibility in their capital structures, take advantage of favorable short-term interest rates and finance a portion of their long-term cash needs. The sale of accounts receivables generates a significant amount of short-term financing for IP&L and WP&L. Refer to Note 4 of the “Notes to Consolidated Financial Statements” for aggregate proceeds from the sale of accounts receivable. While Alliant Energy does not have any reason to believe this program would be discontinued, if this financing alternative were not available, IP&L and WP&L anticipate they would have enough short-term borrowing capacity to compensate. Refer to “Ratings Triggers” for the impact of certain credit rating downgrades on IP&L and WP&L related to the accounts receivable sales program. Alliant Energy has reviewed these entities during its implementation of FIN 46, for those entities that are considered to be special-purpose entities, and determined that consolidation of these entities is not required. Alliant Energy continues to evaluate non-special purpose entities that may require consolidation as of March 31, 2004.

Sales of Non-strategic AssetsAlliant Energy is currently pursuing the sales in 2004 of its interest in its Kewaunee facility, its remaining interest of 1.1 million shares in WPC and its water utilities serving the Ripon and South Beloit areas. Alliant Energy also continues to divest other less material assets and will continue reviewing other ways to narrow its strategic focus and business platforms. The proceeds realized from these asset sales are expected to be available for debt reduction and other general corporate purposes.

Credit Risk Alliant Energy’s subsidiaries have limited credit exposure from electric and natural gas sales and non-performance of contractual obligations by its counterparties. Alliant Energy 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 Alliant Energy against all losses from non-performance by counterparties.

Construction and Acquisition ExpendituresCapital expenditures, investments and financing plans are continually reviewed, approved and updated as part of Alliant Energy’s ongoing strategic planning and budgeting processes. In addition, material capital expenditures and investments are subject to a rigorous cross-functional review prior to approval. Changes in Alliant Energy’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 Alliant Energy’s profitability, Alliant Energy’s desire to maintain investment-grade credit ratings and reasonable capitalization ratios, variations in sales, changing market conditions and new opportunities. Alliant Energy believes its capital control processes adequately reduce the risks associated with large capital expenditures and investments. Alliant Energy currently anticipates construction and acquisition expenditures during 2004 and 2005 as follows (in millions):

  2004 2005

Domestic utility business:    
   IP&L utility infrastructure and reliability investments $252  $262 
   IP&L Power Iowa (Emery) 80  -- 
   WP&L utility infrastructure and reliability investments 228  248 
   Non-regulated Generation in support of domestic
     utility generation plan (Sheboygan Falls project) 50  30 
China (anticipated to be funded with internally generated cash or non-recourse financings) 50  35 
Other non-regulated (primarily synthetic fuel/energy services) 40  35 

  $700  $610 

Alliant Energy has not yet entered into contractual commitments relating to the majority of its anticipated capital expenditures. As a result, Alliant Energy does have discretion with regard to the level of capital expenditures eventually incurred and it closely monitors and updates such estimates on an ongoing basis based on numerous economic and other factors. Refer to “Strategic Overview — Updated Strategic Plan” for a further discussion of Alliant Energy’s domestic generation plan.

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Contractual Obligations Alliant Energy’s long-term contractual cash obligations as of Dec. 31, 2003 were as follows (in millions):

  2004 2005 2006 2007 2008 Thereafter Total

Long-term debt (Note 8(b)) $69  $102  $69  $199  $196  $1,985  $2,620 
Capital leases (Note 3) 17  14  40  83 
Operating leases (Note 3) 82  103  106  132  77  326  826 
Purchase obligations:
  Purchased-power and fuel commitments (Note 11(b)) 242  147  118  76  39  164  786 
  Other (Note 11(b)) 26  --  --  --  --  --  26 

  $436  $366  $333  $413  $317  $2,476  $4,341 

IP&L’s long-term contractual cash obligations as of Dec. 31, 2003 were as follows (in millions):

  2004 2005 2006 2007 2008 Thereafter Total

Long-term debt (Note 8(b)) $--  $3  $60  $80  $52  $645  $840 
Capital leases (Note 3) 17  13  40  82 
Operating leases (Note 3) 12  39  76 
Purchase obligations:
  Purchased-power and fuel commitments (Note 11(b)) 83  54  49  32  33  258 
  Other (Note 11(b)) --  --  --  --  -- 

  $117  $82  $155  $123  $69  $718  $1,264 

WP&L’s long-term contractual cash obligations as of Dec. 31, 2003 were as follows (in millions):

  2004 2005 2006 2007 2008 Thereafter Total

Long-term debt (Note 8(b)) $62  $88  $--  $105  $60  $139  $454 
Operating leases (Note 3) 63  79  80  80  68  259  629 
Purchase obligations:
  Purchased-power and fuel commitments (Note 11(b)) 67  31  30  28  21  76  253 
  Other (Note 11(b)) --  --  --  --  -- 

  $198  $198  $110  $213  $149  $474  $1,342 

At Dec. 31, 2003, long-term debt and capital lease obligations as noted in the previous tables were included on the respective Consolidated Balance Sheets. The long-term debt amounts exclude reductions related to unamortized debt discounts. Purchased-power and fuel commitments represent normal business contracts used to ensure adequate purchased-power, coal and natural gas supplies and to minimize exposure to market price fluctuations. Other purchase obligations represent individual commitments incurred during the normal course of business which exceeded $1 million at Dec. 31, 2003. Alliant Energy has entered into various coal and purchased-power commitments that have not yet been directly assigned to IP&L and WP&L. Such commitments are included in the Alliant Energy purchase obligations but are not included in the IP&L or WP&L purchase obligations. In connection with their construction and acquisition programs, Alliant Energy, IP&L and WP&L also enter into commitments related to such programs on an ongoing basis; these amounts are not reflected in the previous tables. Refer to “Construction and Acquisition Expenditures” for additional information. In addition, at Dec. 31, 2003, there were various other long-term liabilities and deferred credits included on the respective Consolidated Balance Sheets that, due to the nature of the liabilities, the timing of payments cannot be estimated and are therefore excluded from the tables. Refer to Note 6(a) of the “Notes to Consolidated Financial Statements” for anticipated 2004 pension and other postretirement benefit funding amounts, which are not included in the previous tables.

EnvironmentalAlliant Energy’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. Alliant Energy continually evaluates the impact of potential future international, federal, state and local environmental rulemakings on its operations. While the final outcome of these rule makings cannot be predicted, Alliant Energy believes that required capital investments and/or modifications resulting from them could be significant, but expects that prudent expenses incurred by IP&L and WP&L likely would be recovered in rates from its customers. The environmental rulemaking process continually evolves and the following are major emerging issues that could potentially have a significant impact on Alliant Energy’s operations.

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Air Quality — With regard to current environmental rules, Alliant Energy’s Edgewater facility spent $21 million from 1999 to 2003 to improve its combustion performance. This facility now meets the 2008 Wisconsin DNR NOx compliance goal.

WP&L also has responded to multiple data requests from the EPA, related to the historical operation and associated air permitting for certain major Wisconsin coal-fired generating units. Similar requests have been precursor to penalties and capital expenditures requiring installation of air pollution controls at other utilities. However, WP&L has received no response in this regard from the EPA related to information submitted.

The 1990 CAA Amendments mandate preservation of air quality through existing regulations and periodic reviews to ensure adequacy of these provisions based on scientific data. In 1997, the EPA revised National Ambient Air Quality Standards (NAAQS) for ozone and fine particulate matter. In December 2003, the EPA proposed an Interstate Air Quality Rule related to transport of these emissions that would require significant upgrades to power plants. This rule would reduce the current level of nationwide sulfur dioxide emissions approximately 40% by 2010 and 70% by 2015, and NOx emission levels 50% by 2015. Additional reduction requirements may also be imposed at the state level for those areas that are in non-attainment with NAAQS.

In 2000, the EPA determined that regulation of hazardous air pollutant emissions from coal-fired and oil-fired electric utility steam generating units was necessary. Under an existing settlement agreement, Maximum Achievable Control Technology requirements or alternative regulations must be implemented by Dec. 15, 2004. Accordingly, the EPA has published rules for comment requiring control of mercury from coal-fired and nickel from oil-fired generating units. The impact of these regulations on IP&L’s and WP&L’s generating facilities is subject to the control level mandated in the final rules. In 2001, the Wisconsin DNR also independently developed proposed mercury emission control rules that could require reductions from Wisconsin generating facilities of 40% by 2010 and 80% by 2015. These rules have been sent back to the Wisconsin DNR for revision by the Wisconsin legislature due to the pending federal mercury regulations.

In December 2003, the State Environmental Protection Agency of China issued a regulation requiring thermal power plants to lower emissions to meet new limits for particulate, sulfur and nitrous oxide from coal- and oil-fired boilers. Facilities are required to meet the first phase of this emission standard by 2005 and the second phase by 2010. Alliant Energy is currently reviewing the impact of this new regulation on its China business.

Alliant Energy is also currently monitoring various other potential international, federal, state and local environmental rulemakings and activities, including, but not limited to: litigation of federal New Source Review Reforms; Regional Haze evaluations for Best Available Retrofit Technology; and several other legislative and regulatory proposals regarding the control of emissions of air pollutants and greenhouse gases from a variety of sources, including generating facilities.

Water Quality — In 2002, the EPA published a proposed regulation under the Clean Water Act referred to as “316(b)” that is anticipated to be finalized in 2004. This rule would require existing large power plants with cooling water intake structures to ensure that the location, design, construction, and capacity of cooling water intake structures reflect the best technology available for minimizing adverse environmental impacts to fish and other aquatic life. Alliant Energy is also currently evaluating proposed revisions to the Wisconsin Administrative Code concerning the amount of heat that WP&L’s generating stations can discharge into Wisconsin waters.

Land and Solid Waste — Alliant Energy is monitoring possible significant land and solid waste regulatory changes. This includes a potential EPA regulation for management of coal combustion product in landfills and surface impoundments that could require installation of monitoring wells at some facilities and an ongoing expanded groundwater monitoring program. Compliance with the polychlorinated biphenols (PCB) Fix-it Rule/Persistent Organic Pollutants Treaty could possibly require replacement of all electrical equipment containing PCB insulating fluid which is a substance known to be harmful to human health. The Wisconsin Department of Commerce is proposing new rules related to flammable, combustible and hazardous liquids stored in above-ground storage tanks in which the main financial impact would be from a secondary containment requirement for all hazardous materials tanks and for hazardous material unloading areas. In addition, in December 2003, at the request of the Wisconsin DNR, WP&L submitted a written plan for facility closure of the Rock River Generating Station landfill and clean-up of the support ponds and all areas where coal combustion waste is present.

Refer to Note 11(e) of the “Notes to Consolidated Financial Statements” and “Business” for further discussion of environmental matters.

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OTHER MATTERS

Market Risk Sensitive Instruments and Positions Alliant Energy’s primary market risk exposures are associated with interest rates, commodity prices, equity prices and currency exchange rates. Alliant Energy has risk management policies to monitor and assist in controlling these market risks and uses derivative instruments to manage some of the exposures.

Interest Rate Risk — Alliant Energy is exposed to risk resulting from changes in interest rates as a result of its issuance of variable-rate debt, utility customer accounts receivable sale program and variable-rate leasing agreements. Alliant Energy manages its interest rate risk by limiting its variable interest rate exposure and by continuously monitoring the effects of market changes on interest rates. Alliant Energy also periodically uses 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 Alliant Energy’s results of operations and financial condition. Assuming no change in Alliant Energy’s, IP&L’s and WP&L’s consolidated financial structure, if variable interest rates were to average 100 basis points higher (lower) in 2004 than in 2003, interest expense would increase (decrease) by approximately $5.3 million, $2.9 million and $1.2 million, respectively. These amounts were determined by considering the impact of a hypothetical 100 basis point increase (decrease) in interest rates on Alliant Energy’s, IP&L’s and WP&L’s consolidated variable-rate debt held, the amount outstanding under the utility customer accounts receivable sale program and variable-rate lease balances at Dec. 31, 2003.

Commodity Risk — Non-trading — Alliant Energy is exposed to the impact of market fluctuations in the commodity price and transportation costs of electric and natural gas products it markets. Alliant Energy employs established policies and procedures to manage its risks associated with these market fluctuations including the use of various commodity derivatives. Alliant Energy’s exposure to commodity price risks in its utility business is significantly mitigated by the current rate making structures in place for the recovery of its electric fuel and purchased energy costs as well as its cost of natural gas purchased for resale. Refer to Note 1(i) of Alliant Energy’s “Notes to Consolidated Financial Statements” for further discussion.

WP&L periodically utilizes commodity derivative instruments to reduce the impact of price fluctuations on electric fuel and purchased energy costs needed to meet its power supply requirements. Under PSCW rules, WP&L can also seek rate increases if it experiences an extraordinary increase in the cost of electric fuel and purchased energy costs or if the annual costs are more than 3% higher than the estimated costs used to establish rates. Such rules were revised effective for 2003 for WP&L and significantly reduce the regulatory lag for Wisconsin utilities and customers related to the timing of changes in rates for increased or decreased fuel and purchased energy costs. Based on these revised rules, WP&L does not anticipate any significant earnings exposure related to fuel and purchased energy costs.

WP&L periodically utilizes natural gas commodity derivative instruments to reduce the impact of price fluctuations on natural gas purchased and injected into storage during the summer months and withdrawn and sold at current market prices during the winter months. The natural 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 natural gas commodity swaps. A 10% increase (decrease) in the price of natural gas would not have a significant impact on the combined fair market value of the natural gas in storage and related swap arrangements in place at Dec. 31, 2003. To the extent actual storage withdrawals vary from forecasted withdrawals, WP&L has physical gas price exposure.

IP&L also utilizes commodity derivative instruments to mitigate the risk of rising prices. Since the IUB allows for the prudently incurred costs associated with these instruments and the underlying supply of commodities to be recovered from ratepayers, IP&L does not have significant commodity risk exposure.

NG Energy utilizes natural gas commodity derivative instruments to reduce the impact of natural gas price fluctuations on physical natural gas sales from storage. These natural gas commodity swaps and forward sales contracts are entered into at the same time and for the same volumes that are purchased and injected into storage, thereby minimizing natural gas commodity risk exposure. Based on the volume of natural gas sales from storage at NG Energy, a 10% increase (decrease) in the price of natural gas would not have a significant impact on Alliant Energy’s results of operations or financial condition. Refer to Note 10(a) of Alliant Energy’s “Notes to Consolidated Financial Statements” for additional information concerning the impact of SFAS 149 on NG Energy’s earnings.

Equity Price Risk — IP&L and WP&L maintain trust funds to fund their anticipated nuclear decommissioning costs. At Dec. 31, 2003 and 2002, these funds were invested primarily in domestic equity and debt instruments. Fluctuations in equity prices or interest rates do not affect Alliant Energy’s consolidated results of operations. In 2001, WP&L entered into a four-year hedge on equity assets in its nuclear decommissioning trust fund. In January 2004, WP&L liquidated all of its qualified decommissioning trust fund assets into money market funds as a result of the pending Kewaunee sale. Refer to Notes 10(c) and 17 of Alliant Energy’s “Notes to Consolidated Financial Statements” for further discussion. Refer to “Critical Accounting Policies — Accounting for Pensions and Other Postretirement Benefits” for the impact on Alliant Energy’s pension and other postretirement benefit costs of changes in the rate of returns earned by its plan assets, which include equity securities.

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Currency Risk — Alliant Energy has investments in various countries where the net investments are not hedged, including Brazil, China and New Zealand. As a result, these investments are subject to currency exchange risk with fluctuations in currency exchange rates. At Dec. 31, 2003, Alliant Energy had a cumulative foreign currency translation loss, net of any tax benefits realized, of $81 million, which related to decreases in the value of the Brazil real of $92 million and increases in the value of the New Zealand dollar of $11 million in relation to the U.S. dollar. This loss is recorded in “Accumulated other comprehensive loss” on Alliant Energy’s Consolidated Balance Sheets. Based on Alliant Energy’s investments at Dec. 31, 2003, a 10% sustained increase/decrease over the next 12 months in the foreign exchange rates of Brazil, China and New Zealand would result in a corresponding increase/decrease in the cumulative foreign currency translation loss of $48 million. Alliant Energy’s equity income (loss) from its foreign investments is also impacted by fluctuations in currency exchange rates. At Dec. 31, 2003, Alliant Energy also had currency exchange risk associated with approximately $40 million of debt outstanding at one of the Brazilian operating companies. Alliant Energy recorded equity income of $2.4 million and equity losses of $6.5 million in 2003 and 2002, respectively, related to its share of the foreign currency transaction gains/losses on such debt. Based on the loan balance and currency rates at Dec. 31, 2003, a 10% change in the currency rates would result in a $2.9 million pre-tax increase/decrease in net income.

In addition, Alliant Energy has currency exchange risk associated with approximately $30 million of payables at a Canadian subsidiary within Alliant Energy’s Integrated Services business. In 2003, Alliant Energy recorded pre-tax income of $3.2 million related to the foreign currency transaction gains on such payables. In November 2003, Alliant Energy acquired an option to protect $11 million of its exposure against declines in currency rates while still retaining the opportunity to participate in the benefits of increases in currency rates. Based on the payables balance, option and currency rates at Dec. 31, 2003, a 10% increase and 10% decrease in the currency rates would result in a $3.0 million pre-tax increase and $2.2 million pre-tax decrease in income, respectively.

Refer to Notes 1(l) and 10 of Alliant Energy’s “Notes to Consolidated Financial Statements” for further discussion of Alliant Energy’s derivative financial instruments.

Accounting Pronouncements In January 2003, the FASB issued FIN 46 which addresses consolidation by business enterprises of variable interest entities. FIN 46 requires consolidation where there is a controlling financial interest in a variable interest entity or where the variable interest entity does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. Alliant Energy adopted FIN 46, related to those entities that are considered to be special-purpose entities, on Dec. 31, 2003 with no material impact on its financial condition or results of operations. Alliant Energy continues to evaluate tolling arrangements, renewable energy entities and any other non-special purpose entities, to determine if they require consolidation under the revised FIN 46 guidance issued by the FASB in December 2003. Alliant Energy will apply the provisions of the revised guidance as of March 31, 2004.

Alliant Energy adopted SFAS 143 on Jan. 1, 2003, which provides accounting and disclosure requirements for retirement obligations associated with long-lived assets (AROs). Refer to Note 18 of Alliant Energy’s “Notes to Consolidated Financial Statements” for additional information.

Alliant Energy adopted SFAS 149 for contracts entered into or modified after June 30, 2003, except for certain implementation issues and certain provisions of forward purchase and sale contracts and for hedging relationships designated after June 30, 2003. Refer to Note 10(a) of Alliant Energy’s “Notes to Consolidated Financial Statements” for additional information.

In May 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” which requires an issuer to classify outstanding free-standing financial instruments within its scope as a liability on its balance sheet even though the instruments have characteristics of equity. Alliant Energy adopted SFAS 150 on July 1, 2003 with no material impact on its financial condition or results of operations. Alliant Energy continues to evaluate the implications of FSP No. FAS 150-3, “Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” issued in November 2003, which defers the effective date for applying the provisions of SFAS 150 for certain mandatorily redeemable non-controlling interests.

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In December 2003, the President signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). The Act introduces a prescription drug benefit under Medicare Part D, as well as a federal subsidy to sponsors of retiree health care benefit plans, that provide a benefit that is at least actuarially equivalent to Medicare Part D. As permitted by FSP No. FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” Alliant Energy has elected to defer reflecting the effect of the Act on postretirement net periodic benefit cost and the accumulated postretirement benefit obligation in the Consolidated Financial Statements, since specific authoritative guidance on the accounting for the federal subsidy is pending and that guidance, when issued, could require Alliant Energy to change previously reported information. Alliant Energy is currently evaluating the effect of the Act on its other postretirement benefits expense.

Alliant Energy does not expect the various other new accounting pronouncements not mentioned above that were effective in 2003 to have a material impact on its results of operations or financial condition.

Critical Accounting PoliciesBased on historical experience and various other factors, Alliant Energy believes the policies identified below are critical to its business and the understanding of its results of operations as they require critical estimates be made based on the assumptions and judgment of management. The preparation of consolidated financial statements requires management to make various estimates and assumptions that affect revenues, expenses, assets, liabilities and the disclosure of contingencies. The results of these estimates and judgments form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and judgments. Alliant Energy’s management has discussed these critical accounting policies with the Audit Committee of its Board of Directors. Refer to Note 1 of Alliant Energy’s “Notes to Consolidated Financial Statements” for a discussion of Alliant Energy’s accounting policies and the estimates and assumptions used in the preparation of the consolidated financial statements.

Regulatory Assets and Liabilities — Alliant Energy’s domestic utility business is regulated by various federal and state regulatory agencies. As a result, it qualifies for the application of SFAS 71, “Accounting for the Effects of Certain Types of Regulation.” SFAS 71 recognizes that the actions of a regulator can provide reasonable assurance of the existence of an asset or liability. Regulatory assets or liabilities arise as a result of a difference between GAAP and the accounting principles imposed by the regulatory agencies. Regulatory assets generally represent incurred costs that have been deferred as they are probable of recovery in customer rates. Regulatory liabilities generally represent obligations to make refunds to customers for various reasons.

Alliant Energy’s utility subsidiaries recognize regulatory assets and liabilities in accordance with the rulings of their federal and state regulators and future regulatory rulings may impact the carrying value and accounting treatment of Alliant Energy’s regulatory assets and liabilities. Alliant Energy periodically assesses whether the regulatory assets are probable of future recovery by considering factors such as regulatory environment changes, recent rate orders issued by the applicable regulatory agencies and the status of any pending or potential deregulation legislation. The assumptions and judgments used by regulatory authorities continue to have an impact on the recovery of costs, the rate of return on invested capital and the timing and amount of assets to be recovered by rates. A change in these assumptions may result in a material impact on Alliant Energy’s results of operations. Refer to Note 1(c) of Alliant Energy’s “Notes to Consolidated Financial Statements” for further discussion.

Asset Valuations —
Long-Lived Assets — Alliant Energy’s Consolidated Balance Sheets include significant long-lived assets, which are not subject to recovery under SFAS 71. As a result, Alliant Energy must generate future cash flows from such assets in a non-regulated environment to ensure the carrying value is not impaired. Some of these assets are the result of capital investments which have been made in recent years and have not yet reached a mature life cycle. Alliant Energy assesses the carrying amount and potential impairment of these assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors Alliant Energy considers in determining if an impairment review is necessary include a significant underperformance of the assets relative to historical or projected future operating results, a significant change in Alliant Energy’s use of the acquired assets or business strategy related to such assets, and significant negative industry or economic trends. When Alliant Energy determines an impairment review is necessary, a comparison is made between the expected undiscounted future cash flows and the carrying amount of the asset. If the carrying amount of the asset is the larger of the two balances, an impairment loss is recognized equal to the amount the carrying amount of the asset exceeds the fair value of the asset. The fair value is determined by the use of quoted market prices, appraisals, or the use of valuation techniques such as expected discounted future cash flows. Alliant Energy must make assumptions regarding these estimated future cash flows and other factors to determine the fair value of the respective assets.

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At Dec. 31, 2003, Resources’ Non-regulated Generation business owned $96 million of generation equipment consisting of two gas turbines and one steam turbine. Alliant Energy plans to deploy the two gas turbines ($75 million) in a 300 MW natural gas-fired power plant outside Sheboygan Falls, Wisconsin and continues to review for potential generation projects to utilize the steam turbine ($21 million). As a result, Alliant Energy has assessed the recoverability of the $96 million equipment cost compared to the future anticipated cash flows from these generation projects. The future anticipated cash flows are a significant estimate. Alliant Energy has no current intentions to sell any of this equipment. If a decision was made to sell such equipment, the recoverability of the equipment cost would be assessed by comparing the future anticipated sales proceeds to the carrying value of the equipment.

Investments — Alliant Energy’s Consolidated Balance Sheets include investments in several available-for-sale securities accounted for in accordance with SFAS 115. Alliant Energy 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. In 2002, Alliant Energy incurred pre-tax valuation charges under the provisions of SFAS 115 of $27 million and $10 million related to its McLeod and Energy Technologies investments, respectively. Alliant Energy’s Consolidated Balance Sheets also contain various other investments that are evaluated for recoverability when indicators of impairment may exist. Refer to Note 9 of Alliant Energy’s “Notes to Consolidated Financial Statements” for further information related to Alliant Energy’s investments accounted for in accordance with SFAS 115.

Resources holds a non-controlling interest in five Brazilian electric utility companies accounted for under the equity method of accounting. The recoverability of these equity method investments is assessed by comparing the future anticipated local currency cash flows from these investments and the local currency carrying value of these investments. The future anticipated cash flows currently include anticipated periodic distributions that, when aggregated, exceed the carrying value of these investments. The future anticipated cash flows represent a significant estimate. The $283 million carrying value of Alliant Energy’s Brazil investments has been reduced by $162 million of pre-tax cumulative foreign currency translation losses. The net of tax balance of $92 million has been recorded in “Accumulated other comprehensive loss” on Alliant Energy’s Consolidated Balance Sheet at Dec. 31, 2003. Cumulative foreign currency translation losses are reflected in Alliant Energy’s results of operations only if the related investment is sold or substantially liquidated. If Alliant Energy would decide to exit these Brazil investments in the future, the recoverability of these equity method investments would be assessed by comparing the future anticipated sales proceeds to the carrying value.

Resources’ investment in Mexico consists primarily of a loan receivable (including accrued interest income) from a Mexican development company aggregating approximately $79 million at Dec. 31, 2003. The proceeds from the loan have been used by the Mexican development company to complete substantially all of the construction and development of the infrastructure of a master planned resort community. The loan accrues interest at 8.75% and is secured by a first lien on the land parcels to be developed for the master planned community. Repayment of the loan principal and interest will be based on a portion of the proceeds from the sales, performed by the Mexican development company, of real estate lots in the master planned community and therefore is dependent on the successful development of the project and sale of real estate. The recoverability of this loan receivable is currently assessed by comparing the fair value of the land used to secure the loan and the carrying value of the loan including accrued interest. An updated, independent appraisal completed in the fourth quarter of 2003 indicated that the fair value of the collateral, which is a significant estimate, exceeded the carrying value of the loan and accrued interest at Dec. 31, 2003, by a modest amount. Notwithstanding the developers’ expectations regarding the development of the project and the impending lot sales, Alliant Energy has expressed concerns with the developers regarding the pace of the project and its marketing efforts. Alliant Energy is providing options to the developers to hasten the marketing and sales of the lots of the master planned community and to ensure faster recovery of its secured loan. If the development of the project and related real estate sales are not successfully executed, it is possible that Alliant Energy could incur material asset valuation charges and/or be required to discontinue recording interest income on the loan in the future. Refer to Note 9 of Alliant Energy’s “Notes to Consolidated Financial Statements” for additional information concerning Alliant Energy’s investments in Brazil and Mexico.

Goodwill — In accordance with SFAS 142, Alliant Energy is required to evaluate its goodwill for impairment at least annually and more frequently when indicators of impairment may exist. At Dec. 31, 2003, Alliant Energy had $56 million of net goodwill (including $41 million and $10 million within its Cogenex and China reporting units, respectively) on its Consolidated Balance Sheet. If the fair value of a reporting unit is less than its carrying value, including goodwill, a goodwill impairment charge may be necessary. Alliant Energy estimates the fair value of its reporting units utilizing a combination of market value indicators and the expected discounted future cash flows. This process requires the use of significant management estimates and judgments regarding cash flow assumptions from future sales, operating costs and discount rates over an indefinite life. Alliant Energy’s cash flow assumptions are derived using a combination of historical trends, internal budgets, strategic plans and other market information. Each reporting unit is evaluated separately based on the nature of its operations and therefore the assumptions vary by reporting unit relative to its applicable circumstances. To determine its discount rates, Alliant Energy utilizes the capital asset pricing model which is based upon market comparables adjusted for company-specific risk. In the event market comparables are not available, Alliant Energy utilizes expected industry returns based upon published information. Refer to Note 14 of Alliant Energy’s “Notes to Consolidated Financial Statements” for further discussion.

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Derivative Financial Instruments — Alliant Energy uses derivative financial instruments to hedge exposures to fluctuations in interest rates, certain commodity prices, certain currency rates, volatility in a portion of natural gas sales volumes due to weather and to mitigate the equity price volatility associated with certain investments in equity securities. Alliant Energy does not use such instruments for speculative purposes. To account for these derivative instruments in accordance with the applicable accounting rules, Alliant Energy must determine the fair value of its derivatives. In accordance with SFAS 133, the fair value of all derivative instruments are recognized as either assets or liabilities in the balance sheet with the changes in their value recognized in earnings for the non-regulated businesses, unless specific hedge accounting criteria are met. For IP&L and WP&L, changes in the derivatives fair values are generally recorded as regulatory assets or liabilities. If an established, quoted market exists for the underlying commodity of the derivative instrument, Alliant Energy uses the quoted market price to value the derivative instrument. For other derivatives, Alliant Energy estimates the value based upon other quoted prices or acceptable valuation methods. Alliant Energy 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.

SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133. Although SFAS 149 is expected to result in more energy contracts in Alliant Energy’s domestic utility business qualifying as derivatives, changes in the fair value of these derivatives are generally reported as changes in regulatory assets and liabilities rather than being reported currently in earnings, based on the regulatory treatment. SFAS 149 will likely result in more earnings volatility at NG Energy given the majority of its derivatives may not qualify for hedge accounting. Additionally, Alliant Energy has some commodity purchase and sales contracts that have been designated, and qualify for, the normal purchase and sale exception. Based on this designation, these contracts are not accounted for as derivative instruments.

A number of Alliant Energy’s derivative transactions are in its domestic utility business and are based on the fuel and natural gas cost recovery mechanisms in place, as well as other specific regulatory authorizations. As a result, changes in fair market values of such derivatives generally have no impact on Alliant Energy’s results of operations. Alliant Energy does have an embedded derivative within its exchangeable senior notes that is impacted by the value of McLeod stock. Changes in the fair value of this derivative impact Alliant Energy’s results of operations and the changes did have a material impact on Alliant Energy’s 2001 results of operations. However, given a significant decline in the value of the McLeod stock, Alliant Energy does not expect changes in the fair value of this derivative to have a material impact on Alliant Energy’s results of operations in the foreseeable future. Refer to Notes 10(d) and 10(a) of Alliant Energy’s “Notes to Consolidated Financial Statements” for a further discussion of the impacts of EITF Issue 02-3 and SFAS 149, respectively, on the derivatives entered into by NG Energy.

Unbilled Revenues — Unbilled revenues are primarily associated with Alliant Energy’s utility operations. Energy sales to individual customers are based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, amounts of energy delivered to customers since the date of the last meter reading are estimated and the corresponding estimated unbilled revenue is recorded. The unbilled revenue estimate is based on daily system demand volumes, estimated customer usage by class, weather impacts, line losses and the most recent customer rates. Such process involves the use of various estimates, thus significant changes in the estimates could have a material impact on Alliant Energy’s results of operations.

Accounting for Pensions and Other Postretirement Benefits — Alliant Energy accounts for pensions and other postretirement benefits under SFAS 87, “Employers’ Accounting for Pensions” and SFAS 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” respectively. Under these rules, certain assumptions are made which represent significant estimates. There are many factors involved in determining an entity’s pension and other postretirement liabilities and costs each period including assumptions regarding employee demographics (including age, life expectancies, and compensation levels), discount rates, assumed rate of returns and funding. Changes made to the plan provisions may also impact current and future pension and other postretirement costs. Alliant Energy’s assumptions are supported by historical data and reasonable projections and are reviewed annually with an outside actuary firm and an investment consulting firm. As of Dec. 31, 2003, Alliant Energy was using a 6% discount rate to calculate benefit obligations and a 9% annual rate of return on investments. In selecting an assumed discount rate, Alliant Energy reviews various corporate Aa bond indices. The 9% annual rate of return is consistent with Alliant Energy’s historical returns and is based on projected long-term equity and bond returns, maturities and asset allocations. A 100 basis point change in the discount rate would result in approximate changes of $102 million and $23 million in Alliant Energy’s pension and other postretirement benefit obligations and $7 million and $2 million in expense, respectively. A 100 basis point change in the rate of return would result in an approximate change of $5 million and $1 million in pension and other postretirement benefit expense, respectively. Refer to Note 6(a) of Alliant Energy’s “Notes to Consolidated Financial Statements” for discussion of the impact of a change in the medical trend rates.

47

Income Taxes — Alliant Energy accounts for income taxes under SFAS 109, “Accounting for Income Taxes.” Under these rules, certain assumptions are made which represent significant estimates. There are many factors involved in determining an entity’s income tax assets, liabilities, benefits and expense each period. These factors include assumptions regarding Alliant Energy’s future taxable income and its ability to utilize tax credits and loss carryovers as well as the impacts from the completion of audits of the tax treatment of certain transactions. Alliant Energy’s assumptions are supported by historical data and reasonable projections and are reviewed quarterly by management. Significant changes in these assumptions could have a material impact on Alliant Energy’s financial condition and results of operations. Refer to Note 5 of Alliant Energy’s “Notes to Consolidated Financial Statements” for further discussion.

Other Future Considerations In addition to items discussed earlier in MD&A, the following items could impact Alliant Energy’s future financial condition or results of operations:

Exchangeable Senior Notes — At Dec. 31, 2003, the carrying amount of the debt component of Resources’ exchangeable senior notes was $37.9 million, consisting of the par value of $402.5 million, less unamortized debt discount of $364.6 million. The terms of the exchangeable senior notes required Resources to pay interest on the par value of the notes at 7.25% from February 2000 to February 2003, and at 2.5% thereafter until maturity in February 2030. As explained in Note 10(a) of Alliant Energy’s “Notes to Consolidated Financial Statements,” Resources accounted for the net proceeds from the issuance of the notes as two separate components, a debt component and an embedded derivative component. In accordance with SFAS 133, Alliant Energy determined the initial carrying value of the debt component by subtracting the fair value of the derivative component from the net proceeds realized from the issuance of the exchangeable senior notes. This resulted in a very low initial carrying amount of the debt component which results in the recording of interest expense at an effective rate of 26.8% of the carrying amount of the debt component. For 2003, interest expense on the notes was $10.2 million. Interest payments in excess of interest expense are recorded as a reduction of the carrying amount of the debt component. As a result of the higher interest payments for the first three years, the carrying amount of the debt component declined until it reached $37.8 million in February 2003, and then gradually increases over the next 27 years to the ultimate repayment amount of $402.5 million in 2030. Interest expense on the debt component of the notes will be $10.2 million in 2004, 2005 and 2006.

The interest deductions Alliant Energy has taken on its federal tax returns related to Resources’ exchangeable notes are currently under audit by the IRS.  Alliant Energy believes these interest deductions comply with the Internal Revenue Code, however, if Alliant Energy receives an adverse ruling related to these interest deductions it could have a material impact on its results of operations.

Brazil — In the fourth quarter of 2003, the Brazilian electric utility companies Alliant Energy holds unconsolidated investments in completed the restructuring of approximately $245 million, as converted from local currency to U.S. dollars, of short- and long-term debt into new long-term debentures and commercial loans. The Brazilian electric utility companies have also arranged for the restructuring of the approximately $40 million loan for the joint venture gas-fired generating facility (Juiz de Fora) in which Alliant Energy holds a 50% direct ownership interest. Alliant Energy does not expect these debt restructurings will have a material impact on its 2004 earnings as the primary changes relate to extending the debt repayment dates. However, interest rates in general have been declining in Brazil, which would have a favorable impact on the comparison of Alliant Energy’s 2004 and 2003 earnings, should the average 2004 rates remain lower than the average 2003 rates.

To complete earlier plans, the Juiz de Fora facility is scheduled for a 20-MW expansion from a single cycle to a combined cycle facility at an estimated cost of $24 million. If the Juiz de Fora combined cycle construction is not completed as anticipated, the future performance obligations of this generation asset might be significantly adversely affected. In such an event, Alliant Energy is not required to invest any additional capital in Brazil, however, it could lead to material asset valuation charges with respect to Alliant Energy’s investment in the Juiz de Fora facility.

Alliant Energy continues to closely monitor the financial performance of its Brazilian investments. While such performance improved significantly in 2003, and Alliant Energy expects continued improvements in 2004, Alliant Energy believes more can be done to hasten the rate of improvement — particularly in regard to controlling costs and reduction of debt — and this has been a source of dispute with its Brazilian partners. Alliant Energy believes the potential of the Brazilian market is significant and it is discussing with its Brazilian partners various alternatives in order to strengthen and secure its investments in this market. Alliant Energy continues its ongoing review of options related to its Brazilian investments. Alliant Energy cannot currently predict the ultimate outcome of these reviews and discussions.

48

Synfuel — In June 2003, the IRS announced it was reviewing the scientific validity of test procedures and results used by companies claiming tax credits for producing synthetic fuels from coal and may withdraw such credits for operations that fail to meet federal standards which require, among other things, a significant chemical change to occur in the process. In October 2003, the IRS stated this review was complete and that the test procedures and results used by taxpayers for chemical change are scientifically valid if the procedures are applied in a consistent and unbiased manner. Since the second quarter of 2002, Alliant Energy has been an investor in a synthetic fuel facility and continued to record these tax credits as of Dec. 31, 2003. Currently, the IRS is auditing this facility to determine if its procedures are applied in a consistent and unbiased manner. Alliant Energy expects the audit to be completed in 2004 and cannot predict its outcome. The synthetic fuel facility Alliant Energy partially owns previously received a private letter ruling from the IRS, which states that based on the facts submitted, a significant chemical change was achieved in its process. Alliant Energy has recognized tax credits for producing synthetic fuels of $23 million and $15 million for 2003 and 2002, respectively, and expects to recognize approximately $23 million of additional credits in 2004.

49

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures About Market Risk are reported under “Other Matters — Market Risk Sensitive Instruments and Positions” in MD&A.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

Alliant Energy Page Number
      Alliant Energy Report on the Financial Information 51 
      Independent Auditors' Report 52 
      Consolidated Statements of Income for the Years Ended Dec. 31, 2003, 2002 and 2001 53 
      Consolidated Balance Sheets as of Dec. 31, 2003 and 2002 54 
      Consolidated Statements of Cash Flows for the Years Ended Dec. 31, 2003, 2002 and 2001 56 
      Consolidated Statements of Capitalization as of Dec. 31, 2003 and 2002 57 
      Consolidated Statements of Changes in Common Equity for the Years Ended
         Dec. 31, 2003, 2002 and 2001 58 
      Notes to Consolidated Financial Statements 59 
   
IP&L
      Independent Auditors' Report 91 
      Consolidated Statements of Income for the Years Ended Dec. 31, 2003, 2002 and 2001 92 
      Consolidated Balance Sheets as of Dec. 31, 2003 and 2002 93 
      Consolidated Statements of Cash Flows for the Years Ended Dec. 31, 2003, 2002 and 2001 95 
      Consolidated Statements of Capitalization as of Dec. 31, 2003 and 2002 96 
      Consolidated Statements of Changes in Common Equity for the Years Ended
         Dec. 31, 2003, 2002 and 2001 97 
      Notes to Consolidated Financial Statements 98 
   
WP&L
      Independent Auditors' Report 106 
      Consolidated Statements of Income for the Years Ended Dec. 31, 2003, 2002 and 2001 107 
      Consolidated Balance Sheets as of Dec. 31, 2003 and 2002 108 
      Consolidated Statements of Cash Flows for the Years Ended Dec. 31, 2003, 2002 and 2001 110 
      Consolidated Statements of Capitalization as of Dec. 31, 2003 and 2002 111 
      Consolidated Statements of Changes in Common Equity for the Years Ended
         Dec. 31, 2003, 2002 and 2001 112 
      Notes to Consolidated Financial Statements 113 

Refer to Note 15 of Alliant Energy’s, IP&L’s and WP&L’s “Notes to Consolidated Financial Statements” for the quarterly financial data required by Item 8.

50

ALLIANT ENERGY CORPORATION REPORT ON THE FINANCIAL INFORMATION

Alliant Energy Corporation management is responsible for the information and representations contained in the financial statements and in other sections of this Annual Report. The consolidated financial statements that follow have been prepared in accordance with accounting principles generally accepted in the United States of America. In addition to selecting appropriate accounting principles, management is responsible for the manner of presentation and for the reliability of the financial information. In fulfilling that responsibility, it is necessary for management to make estimates based on currently available information and judgments of current conditions and circumstances.

Through a well-developed system of internal controls, management seeks to ensure the integrity and objectivity of the financial information presented in this report. This system of internal controls is designed to provide reasonable assurance that the assets of the company are safeguarded and that the transactions are executed according to management’s authorizations and are recorded in accordance with the appropriate accounting principles.

The Board of Directors participates in the financial information reporting process through its Audit Committee.

/s/ Erroll B. Davis, Jr.
Erroll B. Davis, Jr.
Chairman and Chief Executive Officer

/s/ Eliot G. Protsch
Eliot G. Protsch
Senior Executive Vice President and Chief Financial Officer

/s/ John E. Kratchmer
John E. Kratchmer
Vice President-Controller and Chief Accounting Officer




March 3, 2004

51

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareowners of Alliant Energy Corporation:

We have audited the accompanying consolidated balance sheets and statements of capitalization of Alliant Energy Corporation and subsidiaries (the "Company") as of December 31, 2003 and 2002, 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, 2003. Our audits also included the financial statement schedule listed in Item 15(a)(2). These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 18 to the consolidated financial statements, on January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations."

/s/ DELOITTE & TOUCHE LLP

Milwaukee, Wisconsin
March 3, 2004

52

ALLIANT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME

  Year Ended December 31,
  2003 2002 2001

  (in thousands, except per share amounts)
Operating revenues:
  Domestic utility:
    Electric   $1,917,068   $1,752,534   $1,756,556  
    Gas   566,926   393,986   487,877  
    Other   104,194   85,415   101,894  
  Non-regulated   539,999   254,655   287,903  

    3,128,187   2,486,590   2,634,230  


Operating expenses:  
  Domestic utility:  
    Electric production fuel and purchased power   730,594   651,813   695,168  
    Cost of gas sold   396,102   248,994   360,911  
    Other operation and maintenance   701,784   623,240   586,550  
  Non-regulated operation and maintenance   493,457   223,389   259,021  
  Depreciation and amortization   305,074   282,098   294,339  
  Taxes other than income taxes   89,442   103,865   102,136  

    2,716,453   2,133,399   2,298,125  


Operating income   411,734   353,191   336,105  


Interest expense and other:  
  Interest expense   207,150   182,741   182,008  
  Loss on early extinguishment of debt   16,864   -   -  
  Equity (income) loss from unconsolidated investments   (19,121 ) 12,825   (18,799 )
  Allowance for funds used during construction   (20,719 ) (7,696 ) (11,144 )
  Preferred dividend requirements of subsidiaries   16,891   6,172   6,720  
  Impairment of available-for-sale securities of McLeodUSA Inc.   -   27,218   -  
  Miscellaneous, net   (20,859 ) 2,074   (2,662 )

    180,206   223,334   156,123  


Income from continuing operations before income taxes   231,528   129,857   179,982  


Income taxes   71,827   42,401   51,823  


Income from continuing operations   159,701   87,456   128,159  


Income from discontinued operations, net of tax (Note 16)   29,825   19,425   57,071  


Income before cumulative effect of changes in accounting principles   189,526   106,881   185,230  


Cumulative effect of changes in accounting principles, net of tax   (5,983 ) -   (12,868 )


Net income   $183,543   $106,881   $172,362  


Average number of common shares outstanding (basic)   101,366   90,897   80,498  


Average number of common shares outstanding (diluted)   101,544   90,959   80,636  


Earnings per average common share (basic and diluted):  
   Income from continuing operations   $1.57   $0.97   $1.59  
   Income from discontinued operations   0.30   0.21   0.71  
   Cumulative effect of changes in accounting principles   (0.06 ) -   (0.16 )

   Net income   $1.81   $1.18   $2.14  


Dividends declared per common share   $1.00   $2.00   $2.00  


The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

53

ALLIANT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS

  December 31,
ASSETS 2003 2002

  (in thousands)
Property, plant and equipment:
  Domestic utility:
    Electric plant in service   $5,707,478   $5,295,381  
    Gas plant in service   646,439   613,122  
    Other plant in service   538,340   530,456  
    Accumulated depreciation   (2,985,285 ) (2,791,891 )

      Net plant   3,906,972   3,647,068  
    Construction work in progress:  
      Emery generating facility   304,332   10,651  
      Other   152,684   252,445  
    Other, less accumulated depreciation (accum. depr.) of $3,242 and $2,952   68,611   68,340  

          Total domestic utility   4,432,599   3,978,504  

  Non-regulated and other:  
    Non-regulated Generation, less accum. depr. of $3,380 and $73   204,480   156,699  
    International, less accum. depr. of $33,708 and $20,737   198,875   171,179  
    Integrated Services, less accum. depr. of $32,903 and $31,021   60,617   73,983  
    Other Investments, less accum. depr. of $26,179 and $24,108   53,819   54,303  
    Corporate Services and other, less accum. depr. of $25,283 and $9,427   68,415   75,282  

          Total non-regulated and other   586,206   531,446  

    5,018,805   4,509,950  


Current assets:  
  Cash and temporary cash investments   242,281   62,859  
  Restricted cash   11,418   9,610  
  Accounts receivable:  
    Customer, less allowance for doubtful accounts of $5,522 and $4,364   80,664   69,413  
    Unbilled utility revenues   83,385   50,624  
    Other, less allowance for doubtful accounts of $786 and $845   94,733   60,107  
  Income tax refunds receivable   20,878   97,469  
  Production fuel, at average cost   54,148   63,126  
  Materials and supplies, at average cost   60,518   58,603  
  Gas stored underground, at average cost   90,964   62,797  
  Regulatory assets   61,777   46,076  
  Assets of discontinued operations (Note 16)   -   969,291  
  Other   82,137   105,487  

    882,903   1,655,462  


Investments:  
  Investments in unconsolidated foreign entities   481,525   373,816  
  Nuclear decommissioning trust funds   381,524   344,892  
  Investment in ATC and other   260,511   217,992  

    1,123,560   936,700  


Other assets:  
  Regulatory assets   339,261   302,365  
  Deferred charges and other   410,917   409,607  

    750,178   711,972  


Total assets   $7,775,446   $7,814,084  


The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

54

ALLIANT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)

  December 31,
CAPITALIZATION AND LIABILITIES 2003 2002

  (in thousands, except share amounts)
Capitalization (See Consolidated Statements of Capitalization):
  Common stock - $0.01 par value - authorized 200,000,000 shares;
    outstanding 110,962,910 and 92,304,220 shares   $1,110   $923  
  Additional paid-in capital   1,643,572   1,293,919  
  Retained earnings   840,417   758,187  
  Accumulated other comprehensive loss   (106,415 ) (209,943 )
  Shares in deferred compensation trust - 264,673 and 239,467 shares  
    at an average cost of $27.84 and $28.80 per share   (7,370 ) (6,896 )

       Total common equity   2,371,314   1,836,190  

  Cumulative preferred stock of subsidiaries, net   243,803   205,063  
  Long-term debt, net (excluding current portion)   2,123,298   2,609,803  

    4,738,415   4,651,056  


Current liabilities:  
  Current maturities and sinking funds   69,281   46,591  
  Variable rate demand bonds   55,100   55,100  
  Commercial paper   107,500   195,500  
  Other short-term borrowings   21,495   113,721  
  Accounts payable   309,816   282,855  
  Accrued interest   43,962   34,819  
  Accrued taxes   70,835   105,521  
  Liabilities of discontinued operations (Note 16)   -   138,251  
  Other   176,120   149,952  

    854,109   1,122,310  


Other long-term liabilities and deferred credits:  
  Accumulated deferred income taxes   702,648   661,798  
  Accumulated deferred investment tax credits   49,085   54,375  
  Regulatory liabilities   632,230   94,300  
  Asset retirement obligations (Note 18)   345,680   -  
  Pension and other benefit obligations   188,324   181,010  
  Cost of removal obligations   -   781,516  
  Other   212,413   224,294  

    2,130,380   1,997,293  


Minority interest   52,542   43,425  


Commitments and contingencies (Note 11)  

Total capitalization and liabilities   $7,775,446   $7,814,084  


The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

55

ALLIANT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

  Year Ended December 31,
  2003 2002 2001

  (in thousands)
Cash flows from operating activities:
  Net income   $183,543   $106,881   $172,362  
  Adjustments to reconcile net income to net cash flows from operating activities:
    Income from discontinued operations, net of tax   (29,825 ) (19,425 ) (57,071 )
    Depreciation and amortization   305,074   282,098   294,339  
    Other amortizations   73,716   51,567   52,724  
    Deferred tax expense (benefit) and investment tax credits   59,133   13,192   (19,937 )
    Equity (income) loss from unconsolidated investments, net   (19,121 ) 12,825   (18,799 )
    Distributions from equity method investments   24,252   21,671   16,961  
    Non-cash valuation charges   11,035   59,463   33,706  
    Cumulative effect of changes in accounting principles, net of tax   5,983   -   12,868  
    Other   (12,821 ) (8,473 ) (4,693 )
  Other changes in assets and liabilities:  
    Accounts receivable   (52,638 ) (16,576 ) 64,567  
    Sale of utility accounts receivable   (26,000 ) 24,000   24,000  
    Gas stored underground   (28,167 ) (5,683 ) (15,755 )
    Accounts payable   (16,415 ) 37,997   (55,872 )
    Accrued taxes   (34,686 ) 18,764   11,392  
    Other   (23,073 ) (22,963 ) (77,446 )

       Net cash flows from operating activities   419,990   555,338   433,346  


Cash flows from financing activities:  
    Common stock dividends   (101,313 ) (180,987 ) (158,231 )
    Proceeds from issuance of common stock   345,606   56,066   288,553  
    Proceeds from issuance of preferred stock of subsidiary   38,738   144,602   -  
    Redemption of preferred stock of subsidiary   -   (56,389 ) -  
    Net change in Resources' credit facility   -   (383,610 ) 63,110  
    Proceeds from issuance of other long-term debt   338,623   300,023   513,530  
    Reductions in other long-term debt   (367,783 ) (20,818 ) (145,359 )
    Net change in commercial paper and other short-term borrowings   (180,226 ) 200,145   (320,449 )
    Net change in loans with discontinued operations   (10,574 ) 37,467   (49,006 )
    Other   (28,991 ) (24,262 ) (31,073 )

       Net cash flows from financing activities   34,080   72,237   161,075  


Cash flows used for investing activities:  
    Construction and acquisition expenditures:  
       Domestic utility business   (580,808 ) (405,761 ) (340,789 )
       Non-regulated businesses   (248,517 ) (218,242 ) (332,183 )
       Corporate Services and other   (9,568 ) (32,749 ) (40,019 )
    Nuclear decommissioning trust funds   (14,091 ) (22,923 ) (22,100 )
    Proceeds from asset sales   523,045   27,643   107,934  
    Other   55,291   19,430   (27,404 )

       Net cash flows used for investing activities   (274,648 ) (632,602 ) (654,561 )


Net increase (decrease) in cash and temporary cash investments   179,422   (5,027 ) (60,140 )


Cash and temporary cash investments at beginning of period   62,859   67,886   128,026  


Cash and temporary cash investments at end of period   $242,281   $62,859   $67,886  


Supplemental cash flows information:  
    Cash paid during the period for:  
       Interest   $198,582   $184,135   $180,351  

       Income taxes, net of refunds   $17,488   $30,649   $70,895  

    Noncash investing and financing activities:  
       Debt repaid directly by buyer in the sale of Australian business   $127,595   $-   $-  

       Debt assumed by buyer of affordable housing business   $87,986   $-   $-  

       Capital lease obligations incurred and other   $14,801   $19,101   $19,967  


The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

56

ALLIANT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CAPITALIZATION

  December 31,
  2003 2002

  (in thousands)
 
Common equity (See Consolidated Balance Sheets)   $2,371,314   $1,836,190  


Cumulative preferred stock of subsidiaries, net (Note 7(b))   243,803   205,063  


Long-term debt:  
    Domestic utility:  
        First Mortgage Bonds:  
          7.75%, due 2004   62,000   62,000  
          1.73% variable rate at Dec. 31, 2003 to 7.6% fixed rate, due 2005   88,000   88,000  
          8% at Dec. 31, 2003, due 2007, partially retired in 2003   25,000   52,450  
          1.37% variable rate at Dec. 31, 2003, due 2014   8,500   8,500  
          1.29% to 1.73% variable rate at Dec. 31, 2003, due 2015   30,600   30,600  
          7-5/8%, retired in 2003   -   94,000  
          8.6%, retired in 2003   -   70,000  
          8-5/8%, retired in 2003   -   20,000  

    214,100   425,550  
        Collateral Trust Bonds:  
          7.25%, due 2006   60,000   60,000  
          6-7/8%, due 2007   55,000   55,000  
          6%, due 2008   50,000   50,000  
          5.5% to 7%, due 2023   69,400   69,400  

    234,400   234,400  
        Pollution Control Revenue Bonds:  
          2.5% to 4.2% through 2004, due 2005 to 2023   25,900   25,900  
          6.25% to 6.35%, due 2009 to 2012, partially retired in 2003   12,250   14,930  
          2.4% variable rate at Dec. 31, 2003, due 2010, partially retired in 2003   7,700   10,100  

    45,850   50,930  
        Other long-term debt:  
          Debentures, 7%, due 2007   105,000   105,000  
          Debentures, 5.7%, due 2008   60,000   60,000  
          Senior debentures, 6-5/8%, due 2009   135,000   135,000  
          Debentures, 7-5/8%, due 2010   100,000   100,000  
          Senior debentures, 6-3/4%, due 2011   200,000   200,000  
          Senior debentures, 5.875%, due 2018   100,000   -  
          Senior debentures, 6.45%, due 2033   100,000   -  
          Subordinated deferrable interest debentures, 7-7/8%, retired in 2003   -   50,000  

            Total domestic utility   1,294,350   1,360,880  
 
    Non-regulated and other:  
          Senior notes, 4.55%, due 2008   75,000   -  
          Senior notes, 7.375%, due 2009, partially retired in 2003   210,955   250,000  
          Alliant Energy Neenah, LLC credit facility, 2.69%
            at Dec. 31, 2003, due 2010   55,139   -  
          Senior notes, 7%, due 2011, partially retired in 2003   282,500   300,000  
          Senior notes, 9.75%, due 2013, partially retired in 2003   285,000   300,000  
          Exchangeable senior notes, 2.5%, due 2030   402,500   402,500  
          Senior notes, 8.59%, retired in 2003   -   24,000  
          WPC credit facility, 3.63% at Dec. 31, 2002 (a)   -   185,000  
          Multifamily housing revenue bonds, 1.75% variable rate to 7.55%
            at Dec. 31, 2002 (b)   -   38,830  
          Other, 1% to 6.70%, due 2004 to 2010 (c)   14,943   223,841  

            Total non-regulated and other   1,326,037   1,724,171  

    2,620,387   3,085,051  

    Less:  
      Current maturities   (69,281 ) (46,591 )
      Variable rate demand bonds   (55,100 ) (55,100 )
      Unamortized debt discount, net   (372,708 ) (373,557 )

        Total long-term debt, net (excluding current portion)   2,123,298   2,609,803  


Total capitalization   $4,738,415   $4,651,056  


(a)   Not included on Alliant Energy's Consolidated Balance Sheet at Dec. 31, 2003 as a result of the WPC IPO.
(b)   Balance at Dec. 31, 2002 was assumed by buyer of affordable housing business in 2003.
(c)   Balance at Dec. 31, 2002 includes debt repaid directly by buyer in the sale of Australian business and debt assumed by buyer of affordable housing business.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

57

ALLIANT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY

        Accumulated Shares in  
    Additional   Other Deferred Total
  Common Paid-In Retained Comprehensive Compensation Common
  Stock Capital Earnings Income (Loss) Trust Equity

  (in thousands)
2001:  
Beginning balance (a)   $790   $947,504   $818,162   $271,867   ($851 ) $2,037,472  
    Net income           172,362           172,362  
      Unrealized holding losses on securities, net of tax of ($240,579)               (343,285 )     (343,285 )
      Less: reclassification adjustment for gains  
       included in net income, net of tax of $--               259       259  
 
 
     Net unrealized losses on securities               (343,544 )     (343,544 )
 
 
     Foreign currency translation adjustments               (66,830 )     (66,830 )
 
 
     Minimum pension liability adjustments, net of tax of ($11,022)               (16,378 )     (16,378 )
 
 
      Unrealized holding losses on derivatives, net of tax of ($1,569)               (1,003 )     (1,003 )
      Less: reclassification adjustment for losses included  
       in net income, net of tax of ($2,078)               (3,454 )     (3,454 )
 
 
     Net unrealized gains on qualifying derivatives               2,451       2,451  
 
 
    Total comprehensive loss                       (251,939 )
   Common stock dividends           (158,231 )         (158,231 )
   Common stock issued   107   292,289           (1,357 ) 291,039  

Ending balance   897   1,239,793   832,293   (152,434 ) (2,208 ) 1,918,341  

 

2002:

 
    Net income           106,881           106,881  
      Unrealized holding losses on securities, net of tax of ($8,544)               (11,069 )     (11,069 )
      Less: reclassification adjustment for losses  
       included in net income, net of tax of ($14,393)               (23,146 )     (23,146 )
 
 
     Net unrealized gains on securities               12,077       12,077  
 
 
     Foreign currency translation adjustments, net of tax               (37,785 )     (37,785 )
 
 
     Minimum pension liability adjustments, net of tax of ($18,874)               (27,226 )     (27,226 )
 
 
      Unrealized holding losses on derivatives, net of tax of ($2,765)               (2,671 )     (2,671 )
      Less: reclassification adjustment for gains  
       included in net income, net of tax of $1,658               1,904       1,904  
 
 
     Net unrealized losses on qualifying derivatives               (4,575 )     (4,575 )
 
 
    Total comprehensive income                       49,372  
   Common stock dividends           (180,987 )         (180,987 )
   Common stock issued   26   58,338           (4,688 ) 53,676  
   Redemption of preferred stock of subsidiary       (4,212 )             (4,212 )

Ending balance   923   1,293,919   758,187   (209,943 ) (6,896 ) 1,836,190  

 

2003:

 
    Net income           183,543           183,543  
      Unrealized holding gains on securities, net of tax of $6,467               11,203       11,203  
      Less: reclassification adjustment for gains  
       included in net income, net of tax of $1,420               2,408       2,408  
 
 
     Net unrealized gains on securities               8,795       8,795  
 
 
     Foreign currency translation adjustments, net of tax               83,646       83,646  
 
 
     Minimum pension liability adjustments, net of tax of $4,279               6,291       6,291  
 
 
      Unrealized holding losses on derivatives, net of tax of ($886)               (1,655 )     (1,655 )
      Less: reclassification adjustment for losses  
       included in net income, net of tax of ($3,802)               (6,451 )     (6,451 )
 
 
     Net unrealized gains on qualifying derivatives               4,796       4,796  
 
 
    Total comprehensive income                       287,071  
   Common stock dividends           (101,313 )         (101,313 )
   Common stock issued   187   349,653           (474 ) 349,366  

Ending balance   $1,110   $1,643,572   $840,417   ($106,415 ) ($7,370 ) $2,371,314  

(a)   Accumulated other comprehensive income (loss) at January 1, 2001 consisted of $335,523 of net unrealized gains on securities, ($59,978) of foreign currency translation adjustments and ($3,678) of net unrealized losses on qualifying derivatives.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

58

ALLIANT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)     General — The consolidated financial statements include the accounts of Alliant Energy and its consolidated subsidiaries. Alliant Energy is an investor-owned public utility holding company, whose primary subsidiaries are IP&L, WP&L, Resources and Corporate Services. IP&L and WP&L are utility subsidiaries that are engaged principally in the generation, transmission (IP&L only), distribution and sale of electric energy; and the purchase, distribution, transportation and sale of natural gas in Iowa, Wisconsin, Minnesota and Illinois. Resources (through its numerous direct and indirect subsidiaries) is comprised of four primary business platforms: Non-regulated Generation, International, Integrated Services and Other Investments. Non-regulated Generation owns a 309-MW, non-regulated, tolled, natural gas-fired power plant in Neenah, Wisconsin and intends to support the development, financing and construction of generation to meet the needs of Alliant Energy’s domestic utility business. International holds interests in various businesses to develop energy generation, delivery and infrastructure in growing international markets, including Brazil, China and New Zealand. Integrated Services provides a wide range of energy and environmental services for commercial, industrial, institutional, educational and governmental customers. Other Investments includes ownership of transportation companies, an equity interest in a synthetic fuel processing facility, Alliant Energy’s loan receivable from a Mexican development company and related utility operations and various other investments. Corporate Services is the subsidiary formed to provide administrative services to Alliant Energy and its subsidiaries as required under PUHCA.

At Dec. 31, 2002, the assets and liabilities of Alliant Energy’s oil and gas (WPC), Australian (including Southern Hydro), affordable housing and SmartEnergy businesses were classified as held for sale. In 2003, Alliant Energy completed the sale of the Australian, affordable housing and SmartEnergy businesses, as well as the sale of over 94% of the WPC stock. The operating results for these non-regulated businesses for all periods presented have been separately classified and reported as discontinued operations in Alliant Energy’s Consolidated Financial Statements and Notes to Consolidated Financial Statements. Refer to Note 16 for additional information.

The consolidated financial statements reflect investments in controlled subsidiaries on a consolidated basis. FIN 46, issued by the FASB in January 2003, requires consolidation where there is a controlling financial interest in a variable interest entity or where the variable interest entity does not have sufficient equity risk to finance its activities without additional subordinated financial support from other parties. All significant intercompany balances and transactions, other than certain energy-related transactions affecting the utility subsidiaries, have been eliminated from the consolidated financial statements. Such energy-related transactions not eliminated are made at prices that approximate market value and the associated costs are recoverable from customers through the rate making process. The consolidated financial statements are prepared in conformity with GAAP, 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. The most significant reclassifications relate to the reporting of accumulated costs of removal which are non-legal retirement obligations and accumulated decommissioning costs accrued prior to January 1, 2003. Previously, these costs were included as components of “Accumulated Depreciation” but in accordance with recent SEC guidance are now shown in “Cost of removal obligations” on the Consolidated Balance Sheet at Dec. 31, 2002.

Unconsolidated investments for which Alliant Energy does not control, but does have the ability to exercise significant influence over operating and financial policies (generally, 20% to 50% voting interest), are accounted for under the equity method of accounting. These investments are stated at acquisition cost, increased or decreased for Alliant Energy’s equity in net income or loss, which is included in “Equity (income) loss from unconsolidated investments” in the Consolidated Statements of Income and decreased for any dividends received. These investments are also increased or decreased for Alliant Energy’s proportionate share of the investee’s other comprehensive income (loss), 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.

(b)     Regulation — Alliant Energy is a registered public utility holding company subject to regulation by the SEC under PUHCA. The utility subsidiaries are subject to regulation under PUHCA, FERC and their respective state regulatory commissions.

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(c)     Regulatory Assets and Liabilities — Alliant Energy 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. As of Dec. 31, 2003 and 2002, IP&L had $24 million and $7 million and WP&L had $7 million and $6 million of regulatory assets that were not earning returns, respectively. At Dec. 31, 2003 and 2002, regulatory assets and liabilities were comprised of the following items (in millions):

  Regulatory Assets Regulatory Liabilities

  2003 2002 2003 2002

Tax-related (Note 1(d))   $187 .2 $177 .6 $92 .0 $83 .8
Environmental-related (Note 11(e))  58 .6 64 .9 5 .2 5 .1
Energy efficiency program costs  36 .8 46 .7 --   --  
Asset retirement obligations (Note 18)  28 .8 --   --   --  
Cost of removal obligations  --   --   535 .8 --  
Other  89 .6 59 .2 16 .9 22 .3

   $401 .0 $348 .4 $649 .9 $111 .2

Alliant Energy believes it is probable that any differences between expenses for legal AROs calculated under SFAS 143 and expenses recovered currently in rates will be recoverable in future rates, and is deferring the difference of $28.8 million ($20.5 million at IP&L and $8.3 million at WP&L) as a regulatory asset. Alliant Energy also collects in rates future removal costs for many assets that do not have an associated legal ARO. Alliant Energy records a liability for the estimated amounts it has collected in rates for these future removal costs less amounts spent on removal activities. At Dec. 31, 2003 and 2002, non-legal removal obligations of $535.8 million ($325.9 million at IP&L and $209.9 million at WP&L) and $497.1 million ($298.0 million at IP&L and $199.1 million at WP&L) were recorded in “Regulatory liabilities” and “Cost of removal obligations,” respectively, on the Consolidated Balance Sheets.

If a portion of the utility subsidiaries’ 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 GAAP for continued accounting as regulatory assets during such recovery period. In addition, each utility subsidiary would be required to determine any impairment of other assets and write-down such assets to their fair value.

(d)     Income Taxes — Alliant Energy is subject to the provisions of SFAS 109, “Accounting for Income Taxes,” and follows the liability method of accounting for deferred income taxes, which requires the establishment of deferred tax assets and liabilities, as appropriate, for 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.

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. Other tax credits reduce income tax expense in the year claimed and are generally related to nonconventional fuel and research and development.

Consistent with Iowa rate making practices for IP&L, deferred tax expense is not recorded for certain temporary differences (primarily related to utility property, plant and equipment) because rates are reduced for the current tax benefits. As the deferred taxes become payable (over periods exceeding 30 years for some generating plant differences) they are recovered through rates. Accordingly, IP&L has recorded deferred tax liabilities and regulatory assets for certain temporary differences, as identified in Note 1(c). In Wisconsin, the PSCW has allowed rate recovery of deferred taxes on all temporary differences since August 1991. WP&L established a regulatory asset associated with those temporary differences occurring prior to August 1991 that will be recovered in future rates through 2007.

(e)     Common Shares Outstanding — A reconciliation of the weighted average common shares outstanding used in the basic and diluted earnings per share calculation was as follows:

Weighted average common shares outstanding: 2003 2002 2001

  Basic earnings per share calculation 101,365,877  90,896,885  80,497,823 
  Effect of dilutive securities 178,510  62,177  138,006 

  Diluted earnings per share calculation 101,544,387  90,959,062  80,635,829 

60

In 2003, 2002 and 2001, 3,799,938, 3,338,978, and 1,501,854 options, respectively, to purchase shares of common stock, with average exercise prices of $28.68, $29.67, and $31.08, respectively, were excluded from the calculation of diluted earnings per share as the exercise prices were greater than the average market price.

(f)     Temporary Cash Investments and Restricted Cash — 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. Alliant Energy’s short-term restricted cash at Dec. 31, 2003 and 2002 primarily related to borrowing requirements for various power plants in China. At Dec. 31, 2003, Alliant Energy also had $6.7 million of long-term restricted cash related to borrowing requirements for the acquisition and maintenance of Resources’ 309-MW, non-regulated, tolled, natural gas-fired power plant in Neenah, Wisconsin, which was acquired in 2003.

(g)     Property, Plant and Equipment Domestic utility plant (other than acquisition adjustments) is recorded at original cost, which includes overhead, administrative costs and AFUDC. At Dec. 31, 2003 and 2002, IP&L had $20.8 million and $22.0 million, respectively, of acquisition adjustments, net of accumulated amortization, included in utility plant ($4.6 million and $4.9 million, respectively, of such balances are currently being recovered in IP&L’s rates). The aggregate AFUDC recovery rates, computed in accordance with the prescribed regulatory formula, were as follows:

  2003 2002 2001