SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
X THE SECURITIES EXCHANGE ACT OF 1934
-----
For the quarterly period ended September 30, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
----- THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-9894
WPL HOLDINGS, INC
(Exact name of registrant as specified in its charter)
Wisconsin 39-1380265
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
222 West Washington Avenue, Madison, Wisconsin 53703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 608-252-3311
Indicate by check mark whether the registrant (1) has 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) has been
subject to such filing requirements for the past 90 days.
YES X NO
------ ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock Outstanding at September 30, 1994: 30,769,842 shares
CONTENTS
PAGE
PART I. Financial Information:
Consolidated Financial Statements of WPL Holdings, Inc.
Consolidated Balance Sheets as of September 30, 1994 and 1993
and December 31, 1993 . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 1994 and 1993 . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . 7
PART II. Other Information . . . . . . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
WPL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, September 30, December 31,
1994 1993 1993
(Thousands of dollars)
ASSETS
UTILITY PLANT:
Plant in service--
Electric..................................... $ 1,583,959 $ 1,491,602 $ 1,518,701
Gas.......................................... 200,241 190,404 194,283
Water........................................ 21,397 20,069 20,437
Common....................................... 112,541 102,022 106,803
--------- --------- ---------
1,918,138 1,804,097 1,840,224
Dedicated decommissioning funds................ 51,903 42,037 49,803
--------- --------- ---------
1,970,041 1,846,134 1,890,027
Less: Accumulated provision for depreciation... 808,046 753,852 763,027
--------- --------- ---------
1,161,995 1,092,282 1,127,000
Construction work in progress.................. 40,216 67,712 75,732
Nuclear fuel, net.............................. 13,912 17,674 18,000
--------- --------- ---------
Total utility plant.......................... 1,216,123 1,177,668 1,220,732
--------- --------- ---------
OTHER PROPERTY AND EQUIPMENT, NET:
Other property and equipment.................. 144,490 147,827 135,204
Less: Accumulated provision for depreciation. 21,044 16,333 16,817
--------- --------- ---------
123,446 131,494 118,387
INVESTMENTS, at cost............................. 12,169 15,565 15,525
--------- --------- ---------
CURRENT ASSETS:
Cash and equivalents........................... 7,395 6,396 19,468
Net accounts receivable and unbilled revenue,
less allowance for doubtful accounts of
$1,669 $1,739 and $732, respectively......... 73,866 46,520 67,623
Fossil fuel, at average cost................... 14,819 15,340 16,042
Materials and supplies, at average cost........ 22,438 22,776 21,679
Gas in storage, at average cost................ 10,409 15,837 8,754
Prepayments and other.......................... 27,453 20,805 23,251
--------- --------- ---------
Total current assets......................... 156,380 127,674 156,817
--------- --------- ---------
Restricted cash.................................. 3,233 4,845 6,712
--------- --------- ---------
Environmental remediation costs.................. 82,230 82,354 82,380
--------- --------- ---------
Deferred charges and other....................... 158,423 148,005 161,346
--------- --------- ---------
TOTAL ASSETS..................................... $ 1,752,004 $ 1,687,605 $ 1,761,899
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, September 30, December 31,
1994 1993 1993
(Thousands of dollars)
CAPITALIZATION AND LIABILITIES
COMMON SHAREOWNERS' INVESTMENT:
Common stock, $.01 par value, authorized--
100,000,000 shares; issued and
outstanding--30,769,842, 30,320,586 and
30,438,654 shares, respectively............................. $ 308 $ 303 $ 305
Premium on capital stock & capital surplus.................... 303,402 293,038 297,916
Reinvested earnings........................................... 294,669 277,754 284,745
---------- --------- ---------
598,379 571,095 582,966
PREFERRED STOCK NOT MANDATORILY REDEEMABLE:
Cumulative, without par value, authorized 3,750,000 shares,
maximum aggregate stated value $150,000,000
Cumulative, without par value, $100 stated value;
449,765, 599,630, and 449,765 shares,
respectively, outstanding.............................. 44,977 59,963 44,977
Cumulative, without par value, $25 stated value, 599,460
0, and 599,460 shares outstanding.......................... 14,986 - 14,986
LONG TERM DEBT, NET............................................. 425,304 423,711 425,105
---------- --------- ---------
Total capitalization........................................ 1,083,646 1,054,769 1,068,034
CURRENT LIABILITIES:
Current maturities of long-term debt.......................... 1,516 935 782
Variable rate demand bonds.................................... 56,975 57,075 56,975
Short-term debt............................................... 80,091 74,395 91,902
Accounts payable.............................................. 55,048 59,229 78,195
Accrued payroll and vacation.................................. 16,383 17,088 17,287
Accrued taxes................................................. 7,135 (1,157) (570)
Accrued interest.............................................. 6,771 6,520 9,282
Other......................................................... 31,841 26,817 21,168
---------- --------- ---------
Total current liabilities................................... 255,760 240,902 275,021
---------- --------- ---------
OTHER CREDITS:
Accumulated deferred income taxes............................. 213,231 225,766 212,844
Accumulated deferred investment tax credits................... 41,240 43,176 42,684
Accrued environmental remediation costs....................... 79,311 81,303 80,973
Other......................................................... 78,817 41,689 82,343
---------- --------- ---------
Total other credits......................................... 412,599 391,934 418,844
---------- --------- ---------
TOTAL CAPITALIZATION AND LIABILITIES............................ $1,752,005 $1,687,605 $1,761,899
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
(In Thousands Except
for Per Share Data)
OPERATING REVENUES:
Electric....................................... $ 137,873 $ 131,424 $ 400,341 $ 373,851
Gas............................................ 17,491 12,004 102,756 90,784
Fees, rents and other.......................... 38,342 30,441 106,072 92,114
------- -------- -------- --------
193,706 173,869 609,169 556,749
------- -------- -------- --------
OPERATING EXPENSES:
Electric production fuels...................... 29,385 31,642 94,317 91,430
Purchased power................................ 12,793 8,345 30,720 22,092
Purchased gas.................................. 9,998 7,634 64,604 60,648
Other operation................................ 69,819 60,934 199,228 187,790
Maintenance.................................... 9,406 10,936 31,165 33,554
Depreciation and amortization.................. 20,627 16,597 61,661 51,094
Taxes other than income........................ 8,163 8,423 25,850 24,423
------- -------- -------- --------
160,191 144,511 507,545 471,031
------- -------- -------- --------
NET OPERATING INCOME............................. 33,515 29,358 101,624 85,718
------- -------- -------- --------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during
construction ................................ 661 1,103 1,791 1,749
Other, net..................................... 1,323 560 6,440 (1,068)
------- -------- -------- --------
1,984 1,663 8,231 681
INCOME BEFORE INTEREST EXPENSE................... 35,499 31,021 109,855 86,399
INTEREST EXPENSE:
Interest on debt............................... 10,344 9,527 29,038 28,491
Allowance for borrowed funds used during
construction (credit)........................ (285) (267) (719) (676)
------- -------- -------- --------
10,059 9,260 28,319 27,815
------- -------- -------- --------
INCOME BEFORE INCOME TAXES....................... 25,440 21,761 81,536 58,584
INCOME TAXES..................................... 9,303 7,550 27,072 15,512
PREFERRED STOCK DIVIDENDS OF SUBSIDIARY.......... 828 953 2,483 2,858
------- -------- -------- --------
NET INCOME....................................... $ 15,309 $ 13,258 $ 51,981 $ 40,214
======= ======== ======== ========
EARNINGS PER SHARE OF COMMON STOCK............... $ 0.50 $ 0.44 $ 1.70 $ 1.37
======= ======== ======== ========
CASH DIVIDENDS PER SHARE OF COMMON STOCK......... $ 0.480 $ 0.475 $ 1.44 $ 1.430
======= ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING....... 30,758 30,294 30,637 29,446
======= ======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
September 30,
1994 1993
(In Thousands)
Cash flows from (used for) operating activities:
Net Income................................................ $ 51,981 $ 40,014
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization........................... 57,619 50,952
Amortization of nuclear fuel............................ 4,738 4,991
Allowance for equity funds used during construction..... (1,791) (1,749)
Investment tax credit restored.......................... (1,445) (1,475)
Deferred income taxes................................... (8,841) (3,831)
Changes in assets and liabilities:
Net accounts receivable and unbilled revenues........... (909) 8,735
Coal.................................................... 1,223 3,645
Materials and supplies.................................. 7,994 (5,694)
Gas in storage.......................................... (1,655) (11,049)
Prepayments and other................................... (4,202) 5,353
Accounts payable and accruals........................... (23,146) (17,441)
Accrued taxes........................................... 7,705 893
Other................................................... 3,330 9,730
------- ------
Net cash from (used for) operating activities........ 92,601 83,074
------- ------
Cash flows from (used for) financing activities:
Issuance of long-term debt................................ - 5,742
Long-term debt maturities, redemptions and sinking
fund requirements....................................... 886 (86)
Net change in short term debt............................. (11,811) 2,997
Common stock cash dividends, less dividends reinvested.... (41,938) (29,275)
Issuance of common stock.................................. 5,491 56,803
Other..................................................... (120) 1,056
------- ------
Net cash from (used for) financing activities.......... (47,492) 37,237
------- ------
Cash flows from (used for) investing activities:
Additions to utility plant, excluding AFUDC............... (54,699) (96,184)
Allowance for borrowed funds used during construction..... (719) (675)
Dedicated decommissioning funding......................... (2,100) (1,660)
Additions to other property and equipment................. (6,376) (27,246)
Restricted bond proceeds.................................. 6,712 7,284
Other..................................................... - 228
------ -------
Net cash (used for) investing activities................ 336 (118,253)
------ -------
Net increase (decrease) in cash and equivalents............. (12,073) 2,058
Cash and equivalents at beginning of period................. 19,468 4,338
------ -------
Cash and equivalents at end of period....................... $ 7,395 $ 6,396
====== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on debt, less amount capitalized............... $ 29,417 $ 29,849
Preferred stock dividends of subsidiary................. $ 2,483 $ 2,859
Income taxes............................................ $ 21,550 $ 10,321
Noncash financing activities:
Dividends reinvested..................................... $ 9,437 $ 11,947
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein have
been prepared by WPL Holdings, Inc. (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
The consolidated financial statements include the Company and its wholly
owned consolidated subsidiaries including Wisconsin Power and Light
Company (WPL). These financial statements should be read in conjunction
with the financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K.
In the opinion of the Company, the consolidated interim financial
statements reflect all adjustments necessary to fairly state the results
of operations for the interim periods presented. However, because of the
seasonal nature of the Company's operations, the results shown for
portions of a year are not indicative of annual results.
2. In November 1989, the Public Service Commission of Wisconsin
("PSCW") concluded that WPL did not properly administer a coal contract,
resulting in an assessment to compensate ratepayers for excess fuel costs
having been incurred. As a result, the Company recorded a reserve in 1989
which had an after-tax affect of reducing 1989 net income by $4.9 million.
This reserve included a portion payable to WPL's ratepayers and portions
payable to Wisconsin Public Service Corporation and Madison Gas and
Electric Company for their joint ownership in the generating station
served by the contract. In 1990, WPL refunded $2.0 million of the
reserve, after tax, to its own ratepayers.
The PSCW decision was found to represent unlawful retroactive
ratemaking by both the Dane County Circuit Court and the Wisconsin Court
of Appeals. The case was then appealed to the Wisconsin Supreme Court.
In February 1994, the Wisconsin Supreme Court affirmed the decisions of
the Dane County Circuit Court and Wisconsin Court of Appeals. In
management's judgement, all avenues for appeal regarding this case have
been exercised.
As a result, in March 1994, WPL reversed the unrefunded portion
of the assessment of amounts due to Wisconsin Public Service Corporation
and Madison Gas and Electric Company. This action increased its net income
by $2.9 million in the first quarter of 1994. For the portion of the
assessment which was refunded to WPL's ratepayers, a proposed plan for
recollection was submitted to the PSCW on February 15, 1994 and was
approved on May 11, 1994. With this approval, WPL recorded an additional
after-tax increase to net income to account for the remaining $2.0 million
and began recollection in June, 1994. By September 30, 1994, the WPL
amount of the assessment remaining uncollected from WPL's ratepayers was
not material.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1994 VS. SEPTEMBER 30, 1993:
OVERVIEW
The Company reported consolidated third-quarter net income of $15.3
million compared to $13.3 million for the same period in 1993. The
increase in earnings primarily reflects an increase in earnings from the
Company's utility subsidiary, WPL. The principal factors leading to
increased earnings include a 3.6% retail electric rate increase effective
October 1, 1993 and economy driven strong electric industrial and
commercial customer growth which increased electric margins by $2.6
million, after tax. Gas margins also contributed $1.9 million (after tax)
to net income. An additional $1.0 million was added to income as a result
of efficiencies realized in the maintenance of Kewaunee Nuclear Power
Plant ("Kewaunee").
Offsetting the above was an increase in depreciation expense
attributable to increased investment in property, plant and equipment and
increased decommissioning costs which reduced net income by $2.2 million.
Electric Operations
Revenues and
kWhs Sold, Generated Costs Per kWh
Revenues and Costs % and Purchased (In % Sold Generated Customers at End
(In Thousands) Change Thousands) Change and Purchased of Quarter
1994 1993 1994 1993 1994 1993 1994 1993
Residential and
Farm $48,548 $46,607 4% 704,441 714,912 -1% .069 .065 323,499 317,233
Industrial 35,764 34,735 3% 949,739 919,091 3% .038 .038 765 714
Commercial 27,086 25,863 5% 458,223 447,910 2% .059 .058 43,570 42,657
Wholesale and
Class A 24,656 22,335 10% 659,203 663,420 -1% .037 .034 81 77
Other 1,819 1,884 -3% 12,242 11,394 7% .149 .165 1,468 1,442
------- ----- --- ------ ------ -- ---- ---- ----- -----
Total $137,873 $131,424 5% 2,783,848 2,756,727 1% .050 .048 369,383 362,123
======= ======= == ========= ========= == ==== ==== ======= =======
Elec production
fuels $ 29,385 $ 31,642 -7% 2,282,831 2,439,839 -6% .013 .013
Purchased Power $ 12,793 $ 8,345 53% 636,345 398,990 59% .020 .021
-------- ----- ---
Margin $ 95,695 $ 91,437 5%
======= ======
WPL's electric margin increased in the third quarter of 1994 compared
to the third quarter of 1993. The primary factor was a 3.6% retail rate
increase effective October 1, 1993. Strong economic conditions in the
industrial and commercial customer classes contributed higher sales and
customer growth. Finally, a very warm mid-September offset relatively
mild summer conditions in July and August.
Gas Operations
Revenues and
Therms Sold and Costs Per
Revenues and Costs % Purchased (In % Therms Sold Customers at End of
(In Thousands) Change Thousands) Change and Purchased Quarter
1994 1993 1994 1993 1994 1993 1994 1993
Residential $ 6,644 $ 4,620 44% 7,127 7,802 -9% .932 .592 123,075 118,586
Firm 4,916 3,042 62% 7,024 7,904 -11% .700 .385 15,313 14,775
Interruptible 1,873 1,519 23% 5,292 4,528 17% .354 .335 262 240
Transport. 2,947 2,521 17% 17,767 14,815 20% .166 .170 109 97
Other 1,112 302 268% 2,145 1,562 37% .518 .193 90 73
----- --- ---- ----- ----- --- ---- ---- -- --
Total $17,492 $12,004 46% 39,355 36,611 7% .444 .328 138,849 133,771
====== ====== === ====== ====== == ==== ==== ======= =======
Purchased
gas $ 9,781 $ 7,599 29% 39,187 36,314 8% .250 .209
----- -----
Margin $ 7,711 $ 4,405 17%
===== =====
Gas margin increased during the third quarter of 1994 compared to
the second quarter of 1993 due in part to a 1.4% retail rate increase
effective October 1, 1993. Additionally, customer growth among all
customer classes remained strong from the solid economic conditions in
WPL's service territory. Finally, adjustments resulting from the
conclusion of WPL's annual gas supply contracts on August 1, 1994
favorably impacted gas margins.
A factor which impacted both gas revenues and purchased gas costs
was an increased cost of gas per therm which was passed on to customers
through the automatic purchased gas adjustment clause.
Fees, Rents and Other Operating Revenues ("Other Revenues")
The increase in Other Revenues is a result of revenue growth in the
Company's non-regulated subsidiaries.
Other Operation Expense
Other operation expense increased for the same factor discussed
above under Other Revenues.
Depreciation
Depreciation expense increased, principally reflecting increased
property additions, and increased decommissioning costs for WPL.
Income Taxes
Income taxes increased between third quarters, primarily due to
higher taxable income.
NINE MONTHS ENDED SEPTEMBER 30, 1994 VS. SEPTEMBER 30, 1993:
OVERVIEW
The Company reported consolidated net income of $52.0 million for the
nine months ended September 30, 1994 compared to $40.2 million for the
same period in 1993. A principal factor which resulted in increased
earnings was the favorable weather conditions in the first nine months of
1994 which yielded higher electric and gas margins ($11.3 million). Also,
net income for the nine months ended September 30, 1994 increased $4.9
million due to the reversal of a PSCW penalty relating the WPL's
administration of a coal contract. See Note 2 of Notes to Consolidated
Financial Statements. A reduction in other operation expense contributed
$1.7 million resulting from cost management efforts. Finally, decreased
maintenance expense primarily from efficiencies realized in the
maintenance of Kewaunee added $1.4 million to net income.
Offsetting the above was an increase in depreciation expense which was
attributable to increased investment in plant and increased decommissioning
costs which reduced net income by $6.4 million.
Electric Operations
Revenues and
kWhs Sold, Generated Costs Per kWh
Revenues and Costs % and Purchased (In % Sold Generated Customers at End of
(In Thousands) Change Thousands) Change and Purchased Quarter
1994 1993 1994 1993 1994 1993 1994 1993
Residential and
Farm $145,905 $135,418 8% 2,094,068 2,060,137 2% .070 .066 323,499 317,233
Industrial 103,753 98,609 5% 2,772,563 2,619,965 6% .037 .038 765 714
Commercial 76,691 71,926 7% 1,279,703 1,231,821 4% .060 .058 43,570 42,657
Wholesale and
Class A 67,895 59,995 13% 1,971,574 1,773,386 11% .034 .034 81 77
Other 6,097 7,903 -23% 41,228 38,731 6% .148 .204 1,468 1,442
------- ----- ---- ------ ------ -- ---- ---- ----- -----
Total 400,341 373,852 7% 8,159,136 7,724,040 6% .049 .048 369,383 362,123
======= ======= == ========= ========= == ==== ==== ======= =======
Elec production
fuels $ 94,317 $ 91,431 3% 7,072,947 6,747,368 5% .013 .014
Purchased Power $ 30,720 $ 22,091 39% 1,404,289 1,200,303 17% .022 .018
------- ------
Margin $275,304 $260,328 6%
======= =======
For the nine months ended September 30, 1994 compared to the nine months
ended September 30, 1993, WPL's electric sales benefitted from very cold
conditions in the early part of 1994 and hot weather in late June and mid-
September. These favorable periods were somewhat offset by a mild April
and May and otherwise normal summer conditions. Additionally, WPL
experienced additional growth in the commercial and industrial customer
classes from strong economic conditions. Finally, a 3.6% retail rate
increase effective October 1, 1993 also had a positive impact on 1994
results.
Gas Operations
Revenues and
Therms Sold and Costs Per
Revenues and Costs % Purchased (In % Therms Sold Customers at End of
(In Thousands) Change Thousands) Change and Purchased Quarter
1994 1993 1994 1993 1994 1993 1994 1993
Residential $ 51,733 $ 47,262 9% 85,526 81,236 5% .605 .582 123,075 118,586
Firm 30,977 27,077 14% 64,113 59,936 7% .483 .452 15,313 14,775
Interruptible 6,181 7,891 -22% 17,054 19,147 -11% .362 .412 262 240
Transport. 11,292 8,543 32% 60,701 57,792 5% .186 .148 109 97
Other 2,574 11 23,300 7,043 2,283 208% .365 .005 90 73
----- -- ------ ----- ----- ---- ---- ---- -- --
Total $102,757 $ 90,784 13% 234,437 220,394 6% .438 .412 138,849 133,771
======= ====== === ======= ======= == ==== ==== ======= =======
Purchased gas $ 64,387 $ 60,532 6% 235,604 198,205 19% .273 .305
------ ------
Margin $ 38,370 $ 30,252 7%
Gas margin increased for the nine months ended September 30, 1994
compared to the same period in 1993 due primarily to favorable winter
weather conditions in the early part of 1994. Also contributing to the
margin increase was a change in the mix of sales from lower margin to
higher margin customer classes. Additionally, growth among all customer
classes remained strong due to favorable economic conditions in WPL's
service territory.
A factor which impacted both gas revenues and purchased gas costs
was an increased cost of gas which was passed on to customers through
the automatic purchased gas adjustment clause.
Fees, Rents and Other Operating Revenues ("Other Revenues")
The increase in other revenues is the result of an acquisition made
during the first quarter of 1993 by the Company's non-regulated
operations. Year to date 1994 results include a full nine months of
activity vs. approximately 7 months of activity in 1993.
Other Operation Expense
Other operation expense increased for the same factor discussed
above under Other Revenues. An offsetting factor was a reduction in WPL's
operation expense resulting from ongoing cost management efforts.
Depreciation
Depreciation expense increased, principally reflecting increased
property additions, and increased decommissioning costs for WPL.
Income Taxes
Income taxes increased between third quarters, primarily due to
higher taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Rates and Regulatory Matters
See Part II -- Other Information, Item 1. Legal Proceedings.
Financing and Capital Structure
The level of short-term borrowing fluctuates based primarily on
seasonal corporate needs, the timing of long-term financings and capital
market conditions. To maintain flexibility in its capital structure and
to take advantage of favorable short-term rates, the Company also uses
proceeds from the sales of WPL's accounts receivable and unbilled revenues
to finance a portion of its long-term cash needs.
The Company's capitalization at September 30, 1994, including the
current maturities of long-term debt, variable rate demand bonds and
short-term debt, consisted of 49 percent common equity, 5 percent
preferred stock and 46 percent long-term debt. Common equity at September
30, 1994 increased from 48 percent at December 31, 1993 due to increased
earnings and the original issuance through the Company's 401(k) savings
plan and dividend reinvestment program of $9.4 million of Company stock
during the first nine months of 1994.
Capital Expenditures
The Company's liquidity is primarily determined by the level of cash
generated from operations and the funding requirements of WPL's ongoing
construction and maintenance programs and Heartland Development Corp.'s
capital requirements for future acquisitions and development of affordable
housing. Cash flows from operating activities, after dividends paid,
provided approximately $67 million and $60 million for the nine months
ended September 30, 1994 and 1993, respectively. The Company finances its
construction expenditures through internally generated funds supplemented,
when required, by outside financing. The estimated construction
expenditures for the remainder of 1994 are $43 million. The Company
currently anticipates that it will finance approximately 75 percent of
these expenditures through internally generated funds.
The expenditures for the decommissioning of Kewaunee are estimated
to begin in 2014. It is anticipated that expenditures related to the
actual decommissioning of the plant will occur between 2014 and 2021 of
which WPL's share in terms of future dollars, approximates $581 million.
An additional $435 million related to the storage of spent nuclear fuel on
site and other maintenance of the site will likely occur from 2022 to
2050. By 2013, WPL currently expects to have the cost collected through
electric rates and funded in an external trust. Therefore, such
expenditures are not expected to have a direct impact on the liquidity or
the availability of capital resources.
Industry Outlook
The Public Service Commission of Wisconsin (PSCW) has recently
opened a formal docket initiating an inquiry into the goals of Wisconsin
utility regulation, and identification of alternative forms of regulation.
WPL has submitted its views which, in summary form, call for open access
to transmission and distribution systems and a competitive power
generation market place. It is not possible at this time to predict the
outcome of these proceedings.
In anticipation of the restructuring, WPL proposed a set of
performance based incentives in its recent rate case. For the two year
period January 1, 1995 to December 31, 1996 covered by these rate
proceedings, performance based initiatives were proposed for the
purchasing of natural gas, the availability of electric distribution
service, the emission of SO2 from Company owned plants, and electric power
procurement costs. See Item 1, Legal Proceedings, Note 1. Rates and
Regulatory Matters.
Given the expectation of increasing competition, WPL has continued
to reengineer its processes to implement cost efficiencies in its
operations. In connection with these efforts, WPL has offered voluntary
early retirement programs and voluntary severance programs to affected
employees. These offerings will remain open until late in the fourth
quarter of 1994.
Other
One of WPL's major coal transporters experienced a labor strike
during the third quarter of 1994. During the term of the strike (55
days), WPL's ability to receive coal from its suppliers was impaired,
which required WPL to use some of its existing coal reserves and to
purchase additional power. On August 29, 1994 President Clinton, acting
under the Railway Labor Act, forced a temporary end (the "cooling off
period") to the strike by ordering the railroad union employees back to
work and establishing a three member Presidential Emergency Board to draft
a recommended settlement. Negotiations between the railroad management
and the United Transportation Union continue. As of September 30, 1994,
the existing and anticipated financial impact on WPL's operating results
was not material. As negotiations continue along a normal course, there
is the potential for another strike in the first quarter of 1995 when the
current cooling off period expires.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
1. Rates and Regulatory Matters
On September 29, 1994, the PSCW met in open session and
indicated the following preliminary decisions in the WPL retail rate
application as filed on February 4, 1994.
With small modifications, the commissioners indicated support
for all of the aforementioned incentive proposals with the exception of
the electric procurement area. Instead, the commissioners accepted the
staff incentive proposal which eliminated the electric fuel adjustment
mechanism. If these incentive mechanisms are formally adopted, WPL would
be subject to a somewhat greater degree of earnings volatility than in the
past. This earnings volatility would come primarily from the following:
1. The elimination of the electric fuel adjustment mechanism
exposes shareowners to earnings impacts from changes in fuel prices in
addition to the usual weather and sales growth effects.
2. The elimination of the automatic purchased gas adjustment clause
exposes shareowners to fluctuations in the commodity cost of gas above or
below a prescribed commodity price index. For the fixed demand cost of
gas, shareowners are subject to weather volatility. Both exposures are
also subject to ratepayer sharing provisions which cap both exposures at
$1.1 million.
3. For the SO2 emissions and service reliability clause, up to $4.0
million of pre-tax revenues may be collected subject to refund upon final
determination of performance under these programs.
In other items of significance the commissioners indicated
their support of the following: Electric revenues will be decreased by
approximately $12.3 million (2.8 percent) annually. Natural gas revenues
will be increased by approximately $.7 million (.5 percent) annually.
Return on common equity will be 11.5 percent vs. the Company's current
allowed return on equity of 11.6 percent. The rates would be in effect
for a two-year period beginning January 1, 1995.
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits:
27 Financial Data Schedule.
2. Reports on Form 8-K: None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
WPL Holdings, Inc.
Date: November 14, 1994 By: /s/ Edward M. Gleason
---------------------------------
Edward M. Gleason, Vice President, Treasurer,
and Corporate Secretary (principal financial
officer)
Date: November 14, 1994 By: /s/ Daniel A. Doyle
---------------------------------
Daniel A. Doyle, Controller and Treasurer,
Wisconsin Power and Light, (principal
accounting officer and officer authorized to
sign on behalf of the registrant.)
EXHIBIT INDEX
Exhibit
No. Description
27 Financial Data Schedule