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 March 31, 1995
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 March 31, 1995: 30,773,588 shares
CONTENTS
PAGE
PART I. Financial Information:
Consolidated Financial Statements of WPL Holdings, Inc.
Consolidated Balance Sheets as of March 31, 1995
and 1994 and December 31, 1994 . . . . . . . . . . . . 2
Consolidated Statements of Income for the Three
Months Ended March 31, 1995 and 1994 . . . . . . . . . 4
Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1995 and 1994 . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 7
PART II. Other Information . . . . . . . . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . 13
Exhibit Index . . . . . . . . . . . . . . . . . . . . . 14
WPL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, March 31, December 31
1995 1994 1994
(Thousands of dollars)
ASSETS
UTILITY PLANT:
Plant in service--
Electric.............. $ 1,641,965 $ 1,529,537 $ 1,611,351
Gas................... 207,581 194,319 204,514
Water................. 21,929 20,848 22,070
Common................ 126,434 111,608 123,254
--------- --------- ---------
1,997,909 1,856,312 1,961,189
Dedicated decommissioning
funds................. 63,480 51,541 51,791
--------- --------- ---------
2,061,389 1,907,853 2,012,980
Less: Accumulated provision
for depreciation...... 834,837 776,483 808,853
--------- --------- ---------
1,226,552 1,131,370 1,204,127
Construction work in
progress.............. 28,268 69,546 42,732
Nuclear fuel, net....... 17,605 16,926 19,396
--------- --------- ---------
Total utility plant... 1,272,425 1,217,842 1,266,255
--------- --------- ---------
OTHER PROPERTY AND EQUIPMENT:
Other property and
equipment............. 149,464 135,875 96,536
Less: Accumulated provision
for depreciation...... 23,739 18,232 26,693
--------- --------- ---------
125,725 117,643 123,229
--------- --------- ---------
INVESTMENTS............... 12,125 12,728 12,320
--------- --------- ---------
CURRENT ASSETS:
Cash and equivalents.... 11,194 9,135 7,273
Net accounts receivable
and unbilled revenue,
less allowance for
doubtful accounts of
$1,621, $1,608 and
$1,964, respectively... 71,755 55,668 71,465
Fossil fuel, at
average cost........... 12,061 12,633 15,824
Materials and supplies,
at average cost........ 23,487 23,240 21,618
Gas in storage, at
average cost........... 1,944 1,846 7,975
Prepayments and other... 22,457 21,411 30,279
--------- --------- ---------
Total current assets.. 142,898 123,933 154,434
--------- --------- ---------
Restricted cash........... 5,893 5,993 3,217
DEFERRED CHARGES:
Regulatory assets.... 142,306 132,422 144,476
Other................ 88,767 101,079 101,970
--------- --------- ---------
Total deferred
charges........ 231,073 233,501 246,446
TOTAL ASSETS.............. $ 1,790,139 $ 1,711,640 $ 1,805,901
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, March 31, December 31,
1995 1994 1994
(Thousands of dollars)
CAPITALIZATION AND LIABILITIES
COMMON SHAREOWNERS' INVESTMENT:
Common stock, $.01 par value,
authorized--100,000,000
shares; issued and
outstanding-- 30,773,588,
30,568,500 and 30,773,588
shares, respectively...... $ 308 $ 306 $ 308
Premium on capital stock &
capital surplus........... 305,364 301,901 304,442
Reinvested earnings......... 296,314 296,383 293,048
--------- --------- ---------
601,986 598,590 597,798
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
shares outstanding......... 44,977 44,977 44,977
Cumulative, without par
value, $25 stated value;
599,460 shares outstanding. 14,986 14,986 14,986
LONG TERM DEBT, NET........... 447,555 423,788 448,110
--------- --------- ---------
Total capitalization...... 1,109,504 1,082,341 1,105,871
--------- --------- ---------
CURRENT LIABILITIES:
Current maturities of
long-term debt............. 1,328 1,545 2,832
Variable rate demand bonds.. 56,975 56,975 56,975
Short-term debt............. 32,063 40,954 64,501
Accounts payable............ 70,781 62,055 71,949
Accrued payroll and
vacation................... 16,051 15,012 17,357
Accrued taxes............... 17,418 12,490 6,395
Accrued interest............ 7,169 6,860 9,138
Other....................... 23,654 29,239 21,925
--------- --------- ---------
Total current liabilities. 225,439 225,130 251,072
--------- --------- ---------
OTHER CREDITS:
Accumulated deferred
income taxes............... 228,328 219,153 224,049
Accumulated deferred
investment tax credits..... 40,279 42,203 40,758
Accrued environmental
remediation costs.......... 79,267 80,480 79,280
Other....................... 107,322 62,333 104,871
--------- --------- ---------
Total other credits....... 455,196 404,169 448,958
--------- --------- ---------
TOTAL CAPITALIZATION AND
LIABILITIES.................. $1,790,139 $1,711,640 $1,805,901
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Three Months Ended
March 31,
1995 1994
(In Thousands Except
for Per Share Data)
OPERATING REVENUES:
Electric.............................. $ 131,151 $ 137,197
Gas................................... 56,209 65,077
Fees, rents and other................. 37,524 33,846
--------- ----------
224,884 236,120
--------- ----------
OPERATING EXPENSES:
Electric production fuels............. 29,713 32,286
Purchased power....................... 7,148 9,487
Purchased gas......................... 34,874 43,687
Other operation....................... 68,362 63,594
Maintenance........................... 9,832 9,372
Depreciation and amortization......... 21,604 21,465
Taxes other than income............... 9,323 8,984
--------- ----------
180,856 188,875
--------- ----------
NET OPERATING INCOME.................... 44,028 47,245
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used
during construction ................ 271 449
Other, net............................ 35 4,822
-------- --------
306 5,271
INCOME BEFORE INTEREST EXPENSE.......... 44,334 52,516
-------- -------
INTEREST EXPENSE:
Interest on debt...................... 10,247 9,475
Allowance for borrowed funds used
during construction (credit)........ (90) (189)
--------- ----------
10,157 9,286
--------- ----------
INCOME BEFORE INCOME TAXES.............. 34,177 43,230
INCOME TAXES............................ 13,696 16,033
PREFERRED STOCK DIVIDENDS OF
SUBSIDIARY............................. 828 828
--------- ---------
NET INCOME.............................. $ 19,653 $ 26,369
========= =========
EARNINGS PER SHARE OF COMMON STOCK...... $ 0.64 $ 0.87
========= =========
CASH DIVIDENDS PER SHARE OF
COMMON STOCK.......................... $ 0.485 $ 0.480
========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................... 30,774 30,500
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
March 31,
1995 1994
Cash flows from (used for)
operating activities:
Net Income.......................... $ 19,653 $ 26,369
Adjustments to reconcile net
income to net cash from operating
activities:
Depreciation and amortization..... 21,604 21,465
Deferred income taxes............. 1,721 1,781
Amortization of nuclear fuel...... 2,208 1,825
Allowance for equity funds used
during construction.............. (271) (449)
Investment tax credit restored.... (479) (481)
Other, net........................ - (8)
Changes in assets and liabilities:
Net accounts receivable and
unbilled revenues............... (290) 11,955
Coal.............................. 3,763 3,409
Materials and supplies............ (1,869) (1,561)
Gas in storage.................... 6,031 6,908
Prepayments and other............. 7,823 1,840
Accounts payable and accruals..... (8,107) (16,140)
Accrued taxes..................... 11,024 13,060
Deferred charges.................. 10,953 (19,197)
Deferred credits.................. 7,969 (541)
Other, net........................ 4,006 19,739
-------- ---------
Net cash from operating
activities.................... 85,739 69,974
-------- ---------
Cash flows from (used for)
financing activities:
Long-term debt maturities,
redemptions and sinking
fund requirements................. (2,074) (569)
Net change in short term debt....... (32,438) (50,948)
Common stock cash dividends, less
dividends reinvested.............. (14,925) (10,791)
Preferred stock issuance expense.... - (120)
Other, net.......................... (540) 166
-------- ---------
Net cash (used for) financing
activities...................... (49,977) (62,262)
-------- ---------
Cash flows from (used for)
investing activities:
Additions to utility plant,
excluding AFUDC.................... (17,089) (17,263)
Allowance for borrowed funds used
during construction................ (90) (189)
Dedicated decommissioning funding... (11,689) (1,738)
Purchase of other property and
equipment.......................... (3,812) (573)
Restricted bond proceeds............ - 719
Other, net.......................... 839 999
-------- ---------
Net cash (used for) investing
activities....................... (31,841) (18,045)
-------- ---------
Net increase (decrease) in cash and
equivalents......................... 3,921 (10,333)
Cash and equivalents at beginning
of period........................... 7,273 19,468
-------- ---------
Cash and equivalents at end of
period.............................. $ 11,194 $ 9,135
======== =========
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest on debt.................. $ 9,702 $ 11,897
Preferred stock dividends of
subsidiary...................... $ 828 $ 828
Income taxes...................... $ 1,864 $ 1,745
Noncash financing activities:
Dividends reinvested............... $ - $ 3,821
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 VS. MARCH 31, 1994:
OVERVIEW
The Company reported consolidated first quarter net income of $19.7
million compared to $26.4 million for the same period in 1994. This
represents a decrease in earnings per share from $.87 in the first quarter
of 1994 to $.64 in the first quarter of 1995. The decrease in earnings
primarily reflects a decrease in earnings from the Company's utility
subsidiary, Wisconsin Power and Light Company ("WPL"). The principal
operating factors include a $1.1 million pre-tax decrease in electric
margin due to less than favorable weather conditions, a $.8 million pre-
tax increase in interest expense from additional debt requirements and a
small after tax net reduction from the Company's non-regulated operations.
An additional factor was the reversal of a $ 4.8 million pre-tax reserve
in the first quarter of 1994 which represented a penalty assessment to the
PSCW relating to the administration of a coal contract.
Electric Operations
Revenues and
kWhs Sold, Costs Per
Revenue Generated kWh Sold
and Costs % and Purchased % Generated Customers at
(In Thousands) Change (In Thousands) Change and Purchased End of Quarter
1995 1994 1995 1994 1995 1994 1995 1994
Residential
and Farm $51,890 $54,555 -5% 769,610 786,866 -2% .067 .069 325,971 319,393
Industrial 31,555 32,212 -2% 883,174 867,043 2% .038 .037 776 720
Commercial 24,290 25,550 -5% 421,040 427,983 -2% .058 .060 44,035 42,927
Wholesale
Class A 21,739 22,362 -3% 685,138 706,117 -3% .032 .032 81 80
Other 1,677 2,518 -33% 13,247 16,783 -21% .126 .150 1,496 1,454
-------- -------- ---- --------- --------- ---- ------ ----- --------- --------
Total $131,151 $137,197 -4% 2,772,209 2,804,792 -1% .047 .049 372,359 364,574
======== ======== ==== ========= ========= ===== ===== ===== ======= ========
Electric
production
fuels $29,713 $32,286 -8% 2,508,594 2,453,010 2% .012 .013
========= ========= ==== ===== =====
Purchased
Power $7,148 $9,487 -25% 380,949 430,781 -12% .019 .022
------ ------- ----- ======== ========= ===== ===== =====
Margin $94,290 $95,424 -1%
======= ======= =====
Electric margin decreased slightly in the first quarter of 1995
compared to the first quarter of 1994. Revenues and electric production
fuels decreased due to less favorable weather conditions than the first
quarter of 1994. Growth among all customer classes remained strong due to
favorable economic conditions in WPL's service territory.
Gas Operations
Revenues Therms Sold Revenues and
and Costs % and Purchased % Costs per Therms Customers at
(In Thousands) Change (In Thousands) Change Sold and Purchased End of Quarter
1995 1994 1995 1994 1995 1994 1995 1994
Residential $28,866 $34,753 -17% 54,950 60,245 -9% .53 .58 126,098 121,553
Firm 15,777 20,130 -22% 38,481 44,067 -13% .41 .46 15,689 15,260
Interruptible 1,171 2,845 -59% 4,160 6,994 -41% .28 .41 237 252
Transport 4,494 4,961 -9% 24,666 25,064 -2% .18 .20 153 113
Other 5,901 2,388 - 30,003 14,299 - .17 .17 81 88
------ ------ ------- ------- ------- ------ ---- ---- ------ ------
Total $56,209 $65,077 -14% 152,260 150,669 1% .37 .43 142,258 137,266
======= ======= ====== ======= ======= ====== ====== ===== ======= =======
Purchased gas $34,874 $43,687 -20% 149,329 155,318 -4% $.23 $.28
------- ------- ------ ======== ======== ====== ======= =====
Margin $21,335 $21,390 -.3%
======= ======= ======
Gas margin for the first quarter of 1995 was comparable to the first
quarter of 1994. Less favorable weather in the first quarter of 1995
compared to the same period in 1994 resulted in lower revenues and a
corresponding decrease in purchased gas expense. However, overall margin
was maintained due to WPL's effective gas procurement strategies which
lowered the unit cost of purchased gas per therm. Customer growth
remained strong from the solid economic conditions in WPL's service
territory.
Fees, Rents and Other Operating Revenues ("Other Revenues")
Environmental services revenues increased due to continued strong
demand. Other revenues increased due to an increased number of affordable
housing project syndications. Revenues from the utility service business
decreased between quarters from efforts to redirect the focus of service
lines.
Other Operation Expense
The increase in other operation expense is primarily related to
continued increased program start-up costs associated with the expansion
of the Company's affordable housing and energy services businesses and
increased costs to provide services in the utility service business.
Other Income and Deductions - Other, Net
Other, net decreased for the first quarter of 1995 compared with the
same period in 1994, primarily due to the reversal of $4.8 million, pre-
tax reserve which represented a penalty assessment by the PSCW relating to
the administration of a coal contract. In the first quarter of 1994, the
Wisconsin State Supreme Court ruled in favor of WPL asserting that the
assessment represented retroactive ratemaking.
Interest Expense
The increase in interest expense between the first quarters is primarily
from the issuance of $24 million of debt by the Company in December 1994.
LIQUIDITY AND CAPITAL RESOURCES
Financing and Capital Structure
The level of short-term borrowing fluctuates based primarily on seasonal
corporate needs, the timing of long-term financing 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 March 31, 1995, including the current
maturities of long-term debt, variable rate demand bonds and short-term
debt, consisted of 50.2 percent common equity, 5 percent preferred stock
and 44.8 percent long-term debt.
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 $71 million and $59 million for the three months
ended March 31, 1995 and 1994, 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 1995 are $95 million. The Company
currently anticipates that it will finance approximately 79 percent of
these expenditures through internally generated funds.
The expenditures for the decommissioning of the Kewaunee Nuclear Power
Plant ("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.
The Federal Energy Regulatory Commission (FERC) has put utilities on
notice that they must provide open access to their transmission facilities
for wholesale customers subject to certain approved FERC tariffs. WPL
believes its existing open access tariffs position it well to compete
under such market conditions.
Other
Kewaunee:
The steam generator tubes at Kewaunee are susceptible to corrosion
characteristics, a condition that has been experienced throughout the
nuclear industry. Annual inspections are performed to identify degraded
tubes. Continued use of degraded tubes raises concerns regarding primary-
to-secondary leakage of reactor coolant. Therefore, degraded tubes are
either repaired by sleeving or are removed from service by plugging. The
steam generators were designed with an approximately 15 percent heat
transfer margin, meaning that full power should be sustainable with the
equivalent of 15 percent of the steam generator tubes plugged. Tube
plugging and the build-up of deposits on the tubes affect the heat-
transfer capability of the steam generators to the point where eventually
full-power operation will not be possible and there will be a gradual
decrease in the capacity of the plant. As of December 31, 1994, the
equivalent of approximately 12 percent of the tubes in the steam
generators were plugged.
Kewaunee was taken out of service for scheduled maintenance and
refueling on April 1, 1995. During the maintenance and refueling, the
results of the ongoing steam generator inspections have revealed tube
crack indications that will require an additional 700 of the nearly 7,000
existing tubes to be temporarily plugged during the next operating cycle.
This additional plugging will result in a total of approximately 22
percent of the tubes being plugged. This will result in the plant
operating with an approximate 4 percent power level reduction, or 20-25
Megawatts of the 525 Megawatt net plant output. The continued safe
operation of the plant will not be impacted by the newly plugged tubes or
the reduced capacity level. There may be slightly increased maintenance
and purchased power expenses resulting from the removal of the degraded
tubes and the purchase of replacement power. However, these impacts are
not expected to be material. It is anticipated that Kewaunee will be
returned to service during the week of May 14.
Operation at this reduced power level should be temporary. Cost
effective repair technologies are available which will allow return of the
tubes to service as early as the next maintenance and refueling shutdown
which is scheduled for the fall of 1996. Several tube samples have been
removed for further structural and metallurgical examination in an effort
to determine the best repair method. After repairs are undertaken, as few
as 9% of the tubes could remain plugged, thus allowing resumption of full
power operation. An accurate estimate of the cost of recovering plugged
tubes is not available at this time.
Heartland Development Corporation:
HDC has expanded its energy-related products and services business and
its environmental services through investment in existing businesses
during 1994. In addition to its investment in affordable housing, HPI
continues to market its affordable housing expertise by expanding its
business to provide assistance to other corporate/public investors in
their development, operation and financing of affordable housing projects.
HDC is presently examining options associated with the sale of part or all
of its utility service business.
PART II--OTHER INFORMATION
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: May 10, 1995 /s/ Edward M. Gleason
Edward M. Gleason, Vice President, Treasurer
and Corporate Secretary
(principal financial officer)
Date: May 10, 1995 /s/ Daniel A. Doyle
Daniel A. Doyle, Controller and Treasurer,
Wisconsin Power and Light Company
(principal accounting officer)
EXHIBIT INDEX
Exhibit
No. Description
27 Financial Data Schedule