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, 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 September 30, 1995: 30,773,588 shares
CONTENTS
PAGE
PART I. Financial Information:
Consolidated Financial Statements of WPL Holdings, Inc.
Consolidated Balance Sheets as of September 30, 1995
and 1994 and December 31, 1994 . . . . . . . . . . . . . . . 2
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1995 and 1994 . . . . . . . . . . 4
Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 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 . . . . . . . . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 16
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 17
WPL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, September 30, December 31,
1995 1994 1994
(Thousands of Dollars)
ASSETS
UTILITY PLANT:
Plant in service--
Electric . . . . . . 1,663,194 1,583,959 1,611,351
Gas . . . . . . . . . 212,475 200,241 204,514
Water . . . . . . . . 22,192 21,397 22,070
Common . . . . . . . 130,954 112,541 123,254
----------- ----------- -----------
2,028,815 1,918,138 1,961,189
Dedicated
decommissioning
funds . . . . . . . . 66,559 51,903 51,791
----------- ------------ ------------
2,095,374 1,970,041 2,012,980
Less: Accumulated
provision for
depreciation . . . . . 869,343 808,046 808,853
------------ ----------- -----------
1,226,031 1,161,995 1,204,127
Construction work in
progress . . . . . . . 34,758 40,216 42,732
Nuclear fuel, net . . . 15,209 13,912 19,396
----------- ----------- -----------
Total utility
plant . . . . . . . 1,275,998 1,216,123 1,266,255
------------ ----------- -----------
OTHER PROPERTY AND
EQUIPMENT:
Other property and
equipment . . . . . . 163,371 144,490 145,586
Less: Accumulated
provision for
depreciation . . . . 26,504 21,044 22,356
----------- ----------- ----------
136,867 123,446 123,230
------------ ----------- ----------
INVESTMENTS . . . . . . . 12,098 12,169 12,320
------------ ----------- ----------
CURRENT ASSETS:
Cash and equivalents . 5,409 7,395 7,273
Net accounts
receivable and
unbilled revenue,
less allowance for
doubtful accounts
of $2,037 $1,669
and $1,964,
respectively . . . . . 71,581 73,866 71,465
Fossil fuel, at
average cost . . . . . 17,106 14,819 15,824
Materials and
supplies, at
average cost . . . . . 20,819 22,438 21,618
Gas in storage, at
average cost . . . . . 8,244 10,409 7,975
Prepayments and
other . . . . . . . . 26,982 27,453 30,279
---------- ---------- ----------
Total current
assets . . . . . . 150,141 156,380 154,434
----------- ---------- ----------
Restricted cash 6,498 3,233 3,217
----------- ---------- ----------
DEFERRED CHARGES:
Regulatory
assets . . . . . . 144,503 144,673 144,476
Other . . . . . . . 98,865 95,981 101,970
----------- ----------- ------------
Total
deferred
charges . . . 243,368 240,654 246,446
TOTAL ASSETS . . . . . . $1,824,970 $1,752,005 $1,805,902
========= ========== ==========
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,
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,
30,769,842 and
30,773,588 shares,
respectively . . . . . $308 $308 $308
Premium on capital
stock & capital
surplus . . . . . . . 307,349 303,402 304,442
Reinvested earnings 293,794 294,669 293,048
---------- ---------- ---------
601,451 598,379 597,798
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;
559,630 shares
outstanding . . . . . 14,986 14,986 14,986
---------- ---------- -----------
Total preferred
stock . . . . . . . . 59,963 59,963 59,963
LONG TERM DEBT, NET . . . 427,108 425,304 448,110
----------- ----------- -----------
Total
capitalization . . . 1,088,522 1,083,646 1,105,871
---------- ---------- ----------
CURRENT LIABILITIES:
Current maturities
of long-term debt . . 5,766 1,516 2,832
Variable rate demand
bonds . . . . . . . . 56,975 56,975 56,975
Short-term debt . . . . 89,885 80,091 64,501
Accounts payable . . . 74,130 55,048 71,949
Accrued payroll and
vacation . . . . . . . 15,709 16,383 17,357
Accrued taxes . . . . . 7,605 7,135 6,395
Accrued interest . . . 6,409 6,771 9,138
Other . . . . . . . . . 24,927 20,116 21,925
---------- ---------- -----------
Total current
liabilities . . . . 281,406 244,035 251,072
---------- ---------- -----------
OTHER CREDITS:
Accumulated deferred
income taxes . . . . . 230,267 213,231 224,049
Accumulated deferred
investment tax
credits . . . . . . . 39,321 41,240 40,758
Accrued
environmental
remediation costs . . 78,454 79,311 79,280
Other . . . . . . . . . 107,000 90,542 104,871
--------- --------- ----------
Total other
credits . . . . . . 455,042 424,324 448,958
--------- --------- ---------
TOTAL CAPITALIZATION
AND LIABILITIES . . . . $1,824,970 $1,752,005 $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 Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
(In Thousands of Dollars Except for
Per Share Data)
OPERATING REVENUES:
Electric . . . . . . . $154,939 $137,873 $412,183 $400,341
Gas . . . . . . . . . . 14,285 22,628 94,003 112,333
Fees, rents and other . 32,195 38,342 103,270 106,072
-------- -------- -------- --------
201,419 198,843 609,456 618,746
-------- -------- -------- --------
OPERATING EXPENSES:
Electric production
fuels . . . . . . . . 30,660 29,385 88,271 94,317
Purchased power . . . . 18,571 12,793 36,017 30,720
Purchased gas . . . . . 8,860 15,135 57,017 74,181
Other operation . . . . 61,906 69,819 197,546 199,228
Maintenance . . . . . . 9,793 9,406 32,841 31,165
Depreciation and
amortization . . . . 22,364 20,627 65,869 61,661
Taxes other than income 8,187 8,163 26,858 25,850
-------- -------- -------- --------
160,341 165,328 504,419 517,122
-------- -------- -------- --------
NET OPERATING INCOME . . 41,078 33,515 105,037 101,624
------- -------- -------- --------
OTHER INCOME AND
(DEDUCTIONS):
Allowance for equity
funds used during
construction . . . . . 454 661 1,176 1,791
Other, net . . . . . . 1,515 1,323 1,409 6,440
-------- -------- --------- --------
1,969 1,984 2,585 8,231
INCOME BEFORE INTEREST
EXPENSE . . . . . . . . 43,047 35,499 107,622 109,855
-------- --------- --------- --------
INTEREST EXPENSE:
Interest on debt . . . 9,749 10,344 30,207 29,038
Allowance for borrowed
funds used during
construction (credit) (152) (285) (393) (719)
--------- --------- ---------- --------
9,597 10,059 29,814 28,319
-------- --------- -------- -------
INCOME BEFORE INCOME TAXES 33,450 25,440 77,808 81,536
INCOME TAXES . . . . . . 11,913 9,303 28,024 27,072
PREFERRED STOCK DIVIDENDS
OF SUBSIDIARY . . . . . 828 828 2,483 2,483
-------- --------- --------- --------
NET INCOME . . . . . . . $20,709 $15,309 $47,301 $51,981
========= ======== ======== ========
EARNINGS PER SHARE OF
COMMON STOCK . . . . . . $0.68 $0.50 $1.54 $1.70
======= ======= ====== ======
CASH DIVIDENDS PER SHARE
OF COMMON STOCK . . . . $0.485 $0.480 $1.455 $1.440
======= ======= ======= =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING . . . 30,774 30,758 30,774 30,637
======= ======= ======== =======
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,
1995 1994
(Thousands of Dollars)
Cash flows from (used for) operating
activities:
Net Income . . . . . . . . . . . . $47,301 $51,981
Adjustments to reconcile net income
to net cash from operating
activities:
Depreciation and amortization . . 65,869 57,619
Deferred income taxes . . . . . . 8,420 10,730
Amortization of nuclear fuel . . 5,569 4,738
Allowance for equity funds used
during construction . . . . . . (1,176) (1,791)
Investment tax credit restored . (1,437) (1,445)
Changes in assets and liabilities:
Net accounts receivable and
unbilled revenues . . . . . . . 2,234 (909)
Coal . . . . . . . . . . . . . . (1,282) 1,223
Materials and supplies . . . . . 799 7,994
Gas in storage . . . . . . . . . (269) (1,655)
Prepayments and other . . . . . . 3,297 (4,202)
Accounts payable and accruals . . (17,128) (23,146)
Accrued taxes . . . . . . . . . . 1,210 7,705
Other, net . . . . . . . . . . . 3,948 (16,241)
---------- -----------
Net cash from operating
activities . . . . . . . . . 117,355 92,601
---------- -----------
Cash flows from (used for) financing
activities:
Long-term debt maturities,
redemptions and sinking fund
requirements . . . . . . . . . . . (124) 886
Net change in short term debt . . . 40,316 (11,811)
Retirement of first mortgage bonds (17,990) -
Common stock cash dividends, less
dividends reinvested . . . . . . (44,775) (41,938)
Other, net . . . . . . . . . . . . 1,128 5,371
--------- ---------
Net cash (used for) financing
activities . . . . . . . . . . (21,445) (47,492)
--------- ---------
Cash flows from (used for) investing
activities:
Additions to utility plant,
excluding AFUDC . . . . . . . . . (57,945) (54,699)
Allowance for borrowed funds used
during construction . . . . . . . (393) (719)
Dedicated decommissioning funding . (14,768) (2,100)
Purchase of other property and
equipment . . . . . . . . . . . . (22,536) (6,376)
Restricted bond proceeds. - 6,712
Other, net . . . . . . . . . . . . (2,132) -
---------- ---------
Net cash (used for) investing
activities . . . . . . . . . . . (97,774) (57,182)
---------- ---------
Net increase (decrease) in cash and
equivalents . . . . . . . . . . . . (1,864) (12,073)
Cash and equivalents at beginning of
period . . . . . . . . . . . . . . . 7,273 19,468
--------- ----------
Cash and equivalents at end of period $5,409 $7,395
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest on debt . . . . . . . . $26,164 $29,417
Preferred stock dividends of
subsidiary . . . . . . . . . . . $2,483 $2,483
Income taxes . . . . . . . . . . $11,598 $21,550
Noncash financing activities:
Dividends reinvested . . . . . . . - 9,437
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 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. On September 14, 1995, WPL received an order from the Public Service
Commission of Wisconsin (PSCW) authorizing the sale of up to $60
million of long-term debt securities. It is currently anticipated
that WP&L will make an offering of the long-term debt securities late
in 1995 or early in 1996. WPL intends to use the net proceeds from
the sale of these securities first to repay short-term debt which was
incurred in June 1995 to repurchase in private transactions $18
million aggregate principal amount of WPL's 9.30% first mortgage
bonds, Series V, due December 1, 2025. The remainder of the net
proceeds will be used to repay other short-term debt incurred by WPL
to finance utility construction expenditures and for general corporate
purposes.
3. In March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of." This statement imposes stricter criteria
for regulatory assets by requiring that such assets be probable of
future recovery at each balance sheet date. The Company anticipates
adopting this standard on January 1, 1996 and does not expect that
adoption will have a material impact on the financial position or
results of operations of the Company based on the current regulatory
structure in which the Company operates. This conclusion may change
in the future as competitive factors influence wholesale and retail
pricing in this industry.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 VS. SEPTEMBER 30, 1994:
OVERVIEW
The Company reported consolidated third quarter net income of $20.7
million compared to $15.3 million for the same period in 1994. The
increase in earnings primarily reflects an increase in earnings from the
Company's utility subsidiary, WPL. Weather-driven electric sales growth
and reduced electric production fuel costs per kWh increased electric
margins by $6.0 million after-tax compared to third quarter 1994.
Partially offsetting the higher electric margin was a $1.2 million after-
tax reduction in gas margin and a $1.0 million addition to depreciation
expense attributable to greater investment in utility plant.
Electric Operations
Revenues and Costs
kWhs Sold, Generated Per kWh Sold
Revenues and Costs % and Purchased (In % Generated and Customers at
(In Thousands) Change Thousands) Change Purchased End of Quarter
1995 1994 1995 1994 1995 1994 1995 1994
Residential and
Farm $55,870 $48,549 15% 843,617 704,441 20% 0.066 0.069 330,229 323,499
Industrial 36,497 35,764 2% 1,001,149 949,739 5% 0.036 0.038 791 765
Commercial 28,704 27,086 6% 502,534 458,223 10% 0.057 0.059 44,575 43,570
Other 33,868 26,474 28% 1,013,174 671,445 51% 0.033 0.039 1,584 1,549
------- ------- ----- --------- --------- ---- ------ ----- ------- -------
Total $154,939 $137,873 12% 3,360,474 2,783,848 21% 0.046 0.050 377,179 369,383
======== ======= ==== ========= ========= ==== ===== ===== ======= =======
Electric
production fuels $30,660 $29,385 4% 2,567,704 2,282,831 12% 0.012 0.013
========= ========= ==== ===== =====
Purchased Power $18,571 $12,793 45% 807,434 636,345 27% 0.023 0.020
-------- ------- ---- ======= ======= ==== ====== =====
Margin $105,708 $95,695 10%
======== ======= ====
Electric margin increased 10% in the third quarter of 1995 compared to
the third quarter of 1994 primarily from higher sales resulting from
favorable summer weather coupled with reduced electric production fuels
cost per kWh. Additionally, growth among all customer classes remained
strong due to favorable economic conditions in WPL's service territory.
Partially offsetting the increased sales was a 2.8% decrease in retail
electric rates effective January 1, 1995.
Electric production fuels per kWh were reduced through lower coal
costs. Purchased power costs per kWh were greater in third quarter 1995
as a result of competitive pricing of energy during the periods of
high demand.
Gas Operations
Therms Sold and Revenues and Costs
Revenues and Costs % Purchased % per Therms Sold and Customers at
(In Thousands) Change (In Thousands) Change Purchased End of Quarter
1995 1994 1995 1994 1995 1994 1995 1994
Residential $5,177 $6,643 -22% 7,761 7,127 9% 0.667 0.932 127,428 123,075
Firm 3,474 4,917 -29% 7,433 7,024 6% 0.467 0.700 15,698 15,313
Interruptible 357 1,873 -81% 1,134 5,292 -79% 0.315 0.354 226 262
Other 5,277 9,195 -43% 36,735 38,370 -4% 0.144 0.240 255 199
------ ------- ----- ------ ------ ----- ----- ----- ------ -------
Total $14,285 $22,628 -37% 53,063 57,813 -8% 0.269 0.391 143,607 138,849
======= ======= ===== ====== ====== ==== ===== ===== ======= =======
Purchased Gas $8,860 $15,135 -41% 47,839 57,645 -17% 0.185 0.263
------- ------- ----- ===== ====== ===== ===== =====
Margin $5,425 $7,493 -28%
====== ======= ======
Gas margin decreased 28% during the third quarter of 1995 compared to
the third quarter of 1994. The decline in purchased gas cost per therm was
passed on to customers causing a reduction in gas revenues for the period.
Customer growth continued from the solid economic conditions in WPL's
service territory.
Fees, Rents and Other Operating Revenues ("Other Revenues")
Energy consulting service revenues declined as a result of softness in
the energy conservation consulting market. (Also see: Liquidity and
Capital Resources, page 14, "Heartland Development Corporation").
Other Operation Expense
The decrease in other operation expense reflects the decline in the
energy conservation consulting business and the reduction in work force
and related salary expense resulting from WPL's reengineering efforts.
Depreciation and Amortization
Depreciation and amortization expense increased primarily reflecting
increased property additions.
Income Taxes
Income taxes increased between third quarters primarily resulting from
higher taxable income.
NINE MONTHS ENDED SEPTEMBER 30, 1995 VS. SEPTEMBER 30, 1994:
OVERVIEW
The Company reported consolidated net income for the nine months ended
September 30, 1995 of $47.3 million compared to $52.0 million for the nine
months ended September 30, 1994. Earnings per share declined to $1.54 for
the first nine months of 1995 compared to $1.70 for the same period in
1994. The decrease in earnings primarily reflects a decrease in earnings
for the Company's utility subsidiary, WPL.
Year to date 1995 net income was lower than 1994 primarily due to a
$4.9 million after-tax 1994 reversal of a reserve which represented a
penalty assessment by the PSCW relating to the administration of a coal
contract. Year to date 1994 operations expense included $1.5 million
after-tax for severance and early retirement programs. Operational
factors reducing comparative net income included a slight decline in gas
margin and higher expenses for depreciation and interest in the first nine
months of 1995. Partially offsetting these declines was an $7.5 million
after-tax increase in electric margin resulting from favorable summer
weather and economic growth in all customer classes during the 1995
period.
The Company's nonregulated business operations incurred a loss for the
nine months ended September 30, 1995 which negatively impacted earnings by
8 cents per share. While the environmental and affordable housing areas
have met expectations, the energy conservation consulting market continued
to soften. The Company has restructured these businesses and is currently
exploring options to exit the energy conservation consulting business.
Electric Operations
Revenues and
kWhs Sold, Generated Costs Per kWh
Revenues and Costs % and Purchased (In % Sold Generated Customers at
(In Thousands) Change Thousands) Change and Purchased End of Quarter
1995 1994 1995 1994 1995 1994 1995 1994
Residential
and Farm $151,007 $145,905 3% 2,235,479 2,094,068 7% 0.068 0.070 330,229 323,499
Industrial 104,133 103,753 0% 2,875,918 2,772,563 4% 0.036 0.037 791 765
Commercial 77,161 76,691 1% 1,335,877 1,279,703 4% 0.058 0.060 44,575 43,570
Other 79,882 73,992 8% 2,355,198 2,012,802 17% 0.034 0.037 1,584 1,549
------- -------- ---- --------- --------- ---- ----- ----- ------- -------
Total $412,183 $400,341 3% 8,802,472 8,159,136 8% 0.047 0.049 377,179 369,383
======== ======== ==== ========= ========= ==== ===== ===== ======= =======
Electric
production
fuels $88,271 $94,317 -6% 7,417,592 7,095,482 5% 0.012 0.013
========= ========= ==== ===== =====
Purchased Power $36,017 $30,720 17% 1,715,015 1,404,289 22% 0.021 0.022
------- ------- ---- ========= ========= === ===== =====
Margin $287,895 $275,304 5%
======= ======= ====
Electric margin increased 5% for the nine months ended September 30,
1995 compared to the same period in 1994. Kilowatthour sales increased 8%
due to favorable weather conditions, customer growth and bulk-power market
trading . Partially offsetting the increased sales was a 2.8% decrease in
retail electric rates effective January 1, 1995.
Lower electric fuel costs and purchased power costs per kWh resulting
from successful procurement strategies improved the overall margin.
Gas Operations
Therms Sold and Revenues and Costs
Revenues and Costs % Purchased % per Therms Sold and Customers at
(In Thousands) Change (In Thousands) Change Purchased End of Quarter
1995 1994 1995 1994 1995 1994 1995 1994
Residential $44,740 $51,733 -14% 81,555 85,526 -5% 0.549 0.605 127,428 123,075
Firm 25,090 30,977 -19% 59,332 64,113 -7% 0.423 0.483 15,698 15,313
Interruptible 2,134 6,181 -65% 7,235 17,054 -58% 0.295 0.362 226 262
Other 22,039 23,442 -6% 132,047 112,342 18% 0.167 0.209 255 199
------- -------- ----- ------- ------- ---- ----- ----- ------ ------
Total $94,003 $112,333 -16% 280,169 279,035 0% 0.336 0.403 143,607 138,849
======= ======== ===== ======= ======= === ===== ===== ======= =======
Purchased Gas $57,017 $74,181 -23% 256,339 280,202 -9% 0.222 0.265
------- -------- ----- ======= ======= ==== ====== ======
Margin $36,986 $38,152 -3%
======= ======= ====
Gas margin decreased 3% for the nine months ended September 30, 1995
compared to the same period in 1994. Less favorable weather conditions
and a decline in purchased gas cost per therm which was passed on to
customers caused a 16% reduction in gas revenues for the period. Customer
growth remained strong due to favorable economic conditions in WPL's
service territory.
Fees, Rents and Other Operating Revenues ("Other Revenues")
Environmental services revenues increased as a result of higher demand
for environmental consulting services, however, margins as a percentage of
revenue decreased in response to greater competition. Energy consulting
service revenues declined as a result of softness in the energy
conservation consulting market. (Also see: Liquidity and Capital
Resources, page 12, "Heartland Development Corporation").
Other Operation Expense
The decrease in other operation expense reflects the decline in energy
consulting service business resulting from the softness in the energy
conservation consulting market.
Maintenance
Maintenance expense increased for the year to date compared to last year
due to more extensive refueling and maintenance overhaul at the Kewaunee
Nuclear Plant ("Kewaunee"). (Also, see: Liquidity and Capital Resources,
page 12, "Other")
Depreciation and Amortization
Depreciation and amortization expense increased primarily reflecting
increased property additions.
Income Taxes
Income taxes increased for the nine month period ended September 30,
1995 primarily due to higher taxable income.
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 September 30, 1995, including the
current maturities of long-term debt, variable rate demand bonds and
short-term debt, consisted of 52 percent common equity, 5 percent
preferred stock and 43 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
Corporation's ("HDC") capital requirements for future acquisitions and
development of affordable housing. Cash flows from operating activities,
after dividends paid, provided approximately $73 million and $67 million
for the nine months ended September 30, 1995 and 1994, respectively. The
Company finances its construction expenditures through internally
generated funds supplemented, when required, by outside financing. (see:
Note 2 in the "Notes to Financial Statements," page 6). Construction
expenditures for the nine months ended September 30, 1995 were $98
million. The estimated construction expenditures for the remainder of
1995 are $52 million.
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. WPL currently expects to have the cost collected through electric
rates and funded in an external trust by 2013. Therefore, such
expenditures are not expected to have a direct impact on the Company's
liquidity or the availability of capital resources.
Industry Outlook
The 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 marketplace. It is not
possible at this time to predict the outcome of these proceedings.
The Federal Energy Regulatory Commission (FERC) is developing regulation
which will begin to provide open access to utility's 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
The Company's Form 10-Q for the quarter period ended March 31, 1995, at
Part I, "Other", Page 10, reported the shutdown of Kewaunee on April l,
1995 for scheduled maintenance, refueling and related steam generator
matters. Wisconsin Public Service Corporation is the operator and 41.2%
owner of Kewaunee which is owned jointly with WPL and Madison Gas and
Electric Company which own 41% and 17.8%, respectively.
During the shutdown, inspection of the steam generators revealed higher
levels of tube degradation than was anticipated. Continued use of
degraded tubes raises concerns regarding primary-to-secondary leakage of
reactor coolant. Thus, the degraded tubes were removed from service by
plugging. 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 is affected. Prior to the recent
shutdown, the equivalent of approximately 12% of the tubes in the steam
generators were plugged with no loss of capacity. When the plant was
returned to service on May 18, 1995, 21% of the tubes were plugged,
resulting in a capacity reduction of 3.8% during the plant's current
operating cycle which extends into the fall of 1996. Thus, net plant
output has been reduced from 525 megawatts to approximately 510 megawatts.
Although preliminary estimates indicated slightly increased maintenance
and purchased power expense as reported in the Company's Form 10-Q for the
quarter ended March 31, 1995, revised estimates indicate that during 1995
additional expenses related to recent steam generator plugging likely will
be offset by reduced nuclear expenses in other areas and, therefore,
should not affect earnings significantly. WPL with its joint partners
continue the study of tube repair alternatives.
See Part I, Item 1. Business - Electric Operations - Kewaunee Nuclear
Power Plant in the Company's Form 10-K for the year ended December 31,
1994 for additional background on this matter.
Heartland Development Corporation
In addition to its investment in affordable housing, Heartland
Properties Incorporated, a subsidiary of HDC, 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 continues to
examine options associated with the sale of part or all of its energy
conservation consulting business.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
On July 20, 1995 the City of Beloit ("Beloit") filed a suit against
WPL in the Circuit Court of Rock County, Wisconsin alleging that based on
negligence, nuisance and trespass WPL caused damage to Beloit through the
contamination of property owned by Beloit as a result of the historical
operation of manufactured gas plants on the property prior to Beloit's
acquisition of the property. The suit seeks damages equal to the cost of
cleaning up the property, for decrease in the value of the property and to
compensate Beloit for lost development opportunities for the property as
well as consequential damages and costs of the action.
Beloit and WPL entered into a Stipulation upon which the Court issued
an Order staying further proceedings in the action pending further
environmental investigation of the property and pending WPL's
determination of the extent of liability insurance coverage for the
claims.
The probability is remote that this will have a material adverse
impact on the Company's financial condition.
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits:
3A Amendments to By-Laws of the Company
3B By-Laws of the Company as revised June 22, 1995
27 Financial Data Schedule
2. Reports on Form 8-K: None
SIGNATURES
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.
October 26, 1995 /s/ Edward M. Gleason
Edward M. Gleason, Vice President,
Treasurer, and Corporate Secretary
(principal financial officer)
October 26, 1995 /s/ Daniel A. Doyle
Daniel A. Doyle, Controller and Treasurer,
Wisconsin Power and Light Company
(principal accounting officer)
EXHIBIT INDEX
Exhibit
No. Description
3A Amendments to By-Laws of the Company
3B By-Laws of the Company as revised June 22, 1995
27 Financial Data Schedule