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, 1996
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) Number)
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, 1996: 30,773,588 shares
CONTENTS
PAGE
PART I. Financial Information:
Consolidated Financial Statements of WPL Holdings, Inc.
Consolidated Balance Sheets as of March 31, 1996
and 1995 and December 31, 1995 . . . . . . . . . . . . . . 2,3
Consolidated Statements of Income for the Three and Twelve
Months Ended March 31, 1996 and 1995 . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Three and
Twelve Months Ended March 31, 1996 and 1995 . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 7
PART II. Other Information . . . . . . . . . . . . . . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 17
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 18
WPL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, March 31, December 31,
1996 1995 1995
(Thousands of Dollars)
ASSETS
UTILITY PLANT:
Plant in service--
Electric.............. $ 1,674,322 $ 1,627,437 $ 1,666,134
Gas................... 218,973 207,581 217,678
Water................. 23,072 21,929 22,518
Common................ 140,504 126,434 136,943
--------- ----------- ----------
2,056,871 1,983,381 2,043,273
Less: Accumulated
provision for
depreciation.......... 908,603 834,837 887,562
-------- -------- ----------
1,148,268 1,148,544 1,155,711
Construction work in
progress.............. 42,848 28,268 36,996
Nuclear fuel, net....... 14,976 17,605 18,867
-------- -------- ----------
Total utility plant... 1,206,092 1,194,417 1,211,574
-------- -------- ----------
OTHER PROPERTY AND EQUIPMENT:
Other property and
equipment............. 158,258 149,464 171,211
Less: Accumulated
provision for
depreciation.......... 22,133 23,739 26,442
-------- -------- ----------
136,125 125,725 144,769
-------- -------- ----------
INVESTMENTS:
Nuclear decommissioning
trust funds......... 82,523 63,480 73,357
Other investments..... 11,975 12,125 12,105
-------- -------- ----------
94,498 75,605 85,462
-------- -------- ----------
CURRENT ASSETS:
Cash and equivalents.... 7,935 11,194 11,386
Accounts receivable less
allowance for doubtful
accounts of $1,482, $1,621
and $1,735, respective. 81,797 71,755 94,648
Fossil fuel, at average
cost................... 12,285 12,061 14,625
Materials and supplies,
at average cost........ 20,904 23,487 20,723
Gas in storage, at average
cost................... 1,048 1,944 6,319
Prepayments and other... 23,115 22,457 27,987
-------- -------- ----------
Total current assets.. 147,084 142,898 175,688
-------- -------- ----------
Restricted cash........... 8,079 5,893 3,266
OTHER ASSETS:
Regulatory assets.... 169,075 156,834 171,699
Deferred charges and
other............... 77,721 88,767 79,956
-------- -------- ----------
Total other assets 246,796 245,601 251,655
TOTAL ASSETS............... $ 1,838,674 $1,790,139 $ 1,872,414
========= ========= ==========
CAPITALIZATION AND
LIABILITIES
Common stock, $.01 par
value, authorized--
100,000,000 shares;
issued and outstanding
-- 30,773,588 shares... $ 308 $ 308 $ 308
Premium on capital stock
& capital surplus...... 305,173 305,364 305,223
Reinvested earnings..... 308,147 296,314 291,939
-------- -------- --------
Total common equity 613,628 601,986 597,470
PREFERRED STOCK NOT
MANDATORILY REDEEMABLE:
Cumulative, without par
value, authorized 3,750,000
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....... 428,347 447,555 430,362
-------- -------- ----------
Total capitalization.. 1,101,938 1,109,504 1,087,795
-------- -------- ----------
CURRENT LIABILITIES:
Current maturities of
long-term debt........ 1,406 1,328 3,397
Variable rate demand
bonds................. 56,975 56,975 56,975
Short-term debt......... 57,896 32,063 109,525
Accounts payable........ 80,256 70,781 94,898
Accrued payroll and
vacation.............. 13,207 16,051 14,299
Accrued taxes........... 24,103 17,418 6,483
Accrued interest........ 5,284 7,169 9,214
Other................... 36,171 23,654 26,783
-------- -------- ----------
Total current
liabilities.......... 275,298 225,439 321,574
-------- -------- ----------
OTHER LIABILITIES AND
CREDITS:
Accumulated deferred
income taxes.......... 245,153 228,328 241,150
Accumulated deferred
investment tax credits 38,364 40,279 38,842
Accrued environmental
remediation costs..... 76,763 79,267 76,852
Other.................. 101,158 107,322 106,201
-------- -------- ----------
Total other liabilities
and credits........ 461,438 455,196 463,045
-------- -------- ----------
TOTAL CAPITALIZATION AND
LIABILITIES.................. $ 1,838,674 $1,790,139 $ 1,872,414
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Three Months Ended Twelve Months Ended
March 31, March 31,
1996 1995 1996 1995
(In Thousands of Dollars Except for Per Share Data)
OPERATING REVENUES:
Electric.............. $ 148,500 $ 131,151 $ 563,672 $ 525,701
Gas................... 71,741 55,207 155,703 142,061
Fees, rents and other. 40,636 29,516 132,883 116,806
-------- -------- -------- --------
260,877 215,874 852,258 784,568
-------- -------- -------- --------
OPERATING EXPENSES:
Electric production
fuels............... 28,604 29,713 115,380 120,896
Purchased power....... 15,344 7,148 52,210 35,574
Purchased gas......... 45,364 33,882 95,483 91,137
Other operation....... 76,565 59,991 267,371 251,528
Maintenance........... 8,551 9,832 40,762 41,687
Depreciation and
amortization......... 23,116 21,284 88,151 80,433
Taxes other than
income............... 9,171 9,323 34,036 34,127
-------- -------- -------- --------
206,715 171,173 693,393 655,382
-------- -------- -------- --------
OPERATING INCOME........ 54,162 44,701 158,865 129,186
-------- -------- -------- --------
INTEREST EXPENSE AND OTHER:
Interest on debt...... 8,921 10,247 42,233 38,458
Allowance for funds used
during construction
(credit)............ (776) (361) (2,503) (3,761)
Other (income) and
deductions, net..... (3,950) (35) (7,018) (2,823)
-------- -------- -------- --------
4,195 9,851 32,712 31,874
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES.................. 49,967 34,850 126,153 97,312
-------- -------- --------- --------
INCOME TAXES:
Current............... 17,560 12,721 32,147 25,610
Deferred.............. 377 1,721 9,372 10,261
Amortization of
investment tax
credits............. (478) (479) (1,915) (1,928)
-------- -------- -------- --------
17,459 13,963 39,604 33,943
PREFERRED STOCK
DIVIDENDS OF SUBSIDIARY 828 828 3,310 3,310
-------- -------- --------- --------
INCOME FROM CONTINUING
OPERATIONS............. 31,680 20,059 83,239 60,059
-------- -------- --------- --------
DISCONTINUED OPERATIONS:
Loss from operations of
discontinued subsidiary,
net of applicable tax
benefits of $0, $267,
$1,184 and $869,
respectively - 406 1,806 1,525
Loss on disposal of
subsidiary, net of
applicable taxes of
$0, $0, $3,271, and
$0, respectively - - 10,974 -
-------- -------- -------- --------
- 406 12,780 1,525
-------- -------- -------- --------
NET INCOME............... $ 31,680 $ 19,653 $ 70,459 $ 58,534
======== ========= ======== ========
EARNINGS PER SHARE:
Income from continuing
operations........... $1.03 $0.65 $2.70 $1.95
Discontinued
operations........... 0.00 (0.01) (0.42) (0.05)
-------- -------- -------- -------
Net income............ $1.03 $0.64 $2.28 $1.90
======== ======== ======== =======
CASH DIVIDENDS PER
SHARE OF COMMON STOCK... $ 0.4925 $ 0.485 $ 1.948 $ 1.925
======== ======== ======== =======
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING............. 30,774 30,774 30,774 30,774
======== ======== ======== =======
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended Twelve Months Ended
March 31, March 31,
1996 1995 1996 1995
(Thousands of Dollars)
Cash flows from (used
for) operating
activities:
Net income . . . . . $31,680 $19,653 $70,459 $58,534
Adjustments to
reconcile net income
to net cash from
operating
activities:
Depreciation and
amortization . . . 23,116 21,284 88,151 80,433
Deferred income
taxes and
investment tax
credits . . . . . (101) 1,242 7,457 8,333
Amortization of
nuclear fuel . . . 2,169 2,208 7,748 7,090
Allowance for equity
funds used during
construction . . . (530) (271) (1,684) (2,831)
(Gain) loss on sale
of subsidiary . . (3,249) --- 7,725 ---
Changes in assets and
liabilities:
Accounts receivable
and unbilled
revenues . . . . . 13,172 (290) (9,721) (16,087)
Production fuels,
materials, and
supplies . . . . . 2,159 1,894 2,359 324
Gas in storage . . 5,271 6,031 896 (98)
Prepayments and
other . . . . . . 4,871 7,823 (659) (1,045)
Accounts payable and
accruals . . . . . (19,663) (8,107) 8,858 1,788
Accrued taxes . . . 17,620 11,024 6,684 4,929
Other, net . . . . (2,352) 23,248 (14,176) 46,534
------- ------ ------- -------
Net cash from
operating
activities . . . 74,163 85,739 174,097 187,904
------- ------- ------- -------
Cash flows from (used
for) financing
activities:
Long-term debt
maturities,
redemptions and
sinking fund
requirements . . . (4,021) (2,074) (1,191) 23,488
Net change in short
term debt . . . . . (51,629) (32,438) 25,833 (8,891)
Retirement of first
mortgage bonds . . --- --- (18,000) ---
Common stock cash
dividends, less
dividends reinvested (15,156) (14,925) (59,932) (53,491)
Other, net . . . . . 111 (540) 1,592 (1,647)
------- -------- -------- --------
Net cash (used for)
financing
activities . . . (70,695) (49,977) (51,698) (40,541)
------- --------- ------- --------
Cash flows from (used
for) investing
activities:
Additions to utility
plant, excluding
AFUDC . . . . . . . (22,253) (17,089) (99,021) (123,286)
Allowance for borrowed
funds used during
construction . . . (248) (90) (821) (930)
Dedicated
decommissioning
funding . . . . . . (9,166) (11,689) (19,043) (11,939)
Proceeds from sale of
subsidiaries . . . . 22,130 --- 22,130 ---
Purchase of other
property and
equipment . . . . . (325) (3,812) (18,052) (9,399)
Other, net . . . . . 2,943 839 (10,851) 250
------ ------- -------- -------
Net cash (used for)
investing
activities . . . (6,919) (31,841) (125,658) (145,304)
------- -------- -------- --------
Net increase (decrease)
in cash and
equivalents . . . . . (3,451) 3,921 (3,259) 2,059
Cash and equivalents at
beginning of period . 11,386 7,273 11,194 9,135
-------- -------- -------- --------
Cash and equivalents at
end of period . . . . $7,935 $11,194 $7,935 $11,194
======== ======= ========= =======
Supplemental disclosures
of cash flow
information:
Cash paid during the
period for:
Interest on debt . . $12,088 $9,702 $42,370 $34,719
Preferred stock
dividends of
subsidiary . . . . $828 $828 $3,310 $3,310
Income taxes . . . . $4,305 $1,864 $31,940 $23,021
Noncash financing
activities:
Dividends reinvested $ --- $ --- $ --- $5,832
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 (WP&L). 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 management, all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation
of (a) the consolidated results of operations for the three and
twelve month periods ended March 31, 1996 and 1995, (b) the
consolidated financial position at March 31, 1996 and 1995 and
December 31, 1995, and (c) the consolidated statement of cash flows
for the three and twelve month periods ended March 31, 1996 and 1995
have been made.
2. In anticipation of an expected offering of $60 million of long-
term debt securities in 1996, the Company entered into an interest
rate forward contract in 1995. As a result of favorable cash flow
during the first quarter of 1996, the Company now anticipates that
it will defer its offering of long-term debt securities until 1997,
and has consequently closed its interest rate forward contract
position. The gain realized on closing this position will be
deferred and recognized as an adjustment to interest expense over
the life of the long-term debt securities expected to be issued in
1997.
3. During the first quarter of 1996, the Financial Accounting
Standards Board issued an Exposure Draft on Accounting for
Liabilities Related to Closure and Removal of Long-Lived Assets
which deals with, among other issues, the accounting for
decommissioning costs. If current electric utility industry
accounting practices for such decommissioning are changed: (1)
annual provisions for decommissioning could increase, (2) the
estimated cost for decommissioning could be recorded as a liability
rather than as accumulated depreciation, with recognition of an
increase in the recorded amount of nuclear plant, and (3) trust fund
income from the external decommissioning trusts could be reported as
investment income rather than as a reduction to decommissioning
expense. Given the preliminary nature of the process, the Company
cannot currently determine what impact, if any, this process may
have on the Company's financial condition or results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 VS. MARCH 31, 1995:
OVERVIEW
The Company reported consolidated first quarter net income from
continuing operations of $31.7 million or $1.03 per share compared to
$20.1 million or 65 cents per share for the same period in 1995. The
increase in earnings primarily reflects the operation of the Company's
utility subsidiary, WP&L. Weather-driven sales growth, increased sales to
other utilities, and continued customer growth contributed to higher
electric and gas margins as compared with the first quarter of last year.
Electric margin increased by $10.3 million due to increased sales
and lower aggregate costs per kWh. Gas margins increased $5.1 million as
a result of higher sales. In addition, other operation and maintenance
expenses at the utility declined during the first quarter due to lower
steam plant maintenance costs. Partially offsetting these items was an
increase in depreciation and amortization expense.
Heartland Development Corporation, ("HDC"), parent company of the
Company's non-regulated operations, reported income from continuing
operations of $0.1 million for the first quarter of 1996 compared with a
loss from continuing operations of $0.4 million for the same period in
1995. The higher earnings in 1996 are the result of the gain from the sale
of an HDC real estate investment, Heartland Retirement Services ("HRS"),
during the first quarter of 1996. The gain, however, was largely offset by
losses on gas and electric marketing transactions incurred by the energy
services subsidiary.
Electric Operations
Revenues
and Costs % kWhs Sold % Customers at %
(In Thousands) Change (In Thousands) Change End of Quarter Change
1996 1995 1996 1995 1996 1995
Residential and
Farm $55,651 $51,890 7% 833,669 769,610 8% 332,335 325,971 2%
Industrial 34,112 31,555 8% 931,586 883,174 5% 809 776 4%
Commercial 26,399 24,290 9% 447,966 421,040 6% 45,035 44,035 2%
Wholesale and
Class A 30,911 21,739 42% 1,192,342 685,138 74% 88 81 9%
Other 1,427 1,677 (30%) 14,680 13,247 11% 1,717 1,496 15%
------- ------- ------- ------ ------- -------
Total 148,500 131,151 13% 3,420,243 2,772,209 23% 379,984 372,359 2%
------- ------- ========= ========= ==== ======= ======= ===
Electric
Production
Fuels 28,604 29,713 (6%)
Purchased Power 15,344 7,148 115%
-------- -------
Margin $104,552 $94,290 11%
======== ======= ====
Electric revenues increased $17.3 million, or 13 percent, as compared
to the first quarter of 1995. The increase was the result of a 23 percent
increase in kWh sales primarily due to colder winter weather in 1996.
Electric margin increased $10.3 million, or 11 percent, during the
first quarter of 1996 compared to the first quarter of 1995 primarily due
to higher sales (as discussed above) combined with lower production fuels
expense and the availability of competitively priced purchased power to
supplement internal generation. The decrease in production fuel costs was
the result of slightly lower coal and transportation costs.
Gas Operations
Revenues Therms Sold
and Costs % (In Thousands) % Customers at %
(In Thousands) Change Change End of Quarter Change
1996 1995 1996 1995 1996 1995
Residential
and Farm $39,434 $28,866 37% 65,866 54,950 20% 130,555 126,098 4%
Firm 21,787 15,777 38% 44,863 38,481 17% 16,198 15,689 3%
Interruptible 1,064 1,171 (9)% 2,968 4,160 (29)% 288 237 22%
Transport. and
Other 9,456 9,393 1% 65,417 53,963 21% 161 153 5%
------ ------ ------ ------- ------- -------
Total 71,741 55,207 30% 179,114 151,554 18% 147,202 142,177 4%
------ ------ ======= ======= === ======= ======= ===
Purchased Gas 45,364 33,882 34%
------ ------ ----
Margin 26,377 21,325 24%
====== ====== =====
Gas revenues increased $16.5 million, or 30 percent, in the first
quarter of 1996 as compared to 1995. The higher revenues were the result
of an 18 percent rise in therm sales primarily due to colder weather in
the first quarter and residential and firm customer growth. The higher
sales volumes as well as favorable management of gas supply costs resulted
in a $5.1 million, or 24 percent, increase in gas margin.
With the elimination of the purchased gas adjustment clause, the
fluctuations in the commodity cost of gas above or below a prescribed
commodity price index will increase or decrease WP&L's margin on gas
sales. Both benefits and exposures are subject to customer sharing
provisions. WP&L's share is capped at $1.1 million, pre-tax. For the first
quarter of 1996 the gas incentive program resulted in additional pre-tax
savings of $1 million compared with $0.3 million for the same period in
1995.
Fees, Rents and Other Revenues
Fees, rents and other revenues primarily reflect sales and revenues
of the Company's non-regulated subsidiaries, consolidated under HDC, as
adjusted for discontinued operations.
The increase in fees, rents and other revenues is primarily due to
higher energy marketing revenues of $15.5 million due to an increase in
power marketing activity at the energy marketing company which was offset
somewhat by lower revenues of $3.3 million in the environmental and
engineering business.
In addition to the revenues of the non-regulated businesses, fees,
rents and other revenues also include revenue from the water utility
operations of WP&L. These revenues represent $1 million for the three
months ended March 31, 1996 and 1995.
Other Operation and Maintenance Expense
The increase in other operation and maintenance expenses is primarily
due to the increased activity in the energy marketing business. The energy
marketing business had only a small group of gas customers in the first
quarter of 1995 and the first electric transaction was not made until
June 1995. In addition, losses were incurred in gas and electric marketing
transactions in the energy services subsidiary.
Depreciation and Amortization
Depreciation and amortization expense increased as a result of
increased property additions, amortization of contributions in aid of
construction ( a reduction of expense) during the first quarter of last
year and higher income on the decommissioning funds.
Other (Income) and Deductions, Net
Other (Income) and deductions, net decreased due to the pre-tax gain
on the sale of HRS of $3.3 million.
Income Taxes
Income taxes increased between first quarters consistent with higher
taxable income.
TWELVE MONTHS ENDED MARCH 31, 1996 VS. MARCH 31, 1995:
OVERVIEW
The Company reported consolidated net income from continuing
operations of $83.2 million or $2.70 per share through March 31, 1996, as
compared to $60.1 million or $1.95 per share for the same period in 1995.
Earnings for the twelve month period ended March 31, 1995 were reduced by
25 cents per share due to early retirement and severance programs offered
during this period. Earnings per share for the 12 month periods ending
March 31, 1996 and March 31, 1995 were $2.28 and $1.90, respectively,
reflecting the impact of the discontinued operation of A& C Enercom
Consultants, Inc. The increase in earnings primarily reflects the
operations of the Company's utility subsidiary, WP&L. Weather-driven
sales growth along with continued customer growth in the service territory
contributed to increased electric and gas margins as compared with the
twelve months ended March 31, 1995.
Electric margin increased by $26.9 million from increased sales and
lower costs per kWh for both electric production fuels and purchased
power. Gas margins increased $9.3 million as a result of increased therm
sales and reduced gas cost per therm. In addition, other operation and
maintenance expenses at the utility decreased primarily due to higher
early retirement and severance expenses associated with the Company's
reengineering efforts during the twelve month period ended March 31, 1995.
Partially offsetting these items was a $7.7 million increase in
depreciation and amortization expense resulting from higher
decommissioning related expenses and property additions.
HDC reported a loss from continuing operations of $1.0 million for
the twelve months ended March 31, 1996 compared with a loss from
continuing operations of $0.3 million for the same period in 1995. The
increased loss is due to higher interest expense and new business
development costs combined with the incurrence by the energy marketing
businesses of reduced volumes in the electric and gas trading markets.
These losses were partially offset with the gain on the sale of an HDC
real estate investment, Heartland Retirement Services ("HRS"), during the
first quarter of 1996. During the fourth quarter of 1995, a $13.2 million
loss on discontinued operations resulted from the sale of A&C Enercom
Consultants, Inc. which is discussed in the "Discontinued Operations"
section of the MD&A.
Electric Operations
Revenues
and Cost % kWh Sold % Customers at %
(In Thousands) Change (In Thousands) Change End of Quarter Change
1996 1995 1996 1995 1996 1995
Residential
and Farm $203,611 $191,577 6% 3,001,882 2,759,640 9% 332,335 325,971 2%
Industrial 143,118 139,830 2% 3,920,932 3,781,084 4% 809 776 4%
Commercial 104,238 100,122 4% 1,800,332 1,681,405 7% 45,035 44,035 2%
Wholesale and
Class A 106,522 85,778 24% 3,616,589 2,553,141 42% 88 81 9%
Other 6,183 8,394 (26)% 55,474 50,982 9% 1,717 1,496 15%
------- ------- ---------- ---------- ------ -------
Total 563,672 525,701 7% 12,395,209 10,826,252 14% 379,984 372,359 2%
------- ------- ========== ========== ==== ======= ======= ===
Electric
production
fuels 115,380 120,896 (5)%
Purchased
Power 52,210 35,574 47%
------ -------
Margin $396,082 $369,231 7%
======== ======= ===
Electric revenues increased $38.0 million, or 7 percent, as compared
to the twelve months ended March 31, 1995. The increase was the result of
a 14 percent increase in kWh sales primarily due to colder winter weather
in 1996, higher sales to other utilities and customer growth.
Electric margin increased $26.9 million, or 7 percent, during the
twelve months ended March 31, 1996 compared to the same period in 1995
primarily due to higher sales combined with reduced costs per kWh for
electric production fuels and purchased power. While the cost on a per kWh
basis, including fuel expense and purchased power, declined, total
purchased power expense increased by 47 percent. The increase reflects the
Company's increased level of activity in the bulk power sales market as
well as the opportunity to secure attractively priced energy purchases to
meet increased system sales. Partially offsetting increased purchased
power costs are slightly lower electric production fuel costs resulting
from lower coal and transportation costs.
Gas Operations
Revenues
and Costs % Therms Sold % Customers at %
(In Thousands) Change (In Thousands) Change End of Quarter Change
1996 1995 1996 1995 1996 1995
Residential and
Farm $80,949 $65,668 23% 137,818 114,267 21% 130,555 126,098 4%
Firm 45,466 37,565 21% 97,698 81,901 19% 16,198 15,689 3%
Interruptible 3,602 7,103 (49)% 10,956 21,975 (50)% 288 237 22%
Transport. and
Other 25,686 31,725 (19)% 180,575 156,852 15% 161 153 5%
------- ------ ------- ------- ----- ------
Total 155,703 142,061 10% 427,047 374,995 14% 147,202 142,177 4%
======= ======= ======= ======= === ======= ======= ====
Purchased Gas 95,483 91,137 5%
------ ------
Margin $60,220 $50,924 18%
======= ======= ====
Gas revenues increased $13.6 million, or 10 percent, during the
twelve months ended March 31, 1996 as compared to the twelve months ended
March 31, 1995. The higher revenues were the result of a 14 percent rise
in therm sales primarily due to colder weather in the first quarter of
1996 and residential and firm customer growth. The higher sales volumes as
well as favorable management of gas supply costs resulted in a $9.3
million, or 18 percent, increase in gas margin. The gas incentive program
authorized by the Public Service Commission of Wisconsin also resulted in
additional pre-tax savings of $1.5 million during the twelve months ended
March 31, 1996 compared with $0.3 million for the same period in 1995.
Fees, Rents and Other Revenues
Fees, rents and other revenues primarily reflect sales and revenues
of the Company's non-regulated subsidiaries, consolidated under HDC, as
adjusted for discontinued operations.
The increase in fees, rents and other revenues of $16.1 million is
primarily due to higher energy marketing revenues and syndication fees
associated with development of affordable housing projects for
institutional investors. The increase was partially offset somewhat by
lower revenues in the environmental and engineering business.
In addition to the revenues of the non-regulated businesses, fees,
rents and other revenues also include revenue from the water utility
operations of WP&L. These revenues represent $4.2 million and $4.1 million
for the twelve months ended March 31, 1996 and 1995, respectively.
Other Operation and Maintenance Expense
Other operation and maintenance expense increased by $14.9 million
primarily due to higher contract supply-related costs at the energy
marketing company, Heartland Energy Services Inc. ("HES"). This business
also experienced additional administrative costs associated with new
business development. The $28.3 million increase in expenses at HES was
offset by a $13.0 million reduction in expense, at the utility company.
The decrease in utility operations reflects the impact of higher early
retirement and severance expenses during the twelve month period ended
March 31, 1995, related to the Company's reengineering efforts.
Depreciation and Amortization
Depreciation expense increased as a result of property additions,
greater amortization of contributions in aid of construction (a reduction
of expense) during the first quarter of 1995 compared with the same
period in 1996, and higher income on the decommissioning funds.
Income Taxes
Income taxes increased for the twelve month period ended March 31,
1996, as a result of higher taxable income.
Other (Income) and Deductions, Net
Other (Income) and deductions, net decreased due to the first
quarter gain on the sale of HRS.
Discontinued Operations
During the fourth quarter of 1995, the Company sold A&C Enercom
Consultants, Inc. ("A&C"), its utility energy and marketing consulting
business. For the twelve months ended March 31, 1996, the loss from
operations of A&C was $1.8 million, net of tax, and the loss on the
disposal of A&C was $11.0 million, net of tax. For the twelve months ended
March 31, 1995, the loss from operations was $ 1.5 million, net of tax,
and there was no loss on the disposal of A& C.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is primarily determined by the level of cash
generated from operations and the funding requirements of WP&L's ongoing
construction and maintenance programs. The Company finances its
construction expenditures through internally generated funds supplemented,
when required, by outside financing. (Also see: Note 2 in the "Notes to
Financial Statements," page 6.)
During the three and twelve months ended March 31, 1996 and March 31,
1995, the Company generated sufficient cash flows from operations and
short-term borrowings to cover operating expenses, cash dividends and
investing activities. Cash flows from operations decreased to $74.2
million for the three months ended March 31, 1996, compared to $85.7
million for the same period last year. For the twelve month period ended
March 31, 1996, cash flows from operations decreased to $174.1 million
from $187.9 million during the same period in 1995. During the first
quarter of 1996, the Company received proceeds from the sales of A& C
Enercom Consultants, Inc. and HRS of $22.1 million.
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. WP&L generally borrows on a short-term basis to
provide interim financing of construction and capital expenditures in
excess of available internally-generated funds. 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 accounts receivable and
unbilled revenues to finance a portion of its long-term cash needs. Bank
lines of credit of $70 million at March 31, 1996 are available to support
these borrowings.
The Company's capitalization at March 31,1996, including the current
maturities of long-term debt, variable rate demand bonds and short-term
debt, consisted of 50 percent common equity, 5 percent preferred stock and
45 percent long-term debt.
Capital Expenditures
The Company's largest subsidiary, WP&L, is a capital-intensive
business and requires large investments in long-lived assets. Therefore,
the Company's most significant capital requirements relate to construction
expenditures. Construction expenditures for the three months ended March
31, 1996 were $20.9 million. The estimated construction expenditures for
the remainder of 1996 are $128.5 million.
The Company has a 41.0 percent ownership interest in the Kewaunee
Nuclear Power Plant (KNPP). The operating partner of this plant is
Wisconsin Public Service Corporation (WPSC). The steam generator tubes at
KNPP are susceptible to corrosion and cracking phenomena seen throughout
the nuclear industry. Steam Generator A is currently 24.94% effectively
plugged and Steam Generator B is 17.69% effectively plugged for an average
of 21.32%. The current Kewaunee safety analysis report allows an
effective tube plugging limit of up to 25% average for both steam
generators, not to exceed 25% in either steam generator. Analyses are
currently being performed which the operating partner believes will
increase the effective plugging limit to 30%. The small reduction in
capacity which has resulted from this tube plugging has not had a material
impact on the financial performance of the Company.
As a result of the need to address the repair or replacement of the
steam generators, the owners of KNPP have been, and are continuing to,
evaluate various alternatives to deal with the degradation of the steam
generator tubes. As part of this evaluation, the owners have or will take
the following actions:
(a) The Nuclear Regulatory Commission ("NRC") has been requested to
redefine the pressure boundary point of the repaired steam
generator tubes, which have been removed from service by
plugging, in order to allow the return of many of the tubes to
service; thus, permitting KNPP to return to full licensed power.
(b) The NRC will be requested to increase the steam generator
effective plugging limit from 25% to 30%.
(c) A request will be submitted to the NRC to allow the owners to
pursue welded repair technologies to repair existing sleeved
tubes in an effort to return plugged tubes to service.
(d) The partners continue to evaluate the economics of replacement
of the steam generators. The replacement of steam generators is
estimated to cost approximately $100 million, exclusive of
additional purchased power costs associated with an extended
shutdown.
WP&L believes that the best near term economic alternative for the
owners of KNPP is to continue to pursue tube recovery and repair
processes. WP&L will reassess its views of available alternatives based
on the condition of the steam generator tubes during the fall 1996
refueling outage.
Currently, the owners of KNPP have different views of the future
market value of energy which impact on the desirability of replacing the
steam generators. During the first quarter of 1996, WPSC filed an
application with the Public Service Commission of Wisconsin seeking
approval to replace the steam generators in 1999. WP&L believes that
analysis and final action on this application will take approximately two
years to complete. The joint owners continue to analyze and discuss
various options related to the future of KNPP, including various
ownership transfer alternatives. The net book value of WP&L's share of
KNPP as of March 31, 1996 was $57 million.
Rates and Regulatory Matters
On April 1, 1996, the Company filed an application with the Public
Service Commission of Wisconsin ("PSCW") requesting an increase in
electric, natural gas and water service rates. The application requests a
13.4 million (3.0 percent) increase in electric revenue and a $2.4 million
(1.6 percent) increase in natural gas revenue to be effective for the
period January 1, 1997, through December 31, 1998. An increase of
$102,000 in water revenues was also requested. General inflation and
increased depreciation expense associated with customer service related
investments are the primary factors supporting the proposed increase in
electric and gas rates. The application is based on a regulatory return on
common equity of 11.9 percent and an average common equity ratio of 51.6
percent. The Company cannot currently predict the outcome of this rate
proceeding.
Industry Outlook
The PSCW's inquiries into the future structure of the natural gas and
electric utility industries are ongoing. The stated goal of the PSCW in
the natural gas docket is to move all gas supply activities out of the
existing regulated distribution utilities and allow independent units to
compete for the business. The goal of the electric restructuring process
is to create open access transmission and distribution services for all
customers with competitive generation and customer service markets.
Additional proceedings as well as consultation with the legislature are
planned prior to a target implementation date after the year 2000.
On April 24, 1996, the Federal Energy Regulatory Commission ("FERC")
issued two rules ( No. 888 and 889) that will promote competition by
opening access to the nation's wholesale power market. The new rules
require public utilities that own, control or operate transmission
systems to provide other companies with the same transmission
access/service that they provide to themselves. To meet the requirement,
affected utilities must file a single tariff within 60 days. The tariff
must apply to all wholesale power sales and purchases over the utility's
lines. In the case of power pools, public utility holding companies and
bilateral coordination arrangements, the single transmission tariff must
be filed by December 31, 1996. The FERC proposes that each public utility
replace its soon-to-be- filed single open access tariff with a capacity
reservation tariff by December 31, 1997. The Company presently has on file
with the FERC a network and point to point tariff and is evaluating if a
new single tariff is required to be filed within 60 days.
The Open Access Same-Time Information System (OASIS) Rule 889
requires all public utilities to post their available transmission
capacity on an Internet electronic bulletin board, providing access to all
interested parties. This will ensure that transmission owners and their
affiliates do not have an unfair competitive advantage in selling power.
Rule 888 provides for the full recovery of stranded wholesale costs
incurred in wholesale power contracts executed before July 11, 1994.
States are given jurisdiction over the recovery of stranded retail costs.
The FERC will assume this jurisdiction in cases where a state lacks the
authority to become involved. Approximately 69 percent of the WP&L's
annual wholesale revenues were covered by such contracts in 1995.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
Of" imposes stricter criteria for evaluating the recoverability of
regulatory assets and real estate investments. The Company adopted this
standard on January 1, 1996. This statement has not had a material impact
on the financial position or results of operations of the Company, which
may change in the future as competitive factors influence wholesale and
retail pricing in the utility industry.
INFLATION
The impacts of inflation on WP&L are currently mitigated through
current rate making methodologies. Although rates will be held flat
until at least 1997, management expects that any impact of inflation will
be mitigated by customer growth and productivity improvements.
Inflationary impacts on the non-regulated businesses are not anticipated
to be material to the Company.
OTHER EVENTS
Proposed Merger
The Company, IES Industries Inc. ("IES"), and Interstate Power Co.
("IPC") have entered into an Agreement and Plan of Merger ("Merger
Agreement"), dated November 10, 1995, providing for: a) IPC becoming a
wholly-owned subsidiary of the Company, and b) the merger of IES with and
into the Company, which merger will result in the combination of IES and
the Company as a single holding company (collectively, the "Proposed
Merger"). The new holding company will be named Interstate Energy
Corporation ("Interstate Energy"). The Proposed Merger, which will be
accounted for as a pooling of interests, is still subject to approval by
the shareholders of each company as well as several federal and state
regulatory agencies. The corporate headquarters of Interstate Energy will
be in Madison, Wisconsin.
The business of Interstate Energy will consist of utility operations
and various non-utility enterprises. The utility subsidiaries currently
serve approximately 870,000 electric customers and 360,000 natural gas
customers in Iowa, Illinois, Minnesota and Wisconsin.
Union Contract
The three year contract WP&L has with the International Brotherhood
of Electrical Workers, Local 965 is in effect until June 1, 1996. At the
end of the first quarter, the contract covered 1,587 of WP&L's employees
which represents approximately 69 percent of the total employees at WP&L.
On May 1, 1996, tentative agreement was reached on a revised three year
collective bargaining agreement which is subject to ratification by the
union. The ratification process is expected to begin May 20. The Company
cannot predict whether the contract will be ratified.
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 15, 1996 /s/ Edward M. Gleason
Edward M. Gleason, Vice President -
Treasurer, and Corporate Secretary
(principal financial officer)
EXHIBIT INDEX
Exhibit
No. Description
27 Financial Data Schedule