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 June 30, 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 June 30, 1996: 30,795,260 shares
CONTENTS
PAGE
PART I. Financial Information:
Consolidated Financial Statements of WPL Holdings,
Inc.
Consolidated Balance Sheets as of June 30, 1996
and 1995 and December 31, 1995 . . . . . . . . . . 2,3
Consolidated Statements of Income for the Three and
Twelve Months Ended June 30, 1996 and 1995 . . . . . 4
Consolidated Statements of Cash Flows for the Three
and Twelve Months Ended June 30, 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
June 30, June 30, December 31,
1996 1995 1995
(Thousands of Dollars)
ASSETS
UTILITY PLANT:
Plant in service--
Electric........................... $1,686,564 $1,636,679 $1,666,134
Gas................................ 220,824 211,062 217,678
Water.............................. 23,217 22,006 22,518
Common............................. 143,099 128,897 136,943
--------- --------- ---------
2,073,704 1,998,644 2,043,273
Less: Accumulated provision for
depreciation....................... 929,494 853,853 887,562
--------- --------- ---------
1,144,210 1,144,791 1,155,711
Construction work in progress......... 52,936 33,486 36,996
Nuclear fuel, net..................... 17,247 16,949 18,867
--------- --------- ---------
Total utility plant................. 1,214,393 1,195,226 1,211,574
--------- --------- ---------
OTHER PROPERTY AND EQUIPMENT:
Other property and equipment.......... 126,589 153,191 171,211
Less: Accumulated provision for
depreciation.................. 13,316 25,237 26,442
--------- --------- ---------
113,273 127,954 144,769
--------- --------- ---------
INVESTMENTS:
Nuclear decommissioning trust funds... 84,747 64,342 73,357
Other investments..................... 11,997 12,085 12,105
--------- --------- ---------
96,744 76,427 85,462
--------- --------- ---------
CURRENT ASSETS:
Cash and equivalents.................. 9,635 11,071 11,386
Accounts receivable less allowance
for doubtful accounts of $1,162,
$1,890 and $1,735, respectively.... 81,253 61,484 94,648
Fossil fuel, at average cost.......... 14,548 12,689 14,625
Materials and supplies, at average
cost............................... 21,304 21,421 20,723
Gas in storage, at average cost....... 4,615 5,178 6,319
Prepayments and other................. 34,425 30,993 27,987
--------- --------- ---------
Total current assets.......... 165,780 142,836 175,688
--------- --------- ---------
Restricted cash......................... 5,941 7,218 3,266
--------- --------- ---------
OTHER ASSETS:
Regulatory assets..................... 166,403 159,660 171,699
Deferred charges and other............ 75,888 100,371 79,956
--------- --------- ---------
Total other assets............ 242,291 260,031 251,655
TOTAL ASSETS............................ $1,838,422 $1,809,692 $1,872,414
========= ======= =========
The accompanying notes are an integral part of the consolidated
financial statements.
WPL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, June 30, December 31,
1996 1995 1995
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
Common stock, $.01 par value,
authorized--100,000,000 shares;
issued and outstanding--
30,795,260 shares.................... $ 308 $ 308 $ 308
Premium on capital stock & capital
surplus.............................. 307,422 307,659 305,223
Reinvested earnings..................... 307,885 288,021 291,939
--------- --------- ---------
Total common equity............. 615,615 595,988 597,470
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....................... 423,701 431,027 430,362
--------- --------- ---------
Total capitalization............ 1,099,279 1,086,978 1,087,795
--------- --------- ---------
CURRENT LIABILITIES:
Current maturities of long-term debt.... 3,453 2,871 3,397
Variable rate demand bonds.............. 56,975 56,975 56,975
Short-term debt......................... 57,534 93,364 109,525
Accounts payable........................ 73,717 59,540 94,898
Accrued payroll and vacation............ 12,332 16,527 14,299
Accrued taxes........................... 17,680 6,197 6,483
Accrued interest........................ 7,589 8,992 9,214
Other................................... 43,195 24,030 26,783
--------- --------- ---------
Total current liabilities....... 272,475 268,496 321,574
--------- --------- ---------
OTHER LIABILITIES AND CREDITS:
Accumulated deferred income taxes....... 238,048 226,688 241,150
Accumulated deferred investment
tax credits..................... 37,887 39,800 38,842
Accrued environmental remediation costs. 76,611 79,044 76,852
Other................................... 114,122 108,686 106,201
--------- --------- ---------
Total other liabilities and
credits........................ 466,668 454,218 463,045
--------- --------- ---------
TOTAL CAPITALIZATION AND
LIABILITIES.............................. $1,838,422 $1,809,692 $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
June 30, June 30,
1996 1995 1996 1995
(In Thousands of Dollars Except for Per Share Data)
OPERATING REVENUES:
Electric..................... $137,084 $126,093 $574,664 $526,523
Gas.......................... 28,002 22,450 161,251 139,882
Fees, rents and other........ 43,207 27,447 148,646 118,370
------- ------- ------- -------
208,293 175,990 884,561 784,775
------- ------- ------- -------
OPERATING EXPENSES:
Electric production fuels.... 27,339 27,898 114,820 116,148
Purchased power.............. 16,429 10,234 58,406 37,368
Purchased gas................ 15,690 12,359 98,815 88,136
Other operation.............. 75,172 59,956 282,586 254,354
Maintenance.................. 10,940 13,216 38,486 42,516
Depreciation and
amortization................ 22,712 21,552 89,311 82,682
Taxes other than income...... 8,884 9,348 33,572 34,772
------- ------- ------- -------
177,166 154,563 715,996 655,976
------- ------- ------- -------
OPERATING INCOME............... 31,127 21,427 168,565 128,799
------- ------- ------- -------
INTEREST EXPENSE AND OTHER:
Interest on debt............. 10,059 10,211 42,081 39,450
Allowance for funds used
during construction
(credit).................... (583) (602) (2,484) (3,437)
Other (income) and
deductions, net............. (6,128) 141 (13,287) 1,565
------- ------- ------- -------
3,348 9,750 26,310 37,578
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES......................... 27,779 11,677 142,255 91,221
------- ------- ------- -------
INCOME TAXES:
Current...................... 11,578 662 43,115 22,548
Deferred..................... (688) 2,825 5,807 10,304
Amortization of investment
tax credits................. (478) (479) (1,914) (1,921)
------- ------- ------- -------
10,412 3,008 47,008 30,931
PREFERRED STOCK DIVIDENDS
OF SUBSIDIARY................. 828 827 3,311 3,310
------- ------- ------- -------
INCOME FROM CONTINUING
OPERATIONS.................... 16,539 7,842 91,936 56,980
------- ------- ------- -------
DISCONTINUED OPERATIONS:
Loss from operations of
discontinued subsidiary,
net of applicable tax benefits
of $0, $593, $591, and $1,130,
respectively - 903 903 1,810
Loss on diposal of subsidiary,
net of applicable taxes of $0,
$0, $3,271, and $0, respectively - - 10,974 -
------- ------- ------- -------
- 903 11,877 1,810
------- ------- ------- -------
NET INCOME.................... $16,539 $6,939 $80,059 $55,170
======= ======= ======= =======
EARNINGS PER SHARE:
Income from continuing
operations................. $ 0.54 $ 0.26 $ 2.99 $ 1.85
Discontinued operations..... 0.00 (0.03) (0.39) (0.06)
------- ------- ------- -------
Net income.................. $ 0.54 $ 0.23 $ 2.60 $ 1.79
======= ======= ======= =======
CASH DIVIDENDS PER SHARE OF
COMMON STOCK................. $0.4925 $0.485 $1.948 $1.925
======= ======= ======= =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING........... 30,795 30,744 30,779 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
June 30, June 30,
1996 1995 1996 1995
(Thousands of Dollars)
Cash flows from (used for)
operating activities:
Net income ...................... $16,539 $6,939 $80,059 $55,170
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation and amortization... 21,052 22,221 86,982 82,822
Deferred income taxes and
investment tax credits......... (1,165) 2,367 3,925 6,538
Amortization of nuclear fuel.... 2,160 1,196 8,712 7,362
Allowance for equity funds
used during construction....... (377) (451) (1,610) (2,601)
(Gain) loss on sale of
subsidiaries................... - - 7,725 -
(Gain) loss on sale of other
property and equipment......... (5,676) - (5,676) -
Changes in assets and
liabilities:
Accounts receivable and
unbilled revenues.............. 544 10,271 (19,448) (1,155)
Production fuels, materials, and
supplies....................... (2,663) 1,438 (1,742) 4,535
Gas in storage.................. (3,567) (3,234) 563 (568)
Prepayments and other........... (11,310) (8,537) (3,432) (1,613)
Accounts payable and accruals... (5,109) (3,173) 6,922 5,029
Accrued taxes................... (6,423) (11,222) 11,483 2,623
Other, net...................... (10,522) (27,197) 2,499 19,210
------- ------- ------- -------
Net cash from (used for)
operating activities........ (6,517) (9,382) 176,962 177,352
------- ------- ------- -------
Cash flows from (used for)
financing activities:
Long-term debt maturities,
redemptions and sinking
fund requirements............... (2,615) 2,999 (6,805) 27,500
Net change in short term debt.... (362) 61,301 (35,830) 22,306
Retirement of first mortgage
bonds........................... - (18,000) - (18,000)
Common stock cash dividends,
less dividends reinvested....... (15,167) (14,925) (60,174) (57,433)
Other, net....................... 615 1,989 218 168
------- ------- ------- -------
Net cash from (used for)
financing activities........ (17,529) 33,364 (102,591) (25,459)
------- ------- ------- -------
Cash flows from (used for)
investing activities:
Proceeds from sale of other
property and equipment.......... 36,264 - 36,264 -
Additions to utility plant,
excluding AFUDC................. (28,710) (22,790) (104,941) (125,530)
Allowance for borrowed funds
used during construction........ (206) (151) (876) (836)
Dedicated decommissioning
funding......................... (2,224) (862) (20,405) (13,372)
Proceeds from sale of
subsidiaries.................... - - 22,130 -
Purchase of other property and
equipment....................... 22,852 (912) 5,712 (9,294)
Other, net....................... (2,230) 610 (13,691) (988)
------- ------- ------- -------
Net cash from (used for)
investing activities........ 25,746 (24,105) (75,807) (150,020)
------- ------- ------- -------
Net increase (decrease) in cash
and equivalents................... 1,700 (123) (1,436) 1,873
Cash and equivalents at beginning
of period......................... 7,935 11,194 11,071 9,198
------- ------- ------- -------
Cash and equivalents at end of
period............................ $ 9,635 $ 11,071 $9,635 $11,071
======= ======= ======= =======
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest on debt................. $ 7,338 $ 6,565 $ 43,143 $43,720
Preferred stock dividends of
subsidiary...................... $ 828 $ 828 $ 3,310 $ 3,310
Income taxes..................... $16,879 $ 5,671 $ 43,148 $17,876
Noncash financing activities:
Dividends reinvested............ $ - $ - $ - $ -
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 June 30, 1996 and 1995, (b) the consolidated
financial position at June 30, 1996 and 1995 and December 31, 1995,
and (c) the consolidated statement of cash flows for the three and
twelve month periods ended June 30, 1996 and 1995 have been made.
2. In April 1996, WP&L repurchased in a private transaction $5.0
million of its Series V first mortgage bonds, due December 1, 2025,
coupon rate of 9.30%. In order to purchase these bonds, the Company
issued short term debt.
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 June 30, 1996 VS. June 30, 1995:
OVERVIEW
The Company reported consolidated second quarter net income from
continuing operations of $16.5 million or 54 cents per share compared to
$7.8 million or 26 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. During the second quarter a $3.4 million after-
tax gain was recognized on the sale of a combustion turbine. Weather-
driven natural gas sales growth, increased electric sales to other
utilities, and continued customer growth contributed to higher margins as
compared with the second quarter of last year.
Electric margin increased by $5.4 million due to increased sales and
lower aggregate costs per kWh. Gas margin increased $2.2 million due to a
change in the mix of sales from lower margin to higher margin customer
classes. WP&L operations and maintenance declined during the second quarter
due primarily to the timing of nuclear plant refueling.
Heartland Development Corporation, ("HDC"), parent company of the
Company's non-regulated operations, reported a loss from continuing
operations of $2.2 million for the second quarter of 1996 compared with a
loss from continuing operations of $1.3 million for the same period in
1995. The second quarter performance was primarily the result of losses on
commodity 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 $43,776 $43,247 1% 633,695 622,251 2% 334,035 327,319 2%
Industrial 36,450 36,080 1% 1,003,872 991,595 1% 810 778 4%
Commercial 24,519 24,168 1% 421,098 412,304 2% 45,300 44,227 2%
Wholesale and
Class A 31,367 20,319 54% 1,290,219 628,782 105% 92 83 11%
Other 972 2,279 (30%) 15,591 14,856 5% 1,742 1,497 16%
------- ------- --------- --------- ------- -------
Total 137,084 126,093 9% 3,364,475 2,669,788 26% 381,979 373,904 2%
------- ------- ========= ========= === ======= ======= ===
Electric
Production Fuels 27,339 27,898 (6%)
Purchased Power 16,429 10,234 66%
------ ------
Margin $93,316 $87,961 6%
====== ====== ===
Electric revenues increased $11.0 million, or 9 percent, as compared to
the second quarter of 1995. The increase was the result of a 26 percent
increase in kWh sales primarily due to increased bulk power sales during
the second quarter 1996.
Electric margin increased $5.4 million, or 6 percent, during the second
quarter of 1996 compared to the second quarter of 1995 primarily due to
higher sales (as discussed above). Aggregate costs of production fuels and
purchased power increased as a result of a 26 percent increase in kWh
sales. Because of this increase in sales and the availability of
competitively priced off-system power, purchased power increased 66
percent.
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 $14,703 $10,697 37% 23,245 18,843 23% 131,093 126,581 4%
Firm 7,855 5,839 35% 15,493 13,419 15% 16,160 15,733 3%
Interruptible 611 606 1% 1,659 1,942 -15% 258 236 9%
Transport. and
Other 4,833 5,308 -9% 34,342 40,188 -15% 266 243 9%
------- ------- ------- ------- ------- -------
Total 28,002 22,450 25% 74,739 74,392 0% 147,777 142,793 3%
------- ------- ======= ======= === ======= ====== ===
Purchased Gas 15,690 12,359 27%
------- ------- ---
Margin 12,312 10,091 22%
======= ======= ===
Gas revenues increased $5.6 million, or 25 percent, in the second
quarter of 1996 as compared to 1995. The increased revenues were the
result of higher commodity costs passed on to customers and a change in
the sales mix while total therm sales remained relatively unchanged, the
mix of these sales indicates a decline of 15 percent in transportation and
interruptible sales with a corresponding increase of 23 percent and 15
percent in higher margin residential and firm sales, respectively. The
gas incentive program authorized by the Public Service Commission of
Wisconsin also resulted in a loss of $0.1 million pre-tax during the
second quarter of 1996 compared with additional savings of $0.3 million
pre-tax 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 $15.8 million is primarily due to higher energy
marketing revenues of $14.3 million due to an increase in power marketing
activity at the energy marketing company.
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 June 30, 1996 and 1995.
Other Operation and Maintenance
The increase in other operation and maintenance expense of $12.9
million is primarily due to the increased activity in the energy marketing
business. In addition, losses were incurred in gas and electric marketing
transactions in the energy services subsidiary.
Depreciation and Amortization
Depreciation and amortization expense increased $1.2 million as a
result of property additions.
Income Taxes
Income taxes increased between second quarters consistent with
higher taxable income.
Other (Income) and Deductions, Net
Other (income) and deductions, net increased $6.3 million due to the
$5.7 million pre-tax gain on the sale of a combustion turbine.
TWELVE MONTHS ENDED June 30, 1996 VS. June 30, 1995:
OVERVIEW
The Company reported consolidated net income from continuing
operations of $91.9 million or $2.99 per share for the twelve months
ended June 30, 1996 as compared to $57.0 million or $1.85 per share for
the same period in 1995. Earnings per share for the twelve month periods
ended June 30, 1996 and June 30, 1995 were $2.60 and $1.79, 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 June 30, 1995. In addition a $3.4 million after-tax
gain on the sale of a combustion turbine was recognized during the twelve
months ended June 30, 1996.
Electric margin increased by $26.6 million, or 7 percent, from
increased sales and lower costs per kWh for both electric production fuels
and purchased power. Gas margins increased $10.7 million, or 21 percent,
as a result of increased therm sales. In addition, other operation and
maintenance expenses at the utility decreased primarily due to higher
early retirement and severance expenses during the twelve month period
ended June 30, 1995 and a shift in the refueling cycle at the Kewaunee
Nuclear Power Plant from the second quarter of 1995 to the fourth quarter
of 1996.
Partially offsetting the increases to income was a $6.6 million
increase in depreciation expense primarily resulting from property
additions and higher decommissioning related expenses.
HDC reported a loss from continuing operations of $0.9 million for
the twelve months ended June 30, 1996 compared with a loss from continuing
operations of $3.7 million for the same period in 1995. The change is due
to the gains on the sales of Heartland Retirement Services during the
first quarter of 1996 and Heartland Fuels Corporation during the last
quarter of 1995. 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 $204,141 $192,023 6% 3,013,326 2,779,130 9% 334,035 327,319 2%
Industrial 143,488 140,133 2% 3,933,209 3,816,898 3% 810 778 4%
Commercial 104,590 100,234 4% 1,809,125 1,700,213 6% 45,300 44,227 2%
Wholesale and
Class A 117,570 85,219 38% 4,278,026 2,575,668 66% 92 83 11%
Other 4,875 8,914 (45)% 56,209 53,636 5% 1,742 1,497 16%
------- ------- ---------- ---------- ------- -------
Total 574,664 526,523 7% 13,089,895 10,925,545 20% 381,979 373,904 2%
------- ------- ========== ========== === ======= ======= ===
Electric
production fuels 114,820 116,148 (1)%
Purchased Power 58,406 37,368 61%
------- -------
Margin $401,438 $373,007 8%
======= ======= ===
Electric revenues increased $48.1 million, or 7 percent, as compared to
the twelve months ended June 30, 1995. The increase was the result of a 20
percent increase in kWh sales primarily due to a much warmer summer in
1995, colder winter weather in 1996, higher sales to other utilities and
customer growth.
Electric margin increased 8 percent during the twelve months ended June
30, 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. Although total fuel and purchased power costs
declined on a per kWh basis, total purchased power expense increased by 61
percent. This increase is due to the Company's higher level of bulk power
sales as well as the opportunity to purchase low-cost energy. Partially
offsetting increased purchased power costs are slightly lower delivered
coal and nuclear fuel 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 $84,954 $66,029 29% 142,221 114,956 24% 131,093 126,581 4%
Firm 47,481 37,474 27% 99,772 82,297 21% 16,160 15,733 3%
Interruptible 3,607 6,246 (42)% 10,673 19,148 (44)% 258 236 9%
Transport. and
Other 25,208 30,135 (16)% 174,725 159,560 10% 266 243 9%
------- ------- ------- ------- ------- -------
Total 161,250 139,884 15% 427,391 375,961 14% 147,777 142,793 3%
======= ======= ======= ======= === ======= ======= ===
Purchased Gas 98,815 88,138 12%
------- -------
Margin $62,435 $51,746 21%
======= ======= ===
Gas revenues increased $21.4 million, or 15 percent, during the twelve
months ended June 30, 1996 as compared to the twelve months ended June 30,
1995. The higher revenues were the result of a 14 percent rise in therm
sales primarily due to colder weather and residential and firm customer
growth. The higher sales volumes as well as favorable management of gas
supply costs resulted in a $10.7 million, or 21 percent, increase in gas
margin.
With the elimination of the purchased gas adjustment clause effective
January 1, 1995, 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 twelve months ended June 1996, the gas incentive program resulted in
additional savings of $1.0 million pre-tax.
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. The increase was partially offset by
lower revenues in the environmental, engineering business and housing
subsidiary.
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 and $4.1 million for the twelve
months ended June 30, 1996 and 1995, respectively.
Other Operation and Maintenance
The increase in other operation and maintenance expense of $24.2 million
is primarily due to the increased activity in the energy marketing
business and losses incurred in gas and electric marketing transactions in
the energy services subsidiary. The increase in expenses at HDC was
offset by a $22.0 million reduction in expense at the utility company.
The decrease in the utility operations is a result of higher early
retirement and severance expenses during the twelve months ended June 30,
1995, related to the Company's reengineering efforts. In addition, nuclear
plant refueling costs which occurred during the twelve month period ending
June 30, 1995 are not expected to occur until the fourth quarter of 1996.
Depreciation and Amortization
Depreciation and amortization expense increased $6.6 million as a
result of property additions, and greater amortization of contributions in
aid of construction (a reduction of expense) in the second quarter of
1995 compared with the same period in 1996.
Interest on Debt
The increase in interest expense is primarily due to the increase in
debt at the housing subsidiary relating to construction projects during
the second half of 1995.
Income Taxes
Income taxes increased for the twelve month period ended June 30, 1996,
as a result of higher taxable income.
Other (Income) and Deductions, Net
Other (income) and deductions, net increased primarily as a result two
significant gains recognized during the twelve months ended June 30, 1996.
In the second quarter of 1996 the sale of a combustion turbine resulted in
a pre-tax gain of $5.7 million and in the first quarter of 1996 a $3.3
million pre-tax gain resulted from the sale of a HDC real estate
investment, Heartland Retirement Services.
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 June 30, 1996, the loss from
operations of A&C was $.9 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
June 30, 1995, the loss from operations was $1.8 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. WP&L finances its construction
expenditures through internally generated funds supplemented, and when
required, by outside financing. (Also see: Note 2 in the "Notes to
Financial Statements," page 6.)
During the three and twelve months ended June 30, 1996 and June 30,
1995, the Company generated sufficient cash flows from operations, the
sale of other property and equipment and short-term borrowings to cover
operating expenses, cash dividends and investing activities. Cash flows
from operations decreased to $(6.5) million for the three months ended
June 30, 1996, compared to $(9.4) million for the same period last year.
For the twelve month period ended June 30, 1996, cash flows from operations
decreased to $177.0 million from $177.4 million during the same period in
1995. During the twelve months ended June 30, 1996, the Company received
$58.4 million from sales of a combustion turbine and several non-
regulated investments.
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 June 30, 1996 are available to support
these borrowings.
The Company's capitalization at June 30,1996, including the current
maturities of long-term debt, variable rate demand bonds and short-term
debt, consisted of 56 percent common equity, 6 percent preferred stock and
38 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 June
30, 1996 were $29.3 million. The estimated construction expenditures for
the remainder of 1996 are $99.2 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 evaluating, and are con-
tinuing 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 (PSCW) 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
June 30, 1996 was $57 million.
WP&L has applied to the PSCW for accelerated depreciation of this
remaining book value of KNPP such that by the end of the year 2002
there would be full recovery of all plant investment. The request for this
acceleration reflects the condition of the present steam generators and
the evolution of the electric generation marketplace towards a more
competitive model.
Rates and Regulatory Matters
In the PSCW rate order UR-109, effective January 1, 1995, the PSCW
approved certain incentive programs. Based on the 1995 performance of the
SO2 emissions and service reliability incentive programs a $2.5 million
refund to retail electric customers was made after the second quarter of
1996. The refund associated with the gas portion of the program has not
been approved by the PSCW.
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. 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 pro forma open access
transmission tariff, filed on July 8, 1996, in compliance with FERC order
No. 888.
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.
OTHER
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, as amended, 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 combina-
tion of IES and the Company as a single holding company (collectively, the
"Proposed Merger"). The holding company will be renamed Interstate Energy
Corporation ("Interstate Energy)".
The Joint Proxy Statement/Prospectus of the Company, IES and IPC was
filed with the Securities and Exchange Commission on July 11, 1996. The
Merger Agreement contemplated an adjustment of the IES Ratio to 1.01 shares
of Interstate Energy Common Stock from the initial ratio of 0.98 in the event
that prior to the consummation of the transaction, McLeod, Inc., a Delaware
corporation in which IES has a significant ownership interest ("McLeod"),
(a) completed a firm commitment underwritten initial public offering of
its Class A common stock at a per share price of at least $13.00 in which
McLeod received gross proceeds of at least $75 million and (b)
immediately following the public offering the Class A common stock was
registered under Section 12 of the Exchange Act. On June 14,1996, McLeod
completed an initial public offering of 13.8 million shares of its Class A
common stock at a price of $20 per share. The McLeod offering satisfied
the conditions of the McLeod contingency and the IES Ratio was adjusted to
the 1.01.
The shareowner vote on the merger is expected to occur at annual
meetings to be held by each of the Company, IES and IPC on September 5,
1996. The corporate headquarters of Interstate Energy will be in Madison,
Wisconsin.
On August 5, 1996, MidAmerican Energy Company, an electric and natural
gas utility company based in Des Moines, Iowa, announced that it had made
an unsolicited bid to acquire IES in a cash and stock transaction. The
Company cannot currently determine what, if any, impact the unsolicited bid
of MidAmerican may have on the transaction contemplated by the Merger
Agreement.
Union Contract
WP&L and International Brotherhood of Electrical Workers, Local 965
reached agreement on a new three year collective bargaining contract on
June 14. The new agreement includes increases in the base wage during the
first, second and third years of the contract of 3 percent, 3 percent and
3.25 percent, respectively. The new agreement is effective retroactive to
June 1, 1996, with wages retroactive to May 26, which is the beginning of
a pay period. At the end of the second quarter, the contract covered 1,587
of WP&L's employees which represents approximately 69 percent of the total
employees at WP&L.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits
2A Amendment No. 1 to Agreement and Plan of Merger and Stock
Option Agreements, dated May 22, 1996, by and among the
Company, IES Industries Inc., Interstate Power Company,
AMW Acquisition, Inc., WPLH Acquisition Co. and Interstate
Power Company [Incorporated by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K, dated May 22,
1996]
3A Amendment to By-Laws of the Company
3B By-laws of the Company as revised July 25,1996
27 Financial Data Schedule
2. Reports on Form 8-K: The Company filed a Current Report on
Form 8-K, dated May 22, 1996, reporting under Item 5 that it
had entered into an amendment to the Merger Agreement (and
related documents), dated as of November 10, 1995, by and
among the Company, IES Industries Inc., Interstate Power
Company and AMW Acquisition, Inc.
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: August 14, 1996 /s/ Edward M. Gleason
Edward M. Gleason, Vice President -
Treasurer, and Corporate Secretary
(principal financial officer and
officer authorized to sign on behalf
of the registrant)
EXHIBIT INDEX
Exhibit
No. Description
2A Amendment No. 1 to Agreement and Plan of Merger and Stock
Option Agreements, dated May 22, 1996, by and among the
Company, IES Industries Inc., Interstate Power Company,
AMW Acquisition, Inc., WPLH Acquisition Co. and Interstate
Power Company [Incorporated by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K, dated May 22,
1996]
3A Amendment to By-Laws of the Company
3B By-Laws of the Company as revised July 25,1996
27 Financial Data Schedule