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. <TABLE> Electric Operations <CAPTION> 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 <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 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% ======== ======= ==== </TABLE> 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. <TABLE> Gas Operations <CAPTION> 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 <S> <C> <C> <C> <C> <C> <C> <C> <C> 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% ====== ======= ====== </TABLE> 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. <TABLE> Electric Operations <CAPTION> 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 <S> <C> <C> <C> <C> <C> <C> <C> <C> 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% ======= ======= ==== </TABLE> 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. <TABLE> Gas Operations <CAPTION> 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 <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 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% ======= ======= ==== </TABLE> 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