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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1993
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
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 of (I.R.S. Employer
incorporation or organization) Identification 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock (Par Value $.01 Per Share) New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. /X/
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
The aggregate market value of the voting stock held by
nonaffiliates of the registrant: $943,671,837 based upon the closing price
as of January 31, 1993 of Common Stock, $.01 par value, on the New York
Stock Exchange as reported in the Wall Street Journal.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.
Class Outstanding at January 31, 1994
Common Stock, $.01 par value 30,441,027 shares
Documents incorporated by reference:
Portions of the Company's 1994 Proxy Statement relating to
its 1994 Annual Meeting of Shareowners (to be filed with the Commission
under Regulation 14A within 120 days after the end of the registrant's
fiscal year) are incorporated by reference into Part III hereof.
WPL HOLDINGS, INC.
FORM 10-K
December 31, 1993
TABLE OF CONTENTS
Part I. Business . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . .
Executive Officers . . . . . . . . . . . . . . . . . .
Part II. Financial Information . . . . . . . . . . . . . . . . . . . .
Part III. Directors and Executive Officers
Information . . . . . . . . . . . . . . . . . . . . .
Part IV. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Public Accountants on Scheduless . . . . . . . .
PART I
ITEM 1. BUSINESS
WPL Holdings, Inc. (herein sometimes referred to as the
"company") was incorporated under the laws of the State of Wisconsin on
April 22, 1981 and operates as a holding company with both utility and
nonregulated businesses. It is the parent company of a public utility,
Wisconsin Power and Light Company (WP&L) and its related subsidiaries, and
of Heartland Development Corporation ("HDC"), the parent corporation for
the company's nonregulated businesses.
WP&L
WP&L incorporated in Wisconsin on February 21, 1917, as the
Eastern Wisconsin Electric Company, is a public utility predominately
engaged in the transmission and distribution of electric energy and the
generation and bulk purchase of electric energy for sale. It also
transports, distributes and sells natural gas purchased from gas
suppliers. Nearly all of the WP&L's customers are located in south and
central Wisconsin. WP&L operates in municipalities pursuant to permits of
indefinite duration which are regulated by Wisconsin law. WP&L does not
derive a material portion of its revenues from any one customer.
WP&L owns all of the outstanding capital stock of South Beloit
Water, Gas and Electric Company ("South Beloit"), a public utility
supplying electric, gas and water service, principally in Winnebago
County, Illinois, which was incorporated on July 23, 1908.
WP&L also owns varying interests in several other subsidiaries
and investments which are not material to WP&L's operations.
Regulation
The company and WP&L are subject to regulation by the Public
Service Commission of Wisconsin ("PSCW") as to retail utility rates and
service, accounts, issuance and use of proceeds of securities, certain
additions and extensions to facilities, and in other respects. South
Beloit is subject to regulation by the Illinois Commerce Commission
("ICC") for similar items. The Federal Energy Regulatory Commission
("FERC") has jurisdiction under the Federal Power Act over certain of the
electric utility facilities and operations, wholesale rates and accounting
practices of WP&L and in certain other respects. Certain of WP&L's
natural gas facilities and operations are subject to the jurisdiction of
the FERC under the Natural Gas Act. The company is presently exempt from
all provisions of the Public Utility Holding Company Act of 1935, except
provisions relating to the acquisition of securities of other public
utility companies.
An anticipated change in the regulatory environment is the
movement towards the deregulation of certain aspects of utility
operations. WP&L is in the process of evaluating the impacts of such
deregulation.
With respect to environmental matters, the United States
Environmental Protection Agency administers certain federal statutes;
others are delegated to the Wisconsin Department of Natural Resources
("DNR"). In addition, the DNR has jurisdiction over air and water quality
standards associated with fossil fuel fired electric generation and the
level and flow of water, safety and other matters pertaining to
hydroelectric generation.
WP&L is subject to the jurisdiction of the Nuclear Regulatory
Commission ("NRC") with respect to the Kewaunee nuclear plant and to the
jurisdiction of the United States Department of Energy ("DOE") with
respect to the disposal of nuclear fuel and other radioactive wastes from
the Kewaunee Nuclear Power Plant ("Kewaunee").
Employees
At year-end 1993, WP&L employed 2,673 persons, of whom 2,136
were considered electric utility employees, 387 were considered gas
utility employees and 150 were considered other utility employees. WP&L
has a three-year contract with members of the International Brotherhood of
Electrical Workers, Local 965, that is in effect until June 1, 1996. The
contract covers 1,742 of WP&L's employees.
ELECTRIC OPERATIONS:
General
The company, through WP&L provides electricity in a service
territory of approximately 16,000 square miles in 35 counties in southern
and central Wisconsin and four counties in northern Illinois. As of
December 31, 1993, the company provided retail electric service to
approximately 360,000 customers in 609 cities, villages and towns, and
wholesale service to 25 municipal utilities, 1 privately owned utility,
three rural electric cooperatives and to Wisconsin Public Power, Inc.
System, which provides retail service to nine communities.
WP&L owns 21,579 miles of electric transmission and distribution
lines and 351 substations located adjacent to the communities served.
WP&L's electric sales are seasonal to some extent with the
yearly peak normally occurring in July or August. WP&L also experiences a
smaller winter peak in December or January.
Fuel
In 1993, approximately 80 percent of WP&L's net kilowatthour
generation of electricity was fueled by coal and 17 percent by nuclear
fuel (provided by WP&L's 41 percent ownership interest in Kewaunee). The
remaining electricity generated was produced by hydroelectric, oil-fired
and natural gas generation.
Coal
WP&L anticipates that its average fuel costs will increase in
the future, due to cost escalation provisions in existing coal and
transportation contracts and increases in the costs of new coal contracts
due to emission requirements under federal and state laws.
The estimated coal requirements of WP&L's generating units
(including jointly-owned facilities) for the years 1994 through 2013 total
about 166 million tons. Present coal supply contracts and transportation
contracts (excluding extension options) cover approximately 25 percent and
24 percent, respectively, of this estimated requirement. WP&L will seek
renewals of existing contracts or additional sources of supply and
negotiate new or additional transportation contracts to satisfy the
requirements of approved environmental regulations.
Nuclear
Kewaunee is jointly owned by WP&L (41%), Wisconsin Public
Service Corporation (41.2%) and Madison Gas & Electric Company (17.8%).
Wisconsin Public Service Corporation is the operating partner. The plant
began commercial operation in 1974.
The supply of fuel for Kewaunee involves the mining and milling
of uranium ore to uranium concentrates, the conversion of uranium
concentrates to uranium hexafluoride, enrichment of the uranium
hexafluoride and fabrication of the enriched uranium into usable fuel
assemblies. The following narrative discusses the nuclear fuel supplies
for Kewaunee which requires approximately 250,000 pounds of uranium
concentrates per year. Additionally, WP&L and the other Kewaunee
co-owners formed a limited partnership of subsidiaries in the mid-1970's
to secure uranium reserves and maintain a long-term uranium concentrates
supply capability.
(a) Requirements for uranium are met through spot market
purchases of uranium. In general a four-year supply of
uranium is maintained.
(b) Uranium hexafluoride, from inventory and from spot market
purchases, was used to satisfy converted material
requirements in 1993. Such conversion services will be
purchased on the spot market in the future.
(c) In 1993, enriched uranium was procured from COGEMA, Inc.
pursuant to a contract last amended in 1991. The
partnership is obligated to take delivery of additional
enriched uranium contracted from COGEMA in 1993 and 1994.
The partnership also purchased enriched uranium on the
spot market in 1993. Enrichment services were purchased
from the DOE under the terms of the utility services
contract. This contract is in effect for the life of
Kewaunee. The partnership is committed to take 70 percent
of its annual requirements in 1994 and 1995, and in
alternate years thereafter from the DOE.
(d) Fuel fabrication requirements through 1995 are covered by
contract. This contract contains an option to allow the
partnership to extend the contract through 1998.
(e) Beyond the stated periods for Kewaunee, additional
contracts for uranium concentrates, conversion to uranium
hexafluoride, fabrication and spent fuel storage will have
to be procured. The prices for the foregoing are expected
to increase.
The National Energy Policy Act of 1992 provides that both the
Federal government and the nuclear utilities fund the decontamination and
decommissioning of the three federal gaseous diffusion plants in the
United States. This will require the owners of Kewaunee to pay
approximately $15 million, in current dollars over a period of 15 years.
WP&L's share amounts to an annual payment of approximately $410,000.
The steam generator tubes at Kewaunee are susceptible to
corrosion characteristics seen throughout the nuclear industry. Annual
inspections are performed to identify degraded tubes. Degraded tubes are
either repaired by sleeving or are plugged with approximately 15 percent
heat transfer margin, meaning that full power should be sustainable with
the equivalent of 15 percent of the steam generator tubes plugged.
Currently, the equivalent of 10 percent of the tubes in the steam
generators are plugged. WP&L and the other joint owners continue to
evaluate appropriate strategies, including replacement, as well as
continued operation of the steam generators without replacement. WP&L and
the joint owners intend to operate Kewaunee until at least 2013, the
expiration of the present operating license. WP&L and the joint owners
are also evaluating initiatives to improve the performance of Kewaunee.
These initiatives include funding of the development of welded repair
technology for steam generator tubes and numerous cost reduction measures
such as the conversion from a 12-month to an 18-month fuel cycle. If the
steam generators are not replaced, and excluding the possible affect of
the aforementioned repair strategies, a gradual power reduction of
approximately 1 percent per year may begin as soon as 1995.
Physical decommissioning is expected to occur during the period
2014 to 2021 with additional expenditures being incurred during the period
2022 to 2050 related to the storage of spent nuclear fuel at the site.
WP&L's share of the decommissioning costs of this plant is estimated to be
$149 million (in 1993 dollars) based on a site specific study, performed
in 1992, using immediate dismantlement as the method of decommissioning.
Wisconsin utilities operating nuclear generating plants are required by
the PSCW to establish external trust funds to provide for the
decommissioning of such plants. The market value of the investments in
the funds established by WP&L at December 31, 1993 totaled $45.1 million.
Pursuant to the Nuclear Waste Policy Act of 1982, the DOE has
entered into a contract with WP&L to accept, transport and dispose of
spent nuclear fuel beginning not later than January 31, 1998. It is
likely that the DOE will delay the acceptance of spent nuclear fuel beyond
1998. A fee to offset the costs of the DOE's disposal for all spent fuel
used since April 7, 1983 has been assessed by the DOE at one mill per net
kilowatthour of electricity generated and sold by the Kewaunee nuclear
power plant. An additional one-time fee was paid for the disposal of
spent nuclear fuel used to generate electricity prior to April 7, 1983.
Spent fuel is currently stored at Kewaunee. The existing
capacity of the spent fuel storage facility will enable storage of the
projected quantities of spent fuel through April 2001. WP&L is currently
evaluating options for the storage of additional quantities beyond 2001.
Several technologies are available. It is expected that the larger
capacity requirements for spent nuclear fuel storage will require a
capital investment in the late 2000's.
The Low-Level Radioactive Waste Policy Act of 1980 as amended in
1985 provides that states may enter into compacts to provide for regional
low-level waste disposal facilities. The amended Act provides that after
January 1, 1993, compact members may restrict the use of regional disposal
facilities to waste generated within the region. Wisconsin is a member of
the Midwest Interstate Low-Level Radioactive Waste Compact which includes
six Midwestern states and was ratified by Congress. A Midwest disposal
facility is not expected to be operational until the late 1990's.
Presently, the state of Ohio has been selected as the host state for the
Midwest Compact and is proceeding with the preliminary phases of site
selection. In the meantime, WP&L has access to an existing low level
waste storage space to temporarily store low level waste generated.
Recovery of Electric Fuel Costs
WP&L does not automatically pass changes in electric fuel cost
through to its Wisconsin retail electric customers. Instead, rates are
based on estimated per unit fuel costs established during rate proceedings
and are not subject to change by fuel cost fluctuations unless actual
costs are outside specified limits. If actual fuel costs vary from the
estimated costs by more than +10 percent in a month or by more than
+3 percent for the test year to date, projected annual variances are then
estimated. If the projected annual variance is more than +3 percent,
rates are subject to hearings and increase or decrease by the PSCW.
WP&L's wholesale rates and South Beloit's retail rates contain
fuel adjustment clauses pursuant to which rates are adjusted monthly to
reflect changes in the costs of fuel.
Environmental Matters
WP&L cannot precisely forecast the effect of future
environmental regulations by federal, state and local authorities upon its
generating, transmission and other facilities, or its operations, but has
taken steps to anticipate the future while meeting the requirements of
approved environmental regulations of today. The Clean Air Act Amendments
of 1977 and subsequent amendments to the Clean Air Act, as well as the new
laws affecting the handling and disposal of solid and hazardous wastes
along with clean air legislation passed in 1990 by Congress, could affect
the siting, construction and operating costs of both present and future
generating units (see "Item 3. Legal Proceedings").
Under the Federal Clean Water Act, National Pollutant Discharge
Elimination System permits for generating station discharge into water
ways are required to be obtained from the DNR, to which the permit program
has been delegated. These permits must be periodically renewed. WP&L has
obtained such permits for all of its generating stations or has filed
timely applications for renewals of such permits.
Air quality regulations promulgated by the DNR in accordance
with Federal standards impose statewide restrictions on the emission of
particulates, sulfur dioxide, nitrogen oxides and other air pollutants and
require permits from the DNR for the operation of emission sources. WP&L
currently has the necessary permits to operate its fossil-fueled
generating facilities. However, new permits will be required for all
major facilities in Wisconsin beginning in 1994. The schedule for
application of these new permits has been staggered by the DNR to
accomodate staffing at the DNR. WP&L's Columbia Generating facility is
required to submit a permit application on May 1, 1994. The remaining
facilities will be addressed later in 1994 and early 1995.
Pursuant to Wisconsin statutes 144.386(2), WP&L has submitted
data and plans for 1993 sulfur dioxide emissions compliance. WP&L will
make any necessary operational changes in fuel types and power plant
dispatch to comply with the Plan.
WP&L's compliance strategy for Wisconsin's 1993 sulfur dioxide
law and the Federal Clean Air Act Amendments required plant upgrades at
its generating facilities. The majority of these projects were completed
in 1993. WP&L has installed continuous emissions monitoring systems at
all of its coal fired boilers (Edgewater and Nelson Dewey facilities) in
1993 and will complete the installation of these monitors at the remaining
facilities in 1994. No additional costs for compliance with these acid
rain requirements are anticipated at this time.
WP&L maintains licenses for all its ash disposal facilities and
regularly reports to the DNR groundwater data and quantities of ash
landfilled or reused. The landfills are operated according to a Plan of
Operation approved by the DNR.
WP&L's accumulated pollution abatement expenditures through
December 31, 1993, totaled approximately $122 million. The major
expenditures consist of about $60 million for the installation of
electrostatic precipitators for the purpose of reducing particulate
emissions from WP&L's coal-fired generating stations and approximately
$62 million for other pollution abatement equipment at the Columbia, Edge-
water, Kewaunee, Nelson Dewey, Rock River and Blackhawk plants.
Expenditures during 1993 totaled approximately $6 million. Estimated
pollution abatement expenditures total $.7 million through 1995. WP&L's
estimated pollution abatement expenditures are subject to continuing
review and are revised from time to time due to escalation of construction
costs, changes in construction plans and changes in environmental
regulations.
See "Electric Operations - Fuel" for information concerning the
disposal of spent nuclear fuel and high level nuclear waste.
CONSOLIDATED ELECTRIC STATISTICS
WISCONSIN POWER AND LIGHT COMPANY
Year Ended December 31,
1993 1992 1991 1990 1989
Area served (end of period):
Population--retail (estimated)(a)......... 818,000 807,000 799,000 777,000 772,000
Cities, villages and towns served --retail 609 611 611 604 603
Customers served (end of period):
Residential and farm...................... 316,870 310,702 304,825 302,942 295,163
Industrial................................ 714 727 679 635 649
Commercial................................ 42,884 42,287 41,190 40,358 39,487
Wholesale................................. 32 30 31 31 32
Class A................................... 7 9 10 10 6
Other..................................... 1,236 950 1,173 1,147 922
---------- --------- --------- --------- ---------
Total................................... 361,743 354,705 347,908 345,123 336,259
========== ========= ========= ========= =========
Sales--kilowatt-hours (in thousands):
Residential and farm...................... 2,751,363 2,614,439 2,729,917 2,566,093 2,532,832
Industrial................................ 3,540,082 3,377,132 3,185,101 3,173,932 3,119,504
Commercial................................ 1,629,911 1,551,823 1,558,297 1,492,255 1,451,715
Wholesale................................. 2,105,905 1,994,722 1,979,832 1,885,424 1,822,746
Class A................................... 282,226 213,697 461,357 352,129 619,265
Other..................................... 51,073 55,230 54,376 55,101 54,267
---------- --------- --------- --------- ---------
Total................................... 10,360,560 9,807,043 9,968,880 9,524,934 9,600,329
========== ========= ========= ========= =========
Electric operating revenues (in thousands):
Residential and farm...................... $ 184,176 $ 171,887 $ 179,751 $ 170,875 $ 168,787
Industrial................................ 132,903 128,467 124,212 124,972 123,861
Commercial................................ 95,977 91,707 92,628 89,618 87,165
Wholesale................................. 69,757 67,326 68,154 65,983 64,091
Class A................................... 9,198 10,159 14,677 9,784 12,632
Other..................................... 11,176 8,189 9,130 9,587 6,539
--------- --------- --------- --------- ---------
Total................................... $ 503,187 $ 477,735 $ 488,552 $ 470,819 $ 463,075
========= ========= ========= ========= =========
Percent of generation by fuel type:
Coal...................................... 80.3% 79.8% 81.1% 79.6% 79.2%
Nuclear................................... 16.5 17.4 15.7 17.6 18.5
Hydroelectric............................. 2.9 2.6 2.6 2.5 1.9
Natural gas............................... .2 .1 .5 .2 .3
Oil....................................... .1 .1 .1 .1 .1
----- ----- ----- ----- -----
Total................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
System capacity--at time of system peak:
(kWh's)
Company plants (including jointly owned)
jointly owned).......................... 2,019,000 1,934,000 1,932,000 1,936,000 1,915,000
Firm purchased (sold) power............... 83,000 110,000 70,000 (55,000) 83,000
--------- --------- --------- --------- ---------
Total................................... 2,102,000 2,044,000 2,002,000 1,881,000 1,998,000
System peak demand........................ 1,971,000 1,782,000 1,863,000 1,798,000 1,777,000
--------- --------- --------- --------- ---------
Reserve margin at time of peak............ 131,000 262,000 139,000 83,000 221,000
========= ========= ========= ========= =========
Fuel cost per kilowatt-hour (cents)......... 1.349 1.365 1.392 1.419 1.562
Cost per million BTU (all fuels) (cents).... 128.69 130.80 132.70 134.86 148.71
BTU per kilowatthour generated (heat rate).. 10,483 10,438 10,493 10,519 10,506
Average annual electric bill per
residential and farm customer............. $ 587 $ 558 $ 594 $ 573 $ 577
Average annual kilowatt-hour use per
residential and farm customer............. 8,772 8,492 9,015 8,603 8,655
(a) The estimated population for towns served jointly with other electric utilities has been based upon a ratio of 2.5
population per retail electric customer.
GAS OPERATIONS:
General
As of December 31, 1993, the company, through its subsidiary
WP&L, provided retail natural gas service to approximately
136,000 customers in 217 cities, villages and towns in 22 counties in
southern and central Wisconsin and one county in northern Illinois.
WP&L's gas sales follow a seasonal pattern. There is an annual
base load of gas used for heating, cooking, water heating and other
purposes, with a large peak occurring during the heating season.
In 1993, WP&L purchased significant volumes of lower cost gas
directly from producers and marketers and transported those volumes over
its two major pipeline supplier's systems. This replaced higher cost gas
historically purchased directly from the major pipeline systems. WP&L
transported gas for 85 end users at year-end 1993.
Gas Supplies
In 1992 the FERC issued Order No. 636 and 636-A which requires
interstate pipelines to restructure their services. Under these orders,
existing pipeline sales service would be "unbundled" such that gas
supplies would be sold separately from interstate transportation services.
Both of the interstate pipelines which serve WP&L, ANR Pipeline and
Northern Natural Pipeline, completed their transition to unbundled
services as mandated by the FERC in its Order 636 during 1993. As a
result, WP&L now contracts with these two parties for various unbundled
services such as firm and interruptible transportation, firm and
interruptible storage service and "no-notice" service. WP&L has benefited
from enhanced access to competitively priced gas supplies, and from more
flexible transportation services. Pipelines are, however, seeking to
recover from their customers certain transition costs associated with
restructuring. Any such recovery is subject to prudence hearings at the
FERC and state regulatory commissions.
With the pipelines exiting their historic role of selling gas to
WP&L, the utility has increased its contracting activity with producers
and marketers of natural gas correspondingly. WP&L's portfolio of gas
supply contracts are designed to meet the needs of gas customers and
extend from one month to 10 years in term.
The most significant change in WP&L's mix of gas contracts for
1993 are: 1) a significant increase in the volume of Canadian gas
contracted for, and 2) a large increase in firm storage service from the
pipelines.
The new Canadian contract commitments represent WP&L's
successful negotiations to minimize the "transition costs" of moving to
the unbundled, post-Order 636 environment. In mid 1993, WP&L was faced
with the decision of whether to negotiate with the Canadians to reform the
terms of long-term contracts which were in place with the two pipelines
and assume the contracts on the renegotiated terms, or pay the pipelines
to buy out of these contract commitments with the Canadians. WP&L opted
for the latter approach at an estimated savings of over $16 million to
WP&L's customers. In 1993, WP&L increased its peak-day entitlements on
ANR pipeline by 16,000 dekatherms per day reflecting the need for
additional firm capacity in order to meet the load growth of firm
customers.
WP&L maintains gas storage agreements with ANR Pipeline and a
third party storage service provider. The storage agreements allow WP&L
to purchase a portion of its gas supply between April and October, when
natural gas costs usually are lower. The less expensive gas is stored in
the storage fields and is withdrawn between November and March when gas
costs typically are higher. The agreements have terms extending through
March 31, 1995 and March 31, 1997.
WP&L's current portfolio of contracts is as follows:
ANR Pipeline
Contract year 1989-90 1990-91 1991-92 1992-93 1993-94
Maximum daily entitlement:
(000 Dt per day)
Contract demand 120.0 81.5 81.5 81.5 0
Firm transportation 25.5 25.9 25.9 25.9 80.0
Firm storage - 40.1 40.1 40.1 83.5
------ ------ ------ ------ ------
Total 145.5 147.5 147.5 147.5 163.5
====== ====== ====== ====== ======
Maximum annual entitlement
(000 Dt) 11,400 11,680 11,680 N/A N/A
Northern Natural Pipeline
Contract year 1989-90 1990-91 1991-92 1992-93 1993-94
(a) (a)
Maximum daily entitlement:
(000 Dt per day)
Contract demand 19.9 19.9 16.9 -- --
Firm transportation 13.7 13.7 26.5 53.6 53.6
Firm storage - - 2.2 1.5 8.5
"Unbundled" sales - - - 16.9 1.4
------ ------ ------ ------ ------
Total 33.6 33.6 45.6 53.6 53.6
====== ====== ====== ====== ======
Maximum annual entitlement
(000 Dt) 5,815 5,815 N/A N/A N/A
(a) Total no longer equals sum of components. Currently, Northern Natural requires that WP&L hold firm transportation
equal to its total peak-day requirements. Firm storage, "unbundled" sales from Northern Natural, and third party
gas supply (not shown) are all eligible gas sources to be moved to WP&L's city gates via this firm transportation.
Contract demand services from Northern Natural in its previous form, has been eliminated.
The future cost of natural gas is expected to be market
sensitive. WP&L's rate schedules applicable to all retail gas customers
provide for adjustments of its rates, upon notice by WP&L to the PSCW, to
reflect all increases or decreases in the cost of gas purchased for
resale. Increases or decreases in such costs are reflected automatically
by adjustments to customers' bills commencing with meters read following
the effective date of any changes in such costs.
One of the biggest changes which WP&L faces in the post-Order
636 environment is dealing with the heightened emphasis placed upon daily
balancing of the economic utilization of WP&L's two pipelines.
As the natural gas market continues to evolve, WP&L continuously
evaluates products and services provided by pipelines and gas suppliers to
meet the changing needs of its firm and interruptible gas customers.
Environmental Matters
Manufactured Gas Plant Sites. Historically, WP&L has owned 11 properties
that have been associated with the production of manufactured gas.
Currently, WP&L owns five of these sites, three are owned by
municipalities, and the remaining three are owned by private companies.
In 1989, WP&L initiated investigation of these manufactured gas plant
sites. The Wisconsin Department of Natural Resources ("DNR") has been
involved in reviewing preliminary investigation plans and has received
reports regarding these investigations. Based on the results of WP&L's
preliminary investigations, WP&L recorded an estimated liability and
corresponding deferred charge of approximately $15 million as of December
31, 1991.
In 1992, and into the beginning of 1993, WP&L continued its
investigations and studies. WP&L confirmed that there was no
contamination at two of the sites and received a close out letter from the
DNR related to one of those sites and requested a close out letter for the
other site. Additionally, the investigation of historical records at a
third site indicated a minimal likelihood of any significant environmental
impacts. In February 1993, WP&L completed more current cost estimates for
the environmental remediation of the eight remaining sites. The results
of this more current analysis indicated that during the next 35 years,
WP&L will expend approximately $81 million for feasibility studies, data
collection, soil remediation activities, groundwater research and
groundwater remediation activities, including construction of slurry
containment walls and the installation of groundwater pump and treatment
facilities. This estimate was based on various assumptions, and is
subject to continuous review and revision by management.
Based on the cost estimate set forth above, which assumes a 4
percent average inflation over the 35 year period, WP&L will spend
approximately $4.2 million, $1.5 million, $2.1 million, $4.4 million and
$4.2 million in 1994 through 1998, respectively. The cost estimate also
contemplates that primarily groundwater pump and treatment activities will
take place after 1998 through and including 2027. During this time, WP&L
estimates that it will incur average annual costs of $2.0 million to
complete the planned groundwater remediation activities.
With respect to rate recovery of these costs, the PSCW has
approved a five year amortization of the unamortized balance of incurred
environmental costs deferred to date.
Based on the present regulatory record at the PSCW, management
believes that future costs of remediating these manufactured gas plant
sites will be recovered in rates.
CONSOLIDATED GAS STATISTICS
Year Ended December 31,
1993 1992 1991 1990 1989
Area served (end of period):
Population--retail (estimated)(a). 391,000 377,000 375,000 363,000 363,000
Cities, villages and towns served
--retail........................ 217 194 199 195 197
Customers served (end of period):
Residential....................... 120,829 116,642 113,475 110,606 107,496
Commercial firm................... 14,644 14,209 13,848 13,384 13,015
Industrial firm................... 444 447 443 438 429
Interruptible..................... 261 262 215 211 114
Transportation.................... 85 109 46 59 57
------- ------- ------- ------- -------
Total........................... 136,263 131,669 128,027 124,698 121,111
======= ======= ======= ======= =======
Sales-therms (in thousands) (b):
Residential....................... 120,005 114,131 114,772 102,048 116,232
Commercial firm................... 69,389 66,272 67,015 59,123 66,806
Industrial firm................... 17,649 15,815 16,436 15,202 17,429
Interruptible..................... 27,872 25,497 26,025 35,434 33,297
Interdepartmental sales........... 3,346 1,923 5,530 2,537 2,828
Transported gas................... 84,877 69,244 61,001 56,493 57,628
------- ------- ------- ------- -------
Total........................... 323,138 292,882 290,779 270,837 294,220
======= ======= ======= ======= =======
Gas operating revenues
(in thousands):
Residential....................... $ 71,632 $ 63,699 $ 63,521 $ 59,793 $ 61,158
Commercial firm................... 33,456 30,486 29,640 27,509 27,136
Industrial firm................... 7,292 6,668 6,767 6,542 6,371
Interruptible..................... 10,685 14,589 12,051 11,563 8,399
Interdepartmental sales and other. 400 281 1,469 883 774
Transported gas................... 14,919 3,639 4,327 4,133 3,945
-------- -------- -------- -------- --------
Total........................... $138,384 $119,362 $117,775 $110,423 $107,783
======== ======== ======== ======== ========
Average annual residential heating
use--therms....................... 1,052 1,029 1,069 978 1,147
Average annual gas bill per
residential heating customer...... $ 631 $ 573 $ 590 $ 572 $ 603
(a) The estimated population for towns served jointly with other gas utilities has been based upon a ratio of 2.5
population per retail gas customer.
(b) One therm equals 100,000 British Thermal Units and is a measure of the heat content of natural gas.
HDC
Incorporated in 1988, HDC is the parent company of all nonutility
companies within the holding company system. HDC and its principal
subsidiaries are engaged in business development in three major areas: (1)
environmental engineering and consulting through the Environmental Holding
Company ("EHC") which is the parent company of RMT, Inc. ("RMT"), Jones
and Neuse, Inc. ("J & N"), Hydroscience, Inc. ("Hydroscience") and Four
Nines, Inc. ("Four Nines"), (2) affordable housing and historic
rehabilitation properties through Heartland Properties, Inc. ("HPI"), and
(3) energy related products and services which includes, in addition to
Enserv, Inc., the recent acquisition of A&C Enercom, EcoGroup, and Entec
Consulting, Inc.
At year-end 1993, HDC employed 1,391 persons, of whom 830 were
considered environmental engineering and consulting employees.
ENVIRONMENTAL ENGINEERING AND CONSULTING:
RMT was acquired by WP&L on July 30, 1983 and became a wholly
owned subsidiary of HDC in March 1988. In 1992, HDC transferred to EHC
its ownership of RMT. RMT is a Madison, Wisconsin-based environmental and
engineering consulting company that serves clients nationwide in a variety
of industrial segment markets. The most significant of these are
foundries, chemical companies, pulp and paper processors and other
manufacturers. RMT specializes in solid and hazardous waste management,
ground water quality protection, industrial design and hygiene
engineering, laboratory services, and air and water pollution control.
RMT owns and operates chemical and soil-testing laboratories in Madison,
Wisconsin and leases biological-testing laboratories in Greenville, South
Carolina. The company believes that RMT will be favorably impacted by the
enforcement of current environmental regulations and programs, and
legislation and regulations being developed or implemented to address
ground-water protection, acid rain, and air and water toxics legislation
and regulations.
During 1993, HDC acquired three environmental consulting and
engineering service companies J & N, Hydroscience and Four Nines which are
being treated as operating subsidiaries of RMT.
J & N is operating out of Austin, Texas as RMT's Gulf Coast
Region. J & N also has four additional Texas offices, a Louisiana office
and a Mexican subsidiary, ABC Estudios y Projectos. It provides full
capabilities in air quality, water quality, hazardous and solid waste
engineering, and remedial projects.
Hydroscience is a South Carolina based consulting engineering firm
specializing in wastewater treatment and toxicity assessments to
industrial and municipal entities.
Four Nines is a Philadelphia based company specializing in air
pollution control engineering.
See "Item 8. Financial Statements and Supplementary Data", Notes to
Consolidated Financial Statements, Note 12, for financial information
related to business segments.
OTHER NONREGULATED
Formed by HDC on June 24, 1988, HPI is responsible for the
development and management of the company's real estate and housing
investments. HPI's primary focus has been the development, construction
and management of affordable housing and historic rehabilitation
properties in selected Wisconsin communities. As of December 31, 1993,
HPI's level of investment in housing was approximately $91 million,
providing nearly 2,175 units to a diverse group of residents. As in prior
years, long-term financing on many new investments has been structured
with the cooperation of municipal housing and community development
authorities.
In 1993, HPI enhanced its operations with the organization of two
new subsidiaries: (1) Toolkit Property Management Systems, Inc.
("Toolkit") and Heartland Retirement Services, Inc. ("HRS"). Toolkit
provides property management services for many of HPI's housing
investments, aiming to attract and maintain good residents. HRS provides
a comprehensive range of housing related products for the fastest growing
segment of the American population, older adults.
To facilitate HPI's development and financing efforts, HDC
incorporated Capital Square Financial Corporation ("Capital Square") in
1992 to provide mortgage banking services to the affordable housing
market. Capital Square has become a Federal National Mortgage Association
("FNMA") single and multi-family seller-servicer. This designation
enables Capital Square to underwrite first mortgages on affordable housing
investments to be packaged by FNMA for resale to the secondary markets as
mortgaged backed securities.
ENSERV has historically focused its efforts on the
commercialization of a coal-benefication process called "K-Fuel".
"K-Fuel" is a registered trademark for a low-sulfur, high-energy content
processed coal. ENSERV is continuing to pursue commercialization of the
"K-Fuel" process, but there is no assurance that this commercialization
can be successfully completed.
HDC acquired A&C Enercom ("A&C") in February 1993. A&C is based
out of Atlanta, Georgia, and provides marketing and demand side management
services primarily to public electric and gas utility companies. They
have 13 offices spread throughout the United States.
During 1993, HDC also acquired Entec Consulting, Inc. ("Entec"), a
Madison, Wisconsin based firm, to act as a subsidiary of A&C. Entec
provides full-service consulting to the utility industry for power
generation computer software programs.
A&C acquired EcoGroup, a Phoenix, Arizona based company during
1993. EcoGroup provides energy and environmental programs primarily for
the electric and gas utility industry.
All references to the company or WPL Holdings, Inc. herein include
the company and its subsidiaries, except where the context otherwise
indicates.
ITEM 2. PROPERTIES
WP&L
The following table gives information with respect to electric
generating facilities of WP&L (including WP&L's portion of those
facilities jointly owned).
1993 Summer
Capability
WP&L Portion Ownership
Type/ in kilowatts Interest
Location Name Fuel (kwh's) in Facility
Steam
Beloit, WI Blackhawk Natural Gas 54,500 100%
Janesville, WI Rock River Coal 147,600 100%
Cassville, WI Nelson Dewey Coal 218,800 100%
Sheboygan, WI Edgewater #3 Coal 70,000 100%
Sheboygan, WI Edgewater #4 Coal 217,400 68.2%
Sheboygan, WI Edgewater #5 Coal 294,000 75%
Kewaunee, WI Kewaunee Nuclear 214,000 41%
Portage, WI Columbia Energy Coal 472,400 46.2%
Center
Hydro
Wisconsin Dells, WI Kilbourn Hydro 5,900 100%
Prairie du Sac, WI Prairie du Sac Hydro 14,300 100%
Wisconsin River Petenwell/ Hydro 6,200 33%
Power Co. Castle Rock
4 small units at
various locations Hydro 1,500 100%
Combustion Turbine
Janesville, WI Rock River Natural Gas
or Oil 130,300 100%
Edgerton, WI Sheepskin Natural Gas
or Oil 37,500 100%
---------
Total 1,884,400
=========
The maximum net hourly peak load on WP&L's electric system was
1,971,000 kwh's and occurred on August 26, 1993. At the time of such peak
load, 2,310,000 kwh's were produced by generating facilities operated by
WP&L (including other company shared jointly owned facilities) and WP&L
delivered 812,000 kwh's of power and received 473,000 kwh's of power from
external sources. During the year ended December 31, 1993, about
86.4 percent of WP&L's total kilowatthour requirements was generated by
company-owned and jointly-owned facilities and the remaining 13.6 percent
was purchased. Substantially all of WP&L's facilities are subject to the
lien of its first mortgage bond indenture.
HDC:
The following table gives information with respect to rental
properties associated with HDC's affordable housing and historic
rehabilitation project developments (through its subsidiary, HPI) as of
December 31, 1993.
Location Housing Development Resident Type Amount
(In Thousands)
Property:
Antigo, WI The Depot Families $ 2,219
Appleton, WI The Mills II Families/Elderly 6,945
Madison, WI The Avenue Disabled/Families 2,899
DePere, WI Lawton Foundry Families 4,354
Appleton, WI Historic Lincoln Mill Families/Elderly 4,495
Appleton, WI Historic Ravine Mill Families/Elderly 2,510
Marinette, WI Dunlap Square Families/Elderly 8,949
Marshfield, WI The Woodlands Families/Elderly 2,615
Mc Farland, WI The Cottages Families/Elderly 2,390
Sheboygan Falls, WI Brickner Woolen Mills Families/Elderly 3,283
Sheboygan, WI Jung Apartments Families 3,628
Sheboygan, WI Sunnyside Townhouses Families 2,543
Sun Prairie, WI Vandenburg Heights Families 2,997
Verona, WI Sugar Creek Senior
Housing Elderly 3,027
Madison, WI YWCA Women & Homeless 5,593
Various Other Families, Elderly,
Singles, Disabled
& Homeless 37,863
-------
Total property 96,310
Accumulated depreciation (5,026)
-------
Net property $91,284
=======
Occupancy rates in the 66 properties/investments owned by HPI averaged 92
percent during 1993. This occupancy percentage excludes properties in the
first six months of initial occupancy. Substantially all of these
properties are pledged as security for HDC's mortgage notes and bonds
payable. See page 3 of "Item 1. Business-HDC", for a discussion of
additional properties owned by HDC's subsidiaries.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which the
company or any of its subsidiaries is a party or to which any of their
property is subject.
ENVIRONMENTAL MATTERS
The information required by Item 3 is included in this Form 10-K
as Item 8 - Notes to Consolidated Financial Statements, Note 10c,
incorporated herein by reference.
RATE MATTERS
The information required by Item 3 is included in Item 7 of this
Form 10-K within the Management's Discussion and Analysis of Financial
Condition and Results of Operations narrative under the caption "Rates and
Regulatory Matters."
RECENT RATE CASE PROCEEDINGS
Increase Ordered or
Increase (Decrease) Requested Negotiated Date
(Decrease) Ordered or % Return on % Return on Increase
Rate Case Type of Application Test Requested Negotiated Common Common (Decrease)
Designation(a) Service(b) Date Year ($ Millions) ($ Millions) Equity Equity Effective
WP&L Retail (PSC)
6680-UR-103 e,g,w 02-29-88 1988-89 14.7 5.5 13.25 13.10 10-18-88
6680-UR-104 e,g,w 12-30-88 1989-90 17.4 5.3 13.10 13.00 11-12-89
6680-UR-105 e,g,w 12-29-89 1990-91 9.0 (10.8) 13.10 12.90 08-01-90
6680-UR-106 e,g,w 12-28-90 1991-92 18.7 (0.1) 13.25 12.90 08-01-91
6680-UR-107 e,g,w 12-30-91 1992-93 17.8 (0.9) 13.10 12.40 01-01-93
6680-UR-108 e,g,w 01-04-93 1993-94 24.5 17.7 12.60 11.60 10-01-93
WP&L Wholesale (FERC)
ER87-554 e 07-31-87 1987-88 (1.2) (.9) 13.00 (c) 01-01-88
ER93 e 05-28-93 1993-94 2.0 2.0 10-01-93
South Beloit (ICC)
85-0505 e,w 11-08-85 1985-86 1.4(d) .9 15.00 13.80 09-27-86
(a) See "Item 3. Legal Proceedings" for additional information concerning rate matters.
(b) e-electric, g-gas, w-water.
(c) Return on equity was not specified in the negotiated settlement agreement.
(d) On 05-07-86, South Beloit Water, Gas and Electric Co. adjusted the increase requested downward to $1.1 million.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Erroll B. Davis, Jr, 49, was elected President on January 17,
1990 and Chief Executive Officer, effective July 1, 1990. He has served
as President and Chief Executive Officer of WP&L since August 1, 1988.
Prior positions held with WP&L include, Executive Vice President, May
1984, Vice President - Finance and Public Affairs, November 1982 and Vice
President - Finance, August 1978. Mr. Davis was elected President of WPL
Holdings, Inc. on January 17, 1990. He has served as a director of WPL
Holdings, Inc. since March 1988.
Daniel A. Doyle, 35, was appointed controller and treasurer of
WP&L effective October 3, 1993. He previously served as controller of
WP&L since July 1992. Prior to joining the company, he was Controller of
Central Vermont Public Service Corporation since December 1988. During
the period 1981 to 1988, he was employed by Arthur Andersen & Co. as an
Audit Staff Assistant, Audit Senior and Audit Manager with primary
responsibilities of auditing and providing financial consulting services
to large publicly held corporations. Mr. Doyle functions as the principal
accounting officer of the company.
Edward M. Gleason, 53, was elected Vice President, Treasurer and
Corporate Secretary effective October 3, 1993. He previously served as
Vice President-Finance and Treasurer of WP&L since May 1986, Controller
and Treasurer of WP&L since October 1985 and Treasurer of WP&L since May
1983. Mr. Gleason functions as the principal financial officer of the
company.
Steve F. Price, 41, was appointed Assistant Corporate Secretary
and Assistant Treasurer on April 15, 1992. He had been Cash Management
Supervisor since December 1987. He was also appointed Assistant Corporate
Secretary of WP&L on April 15, 1992.
NOTE: All ages are as of December 31, 1993. None of the executive
officers listed above is related to any director of the Board
or nominee for director of the company.
Executive officers of the company have no definite terms of
office and serve at the pleasure of the Board of Directors.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
At December 31, 1993, there were approximately 38,626 holders of
record of the company's Common Stock including underlying holders in the
company's Employee Stock Ownership Plan and the company's Dividend
Reinvestment and Stock Purchase Plan.
Cash dividends paid per share of common stock during 1993 and
1992 were 47.5 cents and 46.5 cents, respectively, for each quarter, for a
total of $1.90 and $1.86 per share, respectively for each year.
ITEMS 6 and 7. SELECTED FINANCIAL DATA AND MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
WPL HOLDINGS, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
SELECTED FINANCIAL DATA
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(In Millions Except for Per Share Data)
Operating revenues................... $ 773 $ 673 $ 670 $ 618 $ 605
Net income........................... $ 63 $ 58 $ 66 $ 60 $ 51
Earnings per share................... $ 2.11 $ 2.10 $ 2.42 $ 2.23 $ 1.93
Total assets (at December 31)........ $1,762 $1,566 $1,383 $1,261 $1,198
Long-term debt, net (at December 31). $ 425 $ 418 $ 367 $ 343 $ 297
Cash dividends paid per share........ $ 1.90 $ 1.86 $ 1.80 $ 1.74 $ 1.68
1993 COMPARED WITH 1992
OVERVIEW
Earnings per share of WPL Holdings, Inc. (the "company") common stock
increased to $2.11 in 1993 compared with $2.10 in 1992. The increase in
earnings primarily reflects an increase in earnings from the company's
utility subsidiary, Wisconsin Power and Light Company ("WP&L"). The
principle factors leading to increased earnings include warmer summer
weather and lower electric fuel costs per kilowatthour ("kWh") which
yielded higher electric gross margins for WP&L. These increases were
somewhat offset by increased depreciation expense resulting from
additional investment in utility plant and property additions, a change in
the mix of gas sales from higher margin sales to lower margin sales, the
increase in the Federal corporate tax rate from 34% to 35% and a one-time
4-cent-per-share charge associated with a voluntary separation program for
the executive management group at the utility.
The company's nonregulated subsidiary, Heartland Development Corporation
("HDC"), contributed to earnings through its principal businesses: (1)
environmental engineering and consulting, (2) affordable housing and (3)
energy products and services.
Electric Operations
Revenues &
Costs Per
kWh's Sold, kWh Sold
Revenues % Generated % Generated Customers at
and Costs Change and Purchased Change & Purch. End of Year
--------------- ------ ------------------ ------ -------------- ---------------
1993 1992 1993 1992 1993 1992 1993 1992
---- ---- ---- ---- ---- ---- ---- ----
(In Thousands) (In Thousands)
Residential and farm $184,176 $171,887 7% 2,751,363 2,614,439 5% $.067 $.066 316,870 310,702
Industrial 132,903 128,467 3 3,540,082 3,377,132 5 .038 .038 714 727
Commercial 95,977 91,707 5 1,629,911 1,551,823 5 .059 .059 42,884 42,287
Wholesale and Class A 78,955 77,485 2 2,388,131 2,208,419 8 .033 .035 39 39
Other 11,176 8,189 36 51,073 55,230 (8) .219 .148 1,236 950
------- ------- --------- --------- ---- ---- ------- -------
Total 503,187 477,735 5 10,360,560 9,807,043 6 .049 .049 361,743 354,705
========= ======== ======= =======
Elec. production
fuels 123,919 123,440 .4 9,186,134 9,041,317 2 .0135 .0137
Purchased power 28,574 24,427 17 1,481,592 1,124,667 32% .0193 .0217
------- -------
Margin $350,694 $329,868 6%
======= =======
WP&L's electric margin in dollars increased during 1993 compared with
1992 due to increased demand for electricity brought on by warmer summer
weather. Residential customers, being the most weather sensitive,
experienced the most significant increases. Wisconsin's strong economy
kept the Commercial and Industrial classes growing steadily. These
increases were coupled with declining electric production fuel costs per
kWh. The decrease in electric production fuels is due to WP&L's
aggressive pursuit of additional spot coal purchase opportunities as its
longer term contracts begin to expire. Additionally, a highly competitive
rail transportation environment has significantly reduced the cost of
transporting the coal. Also, lower cost purchased power became available
due to excess capacity in the bulk power market.
Gas Operations
Revenues &
Revenues % Therms Sold % Costs Per Therm Customers at
and Costs Change & Purchased Change Sold, & Purch. End of Year
--------------- ------ ------------------ ------ -------------- ---------------
1993 1992 1993 1992 1993 1992 1993 1992
---- ---- ---- ---- ---- ---- ---- ----
(In Thousands) (In Thousands)
Residential $ 71,632 $ 63,699 12% 120,005 114,131 5% $.60 $.56 120,829 116,642
Firm 40,748 37,154 10 87,038 82,087 6 .47 .45 15,088 14,656
Interruptible 10,685 9,554 12 27,872 25,497 9 .38 .37 261 262
Transportation 14,919 8,674 72 84,877 69,244 23 .18 .13 85 109
Other 400 281 42 3,346 1,923 74 .12 .15 - -
------- ------- ------- ------- ------- -------
Total 138,384 119,362 16 323,138 292,882 10 .43 .41 136,263 131,669
======= ======= ======= =======
Purchased gas 91,619 77,112 19 288,877 260,354 11% $.32 $.30
------- -------
Margin $ 46,765 $ 42,250 11%
======= =======
WP&L's gas revenues for 1992 were affected by the recognition
of a $4.9 million, before-tax refund to its natural gas customers
resulting from an adjustment in the calculation of the purchased gas
adjustment clause. Without the impact of this revenue adjustment,
comparative gas margins would have declined for 1993 compared with 1992.
The overall increases in gas revenues and purchased gas costs
between years resulted primarily from increased volumes procured on behalf
of transportation customers. This had the impact of decreasing margins as
a percentage of total revenues. A change in the mix of gas sales from
higher margin residential sales to lower margin sales also moved margins
downward. Offsetting this decline, Wisconsin's strong economy enabled
growth in the Commercial and Industrial classes, and there was also some
overall increase in the demand for natural gas due to colder weather.
Fees, Rents and Other Operating Revenues ("Other Revenues") and Other
Operation Expense
Other revenues increased between years as a result of RMT,
Inc.'s ("RMT") and HPI's growth in their respective businesses and the
result of acquisitions in the environmental and energy businesses.
Other operation expense also increased as a result of the above
factors. An additional increase resulted from higher WP&L employee
benefit expense (See Notes to Consolidated Financial Statements, Note 8).
These increases were offset somewhat by decreases in WP&L's conservation
program expenditures and decreases in fees associated with the sale of
WP&L's accounts receivable due to a decline in interest rates.
Additionally, WP&L's cost management efforts have helped control annual
inflationary pressures on general and administrative costs.
Maintenance and Depreciation and Amortization
Maintenance expense increased for 1993 compared with 1992, primarily due
to service restoration expenses related to a severe storm in the summer of
1993. Depreciation and amortization expense increased, principally
reflecting increased property additions and the commencement of deferred
charge amortizations approved in WP&L's last two rate orders received in
December 1992 and October 1993. The most significant amortizations
include the amortization related to an acquisition adjustment which
resulted from the purchase of transmission facilities and the amortization
of costs incurred related to the remediation of former manufactured gas
plant sites (See Notes to the Consolidated Financial Statements, Note 10).
Allowance for Funds Used During Construction ("AFUDC")
Total AFUDC increased in 1993 compared with 1992, reflecting the greater
amounts of construction work in progress including the costs associated
with WP&L's construction of two 86-megawatt combustion-turbine generators.
Interest Expense
Interest expense on debt increased between years, primarily due to
increased capital expenditures related to HPI's investments in affordable
housing.
1992 COMPARED WITH 1991
OVERVIEW
Earnings per share of the company's common stock decreased 13 percent to
$2.11 in 1992 compared with $2.43 in 1991. A combination of an electric
rate decrease in March 1992 and significantly cooler summer weather led to
lower electric revenues, gross margins and earnings at WP&L. WP&L's
earnings were also affected by the recognition of a $4.9 million, before-
tax refund to natural gas customers noted previously. HDC's contribution
to earnings was slightly lower in 1992 compared with 1991, primarily due
to the recognition in 1991 of a $2.8 million after-tax gain on the sale of
a telecommunications investment. Exclusive of the sale, HDC's
profitability increased in 1992, due to the success of its investments in
affordable housing and the continued growth in the profitability of its
environmental consulting business.
Electric Operations
Revenues &
Costs Per
kWh's Sold, kWh Sold
Revenues % Generated % Generated Customers at
and Costs Change and Purchased Change & Purch. End of Year
--------------- ------ ------------------ ------ -------------- ---------------
1993 1992 1993 1992 1993 1992 1993 1992
---- ---- ---- ---- ---- ---- ---- ----
(In Thousands) (In Thousands)
Residential and farm $171,887 $179,751 (4)% 2,614,439 2,729,917 (4)% $.066 $.066 310,702 304,825
Industrial 128,467 124,212 3 3,377,132 3,185,101 6 .038 .039 727 679
Commercial 91,707 92,628 (1) 1,551,823 1,558,297 - .059 .059 42,287 41,190
Wholesale and Class A 77,485 82,831 (6) 2,208,419 2,441,189 (10) .035 .034 39 41
Other 8,189 9,130 (10) 55,230 54,376 (2) .148 .168 950 1,173
-------- -------- --------- --------- ------- -------
Total 477,735 488,552 (2) 9,807,043 9,968,880 (2) .049 .049 354,705 347,908
========= ========= ======= =======
Elec. production
fuels 123,440 130,406 (5) 9,041,317 9,366,646 (3) .0137 .0139
Purchased power 24,427 20,390 20 1,124,667 960,693 17 % .0217 .0212
-------- --------
Margin $329,868 $337,756 (2)%
======== ========
WP&L's electric margin decreased during 1992 compared with 1991 due
to decreased demand for electricity brought on by cooler summer weather.
Residential customers, being the most weather sensitive, experienced the
most significant decreases. However, improved economic conditions in 1992
kept the Industrial customer class growing steadily. Sales to commercial
customers remained flat despite the negative weather impact due to
increased customer growth in this sector and the improving economy. As a
result of significantly lower weather-related peak demands, sales and
revenues to other Class A utilities decreased. Electric production fuels
expense decreased in response to reduced kWh sales, lower fuel costs and a
greater reliance on purchased power. Purchased power expense increased in
1992 due to the greater availability of purchased power at competitive
prices.
Gas Operations
Revenues &
Revenues % Therms Sold % Costs Per Therm Customers at
and Costs Change & Purchased Change Sold, & Purch. End of Year
--------------- ------ ------------------ ------ -------------- ---------------
1993 1992 1993 1992 1993 1992 1993 1992
---- ---- ---- ---- ---- ---- ---- ----
(In Thousands) (In Thousands)
Residential $ 63,699 $ 63,521 - % 114,131 114,772 (1)% $.56 $.55 116,642 113,475
Firm 37,154 36,407 2 82,087 83,451 (2) .45 .44 14,656 14,291
Interruptible 9,554 12,051 (21) 25,497 26,025 (2) .37 .46 262 215
Transportation 8,674 4,327 101 69,244 61,001 14 .13 .07 109 46
Other 281 1,469 (81) 1,923 5,530 (65) .15 .27 - -
------- ------- ------- ------- ------- -------
Total 119,362 117,775 1 292,882 290,779 1 .41 .41 131,669 128,027
======= ======= ======= =======
Purchased gas 77,112 70,834 9 260,354 250,051 4% $.30 $.28
-------- --------
Margin $ 42,250 $ 46,941 (10)%
======= =======
After adjusting 1992 gas revenues for the customer refund noted
previously, both gas revenues and gas margins increased during 1992
compared with 1991. Overall increases in gas revenues between years
resulted primarily from the recovery of increased purchased gas costs
through the purchased gas adjustment clause. Gas margins benefited from
an increase in gas customers. The impacts of weather were comparable
between years.
Fees, Rents and Other Operating Revenues ("Other Revenues") and Other
Operation Expense
Other revenues increased between years as a result of RMT's and HPI's
growth in their respective businesses.
Other operation expense also increased as a result of the above
factor. These increases were offset somewhat by reduced costs at WP&L.
Contributing to the decrease in costs at WP&L was a decrease in WP&L's
conservation program expenditures, a decrease in fees associated with the
sale of WP&L's accounts receivable due to a decline in interest rates, and
reduced employee benefit expenses. Additionally, WP&L's cost management
efforts have helped control annual inflationary pressures on general and
administrative costs.
Maintenance and Depreciation and Amortization Expense
Maintenance expense increased for 1992 compared with 1991, primarily due
to an increased tree trimming program, increased costs associated with
scheduled overhauls at generating units and major service restoration
expenses related to three tornados which caused extensive damage to WP&L's
service territory during the summer of 1992. Depreciation expense
increased, principally reflecting increased property additions.
Allowance for Funds Used During Construction ("AFUDC") and Other, net
Total AFUDC increased in 1992 compared with 1991, reflecting the greater
amounts of construction work in progress which includes the costs
associated with WP&L's construction of two 86-megawatt combustion-turbine
generators. Other, net decreased between years primarily due to a $2.8
million after-tax gain on the sale of certain nonutility investments that
was recorded in 1991.
Interest Expense
Interest expense on debt increased between years, primarily due to the
financing of increased capital expenditures related to HPI's investments
in affordable housing and to increased debt outstanding at WP&L to fund
construction activity. This increase was somewhat offset by WP&L's
refinancing activities during 1992. To take advantage of recent low
interest rates, WP&L issued $279 million principal amount of first
mortgage bonds, of which $235 million was used to refinance the aggregate
principal amount of existing series. The bonds, which had coupon payments
ranging from 8 to 10 percent, were replaced with issues having coupons of
6.125 percent to 8.6 percent.
Income Taxes
Income taxes decreased between years, primarily due to lower taxable
income and an increase in tax credits associated with affordable housing
investments in 1992 compared with 1991.
LIQUIDITY AND CAPITAL RESOURCES
Rates and Regulatory Matters
On September 30, 1993, WP&L received final decisions from the PSCW on its
retail rate application filed in early 1993. The final order authorized
an annual retail electric rate increase of $15.6 million, or 3.8 percent;
a natural gas rate increase of $1.8 million, or 1.4 percent; and a nominal
water rate increase. The new rates became effective October 1, 1993 and
will remain effective until January 1, 1995. The regulatory return on
common equity for WP&L was reduced from 12.4 percent to 11.6 percent. The
allowed rates of return authorized by WP&L's regulators have decreased due
to declines in debt capital costs and equity investor rate of return
expectations.
On August 6, 1993 the Federal Energy Regulatory Commission
("FERC") approved WP&L's request for a $2.1 million, or 2.9 percent
increase in wholesale rates. The rates became effective October 1, 1993.
Electric and Gas Sales Outlook
To deal with competitive pressures arising from regulatory changes, WP&L
is forecasting to hold retail rates flat through 1996. This objective
arises from the competitive pressures forced by changes in regulation.
The National Energy Policy Act contains a provision calling for "open
transmission access". WP&L anticipates that retail wheeling will become a
reality within a few years. In order to meet these new competitive
challenges and maintain a low cost pricing advantage, WP&L's objective is
to manage costs to maintain profitability while limiting any rate changes
until 1997. These forecasts are subject to a number of assumptions,
including the economy and weather. WP&L anticipates that its customer
base will remain strong in the electric sectors and that favorable gas
prices over alternative fuels prices should result in sales growth in gas
sectors. Growth in customers' demand for electric service will require
capacity additions. Capacity requirements will be met through increased
generating capacity (two combustion-turbines in mid-1994), continuation of
existing long-term contracts for purchase of capacity, increased
efficiency at existing power plants from capital improvements and
continued emphasis on cost effective demand-side management programs such
as direct load control rate options including interruptible rates and
conservation programs.
Financing and Capital Structure
The level of short-term borrowings fluctuates based on seasonal corporate
needs, the timing of long-term financing and capital market conditions.
The company's operating subsidiaries generally issue short-term debt to
provide interim financing of construction and capital expenditures in
excess of available internally generated funds. The subsidiaries
periodically reduce their outstanding short-term debt through the issuance
of long-term debt and through the company's additional investment in their
common equity. To maintain flexibility in its capital structure and to
take advantage of favorable short-term rates, the company, through WP&L,
also uses proceeds from the sales of accounts receivable and unbilled
revenues to finance a portion of its long-term cash needs. The company
also anticipates that short-term debt funds will continue to be available
at reasonable costs due to strong ratings by independent utility analysts
and rating services. Commercial paper has been rated A-1+ by Standard &
Poor's Corp. (S&P) and P-1 by Moody's Investors Service (Moody's).
Bank lines of credit of $100 million at December 31, 1993 are available to
support these borrowings.
The company's capitalization at December 31, 1993, including the
current maturities of long-term debt, variable rate demand bonds and
short-term debt, consisted of 47.9 percent common equity, 4.9 percent
preferred stock and 47.2 percent long-term debt. The common equity to
total capitalization ratio at December 31, 1993 increased to 47.9 percent
from 44.2 percent at December 31, 1992 due to the issuance of 1.65 million
shares of Company common stock. The net proceeds from the public offering
of $56.7 million were used to repay the short-term debt of its
subsidiaries and for general corporate purposes, including construction.
A retail rate order effective October 1, 1993, requires WP&L to
maintain a utility common equity level of 50.31 percent of total utility
capitalization during the test year August 1, 1993 to July 31, 1994. In
addition, the PSCW ordered that it must approve the payment of dividends
by WP&L to the company that are in excess of the level forecasted in the
projected test year ($56.8 million), if such dividends would reduce WP&L's
average common equity ratio below 50.31 percent.
Capital Requirements
The company's largest subsidiary, WP&L, is capital-intensive and requires
large investments in long-lived assets. Therefore, the company's most
significant capital requirements relate to WP&L construction expenditures.
Estimated capital requirements of WP&L for the next five years are as
follows:
Capital Requirements
-------------------------------------------
1994 1995 1996 1997 1998
------ ------ ----- ------ ------
(In Millions)
Construction expenditures $142.6 $118.7 $132.3 $144.9 $159.5
Changes in working capital
and other 8.0 9.6 (25.8) 56.1 5.4
----- ----- ----- ----- -----
Construction and operating
capital 150.6 128.3 106.5 201.0 164.9
Manufactured gas plant site
remediation expenditures 4.2 1.5 2.1 4.4 4.2
----- ----- ----- ----- -----
Total capital requirements $154.8 $129.8 $108.6 $205.4 $169.1
====== ====== ====== ====== ======
Included in the construction expenditure estimates, in addition to the
recurring additions and improvements to the distribution and transmission
systems, are the following: expenditures for managing and controlling
electric line losses and for the electric delivery system which will save
electric line losses and enhance WP&L's interconnection capability with
other utilities; expenditures related to environmental compliance issues
including the installation of additional emissions monitoring equipment
and coal handling equipment; and expenditures associated with the
construction of two 86-megawatt combustion-turbine generators expected to
become operational in 1994 through 1996.
In addition, the steam generator tubes at the Kewaunee Nuclear Power
Plant ("Kewaunee") are susceptible to corrosion characteristics seen
throughout the nuclear industry. Annual inspections are performed to
identify degraded tubes. Degraded tubes are either repaired by sleeving
or are removed with approximately 15 percent heat transfer margin, meaning
that full power should be sustainable with the equivalent of 15 percent of
the steam generator tubes plugged. Currently, the equivalent of 10
percent of the tubes in the steam generators are plugged. WP&L and the
other joint owners continue to evaluate appropriate strategies, including
replacement, as well as continued operation of the steam generators
without replacement. WP&L and the joint owners intend to operate Kewaunee
until at least 2013, the expiration of the present operating license.
WP&L and the joint owners are also evaluating initiatives to improve the
performance of Kewaunee. These initiatives include funding of the
development of welded repair technology for steam generator tubes and
numerous cost reduction measures such as the conversion from a 12-month to
an 18-month fuel cycle. If the steam generators are not replaced, and
excluding the possible affect of the aforementioned repair strategies, a
gradual power reduction of approximately 1 percent per year may begin as
soon as 1995.
HDC has expanded its energy related products and services business and
its environmental services through acquisitions during 1993. In addition
to increasing its investment in affordable housing, HPI continues to
market its affordable housing expertise by expanding its business to
provide assistance to other corporate/public investors in their
development, consultation and financing of affordable housing projects.
Capital Resources
One of the company's objectives is to finance construction expenditures
through internally generated funds supplemented, when required, by outside
financing. With this objective in place, the company has financed an
average of 62 percent of its construction expenditures during the last
five years from internal sources. However, during the next five years,
the company expects this percentage to be reduced primarily due to the
continuation of major construction expenditures and the maturity of $64
million of WP&L first mortgage bonds. External financing sources such as
the issuance of long-term debt, common stock and short-term borrowings
will be used by the company to finance the remaining construction
expenditure requirements for this period. Current forecasts are that $71
million of additional equity and $60 million of long-term debt will be
issued over the next three years.
In 1993, the company increased its dividends by 3.4 percent and issued
451,233 new shares of common stock through its Dividend Reinvestment and
Stock Purchase Plan, generating proceeds of $15.3 million. Also in 1993,
a public offering of 1.65 million newly issued shares of the company's
common stock raised proceeds of approximately $56.7 million. The proceeds
were used by the company to refinance the short-term debt of its
subsidiaries and for general corporate purposes including construction.
Market value per share decreased 3 percent to $32.875 per share at
December 31, 1993 compared with $33.875 per share at December 31, 1992.
Return on equity for 1993 was 11.5 percent and has averaged 13.0 percent
over the last five years.
INFLATION
Under current ratemaking methodologies prescribed by the various
commissions that regulate WP&L, projected or forecasted operating costs,
including the impacts of inflation, are incorporated into WP&L revenue
requirements. Accordingly, the impacts of inflation on WP&L are currently
mitigated. Inflationary impacts on the nonregulated businesses are not
anticipated to be material to the company.
FINANCIAL ACCOUNTING STANDARDS BOARD (the "FASB") ACCOUNTING STANDARDS
ISSUED BUT NOT YET EFFECTIVE
In November 1992, the FASB issued Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits"
("SFAS 112"). SFAS 112 requires adoption of the new accounting and
disclosure rules effective January 1, 1994. The impact on earnings will
not be material.
OTHER EVENTS
In November 1989, the PSCW concluded that WP&L did not properly administer
a coal contract, resulting in an assessment to compensate ratepayers for
excess fuel costs having been incurred. As a result, WP&L recorded a
reserve in 1989 which had an after-tax affect of reducing 1989 net income
by $4.9 million. The PSCW decision was found to represent unlawful
retroactive ratemaking by both the Dane County Circuit Court and the
Wisconsin Court of Appeals. The case was then appealed to the Wisconsin
Supreme Court.
Subsequent to December 31, 1993, the Wisconsin Supreme Court affirmed
the decisions of the Dane County Circuit Court and Wisconsin Court of
Appeals. Given the continued uncertainty related to the ultimate method
of collection of the assessment from ratepayers to be approved by the
PSCW, it is management's opinion that the financial impact of the
Wisconsin Supreme Court's decision on the company cannot currently be
determined and will require further evaluation. As a result, WP&L does
not plan to adjust the reserve.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To WPL Holdings, Inc.:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of WPL HOLDINGS, INC. (a Wisconsin
corporation) and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income, common shareowners' investment
and cash flows for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of WPL Holdings,
Inc. and subsidiaries as of December 31, 1993 and 1992, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted
accounting principles.
Milwaukee, Wisconsin, ARTHUR ANDERSEN & CO.
January 28, 1994.
WPL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 1993 1992 1991
(In Thousands Except for
Per Share Data)
Operating revenues:
Electric............................... $503,187 $477,735 $488,552
Gas.................................... 138,384 119,362 117,775
Fees, rents and other.................. 131,486 76,176 63,222
-------- -------- --------
773,057 673,273 669,549
-------- -------- --------
Operating expenses:
Electric production fuels.............. 123,919 123,440 130,406
Purchased power........................ 28,574 24,427 20,390
Purchased gas.......................... 91,619 77,112 70,834
Other operation........................ 256,509 196,044 191,752
Maintenance............................ 44,763 45,081 42,883
Depreciation and amortization.......... 69,112 59,949 54,145
Taxes other than income................ 32,378 29,261 26,534
------- ------- -------
646,874 555,314 536,944
------- ------- -------
Operating income......................... 126,183 117,959 132,605
------- ------- -------
Other income and (deductions):
Allowance for equity funds used during
construction......................... 2,977 2,351 1,073
Other, net............................. (633) 2,390 3,258
------- ------- -------
2,344 4,741 4,331
------- ------- -------
Interest expense:
Interest on debt....................... 38,073 38,954 35,691
Allowance for borrowed funds used during
construction......................... (1,053) (1,329) (886)
------- ------- -------
37,020 37,625 34,805
------- ------- -------
Income before income taxes............... 91,507 85,075 102,131
Income taxes............................. 25,056 23,257 32,390
Preferred stock dividends of subsidiary.. 3,928 3,811 3,811
------- ------- -------
Net income............................... $ 62,523 $ 58,007 $ 65,930
======= ======= =======
Weighted average number of shares of common
stock outstanding...................... 29,681 27,559 27,246
======= ======= =======
Earnings per share....................... $ 2.11 $ 2.10 $ 2.42
======= ======= =======
Cash dividends paid per share............ $ 1.90 $ 1.86 $ 1.80
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1993 1992
ASSETS (In Thousands)
Utility plant:
Plant in service--
Electric........................................... $1,518,701 $1,443,344
Gas................................................ 194,283 179,733
Water.............................................. 20,437 19,542
Common............................................. 106,803 93,973
--------- ---------
1,840,224 1,736,592
Dedicated decommissioning funds, at cost............. 49,803 40,377
--------- ---------
1,890,027 1,776,969
Less--Accumulated provision for depreciation......... 763,027 719,987
--------- ---------
1,127,000 1,056,982
Construction work in progress........................ 75,732 58,973
Nuclear fuel, net.................................... 18,000 16,923
--------- ---------
Total utility plant................................ 1,220,732 1,132,878
--------- ---------
Other property and equipment:
Land and improvements................................ 7,558 6,944
Buildings and improvements........................... 104,645 98,912
Equipment............................................ 22,322 7,735
--------- ---------
134,525 113,591
Less--Accumulated provision for depreciation......... 16,817 9,768
--------- ---------
117,708 103,823
Construction work in progess......................... 679 4,979
--------- ---------
Total other property and equipment................. 118,387 108,802
--------- ---------
Investments, at cost which approximates market......... 15,525 13,998
--------- ---------
Current assets:
Cash and equivalents................................. 19,468 4,338
Net accounts receivable and unbilled revenue, less
allowance for doubtful accounts of $1,662,000 and
$732,000, respectively............................. 67,623 56,045
Coal, at average cost............................. 16,042 18,985
Materials and supplies, at average cost.............. 21,679 21,673
Gas in storage, at average cost...................... 8,754 4,291
Prepayments and other................................ 23,251 22,025
--------- ---------
Total current assets............................... 156,817 127,357
--------- ---------
Restricted cash........................................ 6,712 12,129
--------- ---------
Deferred charges and other............................. 161,346 88,036
--------- ---------
Environmental remediation costs........................ 82,380 82,698
--------- ---------
TOTAL ASSETS........................................... $1,761,899 $1,565,898
========= =========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareowners' investment....................... $ 582,966 $ 483,536
Preferred stock not mandatorily redeemable........... 59,963 62,449
Long-term debt, net.................................. 425,105 417,975
--------- ---------
Total capitalization............................... 1,068,034 963,960
--------- ---------
Current liabilities:
Current maturities of long-term debt................. 782 985
Variable rate demand bonds........................... 56,975 57,075
Short-term debt...................................... 91,902 71,427
Accounts payable and accruals........................ 78,195 78,066
Accrued payroll and vacation......................... 17,287 12,308
Accrued (prepaid) taxes.............................. (570) (2,008)
Accrued interest..................................... 9,282 7,968
Other................................................ 21,168 19,294
--------- ---------
Total current liabilities.......................... 275,021 245,115
--------- ---------
Other credits:
Accumulated deferred income taxes.................... 212,844 181,000
Accumulated deferred investment tax credits.......... 42,684 44,662
Accrued environmental remediation costs.............. 80,973 81,425
Deferred credits and other........................... 82,343 49,736
--------- ---------
418,844 356,823
--------- ---------
Commitments and contingencies (Notes 3 and 10)
TOTAL CAPITALIZATION AND LIABILITIES................... $1,761,899 $1,565,898
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1993 1992 1991
(In Thousands)
Cash flows generated from (used for) operating activities:
Net income......................................... $ 62,523 $ 58,007 $ 65,930
Adjustments to reconcile net income to net cash
generated from operating activities:
Depreciation and amortization.................... 69,112 59,949 54,145
Deferred income taxes............................ 5,015 8,124 4,571
Investment tax credit restored................... (1,967) (2,125) (2,141)
Amortization of nuclear fuel..................... 7,049 7,961 8,310
Allowance for equity funds used during
construction................................... (2,977) (2,351) (1,073)
Other............................................ 7,201 (1,731) 3,278
Changes in assets and liabilities:
Restricted cash.................................. 5,417 23,513 (35,642)
Net accounts receivable and unbilled revenue..... (11,578) (10,744) (2,304)
Coal............................................. 2,943 2,666 (1,474)
Materials and supplies........................... (6) 1,769 (175)
Gas in storage................................... (4,463) 1,403 497
Prepayments and other............................ (1,226) 4,453 (6,197)
Accounts payable and accruals.................... 760 3,587 (1,286)
Accrued taxes.................................... 1,438 (5,414) (1,843)
Other, net....................................... 9,194 (12,020) 6,743
-------- -------- -------
Net cash generated from operating activities... 148,435 137,047 91,339
-------- -------- -------
Cash flows generated from (used for) financing
activities:
Issuance of common stock.......................... 58,575 - -
Issuance of long-term debt........................ 11,538 289,510 61,217
Issuance of variable rate demand bonds............ - - 33,875
Issuance of preferred stock....................... 29,986 - -
Redemption of preferred stock..................... (29,986) - -
Long-term debt maturities, redemptions and
sinking fund requirements....................... (7,257) (243,641) (42,787)
Net change in short-term debt..................... 20,475 18,589 21,576
Common and preferred stock issuance expenses...... (2,971) - -
Common stock cash dividends, less dividends
reinvested....................................... (40,342) (32,668) (44,805)
Other............................................. 919 (1,462) 531
-------- -------- -------
Net cash generated from financing
activities.................................. 40,937 30,328 29,607
-------- -------- -------
Cash flows generated from (used for) investing
activities:
Additions to utility plant, excluding AFUDC....... (149,333) (123,321) (90,972)
Allowance for borrowed funds used during
construction.................................... (1,053) (1,329) (886)
Dedicated decommissioning funds................... (9,426) (3,737) (3,840)
Purchase of other property and equipment.......... (16,553) (44,097) (42,419)
Other............................................. 2,123 2,003 (944)
-------- -------- --------
Net cash (used for) investing activities...... (174,242) (170,481) (139,061)
-------- -------- --------
Net increase (decrease) in cash and equivalents..... 15,130 (3,106) (18,115)
Cash and equivalents at beginning of year........... 4,338 7,444 25,559
-------- -------- --------
Cash and equivalents at end of year................. $ 19,468 $ 4,338 $ 7,444
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest on debt.................................. $ 36,759 $ 37,763 $ 36,998
Preferred stock dividends of subsidiary........... $ 3,928 $ 3,811 $ 3,811
Income taxes...................................... $ 20,743 $ 21,201 $ 32,194
Noncash financing activites:
Dividends reinvested.............................. $ 15,284 $ 17,533 $ 3,285
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31, 1993 1992
(In Thousands)
Common shareowners' investment:
Common stock, $.01 par value, authorized--
100,000,000 shares; issued and outstanding--30,438,654
shares and 27,828,798 shares, respectively................... $ 305 $ 278
Additional paid-in capital.................................... 297,916 204,041
Reinvested earnings........................................... 284,745 279,217
-------- --------
Total common shareowners' investment...................... 582,966 483,536
-------- --------
Preferred stock:
Wisconsin Power and Light Company--
Cumulative, without par value, authorized 3,750,000 shares,
maximum aggregate stated value $150,000,000;
Preferred stock without mandatory redemption, $100 stated
value--
4.50% series, 99,970 shares outstanding.................. 9,997 9,997
4.80% series, 74,912 shares outstanding.................. 7,491 7,491
4.96% series, 64,979 shares outstanding.................. 6,498 6,498
4.40% series, 29,957 shares outstanding.................. 2,996 2,996
4.76% series, 29,947 shares outstanding.................. 2,995 2,995
8.48% series, 0 and 149,865 shares, respectively,
outstanding........................................... - 14,986
7.56% series, 0 and 150,000 shares, respectively,
outstanding........................................... - 15,000
6.20% series, 150,000 and 0 shares, respectivley,
outstanding........................................... 15,000 -
Cumulative, without par value, $25 stated value,
6.50% series, 599,460 and 0 shares, respectively,
outstanding........................................... 14,986 -
------- -------
Total preferred stock.............................. 59,963 59,963
Heartland Development Corporation............................. - 2,486
-------- --------
Total preferred stock................................... 59,963 62,449
-------- --------
Long-term debt:
Wisconsin Power and Light Company--
First mortgage bonds:
Series L, 6.25%, due 1998................................... 8,899 8,899
1984 Series A, variable rate, due 2014 (3.10% at
Dec. 31, 1993)........................................... 8,500 8,500
1988 Series A, variable rate, due 2015 (3.50% at Dec. 31,
1993).................................................... 14,600 14,700
1990 Series V, 9.3%, due 2025............................... 50,000 50,000
1991 Series A, variable rate, due 2015 (4.45% at Dec. 31,
1993).................................................... 16,000 16,000
1991 Series B, variable rate, due 2005 (4.45% at Dec. 31,
1993).................................................... 16,000 16,000
1991 Series C, variable rate, due 2000 (4.45% at Dec. 31,
1993).................................................... 1,000 1,000
1991 Series D, variable rate, due 2000 (4.45% at Dec. 31,
1993).................................................... 875 875
1992 Series W, 8.6%, due 2027............................... 90,000 90,000
1992 Series X, 7.75%, due 2004.............................. 62,000 62,000
1992 Series Y, 7.6%, due 2005............................... 72,000 72,000
1992 Series Z, 6.125%, due 1997............................. 55,000 55,000
-------- -------
Total first mortgage bonds................................ 394,874 394,974
-------- -------
Heartland Development Corporation--
1991 Series A, 4.8% - 6.9%, due 2023........................ 26,855 26,855
1991 Series B, variable rate, due 2003 (3.25% at Dec. 31,
1993)..................................................... 7,860 7,860
1992 Series taxable bonds, 7.55%, due 2024.................. 2,100 2,100
1993 Series taxable bonds, 7.0%, due 2024................... 3,195 -
Other mortgage notes payable, 0% - 10.75%, due 1996-2042.... 38,881 35,265
-------- --------
78,891 72,080
-------- --------
WPL Holdings, Inc.--
8.96% Senior note, due 1997................................. 10,000 10,000
Other....................................................... 519 463
-------- --------
10,519 10,463
-------- --------
Less--
Current maturities.......................................... (782) (985)
Variable rate demand bonds.................................. (56,975) (57,075)
Unamortized discount and premium, net....................... (1,422) (1,482)
-------- --------
Total long-term debt, net................................. 425,105 417,975
-------- --------
TOTAL CAPITALIZATION.......................................... $1,068,034 $963,960
========= =======
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMMON SHAREOWNERS' INVESTMENT
Year Ended December 31, 1993 1992 1991
(In Thousands)
Common stock:
Balance at beginning of year......................... $ 278 $ 273 $ 272
Issued in connection with public offering.......... 17 - -
Issued in connection with acquisitions............. 5 - -
Issued in connection with dividend reinvestment
reinvestment plan................................ 5 5 1
------- ------- -------
Balance at end of year............................... 305 278 273
------- ------- -------
Additional paid-in capital:
Balance at beginning of year......................... 204,041 187,532 183,598
Received in connection with public offering........ 58,558 - -
Received in connection with acquisitions........... 20,721 - -
Received in connection with dividend reinvestment
reinvestment plan................................ 15,279 17,528 3,284
Common stock issuance expense...................... (1,888) - -
Other.............................................. 1,205 (1,019) 650
------- ------- -------
Balance at end of year............................... 297,916 204,041 187,532
------- ------- -------
Reinvested earnings:
Balance at beginning of year......................... 279,217 271,854 254,133
Net income......................................... 62,523 58,007 65,930
Cash dividends ($1.90 per share, $1.86
per share, and $1.80 per share, repectively)..... (55,626) (50,201) (48,090)
Expense of issuing stock and other................. (1,369) (443) (119)
------- ------- -------
Balance at end of year............................... 284,745 279,217 271,854
------- ------- -------
TOTAL COMMON SHAREOWNERS' INVESTMENT.................. $582,966 $483,536 $459,659
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
WPL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES:
a. Business and Consolidation:
WPL Holdings, Inc. (the "company" or "WPLH") is the parent holding
company of Wisconsin Power and Light Company ("WP&L") and Heartland
Development Corporation ("HDC"). The consolidated financial statements
include the company and its consolidated subsidiaries, WP&L and HDC,
along with their respective subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. Certain amounts
from prior years have been reclassified to conform with the current
year presentation.
WP&L is a public utility predominantly engaged in the transmission
and distribution of electric energy and the generation and bulk
purchase of electric energy for sale. WP&L also transports,
distributes and sells natural gas purchased from gas suppliers. Nearly
all of WP&L's customers are located in south and central Wisconsin.
WP&L's principal consolidated subsidiary is South Beloit Water, Gas and
Electric Company.
HDC and its principal subsidiaries are engaged in business
development in three major areas: (1) environmental engineering and
consulting through the Environmental Holding Company ("EHC") which is
the parent company of RMT, Inc. ("RMT"), Jones and Neuse, Inc.,
Hydroscience, Inc. and Four Nines, Inc., (2) affordable housing and
historic rehabilitation through Heartland Properties, Inc. ("HPI") and
(3) energy related products and services which includes, in addition to
Enserv, Inc., the recent acquisition of A&C Enercom, EcoGroup and Entec
Consulting, Inc..
b. Regulation:
WP&L's financial records are maintained in accordance with the uniform
system of accounts prescribed by its regulators. The Public Service
Commission of Wisconsin ("PSCW") and the Illinois Commerce Commission
have jurisdiction over retail rates, which represent approximately 86
percent of electric revenues plus all gas revenues. The Federal Energy
Regulatory Commission ("FERC") has jurisdiction over wholesale electric
rates representing the balance of electric revenues. Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation" provides that rate-regulated public
utilities such as WP&L record certain costs and credits allowed in the
ratemaking process in different periods than for the unregulated
entities. These are deferred as regulatory assets or regulatory
liabilities and are recognized in the Consolidated Statements of Income
at the time they are reflected in rates.
c. Utility Plant and Other Property and Equipment:
Utility plant and other property and equipment are recorded at original
cost and cost, respectively. Utility plant costs include financing
costs which are capitalized through the PSCW-approved allowance for
funds used during construction ("AFUDC"). The AFUDC capitalization
rates approximate WP&L's cost of capital. These capitalized costs are
recovered in rates as the cost of the utility plant is depreciated.
Normal repairs and maintenance and minor items of utility plant and
other property and equipment are expensed. Ordinary utility plant
retirements, including removal costs less salvage value, are charged to
accumulated depreciation upon removal from utility plant accounts, and
no gain or loss is recognized. Upon retirement or sale of other
property and equipment, the cost and related accumulated depreciation
are removed from the accounts and any gain or loss is included in other
income and deductions.
d. Nuclear Fuel:
Nuclear fuel is recorded at its original cost and is amortized to
expense based upon the quantity of heat produced for the generation of
electricity. This accumulated amortization assumes spent nuclear fuel
will have no residual value. Estimated future disposal costs of such
fuel are expensed based on kilowatthours ("Kwh") generated.
e. Revenue:
WP&L accrues utility revenues for services provided but not yet billed.
f. Fuel and Purchased Gas:
An automatic fuel adjustment clause for the FERC wholesale portion of
WP&L's electric business operates to increase or decrease monthly rates
based on changes in fuel costs. The PSCW retail electric rates provide
a range from which actual fuel costs may vary in relation to costs
forecasted and used in rates. If actual fuel costs fall outside this
range, a hearing may be held to determine if a rate change is
necessary, and a rate increase or decrease can result.
WP&L's base gas cost recovery rates permit the recovery of or refund
to all customers for any increases or decreases in the cost of gas
purchased from WP&L's suppliers through a monthly purchased gas
adjustment clause.
g. Cash and Equivalents:
The company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents. The
carrying amount approximates fair value because of the short maturity
of these items.
h. Income Taxes:
The company files a consolidated federal income tax return. Under the
terms of an agreement between WPLH and its subsidiaries, WP&L and HDC
calculate their respective federal tax provisions and make payments to
WPLH as if they were separate taxable entities. Beginning in 1993, the
company fully provides deferred income taxes in accordance with
Statement of Financial Accounting Standards No.109, "Accounting for
Income Taxes" ("SFAS 109"), to reflect tax effects of reporting book
and tax items in different periods.
NOTE 2. DEPRECIATION:
The company uses the straight-line method of depreciation. For utility
plant, straight-line depreciation is computed on the average balance of
depreciable property at individual straight-line PSCW approved rates as
follows:
Electric Gas Water Common
-------- --- ----- ------
1993 3.6% 3.7% 2.5% 7.3%
1992 3.4 3.7 2.6 7.1
1991 3.4 3.7 2.6 6.9
Estimated useful lives related to other property and equipment are from
three to 12 years for equipment and 31.5 to 40 years for buildings.
NOTE 3. NUCLEAR OPERATIONS:
Depreciation expense related to the Kewaunee Nuclear Power Plant includes
a provision for the decommissioning of the plant which totaled $6.1
million, $3.9 million and $4.1 million in 1993, 1992 and 1991,
respectively. Wisconsin utilities with ownership of nuclear generating
plants are required by the PSCW to establish external trust funds to
provide for plant decommissioning. The market value of the investments in
the funds established by WP&L at December 31, 1993 and 1992, totaled $45.1
million and $42.8 million, respectively. WP&L's share of the
decommissioning costs is estimated to be $149 million (in 1993 dollars,
assuming the plant is operating through 2013) based on a 1992 study, using
the immediate dismantlement method of decommissioning.
Under the Nuclear Waste Policy Act of 1982, the U.S. Department
of Energy ("DOE") is responsible for the ultimate storage and disposal of
spent nuclear fuel removed from nuclear reactors. Interim storage space
for spent nuclear fuel is currently provided at the Kewaunee Nuclear Power
Plant. Currently there is on-site storage capacity for spent fuel through
the year 1999. Nuclear fuel, net, at December 31 1993 and 1992, consists
of (In Thousands of Dollars):
1993 1992
---- ----
Original cost of nuclear fuel $147,325 $140,652
Less--Accumulated amortization 129,325 123,729
-------- --------
Nuclear fuel, net $ 18,000 $ 16,923
======== ========
The Price Anderson Act provides for the payment of funds for
public liability claims arising from a nuclear incident. Accordingly, in
the event of a nuclear incident, WP&L, as a 41 percent owner of the
Kewaunee Nuclear Power Plant, is subject to an overall assessment of
approximately $32.5 million per incident for its ownership share of this
reactor, not to exceed $4.1 million payable in any given year.
Through its membership in Nuclear Electric Insurance Limited,
WP&L has obtained property damage and decontamination insurance totaling
$1.4 billion for loss from damage at the Kewaunee Nuclear Power Plant. In
addition, WP&L maintains outage and replacement power insurance coverage
totalling $99 million in the event an outage exceeds 21 weeks.
NOTE 4. PROPERTY:
a. Jointly Owned Utility Plants:
WP&L participates with other Wisconsin utilities in the
construction and operation of several jointly owned utility
generating plants. The chart below represents WP&L's
proportionate share of such plants as reflected in the
Consolidated Balance Sheets at December 31, 1993 and 1992 (In
Thousands of Dollars):
1993 1992
------------------------------- ---------------------------------
Plant Accumulated Plant Accumulated
Ownership Inservice Plant MW in Provision for in Provision for
Interest-% Date Capacity Service Depreciation CWIP Service Depreciation CWIP
---------- ---- -------- ------- ------------ ---- ------- ------------ ----
Coal:
Columbia Energy
Center 46.2 1975 & 1978 1,023 $159,818 $ 76,602 $1,986 $158,315 $ 72,262 $2,280
Edgewater Unit 4 68.2 1969 330 49,631 24,160 83 47,226 24,587 178
Edgewater Unit 5 75.0 1985 380 224,902 58,338 21 230,656 53,215 208
Nuclear:
Kewaunee Nuclear
Power Plant 41.0 1974 535 127,651 68,258 848 127,651 64,219 1,703
------- ------- ----- ------- ------- -----
Total $562,002 $227,358 $2,938 $563,848 $214,283 $4,369
======= ======= ===== ======= ======= =====
Each of the respective joint owners finances its portion of
construction costs. WP&L's share of operations and maintenance
expenses is included in the Consolidated Statements of Income.
b. Other Property and Equipment:
As of December 31, 1993 and 1992, other property and equipment, net
includes $100.9 million and $94.4 million, respectively, consisting
primarily of rental property and equipment associated with HPI's
affordable housing and historic rehabilitation project developments.
c. Capital Expenditures:
The company's capital expenditures for 1994 are estimated to total
$166.7 million. Substantial commitments have been incurred for such
expenditures.
NOTE 5. NET ACCOUNTS RECEIVABLE:
WP&L has a contract with a financial organization to sell, with limited
recourse, certain accounts receivable. These receivables include customer
receivables resulting from sales to other public utilities as well as from
billings to the co-owners of the jointly owned electric generating plants
that WP&L operates. The contract allows WP&L to sell up to $100 million
of receivables at any time. Consideration paid to the financial
organization under this contract includes, along with various other fees,
a monthly discount charge on the outstanding balance of receivables sold
that approximated a 4.14 percent annual rate during 1993. These costs are
recovered in retail utility rates as an operating expense. All billing
and collection functions remain the responsibility of WP&L. The contract
expires August 19, 1995, unless extended by mutual agreement.
As of December 31, 1993 and 1992, proceeds from the sale of
accounts receivable totaled $74 million and $69 million, respectively.
During 1993, WP&L sold an average of $75.9 million of accounts receivable
per month, compared with $68.8 million in 1992.
As a result of its diversified customer base and WP&L's sale of
receivables, the company does not have any significant concentrations of
credit risk in the December 31, 1993 net accounts receivable balance.
NOTE 6. DEFERRED CHARGES AND OTHER:
Certain costs are deferred and amortized in accordance with authorized or
expected rate-making treatment. As of December 31, 1993 and 1992,
deferred charges and other include regulatory created assets and other
noncurrent items representing the following (In Thousands of Dollars):
1993 1992
---- ----
Unamortized debt redemption expense $ 13,178 $15,384
Decontamination and decommissioning
costs of Federal enrichment
facilities 6,181 6,150
Prepaid pension costs 26,128 21,226
Conservation loans to WP&L customers
(at cost which approximates market) 12,236 12,257
Goodwill 21,622 -
Tax related (see Note 7) 28,608 -
Emission allowance credits receivable 5,335 5,335
Other 48,058 27,684
------- ------
$161,346 $88,036
======== =======
NOTE 7. INCOME TAXES:
The following table reconciles the statutory Federal income tax
rate to the effective income tax rate:
1993 1992 1991
---- ---- ----
Statutory Federal income tax rate 35.0% 34.0% 34.0%
State income taxes, net of federal benefit 5.1 7.0 5.0
Investment tax credits restored (2.1) (2.7) (2.2)
Amortization of excess deferred taxes (1.7) (1.8) (1.6)
Affordable housing and historical tax
credits (5.7) (7.5) (1.9)
Other differences, net (3.2) (.6) (.4)
---- ---- ----
Effective income tax rate 27.4% 28.4% 32.9%
==== ==== ====
The breakdown of income tax expense as reflected in the
Consolidated Statements of Income is as follows (In Thousands of Dollars):
1993 1992 1991
---- ---- ----
Income taxes:
Current Federal $20,725 $19,703 $26,775
Current state 6,500 5,343 5,904
Deferred 5,015 8,124 4,571
Investment tax credit
restored (1,967) (2,125) (2,141)
Affordable housing and historical
tax credits (5,217) (7,788) (2,719)
------- ------- -------
$25,056 $23,257 $32,390
======= ======= =======
Items which resulted in deferred income tax expense are as
follows (In Thousands of Dollars):
1992 1991
---- ----
Utility plant timing differences $4,104 $4,317
Qualified nuclear decommissioning trust
contribution 709 709
Employee benefits 2,081 2,105
Other, net 1,230 (2,560)
------ ------
$8,124 $4,571
====== ======
The temporary differences that resulted in accumulated deferred income
tax assets and liabilities as of December 31, 1993 are as follows (In
Thousands of Dollars):
Deferred Tax
(Assets)
Liabilities
------------
Accelerated depreciation and other
plant related $171,993
Excess deferred taxes 22,744
Unamortized investment tax credits (22,812)
Allowance for equity funds used during
construction 13,518
Regulatory liability 19,179
Other 8,222
--------
$212,844
========
Changes in WP&L's deferred income taxes arising from the adoption of SFAS
109 represent amounts recoverable or refundable through future rates and
have been recorded as net regulatory assets totalling approximately $29
million on the Consolidated Balance Sheets. These net regulatory assets
are being recovered in rates over the estimated remaining useful lives of
the assets to which they pertain.
As part of HPI's investments in affordable housing, HPI is
eligible to claim affordable housing and historic rehabilitation credits.
These tax credits can be recognized to the extent the company has
consolidated taxes payable against which the qualifying credits can be
benefitted.
NOTE 8. EMPLOYEE BENEFIT PLANS:
a. Pension Plans:
WP&L has noncontributory, defined benefit retirement plans covering
substantially all employees. The benefits are based upon years of
service and levels of compensation. WP&L's funding policy is to
contribute at least the statutory minimum to a trust.
The projected unit credit actuarial cost method was used to
compute net pension costs and the accumulated and projected benefit
obligations. The discount rate used in determining those benefit
obligations was 7.25 percent for 1993, and 8 percent for 1992 and
1991. The long-term rate of return on assets used in determining
those benefit obligations was 9.75 percent for 1993 and 10 percent
for 1992 and 1991.
The following table sets forth the funded status of the WP&L
plans and amounts recognized in the company's Consolidated Balance
Sheets at December 31, 1993 and 1992 (In Thousands of Dollars):
1993 1992
---- ----
Accumulated benefit obligation--
Vested benefits $(135,303) $(119,883)
Nonvested benefits (2,962) (869)
--------- ---------
$(138,265) $(120,752)
========= =========
Projected benefit obligation $(164,271) $(144,760)
Plan assets at fair value, primarily
common stocks and fixed income
securities 183,881 164,771
--------- ---------
Plan assets in excess of projected benefit
obligation 19,610 20,011
Unrecognized net transition asset (21,823) (24,270)
Unrecognized prior service cost 7,691 9,510
Unrecognized net loss 20,650 15,975
--------- ---------
Prepaid pension costs, included in
deferred charges and other $ 26,128 $ 21,226
========= =========
The net pension (benefit) recognized in the Consolidated Statements of
Income for 1993, 1992 and 1991 included the following components (In
Thousands of Dollars):
1993 1992 1991
---- ---- ----
Service cost $ 4,263 $ 3,912 $ 3,167
Interest cost on projected benefit
obligation 11,614 10,615 9,469
Actual return on assets (24,759) (12,143) (30,035)
Amortization and deferral 8,430 (5,317) 14,603
-------- -------- --------
Net pension (benefit) $ (452) $ (2,933) $ (2,796)
======== ======== ========
b. Postretirement Health-care and Life Insurance:
Effective January 1, 1993, the company prospectively adopted
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions"
("SFAS 106"). SFAS 106 establishes standards of financial accounting
and reporting for the company's postretirement health-care and life
insurance benefits. SFAS 106 requires the accrual of the expected cost
of such benefits during the employees' years of service based on
actuarial methodologies that closely parallel pension accounting
requirements. WP&L has elected delayed recognition of the transition
obligation and is amortizing the discounted present value of the
transition obligation to expense over 20 years. For WP&L, the cost of
providing postretirement benefits, including the transition obligation,
is being recovered in retail rates and wholesale rates under current
regulatory practices.
For 1993, the annual net postretirement benefits costs recognized in
the Consolidated Statements of Income consist of the following
components (In Thousands of Dollars):
Service cost $ 1,463
Interest cost on projected benefit
obligation 3,151
Actual return on plan assets (696)
Amortization of transition obligation 1,560
Amortization and deferral (27)
-------
Net postretirement benefits cost $ 5,451
=======
The following table sets forth the plans' funded status (In Thousands of
Dollars):
1993
----
Accumulated postretirement benefit obligation--
Retirees $ (27,358)
Fully eligible active plan participants (5,429)
Other active plan participants (9,980)
---------
Accumulated benefit obligation (42,767)
Plan assets at fair value 7,073
---------
Accumulated benefit obligation
in excess of plan assets $(35,694)
Unrecognized transition obligation 29,638
Unrecognized loss 2,025
---------
Accrued postretirement benefits liability $ (4,031)
=========
The postretirement benefits cost components for 1993 were calculated
assuming health care cost trend rates ranging from 12.5 percent for
1993 and decreasing to 5 percent by the year 2002. The health care
cost trend rate considers estimates of health care inflation, changes
in utilization or delivery, technological advances, and changes in the
health status of the plan participants. Increasing the health care
cost trend rate by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1993
by $2.54 million and the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for the year
by $.4 million.
The assumed discount rate used in determining the accumulated
postretirement obligation was 7.25 percent. The long-term rate of
return on assets was 9.50 percent. Plan assets are primarily invested
in common stock,bonds and fixed income securities. The company's
funding policy is to contribute the tax advantaged maximum to a trust.
The costs for the postretirement health-care and life insurance
benefits, based on an actuarial determination, were $1,335,000 and
$1,078,000, respectively, for 1992 and 1991.
c. Other Postemployment Benefits:
In November 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" ("SFAS 112"). SFAS 112
establishes standards of financial accounting and reporting for the
estimated cost of benefits provided by an employer to former or
inactive employees after employment but before retirement. The effect
of adopting SFAS 112, which must be adopted January 1, 1994, will not
be material.
NOTE 9. CAPITALIZATION:
a. Common Shareowners' Investment:
During 1993, 1992 and 1991, respectively, the company issued 451,233,
528,142 and 122,110 new shares of common stock through its Dividend
Reinvestment and Stock Purchase Plan, generating proceeds of $15.3
million, $17.5 million and $3.3 million, respectively.
On April 27, 1993, a public offering of 1.65 million newly issued
shares of the company's common stock, priced at $35.50 per share,
raised net proceeds of $56.7 million. The proceeds were used by the
company to refinance short-term debt and for general corporate purposes
including construction.
In February 1989, the Board of Directors of the company declared a
dividend distribution of one common stock purchase right ("right") on
each outstanding share of the company's common stock. Each right would
initially entitle shareowners to buy one-half of one share of the
company's common stock at an exercise price of $60.00 per share,
subject to adjustment. The rights are not currently exercisable, but
would become exercisable if certain events occurred related to a person
or group acquiring or attempting to acquire 20 percent or more of the
outstanding shares of common stock. The rights expire on February 22,
1999, unless the rights are earlier redeemed or exchanged by the
company.
Authorized shares of common stock total 100,000,000 as of December
31, 1993, and can be categorized as follows:
No. Of Shares
-------------
Issued and outstanding 30,438,654
Reserved for issuance for
Dividend Reinvestment and Stock Purchase Plan 891,874
Common Stock Rights Agreement 15,665,264
Unreserved 53,004,208
-----------
Total authorized 100,000,000
===========
A retail rate order effective October 1, 1993, requires WP&L to
maintain a utility common equity level of 50.31 percent of total
utility capitalization during the test year August 1, 1993 to July
31, 1994. In addition, the PSCW ordered that it must approve the
payment of dividends by WP&L to the company that are in excess of
the level forecasted in the projected test year ($56.8 million), if
such dividends would reduce WP&L's average common equity ratio below
50.31 percent.
b. Preferred Stock:
On October 27, 1993, WP&L issued two new series of preferred stock
through two separate public offerings. The 6.2% Series is non-
redeemable for ten years and the 6.5% Series is non-redeemable for
five years. The proceeds from the sale were used to retire 150,000
shares of 7.56% Series and 149,865 shares of 8.48% Series preferred
stock.
c. Long-term Debt:
During 1992, WP&L issued $279 million of first mortgage bonds, of
which $235 million was used to refinance the principal of existing
series in order to take advantage of lower interest rates. The
remaining proceeds were used for the payment of short-term debt and
general corporate purposes.
Substantially all of WP&L's utility plant is secured by its
first mortgage bonds. Current maturities of long-term debt are as
follows: $.7 million in 1994, $1.6 million in 1995, $3.3 million in
1996, $56.7 million in 1997 and $11.2 million in 1998.
The fair value of the company's long-term debt, including
variable rate demand bonds, is estimated at $518,251,000 and
$475,909,000 as of December 31, 1993 and 1992, respectively, based
on the quoted market prices for similar issues or on the current
rates offered to the company for similar debt.
NOTE 10. COMMITMENTS AND CONTINGENCIES:
a. Coal Contract Commitments:
To ensure an adequate supply of coal, WP&L has entered into certain
long-term coal contracts. These contracts include a demand or
take-or-pay clause under which payments are required if contracted
quantities are not purchased. Purchase obligations on these coal
and related rail contracts total approximately $263 million through
December 31, 2004. WP&L's management believes it will meet minimum
coal and rail purchase obligations under the contracts or recover in
rates any demand or take-or-pay costs if minimum purchase
obligations are not met. Minimum purchase obligations on these
contracts over the next five years are estimated to be $67 million
in 1994 and $27 million in 1995, 1996, 1997 and 1998, respectively.
b. Purchased Power:
Under firm purchase power contracts, WP&L is obligated to pay $11
million, $8 million, $5 million, $7 million and $14 million in 1994,
1995, 1996, 1997 and 1998, respectively. For 1994, this represents
2,515 megawatts of capacity. Purchase obligations on these purchase
power contracts total approximately $169 million through December 31,
2007.
c. Manufactured Gas Plant Sites:
Historically, WP&L has owned 11 properties that have been associated
with the production of manufactured gas. Currently, WP&L owns five
of these sites, three are owned by municipalities, and the remaining
three are owned by private companies. In 1989, WP&L initiated
investigation of these manufactured gas plant sites. The Wisconsin
Department of Natural Resources ("DNR") has been involved in
reviewing preliminary investigation plans and has received reports
regarding these investigations. Based on the results of WP&L's
preliminary investigations, WP&L recorded an estimated liability and
corresponding deferred charge of approximately $15 million as of
December 31, 1991.
In 1992, and into the beginning of 1993, WP&L continued its
investigations and studies. WP&L confirmed that there was no
contamination at two of the sites and received a close out letter
from the DNR related to one of those sites and requested a close out
letter for the other site. Additionally, the investigation of
historical records at a third site indicated a minimal likelihood of
any significant environmental impacts. In February 1993, WP&L
completed more current cost estimates for the environmental
remediation of the eight remaining sites. The results of this more
current analysis indicated that during the next 35 years, WP&L will
expend approximately $81 million for feasibility studies, data
collection, soil remediation activities, groundwater research and
groundwater remediation activities, including construction of slurry
containment walls and the installation of groundwater pump and
treatment facilities. This estimate was based on various
assumptions, and is subject to continuous review and revision by
management.
Based on the cost estimate set forth above, which assumes a 4
percent average inflation over the 35 year period, WP&L will spend
approximately $4.2 million, $1.5 million, $2.1 million, $4.4 million
and $4.2 million in 1994 through 1998, respectively. The cost
estimate also contemplates that primarily groundwater pump and
treatment activities will take place after 1998 through and
including 2027. During this time, WP&L estimates that it will incur
average annual costs of $2.0 million to complete the planned
groundwater remediation activities.
With respect to rate recovery of these costs, the PSCW has
approved a five year amortization of the unamortized balance of
incurred environmental costs deferred to date.
Based on the present regulatory record at the PSCW, management
believes that future costs of remediating these manufactured gas
plant sites will be recovered in rates.
d. FERC Order No. 636:
In 1992 the FERC issued Order No. 636 and 636-A which requires
interstate pipelines to restructure their services. Under these
orders, existing pipeline sales service would be "unbundled" such
that gas supplies would be sold separately from interstate
transportation services (pipelines serving WP&L implemented new
services November 1, 1993). Pipelines will, however, seek to
recover from their customers certain transition costs associated
with restructuring. Any such recovery would be subject to prudence
hearings at the FERC and state regulatory commissions.
NOTE 11. SHORT-TERM DEBT AND LINES OF CREDIT:
The company and its subsidiaries maintain bank lines of credit, most of
which are at the bank prime rates, to obtain short-term borrowing
flexibility, including pledging lines of credit as security for any
commercial paper outstanding. Amounts available under these lines of
credit totaled $100 million, $70 million and $52.5 million as of December
31, 1993, 1992 and 1991, respectively. Information regarding short-term
debt and lines of credit is as follows (In Thousands of Dollars):
1993 1992 1991
---- ---- ----
As of end of year--
Lines of credit borrowings $ 2,000 $ - $ -
Commercial paper outstanding $49,000 $26,000 $23,000
Notes payable outstanding $40,954 $44,095 $29,326
Compensating balance requirements $ - $ - $ 75
Discount rates on commercial paper 3.24%-3.40% 3.15%-3.90% 4.68%-5.50%
Interest rates on notes payable 3.34%-3.35% 3.46%-3.62% 4.74%-8.96%
For the year ended--
Maximum month-end amount of short-term debt $92,000 $70,155 $55,350
Average amount of short-term debt
(based on daily outstanding balances) $56,250 $41,882 $24,323
Average interest rate on short-term debt 3.33% 3.78% 7.42%
NOTE 12. SEGMENT INFORMATION:
The following table sets forth certain information relating to the
company's consolidated operations (In Thousands of Dollars).
Year Ended December 31,
------------------------------------
1993 1992 1991
---- ---- ----
Operation information:
Customer revenues--
Electric $ 503,187 $ 477,735 $ 488,552
Gas 138,384 119,362 117,775
Environmental engineering
and consulting 81,396 67,533 56,702
Other 50,090 8,643 6,520
---------- ---------- ----------
Total operating revenues $ 773,057 $ 673,273 $ 669,549
========== ========== ==========
Operating income (loss)--
Electric $ 118,785 $ 109,459 $ 116,339
Gas 10,431 8,724 15,070
Environmental engineering
and consulting 4,219 3,542 3,725
Other (a) (7,252) (3,766) (2,529)
Other income and (deductions), net 2,344 4,741 4,331
Interest expense, net (37,020) (37,625) (34,805)
Income taxes (25,056) (23,257) (32,390)
Preferred stock dividends of
subsidiary (3,928) (3,811) (3,811)
---------- ---------- ----------
Net income $ 62,523 $ 58,007 $ 65,930
========== ========== ==========
Investment information:
Identifiable assets, including
allocated common plant at
December 31--
Electric $1,170,010 $1,064,418 $1,014,032
Gas 228,257 210,965 122,176
Environmental engineering
and consulting 40,124 31,400 28,908
Other 323,508 259,115 218,383
---------- ---------- ----------
Total assets $1,761,899 $1,565,898 $1,383,499
========== ========== ==========
Other information:
Construction and nuclear fuel
expenditures--
Electric $ 139,805 $ 113,252 $ 86,829
Gas 18,876 13,974 9,856
Other 18,538 45,606 43,449
---------- ---------- ----------
Total construction and
nuclear fuel expenditures $ 177,219 $ 172,832 $ 140,134
========== ========== ==========
Provision for depreciation--
Electric $ 53,398 $ 49,554 $ 45,319
Gas 7,329 6,578 6,038
Other 8,385 3,817 2,788
---------- ---------- ----------
Total provision for
depreciation $ 69,112 $ 59,949 $ 54,145
========== ========== ==========
(a) Excludes the effects of affordable housing and historical tax credits of $5.2 million, $7.8 million and $2.7 million in
1993, 1992 and 1991, respectively.
NOTE 13. ACQUISITIONS:
On August 31, 1993, the company issued 515,993 shares of company common
stock in exchange for the outstanding common and preferred stock of Jones
and Neuse, Inc. ("JN"), a 250-employee environmental consulting and
engineering service firm based in Austin, Texas. This transaction was
accounted for as a pooling of interests and all prior periods have been
restated accordingly; such restatement was not material. The company
intends to position JN as a service region of its own 550-employee
environmental consulting and engineering company, RMT, a subsidiary of
HDC.
In February 1993, HDC acquired A&C Enercom Consultants, Inc.
("A&C"), a Georgia corporation, for cash and new shares of the company's
common stock. A&C provides demand side management and energy related
consulting services, primarily to public electric and gas utility
companies.
NOTE 14. CONSOLIDATED QUARTERLY FINANCIAL DATA (Unaudited):
Seasonal factors significantly affect WP&L and, therefore, the data
presented below should not be expected to be comparable between quarters
nor necessarily indicative of the results to be expected for an annual
period.
The amounts below were not audited by independent public
accountants, but reflect all adjustments necessary, in the opinion of the
company, for a fair presentation of the data.
Operating Operating Earnings
Quarter Ended Revenues Income Net Income Per Share
-------- --------- ---------- ---------
(In Thousands except for Per Share Data)
1993:
March 31 (*) $209,250 $36,490 $19,766 $.70
June 30 (*) 173,631 19,872 7,190 .24
September 30 173,869 29,358 13,258 .44
December 31 216,307 40,463 22,309 .73
1992 (*):
March 31 $184,346 $36,223 $18,653 $.69
June 30 147,146 17,464 7,268 .26
September 30 156,516 25,624 12,290 .44
December 31 185,265 38,648 19,796 .71
(*) The financial information presented has been restated to reflect the
pooling of JN (see Note 13).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 relating to directors and
nominees for election as directors at the company's 1994 Annual Meeting of
Shareowners is incorporated herein by reference to the information under
the caption "Election of Directors" in the company's Proxy Statement (the
"1994 Proxy Statement") filed with the Securities and Exchange Commission.
The information required by Item 10 relating to executive officers is set
forth in Part I of this Annual Report on Form 10-K. The information
required by Item 10 relating to delinquent filers is incorporated herein
by reference to the information under the caption "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the 1994 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by
reference to the information under the caption "Compensation of Executive
Officers" in the 1994 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 is incorporated herein by
reference to the information under the caption "Ownership of Voting
Securities" in the 1994 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by
reference to the information under the caption "Election of Directors" in
the 1994 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) (1) Consolidated Financial Statements
Included in Part II of this report:
Report of Independent Public Accountants on Schedules
Consolidated Statements of Income for the Years Ended
December 31, 1993, 1992 and 1991
Consolidated Balance Sheets, December 31, 1993 and 1992
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991
Consolidated Statements of Capitalization, December 31,
1993 and 1992
Consolidated Statements of Common Shareowners' Investment
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules
For each of the years ended December 31, 1993, 1992 and 1991
Schedule II. Amounts Receivable from Related Parties
Schedule III. Parent Company Financial Statements
Schedule V. Property Plant and Equipment
Schedule VI. Accumulated Provision for Depreciation and
Accumulated Amortization of Nuclear Fuel
Schedule VIII. Valuation and Qualifying Accounts and
Reserves
Schedule X. Supplementary Income Statement Information
All other schedules are omitted because they are not applicable
or not required, or because that required information is shown
either in the consolidated financial statements or in the notes
thereto.
(a)(3) Exhibits Required by Securities and Exchange Commission
Regulation S-K
The following Exhibits are filed herewith or incorporated herein
by reference. Documents indicated by an asterisk (*) are
incorporated herein by reference.
3A* Restated Articles of Incorporation (Exhibit 4.1 to the
company's Form S-3 Registration Statement No. 33-59972)
3B* By-Laws of as revised to January 1, 1993
4A* Indenture of Mortgage or Deed of Trust dated August 1,
1941, between WP&L and First Wisconsin Trust Company and
George B. Luhman, as Trustees, filed as Exhibit 7(a) in
File No. 2-6409, and the indentures supplemental thereto
dated, respectively, January 1, 1948, September 1, 1948,
June 1, 1950, April 1, 1951, April 1, 1952, September 1,
1953, October 1, 1954, March 1, 1959, May 1, 1962,
August 1, 1968, June 1, 1969, October 1, 1970, July 1,
1971, April 1, 1974, December 1, 1975, May 1, 1976,
May 15, 1978, August 1, 1980, January 15, 1981, August 1,
1984, January 15, 1986, June 1, 1986, August 1, 1988,
December 1, 1990, September 1, 1991, October 1, 1991,
March 1, 1992, May 1, 1992, June 1, 1992 and July 1, 1992
(Second Amended Exhibit 7(b) in File No. 2-7361; Amended
Exhibit 7(c) in File No. 2-7628; Amended Exhibit 7.02 in
File No. 2-8462; Amended Exhibit 7.02 in File No. 2-8882;
Second Amendment Exhibit 4.03 in File No. 2-9526; Amended
Exhibit 4.03 in File No. 2-10406; Amended Exhibit 2.02 in
File No. 2-11130; Amended Exhibit 2.02 in File
No. 2-14816; Amended Exhibit 2.02 in File No. 2-20372;
Amended Exhibit 2.02 in File No. 2-29738; Amended
Exhibit 2.02 in File No. 2-32947; Amended Exhibit 2.02 in
File No. 2-38304; Amended Exhibit 2.02 in File
No. 2-40802; Amended Exhibit 2.02 in File No. 2-50308;
Exhibit 2.01(a) in File No. 2-57775; Amended Exhibit 2.02
in File No. 2-56036; Amended Exhibit 2.02 in File
No. 2-61439; Exhibit 4.02 in File No. 2-70534; Amended
Exhibit 4.03 File No. 2-70534; Exhibit 4.02 in File
No. 33-2579; Amended Exhibit 4.03 in File No. 33-2579;
Amended Exhibit 4.02 in File No. 33-4961; Exhibit 4B to
WP&L's Form 10-K for the year ended December 31, 1988,
Exhibit 4.1 to WP&L's Form 8-K dated December 10, 1990,
Amended Exhibit 4.26 in File No. 33-45726, Amended
Exhibit 4.27 in File No.33-45726, Exhibit 4.1 to WP&L's
Form 8-K dated March 9, 1992, Exhibit 4.1 to WP&L's
Form 8-K dated May 12, 1992, Exhibit 4.1 to WP&L's
Form 8-K dated June 29, 1992 and Exhibit 4.1 to WP&L's
Form 8-K dated July 20, 1992)
10A*# Executive Tenure Compensation Plan as revised November
1992
10B*# Form of Supplemental Retirement Plan, as revised November
1992
10C*# Forms of Deferred Compensation Plans, as amended June,
1990 (Exhibit 10C to the company's Form 10-K for the year
ended December 31, 1990)
10C.1*# Officer's Deferred Compensation Plan II, as adopted
September 1992
10C.2*# Officer's Deferred Compensation Plan III, as adopted
January 1993
10F*# Pre-Retirement Survivor's Income Supplemental Plan, as
revised November 1992
10H*# Management Incentive Plan
10I*# Deferred Compensation Plan for Directors, as adopted June
27, 1990
12 Computation of ratio of earnings to fixed charges and
preferred dividend requirements after taxes
21 Subsidiaries of the company
23 Consent of Independent Public Accountants
99 1994 Proxy Statement for the Annual Meeting of
Shareowners to be held May 18, 1994
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the company
hereby agrees to furnish to the Securities and Exchange
Commission, upon request, any instrument defining the rights of
holders of unregistered long-term debt not filed as an exhibit
to this Form 10-K. No such instrument authorizes securities in
excess of 10 percent of the total assets of the company.
# - A management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
1. WP&L filed a report on Form 8-K dated October 20, 1994,
which reported, under "Item 5. Other Events", the agreement
to sell: (i) 150,000 shares of its 6.2% Preferred Stock,
with a stated value of $100, in a public offering through
Goldman, Sachs & Co.; and (ii) 599,460 shares of its 6.5%
Preferred Stock, with a stated value of $25 in a public
offering through Robert W. Baird & Co. Incorporated.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 23rd day of February 1994.
WPL HOLDINGS, INC.
By: /s/ Erroll B. Davis, Jr.
Erroll B. Davis, Jr.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on the 23rd day of
February 1994.
/s/ Erroll B. Davis, Jr. President, Chief Executive
Erroll B. Davis, Jr. Officer and Director (principal
executive officer)
/s/ Edward M. Gleason Vice President, Treasurer and
Edward M. Gleason Corporate Secretary (principal
financial officer)
/s/ Daniel A. Doyle Controller and Treasurer -
Daniel A. Doyle Wisconsin Power and Light
Company (principal accounting
officer)
/s/ L. David Carley Director /s/ Milton E. Neshek Director
L. David Carley Milton E. Neshek
/s/ Rockne G. Flowers Director /s/ Henry C. Prange Director
Rockne G. Flowers Henry C. Prange
/s/ Donald R. Haldeman Director /s/ Henry F. Scheig Director
Donald R. Haldeman Henry F. Scheig
/s/ Katharine C. Lyall Director /s/ Carol T. Toussaint Director
Katharine C. Lyall Carol T. Toussaint
/s/ Arnold M. Nemirow Director
Arnold M. Nemirow
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To WPL Holdings, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in the 1993 Form 10-K of
WPL Holdings, Inc. and have issued our report thereon dated January 28,
1994. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. Supplemental Schedules II, III, V, VI, VIII
and X are the responsibility of the company's management and are presented
for purposes of complying with the Securities and Exchange Commission's
rules and are not part of the basic consolidated financial statements.
These schedules have been subjected to the auditing procedures applied in
the audit of the basic consolidated financial statements and, in our
opinion, fairly state in all material respects the financial data required
to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
Milwaukee, Wisconsin, ARTHUR ANDERSEN & CO.
January 28, 1994.
INDEX TO SCHEDULES
WPL HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
FINANCIAL STATEMENT SCHEDULES:
II. Amounts Receivable from Related Parties
III. Parent Company Financial Statements
V. Property Plant and Equipment
VI. Accumulated Provision for Depreciation and Accumulated
Amortization of Nuclear Fuel
VIII. Valuation and Qualifying Accounts and Reserves
X. Supplementary Income Statement Information
NOTE: All other schedules are omitted because they are not
applicable or not required, or because that required
information is shown either in the financial statements or in
the notes thereto.
SCHEDULE II
WPL HOLDINGS, INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES
COL. A COL. B COL. C COL.D COL. E
Balance at end
Deductions of period
Balance (1) (2) (1) (2)
Name of at beg. Amounts Amounts
debtor of year Additions collected written off Current Not Current
Year Ended December 31, 1993
Lance Ahearn $228,839 $ 99,577 $-- $-- $-- $328,416
======== ======== === === === ========
Year Ended December 31, 1992
Lance Ahearn $ 77,424 $151,415 $-- $-- $-- $228,839
======== ======== === === === ========
Year Ended December 31, 1991
Lance Ahearn $ -- $ 77,424 $-- $-- $-- $ 77,424
======== ======== === === === ========
The loan between HDC and Mr. Ahearn represents income taxes withheld in
connection with shares vesting as a part of an employment agreement. The
loan is to be in effect at market rates and is payable on July 1, 1994.
SCHEDULE III - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPL HOLDINGS, INC.
(Parent Company Only)
STATEMENTS OF INCOME AND REINVESTED EARNINGS
Years ended December 31,
1993 1992 1991
(In thousands)
Income:
Cash dividends.......................... $ 56,068 $ 51,385 $ 49,599
Undistributed subsidiary earnings:
Heartland Development Corporation...... 1,337 857 2,838
Wisconsin Power and Light Company...... 5,850 4,243 14,503
Investment income and other............. 33 182 297
-------- -------- --------
63,288 56,667 67,237
-------- -------- --------
Expenses:
Operating (Note D)...................... 1,018 90 1,627
Interest and other...................... 805 658 823
-------- -------- --------
1,823 748 2,450
-------- -------- --------
Income before income tax benefit.......... 61,465 55,919 64,787
-------- -------- --------
Income tax benefit (expense):
Current................................. 750 372 877
Deferred................................ 308 730 (730)
-------- -------- --------
1,058 1,102 147
-------- -------- --------
Net income................................ 62,523 57,021 64,934
Reinvested earnings, beginning of year.... 276,968 270,266 253,541
Cash dividends ......................... (55,626) (50,201) (48,090)
Expense of issuing preferred stock...... (1,082) -- --
Other .................................. 1,962 (118) (119)
-------- -------- --------
Reinvested earnings at end of year........ $284,745 $276,968 $270,266
======== ======== ========
The accompanying notes are an integral part of these statements.
SCHEDULE III - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPL HOLDINGS, INC.
(Parent Company Only)
BALANCE SHEET
As of December 31
1993 1992
(In thousands)
ASSETS
Current assets:
Cash and equivalents............................... $ 8,642 $ 339
Accounts receivable - affiliates (Note B).......... 109 275
Notes receivable - affiliates (Note B)............. 24,948 27,385
-------- --------
33,699 27,999
-------- --------
Accounts receivable from WPL Holdings DRIP........... 150 150
-------- --------
Tax benefit receivable............................... 2,156 3,256
-------- --------
Property and equipment............................... 1,023 1,035
-------- --------
Investments and other................................ 677 97
-------- --------
Investments in Subsidiaries, at equity:
Heartland Development Corporation.................. 71,439 31,281
Wisconsin Power and Light Company.................. 522,667 456,500
-------- --------
594,106 487,781
-------- --------
Deferred income taxes................................ 372 --
-------- --------
Total Assets......................................... $632,183 $520,318
======== ========
LIABILITIES AND CAPITALIZATION
Current liabilities:
Short term debt (Note C)........................... $ 32,958 $ 19,151
Accounts payable - affiliates (Note B)............. 4,727 8,525
Accounts payable................................... 3 3
Accrued taxes...................................... (94) -
Accrued interest and other......................... 739 703
Dividends payable.................................. 148 313
-------- --------
38,481 28,695
-------- --------
Long-term debt....................................... 10,463 10,463
Deferred taxes....................................... 273 209
-------- --------
10,736 10,672
-------- --------
Capitalization:
Common shareowners' investment:
Common stock, $.01 par value, authorized
100,000,000 shares; issued and outstanding--
30,438,654 shares and 27,828,798 shares........ 305 273
Additional paid-in-capital....................... 297,916 203,710
Reinvested earnings.............................. 284,745 276,968
-------- --------
Total capitalization........................... 582,966 480,951
-------- --------
Total Capitalization and Liabilities................. $632,183 $520,318
======== ========
The accompanying notes are an integral part of this statement.
SCHEDULE III - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPL HOLDINGS, INC.
(Parent Company Only)
STATEMENT OF CASH FLOWS
Years Ended December 31,
1992 1991 1990
(In thousands)
Cash flows generated from (used for) operating activities:
Net income......................................... $ 62,523 $ 57,021 $ 64,934
Undistributed earnings of subsidiaries............. (7,187) (5,100) (17,341)
Equity Investments in subsidiaries and other....... (77,196) (17,818) (7,220)
Depreciation....................................... 12 3 -
Deferred income taxes.............................. (308) (730) 730
Changes in assets and liabilities:
Receivables..................................... 3,703 (11,218) (18,277)
Investments..................................... (553) 780 1,816
Accounts payable................................ (3,798) 5,747 (376)
Accrued taxes................................... (94) (199) 199
Accrued interest and other...................... 36 368 63
Dividends payable............................... (165) (10) 55
Other........................................... (27) (16) 182
-------- -------- --------
Net cash generated from (used for)
operating activities......................... (23,054) 28,828 24,765
-------- -------- --------
Cash flows generated from (used for) financing
activities:
Issuance of common stock........................... 58,575 - -
Common stock issuance expense...................... (1,888) - -
Issuance of long-term debt......................... - - 10,000
Long-term debt maturities.......................... - (57) -
Net change in short term debt...................... 13,807 3,773 5,760
Common stock cash dividends........................ (40,342) (32,668) (44,805)
Other.............................................. 1,205 (1,144) 650
-------- -------- --------
Net cash generated from (used for)
financing activities......................... 31,357 (30,096) (28,395)
-------- -------- --------
Cash flows (used for) investing activities:
Purchase of property and equipment................. - (39) -
-------- -------- --------
Net cash (used for) investing activities...... - (39) -
-------- -------- --------
Net increases (decreases) in cash and equivalents.... 8,303 (1,307) (3,630)
Cash and equivalents at beginning of year............ 339 1,646 5,276
-------- -------- --------
Cash and equivalents at end of year.................. $ 8,642 $ 339 $ 1,646
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on debt................................ $ 627 $ 658 $ 750
Income taxes.................................... $ 14,685 $ 17,411 $ 24,786
Noncash financing activities:
Dividends reinvested............................ $ 15,284 $ 17,533 $ 3,285
The accompanying notes are an integral part of this statement.
SCHEDULE III - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPL HOLDINGS, INC.
Supplemental Notes to Parent Company Only Financial Statements
The following are supplemental notes to the WPL Holdings, Inc. (the
"Company") Parent Company Financial Statements and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in the WPL Holdings, Inc. 1993 Annual Report, which are hereby
incorporated herein by reference:
Note A. The parent company files a consolidated Federal income tax return
with its subsidiaries.
Note B. Net amounts due to (due from) affiliates result from intercompany
transactions including loans, federal income tax liabilities and
an administrative allowance.
Note C. Information regarding short-term debt is as follows:
1993 1992
(In Thousands)
As of end of year:
Notes payable outstanding.......... $32,958 $19,151
Interest rates on notes payable.... 3.58% 3.62%
For the year ended:
Maximum month-end amount of
short-term debt.................. $36,000 $22,600
Average amount of short-term debt.. $25,827 $19,722
Average interest rate on short-
term debt......................... 3.37% 3.93%
Note D. During 1993, 1992 and 1991, Wisconsin Power and Light Company
allocated and billed certain administrative and general expenses
to using an allocation method approved by the Public Service
Commission of Wisconsin. These expenses totalled $777,000,
$867,000 and $886,000 during 1993, 1992 and 1991, respectively.
Schedule V
WPL HOLDINGS, INC. AND SUBSIDIARIES
UTILITY PLANT AND OTHER PROPERTY AND EQUIPMENT
DECEMBER 31, 1993
(In Thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Other
Balance at Retirements Changes Balance at
Beginning Additions or Sales Debit or Close
Classification of Period at Cost at Cost (Credit) of Period
Plant in service--
Electric--
Organization......... $ 51 $ -- $ -- $ -- $ 51
Steam production..... 534,058 6,960 (3,352) 12,604 550,270
Nuclear production... 123,753 1,982 (212) -- 125,523
Hydraulic production. 10,142 144 (11) -- 10,275
Other production..... 17,508 9 -- -- 17,517
Transmission......... 178,642 9,314 (2,457) 4,633 190,132
Distribution......... 408,950 85,987 (6,664) (4,643) 483,630
General.............. 38,682 9,319 (5,211) 9 42,799
Completed work not
classified......... 130,532 (32,028) -- -- 98,504
Acquisition adjmt.... 1,026 (1,026) -- -- --
--------- -------- -------- ------- ----------
Total electric..... 1,443,344 80,661 (17,907) 12,603 1,518,701
--------- -------- -------- ------- ----------
Gas--
Organization......... 10 -- -- -- 10
Manufactured gas
production......... 99 -- (7) -- 92
Distribution......... 152,803 19,229 (2,438) 276 169,870
General.............. 3,314 1,302 (144) -- 4,472
Completed work not
classified......... 23,507 (3,668) -- -- 19,839
--------- -------- -------- ------- ----------
Total gas.......... 179,733 16,863 (2,589) 276 194,283
--------- -------- -------- ------- ----------
Water................ 19,542 1,006 (160) 49 20,437
--------- -------- -------- ------- ----------
Common............... 93,973 12,412 (173) 591 106,803
--------- -------- -------- ------- ----------
$1,736,592 $110,942 $(20,829)(a) $13,519 $1,840,224
========= ======== ======== ======= ==========
Construction work
in progress--
Electric............. $ 54,316 $13,093 $ -- $ -- $ 67,409
Gas.................. 2,510 (2,124) -- -- 386
Water................ 221 312 -- -- 533
Common............... 1,926 5,478 -- -- 7,404
---------- ------- -------- ------- ----------
$ 58,973 $16,759 $ -- $ -- $ 75,732
========== ======= ======== ======= ==========
Nuclear fuel.......... $ 140,652 $ 6,673 $ -- $ -- $ 147,325
========== ======= ======== ======= ==========
Other property and
equipment.......... $ 118,570 $21,690 $(17,280) $12,224 $ 135,204
========== ======= ======== ======= ==========
(a) Includes $7,705 of land sales.
Schedule V
WPL HOLDINGS, INC. AND SUBSIDIARIES
UTILITY PLANT AND OTHER PROPERTY AND EQUIPMENT
DECEMBER 31, 1992
(In Thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Other
Balance at Retirements Changes Balance at
Beginning Additions or Sales Debit or Close
Classification of Period at Cost at Cost (Credit) of Period
Plant in service--
Electric--
Organization......... $ 51 $ -- $ -- $ -- $ 51
Steam production..... 534,346 3,595 (3,883) -- 534,058
Nuclear production... 123,441 1,001 (689) -- 123,753
Hydraulic production. 10,091 52 (1) -- 10,142
Other production..... 17,508 -- -- -- 17,508
Transmission......... 174,687 4,431 (471) (5) 178,642
Distribution......... 382,323 31,642 (6,253) 1,238 408,950
General.............. 34,613 6,317 (975) (1,273) 38,682
Completed work not
classified......... 111,107 19,425 -- -- 130,532
Acquisition adjmt.... 1,758 (732) -- -- 1,026
--------- ------ -------- ------- ----------
Total electric..... 1,389,925 65,731 (12,272) (40) 1,443,344
--------- ------ -------- ------- ----------
Gas--
Organization......... 10 -- -- -- 10
Manufactured gas
production......... 169 -- (14) (56) 99
Distribution......... 135,794 18,574 (1,567) 2 152,803
General.............. 3,064 255 (5) -- 3,314
Completed work not
classified......... 32,625 (9,118) -- -- 23,507
--------- ------ -------- ------- ----------
Total gas.......... 171,662 9,711 (1,586) (54) 179,733
--------- ------ -------- ------- ----------
Water................ 18,691 1,033 (182) -- 19,542
--------- ------ -------- ------- ----------
Common............... 84,668 9,845 (634) 94 93,973
--------- ------ -------- ------- ----------
$1,664,946 $86,320 $(14,674)(a) $ 0 $1,736,592
========= ====== ======== ======= ==========
Construction work
in progress--
Electric............. $ 23,039 $31,277 $ -- $ -- $ 54,316
Gas.................. 277 2,233 -- -- 2,510
Water................ 242 (21) -- -- 221
Common............... 3,577 (1,651) -- -- 1,926
--------- ------ -------- ------- ----------
$ 27,135 $31,838 $ -- $ -- $ 58,973
========= ====== ======== ======= ==========
Nuclear fuel.......... $ 135,847 $ 4,805 $ -- $ -- $ 140,652
========= ====== ======== ======= ==========
Other property and
equipment.......... $ 74,730 $43,400 $ (215) $ 655 $ 118,570
========= ====== ======== ======= ==========
(a) Includes $34,000 of land sales.
Schedule V
WPL HOLDINGS, INC. AND SUBSIDIARIES
UTILITY PLANT AND OTHER PROPERTY AND EQUIPMENT
DECEMBER 31, 1991
(In Thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Other
Balance at Retirements Changes Balance at
Beginning Additions or Sales Debit or Close
Classification of Period at Cost at Cost (Credit) of Period
Plant in service--
Electric--
Organization......... $ 51 $ -- $ -- $ -- $ 51
Steam production..... 526,313 11,056 (3,023) -- 534,346
Nuclear production... 113,202 11,162 (923) -- 123,441
Hydraulic production. 10,063 56 (22) (6) 10,091
Other production..... 17,510 -- (2) -- 17,508
Transmission......... 159,048 15,428 8 203 174,687
Distribution......... 367,838 21,543 (6,868) (190) 382,323
General.............. 13,121 1,567 (817) 20,742 34,613
Completed work not
classified......... 120,190 (9,083) -- -- 111,107
Acquisition adjmt.... -- 1,758 -- -- 1,758
--------- ------ -------- ------- ----------
Total electric..... 1,327,336 53,487 (11,647) 20,749 1,389,925
--------- ------ -------- ------- ----------
Gas--
Organization......... 10 -- -- -- 10
Manufactured gas
production......... 166 3 -- -- 169
Distribution......... 127,396 9,514 (1,130) 14 135,794
General.............. 2,259 275 (263) 793 3,064
Completed work not
classified......... 33,619 (994) -- -- 32,625
--------- ------ -------- ------- ----------
Total gas.......... 163,450 8,798 (1,393) 807 171,662
--------- ------ -------- ------- ----------
Water................ 18,137 614 (60) -- 18,691
--------- ------ -------- ------- ----------
Common............... 103,194 9,178 (6,167) (21,537) 84,668
--------- ------ -------- ------- ----------
$1,612,117 $72,077 $(19,267)(a) $ 19 $1,664,946
========= ====== ======== ======= ==========
Construction work
in progress--
Electric............. $ 15,430 $ 7,609 $ -- $ -- $ 23,039
Gas.................. 442 (165) -- -- 277
Water................ 110 132 -- -- 242
Common............... 1,732 1,845 -- -- 3,577
--------- ------ -------- ------- ----------
$ 17,714 $ 9,421 $ -- $ -- $ 27,135
========= ====== ======== ======= ==========
Nuclear fuel.......... $ 129,643 $ 6,204 $ -- $ -- $ 135,847
========= ====== ======== ======= ==========
Other property and
equipment.......... $ 30,503 $41,843 $ (137) $ 2,521 $ 74,730
========= ====== ======== ======= ==========
(a) Includes $4,000 of land sales.
SCHEDULE VI
WPL HOLDINGS, INC. AND SUBSIDIARIES
ACCUMULATED PROVISION FOR DEPRECIATION AND
ACCUMULATED AMORTIZATION OF NUCLEAR FUEL
YEAR ENDED DECEMBER 31, 1993
(In Thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Additions --
Provision Charged To Deductions
-------------------- ----------------------
Clearing
Balance at and Balance
Beginning Other Net Other at Close
Description of Period Income Accounts Retirements Salvage Changes of Period
Electric.... $(610,356) $(50,474) $ (1,776) $ 17,901 $(1,350) $ 3,100 $(642,955)
Gas......... (74,661) (6,864) (108) 2,590 281 804 (77,958)
Water....... (6,236) (479) -- 159 126 209 (6,221)
General..... (28,733) (5,948) (1,212) 144 (144) -- (35,893)
--------- ------- -------- ------- ------ -------- ---------
(719,986) (63,765) (3,096) 20,794 (1,087) 4,113 (763,027)
Nuclear fuel (123,729) -- (5,596) -- -- (129,325)
--------- ------- -------- ------- ------ -------- ---------
$(843,715) $(63,765) $ (8,692) $ 20,794 $(1,087) $ 4,113 $(892,352)
========= ======== ======== ======== ======= ======== =========
Other prop
and equip... $ (9,768) $ (5,955) $ -- $ 891 $ -- $ (1,985) $ (16,817)
========= ======== ======== ======== ======= ======== =========
YEAR ENDED DECEMBER 31, 1992
(In Thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Additions --
Provision Charged To Deductions
--------------------- ----------------------
Clearing
Balance at and Balance
Beginning Other Net Other at Close
Description of Period Income Accounts Retirements Salvage Changes of Period
Electric.... $(575,729) $(46,992) $ (946) $ 12,237 $(1,401) $ 2,475 $(610,356)
Gas......... (70,625) (6,461) (70) 1,586 77 832 (74,661)
Water....... (6,339) (484) -- 183 110 294 (6,236)
General..... (22,896) (4,841) (1,180) 634 (397) (53) (28,733)
--------- ------- -------- ------- ------ -------- ---------
(675,589) (58,778) (2,196) 14,640 (1,611) 3,548 (719,986)
Nuclear fuel (117,165) -- (6,558) -- (6) (123,729)
--------- ------- -------- ------- ------ -------- ---------
$(792,754) $(58,778) $ (8,754) $ 14,640 $(1,611) $ 3,542 $(843,715)
========= ======== ======== ======== ======= ======== =========
Other prop
and equip... $ (6,497) $ (3,533) $ -- $ (163) $ -- $ 425 $ (9,768)
========= ======== ======== ======== ======= ======== =========
WPL HOLDINGS, INC. AND SUBSIDIARIES
ACCUMULATED PROVISION FOR DEPRECIATION AND
ACCUMULATED AMORTIZATION OF NUCLEAR FUEL
YEAR ENDED DECEMBER 31, 1991
(In Thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Additions --
Provision Charged To Deductions
-------------------- ----------------------
Clearing
Balance at and Balance
Beginning Other Net Other at Close
Description of Period Income Accounts Retirements Salvage Changes of Period
Electric.... $(536,495) $(44,882) $ (149) $ 11,647 $ (36) $ (5,814) $(575,729)
Gas......... (66,521) (6,216) (32) 1,394 205 545 (70,625)
Water....... (6,247) (461) -- 60 135 174 (6,339)
General..... (31,195) (3,807) (2,400) 6,162 (834) 9,178 (22,896)
--------- ------- ------- ------- ------ -------- ---------
(640,458) (55,366) (2,581) 19,263 (530) 4,083 (675,589)
Nuclear fuel (110,353) -- (6,803) -- (9) (117,165)
--------- ------- ------- ------- ------ -------- ---------
$(750,811) $(55,366) $ (9,384) $ 19,263 $ (530) $ 4,074 $(792,754)
========= ======== ======== ======== ======= ======== =========
Other prop
and equip... $ (3,295) $ (2,447) $ -- $ -- $ -- $ (755) $ (6,497)
========= ======== ======== ======== ======= ======== =========
SCHEDULE VIII
WPL HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
($ In Thousands)
Additions
Balance at Charged to Balance at
beginning costs and end of
Description of period expenses Deductions period
Year ended December 31, 1993:
Allowance for doubtful accounts.... $ 732 $1,540 $ 610(1) $1,662
====== ====== ====== ======
Year ended December 31, 1992:
Allowance for doubtful accounts.... $ 949 $ 115 $ 332(1) $ 732
====== ====== ====== ======
Year ended December 31, 1991:
Allowance for doubtful accounts.... $1,652 $1,175 $1,878(1) $ 949
====== ====== ====== ======
(1) Uncollectible accounts written off, net of recoveries.
SCHEDULE X
WPL HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year Ended December 31,
1993 1992 1991
(In Thousands)
Real estate and
personal property $18,523 $18,052 $16,292
Payroll............. 12,602 10,117 9,041
Other............... 1,253 1,092 1,201
------- ------- -------
$32,378 $29,261 $26,534
======= ======= =======
The amounts of maintenance and repairs, depreciation and taxes charged to
other expense accounts are not significant. The amounts charged to the
respective accounts for advertising aggregated less than one percent of
total consolidated revenues, and no royalty expenses were incurred.
WPL HOLDINGS, INC. AND SUBSIDIARIES
Exhibit Index for the Year Ended
December 31, 1993
Item Description
12 Computation of ratio of earnings to fixed charges
and preferred dividend requirements after taxes
21 Subsidiaries of the Company
23 Consent of Independent Public Accountants
99 1994 Proxy Statement for the Annual Meeting of Shareowners
to be held May 18, 1994 (To be filed with the Securities
and Exchange Commission under Regulation 14A within 120 days
after the end of the Company's fiscal year)