-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ppapdyvyG68/iZlivWWErShl/tbkggvoNI5jJPhZC6VysZwJhGys/PqRIUoUADO4 GZrI5VBqPyoa6y+oSfBNKQ== 0000897069-94-000044.txt : 19940302 0000897069-94-000044.hdr.sgml : 19940302 ACCESSION NUMBER: 0000897069-94-000044 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WPL HOLDINGS INC CENTRAL INDEX KEY: 0000352541 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 391380265 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-09894 FILM NUMBER: 94513556 BUSINESS ADDRESS: STREET 1: 222 W WASHINGTON AVE CITY: MADISON STATE: WI ZIP: 53703 BUSINESS PHONE: 6082523311 MAIL ADDRESS: STREET 1: PO BOX 192 CITY: MADISON STATE: WI ZIP: 53701 10-K 1 FORM 10-K 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) EX-12 2 EXHIBIT 12 EXHIBIT 12 WPL HOLDINGS, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDEND REQUIREMENTS AFTER INCOME TAXES.
1993 1992 1991 1990 1989 (In Thousands) Net income before preferred stock dividends of subsidiary $ 66,451 $ 61,818 $ 69,741 $63,349 $55,293 Add: Interest on debt 38,073 38,954 35,691 33,372 31,121 Estimated interest component of rental payments 3,030 2,428 2,965 2,744 2,439 -------- -------- -------- ------- ------- Net income as adjusted $107,554 $103,200 $108,397 $99,465 $88,853 ======== ======== ======== ======= ======= Fixed charges: Cash dividends on preferred stock $ 3,928 $ 3,811 $ 3,811 $ 3,811 $ 3,811 Interest on debt 38,073 38,954 35,691 33,372 31,121 Estimated interest component of rental payments 3,030 2,428 2,965 2,744 2,439 -------- ------- -------- ------- ------- Total fixed charges and preferred dividends $ 45,031 $45,193 $ 42,467 $39,927 $37,371 ======== ======= ======== ======= ======= Ratio of earnings to fixed charges and preferred dividends 2.39X 2.28X 2.55X 2.49X 2.38X ======== ======= ======== ======= =======
EX-21 3 EXHIBIT 21 EXHIBIT 21 WPL HOLDINGS, INC. AND SUBSIDIARIES SUBSIDIARIES The subsidiaries and affiliates of as of December 31, 1993, are as follows:
% of Voting Stock Owned Directly or Indirectly State of by the Name of Subsidiary Incorp. Company A. Wisconsin Power and Light Company Wisconsin 100% 1. South Beloit Water, Gas and Electric Company Illinois 100% 2. REAC, Inc Wisconsin 100% 3. NUFUS Resources, Inc Wisconsin 100% 4. Wisconsin River Power Company Wisconsin 33-1/3% 5. Wisconsin Valley Improvement Company Wisconsin 13% B. Heartland Development Corporation Wisconsin 96.25% 1. Heartland Environmental Holding Company Wisconsin 95.7% A. RMT, Inc Wisconsin 100% 2. Heartland Properties, Inc Wisconsin 100% A. Tool Kit Property Management Systems, Inc Wisconsin 100% B. Heartland Retirement Services, Inc. Wisconsin 100% 3. Capital Square Financial Corporation Wisconsin 100% 4. ENSERV, Inc Wisconsin 100% A. Heartland Fuels Corporation Wisconsin 80% 5. WP&L Communications, Inc Wisconsin 100%
No separate financial statements are submitted for any subsidiary since none of these subsidiaries qualifies as a significant subsidiary under SEC rules. EX-23 4 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this WPL Holdings, Inc. Form 10-K into WPL Holdings, Inc.'s previously filed Registration Statements on Form S-8 (Nos. 33-52215, 33-6671 and 2-78551) and Form S-3 (No. 33-21482). ARTHUR ANDERSEN & CO. Milwaukee, Wisconsin, February 28, 1994. -----END PRIVACY-ENHANCED MESSAGE-----