-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UYynducSGPeq7CBbe0XtBEcez0xYG8A3MZw+Ww+iFHlmGUZy/riSlPrwHGBnHtbt z5e/ofkdJl/LNMsGajznTg== 0000897069-96-000129.txt : 19960517 0000897069-96-000129.hdr.sgml : 19960517 ACCESSION NUMBER: 0000897069-96-000129 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WISCONSIN POWER & LIGHT CO CENTRAL INDEX KEY: 0000107832 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 390714890 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00337 FILM NUMBER: 96566552 BUSINESS ADDRESS: STREET 1: 222 W WASHINGTON AVE CITY: MADISON STATE: WI ZIP: 53703 BUSINESS PHONE: 6082523311 10-Q 1 WISCONSIN POWER AND LIGHT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF X THE SECURITIES EXCHANGE ACT OF 1934 ------ For the quarterly period ended March 31, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF ------ THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 0-337 WISCONSIN POWER AND LIGHT COMPANY (Exact name of registrant as specified in its charter) Wisconsin 39-0714890 (State or other jurisdiction (I.R.S. Employer Identification of incorporation or organization) No.) 222 West Washington Avenue, Madison, Wisconsin 53703 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 608-252-3311 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO -------- -------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock Outstanding at March 31, 1996: 13,236,601 shares CONTENTS PAGE PART I. Financial Information: Consolidated Financial Statements of Wisconsin Power and Light Co. Consolidated Balance Sheets as of March 31, 1996 and 1995 and December 31, 1995 . . . . . . . . . . . . . . 2,3 Consolidated Statements of Income for the Three and Twelve Months Ended March 31, 1996 and 1995 . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows for the Three and Twelve Months Ended March 31, 1996 and 1995 . . . . . . . . 5 Notes to Consolidated Financial Statements . . . . . . . . . 6 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . 7 PART II. Other Information . . . . . . . . . . . . . . . . . . . . . . 15 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 16 Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 17 WISCONSIN POWER AND LIGHT COMPANY AND SUBSIDIARIES Consolidated Balance Sheets March 31 March 31, December 31, 1996 1995 1995 (Thousands of Dollars) ASSETS UTILITY PLANT: Plant in service-- Electric................. $1,674,322 $1,627,437 $1,666,134 Gas...................... 218,973 207,581 217,678 Water.................... 23,072 21,929 22,518 Common................... 140,504 126,434 136,943 --------- --------- --------- 2,056,871 1,983,381 2,043,273 Less: Accumulated provision for depreciation.......... 908,603 834,837 887,562 --------- --------- --------- 1,148,268 1,148,544 1,155,711 Construction work in progress.................. 42,848 28,268 36,996 Nuclear fuel, net.......... 14,976 17,605 18,867 --------- --------- --------- Total utility plant...... 1,206,092 1,194,417 1,211,574 --------- --------- --------- OTHER PROPERTY AND EQUIPMENT, net........................ 22,600 12,585 22,275 --------- --------- --------- INVESTMENTS: Nuclear decommissioning trust funds.............. 82,523 63,480 73,357 Other investments......... 12,432 12,033 12,488 --------- --------- --------- 94,955 75,513 85,845 CURRENT ASSETS: Cash and equivalents...... 4,744 5,620 4,671 Accounts receivable less allowance for doubtful accounts of $0, $ 209, and $ 0, respectively........ 20,547 27,062 33,971 Coal, at average cost..... 12,285 12,061 14,625 Materials and supplies, at average cost............. 20,826 22,914 20,611 Gas in storage, at average cost..................... 1,048 1,944 6,319 Prepayments and other..... 18,823 19,087 21,190 --------- --------- --------- Total current assets.... 78,273 88,688 101,387 --------- --------- --------- OTHER ASSETS: Regulatory assets...... 169,075 156,834 171,699 Deferred charges and other................ 48,879 51,048 48,385 --------- --------- --------- Total other assets. 217,954 207,882 220,084 --------- --------- --------- TOTAL ASSETS................ 1,619,874 1,579,085 1,641,165 ========= ========= ========= CAPITALIZATION AND LIABILITIES Common stock, $5 par value, authorized--18,000,000 shares; issued and outstanding--13,236,601 shares................... 66,183 66,183 66,183 Premium on capital stock and capital surplus...... 199,170 199,170 199,170 Reinvested earnings....... 315,052 285,718 297,717 --------- --------- --------- Total common equity... 580,405 551,071 563,070 PREFERRED STOCK WITHOUT MANDATORY REDEMPTION: Cumulative, without par value, authorized 3,750,000 shares maximum aggregate stated value $150,000,000; Cumulative, without par value, $100 stated value, 449,765 shares outstanding.......... 44,977 44,977 44,977 Cumulative, without par value, $25 stated value, 599,460 shares outstanding.......... 14,986 14,986 14,986 --------- --------- --------- Total preferred stock. 59,963 59,963 59,963 FIRST MORTGAGE BONDS, NET....................... 318,615 336,553 318,599 --------- --------- --------- Total capitalization.... 958,983 947,587 941,632 --------- --------- --------- CURRENT LIABILITIES: Variable rate demand bonds.................. 56,975 56,975 56,975 Short-term debt.......... 26,000 19,000 72,500 Accounts payable......... 69,998 67,269 82,428 Accrued payroll and vacation............... 10,477 12,201 11,011 Accrued taxes............ 20,997 20,696 7,795 Accrued interest......... 5,202 6,114 7,574 Other.................... 29,113 14,066 22,356 --------- --------- --------- Total current liabilities........... 218,762 196,321 260,639 --------- --------- --------- OTHER LIABILITIES AND CREDITS: Accumulated deferred income taxes ........... 239,690 223,770 239,812 Accumulated deferred investment tax credits.. 38,364 40,279 38,842 Accrued environmental remediation costs....... 76,763 79,267 76,852 Other.................... 87,312 91,861 83,388 --------- --------- --------- Total other liabilities and credits........... 442,129 435,177 438,894 --------- --------- --------- TOTAL CAPITALIZATION AND LIABILITIES........... 1,619,874 1,579,085 1,641,165 ========= ========= ========= The accompanying notes are an integral part of the consolidated financial statements. WISCONSIN POWER AND LIGHT COMPANY AND SUBSIDIARIES Consolidated Statements of Income Three Months Ended, Twelve Months Ended, March 31, March 31, 1996 1995 1996 1995 (Thousands of Dollars) OPERATING REVENUES: Electric.............. $ 148,500 $ 131,151 $ 563,672 $ 525,701 Gas................... 71,741 55,207 155,703 142,061 Water................. 993 984 4,189 4,140 -------- ------- -------- --------- 221,234 187,342 723,564 671,902 OPERATING EXPENSES: Electric production fuels............... 28,604 29,713 115,380 120,896 Purchased power....... 15,344 7,148 52,210 35,574 Purchased gas......... 45,364 33,882 95,483 91,137 Other operation....... 34,189 34,980 136,606 148,730 Maintenance........... 8,551 9,832 40,762 41,687 Depreciation.......... 21,667 19,495 83,336 73,194 Taxes -- Current federal income............. 16,590 11,446 35,273 26,646 Deferred income taxes.............. 440 1,721 9,383 10,210 Investment tax credit (restored).. (478) (479) (1,915) (1,924) Current state income 4,204 2,565 8,645 5,925 Property, payroll & other.............. 7,557 7,160 28,732 27,244 -------- ------- -------- --------- 182,032 157,463 603,895 579,319 -------- ------- -------- --------- OPERATING INCOME........ 39,202 29,879 119,669 92,583 -------- ------- -------- --------- OTHER INCOME AND (DEDUCTIONS): Allowance for equity funds used during construction......... 530 271 1,684 2,831 Other, net............ 744 63 443 2,513 Current income tax.... (253) 32 44 1,037 Deferred income tax... 63 4 7 (2,127) -------- ------- -------- --------- 1,084 370 2,178 4,254 -------- ------- -------- --------- INCOME BEFORE INTEREST EXPENSE................ 40,286 30,249 121,847 96,837 -------- ------- -------- --------- INTEREST EXPENSE: Interest on bonds..... 6,754 7,809 27,592 29,431 Allowance for borrowed funds used during construction (credit) (248) (90) (821) (930) Other................. 1,002 803 5,373 2,575 -------- ------- -------- --------- 7,508 8,522 32,144 31,076 -------- ------- -------- --------- NET INCOME.............. 32,778 21,727 89,703 65,761 PREFERRED STOCK DIVIDENDS.............. 828 828 3,310 3,310 -------- ------- -------- --------- NET INCOME AFTER PREFERRED STOCK DIVIDENDS............ . $ 31,950 $ 20,899 $ 86,393 $ 62,451 ======== ======= ======= ======== The accompanying notes are an integral part of the consolidated financial statements. WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS Three Months Ended Twelve Months Ended March 31, March 31, 1996 1995 1996 1995 (Thousands of Dollars) Cash flows from (used for) operating activities: Net income . . . . . 32,778 21,727 89,703 65,761 Adjustments to reconcile net income to net cash from operating activities: Depreciation . . . . 21,667 19,495 83,336 73,193 Amortization of nuclear fuel . . . 2,169 2,208 7,748 7,090 Deferred income tax and investment tax credit . . . . . . (101) 1,238 7,561 10,243 Allowance for equity funds used during construction . . . (530) (271) (1,684) (2,831) Changes in assets and liabilities: Net accounts receivable and unbilled revenues 13,423 (5,372) 6,514 (4,537) Production fuels, materials and supplies . . . . . 2,125 1,684 1,864 (30) Gas in storage . . . 5,271 6,031 896 (98) Prepayments and other 2,367 3,224 264 (2,417) Accounts payable and accruals . . . . . (15,337) (6,013) 3,879 3,709 Accrued taxes . . . 13,202 13,398 300 (6,038) Other, net . . . . . 12,874 24,180 4,268 42,644 -------- ------- -------- -------- Net cash generated from operating activities . . . . 89,908 81,529 204,649 186,689 -------- ------- -------- -------- Cash flows from (used for) financing activities: Common stock cash dividends . . . . (14,615) (14,334) (57,059) (56,219) Preferred stock dividends . . . . (828) (828) (3,310) (3,310) Net change in short term debt . . . . (46,500) (31,500) 7,000 12,000 Retirement of first mortgage bonds . . - - (18,000) - Equity contribution from parent . . . - - - 6,052 -------- ------- -------- -------- Net cash (used for) financing activities . . . . (61,943) (46,662) (71,369) (41,477) Cash flows from (used for) investing activities: Additions to utility plant, excluding AFUDC . . . . . . (22,253) (17,089) (99,021) (123,286) Allowance for borrowed funds used during construction (248) (90) (821) (930) Dedicated decommissioning funds . . . . . . (9,166) (11,689) (19,043) (11,939) Other, net . . . . . 3,775 (2,613) (15,271) (9,518) -------- ------- -------- -------- Net cash (used for) investing activities . . . (27,892) (31,481) (134,156) (145,673) -------- ------- -------- -------- Net increase in cash and equivalents . . . . 73 3,386 (876) (461) Cash and equivalents at beginning of period 4,671 2,234 5,620 6,081 -------- ------- -------- -------- Cash and equivalents at end of period . . . $ 4,744 $ 5,620 $ 4,744 $ 5,620 ======= ======= ======= ======= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest - debt . $ 9,931 $ 9,488 $ 32,284 $ 30,268 Income taxes . . . $ 2,803 $ 1,864 $ 38,907 $ 29,761 The accompanying notes are an integral part of the consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements included herein have been prepared by Wisconsin Power & Light (the "Company" or "WP&L"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The consolidated financial statements include the Company and its wholly owned consolidated subsidiaries. The Company is a subsidiary of WPL Holdings, Inc. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of (a) the consolidated results of operations for the three and twelve month periods ended March 31, 1996 and 1995, (b) the consolidated financial position at March 31, 1996 and 1995 and December 31, 1995, and (c) the consolidated statement of cash flows for the three and twelve month periods ended March 31, 1996 and 1995 have been made. 2. In anticipation of an expected offering of $60 million of long-term debt securities in 1996, the Company entered into an interest rate forward contract in 1995. As a result of favorable cash flow during the first quarter of 1996, the Company now anticipates that it will defer its offering of long-term debt securities until 1997, and has consequently closed its interest rate forward contract position. The gain realized on closing this position will be deferred and recognized as an adjustment to interest expense over the life of the long-term debt securities expected to be issued in 1997. 3. During the first quarter of 1996, the Financial Accounting Standards Board issued an Exposure Draft on Accounting for Liabilities Related to Closure and Removal of Long-Lived Assets which deals with, among other issues the accounting for decommissioning costs. If current electric utility industry accounting practices for such decommissioning are changed: (1) annual provisions for decommissioning could increase, (2) the estimated cost for decommissioning could be recorded as a liability rather than as accumulated depreciation, with recognition of an increase in the recorded amount of nuclear plant, and (3) trust fund income from the external decommissioning trusts could be reported as investment income rather than as a reduction to decommissioning expense. Given the preliminary nature of the process, the Company cannot currently determine what impact, if any, this process may have on the Company's financial condition or results of operations. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 VS. MARCH 31, 1995: OVERVIEW The Company reported consolidated first quarter net income of $32.0 million compared to $20.9 million for the same period in 1995. Weather- driven sales growth, increased sales to other utilities, and continued customer growth contributed to higher electric and gas margins as compared with the first quarter of last year. Electric margin increased by $10.3 million due to increased sales and lower aggregate costs per kWh. Gas margins increased $5.1 million as a result of higher sales. In addition, operations and maintenance expenses declined during the first quarter due to lower steam plant maintenance costs. Partially offsetting the higher electric and gas margins was an increase in depreciation expense and income tax expense. Electric Operations
Revenues and Costs % kWhs Sold % Customers at % (In Thousands) Change (In Thousands) Change End of Quarter Change 1996 1995 1996 1995 1996 1995 Residential and Farm $55,651 $51,890 7% 833,669 769,610 8% 332,335 325,971 2% Industrial 34,112 31,555 8% 931,586 883,174 5% 809 776 4% Commercial 26,399 24,290 9% 447,966 421,040 6% 45,035 44,035 2% Wholesale and Class A 30,911 21,739 42% 1,192,342 685,138 74% 88 81 9% Other 1,427 1,677 (30%) 14,680 13,247 11% 1,717 1,496 15% ----- ------- ------- ------ ----- ------- Total 148,500 131,151 13% 3,420,243 2,772,209 23% 379,984 372,359 2% -------- -------- ========= ========= === ======== ======= ==== Electric Production Fuels 28,604 29,713 (6%) Purchased Power 15,344 7,148 115% ------ ----- Margin $104,552 $94,290 11% ======= ======= ====
Electric revenues increased $17.3 million, or 13 percent, as compared to the first quarter of 1995. The increase was the result of a 23 percent increase in kWh sales primarily due to colder winter weather in 1996. Electric margin increased $10.3 million, or 11 percent, during the first quarter of 1996 compared to the first quarter of 1995 primarily due to higher sales (as discussed above) combined with lower production fuels expense and the availability of competitively priced purchased power to supplement internal generation. The decrease in production fuel costs was the result of slightly lower coal and transportation costs. Gas Operations
Revenues and Costs % Therms Sold % Customers at % (In Thousands) Change (In Thousands) Change End of Quarter Change 1996 1995 1996 1995 1996 1995 Residential and Farm $39,434 $28,866 37% 65,866 54,950 20% 130,555 126,098 4% Firm 21,787 15,777 38% 44,863 38,481 17% 16,198 15,689 3% Interruptible 1,064 1,171 (9)% 2,968 4,160 (29)% 288 237 22% Transport. and Other 9,456 9,393 1% 65,417 53,963 21% 161 153 5% ------ ----- ------ ------ ------ ------- Total 71,741 55,207 30% 179,114 151,554 18% 147,202 142,177 4% ------ ------ ======= ======= ==== ======= ======= === Purchased Gas 45,364 33,882 34% ------ ------ ---- Margin 26,377 21,325 24% ====== ====== ====
Gas revenues increased $16.5 million, or 30 percent, in the first quarter of 1996 as compared to 1995. The higher revenues were the result of an 18 percent rise in therm sales primarily due to colder weather in the first quarter and residential and firm customer growth. The higher sales volumes as well as favorable management of gas supply costs resulted in a $5.1 million, or 24 percent, increase in gas margin. The gas incentive program authorized by the Public Service Commission of Wisconsin also resulted in additional pre-tax savings of $1 million during the first quarter of 1996 compared with $0.3 million for the same period in 1995. Maintenance Expense The decrease in maintenance expense is primarily due to lower steam plant maintenance costs. Depreciation Depreciation expense increased as a result of increased property additions, amortization of contributions in aid of construction ( a reduction of expense) during the first quarter of 1995 and higher income on the decommissioning funds. Income Taxes Income taxes increased between first quarters consistent with higher taxable income. TWELVE MONTHS ENDED MARCH 31, 1996 VS. MARCH 31, 1995: OVERVIEW The Company reported consolidated net income of $86.4 million for the twelve months ended March 31, 1996 as compared to $62.5 million for the same period in 1995. Weather-driven sales growth along with continued customer growth in the service territory contributed to increased electric and gas margins as compared with the twelve months ended March 31, 1995. Electric margin increased by $26.9 million , or 7 percent, from increased sales and lower costs per kWh for both electric production fuels and purchased power. Gas margins increased $9.3 million, or 18 percent, as a result of increased therm sales and reduced gas cost per therm. In addition, other operation expense decreased primarily due to higher early retirement and severance expenses during the twelve month period ended March 31, 1995. Partially offsetting the increases to income was a $10.1 million increase in depreciation expense resulting from higher decommissioning related expenses and property additions. Electric Operations
Revenues and Cost % kWh Sold % Customers at % (In Thousands) Change (In Thousands) Change End of Quarter Change 1996 1995 1996 1995 1996 1995 Residential and Farm $203,611 $191,577 6% 3,001,882 2,759,640 9% 332,335 325,971 2% Industrial 143,118 139,830 2% 3,920,932 3,781,084 4% 809 776 4% Commercial 104,238 100,122 4% 1,800,332 1,681,405 7% 45,035 44,035 2% Wholesale and Class A 106,522 85,778 24% 3,616,589 2,553,141 42% 88 81 9% Other 6,183 8,394 (26)% 55,474 50,982 9% 1,717 1,496 15% ------ ------ ------- -------- ------- ------- Total 563,672 525,701 7% 12,395,209 10,826,252 14% 379,984 372,359 2% -------- ------- ========== ========== ==== ======= ======= === Electric production fuels 115,380 120,896 (5)% Purchased Power 52,210 35,574 47% ------- ------ Margin $396,082 $369,231 7% ======= ======== ====
Electric revenues increased $38 million, or 7 percent, as compared to the twelve months ended March 31, 1995. The increase was the result of a 14 percent increase in kWh sales primarily due to colder winter weather in 1996, higher sales to other utilities and customer growth. Electric margin increased 7 percent during the twelve months ended March 31, 1996 compared to the same period in 1995 primarily due to higher sales combined with reduced costs per kWh for electric production fuels and purchased power. While the cost on a per kWh basis, including fuel expense and purchased power, declined, total purchased power expense increased by 47 percent. The increase reflects the Company's increased level of activity in the bulk power sales market as well as the opportunity to secure attractively priced energy purchases. Partially offsetting increased purchased power costs are slightly lower electric production fuel costs resulting from lower coal and transportation costs. Gas Operations
Revenues and Costs % Therms Sold % Customers at % (In Thousands) Change (In Thousands) Change End of Quarter Change 1996 1995 1996 1995 1996 1995 Residential and Farm $80,949 $65,668 23% 137,818 114,267 21% 130,555 126,098 4% Firm 45,466 37,565 21% 97,698 81,901 19% 16,198 15,689 3% Interruptible 3,602 7,103 (49)% 10,956 21,975 (50)% 288 237 22% Transport. and Other 25,686 31,725 (19)% 180,575 156,852 15% 161 153 5% ------- ------- ------- ------- ------- ------- Total 155,703 142,061 10% 427,047 374,995 14% 147,202 142,177 4% ======= ======= ======= ======= === ======= ======= ==== Purchased Gas 95,483 91,137 5% ------- ------- Margin $60,220 $50,924 18% ======= ========
Gas revenues increased $13.6 million, or 10 percent, during the twelve months ended March 31, 1996 as compared to the twelve months ended March 31, 1995. The higher revenues were the result of a 14 percent rise in therm sales primarily due to colder weather in the first quarter of 1996 and residential and firm customer growth. The higher sales volumes as well as favorable management of gas supply costs resulted in a $9.3 million, or 18 percent, increase in gas margin. With the elimination of the purchased gas adjustment clause, the fluctuations in the commodity cost of gas above or below a prescribed commodity price index will increase or decrease WP&L's margin on gas sales. Both benefits and exposures are subject to customer sharing provisions. WP&L's share is capped at $1.1 million, pre-tax. For the first quarter of 1996 the gas incentive program resulted in additional pre-tax savings of $1 million compared with $0.3 million for the same period in 1995. Other Operation Other operations expense declined by $12.1 million primarily due to higher early retirement and severance expenses during the twelve month period ended March 31, 1995, related to the Company's reengineering efforts. Depreciation Depreciation expense increased $10.1 million as a result of property additions, greater amortization of contributions in aid of construction ( a reduction of expense) in the first quarter of 1995 compared with the same period in 1996 and higher income on the decommissioning funds. Income Taxes Income taxes increased for the twelve month period ended March 31, 1996, as a result of higher taxable income. Other Income and Deductions Other income and deductions decreased $2.1 million for the twelve months ended March 31, 1996. The decrease represents a combination of a favorable court decision, affecting the period ended March 31, 1995, which allowed the Company to collect from customers amounts previously refunded associated with the administration of a coal contract and lower income in the current period associated with the allowance for equity funds used during construction. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity is primarily determined by the level of cash generated from operations and the funding requirements of WP&L's ongoing construction and maintenance programs. WP&L finances its construction expenditures through internally generated funds supplemented, when required, by outside financing. (Also see: Note 2 in the "Notes to Financial Statements," page 6.) During the three and twelve months ended March 31, 1996 and March 31, 1995, the Company generated sufficient cash flows from operations and short-term borrowings to cover operating expenses, cash dividends and investing activities. Cash flows from operations increased to $89.9 million for the three months ended March 31, 1996, compared to $81.5 million for the same period last year. For the twelve month period ended March 31, 1996, cash flows from operations increased to $204.6 million from $186.7 million during the same period in 1995. Financing and Capital Structure The level of short-term borrowing fluctuates based primarily on seasonal corporate needs, the timing of long-term financing and capital market conditions. WP&L generally borrows on a short-term basis to provide interim financing of construction and capital expenditures in excess of available internally-generated funds. To maintain flexibility in its capital structure and to take advantage of favorable short-term rates, the Company also uses proceeds from the sales of accounts receivable and unbilled revenues to finance a portion of its long-term cash needs. Bank lines of credit of $70 million at March 31, 1996 are available to support these borrowings. The Company's capitalization at March 31,1996, including the current maturities of long-term debt, variable rate demand bonds and short-term debt, consisted of 56 percent common equity, 6 percent preferred stock and 38 percent long-term debt. Capital Expenditures WP&L is a capital-intensive business and requires large investments in long-lived assets. Therefore, the Company's most significant capital requirements relate to construction expenditures. Construction expenditures for the three months ended March 31, 1996 were $20.9 million. The estimated construction expenditures for the remainder of 1996 are $128.5 million. The Company has a 41.0 percent ownership interest in the Kewaunee Nuclear Power Plant (KNPP). The operating partner of this plant is Wisconsin Public Service Corporation (WPSC). The steam generator tubes at KNPP are susceptible to corrosion and cracking phenomena seen throughout the nuclear industry. Steam Generator A is currently 24.94% effectively plugged and Steam Generator B is 17.69% effectively plugged for an average of 21.32%. The current Kewaunee safety analysis report allows an effective tube plugging limit of up to 25% average for both steam generators, not to exceed 25% in either steam generator. Analyses are currently being performed which the operating partner believes will increase the effective plugging limit to 30%. The small reduction in capacity which has resulted from this tube plugging has not had a material impact on the financial performance of the Company. As a result of the need to address the repair or replacement of the steam generators, the owners of KNPP have been, and are continuing to, evaluate various alternatives to deal with the degradation of the steam generator tubes. As part of this evaluation, the owners have or will take the following actions: (a) The Nuclear Regulatory Commission ("NRC") has been requested to redefine the pressure boundary point of the repaired steam generator tubes, which have been removed from service by plugging, in order to allow the return of many of the tubes to service; thus, permitting KNPP to return to full licensed power. (b) The NRC will be requested to increase the steam generator effective plugging limit from 25% to 30%. (c) A request will be submitted to the NRC to allow the owners to pursue welded repair technologies to repair existing sleeved tubes in an effort to return plugged tubes to service. (d) The partners continue to evaluate the economics of replacement of the steam generators. The replacement of steam generators is estimated to cost approximately $100 million, exclusive of additional purchased power costs associated with an extended shutdown. WP&L believes that the best near term economic alternative for the owners of KNPP is to continue to pursue tube recovery and repair processes. WP&L will reassess its views of available alternatives based on the condition of the steam generator tubes during the fall 1996 refueling outage. Currently, the owners of KNPP have different views of the future market value of energy which impact on the desirability of replacing the steam generators. During the first quarter of 1996 WPSC filed an application with the Public Service Commission of Wisconsin seeking approval to replace the steam generators in 1999. WP&L believes that analysis and final action on this application will take approximately two years to complete. The joint owners continue to analyze and discuss various options related to the future of KNPP, including various ownership transfer alternatives. The net book value of WP&L's share of KNPP as of March 31, 1996 was $57 million. Rates and Regulatory Matters On April 1, 1996, the Company filed an application with the Public Service Commission of Wisconsin ("PSCW") requesting an increase in electric, natural gas and water service rates. The application requests a 13.4 million (3.0 percent) increase in electric revenue and a $2.4 million (1.6 percent) increase in natural gas revenue to be effective for the period January 1, 1997, through December 31, 1998. An increase of $102,000 in water revenues was also requested. General inflation and increased depreciation expense associated with customer service related investments are the primary factors supporting the proposed increase in electric and gas rates. The application is based on a regulatory return on common equity of 11.9 percent and an average common equity ratio of 51.6 percent. The Company cannot currently predict the outcome of this rate proceeding. Industry Outlook The PSCW's inquiries into the future structure of the natural gas and electric utility industries are ongoing. The stated goal of the PSCW in the natural gas docket is to move all gas supply activities out of the existing regulated distribution utilities and allow independent units to compete for the business. The goal of the electric restructuring process is to create open access transmission and distribution services for all customers with competitive generation and customer service markets. Additional proceedings as well as consultation with the legislature are planned prior to a target implementation date after the year 2000. On April 24, 1996, the Federal Energy Regulatory Commission ("FERC") issued two rules ( No. 888 and 889) that will promote competition by opening access to the nation's wholesale power market. The new rules require public utilities that own, control or operate transmission systems to provide other companies with the same transmission access/service that they provide to themselves. To meet the requirement, affected utilities must file a single tariff within 60 days. The tariff must apply to all wholesale power sales and purchases over the utility's lines. In the case of power pools, public utility holding companies and bilateral coordination arrangements, the single transmission tariff must be filed by December 31, 1996. The FERC proposes that each public utility replace its soon-to-be- filed single open access tariff with a capacity reservation tariff by December 31, 1997. The Company presently has on file with the FERC a network and point to point tariff and is evaluating if a new single tariff is required to be filed within 60 days. The Open Access Same-Time Information System (OASIS) Rule 889 requires all public utilities to post their available transmission capacity on an Internet electronic bulletin board, providing access to all interested parties. This will ensure that transmission owners and their affiliates do not have an unfair competitive advantage in selling power. Rule 888 provides for the full recovery of stranded wholesale costs incurred in wholesale power contracts executed before July 11, 1994. States are given jurisdiction over the recovery of stranded retail costs. The FERC will assume this jurisdiction in cases where a state lacks the authority to become involved. Approximately 69 percent of the WP&L's annual wholesale revenues were covered by such contracts. NEW ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" imposes stricter criteria for evaluating the recoverability of regulatory assets and real estate investments. The Company adopted this standard on January 1, 1996. This statement has not had a material impact on the financial position or results of operations of the Company, which may change in the future as competitive factors influence wholesale and retail pricing in the utility industry. INFLATION The impacts of inflation on WP&L are currently mitigated through current rate making methodologies. Although rates will be held flat until at least 1997, management expects that any impact of inflation will be mitigated by customer growth and productivity improvements. OTHER Proposed Merger WPL Holdings, Inc. ("WPLH"), IES Industries Inc. ("IES"), and Interstate Power Co. ("IPC") have entered into an Agreement and Plan of Merger ("Merger Agreement"), dated November 10, 1995, providing for: a) IPC becoming a wholly-owned subsidiary of WPLH, and b) the merger of IES with and into WPLH, which merger will result in the combination of IES and WPLH as a single holding company (collectively, the "Proposed Merger"). The new holding company will be named Interstate Energy Corporation ("Interstate Energy"). The Proposed Merger, which will be accounted for as a pooling of interests, is still subject to approval by the shareholders of each company as well as several federal and state regulatory agencies. The corporate headquarters of Interstate Energy will be in Madison, Wisconsin. The business of Interstate Energy will consist of utility operations and various non-utility enterprises. The utility subsidiaries currently serve approximately 870,000 electric customers and 360,000 natural gas customers in Iowa, Illinois, Minnesota and Wisconsin. Union Contract The three year contract WP&L has with the International Brotherhood of Electrical Workers, Local 965 is in effect until June 1, 1996. At the end of the first quarter, the contract covered 1,587 of WP&L's employees which represents approximately 69 percent of the total employees at WP&L. On May 1, 1996, tentative agreement was reached on a revised three year collective bargaining agreement which is subject to ratification by the union. The ratification process is expected to begin May 20. The Company cannot predict whether the contract will be ratified. PART II--OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 1. Exhibits: 27 Financial Data Schedule 2. Reports on Form 8-K: None SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Wisconsin Power and Light Company Date: May 15, 1996 /s/ Edward M. Gleason Edward M. Gleason, Controller, Treasurer and Corporate Secretary EXHIBIT INDEX Exhibit No. Description 27 Financial Data Schedule EX-27 2 EXHIBIT 27 FINANCIAL DATA SCHEDULE
UT THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF WISCONSIN POWER AND LIGHT COMPANY AS OF AND FOR THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 PER-BOOK 1,206,092 117,555 78,273 217,954 0 1,619,874 66,183 199,170 315,052 580,405 0 59,963 318,615 0 56,975 26,000 0 0 0 0 577,916 1,619,874 221,234 20,946 34,189 182,032 39,202 1,274 40,286 7,508 32,778 828 31,950 14,615 9,931 89,908 0 0 Earnings per share of common stock is not reflected because all of such shares are held by WPL Holdings, Inc.
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