<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ]Confidential, for Use of the
Commission Only (as permitted
[X] Definitive proxy statement by Rule 14a-6(e)(2))
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Wisconsin Power and Light Company
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Wisconsin Power and Light Company
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
WP&L Logo
Wisconsin Power & Light Company, 222 West Washington Avenue, P. O. Box 192,
Madison, WI 53701-0192
Phone: (608) 252-3311
July 30, 1996
TO THE OWNERS OF WISCONSIN POWER AND LIGHT COMPANY:
We extend a cordial invitation to you to join us at the 1996 Annual Meeting
of Shareowners of Wisconsin Power and Light Company (the "Company"). The meeting
will be held at the Exhibition Hall at the Dane County Expo Center, 1881 Expo
Mall, Madison, Wisconsin, on Thursday, September 5, 1996, 10:00 a.m.,
immediately preceding the Annual Meeting of Shareowners of WPL Holdings, Inc. To
help with directions, a map showing the location of the meeting site is provided
on the last page of this document. Parking will be available at no cost. If you
plan to join us for the meeting, please indicate the names of the individuals
who will be attending on the enclosed proxy card reservation form.
The enclosed Notice of Annual Meeting and Proxy Statement sets forth the
items to be considered at the meeting. A lunch will be served following the
meeting.
The Company is a subsidiary of WPL Holdings, Inc. ("WPLH") and the
Company's preferred stock is the only class of its stock outstanding in the
hands of the public. WPLH owns all of the Company's common stock. The Company
and WPLH will be holding separate shareowner meetings. If you are a shareowner
of both WPLH and the Company, you will receive two Notices of Annual Meeting and
Proxy Statements, one for each company. Shareowners of both companies will also
receive two proxy cards, one for each company. If you are a shareowner of both
companies, you will have to return both proxy cards to vote all your shares.
PLEASE NOTE THAT THE 1995 ANNUAL REPORT OF THE COMPANY APPEARS AS APPENDIX
A TO THIS PROXY STATEMENT.
It is important to your interests, and also is helpful to the directors of
the Company, that all shareowners participate in the affairs of the Company,
regardless of the number of shares owned. Whether or not you plan to attend the
meeting, please sign and date the enclosed proxy card and return it in the
postage paid envelope provided for that purpose. You may, of course, still vote
your shares in person at the meeting even if you have previously returned your
proxy.
Your participation in person or by proxy is very important.
Sincerely,
LOGO
ERROLL B. DAVIS, JR.
President and Chief Executive Officer
<PAGE> 3
WISCONSIN POWER AND LIGHT COMPANY
ANNUAL MEETING OF SHAREOWNERS
DATE: Thursday, September 5, 1996
TIME: 10:00 a.m.
LOCATION: EXHIBITION HALL AT THE
DANE COUNTY EXPO CENTER
MADISON, WISCONSIN
(See map printed on last
page of this document.)
SHAREOWNER INFORMATION NUMBERS
LOCAL CALLS (MADISON AREA) ............................................ 252-3110
TOLL FREE NUMBER ................................................ 1-800-356-5343
<PAGE> 4
WP&L Logo
Wisconsin Power & Light Company, 222 West Washington Avenue, P. O. Box 192,
Madison, WI, 53701-0192
Phone: (608) 252-3311
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
10:00 A.M., THURSDAY, SEPTEMBER 5, 1996
The Annual Meeting of Shareowners of Wisconsin Power and Light Company (the
"Company") will be held at the Exhibition Hall at the Dane County Expo Center,
1881 Expo Mall, Madison, Wisconsin, on Thursday, September 5, 1996, at 10:00
a.m., local time, for the following purposes:
(1) To elect a total of three directors for terms expiring at the 1999
Annual Meeting of Shareowners.
(2) To appoint Arthur Andersen LLP as independent auditors for the calendar
year 1996.
(3) To consider and act upon any other business that may properly come
before the meeting.
The Board of Directors of the Company presently knows of no other business
to come before the meeting.
Only the sole common shareowner, WPL Holdings, Inc., and preferred
shareowners of record on the books of the Company at the close of business on
July 10, 1996, are entitled to vote at the meeting. All such shareowners are
requested to be present at the meeting in person or by proxy.
PLEASE SIGN AND RETURN YOUR PROXY IMMEDIATELY. YOUR PROXY COVERS ALL OF
YOUR SHARES OF THE VARIOUS SERIES OF PREFERRED STOCK OF THE COMPANY. IF YOU
ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY AT THE REGISTRATION DESK AND
VOTE IN PERSON. ALL SHAREOWNERS ARE URGED TO RETURN THEIR PROXY PROMPTLY.
THE 1995 ANNUAL REPORT OF THE COMPANY APPEARS AS APPENDIX A TO THIS PROXY
STATEMENT. THE PROXY STATEMENT AND ANNUAL REPORT HAVE BEEN COMBINED INTO A
SINGLE DOCUMENT TO IMPROVE THE EFFECTIVENESS OF OUR FINANCIAL COMMUNICATION AND
TO REDUCE COST, ALTHOUGH THE ANNUAL REPORT DOES NOT CONSTITUTE A PART OF THE
PROXY STATEMENT.
For information purposes only, you should have already received under
separate cover a copy of the WPL Holdings, Inc. 1995 Annual Report to
shareowners. That document was sent to you in order that shareowners of the
Company may be kept up-to-date on activities of WPL Holdings, Inc. However, the
WPL Holdings, Inc. Annual Report is not intended to be used in conjunction with
the solicitation of proxies with respect to the Company.
By Order of the Board of Directors,
LOGO
EDWARD M. GLEASON
Corporate Secretary
July 30, 1996
<PAGE> 5
WP&L Logo
Wisconsin Power & Light Company, 222 West Washington Avenue, P. O. Box 192,
Madison, WI 53701-0192
Phone: (608) 252-3311
PROXY STATEMENT RELATING TO THE
1996 ANNUAL MEETING OF SHAREOWNERS
This proxy statement is being furnished to holders of preferred stock of
Wisconsin Power and Light Company (the "Company") in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
1996 Annual Meeting of Shareowners (the "Meeting"). The Meeting will be held at
the Exhibition Hall of the Dane County Expo Center, 1881 Expo Mall, Madison,
Wisconsin, on September 5, 1996 at 10:00 a.m. The purpose of the Meeting is to
consider and vote upon 1) a proposal to elect three directors for terms expiring
at the 1999 Annual Meeting of Shareowners; 2) a proposal to appoint Arthur
Andersen LLP as independent auditors for the Company for the calendar year 1996;
and 3) such other matters, if any, that may properly come before the Meeting.
The Board of Directors of the Company is not aware, as of the date of the
mailing of this proxy statement, of any other matters that may properly come
before the Meeting. If any such other matters properly come before the Meeting,
or any adjournment or postponement thereof, it is the intention of the persons
named in the proxy to vote such proxies in accordance with their best judgment
on such matters.
The enclosed proxy relating to the Meeting is solicited on behalf of the
Board of Directors of the Company and the cost of such solicitation will be
borne by the Company. Following the original solicitation of proxies by mail,
beginning on or about July 30, 1996, certain of the officers and regular
employees of the Company may solicit proxies by telephone, telecopy or in
person, but without extra compensation. The Company will pay to banks, brokers,
nominees, and other fiduciaries their reasonable charges and expenses incurred
in forwarding the proxy material to their principals.
The Company is a subsidiary of WPL Holdings, Inc. ("WPLH"), which owns all
of the Company's outstanding common stock. On November 10, 1995, WPLH entered
into an agreement to combine (the "Proposed Merger") with IES Industries, Inc.
of Cedar Rapids, Iowa, and Interstate Power Company of Dubuque, Iowa, under a
holding company that will be known as Interstate Energy Corporation,
headquartered in Madison, Wisconsin. Since the Company is not a direct party to
the Proposed Merger, shareowners of the Company will not be entitled to vote
thereon. Additional information regarding the Proposed Merger is included in the
Company's 1995 Annual Report attached hereto as Appendix A.
Voting Rights. Only shareowners of the Company of record on its books at
the close of business on July 10, 1996, are entitled to vote at the Meeting.
Each such shareowner is entitled to vote on each matter submitted to a vote at
the Meeting. WPLH, the sole holder of the Company's common stock, has one vote
for each share it holds on the record date. Every holder of preferred stock has,
for each share of preferred stock held by him or her on the record date, that
number of votes (including any fractional vote) determined by dividing the
stated value of such shares by 100. Shareowners may vote either in person or by
duly authorized proxy. The giving of proxies by shareowners will not affect
their right to vote their shares if they attend the meeting and desire to vote
in person. Presence at the meeting of a shareowner who signed a proxy, however,
does not itself revoke the proxy. A proxy may be revoked by the person giving
it, at any time before it is voted, by advising the Secretary of the Company
prior to such voting. A proxy may also be revoked by a shareowner
<PAGE> 6
who duly executes another proxy bearing a later date but prior to the voting.
All shares represented by effective proxies on the enclosed form, received by
the Company, will be voted at the Meeting or any adjourned session of the
Meeting, all in accordance with the terms of such proxies.
Outstanding Voting Securities. The outstanding voting securities of the
Company on the record date stated above consisted of 13,236,601 shares of common
stock (all of which are held by WPLH) and 1,049,225 shares of preferred stock
(issued in various series).
The Company will furnish without charge to each shareowner, who is entitled
to vote at the Meeting and who makes a written request, a copy of the Company's
Annual Report on Form 10-K (not including exhibits thereto), as filed pursuant
to the Securities Exchange Act of 1934. Written requests for the Form 10-K
should be mailed to the Corporate Secretary at the address stated above.
PROPOSAL # 1:
ELECTION OF DIRECTORS
Three directors are to be elected at the Meeting. Rockne G. Flowers,
Katharine C. Lyall and Henry C. Prange are nominees of the Board of Directors to
hold office for terms expiring at the 1999 Annual Meeting of Shareowners of the
Company or until their successors have been duly elected and qualified.
Directors will be elected by a plurality of the votes cast at the Meeting
(assuming a quorum is present), with all shares of Company common stock and
preferred stock voting together as one class. Consequently, any shares not voted
at the Meeting, whether due to abstentions, broker nonvotes or otherwise, will
have no impact on the election of directors. A vote shown as withheld on a
returned proxy card will be treated as an abstention. WPLH, which owns all of
the outstanding shares of the Company's common stock, intends to vote all of its
shares "FOR" the Board's nominees, thereby assuring the election of such
nominees. The proxies solicited may also be voted for a substitute nominee or
nominees in the event that any of the nominees shall be unable to serve or for
good reason will not serve, a contingency not now anticipated.
Brief biographies of director nominees and continuing directors follow.
These biographies include their age (as of December 31, 1995), an account of
their business experience, and the names of corporations of which they are also
directors, as well as other information relating to their activities. Except as
otherwise indicated, each nominee and continuing director has been engaged in
his or her present principal occupation for at least the past five years.
2
<PAGE> 7
Nominees
<TABLE>
<S> <C>
ROCKNE G. FLOWERS
LOGO Principal Occupation: President and Director of Nelson Industries,
Inc. (a muffler,
filter, industrial silencer, and active sound and vibration control
technology and
manufacturing firm), Stoughton, Wisconsin.
Age: 64
Served as director from: 1979 to 1990 and since 1994
Annual Meeting at which nominated term of office will expire: 1999
</TABLE>
Other Information: Mr. Flowers has served as a director of WPLH since 1981. He
is also a director of RMT, Inc., a subsidiary of Heartland Development
Corporation; Digisonix, Inc.; American Family Mutual Insurance Company;
Janesville Sand and Gravel Company; M&I Madison Bank; Meriter Health Services,
Inc.; Meriter Hospital; and the Wisconsin History Foundation. He is also a
member of the University of Wisconsin-Madison School of Business Board of
Visitors.
<TABLE>
<S> <C>
KATHARINE C. LYALL
LOGO Principal Occupation: President, University of Wisconsin System,
Madison,
Wisconsin.
Age: 54
Served as director since: 1986
Annual Meeting at which nominated term of office will expire: 1999
</TABLE>
Other Information: Ms. Lyall has served as President of the University of
Wisconsin System since 1992. Prior to becoming President, she served as
Executive Vice President of the University of Wisconsin System. Ms. Lyall has
been a director of WPLH from 1986 to 1990 and since 1994. She also serves on the
Board of Directors of the Kemper National Insurance Companies and the Carnegie
Foundation for the Advancement of Teaching. She is a member of a variety of
professional and community organizations, including the American Economic
Association; the Association of American Universities (currently serving on the
Executive Committee); the Wisconsin Academy of Sciences, Arts and Letters; the
American Red Cross (Dane County); Competitive Wisconsin, Inc.; and Forward
Wisconsin. In addition to her administrative position, she is a professor of
Economics at the University of Wisconsin-Madison.
3
<PAGE> 8
<TABLE>
<S> <C>
HENRY C. PRANGE
LOGO Principal Occupation: Retired Chairman of the Board, H. C. Prange
Company
(retail stores), Green Bay, Wisconsin.
Age: 68
Served as director since: 1965
Annual Meeting at which nominated term of office will expire: 1999
</TABLE>
Other Information: Mr. Prange has served as a director of WPLH since 1986.
THE BOARD OF DIRECTORS RECOMMENDS THE FOREGOING NOMINEES FOR ELECTION AS
DIRECTORS AND URGES EACH SHAREOWNER TO VOTE "FOR" ALL NOMINEES. SHARES OF STOCK
REPRESENTED BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "FOR" ALL NOMINEES.
Continuing Directors
<TABLE>
<S> <C>
L. DAVID CARLEY
LOGO Principal Occupation: Consultant to institutions and associations in
higher
education and health delivery; financial advisor to small businesses.
Age: 67
Served as director from: 1975 to 1977 and since 1983
Annual Meeting at which current term of office will expire: 1998
</TABLE>
Other Information: Mr. Carley is a trustee of the Kennedy Presidential Library,
and is the Chairman of Board of Alliance Therapies Inc., a health rehabilitation
firm. Mr. Carley has served as a director of WPLH from 1986 to 1990 and since
1994.
4
<PAGE> 9
<TABLE>
<S> <C>
ERROLL B. DAVIS,
JR.
LOGO Principal Occupation: President and Chief Executive Officer of the
Company;
President and Chief Executive Officer of WPLH; Chairman of the Board
of
Heartland Development Corporation.
Age: 51
Served as director since: 1984
Annual Meeting at which current term of office will expire: 1997
</TABLE>
Other Information: Mr. Davis was elected President of the Company in July 1987,
and was elected to his current position with the Company in August 1988. Mr.
Davis joined the Company in August 1978. Mr. Davis was elected President of WPLH
in January 1990, and was elected President and Chief Executive Officer of WPLH
effective July 1, 1990, and has served as a director of WPLH since 1982. Mr.
Davis was elected Chairman of the Board of Heartland Development Corporation, a
subsidiary of WPLH, effective July 1, 1990. He is a director of the Edison
Electric Institute, the Association of Edison Illuminating Companies, Amoco Oil
Company, Competitive Wisconsin, Inc., Electric Power Research Institute, PPG
Industries, Inc., Sentry Insurance Company (a mutual company), and the Wisconsin
Utilities Association. Mr. Davis is also a director and immediate past chair of
the Wisconsin Association of Manufacturers and Commerce and a director and vice
chair of Forward Wisconsin.
<TABLE>
<S> <C>
DONALD R. HALDEMAN
LOGO Principal Occupation: Executive Vice President and Chief Executive
Officer,
Rural Insurance Companies (a mutual group), Madison, Wisconsin.
Age: 59
Served as director since: 1985
Annual Meeting at which current term of office will expire: 1998
</TABLE>
Other Information: Mr. Haldeman is a director of Competitive Wisconsin, Inc.,
and a member of the Board of Directors of the Natural Resources Foundation of
Wisconsin, Inc. He has served as a director of WPLH from 1986 to 1990 and since
1994.
5
<PAGE> 10
<TABLE>
<S> <C>
ARNOLD M. NEMIROW
LOGO Principal Occupation: President and Chief Executive Officer, Bowater,
Inc.
(a pulp and paper manufacturer), Greenville, South Carolina.
Age: 52
Served as director since: 1994
Annual Meeting at which current term of office will expire: 1998
</TABLE>
Other Information: Mr. Nemirow served as President, Chief Executive Officer and
Director of Wausau Paper Mills Company, a pulp and paper manufacturer, from 1990
until joining Bowater, Inc. in September 1994. Mr. Nemirow has served as a
director of WPLH since 1991. He is a member of the New York Bar.
<TABLE>
<S> <C>
MILTON E. NESHEK
LOGO Principal Occupation: President, Chief Executive Officer and Director
of the law
firm of Godfrey, Neshek, Worth & Leibsle, S.C., Elkhorn, Wisconsin,
and
General Counsel, Assistant Secretary and Manager of New Market
Development, Kikkoman Foods, Inc. (a food products manufacturer),
Walworth, Wisconsin.
Age: 65
Served as director since: 1984
Annual Meeting at which current term of office will expire: 1997
</TABLE>
Other Information: Mr. Neshek has served as a director of WPLH since 1986. Mr.
Neshek is a director of Heartland Properties, Inc. (HPI), and Capital Square
Financial Corporation, a subsidiary of Heartland Development Corporation. He is
also a director of Kikkoman Foods, Inc.; Midwest U.S.-Japan Association;
Regional Transportation Authority (for southeast Wisconsin); and
Wisconsin-Chiba, Inc. Mr. Neshek was the Chairman of the Governor's Commission
on University of Wisconsin System Compensation from 1991 through 1995 and is a
former member of the University of Wisconsin Accountability Task Force. He is a
fellow in the American College of Probate Counsel. Mr. Neshek is active in the
Walworth County Bar Association, and the State Bar of Wisconsin and is a member
of the Wisconsin Sesquicentennial Commission.
6
<PAGE> 11
<TABLE>
<S> <C>
JUDITH D. PYLE
LOGO Principal Occupation: Vice Chair and Senior Vice President of
Corporate
Marketing of Rayovac Corporation (a battery and lighting products
manufacturer), Madison, Wisconsin.
Age: 52
Served as a director since: 1994
Annual Meeting at which current term of office will expire: 1998
</TABLE>
Other Information: Ms. Pyle has served as a director of WPLH since 1992. She is
also a director of Rayovac Corporation, Firstar Corporation, and Oshkosh B'Gosh.
She is also a member of the Board of Visitors at the University of Wisconsin
School of Business and the School of Family Resources and Consumer Sciences.
Further, Ms. Pyle is a member of the Board of Directors of the United Way
Foundation, Greater Madison Chamber of Commerce, Madison Art Center, and
Wisconsin Taxpayers Alliance, and is a trustee of the White House Endowment
Fund.
<TABLE>
<S> <C>
CAROL T. TOUSSAINT
LOGO Principal Occupation: Consultant
Age: 66
Served as director since: 1976
Annual Meeting at which current term of office will expire: 1997
</TABLE>
Other Information: Mrs. Toussaint has served as a director of WPLH from 1986 to
1990 and since 1994. She is a Senior Associate of Hayes Briscoe, a national fund
development firm. She also works as an independent consultant to nonprofit
organizations and operates a lecture program business. She is a member of the
President's Advisory Council on the Arts of the Kennedy Center for the
Performing Arts, and serves on the Board of Governors of the Madison Community
Foundation and as Vice Chair of the Madison Rotary Foundation. Mrs. Toussaint
also serves as a director of the Evjue Foundation, the Madison Civic Center
Foundation and the Wisconsin History Foundation. At the University of
Wisconsin-Madison, she serves as a director of the Research Park, the School of
Business Dean's Advisory Board and the Foundation's Council on Women's Giving,
and as a director of the Alumni Association and convener of its Cabinet 99
Women's Initiative.
7
<PAGE> 12
PROPOSAL # 2:
APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors of the Company recommends the
reappointment of Arthur Andersen LLP, independent public accountants, as
auditors to examine the financial statements of the Company for 1996. Arthur
Andersen LLP served as auditors for the Company in 1995.
A representative of Arthur Andersen LLP will be present at the Meeting and
will be available to make a statement or to respond to questions, as
appropriate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE REAPPOINTMENT OF ARTHUR
ANDERSEN LLP. SHARES OF STOCK REPRESENTED BY EXECUTED BUT UNMARKED PROXIES WILL
BE VOTED "FOR" SUCH REAPPOINTMENT.
MEETINGS AND COMMITTEES OF THE BOARD
During 1995, the Board of Directors had standing Audit, Compensation and
Personnel, and Nominating Committees.
AUDIT COMMITTEE
As of January 1, 1995, the committee consisted of L. Aspin, L. D. Carley,
R. G. Flowers, D. R. Haldeman, H. F. Scheig, and K. C. Lyall (Chair). Mr. Scheig
retired as a director effective May 17, 1995. Mr. Aspin passed away on May 21,
1995. The committee held two meetings in 1995. The committee recommends to the
shareowners the independent auditors to be elected; reviews the reports and
comments of the independent auditors; reviews the activities and reports of the
Company's internal audit staff; and, in response to the reports and comments of
both the independent auditors and internal auditors, recommends to the Board any
action which the Audit Committee considers appropriate.
COMPENSATION AND PERSONNEL COMMITTEE
As of January 1, 1995, the committee consisted of A. M. Nemirow, M. E.
Neshek (Chair), H. C. Prange, J. D. Pyle, and C. T. Toussaint. On May 17, 1995,
Mr. Nemirow became Chair of the committee. The committee held six meetings in
1995. The committee sets executive compensation policy; reviews the performance
of and approves salaries for officers and certain other management personnel;
reviews and recommends to the Board new or changed employee benefit plans;
reviews major provisions of negotiated employment contracts, if any; and reviews
human resource development programs.
NOMINATING COMMITTEE
As of January 1, 1995, the committee consisted of L. Aspin, R. G. Flowers,
K. C. Lyall, A. M. Nemirow (Chair), H. C. Prange, and J. D. Pyle. As of May 17,
1995, Mr. L. D. Carley was added to the committee and was elected as Chair. Mr.
Aspin passed away on May 21, 1995. The committee held two meetings in 1995. The
committee's responsibilities include making recommendations to the Board of
Directors for nominees for election to the Board. In making recommendations of
nominees for election to the Board, the committee will consider nominees
recommended by shareowners. Any shareowner wishing to make a recommendation
should write the Chief Executive Officer of the Company, who will forward all
recommendations to the committee.
The Board of Directors held nine meetings during 1995. No director attended
less than 76% of the aggregate number of meetings of the Board and Board
Committees on which he or she served.
8
<PAGE> 13
COMPENSATION OF DIRECTORS
No fees are paid to directors who are officers of the Company and/or its
parent or any of its subsidiaries (presently Mr. Davis). Nonmanagement
directors, each of whom serves on the Board of Directors of the Company, WPLH,
and Heartland Development Corporation, receive an annual retainer of $32,800 for
service on all three boards. Travel expenses are paid for each meeting day
attended. All nonmanagement directors also received a 25 percent matching
contribution in WPLH common stock for limited optional cash purchases, up to
$10,000, of WPLH common stock through the WPLH Dividend Reinvestment and Stock
Purchase Plan. Matching contributions of $2,500 each for calendar year 1995 were
made for the following directors: L. Aspin, L. D. Carley, R. G. Flowers, D. R.
Haldeman, K. C. Lyall, A. M. Nemirow, M. E. Neshek, H. C. Prange, J. D. Pyle, H.
F. Scheig and C. T. Toussaint.
Director's Charitable Award Program -- A Director's Charitable Award
Program is maintained for the nonmanagement members of the Company's Board of
Directors beginning after three years of service. The purpose of the Program is
to recognize the interest of the Company and its directors in supporting worthy
institutions, and enhance the Company's director benefit program so that the
Company is able to continue to attract and retain directors of the highest
caliber. Under the Program, when a director dies, a total of $500,000 will be
donated by the Company and/or WPLH to one qualified charitable organization, or
that amount will be divided among a maximum of four qualified charitable
organizations, selected by the individual director. The individual director
derives no financial benefit from the Program. All deductions for charitable
contributions are taken by the Company and WPLH, and the donations are funded
through life insurance policies on the directors. Over the life of the Program,
all costs of donations and premiums on the life insurance policies, including a
return of the Company's cost of funds, will be recovered through life insurance
policies on the directors. The Program, over its life, will not result in any
material cost to the Company.
Director's Life Insurance Program -- The Company maintains a split-dollar
Director's Life Insurance Program for nonemployee directors, beginning after
three years of service, which provides a maximum death benefit of $500,000 to
each eligible director. Under the split-dollar arrangement, directors are
provided a death benefit only and do not have any interest in the cash value of
the policies. The Life Insurance Program is structured to pay a portion of the
total death benefit to the Company to reimburse the Company for all costs of the
program, including a return on its funds. The Life Insurance Program, over its
life, will not result in any material cost to the Company.
9
<PAGE> 14
OWNERSHIP OF VOTING SECURITIES
The Company has two classes of voting securities outstanding, common stock
and preferred stock. WPLH owns 100 percent of the outstanding common stock of
the Company. As of June 1, 1996, no shareowner beneficially owned more than five
percent of any series of the Company's preferred stock. Listed in the following
table are the shares of WPLH common stock owned as of June 1, 1996, by the
executive officers listed in the Summary Compensation Table and all of the
directors of the Company, as well as the shares owned by directors and officers
as a group. No one in this group owns shares of the Company's preferred stock.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
BENEFICIAL OWNER OWNED(1) OF CLASS
- -------------------------------------------------------------------- ------------ --------
<S> <C> <C>
Executives(2)
A.J. (Nino) Amato................................................. 2,389(3) *
Daniel A. Doyle................................................... 345 *
William D. Harvey................................................. 7,393(3) *
Eliot G. Protsch.................................................. 8,344(3) *
Director Nominees
Rockne G. Flowers................................................. 7,863 *
Katharine C. Lyall................................................ 4,859 *
Henry C. Prange................................................... 9,792(3) *
Continuing Directors
L. David Carley................................................... 3,623 *
Erroll B. Davis, Jr............................................... 10,486(3)(4) *
Donald R. Haldeman................................................ 3,510 *
Arnold M. Nemirow................................................. 6,814 *
Milton E. Neshek.................................................. 10,656 *
Judith D. Pyle.................................................... 4,592 *
Carol T. Toussaint................................................ 8,947 *
All Executives and Directors as a Group
27 people, including those listed above........................... 129,364 *
</TABLE>
- ------------
* Less than one percent of the total outstanding shares of WPLH common stock.
(1) Total shares of WPLH common stock outstanding as of June 1, 1996 were
30,795,260.
(2) Stock ownership of Mr. Davis is shown with continuing directors.
(3) Included in the beneficially owned shares shown are the following indirect
ownership interests with shared voting and investment powers: Mr.
Harvey -- 1,558; Mr. Protsch -- 394; Mr. Davis -- 4,602; Mr. Prange -- 248;
and Mr. Amato -- 880.
(4) Mr. Davis has been awarded 1.67 shares of restricted HDC common stock
subject to a Restricted Stock Agreement with Heartland Development
Corporation (a subsidiary of WPLH) and WPLH.
10
<PAGE> 15
COMPENSATION OF EXECUTIVE OFFICERS
The following Summary Compensation Table sets forth the total compensation
paid by the Company for all services rendered during 1995, 1994, and 1993 to the
Chief Executive Officer and the four other most highly compensated executive
officers (the "named executive officers").
SUMMARY COMPENSATION TABLE
(DOLLARS)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------------------------------- UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS/ ALL OTHER
POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($)(2) SARS (#)(3) COMPENSATION($)(4)
- ----------------------- ---- ------------ -------- ------------------ ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Erroll B. Davis, Jr.... 1995 374,913 125,496 16,688 13,100 54,131
President and CEO 1994 374,913 128,232 13,163 0 50,796
1993 374,190 115,796 8,979 0 48,715
William D. Harvey...... 1995 193,654 47,340 5,459 4,700 22,357
Senior Vice President
-- 1994 193,654 56,080 5,203 0 22,632
WP&L 1993 168,962 42,104 4,152 0 24,003
Eliot G. Protsch....... 1995 182,000 47,520 3,951 4,700 18,362
Senior Vice President
-- 1994 178,600 56,080 3,694 0 17,245
WP&L 1993 144,748 42,104 2,934 0 14,122
Anthony J. Amato....... 1995 148,964 40,046 4,887 3,650 17,156
Senior Vice President
-- 1994 152,426 43,138 5,312 0 16,970
WP&L 1993 140,769 33,240 4,181 0 17,842
Daniel A. Doyle........ 1995 140,399 32,465 3,090 2,900 11,155
Vice President, 1994 117,212 35,583 0 0 1,758
Finance(5) 1993 113,173 14,559 0 0 7,282
</TABLE>
- ------------
(1) Includes vacation days sold back to the Company.
(2) For all except Mr. Davis, amounts for 1995 consist of income tax gross-ups
for reverse split-dollar life insurance. For Mr. Davis, amount for 1995
consists of income tax gross-ups for reverse split-dollar life insurance --
$12,630 and income tax gross-ups for financial counseling benefit -- $4,058.
(3) Awards made in 1995 were in combination with contingent dividend awards as
described in the table entitled "Long-Term Incentive Awards in 1995".
(4) All Other Compensation for 1995 consists of: matching contributions to
401(k) plan, Mr. Davis -- $11,247, Mr. Harvey -- $5,892, Mr. Protsch --
$5,460, Mr. Amato -- $4,469, and Mr. Doyle -- $3,330; financial counseling
benefit, Mr. Davis -- $4,400; split dollar life insurance premiums, Mr.
Davis -- $24,790, Mr. Harvey -- $10,546, Mr. Protsch -- $8,799, Mr. Amato --
$6,562, and Mr. Doyle -- $3,953; reverse split dollar life insurance, Mr.
Davis -- $13,694, Mr. Harvey -- $5,919, Mr. Protsch -- $4,103, Mr. Amato --
$6,125 and Mr. Doyle -- $3,872. The split dollar and reverse split dollar
insurance premiums are calculated using the "foregone interest" method.
(5) Mr. Doyle was appointed Vice President -- Power Production on April 8, 1996.
11
<PAGE> 16
OPTION/SAR GRANTS IN 1995
The following table sets forth certain information concerning stock options
granted during 1995 to the named executives under the WPLH Long-Term Equity
Incentive Plan:
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
--------------------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK
SECURITIES OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE OR BASE EXPIRATION ------------------
NAME GRANTED(#)(1) FISCAL YEAR PRICE ($/SHARE) DATE 5%($) 10%($)
- ------------------------- ------------- ------------ ---------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Erroll B. Davis, Jr. .... 13,100 31% 27.50 1/3/05 226,630 574,304
William D. Harvey........ 4,700 11% 27.50 1/3/05 81,310 206,048
Eliot G. Protsch......... 4,700 11% 27.50 1/3/05 81,310 206,048
Anthony J. Amato......... 3,650 9% 27.50 1/3/05 63,145 160,016
Daniel A. Doyle.......... 2,900 7% 27.50 1/3/05 50,170 127,136
</TABLE>
- ------------
(1) Consists of non-qualified stock options to purchase shares of WPLH common
stock granted pursuant to the WPLH Long-Term Equity Incentive Plan. Options
were granted on January 3, 1995, and will fully vest on January 3, 1998.
These options were granted with an equal number of contingent dividend
awards as described in the table entitled "Long-Term Incentive Awards in
1995" and have exercise prices equal to the fair market value of a share of
WPLH common stock on the date of grant. Upon a "change in control" of WPLH
as defined in the Long-Term Equity Incentive Plan or upon retirement,
disability or death of the option holder, these options shall become
immediately exercisable. Upon exercise of an option, the executive purchases
all or a portion of the shares covered by the option by paying the exercise
price multiplied by the number of shares as to which the option is
exercised, either in cash or by surrendering shares of WPLH common stock
already owned by the executive.
(2) The hypothetical potential appreciation shown for the named executives is
required by the SEC rules. The amounts shown do not represent either the
historical or expected future performance of WPLH's common stock level of
appreciation. For example, in order for the named executives to realize the
potential values set forth in the 5% and 10% columns in the table above, the
price per share of WPLH common stock would be $44.80 and $71.34,
respectively, as of the expiration date of the options.
12
<PAGE> 17
OPTION/SAR VALUES AT DECEMBER 31, 1995
The following table provides information for the named executives regarding
the number and value of unexercised options. No options were exercisable during
1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SAR'S AT YEAR END OPTIONS/SAR'S AT YEAR END(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Erroll B. Davis, Jr..................... 0 13,100 0 $40,938
William D. Harvey....................... 0 4,700 0 $14,688
Eliot G. Protsch........................ 0 4,700 0 $14,688
Anthony J. Amato........................ 0 3,650 0 $11,406
Daniel A. Doyle......................... 0 2,900 0 $ 9,063
</TABLE>
- ------------
(1) Based on the closing per share price on December 29, 1995 of WPLH common
stock of $30.625.
LONG-TERM INCENTIVE AWARDS IN 1995
The following table provides information concerning long-term incentive
awards made to the named executives in 1995.
<TABLE>
<CAPTION>
PERFORMANCE
NUMBER OF OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
SHARES, PERIOD NON-STOCK PRICE-BASED PLANS(2)
UNITS OR UNTIL ------------------------------
OTHER RIGHTS MATURATION THRESHOLD TARGET MAXIMUM
NAME (#)(1) OR PAYOUT ($) ($) ($)
- ------------------------------------------- ------------ ----------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Erroll B. Davis, Jr........................ 13,100 1/3/98 61,622 77,028 134,799
William D. Harvey.......................... 4,700 1/3/98 22,109 27,636 48,363
Eliot G. Protsch........................... 4,700 1/3/98 22,109 27,636 48,363
Anthony J. Amato........................... 3,650 1/3/98 17,170 21,462 37,559
Daniel A. Doyle............................ 2,900 1/3/98 13,642 17,052 29,841
</TABLE>
- ------------
(1) Consists of Performance Units awarded under WPLH's Long-Term Equity
Incentive Plan in combination with stock options (as described in the table
entitled "Option/SAR Grants in 1995"). These Performance Units are entirely
in the form of contingent dividends and will be paid if total shareowner
return over a three year period ending January 3, 1998 equals or exceeds the
median return earned by the companies in a peer group of utility holding
companies, except that there will be no payment if WPLH's total return is
negative over the course of such period. If payable, each participant shall
receive an amount equal to the accumulated dividends paid on one share of
WPLH common stock during the period of January 3, 1995 through January 2,
1998 multiplied by the number of performance units awarded to the
participant, and modified by a performance multiplier which ranges from 0 to
1.75 based on the WPLH total return relative to the peer group.
(2) Assumes, for purposes of illustration only, a 2 cent per share increase in
the annual dividend on shares of WPLH common stock for 1996 and 1997.
13
<PAGE> 18
AGREEMENTS WITH EXECUTIVES
WPLH, the parent of the Company, has entered into employment and severance
agreements with certain executive officers of the Company, including Messrs.
Davis, Harvey, Protsch, Amato, and Doyle. WPLH recognized that, in today's
developing competitive marketplace within the energy industry, circumstances may
arise in which a change of control of WPLH may occur, through acquisition or
otherwise. This potentiality may cause uncertainty about the continued
employment of certain key executives with the Company, without regard to the
competence or past contributions of the executives. WPLH recognized further that
this uncertainty could result in the loss to the Company and WPLH of valuable
services of one or more of the key executives, particularly during a period
where these same executives may be called upon to negotiate on behalf of the
shareowners. Because of the intimate knowledge of the business and the affairs
of the Company which these executives possess, such loss could be to the
detriment of the Company and WPLH. To provide the Company, WPLH and key
executives reasonable security against changes in the relationship of the
executives with the Company and WPLH in the event of a change in control, WPLH
entered into the employment and severance agreements. The agreements provide
that each executive officer covered by the agreements is entitled to benefits
if, within five years after a change in control of WPLH (as defined in the
agreements), the officer's employment is ended through (i) termination by the
Company, other than by reason of death or disability or for cause (as defined in
the agreements), or (ii) termination by the officer due to a breach of the
agreement by WPLH or the Company or a significant change in the officer's
responsibilities, or (iii) in the case of Mr Davis' agreement only, termination
by Mr. Davis following the first anniversary of the change of control. The
benefits provided under each agreement are: (i) a cash termination payment of
one, two or three times (depending on which executive is involved) the sum of
the executive officer's annual salary and his average annual bonus during the
three years before the termination and (ii) continuation for up to five years of
equivalent hospital, medical, dental, accident, disability and life insurance
coverage as in effect at the time of termination. The agreements also provide
the foregoing benefits in connection with certain terminations which are
effected in anticipation of a change of control. Each agreement provides that if
any portion of the benefits under the agreement or under any other agreement for
the officer would constitute an excess payment for purposes of the Internal
Revenue Code, benefits will be reduced so that the officer will be entitled to
receive $1 less than the maximum amount which he could receive without becoming
subject to the 20% excise tax imposed by the Code on certain excess payments as
defined in the Code, or which WPLH may pay without loss of deduction under the
Code. The Board of Directors of WPLH has authorized that each of the foregoing
agreements be amended to specifically provide that the consummation of the
Proposed Merger will constitute a change of control in certain cases for
purposes of the agreements in the event of a termination without cause.
RETIREMENT AND EMPLOYEE BENEFIT PLANS
Salaried employees (including officers) of the Company are eligible to
participate in the Company's Retirement Plan. All eligible persons whose
compensation is reported in the foregoing Summary Compensation Table
participated in the plan during 1995. Contributions to the plan are determined
actuarially, computed on a single-life, annuity basis, and cannot be readily
calculated as applied to any individual participant or small group of
participants. For purposes of the plan, compensation means payment for services
rendered, including vacation and sick pay, and is substantially equivalent to
salary reported in the foregoing Summary Compensation Table. Retirement Plan
benefits depend upon length of plan service (up to a maximum of 30 years), age
at retirement, and amount of compensation (determined in accordance with the
plan) and are reduced by up to 50 percent of Social Security benefits. Credited
years of service under the plan for covered persons named in the foregoing
Summary Compensation Table are as follows: Erroll B. Davis, Jr., 16 years;
William D. Harvey, 8 years; Eliot G. Protsch, 16 years; A. J. (Nino) Amato, 9
years; and Daniel A.
14
<PAGE> 19
Doyle, 3 years. Assuming retirement at age 65, a Retirement Plan participant (in
conjunction with the Unfunded Supplemental Retirement Plan described below)
would be eligible at retirement for a maximum annual retirement benefit as
follows:
RETIREMENT PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE ANNUAL BENEFIT AFTER SPECIFIED YEARS IN PLAN*
ANNUAL ------------------------------------------------------------------
COMPENSATION 5 10 15 20 25 30
- ------------ ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$125,000............................. $10,210 $20,421 $ 30,631 $ 40,841 $ 51,052 $ 61,262
150,000............................. 12,502 25,004 37,506 50,008 62,510 75,012
200,000............................. 17,085 34,171 51,256 68,341 85,427 102,512
250,000............................. 21,669 43,337 65,006 86,675 108,343 130,012
300,000............................. 26,252 52,504 78,756 105,008 131,260 157,512
350,000............................. 30,835 61,671 92,506 123,341 154,177 185,012
400,000............................. 35,419 70,837 106,256 141,675 177,093 212,512
450,000............................. 40,002 80,004 120,006 160,008 200,010 240,012
475,000............................. 42,294 84,587 126,881 169,175 211,468 253,762
</TABLE>
- ------------
* Average annual compensation is based upon the average of the highest 36
consecutive months of compensation. The Retirement Plan benefits shown above
are net of estimated Social Security benefits and do not reflect any
deductions for other amounts. The annual retirement benefits payable are
subject to certain maximum limitations (in general, $120,000 for 1995 and
$120,000 for 1996) under the Internal Revenue Code. Under the Retirement Plan
and a supplemental survivors income plan, if a Retirement Plan participant
dies prior to retirement, the designated survivor of the participant is
entitled to a monthly income benefit equal to approximately 50 percent (100
percent in the case of certain executive officers and key management
employees) of the monthly retirement benefit which would have been payable to
the participant under the Retirement Plan if the participant had remained
employed by the Company until eligible for normal retirement.
Unfunded Supplemental Retirement Plan -- The Company maintains an Unfunded
Supplemental Retirement Plan which provides funds for payment of retirement
benefits above the limitations on payments from qualified pension plans in those
cases where an employee's retirement benefits exceed the qualified plan limits.
Additionally, the plan provides for payments of supplemental retirement benefits
to employees holding the title of Vice President or higher, who have been
granted additional months of service by the Board of Directors for purposes of
computing retirement benefits.
Unfunded Executive Tenure Plan -- The Company maintains an Unfunded
Executive Tenure Plan to provide incentive for key executives to remain in the
service of the Company by providing additional compensation which is payable
only if the executive remains with the Company until retirement (or other
termination if approved by the Board of Directors). Participants in the plan
must be designated by the Chief Executive Officer and approved by the Board. Mr.
Davis was the only active participant in the plan as of December 31, 1995. The
plan provides for monthly payments to a participant after retirement (at or
after age 65, or with Board approval, prior to age 65) for 120 months. The
payments will be equal to 25 percent of the participant's highest average salary
for any consecutive 36-month period. If a participant dies prior to retirement
or before 120 payments have been made, the participant's beneficiary will
receive monthly payments equal to 50 percent of such amount for 120 months in
the case of death before retirement, or if the participant dies after
retirement, 50 percent of such amount for the balance of the 120 months. Annual
benefits of $104,500 would be payable to Mr. Davis upon retirement, assuming he
continues in the Company's service until retirement at the same salary as was in
effect on December 31, 1995.
15
<PAGE> 20
REPORT OF THE COMPENSATION AND PERSONNEL COMMITTEE
ON EXECUTIVE COMPENSATION
TO OUR SHAREOWNERS: The Compensation and Personnel Committee (the
"Committee") of the Board of Directors of the Company is comprised of five
independent, nonemployee directors who have no "interlocking" relationships, as
defined by the Securities and Exchange Commission. The Committee assesses the
effectiveness and competitiveness of, approves the design of, and administers
executive compensation programs within a consistent total compensation framework
for the Company. Other than for awards under the WPLH Long-Term Incentive Plan
which are made by the Compensation and Personnel Committee of the Board of
Directors of WPLH, the Committee reviews and approves all salary arrangements
and other remuneration for executives, as well as evaluates executive
performance, and considers related matters. The members of the WPLH Compensation
and Personnel Committee are identical to the members of the Committee and both
such Committees are collectively referred to herein as the "Committee." To
support the Committee in carrying out its mission, Hewitt Associates, an
independent consultant, is engaged to provide assistance in the development of
comprehensive executive compensation policies.
The Committee is committed to implementing a total compensation program for
executives which furthers the Company's mission. The Committee, therefore,
adheres to the following compensation policies which are intended to facilitate
the achievement of the Company's business strategies.
- Total compensation should enhance the Company's ability to attract,
retain, and encourage the development of exceptionally knowledgeable and
experienced executives, upon whom, in large part, the successful
operation and management of the Company depends.
- Base salary levels should be targeted at the median level paid to
executives of comparable utility companies.
- Incentive compensation programs should strengthen the relationship
between pay and performance by emphasizing variable, at-risk compensation
that is consistent with meeting predetermined Company and individual
performance goals.
COMPONENTS OF COMPENSATION
The Committee relates total compensation levels for the Company's senior
executives to the compensation paid to executives of similar companies in the
utility industry. Utility executives' pay is compared to that of executives at
utilities with similar operations in both the Midwest and national markets, as
well as to utilities with similar revenue levels, market capitalizations,
employment levels, and total shareowner returns.
The Committee has reviewed overall compensation levels and compared them to
the benchmarks established. It has been determined that total executive
compensation, including that for Mr. Davis, is in line with the median of the
comparison group of companies.
The current elements of the Company's executive compensation program are
base salary, short-term (annual) incentives and long-term (equity) incentives.
These elements are addressed separately below. In determining each component of
compensation, the Committee considers all elements of an executive's total
compensation package, including benefit and perquisite programs.
BASE SALARIES
The Committee annually reviews each executive's base salary. Base salaries
are targeted at the median of the utility industry's market rate. Base salaries
are adjusted by the Committee to recognize changes in market
16
<PAGE> 21
rate, varying levels of responsibility, prior experience, breadth of knowledge
as well as internal equity issues. Increases to base salaries are driven
primarily by market rate adjustments. Individual performance factors are not
considered by the Committee in setting base salaries. In 1995, executives did
not receive an across-the-board salary adjustment. Certain executives received
base salary increases in recognition of increases or changes in management
responsibilities. Mr. Davis did not receive a base salary increase in 1995.
Greater emphasis was placed on the opportunity for executives to increase their
earnings through the Management Incentive Plan by exceeding specific strategic
goals. Base pay adjustments are tied to median market rate changes and will
minimize across-the-board increases. During 1995, all executive salaries were
reviewed for median market rate comparability utilizing utility industry data
contained in compensation surveys published by Edison Electric Institute,
American Gas Association and several compensation consulting firms. Any
recommended changes will be effective for 1996. Market rates will be reviewed
annually.
SHORT-TERM INCENTIVES
The goal of short-term (annual) incentive programs is to promote the
Committee's pay-for-performance philosophy by providing executives with direct
financial incentives in the form of annual cash bonuses to achieve corporate and
individual performance goals. Annual bonus opportunities allow the Committee to
communicate specific goals that are of primary importance during the coming year
and motivate executives to achieve these goals. Short-term incentive program
performance weighting, targeted and maximum award levels, and performance goals
are reviewed and approved annually by the Committee. A description of the
short-term incentive program available to executive officers follows.
Wisconsin Power and Light Company Management Incentive Plan -- The
Management Incentive Plan (MIP) for the Company covers utility executives,
including Mr. Davis' utility responsibilities. The MIP in 1995 was based on
achieving annual targets in several areas of overall corporate performance that
include profitability, operations and maintenance expense control, achievement
of electric service reliability standards and reduction in lost time accidents.
Target and maximum bonus awards were set at the median of the utility market
levels. Targets were considered by the Committee to be achievable, but require
above-average performance from each of the executives. For 1995, the threshold
levels for all WP&L MIP performance categories were exceeded. Actual payment of
bonuses, as a percentage of annual salary, is determined by the level of
performance achieved in each category. Weighting factors are applied to the
percentage achievement under each category to determine overall performance. If
the threshold performance level is not reached, there is no bonus payment
associated with that particular category. Once the designated maximum
performance is reached, there is no additional payment. The actual percentage of
salary paid as a bonus, within the allowable range, is equal to the weighted
average percent achievement for all the performance categories. For example, if
the overall weighted performance achievement is 70%, the executive will receive
70% of his or her maximum allowable bonus award. The MIP awarded 64 percent of
its allowable maximum for 1995. The WP&L MIP awards for executives range from 0
to 40 percent of annual salary. Awards for 1995 made to top executives are shown
in the Summary Compensation Table.
The 1995 MIP award range for Mr. Davis was 0 to 35 percent of his annual
utility-based salary. For 1995 performance, Mr. Davis' annual bonus payment
represented 34 percent of his base salary, as reflected in the Summary
Compensation Table. Under the MIP, Mr. Davis was awarded $125,496 solely in
connection with 1995 performance, as discussed above. The MIP does not allow for
discretion in bonus determinations. Mr. Davis' award range is in line with the
median of the same combined utility and general industry comparison group used
for base salary comparisons.
17
<PAGE> 22
LONG-TERM INCENTIVES
The Committee strongly believes compensation for senior executives should
include long-term, at-risk pay to strengthen the alignment of shareowner and
management interests at both the WPLH and HDC level. In this regard, the WPLH
Long-Term Equity Incentive Plan allows for grants of stock options, restricted
stock, and performance units/shares with respect to WPLH common stock. The
Committee believes the Long-Term Equity Incentive Plan balances the Company's
existing compensation programs by emphasizing compensation based on the
long-term successful performance of the Company from the perspective of the
shareowners. Stock options provide a reward that is directly tied to the benefit
shareowners receive from increases in the price of WPLH common stock. The payout
from the performance units is based on WPLH's continued payment of dividends, a
significant component of investment returns for utilities, and the relative
total return to shareowners compared to other comparable investments. Thus the
two components of the Long-Term Equity Incentive Plan, i.e., stock options and
performance units, provide incentives for management to produce superior
shareowner returns on both an absolute and relative basis. During 1995 the
Committee made a grant of stock options and performance units to Messrs. Davis,
Amato, Doyle, Protsch and Harvey. All option grants were made at the fair market
value of WPLH's common stock on the date the grants were approved (January 3,
1995). The options vest after three years and have a ten year term from the date
of the grant. Executives were also granted performance units which will
accumulate all of the dividends paid on one share of WPLH common stock over a
three year period. One performance unit was granted for each option received by
the executive. Accrued dividends are not reinvested in WPLH common stock, nor is
any interest paid on accrued dividends. Performance units will be paid out in
cash or in shares of WPLH common stock. The payment will be modified by a
performance multiplier which ranges from 0 to 1.75 based on the three year
average of WPLH total shareowner return relative to a utility holding company
peer group. If WPLH total shareowner return for the three year period is
negative, the performance unit payout will be zero. In determining actual award
levels, the Committee was primarily concerned with providing a competitive total
compensation level to officers. As such, award levels (including the awards made
to Mr. Davis) were based on a competitive analysis of similarly-sized utility
companies that took into consideration the market level of long-term incentives,
as well as the competitiveness of the total compensation package. Award ranges,
as well as individual award levels, were then established based on
responsibility level and market competitiveness. No corporate or individual
performance measures were reviewed in connection with the awards of options and
performance units. Award levels were targeted to the median of the range of such
awards paid by comparable companies. In addition, the WPLH Committee did not
consider the amounts of options or performance units already outstanding or
previously granted since no options or performance units have been granted by
WPLH in the past.
POLICY WITH RESPECT TO THE $1 MILLION DEDUCTION LIMIT
Section 162(m) of the Internal Revenue Code generally limits the corporate
deduction for compensation paid to executive officers named in the proxy
statement to $1 million unless such compensation is based upon performance
objectives meeting certain regulatory criteria or is otherwise excluded from the
limitation. The Committee has carefully considered the impact of this tax code
provision. Based on the Committee's commitment to link compensation with
performance as described in this report, the Committee currently intends to
qualify compensation paid to the Company's executive officers for deductibility
by the Company under Section 162(m).
18
<PAGE> 23
CONCLUSION
The Committee believes the existing executive compensation policies and
programs provide the appropriate level of competitive compensation for Company
executives. In addition, the Committee believes that the long and short term
performance incentives effectively align the interests of executives and
shareowners toward a successful future for the Company.
COMPENSATION AND PERSONNEL
COMMITTEE
Arnold M. Nemirow (Chair)
Milton E. Neshek
Henry C. Prange
Judith D. Pyle
Carol T. Toussaint
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The Company's directors, its executive officers, and certain other officers
are required to report their ownership of the Company's common stock and
Preferred Stock and any changes in that ownership to the Securities and Exchange
Commission. All required filings in 1995 were properly made in a timely fashion.
In making this statement, the Company has relied on the representations of the
persons involved and on copies of their reports filed with the Securities and
Exchange Commission.
GENERAL
Proposals of Shareowners. Under the rules of the Securities and Exchange
Commission, any shareowner proposal intended to be presented at the 1997 Annual
Meeting of Shareowners must be received at the principal office of the Company a
reasonable time prior to the solicitation of proxies for such meeting.
Other Business. The meeting is being held for the purposes set forth in the
notice accompanying this proxy statement. The Board of Directors of the Company
knows of no business to be transacted at the meeting other than that set forth
in the notice. However, if any other business should properly be presented to
the meeting, the proxies will be voted in respect thereof in accordance with the
judgment of the person or persons voting the proxies.
WISCONSIN POWER AND LIGHT COMPANY
LOGO
ERROLL B. DAVIS, JR.
President and Chief Executive Officer
19
<PAGE> 24
APPENDIX A
WISCONSIN POWER AND LIGHT COMPANY
ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
CONTENTS PAGE
- ------------------------------------------------------------------------------------- -----
<S> <C>
The Company.......................................................................... A-2
Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................... A-3
Report of Independent Public Accountants............................................. A-15
Consolidated Financial Statements:
Consolidated Balance Sheets........................................................ A-16
Consolidated Statements of Income.................................................. A-18
Consolidated Statements of Cash Flows.............................................. A-19
Consolidated Statements of Capitalization.......................................... A-20
Consolidated Statements of Common Shareowner's Investment.......................... A-21
Notes to Consolidated Financial Statements......................................... A-22
Shareowner Information............................................................... A-39
Form 10-K Information................................................................ A-39
Executive Officers of the Company.................................................... A-39
</TABLE>
A-1
<PAGE> 25
THE COMPANY
On March 1, 1988, after obtaining shareowner and all the necessary
regulatory approvals, Wisconsin Power and Light Company (the "Company" or
"WP&L") effected a corporate restructuring which included the formation of a
holding company, WPL Holdings, Inc ("WPLH"). WPLH is the parent company of WP&L
and its utility subsidiaries and of Heartland Development Corporation, the
parent corporation for nonregulated businesses.
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 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.
On November 10, 1995, WPLH entered an agreement to combine with IES
Industries Inc. ("IES") of Cedar Rapids, Iowa, and Interstate Power Company
("IPC") of Dubuque, Iowa, under a holding company that will be known as
Interstate Energy Corporation, headquartered in Madison, Wisconsin. The
combination is subject to the approval of the common shareowners of all
companies and various regulatory agencies. Since WP&L is not a direct party to
the transaction, WP&L shareowners will not be entitled to vote thereon.
Interstate Energy Corporation will be registered under the Public Utility
Holding Company Act of 1935, as amended. It is anticipated that WP&L will
continue to operate as a separate entity, headquartered in Madison, Wisconsin,
for a period of time following the combination.
ELECTRIC OPERATIONS
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, 1995, WP&L provided retail electric
service to approximately 377,000 customers in 610 cities, villages and towns,
and wholesale service to 25 municipal utilities, one privately owned utility,
three rural electric cooperatives, one American Indian nation and to the
Wisconsin Public Power, Inc. system for the provision of retail service to nine
communities.
Electric operations represented 79.2 percent of WP&L's total operating
revenues and 87.8 percent of WP&L's total operating income for the year ended
December 31, 1995.
Electric sales are seasonal to some extent with the yearly peak normally
occurring in the summer months. WP&L also experiences a smaller winter peak in
December or January. The maximum net hourly peak load on the electric system was
2,197 megawatts and occurred on July 31, 1995. A new winter system peak of 1,913
megawatts occurred on December 11, 1995. During the year ended December 31,
1995, about 82.1 percent of total kilowatthour requirements were generated by
company-owned and jointly-owned facilities and the remaining 17.9 percent were
purchased.
A-2
<PAGE> 26
WP&L's electric generating facilities include: four coal-fired generating
stations (including nine units; four jointly owned), seven natural-gas-fired
peaking units, eight hydro-electric plants (two jointly owned), one gas-fired
steam generating plant and one nuclear power plant (jointly owned).
GAS OPERATIONS
As of December 31, 1995, WP&L provided retail natural gas service to
approximately 146,000 customers in 242 cities, villages and towns in 22 counties
in southern and central Wisconsin and one county in northern Illinois. Gas
operations represented 20.2 percent of WP&L's total operating revenues and 11.1
percent of WP&L's total operating income for the year ended December 31, 1995.
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. WP&L set a new record for natural gas
peak-demand of 258,000 dekatherms on January 30-31, 1996. The previous record of
256,000 dekatherms was set on January 14-15, 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Operating revenues............................... $ 690 $ 688 $ 644 $ 601 $ 610
Net income available for common stockholders..... $ 75 $ 68 $ 60 $ 55 $ 64
Total assets (at December 31).................... $1,641 $1,585 $1,551 $1,414 $1,250
Long-term debt, net (at December 31)............. $ 319 $ 337 $ 336 $ 336 $ 291
</TABLE>
1995 COMPARED WITH 1994
OVERVIEW
Net income of Wisconsin Power and Light Company ("WP&L" or the "Company")
increased to $75.3 million in 1995 compared with $68.2 million in 1994. Net
income for 1994 was significantly affected by two non-recurring items. These
items were the reversal of a coal contract penalty and costs associated with
early retirement and severance programs. The coal contract item is discussed in
the "Other Events" section of the Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A"). The following break out
presents the recurring aspects of 1995 and 1994 operations.
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Net income, as reported........................................ $75.3 $68.2
Less: increase in net income from reversal of coal contract
penalty...................................................... (--) (5.3)
Add: decrease in net income from cost associated with early
retirement and severance programs............................ (--) 8.2
----- -----
Net income before non-recurring items.......................... $75.3 $71.1
===== =====
</TABLE>
A-3
<PAGE> 27
The increase in the "net income before non-recurring items" primarily
reflects higher electric and gas margins, resulting from an increase in weather
related sales, and aggressive cost management:
ELECTRIC OPERATIONS
<TABLE>
<CAPTION>
CUSTOMERS AT END
REVENUES AND COSTS KWHS SOLD OF YEAR
------------------- % ----------------------- % ----------------- %
1995 1994 CHANGE 1995 1994 CHANGE 1995 1994 CHANGE
-------- -------- ------ ---------- ---------- ------ ------- ------- ------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and Farm....... $199,850 $194,242 3% 2,937,825 2,776,895 6% 329,643 322,924 2%
Industrial................. 140,562 140,487 0 3,872,520 3,764,953 3 795 776 2
Commercial................. 102,129 101,382 1 1,773,406 1,688,349 5 44,730 43,793 2
Wholesale and Class A...... 97,350 86,400 13 3,109,385 2,574,121 21 48 42 14
Other...................... 6,433 9,236 (30) 54,042 54,518 (1) 1,294 1,256 3
-------- -------- ---------- ---------- ------- -------
Total.................... 546,324 531,747 3 11,747,178 10,858,836 8% 376,510 368,791 2%
========== ========== ======= ======== ======== =======
-------- --------
Electric Production
Fuels.................... 116,488 123,469 (6)
Purchased Power............ 44,015 37,913 16
-------- --------
Margin..................... $385,821 $370,365 4%
========= ========= =======
</TABLE>
Electric margin increased 4 percent during 1995 compared with 1994
primarily due to higher sales combined with reduced aggregate costs per kWh for
electric production fuels and purchased power. Kilowatthour sales increased 8
percent due to a much warmer summer than normal, increased sales to other
utilities, a 2 percent growth in customers, and continued economic strength in
the service territory. Partially offsetting these sales increases was a 2.8
percent decrease in retail electric rates effective January 1, 1995.
A record setting heat wave resulted in WP&L setting a system peak of 2,197
megawatts on July 31, 1995. This reflects a 9.7 percent increase over the
previous record system peak of 2,002 megawatts set in 1994.
While overall kWh sales increased, the aggregate costs of electric
production fuels and purchased power remained relatively unchanged. The
stability of these costs reflects lower coal and transportation costs at the
Company's generating units in 1995 as well as the availability of attractive
purchased power opportunities in the bulk power market.
GAS OPERATIONS
<TABLE>
<CAPTION>
CUSTOMERS AT
REVENUES AND COSTS THERMS SOLD END OF YEAR
------------------- % ----------------- % ----------------- %
1995 1994 CHANGE 1995 1994 CHANGE 1995 1994 CHANGE
-------- -------- ------ ------- ------- ------ ------- ------- ------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and Farm...... $ 70,382 $ 71,555 (2)% 126,903 119,562 6% 129,576 124,938 4%
Firm...................... 39,456 41,918 (6) 91,316 87,487 4 15,976 15,531 3
Interruptible............. 3,708 8,777 (58) 12,148 24,809 (51) 257 272 (6)
Transport and Other....... 25,619 29,681 (14) 169,121 142,252 19 284 240 18
-------- -------- ------- ------- ------- -------
Total................... 139,165 151,931 (8) 399,488 374,110 7% 146,093 140,981 4%
-------- --------
======= ======= === ======= ======= ==
Purchased Gas............. 84,002 100,942 (17)
-------- --------
Margin.................... $ 55,163 $ 50,989 8%
======== ======== ===
</TABLE>
A-4
<PAGE> 28
Gas margin increased 8 percent during 1995 compared with 1994 primarily as
a result higher sales volumes and favorable gas procurement strategies. Therm
sales increased 7 percent principally due to residential customer growth
reflecting the favorable economic conditions in the Company's service territory
and colder than normal weather in the fourth quarter, offsetting a mild January
and February. The 8 percent decrease in gas revenues was the result of a pass
through to customers of the lower cost of purchased gas. Under the current rate
structure, future reductions in revenues resulting solely from such pass through
would not be expected to have a material impact on earnings. The gas incentive
program authorized by the Public Service Commission of Wisconsin ("PSCW") also
resulted in additional pre-tax earnings of $750,000 in 1995.
OPERATING EXPENSES
The decline in operations expense principally reflects the impact of a
$13.7 million charge for early retirement and severance costs in 1994. While the
Company was able to achieve savings in 1995 from its continued reengineering of
operations, these savings were offset somewhat by higher conservation expenses.
The increase in depreciation expense in 1995 is primarily the result of property
additions at the utility and higher contributions to WP&L's external nuclear
decommissioning trust. Despite higher operating income in 1995, the income tax
expense was unchanged due to prior years' tax adjustments resolved in 1995.
OTHER INCOME AND DEDUCTIONS
Other income and deductions in 1994 includes after-tax income of $5.3
million related to the reversal of a coal contract penalty as discussed in the
"Other Events" section of the MD&A. In addition, income associated with the
allowance for funds used during construction ("AFUDC") decreased in 1995 due to
significantly lower construction work in progress amounts and a lower Federal
Energy Regulatory Commission ("FERC") AFUDC rate.
INTEREST EXPENSE
Interest expense increased due to the higher levels of short-term debt and
higher short-term interest rates. During the second quarter of 1995, WP&L
repurchased $18 million of its Series V bonds from private investors. WP&L
applied revenue neutral treatment to these reacquired bonds which are
anticipated to be refinanced in 1996.
A-5
<PAGE> 29
1994 COMPARED WITH 1993
OVERVIEW
Net income of WP&L increased to $68.2 million in 1994 compared with $60.2
million in 1993. Net income for 1994 was significantly affected by two
non-recurring items. These items were the reversal of a coal contract penalty,
and costs associated with early retirement and severance programs which
primarily occurred in the fourth quarter. The reversal of the coal contract
penalty is discussed in the "Other Events" section of the MD&A. The following
break out presents the recurring aspects of 1994 and 1993 operations.
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Net Income, as reported....................................... $68.2 $60.2
Less: increase in net income from reversal of coal contract
penalty..................................................... (5.3) (--)
Add: decrease in net income from costs associated with early
retirement and severance programs........................... 8.2 1.1
----- -----
Net Income before non-recurring items......................... $71.1 $61.3
===== =====
</TABLE>
The increase in the "net income before non-recurring items" primarily
reflects an increase in operating earnings.
ELECTRIC OPERATIONS
<TABLE>
<CAPTION>
CUSTOMERS AT
REVENUES AND COST KWH SOLD END OF YEAR
------------------- % ----------------------- % ----------------- %
1994 1993 CHANGE 1994 1993 CHANGE 1994 1993 CHANGE
-------- -------- ------ ---------- ---------- ------ ------- ------- ------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and Farm..... $194,242 $184,176 5% 2,776,895 2,751,363 1% 322,924 316,870 2%
Industrial............... 140,487 132,903 6 3,764,953 3,540,082 6 776 714 9
Commercial............... 101,382 95,977 6 1,688,349 1,629,911 4 43,793 42,884 2
Wholesale and Class A.... 86,400 78,955 9 2,574,121 2,388,131 8 42 39 8
Other.................... 9,236 11,176 (17) 54,518 51,073 7 1,256 1,236 2
-------- -------- ---------- ---------- ------- -------
Total................ 531,747 503,187 6 10,858,836 10,360,560 5% 368,791 361,743 2%
========== ========== = ======= ======= =
-------- --------
Electric production
fuels.................. 123,469 123,919 0
Purchased Power.......... 37,913 28,574 33
-------- --------
Margin................... $370,365 $350,694 6%
======== ======== ===
</TABLE>
WP&L's electric margin increased 6 percent during 1994 compared to 1993.
The primary factor was a 3.8 percent retail rate increase effective October 1,
1993. Strong economic conditions in the industrial and commercial customer
classes and residential customer growth contributed to higher sales.
Electric production fuel costs were reasonably stable for 1994. The volume
of purchased power increased as a result of WP&L's efforts to conserve coal
inventories during a rail strike in the third quarter of 1994. The financial
impact on WP&L's operating results was not material.
A-6
<PAGE> 30
GAS OPERATIONS
<TABLE>
<CAPTION>
CUSTOMERS AT END
REVENUES AND COSTS THERMS SOLD OF YEAR
------------------- % ----------------- % ----------------- %
1994 1993 CHANGE 1994 1993 CHANGE 1994 1993 CHANGE
-------- -------- ------ ------- ------- ------ ------- ------- ------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential and Farm..... $ 71,555 $ 71,632 0% 119,562 120,005 0% 124,938 120,829 3%
Firm..................... 41,918 40,748 3 87,487 87,038 1 15,531 15,088 3
Interruptible............ 8,777 11,247 (22) 24,809 27,872 (11) 272 261 4
Transport and Other...... 29,681 13,643 118 142,252 84,877 68 240 85 182
-------- -------- ------- ------- ------- -------
Total.................. 151,931 137,270 11 374,110 319,792 17 140,981 136,263 3%
-------- --------
======= ======= ====== ======= ======= ===
Purchased Gas............ 100,942 90,505 12
-------- --------
Margin................... $ 50,989 $ 46,765 9%
======== ======== ===
</TABLE>
Gas margin increased 9 percent in 1994 from 1993 primarily due to a 1.4
percent retail rate increase effective October 1, 1993, and higher sales to firm
service customers. The overall cost of purchased gas declined reflecting WP&L's
effective use of opportunities on the gas spot market.
OPERATING EXPENSES
Other operation expense increase primarily due to several early retirement
and severance programs offered in 1994. The increase in depreciation expense in
1995 is primarily the result of increased property additions at the utility and
higher contributions to the Company's external nuclear decommissioning trust.
Income taxes increased between years primarily due to higher taxable income.
Partially offsetting these costs were reductions in operating costs resulting
from the ongoing reengineering of processes. Maintenance expense decreased
between years due to variation in the timing and extent of maintenance on
generating facilities between years. Secondarily, a severe storm in the summer
of 1993 increased 1993's maintenance expense related to service restoration.
OTHER INCOME AND (DEDUCTIONS)
Other income increased resulting from the reversal of a coal contract
penalty which is discussed in the "Other Events" section of the MD&A.
INTEREST EXPENSE
Interest expense decreased primarily due to the lower short-term debt
interest.
LIQUIDITY AND CAPITAL RESOURCES
During 1995 and 1994 the Company generated sufficient cash flows from
operations and short-term borrowings to cover operating expenses, cash
dividends, and investment activities. In 1993, cash flows from operations
covered a portion of investing activities, the remainder was generated through
the issuance of common stock and long and short-term debt. Cash flows from
operations increased to $196 million in 1995 compared with $187 million and $153
million in 1994 and 1993, respectively.
A-7
<PAGE> 31
RATES AND REGULATORY MATTERS
Effective January 1, 1995, for the two-year period ended December 31, 1996,
the PSCW in rate order UR-109, authorized a 2.8 percent annual decrease in
electric rates, a .5 percent annual increase in gas rates and a decline in the
allowed return on common equity to 11.5 percent from the previous 11.6 percent.
None of these events is expected to have a material impact on earnings. Further,
the PSCW approved certain incentive programs described below:
1. The retail electric fuel adjustment mechanism, which allowed costs
to fluctuate within a 3 percent band width, was eliminated. The elimination
of the adjustment mechanism did not have a material effect on 1995 earnings
and is not expected to materially impact 1996 results.
2. The automatic purchased gas adjustment clause was also eliminated.
The fluctuations in the commodity cost of gas above or below a prescribed
commodity price index will serve to 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 1995, WP&L
earned $750,000 pre-tax under this incentive mechanism. The customers'
share of this program is $1.1 million pre-tax which will be refunded to
customers in April 1996. The refund has been fully reserved in the 1995
financial results. The Company uses gas commodity swaps to hedge the price
risks associated with the purchase and sale of stored gas.
3. In order to promote air quality and delivery system reliability,
there are SO(2) emissions and service reliability incentive clauses.
Positive incentives available under these clauses include $1.5 million
pre-tax for the SO(2) emissions and $.5 million pre-tax for the service
reliability. WP&L's earnings are also negatively exposed for equal amounts.
For calendar year 1995, WP&L collected $2.0 million pre-tax in revenues and
also deferred $2.1 million pre-tax in revenues. WP&L plans to refund this
amount to customers in April 1996, resulting in no material impact on 1995
revenues.
INDUSTRY OUTLOOK
WP&L is subject to regulation by the PSCW and the FERC. The stated goal of
the PSCW in its 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 utility 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.
The Company cannot currently predict what impact, if any, these proceedings
may have on its future financial condition or results of operations. The Company
believes, however, that it is well positioned to compete in a deregulated
environment. WP&L's rates to all customer classes are competitive within the
state of Wisconsin and below the average in the Midwest region.
The FERC is developing regulation which will begin to provide open access
to utility transmission facilities for wholesale electric customers subject to
certain approved FERC tariffs. WP&L believes its existing open access tariffs
position it well to compete under such market conditions.
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. WP&L
generally borrows on a short-term basis to provide interim
A-8
<PAGE> 32
financing of construction and capital expenditures in excess of available
internally-generated funds. WP&L periodically reduces its outstanding short-term
borrowings through the issuance of long-term debt and through WPL Holdings,
Inc.'s additional investment in its common equity.
To maintain flexibility in its capital structure and to take advantage of
favorable short-term rates, 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. and P-1 by Moody's Investors Service. Bank lines of credit of $70
million at December 31, 1995, are available to support these borrowings.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate and gas commodity price risks. The Company enters
into interest rate swap agreements to reduce the impact of changes in interest
rates on its floating-rate long-term debt, short-term debt and the sales of its
accounts receivable. The total notional amount of interest rate swaps was $123
million and $150 million, respectively, for the years ended December 31, 1995
and 1994. The Company uses gas commodity swaps to hedge the price risks
associated with the purchase and sale of stored gas.
The Company's capitalization at December 31, 1995, including the current
maturities of long-term debt, variable rate demand bonds and short-term debt,
consisted of 53 percent common equity, 6 percent preferred stock and 41 percent
debt. The common equity to total capitalization ratio at December 31, 1995,
increased to 53 percent from 52 percent at December 31, 1994.
In accordance with the terms of the Merger Agreement (See "Other Events"
section of the MD&A.), WPLH may not declare or pay any dividends on any of its
capital stock other than the obligations that exist with respect to cumulative
preferred stock, and regular quarterly dividends on common stock may not to
exceed 105 percent of the common stock dividends from the prior year.
The retail rate order received effective January 1, 1995, requires WP&L to
maintain a utility common equity level of 51.93 percent of total utility
capitalization during the two-year period ending December 31, 1996. In addition,
the PSCW ordered that it must approve the payment of dividends by WP&L to WPLH
that are in excess of the level forecasted for 1995 ($58.1 million), if such
dividends would reduce WP&L's average common equity ratio below 51.93 percent.
At December 31, 1995, WP&L's common equity ratio was 52.6 percent.
CAPITAL REQUIREMENTS
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. Additions to utility plant
decreased in 1995 by $29.6 million and in 1994 by $25.9 million primarily due to
the completion of two
A-9
<PAGE> 33
86-megawatt combustion-turbine generators in 1994. Estimated capital
requirements for the next five years are as follows:
<TABLE>
<CAPTION>
CAPITAL REQUIREMENTS
----------------------------------------------
1996 1997 1998 1999 2000
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Construction expenditures
Electric............................ $ 81.5 $ 79.5 $ 75.3 $ 77.9 $ 72.0
Gas, water and common............... 41.7 38.9 31.1 31.4 32.1
Nuclear fuel........................ 8.3 10.0 8.2 9.7 13.7
Decommissioning fund................ 15.4 16.3 17.2 18.3 18.7
AFUDC............................... 2.5 2.2 1.3 1.4 1.4
------ ------ ------ ------ ------
Total construction
expenditures................... 149.4 146.9 133.1 138.7 137.9
Changes in working capital and
other............................... (8.3) 7.1 (16.3) 0.2 (6.1)
------ ------ ------ ------ ------
Total construction and operating
capital........................ 141.1 154.0 116.8 138.9 131.8
Long-term debt maturities............. -- 55.0 8.9 -- 1.9
Manufactured gas plant remediation.... 6.8 11.4 8.6 0.6 0.6
------ ------ ------ ------ ------
Total capital requirements....... $147.9 $220.4 $134.3 $139.5 $134.3
====== ====== ====== ====== ======
</TABLE>
Included in the construction expenditure estimates, in addition to the
recurring additions and improvements to the distribution and transmission
systems, are the following: 1) expenditures for managing and controlling
electric line losses and for the electric delivery system to enhance WP&L's
interconnection capability with other utilities; 2) expenditures related to
upgrading computer systems to improve productivity and customer service; and 3)
expenditures associated with the construction of an 86-megawatt combustion-
turbine generator expected to become operational in 1996. The decommissioning
expenditures represent both the amount of annual contribution to external trust
funds and the income earned on the external trust funds. These amounts are
recorded in depreciation expense and recovered in rates. WP&L expects to
contribute $10.7 million annually to this fund.
The steam generator tubes at Kewaunee are susceptible to corrosion
characteristics seen throughout the nuclear industry. During the first quarter
of 1995, Kewaunee was shutdown for scheduled maintenance and refueling.
Inspection of the steam generators revealed increased levels of tube
degeneration. Prior to shutdown the equivalent of approximately 12 percent of
the tubes in the steam generators were plugged, with no loss of capacity. When
the plant was returned to service in May 1995 approximately 21 percent of the
tubes were plugged resulting in an initial capacity reduction of approximately 4
percent. Approximately half of this lost capacity has been recovered through
operating modifications. The ultimate small reduction in capacity did not affect
revenues or earnings in 1995 because of operating and maintenance cost savings
and reserve capacity recovery efforts at Kewaunee. In addition, there was no
impact on the Company's bulk power sales due to the availability of attractive
purchased power opportunities.
As a result of the need to address the repair or replacement of the steam
generators, the owners of Kewaunee have been, and are continuing to, evaluate
various alternatives to deal with the loss of capacity resulting from the
continuing degradation of the steam generator tubes. As part of this evaluation
the owners have:
(a) submitted a request to the NRC to redefine the pressure boundary point
of the repaired steam generator tubes (sleeved tubes) which have been
removed from service by plugging, in order to allow
A-10
<PAGE> 34
the return of many of the sleeved tubes to service. If the request is
granted, even if additional degraded tubes would be discovered during
the next planned shutdown in the fall of 1996, the requested
redefinition of the pressure boundary point should allow the plant to
return to full output. Testing of three tubes removed during the 1995
refueling outage indicates structural soundness equal to the original
tube strength. Management believes the request will be granted by the
NRC;
(b) requested approval from the NRC to pursue welded repair technologies to
return plugged tubes to service. Although welded tube repair
technologies exist, the technology is not presently approved by the
NRC; and
(c) continued 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.
The owners continue to evaluate the potential financial and regulatory
implications of a change in ownership (which would likely require, as a
condition precedent, authority to replace the steam generator) or early shutdown
of Kewaunee. WP&L believes that the best near term economic alternative for the
owners of Kewaunee 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. On December 31,
1995, the net book value of WP&L's share of Kewaunee was $57.0 million.
Physical decommissioning of Kewaunee 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. The
undiscounted amount of decommissioning costs estimated to be expended between
the years 2014 and 2050 is $1,016 million. Wisconsin utilities operating nuclear
generating plants are required by the PSCW to establish external trust funds to
provide for the decommissioning of such plants. WP&L's share of the
decommissioning costs is estimated to be $169 million in 1995 dollars, assuming
the plant is operating through 2013, based on a 1992 site-specific study, using
the immediate dismantlement method of decommissioning. The market value of the
investments in the funds established by WP&L at December 31, 1995, totaled $73.4
million.
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
68 percent of its construction expenditures during the past five years from
internal sources. However, during the next five years, the Company expects this
percentage to increase primarily due to relatively stable level of construction
expenditures and higher depreciation rates beginning in 1997.
External financing sources such as the issuance of long-term debt,
short-term borrowings and equity contributions from its parent, WPL Holdings,
Inc. will be used by the Company to finance the remaining construction
expenditure requirements for this period. Expectations are that approximately
$60 million of long-term debt will be issued in 1996.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation Plans" which establishes standards of financial accounting and
reporting for stock based compensation plans. As allowed under SFAS
A-11
<PAGE> 35
No. 123, WP&L will continue to apply APB No. 25, "Accounting for Stock Issued to
Employees," in accounting for stock based compensation plans when the statement
becomes effective in 1996. As a result, this statement will have no impact on
the financial position or results of operations of WP&L.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of." This statement
imposes stricter criteria for evaluating the recoverability of regulatory
assets. WP&L adopted this standard on January 1, 1996, and does not expect that
adoption will have a material impact on the financial position or results of
operations of the Company. This conclusion may change in the future as
competitive factors influence wholesale and retail pricing in the utility.
INFLATION
The impacts of inflation on WP&L are currently mitigated through current
ratemaking 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 EVENTS
COAL CONTRACT PENALTY
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
that had an after-tax effect of reducing 1989 net income by $4.9 million. The
PSCW decision was found to represent unlawful retroactive rate-making by both
the Dane County Circuit Court and the Wisconsin Court of Appeals. The case was
then appealed to the Wisconsin Supreme Court.
In January 1994, the Wisconsin Supreme Court affirmed the decisions of the
Dane County Circuit Court and Wisconsin Court of Appeals. In management's
opinion, all avenues for appeal have been exhausted. As a result, WP&L reversed
the entire reserve and was also allowed to collect interest on amounts of the
penalty previously refunded to ratepayers. The reversal of the reserve plus
interest had an after-tax affect of increasing net income in 1994 by $5.3
million.
MERGER PROPOSAL
WPL Holdings, Inc. ("WPLH"), IES Industries Inc. ("IES"), and Interstate
Power Company ("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, has been approved by the respective Board of Directors. It
is still subject to approval by the shareholders of each company as well as
several federal and state regulatory agencies. The companies expect to receive
the shareholder approvals in the third quarter of 1996 and if all required
regulatory approvals are received, it is presently anticipated that the proposed
combination will be completed during the first half of 1997. The corporate
headquarters of Interstate Energy will be in Madison.
A-12
<PAGE> 36
The business of Interstate Energy will consist of utility operations and
various non-utility enterprises, and it is expected that its utility
subsidiaries will serve more than 870,000 electric customers and 360,000 natural
gas customers in Iowa, Illinois, Minnesota and Wisconsin. The operating
revenues, net income from continuing operations and total assets of the
companies were as follows:
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
WPLH IES IPC (UNAUDITED)
---------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1995 Operating revenues.......... $ 807,255 $ 851,010 $318,542 $1,976,807
1995 Net income from continued
operations..................... $ 71,618 $ 64,176 $ 25,198 $ 160,992
Assets at December 31, 1995...... $1,872,414 $1,985,591 $634,316 $4,492,321
</TABLE>
Under the terms of the Merger Agreement, the outstanding shares of WPLH's
common stock will remain unchanged and outstanding as shares of Interstate
Energy. Each outstanding share of IES common stock will be converted to 1.01
shares (the "IES Ratio") of Interstate Energy's common stock. Each share of
IPC's common stock will be converted to 1.11 shares of Interstate Energy's
common stock. It is anticipated that Interstate Energy will retain WPLH's common
share dividend payment level as of the effective time of the merger. On January
24, 1996, the Board of Directors of WPL Holdings, Inc. declared a quarterly
dividend of 49.25 cents. This represents an equivalent annual rate of $1.97 per
share.
An amendment to the Merger Agreement provided for an adjustment of the IES
Ratio from 0.98 shares to 1.01 shares in the event that, prior to consummation
of the Mergers, McLeod, Inc. ("McLeod"), a Delaware Corporation in which IES has
a significant interest, completed a firm commitment underwritten initial public
offering, subject to certain requirements (the "McLeod Contingency"). On June
14, 1996, McLeod completed its initial public offering and the McLeod
Contingency was satisfied. As a result, the IES Ratio was automatically adjusted
to 1.01.
Interstate Energy will be the parent company of the Company, IES Utilities
and IPC and will be registered under the Public Utility Holding Company Act of
1935, as amended ("1935 Act"). The Merger Agreement provides that these
operating utility companies will continue to operate as separate entities for a
minimum of three years beyond the effective date of the merger. In addition, the
non-utility operations of WPLH and IES will be combined shortly after the
effective date of the merger under one entity to manage the diversified
operations of Interstate Energy.
The Securities and Exchange Commission (the "SEC") historically has
interpreted the 1935 Act to preclude registered holding companies, with limited
exceptions, from owning both electric and gas utility systems. Although the SEC
has recently recommended that registered holding companies be allowed to hold
both gas and electric utility operations if the affected states agree, it
remains possible that the SEC may require as a condition to its approval of the
Proposed Merger that WPLH, IES and IPC divest their gas utility properties, and
possibly certain non-utility ventures of WPLH and IES, within a reasonable time
after the effective date of the Proposed Merger.
Legislation to repeal the 1935 Act was introduced in Congress in 1995 and
is pending. No assurance can be given as to when or if such legislation will be
considered or enacted. The Staff of the SEC has also recommended that the SEC
"permit combination systems by registered holding companies if the affected
states concur," and the SEC has proposed rules that would relax current
restrictions on investment by registered holding companies in certain "energy
related," non-utility businesses. No prediction can be made as to the outcome of
these legislative and regulatory proposals.
A-13
<PAGE> 37
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. The contract
covers 1,601 of WP&L's employees which represents approximately 69 percent of
the total employees at December 31, 1995. At this time the results of
negotiations cannot be estimated.
ENVIRONMENTAL
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 current environmental
regulations. 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, could affect the siting, construction and
operating costs of both present and future generating units.
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 Wisconsin Department of Natural Resources ("DNR") to which
the permit program has been delegated. These permits must be periodically
reviewed. 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. While periodic
exceedances in air emissions may occur, management promptly acts on these
excursions and works with the DNR to resolve any permit compliance issues. With
the passage of the new Federal Clean Air Act Amendments, the state is required
to include these provisions in its permit requirements.
WP&L has submitted timely Title V permit applications in compliance with
schedules set forth by the regulators. WP&L has also completed application for
Phase II permits under the Clean Air Act in compliance with the time lines
identified. The state Title V operating permits, when issued, will consolidate
all existing air permit conditions and regulatory requirements into one permit
for each facility. Permits are expected to be issued in 1996. Until such time,
the facilities will continue to operate under their existing permit conditions.
WP&L's compliance strategy for Wisconsin's sulfur dioxide law (discussed
above) 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 emission monitoring systems at all of its coal
fired boilers in compliance with federal requirements. Monitoring for sulfur
dioxide was also required by Title IV of the Federal Clean Air Act at WP&L's
South Fond du Lac combustion turbine site. These requirements were also met.
Additional monitoring systems for nitrogen oxides are required in 1996 at the
combustion-turbine site. WP&L has installed these monitors, and will complete
certification tests for the equipment by May 1996. No significant investments
are anticipated at this time to meet the requirements of the Federal Clean Air
Act Amendments.
For a discussion of the Company's liability regarding environmental
remediation at certain manufactured gas plant sites formerly operated by WP&L,
see Note 11 of "Notes to Consolidated Financial Statements."
DIVIDEND DECLARATION
On January 24, 1996, the Board of Directors of WPL Holdings, Inc. declared
a quarterly dividend on common stock. The dividend is 49.25 cents per share
payable February 15 to shareowners of record on February 2, 1996.
A-14
<PAGE> 38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wisconsin Power and Light Company:
We have audited the accompanying consolidated balance sheets and statements
of capitalization of WISCONSIN POWER AND LIGHT COMPANY (a Wisconsin corporation)
and subsidiaries as of December 31, 1995 and 1994, 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, 1995. 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 Wisconsin Power and Light
Company and subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 26, 1996
A-15
<PAGE> 39
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Utility plant:
Plant in Service--
Electric........................................................ $1,681,093 $1,611,351
Gas............................................................. 217,678 204,514
Water........................................................... 22,518 22,070
Common.......................................................... 136,943 123,255
---------- ----------
2,058,232 1,961,190
Dedicated decommissioning funds, at market......................... 73,357 51,791
---------- ----------
2,131,589 2,012,981
Less-Accumulated provision for depreciation........................ 887,562 808,853
---------- ----------
1,244,027 1,204,128
Construction work in progress...................................... 36,996 42,731
Nuclear fuel, net.................................................. 18,867 19,396
---------- ----------
Total utility plant................................................ 1,299,890 1,266,255
Other property and equipment, net.................................... 22,275 9,133
Investments.......................................................... 12,488 12,228
Current assets:
Cash and equivalents............................................... 4,671 2,234
Net accounts receivable and unbilled revenue, less allowance for
doubtful accounts of $0 and $209, respectively.................. 33,971 21,689
Coal, at average cost.............................................. 14,625 15,824
Materials and supplies, at average cost............................ 20,611 20,835
Gas in storage, at average cost.................................... 6,319 7,975
Prepayments and other.............................................. 21,190 22,310
---------- ----------
Total current assets............................................ 101,387 90,867
---------- ----------
Deferred charges:
Regulatory assets.................................................. 156,740 144,476
Other.............................................................. 48,385 62,165
---------- ----------
Total deferred charges.......................................... 205,125 206,641
---------- ----------
TOTAL ASSETS.................................................... $1,641,165 $1,585,124
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
A-16
<PAGE> 40
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Capitalization:
Common shareowners' investment..................................... $ 563,070 $ 544,506
Preferred stock not mandatorily redeemable......................... 59,963 59,963
First mortgage bonds, net.......................................... 318,599 336,538
---------- ----------
Total capitalization............................................ 941,632 941,007
---------- ----------
Current liabilities:
Variable rate demand bonds......................................... 56,975 56,975
Short-term debt.................................................... 72,500 50,500
Accounts payable and accruals...................................... 82,428 67,518
Accrued payroll and vacation....................................... 11,011 12,624
Accrued taxes...................................................... 7,795 7,299
Accrued interest................................................... 7,574 7,669
Other.............................................................. 22,356 12,456
---------- ----------
Total current liabilities....................................... 260,639 215,041
---------- ----------
Other credits:
Accumulated deferred income taxes.................................. 239,812 222,373
Accumulated deferred investment tax credits........................ 38,842 40,758
Accrued environmental remediation costs............................ 76,852 79,280
Deferred credits and other......................................... 83,388 86,665
---------- ----------
438,894 429,076
---------- ----------
Commitments and contingencies (Note 11)
TOTAL CAPITALIZATION AND LIABILITIES............................ $1,641,165 $1,585,124
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
A-17
<PAGE> 41
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating revenues:
Electric.................................................... $546,324 $531,747 $503,187
Gas......................................................... 139,165 151,931 137,270
Water....................................................... 4,183 4,133 3,927
-------- -------- --------
689,672 687,811 644,384
-------- -------- --------
Operating expenses:
Electric production fuels................................... 116,488 123,469 123,919
Purchased power............................................. 44,015 37,913 28,574
Purchased gas............................................... 84,002 100,942 90,505
Other operation............................................. 137,396 148,360 139,075
Maintenance................................................. 42,043 41,227 44,763
Depreciation................................................ 81,164 73,194 61,197
Taxes --
Current federal income................................... 30,129 26,727 25,063
Deferred income........................................ 10,664 10,270 5,053
Investment tax credit (restored)....................... (1,916) (1,926) (1,967)
Current state income................................... 7,006 6,147 6,580
Other.................................................. 28,335 27,100 26,145
-------- -------- --------
579,326 593,423 548,907
-------- -------- --------
Net operating income.......................................... 110,346 94,388 95,477
-------- -------- --------
Other income and (deductions):
Allowance for equity funds used during construction......... 1,425 3,009 2,977
Other, net.................................................. (238) 7,726 (2,188)
Current income tax.......................................... 329 (1,480) (519)
Deferred income tax......................................... (52) (2,029) (419)
-------- -------- --------
1,464 7,226 (149)
-------- -------- --------
Income before interest expense................................ 111,810 101,614 95,328
-------- -------- --------
Interest expense:
Interest on bonds........................................... 28,647 28,796 28,422
Allowance for borrowed funds used during construction....... (663) (1,029) (1,053)
Other....................................................... 5,174 2,352 3,854
-------- -------- --------
33,158 30,119 31,223
-------- -------- --------
Net income.................................................... 78,652 71,495 64,105
-------- -------- --------
Preferred stock dividends..................................... 3,310 3,310 3,928
-------- -------- --------
Net income for common stock................................... $ 75,342 $ 68,185 $ 60,177
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
A-18
<PAGE> 42
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows generated from (used for) operating activities:
Net income........................................................... $ 78,652 $ 71,495 $ 64,105
Adjustments to reconcile net income to net cash generated from
operating activities:
Depreciation..................................................... 81,164 73,194 61,197
Deferred income taxes............................................ 10,716 12,299 5,472
Investment tax credit restored................................... (1,916) (1,926) (1,967)
Amortization of nuclear fuel..................................... 7,787 6,707 7,049
Allowance for equity funds using during construction............. (1,425) (3,009) (2,977)
Changes in assets and liabilities:
Net accounts receivable and unbilled revenue....................... (12,281) 16,335 4,124
Coal............................................................... 1,199 218 2,943
Materials and supplies............................................. 224 884 (6)
Gas in storage..................................................... 1,656 779 (4,463)
Prepayments and other.............................................. 1,121 (634) (383)
Accounts payable and accruals...................................... 13,203 (4,912) 640
Accrued taxes...................................................... 496 (3,775) (538)
Other, net......................................................... 15,674 19,102 18,004
-------- -------- --------
Net cash generated from operating activities..................... 196,270 186,757 153,200
-------- -------- --------
Cash flows generated from (used for) financing activities:
Common stock cash dividends.......................................... (56,778) (55,911) (54,327)
Retirement of first mortgage bonds................................... (18,000) -- --
Issuance of preferred stock.......................................... -- -- 29,986
Redemption of preferred stock........................................ -- -- (29,986)
Preferred stock issuance expense..................................... -- -- (1,083)
Preferred stock dividends............................................ (3,310) (3,310) (3,928)
Net change in short-term debt........................................ 22,000 (8,500) 8,000
Current bond maturities and sinking fund requirements................ -- -- (100)
Equity contribution from parent...................................... -- 9,649 61,399
-------- -------- --------
Net cash (used for) generated from financing activities............ (56,088) (58,072) 9,961
-------- -------- --------
Cash flows generated from (used for) investing activities:
Additions to utility plant, excluding AFUDC.......................... (97,938) (123,959) (149,333)
Allowance for borrowed funds used during construction................ (663) (1,029) (1,053)
Dedicated decommissioning funds...................................... (21,566) (1,988) (9,426)
Other, net........................................................... (17,578) (5,405) 2,200
-------- -------- --------
Net cash used for investing activities............................. (137,745) (132,381) (157,612)
-------- -------- --------
Net increase (decrease) in cash and equivalents........................ 2,437 (3,696) 5,549
Cash and equivalents at beginning of year.............................. 2,234 5,930 381
-------- -------- --------
Cash and equivalents at end of year.................................... $ 4,671 $ 2,234 $ 5,930
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on debt................................................... $ 30,841 $ 30,156 $ 32,246
Income taxes....................................................... $ 37,968 $ 29,642 $ 32,465
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
A-19
<PAGE> 43
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Common shareowners investment:
Common stock, $5 par value, authorized--18,000,000 shares; issued and
outstanding--13,236,601 shares.................................... $ 66,183 $ 66,183
Premium on capital stock............................................. 197,423 197,423
Capital surplus...................................................... 1,747 1,747
Reinvested earnings.................................................. 297,717 279,153
-------- --------
Total common shareowner's investment............................ 563,070 544,506
Preferred stock not mandatorily redeemable:
Cumulative, without par value, $100 stated value, authorized
3,750,000 shares, maximum aggregate stated value $150,000,000;
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
6.20% series, 150,000 shares outstanding........................ 15,000 15,000
Cumulative, without par value, $25 stated value, 6.50% series,
599,460 shares outstanding........................................ 14,986 14,986
-------- --------
Total preferred stock........................................... 59,963 59,963
First mortgage bonds:
Series L, 6.25%, due 1998............................................ 8,899 8,899
1984 Series A, variable rate, due 2014 (5.25% at 12/ 31/95).......... 8,500 8,500
1988 Series A, variable rate, due 2015 (5.15% at 12/31/95)........... 14,600 14,600
1990 Series V, 9.3%, due 2025........................................ 32,000 50,000
1991 Series A, variable rate, due 2015 (6.10% at 12/31/95)........... 16,000 16,000
1991 Series B, variable rate, due 2005 (6.10% at 12/ 31/95).......... 16,000 16,000
1991 Series C, variable rate, due 2000 (6.10% at 12/ 31/95).......... 1,000 1,000
1991 Series D, variable rate, due 2000 (6.10% at 12/ 31/95).......... 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...................................... 376,874 394,874
Less:
Variable rate demand bonds........................................... (56,975) (56,975)
Unamortized discount................................................. (1,300) (1,361)
-------- --------
Total first mortgage bonds, net................................. 318,599 336,538
-------- --------
TOTAL CAPITALIZATION......................................... $941,632 $941,007
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
A-20
<PAGE> 44
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF COMMON SHAREOWNER'S INVESTMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Common stock:
Balance at beginning and end of year........................ $ 66,183 $ 66,183 $ 66,183
Premium on capital stock:
Balance at beginning of year................................ 197,423 187,774 126,374
Equity contribution from parent............................. -- 9,649 61,399
-------- -------- --------
Balance at end of year...................................... 197,423 197,423 187,773
Capital surplus:
Balance at beginning and end of year........................ 1,747 1,747 1,747
Reinvested earnings:
Balance at beginning of year................................ 279,153 267,000 262,233
Add--Income before preferred dividends...................... 78,652 71,494 64,105
Deduct--
Cash dividends on preferred stock........................ (3,310) (3,310) (3,928)
Cash dividends to parent on common stock................. (56,778) (55,911) (54,327)
Preferred stock issuance expense......................... -- -- (1,083)
Other.................................................... -- (120) --
-------- -------- --------
Balance at end of year................................... 297,717 279,153 267,000
TOTAL COMMON SHAREOWNER'S INVESTMENT.......................... $563,070 $544,506 $522,703
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
A-21
<PAGE> 45
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES:
A. BUSINESS AND CONSOLIDATION:
Wisconsin Power and Light Company ("WP&L" or the "Company") is a subsidiary
of WPL Holdings, Inc. ("WPLH").
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 retail customers are located
in south and central Wisconsin. WP&L's principal consolidated subsidiary is
South Beloit Water, Gas and Electric Company. Certain amounts from prior years
have been reclassified to conform with the current year presentation.
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 82 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 ("SFAS") 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 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. USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results will, in most cases, differ from those
estimates.
D. 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 that
are capitalized using the FERC method for allowance for funds used during
construction ("AFUDC"). The AFUDC capitalization rate for 1995 was 6.68 percent.
These capitalized costs are recovered in rates as the cost of the utility plant
is depreciated.
Normal repairs, 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
A-22
<PAGE> 46
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES: (CONTINUED)
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.
E. 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 that
consider the estimated useful life and removal cost or salvage value as follows:
<TABLE>
<CAPTION>
ELECTRIC GAS WATER COMMON
-------- ---- ----- ------
<S> <C> <C> <C> <C>
1995............................................ 3.3% 3.7% 2.5% 7.9%
1994............................................ 3.2% 3.7% 2.5% 7.2%
1993............................................ 3.2% 3.7% 2.5% 7.3%
</TABLE>
Depreciation expense related to WP&L's share of the decommissioning of the
Kewaunee Nuclear Power Plant is discussed in "Note 11 Commitments and
Contingencies." WP&L has filed a depreciation rate case with the PSCW requesting
higher depreciation rates, which if approved, will be effective in 1997.
Estimated useful lives related to other property and equipment are from 3
to 12 years for equipment and 31.5 to 40 years for buildings.
F. 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
generated.
G. REVENUE:
WP&L accrues utility revenues for services provided but not yet billed.
H. ELECTRIC PRODUCTION FUELS AND PURCHASED GAS:
(1) Electric Production Fuels:
Through 1994, the PSCW retail electric rates provided a range from
which actual fuel costs could vary in relation to costs forecasted and used
in rates. If actual fuel costs fell outside this range, a hearing could be
held to determine if a rate change was necessary, and a rate increase or
decrease could result.
Beginning with WP&L's latest rate order UR-109, effective January 1,
1995, the automatic fuel adjustment clause was eliminated. In its absence,
WP&L will benefit from reductions in fuel cost. Conversely, WP&L will be
exposed to increases in fuel costs.
A-23
<PAGE> 47
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES: (CONTINUED)
An automatic fuel adjustment clause for the FERC wholesale portion of
WP&L's electric business and South Beloit's retail rates operates to
increase or decrease monthly rates based on changes in fuel costs.
(2) Purchased Gas:
Through 1994, WP&L's base gas cost recovery rates permitted 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. Beginning with UR-109, the monthly purchased gas
adjustment clause was also eliminated. Thus, the fluctuations in the
commodity cost of gas above or below a prescribed commodity price index
will serve to increase or decrease WP&L's margin on gas sales. Fixed demand
costs are excluded from the incentive program. Both benefits and exposures
are subject to customer sharing provisions. WP&L's share is capped at $1.1
million pre-tax.
I. 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.
J. INCOME TAXES:
Under the terms of an agreement with WPLH, the Company calculates its
federal tax provisions and makes payments to WPLH as if it were a separate
taxable entity.
Beginning in 1993, WP&L fully provides deferred income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes", to reflect tax effects of
reporting book and tax items in different periods. Investment tax credits are
accounted for on a deferred basis and reflected in income ratably over the life
of related property.
A-24
<PAGE> 48
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 2. 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, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
------------------------------- -------------------------------
OWNERSHIP ACCUMULATED ACCUMULATED
INTEREST INSERVICE PLANT MW PLANT IN PROVISION FOR PLANT IN PROVISION FOR
% DATE CAPACITY SERVICE DEPRECIATION CWIP SERVICE DEPRECIATION CWIP
--------- ----------- -------- -------- ------------- ------ -------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coal:
Columbia Energy Center.... 46.2 1975 & 1978 1,023 $160,348 $ 79,521 $ 881 $159,650 $ 78,573 $1,484
Edgewater Unit 4.......... 68.2 1969 330 50,762 26,759 216 50,206 25,394 181
Edgewater Unit 5.......... 75.0 1985 380 229,429 68,515 0 225,336 63,324 26
Nuclear:
Kewaunee Nuclear Power
Plant................... 41.0 1974 535 132,211 76,096 836 132,726 72,367 452
-------- ------------- ------ -------- ------------- ------
Total....................... $572,750 $ 250,891 $1,933 $567,918 $ 239,658 $2,143
======== =========== ====== ======== =========== ======
</TABLE>
Each of the respective joint owners finances its portion of construction
costs. WP&L's share of operation and maintenance expenses is included in the
Consolidated Statements of Income.
NOTE 3. NET ACCOUNTS RECEIVABLE:
WP&L has a contract with a financial organization to sell, with limited
recourse, certain accounts receivable and unbilled revenues. These receivables
include customer receivables, sales to other public utilities and 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 $150 million of receivables at
any time. Expenses related to the sale of receivables are paid to the financial
organization under this contract and include, along with various other fees, a
monthly discount charge on the outstanding balance of receivables sold that
approximated a 5.94 percent annual rate during 1995. 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 16,
1998, unless extended by mutual agreement.
As of December 31, 1995 and 1994, the balance of sold accounts receivable
that had not been collected totaled $79.5 million and $76.5 million,
respectively. During 1995, the monthly proceeds from the sale of accounts
receivable averaged $77.5 million, compared with $82.3 million in 1994.
The Company does not have any significant concentrations of credit risk in
the December 31, 1995 and 1994 net accounts receivable balances.
A-25
<PAGE> 49
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 4. REGULATORY ASSETS AND REGULATORY LIABILITIES:
Certain costs and credits are deferred and amortized in accordance with
authorized or expected ratemaking treatment. As of December 31, 1995 and 1994,
regulatory created assets include the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Environmental remediation costs.......................... $ 81,431 $ 82,179
Tax related (See note 6)................................. 47,837 43,736
Jurisdictional plant differences......................... 7,517 7,173
Decontamination and decommissioning costs of federal
enrichment facilities.................................. 6,555 7,100
Other.................................................... 13,400 4,288
-------- --------
$156,740 $144,476
======== ========
</TABLE>
The PSCW, in rate case UR-108, ordered the recovery of environmental
remediation costs incurred be deferred and amortized over a five-year period
with no recovery of the carrying costs on the unamortized balance.
As of December 31, 1995 and 1994, WP&L had recorded regulatory related
liabilities of $37,898 and $42,803, respectively. These liabilities are
primarily tax related.
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of." This statement imposes stricter criteria for regulatory
assets by requiring that such assets be probable of future recovery at each
balance sheet date. The Company adopted this standard on January 1, 1996, and
does not expect that adoption will have a material impact on the financial
position or results of operations of the Company based on the current regulatory
structure in which the Company operates. This conclusion may change in the
future as competitive factors influence wholesale and retail pricing in this
industry.
NOTE 5. 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, 8.25 and
7.25 percent for 1995, 1994 and 1993, respectively. The long-term rate of return
on assets used in determining those benefit obligations was 9.00, 9.00 and 9.75
percent for 1995, 1994, and 1993, respectively.
A-26
<PAGE> 50
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 5. EMPLOYEE BENEFIT PLANS: (CONTINUED)
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,
1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Accumulated benefit obligation--
Vested benefits...................................... $(157,111) $(134,829)
Non-vested benefits.................................. (2,755) (3,295)
--------- ---------
Total benefits.................................... $(159,866) $(138,124)
========= =========
Projected benefit obligation........................... $(184,937) $(154,283)
Plan assets at fair value, primarily common stocks and
fixed income securities.............................. 202,343 178,095
--------- ---------
Plan assets in excess of projected benefit
obligation........................................... 17,406 23,812
Unrecognized net transition asset...................... (16,928) (19,376)
Unrecognized prior service cost........................ 4,022 5,679
Unrecognized net loss.................................. 24,685 14,737
--------- ---------
Pre-paid pension costs, included in other deferred
charges.............................................. $ 29,185 $ 24,852
========= =========
</TABLE>
The net pension cost (benefit) recognized in the Consolidated Statements of
Income for 1995, 1994 and 1993 included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service Cost.................................... $ 3,879 $ 5,123 $ 4,263
Interest Cost on projected benefit obligation... 12,911 12,051 11,614
Actual return on assets......................... (31,548) 1,016 (24,759)
Amortization and deferral....................... 15,103 (17,795) 8,430
-------- -------- --------
Net Pension cost (benefit)...................... $ 345 $ 395 $ (452)
======== ======== ========
</TABLE>
B. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE:
Effective January 1, 1993, the Company prospectively adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions". SFAS
No. 106 establishes standards of financial accounting and reporting for the
Company's postretirement health care and life insurance benefits. SFAS No. 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. The cost of providing postretirement
benefits, including the transition obligation, is being recovered in retail
rates under current regulatory practices.
A-27
<PAGE> 51
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 5. EMPLOYEE BENEFIT PLANS: (CONTINUED)
The following table sets forth the plans' funded status:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Accumulated benefit obligation--
Retirees............................................... $(35,639) $(29,273)
Fully eligible active plan participants................ (6,261) (5,998)
Other active plan participants......................... (8,091) (7,675)
-------- --------
Total............................................... (49,991) (42,946)
Plan assets at fair value................................ 11,768 9,767
-------- --------
Accumulated benefit obligation in excess of plan
assets................................................. (38,223) (33,179)
Unrecognized transition obligation....................... 25,003 26,474
Unrecognized loss........................................ 1,166 (2,570)
-------- --------
Accrued postretirement benefits liability................ $(12,054) $ (9,275)
======== ========
</TABLE>
The net postretirement benefits cost recognized in the Consolidated
Statements of Income for 1995, 1994 and 1993 included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Service cost..................................... $ 1,495 $1,739 $1,463
Interest cost on projected benefit obligation.... 3,567 3,135 3,151
Actual return on assets.......................... (2,051) (253) (696)
Amortization of transition obligation............ 1,471 1,527 1,560
Amortization and deferral........................ 1,313 (381) (27)
------- ------ ------
Net postretirement benefits cost................. $ 5,795 $5,767 $5,451
======= ====== ======
</TABLE>
The postretirement benefits cost components for 1995 were calculated
assuming health-care cost trend rates ranging from 11.5 percent for 1995 and
decreasing to 5.0 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, 1995, by $2.8 million and the aggregate of the service and interest
cost components of the net periodic postretirement benefit cost for the year by
$.5 million.
The assumed discount rate used in determining the accumulated
postretirement obligation was 7.25, 8.25 and 7.25 percent in 1995, 1994 and
1993, respectively. The long-term rate of return on assets was 9.00, 9.00 and
9.50 percent in 1995, 1994 and 1993, respectively. Plan assets are primarily
invested in common stock,
A-28
<PAGE> 52
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 5. EMPLOYEE BENEFIT PLANS: (CONTINUED)
bonds and fixed income securities. The Company's funding policy is to contribute
the tax-advantaged maximum to a trust.
C. OTHER POST-EMPLOYMENT BENEFITS:
In November 1992, the Financial Accounting Standards Board issued SFAS No.
112, "Employers' Accounting for Post-employment Benefits." SFAS No. 112, which
was effective January 1, 1994, 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 No. 112 was not material to the Company's financial position and
results of operations.
D. LONG-TERM EQUITY INCENTIVE PLAN
On January 23, 1994, the Company adopted the "WPL Holdings, Inc. Long-Term
Equity Incentive Plan" (the "Plan") which permits the grant of non-qualified
stock options and performance units. To date, 41,900 non-qualified stock options
and equivalent performance units have been granted. The non-qualified stock
options have a per-share option price of $27.50. There were no options exercised
during the year nor exercisable at year-end.
NOTE 6. INCOME TAXES:
The following table reconciles the statutory federal income tax rate to the
effective income tax rate:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate....................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit.............. 5.8 5.6 6.1
Investment tax credits restored......................... (1.5) (1.7) (2.0)
Amortization of excess deferred taxes................... (1.4) (1.5) (1.5)
Adjustment for prior period taxes....................... (1.5) 1.3 (2.3)
Other differences, net.................................. 0.3 (0.2) 0.4
---- ---- ----
Effective income tax rate............................... 36.7% 38.5% 35.7%
==== ==== ====
</TABLE>
A-29
<PAGE> 53
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 6. INCOME TAXES: (CONTINUED)
The temporary differences that resulted in accumulated deferred income tax
(assets) and liabilities as of December 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Accelerated depreciation and other plant related......... $226,647 $213,447
Unamortized investment tax credits....................... (20,762) (21,784)
Regulatory liability..................................... 19,202 17,553
Other.................................................... 14,725 13,157
-------- --------
$239,812 $222,373
======== ========
</TABLE>
Changes in WP&L's deferred income taxes arising from the adoption of SFAS
No. 109 represent amounts recoverable or refundable through future rates and
have been recorded as net regulatory assets 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.
NOTE 7. SHORT-TERM DEBT AND LINES OF CREDIT:
The Company maintains committed 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 $70 million as of December
31, 1995.
Information regarding short-term debt and lines of credit is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
As of end of year--
Commercial paper outstanding...................... $56,500 $50,500 $49,000
Notes payable outstanding......................... $16,000 -- $10,000
Discount rates on commercial paper................ 5.73%-5.95% 5.64%-6.12% 3.24%-3.40%
Interest rates on notes payable................... 5.80%-5.83% -- 3.34%
For the year ended--
Maximum month-end amount of short-term debt....... $80,000 $50,500 $59,000
Average amount of short-term debt (based on daily
outstanding balances).......................... $48,760 $25,374 $30,423
Average interest rate on short-term debt.......... 5.90% 4.39% 3.29%
</TABLE>
NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS:
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate and gas commodity price risks.
A-30
<PAGE> 54
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS: (CONTINUED)
The Company enters into interest rate swap agreements to reduce the impact
of changes in interest rates on its floating-rate debt and fees associated with
the sale of its accounts receivable. The notional principal amount of interest
rate swaps outstanding as of December 31, 1995, was $123 million. Average
variable rates are based on rates implied in the forward yield curve at the
reporting date. The average pay and receive rates associated with these
agreements are 5.27 percent and 5.31 percent, respectively. The swap agreements
have contract maturities from one-and-a half to five years. It is not the
Company's intent to terminate these contracts, however, the total cost to the
Company if it were to terminate all of the agreements existing at December 31,
1995, is $.8 million. In addition, the Company entered into an interest rate
forward contract related to the anticipated issuance of $60 million of long-term
debt securities. At December 31, 1995, the forward contract, if settled on that
date, would have required a payment by the Company of approximately $6.7
million. The financial impact of this contract, which will result in either a
cash payment or cash receipt, will be deferred and recognized as an adjustment
to interest expense over the life of the new bonds to effect the interest rate
implicit in the forward contract.
The Company uses gas commodity swaps to reduce the impact of price
fluctuations on gas purchased and injected into storage during the summer months
and withdrawn and sold at current market prices during the winter months.
Variances between underlying commodity prices and financial contracts on these
agreements are deferred and recognized as increases or decreases in the cost of
gas at the time the storage gas is sold. At December 31, 1995 and 1994, the
commodity swap agreements outstanding were immaterial.
NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
In accordance with SFAS No. 107, "Disclosure about Fair Value of Financial
Instruments," all financial instruments of the Company for which the carrying
amount does not approximate fair value, must be disclosed. At December 31, 1995,
the fair value of long-term debt was $408.4 million and the carrying amount was
$375.6 million. At December 31, 1994, the fair value of long-term debt was
$385.1 million and the carrying amount was $393.5 million.
NOTE 10. CAPITALIZATION:
A. COMMON SHAREOWNER'S INVESTMENT:
A retail rate order effective January 1, 1995, requires WP&L to maintain a
utility common equity level of 51.93 percent of total utility capitalization
during the test years January 1, 1995 to December 31, 1996. In addition, the
PSCW ordered that it must approve the payment of dividends by WP&L to WPLH that
are in excess of the level forecasted in the rate order ($58.1 million), if such
dividends would reduce WP&L's average common equity ratio below 51.93 percent.
At December 31, 1995, WP&L's common equity ratio was 52.6 percent.
A-31
<PAGE> 55
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 10. CAPITALIZATION: (CONTINUED)
B. LONG-TERM DEBT:
Substantially all of WP&L's utility plant is secured by its first mortgage
bonds. Current maturities of long-term debt are as follows: $0 in 1996, $55
million in 1997, $8.9 million in 1998, $0 in 1999 and $1.9 million in 2000.
On September 14, 1995, the Company received an order from the PSCW
authorizing the sale of up to $60 million of long-term debt securities. The
Company currently expects to make an offering of the long-term debt securities
before December 31, 1996, unless the PSCW grants a request for extension. The
Company intends to use the net proceeds from the sale of these securities first
to repay short-term debt which was incurred in June 1995 to repurchase in
private transactions $18 million aggregate principal amount of the Company's
9.30 percent first mortgage bonds, Series V, due December 1, 2025. The remainder
of the net proceeds will be used to repay other short-term debt incurred by the
Company to finance utility construction expenditures and for general corporate
purposes.
NOTE 11. 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 $168 million through December 31, 2002. WP&L's management believes
it will meet minimum coal and rail purchase obligations under the contracts.
Minimum purchase obligations on these contracts over the next five years are
estimated to be $37 million in 1996, 1997, and 1998, $30 million in 1999 and $10
million in 2000.
B. PURCHASED POWER AND GAS:
Under firm purchased power and gas contracts, WP&L is obligated as follows
(dollars in millions):
<TABLE>
<CAPTION>
PURCHASED POWER PURCHASED GAS
-------------------- ---------------------------
PURCHASE PURCHASE DECATHERMS
OBLIGATION MW'S OBLIGATION (IN MILLIONS)
---------- ------ ---------- -------------
<S> <C> <C> <C> <C>
1996................................... $ 23.4 2,893 $ 73 94
1997................................... 14.1 4,212 62 82
1998................................... 17.7 4,041 52 69
1999................................... 19.8 4,050 43 54
2000................................... 27.7 4,796 39 52
Thereafter............................. 104.6 11,510 108 163
</TABLE>
A-32
<PAGE> 56
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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 investigation plans and has received ongoing reports regarding
these investigations.
WP&L has continued its investigations and studies. WP&L confirmed that
there was no contamination at two of the sites and has now received a close out
letter from the DNR related to each of those sites. Additionally, the
investigation of historical records at a third site indicated a minimal
likelihood of any significant environmental impacts. In 1995, WP&L requested and
received a close out letter for the third site.
In February 1993, WP&L completed cost estimates for the environmental
remediation of the eight remaining sites. The result of this analysis indicate
that during the next 32 years, WP&L will expend approximately $77 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
facilitates. This estimate was based on various assumptions, and is subject to
continuous review and revision by management.
The cost estimate set forth above assumes 4 percent average inflation over
the period. 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
million to complete the planned groundwater remediation activities.
Through 1995, management has continued its oversight of the issues related
to the above manufactured gas plant sites without significant revision to the
above estimates and assumptions. With respect to rate recovery of these costs,
the PSCW has approved a five-year amortization of the unamortized balance of
environmental costs expended 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. SPENT NUCLEAR FUEL AND DECOMMISSIONING COSTS:
Wisconsin utilities with ownership of nuclear generating plants are
required by the PSCW to establish and make annual contributions to external
trust funds to provide for plant decommissioning over the remaining life of the
Kewaunee Nuclear Power Plant ("Kewaunee"). In July 1994, the PSCW issued a
generic order covering utilities that have nuclear generation, which
standardizes the escalation assumptions to be used in determining nuclear
decommissioning liabilities.
WP&L's share of the decommissioning costs of Kewaunee is estimated to be
$169 million (in 1995 dollars, assuming the plant is operating through 2013)
based on a 1992 site-specific study, using the immediate dismantlement method of
decommissioning. The costs of decommissioning are assumed to escalate
A-33
<PAGE> 57
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
at an annual rate of 6.5 percent. The undiscounted amount of decommissioning
costs estimated to be expended between the years 2014 and 2050 is $1,016
million.
WP&L has established external trusts to custody decommissioning funds. The
Company's current annual contribution is $10.7 million. This amount is fully
recovered in rates. The after-tax income of the external trust funds was $2.8
million, $2.7 million and $1.1 million for the years ended December 31, 1995,
1994 and 1993, respectively. In accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," the fair value of the
external trusts as of December 31, 1995 and 1994, is reported as $73.4 million
and $51.8 million, respectively.
Decommissioning costs, which include the annual contribution and earnings
on the assets of the trust, are recorded as depreciation expense in the
Consolidated Statements of Income with the cumulative amount included in the
accumulated provision for depreciation on the Consolidated Balance Sheets.
Depreciation expense related to Kewaunee totaled $13.6 million, $13.4 million
and $6.1 million in 1995, 1994 and 1993, respectively. As of December 31, 1995,
the total decommissioning costs included in the accumulated provision for
depreciation were $73.4 million.
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 Kewaunee. Currently there is on-site storage capacity
for spent fuel through the year 2001. An investment of approximately $2.5
million could provide additional storage sufficient to meet spent fuel storage
needs until the expiration of the current operating license. The following
summarizes the investment at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Original cost of nuclear fuel............................ $160,997 $155,190
Less -- Accumulated amortization......................... 142,130 135,794
-------- --------
Nuclear fuel, net........................................ $ 18,867 $ 19,396
======== ========
</TABLE>
E. NUCLEAR INSURANCE:
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 Kewaunee, is subject to an
overall assessment of approximately $32.5 million per incident for its ownership
of this factor, 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 $1.5 billion for
loss from damage at Kewaunee. In addition, WP&L maintains outage and replacement
power insurance coverage totaling $101.4 million in the event an outage exceeds
21 weeks.
A-34
<PAGE> 58
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
F. PLANNED CAPITAL EXPENDITURES:
Plans for the construction and financing of future additions to utility
plant can be found elsewhere in this report in "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
NOTE 12. PROPOSED MERGER OF THE COMPANY:
WPL Holdings, Inc. ("WPLH"), IES Industries Inc. ("IES"), and Interstate
Power Company ("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, has been approved by the
respective Boards of Directors. It is still subject to approval by the
shareholders of each company as well as several federal and state regulatory
agencies. The companies expect to receive the shareholder approvals in the
second quarter of 1996 and the regulatory approvals by the second quarter of
1997.
The operating revenues, net income from continuing operations and total
assets of the companies were as follows:
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
WPLH IES IPC (UNAUDITED)
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
1995 Operating revenues.......... $ 807,255 $ 851,010 $318,542 $1,976,807
1995 Income from continuing
operations..................... $ 71,618 $ 64,176 $ 25,198 $ 160,992
Assets at December 31, 1995...... $1,872,414 $1,985,591 $634,316 $4,492,321
</TABLE>
Under the terms of the Merger Agreement, the outstanding shares of WPLH's
common stock will remain unchanged and outstanding as shares of Interstate
Energy. Each outstanding share of IES common stock will be converted to .98
shares of Interstate Energy's common stock. Each share of IPC's common stock
will be converted to 1.11 shares of Interstate Energy's common stock. It is
anticipated that Interstate Energy will retain WPLH's common share dividend
payment level as of the effective time of the merger. On January 24, 1996, the
Board of Directors of WPLH declared a quarterly dividend of 49.25 cents per
share. This represents an annual rate of $1.97 per share.
IES is a holding company headquartered in Cedar Rapids, Iowa, and is the
parent company of IES Utilities Inc. ("IES Utilities") and IES Diversified Inc.
("IES Diversified"). IES Utilities supplies electric and gas service to
approximately 333,000 and 174,000 customers, respectively, in Iowa. IES
Diversified and its principal subsidiaries are primarily engaged in the
energy-related, transportation and real estate development businesses. IPC, an
operating public utility headquartered in Dubuque, Iowa, supplies electric and
gas service
A-35
<PAGE> 59
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 12. PROPOSED MERGER OF THE COMPANY: (CONTINUED)
to approximately 163,000 and 49,000 customers, respectively, in northeast Iowa,
northwest Illinois and southern Minnesota.
Interstate Energy will be the parent company of WP&L, IES Utilities and IPC
and will be registered under the Public Utility Holding Company Act of 1935, as
amended ("1935 Act"). The Merger Agreement provides that these operating utility
companies will continue to operate as separate entities for a minimum of three
years beyond the effective date of the merger. In addition, the non-utility
operations of WPLH and IES will be combined shortly after the effective date of
the merger under one entity to manage the diversified operations of Interstate
Energy. The corporate headquarters of Interstate Energy will be in Madison.
The Securities and Exchange Commission (the "SEC") historically has
interpreted the 1935 Act to preclude registered holding companies, with limited
exceptions, from owning both electric and gas utility systems. Although the SEC
has recently recommended that registered holding companies be allowed to hold
both gas and electric utility operations if the affected states agree, it
remains possible that the SEC may require as a condition to its approval of the
Proposed Merger that WPLH, IES and IPC divest their gas utility properties, and
possibly certain non-utility ventures of WPLH and IES, within a reasonable time
after the effective date of the Proposed Merger.
A-36
<PAGE> 60
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 13. SEGMENT INFORMATION:
The following table sets forth certain information relating to the
Company's consolidated operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Operation information:
Customer revenues--
Electric............................................ $ 546,324 $ 531,747 $ 503,187
Gas................................................. 139,165 151,931 137,270
Water............................................... 4,183 4,133 3,927
Operating income (loss)--
Electric............................................ $ 137,171 $ 121,136 $ 118,785
Gas................................................. 17,341 13,334 10,431
Water............................................... 1,718 1,134 990
Investment information:
Identifiable assets, including allocated common plant
at December 31--
Electric............................................ $1,226,789 $1,176,670 $1,170,010
Gas................................................. 250,643 234,815 228,257
Water............................................... 20,211 18,791 17,703
Assets not allocated................................... 143,522 154,848 134,687
Other information:
Construction and nuclear fuel expenditures--
Electric............................................ $ 122,297 $ 103,420 $ 139,805
Gas................................................. 16,905 20,319 18,876
Water............................................... 2,124 2,149 1,908
Provision for depreciation and amortization--
Electric............................................ $ 71,379 $ 64,695 $ 53,398
Gas................................................. 9,629 8,082 7,329
Water............................................... 156 417 470
</TABLE>
A-37
<PAGE> 61
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
NOTE 14. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED):
The summarized quarterly financial data 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.
<TABLE>
<CAPTION>
OPERATING OPERATING
QUARTER ENDED REVENUES INCOME NET INCOME
------------------------------------------------ --------- --------- ----------
<S> <C> <C> <C>
1995:
March 31...................................... $ 187,342 $29,879 $ 20,899
June 30....................................... 149,557 16,814 8,846
September 30.................................. 165,481 29,062 21,124
December 31................................... 187,292 34,591 24,473
1994:
March 31...................................... $ 203,251 $31,684 $ 26,633
June 30....................................... 150,924 15,838 11,231
September 30.................................. 161,620 24,470 16,927
December 31................................... 172,016 22,396 13,394
</TABLE>
The Company's business is influenced by seasonal weather conditions.
A-38
<PAGE> 62
SHAREOWNER INFORMATION
MARKET INFORMATION
The 4.50% series of preferred stock is listed on the American Stock
Exchange, with the trading sysbol of Wis Pr. All other series of preferred stock
are traded on the over-the-counter market. Seventy-two percent of the Company's
individual preferred shareowners are Wisconsin residents.
DIVIDEND INFORMATION
Preferred stock dividends paid per share for each quarter during 1995 were
as follows:
<TABLE>
<CAPTION>
SERIES DIVIDEND SERIES DIVIDEND
- ------ -------- ------ --------
<S> <C> <C> <C>
4.40% $ 1.10 4.96% $ 1.24
4.50% $1.125 6.20% $ 1.55
4.76% $ 1.19 6.50% $ 0.4025
4.80% $ 1.20
</TABLE>
As authorized by the Wisconsin Power and Light Company Board of Directors,
dividend record and payment dates normally are as follows:
<TABLE>
<CAPTION>
RECORD DATE PAYMENT DATE
------------------------------ ------------
<S> <C>
February 28 March 15
May 31 June 15
August 31 September 15
November 30 December 15
</TABLE>
STOCK TRANSFER AGENT AND REGISTRAR
WPL Holdings, Inc.
Shareowner Services
P. O. Box 2568
Madison, WI 53701-2568
FORM 10-K INFORMATION
A copy of Form 10-K as filed with the Securities and Exchange Commission
will be provided without charge upon request. Requests may be directed to
Shareowner Services at the above address.
EXECUTIVE OFFICERS OF THE COMPANY
ERROLL B. DAVIS, JR, 51, was elected President and Chief Executive Officer
effective August 1, 1988 and has been a board member since April 1984. He had
been Executive Vice President since May 1984, Vice President - Finance and
Public Affairs since November 1982 and Vice President - Finance since August
1978. Mr. Davis was elected President of WPL Holdings, Inc. on January 17, 1990
and Chief Executive Officer of WPL Holdings, Inc. effective July 1, 1990. He has
served as a director of WPL Holdings, Inc. since March 1988.
EDWARD M. GLEASON, 55, was elected Corporate Secretary of WP&L and WPL
Holdings, Inc. effective December 15, 1993. He was elected Vice President and
Treasurer of WPL Holdings, Inc. effective October 3,
A-39
<PAGE> 63
1993. He previously served as Vice President - Finance and Treasurer of WP&L
since May 1986. Mr. Gleason functions as principal financial officer of WPL
Holdings, Inc.
A.J. (NINO) AMATO, 44, was appointed Senior Vice President effective
October 3, 1993. He previously served as Vice President - Marketing and
Strategic Planning since December 1992, Vice President - Marketing and
Communications since January 1989 and Director of Electric Marketing and
Customer Service since October 1988. He had been President of Forward Wisconsin,
Inc. from 1987 to 1988.
WILLIAM D. HARVEY, 46, was appointed Senior Vice President effective
October 3, 1993. He previously served as Vice President - Natural Gas and
General Counsel since August 1992, Vice President - General Counsel since
October 1, 1990 and Vice President - Associate General Counsel since July 1986.
Prior to joining the Company, he was a member of the law firm of Wheeler, Van
Sickle, Anderson, Norman and Harvey.
ELIOT G. PROTSCH, 42, was appointed Senior Vice President effective October
3, 1993. He previously served as Vice President - Customer Services and Sales
since August 1992, Vice President and General Manager - Energy Services since
January 1989 and District Manager, Dane County, since October 1986.
DANIEL A. DOYLE, 37, was appointed Vice President -- Power Production on
April 8, 1996. He previously served as Vice President - Finance, Controller and
Treasurer since December 1994 and as Controller and Treasurer of WP&L since
October 3, 1993. He served as Controller since July, 1992. Prior to joining the
Company, he was Controller of Central Vermont Public Service Corporation since
December 1988.
DAVID E. ELLESTAD, 55, Vice President, was appointed Scholar in Residence
at the University - Wisconsin-Platteville, effective January 15, 1995. His
appointment is for a two year period. He previously served as Vice President -
Electrical Engineering and Operations since August 1, 1992. He served as Vice
President - Engineering and Operations since 1988; Vice President of Electrical
Engineering and Procurement since January 1, 1986; Director of Electrical
Engineering & Procurement since May 1985 and Director of Electrical Engineering
since November 1979.
SUSAN J. KOSMO, 49, was elected Assistant Controller on September 20, 1995.
She had been Trust Investments and Investor Relations Supervisor in the Treasury
Department since 1992 and Financial Relations Supervisor since 1989.
DAVID A. RAMOS, 39, was elected Assistant Controller on January 23, 1995.
He previously served the Company as Manager of Budgets, Rates and Cost
Accounting since January 1994, Manager of Budgets and Rates since October 1992
and Manager of Rates and Financial Planning since January 1990.
ROBERT A. RUSCH, 33, was elected Assistant Treasurer on September 20, 1995.
He had been Financial Analyst in the Finance Department since April 1989.
STEVEN F. PRICE, 43, was appointed Assistant Corporate Secretary on April
15, 1992. He had been Cash Management Supervisor since December 1987. He was
also appointed Assistant Corporate Secretary and Assistant Treasurer of WPL
Holdings, Inc. on April 15, 1992.
A-40
<PAGE> 64
JOSEPH E. SHEFCHEK, 39, was elected Assistant Vice President of
Environmental Affairs and Research effective December 25, 1994. He previously
served as Director of Environmental Affairs and Research since June 1991. Before
joining the Company, he held various environmental engineering positions in
private industry and government.
BARBARA J. SWAN, 44, was elected Vice President - General Counsel effective
December 25, 1994. She previously served as General Counsel since 1993 and
Associate General Counsel from 1987 to 1993.
PAMELA J. WEGNER, 48, was elected Vice President-Information Services and
Administration on October 13, 1994. Prior to joining the Company, she was the
Administrator of the Division of Finance and Program Management in the Wisconsin
Department of Administration since 1987.
KIM K. ZUHLKE, 42, was elected Vice President - Customer Services and Sales
effective October 3, 1993. He previously served as Director of Marketing and
Sales Services since 1991, Director of Market Research, Planning and Development
since February 1990, Director of Customer Services since 1988 and District
Manager at Beaver Dam since April 1984.
NOTE: All ages are as of December 31, 1995. None of the executive officers
listed above is related to any member of the Board of Directors 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.
A-41
<PAGE> 65
LOGO
TAKE THE RIMROCK ROAD EXIT #262 OR THE JOHN NOLEN DR. EXIT #263
OFF AND ON HIGHWAY 12 AND 18.
<PAGE> 66
[WISCONSIN POWER & LIGHT LOGO]
PROXY CARD AND ANNUAL MEETING RESERVATION
To All Wisconsin Power & Light Co. Shareowners:
You are invited to attend the Annual Meeting of Shareowners on Thursday,
September 5, 1996, at 10:00 a.m. in the Exhibition Hall at the Dane County
Exposition Center, 1881 Expo Mall, Madison, Wisconsin.
Attached below is your 1996 Wisconsin Power & Light Co. Proxy Card and Annual
Meeting Luncheon Reservation Form. Please read both sides of the Proxy Card,
note your election, sign and date it. Detach and return it promptly in the
self-addressed enclosed envelope. We encourage you to vote your shares.
If you are attending the Annual Meeting and Luncheon, please complete, detach
and return the Reservation Form with the signed proxy card in the enclosed
envelope.
IMPORTANT
You are urged to date and sign the enclosed proxy and return it promptly. This
will help avoid any expenses associated with follow-up letters to shareowners
who have not responded.
PLEASE CONTACT SHAREOWNER SERVICES AT 1-800-356-5343 TO CANCEL YOUR LUNCHEON
RESERVATION.
<TABLE>
<CAPTION>
<S><C>
SHAREOWNER INFORMATION NUMBERS
Local(Madison).................... 608-252-3110
All Other Areas..................1-800-365-5343
Please FOLD here and DETACH Reservation Form Please FOLD here and DETACH Proxy Card
- ------------------------------------------------------------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS: 2. PROPOSAL TO APPOINT
Nominees for terms ending ARTHUR ANDERSEN LLP
in 1999. as independent auditors
for 1996.
Rockne G. Flowers
Katharine C. Lyall For Against Abstain
Henry C. Prange / / / / / /
Withhold For All
For All For All Except
/ / / / / /
(*) TO WITHHOLD AUTHORITY
TO VOTE FOR ANY
INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH
THE NOMINEE'S NAME IN
THE LIST ABOVE AND MARK
AN (X) IN THE "FOR ALL
EXCEPT" BOX).
I (WE) WILL ATTEND THE ANNUAL MEETING LUNCHEON.
Please list your name(s) and your guest(s) below: P
________________________________________________ R
________________________________________________ O
________________________________________________ X
IMPORTANT: When signing
________________________________________________ Y Please date and as attorney, executor,
sign your name(s) administrator, trustee,
You must return this stub if you are planning to exactly as shown or guardian, please give
attend the luncheon. above and mail your full title as such.
promptly in the In the case of JOINT
enclosed envelope. HOLDERS, all should sign.
_________________________________DATED:____________
_________________________________DATED:____________
Signature
</TABLE>
[WISCONSIN POWER & LIGHT LOGO]
ANNUAL MEETING OF SHAREOWNERS - APRIL 23, 1996
The undersigned appoints Erroll B. Davis, Jr. and Edward M. Gleason, or
either of them, attorneys and proxies, with power of substitution, to vote all
shares of preferred stock of Wisconsin Power and Light Company of record in the
name of the undersigned at the close of business on February 27, 1996, at the
Annual Meeting of Shareowners of the Company, to be held in the Exhibition Hall
at the Dane County Exposition Center, Madison, Wisconsin, on April 23, 1996, at
10:00 a.m., and at all adjournments thereof, upon matters that may properly
come before the meeting, including matters described in the Company's Notice of
Annual Meeting of Shareowners and Proxy Statement dated March 7, 1996, subject
to any directions indicated on the reverse side of this card.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF WISCONSIN POWER
AND LIGHT COMPANY.
IF NO CHOICE IS SPECIFIED, THE PROXIES SHALL VOTE FOR THE PROPOSALS.
(continued and to be signed and dated on the other side)
