______________________________________________________________________________
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
- ----------- ----------------------------------- ------------------
1-11337 WPS RESOURCES CORPORATION 39-1775292
(A Wisconsin Corporation)
700 North Adams Street
P. O. Box 19001
Green Bay, WI 54307-9001
920-433-1466
1-3016 WISCONSIN PUBLIC SERVICE CORPORATION 39-0715160
(A Wisconsin Corporation)
700 North Adams Street
P. O. Box 19001
Green Bay, WI 54307-9001
920-433-1466
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
WPS Resources Corporation Yes [x] No [ ]
Wisconsin Public Service Corporation Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of the latest practicable date:
WPS RESOURCES CORPORATION Common stock, $1 par value,
26,551,963 shares outstanding at
November 12, 1998
WISCONSIN PUBLIC SERVICE CORPORATION Common stock, $4 par value,
23,896,962 shares outstanding at
November 12, 1998
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
WPS RESOURCES CORPORATION
AND
WISCONSIN PUBLIC SERVICE CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
CONTENTS
Page
FORWARD-LOOKING STATEMENTS 4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WPS RESOURCES CORPORATION
Consolidated Statements of Income and
Retained Earnings 5
Consolidated Balance Sheets 6
Consolidated Statements of Capitalization 7
Consolidated Statements of Cash Flows 8
WISCONSIN PUBLIC SERVICE CORPORATION
Consolidated Statements of Income 9
Consolidated Balance Sheets 10
Consolidated Statements of Capitalization 11
Consolidated Statements of Cash Flows 12
Consolidated Statements of Retained Earnings 13
CONDENSED NOTES TO FINANCIAL STATEMENTS OF
WPS Resources Corporation and
Wisconsin Public Service Corporation 14 - 16
Selected Restated Financial Data 17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations for
WPS Resources Corporation and
Wisconsin Public Service Corporation 18 - 29
PART II. OTHER INFORMATION
Item 5. Other Information 30 - 32
Item 6. Exhibits and Reports on Form 8-K 33
Signatures 34 - 35
-2-
<PAGE>
EXHIBIT INDEX 36
Exhibit 11 Statement Regarding Computation of Per Share
Earnings
WPS Resources Corporation
Exhibit 27 Financial Data Schedule
WPS Resources Corporation
Wisconsin Public Service Corporation
-3-
<PAGE>
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. The
statements speak of plans, goals, beliefs, or expectations of WPS Resources
Corporation ("WPSR") and Wisconsin Public Service Corporation ("WPSC"), refer
to estimates, or use similar terms. Although WPSR and WPSC believe that their
expectations are based on reasonable assumptions, actual results may differ
materially from those in the forward-looking statements included in this
report for reasons that include: the speed and degree to which competition
enters the electric and natural gas industries; state and federal legislative
and regulatory initiatives that increase competition, affect cost and
investment recovery, and have an impact on rate structures; the economic
climate and industrial, commercial, and residential growth in areas served by
WPSC, Upper Peninsula Power Company (WPSR's wholly-owned Michigan regulated
electric utility subsidiary), and WPS Energy Services, Inc. ("ESI") (WPSR's
wholly-owned nonregulated energy marketing subsidiary); the weather and other
natural phenomena; the timing and extent of changes in commodity prices and
interest rates; conditions in the capital markets; and growth in opportunities
for ESI and WPS Power Development, Inc. (WPSR's wholly-owned nonregulated
electric power development and energy service subsidiary).
A forward-looking statement speaks only as of the date on which such
statement is made, and neither WPSR nor WPSC undertakes to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events which affect such forward-looking statements. New factors emerge from
time to time, and it is not possible for WPSR or WPSC to predict all such
factors, nor can it assess the impact of each such factor or the extent to
which any factor, or combination of factors, may cause results to differ
materially from those contained in any forward-looking statement.
-4-
<PAGE>
<TABLE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
WPS RESOURCES CORPORATION
<CAPTION>
============================================================================================================================
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (1) Three Months Ended Nine Months Ended
(Thousands, except per share amounts) September 30 September 30
1998 1997 1998 1997
============================================================================================================================
<S> <C> <C> <C> <C>
Operating revenues
Electric utility $146,007 $138,026 $410,721 $408,899
Gas utility 25,890 25,518 115,762 149,424
Nonregulated energy and other 76,031 35,299 244,725 124,539
- ----------------------------------------------------------------------------------------------------------------------------
Total operating revenues 247,928 198,843 771,208 682,862
============================================================================================================================
Operating expenses
Electric production fuels 31,499 29,124 84,052 80,964
Purchased power 14,372 13,462 41,949 52,129
Gas purchased for resale 17,235 17,123 73,234 104,616
Nonregulated energy cost of sales 74,313 33,167 239,008 119,778
Other operating expenses 44,562 38,625 125,655 122,142
Maintenance 9,313 10,372 36,259 34,600
Depreciation and decommissioning 21,229 21,556 64,144 62,112
Taxes other than income 7,798 7,643 24,167 23,962
- ----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 220,321 171,072 688,468 600,303
============================================================================================================================
Operating income 27,607 27,771 82,740 82,559
- ----------------------------------------------------------------------------------------------------------------------------
Other income and (deductions)
Allowance for equity funds used during construction 68 34 136 139
Other, net (1,006) 1,611 3,218 8,581
- ----------------------------------------------------------------------------------------------------------------------------
Total other income and (deductions) (938) 1,645 3,354 8,720
============================================================================================================================
Income before interest expense 26,669 29,416 86,094 91,279
- ----------------------------------------------------------------------------------------------------------------------------
Interest on long-term debt 5,664 6,641 18,386 19,794
Other interest 1,500 1,022 3,453 2,772
Allowance for borrowed funds used during construction (57) (25) (95) (34)
- ----------------------------------------------------------------------------------------------------------------------------
Total interest expense 7,107 7,638 21,744 22,532
============================================================================================================================
Distributions - preferred securities of subsidiary trust 613 - 613 -
============================================================================================================================
Income before income taxes 18,949 21,778 63,737 68,747
Income taxes 6,547 8,381 21,566 23,854
Minority interest (180) (143) (395) (609)
Preferred stock dividends of subsidiaries 783 784 2,350 2,350
- ----------------------------------------------------------------------------------------------------------------------------
Net income 11,799 12,756 40,216 43,152
- ----------------------------------------------------------------------------------------------------------------------------
Other comprehensive income - - - -
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive income 11,799 12,756 40,216 43,152
============================================================================================================================
Retained earnings at beginning of period 342,857 339,169 339,508 333,375
Cash dividends on common stock 12,773 12,540 37,841 37,142
- ----------------------------------------------------------------------------------------------------------------------------
Retained earnings at end of period $341,883 $339,385 $341,883 $339,385
============================================================================================================================
Average shares of common stock 26,509 26,525 26,513 26,530
Basic and diluted earnings per average share of common stock $0.45 $0.48 $1.52 $1.63
Dividend per share of common stock (2) $0.495 $0.485 $1.465 $1.435
============================================================================================================================
</TABLE>
(1) These statements give effect to the merger with
Upper Peninsula Energy Corporation.
(2) Dividend rate is that of the surviving company.
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
<TABLE>
WPS RESOURCES CORPORATION
<CAPTION>
======================================================================================================
CONSOLIDATED BALANCE SHEETS (1) September 30 December 31
(Thousands) 1998 1997
======================================================================================================
ASSETS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Utility plant
Electric $1,708,087 $1,685,413
Gas 264,154 251,603
- ------------------------------------------------------------------------------------------------------
Total 1,972,241 1,937,016
Less - Accumulated depreciation and decommissioning 1,176,437 1,113,142
- ------------------------------------------------------------------------------------------------------
Total 795,804 823,874
Nuclear decommissioning trusts 153,103 134,108
Construction in progress 22,956 11,776
Nuclear fuel, less accumulated amortization 19,320 19,062
- ------------------------------------------------------------------------------------------------------
Net utility plant 991,183 988,820
======================================================================================================
Current assets
Cash and equivalents 6,450 8,495
Customer and other receivables, net of reserves 91,689 96,100
Accrued utility revenues 19,141 30,750
Fossil fuel, at average cost 9,612 10,622
Gas in storage, at average cost 21,500 22,080
Materials and supplies, at average cost 22,127 20,761
Prepayments and other 21,087 24,645
- ------------------------------------------------------------------------------------------------------
Total current assets 191,606 213,453
======================================================================================================
Regulatory assets 70,805 79,849
Net nonutility and nonregulated plant 38,448 28,007
Investments and other assets 138,021 125,675
======================================================================================================
Total $1,430,063 $1,435,804
======================================================================================================
CAPITALIZATION AND LIABILITIES
- ------------------------------------------------------------------------------------------------------
Capitalization
Common stock equity $ 522,671 $ 518,764
Preferred stock of subsidiary with no mandatory redemption 51,200 51,200
Preferred stock of subsidiary with mandatory redemption 398 445
Company-obligated mandatorily redeemable trust preferred
securities of subsidiary trust holding solely WPSR
7.00% subordinated debentures 50,000 -
Long-term debt 295,580 347,015
- ------------------------------------------------------------------------------------------------------
Total capitalization 919,849 917,424
======================================================================================================
Current liabilities
Notes payable and current maturities of long-term debt 22,561 19,760
Commercial paper 35,460 20,706
Accounts payable 80,684 89,747
Accrued taxes 4,958 10,114
Accrued interest 5,541 8,711
Other 10,123 12,415
- ------------------------------------------------------------------------------------------------------
Total current liabilities 159,327 161,453
======================================================================================================
Long-term liabilities and deferred credits
Accumulated deferred income taxes 122,470 131,197
Accumulated deferred investment tax credits 27,863 29,461
Regulatory liabilities 50,078 56,487
Environmental remediation liabilities 39,681 40,871
Other long-term liabilities 110,795 98,911
- ------------------------------------------------------------------------------------------------------
Total long-term liabilities and deferred credits 350,887 356,927
======================================================================================================
Total $1,430,063 $1,435,804
======================================================================================================
</TABLE>
(1) These statements give effect to the merger with
Upper Peninsula Energy Corporation.
The accompanying notes are an integral part of these statements.
-6-
<PAGE>
<TABLE>
WPS RESOURCES CORPORATION
<CAPTION>
========================================================================================================
CONSOLIDATED STATEMENTS OF CAPITALIZATION (1) September 30 December 31
(Thousands, except share amounts) 1998 1997
========================================================================================================
<S> <C> <C>
Common stock equity
Common stock, $1 par value, 100,000,000 shares authorized;
and 26,551,963 shares outstanding $ 26,552 $ 26,552
Premium on capital stock 163,436 163,453
Retained earnings 341,883 339,508
Shares in deferred compensation trust, 45,091 and 33,430 shares
at average cost of $29.98 and $28.44 per share at
September 30, 1998 and December 31, 1997, respectively (1,352) (951)
ESOP loan guarantees (7,848) (9,798)
- --------------------------------------------------------------------------------------------------------
Total common stock equity 522,671 518,764
========================================================================================================
Preferred stock - Wisconsin Public Service Corporation
Cumulative, $100 par value, 1,000,000 shares authorized;
with no mandatory redemption
Series Shares Outstanding
------ ------------------
5.00% 132,000 13,200 13,200
5.04% 30,000 3,000 3,000
5.08% 50,000 5,000 5,000
6.76% 150,000 15,000 15,000
6.88% 150,000 15,000 15,000
- --------------------------------------------------------------------------------------------------------
Total preferred stock with no mandatory redemption 51,200 51,200
========================================================================================================
Preferred stock - Upper Peninsula Power Company
Cumulative redeemable preferred stock - $100 par value,
300,000 shares authorized (issuable in series),
issued and outstanding:
Shares Outstanding
----------------------------
September 30 December 31
Series 1998 1997
------ ------------ -----------
5.25% 832 853 83 85
4.70% 3,150 3,600 315 360
- --------------------------------------------------------------------------------------------------------
Total preferred stock with mandatory redemption 398 445
========================================================================================================
Company-obligated mandatorily redeemable trust
preferred securities of subsidiary trust
holding solely WPSR 7.00% subordinated debentures 50,000 -
========================================================================================================
Long-term debt
First mortgage bonds - Wisconsin Public Service Corporation
Series Year Due
------ --------
5-1/4% 1998 - 50,000
7.30% 2002 50,000 50,000
6.80% 2003 50,000 50,000
6-1/8% 2005 9,075 9,075
6.90% 2013 22,000 22,000
8.80% 2021 53,100 53,100
7-1/8% 2023 50,000 50,000
First mortgage bonds - Upper Peninsula Power Company
Series Year Due
------ --------
7.94% 2003 15,000 15,000
10.0% 2008 6,000 6,000
9.32% 2021 18,000 18,000
Installment sales contract for air pollution control
equipment - Upper Peninsula Power Company
Term Bonds Year Due
---------- --------
6.90% 1999 120 230
- --------------------------------------------------------------------------------------------------------
Total 273,295 323,405
Unamortized discount and premium on bonds, net (832) (890)
- --------------------------------------------------------------------------------------------------------
Total first mortgage bonds 272,463 322,515
- --------------------------------------------------------------------------------------------------------
ESOP loan guarantees 7,848 9,798
Notes payable to bank, secured by nonregulated plant 11,117 10,710
Senior secured note 3,963 3,777
Other long-term debt 189 215
- --------------------------------------------------------------------------------------------------------
Total long-term debt 295,580 347,015
========================================================================================================
Total capitalization $919,849 $917,424
========================================================================================================
</TABLE>
(1) These statements give effect to the merger with
Upper Peninsula Energy Corporation.
The accompanying notes are an integral part of these statements.
-7-
<PAGE>
<TABLE>
WPS RESOURCES CORPORATION
<CAPTION>
=============================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS (1) Nine Months Ended
(Thousands) September 30
1998 1997
=============================================================================================
<S> <C> <C>
Cash flows from operating activities
Net income $ 40,216 $ 43,152
Adjustments to reconcile net income to net cash from
operating activities
Depreciation and decommissioning 64,144 62,112
Amortization of nuclear fuel and other 12,718 9,017
Deferred income taxes (12,059) (6,111)
Investment tax credit restored (1,598) (1,326)
Allowance for equity funds used during construction (136) (139)
Pension income (6,824) (10,797)
Postretirement funding 3,669 3,723
Other, net (3,131) 10,973
Changes in
Customer and other receivables 4,411 38,062
Accrued utility revenues 11,609 16,382
Fossil fuel inventory 1,010 (1,711)
Gas in storage 580 (2,525)
Accounts payable (9,063) (36,796)
Miscellaneous current and accrued liabilities (3,002) (5,638)
Accrued taxes (5,156) 2,697
Gas refunds 710 (240)
- ---------------------------------------------------------------------------------------------
Net cash from operating activities 98,098 120,835
=============================================================================================
Cash flows from (used for) investing activities
Construction of utility plant and nuclear fuel expenditures (58,032) (45,844)
Purchase of other property and equipment (13,060) (6,872)
Decommissioning funding (12,930) (11,749)
Purchase of investments and acquisitions - 560
Other 5,328 2,309
- ---------------------------------------------------------------------------------------------
Net cash used for investing activities (78,694) (61,596)
=============================================================================================
Cash flows from (used for) financing activities
Issuance of notes payable 123,752 123,387
Redemptions of notes payable (120,951) (134,507)
Issuance of other long-term debt 955 486
Redemptions of other long-term debt (50,183) (542)
Issuance of mandatorily redeemable trust preferred securities 50,000 -
Issuance of commercial paper 1,150,391 496,568
Redemptions of commercial paper (1,135,637) (508,688)
Cash dividends on common stock (37,841) (37,142)
Other (1,935) (805)
- ---------------------------------------------------------------------------------------------
Net cash used for financing activities (21,449) (61,243)
=============================================================================================
Net decrease in cash and equivalents (2,045) (2,004)
Cash and equivalents at beginning of period 8,495 8,042
=============================================================================================
Cash and equivalents at end of period $ 6,450 $ 6,038
=============================================================================================
Cash paid during period for
Interest, less amount capitalized $ 16,611 $ 22,904
Income taxes 38,775 27,720
Preferred stock dividends of subsidiaries 2,350 2,350
=============================================================================================
</TABLE>
(1) These statements give effect to the merger with
Upper Peninsula Energy Corporation.
The accompanying notes are an integral part of these statements.
-8-
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
============================================================================================================================
CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Nine Months Ended
(Thousands) September 30 September 30
1998 1997 1998 1997
============================================================================================================================
<S> <C> <C> <C> <C>
Operating revenues
Electric $132,107 $124,408 $369,971 $365,635
Gas 25,890 25,518 115,762 149,424
- ----------------------------------------------------------------------------------------------------------------------------
Total operating revenues 157,997 149,926 485,733 515,059
============================================================================================================================
Operating expenses
Electric production fuels 31,392 28,952 83,781 80,603
Purchased power 11,158 9,588 31,314 38,645
Gas purchased for resale 17,211 16,732 72,545 104,141
Other operating expenses 35,215 30,466 102,439 98,770
Maintenance 8,367 9,703 33,901 32,580
Depreciation and decommissioning 19,071 19,695 58,029 56,510
Federal income taxes 6,381 6,675 19,102 18,879
Investment tax credit restored (436) (442) (1,307) (1,326)
State income taxes 2,571 2,149 6,388 6,062
Gross receipts tax and other 6,434 6,394 19,957 20,219
- ----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 137,364 129,912 426,149 455,083
============================================================================================================================
Operating income 20,633 20,014 59,584 59,976
- ----------------------------------------------------------------------------------------------------------------------------
Other income and (deductions)
Allowance for equity funds used during construction 68 34 136 102
Other, net 749 1,690 4,995 8,474
Income taxes (40) 141 (474) (1,374)
- ----------------------------------------------------------------------------------------------------------------------------
Total other income and (deductions) 777 1,865 4,657 7,202
============================================================================================================================
Income before interest expense 21,410 21,879 64,241 67,178
- ----------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on long-term debt 4,704 5,631 15,614 16,038
Other interest 876 791 1,966 2,999
Allowance for borrowed funds used during construction (57) (25) (95) (89)
- ----------------------------------------------------------------------------------------------------------------------------
Total interest expense 5,523 6,397 17,485 18,948
============================================================================================================================
Net income 15,887 15,482 46,756 48,230
Preferred stock dividend requirements 778 778 2,333 2,333
- ----------------------------------------------------------------------------------------------------------------------------
Earnings on common stock and comprehensive income $ 15,109 $ 14,704 $ 44,423 $ 45,897
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-9-
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
==================================================================================================
CONSOLIDATED BALANCE SHEETS September 30 December 31
(Thousands) 1998 1997
==================================================================================================
<S> <C> <C>
ASSETS
- --------------------------------------------------------------------------------------------------
Utility plant
Electric $1,529,560 $1,506,470
Gas 264,154 251,603
- --------------------------------------------------------------------------------------------------
Total 1,793,714 1,758,073
Less - Accumulated depreciation and decommissioning 1,091,346 1,032,149
- --------------------------------------------------------------------------------------------------
Total 702,368 725,924
Nuclear decommissioning trusts 153,103 134,108
Construction in progress 15,569 7,266
Nuclear fuel, less accumulated amortization 19,320 19,062
- --------------------------------------------------------------------------------------------------
Net utility plant 890,360 886,360
==================================================================================================
Current assets
Cash and equivalents 2,331 3,921
Customer and other receivables, net of reserves 51,263 55,893
Accrued utility revenues 18,141 30,750
Fossil fuel, at average cost 8,916 9,964
Gas in storage, at average cost 18,760 17,194
Materials and supplies, at average cost 20,095 18,793
Prepayments and other 13,966 20,155
- --------------------------------------------------------------------------------------------------
Total current assets 133,472 156,670
==================================================================================================
Regulatory assets 69,749 78,544
Net nonutility plant 2,962 2,972
Investments and other assets 118,868 109,408
==================================================================================================
Total $1,215,411 $1,233,954
==================================================================================================
CAPITALIZATION AND LIABILITIES
- --------------------------------------------------------------------------------------------------
Capitalization
Common stock equity $ 502,485 $ 457,121
Preferred stock with no mandatory redemption 51,200 51,200
Long-term debt to parent 14,128 14,321
Long-term debt 241,380 293,298
- --------------------------------------------------------------------------------------------------
Total capitalization 809,193 815,940
==================================================================================================
Current liabilities
Note payable and current maturities of long-term debt 10,000 10,000
Commercial paper 25,000 15,500
Accounts payable 42,674 46,453
Accrued taxes (393) 3,514
Accrued interest 4,251 7,801
Other 6,550 10,049
- --------------------------------------------------------------------------------------------------
Total current liabilities 88,082 93,317
==================================================================================================
Long-term liabilities and deferred credits
Accumulated deferred income taxes 119,520 127,512
Accumulated deferred investment tax credits 25,595 26,901
Regulatory liabilities 43,601 50,279
Environmental remediation liabilities 39,089 40,215
Other long-term liabilities 90,331 79,790
- --------------------------------------------------------------------------------------------------
Total long-term liabilities and deferred credits 318,136 324,697
==================================================================================================
Total $1,215,411 $1,233,954
==================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-10-
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
========================================================================================================
CONSOLIDATED STATEMENTS OF CAPITALIZATION September 30 December 31
(Thousands, except share amounts) 1998 1997
========================================================================================================
<S> <C> <C>
Common stock equity
Common stock $ 95,588 $ 95,588
Premium on capital stock 107,842 73,842
Retained earnings 306,903 297,489
ESOP loan guarantees (7,848) (9,798)
- --------------------------------------------------------------------------------------------------------
Total common stock equity 502,485 457,121
========================================================================================================
Preferred stock
Cumulative, $100 par value, 1,000,000 shares authorized;
with no mandatory redemption
Series Shares Outstanding
------ ------------------
5.00% 132,000 13,200 13,200
5.04% 30,000 3,000 3,000
5.08% 50,000 5,000 5,000
6.76% 150,000 15,000 15,000
6.88% 150,000 15,000 15,000
- --------------------------------------------------------------------------------------------------------
Total preferred stock 51,200 51,200
========================================================================================================
Long-term debt to parent
Series Year Due
------ --------
8.76% 2015 5,836 5,914
7.35% 2016 8,292 8,407
- --------------------------------------------------------------------------------------------------------
Total long-term debt to parent 14,128 14,321
========================================================================================================
Long-term debt
First mortgage bonds
Series Year Due
------ --------
5-1/4% 1998 - 50,000
7.30% 2002 50,000 50,000
6.80% 2003 50,000 50,000
6-1/8% 2005 9,075 9,075
6.90% 2013 22,000 22,000
8.80% 2021 53,100 53,100
7-1/8% 2023 50,000 50,000
- --------------------------------------------------------------------------------------------------------
Total 234,175 284,175
Unamortized discount and premium on bonds, net (832) (890)
- --------------------------------------------------------------------------------------------------------
Total first mortgage bonds 233,343 283,285
- --------------------------------------------------------------------------------------------------------
ESOP loan guarantees 7,848 9,798
Other long-term debt 189 215
- --------------------------------------------------------------------------------------------------------
Total long-term debt 241,380 293,298
========================================================================================================
Total capitalization $809,193 $815,940
========================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-11-
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
============================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended
(Thousands) September 30
1998 1997
============================================================================================
<S> <C> <C>
Cash flows from operating activities
Net income $ 46,756 $ 48,230
Adjustments to reconcile net income to net cash from
operating activities
Depreciation and decommissioning 58,029 56,510
Amortization of nuclear fuel and other 12,411 8,944
Deferred income taxes (11,324) (6,352)
Investment tax credit restored (1,306) (1,326)
Allowance for equity funds used during construction (136) (102)
Pension income (6,824) (8,790)
Postretirement funding 2,956 3,723
Other, net 995 8,969
Changes in
Customer and other receivables 4,630 19,786
Accrued utility revenues 12,609 16,322
Fossil fuel inventory 1,048 (1,260)
Gas in storage (1,566) (5,085)
Accounts payable (3,779) (20,084)
Miscellaneous current and accrued liabilities (4,713) (5,836)
Accrued taxes (3,907) 2,830
Gas refunds 710 (240)
- --------------------------------------------------------------------------------------------
Net cash from operating activities 106,589 116,239
============================================================================================
Cash flows from (used for) investing activities
Construction of utility plant and nuclear fuel expenditures (55,042) (45,843)
Decommissioning funding (12,930) (11,749)
Purchase of other property and equipment (233) (95)
Other 3,868 2,225
- --------------------------------------------------------------------------------------------
Net cash used for investing activities (64,337) (55,462)
============================================================================================
Cash flows from (used for) financing activities
Proceeds from issuance of commercial paper 118,000 166,600
Redemptions of commercial paper (108,500) (182,600)
Redemptions of first mortgage bonds (50,000) -
Equity infusion from parent 34,000 -
Dividend to parent - (10,000)
Preferred stock dividends (2,333) (2,333)
Common stock dividends (35,009) (34,293)
- --------------------------------------------------------------------------------------------
Net cash used for financing activities (43,842) (62,626)
============================================================================================
Net decrease in cash and equivalents (1,590) (1,849)
Cash and equivalents at beginning of period 3,921 4,165
============================================================================================
Cash and equivalents at end of period $ 2,331 $ 2,316
============================================================================================
Cash paid during period for
Interest, less amount capitalized $ 11,485 $ 19,536
Income taxes 39,490 32,805
============================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-12-
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
============================================================================================
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Nine Months Ended
(Thousands) September 30
1998 1997
============================================================================================
<S> <C> <C>
Balance at beginning of period $297,489 $291,740
Add Net income 46,756 48,230
- --------------------------------------------------------------------------------------------
344,245 339,970
- --------------------------------------------------------------------------------------------
Deduct
Cash dividends declared on preferred stock 2,333 2,333
Dividends declared on common stock 35,009 34,293
Dividend to parent - 10,000
- --------------------------------------------------------------------------------------------
37,342 46,626
- --------------------------------------------------------------------------------------------
Balance at end of period $306,903 $293,344
============================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-13-
<PAGE>
WPS RESOURCES CORPORATION AND SUBSIDIARIES
WISCONSIN PUBLIC SERVICE CORPORATION
CONDENSED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1. FINANCIAL INFORMATION
______________________________
The foregoing consolidated financial statements have been prepared by
WPS Resources Corporation ("WPSR") and Wisconsin Public Service Corporation
("WPSC"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and, in the opinion of Management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of results for each period shown. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. WPSR and
WPSC believe that the disclosures made are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and notes thereto included in WPSR's
and WPSC's latest annual report on Form 10-K. The foregoing financial
statements have been restated to give effect to the merger between WPSR and
Upper Peninsula Energy Corporation ("UPEN") as if the companies had combined
in the earliest period presented (refer to Note 7).
Because of the seasonal nature of WPSC's and Upper Peninsula Power Company's
("UPPCO") operations, interim results are not necessarily indicative of annual
results.
NOTE 2. SEGMENT DISCLOSURES
____________________________
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This statement
establishes standards for reporting information about operating segments and
is effective for periods beginning after December 15, 1997. WPSR will be
adopting the requirements of this statement at year-end 1998. However, WPSR
has not yet determined the segments which will be disclosed.
NOTE 3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
______________________________________________________
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires all derivatives
to be measured at fair value and recognized as either assets or liabilities in
the statement of financial position. The accounting for changes in the fair
value of a derivative is dependent upon the use of the derivative and its
resulting designation. Unless specific hedge accounting criteria are met,
changes in the derivative's fair value must be recognized currently in
earnings. This statement is effective for fiscal periods beginning after
June 15, 1999. WPSR will be adopting the requirements of this statement on
January 1, 2000, and has not yet determined the method of adoption or its
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impact. However, the requirements of this statement could increase volatility
in earnings and other comprehensive income.
NOTE 4. INTERNALLY-DEVELOPED SOFTWARE
______________________________________
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This statement
requires the capitalization of certain costs related to software developed or
obtained for internal use. The statement is effective for periods beginning
after December 15, 1998. WPSR will be adopting the requirements of this
statement in 1999. While the total impact of WPSR's adoption of this
statement has not been determined, WPSC's adoption of this statement is
expected to result in a reduction in operating expenses which will be
considered in the ratemaking process. The capitalized software costs will
then be amortized to operating expense in future years.
NOTE 5. COSTS OF START-UP ACTIVITIES
_____________________________________
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-up Activities." This statement provides guidance on the
financial reporting of start-up costs and organization costs. Costs of
start-up activities and organization costs are required to be expensed as
incurred. The statement is effective for periods beginning after December 15,
1998. WPSR will be adopting the requirements of this statement in 1999 and
does not anticipate any material impact to its financial statements.
NOTE 6. COMPANY-OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES
___________________________________________________________________
OF SUBSIDIARY TRUST
___________________
On July 30, 1998, WPSR Capital Trust I ("Trust"), a Delaware business trust of
which WPSR owns all of the outstanding $1.5 million trust common
securities, issued $50.0 million of trust preferred securities to the public.
The sole asset of the Trust is $51.5 million principal amount of subordinated
debentures due 2038, issued by WPSR. The terms and interest payments on these
debentures correspond to the terms and dividend payments on the trust
preferred securities. These payments are reflected as distributions -
preferred securities of subsidiary trust in the Consolidated Statement of
Income and are tax deductible by WPSR. WPSR may elect to defer interest
payments on the debentures for a period up to 20 consecutive quarters, causing
distributions on the trust preferred securities to be deferred as well.
In case of a deferral, interest and distributions will continue to accrue,
along with quarterly compounding interest on the deferred amounts. WPSR may
redeem all or a portion of the debentures after July 30, 2003, requiring an
equal amount of trust securities to be redeemed at face value plus accrued and
unpaid distributions. WPSR has entered into a limited guarantee of payment of
distributions, redemption payments, and payments in liquidation with respect
to the trust preferred securities. This guarantee when taken together with
WPSR's obligations under the related debentures and indenture and the
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applicable trust declaration, provide a full and unconditional guarantee of
amounts due on the outstanding trust preferred securities.
NOTE 7. MERGER WITH UPPER PENINSULA ENERGY CORPORATION
_______________________________________________________
Effective September 29, 1998, Upper Peninsula Energy Corporation ("UPEN")
merged with and into WPSR, and UPPCO, UPEN's utility and major subsidiary, as
well as other nonregulated subsidiaries, became wholly-owned subsidiaries of
WPSR. The exchange of stock qualifies as a tax-free transaction and the
transaction has been accounted for as a pooling of interests.
The foregoing consolidated financial statements have been restated to give
effect to the merger as if the companies had combined in the earliest period
presented. Certain adjustments have been made to conform the presentation of
UPEN's financial information with that of WPSR. In accordance with the terms
of the merger, each of the 2,950,001 outstanding shares of UPEN common stock
(no par value) were converted into 0.90 shares of WPSR common stock for an
additional 2,655,001 shares.
The summary below depicts selected unaudited financial data for 1998 and 1997
as reported prior to the consummation of the merger and restated to reflect
the effect of the merger under the pooling of interests method.
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<TABLE>
SELECTED RESTATED FINANCIAL DATA
<CAPTION>
=========================================================================================
WPSR UPEN WPSR
(prior to (prior to (restated
restatement restatement for pooling
for pooling) for pooling) of interests)
(In thousands, except per share data) unaudited unaudited unaudited
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIRST QUARTER 1997
Operating revenues (1) $263,013 $16,303 $279,199
Net income $ 18,235 $ 1,924 $ 20,159
Outstanding shares 23,880 2,969 26,535
Basic and diluted earnings per share $0.76 $0.65 $0.76
SECOND QUARTER 1997
Operating revenues (1) $191,360 $13,796 $204,820
Net income $ 9,571 $ 666 $ 10,237
Outstanding shares 23,875 2,969 26,530
Basic and diluted earnings per share $0.40 $0.22 $0.39
THIRD QUARTER 1997
Operating revenues (1) $185,225 $14,893 $198,843
Net income $ 12,903 $ (147) $ 12,756
Outstanding shares 23,870 2,954 26,525
Basic and diluted earnings per share $0.54 $ (0.05) $0.48
FOURTH QUARTER 1997
Operating revenues (1) $238,742 $15,112 $252,975
Net income $ 13,033 $ (376) $ 12,657
Outstanding shares 23,866 2,950 26,521
Basic and diluted earnings per share $0.55 $(0.12) $0.47
YEAR-END DECEMBER 31, 1997
Operating revenues (1) $878,340 $60,104 $935,837
Net income $ 53,742 $ 2,067 $ 55,809
Outstanding shares 23,873 2,960 26,528
Basic and diluted earnings per share $2.25 $0.70 $2.10
FIRST QUARTER 1998
Operating revenues (1) $276,809 $15,573 $291,226
Net income $ 17,101 $ 851 $ 17,952
Outstanding shares 23,862 2,950 26,517
Basic and diluted earnings per share $0.72 $0.29 $0.68
SECOND QUARTER 1998
Operating revenues (1) $219,620 $13,889 $232,054
Net income $ 9,879 $ 586 $ 10,465
Outstanding shares 23,858 2,950 26,513
Basic and diluted earnings per share $0.41 $0.20 $0.39
THIRD QUARTER 1998
Operating revenues $247,928
Net income $ 11,799
Outstanding shares 26,509
Basic and diluted earnings per share $0.45
YEAR-TO-DATE 1998
Earnings per share $1.52
=========================================================================================
</TABLE>
(1) Restatement includes adjustment for intercompany sales
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
WPSR is a holding company. Approximately 85% of WPSR's assets at
September 30, 1998 and approximately 63% of its revenues for the first nine
months of 1998 were derived from WPSC, an electric and gas utility. All of
WPSR's net income for the first nine months of 1998 was derived from WPSC and
UPPCO, an electric-only utility. WPSR's wholly-owned subsidiaries include two
regulated utilities, WPSC and UPPCO, and four primary nonregulated
subsidiaries, WPS Energy Services, Inc. ("ESI"), WPS Power Development, Inc.
("PDI"), Upper Peninsula Building Development Company, and Penvest.
THIRD QUARTER 1998 COMPARED WITH THIRD QUARTER 1997
WPS RESOURCES CORPORATION OVERVIEW
WPSR's results of operations and financial position for 1997 and 1998 include
the effects of the merger with UPEN which was effective September 29, 1998,
and accounted for as a pooling of interests. In conjunction with this merger,
WPSR has expensed transaction charges of approximately $2.7 million in 1997
and $1.6 million in 1998. These merger transaction charges consist of the
following.
1998 1997
(million) (million)
--------- ---------
Investment Bankers $0.8 $0.9
Legal 0.7 0.9
Accounting - 0.2
Other 0.1 0.7
---- ----
$1.6 $2.7
In addition, UPPCO, UPEN's primary subsidiary, recorded severance costs of
$0.7 million in the third quarter of 1998.
WPSR's consolidated operating revenues increased from $198.8 million in the
third quarter of 1997 to $247.9 million in the third quarter of 1998, or
24.7%. Net income decreased 7.8%, from $12.8 million in 1997 to $11.8 million
in 1998. Basic and diluted earnings per share decreased 6.3%, from $.48 in
1997 to $.45 in 1998. The primary reasons for the decrease in earnings, as
explained below, were higher other operating expenses primarily as a result of
increased benefit expenses at WPSC and UPPCO, a one-time adjustment to the
amortization of deferred coal contract buyout costs at WPSC, and the accrual
of merger-related severance costs at UPPCO. Also contributing to lower
earnings was a decrease in other income due to increased trading losses at
ESI. Partially offsetting these decreases in earnings was an increase in
electric utility margins.
Earnings on common stock at WPSC were $15.1 million in the third quarter of
1998 and $14.7 million in the same period of 1997. Earnings on common stock
at UPPCO were $0.5 million in the third quarter of 1998 and $1.2 million in
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the third quarter of 1997. Nonregulated losses were $3.8 million in the third
quarter of 1998 and $3.1 million in the third quarter of 1997.
OVERVIEW OF UTILITY OPERATIONS
Revenues at WPSC were $158.0 million in the third quarter of 1998 compared
with $149.9 million in the third quarter of 1997, an increase of 5.4%.
Earnings on common stock increased 2.7%, from $14.7 million in the third
quarter of 1997 to $15.1 million in the third quarter of 1998. The primary
reasons for the increase in earnings at WPSC were increased electric margins
and decreased maintenance expense partially offset by increased other
operating expenses.
Revenues at UPPCO were $15.9 million in the third quarter of 1998 compared
with $14.9 million in the third quarter of 1997, an increase of 6.7%.
Earnings on common stock were $0.5 million in the third quarter of 1998
compared with $1.2 million in the third quarter of 1997, a decrease of 58.3%.
The primary reasons for the decrease in earnings at UPPCO were higher benefit
costs and the expensing of $0.7 million in merger-related severance costs in
the third quarter of 1998.
ELECTRIC UTILITY OPERATIONS (WPSC AND UPPCO)
WPSR's consolidated electric utility margins increased $4.7 million, or 4.9%,
primarily due to increased kilowatt-hour ("Kwh") sales to WPSC customers as a
result of a 97.2% increase in cooling degree days in the third quarter of
1998.
Third Quarter
WPSR - Consolidated
------------------------------
Electric Margins (000's) 1998* 1997**
- ------------------------ ---- ----
Revenues $146,007 $138,026
Fuel and purchased power 45,871 42,586
------- -------
Margin $100,136 $ 95,440
======= =======
Sales in Kwh (000) 3,306,208 3,115,788
* Includes eliminations for intercompany sales of $2.0 million and
intercompany purchases of $2.1 million, or 78,919,000 Kwh.
** Includes eliminations for intercompany sales of $1.3 million and
intercompany purchases of $1.3 million, or 60,462,000 Kwh.
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Third Quarter Third Quarter
WPSC UPPCO
----------------------- ----------------------
Electric Margins (000's) 1998 1997 1998 1997
- ------------------------ ---- ---- ---- ----
Revenues $132,107 $124,408 $15,915 $14,923
Fuel and purchased power 42,550 38,540 5,404 5,322
------- ------- ------ ------
Margin $ 89,557 $ 85,868 $10,511 $ 9,601
======= ======= ====== ======
Sales in Kwh (000) 3,177,521 2,969,193 207,606 207,057
WPSR consolidated electric utility revenues increased $8.0 million, or 5.8%.
Electric revenues at WPSC increased $7.7 million, or 6.2%, largely due to
increased revenues of $4.2 million from WPSC's residential customers and
$3.4 million from WPSC's commercial and industrial customers as a result of
the warmer weather.
WPSR consolidated electric utility production fuel expense increased
$2.4 million, or 8.2%. Electric production fuel expense at WPSC increased
$2.4 million, or 8.4%, primarily due to increased combustion turbine fuel
expense of $1.8 million and increased steam fuel expense of $0.7 million
reflecting higher energy demands in the third quarter of 1998 due to the
warmer weather.
WPSR consolidated utility purchased power expense increased $0.9 million, or
6.8%. Purchased power expense at WPSC increased $1.6 million, or 16.4%,
primarily due to increased prices of purchases in the third quarter of 1998.
GAS UTILITY OPERATIONS (WPSC)
WPSC's gas margins remained relatively stable between the third quarter of
1997 and the third quarter of 1998.
Third Quarter
-----------------------------
Gas Margins (000's) 1998 1997
- ------------------- ---- ----
Revenues $25,890 $25,518
Purchase costs 17,235 17,123
------ ------
Margin $ 8,655 $ 8,395
====== ======
Volume in therms (000) 96,586 90,713
There was no significant variance between gas operating revenues and gas
purchase costs in the third quarter of 1998 compared with those in the third
quarter of 1997.
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Under current regulatory practice, the Public Service Commission of Wisconsin
("PSCW") allows WPSC to pass changes in the cost of gas on to customers
through a purchased gas adjustment clause ("PGAC").
OTHER UTILITY EXPENSES/INCOME (WPSC AND UPPCO)
Other operating expenses at WPSC increased $4.7 million, or 15.6%, due to
increased administrative costs of $2.7 million primarily related to higher
benefit expenses and to a $1.5 million one-time adjustment to the amortization
of deferred coal contract buyout costs due to regulatory treatment by the
PSCW.
Other operating expenses at UPPCO increased $1.4 million, or 39.9%, due to the
expensing of $0.7 million in merger-related severance costs and to higher
benefit expenses.
Maintenance expense at WPSC decreased $1.3 million, or 13.8%, as a result of
maintenance of fossil fuel plants which had occurred during the third quarter
of 1997.
OVERVIEW OF NONREGULATED OPERATIONS
Nonregulated operations primarily consist of the gas and electric sales of
ESI, an energy marketing subsidiary. Nonregulated operations also include
those of the WPSR stand-alone company and those of PDI which develops electric
generation projects, invests in generating projects, and provides services to
the electric power generation industry. Nonregulated operations experienced a
loss of $3.8 million in the third quarter of 1998 compared with a loss of
$3.1 million in the third quarter of 1997. Although nonregulated margins
continue to be positive, losses are being experienced due to gas trading
losses and expenses associated with the expansion of customer base.
NONREGULATED MARGINS
Both the gas and the electric margins at ESI increased slightly in the third
quarter of 1998.
Nonregulated energy and other operating revenues increased $40.7 million, or
115.3%, from $35.3 million in 1997 to $76.0 million in 1998. The increase in
nonregulated energy revenues consisted largely of increased gas revenues at
ESI of $31.5 million, or 92.3%, as a result of sales volume growth and
expansion to additional geographical areas. Electric revenues at ESI
increased $8.5 million, also as a result of sales volume growth.
Nonregulated energy cost of sales increased from $33.2 million in 1997 to
$74.3 million in 1998, an increase of $41.1 million, or 123.8%. This increase
was primarily due to increased gas purchases and purchased power of
$32.0 million and $8.1 million, respectively, at ESI as a result of customer
growth and increased sales.
OTHER NONREGULATED EXPENSES/INCOME
Operating expenses decreased $1.3 million for the WPSR stand-alone company
primarily due to expensing of fewer merger transaction costs in the third
quarter of 1998 than in the third quarter of 1997. Other nonregulated
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operating expenses increased $1.1 million. Other operating expenses at ESI
increased $0.7 million, or 42.2%, due to expansion of the business. Other
operating expenses at PDI increased $0.4 million, or 45.5%, due to additional
project expenses.
Other income (losses) at the nonregulated subsidiaries included gas trading
losses at ESI of $0.9 million in the third quarter of 1998 compared with gas
trading losses of $0.4 million in the third quarter of 1997. In addition, ESI
experienced electric trading losses of $1.0 million in the third quarter of
1998 largely as a result of the unprecedented market volatility in the
electric trading market that occurred in this period.
NINE MONTHS 1998 COMPARED WITH NINE MONTHS 1997
WPS RESOURCES CORPORATION OVERVIEW
WPSR consolidated revenues increased from $682.9 million in the first nine
months of 1997 to $771.2 million in the first nine months of 1998, or 12.9%.
Net income for the period decreased 6.9%, from $43.2 million in 1997 to
$40.2 million in 1998. Basic and diluted earnings per share decreased 6.7%,
from $1.63 in 1997 to $1.52 in 1998. The primary reason for the decrease in
earnings at WPSR was a decrease in other income due to higher electric and gas
trading losses of $3.7 million at ESI and the fact that WPSC recorded a
$2.7 million one-time gain from the sale of nonutility property in the second
quarter of 1997. Also contributing to the decrease in earnings were an
increase in other operating expenses primarily due to increased benefit
expenses of $3.1 million at WPSC and a decrease in utility gas margins
resulting from mild weather in the first two quarters of 1998. Partially
offsetting these decreases in earnings were increased electric utility margins
largely as a result of increased prices to WPSC's wholesale and economic
buy-through customers during a period of abnormally warm weather in the latter
part of the second quarter of 1998 and increased sales to WPSC's residential
and small commercial and industrial customers during the third quarter of
1998.
Earnings on common stock at WPSC were $44.4 million for the first nine months
of 1998 and $45.9 million for the same period in 1997. Earnings on common
stock at UPPCO were $2.3 million for the first nine months of 1998 and
$3.8 million for the first nine months of 1997. Nonregulated losses were
$6.5 million for the first nine months of 1998 and $6.5 million for the first
nine months of 1997.
OVERVIEW OF UTILITY OPERATIONS
Revenues at WPSC were $485.7 million for the first nine months of 1998
compared with $515.1 million for the same period in 1997, a decrease of 5.7%.
Earnings on common stock decreased 3.3% from $45.9 million in the first nine
months of 1997 to $44.4 million in the same period of 1998. The primary
reasons for the decrease in earnings at WPSC were an increase in other
operating expenses, a decrease in other income, a decrease in gas margins, an
increase in depreciation and decommissioning expenses, and an increase in
maintenance expense. Partially offsetting these decreases was an increase in
electric margins.
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Revenues at UPPCO were $45.4 million for the first nine months of 1998 and
$45.1 million for the same period in 1997. Earnings on common stock decreased
39.5%, from $3.8 million in the first nine months of 1997 to $2.3 million in
the first nine months of 1998. The primary reasons for the decrease in
earnings at UPPCO were the expensing of merger-related severance costs and
increased benefit costs in the third quarter of 1998.
ELECTRIC UTILITY OPERATIONS (WPSC AND UPPCO)
WPSR's consolidated electric utility margins for the first nine months of 1998
increased $8.9 million, or 3.2%, primarily as the result of increased prices
to WPSC's wholesale and economic buy-through customers during a period of
abnormally warm weather in the second quarter of 1998 and increased sales to
WPSC's residential and small commercial and industrial customers during the
third quarter of 1998. Partially offsetting the increase in electric margins
in the first nine months of 1998 was the impact of a PSCW rate order on WPSC
which was effective for the entire first nine months of 1998 but was only
effective in 1997 for the period after February 21, 1997. This order
authorized an 8.1% electric revenue reduction.
Nine Months
WPSR - Consolidated
------------------------------
Electric Margins (000's) 1998* 1997**
- ------------------------ ---- ----
Revenues $410,721 $408,899
Fuel and purchased power 126,001 133,093
------- -------
Margin $284,720 $275,806
======= =======
Sales in Kwh (000) 9,189,539 9,007,180
* Includes eliminations for intercompany sales of $4.7 million and
intercompany purchases of $4.6 million, or 185,379,000 Kwh.
** Includes eliminations for intercompany sales of $1.8 million and
intercompany purchases of $1.7 million, or 75,752,000 Kwh.
Nine Months Nine Months
WPSC UPPCO
----------------------- ----------------------
Electric Margins (000's) 1998 1997 1998 1997
- ------------------------ ---- ---- ---- ----
Revenues $369,971 $365,635 $45,413 $45,063
Fuel and purchased power 115,095 119,248 15,491 15,573
------- ------- ------ ------
Margin $254,876 $246,387 $29,922 $29,490
======= ======= ====== ======
Sales in Kwh (000) 8,748,125 8,447,435 626,793 635,497
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WPSR consolidated electric utility revenues increased $1.8 million, or 0.4%.
Electric revenues at WPSC increased $4.3 million, or 1.2%, primarily due to a
4.0% increase in Kwh sales to WPSC's residential customers and a 5.4% increase
in Kwh sales to WPSC's small commercial and industrial customers as the result
of a 108.5% increase in cooling degree days in the first nine months of 1998.
Also included in 1998 electric revenues are surcharge revenues at WPSC of
$3.8 million related to the recovery of the deferred costs for the 1997
Kewaunee Nuclear Power Plant ("Kewaunee") steam generator repairs. Partially
offsetting these increases to revenues were the electric rate reduction and a
$1.0 million refund of WPSC's transmission revenues as the result of a FERC
settlement related to open access transmission tariff rates.
WPSR consolidated electric utility production fuel expense increased
$3.1 million, or 3.8%. WPSC electric utility production fuel expense
increased $3.2 million, or 3.9%, primarily as a result of increased nuclear
fuel expense of $3.4 million. Kewaunee was out of service in the first six
months of 1997 as the result of an extended outage to repair steam generators,
thus, the higher nuclear fuel expense in the first nine months of 1998. WPSC
is currently the operator and 41.2% owner of Kewaunee.
WPSR's consolidated utility purchased power expense decreased $10.2 million,
or 19.5%. Purchased power expense at WPSC decreased $7.3 million, or 19.0%,
primarily due to decreased purchase requirements in the first nine months of
1998. Purchase requirements at WPSC in the first nine months of 1997 were
higher due to lack of production at Kewaunee in the first and second quarters
of 1997 as a result of an extended outage.
GAS UTILITY OPERATIONS (WPSC)
Gas margins at WPSC decreased $2.3 million in the nine months of 1998, or
5.1%, primarily due to a 23.1% reduction in heating degree days.
Nine Months
------------------------------
Gas Margins (000's) 1998 1997
- ------------------- ---- ----
Revenues $115,762 $149,424
Purchase costs 73,234 104,616
------- -------
Margin $ 42,528 $ 44,808
======= =======
Volume in therms (000) 434,315 476,079
Gas operating revenues decreased $33.7 million, or 22.5%. This decrease was
due to unusually mild winter and spring weather in the first six months of
1998 resulting in lower gas therm sales for the first nine months of 1998 of
8.8%. Also contributing to the decrease in gas operating revenues was a
reduction in revenues of $7.5 million for refunds from ANR Pipeline Company
which WPSC passed on to its gas customers in the second quarter of 1998.
Gas purchase costs decreased $31.4 million, or 30.0%. This decrease was due
to reduced customer demand as a result of the mild weather during the first
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six months of 1998. Also contributing to the decrease in gas costs was a
$7.5 million refund from ANR Pipeline Company which was credited to gas
expense in the second quarter of 1998. Under current regulatory practice, the
PSCW allows WPSC to pass changes in the cost of gas on to customers through a
PGAC.
OTHER UTILITY EXPENSES/INCOME (WPSC AND UPPCO)
Other operating expenses at WPSC increased $3.7 million, or 3.7%, primarily
due to higher benefit costs in the first nine months of 1998.
Other operating expense at UPPCO increased $1.3 million primarily as the
result of the accrual of $0.7 million in merger-related severance expense in
the third quarter of 1998 and higher benefit costs.
Maintenance expense at WPSC increased $1.3 million, or 4.1%, primarily as a
result of increased expenses at Kewaunee during the first six months of 1998.
This increase was due to the recognition of 1997 deferred expenses for
Kewaunee steam generator repairs in the second quarter of 1998. The PSCW
approved deferral of the repairs in 1997, the cost of which has been collected
in the second quarter of 1998 through a $3.8 million electric revenue
surcharge. Partially offsetting the recognition of these deferred expenses
were decreased electric and transmission maintenance costs and decreased
non-nuclear maintenance expenses.
Depreciation and decommissioning expenses at WPSC increased $1.5 million, or
2.7%, due to the accelerated recovery of investment in Kewaunee and
accelerated funding of Kewaunee decommissioning costs. Accelerated recovery
of investment and funding began on February 21, 1997 and, therefore, was
effective for the entire first nine months of 1998 but only a portion of the
first nine months of 1997.
Other income at WPSC decreased $2.5 million, or 35.3%, primarily due to
one-time gains on sales of nonutility property which occurred in the second
quarter of 1997. These gains represented an increase in earnings for the
first nine months of 1997 of approximately $0.07 per share.
OVERVIEW OF NONREGULATED OPERATIONS
Nonregulated operations experienced a loss of $6.5 million in the first nine
months of 1998 compared with a loss of $6.5 million in the first nine months
of 1997. Although nonregulated margins continue to grow, losses are being
experienced due to gas and electric trading losses and expenses associated
with the expansion of customer base.
NONREGULATED MARGINS
Gas margins at ESI increased $1.2 million from $1.5 million in the first nine
months of 1997 to $2.7 million in the first nine months of 1998. Electric
margins at ESI remained fairly stable.
Nonregulated energy and other operating revenues increased $120.2 million, or
96.5%, from $124.5 million in 1997 to $244.7 million in 1998. The increase in
nonregulated energy revenues consisted largely of increased gas revenues at
ESI of $107.4 million, or 91.4%, as a result of sales volume growth and
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expansion to additional geographical areas. Electric revenues at ESI
increased $12.8 million, or 271.8%, also as a result of sales volume growth.
Nonregulated energy cost of sales increased from $119.8 million in 1997 to
$239.0 million in 1998, an increase of $119.2 million, or 99.5%. This
increase was primarily due to increased gas purchases and purchased power of
$106.3 million and $12.4 million, respectively, at ESI as a result of customer
growth and higher costs of purchases.
OTHER NONREGULATED EXPENSES/INCOME
Other nonregulated operating expenses decreased $1.5 million. Other operating
expenses at ESI increased $0.4 million, or 6.8%, due to expansion of the
business. Other operating expenses at PDI decreased $1.4 million, or 32.2%,
due to lower project expenses.
Other income at WPSR included a dividend on a venture capital investment of
$2.0 million in the first quarter of 1998 compared with $0.2 million in the
first quarter of 1997. Other income (losses) at the nonregulated subsidiaries
included gas trading losses at ESI of $3.2 million and $0.5 million in the
first nine months of 1998 and 1997, respectively. Also included at ESI were
$1.1 million in electric trading losses in the first nine months of 1998
primarily due to losses in the third quarter related to the unprecedented
market volatility in the electric trading market.
FINANCIAL CONDITION
WPSR made a $34.0 million equity infusion in WPSC in the second quarter of
1998. WPSC retired $50.0 million of first-mortgage bonds on July 1, 1998.
Short-term borrowings increased $14.8 million during the first nine months of
1998 as a result of cash requirements in excess of internally generated funds.
Pretax interest coverage was 4.63 times for the 12 months ended
September 30, 1998 for WPSC. WPSC's bond ratings are AA+ (Standard & Poor's
and Duff & Phelps) and Aa2 (Moody's).
WPSC makes large investments in capital assets. Utility construction
expenditures are expected to continue in the $75.0 million to $90.0 million
range annually during the 1998 through 2000 period. This does not include
expenditures for the replacement of Kewaunee steam generators. WPSC's share
of steam generator replacement, at a 59.0% ownership level, will be
approximately $53.5 million in year of occurrence dollars.
In addition, other capital requirements for WPSC during the three-year period
include Kewaunee decommissioning trust fund contributions of approximately
$30.0 million.
On July 30, 1998, WPSR Capital Trust I ("Trust"), a Delaware business trust of
which WPSR owns all of the outstanding $1.5 million trust common securities,
issued $50.0 million of trust preferred securities to the public. The sole
asset of the Trust is $51.5 million of WPSR subordinated debentures due 2038.
The terms and dividend payments on these debentures correspond to the terms
and dividend payments on the trust preferred securities.
During the next three years, WPSR may expand its leveraged employee stock
ownership plan and may issue long-term debt to reduce short-term debt. The
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<PAGE>
specific forms of financing, amounts, and timing will depend on the
availability of projects, market conditions, and other factors.
WPSC filed a rate case with the PSCW on April 1, 1998. A decision on WPSC's
request for increased electric and gas rates is expected from the Commission
on December 15, 1998. A final order is expected in February or March 1999.
WPSC has filed for interim rate relief for the period between January 1, 1999
and the effective date of the order.
On September 29, 1998, UPEN merged with and into WPSR, and UPPCO, UPEN's
utility subsidiary, became a wholly-owned subsidiary of WPSR. The exchange of
stock qualifies as a tax-free transaction and the transaction has been
accounted for as a pooling of interests.
On September 29, 1998, WPSC and Madison Gas and Electric Company ("MG&E")
finalized an arrangement in which WPSC will acquire MG&E's 17.8% share of
Kewaunee. This agreement, the closing of which is contingent upon steam
generator replacement scheduled for the spring of 2000, will give WPSC 59.0%
ownership in Kewaunee.
The arrangement provides that the book value of MG&E's share of Kewaunee could
be credited against the purchase price of a planned 83-megawatt, natural
gas-fired, combustion-turbine electric generating station to be built near
Marinette, Wisconsin. WPSC had previously agreed to build this station for
MG&E. If, for some reason, the Marinette station is not completed, the
arrangement calls for WPSC to pay for MG&E's share of Kewaunee with a
combination of cash and notes.
MG&E has agreed to retain certain of its obligations related to the period of
time that it had been an owner of Kewaunee. MG&E will effectively transfer
its nuclear decommissioning funds to WPSC to pay for MG&E's share of the
currently estimated decommissioning costs of the plant. WPSC and Wisconsin
Power and Light Company ("WP&L"), the joint owners of the plant after the
described change in ownership, will be responsible for the decommissioning of
the plant.
On October 17, 1998, Kewaunee was shut down for a planned maintenance and
refueling outage. Inspection of the plant's two steam generators shows that
the repairs made in 1997 are holding up well and few additional repairs are
needed. In addition to the inspection and repairs of the steam generator, a
major overhaul is being performed on the main turbine generator. The plant
should be back in operation during the first week of December 1998. On
July 2, 1998, WPSC received approval from the PSCW to defer the costs
associated with the repair of the Kewaunee steam generator tubes. If the
costs are significant, recovery of the deferred costs will be requested in a
future rate proceeding. Minimal costs have been deferred to date.
YEAR 2000 COMPLIANCE
The Year 2000 issue arises because software programs, computer hardware, and
equipment that have date sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This may result
in system failures or other disruptions of operations.
-27-
<PAGE>
WPSR and its subsidiary companies are committed to eliminating or minimizing
adverse effects of the Year 2000 computer compliance issue on their business
operations, including the products and services provided to customers, and to
maintaining WPSR's reputation as an efficient and reliable supplier of energy.
WPSR, however, is unable to guarantee that there will be no adverse effects as
a result of the Year 2000 computer compliance issue because many aspects of
compliance are beyond WPSR's direct control.
WPSR has undertaken a program to assess Year 2000 compliance and to bring
computer systems into compliance by the year 2000. All systems, including
energy production and delivery systems, other embedded systems, and third
party systems of suppliers are being evaluated to identify and resolve
potential problems.
A Year 2000 project plan which includes awareness, inventory and assessment,
remediation, testing, and implementation has been developed. The formal
awareness phase of the Year 2000 project which includes understanding and
communication of the issue to employees, customers, suppliers, and other
affected parties has essentially been completed. The Year 2000 issue has been
communicated to WPSR employees and customers via several mediums. All WPSR
business unit leaders have been made aware of the Year 2000 project plan and
their roles in implementing the plan. Ongoing communication and response to
Year 2000 inquiries continues.
The inventory and assessment phase which includes identification of all
information and non-information technology systems and of non-compliant
systems, applications, and hardware, has been completed. Action plans for
remediation, which includes modifications to bring systems into compliance,
and action plans for testing including validation of compliance are scheduled
to be completed in December of 1998. Implementation including moving
modifications into production and the completion of contingency plans are
scheduled for April 1999.
WPSR has hired an external consulting group to monitor the progress of its
Year 2000 compliance activities. The consulting group's responsibilities
include performing a status check on WPSR's ability to achieve Year 2000
compliance.
Modifications of major in-house supported systems to correct Year 2000
problems have been underway since 1996. WPSR's Information Technology
Department has identified five major systems. Four of the five systems
(customer information, finance, human resources, and materials management) are
currently Year 2000 compliant. The remaining system (facility management) is
scheduled to be in compliance by December 31, 1998.
In addition, non-information technology systems have been identified and
ranked as to the risk posed by non-compliance. Non-information technology
systems include computer and embedded systems related to WPSR's power plant
operating, system operating, hydraulic, transmission, and other operating
functions. All systems ranked as "critical," "severe" or "high" are scheduled
to be Year 2000 compliant by the end of the first quarter of 1999.
In addition, WPSR is identifying, contacting, and assessing suppliers and
other business partners for Year 2000 readiness, as these external parties may
have the potential to impact WPSR's Year 2000 readiness. WPSR is also working
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<PAGE>
to address Year 2000 issues related to all joint ownership facilities. At the
present time, WPSR is not aware of problems that would materially impact the
company's operations. However, WPSR has no means of ensuring that all third
parties will be Year 2000 compliant in a timely manner, and the inability of
these parties to successfully resolve their Year 2000 issues could have a
material impact on company operations.
Total Year 2000 estimated project costs are $13.4 million. This estimate is
considered reasonable and has been approved for rate recovery by the PSCW.
This estimate includes internal labor costs of $5.4 million, software
replacement costs for non-compliant products of $5.0 million, and contract
labor costs of $3.0 million. Expenditures for the Year 2000 project have been
running less than the estimate with expenses incurred through
September 30, 1998, at $1.6 million. Major expenditures for hardware,
software, and other equipment are expected to be made in the fourth quarter of
1998 and the first quarter of 1999.
The failure to correct a material Year 2000 problem could result in an
interruption in, or the failure of, certain normal business activities or
operations which could materially affect WPSR's results of operations.
However, due to the general uncertainty inherent in the Year 2000 issue, WPSR
is unable to determine at this time whether the consequences of Year 2000
failures will have a material impact on operations. A preliminary
identification of potential risks related to the failure to be in compliance
by the Year 2000 has been made. A better understanding of actual risks will
be developed during the remediation, testing, and contingency planning
processes. The development of WPSR's contingency planning process is intended
to minimize the problems associated with these risks.
WPSR is assessing the potential impact of failure to achieve Year 2000
compliance with respect to each of the following:
- - Generation availability
- - System monitoring and control functions
- - Ability to restart generators that are out of service for planned
or unplanned outages
- - Company-owned voice/data communications
- - Transmission facilities
- - System protection
- - Critical operating data (i.e., plant data)
- - Electric and gas distribution systems
- - Pipelines constraints to the supply or pressure of natural gas
- - Major support systems
Contingency plans for dealing with Year 2000 issues will be developed by April
1999 for each application that has been identified as "critical" or "severe."
In addition, a proposal for a "quick response team" concept has been drafted,
and a process for handling unexpected Year 2000 problems will be formalized in
November 1998. A most reasonably likely worst case Year 2000 scenario will be
identified and addressed by a crisis management team in early 1999. The team
plans to conduct a crisis management drill using a Year 2000 scenario.
-29-
<PAGE>
Part II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
WPSR/UPEN MERGER
WPSR and UPEN announced an agreement to merge on July 10, 1997 and UPEN
shareholders approved the merger on January 29, 1998. The merger became
effective at the close of business on September 29, 1998. UPPCO, UPEN's
utility subsidiary, became a wholly-owned subsidiary of WPSR. Additional
discussion regarding the merger is set forth in the registrants' Current
Report on Form 8-K dated September 29, 1998.
RELIABILITY
WPSC and Polsky Energy Corporation, developers of the De Pere Energy Center
project, reached agreement that the 180-megawatt electric generating plant
will come on line by June 1, 1999. The natural gas-fired plant, was
originally expected to begin full production in the winter of 2000. Earlier
this year, however, the PSCW approved acceleration of the project's completion
date. This plant will increase WPSC's electrical capacity reserves for the
1999 summer electrical peak. The De Pere Energy Center is the only power
plant currently under construction in Wisconsin.
WPSC filed a construction authorization application with the PSCW on
September 18, 1998 for a nine-megawatt wind energy project to meet its portion
of a renewable energy state mandate in the Electric Reliability Bill (1997
Wis. Laws 204). The proposed $10.3 million construction project covers
construction of 14 wind turbines on leased private land in the northern
Kewaunee County Township of Lincoln. WPSC plans to have the units installed
and operating by July 1, 1999.
KEWAUNEE NUCLEAR POWER PLANT
Kewaunee was shut down for refueling on October 17, 1998. During refueling,
the steam generator tubes have been checked for corrosion induced cracking.
The result of the inspection was that a small number of the steam generator
tubes are in the process of being repaired by sleeving or have been removed
from service by plugging the tube. Kewaunee is expected to return to service
in the first week of December.
On September 29, 1998, WPSC and MG&E finalized arrangements for WPSC to buy
MG&E's entire 17.8% share of Kewaunee. The agreement will give WPSC 59%
ownership in Kewaunee. The closing is contingent upon steam generator
replacement which is scheduled to occur in the spring of 2000. Additional
discussion regarding steam generator replacement and ownership issues is set
forth in the registrant's Current Reports on Form 8-K dated July 2, 1998 and
September 29, 1998.
FERC RULING REGARDING TRANSMISSION INTERFACE
As reported in the December 31, 1997 Report on Form 10-K, Wisconsin Public
Power Inc. ("WPPI") requested transmission service across the WPSC portion of
the constrained Minnesota to eastern Wisconsin interface ("Interface") to
serve five of WPPI's municipal customers (Sturgeon Bay, Algoma, Eagle River,
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<PAGE>
New Holstein, and Two Rivers) located in the WPSC service territory. The
Interface is owned by Wisconsin Electric Power Company, (52%), WP&L (28%), and
WPSC (20%). WPPI has a 1993 contract with WP&L that provides transmission
service for these loads through the WP&L system.
WPSC filed a complaint with the FERC contending that WPPI and WP&L were
conspiring to use the WPSC portion of the Interface capacity for a service
that should use the WP&L portion of the Interface. WPPI responded with FERC
complaints against both WPSC and WP&L indicating that neither had provided the
necessary transmission services across the constrained Interface. WPSC and
WP&L both maintained that they had previous claims to the Interface capacity
consistent with the FERC's first-come-first-served transmission scheduling
process.
On May 27, 1998, the FERC rejected WPSC's arguments that the transmission
service requested by WPPI should be denied. WPSC had argued that WPPI's
request violates certain contractual agreements between WPPI and WP&L and that
there was insufficient available transmission capacity to provide the
requested service. The FERC ruled that it is not within WPSC's authority as a
provider of transmission service to deny service on the basis of
interpretations of contracts between other utilities. In addition, the FERC
stated that it considered WPSC's available transmission capacity calculation
to be flawed because it reserved 176 megawatts of service for itself by
designating unexercised option contracts as network resources.
The FERC, therefore, directed WPSC to release 42 megawatts of transmission
capacity to WPPI and 40 megawatts of transmission capacity to MG&E. The FERC
did not require WPSC to join an Independent System Operator ("ISO") noting
Wisconsin's legislative requirements for ISO membership.
The FERC also required WPSC to enter into alternative dispute resolution
procedures with interested customers to establish protocols for dissemination
of transmission information, including calculation of the available
transmission capacity.
On June 11, 1998, WPSC filed a motion with the FERC for an emergency stay of
the requirement to release the 176 megawatts of available transmission
capacity pending rehearing of the FERC's May 27, 1998 order. On June 26,
1998, WPSC filed for rehearing of the FERC's May 27, 1998 order. WPPI and
MG&E filed objections to both the stay and rehearing requests. On July 29,
1998, the FERC issued its rehearing order which resolved both the stay and
rehearing requests by acknowledging that the WPSC contracts for network
resources were valid and in accordance with FERC Order 888 and the WPSC open
access transmission tariff. The FERC held that WPSC's contract with Manitoba
Hydro for 50 megawatts of capacity and energy had higher priority than the
WPPI or MG&E requests for transmission service. The FERC also held that
WPSC's contract with Northern States Power for 150 megawatts of capacity and
energy had a lower priority than the WPPI request but a higher priority than
the MG&E request and awarded WPPI the rights to the 42 megawatts of the
Interface capacity from WPSC or WP&L. The FERC also established that WPSC has
rights to the remaining 134 megawatts based on its network resource contracts.
Subsequent to this order, WPSC and WPPI have come to an agreement that WPPI
will not take the 42 megawatts over the WPSC portion of the Interface. That
comprehensively settles the respective claims of WPSC and WPPI associated with
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<PAGE>
WPSC's transmission tariff administration with respect to WPSC's share of
transmission capacity on the Interface.
The FERC also addressed WPSC's adjustment to available transmission capacity
to account for a capacity benefit margin. The capacity benefit margin
reserves transmission capability across the Interface to meet generation
reliability requirements. The FERC did not direct WPSC to eliminate the
capacity benefit margin, but directed WPSC to file revised transmission tariff
provisions reflecting the capacity benefit margin concept and to perform an
economic evaluation of capacity benefit margin versus other uses of the
transmission system. On July 20, 1998, WPSC filed a revision to its open
access transmission tariff which describes its capacity benefit margin
methodology and testimony that explains the economic evaluation of capacity
benefit margin. The FERC noticed this filing on July 29, 1998 and stated that
comments were due by August 7, 1998. MG&E and WPPI filed a motion for a delay
in the due date for the comments. WPSC has supported this motion in order to
provide a complete record in this important matter. The FERC granted the
delay, and MG&E and WPPI filed their comments on August 21, 1998. WPSC
responded to the MG&E and WPPI comments on September 8, 1998. MG&E and WPPI
answered the WPSC response on September 23, 1998. It is expected that the
FERC will issue an order on the capacity benefit margin issue by late-fall of
1998. This ruling could have significant consequences for the reliability and
economics of generation reserves in the Midwest and elsewhere.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following documents are filed herewith:
Exhibit 11 Statement Regarding Computation of Per
Share Earnings
WPS Resources Corporation
Exhibit 27 Financial Data Schedule
WPS Resources Corporation
Wisconsin Public Service Corporation
(b) REPORTS ON FORM 8-K
A Current Report on Form 8-K dated July 2, 1998 filed by
WPS Resources Corporation and Wisconsin Public Service
Corporation on July 22, 1998. The report included under
Item 5 a press release announcing financial results for the
period ended June 30, 1998; details of the Kewaunee Nuclear
Power Plant steam generator replacement and related recovery
of costs; proposed changes in ownership of the Kewaunee
Nuclear Power Plant; a proposed amendment to the joint power
supply agreement relating to the Kewaunee Nuclear Power
Plant; WPS Power Development, Inc.'s agreement to purchase
generating facilities from Maine Public Service Company; and
WPS Power Development, Inc.'s joint venture with an
affiliate of EarthCo.
A Current Report on Form 8-K dated July 27, 1998 filed by
WPS Resources Corporation and WPSR Capital Trust I on
August 6, 1998. The report included under Item 5 an
Underwriting Agreement in connection with the offering of
the 7.00% Trust Preferred Securities and certain related
documents.
A Current Report on Form 8-K dated September 29, 1998 filed
by WPS Resources Corporation and Wisconsin Public Service
Corporation on October 6, 1998. The report included under
Item 5 the announcement of completion of the merger of Upper
Peninsula Energy Company and WPS Resources Corporation
effective at the close of business on September 29, 1998 and
the finalization of an arrangement for Wisconsin Public
Service Corporation to buy Madison Gas & Electric Company's
share of the Kewaunee Nuclear Power Plant.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant, WPS Resources Corporation, has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
WPS Resources Corporation
Date: November 12, 1998 /s/ Diane L. Ford
_________________________________
Diane L. Ford
Controller and Chief
Accounting Officer
(Duly Authorized Officer and
Chief Accounting Officer)
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant, Wisconsin Public Service Corporation, has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
Wisconsin Public Service Corporation
Date: November 12, 1998 /s/ Diane L. Ford
____________________________________
Diane L. Ford
Controller
(Duly Authorized Officer and
Chief Accounting Officer)
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<PAGE>
WPS RESOURCES CORPORATION AND
WISCONSIN PUBLIC SERVICE CORPORATION
EXHIBIT INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
Exhibit No. Description
___________ ___________
11 Statement Regarding Computation of Per Share Earnings
WPS Resources Corporation
27 Financial Data Schedule
WPS Resources Corporation
Wisconsin Public Service Corporation
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<PAGE>
<TABLE>
EXHIBIT 11
WPS RESOURCES CORPORATION
<CAPTION>
====================================================================================================
INFORMATION WITH RESPECT TO THE COMPUTATION
OF EARNINGS PER SHARE OF COMMON STOCK Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
====================================================================================================
<S> <C> <C> <C> <C>
Shares of common stock at beginning of period 26,511 26,527 26,519 26,538
Shares of common stock purchased for deferred
compensation trust -
Date of deferred Number
compensation trust purchase of Shares
- --------------------------- ---------
January 20, 1998 1 1
February 23, 1998 1 1
March 23, 1998 2 2
April 20, 1998 1 1
May 20, 1998 1 1
June 23, 1998 2 2
July 20, 1998 1 1 1
August 21, 1998 1 1 1
September 21, 1998 2 2 2
January 20, 1997 2 2
February 20, 1997 1 1
March 20, 1997 2 2
April 21, 1997 2 2
May 20, 1997 2 2
June 20, 1997 2 2
July 21, 1997 2 2 2
August 20, 1997 1 1 1
September 23, 1997 2 2 2
- ----------------------------------------------------------------------------------------------------
Shares of common stock at end of period 26,507 26,522 26,507 26,522
====================================================================================================
Computation of daily weighted average
shares:
Shares of common stock at
beginning of period -
Number Number
of of
Days Shares
------ ------
September 30, 1997 20 26,527 530,540
September 30, 1997 19 26,538 504,222
September 30, 1998 19 26,511 503,709
September 30, 1998 19 26,519 503,861
Shares of common stock after
purchase for deferred compensation trust -
Number Number
of of
Days Shares
------ ------
September 30, 1997 31 26,536 822,616
September 30, 1997 28 26,534 742,952
September 30, 1997 32 26,532 849,024
September 30, 1997 29 26,531 769,399
September 30, 1997 31 26,529 822,399
September 30, 1997 31 26,527 822,337
September 30, 1997 30 26,525 795,750 795,750
September 30, 1997 34 26,524 901,816 901,816
September 30, 1997 8 26,522 212,176 212,176
September 30, 1998 34 26,517 901,578
September 30, 1998 28 26,516 742,448
September 30, 1998 28 26,515 742,420
September 30, 1998 30 26,514 795,420
September 30, 1998 34 26,513 901,442
September 30, 1998 27 26,511 715,797
September 30, 1998 32 26,510 848,320 848,320
September 30, 1998 31 26,508 821,748 821,748
September 30, 1998 10 26,507 265,070 265,070
- ----------------------------------------------------------------------------------------------------
Total days - weighted 2,438,847 2,440,282 7,238,104 7,242,691
====================================================================================================
Average number of shares of common
stock based on daily
weighted average computations 26,509 26,525 26,513 26,530
====================================================================================================
Earnings on common stock, as set forth
in statements of income $11,799 $12,756 $40,216 $43,152
====================================================================================================
Earnings per share of common stock based on
weighted average shares $0.45 $0.48 $1.52 $1.63
====================================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT EXHIBIT 27
<CIK> 0000916863
<NAME> WPS RESOURCES CORPORATION
<SUBSIDIARY>
<NUMBER> 1
<NAME> WISCONSIN PUBLIC SERVICE CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 991,183
<OTHER-PROPERTY-AND-INVEST> 38,448
<TOTAL-CURRENT-ASSETS> 191,606
<TOTAL-DEFERRED-CHARGES> 70,805
<OTHER-ASSETS> 138,021
<TOTAL-ASSETS> 1,430,063
<COMMON> 26,552
<CAPITAL-SURPLUS-PAID-IN> 163,436
<RETAINED-EARNINGS> 332,683
<TOTAL-COMMON-STOCKHOLDERS-EQ> 522,671
398
51,200
<LONG-TERM-DEBT-NET> 295,580
<SHORT-TERM-NOTES> 22,561
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 35,460
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 502,193
<TOT-CAPITALIZATION-AND-LIAB> 1,430,063
<GROSS-OPERATING-REVENUE> 771,208
<INCOME-TAX-EXPENSE> 21,566
<OTHER-OPERATING-EXPENSES> 688,468
<TOTAL-OPERATING-EXPENSES> 688,468<F1>
<OPERATING-INCOME-LOSS> 82,740<F2>
<OTHER-INCOME-NET> 3,354
<INCOME-BEFORE-INTEREST-EXPEN> 86,094<F3>
<TOTAL-INTEREST-EXPENSE> 21,744
<NET-INCOME> 42,566<F4>
2,350
<EARNINGS-AVAILABLE-FOR-COMM> 40,216
<COMMON-STOCK-DIVIDENDS> 37,841
<TOTAL-INTEREST-ON-BONDS> 16,611
<CASH-FLOW-OPERATIONS> 98,098
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.52
<FN>
<F1>Operating expenses exclude income taxes of $21,566.
<F2>Operating income is before income taxes of $21,566.
<F3>Income before interest expense is before income taxes of
$21,566.
<F4>Net income includes minority interest of $(395) and
distributions on trust preferred securities of $613.
</FN>
</TABLE>
