GREEN BAY, Wis., Nov. 2 /PRNewswire-FirstCall/ — WPS Resources Corporation (NYSE:WPS) , an operator of regulated utility and nonregulated business units, today announced the following results for the quarter and nine month period ended September 30, 2006:
Highlights:
— WPS Resources Corporation produced income available for common
shareholders of $39.5 million, or $0.91 per diluted share, in the third
quarter of 2006 compared to $48.2 million, or $1.25 per diluted share,
for the comparable quarter in 2005. Third quarter results included:
– After-tax income from discontinued operations of $11.5 million, which
included a $12.7 million after-tax gain associated with the sale of
the company’s Sunbury generation facility.
– Approximately $7 million in after-tax losses, including $1.4 million
in after-tax external transition costs, associated with the recently
acquired natural gas utility operations in Michigan and Minnesota.
– $0.3 million in after-tax income from synthetic fuel activities,
including $12.4 million in recognized federal tax credits, partially
offset by $10.8 million of after-tax losses due to mark-to-market
activities on derivative instruments used to protect the value of
2006 and 2007 Section 29/45K tax credits.
– a $1.2 million after-tax loss due to increased operating costs in
2006 associated with the liquidation of an electric supply contract
in Maine during the fourth quarter of 2005.
– $0.4 million in after-tax external transition costs, related to the
pending merger with Peoples Energy Corporation.— WPS Resources Corporation produced $0.81 diluted earnings per share
from continuing operations – adjusted in the third quarter of 2006
compared to $0.84 in the comparable quarter last year. Please see the
attached “Diluted Earnings Per Share Information – Non-GAAP Financial
Information” (page 1) for a reconciliation of diluted earnings per
share from continuing operations to diluted earnings per share from
continuing operations – adjusted. The management of WPS Resources
Corporation believes that diluted EPS from continuing operations –
adjusted is a useful measure for providing investors with additional
insight into the company’s operating performance because it eliminates
the effects of certain items that are not comparable from one period to
the next.— Income available for common shareholders from the regulated electric
utility operations rose approximately 11%, or $3.0 million, to $31.0
million for the third quarter of 2006, from $28.0 million for the third
quarter of 2005 despite 3.9% fewer cooling days in this year’s third
quarter versus last year.— The regulated gas utility operations produced a net loss of $11.0
million during the seasonally weak third quarter compared to a net loss
of $3.5 million for the same quarter last year. The newly acquired
natural gas utility operations in Michigan and Minnesota produced a
combined loss of approximately $7 million, including $1.4 million in
after-tax external transition costs.— WPS Energy Services, the company’s nonregulated segment, generated
income available for common shareholders of $21.1 million in this
year’s third quarter, compared to $22.2 million in the third quarter of
2005.
– After-tax income relating to synthetic fuel activities decreased
$11.2 million to $0.3 million in the third quarter of 2006, compared
to $11.5 million in the comparable quarter of 2005, due primarily to
a $17.3 million after-tax decrease in income from mark-to-market
losses recognized in 2006 on derivative instruments used to protect
the value of 2006 and 2007 synthetic fuel federal tax credits
compared to mark-to-market gains recognized in 2005. There was also a
$6.9 million increase in synthetic fuel federal tax credits in the
third quarter of 2006 compared to the same quarter last year. (See
page 3 of the Supplemental Quarterly Financial Highlights for more
information.)
– After-tax income from discontinued operations increased $8.0 million
due primarily to a $12.7 million after-tax gain associated with the
sale of the Sunbury generation facility.— Equity earnings recognized from the company’s investment in American
Transmission Company LLC (“ATC”) increased approximately 53% to $6.1
million after-tax in the third quarter of 2006, compared to $4.0
million in the third quarter of 2005. WPS Resources owns approximately
32% of ATC at September 30, 2006, up from 28% at September 30, 2005.— For the nine months ended September 30, 2006, WPS Resources reported
income available for common shareholders of $134.5 million,
representing $3.20 per diluted share, compared to $138.0 million,
representing $3.60 per diluted share, for the same period in 2005.— WPS Resources recently announced the following important events:
– On October 12, 2006, the company announced the proposed sale of its
Niagara Falls generation facility. The total pre-tax gain on the sale
is expected to be approximately $25 million. Closing on this
transaction is expected to occur in the first quarter of 2007 and is
subject to approvals from the Federal Energy Regulatory Commission
and the New York State Public Service Commission.
– On October 16, 2006, WPS Resources and Peoples Energy announced that,
assuming shareholder approval is received, upon closing of the
proposed merger involving the two companies, WPS Resources will
change its name to Integrys Energy Group, Inc.— WPS Resources narrowed its diluted earnings per share guidance for 2006
to between $3.73 and $3.95, which includes transition costs and
operating results related to the recent acquisition of natural gas
distribution operations in Michigan and Minnesota, asset management
sales, discontinued operations, increased power purchase costs for WPS
Energy Services’ customers in Maine, and transition costs related to
the pending merger with Peoples Energy.
“We produced solid results in the third quarter with our regulated electric operations leading the way with an approximate gain of 11% in earnings versus last year.” stated Larry Weyers, WPS Resources’ Chairman, President, and CEO. “At our natural gas utility operations, we are moving out of our seasonally weak period into the time period where demand increases as temperatures decline. We look forward to the contribution of our newly acquired natural gas distribution assets in Minnesota and Michigan, where we are continuing our integration efforts. Although earnings from our nonregulated WPS Energy Services operations were down slightly quarter over quarter, the core business remains healthy, as evidenced by continued growth in forward contracted transaction volumes.”
The following table depicts income available for common shareholders and revenue for the comparable third quarters.
WPS Resources’ Income Available for Common Shareholders and Revenue For the
Quarters Ended September 30, 2006 and September 30, 2005Income (Loss) Revenue
Segment 2006 2005 2006 2005
(in millions) (in millions) (in millions) (in millions)
Electric Utility $31.0 $28.0 $315.0 $298.6
Gas Utility (11.0) (3.5) 91.1 71.8
WPS Energy Services 21.1 22.2 1,166.6 1,366.3
Holding Company and
Other (1.6) 1.5 0.3 0.3
Intersegment
Eliminations – – (12.2) (16.9)
Total WPS Resources $39.5 $48.2 $1,560.8 $1,720.1Comparison of Estimated Weather Impact on Utility Earnings and
Diluted Earnings per Share Between the Quarters Ended
September 30, 2006 and September 30, 2005Electric Diluted Gas Diluted
EPS Impact EPS Impact
Percent Change (After Tax) (After Tax)
Heating Compared with
Normal – 2006 3% cooler – –
Heating Compared with
Normal – 2005 53% warmer – (0.01)
Cooling Compared with
Normal – 2006 15% warmer 0.04 –
Cooling Compared with
Normal – 2005 18% warmer 0.07 –
Heating Compared with
Prior Year 114% cooler – 0.02
Cooling Compared with
Prior Year 4% cooler (0.02) –Segments
WPS Resources’ Electric Utility segment includes the regulated electric utility operations of two wholly owned utility subsidiaries, Wisconsin Public Service Corporation and Upper Peninsula Power Company. The Gas Utility segment consists of the natural gas utility operations of Wisconsin Public Service, Minnesota Energy Resources Corporation and Michigan Gas Utilities Corporation.
WPS Energy Services, Inc., a diversified energy supply, generation, and services company, offers nonregulated natural gas, electric, and alternative fuel supplies, as well as energy management and consulting services, to retail and wholesale customers in the Midwest and Northeastern United States, Texas, and portions of Canada adjacent to areas in the United States where WPS Energy Services conducts business. WPS Energy Services also owns several merchant electric generation plants, primarily in the Midwest and Northeastern United States and adjacent portions of Canada.
The Holding Company and Other segment includes the operations of the WPS Resources holding company and the non-utility activities of Wisconsin Public Service Corporation, Upper Peninsula Power Company, Minnesota Energy Resources Corporation and Michigan Gas Utilities Corporation. Equity earnings from the company’s investments in ATC and Wisconsin River Power Company are also included in the Holding Company and Other Segment. WPS Resources divested of its investment in Guardian Pipeline, LLC in the second quarter of 2006.
Discontinued Operations
In July 2006, WPS Energy Services sold Sunbury Generation, LLC to Corona Power, LLC. Sunbury Generation’s primary asset was the Sunbury generation plant, located in Shamokin Dam, Pennsylvania. The gross proceeds received from the plant were $34.1 million and are subject to various working capital and other post-closing adjustments. The total after-tax gain of $12.7 million on this transaction was recognized in the third quarter of 2006. Beginning in the second quarter of 2006, WPS Energy Services began reporting the assets and liabilities of Sunbury that were transferred to Corona Power, LLC as held for sale and also reported Sunbury’s results of operations and cash flows as discontinued operations. Prior periods have also been reclassified, as applicable, to reflect this change in presentation.
Third Quarter Financial ResultsElectric Utility Segment Earnings
Electric utility earnings increased by $3.0 million to $31.0 million for the quarter ended September 30, 2006, compared to $28.0 million for comparable quarter last year. The rise in electric utility earnings was primarily due to the implementation of an approved rate increases for Wisconsin Public Service that was effective January 1, 2006, and an approved rate increase for Upper Peninsula Power that was effective June 28, 2006, partially offset by a milder cooling season that resulted in 3.9% less cooling degree days as compared to last year.
Natural Gas Utility Segment Earnings
During the seasonally weak third quarter, the company’s natural gas utility operations produced a net loss of $11.0 million in this year’s third quarter, compared to a $3.5 million loss during the comparable quarter last year. Natural gas margins increased by $13.8 million, or 71.9%, to $33.0 million during the third quarter compared to the same quarter last year, reflecting approximately $14 million in added margin contribution from the newly acquired natural gas distribution operations in Michigan and Minnesota. Increased expenses, including the impact of external transition costs, and depreciation offset the rise in margins.
WPS Energy Services Segment Earnings
WPS Energy Services’ earnings declined $1.1 million, from $22.2 million for the quarter ended September 30, 2005, to $21.1 million for the quarter ended September 30, 2006. Margins declined $25.9 million, driven largely by mark-to-market losses on derivative instruments utilized to protect the value of the Section 29/45K tax credits in 2006 and 2007 (mark-to-market losses recognized on 2006 and 2007 oil hedges were $15.8 million and $2.2 million, respectively, for the quarter ended September 30, 2006). Also impacting earnings was a $5.1 million pre-tax increase in interest expense due to increased borrowings to fund higher working capital requirements resulting from higher levels of natural gas in storage. Partially offsetting the decline in earnings was a $6.9 million increase in Section 29/45K tax credits recognized, an $8.0 million after-tax increase in income from discontinued operations and $6.1 million pre-tax decrease in operating and maintenance expenses.
Detailed explanations related to the change in WPS Energy Services’ margin and more information on Section 29/45K tax credits will be available in WPS Resources’ third quarter report on Form 10-Q that we expect to file with the Securities and Exchange Commission later today.
Holding Company and Other Segment Earnings
The Holding Company and Other segment produced a net loss of $1.6 million during the third quarter of 2006 compared to income of $1.5 million for the comparable quarter last year. The decline in earnings was due, in part, to higher interest expenses resulting from an increase in short-term debt levels due to the company’s acquisition of the natural gas distribution assets in Michigan and Minnesota.
Average Shares of Common Stock
The change in diluted earnings per share was impacted by the items discussed above as well as an increase of 4.8 million shares in the weighted average number of outstanding shares of WPS Resources’ common stock for the quarter ended September 30, 2006, compared to the same quarter in 2005. WPS Resources issued 1.9 million shares of common stock through a public offering in November 2005 and also issued 2.7 million shares of common stock in May 2006 in order to settle its forward equity agreement with an affiliate of J.P. Morgan Securities, Inc. Additional shares were also issued under the Stock Investment Plan and certain stock-based employee benefit plans.
2006 EARNINGS FORECAST
In 2006, the company is continuing to manage its portfolio of businesses to achieve long-term growth in its utility and nonregulated operations, while maintaining an emphasis on regulated growth. The company’s emphasis on regulated growth has been demonstrated by the on-going expansion of its generation fleet, as well as the acquisition of retail natural gas distribution operations in Michigan on April 1, 2006, and in Minnesota on July 1, 2006. The expansion of the utility generation fleet is aimed at meeting the high level of reliability expected by the company’s customers and ensuring that the company continues to meet anticipated growth in electric demand. In all of the company’s business units, financial tools commonly used in the industry are utilized to help mitigate risk for the benefit of both shareholders and customers. Also, the company’s asset management strategy continues to deliver shareholder return from certain asset transactions. The company’s long-term diluted earnings per share growth rate target remains at 6% to 8% on an average annualized basis, with fluctuations in any given year that may be above or below that targeted range.
The 2006 guidance has been narrowed to $3.73 to $3.95 diluted earnings per share, assuming normal weather for the remainder of the year, availability of generation units, and completion of asset management sales. Diluted earnings per share guidance reflects the company’s estimate of transition costs of about $12.4 million (approximately $7.4 million after-tax) related to the acquisitions of natural gas distribution operations in Michigan and Minnesota. The guidance also includes about $6.4 million (approximately $3.8 million after-tax) of increased purchased power costs for WPS Energy Services’ customers in Maine and approximately $2.8 million (approximately $1.7 million after-tax) in transition costs associated with the merger of Peoples Energy. Diluted earnings per share guidance does not reflect potential future mark-to- market gains or losses on derivative instruments utilized to protect the anticipated value of a portion of Section 29/45K tax credits in 2007.
Adjusting for certain items that are not comparable from one period to the next, the 2006 guidance range for diluted earnings per share from continuing operations – adjusted, which is a non-GAAP measure, is now $3.15 to $3.36 compared with $2.96 to $3.35, as announced previously. Please see attached “Diluted Earnings per Share Information – Non-GAAP Financial Information” (page 2) for a reconciliation of diluted earnings per share from continuing operations to diluted earnings per share from continuing operations – adjusted.
CONFERENCE CALL
An earnings conference call is scheduled for 3 p.m. central time on Thursday, November 2. Larry L. Weyers, WPS Resources’ Chairman, President, and Chief Executive Officer, will discuss third quarter 2006 financial results. To access the call, which is open to the public, call 888-690-9634 (toll free) 15 minutes prior to the scheduled start time. Callers will be required to supply EARNINGS as the passcode and MR. LARRY WEYERS as the leader. Callers will be placed on hold with music until the call begins. A replay of the conference call will be available through November 16, 2006 by dialing 800- 284-7024 (toll free).
Investors may also listen to the conference live on the WPS Resources corporate website at http://www.wpsr.com/investor/presentations.asp. An archive of the webcast will be available until November 1, 2007.
FORWARD-LOOKING STATEMENTS
Financial results for the third quarter of 2006 are unaudited. This news release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. You can identify these statements by the fact that they do not relate strictly to historical or current facts and often include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” and other similar words. Although the company believes it has been prudent in its plans and assumptions, there can be no assurance that indicated results will be realized. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from those anticipated.
Forward-looking statements speak only as of the date on which they are made, and the company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. The company recommends that you consult any further disclosures it makes on related subjects in its 10-Q, 8-K, and 10-K reports to the Securities and Exchange Commission.
The following is a cautionary list of risks and uncertainties that may affect the assumptions, which form the basis of forward-looking statements relevant to the company’s business. These factors, and other factors not listed here, could cause actual results to differ materially from those contained in forward-looking statements.
— Timely and successful completion of the proposed merger of Peoples
Energy Corporation into WPS Resources (including receipt of acceptable
regulatory approvals, including but not limited to, approval by
Illinois Commerce Commission, Federal Energy Regulatory Commission and
Public Service Commission of Wisconsin, and the ability of WPS
Resources and Peoples Energy to satisfy all of the other conditions
precedent to the completion of the merger) and the successful
integration of operations;
— Unexpected costs and/or liabilities related to the merger, or the
effects of purchase accounting may be different from WPS Resources’ and
Peoples Energy’s expectations;
— The combined company of WPS Resources and Peoples Energy may be unable
to achieve the forecasted synergies or it may take longer or cost more
than expected to achieve these synergies;
— The credit ratings of the WPS Resources and Peoples Energy combined
company or its subsidiaries may be different from the current ratings
of WPS Resources or its subsidiaries;
— Successful integration of both the Michigan and Minnesota natural gas
distribution operations purchased from Aquila, which are now operated
by Michigan Gas Utilities Corporation and Minnesota Energy Resources
Corporation, respectively;
— Resolution of pending and future rate cases and negotiations (including
the recovery of deferred costs) and other regulatory decisions
impacting WPS Resources’ regulated businesses;
— The impact of recent and future federal and state regulatory changes,
including legislative and regulatory initiatives regarding deregulation
and restructuring of the electric and natural gas utility industries,
changes in environmental, tax and other laws and regulations to which
WPS Resources and its subsidiaries are subject, as well as changes in
application of existing laws and regulations;
— Current and future litigation, regulatory investigations, proceedings
or inquiries, including but not limited to, manufactured gas plant site
cleanup, pending United States Environmental Protection Agency
investigations of Wisconsin Public Services Corporation’s generation
facilities, and the appeal of the decision in the contested case
proceeding regarding the Weston 4 air permit;
— Resolution of audits by the Internal Revenue Service and various state
and foreign revenue agencies;
— The effects, extent, and timing of additional competition or regulation
in the markets in which our subsidiaries operate;
— The impact of fluctuations in commodity prices, interest rates, and
customer demand;
— Available sources and costs of fuels and purchased power;
— Ability to control costs;
— Investment performance of employee benefit plan assets;
— Advances in technology;
— Effects of and changes in political, legal, and economic conditions and
developments in the United States and Canada;
— The performance of projects undertaken by nonregulated businesses and
the success of efforts to invest in and develop new opportunities;
— Potential business strategies, including mergers and acquisitions or
dispositions of assets or businesses, which cannot be assured to be
completed (such as the proposed merger with Peoples Energy,
construction of the Weston 4 power plant, and additional investment in
American Transmission Company related to construction of the Wausau,
Wisconsin, to Duluth, Minnesota, transmission line);
— The direct or indirect effect resulting from terrorist incidents,
natural disasters, or responses to such events;
— Financial market conditions and the results of financing efforts,
including credit ratings and risks associated with commodity prices (in
particular electricity and natural gas), interest rates, and
counterparty credit;
— Weather and other natural phenomena; and
— The effect of accounting pronouncements issued periodically by
standard-setting bodies.– Unaudited Financial Statements to Follow –
WPS RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
OF INCOME (Unaudited) Three Months Ended Nine Months Ended
September 30 September 30
(Millions, except per share
amounts) 2006 2005 2006 2005Nonregulated revenue $1,166.0 $1,358.8 $3,857.5 $3,403.1
Utility revenue 394.8 361.3 1,183.4 1,093.6
Total revenues 1,560.8 1,720.1 5,040.9 4,496.7Nonregulated cost of fuel, natural
gas, and purchased power 1,142.1 1,311.2 3,691.1 3,280.4
Utility cost of fuel, natural gas,
and purchased power 209.6 190.5 650.1 526.8
Operating and maintenance expense 120.4 117.8 371.6 378.9
Depreciation and decommissioning
expense 28.1 23.7 77.7 119.5
Taxes other than income 15.1 11.6 42.3 35.4
Operating income 45.5 65.3 208.1 155.7Miscellaneous income 11.4 9.6 34.3 62.8
Interest expense (29.1) (15.6) (69.6) (45.6)
Minority interest 1.4 1.2 3.8 3.4
Other (expense) income (16.3) (4.8) (31.5) 20.6Income before taxes 29.2 60.5 176.6 176.3
Provision for income taxes 0.5 15.1 46.9 39.0
Income from continuing operations 28.7 45.4 129.7 137.3Discontinued operations, net of
tax 11.5 3.5 7.1 3.0
Net income before preferred stock
dividends of subsidiary 40.2 48.9 136.8 140.3Preferred stock dividends of
subsidiary 0.7 0.7 2.3 2.3
Income available for common
shareholders $39.5 $48.2 $134.5 $138.0Average shares of common stock
Basic 43.3 38.2 41.9 38.0
Diluted 43.4 38.6 42.0 38.3Earnings per common share (basic)
Income from continuing
operations $0.65 $1.17 $3.04 $3.55
Discontinued operations, net
of tax $0.26 $0.09 $0.17 $0.08
Earnings per common share
(basic) $0.91 $1.26 $3.21 $3.63Earnings per common share
(diluted)
Income from continuing
operations $0.65 $1.16 $3.03 $3.52
Discontinued operations, net
of tax $0.26 $0.09 $0.17 $0.08
Earnings per common share
(diluted) $0.91 $1.25 $3.20 $3.60Dividends per common share
declared $0.575 $0.565 $1.705 $1.675WPS RESOURCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) September 30 December 31
(Millions) 2006 2005Assets
Cash and cash equivalents $31.8 $27.7
Accounts receivable – net of reserves
of $13.5 and $12.7, respectively 856.6 1,005.6
Accrued unbilled revenues 78.8 151.3
Inventories 437.2 304.8
Current assets from risk management
activities 1,091.6 906.4
Assets held for sale – 14.8
Deferred income taxes – 7.3
Other current assets 139.4 100.4
Current assets 2,635.4 2,518.3Property, plant, and equipment, net
of reserves of $1,420.5 and
$1,107.9, respectively 2,498.3 2,048.1
Regulatory assets 300.6 272.0
Long-term assets from risk management
activities 333.5 226.5
Goodwill 349.3 36.8
Other 377.1 360.8
Total assets $6,494.2 $5,462.5Liabilities and Shareholders’ Equity
Short-term debt $1,056.9 $264.8
Current portion of long-term debt 4.2 4.0
Accounts payable 749.8 1,078.9
Current liabilities from risk
management activities 991.8 852.8
Liabilities held for sale – 6.6
Deferred income taxes 5.4 –
Other current liabilities 154.2 116.8
Current liabilities 2,962.3 2,323.9Long-term debt 865.7 867.1
Deferred income taxes 114.3 79.6
Deferred investment tax credits 13.9 14.5
Regulatory liabilities 330.1 373.2
Environmental remediation liabilities 91.7 67.4
Pension and postretirement benefit
obligations 110.6 82.1
Long-term liabilities from risk
management activities 277.5 188.4
Other 118.2 111.0
Long-term liabilities 1,922.0 1,783.3Commitments and contingencies
Preferred stock of subsidiary with no
mandatory redemption 51.1 51.1
Common stock equity 1,558.8 1,304.2
Total liabilities and shareholders’
equity $6,494.2 $5,462.5WPS RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (Unaudited) Nine Months Ended
September 30
(Millions) 2006 2005
Operating Activities
Net income before preferred stock
dividends of subsidiary $136.8 $140.3
Adjustments to reconcile net income
to net cash provided by operating
activities
Discontinued operations, net of
tax (7.1) (3.0)
Depreciation and decommissioning 77.7 119.5
Amortization 13.8 10.9
Amortization of regulatory assets
and liabilities (12.4) 20.3
Realized gain on investments held
in trust, net of regulatory
deferral – (15.7)
Pension and postretirement
expense 38.6 37.8
Pension and postretirement
funding (25.3) (8.2)
Deferred income taxes and
investment tax credit 48.9 (13.2)
Gain on sale of interest in
Guardian Pipeline, LLC (6.2) –
Gain on sale of WPS ESI Gas
Storage, LLC (9.0) –
Unrealized gains on nonregulated
energy contracts (19.1) (25.7)
Gain on sale of partial interest
in synthetic fuel operation (5.6) (5.5)
Equity income, net of dividends 10.5 9.9
Deferral of Kewaunee outage costs – (57.8)
Other 12.7 (41.9)
Changes in working capital
Receivables, net 276.3 (221.5)
Inventories (150.6) (52.5)
Other current assets (33.1) 16.1
Accounts payable (256.3) 252.4
Other current liabilities (12.1) 40.4
Net cash provided by operating
activities 78.5 202.6Investing Activities
Capital expenditures (255.3) (293.1)
Proceeds from the sale of property,
plant and equipment 3.9 3.8
Purchase of emission allowances (3.8) –
Purchase of equity investments and
other acquisitions (55.0) (48.5)
Proceeds from the sale of interest in
Guardian Pipeline, LLC 38.5 –
Proceeds from the sale of WPS ESI Gas
Storage, LLC 19.9 –
Proceeds from the sale of Kewaunee
power plant – 112.5
Proceeds from liquidation of non-
qualified decommissioning trust – 127.1
Purchases of nuclear decommissioning
trust investments – (18.6)
Sales of nuclear decommissioning
trust investments – 18.6
Acquisition of natural gas operations
in Michigan and Minnesota, net of
liabilities assumed (665.6) –
Other 0.6 (1.0)
Net cash used for investing
activities (916.8) (99.2)Financing Activities
Short-term debt, net 792.1 (141.8)
Repayment of long-term debt (1.4) (1.1)
Payment of dividends
Preferred stock (2.3) (2.3)
Common stock (71.3) (63.0)
Issuance of common stock 158.2 23.7
Other (71.8) (10.7)
Net cash provided by (used for)
financing activities 803.5 (195.2)Change in cash and cash equivalents –
continuing operations (34.8) (91.8)
Change in cash and cash equivalents –
discontinued operations
Net cash provided by (used for)
operating activities 21.9 (30.3)
Net cash provided by investing
activities 17.0 110.3
Net cash used for financing
activities – (0.8)
Change in cash and cash equivalents 4.1 (12.6)
Cash and cash equivalents at
beginning of period 27.7 40.0
Cash and cash equivalents at end of
period $31.8 $27.4Diluted Earnings Per Share Information – Non-GAAP Financial Information
Non-GAAP Financial Information
WPS Resources prepares financial statements in accordance with accounting principles generally accepted in the United States (GAAP). Along with this information, we disclose and discuss diluted earnings per share (EPS) from continuing operations – adjusted, which is a non-GAAP measure. Management uses the measure in its internal performance reporting and for reports to the Board of Directors. We disclose this measure in our quarterly earnings releases, on investor conference calls, and during investor conferences and related events. Management believes that diluted EPS from continuing operations – adjusted is a useful measure for providing investors with additional insight into our operating performance because it eliminates the effects of certain items that are not comparable from one period to the next. Therefore, this measure allows investors to better compare our financial results from period to period. The presentation of this additional information is not meant to be considered in isolation or as a substitute for our results of operations prepared and presented in conformance with GAAP.
Actual Quarter and Year-to-Date for Periods Ended September 30, 2006 and 2005
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
Diluted EPS from
continuing operations $0.65 $1.16 $3.03 $3.52
Diluted EPS from
discontinued operations 0.26 0.09 0.17 0.08
Total Diluted EPS $0.91 $1.25 $3.20 $3.60
Average Shares of
Common Stock – Diluted 43.4 38.6 42.0 38.3Information on Special Items:
Diluted earnings per share from continuing operations, as adjusted for special items and their financial impact on diluted earnings per share from continuing operations for the three and six months ended June 30, 2006 and 2005 are as follows:
Diluted EPS from
continuing operations $0.65 $1.16 $3.03 $3.52Adjustments (net of taxes):
Asset Management:
Other asset sales
(gains)/losses 0.00 0.00 (0.22) 0.00
Land sales (gains)/
losses (0.02) (0.02) (0.02) (0.03)
Total asset management (0.02) (0.02) (0.24) (0.03)
MERC and MGUC results
(includes transition
costs) 0.15 0.00 0.38 0.00
ESI power contract in
Maine liquidated in 2005 0.03 0.00 0.08 0.00
Transition costs related
to Peoples merger 0.01 0.00 0.01 0.00
Synfuel – realized and
unrealized oil option
gains, tax credits,
production costs,
premium amortization,
deferred gain
recognition, and
royalties (0.01) (0.30) (0.44) (0.81)
Diluted EPS from
continuing operations
– adjusted $0.81 $0.84 $2.82 $2.68Weather impact – regulated utilities (as compared to normal)
Electric impact –
favorable/
(unfavorable) $0.04 $0.07 $(0.03) $0.16
Gas impact –
favorable/
(unfavorable) 0.00 (0.01) (0.09) (0.06)
Total weather impact $0.04 $0.06 $(0.12) $0.10Diluted Earnings Per Share Information – Non-GAAP Financial Information
Actual 2005 and 2006 Forecast
Potential 2006 EPS Ranges
Actual High Low
2005 Scenario Scenario
Diluted EPS from continuing
operations $3.87 $3.79 $3.58
Diluted EPS from discontinued
operations 0.24 0.16 0.15
Diluted EPS from cumulative
effect of change in accounting
principle (0.04) ——- ——-
Total Diluted EPS $4.07 $3.95 $3.73
Average Shares of Common
Stock – Diluted 38.7 42.5 42.5Information on Special Items:
Diluted earnings per share from continuing operations, as adjusted for special items and their financial impact on the 2006 diluted earnings per share from continuing operations guidance and the actual 2005 diluted earnings per share from continuing operations are as follows:
Diluted EPS from continuing
operations $3.87 $3.79 $3.58Adjustments (net of taxes):
Asset Management:
Other asset sales (gains)/losses 0.10 (0.21) (0.21)
Land sales (gains)/losses (0.15) (0.04) (0.04)
Total asset management (0.05) (0.25) (0.25)
MERC and MGUC results (includes
transition costs) 0.02 0.23 0.23
Write-off of Kewaunee deferred
2004 outage costs 0.12 —– —–
ESI power contract in Maine
liquidated in 2005 (0.13) 0.09 0.09
Transition costs related to
Peoples merger —– 0.04 0.04
Synfuel – realized and unrealized
oil option gains, tax credits,
production costs, premium
amortization, deferred gain
recognition, and royalties (0.79) (0.54) (0.54)
Diluted EPS from continuing
operations – adjusted $3.04 $3.36 $3.15Weather impact – regulated
utilities (as compared to normal)
Electric impact – favorable/
(unfavorable) $0.18 $(0.03) $(0.03)
Gas impact – favorable/
(unfavorable) (0.07) (0.09) (0.09)
Total weather impact $0.11 $(0.12) $(0.12)WPS Resources Corporation
Supplemental Quarterly Financial Highlights
(millions, except per share amounts and ESI natural gas sales volumes)2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Ended
Regulated Electric Utility
Revenues $244.0 $240.2 $298.6 $254.3 $1,037.1
year-over-year change 9.5% 13.9% 24.9% 13.6% 15.7%
Fuel and purchased power
costs 80.7 79.2 150.0 134.3 444.2
Margins(1) 163.3 161.0 148.6 120.0 592.9
year-over-year change 8.6% 14.1% -9.6% -17.4% -1.4%
margins/revenues 66.9% 67.0% 49.8% 47.2% 57.2%Operating and maintenance
expense 90.2 90.5 73.5 108.1 362.3
Depreciation and
decommissioning expense(2) 22.1 59.1 16.4 15.8 113.4
Taxes other than income 9.7 9.6 9.3 9.9 38.5Operating Income 41.3 1.8 49.4 (13.8) 78.7
year-over-year change 21.5% -91.1% -8.7% N/M(3) -37.1%Income available for
common shareholders $23.5 $20.9 $28.0 $(8.2) $64.2Sales in kilowatt-hours 3,680.4 3,803.2 4,207.4 3,969.1 15,660.1
year-over-year change 1.2% 11.0% 12.8% 8.0% 8.3%
Residential 799.0 694.0 873.9 760.5 3,127.4
Commercial and
industrial 2,095.6 2,139.2 2,280.4 2,126.6 8,641.8
Resale 773.9 961.7 1,044.2 1,069.4 3,849.2
Other 11.9 8.3 8.9 12.6 41.7Notes:
(1) Fixed payment to Kewanee $- $- $21.0 $22.2 $43.2
(2) Decommissioning expense
(substantially offset in
other income) $2.4 $39.0 $- $- $41.4
(3) Not meaningfulRegulated Natural Gas
Utility
Revenues $174.6 $89.8 $71.8 $185.8 $522.0
year-over-year change 0.6% 29.0% 57.5% 40.7% 24.0%
Purchased gas costs 128.3 66.2 52.6 150.3 397.4
Margins 46.3 23.6 19.2 35.5 124.6
year-over-year change 2.2% 1.3% 14.3% 5.7% 4.7%
margins/revenues 26.5% 26.3% 26.7% 19.1% 23.9%Operating and maintenance
expense(4) 16.1 18.4 17.2 19.6 71.3
Depreciation and
decommissioning expense 4.2 4.3 4.4 4.5 17.4
Taxes other than income 1.5 1.5 1.5 1.6 6.1
Operating Income 24.5 (0.6) (3.9) 9.8 29.8
year-over-year change 0.4% N/M(3) -2.5% -31.5% -17.0%Income available for
common shareholders $14.0 $(1.9) $(3.5) $4.6 $13.2Throughput in therms(5) 308.7 162.5 128.6 227.4 827.2
year-over-year change -2.6% 8.3% 23.5% -1.3% 3.2%
Residential(5) 113.2 32.4 16.8 79.2 241.6
Commercial and
industrial(5) 63.2 16.4 11.9 43.2 134.7
Interruptible 9.4 8.8 9.8 8.1 36.1
Interdepartmental 10.2 28.4 25.1 7.1 70.8
Transport(5) 112.7 76.5 65.0 89.8 344.0Notes:
(4) External transition costs
associated with the
integration
of MGUC and MERC $- $- $- $1.0 $1.0
(5) Throughput in therms
related to MGUC and MERC – – – – –
Residential – – – – –
Commercial and
industrial – – – – –
Interruptible – – – – –
Transport – – – – –2006
1st Qtr 2nd Qtr 3rd Qtr YTDRegulated Electric Utility
Revenues $256.4 $262.4 $315.0 $833.8
year-over-year change 5.1% 9.2% 5.5% 6.5%
Fuel and purchased power costs 125.7 118.8 163.5 408.0
Margins(1) 130.7 143.6 151.5 425.8
year-over-year change -20.0% -10.8% 2.0% -10.0%
margins/revenues 51.0% 54.7% 48.1% 51.1%Operating and maintenance expense 72.4 72.8 66.5 211.7
Depreciation and decommissioning
expense(2) 16.4 16.5 16.5 49.4
Taxes other than income 10.5 10.3 10.2 31.0Operating Income 31.4 44.0 58.3 133.7
year-over-year change -24.0% N/M(3) 18.0% 44.5%Income available for common
shareholders $15.5 $23.4 $31.0 $69.9Sales in kilowatt-hours 3,829.3 3,777.0 4,221.5 11,827.8
year-over-year change 4.0% -0.7% 0.3% 1.2%
Residential 793.6 697.9 847.9 2,339.4
Commercial and industrial 2,085.7 2,065.5 2,291.1 6,442.3
Resale 938.3 1,005.1 1,073.0 3,016.4
Other 11.7 8.5 9.5 29.7Notes:
(1) Fixed payment to Kewanee $24.0 $24.3 $24.5 $72.8
(2) Decommissioning expense
(substantially offset in other
income) $- $- $- $-
(3) Not meaningfulRegulated Natural Gas Utility
Revenues $193.0 $95.6 $91.1 $379.7
year-over-year change 10.5% 6.5% 26.9% 12.9%
Purchased gas costs 148.2 62.0 58.1 268.3
Margins 44.8 33.6 33.0 111.4
year-over-year change -3.2% 42.4% 71.9% 25.0%
margins/revenues 23.2% 35.1% 36.2% 29.3%Operating and maintenance expense(4) 24.9 32.5 31.3 88.7
Depreciation and decommissioning
expense 4.6 6.5 8.7 19.8
Taxes other than income 1.7 2.7 4.1 8.5
Operating Income 13.6 (8.1) (11.1) (5.6)
year-over-year change -44.5% N/M(3) 184.6% N/M(3)Income available for common
shareholders $6.7 $(7.5) $(11.0) $(11.8)Throughput in therms(5) 266.9 194.9 275.0 736.8
year-over-year change -13.5% 19.9% 113.8% 22.8%
Residential(5) 97.8 47.6 32.8 178.2
Commercial and industrial(5) 58.5 21.5 22.8 102.8
Interruptible 6.3 7.0 7.5 20.8
Interdepartmental 4.5 4.4 8.9 17.8
Transport(5) 99.8 114.4 203.0 417.2Notes:
(4) External transition costs
associated with the integration
of MGUC and MERC $4.1 $4.1 $2.3 $10.5
(5) Throughput in therms related to
MGUC and MERC – 66.1 166.6 232.7
Residential – 17.6 17.8 35.4
Commercial and industrial – 7.8 10.8 18.6
Interruptible – – 2.9 2.9
Transport – 40.7 135.1 175.8WPS Resources Corporation
Supplemental Quarterly Financial Highlights
(millions, except per share amounts and ESI natural gas sales volumes)2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Ended
Nonregulated Segment –
ESI
Nonregulated revenues $1,052.3 $995.3 $1,366.3 $1,922.8 $5,336.7
Year-over-year change 6.1% 28.0% 71.7% 83.3% 47.7%
Nonregulated cost of
fuel, natural gas, and
purchased power 1,009.7 961.4 1,316.1 1,871.9 5,159.1
Margins 42.6 33.9 50.2 50.9 177.6
year-over-year
change 11.5% 48.0% 109.2% 3.5% 31.9%
Margins/Revenues 4.0% 3.4% 3.7% 2.6% 3.3%Margin Detail:
– Electric and other
margin 22.4 20.5 29.8 43.3 116.0
– Natural gas margin 20.2 13.4 20.4 7.6 61.6
42.6 33.9 50.2 50.9 177.6Operating and
maintenance expense 19.9 23.4 24.7 28.9 96.9
Depreciation and
decommissioning 3.0 2.9 2.9 2.7 11.5
Taxes other than income 0.6 0.8 0.8 0.4 2.6
Operating Income 19.1 6.8 21.8 18.9 66.6
year-over-year
change 34.5% N/M(3) 541.2% -24.4% 68.2%Income available for
common shareholders $28.2 $3.6 $22.2 $20.1 $74.1Gross Volumes (includes
transactions both
physically and
financially settled)
– Wholesales electric
sales volumes in
kilowatt-hours 7,560.2 9,937.7 14,990.9 12,548.9 45,037.7
– Retail electric sales
volumes in kilowatt-
hours 2,047.0 2,009.2 2,163.0 1,801.8 8,021.0
– Wholesales natural
gas sales volumes in
billion cubic feet 60.8 61.2 80.7 81.9 284.6
– Retail natural gas
sales volumes in
billion cubic feet 90.5 78.5 74.0 87.1 330.1Physical Volumes
(includes only
transactions settled
physically)
– Wholesales electric
sales volumes in
kilowatt-hours 558.6 237.1 589.4 390.1 1,775.2
– Retail electric sales
volumes in kilowatt-
hours 1,754.5 1,641.2 1,746.5 1,452.3 6,594.5
– Wholesales natural
gas sales volumes in
billion cubic feet 57.9 58.0 78.4 80.1 274.4
– Retail natural gas
sales volumes in
billion cubic feet 77.8 65.4 59.2 78.7 281.12006
1st Qtr 2nd Qtr 3rd Qtr YTDNonregulated Segment – ESI
Nonregulated revenues $1,563.2 $1,134.1 $1,166.6 $3,863.9
Year-over-year change 48.6% 13.9% -14.6% 13.2%
Nonregulated cost of fuel,
natural gas, and purchased
power 1,481.7 1,078.2 1,142.3 3,702.2
Margins 81.5 55.9 24.3 161.7
year-over-year change 91.3% 64.9% -51.6% 27.6%
Margins/Revenues 5.2% 4.9% 2.1% 4.2%Margin Detail:
– Electric and other margin 43.2 41.7 (7.2) 77.7
– Natural gas margin 38.3 14.2 31.5 84.0
81.5 55.9 24.3 161.7Operating and maintenance
expense 22.9 19.4 18.6 60.9
Depreciation and
decommissioning 2.9 2.7 2.7 8.3
Taxes other than income 0.9 0.8 0.9 2.6
Operating Income 54.8 33.0 2.1 89.9
year-over-year change 186.9% 385.3% -90.4% 88.5%Income available for common
shareholders $37.1 $13.4 $21.1 $71.6Gross Volumes (includes
transactions both physically
and financially settled)
– Wholesales electric sales
volumes in kilowatt-hours 13,444.1 12,275.8 15,576.0 41,295.9
– Retail electric sales volumes
in kilowatt-hours 1,139.1 1,304.8 1,989.7 4,433.6
– Wholesales natural gas sales
volumes in billion cubic feet 79.8 73.9 86.7 240.4
– Retail natural gas sales
volumes in billion cubic feet 100.3 92.2 90.7 283.2Physical Volumes (includes only
transactions settled
physically)
– Wholesales electric sales
volumes in kilowatt-hours 363.1 269.4 306.9 939.4
– Retail electric sales volumes
in kilowatt-hours 931.6 1,035.2 1,266.0 3,232.8
– Wholesales natural gas sales
volumes in billion cubic feet 74.2 68.1 81.9 224.2
– Retail natural gas sales
volumes in billion cubic feet 96.1 75.7 75.2 247.0WPS Resources Corporation
Supplemental Quarterly Financial Highlights
(millions, except per share amounts and ESI natural gas sales volumes)2005
Year
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr EndedOther information:
Heating and Cooling Degree Days
Heating Degree Days – Actual 3,736 882 114 2669 7,401
year-over-year change -1.6% -14.5% -43.3% 6.1% -1.9%
compared with normal 0.5% -11.0% -53.3% -2.8% -3.8%
Heating Degree Days – Normal 3,716 991 244 2745 7,696Cooling Degree Days – Actual – 207 411 31 649
year-over-year change N/M(3) 245.0% 53.4% N/M(3) 97.9%
compared with normal N/M(3) 58.0% 17.8% N/M(3) 35.2%
Cooling Degree Days – Normal – 131 349 – 480Diluted Earnings per Share
Impact –
favorable/(unfavorable)
Heating compared with prior year
Electric impact $(0.01) $- $- $0.01 $-
Gas impact (0.01) (0.03) – 0.02 (0.02)
Heating compared with normal –
Electric impact – (0.01) – (0.01) (0.02)
Gas impact – (0.05) (0.01) (0.01) (0.07)
Cooling compared with prior year –
Electric impact – 0.16 0.16 0.03 0.35
Gas Impact – – – – –
Cooling compared with normal –
Electric impact – 0.10 0.07 0.03 0.20
Gas impact – – – – –Capital Expenditures
Weston 4 $27.5 $52.7 $40.1 $45.3 $165.6
Other regulated utility
expenditures 31.0 74.6 64.8 74.5 244.9
Nonregulated 1.6 1.0 0.4 1.0 4.0American Transmission Company
(ATC)
Capital contributions to ATC
related to the Wausau, WI to
Duluth MN, transmission line $8.8 $12.7 $13.9 $21.6 $57.0
Other capital contributions to
ATC $ – $ – $ – $8.1 $8.1
Percent ownership interest in
ATC 24.7% 26.2% 28.2% 31.0% 31.0%
After-tax equity earnings
recognized from the
investment in ATC $3.1 $3.5 $4.0 $4.5 $15.1Impact of Synthetic Fuel
Activities on Results of
OperationsNonregulated revenue:
Mark-to-market gains (losses)
on 2005 oil options $2.1 $(1.9) $5.1 $(5.3) $ –
Net realized (losses) gains on
2005 oil options – (1.5) 0.9 0.9 0.3
Mark-to-market gains (losses)
on 2006 oil options 0.4 2.7 2.6 (1.7) 4.0
Net realized gains on 2006 oil
options – – – – –
Mark-to-market gains (losses)
on 2007 oil options 0.3 1.8 2.3 – 4.4Miscellaneous income
Operating losses – synthetic
fuel facility (4.2) (4.2) (3.8) (4.6) (16.8)
Variable payments recognized 0.9 1.0 0.9 0.8 3.6
Royalty income recognized – – – 3.5 3.5
Deferred gain recognized 0.6 0.5 0.6 0.6 2.3
Interest recognized on fixed
note receivable 0.4 0.3 0.3 0.2 1.2Minority Interest 1.1 1.3 1.1 1.2 4.7
Income (loss) before taxes
and tax credits related to
synthetic fuel activities 1.6 – 10.0 (4.4) 7.2
Estimated provision (benefit)
for income taxes (40%) 0.6 – 4.0 (1.8) 2.8
Income (loss) before tax
credits related to synthetic
fuel activities 1.0 – 6.0 (2.6) 4.4
Section 29/45K federal tax
credits recognized 12.8 5.8 5.5 2.0 26.1Total impact on income
available for common
shareholders $13.8 $5.8 $11.5 $(0.6) $30.52006
1st Qtr 2nd Qtr 3rd Qtr YTDOther information:
Heating and Cooling Degree Days
Heating Degree Days – Actual 3,322 779 244 4,345
year-over-year change -11.1% -11.7% 114.0% -8.2%
compared with normal -10.3% -21.6% 3.4% -12.0%
Heating Degree Days – Normal 3,705 994 236 4,935Cooling Degree Days – Actual – 123 395 518
year-over-year change N/M(3) -40.6% -3.9% -16.2%
compared with normal N/M(3) -4.7% 14.8% 9.5%
Cooling Degree Days – Normal – 129 344 473Diluted Earnings per Share Impact
– favorable/(unfavorable)
Heating compared with prior year
Electric impact $(0.03) $(0.01) $- $(0.04)
Gas impact (0.05) (0.02) 0.02 (0.05)
Heating compared with normal
Electric impact (0.03) (0.02) – (0.05)
Gas impact (0.05) (0.04) – (0.09)
Cooling compared with prior year
Electric impact – (0.11) (0.02) (0.13)
Gas Impact – – – –
Cooling compared with normal
Electric impact – (0.02) 0.04 0.02
Gas impact – – – –Capital Expenditures
Weston 4 $35.2 $41.7 $44.0 $120.9
Other regulated utility
expenditures 28.7 45.3 54.9 128.9
Nonregulated 1.1 2.2 2.2 5.5American Transmission Company
(ATC)
Capital contributions to ATC
related to the Wausau, WI to
Duluth MN, transmission line $16.1 $6.3 $ – $22.4
Other capital contributions to
ATC $4.5 $4.7 $4.9 $14.1
Percent ownership interest in
ATC 32.8% 32.7% 31.6% 31.6%
After-tax equity earnings
recognized from the investment
in ATC $5.3 $5.9 $6.1 $17.3Impact of Synthetic Fuel
Activities on Results of
OperationsNonregulated revenue:
Mark-to-market gains (losses) on
2005 oil options $- $- $- $-
Net realized (losses) gains on
2005 oil options – – – –
Mark-to-market gains (losses) on
2006 oil options 6.0 11.7 (15.8) 1.9
Net realized gains on 2006 oil
options 2.0 – – 2.0
Mark-to-market gains (losses) on
2007 oil options 2.4 2.6 (2.2) 2.8Miscellaneous income
Operating losses – synthetic
fuel facility (4.7) (8.2) (5.7) (18.6)
Variable payments recognized 0.9 1.0 1.3 3.2
Royalty income recognized – – – –
Deferred gain recognized 0.6 0.5 0.6 1.7
Interest recognized on fixed
note receivable 0.3 0.2 0.2 0.7Minority Interest 1.2 1.2 1.4 3.8
Income (loss) before taxes and
tax credits related to
synthetic fuel activities 8.7 9.0 (20.2) (2.5)
Estimated provision (benefit) for
income taxes (40%) 3.5 3.6 (8.1) (1.0)
Income (loss) before tax credits
related to synthetic fuel
activities 5.2 5.4 (12.1) (1.5)
Section 29/45K federal tax credits
recognized 4.5 3.1 12.4 20.0Total impact on income available
for common shareholders $9.7 $8.5 $0.3 $18.5
Source: WPS Resources Corporation
