(4) Whether the accounting entries to be made in connection with the proposed financing and the adjustments of accounts incident thereto are in accord with sound and accepted principles of accounting and accounting practices. (5) Whether (a) the securities proposed to be outstanding bear a reasonable relationship to the assets and earning power of Mississippi Power Company, taking into consideration the adequacy of the annual provisions for depreciation and maintenance and the reserves for such purposes; and (b) whether the issue and sale of the particular securities proposed is necessary and appropriate to the economical and efficient operation of the business of Mississippi Power Company. (6) Whether the proposed method of financing is the most appropriate means of raising necessary capital in the light of the existing and prospective demands upon the services and facilities of Mississippi Power Company, as required by the needs of national defense, and in the light of its existing capital structure and the economical and efficient operation of its business. (7) Whether the provisions of the indenture securing the proposed bonds are appropriate, with particular reference to the provisions for (a) sinking fund, (b) debt retirement, (c) maintenance and depreciation, and (d) additional bond issuances. (8) Whether the proposed financing is detrimental to the public interest and the interests of investors, in the light of the early maturity of the new proposed bonds (1951), in relation to the bonds now outstanding maturing in 1955, the bulk of which are publicly held. 9. Whether the proposed fees, commissions, and other expenses are fair and reasonable. (10) Whether the distribution of voting power among security holders of Mississipi Power Company is such as to require that action be taken to require redistribution thereof on a fair and equitable basis. (11) Whether the payment of common stock dividends by Mississippi Power Company and other payments to its parent, The Commonwealth & Southern Corporation, should be restricted, particularly for the purpose of enabling Mississippi Power Company to have ample funds to meet its construction requirements as necessitated by the national-defense program, and otherwise, and for the purpose of enabling Mississippi Power Company to establish adequate working capital, or whether such action should be taken pending the elimination of possible inflationary items in the property account of Mississippi Power Company. (12) Whether the proposed adjustment to be made to depreciation reserve is adequate and whether an additional adjustment should be made. (13) Generally, whether the terms and conditions of the proposed issuance and sale are detrimental to the public interest or to the interests of investors or consumers, or will tend to circumvent the provisions of the Act, rules, regulations, or orders thereunder, and the extent to which action should be taken or terms and conditions imposed to promote the national-defense program and otherwise to insure adequate protection of the public interest and compliance with the applicable provisions of the Act. By the Commission. [SEAL] FRANCIS P. BRASSOR, [For release in morning newspapers of Saturday, August 16, 1941] Secretary. SECURITIES AND EXCHANGE COMMISSION WASHINGTON HOLDING COMPANY ACT Release No. 2941 FINDINGS AND OPINION OF THE COMMISSION In the Matter of Wisconsin Power and Light Company. File No. 70-304 (Public Utility Holding Company Act of 1935) EXEMPTION OF SECURITY ISSUE OF REGISTERED HOLDING COMPANY OR SUBSIDIARY Issue Solely For Purpose of Financing Business of Subsidiary Application having been filed by a subsidiary of a registered holding company pursuant to Section 6 (b) of the Public Utility Holding Company Act of 1935, for 74947-42-pt. 3- 6 exemption from the provisions of Section 6 (a) of the Act, of the issue and sale of securities, the proceeds to be used to redeem certain outstanding securities of applicant, granted, subject, however, to compliance with the Commission's Rules U-24 and U-50, the issue and sale being solely for the purpose of financing the business of the subsidiary and having been authorized by the State Commission of the State in which the applicant is organized and doing business. RETIREMENT AND REDEMPTION OF SECURITIES BY ISSUER Retirement and redemption by a subsidiary of a registered holding company of certain of its outstanding evidences of indebtedness for the consideration specifically designated therein, held to be exempted from the provisions of Section 9 (a) and 12 (c) of the Act by virtue of the Commission's Rule U-42. APPEARANCES Thomas J. Tingley and M. S. Smith for the Public Utilities Division of the Commission. Wisconsin Power and Light Company, a subsidiary of North West Utilities Company,' a registered holding company in The Middle West Corporation holding company system, has filed an application and amendments thereto pursuant to Section 6 (b) of the Public Utility Holding Company Act of 1935 (hereinafter referred to as the "Act") and rules U-23 and U-50 thereunder, regarding the issue and sale of $30,000,000 principal amount of its First Mortgage Bonds, Series A, 34%, due August 1, 1971, and $3,000,000 principal amount of 24%, 2%, and 3% unsecured notes as follows: $337,500 of 24% notes and $162,500 of 24% notes to Continental Illinois Bank and Trust Company of Chicago; and $2,500,000 of 3% notes to The Northwestern Mutual Life Insurance Company. Applicant proposes to apply the proceeds, together with other moneys of the company, to the redemption, at 104% of the principal amount thereof and accrued interest, of $33,000, 000 principal amount of its outstanding First Mortgage Bonds, Series A, 4%, due June 1, 1966. The Company will publicly invite proposals for the purchase of the Bonds in accordance with the Commission's Rule U-50. The Public Service Commission of Wisconsin has issued its Certificate of Authority as to the proposed transaction, attaching certain appropriate conditions. Applicant has filed, pursuant to Rule U-62 under the Act, a declaration in the form of an amendment hereto regarding solicitations of authorizations of its stockholders for authority to consummate the subject transaction. The Commission, by order dated August 14, 1941, has permitted such declaration to become effective. A public hearing was held after appropriate notice at which no member of the public requested to be heard. By stipulation of counsel the records in two related cases, Commission's Files No. 70-58 and No. 59-23, hereinafter described, were incorporated into and made a part of the record in this matter. The Commission having considered such record, makes its findings and opinion herein. Wisconsin Power and Light Company is a Wisconsin corporation the principal business of which as a public-utility company is the production, transmission, distribution, and sale of electric energy and manufactured gas in central and southern Wisconsin. The Company also supplies water, central heating service, and motor-bus service. For the twelve months ended May 31, 1941, applicant derived 85.99% of its operating revenues of $10,800,278 from the sale of electricity, 8.03% from the sale of gas, 1.67% from the sale of water, and the balance from motor bus and central heating services. Applicant owns two small subsidiaries, Beloit Water Power Company, which owns a dam and water power rights on the Rock River at Beloit, and South Beloit Water, Gas & Electric Company, which supplies electricity, gas, and water in southern Beloit and in adjacent territory in Illinois. 1 North West Utilities Company owns 97.117% of applicant's common stock and 45.149% of its outstanding voting shares. The preferred stock of applicant has voting rights by reason of default in payment of dividends. The Middle West Corporation owns all of the common stock of North West Utilities Company, and 85.3% of all voting shares. The capitalization, surplus, and reserves of Wisconsin Power and Light Company as of May 31, 1941, and pro forma are shown in the following table: Long term debt: First-mortgage bonds, series A: 4 percent, due June 1, 1966. 34 percent, due Aug. 1, 1971. Unsecured notes: Serial notes, 24 percent ($337,500) and 234 percent ($162,500), due 1 Unpaid dividends on preferred stocks aggregate $2,696,338 or $16.92 per share on the 7-percent preferred and $14.50 per share on the 6-percent preferred. As of May 31, 1941, applicant's property account and reserve for depreciation were as follows: Property account including $4,874,018 of intangibles_ Net property account_ $63, 205, 128 5, 306, 856 57, 896, 272 Pro forma ratios of debt to net property and to capitalization are as follows: Mortgage debt to net property account and subsidiary investment. Percent 149.69 159.58 47.59 Total debt to total capitalization__. 56.87 1 This ratio has been computed on the basis of gross property account plus estimated cost of additions to Dec. 31, 1941 (for which funds have been provided), less reserve for depreciation plus investment in South Beloit Water, Gas & Electric Co., a wholly owned subsidiary. The depreciation reserve of $5,306,856 is equivalent to 8.40% of gross property account. Annual depreciation provision of $1,334,526 for the twelve-month period ended May 31, 1941, is equivalent to 2.11% of the gross property account and to 12.36% of annual gross operating revenue. The indenture provides that during each calendar year so long as any of the bonds issued thereunder shall be outstanding applicant will expend and certify to the Trustee amounts aggregating not less than 15% of gross operating revenues for maintenance, repairs, renewals, or replacements and/or for the purchase, payment, or redemption of any bonds issued under the indenture. The company agrees to file annually with the Trustee, on or before Aprii ist, a certificate showing gross operating revenues and expenditures for maintenance and renewals during the preceding calendar year. It is provided that any surplus shall be reflected in the next succeeding certificate, and that any deficiency must be made up on or before April 1st next succeeding the expiration of such calendar year. Based on pro forma income statements submitted by the applicant and on the assumption that the new bonds will be sold at 104% of the par value and the notes at par, the total annual savings in interest on the aggregate amount of debt will amount to $258,219. After estimated adjustments for additional charges in lieu of income taxes and amortization of debt discount and expense, the net annual saving as estimated by the applicant will be $215,629. Applicant proposes to amortize debt discount and expenses applicable to previously refunded issues after adjustment for income tax savings over a period of five years beginning August 1, 1941. It also proposes to amortize the balance of unamortized debt discount and expense, together with the redemption premium, duplicate interest, and expenses incurred in connection with the redemption thereof, applicable to the First Mortgage Bonds presently outstanding over the unexpired term of said issue or the lives of the refunding issues, whichever are shorter, and to amortize the premium received and the commissions and expenses paid in connection with the issue of the new bonds and the expense of issuing the serial notes over the lives of the respective issues. The indenture provides that the company will agree that, so long as any bonds of Series A are outstanding, it will (a) retire (through purchase, payment, or redemption) during the calendar year 1954, and during each calendar year thereafter, not less than 1% of the greatest principal amount of bonds outstanding at any time between the end of such calendar year and July 31, 1941, or (b) pay to the Trustee, on or before April 1 following the close of such calendar year, cash sufficient to redeem a like amount of bonds. The indenture also provides for the issuance, from time to time, subject to certain provisions and restrictions, of additional bonds thereunder, of one or more series, having such dates, maturities, interest rates, etc., as may be determined by the Board of Directors of the company, without limitation as to aggregate amount, except that the aggregate amount of bonds of Series A that may be outstanding at any one time will be limited to $40,000,000. Additional bonds may be issued in a principal amount equal to 60% of "net expenditures" made by the company on and after August 1, 1941, for the construction or acquisition of bondable property, with certain limitations, and bonds issued on account of "purchased" property shall not exceed in principal amount 60% of the "fair value to the company" of such property at date of acquisition; but only if net earnings for a period of 12 consecutive months within the fifteen months immediately preceding shall have been equal to at least twice the annual interest charges on the bonded debt of the company. The company also agrees that it will not, so long as any of the Series A bonds are outstanding, pay any dividends (other than stock dividends and dividends applied by the recipient to the purchase of additional shares of common stock), or make any other distribution, upon any shares of its common stock in an amount which in the aggregate would exceed the amount of the earned surplus of the Company existing on July 31, 1941, plus the net income earned and accumulated after July 31, 1941, determined in accordance with accepted principles of accounting, after making deductions for all dividends paid or accrued at and after said date on any preferred stock of the Company and after taking into consideration all proper charges and credits to such surplus made subsequent to July 31, 1941. On June 3, 1941, the Commission instituted proceedings against The Middle West Corporation, North West Utilities Company, and Wisconsin Power and Light Company pursuant to Section 11 (b) (2) of the Act. Hearings in this matter, which began on July 9, 1941, were continued subject to call of the trial examiner upon request of counsel for the respondents, pending a recapitalization of Wisconsin Power and Light Company which contemplates the sale by North 3 Section 11 (b) (2) of the Act provides as follows: "(2) To require by order, after notice and opportunity for hearing, that each registered holding company, and each subsidiary company thereof, shall take such steps as the Commission shall find necessary to ensure that the corporate structure or continued existence of any company in the holding-company system does not unduly or unnecessarily complicate the structure, or unfairly or inequitably distribute voting power among security holders, of such holding-company system. In carrying out the provisions of this paragraph the Commission shall require each registered holding company (and any company in the same holding-company system with such holding company) to take such action as the Commission shall find necessary in order that such holding company shall cease to be a holding company with respect to each of its subsidiary companies which itself has a subsidiary company which is a holding company. Except for the purpose of fairly and equitably distributing voting power among the security holders of such company, nothing in this paragraph shall authorize the Commission to require any change in the corporate structure or existence of any company which is not a holding company, or of any company whose principal business is that of a public utility company. "The Commission may by order revoke or modify any order previously made under this subsection, if, after notice and opportunity for hearing, it finds that the conditions upon which the order was predicated do not exist. Any order made under this subsection shall be subject to judicial review as provided in section 24." West Utilities Company of its common stock interest in its subsidiary, Lake Superior District Power Company, and the use of the proceeds, after payment of certain of North West's obligations, for the purchase of additional common stock of applicant, the refunding of its preferred stock, and elimination of dividend arrearages thereon. The record in that matter was, as stated above, incorporated by reference in these proceedings. Also incorporated was the record in the matter of Wisconsin Power and Light Company, File No. 70-58, an application pursuant to Section 6 (b) for the issuance of $2,850,000 of unsecured serial notes. In that proceeding also the company advised "that in the event of the cash sale of the common stock of Lake Superior District Power Company, North West Utilities Company plans to apply to the purchase of equity stock of Wisconsin Power and Light Company, to be utilized in a general plan of Wisconsin Power and Light Company for the refunding of its preferred stocks and the elimination of dividend arrears thereon, all the proceeds realized from such sale, excepting an amount sufficient to retire such portion of the present note indebtedness of this Company (amounting at this date to $290,000) that may remain unpaid at the time of receipt of such proceeds. The proposed sale of the common stock of Lake Superior District Power Company and the allocation of proceeds thereof to applicant will result in a substantial improvement of Wisconsin Power and Light Company's capital structure. In view of the applicant's proposed program toward this end and the pendency of the 11 (b) (2) procedings in which this matter will receive our fullest consideration and in view of the outstanding order of the Wisconsin Public Service Commission prohibiting the payment of common dividends, we are disposed to grant the application. The issuance of the bonds and notes by the applicant falls within the provisions of Section 6 (b) of the Act, in that the issuance and sale of said securities have been expressly authorized by the Public Service Commission of the State of Wisconsin in which state the company is organized and doing business; and such issuance and sale are solely for the purpose of financing the business of the company. The proposed retirement and redemption of the First Mortgage Bonds now outstanding, being at the call price of such securities, is exempt from the provisions of Sections 9 (a) and 12 (c) of the Act by reason of our Rule U-42. On the basis of the foregoing, the Commission deems it appropriate in the public interest and in the interest of investors and consumers to grant the application as amended pursuant to Section 6 (b); subject, however, to the terms and conditions prescribed in Rule U-24, and to the condition that the applicant report to the Commission the results of the competitive bidding as required by Rule U-50 (c) and comply with such supplemental order as the Commission may enter in view of the facts disclosed thereby. By the Commission, Chairman Eicher, Commissioners Healy and Pike (Commissioners Burke and Purcell being absent and not participating). [SEAL] FRANCIS P. BRASSOR, Secretary. ORDER In the Matter of WISCONSIN POWER AND LIGHT COMPANY. File No. 70-364 (Public Utility Holding Company Act of 1935). UNITED STATES OF AMERICA, BEFORE THE SECURITIES AND EXCHANGE COMMISSION, At a regular session of the Securities and Exchange Commission, held at its office in the City of Washington, D. C., on the 15th day of August, A. D., 1941 Wisconsin Power and Light Company, a subsidiary of North West Utilities Company, a registered holding company in The Middle West Corporation holdingcompany system, having filed an application and amendments thereto pursuant to the Public Utility Holding Company Act of 1935, particularly Section 6 (b) thereof, and Rules U-23 and U-50 thereunder, regarding the issue and sale of $30,000,000 principal amount of its First Mortgage Bonds, Series A, 34% due August 1, 1971, and $3,000,000 principal amount of 24%, 24%, and 3% unsecured By order of the Public Service Commission of Wisconsin entered on July 14, 1932, and effective for six months, the Company was ordered to cease and desist declaring any dividends on its common stock. On January 14, 1933, this order was continued in effect until a hearing thereon is requested by the Company. The Company has not requested such a hearing. |