<PAGE> 1
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 March 31, 1996
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.
- ----------- ----------------------------------- ------------------
1-9057 WISCONSIN ENERGY CORPORATION 39-1391525
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2949
Milwaukee, WI 53201
(414) 221-2345
1-1245 WISCONSIN ELECTRIC POWER COMPANY 39-0476280
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2046
Milwaukee, WI 53201
(414) 221-2345
Indicate by check mark whether each of the registrants (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (May 1, 1996):
Wisconsin Energy Corporation Common stock, $.01 Par Value,
110,819,337 shares outstanding.
Wisconsin Electric Power Company Common stock, $10 Par Value,
33,289,327 shares outstanding.
Wisconsin Energy Corporation is the
sole holder of Wisconsin Electric
Power Company common stock.
<PAGE> 2
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
FORM 10-Q REPORT FOR THE QUARTER ENDED MARCH 31, 1996
TABLE OF CONTENTS
ITEM PAGE
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PART I - FINANCIAL INFORMATION
1. Financial Statements:
Wisconsin Energy Corporation
Consolidated Condensed Income Statement . . . . . . . . . . . 3
Consolidated Condensed Balance Sheet. . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows. . . . . . . . . . . . . 5
Wisconsin Electric Power Company
Condensed Income Statement. . . . . . . . . . . . . . . . . . 6
Condensed Balance Sheet . . . . . . . . . . . . . . . . . . . 7
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . 8
Notes to Financial Statements of
Wisconsin Energy Corporation and
Wisconsin Electric Power Company. . . . . . . . . . . . . . . 9
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for
Wisconsin Energy Corporation and
Wisconsin Electric Power Company. . . . . . . . . . . . . . . 10
PART II - OTHER INFORMATION
1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 14
5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . 15
6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 24
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
INTRODUCTION
Wisconsin Energy Corporation ("WEC") is a holding company whose principal
subsidiary is Wisconsin Electric Power Company ("WE"), an electric, gas and
steam utility. The unaudited interim financial statements presented in this
combined Form 10-Q report include the consolidated statements of WEC as well
as separate statements for WE. The unaudited statements have been prepared by
WEC and WE pursuant to the rules and regulations of the Securities and
Exchange Commission. 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
rules and regulations. WEC and WE believe that the disclosures are adequate
to make the information presented not misleading. The WEC and WE financial
statements should be read in conjunction with the financial statements and
notes thereto included in WEC's and WE's respective Annual Reports on
Form 10-K for the year ended December 31, 1995. This combined Form 10-Q is
separately filed by WEC and WE. Information contained herein relating to any
individual registrant is filed by such registrant on its own behalf.
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<PAGE> 3
<TABLE>
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED INCOME STATEMENT
(Unaudited)
<CAPTION>
Three Months Ended March 31
-------------------------------------
1996 1995
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues
Electric $ 350,824 $ 343,919
Gas 138,016 121,100
Steam 6,617 6,103
---------- ----------
Total Operating Revenues 495,457 471,122
Operating Expenses
Fuel 75,793 67,819
Purchased power 5,764 19,076
Cost of gas sold 85,592 72,803
Other operation expenses 105,376 97,760
Maintenance 26,107 28,372
Depreciation 52,305 44,712
Taxes other than income taxes 20,847 19,379
Federal income tax 30,628 29,635
State income tax 7,158 7,100
Deferred income taxes - net 1,862 376
Investment tax credit - net (1,120) (482)
---------- ----------
Total Operating Expenses 410,312 386,550
Operating Income 85,145 84,572
Other Income and Deductions
Interest income 5,966 3,614
Allowance for other funds used
during construction 606 825
Miscellaneous - net (1,926) 1,350
Income taxes 447 305
---------- ----------
Total Other Income and Deductions 5,093 6,094
Income Before Interest Charges and
Preferred Dividend 90,238 90,666
Interest Charges
Interest expense 28,307 29,072
Allowance for borrowed funds used
during construction (1,174) (1,241)
---------- ----------
Total Interest Charges 27,133 27,831
Preferred Dividend Requirement of Subsidiary 301 301
---------- ----------
Net Income $ 62,804 $ 62,534
========== ==========
Average Common Shares Outstanding (Thousands) 110,819 109,133
========== ==========
Earnings Per Share of Common Stock $ 0.57 $ 0.57
========== ==========
Dividends Per Share of Common Stock $ 0.3675 $ 0.3525
========== ==========
<FN>
The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these
financial statements.
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</TABLE>
<PAGE> 4
<TABLE>
FORM 10-Q
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
<CAPTION>
March 31, 1996 December 31, 1995
---------------- -----------------
(Thousands of Dollars)
Assets
--------------
<S> <C> <C>
Utility Plant
Electric $ 4,574,153 $ 4,531,404
Gas 489,474 489,739
Steam 40,390 40,078
Accumulated provision for depreciation (2,323,175) (2,288,080)
------------- -------------
2,780,842 2,773,141
Construction work in progress 72,015 78,153
Nuclear fuel - net 53,879 59,260
------------- -------------
Net Utility Plant 2,906,736 2,910,554
Other Property and Investments 644,552 637,958
Current Assets
Cash and cash equivalents 24,007 23,626
Accounts receivable 158,246 150,149
Accrued utility revenues 122,122 140,201
Materials, supplies and fossil fuel 129,168 153,713
Prepayments and other assets 68,304 63,830
------------- -------------
Total Current Assets 501,847 531,519
Deferred Charges and Other Assets
Accumulated deferred income taxes 143,170 140,844
Other 341,418 339,860
------------- -------------
Total Deferred Charges and Other Assets 484,588 480,704
------------- -------------
Total Assets $ 4,537,723 $ 4,560,735
============= =============
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $ 678,017 $ 678,017
Retained earnings 1,215,326 1,193,248
------------- -------------
Total Common Stock Equity 1,893,343 1,871,265
Preferred stock 30,450 30,451
Long-term debt 1,355,853 1,367,644
------------- -------------
Total Capitalization 3,279,646 3,269,360
Current Liabilities
Long-term debt due currently 29,364 51,854
Short-term debt 138,326 156,919
Accounts payable 90,605 108,508
Accrued liabilities 90,799 68,634
Other 50,432 50,191
------------- -------------
Total Current Liabilities 399,526 436,106
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 489,197 483,410
Other 369,354 371,859
------------- -------------
Total Deferred Credits and Other Liabilities 858,551 855,269
------------- -------------
Total Capitalization and Liabilities $ 4,537,723 $ 4,560,735
============= =============
<FN>
The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these
financial statements.
- 4 -
</TABLE>
<PAGE> 5
<TABLE>
FORM 10-Q
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended March 31
-------------------------------------
1996 1995
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities
Net income $ 62,804 $ 62,534
Reconciliation to cash
Depreciation 52,305 44,712
Nuclear fuel expense - amortization 6,304 5,263
Conservation expense - amortization 5,625 5,156
Debt premium, discount & expense - amortization 3,066 3,107
Revitalization - net (400) (3,480)
Deferred income taxes - net 1,862 376
Investment tax credit - net (1,120) (482)
Allowance for other funds used during construction (606) (825)
Change in: Accounts receivable (8,097) (14,222)
Inventories 24,545 22,849
Accounts payable (17,903) (12,008)
Other current assets 13,605 20,371
Other current liabilities 22,406 37,104
Other 3,332 7,816
---------- ----------
Cash Provided by Operating Activities 167,728 178,271
Investing Activities
Construction expenditures (63,861) (43,985)
Allowance for borrowed funds used during construction (1,174) (1,241)
Nuclear fuel (3,828) (5,601)
Nuclear decommissioning trust (8,181) (2,575)
Conservation investments - net (136) (1,103)
Other 3,764 (1,741)
---------- ----------
Cash Used in Investing Activities (73,416) (56,246)
Financing Activities
Sale of common stock - 11,918
Retirement of preferred stock (1) -
Retirement of long-term debt (34,611) (17,174)
Change in short-term debt (18,593) (70,481)
Dividends on stock - common (40,726) (38,433)
---------- ----------
Cash Used in Financing Activities (93,931) (114,170)
---------- ----------
Change in Cash and Cash Equivalents $ 381 $ 7,855
========== ==========
Supplemental Information Disclosures
Cash Paid for
Interest (net of amount capitalized) $ 27,034 $ 27,445
Income taxes 16,265 15,120
<FN>
The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these
financial statements.
- 5 -
</TABLE>
<PAGE> 6
<TABLE>
FORM 10-Q
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED INCOME STATEMENT
(Unaudited)
<CAPTION>
Three Months Ended March 31
-------------------------------------
1996 1995
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues
Electric $ 350,824 $ 343,919
Gas 138,016 121,100
Steam 6,617 6,103
---------- ----------
Total Operating Revenues 495,457 471,122
Operating Expenses
Fuel 75,793 67,819
Purchased power 5,764 19,076
Cost of gas sold 85,592 72,803
Other operation expenses 105,376 97,760
Maintenance 26,107 28,372
Depreciation 52,305 44,712
Taxes other than income taxes 20,847 19,379
Federal income tax 30,628 29,635
State income tax 7,158 7,100
Deferred income taxes - net 1,862 376
Investment tax credit - net (1,120) (482)
---------- ----------
Total Operating Expenses 410,312 386,550
Operating Income 85,145 84,572
Other Income and Deductions
Interest income 4,848 2,570
Allowance for other funds used
during construction 606 825
Miscellaneous - net (1,247) 2,682
Income taxes (243) (384)
---------- ----------
Total Other Income and Deductions 3,964 5,693
Income Before Interest Charges 89,109 90,265
Interest Charges
Interest expense 27,441 28,309
Allowance for borrowed funds used
during construction (336) (466)
---------- ----------
Total Interest Charges 27,105 27,843
---------- ----------
Net Income 62,004 62,422
Preferred Stock Dividend Requirement 301 301
---------- ----------
Earnings Available for Common Stockholder $ 61,703 $ 62,121
========== ==========
<FN>
Note - Earnings and dividends per share of common stock are not applicable because all of Wisconsin Electric
Power Company's common stock is owned by Wisconsin Energy Corporation.
The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these
financial statements.
- 6 -
</TABLE>
<PAGE> 7
<TABLE>
FORM 10-Q
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED BALANCE SHEET
(Unaudited)
<CAPTION>
March 31, 1996 December 31, 1995
---------------- -----------------
(Thousands of Dollars)
Assets
--------------
<S> <C> <C>
Utility Plant
Electric $ 4,574,153 $ 4,531,404
Gas 489,474 489,739
Steam 40,390 40,078
Accumulated provision for depreciation (2,323,175) (2,288,080)
------------- -------------
2,780,842 2,773,141
Construction work in progress 72,015 78,153
Nuclear fuel - net 53,879 59,260
------------- -------------
Net Utility Plant 2,906,736 2,910,554
Other Property and Investments 432,378 427,627
Current Assets
Cash and cash equivalents 16,731 19,550
Accounts receivable 154,340 144,476
Accrued utility revenues 122,122 140,201
Materials, supplies and fossil fuel 129,168 153,713
Prepayments and other assets 62,904 59,784
------------- -------------
Total Current Assets 485,265 517,724
Deferred Charges and Other Assets
Accumulated deferred income taxes 138,907 136,581
Other 324,504 326,438
------------- -------------
Total Deferred Charges and Other Assets 463,411 463,019
------------- -------------
Total Assets $ 4,287,790 $ 4,318,924
============= =============
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $ 613,582 $ 613,582
Retained earnings 1,104,232 1,082,983
------------- -------------
Total Common Stock Equity 1,717,814 1,696,565
Preferred stock 30,450 30,451
Long-term debt 1,313,378 1,325,169
------------- -------------
Total Capitalization 3,061,642 3,052,185
Current Liabilities
Long-term debt due currently 28,929 51,419
Short-term debt 125,176 150,694
Accounts payable 89,450 107,115
Accrued liabilities 88,117 66,694
Other 48,781 48,762
------------- -------------
Total Current Liabilities 380,453 424,684
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 485,615 479,828
Other 360,080 362,227
------------- -------------
Total Deferred Credits and Other Liabilities 845,695 842,055
------------- -------------
Total Capitalization and Liabilities $ 4,287,790 $ 4,318,924
============= =============
<FN>
The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these
financial statements.
- 7 -
</TABLE>
<PAGE> 8
<TABLE>
FORM 10-Q
WISCONSIN ELECTRIC POWER COMPANY
STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended March 31
-------------------------------------
1996 1995
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities
Net income $ 62,004 $ 62,422
Reconciliation to cash
Depreciation 52,305 44,712
Nuclear fuel expense - amortization 6,304 5,263
Conservation expense - amortization 5,625 5,156
Debt premium, discount & expense - amortization 3,054 3,098
Revitalization - net (400) (3,480)
Deferred income taxes - net 1,862 376
Investment tax credit - net (1,120) (482)
Allowance for other funds used during construction (606) (825)
Change in: Accounts receivable (9,864) (14,733)
Inventories 24,545 22,849
Accounts payable (17,665) (12,102)
Other current assets 14,959 20,637
Other current liabilities 21,442 38,084
Other 3,354 7,915
---------- ----------
Cash Provided by Operating Activities 165,799 178,890
Investing Activities
Construction expenditures (54,921) (40,569)
Allowance for borrowed funds used during construction (336) (466)
Nuclear fuel (3,828) (5,601)
Nuclear decommissioning trust (8,181) (2,575)
Conservation investments - net (136) (1,103)
Other (330) (1,255)
---------- ----------
Cash Used in Investing Activities (67,732) (51,569)
Financing Activities
Stockholder contribution - 15,000
Retirement of preferred stock (1) -
Retirement of long-term debt (34,611) (17,174)
Change in short-term debt (25,518) (78,806)
Dividends on stock - common (40,455) (38,209)
- preferred (301) (301)
---------- ----------
Cash Used in Financing Activities (100,886) (119,490)
---------- ----------
Change in Cash and Cash Equivalents $ (2,819) $ 7,831
========== ==========
Supplemental Information Disclosures
Cash Paid for
Interest (net of amount capitalized) $ 27,572 $ 27,832
Income taxes 16,238 15,101
<FN>
The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these
financial statements.
- 8 -
</TABLE>
<PAGE> 9
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited consolidated financial statements for Wisconsin
Energy Corporation ("WEC") and unaudited financial statements for
Wisconsin Electric Power Company ("WE") should be read in conjunction with
WEC's and WE's respective 1995 Annual Reports on Form 10-K. In the
opinion of management, all adjustments, normal and recurring in nature,
necessary to a fair statement of the results of operations and financial
position of WEC and WE have been included in the accompanying income
statements and balance sheets. The results of operations for the three
months ended March 31, 1996 are not, however, necessarily indicative of
the results which may be expected for the year 1996 because of seasonal
and other factors.
2. On April 16, 1996, the Public Service Commission of Wisconsin ("PSCW")
unanimously approved WE's application to replace the Unit 2 steam
generators at Point Beach Nuclear Plant ("Point Beach") and reaffirmed its
prior decision approving WE's construction and operation of an Independent
Spent Fuel Storage Installation ("ISFSI") at Point Beach. WE, the utility
subsidiary of WEC, anticipates receiving a written order from the PSCW in
May 1996. The steam generators will be replaced during the fall refueling
outage scheduled to begin in October 1996. Upon receipt of a written
order from the PSCW, WE will resume transfer of spent fuel to the ISFSI
and plans to load three additional casks with spent fuel during the
remainder of 1996. ITEM 5. OTHER INFORMATION - "POINT BEACH UNIT 2 STEAM
GENERATORS & DRY CASK STORAGE FACILITY" in Part II of this report contains
further information.
3. On April 28, 1995, WEC and Northern States Power Company, a Minnesota
corporation ("NSP"), entered into an Agreement and Plan of Merger, which
was amended and restated as of July 26, 1995 ("Merger Agreement"). The
Merger Agreement provides for a strategic business combination involving
WEC and NSP in a "merger-of-equals" transaction ("Transaction"). As a
result, WEC will become a registered utility holding company under the
Public Utility Holding Company Act of 1935, as amended, and will change
its name to Primergy Corporation ("Primergy"). Primergy will be the
parent of NSP and the current operating subsidiaries of WEC and NSP. The
Transaction is intended to be tax-free for income tax purposes and to be
accounted for as a "pooling of interests". On September 13, 1995, the
stockholders of WEC and NSP voted to approve the Transaction. The Merger
Agreement is subject to various conditions, including the approval of
various regulatory agencies. Subject to obtaining all requisite
approvals, WEC and NSP anticipate completing the Transaction by
January 1, 1997. ITEM 5. OTHER INFORMATION - "MERGER AGREEMENT
WITH NORTHERN STATES POWER COMPANY" in Part II of this report contains
further information concerning the Transaction including selected
unaudited pro forma combined condensed financial information.
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<PAGE> 10
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wisconsin Energy Corporation ("WEC" or the "Company") is a holding company
whose principal subsidiary is Wisconsin Electric Power Company ("WE"), an
electric, gas and steam utility. As of March 31, 1996, approximately 95% of
WEC's consolidated total assets were attributable to WE. The following
discussion and analysis of financial condition and results of operations
includes both WEC and WE unless otherwise stated.
Merger - Northern States Power Company
On April 28, 1995, WEC and Northern States Power Company, a Minnesota
corporation ("NSP"), entered into an Agreement and Plan of Merger, which was
amended and restated as of July 26, 1995 ("Merger Agreement"). The Merger
Agreement provides for a strategic business combination involving WEC and NSP
in a "merger-of-equals" transaction ("Transaction"). ITEM 5. OTHER
INFORMATION - "MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY" in Part II
of this report contains further information concerning the Transaction
including selected unaudited pro forma combined condensed financial
information.
The future operations and financial position of WEC and WE will be
significantly affected by the proposed Transaction. The following discussion
and analysis of financial condition and results of operations does not reflect
the potential effects of the Transaction on WEC nor on WE.
Cautionary Factors
The following discussion and analysis contains forward-looking statements.
When used in this document, "anticipate", "believe", "estimate", "expect",
"objective" and similar expressions are intended to identify such statements.
Forward-looking statements are subject to certain risks, uncertainties and
assumptions which could cause actual results to differ materially from those
projected, including those that are described in ITEM 5. OTHER INFORMATION -
"CAUTIONARY FACTORS" in Part II of this report.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by WEC's consolidated operating activities totaled approximately
$168 million during the three months ended March 31, 1996. This compares to
$178 million provided during the same period in 1995.
WEC's consolidated net investing activities totaled $73 million for the three
months ended March 31, 1996 compared to $56 million during the same period in
1995. Investments during the first quarter of 1996 included approximately $64
million for the construction of new or improved facilities of which
approximately $55 million was for a number of projects related to utility
plant. Additional investments included $4 million for acquisition of nuclear
fuel and $8 million for payments to the Nuclear Decommissioning Trust Fund for
the eventual decommissioning of WE's Point Beach Nuclear Plant.
- 10 -
<PAGE> 11
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
LIQUIDITY AND CAPITAL RESOURCES - Cont'd
During the first quarter of 1996, WEC used approximately $94 million for
financing activities compared to $114 million during the first quarter of
1995. Financing activities during the first three months of 1996 included the
retirement of $30 million of 4-1/2% WE first mortgage bonds, financed through
the issuance of additional short-term borrowings. This in part caused the
$18.6 million decrease in short-term debt during the first quarter of 1996 to
be smaller than the $70.5 million decrease in the same period of 1995.
During the first quarter of 1996, there were no new issuances of WEC common
stock because WEC began purchasing shares required for the Company's stock
plans on the open market as of January 1, 1996. Previously, the Company
issued new shares which were purchased through these plans with cash
investments and reinvested dividends.
Capital requirements for the remainder of 1996 are expected to be principally
for construction expenditures and payments to the Fund for the eventual
decommissioning of Point Beach. These cash requirements are expected to be
met through internal sources of funds from operations and short-term
borrowings. However, WE may issue up to $200 million of additional long-term
debt in a public offering in the second half of 1996. The specific form,
amount and timing of debt securities which may be issued have not yet been
determined and will depend on market conditions and other factors.
RESULTS OF OPERATIONS
1996 FIRST QUARTER
Earnings
WEC's consolidated net income and earnings per share of common stock were
unchanged at approximately $63 million and $0.57, respectively, during the
first quarter of 1996 compared to the same period in 1995. As described
below, earnings remained flat primarily because January 1, 1996 electric, gas
and steam rate decreases, increased depreciation expense and the timing of
certain operating expenses offset increased first quarter 1996 electric
kilowatt-hour sales and gas therm deliveries.
Electric Revenues, Gross Margins and Sales
Despite annualized electric retail rate decreases effective January 1, 1996 of
$33.4 million or 2.75% in Wisconsin and $1.1 million or 3.3% in Michigan,
total Electric Operating Revenues increased by 2.0% or $6.9 million during the
first quarter of 1996 compared to the first quarter of 1995. A first quarter
1996 weather related increase in electric kilowatt-hour sales of 5.3% more
than offset the impact of the rate decreases on Electric Operating Revenues.
Between the comparative periods, the gross margin on Electric Operating
Revenues (Electric Operating Revenues less Fuel and Purchased Power expenses)
increased by 4.8% or $12.2 million.
- 11 -
<PAGE> 12
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
1996 FIRST QUARTER RESULTS OF OPERATIONS - Cont'd
==============================================================================
Electric Gross Margin ($000) 1996 1995 % Change
- ---------------------------- ---------- ---------- --------
Electric Operating Revenues $ 350,824 $ 343,919 2.0
Fuel & Purchased Power 81,557 86,895 (6.1)
---------- ----------
Gross Margin $ 269,267 $ 257,024 4.8
==============================================================================
The gross margin increased because higher electric sales in the first three
months of 1996 were primarily to Residential and Small Commercial/Industrial
customers who are more sensitive to weather variations and who contribute
higher margins to earnings than other customer classes. Gross margin also
improved in the first quarter of 1996 compared to 1995 because fuel and
purchased power expenses decreased by 6.1% or $5.3 million. Fuel and
purchased power expenses declined in 1996 primarily due to lower per unit coal
costs and to unscheduled outages during the first quarter of 1995 at two of
WE's most efficient power plants, the coal fired Pleasant Prairie Power Plant
and the Point Beach Nuclear Plant, resulting in a higher volume of costlier
power purchases in 1995. Also, the addition of the Paris Generating Station
in mid-1995 has allowed WE to reduce its firm power purchases.
==============================================================================
Electric Sales (Megawatt-hours) 1996 1995 % Change
- ------------------------------- ---------- ---------- --------
Residential 1,818,093 1,689,356 7.6
Small Commercial/Industrial 1,797,186 1,714,727 4.8
Large Commercial/Industrial 2,573,802 2,542,354 1.2
Other 391,158 380,810 2.7
---------- ----------
Total Retail and Municipal 6,580,239 6,327,247 4.0
Resale-Utilities 296,967 202,132 46.9
---------- ----------
Total Sales 6,877,206 6,529,379 5.3
==============================================================================
Total electric sales during the first quarter of 1996 were positively impacted
primarily by substantially colder winter weather conditions compared to the
same period in 1995. As measured by heating degree days, the first quarter of
1996 was 16.2% colder than the same period during 1995 and 4.8% colder than
normal. Electric energy sales to the Empire and Tilden ore mines, WE's two
largest customers, increased 4.7% during the three months ended March 31, 1996
compared to the three months ended March 31, 1995. Excluding the mines, total
electric sales increased 5.4% and sales to the remaining Large Commercial /
Industrial customers increased 0.3%.
Gas Revenues, Gross Margins and Sales
Despite an annualized $8.3 million or 2.6% Wisconsin retail gas rate decrease
effective January 1, 1996, total Gas Operating Revenues increased by 14.0% or
$16.9 million during the first quarter of 1996 compared to the first quarter
- 12 -
<PAGE> 13
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
1996 FIRST QUARTER RESULTS OF OPERATIONS - Cont'd
of 1995. Between the comparative periods, the gross margin on Gas Operating
Revenues (Gas Operating Revenues less Cost of Gas Sold) increased by 8.5% or
$4.1 million. An 11.2% increase in therm deliveries during the first three
months of 1996 more than offset the impact of the rate decrease on gross
margin.
==============================================================================
Gas Gross Margin ($000) 1996 1995 % Change
- ----------------------- ---------- ---------- --------
Gas Operating Revenues $ 138,016 $ 121,100 14.0
Cost of Gas Sold 85,592 72,803 17.6
---------- ----------
Gross Margin $ 52,424 $ 48,297 8.5
==============================================================================
The gross margin grew because the increased therm deliveries were primarily to
Residential and Commercial customers who are more sensitive to weather
variations and who contribute higher margins to earnings than other customer
classes.
==============================================================================
Therms Delivered - Thousands 1996 1995 % Change
- ---------------------------- ---------- ---------- --------
Residential 169,002 145,203 16.4
Commercial/Industrial 104,750 90,326 16.0
Interruptible 14,825 10,819 37.0
---------- ----------
Total Sales 288,577 246,348 17.1
Transported Customer Owned Gas 75,477 80,083 (5.8)
Other - Interdepartmental 4,488 5,064 (11.4)
---------- ----------
Total Gas Delivered 368,542 331,495 11.2
==============================================================================
Natural gas therm deliveries during the first quarter of 1996 increased
primarily due to the colder winter weather in the first quarter of 1996 as
described above. Other - Interdepartmental therm deliveries are to WE
facilities, primarily the gas fired peaking generating units at the Paris and
Concord Generating Stations, at rates approved by the PSCW.
Operating Expenses
Other Operations Expenses increased 7.8% or by $7.6 million in the first
quarter of 1996 compared to the first quarter of 1995, primarily due to
increased power generation expenses during the first quarter of 1996 and to
the timing of certain miscellaneous operating expenses. Maintenance expense
decreased 8.0% or by approximately $2.3 million in the first three months of
1996 compared to 1995 in part due to the unscheduled generating unit outages
noted above during the first quarter of 1995. Depreciation expense increased
17.0% or by approximately $7.6 million between the same comparative periods
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<PAGE> 14
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
1996 FIRST QUARTER RESULTS OF OPERATIONS - Cont'd
due in part to higher depreciable plant balances and to increased
decommissioning expenses during the first three months of 1996.
Other Items
Other Interest Income increased 65.1% or by approximately $2.4 million in the
first quarter of 1996 compared to the first quarter of 1995, primarily due to
the increased investment income of the Nuclear Decommissioning Trust Fund.
Miscellaneous - Net Other Income and Deductions decreased by approximately
$3.3 million between the comparative periods as a result of a change in
accounting for capitalized conservation investments in 1996.
For certain other information which may impact WEC and WE's future financial
condition or results of operations, see ITEM 1. LEGAL PROCEEDINGS and ITEM 5.
OTHER INFORMATION in Part II of this report.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following should be read in conjunction with ITEM 3. LEGAL PROCEEDINGS in
Part I of WEC's and WE's respective Annual Reports on Form 10-K for the year
ended December 31, 1995.
STRAY VOLTAGE
In March 1996, the Public Service Commission of Wisconsin ("PSCW") concluded
technical hearings to further evaluate the results of stray voltage research
that has been completed since 1989 and to update, if necessary, PSCW policies
regarding stray voltage that were included in a 1989 PSCW order. On
April 25, 1996, the PSCW made several preliminary determinations regarding
stray voltage policies, indicating that while utilities in the State of
Wisconsin are properly handling stray voltage problems, it was adopting a new
"level of concern" for stray voltage and changing its isolation policy. The
new level of concern is 2.0 milliampere ("mA") for both off-farm and on-farm
sources combined, compared with the former level of 1.0 mA (0.5 volts)
established by the PSCW in 1989. Also, a utility was previously required to
install equipment that would isolate a farm from the utility's distribution
system if stray voltage was measured above certain minimum levels. Under the
new policy, customers will have the option of requesting installation of
isolation equipment at their own expense, regardless of the level of stray
voltage present. These preliminary determinations on stray voltage policies
are likely to increase the number of investigations performed by WE, but WE
does not anticipate that this will have a significant impact on its financial
position or results of operations. WE expects the PSCW to issue a final order
in May 1996.
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<PAGE> 15
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
ITEM 5. OTHER INFORMATION
POINT BEACH UNIT 2 STEAM GENERATORS & DRY CASK STORAGE PROJECT
Information concerning the PSCW's initial approval of WE's application to
utilize dry cask storage for spent nuclear fuel generated at Point Beach
Nuclear Plant ("Point Beach") and pending legal proceedings with respect to
the PSCW's decision, and information with respect to WE's application to the
PSCW for the replacement of the Unit 2 steam generators at Point Beach, is
contained in Item 1. BUSINESS - "SOURCES OF GENERATION - Nuclear" of WEC's
and WE's respective annual reports on Form 10-K for the year ended
December 31, 1995 (the "1995 10-K's").
On March 20, 1996, the PSCW filed an appeal with the Wisconsin Court of
Appeals from the December 22, 1995 decision of the Dane County Circuit Court
vacating and remanding the February 13, 1995 order of the PSCW, which had
granted WE authority to construct and operate an Independent Spent Fuel
Storage Installation ("ISFSI") for dry cask storage of spent nuclear fuel at
Point Beach. The Circuit Court decision, issued in an action commenced by
intervenors in the PSCW proceeding as described in the 1995 10-K's, was based
primarily on the court's determination that the Environmental Impact Statement
("EIS") prepared by the PSCW for the project was inadequate. WE has joined
the appeal in support of the PSCW on the issues regarding the adequacy of the
EIS.
On April 16, 1996, the PSCW unanimously approved WE's application to replace
the Unit 2 steam generators at Point Beach and reaffirmed its prior decision
approving WE's construction and operation of the ISFSI. Failure by the PSCW
to approve the steam generator replacement and reaffirm authorization for the
ISFSI would have jeopardized the continued operation of Point Beach. The Unit
2 replacement steam generators are necessary due to the degradation of some of
the tubes within the steam generators and will permit operation of the
generating unit at least until its current operating license expires in 2013.
The steam generators will be replaced during the fall refueling outage
scheduled to begin in October 1996. The ISFSI will provide interim dry cask
storage of spent fuel from Point Beach until the United States Department of
Energy takes ownership of and removes the spent fuel under an existing
contract mandated by federal law. The ISFSI is necessary because the spent
fuel pool inside the plant is nearly full. Construction of the ISFSI was
completed during 1995 and one cask was loaded with spent fuel in December
1995, after which the transfer of spent fuel to the ISFSI was temporarily
suspended by WE pending the PSCW's further action in response to the Circuit
Court decision remanding the PSCW's initial order authorizing the ISFSI. WE
anticipates receiving a written order from the PSCW in May 1996 approving
replacement of the Unit 2 steam generators and reaffirming approval of the
ISFSI. Upon receipt of the written order, WE will resume transfer of spent
fuel to the ISFSI and plans to load three additional casks with spent fuel
during the remainder of 1996. It is expected that intervenors in the PSCW
proceeding will seek judicial review of such order.
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<PAGE> 16
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
DEVELOPMENT OF ISO FOR WISCONSIN TRANSMISSION SYSTEM
The PSCW is conducting a generic investigation into the electric utility
industry in Wisconsin. As part of that investigation, it has stated that it
intends to develop an Independent System Operator ("ISO") for the statewide
transmission system. It has further indicated that in the event an ISO cannot
be developed that effectively separates control and operation of the
transmission system from the ownership of generation, it intends to proceed to
develop a Transco, which would own, operate and control transmission in the
State of Wisconsin.
The PSCW has requested Wisconsin utilities, including WE, to develop an ISO
proposal to meet the needs of Wisconsin's electric utility industry and its
customers. WE strongly supports an ISO for the State of Wisconsin structured
to become part of a larger Midwest ISO proposed by WE and various other major
midwest utilities. Presently, WE is one of 20 utilities who are participating
in the formation of the Midwest ISO. WE intends to actively participate in
development of the Wisconsin statewide and Midwest ISO proposals. However, WE
cannot predict whether such efforts will be successful or the timing of the
implementation of such proposals, if adopted.
FERC OPEN ACCESS TRANSMISSION RULING
On April 24, 1996, the Federal Energy Regulatory Commission ("FERC") issued
two final orders relating to open access transmission service, stranded costs,
standards of conduct and open access same-time information systems. The
ruling is intended to create a more competitive wholesale electric power
market. The first order, Order No. 888, requires public utilities owning,
controlling or operating transmission lines to file non-discriminatory open
access tariffs that offer others the same transmission service provided to
themselves and requires the use of the tariffs for their own wholesale energy
sales and purchases. Order No. 888 also provides for the full recovery of
"stranded costs" that were prudently incurred to serve power customers and
that could go unrecovered if wholesale customers use open access to move to
another electric energy supplier. The second order, Order No. 889, works to
ensure that transmission owners and their affiliates do not have an unfair
competitive advantage in using transmission to sell power. Order No. 889
establishes standards of conduct and requires that a public utility rely on
the same electronic information network that its transmission customers rely
on to obtain information about its transmission system when buying or selling
power. WE advocates open access to transmission facilities as a necessary
step in the competitive restructuring of the electric utility industry and
does not believe that the ruling by the FERC will have a negative material
effect on it's financial position or results of operations. The open access
transmission orders will become effective in mid-1996.
In its open access transmission ruling, the FERC has encouraged utilities to
consider ISOs such as the Wisconsin statewide and Midwest ISOs noted above as
a tool to meet the demands of a competitive market for electric energy.
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<PAGE> 17
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
MINERGY GLASS AGGREGATE PLANT
Minergy Corp. ("Minergy"), a non-regulated WEC subsidiary, plans to place into
operation in late 1997 a $45 million facility in Neenah, Wisconsin that would
recycle paper sludge from area paper mills into two usable products: glass
aggregate and steam. The glass aggregate will be sold into existing
construction and aggregate markets and the steam will be sold to a local paper
mill. During 1995, Minergy received the necessary approvals from the City of
Neenah for construction of the facility, and the Wisconsin Department of
Natural Resources issued the necessary air pollution control permit for the
plant in April 1996. Construction of the plant is currently scheduled to
begin in early summer 1996.
MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY
On April 28, 1995, WEC and Northern States Power Company, a Minnesota
corporation ("NSP"), entered into an Agreement and Plan of Merger, which was
amended and restated as of July 26, 1995 ("Merger Agreement"). The Merger
Agreement provides for a strategic business combination involving WEC and NSP
in a "merger-of-equals" transaction ("Transaction"). As a result, WEC will
become a registered public utility holding company under the Public Utility
Holding Company Act of 1935, as amended ("PUHCA"), and will change its name to
Primergy Corporation ("Primergy"). Primergy will be the parent company of WE
(which will be renamed Wisconsin Energy Company), of NSP (which, for
regulatory reasons, will reincorporate in Wisconsin ("New NSP")), and of the
other subsidiaries of WEC and NSP. In connection with the Transaction,
Northern States Power Company, a Wisconsin corporation ("NSP-WI"), currently a
utility subsidiary of NSP, will be merged into Wisconsin Energy Company.
Prior to the merger of NSP-WI into Wisconsin Energy Company, New NSP will
acquire from NSP-WI certain gas utility assets in LaCrosse and Hudson,
Wisconsin with a net historical cost at March 31, 1996 of $18 million. The
Transaction is intended to be tax-free for income tax purposes and to be
accounted for as a "pooling of interests". On September 13, 1995, the
stockholders of WEC and NSP voted to approve the proposed Transaction.
The Merger Agreement is subject to various conditions, including the approval
of various regulatory agencies. On April 10, 1996, the Michigan Public
Service Commission approved the merger application through a settlement
agreement containing terms consistent with the merger application. This is
the first of four states to act where approval of the Transaction is required.
On April 5, 1996, WEC and NSP submitted the initial filing to the Securities
and Exchange Commission ("SEC") to facilitate registration of Primergy under
PUHCA. In 1996, WEC and NSP also will file required notifications with the
Federal Trade Commission and the Department of Justice under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended. Subject to obtaining
all requisite approvals, WEC and NSP anticipate completing the Transaction by
January 1, 1997.
Filings with regulatory agencies in the states where WEC and NSP provide
utility services and in which such filings are required include a request for
deferred accounting treatment and rate recovery of costs incurred associated
with the Transaction. As of March 31, 1996, WEC has deferred $8.9 million of
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<PAGE> 18
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY - Cont'd
costs associated with the Transaction as a component of Deferred Charges and
Other Assets-Other.
Detailed information with respect to the Merger Agreement and the proposed
Transaction is contained in WEC's and WE's respective 1995 Annual Reports on
Form 10-K and in the Joint Proxy Statement/Prospectus dated August 7, 1995
(contained in WEC's Registration Statement on Form S-4, Registration No.
33-61619) relating to the meetings of the stockholders of WEC and NSP to vote
on the Merger Agreement and related matters.
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following summarized unaudited pro forma financial information combines
historical balance sheet and income statement information of WEC and NSP and
of WE and NSP-WI to give effect to the Transaction to form Primergy and
Wisconsin Energy Company. This information should be read in conjunction with
the historical financial statements and related notes thereto of WEC, NSP, WE
and NSP-WI.
The allocation between WEC and NSP and their customers of the estimated cost
savings resulting from the Transaction, net of costs incurred to achieve such
estimated cost savings, will be subject to regulatory review and approval.
Cost savings resulting from the Transaction are estimated to be approximately
$2 billion over a 10-year period, net of transaction costs (including fees for
financial advisors, attorneys, accountants, consultants, filings and printing)
and costs to achieve the savings of approximately $30 million and $122
million, respectively. None of the estimated cost savings, the costs to
achieve such savings, nor transaction costs are reflected in the unaudited pro
forma financial information. With the exception of certain non-current
deferred tax balance sheet reclassifications described below, all other
financial statement presentation and accounting policy differences are
immaterial and have not been adjusted in the unaudited pro forma financial
information.
The unaudited pro forma balance sheet information gives effect to the
Transaction as if it had occurred at March 31, 1996. The unaudited pro forma
income statement information gives effect to the Transaction as if it had
occurred at January 1, 1996. The following information is not necessarily
indicative of the financial position or operating results that would have
occurred had the Transaction been consummated on the date or at the beginning
of the period for which the Transaction is being given effect nor is it
necessarily indicative of future operating results or financial position.
Primergy Information
The following summarized Primergy unaudited pro forma financial information
reflects the combination of the historical financial statements of WEC and NSP
after giving effect to the Transaction to form Primergy. A $143 million pro
forma adjustment has been made to conform the presentation of noncurrent
deferred income taxes in the summarized unaudited pro forma combined balance
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS - Cont'd
sheet information as a net liability. The unaudited pro forma combined
earnings per common share reflect pro forma adjustments to average NSP common
shares outstanding in accordance with the provisions of the Merger Agreement,
whereby each outstanding share of NSP common stock will be converted into
1.626 shares of Primergy common stock. In the Transaction, each outstanding
share of WEC common stock will remain outstanding as a share of Primergy
common stock.
==============================================================================
Primergy Corporation: Unaudited
WEC NSP Pro Forma
(As Reported) (As Reported) Combined
------------- ------------- -------------
(Millions, except per share amounts)
As of March 31, 1996:
Utility plant-net $ 2,907 $ 4,321 $ 7,228
Current assets 502 838 1,340
Other assets * 1,129 1,222 2,208
----------- ----------- -----------
Total Assets $ 4,538 $ 6,381 $ 10,776
=========== =========== ===========
Common stockholder's equity $ 1,893 $ 2,066 $ 3,959
Preferred stock and premium 30 241 271
Long-term debt 1,356 1,668 3,024
----------- ----------- -----------
Total Capitalization 3,279 3,975 7,254
Current liabilities 400 998 1,398
Other liabilities * 859 1,408 2,124
----------- ----------- -----------
Total Equity & Liabilities $ 4,538 $ 6,381 $ 10,776
=========== =========== ===========
For the Three Months Ended
March 31, 1996:
Utility Operating Revenues $ 495 $ 719 $ 1,214
Utility Operating Income $ 85 $ 89 $ 174
Net Income, after Preferred
Dividend Requirements $ 63 $ 64 $ 127
Earnings per Common Share:
As Reported $ 0.57 $ 0.94 -
Primergy Shares - - $ 0.57
==============================================================================
* Includes a $143 million pro forma adjustment to conform the presentation of
noncurrent deferred taxes as a net liability.
Wisconsin Energy Company Information
The following summarized Wisconsin Energy Company unaudited pro forma
financial information combines historical balance sheet and income statement
information of WE and NSP-WI to give effect to the Transaction, including the
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<PAGE> 20
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS - Cont'd
transfer of certain gas assets from NSP-WI to New NSP. The unaudited pro
forma income statement information does not reflect adjustments for 1996 first
quarter revenues of $14.5 million and related expenses associated with the
transfer of certain gas assets from NSP-WI to New NSP. A $139 million pro
forma adjustment has been made to conform the presentation of noncurrent
deferred income taxes in the summarized unaudited pro forma combined balance
sheet information as a net liability. A net $18 million pro forma adjustment
has also been made in the summarized unaudited pro forma combined balance
sheet information to reflect the transfer of certain gas assets from NSP-WI to
New NSP. Earnings per share of common stock are not applicable because all of
the Wisconsin Energy Company common stock will be owned by Primergy.
==============================================================================
Wisconsin Energy Company: ** Unaudited
WE NSP-WI Pro Forma
(As Reported) (As Reported) Combined***
------------- ------------- -------------
(Millions of Dollars)
As of March 31, 1996:
Utility plant-net $ 2,907 $ 655 $ 3,542
Current assets 485 73 574
Other assets 896 60 816
----------- ----------- -----------
Total Assets $ 4,288 $ 788 $ 4,932
=========== =========== ===========
Common stockholder's equity $ 1,718 $ 325 $ 2,043
Preferred stock and premium 30 - 30
Long-term debt 1,314 213 1,527
----------- ----------- -----------
Total Capitalization 3,062 538 3,600
Current liabilities 380 95 475
Other liabilities 846 155 857
----------- ----------- -----------
Total Equity & Liabilities $ 4,288 $ 788 $ 4,932
=========== =========== ===========
For the Three Months Ended
March 31, 1996:
Utility Operating Revenues $ 495 $ 139 $ 634
Utility Operating Income $ 85 $ 17 $ 102
Net Income, after Preferred
Dividend Requirements $ 62 $ 13 $ 75
==============================================================================
** In connection with the Merger Agreement, WE will be renamed Wisconsin
Energy Company.
*** Includes a $139 million pro forma adjustment to conform the presentation
of noncurrent deferred taxes as a net liability and a net $18 million pro
forma adjustment for the transfer of selected gas assets from NSP-WI to
New NSP.
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<PAGE> 21
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
CAUTIONARY FACTORS
The Private Securities Litigation Reform Act of 1995 provides a new "safe
harbor" for forward-looking statements to encourage such disclosures without
the threat of litigation providing those statements are identified as forward-
looking and are accompanied by meaningful cautionary statements about risks
and uncertainties that could cause actual results to differ materially from
those projected in the statement. When used in written documents or oral
presentations, the words "anticipate", "believe", "estimate", "expect",
"objective" and similar expressions are intended to identify forward-looking
statements. This report and other documents or oral presentations contain or
may contain forward-looking statements made by or on behalf of WEC or WE. Such
statements are based upon management's current expectations. In addition to
the assumptions and other factors referred to specifically in connection with
such statements, factors that could cause WEC's or WE's actual results to
differ materially from those contemplated in any forward-looking statements
include, among others, the following:
Operating, Financial and Industry Factors
* Factors affecting utility operations such as unusual weather conditions;
catastrophic weather-related damage; unscheduled generation outages,
maintenance or repairs; unanticipated changes in fossil fuel, nuclear fuel
or gas supply costs or availability due to higher demand, shortages,
transportation problems or other developments; nuclear or environmental
incidents; resolution of spent nuclear fuel storage and disposal and steam
generator replacement issues; electric transmission or gas pipeline system
constraints; unanticipated organizational structure or key personnel
changes; collective bargaining agreements with union employees or work
stoppages; inflation rates; or demographic and economic factors affecting
utility service territories or operating environment.
* The rapidly changing and increasingly competitive electric and gas utility
environment as market-based forces replace strict industry regulation and
other competitors enter the electric and gas markets resulting in increased
wholesale and retail competition.
* Customer business conditions including demand for their products or
services and supply of labor and materials used in creating their products
and services.
* Regulatory factors such as unanticipated changes in rate-setting policies
or procedures; unanticipated changes in regulatory accounting policies and
practices; industry restructuring initiatives; transmission system
operation and/or administration initiatives; recovery of costs of previous
investments made under traditional regulation; required approvals for new
construction; Nuclear Regulatory Commission operating regulation changes
related to Point Beach Nuclear Plant; or the siting approval process for
new generating and transmission facilities.
* The cost and other effects of legal and administrative proceedings,
settlements, and investigations, claims and changes in those matters.
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
CAUTIONARY FACTORS - Cont'd
* Factors affecting the availability or cost of capital such as changes in
interest rates; market perceptions of the utility industry, the Company or
any of its subsidiaries; or security ratings.
* Federal, state or local legislative factors such as changes in tax laws or
rates; changes in trade, monetary and fiscal policies, laws and
regulations; electric and gas industry restructuring initiatives; or
changes in environmental laws and regulations.
* Certain restrictions imposed by various financing arrangements and
regulatory requirements on the ability of WE to transfer funds to WEC in
the form of cash dividends, loans or advances.
* Authoritative generally accepted accounting principle or policy changes
from such standard setting bodies as the Financial Accounting Standards
Board and the Securities and Exchange Commission ("SEC").
* Unanticipated technological developments that result in competitive
disadvantages and create the potential for impairment of existing assets.
* Changes in social attitudes regarding the utility and power industries.
* Possible risks associated with nonutility diversification such as
competition; operating risks; dependence upon certain suppliers and
customers; or environmental and energy regulations.
* Other business or investment considerations that may be disclosed from time
to time in WEC's or WE's SEC filings or in other publicly disseminated
written documents.
Business Combination Factors
* Consummation of the Transaction with NSP to form Primergy and Wisconsin
Energy Company, which will have a significant effect on the future
operations and financial position of WEC and WE, respectively. Specific
factors include:
* The ability to consummate the Transaction on substantially the basis
contemplated.
* The ability to obtain the requisite approvals by all applicable
regulatory authorities.
* The ability to generate the cost savings to Primergy that WEC and NSP
believe will be generated by the synergies resulting from the
Transaction. This depends upon the degree to which the assumptions upon
which the analyses employed to develop estimates of potential cost
savings as a result of the Transaction will approximate actual
experience. Such assumptions involve judgements with respect to, among
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<PAGE> 23
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
CAUTIONARY FACTORS - Cont'd
other things, future national and regional economic conditions, national
and regional competitive conditions, inflation rates, regulatory
treatment, weather conditions, financial market conditions, business
decisions and other uncertainties. All of these factors are difficult
to predict and many are beyond the control of WEC and NSP. While it is
believed that such assumptions are reasonable, there can be no assurance
that they will approximate actual experience or that the estimated cost
savings will be realized.
* The allocation of the benefits of cost savings between shareholders and
customers, which will depend, among other things, upon the results of
regulatory proceedings in various jurisdictions.
* The rate structure of Primergy's utility subsidiaries.
* Additional regulation to which Primergy will be subject as a registered
public utility holding company under PUHCA, in contrast to the more limited
impact of PUHCA upon WEC and NSP as exempt holding companies, and other
different or additional federal and state regulatory requirements or
restrictions to which Primergy and its subsidiaries may be subject as a
result of the Transaction (including conditions which may be imposed in
connection with obtaining the regulatory approvals necessary to consummate
the Transaction such as the possible requirement to divest gas utility
properties and possibly certain nonutility ventures).
* Factors affecting the dividend policy of Primergy including results of
operations and financial condition of Primergy and its subsidiaries and
such other business considerations as the Primergy Board of Directors
considers relevant.
WEC and WE undertake no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise.
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FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
PART II - OTHER INFORMATION (Cont'd)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following Exhibits are filed with the applicable Form 10-Q report:
Exhibit No.
WEC Exhibits
(27)-1 Wisconsin Energy Corporation ("WEC") Financial Data Schedule
for the three months ended March 31, 1996.
WE Exhibits
(27)-2 Wisconsin Electric Power Company ("WE") Financial Data Schedule
for the three months ended March 31, 1996.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by WEC during the quarter ended
March 31, 1996.
A Current Report on Form 8-K dated as of January 1, 1996 was filed by WE
on January 16, 1996 to report the consummation of the merger of Wisconsin
Natural Gas Company into WE, incorporate by reference or file related
historical and pro forma financial statements and exhibits, and report
developments concerning WE's Point Beach Nuclear Plant Independent Spent
Fuel Storage Installation.
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<PAGE> 25
FORM 10-Q
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WISCONSIN ENERGY CORPORATION
--------------------------------------
(Registrant)
/s/ R. A. Abdoo
--------------------------------------
Date: May 15, 1996 R. A. Abdoo, Chairman of the Board,
President and Chief Executive Officer
/s/ C. H. Baker
--------------------------------------
Date: May 15, 1996 C. H. Baker, Treasurer and Chief
Financial Officer - Principal
Financial Officer
WISCONSIN ELECTRIC POWER COMPANY
--------------------------------------
(Registrant)
/s/ R. R. Grigg, Jr.
--------------------------------------
Date: May 15, 1996 R. R. Grigg, Jr., President and
Chief Operating Officer
/s/ A. K. Klisurich
--------------------------------------
Date: May 15, 1996 A. K. Klisurich, Controller -
Principal Accounting Officer
- 25 -
<PAGE> 26
FORM 10-Q
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
FORM 10-Q REPORT FOR THE QUARTER ENDED MARCH 31, 1996
EXHIBIT INDEX
Exhibit No.
- -----------
The following Exhibits are filed with this report:
(27)-2 Wisconsin Electric Power Company Financial Data Schedule for the
three months ended March 31, 1996.
- 26 -
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED FINANCIAL STATEMENTS OF WISCONSIN ELECTRIC
POWER COMPANY FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<CURRENCY> U.S. DOLLARS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<PERIOD-TYPE> 3-MOS
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,906,736
<OTHER-PROPERTY-AND-INVEST> 432,378
<TOTAL-CURRENT-ASSETS> 485,265
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 463,411
<TOTAL-ASSETS> 4,287,790
<COMMON> 332,893
<CAPITAL-SURPLUS-PAID-IN> 280,689
<RETAINED-EARNINGS> 1,104,232
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,717,814
0
30,450
<LONG-TERM-DEBT-NET> 1,127,645
<SHORT-TERM-NOTES> 50,400
<LONG-TERM-NOTES-PAYABLE> 165,350
<COMMERCIAL-PAPER-OBLIGATIONS> 74,776
<LONG-TERM-DEBT-CURRENT-PORT> 10,000
0
<CAPITAL-LEASE-OBLIGATIONS> 20,383
<LEASES-CURRENT> 18,929
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,072,043
<TOT-CAPITALIZATION-AND-LIAB> 4,287,790
<GROSS-OPERATING-REVENUE> 495,457
<INCOME-TAX-EXPENSE> 38,528
<OTHER-OPERATING-EXPENSES> 371,784
<TOTAL-OPERATING-EXPENSES> 410,312
<OPERATING-INCOME-LOSS> 85,145
<OTHER-INCOME-NET> 3,964
<INCOME-BEFORE-INTEREST-EXPEN> 89,109
<TOTAL-INTEREST-EXPENSE> 27,105
<NET-INCOME> 62,004
301
<EARNINGS-AVAILABLE-FOR-COMM> 61,703
<COMMON-STOCK-DIVIDENDS> 40,455
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 165,799
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
Earnings per share of common stock is not applicable because all of the
company's common stock is owned by Wisconsin Energy Corporation.
See financial statements and notes in accompanying 10-Q.
</TABLE>
