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, 1997
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, 1997):
Wisconsin Energy Corporation Common stock, $.01 Par Value,
112,465,540 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.
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
FORM 10-Q REPORT FOR THE QUARTER ENDED MARCH 31, 1997
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 . . . . . . . . . . . . . . . . . . . . . . . 13
4. Submission of Matters to a Vote of Security Holders. . . . . . . 14
5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . 15
6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 23
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
INTRODUCTION
Wisconsin Energy Corporation ("WEC" or "Wisconsin Energy") is a holding
company whose principal subsidiary is Wisconsin Electric Power Company ("WE"
or "Wisconsin Electric"), 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. 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 combined Annual Report
on Form 10-K for the year ended December 31, 1996. 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.
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED INCOME STATEMENT
(Unaudited)
<CAPTION>
Three Months Ended March 31
-------------------------------------
1997 1996
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues
Electric $ 349,100 $ 350,824
Gas 152,849 138,016
Steam 8,434 6,617
---------- ----------
Total Operating Revenues 510,383 495,457
Operating Expenses
Fuel 77,261 75,793
Purchased power 27,861 5,764
Cost of gas sold 103,294 85,592
Other operation expenses 102,399 105,376
Maintenance 31,467 26,107
Depreciation 57,665 52,305
Taxes other than income taxes 19,187 20,847
Federal income tax 17,919 30,628
State income tax 4,295 7,158
Deferred income taxes - net 4,519 1,862
Investment tax credit - net (1,121) (1,120)
---------- ----------
Total Operating Expenses 444,746 410,312
Operating Income 65,637 85,145
Other Income and Deductions
Interest income 6,358 5,966
Allowance for other funds used
during construction 1,141 606
Miscellaneous - net (59) (1,926)
Income taxes (155) 447
---------- ----------
Total Other Income and Deductions 7,285 5,093
Income Before Interest Charges and
Preferred Dividend 72,922 90,238
Interest Charges
Interest expense 29,391 28,307
Allowance for borrowed funds used
during construction (1,839) (1,174)
---------- ----------
Total Interest Charges 27,552 27,133
Preferred Dividend Requirement of Subsidiary 301 301
---------- ----------
Net Income $ 45,069 $ 62,804
========== ==========
Average Number of Shares of Common
Stock Outstanding (Thousands) 111,959 110,819
========== ==========
Earnings Per Share of Common Stock $ 0.40 $ 0.57
========== ==========
Dividends Per Share of Common Stock $ 0.3800 $ 0.3675
========== ==========
<FN>
The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these
financial statements.
</TABLE>
<TABLE>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
<CAPTION>
March 31, 1997 December 31, 1996
---------------- -----------------
(Thousands of Dollars)
Assets
--------------
<S> <C> <C>
Utility Plant
Electric $ 4,750,461 $ 4,725,832
Gas 506,405 503,041
Steam 61,100 60,480
Accumulated provision for depreciation (2,485,258) (2,441,950)
------------- -------------
2,832,708 2,847,403
Construction work in progress 148,728 135,040
Nuclear fuel - net 81,969 75,476
------------- -------------
Net Utility Plant 3,063,405 3,057,919
Other Property and Investments 709,170 716,223
Current Assets
Cash and cash equivalents 64,823 10,748
Accounts receivable 164,349 151,473
Accrued utility revenues 116,886 155,838
Materials, supplies and fossil fuel 147,017 184,416
Prepayments and other assets 63,509 63,383
------------- -------------
Total Current Assets 556,584 565,858
Deferred Charges and Other Assets
Accumulated deferred income taxes 155,908 153,806
Other 338,458 317,032
------------- -------------
Total Deferred Charges and Other Assets 494,366 470,838
------------- -------------
Total Assets $ 4,823,525 $ 4,810,838
============= =============
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $ 717,508 $ 701,197
Retained earnings 1,246,708 1,244,147
------------- -------------
Total Common Stock Equity 1,964,216 1,945,344
Preferred stock 30,450 30,450
Long-term debt 1,409,254 1,416,067
------------- -------------
Total Capitalization 3,403,920 3,391,861
Current Liabilities
Long-term debt due currently 182,672 190,204
Short-term debt 61,408 69,265
Accounts payable 115,693 148,429
Accrued liabilities 94,075 84,197
Other 63,453 34,923
------------- -------------
Total Current Liabilities 517,301 527,018
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 519,245 511,399
Other 383,059 380,560
------------- -------------
Total Deferred Credits and Other Liabilities 902,304 891,959
------------- -------------
Total Capitalization and Liabilities $ 4,823,525 $ 4,810,838
============= =============
<FN>
The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these
financial statements.
</TABLE>
<TABLE>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended March 31
-------------------------------------
1997 1996
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities
Net income $ 45,069 $ 62,804
Reconciliation to cash
Depreciation 57,665 52,305
Nuclear fuel expense - amortization 1,494 6,304
Conservation expense - amortization 5,625 5,625
Debt premium, discount & expense - amortization 2,279 3,066
Deferred income taxes - net 4,519 1,862
Investment tax credit - net (1,121) (1,120)
Allowance for other funds used during construction (1,141) (606)
Change in - Accounts receivable (12,876) (8,097)
Inventories 37,399 24,545
Accounts payable (32,736) (17,903)
Other current assets 38,826 13,605
Other current liabilities 38,408 22,406
Other (22,146) 2,932
---------- ----------
Cash Provided by Operating Activities 161,264 167,728
Investing Activities
Construction expenditures (66,409) (63,861)
Allowance for borrowed funds used during construction (1,839) (1,174)
Nuclear fuel (4,297) (3,828)
Nuclear decommissioning trust (7,454) (8,181)
Conservation investments - net 31 (136)
Other 22,804 3,764
---------- ----------
Cash Used in Investing Activities (57,164) (73,416)
Financing Activities
Sale of common stock 16,311 -
Retirement of preferred stock - (1)
Retirement of long-term debt (15,971) (34,611)
Change in short-term debt (7,857) (18,593)
Dividends on stock - common (42,508) (40,726)
---------- ----------
Cash Used in Financing Activities (50,025) (93,931)
---------- ----------
Change in Cash and Cash Equivalents $ 54,075 $ 381
========== ==========
Supplemental Information - Cash Paid For
Interest (net of amount capitalized) $ 20,656 $ 27,034
Income taxes 19,802 16,265
<FN>
The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these
financial statements.
</TABLE>
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED INCOME STATEMENT
(Unaudited)
<CAPTION>
Three Months Ended March 31
-------------------------------------
1997 1996
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues
Electric $ 349,100 $ 350,824
Gas 152,849 138,016
Steam 8,434 6,617
---------- ----------
Total Operating Revenues 510,383 495,457
Operating Expenses
Fuel 77,261 75,793
Purchased power 27,861 5,764
Cost of gas sold 103,294 85,592
Other operation expenses 102,399 105,376
Maintenance 31,467 26,107
Depreciation 57,665 52,305
Taxes other than income taxes 19,187 20,847
Federal income tax 17,919 30,628
State income tax 4,295 7,158
Deferred income taxes - net 4,519 1,862
Investment tax credit - net (1,121) (1,120)
---------- ----------
Total Operating Expenses 444,746 410,312
Operating Income 65,637 85,145
Other Income and Deductions
Interest income 5,103 4,848
Allowance for other funds used
during construction 1,141 606
Miscellaneous - net (245) (1,247)
Income taxes (268) (243)
---------- ----------
Total Other Income and Deductions 5,731 3,964
Income Before Interest Charges 71,368 89,109
Interest Charges
Interest expense 28,296 27,441
Allowance for borrowed funds used
during construction (615) (336)
---------- ----------
Total Interest Charges 27,681 27,105
---------- ----------
Net Income 43,687 62,004
Preferred Stock Dividend Requirement 301 301
---------- ----------
Earnings Available for Common Stockholder $ 43,386 $ 61,703
========== ==========
<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.
</TABLE>
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED BALANCE SHEET
(Unaudited)
<CAPTION>
March 31, 1997 December 31, 1996
---------------- -----------------
(Thousands of Dollars)
Assets
--------------
<S> <C> <C>
Utility Plant
Electric $ 4,750,461 $ 4,725,832
Gas 506,405 503,041
Steam 61,100 60,480
Accumulated provision for depreciation (2,485,258) (2,441,950)
------------- -------------
2,832,708 2,847,403
Construction work in progress 148,728 135,040
Nuclear fuel - net 81,969 75,476
------------- -------------
Net Utility Plant 3,063,405 3,057,919
Other Property and Investments 456,970 458,009
Current Assets
Cash and cash equivalents 15,445 1,871
Accounts receivable 159,436 140,256
Accrued utility revenues 116,886 155,838
Materials, supplies and fossil fuel 147,017 184,416
Prepayments and other assets 56,963 58,444
------------- -------------
Total Current Assets 495,747 540,825
Deferred Charges and Other Assets
Accumulated deferred income taxes 152,371 150,269
Other 321,136 300,138
------------- -------------
Total Deferred Charges and Other Assets 473,507 450,407
------------- -------------
Total Assets $ 4,489,629 $ 4,507,160
============= =============
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $ 613,582 $ 613,582
Retained earnings 1,087,866 1,125,206
------------- -------------
Total Common Stock Equity 1,701,448 1,738,788
Preferred stock 30,450 30,450
Long-term debt 1,372,124 1,371,446
------------- -------------
Total Capitalization 3,104,022 3,140,684
Current Liabilities
Long-term debt due currently 169,102 183,635
Short-term debt 61,408 45,390
Accounts payable 114,015 145,894
Accrued liabilities 90,705 80,088
Other 61,034 32,588
------------- -------------
Total Current Liabilities 496,264 487,595
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 515,691 507,845
Other 373,652 371,036
------------- -------------
Total Deferred Credits and Other Liabilities 889,343 878,881
------------- -------------
Total Capitalization and Liabilities $ 4,489,629 $ 4,507,160
============= =============
<FN>
The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of
these financial statements.
</TABLE>
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended March 31
-------------------------------------
1997 1996
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities
Net income $ 43,687 $ 62,004
Reconciliation to cash
Depreciation 57,665 52,305
Nuclear fuel expense - amortization 1,494 6,304
Conservation expense - amortization 5,625 5,625
Debt premium, discount & expense - amortization 2,189 3,054
Deferred income taxes - net 4,519 1,862
Investment tax credit - net (1,121) (1,120)
Allowance for other funds used during construction (1,141) (606)
Change in - Accounts receivable (19,180) (9,864)
Inventories 37,399 24,545
Accounts payable (31,879) (17,665)
Other current assets 40,433 14,959
Other current liabilities 39,063 21,442
Other (20,747) 2,954
---------- ----------
Cash Provided by Operating Activities 158,006 165,799
Investing Activities
Construction expenditures (51,395) (54,921)
Allowance for borrowed funds used during construction (615) (336)
Nuclear fuel (4,297) (3,828)
Nuclear decommissioning trust (7,454) (8,181)
Conservation investments - net 31 (136)
Other (817) (330)
---------- ----------
Cash Used in Investing Activities (64,547) (67,732)
Financing Activities
Retirement of preferred stock - (1)
Retirement of long-term debt (14,876) (34,611)
Change in short-term debt 16,018 (25,518)
Dividends on - Common stock (80,726) (40,455)
Preferred stock (301) (301)
---------- ----------
Cash Used in Financing Activities (79,885) (100,886)
---------- ----------
Change in Cash and Cash Equivalents $ 13,574 $ (2,819)
========== ==========
Supplemental Information - Cash Paid For
Interest (net of amount capitalized) $ 21,252 $ 27,572
Income taxes 17,927 16,238
<FN>
The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of
these financial statements.
</TABLE>
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 combined 1996 Annual Report 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, 1997 are not, however, necessarily indicative of
the results which may be expected for the year 1997 because of seasonal
and other factors.
2. As a result of degradation of tubes within the Unit 2 steam generators at
Point Beach Nuclear Plant ("Point Beach"), WE completed replacement of
the steam generators in January 1997. Point Beach Unit 1 was taken out
of service in February 1997 due to equipment problems. Subject to
approval by the United States Nuclear Regulatory Commission, WE expects
to restart Unit 2 in June 1997. WE intends to restart Unit 1 by July 1,
1997, with a refueling outage currently scheduled to occur from September
through October 1997. See ITEM 5. OTHER INFORMATION - "NUCLEAR MATTERS"
in Part II of this report for additional information related to nuclear
operations.
3. Due to the extended outages at Point Beach and an extended outage at Oak
Creek Power Plant as a result of a generator problem, WE has incurred and
will continue to incur increased fuel costs beyond those reflected in its
electric rates. In February 1997, as supplemented in March 1997, WE
filed with the Public Service Commission of Wisconsin ("PSCW") a request
for an increase in its electric rates to cover the Wisconsin portion of
the increased fuel costs. In the fuel filing, WE estimates that its 1997
annual fuel costs will increase by about $67 million of which $53 million
is allocated to the Wisconsin jurisdiction. On May 13, 1997, the PSCW
agreed to provide an interim fuel surcharge, subject to refund, related
to approximately $50 million of increased fuel costs in the Wisconsin
jurisdiction for the 1997-1998 biennial period. The portion of the $50
million that WE may ultimately recover through the fuel surcharge depends
upon the timing of the interim PSCW order, which WE expects to receive
later in May 1997, and the nature of a final PSCW order, which WE expects
to receive following contested public hearings to be held in the summer
of 1997.
4. 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 without unacceptable conditions. Action by
various state and federal regulatory agencies is still pending. 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wisconsin Energy Corporation ("WEC", "Wisconsin Energy" or the "Company") is a
holding company whose principal subsidiary is Wisconsin Electric Power Company
("WE" or "Wisconsin Electric"), an electric, gas and steam utility. As of
March 31, 1997, approximately 93% 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") and is subject to
obtaining all requisite approvals without unacceptable conditions. Action by
various state and federal agencies is still pending. 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
When used in this document, "anticipate", "believe", "estimate", "expect",
"objective", "project" and similar expressions are intended to identify
forward-looking statements. Forward-looking statements are subject to certain
risks, uncertainties and assumptions which could cause actual results to
differ materially from those projected, including the factors 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 $161 million
during the three months ended March 31, 1997. This compares to approximately
$168 million provided during the same period in 1996.
WEC's consolidated net investing activities totaled $57 million for the three
months ended March 31, 1997 compared to $73 million during the same period in
1996. Investments during the first quarter of 1997 included approximately $66
million for the construction of new or improved facilities of which $51
million was for a number of projects related to utility plant. Additional
investments included $4 million for acquisition of nuclear fuel and $7 million
for payments to the Nuclear Decommissioning Trust Fund ("Fund") for the
eventual decommissioning of WE's Point Beach Nuclear Plant ("Point Beach").
Net investing activities for the three months ended March 31, 1997 reflect
approximately $24 million of cash proceeds from the sale of buildings and
other capital distributions from investments by WISPARK Corporation
("WISPARK"), a non-utility subsidiary of WEC, included in Investing
Activities-Other.
During the first quarter of 1997, WEC used $50 million for financing
activities compared to approximately $94 million during the first quarter of
1996. Financing activities during the first three months of 1997 included a
$10 million payment of principal on the maturity of 6-5/8% WE first mortgage
bonds. From January 1, 1997 through March 31, 1997, WEC issued 639,274 shares
of common stock which were purchased by participants in the Company's stock
plans with cash investments and reinvested dividends aggregating $16.3
million.
Capital requirements for the remainder of 1997 are expected to be principally
for construction expenditures, payments to the Fund for the eventual
decommissioning of Point Beach and long-term debt maturity and sinking fund
requirements. These cash requirements are expected to be met primarily
through internal sources of funds from operations and short-term borrowings.
However, WE may issue additional intermediate or long-term debt in a public
offering later in 1997. The specific form, amount and timing of debt
securities which might be issued have not yet been determined and would depend
upon market conditions and other factors.
RESULTS OF OPERATIONS
1997 FIRST QUARTER
Earnings
During the first quarter of 1997, WEC's consolidated net income and earnings
per share of common stock were $45.1 million and $0.40, respectively, compared
to $62.8 million and $0.57, respectively, during the first quarter of 1996.
As described below, earnings decreased primarily because of higher fuel and
purchased power costs and higher maintenance and depreciation expenses in 1997
compared to the same period in 1996.
Electric Revenues, Gross Margins and Sales
Total Electric Operating Revenues decreased by 0.5% or $1.7 million during the
first quarter of 1997 compared to the first quarter of 1996. WE attributes
this decrease primarily to a Wisconsin electric retail rate decrease effective
February 18, 1997 of $7.4 million or 0.6% on an annualized basis, which more
than offset the impact of a 1.2% first quarter 1997 increase in electric
kilowatt-hour sales. Between the comparative periods, the gross margin on
Electric Operating Revenues (Electric Operating Revenues less Fuel and
Purchased Power expenses) decreased 9.4% or by approximately $25.3 million.
==============================================================================
Three Months Ended March 31
---------------------------
Electric Gross Margin ($000) 1997 1996 % Change
- ---------------------------- ---------- ---------- --------
Electric Operating Revenues $ 349,100 $ 350,824 (0.5)
Fuel & Purchased Power 105,122 81,557 28.9
---------- ----------
Gross Margin $ 243,978 $ 269,267 (9.4)
========== ==========
==============================================================================
Gross margin decreased because of significantly higher fuel and purchased
power expenses during the first quarter of 1997 as a result of extended
generating outages at Point Beach and at Oak Creek Power Plant ("Oak Creek")
discussed in Note 2 of ITEM 1. FINANCIAL STATEMENTS - "NOTES TO FINANCIAL
STATEMENTS" in Part I of this report. Fuel and purchased power expenses
increased 28.9% or by approximately $23.6 million during the three months
ended March 31, 1997 compared to the same period in 1996. As a result of the
Point Beach and Oak Creek outages, WE replaced this generating capacity with
higher cost generation and with over a 400% increase in power purchases in the
first quarter of 1997 compared to the first quarter of 1996. As described in
ITEM 1. LEGAL PROCEEDINGS - "RATE MATTERS" in Part II of this report, WE has
filed with the PSCW a request for an increase in its electric rates to cover
the increased fuel and purchased power costs attributable to the Wisconsin
retail jurisdiction. The matter is pending.
==============================================================================
Three Months Ended March 31
---------------------------
Electric Sales (Megawatt-hours) 1997 1996 % Change
- ------------------------------- ---------- ---------- --------
Residential 1,827,036 1,818,093 0.5
Small Commercial/Industrial 1,837,063 1,797,186 2.2
Large Commercial/Industrial 2,645,604 2,573,802 2.8
Other-Retail/Municipal 394,388 391,158 0.8
Resale-Utilities 254,741 296,967 (14.2)
---------- ----------
Total Electric Sales 6,958,832 6,877,206 1.2
========== ==========
==============================================================================
Total electric sales during the first quarter of 1997 were positively impacted
by customer growth in the Residential, Small Commercial/Industrial and Large
Commercial/Industrial customer classes and by increased use per customer in
the Small and in the Large Commercial/Industrial customer classes. Electric
energy sales to the Empire and Tilden ore mines ("Mines"), WE's two largest
customers, increased 1.7% during the three months ended March 31, 1997
compared to the three months ended March 31, 1996. Excluding the Mines, total
electric sales increased 1.1% and sales to the remaining Large
Commercial/Industrial customers increased 3.1%. Sales for resale to other
utilities, the Resale-Utilities customer class, decreased 14.2% in 1997
compared to 1996 as a result of reduced opportunity sales caused by the Point
Beach and Oak Creek outages noted above.
Gas Revenues, Gross Margins and Sales
Total Gas Operating Revenues increased 10.7% or by $14.8 million during the
first quarter of 1997 compared to the first quarter of 1996 due to higher gas
costs. Between the comparative periods, the gross margin on Gas Operating
Revenues (Gas Operating Revenues less Cost of Gas Sold) decreased 5.5% or by
approximately $2.9 million. The Cost of Gas Sold increased 20.7% or by $17.7
million due to a higher 1997 per unit cost of purchased gas in the first
quarter of 1997.
==============================================================================
Three Months Ended March 31
---------------------------
Gas Gross Margin ($000) 1997 1996 % Change
- ----------------------- ---------- ---------- --------
Gas Operating Revenues $ 152,849 $ 138,016 10.7
Cost of Gas Sold 103,294 85,592 20.7
---------- ----------
Gross Margin $ 49,555 $ 52,424 (5.5)
========== ==========
==============================================================================
The gross margin declined as a result of an annualized gas retail rate
decrease effective February 18, 1997 of $6.4 million or 2.0% and as a result
of decreased therm deliveries to Residential and Commercial customers, who are
more sensitive to weather variations and who contribute higher margins to
earnings than other customer classes. Changes in the cost of natural gas
purchased at market prices are included in customer rates through the
purchased gas adjustment mechanism and do not affect gross margin.
==============================================================================
Three Months Ended March 31
---------------------------
Therms Delivered - Thousands 1997 1996 % Change
- ---------------------------- ---------- ---------- --------
Residential 160,936 169,002 (4.8)
Commercial/Industrial 99,336 104,750 (5.2)
Interruptible 9,487 14,825 (36.0)
Transported Customer Owned Gas 86,499 75,477 14.6
Other - Interdepartmental 27,373 4,488 509.9
---------- ----------
Total Gas Delivered 383,631 368,542 4.1
========== ==========
==============================================================================
Natural gas therm deliveries to the Other-Interdepartmental customer class
increased approximately 510% during the first quarter of 1997 compared to the
same period in 1996. As a result of the 1997 Point Beach and Oak Creek
outages noted above, WE increased generation at its Concord and Paris
Generating Stations, natural gas-fired peaking generating units. Therm
deliveries to these WE facilities are at rates approved by the Public Service
Commission of Wisconsin ("PSCW"). Excluding the Other-Interdepartmental
customer class, therm deliveries during the three months ended March 31, 1997
decreased 2.1%, primarily as a result of warmer weather during 1997 compared
to 1996. As measured by heating degree days, the first quarter of 1997 was
9.1% warmer than the same period during 1996 and 4.4% warmer than normal.
Operating Expenses
Maintenance expense increased 20.5% or by approximately $5.4 million in the
first three months of 1997 compared to 1996, primarily due to the unscheduled
generating unit outages at Point Beach and Oak Creek noted above.
Depreciation expense increased 10.2% or by approximately $5.4 million between
the same comparative periods due primarily to higher depreciable property
balances and to higher depreciation rates included in the PSCW's 1997 rate
order and effective with February 1997 business. Total operating income taxes
decreased 33.5% or by $12.9 million in 1997 due to lower taxable income.
Other Items
Miscellaneous - Net Other Income and Deductions increased by approximately
$1.9 million between the comparative periods primarily as a result of a gain
on the disposition of non-utility property by WISPARK in 1997.
For certain other information which may impact WEC and WE's future financial
condition or results of operations, see ITEM 1. FINANCIAL STATEMENTS - "NOTES
TO FINANCIAL STATEMENTS" in Part I of this report as well as 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 1. BUSINESS -
"ENVIRONMENTAL COMPLIANCE" and ITEM 3. LEGAL PROCEEDINGS in Part I of WEC's
and WE's combined Annual Report on Form 10-K for the year ended December 31,
1996.
RATE MATTERS
Wisconsin Retail Jurisdiction
Fuel Cost Adjustment Procedure: Due to the extended outages at Point Beach
and Oak Creek discussed in Note 2 of ITEM 1. FINANCIAL STATEMENTS - "NOTES TO
FINANCIAL STATEMENTS" in Part I of this report, WE has incurred and will
continue to incur increased fuel costs beyond those reflected in its electric
rates. In February 1997, as supplemented in March 1997, WE filed with the
PSCW a request for an increase in its electric rates to cover the Wisconsin
portion of the increased fuel costs. In the fuel filing, WE estimates that
its 1997 annual fuel costs will increase by about $67 million of which $53
million is allocated to the Wisconsin jurisdiction. On May 13, 1997, the PSCW
agreed to provide an interim fuel surcharge, subject to refund, related to
approximately $50 million of increased fuel costs in the Wisconsin
jurisdiction for the 1997-1998 biennial period. The portion of the $50
million that WE may ultimately recover through the fuel surcharge depends upon
the timing of the interim PSCW order, which WE expects to receive later in May
1997, and the nature of a final PSCW order, which WE expects to receive
following contested public hearings to be held in the summer of 1997.
ENVIRONMENTAL COMPLIANCE
Solid Waste Landfills
Boundary Road Landfill: As previously reported, Waste Management, Inc.
("WMI") contacted WE in October 1995 requesting participation in the cleanup
of their former landfill on a voluntary basis. The landfill, located in the
Village of Menomonee Falls, Wisconsin, is a Superfund listed site. WMI
alleged that waste from some of WE's service centers was disposed at this site
and was contributing to the environmental problems at the site. WE and WMI
have reached a tentative agreement for settlement of WMI's claim. The
settlement will not materially impact WE's results of operations nor its
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Wisconsin Energy Corporation
At WEC's 1997 Annual Meeting of Stockholders held on April 30, 1997, the board
of directors' nominees named below were elected as directors of the class
whose term expires in 2000 by the indicated votes and percentages cast for and
withheld with respect to each nominee. There was no solicitation in
opposition to the nominees proposed in the proxy statement and there were no
abstentions or broker non-votes with respect to the election of directors.
==============================================================================
Name of Nominee For Withheld
--------------- --- --------
John F. Bergstrom 94,168,575 (97.89%) 2,033,180 (2.11%)
Geneva B. Johnson 94,067,052 (97.78%) 2,134,703 (2.22%)
==============================================================================
The appointment of Price Waterhouse LLP as independent public accountant for
1997 was approved by the stockholders by a vote of 94,849,526 votes for
(99.25% of votes cast) and 715,224 votes against (0.75% of votes cast) such
approval. There were 637,005 abstentions and no broker non-votes with respect
to such approval.
Of 111,905,008 shares of common stock outstanding and entitled to vote on the
record date of February 26, 1997, 85.97% of the shares were represented at the
meeting.
Further information concerning these matters, including the name of each
director whose term of office as a director continued after the meeting and
will expire in 1998 or 1999, is contained in WEC's Proxy Statement dated
March 14, 1997 with respect to the 1997 Annual Meeting of Stockholders.
Wisconsin Electric Power Company
At WE's 1997 Annual Meeting of Stockholders held on April 29, 1997, for which
WE did not solicit proxies, the board of directors as listed in WE's
Information Statement dated April 3, 1997 ("Information Statement") was re-
elected in its entirety. With respect to each nominee, 33,289,327 votes were
cast for election (100% of votes cast) and no votes were withheld. There was
no solicitation in opposition to the nominees proposed in the Information
Statement and there were no abstentions or broker non-votes with respect to
the election of directors.
Further information concerning these matters is contained in the Information
Statement.
ITEM 5. OTHER INFORMATION
NUCLEAR MATTERS
Information concerning the status of Point Beach Units 1 and 2 is contained in
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - "FACTORS AFFECTING RESULTS OF OPERATIONS - Nuclear
Matters" in WEC's and WE's combined Annual Report on Form 10-K for the year
ended December 31, 1996.
On March 3, 1997, the United States Nuclear Regulatory Commission ("NRC")
informed WE that four apparent violations of NRC requirements in various plant
activities observed during a special inspection in December 1996 were being
considered for enforcement action. On April 9, 1997, WE met with NRC
officials at a predecisional enforcement conference to discuss the NRC's
findings, which could result in civil penalties. The matter is pending.
Also, the NRC sent a letter on January 27, 1997 notifying WE of a declining
trend in performance at Point Beach based upon the special inspection and
other ongoing regulatory interactions. WE has been meeting regularly with NRC
officials to discuss steps taken to improve the identification and resolution
of specific issues at Point Beach. An NRC inspection team will review these
efforts in late May 1997.
On May 1, 1997, the Wisconsin Court of Appeals reversed and remanded the Dane
County Circuit Court decision which had vacated and remanded a February 13,
1995 order of the PSCW granting WE authority to construct and operate an
Independent Spent Fuel Storage Installation ("ISFSI") for dry storage of spent
fuel at Point Beach. WE completed construction of the ISFSI in December 1995.
The circuit court decision, issued in an action commenced by intervenors in
the PSCW proceeding regarding the ISFSI, was based primarily on the court's
determination that the related Environmental Impact Statement ("EIS"),
prepared by the PSCW for the project, was inadequate. WE joined in support of
the PSCW's appeal on the issues regarding the adequacy of the EIS. The Court
of Appeals concluded in its May 1, 1997 decision that there was a rational
basis for the PSCW's determination that the EIS was adequate. Unless this
decision is appealed to the Wisconsin Supreme Court by the intervenors in the
PSCW proceeding, this decision concludes the litigation involving the PSCW's
February 13, 1995 order.
ELECTRIC SYSTEM RELIABILITY MATTERS
Should the upper midwest region experience extended periods of hot weather,
widespread damaging storms or unusual generating plant or transmission system
constraints during the spring and summer of 1997, the State of Wisconsin could
potentially experience electricity shortages during this period. At its open
meeting on April 24, 1997, the PSCW approved an electric system reliability
emergency plan that would be implemented should such circumstances occur. All
three nuclear generating units in Wisconsin, including Point Beach Units 1 and
2, as well as five large nuclear generating units in the State of Illinois,
are currently out of service. The Wisconsin nuclear generating units
represent one-sixth of Wisconsin's electric production capacity. Wisconsin
routinely imports about 15% of its electricity from other states, with a
significant portion coming through Illinois. Necessary maintenance is also
reducing output at some of the regions coal-fired power plants during the
spring of 1997. Due to transmission system constraints, the eastern and
central sections in the State of Wisconsin would most likely be affected by
electricity shortages. WE and other members of the Wisconsin Reliability
Assessment Group, consisting of seven public utilities, are working with the
PSCW, other government agencies, large industrial customers and other groups
in an attempt to mitigate the impact of potential electric system reliability
problems. WE currently intends to return Point Beach Unit 2 to service in
mid-June 1997 and Unit 1 to service by July 1, 1997, which would significantly
increase the amount of generation available during the summer of 1997.
MPSC ELECTRIC UTILITY INDUSTRY INVESTIGATION
In December 1996, the staff of the Michigan Public Service Commission ("MPSC")
issued a proposal to restructure that state's electric utility industry. If
adopted, the plan would allow all consumers to be able to choose their
electric supplier by the year 2004. Four public hearings on the MPSC staff's
restructuring proposal were held in March and April 1997. All interested
parties filed comments with the MPSC on April 7, 1997. WE anticipates that
the MPSC will hold contested hearings on the proposal later in 1997. The
matter is pending.
PROPOSED ACQUISITION OF ESELCO, INC.
ESELCO, Inc., parent company of Edison Sault Electric Company ("Edison
Sault"), and WEC have entered into an Agreement and Plan of Reorganization,
dated as of May 13, 1997, setting forth the terms of the proposed acquisition
of ESELCO, Inc. by WEC. All outstanding shares of ESELCO, Inc. common stock
would be converted into shares of WEC common stock based on a value of $44.50
for each share of ESELCO, Inc. common stock in a transaction proposed to be
structured as a tax-free reorganization and accounted for as a pooling of
interests. The total purchase price would be approximately $71 million. The
exact number of shares of WEC common stock to be issued in the transaction
would be determined by dividing $44.50 by the average closing prices of WEC
common stock during a specified period prior to closing.
Consummation of the proposed transaction is contingent upon several conditions
including approval by the shareholders of ESELCO, Inc., receipt of all
appropriate regulatory approvals, the effectiveness of a registration
statement to be filed with the Securities and Exchange Commission covering the
WEC shares to be issued in the transaction and other customary conditions.
There can be no assurance that the conditions will be satisfied, or that the
proposed transaction will be consummated.
Edison Sault is an electric utility which serves approximately 22,000
residential, commercial and industrial customers in Michigan's eastern Upper
Peninsula. ESELCO, Inc. is traded under the symbol EDSE on the NASDAQ
National Market.
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. 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.
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. At the time of 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, 1997 of $18.0 million.
Under the Merger Agreement, completion of the Transaction is subject to
several conditions, that, unless waived by the affected party, must be met,
including but not limited to: the prior receipt of all necessary regulatory
approvals without imposition of materially adverse terms; the accuracy of each
party's representations and warranties in the Merger Agreement, other than
representations and warranties whose inaccuracy does not result in a material
adverse effect on the business, assets, financial condition, results of
operations or prospects of such party and its subsidiaries taken as a whole;
and no such material adverse effect having occurred, or being reasonably
likely to occur, with respect to either party. In addition, the Merger
Agreement provides that both WEC and NSP have the right to terminate the
Merger Agreement under certain circumstances, including the incapability to
fulfill all conditions to the closing at April 30, 1997 (other than receipt of
all regulatory approvals without any materially adverse terms), or the failure
to receive all regulatory approvals without any materially adverse terms by
October 31, 1997. Prior to April 30, 1997, WEC and NSP entered into an
agreement reserving the right for each party to assert, at any time after
April 30, 1997, whether or not all conditions to closing (other than receipt
of all regulatory approvals without any materially adverse terms) were met or
capable of being met at April 30, 1997.
On May 14, 1997, the Federal Energy Regulatory Commission ("FERC") issued a
lengthy Opinion and Order (the "Opinion") in connection with the Transaction.
In the Opinion, the FERC concludes that it cannot approve the Transaction at
this time and that the administrative law judge was incorrect to find that the
proposed Transaction, as conditioned, was consistent with the public interest,
the applicable standard under Section 203 of the Federal Power Act. The
Opinion states, however, that the participants should be given another
opportunity to attempt to reach consensus on the means by which Primergy's
post-merger market power may be adequately mitigated and the FERC remands the
case to a settlement judge and directs the participants to attempt to reach a
resolution of the market power issues. The mechanisms recommended by the FERC
for mitigating market power include possible divestiture of some generation
assets. Any such proposed resolution must be submitted to the FERC for its
review and approval. The Opinion also approves several contested settlements,
provides guidance as to the formation of the independent system operator which
the applicants volunteered to form and rules on certain other matters in
connection with the proposed Transaction.
WEC and NSP are considering the effect of the FERC ruling. WEC cannot state
whether all necessary conditions for completion of the Transaction under the
Merger Agreement will be satisfied.
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, 1997, WEC has deferred $28.7 million
related to the Transaction, including $12.0 million of transaction costs and
approximately $16.7 million of costs to achieve the merger, as a component of
Deferred Charges and Other Assets-Other on WEC's Consolidated Condensed
Balance Sheet.
Detailed information with respect to the Merger Agreement and the proposed
Transaction is contained in WEC's and WE's combined 1996 Annual Report 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 Financial Information
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, 1997. The unaudited pro forma
income statement information gives effect to the Transaction as if it had
occurred at January 1, 1997. 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 $156 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. 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, 1997:
Utility plant-net $ 3,063 $ 4,319 $ 7,382
Current assets 557 724 1,281
Other assets * 1,204 1,556 2,604
----------- ----------- -----------
Total Assets $ 4,824 $ 6,599 $ 11,267
=========== =========== ===========
Common stockholder's equity $ 1,965 $ 2,148 $ 4,113
Preferred securities 30 400 430
Long-term debt 1,409 1,589 2,998
----------- ----------- -----------
Total Capitalization 3,404 4,137 7,541
Current liabilities 517 1,028 1,545
Other liabilities * 903 1,434 2,181
----------- ----------- -----------
Total Equity & Liabilities $ 4,824 $ 6,599 $ 11,267
=========== =========== ===========
For the Three Months Ended
March 31, 1997:
Utility Operating Revenues $ 511 $ 742 $ 1,253
Utility Operating Income $ 66 $ 88 $ 154
Net Income, after Preferred
Dividend Requirements $ 45 $ 62 $ 107
Earnings per Common Share:
As Reported $ 0.40 $ 0.90 -
Primergy Shares - - $ 0.48
==============================================================================
* Includes a $156 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
transfer of certain gas assets from NSP-WI to New NSP. The unaudited pro
forma income statement information does not reflect adjustments for 1997 first
quarter revenues of $17.0 million and related expenses associated with the
transfer of certain gas assets from NSP-WI to New NSP. A $152 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 $18.0 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, 1997:
Utility plant-net $ 3,063 $ 666 $ 3,709
Current assets 496 77 588
Other assets 930 56 833
----------- ----------- -----------
Total Assets $ 4,489 $ 799 $ 5,130
=========== =========== ===========
Common stockholder's equity $ 1,702 $ 337 $ 2,039
Preferred stock and premium 30 - 30
Long-term debt 1,372 232 1,604
----------- ----------- -----------
Total Capitalization 3,104 569 3,673
Current liabilities 496 75 571
Other liabilities 889 155 886
----------- ----------- -----------
Total Equity & Liabilities $ 4,489 $ 799 $ 5,130
=========== =========== ===========
For the Three Months Ended
March 31, 1997:
Utility Operating Revenues $ 511 $ 138 $ 649
Utility Operating Income $ 66 $ 17 $ 83
Net Income, after Preferred
Dividend Requirements $ 43 $ 13 $ 56
==============================================================================
** In connection with the Merger Agreement, WE will be renamed Wisconsin
Energy Company.
*** Includes a $152 million pro forma adjustment to conform the presentation
of noncurrent deferred taxes as a net liability and a net $18.0 million
pro forma adjustment for the transfer of selected gas assets from NSP-WI
to New NSP.
CAUTIONARY FACTORS
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 and are subject to risks and
uncertainties that could cause WEC's or WE's actual results to differ
materially from those contemplated in the statements. When used in written
documents or oral presentations, the words "anticipate", "believe",
"estimate", "expect", "objective", "project" and similar expressions are
intended to identify forward-looking statements. 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.
* 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 non-utility 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 without the imposition of materially adverse
terms.
* 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
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 non-utility 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.
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, 1997.
WE Exhibits
(27)-2 Wisconsin Electric Power Company ("WE") Financial Data
Schedule for the three months ended March 31, 1997.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by WEC during the quarter ended
March 31, 1997.
No reports on Form 8-K were filed by WE during the quarter ended
March 31, 1997.
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/ Calvin H. Baker
---------------------------------------
Date: May 15, 1997 Calvin H. Baker, Treasurer, Chief
Financial Officer and duly
authorized officer
WISCONSIN ELECTRIC POWER COMPANY
--------------------------------------
(Registrant)
/s/ Calvin H. Baker
---------------------------------------
Date: May 15, 1997 Calvin H. Baker, Vice President -
Finance, Chief Financial Officer
and duly authorized officer
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
FORM 10-Q REPORT FOR THE QUARTER ENDED MARCH 31, 1997
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, 1997.
<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, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<PERIOD-TYPE> 3-MOS
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,063,405
<OTHER-PROPERTY-AND-INVEST> 456,970
<TOTAL-CURRENT-ASSETS> 495,747
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 473,507
<TOTAL-ASSETS> 4,489,629
<COMMON> 332,893
<CAPITAL-SURPLUS-PAID-IN> 280,689
<RETAINED-EARNINGS> 1,087,866
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,701,448
0
30,450
<LONG-TERM-DEBT-NET> 1,171,696
<SHORT-TERM-NOTES> 25,495
<LONG-TERM-NOTES-PAYABLE> 172,634
<COMMERCIAL-PAPER-OBLIGATIONS> 35,913
<LONG-TERM-DEBT-CURRENT-PORT> 156,905
0
<CAPITAL-LEASE-OBLIGATIONS> 27,794
<LEASES-CURRENT> 12,197
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,155,097
<TOT-CAPITALIZATION-AND-LIAB> 4,489,629
<GROSS-OPERATING-REVENUE> 510,383
<INCOME-TAX-EXPENSE> 25,612
<OTHER-OPERATING-EXPENSES> 419,134
<TOTAL-OPERATING-EXPENSES> 444,746
<OPERATING-INCOME-LOSS> 65,637
<OTHER-INCOME-NET> 5,731
<INCOME-BEFORE-INTEREST-EXPEN> 71,368
<TOTAL-INTEREST-EXPENSE> 27,681
<NET-INCOME> 43,687
301
<EARNINGS-AVAILABLE-FOR-COMM> 43,386
<COMMON-STOCK-DIVIDENDS> 80,726
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 158,006
<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>
