<PAGE>
<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, 1998
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-7951
WICOR, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1346701
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
626 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
--------------------------------------- ----------
(Address of principal executive office) (Zip Code)
(414) 291-7026
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
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.
Class Outstanding at April 20, 1998
- -------------------------- -------------------------------
Common Stock, $1 Par Value 18,639,913
<PAGE>
<PAGE> 2
INTRODUCTION
- ------------
WICOR, Inc. ("WICOR" or the "Company") is a diversified holding company
with two principal business groups: an Energy Group responsible for natural
gas distribution and related services, and a Manufacturing Group
responsible for the manufacture of pumps and processing equipment used to
pump, control, transfer, hold and filter water and other fluids. The
Company engages in natural gas distribution through its subsidiary,
Wisconsin Gas Company ("Wisconsin Gas"), the oldest and largest natural gas
distribution utility in Wisconsin. Through several nonutility subsidiaries,
the Company also engages in the manufacture and sale of pumps and
processing equipment. The Company's manufactured products primarily have
water system, pool and spa, agricultural, RV/marine and beverage/food
service applications. The Company markets its manufactured products in
about 100 countries. The Company is incorporated under the laws of the
State of Wisconsin and is exempt from registration as a holding company
under the Public Utility Holding Company Act of 1935, as amended.
CONTENTS
PAGE
PART I.
Financial Information 1
Management's Discussion and Analysis of
Interim Financial Statements 2-5
Consolidated Financial Statements of WICOR, Inc. (Unaudited):
Consolidated Statements of Operation for
the Three Months Ended March 31, 1998 and 1997 6
Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997 7-8
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997 9
Notes to Consolidated Financial Statements 10
Quantitative and Qualitative Disclosures About Market Risk 10
PART II.
Other Information 11
Signatures 12
<PAGE>
<PAGE> 3
Part I - Financial Information
Financial Statements
The consolidated statements included herein have been prepared without
audit 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, although management believes that the disclosures are
adequate to make the information presented not misleading. These condensed
financial statements should be read in conjunction with the audited
financial statements and the notes thereto included in the WICOR, Inc.
Annual Report on Form 10-K for the year ended December 31, 1997.
In the opinion of management, the information furnished reflects all
adjustments, which in all circumstances were normal and recurring,
necessary for a fair presentation of the results of operations for the
interim periods.
Because of seasonal factors, the results of operations for the interim
periods presented are not necessarily indicative of the results to be
expected for the full calendar year.
<PAGE>
<PAGE> 4
Management's Discussion and Analysis
of Interim Financial Statements of
WICOR, Inc.
Results of Operations
- ---------------------
Consolidated net earnings for the first quarter of 1998 decreased by $2.9
million, or 11%, to $25.0 million compared to the same period of the prior
year. The decrease was attributable to a $4.3 million decrease in Energy
Group earnings. The decrease was partially offset by a 34% increase in
Manufacturing Group earnings to $5.5 million.
The following factors had a significant effect on the results of operations
during the three-month period ended March 31, 1998.
Energy Group
- ------------
Net earnings decreased 18% to $19.5 million from $23.8 million for the
first quarter of 1998 compared with the first quarter of 1997. Lower gas
margins contributed to the decline, which was partially offset by a gain
related to a weather insurance agreement. The lower gas margins resulted
primarily from decreased firm sales volumes and a $1.5 million voluntary
annual rate reduction effective November 1, 1997.
Revenues, margins and volumes are summarized below. Margin, defined as
revenues less cost of gas sold, is a better comparative performance
indicator than revenues because changes in the cost of gas sold are flowed
through to revenue under a gas adjustment clause with an insignificant
effect on margin. The following tables set forth margin and volume data
for the Energy Group and utility, respectively, for each of the quarters
ended March 31.
<PAGE>
<PAGE> 5
Three
Months Ended
March 31,
---------------- %
(Millions of Dollars) 1998 1997 Change
- --------------------- -------- -------- ------
Energy Revenues $ 179.8 $ 237.0 (24)
Cost of Gas Sold 115.3 164.4 (30)
-------- --------
Sales Margin 64.5 72.6 (11)
Gas Transportation Margin 7.2 6.7 7
-------- --------
Gross Margin 71.7 79.3 (10)
-------- --------
Operation and Maintenance 27.8 27.7 -
Depreciation and Amortization 8.4 7.6 11
Interest and Other 1.9 3.1 (39)
Taxes, Other Than Income Taxes 2.6 2.6 -
-------- --------
Income Before Income Taxes 31.0 38.3 (19)
Income Tax Expense 11.5 14.5 (21)
-------- --------
Net Earnings $ 19.5 $ 23.8 (18)
======== ========
(Millions of Therms) - Utility
- ------------------------------
Sales Volumes
Firm 301.7 361.5 (17)
Interruptible 14.0 34.1 (59)
Transportation Volumes 138.0 122.8 12
-------- --------
Total Throughput 453.7 518.4 (12)
======== ========
Degree Days (20-year average:
1st Qtr. = 3,434) 2,915 3,315 (12)
======== ========
The decrease in firm sales volumes for the first quarter of 1998 as
compared with the 1997 first quarter was caused principally by warmer
weather. The weather was 12% warmer in the first quarter of 1998 than
during the same period in 1997 and 15% warmer than the 20-year average.
The increase in transportation volumes was due to more customers purchasing
gas from sources other than Wisconsin Gas and transporting the volumes over
the Wisconsin Gas distribution system.
<PAGE>
<PAGE> 6
Historically, the movement to transportation from gas sales had no impact
on margin. However, effective November 1, 1997, a slightly lower margin
rate was put into effect for transportation-only customers. The future
impact of this margin adjustment on total Company earnings is expected to
be immaterial.
The gas cost incentive mechanism (GCIM) approved by the Public Service
Commission of Wisconsin in October 1997, became effective on November 1,
1997. Under the GCIM, Wisconsin Gas's gas commodity and capacity costs are
compared to monthly benchmarks. If, at the end of each year, such costs
deviate by more than 1-1/2% from the benchmark cost of gas, the utility
shares such excess or reduced costs on a 50-50 basis with customers. The
sharing mechanism applies only to costs between 1-1/2% to 4% above or below
the benchmark. The GCIM provides an opportunity for Wisconsin Gas's
earnings to increase or decrease as a result of gas and capacity
acquisition activities. During the first five months under the GCIM,
actual costs have been slightly below the benchmark. The GCIM did not
impact reported margin in the first quarter of 1998.
Non-regulated energy operating revenues for the first three months of 1998
remained relatively level at $17.8 million compared to the same period of
1997. The Company's strategy in the gas marketing area has been to have gas
supply arrangements closely tied to customer requirements so that the
Company is not exposed to significant commodity price risk.
Operating and maintenance expenses were stable during the three-month
period ended March 31, 1998, compared with the same period of 1997.
Depreciation expense for the three months ended March 31, 1998, increased
by $0.8 million, or 11%, compared with the same period of last year. The
1998 increase was due to additions to depreciable plant balances.
Interest and other decreased by $1.2 million, or 39%, for the three months
ended March 31, 1998, compared with the same period of 1997. The decrease
reflects a gain of $1.3 million in connection with a weather insurance
agreement which the Company entered into to hedge a portion of the impact
weather has on Energy Group earnings.
Manufacturing Group
- -------------------
The Manufacturing Group posted earnings of $5.5 million for the first
quarter of 1998 compared to earnings of $4.1 million in the first quarter
of 1997.
<PAGE>
<PAGE> 7
Financial data regarding the Manufacturing Group are set forth in the table
below.
Three
Months Ended
March 31,
----------------- %
1998 1997 Change
-------- -------- ------
(Millions of Dollars)
Net Sales $ 116.3 $ 105.3 10
Cost of Goods Sold 82.9 77.0 8
-------- --------
Gross Profit 33.4 28.3 18
Operating Expenses 23.3 20.9 11
-------- --------
Operating Income 10.1 7.4 36
Interest and Other 1.1 1.1 -
-------- --------
Income Before Income Taxes 9.0 6.3 43
Income Tax Expense 3.5 2.2 59
-------- --------
Net Income $ 5.5 $ 4.1 34
======== ========
Net sales for the first quarter of 1998 increased by 10% to $116.3 million
compared to the same period in 1997, reflecting increased market share and
higher demand for residential sump and utility pumps caused by the wet
weather in the U.S. market. Domestic and international sales increased by
13% and 5%, respectively.
Increased domestic sales were driven by higher demand within the water
systems, food and beverage and pool/spa markets. New products and
acquisitions serving the filtration market also contributed to the
increase.
The increase in international sales was driven by new products and higher
demand for water systems and food/beverage products in the European market.
The Korean economy and intense price competition had a negative impact on
international water market sales. The improvement in international sales
was partially offset by currency translation related to the strengthening
U.S. dollar. For the three months ended March 31, 1998 and 1997,
international sales accounted for 31% and 33%, respectively, of total net
sales for the Manufacturing Group.
Gross profit margins were 28.7% for the 1998 first quarter as compared to
26.9% for the first quarter of 1997. Quarterly operating margins grew due
to ongoing cost improvement programs, plant consolidations and productivity
improvements in manufacturing processes. Manufacturing operating expenses
for the quarter increased by 11% compared to the same period in 1997. The
increase was due to higher sales levels.
<PAGE>
<PAGE> 8
Consolidated Income Taxes
- -------------------------
Income tax expense was $1.7 million lower for the first three months of
1998, compared to the same period last year, reflecting decreased pre-tax
income.
Liquidity and Capital Resources
- -------------------------------
Cash flow from operations for the three months ended March 31, 1998
increased by $23.7 million, or 66%, from the comparable period in 1997. Due
to the seasonal nature of the energy business, accrued revenues, accounts
receivable and accounts payable levels are higher in the heating season as
compared with the summer months. The cash flow improvement is due
primarily to lower gas prices.
Capital expenditures decreased by 9% to $8.2 million for the three months
ended March 31, 1998, compared to the same period in 1997.
The Company anticipates additional short-term borrowing during the third
and fourth quarters of 1998 to finance working capital, primarily gas in
storage and the financing of accounts receivable during the heating season.
The Company believes it has sufficient capacity under existing lines of
credit to satisfy its future working capital needs.
New Accounting Standard
- -----------------------
The American Institute of Certified Public Accountants Statement of
Position No. 98-1 , "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," provides guidance on accounting
for the costs of computer software developed or obtained for internal use.
The Company is currently evaluating the impact the statement will have on
its financial statements, if any.
<PAGE>
<PAGE> 9
Forward-Looking Statements
- --------------------------
Certain matters discussed in this quarterly report are "forward-looking
statements" intended to qualify for the safe harbor from liability
established by the Private Securities Litigation Reform Act of 1995. These
forward-looking statements can generally be identified as such because the
context of the statements will include such words as the Company
"believes," "anticipates" or "expects," or words of similar import.
Similarly, statements that describe the Company's future plans, objectives
or goals are also forward-looking statements. Such forward-looking
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those currently anticipated. Such
risks and uncertainties include general economic conditions; weather
conditions; business conditions in the energy industry; the impact of and
changes in government regulations; changes in environmental remediation
costs; unanticipated increases in manufacturing costs; market acceptance of
or preference for the Company's products; technological factors; and other
risk factors identified from time to time by the Company in reports filed
with the Securities and Exchange Commission. Shareholders, potential
investors and other readers are urged to consider these factors carefully
in evaluating the forward-looking statements and are cautioned not to place
undue reliance on such forward-looking statements.
<PAGE>
<PAGE> 10
WICOR, INC.
Consolidated Statements of Operation (Unaudited)
(Amounts in Thousands, Except Per Share Data)
[CAPTION]
<TABLE>
Three Months Ended
March 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Operating Revenues:
Energy $ 187,003 $ 243,731
Manufacturing 116,324 105,334
---------- ----------
303,327 349,065
---------- ----------
Operating Costs and Expenses:
Cost of gas sold 115,349 164,421
Manufacturing cost of sales 82,905 77,044
Operations and maintenance 50,737 48,223
Depreciation and amortization 8,737 7,939
Taxes, other than income taxes 2,614 2,559
---------- ----------
260,342 300,186
---------- ----------
Operating Income 42,985 48,879
---------- ----------
Interest Expense (4,654) (4,438)
Other Income and (Expenses) 1,683 172
---------- ----------
Income Before Income Taxes 40,014 44,613
Income Tax Provision 15,051 16,705
---------- ----------
Net Earnings $ 24,963 $ 27,908
========== ==========
Per Share of Common Stock:
Basic earnings $ 1.34 $ 1.52
Diluted earnings $ 1.33 $ 1.51
Cash Dividends paid $ 0.43 $ 0.42
Average shares outstanding 18,621 18,413
Average diluted shares outstanding 18,811 18,530
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 11
WICOR, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997
Assets ----------- ------------
- ------ (Thousands of Dollars)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,494 $ 11,810
Accounts receivable, less allowance
for doubtful accounts of $20,265
and $15,364, respectively 211,863 164,243
Accrued utility revenues 34,433 44,842
Manufacturing inventories 88,197 83,431
Gas in storage, at weighted average cost 8,511 41,887
Deferred income taxes 21,529 21,531
Prepayments and other 16,100 16,924
----------- ------------
385,127 384,668
Property, Plant and Equipment (less accum- ----------- ------------
ulated depreciation of $506,058
and $497,239, respectively) 441,348 445,894
----------- ------------
Deferred Charges and Other:
Regulatory assets 52,539 53,910
Goodwill 65,462 65,953
Prepaid pension costs 44,637 42,753
Systems development costs 16,127 17,424
Other 20,595 20,730
----------- ------------
199,360 200,770
----------- ------------
$1,025,835 $1,031,332
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 12
WICOR, INC.
Consolidated Balance Sheets
(continued)
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997
Liabilities and Capitalization ------------ ------------
- ------------------------------ (Thousands of Dollars)
<S> <C> <C>
Current Liabilities:
Short-term borrowings $ 66,425 $ 118,900
Accounts payable 74,335 75,034
Current portion of long-term debt 43,873 43,926
Refundable gas costs 48,719 24,776
Accrued payroll and benefits 16,574 17,573
Accrued taxes 19,355 9,684
Other 20,454 19,999
------------ ------------
289,735 309,892
------------ ------------
Deferred Credits and Other:
Postretirement benefit obligation 63,626 64,323
Regulatory liabilities 34,559 36,533
Deferred income taxes 44,126 43,975
Accrued environmental remediation costs 11,320 12,084
Unamortized investment tax credit 6,463 6,808
Other 19,004 18,987
------------ ------------
179,098 182,710
------------ ------------
Capitalization:
Long-term debt 149,553 149,110
Common stock 18,636 18,601
Other paid-in capital 233,529 232,702
Retained earnings 164,856 147,903
Accumulated other comprehensive income (5,920) (5,377)
Unearned compensation - ESOP
and restricted stock (3,652) (4,209)
------------ ------------
557,002 538,730
------------ ------------
$ 1,025,835 $ 1,031,332
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 13
WICOR, INC.
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
(Thousands of Dollars) ---------- ----------
<S> <C> <C>
Operations:
Net earnings $ 24,963 $ 27,908
Adj.to reconcile net earnings to net cash flows:
Depreciation and amortization 13,926 13,324
Deferred income taxes 153 (44)
Change in:
Receivables (37,211) (30,568)
Manufacturing inventories (4,765) (1,367)
Gas in storage 33,375 25,504
Other current assets (700) (315)
Accounts payable (699) (24,623)
Refundable gas costs 23,943 20,501
Accrued taxes 11,195 18,638
Accrued payroll and benefits (1,000) (2,528)
Other current liabilities 458 (3,854)
Other non-current assets and liabilities-net (3,917) (6,514)
---------- ----------
59,721 36,062
---------- ----------
Investment Activities:
Capital expenditures (8,191) (8,976)
Other 110 68
---------- ----------
(8,081) (8,908)
---------- ----------
Financing Activities:
Change in short-term borrowings (52,474) (25,627)
Reduction in long-term debt (2,168) (2,700)
Issuance of long-term debt 2,828 -
Issuance of common stock 863 1,270
Dividends paid on common stock (8,005) (7,733)
---------- ----------
(58,956) (34,790)
---------- ----------
Change in Cash and Cash Equivalents (7,316) (7,636)
Cash and Cash Equivalents at Beginning of Period 11,810 18,784
---------- ----------
Cash and Cash Equivalents at End of Period $ 4,494 $ 11,148
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 14
Notes to Consolidated Financial Statements (Unaudited):
1) The Company and its subsidiaries maintain lines of credit worldwide.
At March 31, 1998 the Company had borrowings of $18.4 million and
availability of $239.2 million under unsecured lines of credit with
several banks.
A total of $47.8 million of commercial paper, classified as short-
term debt, was outstanding as of March 31, 1998 at a weighted average
interest rate of 5.9%.
2) For purposes of the Consolidated Statements of Cash Flows, income
taxes paid, net of refunds, and interest paid (excluding capitalized
interest) were as follows:
For the Three Months
Ended March 31,
----------------------
1998 1997
---------- ----------
(Thousands of Dollars)
Income taxes paid $ 6,947 $ 1,062
Interest paid $ 3,691 $ 3,920
3) Total comprehensive income for the three months ended March 31, 1998
and 1997 is as follows:
1998 1997
---------- ----------
Net earnings $ 24,963 $ 27,908
Other comprehensive income
Currency translation adjustments (543) (2,142)
---------- ----------
Total comprehensive income $ 24,420 $ 25,766
========== ==========
4) The American Institute of Certified Public Accountants Statement of
Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," provides guidance on
accounting for the costs of computer software developed or obtained
for internal use. The Company is currently evaluating the impact the
statement will have on its financial statements, if any.
<PAGE>
<PAGE> 15
5) Subsequent Event
On April 23, 1998, the Board of Directors approved a two-for-one
stock split of the Company's common stock. One additional share will
be issued for each share of common stock held by shareholders of
record as of the close of business on May 14, 1998. New shares will
be distributed on May 29, 1998. The par value of the Common stock
will remain unchanged at $1.00. At the time of issuance, an amount
equal to the par value of the common shares issued will be
transferred from other-paid-in capital. In connection with the stock
split, WICOR will increase its authorized shares of common stock from
60 million to 120 million. The financial statements do not reflect
the stock split.
Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Not Applicable
<PAGE>
<PAGE> 16
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial data schedule (EDGAR version only).
(b) Reports on Form 8-K - There were no reports on Form 8-K filed by the
Company during the first quarter of 1998.
<PAGE>
<PAGE> 17
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WICOR, INC.
Dated: April 30, 1998 By: /s/ Joseph P. Wenzler
----------------------------------
Joseph P. Wenzler
Senior Vice President, Treasurer
and Chief Financial Officer
<PAGE>
<PAGE> 18
WICOR, Inc.
FORM 10-Q Exhibit
Exhibit No. Description
- ----------- ----------------------------------------------
27 Financial data schedule (EDGAR version only
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the WICOR,
Inc. FORM 10-Q for the three months ended March 31, 1998 and is qualified in its
entirety by reference to such financial statements and the related footnotes.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 375,337
<OTHER-PROPERTY-AND-INVEST> 66,011
<TOTAL-CURRENT-ASSETS> 385,127
<TOTAL-DEFERRED-CHARGES> 199,360
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,025,835
<COMMON> 18,636
<CAPITAL-SURPLUS-PAID-IN> 233,529
<RETAINED-EARNINGS> 164,856
<TOTAL-COMMON-STOCKHOLDERS-EQ> 407,449
0
0
<LONG-TERM-DEBT-NET> 149,553
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 110,000
<COMMERCIAL-PAPER-OBLIGATIONS> 47,773
<LONG-TERM-DEBT-CURRENT-PORT> 43,873
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 377,187
<TOT-CAPITALIZATION-AND-LIAB> 1,025,835
<GROSS-OPERATING-REVENUE> 303,327
<INCOME-TAX-EXPENSE> 15,051
<OTHER-OPERATING-EXPENSES> 260,342
<TOTAL-OPERATING-EXPENSES> 275,393
<OPERATING-INCOME-LOSS> 27,934
<OTHER-INCOME-NET> 1,683
<INCOME-BEFORE-INTEREST-EXPEN> 29,617
<TOTAL-INTEREST-EXPENSE> 4,654
<NET-INCOME> 24,963
0
<EARNINGS-AVAILABLE-FOR-COMM> 24,963
<COMMON-STOCK-DIVIDENDS> 8,005
<TOTAL-INTEREST-ON-BONDS> 311
<CASH-FLOW-OPERATIONS> 59,721
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.33<F1>
<FN>
<F1>During 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share," which establishes standards for computing and presenting
earnings per share. The Company has adopted the requirements of SFAS No. 128
for the current year and all prior periods in the Consolidated Statements of
Income. In addition, basic and diluted EPS have been entered in place of
primary and fully diluted on the financial data schedule.
</FN>
</TABLE>
