<PAGE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q/A
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
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 July 23, 1999
- -------------------------- -------------------------------
Common Stock, $1 Par Value 37,503,735
<PAGE>
<PAGE> 2
CONTENTS
PAGE
PART I - Financial Information 1
Consolidated Financial Statements of WICOR, Inc. (Unaudited):
Consolidated Statements of Operation for the
Three and Six Months Ended June 30, 1999 and 1998 2
Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998 3-4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-8
Management's Discussion and Analysis of
Interim Financial Statements 9-13
Quantitative and Qualitative Disclosures About Market Risk 13-14
PART II - Other Information and Exhibits
Legal Proceedings 15
Submission of Matters to a Vote of Security Holders 15
Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE>
<PAGE> 3
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. The Company engages in the
manufacture and sale of pumps and processing equipment through several
nonutility subsidiaries. The Company's manufactured products primarily
have water system, pool and spa, agricultural, RV/marine and
beverage/food service applications. The Company markets its pump and
processing 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.
On June 27, 1999, WICOR entered into an agreement and plan of merger
with Wisconsin Energy Corporation ("Wisconsin Energy") providing for a
strategic business combination of Wisconsin Energy and WICOR through the
merger of WICOR and a wholly-owned subsidiary of Wisconsin Energy.
Consummation of the merger is subject to certain closing conditions,
including the approval of the shareholders of both WICOR and Wisconsin
Energy and the approval of the Public Service Commission of Wisconsin and
the Securities and Exchange Commission. Additional information with
respect to the pending merger with Wisconsin Energy is included in Note 1
to the financial statements included herein.
<PAGE>
<PAGE> 4
Forward-Looking Statements
--------------------------
Certain matters discussed in this 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 generally can be identified as such because they include words
such as the Company "believes," "anticipates," "expects," or words of
similar import. Similarly, statements that describe the Company's future
plans, objectives or goals also are considered forward-looking. Such
statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from current expectations.
These factors include but are not limited to the risks and uncertainties
listed below. All of these factors are difficult to predict and are
generally beyond management's control. Such factors include, but are not
limited to, the following:
>> the impact of warmer- or colder-than-normal weather on the energy
business
>> the impact of cool or wet weather on pump manufacturing markets
>> economic conditions, including the availability of individual
discretionary income and changes in interest rates and foreign
currency valuations
>> changes in natural gas prices and supply availability
>> increased competition in deregulated energy markets
>> the pace and extent of energy industry deregulation
>> regulatory, governmental and judiciary decisions
>> increases in costs to clean up environmental contamination
>> the Company's ability to increase prices
>> market demand for the Company's products and services
>> unanticipated expenses or outcomes associated with year 2000 date
conversion
>> unforeseen events delaying or preventing the consummation of the
strategic business combination with Wisconsin Energy
<PAGE>
<PAGE> 5
Part 1 - Financial Information
- ------------------------------
Item 1. 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, 1998.
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> 6
WICOR, INC.
Consolidated Statements of Operation (Unaudited)
(Amounts in Thousands, Except Per Share Data)
[CAPTION]
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Revenues:
Energy $ 87,374 $ 90,261 $ 274,556 $ 277,264
Manufacturing 137,958 129,618 255,017 245,942
---------- ---------- ---------- ----------
225,332 219,879 529,573 523,206
---------- ---------- ---------- ----------
Operating Costs and Expenses:
Cost of gas sold 51,801 56,149 159,380 171,498
Manufacturing cost of sales 95,789 91,913 178,788 174,818
Operations and maintenance 51,624 47,033 103,599 97,770
Depreciation and amortization 9,221 8,667 18,313 17,404
Taxes, other than income taxes 1,719 2,213 4,223 4,827
---------- ---------- ---------- ----------
210,154 205,975 464,303 466,317
---------- ---------- ---------- ----------
Operating Income 15,178 13,904 65,270 56,889
---------- ---------- ---------- ----------
Interest Expense (3,716) (3,931) (8,173) (8,585)
Other Income and (Expenses) (889) (17) (119) 1,666
---------- ---------- ---------- ----------
Income Before Income Taxes 10,573 9,956 56,978 49,970
Income Tax Provision 4,581 3,932 22,120 18,983
---------- ---------- ---------- ----------
Net Earnings $ 5,992 $ 6,024 $ 34,858 $ 30,987
========== ========== ========== ==========
Per Share of Common Stock:
Basic earnings $ 0.16 $ 0.16 $ 0.93 $ 0.83
Diluted earnings $ 0.16 $ 0.16 $ 0.92 $ 0.82
Cash Dividends paid $ 0.220 $ 0.215 $ 0.440 $ 0.430
Average shares outstanding 37,469 37,312 37,441 37,277
Average diluted shares outstanding 37,885 37,612 37,752 37,618
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 7
WICOR, INC.
Consolidated Balance Sheets
[CAPTION]
<TABLE>
June 30,
1999 December 31,
(Unaudited) 1998
------------ ------------
(Thousands of Dollars)
<S> <C> <C>
Assets
- ------
Current Assets:
Cash and cash equivalents $ 8,752 $ 13,383
Accounts receivable, less allowance
for doubtful accounts of $18,405
and $12,511, respectively 154,121 137,321
Accrued utility revenues 8,359 47,483
Manufacturing inventories 77,388 86,312
Gas in storage, at weighted average cost 25,527 36,919
Deferred income taxes 17,256 17,195
Prepayments and other 15,683 15,542
------------ ------------
307,086 354,155
Property, Plant and Equipment (less ------------ ------------
accumulated depreciation of $556,210
and $535,002, respectively) 445,976 447,665
------------ ------------
Deferred Charges and Other:
Goodwill 83,024 67,552
Regulatory assets 56,082 59,319
Prepaid pension costs 53,740 50,011
Other 36,947 36,494
------------ ------------
229,793 213,376
------------ ------------
$ 982,855 $ 1,015,196
============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 8
WICOR, INC.
Consolidated Balance Sheets
(continued)
[CAPTION]
<TABLE>
June 30,
1999 December 31,
(Unaudited) 1998
------------ ------------
(Thousands of Dollars)
<S> <C> <C>
Liabilities and Capitalization
- ------------------------------
Current Liabilities:
Short-term borrowings $ 17,799 $ 107,653
Accounts payable 73,999 70,000
Current portion of long-term debt 1,410 3,528
Refundable gas costs 40,478 18,570
Accrued payroll and benefits 20,581 20,490
Accrued taxes 9,105 7,885
Other 22,287 16,526
------------ ------------
185,659 244,652
------------ ------------
Deferred Credits and Other:
Postretirement benefit obligation 57,230 60,627
Regulatory liabilities 29,553 32,153
Deferred income taxes 49,347 49,065
Accrued environmental remediation costs 7,441 11,215
Unamortized investment tax credit 6,019 6,357
Other 19,256 19,217
------------ ------------
168,846 178,634
------------ ------------
Capitalization:
Long-term debt 204,524 188,470
Common stock 37,504 37,359
Other paid-in capital 218,291 216,821
Retained earnings 179,318 160,937
Accumulated other comprehensive income (8,289) (7,905)
Unearned compensation - ESOP
and restricted stock (2,998) (3,772)
------------ ------------
628,350 591,910
------------ ------------
$ 982,855 $ 1,015,196
============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 9
WICOR, INC.
Consolidated Statement of Cash Flows (Unaudited)
[CAPTION]
<TABLE>
Six Months Ended
June 30,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Operations: (Thousands of Dollars)
Net earnings $ 34,858 $ 30,987
Adjustments to reconcile net earnings to net cash flows:
Depreciation and amortization 28,533 27,813
Deferred income taxes 221 403
Net pension and other postretirement benefit (income) (4,311) (2,754)
Change in:
Receivables 25,375 41,657
Manufacturing inventories 11,972 3,474
Gas in storage 11,392 18,074
Other current assets 16 (656)
Accounts payable 1,480 (2,310)
Refundable gas costs 21,908 13,131
Accrued taxes 1,220 2,502
Other current liabilities 3,120 (25)
Other non-current assets and liabilities, net (11,797) (6,314)
---------- ----------
123,987 125,982
Investment Activities: ---------- ----------
Capital expenditures (20,506) (20,466)
Acquisition of business assets (20,919) -
Other 62 163
---------- ----------
(41,363) (20,303)
Financing Activities: ---------- ----------
Change in short-term borrowings (69,811) (92,963)
Reduction in long-term debt (2,587) (2,782)
Issuance of long-term debt - 2,828
Issuance of common stock 1,615 2,022
Dividends paid on common stock (16,472) (16,029)
---------- ----------
(87,255) (106,924)
---------- ----------
Change in Cash and Cash Equivalents (4,631) (1,245)
Cash and Cash Equivalents at Beginning of Period 13,383 11,810
---------- ----------
Cash and Cash Equivalents at End of Period $ 8,752 $ 10,565
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 10
Notes to Consolidated Financial Statements (Unaudited):
1) On June 27, 1999, WICOR and Wisconsin Energy entered into an
Agreement and Plan of Merger (the "Merger Agreement") providing for a
strategic business combination of WICOR and Wisconsin Energy through a
merger of WICOR and a wholly-owned subsidiary of Wisconsin Energy ( the
"Merger"). The Merger Agreement has been approved by the boards of
directors of WICOR and Wisconsin Energy.
Subject to the terms of the Merger Agreement, at the time of the Merger,
each outstanding share of WICOR common stock, par value $1.00 per share
("WICOR Common Stock") (together with the associated common stock
purchase right issued pursuant to WICOR's Rights Agreement) will be
converted into the right to receive cash, common stock, par value $.01
per share of Wisconsin Energy("Wisconsin Energy Common Stock"), or a
combination of cash and shares of Wisconsin Energy Common Stock (the
"Merger Consideration") having a value of $31.50 per share of WICOR
Common Stock. In the event the closing of the merger occurs after July
1, 2000, the $31.50 value per share will be increased by an amount
equivalent to six per cent per annum daily simple interest for each day
after July 1, 2000 through the closing date. Prior to the closing date,
Wisconsin Energy will select the percentage of the Merger Consideration
to be paid in Wisconsin Energy Common Stock, which may be not less than
40% or more than 60%. The balance of the merger consideration will be
paid in cash. The exchange ratio for each share of WICOR Common Stock
converted into Wisconsin Energy Common Stock will be determined by
dividing $31.50 (as adjusted if the closing occurs after July 1, 2000) by
the average of the closing prices of the Wisconsin Energy Common Stock on
the New York Stock Exchange for the 10 trading days ending with the fifth
trading day prior to the closing date (the "Average Wisconsin Energy
Price"). Each WICOR shareholder will be entitled to elect to receive
cash, Wisconsin Energy Common Stock or a combination thereof, subject to
proration if the cash or stock elections exceed the maximum amounts
permitted. Cash will be paid in lieu of any fractional shares of
Wisconsin Energy Common Stock which holders of WICOR Common Stock would
otherwise receive. If the Average Wisconsin Energy Price is less than
$22.00 per share, Wisconsin Energy may elect to pay the entire Merger
Consideration in cash.
Consummation of the Merger is subject to satisfaction of certain closing
conditions set forth in the Merger Agreement, including approval by the
shareholders of WICOR and Wisconsin Energy, approval by the Public
Service Commission of Wisconsin, approval by the Securities and Exchange
Commission under the Public Utility Holding Company Act of 1935, as
amended, and expiration or termination of the waiting period applicable
to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended. The regulatory approval process is expected to take
approximately 9 to 12 months.
<PAGE>
<PAGE> 11
The Merger is intended to qualify as a tax-free reorganization under the
Internal Revenue Code of 1986, as amended, to the extent that shares of
WICOR Common Stock are exchanged for shares of Wisconsin Energy Common
Stock, and will be accounted for as a purchase transaction. The Merger
Agreement provides that if the Merger Agreement is terminated under
certain circumstances and WICOR enters into a competing transaction with
another party within 21 months after the termination, WICOR will pay a
termination fee of $30 million to Wisconsin Energy.
2) The Company and its subsidiaries maintain lines of credit worldwide.
At June 30, 1999 the Company had borrowings of $17.8 million and
availability of $210.3 million under unsecured lines of credit with
several banks.
A total of $41.6 million of commercial paper was outstanding as of June
30, 1999 at a weighted average interest rate of 5.2%. Commercial paper
borrowings of $35.0 million were classified as long-term debt as of June
30, 1999.
3) 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 Six Months
Ended June 30,
----------------------
1999 1998
---------- ----------
(Thousands of Dollars)
Income taxes paid $ 22,343 $ 18,345
Interest paid $ 6,667 $ 8,552
4) Total comprehensive income for the six months ended June 30, 1999
and 1998 is as follows:
1999 1998
---------- ----------
(Thousands of Dollars)
Net earnings $ 34,858 $ 30,987
Other comprehensive income
Currency translation adjustments (384) (1,609)
---------- ----------
Total comprehensive income $ 34,474 $ 29,378
========== ==========
<PAGE>
<PAGE> 12
5) The Company is a diversified holding company with two principal
business segments: 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's reportable segments are managed separately because each
business requires different technology and marketing strategies. Most of
the businesses were acquired as a unit, and the management at the time of
the acquisition was retained. The accounting policies of the reportable
segments are the same as those described in Note 1 of Notes to the
Consolidated Financial Statements contained in the Company's annual
report on Form 10-K for the fiscal year ended December 31, 1998. The
Company evaluates the performance of its operating segments based on
income from continuing operations. Intersegment sales and transfers are
not significant.
Information regarding products and services and geographic areas are not
presented as they are not included in measures that are reviewed by the
Company. The other energy category includes the results of the parent
company only and non-regulated energy operations involved in energy and
risk management services, automated meter reading and other related
services.
Summarized financial information concerning the Company's reportable
segments for the three months ending June 30, 1999 and 1998 is shown in
the following table.
[CAPTION]
<TABLE>
Energy
------------------------------
REGULATED OTHER TOTAL MANUFACTURING CONSOLIDATED
--------- --------- ---------- ------------- ------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
1999
- ----
Revenues $ 75,322 $ 12,052 $ 87,374 $ 137,958 $ 225,332
Depreciation and
amortization $ 10,510 $ 29 $ 10,539 $ 3,876 $ 14,415
Net (loss) earnings $ (2,440) $ (1,078) $ (3,518) $ 9,510 $ 5,992
Total assets $ 604,247 $ 13,520 $ 617,767 $ 365,088 $ 982,855
Capital expenditures $ 9,046 $ 13 $ 9,059 $ 3,285 $ 12,344
</TABLE>
<PAGE>
<PAGE> 13
[CAPTION]
<TABLE>
Energy
------------------------------
REGULATED OTHER TOTAL MANUFACTURING CONSOLIDATED
--------- --------- ---------- ------------- ------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
1998
- ----
Revenues $ 78,190 $ 12,071 $ 90,261 $ 129,618 $ 219,879
Depreciation and
amortization $ 9,924 $ 26 $ 9,950 $ 3,937 $ 13,887
Net (loss) earnings $ (1,716) $ (70) $ (1,786) $ 7,810 $ 6,024
Total assets $ 606,807 $ 11,338 $ 618,145 $ 341,212 $ 959,357
Capital expenditures $ 8,589 $ 26 $ 8,615 $ 3,670 $ 12,285
</TABLE>
Summarized financial information concerning the Company's reportable
segments for the six months ending June 30, 1999 and 1998 is shown in the
following table.
[CAPTION]
<TABLE>
Energy
------------------------------
REGULATED OTHER TOTAL MANUFACTURING CONSOLIDATED
--------- --------- ---------- ------------- ------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
1999
- ----
Revenues $ 245,719 $ 28,837 $ 274,556 $ 255,017 $ 529,573
Depreciation and
amortization $ 20,843 $ 55 $ 20,898 $ 7,635 $ 28,533
Net earnings (loss) $ 20,530 $ (823) $ 19,707 $ 15,151 $ 34,858
Total assets $ 604,247 $ 13,520 $ 617,767 $ 365,088 $ 982,855
Capital expenditures $ 14,592 $ 79 $ 14,671 $ 5,835 $ 20,506
1998
- ----
Revenues $ 247,637 $ 29,627 $ 277,264 $ 245,942 $ 523,206
Depreciation and
amortization $ 20,134 $ 55 $ 20,189 $ 7,624 $ 27,813
Net earnings $ 16,786 $ 900 $ 17,686 $ 13,301 $ 30,987
Total assets $ 606,807 $ 11,338 $ 618,145 $ 341,212 $ 959,357
Capital expenditures $ 13,031 $ 61 $ 13,092 $ 7,384 $ 20,476
</TABLE>
<PAGE>
<PAGE> 14
Item 2. Management's Discussion and Analysis
of Interim Financial Statements of
WICOR, Inc.
On June 27, 1999, WICOR and Wisconsin Energy entered into an agreement
and plan of merger (the "Merger Agreement") providing for a strategic
business combination of WICOR and Wisconsin Energy. The Merger Agreement
has been approved by the boards of directors of WICOR and Wisconsin
Energy. Further information concerning the Merger Agreement and proposed
transaction is included in Note 1 to the financial statements included
herein.
Results of Operations
- ---------------------
Consolidated net earnings for the three months ended June 30, 1999, were
level with the period a year ago. Consolidated net earnings for the six
months ended June 30, 1999, increased by $3.9 million, or 12%, to $34.9
million. Record Manufacturing Group results for the second consecutive
quarter more than offset the impact of warmer-than-normal weather and
expenses related to the proposed merger with Wisconsin Energy that were
reflected within the Energy Group.
The following factors had a significant effect on the results of
operations during the three- and six-month periods ended June 30, 1999.
Energy Group
- ------------
The Energy Group incurred a net loss of $3.5 million in the second
quarter of 1999 compared to a loss of $1.8 million for the second quarter
of 1998. Improved margins during the period were more than offset by
increased operating costs and merger related costs.
Net earnings for the six months ended June 30, 1999, increased by $2.0
million, or 11%, to $19.7 million compared to $17.7 million for the same
period of last year. The improvement in year to date earnings was driven
by increased sales caused by favorable weather and a $7.5 million rate
increase effective August 1, 1998, offset in part by higher operating
expenses.
<PAGE>
<PAGE> 15
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 that does not
impact margin. The Company operates under a gas cost incentive mechanism
("GCIM") which allows it to share in the risk and rewards of purchasing
gas. The GCIM favorably impacted margins by $1.2 million for the six
months ended June 30, 1999 and 1998.
The following tables set forth margin and volume data for the Energy
Group and utility, respectively, for each of the three- and six-month
periods ended June 30 set forth below.
[CAPTION]
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
----------------- % ----------------- %
1999 1998 Change 1999 1998 Change
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
(Millions of Dollars)
Energy revenues $ 82.8 $ 85.5 (3) $ 262.0 $ 265.4 (1)
Cost of gas sold 51.8 56.1 (8) 159.4 171.5 (7)
-------- -------- -------- --------
Sales margin 31.0 29.4 5 102.6 93.9 9
Gas transportation margin 4.6 4.7 (2) 12.6 11.9 6
-------- -------- -------- --------
Gross margin 35.6 34.1 4 115.2 105.8 9
-------- -------- -------- --------
Operation and maintenance 26.4 24.0 10 54.9 51.8 6
Depreciation and amortization 8.9 8.3 7 17.6 16.7 5
Taxes, other than income tax 1.7 2.2 (23) 4.2 4.8 (12)
-------- -------- -------- --------
37.0 34.5 7 76.7 73.3 5
-------- -------- -------- --------
Operating (loss) income (1.4) (0.4) (250) 38.5 32.5 18
-------- -------- -------- --------
Interest expense (2.7) (2.7) - (6.1) (6.2) 2
Other income (expenses), net (0.9) 0.2 (550) (0.2) 1.8 (111)
-------- -------- -------- --------
(Loss) income before income taxes (5.0) (2.9) (72) 32.2 28.1 15
Income tax (benefit) expense (1.5) (1.1) (36) 12.5 10.4 20
-------- -------- -------- --------
Net (loss) earnings $ (3.5) $ (1.8) (94) $ 19.7 $ 17.7 11
======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE> 16
[CAPTION]
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
----------------- % ----------------- %
1999 1998 Change 1999 1998 Change
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
(Millions of Therms)
Utility Sales Volumes
Firm 96.9 95.4 2 423.8 397.1 7
Interruptible 5.6 8.0 (30) 15.6 22.0 (29)
Transportation Volume 106.4 99.0 7 266.7 237.0 13
-------- -------- -------- --------
Total throughput 208.9 202.4 3 706.1 656.1 8
======== ======== ======== ========
Degree Days
Actual 875 895 (2) 4,110 3,810 8
======== ======== ======== ========
20 year average 971 4,392
======== ========
</TABLE>
The increase in firm sales volumes for the three and six months ended
June 30, 1999 was caused principally by colder weather during the heating
season in 1999 compared to 1998. The weather in 1999 was, however,
warmer than normal. For both the three and six month periods ended June
30, 1999, transportation volumes increased, compared to the same periods
in 1998, mainly because more customers purchased gas from sources other
than Wisconsin Gas and transported the volumes over the Wisconsin Gas
distribution system.
Non-regulated Energy Group revenues for the first six months of 1999
decreased slightly compared to the same period of 1998.
Operating and maintenance expenses increased by $2.4 million, or 10%, and
$3.1 million, or 6%, during the three and six months ended June 30, 1999,
compared with the same period in 1998. The increase reflects quarterly
charges of $1.9 million relating to PSCW-approved additional
uncollectible accounts expense, which became effective November 1, 1998.
Depreciation expense for the three and six months ended June 30, 1999,
increased by $0.6 million and $0.9 million, respectively, as compared
with the same periods of 1998. The increase in both periods in 1999 was
due to increased plant additions.
<PAGE>
<PAGE> 17
Interest expense remained relatively flat during the three and six months
ended June 30, 1999, compared with the same period of 1998.
Other income, net decreased by $1.1 million and $2.0 million, during the
three and six months ended June 30, 1999, respectively, compared to the
same period in 1998. During the quarter, the Company recorded $1.2
million of expenses (approximately $0.03 per share after tax) relating to
the proposed merger with Wisconsin Energy. During the year-to-date
period, the Company recorded gains in connection with weather derivative
agreements of $0.4 million in 1999 and $1.2 million in 1998. The Company
entered into the weather derivative agreements to partially mitigate the
risk that weather has on Energy Group earnings.
Manufacturing
- -------------
Manufacturing net earnings for the three and six months ended June 30,
1999, increased to $9.5 million and $15.2 million, respectively, as
compared with $7.8 million and $13.3 million for the same periods in
1998, respectively.
[CAPTION]
<TABLE>
Three Months Six months
Ended June 30, Ended June 30,
----------------- % ----------------- %
(Millions of Dollars) 1999 1998 Change 1999 1998 Change
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 138.0 $ 129.6 6 $ 255.0 $ 245.9 4
Cost of goods sold 95.8 91.9 4 178.8 174.8 2
-------- -------- -------- --------
Gross profit 42.2 37.7 12 76.2 71.1 7
Operating expenses 25.6 23.3 10 49.4 46.6 6
-------- -------- -------- --------
Operating income 16.6 14.4 15 26.8 24.5 9
Interest expense (1.1) (1.2) 8 (2.1) (2.5) 16
Other income (expense), net 0.1 (0.3) N/M 0.1 (0.1) N/M
-------- -------- -------- --------
Net income before income taxes 15.6 12.9 21 24.8 21.9 13
Income taxes 6.1 5.1 20 9.6 8.6 12
-------- -------- -------- --------
Net earnings $ 9.5 $ 7.8 22 $ 15.2 $ 13.3 14
======== ======== ======== ========
</TABLE>
N/M - Not meaningful.
<PAGE>
<PAGE> 18
Net sales for the second quarter of 1999 increased $8.4 million, or 6%,
compared to the same period in 1998. During the second quarter of 1999,
domestic sales increased by $10.0 million, or 11%, and international
sales decreased by $1.7 million, or 4%, compared to the same period in
1998.
Increased domestic sales in the second quarter were driven by greater
demand within the pool/spa, industrial, marine and food and beverage
markets. The increase is attributable to customer base growth, new
product market penetration and generally favorable economic and weather
conditions in the United States. The effect on sales of the Omni
Corporation ("Omni") acquisition in June 1999 (see Liquidity and Capital
Resources) was an additional $2.4 million. Domestic sales for the six
months ended June 30, 1999, increased $14.9 million to $184.7 million.
The decrease in international sales is attributable to the strong U.S.
dollar and poor weather in Europe. On a year to date basis,
international sales decreased by 8% over the same period in 1998. For the
six months ended June 30, 1999 and 1998, international sales accounted
for 28% and 31%, respectively, of total net sales for the Manufacturing
Group.
Gross profit margins for the three and six months ended June 30, 1999,
improved to 30.6% and 29.9%, respectively, as compared with 29.1% and
28.9% in the same periods of 1998, respectively. The improvement in
operating margins is the direct result of ongoing cost improvement
programs and productivity gains in manufacturing processes. Operating
expenses in total increased by 6%, due in part to the impact of higher
support spending for product line acquisitions, market introductions of
new products and customer development.
Consolidated Income Taxes
- -------------------------
Income tax expense was $3.1 million higher for the first six months of
1999, compared to the same period in 1998, reflecting increased pretax
income.
Liquidity and Capital Resources
- -------------------------------
Cash flow from operations for the six months ended June 30, 1999,
decreased by $2.0 million, or 2%, to $124.0 million from the comparable
period in 1998. Due to the seasonal nature of the energy business,
accrued revenues, accounts receivable and accounts payable amounts are
higher in the heating season as compared with the summer months.
<PAGE>
<PAGE> 19
Capital expenditures were level for the six months ended June 30, 1999,
compared to the same period in 1998. The Company believes that its cash
flows from operations will be sufficient to satisfy its future capital
expenditures.
Additional short-term borrowing will be needed during the third and
fourth quarters of 1999 to finance working capital, primarily related to
gas purchased for injection into storage and accounts receivable. The
Company has existing lines of credit to satisfy these working capital
needs.
On May 27, 1999, the Board of Directors of the Company authorized an
increase in the Company's dividend per share on common stock to $0.225
per quarter ($0.90 per share on an annualized basis). The first
quarterly payment at the new rate will be made August 31, 1999, to
shareholders of record on August 10, 1999.
On June 1, 1999, the Company acquired all of the outstanding common stock
of Omni Corporation, of Hammond, Indiana. Omni designs, manufactures and
markets filtration products for the household water purification market.
On June 10, 1999, the Company acquired all the assets of CUMA, S.A, of
Monterrey, Mexico, a privately-held manufacturer of pumps for irrigation,
industrial and residential applications. The purchase price for both
acquisitions totals approximately $20 million and will be accounted for
using the purchase method of accounting. The cost in excess of net
assets acquired was approximately $17 million and is being amortized over
forty years.
Year 2000 Date Conversion
- -------------------------
Issues relating to Year 2000 date conversion are the result of computer
software programs being written using two digits rather than four to
define the applicable year. The Company's software programs, computer
hardware or equipment that have date sensitive software or embedded chips
may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, distribute natural gas,
manufacture products or engage in other normal business activities.
<PAGE>
<PAGE> 20
The Company has developed a formal plan to ensure that its significant
date-sensitive computer software and hardware systems (Information
Technology) and other equipment utilized in its various activities
(Operating Equipment) will be Year 2000 compliant and operational on a
timely basis. The plan addresses all of the Company's locations
throughout the world, and includes a review of computer applications that
connect elements of the Company's business directly to its customers and
suppliers. The plan also includes an assessment process to determine if
the Company's significant customers and suppliers will be Year 2000
compliant.
The Company's plan to resolve issues relating to Year 2000 conversion
includes four major phases - assessment, remediation, testing, and
implementation. To assist the Company in reaching Year 2000 compliance,
the Company has retained third party consultants. The Company has
substantially completed the assessment phase of its plan for all of its
significant Information Technology and Operating Equipment that it
believes could be affected by the Year 2000 conversion. Based upon its
assessment, the Company concluded that it would be necessary to reprogram
and/or replace certain of its Information Technology. The Company also
determined that certain of its Operating Equipment would also require
modification to ensure it remains operational.
For its Information Technology applications as of June 30, 1999, the
Company believes it is approximately 94% compliant on all of its
significant systems, and estimates that it will complete software
reprogramming and/or replacement in the third quarter of 1999. The
Company believes that its Operating Equipment at June 30, 1999 is
approximately 95% compliant, and the Company is targeting completion for
the third quarter of 1999.
With respect to operations that involve third parties, the Company has
made inquiries of its significant customers and suppliers and, at the
present time and based on such inquiries, is not aware of Year 2000
issues facing these third parties that would materially impact the
Company's operations. However, the Company has no means of ensuring that
these customers and suppliers (and, in turn, their customers and
suppliers) will be Year 2000 compliant in a timely manner. The inability
of these parties to successfully resolve their Year 2000 issues could
have a material adverse effect on the Company.
Despite the efforts that the Company has undertaken, there can be no
assurances that every Year 2000 related issue will be identified and
addressed before January 1, 2000. An unexpected failure as a result of a
Year 2000 compliance issue could result in an interruption in certain
normal business activities or operations. For that reason, the Company is
currently developing contingency plans to address alternatives in the
event certain Year 2000 compliance failures occur.
<PAGE>
<PAGE> 21
Through June 30, 1999, the Company has spent approximately $4.7 million
for Year 2000 remediation. The amount of additional development and
remediation costs necessary for the Company to prepare for Year 2000 is
estimated to be approximately $0.5 million and is expected to be funded
through operating cash flow.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
- -------------------------------------------------------------------
The Company's market risk includes the potential loss arising from
adverse changes in the price of natural gas and in foreign currency
exchange rates. The Company's objective in managing these risks is to
reduce fluctuations in earnings and cash flows associated with changes in
natural gas prices and foreign currency exchange rates. The Company's
policy prohibits the use of derivative financial instruments for trading
purposes.
Wisconsin Gas has a commodity risk management program that has been
approved by the PSCW. This program allows Wisconsin Gas to utilize
purchased call and put option contracts to reduce market risk associated
with fluctuations in the price of natural gas purchases and gas in
storage. Under this program, Wisconsin Gas has the ability to hedge up to
50% of its planned gas deliveries for the heating season. The PSCW has
also allowed Wisconsin Gas to hedge gas purchased for storage during non-
heating months. The cost of the call and put option contracts, as well as
gains or losses realized under the contracts do not affect net income as
they are recovered dollar for dollar under the purchased gas adjustment
clause.
WICOR Energy Services Company utilizes gas futures contracts to manage
commodity price risk associated with firm customer sales commitments.
Unrealized gains or losses on these instruments are deferred and
recognized in earnings in the period the sales occur. Substantially all
of the futures contracts expire in 1999. The notional amount of these
contracts is not material to the Company.
The Company manages foreign currency market risk through the use of a
variety of financial and derivative instruments. The Company uses
forward exchange contracts and other hedging activities to hedge the U.S.
dollar value resulting from anticipated foreign currency transactions.
The notional amount of these contracts is not material to the Company.
<PAGE>
<PAGE> 22
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings
- -------------------------
On July 2, 1999 an action was filed by a shareholder of WICOR in the
Circuit Court of Milwaukee County, Wisconsin against WICOR, all of the
members of its board of Directors, and Wisconsin Energy. The complaint
alleges that the consideration to be received by WICOR shareholders in
the proposed merger with Wisconsin Energy is inadequate and unfair to
WICOR shareholders. The complaint also alleges that Wisconsin Energy
aided, abetted and assisted in the alleged breaches of the fiduciary
duties of the individual defendants. The complaint seeks certification
as a class action on behalf of all WICOR shareholders, an injunction
against proceeding with the merger, an auction or open bidding process
for the sale of WICOR, and unspecified damages. WICOR believes the
complaint is without merit and intends to pursue a vigorous defense.
Subsequently, the plaintiff also requested a hearing on whether the court
should issue an injunction precluding the issuance of rights under the
new shareholder rights plan adopted by the WICOR Board on July 27, 1999.
The rights are currently scheduled to be issued on August 29, 1999 to
coincide with the expiration of WICOR's current shareholder rights plan.
WICOR intends to vigorously oppose the plaintiff's request for injunctive
relief.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
At the Company's annual meeting of shareholders held on April 22, 1999,
Jere D. McGaffey and Thomas F. Schrader were elected as directors of the
Company for terms expiring in 2002. The following table sets forth
certain information with respect to the election of directors at the
annual meeting:
Shares Withholding
Name of Nominee Shares Voted For Authority
-------------------- ---------------- ------------------
Jere D. McGaffey 29,306,378 1,076,287
Thomas F. Schrader 30,022,237 360,428
The following table sets forth the other directors of the Company whose
terms of office continued after the 1999 annual meeting:
Year in Which
Name of Director Term Expires
- -------------------- --------------
Willie D. Davis 2000
Guy A. Osborn 2000
Wendell F. Bueche 2001
Daniel F. McKeithan, Jr. 2001
George E. Wardeberg 2001
Essie M. Whitelaw 2001
<PAGE>
<PAGE> 23
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger, dated as of June 27, 1999, by and
among Wisconsin Energy Corporation, WICOR, Inc. and CEW Acquisition, Inc.
(incorporated by reference to Exhibit 2.1 to the Company's Current Report
on Form 8-K dated June 27, 1999)
27 Financial data schedule (EDGAR version only).
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the three months
ended June 30, 1999:
1. Current Report on Form 8-K dated June 27, 1999, reporting under
Items 5 and 7 the announcement of the Agreement and Plan of merger
between the Company and Wisconsin Energy, and including the Agreement
and Plan of Merger as an exhibit.
2. Current Report on Form 8-K dated June 29, 1999, reporting under
Items 5 and 7 the presentation of information regarding the proposed
merger of the Company and Wisconsin Energy, and including the
presentation materials as an exhibit.
<PAGE>
<PAGE> 24
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: August 16, 1999 By: /s/ Joseph P. Wenzler
Joseph P. Wenzler
Senior Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the WICOR,
Inc. FORM 10-Q for the six months ended June 30, 1999 and is qualified in its
entirety by reference to such financial statements and the related footnotes.
</LEGEND>
<MULTIPLIER> 1,000
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<PERIOD-END> JUN-30-1999
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<TOTAL-ASSETS> 982,855
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