<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 September 30, 1995
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 1-9057
WISCONSIN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-1391525
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
231 West Michigan Street, P.O. Box 2949, Milwaukee, Wisconsin 53201
(Address of principal executive offices) (Zip Code)
(414) 221-2345
(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 October 31, 1995
--------------------------- -------------------------------
$.01 Par Value Common Stock 110,453,869 Shares
<PAGE> 2
<TABLE>
FORM 10-Q
WISCONSIN ENERGY CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED INCOME STATEMENT
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1995 1994 1995 1994
------ ------ ------ ------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues
Electric $385,725 $361,735 $1,076,921 $1,056,249
Gas 39,426 37,563 215,701 243,644
Steam 1,262 1,214 10,006 10,640
-------- -------- --------- ---------
Total Operating Revenues 426,413 400,512 1,302,628 1,310,533
Operating Expenses
Fuel 89,179 73,061 228,609 217,022
Purchased power 5,521 11,722 32,727 33,356
Cost of gas sold 24,476 23,149 129,815 151,587
Other operation expenses 102,953 99,190 298,572 306,860
Maintenance 23,319 29,593 82,531 93,529
Revitalization - - - 73,900
Depreciation 46,745 44,911 136,893 132,300
Taxes other than income taxes 19,212 18,570 55,749 58,985
Federal income tax 30,854 22,695 83,865 66,852
State income tax 7,139 5,248 19,767 15,832
Deferred income taxes - net (2,568) 2,270 (662) (14,795)
Investment tax credit - net (1,121) (1,145) (3,362) (3,433)
-------- -------- --------- --------
Total Operating Expenses 345,709 329,264 1,064,504 1,131,995
Operating Income 80,704 71,248 238,124 178,538
Other Income and Deductions
Interest income 5,168 4,925 12,935 12,865
Allowance for other funds used
during construction 1,020 1,358 2,674 4,119
Miscellaneous - net (546) 1,328 2,317 3,207
Income taxes 360 (230) 667 224
-------- -------- -------- --------
Total Other Income and Deductions 6,002 7,381 18,593 20,415
Income Before Interest Charges and Preferred
Dividend 86,706 78,629 256,717 198,953
Interest Charges
Interest expense 29,316 28,192 87,046 84,036
Allowance for borrowed funds used
during construction (1,346) (1,354) (3,796) (3,875)
-------- -------- -------- --------
Total Interest Charges 27,970 26,838 83,250 80,161
Preferred Dividend Requirement of
Subsidiary 300 301 902 1,050
-------- -------- -------- --------
Net Income $ 58,436 $ 51,490 $172,565 $117,742
======== ======== ======== ========
Average Shares Outstanding (Thousands) 110,093 108,314 109,602 107,791
Earnings Per Share of Common Stock $ 0.53 $ 0.48 $ 1.57 $ 1.09
======== ======== ======== ========
Dividends Per Share of Common Stock $ 0.3675 $ 0.3525 $ 1.0875 $1.04375
======== ======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
- 2 -
</TABLE>
<PAGE> 3
<TABLE>
WISCONSIN ENERGY CORPORATION FORM 10-Q
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
(Thousands of Dollars)
Assets
------
<S> <C> <C>
Utility Plant
Electric $4,495,690 $4,304,925
Gas 480,594 467,732
Steam 39,937 40,103
Accumulated provision for depreciation (2,257,255) (2,134,469)
---------- ----------
2,758,966 2,678,291
Construction work in progress 67,275 205,835
Nuclear fuel - net 52,676 56,606
---------- ----------
Net Utility Plant 2,878,917 2,940,732
Other Property and Investments 638,853 596,719
Current Assets
Cash and cash equivalents 15,590 8,976
Accounts receivable 135,531 114,657
Accrued utility revenues 88,682 128,107
Materials, supplies and fossil fuel 166,600 158,946
Prepayments and other assets 63,423 68,272
---------- ----------
Total Current Assets 469,826 478,958
Deferred Charges and Other Assets
Accumulated deferred income taxes 141,037 139,927
Other 326,627 251,923
---------- ----------
Total Deferred Charges and Other Assets 467,664 391,850
---------- ----------
Total Assets $4,455,260 $4,408,259
========== ==========
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $ 665,143 $ 625,657
Retained earnings 1,172,385 1,118,909
---------- ----------
Total Common Stock Equity 1,837,528 1,744,566
Preferred stock - redemption not required 30,451 30,451
Long-term debt 1,249,725 1,283,686
---------- ----------
Total Capitalization 3,117,704 3,058,703
Current Liabilities
Long-term debt due currently 51,263 32,531
Short-term debt 211,490 252,055
Accounts payable 80,473 91,795
Accrued liabilities 58,802 68,234
Other 52,547 29,822
---------- ----------
Total Current Liabilities 454,575 474,437
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 483,087 475,541
Other 399,894 399,578
---------- ----------
Total Deferred Credits and Other Liabilities 882,981 875,119
---------- ----------
Total Capitalization and Liabilities $4,455,260 $4,408,259
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
- 3 -
</TABLE>
<PAGE> 4
<TABLE>
FORM 10-Q
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended September 30
------------------------------
1995 1994
------ ------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net income $ 172,565 $ 117,742
Reconciliation to cash:
Depreciation 136,893 132,300
Nuclear fuel expense - amortization 17,745 16,775
Conservation expense - amortization 16,114 17,705
Debt premium, discount & expense - amortization 8,923 10,902
Revitalization - net (4,384) 54,810
Deferred income taxes - net (662) (14,795)
Investment tax credit - net (3,362) (3,433)
Allowance for other funds used during construction (2,674) (4,119)
Change in: Accounts receivable (20,874) 27,693
Inventories (7,654) 5,739
Accounts payable (11,322) (28,514)
Other current assets 44,274 33,380
Other current liabilities 13,293 (4,232)
Other 4,158 (1,163)
-------- --------
Cash Provided by Operating Activities 363,033 360,790
Investing Activities:
Construction expenditures (184,757) (207,121)
Allowance for borrowed funds used during construction (3,796) (3,875)
Nuclear fuel (15,097) (18,809)
Nuclear decommissioning trust (8,172) (7,732)
Conservation investments - net 2,362 (11,333)
Other (8,726) (23,302)
-------- --------
Cash Used in Investing Activities (218,186) (272,172)
Financing Activities:
Sale of common stock 39,478 40,199
Sale of long-term debt 108,941 20,369
Retirement of preferred stock - (5,250)
Retirement of long-term debt (127,006) (29,675)
Change in short-term debt (40,565) 10,344
Dividends on stock - common (119,081) (112,416)
-------- --------
Cash Used in Financing Activities (138,233) (76,429)
-------- --------
Change in Cash and Cash Equivalents $ 6,614 $ 12,189
======== ========
Supplemental Information Disclosures:
Cash Paid for -
Interest (net of amount capitalized) $ 78,275 $ 71,915
Income taxes 111,638 113,163
<FN>
See accompanying notes to consolidated financial statements.
- 4 -
</TABLE>
<PAGE> 5
FORM 10-Q
WISCONSIN ENERGY CORPORATION
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited consolidated financial statements should be
read in conjunction with the company's 1994 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 the company have been included in the accompanying
income statement and balance sheet. The results of operations for the
three months and the nine months ended September 30, 1995 are not,
however, necessarily indicative of the results which may be expected for
the year 1995 because of seasonal and other factors.
2. On April 28, 1995, Wisconsin Energy Corporation ("WEC") and Northern
States Power Company, Minnesota ("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 NSP and WEC in a "merger-of-equals"
transaction. As a result, a registered utility holding company, which
will be known as Primergy Corporation ("Primergy"), will be the parent of
NSP and the current operating subsidiaries of NSP and WEC. The business
combination is intended to be tax-free for income tax purposes and to be
accounted for as a "pooling of interests".
The Merger Agreement is subject to various conditions, including the
approval of various regulatory agencies. On July 10, 1995, WEC and NSP
filed an application and supporting testimony with the Federal Energy
Regulatory Commission seeking approval of the proposed merger. Similar
filings were made on August 4, 1995 with regulatory agencies in the states
where WEC and NSP provide utility services and in which such filings are
required. On September 13, 1995 the stockholders of WEC and NSP voted, in
their respective stockholder meetings, to approve the Merger Agreement and
certain other related matters. Applications for license amendments and
approvals relating to the proposed merger were filed with the Nuclear
Regulatory Commission in late October 1995. Subject to obtaining all
requisite approvals, WEC and NSP anticipate completing this business
combination late in 1996. ITEM 5. OTHER INFORMATION - MERGER AGREEMENT
WITH NORTHERN STATES POWER COMPANY in Part II of this report contains
further information concerning the proposed transaction and provides pro
forma combined condensed financial information for Primergy.
3. WEC intends to merge its gas utility subsidiary, Wisconsin Natural Gas
Company, into its electric utility subsidiary, Wisconsin Electric Power
Company ("WE") to form a single combined utility subsidiary. All required
regulatory approvals for the merger have been received. Completion of the
planned merger is expected to occur by January 1, 1996.
4. In September and October 1995, WE, the company's principal utility
subsidiary, issued $98,350,000 of unsecured variable rate promissory notes
maturing between March 1, 2006 and September 1, 2030. These notes were
issued as a revenue and collateral source for an equal principal amount of
tax exempt Refunding Revenue Bonds issued on WE's behalf. Proceeds from
the promissory notes were used to refund various issues of WE's First
Mortgage Bonds totaling $98,350,000 that were called for optional
redemption.
- 5 -
<PAGE> 6
FORM 10-Q
WISCONSIN ENERGY CORPORATION
------------------------------
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wisconsin Energy Corporation ("WEC") has entered into an agreement with
Northern States Power Company ("NSP") which provides for a strategic business
combination involving the two companies in a "merger-of-equals" transaction.
Additional information concerning such agreement and proposed transaction and
pro forma financial information with respect thereto is included in ITEM 5.
OTHER INFORMATION - MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY in
Part II of this report. Information concerning WEC and NSP stockholder
approval of such agreement is included in ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS in Part II of this report.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by WEC's consolidated operating activities totaled $363 million
during the nine months ended September 30, 1995. This compares to
approximately $361 million provided during the same period in 1994.
WEC's consolidated investing activities totaled $218 million for the nine
months ended September 30, 1995 compared to $272 million during the same
period in 1994. Investments during the first nine months of 1995 include
approximately $185 million for the construction of new or improved facilities,
$15 million for acquisition of nuclear fuel, and $8 million for payments to an
external trust for the eventual decommissioning of Wisconsin Electric Power
Company's ("WE") Point Beach Nuclear Plant ("Point Beach").
On August 29, 1995, WE, the principal utility subsidiary of WEC, called for
optional redemption $98.35 million aggregate principal amount of fixed rate
tax exempt bonds issued by three political jurisdictions on WE's behalf that
were secured by issues of WE's First Mortgage Bonds with terms corresponding
to the tax exempt bonds called for redemption. During September and October
1995, the three political jurisdictions issued $98.35 million aggregate
principal amount of new tax exempt bonds on behalf of WE, collateralized by
unsecured variable rate promissory notes issued by WE with terms corresponding
to the respective issues of the refunding tax exempt bonds, the proceeds of
which were used to finance such optional redemptions. The WE First Mortgage
Bonds, which collateralized the redeemed tax exempt bonds, have also been
canceled.
Capital requirements for the remainder of 1995 are expected to be principally
for construction expenditures, purchase of nuclear fuel, and payments to the
external trust for the eventual decommissioning of Point Beach. Depending
upon market conditions and other factors, WE may issue approximately $100
million of additional intermediate or long-term debt in a public offering
before the end of 1995.
From January 1, 1995 through September 30, 1995, WEC issued 1,440,794 shares
of common stock which were purchased through the company's stock plans with
cash investments and reinvested dividends aggregating approximately $39.5
million.
- 6 -
<PAGE> 7
FORM 10-Q
WISCONSIN ENERGY CORPORATION
------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
RESULTS OF OPERATIONS
Third Quarter Results:
Net Income increased 13.5% or by $6.9 million during the third quarter of 1995
compared to the same period in 1994.
Total revenues increased 6.5% during the third quarter of 1995 compared to the
third quarter of 1994. Primarily due to warmer weather in the 1995 third
quarter, electric revenues rose 6.6% and kilowatt-hour sales increased 6.2%.
Gross margin on electric sales (operating revenues less fuel and purchased
power) increased 5.1%. Gas revenues rose 5.0% as a result of a 19% increase
in total natural gas deliveries. Since a majority of the increase in gas
deliveries was to low margin interruptible and transportation customers,
gross margin on gas deliveries (operating revenues less cost of gas sold)
increased 3.7%, less than the increase in gas revenues. In the third quarter
of 1995 compared to the third quarter of 1994, maintenance expenses decreased
21.2% due in part to increased efficiencies gained through WE and Wisconsin
Natural Gas Company's ("WN") revitalization program.
The annualized $16,179,000 or 1.3% Wisconsin retail electric fuel adjustment
rate decrease that became effective on August 4, 1994 for WE customers remains
effective in 1995.
ELECTRIC SALES
Three Months Ended September 30
-------------------------------
Electric Sales - Megawatt Hours 1995 1994 % Change
- ------------------------------- ---------- ---------- --------
Residential 1,919,726 1,699,442 13.0
Small Commercial and Industrial 1,883,412 1,721,476 9.4
Large Commercial and Industrial 2,872,876 2,803,350 2.5
Other 412,772 382,146 8.0
---------- ----------
Total Retail and Municipal 7,088,786 6,606,414 7.3
Resale-Utilities 320,764 368,341 (12.9)
---------- ----------
Total Sales 7,409,550 6,974,755 6.2
- -------------------------------
Total electric kilowatt-hour sales during the third quarter of 1995 were
positively impacted by, among other things, substantially warmer weather
conditions compared to 1994. As measured by cooling degree days, the quarter
was 17.2% warmer than the same period in 1994. Electric energy sales to the
Empire and Tilden iron ore mines, WE's two largest customers, decreased 2.2%
during the three months ended September 30, 1995 compared to the three months
ended September 30, 1994. Excluding the mines, total electric sales increased
6.9% and sales to the remaining large commercial and industrial customers
increased 3.5%.
- 7 -
<PAGE> 8
FORM 10-Q
WISCONSIN ENERGY CORPORATION
------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
GAS DELIVERIES
Three Months Ended September 30
-------------------------------
Therms Delivered - Thousands 1995 1994 % Change
- ------------------------------- ---------- ---------- --------
Residential 23,955 22,575 6.1
Commercial and Industrial 12,506 14,250 (12.2)
Interruptible 12,707 9,586 32.6
---------- ----------
Total Sales 49,168 46,411 5.9
Transported Customer Owned Gas 65,991 50,397 30.9
---------- ----------
Total Gas Delivered 115,159 96,808 19.0
- -------------------------------
Natural gas therm deliveries during the third quarter of 1995 increased 19.0%
compared to the third quarter of 1994, primarily due to electric generation
peaking requirements as a result of the hot summer weather noted above.
Interruptible sales to Concord ("Concord") and Paris ("Paris") Generating
Stations increased by 4.8 million therms and transportation deliveries to
Paris increased by about 13.2 million therms in the third quarter of 1995
compared to 1994. Deliveries to Concord and Paris, peaking power plants owned
by WE, are at rates approved by the Public Service Commission of Wisconsin
("PSCW"). All of the respective generating units at Concord and Paris were in
operation during the third quarter of 1995 while only the generating units at
Concord were in operation during the third quarter of 1994.
For additional information regarding matters pertaining to electric and gas
operations, refer to ITEM 1. BUSINESS - ELECTRIC UTILITY OPERATIONS and to
ITEM 1. BUSINESS - GAS UTILITY OPERATIONS in PART I of WEC's Annual Report on
Form 10-K for the year ended December 31, 1994.
Year-to-Date Results:
Net Income increased $54.8 million or 46.6% during the nine months ended
September 30, 1995 compared to the same period in 1994, reflecting a non-
recurring charge in the first quarter of 1994 of approximately $45 million
(net of tax) associated with WE and WN's restructuring program. This charge
included the cost of severance and early retirement packages, elements of a
"revitalization" program designed to better position WE and WN in a changing
market place. It is anticipated that this charge will be offset by the end of
1995 through savings in operation and maintenance costs. Excluding the non-
recurring charge in 1994, net income increased $9.8 million or 6% during the
nine month period ended September 30, 1995 compared to the same period in
1994.
Total revenues decreased 0.6% during the first nine months of 1995 compared to
the first nine months of 1994. Electric revenues rose 2% as a result of a
1.2% increase in kilowatt-hour sales. Gross margin on electric sales
(operating revenues less fuel and purchased power) increased 1.2%. Gas
revenues fell 11.5% and gas margins (operating revenues less cost of gas sold)
decreased 6.7% primarily as a result of a decrease in residential and
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<PAGE> 9
FORM 10-Q
WISCONSIN ENERGY CORPORATION
------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
RESULTS OF OPERATIONS - Cont'd
commercial and industrial sales. In the first nine months of 1995, other
operation and maintenance expenses decreased 4.8% compared to the first nine
months of 1994, reflecting among other things the effects of WE and WN's
"revitalization" program.
ELECTRIC SALES
Nine Months Ended September 30
------------------------------
Electric Sales - Megawatt Hours 1995 1994 % Change
- ------------------------------- ---------- ---------- --------
Residential 5,218,854 4,967,637 5.1
Small Commercial and Industrial 5,300,266 5,040,837 5.1
Large Commercial and Industrial 8,060,228 7,877,608 2.3
Other 1,169,807 1,218,405 (4.0)
---------- ----------
Total Retail and Municipal 19,749,155 19,104,487 3.4
Resale-Utilities 762,954 1,168,490 (34.7)
---------- ----------
Total Sales 20,512,109 20,272,977 1.2
- -------------------------------
Total electric kilowatt-hour sales during the first nine months of 1995 were
positively impacted by, among other things, warmer weather conditions during
the summer of 1995. However, this was somewhat offset by mild winter weather
in the first quarter of 1995. As measured by cooling degree days, the first
three quarters of 1995 were 9.5% warmer compared to the same period in 1994.
As measured by heating degree days, however, the first quarter of 1995 was
14.7% warmer compared to 1994.
Electric energy sales to the Empire and Tilden iron ore mines decreased 1.4%
during the nine months ended September 30, 1995 compared to the same period in
1994. Excluding the mines, total electric sales increased 1.4% and sales to
the remaining large commercial and industrial customers increased 3.4%.
GAS DELIVERIES
Nine Months Ended September 30
------------------------------
Therms Delivered - Thousands 1995 1994 % Change
- ------------------------------- ---------- ---------- --------
Residential 219,003 233,226 (6.1)
Commercial and Industrial 133,484 140,635 (5.1)
Interruptible 38,706 37,176 4.1
---------- ----------
Total Sales 391,193 411,037 (4.8)
Transported Customer Owned Gas 207,825 175,025 18.7
---------- ----------
Total Gas Delivered 599,018 586,062 2.2
- -------------------------------
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<PAGE> 10
FORM 10-Q
WISCONSIN ENERGY CORPORATION
------------------------------
PART I - FINANCIAL INFORMATION (Cont'd)
GAS DELIVERIES - Cont'd
Natural gas therm deliveries during the first nine months of 1995 increased
2.2% compared to the same period in 1994. Combined residential sales and
commercial and industrial sales, which have higher margins, declined 5.7%,
primarily due to the mild winter weather in the first quarter of 1995.
Offsetting the decline in residential and commercial and industrial sales,
combined interruptible sales and transportation deliveries, which have lower
margins, increased 16.2% over the same period, primarily as a result of the
hot summer weather and the increased deliveries to Concord and Paris noted
above.
For certain other information which may impact WEC's future financial
condition or results of operations, see ITEM 1. LEGAL PROCEEDINGS and ITEM 5.
OTHER INFORMATION in Part II of this report.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following information should be read in conjunction with ITEM 3. LEGAL
PROCEEDINGS in PART I of Wisconsin Energy Corporation's ("WEC") Annual Report
on Form 10-K for the year ended December 31, 1994 and ITEM 1. LEGAL
PROCEEDINGS in Part II of WEC's Quarterly Reports on Form 10-Q for the periods
ended March 31, 1995 and June 30, 1995.
WISCONSIN RETAIL RATE MATTERS
1996 Test Year: On May 1, 1995, WE and WN filed with the PSCW required data
related to the 1996 test year. This was an abbreviated filing since no
increase in rates was requested. At the PSCW's open meeting on August 21,
1995, the PSCW determined that the electric, gas and steam rates for 1996
should be decreased from current levels. The dollar impacts and percentage
decreases for electric, gas and steam rates are approximately $33 million
(2.75%), $8 million (2.6%) and approximately $0.8 million (5.1%),
respectively, on an annualized basis. In its letter dated September 11, 1995,
the PSCW directed that the rate decreases be implemented effective January 1,
1996.
1997 Test Year: In its letter dated September 11, 1995, the PSCW instructed
WE and WN to file in January 1996 specific financial data related to the 1997
test year. The PSCW has determined that it will need a full review of WE and
WN's rates for the 1997 test year in connection with the consideration of the
application for approval of the proposed merger of WEC and NSP. Further
information concerning the proposed merger is included in ITEM 5. OTHER
INFORMATION - MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY in Part II
of this report.
DRY CASK STORAGE MATTER
On August 24, 1995, the Citizens' Utility Board ("CUB"), a consumer advocacy
group, and other parties mailed to WE and the Wisconsin Department of Natural
Resources ("WDNR") a formal "Notice of Intent to Sue" stating that they would
- 10 -
<PAGE> 11
FORM 10-Q
WISCONSIN ENERGY CORPORATION
------------------------------
PART II - OTHER INFORMATION (Cont'd)
DRY CASK STORAGE MATTER - Cont'd
commence a citizens suit premised on an alleged failure of WE to obtain WDNR
approval under Wisconsin's "radioactive waste site exploration" law prior to
doing soil test borings in connection with its dry cask storage facility at
Point Beach Nuclear Plant. If such a suit is commenced, WE would vigorously
defend, taking the position that this law is not applicable to the activities
in question. See ITEM 5. OTHER INFORMATION - DRY CASK STORAGE PROJECT below
for further information concerning the dry cask storage facility.
ENVIRONMENTAL COMPLIANCE
Marina Cliffs Barrel Dump Site: The Environmental Protection Agency ("EPA")
has identified WE as a potentially responsible party ("PRP") at the Marina
Cliffs Barrel Dump Site (Northwestern Barrel) in South Milwaukee, Wisconsin.
This site is a former commercial barrel recycling facility which cleaned,
reconditioned and sold used barrels. WE is alleged to have sent empty barrels
to this facility. The Company has joined a recently created PRP group which
has been formed to remediate the site. WE has no reason to believe that it is
responsible for the contamination at this site.
Lauer Landfill: Waste Management, Wisconsin a successor owner of the Lauer
Landfill, a private sanitary landfill in Milwaukee, Wisconsin, has undertaken
the private remediation of contamination allegedly emanating therefrom. Waste
Management, Wisconsin has written to WE indicating that it anticipates,
because WE was, according to Waste Management, Wisconsin records, a user of
that landfill, that it will seek recovery of a portion of its remediation
costs from WE. WE has not yet met with Waste Management, Wisconsin regarding
this matter.
Manistique River/Harbor Area: In 1993-94, WE received three requests for
information or PRP letters from the EPA regarding the disposition of WE
transformers and capacitors from WE's prior operations in the area, as well as
WE's financial status. The EPA states that the area, which is located in the
upper peninsula of Michigan, has PCB contamination. WE recently became aware
that, in 1974, three oil-filled transformers were sold to a local junk/salvage
dealer. WE has no reason to believe that it is responsible in total or in
part for the PCB contamination in the Manistique River/Harbor area. WE has
learned, through other sources, that the EPA and two PRPs (Edison Sault
Electric Company and Manistique Papers) have reached an agreement that
provides for capping the harbor, which should remedy the situation in whole or
in part.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 13, 1995, the stockholders of WEC and NSP voted, in their
respective stockholder meetings, to approve the proposed merger between the
two companies and their subsidiaries as well as to approve several related
items. Further information about WEC's stockholder votes at the September 13,
1995 special meeting was previously reported in WEC's Current Report on Form
8-K dated as of September 13, 1995. ITEM 1. FINANCIAL STATEMENTS, Notes to
Financial Statements, in Part I of this report and ITEM 5. OTHER INFORMATION -
MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY in Part II of this report
contain further information concerning the proposed merger.
- 11 -
<PAGE> 12
FORM 10-Q
WISCONSIN ENERGY CORPORATION
------------------------------
PART II - OTHER INFORMATION (Cont'd)
ITEM 5. OTHER INFORMATION
POINT BEACH UNIT 2 STEAM GENERATORS
In October 1992, WE filed an application with the PSCW for the replacement in
the fall of 1996 of the Unit 2 steam generators at Point Beach Nuclear Plant.
This would allow for the unit's operation until the expiration of its
operating license in 2013. Without the replacement of the steam generators,
it is believed that the unit would not be able to operate to the end of its
current license. The PSCW has deferred a decision on the steam generator
replacements in part to gather more information during the refueling outage in
the fall of 1995. It is anticipated that the final order in this matter will
be issued in early 1996.
During the October 1995 Unit 2 refueling outage, inspections of the steam
generators indicated that corrosion has continued to degrade some of the
internal components, which had reduced the plant's power capability. Prior to
the current outage, degraded tubes in the steam generators had reduced the
output of the 500 megawatt unit by 10 to 15 megawatts. Plugging the degraded
tubes identified in this most recent inspection would additionally reduce
output of Unit 2. WE is evaluating appropriate operating parameters for the
unit, which will determine future maximum output levels. WE does not expect
output to be reduced to less than 75% of rated capacity. WE is currently
exploring repair options and is discussing them with the Nuclear Regulatory
Commission ("NRC"). Return to service will require NRC approvals for a change
to the plant technical specifications regarding reactor flow and the selected
repair option. WE expects to make repairs and return Unit 2 to service by
late November or early December 1995.
DRY CASK STORAGE PROJECT
In November 1991, WE filed an application with the PSCW for authority to
construct and operate an Independent Spent Fuel Storage Installation
("ISFSI"). The ISFSI will provide interim dry cask storage of spent fuel from
Point Beach. Public hearings on the proposed project were held during October
1994. On February 13, 1995, WE received a Certificate of Authority from the
PSCW to construct and operate the ISFSI. Construction was completed in
October 1995. WE expects to begin loading the first storage casks in December
1995. See ITEM 1. BUSINESS - SOURCES OF GENERATION - NUCLEAR - "Spent Fuel
Storage and Disposal" and ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "Capital Requirements 1995-
1999" in WEC's Annual Report on Form 10-K for the year ended December 31, 1994
for further information concerning the PSCW's approval of WE's application to
utilize dry cask storage for spent nuclear fuel generated at Point Beach, the
need for such dry storage facility, and pending petitions for judicial review
of the PSCW's decision.
PSCW ELECTRIC UTILITY INDUSTRY INVESTIGATION
The PSCW is conducting an investigation into the state of the electric utility
industry in Wisconsin, particularly its institutional structure and regulatory
regime, in order to evaluate what changes would be beneficial for the state.
The PSCW stated that this investigation may result in profound and fundamental
- 12 -
<PAGE> 13
FORM 10-Q
WISCONSIN ENERGY CORPORATION
------------------------------
PART II - OTHER INFORMATION (Cont'd)
PSCW ELECTRIC UTILITY INDUSTRY INVESTIGATION - Cont'd
changes to the nature and regulation of the electric utility industry in
Wisconsin. In January 1995, the PSCW established an advisory committee
("committee"), including WE, to examine all aspects of electrical service and
the electric utility industry and to suggest which functions should be
performed in a competitive market. The PSCW established a timetable to submit
a final report to the Wisconsin Legislature by the end of 1995. In October
1995, with the committee unable to reach consensus on a legislative package of
how to restructure Wisconsin's electric utility industry, the committee and
the PSCW agreed not to submit a proposal to the Wisconsin Legislature until
after 1996. The PSCW still intends to decide on December 12, 1995 the general
direction of utility regulation in Wisconsin. The PSCW has indicated that
during 1996 it will seek changes in applicable administrative rules under its
jurisdiction.
MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY
On April 28, 1995, WEC entered into an Agreement and Plan of Merger with NSP
which provides for a strategic business combination involving the two
companies in a "merger-of-equals" transaction, as previously reported in WEC's
Current Reports on Form 8-K dated as of April 28, 1995 and as of September 13,
1995 and in its Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995 and June 30, 1995 ("WEC's 3/31/95 and 6/30/95 10-Qs"). The
Agreement and Plan of Merger was amended and restated as of July 26, 1995 to
make certain nonsubstantive changes. The Amended and Restated Agreement and
Plan of Merger, dated as of April 28, 1995, as amended and restated as of
July 26, 1995, is referred to herein as the "Merger Agreement." Detailed
information with respect to the Merger Agreement and the transactions
contemplated thereby is contained 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 shareholders of WEC
and NSP to vote on the Merger Agreement and related matters.
The Merger Agreement is subject to various conditions, including the approval
of various regulatory agencies. On July 10, 1995, WEC and NSP filed an
application and supporting testimony with the Federal Energy Regulatory
Commission ("FERC") seeking approval of the proposed business combination.
FERC has received a number of protests about and requests for hearings on the
application to which WEC and NSP have responded. The matter is pending.
Applications for approval of the mergers contemplated by the Merger Agreement
and related transactions, including, in the case of certain commissions, the
issuance of securities in connection therewith, were filed in early August
1995 with the Minnesota, Wisconsin, North Dakota and Michigan utility
commissions. An application for disclaimer of jurisdiction was filed with the
South Dakota utility commission concurrently with other state applications.
The PSCW has determined that it will need a full review of WE's rates for the
1997 test year in connection with the consideration of the application for
approval of the mergers contemplated by the Merger Agreement and related
transactions. The Merger Agreement and certain related matters were approved
by shareholders of WEC and NSP at their respective meetings of shareholders
held on September 13, 1995. Applications for license amendments and approvals
relating to the proposed merger were filed with the Nuclear Regulatory
- 13 -
<PAGE> 14
FORM 10-Q
WISCONSIN ENERGY CORPORATION
------------------------------
PART II - OTHER INFORMATION (Cont'd)
MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY - Cont'd
Commission in late October 1995. Subject to obtaining all requisite
approvals, WEC and NSP anticipate completing this business combination late in
1996.
Further information concerning the Merger Agreement and the proposed business
combination transaction is included in ITEM 1. FINANCIAL STATEMENTS, Notes to
Financial Statements, in Part I and in ITEM 1. LEGAL PROCEEDINGS and ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS in Part II of this report.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma financial information combines the
historical consolidated balance sheets and statements of income of WEC and NSP
after giving effect to the proposed business combination transaction
("Transaction") to form Primergy Corporation ("Primergy"). This pro forma
financial information updates through the third quarter of 1995 pro forma
financial information included in ITEM 5. OTHER INFORMATION in Part II of
WEC's 3/31/95 and 6/30/95 10-Qs. (WEC's 3/31/95 10-Q also contains unaudited
pro forma combined condensed statements of income of Primergy for each of the
three years in the period ended December 31, 1994, which are not repeated
herein.) The unaudited pro forma combined condensed balance sheet information
at September 30, 1995 gives effect to the Transaction as if it had occurred at
September 30, 1995. The selected unaudited pro forma combined income
statement information for the nine months ended September 30, 1995 gives
effect to the Transaction as if it had occurred at January 1, 1995. This
financial information is prepared on the basis of accounting for the
Transaction as a pooling of interests.
The following unaudited pro forma financial information has been prepared
from, and should be read in conjunction with, the historical consolidated
financial statements and related notes thereto of WEC and NSP. A $141 million
pro forma adjustment has been made to conform the presentation of noncurrent
deferred income taxes in the pro forma combined condensed balance sheet
information into one net liability amount. 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 savings, will be subject to
regulatory review and approval. Transaction costs are currently estimated to
be approximately $30,000,000. None of these estimated cost savings, the costs
to achieve such savings, or transaction costs are reflected in the unaudited
pro forma financial information. All other financial statement presentation
and accounting policy differences are immaterial and have not been adjusted in
the pro forma financial information. 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 periods, for which the Transaction is being given effect
nor is it necessarily indicative of future operating results or financial
position.
- 14 -
<PAGE> 15
FORM 10-Q
WISCONSIN ENERGY CORPORATION
------------------------------
PART II - OTHER INFORMATION (Cont'd)
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION - Cont'd
PRIMERGY CORPORATION: (in millions, except per share amounts)
NSP WEC Pro Forma
(As Reported) (As Reported) Combined
As of 9/30/95:
Utility Plant-Net $ 4,282 $ 2,879 $ 7,161
Current Assets 625 470 1,095
Other Assets 1,166 1,106 2,131
----- ----- -----
Total Assets $ 6,073 $ 4,455 $ 10,387
Common Stockholder's Equity $ 2,003 $ 1,838 $ 3,841
Preferred Stock and Premium 241 30 271
Long-term Debt 1,545 1,250 2,795
----- ----- -----
Total Capitalization 3,789 3,118 6,907
Current Liabilities 858 455 1,313
Other Liabilities 1,426 882 2,167
----- ----- -----
Total Equity & Liabilities $ 6,073 $ 4,455 $ 10,387
For the Nine Months Ended 9/30/95:
Utility Operating Revenues $ 1,916 $ 1,303 $ 3,219
Utility Operating Income $ 267 $ 238 $ 505
Net Income, after Preferred
Dividend Requirements $ 207 $ 173 $ 380
Earnings per Common Share:
As reported $ 3.09 $ 1.57 -
Primergy Shares - - $ 1.74
- 15 -
<PAGE> 16
FORM 10-Q
WISCONSIN ENERGY CORPORATION
------------------------------
PART II - OTHER INFORMATION (Cont'd)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following Exhibit is filed with this report:
Exhibit No.
(27)-1 Wisconsin Energy Corporation ("WEC") Financial Data Schedule
for the nine months ended September 30, 1995.
The following Exhibits are incorporated herein by reference:
(2)-1 Amended and Restated Agreement and Plan of Merger, dated as of
April 28, 1995, as amended and restated as of July 26, 1995,
by and among Northern States Power Company, Wisconsin
Energy Corporation, Northern Power Wisconsin Corp. and WEC Sub
Corp. (Exhibit (2)-1 to WEC's Registration Statement on Form
S-4 filed on August 7, 1995, Registration No. 33-61619 ("Form
S-4, No. 33-61619").)
(3)-1 Bylaws of WEC, as amended and restated July 26, 1995.
(Exhibit (3)-2 to Form S-4, No. 33-61619.)
(b) Reports on Form 8-K:
A Current Report on Form 8-K, dated as of September 13, 1995, was filed
on September 13, 1995 with respect to stockholder approval of the
proposed merger with Northern States Power Company.
- 16 -
<PAGE> 17
FORM 10-Q
WISCONSIN ENERGY CORPORATION
------------------------------
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.
WISCONSIN ENERGY CORPORATION
--------------------------------------
(Registrant)
/s/ R. A. Abdoo
--------------------------------------
Date: November 10, 1995 R. A. Abdoo, Chairman of the Board,
President and Chief Executive Officer
/s/ J. G. Remmel
--------------------------------------
Date: November 10, 1995 J. G. Remmel, Vice President
and Treasurer - Principal Financial
Officer
- 17 -
<PAGE> 18
WISCONSIN ENERGY CORPORATION
----------------------------
EXHIBIT INDEX
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 1995
Exhibit
Number
- -------
The following Exhibit is filed with this report:
(27)-1 Wisconsin Energy Corporation ("WEC or Wisconsin Energy") Financial
Data Schedule for the nine months ended September 30, 1995.
The following Exhibits are incorporated herein by reference:
(2)-1 Amended and Restated Agreement and Plan of Merger, dated as of
April 28, 1995, as amended and restated as of July 26, 1995,
by and among Northern States Power Company, Wisconsin
Energy Corporation, Northern Power Wisconsin Corp. and WEC Sub
Corp. (Exhibit (2)-1 to WEC's Registration Statement on Form
S-4 filed on August 7, 1995, Registration No. 33-61619 ("Form
S-4, No. 33-61619").)
(3)-1 Bylaws of WEC, as amended and restated July 26, 1995.
(Exhibit (3)-2 to Form S-4, No. 33-61619.)
- 18 -
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED FINANCIAL STATEMENTS OF WISCONSIN ENERGY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<PERIOD-TYPE> 9-MOS
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,878,917
<OTHER-PROPERTY-AND-INVEST> 638,853
<TOTAL-CURRENT-ASSETS> 469,826
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 467,664
<TOTAL-ASSETS> 4,455,260
<COMMON> 1,104
<CAPITAL-SURPLUS-PAID-IN> 664,039
<RETAINED-EARNINGS> 1,172,385
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,837,528
0
30,451
<LONG-TERM-DEBT-NET> 1,041,120
<SHORT-TERM-NOTES> 106,709
<LONG-TERM-NOTES-PAYABLE> 189,825
<COMMERCIAL-PAPER-OBLIGATIONS> 104,781
<LONG-TERM-DEBT-CURRENT-PORT> 30,435
0
<CAPITAL-LEASE-OBLIGATIONS> 18,780
<LEASES-CURRENT> 20,828
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,074,803
<TOT-CAPITALIZATION-AND-LIAB> 4,455,260
<GROSS-OPERATING-REVENUE> 1,302,628
<INCOME-TAX-EXPENSE> 99,608
<OTHER-OPERATING-EXPENSES> 964,896
<TOTAL-OPERATING-EXPENSES> 1,064,504
<OPERATING-INCOME-LOSS> 238,124
<OTHER-INCOME-NET> 18,593
<INCOME-BEFORE-INTEREST-EXPEN> 256,717
<TOTAL-INTEREST-EXPENSE> 83,250
<NET-INCOME> 173,467
902
<EARNINGS-AVAILABLE-FOR-COMM> 172,565
<COMMON-STOCK-DIVIDENDS> 119,081
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 363,033
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 1.57
<FN>
See financial statements and footnotes in accompanying 10-Q.
</TABLE>
