SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
Commission Registrant; State of Incorporation IRS Employer
File Number Address; and Telephone Number Identification No.
----------- --------------------------------- ------------------
1-9057 WISCONSIN ENERGY CORPORATION 39-1391525
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2949
Milwaukee, WI 53201
(414) 221-2345
1-1245 WISCONSIN ELECTRIC POWER COMPANY 39-0476280
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2046
Milwaukee, WI 53201
(414) 221-2345
Indicate by check mark whether each 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 each
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 Registrant's classes of
common stock, as of the latest practicable date (August 2, 1999):
Wisconsin Energy Corporation Common Stock, $.01 Par Value,
117,174,724 shares outstanding.
Wisconsin Electric Power Company Common Stock, $10 Par Value,
33,289,327 shares outstanding.
Wisconsin Energy Corporation is
the sole holder of Wisconsin
Electric Power Company Common
Stock.
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
Item Page
- ---- ----
Introduction
Part I - Financial Information
------------------------------
1. Financial Statements
Wisconsin Energy
Consolidated Condensed Income Statement
Consolidated Condensed Balance Sheet
Consolidated Statement of Cash Flows
Wisconsin Electric
Condensed Income Statement
Condensed Balance Sheet
Statement of Cash Flows
Notes to Financial Statements of
Wisconsin Energy and Wisconsin Electric
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations for Wisconsin Energy and Wisconsin Electric
3. Quantitative and Qualitative Disclosures About Market Risk.
Part II - Other Information
---------------------------
1. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
5. Other Information
6. Exhibits and Reports on Form 8-K
Signatures
INTRODUCTION
Wisconsin Energy Corporation ("Wisconsin Energy" or the "Company") is a holding
company whose principal subsidiary is Wisconsin Electric Power Company
("Wisconsin Electric"), an electric, gas and steam utility. Unless qualified by
its context when used in this combined Form 10-Q, Wisconsin Energy refers to the
holding company and all of its subsidiaries. The unaudited interim financial
statements presented in this combined Form 10-Q report include the consolidated
statements of Wisconsin Energy as well as separate statements for Wisconsin
Electric. The unaudited statements have been prepared by Wisconsin Energy and
Wisconsin Electric pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Wisconsin Energy and Wisconsin Electric financial statements
should be read in conjunction with the financial statements and notes thereto
included in the companies' combined Annual Report on Form 10-K for the year
ended December 31, 1998. This combined Form 10-Q is separately filed by
Wisconsin Energy and Wisconsin Electric. Information contained herein relating
to any individual registrant is filed by such registrant on its own behalf.
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED INCOME STATEMENT
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ---------------
1999 1998 1999 1998
---- ---- ---- ----
Thousands of Dollars,
(Except Per Share Amounts)
Operating Revenues $539,008 $475,576 $1,095,725 $991,253
Operating Expenses
Fuel 94,209 80,207 164,944 154,108
Purchased power 53,041 41,463 102,701 79,283
Cost of gas sold 27,746 31,105 96,606 103,406
Other operation and maintenance 178,389 181,041 360,855 340,792
Depreciation and amortization 64,443 58,817 131,399 122,021
Property and revenue tax 19,149 15,160 36,873 31,276
------- ------- -------- -------
Total Operating Expenses 436,977 407,793 893,378 830,886
------- ------- -------- -------
Pretax Operating Income 102,031 67,783 202,347 160,367
Other Income and Deductions
Interest income 8,202 6,332 16,551 13,067
Allowance for other funds used
during construction 1,461 877 2,445 1,592
Other (8) (3,045) 4,438 1,165
------- ------- -------- -------
Total Other Income and Deductions 9,655 4,164 23,434 15,824
Interest Charges and Other
Interest expense 35,999 31,430 69,565 62,318
Allowance for borrowed funds used
during construction (2,405) (1,957) (4,305) (3,955)
Distributions on preferred securities
of subsidiary trust 3,425 - 3,653 -
Preferred dividend requirement
of subsidiary 300 300 601 601
------- ------- -------- -------
Total Interest Charges and Other 37,319 29,773 69,514 58,964
Income Taxes 25,464 13,320 53,853 39,325
------- ------- -------- -------
Net Income $48,903 $28,854 $102,414 $77,902
======= ======= ======== =======
Average Number of Shares of Common
Stock Outstanding (Thousands) 116,614 113,687 116,272 113,279
Earnings Per Share of Common Stock
(Basic and Diluted) $0.42 $0.25 $0.88 $ 0.69
Dividends Per Share of Common Stock $0.39 $0.39 $0.78 $0.775
The accompanying notes as they relate to Wisconsin Energy Corporation are an
integral part of these financial statements.
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
June 30, December 31,
1999 1998
-------- ------------
(Thousands of Dollars)
Assets
------
Property, Plant and Equipment
Electric utility $5,019,760 $4,900,836
Gas utility 532,298 523,187
Steam utility 62,934 62,832
Common utility 386,885 420,750
Non-utility plant 219,928 -
Other property 293,838 256,912
Accumulated provision for depreciation (3,111,319) (3,021,548)
---------- ----------
3,404,324 3,142,969
Construction work in progress 170,121 135,544
Leased facilities - net 130,167 133,007
Nuclear fuel - net 94,373 87,660
---------- ----------
Net Property, Plant and Equipment 3,798,985 3,499,180
Investments 864,800 795,676
Current Assets
Cash and cash equivalents 35,369 16,603
Accounts receivable 213,783 190,103
Accrued utility revenues 92,099 130,518
Materials, supplies and fossil fuel 209,852 199,052
Prepayments and other assets 79,988 71,843
---------- ----------
Total Current Assets 631,091 608,119
Deferred Charges and Other Assets
Accumulated deferred income taxes 206,010 199,372
Other 315,691 259,410
---------- ----------
Total Deferred Charges and Other Assets 521,701 458,782
---------- ----------
Total Assets $5,816,577 $5,361,757
========== ==========
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $797,199 $760,351
Retained earnings 1,155,903 1,144,092
Unearned compensation - restricted stock award (1,195) (1,338)
----------- ----------
Total Common Stock Equity 1,951,907 1,903,105
Preferred stock 30,450 30,450
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the Company 200,000 -
Long-term debt 1,979,368 1,749,024
----------- ----------
Total Capitalization 4,161,725 3,682,579
Current Liabilities
Long-term debt due currently 129,989 119,140
Short-term debt 273,853 286,859
Accounts payable 162,182 187,452
Accrued liabilities 87,720 88,510
Other 64,802 53,219
---------- ----------
Total Current Liabilities 718,546 735,180
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 582,080 570,750
Other 354,226 373,248
---------- ----------
Total Deferred Credits and Other
Liabilities 936,306 943,998
---------- ----------
Total Capitalization and Liabilities $5,816,577 $5,361,757
========== ==========
The accompanying notes as they relate to Wisconsin Energy Corporation
are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended June 30
------------------------
1999 1998
---- ----
(Thousands of Dollars)
Operating Activities
Net income $102,414 $77,902
Reconciliation to cash
Depreciation and amortization 131,399 122,021
Nuclear fuel expense - amortization 11,843 6,465
Conservation expense - amortization 11,249 11,249
Debt premium, discount &
expense - amortization 1,702 2,266
Deferred income taxes - net (4,741) 4,341
Investment tax credit - net (2,296) (2,350)
Allowance for other funds used
during construction (2,445) (1,592)
Change in - Accounts receivable (23,680) (8,085)
Inventories 14,920 10,819
Accounts payable (25,270) (7,193)
Other current assets 30,274 26,837
Other current liabilities 10,793 1,395
Other (27,415) 10,611
--------- ---------
Cash Provided by Operating Activities 228,747 254,686
Investing Activities
Construction expenditures (237,256) (170,703)
Acquisition of power plants (276,792) -
Allowance for borrowed funds used
during construction (4,305) (3,955)
Nuclear fuel (10,945) 20,283
Nuclear decommissioning trust (18,718) (17,912)
Other (24,685) (2,634)
--------- ---------
Cash Used in Investing Activities (572,701) (174,921)
Financing Activities
Sale of - Common stock 36,848 61
Long-term debt 254,207 184,687
Mandatorily redeemable trust
preferred securities - net 193,700 -
Retirement of long-term debt (18,427) (16,198)
Change in short-term debt (13,006) (166,349)
Dividends on stock - Common (90,602) (87,471)
--------- ---------
Cash Provided by (Used in) Financing Activities 362,720 (85,270)
--------- ---------
Change in Cash and Cash Equivalents 18,766 (5,505)
Cash and Cash Equivalents at Beginning of Period 16,603 19,607
--------- ---------
Cash and Cash Equivalents at End of Period $35,369 $14,102
======= =======
Supplemental Information - Cash Paid For
Interest (net of amount capitalized) $72,389 $64,778
Income taxes 66,796 49,213
The accompanying notes as they relate to Wisconsin Energy Corporation
are an integral part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED INCOME STATEMENT
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
----------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
(Thousands of Dollars)
Operating Revenues $469,906 $461,771 $997,745 $972,452
Operating Expenses
Fuel 75,305 80,201 146,040 154,102
Purchased power 33,964 35,799 65,017 72,390
Cost of gas sold 27,746 31,105 96,606 103,406
Other operation and maintenance 163,182 174,489 336,634 330,285
Depreciation and amortization 60,167 56,970 124,617 119,243
Property and revenue tax 16,779 14,607 33,610 30,383
-------- -------- -------- --------
Total Operating Expenses 377,143 393,171 802,524 809,809
-------- -------- -------- --------
Pretax Operating Income 92,763 68,600 195,221 162,643
Other Income and Deductions
Interest income 5,559 5,562 11,231 11,020
Allowance for other funds used
during construction 1,461 877 2,445 1,592
Other 1,945 (1,245) 7,469 4,133
-------- -------- -------- --------
Total Other Income and Deductions 8,965 5,194 21,145 16,745
Interest Charges
Interest expense 28,452 27,840 56,849 55,952
Allowance for borrowed funds used
during construction (718) (446) (1,199) (821)
-------- -------- -------- --------
Total Interest Charges 27,734 27,394 55,650 55,131
Income Taxes 25,562 15,029 56,323 42,590
-------- -------- -------- --------
Net Income 48,432 31,371 104,393 81,667
Preferred Stock Dividend Requirement 300 300 601 601
-------- -------- -------- --------
Earnings Available for Common
Stockholder $48,132 $31,071 $103,792 $81,066
======= ======= ======== =======
Note: Earnings and dividends per share of common stock are not applicable
because all of Wisconsin Electric Power Company's common stock is
owned by Wisconsin Energy Corporation.
The accompanying notes as they relate to Wisconsin Electric Power Company are
an integral part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED BALANCE SHEET
(Unaudited)
June 30, December 31,
1999 1998
-------- ------------
(Thousands of dollars)
Assets
------
Property, Plant and Equipment
Electric utility $4,939,126 $4,820,239
Gas utility 532,298 523,187
Steam utility 62,934 62,832
Common utility 386,885 420,750
Other property 7,376 7,511
Accumulated provision for depreciation (3,059,402) (2,975,749)
---------- ----------
2,869,217 2,858,770
Construction work in progress 129,834 109,412
Leased facilities - net 130,167 133,007
Nuclear fuel - net 94,373 87,660
---------- ----------
Net Property, Plant and Equipment 3,223,591 3,188,849
Investments 616,489 573,859
Current Assets
Cash and cash equivalents 11,528 14,183
Accounts receivable 165,807 166,648
Accrued utility revenues 91,134 129,463
Materials, supplies and fossil fuel 180,325 198,015
Prepayments and other assets 62,726 59,813
---------- ----------
Total Current Assets 511,520 568,122
Deferred Charges and Other Assets
Accumulated deferred income taxes 196,400 190,114
Other 257,087 247,998
---------- ----------
Total Deferred Charges and Other Assets 453,487 438,112
---------- ----------
Total Assets $4,805,087 $4,768,942
========== ==========
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $713,582 $713,582
Retained earnings 998,903 984,896
---------- ----------
Total Common Stock Equity 1,712,485 1,698,478
Preferred stock 30,450 30,450
Long-term debt 1,525,250 1,512,531
---------- ----------
Total Capitalization 3,268,185 3,241,459
Current Liabilities
Long-term debt due currently 119,253 112,454
Short-term debt 240,215 219,289
Accounts payable 141,967 169,503
Accrued liabilities 83,313 80,908
Other 60,403 46,574
---------- ----------
Total Current Liabilities 645,151 628,728
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 570,847 559,574
Other 320,904 339,181
---------- ----------
Total Deferred Credits and Other
Liabilities 891,751 898,755
---------- ----------
Total Capitalization and Liabilities $4,805,087 $4,768,942
========== ==========
The accompanying notes as they relate to Wisconsin Electric Power Company
are an integral part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY
STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended June 30
------------------------
1999 1998
---- ----
(Thousands of Dollars)
Operating Activities
Net income $104,393 $81,667
Reconciliation to cash
Depreciation and amortization 124,617 119,243
Nuclear fuel expense - amortization 11,843 6,465
Conservation expense - amortization 11,249 11,249
Debt premium, discount &
expense - amortization 1,340 2,066
Deferred income taxes - net (4,757) 4,359
Investment tax credit - net (2,263) (2,345)
Allowance for other funds used
during construction (2,445) (1,592)
Change in - Accounts receivable 841 (4,561)
Inventories 17,690 10,854
Accounts payable (27,536) (5,624)
Other current assets 35,416 34,337
Other current liabilities 16,234 2,889
Other (17,477) 40,087
--------- ---------
Cash Provided by Operating Activities 269,145 299,094
Investing Activities
Construction expenditures (183,234) (148,058)
Allowance for borrowed funds used
during construction (1,199) (821)
Nuclear fuel (10,945) 20,283
Nuclear decommissioning trust (18,718) (17,912)
Other (5,604) (180)
--------- ---------
Cash Used in Investing Activities (219,700) (146,688)
Financing Activities
Sale of long-term debt 29,444 147,903
Retirement of long-term debt (12,083) (7,145)
Change in short-term debt 20,926 (205,161)
Dividends on stock - Common (89,786) (89,215)
Preferred (601) (601)
--------- ---------
Cash Used in Financing Activities (52,100) (154,219)
--------- ---------
Change in Cash and Cash Equivalents (2,655) (1,813)
Cash and Cash Equivalents at Beginning of Period 14,183 10,100
------- ------
Cash and Cash Equivalents at End of Period $11,528 $8,287
======= ======
Supplemental Information - Cash Paid For
Interest (net of amount capitalized) $64,046 $61,716
Income taxes 62,136 48,273
The accompanying notes as they relate to Wisconsin Electric Power
Company are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited consolidated financial statements for Wisconsin
Energy Corporation and the unaudited financial statements for Wisconsin
Electric Power Company should be read in conjunction with the companies'
combined 1998 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 Wisconsin
Energy and Wisconsin Electric, have been included in the accompanying
income statements and balance sheets. The results of operations for the
six months ended June 30, 1999 are not, however, necessarily indicative of
the results which may be expected for the year 1999 because of seasonal and
other factors.
2. Due to recent acquisitions by Wisconsin Energy, described below in Note 4,
that have increased the size of Wisconsin Energy's non-utility operations
and assets, Wisconsin Energy has modified its income statement and balance
sheet presentations. The primary income statement modification includes
reclassifying the results of non-utility operations from Other Income and
Deductions to the various lines within operating income. This modification
does not change net income. The primary balance sheet modification
includes reclassifying non-utility property, plant and equipment and
related accumulated provision for depreciation from Investments to
inclusion with utility Property, Plant and Equipment. Prior year financial
statements have been reclassified to the current year presentation of non-
utility results of operations and financial position.
3. Effective May 31, 1998, Wisconsin Energy acquired ESELCO, Inc. ("ESELCO") in
a tax-free reorganization accounted for as a pooling of interests. Due to
the immaterial nature of the transaction, Wisconsin Energy has not restated
any historical financial or statistical information. Instead, Wisconsin
Energy combined ESELCO's May 31, 1998 balance sheet with Wisconsin
Energy's. For additional information, see Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations in Part I of
this report.
4. In April 1999, Wisvest-Connecticut, LLC, a wholly owned subsidiary of
Wisvest Corporation which is in turn a wholly owned subsidiary of Wisconsin
Energy, acquired two fossil-fueled power plants in the State of Connecticut
for $277 million from The United Illuminating Company, an unaffiliated
investor-owned utility in New Haven, Connecticut. Pursuant to the
agreement, Wisvest-Connecticut, LLC purchased the Bridgeport Harbor
Station, which has an active generating capacity of 590 megawatts, as well
as the New Haven Harbor Station, which has an active generating capacity of
466 megawatts. Wisvest-Connecticut, LLC financed the acquisition through
the issuance of $195 million of long-term, nonrecourse notes; an equity
contribution of $105 million from Wisconsin Energy; $30 million of working
capital arrangements and a $25 million letter of credit facility.
Wisvest-Connecticut, LLC has entered into an interest rate swap agreement to
exchange fixed rate payment obligations for variable rate receipt rights
without exchanging the underlying notional amounts. This agreement, which
expires on December 31, 2005, serves to convert variable rate debt under
Wisvest-Connecticut, LLC's long-term nonrecourse notes to fixed rate debt
to reduce the impact of interest rate fluctuations. See Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - "Factors Affecting Results of Operations" in Part I of this
report for further information.
5. Wisconsin Energy, a holding company with subsidiaries in utility and non-
utility businesses, has two reportable operating segments. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly in deciding
how to allocate resources or in assessing performance. Wisconsin Energy's
reportable operating segments include a utility segment and a non-utility
segment. Wisconsin Energy has changed its reportable operating segments as
of June 30, 1999 as a result of a material increase in non-utility energy
assets and revenues. This increase is due to the acquisition of generating
assets from The United Illuminating Company as described in Note 4 above.
The reportable utility segment includes Wisconsin Energy's two utility
subsidiaries, Wisconsin Electric Power Company and Edison Sault Electric
Company. This segment derives its revenues from electric, gas and steam
operations. Electric operations engage in the generation, transmission,
distribution and sale of electric energy in southeastern (including
Metropolitan Milwaukee), east central and northern Wisconsin and in the
Upper Peninsula of Michigan. Gas operations engage in the purchase,
distribution and sale of natural gas to retail customers and the
transportation of customer-owned gas in four service areas in southeastern,
east central, western and northern Wisconsin. Steam operations engage in
the production, distribution and sale of steam to space heating and
processing customers in the Milwaukee area.
The reportable non-utility segment derives its revenues from energy
activities including independent power production and energy marketing,
services and trading.
The following table summarizes the reportable operating segments of Wisconsin
Energy.
<TABLE>
<CAPTION>
Energy
------------------------------
Wisconsin Energy Utility Non-Utility Subtotal Other (a) Total
---------------- ------- ----------- -------- --------- -----
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Three Months Ended June 30, 1999
Operating Revenues $477,899 $55,750 $533,649 $5,359 $539,008
Pretax Operating Income (Loss) (b) 94,669 8,305 102,974 (943) 102,031
Six Months Ended June 30, 1999
Operating Revenues $1,014,619 $69,789 $1,084,408 $11,317 $1,095,725
Pretax Operating Income (Loss) (b) 198,985 4,324 203,309 (962) 202,347
Segment Assets at June 30, 1999 $4,877,513 $529,009 $5,406,522 $331,568 $5,738,090
Three Months Ended June 30, 1998
Operating Revenues $464,967 $6,244 $471,211 $4,365 $475,576
Pretax Operating Income (Loss) (b) 69,169 (272) 68,897 (1,114) 67,783
Six Months Ended June 30, 1998
Operating Revenues $975,649 $7,569 $983,218 $8,035 $991,253
Pretax Operating Income (Loss) (b) 163,212 (1,441) 161,771 (1,404) 160,367
Segment Assets at June 30, 1998 $4,670,435 $105,639 $4,776,074 $268,787 $5,044,861
(a) Other includes non-utility real estate investment and development and
non-utility investments in recycling technology.
(b) Income tax expense, interest income and interest expense are not
included in segment pretax operating income.
</TABLE>
Wisconsin Electric, Wisconsin Energy's principal subsidiary, has organized
its operating segments according to how it is currently regulated. Wisconsin
Electric's reportable operating segments include electric, gas and steam
utility segments.
The following table summarizes the reportable operating segments of Wisconsin
Electric.
<TABLE>
<CAPTION>
Wisconsin Electric Electric Gas Steam Total
------------------ -------- --- ----- -----
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Three Months Ended June 30, 1999
Operating Revenues (a) $416,437 $49,496 $3,973 $469,906
Pretax Operating Income (Loss) (b) 95,034 (2,062) (209) 92,763
Six Months Ended June 30, 1999
Operating Revenues (a) $814,111 $171,479 $12,155 $997,745
Pretax Operating Income (b) 167,554 25,208 2,459 195,221
Three Months Ended June 30, 1998
Operating Revenues (a) $405,540 $52,414 $3,817 $461,771
Pretax Operating Income (Loss) (b) 72,156 (3,175) (381) 68,600
Six Months Ended June 30, 1998
Operating Revenues (a) $789,180 $171,825 $11,447 $972,452
Pretax Operating Income (b) 139,258 20,579 2,806 162,643
(a) Wisconsin Electric accounts for intersegment revenues at a tariff rate
established by the Public Service Commission of Wisconsin ("PSCW").
Intersegment revenues are not material.
(b) Income tax expense, interest income and interest expense are not
recorded by segment to determine segment pretax operating income.
</TABLE>
6. In March 1999, WEC Capital Trust I, a Delaware business trust of which
Wisconsin Energy owns all of the outstanding common securities, issued
$200 million of 6.85% trust preferred securities to the public. The sole
asset of WEC Capital Trust I is $206 million of 6.85% junior subordinated
debentures due March 31, 2039, issued by Wisconsin Energy. The terms and
interest payments on these debentures correspond to the terms and
distributions on the trust preferred securities. Wisconsin Energy used the
proceeds from the sale of its junior subordinated debentures to fund a
capital contribution of approximately $105 million to Wisvest-Connecticut,
LLC for acquisition in mid-April 1999 of two fossil-fueled power plants
from The United Illuminating Company (see Note 4 above) and for repayment
of short-term borrowings. WEC Capital Trust I has been consolidated into
Wisconsin Energy's financial statements.
The interest payments, which are tax deductible by Wisconsin Energy, are
reflected as distributions on preferred securities of the subsidiary trust
in Wisconsin Energy's Consolidated Condensed Income Statement. Wisconsin
Energy may elect to defer interest payments on the debentures for up to 20
consecutive quarters, causing corresponding distributions on the trust
preferred securities to also be deferred. In case of a deferral, interest
and distributions will continue to accrue, along with quarterly compounding
interest on the deferred amounts.
Wisconsin Energy may redeem all or a portion of the debentures after
March 25, 2004, requiring an equal amount of trust preferred securities to
be redeemed at face value plus accrued and unpaid distributions. Wisconsin
Energy has entered into a limited guarantee of payment of distributions,
redemption payments and payments in liquidation with respect to the trust
preferred securities. This guarantee, when considered together with
Wisconsin Energy's obligations under the related debentures and indenture
and the applicable declaration of trust, provide a full and unconditional
guarantee by Wisconsin Energy of amounts due on the outstanding trust
preferred securities.
7. In July 1999, a jury decided against Wisconsin Electric and awarded the
plaintiffs $4.5 million as actual damages and $100 million in punitive
damages in a lawsuit alleging that Wisconsin Electric had placed
contaminated wastes at two sites in the City of West Allis, Wisconsin.
Wisconsin Electric is preparing to file post trial motions in August 1999
on the grounds that the jury verdict is not supported by the evidence or
the law and that the award of punitive damages was unwarranted and, in the
opinion of management based in part on the advice of legal counsel, should
be reversed. As such, Wisconsin Electric has recorded no reserve for
potential damages from this suit. Post trial motions are scheduled to be
heard in October 1999. For further information, see Item 1. Legal
Proceedings - "Environmental Matters" in Part II of this report.
8. On June 27, 1999, Wisconsin Energy and WICOR, Inc., a Wisconsin corporation
("WICOR"), entered into an Agreement and Plan of Merger providing for a
strategic business combination of Wisconsin Energy and WICOR. The
transaction is intended to qualify as a tax-free reorganization to the
extent that shares of Wisconsin Energy Common Stock are issued in the
merger and will be accounted for as a purchase transaction. The merger
agreement has been approved by the boards of directors of Wisconsin Energy
and WICOR. Consummation of the merger is subject to the satisfaction of
certain closing conditions including approval by the shareholders of
Wisconsin Energy and WICOR and by federal and state regulators. The
regulatory approval process is expected to be completed in time for the
transaction to be consummated by the Spring of 2000.
Under the terms of the merger agreement, Wisconsin Energy will acquire all
of the outstanding shares of WICOR Common Stock for a fixed price of $31.50
for each WICOR share. At least 40% of the price will be paid in Wisconsin
Energy Common Stock, and Wisconsin Energy has the option to increase the
percentage to 60%; the balance will be paid in cash. The exchange ratio
for the Wisconsin Energy Common Stock will be set based upon the average
closing prices of Wisconsin Energy stock immediately prior to closing. If
the average is less than $22.00 per share, Wisconsin Energy may elect to
pay all cash. Each WICOR shareholder will be able to elect to receive
cash, stock, or a combination thereof, subject to proration.
For additional information, see Item 5. Other Information - "Merger
Agreement With WICOR, Inc." in Part II of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wisconsin Energy Corporation is a holding company whose principal subsidiary is
Wisconsin Electric Power Company, an electric, gas and steam utility. Unless
qualified by their context, the terms "Wisconsin Energy" or the "Company", refer
to the holding company and all of its subsidiaries when used in this document.
During the first six months of 1999, approximately 91% of Wisconsin Energy's
consolidated operating revenues and 96% of Wisconsin Energy's consolidated
pretax operating income were attributable to Wisconsin Electric. As of June 30,
1999, approximately 83% of Wisconsin Energy's consolidated total assets were
attributable to Wisconsin Electric. The following discussion and analysis of
financial condition and results of operations includes both Wisconsin Energy and
Wisconsin Electric unless otherwise stated.
See Note 2 above in Item 1. Financial Statements - "Notes to Financial
Statements" for information concerning the reclassification of certain amounts
in Wisconsin Energy's prior year financial statements to the current year
presentation of non-utility operations.
CAUTIONARY FACTORS: A number of forward-looking statements are included in
this document. When used, the terms "anticipate," "believe," "estimate,"
"expect," "objective," "plan," "possible," "potential," "project" and similar
expressions are intended to identify forward-looking statements. Forward-
looking statements are subject to certain risks, uncertainties and assumptions
which could cause actual results to differ materially from those that are
described, including the factors that are noted in "Factors Affecting Results of
Operations" and "Cautionary Factors" below.
ACQUISITION OF ESELCO, INC.: Effective May 31, 1998, Wisconsin Energy acquired
ESELCO in a tax-free reorganization accounted for as a pooling of interests.
Due to the immaterial nature of the transaction, Wisconsin Energy has not
restated any historical financial or statistical information. For additional
information, see Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - "Factors Affecting Results of Operations"
in Part II of Wisconsin Energy's and Wisconsin Electric's combined Annual Report
on Form 10-K for the year ended December 31, 1998.
ESELCO was the parent company of Edison Sault Electric Company ("Edison Sault"),
an electric utility which serves approximately 21,000 residential, commercial
and industrial customers in Michigan's eastern Upper Peninsula. Where
appropriate, discussions as well as financial or statistical information of
Wisconsin Energy include Edison Sault's operations since June 1, 1998.
RESULTS OF OPERATIONS - 1999 SECOND QUARTER
EARNINGS
During the second quarter of 1999, Wisconsin Energy's consolidated net income
and earnings per share of common stock were $49 million and $0.42, respectively,
compared to $29 million and $0.25, respectively, during the second quarter of
1998. For the same periods, Wisconsin Electric's earnings increased to
$48 million during 1999 compared to $31 million during 1998. A summary of
contributions to Wisconsin Energy's earnings per share (basic and diluted) as
well as a review of operating results during the comparative periods by the
utility and non-utility business segments follows.
Three Months Ended June 30
--------------------------
Earnings Per Share - Wisconsin Energy 1999 1998 % Change
------------------------------------- ---- ---- --------
Utility Operations $0.421 $0.275 53.1%
Non-Utility Operations
Energy 0.022 (0.008) 375.0%
Other (0.024) (0.013) (84.6%)
------- -------
Total $0.419 $0.254 65.0%
======= =======
UTILITY OPERATING RESULTS
During the second quarter of 1999, Wisconsin Energy's pretax utility operating
income increased $26 million or 36.9% and Wisconsin Electric's pretax operating
income increased $24 million or 35.2%. An increase in electric utility gross
margin as well as lower other operation and maintenance expenses contributed in
large part to these increases compared to the second quarter of 1998.
Electric Utility Revenues, Gross Margins and Sales
WISCONSIN ENERGY: Primarily due to an increase in total electric kilowatt-hour
sales, total electric operating revenues increased by $16 million or 3.8% during
the second quarter of 1999 compared to the second quarter of 1998. The gross
margin on electric operating revenues (electric operating revenues less fuel and
purchased power expenses) increased by $21 million or 7.1%. The following table
summarizes Wisconsin Energy's total electric operating revenues, gross margin
and electric kilowatt-hour sales during the second quarters of 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended June 30
--------------------------
Electric Utility Operations-Wisconsin Energy 1999 1998 % Change
---------------------------------------------- ---- ---- --------
<S> <C> <C> <C>
Electric Gross Margin ($000)
Electric Operating Revenues $424,395 $408,737 3.8%
Fuel & Purchased Power 112,453 117,456 (4.3%)
-------- --------
Gross Margin $311,942 $291,281 7.1%
======== ========
Total Electric Sales (Megawatt-hours) 7,786,654 7,213,018 8.0%
The following discussion reflects Wisconsin Electric's contribution to Wisconsin
Energy's second quarter electric utility revenues, gross margin and sales.
WISCONSIN ELECTRIC: Wisconsin Electric's total electric operating revenues
increased by $11 million or 2.7% during the second quarter of 1999 compared to
the second quarter of 1998, and the gross margin on electric operating revenues
increased by $18 million or 6.1%. Wisconsin Electric attributes these increases
to lower fuel and purchased power expenses and to an increase in total electric
kilowatt-hour sales during the second quarter of 1999.
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30
--------------------------
Electric Utility Operations-Wisconsin Electric 1999 1998 % Change
---- ---- --------
<S> <C> <C> <C>
Electric Gross Margin ($000)
Electric Operating Revenues $416,437 $405,540 2.7%
Fuel & Purchased Power 109,269 116,000 (5.8%)
-------- --------
Gross Margin $307,168 $289,540 6.1%
======== ========
</TABLE>
As a result of higher availability of low cost generation during the second
quarter of 1999, especially at its Point Beach Nuclear Plant, Wisconsin Electric
reduced its total fuel and purchased power expenses by $7 million or 5.8%
compared to the second quarter of 1998. Even with higher electric sales noted
below and a 12% increase in net generation, Wisconsin Electric was able to
substitute lower cost per unit generation during the three months ended June 30,
1999 for the higher cost per unit generation and power purchases used to meet
its demand for electric energy during the three months ended June 30, 1998.
During the second quarter of 1999, Wisconsin Electric reduced its fuel costs by
6.1%, its megawatt-hours of power purchases by 23.4% and its purchased power
expenses by 5.1% compared to the same period during 1998.
Wisconsin Electric's total electric sales increased 6.9% between the comparative
periods.
<TABLE>
<CAPTION>
Three Months Ended June 30
--------------------------
Electric Utility Operations - Wisconsin Electric 1999 1998 % Change
------------------------------------------------ ---- ---- --------
<S> <C> <C> <C>
Electric Sales (Megawatt-hours)
Residential 1,716,795 1,666,559 3.0%
Small Commercial/Industrial 1,957,467 1,898,768 3.1%
Large Commercial/Industrial 2,945,578 2,825,904 4.2%
Other-Retail/Municipal 313,631 324,390 (3.3%)
Resale-Utilities 704,485 432,002 63.1%
--------- ---------
Total Electric Sales 7,637,956 7,147,623 6.9%
========= =========
</TABLE>
Electric energy sales to the Empire and Tilden ore mines, Wisconsin Electric's
two largest electric retail customers, increased 12.6% during the second quarter
of 1999 compared to the second quarter of 1998. Excluding the Empire and Tilden
ore mines, total electric sales increased 6.4% and sales to the remaining large
commercial/industrial customers increased 2.0%. Sales for resale to other
utilities increased 63.1% primarily due to higher opportunity sales during the
second quarter of 1999.
Gas Utility Revenues, Gross Margins and Sales
Due to an increase in higher margin residential gas sales during the second
quarter of 1999, Wisconsin Electric's gross margin on gas operating revenues
(gas operating revenues less cost of gas sold) increased by $0.4 million or 2.1%
compared to the second quarter of 1998.
Three Months Ended June 30
-----------------------------
Gas Utility Operations-Wisconsin Electric 1999 1998 % Change
------------------------------------------ ---- ---- --------
Gas Gross Margin ($000)
Gas Operating Revenues $49,496 $52,414 (5.6%)
Cost of Gas Sold 27,746 31,105 (10.8%)
------- -------
Gross Margin $21,750 $21,309 2.1%
======= =======
Despite an increase in total gas sales, the cost of gas sold decreased by
$3 million or 10.8% during the second quarter of 1999 due to a decrease in the
per unit cost of purchased gas. Because changes in the cost of natural gas
purchased at market prices are included in customer rates through the purchased
gas adjustment mechanism, gas operating revenues change at the same rate as the
cost of gas sold and gross margin is unaffected by such changes.
The following table summarizes Wisconsin Electric's comparative gas sales and
total therm deliveries during the three months ended June 30, 1999 and 1998.
Three Months Ended June 30
-----------------------------
Gas Utility Operations-Wisconsin Electric 1999 1998 % Change
- ------------------------------------------- ---- ---- --------
Gas Deliveries (000's of Therms)
Residential 43,707 38,331 14.0%
Commercial/Industrial 26,583 28,634 (7.2%)
Interruptible 3,882 4,798 (19.1%)
------- -------
Total Gas Sales 74,172 71,763 3.4%
Transported Customer Owned Gas 75,561 82,991 (9.0%)
Other-Interdepartmental 17,482 26,662 (34.4%)
------- -------
Total Gas Deliveries 167,215 181,416 (7.8%)
======= =======
Between the comparative periods, total natural gas therm deliveries decreased
7.8% due to a significant decrease in deliveries of transported customer owned
gas and in interdepartmental deliveries. However, total retail gas sales
increased 3.4% during the second quarter of 1999 as a result of a 14.0% increase
in higher margin sales to residential customers. Residential sales increased
due to a combination of an increase in the number of residential customers and
an increase in sales per residential customer.
During the second quarter of 1999, a 28.1% decrease in therm deliveries to the
Whitewater Cogeneration Facility, owned by an unaffiliated independent power
producer, contributed to much of the 9.0% decrease in transported customer owned
gas deliveries. The Whitewater Cogeneration Facility, a gas-fired electric
cogeneration plant, went into commercial operation in September 1997. Wisconsin
Electric purchases the majority of the electricity generated by the Whitewater
Cogeneration Facility under a long-term power purchase contract. Also during
the second three months of 1999, total interdepartmental therm deliveries
decreased 34.4%. Most interdepartmental therm deliveries are to company-owned,
gas-fired generating facilities. As noted above, higher availability of
company-owned, low cost generation during the second quarter of 1999, especially
at Point Beach Nuclear Plant, allowed Wisconsin Electric to change its power
supply mix during the second quarter of 1999 away from higher cost per unit
power purchases from the Whitewater Cogeneration Facility and away from higher
cost per unit company-owned, gas-fired generating facilities. Excluding
deliveries to the Whitewater Cogeneration Facility as well as total
interdepartmental therm deliveries, total gas deliveries increased 0.6%
during the three months ended June 30, 1999 compared to the same period in 1998.
Weather was not a factor between the comparative periods. As measured by
heating degree days, the second quarter of 1999 was only 0.1% colder than the
second quarter of 1998. However the second quarters of 1999 and 1998 were both
significantly warmer than normal.
Utility Operating Expenses
OTHER OPERATIONS AND MAINTENANCE: Compared to the second quarter of 1998,
other operation and maintenance expenses in Wisconsin Energy's utility business
segment decreased by $10 million or 6.0% during the second quarter of 1999,
including an $11 million or 6.5% decrease at Wisconsin Electric. At Wisconsin
Electric, nuclear non-fuel expenses decreased $21 million while administrative
and general expenses increased $7 million and steam power generation expenses
increased $2 million. Administrative and general expenses increased during 1999
primarily as a result of efforts to prepare for Year 2000 technology issues,
various other corporate technology improvement efforts, and increased staffing.
For further information, see "Year 2000 Technology Issues" below in "Factors
Affecting Results of Operations." Steam power generation expenses increased
during 1999 as a result of an increase in the number of maintenance outages at
Wisconsin Electric's fossil-fuel power plants in anticipation of higher electric
demand during the summer of 1999.
DEPRECIATION AND AMORTIZATION: As a result of an increase in decommissioning
expenses at Wisconsin Electric due to higher decommissioning trust fund earnings
during the second quarter of 1999, Wisconsin Energy's utility depreciation and
amortization expense increased by $4 million or 6.6% and Wisconsin Electric's
depreciation and amortization increased by $3 million or 5.6% compared to the
second quarter of 1998.
NON-UTILITY OPERATING RESULTS
Primarily due to the mid-April 1999 acquisition of two fossil-fueled power
plants in the State of Connecticut by Wisvest-Connecticut, LLC, Wisconsin
Energy's pretax non-utility operating income increased by $9 million or 631.2%
during the second quarter of 1999 compared to the second quarter of 1998.
Three Months Ended June 30
-------------------------------
Non-Utility Operations ($000) 1999 1998 % Change
----------------------------- ---- ---- --------
Operating Revenues
Independent Power Production $36,097 $ - -
Energy Marketing, Trading & Services 16,776 4,100 309.2%
Other 8,236 6,509 26.5%
------- -------
Total Operating Revenues 61,109 10,609 476.0%
Operating Expenses
Fuel and Purchased Power 34,797 4,214 725.7%
Other 18,950 7,781 143.5%
------- -------
Total Operating Expenses 53,747 11,995 348.1%
------- -------
Pretax Operating Income $7,362 ($1,386) 631.2%
======= =======
For further information concerning Wisvest-Connecticut, LLC's recent power plant
acquisitions, see Item 1. Financial Statements - "Notes To Financial Statements"
in Part I of this report.
OPERATING REVENUES: Following their acquisition, operation of the Wisvest-
Connecticut, LLC power plants resulted in $36 million of operating revenues
during the second quarter of 1999 through the sale of 960,000 megawatt-hours of
net generation to customers in the New England region. Increased activity
during the second quarter of 1999 by Griffin Energy Marketing LLC, another
wholly owned subsidiary of Wisvest Corporation ("Griffin"), contributed to a
$13 million increase in operating revenues for energy marketing, trading and
services compared to the second quarter of 1998.
OPERATING EXPENSES: Fuel and purchased power expenses increased $31 million
during the second quarter of 1999 as a result of electric generation at Wisvest-
Connecticut, LLC's newly acquired power plants and increased activities by
Griffin. Other operating expenses increased $11 million primarily as a result
of operation of Wisvest-Connecticut, LLC's plants since mid-April 1999.
OTHER ITEMS
OTHER INCOME AND DEDUCTIONS: Due to the gain on the sale of certain properties
at Wisconsin Electric, Wisconsin Energy's and Wisconsin Electric's other net
other income and deductions increased by $3 million during the second quarter of
1999 compared to the second quarter of 1998.
INTEREST CHARGES AND OTHER: Wisconsin Energy's interest expense increased by
$5 million between the comparative periods of which $3 million is related to the
acquisition of the Wisvest-Connecticut, LLC power plants in mid-April 1999.
INCOME TAXES: Compared to the second quarter of 1999, Wisconsin Energy's
income taxes increased $12 million primarily due to increased pretax income at
Wisconsin Electric during the second quarter of 1999.
RESULTS OF OPERATIONS - 1999 YEAR-TO-DATE
EARNINGS
During the first half of 1999, Wisconsin Energy's consolidated net income and
earnings per share of common stock were $102 million and $0.88, respectively,
compared to $78 million and $0.69, respectively, during the first half of 1998.
For the same periods, Wisconsin Electric's earnings increased to $104 million
during 1999 compared to $81 million during 1998. A summary of contributions to
Wisconsin Energy's earnings per share (basic and diluted) as well as a review of
operating results during the comparative periods by the utility and non-utility
business segments follows.
Six Months Ended June 30
----------------------------
Earnings Per Share - Wisconsin Energy 1999 1998 % Change
------------------------------------- ---- ---- --------
Utility Operations $0.909 $0.718 26.6%
Non-Utility Operations
Energy (0.005) (0.017) 70.6%
Other (0.023) (0.013) (76.9%)
------- -------
Total $0.881 $0.688 28.1%
======= =======
UTILITY OPERATING RESULTS
During the first half of 1999, Wisconsin Energy's pretax utility operating
income increased $36 million or 21.9% and Wisconsin Electric's pretax operating
income increased $33 million or 20.0%. An increase in electric and gas utility
gross margins contributed in large part to these increases compared to the first
half of 1998.
Electric Utility Revenues, Gross Margins and Sales
WISCONSIN ENERGY: Primarily due to an increase in total 1999 electric
kilowatt-hour sales and, to a lesser extent, to a Wisconsin Electric retail
electric increase effective May 1, 1998 in the Wisconsin jurisdiction, total
electric operating revenues increased by $39 million or 4.9% during the first
half of 1999 compared to the first half of 1998. The gross margin on electric
operating revenues (electric operating revenues less fuel and purchased power
expenses) increased by $48 million or 8.6%. The following table summarizes
Wisconsin Energy's total electric operating revenues, gross margin and electric
kilowatt-hour sales during the first halves of 1999 and 1998.
Six Months Ended June 30
-------------------------------
Electric Utility Operations - Wisconsin Energy 1999 1998 % Change
- ---------------------------------------------- ---- ---- --------
Electric Gross Margin ($000)
Electric Operating Revenues $830,950 $792,376 4.9%
Fuel & Purchased Power 218,173 227,948 (4.3%)
-------- --------
Gross Margin $612,777 $564,428 8.6%
======== ========
Total Electric Sales (Megawatt-hours) 15,179,859 14,170,452 7.1%
The following discussion reflects Wisconsin Electric's contribution to Wisconsin
Energy's first half electric utility revenues, gross margin and sales.
WISCONSIN ELECTRIC: Compared to the first half of 1998, Wisconsin Electric's
total electric operating revenues increased by $25 million or 3.2% during the
first half of 1999 and the gross margin on electric operating revenues increased
by $40 million or 7.2%. Wisconsin Electric attributes these increases to lower
fuel and purchased power expenses, to an increase in total electric kilowatt-
hour sales during the first half of 1999 and, to a lesser extent, to a retail
electric increase, effective May 1, 1998 in the Wisconsin jurisdiction.
Six Months Ended June 30
---------------------------
Electric Utility Operations - Wisconsin Electric 1999 1998 % Change
----------------------------------------------- ---- ---- --------
Electric Gross Margin ($000)
Electric Operating Revenues $814,111 $789,180 3.2%
Fuel & Purchased Power 211,057 226,492 (6.8%)
-------- --------
Gross Margin $603,054 $562,688 7.2%
======== ========
As a result of the higher availability of lower cost generation during the first
half of 1999 noted above, especially at its Point Beach Nuclear Plant, Wisconsin
Electric reduced its total fuel and purchased power expenses by $15 million or
6.8% compared to the first half of 1998. Even with the higher electric sales
noted below and a 12% increase in net generation, Wisconsin Electric was able to
substitute lower cost per unit generation during the six months ended June 30,
1999 for the higher cost per unit generation and power purchases used to meet
its demand for electric energy during the six months ended June 30, 1998.
During the first half of 1999, Wisconsin Electric reduced its fuel costs by
5.2%, its megawatt-hours of power purchases by 23.7% and its purchased power
expenses by 10.2% compared to the same period during 1998.
Wisconsin Electric's total electric sales increased 5.4% between the comparative
periods.
<TABLE>
<CAPTION>
Six Months Ended June 30
------------------------
Electric Utility Operations - Wisconsin Electric 1999 1998 % Change
- ------------------------------------------------ ---- ---- --------
<S> <C> <C> <C>
Electric Sales (Megawatt-hours)
Residential 3,509,047 3,475,279 1.0%
Small Commercial/Industrial 3,905,902 3,744,137 4.3%
Large Commercial/Industrial 5,706,218 5,515,395 3.5%
Other-Retail/Municipal 622,871 651,112 (4.3%)
Resale-Utilities 1,119,984 719,134 55.7%
---------- ----------
Total Electric Sales 14,864,022 14,105,057 5.4%
========== ==========
</TABLE>
Electric energy sales to the Empire and Tilden ore mines increased 10.3% during
the first half of 1999 compared to the first half of 1998. Excluding the Empire
and Tilden ore mines, total electric sales increased 4.9% and sales to the
remaining large commercial/industrial customers increased 1.7%. Sales for
resale to other utilities increased 55.7% primarily due to higher opportunity
sales during the first half of 1999.
Gas Utility Revenues, Gross Margins and Sales
Due to an increase in higher margin gas sales during the first half of 1999,
Wisconsin Electric's gross margin on gas operating revenues (gas operating
revenues less cost of gas sold) increased by $6 million or 9.4% compared to the
first half of 1998.
Six Months Ended June 30
----------------------------
Gas Utility Operations - Wisconsin Electric 1999 1998 % Change
------------------------------------------- ---- ---- --------
Gas Gross Margin ($000)
Gas Operating Revenues $171,479 $171,825 (0.2%)
Cost of Gas Sold 96,606 103,406 (6.6%)
-------- --------
Gross Margin $ 74,873 $ 68,419 9.4%
======== ========
Despite an increase in total gas sales, the cost of gas sold decreased by
$7 million or 6.6% during the first half of 1999 due to a decrease in the per
unit cost of purchased gas. Because changes in the cost of natural gas
purchased at market prices are included in customer rates through the purchased
gas adjustment mechanism, gas operating revenues change at the same rate as the
cost of gas sold and gross margin is unaffected by such changes.
The following table summarizes Wisconsin Electric's comparative gas sales and
total therm deliveries during the six months ended June 30, 1999 and 1998.
Six Months Ended June 30
------------------------
Gas Utility Operations - Wisconsin Electric 1999 1998 % Change
- ------------------------------------------ ---- ---- --------
Gas Deliveries (000's of Therms)
Residential 195,441 172,160 13.5%
Commercial/Industrial 120,816 112,449 7.4%
Interruptible 10,495 12,509 (16.1%)
------- -------
Total Gas Sales 326,752 297,118 10.0%
Transported Customer Owned Gas 183,761 182,187 0.9%
Other - Interdepartmental 21,968 35,154 (37.5%)
------- -------
Total Gas Deliveries 532,481 514,459 3.5%
======= =======
Compared to the same period in 1998, total natural gas therm deliveries
increased 3.5% during the first half of 1999 due in part to colder winter
weather. As measured by heating degree days, the winter months of January
through March 1999 were 10.8% colder than the same period in 1998. However, the
winter months of 1999 were still 4.1% warmer than normal. Increased therm
deliveries during the first half of 1999 were primarily to residential and
commercial customers, who are more sensitive to weather variations and who
contribute higher margins to earnings than other customer classes.
During the first half of 1999, therm deliveries to the Whitewater Cogeneration
Facility, owned by an unaffiliated independent power producer, decreased 3.4%
compared to the first half of 1998. Also during the first six months of 1999,
total interdepartmental therm deliveries decreased 37.5%. As noted above,
higher availability of company-owned low cost generation during the first half
of 1999 allowed Wisconsin Electric to change its power supply mix during the
first half of 1999 away from higher cost per unit power purchases from the
Whitewater Cogeneration Facility and away from higher cost per unit company-
owned, gas-fired generating facilities. Excluding deliveries to the Whitewater
Cogeneration Facility as well as total interdepartmental therm deliveries, total
gas deliveries increased 7.4% during the six months ended June 30, 1999 compared
to the same period in 1998.
Utility Operating Expenses
OTHER OPERATIONS AND MAINTENANCE: Compared to the first half of 1998, other
operation and maintenance expenses in Wisconsin Energy's utility business
segment increased by $9 million or 2.7% during the first half of 1999, including
a $6 million or 1.9% increase at Wisconsin Electric. At Wisconsin Electric,
nuclear non-fuel expenses decreased $17 million while administrative and general
expenses increased $16 million and steam power generation expenses increased
$4 million. Administrative and general expenses increased during 1999 primarily
as a result of efforts to prepare for Year 2000 technology issues, various other
corporate technology improvement efforts, and increased staffing. For further
information, see "Year 2000 Technology Issues" below in "Factors Affecting
Results of Operations." Steam power generation expenses increased during 1999
as a result of an increase in the number of maintenance outages at Wisconsin
Electric's fossil-fuel power plants in anticipation of higher electric demand
during the summer of 1999.
DEPRECIATION AND AMORTIZATION: As a result of an increase in amortizable
software during 1999 at Wisconsin Electric, partially offset by a decrease in
decommissioning expenses at Wisconsin Electric due to lower decommissioning
trust fund earnings during the first half of 1999, depreciation and amortization
expense in Wisconsin Energy's utility business segment increased by $7 million
or 5.6% and Wisconsin Electric's depreciation and amortization increased by
$5 million or 4.5% compared to the first half of 1998.
NON-UTILITY OPERATING RESULTS
Primarily due to the mid-April 1999 acquisition of the two fossil-fueled power
plants in the State of Connecticut by Wisvest-Connecticut, LLC noted above,
Wisconsin Energy's pretax non-utility operating income increased by $6 million
or 218.2% during the first six months of 1999 compared to the first six months
of 1998.
Six Months Ended June 30
------------------------
Non-Utility Operations ($000) 1999 1998 % Change
----------------------------- ---- ---- --------
Operating Revenues
Independent Power Production $36,097 $ - -
Energy Marketing, Trading & Services 30,782 5,317 478.9%
Other 14,227 10,287 38.3%
------- -------
Total Operating Revenues 81,106 15,604 419.8%
Operating Expenses
Fuel and Purchased Power 49,472 5,444 808.7%
Other 28,272 13,005 117.4%
------- -------
Total Operating Expenses 77,744 18,449 321.4%
------- -------
Pretax Operating Income $ 3,362 ($2,845) 218.2%
======= =======
OPERATING REVENUES: Following their acquisition, operation of the Wisvest-
Connecticut, LLC power plants resulted in $36 million of operating revenues
during the first half of 1999 through the sale of 960,000 megawatt-hours of net
generation to customers in the New England region. Increased activity during
the first half of 1999 by Griffin contributed to a $25 million increase in
operating revenues for energy marketing, trading and services compared to the
first half of 1998.
OPERATING EXPENSES: Fuel and purchased power expenses increased $44 million
during the first half of 1999 as a result of electric generation at Wisvest-
Connecticut, LLC's newly acquired power plants and increased activities by
Griffin. Other operating expenses increased $15 million primarily as a result
of operation of Wisvest-Connecticut, LLC's plants since mid-April 1999.
OTHER ITEMS
OTHER INCOME AND DEDUCTIONS: Due to the gain on the sale of certain properties
at Wisconsin Electric, Wisconsin Energy's and Wisconsin Electric's other net
other income and deductions increased by $3 million during the first half of
1999 compared to the first half of 1998.
INTEREST CHARGES AND OTHER: Wisconsin Energy's interest expense increased by
$7 million between the comparative periods, of which $3 million was related to
the acquisition of the Wisvest-Connecticut, LLC power plants in mid-April 1999.
INCOME TAXES: Compared to the first half of 1999, Wisconsin Energy's income
taxes increased $14 million primarily due to increased pretax income at
Wisconsin Electric during the first half of 1999.
FACTORS AFFECTING RESULTS OF OPERATIONS
ETSM PROPERTY / CITY OF WEST ALLIS LAWSUITS
See Item 1. Legal Proceedings - "Environmental Matters" below in Part II of this
report for information concerning a July 1999 jury verdict against Wisconsin
Electric awarding the plaintiffs $4.5 million of actual damages and $100 million
in punitive damages in a lawsuit alleging that Wisconsin Electric had placed
contaminated wastes at two sites in the City of West Allis, Wisconsin.
INDUSTRY RESTRUCTURING AND COMPETITION
MPSC ELECTRIC RESTRUCTURING: In 1998, the Michigan Public Service Commission
("MPSC") continued to move toward implementation of direct access for retail
markets beginning on January 1, 2002. In February 1998, the MPSC issued an
order clarifying restructuring issues and directing Detroit Edison and Consumers
Energy, the two largest utilities in the State of Michigan, to file tariff
sheets and draft implementation plans for direct access. Following company
submittals in late February 1998, the MPSC staff held several public meetings to
discuss the plans with stakeholders. In June 1998, the two companies filed
revised implementation plans reflecting some of the issues raised during the
meetings. In June 1999, the Michigan Supreme Court ruled that the MPSC did not
have the authority to mandate direct access plans. Detroit Edison and Consumers
Energy have since indicated their willingness to proceed on a voluntary basis
with commencement of a phase-in of direct access in late 1999 that will result
in full access by January 1, 2002.
Following meetings with the MPSC staff and the opening of dockets to begin the
process of electric restructuring for smaller Michigan utilities, these smaller
utilities, including Wisconsin Electric and Edison Sault, filed proposals with
the MPSC for implementing retail direct access on January 1, 2002 without a
phase-in program. On February 2, 1999, the MPSC issued an order closing the
above dockets, citing the progress made to date. Issues requiring further
resolution will be the subject of future dockets for the smaller companies.
Following the Michigan Supreme Court decision noted above, the MPSC requested
that the smaller Michigan utilities provide comments in August 1999 on the court
decision and on implementation of direct access programs. The MPSC is expected
to address access programs for smaller utilities in late 1999.
RATES AND REGULATORY MATTERS
See Item 1. Legal Proceedings -"Rates and Regulatory Matters" in Part II of this
report for information concerning 1999 test year information for Wisconsin
Electric that was filed with the PSCW in July 1999 and for information
concerning the non-utility asset cap to which Wisconsin Energy is subject under
provisions of the State of Wisconsin's public utility holding company law.
YEAR 2000 TECHNOLOGY ISSUES
The Company is working to resolve the potential impact of the Year 2000 on its
ability to operate critical systems and to accurately process information that
may be date sensitive.
YEAR 2000 PROJECT: During 1997, the Company created Year 2000 program teams,
overseen by executives of the Company, to address its Year 2000 issues. The
teams, comprised of representatives with subject matter expertise, are
addressing business applications, voice and data infrastructure, process control
and embedded systems, and supplier readiness.
The Year 2000 teams are following a structured process of inventorying and
assessing potential Year 2000 problems, of remediating, testing, and certifying
Year 2000 readiness and of developing and implementing Year 2000 risk management
contingency plans. Although additional systems or processes may be identified
as the program winds down, the Company has substantially completed an inventory
of potential Year 2000 problems across all operating areas and completed its
assessment of critical areas in the fourth quarter of 1998. The remediation and
testing phases are currently in progress and contacts with critical third party
suppliers are ongoing. Based upon an initial assessment of critical supplier
Year 2000 readiness that was completed in the third quarter of 1998, the Company
is continuing to implement supplier risk mitigation actions. Contact with
significant customers to evaluate the potential impact of their Year 2000
actions on Wisconsin Energy will continue throughout 1999.
The Company has structured its Year 2000 program to identify, prioritize, and
address critical business functions within the Company. With the exception of
those projects that are dependent upon activities such as vendor delivery of
upgrades or scheduled power plant maintenance outages later in 1999, the
Company's core, critical business functions are "Year 2000 Ready." However,
additional refinements and testing will continue through the end of 1999. Based
upon the Nuclear Energy Institute's standard definition, which has been adopted
by Wisconsin Energy, "Year 2000 Ready" systems or applications will be suitable
for continued use into the Year 2000 even though the system or application may
not be fully "Year 2000 Compliant."
Wisconsin Electric participates in monthly reporting conducted by the North
American Electric Reliability Council ("NERC"). As of June 30, 1999, Wisconsin
Electric reported to NERC the readiness of those critical systems needed to
support the generation, transmission and distribution of electricity with minor
exceptions consisting of previously tested upgrades scheduled for implementation
during fall maintenance activities.
POTENTIAL RISKS AND CONTINGENCY PLANNING: The Company is continuing an ongoing
process of assessing potential Year 2000 risks and uncertainties. Internal and
external risks are included in the Company's assessment and identification of
mitigation strategies. Wisconsin Energy expects to successfully mitigate its
controllable internal Year 2000 problems.
For its core operation, Wisconsin Energy also relies upon third parties such as
other power providers to and operators of the integrated electric transmission
and distribution grid, fuel suppliers, producers of natural gas and suppliers of
interstate natural gas transportation services, and providers of external
infrastructure such as telecommunications, municipal sewer and water as well as
emergency services. Failure of these critical third parties to identify and
remediate their Year 2000 problems could have a material impact on the Company's
operation and financial condition. The Company's Year 2000 program is
structured to identify, assess and mitigate these third party risks where
possible. At this time, Wisconsin Energy believes that mitigation efforts will
be successful.
As part of its normal business practice, the Company maintains and periodically
initiates various contingency plans to maintain and restore its energy services
during emergency circumstances, some of which could arise from Year 2000 related
problems. During 1999, Wisconsin Energy is using this experience as a basis for
the development and implementation of Year 2000 related contingency and business
continuity plans. As part of this effort, the Company is coordinating its
Year 2000 readiness program with various trade associations and industry groups
and is working with the Mid-America Interconnected Network, Inc. ("MAIN"), NERC,
the Wisconsin Reliability Assessment Organization and the New England Pool
("NEPOOL") to develop and implement regional electric reliability contingency
plans. Wisconsin Electric is participating with other utilities in MAIN to
develop reasonably likely worst case scenarios for the region. Scenarios that
have been jointly identified and assessed are:
* Loss or unavailability of some generation.
* Partial loss of system monitoring and control functions, including data
communication.
* Partial loss of voice communications.
* Loss of transmission facilities.
* Loss of load and/or uncharacteristic loads.
Wisconsin Electric agrees with MAIN's assessment that the probability of these
scenarios occurring due to Year 2000 is not significantly in excess of normal
expectations. The Company's current operating and contingency plans are
expected to adequately handle the above scenarios. The Company is reviewing its
operating and contingency plans to identify further enhancements or updates
specifically addressing Year 2000 issues.
FINANCIAL IMPLICATIONS: Wisconsin Energy currently estimates that it will
incur $40 million of expenses during 1998 through 2000 for its Year 2000 program
of which $26 million has been incurred as of June 30, 1999. In addition, the
Company expects to capitalize costs of approximately $18 million to replace
certain existing infrastructure and process control systems of which $16 million
has been capitalized as of June 30, 1999.
For additional information concerning Year 2000 Technology Issues, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - "Factors Affecting Results of Operations" in Part II of Wisconsin
Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the
year ended December 31, 1998 and Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Factors Affecting Results of
Operations in Part I of Wisconsin Energy's and Wisconsin Electric's combined
quarterly Report on Form 10-Q for the period ended March 31, 1999.
The discussion above includes many forward looking statements concerning
potential schedules, plans, costs, risks and uncertainties facing Wisconsin
Energy as a result of the Year 2000 problem. Based upon its activities to date,
the Company expects to successfully implement the remaining actions necessary to
become "Year 2000 Ready" by the end of 1999. However, the Year 2000 problem has
many elements and potential consequences, some of which may not be reasonably
foreseeable, and there can be no assurances that every Year 2000 problem will be
identified and addressed or that unforeseen consequences will not arise.
Unanticipated factors while implementing the changes necessary to mitigate
Year 2000 problems, including the ongoing availability and costs of trained
personnel, the ability to locate and correct all relevant codes in computer and
embedded systems, or the failure of critical third parties to communicate about
and to mitigate their Year 2000 problems could result in unanticipated
interruptions in certain core business activities or operations of Wisconsin
Energy.
MARKET RISKS
INTEREST RATE RISK: Wisvest-Connecticut, LLC has entered into an interest rate
swap agreement to exchange fixed rate payment obligations for variable rate
receipt rights without exchanging the underlying notional amounts. This
agreement, which expires on December 31, 2005, serves to convert variable rate
debt under Wisvest-Connecticut, LLC's long-term nonrecourse notes to fixed rate
debt to reduce the impact of interest rate fluctuations. The variable rate debt
is based upon a three-month LIBOR rate; the fixed rated debt is 5.99%. The
notional amounts parallel a portion of the underlying debt levels and are used
to measure interest to be paid or received and do not represent the exposure to
credit loss. The notional amount of Wisvest-Connecticut, LLC's interest rate
swaps was $77.5 million at June 30, 1999. This notional amount decreases on a
quarterly basis over the remaining term of the agreement. The difference
between the amounts paid and received under the interest rate swap is accrued as
interest rates change and is recorded as an adjustment to interest expense over
the life of the hedged agreement.
The fair value of the interest rate swap is the amount that Wisvest-Connecticut,
LLC would receive or pay to terminate the outstanding contract at the reporting
date. Wisvest-Connecticut, LLC would have received $1.2 million to terminate
the contract at June 30, 1999. A 10% increase or decrease in the market value
of the swap would change this amount by approximately $0.1 million.
OUTLOOK
EARNINGS: Results during the first half of 1999 indicate that the Company is
on course to meet currently anticipated earnings in the range of $1.85 to $2.05
per share during 1999. This earnings forecast is a forward-looking statement
subject to certain risks, uncertainties and assumptions. Actual results may
materially vary. Factors that could cause actual results to differ materially
include, but are not limited to: business and competitive conditions in the
energy industry, in general, and in the Company's utility service territories;
availability of the Company's generating facilities; changes in purchased power
costs; and the economy, weather, the restructuring of the electric and gas
utility industries, and unforeseen problems with non-utility diversification
efforts. See "Cautionary Factors" below.
MERGER AGREEMENT WITH WICOR, INC.
On June 27, 1999, Wisconsin Energy and WICOR entered into an Agreement and Plan
of Merger providing for a strategic business combination of Wisconsin Energy and
WICOR. The transaction is intended to qualify as a tax-free reorganization to
the extent that shares of Wisconsin Energy Common Stock are issued in the merger
and will be accounted for as a purchase transaction. The merger agreement has
been approved by the boards of directors of Wisconsin Energy and WICOR.
Consummation of the merger is subject to the satisfaction of certain closing
conditions including approval by the shareholders of Wisconsin Energy and WICOR
and by federal and state regulators. The regulatory approval process is
expected to be completed in time for the transaction to be consummated by the
spring of 2000. For additional information, see Item 5. Other Information -
"Merger Agreement With WICOR, Inc." in Part II of this report.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES: Cash provided by operating activities totaled
$229 million at Wisconsin Energy and $269 million at Wisconsin Electric during
the first six months of 1999. This compares to $255 million at Wisconsin Energy
and $299 million at Wisconsin Electric during the same period in 1998.
INVESTING ACTIVITIES: Net investing activities totaled $573 million at
Wisconsin Energy and $220 million at Wisconsin Electric during the first half of
1999 compared to $175 million at Wisconsin Energy and $147 million at Wisconsin
Electric during the same period in 1998. In April 1999, Wisvest-Connecticut,
LLC completed the acquisition of two fossil-fueled power plants for $277 million
from The United Illuminating Company. For additional information, see the
"Notes To Financial Statements" above in Part I of this report. Remaining
investments during the first half of 1999 included $237 million for the
acquisition or construction of new or improved facilities of which $183 million
was for a number of projects related to utility plant at Wisconsin Electric.
During the first six months of 1999, Wisconsin Electric recorded $19 million of
payments to and earnings of the Nuclear Decommissioning Trust Fund for the
eventual decommissioning of Point Beach Nuclear Plant and $11 million for the
acquisition of nuclear fuel.
FINANCING ACTIVITIES: During the first half of 1999, Wisconsin Energy received
a net of $363 million through financing activities compared to using a net of
$85 million for financing activities during the first half of 1998. Wisconsin
Electric used a net of $52 million for financing activities during the first six
months of 1999 compared to using a net of $154 million for financing activities
during the first six months of 1998.
On March 25, 1999, WEC Capital Trust I, a Delaware business trust of which
Wisconsin Energy owns all of the outstanding common securities, issued
$200 million of 6.85% trust preferred securities due March 31, 2039. WEC
Capital Trust I used the proceeds from the sale of the trust preferred
securities to purchase corresponding junior subordinated debentures due
March 31, 2039 from Wisconsin Energy. Wisconsin Energy used the proceeds from
the sale of its junior subordinated debentures to fund a capital contribution of
approximately $105 million to Wisvest-Connecticut, LLC for acquisition in mid-
April 1999 of the two fossil-fueled power plants from The United Illuminating
Company and for repayment of short-term borrowings. For additional information
concerning the acquisition of The United Illuminating Company's electric
generating plants and related financing, see the "Notes To Financial Statements"
above in Part I of this report.
During the six months ended June 30, 1999, Wisconsin Energy issued 1,385,878 new
shares of common stock which were purchased by participants in the Company's
stock plans with cash investments and reinvested dividends aggregating
approximately $37 million.
CAPITAL REQUIREMENTS AND RESOURCES: Capital requirements for the remainder of
1999 are expected to be principally for construction expenditures and for other
investments, for long-term debt maturity and sinking fund requirements and for
payments to the Nuclear Decommissioning Trust Fund for the eventual
decommissioning of Point Beach Nuclear Plant. These cash requirements are
expected to be met through a combination of several of the following resources:
internal sources of funds from operations, short-term borrowings, the issuance
of intermediate or long-term debt, the issuance of additional trust preferred
securities, and proceeds from the sale of new issue common stock under Wisconsin
Energy's stock plans. Wisconsin Electric plans to issue up to $150 million of
debentures during the remainder of 1999.
Wisconsin Energy is reviewing additional non-utility growth opportunities on an
ongoing basis, primarily in the areas of power generation development and
acquisitions, waste to energy recycling technologies and real estate
investments. The Company may make further investments and/or acquisitions from
time to time.
With respect to the pending acquisition of WICOR, Inc., Wisconsin Energy plans
to fund the portion of the WICOR acquisition price not paid with Wisconsin
Energy Common Stock from bank borrowing arrangements or from securities to be
issued in the capital markets. The amount and timing of bank borrowings and
securities to be issued in the capital markets have not yet been determined.
For additional information concerning the merger with WICOR, see Item 5. Other
Information - "Merger Agreement with WICOR, Inc." in Part II of this report.
Wisconsin Electric currently has senior secured debt ratings of AA+ by Standard
& Poors Corporation ("S&P") and Duff & Phelps Inc. ("D&P"), Aa2 by Moody's
Investors Service ("Moody's") and AA by Fitch Investors Service ("Fitch"). In
addition, Wisconsin Electric currently has unsecured debt ratings of AA by S&P
and D&P, Aa3 by Moody's and AA- by Fitch. Wisconsin Electric's preferred stock
has ratings of AA- by S&P and Fitch, aa3 by Moody's and AA by D&P. Moody's has
assigned a rating on Wisconsin Energy Capital Corporation's unsecured debt of A1
and S&P an AA. Wisconsin Energy's and Wisconsin Electric's commercial paper are
rated A-1+ by S&P and P-1 by Moody's. D&P has rated Wisconsin Energy and
Wisconsin Electric commercial paper D-1 and D-1+, respectively. The Trust
Preferred securities of WEC Capital Trust I are rated A by D&P, a1 by Moody's
and A+ by S&P. Following the announcement of the proposed merger with WICOR,
D&P, Fitch and Moody's affirmed their previous ratings of Wisconsin Energy's and
Wisconsin Electric's securities and S&P placed its ratings of certain of
Wisconsin Energy's securities on credit watch with negative implications.
At June 30, 1999, Wisconsin Energy had $383 million of unused lines of bank
credit on a consolidated basis of which $128 million was at Wisconsin Electric.
Effective with the August 1999 renewal of its commercial paper agreement,
Wisconsin Energy's unused lines of bank credit totaled $433 million on a
consolidated basis with $128 million attributable to Wisconsin Electric.
For certain other information which may impact Wisconsin Energy's and Wisconsin
Electric's future financial condition or results of operations, see Item 1.
Financial Statements - "Notes to Financial Statements" in Part I of this report
as well as Item 1. Legal Proceedings and Item 5. Other Information in Part II
of this report.
CAUTIONARY FACTORS
This report and other documents or oral presentations contain or may contain
forward-looking statements made by or on behalf of Wisconsin Energy or Wisconsin
Electric. Such statements are based upon management's current expectations and
are subject to risks and uncertainties that could cause Wisconsin Energy's or
Wisconsin Electric's actual results to differ materially from those contemplated
in the statements. Readers are cautioned not to place undue reliance on the
forward-looking statements. When used in written documents or oral
presentations, the terms "anticipate," "believe," "estimate," "expect,"
"objective," "plan," "possible," "potential," "project" and similar expressions
are intended to identify forward-looking statements. In addition to the
assumptions and other factors referred to specifically in connection with such
statements, factors that could cause Wisconsin Energy's or Wisconsin Electric's
actual results to differ materially from those contemplated in any forward-
looking statements include, among others, the following:
OPERATING, FINANCIAL AND INDUSTRY FACTORS
* Factors affecting utility operations such as unusual weather conditions;
catastrophic weather-related damage; availability of Wisconsin Electric's,
Edison Sault's or Wisvest-Connecticut, LLC's generating facilities;
unscheduled generation outages, maintenance or repairs; unanticipated
changes in fossil fuel, nuclear fuel, purchased power, gas supply or water
supply costs or availability due to higher demand, shortages, transportation
problems or other developments; nonperformance by electric energy or natural
gas suppliers under existing power purchase or gas supply contracts; nuclear
or environmental incidents; resolution of spent nuclear fuel storage and
disposal issues; electric transmission or gas pipeline system constraints;
unanticipated organizational structure or key personnel changes; collective
bargaining agreements with union employees or work stoppages; inflation
rates; or demographic and economic factors affecting utility service
territories or operating environment.
* Regulatory factors such as unanticipated changes in rate-setting policies or
procedures; unanticipated changes in regulatory accounting policies and
practices; industry restructuring initiatives; transmission system operation
and/or administration initiatives; recovery of costs of previous investments
made under traditional regulation; required approvals for new construction;
changes in the United States Nuclear Regulatory Commission's regulations
related to Point Beach Nuclear Plant; changes in the United States
Environmental Protection Agency's as well as the Wisconsin or Michigan
Department of Natural Resources' regulations related to emissions from
fossil-fuel-fired power plants; or the siting approval process for new
generation and transmission facilities.
* The rapidly changing and increasingly competitive electric and gas utility
environment as market-based forces replace strict industry regulation and
other competitors enter the electric and gas markets resulting in increased
wholesale and retail competition.
* Consolidation of the industry as a result of the combination and acquisition
of utilities in the Midwest, nationally and globally.
* Restrictions imposed by various financing arrangements and regulatory
requirements on the ability of Wisconsin Electric or other subsidiaries to
transfer funds to Wisconsin Energy in the form of cash dividends, loans or
advances.
* Changes in social attitudes regarding the utility and power industries.
* Customer business conditions including demand for their products or services
and supply of labor and material used in creating their products and
services.
* The cost and other effects of legal and administrative proceedings,
settlements, and investigations, claims and changes in those matters.
* Factors affecting the availability or cost of capital such as changes in
interest rates; market perceptions of the utility industry, the Company or
any of its subsidiaries; or security ratings.
* Federal, state or local legislative factors such as changes in tax laws or
rates; changes in trade, monetary and fiscal policies, laws and regulations;
electric and gas industry restructuring initiatives; or changes in
environmental laws and regulations.
* Authoritative generally accepted accounting principle or policy changes from
such standard setting bodies as the Financial Accounting Standards Board and
the Securities and Exchange Commission.
* Unanticipated technological developments that result in competitive
disadvantages and create the potential for impairment of existing assets.
* Unanticipated developments while implementing the modifications necessary to
mitigate Year 2000 compliance problems, including the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes in computer and embedded systems, the indirect
impacts of third parties with whom the Company does business and who do not
mitigate their Year 2000 compliance problems, and similar uncertainties.
* Possible risks associated with non-utility diversification such as
competition; operating risks; dependence upon certain suppliers and
customers; the cyclical nature of property values that could affect real
estate investments; risks associated with international investments,
including foreign currency valuations; unanticipated changes in
environmental or energy regulations; timely regulatory approval without
onerous conditions of potential acquisitions; risks associated with minority
investments, where there is a limited ability to control the development,
management or operation of the project; and the risk of higher interest
costs associated with potentially reduced securities ratings by independent
rating agencies as a result of these and other factors.
* Legislative or regulatory restrictions or caps on non-utility acquisitions,
investments or projects, including the State of Wisconsin's public utility
holding company law, which could limit the Company's diversification and
growth opportunities or require the Company to divest of certain existing
non-utility assets.
* Factors affecting foreign non-utility operations including foreign
governmental actions; foreign economic and currency risks; political
instability; and unanticipated changes in foreign environmental or energy
regulations.
* Other business or investment considerations that may be disclosed from time
to time in Wisconsin Energy's or Wisconsin Electric's Securities and
Exchange Commission filings or in other publicly disseminated written
documents.
BUSINESS COMBINATION FACTORS
* Consummation of the merger with WICOR, which will have a significant effect
on the future operations and financial position of Wisconsin Energy.
Specific factors include:
* The ability to obtain the requisite approvals of shareholders.
* Regulatory delays or conditions imposed by regulatory bodies in
approving the merger, or adverse regulatory treatment of the merger.
* Unanticipated costs or difficulties related to the integration of the
businesses of Wisconsin Energy and WICOR, or unexpected difficulties or
delays in realizing anticipated net cost savings or receiving
regulatory authorization to retain the benefit of those savings for the
shareholders of the combined company.
* Legislative or regulatory restrictions or caps on non-utility
acquisitions, investments or projects, including Wisconsin's public
utility holding company law, which could limit Wisconsin Energy's or
WICOR's diversification and growth opportunities after the merger or
require Wisconsin Energy or WICOR to divest of certain existing non-
utility assets.
Wisconsin Energy and Wisconsin Electric undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For discussion of an interest rate swap agreement recently entered into by
Wisvest-Connecticut, LLC, see Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Factors Affecting Results of
Operations" in Part I above of this report. For information concerning
Wisconsin Energy's and Wisconsin Electric's other market risk exposures, see
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - "Factors Affecting Results of Operations - Market Risks" in
Part II of Wisconsin Energy's and Wisconsin Electric's combined Annual Report on
Form 10-K for the year ended December 31, 1998.
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
The following should be read in conjunction with Item 3. Legal Proceedings in
Part I of Wisconsin Energy's and Wisconsin Electric's combined Annual Report on
Form 10-K for the year ended December 31, 1998 and Item 1. Legal Proceedings in
Part II of Wisconsin Energy's and Wisconsin Electric's combined Quarterly Report
on Form 10-Q for the period ended March 31, 1999.
RATES AND REGULATORY MATTERS
2000 TEST YEAR: The Public Service Commission of Wisconsin requires that rate
cases be conducted once every two years. On July 6, 1999, Wisconsin Electric
provided the PSCW with its biennial year-end financial information for 1999 and
2000. In that filing, Wisconsin Electric is not seeking any changes in rates
for electric, natural gas or steam service. Also in that filing, Wisconsin
Electric indicated that by September 1, 1999, should any rate changes be
required, it will file rate changes incorporating performance-based measures and
incentives as an alternative to cost of service ratemaking.
NON-UTILITY ASSET CAP: Wisconsin Energy is subject to certain current
restrictions which may limit diversification into non-utility activities. Under
a formula included in the provisions of Wisconsin's public utility holding
company law, the sum of the assets of all non-utility affiliates in a holding
company system may not exceed 25% of the assets of all public utility
affiliates. Wisconsin Energy reports to the PSCW regarding the net book value
of its non-utility affiliates as of December 31 of each year. At December 31,
1998, the net book value of the assets of Wisconsin Energy's non-utility
affiliates was approximately 12% of the net book value of all of Wisconsin
Energy's electric utility affiliates. At June 30, 1999 (after acquisition of
the United Illuminating generating assets by Wisvest-Connecticut, LLC), the
assets of Wisconsin Energy's non-utility affiliates approximated 21% of the
assets of its public utility affiliates.
Wisconsin Energy is currently working with a broad-based group in an effort to
modify the asset cap provisions of Wisconsin's public utility holding company
law. Recently, the governor of the State of Wisconsin proposed in his budget
that a voluntary state electric transmission company ("Transco") be set up by
November 2000 that would be part of the Midwest Independent System Operator
("Midwest ISO"). Under the terms of the proposal, if a utility in a holding
company system transferred electric transmission facilities and rights of way to
the Transco and committed to certain spending levels for low-income residents
and for conservation programs, non-utility entities in the same holding company
system could increase certain types of energy-related assets without counting
against the asset cap. Asset cap limits would continue to apply to other non-
utility operations. The matter is pending in the Wisconsin State Legislature.
Wisconsin Electric has indicated that it would transfer its electric
transmission assets to such a Transco and is an active participant in the
Midwest ISO. However, there can be no assurance that the current asset cap
restrictions will be modified or that the restrictions will not affect Wisconsin
Energy's future non-utility diversification activities.
ENVIRONMENTAL MATTERS
ETSM PROPERTY/CITY OF WEST ALLIS LAWSUIT: As previously reported, iron
cyanide-bearing wastes, believed to be manufactured gas plant process wastes,
were found at two sites in West Allis, Wisconsin. One site is on property
formerly owned by Kearney & Trecker Corporation, which was sold to others,
including Wisconsin Electric prior to the discovery of the wastes. The other is
the "Greenfield Avenue" site owned by the City of West Allis. Several years ago
materials were removed from the Kearney & Trecker site, with Wisconsin Electric
and the other current owners paying for disposal of materials found on their
respective portions of the site.
On July 25, 1996, Giddings & Lewis Inc., Kearney & Trecker and the City of West
Allis filed an action for damages in the Milwaukee County Circuit Court against
Wisconsin Electric, alleging that Wisconsin Electric was responsible for the
deposition of the material and liable to the plaintiffs. Investigations into
the potential source of the waste lead Wisconsin Electric to believe that it was
not the source of this waste.
A trial was held and on July 14, 1999, a jury verdict was rendered against
Wisconsin Electric awarding the plaintiffs $4.5 million as actual damages for
clean-up costs and loss of property value. The jury further awarded the
plaintiffs $100 million in punitive damages against Wisconsin Electric.
Post-trial motions are scheduled to be heard in October 1999. Wisconsin
Electric is preparing to file post trial motions on the grounds that the jury
verdict is not supported by the evidence or the law and that the award of
punitive damages was unwarranted and, in the opinion of management, based in
part on the advice of legal counsel, should be reversed. As such, Wisconsin
Electric has recorded no reserve for potential damages from this suit.
Wisconsin Electric also intends to take all other actions available to have the
verdict overturned.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
WISCONSIN ENERGY CORPORATION
At Wisconsin Energy's 1999 Annual Meeting of Stockholders held on June 2, 1999,
the board of directors' nominees named below were elected as directors by the
indicated votes and percentages cast for each nominee. Directors are elected by
a plurality of the votes cast by the shares entitled to vote. Any shares not
voted, whether by withheld authority, broker non-votes or otherwise, have no
effect in the election of directors. There was no solicitation in opposition to
the nominees proposed in the Proxy Statement.
Election of Directors for Terms Expiring in 2002
- ------------------------------------------------
Name of Nominee For Withheld
--------------- ------ --------
Richard A. Abdoo 95,750,519 (96.8%) 3,185,893 (3.2%)
John F. Ahearne 96,507,689 (97.5%) 2,428,723 (2.5%)
Julia B. North 96,443,857 (97.5%) 2,492,555 (2.5%)
Of 116,295,956 voting shares outstanding as of the March 25, 1999 record date
for the annual meeting, 98,936,412 shares (85.1% of the shares outstanding) were
represented at the meeting.
Further information concerning these matters, including the names of directors
whose terms as a director continued after the meeting, is contained in Wisconsin
Energy's Proxy Statement dated April 16, 1999 with respect to the 1999 Annual
Meeting of Stockholders.
WISCONSIN ELECTRIC POWER COMPANY
At Wisconsin Electric's 1999 Annual Meeting of Stockholders held on May 26, 1999
for which Wisconsin Electric did not solicit proxies, ten incumbent directors,
as listed in Wisconsin Electric's Information Statement dated April 22, 1999,
were elected for one year terms. Each director received 33,289,327 votes (100%
of votes cast). Directors are elected by a plurality of the votes cast by the
shares entitled to vote. Any shares not voted, whether by withheld authority,
broker non-votes or otherwise, have no effect in the election of directors.
There was no solicitation in opposition to the nominees proposed in the
Information Statement.
Further information concerning these matters is contained in Wisconsin
Electric's Information Statement.
ITEM 5. OTHER INFORMATION
MERGER AGREEMENT WITH WICOR, INC.
As previously reported, on June 27, 1999, Wisconsin Energy and WICOR, Inc., a
Wisconsin corporation [NYSE: WIC], entered into an Agreement and Plan of Merger
providing for a strategic business combination of Wisconsin Energy and WICOR.
WICOR is a diversified holding company with investments in utility and non-
utility energy subsidiaries as well as in pump manufacturing subsidiaries.
Following the merger, WICOR will become a wholly owned subsidiary of Wisconsin
Energy. The merger agreement has been approved by the boards of directors of
Wisconsin Energy and WICOR.
Under the terms of the agreement, Wisconsin Energy will acquire all of the
outstanding shares of WICOR Common Stock for a fixed price of $31.50 for each
WICOR share. At least 40% of the price will be paid in Wisconsin Energy Common
Stock, and Wisconsin Energy has the option to increase the percentage to 60%;
the balance will be paid in cash. The exchange ratio for the Wisconsin Energy
Common Stock will be set based upon the average closing prices of Wisconsin
Energy stock immediately prior to closing. If the average is less than $22.00
per share, Wisconsin Energy may elect to pay all cash. Each WICOR shareholder
will be able to elect to receive cash, stock, or a combination thereof, subject
to proration.
It is anticipated that Wisconsin Energy will maintain its normal quarterly
dividend of $0.39 and dividend payment schedule following completion of the
transaction. Both Wisconsin Energy and WICOR will maintain their current
dividend policy until the close of the transaction.
Following the merger, Mr. Richard A. Abdoo will continue as chairman of the
board, president and CEO of Wisconsin Energy, and Mr. George E. Wardeberg,
currently chairman and CEO of WICOR, will become vice chairman of the board of
Wisconsin Energy. Mr. Wardeberg will continue in this position for 24 months,
after which he plans to retire. Following Mr. Wardeberg's retirement, he will
remain a member of Wisconsin Energy's board of directors. After closing, in
addition to Mr. Wardeberg, one other member of the current WICOR board will join
Wisconsin Energy's board of directors.
Consummation of the merger is subject to the satisfaction of certain closing
conditions including approval by the shareholders of Wisconsin Energy and WICOR,
approval by the PSCW, 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 be completed in time for the transaction to be
consummated by the Spring of 2000.
Assuming timely realization of estimated cost savings and avoidances expected to
result from the merger, and assuming favorable regulatory treatment, Wisconsin
Energy expects the business combination to result in increased earnings per
share beginning in the first full year following the merger. While no
definitive synergies study has been done, net merger-related cost savings are
anticipated to be approximately $35 million annually beginning in the first full
year after the merger. Savings are expected from lower costs for fuel,
materials and services through enhanced purchasing power, elimination of
duplication through attrition, and through sharing of resources. Additional
cost savings are anticipated from logical consolidation of common functions over
time as well as from savings in areas such as insurance and regulatory costs and
legal, audit and consulting fees. In its merger application, Wisconsin Energy
has asked the PSCW to permit it to recover the portion of the acquisition
premium that Wisconsin Energy will pay in the merger which is attributable to
WICOR's regulated utility assets. Recovery of the acquisition premium would not
require any increase in rates. Instead, Wisconsin Energy is requesting that it
be allowed to retain the anticipated net cost savings that result from the
merger over a period of time adequate to recover the acquisition premium it is
paying to make those savings possible.
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 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. On August 11, 1999, the
shareholder plaintiff filed a motion requesting a preliminary injunction to
enjoin a new WICOR, Inc. Shareholder Rights Plan adopted on July 27, 1999. In
conjunction with the motion, the shareholder plaintiff is also seeking expedited
discovery and an expeditious decision on the motion. WICOR and Wisconsin
Energy believe that the complaint and the injunction request are without merit
and intend to pursue a vigorous defense.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial information for
the combined company after the merger are based upon the historical consolidated
financial statements of Wisconsin Energy and WICOR, combined and adjusted to
give effect to the merger and related transactions (including the related
financing), as described in the notes to this information. Certain amounts in
the WICOR financial statements have been reclassified to conform to Wisconsin
Energy's presentation. This information should be read in conjunction with the
historical financial statements and related notes of Wisconsin Energy and WICOR.
The allocation of the estimated cost savings from the merger, net of costs
incurred to achieve such estimated cost savings, will be subject to regulatory
review and approval. None of the estimated cost savings, the costs to achieve
such savings, nor transaction costs (other than estimated debt issue costs) are
reflected in the unaudited pro forma combined condensed income statement
information.
The unaudited pro forma combined condensed income statements for the year ended
December 31, 1998 and for the six months ended June 30, 1999 and 1998 present
the results for Wisconsin Energy and WICOR as if the merger had occurred on
January 1, 1998. The unaudited pro forma combined condensed balance sheet as of
June 30, 1999 gives effect to the merger as of that date.
We have assumed that the merger consideration will consist of 40% stock and 60%
cash and have described in the footnotes the pro forma differences that would
occur should the merger consideration consist of either 60% stock and 40% cash
or of 100% cash. We have also assumed (a) the exercise prior to the merger of
all outstanding options to purchase WICOR Common Stock; and (b) that the
exchange ratio is 1.2569 Wisconsin Energy shares per each WICOR share, which is
$31.50 divided by the $25.0625 closing price of Wisconsin Energy Common Stock on
June 30, 1999. The actual exchange ratio will depend upon the average closing
prices of Wisconsin Energy Common Stock on the New York Stock Exchange during a
valuation period consisting of the 10 trading days ending with the fifth trading
day prior to the merger. Therefore, the actual exchange ratio will not be
determined until shortly before the closing.
The pro forma adjustments are based upon preliminary estimates, information
currently available and assumptions that management believes are reasonable
under the circumstances. Wisconsin Energy's actual consolidated financial
statements will reflect the results of the merger on and after its effective
date rather than the dates indicated above. You should not rely on the
unaudited combined condensed pro forma financial data as an indication of the
results of operations or financial position that would have been achieved if the
merger had taken place earlier nor an indication of the results of operations or
financial position of the combined company after completion of the merger.
The merger will be accounted for by the purchase method and, therefore, the
assets and liabilities of WICOR will be recorded at their fair values. The
excess of the purchase price over the fair value of the net assets at the
effective time of the merger will be recorded as goodwill. Allocations included
in the pro forma information are based upon analysis which is not yet completed.
Accordingly, the final allocation of the purchase price may differ, perhaps
significantly, from the amounts shown in this pro forma information.
<TABLE>
WISCONSIN ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
REFLECTING COMPLETION OF THE MERGER
Six Months Ended June 30, 1999
<CAPTION>
Wisconsin Pro Forma Pro Forma
Energy (a) WICOR Adjustments Combined
---------- ------ ----------- ---------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $1,095,725 $529,573 $ - $1,625,298
Operating Expenses
Fuel 164,944 - - 164,944
Purchased power 102,701 - - 102,701
Cost of gas sold 96,606 159,380 - 255,986
Cost of goods sold - 178,788 - 178,788
Other operation and maintenance 360,855 103,599 500 (c)
1,757 (b) 466,711
Depreciation and amortization 131,399 18,313 8,616 (d)
4,350 (e) 162,678
Property and revenue tax 36,873 4,223 (1,757)(b) 39,339
---------- ------- ---------- ---------
Pretax Operating Income 202,347 65,270 (13,466) 254,151
Other Income and Deductions 23,434 (119) - 23,315
Interest Charges and Other (69,514) (8,173) (22,835)(f) (100,522)
---------- ------- --------- ---------
Income Before Income Taxes 156,267 56,978 (36,301) 176,944
Provision (Benefit) for Income Taxes 53,853 22,120 (10,520)(g) 65,453
---------- ------- --------- --------
Net Income $102,414 $34,858 ($25,781) $111,491
========== ======= ========= ========
Weighted Average Common Shares 116,272 20,348 (h) 136,620
Earnings Per Share (Basic and Diluted) $0.88 $0.82 (i)
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Information.
</TABLE>
<TABLE>
WISCONSIN ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
REFLECTING COMPLETION OF THE MERGER
Six Months Ended June 30, 1998
<CAPTION>
Wisconsin Pro Forma Pro Forma
Energy (a) WICOR Adjustments Combined
---------- ------ ------------ ----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $991,253 $523,206 $ - $1,514,459
Operating Expenses
Fuel 154,108 - - 154,108
Purchased power 79,283 - - 79,283
Cost of gas sold 103,406 171,498 - 274,904
Cost of goods sold - 174,818 - 174,818
Other operation and maintenance 340,792 97,770 500 (c)
1,888 (b) 440,950
Depreciation and amortization 122,021 17,404 8,616 (d)
4,350 (e) 152,391
Property and revenue tax 31,276 4,827 (1,888)(b) 34,215
-------- -------- ------- ----------
Pretax Operating Income 160,367 56,889 (13,466) 203,790
Other Income and Deductions 15,824 1,666 - 17,490
Interest Charges and Other (58,964) (8,585) (22,835)(f) (90,384)
-------- -------- ------- ----------
Income Before Income Taxes 117,227 49,970 (36,301) 130,896
Provision (Benefit) for Income Taxes 39,325 18,983 (10,520)(g) 47,788
-------- -------- -------- ----------
Net Income $77,902 $30,987 ($25,781) $83,108
======== ======== ======== ========
Weighted Average Common Shares 113,279 20,348 (h) 133,627
Earnings Per Share (Basic and Diluted) $0.69 $0.62 (i)
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Information.
</TABLE>
<TABLE>
WISCONSIN ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
REFLECTING COMPLETION OF THE MERGER
Year Ended December 31, 1998
<CAPTION>
Wisconsin Pro Forma Pro Forma
Energy (a) WICOR Adjustments Combined
--------- ------ ----------- ---------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $2,039,433 $944,183 $ - $2,983,616
Operating Expenses
Fuel 308,385 - - 308,385
Purchased power 177,852 - - 177,852
Cost of gas sold 175,475 295,601 - 471,076
Cost of goods sold - 329,248 - 329,248
Other operation and maintenance 691,535 190,674 1,000 (c)
3,295 (b) 886,504
Depreciation and amortization 248,337 35,038 17,232 (d)
8,700 (e) 309,307
Property and revenue tax 63,095 9,039 (3,295)(b) 68,839
---------- -------- -------- ---------
Pretax Operating Income 374,754 84,583 (26,932) 432,405
Other Income and Deductions 26,765 3,706 - 30,471
Interest Charges and Other (121,221) (16,746) (45,669)(f) (183,636)
---------- -------- --------- ---------
Income Before Income Taxes 280,298 71,543 (72,601) 279,240
Provision (Benefit) for Income Taxes 92,166 26,048 (21,040)(g) 97,174
---------- -------- --------- ---------
Net Income $188,132 $45,495 ($51,561) $182,066
========== ======== ======== =========
Weighted Average Common Shares 114,315 20,348 (h) 134,663
Earnings Per Share (Basic and Diluted) $1.65 $1.35 (i)
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Information.
</TABLE>
<TABLE>
WISCONSIN ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
REFLECTING COMPLETION OF THE MERGER
June 30, 1999
<CAPTION>
Wisconsin Pro Forma Pro Forma
Energy (a) WICOR Adjustments Combined
---------- ------- ----------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Assets
------
Property, Plant & Equipment $3,798,985 $445,976 $87,000 (j) $4,331,961
Other Property and Investments 864,800 - 7,737 (b) 872,537
Current Assets
Cash & cash equivalents 35,369 8,752 - 44,121
Accounts receivable-net, including
accrued utility revenues 305,882 162,480 - 468,362
Materials, supplies and inventory 209,852 102,915 12,700 (j)
6,798 (b) 332,265
Prepayments and other current assets 79,988 32,939 (6,798) (b) 106,129
---------- -------- -------- ----------
Total Current Assets 631,091 307,086 12,700 950,877
Deferred Charges and Other Assets
Goodwill - 83,024 689,297 (k) 772,321
Regulatory assets 208,384 56,082 - 264,466
Accumulated deferred income taxes 206,010 - 20,056 (b) 226,066
Other assets, including prepaid pension costs 107,307 90,687 54,900 (l)
(7,737) (b) 245,157
--------- -------- -------- ---------
Total Deferred Charges and Other Assets 521,701 229,793 756,516 1,508,010
---------- -------- -------- ---------
Total Assets $5,816,577 $982,855 $863,953 $7,663,385
========= ======== ======== =========
Capitalization and Liabilities
------------------------------
Capitalization
Common stock equity $1,951,907 $423,826 $80,135 (m) $2,455,868
Preferred stock 30,450 - - 30,450
Long-term debt 1,979,368 204,524 722,062 (m) 2,905,954
Wisconsin Energy obligated redeemable
preferred securities of subsidiary trust 200,000 - - 200,000
---------- -------- -------- ----------
Total Capitalization 4,161,725 628,350 802,197 5,592,272
Current Liabilities
Short-term debt, including long-term
debt due currently 403,842 19,209 - 423,051
Accounts payable 162,182 73,999 - 236,181
Accrued liabilities and other 152,522 92,451 20,500 (j) 265,473
---------- -------- -------- ----------
Total Current Liabilities 718,546 185,659 20,500 924,705
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 582,080 49,347 68,900 (j)
20,056 (b) 720,383
Regulatory liabilities 142,478 29,553 - 172,031
Other, including postretirement benefit obligation 211,748 89,946 (47,700) (j) 253,994
---------- -------- -------- ----------
Total Deferred Credits and Other Liabilities 936,306 168,846 41,256 1,146,408
---------- -------- -------- ----------
Total Capitalization and Liabilities $5,816,577 $982,855 $863,953 $7,663,385
========== ======== ======== ==========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Information.
</TABLE>
WISCONSIN ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
(In Thousands)
The unaudited pro forma financial information gives effect to the acquisition by
Wisconsin Energy of WICOR in a transaction to be accounted for as a purchase.
Wisconsin Energy's Unaudited Pro Forma Combined Condensed Financial Information
assumes the WICOR acquisition occurred (1) as of January 1, 1998, for purposes
of the Unaudited Pro Forma Combined Condensed Income Statements and (2) on
June 30, 1999 for purposes of the Unaudited Pro Forma Combined Condensed Balance
Sheet.
a. Due to recent acquisitions by Wisconsin Energy that have increased the size
of Wisconsin Energy's non-utility operations, Wisconsin Energy has modified
its income statement and balance sheet presentations. The primary
modification includes reclassifying the results of the non-utility
operations from Other Income and Deductions to the various lines within
operating income (i.e. Operating Revenues and Operating Expenses). This
modification does not change net income. The primary balance sheet
modification includes reclassifying the non-utility property, plant and
equipment and related accumulated provision for depreciation from
investments to inclusion with utility property, plant and equipment. This
modification does not change total assets.
b. Reclassification of amounts to conform the companies' historical
presentation.
c. Based upon revised actuarial information, WICOR's annual pension income will
increase by $1.5 million and will be offset by an additional $2.5 million of
annual postretirement benefit expense.
d. Amortization of goodwill over 40 years
($689.3 million/40 years = $17.2 million per year or $4.3 million per
quarter).
e. Additional depreciation resulting from the increased fair value of
machinery, equipment and buildings acquired based on estimated useful lives
of 10 years ($87 million/10 years = $8.7 million per year or $2.2 million
per quarter).
f. Incremental interest expense based upon an assumed rate of 6.25%
($722.1 million x 6.25% = $45.1 million per year or $11.3 million per
quarter). A 1/8 percent increase (or decrease) in the interest rate would
increase (or decrease) annual interest expense by approximately
$0.9 million. Estimated debt issue cost of $5.4 million will be amortized
over ten years.
g. Reduction of income taxes relating to the foregoing adjustments.
h. Shares to be issued assuming the purchase price is paid with 40% stock,
including outstanding stock options. The closing price of Wisconsin
Energy's Common Stock on June 30, 1999 was $25-1/16.
i. Assuming the purchase price is paid with 100% cash or 60% stock and 40%
cash, pro forma earnings per share for the year ended December 31, 1998
would approximate $1.42 and $1.33 per share, respectively. Assuming the
purchase price is paid with 100% cash or 60% stock and 40% cash, pro forma
earnings per share would approximate $0.87 and $0.79 for the six months
ended June 30, 1999, respectively, and $0.64 and $0.61 per share,
respectively, for the six months ended June 30, 1998.
j. Adjustments to net assets of WICOR to reflect fair value, purchase
accounting adjustments and related tax effects.
k. The excess of cost over fair value of net assets acquired resulting from the
preliminary purchase price allocation is assumed to be as follows:
<TABLE>
<S> <C>
Pro forma purchase price $1,220,623
Pro forma historical net book value of assets acquired 423,826
----------
Excess of purchase price over net book value of assets acquired 796,797
Allocated to:
Inventories (12,700)
Property, plant and equipment (87,000)
Prepaid pension asset (49,500)
Deferred tax liabilities 68,900
Other current liabilities 20,500
Postretirement obligation (47,700)
----------
Remaining excess of cost over fair value of net assets
acquired (goodwill) $689,297
==========
</TABLE>
The foregoing preliminary purchase price allocation is based on available
information and certain assumptions Wisconsin Energy considers reasonable.
The final purchase price allocation will be based upon a determination of the
fair value of the net assets acquired at the date of the acquisition. The
final purchase price allocation may differ from the preliminary allocation.
l. Amount consists of an adjustment of $49.5 million to fair value WICOR's
prepaid pension asset and $5.4 million in estimated debt issue costs.
m. Purchase price is assumed to be financed with 40% stock and 60% debt.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following Exhibits are filed with or incorporated by reference in the
applicable Form 10-Q report:
Exhibit No.
-----------
WISCONSIN ENERGY CORPORATION 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 Wisconsin Energy's
Current Report on Form 8-K dated as of June 27, 1999, File No. 1-
9057.)
(10)-1 Supplemental Executive Retirement Plan of Wisconsin Energy Corporation
(as amended and restated as of June 2, 1999).
(10)-2 Executive Deferred Compensation Plan of Wisconsin Energy Corporation
effective January 1, 1989, as amended and restated as of June 2, 1999.
(10)-3 Short-Term Performance Plan of Wisconsin Energy Corporation effective
January 1, 1999, as amended and restated as of June 2, 1999.
(10)-4 Senior Officer Change in Control Agreement between Wisconsin Energy
Corporation and Richard A. Abdoo effective July 29, 1999.
(27)-1 Wisconsin Energy Corporation Financial Data Schedule for the six
months ended June 30, 1999.
(27)-2 Wisconsin Energy Corporation Restated Financial Data Schedule for the
fiscal year ended December 31, 1998, which reflects the
reclassification of certain amounts to conform to Wisconsin Energy's
current financial statement presentation.
(27)-3 Wisconsin Energy Corporation Restated Financial Data Schedule for the
six months ended June 30, 1998, which reflects the reclassification of
certain amounts to conform to Wisconsin Energy's current financial
statement presentation.
WISCONSIN ELECTRIC POWER COMPANY EXHIBITS
(27)-4 Wisconsin Electric Power Company Financial Data Schedule for the six
months ended June 30, 1999.
(27)-5 Wisconsin Electric Power Company Restated Financial Data Schedule for
the fiscal year ended December 31, 1998, which reflects the
reclassification of certain amounts to conform to Wisconsin Electric's
current financial statement presentation.
(27)-6 Wisconsin Electric Power Company Restated Financial Data Schedule for
the six months ended June 30, 1998, which reflects the
reclassification of certain amounts to conform to Wisconsin Electric's
current financial statement presentation.
(b) REPORTS ON FORM 8-K
A Current Report on Form 8-K dated as of June 27, 1999 was filed by Wisconsin
Energy on June 30, 1999 announcing Wisconsin Energy's merger agreement with
WICOR, Inc. and filing as exhibits copies of the merger agreement and a joint
press release with respect to the merger agreement.
A Current Report on Form 8-K dated as of June 29, 1999 was filed by Wisconsin
Energy on June 30, 1999 to disclose presentation materials used at analysts'
meetings in connection with the announcement of the merger agreement between
Wisconsin Energy and WICOR, Inc. dated June 27, 1999.
No other reports on Form 8-K were filed by Wisconsin Energy or by Wisconsin
Electric during the quarter ended June 30, 1999.
A Current Report on Form 8-K dated as of July 14, 1999 was filed separately
by Wisconsin Energy and by Wisconsin Electric disclosing the results of a
July 14 jury verdict against Wisconsin Electric in a lawsuit concerning the
placement of contaminated wastes on two properties in the City of West Allis,
Wisconsin.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WISCONSIN ENERGY CORPORATION
----------------------------
(Registrant)
/s/ Calvin H. Baker
---------------------------------
Date: August 13, 1999 Calvin H. Baker, Treasurer,
Chief Financial Officer and
duly authorized officer
WISCONSIN ELECTRIC POWER COMPANY
--------------------------------
(Registrant)
/s/ Calvin H. Baker
-----------------------------------------
Date: August 13, 1999 Calvin H. Baker, Vice President - Finance,
Chief Financial Officer
and duly authorized officer
WISCONSIN ENERGY CORPORATION
FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 1999
EXHIBIT INDEX
The following exhibits are filed with or incorporated by reference in
this report:
Exhibit No.
- -----------
(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 Wisconsin Energy's Current Report on Form 8-K
dated as of June 27, 1999, File No. 1-9057.)
(10)-1 Supplemental Executive Retirement Plan of Wisconsin Energy
Corporation (as amended and restated as of June 2, 1999).
(10)-2 Executive Deferred Compensation Plan of Wisconsin Energy
Corporation effective January 1, 1989, as amended and
restated as of June 2, 1999.
(10)-3 Short-Term Performance Plan of Wisconsin Energy Corporation
effective January 1, 1999, as amended and restated as of
June 2, 1999.
(10)-4 Senior Officer Change in Control Agreement between Wisconsin
Energy Corporation and Richard A. Abdoo effective July 29,
1999.
(27)-1 Wisconsin Energy Corporation Financial Data Schedule for
the six months ended June 30, 1999.
(27)-2 Wisconsin Energy Corporation Restated Financial Data Schedule
for the fiscal year ended December 31, 1998, which reflects
the reclassification of certain amounts to conform to
Wisconsin Energy's current financial statement presentation.
(27)-3 Wisconsin Energy Corporation Restated Financial Data Schedule
for the six months ended June 30, 1998, which reflects the
reclassification of certain amounts to conform to Wisconsin
Energy's current financial statement presentation.
Exhibit (10)-1
WISCONSIN ENERGY CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
As Amended and Restated as of June 2, 1999
WISCONSIN ENERGY CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This Plan (the "Wisconsin Energy Corporation Supplemental
Executive Retirement Plan"), succeeds to and constitutes an
amendment and restatement of the Wisconsin Energy Corporation
Supplemental Executive Retirement Plan, effective January 1,
1996; such amendment and restatement is effective as of June 2,
1999. All the provisions of this amended and restated Plan shall
apply to all active employee Participants. Retired Participants
will continue to receive the benefits under the provisions
applicable at the time of their retirement. Capitalized terms
used in the Plan which are not defined in the text are defined in
Appendix A.
I) Purpose and Objective
This Plan is intended to be a "top hat plan" under the
provisions of the Employee Retirement Income Security Act
of 1974, as amended.
The objective of this Plan is to also provide an incentive
to attract and retain key employees in the service of
Wisconsin Energy Corporation (the "Company") and/or its
subsidiaries by providing them with supplemental
retirement benefits which are payable, except for the
change in control provisions in this Plan, only if they
remain in the service of Company and/or its subsidiaries
until they die or retire or become disabled.
II) Participation
1) Definition of a "Participant"
The term "Participant" as used in this Plan refers to
any key employee of the Company and/or its
subsidiaries who is designated for participation in
the Plan by the Chief Executive Officer of the
Company, the Company's Board of Directors (the
"Board") or the Compensation Committee of the Board
(the "Committee") and who has not been removed from
the Plan pursuant to Paragraph (2) below. An
employee can be designated as a "Participant" for
Benefit A, for Benefit B, the Disability Benefit or
any combination of these benefits described by this
Plan.
2) Removal of a Participant
A Participant may be removed from the Plan at any
time by the Chief Executive Officer of the Company,
the Board or the Committee, provided no such removal
may eliminate or reduce any benefits which are
protected under Section XII in the event of
termination of this Plan.
III) Vesting
A Participant becomes Vested in the benefits outlined in
Section IV under the provisions of this Plan upon
attaining age 60. A Participant who leaves service prior
to age 60 may become Vested in the benefits outlined in
Section IV with the approval of the Chief Executive
Officer, the Board or the Committee and will be deemed
Vested upon the commencement of such benefits. Persons
will be deemed to be Vested in the Disability Benefit
under Section VII upon the commencement of disability
payments.
IV) Amount of Supplemental Executive Retirement Benefit
Eligible Participants may receive either or both of the
following described supplemental pension benefits:
1) Supplemental Pension Benefit A provides a "make
whole" supplemental executive pension. This amount
will be calculated as if it were held in a defined
contribution account (the "Account Balance") for
credit to the Participant under the WE Retirement
Account Plan. This Account Balance is a lump sum
amount that increases each year as additional amounts
are credited in two ways: a benefit credit and an
interest credit.
Benefit Credit: For each calendar year in which
an employee is a Plan Participant, starting as
early as 1995, the Participant's Account Balance
will be credited with at least 5% of his/her
Pension Eligible Earnings for the year, reduced by
the amount credited to the cash balance account
under the WE Retirement Account Plan applicable to
the Participant for the year. This addition to
the account is called the Benefit Credit.
A Participant's Benefit Credit for a year will be
between 5% and 7% of the Pension Eligible Earnings
for the year less the amount credited to his/her
cash balance account under the WE Retirement
Account Plan. The actual percentage of the
Benefit Credit will be the same percentage (the
"Relevant Percentage") as is determined for the WE
Retirement Account Plan for that year.
If a Participant terminates employment during the
year, a Benefit Credit of Relevant Percentage of
the Participant's Pension Eligible Earnings to
date for the year less the amount credited to the
cash balance account under the WE Retirement Plan
for the same time period will be credited to his
or her Account Balance. To be eligible for a
Benefit Credit of more than 5% for any year, the
Participant must be actively employed on
December 31 of that year.
Interest Credit: For each calendar year, the
Participant's Account Balance will receive an
interest credit equal to a certain percentage of
his or her Account Balance at the beginning of the
year. This interest credit will be guaranteed at
a minimum of 4%, but the actual percentage will be
the same percentage that has been applied to the
WE Retirement Account Plan for that year. If the
Participant did not have an Account Balance at the
beginning of the year, the Account Balance will
not receive an interest credit at the end of the
year. If the Participant has a distribution from
his or her Account Balance, either in whole or in
part (through an annuity) before December 31, an
Interest Credit will be granted on such
distribution for the year of 1/12 of 4% for each
month prior to the commencement of payment.
Interest credits cease with the commencement of
payment.
Participants who were actively employed by the
Company and/or its subsidiaries on December 31,
1995 and who were covered on that date under the
WE Retirement Account Plan are eligible for
determination of Supplemental Pension Benefit A
under a grandfathered minimum benefit basis (the
"Benefit A Grandfather Alternative"), as detailed
in Appendix B.
2) Supplemental Pension Benefit B provides Participants
with a life annuity of 10% of the monthly average of
the Participant's Pension Eligible Earnings received
from the Company and/or its subsidiaries during
whichever period of 36 consecutive months produces
the highest monthly average. The monthly average of
Pension Eligible Earnings during such 36 month period
includes the monthly average of (i) any performance
award determined under the Company's Short-Term
Performance Plan or any other plan as designated by
the Board, calculated as of the date of determination
as if then paid in full as base salary, and (ii) any
amounts of base salary that would have been paid to
the Participant during such 36-month period but are
not paid because of deferral elections made by the
Participant under a savings or other deferred
compensation plan.
V) Form of Payment
Supplemental Pension Benefits A (including the Benefit A
Grandfather Alternative) and B will be paid commencing at
the same time as the benefit payable to the Participant
under the WE Retirement Account Plan in life annuity form
to unmarried Participants and in a 50% joint and survivor
annuity form to married Participants. However,
notwithstanding any other provision of this Plan, a
Participant may at any time prior to the commencement of
benefits under this Plan make a written request to the
Chief Executive Officer of the Company, the Board, or the
Committee for payment of any benefits under this Plan in
any of the forms allowed under the WE Retirement Account
Plan and such party may, in his or its sole and absolute
discretion, grant or deny such request. If such request
is for an alternative annuity benefit form and such
request is granted, the alternative annuity form shall be
the actuarial equivalent of a life annuity for the life of
the Participant commencing immediately, with actuarial
equivalency determined for this purpose by using the
interest rate and mortality tables then in use for
determining optional forms of annuity under the WE
Retirement Account Plan. If such request is for a lump
sum and such request is granted, the Supplemental Pension
Benefit A, if determined without reference to the
Benefit A Grandfather Alternative, shall be equal to the
Account Balance; the Supplemental Pension Benefit B and
Benefit A Grandfather Alternative lump sum forms shall be
the actuarial equivalent of a life annuity for the life of
the Participant commencing the later of the Participant's
current age or age 60, with actuarial equivalency
determined for this purpose by using the interest rate and
mortality table referenced in Article VIII (with such
interest rate to be that in effect on the last business
day of the month prior to the month in which the benefit
under this Plan is to be paid).
VI) Death Benefit
Each Participant from time to time may designate any
person or persons to receive such benefits as may be
payable under the Plan upon or after the Participant's
death, and such designation may be changed from time to
time by the Participant by filing a new designation. Each
designation will revoke all prior designations by the same
Participant, shall be in a form prescribed by the Company,
and will be effective only when filed in writing with the
Company during the Participant's lifetime. If the
Participant has failed to designate a beneficiary, or if
the beneficiary predeceases the Participant, benefits as
may be payable under the Plan will be paid to the
Participant's estate.
1) Death Benefits Respecting Benefit A
Supplemental Pension Benefit A (including the Benefit
A Grandfather Alternative) will be payable in a life
annuity form to any designated beneficiary who is a
natural person or in a lump sum form to the estate
(or to any beneficiary which is not a natural person)
of a Participant upon the death of such Participant
(whether before or after age 60) while in the service
of the Company or any of its subsidiaries before
retirement. However, notwithstanding any other
provisions of this Plan, a beneficiary who is a
natural person may at any time prior to the
commencement of benefits under this Plan make a
written request to the Chief Executive Officer of the
Company, the Board, or the Committee for payment of
benefits under this Plan in any of the forms allowed
under the WE Retirement Account Plan and such party
may, in his or its sole and absolute discretion,
grant or deny such request. If such request is for
an alternative annuity benefit form and such request
is granted, the alternative annuity form shall be the
actuarial equivalent of a life annuity for the life
of the Participant commencing immediately, with
actuarial equivalency determined for this purpose by
using the interest rate and mortality tables then in
use for determining optional forms of annuity under
the WE Retirement Account Plan and reflecting the age
of the beneficiary as of the benefit commencement
date. If such request is for a lump sum and such
request is granted, if the death benefit is
determined without reference to the Benefit A
Grandfather Alternative, such lump sum shall be equal
to the Account Balance; if the death benefit is
determined with reference to the Benefit A
Grandfather Alternative, such lump sum shall be the
actuarial equivalent of a life annuity for the life
of the Participant commencing on the later of the
Participant's age at death or the date when the
Participant would have attained age 60, with
actuarial equivalency determined for this purpose by
using the interest rate and mortality table
referenced in Article VIII (with such interest rate
to be that in effect on the last business day of the
month prior to the date of death). If a Participant
dies after the commencement of the receipt of monthly
benefits under this Plan, whether any payments
continue thereafter will depend on the form of
payment such Participant has elected prior to their
commencement of receipt of benefits.
2) Death Benefits Respecting Benefit B
If a Participant dies (whether before or after age
60) while in the service of the Company or any of its
subsidiaries before payments of Supplemental Pension
Benefit B commence, the beneficiary or beneficiaries
designated by the Participant shall become entitled
to receive a lump sum amount equal to the actuarial
equivalent of a life annuity for the life of the
Participant commencing on the later of the
Participant's age at death or the date when the
Participant would have attained age 60, with
actuarial equivalency determined for this purpose by
using the interest rate and mortality table
referenced in Article VIII (with such interest rate
to be that in effect on the last business day of the
month prior to the month in which the benefit under
this Plan is to be paid).
VII) Make Whole Long Term Disability Benefits
It is the intent of this Plan that a Participant not
suffer any loss with respect to a disability benefit under
the long term disability benefit plan applicable to all
employees of the Company and/or its subsidiaries (the "LTD
Plan") because of either the exclusion of base salary
deferred under a savings or other deferred compensation
plan, or the limitations on annual compensation imposed by
Section 505(b)(7) of the Internal Revenue Code.
Therefore, in the event a Participant in this Plan becomes
eligible for and begins to receive a disability benefit
from the LTD Plan applicable to the Participant, and the
amount of such disability benefit is limited because of
application of salary deferral or the IRS limit, a make
whole disability benefit shall be paid from this Plan as a
supplement to the disability benefit paid from the LTD
Plan. Such LTD supplement shall equal the monthly amount
by which the Participant's disability benefit under the
LTD Plan was less because of application of salary
deferral and IRS limits. Such LTD supplement shall
commence at the same time as the disability benefit paid
under the LTD Plan and continue for so long as such
disability benefit is paid. All LTD supplements paid
hereunder shall be paid out of general corporate assets or
out of a grantor trust as provided in Article XI below.
VIII) Payments Upon Change in Control
For purposes of this paragraph VIII, a "Change in Control"
with respect to the Company shall mean the occurrence of
any of the following events, as a result of one
transaction or a series of transactions:
1) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, but
excluding the Company its affiliates and any
qualified or nonqualified plan maintained by the
Company or its affiliates) becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under
such Act), directly or indirectly, of securities of
the Company representing more than 20% of the
combined voting power of the Company's then
outstanding securities;
2) individuals who constitute a majority of the Board
immediately prior to a contested election for
positions on the Board cease to constitute a majority
as a result of such contested election;
3) the Company is combined (by merger, share exchange,
consolidation, or otherwise) with another corporation
and as a result of such combination, less than 60% of
the outstanding securities of the surviving or
resulting corporation are owned in the aggregate by
the former shareholders of the Company;
4) the Company sells, leases, or otherwise transfers all
or substantially all of its properties or assets not
in the ordinary course of business to another person
or entity; or
5) the Board determines in its sole and absolute
discretion that there has been a Change in Control of
the Company.
These Change in Control provisions shall apply to
successive Changes in Control on an individual transaction
basis.
Upon the occurrence of a Change in Control, then
notwithstanding any other provision of this Plan, the
Company shall promptly cause to be paid to each active and
retired Participant or beneficiary receiving benefits
under this Plan a lump sum amount equal to the then
present value of all benefits then accrued under this
Plan, calculated using (i) an interest rate equal to the
five-year United States Treasury Note yield in effect on
the last business day of the month prior to the date when
a Change in Control event described in subparagraphs (1)
through (5) above has occurred as such yield is reported
in the Wall Street Journal or comparable publication, and
(ii) the mortality table used for purposes of determining
lump sum amounts then in use under the qualified defined
benefit plan of the Company or its subsidiaries applicable
to the Participant. Such payments shall be made without
regard to whether the Participant's employment with the
Company or any of its subsidiaries is continuing.
However, if the Participant in fact so continues and this
Plan continues, appropriate provisions shall be made so
that any subsequent payments made from this Plan are
reduced to reflect the value of such lump sum payments.
IX) Government Regulations
It is intended that the Plan will comply with all
applicable laws and governmental regulations, and the
Company and/or its subsidiaries shall not be obligated to
perform an obligation hereunder in any case where, in the
opinion of the Company's counsel, such performance would
result in violation of any law or regulation. All amounts
payable under this Plan shall be subject to all applicable
withholding taxes.
X) Nonassignment
No benefit(s) under the Plan, nor any other interest
hereunder of any Participant or beneficiary shall be
assignable, transferable, or subject to sale, mortgage,
pledge, hypothecation, anticipation, garnishment,
attachment, execution, or levy of any kind.
XI) Provision of Benefits
The Company may establish a grantor trust (a "rabbi
trust") to serve as a vehicle to hold such contributions
as the Company may choose to make to prefund its
obligation for benefits hereunder, but the trust shall be
designed so that all assets therein are subject to the
claims of the creditors of the Company or any of its
subsidiaries which have used such rabbi trust in the event
of insolvency, consistent with the provisions of Revenue
Procedure 92-64. Notwithstanding the existence of such
grantor trust, the Plan shall remain an unfunded plan. A
Participant's rights to benefits under the Plan shall be
those of an unsecured creditor of the Company and/or its
subsidiaries.
XII) Termination or Modification of Plan
The Board or the Committee shall have the right to
terminate or modify this Plan for specific individuals at
any time and from time to time, provided that no such
action may eliminate or reduce or change the time or
manner of payment of any benefits which: (i) have already
become payable to any Participant or beneficiary; or (ii)
would have become payable to any Participant or
beneficiary without the Board's, the Committee's or the
Chief Executive Officer's approval under the terms of
Article III hereof if such Participant had retired
immediately before such action is taken. The Chief
Executive Officer may also make amendments to this Plan at
any time, consistent with the authority delegated to the
Chief Executive Officer by the Board regarding such
amendments.
XIII) Claim Procedures
A Participant or beneficiary (a `Claimant') may file a
written request for benefits or claim with the Company
under the Plan. In the event of any dispute with respect
to such a claim, the following claim procedures shall
apply:
1) The Company, acting as the administrator for this
Plan, shall notify the Claimant within 90 days of
receipt by the Company of a written claim of its
allowance or denial, unless the Claimant receives
written notice from the Company prior to the end of
the initial 90-day period indicating that special
circumstances require an extension of time for
decision. A written notice of decision shall be
provided to the Claimant and if the claim is denied
in whole or in part, the notice shall contain the
following information: the specific reasons for the
denial; specific reference to pertinent provisions of
the Plan on which the denial is based; if applicable,
a description of any additional material information
necessary to perfect the claim and an explanation of
why such information is necessary; and an explanation
of the claim review procedure.
2) A Claimant is entitled to request a review of any
denial of his/her claim by the Board or the
Committee. The request for review must be submitted
in writing within 60 days of mailing of notice of the
denial. Absent a request for review within the
60-day period, the claim will be deemed to be
conclusively denied. The Claimant or his/her
representative shall be entitled to review all
pertinent documents, and to submit issues and
comments orally and in writing. The Board or
Committee shall render a review decision in writing,
within 60 days after receipt of a request for a
review, provided that, in special circumstances the
Board or Committee may extend the time for decision
by not more than 60 days upon written notice to the
Claimant. The Claimant shall receive notice of the
separate review decision of the Board or Committee,
together with specific reasons for the decision and
reference to the pertinent provisions of this Plan.
3) The Company as the administrator of this Plan shall
have full and complete discretionary authority to
determine eligibility for benefits, to construe the
terms of the Plan and to decide any matter presented
through the claims review procedure. Any final
determination by the Company shall be binding on all
parties. If challenged in court, such determination
shall not be subject to de novo review and shall not
be overturned unless proven to be arbitrary and
capricious upon the evidence considered by the
Company at the time of such determination.
XIV) Miscellaneous
1) The Chief Executive Officer, the Board or the
Committee may establish, amend or rescind from time
to time rules and regulations which are necessary or
desirable in connection with the Plan. The Chief
Executive Officer may not act on any matter involving
his own participation in this Plan. The Company
shall have the right to withhold from any amounts
payable under this Plan any taxes or other amounts
required to be withheld by any governmental
authority.
2) Every person receiving or claiming payments under
this Plan shall be conclusively presumed to be
mentally competent until the date on which the
Company receives a written notice, in form and manner
acceptable to it, that such person is incompetent and
that a guardian, conservator, or other person legally
vested with the care of such person's estate has been
appointed. In the event a guardian or conservator of
the estate of any person receiving or claiming
payments under this Plan shall be appointed by a
court of competent jurisdiction, payments may be made
to such guardian or conservator provided that proper
proof of appointment and continuing qualification is
furnished in a form and manner acceptable to the
Company. Any such payment so made shall be a
complete discharge of any liability therefor.
3) Participation in this Plan, or any modifications
thereof, or the payment of any benefits hereunder,
shall not be construed as giving to the Participant
any right to be retained in the service of the
Company or its subsidiaries, limiting in any way the
right of the Company or its subsidiaries to terminate
the Participant's employment at any time, evidencing
any agreement or understanding, express or implied,
that the Company or its subsidiaries will employ the
Participant in any particular position or at any
particular rate of compensation and/or guaranteeing
the Participant any right to receive a salary
increase in any year, such increase being granted
only at the sole discretion of the Compensation
Committee of the Board.
4) The Company, or its subsidiaries, or their Boards of
Directors or any committees thereof, or any officer
or director of the Company or its subsidiaries or any
other person shall not be liable for any act or
failure to act hereunder, except for fraud.
5) This Plan shall be governed by and construed in accordance
with the laws of the State of Wisconsin, to the extent not
preempted by federal law, without reference to conflicts of law
principles.
APPENDIX A
DEFINITIONS:
VESTED: The Participant has an enforceable legal right to
receipt of the benefits described in this Plan. Participants
become Vested in their Supplemental Executive Retirement Benefit
when they reach age 60 (or in Mr. R.A. Abdoo's case, age 58 and
if his actual retirement occurs at or after age 58 but prior to
age 60, he shall be deemed to be age 60 for purposes of all
calculations respecting Supplemental Provision Benefits A and B
hereof), or when prior to age 60 (or in Mr. R.A. Abdoo's case,
age 58) with the approval of the Chief Executive Officer and the
Board of Directors of the Company, the Participant retires and
commences receipt of benefits. A Participant becomes Vested in
the Disability Benefits after such payments of the benefits have
commenced. Vesting also occurs upon the occurrence of a Change
in Control as defined in Article VIII.
PENSION ELIGIBLE EARNINGS: Established base salary for assigned
responsibilities including payments for absences, without regard
for any limitations imposed by the Internal Revenue Code on
benefits or compensation and including any amounts of base salary
that would have been paid to the Participant, but were not paid
because of deferral elections made by the Participant under a
savings or other deferred compensation plan, and including the
total of any incentive performance award determined under the
Company's Short-Term Performance Plan or other short-term plan
which has been approved by the Board for inclusion into Pension
Eligible Earnings for this Plan. Amounts of base salary and
annual incentive will be calculated without regard to any amounts
deferred from such base salary or annual incentive compensation.
WE RETIREMENT ACCOUNT PLAN: The Wisconsin Electric qualified
defined benefit retirement plan, a cash balance pension plan, as
amended and restated effective as of January 1, 1996, as amended
from time to time.
APPENDIX B
GRANDFATHERED MINIMUM BENEFITS FOR PARTICIPANTS WHO ON
DECEMBER 31, 1995 WERE BOTH ACTIVELY EMPLOYED BY THE COMPANY AND
COVERED UNDER THE WE RETIREMENT ACCOUNT PLAN
A Participant who was actively employed by the Company on
December 31, 1995 and who was then covered by the WE Retirement
Account Plan and who continued as an active employee of the
Company until his or her commencement of benefits under this
Plan, shall be eligible for the Benefit A Grandfather
Alternative. The Benefit A Grandfather Alternative will be equal
to the greater of (x) or (y), where:
(x) is the benefit that would have accrued for such
Participant under the provisions of the special
formula minimum retirement income grandfather
sections (the "Grandfathered Benefit Provisions") of
the WE Retirement Account Plan, if the WE Retirement
Account Plan were administered using all Pension
Eligible Earnings as defined in this Plan, less the
amount of the qualified pension benefit that such
Participant would be actually entitled to receive
were the Grandfathered Benefit Provisions of the WE
Retirement Account Plan applied, and
(y) is the benefit that would have accrued for such
Participant under the provisions of the cash balance
formula of the WE Retirement Account Plan, if the
WE Retirement Account Plan was administered using all
Pension Eligible Earnings as defined in this Plan,
less the amount of the qualified benefit that such
Participant would be actually entitled to receive
under the cash balance formula of the WE Retirement
Account Plan were such formula applied.
Credited service and Pension Eligible Earnings after December 31,
2010, will not be used to calculate this Benefit A Grandfather
Alternative, but existing early retirement reductions based upon
the Participant's age and service applicable to the Grandfathered
Benefit Provisions will continue in accordance with the terms of
the WE Retirement Account Plan.
An example of the Benefit A Grandfather Alternative is as
follows:
Assume the Participant actually receives a cash payment at
retirement from the WE Retirement Account Plan of $380,000.
At the time the Participant receives that benefit,
calculations are made to convert the formula (x) benefit
above into a lump sum amount that is the actuarial
equivalent of a life annuity for the life of the Participant
commencing at the later of age 60 or the Participant's age
at benefit commencement. This is accomplished in three
steps. First, the portion of the formula (x) benefit
calculated using all Pension Eligible Earnings is multiplied
by the early retirement reduction factor as determined under
the WE Retirement Account Plan. Secondly, the resulting
benefit is converted into a lump sum actuarial equivalent
($1,450,000 in the illustration below) of the life annuity
form described above, with actuarial equivalency determined
for this purpose by using the interest rate and mortality
table referenced in Article VIII (with such interest rate to
be that in effect on the last business day on the month
prior to payment), Thirdly, the value of the lump sum to
which the Participant would actually be entitled under the
WE Retirement Account were the Grandfathered Benefit
Provisions applied is subtracted ($350,000 in the
illustration below) to obtain the formula (x) net lump sum
amount ($1,100,000 in the illustration below). Calculations
are also made under formula (y) which compare the lump sum
account balance that would have been generated for the
Participant using all Pension Eligible Earnings under the
regular cash balance formula of the WE Retirement Account
Plan ($520,000 in the illustration below) with the actual
lump sum account balance that would be payable to the
Participant were the regular cash balance formula applied
($380,000 in the illustration below). The following
comparisons result:
1) WE Retirement Account Plan:
(a) Cash Balance Formula $380,000
(b) Grandfather Formula 350,000
2) SERP Benefit A Grandfather Alternative, calculated
under:
(a) Cash Balance Formula $ 520,000
(b) Grandfather Formula 1,450,000
3) Actual SERP Benefit A Grandfather is $1,100,000, which
is the greater of 2(a) - 1(a) [$140,000] or 2(b) - 1(b)
[$1,100,000].
Exhibit (10)-2
WISCONSIN ENERGY CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
As amended and restated as of June 2, 1999
WISCONSIN ENERGY CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
I) Purpose and Objective
This Executive Deferred Compensation Plan (the "Plan")
succeeds to and constitutes an amendment and restatement
of the Executive Deferred Compensation Plan effective
January 1, 1996; such amendment and restatement is
effective June 2, 1999. This Plan is maintained by
Wisconsin Energy Corporation (the "Company") to provide
eligible Participants, on a calendar year basis, an
opportunity to defer income until retirement or other
termination of employment, and to permit the accumulation
of "lost" savings plan matching contributions as provided
in Article VI hereof.
The objective of this Plan is to provide an incentive to
enable the Company to attract and retain qualified
executive talent by providing deferral opportunities to
their base salary and annual incentives which enables them
to build an asset base for the use after separation from
service. The Plan is intended to be a "top hat plan"
under the provisions of the Employee Retirement Income
Security Act of 1974.
II) Eligibility
Any key employee of the Company and its subsidiaries as
may designated by the Chief Executive Officer of the
Company, the Company's Board of Directors (the "Board") or
the Compensation Committee of such Board (the "Committee")
is eligible to participate in base salary deferral,
performance award deferrals or 401(k) match makeup or any
combination of these benefits, as determined in such
designation.
III) Definition of Covered Compensation
Compensation that may be deferred into the Plan includes:
1) Annual base salary, and
2) Performance awards under the Company's Short-Term
Performance Plan or other such short-term
performance plan(s) as approved by the Board.
IV) Deferral Elections
1) Base Salary
A Participant may elect to defer a specified
percentage of monthly base salary (defined as the
aggregate monthly base salary from the Company and
its subsidiaries), a specified dollar amount of
monthly base salary or all base salary otherwise
payable for a particular calendar year in excess of a
total dollar amount. Any deferrals elected on a
percentage basis will first be subtracted and only
the balance of the Participant's compensation will be
subject to any dollar amount deferrals elected. A
written deferral election form regarding base salary
must be filed with the Company in accordance with
rules established by the Company, but no later than
the end of the month preceding the month in which the
deferral election will be effective. The deferral
election shall be effective as to compensation earned
after the first day of the month immediately
following the date the form is received by the
Company. A Participant may amend or revoke any
deferral election regarding base salary at any time
by giving written notice to the Company. Such notice
shall become effective on the first day of the month
immediately following receipt of such notice by the
Company. Any election or revocation will be given
prospective effect only and will not affect prior
deferrals.
2) Performance Awards and Other Awards as approved by
the Board
A Participant may elect to defer from 10% to 100% of
any performance award under the Company's Short-Term
Performance Plan or other plan as designated by the
Chief Executive Officer, the Committee or the Board,
a specified dollar amount thereof, or all such award
amounts otherwise payable for a particular calendar
year in excess of a total dollar amount. Any
deferrals elected on a percentage basis will first be
subtracted and only the balance of the Participant's
compensation will be subject to any dollar amount
deferrals elected. A written deferral election form
regarding a performance award which may ultimately
become payable on account of a Participant's services
during the calendar year must be filed with the
Company no later than December 31st of such calendar
year and in any event, prior to the time that the
Participant has earned an absolute and unconditional
right to payment. A Participant may not revoke a
deferral election regarding any such performance
award once such election has been made.
V) 401(k) Savings Plan Match
The intent of this Plan is to provide each Participant who
is eligible to participate in the 401(k) match make-up
feature set forth in this Article V with a credit to such
Participant's bookkeeping account equal to a theoretical
401(k) match, calculated without regard to (a) limitations
imposed by Section 402(g)(1) of the Internal Revenue Code
on the amount of a Participant's savings plan deferral
contributions, (b) limitations on annual compensation as
adjusted from time to time imposed by Section 401(a)(17)
of the Internal Revenue Code, or (c) any limitation on
benefits and contributions imposed by Section 415 of such
Code.
The theoretical 401(k) match (the "401(k) Match") will be
calculated considering all of the Participant's base
salary and any performance award, without regard to any
deferrals made under the Plan and without regard to any of
the limitations that would otherwise be imposed by the
limitations described in (a) through (c) above, and
without regard to the actual pre-tax elective deferral and
after-tax contributions chosen by the Participant in the
qualified 401(k) plan. Instead, an assumption will be
made that the Participant made maximum utilization of the
pre-tax and after-tax contribution opportunity in the
qualified 401(k) plan and obtained the maximum matching
contribution in such plan. Such assumed maximum qualified
401(k) plan contribution shall be subtracted from the
theoretical match. The balance of the theoretical match
will be credited to the Participant's bookkeeping account
under this Plan.
An example of the calculation called for by this Article V
is shown on Exhibit 1 attached to and made a part of this
Plan.
VI) Earnings Credited
1) An amount equivalent to the deferrals elected plus
the amounts credited to the Participant due to the
401(k) Match shall be credited to a bookkeeping
account on the records of the Company in the name of
the Participant, at the time such deferrals and/or
401(k) matches would otherwise have been earned or
paid. Such account shall be simply an unsecured
claim against the general assets of the Company. A
Participant shall have no interest in such account,
which is established merely as an accounting
convenience.
2) Each Participant may elect to invest the account
balance indicated above in either the Interest Rate
Fund or WEC Stock Fund as described below:
a) Interest Rate Fund. Under this method, earnings
shall be credited on the average balance in each
account determined by averaging the beginning
and ending balance of such account within the
period intervening since interest was last
credited to the account (except, in the case of
a new Participant, within the period from the
effective date of such Participant's
participation in the Plan to the end of the next
June 30 or December 31 or the date such
Participant terminates participation, whichever
is earlier) and shall be credited to the account
semiannually, each year, until all distributions
to which the Participant, Participant's estate
or beneficiary is entitled shall have been made.
Whenever a lump sum amount or final distribution
is made as of a date other than June 30 or
December 31, interest shall be credited to the
account as of such payment date. The rate of
interest shall be the prime commercial rate as
published by Firstar Bank, Milwaukee, N.A. in
effect on the last day of the period, except for
any period in which any lump sum amount or final
distribution from an account is made as of a
date other than the end of the period, in which
case the rate of interest shall be the prime
commercial rate as published by Firstar Bank,
Milwaukee, N.A. in effect on the date interest
was last credited as determined above.
b) WEC Stock Fund. Under this method, earnings
shall be credited at a rate which reflects the
performance of Wisconsin Energy Corporation
common stock ("WEC stock"). The value of the
Participant's account in the WEC Stock Fund
shall be determined by taking into account
changes in the value of WEC stock, dividends
paid on WEC stock and any changes in the capital
structure of the Company affecting the value of
WEC stock. Money added to the account will be
credited in whole and fractional shares of WEC
Stock on the date monies are credited to the
account based upon the average of the high and
low stock price of WEC Stock on the New York
Stock Exchange. Dividends will be credited to
the account in whole and fractional shares on
the same day as the dividends are paid.
3) Investment of Deferrals
The Participant's deferral election with regard to
voluntary deferrals shall identify the fund or funds
in which deferrals shall be invested in the form of
10% increments of the total amount voluntarily
deferred. The amounts credited from the 401(k) Match
will be credited total in the WEC Stock Fund.
4) Investment Transfer
In accordance with rules established by the Company,
a Participant may make an election to transfer all or
part of the Participant's balance in the Interest
Rate Fund to the WEC Stock Fund.
VII) Vesting
Participants are 100% vested in amounts deferred into the
Plan plus earnings credited to their account, including
any amounts arising from the 401(k) Match.
VIII) Benefit Payment
1) In the Event of Retirement
At the time when a Participant completes any deferral
election form under this Plan, the Participant shall
also irrevocably specify the method of payment in
which all deferred compensation covered by such
election form shall be made if the Participant
terminates service with the Company or its
subsidiaries because of "retirement". For purposes
of this Plan, "retirement" shall have occurred if the
Participant terminates service on or after age 55
with at least 10 years of service or at or after age
65. The available methods of payment under such
circumstances are:
a) a single lump sum payment as soon as practicable
after the Participant's retirement,
b) a single lump sum payment to be made as of the
first business day of the year immediately
following the Participant's retirement,
c) payment over a ten-year period [as of the first
business day of January following the
Participant's retirement, 1/10th of the total
amount credited to the Participant's account
shall be paid to the Participant and as of the
first business day of each January thereafter,
that fraction of the total remaining amount in
the Participant's account of which the numerator
is 1 and the denominator is the total number of
remaining installments to be made to the
Participant shall be paid to the Participant],
d) payment over a five-year period [calculated in
the same fashion as provided in subparagraph (c)
above, but substituting "1/5th" for "1/10th" and
"five" for "ten" wherever the same appear].
2) In the Event of Disability
In the event the Participant leaves service of the
Company or its subsidiaries due to disability, the
Participant will be considered to have retired for
purposes of the Plan and payments shall be made
accordingly. For purposes of this Plan, "disability"
shall mean separation from service because of such
illness or injury as renders the Participant unable
to perform the material duties of his or her job.
3) In the Event of Death Prior to Termination of
Employment
If a Participant dies prior to termination of
employment with the Company or its subsidiaries, the
designated beneficiaries shall be paid the entire
balance of the account in a single lump sum, with
such distribution to be made within six months after
the Company has been notified of such death. If the
Participant has failed to designate a beneficiary, or
if the beneficiary predeceases the Participant, the
entire balance of the account shall be paid to the
Participant's estate within six months after the
Company has been notified of such death.
4) In the Event of Death After Retirement
If a retired Participant dies after retirement but
before all payments have been made under the selected
method, the remaining payments shall be paid to the
beneficiary for the balance of the applicable five or
ten-year period, or under the lump sum method, if
that was in effect. If the last beneficiary shall
die before receiving the full amount payable under
this Plan, then the balance of the account not paid
shall be paid in a single lump sum to the estate of
such beneficiary within six months after the Company
has been notified of such death.
5) In the Event of Termination for Reasons Other Than
Retirement, Death or Disability
If a Participant terminates employment with the
Company or its subsidiaries for a reason other than
retirement, death or disability, the Participant's
account shall be paid to the Participant in a single
lump sum. Such distribution will be made within 90
days of termination of employment.
6) Optional Lump Sum Payments Upon Approval
Notwithstanding any other provisions of this Plan, a
Participant may make a written request of the Chief
Executive Officer, the Board or the Committee at the
time of retirement or disability for a single lump
sum payment of all amounts covered by this Article
VIII, which request may be granted or denied in his
or its sole and absolute discretion.
7) Mandatory Lump Sum Payments Upon Change in Control
For purposes of this Plan, a "Change in Control" with
respect to the Company shall mean the occurrence of
any of the following events, as a result of one
transaction or a series of transactions:
a) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of
1934, but excluding the Company, its affiliates
and any qualified or nonqualified plan maintained
by the Company or its affiliates) becomes the
"beneficial owner" (as defined in Rule 13(d)
promulgated under such Act), directly or
indirectly, of securities of the Company
representing more than 20% of the combined voting
power of the Company's then outstanding
securities;
b) individuals who constitute a majority of the
Board immediately prior to a contested election
for positions on the Board cease to constitute a
majority as a result of such contested election;
c) the Company is combined (by merger, share
exchange, consolidation, or otherwise) with
another corporation and as a result of such
combination, less than 60% of the outstanding
securities of the surviving or resulting
corporation are owned in the aggregate by the
former shareholders of the Company;
d) the Company sells, leases, or otherwise transfers
all or substantially all of its properties or
assets not in the ordinary course of business to
another person or entity; or
e) the Board determines in its sole and absolute
discretion that there has been a Change in
Control of the Company.
These Change in Control provisions shall apply to
successive Changes in Control on an individual
transaction basis.
Upon the occurrence of a Change in Control, then
notwithstanding any other provision of this Plan, the
Company shall promptly cause to be paid to each
active and retired Participant or beneficiary
receiving benefits under this Plan a single lump sum
payment for all amounts covered by this Article VIII,
without regard to whether any Participant's
employment with the Company or any of its
subsidiaries is continuing. However, if the
Participant in fact so continues and this Plan
continues, appropriate provisions shall be made so
that any subsequent payments made from this Plan are
reduced to reflect the value of such lump sum
payment.
8) Cash Distributions
All distributions under the Plan shall be in cash.
IX) Plan Amendment
The Board or the Committee reserves the right to amend,
modify, or terminate this Plan at any time; provided,
however, no such action will reduce the amounts then
credited to any Participant's account or change the time
and manner of payment of the value thereof, without the
consent of the Participant, if living, or the
Participant's designated beneficiary or beneficiaries, if
the Participant is not living. The Chief Executive
Officer of the Company may also make amendments to this
Plan at any time, consistent with the authority delegated
to the Chief Executive Officer by the Board regarding such
amendments.
X) Claim Procedure
The Participant or the Participant's beneficiary (a
"Claimant") may file a written request for benefits or
claim with the Company under this Plan. In the event of
any dispute with respect to such a claim, the following
claim procedures shall apply:
1) The Company acting as the administrator for this
Plan, shall notify the Claimant within 90 days of
receipt by the Company of a written claim of its
allowance or denial, unless the Claimant receives
written notice from the Company prior to the end of
the initial 90 day period indicating that special
circumstances require an extension of time for
decision. A written notice of decision shall be
provided to the Claimant and if the claim is denied
in whole or in part, the notice shall contain the
following information: the specific reasons for the
denial; specific reference to pertinent provisions of
the Plan on which the denial is based; if applicable,
a description of any additional material information
necessary to perfect the claim and an explanation of
why such information is necessary; and an explanation
of the claim review procedure.
2) A Claimant is entitled to request a review of any
denial of his/her claim by the Board or Committee.
The request for review must be submitted in writing
within 60 days of mailing of notice of the denial.
Absent a request for review within the 60-day period,
the claim will be deemed to be conclusively denied.
The Claimant or the Claimant's representative shall
be entitled to review all pertinent documents, and to
submit issues and comments orally and in writing.
The Board or Committee thereof shall render a review
decision in writing, within 60 days after receipt of
a request for a review, provided that, in special
circumstances (such as the necessity of holding a
hearing) the Board or Committee may extend the time
for decision by not more than 60 days upon written
notice to the Claimant. The Claimant shall receive
written notice of the separate review decision of the
Board or Committee, together with specific reasons
for the decision and reference to the pertinent
provisions of this Plan.
3) The Company, as administrator for this Plan (whether
acting through its employees, the Board or a
Committee), shall have full and complete
discretionary authority to construe and interpret
this Plan and to decide any matter presented through
the claims review procedure. Any final determination
by the administrator shall be binding on all parties.
If challenged in court, such determination shall not
be subject to de novo review and shall not be
overturned unless proven to be arbitrary and
capricious based upon the evidence considered by the
administrator at the time of such determination.
XI) Beneficiary Designation
1) Each Participant from time to time may designate any
person or persons to receive such benefits as may be
payable under the Plan upon or after the
Participant's death, and such designation may be
changed from time to time by the Participant by
filing a new designation. Each designation will
revoke all prior designations by the same
Participant, shall be in a form prescribed by the
Company, and will be effective only when filed in
writing with the Company during the Participant's
lifetime. If the Participant has failed to designate
a beneficiary, or if the beneficiary predeceases the
Participant, benefits as may be payable under the
Plan will be paid to the Participant's estate.
XII) Miscellaneous
1) The Chief Executive Officer, the Board or the
Committee may establish, amend or rescind from time
to time rules and regulations which are necessary or
desirable in connection with the Plan. The Chief
Executive Officer may not act on any matter involving
his own participation in this Plan. The Company
shall have the right to withhold from any amounts
payable under this Plan any taxes or other amounts
required to be withheld by any governmental
authority.
2) Every person receiving or claiming payments under
this Plan shall be conclusively presumed to be
mentally competent until the date on which the
Company receives a written notice, in form and manner
acceptable to it, that such person is incompetent and
that a guardian, conservator, or other person legally
vested with the care of such person's estate has been
appointed. In the event a guardian or conservator of
the estate of any person receiving or claiming
payments under this Plan shall be appointed by a
court of competent jurisdiction, payments may be made
to such guardian or conservator provided that proper
proof of appointment and continuing qualification is
furnished in a form and manner acceptable to the
Company. Any such payment so made shall be a
complete discharge of any liability therefor.
3) Participation in this Plan, or any modifications
thereof, or the payment of any benefits hereunder,
shall not be construed as giving to the Participant
any right to be retained in the service of the
Company or its subsidiaries, limiting in any way the
right of the Company or its subsidiaries to terminate
the Participant's employment at any time, evidencing
any agreement or understanding, express or implied,
that the Company or its subsidiaries will employ the
Participant in any particular position or at any
particular rate of compensation and/or guaranteeing
the Participant any right to receive a salary
increase in any year, such increase being granted
only at the sole discretion of the Compensation
Committee of the Board.
4) The Company, or its subsidiaries, or their Boards of
Directors or any committees thereof, or any officer
or director of the Company or its subsidiaries or any
other person shall not be liable for any act or
failure to act hereunder, except for fraud.
5)This Plan shall be governed by and construed in accordance
with the laws of the State of Wisconsin, to the extent not
preempted by federal law, without reference to conflicts of law
principles.
EXHIBIT 1
MAKE WHOLE CONTRIBUTION ATTRIBUTABLE TO SAVINGS PLAN
EXAMPLE
Assumptions:
* 1999 pre-deferred compensation - $180,000
* STPP Award - $72,000 [50% ($36,000) deferred into the EDCP]
* 401(k) pre-tax contribution - 6% of pay for pre- and
after-tax (actual level of participation in 401(k) plan is
disregarded)
* Employer match - 50% of pre-and after-tax contributions up to
6%
* EDCP base salary deferral - 15%
Theoretical Match Based on total compensation of base
Without Regard to IRS $180,000 plus STPP Award of $72,000
Limitations: for total of $252,000. $252,000 x
6% x 50% = $7,560
Less Assumed Maximum $160,000 (maximum compensation for
401(k) Plan Match: 1999 in 401(k) plan) x 6% x 50% = $4,800
-------
Lost 401(k) Match Created Under EDCP: $2,760
Exhibit (10)-3
WISCONSIN ENERGY CORPORATION
SHORT-TERM PERFORMANCE PLAN
As amended and restated as of June 2, 1999
WISCONSIN ENERGY CORPORATION
SHORT-TERM PERFORMANCE PLAN
This Plan ("the Wisconsin Energy Corporation Short-Term
Performance Plan") succeeds to and constitutes an amendment and
restatement of the Wisconsin Energy Corporation Short-Term
Performance Plan, effective January 1, 1992; such amendment and
restatement is effective as of June 2, 1999. All the provisions
of this amended and restated Plan, as subsequently amended, shall
apply to all active employee Participants.
I) Purpose and Objectives
The purpose of this Plan is to provide an annual
incentive compensation plan which permits the awarding of
annual cash bonuses to eligible employees of Wisconsin
Energy Corporation (the "Company") and/or its
subsidiaries, based on the achievement of pre-established
performance goals which promote the achievement of
shareholder, customer and employee-focused objectives
while recognizing individual performance.
II) Eligibility
1) Definition of a "Participant"
The term "Participant" as used in this Plan refers to
any key employee of the Company and/or its
subsidiaries who is designated for participation in
the Plan annually by the Chief Executive Officer of
the Company, the Company's Board of Directors (the
"Board") or the Compensation Committee of the Board
(the "Committee"). An employee can be designated as
a "Participant" for either Benefit A or Benefit B as
described in the Plan. Employees designated as
Participants in either Benefit A or Benefit B of the
Plan shall be so notified in writing, and shall be
apprised of the performance goals and related target
awards for the relevant plan year.
2) Partial Plan Year Participation
Generally, Participants will be in the active employ
of the Company prior to the first day of any plan
year, but an individual who becomes employed after
that date may be designated as a Participant.
In that event, such employee's final award shall be
prorated based upon the number of full months of
eligibility during such plan year. The Chief
Executive Officer, the Board or the Committee shall
have full discretion to determine the proper
calculation for such proration, or adjust the target
and/or performance awards.
III) Award Determination
1) Target Award Level
Prior to the beginning of each plan year or as soon
as practicable thereafter, the Chief Executive
Officer, the Board or the Committee shall approve a
target award for each Participant. The established
target award shall vary in relation to the
Participant's responsibilities and influence on
achievement of short-term goals. In the event a
Participant's responsibilities change during a plan
year, the Participant's target award may be adjusted
to reflect the level of responsibility at the end of
the plan year.
2) Performance Goals
Prior to the beginning of each plan year, or as soon
as practicable thereafter, performance goals for that
plan year shall be established with the approval of
the Chief Executive Officer, the Board or the
Committee. The goals may be based on any combination
of corporate, subsidiary, divisional, and/or
individual goals. More than one performance goal may
be established, and multiple goals may have the same
or different weightings. Various achievement levels
of performance for each performance goal may be
established.
The Chief Executive Officer, the Board or the
Committee may also establish one or more Company-wide
performance goals which must be achieved for any
Participant to receive an award for that plan year.
3) Adjustment of Performance Goals
The Chief Executive Officer, the Board or the
Committee may make an adjustment to the performance
goals and the target awards (either up or down)
during a plan year if it determines that external
changes or other unanticipated business conditions
have materially affected the fairness of the goals
and have unduly influenced the Company's ability to
meet them. Further, in the event of a plan year of
less than twelve (12) months, the Chief Executive
Officer, the Board or the Committee may make an
adjustment to the performance goals and the target
awards accordingly, at his or its discretion.
4) Final Award Determinations
At the end of each plan year, final awards shall be
computed for each Participant as approved by the
Chief Executive Officer, the Committee or the Board.
Final award amounts may vary above or below the
target awards, based on achievement of the
pre-established corporate, subsidiary, divisional,
and/or individual performance goals.
5) Award Cap
The Chief Executive Officer, the Committee or the
Board may establish guidelines governing the maximum
final awards that may be earned by Participants
(either in the aggregate, by employee groups
established for this purpose, or among individual
Participants) in each plan year. The guidelines may
be expressed as a percentage of Company-wide goals or
financial measures, or such other measures.
IV) Payment of Final Awards
1) Form and Timing of Payments
Final award payments shall be paid as soon as
practicable after award amounts are approved.
2) Awards Under Benefit A
a) Deferral of Award
A Participant may elect to defer a portion or
all of the final award under Benefit A pursuant
to the terms and conditions set forth in the
Company's Executive Deferred Compensation Plan,
which are hereby incorporated by reference.
b) Retirement Income Consideration
Final awards under Benefit A shall be excluded
from the compensation used for calculating
retirement income under the qualified defined
benefit retirement plan of the Company. In
consideration of this exclusion, there is a
"make-whole" pension supplement applicable to
Participants in this Plan regarding final awards
under Benefit A, pursuant to the terms and
conditions set forth in the Company's
Supplemental Executive Retirement Plan, which
are hereby incorporated by reference.
3) Awards Under Benefit B
Final awards for employees designated as Participants
under Benefit B are not subject to any "make-whole"
pension supplement and such awards may not be
deferred under the Company's Executive Deferred
Compensation Plan.
4) Unsecured Interest
No Participant or any other party claiming an
interest in amounts earned under the Plan shall have
any interest whatsoever in any specific asset of the
Company. To the extent that any party acquires a
right to receive payments under the Plan, such right
shall be equivalent to that of an unsecured general
creditor of the Company.
V) Termination of Employment
1) Termination of Employment Due to Death, Disability or
Retirement
In the event a Participant's employment is terminated
by reason of death, "Disability," or "Retirement,"
the final award determined in accordance with Section
III(4), shall be reduced to reflect participation
prior to termination only. For purposes of this
Plan, "Retirement" shall have occurred if the
Participant terminates service either on or after age
55 with at least 10 years of service, at or after age
65, or at time when such Participant is eligible for
an employer provided retiree medical plan and
"Disability" shall have the same meaning as in the
Company's long-term disability plan. The reduced
award shall be determined by multiplying said final
award by a fraction, the numerator of which is the
number of full months of employment in the plan year
and the denominator of which is twelve (12). In the
case of a Participant's Disability, the employment
termination shall be deemed to have occurred on the
date the Chief Executive Officer, the Board or the
Committee determines the definition of Disability to
have been satisfied.
The final award thus determined shall be paid as soon
as practicable following the end of the plan year in
which employment termination occurred.
2) Termination of Employment for Other Reasons
In the event a Participant's employment is terminated
for any reason other than death, Disability, or
Retirement (of which the Chief Executive Officer, the
Board or the Committee shall be the sole judge), all
of the Participant's rights to a final award for the
plan year then in progress shall be forfeited.
However, except in the event of an employment
termination for "Cause," the Chief Executive Officer,
the Board or the Committee may waive such provisions
and allow a prorated award for the portion of that
plan year that the Participant was employed by the
Company.
Cause shall be defined as:
a) the willful and continued failure of the
Participant to substantially perform the
Participant's duties (other than failure
resulting from incapacity due to physical or
mental illness), after a written demand for
substantial performance is delivered to the
Participant by the Board, the Committee or an
elected officer of the Company which
specifically identifies the manner in which the
Board, the Committee or the elected officer
believes that the Participant has not
substantially performed the Participant's
duties, or
b) the willful engaging by the Participant in
illegal conduct or gross misconduct which is
materially and demonstrably injurious to the
Company. However, no act, or failure act, on
the Participant's part shall be considered
"willful" unless done, or omitted to be done, by
the Participant not in good faith and without
reasonable belief that his or her action or
omission was in the best interest of the
Company.
VI) Rights of Participants
1) Employment
Nothing in the Plan shall interfere with or limit in
any way the right of the Company or employing
subsidiary to terminate any Participant's employment
at any time, nor confer upon any Participant any
right to continue in the employ of the Company or any
subsidiary.
2) Nontransferability
No right or interest of any Participant in the Plan
shall be assignable or transferable, or subject to
any lien, directly, by operation of law, or
otherwise, including, but not limited to, execution,
levy, garnishment, attachment, pledge, and
bankruptcy.
VII) Beneficiary Designation
Each Participant under the Plan may, from time to time,
name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under
the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each
designation will revoke all prior designations by the
same Participant, shall be in a form prescribed by the
Company and will be effective only when filed in writing
with the Company during the Participant's lifetime. In
the absence of any such designation, or if the
beneficiary predeceases the Participant, benefits
remaining unpaid at the Participant's death shall be paid
to the Participant's estate.
VIII) Amendments
The Board or the Committee, in its sole discretion,
without notice, at any time and from time to time, may
modify or amend, in whole or in part, any or all of the
provisions of the Plan, or suspend or terminate it
entirely; provided, however, that no such modification,
amendment, suspension, or termination may, without the
consent of a Participant (or his or her beneficiary in
the case of the death of the Participant), reduce the
right of a Participant (or his or her beneficiary as the
case may be) to a payment or distribution hereunder of a
final award to which he or she is entitled. The Chief
Executive Officer may also make amendments to the Plan at
any time, consistent with the authority delegated to the
Chief Executive Officer by the Board regarding such
amendments.
IX) Miscellaneous
1) The Chief Executive Officer, the Board or the
Committee may establish, amend or rescind from time
to time rules and regulations which are necessary or
desirable in connection with the Plan. The Chief
Executive Officer may not act on any matter involving
his own participation in this Plan. The Company
shall have the right to withhold from any amounts
payable under this Plan any taxes or other amounts
required to be withheld by any governmental
authority.
2) Every person receiving or claiming payments under
this Plan shall be conclusively presumed to be
mentally competent until the date on which the
Company receives a written notice, in form and manner
acceptable to it, that such person is incompetent and
that a guardian, conservator, or other person legally
vested with the care of such person's estate has been
appointed. In the event a guardian or conservator of
the estate of any person receiving or claiming
payments under this Plan shall be appointed by a
court of competent jurisdiction, payments may be made
to such guardian or conservator provided that proper
proof of appointment and continuing qualification is
furnished in a form and manner acceptable to the
Company. Any such payment so made shall be a
complete discharge of any liability therefor.
3) Participation in this Plan, or any modifications
thereof, or the payment of any benefits hereunder,
shall not be construed as giving to the Participant
any right to be retained in the service of the
Company or its subsidiaries, limiting in any way the
right of the Company or its subsidiaries to terminate
the Participant's employment at any time, evidencing
any agreement or understanding, express or implied,
that the Company or its subsidiaries will employ the
Participant in any particular position or at any
particular rate of compensation and/or guaranteeing
the Participant any right to receive a salary
increase in any year, such increase being granted
only at the sole discretion of the Compensation
Committee of the Board.
4) The Company, or its subsidiaries, or their Boards of
Directors or any committees thereof, or any officer
or director of the Company or its subsidiaries or any
other person shall not be liable for any act or
failure to act hereunder, except for fraud.
5) This Plan shall be governed by and construed in
accordance with the laws of the State of Wisconsin,
to the extent not preempted by federal law, without
reference to conflicts of law principles.
Exhibit (10)-4
SENIOR OFFICER CHANGE IN CONTROL AGREEMENT
This SENIOR OFFICER CHANGE IN CONTROL AGREEMENT (the "Agreement")
is entered into as of this 29th day of July, 1999 between
WISCONSIN ENERGY CORPORATION (the "Company") and RICHARD A. ABDOO
(the "Executive").
WHEREAS, the Executive is currently the Chief Executive Officer,
President and Chairman of the Board of the Company and the Board
of Directors of the Company (the "Board") wishes to encourage the
Executive to continue to devote his time and attention to pursuit
of Company matters without distractions relating to his
employment security; and
WHEREAS, the Company intends that this Agreement will provide the
Executive with certain minimum compensation rights in the event
of the termination of his employment under the circumstances set
forth herein;
NOW, THEREFORE, in consideration of the terms and conditions set
forth herein, the parties agree as follows:
1. Defined Terms. All of the capitalized terms used in this
Agreement are defined in the attached Appendix.
2. Purpose of Agreement. This Agreement is intended to provide
the Executive with certain minimum compensation rights in
the event of his termination of employment under certain
circumstances associated with a Change in Control of the
Company as set forth herein.
3. Obligation of the Company on a Covered Termination of
Employment. In the event of a Covered Termination of
Employment, then the Company shall provide the Executive
with the following compensation and benefits:
(a) General Compensation and Benefits. The Company shall
pay the Executive's full salary to the Executive from
the time notice of termination is given through the
date of termination of employment at the rate in effect
at the time such notice is given or, if higher, at an
annual rate not less than twelve (12) times the
Executive's highest monthly base salary for the
12-month period immediately preceding the month in
which the Effective Date occurs, together with all
compensation and benefits payable to the Executive
through the date of termination of employment under the
terms of any compensation or benefit plan, program or
arrangement maintained by the Employer during such
period. Such payments shall be made in a lump sum not
later than five (5) days after such termination. The
Company shall also pay the Executive's normal
post-termination compensation and benefits to the
Executive as such payments become due, except that any
normal cash severance benefits shall be superseded and
replaced entirely by the benefits provided under this
Agreement. Such post-termination compensation and
benefits shall be determined under, and paid in
accordance with, the Employer's retirement, insurance
and other compensation or benefit plans, programs and
arrangements most favorable to the Executive in effect
at any time during the 180-day period immediately
preceding the Effective Date or, if more favorable to
the Executive, those provided generally at any time
after the Effective Date to executives of the Company
of comparable status and position to the Executive.
(b) Incentive Compensation. Notwithstanding any provision
of any cash bonus or incentive compensation plan of the
Employer, the Company shall pay to the Executive,
within five (5) days after the Executive's termination
of employment, a lump sum amount, in cash, equal to the
sum of (i) any bonus or incentive compensation which
has been allocated or awarded to the Executive for a
fiscal year or other measuring period under the plan
that ends prior to the date of termination of
employment, but which has not yet been paid, or (ii) a
pro rata portion to the date of termination of
employment of the aggregate value of all contingent
bonus or incentive compensation awards to the Executive
for all uncompleted periods under the plan calculated
as to each such award as if the "target" with respect
to such bonus or incentive compensation award had been
attained.
(c) Special Compensation. The Company shall pay to the
Executive a lump sum equal to three (3) times the sum
of (a) the highest per annum base rate of salary in
effect with respect to the Executive during the 3-year
period immediately prior to the termination of
employment plus (b) the higher of (i) the highest
annual bonus or incentive compensation earned by the
Executive under any cash bonus or incentive
compensation plan of the Company during the three (3)
complete fiscal years of the Company immediately
preceding the termination of employment or, if more
favorable to the Executive, during the three (3)
complete fiscal years of the Company immediately
preceding the Change in Control of the Company; or (ii)
the Executive's bonus or incentive compensation
"target" for the fiscal year in which the termination
of employment occurs. Such lump sum shall be paid by
the Company to the Executive within five (5) days after
the Executive's termination of employment. Such lump
sum shall not be treated as compensation for purposes
of any other benefit plan or program applicable to the
Executive.
(d) Welfare Benefits. Subject to Section 3(e) below, for a
three (3) year period following termination of
employment, the Company shall provide the Executive
with health, disability, life and other welfare
benefits substantially similar to the benefits received
by the Executive pursuant to the Company's (or an
affiliated employer's) welfare benefit programs as in
effect immediately during the 180 days preceding the
Effective Date (or, if more favorable to the Executive,
as in effect at any time thereafter until the
termination of employment); provided, however, that no
compensation or benefits provided hereunder shall be
treated as compensation for purposes of any of the
programs or shall result in the crediting of additional
service thereunder. To the extent that any of the
welfare benefits covered by this Section 3(d) cannot be
provided pursuant to the plan or program maintained by
the Company or its affiliates, the Company shall
provide such benefits outside the plan or program at no
additional cost (including, without limitation, tax
cost) to the Executive and his family. For purposes of
determining the eligibility of the Executive for any
retiree medical, dental and life insurance benefits
under the Company's (or any affiliated employer's)
welfare benefit plans, practices and policies, the
Executive shall be considered to have remained employed
and to have retired on the last day of a three (3) year
period following termination of employment.
(e) New Employment. If the Executive secures new
employment during the 3-year period following
termination of employment, the level of any benefit
being provided pursuant to Section 3(d) hereof shall be
reduced to the extent that any such benefit is being
provided by the Executive's new employer. The
Executive, however, shall be under no obligation to
seek new employment and, in any event, no other amounts
payable pursuant to this Agreement shall be reduced or
offset by any compensation received from new employment
or by any amounts claimed to be owed by the Executive
to the Company or any affiliated employer.
4.Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, and whether or not a Covered
Termination of Employment occurs, in the event it shall
be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise,
but determined without regard to any additional
payments required under this Section 4) (a "Payment")
would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended
(the "Code") or any interest or penalties are incurred
by the Executive with respect to such excise tax (such
excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as
the "Excise Tax"), then the Executive shall be entitled
to receive an additional payment (a "Gross-Up Payment")
in an amount such that after payment by the Executive
of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax
imposed on the Gross-Up Payment, the Executive retains
an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(b) Subject to the provisions of paragraph (c) of this
Section 4, all determinations required to be made under
this Section 4, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving
at such determination, shall be made by a certified
public accounting firm designated by the Executive (the
"Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the
Executive within fifteen (15) business days of the
receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by
the Company. In the event that the Accounting Firm is
serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the
Executive shall appoint another nationally recognized
accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely
by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 4, shall be paid by the
Company to the Executive within five (5) days of the
receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant
to paragraph (c) of this Section 4 and the Executive
thereafter is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of
the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to
or for the benefit of Executive.
(c) The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of
the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business
days after the Executive is informed in writing of such
claim and shall apprise the Company of the nature of
such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such
claim prior to the expiration of the 30-day period
following the date on which he gives such notice to the
Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably
request in writing from time to time, including,
without limitation, accepting legal
representation with respect to such claim by an
attorney reasonably selected by the Company.
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim; provided,
however, that the Company shall bear and pay
directly all costs and expenses (including
additional interest and penalties) incurred in
connection with such contest and shall indemnify
and hold the Executive harmless, on an after-tax
basis, for any Excise Tax or income tax
(including interest and penalties with respect
thereto) imposed as a result of such
representation and payment of costs and
expenses. Without limitation on the foregoing
provisions of this paragraph (c) of Section 4,
the Company shall control all proceedings taken
in connection with such contest and, at its sole
option, may pursue or forego any and all
administrative appeals, proceedings, hearings
and conferences with the taxing authority in
respect of such claim and may, at its sole
option, either direct the Executive to pay the
tax claimed and sue for a refund or contest the
claim in any permissible manner, and the
Executive agrees to prosecute such contest to a
determination before any administrative
tribunal, in a court of initial jurisdiction and
in one or more appellate courts, as the Company
shall determine; provided, however, that if the
Company directs the Executive to pay such claim
and sue for a refund, the Company shall advance
the amount of such payment to the Executive, on
an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax
(including interest or penalties with respect
thereto) imposed with respect to such advance or
with respect to any imputed income with respect
to such advance; and provided, further, that any
extension of the statute of limitations relating
to payment of taxes for the taxable year of the
Executive with respect to which such contested
amount is claimed to be due is limited solely to
such contested amount. Furthermore, the
Company's control of the contest shall be
limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or
contest, as the case may be, any other issue
raised by the Internal Revenue Service or any
other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph (c) of
this Section 4, the Executive becomes entitled to
receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying
with the requirements of paragraph (c) of this Section
4) promptly pay to the Company the amount of such
refund (together with any interest paid or credited
thereon after taxes applicable thereto). If after the
receipt by the Executive of an amount advanced by the
Company pursuant to paragraph (c) of this Section 4, a
determination is made that the Executive shall not be
entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of
its intent to contest such denial of refund prior to
the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of
such advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.
5. Termination of Employment. The Executive's employment shall
cease on his death while in the Company's employ. The
Company shall be entitled to terminate the Executive's
employment on account of Disability pursuant to the
procedures set forth in Section (d) of the Appendix, for
Cause pursuant to the procedures set forth in Section (a) of
the Appendix, or without Cause by giving written notice to
the Executive of such termination. The Executive may
terminate his employment for Good Reason by giving the
Company written notice of the termination, setting forth in
reasonable detail the specific conduct of the Company that
constitutes Good Reason. A termination of employment by the
Executive for Good Reason shall be effective on the fifth
(5th) business day following the date such notice is given,
unless the notice sets forth a later date (which date shall
in no event be later than 30 days after the notice is
given). In the event of a dispute regarding whether the
Executive's voluntary termination qualifies as a termination
for Good Reason, no claim by the Company that the same does
not constitute a termination for Good Reason shall be given
effect unless the Company establishes by clear and
convincing evidence that such termination does not
constitute a termination for Good Reason. The Executive may
also terminate his employment without Good Reason by giving
the Company written notice of such termination.
6. Obligations of the Company on Termination of Employment for
Death, Disability, for Cause or by the Executive Other than
for Good Reason. If the Executive's employment is
terminated by reason of his death or Disability, or if such
employment is terminated by the Company for Cause or by the
Executive other than for Good Reason, the Company will pay
to the Executive's estate or legal representative or to the
Executive, as the case may be, all accrued but unpaid base
salary and all other benefits and amounts which may become
due in accordance with the terms of any applicable benefit
plan, contract, agreement or practice, but no compensation
or benefits will be paid under this Agreement.
7. Successors and Binding Agreements.
(a) The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially
all of the business and/or assets of the Company
expressly to assume and to agree to perform this
Agreement in the same manner and to the same extent the
Company would be required to perform if no succession
had taken place. This Agreement shall be binding upon
and inure to the benefit of the Company and any such
successor, and such successor shall thereafter be
deemed the "Company" for the purposes of this
Agreement.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's respective personal or
legal representative, executor, administrator,
successor, heirs, distributees and/or legatees.
(c) Neither the Company nor the Executive may assign,
transfer or delegate this Agreement or any rights or
obligations hereunder except as expressly provided in
this Section. Without limiting the generality of the
foregoing, the Executive's right to receive payments
hereunder shall not be assignable or transferable,
whether by pledge, creation of a security interest or
otherwise, other than by a transfer by will or the laws
of descent and distribution. In the event the
Executive attempts any assignment or transfer contrary
to this Section, the Company shall have no liability to
pay any amount so attempted to be assigned or
transferred.
8. Notices. All communications provided for herein shall be in
writing and shall be deemed to have been duly given when
delivered or five (5) business days after having been mailed
by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to the Company
(to the attention of the Secretary of the Company) at its
principal executive office and to the Executive at his/her
principal residence, or to such other address as any party
may have furnished to the other in writing in accordance
herewith, except that notices of a change of address shall
be effective only upon receipt.
9. Governing Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the
laws of the State of Wisconsin without giving effect to the
principles of conflict of laws of such state, except that
Section 10 shall be construed in accordance with the Federal
Arbitration Act if arbitration is chosen by the Executive as
the method of dispute resolution.
10. Settlement of Disputes; Arbitration. Any dispute or
controversy arising under or in connection with this
Agreement shall be settled, at the Executive's election,
either by arbitration in Milwaukee, Wisconsin in accordance
with the rules of the American Arbitration Association then
in effect or by litigation; provided, however, that in the
event of a dispute regarding whether the Executive's
employment has been terminated for Cause or whether the
Executive's voluntary termination qualifies as a termination
for Good Reason, the evidentiary standards set forth in this
Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
11. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement
which shall remain in full force and effect. If any
provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such
provision, together with all other provisions of this
Agreement, shall remain valid and enforceable and continue
in full force and effect to the fullest extent consistent
with law.
12. Entire Agreement; Amendments. This Agreement constitutes
the entire understanding and agreement of the parties with
respect to the matters discussed herein and supersedes all
other prior agreements and understandings, written or oral,
between the parties with respect thereto. There are no
representations, warranties or agreements of any kind
relating thereto that are not set forth in this Agreement.
This Agreement may not be amended or modified except by a
written instrument signed by the parties hereto or their
respective successors and legal representatives.
13. Withholding. The Company may withhold from any amounts
payable under this Agreement all federal, state and other
taxes as shall be legally required.
14. Certain Limitations. Nothing in this Agreement shall grant
the Executive any right to remain an executive, director or
employee of the Company or of any of its subsidiaries for
any period of time.
15. IN WITNESS WHEREOF, the parties have executed this Agreement
on the day and date first written above.
WISCONSIN ENERGY CORPORATION
/s/Richard A. Abdoo /s/Thomas H. Fehring
- ---------------------------- By:-----------------------------
RICHARD A. ABDOO Corporate Secretary
APPENDIX
This is an appendix to the Senior Officer Change in Control Agreement
between WISCONSIN ENERGY CORPORATION and RICHARD A. ABDOO dated July
29, 1999 (the "Agreement").
As used in the Agreement, the terms set forth below shall have the
following meanings:
(a) "Cause" means that the Executive shall, prior to any termination
of employment have:
(i) engaged in any act of fraud, embezzlement or theft in
connection with his duties for or in the course of his
employment by the Company or any of its affiliates;
(ii) wrongfully disclosed any confidential information of the
Company or any of its affiliates; or
(iii) engaged in willful misconduct in the performance of his
duties for the Company or any of its affiliates that was
intended to personally benefit the Executive; and in any
such case the act shall have been determined by the Board
to have been materially harmful to the Company. The
Executive may only be terminated for Cause if the Company
gives written notice to the Executive of its intention to
terminate the Executive's employment for Cause, setting
forth in reasonable detail the specific conduct of the
Executive that it considers to constitute Cause and the
specific provision(s) of this Agreement on which it
relies, and stating the date, time and place of the
Special Board Meeting for Cause. The "Special Board
Meeting for Cause" means a meeting of the Board called
and held specifically for the purpose of considering the
Executive's termination for Cause, that takes place not
less than ten (10) and not more than twenty (20) business
days after the Executive receives the notice of
termination for Cause. The Executive shall be given an
opportunity, together with counsel, to be heard at the
Special Board Meeting for Cause. The Executive's
termination for Cause shall be effective when and if a
resolution is duly adopted at the Special Board Meeting
for Cause by affirmative vote of a majority of the entire
membership of the Board, excluding employee directors,
stating that in the good faith opinion of the Board, the
Executive is guilty of the conduct described in the
notice of termination for Cause and that conduct
constitutes Cause under this Agreement. In the event of
a dispute regarding whether the Executive's employment
has been terminated for Cause, no claim by the Company
that Cause exists shall be given effect unless the
Company establishes by clear and convincing evidence that
Cause exists.
(b) "Change in Control" with respect to the Company means the
occurrence of any of the following events, as a result of one
transaction or a series of transactions:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, but
excluding the Company, its affiliates and any qualified
or nonqualified plan maintained by the Company or its
affiliates) becomes the "beneficial owner" (as defined in
Rule 13(d) promulgated under such Act), directly or
indirectly, of securities of the Company representing
more than 20% of the combined voting power of the
Company's then outstanding securities;
(ii) individuals who constitute a majority of the Board
immediately prior to a contested election for positions
on the Board cease to constitute a majority as a result
of such contested election;
(iii) the Company is combined (by merger, share exchange,
consolidation, or otherwise) with another corporation and
as a result of such combination: (A) less than 60% of
the outstanding securities of the surviving or resulting
corporation are owned in the aggregate by the former
shareholders of the Company and (B) those individuals who
were directors of the Company immediately prior to such
transaction do not constitute a majority of the Board of
Directors of the surviving or resulting corporation
immediately after such transaction; or
(iv) the Company sells, leases, or otherwise transfers all or
substantially all of its properties or assets not in the
ordinary course of business to another person or entity
unless such sale, lease or transfer is pursuant to a plan
adopted by the Company to disaggregate its electric
generation, transmission or distribution assets.
These Change in Control provisions shall apply to successive Changes
in Control on an individual transaction basis.
(c) "Covered Termination of Employment" means:
(i) a termination of employment by the Company other than
because of death or Disability and without Cause, which
occurs within a period of eighteen (18) months following
the Effective Date or,
(ii) a termination of employment by the Company other than
because of death or Disability and without Cause within a
period of six (6) months prior to the Effective Date, and
it is reasonably demonstrated by the Executive that such
termination of employment was at the request of a third
party who has taken steps reasonably calculated to effect
a Change in Control or otherwise arose in connection with
or in anticipation of a Change in Control, or
(iii) a termination of employment by the Executive for Good
Reason within a period of eighteen (18) months following
the Effective Date and also subsequent to the occurrence,
without the Executive's written consent, of any event
described in Section (f) after the Effective Date, or, in
the case of an event described in Section (f)(i), (ii),
(iii) or (iv), such event occurs on or before the
Effective Date and it is reasonably demonstrated by the
Executive that such event occurred at the request of a
third party who has taken steps reasonably calculated to
effect a Change in Control or otherwise arose in
connection or in anticipation of a Change in Control, or
(iv) a voluntary termination of employment by the Executive
without Good Reason following completion of one year of
service after a Change in Control of the Company,
provided that the voluntary termination must be effected
by the Executive within six (6) months after the
completion of that one-year of service.
(d) "Disability" means that the Executive has been unable, for a
period of 180 consecutive business days, to perform the material
duties of his job, as a result of physical or mental illness or
injury and that a physician selected by the Company or its
insurers and acceptable to the Executive or his legal
representative, has determined that the Executive's incapacity
is total and permanent. A termination of the Executive's
employment by the Company for Disability shall be communicated
to the Executive by written notice and shall be effective on the
30th day after receipt of such notice by the Executive, unless
the Executive returns to full-time performance of his duties
before the expiration of such 30-day period.
(e) "Effective Date" means the first date on which a Change in
Control of the Company occurs.
(f) "Good Reason" means:
(i) the assignment to the Executive of any duties
inconsistent with the customary duties of a Chief
Executive Officer or any other action by the Company that
results in a diminution in the Executive's position,
authority, duties or responsibilities, or
(ii) any reduction in the Executive's base salary or
percentage of base salary available as an incentive
compensation or bonus opportunity relative to those most
favorable to the Executive in effect at any time during
the 180-day period prior to the Effective Date or to the
extent more favorable to the Executive, those in effect
after the Effective date, or
(iii) the relocation of the Executive's principal place of
employment to a location more than 35 miles from the
Executive's principal place of employment immediately
prior to the Effective Date, or
(iv) the Company's requiring the Executive to travel on
Company business to a materially greater extent than was
required immediately prior to the Effective Date, or
(v) the failure by the Company to comply with Section 7(a) of
this Agreement.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS OF
WISCONSIN ENERGY CORPORATION FOR THE SIX MONTHS
ENDED JUNE 30, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<PERIOD-TYPE> 6-MOS
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> <F1> 3,276,956
<OTHER-PROPERTY-AND-INVEST> <F2> 1,386,829
<TOTAL-CURRENT-ASSETS> 631,091
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 521,701
<TOTAL-ASSETS> 5,816,577
<COMMON> 1,170
<CAPITAL-SURPLUS-PAID-IN> 796,029
<RETAINED-EARNINGS> <F3> 1,154,708
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,951,907
0
30,450
<LONG-TERM-DEBT-NET> 1,174,147
<SHORT-TERM-NOTES> 50,664
<LONG-TERM-NOTES-PAYABLE> 620,885
<COMMERCIAL-PAPER-OBLIGATIONS> 223,189
<LONG-TERM-DEBT-CURRENT-PORT> 103,641
0
<CAPITAL-LEASE-OBLIGATIONS> 184,336
<LEASES-CURRENT> 26,348
<OTHER-ITEMS-CAPITAL-AND-LIAB> <F4> 1,451,010
<TOT-CAPITALIZATION-AND-LIAB> 5,816,577
<GROSS-OPERATING-REVENUE> 1,095,725
<INCOME-TAX-EXPENSE> 53,853
<OTHER-OPERATING-EXPENSES> 893,378
<TOTAL-OPERATING-EXPENSES> 893,378
<OPERATING-INCOME-LOSS> 202,347
<OTHER-INCOME-NET> 23,434
<INCOME-BEFORE-INTEREST-EXPEN> <F5> 225,781
<TOTAL-INTEREST-EXPENSE> <F6> 69,514
<NET-INCOME> 102,414
<F7> 0
<EARNINGS-AVAILABLE-FOR-COMM> 102,414
<COMMON-STOCK-DIVIDENDS> 90,602
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 228,747
<EPS-BASIC> 0.88
<EPS-DILUTED> 0.88
<FN>
<F1> Total Net Utility Plant is $3,798,985 of net property,
plant and equipment less $522,029 of net non-utility
property.
<F2> Other Property and Investments is $864,800 of investments
plus $522,029 of net non-utility property.
<F3> Retained Earnings is net of $1,195 of unearned
compensation for restricted stock awards.
<F4> Other Items - Capital and Liabilities includes $200,000 of
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely debentures
of the Company.
<F5> Income before interest expense and income taxes.
<F6> Total Interest Expense includes $3,653 of distributions on
preferred securities of subsidiary trust and $601 of
preferred dividend requirements of subsidiary.
<F7> Preferred Stock Dividends are included in Total Interest
Expense.
See financial statements and notes in the accompanying 10-Q.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS OF
WISCONSIN ENERGY CORPORATION FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
THIS SCHEDULE REFLECTS RECLASSIFICATION OF AMOUNTS
TO CONFORM TO THE COMPANY'S CURRENT FINANCIAL
STATEMENT PRESENTATION.
<MULTIPLIER> 1,000
<S> <C>
<CURRENCY> U.S.DOLLARS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<PERIOD-TYPE> 12-MOS
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> <F1> 3,238,385
<OTHER-PROPERTY-AND-INVEST> <F2> 1,056,471
<TOTAL-CURRENT-ASSETS> 608,119
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 458,782
<TOTAL-ASSETS> 5,361,757
<COMMON> 1,156
<CAPITAL-SURPLUS-PAID-IN> 759,195
<RETAINED-EARNINGS> 1,142,754
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,903,105
0
30,450
<LONG-TERM-DEBT-NET> 1,175,252
<SHORT-TERM-NOTES> 51,503
<LONG-TERM-NOTES-PAYABLE> 403,341
<COMMERCIAL-PAPER-OBLIGATIONS> 235,356
<LONG-TERM-DEBT-CURRENT-PORT> 99,591
0
<CAPITAL-LEASE-OBLIGATIONS> 170,431
<LEASES-CURRENT> 19,549
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,273,179
<TOT-CAPITALIZATION-AND-LIAB> 5,361,757
<GROSS-OPERATING-REVENUE> 2,039,433
<INCOME-TAX-EXPENSE> 92,166
<OTHER-OPERATING-EXPENSES> 1,664,679
<TOTAL-OPERATING-EXPENSES> 1,664,679
<OPERATING-INCOME-LOSS> 374,754
<OTHER-INCOME-NET> 26,765
<INCOME-BEFORE-INTEREST-EXPEN> <F3> 401,519
<TOTAL-INTEREST-EXPENSE> <F4> 121,221
<NET-INCOME> 188,132
<F5> 0
<EARNINGS-AVAILABLE-FOR-COMM> 188,132
<COMMON-STOCK-DIVIDENDS> 177,397
<TOTAL-INTEREST-ON-BONDS> 94,346
<CASH-FLOW-OPERATIONS> 459,951
<EPS-BASIC> 1.65
<EPS-DILUTED> 1.65
<FN>
<F1> Total Net Utility Plant is $3,499,180 of net property,
plant and equipment less $260,795 of net non-utility
property.
<F2> Other Property and Investments is $795,676 of investments
plus $260,795 of net non-utility property.
<F3> Income before interest expense and income taxes.
<F4> Total Interest Expense includes $1,203 of preferred
dividend requirements of subsidiary.
<F5> Preferred Stock Dividends are included in Total Interest
Expense.
See financial statements and notes in the accompanying 10-Q.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS OF
WISCONSIN ENERGY CORPORATION FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
THIS SCHEDULE REFLECTS RECLASSIFICATION OF AMOUNTS
TO CONFORM TO THE COMPANY'S CURRENT FINANCIAL
STATEMENT PRESENTATION.
<MULTIPLIER> 1,000
<S> <C>
<CURRENCY> U.S.DOLLARS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<PERIOD-TYPE> 6-MOS
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> <F1> 3,198,156
<OTHER-PROPERTY-AND-INVEST> <F2> 935,898
<TOTAL-CURRENT-ASSETS> 546,806
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 432,800
<TOTAL-ASSETS> 5,113,660
<COMMON> 1,153
<CAPITAL-SURPLUS-PAID-IN> 748,985
<RETAINED-EARNINGS> 1,123,788
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,873,926
0
30,450
<LONG-TERM-DEBT-NET> 1,265,667
<SHORT-TERM-NOTES> 155,574
<LONG-TERM-NOTES-PAYABLE> 302,290
<COMMERCIAL-PAPER-OBLIGATIONS> 4,977
<LONG-TERM-DEBT-CURRENT-PORT> 67,126
0
<CAPITAL-LEASE-OBLIGATIONS> 157,360
<LEASES-CURRENT> 21,123
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,235,167
<TOT-CAPITALIZATION-AND-LIAB> 5,113,660
<GROSS-OPERATING-REVENUE> 991,253
<INCOME-TAX-EXPENSE> 39,325
<OTHER-OPERATING-EXPENSES> 830,886
<TOTAL-OPERATING-EXPENSES> 830,886
<OPERATING-INCOME-LOSS> 160,367
<OTHER-INCOME-NET> 15,824
<INCOME-BEFORE-INTEREST-EXPEN> <F3> 176,191
<TOTAL-INTEREST-EXPENSE> <F4> 58,964
<NET-INCOME> 77,902
<F5> 0
<EARNINGS-AVAILABLE-FOR-COMM> 77,902
<COMMON-STOCK-DIVIDENDS> 87,471
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 254,686
<EPS-BASIC> 0.69
<EPS-DILUTED> 0.69
<FN>
<F1> Total Net Utility Plant is $3,433,915 of net property,
plant and equipment less $235,759 of net non-utility
property.
<F2> Other Property and Investments is $700,139 of investments
plus $235,759 of net non-utility property.
<F3> Income before interest expense and income taxes.
<F4> Total Interest Expense includes $601 of preferred dividend
requirements of subsidiary.
<F5> Preferred Stock Dividends are included in Total Interest
Expense.
See financial statements and notes in the accompanying 10-Q.
</FN>
</TABLE>
