UNITED STATES
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, 2000
Commission Registrant; State of Incorporation IRS Employer
File Number Address; and Telephone Number Identification No.
----------- ---------------------------------- ------------------
001-09057 WISCONSIN ENERGY CORPORATION 39-1391525
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2949
Milwaukee, WI 53201
(414) 221-2345
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that 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 10, 2000):
Common Stock, $.01 Par Value 121,875,061 shares outstanding.
<TABLE>
<CAPTION>
WISCONSIN ENERGY CORPORATION
--------------------------------
FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
<S> <C>
Item Page
---- ----
Introduction...............................................................
Part I - Financial Information
------------------------------
1. Financial Statements
Consolidated Condensed Income Statement..................................
Consolidated Condensed Balance Sheet.....................................
Consolidated Statement of Cash Flows.....................................
Notes to Financial Statement.............................................
2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations...........................
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........................
6. Exhibits and Reports on Form 8-K...........................................
Signatures.................................................................
</TABLE>
INTRODUCTION
Wisconsin Energy Corporation is a diversified holding company
with subsidiaries primarily in three segments described in
further detail below: a utility energy segment, a non-utility
energy segment and a manufacturing segment. Unless qualified by
their context when used in this document, the terms "Wisconsin
Energy" or "the Company" refer to the holding company and all of
its subsidiaries.
UTILITY ENERGY SEGMENT: The utility energy segment consists of
Wisconsin Electric Power Company ("Wisconsin Electric"), an
electric, gas and steam utility; Wisconsin Gas Company
("Wisconsin Gas"), a gas and water utility; and Edison Sault
Electric Company ("Edison Sault"), an electric utility.
NON-UTILITY ENERGY SEGMENT: The non-utility energy segment
consists primarily of Wisvest Corporation ("Wisvest"), which
develops, owns and operates electric generating facilities and
invests in other energy-related entities; WICOR Energy Services
Company ("WICOR Energy"), which engages in natural gas purchasing
and marketing as well as energy and price risk management; and
FieldTech, Inc. ("FieldTech"), which provides meter reading and
technology services for gas, electric and water utilities.
MANUFACTURING SEGMENT: The manufacturing segment consists of
Sta-Rite Industries, Inc. ("Sta-Rite"), SHURflo Pump
Manufacturing Co. ("SHURflo") and Hypro Corporation ("Hypro"),
which are manufacturers of pumps as well as fluid processing and
filtration equipment.
Other non-utility subsidiaries of Wisconsin Energy include
primarily Minergy Corp. ("Minergy"), which develops and markets
recycling technologies and Wispark Corporation ("Wispark"), which
develops and invests in real estate.
Wisconsin Gas, WICOR Energy, FieldTech, Sta-Rite, SHURflo and
Hypro were acquired by Wisconsin Energy as a result of the
Company's acquisition of WICOR, Inc. ("WICOR"), on April 26,
2000. For additional information related to the acquisition of
WICOR, see Item 1. Financial Statements - "Notes To Financial
Statements" and Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Factors
Affecting Results of Operations" and "Liquidity and Capital
Resources" in Part I of this report.
The unaudited interim financial statements presented in this
Form 10-Q have been prepared by Wisconsin Energy pursuant to the
rules and regulations of the Securities and Exchange Commission.
Certain information and note 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. Wisconsin Energy's
financial statements should be read in conjunction with the
financial statements and notes thereto included in Wisconsin
Energy's 1999 Annual Report on Form 10-K as well as in WICOR's
1999 Annual Report on Form 10-K.
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED INCOME STATEMENT
(Unaudited)
Three Months Ended June 30 Six Months Ended June 30
-------------------------- --------------------------
2000 1999 2000 1999
----------- ---------- ----------- ----------
(Millions of Dollars, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Operating Revenues
Utility energy $552.7 $477.9 $1,102.4 $1,014.6
Non-Utility energy 81.3 55.8 150.5 69.8
Manufacturing 109.8 - 109.8 -
Other 11.2 5.3 20.3 11.3
------ ------ -------- --------
Total Operating Revenues 755.0 539.0 1,383.0 1,095.7
Operating Expenses
Fuel and purchased power 163.0 147.2 323.3 267.6
Cost of gas sold 85.6 27.7 154.9 96.6
Cost of goods sold 77.3 - 77.3 -
Other operation and maintenance 223.7 178.5 410.1 360.9
Depreciation, decommissioning
and amortization 83.3 58.3 155.4 121.5
Property and revenue tax 20.0 19.2 40.7 36.9
------ ------- -------- --------
Total Operating Expenses 652.9 430.9 1,161.7 883.5
------ ------- -------- --------
Operating Income 102.1 108.1 221.3 212.2
Other Income and Deductions
Interest income 4.9 4.5 10.2 9.0
Allowance for other funds
used during construction 1.0 1.4 1.9 2.4
Other 3.8 (2.3) 3.1 2.3
------ ------- -------- --------
Total Other Income & Deductions 9.7 3.6 15.2 13.7
Financing Costs
Interest expense 60.5 36.0 103.1 69.6
Allowance for borrowed funds
used during construction (3.3) (2.4) (6.4) (4.3)
Distributions on preferred securities
of subsidiary trust 3.4 3.4 6.8 3.6
Preferred dividend requirement
of subsidiary 0.3 0.3 0.6 0.6
------ ------- -------- --------
Total Financing Costs 60.9 37.3 104.1 69.5
------ ------- -------- --------
Income Before Income Taxes 50.9 74.4 132.4 156.4
Income Taxes 20.8 25.5 51.7 54.0
------ ------- -------- --------
Net Income $30.1 $48.9 $80.7 $102.4
====== ======= ======== ========
Earnings Per Share of Common Stock
Basic $0.25 $0.42 $0.67 $0.88
Diluted 0.25 0.42 0.67 0.88
Dividends Per Share of Common Stock $0.39 $0.39 $0.78 $0.78
Average Outstanding Number of
Shares of Common Stock (Millions) 120.8 116.6 120.1 116.3
Diluted Shares (Millions) 121.7 116.6 120.6 116.3
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
June 30, 2000 December 31, 1999
------------- -----------------
(Millions of Dollars)
<S> <C> <C>
Assets
------
Property, Plant and Equipment
Utility energy $6,702.3 $6,161.1
Non-utility energy 214.2 199.0
Manufacturing 107.7 -
Other 399.3 351.0
Accumulated provision for depreciation (3,408.7) (3,250.0)
-------- --------
4,014.8 3,461.1
Construction work in progress 230.4 174.8
Leased facilities - net 124.5 127.3
Nuclear fuel - net 87.2 83.4
-------- --------
Net Property, Plant and Equipment 4,456.9 3,846.6
Investments 846.3 950.3
Current Assets
Cash and cash equivalents 27.4 73.5
Accounts receivable 491.0 242.3
Accrued utility revenues 110.3 134.6
Materials, supplies and fossil fuel 363.9 231.6
Net assets held for sale 156.5 -
Prepayments and other assets 135.8 123.9
-------- --------
Total Current Assets 1,284.9 805.9
Deferred Charges and Other Assets
Goodwill 891.6 57.8
Accumulated deferred income taxes 223.6 198.0
Other 707.7 374.5
-------- --------
Total Deferred Charges and Other Assets 1,822.9 630.3
-------- --------
Total Assets $8,411.0 $6,233.1
======== ========
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $891.2 $839.5
Retained earnings 1,157.9 1,170.8
Other 30.9 (2.5)
-------- --------
Total Common Stock Equity 2,080.0 2,007.8
Preferred stock 30.4 30.4
Company-obligated, mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the Company 200.0 200.0
Long-term debt 2,291.5 2,134.6
-------- --------
Total Capitalization 4,601.9 4,372.8
Current Liabilities
Long-term debt due currently 67.9 69.1
Short-term debt 1,816.1 507.5
Accounts payable 305.0 174.0
Accrued liabilities 166.4 99.7
Other 129.7 48.3
-------- --------
Total Current Liabilities 2,485.1 898.6
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 750.1 624.9
Other 573.9 336.8
-------- --------
Total Deferred Credits and Other Liabilities 1,324.0 961.7
-------- --------
Total Capitalization and Liabilities $8,411.0 $6,233.1
======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended June 30
-------------------------------
2000 1999
----------- -----------
(Millions of Dollars)
<S> <C> <C>
Operating Activities
Net income $80.7 $102.4
Reconciliation to cash
Depreciation, decommissioning & amortization 157.7 121.5
Nuclear fuel expense - amortization 14.7 11.8
Conservation expense - amortization 2.8 11.2
Debt premium, discount & expense amortization 2.6 1.7
Deferred income taxes - net (6.0) (4.7)
Investment tax credit - net (2.2) (2.3)
Allowance for other funds
used during construction (1.9) (2.4)
Change in - Accounts receivable (48.6) (23.7)
Inventories (7.7) 14.9
Other current assets 83.8 30.3
Accounts payable 42.0 (25.3)
Other current liabilities (7.0) 10.8
Other (4.9) (24.6)
-------- ------
Cash Provided by Operating Activities 306.0 221.6
Investing Activities
Capital expenditures (303.0) (237.3)
Acquisitions (1,201.2) (276.8)
Allowance for borrowed funds
used during construction (6.4) (4.3)
Nuclear fuel (21.7) (13.7)
Nuclear decommissioning trust (8.8) (8.8)
Other 26.3 (24.6)
-------- ------
Cash Used in Investing Activities (1,514.8) (565.5)
Financing Activities
Issuance of common stock 50.4 36.8
Issuance of long-term debt 25.8 254.2
Issuance of mandatorily redeemable
trust preferred securities - 193.7
Retirement of long-term debt (24.2) (18.4)
Change in short-term debt 1,204.2 (13.0)
Dividends paid on common stock (93.5) (90.6)
-------- ------
Cash Provided by Financing Activities 1,162.7 362.7
-------- ------
Change in Cash and Cash Equivalents (46.1) 18.8
Cash and Cash Equivalents at Beginning of Period 73.5 16.6
-------- ------
Cash and Cash Equivalents at end of Period $27.4 $35.4
End of Period ======== ======
Supplemental Information - Cash Paid For
Interest (net of amount capitalized) $111.8 $72.5
Income taxes 35.2 66.8
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
WISCONSIN ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited consolidated financial statements
for Wisconsin Energy Corporation should be read in conjunction
with Item 8. Financial Statements and Supplementary Data in
Wisconsin Energy's 1999 Annual Report on Form 10-K as well as in
WICOR, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1999. 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, have been included in the accompanying income
statements and balance sheets. The results of operations for the
three and six months ended June 30, 2000 are not necessarily
indicative, however, of the results which may be expected for the
year 2000 because of seasonal and other factors.
2. Due primarily to its recent acquisition of WICOR (see Note 3),
Wisconsin Energy has modified certain income statement and
balance sheet presentations effective with the second quarter of
2000. Prior year financial statement amounts have been
reclassified to conform to their current year presentation.
3. On April 26, 2000, the Company acquired all of the outstanding
common stock of WICOR, Inc., a diversified utility holding company.
The purchase price included the payment of $1.2 billion of cash,
the assumption of options and restricted shares valued at
$37.1 million and the payment of $10.2 million in transaction
costs. The Company also assumed approximately $300 million of
existing WICOR debt. The cash purchase price of approximately
$1.2 billion was funded with commercial paper borrowings. The
acquisition was accounted for as a purchase under Accounting
Principles Board Opinion No. 16 ("APB 16") and accordingly, the
operating results have been included in the Company's
consolidated results of operations from the date of acquisition.
In accordance with APB 16, a portion of the purchase price has
been allocated to assets acquired and liabilities assumed based
upon an initial estimate of fair market value at the date of
acquisition while approximately $835 million, including
approximately $97 million of existing goodwill at WICOR, was
recorded as goodwill and is being amortized over 40 years.
Portions of the purchase price were identified by independent
appraisers utilizing proven valuation procedures and techniques
and are subject to adjustment as these estimates are refined and
finalized.
The following unaudited pro forma data summarize the results
of operations for the periods indicated as if the WICOR
acquisition had been completed as of the beginning of the
periods presented. The pro forma amounts give effect to
actual operating results prior to the acquisition, adjusted
to include the pro forma effect of interest expense,
amortization of intangibles and income taxes. The pro forma
information does not necessarily reflect the actual results
that would have occurred nor is it necessarily indicative of
future results of operations of the combined companies.
<TABLE>
<CAPTION>
Pro Forma
Six Months Ended June 30
------------------------
Wisconsin Energy Corporation 2000 1999
---------------------------- ---------- ----------
(Millions of Dollars, Except Per Share Amounts)
<S> <C> <C>
Total Operating Revenues $1,823.7 $1,625.3
Net Income $82.2 $103.9
Earnings Per Share:
Basic $0.68 $0.89
Diluted 0.68 0.88
</TABLE>
For additional information related to the acquisition of
WICOR, see Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Factors
Affecting Results of Operations" and "Liquidity and Capital
Resources" in Part I of this report.
4. In June 2000, Wisvest signed a definitive agreement for the
sale of its interest in SkyGen Energy Holdings LLC for
approximately $250 million in cash in exchange for outstanding
loans and associated interest receivable. The Company expects to
record a pre-tax gain of approximately $90 million in the second
half of 2000 as a result of this sale. Net assets held for sale
in the amount of $156.5 million have been segregated as a current
asset on the June 30, 2000 Consolidated Condensed Balance Sheet.
In addition, Wisconsin Energy announced in May 2000 that it would
sell approximately 80% of the assets of Wispark Corporation over
the next 12 to 18 months. Specific Wispark assets that will be
sold have not yet been identified. Wispark's assets currently
have a total book value of approximately $325 million. For
additional information concerning the anticipated sales of the
SkyGen and Wispark assets, see Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations -
"Liquidity and Capital Resources" in Part I of this report.
5. In June 2000, Wisconsin Energy announced that its board of
directors had authorized the repurchase of up to $200 million of
its shares of common stock in the open market over the 18 months
ended December 2001. For additional information, see Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations - "Liquidity and Capital Resources" in
Part I of this report.
6. Comprehensive income includes all changes in equity during a
period except those resulting from investments by owners and
distributions to owners. Historically, Wisconsin Energy has had
no items of other comprehensive income to report. However, as a
result of its acquisition of WICOR on April 26, 2000, Wisconsin
Energy has the following total comprehensive income related to
its manufacturing segment for the six months ended June 30, 2000
and 1999:
<TABLE>
<CAPTION>
Six Months Ended June 30
Wisconsin Energy Corporation ------------------------
Comprehensive Income 2000 1999
---------------------------- ---------- ----------
(Millions of Dollars)
<S> <C> <C>
Net Earnings $80.7 $102.4
Other Comprehensive Income:
Currency Translation Adjustments 0.6 -
----- ------
Total Comprehensive Income $81.3 $102.4
===== ======
</TABLE>
7. Wisconsin Energy Corporation is a diversified holding company
with subsidiaries in utility and non-utility businesses. On
April 26, 2000, Wisconsin Energy completed its acquisition of
WICOR, Inc., for $1.2 billion in cash, including related costs
and expenses (see Note 3). Accounted for as a purchase, WICOR's
results of energy and manufacturing operations have been included
in the consolidated financial statements from the date of
acquisition.
Wisconsin Energy's reportable operating segments include a
utility energy segment, a non-utility energy segment and a
manufacturing segment. Wisconsin Energy has organized its
reportable operating segments based in part upon the
regulatory environment in which its utility subsidiaries
operate. In addition, the segments are managed separately
because each business requires different technology and
marketing strategies. Intersegment sales and transfers are
not significant.
The utility energy segment primarily includes Wisconsin
Energy's electric and natural gas operations. The electric
operation engages 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. The
natural gas operation is responsible for the purchase,
distribution and sale of natural gas to retail customers and
the transportation of customer-owned natural gas throughout
Wisconsin. The non-utility energy segment derives its
revenues primarily from energy activities including
independent power production, energy marketing, contract
meter reading and related services. The manufacturing
segment is responsible for the manufacturing of pumps and
processing equipment used to pump, control, transfer, hold
and filter water and other fluids.
Summarized financial information concerning Wisconsin
Energy's reportable operating segments for the three and six
month periods ended June 30, 2000 and 1999 is shown in the
following table.
<TABLE>
<CAPTION>
Reportable Operating Segments
----------------------------------------
Energy Other (a)
------------------------- Corporate &
Wisconsin Energy Reconciling Total
Corporation Utility Non-Utility Manufacturing Eliminations Consolidated
---------------- ---------- ----------- ------------- ------------ ------------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C>
Three Months Ended
------------------
June 30, 2000
Operating Revenues $552.7 $81.3 $109.8 $11.2 $755.0
Operating Income 88.6 0.2 12.4 0.9 102.1
Net Earnings (Loss) 34.2 0.3 5.0 (9.4) 30.1
Capital Expenditures 96.4 52.1 2.5 17.0 168.0
June 30, 1999
Operating Revenues $477.9 $55.8 $ - $5.3 $539.0
Operating Income (Loss) 100.7 8.3 - (0.9) 108.1
Net Earnings (Loss) 49.1 2.6 - (2.8) 48.9
Capital Expenditures 106.1 2.8 - 22.4 131.3
Six Months Ended
----------------
June 30, 2000
Operating Revenues $1,102.4 $150.5 $109.8 $20.3 $1,383.0
Operating Income (Loss) 211.5 (1.7) 12.4 (0.9) 221.3
Net Earnings (Loss) 93.5 (4.0) 5.0 (13.8) 80.7
Capital Expenditures 186.9 69.8 2.5 43.8 303.0
Total Assets $6,315.7 $741.2 $805.9 $548.2 $8,411.0
June 30, 1999
Operating Revenues $1,014.6 $69.8 $ - $11.3 $1,095.7
Operating Income (Loss) 208.6 4.3 - (0.7) 212.2
Net Earnings (Loss) 105.7 (0.6) - (2.7) 102.4
Capital Expenditures 188.3 2.9 - 46.1 237.3
Total Assets $4,877.5 $529.0 $ - $410.1 $5,816.6
<FN>
(a) Other includes all other non-utility activities, primarily non-utility real
estate investment and development and non-utility investment in recycling
technology.
</FN>
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wisconsin Energy Corporation is a diversified holding company
primarily with subsidiaries in a utility energy segment, a non-
utility energy segment and a manufacturing segment. Unless
qualified by their context when used in this document, the terms
"Wisconsin Energy" or "the Company" refer to the holding company
and all of its subsidiaries.
See Note 2 above in Item 1. Financial Statements - "Notes to
Financial Statements" for information concerning the
reclassification to current year presentation of certain amounts
in Wisconsin Energy's prior year financial statements. See
Note 3 above in Item 1. Financial Statements - "Notes to
Financial Statements" as well as "Factors Affecting Results of
Operations" and "Liquidity and Capital Resources" below in this
item for information concerning Wisconsin Energy's April 26, 2000
acquisition of WICOR, Inc. This business combination was
accounted for as a purchase, and, therefore, is reflected
prospectively in Wisconsin Energy's consolidated financial
statements from and after the date of the acquisition.
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."
RESULTS OF OPERATIONS - 2000 SECOND QUARTER
EARNINGS
During the second quarter of 2000, Wisconsin Energy's
consolidated net income and diluted earnings per share of common
stock decreased to $30.1 million and $0.25 per diluted share,
respectively, compared with $48.9 million and $0.42 per diluted
share, respectively, during the second quarter of 1999. Between
the comparative periods, earnings decreased as a result of
changes in the following:
<TABLE>
<CAPTION>
Three Months Ended June 30
--------------------------
Wisconsin Energy Corporation Earnings Amount Per Share
------------------------------------- ------ ---------
($ Millions) (Diluted)
<S> <C> <C>
Total - 1999 Second Quarter $48.9 $0.42
Increase (Decrease) Due To Change In:
Utility Energy Segment Earnings (a) (11.4) (0.10)
Non-Utility Energy Segment Earnings (2.3) (0.02)
Manufacturing Segment Earnings (a) 7.8 0.06
Other (a) (1.0) -
WICOR Merger-Related Costs (b) (11.9) (0.10)
Shares Outstanding - (0.01)
----- -----
(18.8) (0.17)
----- -----
Total - 2000 Second Quarter $30.1 $0.25
===== =====
<FN>
(a) Net of applicable tax benefits, excludes a total of $11.9 million
($0.10 per share) of WICOR merger-related interest and goodwill
amortization expenses of which $3.5 million is attributable to the
utility segment, $2.8 million is attributable to the manufacturing
segment and $5.6 million is attributable to other.
(b) Total WICOR merger-related costs of $17.7 million including $14.5 million
($8.7 million net of tax or $0.07 per share) of interest expense and
$3.2 million ($0.03 per share) of goodwill amortization expense.
</FN>
</TABLE>
An analysis of contributions to earnings by segment follows.
UTILITY ENERGY SEGMENT CONTRIBUTION TO EARNINGS
Utility energy segment earnings decreased $14.9 million between
the second quarter of 2000 and the second quarter of 1999,
$6.5 million of which is attributable to Wisconsin Gas Company,
acquired as part of the acquisition of WICOR on April 26, 2000.
Due to the seasonality of the gas heating business, Wisconsin Gas
normally incurs losses in the spring and summer months and
records earnings in the fall and winter months. Excluding
interest expense and goodwill related to the WICOR merger,
Wisconsin Gas posted a net loss of $3 million during the months
of May and June 2000. As described in further detail below,
earnings for Wisconsin Energy's other utility subsidiaries,
Wisconsin Electric Power Company and Edison Sault Electric
Company, declined $8.4 million between the comparative periods.
The following table reconciles the change in the contribution to
earnings by Wisconsin Energy's utility energy segment between the
second quarter of 1999 and the second quarter of 2000.
<TABLE>
<CAPTION>
Three Months Ended June 30
----------------------------------------------------------------
Increase (Decrease)
-----------------------------------
Wisconsin Energy Corporation Wisconsin
Utility Energy Segment 1999 Gas (a) Other (b) Total 2000
---------------------------- -------- ----------- ----------- --------- --------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C>
Operating Revenues:
Electric Utility $424.4 $ - $10.9 $10.9 $435.3
Gas Utility 49.5 47.5 14.9 62.4 111.9
Other Utility 4.0 0.1 1.4 1.5 5.5
------ ----- ----- ------ ------
Total Operating Revenues 477.9 47.6 27.2 74.8 552.7
Fuel and Purchased Power 112.5 - 7.4 7.4 119.9
Cost of Gas Sold 27.7 29.1 11.7 40.8 68.5
------ ----- ----- ------ ------
Gross Margin 337.7 18.5 8.1 26.6 364.3
Other Operating Expenses:
Other Operation & Maintenance 165.0 14.1 2.7 16.8 181.8
Depreciation, Decommissioning
and Amortization 54.8 8.1 13.0 21.1 75.9
Property and Revenue Taxes 17.2 0.8 - 0.8 18.0
------ ----- ----- ------ ------
Operating Income 100.7 (4.5) (7.6) (12.1) 88.6
Other Income, Net 2.8 (0.2) (0.9) (1.1) 1.7
Financing Costs 28.4 4.6 0.9 5.5 33.9
------ ----- ----- ------ ------
Income Before Income Taxes 75.1 (9.3) (9.4) (18.7) 56.4
Income Taxes 26.0 (2.8) (1.0) (3.8) 22.2
------ ----- ----- ------ ------
Net Earnings $49.1 ($6.5) ($8.4) ($14.9) $34.2
====== ===== ===== ====== ======
<FN>
(a) The acquisition of WICOR was accounted for as a purchase. Wisconsin
Energy's financial statements reflect the operations of Wisconsin Gas
Company, a subsidiary of WICOR, subsequent to consummation of the merger
on April 26, 2000.
(b) Other includes Wisconsin Electric Power Company, Edison Sault Electric
Company and consolidating adjustments and eliminations between the
utilities.
</FN>
</TABLE>
OPERATING REVENUES AND GROSS MARGINS: For further information
concerning electric utility operations, see "Electric Utility
Revenues, Gross Margins and Sales" below. For further
information concerning gas utility operations, see "Gas Utility
Revenues, Gross Margins and Therm Deliveries" below.
OTHER OPERATION AND MAINTENANCE EXPENSES: Excluding Wisconsin
Gas, other operation and maintenance expenses increased by
$2.7 million during the second quarter of 2000 compared to the
second quarter of 1999. The most significant changes in other
operation and maintenance expenses between the comparative
periods include $3.1 million of higher power generation expenses,
$3.0 million of higher electric distribution expenses and
$2.5 million of higher customer account expenses, offset in part
by a $3.3 million decline in customer service expenses and
$2.3 million of lower administrative and general expenses.
Power generation expenses increased during 2000 primarily due to
differences in the scope and timing of scheduled maintenance
outages for various generating facilities at Wisconsin Electric
in anticipation of the summer cooling season. During the same
period, electric distribution expenses were higher due to
increased forestry and maintenance activity, and customer account
expenses grew primarily due to higher bad debt expenses.
Between the comparative periods, customer service expenses were
lower primarily due to a change in the period over which
conservation expenses are being amortized, and administrative and
general expenses decreased primarily due to a decline in costs
associated with contract labor, which was used during 1999 to
prepare the Company for Year 2000 technology issues.
DEPRECIATION, DECOMMISSIONING AND AMORTIZATION EXPENSES:
Excluding Wisconsin Gas, depreciation, decommissioning and
amortization expenses were $13.0 million higher during the second
quarter of 2000 compared with the second quarter of 1999.
Contributing to the comparative increase in expenses, at the end
of 1999, Wisconsin Electric completed amortizing a monthly credit
to depreciation for pre-1991 contributions in aid of
construction, which reduced depreciation expense by $5.7 million
during the second quarter of 1999. Higher average depreciable
plant during the second quarter of 2000 also contributed to an
increase in depreciation expense.
INCOME TAXES: The effective income tax rate increased in the
second quarter of 2000 as compared with the prior year due to the
ending of the amortization of pre-1991 contributions in aid of
construction as described above under the subcaption
"Depreciation, Decommissioning and Amortization Expenses."
Electric Utility Revenues, Gross Margins and Sales
During the second quarter of 2000, Wisconsin Energy's total
electric utility operating revenues increased by $10.9 million or
2.6% compared to the second quarter of 1999, and gross margin on
electric utility operating revenues (electric utility operating
revenues less fuel and purchased power expenses) increased by
$3.5 million or 1.1%. Wisconsin Energy attributes this growth in
part to a 1.7% interim electric retail rate increase in the
Wisconsin jurisdiction that became effective in early April 2000
significantly offset by a weather-related 0.4% decrease in total
electric energy sales. The change in gross margin between the
comparative periods also reflects higher fuel and fixed costs
during the second quarter of 2000 associated with long-term
purchased power contracts into which Wisconsin Electric has
entered. For additional information concerning the status of
Wisconsin Electric's interim electric retail rate increase, see
Item 1. Legal Proceedings - "Utility Rates and Regulatory
Matters" in Part II of this report.
The following table compares Wisconsin Energy's electric utility
operating revenues, gross margins and electric utility energy
sales during the second quarter of 2000 with similar information
for the second quarter of 1999.
<TABLE>
<CAPTION>
Gross Margin Megawatt-Hour Sales
Three Months Ended June 30 Three Months Ended June 30
Wisconsin Energy Corporation -------------------------------- --------------------------------
Electric Utility Operations 2000 1999 % Change 2000 1999 % Change
---------------------------- ------ ------ -------- ------ ------ --------
(Millions of Dollars) (Thousands, Except
Degree Days)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues:
Residential $139.8 $138.6 0.9% 1,749.7 1,751.9 (0.1%)
Small Commercial/Industrial 135.9 130.8 3.9% 2,075.4 2,009.9 3.3%
Large Commercial/Industrial 120.6 116.9 3.2% 3,010.2 2,999.4 0.4%
Other-Retail/Municipal 15.2 13.6 11.8% 419.2 364.7 14.9%
Resale-Utilities 16.2 17.9 (9.5%) 503.1 660.8 (23.9%)
Other-Operating Revenues 7.6 6.6 15.2% - - -
------ ------ ------- -------
Total Operating Revenues 435.3 424.4 2.6% 7,757.6 7,786.7 (0.4%)
Fuel and Purchased Power: ======= =======
Fuel 75.5 75.3 0.3%
Purchased Power 44.4 37.2 19.4%
------ ------
Total Fuel and Purchased Power 119.9 112.5 6.6%
------ ------
Gross Margin $315.4 $311.9 1.1%
====== ======
Weather - Degree Days (a):
Heating (961 Normal) 952 875 8.8%
Cooling (167 Normal) 160 182 (12.1%)
<FN>
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
</FN>
</TABLE>
Compared to the second quarter of 1999, electric energy sales
decreased during the second quarter of 2000 primarily due to
cooler weather and lower opportunity sales. Growth in the
average number of residential, small commercial/industrial and
other retail/municipal customers between the comparative periods
significantly offset the effects of weather on total electric
energy sales. Sales to the Empire and Tilden iron ore mines,
Wisconsin Electric's two largest retail customers, decreased 0.5%
during the second quarter of 2000. Excluding the Empire and
Tilden mines, sales to the remaining large commercial/industrial
customers grew by 0.6%.
Gas Utility Revenues, Gross Margins and Therm Deliveries
During the second quarter of 2000, Wisconsin Energy's total gas
utility operating revenues increased by $62.4 million or 126.1%
compared to the second quarter of 1999, and gross margin on gas
utility operating revenues (gas operating revenues less cost of
gas sold) increased by $21.6 million or 99.1%. Of these changes,
$47.5 million of the increase in total gas utility operating
revenues and $18.3 million of the increase in gross margin were
attributable to Wisconsin Gas Company. Excluding Wisconsin Gas,
Wisconsin Energy's total gas utility operating revenues increased
by $14.9 million and gross margin on gas utility operating
revenues increased by $3.3 million. Significantly higher per
unit gas costs during the second quarter of 2000 primarily drove
the increase in operating revenues, while a 3.1% interim gas
retail rate increase at Wisconsin Electric that became effective
in early April 2000 contributed to the increase in operating
revenues and gross margin. For additional information concerning
the status of the interim gas retail rate increase, see Item 1.
Legal Proceedings - "Utility Rates and Regulatory Matters" in
Part II of this report.
Gas utility operating revenues, gross margins and gas utility
therm deliveries during the comparative periods are summarized
below. Gross margin is a better performance indicator than
revenues because changes in the cost of gas sold are flowed
through to revenue under a purchased gas adjustment mechanism
that does not impact gross margin. For further information about
the purchased gas adjustment mechanism, see Item 1. Legal
Proceedings - "Utility Rates and Regulatory Matters" in Part II
of this report.
<TABLE>
<CAPTION>
Gross Margin Therm Deliveries
Three Months Ended June 30 Three Months Ended June 30
Wisconsin Energy Corporation -------------------------------- --------------------------------
Gas Utility Operations 2000 (a) 1999 % Change 2000 (a) 1999 % Change
---------------------------- -------- ------ -------- -------- ------ --------
(Millions of Dollars) (Millions, Except
Degree Days)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues:
Residential $53.5 $22.8 134.6% 72.5 43.7 65.9%
Commercial/Industrial 26.7 9.7 175.3% 46.2 26.6 73.7%
Interruptible 2.6 1.1 136.4% 5.2 3.9 33.3%
----- ----- ----- -----
Total Retail Gas Sales 82.8 33.6 146.4% 123.9 74.2 67.0%
Transported Customer-Owned Gas 6.8 2.7 151.9% 143.2 75.6 89.4%
Transported-Interdepartmental 0.6 0.6 - 14.6 17.4 (16.1%)
Other-Operating Revenues 21.7 12.6 72.2% - - -
----- ----- ----- -----
Total Operating Revenues 111.9 49.5 126.1% 281.7 167.2 68.5%
Cost of Gas Sold 68.5 27.7 147.3% ===== =====
----- -----
Gross Margin $43.4 $21.8 99.1%
===== =====
Weather - Degree Days (b):
Heating (961 Normal) 952 875 8.8%
<FN>
(a) The acquisition of WICOR was accounted for as a purchase. Wisconsin
Energy's gas utility information reflects the operations of Wisconsin Gas
Company subsequent to consummation of the merger on April 26, 2000. For
further information concerning WICOR gas utility operations during the
comparative periods, see "Pro Formal Gas Utility Revenues, Gross
Margins and Therm Deliveries" below.
(b) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
</FN>
</TABLE>
Pro Forma Gas Utility Revenues, Gross Margins and Therm Deliveries
To provide further insight into gas utility operations, the
following table compares pro forma gas utility operating
revenues, gross margins and therm deliveries during the second
quarters of 2000 and 1999 as if Wisconsin Gas had been part of
Wisconsin Energy since January 1, 1999.
<TABLE>
<CAPTION>
Pro Forma
------------------------------------------------------------------
Gross Margin Therm Deliveries
Three Months Ended June 30 Three Months Ended June 30
Wisconsin Energy Corporation -------------------------------- --------------------------------
Gas Utility Operations 2000 1999 % Change 2000 1999 % Change
---------------------------- ------ ------ -------- ------ ------ --------
(Millions of Dollars) (Millions)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues:
Residential $82.5 $63.4 30.1% 111.3 105.8 5.2%
Commercial/Industrial 38.7 26.3 47.1% 65.8 61.4 7.2%
Interruptible 3.5 3.4 2.9% 7.1 9.5 (25.3%)
----- ----- ----- -----
Total Retail Gas Sales 124.7 93.1 33.9% 184.2 176.7 4.2%
Transported Customer-Owned Gas 8.7 7.3 19.2% 185.3 182.0 1.8%
Transported-Interdepartmental 0.6 0.6 - 14.6 17.4 (16.1%)
Other-Operating Revenues 18.2 23.8 (23.5%) - - -
----- ----- ----- -----
Total Operating Revenues 152.2 124.8 22.0% 384.1 376.1 2.1%
Cost of Gas Sold 92.7 70.3 31.9% ===== =====
----- -----
Gross Margin $59.5 $54.5 9.2%
===== =====
</TABLE>
NON-UTILITY ENERGY SEGMENT CONTRIBUTION TO EARNINGS
Non-utility energy segment earnings decreased $2.3 million
between the second quarter of 2000 and the second quarter of
1999. Excluding the WICOR non-utility energy companies, which
were acquired on April 26, 2000, non-utility energy earnings
declined $2.4 million between the comparative periods primarily
due to an extended scheduled outage from March through early May
2000 at one of Wisvest-Connecticut, LLC's power plants, which
increased purchased power as well as maintenance expenses. A
$5.5 million pre-tax gain during the second quarter of 2000 on
the sale to a third party of certain contractual rights to
combustion turbines, included in Other Income, Net, partially
offset the decline in non-utility energy segment earnings.
The following table reconciles the change in the contribution to
earnings by Wisconsin Energy's non-utility energy segment between
the second quarter of 1999 and the second quarter of 2000. In
addition, the table compares electric megawatt-hour sales from
independent power production activities as well as electric
megawatt-hour sales and natural gas therm sales as a result of
non-utility energy marketing, trading and services activities.
<TABLE>
<CAPTION>
Three Months Ended June 30
----------------------------------------------------------------
Increase (Decrease)
Wisconsin Energy Corporation -----------------------------------
Non-Utility Energy Segment 1999 WICOR (a) Other (b) Total 2000
---------------------------- -------- ----------- ----------- --------- --------
(Millions of Dollars, Except Statistics)
<S> <C> <C> <C> <C> <C>
Operating Revenues:
Independent Power Production $36.1 $ - ($1.8) ($1.8) $34.3
Energy Marketing, Trading &
Services 16.8 19.8 (3.0) 16.8 33.6
Other 2.9 0.1 10.4 10.5 13.4
----- ----- ----- ----- -----
Total Operating Revenues 55.8 19.9 5.6 25.5 81.3
Fuel and Purchased Power 34.8 - 8.3 8.3 43.1
Cost of Gas Sold - 17.1 - 17.1 17.1
Cost of Goods Sold - 1.8 - 1.8 1.8
----- ----- ----- ----- -----
Gross Margin 21.0 1.0 (2.7) (1.7) 19.3
Other Operating Expenses 12.7 0.8 5.6 6.4 19.1
----- ----- ----- ----- -----
Operating Income 8.3 0.2 (8.3) (8.1) 0.2
Other Income, Net 1.3 - 7.1 7.1 8.4
Financing Costs 5.4 0.1 2.5 2.6 8.0
----- ----- ----- ----- -----
Income Before Income Taxes 4.2 0.1 (3.7) (3.6) 0.6
Income Taxes 1.6 - (1.3) (1.3) 0.3
----- ----- ----- ----- -----
Net Earnings $2.6 $0.1 ($2.4) ($2.3) $0.3
===== ===== ===== ===== =====
Statistics
Independent Power Production:
Electric Megawatt-Hour
Sales (Thousands) 940.3 - (1.7) (1.7) 938.6
Energy Marketing, Trading &
Services:
Electric Megawatt-Hour
Sales (Thousands) 361.5 - 20.7 20.7 382.2
Gas Therm Sales (Millions) - 34.6 - 34.6 34.6
<FN>
(a) The acquisition of WICOR was accounted for as a purchase. Wisconsin
Energy's financial statements and statistics reflect the operations of
WICOR Energy Services and Field Tech, subsidiaries of WICOR, subsequent
to consummation of the merger on April 26, 2000.
(b) Other consists primarily of Wisvest.
</FN>
</TABLE>
MANUFACTURING SEGMENT CONTRIBUTION TO EARNINGS
Manufacturing segment earnings increased $5.0 million between the
second quarter of 2000 and the second quarter of 1999, all of
which is attributable to the acquisition of WICOR on April 26,
2000. Prior to the acquisition, Wisconsin Energy did not have a
manufacturing segment. Excluding interest expense and goodwill
related to the WICOR merger, the manufacturing segment posted net
earnings of $7.8 million during the months of May and June 2000.
The following table summarizes the contribution to Wisconsin
Energy's earnings by the manufacturing segment during the second
quarter of 2000.
<TABLE>
<CAPTION>
Wisconsin Energy Corporation Three Months Ended
Manufacturing Segment (a) June 30, 2000
------------------------------------- ------------------
<S> <C>
Operating Revenues (b):
Domestic $83.9
International 25.9
-----
Total Operating Revenues 109.8
Cost of Goods Sold 76.0
-----
Gross Margin 33.8
Other Operating Expenses 21.4
-----
Operating Income 12.4
Other Income, Net 0.1
Financing Costs 3.6
-----
Income Before Income Taxes 8.9
Income Taxes 3.9
-----
Net Earnings $5.0
=====
<FN>
(a) The acquisition of WICOR was accounted for as a purchase. Wisconsin
Energy's financial statements reflect operations of the manufacturing
segment subsequent to consummation of the merger on April 26, 2000.
(b) For further pro forma information concerning manufacturing segment
revenues and gross margin during the comparative periods, see
"Manufacturing Segment Pro Forma Revenues and Gross Margin" below.
</FN>
</TABLE>
Pro Forma Manufacturing Segment Revenues and Gross Margin
To provide further insight, the following table reconciles the
change in pro forma revenues and gross margin by the
manufacturing segment between the second quarter of 1999 and the
second quarter of 2000 as if the manufacturing segment had been
part of Wisconsin Energy since January 1, 1999.
<TABLE>
<CAPTION>
Pro Forma
Three Months Ended June 30
------------------------------------------------
Wisconsin Energy Corporation Increase
Manufacturing Gross Margin 1999 (Decrease) 2000
---------------------------- -------- -------------- --------
(Millions of Dollars)
<S> <C> <C> <C>
Operating Revenues:
Domestic $100.1 $19.4 $119.5
International 37.9 (0.3) 37.6
------ ----- ------
Total Operating Revenues 138.0 19.1 157.1
Cost of Goods Sold 95.8 14.5 110.3
------ ----- ------
Gross Margin $42.2 $4.6 $46.8
====== ===== ======
</TABLE>
RESULTS OF OPERATIONS - 2000 YEAR-TO-DATE
EARNINGS
During the first six months of 2000, Wisconsin Energy's
consolidated net income and diluted earnings per share of common
stock decreased to $80.7 million and $0.67 per diluted share,
respectively, compared with $102.4 million and $0.88 per diluted
share, respectively, during the first six months of 1999. Between
the comparative periods, earnings decreased as a result of
changes in the following:
<TABLE>
<CAPTION>
Six Months Ended June 30
----------------------------
Wisconsin Energy Corporation Earnings Amount Per Share
------------------------------------- ------ ---------
($ Millions) (Diluted)
<S> <C> <C>
Total - 1999 Year-To-Date $102.4 $0.88
Increase (Decrease) Due To Change In:
Utility Energy Segment Earnings (a) (8.7) (0.07)
Non-Utility Energy Segment Earnings (3.4) (0.03)
Manufacturing Segment Earnings (a) 7.8 0.06
Other (a) (5.5) (0.04)
WICOR Merger-Related Costs (b) (11.9) (0.10)
Shares Outstanding - (0.03)
------ -----
(21.7) (0.21)
------ -----
Total - 2000 Year-To-Date $80.7 $0.67
====== =====
<FN>
(a) Net of applicable tax benefits, excludes a total of $11.9 million
($0.10 per share) of WICOR merger-related interest and goodwill
amortization expenses of which $3.5 million is attributable to the
utility segment, $2.8 million is attributable to the manufacturing
segment and $5.6 million is attributable to other.
(b) Total WICOR merger-related costs of $17.7 million including $14.5 million
($8.7 million net of tax or $0.07 per share) of interest expense and
$3.2 million ($0.03 per share) of goodwill amortization expense.
</FN>
</TABLE>
An analysis of contributions to earnings by segment follows.
UTILITY ENERGY SEGMENT CONTRIBUTION TO EARNINGS
Utility energy segment earnings decreased $12.2 million during
the first six months of 2000 when compared to the first six
months of 1999, $6.5 million of which is attributable to
Wisconsin Gas Company as a result of the seasonality of the gas
heating business and the timing of the acquisition of Wisconsin
Gas in April 26, 2000. Excluding interest expense and goodwill
related to the WICOR merger, Wisconsin Gas posted a net loss of
$3 million during the months of May and June 2000. As described
in further detail below, earnings for Wisconsin Energy's other
utility subsidiaries, Wisconsin Electric Power Company and Edison
Sault Electric Company, declined $5.7 million between the
comparative periods.
The following table reconciles the change in the contribution to
earnings by Wisconsin Energy's utility energy segment between the
first half of 1999 and the first half of 2000.
<TABLE>
<CAPTION>
Six Months Ended June 30
----------------------------------------------------------------
Increase (Decrease)
-----------------------------------
Wisconsin Energy Corporation Wisconsin
Utility Energy Segment 1999 Gas (a) Other (b) Total 2000
---------------------------- -------- ----------- ----------- --------- --------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C>
Operating Revenues:
Electric Utility $830.9 $ - $28.3 $28.3 $859.2
Gas Utility 171.4 47.5 11.5 59.0 230.4
Other Utility 12.3 0.1 0.4 0.5 12.8
------- ----- ----- ------ -------
Total Operating Revenues 1,014.6 47.6 40.2 87.8 1,102.4
Fuel and Purchased Power 218.2 - 11.3 11.3 229.5
Cost of Gas Sold 96.6 29.1 12.1 41.2 137.8
------- ----- ----- ------ -------
Gross Margin 699.8 18.5 16.8 35.3 735.1
Other Operating Expenses:
Other Operation & Maintenance 340.4 14.1 (10.1) 4.0 344.4
Depreciation, Decommissioning
and Amortization 116.4 8.1 18.8 26.9 143.3
Property and Revenue Taxes 34.4 0.8 0.7 1.5 35.9
------- ----- ----- ------ -------
Operating Income 208.6 (4.5) 7.4 2.9 211.5
Other Income, Net 11.5 (0.2) (7.6) (7.8) 3.7
Financing Costs 57.0 4.6 1.7 6.3 63.3
------- ----- ----- ------ -------
Income Before Income Taxes 163.1 (9.3) (1.9) (11.2) 151.9
Income Taxes 57.4 (2.8) 3.8 1.0 58.4
------- ----- ----- ------ -------
Net Earnings $105.7 ($6.5) ($5.7) ($12.2) $93.5
======= ===== ===== ====== =======
<FN>
(a) The acquisition of WICOR was accounted for as a purchase. Wisconsin
Energy's financial statements reflect the operations of Wisconsin Gas
Company, a subsidiary of WICOR, subsequent to consummation of the merger
on April 26, 2000.
(b) Other includes Wisconsin Electric Power Company, Edison Sault Electric
Company and consolidating adjustments and eliminations between the
utilities.
</FN>
</TABLE>
OPERATING REVENUES AND GROSS MARGINS: For further information
concerning electric utility operations, see "Electric Utility
Revenues, Gross Margins and Sales" below. For further
information concerning gas utility operations, see "Gas Utility
Revenues, Gross Margins and Therm Deliveries" below.
OTHER OPERATION AND MAINTENANCE EXPENSES: Excluding Wisconsin
Gas, other operation and maintenance expenses decreased by
$10.1 million during the first half of 2000 compared to the first
half of 1999. The most significant changes in other operation
and maintenance expenses between the comparative periods include
a $12.4 million decline in nuclear non-fuel expenses and a
$7.0 million decline in customer service expenses offset in part
by $5.5 million of higher power generation expenses and
$3.2 million of higher electric distribution expenses.
Nuclear non-fuel expenses were lower during the first six months
of 2000 as a result of continued progress on various performance
improvement initiatives. During the same period, customer
service expenses were lower primarily due to a change in the
period over which conservation expenses are being amortized.
Power generation expenses increased primarily due to differences
in the scope and timing of scheduled maintenance outages for
various facilities at Wisconsin Electric in anticipation of the
summer cooling season. Between the comparative periods, electric
distribution expenses were higher due to increased forestry and
maintenance activity.
DEPRECIATION, DECOMMISSIONING AND AMORTIZATION EXPENSES:
Excluding Wisconsin Gas, depreciation, decommissioning and
amortization expenses were $18.8 million higher during the first
six months of 2000 compared with the first six months of 1999.
Contributing to the comparative increase in expenses, at the end
of 1999, Wisconsin Electric completed amortizing a monthly credit
to depreciation for pre-1991 contributions in aid of
construction, which reduced depreciation expense by $11.4 million
during the first half of 1999. Higher average depreciable plant
during the first six months of 2000 also contributed to an
increase in depreciation expense.
OTHER INCOME, NET: Net other income was $7.8 million lower
between the comparative periods primarily due to the gain on the
sale of certain properties at Wisconsin Electric during the first
half of 1999.
INCOME TAXES: The effective income tax rate increased in the
first half of 2000 as compared with the prior year due to the
ending of the amortization of pre-1991 contributions in aid of
construction as described above under the subcaption
"Depreciation, Decommissioning and Amortization Expenses."
Electric Utility Revenues, Gross Margins and Sales
During the first six months of 2000, Wisconsin Energy's total
electric utility operating revenues increased by $28.3 million or
3.4% compared to the same period during 1999, and gross margin on
electric utility operating revenues increased by $17.0 million or
2.8%. Wisconsin Energy attributes this growth in part to higher
total electric energy sales during 2000 and to a 1.7% interim
electric retail rate increase in the Wisconsin jurisdiction that
became effective in early April 2000. The change in gross margin
between the comparative periods also reflects an $11.3 million or
5.2% increase in total fuel and purchased power expenses due in
large part to higher generation required to supply the growth in
total electric energy sales during the first half of 2000 and to
higher fuel and fixed costs associated with long-term purchased
power contracts into which Wisconsin Electric has entered. For
additional information concerning the status of Wisconsin
Electric's interim electric retail rate increase, see Item 1.
Legal Proceedings - "Utility Rates and Regulatory Matters" in
Part II of this report.
The following table compares Wisconsin Energy's electric utility
operating revenues, gross margins and electric utility energy
sales during the first six months of 2000 with similar
information for the first six months of 1999.
<TABLE>
<CAPTION>
Gross Margin Megawatt-Hour Sales
Six Months Ended June 30 Six Months Ended June 30
Wisconsin Energy Corporation -------------------------------- --------------------------------
Electric Utility Operations 2000 1999 % Change 2000 1999 % Change
---------------------------- ------ ------ -------- ------ ------ --------
(Millions of Dollars) (Thousands, Except
Degree Days)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues:
Residential $287.5 $280.8 2.4% 3,648.6 3,594.1 1.5%
Small Commercial/Industrial 264.5 255.7 3.4% 4,119.1 4,014.3 2.6%
Large Commercial/Industrial 234.0 229.8 1.8% 5,869.6 5,807.3 1.1%
Other-Retail/Municipal 29.9 26.9 11.2% 843.9 731.1 15.4%
Resale-Utilities 29.6 26.9 10.0% 1,066.2 1,033.1 3.2%
Other-Operating Revenues 13.7 10.8 26.9% - - -
------ ------ -------- --------
Total Operating Revenues 859.2 830.9 3.4% 15,547.4 15,179.9 2.4%
Fuel and Purchased Power: ======== ========
Fuel 150.7 146.1 3.1%
Purchased Power 78.8 72.1 9.3%
------ ------
Total Fuel and Purchased Power 229.5 218.2 5.2%
------ ------
Gross Margin $629.7 $612.7 2.8%
====== ======
Weather - Degree Days (a):
Heating (4,332 Normal) 3,883 4,110 (5.5%)
Cooling (167 Normal) 161 182 (11.5%)
<FN>
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
</FN>
</TABLE>
Compared with the same period during 1999, electric energy sales
increased 2.4% during the first half of 2000 primarily due to
growth in the average number of residential, small
commercial/industrial and other retail/municipal customers and,
to a lesser extent, due to higher use per large
commercial/industrial customer. Cooler weather between the
comparative periods offset some of the growth in electric energy
sales. Sales to the Empire and Tilden iron ore mines, Wisconsin
Electric's two largest retail customers, decreased 1.4% during
the first half of 2000. Excluding these mine customers, total
electric energy sales between the comparative periods grew by
2.8% and sales to the remaining large commercial/industrial
customers grew by 1.8%.
Gas Utility Revenues, Gross Margins and Therm Deliveries
During the first six months of 2000, Wisconsin Energy's total gas
utility operating revenues increased by $59.0 million or 34.4%
compared with the same period during 1999, and gross margin on
gas utility operating revenues increased by $17.8 million or
23.8%. Of these changes, $47.6 million of the increase in total
gas utility operating revenues and $18.4 million of the increase
in gross margin were attributable to Wisconsin Gas Company.
Excluding Wisconsin Gas, Wisconsin Energy's total gas utility
operating revenues increased by $11.4 million while gross margin
on gas utility operating revenues decreased by $0.6 million.
Significantly higher per unit gas costs during the first half of
2000 primarily drove the increase in operating revenues. In
addition, a weather-related decrease in higher margin residential
and commercial/industrial retail gas sales during the winter
months of 2000 offset the impact on operating revenues and gross
margin of a 3.1% interim gas retail rate increase at Wisconsin
Electric that became effective in early April 2000. For
additional information concerning the status of the interim gas
retail rate increase, see Item 1. Legal Proceedings - "Utility
Rates and Regulatory Matters" in Part II of this report.
Gas utility operating revenues, gross margins and gas utility
therm deliveries during the comparative periods are summarized
below. Gross margin is a better performance indicator than
revenues because changes in the cost of gas sold are flowed
through to revenue under a purchased gas adjustments mechanism
that does not impact gross margin. For further information about
the purchased gas adjustment mechanism, see Item 1. Legal
Proceedings - "Utility Rates and Regulatory Matters" in Part II
of this report.
<TABLE>
<CAPTION>
Gross Margin Therm Deliveries
Six Months Ended June 30 Six Months Ended June 30
Wisconsin Energy Corporation -------------------------------- --------------------------------
Gas Utility Operations 2000 (a) 1999 % Change 2000 (a) 1999 % Change
---------------------------- -------- ------ -------- -------- ------ --------
(Millions of Dollars) (Millions, Except
Degree Days)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues:
Residential $131.7 $114.2 15.3% 212.1 195.4 8.5%
Commercial/Industrial 68.4 57.2 19.6% 131.7 120.8 9.0%
Interruptible 4.0 3.4 17.6% 9.5 10.8 (12.0%)
------ ------ ----- -----
Total Retail Gas Sales 204.1 174.8 16.8% 353.3 327.0 8.0%
Transported Customer-Owned Gas 12.1 6.5 86.2% 252.3 183.8 37.3%
Transported-Interdepartmental 1.0 0.7 42.9% 22.7 21.7 4.6%
Other-Operating Revenues 13.2 (10.6) 224.5% - - -
------ ------ ----- -----
Total Operating Revenues 230.4 171.4 34.4% 628.3 532.5 18.0%
Cost of Gas Sold 137.8 96.6 42.7% ===== =====
------ ------
Gross Margin $92.6 $74.8 23.8%
====== ======
Weather - Degree Days (b):
Heating (4,332 Normal) 3,883 4,110 (5.5%)
<FN>
(a) The acquisition of WICOR was accounted for as a purchase. Wisconsin
Energy's gas utility information reflects the operations of Wisconsin Gas
Company subsequent to consummation of the merger on April 26, 2000. For
further information concerning WICOR gas utility operations during the
comparative periods, see "Pro Forma Gas Utility Revenues, Gross
Margins and Therm Deliveries" below.
(b) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
</FN>
</TABLE>
Pro Forma Gas Utility Revenues, Gross Margins and Therm Deliveries
To provide further insight into gas utility operations, the
following table compares pro forma gas utility operating
revenues, gross margins and therm deliveries during the first six
months of 2000 and 1999 as if Wisconsin Gas had been part of
Wisconsin Energy since January 1, 1999.
<TABLE>
<CAPTION>
Pro Forma
----------------------------------------------------------
Gross Margin Therm Deliveries
Six Months Ended June 30 Six Months Ended June 30
Wisconsin Energy Corporation -------------------------------- --------------------------------
Gas Utility Operations 2000 1999 % Change 2000 1999 % Change
---------------------------- ------ ------ -------- ------ ------ --------
(Millions of Dollars) (Millions)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues:
Residential $287.8 $283.2 1.6% 446.9 464.7 (3.8%)
Commercial/Industrial 135.9 131.7 3.2% 257.4 275.3 (6.5%)
Interruptible 8.4 9.1 (7.7%) 19.8 26.4 (25.0%)
------ ------ ------- -------
Total Retail Gas Sales 432.1 424.0 1.9% 724.1 766.4 (5.5%)
Transported Customer-Owned Gas 22.2 19.1 16.2% 458.4 450.5 1.8%
Transported-Interdepartmental 0.9 0.7 28.6% 22.7 21.7 4.6%
Other-Operating Revenues (8.5) (26.6) 68.0% - - -
------ ------ ------- -------
Total Operating Revenues 446.7 417.2 7.1% 1,205.2 1,238.6 (2.7%)
Cost of Gas Sold 264.8 232.8 13.7% ======= =======
------ ------
Gross Margin $181.9 $184.4 (1.4%)
====== ======
</TABLE>
NON-UTILITY ENERGY SEGMENT CONTRIBUTION TO EARNINGS
Non-utility energy segment earnings decreased $3.4 million
between the first six months of 2000 and the first six months of
1999. Excluding the WICOR non-utility energy companies, which
were acquired on April 26, 2000, non-utility energy earnings
declined $3.5 million between the comparative periods primarily
due to an extended scheduled outage from March through early May
2000 at one of Wisvest-Connecticut, LLC's power plants, which
increased purchased power as well as maintenance expenses. A
$5.5 million pre-tax gain during the second quarter of 2000 on
the sale to a third party of certain contractual rights to
combustion turbines, included in Other Income, Net, partially
offset the decline in non-utility energy segment earnings.
The following table reconciles the change in the contribution to
earnings by Wisconsin Energy's non-utility energy segment between
the first half of 1999 and the first half of 2000. In addition,
the table compares electric megawatt-hour sales from independent
power production activities as well as electric megawatt-hour
sales and natural gas therm sales as a result of non-utility
energy marketing, trading and services activities.
<TABLE>
<CAPTION>
Six Months Ended June 30
----------------------------------------------------------------
Increase (Decrease)
Wisconsin Energy Corporation -----------------------------------
Non-Utility Energy Segment 1999 WICOR (a) Other (b) Total 2000
---------------------------- -------- ----------- ----------- --------- --------
(Millions of Dollars, Except Statistics)
<S> <C> <C> <C> <C> <C>
Operating Revenues:
Independent Power Production $36.1 $ - $30.0 $30.0 $66.1
Energy Marketing, Trading &
Services 30.8 19.8 14.4 34.2 65.0
Other 2.9 0.1 16.4 16.5 19.4
----- ----- ----- ----- -----
Total Operating Revenues 69.8 19.9 60.8 80.7 150.5
Fuel and Purchased Power 49.5 - 44.3 44.3 93.8
Cost of Gas Sold - 17.1 - 17.1 17.1
Cost of Goods Sold - 1.8 - 1.8 1.8
----- ----- ----- ----- -----
Gross Margin 20.3 1.0 16.5 17.5 37.8
Other Operating Expenses 16.0 0.8 22.7 23.5 39.5
----- ----- ----- ----- -----
Operating Income (Loss) 4.3 0.2 (6.2) (6.0) (1.7)
Other Income, Net 2.5 - 9.0 9.0 11.5
Financing Costs 7.4 0.1 8.3 8.4 15.8
----- ----- ----- ----- -----
Income Before Income Taxes (0.6) 0.1 (5.5) (5.4) (6.0)
Income Taxes - - (2.0) (2.0) (2.0)
----- ----- ----- ----- -----
Net Earnings (Loss) ($0.6) $0.1 ($3.5) ($3.4) ($4.0)
===== ===== ===== ===== =====
Statistics
Independent Power Production:
Electric Megawatt-Hour
Sales (Thousands) 940.3 - 759.0 759.0 1,699.3
Energy Marketing, Trading &
Services:
Electric Megawatt-Hour
Sales (Thousands) 1,002.3 - (271.3) (271.3) 731.0
Gas Therm Sales (Millions) - 34.6 - 34.6 34.6
<FN>
(a) The acquisition of WICOR was accounted for as a purchase. Wisconsin
Energy's financial statements and statistics reflect the operations of
WICOR Energy Services and Field Tech, subsidiaries of WICOR, subsequent
to consummation of the merger on April 26, 2000.
(b) Other consists primarily of Wisvest.
</FN>
</TABLE>
MANUFACTURING SEGMENT CONTRIBUTION TO EARNINGS
The manufacturing segment was acquired by Wisconsin Energy as
part of the acquisition of WICOR on April 26, 2000. Accounted
for as a purchase, year-to-date earnings contributions from the
manufacturing segment are the same as those reported above for
the second quarter of 2000.
Pro Forma Manufacturing Segment Revenues and Gross Margin
To provide further insight, the following table reconciles the
change in pro forma revenues and gross margin by the
manufacturing segment between the first six months of 1999 and
the first six months of 2000 as if the manufacturing segment had
been part of Wisconsin Energy since January 1, 1999.
<TABLE>
<CAPTION>
Pro Forma
Six Months Ended June 30
------------------------------------------------
Wisconsin Energy Corporation Increase
Manufacturing Gross Margin 1999 (Decrease) 2000
---------------------------- -------- -------------- --------
(Millions of Dollars)
<S> <C> <C> <C>
Operating Revenues:
Domestic $184.7 $40.1 $224.8
International 70.3 4.2 74.5
------ ----- ------
Total Operating Revenues 255.0 44.3 299.3
Cost of Goods Sold 178.8 31.9 210.7
------ ----- ------
Gross Margin $76.2 $12.4 $88.6
====== ===== ======
</TABLE>
FACTORS AFFECTING RESULTS OF OPERATIONS
ACQUISITION OF WICOR, INC.
On April 26, 2000, Wisconsin Energy acquired all of the
outstanding common shares of WICOR, Inc., for approximately
$1.2 billion in cash including related fees and expenses.
Approximately $300 million of WICOR debt remained outstanding
following the acquisition. The business combination, which was
funded through the issuance of commercial paper, was accounted
for as a purchase, and the excess of the purchase price over the
fair value of net assets and liabilities assumed was recorded as
approximately $835 million of goodwill.
WICOR is a diversified holding company with two principal
business groups: energy services and pump manufacturing.
Wisconsin Energy is undertaking a thorough review of WICOR's
operations and studying the manner in which the operations of the
two companies can best be optimized. The Company intends to take
such actions as a result of this review as may be deemed
appropriate under the circumstances including the potential
combination of the gas utility operations of Wisconsin Electric
with WICOR's wholly-owned natural gas distribution subsidiary,
Wisconsin Gas Company. Wisconsin Energy anticipates recording a
restructuring charge related to the WICOR merger during the
second half of 2000. The Company currently intends to continue
the primary business operations of WICOR and to continue to use
the physical assets of such primary business operations for that
purpose, while integrating such operations with its own.
As provided by the merger agreement, effective with the merger,
George E. Wardeberg, the Chairman and Chief Executive Officer of
WICOR, was elected as a director and appointed as Vice Chairman
of the Board of Directors of Wisconsin Energy. Willie D. Davis,
an outside director of WICOR, was also elected to the Wisconsin
Energy Board of Directors.
For additional information related to the acquisition of WICOR,
see "Liquidity and Capital Resources" below in this item as well
as Item 1. Financial Statements - "Notes to Financial Statements"
in Part I of this report.
LEGAL MATTERS
GIDDINGS & LEWIS INC. / CITY OF WEST ALLIS LAWSUIT: See Item 1.
Legal Proceedings - "Environmental Matters" 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
ELECTRIC UTILITY INDUSTRY RESTRUCTURING IN MICHIGAN: On June 3,
2000, the Governor of the state of Michigan signed the "Customer
Choice and Electric Reliability Act" into law empowering the
Michigan Public Service Commission to enforce implementation of
prior electric retail access plans. In effect, the new law
provides that all Michigan retail customers of investor-owned
utilities will have the ability to choose their electric power
producer as of January 1, 2002. As directed by the Michigan
Public Service Commission, utilities such as Wisconsin Electric
and Edison Sault are required to submit choice implementation
plans by October 1, 2000. Revenue during 1999 from electric
retail customers of Wisconsin Energy in the state of Michigan
were approximately $140 million, representing 6.8% of total
utility operating revenues and 8.1% of total electric utility
operating revenues. Since Wisconsin Electric and Edison Sault
believe that their power supply costs are and will be below
prevailing market costs, the companies are not expecting many of
their Michigan customers to switch to alternative power suppliers
in January of 2002.
NUCLEAR MATTERS
NUCLEAR MANAGEMENT COMPANY: As previously reported, all
participants in the Nuclear Management Company, including
Wisconsin Electric, filed applications with the Nuclear
Regulatory Commission to transfer applicable nuclear generating
unit authority under their operating licenses to the Nuclear
Management Company. This application was approved on May 15,
2000. The Nuclear Management Company assumed operating
responsibility for Point Beach Nuclear Plant with the transfer of
operating authority under the operating licenses on August 7,
2000. Wisconsin Electric continues to own Point Beach and
retains exclusive rights to the energy generated as well as
financial responsibility for the plant's safe operation,
maintenance and decommissioning.
USED NUCLEAR FUEL STORAGE & DISPOSAL: As previously reported,
Wisconsin Electric estimates that it currently has sufficient
temporary used fuel storage capacity to continue operating Point
Beach Nuclear Plant until the Spring of 2005. In May 2000,
Wisconsin Electric applied to the Public Service Commission of
Wisconsin for authority to load additional temporary used fuel
dry storage casks beyond the twelve that are currently
authorized. The application requests authorization for
additional used fuel casks to operate Point Beach Units 1 and 2
to the end of their current operating licenses of 2010 and 2013,
respectively. Wisconsin Electric anticipates that the Public
Service Commission of Wisconsin will issue an order on the
application by the end of the fourth quarter of 2000.
See Item 1. Legal Proceedings - "Other Matters" in Part II of
this report for information concerning the United States
Department of Energy's breach of a contract with Wisconsin
Electric that required the Department of Energy to begin
permanently removing used fuel from Point Beach by January 31,
1998.
UTILITY RATES AND REGULATORY MATTERS
2000/2001 TEST YEARS: See Item 1. Legal Proceedings - "Utility
Rates and Regulatory Matters" in Part II of this report for
information concerning an application that Wisconsin Electric
filed with the Public Service Commission of Wisconsin in
September 1999 requesting incremental price relief as well as for
information concerning a related interim order received in April
2000.
PURCHASED GAS ADJUSTMENT MECHANISM: See Item 1. Legal
Proceedings - "Utility Rates and Regulatory Matters" in Part II
of this report for information concerning a common gas cost
recovery mechanism for Wisconsin Electric's gas operations and
for Wisconsin Gas Company required by the Public Service
Commission of Wisconsin as a condition of its approval of
Wisconsin Energy's merger with WICOR.
ENVIRONMENTAL MATTERS
NON-UTILITY AIR QUALITY MATTERS: As previously reported, the
Connecticut legislature was considering legislation that would
have imposed air quality restrictions on Wisvest-Connecticut,
LLC's Bridgeport Harbor Station and New Haven Harbor Station in
addition to those air quality restrictions required by current
federal and state law. On May 3, 2000, the Connecticut
legislature adjourned without enacting any legislation on this
subject. Subsequently, on May 17, 2000, the Governor of the
state of Connecticut issued an Executive Order to the Connecticut
Department of Environmental Protection which directed the
Connecticut Department of Environmental Protection to develop new
standards to reduce nitrogen oxide ("NOx") and sulfur dioxide
("SO2") emissions and that compliance include market-based
mechanisms to meet required reductions. Final regulations are
anticipated by December 31, 2000.
2000 OUTLOOK
EARNINGS: Previously, Wisconsin Energy had projected that its
2000 earnings would be in the range of $1.65 to $1.85 per share.
Based upon the results of operations through June 2000, and
assuming normal weather during the remainder of the year,
Wisconsin Energy now projects that its 2000 earnings will be in
the range of $1.50 to $1.70 per share. The Company's adjusted
earnings projection for 2000 does not reflect a potential
restructuring charge during the second half of 2000 related to
the WICOR merger nor potential gains on the sale of certain non-
utility assets, including sale of Wisvest's investment in SkyGen
Energy Holdings LLC, during the second half of 2000. Wisconsin
Energy expects third quarter 2000 earnings to be below historical
earnings levels due to the seasonality of the gas utility
business and due to higher interest and goodwill amortization
expenses as a result of the WICOR merger. However, the Company
anticipates fourth quarter 2000 earnings to reflect the benefits
of the Wisconsin Gas' heating season. Subject to the many
variables which can affect such a projection, earnings in 2001
are expected to increase from these levels reflecting a full year
of earnings contributions from WICOR and from merger-related
savings. For additional information concerning the WICOR merger,
see "Factors Affecting Results of Operations - Acquisition of
WICOR, Inc.," above in this item. For additional information
concerning anticipated sales of certain non-utility assets, see
"Liquidity and Capital Resources" below in this item.
The adjusted earnings projections for 2000 include or assume,
among other factors, the effects of: unusually warm weather
during the first quarter of 2000 and unusually cool weather
during the second quarter of 2000; goodwill amortization and
interest charges associated with the WICOR merger; absence of
WICOR's results from January through April 26, 2000; increased
purchased power costs; increased interest costs due to higher
than projected interest rates; normal operations of Wisconsin
Energy and all of its subsidiaries, including WICOR and its
subsidiaries, during the remainder of 2000; and a recently
announced stock buy-back program described in below in "Liquidity
and Capital Resources" in this item.
These earnings projections are forward-looking statements subject
to certain risks, uncertainties and assumptions. Actual results
may vary materially. Factors that could cause actual results to
differ materially include, but are not limited to: general
economic conditions; business and competitive conditions in the
deregulating and consolidating 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 supply availability; changes in natural gas prices and supply
availability; unusual weather; risks associated with non-utility
diversification; the timing and extent of realization of
anticipated net cost savings from the WICOR merger; regulatory
decisions; disposition of legal proceedings; and foreign
governmental, economic, political and currency risk. See
"Cautionary Factors" below in this item.
MARKET RISKS
INTEREST RATE RISK: As previously reported, Wisconsin Energy
financed the acquisition of WICOR through $1.2 billion of short-
term debt in the form of commercial paper issued in the
institutional private placement market. As a result, future
short-term interest expense and payments will reflect a higher
borrowing level as well as future short-term interest rates.
Based upon an actual weighted average interest rate of 6.59% as
of July 31, 2000, Wisconsin Energy would incur an annual
incremental interest expense of $79.1 million on the $1.2 billion
of short-term debt issued to acquire WICOR. A 1/8 percent change
in the interest rate would increase or decrease annual interest
expense by approximately $1.5 million.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES: Cash provided by operating activities
totaled $306.0 million at Wisconsin Energy during the first six
months of 2000 compared with $221.6 million during the same
period in 1999.
INVESTING ACTIVITIES: Net cash used in investing activities
totaled $1.5 billion at Wisconsin Energy during the first half of
2000 compared to $565.5 million during the same period in 1999.
Wisconsin Energy's consolidated investing activities during the
first six months of 2000 included the $1.2 billion acquisition of
WICOR as well as $303.0 million for the acquisition or
construction of new or improved facilities of which
$174.6 million was for a number of projects related to utility
plant at Wisconsin Electric, $69.7 million was for non-utility
energy projects at Wisvest and $42.4 million was for non-utility
real estate development activities by Wispark. During 2000,
Wisconsin Electric recorded $21.7 million for the acquisition of
nuclear fuel and $8.8 million of payments to and earnings of the
Nuclear Decommissioning Trust Fund for the eventual
decommissioning of Point Beach Nuclear Plant. Wisconsin Energy
received net proceeds of $26.3 million during the first half of
2000 on the disposition of various other investments including
$15.0 million at Wisvest for the sale of certain generating
turbine investments and $16.0 million at Wispark for the sale of
various real estate investments.
Wisconsin Energy's consolidated investing activities during the
first six months of 1999 included a $276.8 million acquisition of
two fossil-fueled power plants in the state of Connecticut by a
subsidiary of Wisvest.
FINANCING ACTIVITIES: During the first half of 2000, Wisconsin
Energy received $1.2 billion of net cash from financing
activities compared to a net of $362.7 million during the first
half of 1999.
During the first six months of 2000, Wisconsin Energy issued
approximately 2.6 million new shares of common stock primarily
which were purchased by participants in the Company's stock plans
with cash investments and reinvested dividends aggregating
approximately $50.4 million. Also during the six months ended
June 30, 2000, Wisvest obtained $13.0 million from an unsecured
long-term working capital loan, and Wispark secured $12.8 million
of bank financing in the form of adjustable rate mortgage notes
due 2000-2003 to finance the construction or purchase of various
facilities. During the six months ended June 30, 2000, Wisconsin
Energy increased its short-term debt in the form of commercial
paper by $1.2 billion to finance the acquisition of WICOR. Also
during the first half of 2000, Wisconsin Energy paid
$93.5 million of dividends on its common stock.
CAPITAL REQUIREMENTS AND RESOURCES: Capital requirements during
the remainder of 2000 are expected to be principally for
construction expenditures and for other investments, for long and
short-term debt maturity and sinking fund requirements, for
payments to the Nuclear Decommissioning Trust Fund for the
eventual decommissioning of Point Beach Nuclear Plant and for the
repurchase of a portion of the outstanding shares of Wisconsin
Energy common stock. Wisconsin Energy's total consolidated
construction and other investment budget for the remainder of
2000 is approximately $388 million.
These cash requirements are expected to be met through a
combination of the following possible 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 certain of Wisconsin Energy's stock plans and
proceeds from the sale of certain non-utility assets and
investments. The amount and timing of any capital market
financing has not been determined and will depend on market
conditions and other factors.
Wisconsin Energy funded the April 26, 2000 acquisition of WICOR,
Inc., through issuance in the institutional private placement
market of $1.2 billion of commercial paper with a weighted
average effective interest rate of 6.09%. As a result of
refinancing some short-term debt which has matured since the
merger, the weighted average interest rate for this commercial
paper was 6.59% as of July 31, 2000. Wisconsin Energy arranged
for two new bank back-up credit facilities to provide credit
support for the issuance of Wisconsin Energy's commercial paper:
a $1.0 billion 364-day bank back-up credit facility and a
$500 million three-year bank back-up credit facility. In
addition, approximately $300 million of WICOR debt remains
outstanding.
The following table shows Wisconsin Energy's consolidated
capitalization structure at June 30, 2000.
<TABLE>
<CAPTION>
June 30, 2000
--------------------------
(Millions of Dollars)
<S> <C> <C>
Common Equity $2,080.0 32.0%
Preferred Stock 30.4 0.5%
Trust Preferred Securities 200.0 3.1%
Long - Term Debt (Including
current maturities) 2,359.4 36.4%
Short - Term Debt 1,816.1 28.0%
-------- ------
$6,485.9 100.0%
======== ======
</TABLE>
For additional information related to the acquisition of WICOR,
see "Factors Affecting Results of Operations" above in this item
as well as Item 1. Financial Statements - "Notes to Financial
Statements" in Part I of this report.
Currently, Wisconsin Energy is conducting a strategic assessment
of its portfolio of non-utility assets. The Company may make
further investments and/or acquisitions from time to time in
projects or entities that are expected to provide a satisfactory
return on the investment, or it may sell certain non-utility
assets or investments. As a result, the Company expects that its
future long-term capital requirements as well as its capital
resources may continue to vary from historical levels.
As previously reported, Wisconsin Electric has agreed to join the
American Transmission Company LLC by contributing electric
utility transmission assets in exchange for an equity interest in
the new company. Transfer of these electric transmission system
assets, with a net book value of approximately $200 million, is
expected to occur by January 1, 2001. Shortly following transfer
of the assets, the American Transmission Company LLC is expected
to issue debt and distribute cash back to Wisconsin Electric in
an amount equal to approximately 50% of the net book value of the
assets transferred.
On May 11, 2000, Wisconsin Energy announced that certain assets
of its non-utility real estate development company, Wispark
Corporation, would be sold over the next 12 to 18 months.
Wispark Corporation's assets currently have a book value of
approximately $325 million, and Wisconsin Energy expects to sell
approximately 80% of these assets. Proceeds from the sale will
be used to pay down the Company's corporate debt.
As previously reported, Wisvest Corporation has previously
advanced $141.4 million to SkyGen Energy Holdings LLC in the form
of $111.4 million in loans convertible to minority equity
ownership in SkyGen and $30 million in short-term loans secured
by combustion turbines associated with SkyGen power projects. In
June 2000, Wisvest signed a definitive agreement for the sale of
its interest in SkyGen to Calpine Corporation. Pursuant to the
definitive agreement, Wisvest will receive $220 million in
exchange for the convertible loans and associated interest
receivable and additionally will receive repayment of the
$30 million turbine loan plus related interest receivable.
Wisconsin Energy anticipates a pre-tax gain of approximately
$90 million ($0.45 per share after tax) as a result of this sale.
The transaction, which is expected to close in the second half of
2000, is subject to Calpine and SkyGen obtaining necessary
regulatory approvals.
In connection with execution of the definitive agreement,
Wisconsin Energy agreed to provide a $125 million short-term
bridge loan and guarantee facility to SkyGen. The facility is
comprised of $80 million in revolving loans and $45 million in
guarantees. Wisconsin Energy advanced $35 million of revolving
loans in June 2000 and an additional $20 million on July 31,
2000. Wisconsin Energy issued a $45 million guaranty on behalf
of SkyGen on July 3, 2000. All principal and interest related to
revolving loans will be repaid and Wisconsin Energy will be
released from the guarantee upon the earlier of the sale of
SkyGen to Calpine or December 31, 2000.
On June 27, 2000, the Company announced that its board of
directors had authorized the repurchase of up to $200 million of
its shares of common stock in the open market over the 18 months
ended December 2001. The repurchase program would represent a
reduction of approximately 8% or 9.8 million of Wisconsin
Energy's outstanding shares as of the market close on June 26,
2000. Proceeds from asset sales, funds from internal working
capital and funds raised through the issuance of commercial paper
are expected to be the primary sources used to fund this common
stock repurchase program.
In April 2000, in conjunction with consummation of Wisconsin
Energy's acquisition of WICOR, Moody's Investors Service
("Moody's") assigned a general corporate rating of A1 to
Wisconsin Energy and maintained its ratings of the debt
securities of Wisconsin Energy and Wisconsin Electric. Duff &
Phelps Inc. ("D&P"), reaffirmed its long-term credit ratings of
Wisconsin Energy and Wisconsin Energy Capital Corporation as well
as its short-term rating of Wisconsin Electric, but lowered its
long-term credit ratings of Wisconsin Electric. Fitch Investors
Service ("Fitch") assigned initial credit ratings for Wisconsin
Energy, Wisconsin Energy Capital Corporation, WEC Capital Trust I
trust preferred securities and Wisconsin Electric commercial
paper and reaffirmed its long-term ratings of Wisconsin Electric.
Also in April 2000, Standard & Poors Corporation ("S&P") lowered
its ratings on Wisconsin Energy and Wisconsin Energy's
subsidiaries except for the short-term ratings of Wisconsin
Electric, which were reaffirmed. In conjunction with its debt
rating adjustments at the end of April 2000, S&P removed all long-
term ratings on Wisconsin Energy and its subsidiaries from credit
watch with negative implications, assigning a negative outlook.
In June 1999, S&P and Moody's confirmed the ratings of securities
of Wisconsin Gas following the June 28, 1999 announcement that
Wisconsin Energy would acquire WICOR. In April 2000, S&P revised
the outlook on Wisconsin Gas from stable to negative and Fitch
assigned initial credit ratings for Wisconsin Gas.
The following table summarizes various current ratings of
Wisconsin Energy's and Wisconsin Electric's securities by S&P,
Moody's, D&P and Fitch as well as securities of Wisconsin Gas by
S&P and Moody's. WICOR's holding company has no debt outstanding
and the commercial paper of WICOR Industries, Inc., a wholly-
owned subsidiary of WICOR, is unrated.
<TABLE>
<CAPTION>
S & P Moody's D & P Fitch
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Wisconsin Energy Corporation
Commercial Paper A-1 P-1 D-1 F1
Wisconsin Electric Power Company
Commercial Paper A-1+ P-1 D-1+ F1+
Senior Secured Debt AA- Aa2 AA AA
Unsecured Debt A+ Aa3 AA- AA-
Preferred Stock A aa3 AA- AA-
Wisconsin Gas Company
Commercial Paper A-1+ P-1 - F1+
Senior Unsecured Debt AA- Aa2 - AA-
Wisconsin Energy Capital Corporation
Unsecured Debt A+ A1 A+ A+
WEC Capital Trust I
Trust Preferred Securities A- a1 A A
</TABLE>
At June 30, 2000, Wisconsin Energy had $1.9 billion of unused
lines of bank credit on a consolidated basis, including the
additional $1.5 billion of back-up credit bank lines in April
2000 it obtained in conjunction with its acquisition of WICOR.
*****
For certain other information which may impact Wisconsin Energy'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 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. Such statements are based upon management's
current expectations and are subject to risks and uncertainties
that could cause Wisconsin Energy'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 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
electric generating facilities; unscheduled generation outages,
or unplanned 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 used 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 regulations as well as regulations from the
Wisconsin or Michigan Departments of Natural Resources or the
state of Connecticut related to emissions from fossil fuel 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 its 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, investigations and claims, and changes
in those matters including the final outcome of the Giddings &
Lewis, Inc. / City of West Allis lawsuit against Wisconsin
Electric.
* Factors affecting the availability or cost of capital such as
changes in interest rates; the Company's capitalization
structure; 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.
* 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; 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 amended public utility holding company law.
* Factors affecting foreign non-utility operations and
investments 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 Securities and
Exchange Commission filings or in other publicly disseminated
written documents.
BUSINESS COMBINATION FACTORS
* Unanticipated costs or difficulties related to the integration
of the businesses of Wisconsin Energy and WICOR.
* Unanticipated financing or other consequences resulting from
the additional short-term debt issued to fund the acquisition of
WICOR.
* Unexpected difficulties or delays in realizing anticipated net
cost savings or unanticipated effects of the qualified five-year
electric and gas rate freeze ordered by the Public Service
Commission of Wisconsin as a condition of approval of the merger.
Wisconsin Energy undertakes 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 information concerning additional interest rate risk at
Wisconsin Energy Corporation as a result of its acquisition of
WICOR, 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
information concerning 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 1999 Annual
Report on Form 10-K as well as Item 7A. Quantitative and
Qualitative Disclosures About Market Risk in Part II of WICOR's
1999 Annual Report on Form 10-K.
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 1999 Annual Report on
Form 10-K and Item 1. Legal Proceedings in Part II of Wisconsin
Energy's Quarterly Report on Form 10-Q for the period ended
March 31, 2000. The following should also be read in conjunction
with Item 3. Legal Proceedings in Part I of WICOR's 1999 Annual
Report on Form 10-K.
ENVIRONMENTAL MATTERS
GIDDINGS & LEWIS, INC. / CITY OF WEST ALLIS LAWSUIT: In July
1996, Giddings & Lewis, Inc., Kearney & Trecker Corporation, now
a part of Giddings & Lewis, Inc., and the City of West Allis
brought an action in the Milwaukee County Circuit Court alleging
that in 1959 Wisconsin Electric had deposited cyanide
contaminated wood chips at two sites in West Allis, Wisconsin,
owned by the plaintiffs. Environmental remediation at both sites
was completed several years ago, with the current owners paying
for disposal of materials found on their respective portions of
the sites. Internal investigations led Wisconsin Electric to
believe that it was not the source of this waste.
In July 1999, a jury issued a verdict against Wisconsin Electric
awarding the plaintiffs $4.5 million in compensatory damages for
clean-up costs and loss of property value and $100 million in
punitive damages. In October 1999, the Circuit Court denied
Wisconsin Electric's post trial motions and directed that
judgment on the verdict be entered. Wisconsin Electric has filed
a notice of appeal of the judgment to the Wisconsin Court of
Appeals.
In December 1999, in order to stop the post-judgment accrual of
interest at 12% per annum during the pendency of the appeal,
Wisconsin Electric tendered a contested liability payment of
$110 million, which is part of "Deferred Charges and Other
Assets - Other" on the condensed balance sheet, to the Clerk of
Circuit Court for Milwaukee County representing the amount of the
verdict and accrued interest. Under Wisconsin law, the
plaintiffs are liable to Wisconsin Electric upon reversal or
reduction of the judgment for the applicable amount of the funds
tendered with interest.
In further post-trial proceedings, the plaintiffs filed with the
Circuit Court a motion for sanctions based upon representations
made by Wisconsin Electric during trial that it had no insurance
coverage for the punitive damage award. The Circuit Court held
hearings on the sanctions issue in February 2000. On April 27,
2000, the Circuit Court Judge issued a ruling on the sanctions
matter, imposing the following sanctions against Wisconsin
Electric: (i) "judgment in the alternative" as a sanction,
thereby finding an alternative basis upon which to sustain the
$104.5 million verdict returned by the jury; (ii) a bar against
Wisconsin Electric pursuing insurance coverage for the punitive
damage portion of the verdict; and (iii) a requirement that
Wisconsin Electric pay the plaintiffs' costs relating to the
sanctions matter. In addition to its appeal of the judgment
entered on the jury's verdict, Wisconsin Electric is appealing
the Judge's ruling on the sanctions matter.
In the opinion of management, based in part on the advice of
legal counsel, the jury verdict was not supported by the evidence
or the law and the unprecedented award of punitive damages of
this magnitude was unwarranted and should therefore be reversed
or substantially reduced on appeal. Management also believes
that the sanctions imposed by the Judge were not supported by the
evidence or the law. As such, Wisconsin Electric has not
established a reserve for potential damages from this suit.
As a further development, Wisconsin Energy Corporation, in May
and June 2000, respectively, received letters from two separate
shareholders demanding that the Company bring a derivative suit
for alleged injuries to shareholders resulting from the Giddings
& Lewis / City of West Allis litigation. In accordance with
Wisconsin law, the Board of Directors of Wisconsin Energy has
created a special committee of independent directors, which has
retained independent counsel to assist it, to investigate the
allegations raised in the shareholder letters and determine
whether a derivative action should be brought.
UTILITY RATES AND REGULATORY MATTERS
2000/2001 TEST YEARS: In September 1999, Wisconsin Electric
submitted an application with the Public Service Commission of
Wisconsin requesting incremental price relief for specific
capital investments for electric and gas system reliability and
safety and for a one-time accounting adjustment. The application
further recommended the adoption of performance-based measures
and incentives. In its application, Wisconsin Electric proposed
a two-step price increase. The first requested increase, to be
effective January 1, 2000, totaled $46 million (3.1%) for
electric operations and $8 million (2.3%) for gas operations.
The second requested price increase, to be effective January 1,
2001, totaled $29 million (2.0%) for electric operations.
On December 23, 1999, Wisconsin Electric requested that interim
price relief be granted, subject to refund, as soon as possible
because it anticipated that a final order on its price request
would not be issued until the summer of 2000. Wisconsin Electric
withdrew its request to implement performance-based prices
because some elements of the proposed performance-based price
plan were not compatible with the Public Service Commission of
Wisconsin's approval of the Company's merger with WICOR. The
Public Service Commission of Wisconsin has proceeded to review
Wisconsin Electric's 2000/2001 test year data as a traditional
cost of service rate request. As a result, Wisconsin Electric
anticipates that interim and final rates could recover higher
cost of service expenses included in the 2000/2001 test year data
as well as provide an increase in income available to
stockholders to the extent that higher utility plant investments
increase the total approved rate base.
On March 23, 2000, the Public Service Commission of Wisconsin
approved Wisconsin Electric's request for interim price
increases, authorizing a $25.2 million (1.7%) increase for
electric operations and an $11.6 million (3.1%) increase for gas
operations. The interim increase, which is subject to potential
refund, became effective April 11, 2000. Rates in the interim
order, which are based on a 12.2% return on common equity, will
be in effect until superceded by a final order establishing new
rates.
The Public Service Commission of Wisconsin finished hearing
testimony on April 26, 2000 on Wisconsin Electric's original
September 1999 application and has made certain preliminary
determinations not yet finalized in a rate order indicating the
possibility of additional electric retail price increases
effective in the third quarter of 2000 and again on January 1,
2001 as well as increases in gas rates that are less than the
interim rates noted above. Wisconsin Electric will know the
magnitude of any rate changes when an anticipated final order is
issued in the third quarter of 2000.
As a condition of its approval of Wisconsin Energy's merger with
WICOR, the Public Service Commission of Wisconsin ordered a
qualified five-year rate freeze that becomes effective on
January 1, 2001 concurrent with any second step rate changes
included in the final order on the 2000/2001 test years.
PURCHASED GAS ADJUSTMENT MECHANISM: As a result of the
acquisition of WICOR by Wisconsin Energy, the Public Service
Commission of Wisconsin required a common purchased gas
adjustment clause for Wisconsin Electric's gas operations and for
Wisconsin Gas Company. In a filing on April 17, 2000, Wisconsin
Gas requested to make several modifications to its existing
incentive gas cost recovery mechanism and to extend the recovery
mechanism for another three year term starting November 1, 2000.
On May 23, 2000, Wisconsin Electric filed with the Public Service
Commission of Wisconsin a request to change from its existing
modified dollar for dollar recovery mechanism to the same
incentive mechanism used by Wisconsin Gas and also requested
approval of a common purchased gas adjustment clause with
Wisconsin Gas. The requested effective date for changing to the
incentive gas cost recovery mechanism is November 1, 2000. The
Public Service Commission of Wisconsin held hearings on the
requested changes on August 9, 2000. Wisconsin Electric
anticipates receiving an order during the fourth quarter of 2000.
Under the incentive gas cost recovery mechanism, most purchased
gas costs will be subject to an incentive with the possibility of
a gain or loss which will be shared between ratepayers and
shareholders.
OTHER MATTERS
USED NUCLEAR FUEL STORAGE & DISPOSAL: On August 24, 1999,
Wisconsin Electric filed a petition for review and for writ of
mandamus in the United States Court of Appeals for the District
of Columbia Circuit seeking both monetary and non-monetary relief
under its Standard Contract with the Department of Energy as a
result of their failure to comply with their unconditional
obligation under the Nuclear Waste Policy Act of 1982, as amended
in 1987, to dispose of the used nuclear fuel at Point Beach
Nuclear Plant. Wisconsin Electric requested a contract
modification requiring the Department of Energy to provide
storage casks for the used fuel, to take title of the used fuel
when it is placed in dry storage at Point Beach and to reimburse
Wisconsin Electric for costs incurred as a result of the
Department of Energy's failure to comply with its obligations.
On October 12, 1999, the government filed a motion to dismiss
Wisconsin Electric's petition for review on grounds of failure to
exhaust administrative remedies and lack of jurisdiction. On
October 25, 1999, Wisconsin Electric filed a response to the
government's motion, asking the court to deny the motion. On
May 19, 2000, the Appeals Court granted the government's motion
and dismissed Wisconsin Electric's petition for want of
jurisdiction. Wisconsin Electric is considering pursuing other
remedies against the Department of Energy.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At Wisconsin Energy's 2000 Annual Meeting of Stockholders held on
June 27, 2000, 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.
<TABLE>
<CAPTION>
Election of Directors for Terms Expiring in 2003
------------------------------------------------
Name of Nominee For Withheld
--------------- --------- ------------
<S> <C> <C>
John F. Bergstrom 86,627,443 (97.0%) 2,639,558 (3.0%)
Barbara L. Bowles 86,723,615 (97.2%) 2,543,386 (2.8%)
Willie D. Davis 86,794,187 (97.2%) 2,472,814 (2.8%)
</TABLE>
Of 120,328,927 voting shares outstanding as of the April 20, 2000
record date for the annual meeting, 89,267,001 shares (74.2% 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 28, 2000 with respect to the 2000 Annual Meeting of
Stockholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following Exhibits are filed with or incorporated by
reference in this Form 10-Q report:
Exhibit No.
-----------
2.1 Agreement and Plan of Merger, dated as of June 27, 1999, as
amended as of September 9, 1999, by and among Wisconsin Energy
Corporation, WICOR, Inc. and CEW Acquisition, Inc.(incorporated
herein by reference to Appendix A to the joint proxy
statement/prospectus dated September 10, 1999, included in
Wisconsin Energy's Registration on Form S-4 filed on September 9,
1999 (File No. 333-86827) (the "Form S-4")).
2.2 Amendment to Agreement and Plan of Merger dated as of
September 9, 1999 (incorporated herein by reference to
Exhibit 2.2 to the Form S-4).
2.3 Second Amendment to Agreement and Plan of Merger dated as of
April 26, 2000 (incorporated herein by reference to Exhibit 2.3
to Wisconsin Energy's Current Report on Form 8-K dated as of
April 26, 2000).
10.1 Senior Officer Change in Control Agreement between Wisconsin
Energy Corporation and Richard A. Abdoo effective July 18, 2000.
27.1 Wisconsin Energy Corporation Financial Data Schedule
for the six months ended June 30, 2000.
27.2 Wisconsin Energy Corporation Reclassified Financial Data
Schedule for the six months ended June 30, 1999, which
reflects the reclassification of certain amounts to
conform to Wisconsin Energy's current financial
statement presentation.
(b) REPORTS ON FORM 8-K
On April 28, 2000, Current Report on Form 8-K dated as of
April 26, 2000 was filed by Wisconsin Energy disclosing the
consummation of Wisconsin Energy's acquisition of WICOR,
Inc., an update on securities ratings, and the Circuit Court
Judge's ruling on the sanctions matter relating to the
Giddings & Lewis / City of West Allis lawsuit, and
incorporating and filing as an exhibit WICOR's historical
financial statements.
On July 10, 2000, Wisconsin Energy filed Amendment No. 1 on
Form 8-K/A to the Current Report on Form 8-K dated as of
April 26, 2000, submitting certain historical financial
statements of WICOR as well as submitting pro forma financial
information required to be filed in connection with reporting
of the WICOR merger.
No other reports on Form 8-K were filed by Wisconsin Energy
during the quarter ended June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
WISCONSIN ENERGY CORPORATION
----------------------------
(Registrant)
/s/ Paul Donovan
-----------------------------------
Date: August 11, 2000 Paul Donovan, Senior Vice President,
Chief Financial Officer and duly
authorized officer
WISCONSIN ENERGY CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000
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, as
amended as of September 9, 1999, by and among Wisconsin Energy
Corporation, WICOR, Inc. and CEW Acquisition, Inc.(incorporated
herein by reference to Appendix A to the joint proxy
statement/prospectus dated September 10, 1999, included in
Wisconsin Energy's Registration on Form S-4 filed on September 9,
1999 (File No. 333-86827) (the "Form S-4")).
2.2 Amendment to Agreement and Plan of Merger dated as of
September 9, 1999 (incorporated herein by reference to
Exhibit 2.2 to the Form S-4).
2.3 Second Amendment to Agreement and Plan of Merger dated as of
April 26, 2000 (incorporated herein by reference to Exhibit 2.3
to Wisconsin Energy's Current Report on Form 8-K dated as of
April 26, 2000).
10.1 Senior Officer Change in Control Agreement between Wisconsin
Energy Corporation and Richard A. Abdoo effective July 18, 2000.
27.1 Wisconsin Energy Corporation Financial Data Schedule
for the six months ended June 30, 2000.
27.2 Wisconsin Energy Corporation Reclassified Financial Data
Schedule for the six months ended June 30, 1999, which
reflects the reclassification of certain amounts to
conform to Wisconsin Energy's current financial
statement presentation.
