<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to_______________
Commission File Number 0-17736
ESELCO, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2785176
- ------------------------ ---------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
725 East Portage Avenue
Sault Ste. Marie, Michigan 49783
--------------------------------------
(Address of principal executive offices)
(Zip Code)
(906) 632-2221
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
1,593,180 shares of Common Stock, par value $.01 per share,
outstanding as of June 30, 1997
<PAGE>
ESELCO, INC.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Operating revenues for the first three months of 1998 were 5% lower than
last year, while total kilowatthour sales decreased 4%. Residential and
commercial sales were down 8%, and 4%, respectively, from last year,
reflecting warmer weather in 1998. Heating degree days in the first quarter
of 1998 were 17% below the same period in 1997. Industrial sales were down
2% based on decreased sales to three of our four industrial customers.
Purchased power expense decreased 8% due to lower energy rates and
transmission costs.
Other operating and maintenance expenses increased 4% during the first
three months of 1998 due to an increase in payroll and pension expense.
Interest expense increased 25%, primarily due to an increase in
short-term borrowings related to the Company's construction expenditures
which include a new transmission interconnection project.
Based on the above changes, net income available for common stock
decreased 32% from last year.
TWELVE MONTHS ENDED MARCH 31, 1998 AND 1997
Operating revenues during the current twelve month period were 2% lower
than a year ago. The current period revenues decreased as a result of a 1997
adjustment to unbilled revenues. Total electric sales were equal to the
prior year period. Residential sales were down 3% during the period while
commercial sales were slightly higher than last year. Industrial sales
increased 3% while resale sales were down 3% for the period.
Purchased power expense decreased 4% due to lower costs associated with
a new purchased power contract.
Other operating and maintenance expenses were up 43% during the current
twelve month period primarily due to costs related to the Company's early
retirement program and costs associated with ESELCO's proposed merger with
Wisconsin Energy Corporation.
<PAGE>
Depreciation and amortization expenses increased 5% due to the Company's
ongoing construction program.
LIQUIDITY AND CAPITAL COMMITMENTS
INVESTING ACTIVITIES
ESELCO invested $1,724,000 in property, plant, and equipment in the
three-month period ending March 31, 1998. For the same period in 1997,
ESELCO invested approximately $635,000 in property, plant, and equipment.
Investment expenditures during both periods included costs associated
with the planned construction of a new 138 KV interconnection with Wisconsin
Electric Power Company. This project has a planned completion date of
mid-1999. The Company's projected share of the cost of this project is $10.5
million.
In December 1997, ESEG purchased a 138 KV submarine circuit across the
Straits of Mackinac from Consumers Energy Company. The Company had leased
these cables at an annual net lease cost of approximately $466,000. ESEG had
been an inactive subsidiary of ESELCO. ESEG is leasing the cables to Edison
Sault Electric Company, a wholly-owned subsidiary of ESELCO, under an
operating lease arrangement. The cost of the purchase was approximately $3.7
million.
CASH PROVIDED BY OPERATING AND FINANCE ACTIVITIES
Cash provided by operating activities for the three-month period ending
March 31, 1998, and March 31, 1997, totaled $2,115,000 and $2,177,000,
respectively. Dividend payments for the three months ending March 31, 1998
totaled $446,000, which represented a 90% payout ratio. For the same period
in 1997, dividends totaled $433,000, which represented a 60% dividend payout
ratio.
During 1997, ESEG borrowed $3.7 million under a bank term loan agreement
for its acquisition of the 138 KV submarine cables described above.
During 1998, Edison Sault secured a construction line of credit in the
amount of $11 million for the new 138 KV interconnection discussed above.
Edison Sault has authority to issue up to $10 million in short-term
obligations. Included in this authority is a line of credit in the amount of
$6 million at the prime rate. In addition, Edison Sault has authority to
issue short-term thrift notes to Michigan residents. The Company's
short-term financing requirements relate primarily to financing customer
accounts receivable, unbilled revenue resulting from cycle billing, and
capital expenditures until permanently financed.
<PAGE>
At March 31, 1998, the Company had approximately $5 million of unused
bank line of credit and additional energy thrift notes. These two sources of
short-term financing should be sufficient to meet the Company's short-term
capital requirements.
ESELCO's shareholders reinvested approximately $207,000 through the
dividend reinvestment plan (DRP) in the first three months of 1997.
Effective March 24, 1997, the Board of Directors of ESELCO, Inc.
declared the suspension of the Dividend Reinvestment Plan. The Dividend
Reinvestment Plan has been suspended pending the potential acquisition of
ESELCO, Inc. by Wisconsin Energy Corporation.
At March 31, 1998, the long-term portion of first mortgage bonds totaled
$5,870,000, a decrease of $300,000 from the December 31, 1997, amount. First
mortgage bonds are secured by the utility plant of Edison Sault. At December
31, 1997, there was approximately $11.7 million of unutilized bond financing
capability resulting from plant additions and bond retirements.
Edison Sault also has authority to issue up to $10 million in long-term
energy thrift notes to Michigan residents. At March 31, 1998, the long-term
portion of energy thrift notes outstanding was $5,128,000, which is an
increase of $384,000 over the December 31, 1997, amount.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 4 of the Notes to Financial Statements in Item 1 Part I herein.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits.
<TABLE>
<CAPTION>
Exhibit Filed
No. Description of Exhibit Herewith By Reference
- ------- ------------------------------------------- ---------------------
<S> <C> <C>
(2) Amended and Restated Agreement and Plan of
Reorganization by and among Wisconsin Energy
Corporation and ESELCO, Inc. and ESL Acquisition, *
Inc., dated as of May 13, 1997, as amended and
restated as of July 11, 1997
(3) (a) Articles of Incorporation as filed
on January 6, 1989 *
(b) Amendment to Articles of Incorporation as
filed on August 7, 1997 *
(c) Bylaws *
(4) Instruments defining the rights of security holders,
including indentures:
(a) Mortgage and Deed of Trust as of March 1, 1952.(1) *
(b) Supplemental Indenture dated as of February 1, 1957.(1) *
(c) Second Supplemental Indenture dated as of
January 1, 1964.(1) *
(d) Third Supplemental Indenture dated as of
February 1, 1968.(1) *
(e) Fourth Supplemental Indenture dated as of
September 15, 1975.(1) *
(f) Fifth Supplemental Indenture dated as of
October 1, 1986.(2) *
(g) Sixth Supplemental Indenture dated as of
April 1, 1989.(4) *
(h) Seventh Supplemental Indenture dated as of
February 15, 1992.(5) *
(i) Debenture Indenture dated as of August 1, 1973.(1) *
(j) Form of Long-Term Energy Thrift Note.(3) *
<PAGE>
(10) (a) Form of Executive Severance Agreement *
(b) 1996 ESELCO, Inc. Restricted Stock Bonus Plan *
(c) ESELCO, Inc. Director's Retirement Plan, as
amended January 1, 1995 *
(d) Edison Sault Electric Company Director's Fee
Deferral Plan, October 1, 1989 *
(e) Edison Sault Electric Company ESELCO Director's
Fee Deferral Plan, January 1, 1986 *
(f) Supplemental Executive Retirement Plan of Edison
Sault Electric Company, as amended as of
August 17, 1995 *
(27) Financial Data Schedule *
</TABLE>
Key to Exhibits Incorporated by Reference:
(1) Filed with the Company's Registration Statement, Form S-16,
No. 2-67191, filed April 2, 1980.
(2) Filed with the Company's Form 10-K for 1986, dated March 30, 1987,
File No. 0-1158.
(3) Filed with the Company's Registration Statement, Amendment No. 2 to Form
S-3, No. 2-67191, filed February 16, 1988.
(4) Filed with the Company's Form 10-Q for June 30, 1989, dated
August 11, 1989, File No. 0-17736.
(5) Filed with the Company's Form 10-Q for March 31, 1992, dated May 13,
1992, File No. 0-17736.
Item 6. (b) Reports on Form 8-K
None.
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
E S E L C O, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
March 31, December 31,
1 9 9 8 1 9 9 7
ASSETS: ---------- ----------
<S> <C> <C>
ELECTRIC PLANT, at original cost $81,733,996 $80,034,217
Less - Accumulated depreciation 33,373,016 32,627,532
------------ ------------
$48,360,980 $47,406,685
CURRENT ASSETS: ------------ ------------
Cash $248,826 $282,441
Accounts receivable, less reserve of $40,527
and $32,000 respectively 4,224,550 3,854,789
Unbilled revenue 860,793 1,145,572
Materials and supplies, at average cost 1,166,905 1,156,667
Prepayments 1,948,424 2,303,447
------------ ------------
$8,449,498 $8,742,916
OTHER ASSETS: ------------ ------------
Debt expense, being amortized $19,652 $21,152
Regulatory asset 2,986,440 3,164,400
Other 589,806 594,255
------------ ------------
$3,595,898 $3,779,807
------------ ------------
$60,406,376 $59,929,408
============ ============
STOCKHOLDERS' INVESTMENT AND LIABILITIES:
CAPITALIZATION (See Statement):
Common equity $19,808,103 $19,257,039
Preferred stock 0 0
Long-term debt (less current portion) 17,300,179 17,378,321
------------ ------------
$37,108,282 $36,635,360
OTHER NONCURRENT LIABILITIES: ------------ ------------
CURRENT LIABILITIES:
Notes payable $4,623,000 $3,863,500
Current portion of long-term debt 3,194,611 4,033,177
Accounts payable 2,800,624 2,199,204
Dividends declared 446,090 446,090
Accrued taxes 1,629,604 2,361,277
Current deferred income taxes 208,620 205,020
Accrued interest 376,839 159,260
Other 191,233 245,657
------------ ------------
$13,470,621 $13,513,185
DEFERRED CREDITS: ------------ ------------
Deferred income taxes $3,242,972 $3,242,976
Net regulatory liability 1,048,614 1,085,514
Unamortized investment tax credit 789,921 806,421
Other 4,745,966 4,645,952
------------ ------------
$9,827,473 $9,780,863
------------ ------------
$60,406,376 $59,929,408
============ ============
</TABLE>
<PAGE>
E S E L C O, INC.
CONSOLIDATED STATEMENT OF CAPITALIZATION
<TABLE>
<CAPTION>
March 31, December 31,
1 9 9 8 1 9 9 7
----------------- ----------------
AMOUNT % AMOUNT %
-------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
COMMON EQUITY:
COMMON STOCK, par value $.01 per share
1998 1997
--------- ---------
Authorized shares 9,840,000 9,840,000
========= =========
Outstanding shares 1,593,180 1,593,180 $ 15,932 $ 15,932
========= =========
Capital surplus 19,256,710 19,256,710
Retained earnings 835,134 787,037
Unearned compensation - ESOP and
Restricted Stock Bonus Plan (299,673) (802,640)
----------- -----------
$19,808,103 53% $19,257,039 53%
----------- -----------
PREFERRED STOCK, value $.01 per share,
authorized 160,000 shares $ 0 0% $ 0 0%
----------- -----------
LONG-TERM DEBT of Subsidiaries (less current portion)
First Mortgage Bonds:
Series F, 10.31%, due 2001 $ 900,000 $ 900,000
Series G, 10.25%, due 2009 4,070,000 4,070,000
Series H, 7.90%, due 2002 900,000 1,200,000
Energy Thrift Notes, 6.55%-8%, due 1999-2008 5,128,000 4,744,000
Equipment Loan, Floating Rate, due 2003 41,384 0
ESOP Loans of the Corporation,
floating rate, due 2000-2001 0 126,502
Term Loan, floating rate, due 1999-2002 6,260,795 6,337,819
----------- -----------
$17,300,179 47% $17,378,321 47%
----------- --- ----------- ---
TOTAL CAPITALIZATION $37,108,282 100% $36,635,360 100%
=========== === =========== ===
</TABLE>
<PAGE>
E S E L C O, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
The Three Months The Twelve Months
Ended March 31, Ended March 31,
-------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES $9,431,913 $9,915,335 $37,028,027 $37,638,014
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Operation - Purchased power $4,586,165 $4,974,117 $17,740,797 $18,503,896
- Early retirement costs 0 0 2,330,053 0
- Merger related costs 0 0 980,787 0
- Other 2,030,668 1,914,244 7,443,212 6,969,443
Maintenance 489,399 517,105 2,172,558 2,049,089
Depreciation and amortization 744,889 700,209 2,779,926 2,645,709
Property and other taxes 422,470 400,754 1,729,058 1,588,137
Income taxes 210,672 305,200 272,260 1,329,396
----------- ----------- ----------- -----------
Total operating expenses $8,484,263 $8,811,629 $35,448,651 $33,085,670
----------- ----------- ----------- -----------
Net operating income $947,650 $1,103,706 $1,579,376 $4,552,344
OTHER INCOME (DEDUCTIONS), NET ----------- ----------- ----------- -----------
ALLOWANCE FOR FUNDS USED ($24,937) ($15,913) ($37,500) ($47,089)
DURING CONSTRUCTION ----------- ----------- ----------- -----------
INTEREST CHARGES: $79,500 $39,900 $121,169 $39,900
----------- ----------- ----------- -----------
Interest on long-term debt $418,219 $390,508 $1,594,964 $1,430,833
Other interest 89,806 15,223 201,109 125,192
----------- ----------- ----------- -----------
Total interest charges $508,025 $405,731 $1,796,073 $1,556,025
----------- ----------- ----------- -----------
NET INCOME AVAILABLE FOR COMMON STOCK $494,188 $721,962 ($133,028) $2,989,130
=========== =========== =========== ===========
EARNINGS PER AVERAGE SHARE OF COMMON STOCK $0.31 $0.45 ($0.08) $1.90
===== ===== ===== =====
CASH DIVIDENDS DECLARED PER SHARE
OF COMMON STOCK $0.28 $0.27 $1.12 $1.06
===== ===== ===== =====
AVERAGE COMMON SHARES OUTSTANDING 1,593,180 1,589,804 1,593,180 1,570,790
=========== =========== =========== ===========
</TABLE>
<PAGE>
E S E L C O, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
NET CASH FLOWS FROM (USED BY):
OPERATING ACTIVITIES:
Net income $494,188 $721,962
Noncash expenses, revenue, losses and gains
included in income
Depreciation and amortization 761,322 720,339
Deferred taxes and charge equivalent to
investment tax credit, net of amortization (49,804) (85,290)
Net decrease (increase) in receivables and
unbilled revenue (84,982) (450,085)
Net decrease (increase) in materials and
supplies and prepayments 344,785 267,470
Net increase (decrease) in accounts payable,
accrued taxes, and other current liabilities (184,677) 521,541
Increase (decrease)in interest accrued
but not paid 217,579 248,662
Other 617,024 232,587
------------ ------------
Net cash from operating activities $2,115,435 $2,177,186
------------ ------------
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment ($1,724,112) ($634,748)
Proceeds from disposals of property, plant
and equipment 9,995 46,995
------------ ------------
Net cash used by investing activities ($1,714,117) ($587,753)
------------ ------------
FINANCING ACTIVITIES:
Proceeds of short-term debt $6,817,500 $1,235,500
Payments to settle short-term debt (6,058,000) (1,687,500)
Issuance of long-term debt (net) 735,000 287,000
Payments on long-term debt (1,483,343) (795,675)
Proceeds from sale of common stock 0 206,844
Dividends paid (446,090) (433,257)
------------ ------------
Net cash used by financing activities ($434,933) ($1,187,088)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ($33,615) $402,345
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 282,441 293,883
------------ ------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $248,826 $696,228
=========== ===========
INTEREST PAID $286,689 $214,692
=========== ===========
INCOME TAXES PAID $0 $0
=========== ===========
</TABLE>
<PAGE>
ESELCO, INC.
NOTES TO FINANCIAL STATEMENTS
(1) These consolidated financial statements include the accounts of ESELCO,
Inc. (ESELCO) and its wholly owned subsidiaries, Edison Sault Electric
Company (Edison Sault), ESEG, Inc. and Northern Tree Service, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation. The consolidated financial statements as of March 31, 1998
and 1997, included herein, which are unaudited, reflect, in the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the results of operations for the
periods presented. Sales of electricity by Edison Sault, ESELCO's major
subsidiary, are affected to some degree by variations in weather
conditions, and results of operations for interim periods are not
necessarily indicative of results to be expected for the entire year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and regulations
of the Securities and Exchange Commission, although ESELCO believes that
the disclosures which are made are adequate to make the information
presented not misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and the notes thereto included in ESELCO, Inc. 1997 Annual
Report on Form 10K, which incorporates by reference the financial
statements in the 1997 Annual Report to Shareholders.
(2) On March 4, 1998, the Board of Directors of ESELCO declared a quarterly
dividend on the common stock of 28CENTS per share, payable May 15, 1998,
to stockholders of record at the close of business May 1,1998. The
accompanying financial statements for the periods ending March 31, 1998, do
not reflect this declared dividend.
(3) On August 22, 1995, Edison Sault filed an application with the M.P.S.C. for
authority to implement price cap regulation. In the application the
Company proposed that its base rates be capped at present levels, that its
existing Power Supply Cost Recovery (PSCR) factor be rolled into base
rates, and that its existing PSCR Clause be suspended. The Company
published the required notice of opportunity to comment or request a
hearing. We received no comments, and on September 21, 1995, the M.P.S.C.
approved the Company's application subject to the modification that the
Company gives thirty days notice rather than two weeks notice for rate
decreases. The Company will file an application by October 1, 2000, to
address its experience under the price cap mechanism. With the latter
modification the price cap authorization represents an experimental
regulatory mechanism. The order also allows Edison Sault to file an
application seeking an increase in rates only under extraordinary
circumstances.
<PAGE>
On October 23, 1995, the Attorney General for the State of Michigan filed
an intervention and petition for rehearing in the Company's Price Cap
Order. The Attorney General's intervention was based on the grounds that
the M.P.S.C. did not have authority to approve price cap regulation. On
December 21, 1995, the M.P.S.C. rejected the Attorney General's petition
for rehearing. On January 19, 1996, the Attorney General filed an appeal
with the Michigan Court of Appeals.
On January 21, 1998, the Michigan Court of Appeals rejected the Attorney
General's appeal, affirming the M.P.S.C. Order. The Attorney General
subsequently requested the Michigan Supreme Court to review the lower
court's ruling.
During 1997, the Company reached a settlement agreement with Consumers
Energy Company on several contractual issues related to its purchase of
power and transmission service from Consumers. The agreement which has
received approval from FERC staff and the FERC Administrative Law Judge is
awaiting a FERC final order. Based on the terms of the settlement, Edison
Sault recorded a receivable and a corresponding decrease to purchased power
expense in the amount of approximately $1.2 million.
The Company is also currently intervening in the Consumers Energy Open
Access Transmission Tariff proceeding before FERC. The ultimate outcome
of this proceeding is unknown at this time and, accordingly, the Company
has not recorded anything in anticipation of a resolution to this matter.
Because of the Price Cap Order and other potential changes in the industry,
the Company continually reviews the applicability of accounting under SFAS
71. As previously stated, the Price Cap Order is a five-year experimental
regulatory mechanism containing language allowing Edison Sault to seek rate
relief for costs incurred under extraordinary circumstances. Based on a
current evaluation of the factors affecting the applicability of SFAS 71,
the Company has determined that it is currently appropriate to continue
accounting according to SFAS 71.
(4) Edison Sault, in 1993, received notification from the U.S. Environmental
Protection Agency (U.S. EPA) that they were naming it a "Potentially
Responsible Party" at the Manistique River/ Harbor Area of Concern (AOC) in
Manistique, Michigan. There were many other potentially responsible
parties, some of whom the U.S. EPA has notified.
The U.S. EPA, with the Michigan Department of Natural Resources, identified
the Manistique River and Harbor as an "Area of Concern" (AOC) due to PCBs
that have been found in that area. We submitted an Environmental
Engineering/Cost Analysis (EECA) to the U.S. EPA that provided an analysis
of various methods of remediation for the harbor. The EECA presented six
alternatives of remediation action and ultimately recommended a remediation
method of in-place capping. Management believed this to be the most
prudent course of action. Although the total ultimate cost of specific
remedial action and Edison Sault's potential liability were not known then,
management had estimated Edison Sault's minimum cost of this remedy to be
$2.9 million. That
<PAGE>
figure represented an increase of $1.9 million from the amount recorded
during 1994. We incurred certain other expenditures for investigation
of any necessary remedial action that are reflected in the accompanying
financial statements. Future costs related to this issue are not
expected to have a material impact on Edison Sault's financial position
or future results of operations.
During 1995 and 1996, the U.S. EPA agreed to allow the PRPs to remediate
the harbor through in-place capping at a total cost of $6.4 million, with
the Edison Sault portion costing $3.2 million. Through further
negotiations, the U.S. EPA and the PRPs agreed to a cash-out settlement
under which the PRPs would pay to the U.S. EPA the $6.4 million cost of
capping for the right to be absolved from any future legal actions
concerning PCB pollution. To effect this settlement, all parties in
December 1996 executed an Administrative Order on Consent with payments
made to the U.S. EPA before year-end 1996.
To date, Edison Sault has incurred a total cost of $3.6 million in this
project. Edison Sault has retained legal assistance to start a process of
recovering these costs through several insurance entities. The certainty
and magnitude of insurance recovery are unknown at this time.
Edison Sault believes that the costs discussed above, including the payment
to the U.S. EPA to be relieved of future liability, is a legitimate cost of
doing business and would be recoverable through utility rates. Further, in
November 1993, the M.P.S.C. issued an order authorizing Edison Sault to
defer and amortize, over a period not to exceed ten years, environmental
assessment and remediation costs associated with the Manistique River AOC.
Therefore, Edison Sault has recorded a regulatory asset for $3.2 million,
and unreimbursed cost of $300,000, for a total of $3.5 million, which the
Company began amortizing in 1997.
In late 1997, Edison Sault was notified by the U.S. EPA that investigations
were being conducted on a separate site (Trinity Chemicals) in Kansas City,
Missouri, to which Edison Sault may have shipped PCB related materials
during the 1980s under legal, appropriate, and accepted industry standards.
While Edison Sault is in the process of answering various U.S. EPA
interrogatories, preliminary data show that the Company appears to have
been a very minor contributor to this site.
(5) On May 14, 1997 ESELCO, Inc. and Wisconsin Energy Corporation (Wisconsin
Energy) announced that they had entered into a definitive agreement
regarding the acquisition of ESELCO by Wisconsin Energy. The terms of the
definitive agreement were approved by both companies' boards. On October
7, 1997, at a special meeting of shareholders of ESELCO, ESELCO's
shareholders approved the definitive agreement and related transactions.
Upon completion of the transaction, all outstanding shares of ESELCO common
stock would be converted into shares of Wisconsin Energy common stock based
on a value of
<PAGE>
$44.50 for each share of ESELCO common stock in a transaction proposed
to be structured as a tax-free reorganization. The total purchase price
would be approximately $71.0 million. The exact number of shares of
Wisconsin Energy common stock to be issued in the transaction would be
determined by dividing $44.50 by the average closing price of Wisconsin
Energy common stock for the ten trading days immediately preceding the
closing date. Pursuant to the definitive agreement, Wisconsin Energy
will be paid a fee of $2.0 million if ESELCO consummates or enters into
an agreement with respect to, a business combination with a party
unrelated to Wisconsin Energy or ESELCO terminates the definitive
agreement to pursue a business combination with a party unrelated to
Wisconsin Energy prior to the end of the period specified in the
agreement.
The transaction is contingent upon several conditions, including receipt of
all regulatory approvals. There can be no assurance that the conditions
will be satisfied or that the transaction will be consummated.
<PAGE>
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.
ESELCO, INC.
(Registrant)
/s/ Donald Sawruk
-------------------------------
Date: May 15, 1998 DONALD SAWRUK
Its President
/s/ Steven L. Boeckman
-------------------------------
Date: May 15, 1998 STEVEN L. BOECKMAN
Its Vice President/Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<CIK> 0000828941
<NAME> ESELCO, INC
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 48,360,980
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 8,449,498
<TOTAL-DEFERRED-CHARGES> 3,595,898
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 60,406,376
<COMMON> 15,932
<CAPITAL-SURPLUS-PAID-IN> 19,256,710
<RETAINED-EARNINGS> 835,134
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