1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- ----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- ----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission file number 1-1245
WISCONSIN ELECTRIC POWER COMPANY
(Exact name of registrant as specified in its charter)
Wisconsin 39-0476280
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
231 West Michigan Street, P.O. Box 2046, Milwaukee, Wisconsin 53201
(Address of principal executive offices) (Zip Code)
(414) 221-2345
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at May 1, 1995
-------------------------- --------------------------
$10 Par Value Common Stock 33,289,327 Shares
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FORM 10-Q
WISCONSIN ELECTRIC POWER COMPANY
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED INCOME STATEMENT
(Unaudited)
Three Months Ended March 31
---------------------------
1995 1994
---- ----
(Thousands of Dollars)
Operating Revenues
Electric $343,919 $355,239
Steam 6,103 6,863
-------- --------
Total Operating Revenues 350,022 362,102
Operating Expenses
Fuel 67,819 72,476
Purchased power 19,076 11,594
Other operation expenses 83,702 91,103
Maintenance 27,061 31,999
Revitalization - 63,500
Depreciation 40,320 39,893
Taxes other than income taxes 17,826 19,140
Federal income tax 21,869 16,752
State income tax 5,170 4,016
Deferred income taxes - net 69 (16,536)
Investment tax credit - net (372) (1,020)
-------- --------
Total Operating Expenses 282,540 332,917
Operating Income 67,482 29,185
Other Income and Deductions
Interest income 2,448 3,614
Allowance for other funds used
during construction 825 1,253
Miscellaneous - net 2,686 1,798
Income taxes (337) (609)
-------- --------
Total Other Income and Deductions 5,622 6,056
Income Before Interest Charges 73,104 35,241
Interest Charges
Interest expense 26,230 25,082
Allowance for borrowed funds used
during construction (466) (708)
-------- --------
Total Interest Charges 25,764 24,374
-------- --------
Net Income 47,340 10,867
Preferred Stock Dividend Requirement 301 389
-------- --------
Earnings Available for Common Stockholder $ 47,039 $ 10,478
======== ========
<FN>
Note - Earnings and dividends per share of common stock are not applicable because
all of the company's common stock is owned by Wisconsin Energy Corporation.
See accompanying notes to financial statements.
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WISCONSIN ELECTRIC POWER COMPANY FORM 10-Q
CONDENSED BALANCE SHEET
(Unaudited)
March 31, 1995 December 31, 1994
-------------- -----------------
(Thousands of Dollars)
Assets
------
Utility Plant
Electric $4,377,597 $4,304,925
Steam 40,114 40,103
Accumulated provision for depreciation (1,960,499) (1,914,277)
---------- ----------
2,457,212 2,430,751
Construction work in progress 167,381 205,343
Nuclear fuel - net 55,759 56,606
---------- ----------
Net Utility Plant 2,680,352 2,692,700
Other Property and Investments 404,466 395,924
Current Assets
Cash and cash equivalents 10,076 5,002
Accounts receivable 99,106 90,105
Accrued utility revenues 79,212 95,051
Materials, supplies and fossil fuel 124,595 125,733
Prepayments and other assets 66,495 63,211
---------- ----------
Total Current Assets 379,484 379,102
---------- ----------
Deferred Charges and Other Assets
Accumulated deferred income taxes 118,964 119,132
Other 236,802 239,271
---------- ----------
Total Deferred Charges and Other Assets 355,766 358,403
---------- ----------
Total Assets $3,820,068 $3,826,129
========== ==========
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $ 517,566 $ 502,566
Retained earnings 963,443 951,988
---------- ----------
Total Common Stock Equity 1,481,009 1,454,554
Preferred stock - redemption not required 30,451 30,451
Long-term debt 1,157,297 1,191,257
---------- ----------
Total Capitalization 2,668,757 2,676,262
Current Liabilities
Long-term debt due currently 49,238 19,846
Short-term debt 148,205 187,027
Accounts payable 60,217 67,444
Accrued liabilities 71,197 58,037
Other 21,706 18,761
---------- ----------
Total Current Liabilities 350,563 351,115
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 443,690 440,564
Other 357,058 358,188
---------- ----------
Total Deferred Credits and Other Liabilities 800,748 798,752
---------- ----------
Total Capitalization and Liabilities $3,820,068 $3,826,129
========== ==========
<FN>
See accompanying notes to financial statements
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FORM 10-Q
WISCONSIN ELECTRIC POWER COMPANY
STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31
---------------------------
1995 1994
---- ----
(Thousands of Dollars)
Operating Activities:
Net income $ 47,340 $ 10,867
Reconciliation to cash:
Depreciation 40,320 39,893
Nuclear fuel expense - amortization 5,263 5,816
Conservation expense - amortization 5,156 6,152
Debt premium, discount & expense - amortization 2,952 3,657
Revitalization - net (3,471) 50,807
Deferred income taxes - net 69 (16,536)
Investment tax credit - net (372) (1,020)
Allowance for other funds used during construction (825) (1,253)
Change in: Accounts receivable (9,001) 56
Inventories 1,138 16,108
Accounts payable (7,227) (22,040)
Other current assets 12,555 2,137
Other current liabilities 16,105 17,516
Other 7,410 1,410
-------- --------
Cash Provided by Operating Activities 117,412 113,570
Investing Activities:
Construction expenditures (36,585) (48,737)
Allowance for borrowed funds used during construction (466) (708)
Nuclear fuel (5,601) (4,806)
Nuclear decommissioning trust (2,575) (3,113)
Conservation investments - net (1,103) (4,355)
Other (1,413) (1,212)
-------- --------
Cash Used in Investing Activities (47,743) (62,931)
Financing Activities:
Retirement of long-term debt (4,888) (4,876)
Change in short-term debt (38,822) (12,964)
Stockholder contribution 15,000 15,000
Dividends on stock - common (35,584) (33,700)
- preferred (301) (389)
-------- --------
Cash Used in Financing Activities (64,595) (36,929)
-------- --------
Change in Cash and Cash Equivalents $ 5,074 $ 13,710
======== ========
Supplemental Information Disclosures:
Cash Paid for -
Interest (net of amount capitalized) $ 25,284 $ 22,842
Income taxes 10,101 7,501
<FN>
See accompanying notes to financial statements.
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FORM 10-Q
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited financial statements should be read in
conjunction with the company's 1994 Annual Report on Form 10-K. In the
opinion of management, all adjustments, normal and recurring in nature,
necessary to a fair statement of the results of operations and financial
position of the company have been included in the accompanying income
statement and balance sheet. The results of operations for the three
months ended March 31, 1995 are not, however, necessarily indicative of
the results which may be expected for the year 1995 because of seasonal
and other factors.
2. On April 28, 1995, Wisconsin Energy Corporation (
"WEC"), Wisconsin Electric Power Company's ("Wisconsin Electric") parent
company, and Northern States Power Company, Minnesota ("NSP") entered into
an Agreement and Plan of Merger ("Agreement"). As a result, a registered
utility holding company, which will be known as Primergy Corporation
("Primergy"), will be the parent of NSP and the current operating
subsidiaries of NSP and WEC. Each outstanding share of common stock of
WEC will remain outstanding as one share of common stock of
Primergy, and each outstanding share of NSP will be converted into 1.626
shares of common stock of Primergy. The business combination is intended
to be tax-free for income tax purposes and to be accounted for as a
"pooling of interests". The Agreement is subject to various conditions,
including approval of the stockholders of WEC and NSP and the approval of
various regulatory agencies. WEC anticipates that the completion of the
regulatory review and approval process will take approximately 12-18
months and, accordingly, WEC and NSP do not anticipate completing this
business combination until late in 1996. ITEM 5. OTHER INFORMATION
in Part II of this report discusses further the proposed transaction.
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FORM 10-Q
WISCONSIN ELECTRIC POWER COMPANY
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PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On April 28, 1995, Wisconsin Energy Corporation ("Wisconsin Energy"), the
parent company of Wisconsin Electric Power Company ("Wisconsin Electric"),
entered into an Agreement and Plan of Merger with Northern States Power
Company ("NSP") which provides for a strategic business combination involving
Wisconsin Energy and NSP in a "merger-of-equals" transaction. Further
information concerning such agreement and proposed transaction is included in
ITEM 5. OTHER INFORMATION in Part II of this report.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by Wisconsin Electric's operating activities totaled $117
million during the three months ended March 31, 1995. This compares to $114
million provided during the same period in 1994.
Wisconsin Electric's investing activities totaled $48 million for the three
months ended March 31, 1995 compared to $63 million during the same period in
1994. Investments during the first quarter of 1995 include $37 million for
the construction of new or improved facilities, $6 million for acquisition of
nuclear fuel, $1 million for net capitalized conservation expenditures and $3
million for payments to an external trust for the eventual decommissioning of
Wisconsin Electric's Point Beach Nuclear Plant.
Capital requirements for the remainder of 1995 are expected to be principally
for construction expenditures, capitalized conservation programs and payments
to the external trust for the eventual decommissioning of the Point Beach
Nuclear Plant. Depending upon market conditions, Wisconsin Electric may
refund some issues of its current debt and issue approximately $100 million of
additional long-term debt in a public offering later in 1995. The specific
form, amount and timing of debt securities which may be issued have not yet
been determined and will depend, to a large extent, on market conditions.
RESULTS OF OPERATIONS
Net income increased $36 million during the first quarter of 1995 compared to
the same period in 1994, reflecting the non-recurring charge in the first
quarter of 1994 of approximately $39 million (net of tax) associated with
Wisconsin Electric's restructuring program. This charge included the cost of
severance and early retirement packages, elements of a "revitalization"
program designed to better position Wisconsin Electric in a changing market
place. It is anticipated that this charge will be offset by the end of 1995
through savings in operation and maintenance costs.
Excluding the non-recurring charge in 1994, net income decreased approximately
$3 million in the first quarter of 1995 compared to the same period in 1994.
Between the first quarter of 1995 and 1994, revenues decreased 3.3% as a
result of lower total electric energy sales. For the same time periods, fuel
and purchased power expenses increased 3.4% as a result of unscheduled outages
at two of the company's most efficient power plants, Pleasant Prairie Power
Plant and Point Beach Nuclear Plant. In the first quarter of 1995, other
operation and maintenance expenses decreased 10.0% compared to the first
quarter of 1994, reflecting among other things the effects of the company's
"revitalization" program.
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FORM 10-Q
WISCONSIN ELECTRIC POWER COMPANY
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PART I - FINANCIAL INFORMATION (Cont'd)
RESULTS OF OPERATIONS (Cont'd)
An annualized $16,179,000 or 1.3% Wisconsin retail electric fuel adjustment
rate decrease became effective on August 4, 1994 for Wisconsin Electric
customers.
ELECTRIC SALES
Three Months Ended March 31
---------------------------
Electric Sales - Megawatt Hours 1995 1994 % Change
- ------------------------------- ---------- ---------- --------
Residential 1,689,356 1,795,445 (5.9)
Small Commercial and Industrial 1,714,727 1,657,786 3.4
Large Commercial and Industrial 2,542,354 2,462,432 3.2
Other 380,910 439,421 (13.3)
---------- ----------
Total Retail and Municipal 6,327,347 6,355,084 (0.4)
Resale-Utilities 202,132 391,458 (48.4)
---------- ----------
Total Sales 6,529,479 6,746,542 (3.2)
- -------------------------------
Total electric energy sales during the first quarter of 1995 decreased
primarily due to mild winter weather. As measured by heating degree days, the
first quarter of 1995 weather was 14.7% warmer compared to the same period in
1994.
Electric energy sales to the Empire and Tilden iron ore mines, Wisconsin
Electric's two largest customers, decreased 0.8% during the quarter ended
March 31, 1995 compared to the same period during 1994. Excluding the mines,
total electric sales decreased 3.4%, but sales to all other large commercial
and industrial customers increased 4.4% during the first quarter of 1995
compared to the same period in 1994.
For certain other information which may impact Wisconsin Electric's future
financial condition or results of operations, see ITEM 1. LEGAL PROCEEDINGS
and ITEM 5. OTHER INFORMATION in Part II.
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 Electric's Annual Report on Form 10-K for the year ended
December 31, 1994.
RATE MATTERS
Wisconsin Retail Electric Jurisdiction
1996 Test Year: On March 27, 1995, Wisconsin Electric and Wisconsin Natural Gas
Company ("Wisconsin Natural") sent a letter to the Public Service Commission
of Wisconsin ("PSCW") proposing a one year deferral of their scheduled rate
case filing. On May 1, 1995, Wisconsin Electric filed with the PSCW required
data related to the 1996 test year. This was an abbreviated filing since no
increase in rates was requested. The matter is pending.
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FORM 10-Q
WISCONSIN ELECTRIC POWER COMPANY
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PART II - OTHER INFORMATION (Cont'd)
RATE MATTERS (Cont'd)
Wisconsin Retail Steam Jurisdiction
1996 Test Year: On March 27, 1995, Wisconsin Electric and Wisconsin Natural
sent
a letter to the PSCW proposing a one year deferral of their scheduled rate
case filing. On May 1, 1995, Wisconsin Electric filed with the PSCW required
data related to the 1996 test year. This was an abbreviated filing since no
increase in rates was requested. The matter is pending.
ITEM 5. OTHER INFORMATION
PARIS GENERATING STATION
In March 1995, two units, or approximately 150 megawatts of peaking capacity,
were placed in-service at the new Paris Generating Station. The natural gas-
fired combustion turbine facility is located near Union Grove, Wisconsin. Two
additional units, or approximately 150 megawatts of peaking capacity, are
expected to be placed in-service at this facility in May 1995. The plant is
expected to run less than 500 hours per year.
MERGER OF WISCONSIN NATURAL INTO WISCONSIN ELECTRIC
Wisconsin Energy intends to merge Wisconsin Natural Gas Company into Wisconsin
Electric to form a single combined utility subsidiary. The merger is intended
to improve customer service and reduce operating costs. In October 1994,
Wisconsin Electric and Wisconsin Natural filed a joint application to obtain
the PSCW's approval of the merger. On May 9, 1995, the PSCW issued an order
approving the merger. In 1994, Wisconsin Electric also filed an application
to obtain consent of the Michigan Public Service Commission ("MPSC") to assume
Wisconsin Natural's liabilities in connection with the merger. On April 27,
1995, the MPSC issued an order approving the merger and the assumption of
Wisconsin Natural's liabilities by Wisconsin Electric. Completion of the
planned merger is expected to occur by January 1, 1996.
WISCONSIN ENERGY MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY
As previously reported in Wisconsin Energy's 4/28/95 8-K (defined below),
Wisconsin Energy, Northern States Power Company, a Minnesota corporation
("NSP"), and newly created subsidiaries of each of them, have entered into an
Agreement and Plan of Merger, dated as of April 28, 1995 (the "Merger
Agreement"), which provides for a strategic business combination involving NSP
and Wisconsin Energy in a "merger-of-equals" transaction (the "Transaction").
The Transaction, which was unanimously approved by the Boards of Directors of
the constituent companies, is expected to close shortly after all of the
conditions to the consummation of the Transaction, including obtaining
applicable shareholder and regulatory approvals, are met or waived. The
regulatory approval process is expected to take approximately 12 to 18 months.
In the Transaction, the holding company of the combined enterprise will be
registered under the Public Utility Holding Company Act of 1935, as amended.
The holding company will be named Primergy Corporation ("Primergy") and will
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FORM 10-Q
WISCONSIN ELECTRIC POWER COMPANY
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PART II - OTHER INFORMATION (Cont'd)
WISCONSIN ENERGY MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY
(Cont'd)
be the parent company of both NSP (which, for regulatory reasons, will
reincorporate in Wisconsin) and Wisconsin Electric, which will be renamed
"Wisconsin Energy Company." Wisconsin Energy Company will include the
operations of Wisconsin Energy's other present utility subsidiary, Wisconsin
Natural Gas Company, which is anticipated to be merged into Wisconsin Electric
by January 1, 1996, as previously planned. It is anticipated that, following
the Transaction, NSP's present Wisconsin utility subsidiary will be merged
into Wisconsin Energy Company.
Under the terms of the Merger Agreement, based on the capitalization of
Wisconsin Energy and NSP as of the date of the Merger Agreement, the
Transaction would result in the common shareholders of NSP receiving 50% of
the common equity of Primergy for their NSP common stock and the common
shareholders of Wisconsin Energy owning the other 50% of the common equity of
Primergy. Wisconsin Electric's outstanding preferred stock will be unchanged
in the Transaction. The Transaction is intended to qualify as a tax-free
reorganization and to be accounted for as a pooling of interests.
Further information concerning the Merger Agreement and the reciprocal Stock
Option Agreements entered into by Wisconsin Energy and NSP in connection
therewith are filed as exhibits to Wisconsin Energy's Current Report on Form
8-K dated as of April 28, 1995, File No. 1-9057 ("Wisconsin Energy's 4/28/95
8-K"), to which reference may be made for further information concerning the
Transaction. The Merger Agreement contains various conditions, covenants and
termination provisions as described and referred to in Wisconsin Energy's
4/28/95 8-K. Pro forma financial information with respect to the Transaction
is included in Wisconsin Energy's Form 10-Q for the quarter ended March 31,
1995.
Following announcement of the Transaction, on May 1, 1995 Standard & Poor's
Corporation ("S&P") reported that it was placing on CreditWatch with negative
implications its AA+ senior secured debt and AA+ preferred stock ratings of
Wisconsin Electric. In addition, S&P indicated that while its AA senior
secured debt rating of Wisconsin Natural would remain on CreditWatch, where it
was placed on April 25, 1994, the implications were revised to negative from
positive. S&P stated that if the Transaction is completed, the likely credit
rating for the senior secured debt of Wisconsin Electric is expected to be AA
or AA-. As part of its ratings process, S&P intends to review the financial
and operating plans of the merged utilities. Also on May 1, 1995, citing
Wisconsin Electric's continued operation as a separate utility subsidiary
after the Transaction, its strength within its rating category and its strong
capital structure, Moody's Investors Service confirmed its Aa2 first mortgage
bond rating of Wisconsin Electric.
Wisconsin Energy and NSP recognize that the divestiture of their existing gas
operations and certain non-utility operations is a possibility under the new
registered holding company structure contemplated by the Transaction, but will
seek approval from the Securities and Exchange Commission ("SEC") to maintain
such businesses. If divestiture is ultimately required, the SEC has
historically allowed companies sufficient time to accomplish divestitures in a
manner that protects shareholder value.
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FORM 10-Q
WISCONSIN ELECTRIC POWER COMPANY
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PART II - OTHER INFORMATION (Cont'd)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following Exhibit is filed with this report:
Exhibit No.
(27) Wisconsin Electric Power Company Financial Data Schedule
for the three months ended March 31, 1995.
The following Exhibits are incorporated herein by reference:
(2)-1 Agreement and Plan of Merger, dated as of April 28, 1995, by
and among Northern States Power Company, Wisconsin Energy
Corporation, Northern Power Wisconsin Corp. and WEC Sub Corp.
(Exhibit (2)-1 to Wisconsin Energy Corporation's Current
Report on Form 8-K dated as of April 28, 1995, File No.
1-9057.) ("WEC's 4/28/95 8-K")
(2)-2 WEC Stock Option Agreement, dated as of April 28, 1995, by and
among Northern States Power Company and Wisconsin Energy
Corporation. (Exhibit (2)-2 to WEC's 4/28/95 8-K.)
(2)-3 NSP Stock Option Agreement, dated as of April 28, 1995, by and
among Wisconsin Energy Corporation and Northern States Power
Company. (Exhibit (2)-3 to WEC's 4/28/95 8-K.)
(99)-1 Press Release, dated May 1, 1995, of Wisconsin Energy
Corporation. (Exhibit (99)-1 to WEC's 4/28/95 8-K.)
(b) Reports on Form 8-K:
No current reports on Form 8-K were filed in the quarter ended
March 31, 1995.
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FORM 10-Q
WISCONSIN ELECTRIC POWER COMPANY
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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 ELECTRIC POWER COMPANY
--------------------------------------
(Registrant)
s/ R. R. Grigg, Jr.
--------------------------------------
Date: May 12, 1995 R. R. Grigg, Jr., President
and Chief Operating Officer
s/ A. K. Klisurich
--------------------------------------
Date: May 12, 1995 A. K. Klisurich, Controller - Chief
Accounting Officer
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WISCONSIN ELECTRIC POWER COMPANY
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EXHIBIT INDEX
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 1995
Exhibit
Number
- -------
The following Exhibit is filed with this report:
(27) Wisconsin Electric Power Company Financial Data Schedule for the
three months ended March 31, 1995.
The following Exhibits are incorporated herein by reference:
(2)-1 Agreement and Plan of Merger, dated as of April 28, 1995, by
and among Northern States Power Company, Wisconsin Energy
Corporation, Northern Power Wisconsin Corp. and WEC Sub Corp.
(Exhibit (2)-1 to Wisconsin Energy Corporation's Current
Report on Form 8-K dated as of April 28, 1995, File No.
1-9057.) ("WEC's 4/28/95 8-K")
(2)-2 WEC Stock Option Agreement, dated as of April 28, 1995, by and
among Northern States Power Company and Wisconsin Energy
Corporation. (Exhibit (2)-2 to WEC's 4/28/95 8-K.)
(2)-3 NSP Stock Option Agreement, dated as of April 28, 1995, by and
among Wisconsin Energy Corporation and Northern States Power
Company. (Exhibit (2)-3 to WEC's 4/28/95 8-K.)
(99)-1 Press Release, dated May 1, 1995, of Wisconsin Energy
Corporation. (Exhibit (99)-1 to WEC's 4/28/95 8-K.)
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