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, 1994
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 1-7951
WICOR, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1346701
- ----------------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
626 East Wisconsin Avenue, Post Office Box 334, Milwaukee, Wisconsin
--------------------------------------------------------------------
(Address of principal executive office)
53201
----------
(Zip Code)
(414) 291-7026
----------------------------------------------------
(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 March 31, 1994
--------------------------- -----------------------------
Common Stock, $1 Par Value 16,523,753
2
INTRODUCTION
----------------
WICOR, Inc. ("WICOR", "Company"), a corporation organized and existing
under the laws of the State of Wisconsin, is an exempt holding company
under the Public Utility Holding Company Act of 1935. It is the parent of
Wisconsin Gas Company ("Wisconsin Gas", "WGC"), a natural gas distribution
company; Sta-Rite Industries, Inc. ("Sta-Rite"), a manufacturer of pumps
for the residential, irrigation and pool and spa markets; and SHURflo Pump
Manufacturing Co. ("SHURflo"), a manufacturer of pumps for the food
service, recreational vehicle, marine, industrial and water purification
markets.
CONTENTS
------------
PAGE
------
PART I.
Financial Information.................................. 1
Management's Discussion and Analysis of
Interim Financial Statements......................... 2-5
Consolidated Financial Statements of WICOR, Inc. (Unaudited):
-------------------------------------------------------------
Consolidated Statement of Income for the Three
Months Ended March 31, 1994 and 1993................. 6
Consolidated Balance Sheet as of March 31, 1994
and December 31, 1993................................ 7-8
Consolidated Statement of Cash Flows for the Three
Months Ended March 31, 1994 and 1993................. 9
Notes to Financial Statements.......................... 10
PART II.
Other Information...................................... 11
Signatures.................................................. 12
3
Part I - Financial Information
Financial Statements
--------------------
The following consolidated statements have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although management believes that the
disclosures are adequate to make the information presented not misleading.
These condensed financial statements should be read in conjunction with
the AUDITED financial statements and the notes thereto included in the
latest WICOR, Inc. annual report on Form 10-K.
In the opinion of management, the information furnished reflects all
adjustments, which in all circumstances were normal and recurring,
necessary for a fair statement of the results of operations for the
interim periods.
Because of seasonal factors, the results of operations for the
interim periods presented are not indicative of the results to be expected
for the full calendar year.
4
Management's Discussion and Analysis
of Results of Operations and Financial Condition of
WICOR, Inc.
Results of Operations
- ---------------------
Consolidated net income for the first quarter of 1994 increased by
$4.3 million or 18% compared to the same quarter of 1993. Both gas
distribution and manufacturing earnings improved significantly over the
prior year's first quarter with $3.2 million of the increase attributable
to Wisconsin Gas.
The factors discussed below had a significant effect on the results
of operations during the three month period ended March 31, 1994.
Gas Distribution
- ----------------
Net income increased by $3.2 million or 15% for the first quarter of
1994 over the first quarter of 1993. The increase in net income for the
first quarter resulted primarily from increased gas margins which were
partially offset by an increase in operating expenses. Higher gas margins
in 1994 were due primarily to colder weather and a November 1993 rate
increase.
Revenues, margins and volumes are summarized below. Margin, defined
as revenues less cost of gas, is a better comparative performance
indicator than revenues because the mix of volumes between sales and
transportation service affects revenues but not margin. In addition,
changes in cost of gas are flowed through to revenue under a gas
adjustment clause with no resulting effect on margin.
Three Months Ended
March 31,
------------------- %
1994 1993 Change
-------- -------- --------
(Millions of Dollars)
- -------------------------
Gas Sales Revenue $ 240.1 $ 202.2 19
Purchased Gas Cost 153.3 129.0 19
-------- -------- --------
Gas Sales Margin 86.8 73.2 19
Gas Transportation Margin 2.1 3.2 (34)
-------- -------- --------
Total Margin $ 88.9 $ 76.4 16
======== ======== ========
(Millions of Therms)
- ------------------------
Sales Volumes
Firm 401.3 367.2 9
Interruptible 85.5 59.1 45
Transportation Volume 34.7 61.0 (43)
-------- -------- --------
Total Throughput 521.5 487.3 7
======== ======== ========
Degree Days (Normal = 3,449) 3,663 3,347 9
======== ======== ========
/TABLE
5
Total gas margin increased by $12.5 million or 16% for the first
quarter of 1994 over the first quarter of 1993 primarily as a result of a
9% increase in firm sales volumes. The weather was 6% colder than normal
during the first quarter of 1994 and 9% colder than the same quarter in
1993. The increase in interruptible volumes and the decrease in
transportation volumes represents a transfer of customers between these
two classes of service. A rate increase of 2.9%, effective November 12,
1993, also contributed to higher margins in the first quarter of 1994.
In April 1992, the Federal Energy Regulatory Commission (FERC) issued
Order 636 requiring interstate pipelines to "unbundle" their services by
November 1, 1993. As a result, Wisconsin Gas is contracting separately
with gas suppliers to buy gas to be delivered to the pipelines and is then
contracting with the pipelines for transportation from production areas to
utility market areas or to storage fields for future delivery to market
areas. Despite the unusually cold weather in the first quarter and the
change in gas purchasing procedures, Wisconsin Gas was able to effectively
meet its customers gas supply needs.
Operations and maintenance expenses increased a total of $6.2 million
or 21% over the first quarter of 1993. Included in operations expenses
for the first quarter is a one-time charge of $2.7 million relating to the
election by 131 employees of an early retirement option. It is estimated
that the related savings during the rest of the year from the retirements
will substantially offset this first quarter charge. Increases in the
provision for uncollectible accounts and software amortization were
additional significant factors in the overall increase in operations and
maintenance expenses. These increased expenses are being recovered under
the November 1993 rate increase. Depreciation expense increased due to
recent capital additions. Income tax expense increased primarily due to
higher pre-tax income and a 1% increase in the federal tax rate.
Wisconsin Gas received its most recent rate increase from the Public
Service Commission of Wisconsin (PSCW) in November 1993. In July 1993
Wisconsin Gas proposed an alternative method of ratemaking which provided
for an indexed rate cap and a weather adjustment mechanism (WAM). The
PSCW recently adopted the Wisconsin Gas proposal subject to significant
modifications including a three year rate freeze and the elimination of
the WAM. The PSCW has given Wisconsin Gas the option of either accepting
the PSCW modified proposal or filing a traditional rate case in March
1995 with new rates becoming effective in November 1995. Wisconsin Gas is
currently reviewing the alternatives and will not make a decision until
the PSCW's written order is received later this year.
6
Manufacturing
- -------------
Manufacturing net income for the quarter of $3.3 million was 50% better
than last year's net income of $2.2 million. This improvement resulted
from increased sales as well as improved operating expense efficiencies.
Manufacturing net sales were $78.5 million for the first quarter of
1994, up 17% from the comparable period in 1993. Improved domestic market
conditions, increased international sales, and the introduction of new
products contributed to the sales growth.
Domestic sales in the quarter increased over the first quarter of 1993
by 15%, while international sales were increasing by 23%. Much of the
international increase was attributable to a recovering Australian
economy. Substantial improvements were seen in the water system,
recreational vehicle, industrial, and water purification markets. New
product sales, including several new pumps sold in the European market,
also contributed to the increase in sales.
Gross profit margins were maintained at 28% in each quarter, while
operating expenses as a percentage of sales declined from 22% to 20%.
Operating expenses increased by $1.4 million. This was due primarily to
higher selling expenses associated with the higher level of sales in the
first quarter. Lower interest expense in the first quarter of 1994
compared to 1993 also contributed to improved earnings for the quarter.
Financial Condition
- -------------------
Cash flow from operations increased to $85.5 million in the first
quarter of 1994 as compared to $28.4 million for the comparable 1993
quarter. The improvement is in part due to the $6.0 million increase in
net income, depreciation and deferred taxes. Higher gas in storage at the
beginning of the year resulted in reduced requirements for gas purchases
in the first quarter of 1994 compared to 1993 by $31.2 million. Lower
levels of manufacturing inventories also helped to improve cash flow from
operations by $4.8 million. Increases in both receivables and accounts
payable were offsetting and had little net impact on the quarter. The
first quarter of 1994 also benefitted from gas cost over-recoveries that
are expected to be refunded to customers over the next two quarters.
The first quarter, due to seasonal effects in each business, is
typically a period of cash generation for the gas distribution business
and cash use for the manufacturing operation.
Capital expenditures through March 31, 1994, amounted to $8.6 million
and additional capital expenditures of approximately $61.9 million are
expected for the remainder of 1994. Utility capital expenditures are
expected to increase substantially in 1994 over 1993 as several expansion
projects are anticipated.
Short-term borrowings declined more in the first quarter of 1994 than
in 1993 because of the higher level of short-term debt at December 31,
1993 needed to finance gas in storage compared to December 31, 1992.
7
WICOR, INC.
Consolidated Statement of Income (Unaudited)
Three Months Ended
March 31
----------------------------
(Thousands of Dollars) 1994 1993
------------ ------------
Operating Revenues:
Gas distribution............................. $ 242,148 $ 205,426
Manufacturing and Other...................... 78,477 67,234
------------ ------------
320,625 272,660
------------ ------------
Operating Expenses:
Purchased gas................................ 153,291 128,997
Manufacturing cost of sales.................. 56,182 46,772
Operating and maintenance.................... 51,614 45,282
Depreciation, depletion and amortization..... 7,330 7,445
Taxes, other than income taxes............... 2,764 2,475
------------ ------------
271,181 230,971
------------ ------------
Operating Income............................... 49,444 41,689
------------ ------------
Other Income (Deductions):
Interest expense............................. (4,299) (4,639)
Interest income.............................. 89 141
Other, net................................... 130 26
------------ ------------
(4,080) (4,472)
------------ ------------
Income Before Income Taxes..................... 45,364 37,217
Income Taxes................................... 17,162 13,282
------------ ------------
Net Income..................................... $ 28,202 23,935
============ ============
Income Per Common Share........................ $ 1.71 $ 1.51
============ ============
Cash Dividends Per Common Share................ $ 0.39 $ 0.38
============ ============
Average Common Shares Outstanding (Thousands).. 16,478 15,851
The accompanying notes are an integral part of this statement.
8
WICOR, INC.
Consolidated Balance Sheet
March 31,
1994 December 31,
(Unaudited) 1993
Assets ----------- -----------
- ------ (Thousands of Dollars)
Current Assets:
Cash and cash equivalents........................ $ 19,186 $ 22,953
Accounts receivable, less allowance for
doubtful accounts of $13,421,000 and
$9,351,000, respectively....................... 182,870 111,408
Accrued utility revenues......................... 37,870 53,483
Manufacturing inventories........................ 56,648 58,079
Gas in storage, at weighted average cost......... 6,928 44,697
Deferred income taxes............................ 11,198 10,005
Prepayments and other............................ 13,626 13,969
----------- -----------
328,326 314,594
Property, Plant and Equipment: ----------- -----------
(less accumulated depreciation and depletion of
$386,797,000 and $377,004,000, respectively). 399,609 400,700
----------- -----------
Deferred Charges and Other:
Deferred systems development costs............... 37,513 38,808
Other regulatory assets.......................... 55,202 57,211
Deferred environmental costs..................... 41,994 41,641
Prepaid pension costs............................ 30,066 29,580
Gas transition costs............................. 13,178 15,485
Other............................................ 35,146 35,707
----------- -----------
213,099 218,432
----------- -----------
$ 941,034 $ 933,726
=========== ===========
The accompanying notes are an integral part of this statement.
9
WICOR, INC.
Consolidated Balance Sheet
March 31,
1994 December 31,
(Unaudited) 1993
Liabilities and Capitalization ----------- -----------
- ------------------------------ (Thousands of Dollars)
Current Liabilities:
Accounts payable................................. $ 67,614 $ 62,683
Refundable gas costs ............................ 56,984 15,596
Short-term borrowings (Note 1)................... 54,546 134,918
Current portion of long-term debt................ 2,968 2,847
Accrued taxes.................................... 20,851 10,089
Accrued payroll and benefits..................... 15,318 14,656
Other............................................ 15,736 15,199
----------- -----------
234,017 255,988
----------- -----------
Deferred Credits and Other:
Unamortized investment tax credit................ 8,175 8,654
Environmental remediation costs.................. 40,000 40,000
Deferred income taxes............................ 48,511 45,878
Gas transition costs............................. 13,178 15,485
Other regulatory liabilities..................... 48,457 50,179
Postretirement benefit obligation................ 69,650 67,510
Other............................................ 15,659 14,526
----------- -----------
243,630 242,232
----------- -----------
Capitalization:
Long-term debt................................... 167,876 165,230
Common stock..................................... 16,524 16,407
Other paid-in capital............................ 169,772 166,710
Retained earnings ............................... 109,215 87,159
----------- -----------
463,387 435,506
----------- -----------
$ 941,034 $ 933,726
=========== ===========
The accompanying notes are an integral part of this statement.
10
WICOR, INC.
Consolidated Statement of Cash Flows (Unaudited)
(Thousands of Dollars)
Three Months Ended
March 31,
-----------------------
1994 1993
---------- ----------
Operations:
Net income.......................................... $ 28,202 $ 23,935
Adjustments to reconcile net income to net
cash flows:
Depreciation, depletion and amortization.......... 11,918 11,333
Deferred income taxes............................. 1,440 253
Change in:
Receivables..................................... (55,849) (44,578)
Manufacturing inventories....................... 1,431 (3,390)
Gas in storage.................................. 37,769 6,584
Other current assets............................ (1,243) (971)
Deferred Systems development costs.............. (112) (2,066)
Accounts payable................................ 4,931 (5,759)
Refundable gas costs............................ 41,388 26,179
Accrued taxes................................... 12,348 14,461
Accrued payroll and benefits.................... 662 3,114
Other current liabilities....................... 537 (234)
Other non-current assets and liabilities, net... 2,092 (504)
---------- ----------
85,514 28,357
---------- ----------
Investment Activities:
Capital expenditures.............................. (8,625) (9,054)
Acquisitions...................................... - (1,231)
Other ............................................ 45 27
---------- ----------
(8,580) (10,258)
---------- ----------
Financing Activities:
Change in short-term borrowings................... (75,372) (11,700)
Reduction in long-term debt ...................... (2,085) (2,267)
Issuance of long-term debt........................ - 158
Issuance of common stock ......................... 2,427 4,242
Dividends paid on common stock, less
amounts reinvested ............................ (5,671) (4,902)
---------- ----------
(80,701) (14,469)
---------- ----------
Change in Cash and Cash Equivalents................... (3,767) 3,630
Cash and Cash Equivalents at Beginning of Period...... 22,953 16,632
---------- ----------
Cash and Cash Equivalents at End of Period............ $ 19,186 $ 20,262
========== ==========
The accompanying notes are an integral part of this statement.
11
Notes to Financial Statements (Unaudited):
- ------------------------------------------
1) At March 31, 1994 WICOR, Inc. had total unsecured lines of credit from
banks of $103.5 million of which $5.7 million is outstanding.
A total of $48.8 million of commercial paper was outstanding as of
March 31, 1994 at a weighted average interest rate of 3.7%.
2) For purposes of the Consolidated Statement of Cash Flows, income taxes
paid, net of refunds, and interest paid (excluding capitalized
interest) were as follows:
For the three months
ended March 31, 1994 1993
----------------------- ---------- ----------
(Thousands of Dollars)
Income taxes paid $ 6,735 $ 727
Interest paid $ 3,404 $ 4,007
3) In July 1993, Wisconsin Gas submitted an incentive rate making
proposal to the Public Service Commission of Wisconsin (PSCW). In
its April 1994 decision, the PSCW significantly modified the
Company's proposal. Under the modified proposal, the Company's rates
will be subject to a three year cap based on the rate approved for
November, 1993. The Company will also reduce rates by $10.1 million,
which will be offset by a reduction in certain non-cash expenses,
resulting in no net income impact, but a reduction in cash flow. The
PSCW has given the Company the option of either accepting the
modified proposal or filing a traditional rate case in March 1995.
Wisconsin Gas is reviewing the alternatives and will not make a
decision until the PSCW Order is received later this year.
4) In January 1994, Wisconsin Gas offered a voluntary early retirement
incentive plan to employees over age 55. A total of 131 employees
elected to retire under the provisions of this incentive plan.
Wisconsin Gas has recorded a charge, which includes the impact on the
pension and postretirement benefit plans, to operating expense of
$2.7 million in the first quarter of 1994.
5) Certain prior year financial statement amounts have been restated to
reflect the merger with SHURflo in 1993.
12
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings
- -------------------------
Sta-Rite -
-----------
On April 18, 1994, lawsuits were filed in Superior Court in Alameda
County, California by the Attorney General of the State of
California, The Environmental Defense Fund and the Natural Resources
Defense Council against four submersible pump manufacturers,
including Sta-Rite Industries, Inc. ("Sta-Rite"). The suit alleges
that the four manufacturers have produced and sold pumps with brass
components which leach levels of lead in excess of the levels
permitted under California law. The lawsuits seek, among other
remedies, injunctive relief and unspecified monetary penalties.
Sta-Rite and the other named defendants dispute the allegations made
in the lawsuits and Sta-Rite intends to vigorously defend itself
against the actions.
Immediately following commencement of the legal actions, Sta-Rite
discontinued sales of its submersible pumps on a nationwide basis.
After completing additional internal testing, including testing to
confirm that the pumps complied with regulations promulgated by the
Environmental Protection Agency, Sta-Rite resumed sales of its
submersible pumps, except in California. Based on the specifications
under which the pumps are manufactured, the Company believes that the
Sta-Rite pumps also comply with the requirements of the Federal Safe
Drinking Water Act.
The Company is not currently able to determine what impact, if any,
the California actions may have on its financial condition or results
of operations. In light of the lawsuits, the Company is presently
reviewing its insurance arrangements to determine the scope of
available coverage with respect to the matters alleged in the
California actions.
Wisconsin Gas -
---------------
During the first quarter of 1994, Wisconsin Gas initiated suit
against its insurance carriers for recovery of environmental clean-up
costs associated with former manufactured gas plant operations. Any
cleanup costs not recoverable from its insurance carriers will be
allowed full recovery in rates (net of carrying costs) based on
recent PSCW orders. Wisconsin Gas is in various stages of
negotiations with its insurance carriers regarding settlement of the
litigation.
Item 6. Exhibit and Reports on Form 8-K
- ---------------------------------------
(a) Exhibits - None.
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
for the first quarter of 1994.
13
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.
WICOR, INC.
Dated: May 13, 1994 By: /s/ Joseph P. Wenzler
--------------------------
Joseph P. Wenzler
Vice President, Treasurer
and Chief Financial Officer