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 June 30, 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 1-7951
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
53201
---------------------------------------
(Address of principal executive office)
(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 July 21, 1995
-------------------------- ----------------------------
Common Stock, $1 Par Value 16,942,244
2
INTRODUCTION
--------------------------------------------------------------------------
WICOR, Inc. ("WICOR" or "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"), a natural gas distribution public
utility; Sta-Rite Industries, Inc. ("Sta-Rite"), a manufacturer of pumps and
water processing equipment for the residential, irrigation and pool and spa
markets; and SHURflo Pump Manufacturing Co. ("SHURflo"), a manufacturer of
pumps and fluid-handling equipment 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 Statements of Income for the Three-
and Six-Months Ended June 30, 1995 and 1994....... 6
Consolidated Balance Sheets as of June 30, 1995
and December 31, 1994............................ 7-8
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1995 and 1994.............. 9
Notes to Consolidated Financial Statements......... 10
PART II. Other Information.................................. 11
Signatures......................................... 12
3
Part I - Financial Information
Financial Statements
The consolidated statements included herein 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 for the year ended December 31, 1994 and quarterly report
on Form 10-Q.
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 Interim Financial Statements of
WICOR, Inc.
Results of Operations
---------------------
Consolidated net income for the second quarter of 1995 was $2.7 million or
$1.7 million higher than in the comparable period of the prior year. Net
income decreased by $1.7 million, or 6%, for the six months ended June 30,
1995 compared to the same period of last year.
The following factors have had a significant effect on the results of
operations during the three- and six-month periods ended June 30, 1995.
Gas Distribution
----------------
The net loss for the second quarter of 1995 was by $3.7 million, or 87%,
less than the net loss for the 1994 second quarter. Net income for the six
months ended June 30, 1995 increased by $0.4 million, or 2%, compared to the
same period of last year.
The decrease in the net loss for the second quarter resulted primarily from
decreased operating expenses (excluding cost of gas sold). Colder weather
for the second quarter and an increase in interruptible volumes of 30% were
the primary factors affecting margins. The increase in 1995 year-to-date net
income was due primarily to decreased operating expenses offset in part by
warmer than normal weather.
Revenues, margins and volumes are summarized below. Margin, defined as
revenues less cost of gas sold, 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 the cost of
gas sold are flowed through to revenue under a gas adjustment clause with no
resulting effect on margin.
Three Months Six Months
Ended June 30, % Ended June 30, %
-------------- ------ -------------- ------
1995 1994 Change 1995 1994 Change
------ ------ ------ ------ ------
(Millions of Dollars)
Gas Sales Revenues $ 92.5 $ 97.8 (5) $282.9 $337.9 (16)
Cost of Gas Sold 58.1 65.5 (11) 173.3 218.8 (21)
------ ------ ------ ------
Gas Sales Margin 34.4 32.3 7 109.6 119.1 (8)
Gas Transport Margin 1.5 1.5 - 3.6 3.6 -
------ ------ ------ ------
Total Margin $ 35.9 $ 33.8 6 $113.2 $122.7 (8)
====== ====== ====== ======
(Millions of Therms)
Sales Volumes
Firm 127.4 112.7 13 486.0 514.0 (5)
Interruptible 79.5 61.3 30 173.0 146.8 18
Transportation Volume 25.7 26.4 (3) 64.0 61.1 5
------ ------ ------ ------
Total Throughput 232.6 200.4 16 723.0 721.9 -
====== ====== ====== ======
Degree Days (Normal:
2nd Qtr. = 954
Six Months = 4,397) 918 843 9 4,086 4,506 (9)
====== ====== ====== ======
/TABLE
5
The increase in firm sales volumes for the second quarter of 1995 as compared
with the 1994 second quarter was caused principally by 9% colder weather than
the same period of last year (4% warmer than normal). For the six-months ended
June 30, 1995, the total margin decrease was primarily due to a 5% decrease in
firm sales volumes offset in part by an 18% increase in lower margin
interruptible sales due primarily to increased load to existing customers. The
weather was 7% warmer than normal during the first six months of 1995 and 9%
warmer than the same period in 1994.
Operations and maintenance expenses decreased by $3.6 million, or 13%, and $9.8
million, or 16%, for the three- and six- month periods ended June 30, 1995,
respectively, compared with the same periods of 1994. The decrease for the
quarter was due primarily to reductions in employee benefit expense ($1.3
million), conservation program expense ($1.0 million) and uncollectible accounts
expense ($0.6 million). The year to date decrease is due primarily to
reductions in employee benefit expense ($4.9 million, which includes a one-time
charge of $2.7 million relating to a 1994 early retirement program),
conservation program expense ($1.9 million) and uncollectible accounts expense
($1.3 million).
Depreciation expense for the six months ended June 30, 1995 decreased by $0.4
million, or 3%, compared to the same period of last year. In conjunction with
a 1994 Public Service Commission of Wisconsin (PSCW) rate order, Wisconsin Gas
discontinued recording additional depreciation expense of $3 million per year
associated with a reserve deficiency.
Manufacturing
-------------
Manufacturing net income for the second quarter of $3.2 million was 39% lower
than last year's net income of $5.3 million. For the six-months ended June 30,
1995, manufacturing net income decreased by 24% to $6.5 million compared to the
same period last year.
Net sales were $85.2 million for the second quarter of 1995, down 2% from the
comparable period in 1994. For the first six months of 1995, net sales
decreased by 2% to $162.0 million compared to the same period in 1994. The
second quarter decrease was due primarily to a combination of a cool, wet spring
that softened water well, pool and domestic recreational vehicle markets and
high inventory levels in domestic distribution channels.
International sales for the second quarter continued their strong growth,
increasing by $4.5 million to $35.3 million, or 15% over the second quarter of
1994. The increase in international sales was due primarily to continuing new
product sales in the European markets and growth in the water and industrial
markets. On a year to date basis, international sales increased by 15% and
domestic sales decreased by 11% over the same period in 1994. For the six-
months ended June 30, 1995 and 1994, international sales accounted for 41% and
35%, respectively, of total net sales.
Gross profit margins decreased from 30% to 27% for the 1995 second quarter as
compared to the second quarter of 1994. For the six-months ended June 30, 1995
and 1994, the gross profit margin was 27% and 29%, respectively. The quarter
and year-to-date decreases were due primarily to unanticipated increases in
material costs. Operating expenses as a percentage of sales for the year-to-
date as compared to 1994 increased from 20% to 21%. Year-to-date operating
expenses increased in 1995 over 1994 by $0.6 million.
Non-Operating Income and Income Taxes
-------------------------------------
Interest expense was up slightly for the three- and six- months ended June 30,
1995 compared to the similar periods of 1994, due primarily to increased
manufacturing borrowings and slightly higher interest rates.
6
Other income for the six months ended June 30, 1995 increased by $1.9 million
over the same period of last year. The increase was due primarily to the sale
of the Company's investment in Filtron Technologies Corporation for a pre-tax
gain of $1.4 million, $0.8 million, after tax.
Income tax expense was $0.7 million lower for the first six months of 1995,
compared to the same period last year, reflecting decreased pre-tax income.
Financial Condition
-------------------
Cash flow from operations for the six-months ended June 30, 1995 decreased by
$6.0 million, or 5%, from the comparable period in 1994. The decline is in part
due to the decrease in net income and increased current tax payments. Pipeline
refunds, which are expected to be refunded to customers, contributed to cash
flow from operations.
On July 19, 1995, the Company acquired all of the outstanding common stock of
Hypro Corporation ("Hypro") for $58 million in cash and the assumption of
certain operating liabilities. Hypro designs, manufactures and markets pumps
and water processing equipment for the agricultural, high-pressure cleaning,
marine, industrial and fire protection markets. The acquisition was financed
using the proceeds from a bridge financing facility. The Company expects to
raise permanent financing for this transaction within the next twelve months.
The transaction will be accounted for using the purchase method of accounting.
Capital expenditures for the six months ended June 30, 1995 amounted to $24.9
million and additional capital expenditures of $40.0 million are expected for
the remainder of 1995.
There will be a need for additional short-term borrowing during the third and
fourth quarters of 1995 to finance working capital needs primarily related to
gas to be purchased for injection into storage.
On July 25, 1995, the directors of the Company authorized an increase in the
Company's dividend on common stock to $.41 per quarter ($1.64 per share on an
annual basis). The first quarterly payment at the new amount will be made
August 31, 1995 to shareholders of record on August 11, 1995.
Regulatory Matters
------------------
In July 1995, Wisconsin Gas filed to reduce its base rates by $1.5 million on
an annualized basis effective August 1, 1995. Wisconsin Gas has the ability to
raise or lower margin rates to within a specified range on a quarterly basis
under the guidelines of a November 1994 PSCW rate order.
7
WICOR, INC.
Consolidated Statements of Income (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
(Thousands of Dollars) (Thousands of Dollars)
Operating Revenues:
Gas distribution............... $ 93,985 $ 99,349 $ 286,469 $ 341,497
Manufacturing and other........ 85,214 86,730 162,034 165,207
---------- ---------- ---------- ----------
179,199 186,079 448,503 506,704
---------- ---------- ---------- ----------
Operating Costs and Expenses:
Cost of gas sold............... 58,120 65,468 173,273 218,759
Manufacturing cost of sales.... 62,446 61,052 118,237 117,234
Operations and maintenance..... 40,711 44,275 86,679 95,889
Depreciation and amortization.. 7,171 7,398 14,262 14,728
Taxes, other than income taxes. 2,295 2,386 4,748 5,150
---------- ---------- ---------- ----------
170,743 180,579 397,199 451,760
---------- ---------- ---------- ----------
Operating Income ................ 8,456 5,500 51,304 54,944
---------- ---------- ---------- ----------
Interest expense............... (4,147) (3,909) (8,869) (8,208)
Other income and (expenses).... 362 (9) 2,076 210
---------- ---------- ---------- ----------
Income Before Income Taxes....... 4,671 1,582 44,511 46,946
Income Taxes..................... 1,993 584 17,044 17,746
---------- ---------- ---------- ----------
Net Income....................... $ 2,678 $ 998 $ 27,467 $ 29,200
========== ========== ========== ==========
Per Share of Common Stock:
Income Per Common Share........ $ 0.16 $ 0.06 $ 1.62 $ 1.76
========== ========== ========== ==========
Cash Dividends Per Common Share $ 0.40 $ 0.39 $ 0.80 $ 0.78
========== ========== ========== ==========
Average Common Shares
Outstanding (Thousands)....... 16,939 16,640 16,936 16,559
The accompanying notes are an integral part of this statement.
8
WICOR, INC.
Consolidated Balance Sheets
June 30
1995 December 31,
(Unaudited) 1994
Assets ------------- ------------
------ (Thousands of Dollars)
Current Assets:
Cash and cash equivalents......................... $ 32,444 $ 35,138
Accounts receivable, less allowance for
doubtful accounts of $13,878 and $9,233,
respectively.................................... 111,482 103,487
Accrued utility revenues.......................... 8,497 40,327
Manufacturing inventories......................... 61,780 60,239
Gas in storage, at weighted average cost.......... 14,468 38,050
Deferred income taxes............................. 15,570 15,540
Prepayments and other............................. 19,297 19,519
------------- ------------
263,538 312,300
Property, Plant and Equipment (less accumulated ------------- ------------
depreciation of $425,014 and $407,121,
respectively)................................... 419,689 415,563
------------- ------------
Deferred Charges and Other:
Systems development costs......................... 31,403 34,071
Deferred environmental costs...................... 41,504 41,942
Prepaid pension costs............................. 31,973 30,865
Gas transition costs.............................. 489 7,411
Other regulatory assets........................... 49,859 51,543
Other............................................. 32,771 37,013
------------- ------------
187,999 202,845
------------- ------------
$ 871,226 $ 930,708
============= ============
The accompanying notes are an integral part of these statements.
9
WICOR, INC.
Consolidated Balance Sheets
June 30,
1995 December 31,
(Unaudited) 1994
Liabilities and Capitalization ------------- ------------
------------------------------ (Thousands of Dollars)
Current Liabilities:
Accounts payable.................................. $ 57,635 $ 65,626
Refundable gas costs ............................. 50,564 18,058
Short-term borrowings............................. 11,524 111,506
Current portion of long-term debt................. 2,911 5,031
Accrued taxes..................................... 6,992 8,400
Accrued payroll and benefits...................... 17,959 15,141
Other............................................. 12,326 15,661
------------- ------------
159,911 239,423
------------- ------------
Deferred Credits and Other:
Deferred income taxes............................. 42,653 42,322
Environmental remediation costs................... 36,595 37,188
Postretirement benefit obligation................. 68,463 69,730
Unamortized investment tax credit................. 7,802 8,187
Gas transition costs.............................. 489 7,411
Other regulatory liabilities...................... 57,381 54,636
Other............................................. 23,736 18,674
------------- ------------
237,119 238,148
------------- ------------
Capitalization:
Long-term debt.................................... 167,679 161,669
Common stock...................................... 16,942 16,918
Other paid-in capital............................. 180,553 180,000
Retained earnings ................................ 115,335 101,418
Unearned compensation - ESOP and restricted stock. (6,313) (6,868)
------------- ------------
474,196 453,137
------------- ------------
$ 871,226 $ 930,708
============= ============
The accompanying notes are an integral part of these statements.
10
WICOR, INC.
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
-----------------------
1995 1994
---------- ----------
(Thousands of Dollars)
Operations:
Net income.......................................... $ 27,467 $ 29,200
Adjustments to reconcile net income to net
cash flows:
Depreciation and amortization..................... 23,854 23,818
Deferred income taxes............................. 301 1,507
Change in:
Receivables..................................... 23,835 25,920
Manufacturing inventories....................... (1,541) (83)
Gas in storage.................................. 23,582 21,872
Other current assets............................ (751) (5,721)
Accounts payable................................ (7,991) (7,371)
Refundable gas costs............................ 32,506 25,306
Accrued taxes................................... (435) (207)
Accrued payroll and benefits.................... 2,818 3,327
Other current liabilities....................... (3,335) 1,367
Other non-current assets and liabilities, net... 4,589 11,936
---------- ----------
124,899 130,871
---------- ----------
Investment Activities:
Capital expenditures.............................. (24,852) (20,665)
Proceeds from sale of investment.................. 5,099 -
Other ............................................ 210 126
---------- ----------
(19,543) (20,539)
---------- ----------
Financing Activities:
Change in short-term borrowings................... (90,794) (109,087)
Issuance of long-term debt........................ 6 -
Reduction in long-term debt ...................... (4,289) (2,185)
Issuance of common stock ......................... 577 6,639
Dividends paid on common stock, less
amounts reinvested ............................ (13,550) (11,389)
---------- ----------
(108,050) (116,022)
---------- ----------
Change in Cash and Cash Equivalents................... (2,694) (5,690)
Cash and Cash Equivalents at Beginning of Period...... 35,138 22,953
---------- ----------
Cash and Cash Equivalents at End of Period............ $ 32,444 $ 17,263
========== ==========
The accompanying notes are an integral part of these statements.
/TABLE
11
Notes to Consolidated Financial Statements (Unaudited):
1) At June 30, 1995 WICOR had borrowings of $11.5 million and availability
of $206.5 million under unsecured lines of credit with several banks.
A total of $6.5 million of commercial paper was outstanding as of June 30,
1995 at a weighted average interest rate of 6.1%.
2) For purposes of the Consolidated Statements of Cash Flows, income taxes
paid, net of refunds, and interest paid (excluding capitalized interest)
were as follows:
For the six months
ended June 30,
----------------------
1995 1994
---------- ----------
(Thousands of Dollars)
Income taxes paid $ 18,606 $ 22,135
Interest paid $ 9,134 $ 8,120
3) On July 19, 1995, the Company acquired Hypro Corporation ("Hypro") in a
merger for $58 million in cash and the assumption of certain operating
liabilities. The acquisition was financed using the proceeds from a
bridge financing facility. The Company currently expects to raise
permanent financing for this transaction within the next twelve months.
Hypro designs, manufactures and markets pumps and water processing
equipment for the agricultural, high-pressure cleaning, marine, industrial
and fire protection markets. The acquisition will be accounted for using
the purchase method of accounting. For the year ended September 30, 1994,
Hypro had revenues of $41.1 million.
12
Part II - Other Information
Item 1. Legal Proceedings
-------------------------
Sta-Rite has reached an agreement with the Attorney General of California and
two environmental groups over the use of brass components in submersible well
pumps. On April 18, 1994, the Attorney General of California and two
environmental groups had sued Sta-Rite and other pump manufacturers claiming
that these companies had failed to comply with California's Proposition 65. The
amount of the settlement did not have a material adverse effect on the financial
condition or operations of the Company. Details of the litigation were
previously reported in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
At the Company's annual meeting of shareholders held on April 27, 1995, Wendell
F. Bueche, Daniel F. McKeithan, Jr., George E. Wardeberg and Essie M. Whitelaw
were elected as directors of the Company for terms expiring in 1998. The
following table sets forth certain information with respect to the election of
directors at the annual meeting:
Shares Withholding
Name of Nominee Shares Voted For Authority
--------------------- ---------------- ------------------
Wendell F. Bueche 14,313,561 192,040
Daniel F. McKeithan 14,334,196 171,405
George E. Wardeberg 14,306,243 199,358
Essie M. Whitelaw 14,322,939 182,662
The following table sets forth the other directors of the Company whose terms
of office continued after the 1995 annual meeting:
Year in Which
Name of Director Term Expires
------------------------ ---------------
Jere D. McGaffey 1996
Thomas F. Schrader 1996
Stuart W. Tisdale 1996
Willie D. Davis 1997
Guy A. Osborn 1997
William B. Winter 1997
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------
(a) Exhibits
4.1 Credit Agreement dated as of July 18, 1995, among HC 1995
Acquisition, Inc. (n/k/a Hypro Corporation) and Citibank, N.A.,
Firstar Bank Milwaukee, N.A., Harris Trust and Savings Bank and M&I
Marshall & Illsley Bank and Citibank, N.A. as agent.
27 Financial data schedule.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed by the
Company during the second quarter of 1995.
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: July 31, 1995 By: /s/ Joseph P. Wenzler
----------------------
Joseph P. Wenzler
Vice President, Treasurer
and Chief Financial Officer
WICOR, Inc.
Exhibit Index - Form 10-Q
Exhibit No. Exhibit
----------- -------------------------------------------
4.1 Credit Agreement dated as of July 18, 1995,
among HC 1995 Acquisition, Inc. (n/k/a Hypro
Corporation) and Citibank, N.A., Firstar Bank
Milwaukee, N.A., Harris Trust and Savings Bank
and M&I Marshall & Illsley Bank and Citibank,
N.A. as agent.
27 Financial Data Schedule