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, 1996
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
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(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 April 19, 1996
- --------------------------- -----------------------------
Common Stock, $1 Par Value 18,361,190
2
INTRODUCTION
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WICOR, Inc. ("WICOR" or the "Company"), is a diversified holding
company with two principal business groups: natural gas
distribution and related services, and manufacturing of pumps
and processing equipment used to pump, control, transfer, hold
and filter water and other fluids. The Company engages in
natural gas distribution through Wisconsin Gas Company
("Wisconsin Gas"), the oldest and largest natural gas
distribution utility in Wisconsin. Through several nonutility
subsidiaries, the Company also engages in the manufacture and
sale of pumps and processing equipment. The Company's products
primarily have water system, pool spa, agricultural, RV/marine
and beverage/food service applications. The Company markets its
manufactured products in 100 countries. The Company is
incorporated under the laws of the State of Wisconsin and is
exempt from registration as a holding company under the Public
Utility Holding Company Act of 1935, as amended.
CONTENTS
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PAGE
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PART I.
Financial Information.................................. 1
Management's Discussion and Analysis of
Interim Financial Statements........................ 2-4
Consolidated Financial Statements of WICOR, Inc. (Unaudited):
-------------------------------------------------------------
Consolidated Statements of Income for the Three-
Months Ended March 31, 1996 and 1995................ 5
Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995................ 6-7
Consolidated Statement of Cash Flows for the Three-
Months Ended March 31, 1996 and 1995................ 8
Notes to Consolidated Financial Statements............ 9
PART II.
Other Information..................................... 10
Signatures............................................ 11
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, 1995.
In the opinion of management, the information furnished reflects
all adjustments, which in all circumstances were normal and
recurring, necessary for a fair presentation of the results of
operations for the interim periods.
Because of seasonal factors, the results of operations for the
interim periods presented are not necessarily 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 first quarter of 1996 increased
by $6.2 million, or 25%, to a record of $30.9 million compared
with the first quarter of 1995. The increase was due to energy
group earnings and manufacturing group earnings which advanced
by $5.1 million, or 24%, and $1.0 million, or 32%, respectively.
The following factors had a significant effect on the results of
operations during the three-month period ended March 31, 1996.
Energy
- ------
Net income increased to $26.6 million from $21.5 million, or
24%, for the first quarter of 1996 compared with the first
quarter of 1995. The primary reason was increased gas margin
which resulted from the colder than normal weather experienced
in the first quarter of this year. In addition, operations and
maintenance expense decreased by $1.4 million, or 5%, over the
comparable period of last year.
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 Ended
March 31,
--------------------- %
1996 1995 Change
---------- ---------- --------
(Millions of Dollars)
- ---------------------
Gas Sales Revenues $ 219.4 $ 190.3 15
Cost of Gas Sold 137.3 115.2 19
---------- ----------
Gas Sales Margin 82.1 75.1 9
Gas Transport Margin 3.4 2.2 55
---------- ----------
Total Margin $ 85.5 $ 77.3 11
========== ==========
5
(Millions of Therms)
- --------------------
Utility Sales Volumes
Firm 407.5 358.5 14
Interruptible 77.2 93.6 (18)
Transportation Volume 64.4 38.3 68
---------- ----------
Total Throughput 549.1 490.4 12
========== ==========
Heating Degree Days
(20 year normal = 3,422) 3,630 3,168 15
Total gas margin increased by $8.2 million, or 11%, for the first
quarter of 1996 compared to the first quarter of 1995 primarily as
a result of a 14% increase in firm sales volumes. The weather was
6% colder than normal during the first quarter of 1996 and 15%
colder than the same quarter in 1995.
Operations and maintenance expenses decreased by $1.4 million, or
5%, compared with the first quarter of 1995. The decrease in
operations and maintenance expense is attributable to lower labor
and benefit expenses of $1.5 million.
Depreciation expense for the first quarter of 1996 increased $1.2
million over the same period of 1995. The increase is due to
additions to plant and increased depreciation rates allowed by the
Public Service Commission of Wisconsin ("PSCW").
Manufacturing
- -------------
Manufacturing net income for the first quarter of 1996 of $4.3
million was 32% higher than last year's net income of $3.3 million.
Manufacturing net sales were $105.8 million for the first quarter
of 1996, up 38% from the comparable period in 1995. The effect on
sales, of the Hypro Corporation ("Hypro") acquisition in July 1995,
for the current quarter was an additional $11.5 million.
Domestic sales in the quarter increased by 53% to $71.0 million
(including Hypro sales of $10.7 million) over the comparable period
of 1995. Overall shipments for water systems and pool/spa products
in North America were up 32% from the first quarter of 1995. Market
demand was strong in the North American retail business segment for
sump and drainer pump products due to extremely wet conditions
during the first part of 1996. Improvements were also seen in the
agricultural, industrial, food service and fire protection markets.
New product introductions were an additional contributor to the
sales growth for the quarter.
6
International sales for the quarter continued their strong growth,
increasing by $4.4 million to $34.8 million, or 14% over the first
quarter of 1995. Strong sales in the Company's European and Asian
markets fueled much of the increase. However, these advances were
partially offset by lower sales in Australian operations.
Operating margins have improved from 27% to 28% for the first
quarter as compared to 1995. Operating expenses as a percentage
of sales for the quarter declined from 22% to 21%. Higher interest
expense in the first quarter of 1996 compared to 1995, mostly due
to higher debt levels arising from the Hypro acquisition, partially
offset the earnings improvement for the quarter.
Non-Operating Income/Expense and Income Taxes
- ---------------------------------------------
Consolidated interest expense remained relatively flat in the first
quarter of 1996 as compared to the same quarter of 1995. Savings
realized from the refinancing of Wisconsin Gas' long-term debt were
partially offset by increased manufacturing group borrowings.
Other income, net of other expenses decreased by $1.7 million over
the first quarter of 1995. The first quarter of 1995 included the
sale of the Company's investment in Filtron Technologies
Corporation for an after-tax gain of $0.8 million ($0.05 per
share).
Income tax expense was $4.4 million higher for the first quarter
of 1996, compared to the same period last year, reflecting the
increase in pre-tax income.
Financial Condition
- -------------------
Cash flow from operations for the first quarter of 1996 decreased
by $12.6 million to $73.7 million compared to the first quarter of
1995. The decrease can be attributed to higher accounts receivable
balances which were the result of increased manufacturing sales.
The decrease in gas in storage of $14.3 million was due primarily
to lower utility withdrawals from its gas in storage during the
first quarter of 1996, compared to the same period in 1995.
Utility gas in storage at December 31, 1995 was 5.7 million
decatherms lower than the amount in storage at December 31, 1994
due to a marginally colder than normal fourth quarter of 1995 and
the unusually warm fourth quarter of 1994. In addition,
withdrawals from gas in storage during the first quarter of 1996
reflected a weighted average cost of gas that was 18% lower than
the same period in 1995. A pipeline refund of $14.8 million
received in the first quarter of 1995 also contributed to the
decreased cash flow. These amounts were ultimately refunded to
customers during the remainder of 1995. Higher accounts payable
balances, caused by increased gas purchases at higher prices,
partially offset these decreases in cash flow from operations.
7
Capital expenditures for the three months ended March 31, 1996
decreased $1.2 million to $8.9 million compared to the same period
of the prior year. Additional capital expenditures of $54 million
are expected for the remainder of 1996.
The first quarter, due to seasonal effects in each business, is
typically a period of cash generation for the energy group and of
cash use for the manufacturing group. There will be a need for
additional short-term borrowing during the third and fourth
quarters of 1996 to finance working capital, primarily gas
purchased for injection into storage.
8
WICOR, INC.
Consolidated Statement of Income (Unaudited)
Three Months Ended
March 31
----------------------------
(Thousands of Dollars) 1996 1995
------------ ------------
Operating Revenues:
Energy....................................... $ 222,954 $ 192,483
Manufacturing................................ 105,793 76,821
------------ ------------
328,747 269,304
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Operating Expenses:
Cost of gas sold............................. 137,325 115,153
Manufacturing cost of sales.................. 75,838 55,791
Operating and maintenance.................... 49,467 45,968
Depreciation and amortization................ 8,667 7,091
Taxes, other than income taxes............... 2,507 2,453
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273,804 226,456
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Operating Income............................... 54,943 42,848
Interest expense............................... (4,583) (4,722)
Other income and expenses...................... 30 1,714
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Income Before Income Taxes..................... 50,390 39,840
Income Taxes................................... 19,441 15,051
------------ ------------
Net Income..................................... $ 30,949 24,789
============ ============
Income Per Common Share........................ $ 1.69 $ 1.46
============ ============
Cash Dividends Per Common Share................ $ 0.41 $ 0.40
============ ============
Average Common Shares Outstanding (Thousands).. 18,298 16,933
The accompanying notes are an integral part of these statements.
9
WICOR, INC.
Consolidated Balance Sheets
March 31
1996 December 31,
(Unaudited) 1995
------------- ------------
(Thousands of Dollars)
Assets
- ------
Current Assets:
Cash and cash equivalents......................... $ 29,198 $ 20,380
Accounts receivable, less allowance for
doubtful accounts of $16,467 and $10,343,
respectively.................................... 193,875 132,203
Accrued utility revenues.......................... 41,971 48,847
Manufacturing inventories......................... 72,248 68,236
Gas in storage, at weighted average cost.......... 3,755 24,117
Deferred income taxes............................. 20,269 20,256
Prepayments and other............................. 14,029 14,990
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375,345 329,029
Property, Plant and Equipment (less accumulated ------------- ------------
depreciation of $450,479 and $440,942,
respectively)................................... 434,206 436,040
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Deferred Charges and Other:
Regulatory assets................................. 104,010 104,145
Goodwill.......................................... 62,994 61,096
Prepaid pension costs............................. 33,863 33,073
Systems development costs......................... 27,398 28,868
Other............................................. 17,240 16,263
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245,505 243,445
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$ 1,055,056 $ 1,008,514
============= ============
The accompanying notes are an integral part of these statements.
10
WICOR, INC.
Consolidated Balance Sheets
March 31,
1996 December 31,
(Unaudited) 1995
------------- ------------
(Thousands of Dollars)
Liabilities and capitalization
- ------------------------------
Current Liabilities:
Accounts payable.................................. $ 78,415 $ 63,920
Refundable gas costs ............................. 75,973 34,347
Short-term borrowings............................. 57,169 106,377
Current portion of long-term debt................. 4,896 6,836
Accrued taxes..................................... 22,864 6,940
Accrued payroll and benefits...................... 16,319 16,340
Other............................................. 18,265 19,638
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273,901 254,398
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Deferred Credits and Other:
Postretirement benefit obligation................. 66,851 67,306
Regulatory liabilities............................ 64,268 64,896
Deferred income taxes............................. 39,509 39,282
Accrued environmental remediation costs........... 36,301 36,381
Unamortized investment tax credit................. 7,342 7,724
Accrued pipeline transition costs................. 240 261
Other............................................. 19,458 18,287
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233,969 234,137
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Capitalization:
Long-term debt.................................... 175,849 174,713
Common stock...................................... 18,350 18,237
Other paid-in capital............................. 222,371 219,133
Retained earnings ................................ 136,937 113,491
Unearned compensation - ESOP and restricted stock. (6,321) (5,595)
------------- ------------
547,186 519,979
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$ 1,055,056 $ 1,008,514
============= ============
The accompanying notes are an integral part of these statements.
11
WICOR, INC.
Consolidated Statement of Cash Flows (Unaudited)
(Thousands of Dollars)
Three Months Ended
March 31,
-----------------------
1996 1995
---------- ----------
Operations:
Net income.......................................... $ 30,949 $ 24,789
Adjustments to reconcile net income to net
cash flows:
Depreciation and amortization..................... 13,481 11,837
Deferred income taxes............................. 167 256
Change in:
Receivables..................................... (54,617) (37,558)
Manufacturing inventories....................... (3,688) (5,145)
Gas in storage.................................. 20,362 34,686
Other current assets............................ (432) 163
Accounts payable................................ 14,325 (12,056)
Refundable gas costs............................ 41,626 53,726
Accrued taxes................................... 17,407 13,385
Accrued payroll and benefits.................... (801) 74
Other current liabilities....................... (1,373) (3,542)
Other non-current assets and liabilities, net... (3,689) 5,663
---------- ----------
73,717 86,278
---------- ----------
Investment Activities:
Capital expenditures.............................. (8,911) (10,156)
Proceeds from sale of investment.................. - 5,099
Other ............................................ 18 45
---------- ----------
(8,893) (5,012)
---------- ----------
Financing Activities:
Change in short-term borrowings................... (46,880) (82,284)
Reduction in long-term debt ...................... (4,042) (4,169)
Issuance of long-term debt........................ 366 -
Issuance of common stock ......................... 2,052 494
Dividends paid on common stock, less
amounts reinvested ............................ (7,502) (6,774)
---------- ----------
(56,006) (92,733)
---------- ----------
Change in Cash and Cash Equivalents................... 8,818 (11,467)
Cash and Cash Equivalents at Beginning of Period...... 20,380 35,138
---------- ----------
Cash and Cash Equivalents at End of Period............ $ 29,198 $ 23,671
========== ==========
The accompanying notes are an integral part of these statements.
12
Notes to Consolidated Financial Statements (Unaudited):
1) At March 31, 1996 WICOR had borrowings of $21.2 million and
availability of $205.0 million under unsecured lines of
credit with several banks.
A total of $9.0 million of commercial paper, classified as
short-term borrowings, was outstanding as of March 31, 1996
at a weighted average interest rate of 5.4%.
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,
----------------------
1996 1995
---------- ----------
(Thousands of Dollars)
Income taxes paid $ 5,204 $ 3,699
Interest paid $ 3,555 $ 4,175
3) Effective February 1, 1996, WICOR purchased, in a stock
transaction, an 80% interest in Hydro-Flow Filtration Systems
("Hydro-Flow") a manufacturer of disposable in-line and
cartridge filters for point-of-use water purification in
water and ice dispensers in refrigerators and home drinking
water systems. This acquisition was accounted for as a
purchase. For the year ended July 31, 1995, Hydro-Flow had
revenues of approximately $4 million.
13
Part II - Other Information
Item 1. Legal Proceedings
Sta-Rite - On March 15, 1996, the U.S. Environmental Protection
Agency notified Sta-Rite Industries, Inc., a subsidiary of WICOR,
and Sta-Rite's former Fluid Controls subsidiary of their potential
liability under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") at two waste sites
located in Mecklenburg County, North Carolina. As a generator of
certain substances, Sta-Rite and Fluid Controls have been named
(along with many other entities some of which are larger and some
of which are smaller than Sta-Rite) as potentially responsible
parties, with respect to this site. Sta-Rite is currently
reviewing available records and gathering information regarding
this matter. Based upon available information, the Company does
not believe the costs it may incur will have a material effect upon
its operations. The Company is investigating whether its general
liability insurance provides coverage for any remediation costs it
may incur.
Details regarding other environmental litigation, claims and
potential claims were previously reported in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Loan Agreement dated as of March 29, 1996, by and
among ABN Amro Bank N.V., Wisconsin Gas Company
Employee's Savings Plans Trust and WICOR, Inc.
27 Financial data schedule.
(b) Reports on Form 8-K - There were no reports on Form 8-K
filed for the first quarter of 1996.
14
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: April 26, 1996 By: /s/ Joseph P. Wenzler
--------------------------
Joseph P. Wenzler
Vice President, Treasurer
and Chief Financial Officer
15
WICOR, Inc.
Exhibit Index - Form 10-Q
Exhibit No. Exhibit
- ----------- ------------------------------------------
4.1 Loan Agreement dated as of March 29, 1996,
by and among ABN Amro Bank N.V., Wisconsin
Gas Company Employee's Savings Plans Trust
and WICOR, Inc.
27 Financial data schedule