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, 1997
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
Milwaukee, Wisconsin 53201
-------------------------------------- ----------
(Address of principal executive office) (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 July 18, 1997
- -------------------------- ----------------------------
Common Stock, $1 Par Value 18,448,730
2
INTRODUCTION
WICOR, Inc. ("WICOR" or the "Company") is a diversified holding company
with two principal business groups: an energy group responsible for natural
gas distribution and related services, and a manufacturing group
responsible for the manufacture 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 its subsidiary,
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 manufactured products primarily have
water system, pool and 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
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, 1997 and 1996 6
Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 7-8
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1997 and 1996 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 WICOR, Inc.
Annual Report on Form 10-K for the year ended December 31, 1996.
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 three months ended June 30, 1997 increased by
$0.7 million, or 12%, to a record $6.3 million. Consolidated net income for
the six months ended June 30, 1997 decreased by $2.4 million, or 6%, to $34.2
million.
The following factors had a significant effect on the results of operations
during the three- and six-month periods ended June 30, 1997.
Energy
- ------
The Company's energy business earned $0.2 million in the second quarter of
1997 compared to break-even results for the second quarter of 1996. Net
income for the six months ended June 30, 1997 decreased by $2.6 million, or
10%, compared to the same period of last year.
The improvement in net income for the second quarter was due primarily to
lower depreciation expense partially offset by higher operating and
maintenance expenses from non-utility operations. The decrease in 1997 year-
to-date net income was due to a combination of several factors, including
weather that was 6% warmer than in the first six months of 1996 and a
voluntary $3.0 million annual rate reduction effective November 1, 1996 (see
"Regulatory Matters" below) which were offset in part by decreased
depreciation expense
5
Revenues, margins and volumes are summarized below. Margin, defined as
revenues less cost of gas sold, is a better performance indicator than
revenues because the mix of utility 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 for Wisconsin Gas under a gas
adjustment clause with no resulting effect on margin. The following tables
set forth margin data for the Energy Group and volume data for the utility,
for each of the three- and six-month periods ending June 30.
Three Months Six Months
Ended June 30, Ended June 30,
----------------- % ----------------- %
1997 1996 Change 1997 1996 Change
-------- -------- ------ -------- -------- ------
(Millions of Dollars)
- ---------------------
Energy Revenues $ 100.9 $ 109.2 (8) $ 337.9 $ 328.8 3
Cost of Gas Sold 68.0 74.4 (9) 232.4 211.8 10
-------- -------- -------- --------
Sales Margin 32.9 34.8 (5) 105.5 117.0 (10)
Gas Transportation Margin 5.0 3.1 61 11.7 6.5 80
-------- -------- -------- --------
Gross Margin 37.9 37.9 - 117.2 123.5 (5)
Operation and Maintenance 24.8 24.3 2 52.5 52.2 1
Depreciation/Amortization 7.9 8.4 (6) 15.5 16.7 (7)
Interest and Other 2.6 2.6 - 5.5 5.9 (7)
Taxes, Other Than Income Tax 2.2 2.3 (4) 4.8 4.9 (2)
-------- -------- -------- --------
Income Before Income Taxes 0.4 0.1 300 38.9 43.8 (11)
Income Tax Expense 0.2 0.1 100 14.8 17.1 (13)
-------- -------- -------- --------
Net Income $ 0.2 $ - N/A $ 24.1 $ 26.7 (10)
======== ======== ======== ========
(Millions of Therms)
- ----------------------
Utility Sales Volumes
Firm 127.4 140.8 (10) 488.8 548.3 (11)
Interruptible 13.8 43.8 (68) 47.9 121.0 (60)
Transportation Volume 98.2 58.3 68 221.1 122.7 80
-------- -------- -------- --------
Total Throughput 239.4 242.9 (1) 757.8 792.0 (4)
======== ======== ======== ========
Degree Days (Normal:
2nd Qtr. = 950
Six Months = 4,388) 1,215 1,203 1 4,530 4,833 (6)
======== ======== ======== ========
6
The 10% decrease in firm sales volumes for the second quarter of 1997 was
caused principally by lower average use per customer, firm customers
switching to transportation and warmer weather early in the second quarter as
compared to the same period of last year. Transportation volumes increased
mainly because more customers purchased gas from sources other than Wisconsin
Gas and transported the volumes over the Wisconsin Gas distribution system.
The movement to transportation from gas sales had no impact on margin. For
the six-months ended June 30, 1997, the total margin decrease was primarily
due to an 11% decrease in utility firm sales volumes. The weather was 3%
colder than normal during the first six months of 1997 but, 6% warmer than
the same period in 1996.
Operations and maintenance expenses increased slightly during the second
quarter of 1997 compared to the second quarter of 1996 due to the increased
operating activities of FieldTech, Inc. ("FieldTech"). Year to date
operating and maintenance expenses remained relatively flat compared with the
same period of last year.
Depreciation expense for the three and six months ended June 30, 1997,
decreased by $0.5 million and $1.2 million, respectively, as compared with
the comparable periods of 1996. The decrease in both periods in 1997 was due
to the one-time impact of new depreciation rates permitted by the Public
Service Commission of Wisconsin ("PSCW") in 1996.
7
Manufacturing
- -------------
Manufacturing net income for the three and six months ended June 30, 1997,
increased to $6.1 million and $10.1 million, respectively, as compared with
$5.6 million and $9.9 million for the same periods in 1996, respectively.
Three Months Six months
Ended June 30, Ended June 30,
----------------- % ----------------- %
(Millions of Dollars) 1997 1996 Change 1997 1996 Change
- --------------------- -------- -------- ------ -------- -------- ------
Net Sales $ 115.7 $ 115.3 - $ 221.0 $ 221.1 -
Cost of goods sold 83.0 82.8 - 160.1 158.6 1
-------- -------- -------- --------
Gross profit 32.7 32.5 1 60.9 62.5 (3)
Operating expenses 21.3 22.0 (3) 42.1 44.0 (4)
-------- -------- -------- --------
Operating income 11.4 10.5 9 18.8 18.5 2
Interest expense and other 1.5 1.5 - 2.8 2.8 -
-------- -------- -------- --------
Net income before income taxes 9.9 9.0 10 16.0 15.7 2
Income taxes 3.8 3.4 12 5.9 5.8 -
-------- -------- -------- --------
Net income $ 6.1 $ 5.6 9 $ 10.1 $ 9.9 2
======== ======== ======== ========
8
Net sales for the three- and six-month periods ended June 30, 1997, were
relatively flat compared to the same periods in 1996.
Domestic sales in the second quarter increased by 2% to $75.0 million over
the comparable period of 1996. Overall shipments for beverage, agricultural
spraying and irrigation markets in North America were up from last year's
comparable period. The increase was due in part to demand for new products
and favorable growing conditions. Sales of these products for the six months
ended June 30, 1997, increased $1.3 million to $145.6 million.
International sales for the second quarter decreased slightly to $40.7
million compared to $42.0 million for the second quarter of 1996. The
decrease in international sales was due primarily to currency translation
related to the strengthening U.S. dollar. On a year to date basis,
international sales decreased by 2% over the same period in 1996. For the
six-months ended June 30, 1997 and 1996, international sales accounted for
34% and 35%, respectively, of total net sales for the manufacturing group.
Gross profit margins were flat at 28% for the three and six months ended June
30, 1997 as compared to the same periods of 1996. Operating expenses, as a
percentage of sales, for the six months ended June 30, 1997, decreased from
20% to 19% compared to the same period in 1996 due to cost reduction
programs. Furthermore, the Australian operation has significantly improved
as a result of facility consolidation.
Non-Operating Income and Income Taxes
- -------------------------------------
Interest expense decreased by $0.6 million, or 12%, and $0.7 million, or 8%,
for the three and six months ended June 30, 1997, respectively, compared to
the similar periods of 1996, due primarily to lower borrowing levels and
slightly lower interest rates.
Income tax expense was $2.3 million lower for the first six months of 1997,
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, 1997, decreased
by $22.3 million, or 20%, from the comparable period in 1996. Cash flow from
operations in the first six months of 1997 was lower than in 1996, as a
result of higher recovered gas costs in the first half of 1996 due to colder
weather. Due to the seasonal nature of the energy business, accrued
revenues, accounts receivable and accounts payable amounts are higher in the
heating season as compared with the summer months.
Capital expenditures of $20.3 million for the six months ended June 30, 1997,
remained relatively flat compared to the same period in 1996
9
During the third quarter of 1997, the Company plans to refinance the
remaining principal balance (approximately $27 million) of the borrowing
entered into in connection with the July 1995 acquisition of Hypro
Corporation. In addition, the Company has initiated discussions with its
commercial banks to enlarge and extend the term of its existing revolving
credit facilities.
Additional short-term borrowing will be needed during the third and fourth
quarters of 1997 to finance working capital primarily related to gas
purchased for injection into storage and accounts receivable. The Company
has existing lines of credit to satisfy these working capital needs.
On July 22, 1997, the Board of Directors of the Company authorized an
increase in the Company's dividend per share on common stock to $0.43 per
quarter ($1.72 per share on an annualized basis). The first quarterly
payment at the new amount will be made August 29, 1997, to shareholders of
record on August 8, 1997.
Regulatory Matters
- ------------------
Wisconsin Gas voluntarily reduced its base rates by $3.0 million on an
annualized basis effective November 1, 1996. With this reduction, Wisconsin
Gas's rates recover $7.5 million per year less than the maximum margin
allowed by the PSCW's November 1994 rate order. Wisconsin Gas has the
ability to raise or lower margin rates within a specified range on a
quarterly basis.
On June 24, 1997, the PSCW approved, with minor modifications, the second
year of Wisconsin Gas's two year pilot program ("Gas Advantage") which began
on November 1, 1996. For second year of the program, the number of
residential and commercial customers will increase from 1,000 to 2,500 and
1,200 to 1,300, respectively. Customers who have enrolled in the pilot have
the ability to choose a supplier of natural gas from various gas marketers
under an open market concept. Wisconsin Gas continues to deliver the gas to
participating customers at the same margin rate it charges for bundled sales
services and bills the gas marketers for delivering the natural gas to their
customers. Customers receive their monthly bills from the marketers. The
Gas Advantage program is designed to enhance competition by enabling
customers to compare services and prices available from Wisconsin Gas and
third party marketers.
10
WICOR, INC.
Consolidated Statements of Operation (Unaudited)
(Thousands of Dollars, Except Per Share Data)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Operating Revenues:
Energy $ 105,923 $ 112,316 $ 349,654 $ 335,271
Manufacturing 115,682 115,284 221,016 221,076
---------- ---------- ---------- ----------
221,605 227,600 570,670 556,347
---------- ---------- ---------- ----------
Operating Costs and Expenses:
Cost of gas sold 67,993 74,443 232,414 211,768
Manufacturing cost of sales 83,043 82,761 160,087 158,599
Operations and maintenance 45,716 45,960 93,939 95,427
Depreciation and amortization 8,200 8,771 16,139 17,438
Taxes, other than income taxes 2,226 2,365 4,785 4,872
---------- ---------- ---------- ----------
207,178 214,300 507,364 488,104
---------- ---------- ---------- ----------
Operating Income 14,427 13,300 63,306 68,243
---------- ---------- ---------- ----------
Interest Expense (3,937) (4,489) (8,375) (9,072)
Other Income and (Expenses) (160) 397 12 427
---------- ---------- ---------- ----------
Income Before Income Taxes 10,330 9,208 54,943 59,598
Income Tax Provision 4,015 3,556 20,720 22,997
---------- ---------- ---------- ----------
Net Income $ 6,315 $ 5,652 $ 34,223 $ 36,601
========== ========== ========== ==========
Per Share of Common Stock:
Net Income $ 0.34 $ 0.31 $ 1.86 $ 2.00
Cash Dividends $ 0.42 $ 0.41 $ 0.84 $ 0.82
Average Common Shares
Outstanding (Thousands) 18,422 18,365 18,418 18,332
The accompanying notes are an integral part of these statements.
11
WICOR, INC.
Consolidated Balance Sheets
June 30,
1997 December 31,
(Unaudited) 1996
Assets ----------- ------------
- ------ (Thousands of Dollars)
Current Assets:
Cash and cash equivalents $ 10,814 $ 18,784
Accounts receivable, less allowance
for doubtful accounts of $16,851
and $14,429, respectively 161,675 150,076
Accrued utility revenues 7,031 59,794
Manufacturing inventories 71,374 72,316
Gas in storage, at weighted average cost 22,817 33,463
Deferred income taxes 21,705 21,706
Prepayments and other 18,029 16,566
----------- ------------
313,445 372,705
Property, Plant and Equipment (less accum- ----------- ------------
ulated depreciation of $480,134
and $477,577, respectively) 438,374 441,408
----------- ------------
Deferred Charges and Other:
Regulatory assets 99,122 101,808
Goodwill 60,718 61,366
Prepaid pension costs 39,518 36,869
Systems development costs 20,238 23,052
Other 20,784 20,444
----------- ------------
240,380 243,539
----------- ------------
$ 992,199 $ 1,057,652
=========== ============
The accompanying notes are an integral part of these statements.
12
WICOR, INC.
Consolidated Balance Sheets
(continued)
June 30,
1997 December 31,
(Unaudited) 1996
Liabilities and Capitalization ------------ ------------
- ------------------------------ (Thousands of Dollars)
Current Liabilities:
Accounts payable $ 72,787 $ 98,951
Refundable gas costs 37,139 31,545
Short-term borrowings 52,084 114,810
Current portion of long-term debt 3,652 4,061
Accrued taxes 9,188 1,260
Accrued payroll and benefits 18,085 17,246
Other 17,767 21,464
------------ ------------
210,702 289,337
------------ ------------
Deferred Credits and Other:
Postretirement benefit obligation 66,495 66,391
Regulatory liabilities 58,954 61,749
Deferred income taxes 39,836 39,668
Accrued environmental remediation costs 35,822 36,222
Unamortized investment tax credit 6,908 7,265
Other 17,546 19,399
------------ ------------
225,561 230,694
------------ ------------
Capitalization:
Long-term debt 169,056 169,169
Common stock 18,443 18,407
Other paid-in capital 225,970 224,041
Retained earnings 148,533 129,777
Cumulative currency translation adjustment (1,235) 1,349
Unearned compensation - ESOP
and restricted stock (4,831) (5,122)
------------ ------------
555,936 537,621
------------ ------------
$ 992,199 $ 1,057,652
============ ============
The accompanying notes are an integral part of these statements.
13
WICOR, INC.
Consolidated Statement of Cash Flows (Unaudited)
(Thousands of Dollars)
Six Months Ended
June 30,
------------------------
1997 1996
Operations ---------- ----------
Net income $ 34,223 $ 36,601
Adjustments to reconcile net income to net cash flows:
Depreciation and amortization 27,134 27,879
Deferred income taxes 169 216
Change in:
Receivables 41,434 21,242
Manufacturing inventories 2,580 2,280
Gas in storage 10,645 3,490
Other current assets (1,591) (1,175)
Accounts payable (27,636) (3,538)
Refundable gas costs 5,594 23,818
Accrued taxes 8,109 4,116
Accrued payroll and benefits 779 3,067
Other current liabilities (3,697) (1,511)
Other non-current assets and liabilities, net (7,730) (4,142)
---------- ----------
90,013 112,343
---------- ----------
Investment Activities:
Capital expenditures (20,292) (20,439)
Acquisition of business assets (477) -
Other 183 401
---------- ----------
(20,586) (20,038)
---------- ----------
Financing Activities:
Change in short-term borrowings (60,499) (52,091)
Reduction in long-term debt (3,395) (4,182)
Issuance of long-term debt - 7,693
Issuance of common stock 1,965 2,759
Dividends paid on common stock,
less amounts reinvested (15,468) (15,033)
---------- ----------
(77,397) (60,854)
---------- ----------
Change in Cash and Cash Equivalents (7,970) 31,451
Cash and Cash Equivalents at Beginning of Period 18,784 20,380
---------- ----------
Cash and Cash Equivalents at End of Period $ 10,814 $ 51,831
========== ==========
The accompanying notes are an integral part of these statements.
14
Notes to Consolidated Financial Statements (Unaudited):
1) At June 30, 1997 WICOR had borrowings of $19.1 million under total
unsecured lines of credit of $217.1 million with several banks. The Company
has classified $6.0 million of commercial paper as long-term debt as of June
30, 1997.
A total of $5.8 million of commercial paper, classified as short-term debt,
was outstanding as of June 30, 1997 at a weighted average interest rate of
5.7%.
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,
----------------------
1997 1996
---------- ----------
(Thousands of Dollars)
Income taxes paid $ 13,582 $ 20,252
Interest paid $ 8,754 $ 8,487
3) During the second quarter of 1997, WICOR and its subsidiaries
consummated two acquisitions. The aggregate cash purchase price of these
acquisitions totaled less than $10 million. Effective June 5, 1997, FieldTech
purchased, for cash, selected business assets of Can Am Utility Services
Corporation, a privately held provider of contract meter reading, meter
installation and other services for water, gas and electric utilities.
Effective April 24, 1997, Nocchi Pompe s.r.l., an Italian subsidiary of Sta-
Rite Industries, Inc., purchased, for cash and the assumption of certain
liabilities, selected business assets of Majmar Pompe s.r.l. ("Majmar"), a
pump manufacturer located in Milan, Italy. Majmar makes pumps for water
circulation and pressure boosting applications. These pumps are primarily
used in residential and commercial heating systems, fire protection systems,
high rise buildings and municipal water supply systems. Both acquisitions
have been accounted for as purchases with results included in the WICOR, Inc.
financial statements subsequent to the acquisition date.
15
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
At the Company's annual meeting of shareholders held on April 24, 1997, Willie
D. Davis, Guy A. Osborn and William B. Winter were elected as directors of the
Company for terms expiring in 2000. 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
- -------------------- ---------------- ------------------
Willie D. Davis 15,264,206 436,112
Guy A. Osborn 15,280,269 420,049
William B. Winter 15,270,511 429,807
The following table sets forth the other directors of the Company whose terms
of office continued after the 1997 annual meeting:
Year in Which
Name of Director Term Expires
- ------------------------ -------------
Wendell F. Bueche 1998
Daniel F. McKeithan, Jr. 1998
George E. Wardeberg 1998
Essie M. Whitelaw 1998
Jere D. McCaffey 1999
Thomas F. Schrader 1999
Stuart W. Tisdale 1999
Item 5. Other Information
- -------------------------
George E. Wardeberg was named chairman and chief executive officer of WICOR
effective July 22, 1997. The chairman's position had been vacant since Stuart
W. Tisdale retired in 1994.
Thomas F. Schrader was named president and chief operating officer of WICOR
effective July 22, 1997. He succeeds George E. Wardeberg as president of
WICOR.
Joseph P. Wenzler was named senior vice president, treasurer and chief
financial officer of WICOR effective July 22, 1997.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
10.1 Form of Key Executive Employment and Severance Agreement
between the Company and each of George E. Wardeberg, Thomas F. Schrader,
Joseph P. Wenzler and James C. Donnelly.
27 Financial data schedule (EDGAR version only).
(b) Reports on Form 8-K - There were no reports on Form 8-K filed by the
Company during the second quarter of 1997.
16
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, 1997 By: /s/ Joseph P. Wenzler
Joseph P. Wenzler
Senior Vice President, Treasurer
and Chief Financial Office
17
WICOR, Inc.
FORM 10-Q Exhibit
Exhibit No. Description
- ----------- ---------------------------------------------------
10.1 Form of Key Executive Employment and Severance Agreement
between the Company and each of George E. Wardeberg,
Thomas F. Schrader, Joseph P. Wenzler and James C.
Donnelly.
27 Financial data schedule (EDGAR version only)