-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HuDrrhF+NlsB9qy7zBVbFLvwEBPchL5XGw4t12jLyeGfpvRoWIihdGTiQ87l7RjT X9Do16wUcfHWsPEDvE7s7Q== 0000314890-98-000004.txt : 19980505 0000314890-98-000004.hdr.sgml : 19980505 ACCESSION NUMBER: 0000314890-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980504 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WICOR INC CENTRAL INDEX KEY: 0000314890 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 391346701 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07951 FILM NUMBER: 98609203 BUSINESS ADDRESS: STREET 1: 626 E WISCONSIN AVE STREET 2: PO BOX 334 CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142917026 MAIL ADDRESS: STREET 1: 626 E WISCONSIN AVE CITY: MILWAUKEE STATE: WI ZIP: 53202 10-Q 1 WICOR 10-Q FOR THE PERIOD ENDED MARCH 31, 1998 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, 1998 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 53202 --------------------------------------- ---------- (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 April 20, 1998 - -------------------------- ------------------------------- Common Stock, $1 Par Value 18,639,913 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 about 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 Operation for the Three Months Ended March 31, 1998 and 1997 6 Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 7-8 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997 9 Notes to Consolidated Financial Statements 10 Quantitative and Qualitative Disclosures About Market Risk 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, 1997. 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 earnings for the first quarter of 1998 decreased by $2.9 million, or 11%, to $25.0 million compared to the same period of the prior year. The decrease was attributable to a $4.3 million decrease in Energy Group earnings. The decrease was partially offset by a 34% increase in Manufacturing Group earnings to $5.5 million. The following factors had a significant effect on the results of operations during the three-month period ended March 31, 1998. Energy Group - ------------ Net earnings decreased 18% to $19.5 million from $23.8 million for the first quarter of 1998 compared with the first quarter of 1997. Lower gas margins contributed to the decline, which was partially offset by a gain related to a weather insurance agreement. The lower gas margins resulted primarily from decreased firm sales volumes and a $1.5 million voluntary annual rate reduction effective November 1, 1997. 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 changes in the cost of gas sold are flowed through to revenue under a gas adjustment clause with an insignificant effect on margin. The following tables set forth margin and volume data for the Energy Group and utility, respectively, for each of the quarters ended March 31. 5 Three Months Ended March 31, ---------------- % (Millions of Dollars) 1998 1997 Change - --------------------- -------- -------- ------ Energy Revenues $ 179.8 $ 237.0 (24) Cost of Gas Sold 115.3 164.4 (30) -------- -------- Sales Margin 64.5 72.6 (11) Gas Transportation Margin 7.2 6.7 7 -------- -------- Gross Margin 71.7 79.3 (10) -------- -------- Operation and Maintenance 27.8 27.7 - Depreciation and Amortization 8.4 7.6 11 Interest and Other 1.9 3.1 (39) Taxes, Other Than Income Taxes 2.6 2.6 - -------- -------- Income Before Income Taxes 31.0 38.3 (19) Income Tax Expense 11.5 14.5 (21) -------- -------- Net Earnings $ 19.5 $ 23.8 (18) ======== ======== (Millions of Therms) - Utility - ------------------------------ Sales Volumes Firm 301.7 361.5 (17) Interruptible 14.0 34.1 (59) Transportation Volumes 138.0 122.8 12 -------- -------- Total Throughput 453.7 518.4 (12) ======== ======== Degree Days (20-year average: 1st Qtr. = 3,434) 2,915 3,315 (12) ======== ======== The decrease in firm sales volumes for the first quarter of 1998 as compared with the 1997 first quarter was caused principally by warmer weather. The weather was 12% warmer in the first quarter of 1998 than during the same period in 1997 and 15% warmer than the 20-year average. The increase in transportation volumes was due to more customers purchasing gas from sources other than Wisconsin Gas and transporting the volumes over the Wisconsin Gas distribution system. 6 Historically, the movement to transportation from gas sales had no impact on margin. However, effective November 1, 1997, a slightly lower margin rate was put into effect for transportation-only customers. The future impact of this margin adjustment on total Company earnings is expected to be immaterial. The gas cost incentive mechanism (GCIM) approved by the Public Service Commission of Wisconsin in October 1997, became effective on November 1, 1997. Under the GCIM, Wisconsin Gas's gas commodity and capacity costs are compared to monthly benchmarks. If, at the end of each year, such costs deviate by more than 1-1/2% from the benchmark cost of gas, the utility shares such excess or reduced costs on a 50-50 basis with customers. The sharing mechanism applies only to costs between 1-1/2% to 4% above or below the benchmark. The GCIM provides an opportunity for Wisconsin Gas's earnings to increase or decrease as a result of gas and capacity acquisition activities. During the first five months under the GCIM, actual costs have been slightly below the benchmark. The GCIM did not impact reported margin in the first quarter of 1998. Non-regulated energy operating revenues for the first three months of 1998 remained relatively level at $17.8 million compared to the same period of 1997. The Company's strategy in the gas marketing area has been to have gas supply arrangements closely tied to customer requirements so that the Company is not exposed to significant commodity price risk. Operating and maintenance expenses were stable during the three-month period ended March 31, 1998, compared with the same period of 1997. Depreciation expense for the three months ended March 31, 1998, increased by $0.8 million, or 11%, compared with the same period of last year. The 1998 increase was due to additions to depreciable plant balances. Interest and other decreased by $1.2 million, or 39%, for the three months ended March 31, 1998, compared with the same period of 1997. The decrease reflects a gain of $1.3 million in connection with a weather insurance agreement which the Company entered into to hedge a portion of the impact weather has on Energy Group earnings. Manufacturing Group - ------------------- The Manufacturing Group posted earnings of $5.5 million for the first quarter of 1998 compared to earnings of $4.1 million in the first quarter of 1997. 7 Financial data regarding the Manufacturing Group are set forth in the table below. Three Months Ended March 31, ----------------- % 1998 1997 Change -------- -------- ------ (Millions of Dollars) Net Sales $ 116.3 $ 105.3 10 Cost of Goods Sold 82.9 77.0 8 -------- -------- Gross Profit 33.4 28.3 18 Operating Expenses 23.3 20.9 11 -------- -------- Operating Income 10.1 7.4 36 Interest and Other 1.1 1.1 - -------- -------- Income Before Income Taxes 9.0 6.3 43 Income Tax Expense 3.5 2.2 59 -------- -------- Net Income $ 5.5 $ 4.1 34 ======== ======== Net sales for the first quarter of 1998 increased by 10% to $116.3 million compared to the same period in 1997, reflecting increased market share and higher demand for residential sump and utility pumps caused by the wet weather in the U.S. market. Domestic and international sales increased by 13% and 5%, respectively. Increased domestic sales were driven by higher demand within the water systems, food and beverage and pool/spa markets. New products and acquisitions serving the filtration market also contributed to the increase. The increase in international sales was driven by new products and higher demand for water systems and food/beverage products in the European market. The Korean economy and intense price competition had a negative impact on international water market sales. The improvement in international sales was partially offset by currency translation related to the strengthening U.S. dollar. For the three months ended March 31, 1998 and 1997, international sales accounted for 31% and 33%, respectively, of total net sales for the Manufacturing Group. Gross profit margins were 28.7% for the 1998 first quarter as compared to 26.9% for the first quarter of 1997. Quarterly operating margins grew due to ongoing cost improvement programs, plant consolidations and productivity improvements in manufacturing processes. Manufacturing operating expenses for the quarter increased by 11% compared to the same period in 1997. The increase was due to higher sales levels. 8 Consolidated Income Taxes - ------------------------- Income tax expense was $1.7 million lower for the first three months of 1998, compared to the same period last year, reflecting decreased pre-tax income. Liquidity and Capital Resources - ------------------------------- Cash flow from operations for the three months ended March 31, 1998 increased by $23.7 million, or 66%, from the comparable period in 1997. Due to the seasonal nature of the energy business, accrued revenues, accounts receivable and accounts payable levels are higher in the heating season as compared with the summer months. The cash flow improvement is due primarily to lower gas prices. Capital expenditures decreased by 9% to $8.2 million for the three months ended March 31, 1998, compared to the same period in 1997. The Company anticipates additional short-term borrowing during the third and fourth quarters of 1998 to finance working capital, primarily gas in storage and the financing of accounts receivable during the heating season. The Company believes it has sufficient capacity under existing lines of credit to satisfy its future working capital needs. New Accounting Standard - ----------------------- The American Institute of Certified Public Accountants Statement of Position No. 98-1 , "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," provides guidance on accounting for the costs of computer software developed or obtained for internal use. The Company is currently evaluating the impact the statement will have on its financial statements, if any. 9 Forward-Looking Statements - -------------------------- Certain matters discussed in this quarterly report are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statements will include such words as the Company "believes," "anticipates" or "expects," or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated. Such risks and uncertainties include general economic conditions; weather conditions; business conditions in the energy industry; the impact of and changes in government regulations; changes in environmental remediation costs; unanticipated increases in manufacturing costs; market acceptance of or preference for the Company's products; technological factors; and other risk factors identified from time to time by the Company in reports filed with the Securities and Exchange Commission. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. 10 WICOR, INC. Consolidated Statements of Operation (Unaudited) (Amounts in Thousands, Except Per Share Data) [CAPTION] Three Months Ended March 31, ----------------------- 1998 1997 ---------- ---------- Operating Revenues: Energy $ 187,003 $ 243,731 Manufacturing 116,324 105,334 ---------- ---------- 303,327 349,065 ---------- ---------- Operating Costs and Expenses: Cost of gas sold 115,349 164,421 Manufacturing cost of sales 82,905 77,044 Operations and maintenance 50,737 48,223 Depreciation and amortization 8,737 7,939 Taxes, other than income taxes 2,614 2,559 ---------- ---------- 260,342 300,186 ---------- ---------- Operating Income 42,985 48,879 ---------- ---------- Interest Expense (4,654) (4,438) Other Income and (Expenses) 1,683 172 ---------- ---------- Income Before Income Taxes 40,014 44,613 Income Tax Provision 15,051 16,705 ---------- ---------- Net Earnings $ 24,963 $ 27,908 ========== ========== Per Share of Common Stock: Basic earnings $ 1.34 $ 1.52 Diluted earnings $ 1.33 $ 1.51 Cash Dividends paid $ 0.43 $ 0.42 Average shares outstanding 18,621 18,413 Average diluted shares outstanding 18,811 18,530
The accompanying notes are an integral part of these statements. 11 WICOR, INC. Consolidated Balance Sheets
March 31, 1998 December 31, (Unaudited) 1997 Assets ----------- ------------ - ------ (Thousands of Dollars) Current Assets: Cash and cash equivalents $ 4,494 $ 11,810 Accounts receivable, less allowance for doubtful accounts of $20,265 and $15,364, respectively 211,863 164,243 Accrued utility revenues 34,433 44,842 Manufacturing inventories 88,197 83,431 Gas in storage, at weighted average cost 8,511 41,887 Deferred income taxes 21,529 21,531 Prepayments and other 16,100 16,924 ----------- ------------ 385,127 384,668 Property, Plant and Equipment (less accum- ----------- ------------ ulated depreciation of $506,058 and $497,239, respectively) 441,348 445,894 ----------- ------------ Deferred Charges and Other: Regulatory assets 52,539 53,910 Goodwill 65,462 65,953 Prepaid pension costs 44,637 42,753 Systems development costs 16,127 17,424 Other 20,595 20,730 ----------- ------------ 199,360 200,770 ----------- ------------ $1,025,835 $1,031,332 =========== ============
The accompanying notes are an integral part of these statements. 12 WICOR, INC. Consolidated Balance Sheets (continued)
March 31, 1998 December 31, (Unaudited) 1997 Liabilities and Capitalization ------------ ------------ - ------------------------------ (Thousands of Dollars) Current Liabilities: Short-term borrowings $ 66,425 $ 118,900 Accounts payable 74,335 75,034 Current portion of long-term debt 43,873 43,926 Refundable gas costs 48,719 24,776 Accrued payroll and benefits 16,574 17,573 Accrued taxes 19,355 9,684 Other 20,454 19,999 ------------ ------------ 289,735 309,892 ------------ ------------ Deferred Credits and Other: Postretirement benefit obligation 63,626 64,323 Regulatory liabilities 34,559 36,533 Deferred income taxes 44,126 43,975 Accrued environmental remediation costs 11,320 12,084 Unamortized investment tax credit 6,463 6,808 Other 19,004 18,987 ------------ ------------ 179,098 182,710 ------------ ------------ Capitalization: Long-term debt 149,553 149,110 Common stock 18,636 18,601 Other paid-in capital 233,529 232,702 Retained earnings 164,856 147,903 Accumulated other comprehensive income (5,920) (5,377) Unearned compensation - ESOP and restricted stock (3,652) (4,209) ------------ ------------ 557,002 538,730 ------------ ------------ $ 1,025,835 $ 1,031,332 ============ ============
The accompanying notes are an integral part of these statements. 13 WICOR, INC. Consolidated Statement of Cash Flows (Unaudited)
Three Months Ended March 31, -------------------------- 1998 1997 (Thousands of Dollars) ---------- ---------- Operations: Net earnings $ 24,963 $ 27,908 Adj.to reconcile net earnings to net cash flows: Depreciation and amortization 13,926 13,324 Deferred income taxes 153 (44) Change in: Receivables (37,211) (30,568) Manufacturing inventories (4,765) (1,367) Gas in storage 33,375 25,504 Other current assets (700) (315) Accounts payable (699) (24,623) Refundable gas costs 23,943 20,501 Accrued taxes 11,195 18,638 Accrued payroll and benefits (1,000) (2,528) Other current liabilities 458 (3,854) Other non-current assets and liabilities-net (3,917) (6,514) ---------- ---------- 59,721 36,062 ---------- ---------- Investment Activities: Capital expenditures (8,191) (8,976) Other 110 68 ---------- ---------- (8,081) (8,908) ---------- ---------- Financing Activities: Change in short-term borrowings (52,474) (25,627) Reduction in long-term debt (2,168) (2,700) Issuance of long-term debt 2,828 - Issuance of common stock 863 1,270 Dividends paid on common stock (8,005) (7,733) ---------- ---------- (58,956) (34,790) ---------- ---------- Change in Cash and Cash Equivalents (7,316) (7,636) Cash and Cash Equivalents at Beginning of Period 11,810 18,784 ---------- ---------- Cash and Cash Equivalents at End of Period $ 4,494 $ 11,148 ========== ==========
The accompanying notes are an integral part of these statements. 14 Notes to Consolidated Financial Statements (Unaudited): 1) The Company and its subsidiaries maintain lines of credit worldwide. At March 31, 1998 the Company had borrowings of $18.4 million and availability of $239.2 million under unsecured lines of credit with several banks. A total of $47.8 million of commercial paper, classified as short- term debt, was outstanding as of March 31, 1998 at a weighted average interest rate of 5.9%. 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 Three Months Ended March 31, ---------------------- 1998 1997 ---------- ---------- (Thousands of Dollars) Income taxes paid $ 6,947 $ 1,062 Interest paid $ 3,691 $ 3,920 3) Total comprehensive income for the three months ended March 31, 1998 and 1997 is as follows: 1998 1997 ---------- ---------- Net earnings $ 24,963 $ 27,908 Other comprehensive income Currency translation adjustments (543) (2,142) ---------- ---------- Total comprehensive income $ 24,420 $ 25,766 ========== ========== 4) The American Institute of Certified Public Accountants Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," provides guidance on accounting for the costs of computer software developed or obtained for internal use. The Company is currently evaluating the impact the statement will have on its financial statements, if any. 15 5) Subsequent Event On April 23, 1998, the Board of Directors approved a two-for-one stock split of the Company's common stock. One additional share will be issued for each share of common stock held by shareholders of record as of the close of business on May 14, 1998. New shares will be distributed on May 29, 1998. The par value of the Common stock will remain unchanged at $1.00. At the time of issuance, an amount equal to the par value of the common shares issued will be transferred from other-paid-in capital. In connection with the stock split, WICOR will increase its authorized shares of common stock from 60 million to 120 million. The financial statements do not reflect the stock split. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- Not Applicable 16 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 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 first quarter of 1998. 17 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 30, 1998 By: /s/ Joseph P. Wenzler ---------------------------------- Joseph P. Wenzler Senior Vice President, Treasurer and Chief Financial Officer 18 WICOR, Inc. FORM 10-Q Exhibit Exhibit No. Description - ----------- ---------------------------------------------- 27 Financial data schedule (EDGAR version only EX-27 2 EXHIBIT 27 - FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the WICOR, Inc. FORM 10-Q for the three months ended March 31, 1998 and is qualified in its entirety by reference to such financial statements and the related footnotes. 1,000 3-MOS DEC-31-1998 MAR-31-1998 PER-BOOK 375,337 66,011 385,127 199,360 0 1,025,835 18,636 233,529 164,856 407,449 0 0 149,553 0 110,000 47,773 43,873 0 0 0 377,187 1,025,835 303,327 15,051 260,342 275,393 27,934 1,683 29,617 4,654 24,963 0 24,963 8,005 311 59,721 1.34 1.33 During 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," which establishes standards for computing and presenting earnings per share. The Company has adopted the requirements of SFAS No. 128 for the current year and all prior periods in the Consolidated Statements of Income. In addition, basic and diluted EPS have been entered in place of primary and fully diluted on the financial data schedule.
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