-----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, KiOQq8r9fXuAc84psK2ylJ6yyf3HiV91CncUQlyJm0gaWDkOnSbJ4ItCv3O/NuY3 tqofxbrGCeMhIqkoXTMmmA== 0000314890-99-000006.txt : 19990817 0000314890-99-000006.hdr.sgml : 19990817 ACCESSION NUMBER: 0000314890-99-000006 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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/A SEC ACT: SEC FILE NUMBER: 001-07951 FILM NUMBER: 99691310 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/A 1 WICOR 10-Q/A FOR THE PERIOD ENDING JUNE 30, 1999 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10 - Q/A /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1999 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 July 23, 1999 - -------------------------- ------------------------------- Common Stock, $1 Par Value 37,503,735 2 CONTENTS PAGE PART I - Financial Information 1 Consolidated Financial Statements of WICOR, Inc. (Unaudited): Consolidated Statements of Operation for the Three and Six Months Ended June 30, 1999 and 1998 2 Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 3-4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 6-8 Management's Discussion and Analysis of Interim Financial Statements 9-13 Quantitative and Qualitative Disclosures About Market Risk 13-14 PART II - Other Information and Exhibits Legal Proceedings 15 Submission of Matters to a Vote of Security Holders 15 Exhibits and Reports on Form 8-K 16 Signatures 17 3 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. The Company engages in the manufacture and sale of pumps and processing equipment through several nonutility subsidiaries. The Company's manufactured products primarily have water system, pool and spa, agricultural, RV/marine and beverage/food service applications. The Company markets its pump and processing 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. On June 27, 1999, WICOR entered into an agreement and plan of merger with Wisconsin Energy Corporation ("Wisconsin Energy") providing for a strategic business combination of Wisconsin Energy and WICOR through the merger of WICOR and a wholly-owned subsidiary of Wisconsin Energy. Consummation of the merger is subject to certain closing conditions, including the approval of the shareholders of both WICOR and Wisconsin Energy and the approval of the Public Service Commission of Wisconsin and the Securities and Exchange Commission. Additional information with respect to the pending merger with Wisconsin Energy is included in Note 1 to the financial statements included herein. 4 Forward-Looking Statements -------------------------- Certain matters discussed in this 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 generally can be identified as such because they include words such as the Company "believes," "anticipates," "expects," or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals also are considered forward-looking. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from current expectations. These factors include but are not limited to the risks and uncertainties listed below. All of these factors are difficult to predict and are generally beyond management's control. Such factors include, but are not limited to, the following: >> the impact of warmer- or colder-than-normal weather on the energy business >> the impact of cool or wet weather on pump manufacturing markets >> economic conditions, including the availability of individual discretionary income and changes in interest rates and foreign currency valuations >> changes in natural gas prices and supply availability >> increased competition in deregulated energy markets >> the pace and extent of energy industry deregulation >> regulatory, governmental and judiciary decisions >> increases in costs to clean up environmental contamination >> the Company's ability to increase prices >> market demand for the Company's products and services >> unanticipated expenses or outcomes associated with year 2000 date conversion >> unforeseen events delaying or preventing the consummation of the strategic business combination with Wisconsin Energy 5 Part 1 - Financial Information - ------------------------------ Item 1. 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, 1998. 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. 6 WICOR, INC. Consolidated Statements of Operation (Unaudited) (Amounts in Thousands, Except Per Share Data) [CAPTION] Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Operating Revenues: Energy $ 87,374 $ 90,261 $ 274,556 $ 277,264 Manufacturing 137,958 129,618 255,017 245,942 ---------- ---------- ---------- ---------- 225,332 219,879 529,573 523,206 ---------- ---------- ---------- ---------- Operating Costs and Expenses: Cost of gas sold 51,801 56,149 159,380 171,498 Manufacturing cost of sales 95,789 91,913 178,788 174,818 Operations and maintenance 51,624 47,033 103,599 97,770 Depreciation and amortization 9,221 8,667 18,313 17,404 Taxes, other than income taxes 1,719 2,213 4,223 4,827 ---------- ---------- ---------- ---------- 210,154 205,975 464,303 466,317 ---------- ---------- ---------- ---------- Operating Income 15,178 13,904 65,270 56,889 ---------- ---------- ---------- ---------- Interest Expense (3,716) (3,931) (8,173) (8,585) Other Income and (Expenses) (889) (17) (119) 1,666 ---------- ---------- ---------- ---------- Income Before Income Taxes 10,573 9,956 56,978 49,970 Income Tax Provision 4,581 3,932 22,120 18,983 ---------- ---------- ---------- ---------- Net Earnings $ 5,992 $ 6,024 $ 34,858 $ 30,987 ========== ========== ========== ========== Per Share of Common Stock: Basic earnings $ 0.16 $ 0.16 $ 0.93 $ 0.83 Diluted earnings $ 0.16 $ 0.16 $ 0.92 $ 0.82 Cash Dividends paid $ 0.220 $ 0.215 $ 0.440 $ 0.430 Average shares outstanding 37,469 37,312 37,441 37,277 Average diluted shares outstanding 37,885 37,612 37,752 37,618
The accompanying notes are an integral part of these statements. 7 WICOR, INC. Consolidated Balance Sheets [CAPTION] June 30, 1999 December 31, (Unaudited) 1998 ------------ ------------ (Thousands of Dollars) Assets - ------ Current Assets: Cash and cash equivalents $ 8,752 $ 13,383 Accounts receivable, less allowance for doubtful accounts of $18,405 and $12,511, respectively 154,121 137,321 Accrued utility revenues 8,359 47,483 Manufacturing inventories 77,388 86,312 Gas in storage, at weighted average cost 25,527 36,919 Deferred income taxes 17,256 17,195 Prepayments and other 15,683 15,542 ------------ ------------ 307,086 354,155 Property, Plant and Equipment (less ------------ ------------ accumulated depreciation of $556,210 and $535,002, respectively) 445,976 447,665 ------------ ------------ Deferred Charges and Other: Goodwill 83,024 67,552 Regulatory assets 56,082 59,319 Prepaid pension costs 53,740 50,011 Other 36,947 36,494 ------------ ------------ 229,793 213,376 ------------ ------------ $ 982,855 $ 1,015,196 ============ ============ The accompanying notes are an integral part of these statements.
8 WICOR, INC. Consolidated Balance Sheets (continued) [CAPTION] June 30, 1999 December 31, (Unaudited) 1998 ------------ ------------ (Thousands of Dollars) Liabilities and Capitalization - ------------------------------ Current Liabilities: Short-term borrowings $ 17,799 $ 107,653 Accounts payable 73,999 70,000 Current portion of long-term debt 1,410 3,528 Refundable gas costs 40,478 18,570 Accrued payroll and benefits 20,581 20,490 Accrued taxes 9,105 7,885 Other 22,287 16,526 ------------ ------------ 185,659 244,652 ------------ ------------ Deferred Credits and Other: Postretirement benefit obligation 57,230 60,627 Regulatory liabilities 29,553 32,153 Deferred income taxes 49,347 49,065 Accrued environmental remediation costs 7,441 11,215 Unamortized investment tax credit 6,019 6,357 Other 19,256 19,217 ------------ ------------ 168,846 178,634 ------------ ------------ Capitalization: Long-term debt 204,524 188,470 Common stock 37,504 37,359 Other paid-in capital 218,291 216,821 Retained earnings 179,318 160,937 Accumulated other comprehensive income (8,289) (7,905) Unearned compensation - ESOP and restricted stock (2,998) (3,772) ------------ ------------ 628,350 591,910 ------------ ------------ $ 982,855 $ 1,015,196 ============ ============ The accompanying notes are an integral part of these statements.
9 WICOR, INC. Consolidated Statement of Cash Flows (Unaudited) [CAPTION] Six Months Ended June 30, ---------------------- 1999 1998 ---------- ---------- Operations: (Thousands of Dollars) Net earnings $ 34,858 $ 30,987 Adjustments to reconcile net earnings to net cash flows: Depreciation and amortization 28,533 27,813 Deferred income taxes 221 403 Net pension and other postretirement benefit (income) (4,311) (2,754) Change in: Receivables 25,375 41,657 Manufacturing inventories 11,972 3,474 Gas in storage 11,392 18,074 Other current assets 16 (656) Accounts payable 1,480 (2,310) Refundable gas costs 21,908 13,131 Accrued taxes 1,220 2,502 Other current liabilities 3,120 (25) Other non-current assets and liabilities, net (11,797) (6,314) ---------- ---------- 123,987 125,982 Investment Activities: ---------- ---------- Capital expenditures (20,506) (20,466) Acquisition of business assets (20,919) - Other 62 163 ---------- ---------- (41,363) (20,303) Financing Activities: ---------- ---------- Change in short-term borrowings (69,811) (92,963) Reduction in long-term debt (2,587) (2,782) Issuance of long-term debt - 2,828 Issuance of common stock 1,615 2,022 Dividends paid on common stock (16,472) (16,029) ---------- ---------- (87,255) (106,924) ---------- ---------- Change in Cash and Cash Equivalents (4,631) (1,245) Cash and Cash Equivalents at Beginning of Period 13,383 11,810 ---------- ---------- Cash and Cash Equivalents at End of Period $ 8,752 $ 10,565 ========== ========== The accompanying notes are an integral part of these statements.
10 Notes to Consolidated Financial Statements (Unaudited): 1) On June 27, 1999, WICOR and Wisconsin Energy entered into an Agreement and Plan of Merger (the "Merger Agreement") providing for a strategic business combination of WICOR and Wisconsin Energy through a merger of WICOR and a wholly-owned subsidiary of Wisconsin Energy ( the "Merger"). The Merger Agreement has been approved by the boards of directors of WICOR and Wisconsin Energy. Subject to the terms of the Merger Agreement, at the time of the Merger, each outstanding share of WICOR common stock, par value $1.00 per share ("WICOR Common Stock") (together with the associated common stock purchase right issued pursuant to WICOR's Rights Agreement) will be converted into the right to receive cash, common stock, par value $.01 per share of Wisconsin Energy("Wisconsin Energy Common Stock"), or a combination of cash and shares of Wisconsin Energy Common Stock (the "Merger Consideration") having a value of $31.50 per share of WICOR Common Stock. In the event the closing of the merger occurs after July 1, 2000, the $31.50 value per share will be increased by an amount equivalent to six per cent per annum daily simple interest for each day after July 1, 2000 through the closing date. Prior to the closing date, Wisconsin Energy will select the percentage of the Merger Consideration to be paid in Wisconsin Energy Common Stock, which may be not less than 40% or more than 60%. The balance of the merger consideration will be paid in cash. The exchange ratio for each share of WICOR Common Stock converted into Wisconsin Energy Common Stock will be determined by dividing $31.50 (as adjusted if the closing occurs after July 1, 2000) by the average of the closing prices of the Wisconsin Energy Common Stock on the New York Stock Exchange for the 10 trading days ending with the fifth trading day prior to the closing date (the "Average Wisconsin Energy Price"). Each WICOR shareholder will be entitled to elect to receive cash, Wisconsin Energy Common Stock or a combination thereof, subject to proration if the cash or stock elections exceed the maximum amounts permitted. Cash will be paid in lieu of any fractional shares of Wisconsin Energy Common Stock which holders of WICOR Common Stock would otherwise receive. If the Average Wisconsin Energy Price is less than $22.00 per share, Wisconsin Energy may elect to pay the entire Merger Consideration in cash. Consummation of the Merger is subject to satisfaction of certain closing conditions set forth in the Merger Agreement, including approval by the shareholders of WICOR and Wisconsin Energy, approval by the Public Service Commission of Wisconsin, approval by the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935, as amended, and expiration or termination of the waiting period applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The regulatory approval process is expected to take approximately 9 to 12 months. 11 The Merger is intended to qualify as a tax-free reorganization under the Internal Revenue Code of 1986, as amended, to the extent that shares of WICOR Common Stock are exchanged for shares of Wisconsin Energy Common Stock, and will be accounted for as a purchase transaction. The Merger Agreement provides that if the Merger Agreement is terminated under certain circumstances and WICOR enters into a competing transaction with another party within 21 months after the termination, WICOR will pay a termination fee of $30 million to Wisconsin Energy. 2) The Company and its subsidiaries maintain lines of credit worldwide. At June 30, 1999 the Company had borrowings of $17.8 million and availability of $210.3 million under unsecured lines of credit with several banks. A total of $41.6 million of commercial paper was outstanding as of June 30, 1999 at a weighted average interest rate of 5.2%. Commercial paper borrowings of $35.0 million were classified as long-term debt as of June 30, 1999. 3) 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, ---------------------- 1999 1998 ---------- ---------- (Thousands of Dollars) Income taxes paid $ 22,343 $ 18,345 Interest paid $ 6,667 $ 8,552 4) Total comprehensive income for the six months ended June 30, 1999 and 1998 is as follows: 1999 1998 ---------- ---------- (Thousands of Dollars) Net earnings $ 34,858 $ 30,987 Other comprehensive income Currency translation adjustments (384) (1,609) ---------- ---------- Total comprehensive income $ 34,474 $ 29,378 ========== ========== 12 5) The Company is a diversified holding company with two principal business segments: 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's reportable segments are managed separately because each business requires different technology and marketing strategies. Most of the businesses were acquired as a unit, and the management at the time of the acquisition was retained. The accounting policies of the reportable segments are the same as those described in Note 1 of Notes to the Consolidated Financial Statements contained in the Company's annual report on Form 10-K for the fiscal year ended December 31, 1998. The Company evaluates the performance of its operating segments based on income from continuing operations. Intersegment sales and transfers are not significant. Information regarding products and services and geographic areas are not presented as they are not included in measures that are reviewed by the Company. The other energy category includes the results of the parent company only and non-regulated energy operations involved in energy and risk management services, automated meter reading and other related services. Summarized financial information concerning the Company's reportable segments for the three months ending June 30, 1999 and 1998 is shown in the following table. [CAPTION] Energy ------------------------------ REGULATED OTHER TOTAL MANUFACTURING CONSOLIDATED --------- --------- ---------- ------------- ------------ (Thousands of Dollars) 1999 - ---- Revenues $ 75,322 $ 12,052 $ 87,374 $ 137,958 $ 225,332 Depreciation and amortization $ 10,510 $ 29 $ 10,539 $ 3,876 $ 14,415 Net (loss) earnings $ (2,440) $ (1,078) $ (3,518) $ 9,510 $ 5,992 Total assets $ 604,247 $ 13,520 $ 617,767 $ 365,088 $ 982,855 Capital expenditures $ 9,046 $ 13 $ 9,059 $ 3,285 $ 12,344
13 [CAPTION] Energy ------------------------------ REGULATED OTHER TOTAL MANUFACTURING CONSOLIDATED --------- --------- ---------- ------------- ------------ (Thousands of Dollars) 1998 - ---- Revenues $ 78,190 $ 12,071 $ 90,261 $ 129,618 $ 219,879 Depreciation and amortization $ 9,924 $ 26 $ 9,950 $ 3,937 $ 13,887 Net (loss) earnings $ (1,716) $ (70) $ (1,786) $ 7,810 $ 6,024 Total assets $ 606,807 $ 11,338 $ 618,145 $ 341,212 $ 959,357 Capital expenditures $ 8,589 $ 26 $ 8,615 $ 3,670 $ 12,285
Summarized financial information concerning the Company's reportable segments for the six months ending June 30, 1999 and 1998 is shown in the following table. [CAPTION] Energy ------------------------------ REGULATED OTHER TOTAL MANUFACTURING CONSOLIDATED --------- --------- ---------- ------------- ------------ (Thousands of Dollars) 1999 - ---- Revenues $ 245,719 $ 28,837 $ 274,556 $ 255,017 $ 529,573 Depreciation and amortization $ 20,843 $ 55 $ 20,898 $ 7,635 $ 28,533 Net earnings (loss) $ 20,530 $ (823) $ 19,707 $ 15,151 $ 34,858 Total assets $ 604,247 $ 13,520 $ 617,767 $ 365,088 $ 982,855 Capital expenditures $ 14,592 $ 79 $ 14,671 $ 5,835 $ 20,506 1998 - ---- Revenues $ 247,637 $ 29,627 $ 277,264 $ 245,942 $ 523,206 Depreciation and amortization $ 20,134 $ 55 $ 20,189 $ 7,624 $ 27,813 Net earnings $ 16,786 $ 900 $ 17,686 $ 13,301 $ 30,987 Total assets $ 606,807 $ 11,338 $ 618,145 $ 341,212 $ 959,357 Capital expenditures $ 13,031 $ 61 $ 13,092 $ 7,384 $ 20,476
14 Item 2. Management's Discussion and Analysis of Interim Financial Statements of WICOR, Inc. On June 27, 1999, WICOR and Wisconsin Energy entered into an agreement and plan of merger (the "Merger Agreement") providing for a strategic business combination of WICOR and Wisconsin Energy. The Merger Agreement has been approved by the boards of directors of WICOR and Wisconsin Energy. Further information concerning the Merger Agreement and proposed transaction is included in Note 1 to the financial statements included herein. Results of Operations - --------------------- Consolidated net earnings for the three months ended June 30, 1999, were level with the period a year ago. Consolidated net earnings for the six months ended June 30, 1999, increased by $3.9 million, or 12%, to $34.9 million. Record Manufacturing Group results for the second consecutive quarter more than offset the impact of warmer-than-normal weather and expenses related to the proposed merger with Wisconsin Energy that were reflected within the Energy Group. The following factors had a significant effect on the results of operations during the three- and six-month periods ended June 30, 1999. Energy Group - ------------ The Energy Group incurred a net loss of $3.5 million in the second quarter of 1999 compared to a loss of $1.8 million for the second quarter of 1998. Improved margins during the period were more than offset by increased operating costs and merger related costs. Net earnings for the six months ended June 30, 1999, increased by $2.0 million, or 11%, to $19.7 million compared to $17.7 million for the same period of last year. The improvement in year to date earnings was driven by increased sales caused by favorable weather and a $7.5 million rate increase effective August 1, 1998, offset in part by higher operating expenses. 15 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 that does not impact margin. The Company operates under a gas cost incentive mechanism ("GCIM") which allows it to share in the risk and rewards of purchasing gas. The GCIM favorably impacted margins by $1.2 million for the six months ended June 30, 1999 and 1998. The following tables set forth margin and volume data for the Energy Group and utility, respectively, for each of the three- and six-month periods ended June 30 set forth below. [CAPTION] Three Months Six Months Ended June 30, Ended June 30, ----------------- % ----------------- % 1999 1998 Change 1999 1998 Change -------- -------- ------ -------- -------- ------ (Millions of Dollars) Energy revenues $ 82.8 $ 85.5 (3) $ 262.0 $ 265.4 (1) Cost of gas sold 51.8 56.1 (8) 159.4 171.5 (7) -------- -------- -------- -------- Sales margin 31.0 29.4 5 102.6 93.9 9 Gas transportation margin 4.6 4.7 (2) 12.6 11.9 6 -------- -------- -------- -------- Gross margin 35.6 34.1 4 115.2 105.8 9 -------- -------- -------- -------- Operation and maintenance 26.4 24.0 10 54.9 51.8 6 Depreciation and amortization 8.9 8.3 7 17.6 16.7 5 Taxes, other than income tax 1.7 2.2 (23) 4.2 4.8 (12) -------- -------- -------- -------- 37.0 34.5 7 76.7 73.3 5 -------- -------- -------- -------- Operating (loss) income (1.4) (0.4) (250) 38.5 32.5 18 -------- -------- -------- -------- Interest expense (2.7) (2.7) - (6.1) (6.2) 2 Other income (expenses), net (0.9) 0.2 (550) (0.2) 1.8 (111) -------- -------- -------- -------- (Loss) income before income taxes (5.0) (2.9) (72) 32.2 28.1 15 Income tax (benefit) expense (1.5) (1.1) (36) 12.5 10.4 20 -------- -------- -------- -------- Net (loss) earnings $ (3.5) $ (1.8) (94) $ 19.7 $ 17.7 11 ======== ======== ======== ========
16 [CAPTION] Three Months Six Months Ended June 30, Ended June 30, ----------------- % ----------------- % 1999 1998 Change 1999 1998 Change -------- -------- ------ -------- -------- ------ (Millions of Therms) Utility Sales Volumes Firm 96.9 95.4 2 423.8 397.1 7 Interruptible 5.6 8.0 (30) 15.6 22.0 (29) Transportation Volume 106.4 99.0 7 266.7 237.0 13 -------- -------- -------- -------- Total throughput 208.9 202.4 3 706.1 656.1 8 ======== ======== ======== ======== Degree Days Actual 875 895 (2) 4,110 3,810 8 ======== ======== ======== ======== 20 year average 971 4,392 ======== ========
The increase in firm sales volumes for the three and six months ended June 30, 1999 was caused principally by colder weather during the heating season in 1999 compared to 1998. The weather in 1999 was, however, warmer than normal. For both the three and six month periods ended June 30, 1999, transportation volumes increased, compared to the same periods in 1998, mainly because more customers purchased gas from sources other than Wisconsin Gas and transported the volumes over the Wisconsin Gas distribution system. Non-regulated Energy Group revenues for the first six months of 1999 decreased slightly compared to the same period of 1998. Operating and maintenance expenses increased by $2.4 million, or 10%, and $3.1 million, or 6%, during the three and six months ended June 30, 1999, compared with the same period in 1998. The increase reflects quarterly charges of $1.9 million relating to PSCW-approved additional uncollectible accounts expense, which became effective November 1, 1998. Depreciation expense for the three and six months ended June 30, 1999, increased by $0.6 million and $0.9 million, respectively, as compared with the same periods of 1998. The increase in both periods in 1999 was due to increased plant additions. 17 Interest expense remained relatively flat during the three and six months ended June 30, 1999, compared with the same period of 1998. Other income, net decreased by $1.1 million and $2.0 million, during the three and six months ended June 30, 1999, respectively, compared to the same period in 1998. During the quarter, the Company recorded $1.2 million of expenses (approximately $0.03 per share after tax) relating to the proposed merger with Wisconsin Energy. During the year-to-date period, the Company recorded gains in connection with weather derivative agreements of $0.4 million in 1999 and $1.2 million in 1998. The Company entered into the weather derivative agreements to partially mitigate the risk that weather has on Energy Group earnings. Manufacturing - ------------- Manufacturing net earnings for the three and six months ended June 30, 1999, increased to $9.5 million and $15.2 million, respectively, as compared with $7.8 million and $13.3 million for the same periods in 1998, respectively. [CAPTION] Three Months Six months Ended June 30, Ended June 30, ----------------- % ----------------- % (Millions of Dollars) 1999 1998 Change 1999 1998 Change -------- -------- ------ -------- -------- ------ Net Sales $ 138.0 $ 129.6 6 $ 255.0 $ 245.9 4 Cost of goods sold 95.8 91.9 4 178.8 174.8 2 -------- -------- -------- -------- Gross profit 42.2 37.7 12 76.2 71.1 7 Operating expenses 25.6 23.3 10 49.4 46.6 6 -------- -------- -------- -------- Operating income 16.6 14.4 15 26.8 24.5 9 Interest expense (1.1) (1.2) 8 (2.1) (2.5) 16 Other income (expense), net 0.1 (0.3) N/M 0.1 (0.1) N/M -------- -------- -------- -------- Net income before income taxes 15.6 12.9 21 24.8 21.9 13 Income taxes 6.1 5.1 20 9.6 8.6 12 -------- -------- -------- -------- Net earnings $ 9.5 $ 7.8 22 $ 15.2 $ 13.3 14 ======== ======== ======== ========
N/M - Not meaningful. 18 Net sales for the second quarter of 1999 increased $8.4 million, or 6%, compared to the same period in 1998. During the second quarter of 1999, domestic sales increased by $10.0 million, or 11%, and international sales decreased by $1.7 million, or 4%, compared to the same period in 1998. Increased domestic sales in the second quarter were driven by greater demand within the pool/spa, industrial, marine and food and beverage markets. The increase is attributable to customer base growth, new product market penetration and generally favorable economic and weather conditions in the United States. The effect on sales of the Omni Corporation ("Omni") acquisition in June 1999 (see Liquidity and Capital Resources) was an additional $2.4 million. Domestic sales for the six months ended June 30, 1999, increased $14.9 million to $184.7 million. The decrease in international sales is attributable to the strong U.S. dollar and poor weather in Europe. On a year to date basis, international sales decreased by 8% over the same period in 1998. For the six months ended June 30, 1999 and 1998, international sales accounted for 28% and 31%, respectively, of total net sales for the Manufacturing Group. Gross profit margins for the three and six months ended June 30, 1999, improved to 30.6% and 29.9%, respectively, as compared with 29.1% and 28.9% in the same periods of 1998, respectively. The improvement in operating margins is the direct result of ongoing cost improvement programs and productivity gains in manufacturing processes. Operating expenses in total increased by 6%, due in part to the impact of higher support spending for product line acquisitions, market introductions of new products and customer development. Consolidated Income Taxes - ------------------------- Income tax expense was $3.1 million higher for the first six months of 1999, compared to the same period in 1998, reflecting increased pretax income. Liquidity and Capital Resources - ------------------------------- Cash flow from operations for the six months ended June 30, 1999, decreased by $2.0 million, or 2%, to $124.0 million from the comparable period in 1998. 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. 19 Capital expenditures were level for the six months ended June 30, 1999, compared to the same period in 1998. The Company believes that its cash flows from operations will be sufficient to satisfy its future capital expenditures. Additional short-term borrowing will be needed during the third and fourth quarters of 1999 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 May 27, 1999, the Board of Directors of the Company authorized an increase in the Company's dividend per share on common stock to $0.225 per quarter ($0.90 per share on an annualized basis). The first quarterly payment at the new rate will be made August 31, 1999, to shareholders of record on August 10, 1999. On June 1, 1999, the Company acquired all of the outstanding common stock of Omni Corporation, of Hammond, Indiana. Omni designs, manufactures and markets filtration products for the household water purification market. On June 10, 1999, the Company acquired all the assets of CUMA, S.A, of Monterrey, Mexico, a privately-held manufacturer of pumps for irrigation, industrial and residential applications. The purchase price for both acquisitions totals approximately $20 million and will be accounted for using the purchase method of accounting. The cost in excess of net assets acquired was approximately $17 million and is being amortized over forty years. Year 2000 Date Conversion - ------------------------- Issues relating to Year 2000 date conversion are the result of computer software programs being written using two digits rather than four to define the applicable year. The Company's software programs, computer hardware or equipment that have date sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, distribute natural gas, manufacture products or engage in other normal business activities. 20 The Company has developed a formal plan to ensure that its significant date-sensitive computer software and hardware systems (Information Technology) and other equipment utilized in its various activities (Operating Equipment) will be Year 2000 compliant and operational on a timely basis. The plan addresses all of the Company's locations throughout the world, and includes a review of computer applications that connect elements of the Company's business directly to its customers and suppliers. The plan also includes an assessment process to determine if the Company's significant customers and suppliers will be Year 2000 compliant. The Company's plan to resolve issues relating to Year 2000 conversion includes four major phases - assessment, remediation, testing, and implementation. To assist the Company in reaching Year 2000 compliance, the Company has retained third party consultants. The Company has substantially completed the assessment phase of its plan for all of its significant Information Technology and Operating Equipment that it believes could be affected by the Year 2000 conversion. Based upon its assessment, the Company concluded that it would be necessary to reprogram and/or replace certain of its Information Technology. The Company also determined that certain of its Operating Equipment would also require modification to ensure it remains operational. For its Information Technology applications as of June 30, 1999, the Company believes it is approximately 94% compliant on all of its significant systems, and estimates that it will complete software reprogramming and/or replacement in the third quarter of 1999. The Company believes that its Operating Equipment at June 30, 1999 is approximately 95% compliant, and the Company is targeting completion for the third quarter of 1999. With respect to operations that involve third parties, the Company has made inquiries of its significant customers and suppliers and, at the present time and based on such inquiries, is not aware of Year 2000 issues facing these third parties that would materially impact the Company's operations. However, the Company has no means of ensuring that these customers and suppliers (and, in turn, their customers and suppliers) will be Year 2000 compliant in a timely manner. The inability of these parties to successfully resolve their Year 2000 issues could have a material adverse effect on the Company. Despite the efforts that the Company has undertaken, there can be no assurances that every Year 2000 related issue will be identified and addressed before January 1, 2000. An unexpected failure as a result of a Year 2000 compliance issue could result in an interruption in certain normal business activities or operations. For that reason, the Company is currently developing contingency plans to address alternatives in the event certain Year 2000 compliance failures occur. 21 Through June 30, 1999, the Company has spent approximately $4.7 million for Year 2000 remediation. The amount of additional development and remediation costs necessary for the Company to prepare for Year 2000 is estimated to be approximately $0.5 million and is expected to be funded through operating cash flow. Item 3. Quantitative and Qualitative Disclosures About Market Risk. - ------------------------------------------------------------------- The Company's market risk includes the potential loss arising from adverse changes in the price of natural gas and in foreign currency exchange rates. The Company's objective in managing these risks is to reduce fluctuations in earnings and cash flows associated with changes in natural gas prices and foreign currency exchange rates. The Company's policy prohibits the use of derivative financial instruments for trading purposes. Wisconsin Gas has a commodity risk management program that has been approved by the PSCW. This program allows Wisconsin Gas to utilize purchased call and put option contracts to reduce market risk associated with fluctuations in the price of natural gas purchases and gas in storage. Under this program, Wisconsin Gas has the ability to hedge up to 50% of its planned gas deliveries for the heating season. The PSCW has also allowed Wisconsin Gas to hedge gas purchased for storage during non- heating months. The cost of the call and put option contracts, as well as gains or losses realized under the contracts do not affect net income as they are recovered dollar for dollar under the purchased gas adjustment clause. WICOR Energy Services Company utilizes gas futures contracts to manage commodity price risk associated with firm customer sales commitments. Unrealized gains or losses on these instruments are deferred and recognized in earnings in the period the sales occur. Substantially all of the futures contracts expire in 1999. The notional amount of these contracts is not material to the Company. The Company manages foreign currency market risk through the use of a variety of financial and derivative instruments. The Company uses forward exchange contracts and other hedging activities to hedge the U.S. dollar value resulting from anticipated foreign currency transactions. The notional amount of these contracts is not material to the Company. 22 Part II - Other Information - --------------------------- Item 1. Legal Proceedings - ------------------------- On July 2, 1999 an action was filed by a shareholder of WICOR in the Circuit Court of Milwaukee County, Wisconsin against WICOR, all of the members of its board of Directors, and Wisconsin Energy. The complaint alleges that the consideration to be received by WICOR shareholders in the proposed merger with Wisconsin Energy is inadequate and unfair to WICOR shareholders. The complaint also alleges that Wisconsin Energy aided, abetted and assisted in the alleged breaches of the fiduciary duties of the individual defendants. The complaint seeks certification as a class action on behalf of all WICOR shareholders, an injunction against proceeding with the merger, an auction or open bidding process for the sale of WICOR, and unspecified damages. WICOR believes the complaint is without merit and intends to pursue a vigorous defense. Subsequently, the plaintiff also requested a hearing on whether the court should issue an injunction precluding the issuance of rights under the new shareholder rights plan adopted by the WICOR Board on July 27, 1999. The rights are currently scheduled to be issued on August 29, 1999 to coincide with the expiration of WICOR's current shareholder rights plan. WICOR intends to vigorously oppose the plaintiff's request for injunctive relief. Item 4. Submission of Matters to a Vote of Security Holders - ----------------------------------------------------------- At the Company's annual meeting of shareholders held on April 22, 1999, Jere D. McGaffey and Thomas F. Schrader were elected as directors of the Company for terms expiring in 2002. 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 -------------------- ---------------- ------------------ Jere D. McGaffey 29,306,378 1,076,287 Thomas F. Schrader 30,022,237 360,428 The following table sets forth the other directors of the Company whose terms of office continued after the 1999 annual meeting: Year in Which Name of Director Term Expires - -------------------- -------------- Willie D. Davis 2000 Guy A. Osborn 2000 Wendell F. Bueche 2001 Daniel F. McKeithan, Jr. 2001 George E. Wardeberg 2001 Essie M. Whitelaw 2001 23 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 2.1 Agreement and Plan of Merger, dated as of June 27, 1999, by and among Wisconsin Energy Corporation, WICOR, Inc. and CEW Acquisition, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated June 27, 1999) 27 Financial data schedule (EDGAR version only). (b) Reports on Form 8-K The following reports on Form 8-K were filed during the three months ended June 30, 1999: 1. Current Report on Form 8-K dated June 27, 1999, reporting under Items 5 and 7 the announcement of the Agreement and Plan of merger between the Company and Wisconsin Energy, and including the Agreement and Plan of Merger as an exhibit. 2. Current Report on Form 8-K dated June 29, 1999, reporting under Items 5 and 7 the presentation of information regarding the proposed merger of the Company and Wisconsin Energy, and including the presentation materials as an exhibit. 24 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: August 16, 1999 By: /s/ Joseph P. Wenzler Joseph P. Wenzler Senior Vice President and Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the WICOR, Inc. FORM 10-Q for the six months ended June 30, 1999 and is qualified in its entirety by reference to such financial statements and the related footnotes. 1,000 6-MOS DEC-31-1999 JUN-30-1999 PER-BOOK 376,908 69,068 307,086 229,793 0 982,855 37,504 218,291 179,318 423,826 0 0 204,524 0 160,000 6,634 1,410 0 0 0 346,461 982,855 529,573 22,120 464,303 486,423 43,150 (119) 43,031 8,173 34,858 0 34,858 16,472 359 123,987 0.93 0.92
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