-----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, CDWLkSo8Ag6QJKxjG5edQH3DVA/ITzyUrY04SiFdXhVjJpKrMHkBdScH2k97uwvl 3ohYchhIQ4prXaRWEZQ4iw== 0000107815-96-000013.txt : 19960517 0000107815-96-000013.hdr.sgml : 19960517 ACCESSION NUMBER: 0000107815-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WISCONSIN ENERGY CORP CENTRAL INDEX KEY: 0000783325 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 391391525 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09057 FILM NUMBER: 96566716 BUSINESS ADDRESS: STREET 1: 231 W MICHIGAN ST CITY: MILWAUKEE STATE: WI ZIP: 53201 BUSINESS PHONE: 4142212345 MAIL ADDRESS: STREET 1: PO BOX 2949 CITY: MILWAUKEE STATE: WI ZIP: 53201 10-Q 1 WISCONSIN ENERGY CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- ------------- Commission Registrant; State of Incorporation; IRS Employer File Number Address; and Telephone Number Identification No. - ----------- ----------------------------------- ------------------ 1-9057 WISCONSIN ENERGY CORPORATION 39-1391525 (A Wisconsin Corporation) 231 West Michigan Street P.O. Box 2949 Milwaukee, WI 53201 (414) 221-2345 1-1245 WISCONSIN ELECTRIC POWER COMPANY 39-0476280 (A Wisconsin Corporation) 231 West Michigan Street P.O. Box 2046 Milwaukee, WI 53201 (414) 221-2345 Indicate by check mark whether each of the registrants (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 (May 1, 1996): Wisconsin Energy Corporation Common stock, $.01 Par Value, 110,819,337 shares outstanding. Wisconsin Electric Power Company Common stock, $10 Par Value, 33,289,327 shares outstanding. Wisconsin Energy Corporation is the sole holder of Wisconsin Electric Power Company common stock. 2 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- FORM 10-Q REPORT FOR THE QUARTER ENDED MARCH 31, 1996 TABLE OF CONTENTS ITEM PAGE Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 2 PART I - FINANCIAL INFORMATION 1. Financial Statements: Wisconsin Energy Corporation Consolidated Condensed Income Statement . . . . . . . . . . . 3 Consolidated Condensed Balance Sheet. . . . . . . . . . . . . 4 Consolidated Statement of Cash Flows. . . . . . . . . . . . . 5 Wisconsin Electric Power Company Condensed Income Statement. . . . . . . . . . . . . . . . . . 6 Condensed Balance Sheet . . . . . . . . . . . . . . . . . . . 7 Statement of Cash Flows . . . . . . . . . . . . . . . . . . . 8 Notes to Financial Statements of Wisconsin Energy Corporation and Wisconsin Electric Power Company. . . . . . . . . . . . . . . 9 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for Wisconsin Energy Corporation and Wisconsin Electric Power Company. . . . . . . . . . . . . . . 10 PART II - OTHER INFORMATION 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 14 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . 15 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 24 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 INTRODUCTION Wisconsin Energy Corporation ("WEC") is a holding company whose principal subsidiary is Wisconsin Electric Power Company ("WE"), an electric, gas and steam utility. The unaudited interim financial statements presented in this combined Form 10-Q report include the consolidated statements of WEC as well as separate statements for WE. The unaudited statements have been prepared by WEC and WE 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. WEC and WE believe that the disclosures are adequate to make the information presented not misleading. The WEC and WE financial statements should be read in conjunction with the financial statements and notes thereto included in WEC's and WE's respective Annual Reports on Form 10-K for the year ended December 31, 1995. This combined Form 10-Q is separately filed by WEC and WE. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. -2- 3 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WISCONSIN ENERGY CORPORATION CONSOLIDATED CONDENSED INCOME STATEMENT (Unaudited)
Three Months Ended March 31 ------------------------------------- 1996 1995 ---------- ---------- (Thousands of Dollars) Operating Revenues Electric $ 350,824 $ 343,919 Gas 138,016 121,100 Steam 6,617 6,103 ---------- ---------- Total Operating Revenues 495,457 471,122 Operating Expenses Fuel 75,793 67,819 Purchased power 5,764 19,076 Cost of gas sold 85,592 72,803 Other operation expenses 105,376 97,760 Maintenance 26,107 28,372 Depreciation 52,305 44,712 Taxes other than income taxes 20,847 19,379 Federal income tax 30,628 29,635 State income tax 7,158 7,100 Deferred income taxes - net 1,862 376 Investment tax credit - net (1,120) (482) ---------- ---------- Total Operating Expenses 410,312 386,550 Operating Income 85,145 84,572 Other Income and Deductions Interest income 5,966 3,614 Allowance for other funds used during construction 606 825 Miscellaneous - net (1,926) 1,350 Income taxes 447 305 ---------- ---------- Total Other Income and Deductions 5,093 6,094 Income Before Interest Charges and Preferred Dividend 90,238 90,666 Interest Charges Interest expense 28,307 29,072 Allowance for borrowed funds used during construction (1,174) (1,241) ---------- ---------- Total Interest Charges 27,133 27,831 Preferred Dividend Requirement of Subsidiary 301 301 ---------- ---------- Net Income $ 62,804 $ 62,534 ========== ========== Average Common Shares Outstanding (Thousands) 110,819 109,133 ========== ========== Earnings Per Share of Common Stock $ 0.57 $ 0.57 ========== ========== Dividends Per Share of Common Stock $ 0.3675 $ 0.3525 ========== ========== The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these financial statements. - 3 -
4 FORM 10-Q WISCONSIN ENERGY CORPORATION CONSOLIDATED CONDENSED BALANCE SHEET (Unaudited)
March 31, 1996 December 31, 1995 ---------------- ----------------- (Thousands of Dollars) Assets -------------- Utility Plant Electric $ 4,574,153 $ 4,531,404 Gas 489,474 489,739 Steam 40,390 40,078 Accumulated provision for depreciation (2,323,175) (2,288,080) ------------- ------------- 2,780,842 2,773,141 Construction work in progress 72,015 78,153 Nuclear fuel - net 53,879 59,260 ------------- ------------- Net Utility Plant 2,906,736 2,910,554 Other Property and Investments 644,552 637,958 Current Assets Cash and cash equivalents 24,007 23,626 Accounts receivable 158,246 150,149 Accrued utility revenues 122,122 140,201 Materials, supplies and fossil fuel 129,168 153,713 Prepayments and other assets 68,304 63,830 ------------- ------------- Total Current Assets 501,847 531,519 Deferred Charges and Other Assets Accumulated deferred income taxes 143,170 140,844 Other 341,418 339,860 ------------- ------------- Total Deferred Charges and Other Assets 484,588 480,704 ------------- ------------- Total Assets $ 4,537,723 $ 4,560,735 ============= ============= Capitalization and Liabilities ------------------------------ Capitalization Common stock $ 678,017 $ 678,017 Retained earnings 1,215,326 1,193,248 ------------- ------------- Total Common Stock Equity 1,893,343 1,871,265 Preferred stock 30,450 30,451 Long-term debt 1,355,853 1,367,644 ------------- ------------- Total Capitalization 3,279,646 3,269,360 Current Liabilities Long-term debt due currently 29,364 51,854 Short-term debt 138,326 156,919 Accounts payable 90,605 108,508 Accrued liabilities 90,799 68,634 Other 50,432 50,191 ------------- ------------- Total Current Liabilities 399,526 436,106 Deferred Credits and Other Liabilities Accumulated deferred income taxes 489,197 483,410 Other 369,354 371,859 ------------- ------------- Total Deferred Credits and Other Liabilities 858,551 855,269 ------------- ------------- Total Capitalization and Liabilities $ 4,537,723 $ 4,560,735 ============= ============= The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these financial statements. - 4 -
5 FORM 10-Q WISCONSIN ENERGY CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Three Months Ended March 31 ------------------------------------- 1996 1995 ---------- ---------- (Thousands of Dollars) Operating Activities Net income $ 62,804 $ 62,534 Reconciliation to cash Depreciation 52,305 44,712 Nuclear fuel expense - amortization 6,304 5,263 Conservation expense - amortization 5,625 5,156 Debt premium, discount & expense - amortization 3,066 3,107 Revitalization - net (400) (3,480) Deferred income taxes - net 1,862 376 Investment tax credit - net (1,120) (482) Allowance for other funds used during construction (606) (825) Change in: Accounts receivable (8,097) (14,222) Inventories 24,545 22,849 Accounts payable (17,903) (12,008) Other current assets 13,605 20,371 Other current liabilities 22,406 37,104 Other 3,332 7,816 ---------- ---------- Cash Provided by Operating Activities 167,728 178,271 Investing Activities Construction expenditures (63,861) (43,985) Allowance for borrowed funds used during construction (1,174) (1,241) Nuclear fuel (3,828) (5,601) Nuclear decommissioning trust (8,181) (2,575) Conservation investments - net (136) (1,103) Other 3,764 (1,741) ---------- ---------- Cash Used in Investing Activities (73,416) (56,246) Financing Activities Sale of common stock - 11,918 Retirement of preferred stock (1) - Retirement of long-term debt (34,611) (17,174) Change in short-term debt (18,593) (70,481) Dividends on stock - common (40,726) (38,433) ---------- ---------- Cash Used in Financing Activities (93,931) (114,170) ---------- ---------- Change in Cash and Cash Equivalents $ 381 $ 7,855 ========== ========== Supplemental Information Disclosures Cash Paid for Interest (net of amount capitalized) $ 27,034 $ 27,445 Income taxes 16,265 15,120 The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these financial statements. - 5 -
6 FORM 10-Q WISCONSIN ELECTRIC POWER COMPANY CONDENSED INCOME STATEMENT (Unaudited)
Three Months Ended March 31 ------------------------------------- 1996 1995 ---------- ---------- (Thousands of Dollars) Operating Revenues Electric $ 350,824 $ 343,919 Gas 138,016 121,100 Steam 6,617 6,103 ---------- ---------- Total Operating Revenues 495,457 471,122 Operating Expenses Fuel 75,793 67,819 Purchased power 5,764 19,076 Cost of gas sold 85,592 72,803 Other operation expenses 105,376 97,760 Maintenance 26,107 28,372 Depreciation 52,305 44,712 Taxes other than income taxes 20,847 19,379 Federal income tax 30,628 29,635 State income tax 7,158 7,100 Deferred income taxes - net 1,862 376 Investment tax credit - net (1,120) (482) ---------- ---------- Total Operating Expenses 410,312 386,550 Operating Income 85,145 84,572 Other Income and Deductions Interest income 4,848 2,570 Allowance for other funds used during construction 606 825 Miscellaneous - net (1,247) 2,682 Income taxes (243) (384) ---------- ---------- Total Other Income and Deductions 3,964 5,693 Income Before Interest Charges 89,109 90,265 Interest Charges Interest expense 27,441 28,309 Allowance for borrowed funds used during construction (336) (466) ---------- ---------- Total Interest Charges 27,105 27,843 ---------- ---------- Net Income 62,004 62,422 Preferred Stock Dividend Requirement 301 301 ---------- ---------- Earnings Available for Common Stockholder $ 61,703 $ 62,121 ========== ========== Note - Earnings and dividends per share of common stock are not applicable because all of Wisconsin Electric Power Company's common stock is owned by Wisconsin Energy Corporation. The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these financial statements. - 6 -
7 FORM 10-Q WISCONSIN ELECTRIC POWER COMPANY CONDENSED BALANCE SHEET (Unaudited)
March 31, 1996 December 31, 1995 ---------------- ----------------- (Thousands of Dollars) Assets -------------- Utility Plant Electric $ 4,574,153 $ 4,531,404 Gas 489,474 489,739 Steam 40,390 40,078 Accumulated provision for depreciation (2,323,175) (2,288,080) ------------- ------------- 2,780,842 2,773,141 Construction work in progress 72,015 78,153 Nuclear fuel - net 53,879 59,260 ------------- ------------- Net Utility Plant 2,906,736 2,910,554 Other Property and Investments 432,378 427,627 Current Assets Cash and cash equivalents 16,731 19,550 Accounts receivable 154,340 144,476 Accrued utility revenues 122,122 140,201 Materials, supplies and fossil fuel 129,168 153,713 Prepayments and other assets 62,904 59,784 ------------- ------------- Total Current Assets 485,265 517,724 Deferred Charges and Other Assets Accumulated deferred income taxes 138,907 136,581 Other 324,504 326,438 ------------- ------------- Total Deferred Charges and Other Assets 463,411 463,019 ------------- ------------- Total Assets $ 4,287,790 $ 4,318,924 ============= ============= Capitalization and Liabilities ------------------------------ Capitalization Common stock $ 613,582 $ 613,582 Retained earnings 1,104,232 1,082,983 ------------- ------------- Total Common Stock Equity 1,717,814 1,696,565 Preferred stock 30,450 30,451 Long-term debt 1,313,378 1,325,169 ------------- ------------- Total Capitalization 3,061,642 3,052,185 Current Liabilities Long-term debt due currently 28,929 51,419 Short-term debt 125,176 150,694 Accounts payable 89,450 107,115 Accrued liabilities 88,117 66,694 Other 48,781 48,762 ------------- ------------- Total Current Liabilities 380,453 424,684 Deferred Credits and Other Liabilities Accumulated deferred income taxes 485,615 479,828 Other 360,080 362,227 ------------- ------------- Total Deferred Credits and Other Liabilities 845,695 842,055 ------------- ------------- Total Capitalization and Liabilities $ 4,287,790 $ 4,318,924 ============= ============= The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these financial statements. - 7 -
8 FORM 10-Q WISCONSIN ELECTRIC POWER COMPANY STATEMENT OF CASH FLOWS (Unaudited)
Three Months Ended March 31 ------------------------------------- 1996 1995 ---------- ---------- (Thousands of Dollars) Operating Activities Net income $ 62,004 $ 62,422 Reconciliation to cash Depreciation 52,305 44,712 Nuclear fuel expense - amortization 6,304 5,263 Conservation expense - amortization 5,625 5,156 Debt premium, discount & expense - amortization 3,054 3,098 Revitalization - net (400) (3,480) Deferred income taxes - net 1,862 376 Investment tax credit - net (1,120) (482) Allowance for other funds used during construction (606) (825) Change in: Accounts receivable (9,864) (14,733) Inventories 24,545 22,849 Accounts payable (17,665) (12,102) Other current assets 14,959 20,637 Other current liabilities 21,442 38,084 Other 3,354 7,915 ---------- ---------- Cash Provided by Operating Activities 165,799 178,890 Investing Activities Construction expenditures (54,921) (40,569) Allowance for borrowed funds used during construction (336) (466) Nuclear fuel (3,828) (5,601) Nuclear decommissioning trust (8,181) (2,575) Conservation investments - net (136) (1,103) Other (330) (1,255) ---------- ---------- Cash Used in Investing Activities (67,732) (51,569) Financing Activities Stockholder contribution - 15,000 Retirement of preferred stock (1) - Retirement of long-term debt (34,611) (17,174) Change in short-term debt (25,518) (78,806) Dividends on stock - common (40,455) (38,209) - preferred (301) (301) ---------- ---------- Cash Used in Financing Activities (100,886) (119,490) ---------- ---------- Change in Cash and Cash Equivalents $ (2,819) $ 7,831 ========== ========== Supplemental Information Disclosures Cash Paid for Interest (net of amount capitalized) $ 27,572 $ 27,832 Income taxes 16,238 15,101 The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these financial statements. - 8 -
9 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. The accompanying unaudited consolidated financial statements for Wisconsin Energy Corporation ("WEC") and unaudited financial statements for Wisconsin Electric Power Company ("WE") should be read in conjunction with WEC's and WE's respective 1995 Annual Reports on Form 10-K. In the opinion of management, all adjustments, normal and recurring in nature, necessary to a fair statement of the results of operations and financial position of WEC and WE have been included in the accompanying income statements and balance sheets. The results of operations for the three months ended March 31, 1996 are not, however, necessarily indicative of the results which may be expected for the year 1996 because of seasonal and other factors. 2. On April 16, 1996, the Public Service Commission of Wisconsin ("PSCW") unanimously approved WE's application to replace the Unit 2 steam generators at Point Beach Nuclear Plant ("Point Beach") and reaffirmed its prior decision approving WE's construction and operation of an Independent Spent Fuel Storage Installation ("ISFSI") at Point Beach. WE, the utility subsidiary of WEC, anticipates receiving a written order from the PSCW in May 1996. The steam generators will be replaced during the fall refueling outage scheduled to begin in October 1996. Upon receipt of a written order from the PSCW, WE will resume transfer of spent fuel to the ISFSI and plans to load three additional casks with spent fuel during the remainder of 1996. ITEM 5. OTHER INFORMATION - "POINT BEACH UNIT 2 STEAM GENERATORS & DRY CASK STORAGE FACILITY" in Part II of this report contains further information. 3. On April 28, 1995, WEC and Northern States Power Company, a Minnesota corporation ("NSP"), entered into an Agreement and Plan of Merger, which was amended and restated as of July 26, 1995 ("Merger Agreement"). The Merger Agreement provides for a strategic business combination involving WEC and NSP in a "merger-of-equals" transaction ("Transaction"). As a result, WEC will become a registered utility holding company under the Public Utility Holding Company Act of 1935, as amended, and will change its name to Primergy Corporation ("Primergy"). Primergy will be the parent of NSP and the current operating subsidiaries of WEC and NSP. The Transaction is intended to be tax-free for income tax purposes and to be accounted for as a "pooling of interests". On September 13, 1995, the stockholders of WEC and NSP voted to approve the Transaction. The Merger Agreement is subject to various conditions, including the approval of various regulatory agencies. Subject to obtaining all requisite approvals, WEC and NSP anticipate completing the Transaction by January 1, 1997. ITEM 5. OTHER INFORMATION - "MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY" in Part II of this report contains further information concerning the Transaction including selected unaudited pro forma combined condensed financial information. - 9 - 10 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART I - FINANCIAL INFORMATION (Cont'd) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Wisconsin Energy Corporation ("WEC" or the "Company") is a holding company whose principal subsidiary is Wisconsin Electric Power Company ("WE"), an electric, gas and steam utility. As of March 31, 1996, approximately 95% of WEC's consolidated total assets were attributable to WE. The following discussion and analysis of financial condition and results of operations includes both WEC and WE unless otherwise stated. Merger - Northern States Power Company On April 28, 1995, WEC and Northern States Power Company, a Minnesota corporation ("NSP"), entered into an Agreement and Plan of Merger, which was amended and restated as of July 26, 1995 ("Merger Agreement"). The Merger Agreement provides for a strategic business combination involving WEC and NSP in a "merger-of-equals" transaction ("Transaction"). ITEM 5. OTHER INFORMATION - "MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY" in Part II of this report contains further information concerning the Transaction including selected unaudited pro forma combined condensed financial information. The future operations and financial position of WEC and WE will be significantly affected by the proposed Transaction. The following discussion and analysis of financial condition and results of operations does not reflect the potential effects of the Transaction on WEC nor on WE. Cautionary Factors The following discussion and analysis contains forward-looking statements. When used in this document, "anticipate", "believe", "estimate", "expect", "objective" and similar expressions are intended to identify such statements. Forward-looking statements are subject to certain risks, uncertainties and assumptions which could cause actual results to differ materially from those projected, including those that are described in ITEM 5. OTHER INFORMATION - "CAUTIONARY FACTORS" in Part II of this report. LIQUIDITY AND CAPITAL RESOURCES Cash provided by WEC's consolidated operating activities totaled approximately $168 million during the three months ended March 31, 1996. This compares to $178 million provided during the same period in 1995. WEC's consolidated net investing activities totaled $73 million for the three months ended March 31, 1996 compared to $56 million during the same period in 1995. Investments during the first quarter of 1996 included approximately $64 million for the construction of new or improved facilities of which approximately $55 million was for a number of projects related to utility plant. Additional investments included $4 million for acquisition of nuclear fuel and $8 million for payments to the Nuclear Decommissioning Trust Fund for the eventual decommissioning of WE's Point Beach Nuclear Plant. - 10 - 11 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART I - FINANCIAL INFORMATION (Cont'd) LIQUIDITY AND CAPITAL RESOURCES - Cont'd During the first quarter of 1996, WEC used approximately $94 million for financing activities compared to $114 million during the first quarter of 1995. Financing activities during the first three months of 1996 included the retirement of $30 million of 4-1/2% WE first mortgage bonds, financed through the issuance of additional short-term borrowings. This in part caused the $18.6 million decrease in short-term debt during the first quarter of 1996 to be smaller than the $70.5 million decrease in the same period of 1995. During the first quarter of 1996, there were no new issuances of WEC common stock because WEC began purchasing shares required for the Company's stock plans on the open market as of January 1, 1996. Previously, the Company issued new shares which were purchased through these plans with cash investments and reinvested dividends. Capital requirements for the remainder of 1996 are expected to be principally for construction expenditures and payments to the Fund for the eventual decommissioning of Point Beach. These cash requirements are expected to be met through internal sources of funds from operations and short-term borrowings. However, WE may issue up to $200 million of additional long-term debt in a public offering in the second half of 1996. The specific form, amount and timing of debt securities which may be issued have not yet been determined and will depend on market conditions and other factors. RESULTS OF OPERATIONS 1996 FIRST QUARTER Earnings WEC's consolidated net income and earnings per share of common stock were unchanged at approximately $63 million and $0.57, respectively, during the first quarter of 1996 compared to the same period in 1995. As described below, earnings remained flat primarily because January 1, 1996 electric, gas and steam rate decreases, increased depreciation expense and the timing of certain operating expenses offset increased first quarter 1996 electric kilowatt-hour sales and gas therm deliveries. Electric Revenues, Gross Margins and Sales Despite annualized electric retail rate decreases effective January 1, 1996 of $33.4 million or 2.75% in Wisconsin and $1.1 million or 3.3% in Michigan, total Electric Operating Revenues increased by 2.0% or $6.9 million during the first quarter of 1996 compared to the first quarter of 1995. A first quarter 1996 weather related increase in electric kilowatt-hour sales of 5.3% more than offset the impact of the rate decreases on Electric Operating Revenues. Between the comparative periods, the gross margin on Electric Operating Revenues (Electric Operating Revenues less Fuel and Purchased Power expenses) increased by 4.8% or $12.2 million. - 11 - 12 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART I - FINANCIAL INFORMATION (Cont'd) 1996 FIRST QUARTER RESULTS OF OPERATIONS - Cont'd ============================================================================== Electric Gross Margin ($000) 1996 1995 % Change - ---------------------------- ---------- ---------- -------- Electric Operating Revenues $ 350,824 $ 343,919 2.0 Fuel & Purchased Power 81,557 86,895 (6.1) ---------- ---------- Gross Margin $ 269,267 $ 257,024 4.8 ============================================================================== The gross margin increased because higher electric sales in the first three months of 1996 were primarily to Residential and Small Commercial/Industrial customers who are more sensitive to weather variations and who contribute higher margins to earnings than other customer classes. Gross margin also improved in the first quarter of 1996 compared to 1995 because fuel and purchased power expenses decreased by 6.1% or $5.3 million. Fuel and purchased power expenses declined in 1996 primarily due to lower per unit coal costs and to unscheduled outages during the first quarter of 1995 at two of WE's most efficient power plants, the coal fired Pleasant Prairie Power Plant and the Point Beach Nuclear Plant, resulting in a higher volume of costlier power purchases in 1995. Also, the addition of the Paris Generating Station in mid-1995 has allowed WE to reduce its firm power purchases. ============================================================================== Electric Sales (Megawatt-hours) 1996 1995 % Change - ------------------------------- ---------- ---------- -------- Residential 1,818,093 1,689,356 7.6 Small Commercial/Industrial 1,797,186 1,714,727 4.8 Large Commercial/Industrial 2,573,802 2,542,354 1.2 Other 391,158 380,810 2.7 ---------- ---------- Total Retail and Municipal 6,580,239 6,327,247 4.0 Resale-Utilities 296,967 202,132 46.9 ---------- ---------- Total Sales 6,877,206 6,529,379 5.3 ============================================================================== Total electric sales during the first quarter of 1996 were positively impacted primarily by substantially colder winter weather conditions compared to the same period in 1995. As measured by heating degree days, the first quarter of 1996 was 16.2% colder than the same period during 1995 and 4.8% colder than normal. Electric energy sales to the Empire and Tilden ore mines, WE's two largest customers, increased 4.7% during the three months ended March 31, 1996 compared to the three months ended March 31, 1995. Excluding the mines, total electric sales increased 5.4% and sales to the remaining Large Commercial / Industrial customers increased 0.3%. Gas Revenues, Gross Margins and Sales Despite an annualized $8.3 million or 2.6% Wisconsin retail gas rate decrease effective January 1, 1996, total Gas Operating Revenues increased by 14.0% or $16.9 million during the first quarter of 1996 compared to the first quarter - 12 - 13 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART I - FINANCIAL INFORMATION (Cont'd) 1996 FIRST QUARTER RESULTS OF OPERATIONS - Cont'd of 1995. Between the comparative periods, the gross margin on Gas Operating Revenues (Gas Operating Revenues less Cost of Gas Sold) increased by 8.5% or $4.1 million. An 11.2% increase in therm deliveries during the first three months of 1996 more than offset the impact of the rate decrease on gross margin. ============================================================================== Gas Gross Margin ($000) 1996 1995 % Change - ----------------------- ---------- ---------- -------- Gas Operating Revenues $ 138,016 $ 121,100 14.0 Cost of Gas Sold 85,592 72,803 17.6 ---------- ---------- Gross Margin $ 52,424 $ 48,297 8.5 ============================================================================== The gross margin grew because the increased therm deliveries were primarily to Residential and Commercial customers who are more sensitive to weather variations and who contribute higher margins to earnings than other customer classes. ============================================================================== Therms Delivered - Thousands 1996 1995 % Change - ---------------------------- ---------- ---------- -------- Residential 169,002 145,203 16.4 Commercial/Industrial 104,750 90,326 16.0 Interruptible 14,825 10,819 37.0 ---------- ---------- Total Sales 288,577 246,348 17.1 Transported Customer Owned Gas 75,477 80,083 (5.8) Other - Interdepartmental 4,488 5,064 (11.4) ---------- ---------- Total Gas Delivered 368,542 331,495 11.2 ============================================================================== Natural gas therm deliveries during the first quarter of 1996 increased primarily due to the colder winter weather in the first quarter of 1996 as described above. Other - Interdepartmental therm deliveries are to WE facilities, primarily the gas fired peaking generating units at the Paris and Concord Generating Stations, at rates approved by the PSCW. Operating Expenses Other Operations Expenses increased 7.8% or by $7.6 million in the first quarter of 1996 compared to the first quarter of 1995, primarily due to increased power generation expenses during the first quarter of 1996 and to the timing of certain miscellaneous operating expenses. Maintenance expense decreased 8.0% or by approximately $2.3 million in the first three months of 1996 compared to 1995 in part due to the unscheduled generating unit outages noted above during the first quarter of 1995. Depreciation expense increased 17.0% or by approximately $7.6 million between the same comparative periods - 13 - 14 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART I - FINANCIAL INFORMATION (Cont'd) 1996 FIRST QUARTER RESULTS OF OPERATIONS - Cont'd due in part to higher depreciable plant balances and to increased decommissioning expenses during the first three months of 1996. Other Items Other Interest Income increased 65.1% or by approximately $2.4 million in the first quarter of 1996 compared to the first quarter of 1995, primarily due to the increased investment income of the Nuclear Decommissioning Trust Fund. Miscellaneous - Net Other Income and Deductions decreased by approximately $3.3 million between the comparative periods as a result of a change in accounting for capitalized conservation investments in 1996. For certain other information which may impact WEC and WE's future financial condition or results of operations, see ITEM 1. LEGAL PROCEEDINGS and ITEM 5. OTHER INFORMATION in Part II of this report. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The following should be read in conjunction with ITEM 3. LEGAL PROCEEDINGS in Part I of WEC's and WE's respective Annual Reports on Form 10-K for the year ended December 31, 1995. STRAY VOLTAGE In March 1996, the Public Service Commission of Wisconsin ("PSCW") concluded technical hearings to further evaluate the results of stray voltage research that has been completed since 1989 and to update, if necessary, PSCW policies regarding stray voltage that were included in a 1989 PSCW order. On April 25, 1996, the PSCW made several preliminary determinations regarding stray voltage policies, indicating that while utilities in the State of Wisconsin are properly handling stray voltage problems, it was adopting a new "level of concern" for stray voltage and changing its isolation policy. The new level of concern is 2.0 milliampere ("mA") for both off-farm and on-farm sources combined, compared with the former level of 1.0 mA (0.5 volts) established by the PSCW in 1989. Also, a utility was previously required to install equipment that would isolate a farm from the utility's distribution system if stray voltage was measured above certain minimum levels. Under the new policy, customers will have the option of requesting installation of isolation equipment at their own expense, regardless of the level of stray voltage present. These preliminary determinations on stray voltage policies are likely to increase the number of investigations performed by WE, but WE does not anticipate that this will have a significant impact on its financial position or results of operations. WE expects the PSCW to issue a final order in May 1996. - 14 - 15 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) ITEM 5. OTHER INFORMATION POINT BEACH UNIT 2 STEAM GENERATORS & DRY CASK STORAGE PROJECT Information concerning the PSCW's initial approval of WE's application to utilize dry cask storage for spent nuclear fuel generated at Point Beach Nuclear Plant ("Point Beach") and pending legal proceedings with respect to the PSCW's decision, and information with respect to WE's application to the PSCW for the replacement of the Unit 2 steam generators at Point Beach, is contained in Item 1. BUSINESS - "SOURCES OF GENERATION - Nuclear" of WEC's and WE's respective annual reports on Form 10-K for the year ended December 31, 1995 (the "1995 10-K's"). On March 20, 1996, the PSCW filed an appeal with the Wisconsin Court of Appeals from the December 22, 1995 decision of the Dane County Circuit Court vacating and remanding the February 13, 1995 order of the PSCW, which had granted WE authority to construct and operate an Independent Spent Fuel Storage Installation ("ISFSI") for dry cask storage of spent nuclear fuel at Point Beach. The Circuit Court decision, issued in an action commenced by intervenors in the PSCW proceeding as described in the 1995 10-K's, was based primarily on the court's determination that the Environmental Impact Statement ("EIS") prepared by the PSCW for the project was inadequate. WE has joined the appeal in support of the PSCW on the issues regarding the adequacy of the EIS. On April 16, 1996, the PSCW unanimously approved WE's application to replace the Unit 2 steam generators at Point Beach and reaffirmed its prior decision approving WE's construction and operation of the ISFSI. Failure by the PSCW to approve the steam generator replacement and reaffirm authorization for the ISFSI would have jeopardized the continued operation of Point Beach. The Unit 2 replacement steam generators are necessary due to the degradation of some of the tubes within the steam generators and will permit operation of the generating unit at least until its current operating license expires in 2013. The steam generators will be replaced during the fall refueling outage scheduled to begin in October 1996. The ISFSI will provide interim dry cask storage of spent fuel from Point Beach until the United States Department of Energy takes ownership of and removes the spent fuel under an existing contract mandated by federal law. The ISFSI is necessary because the spent fuel pool inside the plant is nearly full. Construction of the ISFSI was completed during 1995 and one cask was loaded with spent fuel in December 1995, after which the transfer of spent fuel to the ISFSI was temporarily suspended by WE pending the PSCW's further action in response to the Circuit Court decision remanding the PSCW's initial order authorizing the ISFSI. WE anticipates receiving a written order from the PSCW in May 1996 approving replacement of the Unit 2 steam generators and reaffirming approval of the ISFSI. Upon receipt of the written order, WE will resume transfer of spent fuel to the ISFSI and plans to load three additional casks with spent fuel during the remainder of 1996. It is expected that intervenors in the PSCW proceeding will seek judicial review of such order. - 15 - 16 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) DEVELOPMENT OF ISO FOR WISCONSIN TRANSMISSION SYSTEM The PSCW is conducting a generic investigation into the electric utility industry in Wisconsin. As part of that investigation, it has stated that it intends to develop an Independent System Operator ("ISO") for the statewide transmission system. It has further indicated that in the event an ISO cannot be developed that effectively separates control and operation of the transmission system from the ownership of generation, it intends to proceed to develop a Transco, which would own, operate and control transmission in the State of Wisconsin. The PSCW has requested Wisconsin utilities, including WE, to develop an ISO proposal to meet the needs of Wisconsin's electric utility industry and its customers. WE strongly supports an ISO for the State of Wisconsin structured to become part of a larger Midwest ISO proposed by WE and various other major midwest utilities. Presently, WE is one of 20 utilities who are participating in the formation of the Midwest ISO. WE intends to actively participate in development of the Wisconsin statewide and Midwest ISO proposals. However, WE cannot predict whether such efforts will be successful or the timing of the implementation of such proposals, if adopted. FERC OPEN ACCESS TRANSMISSION RULING On April 24, 1996, the Federal Energy Regulatory Commission ("FERC") issued two final orders relating to open access transmission service, stranded costs, standards of conduct and open access same-time information systems. The ruling is intended to create a more competitive wholesale electric power market. The first order, Order No. 888, requires public utilities owning, controlling or operating transmission lines to file non-discriminatory open access tariffs that offer others the same transmission service provided to themselves and requires the use of the tariffs for their own wholesale energy sales and purchases. Order No. 888 also provides for the full recovery of "stranded costs" that were prudently incurred to serve power customers and that could go unrecovered if wholesale customers use open access to move to another electric energy supplier. The second order, Order No. 889, works to ensure that transmission owners and their affiliates do not have an unfair competitive advantage in using transmission to sell power. Order No. 889 establishes standards of conduct and requires that a public utility rely on the same electronic information network that its transmission customers rely on to obtain information about its transmission system when buying or selling power. WE advocates open access to transmission facilities as a necessary step in the competitive restructuring of the electric utility industry and does not believe that the ruling by the FERC will have a negative material effect on it's financial position or results of operations. The open access transmission orders will become effective in mid-1996. In its open access transmission ruling, the FERC has encouraged utilities to consider ISOs such as the Wisconsin statewide and Midwest ISOs noted above as a tool to meet the demands of a competitive market for electric energy. - 16 - 17 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) MINERGY GLASS AGGREGATE PLANT Minergy Corp. ("Minergy"), a non-regulated WEC subsidiary, plans to place into operation in late 1997 a $45 million facility in Neenah, Wisconsin that would recycle paper sludge from area paper mills into two usable products: glass aggregate and steam. The glass aggregate will be sold into existing construction and aggregate markets and the steam will be sold to a local paper mill. During 1995, Minergy received the necessary approvals from the City of Neenah for construction of the facility, and the Wisconsin Department of Natural Resources issued the necessary air pollution control permit for the plant in April 1996. Construction of the plant is currently scheduled to begin in early summer 1996. MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY On April 28, 1995, WEC and Northern States Power Company, a Minnesota corporation ("NSP"), entered into an Agreement and Plan of Merger, which was amended and restated as of July 26, 1995 ("Merger Agreement"). The Merger Agreement provides for a strategic business combination involving WEC and NSP in a "merger-of-equals" transaction ("Transaction"). As a result, WEC will become a registered public utility holding company under the Public Utility Holding Company Act of 1935, as amended ("PUHCA"), and will change its name to Primergy Corporation ("Primergy"). Primergy will be the parent company of WE (which will be renamed Wisconsin Energy Company), of NSP (which, for regulatory reasons, will reincorporate in Wisconsin ("New NSP")), and of the other subsidiaries of WEC and NSP. In connection with the Transaction, Northern States Power Company, a Wisconsin corporation ("NSP-WI"), currently a utility subsidiary of NSP, will be merged into Wisconsin Energy Company. Prior to the merger of NSP-WI into Wisconsin Energy Company, New NSP will acquire from NSP-WI certain gas utility assets in LaCrosse and Hudson, Wisconsin with a net historical cost at March 31, 1996 of $18 million. The Transaction is intended to be tax-free for income tax purposes and to be accounted for as a "pooling of interests". On September 13, 1995, the stockholders of WEC and NSP voted to approve the proposed Transaction. The Merger Agreement is subject to various conditions, including the approval of various regulatory agencies. On April 10, 1996, the Michigan Public Service Commission approved the merger application through a settlement agreement containing terms consistent with the merger application. This is the first of four states to act where approval of the Transaction is required. On April 5, 1996, WEC and NSP submitted the initial filing to the Securities and Exchange Commission ("SEC") to facilitate registration of Primergy under PUHCA. In 1996, WEC and NSP also will file required notifications with the Federal Trade Commission and the Department of Justice under the Hart-Scott- Rodino Antitrust Improvements Act of 1976, as amended. Subject to obtaining all requisite approvals, WEC and NSP anticipate completing the Transaction by January 1, 1997. Filings with regulatory agencies in the states where WEC and NSP provide utility services and in which such filings are required include a request for deferred accounting treatment and rate recovery of costs incurred associated with the Transaction. As of March 31, 1996, WEC has deferred $8.9 million of - 17 - 18 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY - Cont'd costs associated with the Transaction as a component of Deferred Charges and Other Assets-Other. Detailed information with respect to the Merger Agreement and the proposed Transaction is contained in WEC's and WE's respective 1995 Annual Reports on Form 10-K and in the Joint Proxy Statement/Prospectus dated August 7, 1995 (contained in WEC's Registration Statement on Form S-4, Registration No. 33-61619) relating to the meetings of the stockholders of WEC and NSP to vote on the Merger Agreement and related matters. PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following summarized unaudited pro forma financial information combines historical balance sheet and income statement information of WEC and NSP and of WE and NSP-WI to give effect to the Transaction to form Primergy and Wisconsin Energy Company. This information should be read in conjunction with the historical financial statements and related notes thereto of WEC, NSP, WE and NSP-WI. The allocation between WEC and NSP and their customers of the estimated cost savings resulting from the Transaction, net of costs incurred to achieve such estimated cost savings, will be subject to regulatory review and approval. Cost savings resulting from the Transaction are estimated to be approximately $2 billion over a 10-year period, net of transaction costs (including fees for financial advisors, attorneys, accountants, consultants, filings and printing) and costs to achieve the savings of approximately $30 million and $122 million, respectively. None of the estimated cost savings, the costs to achieve such savings, nor transaction costs are reflected in the unaudited pro forma financial information. With the exception of certain non-current deferred tax balance sheet reclassifications described below, all other financial statement presentation and accounting policy differences are immaterial and have not been adjusted in the unaudited pro forma financial information. The unaudited pro forma balance sheet information gives effect to the Transaction as if it had occurred at March 31, 1996. The unaudited pro forma income statement information gives effect to the Transaction as if it had occurred at January 1, 1996. The following information is not necessarily indicative of the financial position or operating results that would have occurred had the Transaction been consummated on the date or at the beginning of the period for which the Transaction is being given effect nor is it necessarily indicative of future operating results or financial position. Primergy Information The following summarized Primergy unaudited pro forma financial information reflects the combination of the historical financial statements of WEC and NSP after giving effect to the Transaction to form Primergy. A $143 million pro forma adjustment has been made to conform the presentation of noncurrent deferred income taxes in the summarized unaudited pro forma combined balance - 18 - 19 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS - Cont'd sheet information as a net liability. The unaudited pro forma combined earnings per common share reflect pro forma adjustments to average NSP common shares outstanding in accordance with the provisions of the Merger Agreement, whereby each outstanding share of NSP common stock will be converted into 1.626 shares of Primergy common stock. In the Transaction, each outstanding share of WEC common stock will remain outstanding as a share of Primergy common stock. ============================================================================== Primergy Corporation: Unaudited WEC NSP Pro Forma (As Reported) (As Reported) Combined ------------- ------------- ------------- (Millions, except per share amounts) As of March 31, 1996: Utility plant-net $ 2,907 $ 4,321 $ 7,228 Current assets 502 838 1,340 Other assets * 1,129 1,222 2,208 ----------- ----------- ----------- Total Assets $ 4,538 $ 6,381 $ 10,776 =========== =========== =========== Common stockholder's equity $ 1,893 $ 2,066 $ 3,959 Preferred stock and premium 30 241 271 Long-term debt 1,356 1,668 3,024 ----------- ----------- ----------- Total Capitalization 3,279 3,975 7,254 Current liabilities 400 998 1,398 Other liabilities * 859 1,408 2,124 ----------- ----------- ----------- Total Equity & Liabilities $ 4,538 $ 6,381 $ 10,776 =========== =========== =========== For the Three Months Ended March 31, 1996: Utility Operating Revenues $ 495 $ 719 $ 1,214 Utility Operating Income $ 85 $ 89 $ 174 Net Income, after Preferred Dividend Requirements $ 63 $ 64 $ 127 Earnings per Common Share: As Reported $ 0.57 $ 0.94 - Primergy Shares - - $ 0.57 ============================================================================== * Includes a $143 million pro forma adjustment to conform the presentation of noncurrent deferred taxes as a net liability. Wisconsin Energy Company Information The following summarized Wisconsin Energy Company unaudited pro forma financial information combines historical balance sheet and income statement information of WE and NSP-WI to give effect to the Transaction, including the - 19 - 20 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS - Cont'd transfer of certain gas assets from NSP-WI to New NSP. The unaudited pro forma income statement information does not reflect adjustments for 1996 first quarter revenues of $14.5 million and related expenses associated with the transfer of certain gas assets from NSP-WI to New NSP. A $139 million pro forma adjustment has been made to conform the presentation of noncurrent deferred income taxes in the summarized unaudited pro forma combined balance sheet information as a net liability. A net $18 million pro forma adjustment has also been made in the summarized unaudited pro forma combined balance sheet information to reflect the transfer of certain gas assets from NSP-WI to New NSP. Earnings per share of common stock are not applicable because all of the Wisconsin Energy Company common stock will be owned by Primergy. ============================================================================== Wisconsin Energy Company: ** Unaudited WE NSP-WI Pro Forma (As Reported) (As Reported) Combined*** ------------- ------------- ------------- (Millions of Dollars) As of March 31, 1996: Utility plant-net $ 2,907 $ 655 $ 3,542 Current assets 485 73 574 Other assets 896 60 816 ----------- ----------- ----------- Total Assets $ 4,288 $ 788 $ 4,932 =========== =========== =========== Common stockholder's equity $ 1,718 $ 325 $ 2,043 Preferred stock and premium 30 - 30 Long-term debt 1,314 213 1,527 ----------- ----------- ----------- Total Capitalization 3,062 538 3,600 Current liabilities 380 95 475 Other liabilities 846 155 857 ----------- ----------- ----------- Total Equity & Liabilities $ 4,288 $ 788 $ 4,932 =========== =========== =========== For the Three Months Ended March 31, 1996: Utility Operating Revenues $ 495 $ 139 $ 634 Utility Operating Income $ 85 $ 17 $ 102 Net Income, after Preferred Dividend Requirements $ 62 $ 13 $ 75 ============================================================================== ** In connection with the Merger Agreement, WE will be renamed Wisconsin Energy Company. *** Includes a $139 million pro forma adjustment to conform the presentation of noncurrent deferred taxes as a net liability and a net $18 million pro forma adjustment for the transfer of selected gas assets from NSP-WI to New NSP. - 20 - 21 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) CAUTIONARY FACTORS The Private Securities Litigation Reform Act of 1995 provides a new "safe harbor" for forward-looking statements to encourage such disclosures without the threat of litigation providing those statements are identified as forward- looking and are accompanied by meaningful cautionary statements about risks and uncertainties that could cause actual results to differ materially from those projected in the statement. When used in written documents or oral presentations, the words "anticipate", "believe", "estimate", "expect", "objective" and similar expressions are intended to identify forward-looking statements. This report and other documents or oral presentations contain or may contain forward-looking statements made by or on behalf of WEC or WE. Such statements are based upon management's current expectations. In addition to the assumptions and other factors referred to specifically in connection with such statements, factors that could cause WEC's or WE's actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: Operating, Financial and Industry Factors * Factors affecting utility operations such as unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages, maintenance or repairs; unanticipated changes in fossil fuel, nuclear fuel or gas supply costs or availability due to higher demand, shortages, transportation problems or other developments; nuclear or environmental incidents; resolution of spent nuclear fuel storage and disposal and steam generator replacement issues; electric transmission or gas pipeline system constraints; unanticipated organizational structure or key personnel changes; collective bargaining agreements with union employees or work stoppages; inflation rates; or demographic and economic factors affecting utility service territories or operating environment. * The rapidly changing and increasingly competitive electric and gas utility environment as market-based forces replace strict industry regulation and other competitors enter the electric and gas markets resulting in increased wholesale and retail competition. * Customer business conditions including demand for their products or services and supply of labor and materials used in creating their products and services. * Regulatory factors such as unanticipated changes in rate-setting policies or procedures; unanticipated changes in regulatory accounting policies and practices; industry restructuring initiatives; transmission system operation and/or administration initiatives; recovery of costs of previous investments made under traditional regulation; required approvals for new construction; Nuclear Regulatory Commission operating regulation changes related to Point Beach Nuclear Plant; or the siting approval process for new generating and transmission facilities. * The cost and other effects of legal and administrative proceedings, settlements, and investigations, claims and changes in those matters. - 21 - 22 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) CAUTIONARY FACTORS - Cont'd * Factors affecting the availability or cost of capital such as changes in interest rates; market perceptions of the utility industry, the Company or any of its subsidiaries; or security ratings. * Federal, state or local legislative factors such as changes in tax laws or rates; changes in trade, monetary and fiscal policies, laws and regulations; electric and gas industry restructuring initiatives; or changes in environmental laws and regulations. * Certain restrictions imposed by various financing arrangements and regulatory requirements on the ability of WE to transfer funds to WEC in the form of cash dividends, loans or advances. * Authoritative generally accepted accounting principle or policy changes from such standard setting bodies as the Financial Accounting Standards Board and the Securities and Exchange Commission ("SEC"). * Unanticipated technological developments that result in competitive disadvantages and create the potential for impairment of existing assets. * Changes in social attitudes regarding the utility and power industries. * Possible risks associated with nonutility diversification such as competition; operating risks; dependence upon certain suppliers and customers; or environmental and energy regulations. * Other business or investment considerations that may be disclosed from time to time in WEC's or WE's SEC filings or in other publicly disseminated written documents. Business Combination Factors * Consummation of the Transaction with NSP to form Primergy and Wisconsin Energy Company, which will have a significant effect on the future operations and financial position of WEC and WE, respectively. Specific factors include: * The ability to consummate the Transaction on substantially the basis contemplated. * The ability to obtain the requisite approvals by all applicable regulatory authorities. * The ability to generate the cost savings to Primergy that WEC and NSP believe will be generated by the synergies resulting from the Transaction. This depends upon the degree to which the assumptions upon which the analyses employed to develop estimates of potential cost savings as a result of the Transaction will approximate actual experience. Such assumptions involve judgements with respect to, among - 22 - 23 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) CAUTIONARY FACTORS - Cont'd other things, future national and regional economic conditions, national and regional competitive conditions, inflation rates, regulatory treatment, weather conditions, financial market conditions, business decisions and other uncertainties. All of these factors are difficult to predict and many are beyond the control of WEC and NSP. While it is believed that such assumptions are reasonable, there can be no assurance that they will approximate actual experience or that the estimated cost savings will be realized. * The allocation of the benefits of cost savings between shareholders and customers, which will depend, among other things, upon the results of regulatory proceedings in various jurisdictions. * The rate structure of Primergy's utility subsidiaries. * Additional regulation to which Primergy will be subject as a registered public utility holding company under PUHCA, in contrast to the more limited impact of PUHCA upon WEC and NSP as exempt holding companies, and other different or additional federal and state regulatory requirements or restrictions to which Primergy and its subsidiaries may be subject as a result of the Transaction (including conditions which may be imposed in connection with obtaining the regulatory approvals necessary to consummate the Transaction such as the possible requirement to divest gas utility properties and possibly certain nonutility ventures). * Factors affecting the dividend policy of Primergy including results of operations and financial condition of Primergy and its subsidiaries and such other business considerations as the Primergy Board of Directors considers relevant. WEC and WE undertake no obligation to publicly update or revise any forward- looking statements, whether as a result of new information, future events or otherwise. - 23 - 24 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following Exhibits are filed with the applicable Form 10-Q report: Exhibit No. WEC Exhibits (27)-1 Wisconsin Energy Corporation ("WEC") Financial Data Schedule for the three months ended March 31, 1996. WE Exhibits (27)-2 Wisconsin Electric Power Company ("WE") Financial Data Schedule for the three months ended March 31, 1996. (b) Reports on Form 8-K. No reports on Form 8-K were filed by WEC during the quarter ended March 31, 1996. A Current Report on Form 8-K dated as of January 1, 1996 was filed by WE on January 16, 1996 to report the consummation of the merger of Wisconsin Natural Gas Company into WE, incorporate by reference or file related historical and pro forma financial statements and exhibits, and report developments concerning WE's Point Beach Nuclear Plant Independent Spent Fuel Storage Installation. - 24 - 25 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WISCONSIN ENERGY CORPORATION -------------------------------------- (Registrant) /s/ R. A. Abdoo -------------------------------------- Date: May 15, 1996 R. A. Abdoo, Chairman of the Board, President and Chief Executive Officer /s/ C. H. Baker -------------------------------------- Date: May 15, 1996 C. H. Baker, Treasurer and Chief Financial Officer - Principal Financial Officer WISCONSIN ELECTRIC POWER COMPANY -------------------------------------- (Registrant) /s/ R. R. Grigg, Jr. -------------------------------------- Date: May 15, 1996 R. R. Grigg, Jr., President and Chief Operating Officer /s/ A. K. Klisurich -------------------------------------- Date: May 15, 1996 A. K. Klisurich, Controller - Principal Accounting Officer - 25 - 26 FORM 10-Q WISCONSIN ENERGY CORPORATION ---------------------------------------- FORM 10-Q REPORT FOR THE QUARTER ENDED MARCH 31, 1996 EXHIBIT INDEX Exhibit No. - ----------- The following Exhibits are filed with this report: (27)-1 Wisconsin Energy Corporation Financial Data Schedule for the three months ended March 31, 1996. - 26 - EX-27.1 2 WEC SCHEDULE UT - THREE MONTHS ENDED MARCH 31, 1996
UT THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS OF WISCONSIN ENERGY CORPORATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS DEC-31-1996 JAN-01-1996 MAR-31-1996 3-MOS 1 PER-BOOK 2,906,736 644,552 501,847 0 484,588 4,537,723 1,108 676,909 1,215,326 1,893,343 0 30,450 1,127,645 63,550 207,825 74,776 10,435 0 20,383 18,929 1,090,387 4,537,723 495,457 38,528 371,784 410,312 85,145 5,093 90,238 27,133 63,105 301 62,804 40,726 0 167,728 .57 .57 See financial statements and footnotes in accompanying 10-Q.
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