-----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, E16q+ZXlsE6bxaEnc1+uIfFRZ5WfPjGVPityIlBfWswiISq9eIrufG8zoqACtA7G WCel+H6ao8iHoeks6ZKFwg== /in/edgar/work/0000107815-00-000017/0000107815-00-000017.txt : 20001115 0000107815-00-000017.hdr.sgml : 20001115 ACCESSION NUMBER: 0000107815-00-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WISCONSIN ENERGY CORP CENTRAL INDEX KEY: 0000783325 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 391391525 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09057 FILM NUMBER: 767262 BUSINESS ADDRESS: STREET 1: 231 W MICHIGAN ST STREET 2: P O BOX 2949 CITY: MILWAUKEE STATE: WI ZIP: 53201 BUSINESS PHONE: 4142212345 MAIL ADDRESS: STREET 1: 231 WEST MICHIGAN STREET STREET 2: P O BOX 2949 CITY: MILWAUKEE STATE: WI ZIP: 53201 10-Q 1 0001.txt WISCONSIN ENERGY CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2000 Commission Registrant; State of Incorporation IRS Employer File Number Address; and Telephone Number Identification No. ----------- ---------------------------------- ------------------ 001-09057 WISCONSIN ENERGY CORPORATION 39-1391525 (A Wisconsin Corporation) 231 West Michigan Street P.O. Box 2949 Milwaukee, WI 53201 (414) 221-2345 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 each 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 Registrant's classes of common stock, as of the latest practicable date (October 31, 2000): Common Stock, $.01 Par Value 120,995,273 shares outstanding.
WISCONSIN ENERGY CORPORATION -------------------------------- FORM 10-Q REPORT FOR THE QUARTER ENDED SEPTEMBER 30, 2000 TABLE OF CONTENTS Item Page - ---- ---- Introduction............................................................... Part I - Financial Information ------------------------------ 1. Financial Statements Consolidated Condensed Income Statement.................................. Consolidated Condensed Balance Sheet..................................... Consolidated Condensed Statement of Cash Flows........................... Notes to Financial Statement............................................. 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations........................... 3. Quantitative and Qualitative Disclosures About Market Risk................. Part II - Other Information --------------------------- 1. Legal Proceedings.......................................................... 5. Other Information.......................................................... 6. Exhibits and Reports on Form 8-K........................................... Signatures.................................................................
INTRODUCTION Wisconsin Energy Corporation is a diversified holding company with subsidiaries primarily in three segments described in further detail below: a utility energy segment, a non-utility energy segment and a manufacturing segment. Unless qualified by their context when used in this document, the terms "Wisconsin Energy" or "the Company" refer to the holding company and all of its subsidiaries. UTILITY ENERGY SEGMENT: The utility energy segment consists of Wisconsin Electric Power Company ("Wisconsin Electric"), an electric, gas and steam utility; Wisconsin Gas Company ("Wisconsin Gas"), a gas and water utility; and Edison Sault Electric Company ("Edison Sault"), an electric utility. NON-UTILITY ENERGY SEGMENT: The non-utility energy segment consists primarily of Wisvest Corporation ("Wisvest"), which develops, owns and operates electric generating facilities and invests in other energy-related entities; WICOR Energy Services Company ("WICOR Energy"), which engages in natural gas purchasing and marketing as well as energy and price risk management; and FieldTech, Inc. ("FieldTech"), which provides meter reading and technology services for gas, electric and water utilities. MANUFACTURING SEGMENT: The manufacturing segment consists of Sta-Rite Industries, Inc. ("Sta-Rite"), SHURflo Pump Manufacturing Co. ("SHURflo") and Hypro Corporation ("Hypro"), which are manufacturers of pumps as well as fluid processing and filtration equipment. OTHER: Other non-utility operating subsidiaries of Wisconsin Energy include primarily Minergy Corp. ("Minergy"), which develops and markets recycling technologies and Wispark LLC. ("Wispark"), formerly Wispark Corporation, which develops and invests in real estate. Among other companies, "Other" also includes Wisconsin Energy Corporation, the parent holding company, as well as Wisconsin Energy Capital Corporation, which engages in investing and financing activities. Wisconsin Gas, WICOR Energy, FieldTech, Sta-Rite, SHURflo and Hypro were acquired by Wisconsin Energy as a result of the Company's acquisition of WICOR, Inc. ("WICOR"), on April 26, 2000. For additional information related to the acquisition of WICOR, see Item 1. Financial Statements - "Notes To Financial Statements" and Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations" and "Liquidity and Capital Resources" in Part I of this report. The unaudited interim financial statements presented in this Form 10-Q have been prepared by Wisconsin Energy pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note 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. Wisconsin Energy's financial statements should be read in conjunction with the financial statements and notes thereto included in Wisconsin Energy's 1999 Annual Report on Form 10-K as well as in WICOR's 1999 Annual Report on Form 10-K. PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ENERGY CORPORATION CONSOLIDATED CONDENSED INCOME STATEMENT (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 ------------------------- -------------------------- 2000 1999 2000 1999 ----------- ---------- ----------- ---------- (Millions of Dollars, Except Per Share Amounts) Operating Revenues Utility energy $607.2 $522.4 $1,709.6 $1,537.0 Non-utility energy 98.2 60.8 248.7 130.6 Manufacturing 134.7 - 244.5 - Other 10.7 8.1 31.0 19.4 ------ ------ -------- -------- Total Operating Revenues 850.8 591.3 2,233.8 1,687.0 Operating Expenses Fuel and purchased power 169.5 168.4 492.8 436.0 Cost of gas sold 105.9 22.5 260.8 119.1 Cost of goods sold 98.5 - 175.8 - Other operation and maintenance 233.0 174.8 643.1 535.7 Depreciation, decommissioning and amortization 88.0 64.1 243.4 185.6 Property and revenue taxes 21.2 19.0 61.9 55.9 ------ ------- -------- -------- Total Operating Expenses 716.1 448.8 1,877.8 1,332.3 ------ ------- -------- -------- Operating Income 134.7 142.5 356.0 354.7 Other Income and Deductions Interest income 8.7 5.2 18.9 14.2 Allowance for other funds used during construction 0.5 0.7 2.4 3.1 Other 6.4 (2.2) 9.5 0.1 ------ ------- -------- -------- Total Other Income and Deductions 15.6 3.7 30.8 17.4 Financing Costs Interest expense 71.2 37.9 174.3 107.5 Allowance for borrowed funds used during construction (3.8) (2.5) (10.2) (6.8) Distributions on preferred securities of subsidiary trust 3.5 3.5 10.3 7.1 Preferred dividend requirement of subsidiary 0.3 0.3 0.9 0.9 ------ ------- -------- -------- Total Financing Costs 71.2 39.2 175.3 108.7 ------ ------- -------- -------- Income Before Income Taxes 79.1 107.0 211.5 263.4 Income Taxes 34.5 38.1 86.2 92.1 ------ ------- -------- -------- Net Income $44.6 $68.9 $125.3 $171.3 ====== ======= ======== ======== Earnings Per Share of Common Stock Basic $0.37 $0.59 $1.04 $1.47 Diluted $0.36 $0.59 $1.03 $1.47 Dividends Per Share of Common Stock $0.39 $0.39 $1.17 $1.17 Average Outstanding Number of Shares of Common Stock (Millions) 121.9 117.3 120.7 116.6 Diluted Shares (Millions) 122.8 117.3 121.3 116.6 The accompanying notes are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION CONSOLIDATED CONDENSED BALANCE SHEET (Unaudited) September 30, 2000 December 31, 1999 ------------------ ----------------- (Millions of Dollars) Assets ------ Property, Plant and Equipment Utility energy $6,766.7 $6,161.1 Non-utility energy 223.9 199.0 Manufacturing 113.0 - Other 174.6 351.0 Accumulated provision for depreciation (3,432.5) (3,250.0) -------- -------- 3,845.7 3,461.1 Construction work in progress 269.2 174.8 Leased facilities - net 123.1 127.3 Nuclear fuel - net 87.9 83.4 -------- -------- Net Property, Plant and Equipment 4,325.9 3,846.6 Investments 838.3 950.3 Current Assets Cash and cash equivalents 46.3 73.5 Accounts receivable 507.2 242.3 Accrued utility revenues 114.4 134.6 Materials, supplies and fossil fuel 425.9 231.6 Net assets held for sale 387.3 - Prepayments and other assets 118.1 123.9 -------- -------- Total Current Assets 1,599.2 805.9 Deferred Charges and Other Assets Goodwill 909.5 57.8 Accumulated deferred income taxes 226.4 198.0 Other 707.7 374.5 -------- -------- Total Deferred Charges and Other Assets 1,843.6 630.3 -------- -------- Total Assets $8,607.0 $6,233.1 ======== ======== Capitalization and Liabilities ------------------------------ Capitalization Common stock equity $2,076.6 $2,007.8 Preferred stock 30.4 30.4 Company-obligated, mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company 200.0 200.0 Long-term debt 2,290.6 2,134.6 -------- -------- Total Capitalization 4,597.6 4,372.8 Current Liabilities Long-term debt due currently 64.6 69.1 Short-term debt 2,003.7 507.5 Accounts payable 292.7 174.0 Accrued liabilities 209.2 99.7 Other 114.5 48.3 -------- -------- Total Current Liabilities 2,684.7 898.6 Deferred Credits and Other Liabilities Accumulated deferred income taxes 753.1 624.9 Other 571.6 336.8 -------- -------- Total Deferred Credits and Other Liabilities 1,324.7 961.7 -------- -------- Total Capitalization and Liabilities $8,607.0 $6,233.1 ======== ======== The accompanying notes are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Nine Months Ended September 30 ------------------------------ 2000 1999 --------- ----------- (Millions of Dollars) Operating Activities Net income $125.3 $171.3 Reconciliation to cash Depreciation, decommissioning and amortization 261.0 205.2 Nuclear fuel expense - amortization 22.5 20.3 Deferred income taxes - net (7.1) (8.6) Investment tax credit - net (3.3) (3.4) Allowance for other funds used during construction (2.4) (3.1) Change in - Accounts receivable (51.0) (21.9) Inventories (68.4) (9.8) Other current assets 85.0 49.4 Accounts payable 29.3 (31.9) Other current liabilities 20.4 30.2 Other 11.9 4.0 -------- ------ Cash Provided by Operating Activities 423.2 401.7 Investing Activities Capital expenditures (462.0) (382.4) Acquisitions (1,233.3) (276.8) Allowance for borrowed funds used during construction (10.2) (6.8) Nuclear fuel (31.4) (16.0) Nuclear decommissioning trust (44.5) (30.7) Other 31.6 (68.1) -------- ------ Cash Used in Investing Activities (1,749.8) (780.8) Financing Activities Issuance of common stock 71.1 54.0 Issuance of long-term debt 63.3 274.5 Issuance of mandatorily redeemable trust preferred securities - 193.7 Repurchase of common stock (21.1) - Retirement of long-term debt (34.9) (79.1) Change in short-term debt 1,362.1 97.2 Dividends paid on common stock (141.1) (136.3) Other - (1.4) -------- ------ Cash Provided by Financing Activities 1,299.4 402.6 -------- ------ Change in Cash and Cash Equivalents (27.2) 23.5 Cash and Cash Equivalents at Beginning of Period 73.5 16.6 -------- ------ Cash and Cash Equivalents at End of Period $46.3 $40.1 ======== ====== Supplemental Information - Cash Paid For Interest (net of amount capitalized) $149.7 $106.2 Income taxes 45.7 105.9 The accompanying notes are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) GENERAL INFORMATION 1. The accompanying unaudited consolidated financial statements for Wisconsin Energy Corporation should be read in conjunction with Item 8. Financial Statements and Supplementary Data in Wisconsin Energy's 1999 Annual Report on Form 10-K as well as in WICOR, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1999. In the opinion of management, all adjustments, normal and recurring in nature, necessary to a fair statement of the results of operations, cash flows and financial position of Wisconsin Energy, have been included in the accompanying income statements, statements of cash flows and balance sheets. The results of operations for the three and nine months ended September 30, 2000 are not necessarily indicative, however, of the results which may be expected for the entire year 2000 because of seasonal and other factors. 2. Due in part to its recent acquisition of WICOR (see Note 3), Wisconsin Energy has modified certain income statement and balance sheet presentations. Prior year financial statement amounts have been reclassified to conform to their current year presentation. ACQUISITION OF WICOR, INC. 3. On April 26, 2000, the Company acquired all of the outstanding common stock of WICOR, Inc., a diversified utility holding company. The purchase price included the payment of $1.2 billion of cash, the assumption of options and restricted shares valued at $37.1 million and the payment of $10.2 million in transaction costs. The Company also assumed approximately $300 million of existing WICOR debt. The cash purchase price of approximately $1.2 billion was funded with commercial paper borrowings. The acquisition was accounted for as a purchase under Accounting Principles Board Opinion No. 16 ("APB 16") and accordingly, the operating results have been included in the Company's consolidated results of operations from the date of acquisition. In accordance with APB 16, a portion of the purchase price has been allocated to assets acquired and liabilities assumed based upon an initial estimate of fair market value at the date of acquisition while approximately $835 million, including approximately $97 million of existing goodwill from WICOR, was recorded as goodwill and is being amortized over 40 years. Portions of the purchase price were identified by independent appraisers utilizing proven valuation procedures and techniques and are subject to adjustment as these estimates are refined and finalized. The following unaudited pro forma data summarize the results of operations for the periods indicated as if the WICOR acquisition had been completed as of the beginning of the periods presented. The pro forma amounts give effect to actual operating results prior to the acquisition, adjusted to include the pro forma effect of interest expense, amortization of intangibles and income taxes. The pro forma information does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined companies.
Pro Forma Nine Months Ended September 30 ------------------------------- Wisconsin Energy Corporation 2000 1999 - ---------------------------- ---------- ---------- (Millions of Dollars, Except Per Share Amounts) Total Operating Revenues $2,669.1 $2,413.6 Net Income $126.8 $156.6 Earnings Per Share Basic $1.05 $1.34 Diluted 1.04 1.32
For additional information related to the acquisition of WICOR, see Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations" and "Liquidity and Capital Resources" in Part I of this report. NET ASSETS HELD FOR SALE 4. During October 2000, the Company closed on the sale of its interest in SkyGen Energy Holdings, LLC which resulted in cash proceeds totaling approximately $332 million (including the repayment of short-term notes receivable and interest) and an estimated gain of $91 million ($54 million after tax or approximately $0.45 per share). In addition, Wisconsin Energy announced in May 2000 that it would sell approximately $260 million of the assets of Wispark LLC. over the following 12 to 18 months. During October 2000, the Company closed on the sale of approximately 20% of the Wispark portfolio that is anticipated to be sold. COMMON EQUITY 5. In September 2000, the board of directors approved a modification to a common stock purchase plan originally authorized in June 2000. Wisconsin Energy now expects to purchase up to $400 million of its shares of common stock in the open market over the following 24 months. Through September 30, 2000 Wisconsin Energy purchased approximately 1.1 million shares of common stock for $21.1 million. During October 2000, Wisconsin Energy purchased an additional 0.9 million shares of common stock for $18.0 million. In addition, the board of directors authorized a reduction of Wisconsin Energy's quarterly common stock dividend in September 2000, effective December 1, 2000, from $0.39 per share (or $1.56 on an annualized basis) to $0.20 per share ($0.80 on an annualized basis). Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Historically, Wisconsin Energy has had no items of other comprehensive income to report. However, as a result of its acquisition of WICOR, Wisconsin Energy has the following total comprehensive income related to its manufacturing segment for the nine months ended September 30, 2000 and 1999:
Nine Months Ended September 30 Wisconsin Energy Corporation ------------------------------ Comprehensive Income 2000 1999 - ---------------------------- ---------- ---------- (Millions of Dollars) Net Earnings $125.3 $171.3 Other Comprehensive Income Currency Translation Adjustments (1.2) - ------ ------ Total Comprehensive Income $124.1 $171.3 ====== ======
ACCOUNTING PRONOUNCEMENTS 6. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities ("FAS 133")," which has been amended by FAS 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FAS 133, an amendment of FAS 133," and by FAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FAS 133." FAS 133 requires that every derivative instrument be recorded on the balance sheet as an asset or liability measured at its fair value and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. FAS 133, as amended, is effective for fiscal years beginning after June 15, 2000 and must be applied to: (a) derivative instruments; and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired or substantively modified after December 31, 1998. Wisconsin Energy is in the process of identifying all derivative instruments, determining fair market values of derivatives, designating and documenting hedge relationships, and evaluating the effectiveness of those hedge relationships. Through this process, the Company has identified a limited number of both financial and physical commodity contracts that meet the definition of a derivative under FAS 133 in its electric and natural gas utility operations as well as in its non-regulated energy operations. These contracts are used to manage Wisconsin Energy's exposure to commodity price and interest rate volatility. While a number of derivatives have been identified, the inventory process is not yet complete and the fair market values of all derivatives identified have not been determined. Consequently, Wisconsin Energy has not completed an assessment of the implications of adopting FAS 133 at this time. Wisconsin Energy expects to implement FAS 133 on January 1, 2001. SEGMENT INFORMATION 7. Wisconsin Energy Corporation is a diversified holding company with subsidiaries in utility and non-utility businesses. Wisconsin Energy's reportable operating segments include a utility energy segment, a non-utility energy segment and a manufacturing segment. Wisconsin Energy has organized its reportable operating segments based in part upon the regulatory environment in which its utility subsidiaries operate. In addition, the segments are managed separately because each business requires different technology and marketing strategies. Intersegment sales and transfers are not significant. The utility energy segment primarily includes Wisconsin Energy's electric and natural gas utility operations. The electric utility operation engages in the generation, transmission, distribution and sale of electric energy in southeastern (including Metropolitan Milwaukee), east central and northern Wisconsin and in the Upper Peninsula of Michigan. The natural gas utility operation is responsible for the purchase, distribution and sale of natural gas to retail customers and the transportation of customer-owned natural gas throughout Wisconsin. The non-utility energy segment derives its revenues primarily from energy activities including independent power production, energy marketing, contract meter reading and related services. The manufacturing segment is responsible for the manufacturing of pumps and processing equipment used to pump, control, transfer, hold and filter water and other fluids. Summarized financial information concerning Wisconsin Energy's reportable operating segments for the three and nine month periods ended September 30, 2000 and 1999 is shown in the following table. Current year information is not comparable with the prior year due to the operating results of the WICOR subsidiaries and the allocation of merger- related costs (principally interest and goodwill amortization expense) to the operating segments.
Reportable Operating Segments -------------------------------------- Energy Other (a) ----------------------- Corporate & Wisconsin Energy Reconciling Total Corporation Utility Non-Utility Manufacturing Eliminations Consolidated - ---------------- ---------- ----------- ------------- ------------ ------------ (Millions of Dollars) Three Months Ended ------------------ September 30, 2000 Operating Revenues $607.2 $98.2 $134.7 $10.7 $850.8 Operating Income (Loss) 113.6 13.2 9.8 (1.9) 134.7 Net Earnings (Loss) 45.2 9.9 1.9 (12.4) 44.6 Capital Expenditures 95.8 38.7 7.4 17.1 159.0 September 30, 1999 Operating Revenues $522.4 $60.8 $ - $8.1 $591.3 Operating Income 125.7 15.5 - 1.3 142.5 Net Earnings (Loss) 63.2 6.8 - (1.1) 68.9 Capital Expenditures 83.0 19.9 - 39.2 142.1 Nine Months Ended ----------------- September 30, 2000 Operating Revenues $1,709.6 $248.7 $244.5 $31.0 $2,233.8 Operating Income (Loss) 325.1 11.5 22.2 (2.8) 356.0 Net Earnings (Loss) 138.7 5.9 6.9 (26.2) 125.3 Capital Expenditures 282.7 108.5 9.9 60.9 462.0 Total Assets $6,395.9 $763.5 $823.4 $624.2 $8,607.0 September 30, 1999 Operating Revenues $1,537.0 $130.6 $ - $19.4 $1,687.0 Operating Income 334.3 19.8 - 0.6 354.7 Net Earnings (Loss) 168.9 6.2 - (3.8) 171.3 Capital Expenditures 271.3 25.8 - 85.3 382.4 Total Assets $4,879.5 $605.0 $ - $447.8 $5,932.3 (a) Other includes all other non-utility activities, primarily non-utility real estate investment and development and non-utility investment in recycling technology as well as corporate interest.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Wisconsin Energy Corporation is a diversified holding company primarily with subsidiaries in a utility energy segment, a non- utility energy segment and a manufacturing segment. Unless qualified by their context when used in this document, the terms "Wisconsin Energy" or "the Company" refer to the holding company and all of its subsidiaries. See Note 3 above in Item 1. Financial Statements - "Notes to Financial Statements" as well as "Factors Affecting Results of Operations" and "Liquidity and Capital Resources" below in this item for information concerning Wisconsin Energy's April 26, 2000 acquisition of WICOR, Inc. This business combination was accounted for as a purchase, and, therefore, is reflected prospectively in Wisconsin Energy's consolidated financial statements from and after the date of the acquisition. CAUTIONARY FACTORS: A number of forward-looking statements are included in this document. When used, the terms "anticipate," "believe," "estimate," "expect," "objective," "plan," "possible," "potential," "project" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to certain risks, uncertainties and assumptions which could cause actual results to differ materially from those that are described, including the factors that are noted in "Factors Affecting Results of Operations" and "Cautionary Factors." RESULTS OF OPERATIONS - 2000 THIRD QUARTER EARNINGS Primarily due to costs related to the acquisition of WICOR, Wisconsin Energy's consolidated net income and diluted earnings per share of common stock decreased from $68.9 million and $0.59 per share, respectively, during the third quarter of 1999 to $44.6 million and $0.36 per share, respectively, during the third quarter of 2000. Between the comparative periods, net earnings decreased as a result of changes in the following:
Three Months Ended September 30 ------------------------------------------------------------------ Amount Diluted Earnings Per Share ------------------------------ ---------------------------------- Net Earnings Summary Excluding Merger Excluding Merger Wisconsin Energy Corporation Merger Costs Costs (a) Total Merger Costs Costs (a) Total ---------------------------- ------------ --------- ----- ------------ --------- ----- (Millions of Dollars) Total - 1999 Third Quarter $68.9 $ - $68.9 $0.59 $ - $0.59 Increase (Decrease) Due To Change In Utility Energy Segment Earnings (12.7) (5.3) (18.0) (0.11) (0.04) (0.15) Non-Utility Energy Segment Earnings 3.1 - 3.1 0.03 - 0.03 Manufacturing Segment Earnings 6.1 (4.2) 1.9 0.05 (0.04) 0.01 Other (b) (3.1) (8.2) (11.3) (0.03) (0.07) (0.10) Shares Outstanding - - - (0.02) - (0.02) ----- ------ ----- ----- ------ ----- (6.6) (17.7) (24.3) (0.08) (0.15) (0.23) ----- ------ ----- ----- ------ ----- Total - 2000 Third Quarter $62.3 ($17.7) $44.6 $0.51 ($0.15) $0.36 ===== ====== ===== ===== ====== ===== (a) Total WICOR merger-related costs of $25.2 million ($17.7 million net of tax) include $20.3 million ($12.8 million net of tax or $0.11 per share) of interest expense and $4.9 million ($4.9 million net of tax or $0.04 per share) of goodwill amortization expense. (b) Excluding merger costs, the decline in "Other" net earnings can be primarily attributed to losses during 2000 by Minergy Corp. and Wispark LLC.
An analysis of contributions to earnings by segment follows. UTILITY ENERGY SEGMENT CONTRIBUTION TO EARNINGS Utility energy segment earnings decreased by $18.0 million between the third quarter of 2000 and the third quarter of 1999, $12.5 million of which is attributable to Wisconsin Gas Company, acquired as part of the acquisition of WICOR. Due to the seasonality of the gas heating business, Wisconsin Gas normally incurs losses in the spring and summer months and records earnings in the fall and winter months. Excluding interest and goodwill amortization expenses related to the WICOR merger, Wisconsin Gas posted a net loss of $7.2 million during the third quarter of 2000 compared to a pro forma net loss of $6.0 million during the third quarter of 1999. As described in further detail below, earnings for Wisconsin Energy's other utility subsidiaries, Wisconsin Electric Power Company and Edison Sault Electric Company, declined $5.5 million between the comparative periods primarily because higher depreciation, decommissioning and amortization expenses offset a $7.1 million increase in electric gross margin that was limited by cooler weather and by higher fuel and purchased power expenses during the third quarter of 2000. The following table reconciles the change in the contribution to earnings by Wisconsin Energy's utility energy segment between the third quarter of 1999 and the third quarter of 2000.
Three Months Ended September 30 ---------------------------------------------------------------- Increase (Decrease) ----------------------------------- Wisconsin Energy Corporation Wisconsin Utility Energy Segment 1999 Gas (a) Other (b) Total 2000 - ---------------------------- -------- ----------- ----------- --------- -------- (Millions of Dollars) Operating Revenues Electric Utility $477.3 $ - $12.6 $12.6 $489.9 Gas Utility 41.7 65.9 6.9 72.8 114.5 Other Utility 3.4 0.2 (0.8) (0.6) 2.8 ------ ----- ----- ------ ------ Total Operating Revenues 522.4 66.1 18.7 84.8 607.2 Fuel and Purchased Power 136.7 - 5.3 5.3 142.0 Cost of Gas Sold 22.5 42.3 7.4 49.7 72.2 ------ ----- ----- ------ ------ Gross Margin 363.2 23.8 6.0 29.8 393.0 Other Operating Expenses Other Operation & Maintenance 160.2 21.6 (1.7) 19.9 180.1 Depreciation, Decommissioning and Amortization 60.0 12.0 8.7 20.7 80.7 Property and Revenue Taxes 17.3 1.2 0.1 1.3 18.6 ------ ----- ----- ------ ------ Operating Income 125.7 (11.0) (1.1) (12.1) 113.6 Other Income, Net 2.0 - 1.6 1.6 3.6 Financing Costs 29.0 7.6 1.4 9.0 38.0 ------ ----- ----- ------ ------ Income Before Income Taxes 98.7 (18.6) (0.9) (19.5) 79.2 Income Taxes 35.5 (6.1) 4.6 (1.5) 34.0 ------ ----- ----- ------ ------ Net Earnings $63.2 ($12.5) ($5.5) ($18.0) $45.2 ====== ===== ===== ====== ====== (a) The acquisition of WICOR was accounted for as a purchase. Wisconsin Energy's financial statements reflect the operations of Wisconsin Gas, a subsidiary of WICOR, subsequent to the merger on April 26, 2000. (b) Other includes Wisconsin Electric, Edison Sault and consolidating adjustments and eliminations between the utilities.
OPERATING REVENUES AND GROSS MARGINS: For further information concerning electric utility operations, see "Electric Utility Revenues, Gross Margins and Sales" below. For further information concerning gas utility operations, see "Gas Utility Revenues, Gross Margins and Therm Deliveries" below. OTHER OPERATION AND MAINTENANCE EXPENSES: Excluding Wisconsin Gas, other operation and maintenance expenses decreased by $1.7 million during the third quarter of 2000 compared to the third quarter of 1999. The most significant changes in other operation and maintenance expenses include $2.6 million of higher non-fuel fossil generation expenses and $3.0 million of higher electric distribution expenses offset by a $3.4 million decline in customer service expenses and $3.1 million of lower administrative and general expenses. Non-fuel fossil generation expenses increased during 2000 primarily due to differences in the scope and timing of scheduled maintenance outages for various generating facilities at Wisconsin Electric. Electric distribution expenses were higher due to increased forestry and maintenance activity. Between the comparative periods, customer service expenses were lower primarily due to a change in the period over which conservation expenses are being amortized. Administrative and general expenses decreased primarily due to a decline in costs associated with contract labor, which was used during 1999 to prepare the Company for the Year 2000 and for other technology matters. DEPRECIATION, DECOMMISSIONING AND AMORTIZATION EXPENSES: Excluding Wisconsin Gas, depreciation, decommissioning and amortization expenses were $8.7 million higher during the third quarter of 2000 compared with the third quarter of 1999. Pursuant to a 1998 rate order for the 1998/1999 test year, Wisconsin Electric was amortizing pre-1991 contributions in aid of construction at a rate which reduced annual depreciation expense by $22.8 million. This amortization, which was completed as of December 31, 1999, had the effect of reducing depreciation expense by $5.7 million during the third quarter of 1999. Higher average depreciable plant during the third quarter of 2000 also contributed to an increase in depreciation expense. INCOME TAXES: The effective income tax rate increased in the third quarter of 2000 as compared with the prior year primarily due to the end of amortization of pre-1991 contributions in aid of construction as described above. Electric Utility Revenues, Gross Margins and Sales During the third quarter of 2000, Wisconsin Energy's total electric utility operating revenues increased by $12.6 million or 2.6% compared to the third quarter of 1999. Gross margin on electric utility operating revenues (electric utility operating revenues less fuel and purchased power expenses) increased by $7.2 million or 2.1%. Wisconsin Energy attributes this growth in part to interim and final electric retail rate increases that became effective in early April 2000 and on August 31, 2000, respectively. For additional information concerning these rate increases, see Item 1. Legal Proceedings - "Utility Rates and Regulatory Matters" in Part II of this report. The third quarter of 2000 was 30% cooler than the third quarter of 1999 which significantly reduced higher margin residential electric sales during the third quarter of 2000. The change in gross margin between the comparative periods also reflects higher fuel and purchased power costs. Wisconsin Energy was able to limit its increase in fuel costs to $0.6 million or 0.7% by changing its mix of generation from high cost natural gas- fired generation to lower cost coal-fired generation during the third quarter of 2000. However, purchased power expenses grew by $4.8 million or 9.6% due to higher fixed costs during the third quarter of 2000 associated with long-term purchased power contracts. The following table compares Wisconsin Energy's electric utility operating revenues, gross margins and electric utility energy sales during the third quarter of 2000 with similar information for the third quarter of 1999.
Gross Margin Megawatt-Hour Sales Three Months Ended September 30 Three Months Ended September 30 Wisconsin Energy Corporation -------------------------------- -------------------------------- Electric Utility Operations 2000 1999 % Change 2000 1999 % Change - ---------------------------- ------ ------ -------- ------ ------ -------- (Millions of Dollars) (Thousands, Except Degree Days) Operating Revenues Residential $155.7 $157.4 (1.1%) 1,962.8 2,051.3 (4.3%) Small Commercial/Industrial 147.7 141.1 4.7% 2,307.4 2,245.3 2.8% Large Commercial/Industrial 125.5 117.8 6.5% 3,149.0 2,924.6 7.7% Other-Retail/Municipal 18.4 16.6 10.8% 448.4 429.0 4.5% Resale-Utilities 35.1 38.5 (8.8%) 810.8 973.6 (16.7%) Other-Operating Revenues 7.5 5.9 27.1% - - - ------ ------ ------- ------- Total Operating Revenues 489.9 477.3 2.6% 8,678.4 8,623.8 0.6% Fuel and Purchased Power ======= ======= Fuel 86.4 85.7 0.8% Purchased Power 54.8 50.0 9.6% ------ ------ Total Fuel and Purchased Power 141.2 135.7 4.1% ------ ------ Gross Margin $348.7 $341.6 2.1% ====== ====== Weather - Degree Days (a) Heating (153 Normal) 184 122 50.8% Cooling (509 Normal) 395 570 (30.7%) (a) As measured at Mitchell International Airport in Milwaukee, Wisconsin. Normal degree days are based upon a twenty-year moving average.
During the third quarter of 2000, total electric energy sales increased by 0.6% compared with the third quarter of 1999 due to a 77.2% increase in sales to the Empire and Tilden iron ore mines, Wisconsin Electric's two largest retail customers. Excluding the Empire and Tilden mines, sales to the remaining large commercial/industrial customers decreased by 2.4% and total electric sales decreased by 2.8%. Growth in the average number of residential, small commercial/industrial and other retail/municipal customers between the comparative periods offset some of the effects on total electric energy sales and operating revenues of significantly cooler weather during the third quarter of 2000. As measured by cooling degree days, the third quarter of 2000 was 30.7% cooler than the third quarter of 1999 and 22.4% cooler than normal. Gas Utility Revenues, Gross Margins and Therm Deliveries During the third quarter of 2000, Wisconsin Energy's total gas utility operating revenues increased by $72.8 million or 174.6% compared to the third quarter of 1999. Gross margin on gas utility operating revenues (gas operating revenues less cost of gas sold) increased by $23.1 million or 120.3%. Of these changes, $65.9 million of the increase in total gas utility operating revenues and $23.6 million of the increase in gross margin were attributable to Wisconsin Gas. Excluding Wisconsin Gas, Wisconsin Energy's total gas utility operating revenues increased by $6.9 million while gross margin on gas utility operating revenues decreased by $0.5 million. Significantly higher per unit gas costs during the third quarter of 2000 as well as interim and final retail gas rate increases that became effective in early April 2000 and on August 31, 2000, respectively, contributed to the increase in operating revenues. However, gross margin declined primarily due to a decrease in interdepartmental therm deliveries to Wisconsin Electric's natural gas-fired electric generating facilities during the third quarter of 2000. For additional information concerning the rate increases, see Item 1. Legal Proceedings - "Utility Rates and Regulatory Matters" in Part II of this report. Comparative gas utility operating revenues, gross margins and gas utility therm deliveries during the reporting periods are summarized below. Gross margin is a better performance indicator than revenues because changes in the cost of gas sold are flowed through to revenue under a purchased gas adjustment mechanism that does not impact gross margin.
Gross Margin Therm Deliveries Three Months Ended September 30 Three Months Ended September 30 Wisconsin Energy Corporation -------------------------------- -------------------------------- Gas Utility Operations 2000 (a) 1999 % Change 2000 (a) 1999 % Change - ---------------------------- -------- ------ -------- -------- ------ -------- (Millions of Dollars) (Millions, Except Degree Days) Operating Revenues Residential $47.9 $16.7 186.8% 56.1 24.4 129.9% Commercial/Industrial 22.8 7.4 208.1% 34.4 14.7 134.0% Interruptible 3.1 0.8 287.5% 5.1 2.0 155.0% ----- ----- ----- ----- Total Retail Gas Sales 73.8 24.9 196.4% 95.6 41.1 132.6% Transported Customer-Owned Gas 7.4 3.4 117.6% 161.5 73.6 119.4% Transported-Interdepartmental 0.4 0.8 (50.0%) 10.3 26.0 (60.4%) Other-Operating Revenues 32.9 12.6 161.1% - - - ----- ----- ----- ----- Total Operating Revenues 114.5 41.7 174.6% 267.4 140.7 90.0% Cost of Gas Sold 72.2 22.5 220.9% ===== ===== ----- ----- Gross Margin $42.3 $19.2 120.3% ===== ===== Weather - Degree Days (b) Heating (153 Normal) 184 122 50.8% (a) Wisconsin Energy's gas utility information reflects the operations of Wisconsin Gas subsequent to the merger on April 26, 2000. For further information concerning gas utility operations during the comparative periods, see "Pro Forma Gas Utility Revenues, Gross Margins and Therm Deliveries" below. (b) As measured at Mitchell International Airport in Milwaukee, Wisconsin. Normal degree days are based upon a twenty-year moving average.
Pro Forma Gas Utility Revenues, Gross Margins and Therm Deliveries The following table compares pro forma gas utility operating revenues, gross margins and therm deliveries during the third quarters of 2000 and 1999 as if Wisconsin Gas had been part of Wisconsin Energy since January 1, 1999.
Pro Forma ------------------------------------------------------------------ Gross Margin Therm Deliveries Three Months Ended September 30 Three Months Ended September 30 Wisconsin Energy Corporation -------------------------------- -------------------------------- Gas Utility Operations 2000 1999 % Change 2000 1999 % Change - ---------------------------- ------ ------ -------- ------ ------ -------- (Millions of Dollars) (Millions) Operating Revenues Residential $47.9 $38.0 26.1% 56.1 55.6 0.9% Commercial/Industrial 22.8 16.1 41.6% 34.4 34.7 (0.9%) Interruptible 3.1 3.0 3.3% 5.1 7.0 (27.1%) ----- ----- ----- ----- Total Retail Gas Sales 73.8 57.1 29.2% 95.6 97.3 (1.7%) Transported Customer-Owned Gas 7.4 7.5 (1.3%) 161.5 170.4 (5.2%) Transported-Interdepartmental 0.4 0.7 (42.9%) 10.3 26.0 (60.4%) Other-Operating Revenues 32.9 33.0 (0.3%) - - - ----- ----- ----- ----- Total Operating Revenues 114.5 98.3 16.5% 267.4 293.7 (9.0%) Cost of Gas Sold 72.2 55.8 29.4% ===== ===== ----- ----- Gross Margin $42.3 $42.5 (0.5%) ===== =====
NON-UTILITY ENERGY SEGMENT CONTRIBUTION TO EARNINGS Non-utility energy segment earnings increased by $3.1 million ($3.0 million excluding the WICOR non-utility energy companies) during the third quarter of 2000 due to a nonrecurring $8.0 million pre-tax gain associated with the termination of a long-term power sales contract held by Wisvest-Connecticut, LLC. The following table reconciles the change in the contribution to earnings by Wisconsin Energy's non-utility energy segment between the third quarter of 1999 and the third quarter of 2000. In addition, the table compares electric megawatt-hour sales from independent power production activities as well as electric megawatt-hour sales and natural gas therm sales as a result of non-utility energy marketing, trading and services activities.
Three Months Ended September 30 ---------------------------------------------------------------- Increase (Decrease) Wisconsin Energy Corporation ----------------------------------- Non-Utility Energy Segment 1999 WICOR (a) Other (b) Total 2000 - ---------------------------- -------- ----------- ----------- --------- -------- (Millions of Dollars, Except Statistics) Operating Revenues Independent Power Production $41.4 $ - ($4.0) ($4.0) $37.4 Energy Marketing, Trading & Services 9.9 38.2 6.3 44.5 54.4 Other 9.5 - (3.1) (3.1) 6.4 ----- ----- ----- ----- ----- Total Operating Revenues 60.8 38.2 (0.8) 37.4 98.2 Fuel and Purchased Power 31.7 - (4.2) (4.2) 27.5 Cost of Gas Sold - 33.7 - 33.7 33.7 Cost of Goods Sold - 3.0 - 3.0 3.0 ----- ----- ----- ----- ----- Gross Margin 29.1 1.5 3.4 4.9 34.0 Other Operating Expenses 13.6 1.1 6.1 7.2 20.8 ----- ----- ----- ----- ----- Operating Income 15.5 0.4 (2.7) (2.3) 13.2 Other Income, Net 2.3 - 8.7 8.7 11.0 Financing Costs 6.8 0.1 1.7 1.8 8.6 ----- ----- ----- ----- ----- Income Before Income Taxes 11.0 0.3 4.3 4.6 15.6 Income Taxes 4.2 0.2 1.3 1.5 5.7 ----- ----- ----- ----- ----- Net Earnings $6.8 $0.1 $3.0 $3.1 $9.9 ===== ===== ===== ===== ===== Statistics Independent Power Production Electric Megawatt-Hour Sales (Thousands) 882.9 - (137.1) (137.1) 745.8 Energy Marketing, Trading & Services Electric Megawatt-Hour Sales (Thousands) 267.2 - 405.2 405.2 672.4 Gas Therm Sales (Millions) - 61.9 - 61.9 61.9 (a) Wisconsin Energy's financial statements and statistics reflect the operations of WICOR Energy Services and FieldTech, subsidiaries of WICOR, subsequent to the merger on April 26, 2000. (b) Other consists primarily of Wisvest Corporation.
MANUFACTURING SEGMENT CONTRIBUTION TO EARNINGS The manufacturing segment contributed $1.9 million to net earnings during the third quarter of 2000. Prior to the WICOR acquisition, Wisconsin Energy did not have a manufacturing segment. The following table summarizes the manufacturing segment's contribution to Wisconsin Energy's net earnings during the third quarter of 2000.
Wisconsin Energy Corporation Three Months Ended Manufacturing Segment (a) September 30, 2000 ------------------------------------- ------------------ (Millions of Dollars) Operating Revenues (b) Domestic $103.5 International 31.2 ----- Total Operating Revenues 134.7 Cost of Goods Sold 95.0 ----- Gross Margin 39.7 Other Operating Expenses 29.9 ----- Operating Income 9.8 Other Income, Net (0.7) Financing Costs 4.8 ----- Income Before Income Taxes 4.3 Income Taxes 2.4 ----- Net Earnings $1.9 ===== (a) Wisconsin Energy's financial statements reflect operations of the manufacturing segment subsequent to the merger on April 26, 2000. (b) For further pro forma information concerning manufacturing segment revenues and gross margin during the comparative periods, see "Pro Forma Manufacturing Segment Revenues and Gross Margin" below.
Excluding interest and goodwill amortization expenses related to the WICOR merger, the manufacturing segment posted net earnings of $6.1 million during the third quarter of 2000 compared with pro forma net earnings of $7.2 million during the third quarter of 1999. The manufacturing segment's results for the three months ended September 30, 2000 were impacted by a series of nonrecurring expenses associated with defenses of intellectual property rights, development of a new beverage dispensing technology and the integration of an acquisition. Management believes that these expenses are substantially past. Pro Forma Manufacturing Segment Revenues and Gross Margin The following table reconciles the change in pro forma revenues and gross margin by the manufacturing segment between the third quarter of 1999 and the third quarter of 2000 as if the manufacturing segment had been part of Wisconsin Energy since January 1, 1999.
Pro Forma Three Months Ended September 30 ------------------------------------------------ Wisconsin Energy Corporation Increase Manufacturing Gross Margin 1999 (Decrease) 2000 - ---------------------------- -------- -------------- -------- (Millions of Dollars) Operating Revenues Domestic $95.1 $8.4 $103.5 International 32.7 (1.5) 31.2 ------ ---- ------ Total Operating Revenues 127.8 6.9 134.7 Cost of Goods Sold 89.7 5.3 95.0 ------ ---- ------ Gross Margin $38.1 $1.6 $39.7 ====== ==== ======
RESULTS OF OPERATIONS - 2000 YEAR-TO-DATE EARNINGS Primarily due to costs related to the acquisition of WICOR, Wisconsin Energy's consolidated net income and diluted earnings per share of common stock decreased from $171.3 million and $1.47 per share, respectively, during the first nine months of 1999 to $125.3 million and $1.03 per share, respectively, during the first nine months of 2000. Between the comparative periods, net earnings decreased as a result of changes in the following:
Nine Months Ended September 30 ---------------------------------------------------------------------- Amount Diluted Earnings Per Share ------------------------------ ---------------------------------- Net Earnings Summary Excluding Merger Excluding Merger Wisconsin Energy Corporation Merger Costs Costs (a) Total Merger Costs Costs (a) Total ---------------------------- ------------ --------- ----- ------------ --------- ----- (Millions of Dollars) Total - 1999 Year-To-Date $171.3 $ - $171.3 $1.47 $ - $1.47 Increase (Decrease) Due To Change In Utility Energy Segment Earnings (21.4) (8.8) (30.2) (0.18) (0.08) (0.26) Non-Utility Energy Segment Earnings (0.3) - (0.3) - - - Manufacturing Segment Earnings 14.0 (7.1) 6.9 0.12 (0.06) 0.06 Other (b) (8.2) (14.2) (22.4) (0.08) (0.12) (0.20) Shares Outstanding - - - (0.05) 0.01 (0.04) ------ ------ ------ ----- ------ ----- (15.9) (30.1) (46.0) (0.19) (0.25) (0.44) ------ ------ ------ ----- ------ ----- Total - 2000 Year-To-Date $155.4 ($30.1) $125.3 $1.28 ($0.25) $1.03 ====== ====== ====== ===== ====== ===== (a) Total WICOR merger-related costs of $42.9 million ($30.1 million net of tax) include $34.8 million ($22.0 million net of tax or $0.18 per share) of interest expense and $8.1 million ($8.1 million net of tax or $0.07 per share) of goodwill amortization expense. (b) Excluding merger costs, the decline in "Other" net earnings can be primarily attributed to losses during 2000 by Minergy Corp. and Wispark LLC. and tho an increase in corporate financing costs.
An analysis of contributions to earnings by segment follows. UTILITY ENERGY SEGMENT CONTRIBUTION TO EARNINGS Utility energy segment earnings decreased by $30.2 million during the first nine months of 2000 when compared with the first nine months of 1999, $19.0 million of which is attributable to Wisconsin Gas Company as a result of the seasonality of the gas heating business and the timing of the acquisition of Wisconsin Gas in April 26, 2000. Excluding interest and goodwill amortization expenses related to the WICOR merger, Wisconsin Gas posted a net loss of $10.2 million during the months of May through September 2000. As described in further detail below, earnings for Wisconsin Energy's other utility subsidiaries, Wisconsin Electric Power Company and Edison Sault Electric Company, declined $11.2 million between the comparative periods primarily because higher depreciation, decommissioning and amortization expenses and a weather-related decrease in gas gross margin during the winter months of 2000 offset a $24.0 million increase in electric gross margin that was limited by cooler weather during the third quarter of 2000 and by higher fuel and purchased power expenses. The following table reconciles the change in the contribution to earnings by Wisconsin Energy's utility energy segment between the first nine months of 1999 and the first nine months of 2000.
Nine Months Ended September 30 ---------------------------------------------------------------- Increase (Decrease) ----------------------------------- Wisconsin Energy Corporation Wisconsin Utility Energy Segment 1999 Gas (a) Other (b) Total 2000 - ---------------------------- -------- ----------- ----------- --------- -------- (Millions of Dollars) Operating Revenues Electric Utility $1,308.2 $ - $40.9 $40.9 $1,349.1 Gas Utility 213.1 113.4 18.4 131.8 344.9 Other Utility 15.7 0.3 (0.4) (0.1) 15.6 -------- ------ ------ ------ -------- Total Operating Revenues 1,537.0 113.7 58.9 172.6 1,709.6 Fuel and Purchased Power 354.9 - 16.6 16.6 371.5 Cost of Gas Sold 119.1 71.4 19.5 90.9 210.0 -------- ------ ------ ------ -------- Gross Margin 1,063.0 42.3 22.8 65.1 1,128.1 Other Operating Expenses Other Operation & Maintenance 500.6 35.7 (11.8) 23.9 524.5 Depreciation, Decommissioning and Amortization 176.4 20.1 27.5 47.6 224.0 Property and Revenue Taxes 51.7 2.0 0.8 2.8 54.5 -------- ------ ------ ------ -------- Operating Income 334.3 (15.5) 6.3 (9.2) 325.1 Other Income, Net 13.5 (0.2) (6.0) (6.2) 7.3 Financing Costs 86.0 12.2 3.1 15.3 101.3 -------- ------ ------ ------ -------- Income Before Income Taxes 261.8 (27.9) (2.8) (30.7) 231.1 Income Taxes 92.9 (8.9) 8.4 (0.5) 92.4 -------- ------ ------ ------ -------- Net Earnings $168.9 ($19.0) ($11.2) ($30.2) $138.7 ======== ====== ====== ====== ======== (a) The acquisition of WICOR was accounted for as a purchase. Wisconsin Energy's financial statements reflect the operations of Wisconsin Gas, a subsidiary of WICOR, subsequent to the merger on April 26, 2000. (b) Other includes Wisconsin Electric, Edison Sault and consolidating adjustments and eliminations between the utilities.
OPERATING REVENUES AND GROSS MARGINS: For further information concerning electric utility operations, see "Electric Utility Revenues, Gross Margins and Sales" below. For further information concerning gas utility operations, see "Gas Utility Revenues, Gross Margins and Therm Deliveries" below. OTHER OPERATION AND MAINTENANCE EXPENSES: Excluding Wisconsin Gas, other operation and maintenance expenses decreased by $11.8 million during the first nine months of 2000 compared with the first nine months of 1999. The most significant changes in other operation and maintenance expenses between the comparative periods include a $12.2 million decline in nuclear non-fuel expenses, a $10.5 million decline in customer service expenses and a $2.9 million decline in administrative and general expenses offset in part by $8.2 million of higher non-fuel fossil generation expenses and $6.2 million of higher electric distribution expenses. Nuclear non-fuel expenses were lower during the first nine months of 2000 as a result of continued progress on various performance improvement initiatives. Between the same periods, customer service expenses were lower primarily due to a change in the period over which conservation expenses are being amortized. Administrative and general expenses decreased primarily due to a decline in costs associated with contract labor, which was used during 1999 to prepare the Company for the Year 2000 and for other technology matters. Non-fuel fossil generation expenses increased during the first nine months of 2000 primarily due to differences in the scope and timing of scheduled maintenance outages for various generating facilities at Wisconsin Electric. Electric distribution expenses were higher due to increased forestry and maintenance activity. DEPRECIATION, DECOMMISSIONING AND AMORTIZATION EXPENSES: Excluding Wisconsin Gas, depreciation, decommissioning and amortization expenses were $27.5 million higher during the first nine months of 2000 compared with the first nine months of 1999. Pursuant to a 1998 rate order for the 1998/1999 test year, Wisconsin Electric was amortizing pre-1991 contributions in aid of construction, which reduced annual depreciation expense by $22.8 million. This amortization, which was completed as of December 31, 1999, had the effect of reducing depreciation expense by $17.1 million during the first nine months of 1999. Higher average depreciable plant during the first nine months of 2000 also contributed to an increase in depreciation expense. OTHER INCOME, NET: Net other income was $6.0 million lower between the comparative periods primarily due to a nonrecurring gain on the sale of certain properties at Wisconsin Electric during the first nine months of 1999. INCOME TAXES: The effective income tax rate increased in the first nine months of 2000 as compared with the prior year primarily due to the end of amortization of pre-1991 contributions in aid of construction as described above. Electric Utility Revenues, Gross Margins and Sales During the first nine months of 2000, Wisconsin Energy's total electric utility operating revenues increased by $40.9 million or 3.1% compared to the same period during 1999. Gross margin on electric utility operating revenues increased by $23.9 million or 2.5%. Wisconsin Energy attributes this growth in part to higher total electric energy sales during 2000 and to interim and final electric retail rate increases that became effective in early April 2000 and on August 31, 2000, respectively. For additional information concerning these rate increases, see Item 1. Legal Proceedings - "Utility Rates and Regulatory Matters" in Part II of this report. The third quarter of 2000 was 30% cooler than the third quarter of 1999 which constrained higher-margin residential electric sales during the first nine months of 2000. The change in gross margin between the comparative periods also reflects a $17.0 million or 4.9% increase in total fuel and purchased power expenses during the first nine months of 2000. Fuel costs increased by 2.4% due in large part to higher generation required to supply the growth in total electric energy sales during 2000. However, Wisconsin Energy was able to limit its increase in fuel costs by changing the mix of generation from high cost natural gas-fired generation to lower cost nuclear and coal-fired generation during the first nine months of 2000. Purchased power expenses grew by 9.4% due to higher fixed costs during 2000 associated with long-term purchased power contracts. The following table compares Wisconsin Energy's electric utility operating revenues, gross margins and electric utility energy sales during the first nine months of 2000 with similar information for the first nine months of 1999.
Gross Margin Megawatt-Hour Sales Nine Months Ended September 30 Nine Months Ended September 30 Wisconsin Energy Corporation -------------------------------- -------------------------------- Electric Utility Operations 2000 1999 % Change 2000 1999 % Change - ---------------------------- ------ ------ -------- ------ ------ -------- (Millions of Dollars) (Thousands, Except Degree Days) Operating Revenues Residential $443.2 $438.2 1.1% 5,611.4 5,645.4 (0.6%) Small Commercial/Industrial 412.2 396.8 3.9% 6,426.5 6,259.6 2.7% Large Commercial/Industrial 359.5 347.6 3.4% 9,018.6 8,731.9 3.3% Other-Retail/Municipal 48.3 43.5 11.0% 1,292.3 1,160.1 11.4% Resale-Utilities 64.7 65.4 (1.1%) 1,877.0 2,006.7 (6.5%) Other-Operating Revenues 21.2 16.7 26.9% - - - ------- ------- -------- -------- Total Operating Revenues 1,349.1 1,308.2 3.1% 24,225.8 23,803.7 1.8% Fuel and Purchased Power ======== ======== Fuel 235.6 230.2 2.3% Purchased Power 133.6 122.1 9.4% ------- ------- Total Fuel and Purchased Power 369.2 352.3 4.8% ------- ------- Gross Margin $979.9 $955.9 2.5% ======= ======= Weather - Degree Days (a) Heating (4,485 Normal) 4,067 4,232 (3.9%) Cooling (676 Normal) 556 752 (26.1%) (a) As measured at Mitchell International Airport in Milwaukee, Wisconsin. Normal degree days are based upon a twenty-year moving average.
During the first nine months of 2000, total electric energy sales increased by 1.8% compared to the first nine months of 1999 due in large part to a 16.2% increase in sales to the Empire and Tilden iron ore mines, Wisconsin Electric's two largest retail customers and, to a lesser extent, to growth in the average number of residential, small commercial/industrial and other retail/municipal customers . Excluding the Empire and Tilden mines, sales to the remaining large commercial/industrial customers increased by 1.0% and total electric sales increased by 0.7% between the comparative periods. Growth in the average number of customers noted above partially offset the effects on total electric energy sales and operating revenues of cooler weather during the 2000 cooling season. As measured by cooling degree days, the first nine months of 2000 were 26.1% cooler than the first nine months of 1999 and 17.8% cooler than normal. Gas Utility Revenues, Gross Margins and Therm Deliveries During the first nine months of 2000, Wisconsin Energy's total gas utility operating revenues increased by $131.8 million or 61.8% compared with the same period during 1999. Gross margin on gas utility operating revenues increased by $40.9 million or 43.5%. Of these changes, $113.4 million of the increase in total gas utility operating revenues and $42.0 million of the increase in gross margin were attributable to Wisconsin Gas. Excluding Wisconsin Gas, Wisconsin Energy's total gas utility operating revenues increased by $18.4 million while gross margin on gas utility operating revenues decreased by $1.1 million. Significantly higher per unit gas costs during the first nine months of 2000 as well as interim and final retail gas rate increases that became effective in early April 2000 and on August 31, 2000, respectively, primarily drove the increase in operating revenues. For additional information concerning these rate increases, see Item 1. Legal Proceedings - "Utility Rates and Regulatory Matters" in Part II of this report. A weather- related decrease in higher margin residential and commercial/industrial retail gas sales during the winter months of 2000 offset the impact of the rate increases on operating revenues and gross margin. A decrease in interdepartmental therm deliveries to Wisconsin Electric's natural gas-fired electric generating facilities during the third quarter of 2000 also offset the impact of the rate increases on gross margin. Gas utility operating revenues, gross margins and gas utility therm deliveries during the comparative periods are summarized below. Gross margin is a better performance indicator than revenues because changes in the cost of gas sold are flowed through to revenue under a purchased gas adjustments mechanism that does not impact gross margin.
Gross Margin Therm Deliveries Nine Months Ended September 30 Nine Months Ended September 30 Wisconsin Energy Corporation -------------------------------- -------------------------------- Gas Utility Operations 2000 (a) 1999 % Change 2000 (a) 1999 % Change - ---------------------------- -------- ------ -------- -------- ------ -------- (Millions of Dollars) (Millions, Except Degree Days) Operating Revenues Residential $179.6 $130.9 37.2% 268.2 219.8 22.0% Commercial/Industrial 91.2 64.6 41.2% 166.1 135.5 22.6% Interruptible 7.1 4.2 69.0% 14.6 12.8 14.1% ------ ------ ----- ----- Total Retail Gas Sales 277.9 199.7 39.2% 448.9 368.1 22.0% Transported Customer-Owned Gas 19.5 9.9 97.0% 413.8 257.4 60.8% Transported-Interdepartmental 1.4 1.5 (6.7%) 33.0 47.7 (30.8%) Other-Operating Revenues 46.1 2.0 2,205.0% - - - ------ ------ ----- ----- Total Operating Revenues 344.9 213.1 61.8% 895.7 673.2 33.1% Cost of Gas Sold 210.0 119.1 76.3% ===== ===== ------ ------ Gross Margin $134.9 $94.0 43.5% ====== ====== Weather - Degree Days (b) Heating (4,485 Normal) 4,067 4,232 (3.9%) (a) Wisconsin Energy's gas utility information reflects the operations of Wisconsin Gas subsequent to the merger on April 26, 2000. For further information concerning gas utility operations during the comparative periods, see "Pro Forma Gas Utility Revenues, Gross Margins and Therms Deliveries" below. (b) As measured at Mitchell International Airport in Milwaukee, Wisconsin. Normal degree days are based upon a twenty-year moving average.
Pro Forma Gas Utility Revenues, Gross Margins and Therm Deliveries The following table compares pro forma gas utility operating revenues, gross margins and therm deliveries during the first nine months of 2000 and 1999 as if Wisconsin Gas had been part of Wisconsin Energy since January 1, 1999.
Pro Forma ---------------------------------------------------------- Gross Margin Therm Deliveries Nine Months Ended September 30 Nine Months Ended September 30 Wisconsin Energy Corporation ------------------------------ ------------------------------ Gas Utility Operations 2000 1999 % Change 2000 1999 % Change - ---------------------------- ------ ------ -------- ------ ------ -------- (Millions of Dollars) (Millions) Operating Revenues Residential $335.7 $321.2 4.5% 503.0 520.3 (3.3%) Commercial/Industrial 158.7 147.8 7.4% 291.7 310.0 (5.9%) Interruptible 11.5 12.1 (5.0%) 24.9 33.4 (25.4%) ------ ------ ------- ------- Total Retail Gas Sales 505.9 481.1 5.2% 819.6 863.7 (5.1%) Transported Customer-Owned Gas 29.6 26.6 11.3% 619.8 620.9 (0.2%) Transported-Interdepartmental 1.4 1.4 - 33.0 47.7 (30.8%) Other-Operating Revenues 24.0 6.3 281.0% - - - ------ ------ ------- ------- Total Operating Revenues 560.9 515.4 8.8% 1,472.4 1,532.3 (3.9%) Cost of Gas Sold 337.0 288.6 16.8% ======= ======= ------ ------ Gross Margin $223.9 $226.8 (1.3%) ====== ======
NON-UTILITY ENERGY SEGMENT CONTRIBUTION TO EARNINGS Non-utility energy segment earnings decreased $0.3 million between the first nine months of 2000 and the first nine months of 1999. Excluding the WICOR non-utility energy companies, non- utility energy earnings declined $0.5 million between the comparative periods primarily due to an extended scheduled outage from March through early May 2000 at one of Wisvest-Connecticut, LLC's power plants, which increased purchased power as well as maintenance expenses. A nonrecurring $5.5 million pre-tax gain during the second quarter of 2000 on the sale of certain contractual rights to combustion turbines and a nonrecurring $8.0 million pre-tax gain during the third quarter of 2000 associated with the termination of a long-term power sales contract held by Wisvest-Connecticut, LLC offset much of the decline in non-utility energy segment earnings. The following table reconciles the change in the contribution to earnings by Wisconsin Energy's non-utility energy segment between the first nine months of 1999 and the first nine months of 2000. In addition, the table compares electric megawatt-hour sales from independent power production activities as well as electric megawatt-hour sales and natural gas therm sales as a result of non-utility energy marketing, trading and services activities.
Nine Months Ended September 30 ---------------------------------------------------------------- Increase (Decrease) Wisconsin Energy Corporation ----------------------------------- Non-Utility Energy Segment 1999 WICOR (a) Other (b) Total 2000 - ---------------------------- -------- ----------- ----------- --------- -------- (Millions of Dollars, Except Statistics) Operating Revenues Independent Power Production $77.5 $ - $26.0 $26.0 $103.5 Energy Marketing, Trading & Services 40.7 58.0 20.7 78.7 119.4 Other 12.4 0.1 13.3 13.4 25.8 ----- ----- ----- ----- ----- Total Operating Revenues 130.6 58.1 60.0 118.1 248.7 Fuel and Purchased Power 81.1 - 40.2 40.2 121.3 Cost of Gas Sold - 50.8 - 50.8 50.8 Cost of Goods Sold - 4.8 - 4.8 4.8 ----- ----- ----- ----- ----- Gross Margin 49.5 2.5 19.8 22.3 71.8 Other Operating Expenses 29.7 1.9 28.7 30.6 60.3 ----- ----- ----- ----- ----- Operating Income (Loss) 19.8 0.6 (8.9) (8.3) 11.5 Other Income, Net 4.8 - 17.7 17.7 22.5 Financing Costs 14.2 0.2 10.0 10.2 24.4 ----- ----- ----- ----- ----- Income Before Income Taxes 10.4 0.4 (1.2) (0.8) 9.6 Income Taxes 4.2 0.2 (0.7) (0.5) 3.7 ----- ----- ----- ----- ----- Net Earnings (Loss) $6.2 $0.2 ($0.5) ($0.3) $5.9 ===== ===== ===== ===== ===== Statistics Independent Power Production Electric Megawatt-Hour Sales (Thousands) 1,823.1 - 622.0 622.0 2,445.1 Energy Marketing, Trading & Services Electric Megawatt-Hour Sales (Thousands) 1,269.5 - 134.0 134.0 1,403.5 Gas Therm Sales (Millions) - 96.5 - 96.5 96.5 (a) Wisconsin Energy's financial statements and statistics reflect the operations of WICOR Energy Services and FieldTech, subsidiaries of WICOR, subsequent to the merger on April 26, 2000. (b) Other consists primarily of Wisvest Corporation.
MANUFACTURING SEGMENT CONTRIBUTION TO EARNINGS The manufacturing segment, which was acquired as part of WICOR, contributed $6.9 million to net earnings during the first nine months of 2000. Prior to the WICOR acquisition, Wisconsin Energy did not have a manufacturing segment. The following table summarizes the manufacturing segment's contribution to Wisconsin Energy's net earnings during the first nine months of 2000.
Wisconsin Energy Corporation Nine Months Ended Manufacturing Segment (a) September 30, 2000 ------------------------------------- ------------------ (Millions of Dollars) Operating Revenues (b) Domestic $187.4 International 57.1 ----- Total Operating Revenues 244.5 Cost of Goods Sold 171.0 ----- Gross Margin 73.5 Other Operating Expenses 51.3 ----- Operating Income 22.2 Other Income, Net (0.6) Financing Costs 8.4 ----- Income Before Income Taxes 13.2 Income Taxes 6.3 ----- Net Earnings $6.9 ===== (a) Wisconsin Energy's financial statements reflect operations of the manufacturing segment subsequent to the merger on April 26, 2000. (b) For further pro forma information concerning manufacturing segment revenues and gross margin during the comparative periods, see "Pro Forma Manufacturing Segment Revenues and Gross Margin" below.
Assuming that WICOR had been a part of Wisconsin Energy since January 1, 1999 and excluding the effect of interest and goodwill amortization expenses related to the WICOR merger, the manufacturing segment would have posted pro forma net earnings of $20.8 million during the first nine months of 2000 compared with pro forma net earnings of $22.3 million during the first nine months of 1999. The manufacturing segment's results for the nine months ended September 30, 2000 were impacted by a series of nonrecurring expenses associated with defenses of intellectual property rights, development of a new beverage dispensing technology and the integration of an acquisition. Management believes that these expenses are substantially past. Pro Forma Manufacturing Segment Revenues and Gross Margin The following table reconciles the change in pro forma revenues and gross margin by the manufacturing segment between the first nine months of 1999 and the first nine months of 2000 as if the manufacturing segment had been part of Wisconsin Energy since January 1, 1999.
Pro Forma Nine Months Ended September 30 ------------------------------------------------ Wisconsin Energy Corporation Increase Manufacturing Gross Margin 1999 (Decrease) 2000 - ---------------------------- -------- -------------- -------- (Millions of Dollars) Operating Revenues Domestic $279.8 $48.4 $328.2 International 103.0 2.8 105.8 ------ ----- ------ Total Operating Revenues 382.8 51.2 434.0 Cost of Goods Sold 268.5 37.5 306.0 ------ ----- ------ Gross Margin $114.3 $13.7 $128.0 ====== ===== ======
FACTORS AFFECTING RESULTS OF OPERATIONS "POWER THE FUTURE" GROWTH STRATEGY On September 11, 2000, Wisconsin Energy announced a 10-year, $6 billion growth strategy to improve the supply and reliability of electricity in Wisconsin. Demand for electricity in the state of Wisconsin is currently growing at approximately a 3% annual rate and is expected to outstrip supply by 4,000 megawatts by 2010. Wisconsin Energy anticipates that the announced growth strategy will help address Wisconsin's growing electric energy supply needs and improve the Company's financial results. Key components of the "Power The Future" growth strategy include: * Construction of at least three new generating units at a cost of approximately $2 billion over the next 10 years with total new generating capacity of 1,700 megawatts: * Construction of one 500 megawatt combined cycle natural gas- fired unit would begin in 2003 and would be completed in 2005; * Construction of two 600 megawatt coal fired units would begin in 2004 to be operational in 2007 and 2009, respectively; and * Construction of additional generating units after 2010 would be contemplated. * Investment of $1.3 billion over the next 10 years in existing electric generating assets. * Investment of $2.7 billion over the next 10 years in new and existing electric utility distribution system assets. * Restructuring of Wisconsin Energy's current utility business by creating a new non-utility subsidiary that would own and operate the new generating capacity noted above as well as existing non-nuclear electric generating capacity currently owned by Wisconsin Electric Power Company. Electricity generated by the new subsidiary would be offered to Wisconsin Electric and to other Wisconsin utilities through long-term purchase power agreements approved by the Public Service Commission of Wisconsin. * Increasing available capital of the Company for investment in core competencies of electric generation, utility distribution and pump manufacturing through a board approved reduction in the quarterly common stock dividend, effective December 1, 2000, from $0.39 per share (or $1.56 on an annualized basis) to $0.20 per share (or $0.80 on an annualized basis). * Increasing from $200 million to $400 million a board approved open market common stock purchase plan during the next 24 months. A number of state and federal regulatory approvals will be required for Wisconsin Energy to execute the investment and restructuring components of the "Power The Future" growth plan. Several laws will also require amendment by the state legislature including Wisconsin's Public Utility Holding Company Act and Wisconsin's 1997 electric reliability Act 204. Wisconsin Energy expects to file an application with the Public Service Commission of Wisconsin during the fourth quarter of 2000 on the threshold question of whether the new non-utility subsidiary may own and operate electric generation facilities called non-utility merchant power plants and will seek a response from the Public Service Commission of Wisconsin in early 2001. Depending upon the response of the Public Service Commission of Wisconsin, the Company anticipates filing detailed plans later in 2001. Wisconsin Energy will also need to obtain the capital from outside sources necessary to finance and execute the growth strategy. ACQUISITION OF WICOR, INC. On April 26, 2000, Wisconsin Energy acquired all of the outstanding common shares of WICOR, Inc., for approximately $1.2 billion in cash including related fees and expenses. Approximately $300 million of WICOR debt remained outstanding following the acquisition. The business combination, which was funded through the issuance of commercial paper, was accounted for as a purchase, and the excess of the purchase price over the fair value of net assets and liabilities assumed was recorded as approximately $835 million of goodwill. WICOR was a diversified holding company with two principal business groups: energy services and pump manufacturing. The Company currently intends to continue the primary business operations of WICOR and to continue to use the physical assets of such primary business operations for that purpose, while integrating such operations with other Wisconsin Energy operations. Wisconsin Energy is undertaking a thorough review of WICOR's operations and studying the manner in which the operations of the two companies can best be optimized. Wisconsin Energy anticipates recording a restructuring charge related to the WICOR merger during the fourth quarter of 2000. The Company expects to take such actions as a result of this review as may be deemed appropriate under the circumstances including the combination of the gas utility operations of Wisconsin Electric with WICOR's wholly-owned natural gas distribution subsidiary, Wisconsin Gas Company. Gas Utility Operations Combination On November 1, 2000, Wisconsin Electric and Wisconsin Gas Company filed a joint application with the Public Service Commission of Wisconsin to transfer the physical gas utility assets of Wisconsin Electric together with certain liabilities associated with such assets, with a net book value of approximately $319 million at December 31, 1999, to Wisconsin Gas in return for stock in Wisconsin Gas in a tax free transaction. Wisconsin Energy expects that the combined gas operation will result in improved customer service and greater synergy savings as a result of the WICOR acquisition. The combined gas operations would retain the name Wisconsin Gas Company and become the 11th largest gas distribution company in the United States. Assuming that the Public Service Commission of Wisconsin approves the transaction described above, Wisconsin Electric and Wisconsin Gas expect to make a second filing in 2001 seeking authorization to combine tariffs and rates. For additional information related to the acquisition of WICOR, see "Liquidity and Capital Resources" below in this item as well as Item 1. Financial Statements - "Notes to Financial Statements" in Part I of this report. INDUSTRY RESTRUCTURING AND COMPETITION ELECTRIC UTILITY INDUSTRY RESTRUCTURING IN MICHIGAN: On June 3, 2000, the Governor of the state of Michigan signed the "Customer Choice and Electric Reliability Act" into law empowering the Michigan Public Service Commission to enforce implementation of prior electric retail access plans. In effect, the new law provides that all Michigan retail customers of investor-owned utilities will have the ability to choose their electric power producer as of January 1, 2002. As directed by the Michigan Public Service Commission, Wisconsin Electric and Edison Sault jointly submitted a customer choice implementation plan on October 2, 2000. Such plan envisions certain additional filings in June 2001 including proposed unbundled rates. Revenue in the state of Michigan during 1999 from electric retail customers of Wisconsin Energy were approximately $140 million, representing 6.8% of total utility operating revenues and 8.1% of total electric utility operating revenues. Wisconsin Electric and Edison Sault believe that their power supply costs are and will be competitive when the customer choice program commences in January of 2002. In addition, other suppliers will use the companies' unbundled electric distribution systems under effective rates. NUCLEAR MATTERS NUCLEAR MANAGEMENT COMPANY: As previously reported, all participants in the Nuclear Management Company, including Wisconsin Electric, filed applications with the Nuclear Regulatory Commission to transfer applicable nuclear generating unit operating authority under their operating licenses to the Nuclear Management Company. This application was approved on May 15, 2000. The Nuclear Management Company assumed operating responsibility for Point Beach Nuclear Plant with the transfer of operating authority under the operating licenses on August 7, 2000. Wisconsin Electric continues to own Point Beach and retains exclusive rights to the energy generated as well as financial responsibility for the plant's safe operation, maintenance and decommissioning. On September 7, 2000, the Nuclear Management Company announced the combination of the operation of Point Beach and Kewaunee Nuclear Power Plant, owned by another participant in the Nuclear Management Company, into a "virtual 3-unit site." Kewaunee Nuclear Power Plant is located about five miles from Point Beach. Management of support functions including training, engineering, assessment, business and site services have also been combined under this new management structure. UTILITY RATES AND REGULATORY MATTERS See Item 1. Legal Proceedings - "Utility Rates and Regulatory Matters" in Part II of this report for information concerning utility rate-related activities in the Wisconsin and Michigan retail jurisdictions. 2000 OUTLOOK EARNINGS: Previously, Wisconsin Energy had projected that its 2000 earnings would be in the range of $1.50 to $1.70 per share. Based upon the results of operations through September 2000, and assuming normal weather during the remainder of the year, Wisconsin Energy now projects that its 2000 earnings will be in the lower end of this forecasted range. The Company's earnings projection for 2000 does not reflect a potential restructuring charge during the fourth quarter of 2000 nor the impact of the sale of non-utility assets during the fourth quarter of 2000, including sale of Wisvest's investment in SkyGen Energy Holdings LLC. The earnings projections for 2000 include or assume, among other factors, the effects of: unusually warm weather during the first quarter of 2000 and unusually cool weather during the summer of 2000 as well as goodwill amortization and interest charges associated with the WICOR merger; absence of WICOR's results from January through April 26, 2000; increased purchased power costs; increased interest costs due to higher than projected interest rates; normal operations of Wisconsin Energy and all of its subsidiaries, including WICOR and its subsidiaries, during the remainder of 2000; and a stock buy-back program described below in "Liquidity and Capital Resources" in this item. Subject to the many variables which can affect such a projection, including abnormal weather and other factors listed below, earnings in 2001 are expected to be in the range of $2.00 to $2.25, reflecting a full year of earnings contributions from WICOR and merger-related savings. These earnings projections are forward-looking statements subject to certain risks, uncertainties and assumptions. Actual results may vary materially. Factors that could cause actual results to differ materially include, but are not limited to: general economic conditions; business and competitive conditions in the deregulating and consolidating energy industry, in general, and in the Company's utility service territories; availability of the Company's generating facilities; changes in purchased power costs and supply availability; changes in natural gas prices and supply availability; unusual weather; risks associated with non-utility diversification; the timing and extent of realization of anticipated net cost savings from the WICOR merger; regulatory decisions; disposition of legal proceedings; and foreign governmental, economic, political and currency risk. See "Cautionary Factors" below in this item. MARKET RISKS INTEREST RATE RISK: As previously reported, Wisconsin Energy financed the acquisition of WICOR through $1.2 billion of short- term debt in the form of commercial paper issued in the institutional private placement market. Based upon an actual weighted average interest rate of 6.55% as of October 31, 2000, Wisconsin Energy would incur an annual incremental interest expense of $78.6 million on the $1.2 billion of short-term debt issued to acquire WICOR. A 1/8 percent change in the interest rate would increase or decrease annual interest expense by approximately $1.5 million. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES: Cash provided by operating activities increased to $423.2 million during the first nine months of 2000 compared with $401.7 million during the same period in 1999, reflecting increased non-cash charges for depreciation and amortizations as well as reduced tax payments during 2000. INVESTING ACTIVITIES: Net cash used in investing activities totaled $1.7 billion at Wisconsin Energy during the first nine months of 2000 compared with $780.8 million during the same period in 1999. Wisconsin Energy's consolidated investing activities during the first nine months of 2000 included the $1.2 billion acquisition of WICOR as well as $462.0 million for the acquisition or construction of new or improved facilities of which $282.7 million was for a number of projects related to utility plant, $108.5 million was for non-utility energy projects, $9.9 million was for manufacturing activities and $59.2 million was for non-utility real estate development activities by Wispark. During 2000, Wisconsin Electric recorded $31.4 million for the acquisition of nuclear fuel and $44.5 million of payments to and reinvested earnings of the Nuclear Decommissioning Trust Fund for the eventual decommissioning of Point Beach Nuclear Plant. Wisconsin Energy received net proceeds of $31.6 million during the first nine months of 2000 on the disposition of various other investments including $15.0 million at Wisvest for the sale of certain generating turbine investments and $23.0 million at Wispark for the sale of various real estate investments. Wisconsin Energy's consolidated investing activities during the first nine months of 1999 included a $276.8 million acquisition of two fossil-fueled power plants in the state of Connecticut by a subsidiary of Wisvest and $68.1 million of other investments primarily attributable to Wisvest. FINANCING ACTIVITIES: During the first nine months of 2000, Wisconsin Energy received $1.3 billion of net cash from financing activities compared with a net of $402.6 million during the first nine months of 1999. During the first nine months of 2000, Wisconsin Energy issued approximately 3.7 million new shares of common stock which were primarily purchased by participants in the Company's stock plans with cash investments and reinvested dividends aggregating approximately $71.1 million. The Company also purchased 1.1 million outstanding shares of common stock for $21.1 million under a board approved purchase program that was initiated on September 15, 2000. During the first nine months of 2000, Wisconsin Energy issued $63.3 million of long-term debt including $32.1 million which was attributable to manufacturing, $13.0 million which was obtained by Wisvest under an unsecured working capital loan and $15.4 million of bank financing in the form of adjustable rate mortgage notes due 2000-2003 which was secured by Wispark to finance the construction or purchase of various facilities. Also during the nine months ended September 30, 2000, Wisconsin Energy increased its short-term debt by approximately $1.5 billion, principally reflecting the issuance of commercial paper to finance the acquisition of WICOR, and also paid $141.1 million of dividends on its common stock. Wisconsin Energy funded the April 26, 2000 acquisition of WICOR, Inc., through issuance in the institutional private placement market of $1.2 billion of commercial paper with a weighted average effective interest rate of 6.09%. As a result of refinancing some short-term debt which has matured since the merger, the weighted average interest rate for this commercial paper was 6.55% as of October 31, 2000. Wisconsin Energy arranged for two new bank back-up credit facilities to provide credit support for the issuance of Wisconsin Energy's commercial paper: a $1.0 billion 364-day bank back-up credit facility and a $500 million three-year bank back-up credit facility. In addition, approximately $300 million of WICOR debt remained outstanding following the merger. For additional information related to the acquisition of WICOR, see "Factors Affecting Results of Operations" above in this item as well as Item 1. Financial Statements - "Notes to Financial Statements" in Part I of this report. CAPITAL REQUIREMENTS AND RESOURCES: Capital requirements during the remainder of 2000 are expected to be principally for construction expenditures and for other investments, for long and short-term debt maturity and sinking fund requirements, for payments to the Nuclear Decommissioning Trust Fund for the eventual decommissioning of Point Beach Nuclear Plant and for the purchase of a portion of the outstanding shares of Wisconsin Energy common stock. Wisconsin Energy's total consolidated construction and other investment budget for the remainder of 2000 is approximately $250 million. These cash requirements are expected to be met through a combination of the following possible resources: internal sources of funds from operations, short-term borrowings, the issuance of intermediate or long-term debt, proceeds from the sale of new- issue common stock under certain of Wisconsin Energy's stock plans and proceeds from the sale of certain non-utility assets and investments. The amount and timing of any capital market financing has not been determined and will depend on market conditions and other factors. The following table shows Wisconsin Energy's consolidated capitalization structure at September 30, 2000.
September 30, 2000 -------------------------- (Millions of Dollars) Common Equity $2,076.6 31.2% Preferred Stock 30.4 0.5% Trust Preferred Securities 200.0 3.0% Long-Term Debt (including current maturities) 2,355.2 35.3% Short-Term Debt 2,003.7 30.0% -------- ------ $6,665.9 100.0% ======== ======
As part of its recently announced growth strategy, the Company is evaluating all of its non-utility energy businesses and real estate investments to determine how to maximize the value of these investments. To that end, Wisvest sold its interest in SkyGen Energy Holdings LLC to Calpine Corporation in October 2000. The Company received approximately $332 million from SkyGen in exchange for $111 million of outstanding convertible loans plus associated interest receivable as well for approximately $110 million of secured and unsecured short-term loans plus associated interest receivable, recognizing a pre-tax gain of $91 million ($54 million after tax or approximately $0.45 per share) as a result of this sale. In addition, Wisconsin Energy had previously announced that it would sell approximately $260 million of the assets of its non- utility real estate development company, Wispark LLC., over a period of 12 to 18 months. During October 2000, the Company closed on the sale of approximately 20% of the Wispark portfolio that is anticipated to be sold. As previously reported, Wisconsin Electric and Edison Sault have agreed to join the American Transmission Company LLC by contributing electric utility transmission assets in exchange for equity interests in the new company. Transfer of these electric transmission system assets, with a net book value of approximately $252 million, is expected to occur by January 1, 2001. Shortly following transfer of the assets, the American Transmission Company LLC is expected to issue debt and distribute cash back to Wisconsin Electric and Edison Sault in an amount equal to approximately 50% of the net book value of the assets transferred. In September 2000, the board of directors authorized a reduction of Wisconsin Energy's quarterly common stock dividend, effective December 1, 2000, from $0.39 per share (or $1.56 on an annualized basis) to $0.20 per share (or $0.80 on an annualized basis). Also in September 2000, the Company announced that its board of directors had authorized the purchase of up to $400 million of its shares of common stock in the open market over the 24 months ended September 2002. Through October 31, 2000, Wisconsin Energy has purchased 2.0 million shares of common stock for $39.1 million. Proceeds from asset sales, funds from internal working capital and funds raised through the issuance of commercial paper are expected to be the primary sources used to fund this common stock purchase program. As previously reported in Wisconsin Energy's 1999 Annual Report on Form 10-K, the Company has a subsidiary, Minergy Corp., which is engaged in the development and marketing of proprietary technologies designed to convert high volume industrial and municipal wastes into value-added products, including electricity. In 1998, Minergy opened a facility in Neenah, Wisconsin that recycles paper sludge from area paper mills. This initial facility has incurred operating losses since inception as a result of substantial continuing research and development activities associated with the facility and its operations. However, the Neenah facility has provided important data for the development of future Minergy technologies. Recently, Wisconsin Energy engaged an outside consultant to evaluate the Neenah facility and the long-term benefits of the Minergy technologies. The results of the consultant's evaluation confirmed that the Minergy technologies are innovative and needed in the market. In addition, the report identified capital investments that were required at the Neenah facility to improve its operating performance. As a result of this study, the Company intends to continue to pursue development of the Minergy businesses. In September 2000, following Wisconsin Energy's announcement of the "Power The Future" growth strategy plan, Standard & Poors Corporation ("S&P") and Fitch Investors Service ("Fitch") reaffirmed their ratings of Wisconsin Energy's securities, S&P reaffirmed its ratings of the securities of the Company's subsidiaries, and Fitch reaffirmed its ratings of the securities of Wisconsin Energy Capital Corporation. The following table summarizes the current ratings of securities of Wisconsin Energy and its subsidiaries by Standard & Poors Corporation ("S&P"), Moody's Investors Service ("Moody's") and Fitch Investors Service ("Fitch"). Commercial paper of WICOR Industries, Inc., a wholly-owned subsidiary of Wisconsin Energy, is unrated.
S&P Moody's Fitch --------- --------- --------- Wisconsin Energy Corporation Commercial Paper A-1 P-1 F1 Wisconsin Electric Power Company Commercial Paper A-1+ P-1 F1+ Senior Secured Debt AA- Aa2 AA Unsecured Debt A+ Aa3 AA- Preferred Stock A aa3 AA- Wisconsin Gas Company Commercial Paper A-1+ P-1 F1+ Senior Unsecured Debt AA- Aa2 AA- Wisconsin Energy Capital Corporation Unsecured Debt A+ A1 A+ WEC Capital Trust I Trust Preferred Securities A- a1 A
At September 30, 2000, Wisconsin Energy had $2.0 billion of available unused lines of bank credit on a consolidated basis, $1.5 billion of which were obtained in conjunction with the WICOR acquisition. Wisconsin Energy has historically used these lines primarily to support its outstanding commercial paper and other short-term borrowings. ***** For certain other information which may impact Wisconsin Energy's future financial condition or results of operations, see Item 1. Financial Statements - "Notes to Financial Statements" in Part I of this report as well as Item 1. Legal Proceedings in Part II of this report. CAUTIONARY FACTORS This report and other documents or oral presentations contain or may contain forward-looking statements made by or on behalf of Wisconsin Energy. Such statements are based upon management's current expectations and are subject to risks and uncertainties that could cause Wisconsin Energy's actual results to differ materially from those contemplated in the statements. Readers are cautioned not to place undue reliance on the forward-looking statements. When used in written documents or oral presentations, the terms "anticipate," "believe," "estimate," "expect," "objective," "plan," "possible," "potential," "project" and similar expressions are intended to identify forward-looking statements. In addition to the assumptions and other factors referred to specifically in connection with such statements, factors that could cause Wisconsin Energy'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; availability of electric generating facilities; unscheduled generation outages, or unplanned maintenance or repairs; unanticipated changes in fossil fuel, nuclear fuel, purchased power, gas supply or water supply costs or availability due to higher demand, shortages, transportation problems or other developments; nonperformance by electric energy or natural gas suppliers under existing power purchase or gas supply contracts; nuclear or environmental incidents; resolution of used nuclear fuel storage and disposal 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. * 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; changes in the United States Nuclear Regulatory Commission's regulations related to Point Beach Nuclear Plant; changes in the United States Environmental Protection Agency's regulations as well as regulations from the Wisconsin or Michigan Departments of Natural Resources or the state of Connecticut related to emissions from fossil fuel power plants; or the siting approval process for new generation and transmission facilities. * 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. * Consolidation of the industry as a result of the combination and acquisition of utilities in the midwest, nationally and globally. * Restrictions imposed by various financing arrangements and regulatory requirements on the ability of its subsidiaries to transfer funds to Wisconsin Energy in the form of cash dividends, loans or advances. * Changes in social attitudes regarding the utility and power industries. * Customer business conditions including demand for their products or services and supply of labor and material used in creating their products and services. * The cost and other effects of legal and administrative proceedings, settlements, investigations and claims, and changes in those matters including the final outcome of the Giddings & Lewis, Inc./City of West Allis lawsuit against Wisconsin Electric. * Factors affecting the availability or cost of capital such as changes in interest rates; the Company's capitalization structure; 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. * 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. * Unanticipated technological developments that result in competitive disadvantages and create the potential for impairment of existing assets. * Possible risks associated with non-utility diversification such as competition; operating risks; dependence upon certain suppliers and customers; the cyclical nature of property values that could affect real estate investments; unanticipated changes in environmental or energy regulations; timely regulatory approval without onerous conditions of potential acquisitions; risks associated with minority investments, where there is a limited ability to control the development, management or operation of the project; and the risk of higher interest costs associated with potentially reduced securities ratings by independent rating agencies as a result of these and other factors. * Legislative or regulatory restrictions or caps on non-utility acquisitions, investments or projects, including the state of Wisconsin's amended public utility holding company law. * Factors affecting foreign non-utility operations and investments including foreign governmental actions; foreign economic and currency risks; political instability; and unanticipated changes in foreign environmental or energy regulations. * Factors which impede execution of Wisconsin Energy's "Power The Future" growth strategy announced in September 2000, including receipt of necessary state and federal regulatory approvals and amendment of applicable laws in the state of Wisconsin, and obtaining the investment capital from outside sources necessary to implement the growth strategy. * Other business or investment considerations that may be disclosed from time to time in Wisconsin Energy's Securities and Exchange Commission filings or in other publicly disseminated written documents. BUSINESS COMBINATION FACTORS * Unanticipated costs or difficulties related to the integration of the businesses of Wisconsin Energy and WICOR. * Unanticipated financing or other consequences resulting from the additional short-term debt issued to fund the acquisition of WICOR. * Unexpected difficulties or delays in realizing anticipated net cost savings or unanticipated effects of the qualified five-year electric and gas rate freeze ordered by the Public Service Commission of Wisconsin as a condition of approval of the merger. Wisconsin Energy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For information concerning additional interest rate risk at Wisconsin Energy Corporation as a result of its acquisition of WICOR, see Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations" in Part I of this report. For information concerning other market risk exposures, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations - - Market Risks" in Part II of Wisconsin Energy's 1999 Annual Report on Form 10-K as well as Item 7A. Quantitative and Qualitative Disclosures About Market Risk in Part II of WICOR's 1999 Annual Report on Form 10-K. PART II - OTHER INFORMATION --------------------------- ITEM 1. LEGAL PROCEEDINGS The following should be read in conjunction with Item 3. Legal Proceedings in Part I of Wisconsin Energy's 1999 Annual Report on Form 10-K and Item 1. Legal Proceedings in Part II of Wisconsin Energy's Quarterly Report on Form 10-Q for the periods ended March 31, 2000 and June 30, 2000. The following should also be read in conjunction with Item 3. Legal Proceedings in Part I of WICOR's 1999 Annual Report on Form 10-K. ENVIRONMENTAL MATTERS GIDDINGS & LEWIS, INC./CITY OF WEST ALLIS LAWSUIT: In July 1996, Giddings & Lewis, Inc., Kearney & Trecker Corporation, now a part of Giddings & Lewis, Inc., and the City of West Allis brought an action in the Milwaukee County Circuit Court alleging that in 1959 Wisconsin Electric had deposited cyanide contaminated wood chips at two sites in West Allis, Wisconsin, owned by the plaintiffs. Environmental remediation at both sites was completed several years ago, with the current owners paying for disposal of materials found on their respective portions of the sites. Internal investigations led Wisconsin Electric to believe that it was not the source of this waste. In July 1999, a jury issued a verdict against Wisconsin Electric awarding the plaintiffs $4.5 million in compensatory damages for clean-up costs and loss of property value and $100 million in punitive damages. In October 1999, the Circuit Court denied Wisconsin Electric's post trial motions and directed that judgment on the verdict be entered. Wisconsin Electric has filed a notice of appeal of the judgment to the Wisconsin Court of Appeals. In December 1999, in order to stop the post-judgment accrual of interest at 12% per annum during the pendency of the appeal, Wisconsin Electric tendered a contested liability payment of $110 million, which is part of "Deferred Charges and Other Assets - Other" on the condensed balance sheet, to the Clerk of Circuit Court for Milwaukee County representing the amount of the verdict and accrued interest. Under Wisconsin law, the plaintiffs are liable to Wisconsin Electric upon reversal or reduction of the judgment for the applicable amount of the funds tendered with interest. In further post-trial proceedings, the plaintiffs filed with the Circuit Court a motion for sanctions based upon representations made by Wisconsin Electric during trial that it had no insurance coverage for the punitive damage award. The Circuit Court held hearings on the sanctions issue in February 2000. On April 27, 2000, the Circuit Court Judge issued a ruling on the sanctions matter, imposing the following sanctions against Wisconsin Electric: (i) "judgment in the alternative" as a sanction, thereby finding an alternative basis upon which to sustain the $104.5 million verdict returned by the jury; (ii) a bar against Wisconsin Electric pursuing insurance coverage for the punitive damage portion of the verdict; and (iii) a requirement that Wisconsin Electric pay the plaintiffs' costs relating to the sanctions matter. In addition to its appeal of the judgment entered on the jury's verdict, Wisconsin Electric is appealing the Judge's ruling on the sanctions matter. In the opinion of management, based in part on the advice of legal counsel, the jury verdict was not supported by the evidence or the law and the unprecedented award of punitive damages of this magnitude was unwarranted and should therefore be reversed or substantially reduced on appeal. Management also believes that the sanctions imposed by the Judge were not supported by the evidence or the law. As such, Wisconsin Electric has not established a reserve for potential damages from this suit. As a further development, Wisconsin Energy Corporation, in May and June 2000, respectively, received letters from two separate shareholders demanding that the Company bring a derivative suit for alleged injuries to shareholders resulting from the Giddings & Lewis/City of West Allis litigation. In accordance with Wisconsin law, the board of directors of Wisconsin Energy has created a special committee of independent directors, which has retained independent counsel to assist it, to investigate the allegations raised in the shareholder letters and determine whether a derivative action should be brought. On August 21, 2000, the shareholder who had served the first demand upon the Company requesting that the Company bring a derivative suit, filed a lawsuit individually and on behalf of the Company in Milwaukee County Circuit Court. On September 29, 2000, the shareholder who served the second demand on the Company to bring a derivative suit also filed a lawsuit in Milwaukee County Circuit Court. The first lawsuit has been stayed until December 1, 2000 pending the results of the investigation being conducted by the special committee of independent directors of Wisconsin Energy Corporation. Wisconsin Energy's response to both lawsuits will depend upon the conclusions reached by the special committee of independent directors. UTILITY RATES AND REGULATORY MATTERS Wisconsin Retail Jurisdiction 2000/2001 TEST YEARS: In September 1999, Wisconsin Electric submitted an application with the Public Service Commission of Wisconsin requesting incremental price relief for specific capital investments for electric and gas system reliability and safety and for a one-time accounting adjustment. The application further recommended the adoption of performance-based measures and incentives. In its application, Wisconsin Electric proposed a two-step price increase. The first requested increase, to be effective January 1, 2000, totaled $46 million (3.1%) for electric operations and $8 million (2.3%) for gas operations. The second requested price increase, to be effective January 1, 2001, totaled $29 million (2.0%) for electric operations. On December 23, 1999, Wisconsin Electric requested that interim price relief be granted, subject to refund, as soon as possible because it anticipated that a final order on its price request would not be issued until the summer of 2000. Wisconsin Electric withdrew its request to implement performance-based prices because some elements of the proposed performance-based price plan were not compatible with the Public Service Commission of Wisconsin's approval of the Company's merger with WICOR. The Public Service Commission of Wisconsin proceeded to review Wisconsin Electric's 2000/2001 test year data as a traditional cost of service rate request. On March 23, 2000, the Public Service Commission of Wisconsin approved Wisconsin Electric's request for interim price increases, authorizing a $25.2 million (1.7%) increase for electric operations and an $11.6 million (3.1%) increase for gas operations. The interim increase, which was subject to potential refund, became effective April 11, 2000. Rates in the interim order were based upon a 12.2% return on common equity. On August 30, 2000, the Public Service Commission of Wisconsin issued its final order in the 2000/2001 pricing proposal. The final order authorized a $36.5 million (2.5%) increase for electric operations (or $11.3 million higher than authorized in the interim order) as well as an $8 million (2.1%) increase for gas operations (or $3.6 million lower than authorized in the interim order). Wisconsin Electric is in the process of refunding to gas customers overcollection of revenues as a result of the difference in gas rates between the interim and final orders. In its August 30, 2000 final order, the Public Service Commission of Wisconsin authorized a second $27.5 million (1.8%) increase for electric operations effective January 1, 2001. Rates in the final order were based upon a 12.2% return on common equity. Wisconsin Electric filed a petition for a rehearing of the final order with the Public Service Commission of Wisconsin to reconsider their revenue increase for gas operations. On November 9, 2000, the Public Service Commission of Wisconsin denied Wisconsin Electric's petition. Wisconsin Electric intends to seek judicial review. As a condition of its approval of Wisconsin Energy's merger with WICOR, the Public Service Commission of Wisconsin ordered a qualified five-year rate freeze that becomes effective on January 1, 2001 concurrent with the second step rate changes included in the final order. Michigan Electric Retail Jurisdiction 2001 TEST YEAR: In mid-November 2000, Wisconsin Electric expects to submit an application with the Michigan Public Service Commission requesting an electric retail rate increase of $3.7 million (9.4%) on an annualized basis. Hearings on this rate relief request are expected during the first quarter of 2001 with a final order anticipated to become effective during the second quarter of 2001. FUEL COST ADJUSTMENT PROCEDURE: On September 29, 2000, Wisconsin Electric submitted applications with the Michigan Public Service Commission requesting reinstatement of its Power Supply Cost Recovery mechanism (a type of fuel cost adjustment procedure) on January 1, 2001. If approved as filed, Wisconsin Electric would expect to recover approximately $1 million in higher projected fuel costs during 2001 in the Michigan jurisdiction. ITEM 5. OTHER INFORMATION 2001 ANNUAL MEETING DATE; DEADLINES FOR SHAREHOLDER PROPOSALS Wisconsin Energy Corporation's 2001 Annual Meeting of Stockholders will be held on May 2, 2001. * Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, the deadline for submitting shareholder proposals for inclusion in Wisconsin Energy's proxy statement and form of proxy for the 2001 Annual Meeting is December 30, 2000. * The date after which notice of a shareholder proposal submitted outside of the processes of Rule 14a-8 is considered untimely is February 21, 2001. Under Wisconsin Energy's advance notice bylaw, such a proposal must be received no earlier than January 22, 2001 (100 days before the May 2, 2001 scheduled date of the Annual Meeting) and no later than February 21, 2001 (70 days before such scheduled date). ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS The following Exhibits are filed with or incorporated by reference in this Form 10-Q report: Exhibit No. ----------- 2.1 Agreement and Plan of Merger, dated as of June 27, 1999, as amended as of September 9, 1999, by and among Wisconsin Energy Corporation, WICOR, Inc. and CEW Acquisition, Inc.(incorporated herein by reference to Appendix A to the joint proxy statement/prospectus dated September 10, 1999, included in Wisconsin Energy's Registration on Form S-4 filed on September 9, 1999 (File No. 333-86827) (the "Form S-4")). 2.2 Amendment to Agreement and Plan of Merger dated as of September 9, 1999 (incorporated herein by reference to Exhibit 2.2 to the Form S-4). 2.3 Second Amendment to Agreement and Plan of Merger dated as of April 26, 2000 (incorporated herein by reference to Exhibit 2.3 to Wisconsin Energy's Current Report on Form 8-K dated as of April 26, 2000). 10.1 Amendment to employment arrangement with Paul Donovan as Senior Vice President and Chief Financial Officer of Wisconsin Energy Corporation, effective November 8, 2000. 27.1 Wisconsin Energy Corporation Financial Data Schedule for the nine months ended September 30, 2000. 27.2 Wisconsin Energy Corporation Reclassified Financial Data Schedule for the nine months ended September 30, 1999, which reflects the reclassification of certain amounts to conform to Wisconsin Energy's current financial statement presentation. (b) REPORTS ON FORM 8-K On July 10, 2000, Wisconsin Energy filed Amendment No. 1 to its Current Report on Form 8-K dated April 26, 2000 to file pro forma financial information in conjunction with the acquisition of WICOR, Inc. and to file unaudited interim consolidated financial statements of WICOR, Inc. for the three months ended March 31, 2000 and March 31, 1999. On September 13, 2000, Wisconsin Energy filed a Current Report on Form 8-K dated as of September 10, 2000 disclosing the Company's new 10-Year, $6 billion "Power The Future" growth strategy plan. No other reports on Form 8-K were filed by Wisconsin Energy during the quarter ended September 30, 2000. 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. WISCONSIN ENERGY CORPORATION ---------------------------- (Registrant) /s/ Paul Donovan ------------------------------------ Date: November 14, 2000 Paul Donovan, Senior Vice President, Chief Financial Officer and duly authorized officer WISCONSIN ENERGY CORPORATION FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000 EXHIBIT INDEX The following exhibits are filed with or incorporated by reference in this report: Exhibit No. ----------- 2.1 Agreement and Plan of Merger, dated as of June 27, 1999, as amended as of September 9, 1999, by and among Wisconsin Energy Corporation, WICOR, Inc. and CEW Acquisition, Inc.(incorporated herein by reference to Appendix A to the joint proxy statement/prospectus dated September 10, 1999, included in Wisconsin Energy's Registration on Form S-4 filed on September 9, 1999 (File No. 333-86827) (the "Form S-4")). 2.2 Amendment to Agreement and Plan of Merger dated as of September 9, 1999 (incorporated herein by reference to Exhibit 2.2 to the Form S-4). 2.3 Second Amendment to Agreement and Plan of Merger dated as of April 26, 2000 (incorporated herein by reference to Exhibit 2.3 to Wisconsin Energy's Current Report on Form 8-K dated as of April 26, 2000). 10.1 Amendment to employment arrangement with Paul Donovan as Senior Vice President and Chief Financial Officer of Wisconsin Energy Corporation, effective November 8, 2000. 27.1 Wisconsin Energy Corporation Financial Data Schedule for the nine months ended September 30, 2000. 27.2 Wisconsin Energy Corporation Reclassified Financial Data Schedule for the nine months ended September 30, 1999, which reflects the reclassification of certain amounts to conform to Wisconsin Energy's current financial statement presentation. EX-10.1 2 0002.txt SENIOR OFFICER EMPLOYMENT AGREEMENT Exhibit (10)-1 SENIOR OFFICER CHANGE IN CONTROL, SEVERANCE, SPECIAL PENSION AND NON-COMPETE AGREEMENT THIS SENIOR OFFICER CHANGE IN CONTROL, SEVERANCE AND NON-COMPETE AGREEMENT (the "Agreement") is made as of this 8th day of November, 2000 between WISCONSIN ENERGY CORPORATION (the "Company") and PAUL DONOVAN (the "Executive"). The Executive is currently a Senior Vice President and Chief Financial Officer of the Company and the Board of Directors of the Company (the "Board") wishes to encourage the Executive to continue to devote his time and attention to pursuit of Company matters without distractions relating to his employment security. In consideration of the terms and conditions set forth below, the parties agree as follows: 1. Defined Terms. All of the capitalized terms used in this Agreement are defined in the attached Appendix. 2. Purpose of Agreement. This Agreement is intended to provide the Executive with certain minimum compensation rights in the event of his termination of employment under certain circumstances as set forth herein, to provide for certain pension rights and for a non-compete agreement from the Executive. 3. Obligation of the Company on a Covered Termination of Employment Associated with a Change in Control. In the event of a Covered Termination of Employment Associated with a Change in Control, then the Company shall provide the Executive with the following compensation and benefits: (a) General Compensation and Benefits. The Company shall pay the Executive's full salary to the Executive from the time notice of termination is given through the date of termination of employment at the rate in effect at the time such notice is given or, if higher, at an annual rate not less than twelve times the Executive's highest monthly base salary for the twelve-month period immediately preceding the month in which the Effective Date occurs, together with all compensation and benefits payable to the Executive through the date of termination of employment under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period. Such payments shall be made in a lump sum not later than ten business days after such termination. The Company shall also pay the Executive's normal post-termination compensation and benefits to the Executive as such payments become due, except that any normal cash severance benefits shall be superseded and replaced entirely by the benefits provided under this Agreement. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements most favorable to the Executive in effect at any time during the 180-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to executives of the Company of comparable status and position to the Executive. (b) Incentive Compensation. Notwithstanding any provision of any cash bonus or incentive compensation plan of the Company, the Company shall pay to the Executive, within ten business days after the Executive's termination of employment, a lump sum amount, in cash, equal to the sum of (i) any bonus or incentive compensation which has been allocated or awarded to the Executive for a fiscal year or other measuring period under the plan that ends prior to the date of termination of employment, but which has not yet been paid, and (ii) a pro rata portion of the Highest Bonus Amount for all uncompleted periods under any bonus or incentive compensation plan. (c) Special Compensation. The Company shall pay to the Executive a lump sum equal to three times the sum of (a) the highest per annum base rate of salary in effect with respect to the Executive during the three-year period immediately prior to the termination of employment plus (b) the Highest Bonus Amount. Such lump sum shall be paid by the Company to the Executive within ten business days after the Executive's termination of employment, unless the provisions of Section 3(e) below apply. The amount of the aggregate lump sum provided by this Section 3(c), whether paid immediately or deferred, shall not be counted as compensation for purposes of any other benefit plan or program applicable to the Executive. (d) Special Retirement Plans Lump Sum. The Company shall pay to the Executive an aggregate lump sum equal to the total of the amounts described in (a) and (b) herein. Amount (a) is a lump sum equal to the difference between (i) the actuarial equivalent of the benefit under the Company's tax-qualified pension plan, the Retirement Account Plan (the "Retirement Plan"), the Supplemental Executive Retirement Plan (the "SERP") discussed in Section 7 below which the Executive would receive if his employment continued for a three-year period following termination of employment, assuming that the Executive's compensation during such three-year period would have been equal to the Executive's salary as in effect immediately before the termination or, if higher, as in effect at any time during the 180-day period immediately preceding the termination date, and the Highest Bonus Amount, and (ii) the actuarial equivalent of the Executive's actual benefit (paid or payable) under the Retirement Plan and the SERP as of the termination date. Actuarial equivalency for this purpose shall be determined using an interest rate equal to the five-year United States Treasury note yield in effect on the last business day of the month prior to the date of termination of employment as such yield is reported in the Wall Street Journal or comparable publication, and the mortality table used for purposes of determining lump sum amounts then in use under the Retirement Plan. Amount (b) is a lump sum equal to the total of (i) the additional contributions which would have been made to the Executive's account under the Company's tax-qualified 401(k) plan, plus (ii) the additional contributions which would have been credited to the bookkeeping account balance of the Executive attributable to the 401(k) match feature of the EDCP, had the Executive continued in employment for a three-year period following termination of employment and assuming that the Executive's compensation would have been the same as set forth above and that the Executive had made maximum utilization of the pre-tax and after-tax opportunity in the qualified 401(k) plan and obtained the maximum matching contributions in such plan. The amount of the aggregate lump sum under this Section 3(d) shall be paid by the Company to the Executive within ten business days after the Executive's termination of employment, unless the provisions of Section 3(e) below apply. The amount of the lump sum provided by this Section 3(d) shall not be treated as compensation for purposes of any other benefit plan or program applicable to the Executive. (e) Deferral Option. Notwithstanding any other provision of this Agreement, the Executive may file a written irrevocable deferral election form with the Company prior to the first date on which a Change in Control of the Company occurs electing to defer all or part of the special compensation provided by Section 3(c) and the special retirement plans lump sum otherwise provided for in Section 3(d). Such form shall irrevocably specify a method of payment for such compensation from among the methods allowable under the Company's Executive Deferred Compensation Plan (the "EDCP"). Any deferred amounts shall be credited with earnings in the same manner as the Interest Rate Fund provided for in the EDCP or any other investment alternative that may later become allowable under the EDCP and the EDCP provisions shall apply to deferrals made hereunder except that (i) any provisions for a mandatory lump sum payment upon a "Change in Control" as defined in the EDCP shall not apply to deferrals made hereunder, (ii) any amounts which become payable under this Section 3(e) shall be deemed for purposes of the EDCP to have become payable on account of the Executive's "retirement," and (iii) the entire amount deferred under this Section 3(e) shall be paid in a lump sum by the Company immediately prior to the occurrence of a Change in Control to such grantor or "rabbi" trust as the Company shall have established as a vehicle to hold such amount pending payment, but with such trust designed so that the Executive's rights to payment of such benefits are no greater than those of an unsecured creditor. (f) Welfare Benefits. Subject to Section 3(g) below, for the "relevant three-year period" as defined below, the Company shall provide the Executive (and his family) with health, disability, life and other welfare benefits substantially similar to the benefits received by the Executive (and his family) pursuant to welfare benefit programs of the Company or its affiliates as in effect immediately during the 180 days preceding the Effective Date (or, if more favorable to the Executive, as in effect at any time thereafter until the termination of employment); provided, however, that no compensation or benefits provided hereunder shall be treated as compensation for purposes of any of the programs or shall result in the crediting of additional service thereunder. For purposes of determining the amount of such welfare benefits, any part of which shall be based on compensation, the Executive's compensation during the relevant three-year period shall be deemed to be equal to the Executive's salary as in effect immediately before the termination of employment or, if higher, as in effect at any time during the 180-day period immediately preceding the termination date, and the Highest Bonus Amount. To the extent that any of the welfare benefits covered by this Section 3(f) cannot be provided pursuant to the plan or program maintained by the Company or its affiliates, the Company shall provide such benefits outside the plan or program at no additional cost (including, without limitation, tax cost) to the Executive and his family. The Executive shall be entitled to be covered by a retiree medical and dental program at the end of the relevant three-year period, at a cost to the Executive not to exceed the lesser of the cost, if any, charged to other retirees or the COBRA continuation premium charged to terminees who elect to continue in the Company's health plan at their expense under applicable law. The Company shall become obligated to continue such benefits for the remainder of the Executive's life and that of his surviving spouse, notwithstanding any contrary provision or power of amendment or termination reserved to the Company in any otherwise applicable document. The "relevant three-year period" shall mean a three-year period beginning on the later of the Executive's termination of employment or the expiration of the welfare benefits coverage provided to the Executive under an agreement dated June 1, 1998 between the Executive and Sundstrand Corporation. In addition, the "relevant three-year period" shall be extended for a period of time equal to the "Excluded Period" under paragraph 5(c) of the letter agreement dated August 20, 1999 from the Company to the Executive extending an offer of employment to him, which is incorporated by reference into this Agreement. (g) New Employment. If the Executive secures new employment during the three-year period following termination of employment, the level of any benefit being provided pursuant to Section 3(f) hereof shall be reduced to the extent that any such benefit is being provided by the Executive's new employer. The Executive, however, shall be under no obligation to seek new employment and, in any event, no other amounts payable pursuant to this Agreement shall be reduced or offset by any compensation received from new employment or by any amounts claimed to be owed by the Executive to the Company or its affiliates. (h) Split-Dollar Life Insurance. Notwithstanding the provisions of Section 3(f) above, the Company shall continue to make premium payments on any split-dollar type life insurance program in effect on the life of the Executive during the 180 days preceding the Effective Date (or, if more favorable to the Executive, as in effect at any time thereafter until the termination of employment), in a manner consistent with the past practices of the Company as to timing and amount, until each policy has achieved paid-up status. (i) Equity Incentive Awards. Notwithstanding the provisions in any stock option award, restricted stock award or other equity incentive compensation award (the "Awards"), the Executive shall become fully vested in all outstanding Awards and all otherwise applicable restrictions shall lapse and for purposes of determining the length of time the Executive has to exercise rights, if applicable under any such Award, the Executive shall be treated as if he had retired from the service of the Company at or after age 55 and completion of ten years of service. (j) Outplacement and Financial Planning. The Company shall, at its sole expense as incurred, provide the Executive with outplacement services, the scope and provider of which shall be selected by the Executive in his sole discretion (but at a cost to the Company of not more than $30,000) or, at the Executive's option, the use of office space, office supplies and equipment and secretarial services for a period not to exceed one year. The Company shall also continue to provide the Executive with financial planning counseling benefits through the third anniversary of the date of the Executive's termination of employment, on the same terms and conditions as were in effect immediately before the termination or, if more favorable, on the Effective Date. 4. Obligation of the Company on a Covered Termination of Employment Not Associated with a Change in Control of the Company. In the event of a Covered Termination of Employment Not Associated with a Change in Control of the Company, then the Company shall provide the Executive with the same compensation and benefits and subject to the same terms and conditions as are specified in Section 3 above, but the tax gross-up provisions of Section 5 hereof shall not apply. Further, the deferral election for the Executive described in Section 3(e) above shall apply, but only if the written irrevocable deferral form is filed with the Company both prior to the expiration of thirty days from the date this Agreement is signed by the Executive and prior to the Executive's termination of employment. 5. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, and whether or not a Covered Termination of Employment occurs, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 5) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed on the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of paragraph (c) of this Section 5, all determinations required to be made under this Section 5, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a certified public accounting firm designated by the Executive (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Executive within fifteen business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 5, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to paragraph (c) of this Section 5 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company. (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c) of Section 5, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) of this Section 5, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of paragraph (c) of this Section 5) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) of this Section 5, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 6. Termination of Employment. The Company shall be entitled to terminate the Executive's employment on account of Disability pursuant to the procedures set forth in Section (e) of the Appendix, for Cause pursuant to the procedures set forth in Section (a) of the Appendix, or without Cause by giving written notice to the Executive of such termination. The Executive may terminate his employment for Good Reason by giving the Company written notice of the termination, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason. A termination of employment by the Executive for Good Reason shall be effective on the fifth business day following the date such notice is given, unless the notice sets forth a later date (which date shall in no event be later than thirty days after the notice is given). In the event of a dispute regarding whether the Executive's voluntary termination qualifies as a termination for Good Reason, no claim by the Company that the same does not constitute a termination for Good Reason shall be given effect unless the Company establishes by clear and convincing evidence that such termination does not constitute a termination for Good Reason. The Executive may also terminate his employment without Good Reason by giving the Company written notice of such termination. 7. Special Pension Provisions. The Executive shall be eligible to participate in the Company's Supplemental Executive Retirement Plan (the "SERP") with respect to monthly benefits "A" and "B," but on the following modified terms which shall override any contrary provisions in the SERP: (a) The Executive or his beneficiary will become entitled to monthly benefit "A" on his retirement at or after age 55, or in the event of his termination of service because of death or Disability while in the service of the Company prior to age 55. (b) Further, the Executive will be entitled to past service credit under monthly benefit "A," calculated as if his participation in the Company's tax-qualified pension plan, the Retirement Account Plan, had commenced at age 25 and as if the benefit formula under such pension plan for all periods before December 31, 1995 was the same as in effect on December 31, 1995, and for all periods after December 31, 1995, pursuant to the actual benefit formula used in such pension plan (including the grandfathered minimum benefit provisions thereof), offset by the value of any benefits payable to the Executive from Social Security which is the actuarial equivalent of a single life annuity benefit payable to the Executive at the later of age 65 or the date when benefits commence under monthly benefit "A." Actuarial equivalency for this purpose shall be determined using an interest rate equal to the five-year United States Treasury Note yield in effect on the last business day of the month prior to the month in which benefits commence under monthly benefit "A," as such yield is reported in the Wall Street Journal or comparable publication, and the mortality table used for purposes of determining lump sum amounts then in use under the qualified defined benefit plan of the Company or its subsidiaries applicable to the Executive. (c) Any early retirement reduction factor that would otherwise apply to the Executive at any time between ages 55 and 62 will be disregarded and in lieu thereof, the Executive will be deemed entitled for purposes of monthly benefit "A" to the following percentages of the calculated benefit: % of Benefit "A" Age Becoming Payable --- ---------------- 55 75% 56 81% 57 86% 58 or later 100% For ages in between those above stated, the percentage of benefit "A" payable shall be increased. The amount of the increase shall be determined by multiplying 1/12th of the increase in the percentage which would have become payable on the Executive's next birthday by the number of months (with each 30-day period to be counted as one month) completed since the Executive's last birthday and before the start of payments of benefit "A." (d) The Executive will become entitled to monthly benefit "B" on his retirement at or after 55. 8. Wisconsin Housing Assistance. The parties acknowledge that the Executive is in the process of acquiring a home in Wisconsin and agree to the following provisions in connection therewith: (a) Upon the Executive's termination of employment with the Company, the Executive (or his estate as the case may be) shall have the right by written notice to the Company at any time within seven (7) years of such termination (the "7-Year Period") to require the Company to buy the Executive's Wisconsin house and lot (the "House") for a cash price equal to the greater of the Cost Price or Fair Market Value. For this purpose the Cost Price shall mean the price paid by the Executive for the House, or, should the Executive build the House, the Executive's total costs of obtaining the lot and constructing the House. The Executive will provide the Company with his Cost Price within 30 days of his purchase of the House, or, should the Executive build the House, the Executive will provide the Company with a detailed listing of his costs within 6 months of the completion of the House. Such detailed listing, if applicable, shall be the final determination of the Cost Price. The Cost Price may be amended by the Executive from time to time if part of the lot is sold or if additional improvements are made to the House or lot. For this purpose, "Fair Market Value" shall mean the average of the highest two of three appraisals obtained from qualified residential appraisers, one to be selected by the Executive, one by the Company and the third by the other two, with the Company to bear the appraisal costs. The Company shall also make a gross-up payment to the Executive to the extent that the Cost Price is higher than Fair Market Value, so that after the Executive's payment of any income taxes which may be due on such excess and the gross-up payment, the Executive will be left with an amount equal to the Cost Price. (b) The terms of this Section 8 shall apply upon the Executive's termination of employment with the Company at any time after the Executive's purchase of the House, or should the Executive intend to build the House, at any time after the Executive's purchase of the lot, even if prior to the start of construction of the House. (c) The closing of any purchase and sale contemplated by this Section 8 will be on the terms herein set forth and otherwise on standard terms and conditions as are customary for residential real estate transactions in Wisconsin. The parties acknowledge that the Executive may not take title to the House in his own name, but that the Company will be obligated to honor its purchase obligations under Section 8(a) upon timely written notice to it, so long as the Executive or his estate causes the legal title holder to convey the property to the Company upon closing of such purchase and sale. (d) The Company shall reimburse the Executive his out of pocket living expenses associated with maintaining an apartment in Wisconsin pending acquisition of the House, or should the Executive intend to build the House, while the House is being constructed. Such amounts will be "grossed-up" for any taxes the Executive may be required to pay. 9. Obligations of the Company on Termination of Employment for Death, Disability, for Cause or by the Executive Other than for Good Reason. If the Executive's employment is terminated by reason of his death or Disability (but not under the circumstances covered by paragraph (c)(iv) of the Appendix), or if such employment is terminated by the Company for Cause or by the Executive other than for Good Reason, the Company will pay to the Executive's estate or legal representative or to the Executive, as the case may be, all accrued but unpaid base salary and all other benefits and amounts which may become due in accordance with the terms of any applicable benefit plan, contract, agreement or practice (including pursuant to the SERP as modified pursuant to Section 7 above), but no other compensation or benefits will be paid under this Agreement. However, under such circumstances, the following provisions shall apply. (a) Section 8 of this Agreement shall remain in full force and effect in accordance with its terms. (b) If the Executive's separation from the service of the Company occurs at or after his attainment of age 55, then notwithstanding any contrary provisions in any restricted stock award, he shall become fully vested in any such outstanding award and all otherwise applicable restrictions shall lapse. (c) For purposes of all applicable stock option awards, other equity incentive compensation awards, retiree health care plans, and any other employee welfare benefit plan, program or fringe benefit (but specifically excluding any tax-qualified retirement plan), the Executive shall be treated as if his service with the Company had commenced at age 25. 10. Non-Compete Agreement. In consideration of this Agreement, the Executive agrees that he will not, for a period of one year from the date of his or her termination of employment with the Company, directly or indirectly own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of, or be connected in any manner, including but not limited to, holding the position of shareholder, director, officer, consultant, independent contractor, executive partner, or investor with any "Competing Enterprise." For purposes of this paragraph, a "Competing Enterprise" means any entity, firm or person engaged in a business within the State of Wisconsin or the upper peninsula area of the State of Michigan (the "Territory") which is in competition with any of the businesses of the Company or any of its subsidiaries within the Territory as of the date the Executive's termination of employment, and whose aggregate gross revenues, calculated for the most recently completed fiscal year of the Competing Enterprise, derived from all such competing activities within the Territory during such fiscal year, equal at least 10% or more of such Enterprise's consolidated net revenues for such fiscal year. If the Executive notifies the Company in writing of any employment or opportunity which the Executive proposes to undertake during the one year non-compete period, and supplies the Company with any additional information which the Company may reasonably request, the Company agrees to promptly notify the Executive within thirty days after all information reasonably requested by it has been provided, whether the Company considers the proposed employment or opportunity to be prohibited by these provisions and, if so, whether the Company is willing to waive the same. Notwithstanding anything in this Section 10, the Executive shall not be prohibited from acquiring or holding up to 2% of the common stock of an entity that is traded on a national securities exchange or a nationally recognized over-the-counter market. 11. Successors and Binding Agreements. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) and the direct and indirect parent of any such successor, to all or substantially all of the business and/or assets of the Company expressly to assume and to agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no succession had taken place. This Agreement shall be binding upon and inure to the benefit of the Company and any such successor, and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's respective personal or legal representative, executor, administrator, successor, heirs, distributees and/or legatees. (c) Neither the Company nor the Executive may assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in this Section. Without limiting the generality of the foregoing, the Executive's right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by will or the laws of descent and distribution. In the event the Executive attempts any assignment or transfer contrary to this Section, the Company shall have no liability to pay any amount so attempted to be assigned or transferred. 12. Notices. All communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the Company (to the attention of the Secretary of the Company) at its principal executive office and to the Executive at his/her principal residence, or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of a change of address shall be effective only upon receipt. 13. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Wisconsin without giving effect to the principles of conflict of laws of such state, except that Section 14 shall be construed in accordance with the Federal Arbitration Act if arbitration is chosen by the Executive as the method of dispute resolution. 14. Settlement of Disputes; Arbitration; Attorneys' Fees. Any dispute or controversy arising under or in connection with this Agreement shall be settled, at the Executive's election, either by arbitration in Milwaukee, Wisconsin in accordance with the rules of the American Arbitration Association then in effect or by litigation; provided, however, that in the event of a dispute regarding whether the Executive's employment has been terminated for Cause or whether the Executive's voluntary termination qualifies as a termination for Good Reason, the evidentiary standards set forth in this Agreement shall apply. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The Company agrees to pay, as incurred, to the fullest extent permitted by law, all legal fees and expenses that the Executive may reasonably incur as a result of any contest (regardless of outcome) by the Company, the Executive or others of the validity or enforceability of or liability under, or otherwise involving any provision of this Agreement. 15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. 16. Entire Agreement; Amendments. This Agreement constitutes the entire understanding and agreement of the parties with respect to the matters discussed herein and supersedes all other prior agreements and understandings, written or oral, between the parties with respect thereto including, without limitation, the Senior Officer Change in Control, Severance and Special Pension Agreement dated March 8, 2000 between the parties. There are no representations, warranties or agreements of any kind relating thereto that are not set forth in this Agreement. This Agreement may not be amended or modified except by a written instrument signed by the parties hereto or their respective successors and legal representatives. 17. Withholding. The Company may withhold from any amounts payable under this Agreement all federal, state and other taxes as shall be legally required. 18. Certain Limitations. Nothing in this Agreement shall grant the Executive any right to remain an executive, director or employee of the Company or of any of its subsidiaries for any period of time. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and date first written above. WISCONSIN ENERGY CORPORATION By:/s/ Paul Donovan ---------------------------- Paul Donovan APPENDIX -------- This is an appendix to the Senior Officer Change in Control, Severance and Non-Compete Agreement between WISCONSIN ENERGY CORPORATION and PAUL DONOVAN dated November 8, 2000 (the "Agreement"). As used in the Agreement, the terms set forth below shall have the following meanings: (a) "Cause" means: (i) the willful and continued failure of the Executive to substantially perform the Executive's duties (other than failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board of Directors of the Company (the "Board"), or the Compensation Committee of the Board (the "Committee") which specifically identifies the manner in which the Board or the Committee or the elected officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is determined by the Board to have been materially and demonstrably injurious to the Company. However, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. The Executive may only be terminated for Cause if the Company gives written notice to the Executive of its intention to terminate the Executive's employment for Cause, setting forth in reasonable detail the specific conduct of the Executive that it considers to constitute Cause and the specific provision(s) of this Agreement on which it relies, and stating the date, time and place of the Special Meeting for Cause. The "Special Meeting for Cause" means a meeting of the Board called and held specifically for the purpose of considering the Executive's termination for Cause, that takes place not less than ten and not more than twenty business days after the Executive receives the notice of termination for Cause. The Executive shall be given an opportunity, together with counsel, to be heard at the Special Meeting for Cause. The Executive's termination for Cause shall be effective when and if a resolution is duly adopted by the affirmative vote of at least two-thirds (_) of the entire membership of the Board, excluding employee directors, at the Special Meeting for Cause, stating that in the good faith opinion of the Board, the Executive is guilty of the conduct described in the notice of termination for Cause and that conduct constitutes Cause under this Agreement. In the event of a dispute regarding whether the Executive's employment has been terminated for Cause, no claim by the Company that Cause exists shall be given effect unless the Company establishes by clear and convincing evidence that Cause exists. (b) A "Change in Control" with respect to the Company shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 20% or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (a) of paragraph (iii) below; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds (_) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (a) a merger or consolidation immediately following which the directors of the Company immediately prior to such merger or consolidation continue to constitute at least a majority of the board of directors of the Company, the surviving entity or any parent thereof or (b) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its affiliates) representing 20% or more of the combined voting power of the Company's then outstanding securities; or (iv) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement (or series of related agreements) for the sale or disposition by the Company of all or substantially all of the Company's assets, disregarding any sale or disposition to a company, at least a majority of the directors of which were directors of the Company immediately prior to such sale or disposition; or (v) the Board determines in its sole and absolute discretion that there has been a Change in Control of the Company. For purposes of this Change in Control definition, the terms set forth below shall have the following meanings: "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the company. (c) "Covered Termination of Employment Associated with a Change in Control" means: (i) a termination of employment by the Company other than because of death or Disability and without Cause, which occurs within a period of eighteen months following the Effective Date or, (ii) a termination of employment by the Company other than because of death or Disability and without Cause within a period of six months prior to the Effective Date, and it is reasonably demonstrated by the Executive that such termination of employment was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or otherwise arose in connection with or in anticipation of a Change in Control, or (iii) a termination of employment by the Executive for Good Reason within a period of eighteen months following the Effective Date and also subsequent to the occurrence, without the Executive's written consent, of any event described in Section (g) after the Effective Date, or a termination of employment by the Executive within a period of six months prior to the Effective Date and following the occurrence without the Executive's consent of any event described in Section (g)(i), (ii), (iii) or (iv) and it is reasonably demonstrated by the Executive that such event occurred at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or otherwise arose in connection or in anticipation of a Change in Control, or (iv) a voluntary termination of employment by the Executive without Good Reason following completion of one year of service after a Change in Control of the Company, provided that the voluntary termination must be effected by the Executive within six months after the completion of that one-year of service. Further, if the Executive gives written notice to the Company any time after a Change in Control of the Company but before completion of one year of service thereafter that the Executive intends to so voluntarily terminate and if the Executive should thereafter die while in the employ of the Company or incur a termination of employment because of Disability, in either case before completion of such one year of service, such death or termination of employment shall be treated as a Covered Termination Associated with a Change in Control. If within fifteen days after the Company notifies the Executive that it is terminating his employment for Cause or the Executive notifies the Company that he is terminating his employment for Good Reason, the party receiving such notice notifies the other party that a dispute exists concerning the termination, then for purposes of this Section (c) the date of the Executive's termination of employment shall not be deemed to have occurred until the earlier of (i) the date that is 18 months following the Effective Date or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided, however, that the date of termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence. If a purported termination occurs prior to or following a Change in Control and the date of termination is extended in accordance with the preceding paragraph, the Company shall continue to pay the Executive the full compensation and benefits as are provided in the first sentence of Section 3(a) of the Agreement until the date of termination, as determined in accordance with the preceding paragraph. Amounts paid under this Section (c) are in addition to all other amounts due under the Agreement and shall not be offset against or reduce any other amounts due under the Agreement, other than amounts due under the first sentence of Section 3(a) of the Agreement. (d) "Covered Termination of Employment Not Associated with a Change in Control of the Company" means: (i) a termination of employment by the Company other than because of death or Disability and without Cause, or (ii) a termination of employment by the Executive for Good Reason subsequent to the occurrence, without the Executive's written consent, of any event described in Section (g). (e) "Disability" means that the Executive has been unable, for a period of 180 consecutive business days, to perform the material duties of his job, as a result of physical or mental illness or injury and that a physician selected by the Company or its insurers and acceptable to the Executive or his legal representative, has determined that the Executive's incapacity is total and permanent. A termination of the Executive's employment by the Company for Disability shall be communicated to the Executive by written notice and shall be effective on the thirtieth day after receipt of such notice by the Executive, unless the Executive returns to full-time performance of his duties before the expiration of such thirty-day period. (f) "Effective Date" means the first date on which a Change in Control of the Company occurs, except that if Section 4 of the Agreement applies, the term shall mean the date immediately prior to the Executive's termination of employment. (g) "Good Reason" means: (i) the assignment to the Executive of any duties inconsistent, in the reasonable judgment of the Executive, with the customary duties of a Chief Financial Officer of a comparably sized company or any other action by the Company that results in material reduction of the Executive's duties and responsibilities, or (ii) any reduction in the Executive's base salary or percentage of base salary available as an incentive compensation or bonus opportunity relative to those most favorable to the Executive in effect at any time during the 180-day period prior to the Effective Date or to the extent more favorable to the Executive, those in effect after the Effective Date, or any failure by the Company to continue to provide for the Executive's participation in the Company's long-term incentive plans and programs on a basis commensurate with other senior executives of the Company, or reduction in any material element of the Executive's compensation or benefits, or (iii) the relocation of the Executive's principal place of employment to a location more than 35 miles from the Executive's principal place of employment immediately prior to the Effective Date, or (iv) the Company's requiring the Executive to travel on Company business to a materially greater extent than was required immediately prior to the Effective Date, or (v) the failure by the Company to comply with Section 11(a) of this Agreement. (h) "Highest Bonus Amount" means the highest dollar bonus which would result from three calculations, as follows: (i) the highest percentage of base salary ever used with respect to the calculation of the Executive's bonus during the three complete fiscal years of the Company immediately preceding the termination of employment or, if more favorable to the Executive, during the three complete fiscal years of the Company immediately preceding the Change in Control of the Company, multiplied times the highest per annum base rate of salary in effect with respect to the Executive during the three-year period immediately prior to the termination of employment; (ii) the highest dollar bonus earned by the Executive under any cash bonus or incentive compensation plan of the Company during either of the three complete fiscal year periods of the Company listed in (i) above, whichever is more favorable to the Executive; or (iii) the Executive's bonus or incentive compensation "target" for the fiscal year in which the termination of employment occurs. EX-27.1 3 0003.txt WEC SCH UT - NINE MO ENDED SEPTEMBER 30, 2000
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS OF WISCONSIN ENERGY CORPORATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S.DOLLARS DEC-31-2000 JAN-01-2000 SEP-30-2000 9-MOS 1 PER-BOOK 3,937,900 1,226,300 1,599,200 0 1,843,600 8,607,000 1,200 891,400 1,184,000 2,076,600 0 30,400 1,328,700 251,700 784,800 1,752,000 41,600 0 177,100 23,000 2,141,100 8,607,000 2,233,800 86,200 1,877,800 1,877,800 356,000 30,800 386,800 175,300 125,300 0 125,300 141,100 0 423,200 1.04 1.03 TOTAL NET UTILITY PLANT IS $4,325,900 OF NET PROPERTY, PLANT AND EQUIPMENT LESS $388,000 OF NET NON-UTILITY PROPERTY. OTHER PROPERTY AND INVESTMENTS IS $838,300 OF INVESTMENTS PLUS $388,000 OF NET NON-UTILITY PROPERTY. RETAINED EARNINGS IS NET OF ($3,800) OF UNEARNED COMPENSATION FOR RESTRICTED STOCK AWARDS AND $32,900 OF STOCK OPTIONS EXERCISABLE. OTHER ITEMS - CAPITAL AND LIABILITIES INCLUDES $200,000 OF COMPANY-OBLIGATED, MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY DEBENTURES OF THE COMPANY. TOTAL OPERATING EXPENSES AND OPERATING INCOME OR LOSS EXCLUDE INCOME TAXES OF $86,200. INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES. TOTAL INTEREST EXPENSE INCLUDES $10,300 OF DISTRIBUTIONS ON PREFERRED SECURITIES OF SUBSIDIARY TRUST AND $900 OF PREFERRED DIVIDEND REQUIREMENTS OF SUBSIDIARY. NET INCOME IS AFTER INCOME TAXES OF $86,200. PREFERRED STOCK DIVIDENDS ARE INCLUDED IN TOTAL INTEREST EXPENSE. SEE FINANCIAL STATEMENTS AND NOTES IN THE ACCOMPANYING 10-Q.
EX-27.2 4 0004.txt WEC RECLASSED SCH UT - NINE MO ENDED SEPTEMBER 30, 1999
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS OF WISCONSIN ENERGY CORPORATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS SCHEDULE REFLECTS RECLASSIFICATION OF AMOUNTS TO CONFORM TO THE COMPANY'S CURRENT FINANCIAL STATEMENT PRESENTATION. 1,000 U.S.DOLLARS DEC-31-1999 JAN-01-1999 SEP-30-1999 9-MOS 1 PER-BOOK 3,307,900 1,448,800 639,800 0 535,800 5,932,300 1,200 813,200 1,176,400 1,990,800 0 30,400 1,174,400 50,700 635,700 333,400 54,900 0 178,900 26,300 1,456,800 5,932,300 1,687,000 92,100 1,332,300 1,332,300 354,700 17,400 372,100 108,700 171,300 0 171,300 136,300 0 401,700 1.47 1.47 TOTAL NET UTILITY PLANT IS $3,858,900 OF NET PROPERTY, PLANT AND EQUIPMENT LESS $551,000 OF NET NON-UTILITY PROPERTY. OTHER PROPERTY AND INVESTMENTS IS $897,800 OF INVESTMENTS PLUS $551,000 OF NET NON-UTILITY PROPERTY. RETAINED EARNINGS IS NET OF $2,600 OF UNEARNED COMPENSATION FOR RESTRICTED STOCK AWARDS. OTHER ITEMS - CAPITAL AND LIABILITIES INCLUDES $200,000 OF COMPANY-OBLIGATED, MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY DEBENTURES OF THE COMPANY. TOTAL OPERATING EXPENSES AND OPERATING INCOME OR LOSS EXCLUDES INCOME TAXES OF $92,100. TOTAL INTEREST EXPENSE INCLUDES $7,100 OF DISTRIBUTIONS ON PREFERRED SECURITIES OF SUBSIDIARY TRUST AND $900 OF PREFERRED DIVIDEND REQUIREMENTS OF SUBSIDIARY. INCOME BEFORE INTEREST EXPENSE AND NET INCOME IS AFTER INCOME TAXES OF $92,100. SEE FINANCIAL STATEMENTS AND NOTES IN THE ACCOMPANYING 10-Q.
-----END PRIVACY-ENHANCED MESSAGE-----