-----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, Ih1tpLTnYB23sNpWqm5RKzOFfw4Gy3OPfVy0EKJPQ8dqp1gK3o6Bwbb+m/8wl+gj 4eKb9lYi2qOtDtECbsBW1g== 0000107815-96-000017.txt : 19960816 0000107815-96-000017.hdr.sgml : 19960816 ACCESSION NUMBER: 0000107815-96-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WISCONSIN ENERGY CORP CENTRAL INDEX KEY: 0000783325 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 391391525 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09057 FILM NUMBER: 96615415 BUSINESS ADDRESS: STREET 1: 231 W MICHIGAN ST CITY: MILWAUKEE STATE: WI ZIP: 53201 BUSINESS PHONE: 4142212345 MAIL ADDRESS: STREET 1: PO BOX 2949 CITY: MILWAUKEE STATE: WI ZIP: 53201 10-Q 1 WISCONSIN ENERGY CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- ------------- Commission Registrant; State of Incorporation; IRS Employer File Number Address; and Telephone Number Identification No. - ----------- ----------------------------------- ------------------ 1-9057 WISCONSIN ENERGY CORPORATION 39-1391525 (A Wisconsin Corporation) 231 West Michigan Street P.O. Box 2949 Milwaukee, WI 53201 (414) 221-2345 1-1245 WISCONSIN ELECTRIC POWER COMPANY 39-0476280 (A Wisconsin Corporation) 231 West Michigan Street P.O. Box 2046 Milwaukee, WI 53201 (414) 221-2345 Indicate by check mark whether each of the registrants (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (August 1, 1996): Wisconsin Energy Corporation Common stock, $.01 Par Value, 110,819,337 shares outstanding. Wisconsin Electric Power Company Common stock, $10 Par Value, 33,289,327 shares outstanding. Wisconsin Energy Corporation is the sole holder of Wisconsin Electric Power Company common stock. 2 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 1996 TABLE OF CONTENTS ITEM PAGE Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 2 PART I - FINANCIAL INFORMATION 1. Financial Statements: Wisconsin Energy Corporation Consolidated Condensed Income Statement . . . . . . . . . . . 3 Consolidated Condensed Balance Sheet. . . . . . . . . . . . . 4 Consolidated Statement of Cash Flows. . . . . . . . . . . . . 5 Wisconsin Electric Power Company Condensed Income Statement. . . . . . . . . . . . . . . . . . 6 Condensed Balance Sheet . . . . . . . . . . . . . . . . . . . 7 Statement of Cash Flows . . . . . . . . . . . . . . . . . . . 8 Notes to Financial Statements of Wisconsin Energy Corporation and Wisconsin Electric Power Company. . . . . . . . . . . . . . . 9 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for Wisconsin Energy Corporation and Wisconsin Electric Power Company. . . . . . . . . . . . . . . 11 PART II - OTHER INFORMATION 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 19 4. Submission of Matters to a Vote of Security Holders. . . . . . . 21 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . 22 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 32 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 INTRODUCTION Wisconsin Energy Corporation ("WEC") is a holding company whose principal subsidiary is Wisconsin Electric Power Company ("WE"), an electric, gas and steam utility. The unaudited interim financial statements presented in this combined Form 10-Q report include the consolidated statements of WEC as well as separate statements for WE. The unaudited statements have been prepared by WEC and WE pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The WEC and WE financial statements should be read in conjunction with the financial statements and notes thereto included in WEC's and WE's respective Annual Reports on Form 10-K for the year ended December 31, 1995. This combined Form 10-Q is separately filed by WEC and WE. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. -2- 3 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WISCONSIN ENERGY CORPORATION CONSOLIDATED CONDENSED INCOME STATEMENT (Unaudited)
Three Months Ended Six Months Ended June 30 June 30 ------------------------- ------------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- (Thousands of Dollars) Operating Revenues Electric $ 334,337 $ 347,277 $ 685,161 $ 691,196 Gas 64,880 55,175 202,896 176,275 Steam 2,469 2,641 9,086 8,744 ---------- ---------- ---------- ---------- Total Operating Revenues 401,686 405,093 897,143 876,215 Operating Expenses Fuel 71,265 71,611 147,058 139,430 Purchased power 6,381 8,130 12,145 27,206 Cost of gas sold 40,199 32,536 125,791 105,339 Other operation expenses 92,875 97,859 198,251 195,619 Maintenance 24,973 30,840 51,080 59,212 Depreciation 50,896 45,436 103,201 90,148 Taxes other than income taxes 19,249 17,158 40,096 36,537 Federal income tax 21,656 23,376 52,284 53,011 State income tax 5,117 5,528 12,275 12,628 Deferred income taxes - net 1,814 1,530 3,676 1,906 Investment tax credit - net (1,121) (1,759) (2,241) (2,241) ---------- ---------- ---------- ---------- Total Operating Expenses 333,304 332,245 743,616 718,795 Operating Income 68,382 72,848 153,527 157,420 Other Income and Deductions Interest income 4,824 4,153 10,790 7,767 Allowance for other funds used during construction 526 829 1,132 1,654 Miscellaneous - net (2,151) 1,513 (4,077) 2,863 Income taxes 452 2 899 307 ---------- ---------- ---------- ---------- Total Other Income and Deductions 3,651 6,497 8,744 12,591 Income Before Interest Charges and Preferred Dividend 72,033 79,345 162,271 170,011 Interest Charges Interest expense 27,550 28,658 55,857 57,730 Allowance for borrowed funds used during construction (1,371) (1,209) (2,545) (2,450) ---------- ---------- ---------- ---------- Total Interest Charges 26,179 27,449 53,312 55,280 Preferred Dividend Requirement of Subsidiary 300 301 601 602 ---------- ---------- ---------- ---------- Net Income $ 45,554 $ 51,595 $ 108,358 $ 114,129 ========== ========== ========== ========== Average Common Shares Outstanding (Thousands) 110,819 109,569 110,819 109,352 Earnings Per Share of Common Stock $ 0.41 $ 0.47 $ 0.98 $ 1.04 Dividends Per Share of Common Stock $ 0.38 $ 0.3675 $ 0.7475 $ 0.72 The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these financial statements. - 3 -
4 FORM 10-Q WISCONSIN ENERGY CORPORATION CONSOLIDATED CONDENSED BALANCE SHEET (Unaudited)
June 30, 1996 December 31, 1995 ---------------- ----------------- (Thousands of Dollars) Assets -------------- Utility Plant Electric $ 4,587,277 $ 4,531,404 Gas 488,932 489,739 Steam 40,371 40,078 Accumulated provision for depreciation (2,352,336) (2,288,080) ------------- ------------- 2,764,244 2,773,141 Construction work in progress 90,433 78,153 Nuclear fuel - net 59,203 59,260 ------------- ------------- Net Utility Plant 2,913,880 2,910,554 Other Property and Investments 654,226 637,958 Current Assets Cash and cash equivalents 14,095 23,626 Accounts receivable 146,809 150,149 Accrued utility revenues 96,868 140,201 Materials, supplies and fossil fuel 151,438 153,713 Prepayments and other assets 78,162 63,830 ------------- ------------- Total Current Assets 487,372 531,519 Deferred Charges and Other Assets Accumulated deferred income taxes 145,842 140,844 Other 351,100 339,860 ------------- ------------- Total Deferred Charges and Other Assets 496,942 480,704 ------------- ------------- Total Assets $ 4,552,420 $ 4,560,735 ============= ============= Capitalization and Liabilities ------------------------------ Capitalization Common stock $ 678,017 $ 678,017 Retained earnings 1,218,769 1,193,248 ------------- ------------- Total Common Stock Equity 1,896,786 1,871,265 Preferred stock 30,450 30,451 Long-term debt 1,359,113 1,367,644 ------------- ------------- Total Capitalization 3,286,349 3,269,360 Current Liabilities Long-term debt due currently 32,527 51,854 Short-term debt 147,181 156,919 Accounts payable 83,894 108,508 Accrued liabilities 72,081 68,634 Other 45,903 50,191 ------------- ------------- Total Current Liabilities 381,586 436,106 Deferred Credits and Other Liabilities Accumulated deferred income taxes 495,232 483,410 Other 389,253 371,859 ------------- ------------- Total Deferred Credits and Other Liabilities 884,485 855,269 ------------- ------------- Total Capitalization and Liabilities $ 4,552,420 $ 4,560,735 ============= ============= The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these financial statements. - 4 -
5 FORM 10-Q WISCONSIN ENERGY CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Six Months Ended June 30 -------------------------------------- 1996 1995 ---------- ---------- (Thousands of Dollars) Operating Activities Net income $ 108,358 $ 114,129 Reconciliation to cash Depreciation 103,201 90,148 Nuclear fuel expense - amortization 11,864 11,129 Conservation expense - amortization 11,249 10,554 Debt premium, discount & expense - amortization 5,619 6,029 Revitalization - net (1,479) (5,447) Deferred income taxes - net 3,676 1,906 Investment tax credit - net (2,241) (2,241) Allowance for other funds used during construction (1,132) (1,654) Change in: Accounts receivable 3,340 (9,949) Inventories 2,275 3,626 Accounts payable (24,614) (21,756) Other current assets 29,001 7,869 Other current liabilities (841) 15,222 Other 11,533 5,235 ---------- ---------- Cash Provided by Operating Activities 259,809 224,800 Investing Activities Construction expenditures (129,055) (118,865) Allowance for borrowed funds used during construction (2,545) (2,450) Nuclear fuel (9,309) (12,627) Nuclear decommissioning trust (15,231) (5,102) Conservation investments - net 285 2,312 Other 7,604 (6,085) ---------- ---------- Cash Used in Investing Activities (148,251) (142,817) Financing Activities Sale of common stock - 24,215 Retirement of preferred stock (1) - Sale of long-term debt 12,838 11,960 Retirement of long-term debt (41,351) (22,818) Change in short-term debt (9,738) (11,234) Dividends on stock - common (82,837) (78,658) ---------- ---------- Cash Used in Financing Activities (121,089) (76,535) ---------- ---------- Change in Cash and Cash Equivalents $ (9,531) $ 5,448 ========== ========== Supplemental Information Disclosures Cash Paid for Interest (net of amount capitalized) $ 48,325 $ 50,418 Income taxes 75,493 82,965 The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these financial statements. - 5 -
6 FORM 10-Q WISCONSIN ELECTRIC POWER COMPANY CONDENSED INCOME STATEMENT (Unaudited)
Three Months Ended Six Months Ended June 30 June 30 ------------------------- ------------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- (Thousands of Dollars) Operating Revenues Electric $ 334,337 $ 347,277 $ 685,161 $ 691,196 Gas 64,880 55,175 202,896 176,275 Steam 2,469 2,641 9,086 8,744 ---------- ---------- ---------- ---------- Total Operating Revenues 401,686 405,093 897,143 876,215 Operating Expenses Fuel 71,265 71,611 147,058 139,430 Purchased power 6,381 8,130 12,145 27,206 Cost of gas sold 40,199 32,536 125,791 105,339 Other operation expenses 92,875 97,859 198,251 195,619 Maintenance 24,973 30,840 51,080 59,212 Depreciation 50,896 45,436 103,201 90,148 Taxes other than income taxes 19,249 17,158 40,096 36,537 Federal income tax 21,656 23,376 52,284 53,011 State income tax 5,117 5,528 12,275 12,628 Deferred income taxes - net 1,814 1,530 3,676 1,906 Investment tax credit - net (1,121) (1,759) (2,241) (2,241) ---------- ---------- ---------- ---------- Total Operating Expenses 333,304 332,245 743,616 718,795 Operating Income 68,382 72,848 153,527 157,420 Other Income and Deductions Interest income 3,846 3,134 8,694 5,704 Allowance for other funds used during construction 526 829 1,132 1,654 Miscellaneous - net (1,138) 2,798 (2,385) 5,480 Income taxes (204) (781) (447) (1,165) ---------- ---------- ---------- ---------- Total Other Income and Deductions 3,030 5,980 6,994 11,673 Income Before Interest Charges 71,412 78,828 160,521 169,093 Interest Charges Interest expense 26,500 27,746 53,941 56,055 Allowance for borrowed funds used during construction (294) (468) (630) (934) ---------- ---------- ---------- ---------- Total Interest Charges 26,206 27,278 53,311 55,121 ---------- ---------- ---------- ---------- Net Income 45,206 51,550 107,210 113,972 Preferred Stock Dividend Requirement 300 301 601 602 ---------- ---------- ---------- ---------- Earnings Available for Common Stockholder $ 44,906 $ 51,249 $ 106,609 $ 113,370 ========== ========== ========== ========== Note - Earnings and dividends per share of common stock are not applicable because all of Wisconsin Electric Power Company's common stock is owned by Wisconsin Energy Corporation. The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these financial statements. - 6 -
7 FORM 10-Q WISCONSIN ELECTRIC POWER COMPANY CONDENSED BALANCE SHEET (Unaudited)
June 30, 1996 December 31, 1995 ----------------- ----------------- (Thousands of Dollars) Assets -------------- Utility Plant Electric $ 4,587,277 $ 4,531,404 Gas 488,932 489,739 Steam 40,371 40,078 Accumulated provision for depreciation (2,352,336) (2,288,080) ------------- ------------- 2,764,244 2,773,141 Construction work in progress 90,433 78,153 Nuclear fuel - net 59,203 59,260 ------------- ------------- Net Utility Plant 2,913,880 2,910,554 Other Property and Investments 439,182 427,627 Current Assets Cash and cash equivalents 11,207 19,550 Accounts receivable 142,126 144,476 Accrued utility revenues 96,868 140,201 Materials, supplies and fossil fuel 151,438 153,713 Prepayments and other assets 72,121 59,784 ------------- ------------- Total Current Assets 473,760 517,724 Deferred Charges and Other Assets Accumulated deferred income taxes 141,579 136,581 Other 330,981 326,438 ------------- ------------- Total Deferred Charges and Other Assets 472,560 463,019 ------------- ------------- Total Assets $ 4,299,382 $ 4,318,924 ============= ============= Capitalization and Liabilities ------------------------------ Capitalization Common stock $ 613,582 $ 613,582 Retained earnings 1,106,659 1,082,983 ------------- ------------- Total Common Stock Equity 1,720,241 1,696,565 Preferred stock 30,450 30,451 Long-term debt 1,317,113 1,325,169 ------------- ------------- Total Capitalization 3,067,804 3,052,185 Current Liabilities Long-term debt due currently 32,052 51,419 Short-term debt 130,297 150,694 Accounts payable 83,134 107,115 Accrued liabilities 70,231 66,694 Other 44,573 48,762 ------------- ------------- Total Current Liabilities 360,287 424,684 Deferred Credits and Other Liabilities Accumulated deferred income taxes 491,650 479,828 Other 379,641 362,227 ------------- ------------- Total Deferred Credits and Other Liabilities 871,291 842,055 ------------- ------------- Total Capitalization and Liabilities $ 4,299,382 $ 4,318,924 ============= ============= The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these financial statements. - 7 -
8 FORM 10-Q WISCONSIN ELECTRIC POWER COMPANY STATEMENT OF CASH FLOWS (Unaudited)
Six Months Ended June 30 -------------------------------------- 1996 1995 ---------- ---------- (Thousands of Dollars) Operating Activities Net income $ 107,210 $ 113,972 Reconciliation to cash Depreciation 103,201 90,148 Nuclear fuel expense - amortization 11,864 11,129 Conservation expense - amortization 11,249 10,554 Debt premium, discount & expense - amortization 5,596 6,012 Revitalization - net (1,479) (5,447) Deferred income taxes - net 3,676 1,906 Investment tax credit - net (2,241) (2,241) Allowance for other funds used during construction (1,132) (1,654) Change in: Accounts receivable 2,350 (10,027) Inventories 2,275 3,626 Accounts payable (23,981) (20,954) Other current assets 30,996 8,709 Other current liabilities (652) 18,351 Other 12,037 5,008 ---------- ---------- Cash Provided by Operating Activities 260,969 229,092 Investing Activities Construction expenditures (110,847) (112,830) Allowance for borrowed funds used during construction (630) (934) Nuclear fuel (9,309) (12,627) Nuclear decommissioning trust (15,231) (5,102) Conservation investments - net 285 2,312 Other (1,570) (4,429) ---------- ---------- Cash Used in Investing Activities (137,302) (133,610) Financing Activities Stockholder contribution - 30,000 Retirement of preferred stock (1) - Sale of long-term debt 12,838 11,960 Retirement of long-term debt (40,916) (22,423) Change in short-term debt (20,397) (30,319) Dividends on stock - common (82,933) (78,664) - preferred (601) (602) ---------- ---------- Cash Used in Financing Activities (132,010) (90,048) ---------- ---------- Change in Cash and Cash Equivalents $ (8,343) $ 5,434 ========== ========== Supplemental Information Disclosures Cash Paid for Interest (net of amount capitalized) $ 48,153 $ 50,421 Income taxes 75,196 82,454 The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these financial statements. - 8 -
9 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. The accompanying unaudited consolidated financial statements for Wisconsin Energy Corporation ("WEC") and unaudited financial statements for Wisconsin Electric Power Company ("WE") should be read in conjunction with WEC's and WE's respective 1995 Annual Reports on Form 10-K. In the opinion of management, all adjustments, normal and recurring in nature, necessary to a fair statement of the results of operations and financial position of WEC and WE have been included in the accompanying income statements and balance sheets. The results of operations for the three months and the six months ended June 30, 1996 are not, however, necessarily indicative of the results which may be expected for the year 1996 because of seasonal and other factors. 2. On May 16, 1996, WE, the utility subsidiary of WEC, received a written order from the Public Service Commission of Wisconsin ("PSCW") approving replacement of the Unit 2 steam generators at Point Beach Nuclear Plant ("Point Beach") and reaffirming the PSCW's prior decision approving WE's construction and operation of an Independent Spent Fuel Storage Installation ("ISFSI") for dry cask storage of spent nuclear fuel at Point Beach. The steam generators are scheduled to be replaced during the fall refueling outage beginning in October 1996. WE resumed transfer of spent fuel to the ISFSI upon receipt of the May 16, 1996 order. During welding operations on the third cask, hydrogen gas was ignited within the cask. Loading has been halted until actions are implemented to prevent reoccurrence of such an event and until the Nuclear Regulatory Commission ("NRC") has reviewed and accepted such actions. The NRC has conducted an investigation of the event and has identified certain deficiencies which WE expects will result in enforcement action, including possible civil penalties. WE plans to load at least one additional cask with spent fuel before the end of 1996. In August 1996, intervenors in the proceeding filed a petition for judicial review of the PSCW's May 16, 1996 order, seeking reversal of the order. WE intends to fully participate in the judicial review proceeding and to vigorously oppose the petition. ITEM 5. OTHER INFORMATION - "POINT BEACH UNIT 2 STEAM GENERATORS & DRY CASK STORAGE FACILITY" in Part II of this report contains further information. 3. On April 28, 1995, WEC and Northern States Power Company, a Minnesota corporation ("NSP"), entered into an Agreement and Plan of Merger, which was amended and restated as of July 26, 1995 ("Merger Agreement"). The Merger Agreement provides for a strategic business combination involving WEC and NSP in a "merger-of-equals" transaction ("Transaction"). As a result, WEC will become a registered utility holding company under the Public Utility Holding Company Act of 1935, as amended, and will change its name to Primergy Corporation ("Primergy"). Primergy will be the parent of NSP and the current operating subsidiaries of WEC and NSP. The Transaction is intended to be tax-free for income tax purposes and to be accounted for as a "pooling of interests". On September 13, 1995, the stockholders of WEC and NSP voted to approve the Transaction. - 9 - 10 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY NOTES TO FINANCIAL STATEMENTS (Cont'd) (Unaudited) 3. (Cont'd) The Merger Agreement is subject to various conditions, including the approval of various regulatory agencies. The goal of WEC and NSP is to receive approvals from all regulatory authorities by the end of 1996. However, unless WEC and NSP are able to settle pending issues with the PSCW and the Minnesota Public Utilities Commission prior to the end of current hearing schedules, all necessary regulatory approvals for the Transaction may not be obtained until the first quarter of 1997, which may delay consummation of the Transaction into the first quarter of 1997. ITEM 5. OTHER INFORMATION - "MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY" in Part II of this report contains further information concerning the Transaction including selected unaudited pro forma combined condensed financial information. - 10 - 11 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART I - FINANCIAL INFORMATION (Cont'd) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Wisconsin Energy Corporation ("WEC" or the "Company") is a holding company whose principal subsidiary is Wisconsin Electric Power Company ("WE"), an electric, gas and steam utility. As of June 30, 1996, approximately 95% of WEC's consolidated total assets were attributable to WE. The following discussion and analysis of financial condition and results of operations includes both WEC and WE unless otherwise stated. Merger - Northern States Power Company On April 28, 1995, WEC and Northern States Power Company, a Minnesota corporation ("NSP"), entered into an Agreement and Plan of Merger, which was amended and restated as of July 26, 1995 ("Merger Agreement"). The Merger Agreement provides for a strategic business combination involving WEC and NSP in a "merger-of-equals" transaction ("Transaction"). ITEM 5. OTHER INFORMATION - "MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY" in Part II of this report contains further information concerning the Transaction including selected unaudited pro forma combined condensed financial information. The future operations and financial position of WEC and WE will be significantly affected by the proposed Transaction. The following discussion and analysis of financial condition and results of operations does not reflect the potential effects of the Transaction on WEC nor on WE. Cautionary Factors The following discussion and analysis contains forward-looking statements. When used in this document, "anticipate", "believe", "estimate", "expect", "objective" and similar expressions are intended to identify such statements. Forward-looking statements are subject to certain risks, uncertainties and assumptions which could cause actual results to differ materially from those projected, including those that are described in ITEM 5. OTHER INFORMATION - "CAUTIONARY FACTORS" in Part II of this report. LIQUIDITY AND CAPITAL RESOURCES Cash provided by WEC's consolidated operating activities totaled approximately $260 million during the six months ended June 30, 1996. This compares to approximately $225 million provided during the same period in 1995. WEC's consolidated net investing activities totaled $148 million for the six months ended June 30, 1996 compared to approximately $143 million during the same period in 1995. Investments during the first half of 1996 included $129 million for the construction of new or improved facilities of which approximately $111 million was for a number of projects related to utility plant and $18 million was for non-utility projects. Additional investments included $9 million for acquisition of nuclear fuel and $15 million for the Nuclear Decommissioning Trust Fund ("Fund") for the eventual decommissioning of WE's Point Beach Nuclear Plant. WEC's non-utility subsidiaries received proceeds of $9 million on the disposition of various investments as part of Other Investing activities. - 11 - 12 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART I - FINANCIAL INFORMATION (Cont'd) LIQUIDITY AND CAPITAL RESOURCES (Cont'd) During the first half of 1996, WEC used $121 million for financing activities compared to approximately $77 million during the first half of 1995. Financing activities during the first six months of 1996 included the retirement of $30 million of 4-1/2% WE first mortgage bonds, financed through the issuance of additional short-term borrowings. During the six months ended June 30, 1996, there were no new issuances of WEC common stock. Previously, WEC issued new shares which were purchased through the Company's stock plans with cash investments and reinvested dividends. WEC began purchasing shares required for these plans on the open market as of January 1, 1996. However, WEC is reviewing resumption in September 1996 of the issuance of new shares for purchase through the Company's stock plans. Capital requirements for the remainder of 1996 are expected to be principally for construction expenditures and payments to the Fund for the eventual decommissioning of Point Beach. These cash requirements are expected to be met through internal sources of funds from operations and short-term borrowings. However, WE may issue up to $200 million of additional long-term debt in a public offering in late 1996. The specific form, amount and timing of debt securities which may be issued have not yet been determined and will depend on market conditions and other factors. RESULTS OF OPERATIONS 1996 SECOND QUARTER Earnings During the second quarter of 1996, WEC's consolidated net income and earnings per share of common stock were $45.6 million and $0.41, respectively, compared to $51.6 million and $0.47, respectively, during the second quarter of 1995. As described below, earnings decreased primarily because revenue rate decreases and increases in certain Operating Expenses more than offset the favorable impact of increased 1996 electric kilowatt-hour sales and gas therm deliveries as well as decreased Interest Expense. Electric Revenues, Gross Margins and Sales Primarily as a result of annualized electric retail rate decreases effective January 1, 1996 of approximately $33.4 million or 2.75% in Wisconsin and $1.1 million or 3.3% in Michigan, total Electric Operating Revenues decreased by 3.7% or $12.9 million during the three months ended June 30, 1996 compared to the three months ended June 30, 1995. Also contributing to the 1996 decrease in Electric Operating Revenues were the effects of renegotiated contracts effective in 1996 with various wholesale customers and with the Empire and Tilden iron ore mines (the "Mines"), WE's two largest retail customers, and the continued reduction in sales to WPPI, WE's largest municipal power - 12 - 13 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART I - FINANCIAL INFORMATION (Cont'd) 1996 SECOND QUARTER RESULTS OF OPERATIONS (Cont'd) customer. The renegotiated contracts contain discounts from previous rates charged to these customers in exchange for contract extensions. WPPI has been reducing its purchases from WE subsequent to acquiring generating capacity in 1990, 1993 and 1996. A second quarter 1996 increase in total electric kilowatt-hour sales of 1.3% was not sufficient to offset the impact on Electric Operating Revenues of the rate decreases, the renegotiated contracts and the reduced sales to WPPI. ============================================================================== Three Months Ended June 30 --------------------------------------- Electric Gross Margin ($000) 1996 1995 % Change - ---------------------------- ---------- ---------- -------- Electric Operating Revenues $ 334,337 $ 347,277 (3.7) Fuel & Purchased Power 77,646 79,741 (2.6) ---------- ---------- Gross Margin $ 256,691 $ 267,536 (4.1) ============================================================================== Between the comparative periods, the gross margin on Electric Operating Revenues (Electric Operating Revenues less Fuel and Purchased Power expenses) decreased by 4.1% or $10.8 million due to the fact that the lower 1996 Electric Operating Revenues more than offset the favorable effect of lower 1996 Fuel and Purchased Power expenses. Total Fuel expenses declined in 1996 primarily due to lower average coal costs. Between these same comparative periods, Purchased Power expenses decreased as WE substituted lower cost generation for power purchases. ============================================================================== Three Months Ended June 30 --------------------------------------- Electric Sales (Megawatt-hours) 1996 1995 % Change - ------------------------------- ---------- ---------- -------- Residential 1,656,649 1,609,772 2.9 Small Commercial/Industrial 1,737,394 1,702,127 2.1 Large Commercial/Industrial 2,662,097 2,644,998 0.6 Other 349,725 376,125 (7.0) ---------- ---------- Total Retail and Municipal 6,405,865 6,333,022 1.2 Resale-Utilities 250,692 240,058 4.4 ---------- ---------- Total Sales 6,656,557 6,573,080 1.3 ============================================================================== The increase in total electric sales during the second quarter of 1996 compared to the same period in 1995 was due in part to moderate economic growth in WE's electric service territory somewhat offset by cooler summer weather in 1996. As measured by cooling degree days, the second quarter of - 13 - 14 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART I - FINANCIAL INFORMATION (Cont'd) 1996 SECOND QUARTER RESULTS OF OPERATIONS (Cont'd) 1996 was 39.9% cooler than the same period during 1995 and 8.6% cooler than normal. Electric energy sales to the Mines increased 5.6% or 32,000 megawatt- hours during the three months ended June 30, 1996 compared to the three months ended June 30, 1995. Excluding the Mines, total electric sales increased 0.9% and sales to the remaining Large Commercial/Industrial customers decreased 0.7%. Gas Revenues, Gross Margins and Sales Despite an annualized $8.3 million or 2.6% Wisconsin retail gas rate decrease effective January 1, 1996, total Gas Operating Revenues increased by 17.6% or $9.7 million during the second quarter of 1996 compared to the second quarter of 1995. Between the comparative periods, the gross margin on Gas Operating Revenues (Gas Operating Revenues less Cost of Gas Sold) increased by 9.0% or $2.0 million. A 14.0% increase in total therm deliveries during the second three months of 1996 more than offset the impact of the rate decrease on Gas Operating Revenues and on gross margin. ============================================================================== Three Months Ended June 30 --------------------------------------- Gas Gross Margin ($000) 1996 1995 % Change - ----------------------- ---------- ---------- -------- Gas Operating Revenues $ 64,880 $ 55,175 17.6 Cost of Gas Sold 40,199 32,536 23.6 ---------- ---------- Gross Margin $ 24,681 $ 22,639 9.0 ============================================================================== The gross margin on Gas Operating Revenues grew primarily because the increased therm deliveries were to Residential and Commercial customers who are more sensitive to weather variations and who contribute higher margins to earnings than other customer classes. ============================================================================== Three Months Ended June 30 --------------------------------------- Therms Delivered - Thousands 1996 1995 % Change - ---------------------------- ---------- ---------- -------- Residential 59,101 49,845 18.6 Commercial/Industrial 37,228 30,652 21.5 Interruptible 6,257 5,387 16.1 ---------- ---------- Total Sales 102,586 85,884 19.4 Transported Customer Owned Gas 61,953 58,475 5.9 Other - Interdepartmental 9,177 8,005 14.6 ---------- ---------- Total Gas Delivered 173,716 152,364 14.0 ============================================================================== - 14 - 15 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART I - FINANCIAL INFORMATION (Cont'd) 1996 SECOND QUARTER RESULTS OF OPERATIONS (Cont'd) Natural gas therm deliveries during the second quarter of 1996 compared to the same period in 1995 increased primarily due to colder weather in the second quarter of 1996 and to a lesser extent due to moderate economic growth in WE's gas service territory. As measured by heating degree days, the second quarter of 1996 was 33.8% colder than the same period during 1995 and 24.5% colder than normal. Other - Interdepartmental therm deliveries are to WE facilities, primarily the gas fired peaking generating units at the Paris and Concord Generating Stations, at rates approved by the PSCW. Operating Expenses Other Operation Expenses decreased 5.1% or by approximately $5.0 million in the second quarter of 1996 compared to the second quarter of 1995, primarily due to a change in accounting for capitalized conservation expenses in 1996, lower pension and benefit expenses and the timing of certain miscellaneous operating expenses. Maintenance expense decreased 19.0% or by approximately $5.9 million in the second three months of 1996 compared to 1995 in part due to the costs of an unscheduled generating unit outage at Pleasant Prairie Power Plant in 1995. Depreciation expense increased 12.0% or by approximately $5.5 million between the same comparative periods due in part to higher depreciable plant balances and to increased decommissioning expenses during the second three months of 1996. During the second quarter of 1996, Operating Taxes Other Than Income Taxes increased 12.2% or by approximately $2.1 million compared to 1995 primarily due to tax adjustments related to prior periods. Other Items During the second quarter of 1996, Miscellaneous - Net Other Income and Deductions decreased by approximately $3.7 million compared to the second quarter of 1995 primarily as a result of the change in accounting for capitalized conservation investments in 1996 noted above. Between the comparative periods, Interest Expense decreased 3.9% or by $1.1 million, reflecting lower average short-term debt balances in 1996. 1996 YEAR-TO-DATE Earnings During the first six months of 1996, WEC's consolidated net income and earnings per share of common stock were $108.4 million and $0.98, respectively, compared to $114.1 million and $1.04, respectively, during the first six months of 1995. As described below, earnings decreased primarily because revenue rate decreases and increases in certain Operating Expenses offset the favorable impact of increased 1996 year-to-date electric kilowatt- hour sales and gas therm deliveries, increased Other Interest Income as well as decreased Interest Expense. - 15 - 16 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART I - FINANCIAL INFORMATION (Cont'd) 1996 YEAR-TO-DATE RESULTS OF OPERATIONS (Cont'd) Electric Revenues, Gross Margins and Sales Primarily as a result of the electric retail rate decreases effective January 1, 1996 noted above, total Electric Operating Revenues decreased by 0.9% or $6.0 million during the first half of 1996 compared to the first half of 1995. Also contributing to the 1996 decrease in Electric Operating Revenues were the effects of the renegotiated contracts and the reduction in sales to WPPI noted above. A 1996 year-to-date increase in total electric kilowatt-hour sales of 3.3% was not sufficient to offset the impact on Electric Operating Revenues of the rate decreases, the renegotiated contracts and the reduced sales to WPPI. ============================================================================== Six Months Ended June 30 --------------------------------------- Electric Gross Margin ($000) 1996 1995 % Change - ---------------------------- ---------- ---------- -------- Electric Operating Revenues $ 685,161 $ 691,196 (0.9) Fuel & Purchased Power 159,203 166,636 (4.5) ---------- ---------- Gross Margin $ 525,958 $ 524,560 2.7 ============================================================================== Between the comparative periods, the gross margin on Electric Operating Revenues (Electric Operating Revenues less Fuel and Purchased Power expenses) increased by 2.7% or approximately $1.4 million due to the fact that lower 1996 Fuel and Purchased Power expenses more than compensated for the decrease in Electric Operating Revenues. Fuel and Purchased Power expenses declined in 1996 primarily due to lower average coal costs and to unscheduled outages during the first quarter of 1995 at two of WE's most efficient power plants, the coal fired Pleasant Prairie Power Plant and the Point Beach Nuclear Plant, resulting in a higher volume of costlier power purchases in 1995. Also, the addition of the Paris Generating Station in mid-1995 has allowed WE to reduce in 1996 its firm power purchases with their related demand charges. ============================================================================== Six Months Ended June 30 --------------------------------------- Electric Sales (Megawatt-hours) 1996 1995 % Change - ------------------------------- ---------- ---------- -------- Residential 3,474,742 3,299,128 5.3 Small Commercial/Industrial 3,534,580 3,416,854 3.4 Large Commercial/Industrial 5,235,899 5,187,352 0.9 Other 740,883 757,035 (2.1) ---------- ---------- Total Retail and Municipal 12,986,104 12,660,369 2.6 Resale-Utilities 547,659 442,190 23.9 ---------- ---------- Total Sales 13,533,763 13,102,559 3.3 ============================================================================== - 16 - 17 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART I - FINANCIAL INFORMATION (Cont'd) 1996 YEAR-TO-DATE RESULTS OF OPERATIONS (Cont'd) Total electric sales during the first half of 1996 were positively impacted primarily by substantially colder weather conditions compared to the same period in 1995 and to a lesser extent by moderate economic growth in WE's electric service territory. As measured by heating degree days, the first six months of 1996 were 20.0% colder than the same period during 1995 and 9.0% colder than normal. Electric energy sales to the Mines increased 5.2% or 57,000 megawatt-hours during the six months ended June 30, 1996 compared to the six months ended June 30, 1995. Excluding the Mines, total electric sales increased 3.1% and sales to the remaining Large Commercial/Industrial customers decreased 0.2%. Gas Revenues, Gross Margins and Sales Despite the retail gas rate decrease effective January 1, 1996 noted above, total Gas Operating Revenues increased by 15.1% or $26.6 million during the first half of 1996 compared to the first half of 1995. Between the comparative periods, the gross margin on Gas Operating Revenues (Gas Operating Revenues less Cost of Gas Sold) increased by 8.7% or approximately $6.2 million. A 12.1% increase in total therm deliveries during the first six months of 1996 more than offset the impact of the rate decrease on Gas Operating Revenues and on gross margin. ============================================================================== Six Months Ended June 30 --------------------------------------- Gas Gross Margin ($000) 1996 1995 % Change - ----------------------- ---------- ---------- -------- Gas Operating Revenues $ 202,896 $ 176,275 15.1 Cost of Gas Sold 125,791 105,339 19.4 ---------- ---------- Gross Margin $ 77,105 $ 70,936 8.7 ============================================================================== The gross margin grew because the increased therm deliveries were primarily to Residential and Commercial customers who are more sensitive to weather variations and who contribute higher margins to earnings than other customer classes. - 17 - 18 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART I - FINANCIAL INFORMATION (Cont'd) 1996 YEAR-TO-DATE RESULTS OF OPERATIONS (Cont'd) ============================================================================== Six Months Ended June 30 --------------------------------------- Therms Delivered - Thousands 1996 1995 % Change - ---------------------------- ---------- ---------- -------- Residential 228,103 195,048 16.9 Commercial/Industrial 141,978 120,978 17.4 Interruptible 21,082 16,206 30.1 ---------- ---------- Total Sales 391,163 332,232 17.7 Transported Customer Owned Gas 137,430 138,558 (0.8) Other - Interdepartmental 13,665 13,069 4.6 ---------- ---------- Total Gas Delivered 542,258 483,859 12.1 ============================================================================== Natural gas therm deliveries during the first half of 1996 increased primarily due to the colder weather in 1996 noted above compared to the same period in 1995 and to a lesser extent due to moderate economic growth in WE's gas service territory. Operating Expenses Other Operation Expenses increased 1.3% or by $2.6 million in the first half of 1996 compared to the first half of 1995, primarily due to increased uncollectible expenses in 1996 and to the timing of certain miscellaneous operating expenses. The increase in Other Operation Expenses was partially offset by lower capitalized conservation expenses in 1996 due to the change in accounting noted above and lower 1996 pension and benefit expenses. Maintenance expense decreased 13.7% or by $8.1 million in the first six months of 1996 compared to 1995 in part due to the costs of the unscheduled generating unit outages during 1995 noted above. Depreciation expense increased 14.5% or by approximately $13.1 million between the same comparative periods primarily due to higher depreciable plant balances and increased decommissioning expenses in 1996. During the first half of 1996, Operating Taxes Other Than Income Taxes increased 9.7% or by approximately $3.6 million compared to 1995 primarily due to tax adjustments related to prior periods. Other Items Other Interest Income increased 38.9% or by $3.0 million in the first six months of 1996 compared to the first six months of 1995, primarily due to the increased investment income of the Nuclear Decommissioning Trust Fund. Miscellaneous - Net Other Income and Deductions decreased by approximately $6.9 million between the comparative periods as a result of the change in accounting for capitalized conservation investments in 1996 noted above. During the first half of 1996, Interest Expense decreased 3.2% or by approximately $1.9 million compared to the first half of 1995, reflecting lower average short-term debt balances in 1996. - 18 - 19 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART I - FINANCIAL INFORMATION (Cont'd) 1996 YEAR-TO-DATE RESULTS OF OPERATIONS (Cont'd) For certain other information which may impact WEC and WE's future financial condition or results of operations, see ITEM 1. LEGAL PROCEEDINGS and ITEM 5. OTHER INFORMATION in Part II of this report. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The following should be read in conjunction with ITEM 1. BUSINESS - "ENVIRONMENTAL COMPLIANCE" and ITEM 3. LEGAL PROCEEDINGS in Part I of WEC's and WE's respective Annual Reports on Form 10-K for the year ended December 31, 1995 and with ITEM 1. LEGAL PROCEEDINGS in PART II of WEC's and WE's combined Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. RATE MATTERS Wisconsin Retail Jurisdiction 1997 Test Year: On January 16, 1996, WE filed specific financial data with the PSCW related to the 1997 test year showing an $82.2 million revenue deficiency for its utility operations based upon a regulatory return on equity of 12.5%. The PSCW had determined that it required a special full review of WE's rates for the 1997 test year in connection with consideration of the application for approval of the proposed merger of WEC and NSP. The dollar impacts and percentage increases requested for Wisconsin retail electric, gas and steam customers are $77.0 million or 6.2%, $4.3 million or 1.4% and $0.9 million or 6.4%, respectively, on an annualized basis. On March 15, 1996, WE filed testimony and exhibits with the PSCW related to the 1997 test year. The PSCW staff has reviewed WE's 1997 test year financial data and testimony and has developed a preliminary recommendation for an electric rate decrease of $31.1 million or 2.4%, a gas rate decrease of $9.2 million or 2.9% and a steam rate decrease of $0.3 million or 1.3% based upon a regulatory return on equity of 11.1%. This matter is currently before the PSCW. Any changes in rates would likely not take effect until after January 1, 1997. STRAY VOLTAGE On July 11, 1996, the PSCW issued its final order regarding stray voltage policies. Previously, a utility was required to reduce its contribution to stray voltage from its distribution system if stray voltage was measured above certain minimum levels. A neutral isolation device could have been temporarily used for this purpose. Under the new policy, customers will have the option of requesting installation of isolation equipment at their own - 19 - 20 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) STRAY VOLTAGE (Cont'd) expense, regardless of the level of stray voltage present. These new stray voltage policies are likely to increase the number of investigations performed by WE, but WE does not anticipate that this will have a significant impact on its financial position or results of operations. ENVIRONMENTAL COMPLIANCE Solid Waste Landfills Marina Cliffs Barrel Dump Site: As previously reported, WE is a member of a potentially responsible party group which has agreed to comply with an Environmental Protection Agency ("EPA") Section 106(a) CERCLA administrative order for removal activities and additional investigation at this site. WE has been classified as a de minimis party at the site by the EPA. Removal activities have begun. ETSM Property & City of West Allis: As previously reported, iron cyanide bearing wastes were found on property owned by WE (ETSM facility), located in the City of West Allis, Wisconsin, and an adjacent property owned by Giddings & Lewis and/or Kearney & Trecker. The wastes were removed and properly disposed of, with WE's share of the cleanup at about $0.1 million. WE has received a notice sent by one of the adjacent property owners of its intent to sue WE under the Resource Conservation and Recovery Act of 1976. Also as previously reported, the City of West Allis, Wisconsin, discovered iron cyanide bearing wastes on a separate parcel of property owned by the city at 113th St. and Greenfield Avenue. The source of the waste is believed to be process waste from a former manufactured gas plant. The City of West Allis alleges that WE was the source of this material. On July 25, 1996, Giddings & Lewis, Kearney & Trecker and the City of West Allis filed an action for damages in the Milwaukee County Circuit Court against WEC, WE and Wisconsin Natural Gas Company ("WN"), a former wholly owned gas utility subsidiary of WEC which was merged into WE effective January 1, 1996, alleging they are responsible for the deposition of the material and liable to the plaintiffs for trespass, breach of contract, nuisance and other theories of liability as a result of the placement and presence of such material on the properties. WEC and WE have not yet answered the lawsuit. OTHER LITIGATION Condemnation Suit: On July 31, 1996, David and Anne Geenen filed an action against WE and another party in the Outagamie County Circuit Court for damages arising out of WE's acquisition activities in connection with the purchase of property for the subsequently abandoned Kimberly cogeneration project. The action alleges that WE intentionally misrepresented itself as having the authority to condemn when it did not; that it was deficient in maintaining - 20 - 21 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) OTHER LITIGATION (Cont'd) properties it acquired and thereby created a nuisance; that it exercised condemnation when it did not have authority to do so; that it breached a duty it had to the Geenens to inform them it did not have condemnation power; and that it engaged in racketeering activities. The matter is pending. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Wisconsin Energy Corporation At WEC's 1996 Annual Meeting of Stockholders held on May 22, 1996, the board of directors' nominees named below were elected as directors of the class whose term expires in 1999 by the indicated votes and percentages cast for and withheld with respect to each nominee. There was no solicitation in opposition to the nominees proposed in the proxy statement and there were no abstentions or broker non-votes with respect to the election of directors. ============================================================================== Name of Nominee For Withheld --------------------- --------------------- -------------------- Richard A. Abdoo 93,638,459 (97.21%) 2,684,081 (2.79%) John F. Ahearne 93,677,269 (97.25%) 2,645,271 (2.75%) ============================================================================== The appointment of Price Waterhouse LLP as independent public accountant for 1996 was approved by the stockholders by a vote of 94,964,730 votes for (99.27% of votes cast) and 698,125 votes against (0.73% of votes cast) such approval. There were 659,685 abstentions and no broker non-votes with respect to such approval. Of 110,819,337 shares of common stock outstanding and entitled to vote on the record date of March 21, 1996, 86.92% of the shares were represented at the meeting. Further information concerning these matters, including the name of each other director whose term of office as a director continued after the meeting and will expire in 1997 or 1998, is contained in WEC's Proxy Statement dated April 3, 1996 with respect to the 1996 Annual Meeting of Stockholders. Wisconsin Electric Power Company At WE's 1996 Annual Meeting of Stockholders held on May 21, 1996, for which WE did not solicit proxies, the board of directors as listed in WE's Information Statement dated April 26, 1996 ("Information Statement") was re-elected in its entirety. With respect to each nominee, 33,289,327 votes were cast for election (100% of votes cast) and no votes were withheld. There was no solicitation in opposition to the nominees proposed in the Information Statement and there were no abstentions or broker non-votes with respect to the election of directors. - 21 - 22 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Cont'd) In addition, an amendment to the Restated Articles of Incorporation of WE to change the name of WE to Wisconsin Energy Company effective with the consummation of the Transaction with NSP was approved with 33,289,327 votes cast for approval (over 99% of eligible voting shares) and no votes withheld. There were no abstentions and no broker non-votes with respect to such approval. ITEM 5. OTHER INFORMATION - "MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY" in Part II of this report contains further information concerning the Transaction. Further information concerning these matters is contained in the Information Statement. ITEM 5. OTHER INFORMATION POINT BEACH UNIT 2 STEAM GENERATORS & DRY CASK STORAGE PROJECT Information concerning the PSCW's initial approval of WE's application to utilize dry cask storage for spent nuclear fuel generated at Point Beach Nuclear Plant ("Point Beach") and pending legal proceedings with respect to the PSCW's decision, and information with respect to WE's application to the PSCW for the replacement of the Unit 2 steam generators at Point Beach, is contained in ITEM 1. BUSINESS - "SOURCES OF GENERATION - Nuclear" of WEC's and WE's respective annual reports on Form 10-K for the year ended December 31, 1995 and in ITEM 5. OTHER INFORMATION - "POINT BEACH UNIT 2 STEAM GENERATORS & DRY CASK STORAGE PROJECT" in Part II of WEC's and WE's combined Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. On May 16, 1996, WE received a written order from the PSCW approving replacement of the Unit 2 steam generators and reaffirming its prior decision approving WE's construction and operation of an Independent Spent Fuel Storage Installation ("ISFSI") for dry cask storage of spent nuclear fuel at Point Beach. On July 11, 1996, the PSCW denied a petition for rehearing filed by the intervenors in the proceeding. On August 8, 1996, the intervenors filed a petition for judicial review of the PSCW's May 16, 1996 order in Dane County Circuit Court. The petition seeks reversal of the order and a remand to the PSCW directing it to deny WE's request for authorization to replace the steam generators and to construct the ISFSI, or in the alternative, to correct the alleged errors in the PSCW's order. WE intends to fully participate in the judicial review proceeding and to vigorously oppose the petition. Failure by the PSCW to approve the steam generator replacement and reaffirm authorization for the ISFSI would have jeopardized the continued operation of Point Beach. The Unit 2 replacement steam generators are necessary due to the degradation of tubes within the steam generators and will permit operation of - 22 - 23 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) POINT BEACH UNIT 2 STEAM GENERATORS & DRY CASK STORAGE PROJECT (Cont'd) Unit 2 at least until its current operating license expires in 2013. The steam generators are scheduled to be replaced during the fall refueling outage beginning in October 1996. The ISFSI will provide interim dry cask storage of spent fuel from Point Beach until the United States Department of Energy ("DOE") takes ownership of and removes the spent fuel under an existing contract mandated by the Nuclear Waste Policy Act ("Act"). (On July 23, 1996, the United States Court of Appeals for the District of Columbia Circuit ruled that the DOE has an unconditional obligation under the Act to begin disposal of spent fuel from nuclear plants by 1998.) The ISFSI is necessary because the spent fuel pool inside the plant is nearly full. Construction of the ISFSI was completed during 1995 and one cask was loaded with spent fuel in December 1995 after which the transfer of spent fuel to the ISFSI was temporarily suspended by WE pending further action by the PSCW. WE resumed transferring spent fuel to the ISFSI upon receipt of the May 16, 1996 order and completed the loading of a second cask on May 26, 1996. During welding operations on the third cask on May 28, 1996, hydrogen gas was ignited within the cask. Loading has been halted until actions are implemented to prevent reoccurrence of such an event and until the Nuclear Regulatory Commission ("NRC") has reviewed and accepted such actions. The NRC has conducted an investigation of the event and has identified certain deficiencies which WE expects will result in enforcement action, including possible civil penalties. These deficiencies and other potential violations of NRC requirements which the NRC has found in various plant activities will be discussed with the NRC at a predecisional enforcement conference in September 1996. WE plans to load at least one additional cask with spent fuel before the end of 1996. DEVELOPMENT OF ISO FOR WISCONSIN'S TRANSMISSION SYSTEM The PSCW is conducting a generic investigation into the electric utility industry in Wisconsin. As part of that investigation, it has stated that it intends to develop an Independent System Operator ("ISO") for the statewide transmission system. It has further indicated that in the event an ISO cannot be developed that effectively separates control and operation of the transmission system from the ownership of generation, it intends to proceed to develop a Transco, which would own, operate and control transmission facilities in the State of Wisconsin. At the request of the PSCW, WE along with Dairyland Power Cooperative, Northern States Power Company, a Minnesota Corporation ("NSP"), Northern States Power Company, a Wisconsin Corporation ("NSP-WI"), Wisconsin Power and Light Company and Wisconsin Public Service Corporation ("WPS") submitted a joint proposal on May 22, 1996 for an ISO that would have responsibility for ensuring that transmission service in the state will be conducted fairly and equitably for all eligible parties. Three other proposals by other parties - 23 - 24 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) DEVELOPMENT OF ISO FOR WISCONSIN'S TRANSMISSION SYSTEM (Cont'd) were also filed. On July 17, 1996, a question and answer session was held to allow the PSCW to weigh the various proposals. WE expects the PSCW to select a proposal in late August 1996. FERC OPEN ACCESS TRANSMISSION RULING On July 9, 1996, WE submitted to the Federal Energy Regulatory Commission ("FERC") a transmission tariff in connection with FERC's Open Access Final Rule ("Order No. 888"), which was issued on April 24, 1996. Order No. 888 requires public utilities owning, controlling or operating transmission lines to file non-discriminatory open access tariffs that offer others the same transmission services available to themselves and requires the use of the tariff for their own wholesale energy sales. WE's filing includes terms and conditions of network transmission service and point-to-point transmission service, including ancillary services. The rate related aspects of the tariff were accepted by the FERC in a June 1996 settlement agreement regarding WE's preexisting transmission service tariffs. All other aspects of the tariff followed the FERC pro-forma tariff and were accepted by the FERC. NEW GAS SERVICE PROPOSAL On July 16, 1996, WE filed plans with the PSCW to expand natural gas service to more than 6,000 customers in northeastern Wisconsin. The project will involve the installation of more than 400 miles of new gas main and is one of the largest proposed new franchise territory expansion efforts in recent Wisconsin history. A number of approvals must be granted before the project can continue, including receiving permission from the PSCW. Once all necessary approvals are received, WE expects to begin contacting potential customers as early as January 1997 and begin construction in the spring of 1997. WPS, an unaffiliated investor-owned utility in Green Bay, Wisconsin, has also announced its intention to compete for service to these same customers in this part of the state. MINERGY GLASS AGGREGATE PLANT Minergy Corp. ("Minergy"), a non-regulated WEC subsidiary, plans to complete construction in late 1997 of a $45 million facility in Neenah, Wisconsin that would recycle paper sludge from area paper mills into two usable products: glass aggregate and steam. The glass aggregate will be sold into existing construction and aggregate markets and the steam will be sold to a local paper mill. Construction of the plant began July 22, 1996. MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY On April 28, 1995, WEC and NSP entered into an Agreement and Plan of Merger, which was amended and restated as of July 26, 1995 ("Merger Agreement"). The - 24 - 25 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY (Cont'd) Merger Agreement provides for a strategic business combination involving WEC and NSP in a "merger-of-equals" transaction ("Transaction"). As a result, WEC will become a registered public utility holding company under the Public Utility Holding Company Act of 1935, as amended ("PUHCA"), and will change its name to Primergy Corporation ("Primergy"). Primergy will be the parent company of WE (which will be renamed Wisconsin Energy Company), of NSP (which, for regulatory reasons, will reincorporate in Wisconsin ("New NSP")), and of the other subsidiaries of WEC and NSP. In connection with the Transaction, NSP-WI, currently a utility subsidiary of NSP, will be merged into Wisconsin Energy Company. Prior to the merger of NSP-WI into Wisconsin Energy Company, New NSP will acquire from NSP-WI certain gas utility assets in LaCrosse and Hudson, Wisconsin with a net historical cost at June 30, 1996 of $17.9 million. The Transaction is intended to be tax-free for income tax purposes and to be accounted for as a "pooling of interests". On September 13, 1995, the stockholders of WEC and NSP voted to approve the proposed Transaction. The Merger Agreement is subject to various conditions, including the approval of various regulatory agencies. On April 5, 1996, WEC and NSP submitted the initial filing to the Securities and Exchange Commission ("SEC") to facilitate registration of Primergy under PUHCA. On April 10, 1996, the Michigan Public Service Commission approved the merger application through a settlement agreement containing terms consistent with the merger application. On June 26, 1996, the North Dakota Public Service Commission also approved the merger application. These are the first and second of four states to act where approval of the Transaction is required. On July 24, 1996, the PSCW held a prehearing conference on the merger proceeding. At the prehearing conference the parties agreed upon an extensive issues list and a schedule for the hearing. The schedule required staff and intervenor case filings on September 9, 1996, applicant's rebuttal filing on September 20, 1996, and three weeks of hearings commencing on September 24, 1996. At its open meeting on August 8, 1996, the PSCW decided to delay this schedule by one month. The resulting schedule should lead to a PSCW decision on the merger in late 1996 or early 1997 with a written order in the first quarter of 1997. In June 1996, the Minnesota Public Utilities Commission ("MPUC") issued an order which established the procedural framework for the MPUC's consideration of the merger. The issues of merger-related savings, electric rate freeze characteristics, NSP's pre-merger revenue requirements, Primergy's ability to control the transmission interface between the Mid-Continent Area Power Pool and the Wisconsin and upper Michigan area, and the impact of this interface on Minnesota utilities were set for contested case hearings. On August 5, 1996, an administrative law judge issued a Pre-Hearing Order which set the evidentiary hearing dates from November 18 through December 6, 1996. If the MPUC approval process proceeds without early settlement of the contested issues, the MPUC decision on the merger application may not be obtained until the first quarter of 1997. - 25 - 26 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY (Cont'd) In July 1995, WEC and NSP filed an application and supporting testimony with the FERC seeking approval of the Merger Agreement. The FERC has put the merger application on an accelerated schedule, ordering the administrative law judge's initial decision by August 30, 1996 and briefs opposing exceptions to the initial decision by September 30, 1996. On May 28, 1996, WEC and NSP filed additional evidence with the FERC, providing a detailed analysis of generation "market power" and more specific information about the ISO proposal included in earlier filings. This additional information was provided to the FERC in response to concerns raised by intervenors in the merger proceeding and by the FERC staff. The FERC asked for an analysis of "market power" or Primergy's potential ability to manipulate its generation or transmission systems to raise prices or cause transmission constraints. WEC and NSP have continued to work with the FERC staff and other parties on the ISO proposal and anticipate that the FERC will act on the merger application in the fourth quarter of 1996. Later in 1996, WEC and NSP will file required notifications with the Federal Trade Commission and the Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The goal of WEC and NSP is to receive approvals from all regulatory authorities by the end of 1996. However, unless WEC and NSP are able to settle the pending issues with the PSCW and the MPUC prior to the end of the current hearing schedules noted above, all necessary regulatory approvals for the merger may not be obtained until the first quarter of 1997, which may delay consummation of the Transaction into the first quarter of 1997. Filings with regulatory agencies in the states where WEC and NSP provide utility services and in which such filings are required include a request for deferred accounting treatment and rate recovery of costs incurred associated with the Transaction. As of June 30, 1996, WEC has deferred $9.8 million of costs associated with the Transaction as a component of Deferred Charges and Other Assets-Other. Detailed information with respect to the Merger Agreement and the proposed Transaction, including pro forma combined condensed financial information, is contained in WEC's and WE's combined Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, in WEC's and WE's respective 1995 Annual Reports on Form 10-K and in the Joint Proxy Statement/Prospectus dated August 7, 1995 (contained in WEC's Registration Statement on Form S-4, Registration No. 33-61619) relating to the meetings of the stockholders of WEC and NSP to vote on the Merger Agreement and related matters. PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following summarized unaudited pro forma financial information combines historical balance sheet and income statement information of WEC and NSP and of WE and NSP-WI to give effect to the Transaction to form Primergy and Wisconsin Energy Company. This information should be read in conjunction with the historical financial statements and related notes thereto of WEC, NSP, WE and NSP-WI. - 26 - 27 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Cont'd) The allocation between WEC and NSP and their customers of the estimated cost savings resulting from the Transaction, net of costs incurred to achieve such estimated cost savings, will be subject to regulatory review and approval. Cost savings resulting from the Transaction are estimated to be approximately $2 billion over a 10-year period, net of transaction costs (including fees for financial advisors, attorneys, accountants, consultants, filings and printing) and costs to achieve the savings of approximately $30 million and $122 million, respectively. None of the estimated cost savings, the costs to achieve such savings, nor transaction costs are reflected in the unaudited pro forma income statement information. With the exception of certain non-current deferred tax balance sheet reclassifications described below, all other financial statement presentation and accounting policy differences are immaterial and have not been adjusted in the unaudited pro forma financial information. The unaudited pro forma balance sheet information gives effect to the Transaction as if it had occurred at June 30, 1996. The unaudited pro forma income statement information gives effect to the Transaction as if it had occurred at January 1, 1996. The following information is not necessarily indicative of the financial position or operating results that would have occurred had the Transaction been consummated on the date or at the beginning of the period for which the Transaction is being given effect nor is it necessarily indicative of future operating results or financial position. Primergy Corporation Information The following summarized Primergy unaudited pro forma financial information reflects the combination of the historical financial statements of WEC and NSP after giving effect to the Transaction to form Primergy. A $146 million pro forma adjustment has been made to conform the presentation of noncurrent deferred income taxes in the summarized unaudited pro forma combined balance sheet information as a net liability. The unaudited pro forma combined earnings per common share reflect pro forma adjustments to average NSP common shares outstanding in accordance with the provisions of the Merger Agreement, whereby each outstanding share of NSP common stock will be converted into 1.626 shares of Primergy common stock. In the Transaction, each outstanding share of WEC common stock will remain outstanding as a share of Primergy common stock. - 27 - 28 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Cont'd) ============================================================================== Primergy Corporation: Unaudited WEC NSP Pro Forma (As Reported) (As Reported) Combined ------------- ------------- ------------- (Millions, except per share amounts) As of June 30, 1996: Utility plant-net $ 2,914 $ 4,324 $ 7,238 Current assets 487 801 1,288 Other assets * 1,151 1,276 2,281 ----------- ----------- ----------- Total Assets $ 4,552 $ 6,401 $ 10,807 =========== =========== =========== Common stockholders' equity $ 1,897 $ 2,074 $ 3,971 Preferred stock and premium 30 240 270 Long-term debt 1,359 1,666 3,025 ----------- ----------- ----------- Total Capitalization 3,286 3,980 7,266 Current liabilities 382 1,014 1,396 Other liabilities * 884 1,407 2,145 ----------- ----------- ----------- Total Equity & Liabilities $ 4,552 $ 6,401 $ 10,807 =========== =========== =========== For the Six Months Ended June 30, 1996: Utility Operating Revenues $ 897 $ 1,311 $ 2,208 Utility Operating Income $ 154 $ 160 $ 314 Net Income, after Preferred Dividend Requirements $ 108 $ 104 $ 212 Earnings per Common Share: As Reported $ 0.98 $ 1.53 - Primergy Shares - - $ 0.96 ============================================================================== * Includes a $146 million pro forma adjustment to conform the presentation of noncurrent deferred taxes as a net liability. Wisconsin Energy Company Information The following summarized Wisconsin Energy Company unaudited pro forma financial information combines historical balance sheet and income statement information of WE and NSP-WI to give effect to the Transaction, including the transfer of certain gas assets from NSP-WI to New NSP. The unaudited pro forma income statement information does not reflect adjustments for 1996 year to date revenues of $21.6 million and related expenses associated with the transfer of certain gas assets from NSP-WI to New NSP. A $142 million pro forma adjustment has been made to conform the presentation of noncurrent deferred income taxes in the summarized unaudited pro forma combined balance sheet information as a net liability. A net $17.9 million pro forma adjustment has also been made in the summarized unaudited pro forma combined - 28 - 29 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Cont'd) balance sheet information to reflect the transfer of certain gas assets from NSP-WI to New NSP. Earnings per share of common stock are not applicable because all of the Wisconsin Energy Company common stock will be owned by Primergy. ============================================================================== Wisconsin Energy Company: ** Unaudited WE NSP-WI Pro Forma (As Reported) (As Reported) Combined*** ------------- ------------- ------------- (Millions of Dollars) As of June 30, 1996: Utility plant-net $ 2,914 $ 659 $ 3,553 Current assets 474 73 563 Other assets 911 50 819 ----------- ----------- ----------- Total Assets $ 4,299 $ 782 $ 4,935 =========== =========== =========== Common stockholder's equity $ 1,720 $ 324 $ 2,044 Preferred stock and premium 30 - 30 Long-term debt 1,318 212 1,530 ----------- ----------- ----------- Total Capitalization 3,068 536 3,604 Current liabilities 360 92 452 Other liabilities 871 154 879 ----------- ----------- ----------- Total Equity & Liabilities $ 4,299 $ 782 $ 4,935 =========== =========== =========== For the Six Months Ended June 30, 1996: Utility Operating Revenues $ 897 $ 240 $ 1,137 Utility Operating Income $ 154 $ 27 $ 181 Net Income, after Preferred Dividend Requirements $ 107 $ 18 $ 125 ============================================================================== ** In connection with the Merger Agreement, WE will be renamed Wisconsin Energy Company. *** Includes a $142 million pro forma adjustment to conform the presentation of noncurrent deferred taxes as a net liability and a net $17.9 million pro forma adjustment for the transfer of selected gas assets from NSP-WI to New NSP. CAUTIONARY FACTORS This report and other documents or oral presentations contain or may contain forward-looking statements made by or on behalf of WEC or WE. Such statements are based upon management's current expectations and are subject to risks and - 29 - 30 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) CAUTIONARY FACTORS (Cont'd) uncertainties that could cause actual results to differ materially from those projected in the statements. When used in written documents or oral presentations, the words "anticipate", "believe", "estimate", "expect", "objective" and similar expressions are intended to identify forward-looking statements. In addition to the assumptions and other factors referred to specifically in connection with such statements, factors that could cause WEC's or WE's actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: Operating, Financial and Industry Factors * Factors affecting utility operations such as unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages, maintenance or repairs; unanticipated changes in fossil fuel, nuclear fuel or gas supply costs or availability due to higher demand, shortages, transportation problems or other developments; nuclear or environmental incidents; resolution of spent nuclear fuel storage and disposal and steam generator replacement issues; electric transmission or gas pipeline system constraints; unanticipated organizational structure or key personnel changes; collective bargaining agreements with union employees or work stoppages; inflation rates; or demographic and economic factors affecting utility service territories or operating environment. * The rapidly changing and increasingly competitive electric and gas utility environment as market-based forces replace strict industry regulation and other competitors enter the electric and gas markets resulting in increased wholesale and retail competition. * Customer business conditions including demand for their products or services and supply of labor and materials used in creating their products and services. * Regulatory factors such as unanticipated changes in rate-setting policies or procedures; unanticipated changes in regulatory accounting policies and practices; industry restructuring initiatives; transmission system operation and/or administration initiatives; recovery of costs of previous investments made under traditional regulation; required approvals for new construction; Nuclear Regulatory Commission operating regulation changes related to Point Beach Nuclear Plant; or the siting approval process for new generating and transmission facilities. * The cost and other effects of legal and administrative proceedings, settlements, and investigations, claims and changes in those matters. * Factors affecting the availability or cost of capital such as changes in interest rates; market perceptions of the utility industry, the Company or any of its subsidiaries; or security ratings. - 30 - 31 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) CAUTIONARY FACTORS (Cont'd) * Federal, state or local legislative factors such as changes in tax laws or rates; changes in trade, monetary and fiscal policies, laws and regulations; electric and gas industry restructuring initiatives; or changes in environmental laws and regulations. * Certain restrictions imposed by various financing arrangements and regulatory requirements on the ability of WE to transfer funds to WEC in the form of cash dividends, loans or advances. * Authoritative generally accepted accounting principle or policy changes from such standard setting bodies as the Financial Accounting Standards Board and the Securities and Exchange Commission ("SEC"). * Unanticipated technological developments that result in competitive disadvantages and create the potential for impairment of existing assets. * Changes in social attitudes regarding the utility and power industries. * Possible risks associated with nonutility diversification such as competition; operating risks; dependence upon certain suppliers and customers; or environmental and energy regulations. * Other business or investment considerations that may be disclosed from time to time in WEC's or WE's SEC filings or in other publicly disseminated written documents. Business Combination Factors * Consummation of the Transaction with NSP to form Primergy and Wisconsin Energy Company, which will have a significant effect on the future operations and financial position of WEC and WE, respectively. Specific factors include: * The ability to consummate the Transaction on substantially the basis contemplated. * The ability to obtain the requisite approvals by all applicable regulatory authorities. * The ability to generate the cost savings to Primergy that WEC and NSP believe will be generated by the synergies resulting from the Transaction. This depends upon the degree to which the assumptions upon which the analyses employed to develop estimates of potential cost savings as a result of the Transaction will approximate actual experience. Such assumptions involve judgements with respect to, among other things, future national and regional economic conditions, national and regional competitive conditions, inflation rates, regulatory treatment, weather conditions, financial market conditions, business decisions and other uncertainties. All of these factors are difficult - 31 - 32 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) CAUTIONARY FACTORS (Cont'd) to predict and many are beyond the control of WEC and NSP. While it is believed that such assumptions are reasonable, there can be no assurance that they will approximate actual experience or that the estimated cost savings will be realized. * The allocation of the benefits of cost savings between shareholders and customers, which will depend, among other things, upon the results of regulatory proceedings in various jurisdictions. * The rate structure of Primergy's utility subsidiaries. * Additional regulation to which Primergy will be subject as a registered public utility holding company under PUHCA, in contrast to the more limited impact of PUHCA upon WEC and NSP as exempt holding companies, and other different or additional federal and state regulatory requirements or restrictions to which Primergy and its subsidiaries may be subject as a result of the Transaction (including conditions which may be imposed in connection with obtaining the regulatory approvals necessary to consummate the Transaction such as the possible requirement to divest gas utility properties and possibly certain nonutility ventures). * Factors affecting the dividend policy of Primergy including results of operations and financial condition of Primergy and its subsidiaries and such other business considerations as the Primergy Board of Directors considers relevant. WEC and WE undertake no obligation to publicly update or revise any forward- looking statements, whether as a result of new information, future events or otherwise. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following Exhibits are filed with the applicable Form 10-Q report: Exhibit No. WEC Exhibits (27)-1 Wisconsin Energy Corporation ("WEC") Financial Data Schedule for the six months ended June 30, 1996. WE Exhibits (27)-2 Wisconsin Electric Power Company ("WE") Financial Data Schedule for the six months ended June 30, 1996. - 32 - 33 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- PART II - OTHER INFORMATION (Cont'd) ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (Cont'd) (b) Reports on Form 8-K. No reports on Form 8-K were filed by WEC during the quarter ended June 30, 1996. No reports on Form 8-K were filed by WE during the quarter ended June 30, 1996. - 33 - 34 FORM 10-Q WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WISCONSIN ENERGY CORPORATION -------------------------------------- (Registrant) /s/ C. H. Baker -------------------------------------- Date: August 14, 1996 C. H. Baker, Treasurer, Chief Financial Officer and duly authorized officer WISCONSIN ELECTRIC POWER COMPANY -------------------------------------- (Registrant) /s/ C. H. Baker -------------------------------------- Date: August 14, 1996 C. H. Baker, Vice President - Finance, Chief Financial Officer and duly authorized officer - 34 - 35 FORM 10-Q WISCONSIN ENERGY CORPORATION ---------------------------------------- FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 1996 EXHIBIT INDEX Exhibit No. - ----------- The following Exhibits are filed with this report: (27)-1 Wisconsin Energy Corporation Financial Data Schedule for the six months ended June 30, 1996. - 35 - EX-27.1 2 WEC SCHEDULE UT - SIX MONTHS ENDED JUNE 30, 1996
UT THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS OF WISCONSIN ENERGY CORPORATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS DEC-31-1996 JAN-01-1996 JUN-30-1996 6-MOS 1 PER-BOOK 2,913,880 654,226 487,372 0 496,942 4,552,420 1,108 676,909 1,218,769 1,896,786 0 30,450 1,127,969 67,379 207,350 79,802 10,475 0 23,794 22,052 1,086,363 4,552,420 897,143 65,994 677,622 743,616 153,527 8,744 162,271 53,312 108,959 601 108,358 82,837 0 259,809 .98 .98 See financial statements and footnotes in accompanying 10-Q.
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