-----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, KZXniA9ygckLyQHWhDKYlnbbp+E4mGsfRBfTVFbGNT84iaVfsZ+Y+kSVvFVjhhCV SMX1VtpffvbMYXDmxM0Guw== 0000107815-98-000018.txt : 19980817 0000107815-98-000018.hdr.sgml : 19980817 ACCESSION NUMBER: 0000107815-98-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: SEC FILE NUMBER: 001-09057 FILM NUMBER: 98691497 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 WISCONSIN ENERGY CORPORATION 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, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to ____________________ Commission 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, 1998): Wisconsin Energy Corporation Common stock, $.01 Par Value, 115,276,119 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. WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY ---------------------------------------- FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 1998 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 3. Quantitative and Qualitative Disclosures About Market Risk. . . . . . 19 Part II - Other Information --------------------------- 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 20 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . 20 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . 26 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 INTRODUCTION Wisconsin Energy Corporation ("Wisconsin Energy") is a holding company whose principal subsidiary is Wisconsin Electric Power Company ("Wisconsin Electric"), an electric, gas and steam utility. Unless qualified by its context, the term Wisconsin Energy refers to the holding company and all of its subsidiaries when used in this combined Form 10-Q. The unaudited interim financial statements presented in this combined Form 10-Q report include the consolidated statements of Wisconsin Energy as well as separate statements for Wisconsin Electric. The unaudited statements have been prepared by Wisconsin Energy and Wisconsin Electric 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 Wisconsin Energy and Wisconsin Electric financial statements should be read in conjunction with the financial statements and notes thereto included in the companies' combined Annual Report on Form 10-K for the year ended December 31, 1997. This combined Form 10-Q is separately filed by Wisconsin Energy and Wisconsin Electric. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. 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 ------------------------- ------------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- (Thousands of Dollars) Operating Revenues Electric $ 408,737 $ 337,221 $ 792,377 $ 686,321 Gas 52,414 61,228 171,825 214,077 Steam 3,817 4,765 11,447 13,199 ---------- ---------- ---------- ---------- Total Operating Revenues 464,968 403,214 975,649 913,597 Operating Expenses Fuel 80,207 76,204 154,108 153,465 Purchased power 37,249 32,936 73,840 60,797 Cost of gas sold 31,105 39,141 103,406 142,435 Other operation expenses 124,260 106,705 234,298 209,104 Maintenance 46,504 38,347 87,322 69,814 Depreciation 57,215 57,068 119,488 114,733 Taxes other than income taxes 19,296 19,039 40,012 38,226 Federal income tax 11,273 (1,576) 31,166 16,343 State income tax 2,781 (130) 7,549 4,165 Deferred income taxes - net 1,198 4,886 4,341 9,405 Investment tax credit - net (1,178) (1,122) (2,350) (2,243) ---------- ---------- ---------- ---------- Total Operating Expenses 409,910 371,498 853,180 816,244 Operating Income 55,058 31,716 122,469 97,353 Other Income and Deductions Interest income 6,332 5,329 13,067 11,687 Allowance for other funds used during construction 877 1,216 1,592 2,357 Merger expenses (497) (30,684) (497) (30,684) Miscellaneous - net (3,897) (1,874) (1,146) (1,933) Income taxes 754 12,079 1,381 11,924 ---------- ---------- ---------- ---------- Total Other Income and Deductions 3,569 (13,934) 14,397 (6,649) Income Before Interest Charges and Preferred Dividend 58,627 17,782 136,866 90,704 Interest Charges Interest expense 31,430 29,866 62,318 59,257 Allowance for borrowed funds used during construction (1,957) (1,752) (3,955) (3,591) ---------- ---------- ---------- ---------- Total Interest Charges 29,473 28,114 58,363 55,666 Preferred Dividend Requirement of Subsidiary 300 300 601 601 ---------- ---------- ---------- ---------- Net Income (Loss) $ 28,854 $ (10,632) $ 77,902 $ 34,437 ========== ========== ========== ========== Average Number of Shares of Common Stock Outstanding (Thousands) 113,687 112,577 113,279 112,270 ========== ========== ========== ========== Earnings (Loss) Per Share of Common Stock (Basic and Diluted) $ 0.25 $ (0.09) $ 0.69 $ 0.31 ========== ========== ========== ========== Dividends Per Share of Common Stock $ 0.390 $ 0.385 $ 0.775 $ 0.765 ========== ========== ========== ========== The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION CONSOLIDATED CONDENSED BALANCE SHEET (Unaudited)
June 30, 1998 December 31, 1997 ---------------- ----------------- (Thousands of Dollars) Assets -------------- Utility Plant Electric $ 4,835,511 $ 4,690,347 Gas 500,651 492,271 Steam 62,550 61,921 Common 343,852 330,761 Accumulated provision for depreciation (2,877,984) (2,700,839) ------------- ------------- 2,864,580 2,874,461 Construction work in progress 132,102 81,612 Leased facilities - net 135,846 138,687 Nuclear fuel - net 65,628 90,219 ------------- ------------- Net Utility Plant 3,198,156 3,184,979 Other Property and Investments 935,898 825,357 Current Assets Cash and cash equivalents 14,102 19,607 Accounts receivable 158,629 145,737 Accrued utility revenues 104,539 141,273 Materials, supplies and fossil fuel 187,672 197,204 Prepayments and other assets 81,864 69,496 ------------- ------------- Total Current Assets 546,806 573,317 Deferred Charges and Other Assets Accumulated deferred income taxes 185,457 172,546 Other 247,343 281,485 ------------- ------------- Total Deferred Charges and Other Assets 432,800 454,031 ------------- ------------- Total Assets $ 5,113,660 $ 5,037,684 ============= ============= Capitalization and Liabilities ------------------------------ Capitalization Common stock $ 750,138 $ 730,783 Retained earnings 1,123,788 1,132,149 ------------- ------------- Total Common Stock Equity 1,873,926 1,862,932 Preferred stock 30,450 30,450 Long-term debt 1,725,317 1,532,405 ------------- ------------- Total Capitalization 3,629,693 3,425,787 Current Liabilities Long-term debt due currently 88,249 90,004 Short-term debt 160,551 319,953 Accounts payable 144,258 148,588 Accrued liabilities 83,916 87,221 Other 70,780 63,832 ------------- ------------- Total Current Liabilities 547,754 709,598 Deferred Credits and Other Liabilities Accumulated deferred income taxes 549,939 525,666 Other 386,274 376,633 ------------- ------------- Total Deferred Credits and Other Liabilities 936,213 902,299 ------------- ------------- Total Capitalization and Liabilities $ 5,113,660 $ 5,037,684 ============= ============= The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Six Months Ended June 30 ------------------------------------- 1998 1997 ---------- ---------- (Thousands of Dollars) Operating Activities Net income $ 77,902 $ 34,437 Reconciliation to cash Depreciation 119,488 114,733 Nuclear fuel expense - amortization 6,465 1,494 Conservation expense - amortization 11,249 11,249 Debt premium, discount & expense - amortization 2,266 4,559 Deferred income taxes - net 4,341 9,405 Investment tax credit - net (2,350) (2,243) Allowance for other funds used during construction (1,592) (2,357) Write-off of merger costs 497 30,684 Change in - Accounts receivable (8,085) 15,671 Inventories 10,819 24,686 Accounts payable (7,193) (18,981) Other current assets 26,837 33,192 Other current liabilities 1,395 627 Other 12,647 (27,070) ---------- ---------- Cash Provided by Operating Activities 254,686 230,086 Investing Activities Construction expenditures (170,703) (142,377) Allowance for borrowed funds used during construction (3,955) (3,591) Nuclear fuel 20,283 (5,811) Nuclear decommissioning trust (17,912) (13,165) Other (2,634) 32,057 ---------- ---------- Cash Used in Investing Activities (174,921) (132,887) Financing Activities Sale of common stock 61 29,586 Sale of long-term debt 184,687 - Retirement of long-term debt (16,198) (17,376) Change in short-term debt (166,349) 33,628 Dividends on common stock (87,471) (85,808) ---------- ---------- Cash Used in Financing Activities (85,270) (39,970) ---------- ---------- Change in Cash and Cash Equivalents $ (5,505) $ 57,229 ========== ========== Supplemental Information - Cash Paid For Interest (net of amount capitalized) $ 64,778 $ 51,170 Income taxes 49,213 49,806 The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY CONDENSED INCOME STATEMENT (Unaudited)
Three Months Ended Six Months Ended June 30 June 30 ------------------------- ------------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- (Thousands of Dollars) Operating Revenues Electric $ 405,540 $ 337,221 $ 789,180 $ 686,321 Gas 52,414 61,228 171,825 214,077 Steam 3,817 4,765 11,447 13,199 ---------- ---------- ---------- ---------- Total Operating Revenues 461,771 403,214 972,452 913,597 Operating Expenses Fuel 80,201 76,204 154,102 153,465 Purchased power 35,799 32,936 72,390 60,797 Cost of gas sold 31,105 39,141 103,406 142,435 Other operation expenses 123,630 106,705 233,668 209,104 Maintenance 46,310 38,347 87,128 69,814 Depreciation 56,970 57,068 119,243 114,733 Taxes other than income taxes 19,156 19,039 39,872 38,226 Federal income tax 11,153 (1,576) 31,046 16,343 State income tax 2,781 (130) 7,549 4,165 Deferred income taxes - net 1,216 4,886 4,359 9,405 Investment tax credit - net (1,173) (1,122) (2,345) (2,243) ---------- ---------- ---------- ---------- Total Operating Expenses 407,148 371,498 850,418 816,244 Operating Income 54,623 31,716 122,034 97,353 Other Income and Deductions Interest income 5,562 3,472 11,020 8,575 Allowance for other funds used during construction 877 1,216 1,592 2,357 Merger expenses - (21,881) - (21,881) Miscellaneous - net (1,245) (1,281) 4,133 (1,526) Income taxes (1,052) 8,966 (1,981) 8,698 ---------- ---------- ---------- ---------- Total Other Income and Deductions 4,142 (9,508) 14,764 (3,777) Income Before Interest Charges 58,765 22,208 136,798 93,576 Interest Charges Interest expense 27,840 28,898 55,952 57,194 Allowance for borrowed funds used during construction (446) (637) (821) (1,252) ---------- ---------- ---------- ---------- Total Interest Charges 27,394 28,261 55,131 55,942 ---------- ---------- ---------- ---------- Net Income (Loss) 31,371 (6,053) 81,667 37,634 Preferred Stock Dividend Requirement 300 300 601 601 ---------- ---------- ---------- ---------- Earnings Available for Common Stockholder $ 31,071 $ (6,353) $ 81,066 $ 37,033 ========== ========== ========== ========== 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.
WISCONSIN ELECTRIC POWER COMPANY CONDENSED BALANCE SHEET (Unaudited)
June 30, 1998 December 31, 1997 --------------- ----------------- (Thousands of Dollars) Assets -------------- Utility Plant Electric $ 4,757,713 $ 4,690,347 Gas 500,651 492,271 Steam 62,550 61,921 Common 343,852 330,761 Accumulated provision for depreciation (2,844,016) (2,700,839) ------------- ------------- 2,820,750 2,874,461 Construction work in progress 126,861 81,612 Leased facilities - net 135,846 138,687 Nuclear fuel - net 65,628 90,219 ------------- ------------- Net Utility Plant 3,149,085 3,184,979 Other Property and Investments 533,267 488,463 Current Assets Cash and cash equivalents 8,287 10,100 Accounts receivable 144,672 140,111 Accrued utility revenues 103,614 141,273 Materials, supplies and fossil fuel 186,350 197,204 Prepayments and other assets 65,549 62,227 ------------- ------------- Total Current Assets 508,472 550,915 Deferred Charges and Other Assets Accumulated deferred income taxes 174,132 169,306 Other 240,634 274,177 ------------- ------------- Total Deferred Charges and Other Assets 414,766 443,483 ------------- ------------- Total Assets $ 4,605,590 $ 4,667,840 ============= ============= Capitalization and Liabilities ------------------------------ Capitalization Common stock $ 713,582 $ 713,582 Retained earnings 972,778 980,926 ------------- ------------- Total Common Stock Equity 1,686,360 1,694,508 Preferred stock 30,450 30,450 Long-term debt 1,589,704 1,448,558 ------------- ------------- Total Capitalization 3,306,514 3,173,516 Current Liabilities Long-term debt due currently 83,029 81,389 Short-term debt 37,472 242,633 Accounts payable 137,173 142,797 Accrued liabilities 78,883 83,879 Other 65,756 57,871 ------------- ------------- Total Current Liabilities 402,313 608,569 Deferred Credits and Other Liabilities Accumulated deferred income taxes 538,980 521,429 Other 357,783 364,326 ------------- ------------- Total Deferred Credits and Other Liabilities 896,763 885,755 ------------- ------------- Total Capitalization and Liabilities $ 4,605,590 $ 4,667,840 ============= ============= The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these financial statements.
WISCONSIN ELECTRIC POWER COMPANY STATEMENT OF CASH FLOWS (Unaudited)
Six Months Ended June 30 ------------------------------------- 1998 1997 ---------- ---------- (Thousands of Dollars) Operating Activities Net income $ 81,667 $ 37,634 Reconciliation to cash Depreciation 119,243 114,733 Nuclear fuel expense - amortization 6,465 1,494 Conservation expense - amortization 11,249 11,249 Debt premium, discount & expense - amortization 2,066 4,378 Deferred income taxes - net 4,359 9,405 Investment tax credit - net (2,345) (2,243) Allowance for other funds used during construction (1,592) (2,357) Write-off of merger costs - 21,881 Change in - Accounts receivable (4,561) 10,336 Inventories 10,854 24,686 Accounts payable (5,624) (14,942) Other current assets 34,337 37,828 Other current liabilities 2,889 3,305 Other 40,087 (29,868) ---------- ---------- Cash Provided by Operating Activities 299,094 227,519 Investing Activities Construction expenditures (148,058) (111,616) Allowance for borrowed funds used during construction (821) (1,252) Nuclear fuel 20,283 (5,811) Nuclear decommissioning trust (17,912) (13,165) Other (180) (2,225) ---------- ---------- Cash Used in Investing Activities (146,688) (134,069) Financing Activities Sale of long-term debt 147,903 - Retirement of long-term debt (7,145) (15,806) Change in short-term debt (205,161) 57,002 Dividends on - Common stock (89,215) (125,048) Preferred stock (601) (601) ---------- ---------- Cash Used in Financing Activities (154,219) (84,453) ---------- ---------- Change in Cash and Cash Equivalents $ (1,813) $ 8,997 ========== ========== Supplemental Information - Cash Paid For Interest (net of amount capitalized) $ 61,716 $ 51,457 Income taxes 48,273 47,308 The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of these financial statements.
WISCONSIN ENERGY CORPORATION WISCONSIN ELECTRIC POWER COMPANY NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. The accompanying unaudited consolidated financial statements for Wisconsin Energy Corporation ("Wisconsin Energy") and the unaudited financial statements for Wisconsin Electric Power Company ("Wisconsin Electric") should be read in conjunction with the companies' combined 1997 Annual Report 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 Wisconsin Energy and Wisconsin Electric have been included in the accompanying income statements and balance sheets. The results of operations for the six months ended June 30, 1998 are not, however, necessarily indicative of the results which may be expected for the year 1998 because of seasonal and other factors. 2. Effective May 31, 1998, Wisconsin Energy acquired ESELCO, Inc. ("ESELCO") in a tax-free reorganization accounted for as a pooling of interests. In connection with the acquisition, Wisconsin Energy issued 2,407,275 shares of common stock, with fractional interests paid in cash, based upon an exchange ratio of 1.5114 shares of Wisconsin Energy common stock for each outstanding share of ESELCO common stock. Due to the immaterial nature of the transaction, Wisconsin Energy has not restated any historical financial or statistical information. Instead, Wisconsin Energy combined ESELCO's May 31, 1998 balance sheet with Wisconsin Energy's, including a $1.2 million credit to retained earnings of which $888,000 represents ESELCO's consolidated net income during the first five months of 1998. For additional information, see Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part I of this report. 3. In June 1998, Wisconsin Electric issued $150 million of 6-1/2% Debentures due 2028. Proceeds from the issue were added to Wisconsin Electric's general funds and were used to reduce short-term borrowings and are being used for other general corporate purposes. In April 1998, Wisconsin Michigan Investment Corporation, a non-utility subsidiary of Wisconsin Energy, issued $25.4 million of 6.48% medium-term notes due 2008. Proceeds from the issue were added to Wisconsin Michigan Investment Corporation's general funds and were used to finance non-utility projects. During the first six months of 1998, WISPARK Corporation, another non-utility subsidiary of Wisconsin Energy, issued $11.3 million of secured adjustable rate notes due 2000-2008. Proceeds from the issues were used to finance the construction or purchase of various facilities. 4. Wisconsin Electric completed a scheduled refueling of Point Beach Nuclear Plant ("Point Beach") Unit 1 and returned the generating unit to service in late June 1998. See Item 5. Other Information - "Nuclear Matters" in Part II of this report for additional information regarding Point Beach. 5. During the second quarter of 1998, WISVEST Corporation, a non-utility subsidiary of Wisconsin Energy, purchased the $36.4 million of Kimberly Cogeneration Equipment from Wisconsin Electric and contributed the equipment to a joint independent power project, the Androscoggin Cogeneration Center. For additional information, see Item 5. Other Information - "Kimberly Cogeneration Equipment" in Part II of this report. 6. Effective January 1, 1998, Wisconsin Energy and Wisconsin Electric adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("FAS 130"). FAS 130 establishes standards for reporting and display of comprehensive income and its components. Wisconsin Energy and Wisconsin Electric currently have no items of other comprehensive income. On June 15, 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("FAS 133"). FAS 133 is effective January 1, 2000 for Wisconsin Energy and for Wisconsin Electric. FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or in other comprehensive income depending upon how the derivative is designated. Based upon the current limited use of derivative instruments at Wisconsin Energy and at Wisconsin Electric, the adoption of FAS 133 would not have a significant effect on their results of operations or financial position. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Wisconsin Energy Corporation ("Wisconsin Energy" or the "Company") is a holding company whose principal subsidiary is Wisconsin Electric Power Company ("Wisconsin Electric"), an electric, gas and steam utility. Unless qualified by their context, the terms 'Wisconsin Energy' or 'the Company' refer to the holding company and all of its subsidiaries when used in this document. As of June 30, 1998, approximately 90% of Wisconsin Energy's consolidated total assets were attributable to Wisconsin Electric. The following discussion and analysis of financial condition and results of operations includes both Wisconsin Energy and Wisconsin Electric unless otherwise stated. ACQUISITION OF ESELCO, INC.: Effective May 31, 1998, Wisconsin Energy acquired ESELCO, Inc. ("ESELCO") in a tax-free reorganization accounted for as a pooling of interests. In connection with the acquisition, Wisconsin Energy issued 2,407,275 shares of common stock, with fractional interests paid in cash, based upon an exchange ratio of 1.5114 shares of Wisconsin Energy common stock for each outstanding share of ESELCO common stock. Due to the immaterial nature of the transaction, Wisconsin Energy has not restated any historical financial or statistical information. Instead, Wisconsin Energy combined ESELCO's May 31, 1998 balance sheet with Wisconsin Energy's, including a $1.2 million credit to retained earnings of which $888,000 represents ESELCO's consolidated net income during the first five months of 1998. ESELCO was the parent company of Edison Sault Electric Company ("Edison Sault"), an electric utility which serves approximately 21,000 residential, commercial and industrial customers in Michigan's eastern Upper Peninsula. Where appropriate, discussions of Wisconsin Energy include Edison Sault's operations since June 1, 1998. Wisconsin Energy is operating Wisconsin Electric and Edison Sault as separate utility subsidiaries within their existing historical service territories. Wisconsin Electric and Edison Sault will continue to be separately regulated by their respective states. For additional information concerning ESELCO and Edison Sault, see ESELCO's Annual Report on Form 10-K for the year ended December 31, 1997 as well as ESELCO's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. CAUTIONARY FACTORS: A number of forward-looking statements are included in this document. When used, the terms "anticipate", "believe", "estimate", "expect", "objective", "plan", "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 described in Item 5. Other Information - "Cautionary Factors" in Part II of this report. RESULTS OF OPERATIONS 1998 SECOND QUARTER Earnings During the second quarter of 1998, Wisconsin Energy's consolidated net income and earnings per share of common stock were $28.9 million and $0.25, respectively, compared to a consolidated net loss and loss per share of $10.6 million and $0.09, respectively, during the second quarter of 1997. During the second quarter of 1998, Wisconsin Electric's earnings increased to $31.1 million compared to a loss of $6.4 million during the second three months of 1997. As described below, 1998 earnings increased primarily because increased revenues from interim and permanent 1998 Wisconsin retail rate increases at Wisconsin Electric and from an increase in total 1998 electric kilowatt-hour sales more than offset the effects of a weather related reduction in natural gas therm deliveries as well as the effects of increased operating expenses during the second quarter of 1998. Also contributing to increased comparative earnings during 1998, earnings in the second quarter of 1997 were negatively impacted by (1) a one-time charge of $30.7 million at Wisconsin Energy (of which $21.9 million was attributable to Wisconsin Electric) for the write-off of deferred costs related to Wisconsin Energy's terminated merger agreement with Northern States Power Company, and (2) increased costs beyond those included in electric rates associated with buying replacement power for both generating units at Point Beach Nuclear Plant ("Point Beach"), which were out of service for repairs during the entire second quarter of 1997. Electric Revenues, Gross Margins and Sales WISCONSIN ENERGY: Primarily due to Wisconsin Electric's interim and permanent Wisconsin retail electric rate increases during 1998 and to an increase in total 1998 electric kilowatt-hour sales, total electric operating revenues increased by $71.5 million or 21.2% during the second quarter of 1998 compared to the second quarter of 1997. Between the comparative periods, the gross margin on electric operating revenues (electric operating revenues less fuel and purchased power expenses) increased by $63.2 million or 27.7%. WISCONSIN ELECTRIC: Wisconsin Electric's total electric operating revenues increased by $68.3 million or 20.3% during the second quarter of 1998 compared to the second quarter of 1997 and the gross margin on electric operating revenues increased by $61.5 million or 27.0%. Wisconsin Electric attributes these increases to an interim Wisconsin retail electric rate increase, effective January 1, 1998 through April 30, 1998, of $134.9 million on an annualized basis, to a permanent Wisconsin retail electric rate increase, effective May 1, 1998, of $160.2 million or 12.7% on an annualized basis, and to an increase in total 1998 second quarter electric kilowatt-hour sales. ============================================================================== Three Months Ended June 30 -------------------------- Electric Gross Margin ($000) 1998 1997 % Change - ---------------------------- ---------- ---------- -------- Electric Operating Revenues $ 405,540 $ 337,221 20.3% Fuel & Purchased Power 116,000 109,140 6.3% ---------- ---------- Gross Margin $ 289,540 $ 228,081 27.0% ========== ========== ============================================================================== Due to increased electric kilowatt-hour sales during 1998, fuel and purchased power expenses increased by $6.9 million or 6.3% during the three months ended June 30, 1998 compared to the same period in 1997. Availability of lower cost per kilowatt-hour generating capacity at Point Beach during the second quarter of 1998, however, allowed Wisconsin Electric to generate 14.1% more electricity during the second quarter of 1998 while only increasing fuel costs by 5.2%. Despite a 21.2% decrease in power purchases during the second quarter of 1998, purchased power costs increased 8.7% between the comparative periods as a result of 37.9% higher per unit purchased power costs during 1998. ============================================================================== Three Months Ended June 30 -------------------------- Electric Sales (Megawatt-hours) 1998 1997 % Change - ------------------------------- ---------- ---------- -------- Residential 1,666,559 1,586,421 5.1% Small Commercial/Industrial 1,898,768 1,798,886 5.6% Large Commercial/Industrial 2,825,904 2,773,689 1.9% Other-Retail/Municipal 324,390 330,708 (1.9%) Resale-Utilities 432,002 227,173 90.2% ---------- ---------- Total Electric Sales 7,147,623 6,716,877 6.4% ========== ========== ============================================================================== During the second quarter of 1998 compared to the second quarter of 1997, growth in the number of residential and small commercial/industrial customers, combined with increased use per customer by residential, small commercial/industrial and large commercial/industrial customers, contributed to an increase in total electric sales of 6.4%. Warmer weather during the second quarter of 1998 increased 1998 sales, especially influencing the 5.1% and 5.6% increases in sales to residential and to small commercial/industrial customers, respectively. As measured by cooling degree days, the second quarter of 1998 was 102% warmer than the same period during 1997 and 31% warmer than normal. Electric energy sales to the Empire and Tilden ore mines, Wisconsin Electric's two largest electric retail customers, increased 2.9% during the second quarter of 1998 compared to the second quarter of 1997. Excluding the Empire and Tilden ore mines, total electric sales increased 6.8% and sales to the remaining large commercial/industrial customers increased 1.6%. During the three months ended June 30, 1998, sales in the other- retail/municipal customer class decreased 1.9% primarily due to reduced contractual requirements nominations by Wisconsin Public Power Inc. effective May 1997. Sales for resale to other utilities, the resale-utilities customer class, increased 90.2% in 1998 compared to 1997 primarily due to higher opportunity sales. Gas Revenues, Gross Margins and Sales Despite an interim retail gas rate increase, effective January 1, 1998 through April 30, 1998, of $18.5 million on an annualized basis, and a permanent retail gas rate increase, effective May 1, 1998, of $18.5 million or 5.4% on an annualized basis, total gas operating revenues decreased by $8.8 million or 14.4% and the gross margin on gas operating revenues (gas operating revenues less cost of gas sold) decreased by $0.8 million or 3.5% during the second quarter of 1998 compared to the second quarter of 1997. ============================================================================== Three Months Ended June 30 -------------------------- Gas Gross Margin ($000) 1998 1997 % Change - ----------------------- ---------- ---------- -------- Gas Operating Revenues $ 52,414 $ 61,228 (14.4%) Cost of Gas Sold 31,105 39,141 (20.5%) ---------- ---------- Gross Margin $ 21,309 $ 22,087 (3.5%) ========== ========== ============================================================================== Total gas operating revenues and gross margin declined in the second quarter of 1998 primarily due to a decrease in therm deliveries, especially to residential and commercial/industrial customers who both contribute higher margins to earnings than other customers. Between the comparative periods, the cost of gas sold decreased by $8.0 million or 20.5% due to decreased gas sales and to a lower per unit cost of purchased gas. Changes in the cost of natural gas purchased at market prices are included in customer rates through the purchased gas adjustment mechanism and do not affect gross margin. ============================================================================== Three Months Ended June 30 -------------------------- Therms Delivered - Thousands 1998 1997 % Change - ---------------------------- ---------- ---------- -------- Residential 38,331 50,282 (23.8%) Commercial/Industrial 28,634 34,604 (17.3%) Interruptible 4,798 5,354 (10.4%) Interdepartmental 133 235 (43.4%) ---------- ---------- Total Gas Sales 71,896 90,475 (20.5%) Transported Customer Owned Gas 82,991 72,802 14.0% Transported - Interdepartmental 26,529 27,090 (2.1%) ---------- ---------- Total Gas Delivered 181,416 190,367 (4.7%) ========== ========== ============================================================================== Compared to the same period in 1997, total natural gas therm deliveries decreased 4.7% during the second quarter of 1998 primarily due to significantly lower therm use per residential and commercial/industrial customer. While the number of residential and commercial/industrial customers increased between the comparative periods, residential and commercial/industrial therm deliveries decreased 23.8% and 17.3%, respectively, in part due to the warm spring weather noted above in "Electric Revenues, Gross Margins and Sales". During the second quarter of 1998, therm deliveries to the Whitewater Cogeneration Facility, owned by LSP-Whitewater Limited Partnership, an unaffiliated independent power producer, contributed to a 14.0% increase in transported customer owned gas. The Whitewater Cogeneration Facility, a gas-fired electric cogeneration facility, went into commercial operation in September 1997. Wisconsin Electric purchases the majority of the electricity generated by the Whitewater Cogeneration Facility under a long-term power purchase contract. Operating Expenses During the second quarter of 1998, Wisconsin Energy's other operation and maintenance expenses increased by $25.7 million or 17.7% compared to the same period during 1997, including a $19.3 million increase in Wisconsin Electric's nuclear non-fuel expenses and a $3.7 million increase in Wisconsin Electric's non-nuclear, non-fuel power generation expenses. Nuclear non-fuel expenses increased during 1998 primarily due to efforts by Wisconsin Electric to continue to strengthen overall performance at Point Beach Nuclear Plant. Non- nuclear, non-fuel power generation expenses increased primarily due to a scheduled maintenance outage at Wisconsin Electric's Oak Creek Power Plant and to other reliability improvement efforts. Total operating income taxes at both Wisconsin Energy and Wisconsin Electric increased by $12.0 million during the second quarter of 1998 as a result of higher taxable income. Other Items During the second quarter of 1997, Wisconsin Energy recorded a charge of $30.7 million ($18.8 million net of tax) to write off deferred merger costs related to the terminated merger agreement with Northern States Power Company, of which $21.9 million was attributable to Wisconsin Electric. The write-off of these merger expenses appears in other income and deductions on Wisconsin Energy's and Wisconsin Electric's income statements. 1998 YEAR-TO-DATE Earnings During the first half of 1998, Wisconsin Energy's consolidated net income and earnings per share of common stock were $77.9 million and $0.69, respectively, compared to $34.4 million and $0.31, respectively, during the first half of 1997. During the first six months of 1998, Wisconsin Electric's earnings increased to $81.1 million compared to $37.0 million during the first six months of 1997. As described below, 1998 earnings increased primarily because increased revenues from interim and permanent 1998 Wisconsin retail rate increases at Wisconsin Electric and from an increase in total 1998 electric kilowatt-hour sales more than offset the effects of a weather related reduction in natural gas therm deliveries as well as the effects of increased operating expenses during the first half of 1998. Also contributing to increased comparative earnings during 1998, earnings during the first half of 1997 were negatively impacted by (1) a one-time charge of $30.7 million at Wisconsin Energy in the second quarter of 1997 (of which $21.9 million was attributable to Wisconsin Electric) for the write-off of deferred costs related to Wisconsin Energy's terminated merger agreement with Northern States Power Company, and (2) increased costs beyond those included in electric rates associated with buying replacement power for both generating units at Point Beach, which were out of service for repairs during most of the first six months of 1997. Electric Revenues, Gross Margins and Sales WISCONSIN ENERGY: Primarily due to Wisconsin Electric's interim and permanent Wisconsin retail electric rate increases during 1998 and to an increase in total 1998 electric kilowatt-hour sales, total electric operating revenues increased by $106.1 million or 15.5% during the first six months of 1998 compared to the first six months of 1997. Between the comparative periods, the gross margin on electric operating revenues increased by $92.4 million or 19.6%. WISCONSIN ELECTRIC: Wisconsin Electric's total electric operating revenues increased by $102.9 million or 15.0% during the first half of 1998 compared to the first half of 1997 and the gross margin on electric operating revenues increased by $90.6 million or 19.2%. Wisconsin Electric attributes these increases to an interim Wisconsin retail electric rate increase, effective from January 1, 1998 through April 30, 1998, of $134.9 million on an annualized basis, to a permanent Wisconsin retail electric rate increase, effective May 1, 1998, of $160.2 million or 12.7% on an annualized basis, and to increased total electric kilowatt-hour sales during the spring and early summer of 1998. ============================================================================== Six Months Ended June 30 ------------------------ Electric Gross Margin ($000) 1998 1997 % Change - ---------------------------- ---------- ---------- -------- Electric Operating Revenues $ 789,180 $ 686,321 15.0% Fuel & Purchased Power 226,492 214,262 5.7% ---------- ---------- Gross Margin $ 562,688 $ 472,059 19.2% ========== ========== ============================================================================== Due to increased electric kilowatt-hour sales during the first six months of 1998, fuel and purchased power expenses increased by $12.2 million or 5.7% during the six months ended June 30, 1998 compared to the same period in 1997. Availability of lower cost per kilowatt-hour generating capacity at Point Beach during the first half of 1998, however, allowed Wisconsin Electric to generate 6.1% more electricity during the first six months of 1998 while only increasing fuel costs by 0.4%. Despite a 11.5% decrease in power purchases during the first half of 1998, purchased power costs increased 19.1% between the comparative periods as a result of 34.5% higher per unit purchased power costs during 1998. ============================================================================== Six Months Ended June 30 ------------------------ Electric Sales (Megawatt-hours) 1998 1997 % Change - ------------------------------- ---------- ---------- -------- Residential 3,475,279 3,413,457 1.8% Small Commercial/Industrial 3,744,137 3,635,949 3.0% Large Commercial/Industrial 5,515,395 5,419,293 1.8% Other-Retail/Municipal 651,112 725,096 (10.2%) Resale-Utilities 719,134 482,019 49.2% ---------- ---------- Total Electric Sales 14,105,057 13,675,814 3.1% ========== ========== ============================================================================== During the first half of 1998 compared to the first half of 1997, growth in the number of residential and the small commercial/industrial customer classes, combined with increased use per customer by residential, small commercial/industrial and large commercial/industrial customers, contributed to an increase in total electric sales of 3.1%. Electric energy sales to the Empire and Tilden ore mines increased 0.5% during the first six months of 1998 compared to the first six months of 1997. Excluding the Empire and Tilden ore mines, total electric sales increased 3.4% and sales to the remaining large commercial/industrial customers increased 2.1%. During the six months ended June 30, 1998, sales in the other-retail/municipal customer class decreased 10.2% primarily due to reduced contractual requirements nominations by Wisconsin Public Power Inc. effective May 1997. Sales for resale to other utilities, the resale-utilities customer class, increased 49.2% in 1998 compared to 1997 primarily due to higher opportunity sales. Gas Revenues, Gross Margins and Sales Despite an interim retail gas rate increase, effective from January 1, 1998 through April 30, 1998, of $18.5 million on an annualized basis, and a permanent retail gas rate increase, effective May 1, 1998, of $18.5 million or 5.4% on an annualized basis, total gas operating revenues decreased by $42.3 million or 19.7% and the gross margin on gas operating revenues decreased by $3.2 million or 4.5% during the first half of 1998 compared to the first half of 1997. ============================================================================== Six Months Ended June 30 ------------------------ Gas Gross Margin ($000) 1998 1997 % Change - ----------------------- ---------- ---------- -------- Gas Operating Revenues $ 171,825 $ 214,077 (19.7%) Cost of Gas Sold 103,406 142,435 (27.4%) ---------- ---------- Gross Margin $ 68,419 $ 71,642 (4.5%) ========== ========== ============================================================================== Total gas operating revenues and gross margin declined in the first six months of 1998 primarily due to a decrease in therm deliveries, especially to residential and commercial/industrial customers who both contribute higher margins to earnings than other customers. Between the comparative periods, the cost of gas sold decreased by $39.0 million or 27.4% due to decreased gas sales and to a lower per unit cost of purchased gas. Changes in the cost of natural gas purchased at market prices are included in customer rates through the purchased gas adjustment mechanism and do not affect gross margin. ============================================================================== Six Months Ended June 30 ------------------------ Therms Delivered - Thousands 1998 1997 % Change - ---------------------------- ---------- ---------- -------- Residential 172,160 211,218 (18.5%) Commercial/Industrial 112,449 133,940 (16.0%) Interruptible 12,509 14,841 (15.7%) Interdepartmental 314 9,312 (96.6%) ---------- ---------- Total Gas Sales 297,432 369,311 (19.5%) Transported Customer Owned Gas 182,187 159,301 14.4% Transported - Interdepartmental 34,840 45,386 (23.2%) ---------- ---------- Total Gas Delivered 514,459 573,998 (10.4%) ========== ========== ============================================================================== Compared to the same period in 1997, total natural gas therm deliveries decreased 10.4% during the first half of 1998 primarily due to significantly lower therm use per residential and commercial/industrial customer. While the number of residential and commercial/industrial customers increased between the comparative periods, residential and commercial/industrial therm deliveries decreased 18.5% and 16.1%, respectively, primarily due to warmer weather during the first six months of 1998. As measured by heating degree days, the first six months of 1998 were 16% warmer than the same period during 1997 and 14% warmer than normal. During the first half of 1998, therm deliveries to the Whitewater Cogeneration Facility contributed to a 14.4% increase in transported customer owned gas. During the first six months of 1998, natural gas therm deliveries to the other-interdepartmental customer class decreased 35.7% primarily due to increased availability of Wisconsin Electric's Point Beach Nuclear Plant, allowing Wisconsin Electric to reduce generation at its Concord and Paris Generating Stations, natural gas-fired peaking generating plants. Therm deliveries to these Wisconsin Electric facilities are at rates approved by the Public Service Commission of Wisconsin ("PSCW"). Excluding the other-interdepartmental customer class, total therm deliveries during the six months ended June 30, 1998 decreased 7.7% compared to the same period in 1997. Operating Expenses During the first half of 1998, Wisconsin Energy's other operation and maintenance expenses increased by $42.7 million or 15.3% compared to the same period during 1997, including a $33.8 million increase in Wisconsin Electric's nuclear non-fuel expenses and a $7.5 million increase in Wisconsin Electric's non-nuclear, non-fuel power generation expenses. As noted above, nuclear non- fuel expenses increased during 1998 primarily due to efforts by Wisconsin Electric to continue to strengthen overall performance at Point Beach. Non- nuclear, non-fuel power generation expenses increased primarily due to a scheduled maintenance outage at Wisconsin Electric's Oak Creek Power Plant and to other reliability improvement efforts. Wisconsin Energy's depreciation expense increased by $4.8 million or 4.1% during the first six months of 1998 compared to the first six months of 1997 primarily due to increased nuclear decommissioning expenses at Wisconsin Electric. Total operating income taxes at both Wisconsin Energy and at Wisconsin Electric increased by $13.0 million during the first half of 1998 as a result of higher taxable income. Other Items During the second quarter of 1997, Wisconsin Energy recorded a charge of $30.7 million ($18.8 million net of tax) to write off deferred merger costs related to the terminated merger agreement with Northern States Power Company, of which $21.9 million was attributable to Wisconsin Electric. The write-off of these merger expenses appears in other income and deductions on Wisconsin Energy's and Wisconsin Electric's income statements. Wisconsin Electric's miscellaneous-net other income and deductions increased by $5.7 million during the first half of 1998 compared to the first half of 1997 primarily due to realized gains on investments in the Nuclear Decommissioning Trust Fund. FACTORS AFFECTING RESULTS OF OPERATIONS YEAR 2000 COMPUTER SOFTWARE AND HARDWARE ISSUES Like many other businesses, the Company is working to resolve the potential impact of the Year 2000 on its ability to operate critical systems and to accurately process information that may be date sensitive. If not addressed in a timely manner, the Year 2000 problem could have a material impact on the operations of the Company. Wisconsin Electric, Edison Sault and the non-utility subsidiaries utilize a number of computer systems, including embedded systems, across their operations. Wisconsin Electric and Edison Sault have completed an initial assessment of their critical applications and expect to complete assessments of embedded systems and other hardware in the fourth quarter of 1998. The non-utility subsidiaries have completed an assessment of most of their critical applications, embedded systems and other hardware and also expect to complete their assessments in the fourth quarter of 1998. Wisconsin Electric, Edison Sault and the non-utility subsidiaries have all begun work to mitigate the Year 2000 problem where necessary. The Company's Year 2000 programs include a process to assess the readiness of key suppliers. Initial contacts with key suppliers are underway, with completion of initial assessments expected by the end of the third quarter of 1998 at Wisconsin Electric. Additional actions will be initiated based upon the assessments of supplier readiness. Contingency planning for all critical business functions is also addressed in the current Year 2000 program at Wisconsin Electric. Edison Sault and the non-utility subsidiaries will address contingency planning for all critical business functions in 1999. In its May 1998 rate order from the PSCW, Wisconsin Electric received approval for recovery in rates of approximately $13 million per year in the Wisconsin jurisdiction during the 1998-1999 biennial period, based upon total projected Year 2000 program costs of approximately $30 million to be expensed during 1998 and 1999. Approximately $0.2 million has been budgeted in 1998 at Edison Sault for its Year 2000 program. Edison Sault's 1999 budget has not yet been determined. The Company does not expect the cost of Year 2000 compliance efforts to be significant at the non-utility subsidiaries. The Year 2000 problem has many elements and potential consequences, some of which may not be reasonably foreseeable. There can be no assurance that unforeseen consequences will not arise. LIQUIDITY AND CAPITAL RESOURCES Cash provided by Wisconsin Energy's consolidated operating activities totaled $255 million during the six months ended June 30, 1998 compared to $230 million provided during the same period in 1997. Cash provided by Wisconsin Electric's operating activities totaled $299 million during the six months ended June 30, 1998 compared to $228 million provided during the same period in 1997. Cash provided by Wisconsin Electric's operating activities reflect the sale of the Kimberly Cogeneration Equipment in April 1998 to WISVEST Corporation. The $36.4 million sale of this equipment was eliminated in Wisconsin Energy's consolidated statement of cash flows. For additional information concerning the Kimberly Cogeneration Equipment, see Item 5. Other Information in Part II of this report. Wisconsin Energy's consolidated net investing activities totaled $175 million for the six months ended June 30, 1998 compared to $133 million during the same period in 1997. Investments during the first half of 1998 included $171 million for the construction of new or improved facilities of which $148 million was for investments in utility plant at Wisconsin Electric. During the first six months of 1998, Wisconsin Electric recorded $18 million of payments to and earnings of the Nuclear Decommissioning Trust Fund for the eventual decommissioning of Point Beach and sold $22 million of nuclear fuel. Compared to the same period in 1997, Wisconsin Energy's investing activities- other for the six months ended June 30, 1998 includes a $31 million decrease in net cash proceeds from the sale of buildings and other capital distributions from investments by WISPARK Corporation. In April 1998, Wisconsin Michigan Investment Corporation issued $25.4 million of 6.48% medium-term notes due in 2008. Proceeds from the issue were added to Wisconsin Michigan Investment Corporation's general funds and were used to finance non-utility projects. During 1998, WISPARK Corporation issued $11.3 million of secured adjustable rate notes due 2000-2008. Proceeds from the issues were used to finance the construction or purchase of various facilities. In June 1998, Wisconsin Electric issued $150 million of 6-1/2% debentures due 2028. Proceeds from the issue were used to reduce short-term borrowings and are being used for other general corporate purposes. During the first half of 1998, Wisconsin Electric decreased its short-term debt by $205 million while Wisconsin Energy decreased its consolidated short-term debt by $166 million. Financing activities during the first six months of 1998 included a $7 million payment of principal on the maturity of 5.80% Wisconsin Michigan Investment Corporation medium-term notes due 1998. Capital requirements for the remainder of 1998 are expected to be principally for construction expenditures, for long-term debt maturity and for payments to the Nuclear Decommissioning Trust Fund for the eventual decommissioning of Point Beach. These cash requirements are expected to be met primarily through internal sources of funds from operations and short-term borrowings. On August 12, 1998, Wisconsin Energy entered into a $100 million 364-day revolving credit agreement and a $150 million five-year revolving credit agreement to provide backup credit support of a commercial paper program. Wisconsin Energy intends to begin issuing commercial paper under this program later in 1998. Proceeds from the sale of Wisconsin Energy commercial paper will be added to working capital and applied to reduce certain existing non- utility borrowings as well as for future non-utility investments. For certain other information which may impact Wisconsin Energy's or Wisconsin Electric'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 and Item 5. Other Information in Part II of this report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For information concerning Wisconsin Energy's and Wisconsin Electric's 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 and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 1997. Griffin Energy Marketing LLC ("Griffin"), a subsidiary of WISVEST Corporation, began marketing energy related services and limited trading of electricity in January 1998. Griffin's activities during the first half of 1998 were financially insignificant. WISVEST Corporation is a non-utility subsidiary of Wisconsin Energy. PART II - OTHER INFORMATION --------------------------- ITEM 1. LEGAL PROCEEDINGS OTHER MATTERS MINERGY GLASS AGGREGATE PLANT SUIT: In 1996, three individuals and two environmental organizations filed an action in Circuit Court for Winnebago County against Minergy Corp., a non-utility subsidiary of Wisconsin Energy, the City of Neenah, Wisconsin and a paper company, challenging the legality of the City of Neenah's lease of certain land to Minergy Corp. for construction and operation of a $45 million facility that recycles paper sludge from area paper mills into glass aggregate and steam. The plaintiffs alleged that the lease violated the public trust doctrine under Wisconsin law and requested that the court declare the lease a public nuisance and grant a permanent injunction against construction of the facility. The court dismissed the plaintiffs' complaint and Minergy Corp. completed construction of the facility, placing it into commercial operation in April 1998. The plaintiffs appealed the circuit court decision to the Wisconsin Court of Appeals which certified the case to the Wisconsin Supreme Court. On July 2, 1998, the Wisconsin Supreme Court reversed the decision of the circuit court, holding that the plaintiffs may bring suit under a Wisconsin statute to abate a public nuisance. The case was remanded to the circuit court where the matter is pending. For further information concerning the Minergy Glass Aggregate Plant, see Item 5. Other Information -"Minergy Glass Aggregate Plant" in Part II of Wisconsin Energy's and Wisconsin Electric's combined Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS WISCONSIN ENERGY CORPORATION At Wisconsin Energy's 1998 Annual Meeting of Stockholders held on May 19, 1998, the board of directors' nominees named below were elected as directors by the indicated votes and percentages cast for and withheld with respect to each nominee. Directors are elected by a plurality of the votes cast by the shares entitled to vote. Any shares not voted, whether by withheld authority, broker non-votes or otherwise, have no effect in the election of directors. There was no solicitation in opposition to the nominees proposed in the Proxy Statement. ============================================================================== Election of Directors for Terms Expiring in 2001: - ------------------------------------------------- Name of Nominee For Withheld --------------- --- -------- Robert A. Cornog 91,412,020 (97.7%) 2,123,437 (2.3%) Richard R. Grigg 91,442,907 (97.8%) 2,092,550 (2.2%) Frederick P. Stratton, Jr. 90,922,349 (97.2%) 2,613,108 (2.8%) Election of Director for Terms Expiring in 2000: - ------------------------------------------------- Name of Nominee For Withheld --------------- --- -------- John N. MacDonough 91,203,534 (97.5%) 2,331,923 (2.5%) ============================================================================= The appointment of Price Waterhouse LLP (now PricewaterhouseCoopers LLP) as independent public accountant for 1998 was approved by the stockholders by a vote of 92,412,175 votes for (98.8% of votes cast) and 529,856 votes against (0.6% of votes cast) such approval. There were 593,426 abstentions and no broker non-votes with respect to such approval. Of 112,865,844 voting shares outstanding as of the March 12, 1998 record date for the annual meeting, 93,535,457 shares (82.9% of the shares outstanding) were represented at the meeting. Further information concerning these matters, including the names of directors whose term as a director continued after the meeting, is contained in Wisconsin Energy's Proxy Statement dated April 3, 1998 with respect to the 1998 Annual Meeting of Stockholders. WISCONSIN ELECTRIC POWER COMPANY At Wisconsin Electric's 1998 Annual Meeting of Stockholders held on May 12, 1998, for which Wisconsin Electric did not solicit proxies, eight incumbent directors and one additional director nominee, as listed in Wisconsin Electric's Information Statement dated April 14, 1998, were elected for one year terms. Each director received 33,289,327 votes (100% of the votes cast). Directors are elected by a plurality of the votes cast by the shares entitled to vote. Any share not voted, whether by withheld authority, broker non-votes or otherwise, have no effect in the election of directors. There was no solicitation in opposition to the nominees proposed in the Information Statement. Further information concerning these matters is contained in Wisconsin Electric's Information Statement. ITEM 5. OTHER INFORMATION NUCLEAR MATTERS Previous information concerning the status of Point Beach Nuclear Plant is contained in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations - - Nuclear Matters" in Wisconsin Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 1997 and in Item 5. Other Information - "Nuclear Matters" in Part II of Wisconsin Energy's and Wisconsin Electric's combined Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. POINT BEACH NUCLEAR PLANT: Wisconsin Electric completed a scheduled refueling of Point Beach Unit 1 and returned the unit to service in late June 1998. With completion of this outage, Wisconsin Electric has entered into its first extended fuel cycle, allowing operation of Unit 1 for more than 12 months between refueling outages. SPENT FUEL STORAGE AND DISPOSAL: Wisconsin Electric currently has remaining space in the spent fuel pool at Point Beach to complete the scheduled fall 1998 Unit 2 and fall 1999 Unit 1 refuelings. With completion of the recent Unit 1 refueling outage in June 1998, however, Wisconsin Electric no longer has the capability to unload a full core into the spent fuel pool, which reduces to some extent the operational flexibility at Point Beach. In response to reduced spent fuel pool storage capacity, Wisconsin Electric completed construction of an Independent Spent Fuel Storage Installation ("ISFSI") in 1995 for the temporary dry storage of spent nuclear fuel at Point Beach. The PSCW has authorized Wisconsin Electric to load up to twelve casks containing up to 288 total fuel assemblies with spent fuel and transfer the casks to the ISFSI. To date, two VSC-24 casks containing 48 spent fuel assemblies have been loaded. Wisconsin Electric currently has two additional VSC-24 casks, designed by Sierra Nuclear Corporation, at Point Beach and expects to receive four additional VSC-24 casks by year-end 1998. As a result of the ignition of hydrogen gas during welding operations associated with loading a third VSC-24 cask at Point Beach in May 1996, Wisconsin Electric discontinued loading until the United States Nuclear Regulatory Commission ("NRC") completed its review of Wisconsin Electric's proposed corrective actions to avoid future hydrogen gas ignitions as well as its review of proposed changes to lid welding and weld inspection processes. In August 1998, the NRC completed its review and informed Wisconsin Electric in a letter dated August 13, 1998 that Wisconsin Electric may resume loading of VSC-24 casks at Point Beach. Wisconsin Electric anticipates that it will resume loading in late summer 1998. Wisconsin Electric has also initiated steps to purchase up to six alternative model TN-32 dry storage casks from Transnuclear Corp.. The TN-32 casks have been previously approved by the NRC for specific use at other nuclear generating facilities in the United States. WE currently plans to obtain the first two TN-32 casks in December 1999 and a third cask in the summer of the year 2000. In August 1998, the PSCW denied a request for contested public hearings on the use of TN-32 casks at Point Beach and issued an order approving the substitution of up to six TN-32 casks for VSC-24 casks at Point Beach in the event that this becomes necessary. Wisconsin Electric believes that it should be able to obtain NRC approval for use of TN-32 casks at Point Beach by early in the year 2000. ELECTRIC SYSTEM RELIABILITY INITIATIVES & COMPETITION For information concerning electric system reliability, structure and competition matters, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations - Electric System Reliability Matters" and "Industry Restructuring and Competition" in Part II of Wisconsin Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 1997 and Item 5. Other Information - "Electric System Reliability, Structure, and Competition Matters" in Part II of Wisconsin Energy's and Wisconsin Electric's combined Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. Additional Generating Capacity 300 MEGAWATT FACILITY: As a result of responses to a request for proposal for contracts for 250 megawatts of generation capacity to be built in eastern Wisconsin, Wisconsin Electric and Atlanta-based Southern Energy, Inc., a subsidiary of Southern Company, reached a preliminary agreement in July 1998 to build a 300-megawatt natural gas-fired power plant. The parties are in the process of finalizing details for a formal power purchase agreement. This preliminary agreement satisfies Wisconsin Electric's responsibility under directives from the PSCW and 1997 Wisconsin Act 204. The 300-megawatt facility will be owned by Southern Energy, Inc.. The terms of the preliminary agreement call for Wisconsin Electric to purchase the electricity from the power plant for eight years. Southern Company (NYSE: SO), based in Atlanta, Georgia, is also the parent firm of Alabama Power, Georgia Power, Gulf Power, Mississippi Power and Savannah Electric. 75 MEGAWATTS OF RENEWABLE ELECTRIC ENERGY: In early August 1998, Wisconsin Electric issued a request for proposal soliciting bids for one or more contracts totaling up to 75 megawatts of renewable electric generating capacity. Renewable electric energy, also known as green energy, includes power generated by wind, water, sun, biomass and other renewable resources. The request for proposals is in response to the requirements of 1997 Wisconsin Act 204 and supports Wisconsin Electric's "Energy for Tomorrow" renewable energy program. The deadline for proposals is October 1, 1998. 1997 Wisconsin Act 204 calls for the investor-owned utilities in the eastern part of the State of Wisconsin to add a combined total of 50 megawatts of renewable electric generating capacity to their energy mix by the end of the year 2000. Wisconsin Electric is responsible for 27 megawatts of this total. Wisconsin Electric's "Energy for Tomorrow" program provides a voluntary electric rate, commonly referred to as green pricing, that allows Wisconsin Electric residential, farm and small commercial customers to purchase 25%, 50% or 100% of their electric energy from renewable resources. Customers who sign up for the "Energy for Tomorrow" program pay a premium on their electric rates of an additional half-cent to an additional two cents per kilowatt-hour depending upon the level of their participation. Wisconsin Electric plans to request authority to extend availability of the "Energy for Tomorrow" program to more of its Wisconsin customers and to its Michigan customers during 1998. Midwest ISO The PSCW completed its review of Independent Transmission System Operators ("ISOs") and issued an order in June 1998 that lays out new guidelines for ISOs that are more consistent with ISO guidelines of the Federal Energy Regulatory Commission ("FERC"). The PSCW also stated in its order that the Midwest ISO did not currently meet the PSCW's guidelines. The FERC has not yet ruled on the Midwest ISO application. PSCW Rulemaking Proceedings The PSCW has initiated proceedings on two matters associated with 1997 Wisconsin Act 204 including (1) the requirements and procedures under which an affiliated interest of a regulated electric utility may build and operate wholesale merchant electric generating plants and (2) the rules for the ratemaking treatment for wholesale sales. In each case, the PSCW is required to submit proposed rules to the Wisconsin Legislature no later than November 1, 1998. No formal action has been taken in either proceeding. In addition, 1997 Wisconsin Act 204 calls for the PSCW to: * Replace the Advance Plan process with a new Strategic Energy Assessment process. A notice of proposed rulemaking is expected in September 1998 with submittal of proposed rules to the Wisconsin Legislature in March 1999. * Submit an analysis of electric system transmission constraints that limit import capability into the State of Wisconsin by September 1, 1998. The PSCW has hired a consultant and is working with a utility task force to complete this evaluation. The PSCW has also initiated the first phase of a proceeding to develop standards of conduct governing the relationships between public utilities and their affiliates. This phase, for which hearings begin in October 1998, consists of developing policies on the extent to which diversification into non-utility activities within the utility should be regulated, limited or prohibited. In 1999, the second phase of the proceeding will establish rules on utility and affiliate standards of conduct. A third phase, to run concurrently with the other two, will identify statutory changes, if necessary. MPSC Electric Utility Industry Choice Schedule Wisconsin Electric and other companies in the Upper Peninsula of Michigan are currently discussing a proposal with the Michigan Public Service Commission ("MPSC") for providing choice to all electric retail customers beginning January 1, 2002. KIMBERLY COGENERATION EQUIPMENT During the second quarter of 1998, WISVEST Corporation purchased the Kimberly Cogeneration Equipment from Wisconsin Electric and contributed the equipment to a joint independent power project, the Androscoggin Cogeneration Center. The Androscoggin Cogeneration Center, scheduled for commercial operation in the third quarter of 1999, will be a 160 megawatt merchant plant in Jay, Maine. Part of the electric output and most of the steam produced by the facility will be supplied to International Paper Company for use in its paper making process. WISVEST Corporation joined subsidiaries of International Paper Company and Polsky Energy Corporation to form Androscoggin Energy LLC, which will own and operate the Androscoggin Cogeneration Center. For additional information concerning the Kimberly Cogeneration Equipment, see "Note M - Commitments and Contingencies" in the Notes to Financial Statements in Wisconsin Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 1997. DEADLINES FOR SHAREHOLDER PROPOSALS Pursuant to Rule 14a-5(e) under the Securities Exchange Act of 1934, as amended effective June 29, 1998: * The deadline for submitting shareholder proposals for inclusion in Wisconsin Energy's proxy statement and form of proxy for Wisconsin Energy's 1999 Annual Meeting of Stockholders ("Annual Meeting") pursuant to Rule 14a-8 is December 4, 1998. * The date after which notice of a shareholder proposal submitted outside of the processes of Rule 14a-8 is considered untimely is March 24, 1999. Under Wisconsin Energy's advance notice bylaw, such a proposal must be received no earlier than February 22, 1999 (100 days before the June 2, 1999 date of the scheduled Annual Meeting) and no later than March 24, 1999 (70 days before such scheduled date). 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 or Wisconsin Electric. Such statements are based upon management's current expectations and are subject to risks and uncertainties that could cause Wisconsin Energy's or Wisconsin Electric's actual results to differ materially from those contemplated in the statements. Readers are cautioned not to place undue reliance on these forward-looking statements. When used in written documents or oral presentations, the terms "anticipate", "believe", "estimate", "expect", "objective", "plan", "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 or Wisconsin Electric's actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: * Factors affecting utility operations such as unusual weather conditions; catastrophic weather-related damage; availability of Wisconsin Electric's generating facilities including Point Beach Nuclear Plant; unscheduled generation outages, 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 spent 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. * 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. * 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; 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 as well as the Wisconsin or Michigan Department of Natural Resources' regulations related to emissions from fossil-fuel-fired power plants; or the siting approval process for new generation 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. * 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 Wisconsin Electric to transfer funds to Wisconsin Energy 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. * Unanticipated technological developments that result in competitive disadvantages and create the potential for impairment of existing assets. * Unanticipated developments while implementing the modifications necessary to mitigate Year 2000 compliance problems, including the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer code in computer and embedded systems, the indirect impacts of third parties with whom the company does business and who do not mitigate their Year 2000 compliance problems, and similar uncertainties. * Changes in social attitudes regarding the utility and power industries. * Possible risks associated with non-utility 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 Wisconsin Energy's or Wisconsin Electric's Securities and Exchange Commission filings or in other publicly disseminated written documents. Wisconsin Energy and Wisconsin Electric 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. Wisconsin Energy Exhibits (4)-1 Securities Resolution No. 3 of Wisconsin Electric, dated May 27, 1998, under the Indenture for Debt Securities of Wisconsin Electric, dated December 1, 1995. (27)-1 Wisconsin Energy Corporation Financial Data Schedule for the six months ended June 30, 1998. Wisconsin Electric Exhibits (4)-1 Securities Resolution No. 3 of Wisconsin Electric, dated May 27, 1998, under the Indenture for Debt Securities of Wisconsin Electric, dated December 1, 1995. (27)-2 Wisconsin Electric Power Company Financial Data Schedule for the six months ended June 30, 1998. (b) Reports on Form 8-K. Current reports on Form 8-K dated as of April 28, 1998 were filed by Wisconsin Energy and Wisconsin Electric on May 6, 1998 to report authorization by the PSCW of Wisconsin Electric's permanent electric, gas and City of Milwaukee steam rate increases effective May 1, 1998. A current report on Form 8-K dated as of May 28, 1998 was filed by Wisconsin Electric on May 28, 1998 to file Wisconsin Electric's Statement of Computation of Ratios of Earnings to Fixed Charges. No other reports on Form 8-K were filed by Wisconsin Energy nor by Wisconsin Electric during the quarter ended June 30, 1998. 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/ Calvin H. Baker ------------------------------- Date: August 14, 1998 Calvin H. Baker, Treasurer, Chief Financial Officer and duly authorized officer WISCONSIN ELECTRIC POWER COMPANY -------------------------------- (Registrant) /s/ Calvin H. Baker ------------------------------------ Date: August 14, 1998 Calvin H. Baker, Vice President - Finance, Chief Financial Officer and duly authorized officer WISCONSIN ENERGY CORPORATION ---------------------------------------- FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 1998 EXHIBIT INDEX Exhibit No. - ----------- The following Exhibits are filed with this report: (4)-1 Securities Resolution No. 3 of Wisconsin Electric, dated May 27, 1998, under the Indenture for Debt Securities of Wisconsin Electric, dated December 1, 1995. (27)-1 Wisconsin Energy Corporation Financial Data Schedule for the six months ended June 30, 1998. EX-4.1 2 WE SECURITIES RESOLUTION NO. 3 Exhibit (4)-1 Closing Document No. 4(e) CERTIFIED COPY OF SECURITIES RESOLUTION NO. 3 OF WISCONSIN ELECTRIC POWER COMPANY I, THOMAS H. FEHRING, Corporate Secretary of WISCONSIN ELECTRIC POWER COMPANY, do hereby certify that the attached is a true and correct copy of Securities Resolution No. 3 duly adopted by the Vice President-Finance of the Company pursuant to authorization delegated to him by the Finance Committee of the Board of Directors of said company at a meeting duly called and held on the 18th day of May, 1998; that a quorum of said Board Committee was present at said meeting and voted throughout; and I do further certify that said resolution has not been rescinded and remains in full force and effect. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said WISCONSIN ELECTRIC POWER COMPANY this 1st day of June, 1998. /s/Thomas H. Fehring ---------------------- Thomas H. Fehring Corporate Secretary (CORPORATE SEAL) 6-1/2% DEBENTURES DUE JUNE 1, 2028 SECURITIES RESOLUTION NO. 3 OF WISCONSIN ELECTRIC POWER COMPANY The actions described below are taken by the Board (as defined in the Indenture referred to below) of WISCONSIN ELECTRIC POWER COMPANY (the "Company"), or by an Officer or committee of Officers pursuant to Board delegation, pursuant to resolutions adopted by the Board of Directors of the Company as of July 26, 1995, October 25, 1995, and July 30, 1997, resolutions adopted by the Finance Committee of the Board of Directors as of May 18, 1998, and Section 2.01 of the Indenture dated as of December 1, 1995 (the "Indenture") between the Company and Firstar Trust Company, as trustee. Terms used herein and not defined have the same meaning as in the Indenture. RESOLVED, that a new series of Securities is authorized as follows: 1. The title of the series is 6-1/2% Debentures due June 1, 2028 ("6-1/2% Debentures"). 2. The form of the 6-1/2% Debentures shall be substantially in the form of Exhibit 1 hereto. 3. The 6-1/2% Debentures shall have the terms set forth in Exhibit 1. 4. The 6-1/2% Debentures shall have such other terms as are set forth in Exhibit 2 hereto. 5. The 6-1/2% Debentures shall be sold to the underwriter(s) named in the Prospectus Supplement dated May 27, 1998 on the following terms: Price to Public: 99.477% Underwriting Discount: .875% Closing Date: June 1, 1998 This Securities Resolution shall be effective as of May 27, 1998. EXHIBIT 1 No. _____________ $_____________ WISCONSIN ELECTRIC POWER COMPANY 6-1/2% Debentures due June 1, 2028 WISCONSIN ELECTRIC POWER COMPANY promises to pay to ______________________________________________ or registered assigns the principal sum of ____________________________________________ Dollars on June 1, 2028 Interest Payment Dates: June 1 and December 1 Record Dates: May 15 and November 15 Dated: FIRSTAR TRUST COMPANY WISCONSIN ELECTRIC POWER COMPANY Transfer Agent and Paying Agent by ______________________________ Authenticated: [Title of Authorized Officer] FIRSTAR TRUST COMPANY (CORPORATE SEAL) Registrar, by ______________________________ ______________________________ Authorized Signature [Assistant] Secretary WISCONSIN ELECTRIC POWER COMPANY 6-1/2% Debentures due June 1, 2028 1. Interest. Wisconsin Electric Power Company (the "Company"), a Wisconsin corporation, promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually on June 1 and December 1 of each year commencing December 1, 1998. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from June 1, 1998. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company will pay interest on the Securities to the persons who are registered holders of Securities at the close of business on the record date for the next interest payment date, except as otherwise provided in the Indenture. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company may pay principal and interest by check payable in such money. It may mail an interest check to a holder's registered address. 3. Securities Agents. Initially, Firstar Trust Company will act as Paying Agent, Transfer Agent and Registrar. The Company may change any Paying Agent or Transfer Agent without notice. The Company or any Affiliate may act in any such capacity. Subject to certain conditions, the Company may change the Trustee. 4. Indenture. The Company issued the securities of this series (the "Securities") under an Indenture dated as of December 1, 1995 (the "Indenture") between the Company and Firstar Trust Company (the "Trustee"). The terms of the Securities include those stated in the Indenture and in the Securities Resolution establishing the Securities and those made part of the Indenture by the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb). Securityholders are referred to the Indenture, the Securities Resolution and such Act for a statement of such terms. 5. Redemption. The Securities will not be redeemable prior to maturity. 6. Denominations, Transfer, Exchange. The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Transfer Agent may require a holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or the Indenture. The Transfer Agent need not exchange or register the transfer of any Security or portion of a Security selected for redemption. Also, it need not exchange or register the transfer of any Securities for a period of 15 days before a selection of Securities to be redeemed. 7. Persons Deemed Owners. The registered holder of a Security may be treated as its owner for all purposes. 8. Amendments and Waivers. Subject to certain exceptions, the Indenture or the Securities may be amended with the consent of the holders of a majority in principal amount of the securities of all series affected by the amendment. Subject to certain exceptions, a default on a series may be waived with the consent of the holders of a majority in principal amount of the series. Without the consent of any Securityholder, the Indenture or the Securities may be amended, among other things, to cure any ambiguity, omission, defect or inconsistency; to provide for assumption of Company obligations to Securityholders; or to make any change that does not materially adversely affect the rights of any Securityholder. 9. Restrictive Covenants. The Securities are unsecured general obligations of the Company limited to $150,000,000 principal amount. The Indenture does not limit other unsecured debt. Section 4.07 of the Indenture, which if applicable limits certain mortgages and other liens, will apply with respect to the Securities. The limitations are subject to a number of important qualifications and exceptions. 10. Successors. When a successor assumes all the obligations of the Company under the Securities and the Indenture, the Company will be released from those obligations. 11. Defeasance Prior to Redemption or Maturity. Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity. U.S. Government Obligations are securities backed by the full faith and credit of the United States of America or certificates representing an ownership interest in such Obligations. 12. Defaults and Remedies. An Event of Default includes: default for 60 days in payment of interest on the Securities; default in payment of principal on the Securities; default for 60 days in the payment of any sinking fund obligation; default by the Company for a specified period after notice to it in the performance of any of its other agreements applicable to the Securities; certain events of bankruptcy or insolvency; and any other Event of Default provided for in the series. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the Securities may declare the principal of all the Securities to be due and payable immediately. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. 13. Trustee Dealings with Company. Firstar Trust Company, the Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with those persons, as if it were not Trustee. 14. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 15. Authentication. This Security shall not be valid until authenticated by a manual signature of the Registrar. 16. Abbreviations. Customary abbreviations may be used in the name of a Securityholder or an assignee, such as: TEN COM (=tenants in common), TEN ENT (=tenants by the entirety), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (=custodian), U/G/M/A (=Uniform Gifts to Minors Act), and U/T/M/A (=Uniform Transfers to Minors Act). The Company will furnish to any Securityholder upon written request and without charge a copy of the Indenture and the Securities Resolution, which contains the text of this Security in larger type. Requests may be made to: Corporate Secretary, Wisconsin Electric Power Company, 231 West Michigan Street, P.O. Box 2046, Milwaukee, WI 53201. EXHIBIT 2 6-1/2% Debentures Supplemental Terms In addition to the terms set forth in Exhibit 1 to Securities Resolution No. 3, the 6-1/2% Debentures shall have the following terms: Section 1. Definitions. Capitalized terms used and not defined herein shall have the meaning given such terms in the Indenture. The following is an additional definition applicable to the 6-1/2% Debentures: "Depositary" means, with respect to the 6-1/2% Debentures issued as a global Security, The Depository Trust Company, New York, New York, or any successor thereto registered under the Securities Exchange Act of 1934 or other applicable statute or regulation. Section 2. Securities Issuable as Global Securities. (a) The 6-1/2% Debentures shall be issued in the form of one or more permanent global Securities and shall, except as otherwise provided in this Section 2, be registered only in the name of the Depositary or its nominee. Each global Security shall bear a legend substantially to the following effect: "Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein." (b) If at any time (i) the Depositary with respect to the 6-1/2% Debentures notifies the Company that it is unwilling or unable to continue as Depositary for such global Security or (ii) the Depositary for the 6-1/2% Debentures shall no longer be eligible or in good standing under the Securities Exchange Act of 1934 or other applicable statute or regulation, the Company shall appoint a successor Depositary with respect to such global Security. If a successor Depositary for such global Security is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Transfer Agent shall register the exchange of such global Security for an equal principal amount of Registered Securities in the manner provided in Section 2.07 of the Indenture. (c) The Transfer Agent shall register the transfer or exchange of a global Security for Registered Securities pursuant to Section 2.07 of the Indenture if (i) a Default or Event of Default shall have occurred and be continuing with respect to the 6-1/2% Debentures or (ii) the Company determines that the 6-1/2% Debentures shall no longer be represented by global Securities. (d) In any exchange provided for in the preceding paragraphs (b) or (c), the Company will execute and the Registrar will authenticate and deliver Registered Securities. Registered Securities issued in exchange for a global Security shall be in such names and denominations as the Depositary for such global Security shall instruct the Registrar. The Registrar shall deliver such Registered Securities to the persons in whose names such Securities are so registered. (e) The 6-1/2% Debentures will trade in the Depositary's Same-Day Funds Settlement System. All payments of principal and interest on global Securities will be made by the Company in immediately available funds. EX-27.1 3 WEC SCHEDULE UT - SIX MONTHS ENDED JUNE 30, 1998
UT THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS OF WISCONSIN ENERGY CORPORATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS DEC-31-1998 JAN-01-1998 JUN-30-1998 6-MOS 1 PER-BOOK 3,198,156 935,898 546,806 0 432,800 5,113,660 1,153 748,985 1,123,788 1,873,926 0 30,450 1,265,667 155,574 302,290 4,977 67,126 0 157,360 21,123 1,235,167 5,113,660 975,649 40,706 812,474 853,180 122,469 14,397 136,866 58,363 78,503 601 77,902 87,471 0 254,686 .69 .69 See financial statements and footnotes in accompanying 10-Q.
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