-----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, WNCox5Gg4TAhpAMccKcWSGXx1L0nldVFpVED7yYAUF7b3uohYlnLMK+VVxY1aiXJ okoHCWV9+3T4ssqWUxWUrw== 0000107815-99-000020.txt : 19990817 0000107815-99-000020.hdr.sgml : 19990817 ACCESSION NUMBER: 0000107815-99-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99692772 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, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1999 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 Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that each Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date (August 2, 1999): Wisconsin Energy Corporation Common Stock, $.01 Par Value, 117,174,724 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, 1999 TABLE OF CONTENTS Item Page - ---- ---- Introduction Part I - Financial Information ------------------------------ 1. Financial Statements Wisconsin Energy Consolidated Condensed Income Statement Consolidated Condensed Balance Sheet Consolidated Statement of Cash Flows Wisconsin Electric Condensed Income Statement Condensed Balance Sheet Statement of Cash Flows Notes to Financial Statements of Wisconsin Energy and Wisconsin Electric 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for Wisconsin Energy and Wisconsin Electric 3. Quantitative and Qualitative Disclosures About Market Risk. Part II - Other Information --------------------------- 1. Legal Proceedings 4. Submission of Matters to a Vote of Security Holders 5. Other Information 6. Exhibits and Reports on Form 8-K Signatures INTRODUCTION 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 its context when used in this combined Form 10-Q, Wisconsin Energy refers to the holding company and all of its subsidiaries. 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, 1998. 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 ------------------ --------------- 1999 1998 1999 1998 ---- ---- ---- ---- Thousands of Dollars, (Except Per Share Amounts) Operating Revenues $539,008 $475,576 $1,095,725 $991,253 Operating Expenses Fuel 94,209 80,207 164,944 154,108 Purchased power 53,041 41,463 102,701 79,283 Cost of gas sold 27,746 31,105 96,606 103,406 Other operation and maintenance 178,389 181,041 360,855 340,792 Depreciation and amortization 64,443 58,817 131,399 122,021 Property and revenue tax 19,149 15,160 36,873 31,276 ------- ------- -------- ------- Total Operating Expenses 436,977 407,793 893,378 830,886 ------- ------- -------- ------- Pretax Operating Income 102,031 67,783 202,347 160,367 Other Income and Deductions Interest income 8,202 6,332 16,551 13,067 Allowance for other funds used during construction 1,461 877 2,445 1,592 Other (8) (3,045) 4,438 1,165 ------- ------- -------- ------- Total Other Income and Deductions 9,655 4,164 23,434 15,824 Interest Charges and Other Interest expense 35,999 31,430 69,565 62,318 Allowance for borrowed funds used during construction (2,405) (1,957) (4,305) (3,955) Distributions on preferred securities of subsidiary trust 3,425 - 3,653 - Preferred dividend requirement of subsidiary 300 300 601 601 ------- ------- -------- ------- Total Interest Charges and Other 37,319 29,773 69,514 58,964 Income Taxes 25,464 13,320 53,853 39,325 ------- ------- -------- ------- Net Income $48,903 $28,854 $102,414 $77,902 ======= ======= ======== ======= Average Number of Shares of Common Stock Outstanding (Thousands) 116,614 113,687 116,272 113,279 Earnings Per Share of Common Stock (Basic and Diluted) $0.42 $0.25 $0.88 $ 0.69 Dividends Per Share of Common Stock $0.39 $0.39 $0.78 $0.775 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, December 31, 1999 1998 -------- ------------ (Thousands of Dollars) Assets ------ Property, Plant and Equipment Electric utility $5,019,760 $4,900,836 Gas utility 532,298 523,187 Steam utility 62,934 62,832 Common utility 386,885 420,750 Non-utility plant 219,928 - Other property 293,838 256,912 Accumulated provision for depreciation (3,111,319) (3,021,548) ---------- ---------- 3,404,324 3,142,969 Construction work in progress 170,121 135,544 Leased facilities - net 130,167 133,007 Nuclear fuel - net 94,373 87,660 ---------- ---------- Net Property, Plant and Equipment 3,798,985 3,499,180 Investments 864,800 795,676 Current Assets Cash and cash equivalents 35,369 16,603 Accounts receivable 213,783 190,103 Accrued utility revenues 92,099 130,518 Materials, supplies and fossil fuel 209,852 199,052 Prepayments and other assets 79,988 71,843 ---------- ---------- Total Current Assets 631,091 608,119 Deferred Charges and Other Assets Accumulated deferred income taxes 206,010 199,372 Other 315,691 259,410 ---------- ---------- Total Deferred Charges and Other Assets 521,701 458,782 ---------- ---------- Total Assets $5,816,577 $5,361,757 ========== ========== Capitalization and Liabilities ------------------------------ Capitalization Common stock $797,199 $760,351 Retained earnings 1,155,903 1,144,092 Unearned compensation - restricted stock award (1,195) (1,338) ----------- ---------- Total Common Stock Equity 1,951,907 1,903,105 Preferred stock 30,450 30,450 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company 200,000 - Long-term debt 1,979,368 1,749,024 ----------- ---------- Total Capitalization 4,161,725 3,682,579 Current Liabilities Long-term debt due currently 129,989 119,140 Short-term debt 273,853 286,859 Accounts payable 162,182 187,452 Accrued liabilities 87,720 88,510 Other 64,802 53,219 ---------- ---------- Total Current Liabilities 718,546 735,180 Deferred Credits and Other Liabilities Accumulated deferred income taxes 582,080 570,750 Other 354,226 373,248 ---------- ---------- Total Deferred Credits and Other Liabilities 936,306 943,998 ---------- ---------- Total Capitalization and Liabilities $5,816,577 $5,361,757 ========== ========== 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 ------------------------ 1999 1998 ---- ---- (Thousands of Dollars) Operating Activities Net income $102,414 $77,902 Reconciliation to cash Depreciation and amortization 131,399 122,021 Nuclear fuel expense - amortization 11,843 6,465 Conservation expense - amortization 11,249 11,249 Debt premium, discount & expense - amortization 1,702 2,266 Deferred income taxes - net (4,741) 4,341 Investment tax credit - net (2,296) (2,350) Allowance for other funds used during construction (2,445) (1,592) Change in - Accounts receivable (23,680) (8,085) Inventories 14,920 10,819 Accounts payable (25,270) (7,193) Other current assets 30,274 26,837 Other current liabilities 10,793 1,395 Other (27,415) 10,611 --------- --------- Cash Provided by Operating Activities 228,747 254,686 Investing Activities Construction expenditures (237,256) (170,703) Acquisition of power plants (276,792) - Allowance for borrowed funds used during construction (4,305) (3,955) Nuclear fuel (10,945) 20,283 Nuclear decommissioning trust (18,718) (17,912) Other (24,685) (2,634) --------- --------- Cash Used in Investing Activities (572,701) (174,921) Financing Activities Sale of - Common stock 36,848 61 Long-term debt 254,207 184,687 Mandatorily redeemable trust preferred securities - net 193,700 - Retirement of long-term debt (18,427) (16,198) Change in short-term debt (13,006) (166,349) Dividends on stock - Common (90,602) (87,471) --------- --------- Cash Provided by (Used in) Financing Activities 362,720 (85,270) --------- --------- Change in Cash and Cash Equivalents 18,766 (5,505) Cash and Cash Equivalents at Beginning of Period 16,603 19,607 --------- --------- Cash and Cash Equivalents at End of Period $35,369 $14,102 ======= ======= Supplemental Information - Cash Paid For Interest (net of amount capitalized) $72,389 $64,778 Income taxes 66,796 49,213 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 ----------------- ----------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Thousands of Dollars) Operating Revenues $469,906 $461,771 $997,745 $972,452 Operating Expenses Fuel 75,305 80,201 146,040 154,102 Purchased power 33,964 35,799 65,017 72,390 Cost of gas sold 27,746 31,105 96,606 103,406 Other operation and maintenance 163,182 174,489 336,634 330,285 Depreciation and amortization 60,167 56,970 124,617 119,243 Property and revenue tax 16,779 14,607 33,610 30,383 -------- -------- -------- -------- Total Operating Expenses 377,143 393,171 802,524 809,809 -------- -------- -------- -------- Pretax Operating Income 92,763 68,600 195,221 162,643 Other Income and Deductions Interest income 5,559 5,562 11,231 11,020 Allowance for other funds used during construction 1,461 877 2,445 1,592 Other 1,945 (1,245) 7,469 4,133 -------- -------- -------- -------- Total Other Income and Deductions 8,965 5,194 21,145 16,745 Interest Charges Interest expense 28,452 27,840 56,849 55,952 Allowance for borrowed funds used during construction (718) (446) (1,199) (821) -------- -------- -------- -------- Total Interest Charges 27,734 27,394 55,650 55,131 Income Taxes 25,562 15,029 56,323 42,590 -------- -------- -------- -------- Net Income 48,432 31,371 104,393 81,667 Preferred Stock Dividend Requirement 300 300 601 601 -------- -------- -------- -------- Earnings Available for Common Stockholder $48,132 $31,071 $103,792 $81,066 ======= ======= ======== ======= 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, December 31, 1999 1998 -------- ------------ (Thousands of dollars) Assets ------ Property, Plant and Equipment Electric utility $4,939,126 $4,820,239 Gas utility 532,298 523,187 Steam utility 62,934 62,832 Common utility 386,885 420,750 Other property 7,376 7,511 Accumulated provision for depreciation (3,059,402) (2,975,749) ---------- ---------- 2,869,217 2,858,770 Construction work in progress 129,834 109,412 Leased facilities - net 130,167 133,007 Nuclear fuel - net 94,373 87,660 ---------- ---------- Net Property, Plant and Equipment 3,223,591 3,188,849 Investments 616,489 573,859 Current Assets Cash and cash equivalents 11,528 14,183 Accounts receivable 165,807 166,648 Accrued utility revenues 91,134 129,463 Materials, supplies and fossil fuel 180,325 198,015 Prepayments and other assets 62,726 59,813 ---------- ---------- Total Current Assets 511,520 568,122 Deferred Charges and Other Assets Accumulated deferred income taxes 196,400 190,114 Other 257,087 247,998 ---------- ---------- Total Deferred Charges and Other Assets 453,487 438,112 ---------- ---------- Total Assets $4,805,087 $4,768,942 ========== ========== Capitalization and Liabilities ------------------------------ Capitalization Common stock $713,582 $713,582 Retained earnings 998,903 984,896 ---------- ---------- Total Common Stock Equity 1,712,485 1,698,478 Preferred stock 30,450 30,450 Long-term debt 1,525,250 1,512,531 ---------- ---------- Total Capitalization 3,268,185 3,241,459 Current Liabilities Long-term debt due currently 119,253 112,454 Short-term debt 240,215 219,289 Accounts payable 141,967 169,503 Accrued liabilities 83,313 80,908 Other 60,403 46,574 ---------- ---------- Total Current Liabilities 645,151 628,728 Deferred Credits and Other Liabilities Accumulated deferred income taxes 570,847 559,574 Other 320,904 339,181 ---------- ---------- Total Deferred Credits and Other Liabilities 891,751 898,755 ---------- ---------- Total Capitalization and Liabilities $4,805,087 $4,768,942 ========== ========== 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 ------------------------ 1999 1998 ---- ---- (Thousands of Dollars) Operating Activities Net income $104,393 $81,667 Reconciliation to cash Depreciation and amortization 124,617 119,243 Nuclear fuel expense - amortization 11,843 6,465 Conservation expense - amortization 11,249 11,249 Debt premium, discount & expense - amortization 1,340 2,066 Deferred income taxes - net (4,757) 4,359 Investment tax credit - net (2,263) (2,345) Allowance for other funds used during construction (2,445) (1,592) Change in - Accounts receivable 841 (4,561) Inventories 17,690 10,854 Accounts payable (27,536) (5,624) Other current assets 35,416 34,337 Other current liabilities 16,234 2,889 Other (17,477) 40,087 --------- --------- Cash Provided by Operating Activities 269,145 299,094 Investing Activities Construction expenditures (183,234) (148,058) Allowance for borrowed funds used during construction (1,199) (821) Nuclear fuel (10,945) 20,283 Nuclear decommissioning trust (18,718) (17,912) Other (5,604) (180) --------- --------- Cash Used in Investing Activities (219,700) (146,688) Financing Activities Sale of long-term debt 29,444 147,903 Retirement of long-term debt (12,083) (7,145) Change in short-term debt 20,926 (205,161) Dividends on stock - Common (89,786) (89,215) Preferred (601) (601) --------- --------- Cash Used in Financing Activities (52,100) (154,219) --------- --------- Change in Cash and Cash Equivalents (2,655) (1,813) Cash and Cash Equivalents at Beginning of Period 14,183 10,100 ------- ------ Cash and Cash Equivalents at End of Period $11,528 $8,287 ======= ====== Supplemental Information - Cash Paid For Interest (net of amount capitalized) $64,046 $61,716 Income taxes 62,136 48,273 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 and the unaudited financial statements for Wisconsin Electric Power Company should be read in conjunction with the companies' combined 1998 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, 1999 are not, however, necessarily indicative of the results which may be expected for the year 1999 because of seasonal and other factors. 2. Due to recent acquisitions by Wisconsin Energy, described below in Note 4, that have increased the size of Wisconsin Energy's non-utility operations and assets, Wisconsin Energy has modified its income statement and balance sheet presentations. The primary income statement modification includes reclassifying the results of non-utility operations from Other Income and Deductions to the various lines within operating income. This modification does not change net income. The primary balance sheet modification includes reclassifying non-utility property, plant and equipment and related accumulated provision for depreciation from Investments to inclusion with utility Property, Plant and Equipment. Prior year financial statements have been reclassified to the current year presentation of non- utility results of operations and financial position. 3. Effective May 31, 1998, Wisconsin Energy acquired ESELCO, Inc. ("ESELCO") in a tax-free reorganization accounted for as a pooling of interests. 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. For additional information, see Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part I of this report. 4. In April 1999, Wisvest-Connecticut, LLC, a wholly owned subsidiary of Wisvest Corporation which is in turn a wholly owned subsidiary of Wisconsin Energy, acquired two fossil-fueled power plants in the State of Connecticut for $277 million from The United Illuminating Company, an unaffiliated investor-owned utility in New Haven, Connecticut. Pursuant to the agreement, Wisvest-Connecticut, LLC purchased the Bridgeport Harbor Station, which has an active generating capacity of 590 megawatts, as well as the New Haven Harbor Station, which has an active generating capacity of 466 megawatts. Wisvest-Connecticut, LLC financed the acquisition through the issuance of $195 million of long-term, nonrecourse notes; an equity contribution of $105 million from Wisconsin Energy; $30 million of working capital arrangements and a $25 million letter of credit facility. Wisvest-Connecticut, LLC has entered into an interest rate swap agreement to exchange fixed rate payment obligations for variable rate receipt rights without exchanging the underlying notional amounts. This agreement, which expires on December 31, 2005, serves to convert variable rate debt under Wisvest-Connecticut, LLC's long-term nonrecourse notes to fixed rate debt to reduce the impact of interest rate fluctuations. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations" in Part I of this report for further information. 5. Wisconsin Energy, a holding company with subsidiaries in utility and non- utility businesses, has two reportable operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly in deciding how to allocate resources or in assessing performance. Wisconsin Energy's reportable operating segments include a utility segment and a non-utility segment. Wisconsin Energy has changed its reportable operating segments as of June 30, 1999 as a result of a material increase in non-utility energy assets and revenues. This increase is due to the acquisition of generating assets from The United Illuminating Company as described in Note 4 above. The reportable utility segment includes Wisconsin Energy's two utility subsidiaries, Wisconsin Electric Power Company and Edison Sault Electric Company. This segment derives its revenues from electric, gas and steam operations. Electric operations engage in the generation, transmission, distribution and sale of electric energy in southeastern (including Metropolitan Milwaukee), east central and northern Wisconsin and in the Upper Peninsula of Michigan. Gas operations engage in the purchase, distribution and sale of natural gas to retail customers and the transportation of customer-owned gas in four service areas in southeastern, east central, western and northern Wisconsin. Steam operations engage in the production, distribution and sale of steam to space heating and processing customers in the Milwaukee area. The reportable non-utility segment derives its revenues from energy activities including independent power production and energy marketing, services and trading. The following table summarizes the reportable operating segments of Wisconsin Energy.
Energy ------------------------------ Wisconsin Energy Utility Non-Utility Subtotal Other (a) Total ---------------- ------- ----------- -------- --------- ----- (Thousands of Dollars) Three Months Ended June 30, 1999 Operating Revenues $477,899 $55,750 $533,649 $5,359 $539,008 Pretax Operating Income (Loss) (b) 94,669 8,305 102,974 (943) 102,031 Six Months Ended June 30, 1999 Operating Revenues $1,014,619 $69,789 $1,084,408 $11,317 $1,095,725 Pretax Operating Income (Loss) (b) 198,985 4,324 203,309 (962) 202,347 Segment Assets at June 30, 1999 $4,877,513 $529,009 $5,406,522 $331,568 $5,738,090 Three Months Ended June 30, 1998 Operating Revenues $464,967 $6,244 $471,211 $4,365 $475,576 Pretax Operating Income (Loss) (b) 69,169 (272) 68,897 (1,114) 67,783 Six Months Ended June 30, 1998 Operating Revenues $975,649 $7,569 $983,218 $8,035 $991,253 Pretax Operating Income (Loss) (b) 163,212 (1,441) 161,771 (1,404) 160,367 Segment Assets at June 30, 1998 $4,670,435 $105,639 $4,776,074 $268,787 $5,044,861 (a) Other includes non-utility real estate investment and development and non-utility investments in recycling technology. (b) Income tax expense, interest income and interest expense are not included in segment pretax operating income.
Wisconsin Electric, Wisconsin Energy's principal subsidiary, has organized its operating segments according to how it is currently regulated. Wisconsin Electric's reportable operating segments include electric, gas and steam utility segments. The following table summarizes the reportable operating segments of Wisconsin Electric.
Wisconsin Electric Electric Gas Steam Total ------------------ -------- --- ----- ----- (Thousands of Dollars) Three Months Ended June 30, 1999 Operating Revenues (a) $416,437 $49,496 $3,973 $469,906 Pretax Operating Income (Loss) (b) 95,034 (2,062) (209) 92,763 Six Months Ended June 30, 1999 Operating Revenues (a) $814,111 $171,479 $12,155 $997,745 Pretax Operating Income (b) 167,554 25,208 2,459 195,221 Three Months Ended June 30, 1998 Operating Revenues (a) $405,540 $52,414 $3,817 $461,771 Pretax Operating Income (Loss) (b) 72,156 (3,175) (381) 68,600 Six Months Ended June 30, 1998 Operating Revenues (a) $789,180 $171,825 $11,447 $972,452 Pretax Operating Income (b) 139,258 20,579 2,806 162,643 (a) Wisconsin Electric accounts for intersegment revenues at a tariff rate established by the Public Service Commission of Wisconsin ("PSCW"). Intersegment revenues are not material. (b) Income tax expense, interest income and interest expense are not recorded by segment to determine segment pretax operating income.
6. In March 1999, WEC Capital Trust I, a Delaware business trust of which Wisconsin Energy owns all of the outstanding common securities, issued $200 million of 6.85% trust preferred securities to the public. The sole asset of WEC Capital Trust I is $206 million of 6.85% junior subordinated debentures due March 31, 2039, issued by Wisconsin Energy. The terms and interest payments on these debentures correspond to the terms and distributions on the trust preferred securities. Wisconsin Energy used the proceeds from the sale of its junior subordinated debentures to fund a capital contribution of approximately $105 million to Wisvest-Connecticut, LLC for acquisition in mid-April 1999 of two fossil-fueled power plants from The United Illuminating Company (see Note 4 above) and for repayment of short-term borrowings. WEC Capital Trust I has been consolidated into Wisconsin Energy's financial statements. The interest payments, which are tax deductible by Wisconsin Energy, are reflected as distributions on preferred securities of the subsidiary trust in Wisconsin Energy's Consolidated Condensed Income Statement. Wisconsin Energy may elect to defer interest payments on the debentures for up to 20 consecutive quarters, causing corresponding distributions on the trust preferred securities to also be deferred. In case of a deferral, interest and distributions will continue to accrue, along with quarterly compounding interest on the deferred amounts. Wisconsin Energy may redeem all or a portion of the debentures after March 25, 2004, requiring an equal amount of trust preferred securities to be redeemed at face value plus accrued and unpaid distributions. Wisconsin Energy has entered into a limited guarantee of payment of distributions, redemption payments and payments in liquidation with respect to the trust preferred securities. This guarantee, when considered together with Wisconsin Energy's obligations under the related debentures and indenture and the applicable declaration of trust, provide a full and unconditional guarantee by Wisconsin Energy of amounts due on the outstanding trust preferred securities. 7. In July 1999, a jury decided against Wisconsin Electric and awarded the plaintiffs $4.5 million as actual damages and $100 million in punitive damages in a lawsuit alleging that Wisconsin Electric had placed contaminated wastes at two sites in the City of West Allis, Wisconsin. Wisconsin Electric is preparing to file post trial motions in August 1999 on the grounds that the jury verdict is not supported by the evidence or the law and that the award of punitive damages was unwarranted and, in the opinion of management based in part on the advice of legal counsel, should be reversed. As such, Wisconsin Electric has recorded no reserve for potential damages from this suit. Post trial motions are scheduled to be heard in October 1999. For further information, see Item 1. Legal Proceedings - "Environmental Matters" in Part II of this report. 8. On June 27, 1999, Wisconsin Energy and WICOR, Inc., a Wisconsin corporation ("WICOR"), entered into an Agreement and Plan of Merger providing for a strategic business combination of Wisconsin Energy and WICOR. The transaction is intended to qualify as a tax-free reorganization to the extent that shares of Wisconsin Energy Common Stock are issued in the merger and will be accounted for as a purchase transaction. The merger agreement has been approved by the boards of directors of Wisconsin Energy and WICOR. Consummation of the merger is subject to the satisfaction of certain closing conditions including approval by the shareholders of Wisconsin Energy and WICOR and by federal and state regulators. The regulatory approval process is expected to be completed in time for the transaction to be consummated by the Spring of 2000. Under the terms of the merger agreement, Wisconsin Energy will acquire all of the outstanding shares of WICOR Common Stock for a fixed price of $31.50 for each WICOR share. At least 40% of the price will be paid in Wisconsin Energy Common Stock, and Wisconsin Energy has the option to increase the percentage to 60%; the balance will be paid in cash. The exchange ratio for the Wisconsin Energy Common Stock will be set based upon the average closing prices of Wisconsin Energy stock immediately prior to closing. If the average is less than $22.00 per share, Wisconsin Energy may elect to pay all cash. Each WICOR shareholder will be able to elect to receive cash, stock, or a combination thereof, subject to proration. For additional information, see Item 5. Other Information - "Merger Agreement With WICOR, Inc." in Part II of this report. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Wisconsin Energy Corporation is a holding company whose principal subsidiary is Wisconsin Electric Power Company, 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. During the first six months of 1999, approximately 91% of Wisconsin Energy's consolidated operating revenues and 96% of Wisconsin Energy's consolidated pretax operating income were attributable to Wisconsin Electric. As of June 30, 1999, approximately 83% 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. See Note 2 above in Item 1. Financial Statements - "Notes to Financial Statements" for information concerning the reclassification of certain amounts in Wisconsin Energy's prior year financial statements to the current year presentation of non-utility operations. CAUTIONARY FACTORS: A number of forward-looking statements are included in this document. When used, the terms "anticipate," "believe," "estimate," "expect," "objective," "plan," "possible," "potential," "project" and similar expressions are intended to identify forward-looking statements. Forward- looking statements are subject to certain risks, uncertainties and assumptions which could cause actual results to differ materially from those that are described, including the factors that are noted in "Factors Affecting Results of Operations" and "Cautionary Factors" below. ACQUISITION OF ESELCO, INC.: Effective May 31, 1998, Wisconsin Energy acquired ESELCO in a tax-free reorganization accounted for as a pooling of interests. Due to the immaterial nature of the transaction, Wisconsin Energy has not restated any historical financial or statistical information. For additional information, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations" in Part II of Wisconsin Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 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 as well as financial or statistical information of Wisconsin Energy include Edison Sault's operations since June 1, 1998. RESULTS OF OPERATIONS - 1999 SECOND QUARTER EARNINGS During the second quarter of 1999, Wisconsin Energy's consolidated net income and earnings per share of common stock were $49 million and $0.42, respectively, compared to $29 million and $0.25, respectively, during the second quarter of 1998. For the same periods, Wisconsin Electric's earnings increased to $48 million during 1999 compared to $31 million during 1998. A summary of contributions to Wisconsin Energy's earnings per share (basic and diluted) as well as a review of operating results during the comparative periods by the utility and non-utility business segments follows. Three Months Ended June 30 -------------------------- Earnings Per Share - Wisconsin Energy 1999 1998 % Change ------------------------------------- ---- ---- -------- Utility Operations $0.421 $0.275 53.1% Non-Utility Operations Energy 0.022 (0.008) 375.0% Other (0.024) (0.013) (84.6%) ------- ------- Total $0.419 $0.254 65.0% ======= ======= UTILITY OPERATING RESULTS During the second quarter of 1999, Wisconsin Energy's pretax utility operating income increased $26 million or 36.9% and Wisconsin Electric's pretax operating income increased $24 million or 35.2%. An increase in electric utility gross margin as well as lower other operation and maintenance expenses contributed in large part to these increases compared to the second quarter of 1998. Electric Utility Revenues, Gross Margins and Sales WISCONSIN ENERGY: Primarily due to an increase in total electric kilowatt-hour sales, total electric operating revenues increased by $16 million or 3.8% during the second quarter of 1999 compared to the second quarter of 1998. The gross margin on electric operating revenues (electric operating revenues less fuel and purchased power expenses) increased by $21 million or 7.1%. The following table summarizes Wisconsin Energy's total electric operating revenues, gross margin and electric kilowatt-hour sales during the second quarters of 1999 and 1998.
Three Months Ended June 30 -------------------------- Electric Utility Operations-Wisconsin Energy 1999 1998 % Change ---------------------------------------------- ---- ---- -------- Electric Gross Margin ($000) Electric Operating Revenues $424,395 $408,737 3.8% Fuel & Purchased Power 112,453 117,456 (4.3%) -------- -------- Gross Margin $311,942 $291,281 7.1% ======== ======== Total Electric Sales (Megawatt-hours) 7,786,654 7,213,018 8.0% The following discussion reflects Wisconsin Electric's contribution to Wisconsin Energy's second quarter electric utility revenues, gross margin and sales. WISCONSIN ELECTRIC: Wisconsin Electric's total electric operating revenues increased by $11 million or 2.7% during the second quarter of 1999 compared to the second quarter of 1998, and the gross margin on electric operating revenues increased by $18 million or 6.1%. Wisconsin Electric attributes these increases to lower fuel and purchased power expenses and to an increase in total electric kilowatt-hour sales during the second quarter of 1999.
Three Months Ended June 30 -------------------------- Electric Utility Operations-Wisconsin Electric 1999 1998 % Change ---- ---- -------- Electric Gross Margin ($000) Electric Operating Revenues $416,437 $405,540 2.7% Fuel & Purchased Power 109,269 116,000 (5.8%) -------- -------- Gross Margin $307,168 $289,540 6.1% ======== ========
As a result of higher availability of low cost generation during the second quarter of 1999, especially at its Point Beach Nuclear Plant, Wisconsin Electric reduced its total fuel and purchased power expenses by $7 million or 5.8% compared to the second quarter of 1998. Even with higher electric sales noted below and a 12% increase in net generation, Wisconsin Electric was able to substitute lower cost per unit generation during the three months ended June 30, 1999 for the higher cost per unit generation and power purchases used to meet its demand for electric energy during the three months ended June 30, 1998. During the second quarter of 1999, Wisconsin Electric reduced its fuel costs by 6.1%, its megawatt-hours of power purchases by 23.4% and its purchased power expenses by 5.1% compared to the same period during 1998. Wisconsin Electric's total electric sales increased 6.9% between the comparative periods.
Three Months Ended June 30 -------------------------- Electric Utility Operations - Wisconsin Electric 1999 1998 % Change ------------------------------------------------ ---- ---- -------- Electric Sales (Megawatt-hours) Residential 1,716,795 1,666,559 3.0% Small Commercial/Industrial 1,957,467 1,898,768 3.1% Large Commercial/Industrial 2,945,578 2,825,904 4.2% Other-Retail/Municipal 313,631 324,390 (3.3%) Resale-Utilities 704,485 432,002 63.1% --------- --------- Total Electric Sales 7,637,956 7,147,623 6.9% ========= =========
Electric energy sales to the Empire and Tilden ore mines, Wisconsin Electric's two largest electric retail customers, increased 12.6% during the second quarter of 1999 compared to the second quarter of 1998. Excluding the Empire and Tilden ore mines, total electric sales increased 6.4% and sales to the remaining large commercial/industrial customers increased 2.0%. Sales for resale to other utilities increased 63.1% primarily due to higher opportunity sales during the second quarter of 1999. Gas Utility Revenues, Gross Margins and Sales Due to an increase in higher margin residential gas sales during the second quarter of 1999, Wisconsin Electric's gross margin on gas operating revenues (gas operating revenues less cost of gas sold) increased by $0.4 million or 2.1% compared to the second quarter of 1998. Three Months Ended June 30 ----------------------------- Gas Utility Operations-Wisconsin Electric 1999 1998 % Change ------------------------------------------ ---- ---- -------- Gas Gross Margin ($000) Gas Operating Revenues $49,496 $52,414 (5.6%) Cost of Gas Sold 27,746 31,105 (10.8%) ------- ------- Gross Margin $21,750 $21,309 2.1% ======= ======= Despite an increase in total gas sales, the cost of gas sold decreased by $3 million or 10.8% during the second quarter of 1999 due to a decrease in the per unit cost of purchased gas. Because changes in the cost of natural gas purchased at market prices are included in customer rates through the purchased gas adjustment mechanism, gas operating revenues change at the same rate as the cost of gas sold and gross margin is unaffected by such changes. The following table summarizes Wisconsin Electric's comparative gas sales and total therm deliveries during the three months ended June 30, 1999 and 1998. Three Months Ended June 30 ----------------------------- Gas Utility Operations-Wisconsin Electric 1999 1998 % Change - ------------------------------------------- ---- ---- -------- Gas Deliveries (000's of Therms) Residential 43,707 38,331 14.0% Commercial/Industrial 26,583 28,634 (7.2%) Interruptible 3,882 4,798 (19.1%) ------- ------- Total Gas Sales 74,172 71,763 3.4% Transported Customer Owned Gas 75,561 82,991 (9.0%) Other-Interdepartmental 17,482 26,662 (34.4%) ------- ------- Total Gas Deliveries 167,215 181,416 (7.8%) ======= ======= Between the comparative periods, total natural gas therm deliveries decreased 7.8% due to a significant decrease in deliveries of transported customer owned gas and in interdepartmental deliveries. However, total retail gas sales increased 3.4% during the second quarter of 1999 as a result of a 14.0% increase in higher margin sales to residential customers. Residential sales increased due to a combination of an increase in the number of residential customers and an increase in sales per residential customer. During the second quarter of 1999, a 28.1% decrease in therm deliveries to the Whitewater Cogeneration Facility, owned by an unaffiliated independent power producer, contributed to much of the 9.0% decrease in transported customer owned gas deliveries. The Whitewater Cogeneration Facility, a gas-fired electric cogeneration plant, 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. Also during the second three months of 1999, total interdepartmental therm deliveries decreased 34.4%. Most interdepartmental therm deliveries are to company-owned, gas-fired generating facilities. As noted above, higher availability of company-owned, low cost generation during the second quarter of 1999, especially at Point Beach Nuclear Plant, allowed Wisconsin Electric to change its power supply mix during the second quarter of 1999 away from higher cost per unit power purchases from the Whitewater Cogeneration Facility and away from higher cost per unit company-owned, gas-fired generating facilities. Excluding deliveries to the Whitewater Cogeneration Facility as well as total interdepartmental therm deliveries, total gas deliveries increased 0.6% during the three months ended June 30, 1999 compared to the same period in 1998. Weather was not a factor between the comparative periods. As measured by heating degree days, the second quarter of 1999 was only 0.1% colder than the second quarter of 1998. However the second quarters of 1999 and 1998 were both significantly warmer than normal. Utility Operating Expenses OTHER OPERATIONS AND MAINTENANCE: Compared to the second quarter of 1998, other operation and maintenance expenses in Wisconsin Energy's utility business segment decreased by $10 million or 6.0% during the second quarter of 1999, including an $11 million or 6.5% decrease at Wisconsin Electric. At Wisconsin Electric, nuclear non-fuel expenses decreased $21 million while administrative and general expenses increased $7 million and steam power generation expenses increased $2 million. Administrative and general expenses increased during 1999 primarily as a result of efforts to prepare for Year 2000 technology issues, various other corporate technology improvement efforts, and increased staffing. For further information, see "Year 2000 Technology Issues" below in "Factors Affecting Results of Operations." Steam power generation expenses increased during 1999 as a result of an increase in the number of maintenance outages at Wisconsin Electric's fossil-fuel power plants in anticipation of higher electric demand during the summer of 1999. DEPRECIATION AND AMORTIZATION: As a result of an increase in decommissioning expenses at Wisconsin Electric due to higher decommissioning trust fund earnings during the second quarter of 1999, Wisconsin Energy's utility depreciation and amortization expense increased by $4 million or 6.6% and Wisconsin Electric's depreciation and amortization increased by $3 million or 5.6% compared to the second quarter of 1998. NON-UTILITY OPERATING RESULTS Primarily due to the mid-April 1999 acquisition of two fossil-fueled power plants in the State of Connecticut by Wisvest-Connecticut, LLC, Wisconsin Energy's pretax non-utility operating income increased by $9 million or 631.2% during the second quarter of 1999 compared to the second quarter of 1998. Three Months Ended June 30 ------------------------------- Non-Utility Operations ($000) 1999 1998 % Change ----------------------------- ---- ---- -------- Operating Revenues Independent Power Production $36,097 $ - - Energy Marketing, Trading & Services 16,776 4,100 309.2% Other 8,236 6,509 26.5% ------- ------- Total Operating Revenues 61,109 10,609 476.0% Operating Expenses Fuel and Purchased Power 34,797 4,214 725.7% Other 18,950 7,781 143.5% ------- ------- Total Operating Expenses 53,747 11,995 348.1% ------- ------- Pretax Operating Income $7,362 ($1,386) 631.2% ======= ======= For further information concerning Wisvest-Connecticut, LLC's recent power plant acquisitions, see Item 1. Financial Statements - "Notes To Financial Statements" in Part I of this report. OPERATING REVENUES: Following their acquisition, operation of the Wisvest- Connecticut, LLC power plants resulted in $36 million of operating revenues during the second quarter of 1999 through the sale of 960,000 megawatt-hours of net generation to customers in the New England region. Increased activity during the second quarter of 1999 by Griffin Energy Marketing LLC, another wholly owned subsidiary of Wisvest Corporation ("Griffin"), contributed to a $13 million increase in operating revenues for energy marketing, trading and services compared to the second quarter of 1998. OPERATING EXPENSES: Fuel and purchased power expenses increased $31 million during the second quarter of 1999 as a result of electric generation at Wisvest- Connecticut, LLC's newly acquired power plants and increased activities by Griffin. Other operating expenses increased $11 million primarily as a result of operation of Wisvest-Connecticut, LLC's plants since mid-April 1999. OTHER ITEMS OTHER INCOME AND DEDUCTIONS: Due to the gain on the sale of certain properties at Wisconsin Electric, Wisconsin Energy's and Wisconsin Electric's other net other income and deductions increased by $3 million during the second quarter of 1999 compared to the second quarter of 1998. INTEREST CHARGES AND OTHER: Wisconsin Energy's interest expense increased by $5 million between the comparative periods of which $3 million is related to the acquisition of the Wisvest-Connecticut, LLC power plants in mid-April 1999. INCOME TAXES: Compared to the second quarter of 1999, Wisconsin Energy's income taxes increased $12 million primarily due to increased pretax income at Wisconsin Electric during the second quarter of 1999. RESULTS OF OPERATIONS - 1999 YEAR-TO-DATE EARNINGS During the first half of 1999, Wisconsin Energy's consolidated net income and earnings per share of common stock were $102 million and $0.88, respectively, compared to $78 million and $0.69, respectively, during the first half of 1998. For the same periods, Wisconsin Electric's earnings increased to $104 million during 1999 compared to $81 million during 1998. A summary of contributions to Wisconsin Energy's earnings per share (basic and diluted) as well as a review of operating results during the comparative periods by the utility and non-utility business segments follows. Six Months Ended June 30 ---------------------------- Earnings Per Share - Wisconsin Energy 1999 1998 % Change ------------------------------------- ---- ---- -------- Utility Operations $0.909 $0.718 26.6% Non-Utility Operations Energy (0.005) (0.017) 70.6% Other (0.023) (0.013) (76.9%) ------- ------- Total $0.881 $0.688 28.1% ======= ======= UTILITY OPERATING RESULTS During the first half of 1999, Wisconsin Energy's pretax utility operating income increased $36 million or 21.9% and Wisconsin Electric's pretax operating income increased $33 million or 20.0%. An increase in electric and gas utility gross margins contributed in large part to these increases compared to the first half of 1998. Electric Utility Revenues, Gross Margins and Sales WISCONSIN ENERGY: Primarily due to an increase in total 1999 electric kilowatt-hour sales and, to a lesser extent, to a Wisconsin Electric retail electric increase effective May 1, 1998 in the Wisconsin jurisdiction, total electric operating revenues increased by $39 million or 4.9% during the first half of 1999 compared to the first half of 1998. The gross margin on electric operating revenues (electric operating revenues less fuel and purchased power expenses) increased by $48 million or 8.6%. The following table summarizes Wisconsin Energy's total electric operating revenues, gross margin and electric kilowatt-hour sales during the first halves of 1999 and 1998. Six Months Ended June 30 ------------------------------- Electric Utility Operations - Wisconsin Energy 1999 1998 % Change - ---------------------------------------------- ---- ---- -------- Electric Gross Margin ($000) Electric Operating Revenues $830,950 $792,376 4.9% Fuel & Purchased Power 218,173 227,948 (4.3%) -------- -------- Gross Margin $612,777 $564,428 8.6% ======== ======== Total Electric Sales (Megawatt-hours) 15,179,859 14,170,452 7.1% The following discussion reflects Wisconsin Electric's contribution to Wisconsin Energy's first half electric utility revenues, gross margin and sales. WISCONSIN ELECTRIC: Compared to the first half of 1998, Wisconsin Electric's total electric operating revenues increased by $25 million or 3.2% during the first half of 1999 and the gross margin on electric operating revenues increased by $40 million or 7.2%. Wisconsin Electric attributes these increases to lower fuel and purchased power expenses, to an increase in total electric kilowatt- hour sales during the first half of 1999 and, to a lesser extent, to a retail electric increase, effective May 1, 1998 in the Wisconsin jurisdiction. Six Months Ended June 30 --------------------------- Electric Utility Operations - Wisconsin Electric 1999 1998 % Change ----------------------------------------------- ---- ---- -------- Electric Gross Margin ($000) Electric Operating Revenues $814,111 $789,180 3.2% Fuel & Purchased Power 211,057 226,492 (6.8%) -------- -------- Gross Margin $603,054 $562,688 7.2% ======== ======== As a result of the higher availability of lower cost generation during the first half of 1999 noted above, especially at its Point Beach Nuclear Plant, Wisconsin Electric reduced its total fuel and purchased power expenses by $15 million or 6.8% compared to the first half of 1998. Even with the higher electric sales noted below and a 12% increase in net generation, Wisconsin Electric was able to substitute lower cost per unit generation during the six months ended June 30, 1999 for the higher cost per unit generation and power purchases used to meet its demand for electric energy during the six months ended June 30, 1998. During the first half of 1999, Wisconsin Electric reduced its fuel costs by 5.2%, its megawatt-hours of power purchases by 23.7% and its purchased power expenses by 10.2% compared to the same period during 1998. Wisconsin Electric's total electric sales increased 5.4% between the comparative periods.
Six Months Ended June 30 ------------------------ Electric Utility Operations - Wisconsin Electric 1999 1998 % Change - ------------------------------------------------ ---- ---- -------- Electric Sales (Megawatt-hours) Residential 3,509,047 3,475,279 1.0% Small Commercial/Industrial 3,905,902 3,744,137 4.3% Large Commercial/Industrial 5,706,218 5,515,395 3.5% Other-Retail/Municipal 622,871 651,112 (4.3%) Resale-Utilities 1,119,984 719,134 55.7% ---------- ---------- Total Electric Sales 14,864,022 14,105,057 5.4% ========== ==========
Electric energy sales to the Empire and Tilden ore mines increased 10.3% during the first half of 1999 compared to the first half of 1998. Excluding the Empire and Tilden ore mines, total electric sales increased 4.9% and sales to the remaining large commercial/industrial customers increased 1.7%. Sales for resale to other utilities increased 55.7% primarily due to higher opportunity sales during the first half of 1999. Gas Utility Revenues, Gross Margins and Sales Due to an increase in higher margin gas sales during the first half of 1999, Wisconsin Electric's gross margin on gas operating revenues (gas operating revenues less cost of gas sold) increased by $6 million or 9.4% compared to the first half of 1998. Six Months Ended June 30 ---------------------------- Gas Utility Operations - Wisconsin Electric 1999 1998 % Change ------------------------------------------- ---- ---- -------- Gas Gross Margin ($000) Gas Operating Revenues $171,479 $171,825 (0.2%) Cost of Gas Sold 96,606 103,406 (6.6%) -------- -------- Gross Margin $ 74,873 $ 68,419 9.4% ======== ======== Despite an increase in total gas sales, the cost of gas sold decreased by $7 million or 6.6% during the first half of 1999 due to a decrease in the per unit cost of purchased gas. Because changes in the cost of natural gas purchased at market prices are included in customer rates through the purchased gas adjustment mechanism, gas operating revenues change at the same rate as the cost of gas sold and gross margin is unaffected by such changes. The following table summarizes Wisconsin Electric's comparative gas sales and total therm deliveries during the six months ended June 30, 1999 and 1998. Six Months Ended June 30 ------------------------ Gas Utility Operations - Wisconsin Electric 1999 1998 % Change - ------------------------------------------ ---- ---- -------- Gas Deliveries (000's of Therms) Residential 195,441 172,160 13.5% Commercial/Industrial 120,816 112,449 7.4% Interruptible 10,495 12,509 (16.1%) ------- ------- Total Gas Sales 326,752 297,118 10.0% Transported Customer Owned Gas 183,761 182,187 0.9% Other - Interdepartmental 21,968 35,154 (37.5%) ------- ------- Total Gas Deliveries 532,481 514,459 3.5% ======= ======= Compared to the same period in 1998, total natural gas therm deliveries increased 3.5% during the first half of 1999 due in part to colder winter weather. As measured by heating degree days, the winter months of January through March 1999 were 10.8% colder than the same period in 1998. However, the winter months of 1999 were still 4.1% warmer than normal. Increased therm deliveries during the first half of 1999 were primarily to residential and commercial customers, who are more sensitive to weather variations and who contribute higher margins to earnings than other customer classes. During the first half of 1999, therm deliveries to the Whitewater Cogeneration Facility, owned by an unaffiliated independent power producer, decreased 3.4% compared to the first half of 1998. Also during the first six months of 1999, total interdepartmental therm deliveries decreased 37.5%. As noted above, higher availability of company-owned low cost generation during the first half of 1999 allowed Wisconsin Electric to change its power supply mix during the first half of 1999 away from higher cost per unit power purchases from the Whitewater Cogeneration Facility and away from higher cost per unit company- owned, gas-fired generating facilities. Excluding deliveries to the Whitewater Cogeneration Facility as well as total interdepartmental therm deliveries, total gas deliveries increased 7.4% during the six months ended June 30, 1999 compared to the same period in 1998. Utility Operating Expenses OTHER OPERATIONS AND MAINTENANCE: Compared to the first half of 1998, other operation and maintenance expenses in Wisconsin Energy's utility business segment increased by $9 million or 2.7% during the first half of 1999, including a $6 million or 1.9% increase at Wisconsin Electric. At Wisconsin Electric, nuclear non-fuel expenses decreased $17 million while administrative and general expenses increased $16 million and steam power generation expenses increased $4 million. Administrative and general expenses increased during 1999 primarily as a result of efforts to prepare for Year 2000 technology issues, various other corporate technology improvement efforts, and increased staffing. For further information, see "Year 2000 Technology Issues" below in "Factors Affecting Results of Operations." Steam power generation expenses increased during 1999 as a result of an increase in the number of maintenance outages at Wisconsin Electric's fossil-fuel power plants in anticipation of higher electric demand during the summer of 1999. DEPRECIATION AND AMORTIZATION: As a result of an increase in amortizable software during 1999 at Wisconsin Electric, partially offset by a decrease in decommissioning expenses at Wisconsin Electric due to lower decommissioning trust fund earnings during the first half of 1999, depreciation and amortization expense in Wisconsin Energy's utility business segment increased by $7 million or 5.6% and Wisconsin Electric's depreciation and amortization increased by $5 million or 4.5% compared to the first half of 1998. NON-UTILITY OPERATING RESULTS Primarily due to the mid-April 1999 acquisition of the two fossil-fueled power plants in the State of Connecticut by Wisvest-Connecticut, LLC noted above, Wisconsin Energy's pretax non-utility operating income increased by $6 million or 218.2% during the first six months of 1999 compared to the first six months of 1998. Six Months Ended June 30 ------------------------ Non-Utility Operations ($000) 1999 1998 % Change ----------------------------- ---- ---- -------- Operating Revenues Independent Power Production $36,097 $ - - Energy Marketing, Trading & Services 30,782 5,317 478.9% Other 14,227 10,287 38.3% ------- ------- Total Operating Revenues 81,106 15,604 419.8% Operating Expenses Fuel and Purchased Power 49,472 5,444 808.7% Other 28,272 13,005 117.4% ------- ------- Total Operating Expenses 77,744 18,449 321.4% ------- ------- Pretax Operating Income $ 3,362 ($2,845) 218.2% ======= ======= OPERATING REVENUES: Following their acquisition, operation of the Wisvest- Connecticut, LLC power plants resulted in $36 million of operating revenues during the first half of 1999 through the sale of 960,000 megawatt-hours of net generation to customers in the New England region. Increased activity during the first half of 1999 by Griffin contributed to a $25 million increase in operating revenues for energy marketing, trading and services compared to the first half of 1998. OPERATING EXPENSES: Fuel and purchased power expenses increased $44 million during the first half of 1999 as a result of electric generation at Wisvest- Connecticut, LLC's newly acquired power plants and increased activities by Griffin. Other operating expenses increased $15 million primarily as a result of operation of Wisvest-Connecticut, LLC's plants since mid-April 1999. OTHER ITEMS OTHER INCOME AND DEDUCTIONS: Due to the gain on the sale of certain properties at Wisconsin Electric, Wisconsin Energy's and Wisconsin Electric's other net other income and deductions increased by $3 million during the first half of 1999 compared to the first half of 1998. INTEREST CHARGES AND OTHER: Wisconsin Energy's interest expense increased by $7 million between the comparative periods, of which $3 million was related to the acquisition of the Wisvest-Connecticut, LLC power plants in mid-April 1999. INCOME TAXES: Compared to the first half of 1999, Wisconsin Energy's income taxes increased $14 million primarily due to increased pretax income at Wisconsin Electric during the first half of 1999. FACTORS AFFECTING RESULTS OF OPERATIONS ETSM PROPERTY / CITY OF WEST ALLIS LAWSUITS See Item 1. Legal Proceedings - "Environmental Matters" below in Part II of this report for information concerning a July 1999 jury verdict against Wisconsin Electric awarding the plaintiffs $4.5 million of actual damages and $100 million in punitive damages in a lawsuit alleging that Wisconsin Electric had placed contaminated wastes at two sites in the City of West Allis, Wisconsin. INDUSTRY RESTRUCTURING AND COMPETITION MPSC ELECTRIC RESTRUCTURING: In 1998, the Michigan Public Service Commission ("MPSC") continued to move toward implementation of direct access for retail markets beginning on January 1, 2002. In February 1998, the MPSC issued an order clarifying restructuring issues and directing Detroit Edison and Consumers Energy, the two largest utilities in the State of Michigan, to file tariff sheets and draft implementation plans for direct access. Following company submittals in late February 1998, the MPSC staff held several public meetings to discuss the plans with stakeholders. In June 1998, the two companies filed revised implementation plans reflecting some of the issues raised during the meetings. In June 1999, the Michigan Supreme Court ruled that the MPSC did not have the authority to mandate direct access plans. Detroit Edison and Consumers Energy have since indicated their willingness to proceed on a voluntary basis with commencement of a phase-in of direct access in late 1999 that will result in full access by January 1, 2002. Following meetings with the MPSC staff and the opening of dockets to begin the process of electric restructuring for smaller Michigan utilities, these smaller utilities, including Wisconsin Electric and Edison Sault, filed proposals with the MPSC for implementing retail direct access on January 1, 2002 without a phase-in program. On February 2, 1999, the MPSC issued an order closing the above dockets, citing the progress made to date. Issues requiring further resolution will be the subject of future dockets for the smaller companies. Following the Michigan Supreme Court decision noted above, the MPSC requested that the smaller Michigan utilities provide comments in August 1999 on the court decision and on implementation of direct access programs. The MPSC is expected to address access programs for smaller utilities in late 1999. RATES AND REGULATORY MATTERS See Item 1. Legal Proceedings -"Rates and Regulatory Matters" in Part II of this report for information concerning 1999 test year information for Wisconsin Electric that was filed with the PSCW in July 1999 and for information concerning the non-utility asset cap to which Wisconsin Energy is subject under provisions of the State of Wisconsin's public utility holding company law. YEAR 2000 TECHNOLOGY ISSUES 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. YEAR 2000 PROJECT: During 1997, the Company created Year 2000 program teams, overseen by executives of the Company, to address its Year 2000 issues. The teams, comprised of representatives with subject matter expertise, are addressing business applications, voice and data infrastructure, process control and embedded systems, and supplier readiness. The Year 2000 teams are following a structured process of inventorying and assessing potential Year 2000 problems, of remediating, testing, and certifying Year 2000 readiness and of developing and implementing Year 2000 risk management contingency plans. Although additional systems or processes may be identified as the program winds down, the Company has substantially completed an inventory of potential Year 2000 problems across all operating areas and completed its assessment of critical areas in the fourth quarter of 1998. The remediation and testing phases are currently in progress and contacts with critical third party suppliers are ongoing. Based upon an initial assessment of critical supplier Year 2000 readiness that was completed in the third quarter of 1998, the Company is continuing to implement supplier risk mitigation actions. Contact with significant customers to evaluate the potential impact of their Year 2000 actions on Wisconsin Energy will continue throughout 1999. The Company has structured its Year 2000 program to identify, prioritize, and address critical business functions within the Company. With the exception of those projects that are dependent upon activities such as vendor delivery of upgrades or scheduled power plant maintenance outages later in 1999, the Company's core, critical business functions are "Year 2000 Ready." However, additional refinements and testing will continue through the end of 1999. Based upon the Nuclear Energy Institute's standard definition, which has been adopted by Wisconsin Energy, "Year 2000 Ready" systems or applications will be suitable for continued use into the Year 2000 even though the system or application may not be fully "Year 2000 Compliant." Wisconsin Electric participates in monthly reporting conducted by the North American Electric Reliability Council ("NERC"). As of June 30, 1999, Wisconsin Electric reported to NERC the readiness of those critical systems needed to support the generation, transmission and distribution of electricity with minor exceptions consisting of previously tested upgrades scheduled for implementation during fall maintenance activities. POTENTIAL RISKS AND CONTINGENCY PLANNING: The Company is continuing an ongoing process of assessing potential Year 2000 risks and uncertainties. Internal and external risks are included in the Company's assessment and identification of mitigation strategies. Wisconsin Energy expects to successfully mitigate its controllable internal Year 2000 problems. For its core operation, Wisconsin Energy also relies upon third parties such as other power providers to and operators of the integrated electric transmission and distribution grid, fuel suppliers, producers of natural gas and suppliers of interstate natural gas transportation services, and providers of external infrastructure such as telecommunications, municipal sewer and water as well as emergency services. Failure of these critical third parties to identify and remediate their Year 2000 problems could have a material impact on the Company's operation and financial condition. The Company's Year 2000 program is structured to identify, assess and mitigate these third party risks where possible. At this time, Wisconsin Energy believes that mitigation efforts will be successful. As part of its normal business practice, the Company maintains and periodically initiates various contingency plans to maintain and restore its energy services during emergency circumstances, some of which could arise from Year 2000 related problems. During 1999, Wisconsin Energy is using this experience as a basis for the development and implementation of Year 2000 related contingency and business continuity plans. As part of this effort, the Company is coordinating its Year 2000 readiness program with various trade associations and industry groups and is working with the Mid-America Interconnected Network, Inc. ("MAIN"), NERC, the Wisconsin Reliability Assessment Organization and the New England Pool ("NEPOOL") to develop and implement regional electric reliability contingency plans. Wisconsin Electric is participating with other utilities in MAIN to develop reasonably likely worst case scenarios for the region. Scenarios that have been jointly identified and assessed are: * Loss or unavailability of some generation. * Partial loss of system monitoring and control functions, including data communication. * Partial loss of voice communications. * Loss of transmission facilities. * Loss of load and/or uncharacteristic loads. Wisconsin Electric agrees with MAIN's assessment that the probability of these scenarios occurring due to Year 2000 is not significantly in excess of normal expectations. The Company's current operating and contingency plans are expected to adequately handle the above scenarios. The Company is reviewing its operating and contingency plans to identify further enhancements or updates specifically addressing Year 2000 issues. FINANCIAL IMPLICATIONS: Wisconsin Energy currently estimates that it will incur $40 million of expenses during 1998 through 2000 for its Year 2000 program of which $26 million has been incurred as of June 30, 1999. In addition, the Company expects to capitalize costs of approximately $18 million to replace certain existing infrastructure and process control systems of which $16 million has been capitalized as of June 30, 1999. For additional information concerning Year 2000 Technology Issues, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations" in Part II of Wisconsin Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 1998 and Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations in Part I of Wisconsin Energy's and Wisconsin Electric's combined quarterly Report on Form 10-Q for the period ended March 31, 1999. The discussion above includes many forward looking statements concerning potential schedules, plans, costs, risks and uncertainties facing Wisconsin Energy as a result of the Year 2000 problem. Based upon its activities to date, the Company expects to successfully implement the remaining actions necessary to become "Year 2000 Ready" by the end of 1999. However, the Year 2000 problem has many elements and potential consequences, some of which may not be reasonably foreseeable, and there can be no assurances that every Year 2000 problem will be identified and addressed or that unforeseen consequences will not arise. Unanticipated factors while implementing the changes necessary to mitigate Year 2000 problems, including the ongoing availability and costs of trained personnel, the ability to locate and correct all relevant codes in computer and embedded systems, or the failure of critical third parties to communicate about and to mitigate their Year 2000 problems could result in unanticipated interruptions in certain core business activities or operations of Wisconsin Energy. MARKET RISKS INTEREST RATE RISK: Wisvest-Connecticut, LLC has entered into an interest rate swap agreement to exchange fixed rate payment obligations for variable rate receipt rights without exchanging the underlying notional amounts. This agreement, which expires on December 31, 2005, serves to convert variable rate debt under Wisvest-Connecticut, LLC's long-term nonrecourse notes to fixed rate debt to reduce the impact of interest rate fluctuations. The variable rate debt is based upon a three-month LIBOR rate; the fixed rated debt is 5.99%. The notional amounts parallel a portion of the underlying debt levels and are used to measure interest to be paid or received and do not represent the exposure to credit loss. The notional amount of Wisvest-Connecticut, LLC's interest rate swaps was $77.5 million at June 30, 1999. This notional amount decreases on a quarterly basis over the remaining term of the agreement. The difference between the amounts paid and received under the interest rate swap is accrued as interest rates change and is recorded as an adjustment to interest expense over the life of the hedged agreement. The fair value of the interest rate swap is the amount that Wisvest-Connecticut, LLC would receive or pay to terminate the outstanding contract at the reporting date. Wisvest-Connecticut, LLC would have received $1.2 million to terminate the contract at June 30, 1999. A 10% increase or decrease in the market value of the swap would change this amount by approximately $0.1 million. OUTLOOK EARNINGS: Results during the first half of 1999 indicate that the Company is on course to meet currently anticipated earnings in the range of $1.85 to $2.05 per share during 1999. This earnings forecast is a forward-looking statement subject to certain risks, uncertainties and assumptions. Actual results may materially vary. Factors that could cause actual results to differ materially include, but are not limited to: business and competitive conditions in the energy industry, in general, and in the Company's utility service territories; availability of the Company's generating facilities; changes in purchased power costs; and the economy, weather, the restructuring of the electric and gas utility industries, and unforeseen problems with non-utility diversification efforts. See "Cautionary Factors" below. MERGER AGREEMENT WITH WICOR, INC. On June 27, 1999, Wisconsin Energy and WICOR entered into an Agreement and Plan of Merger providing for a strategic business combination of Wisconsin Energy and WICOR. The transaction is intended to qualify as a tax-free reorganization to the extent that shares of Wisconsin Energy Common Stock are issued in the merger and will be accounted for as a purchase transaction. The merger agreement has been approved by the boards of directors of Wisconsin Energy and WICOR. Consummation of the merger is subject to the satisfaction of certain closing conditions including approval by the shareholders of Wisconsin Energy and WICOR and by federal and state regulators. The regulatory approval process is expected to be completed in time for the transaction to be consummated by the spring of 2000. For additional information, see Item 5. Other Information - "Merger Agreement With WICOR, Inc." in Part II of this report. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES: Cash provided by operating activities totaled $229 million at Wisconsin Energy and $269 million at Wisconsin Electric during the first six months of 1999. This compares to $255 million at Wisconsin Energy and $299 million at Wisconsin Electric during the same period in 1998. INVESTING ACTIVITIES: Net investing activities totaled $573 million at Wisconsin Energy and $220 million at Wisconsin Electric during the first half of 1999 compared to $175 million at Wisconsin Energy and $147 million at Wisconsin Electric during the same period in 1998. In April 1999, Wisvest-Connecticut, LLC completed the acquisition of two fossil-fueled power plants for $277 million from The United Illuminating Company. For additional information, see the "Notes To Financial Statements" above in Part I of this report. Remaining investments during the first half of 1999 included $237 million for the acquisition or construction of new or improved facilities of which $183 million was for a number of projects related to utility plant at Wisconsin Electric. During the first six months of 1999, Wisconsin Electric recorded $19 million of payments to and earnings of the Nuclear Decommissioning Trust Fund for the eventual decommissioning of Point Beach Nuclear Plant and $11 million for the acquisition of nuclear fuel. FINANCING ACTIVITIES: During the first half of 1999, Wisconsin Energy received a net of $363 million through financing activities compared to using a net of $85 million for financing activities during the first half of 1998. Wisconsin Electric used a net of $52 million for financing activities during the first six months of 1999 compared to using a net of $154 million for financing activities during the first six months of 1998. On March 25, 1999, WEC Capital Trust I, a Delaware business trust of which Wisconsin Energy owns all of the outstanding common securities, issued $200 million of 6.85% trust preferred securities due March 31, 2039. WEC Capital Trust I used the proceeds from the sale of the trust preferred securities to purchase corresponding junior subordinated debentures due March 31, 2039 from Wisconsin Energy. Wisconsin Energy used the proceeds from the sale of its junior subordinated debentures to fund a capital contribution of approximately $105 million to Wisvest-Connecticut, LLC for acquisition in mid- April 1999 of the two fossil-fueled power plants from The United Illuminating Company and for repayment of short-term borrowings. For additional information concerning the acquisition of The United Illuminating Company's electric generating plants and related financing, see the "Notes To Financial Statements" above in Part I of this report. During the six months ended June 30, 1999, Wisconsin Energy issued 1,385,878 new shares of common stock which were purchased by participants in the Company's stock plans with cash investments and reinvested dividends aggregating approximately $37 million. CAPITAL REQUIREMENTS AND RESOURCES: Capital requirements for the remainder of 1999 are expected to be principally for construction expenditures and for other investments, for long-term debt maturity and sinking fund requirements and for payments to the Nuclear Decommissioning Trust Fund for the eventual decommissioning of Point Beach Nuclear Plant. These cash requirements are expected to be met through a combination of several of the following resources: internal sources of funds from operations, short-term borrowings, the issuance of intermediate or long-term debt, the issuance of additional trust preferred securities, and proceeds from the sale of new issue common stock under Wisconsin Energy's stock plans. Wisconsin Electric plans to issue up to $150 million of debentures during the remainder of 1999. Wisconsin Energy is reviewing additional non-utility growth opportunities on an ongoing basis, primarily in the areas of power generation development and acquisitions, waste to energy recycling technologies and real estate investments. The Company may make further investments and/or acquisitions from time to time. With respect to the pending acquisition of WICOR, Inc., Wisconsin Energy plans to fund the portion of the WICOR acquisition price not paid with Wisconsin Energy Common Stock from bank borrowing arrangements or from securities to be issued in the capital markets. The amount and timing of bank borrowings and securities to be issued in the capital markets have not yet been determined. For additional information concerning the merger with WICOR, see Item 5. Other Information - "Merger Agreement with WICOR, Inc." in Part II of this report. Wisconsin Electric currently has senior secured debt ratings of AA+ by Standard & Poors Corporation ("S&P") and Duff & Phelps Inc. ("D&P"), Aa2 by Moody's Investors Service ("Moody's") and AA by Fitch Investors Service ("Fitch"). In addition, Wisconsin Electric currently has unsecured debt ratings of AA by S&P and D&P, Aa3 by Moody's and AA- by Fitch. Wisconsin Electric's preferred stock has ratings of AA- by S&P and Fitch, aa3 by Moody's and AA by D&P. Moody's has assigned a rating on Wisconsin Energy Capital Corporation's unsecured debt of A1 and S&P an AA. Wisconsin Energy's and Wisconsin Electric's commercial paper are rated A-1+ by S&P and P-1 by Moody's. D&P has rated Wisconsin Energy and Wisconsin Electric commercial paper D-1 and D-1+, respectively. The Trust Preferred securities of WEC Capital Trust I are rated A by D&P, a1 by Moody's and A+ by S&P. Following the announcement of the proposed merger with WICOR, D&P, Fitch and Moody's affirmed their previous ratings of Wisconsin Energy's and Wisconsin Electric's securities and S&P placed its ratings of certain of Wisconsin Energy's securities on credit watch with negative implications. At June 30, 1999, Wisconsin Energy had $383 million of unused lines of bank credit on a consolidated basis of which $128 million was at Wisconsin Electric. Effective with the August 1999 renewal of its commercial paper agreement, Wisconsin Energy's unused lines of bank credit totaled $433 million on a consolidated basis with $128 million attributable to Wisconsin Electric. For certain other information which may impact Wisconsin Energy's and 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. 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 the forward-looking statements. When used in written documents or oral presentations, the terms "anticipate," "believe," "estimate," "expect," "objective," "plan," "possible," "potential," "project" and similar expressions are intended to identify forward-looking statements. In addition to the assumptions and other factors referred to specifically in connection with such statements, factors that could cause Wisconsin Energy's or Wisconsin Electric's actual results to differ materially from those contemplated in any forward- looking statements include, among others, the following: OPERATING, FINANCIAL AND INDUSTRY FACTORS * Factors affecting utility operations such as unusual weather conditions; catastrophic weather-related damage; availability of Wisconsin Electric's, Edison Sault's or Wisvest-Connecticut, LLC's generating facilities; 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. * 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 rapidly changing and increasingly competitive electric and gas utility environment as market-based forces replace strict industry regulation and other competitors enter the electric and gas markets resulting in increased wholesale and retail competition. * Consolidation of the industry as a result of the combination and acquisition of utilities in the Midwest, nationally and globally. * Restrictions imposed by various financing arrangements and regulatory requirements on the ability of Wisconsin Electric or other subsidiaries to transfer funds to Wisconsin Energy in the form of cash dividends, loans or advances. * Changes in social attitudes regarding the utility and power industries. * Customer business conditions including demand for their products or services and supply of labor and material used in creating their products and services. * The cost and other effects of legal and administrative proceedings, settlements, 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. * 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 codes 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. * Possible risks associated with non-utility diversification such as competition; operating risks; dependence upon certain suppliers and customers; the cyclical nature of property values that could affect real estate investments; risks associated with international investments, including foreign currency valuations; unanticipated changes in environmental or energy regulations; timely regulatory approval without onerous conditions of potential acquisitions; risks associated with minority investments, where there is a limited ability to control the development, management or operation of the project; and the risk of higher interest costs associated with potentially reduced securities ratings by independent rating agencies as a result of these and other factors. * Legislative or regulatory restrictions or caps on non-utility acquisitions, investments or projects, including the State of Wisconsin's public utility holding company law, which could limit the Company's diversification and growth opportunities or require the Company to divest of certain existing non-utility assets. * Factors affecting foreign non-utility operations including foreign governmental actions; foreign economic and currency risks; political instability; and unanticipated changes in foreign environmental or 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. BUSINESS COMBINATION FACTORS * Consummation of the merger with WICOR, which will have a significant effect on the future operations and financial position of Wisconsin Energy. Specific factors include: * The ability to obtain the requisite approvals of shareholders. * Regulatory delays or conditions imposed by regulatory bodies in approving the merger, or adverse regulatory treatment of the merger. * Unanticipated costs or difficulties related to the integration of the businesses of Wisconsin Energy and WICOR, or unexpected difficulties or delays in realizing anticipated net cost savings or receiving regulatory authorization to retain the benefit of those savings for the shareholders of the combined company. * Legislative or regulatory restrictions or caps on non-utility acquisitions, investments or projects, including Wisconsin's public utility holding company law, which could limit Wisconsin Energy's or WICOR's diversification and growth opportunities after the merger or require Wisconsin Energy or WICOR to divest of certain existing non- utility assets. 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For discussion of an interest rate swap agreement recently entered into by Wisvest-Connecticut, LLC, see Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations" in Part I above of this report. For information concerning Wisconsin Energy's and Wisconsin Electric's other market risk exposures, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Factors Affecting Results of Operations - Market Risks" in Part II of Wisconsin Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 1998. PART II - OTHER INFORMATION --------------------------- ITEM 1. LEGAL PROCEEDINGS The following should be read in conjunction with Item 3. Legal Proceedings in Part I of Wisconsin Energy's and Wisconsin Electric's combined Annual Report on Form 10-K for the year ended December 31, 1998 and Item 1. Legal Proceedings in Part II of Wisconsin Energy's and Wisconsin Electric's combined Quarterly Report on Form 10-Q for the period ended March 31, 1999. RATES AND REGULATORY MATTERS 2000 TEST YEAR: The Public Service Commission of Wisconsin requires that rate cases be conducted once every two years. On July 6, 1999, Wisconsin Electric provided the PSCW with its biennial year-end financial information for 1999 and 2000. In that filing, Wisconsin Electric is not seeking any changes in rates for electric, natural gas or steam service. Also in that filing, Wisconsin Electric indicated that by September 1, 1999, should any rate changes be required, it will file rate changes incorporating performance-based measures and incentives as an alternative to cost of service ratemaking. NON-UTILITY ASSET CAP: Wisconsin Energy is subject to certain current restrictions which may limit diversification into non-utility activities. Under a formula included in the provisions of Wisconsin's public utility holding company law, the sum of the assets of all non-utility affiliates in a holding company system may not exceed 25% of the assets of all public utility affiliates. Wisconsin Energy reports to the PSCW regarding the net book value of its non-utility affiliates as of December 31 of each year. At December 31, 1998, the net book value of the assets of Wisconsin Energy's non-utility affiliates was approximately 12% of the net book value of all of Wisconsin Energy's electric utility affiliates. At June 30, 1999 (after acquisition of the United Illuminating generating assets by Wisvest-Connecticut, LLC), the assets of Wisconsin Energy's non-utility affiliates approximated 21% of the assets of its public utility affiliates. Wisconsin Energy is currently working with a broad-based group in an effort to modify the asset cap provisions of Wisconsin's public utility holding company law. Recently, the governor of the State of Wisconsin proposed in his budget that a voluntary state electric transmission company ("Transco") be set up by November 2000 that would be part of the Midwest Independent System Operator ("Midwest ISO"). Under the terms of the proposal, if a utility in a holding company system transferred electric transmission facilities and rights of way to the Transco and committed to certain spending levels for low-income residents and for conservation programs, non-utility entities in the same holding company system could increase certain types of energy-related assets without counting against the asset cap. Asset cap limits would continue to apply to other non- utility operations. The matter is pending in the Wisconsin State Legislature. Wisconsin Electric has indicated that it would transfer its electric transmission assets to such a Transco and is an active participant in the Midwest ISO. However, there can be no assurance that the current asset cap restrictions will be modified or that the restrictions will not affect Wisconsin Energy's future non-utility diversification activities. ENVIRONMENTAL MATTERS ETSM PROPERTY/CITY OF WEST ALLIS LAWSUIT: As previously reported, iron cyanide-bearing wastes, believed to be manufactured gas plant process wastes, were found at two sites in West Allis, Wisconsin. One site is on property formerly owned by Kearney & Trecker Corporation, which was sold to others, including Wisconsin Electric prior to the discovery of the wastes. The other is the "Greenfield Avenue" site owned by the City of West Allis. Several years ago materials were removed from the Kearney & Trecker site, with Wisconsin Electric and the other current owners paying for disposal of materials found on their respective portions of the site. On July 25, 1996, Giddings & Lewis Inc., Kearney & Trecker and the City of West Allis filed an action for damages in the Milwaukee County Circuit Court against Wisconsin Electric, alleging that Wisconsin Electric was responsible for the deposition of the material and liable to the plaintiffs. Investigations into the potential source of the waste lead Wisconsin Electric to believe that it was not the source of this waste. A trial was held and on July 14, 1999, a jury verdict was rendered against Wisconsin Electric awarding the plaintiffs $4.5 million as actual damages for clean-up costs and loss of property value. The jury further awarded the plaintiffs $100 million in punitive damages against Wisconsin Electric. Post-trial motions are scheduled to be heard in October 1999. Wisconsin Electric is preparing to file post trial motions on the grounds that the jury verdict is not supported by the evidence or the law and that the award of punitive damages was unwarranted and, in the opinion of management, based in part on the advice of legal counsel, should be reversed. As such, Wisconsin Electric has recorded no reserve for potential damages from this suit. Wisconsin Electric also intends to take all other actions available to have the verdict overturned. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS WISCONSIN ENERGY CORPORATION At Wisconsin Energy's 1999 Annual Meeting of Stockholders held on June 2, 1999, the board of directors' nominees named below were elected as directors by the indicated votes and percentages cast for 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 2002 - ------------------------------------------------ Name of Nominee For Withheld --------------- ------ -------- Richard A. Abdoo 95,750,519 (96.8%) 3,185,893 (3.2%) John F. Ahearne 96,507,689 (97.5%) 2,428,723 (2.5%) Julia B. North 96,443,857 (97.5%) 2,492,555 (2.5%) Of 116,295,956 voting shares outstanding as of the March 25, 1999 record date for the annual meeting, 98,936,412 shares (85.1% of the shares outstanding) were represented at the meeting. Further information concerning these matters, including the names of directors whose terms as a director continued after the meeting, is contained in Wisconsin Energy's Proxy Statement dated April 16, 1999 with respect to the 1999 Annual Meeting of Stockholders. WISCONSIN ELECTRIC POWER COMPANY At Wisconsin Electric's 1999 Annual Meeting of Stockholders held on May 26, 1999 for which Wisconsin Electric did not solicit proxies, ten incumbent directors, as listed in Wisconsin Electric's Information Statement dated April 22, 1999, were elected for one year terms. Each director received 33,289,327 votes (100% of votes cast). 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 Information Statement. Further information concerning these matters is contained in Wisconsin Electric's Information Statement. ITEM 5. OTHER INFORMATION MERGER AGREEMENT WITH WICOR, INC. As previously reported, on June 27, 1999, Wisconsin Energy and WICOR, Inc., a Wisconsin corporation [NYSE: WIC], entered into an Agreement and Plan of Merger providing for a strategic business combination of Wisconsin Energy and WICOR. WICOR is a diversified holding company with investments in utility and non- utility energy subsidiaries as well as in pump manufacturing subsidiaries. Following the merger, WICOR will become a wholly owned subsidiary of Wisconsin Energy. The merger agreement has been approved by the boards of directors of Wisconsin Energy and WICOR. Under the terms of the agreement, Wisconsin Energy will acquire all of the outstanding shares of WICOR Common Stock for a fixed price of $31.50 for each WICOR share. At least 40% of the price will be paid in Wisconsin Energy Common Stock, and Wisconsin Energy has the option to increase the percentage to 60%; the balance will be paid in cash. The exchange ratio for the Wisconsin Energy Common Stock will be set based upon the average closing prices of Wisconsin Energy stock immediately prior to closing. If the average is less than $22.00 per share, Wisconsin Energy may elect to pay all cash. Each WICOR shareholder will be able to elect to receive cash, stock, or a combination thereof, subject to proration. It is anticipated that Wisconsin Energy will maintain its normal quarterly dividend of $0.39 and dividend payment schedule following completion of the transaction. Both Wisconsin Energy and WICOR will maintain their current dividend policy until the close of the transaction. Following the merger, Mr. Richard A. Abdoo will continue as chairman of the board, president and CEO of Wisconsin Energy, and Mr. George E. Wardeberg, currently chairman and CEO of WICOR, will become vice chairman of the board of Wisconsin Energy. Mr. Wardeberg will continue in this position for 24 months, after which he plans to retire. Following Mr. Wardeberg's retirement, he will remain a member of Wisconsin Energy's board of directors. After closing, in addition to Mr. Wardeberg, one other member of the current WICOR board will join Wisconsin Energy's board of directors. Consummation of the merger is subject to the satisfaction of certain closing conditions including approval by the shareholders of Wisconsin Energy and WICOR, approval by the PSCW, approval by the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935, as amended, and expiration or termination of the waiting period applicable to the merger under the Hart-Scott- Rodino Antitrust Improvements Act of 1976, as amended. The regulatory approval process is expected to be completed in time for the transaction to be consummated by the Spring of 2000. Assuming timely realization of estimated cost savings and avoidances expected to result from the merger, and assuming favorable regulatory treatment, Wisconsin Energy expects the business combination to result in increased earnings per share beginning in the first full year following the merger. While no definitive synergies study has been done, net merger-related cost savings are anticipated to be approximately $35 million annually beginning in the first full year after the merger. Savings are expected from lower costs for fuel, materials and services through enhanced purchasing power, elimination of duplication through attrition, and through sharing of resources. Additional cost savings are anticipated from logical consolidation of common functions over time as well as from savings in areas such as insurance and regulatory costs and legal, audit and consulting fees. In its merger application, Wisconsin Energy has asked the PSCW to permit it to recover the portion of the acquisition premium that Wisconsin Energy will pay in the merger which is attributable to WICOR's regulated utility assets. Recovery of the acquisition premium would not require any increase in rates. Instead, Wisconsin Energy is requesting that it be allowed to retain the anticipated net cost savings that result from the merger over a period of time adequate to recover the acquisition premium it is paying to make those savings possible. On July 2, 1999, an action was filed by a shareholder of WICOR in the Circuit Court of Milwaukee County, Wisconsin against WICOR, all of the members of its board of directors, and Wisconsin Energy. The complaint alleges that the consideration to be received by WICOR shareholders in the proposed merger is inadequate and unfair to WICOR shareholders. The complaint also alleges that Wisconsin Energy aided, abetted and assisted in the alleged breaches of the fiduciary duties of the individual defendants. The complaint seeks certification as a class action on behalf of all WICOR shareholders, an injunction against proceeding with the merger, an auction or open bidding process for the sale of WICOR, and unspecified damages. On August 11, 1999, the shareholder plaintiff filed a motion requesting a preliminary injunction to enjoin a new WICOR, Inc. Shareholder Rights Plan adopted on July 27, 1999. In conjunction with the motion, the shareholder plaintiff is also seeking expedited discovery and an expeditious decision on the motion. WICOR and Wisconsin Energy believe that the complaint and the injunction request are without merit and intend to pursue a vigorous defense. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION The following unaudited pro forma combined condensed financial information for the combined company after the merger are based upon the historical consolidated financial statements of Wisconsin Energy and WICOR, combined and adjusted to give effect to the merger and related transactions (including the related financing), as described in the notes to this information. Certain amounts in the WICOR financial statements have been reclassified to conform to Wisconsin Energy's presentation. This information should be read in conjunction with the historical financial statements and related notes of Wisconsin Energy and WICOR. The allocation of the estimated cost savings from the merger, net of costs incurred to achieve such estimated cost savings, will be subject to regulatory review and approval. None of the estimated cost savings, the costs to achieve such savings, nor transaction costs (other than estimated debt issue costs) are reflected in the unaudited pro forma combined condensed income statement information. The unaudited pro forma combined condensed income statements for the year ended December 31, 1998 and for the six months ended June 30, 1999 and 1998 present the results for Wisconsin Energy and WICOR as if the merger had occurred on January 1, 1998. The unaudited pro forma combined condensed balance sheet as of June 30, 1999 gives effect to the merger as of that date. We have assumed that the merger consideration will consist of 40% stock and 60% cash and have described in the footnotes the pro forma differences that would occur should the merger consideration consist of either 60% stock and 40% cash or of 100% cash. We have also assumed (a) the exercise prior to the merger of all outstanding options to purchase WICOR Common Stock; and (b) that the exchange ratio is 1.2569 Wisconsin Energy shares per each WICOR share, which is $31.50 divided by the $25.0625 closing price of Wisconsin Energy Common Stock on June 30, 1999. The actual exchange ratio will depend upon the average closing prices of Wisconsin Energy Common Stock on the New York Stock Exchange during a valuation period consisting of the 10 trading days ending with the fifth trading day prior to the merger. Therefore, the actual exchange ratio will not be determined until shortly before the closing. The pro forma adjustments are based upon preliminary estimates, information currently available and assumptions that management believes are reasonable under the circumstances. Wisconsin Energy's actual consolidated financial statements will reflect the results of the merger on and after its effective date rather than the dates indicated above. You should not rely on the unaudited combined condensed pro forma financial data as an indication of the results of operations or financial position that would have been achieved if the merger had taken place earlier nor an indication of the results of operations or financial position of the combined company after completion of the merger. The merger will be accounted for by the purchase method and, therefore, the assets and liabilities of WICOR will be recorded at their fair values. The excess of the purchase price over the fair value of the net assets at the effective time of the merger will be recorded as goodwill. Allocations included in the pro forma information are based upon analysis which is not yet completed. Accordingly, the final allocation of the purchase price may differ, perhaps significantly, from the amounts shown in this pro forma information. WISCONSIN ENERGY CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT REFLECTING COMPLETION OF THE MERGER Six Months Ended June 30, 1999
Wisconsin Pro Forma Pro Forma Energy (a) WICOR Adjustments Combined ---------- ------ ----------- --------- (In Thousands, Except Per Share Amounts) Operating Revenues $1,095,725 $529,573 $ - $1,625,298 Operating Expenses Fuel 164,944 - - 164,944 Purchased power 102,701 - - 102,701 Cost of gas sold 96,606 159,380 - 255,986 Cost of goods sold - 178,788 - 178,788 Other operation and maintenance 360,855 103,599 500 (c) 1,757 (b) 466,711 Depreciation and amortization 131,399 18,313 8,616 (d) 4,350 (e) 162,678 Property and revenue tax 36,873 4,223 (1,757)(b) 39,339 ---------- ------- ---------- --------- Pretax Operating Income 202,347 65,270 (13,466) 254,151 Other Income and Deductions 23,434 (119) - 23,315 Interest Charges and Other (69,514) (8,173) (22,835)(f) (100,522) ---------- ------- --------- --------- Income Before Income Taxes 156,267 56,978 (36,301) 176,944 Provision (Benefit) for Income Taxes 53,853 22,120 (10,520)(g) 65,453 ---------- ------- --------- -------- Net Income $102,414 $34,858 ($25,781) $111,491 ========== ======= ========= ======== Weighted Average Common Shares 116,272 20,348 (h) 136,620 Earnings Per Share (Basic and Diluted) $0.88 $0.82 (i) See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Information.
WISCONSIN ENERGY CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT REFLECTING COMPLETION OF THE MERGER Six Months Ended June 30, 1998
Wisconsin Pro Forma Pro Forma Energy (a) WICOR Adjustments Combined ---------- ------ ------------ ---------- (In Thousands, Except Per Share Amounts) Operating Revenues $991,253 $523,206 $ - $1,514,459 Operating Expenses Fuel 154,108 - - 154,108 Purchased power 79,283 - - 79,283 Cost of gas sold 103,406 171,498 - 274,904 Cost of goods sold - 174,818 - 174,818 Other operation and maintenance 340,792 97,770 500 (c) 1,888 (b) 440,950 Depreciation and amortization 122,021 17,404 8,616 (d) 4,350 (e) 152,391 Property and revenue tax 31,276 4,827 (1,888)(b) 34,215 -------- -------- ------- ---------- Pretax Operating Income 160,367 56,889 (13,466) 203,790 Other Income and Deductions 15,824 1,666 - 17,490 Interest Charges and Other (58,964) (8,585) (22,835)(f) (90,384) -------- -------- ------- ---------- Income Before Income Taxes 117,227 49,970 (36,301) 130,896 Provision (Benefit) for Income Taxes 39,325 18,983 (10,520)(g) 47,788 -------- -------- -------- ---------- Net Income $77,902 $30,987 ($25,781) $83,108 ======== ======== ======== ======== Weighted Average Common Shares 113,279 20,348 (h) 133,627 Earnings Per Share (Basic and Diluted) $0.69 $0.62 (i) See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Information.
WISCONSIN ENERGY CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT REFLECTING COMPLETION OF THE MERGER Year Ended December 31, 1998
Wisconsin Pro Forma Pro Forma Energy (a) WICOR Adjustments Combined --------- ------ ----------- --------- (In Thousands, Except Per Share Amounts) Operating Revenues $2,039,433 $944,183 $ - $2,983,616 Operating Expenses Fuel 308,385 - - 308,385 Purchased power 177,852 - - 177,852 Cost of gas sold 175,475 295,601 - 471,076 Cost of goods sold - 329,248 - 329,248 Other operation and maintenance 691,535 190,674 1,000 (c) 3,295 (b) 886,504 Depreciation and amortization 248,337 35,038 17,232 (d) 8,700 (e) 309,307 Property and revenue tax 63,095 9,039 (3,295)(b) 68,839 ---------- -------- -------- --------- Pretax Operating Income 374,754 84,583 (26,932) 432,405 Other Income and Deductions 26,765 3,706 - 30,471 Interest Charges and Other (121,221) (16,746) (45,669)(f) (183,636) ---------- -------- --------- --------- Income Before Income Taxes 280,298 71,543 (72,601) 279,240 Provision (Benefit) for Income Taxes 92,166 26,048 (21,040)(g) 97,174 ---------- -------- --------- --------- Net Income $188,132 $45,495 ($51,561) $182,066 ========== ======== ======== ========= Weighted Average Common Shares 114,315 20,348 (h) 134,663 Earnings Per Share (Basic and Diluted) $1.65 $1.35 (i) See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Information.
WISCONSIN ENERGY CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET REFLECTING COMPLETION OF THE MERGER June 30, 1999
Wisconsin Pro Forma Pro Forma Energy (a) WICOR Adjustments Combined ---------- ------- ----------- ---------- (In Thousands) Assets ------ Property, Plant & Equipment $3,798,985 $445,976 $87,000 (j) $4,331,961 Other Property and Investments 864,800 - 7,737 (b) 872,537 Current Assets Cash & cash equivalents 35,369 8,752 - 44,121 Accounts receivable-net, including accrued utility revenues 305,882 162,480 - 468,362 Materials, supplies and inventory 209,852 102,915 12,700 (j) 6,798 (b) 332,265 Prepayments and other current assets 79,988 32,939 (6,798) (b) 106,129 ---------- -------- -------- ---------- Total Current Assets 631,091 307,086 12,700 950,877 Deferred Charges and Other Assets Goodwill - 83,024 689,297 (k) 772,321 Regulatory assets 208,384 56,082 - 264,466 Accumulated deferred income taxes 206,010 - 20,056 (b) 226,066 Other assets, including prepaid pension costs 107,307 90,687 54,900 (l) (7,737) (b) 245,157 --------- -------- -------- --------- Total Deferred Charges and Other Assets 521,701 229,793 756,516 1,508,010 ---------- -------- -------- --------- Total Assets $5,816,577 $982,855 $863,953 $7,663,385 ========= ======== ======== ========= Capitalization and Liabilities ------------------------------ Capitalization Common stock equity $1,951,907 $423,826 $80,135 (m) $2,455,868 Preferred stock 30,450 - - 30,450 Long-term debt 1,979,368 204,524 722,062 (m) 2,905,954 Wisconsin Energy obligated redeemable preferred securities of subsidiary trust 200,000 - - 200,000 ---------- -------- -------- ---------- Total Capitalization 4,161,725 628,350 802,197 5,592,272 Current Liabilities Short-term debt, including long-term debt due currently 403,842 19,209 - 423,051 Accounts payable 162,182 73,999 - 236,181 Accrued liabilities and other 152,522 92,451 20,500 (j) 265,473 ---------- -------- -------- ---------- Total Current Liabilities 718,546 185,659 20,500 924,705 Deferred Credits and Other Liabilities Accumulated deferred income taxes 582,080 49,347 68,900 (j) 20,056 (b) 720,383 Regulatory liabilities 142,478 29,553 - 172,031 Other, including postretirement benefit obligation 211,748 89,946 (47,700) (j) 253,994 ---------- -------- -------- ---------- Total Deferred Credits and Other Liabilities 936,306 168,846 41,256 1,146,408 ---------- -------- -------- ---------- Total Capitalization and Liabilities $5,816,577 $982,855 $863,953 $7,663,385 ========== ======== ======== ========== See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Information.
WISCONSIN ENERGY CORPORATION NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION (In Thousands) The unaudited pro forma financial information gives effect to the acquisition by Wisconsin Energy of WICOR in a transaction to be accounted for as a purchase. Wisconsin Energy's Unaudited Pro Forma Combined Condensed Financial Information assumes the WICOR acquisition occurred (1) as of January 1, 1998, for purposes of the Unaudited Pro Forma Combined Condensed Income Statements and (2) on June 30, 1999 for purposes of the Unaudited Pro Forma Combined Condensed Balance Sheet. a. Due to recent acquisitions by Wisconsin Energy that have increased the size of Wisconsin Energy's non-utility operations, Wisconsin Energy has modified its income statement and balance sheet presentations. The primary modification includes reclassifying the results of the non-utility operations from Other Income and Deductions to the various lines within operating income (i.e. Operating Revenues and Operating Expenses). This modification does not change net income. The primary balance sheet modification includes reclassifying the non-utility property, plant and equipment and related accumulated provision for depreciation from investments to inclusion with utility property, plant and equipment. This modification does not change total assets. b. Reclassification of amounts to conform the companies' historical presentation. c. Based upon revised actuarial information, WICOR's annual pension income will increase by $1.5 million and will be offset by an additional $2.5 million of annual postretirement benefit expense. d. Amortization of goodwill over 40 years ($689.3 million/40 years = $17.2 million per year or $4.3 million per quarter). e. Additional depreciation resulting from the increased fair value of machinery, equipment and buildings acquired based on estimated useful lives of 10 years ($87 million/10 years = $8.7 million per year or $2.2 million per quarter). f. Incremental interest expense based upon an assumed rate of 6.25% ($722.1 million x 6.25% = $45.1 million per year or $11.3 million per quarter). A 1/8 percent increase (or decrease) in the interest rate would increase (or decrease) annual interest expense by approximately $0.9 million. Estimated debt issue cost of $5.4 million will be amortized over ten years. g. Reduction of income taxes relating to the foregoing adjustments. h. Shares to be issued assuming the purchase price is paid with 40% stock, including outstanding stock options. The closing price of Wisconsin Energy's Common Stock on June 30, 1999 was $25-1/16. i. Assuming the purchase price is paid with 100% cash or 60% stock and 40% cash, pro forma earnings per share for the year ended December 31, 1998 would approximate $1.42 and $1.33 per share, respectively. Assuming the purchase price is paid with 100% cash or 60% stock and 40% cash, pro forma earnings per share would approximate $0.87 and $0.79 for the six months ended June 30, 1999, respectively, and $0.64 and $0.61 per share, respectively, for the six months ended June 30, 1998. j. Adjustments to net assets of WICOR to reflect fair value, purchase accounting adjustments and related tax effects. k. The excess of cost over fair value of net assets acquired resulting from the preliminary purchase price allocation is assumed to be as follows: Pro forma purchase price $1,220,623 Pro forma historical net book value of assets acquired 423,826 ---------- Excess of purchase price over net book value of assets acquired 796,797 Allocated to: Inventories (12,700) Property, plant and equipment (87,000) Prepaid pension asset (49,500) Deferred tax liabilities 68,900 Other current liabilities 20,500 Postretirement obligation (47,700) ---------- Remaining excess of cost over fair value of net assets acquired (goodwill) $689,297 ==========
The foregoing preliminary purchase price allocation is based on available information and certain assumptions Wisconsin Energy considers reasonable. The final purchase price allocation will be based upon a determination of the fair value of the net assets acquired at the date of the acquisition. The final purchase price allocation may differ from the preliminary allocation. l. Amount consists of an adjustment of $49.5 million to fair value WICOR's prepaid pension asset and $5.4 million in estimated debt issue costs. m. Purchase price is assumed to be financed with 40% stock and 60% debt. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS The following Exhibits are filed with or incorporated by reference in the applicable Form 10-Q report: Exhibit No. ----------- WISCONSIN ENERGY CORPORATION EXHIBITS (2)-1 Agreement and Plan of Merger, dated as of June 27, 1999, by and among Wisconsin Energy Corporation, WICOR, Inc. and CEW Acquisition, Inc. (Incorporated by reference to Exhibit 2.1 to Wisconsin Energy's Current Report on Form 8-K dated as of June 27, 1999, File No. 1- 9057.) (10)-1 Supplemental Executive Retirement Plan of Wisconsin Energy Corporation (as amended and restated as of June 2, 1999). (10)-2 Executive Deferred Compensation Plan of Wisconsin Energy Corporation effective January 1, 1989, as amended and restated as of June 2, 1999. (10)-3 Short-Term Performance Plan of Wisconsin Energy Corporation effective January 1, 1999, as amended and restated as of June 2, 1999. (10)-4 Senior Officer Change in Control Agreement between Wisconsin Energy Corporation and Richard A. Abdoo effective July 29, 1999. (27)-1 Wisconsin Energy Corporation Financial Data Schedule for the six months ended June 30, 1999. (27)-2 Wisconsin Energy Corporation Restated Financial Data Schedule for the fiscal year ended December 31, 1998, which reflects the reclassification of certain amounts to conform to Wisconsin Energy's current financial statement presentation. (27)-3 Wisconsin Energy Corporation Restated Financial Data Schedule for the six months ended June 30, 1998, which reflects the reclassification of certain amounts to conform to Wisconsin Energy's current financial statement presentation. WISCONSIN ELECTRIC POWER COMPANY EXHIBITS (27)-4 Wisconsin Electric Power Company Financial Data Schedule for the six months ended June 30, 1999. (27)-5 Wisconsin Electric Power Company Restated Financial Data Schedule for the fiscal year ended December 31, 1998, which reflects the reclassification of certain amounts to conform to Wisconsin Electric's current financial statement presentation. (27)-6 Wisconsin Electric Power Company Restated Financial Data Schedule for the six months ended June 30, 1998, which reflects the reclassification of certain amounts to conform to Wisconsin Electric's current financial statement presentation. (b) REPORTS ON FORM 8-K A Current Report on Form 8-K dated as of June 27, 1999 was filed by Wisconsin Energy on June 30, 1999 announcing Wisconsin Energy's merger agreement with WICOR, Inc. and filing as exhibits copies of the merger agreement and a joint press release with respect to the merger agreement. A Current Report on Form 8-K dated as of June 29, 1999 was filed by Wisconsin Energy on June 30, 1999 to disclose presentation materials used at analysts' meetings in connection with the announcement of the merger agreement between Wisconsin Energy and WICOR, Inc. dated June 27, 1999. No other reports on Form 8-K were filed by Wisconsin Energy or by Wisconsin Electric during the quarter ended June 30, 1999. A Current Report on Form 8-K dated as of July 14, 1999 was filed separately by Wisconsin Energy and by Wisconsin Electric disclosing the results of a July 14 jury verdict against Wisconsin Electric in a lawsuit concerning the placement of contaminated wastes on two properties in the City of West Allis, Wisconsin. 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 13, 1999 Calvin H. Baker, Treasurer, Chief Financial Officer and duly authorized officer WISCONSIN ELECTRIC POWER COMPANY -------------------------------- (Registrant) /s/ Calvin H. Baker ----------------------------------------- Date: August 13, 1999 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, 1999 EXHIBIT INDEX The following exhibits are filed with or incorporated by reference in this report: Exhibit No. - ----------- (2)-1 Agreement and Plan of Merger, dated as of June 27, 1999, by and among Wisconsin Energy Corporation, WICOR, Inc. and CEW Acquisition, Inc. (Incorporated by reference to Exhibit 2.1 to Wisconsin Energy's Current Report on Form 8-K dated as of June 27, 1999, File No. 1-9057.) (10)-1 Supplemental Executive Retirement Plan of Wisconsin Energy Corporation (as amended and restated as of June 2, 1999). (10)-2 Executive Deferred Compensation Plan of Wisconsin Energy Corporation effective January 1, 1989, as amended and restated as of June 2, 1999. (10)-3 Short-Term Performance Plan of Wisconsin Energy Corporation effective January 1, 1999, as amended and restated as of June 2, 1999. (10)-4 Senior Officer Change in Control Agreement between Wisconsin Energy Corporation and Richard A. Abdoo effective July 29, 1999. (27)-1 Wisconsin Energy Corporation Financial Data Schedule for the six months ended June 30, 1999. (27)-2 Wisconsin Energy Corporation Restated Financial Data Schedule for the fiscal year ended December 31, 1998, which reflects the reclassification of certain amounts to conform to Wisconsin Energy's current financial statement presentation. (27)-3 Wisconsin Energy Corporation Restated Financial Data Schedule for the six months ended June 30, 1998, which reflects the reclassification of certain amounts to conform to Wisconsin Energy's current financial statement presentation. EX-10.1 2 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN OF WEC Exhibit (10)-1 WISCONSIN ENERGY CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN As Amended and Restated as of June 2, 1999 WISCONSIN ENERGY CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN This Plan (the "Wisconsin Energy Corporation Supplemental Executive Retirement Plan"), succeeds to and constitutes an amendment and restatement of the Wisconsin Energy Corporation Supplemental Executive Retirement Plan, effective January 1, 1996; such amendment and restatement is effective as of June 2, 1999. All the provisions of this amended and restated Plan shall apply to all active employee Participants. Retired Participants will continue to receive the benefits under the provisions applicable at the time of their retirement. Capitalized terms used in the Plan which are not defined in the text are defined in Appendix A. I) Purpose and Objective This Plan is intended to be a "top hat plan" under the provisions of the Employee Retirement Income Security Act of 1974, as amended. The objective of this Plan is to also provide an incentive to attract and retain key employees in the service of Wisconsin Energy Corporation (the "Company") and/or its subsidiaries by providing them with supplemental retirement benefits which are payable, except for the change in control provisions in this Plan, only if they remain in the service of Company and/or its subsidiaries until they die or retire or become disabled. II) Participation 1) Definition of a "Participant" The term "Participant" as used in this Plan refers to any key employee of the Company and/or its subsidiaries who is designated for participation in the Plan by the Chief Executive Officer of the Company, the Company's Board of Directors (the "Board") or the Compensation Committee of the Board (the "Committee") and who has not been removed from the Plan pursuant to Paragraph (2) below. An employee can be designated as a "Participant" for Benefit A, for Benefit B, the Disability Benefit or any combination of these benefits described by this Plan. 2) Removal of a Participant A Participant may be removed from the Plan at any time by the Chief Executive Officer of the Company, the Board or the Committee, provided no such removal may eliminate or reduce any benefits which are protected under Section XII in the event of termination of this Plan. III) Vesting A Participant becomes Vested in the benefits outlined in Section IV under the provisions of this Plan upon attaining age 60. A Participant who leaves service prior to age 60 may become Vested in the benefits outlined in Section IV with the approval of the Chief Executive Officer, the Board or the Committee and will be deemed Vested upon the commencement of such benefits. Persons will be deemed to be Vested in the Disability Benefit under Section VII upon the commencement of disability payments. IV) Amount of Supplemental Executive Retirement Benefit Eligible Participants may receive either or both of the following described supplemental pension benefits: 1) Supplemental Pension Benefit A provides a "make whole" supplemental executive pension. This amount will be calculated as if it were held in a defined contribution account (the "Account Balance") for credit to the Participant under the WE Retirement Account Plan. This Account Balance is a lump sum amount that increases each year as additional amounts are credited in two ways: a benefit credit and an interest credit. Benefit Credit: For each calendar year in which an employee is a Plan Participant, starting as early as 1995, the Participant's Account Balance will be credited with at least 5% of his/her Pension Eligible Earnings for the year, reduced by the amount credited to the cash balance account under the WE Retirement Account Plan applicable to the Participant for the year. This addition to the account is called the Benefit Credit. A Participant's Benefit Credit for a year will be between 5% and 7% of the Pension Eligible Earnings for the year less the amount credited to his/her cash balance account under the WE Retirement Account Plan. The actual percentage of the Benefit Credit will be the same percentage (the "Relevant Percentage") as is determined for the WE Retirement Account Plan for that year. If a Participant terminates employment during the year, a Benefit Credit of Relevant Percentage of the Participant's Pension Eligible Earnings to date for the year less the amount credited to the cash balance account under the WE Retirement Plan for the same time period will be credited to his or her Account Balance. To be eligible for a Benefit Credit of more than 5% for any year, the Participant must be actively employed on December 31 of that year. Interest Credit: For each calendar year, the Participant's Account Balance will receive an interest credit equal to a certain percentage of his or her Account Balance at the beginning of the year. This interest credit will be guaranteed at a minimum of 4%, but the actual percentage will be the same percentage that has been applied to the WE Retirement Account Plan for that year. If the Participant did not have an Account Balance at the beginning of the year, the Account Balance will not receive an interest credit at the end of the year. If the Participant has a distribution from his or her Account Balance, either in whole or in part (through an annuity) before December 31, an Interest Credit will be granted on such distribution for the year of 1/12 of 4% for each month prior to the commencement of payment. Interest credits cease with the commencement of payment. Participants who were actively employed by the Company and/or its subsidiaries on December 31, 1995 and who were covered on that date under the WE Retirement Account Plan are eligible for determination of Supplemental Pension Benefit A under a grandfathered minimum benefit basis (the "Benefit A Grandfather Alternative"), as detailed in Appendix B. 2) Supplemental Pension Benefit B provides Participants with a life annuity of 10% of the monthly average of the Participant's Pension Eligible Earnings received from the Company and/or its subsidiaries during whichever period of 36 consecutive months produces the highest monthly average. The monthly average of Pension Eligible Earnings during such 36 month period includes the monthly average of (i) any performance award determined under the Company's Short-Term Performance Plan or any other plan as designated by the Board, calculated as of the date of determination as if then paid in full as base salary, and (ii) any amounts of base salary that would have been paid to the Participant during such 36-month period but are not paid because of deferral elections made by the Participant under a savings or other deferred compensation plan. V) Form of Payment Supplemental Pension Benefits A (including the Benefit A Grandfather Alternative) and B will be paid commencing at the same time as the benefit payable to the Participant under the WE Retirement Account Plan in life annuity form to unmarried Participants and in a 50% joint and survivor annuity form to married Participants. However, notwithstanding any other provision of this Plan, a Participant may at any time prior to the commencement of benefits under this Plan make a written request to the Chief Executive Officer of the Company, the Board, or the Committee for payment of any benefits under this Plan in any of the forms allowed under the WE Retirement Account Plan and such party may, in his or its sole and absolute discretion, grant or deny such request. If such request is for an alternative annuity benefit form and such request is granted, the alternative annuity form shall be the actuarial equivalent of a life annuity for the life of the Participant commencing immediately, with actuarial equivalency determined for this purpose by using the interest rate and mortality tables then in use for determining optional forms of annuity under the WE Retirement Account Plan. If such request is for a lump sum and such request is granted, the Supplemental Pension Benefit A, if determined without reference to the Benefit A Grandfather Alternative, shall be equal to the Account Balance; the Supplemental Pension Benefit B and Benefit A Grandfather Alternative lump sum forms shall be the actuarial equivalent of a life annuity for the life of the Participant commencing the later of the Participant's current age or age 60, with actuarial equivalency determined for this purpose by using the interest rate and mortality table referenced in Article VIII (with such interest rate to be that in effect on the last business day of the month prior to the month in which the benefit under this Plan is to be paid). VI) Death Benefit Each Participant from time to time may designate any person or persons to receive such benefits as may be payable under the Plan upon or after the Participant's death, and such designation may be changed from time to time by the Participant by filing a new designation. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed in writing with the Company during the Participant's lifetime. If the Participant has failed to designate a beneficiary, or if the beneficiary predeceases the Participant, benefits as may be payable under the Plan will be paid to the Participant's estate. 1) Death Benefits Respecting Benefit A Supplemental Pension Benefit A (including the Benefit A Grandfather Alternative) will be payable in a life annuity form to any designated beneficiary who is a natural person or in a lump sum form to the estate (or to any beneficiary which is not a natural person) of a Participant upon the death of such Participant (whether before or after age 60) while in the service of the Company or any of its subsidiaries before retirement. However, notwithstanding any other provisions of this Plan, a beneficiary who is a natural person may at any time prior to the commencement of benefits under this Plan make a written request to the Chief Executive Officer of the Company, the Board, or the Committee for payment of benefits under this Plan in any of the forms allowed under the WE Retirement Account Plan and such party may, in his or its sole and absolute discretion, grant or deny such request. If such request is for an alternative annuity benefit form and such request is granted, the alternative annuity form shall be the actuarial equivalent of a life annuity for the life of the Participant commencing immediately, with actuarial equivalency determined for this purpose by using the interest rate and mortality tables then in use for determining optional forms of annuity under the WE Retirement Account Plan and reflecting the age of the beneficiary as of the benefit commencement date. If such request is for a lump sum and such request is granted, if the death benefit is determined without reference to the Benefit A Grandfather Alternative, such lump sum shall be equal to the Account Balance; if the death benefit is determined with reference to the Benefit A Grandfather Alternative, such lump sum shall be the actuarial equivalent of a life annuity for the life of the Participant commencing on the later of the Participant's age at death or the date when the Participant would have attained age 60, with actuarial equivalency determined for this purpose by using the interest rate and mortality table referenced in Article VIII (with such interest rate to be that in effect on the last business day of the month prior to the date of death). If a Participant dies after the commencement of the receipt of monthly benefits under this Plan, whether any payments continue thereafter will depend on the form of payment such Participant has elected prior to their commencement of receipt of benefits. 2) Death Benefits Respecting Benefit B If a Participant dies (whether before or after age 60) while in the service of the Company or any of its subsidiaries before payments of Supplemental Pension Benefit B commence, the beneficiary or beneficiaries designated by the Participant shall become entitled to receive a lump sum amount equal to the actuarial equivalent of a life annuity for the life of the Participant commencing on the later of the Participant's age at death or the date when the Participant would have attained age 60, with actuarial equivalency determined for this purpose by using the interest rate and mortality table referenced in Article VIII (with such interest rate to be that in effect on the last business day of the month prior to the month in which the benefit under this Plan is to be paid). VII) Make Whole Long Term Disability Benefits It is the intent of this Plan that a Participant not suffer any loss with respect to a disability benefit under the long term disability benefit plan applicable to all employees of the Company and/or its subsidiaries (the "LTD Plan") because of either the exclusion of base salary deferred under a savings or other deferred compensation plan, or the limitations on annual compensation imposed by Section 505(b)(7) of the Internal Revenue Code. Therefore, in the event a Participant in this Plan becomes eligible for and begins to receive a disability benefit from the LTD Plan applicable to the Participant, and the amount of such disability benefit is limited because of application of salary deferral or the IRS limit, a make whole disability benefit shall be paid from this Plan as a supplement to the disability benefit paid from the LTD Plan. Such LTD supplement shall equal the monthly amount by which the Participant's disability benefit under the LTD Plan was less because of application of salary deferral and IRS limits. Such LTD supplement shall commence at the same time as the disability benefit paid under the LTD Plan and continue for so long as such disability benefit is paid. All LTD supplements paid hereunder shall be paid out of general corporate assets or out of a grantor trust as provided in Article XI below. VIII) Payments Upon Change in Control For purposes of this paragraph VIII, a "Change in Control" with respect to the Company shall mean the occurrence of any of the following events, as a result of one transaction or a series of transactions: 1) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding the Company its affiliates and any qualified or nonqualified plan maintained by the Company or its affiliates) becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under such Act), directly or indirectly, of securities of the Company representing more than 20% of the combined voting power of the Company's then outstanding securities; 2) individuals who constitute a majority of the Board immediately prior to a contested election for positions on the Board cease to constitute a majority as a result of such contested election; 3) the Company is combined (by merger, share exchange, consolidation, or otherwise) with another corporation and as a result of such combination, less than 60% of the outstanding securities of the surviving or resulting corporation are owned in the aggregate by the former shareholders of the Company; 4) the Company sells, leases, or otherwise transfers all or substantially all of its properties or assets not in the ordinary course of business to another person or entity; or 5) the Board determines in its sole and absolute discretion that there has been a Change in Control of the Company. These Change in Control provisions shall apply to successive Changes in Control on an individual transaction basis. Upon the occurrence of a Change in Control, then notwithstanding any other provision of this Plan, the Company shall promptly cause to be paid to each active and retired Participant or beneficiary receiving benefits under this Plan a lump sum amount equal to the then present value of all benefits then accrued under this Plan, calculated using (i) an interest rate equal to the five-year United States Treasury Note yield in effect on the last business day of the month prior to the date when a Change in Control event described in subparagraphs (1) through (5) above has occurred as such yield is reported in the Wall Street Journal or comparable publication, and (ii) the mortality table used for purposes of determining lump sum amounts then in use under the qualified defined benefit plan of the Company or its subsidiaries applicable to the Participant. Such payments shall be made without regard to whether the Participant's employment with the Company or any of its subsidiaries is continuing. However, if the Participant in fact so continues and this Plan continues, appropriate provisions shall be made so that any subsequent payments made from this Plan are reduced to reflect the value of such lump sum payments. IX) Government Regulations It is intended that the Plan will comply with all applicable laws and governmental regulations, and the Company and/or its subsidiaries shall not be obligated to perform an obligation hereunder in any case where, in the opinion of the Company's counsel, such performance would result in violation of any law or regulation. All amounts payable under this Plan shall be subject to all applicable withholding taxes. X) Nonassignment No benefit(s) under the Plan, nor any other interest hereunder of any Participant or beneficiary shall be assignable, transferable, or subject to sale, mortgage, pledge, hypothecation, anticipation, garnishment, attachment, execution, or levy of any kind. XI) Provision of Benefits The Company may establish a grantor trust (a "rabbi trust") to serve as a vehicle to hold such contributions as the Company may choose to make to prefund its obligation for benefits hereunder, but the trust shall be designed so that all assets therein are subject to the claims of the creditors of the Company or any of its subsidiaries which have used such rabbi trust in the event of insolvency, consistent with the provisions of Revenue Procedure 92-64. Notwithstanding the existence of such grantor trust, the Plan shall remain an unfunded plan. A Participant's rights to benefits under the Plan shall be those of an unsecured creditor of the Company and/or its subsidiaries. XII) Termination or Modification of Plan The Board or the Committee shall have the right to terminate or modify this Plan for specific individuals at any time and from time to time, provided that no such action may eliminate or reduce or change the time or manner of payment of any benefits which: (i) have already become payable to any Participant or beneficiary; or (ii) would have become payable to any Participant or beneficiary without the Board's, the Committee's or the Chief Executive Officer's approval under the terms of Article III hereof if such Participant had retired immediately before such action is taken. The Chief Executive Officer may also make amendments to this Plan at any time, consistent with the authority delegated to the Chief Executive Officer by the Board regarding such amendments. XIII) Claim Procedures A Participant or beneficiary (a `Claimant') may file a written request for benefits or claim with the Company under the Plan. In the event of any dispute with respect to such a claim, the following claim procedures shall apply: 1) The Company, acting as the administrator for this Plan, shall notify the Claimant within 90 days of receipt by the Company of a written claim of its allowance or denial, unless the Claimant receives written notice from the Company prior to the end of the initial 90-day period indicating that special circumstances require an extension of time for decision. A written notice of decision shall be provided to the Claimant and if the claim is denied in whole or in part, the notice shall contain the following information: the specific reasons for the denial; specific reference to pertinent provisions of the Plan on which the denial is based; if applicable, a description of any additional material information necessary to perfect the claim and an explanation of why such information is necessary; and an explanation of the claim review procedure. 2) A Claimant is entitled to request a review of any denial of his/her claim by the Board or the Committee. The request for review must be submitted in writing within 60 days of mailing of notice of the denial. Absent a request for review within the 60-day period, the claim will be deemed to be conclusively denied. The Claimant or his/her representative shall be entitled to review all pertinent documents, and to submit issues and comments orally and in writing. The Board or Committee shall render a review decision in writing, within 60 days after receipt of a request for a review, provided that, in special circumstances the Board or Committee may extend the time for decision by not more than 60 days upon written notice to the Claimant. The Claimant shall receive notice of the separate review decision of the Board or Committee, together with specific reasons for the decision and reference to the pertinent provisions of this Plan. 3) The Company as the administrator of this Plan shall have full and complete discretionary authority to determine eligibility for benefits, to construe the terms of the Plan and to decide any matter presented through the claims review procedure. Any final determination by the Company shall be binding on all parties. If challenged in court, such determination shall not be subject to de novo review and shall not be overturned unless proven to be arbitrary and capricious upon the evidence considered by the Company at the time of such determination. XIV) Miscellaneous 1) The Chief Executive Officer, the Board or the Committee may establish, amend or rescind from time to time rules and regulations which are necessary or desirable in connection with the Plan. The Chief Executive Officer may not act on any matter involving his own participation in this Plan. The Company shall have the right to withhold from any amounts payable under this Plan any taxes or other amounts required to be withheld by any governmental authority. 2) Every person receiving or claiming payments under this Plan shall be conclusively presumed to be mentally competent until the date on which the Company receives a written notice, in form and manner acceptable to it, that such person is incompetent and that a guardian, conservator, or other person legally vested with the care of such person's estate has been appointed. In the event a guardian or conservator of the estate of any person receiving or claiming payments under this Plan shall be appointed by a court of competent jurisdiction, payments may be made to such guardian or conservator provided that proper proof of appointment and continuing qualification is furnished in a form and manner acceptable to the Company. Any such payment so made shall be a complete discharge of any liability therefor. 3) Participation in this Plan, or any modifications thereof, or the payment of any benefits hereunder, shall not be construed as giving to the Participant any right to be retained in the service of the Company or its subsidiaries, limiting in any way the right of the Company or its subsidiaries to terminate the Participant's employment at any time, evidencing any agreement or understanding, express or implied, that the Company or its subsidiaries will employ the Participant in any particular position or at any particular rate of compensation and/or guaranteeing the Participant any right to receive a salary increase in any year, such increase being granted only at the sole discretion of the Compensation Committee of the Board. 4) The Company, or its subsidiaries, or their Boards of Directors or any committees thereof, or any officer or director of the Company or its subsidiaries or any other person shall not be liable for any act or failure to act hereunder, except for fraud. 5) This Plan shall be governed by and construed in accordance with the laws of the State of Wisconsin, to the extent not preempted by federal law, without reference to conflicts of law principles. APPENDIX A DEFINITIONS: VESTED: The Participant has an enforceable legal right to receipt of the benefits described in this Plan. Participants become Vested in their Supplemental Executive Retirement Benefit when they reach age 60 (or in Mr. R.A. Abdoo's case, age 58 and if his actual retirement occurs at or after age 58 but prior to age 60, he shall be deemed to be age 60 for purposes of all calculations respecting Supplemental Provision Benefits A and B hereof), or when prior to age 60 (or in Mr. R.A. Abdoo's case, age 58) with the approval of the Chief Executive Officer and the Board of Directors of the Company, the Participant retires and commences receipt of benefits. A Participant becomes Vested in the Disability Benefits after such payments of the benefits have commenced. Vesting also occurs upon the occurrence of a Change in Control as defined in Article VIII. PENSION ELIGIBLE EARNINGS: Established base salary for assigned responsibilities including payments for absences, without regard for any limitations imposed by the Internal Revenue Code on benefits or compensation and including any amounts of base salary that would have been paid to the Participant, but were not paid because of deferral elections made by the Participant under a savings or other deferred compensation plan, and including the total of any incentive performance award determined under the Company's Short-Term Performance Plan or other short-term plan which has been approved by the Board for inclusion into Pension Eligible Earnings for this Plan. Amounts of base salary and annual incentive will be calculated without regard to any amounts deferred from such base salary or annual incentive compensation. WE RETIREMENT ACCOUNT PLAN: The Wisconsin Electric qualified defined benefit retirement plan, a cash balance pension plan, as amended and restated effective as of January 1, 1996, as amended from time to time. APPENDIX B GRANDFATHERED MINIMUM BENEFITS FOR PARTICIPANTS WHO ON DECEMBER 31, 1995 WERE BOTH ACTIVELY EMPLOYED BY THE COMPANY AND COVERED UNDER THE WE RETIREMENT ACCOUNT PLAN A Participant who was actively employed by the Company on December 31, 1995 and who was then covered by the WE Retirement Account Plan and who continued as an active employee of the Company until his or her commencement of benefits under this Plan, shall be eligible for the Benefit A Grandfather Alternative. The Benefit A Grandfather Alternative will be equal to the greater of (x) or (y), where: (x) is the benefit that would have accrued for such Participant under the provisions of the special formula minimum retirement income grandfather sections (the "Grandfathered Benefit Provisions") of the WE Retirement Account Plan, if the WE Retirement Account Plan were administered using all Pension Eligible Earnings as defined in this Plan, less the amount of the qualified pension benefit that such Participant would be actually entitled to receive were the Grandfathered Benefit Provisions of the WE Retirement Account Plan applied, and (y) is the benefit that would have accrued for such Participant under the provisions of the cash balance formula of the WE Retirement Account Plan, if the WE Retirement Account Plan was administered using all Pension Eligible Earnings as defined in this Plan, less the amount of the qualified benefit that such Participant would be actually entitled to receive under the cash balance formula of the WE Retirement Account Plan were such formula applied. Credited service and Pension Eligible Earnings after December 31, 2010, will not be used to calculate this Benefit A Grandfather Alternative, but existing early retirement reductions based upon the Participant's age and service applicable to the Grandfathered Benefit Provisions will continue in accordance with the terms of the WE Retirement Account Plan. An example of the Benefit A Grandfather Alternative is as follows: Assume the Participant actually receives a cash payment at retirement from the WE Retirement Account Plan of $380,000. At the time the Participant receives that benefit, calculations are made to convert the formula (x) benefit above into a lump sum amount that is the actuarial equivalent of a life annuity for the life of the Participant commencing at the later of age 60 or the Participant's age at benefit commencement. This is accomplished in three steps. First, the portion of the formula (x) benefit calculated using all Pension Eligible Earnings is multiplied by the early retirement reduction factor as determined under the WE Retirement Account Plan. Secondly, the resulting benefit is converted into a lump sum actuarial equivalent ($1,450,000 in the illustration below) of the life annuity form described above, with actuarial equivalency determined for this purpose by using the interest rate and mortality table referenced in Article VIII (with such interest rate to be that in effect on the last business day on the month prior to payment), Thirdly, the value of the lump sum to which the Participant would actually be entitled under the WE Retirement Account were the Grandfathered Benefit Provisions applied is subtracted ($350,000 in the illustration below) to obtain the formula (x) net lump sum amount ($1,100,000 in the illustration below). Calculations are also made under formula (y) which compare the lump sum account balance that would have been generated for the Participant using all Pension Eligible Earnings under the regular cash balance formula of the WE Retirement Account Plan ($520,000 in the illustration below) with the actual lump sum account balance that would be payable to the Participant were the regular cash balance formula applied ($380,000 in the illustration below). The following comparisons result: 1) WE Retirement Account Plan: (a) Cash Balance Formula $380,000 (b) Grandfather Formula 350,000 2) SERP Benefit A Grandfather Alternative, calculated under: (a) Cash Balance Formula $ 520,000 (b) Grandfather Formula 1,450,000 3) Actual SERP Benefit A Grandfather is $1,100,000, which is the greater of 2(a) - 1(a) [$140,000] or 2(b) - 1(b) [$1,100,000]. EX-10.2 3 EXECUTIVE DEFERRED COMPENSATION PLAN Exhibit (10)-2 WISCONSIN ENERGY CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN As amended and restated as of June 2, 1999 WISCONSIN ENERGY CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN I) Purpose and Objective This Executive Deferred Compensation Plan (the "Plan") succeeds to and constitutes an amendment and restatement of the Executive Deferred Compensation Plan effective January 1, 1996; such amendment and restatement is effective June 2, 1999. This Plan is maintained by Wisconsin Energy Corporation (the "Company") to provide eligible Participants, on a calendar year basis, an opportunity to defer income until retirement or other termination of employment, and to permit the accumulation of "lost" savings plan matching contributions as provided in Article VI hereof. The objective of this Plan is to provide an incentive to enable the Company to attract and retain qualified executive talent by providing deferral opportunities to their base salary and annual incentives which enables them to build an asset base for the use after separation from service. The Plan is intended to be a "top hat plan" under the provisions of the Employee Retirement Income Security Act of 1974. II) Eligibility Any key employee of the Company and its subsidiaries as may designated by the Chief Executive Officer of the Company, the Company's Board of Directors (the "Board") or the Compensation Committee of such Board (the "Committee") is eligible to participate in base salary deferral, performance award deferrals or 401(k) match makeup or any combination of these benefits, as determined in such designation. III) Definition of Covered Compensation Compensation that may be deferred into the Plan includes: 1) Annual base salary, and 2) Performance awards under the Company's Short-Term Performance Plan or other such short-term performance plan(s) as approved by the Board. IV) Deferral Elections 1) Base Salary A Participant may elect to defer a specified percentage of monthly base salary (defined as the aggregate monthly base salary from the Company and its subsidiaries), a specified dollar amount of monthly base salary or all base salary otherwise payable for a particular calendar year in excess of a total dollar amount. Any deferrals elected on a percentage basis will first be subtracted and only the balance of the Participant's compensation will be subject to any dollar amount deferrals elected. A written deferral election form regarding base salary must be filed with the Company in accordance with rules established by the Company, but no later than the end of the month preceding the month in which the deferral election will be effective. The deferral election shall be effective as to compensation earned after the first day of the month immediately following the date the form is received by the Company. A Participant may amend or revoke any deferral election regarding base salary at any time by giving written notice to the Company. Such notice shall become effective on the first day of the month immediately following receipt of such notice by the Company. Any election or revocation will be given prospective effect only and will not affect prior deferrals. 2) Performance Awards and Other Awards as approved by the Board A Participant may elect to defer from 10% to 100% of any performance award under the Company's Short-Term Performance Plan or other plan as designated by the Chief Executive Officer, the Committee or the Board, a specified dollar amount thereof, or all such award amounts otherwise payable for a particular calendar year in excess of a total dollar amount. Any deferrals elected on a percentage basis will first be subtracted and only the balance of the Participant's compensation will be subject to any dollar amount deferrals elected. A written deferral election form regarding a performance award which may ultimately become payable on account of a Participant's services during the calendar year must be filed with the Company no later than December 31st of such calendar year and in any event, prior to the time that the Participant has earned an absolute and unconditional right to payment. A Participant may not revoke a deferral election regarding any such performance award once such election has been made. V) 401(k) Savings Plan Match The intent of this Plan is to provide each Participant who is eligible to participate in the 401(k) match make-up feature set forth in this Article V with a credit to such Participant's bookkeeping account equal to a theoretical 401(k) match, calculated without regard to (a) limitations imposed by Section 402(g)(1) of the Internal Revenue Code on the amount of a Participant's savings plan deferral contributions, (b) limitations on annual compensation as adjusted from time to time imposed by Section 401(a)(17) of the Internal Revenue Code, or (c) any limitation on benefits and contributions imposed by Section 415 of such Code. The theoretical 401(k) match (the "401(k) Match") will be calculated considering all of the Participant's base salary and any performance award, without regard to any deferrals made under the Plan and without regard to any of the limitations that would otherwise be imposed by the limitations described in (a) through (c) above, and without regard to the actual pre-tax elective deferral and after-tax contributions chosen by the Participant in the qualified 401(k) plan. Instead, an assumption will be made that the Participant made maximum utilization of the pre-tax and after-tax contribution opportunity in the qualified 401(k) plan and obtained the maximum matching contribution in such plan. Such assumed maximum qualified 401(k) plan contribution shall be subtracted from the theoretical match. The balance of the theoretical match will be credited to the Participant's bookkeeping account under this Plan. An example of the calculation called for by this Article V is shown on Exhibit 1 attached to and made a part of this Plan. VI) Earnings Credited 1) An amount equivalent to the deferrals elected plus the amounts credited to the Participant due to the 401(k) Match shall be credited to a bookkeeping account on the records of the Company in the name of the Participant, at the time such deferrals and/or 401(k) matches would otherwise have been earned or paid. Such account shall be simply an unsecured claim against the general assets of the Company. A Participant shall have no interest in such account, which is established merely as an accounting convenience. 2) Each Participant may elect to invest the account balance indicated above in either the Interest Rate Fund or WEC Stock Fund as described below: a) Interest Rate Fund. Under this method, earnings shall be credited on the average balance in each account determined by averaging the beginning and ending balance of such account within the period intervening since interest was last credited to the account (except, in the case of a new Participant, within the period from the effective date of such Participant's participation in the Plan to the end of the next June 30 or December 31 or the date such Participant terminates participation, whichever is earlier) and shall be credited to the account semiannually, each year, until all distributions to which the Participant, Participant's estate or beneficiary is entitled shall have been made. Whenever a lump sum amount or final distribution is made as of a date other than June 30 or December 31, interest shall be credited to the account as of such payment date. The rate of interest shall be the prime commercial rate as published by Firstar Bank, Milwaukee, N.A. in effect on the last day of the period, except for any period in which any lump sum amount or final distribution from an account is made as of a date other than the end of the period, in which case the rate of interest shall be the prime commercial rate as published by Firstar Bank, Milwaukee, N.A. in effect on the date interest was last credited as determined above. b) WEC Stock Fund. Under this method, earnings shall be credited at a rate which reflects the performance of Wisconsin Energy Corporation common stock ("WEC stock"). The value of the Participant's account in the WEC Stock Fund shall be determined by taking into account changes in the value of WEC stock, dividends paid on WEC stock and any changes in the capital structure of the Company affecting the value of WEC stock. Money added to the account will be credited in whole and fractional shares of WEC Stock on the date monies are credited to the account based upon the average of the high and low stock price of WEC Stock on the New York Stock Exchange. Dividends will be credited to the account in whole and fractional shares on the same day as the dividends are paid. 3) Investment of Deferrals The Participant's deferral election with regard to voluntary deferrals shall identify the fund or funds in which deferrals shall be invested in the form of 10% increments of the total amount voluntarily deferred. The amounts credited from the 401(k) Match will be credited total in the WEC Stock Fund. 4) Investment Transfer In accordance with rules established by the Company, a Participant may make an election to transfer all or part of the Participant's balance in the Interest Rate Fund to the WEC Stock Fund. VII) Vesting Participants are 100% vested in amounts deferred into the Plan plus earnings credited to their account, including any amounts arising from the 401(k) Match. VIII) Benefit Payment 1) In the Event of Retirement At the time when a Participant completes any deferral election form under this Plan, the Participant shall also irrevocably specify the method of payment in which all deferred compensation covered by such election form shall be made if the Participant terminates service with the Company or its subsidiaries because of "retirement". For purposes of this Plan, "retirement" shall have occurred if the Participant terminates service on or after age 55 with at least 10 years of service or at or after age 65. The available methods of payment under such circumstances are: a) a single lump sum payment as soon as practicable after the Participant's retirement, b) a single lump sum payment to be made as of the first business day of the year immediately following the Participant's retirement, c) payment over a ten-year period [as of the first business day of January following the Participant's retirement, 1/10th of the total amount credited to the Participant's account shall be paid to the Participant and as of the first business day of each January thereafter, that fraction of the total remaining amount in the Participant's account of which the numerator is 1 and the denominator is the total number of remaining installments to be made to the Participant shall be paid to the Participant], d) payment over a five-year period [calculated in the same fashion as provided in subparagraph (c) above, but substituting "1/5th" for "1/10th" and "five" for "ten" wherever the same appear]. 2) In the Event of Disability In the event the Participant leaves service of the Company or its subsidiaries due to disability, the Participant will be considered to have retired for purposes of the Plan and payments shall be made accordingly. For purposes of this Plan, "disability" shall mean separation from service because of such illness or injury as renders the Participant unable to perform the material duties of his or her job. 3) In the Event of Death Prior to Termination of Employment If a Participant dies prior to termination of employment with the Company or its subsidiaries, the designated beneficiaries shall be paid the entire balance of the account in a single lump sum, with such distribution to be made within six months after the Company has been notified of such death. If the Participant has failed to designate a beneficiary, or if the beneficiary predeceases the Participant, the entire balance of the account shall be paid to the Participant's estate within six months after the Company has been notified of such death. 4) In the Event of Death After Retirement If a retired Participant dies after retirement but before all payments have been made under the selected method, the remaining payments shall be paid to the beneficiary for the balance of the applicable five or ten-year period, or under the lump sum method, if that was in effect. If the last beneficiary shall die before receiving the full amount payable under this Plan, then the balance of the account not paid shall be paid in a single lump sum to the estate of such beneficiary within six months after the Company has been notified of such death. 5) In the Event of Termination for Reasons Other Than Retirement, Death or Disability If a Participant terminates employment with the Company or its subsidiaries for a reason other than retirement, death or disability, the Participant's account shall be paid to the Participant in a single lump sum. Such distribution will be made within 90 days of termination of employment. 6) Optional Lump Sum Payments Upon Approval Notwithstanding any other provisions of this Plan, a Participant may make a written request of the Chief Executive Officer, the Board or the Committee at the time of retirement or disability for a single lump sum payment of all amounts covered by this Article VIII, which request may be granted or denied in his or its sole and absolute discretion. 7) Mandatory Lump Sum Payments Upon Change in Control For purposes of this Plan, a "Change in Control" with respect to the Company shall mean the occurrence of any of the following events, as a result of one transaction or a series of transactions: a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding the Company, its affiliates and any qualified or nonqualified plan maintained by the Company or its affiliates) becomes the "beneficial owner" (as defined in Rule 13(d) promulgated under such Act), directly or indirectly, of securities of the Company representing more than 20% of the combined voting power of the Company's then outstanding securities; b) individuals who constitute a majority of the Board immediately prior to a contested election for positions on the Board cease to constitute a majority as a result of such contested election; c) the Company is combined (by merger, share exchange, consolidation, or otherwise) with another corporation and as a result of such combination, less than 60% of the outstanding securities of the surviving or resulting corporation are owned in the aggregate by the former shareholders of the Company; d) the Company sells, leases, or otherwise transfers all or substantially all of its properties or assets not in the ordinary course of business to another person or entity; or e) the Board determines in its sole and absolute discretion that there has been a Change in Control of the Company. These Change in Control provisions shall apply to successive Changes in Control on an individual transaction basis. Upon the occurrence of a Change in Control, then notwithstanding any other provision of this Plan, the Company shall promptly cause to be paid to each active and retired Participant or beneficiary receiving benefits under this Plan a single lump sum payment for all amounts covered by this Article VIII, without regard to whether any Participant's employment with the Company or any of its subsidiaries is continuing. However, if the Participant in fact so continues and this Plan continues, appropriate provisions shall be made so that any subsequent payments made from this Plan are reduced to reflect the value of such lump sum payment. 8) Cash Distributions All distributions under the Plan shall be in cash. IX) Plan Amendment The Board or the Committee reserves the right to amend, modify, or terminate this Plan at any time; provided, however, no such action will reduce the amounts then credited to any Participant's account or change the time and manner of payment of the value thereof, without the consent of the Participant, if living, or the Participant's designated beneficiary or beneficiaries, if the Participant is not living. The Chief Executive Officer of the Company may also make amendments to this Plan at any time, consistent with the authority delegated to the Chief Executive Officer by the Board regarding such amendments. X) Claim Procedure The Participant or the Participant's beneficiary (a "Claimant") may file a written request for benefits or claim with the Company under this Plan. In the event of any dispute with respect to such a claim, the following claim procedures shall apply: 1) The Company acting as the administrator for this Plan, shall notify the Claimant within 90 days of receipt by the Company of a written claim of its allowance or denial, unless the Claimant receives written notice from the Company prior to the end of the initial 90 day period indicating that special circumstances require an extension of time for decision. A written notice of decision shall be provided to the Claimant and if the claim is denied in whole or in part, the notice shall contain the following information: the specific reasons for the denial; specific reference to pertinent provisions of the Plan on which the denial is based; if applicable, a description of any additional material information necessary to perfect the claim and an explanation of why such information is necessary; and an explanation of the claim review procedure. 2) A Claimant is entitled to request a review of any denial of his/her claim by the Board or Committee. The request for review must be submitted in writing within 60 days of mailing of notice of the denial. Absent a request for review within the 60-day period, the claim will be deemed to be conclusively denied. The Claimant or the Claimant's representative shall be entitled to review all pertinent documents, and to submit issues and comments orally and in writing. The Board or Committee thereof shall render a review decision in writing, within 60 days after receipt of a request for a review, provided that, in special circumstances (such as the necessity of holding a hearing) the Board or Committee may extend the time for decision by not more than 60 days upon written notice to the Claimant. The Claimant shall receive written notice of the separate review decision of the Board or Committee, together with specific reasons for the decision and reference to the pertinent provisions of this Plan. 3) The Company, as administrator for this Plan (whether acting through its employees, the Board or a Committee), shall have full and complete discretionary authority to construe and interpret this Plan and to decide any matter presented through the claims review procedure. Any final determination by the administrator shall be binding on all parties. If challenged in court, such determination shall not be subject to de novo review and shall not be overturned unless proven to be arbitrary and capricious based upon the evidence considered by the administrator at the time of such determination. XI) Beneficiary Designation 1) Each Participant from time to time may designate any person or persons to receive such benefits as may be payable under the Plan upon or after the Participant's death, and such designation may be changed from time to time by the Participant by filing a new designation. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed in writing with the Company during the Participant's lifetime. If the Participant has failed to designate a beneficiary, or if the beneficiary predeceases the Participant, benefits as may be payable under the Plan will be paid to the Participant's estate. XII) Miscellaneous 1) The Chief Executive Officer, the Board or the Committee may establish, amend or rescind from time to time rules and regulations which are necessary or desirable in connection with the Plan. The Chief Executive Officer may not act on any matter involving his own participation in this Plan. The Company shall have the right to withhold from any amounts payable under this Plan any taxes or other amounts required to be withheld by any governmental authority. 2) Every person receiving or claiming payments under this Plan shall be conclusively presumed to be mentally competent until the date on which the Company receives a written notice, in form and manner acceptable to it, that such person is incompetent and that a guardian, conservator, or other person legally vested with the care of such person's estate has been appointed. In the event a guardian or conservator of the estate of any person receiving or claiming payments under this Plan shall be appointed by a court of competent jurisdiction, payments may be made to such guardian or conservator provided that proper proof of appointment and continuing qualification is furnished in a form and manner acceptable to the Company. Any such payment so made shall be a complete discharge of any liability therefor. 3) Participation in this Plan, or any modifications thereof, or the payment of any benefits hereunder, shall not be construed as giving to the Participant any right to be retained in the service of the Company or its subsidiaries, limiting in any way the right of the Company or its subsidiaries to terminate the Participant's employment at any time, evidencing any agreement or understanding, express or implied, that the Company or its subsidiaries will employ the Participant in any particular position or at any particular rate of compensation and/or guaranteeing the Participant any right to receive a salary increase in any year, such increase being granted only at the sole discretion of the Compensation Committee of the Board. 4) The Company, or its subsidiaries, or their Boards of Directors or any committees thereof, or any officer or director of the Company or its subsidiaries or any other person shall not be liable for any act or failure to act hereunder, except for fraud. 5)This Plan shall be governed by and construed in accordance with the laws of the State of Wisconsin, to the extent not preempted by federal law, without reference to conflicts of law principles. EXHIBIT 1 MAKE WHOLE CONTRIBUTION ATTRIBUTABLE TO SAVINGS PLAN EXAMPLE Assumptions: * 1999 pre-deferred compensation - $180,000 * STPP Award - $72,000 [50% ($36,000) deferred into the EDCP] * 401(k) pre-tax contribution - 6% of pay for pre- and after-tax (actual level of participation in 401(k) plan is disregarded) * Employer match - 50% of pre-and after-tax contributions up to 6% * EDCP base salary deferral - 15% Theoretical Match Based on total compensation of base Without Regard to IRS $180,000 plus STPP Award of $72,000 Limitations: for total of $252,000. $252,000 x 6% x 50% = $7,560 Less Assumed Maximum $160,000 (maximum compensation for 401(k) Plan Match: 1999 in 401(k) plan) x 6% x 50% = $4,800 ------- Lost 401(k) Match Created Under EDCP: $2,760 EX-10.3 4 SHORT-TERM PERFORMANCE PLAN OF WEC Exhibit (10)-3 WISCONSIN ENERGY CORPORATION SHORT-TERM PERFORMANCE PLAN As amended and restated as of June 2, 1999 WISCONSIN ENERGY CORPORATION SHORT-TERM PERFORMANCE PLAN This Plan ("the Wisconsin Energy Corporation Short-Term Performance Plan") succeeds to and constitutes an amendment and restatement of the Wisconsin Energy Corporation Short-Term Performance Plan, effective January 1, 1992; such amendment and restatement is effective as of June 2, 1999. All the provisions of this amended and restated Plan, as subsequently amended, shall apply to all active employee Participants. I) Purpose and Objectives The purpose of this Plan is to provide an annual incentive compensation plan which permits the awarding of annual cash bonuses to eligible employees of Wisconsin Energy Corporation (the "Company") and/or its subsidiaries, based on the achievement of pre-established performance goals which promote the achievement of shareholder, customer and employee-focused objectives while recognizing individual performance. II) Eligibility 1) Definition of a "Participant" The term "Participant" as used in this Plan refers to any key employee of the Company and/or its subsidiaries who is designated for participation in the Plan annually by the Chief Executive Officer of the Company, the Company's Board of Directors (the "Board") or the Compensation Committee of the Board (the "Committee"). An employee can be designated as a "Participant" for either Benefit A or Benefit B as described in the Plan. Employees designated as Participants in either Benefit A or Benefit B of the Plan shall be so notified in writing, and shall be apprised of the performance goals and related target awards for the relevant plan year. 2) Partial Plan Year Participation Generally, Participants will be in the active employ of the Company prior to the first day of any plan year, but an individual who becomes employed after that date may be designated as a Participant. In that event, such employee's final award shall be prorated based upon the number of full months of eligibility during such plan year. The Chief Executive Officer, the Board or the Committee shall have full discretion to determine the proper calculation for such proration, or adjust the target and/or performance awards. III) Award Determination 1) Target Award Level Prior to the beginning of each plan year or as soon as practicable thereafter, the Chief Executive Officer, the Board or the Committee shall approve a target award for each Participant. The established target award shall vary in relation to the Participant's responsibilities and influence on achievement of short-term goals. In the event a Participant's responsibilities change during a plan year, the Participant's target award may be adjusted to reflect the level of responsibility at the end of the plan year. 2) Performance Goals Prior to the beginning of each plan year, or as soon as practicable thereafter, performance goals for that plan year shall be established with the approval of the Chief Executive Officer, the Board or the Committee. The goals may be based on any combination of corporate, subsidiary, divisional, and/or individual goals. More than one performance goal may be established, and multiple goals may have the same or different weightings. Various achievement levels of performance for each performance goal may be established. The Chief Executive Officer, the Board or the Committee may also establish one or more Company-wide performance goals which must be achieved for any Participant to receive an award for that plan year. 3) Adjustment of Performance Goals The Chief Executive Officer, the Board or the Committee may make an adjustment to the performance goals and the target awards (either up or down) during a plan year if it determines that external changes or other unanticipated business conditions have materially affected the fairness of the goals and have unduly influenced the Company's ability to meet them. Further, in the event of a plan year of less than twelve (12) months, the Chief Executive Officer, the Board or the Committee may make an adjustment to the performance goals and the target awards accordingly, at his or its discretion. 4) Final Award Determinations At the end of each plan year, final awards shall be computed for each Participant as approved by the Chief Executive Officer, the Committee or the Board. Final award amounts may vary above or below the target awards, based on achievement of the pre-established corporate, subsidiary, divisional, and/or individual performance goals. 5) Award Cap The Chief Executive Officer, the Committee or the Board may establish guidelines governing the maximum final awards that may be earned by Participants (either in the aggregate, by employee groups established for this purpose, or among individual Participants) in each plan year. The guidelines may be expressed as a percentage of Company-wide goals or financial measures, or such other measures. IV) Payment of Final Awards 1) Form and Timing of Payments Final award payments shall be paid as soon as practicable after award amounts are approved. 2) Awards Under Benefit A a) Deferral of Award A Participant may elect to defer a portion or all of the final award under Benefit A pursuant to the terms and conditions set forth in the Company's Executive Deferred Compensation Plan, which are hereby incorporated by reference. b) Retirement Income Consideration Final awards under Benefit A shall be excluded from the compensation used for calculating retirement income under the qualified defined benefit retirement plan of the Company. In consideration of this exclusion, there is a "make-whole" pension supplement applicable to Participants in this Plan regarding final awards under Benefit A, pursuant to the terms and conditions set forth in the Company's Supplemental Executive Retirement Plan, which are hereby incorporated by reference. 3) Awards Under Benefit B Final awards for employees designated as Participants under Benefit B are not subject to any "make-whole" pension supplement and such awards may not be deferred under the Company's Executive Deferred Compensation Plan. 4) Unsecured Interest No Participant or any other party claiming an interest in amounts earned under the Plan shall have any interest whatsoever in any specific asset of the Company. To the extent that any party acquires a right to receive payments under the Plan, such right shall be equivalent to that of an unsecured general creditor of the Company. V) Termination of Employment 1) Termination of Employment Due to Death, Disability or Retirement In the event a Participant's employment is terminated by reason of death, "Disability," or "Retirement," the final award determined in accordance with Section III(4), shall be reduced to reflect participation prior to termination only. For purposes of this Plan, "Retirement" shall have occurred if the Participant terminates service either on or after age 55 with at least 10 years of service, at or after age 65, or at time when such Participant is eligible for an employer provided retiree medical plan and "Disability" shall have the same meaning as in the Company's long-term disability plan. The reduced award shall be determined by multiplying said final award by a fraction, the numerator of which is the number of full months of employment in the plan year and the denominator of which is twelve (12). In the case of a Participant's Disability, the employment termination shall be deemed to have occurred on the date the Chief Executive Officer, the Board or the Committee determines the definition of Disability to have been satisfied. The final award thus determined shall be paid as soon as practicable following the end of the plan year in which employment termination occurred. 2) Termination of Employment for Other Reasons In the event a Participant's employment is terminated for any reason other than death, Disability, or Retirement (of which the Chief Executive Officer, the Board or the Committee shall be the sole judge), all of the Participant's rights to a final award for the plan year then in progress shall be forfeited. However, except in the event of an employment termination for "Cause," the Chief Executive Officer, the Board or the Committee may waive such provisions and allow a prorated award for the portion of that plan year that the Participant was employed by the Company. Cause shall be defined as: a) the willful and continued failure of the Participant to substantially perform the Participant's duties (other than failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Participant by the Board, the Committee or an elected officer of the Company which specifically identifies the manner in which the Board, the Committee or the elected officer believes that the Participant has not substantially performed the Participant's duties, or b) the willful engaging by the Participant in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. However, no act, or failure act, on the Participant's part shall be considered "willful" unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that his or her action or omission was in the best interest of the Company. VI) Rights of Participants 1) Employment Nothing in the Plan shall interfere with or limit in any way the right of the Company or employing subsidiary to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any subsidiary. 2) Nontransferability No right or interest of any Participant in the Plan shall be assignable or transferable, or subject to any lien, directly, by operation of law, or otherwise, including, but not limited to, execution, levy, garnishment, attachment, pledge, and bankruptcy. VII) Beneficiary Designation Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Company and will be effective only when filed in writing with the Company during the Participant's lifetime. In the absence of any such designation, or if the beneficiary predeceases the Participant, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. VIII) Amendments The Board or the Committee, in its sole discretion, without notice, at any time and from time to time, may modify or amend, in whole or in part, any or all of the provisions of the Plan, or suspend or terminate it entirely; provided, however, that no such modification, amendment, suspension, or termination may, without the consent of a Participant (or his or her beneficiary in the case of the death of the Participant), reduce the right of a Participant (or his or her beneficiary as the case may be) to a payment or distribution hereunder of a final award to which he or she is entitled. The Chief Executive Officer may also make amendments to the Plan at any time, consistent with the authority delegated to the Chief Executive Officer by the Board regarding such amendments. IX) Miscellaneous 1) The Chief Executive Officer, the Board or the Committee may establish, amend or rescind from time to time rules and regulations which are necessary or desirable in connection with the Plan. The Chief Executive Officer may not act on any matter involving his own participation in this Plan. The Company shall have the right to withhold from any amounts payable under this Plan any taxes or other amounts required to be withheld by any governmental authority. 2) Every person receiving or claiming payments under this Plan shall be conclusively presumed to be mentally competent until the date on which the Company receives a written notice, in form and manner acceptable to it, that such person is incompetent and that a guardian, conservator, or other person legally vested with the care of such person's estate has been appointed. In the event a guardian or conservator of the estate of any person receiving or claiming payments under this Plan shall be appointed by a court of competent jurisdiction, payments may be made to such guardian or conservator provided that proper proof of appointment and continuing qualification is furnished in a form and manner acceptable to the Company. Any such payment so made shall be a complete discharge of any liability therefor. 3) Participation in this Plan, or any modifications thereof, or the payment of any benefits hereunder, shall not be construed as giving to the Participant any right to be retained in the service of the Company or its subsidiaries, limiting in any way the right of the Company or its subsidiaries to terminate the Participant's employment at any time, evidencing any agreement or understanding, express or implied, that the Company or its subsidiaries will employ the Participant in any particular position or at any particular rate of compensation and/or guaranteeing the Participant any right to receive a salary increase in any year, such increase being granted only at the sole discretion of the Compensation Committee of the Board. 4) The Company, or its subsidiaries, or their Boards of Directors or any committees thereof, or any officer or director of the Company or its subsidiaries or any other person shall not be liable for any act or failure to act hereunder, except for fraud. 5) This Plan shall be governed by and construed in accordance with the laws of the State of Wisconsin, to the extent not preempted by federal law, without reference to conflicts of law principles. EX-10.4 5 SR OFFICER CHANGE IN CONTROL AGREEMENT Exhibit (10)-4 SENIOR OFFICER CHANGE IN CONTROL AGREEMENT This SENIOR OFFICER CHANGE IN CONTROL AGREEMENT (the "Agreement") is entered into as of this 29th day of July, 1999 between WISCONSIN ENERGY CORPORATION (the "Company") and RICHARD A. ABDOO (the "Executive"). WHEREAS, the Executive is currently the Chief Executive Officer, President and Chairman of the Board of the Company and the Board of Directors of the Company (the "Board") wishes to encourage the Executive to continue to devote his time and attention to pursuit of Company matters without distractions relating to his employment security; and WHEREAS, the Company intends that this Agreement will provide the Executive with certain minimum compensation rights in the event of the termination of his employment under the circumstances set forth herein; NOW, THEREFORE, in consideration of the terms and conditions set forth herein, the parties agree as follows: 1. Defined Terms. All of the capitalized terms used in this Agreement are defined in the attached Appendix. 2. Purpose of Agreement. This Agreement is intended to provide the Executive with certain minimum compensation rights in the event of his termination of employment under certain circumstances associated with a Change in Control of the Company as set forth herein. 3. Obligation of the Company on a Covered Termination of Employment. In the event of a Covered Termination of Employment, then the Company shall provide the Executive with the following compensation and benefits: (a) General Compensation and Benefits. The Company shall pay the Executive's full salary to the Executive from the time notice of termination is given through the date of termination of employment at the rate in effect at the time such notice is given or, if higher, at an annual rate not less than twelve (12) times the Executive's highest monthly base salary for the 12-month period immediately preceding the month in which the Effective Date occurs, together with all compensation and benefits payable to the Executive through the date of termination of employment under the terms of any compensation or benefit plan, program or arrangement maintained by the Employer during such period. Such payments shall be made in a lump sum not later than five (5) days after such termination. The Company shall also pay the Executive's normal post-termination compensation and benefits to the Executive as such payments become due, except that any normal cash severance benefits shall be superseded and replaced entirely by the benefits provided under this Agreement. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Employer's retirement, insurance and other compensation or benefit plans, programs and arrangements most favorable to the Executive in effect at any time during the 180-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to executives of the Company of comparable status and position to the Executive. (b) Incentive Compensation. Notwithstanding any provision of any cash bonus or incentive compensation plan of the Employer, the Company shall pay to the Executive, within five (5) days after the Executive's termination of employment, a lump sum amount, in cash, equal to the sum of (i) any bonus or incentive compensation which has been allocated or awarded to the Executive for a fiscal year or other measuring period under the plan that ends prior to the date of termination of employment, but which has not yet been paid, or (ii) a pro rata portion to the date of termination of employment of the aggregate value of all contingent bonus or incentive compensation awards to the Executive for all uncompleted periods under the plan calculated as to each such award as if the "target" with respect to such bonus or incentive compensation award had been attained. (c) Special Compensation. The Company shall pay to the Executive a lump sum equal to three (3) times the sum of (a) the highest per annum base rate of salary in effect with respect to the Executive during the 3-year period immediately prior to the termination of employment plus (b) the higher of (i) the highest annual bonus or incentive compensation earned by the Executive under any cash bonus or incentive compensation plan of the Company during the three (3) complete fiscal years of the Company immediately preceding the termination of employment or, if more favorable to the Executive, during the three (3) complete fiscal years of the Company immediately preceding the Change in Control of the Company; or (ii) the Executive's bonus or incentive compensation "target" for the fiscal year in which the termination of employment occurs. Such lump sum shall be paid by the Company to the Executive within five (5) days after the Executive's termination of employment. Such lump sum shall not be treated as compensation for purposes of any other benefit plan or program applicable to the Executive. (d) Welfare Benefits. Subject to Section 3(e) below, for a three (3) year period following termination of employment, the Company shall provide the Executive with health, disability, life and other welfare benefits substantially similar to the benefits received by the Executive pursuant to the Company's (or an affiliated employer's) welfare benefit programs as in effect immediately during the 180 days preceding the Effective Date (or, if more favorable to the Executive, as in effect at any time thereafter until the termination of employment); provided, however, that no compensation or benefits provided hereunder shall be treated as compensation for purposes of any of the programs or shall result in the crediting of additional service thereunder. To the extent that any of the welfare benefits covered by this Section 3(d) cannot be provided pursuant to the plan or program maintained by the Company or its affiliates, the Company shall provide such benefits outside the plan or program at no additional cost (including, without limitation, tax cost) to the Executive and his family. For purposes of determining the eligibility of the Executive for any retiree medical, dental and life insurance benefits under the Company's (or any affiliated employer's) welfare benefit plans, practices and policies, the Executive shall be considered to have remained employed and to have retired on the last day of a three (3) year period following termination of employment. (e) New Employment. If the Executive secures new employment during the 3-year period following termination of employment, the level of any benefit being provided pursuant to Section 3(d) hereof shall be reduced to the extent that any such benefit is being provided by the Executive's new employer. The Executive, however, shall be under no obligation to seek new employment and, in any event, no other amounts payable pursuant to this Agreement shall be reduced or offset by any compensation received from new employment or by any amounts claimed to be owed by the Executive to the Company or any affiliated employer. 4.Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, and whether or not a Covered Termination of Employment occurs, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 4) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed on the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of paragraph (c) of this Section 4, all determinations required to be made under this Section 4, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a certified public accounting firm designated by the Executive (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 4, shall be paid by the Company to the Executive within five (5) days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to paragraph (c) of this Section 4 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company. (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c) of Section 4, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) of this Section 4, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of paragraph (c) of this Section 4) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) of this Section 4, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 5. Termination of Employment. The Executive's employment shall cease on his death while in the Company's employ. The Company shall be entitled to terminate the Executive's employment on account of Disability pursuant to the procedures set forth in Section (d) of the Appendix, for Cause pursuant to the procedures set forth in Section (a) of the Appendix, or without Cause by giving written notice to the Executive of such termination. The Executive may terminate his employment for Good Reason by giving the Company written notice of the termination, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason. A termination of employment by the Executive for Good Reason shall be effective on the fifth (5th) business day following the date such notice is given, unless the notice sets forth a later date (which date shall in no event be later than 30 days after the notice is given). In the event of a dispute regarding whether the Executive's voluntary termination qualifies as a termination for Good Reason, no claim by the Company that the same does not constitute a termination for Good Reason shall be given effect unless the Company establishes by clear and convincing evidence that such termination does not constitute a termination for Good Reason. The Executive may also terminate his employment without Good Reason by giving the Company written notice of such termination. 6. Obligations of the Company on Termination of Employment for Death, Disability, for Cause or by the Executive Other than for Good Reason. If the Executive's employment is terminated by reason of his death or Disability, or if such employment is terminated by the Company for Cause or by the Executive other than for Good Reason, the Company will pay to the Executive's estate or legal representative or to the Executive, as the case may be, all accrued but unpaid base salary and all other benefits and amounts which may become due in accordance with the terms of any applicable benefit plan, contract, agreement or practice, but no compensation or benefits will be paid under this Agreement. 7. Successors and Binding Agreements. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and to agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no succession had taken place. This Agreement shall be binding upon and inure to the benefit of the Company and any such successor, and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's respective personal or legal representative, executor, administrator, successor, heirs, distributees and/or legatees. (c) Neither the Company nor the Executive may assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in this Section. Without limiting the generality of the foregoing, the Executive's right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by will or the laws of descent and distribution. In the event the Executive attempts any assignment or transfer contrary to this Section, the Company shall have no liability to pay any amount so attempted to be assigned or transferred. 8. Notices. All communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or five (5) business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the Company (to the attention of the Secretary of the Company) at its principal executive office and to the Executive at his/her principal residence, or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of a change of address shall be effective only upon receipt. 9. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Wisconsin without giving effect to the principles of conflict of laws of such state, except that Section 10 shall be construed in accordance with the Federal Arbitration Act if arbitration is chosen by the Executive as the method of dispute resolution. 10. Settlement of Disputes; Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled, at the Executive's election, either by arbitration in Milwaukee, Wisconsin in accordance with the rules of the American Arbitration Association then in effect or by litigation; provided, however, that in the event of a dispute regarding whether the Executive's employment has been terminated for Cause or whether the Executive's voluntary termination qualifies as a termination for Good Reason, the evidentiary standards set forth in this Agreement shall apply. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 11. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. 12. Entire Agreement; Amendments. This Agreement constitutes the entire understanding and agreement of the parties with respect to the matters discussed herein and supersedes all other prior agreements and understandings, written or oral, between the parties with respect thereto. There are no representations, warranties or agreements of any kind relating thereto that are not set forth in this Agreement. This Agreement may not be amended or modified except by a written instrument signed by the parties hereto or their respective successors and legal representatives. 13. Withholding. The Company may withhold from any amounts payable under this Agreement all federal, state and other taxes as shall be legally required. 14. Certain Limitations. Nothing in this Agreement shall grant the Executive any right to remain an executive, director or employee of the Company or of any of its subsidiaries for any period of time. 15. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and date first written above. WISCONSIN ENERGY CORPORATION /s/Richard A. Abdoo /s/Thomas H. Fehring - ---------------------------- By:----------------------------- RICHARD A. ABDOO Corporate Secretary APPENDIX This is an appendix to the Senior Officer Change in Control Agreement between WISCONSIN ENERGY CORPORATION and RICHARD A. ABDOO dated July 29, 1999 (the "Agreement"). As used in the Agreement, the terms set forth below shall have the following meanings: (a) "Cause" means that the Executive shall, prior to any termination of employment have: (i) engaged in any act of fraud, embezzlement or theft in connection with his duties for or in the course of his employment by the Company or any of its affiliates; (ii) wrongfully disclosed any confidential information of the Company or any of its affiliates; or (iii) engaged in willful misconduct in the performance of his duties for the Company or any of its affiliates that was intended to personally benefit the Executive; and in any such case the act shall have been determined by the Board to have been materially harmful to the Company. The Executive may only be terminated for Cause if the Company gives written notice to the Executive of its intention to terminate the Executive's employment for Cause, setting forth in reasonable detail the specific conduct of the Executive that it considers to constitute Cause and the specific provision(s) of this Agreement on which it relies, and stating the date, time and place of the Special Board Meeting for Cause. The "Special Board Meeting for Cause" means a meeting of the Board called and held specifically for the purpose of considering the Executive's termination for Cause, that takes place not less than ten (10) and not more than twenty (20) business days after the Executive receives the notice of termination for Cause. The Executive shall be given an opportunity, together with counsel, to be heard at the Special Board Meeting for Cause. The Executive's termination for Cause shall be effective when and if a resolution is duly adopted at the Special Board Meeting for Cause by affirmative vote of a majority of the entire membership of the Board, excluding employee directors, stating that in the good faith opinion of the Board, the Executive is guilty of the conduct described in the notice of termination for Cause and that conduct constitutes Cause under this Agreement. In the event of a dispute regarding whether the Executive's employment has been terminated for Cause, no claim by the Company that Cause exists shall be given effect unless the Company establishes by clear and convincing evidence that Cause exists. (b) "Change in Control" with respect to the Company means the occurrence of any of the following events, as a result of one transaction or a series of transactions: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding the Company, its affiliates and any qualified or nonqualified plan maintained by the Company or its affiliates) becomes the "beneficial owner" (as defined in Rule 13(d) promulgated under such Act), directly or indirectly, of securities of the Company representing more than 20% of the combined voting power of the Company's then outstanding securities; (ii) individuals who constitute a majority of the Board immediately prior to a contested election for positions on the Board cease to constitute a majority as a result of such contested election; (iii) the Company is combined (by merger, share exchange, consolidation, or otherwise) with another corporation and as a result of such combination: (A) less than 60% of the outstanding securities of the surviving or resulting corporation are owned in the aggregate by the former shareholders of the Company and (B) those individuals who were directors of the Company immediately prior to such transaction do not constitute a majority of the Board of Directors of the surviving or resulting corporation immediately after such transaction; or (iv) the Company sells, leases, or otherwise transfers all or substantially all of its properties or assets not in the ordinary course of business to another person or entity unless such sale, lease or transfer is pursuant to a plan adopted by the Company to disaggregate its electric generation, transmission or distribution assets. These Change in Control provisions shall apply to successive Changes in Control on an individual transaction basis. (c) "Covered Termination of Employment" means: (i) a termination of employment by the Company other than because of death or Disability and without Cause, which occurs within a period of eighteen (18) months following the Effective Date or, (ii) a termination of employment by the Company other than because of death or Disability and without Cause within a period of six (6) months prior to the Effective Date, and it is reasonably demonstrated by the Executive that such termination of employment was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or otherwise arose in connection with or in anticipation of a Change in Control, or (iii) a termination of employment by the Executive for Good Reason within a period of eighteen (18) months following the Effective Date and also subsequent to the occurrence, without the Executive's written consent, of any event described in Section (f) after the Effective Date, or, in the case of an event described in Section (f)(i), (ii), (iii) or (iv), such event occurs on or before the Effective Date and it is reasonably demonstrated by the Executive that such event occurred at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or otherwise arose in connection or in anticipation of a Change in Control, or (iv) a voluntary termination of employment by the Executive without Good Reason following completion of one year of service after a Change in Control of the Company, provided that the voluntary termination must be effected by the Executive within six (6) months after the completion of that one-year of service. (d) "Disability" means that the Executive has been unable, for a period of 180 consecutive business days, to perform the material duties of his job, as a result of physical or mental illness or injury and that a physician selected by the Company or its insurers and acceptable to the Executive or his legal representative, has determined that the Executive's incapacity is total and permanent. A termination of the Executive's employment by the Company for Disability shall be communicated to the Executive by written notice and shall be effective on the 30th day after receipt of such notice by the Executive, unless the Executive returns to full-time performance of his duties before the expiration of such 30-day period. (e) "Effective Date" means the first date on which a Change in Control of the Company occurs. (f) "Good Reason" means: (i) the assignment to the Executive of any duties inconsistent with the customary duties of a Chief Executive Officer or any other action by the Company that results in a diminution in the Executive's position, authority, duties or responsibilities, or (ii) any reduction in the Executive's base salary or percentage of base salary available as an incentive compensation or bonus opportunity relative to those most favorable to the Executive in effect at any time during the 180-day period prior to the Effective Date or to the extent more favorable to the Executive, those in effect after the Effective date, or (iii) the relocation of the Executive's principal place of employment to a location more than 35 miles from the Executive's principal place of employment immediately prior to the Effective Date, or (iv) the Company's requiring the Executive to travel on Company business to a materially greater extent than was required immediately prior to the Effective Date, or (v) the failure by the Company to comply with Section 7(a) of this Agreement. EX-27.1 6 WEC SCHEDULE UT-SIX MONTHS ENDED JUNE 30, 1999
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS OF WISCONSIN ENERGY CORPORATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S.DOLLARS DEC-31-1999 JAN-01-1999 JUN-30-1999 6-MOS 1 PER-BOOK 3,276,956 1,386,829 631,091 0 521,701 5,816,577 1,170 796,029 1,154,708 1,951,907 0 30,450 1,174,147 50,664 620,885 223,189 103,641 0 184,336 26,348 1,451,010 5,816,577 1,095,725 53,853 893,378 893,378 202,347 23,434 225,781 69,514 102,414 0 102,414 90,602 0 228,747 0.88 0.88 Total Net Utility Plant is $3,798,985 of net property, plant and equipment less $522,029 of net non-utility property. Other Property and Investments is $864,800 of investments plus $522,029 of net non-utility property. Retained Earnings is net of $1,195 of unearned compensation for restricted stock awards. Other Items - Capital and Liabilities includes $200,000 of Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company. Income before interest expense and income taxes. Total Interest Expense includes $3,653 of distributions on preferred securities of subsidiary trust and $601 of preferred dividend requirements of subsidiary. Preferred Stock Dividends are included in Total Interest Expense. See financial statements and notes in the accompanying 10-Q.
EX-27.2 7 WEC RESTATED SCH UT-FISCAL YEAR ENDED DEC 31, 1998
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS OF WISCONSIN ENERGY CORPORATION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS SCHEDULE REFLECTS RECLASSIFICATION OF AMOUNTS TO CONFORM TO THE COMPANY'S CURRENT FINANCIAL STATEMENT PRESENTATION. 1,000 U.S.DOLLARS DEC-31-1998 JAN-01-1998 DEC-31-1998 12-MOS 1 PER-BOOK 3,238,385 1,056,471 608,119 0 458,782 5,361,757 1,156 759,195 1,142,754 1,903,105 0 30,450 1,175,252 51,503 403,341 235,356 99,591 0 170,431 19,549 1,273,179 5,361,757 2,039,433 92,166 1,664,679 1,664,679 374,754 26,765 401,519 121,221 188,132 0 188,132 177,397 94,346 459,951 1.65 1.65 Total Net Utility Plant is $3,499,180 of net property, plant and equipment less $260,795 of net non-utility property. Other Property and Investments is $795,676 of investments plus $260,795 of net non-utility property. Income before interest expense and income taxes. Total Interest Expense includes $1,203 of preferred dividend requirements of subsidiary. Preferred Stock Dividends are included in Total Interest Expense. See financial statements and notes in the accompanying 10-Q.
EX-27.3 8 WEC RESTATED SCH UT-SIX MONTHS ENDED JUNE 30, 1998
UT THIS 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. THIS SCHEDULE REFLECTS RECLASSIFICATION OF AMOUNTS TO CONFORM TO THE COMPANY'S CURRENT FINANCIAL STATEMENT PRESENTATION. 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 5,113,660 991,253 39,325 830,886 830,886 160,367 15,824 176,191 58,964 77,902 0 77,902 87,471 0 254,686 0.69 0.69 Total Net Utility Plant is $3,433,915 of net property, plant and equipment less $235,759 of net non-utility property. Other Property and Investments is $700,139 of investments plus $235,759 of net non-utility property. Income before interest expense and income taxes. Total Interest Expense includes $601 of preferred dividend requirements of subsidiary. Preferred Stock Dividends are included in Total Interest Expense. See financial statements and notes in the accompanying 10-Q.
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