01—Abstract
Summary
Summary of the 10-K filed March 30, 2000. Cited figures are marked; the original filing is the authoritative source.
Wisconsin Energy Corporation (now WEC Energy Group, Inc.) and its principal subsidiary Wisconsin Electric Power Company filed a combined 10-K for the year ended December 31, 1999.
Wisconsin Energy reported 1999 net income of $208,989 thousanda, or $1.79 per share, up from $188,132 thousand and $1.65 per share in 1998. Excluding an $18 million one-time litigation settlement charge (about $10.8 million after tax, or $0.09 per share), earnings from continuing operations were $220 million. Total operating revenues rose to $2.27 billion from $2.04 billion, driven by the non-utility segment, which began independent power production after the April 1999 acquisition of two Connecticut power plants for $277 million.
Total assets grew to $6.23 billionb from $5.36 billion. The pending $1.2 billion acquisition of WICOR, Inc., which owns Wisconsin Gas Company, was expected to close on or about April 26, 2000. The Public Service Commission of Wisconsin approved the merger in March 2000 with a qualified five-year rate freeze, and the company expects about $35 million in annual net merger-related cost savings.
The company plans to fund the cash portion through commercial paper backed by new bank facilities. Wisconsin Electric's Point Beach nuclear plant supplied 22%c of its 1999 net energy supply, up from 18% in 1998.
The key risk for investors is the West Allis lawsuit, in which a jury in July 1999 awarded $4.5 milliond in actual damages and $100 million in punitive damages against Wisconsin Electric. The company has tendered a $110 million contested liability payment, has not established a reserve, and considers the verdict unsupported and likely to be reversed or substantially reduced on appeal.
02—Key points
Key Highlights
- Net income rose to $208,989 thousand ($1.79 per share) in 1999 from $188,132 thousand ($1.65 per share) in 1998.
- Total operating revenues were $2,272,639 thousand, up from $2,039,433 thousand in 1998.
- Non-utility energy operations added $101 million of independent power revenues after the April 1999 purchase of two Connecticut power plants for $277 million.
- The pending WICOR acquisition, at a fixed price of $31.50 per share and about $1.2 billion total purchase price, was expected to close on or about April 26, 2000, with about $35 million in annual net cost savings expected.
- Wisconsin Electric faces a July 1999 jury verdict of $4.5 million actual and $100 million punitive damages in the West Allis lawsuit; a $110 million contested payment was tendered and no reserve has been recorded.
- Wisconsin Electric's electric sales rose 3.9% in 1999 to about 30.6 million megawatt-hours, and its all-time peak demand reached 5,974 megawatts.
- The Public Service Commission of Wisconsin approved an interim 1.7% electric price increase and a 3.3% gas price increase on March 23, 2000.
03—Questions
Frequently Asked Questions
How did earnings change in 1999, and were there any one-time items?
Net income increased to $208,989 thousand, or $1.79 per share, from $188,132 thousand, or $1.65 per share, in 1998. The results include an $18 million one-time litigation settlement payment made in the fourth quarter of 1999 to Wisconsin International Electric Power, which reduced earnings by $10.8 million, or $0.09 per share, after tax. Excluding that charge, earnings from continuing operations were $220 million.
What is the status of the WICOR merger?
Wisconsin Energy agreed on June 27, 1999 to acquire WICOR, Inc. for a fixed price of $31.50 per WICOR share, a total purchase price of about $1.2 billion, plus about $300 million of assumable debt. The Federal Trade Commission closed its review in March 2000, and the Public Service Commission of Wisconsin approved the merger on March 15, 2000 with a qualified five-year rate freeze. The remaining Securities and Exchange Commission approval was expected to be completed in time for closing on or about April 26, 2000. The cash portion is expected to be funded through commercial paper backed by new bank credit facilities.
What is the financial exposure from the West Allis lawsuit?
In July 1999, a jury awarded the plaintiffs $4.5 million in actual damages and $100 million in punitive damages against Wisconsin Electric over alleged cyanide-contaminated wood chips deposited in 1959. In December 1999, Wisconsin Electric tendered a contested liability payment of $110 million to stop interest accruing at 12% per annum during the appeal. Management believes the verdict was not supported by the evidence or the law and has not established a reserve. Plaintiffs have also filed a motion for sanctions, with oral argument scheduled for April 2000.
What drove the growth in non-utility operations?
Non-utility operating revenues rose to $193,240 thousand in 1999 from $34,108 thousand in 1998. Wisvest-Connecticut, LLC acquired the Bridgeport Harbor Station (590 megawatts) and New Haven Harbor Station (466 megawatts) in April 1999 for $277 million. Energy marketing, trading and services revenues also grew, to $74,541 thousand from $25,069 thousand. The non-utility segment's pretax operating income rose to $20,372 thousand from $2,994 thousand.
How is the utility's power supply and nuclear generation changing?
Point Beach Nuclear Plant provided 22% of Wisconsin Electric's net electric energy supply in 1999, up from 18% in 1998 and 6% in 1997. Wisconsin Electric expects to transfer operating responsibility for Point Beach to the Nuclear Management Company, LLC in mid-2000, pending Nuclear Regulatory Commission approval. Wisconsin Electric also signed a long-term contract for a 300-megawatt gas-fired peaking plant in Neenah, Wisconsin, scheduled for commercial operation by June 2000.
04—Continue