Why did net income rise while income from continuing operations declined?

Net income of $306.4 million includes $184.2 million from discontinued operations, mainly the gain on the July 31, 2004 sale of the manufacturing business. Income from continuing operations fell to $122.2 million from $200.4 million, largely because of $150.4 million of asset valuation charges recorded in 2004.

What is the status of the Elm Road coal units under Power the Future?

The PSCW had granted a CPCN for two 615-megawatt coal units at Oak Creek, but the Dane County Circuit Court vacated the order in November 2004. The company, the PSCW and the WDNR appealed, and the Supreme Court of Wisconsin agreed to hear the case, with oral arguments scheduled for March 30, 2005 and a decision expected no later than June 30, 2005. The filing says the company is unable to state whether the project could proceed if the Bechtel notice to proceed is delayed beyond July 1, 2005.

How is the company reducing its debt and funding its capital program?

The company retired $654.2 million of debt during 2004, using proceeds from asset sales, including the $857 million manufacturing sale. It expects to fund most Power the Future spending with internally generated cash and debt financing, and it does not plan to issue new equity for that program. It also expects to keep its debt-to-total-capital ratio at no more than 61.5% during plant construction.

What are the main regulatory events affecting near-term results?

The filing cites a PSCW order on the 2005 revenue deficiency request for Wisconsin Electric, with an order expected before April 2005; a $114.9 million electric fuel recovery filing made in February 2005, expected to be approved on an interim basis in March 2005; and the five-year rate restriction ending December 31, 2005, with a full rate review expected for rates beginning January 1, 2006.

What is the Port Washington project's timing and cost?

The first 545-megawatt natural gas unit at Port Washington was about 87% complete as of January 31, 2005 and is expected to be operational early in the third quarter of 2005. The second unit is expected in 2008. The PSCW order sets fixed construction costs of $309.6 million and $280.3 million (2001 dollars) for the two units, subject to GDP inflation escalation.

WEC 10-K FY2004 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 4, 2005. Cited figures are marked; the original filing is the authoritative source.

Wisconsin Energy Corporation's 2004 Form 10-K reports that 2004 net income rose to $306.4 million^a, or $2.57 diluted earnings per share, from $244.3 million, or $2.06, in 2003.

The result includes $184.2 million^b of income from discontinued operations, mainly from the July 31, 2004 sale of the manufacturing segment (WICOR Industries) to Pentair, Inc. Income from continuing operations fell to $122.2 million from $200.4 million, reflected in $150.4 million of asset valuation charges, including a $122.0 million non-cash charge on the Calumet Energy facility. Operating income was $379.8 million compared with $482.2 million in 2003. The utility energy segment remains the core business, with operating income of $528.6 million in 2004 versus $544.1 million in 2003.

The company is executing its Power the Future strategy: two 545-megawatt natural gas units at Port Washington, with the first expected in service early in the third quarter of 2005, and two 615-megawatt coal units at Oak Creek (Elm Road), whose CPCN was vacated by the Dane County Circuit Court and is being reviewed by the Supreme Court of Wisconsin, with oral arguments set for March 30, 2005. The filing states the company expects Power the Future capital needs of about $2.5 billion^c net, and total debt was reduced by $654.2 million during 2004 using sale proceeds.

Balance sheet and cash flow data show total assets of $9,565.4 million^d, a debt-to-total-capital ratio of 59.3% at December 31, 2004 (down from 64.4% in 2003), and operating cash flow of $598.7 million. The company also raised its quarterly dividend 4.8% to $0.22 per share in January 2005, bringing the annual rate to $0.88, and the Elm Road approval process is the main near-term regulatory risk.

02—Key points

Key Highlights

Net income increased to $306.4 million ($2.57 diluted EPS) in 2004 from $244.3 million ($2.06) in 2003, aided by $184.2 million of discontinued operations income.
Sale of the manufacturing segment to Pentair, Inc. effective July 31, 2004 for cash proceeds of $857 million; total asset sale proceeds were $899.6 million in 2004.
Income from continuing operations fell to $122.2 million from $200.4 million, reflecting $150.4 million of asset valuation charges, including a $122.0 million charge on the Calumet Energy facility.
Utility energy segment operating income was $528.6 million in 2004 versus $544.1 million in 2003, with electric revenues up 4.2% on pricing increases and customer growth.
Debt was reduced by $654.2 million in 2004, and the debt-to-total-capital ratio improved to 59.3% from 64.4%.
Power the Future: the first 545-megawatt Port Washington unit is expected in service early in Q3 2005, while the Elm Road coal units face a pending Wisconsin Supreme Court review with a decision expected by June 30, 2005.
Quarterly dividend increased 4.8% to $0.22 per share, an annual rate of $0.88, announced January 20, 2005.

03—Questions

Frequently Asked Questions

Why did net income rise while income from continuing operations declined?
Net income of $306.4 million includes $184.2 million from discontinued operations, mainly the gain on the July 31, 2004 sale of the manufacturing business. Income from continuing operations fell to $122.2 million from $200.4 million, largely because of $150.4 million of asset valuation charges recorded in 2004.
What is the status of the Elm Road coal units under Power the Future?
The PSCW had granted a CPCN for two 615-megawatt coal units at Oak Creek, but the Dane County Circuit Court vacated the order in November 2004. The company, the PSCW and the WDNR appealed, and the Supreme Court of Wisconsin agreed to hear the case, with oral arguments scheduled for March 30, 2005 and a decision expected no later than June 30, 2005. The filing says the company is unable to state whether the project could proceed if the Bechtel notice to proceed is delayed beyond July 1, 2005.
How is the company reducing its debt and funding its capital program?
The company retired $654.2 million of debt during 2004, using proceeds from asset sales, including the $857 million manufacturing sale. It expects to fund most Power the Future spending with internally generated cash and debt financing, and it does not plan to issue new equity for that program. It also expects to keep its debt-to-total-capital ratio at no more than 61.5% during plant construction.
What are the main regulatory events affecting near-term results?
The filing cites a PSCW order on the 2005 revenue deficiency request for Wisconsin Electric, with an order expected before April 2005; a $114.9 million electric fuel recovery filing made in February 2005, expected to be approved on an interim basis in March 2005; and the five-year rate restriction ending December 31, 2005, with a full rate review expected for rates beginning January 1, 2006.
What is the Port Washington project's timing and cost?
The first 545-megawatt natural gas unit at Port Washington was about 87% complete as of January 31, 2005 and is expected to be operational early in the third quarter of 2005. The second unit is expected in 2008. The PSCW order sets fixed construction costs of $309.6 million and $280.3 million (2001 dollars) for the two units, subject to GDP inflation escalation.

04—Continue

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