01—Abstract
Summary
Summary of the 10-K filed February 27, 2015. Cited figures are marked; the original filing is the authoritative source.
Wisconsin Energy Corporation reported 2014 net income of $588.3 milliona, or $2.59 diluted earnings per share, compared with $577.4 million ($2.51 diluted) in 2013.
Total operating revenues were $4,997.1 millionb in 2014 versus $4,519.0 million in 2013. The company operates primarily in two segments: a utility energy segment (Wisconsin Electric and Wisconsin Gas, operating as We Energies) that generated $770.2 million of operating income, and a non-utility energy segment (We Power) that generated $368.2 million, with the non-utility assets consisting of the Power the Future plants leased to Wisconsin Electric under long-term leases. The dominant strategic development is the pending acquisition of Integrys Energy Group, Inc., agreed June 22, 2014 and expected to close in the second half of 2015.
Integrys shareholders will receive 1.128 shares of Wisconsin Energy common stock and $18.58c in cash per share, with the company expecting to issue approximately 91 million shares and about $1.5 billion of debt, and to assume Integrys' outstanding debt with an estimated fair value of $3.3 billion. The combined company will be named WEC Energy Group, Inc. Litigation over the deal was settled in principle via a Memorandum of Understanding, and a Michigan settlement agreement was reached in January 2015 that contemplates selling Michigan electric distribution assets and the Presque Isle Power Plant to UPPCO. Financially, cash from operations was $1,197.7 million in 2014, capital expenditures were $736.1 million, and common dividends paid were $352.0 million.
Long-term debt including current maturities was $4,610.5 milliond and total assets were $15,163.4 million at year-end 2014. The Board raised the quarterly dividend to $0.4225 per share in January 2015, and the company expects to increase the dividend 7-8% upon closing of the Integrys acquisition.
02—Key points
Key Highlights
- Net income rose to $588.3 million ($2.59 diluted EPS) in 2014 from $577.4 million ($2.51) in 2013; total operating revenues rose to $4,997.1 million from $4,519.0 million.
- Pending Integrys acquisition: 1.128 Wisconsin Energy shares plus $18.58 cash per Integrys share, about 91 million new shares and roughly $1.5 billion of debt; expected close in the second half of 2015.
- Utility energy segment operating income was $770.2 million in 2014 versus $719.4 million in 2013; non-utility energy segment operating income was $368.2 million.
- Capital expenditures were $736.1 million in 2014; the filing projects $827.7 million for 2015 and a $3.3 to $3.5 billion total for 2015 to 2019 across utility and non-utility businesses.
- Quarterly dividend increased to $0.4225 per share (about 8.3%) effective with the first quarter 2015 payment, equating to $1.69 annually; the payout target is 65-70% of earnings in 2017.
- The company's share repurchase program was terminated on June 22, 2014 in connection with the Integrys acquisition, after $18.6 million of repurchases in 2014.
- Environmental pressures include the EPA's proposed GHG rules for existing units (state-specific reduction goals of 34% in Wisconsin and 31% in Michigan by 2030) and the Valley Power Plant coal-to-gas conversion costing $65 million to $70 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Wec Energy Group kept $0.12.
- Revenue$5.00B100.0%
- Cost of revenue−$2.26B45.2%
- Gross profit$2.74B54.8%
- Operating costs−$1.63B32.5%
- Operating income$1.11B22.3%
- Interest, other & tax−$522.6M10.5%
- Net income$589.5M11.8%
Where FY2014 revenue went
$5.00B- Cost of revenue: $2.26B, 45% of revenue
- Operating costs: $1.63B, 33% of revenue
- Net income: $589.5M, 12% of revenue
- Interest, other & tax: $522.6M, 10% of revenue
Kept 12% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 27, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $5.00B$4.52B | +10.6% |
| Cost of Revenue | $2.26B$1.83B | +23.7% |
| Gross Profit | $2.74B$2.69B | +1.7% |
| Operating Expenses | $3.88B— | — |
| Operating Income | $1.11B$1.08B | +3.0% |
| Interest Expense | $240.30M$250.90M | −4.2% |
| Net Income | $589.50M$578.60M | +1.9% |
| EPS (Basic) | $2.61$2.54 | +2.8% |
| EPS (Diluted) | $2.59$2.51 | +3.2% |
| Shares Outstanding (Basic) | 225.60M227.60M | −0.9% |
| Shares Outstanding (Diluted) | 227.50M229.70M | −1.0% |
05—Questions
Frequently Asked Questions
Why did the company plan to acquire Integrys, and what did shareholders of each company receive?
The filing states the acquisition is in alignment with the company's corporate strategy to invest in regulated electric and gas businesses. It expects to add approximately $6.6 billion of regulated fixed assets, 0.5 million electric customers, 1.7 million gas customers, and increase its ownership of American Transmission Company to 60% from 26.2%. Integrys shareholders will receive 1.128 shares of Wisconsin Energy common stock and $18.58 in cash per Integrys share.
How is the company financing the Integrys acquisition?
The company expects to finance the acquisition through the issuance of approximately 91 million shares of Wisconsin Energy common stock to Integrys shareholders and through approximately $1.5 billion of debt. It will also assume all of Integrys' outstanding debt, which had an estimated fair value of $3.3 billion.
What regulatory approvals and conditions remain for the acquisition?
As of December 31, 2014, the Department of Justice closed its HSR review with no further action required and the FTC granted early termination of the waiting period. Shareholders of both companies approved the merger on November 21, 2014. Applications remain pending before the PSCW, Illinois Commerce Commission, MPSC, Minnesota Public Utilities Commission and FERC. The January 2015 Michigan settlement requests MPSC approval subject to conditions including the closing of the sale of Michigan electric distribution assets and the Presque Isle Power Plant to Upper Peninsula Power Company.
How strong is the company's balance sheet and liquidity position?
At December 31, 2014, total debt was $5,228.1 million and the ratio of debt to total capitalization was 54.0% on an actual basis (51.4% adjusted for rating agency treatment of the Junior Notes). The company had approximately $1.2 billion of undrawn bank back-up credit lines and $617.6 million of commercial paper outstanding. Current liabilities exceeded current assets by $133.3 million, which the company does not expect to affect liquidity.
What are the main risks to earnings highlighted in the filing?
Key risks include regulatory outcomes and cost recovery, the potential for lower allowed returns on equity at ATC after FERC's June 2014 order, environmental regulation including proposed GHG limits for existing generating units, a potential downgrade of credit ratings (S&P and Moody's outlooks for Wisconsin Energy and WECC were revised to negative related to the Integrys deal), and the risk that the acquisition may not achieve its anticipated benefits.
06—Continue