<PAGE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1994
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-7530
Wisconsin Gas Company
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(Exact name of registrant as specified in its charter)
Wisconsin 39-0476515
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
626 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
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(Address of principal executive office) (Zip Code)
(414) 291-7000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the 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 the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at March 31, 1994
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Common Stock, $8 Par Value 1,125<PAGE>
<PAGE> 2
INTRODUCTION
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Wisconsin Gas Company ("Wisconsin Gas" or "Company"), a natural gas
distribution public utility, is a Wisconsin corporation and a wholly owned
subsidiary of WICOR, Inc. ("WICOR"), a diversified holding company.
CONTENTS
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PAGE
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PART I. Financial Information.......................... 1
Management's Discussion and Analysis of
Interim Financial Statements................. 2-4
Financial Statements of Wisconsin Gas Company (Unaudited):
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Statement of Income for the Three
Months Ended March 31, 1994 and 1993......... 5
Balance Sheet as of March 31, 1994 and
December 31, 1993............................ 6-7
Statement of Cash Flows - Three Months Ended
March 31, 1994 and 1993...................... 8
Notes to Financial Statements.................. 9
PART II. Other Information.............................. 10
Signatures............................................... 11<PAGE>
<PAGE> 3
Part I - Financial Information
Financial Statements
--------------------
The following financial statements have been prepared without audit
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, although management believes that the
disclosures are adequate to make the information presented not misleading.
These condensed financial statements should be read in conjunction with
the audited financial statements and the notes thereto included in the
latest Wisconsin Gas annual report on Form 10-K.
In the opinion of management, the information furnished reflects all
adjustments, which in all circumstances were normal and recurring,
necessary for a fair statement of the results of operations for the
interim periods.
Because of seasonal factors, the results of operations for the
interim periods presented are not indicative of the results to be expected
for the full calendar year.<PAGE>
<PAGE> 4
Management's Discussion and Analysis
of Results of Operations and Financial Condition of
Wisconsin Gas Company
Results of Operations
- ---------------------
Net income increased by $3.2 million or 15% for the first quarter of
1994 over the first quarter of 1993. The following factors had a
significant effect on the results of operations during the three-month
period ended March 31, 1994.
The increase in net income for the first quarter resulted from
increased gas margins which were partially offset by an increase in
operating expenses. Increased gas margins in 1994 were due primarily to
colder weather and a November 1993 rate increase.
Revenues, margins and volumes are summarized below. Margin, defined
as revenues less cost of gas, is a better comparative performance
indicator than revenues because the mix of volumes between sales and
transportation service affects revenues but not margin. In addition,
changes in cost of gas are flowed through to revenue under a gas
adjustment clause with no resulting effect on margin.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------- %
1994 1993 Change
-------- -------- --------
<S> <C> <C> <C>
(Millions of Dollars)
- --------------------------
Gas Sales Revenue $ 240.1 $ 202.2 19
Purchased Gas Cost 153.3 129.0 19
-------- -------- --------
Gas Sales Margin 86.8 73.2 19
Gas Transportation Margin 2.1 3.2 (34)
-------- -------- --------
Total Margin $ 88.9 $ 76.4 16
======== ======== ========
(Millions of Therms)
- ----------------------
Sales Volumes
Firm 401.3 367.2 9
Interruptible 85.5 59.1 45
Transportation Volume 34.7 61.0 (43)
-------- -------- --------
Total Throughput 521.5 487.3 7
======== ======== ========
Degree Days (Normal = 3,449) 3,663 3,347 9
======== ======== ========
/TABLE
<PAGE>
<PAGE> 5
Total gas margin increased by $12.5 million or 16% for the first
quarter of 1994 over the first quarter of 1993 primarily as a result of a
9% increase in firm sales volumes. The weather was 6% colder than normal
during the first quarter of 1994 and 9% colder than the same quarter in
1993. The increase in interruptible volumes and the decrease in
transportation volumes represents a transfer of customers between these
two classes of service. A rate increase of 2.9%, effective November 12,
1993, also contributed to higher margins in the first quarter of 1994.
In April 1992, the Federal Energy Regulatory Commission (FERC) issued
Order 636 requiring interstate pipelines to "unbundle" their services by
November 1, 1993. As a result, Wisconsin Gas is contracting separately
with gas suppliers to buy gas to be delivered to the pipelines and is then
contracting with the pipelines for transportation from production areas to
utility market areas or to storage fields for future delivery to market
areas. Despite the unusually cold weather in the first quarter and the
change in gas purchasing procedures, Wisconsin Gas was able to effectively
meet its customers' gas supply needs.
Operations and maintenance expenses increased a total of $6.2 million
or 21% over the first quarter of 1993. Included in operations expenses
for the first quarter is a one-time charge of $2.7 million relating to the
election by 131 employees of an early retirement option. It is estimated
that the related savings during the rest of the year from the retirements
will substantially offset this first quarter charge. Increases in the
provision for uncollectible accounts and software amortization were
additional significant factors in the overall increase in operations and
maintenance expenses. These increased expenses are being recovered under
the November 1993 rate increase. Depreciation expense increased due to
recent capital additions. Income tax expense increased primarily due to
higher pre-tax income and a 1% increase in the federal tax rate.
Wisconsin Gas received its most recent rate increase from the Public
Service Commission of Wisconsin (PSCW) in November 1993. In July 1993
Wisconsin Gas proposed an alternative method of ratemaking which provided
for an indexed rate cap and a weather adjustment mechanism (WAM). The
PSCW recently adopted the Wisconsin Gas proposal subject to significant
modifications including a three year rate freeze and the elimination of
the WAM. The PSCW has given Wisconsin Gas the option of either accepting
the PSCW modified proposal or filing a traditional rate case in March
1995 with new rates becoming effective in November 1995. Wisconsin Gas is
currently reviewing the alternatives and will not make a decision until
the PSCW's written order is received later this year.
Financial Condition
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Cash flow from operations increased to $88.7 million in the first
quarter of 1994 as compared to $31.7 million for the comparable 1993
quarter. The main reason for the increase in cash flow is the impact of
drawing down gas in storage during the first quarter of 1994. Gas in
storage was $44.7 million and $6.6 million at the beginning of the first
quarter of 1994 and 1993, respectively. The increase in gas in storage
from 1993 to 1994 was due to FERC Order 636 which requires local gas
distribution companies, like Wisconsin Gas, to manage their own gas<PAGE>
<PAGE> 6
supplies including seasonal gas in storage. Gas in storage was $6.9
million and $0.1 million at the end of the first quarter of 1994 and 1993,
respectively. The impact of the gas in storage draw down increased cash
flow $31.2 million in the first quarter of 1994 over the first quarter of
1993.
Cash flow from operations also increased due to a change in the method
of recovering certain fixed gas costs from the Company's ratepayers in
which these costs are recovered over the heating season instead of the
whole year. This change will result in unfavorable cash flow comparisons
over the next two quarters. The amount and timing of the change in cash
flow will depend on the amount of gas costs incurred and the volume of gas
sold.
Accounts payable also contributed to the improved cash flow from
operations. The changes in gas cost recovery methodology and in gas in
storage utilization have the effect of reducing accounts payable balances
at the beginning of the first quarter. This resulted in a reduced use of
cash with respect to accounts payable during the first quarter. The cash
flow from operations in the first quarter of 1994 is more reflective of
future first quarter cash flows than is 1993.
Short-term borrowings declined more in the first quarter of 1994 than
in 1993 because of the higher level of short-term debt at December 31,
1993 needed to finance gas in storage compared to December 31, 1992.
Cash flow from operations exceeded capital expenditures and dividend
requirements for the first quarter in both 1993 and 1994.
Capital expenditures through March 1994 amounted to $6.5 million and
additional capital expenditures of approximately $50.0 million are
expected for the remainder of 1994. Most of the expenditures will be for
expansion and renewal of the gas distribution system.
<PAGE>
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WISCONSIN GAS COMPANY
Statement of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------
1994 1993
--------------------------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues.......................... $ 242,148 $ 205,426
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Operating Expenses:
Purchased gas costs....................... 153,291 128,997
Operations................................ 33,633 27,732
Maintenance............................... 1,850 1,600
Depreciation.............................. 7,291 6,994
Taxes, other than income taxes............ 2,752 2,456
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198,817 167,779
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Operating Income ........................... 43,331 37,647
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Other Income and (Deductions)............... 80 (130)
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Income Before Interest Expense.............. 43,411 37,517
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Interest Expense:
Long-term debt............................ 2,943 3,311
Other..................................... 770 536
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3,713 3,847
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Income Before Income Taxes.................. 39,698 33,670
Income Taxes................................ 14,820 12,009
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Net Income.................................. $ 24,878 $ 21,661
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</TABLE>
The accompanying notes are an integral part of this statement.<PAGE>
<PAGE> 8
WISCONSIN GAS COMPANY
Balance Sheet
<TABLE>
<CAPTION>
March 31,
1994 December 31,
(Unaudited) 1993
------------ ------------
(Thousands of Dollars)
<S> <C> <C>
Assets
- ------
Property, Plant and Equipment, at cost.............. $ 685,797 $ 679,968
Less - Accumulated depreciation................... 337,282 330,259
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348,515 349,709
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Current Assets:
Cash and cash equivalents......................... 8,926 9,680
Accounts receivable, less allowance for doubtful
accounts of $11,354,000 and $7,365,000,
respectively.................................... 115,615 64,006
Accrued utility revenues.......................... 37,870 53,483
Materials and supplies, at weighted average cost.. 3,215 3,255
Gas in storage, at weighted average cost.......... 6,928 44,697
Deferred income taxes............................. 9,460 8,280
Prepaid taxes..................................... 4,504 6,090
Other............................................. 3,069 2,128
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189,587 191,619
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Deferred Charges and Other:
Gas transition costs.............................. 13,178 15,485
Deferred environmental costs...................... 41,994 41,641
Deferred systems development costs................ 37,513 38,808
Other regulatory assets........................... 55,202 57,211
Prepaid pension costs............................. 24,911 24,418
Other............................................. 17,771 18,321
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190,569 195,884
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$ 728,671 $ 737,212
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.<PAGE>
<PAGE> 9
WISCONSIN GAS COMPANY
Balance Sheet
<TABLE>
<CAPTION>
March 31,
1994 December 31,
(Unaudited) 1993
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(Thousands of Dollars)
<S> <C> <C>
Capitalization and Liabilities
- ------------------------------
Capitalization:
Common stock................................. $ 9 $ 9
Other paid-in capital........................ 118,300 113,300
Retained earnings............................ 82,219 61,337
Long-term debt............................... 145,685 147,644
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346,213 322,290
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Current Liabilities:
Accounts payable............................. 45,928 45,828
Accounts payable - intercompany, net......... 9,178 5,720
Refundable gas costs......................... 56,984 15,596
Short-term borrowings........................ 26,000 108,000
Current portion of long-term debt............ 2,000 2,000
Accrued payroll and benefits................. 8,536 7,560
Accrued taxes................................ 4,495 2,462
Other........................................ 4,071 3,715
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157,192 190,881
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Deferred Credits and Other:
Deferred income taxes........................ 46,486 43,590
Unamortized investment tax credit............ 8,175 8,654
Environmental remediation costs.............. 40,000 40,000
Gas transition costs......................... 13,178 15,485
Other regulatory liabilities................. 48,457 50,179
Postretirement benefit obligation............ 56,486 53,895
Other........................................ 12,484 12,238
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225,266 224,041
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$ 728,671 $ 737,212
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</TABLE>
The accompanying notes are an integral part of this statement.<PAGE>
<PAGE> 10
WISCONSIN GAS COMPANY
Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1994 1993
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(Thousands of Dollars)
<S> <C> <C>
Operations:
Net income.................................. $ 24,878 $ 21,661
Adjustments to reconcile net income to
net cash flows:
Depreciation and amortization............. 9,316 8,602
Deferred income taxes..................... 1,716 389
Change in:
Receivables............................. (35,996) (31,538)
Gas in storage.......................... 37,769 6,584
Other current assets.................... (901) (2,359)
Deferred systems development costs...... (112) (2,066)
Accounts payable........................ 100 (9,070)
Accrued taxes........................... 7,005 14,581
Refundable gas costs.................... 41,388 26,179
Other current liabilities............... 1,404 2,796
Other noncurrent assets and liabilities. 2,086 (4,010)
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88,653 31,749
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Investment Activities:
Capital expenditures........................ (6,452) (6,614)
Other, net.................................. 45 27
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(6,407) (6,587)
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Financing Activities:
Change in short-term borrowings............. (82,000) (19,000)
Reduction of long-term debt................. (2,000) (2,211)
Cash dividends paid to WICOR, Inc........... (4,000) (4,000)
Donated capital from WICOR, Inc............. 5,000 2,000
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(83,000) (23,211)
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Change in Cash and Cash Equivalents........... (754) 1,951
Cash and Cash Equivalents at beginning
of period................................... 9,680 6,493
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Cash and Cash Equivalents at end of period.... $ 8,926 $ 8,444
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.<PAGE>
<PAGE> 11
Notes to Financial Statements (Unaudited):
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1) At March 31, 1994, Wisconsin Gas Company had total unsecured lines of
credit from banks of $30 million. As of March 31, 1994, no short-term
borrowings were outstanding under these credit agreements.
At March 31, 1994, $26 million of commercial paper was outstanding at
a weighted average interest rate of 3.6%.
2) For purposes of the Statement of Cash Flows, income taxes paid, net of
refunds, and interest paid (excluding capitalized interest) were as
follows:
<TABLE>
<CAPTION>
For the three months
ended March 31, 1994 1993
---------------------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Income taxes paid $ 10,117 $ 858
Interest paid $ 2,945 $ 3,261
</TABLE>
3) In July 1993, Wisconsin Gas submitted an incentive rate making
proposal to the Public Service Commission of Wisconsin (PSCW). In
its April 1994 decision, the PSCW significantly modified the
Company's proposal. Under the modified proposal, the Company's rates
will be subject to a three year cap based on the rates approved in
November, 1993. The Company will also reduce rates by $10.1 million,
which will be offset by a reduction in certain non-cash expenses,
resulting in no net income impact, but a reduction in cash flow. The
PSCW has given the Company the option of either accepting the
modified proposal or filing a traditional rate case in March 1995.
Wisconsin Gas is reviewing the alternatives and will not make a
decision until the PSCW Order is received later this year.
4) WICOR invested $5 million and $2 million in Wisconsin Gas in the
first quarter of 1994 and 1993, respectively.
5) In January 1994, Wisconsin Gas offered a voluntary early retirement
incentive plan to employees over age 55. A total of 131 employees
elected to retire under the provisions of this incentive plan.
Wisconsin Gas has recorded a charge, which includes the impact on the
pension and postretirement benefit plans, to operating expense of
$2.7 million in the first quarter of 1994.<PAGE>
<PAGE> 12
Part II - Other Information
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Item 1. Legal Proceedings
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During the first quarter of 1994, Wisconsin Gas initiated suit
against its insurance carriers for recovery of environmental cleanup
costs associated with former manufactured gas plant operations. Any
cleanup costs not recoverable from its insurance carriers will be
allowed full recovery in rates (net of carrying costs) based on
recent PSCW orders. Wisconsin Gas is in various stages of
negotiations with its insurance carriers regarding settlement of the
litigation.
Item 6. Exhibit and Reports on Form 8-K
- ---------------------------------------
(a) Exhibits - None.
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
for the first quarter of 1994.<PAGE>
<PAGE> 13
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WISCONSIN GAS COMPANY
Dated: May 13, 1994 By: /s/ Joseph P. Wenzler
----------------------------
Joseph P. Wenzler
Vice President and Chief
Financial Officer<PAGE>
