<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 September 30, 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
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 9-0476515
---------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S Employer
or organization) Identification No.)
626 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
------------------------------------------------ -----------
(Address of principal executive office) (Zip Code)
(414) 291-7000
----------------------------------------------------
(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 September 30, 1994
- -------------------------- ---------------------------------
Common Stock, $8 Par Value 1,125<PAGE>
<PAGE> 2
INTRODUCTION
--------------
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
----------
PAGE
------
PART I. Financial Information.......................... 1
Management's Discussion and Analysis of
Interim Financial Statements................. 2-4
Financial Statements of Wisconsin Gas Company (Unaudited):
----------------------------------------------------------
Statement of Operations for the Three and Nine
Months Ended September 30, 1994 and 1993..... 5
Balance Sheet as of September 30, 1994 and
December 31, 1993............................ 6-7
Statement of Cash Flows - Nine Months Ended
September 30, 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 and quarterly reports on Form 10-Q.
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 Interim Financial Statements of
Wisconsin Gas Company
Results of Operations
- ---------------------
The results of the third quarter of 1994 were essentially unchanged from
last year. The net loss for the third quarter of 1994 was $10.5 million as
compared to a net loss of $10.7 million in the third quarter of 1993. The
negative impact of warmer weather on margins during the 1994 third quarter
was offset by rate increases, lower than normal increases in operating
expenses and by reductions in interest expense. Conversely, net income for
the nine months ended September 30, 1994 increased by $2.4 million or 32%,
compared to the same period of last year. The increase in 1994 year-to-date
net income was due primarily to a rate increase and colder than normal
weather in the first quarter of 1994.
Revenues, margins and volumes are summarized below. Margin, defined as
revenues less cost of gas sold, 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 the cost of gas sold are flowed through to revenue under a gas
adjustment clause with no resulting effect on margin.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------- % -------------- %
1994 1993 Change 1994 1993 Change
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
(Millions of Dollars)
- ---------------------
Gas Sales Revenues $ 75.3 $ 79.7 (6) $413.2 $392.1 5
Cost of Gas Sold 53.6 59.6 (10) 272.4 267.3 2
------ ------ ------ ------
Gas Sales Margin 21.7 20.1 8 140.8 124.8 13
Gas Transport Margin 1.4 2.1 (33) 5.0 7.6 (34)
------ ------ ------ ------
Total Margin $ 23.1 $ 22.2 4 $145.8 $132.4 10
====== ====== ====== ======
(Millions of Therms)
- --------------------
Sales Volumes
Firm 57.6 64.4 (11) 571.6 558.7 2
Interruptible 60.1 40.2 50 206.8 141.8 46
Transportation Volume 25.3 35.8 (29) 86.4 139.4 (38)
------ ------ ------ ------
Total Throughput 143.0 140.4 2 864.8 839.9 3
====== ====== ====== ======
Degree Days (Normal:
3rd Qtr. = 166
Nine Months = 4,592) 71 161 (56) 4,577 4,511 1
====== ====== ====== ======
/TABLE
<PAGE>
<PAGE> 5
The decrease in firm sales volumes for the third quarter of 1994 from last
year was caused principally by warmer weather in September 1994 versus
September 1993. For the nine months ended September 30, 1994, the total
margin increase was primarily due to a 2.9% annual rate increase, which
became effective on November 12, 1993, and to growth in firm sales volumes.
For both the third quarter and year-to-date, there has been a transfer of
customers and volumes to interruptible sales from transportation services.
Operations and maintenance expenses increased by $0.5 million, or 2%, and
$8.1 million, or 10%, for the three- and nine-month periods ended September
30, 1994, respectively, compared with the same periods of 1993. In the third
quarter, increased expenses for uncollectible accounts, software
amortization, general office costs, and outside services were partially
offset by reductions in distribution system operating costs and employee
benefit expenses. Included in 1994 year-to-date operations expenses is a
first quarter, one-time charge of $2.7 million relating to the election by
131 employees of an early retirement option. The related savings from the
retirements have been realized since the first quarter and it is estimated
that by year end the savings 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 for the year-to-date. These increased
expenses are being recovered in rates on an annual basis under the November
1993 rate order.
Depreciation expense increased for both the quarter and year-to-date due to
recent capital additions. For the third quarter and year-to-date, when
compared to 1993, interest expense on long-term debt decreased primarily as
a result of lower interest rates achieved through a $45 million long-term
debt refinancing in September 1993. The increase in the quarter and year-to-
date other interest expense is due primarily to the amortization of
previously deferred interest related to the financing of gas in storage.
This was offset in part by lower short-term interest expense from reduced
short-term borrowings in 1994. The income tax benefit for the third quarter
of 1993 was lower than 1994 because of the lower pre-tax loss and as a result
of a federal income tax increase retroactive to January 1, 1993. Income tax
expense for the year-to-date increased primarily due to higher pre-tax
income.
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 has given
initial approval to an alternative approach with a three-year margin rate cap
(without the WAM) based on the rates approved in November 1993. It is
expected that the PSCW will give Wisconsin Gas the option of either accepting
the modified proposal or filing a traditional rate case in March 1995 with
new rates becoming effective in November 1995. Wisconsin Gas anticipates it
will accept the modified proposal.<PAGE>
<PAGE> 6
Financial Condition
- -------------------
Cash flow from operations increased to $84.9 million in the first nine months
of 1994 as compared to $8.3 million for the same 1993 period. A main reason
for the increase in cash flow in 1994 was the significant use of cash in 1993
($47.2 million) to purchase and store natural gas. The increase in gas in
storage from the beginning of 1993 to the beginning of 1994 was due to FERC
Order 636 which requires local gas distribution companies, like Wisconsin
Gas, to manage their own gas supplies including seasonal gas in storage.
The increase in cash from other non-current assets and liabilities was a
result of increased recovery of the deferred uncollectible expense,
recognition of a deferred regulatory liability for environmental clean-up
cost recoveries, and a net increase in the liability for postretirement
benefits due to the early retirement option in the first quarter of 1994.
More short-term borrowings were repaid in the first nine months of 1994 than
in 1993 because of the higher level of short-term debt at December 31, 1993
versus December 31, 1992. The higher level of short-term debt was needed to
finance gas in storage. Cash from operations provided sufficient funds to
make these payments.
Cash flow from operations exceeded capital expenditures and dividend
requirements for the first nine months in 1994. In the first nine months of
1993 capital expenditures and dividends were in excess of cash flow from
operations due to the financing of gas in storage.
Capital expenditures through September 1994 amounted to $30.1 million and
additional capital expenditures of approximately $19.1 million are expected
for the remainder of 1994. Cash flow from operations should be sufficient to
fund the remaining capital expenditures for 1994. Most of the expenditures
will be for expansion and renewal of the gas distribution system.
<PAGE>
<PAGE> 7
WISCONSIN GAS COMPANY
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues............... $ 76,675 $ 81,761 $ 418,172 $ 399,635
---------- ---------- ---------- ----------
Operating Expenses:
Cost of gas sold............... 53,618 59,610 272,377 267,278
Operations..................... 24,327 23,666 83,949 75,752
Maintenance.................... 1,988 2,133 5,692 5,753
Depreciation................... 7,480 7,057 22,130 20,719
Taxes, other than income taxes. 2,434 2,232 7,545 6,877
---------- ---------- ---------- ----------
89,847 94,698 391,693 376,379
---------- ---------- ---------- ----------
Operating Income (Loss).......... (13,172) (12,937) 26,479 23,256
---------- ---------- ---------- ----------
Other Income and (Deductions).... (108) (19) (37) (151)
---------- ---------- ---------- ----------
Income (Loss) Before
Interest Expense............... (13,280) (12,956) 26,442 23,105
---------- ---------- ---------- ----------
Interest Expense:
Long-term debt................. 2,837 3,290 8,709 9,860
Other.......................... 505 208 1,578 1,069
---------- ---------- ---------- ----------
3,342 3,498 10,287 10,929
---------- ---------- ---------- ----------
Income (Loss) Before
Income Taxes................... (16,622) (16,454) 16,155 12,176
Income Tax Expense (Benefit).... (6,137) (5,707) 6,054 4,515
---------- ---------- ---------- ----------
Net Income (Loss)................ $ (10,485) $ (10,747) $ 10,101 $ 7,661
========== ========== ========== ==========
The accompanying notes are an integral part of this statement.
/TABLE
<PAGE>
<PAGE> 8
WISCONSIN GAS COMPANY
Balance Sheet
<TABLE>
<CAPTION>
September 30,
1994 December 31,
(Unaudited) 1993
------------ ------------
(Thousands of Dollars)
<S> <C> <C>
Assets
- ------
Property, Plant and Equipment, at cost............. $ 706,560 $ 679,968
Less - Accumulated depreciation.................. 350,251 330,259
------------ ------------
356,309 349,709
------------ ------------
Current Assets:
Cash and cash equivalents........................ 2,796 9,680
Accounts receivable, less allowance for
doubtful accounts of $8,685 and $7,365,
respectively................................... 37,368 64,006
Accounts receivable - intercompany, net.......... 2,945 (5,720)
Accrued utility revenues......................... 8,230 53,483
Materials and supplies, at weighted average cost. 3,136 3,255
Gas in storage, at weighted average cost......... 42,855 44,697
Deferred income taxes............................ 15,246 8,280
Prepaid taxes.................................... 7,246 3,628
Other............................................ 2,628 2,128
------------ ------------
122,450 183,437
------------ ------------
Deferred Charges and Other:
Gas transition costs............................. 9,238 15,485
Deferred environmental costs..................... 41,677 41,641
Deferred systems development costs............... 35,414 38,808
Other regulatory assets.......................... 54,037 57,211
Prepaid pension costs............................ 25,217 24,418
Other............................................ 16,177 18,321
------------ ------------
181,760 195,884
------------ ------------
$ 660,519 $ 729,030
============ ============
The accompanying notes are an integral part of this statement.
/TABLE
<PAGE>
<PAGE> 9
WISCONSIN GAS COMPANY
Balance Sheet
<TABLE>
<CAPTION>
September 30,
1994 December 31,
(Unaudited) 1993
------------ ------------
(Thousands of Dollars)
<S> <C> <C>
Capitalization and Liabilities
- ------------------------------
Capitalization:
Common stock................................ $ 9 $ 9
Other paid-in capital....................... 118,300 113,300
Retained earnings........................... 59,438 61,337
Long-term debt.............................. 145,782 147,644
------------ ------------
323,529 322,290
------------ ------------
Current Liabilities:
Accounts payable............................ 27,587 45,828
Refundable gas costs........................ 10,751 15,596
Short-term borrowings....................... 55,000 108,000
Current portion of long-term debt........... 2,000 2,000
Accrued payroll and benefits................ 12,273 7,560
Other....................................... 4,515 3,715
------------ ------------
112,126 182,699
------------ ------------
Deferred Credits and Other:
Deferred income taxes....................... 41,223 43,590
Unamortized investment tax credit........... 8,470 8,654
Environmental remediation costs............. 38,719 40,000
Gas transition costs........................ 9,238 15,485
Other regulatory liabilities................ 57,410 50,179
Postretirement benefit obligation........... 56,304 53,895
Other....................................... 13,500 12,238
------------ ------------
224,864 224,041
------------ ------------
$ 660,519 $ 729,030
============ ============
The accompanying notes are an integral part of this statement.
/TABLE
<PAGE>
<PAGE> 10
WISCONSIN GAS COMPANY
Statement of Cash Flows (Unaudited)
[CAPTION]
<TABLE>
Nine Months Ended
September 30,
-----------------------
1994 1993
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Operations:
Net income................................... $ 10,101 $ 7,661
Adjustments to reconcile net income to
net cash flows:
Depreciation and amortization.............. 28,295 25,781
Deferred income taxes...................... (9,333) 546
Change in:
Receivables.............................. 71,891 54,547
Gas in storage........................... 1,842 (47,202)
Other current assets..................... (381) (171)
Systems development costs................ (826) (4,246)
Accounts payable......................... (18,241) (15,843)
Accrued taxes............................ (12,538) (543)
Refundable gas costs..................... (4,845) (13,398)
Accrued payroll and benefits............. 4,713 6,290
Other current liabilities................ 1,055 84
Other non-current assets and liabilities. 13,185 (5,214)
---------- ----------
84,918 8,292
---------- ----------
Investment Activities:
Capital expenditures......................... (30,110) (30,300)
Other, net................................... 308 313
---------- ----------
(29,802) (29,987)
---------- ----------
Financing Activities:
Change in short-term borrowings.............. (53,000) 28,000
Issuance of long-term debt................... - 45,000
Reduction of long-term debt.................. (2,000) (46,771)
Cash dividends paid to WICOR, Inc............ (12,000) (12,000)
Donated capital from WICOR, Inc.............. 5,000 10,000
---------- ----------
(62,000) 24,229
---------- ----------
Change in Cash and Cash Equivalents............ (6,884) 2,534
Cash and Cash Equivalents at beginning
of period.................................... 9,680 6,493
---------- ----------
Cash and Cash Equivalents at end of period..... $ 2,796 $ 9,027
========== ==========
The accompanying notes are an integral part of this statement.
/TABLE
<PAGE>
<PAGE> 11
Notes to Financial Statements (Unaudited):
- -----------------------------------------
1) At September 30, 1994, Wisconsin Gas had unsecured lines of credit
available from several banks totalling $30 million. As of
September 30, 1994, no short-term borrowings were outstanding under
these credit agreements.
At September 30, 1994, $55 million of commercial paper was outstanding
at a weighted average interest rate of 5.0%
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 Nine Months
Ended September 30,
------------------------
1994 1993
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Income taxes paid $ 30,003 $ 7,265
Interest paid $ 12,031 $ 10,561
</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 initial decision, the PSCW significantly modified the
Company's proposal. Under the modified proposal, the Company's rates
will be subject to a three year margin rate cap based on the rates
approved in November, 1993. The Company will also be required to
reduce its rates by $10.1 million, to reflect a reduction in certain
non-cash expenses. Over a twelve month period, this rate reduction
will result in no net income impact, but will reduce cash flow. It
is expected that the PSCW will give the Company the option of either
accepting the modified proposal or filing a traditional rate case in
March 1995 with new rates becoming effective in November, 1995. The
Company anticipates it will accept the modified proposal.
4) WICOR invested $5 million and $2 million in Wisconsin Gas in the first
quarter of 1994 and 1993, respectively. An additional investment of
$8 million was made in the third quarter of 1993.
5) In January 1994, the Company offered a voluntary early retirement
incentive plan to employees age 55 and over. A total of 131 employees
elected to retire under the provisions of this incentive plan. The
Company 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
- ---------------------------
Item 1. Legal Proceedings
- -------------------------
During the first quarter of 1994, Wisconsin Gas initiated suit against
certain of its liability insurance carriers for coverage for
environmental property damage associated with former manufactured gas
plants. The insurance carriers named as defendants in the suit
recently moved to dismiss the case, contending that a decision of the
Wisconsin Supreme Court makes it questionable as to whether they will
be obligated to reimburse Wisconsin Gas for such costs. The motion
was decided in favor of the Company. The Supreme Court rendered a
decision in June 1994 (and denied a motion to reconsider in October
1994) in a case not involving Wisconsin Gas which holds in general
that comprehensive general liability insurance policies may not
provide coverage for response costs under Federal or State
environmental clean-up statutes in certain circumstances. The motion
to dismiss by the insurance carriers in the Wisconsin Gas case was
decided in favor of the Company.
Wisconsin Gas is continuing to litigate its claims and is in various
stages of negotiations with its insurance carriers regarding
settlement of the litigation. A trial in the matter is scheduled for
January 9, 1995. Based on recent PSCW orders, the Company currently
believes that any cleanup costs not recoverable from its insurance
carriers will be allowed full recovery in rates (excluding carrying
costs).
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
27 - Financial data schedule.
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
for the third quarter of 1994.<PAGE>
<PAGE> 13
SIGNATURES
-----------
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: October 27, 1994 By: /s/ Joseph P. Wenzler
---------------------------
Joseph P. Wenzler
Vice President and Chief
Financial Officer<PAGE>
<PAGE> 14
Wisconsin Gas Company
Exhibit Index - Form 10-Q
Exhibit No. Exhibit
- ----------- ----------------------------------------
27 Financial data schedule<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Wisconsin Gas Company Form 10-Q for the period ended September 30, 1994 and is
qualified in its entirety by reference to such financial statements and the
related footnotes.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 356,309
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 122,450
<TOTAL-DEFERRED-CHARGES> 181,760
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 660,519
<COMMON> 9
<CAPITAL-SURPLUS-PAID-IN> 118,300
<RETAINED-EARNINGS> 59,438
<TOTAL-COMMON-STOCKHOLDERS-EQ> 177,747
0
0
<LONG-TERM-DEBT-NET> 145,782
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 135,000
<COMMERCIAL-PAPER-OBLIGATIONS> 55,000
<LONG-TERM-DEBT-CURRENT-PORT> 2,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 279,990
<TOT-CAPITALIZATION-AND-LIAB> 660,519
<GROSS-OPERATING-REVENUE> 418,172
<INCOME-TAX-EXPENSE> 6,054
<OTHER-OPERATING-EXPENSES> 391,693
<TOTAL-OPERATING-EXPENSES> 397,747
<OPERATING-INCOME-LOSS> 20,425
<OTHER-INCOME-NET> (37)
<INCOME-BEFORE-INTEREST-EXPEN> 20,388
<TOTAL-INTEREST-EXPENSE> 10,287
<NET-INCOME> 10,101
0
<EARNINGS-AVAILABLE-FOR-COMM> 10,101
<COMMON-STOCK-DIVIDENDS> 12,000
<TOTAL-INTEREST-ON-BONDS> 810
<CASH-FLOW-OPERATIONS> 84,918
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
