<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, 1998
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 39-0476515
-------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
626 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
--------------------------------------- ----------
(Address of principal executive office) (Zip Code)
414-385-7000
----------------------------------------------------
(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 April 20, 1998
- -------------------------- -------------------------------
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 2-3
Financial Statements of Wisconsin Gas Company (Unaudited):
Statements of Operation for the Three
Months Ended March 31, 1998 and 1997 4
Balance Sheets as of March 31, 1998 and
December 31, 1997 5-6
Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997 7
Notes to Financial Statements 8
Quantitative and Qualitative
Disclosure About Market Risk 9
PART II. Other Information 9
Signatures 10
<PAGE>
<PAGE> 3
Part I - Financial Information
Financial Statements
--------------------
The financial statements included herein 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 Company's Annual Report on Form 10-
K for the year ended December 31, 1997.
In the opinion of management, the information furnished reflects
all adjustments, which in all circumstances were normal and
recurring, necessary for a fair presentation of the results of
operations for the interim periods.
Because of seasonal factors, the results of operations for the
interim periods presented are not necessarily 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
- ---------------------
Net income decreased by $5.4 million, or 23%, to $18.5 million for
the first quarter of 1998 compared to the same quarter of last year.
The following factors had a significant effect on the results of
operations during the three-month period ended March 31, 1998.
The decline in net income for the first quarter resulted from
decreased gas margins which were partially offset by lower operating
and maintenance expenses. Lower gas margins resulted primarily from
decreased firm sales volumes due to warmer weather and a voluntary
$1.5 million annual rate reduction effective November 1, 1997.
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 changes in the cost of
gas sold are flowed through to revenue under a gas adjustment clause
with an insignificant effect on margin.
Three
Months Ended
March 31
------------------ %
Millions of Dollars) 1998 1997 Change
- --------------------- -------- -------- ------
Gas Sales Revenues $ 162.3 $ 219.5 (26)
Cost of Gas Sold 101.4 148.4 (32)
-------- --------
Gas Sales Margin 60.9 71.1 (14)
Gas Transport Margin 7.2 6.7 7
-------- --------
Total Margin $ 68.1 $ 77.8 (12)
======== ========
(Millions of Therms)
- --------------------
Sales Volumes
Firm 301.7 361.5 (17)
Interruptible 14.0 34.1 (59)
Transportation Volume 138.0 122.8 12
-------- --------
Total Throughput 453.7 518.4 (12)
======== ========
Degree Days (20-year average:
1st Qtr. = 3,434) 2,915 3,315 (12)
======== ========
<PAGE>
<PAGE> 5
The decrease in firm sales volumes for the first quarter of 1998 as
compared with the 1997 first quarter was caused principally by
warmer weather. The weather was 12% warmer in the first quarter of
1998 than during the same period in 1997 and 15% warmer than the 20-
year average. The increase in transportation volumes was due to
more customers purchasing gas from sources other than Wisconsin Gas
and transporting the volumes over the Wisconsin Gas distribution
system. Historically, the movement to transportation from gas sales
had no impact on margin. However, effective November 1, 1997, a
slightly lower margin rate was put into effect for transportation-
only customers. The future impact of this margin adjustment on
total Company earnings is expected to be immaterial.
The gas cost incentive mechanism (GCIM) approved by the Public
Service Commission of Wisconsin in October 1997, became effective on
November 1, 1997. Under the GCIM, Wisconsin Gas's gas commodity and
capacity costs are compared to monthly benchmarks. If, at the end of
each year, such costs deviate by more than 1-1/2% from the benchmark
cost of gas, the utility shares such excess or reduced costs on a
50-50 basis with customers. The sharing mechanism applies only to
costs between 1-1/2% to 4% above or below the benchmark. The new
GCIM provides an opportunity for Wisconsin Gas's earnings to
increase or decrease as a result of gas and capacity acquisition
activities. During the first five months under the GCIM, actual
costs have been slightly below the benchmark. The GCIM did not
impact reported margin in the first quarter of 1998.
Operating and maintenance expenses decreased by $1.6 million, or 6%,
for the three-month period ended March 31, 1998, compared with the
same period of 1997. The decrease for the quarter was due mainly to
cost reduction efforts.
Depreciation expense for the three months ended March 31, 1998,
increased by $0.8 million, or 10%, compared with the same period of
last year. The 1998 increase was due to additions to depreciable
plant balances.
Interest expense remained relatively flat for the three-months ended
March 31, 1998, compared with the similar period of 1997.
<PAGE>
<PAGE> 6
Income tax expense was $3.6 million lower for the first three months
of 1998, compared with the same period last year, reflecting
decreased pre-tax income.
Financial Condition
- -------------------
Cash flow from operations for the three months ended March 31, 1998,
increased by $19.2 million, or 38%, from the comparable period in
1997. The cash flow improvement is due primarily to lower gas
prices. Due to the seasonal nature of the energy business, accrued
revenues, accounts receivable and accounts payable levels are higher
in the heating season as compared with the summer months.
Capital expenditures for the three months ended March 31, 1998,
decreased by 17% to $4.4 million.
The Company anticipates additional short-term borrowings during the
third and fourth quarters of 1998 to finance working capital,
primarily gas in storage and the financing of accounts receivable
during the heating season. The Company believes it has sufficient
capacity under existing lines of credit to satisfy its future
working capital needs.
New Accounting Standard
- -----------------------
The American Institute of Certified Public Accountants Statement of
Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," provides guidance on
accounting for the costs of computer software developed or obtained
for internal use. The Company is currently evaluating the impact
the statement will have on its financial statements, if any.
<PAGE>
<PAGE> 7
Forward-Looking Statements
- --------------------------
Certain matters discussed in this quarterly report are "forward-
looking statements" intended to qualify for the safe harbor from
liability established by the Private Securities Litigation Reform
Act of 1995. These forward-looking statements can generally be
identified as such because the context of the statements will
include such words as the Company "believes," "anticipates" or
"expects," or words of similar import. Similarly, statements that
describe the Company's future plans, objectives or goals are also
forward-looking statements. Such forward-looking statements are
subject to certain risks and uncertainties which could cause actual
results to differ materially from those currently anticipated. Such
risks and uncertainties include general economic conditions; trends
in the weather; business conditions in the energy industry; the
impact of and changes in government regulations; changes in
environmental remediation costs; and other risk factors identified
from time to time by the Company in reports filed with the
Securities and Exchange Commission. Shareholders, potential
investors and other readers are urged to consider these factors
carefully in evaluating the forward-looking statements and are
cautioned not to place undue reliance on such forward-looking
statements.
<PAGE>
<PAGE> 8
WISCONSIN GAS COMPANY
Statements of Operation (Unaudited)
[CAPTION]
<TABLE>
Three Months Ended
March 31,
----------------------
1998 1997
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues $ 169,447 $ 226,242
---------- ----------
Operating Expenses:
Cost of gas sold 101,354 148,371
Operations 22,536 24,063
Maintenance 1,940 1,995
Depreciation 8,377 7,584
Taxes, other than income taxes 2,614 2,558
---------- ----------
136,821 184,571
---------- ----------
Operating Income 32,626 41,671
---------- ----------
Interest Expense 3,386 3,334
Other Income and (Expenses), net 247 188
---------- ----------
Income Before Income Taxes 29,487 38,525
Income Tax Provision 10,985 14,609
---------- ----------
Net Earnings $ 18,502 $ 23,916
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 9
WISCONSIN GAS COMPANY
Balance Sheets
[CAPTION]
<TABLE>
March 31,
1998 December 31,
(Unaudited) 1997
----------- ------------
(Thousands of Dollars)
<S> <C> <C>
Assets
- ------
Property, Plant and Equipment, at cost $ 802,296 $ 801,069
Less - Accumulated depreciation 426,959 421,098
----------- ------------
375,337 379,971
----------- ------------
Current Assets:
Cash and cash equivalents 1,905 7,854
Accounts receivable, less allowance
for doubtful accounts of $17,984
and $13,306, respectively 96,651 72,238
Accounts receivable - intercompany, net 288 233
Accrued revenues 29,567 39,986
Gas in storage, at weighted average cost 7,923 40,657
Materials and supplies,
at weighted average cost 3,618 3,192
Deferred income taxes 17,667 17,667
Prepaid taxes 4,638 6,162
Other 1,886 1,984
----------- ------------
164,143 189,973
----------- ------------
Deferred Charges and Other:
Regulatory assets 52,539 53,910
Systems development costs 16,127 17,424
Prepaid pension costs 36,871 35,212
Other 7,775 7,398
----------- ------------
113,312 113,944
----------- ------------
$ 652,792 $ 683,888
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 10
Wisconsin Gas Company
Balance Sheets
(continued)
[CAPTION]
<TABLE>
March 31,
1998 December 31,
(Unaudited) 1997
----------- ------------
<S> <C> <C>
Capitalization and Liabilities
- ------------------------------
Capitalization:
Common stock $ 9 $ 9
Other paid-in capital 120,557 120,677
Retained earnings 108,509 96,005
Accumulated other comprehensive income (1,442) (1,442)
Long-term debt 108,706 110,657
----------- ------------
336,339 325,906
----------- ------------
Current Liabilities:
Accounts payable 37,698 43,491
Short-term borrowings 16,000 78,671
Current portion of long-term debt 42,000 42,000
Refundable gas costs 48,719 24,776
Accrued payroll and benefits 7,792 8,066
Accrued taxes 12,319 5,537
Other 4,230 3,829
----------- ------------
168,758 206,370
----------- ------------
Deferred Credits and Other:
Regulatory liabilities 34,559 36,533
Postretirement benefit obligation 48,010 48,942
Deferred income taxes 37,690 37,689
Environmental remediation costs 11,320 12,084
Unamortized investment tax credit 6,463 6,808
Other 9,653 9,556
----------- ------------
147,695 151,612
----------- ------------
$ 652,792 $ 683,888
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 11
WISCONSIN GAS COMPANY
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1998 1997
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Operations:
Net earnings $ 18,502 $ 23,916
Adjustments to reconcile net earnings
to net cash flows:
Depreciation and amortization 10,210 9,610
Deferred income taxes - -
Change in:
Receivables (13,994) (15,579)
Gas in storage 32,733 24,917
Other current assets (326) (2,272)
Accounts payable (5,793) (24,822)
Accrued taxes 8,305 16,827
Refundable gas costs 23,943 20,502
Other current liabilities 71 (406)
Other non-current assets and liabilities (4,597) (2,798)
---------- ----------
69,054 49,895
---------- ----------
Investment Activities:
Capital expenditures (4,442) (5,347)
Other, net 110 68
---------- ----------
(4,332) (5,279)
---------- ----------
Financing Activities:
Change in short-term borrowings (62,671) (41,500)
Reduction of long-term debt (2,000) (2,000)
Cash dividends paid to WICOR, Inc. (6,000) (5,500)
---------- ----------
(70,671) (49,000)
---------- ----------
Change in Cash and Cash Equivalents (5,949) (4,384)
Cash and Cash Equivalents at Beginning of Period 7,854 8,960
---------- ----------
Cash and Cash Equivalents at End of Period $ 1,905 $ 4,576
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 12
Notes to Financial Statements (Unaudited):
- ------------------------------------------
1) At March 31, 1998, Wisconsin Gas had total unsecured lines
of credit available from several banks of $120.0 million.
As of March 31, 1998, commercial paper totaling $16.0
million was outstanding under these credit agreements with a
weighted average interest rate of 6.1%.
2) For purposes of the Statements of Cash Flows, income taxes
paid, net of refunds, and interest paid (excluding
capitalized interest) were as follows:
For the Three Months
Ended March 31,
----------------------
1998 1997
---------- ----------
(Thousands of Dollars)
Income taxes paid $ 5,859 $ 2,003
Interest paid $ 2,462 $ 2,400
3) The American Institute of Certified Public Accountants
Statement of Position No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use,
provides guidance on accounting for the costs of computer
software developed or obtained for internal use. The
Company is currently evaluating the impact the statement
will have on its financial statements, if any.
4) For the three months ended March 31, 1998 and 1997, net
earnings was the only component of other comprehensive
income.
Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
<PAGE>
<PAGE> 13
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
27 Financial data schedule (EDGAR version only).
(b) Reports on Form 8-K. There were no reports on Form 8-K
filed by the Company during the first quarter of 1998.
<PAGE>
<PAGE> 14
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: April 30, 1998 By: /s/ Joseph P. Wenzler
---------------------------
Joseph P. Wenzler
Vice President and Chief
Financial Office
<PAGE>
<PAGE> 15
Wisconsin Gas Company
FORM 10-Q Exhibits
Exhibit No. Description
- ----------- -------------------------
27 Financial data schedule
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Wisconsin Gas Company FORM 10-Q for the three months ended March 31, 1998 and is
qualified in its entirety by reference to such financial statements and the
related footnotes.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 375,337
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 164,143
<TOTAL-DEFERRED-CHARGES> 113,312
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 652,792
<COMMON> 9
<CAPITAL-SURPLUS-PAID-IN> 120,557
<RETAINED-EARNINGS> 108,509
<TOTAL-COMMON-STOCKHOLDERS-EQ> 229,075
0
0
<LONG-TERM-DEBT-NET> 108,706
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 110,000
<COMMERCIAL-PAPER-OBLIGATIONS> 16,000
<LONG-TERM-DEBT-CURRENT-PORT> 42,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 257,011
<TOT-CAPITALIZATION-AND-LIAB> 652,792
<GROSS-OPERATING-REVENUE> 169,447
<INCOME-TAX-EXPENSE> 10,985
<OTHER-OPERATING-EXPENSES> 136,821
<TOTAL-OPERATING-EXPENSES> 147,806
<OPERATING-INCOME-LOSS> 21,641
<OTHER-INCOME-NET> 247
<INCOME-BEFORE-INTEREST-EXPEN> 21,888
<TOTAL-INTEREST-EXPENSE> 3,386
<NET-INCOME> 18,502
0
<EARNINGS-AVAILABLE-FOR-COMM> 18,502
<COMMON-STOCK-DIVIDENDS> 6,000
<TOTAL-INTEREST-ON-BONDS> 162
<CASH-FLOW-OPERATIONS> 69,054
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
