<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 June 30, 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 July 17, 1998
- -------------------------- -------------------------------
Common Stock, $8 Par Value 1,125
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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):
Statements of Operation for the Three and Six
Months Ended June 30, 1998 and 1997 5
Balance Sheets as of June 30, 1998 and
December 31, 1997 6-7
Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997 8
Notes to Financial Statements 9
PART II. Other Information 10
Signatures 11
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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.
Forward-Looking Statements
--------------------------
Certain matters discussed in this 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 generally can be
identified as such because they include words such as the Company
"believes," "anticipates," "expects," or words of similar import.
Similarly, statements that describe the Company's future plans,
objectives or goals also are considered forward-looking. Such
statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from current
expectations. These factors include but are not limited to the
risks and uncertainties listed below. All of these factors are
difficult to predict and generally are beyond management's
control.
>> the impact of warmer- or colder-than-normal weather on the
energy business
>> economic conditions, including the availability of
individual discretionary income and changes in interest rates
>> changes in natural gas prices and supply availability
>> increased competition in deregulated energy markets
>> the pace and extent of energy industry deregulation
>> regulatory, government and court decisions
>> increases in costs to clean up environmental contamination
>> the Company's ability to increase prices
>> market demand for the Company's products and service
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Management's Discussion and Analysis
of Interim Financial Statements of
Wisconsin Gas Company
Results of Operations
- ---------------------
The Company's net loss was $1.7 million during the second quarter
of 1998 compared with earnings of $0.3 million in the second
quarter of 1997. Net earnings for the six months ended June 30,
1998, decreased by $7.5 million, or 31%, to $16.8 million
compared to the same period of last year. The following factors
had a significant effect on the results of operations during the
three- and six-month periods ended June 30, 1998.
The decline in net earnings for the three and six months ended
June 30, 1998 resulted from decreased gas margins which were
partially offset by lower operating and maintenance expenses.
The lower gas margins were driven by a combination of warm winter
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
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
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<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------ % ------------------ %
(Millions of Dollars) 1998 1997 Change 1998 1997 Change
- --------------------- -------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Gas Sales Revenues $ 73.5 $ 88.3 (17) $ 235.7 $ 307.8 (23)
Cost of Gas Sold 46.8 57.1 (18) 148.1 205.5 (28)
-------- -------- -------- --------
Gas Sales Margin 26.7 31.2 (14) 87.6 102.3 (14)
Gas Transport Margin 4.7 5.0 (6) 11.9 11.7 2
-------- -------- -------- --------
Total Margin $ 31.4 $ 36.2 (13) $ 99.5 $ 114.0 (13)
======== ======== ======== ========
(Millions of Therms)
Sales Volumes
- -------------------
Firm 95.4 127.4 (25) 397.1 488.8 (19)
Interruptible 8.0 13.8 (42) 22.0 47.9 (54)
Transportation Volume 99.0 98.2 1 237.0 221.1 7
-------- -------- -------- --------
Total Throughput 202.4 239.4 (15) 656.1 757.8 (13)
======== ======== ======== ========
Degree Days
- ------------
Actual 895 1,215 (26) 3,810 4,530 (16)
======== ======== ======== ========
20 year average 950 4,384
======== ========
</TABLE>
The decrease in firm sales volumes for the three and six months
ended June 30, 1998, respectively, was caused principally by
warmer weather, lower average use per residential customer and
firm customers switching to transportation. The weather for the
three and six months ended June 30, 1998, was 6% and 13% warmer,
respectively, than the 20-year average. For both periods,
transportation volumes increased mainly because more customers
purchased gas from sources other than Wisconsin Gas and
transported the volumes over the Wisconsin Gas distribution
system. Historically, customers transferring 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.
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<PAGE> 6
The gas cost incentive mechanism ("GCIM") approved by the Public
Service Commission of Wisconsin in October 1997, became effective
on November 1, 1997, for each of the three years ending October
31, 1998, 1999 and 2000. Under the GCIM, Wisconsin Gas's gas
commodity and capacity costs are compared to monthly benchmarks.
If, at the end of each GCIM 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.
Management believes that the Company and its customers will share
in reduced gas costs as a result of the GCIM.
Operating and maintenance expenses decreased $1.5 million, or 6%,
during the second quarter of 1998 and year-to-date operating and
maintenance expenses decreased $3.0 million, or 6%, compared to
the same periods of last year. The decrease is attributable to
lower labor and benefit expenses.
Depreciation expense for the three and six months ended June 30,
1998, increased by $0.5 million, or 6%, and $1.3 million, or 8%,
respectively, as compared to the same periods in the prior year.
The 1998 increase was due to additions to depreciable plant
balances.
Interest expense remained relatively level at $2.7 million and
$6.1 million for the three and six months ended June 30, 1998,
respectively, compared to the same periods of last year.
Year-to-date income tax expense decreased by $5.0 million, or
34%, reflecting the decrease in pre-tax income.
Financial Condition
- -------------------
Cash flow from operations for the six months ended June 30, 1998,
increased by $10.6 million, or 12%, to $98.7 million compared to
the same period of 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 are higher in the heating season as compared
with the summer months.
Additional short-term borrowing will be needed during the third
and fourth quarters of 1998 to finance working capital primarily
related to gas purchased for injection into storage and accounts
receivable. The Company has existing lines of credit to satisfy
this working capital need
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<PAGE> 7
During the fourth quarter of 1998, the Company plans to refinance
$40 million of existing debt due in November, 1998.
Cash flow from operations exceeded capital expenditures and
dividend requirements for the first six months in both 1998 and
1997.
Capital expenditures through June 1998 decreased by $0.9 million,
or 6%, to $13.0 million. Cash flow from operations is expected
to be sufficient to fund the remaining capital expenditures for
1998.
Regulatory Matters
- ------------------
On July 10, 1998, the Company filed with the PSCW to increase
rates within the framework of PARM. The new rates, which are
effective August 1, 1998, are expected to increase revenues $7.5
million on an annualized basis and are expected to offset
increased operating costs.
New Accounting Standards
- ------------------------
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 133 ("SFAS No.
133"), "Accounting for Derivative Instruments and Hedging
Activities", effective in the first quarter of 2000. SFAS No.
133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities
in the balance sheet and measure those instruments at fair value.
The Company is currently evaluating the impact of the provisions
of SFAS No. 133 on its financial statements. However, SFAS No.
133 could increase volatility in earnings and other comprehensive
income.
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.
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Other
- -----
On June 25, 1998, four energy companies unveiled plans to build a
new 150- to 200-mile pipeline from the Chicago area into
southeastern Wisconsin. Although there is no assurance that the
pipeline will ultimately be constructed, the Company believes
that a new pipeline from Chicago to southeastern Wisconsin would
be an important new source of natural gas capacity that could
lower prices for Wisconsin consumers. The project is subject to
Federal as well as various state approvals.
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WISCONSIN GAS COMPANY
Statements of Operation (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues $ 78,190 $ 93,280 $ 247,637 $ 319,522
---------- ---------- ---------- ----------
Operating Expenses:
Cost of gas sold 46,755 57,145 148,109 205,516
Operations 19,009 20,290 41,545 44,353
Maintenance 2,244 2,423 4,184 4,418
Depreciation 8,305 7,843 16,682 15,427
Taxes, other than income taxes 2,212 2,226 4,826 4,784
---------- ---------- ---------- ----------
78,525 89,927 215,346 274,498
---------- ---------- ---------- ----------
Operating (Loss) Income (335) 3,353 32,291 45,024
---------- ---------- ---------- ----------
Interest Expense 2,730 2,799 6,116 6,133
Other Income and (Expenses), net 247 35 494 223
---------- ---------- ---------- ----------
(Loss) Income Before Income Taxes (2,818) 589 26,669 39,114
Income Tax (Benefit) Provision (1,102) 258 9,883 14,867
---------- ---------- ---------- ----------
Net (Loss) Earnings $ (1,716) $ 331 $ 16,786 $ 24,247
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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WISCONSIN GAS COMPANY
Balance Sheets
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(Unaudited) 1997
----------- ------------
(Thousands of Dollars)
<S> <C> <C>
Assets
- ------
Property, Plant and Equipment, at cost $ 809,836 $ 801,069
Less - Accumulated depreciation 434,473 421,098
----------- ------------
375,363 379,971
----------- ------------
Current Assets:
Cash and cash equivalents 1,013 7,854
Accounts receivable, less allowance
for doubtful accounts of $15,197
and $13,306, respectively 47,913 72,238
Accounts receivable - intercompany, net 175 233
Accrued revenues 7,056 39,986
Gas in storage, at weighted average cost 23,176 40,657
Materials and supplies,
at weighted average cost 4,650 3,192
Deferred income taxes 17,667 17,667
Prepaid taxes 5,370 6,162
Other 1,520 1,984
----------- ------------
108,540 189,973
----------- ------------
Deferred Charges and Other:
Regulatory assets 61,645 53,910
Systems development costs 15,051 17,424
Prepaid pension costs 38,573 35,212
Other 7,635 7,398
----------- ------------
122,904 113,944
----------- ------------
$ 606,807 $ 683,888
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 11
Wisconsin Gas Company
Balance Sheets
(continued)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(Unaudited) 1997
----------- ------------
(Thousands of Dollars)
<S> <C> <C>
Capitalization and Liabilities
- ------------------------------
Capitalization:
Common stock $ 9 $ 9
Other paid-in capital 120,557 120,677
Retained earnings 100,793 96,005
Accumulated other comprehensive income (1,442) (1,442)
Long-term debt 108,754 110,657
----------- ------------
328,671 325,906
----------- ------------
Current Liabilities:
Accounts payable 35,459 43,491
Short-term borrowings - 78,671
Current portion of long-term debt 42,000 42,000
Refundable gas costs 37,906 24,776
Accrued payroll and benefits 9,147 8,066
Accrued taxes 6,073 5,537
Other 3,067 3,829
----------- ------------
133,652 206,370
----------- ------------
Deferred Credits and Other:
Regulatory liabilities 33,911 36,533
Postretirement benefit obligation 46,948 48,942
Deferred income taxes 37,690 37,689
Environmental remediation costs 9,695 12,084
Unamortized investment tax credit 6,473 6,808
Other 9,767 9,556
----------- ------------
144,484 151,612
----------- ------------
$ 606,807 $ 683,888
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 12
WISCONSIN GAS COMPANY
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1998 1997
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Operations:
Net earnings $ 16,786 $ 24,247
Adjustments to reconcile net earnings
to net cash flows:
Depreciation and amortization 20,134 19,407
Deferred income taxes - -
Change in:
Receivables 47,255 52,888
Gas in storage 17,481 10,744
Other current assets (993) (1,389)
Accounts payable (8,033) (28,173)
Accrued taxes 1,437 7,742
Refundable gas costs 13,131 5,594
Other current liabilities 267 990
Other non-current assets and liabilities (8,767) (3,915)
---------- ----------
98,698 88,135
---------- ----------
Investment Activities:
Capital expenditures (13,031) (13,936)
Other, net 163 163
---------- ----------
(12,868) (13,773)
---------- ----------
Financing Activities:
Change in short-term borrowings (78,671) (65,500)
Reduction of long-term debt (2,000) (2,000)
Cash dividends paid to WICOR, Inc. (12,000) (11,000)
---------- ----------
(92,671) (78,500)
---------- ----------
Change in Cash and Cash Equivalents (6,841) (4,138)
Cash and Cash Equivalents at
Beginning of Period 7,854 8,960
---------- ----------
Cash and Cash Equivalents at End of Period $ 1,013 $ 4,822
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
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Notes to Financial Statements (Unaudited):
1) At June 30, 1998, Wisconsin Gas had total unsecured lines of
credit available from several banks of $55 million. As of
June 30, 1998, no short-term borrowings were outstanding under
these credit agreements.
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 Six Months
Ended June 30,
----------------------
1998 1997
---------- ----------
(Thousands of Dollars)
Income taxes paid $ 10,519 $ 10,303
Interest paid $ 6,059 $ 5,982
3) For the three and six month periods ended June 30, 1998 and
1997, net earnings was the only component of other comprehensive
income
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Part II - Other Information
Item 4. Results of Votes of Security Holders
On April 23, 1998, the following persons were elected as
directors of Wisconsin Gas to serve one-year terms: George E.
Wardeberg, Stuart W. Tisdale, Wendell F. Bueche, Willie D. Davis,
Jere D. McGaffey, Daniel F. McKeithan, Jr., Guy A. Osborn, Thomas
F. Schrader, Essie M. Whitelaw and William B. Winter. All of the
issued and outstanding shares of common stock, $8 par value, of
Wisconsin Gas (1,125 shares) were voted in favor of the election
of the foregoing persons.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
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 second quarter of 1998
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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: July 31, 1998 By: /s/ Joseph P. Wenzler
-------------------------
Joseph P. Wenzler
Senior Vice President and
Chief Financial Officer
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<PAGE> 16
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 six months ended June 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 375,363
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 108,540
<TOTAL-DEFERRED-CHARGES> 122,904
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 606,807
<COMMON> 9
<CAPITAL-SURPLUS-PAID-IN> 120557
<RETAINED-EARNINGS> 100,793
<TOTAL-COMMON-STOCKHOLDERS-EQ> 218,917
0
0
<LONG-TERM-DEBT-NET> 108,671
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 110,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 42,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 237,219
<TOT-CAPITALIZATION-AND-LIAB> 606,807
<GROSS-OPERATING-REVENUE> 247,637
<INCOME-TAX-EXPENSE> 9,883
<OTHER-OPERATING-EXPENSES> 215,346
<TOTAL-OPERATING-EXPENSES> 225,229
<OPERATING-INCOME-LOSS> 22,408
<OTHER-INCOME-NET> 494
<INCOME-BEFORE-INTEREST-EXPEN> 22,902
<TOTAL-INTEREST-EXPENSE> 6,116
<NET-INCOME> 16,786
0
<EARNINGS-AVAILABLE-FOR-COMM> 16,786
<COMMON-STOCK-DIVIDENDS> 12,000
<TOTAL-INTEREST-ON-BONDS> 162
<CASH-FLOW-OPERATIONS> 98,698
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
