<PAGE>
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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, 2000
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
-------------------------------- --------------------
(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)
414-385-7000
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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 May 12, 2000
- -------------------------- -------------------------------
Common Stock, $8 Par Value 1,125
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CONTENTS
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PAGE
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PART I - Financial Information 1
Financial Statements of Wisconsin Gas Company (Unaudited):
- ----------------------------------------------------------
Statements of Operations for the Three
Months Ended March 31, 2000 and 1999 2
Balance Sheets as of March 31, 2000 and December 31, 1999 3-4
Statements of Cash Flows for the Three
Months Ended March 31, 2000 and 1999 5
Notes to Financial Statements 6
Management's Discussion and Analysis of
Interim Financial Statements 7-8
Quantitative and Qualitative Disclosures About Market Risk 8
PART II. Other Information
Exhibits and Reports on Form 10-K 9
Signatures 10
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.
On April 26, 2000, the merger between Wisconsin Energy Corporation
("Wisconsin Energy") and WICOR was completed. Upon the completion
of the merger, WICOR, Wisconsin Gas and WICOR's other subsidiaries
became wholly-owned direct or indirect subsidiaries of Wisconsin
Energy.
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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 are generally beyond management's control. Such
factors include, but are not limited to, the following:
>> 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, governmental and judiciary decisions
>> increases in costs to clean up environmental contamination
>> the Company's ability to increase prices
>> market demand for the Company's products and services
>> unanticipated costs or difficulties related to the
integration of the businesses of Wisconsin Gas and Wisconsin
Energy
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Part 1 - Financial Information
- ------------------------------
Item 1. 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, 1999.
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 period presented are not necessarily indicative of the
results to be expected for the full calendar year.
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WISCONSIN GAS COMPANY
Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
2000 1999
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues $ 176,049 $ 170,397
---------- ----------
Operating Expenses:
Cost of gas sold 102,792 93,548
Operations 24,184 23,812
Maintenance 1,883 1,882
Depreciation 9,141 8,725
Taxes, other than income taxes 2,337 2,504
---------- ----------
140,337 130,471
---------- ----------
Operating Income 35,712 39,926
---------- ----------
Interest Expense 3,523 3,422
Other Income, net (481) 299
---------- ----------
Income Before Income Taxes 31,708 36,803
Income Taxes 11,795 13,833
---------- ----------
Net Earnings $ 19,913 $ 22,970
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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WISCONSIN GAS COMPANY
Balance Sheets
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(Unaudited) 1999
----------- ------------
(Thousands of Dollars)
<S> <C> <C>
Assets
- ------
Property, Plant and Equipment, at cost $ 869,027 $ 865,109
Less - Accumulated depreciation 484,126 477,493
----------- ------------
384,901 387,616
----------- ------------
Current Assets:
Cash and cash equivalents 2,640 11,368
Accounts receivable, less allowance
for doubtful accounts of $14,220
and $10,149, respectively 79,255 40,448
Accounts receivable - intercompany, net 1,774 632
Accrued revenues 27,765 44,887
Gas in storage, at weighted average cost 9,966 40,415
Materials and supplies, at weighted average cost 6,367 6,211
Deferred income taxes 15,106 15,106
Prepaid taxes 2,758 3,966
Other 1,462 1,826
----------- ------------
147,093 164,859
----------- ------------
Deferred Charges and Other:
Regulatory assets 50,724 51,686
Prepaid pension costs 51,384 49,661
Systems development costs 7,526 8,601
Other 9,890 9,357
----------- ------------
119,524 119,305
----------- ------------
$ 651,518 $ 671,780
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
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Wisconsin Gas Company
Balance Sheets
(continued)
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(Unaudited) 1999
----------- ------------
<S> <C> <C>
Capitalization and Liabilities
- ------------------------------
Capitalization:
Common stock 9 9
Other paid-in capital 121,448 121,978
Retained earnings 108,521 95,107
Accumulated other comprehensive income (1,536) (1,536)
Long-term debt 158,297 158,244
----------- ------------
386,739 373,802
----------- ------------
Current Liabilities:
Accounts payable 43,448 40,208
Short-term borrowings 22,800 89,759
Refundable gas costs 46,447 24,043
Accrued payroll and benefits 7,541 9,195
Accrued taxes 10,565 (1,999)
Other 3,415 4,696
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134,216 165,902
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Deferred Credits and Other:
Postretirement benefit obligation 37,049 38,690
Deferred income taxes 46,409 46,409
Regulatory liabilities 25,747 27,742
Environmental remediation costs 5,091 2,110
Unamortized investment tax credit 5,568 5,909
Other 10,699 11,216
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130,563 132,076
----------- ------------
$ 651,518 $ 671,780
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
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WISCONSIN GAS COMPANY
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
2000 1999
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Operations:
Net earnings $ 19,913 $ 22,970
Adjustments to reconcile net earnings to net cash flows:
Depreciation and amortization 10,846 10,333
Deferred income taxes - -
Net pension and other postretirement benefit (income) (3,568) (2,235)
Change in:
Receivables (21,685) (21,952)
Gas in storage 30,449 25,049
Accounts payable 3,240 (1,042)
Accrued taxes 13,772 14,263
Refundable gas costs 22,404 31,545
Other non-current assets and liabilities (3,908) (4,928)
----------- ----------
71,463 74,003
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Investment Activities:
Capital expenditures (6,748) (5,546)
Other, net 16 21
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(6,732) (5,525)
----------- ----------
Financing Activities:
Change in short-term borrowings (66,959) (65,000)
Reduction of long-term debt - (2,000)
Cash dividends paid to WICOR, Inc. (6,500) (6,500)
----------- ----------
(73,459) (73,500)
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Change in Cash and Cash Equivalents (8,728) (5,022)
Cash and Cash Equivalents at Beginning of Period 11,368 6,690
----------- ----------
Cash and Cash Equivalents at End of Period $ 2,640 $ 1,668
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
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Notes to Financial Statements (Unaudited):
- ------------------------------------------
1) On April 26, 2000, the merger between a subsidiary of
Wisconsin Energy Corporation ("Wisconsin Energy") and WICOR, Inc.
("WICOR"), the Company's parent corporation, was completed and
WICOR became a wholly-owned direct subsidiary of Wisconsin Energy.
The Company became a wholly-owned indirect subsidiary of Wisconsin
Energy.
2) At March 31, 2000, Wisconsin Gas had total unsecured lines
of credit available from several banks of $100.0 million. As of
March 31, 2000, commercial paper totaling $22.8 million was
outstanding under these credit agreements with a weighted average
interest rate of 6.1%.
3) 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,
----------------------
2000 1999
---------- ----------
(Thousands of Dollars)
Income taxes paid $ 1,002 $ 2,841
Interest paid $ 4,189 $ 2,570
4) For the three month periods ended March 31, 2000 and 1999,
net earnings was the only component of other comprehensive income.
5) Certain prior year financial statement amounts have been
reclassified to conform to their current year presentation.
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Item 2. Management's Discussion and Analysis
of Interim Financial Statements of
Wisconsin Gas Company
Merger with Wisconsin Energy Corporation
- ----------------------------------------
On April 26, 2000 the merger between a subsidiary of Wisconsin
Energy Corporation (Wisconsin Energy) and WICOR, Inc. (WICOR), the
Company's parent corporation, was completed, and WICOR became a
wholly-owned direct subsidiary of Wisconsin Energy. The Company
became a wholly-owned indirect subsidiary of Wisconsin Energy.
Results of Operations
- ---------------------
Net earnings decreased by $3.1 million, or 13%, to $19.9 million
for the first quarter of 2000 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,
2000.
The decrease in net earnings for the first quarter resulted
primarily from decreased gas margins and operating expenses that
were slightly higher than the same quarter of last year. The
decline in gas margins resulted primarily from warmer than normal
weather that decreased firm sales volumes.
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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 that does not impact margin. The Company operates under a
gas cost incentive mechanism (GCIM) which allows it to share in the
risk and rewards of purchasing gas. The GCIM favorably impacted
margins by $0.2 million for each of the three months ended March
31, 2000 and 1999.
Quarter Ended
March 31
-------------------
(Millions of Dollars) 2000 1999 Change
- --------------------- -------- -------- ------
Gas Sales Revenues $ 167.9 $ 162.3 3
Cost of Gas Sold 102.8 93.5 10
-------- --------
Gas Sales Margin 65.1 68.8 (5)
Gas Transport Margin 8.2 8.0 3
-------- --------
Total Margin $ 73.3 $ 76.8 (5)
======== ========
(Millions of Therms)
- --------------------
Utility Sales Volumes
Firm 302.1 326.9 (8)
Interruptible 8.4 10.0 (16)
Transportation Volume 163.9 160.3 2
-------- --------
Total Throughput 474.4 497.2 (5)
======== ========
Heating Degree Days:
Actual 2,931 3,235 (9)
======== ========
Twenty year average 3,385
=======
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The decrease in firm sales volumes for the first quarter of 2000 as
compared with the 1999 first quarter was caused principally by
extremely mild weather. The weather was 9% warmer in the first
quarter of 2000 than during the same period in 1999 and 13% warmer
than the 20-year average.
Operating and maintenance expenses increased slightly during the
three-month period ended March 31, 2000, compared with the same
period of 1999.
Depreciation expense for the three months ended March 31, 2000,
increased by $0.4 million, or 5%, compared with the same period of
last year due to plant additions.
Interest expense remained relatively flat for the three-months
ended March 31, 2000, compared with the similar period of 1999.
Other (expense), net of income, for the three months ended March
31, 2000, decreased by $0.8 million to a net loss of $0.5 million
compared to a net gain of $0.3 million in the same period of 1999.
Other (expenses), net of income, during the period reflected costs
associated with growth initiatives of non-utility operations.
Income tax expense was $2.0 million lower for the first three
months of 2000, compared with the same period last year, reflecting
decreased pre-tax income.
Financial Condition
- -------------------
Cash flows from operations for the three months ended March 31,
2000, decreased by $2.5 million, or 3%, from the comparable period
in 1999. The decrease in cash flow was due primarily to decreased
earnings. 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, 1999,
increased $1.2 million, or 22%, to $6.7 million.
The Company anticipates additional short-term borrowings during the
third and fourth quarters of 2000 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.
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Item 3. Quantitative and Qualitative Disclosures About Market.
- --------------------------------------------------------------
The Company's market risk includes the potential loss arising from
adverse changes in the price of natural gas. The Company's
objective in managing this risk is to reduce fluctuations in
earnings and cash flows associated with changes in natural gas
prices. The Company's policy prohibits the use of derivative
financial instruments for trading purposes.
Wisconsin Gas has a commodity risk management program that has been
approved by the Public Service Commission of Wisconsin (PSCW). This
program allows Wisconsin Gas to utilize call and put option
contracts to reduce market risk associated with fluctuations in the
price of natural gas purchases and gas in storage. Under this
program, Wisconsin Gas has the ability to hedge up to 50% of its
planned gas deliveries for the heating season. The PSCW has also
allowed Wisconsin Gas to hedge gas purchased for storage during
non-heating months. The cost of the call and put option contracts,
as well as gains or losses realized under the contracts do not
affect net income as they are recovered dollar for dollar under the
purchased gas adjustment clause. The notional amount of these
contracts is not material to the Company.
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Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) 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 first quarter of 2000.
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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: May 12, 2000 By: /s/ Joseph P. Wenzler
--------------------------
Joseph P. Wenzler
Senior Vice President and
Chief Financial Officer
<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, 2000 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-31-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 384,901
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 147,093
<TOTAL-DEFERRED-CHARGES> 119,524
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 651,518
<COMMON> 9
<CAPITAL-SURPLUS-PAID-IN> 121,448
<RETAINED-EARNINGS> 108,521
<TOTAL-COMMON-STOCKHOLDERS-EQ> 228,442
0
0
<LONG-TERM-DEBT-NET> 158,297
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 160,000
<COMMERCIAL-PAPER-OBLIGATIONS> 22,800
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 241,979
<TOT-CAPITALIZATION-AND-LIAB> 651,518
<GROSS-OPERATING-REVENUE> 176,049
<INCOME-TAX-EXPENSE> 11,795
<OTHER-OPERATING-EXPENSES> 140,337
<TOTAL-OPERATING-EXPENSES> 152,132
<OPERATING-INCOME-LOSS> 23,917
<OTHER-INCOME-NET> (481)
<INCOME-BEFORE-INTEREST-EXPEN> 23,436
<TOTAL-INTEREST-EXPENSE> 3,523
<NET-INCOME> 19,913
0
<EARNINGS-AVAILABLE-FOR-COMM> 19,913
<COMMON-STOCK-DIVIDENDS> 6,500
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 71,463
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
