<PAGE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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
P.O. Box 334
Milwaukee, Wisconsin 53201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 414-291-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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. /X/ Yes / / No.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Aggregate market value of the voting stock held by
non-affiliates of the registrant: None
Number of shares outstanding of each of the registrant's
classes of common stock, as of February 28, 1996:
Common Stock, $8 par value 1,125 shares
Documents Incorporated by Reference.
WICOR, Inc. proxy statement dated March 12, 1996 (Part III)
Reduced Disclosure Format
The registrant meets the conditions set forth in General
Instructions (J)(1)(a) and (b) of Form 10-K and is therefore
filing with the reduced disclosure format.<PAGE>
<PAGE> 2
TABLE OF CONTENTS
PAGE
PART I. 1
Item 1. Business 1
(a) General 1
(b) Gas Supply, Pipeline Capacity and Storage 1
(1) General 1
(2) Pipeline Capacity and Storage 2
(3) Term Gas Supply 2
(4) Spot Market Gas Supply 3
(c) Employee 3
Item 2. Properties 3
Item 3. Legal Proceedings 3
Item 4. Submission of Matters to a Vote of
Security Holders 4
PART II. 4
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 4
Item 6. Selected Financial Data 5
Item 7. Management's Discussion and Analysis of
Results of Operations and
Financial Condition 5
Item 8. Financial Statements and Supplementary Data 5
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 5<PAGE>
<PAGE> 3
Part III. 5
Item 10. Directors and Executive Officers
of the Registrant 5
Item 11. Executive Compensation 5
Item 12. Security Ownership of Certain
Beneficial Owners and Management 5
Item 13. Certain Relationships/Related Transactions 5
Part IV. 6
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 6
(a) Documents Filed as Part of the Report 6
1. All Financial Statements and Report of
Independent Public Accountants 6
2. Financial Statement Schedules 6
3. Exhibits 6
(b) Reports on Form 8-K 8<PAGE>
<PAGE> 4
PART I
Item 1. BUSINESS
(a) General
Wisconsin Gas Company (the "Company" or "Wisconsin Gas") is
a Wisconsin corporation and a wholly-owned subsidiary of WICOR,
Inc. ("WICOR") and maintains its principal executive offices in
Milwaukee, Wisconsin. The Company is the largest natural gas
distribution public utility in Wisconsin. At December 31, 1995,
Wisconsin Gas distributed gas to approximately 505,000 residen-
tial, commercial and industrial customers in 503 communities
throughout Wisconsin having an estimated population of nearly
2,000,000 based on the State of Wisconsin's estimates for 1995.
The Company is subject to the jurisdiction of the Public
Service Commission of Wisconsin ("PSCW") as to various phases of
its operations, including rates, service and issuance of
securities.
Wisconsin Gas' business is highly seasonal, particularly as
to residential and commercial sales for space heating purposes,
with a substantial portion of its sales occurring in the winter
heating season. The following table sets forth the volumes of
natural gas delivered by Wisconsin Gas to its customers.
<TABLE>
<CAPTION>
Year Ended
----------------------------------
December 31, December 31,
---------------- ----------------
000's of 000's of
Therms * % Therms * *
Customer Class --------- ----- --------- -----
<S> <C> <C> <C> <C>
Sales
Residential 494,250 38.0 463,690 38.8
Commercial 211,570 16.3 185,980 15.5
Large Volume Commercial
and Industrial Firm 134,960 10.4 145,440 12.2
Commercial and Industrial
Interruptible 313,530 24.1 282,170 23.6
--------- ----- --------- -----
Total Sales 1,154,310 88.8 1,077,280 90.1
Transportation
- --------------
Transported 145,490 11.2 119,080 9.9
--------- ----- --------- -----
Total Gas Throughput 1,299,800 100.0 1,196,360 100.0
========= ===== ========= =====
</TABLE>
*One therm equals 100,000 BTU's<PAGE>
<PAGE> 5
The volumes shown as transported represent customer-owned
gas that was delivered by Wisconsin Gas to such customers. The
remaining volumes represent quantities sold and delivered to
customers by the Company.
(b) Gas Supply, Pipeline Capacity and Storage
(1) General
Prior to the Federal Energy Regulatory Commission's
("FERC") Order No. 636, the interstate pipelines serving
Wisconsin Gas were the primary suppliers of natural gas to
Wisconsin Gas. During the transition period prior to the
issuance of Order No. 636, Wisconsin Gas gradually assumed
responsibility for the acquisition of supply in the production
areas of North America, as well as the management of
transportation and storage capacities to deliver that supply to
its market area. On November 1, 1993, Wisconsin Gas commenced
full operation and responsibility for its supply and capacity
under the requirements of Order No. 636.
One of the provisions of Order No. 636 is capacity release.
Capacity release creates a secondary market for pipeline
capacity and gas supplies. Local distribution companies, such
as Wisconsin Gas, must contract for capacity and supply
sufficient to meet the peak day firm demand of their customers.
Peak or near peak days occur only a few times each year, so
capacity release facilitates higher utilization of capacity
during those times when the capacity is not needed by the
utility. Through pre-arranged agreements and day-to-day
electronic bulletin board postings, interested parties can
purchase that capacity. The proceeds from these transactions
are passed-through to the ratepayers, thereby helping to offset
the costs associated with holding the capacity. During 1995,
Wisconsin Gas was an active participant in the capacity release
market.
Operating under Order No. 636, Wisconsin Gas Company has
been able to meet its contractual obligations with both its
suppliers and its customers despite periods of severe cold and
unseasonably warm weather, including the record cold weather in
late January and early February, 1996.<PAGE>
<PAGE> 6
(2) Pipeline Capacity and Storage
Interstate pipelines serving Wisconsin originate in three
major gas producing areas of North America: the Oklahoma and
Texas basins, the Gulf of Mexico and western Canada. Wisconsin
Gas has contracted for long-term firm capacity on a relatively
equal basis from each of these areas. This strategy reflects
management's belief that overall supply security is enhanced by
geographic diversification of the Company's supply portfolio and
that Canada represents an important long-term source of
reliable, competitively priced gas.
Because of the seasonal variations in gas usage in
Wisconsin, Wisconsin Gas has also contracted with ANR and NNG
for substantial underground storage capacity, primarily in
Michigan. There are no known underground storage formations in
Wisconsin capable of commercialization. Storage enables
Wisconsin Gas to optimize its overall gas supply and capacity
costs. In summer, gas in excess of market demand is transported
into the storage fields, and in winter, gas is withdrawn from
storage and combined with gas purchased in or near the
production areas ("flowing gas") to meet the increased winter
market demand. As a result, Wisconsin Gas can contract for less
pipeline capacity than would otherwise be necessary, and it can
purchase gas on a more uniform daily basis from suppliers year-
round. Each of these capabilities enables Wisconsin Gas to
reduce its overall costs.
Wisconsin Gas also maintains high deliverability storage in
the production area which is designed to deliver gas when other
supplies cannot be delivered during extremely cold weather.
Wisconsin Gas' firm winter daily transportation and storage
capacity entitlements from pipelines under long-term contracts
are set forth below.
Maximum
(Thousands
Pipeline of Therms*)
-----------
ANR
Mainline 2,999
Storage 4,879
NNG
Mainline 1,085
Storage 150
Viking
Mainline 72
Peaking Facilities 69
-----------
Total 9,254
===========<PAGE>
<PAGE> 7
*One therm equals 100,000 BTU's.
(3) Term Gas Supply
Wisconsin Gas has contracts for firm supplies with terms in
excess of 30 days with approximately 30 gas suppliers for gas
produced in each of the three producing areas discussed above.
The term contracts have varying durations so that only a portion
of the Company's gas supply expires in any year. the Company
believes the volume of gas under contract is sufficient to meet
its forecasted firm peak day demand. The following table sets
forth Wisconsin Gas' winter season maximum daily firm total gas
supply.
Maximum
(Thousands
of Therms*)
-----------
Domestic flowing gas 2,350
Canadian flowing gas 1,482
Storage withdrawals 5,029
-----------
Total 8,861
===========
*One therm equal 100,000 BTU's.
(4) Spot Market Gas Supply
Wisconsin Gas expects to continue to make gas purchases in
the 30-day spot market as price and other circumstances dictate.
The Company has purchased spot market gas since 1985 and has
supply relationships with a number of sellers from whom it
purchases spot gas.
(c) Employees
The Company had 1,089 full-time equivalent active employees
at December 31, 1995<PAGE>
<PAGE> 8
Item 2. PROPERTIES
Wisconsin Gas owns a distribution system which, on Decem-
ber 31, 1995, included approximately 8,300 miles of distribution
and transmission mains, 414,000 services and 539,000 active
meters. The Company's distribution system consists almost
entirely of plastic and coated steel pipe. The Company owns its
main office building in Milwaukee, office buildings in certain
other communities in which it serves, gas regulating and meter-
ing stations, peaking facilities and its major service centers,
including garage and warehouse facilities. The Milwaukee and
other office buildings, the principal service facilities and the
gas distribution systems of Wisconsin Gas are owned by it in fee
subject to the lien of its Indenture of Mortgage and Deed of
Trust, dated as of November 1, 1950, under which its first
mortgage bonds are issued, and to permissible encumbrances as
therein defined.
Item 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending, other than
ordinary routine litigation incidental to the Company's busi-
ness, to which the Company is a party, except as discussed
below. There are no material legal proceedings to which any
officer or director is a party or has a material interest
adverse to the Company's. There are no material administrative
or judicial proceedings arising under environmental quality or
civil rights statutes pending or known to be contemplated by
governmental agencies to which the Company is or would be a
party.
Wisconsin Gas has identified two previously owned sites on
which it operated manufactured gas plants that are of
environmental concern. Such plants ceased operations prior to
the mid-1950's. Wisconsin Gas has engaged an environmental
consultant to help determine the nature and extent of the
contamination at these sites. Based on the test results obtained
and the possible remediation alternatives available, the Company
has estimated that cleanup costs could range from $22 million to
$75 million. As of December 31, 1995, the Company has accrued
$36.4 million for future cleanup costs. These estimates are
based on current undiscounted costs. It should also be noted
that the numerous assumptions such as the type and extent of
contamination, available remediation techniques, and regulatory
requirements which are used in developing these estimates are
subject to change as new information becomes available. Any such
changes in assumptions could have a significant impact on the
potential liability. Due to anticipated regulatory treatment,
changes in the recorded liability do not immediately impact net
income.<PAGE>
<PAGE> 9
The Wisconsin Department of Natural Resources ("WDNR")
issued a Probable Responsible Party letter to Wisconsin Gas for
these two sites in September 1994. Following receipt of this
letter, Wisconsin Gas and the WDNR held an initial meeting to
discuss the sites. At the meeting it was agreed that Wisconsin
Gas would prepare a remedial action options report from which it
will select specific remedial actions for recommendation to the
WDNR. During 1995, the Company gathered additional
environmental data regarding these two sites, held extensive
discussions concerning remedial options with current land owners
and solicited information from environmental consulting and
remediation firms on technology and approaches that would best
suit the sites. The efforts were directed toward preparing a
remedial action options report and recommendations for
presentation to the WDNR in 1996. Once such a plan is
approved, initial remediation work will begin. Expenditures over
the next three years are expected to total approximately $20
million. Although most of the work and costs are expected to be
incurred in the first few years of the plan, monitoring of sites
and other necessary actions may be undertaken for up to 30
years.
In March 1994, Wisconsin Gas commenced suit against nine
insurance carriers seeking a declaratory judgment regarding
insurance coverage for the two sites. Settlements were reached
with each of the carriers during 1994. Additional insurance
recoveries are being pursued. The Company expects full recovery
of incurred remediation costs, less amounts recovered from
insurance carriers. If the amount recovered from the insurance
carriers is insufficient to remediate both sites, expenditures
not recovered are expected to be allowed full recovery (other
than for carrying costs) in rates based upon recent PSCW orders.
Accordingly, a regulatory asset has been recorded for the
accrued cost. Certain related investigation costs incurred to
date are currently being recovered in utility rates. However,
any incurred costs not yet recovered in rates are not allowed by
the PSCW to earn a return. As of December 31, 1995, $4.8
million of such costs had been incurred.
Wisconsin Gas also owns a service center that is
constructed on a site that was previously owned by the City of
Milwaukee and was used by the City as a public dump site. The
Company has conducted a site assessment at the request of the
WDNR and has sent the report of its assessment to the WDNR.
Management cannot predict whether or not the WDNR will require
any remediation action, nor the extent or cost of any
remediation actions that may be required. In the judgment of
management, any remediation costs incurred by the Company will
be recoverable from the City of Milwaukee or in Wisconsin Gas'
rates under the PSC orders discussed above.<PAGE>
<PAGE> 10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction J (2) (c).
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
WICOR owns all the issued and outstanding common stock of
the Company. The Wisconsin Business Corporation Law, the
Company's Indenture of Mortgage and Deed of Trust and the
indentures supplemental thereto, and the agreements under which
debt is outstanding each contain certain restrictions on the
payment of dividends on common stock. By order of the PSCW,
Wisconsin Gas is generally permitted to pay dividends up to the
amount projected in its rate case ($16 million). The Company
may pay dividends in excess of $16 million so long as the
payment will not cause its common equity ratio to fall below
48.43%. If payment of projected dividends would cause its
common equity ratio to fall below 43% of total capitalization
(including short-term debt), or if payment of additional
dividends would cause its common equity ratio to fall below
48.43%, Wisconsin Gas must obtain PSCW approval to pay such
dividends. Wisconsin Gas has projected the payment of $19
million of dividends during the 12 months ending October 31,
1996. See Note 6 of Notes to Financial Statements contained in
Exhibit 13, the WICOR 1995 Annual Report to Shareholders, which
note is incorporated herein by reference. The PSCW desires
Wisconsin Gas to target its common equity level at 43% to 50% of
total capitalization. For the year ended December 31, 1995, the
Company's average common equity level was 51%.
The Company paid cash dividends of $16,000,000 on common
stock to WICOR in 1995 and 1994, respectively.
Item 6. SELECTED FINANCIAL DATA
Omitted pursuant to General Instruction J(2)(a).
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Reference is made to the section entitled "Financial
Review" set forth in the WICOR 1995 Annual Report to
Shareholders. Such section is included in Exhibit 13, which,
insofar as it pertains to the Company, is hereby incorporated
herein by reference.<PAGE>
<PAGE> 11
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements for the Company together with the
report of independent public accountants are included in Part IV
of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no change in or disagreement with the
Company's independent auditors on any matter of accounting
principles or practices or financial statement disclosure re-
quired to be reported pursuant to this item.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted pursuant to General Instruction J(2)(c).
Item 11. EXECUTIVE COMPENSATION
Omitted pursuant to General Instruction J(2)(c).
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Omitted pursuant to General Instruction J(2)(c).
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted pursuant to General Instruction J(2)(c).<PAGE>
<PAGE> 12
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) The following documents are filed as part of this Annual
Report on Form 10-K:
1. All Financial Statements and Report of Independent Public
Accountants.
Statement of Income.
Balance Sheet.
Statement of Cash Flows.
Statement of Common Equity.
Statement of Capitalization.
Notes to Financial Statements.
2. Financial Statement Schedules.
Not required.
3. Exhibits
3.1 Wisconsin Gas Company Restated Articles of
Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to the Company's Form
10-K Annual Report for 1988).
3.2 Amendment to Wisconsin Gas Company By-laws,
effective February 28, 1995 (incorporated by
reference to Exhibit 3.2 to the Company's Form
10-K Annual Report for 1994).
3.3 Wisconsin Gas Company By-laws, as amended
(incorporated by reference to Exhibit 3.3 to the
Company's Form 10-K Annual Report for 1994).
4.1 Indenture of Mortgage and Deed of Trust dated as
of November 1, 1950, between Milwaukee Gas Light
Company and Mellon National Bank and Trust
Company and D. A. Hazlett, Trustees (incorporated
by reference to Exhibit 7-E to the Company's
Registration Statement No. 2-8631).<PAGE>
<PAGE> 13
4.2 Bond Purchase Agreement dated December 31, 1981,
between Wisconsin Gas Company and Teachers
Insurance and Annuity Association of America
relating to the issuance and sale of $30,000,000
principal amount of First Mortgage Bonds,
Adjustable Rate Series due 2002 (incorporated by
reference to Exhibit 4-6 to the Company's Form
S-3 Registration Statement No. 33-43729).
4.3 Indenture dated as of September 1, 1990, between
Wisconsin Gas Company and First Wisconsin Trust
Company, Trustee (incorporated by reference to
Exhibit 4.11 to the Company's Form S-3
Registration Statement No. 33-36639).
4.4 Officers' Certificate dated as of November 19,
1991, setting forth the terms of Wisconsin Gas
Company's 7-1/2% Notes due 1998 (incorporated by
reference to Exhibit 4.1 to Wisconsin Gas
Company's Form 8-K Current Report dated November
19, 1991).
4.5 Officers' Certificate, dated as of September 15,
1993, setting forth the terms of the Company's
6.60% debentures due 2013 (incorporated by
reference to Exhibit 4.1 to the Company's Form
8-K Current Report for September, 1993).
4.6 Officers' Certificate, dated as of November 7,
1995, setting forth the terms of the Company's
6-3/8% Notes due 2005 (incorporated by reference
to the Company's Form 8-K Current Report dated
November 7, 1995.
4.7 Revolving Credit and Term Loan Agreement dated as
of March 29, 1993, among Wisconsin Gas Company
and the Bank of New York, Citibank, N.A., Firstar
Bank of Milwaukee, N. A. Harris Trust & Savings
Bank, M&I Marshall & Ilsley Bank and Citibank,
N.A., as Agent (incorporated by reference to
Exhibit 4.2 to the Company's Quarterly Report on
Form 10-Q dated as of August 9, 1993).
4.8 Extension of Revolving Credit and Term Loan
Agreement dated as of March 29, 1994, among
Wisconsin Gas Company and Citibank, N.A., Firstar
Bank Milwaukee, Harris Trust and Savings Bank,
M&I Marshall & Ilsley Bank and Citibank, N.A., as
Agent (incorporated by reference to Exhibit 4.9
to the Company's Form 10-K Annual Report of
1994).<PAGE>
<PAGE> 14
4.9 Loan Agreement dated as of November 4, 1991, by
and among M&I Marshall & Ilsley Bank, Wisconsin
Gas Company Employee's Savings Plans Trust and
WICOR, Inc. (incorporated by reference to Exhibit
4.16 to the Company's Form 10-K Annual Report for
1991).
4.10 Loan Agreement Amendment effective December 21,
1995, by and among Wisconsin Gas Company
Employees' Savings Plan Trust, WICOR, Inc., and
M&I Marshall and Ilsley Bank.
10.1 Service Agreement dated as of June 1, 1994, among
WICOR, Inc., Wisconsin Gas Company, WEXCO of
Delaware, Inc., Sta-Rite Industries, Inc. and
SHURflo Pump Manufacturing Co.
10.2# WICOR, Inc. 1987 Stock Option Plan, as amended
(incorporated by reference to Exhibit 4.1 to the
WICOR, Inc. Form S-8 Registration Statement No.
33-67134).
10.3# Forms of nonstatutory stock option agreement used
in connection with the WICOR, Inc. 1987 Stock
Option Plan (incorporated by reference to Exhibit
10.20 to the Company's Form 10-K Annual Report
for 1991).
10.4# WICOR, Inc. 1992 Director Stock Option Plan
(incorporated by reference to Exhibit 4.1 to
WICOR, Inc.'s Form S-8 Registration No.
33-67132).
10.5# Form of nonstatutory stock agreement used in
conjunction with the WICOR, Inc. 1992 Director
Stock Option Plan (incorporated by reference to
Exhibit 4.2 to WICOR, Inc.'s Form S-8
Registration Statement No. 37-67132).
10.6# WICOR, Inc. 1994 Long-Term Performance Plan
(incorporated by reference to Exhibit 4.1 to the
WICOR, Inc. Form S-8 Registration Statement No.
33-55755).
10.7# Form of nonstatutory stock option agreement used
in connection with the WICOR, Inc. 1994 Long-Term
Performance Plan (incorporated by reference to
Exhibit 4.2 to the WICOR, Inc. Form S-8
Registration Statement No. 33-55755).<PAGE>
<PAGE> 15
10.8# Form of restricted stock agreement used in
connection with the WICOR, Inc. 1994 Long-Term
Performance Plan (incorporated by reference to
Exhibit 4.3 to the WICOR, Inc. Form S-8
Registration Statement No. 33-55755).
10.9# Wisconsin Gas Company Principal Officers'
Supplemental Retirement Income Program
(incorporated by reference to Exhibit 10.6 to the
Company's Form 10-K Annual Report for 1993).
10.10# Wisconsin Gas Company 1996 Officers' Incentive
Compensation Plan.
10.11# Wisconsin Gas Company Group Travel Accident Plan
(incorporated by reference to Exhibit 10.23 to
the Company's Form 10-K Annual Report for 1992).
10.12# Form of Deferred Compensation Agreement between
Wisconsin Gas Company and certain of its officers
(incorporated by reference to Exhibit 10.25 to
the Company's Form 10-K Annual Report for 1991).
10.13# WICOR, Inc. Retirement Plan for Directors, as
amended (incorporated by reference to Exhibit
10.25 to the Company's Form 10-K Annual Report
for 1992).
13 "Financial Review" portions of WICOR, Inc. 1995
Annual Report to Shareholders.
27 Financial Data Schedule. (EDGAR version only)
(b) Reports on Form 8-K.
Form 8-K Current Report dated November 7, 1995.
# Indicates a plan under which compensation is paid or payable
to directors or executive officers of the Company.<PAGE>
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
Date: March 12, 1996 By JOSEPH P. WENZLER
Joseph P. Wenzler
Vice President and
Chief Financial Officer<PAGE>
<PAGE> 17
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed on the succeeding pages by
the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
WISCONSIN GAS COMPANY
Signature Title Date
THOMAS F. SCHRADER
Thomas F. Schrader President, Chief Executive
Officer and Director
(Principal Executive Officer) March 12, 1996
JOSEPH P. WENZLER
Joseph P. Wenzler Vice President and March 12, 1996
Chief Financial Officer
(Principal Financial and
Principal Accounting Officer)
WENDELL F. BUECHE
Wendell F. Bueche Director March 12, 1996
WILLIE D. DAVIS Director March 12, 1996
Willie D. Davis
JERE D. MCGAFFEY
Jere D. McGaffey Director March 12, 1996
DANIEL F. MCKEITHAN, JR.
Dan F.McKeithan,Jr Director March 12, 1996
GUY A. OSBORN
Guy A. Osborn Director March 12, 1996
STUART W. TISDALE
Stuart W. Tisdale Director March 12, 1996
GEORGE E. WARDEBERG
George E Wardeberg Director March 12, 1996
ESSIE M. WHITELAW
Essie M. Whitelaw Director March 12, 1996
WILLIAM B. WINTER
William B. Winter Director March 12, 1996<PAGE>
<PAGE> 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wisconsin Gas Company:
We have audited the accompanying balance sheet and statements of
capitalization of WISCONSIN GAS COMPANY (a Wisconsin corporation
and a wholly owned subsidiary of WICOR, Inc.) as of December 31,
1995 and 1994, and the related statements of income, common
equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Wisconsin Gas Company as of December 31, 1995 and 1994, and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 22, 1996
<PAGE>
<PAGE> 19
WISCONSIN GAS COMPANY
Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1995 1994 1993
-------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Revenues......................... $519,398 $556,587 $574,835
--------- --------- ---------
Operating Expenses:
Cost of gas sold......................... 318,728 357,482 382,027
Operations............................... 95,795 108,397 102,385
Maintenance.............................. 6,932 7,409 7,279
Depreciation............................. 28,950 29,260 27,892
Taxes, other than income taxes........... 9,331 9,675 9,063
--------- --------- ---------
459,736 512,223 528,646
--------- --------- ---------
Operating Income........................... 59,662 44,364 46,189
--------- --------- ---------
Interest expense........................... 14,312 14,348 14,781
Other income and expenses.................. 176 127 258
--------- --------- ---------
Income Before Income Taxes................. 45,174 29,889 31,150
Income Taxes............................... 17,097 10,993 11,280
--------- --------- ---------
Net Income................................. $ 28,077 $ 18,896 $ 19,870
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> 20
WISCONSIN GAS COMPANY
Balance Sheet
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1995 1994
-----------------------
(Thousands of Dollars)
<S> <C> <C>
Assets
- ------
Property, Plant and Equipment, at cost............... $757,825 $718,988
Less - Accumulated depreciation.................... 382,424 356,033
--------- ---------
375,401 362,955
--------- ---------
Current Assets:
Cash and cash equivalents.......................... 7,463 17,279
Accounts receivable, less allowance for doubtful
accounts of $7,955,000 and $7,159,000,
respectively..................................... 65,477 42,662
Accrued utility revenues........................... 46,935 40,327
Materials and supplies, at weighted average cost... 3,364 2,983
Gas in storage, at weighted average cost........... 23,928 38,050
Deferred income taxes.............................. 16,781 13,183
Prepaid taxes...................................... 6,420 6,813
Other.............................................. 1,201 2,269
--------- ---------
171,569 163,566
--------- ---------
Deferred Charges and Other:
Regulatory assets.................................. 104,145 116,896
Systems development costs.......................... 28,868 34,071
Prepaid pension costs.............................. 27,012 25,394
Other.............................................. 6,458 3,610
--------- ---------
166,483 179,971
--------- ---------
$713,453 $706,492
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 21
WISCONSIN GAS COMPANY
Balance Sheet
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1995 1994
-----------------------
(Thousands of Dollars)
<S> <C> <C>
Capitalization and Liabilities
- ------------------------------
Capitalization (See accompanying statement):
Long-term debt..................................... $154,246 $143,831
Preferred stock.................................... - -
Common equity...................................... 195,161 182,995
--------- ---------
349,407 326,826
--------- ---------
Current Liabilities:
Accounts payable................................... 41,079 44,645
Accounts payable, intercompany, net................ 5,910 (1,359)
Refundable gas costs............................... 34,347 18,058
Short-term borrowings.............................. 57,500 85,000
Current portion of long-term debt.................. 4,000 4,000
Accrued payroll and benefits....................... 8,711 7,313
Accrued taxes...................................... 1,062 1,164
Other.............................................. 4,689 3,477
--------- ---------
157,298 162,298
--------- ---------
Deferred Credits and Other:
Regulatory liabilities............................. 64,896 60,900
Deferred income taxes.............................. 36,654 40,002
Postretirement benefit obligation.................. 52,968 55,624
Environmental remediation costs.................... 36,381 37,188
Unamortized investment tax credit.................. 7,724 8,187
Accrued pipeline transition costs.................. 261 7,411
Other.............................................. 7,864 8,056
--------- ---------
206,748 217,368
--------- ---------
Commitments and Contingencies (Note 6)
--------- ---------
$713,453 $706,492
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> 22
WISCONSIN GAS COMPANY
Statements of Cash Flow
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
(Thousands of Dollars) 1995 1994 1993
---------------------------------
<S> <C> <C> <C>
Operations:
Net income............................... $ 28,077 $ 18,896 $ 19,870
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization.......... 36,646 37,419 34,786
Deferred income taxes.................. (6,946) (8,491) (4,851)
Change in:
Receivables.......................... (29,423) 34,500 (9,821)
Gas in storage....................... 14,121 6,647 (38,050)
Other current assets................. 688 (6,948) (94)
Deferred systems development costs... - (841) (6,530)
Accounts payable..................... (3,566) (1,183) (11,284)
Accrued taxes........................ 7,560 (2,021) 1,432
Refundable gas costs................. 16,289 2,462 1,955
Other current liabilities............ 2,610 (485) 10,006
Other noncurrent assets and
liabilities........................ (1,100) 7,474 (5,974)
--------- --------- ---------
64,956 87,429 (8,555)
--------- --------- ---------
Investment Activities:
Capital expenditures..................... (42,726) (44,626) (42,253)
Other, net............................... 365 343 541
--------- --------- ---------
(42,361) (44,283) (41,712)
--------- --------- ---------
Financing Activities:
Change in short-term borrowings.......... (27,500) (23,000) 59,000
Issuance of long-term debt............... 65,000 - 45,000
Reduction of long-term debt.............. (54,000) (2,000) (46,771)
Donated capital from WICOR, Inc.......... - 5,000 12,000
Cash dividends paid to WICOR, Inc........ (16,000) (16,000) (16,000)
Other.................................... 89 453 225
--------- --------- ---------
(32,411) (35,547) 53,454
--------- --------- ---------
Change in Cash and Cash Equivalents........ (9,816) 7,599 3,187
Cash and Cash Equivalents at beginning
of year.................................. 17,279 9,680 6,493
--------- --------- ---------
Cash and Cash Equivalents at end of year... $ 7,463 $ 17,279 $ 9,680
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> 23
WISCONSIN GAS COMPANY
Statements of Common Equity
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1995 1994 1993
---------------------------------
(Thousands of Dollars)
<S> <C> <C> <C>
Common Stock
Balance at beginning and end of year.... $ 9 $ 9 $ 9
--------- --------- ---------
Other Paid-In Capital
Balance at beginning of year............ 118,753 113,300 101,075
Donated capital from WICOR, Inc....... - 5,000 12,000
Other................................. 89 453 225
--------- --------- ---------
Balance at end of year.................. 118,842 118,753 113,300
--------- --------- ---------
Retained Earnings
Balance at beginning of year............ 64,233 61,337 57,467
Net income............................ 28,077 18,896 19,870
Cash dividends paid to WICOR, Inc..... (16,000) (16,000) (16,000)
--------- --------- ---------
Balance at end of year.................. 76,310 64,233 61,337
--------- --------- ---------
Total Common Equity at end of year........ $195,161 $182,995 $174,646
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> 24
WISCONSIN GAS COMPANY
Statements of Capitalization
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1995 1994
-----------------------
(Thousands of Dollars)
<S> <C> <C>
Long-Term Debt
First mortgage bonds
Adjustable Rate Series, 9.3% and 7.4%,
respectively, due 1999.......................... $ 6,000 $ 10,000
9-1/8% Notes due 1997............................... - 50,000
7-1/2% Notes due 1998............................... 40,000 40,000
6.6% Notes due 2013................................. 45,000 45,000
6-3/8% Notes due 2005............................... 65,000 -
Unamortized debt discount and expense............... (1,754) (1,169)
--------- ---------
154,246 143,831
--------- ---------
Preferred Stock
Without par value, cumulative; authorized 1,500,000
shares, none outstanding.......................... - -
--------- ---------
Common Equity
Common Stock, $8 par value, authorized 5,000,000
shares, 1,125 shares outstanding.................. 9 9
Other paid-in capital............................... 118,842 118,753
Retained earnings................................... 76,310 64,233
--------- ---------
195,161 182,995
--------- ---------
$349,407 $326,826
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> 25
Wisconsin Gas Company
Notes to Financial statements
1. ACCOUNTING POLICIES
a. Business
Wisconsin Gas Company (Wisconsin Gas), the oldest and largest
natural gas distribution utility in Wisconsin, is a public
utility engaged in the distribution of natural gas throughout
Wisconsin. Most of its revenues, however, are derived from gas
delivered in southeastern Wisconsin. Wisconsin Gas is subject to
regulation by the Public Service Commission of Wisconsin (PSCW)
and gives recognition to ratemaking policies substantially in
accordance with the Federal Energy Regulatory Commission (FERC)
System of Accounts. At December 31, 1995, Wisconsin Gas served
approximately 505,000 customers in 503 communities.
b. Gas Distribution Revenues and Purchased Gas Costs
Utility billings are rendered on a cycle basis. Revenues
include estimated amounts accrued for service provided but not
yet billed.
Wisconsin Gas' rate schedules contain purchased gas adjustment
(PGA) provisions which permit the recovery of actual purchased
gas costs incurred. The difference between actual gas costs
incurred and costs recovered through rates, adjusted for
inventory activity, is deferred as a current asset or liability.
The deferred balance is returned to or recovered from customers
at intervals throughout the year and any residual balance at the
annual October 31 reconciliation date is subsequently refunded
to or recovered from customers.
The PSCW is currently permitting Wisconsin Gas to recover
pipeline supplier take-or-pay settlement costs, allocating a
portion of the direct-billed costs to each customer class,
including transportation customers.
c. Plant and Depreciation
Gas distribution property, plant and equipment is stated at
original cost, including overhead allocations. Upon ordinary
retirement of plant assets, their cost plus cost of removal, net
of salvage, is charged to accumulated depreciation, and no gain
or loss is recognized.
The depreciation of Wisconsin Gas' assets is computed using
straight-line rates over estimated useful lives and considers
salvage value. These rates have been consistently used for
ratemaking purposes. The composite rates are 4.2%, 4.5% and
4.7% for 1995, 1994 and 1993, respectively.<PAGE>
<PAGE> 26
d. Regulatory Accounting
Wisconsin Gas accounts for its regulated operations in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation." This statement sets forth the application of
generally accepted accounting principles to those companies
whose rates are determined by an independent third-party
regulator. The economic effects of regulation can result in
regulated companies recording costs that have been or are
expected to be allowed in the ratemaking process in a period
different from the period in which the costs would be charged to
expense by an unregulated enterprise. When this occurs, costs
are deferred as assets in the balance sheet (regulatory assets)
and recorded as expenses as those same amounts are reflected in
rates. Additionally, regulators can impose liabilities upon a
regulated company for amounts previously collected from
customers and for amounts that are expected to be refunded to
customers (regulatory liabilities).
The amounts recorded as regulatory assets and regulatory
liabilities in the balance sheet at December 31, 1995 and 1994
are as follows:
(Thousands of Dollars) 1995 1994
---------- ----------
Regulatory assets:
Postretirement benefit
costs (Note 8) $ 45,054 $ 47,832
Deferred environmental costs 41,457 41,942
Income tax-related amounts
due from customers (Note 2) 3,357 3,711
Pipeline transition costs 261 7,411
Other 14,016 16,000
---------- ----------
$ 104,145 $ 116,896
========== ==========
Regulatory liabilities:
Income tax-related amounts
due to customers (Note 2) $ 22,891 $ 24,098
Pension costs (Note 8) 19,482 22,333
Other 22,523 14,469
---------- ----------
$ 64,896 $ 60,900
========== ==========
Consistent with PSCW regulation, Wisconsin Gas has
capitalized computer systems development costs and amortizes the
costs to expense over a five- to ten- year period.<PAGE>
<PAGE> 27
Wisconsin Gas is precluded from discontinuing service to
residential customers within its service area during a certain
portion of the heating season. Any differences between doubtful
account provisions based on actual experience and provisions
allowed for ratemaking purposes by the PSCW are deferred for
later recovery in rates as a cost of service. The most recent
PSCW rate order provides for a $13.9 million allowable annual
provision for doubtful accounts, including amortization of prior
deferred amounts. See Notes 6 and 8 for discussion of additional
deferred charges.
e. Income Taxes
Wisconsin Gas as a wholly owned subsidiary of WICOR, Inc.
is included in WICOR's consolidated Federal income tax return.
WICOR allocates Federal current tax expense or credits to
Wisconsin Gas based on its respective separate tax computation.
Investment tax credits were recorded as a deferred credit
on the balance sheet and are being amortized to income over the
applicable service lives of the related properties in accordance
with regulatory treatment.
f. Cash Flows
Wisconsin Gas considers all highly liquid debt instruments
purchased with an original maturity of three months or less to
be cash equivalents. Due to the short maturity of these
instruments, market value approximates cost.
For purposes of the Consolidated Statements of Cash Flow,
income taxes paid (net of refunds) and interest paid were as
follows for each of the years ended December 31, 1995, 1994 and
1993:
(Thousands of Dollars) 1995 1994 1993
- ----------------------- ---------- ---------- ----------
Income taxes paid $ 19,928 $ 30,059 $ 8,188
Interest paid $ 13,636 $ 13,374 $ 15,043
g. Derivative Financial Instruments
Wisconsin Gas has a limited involvement with derivative
financial instruments and does not use them for trading or
speculative purposes. The Company purchased options in 1995 to
hedge a small portion of gas costs incurred for resale. The
cost of options and any gains or losses realized do not affect
income since they are accounted for under the purchased gas
adjustment clause.<PAGE>
<PAGE> 28
h. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those results.
i. Reclassifications
Certain prior year financial statement amounts have been
reclassified to conform to their current year presentation.
2. INCOME TAXES
The current and deferred components of income tax expense
for each of the years ended December 31, are as follows:
(Thousands of Dollars) 1995 1994 1993
- ------------------------ ---------- ---------- ----------
Current
Federal $ 23,474 $ 19,245 $ 15,082
State 5,808 4,771 3,761
---------- ---------- ----------
Total Current 29,282 24,016 18,843
---------- ---------- ----------
Deferred
Federal (10,101) (10,789) (6,432)
State (2,084) (2,234) (1,131)
---------- ---------- ----------
Total Deferred (12,185) (13,023) (7,563)
---------- ---------- ----------
Total Provision $ 17,097 $ 10,993 $ 11,280
========== ========== ==========<PAGE>
<PAGE> 29
The provision for income taxes differs from the amount of
income tax determined by applying the applicable U.S. statutory
federal income tax rate to pre-tax income as a result of the
following differences:
<TABLE>
<CAPTION>
(Thousands of Dollars)
Year ended December 31, 1995 1994 1993
- -------------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S. tax rates $15,811 35.0% $10,461 35.0% $10,910 35.0%
State income taxes, net 2,515 5.6 1,707 5.7 1,601 5.1
Investment credit restored (457) (1.0) (461) (1.5) (473) (1.5)
Excess deferred
tax amortization (507) (1.1) (505) (1.7) (532) (1.7)
Other, net (265) (0.7) (209) (0.7) (226) (0.7)
-------------- -------------- ---------------
Effective Tax Rates $17,097 37.8% $10,993 36.8% $11,280 36.2%
============== ============== ===============
</TABLE>
The components of deferred income tax assets and
liabilities at December 31, 1995 and 1994 are as follows:
(Thousands of Dollars) 1995 1994
- -------------------------- ---------- ----------
Deferred Income Tax Assets
Recoverable gas costs $ 13,416 $ 7,258
Inventory 2,614 3,755
Deferred compensation 1,667 1,335
Other (916) 835
---------- ----------
$ 16,781 $ 13,183
========== ==========
Deferred Income Tax Liabilities
Property related $ 37,715 $ 34,643
Systems development costs 11,586 13,675
Pension benefits 3,070 1,276
Gas transition costs 105 2,974
Investment tax credit (5,109) (5,416)
Environmental (4,725) (1,669)
Postretirement benefits (3,177) (3,122)
Deferred compensation (2,119) (2,160)
Other (692) (179)
---------- ----------
$ 36,654 $ 40,022
========== ==========<PAGE>
<PAGE> 30
3. SHORT-TERM BORROWINGS
As of December 31, 1995 and 1994, Wisconsin Gas had total
unsecured lines of credit available from banks of $120.0 million
and $135.0 million, respectively. At December 31, 1995, $57.5
million of commercial paper was outstanding at a weighted
average interest rate of 5.9%. At December 31, 1994, $85.0
million of commercial paper was outstanding at a weighted
average interest rate of 5.9%.
These borrowing arrangements may require the maintenance of
average compensating balances which are generally satisfied by
balances maintained for normal business operations and may be
withdrawn at any time.
4. LONG-TERM DEBT
In November 1995, Wisconsin Gas issued $65 million of 6
3/8% Notes due in 2005, a portion of the proceeds were used to
redeem $50 million of 9 1/8% Notes due in 1997. In September
1993, Wisconsin Gas issued $45 million of 6.6% Notes due in
2013, the proceeds of which were used to refinance $45 million
of first mortgage bonds. Substantially all gas distribution
property is subject to a first mortgage lien. Maturities and
sinking fund requirements during the succeeding five years on
all long-term debt total $4.0 million, $2.0 million, $42.0
million, $2.0 million and zero in 1996, 1997, 1998, 1999 and
2000, respectively.
5. RESTRICTIONS
A November 1993 rate order issued by the PSCW sets an
equity range of 43% to 50% for the utility and also requires
Wisconsin Gas to request PSCW approval prior to the payment of
dividends on its common stock to WICOR if the payment would
reduce its common equity (net assets) below 43% of total
capitalization (including short-term debt). Under this
requirement, $26.8 million of Wisconsin Gas' net assets at
December 31, 1995, plus future earnings, were available for such
dividends without PSCW approval. In addition, the PSCW must also
approve any dividends in excess of $16 million for any 12 month
period beginning November 1 if such dividends would dilute
Wisconsin Gas' total equity below 48.43% of its total
capitalization. Wisconsin Gas paid $4 million in dividends in
November 1995 and expects to pay $19 million in dividends for
the 12 months ending October, 1996.<PAGE>
<PAGE> 31
6. COMMITMENTS AND CONTINGENCIES
a. Gas Supply
Wisconsin Gas has agreements for firm pipeline and storage
capacity that expire at various dates through 2008. The
aggregate amount of required payments under such agreements
totals approximately $1,010 million, with annual required
payments of $133 million in 1996, $132 million in 1997, $125
million in 1998, $123 million in 1999 and $123 million in 2000.
Wisconsin Gas' total payments of fixed charges under all
agreements were $130.5 million in 1995, $130.4 million in 1994
and $133.9 million in 1993. The purchased gas adjustment
provisions of Wisconsin Gas' rate schedules permit the recovery
of gas costs from its customers. In 1992, the FERC issued Order
No. 636 that, among other things, mandated the unbundling of
interstate pipeline sales service and established certain open
access transportation regulations that became effective
beginning in the 1993-94 heating season. Order No. 636 permits
pipeline suppliers to pass through to Wisconsin Gas any
prudently incurred transition costs, such as unrecovered gas
costs, gas supply realignment costs and stranded investment
costs. Wisconsin Gas estimates its portion of such costs from
all of its pipeline suppliers would approximate $14.5 million at
December 31, 1995 based upon prior filings with FERC by the
pipeline suppliers. The pipeline suppliers will continue to file
quarterly with the FERC for recovery of actual costs incurred.
The FERC has allowed ANR Pipeline Company to recover
capacity and "above market" supply costs associated with
quantities purchased from Dakota Gasification Company ("Dakota")
under a long-term contract expiring in the year 2009. Consistent
with guidelines set forth in Order No. 636, ANR has allocated
90% of Dakota costs to firm transportation service recoverable
through a reservation rate surcharge and 10% to interruptible
service. ANR and other pipelines reached a settlement with
Dakota governing the price of Dakota gas. A FERC administrative
law judge ("ALJ") has overturned the settlement and ordered
refunds of amounts collected from pipeline customers. The ALJ's
decision is subject to review by FERC. Pending a final
resolution, ANR currently recovers the difference between costs
paid to Dakota and the current market price. Based on Wisconsin
Gas contracted quantities with ANR, Wisconsin Gas is currently
paying approximately $500,000 per month of Dakota costs. This
amount varies month-to-month and across years based on the
spread between ANR contract terms with Dakota and the market
indices for pricing spot gas.<PAGE>
<PAGE> 32
Transition costs billed to Wisconsin Gas are being
recovered from customers under the purchased gas provisions
within its rate schedules. Assuming no drastic changes in the
market for natural gas, Wisconsin Gas does not expect transition
costs to significantly affect the total cost of gas to its
customers because (1) Wisconsin Gas will purchase its wellhead
gas supplies based upon market prices that should be below the
cost of gas previously embedded in the bundled pipeline sales
service and (2) many elements of transition costs were
previously embedded in the rates for the pipelines' bundled
sales service. The unbundling of pipeline sales service requires
Wisconsin Gas to contract directly and separately for wellhead
gas supply and firm transportation services. As a result of FERC
Order No. 636, Wisconsin Gas has contracted directly for
underground storage since 1993.
b. Capital Expenditures
Certain commitments have been made in connection with 1996
capital expenditures. Wisconsin Gas capital expenditures for
1996 are estimated at $48 million.
c. Environmental Matters
Wisconsin Gas has identified two previously owned sites on
which it operated manufactured gas plants that are of
environmental concern. Such plants ceased operations prior to
the mid-1950's. Wisconsin Gas has engaged an environmental
consultant to help determine the nature and extent of the
contamination at these sites. Based on the test results obtained
and the possible remediation alternatives available, the Company
has estimated that cleanup costs could range from $22 million to
$75 million. As of December 31, 1995, the Company has accrued
$36.4 million for future cleanup costs. These estimates are
based on current undiscounted costs. It should also be noted
that the numerous assumptions such as the type and extent of
contamination, available remediation techniques, and regulatory
requirements which are used in developing these estimates are
subject to change as new information becomes available. Any such
changes in assumptions could have a significant impact on the
potential liability. Due to anticipated regulatory treatment,
as discussed below, changes in the recorded liability do not
immediately impact net income.<PAGE>
<PAGE> 33
The Wisconsin Department of Natural Resources (WDNR) issued
a Probable Responsible Party letter to Wisconsin Gas for these
two sites in September 1994. Following receipt of this letter,
Wisconsin Gas and WDNR held an initial meeting to discuss the
sites. At the meeting it was agreed that Wisconsin Gas would
prepare a remedial action options report from which it will
select specific remedial actions for recommendation to the WDNR.
During 1995, the Company gathered additional environmental data
regarding these two sites, held extensive discussions concerning
remedial options with current land owners and solicited
information from environmental consulting and remediation firms
on technology and approaches that would best suite the sites.
These efforts were directed toward preparing a remedial action
options report and recommendations for presentation to the WDNR
during 1996. Once such a plan is approved, initial remediation
work will begin. Expenditures over the next three years are
expected to total approximately $20.0 million. Although most of
the work and the cost are expected to be incurred in the first
few years of the plan, monitoring of sites and other necessary
actions may be undertaken for up to 30 years.
In March 1994, Wisconsin Gas commenced suit against nine
insurance carriers seeking a declaratory judgment regarding
insurance coverage for the two sites. Settlements were reached
with each of the carriers during 1994. Additional insurance
recoveries are being pursued. Under recent PSCW rate orders,
the Company expects full recovery of incurred remediation costs,
less amounts recovered from insurance carriers. If the amount
recovered from the insurance carriers is insufficient to
remediate both sites, expenditures not recovered will be allowed
full recovery (other than for carrying costs) in rates based
upon recent PSCW orders. Accordingly, the accrual for future
remediation costs has been deferred as a regulatory asset.
Accordingly, a regulatory asset has been recorded for the
accrued cost. Certain related investigation costs incurred to
date are currently being recovered in utility rates. However,
any incurred costs not yet recovered in rates are not allowed by
the PSCW to earn a return. As of December 31, 1995, $4.8
million of such costs had been incurred.
d. Other
The Company is party to various legal proceedings arising
in the ordinary course of business which are not expected to
have a material effect on the Company's financial position or
results of operation.
7. COMMON STOCK AND OTHER PAID-IN CAPITAL
During 1994 and 1993, WICOR invested in Wisconsin Gas, $5
million and $12 million, respectively. No amounts were invested
by WICOR in 1995.<PAGE>
<PAGE> 34
8. BENEFIT PLANS
a. Pension Plans
Wisconsin Gas has non-contributory pension plans which
cover substantially all its employees and include benefits based
on levels of compensation and years of service. Employer
contributions and funding policies are consistent with funding
requirements of Federal law and regulations. Commencing November
1, 1992, Wisconsin Gas pension costs or credits included in the
utility cost of service have been calculated in accordance with
SFAS No. 87 and are recoverable from customers. Prior to this
date, pension costs were recoverable in rates as funded.
The following table sets forth the funded status of pension
plans at December 31, 1995 and 1994. The cumulative difference
between the amounts funded and the amounts based on SFAS No. 87
through November 1, 1992 is recorded as a regulatory liability
and is being amortized as a reduction of pension expense over an
eight-year period effective November 1, 1994.<PAGE>
<PAGE> 35
<TABLE>
<CAPTION>
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
--------------------- -----------------------
(Thousands of Dollars) 1995 1994 1995 1994
- ---------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Accumulated benefit
obligation
Vested benefits $ (72,203) $ (64,291) $ (3,979) $ (4,983)
Nonvested benefits (11,063) (10,050) (921) (1,082)
---------- ---------- ---------- ----------
(83,266) (74,341) (4,900) (6,065)
Effect of projected future
compensation levels (38,178) (36,340) (642) (492)
---------- ---------- ---------- ----------
Project benefit obligation (121,444) (110,681) (5,542) (6,557)
Plan assets at fair value 163,214 148,588 - -
---------- ---------- ---------- ----------
Plan assets greater (less)
than projected benefit
obligation 41,770 37,907 (5,542) (6,557)
Unrecognized net (asset)
liability at September 30,
1985 being recognized over
approximately 16 years (12,855) (14,329) 546 887
Unrecognized prior
service costs 3,599 3,890 146 253
Unrecognized net (gain) loss (5,502) (2,074) 721 657
Additional minimum
liability recorded - - (899) (1,307)
---------- ---------- ---------- ----------
Accrued pension asset
(liability) $ 27,012 $ 25,394 $ (5,028) $ (6,067)
========== ========== ========== ==========
</TABLE>
The weighted average discount rate assumptions used in
determining the actuarial present value of the projected benefit
obligation were 7.5%, 8.25% and 7.5% for 1995, 1994 and 1993,
respectively. The expected long-term rate of return on assets
was 8.5%, 8.5% and 8.0% for 1995, 1994 and 1993, respectively.
The expected long-term rate of compensation growth was 5.0%,
5.5% and 6.0% for 1995, 1994 and 1993, respectively.<PAGE>
<PAGE> 36
Net pension costs for each of the years ended December 31,
include the following (income) expense:
(Thousands of Dollars) 1995 1994 1993
- -------------------------- ---------- ---------- ----------
Service costs $ 3,529 $ 4,265 $ 4,872
Interest costs on projected
benefit obligations 9,305 8,860 9,023
Actual (gain) loss on
plan assets (21,057) 1,880 (13,474)
Net amortization/deferral 7,232 (15,195) (1,424)
Gain on early
retirement incentive - (268) -
Amortization of
regulatory liability (2,851) (475) -
---------- ---------- ----------
Net pension income $ (3,842) $ (933) $ (1,003)
========== ========== ==========
b. Postretirement Health Care and Life Insurance
In addition to providing pension benefits, Wisconsin Gas
provides certain health care and life insurance benefits for
retired employees when they reach normal retirement age while
working for the Company. Wisconsin Gas funds the accrual
annually based on the maximum tax deductible amount.
Commencing January 1, 1992, Wisconsin Gas postretirement
benefit costs have been calculated in accordance with SFAS No.
106 and are recoverable from customers. The cumulative
difference between the amounts funded and the amounts based on
SFAS No. 106 through January 1, 1992 is recorded as a regulatory
asset and is being amortized over a twenty-year period effective
January 1, 1992.
Net postretirement health care and life insurance costs for
each of the years ended December 31, consisted of the following
components:
(Thousands of Dollars) 1995 1994 1993
- ---------------------- ---------- ---------- ----------
Service cost $ 1,847 $ 2,492 $ 2,575
Interest cost on projected
benefit obligation 5,336 5,665 5,396
Actual (gain) loss on
plan assets (6,185) 147 (1,414)
Amortize regulatory asset 2,778 2,778 2,651
Net amortization/deferral 2,477 (2,628) -
Loss on early retirement
incentive - 3,650 -
---------- ---------- ----------
Net postretirement
benefit cost $ 6,253 $ 12,104 $ 9,208
========== ========== ==========<PAGE>
<PAGE> 37
The 1994 postretirement benefit cost was increased due to
the early retirement of 131 employees under a voluntary early
retirement incentive plan for employees age 55 and over.
The following table sets forth the plans' funded status,
reconciled with amounts recognized in the Company's Statement of
Financial Position at December 31, 1995 and 1994, respectively.
Accumulated benefit obligation
(Thousands of Dollars) 1995 1994
- ------------------------------------- ---------- ----------
Retirees $ (38,966) $ (40,510)
Active employees (37,633) (26,716)
---------- ----------
Accumulated benefit obligation (76,599) (67,226)
Plan assets at fair value 39,417 30,666
---------- ----------
Accumulated benefit obligation
in excess of plan assets (37,182) (36,560)
Unrecognized prior service costs (15,915) (16,347)
Unrecognized actuarial
(gain) loss 129 (2,717)
---------- ----------
Accrued postretirement benefit $ (52,968) $ (55,624)
========== ==========
The postretirement benefit cost components for 1995 were
calculated assuming health care cost trend rates beginning at
11% in 1995 and decreasing to 6% in 23 years. The health care
cost trend rate has a significant effect on the amounts
reported. Increasing the assumed health care cost trend rates by
one percentage point in each year would increase the APBO as of
December 31, 1995 by $12.4 million and the aggregate of the
service and interest cost components of postretirement expense
by $1.7 million.
The assumed discount rate used in determining the actuarial
present value of the accumulated postretirement benefit
obligation was 7.5%, 8.25% and 7.50% in 1995, 1994 and 1993,
respectively. Plan assets are primarily invested in equities
and fixed income securities.
c. Retirement Savings Plans
Wisconsin Gas maintains various employee savings plans,
which provide employees a mechanism to contribute amounts up to
16% of their compensation for the year. Company matching
contributions may be made for up to 5% of eligible compensation
including 1% for the Employee Stock Ownership Plan (ESOP). See
Note 8.d. Total contributions were valued at $1.2 million in
1995, $1.3 million in 1994 and $1.3 million in 1993.<PAGE>
<PAGE> 38
d. Employee Stock Ownership Plan
In November 1991, WICOR established an ESOP covering non-
union employees of Wisconsin Gas. The ESOP funds employee
benefits of up to 1% of compensation with Company common stock
distributed through the ESOP.
The ESOP used the proceeds from a $10 million, 3-year
adjustable rate loan with a 6.44% interest rate at December 31,
1995, guaranteed by WICOR, to purchase 431,266 shares of
original issue WICOR common stock. The ESOP extended the
adjustable rate loan, with similar terms, until March 29, 1996.
WICOR expects to refinance the adjustable rate loan in the first
quarter of 1996. Because WICOR has guaranteed the loan, the
unpaid balance ($5.3 million) is shown as long-term debt with a
like amount of unearned compensation being recorded as a
reduction of common equity on WICOR's balance sheet.
The ESOP trustee is repaying the $10 million loan with
dividends on shares of WICOR common stock in the ESOP and with
Wisconsin Gas contributions to the ESOP.
e. Postemployment Benefit Plans
Effective January 1, 1994 the Company adopted SFAS No.
112, "Employers' Accounting for Postemployment Benefits," which
requires accrual for all other postemployment benefits. Total
postemployment benefit expense was $0.6 million in 1995 and
1994, respectively, including a one-time cumulative adjustment
in 1994. The incremental costs of adopting this statement are
insignificant on an ongoing basis.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts
receivable and short-term borrowings approximates fair value due
the short-term maturities of these instruments.
The fair value of Wisconsin Gas' long-term debt is
estimated based on the quoted market prices of U.S. Treasury
issues having a similar term to maturity, adjusted for the
Company's bond rating and the present value of future cash
flows.
Because Wisconsin Gas operates in a regulated environment,
shareholders would probably not be affected by realization of
gains or losses on extinguishment of its outstanding fixed-rate
debt. Realized gains would be refunded to and losses would be
recovered from customers through gas rates.<PAGE>
<PAGE> 39
The estimated fair value of Wisconsin Gas' long-term debt
at December 31, is as follows:
<TABLE>
<CAPTION> 1995 1994
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- --------- --------- - ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 7,463 $ 7,463 $ 17,279 $ 17,279
Accounts receivable $ 65,477 $ 65,477 $ 42,662 $ 42,662
Short-term debt $ 57,500 $ 57,500 $ 85,000 $ 85,000
Long-term debt $ 154,246 $ 156,041 $ 143,831 $ 141,335
</TABLE>
10. QUARTERLY FINANCIAL DATA (Unaudited)
Because seasonal factors significantly affect Wisconsin Gas operations, the
following data is not comparable between quarters:
<TABLE>
<CAPTION>
(Thousands of dollars) First Second Third Fourth
- ----------------------- -------- --------- --------- --------
<S> <C> <C> <C> <C>
1995
Operating Revenues $192,484 $ 93,985 $ 70,959 $161,970
Operating Income (Loss) $ 38,572 $ 2,226 $ (8,492) $ 27,356
Net Income (Loss) $ 21,532 $ (570) $ (7,332) $ 14,447
1994
Operating Revenues $242,148 $ 99,349 $ 76,675 $138,415
Operating Income (Loss) $ 43,331 $ (3,680) $(13,172) $ 17,885
Net Income (Loss) $ 24,878 $ (4,292) $(10,485) $ 8,795
/TABLE
<PAGE>
<PAGE> 40
EXHIBIT INDEX
3.1 Wisconsin Gas Company Restated Articles of
Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to the Company's Form
10-K Annual Report for 1988).
3.2 Amendment to Wisconsin Gas Company By-laws,
effective February 28, 1995 (incorporated by
reference to Exhibit 3.2 to the Company's Form
10-K Annual Report for 1994).
3.3 Wisconsin Gas Company By-laws, as amended
(incorporated by reference to Exhibit 3.3 to the
Company's Form 10-K Annual Report for 1994).
4.1 Indenture of Mortgage and Deed of Trust dated as
of November 1, 1950, between Milwaukee Gas Light
Company and Mellon National Bank and Trust
Company and D. A. Hazlett, Trustees (incorporated
by reference to Exhibit 7-E to the Company's
Registration Statement No. 2-8631).
4.2 Bond Purchase Agreement dated December 31, 1981,
between Wisconsin Gas Company and Teachers
Insurance and Annuity Association of America
relating to the issuance and sale of $30,000,000
principal amount of First Mortgage Bonds,
Adjustable Rate Series due 2002 (incorporated by
reference to Exhibit 4-6 to the Company's Form
S-3 Registration Statement No. 33-43729).
4.3 Indenture dated as of September 1, 1990, between
Wisconsin Gas Company and First Wisconsin Trust
Company, Trustee (incorporated by reference to
Exhibit 4.11 to the Company's Form S-3
Registration Statement No. 33-36639).
4.4 Officers' Certificate dated as of November 19,
1991, setting forth the terms of Wisconsin Gas
Company's 7-1/2% Notes due 1998 (incorporated by
reference to Exhibit 4.1 to Wisconsin Gas
Company's Form 8-K Current Report dated November
19, 1991).
4.5 Officers' Certificate, dated as of September 15,
1993, setting forth the terms of the Company's
6.60% debentures due 2013 (incorporated by
reference to Exhibit 4.1 to the Company's Form
8-K Current Report for September, 1993).
<PAGE>
<PAGE> 41
4.6 Officers' Certificate, dated as of November 7,
1995, setting forth the terms of the Company's
6-3/8% Notes due 2005 (incorporated by reference
to the Company's Form 8-K Current Report dated
November 7, 1995.
4.7 Revolving Credit and Term Loan Agreement dated as
of March 29, 1993, among Wisconsin Gas Company
and the Bank of New York, Citibank, N.A., Firstar
Bank of Milwaukee, N. A. Harris Trust & Savings
Bank, M&I Marshall & Ilsley Bank and Citibank,
N.A., as Agent (incorporated by reference to
Exhibit 4.2 to the Company's Quarterly Report on
Form 10-Q dated as of August 9, 1993).
4.8 Extension of Revolving Credit and Term Loan
Agreement dated as of March 29, 1994, among
Wisconsin Gas Company and Citibank, N.A., Firstar
Bank Milwaukee, Harris Trust and Savings Bank,
M&I Marshall & Ilsley Bank and Citibank, N.A., as
Agent (incorporated by reference to Exhibit 4.9
to the Company's Form 10-K Annual Report of
1994).
4.9 Loan Agreement dated as of November 4, 1991, by
and among M&I Marshall & Ilsley Bank, Wisconsin
Gas Company Employee's Savings Plans Trust and
WICOR, Inc. (incorporated by reference to Exhibit
4.16 to the Company's Form 10-K Annual Report for
1991).
4.10* Loan Agreement Amendment effective December 21,
1995, by and among Wisconsin Gas Company
Employees' Savings Plan Trust, WICOR, Inc., and
M&I Marshall and Ilsley Bank.
10.1 Service Agreement dated as of June 1, 1994, among
WICOR, Inc., Wisconsin Gas Company, WEXCO of
Delaware, Inc., Sta-Rite Industries, Inc. and
SHURflo Pump Manufacturing Co.
10.2# WICOR, Inc. 1987 Stock Option Plan, as amended
(incorporated by reference to Exhibit 4.1 to the
WICOR, Inc. Form S-8 Registration Statement No.
33-67134).
10.3# Forms of nonstatutory stock option agreement used
in connection with the WICOR, Inc. 1987 Stock
Option Plan (incorporated by reference to Exhibit
10.20 to the Company's Form 10-K Annual Report
for 1991).<PAGE>
<PAGE> 42
10.4# WICOR, Inc. 1992 Director Stock Option Plan
(incorporated by reference to Exhibit 4.1 to
WICOR, Inc.'s Form S-8 Registration No.
33-67132).
10.5# Form of nonstatutory stock agreement used in
conjunction with the WICOR, Inc. 1992 Director
Stock Option Plan (incorporated by reference to
Exhibit 4.2 to WICOR, Inc.'s Form S-8
Registration Statement No. 37-67132).
10.6# WICOR, Inc. 1994 Long-Term Performance Plan
(incorporated by reference to Exhibit 4.1 to the
WICOR, Inc. Form S-8 Registration Statement No.
33-55755).
10.7# Form of nonstatutory stock option agreement used
in connection with the WICOR, Inc. 1994 Long-Term
Performance Plan (incorporated by reference to
Exhibit 4.2 to the WICOR, Inc. Form S-8
Registration Statement No. 33-55755).
10.8# Form of restricted stock agreement used in
connection with the WICOR, Inc. 1994 Long-Term
Performance Plan (incorporated by reference to
Exhibit 4.3 to the WICOR, Inc. Form S-8
Registration Statement No. 33-55755).
10.9# Wisconsin Gas Company Principal Officers'
Supplemental Retirement Income Program
(incorporated by reference to Exhibit 10.6 to the
Company's Form 10-K Annual Report for 1993).
10.10#* Wisconsin Gas Company 1996 Officers' Incentive
Compensation Plan.
10.11# Wisconsin Gas Company Group Travel Accident Plan
(incorporated by reference to Exhibit 10.23 to
the Company's Form 10-K Annual Report for 1992).
10.12# Form of Deferred Compensation Agreement between
Wisconsin Gas Company and certain of its officers
(incorporated by reference to Exhibit 10.25 to
the Company's Form 10-K Annual Report for 1991).
10.13# WICOR, Inc. Retirement Plan for Directors, as
amended (incorporated by reference to Exhibit
10.25 to the Company's Form 10-K Annual Report
for 1992).<PAGE>
<PAGE> 43
13* "Financial Review" portions of WICOR, Inc. 1995
Annual Report to Shareholders.
27* Financial Data Schedule. (EDGAR version only)
* Indicates document filed herewith
# Indicates a plan under which compensation is paid or payable
to directors or executive officers of the Company<PAGE>
<PAGE>
<PAGE> 1
EXHIBIT 10.1
WICOR, INC. SYSTEM
SERVICE AGREEMENT
This Service Agreement (the "Agreement") is made and entered
into as of the 1st day of June, 1994, by and among WICOR, Inc., a
Wisconsin corporation ("WICOR"), Wisconsin Gas Company, a
Wisconsin corporation ("Wisconsin Gas"), WEXCO of Delaware, Inc.,
a Delaware corporation ("WEXCO"), Sta-Rite Industries, Inc., a
Wisconsin corporation ("Sta-Rite") and SHURflo Pump Manufacturing
Company, a California corporation ("SHURflo"), and supersedes the
Service Agreement dated as of January 1, 1988, as amended by
endorsement dated as of July 28, 1993.
WHEREAS, WICOR is a holding company owning all of the issued
and outstanding common stock of its subsidiaries, Wisconsin Gas,
WEXCO, Sta-Rite and SHURflo; and
WHEREAS, WICOR, WEXCO, Sta-Rite and SHURflo (hereinafter
referred to as "Nonutility Affiliates") are affiliated interested
with Wisconsin Gas pursuant to Stats., ss. 196.52 and 196.795; and
WHEREAS, it is necessary and convenient for WICOR to provide
certain common services for the benefit of its subsidiaries; and
WHEREAS, from time to time it may be necessary, convenient or
economical for any one of the parties to this Agreement to provide
certain services to one or more of the other parties, which may
require that Wisconsin Gas make available public utility affiliate
employees and/or property as referred to in s. 196.795(5)(r) and
(s) Stats.; and
WHEREAS, it is necessary and appropriate that pursuant to ss.
196.52 and 196.795, Stats., the costs for the aforementioned
services be determined, allocated and distributed.
NOW, THEREFORE, it is agreed by and among the parties as
follows:
ARTICLE I
AGREEMENT TO FURNISH SERVICES
1. WICOR agrees to provide certain common services and to
incur certain common expenses and fees, all as described in more
detail hereafter, for the benefit of its subsidiaries.
2. Each of the parties agrees to use its best efforts to
furnish such services as may from time to time be reasonably
requested by another party.
<PAGE>
<PAGE> 2
ARTICLE II
DESCRIPTION OF SERVICES AND PROPERTY
The services that may be requested by a party hereto and
furnished pursuant to this Agreement shall include, but are not
limited to, the following: management, supervisory, accounting,
legal, financial, employee benefit services pursuant to an Order
of the Public Service Commission of Wisconsin dated April 28,
1994, in Docket 05-UI-106 ("April 28, 1994 Order"), and similar
services.
Any party shall have the right, exercisable at its sole
discretion, to refuse to perform services or to provide property
to any other party, except as provided in the April 28, 1994
Order.
Wisconsin Gas may, in its sole discretion, sell, lease,
transfer to or exchange with a Nonutility Affiliate, property, as
defined in s. 196.795(5)(s), Stats., independent of and not
related to the provision of any of the services identified above.
Such property shall be provided in accordance with the provisions
of s. 196.795(5)(s), Stats. and Wisconsin Gas shall be compensated
for such property at the fair market value of such property.
ARTICLE III
COMPENSATION FOR SERVICES
Compensation for services or property provided by Wisconsin
Gas to a Nonutility Affiliate shall be at the greater of the cost
to Wisconsin Gas or the fair market value of such services. For
purposes of this Agreement, the cost to Wisconsin Gas of each such
service shall include those costs listed in Article V.
A Nonutility Affiliate may, if in its sole discretion it
elects to do so, provide services comparable to those listed
above, or property (both real and personal) to Wisconsin Gas upon
request.
Compensation for services provided by a Nonutility Affiliate
to Wisconsin Gas shall be at the lesser of the fair market value
or the cost to the Nonutility Affiliate of such services. For
purposes of this Agreement, the cost of each such service shall
include those costs listed in Article V.
The fair market value of a service provided by Wisconsin Gas
to a Nonutility Affiliate shall be equal to the cost which the
Nonutility Affiliate would have paid to obtain such service if
Wisconsin Gas could not or would not provide such service. In
determining the fair market value of a service it provides,
Wisconsin Gas shall make a good faith effort to identify the
resources necessary to perform the service, and the value of such
service based on a general knowledge of the relevant market for
such service as well as, if available, comparison with bids or
quotations for such a service. If Wisconsin Gas, despite its good
faith efforts, is not able to determine the fair market value of
a service, the fair market value shall be deemed to be equal to
the cost to Wisconsin Gas.<PAGE>
<PAGE> 3
The fair market value of a service provided by Wisconsin Gas
to a Nonutility Affiliate shall be compared to the cost to
Wisconsin Gas of providing the service and the Nonutility
Affiliate shall be charged the greater of the fair market value or
the cost of providing the service.
ARTICLE IV
DESCRIPTION OF COST ALLOCATION
1. It is understood and agreed that each party shall bear
all costs the incurrence of which benefits solely such party, and
that each subsidiary shall bear a fair and equitable portion of
costs the incurrence of which benefits partly but not solely such
subsidiary.
2. Costs incurred initially by the parties are identified
below.
a. "Subsidiary Sole Costs" are costs
incurred initially by any subsidiary solely
for its benefit or directly for the benefit
of any single subsidiary.
b. "Subsidiary Shared Costs" are costs
incurred initially by any subsidiary, partly
for the benefit of at least two but not all
of the subsidiaries.
c. "Common Costs" are costs incurred by any
party which benefit the subsidiaries, which
include, but are not limited to, those items
set forth in Exhibit A attached hereto.
d. "WICOR Sole Costs" are costs incurred by
any party which do not benefit the
subsidiaries, which include, but are not
limited to, costs, expenses and fees incurred
in conjunction with investigating, reviewing
or planning a potential acquisition or
divestiture of any equity or ownership
interest in another corporation or business
enterprise and costs, expenses and fees
incurred in consummating any acquisition or
divestiture of such interest. Such costs
include interest expense associated with any
funds borrowed to finance an acquisition.
3. Costs identified above shall be apportioned and borne as
follows:
a. Subsidiary Sole Costs shall be borne by,
billed to or otherwise recorded as costs of
the subsidiary receiving the benefit
associated with the costs.
<PAGE>
<PAGE> 4
b. Subsidiary Shared Costs shall be
examined and apportioned in a manner designed
to match cost responsibility with benefits
received. The costs so apportioned shall be
borne by, billed to or otherwise recorded as
costs of each subsidiary receiving a benefit
associated with the incurrence of the costs.
c. Common Costs shall be apportioned to,
borne by, billed to or recorded as costs of
each subsidiary according to the allocation
formula and procedures set forth in Exhibit B
attached hereto and made a part hereof. The
percentage allocations applicable to each
subsidiary set forth in Exhibit B shall be
recalculated annually using the formula and
procedures set forth in Exhibit B, which
among other things provides for using amounts
recorded on the books of account of the
parties at the end of the three preceding
calendar years.
d. WICOR Sole Costs shall be borne by,
billed to or otherwise recorded as costs of
WICOR.
4. The cost for services rendered by any part to any of the
other parties shall be accounted for and billed on a current
monthly basis with settlement of such billings to be made within
30 days after billing.
ARTICLE V
IDENTIFICATION OF COSTS TO BE ALLOCATED
1. The various costs referred to in this Agreement and to
be allocated to and borne by the parties as set forth herein
include:
a. The cost of any employee's services,
which shall be determined in the following
manner;
i. Actual Compensation based on direct labor expense
shall be determined for each employee and shall
include consideration for paid absences, such as
vacation and illness.
ii. The result calculated above will be multiplied by
both a fringe benefit percent and a "loading
factor." The fringe benefit percent shall include
the cost of such items as medical and dental
insurance, pensions, social security and life
insurance. The "loading factor" shall include such
intangible costs as activities necessary to
maintain professional licenses, other permits and
special skills, general training and business
reading and membership or participation in trade
associations and professional and business
organizations.
b. The cost of any property used in
connection with the services hereunder,
including, but not limited to, materials,
equipment, supplies and the like, as
reflected by the actual cost as recorded on
the books of account of the party supplying
such items. The cost of such property shall
include a return on the depreciated original
cost equal to the return authorized in the
latest Wisconsin Gas rate case.<PAGE>
<PAGE> 5
c. Travel and other out-of-pocket expenses
at actual cost as recorded on the books of
account of the party furnishing such items.
d. Fees and expenses incurred for outside
management, supervisory, accounting, legal,
financial, or similar services at actual cost
as recorded on the books of account of the
party initially bearing such cost.
ARTICLE VI
Each person who is an officer of both Wisconsin Gas and one
or more of the nonutility affiliates, or a person who is a member
of the incidental supporting staff of such officer, shall keep a
daily record of the amount of time devoted to nonutility
affiliates. Actual compensation based on direct labor expense
shall be determined for each employee and shall include
consideration for paid absences such as vacation and illness.
This amount shall be adjusted by both a loading factor and a
fringe benefit allocation factor as described in Article V.
ARTICLE VII
EFFECTIVE DATE - TERM - CANCELLATION
1. This Agreement shall commence as of the date first
written above or 60 days after approval by the Public Service
Commission of Wisconsin, whichever occurs first, and shall
continue until cancelled upon 60 days written notice by any party
to the other parties.
2. It is contemplated that, if and when WICOR acquires new
subsidiaries, such subsidiaries may become parties to this
Agreement by endorsement after review and approval by the Public
Service Commission of Wisconsin.
3. It shall not be necessary for the parties to amend or
re-execute this Agreement in the event that allocation percentages
set forth in Exhibit B are changed as a result of the annual
recalculation of such percentages, or that new subsidiaries become
parties to this Agreement.
ARTICLE VIII
MISCELLANEOUS
1. Nothing herein contained shall be construed to release
the officers and directors of the parties from the obligation to
perform the duties of such offices or to limit the exercise of
their lawful powers.
2. The performance of this Agreement shall be subject to
valid rules, regulations and orders of any regulatory body having
jurisdiction, including approval by the Public Service Commission
of Wisconsin. The parties hereto acknowledge that Wisconsin Gas
is subject to the provisions of s. 196.795(5)(r) and (s), Stats.,
regarding the use of "public utility affiliate employe's services"
and "property" and agree that Wisconsin Gas shall minimize the use
of any "public utility affiliate employe's services" or "property"
as required by those subsections.<PAGE>
<PAGE> 6
3. Nothing herein shall limit the authority of the Public
Service Commission of Wisconsin with respect to inclusion or
exclusion of costs for the purpose of setting rates for Wisconsin
Gas, or limit the powers of that commission in any other respect.
4. All prior service agreements among the parties shall be
and hereby are terminated, without liability to any party;
provided, however, that all services performed and costs incurred
prior to the date hereof under such contracts shall be accounted
for under such contracts.<PAGE>
<PAGE> 7
IN WITNESS WHEREOF, each of the parties hereto has caused
these presents to be executed in its name on its behalf by its
duly authorized officers as of the day and year first above
written.
ATTEST: WICOR, Inc.
R.A. Nuernberg BY T.F. Schrader
Secretary President
ATTEST: Wisconsin Gas Company
R.A. Nuernberg BY J.D. Donnelly
Secretary President
ATTEST: Sta-Rite Industries, Inc.
R.A. Nuernberg BY
Secretary President
ATTEST: WEXCO of Delaware, Inc.
R.A. Nuernberg BY R. Phillips
Secretary President
ATTEST: SHURflo Pump Manufacturing
Company
R.A. Nuernberg BY G. Wardeberg
Assistant Secretary Chairman
<PAGE>
<PAGE> 8
Exhibit
A
COMMON COSTS
The component costs of the Common Cost category of costs
include but are not limited to the following:
Accounting
WICOR Parent Company Records and Financial Statements
WICOR Consolidated Financial Statements
External WICOR Reports and Summary Internal Information
Annual Meeting Information
Invoice and Check Processing - WICOR
Accounting Research
Treasury Activities
Shareholder Activities (i.e., dividends, stock options, etc.)
Coordination of Cash Activities - WICOR
Annual Meeting Involvement
Financial Planning
Public Information
External WICOR Reports
WICOR News Releases
Annual Meeting Activities
General Activities
Time and Expenses of Officers and Employees of Subsidiaries
Devoted to
WICOR Matters Other Than Those Matters Constituting WICOR Sole
Costs
Secretarial Support
Annual Meeting - Proxy Handling
External Reports
Shareholder Activities
Tax
WICOR Tax Matters
Legal
Monitoring of Contracts/Consultants
Research
Other
Fringe Benefits Related to Direct and Indirect Labor
Stockholder Expense
Independent Accountants - Audit Activities
Outside Counsel - Legal Matters
Personal Expenses of Common Employees
Office Space
<PAGE>
<PAGE> 9
Exhibit
B
ALLOCATION OF COMMON COSTS
It is understood and agreed by the parties that certain costs
incurred by or on behalf of WICOR provide a substantial benefit to
the subsidiaries. Some of the costs incurred would be, and were
prior to the establishment of WICOR, direct costs of the
individual subsidiary companies. Other costs would be duplicated
at each subsidiary were they not performed at the WICOR level.
The allocation method used to allocate Common Costs
emphasizes the operations of the subsidiaries by weighing equally
total assets, operating expenses (less income taxes) and gross
payroll of each subsidiary.
The allocation factors will be determined annually. Each
subsidiary's percentage of total assets, operating expenses (less
income taxes) and gross payroll will be calculated by comparing
such items to the sum of the subsidiaries' assets, operating
expenses (less income taxes) and gross payroll. Such figures will
be determined for the three years preceding the year for which the
allocation is to be made. The percentages of assets, operating
expenses and payroll so determined for such subsidiary will
themselves be averaged to arrive at each subsidiary's overall
average percentage to be used in allocating Common Costs. The
calculation of the allocation percentages as will be used for 1994
is attached hereto as Schedule 1.
If and when subsidiaries join the WICOR system, allocation
factors will be determined as if the subsidiary joining the system
were in the system for the entire period covered by the
calculation. These new allocation factors shall be applied to the
Common Cost pool commencing on the effective date of the new
subsidiary's acquisition or formation.
If the joining subsidiary does not have operating results for
any portion of the period, its share of Common Costs will be based
upon financial analysis until such time as actual operating
results are available.
<PAGE>
<PAGE>
<PAGE> 1
EXHIBIT 10.10
Wisconsin Gas Company
Officers' Incentive Compensation Plan
1996
I. Objectives
The principal objectives of the Plan are:
A. To motivate and to provide incentive for key officers and
executive management team (EMT) of Wisconsin Gas Company to
achieve superior operating results for the benefit of both
customers and stockholders.
B. To assist in the retention of quality senior management.
C. To yield competitive total compensation levels when
performance goals are attained.
II. Eligibility
Participation in the Plan is limited to designated corporate
officers and EMT of Wisconsin Gas. The Chief Executive Officer of
WICOR will be responsible for recommending eligibility changes to
the Compensation Committee of the Board of Directors of WICOR, Inc.
III. Amount of Potential Award
A. The minimum, target and maximum award opportunities for each
participant, as a percentage of base salary, are as follows:
Award as a % of Salary
-------------------------------------
Position Minimum Target Maximum
------------------ --------- ---------- ---------
President & CEO 0% 40% 60%
VP and EMT 0% 20% 30%
B. Only 50% of the President & CEO's award opportunity will be
determined according to the provisions of this Plan. Of that
50%, 67% will be determined by Performance Plus and 33% will
be determined by Net Income as a percentage of budget. The
remaining 50% will be determined based on the WICOR Officers'
Incentive Compensation Plan.
<PAGE>
<PAGE> 2
IV. Performance Criteria and Objective Setting
A. Each executive's incentive award will be related to the
achievement of Company performance goals, and a component
reflecting individual performance.
B. Total incentive opportunity is further based on the following
measures:
- 50% Performance Plus (Company-wide operational and
financial incentive Plan)
- 25% Net Income as a percentage of budget
- 25% Individual
Therefore, 75% of the total bonus opportunity is based on
operational and financial results and 25% is based on
individual performance.
The individual portion of the incentive payout will be based
on the individual's overall performance as measured against
previously identified and agreed upon goals and objectives.
The award may vary up to 150% of the individual performance
portion of the target award, and will be determined and paid
independently of Company financial performance.
C. If the Compensation Committee of WICOR, Inc. determines that
the Net Income level was inadequate or that services to
customers did not meet corporate goals or standards developed,
it may exercise discretion to reduce or eliminate any or all
bonus payments.
V. Performance Period
Company performance goals will be for the 1996 calendar year.
VI. Bonus Award Determination
A. Performance Plus. Each year management will recommend
specific goals for safety, customer service and cost
effectiveness. Associated with various levels of performance
for each goal will be a certain number of award points. The
cumulative total of these points adjusted by a "multiplier",
based on Net Income as a percent of budget, will determine the
formula payout under this portion of the Plan.
For 1996, the performance measures and related points and the
"multiplier" are set forth in Exhibit 10.13a.
B. Net Income as a Percentage of Budget
Actual net income as a percentage of budget will generate
incentive compensation equal to 25% of the target award
multiplied by the following percentages:<PAGE>
<PAGE> 3
Net Income % of
as % Target
Performance Level of Budget Awarded
------------------- -------------- -----------
Less than threshold Less than 85% 0.0%
Threshold 85% 1.0%
Target 100% 100.0%
Maximum 120% 150.0%
For performance at levels between Threshold and Target or
between Target and Maximum, award calculations will be pro-
rated on a linear basis.
For 1996, the amount of targeted net income is set forth in
Exhibit 10.10a.
C. Total performance awards will be calculated by combining the
payouts from Performance Plus, Net Income and Individual
Components.
VII. Form and Timing of Award Payments
A. Awards will be determined and paid as soon as practicable
after the close of the Plan year.
B. At each participant's discretion and with the concurrence of
the Compensation Committee of WICOR, Inc., awards may be paid
in one of three ways:
1. Lump Sum
2. Partly in lump sum, and the remainder in deferred annual
installments.
3. Completely in deferred annual installments.
C. The Company will offer a deferred payment option to those
participants who prefer not to receive their awards in current
cash, following these guidelines:
1. Deferred incentive award payments will be carried as an
accrued liability with an interest rate (three-year
treasury bill rate) credited each year.
2. Deferral elections must be made prior to June 30, 1996,
and a definite time period for deferral must be
specified.
<PAGE>
<PAGE> 4
VIII. Plan Administration
A. Compensation Committee:
1. The Plan will be administered by the Compensation
Committee of the Board of Directors of WICOR, Inc.
2. The Committee's administration is subject to approval of
the Board of Directors of WICOR, Inc.
3. The decisions of the Board are final and binding on all
Plan participants.
4. The Board retains the right to terminate or amend the
Plan as it may deem advisable.
5. In evaluating actual Company performance results in
comparison with pre-established objectives established
for the Plan year, and in establishing resulting
incentive compensation levels, the Compensation
Committee, at their sole discretion, may take unusual
and unique factors into consideration as they deem
appropriate. Similarly, the Committee may modify
performance targets during the course of a Plan year if
significant change takes place which would affect the
measure.
6. It shall be the Committee's responsibility to review the
overall reasonableness of incentive compensation paid to
participants of this Plan in relation to overall
services performed and results obtained by the Company
during the Plan year. The Committee shall make its
determination on the basis of its judgement as to what
constitutes satisfactory performance with respect to the
fulfillment of the Company's mission or charter. Issues
to be considered shall include, but not be limited to
the following:
a. Quality and level of service provided to
customers.
b. Health and safety considerations.
c. Maintenance of specific required standards of
performance.
d. Representation of shareholders' interests
(including Rate of Return achieved compared to
allowed).
Based upon this review, the incentive compensation paid to
participants may be reduced or withheld so that the total
compensation paid will be reasonable in relation to services
performed. The decisions of the Committee are final and
binding on all parties.
<PAGE>
<PAGE> 5
B. Partial Year Participation:
1. Participants must be employed by the Company on the last
day of the Plan year in order to receive a bonus for
that year. However, once earned, a bonus will be paid
to a participant regardless of whether he/she is
employed by the Company on the date payment is made.
2. Awards for part year participants will be pro-rated
based on the proportion of the year that the participant
was in the Plan. This includes participants who
terminate employment due to death, disability or
retirement.
3. Participants who terminate employment with the Company
prior to the last day of the Plan year shall forfeit all
rights to an incentive award payment under the Plan
except for terminations due to death, retirement or
disability.
4. A participant is deemed to be disabled if he/she becomes
eligible for benefits under the Company's Long Term
Disability Plan.
<PAGE>
<PAGE> 6
Exhibit 10.10a
Wisconsin Gas Company
Incentive Compensation Plan
Formula Performance Goals
1996
Performance Plus*
Maximum
Points
-------
1. Rate Improvement
Improvement in Residential Rates 10
2. Customer Service
Favorability/Customer Satisfaction 10
3. Safety 10
4. Cost Effectiveness
Operation & Maintenance Expense 10
-------
Maximum Total Points (Target = 24 points) 40
5. Multiplier
Net Income as % of Multiplier
Budget
-------------------- --------------------
Less than 85% 0.0000
85% 0.0100
90% 0.3333
95% 0.6667
100% 1.0000
110% 1.2500
120% 1.5000
* This is a summarization of the Performance Plus Plan which will
govern the actual calculation of the payout amounts.
Net Income as a % of Budget
-----------------------------------------
Minimum (85%) $23,035,000
Target (100%) $27,100,000
Maximum (120%) $32,520,000
<PAGE>
<PAGE>
<PAGE> 1
MANAGEMENT DISCUSSION AND ANALYSIS
GENERAL OVERVIEW
The Company is a diversified holding company with two principal business
groups: Energy and Manufacturing. The Energy Group consists of natural gas
distribution and related services and the Manufacturing Group focuses on
pumps and processing equipment used to pump, control, transfer, hold and
filter water and other fluids. The Company engages in natural gas
distribution through Wisconsin Gas Company ( Wisconsin Gas ), the oldest and
largest natural gas distribution utility in Wisconsin. Wisconsin Gas is
subject to regulation by the Public Service Commission of Wisconsin ( PSCW ).
At December 31, 1995, Wisconsin Gas served approximately 505,000 customers
in 503 communities. The Energy Group accounted for 61% and 74% of the
Company s 1995 operating revenues and operating income, respectively.
Through its manufacturing subsidiaries, the Company engages in the
manufacture and sale of pumps, fluid processing and filtration equipment.
The Company s products are used primarily in water system, pool and spa,
agriculture, RV/marine and beverage/food service applications. The Company
markets its manufactured products in 100 countries. The Manufacturing Group
accounted for 39% and 26% of the Company s 1995 operating revenues and
operating income, respectively.
WICOR s 1995 earnings were $39.5 million, or $2.32 per common share,
compared with 1994 earnings of $33.2 million, or $1.99 per common share, and
1993 earnings of $29.3 million, or $1.82 per common share.
Gas sales volumes increased in 1995 primarily as a result of colder weather
and customer additions. Gas sales volumes decreased in 1994 due to warmer
weather, the impact of which was partially offset by customer additions. The
Company anticipates future customer additions to be in line with 1995 and
1994 levels. Manufacturing operations in 1995 reported increased sales in
several key segments, including water purification and agriculture, but
earnings declined due to higher material costs in both domestic and
international markets. International sales continued their strong growth.
Net cash flows from operations for the years 1993 through 1995 totalled
$176.9 million. Cash proceeds of $110.5 million resulting from the net
increase in long-term debt, common stock and short- term debt, along with
the net cash flows from operations, provided funding for $163.2 million of
capital expenditures, $60.4 million in acquisitions and $78.0 million of
dividends for that three-year period. Segment data for WICOR s operations
are summarized below in millions of dollars.
1995 1994 1993
Operating Revenues ------ ------ ------
Energy $522.8 $556.6 $574.8
Manufacturing 337.8 311.2 274.7
------ ------ ------
$860.6 $867.8 $849.5
====== ====== ======
1995 1994 1993
Depreciation and Amortization ------ ------ ------
Energy $36.7 $37.4 $34.8
Manufacturing 11.8 9.7 8.9
------ ------ ------
$48.5 $47.1 $43.7
====== ====== ======<PAGE>
<PAGE> 2
1995 1994 1993
Operating Income ------ ------ ------
Energy $58.8 $44.4 $46.2
Manufacturing 20.3 22.2 17.8
------ ------ ------
$79.1 $66.6 $64.0
====== ====== ======
Actual
Estimated -------------------------------
1996 1995 1994 1993
Capital Expenditures ------ ------ ------ ------
Energy $48.1 $42.9 $44.6 $42.3
Manufacturing 18.7 13.3 10.5 9.6
------ ------ ------ ------
$66.8 $56.2 $55.1 $51.9
====== ====== ====== ======
1995 1994 1993
Identifiable Assets -------- -------- --------
Energy $ 718.3 $ 707.9 $ 737.2
Manufacturing 290.2 222.8 196.5
-------- -------- --------
$1,008.5 $ 930.7 $ 933.7
======== ======== ========
RESULTS OF OPERATIONS
Energy Group --
The Company s primary energy business is the distribution of natural gas
through its Wisconsin Gas subsidiary. In 1995, the Company formed two non-
regulated energy services-related businesses, WICOR Energy Services Company,
a wholly owned subsidiary of the Company, and FieldTech, a division of
Wisconsin Gas. These businesses offer a variety of services, including
natural gas supply and related services and energy risk management; and
contract meter reading, management of field operations and billing services
for public and municipal gas, water and electric utilities. The Company
views these businesses as important elements in meeting increasing
competitive challenges in the natural gas industry and as a new source of
growth for its energy related operations. The revenues derived from these
businesses are not, however, material to the Company at the present time.
Increased sales margins for the Energy Group combined with lower levels of
operating expenses resulted in an increase in operating income in 1995 as
compared with 1994. Utility margin rates were reduced $10.1 million annually
by a November 1994 rate order of the PSCW and $4.5 million annually by two
voluntary rate reductions in 1995. These margin reductions have been more
than offset by decreases in operating expenses.
Revenues, margins and volumes are summarized below. Margin, defined as
revenues less cost of gas, is a better comparative performance indicator
than revenues. Transportation service revenues are recorded at the same
margin as sales with no corresponding cost of gas amount. Therefore, for a
given rate class, the volume mix between sales and transportation service
affects revenues but not margin. In addition, changes in cost of gas flow
through to revenue under a gas adjustment clause, with no effect on margin.<PAGE>
<PAGE> 3
1995 1994 1993
(Millions of Dollars) -------- -------- --------
Gas sales revenue $ 515.0 $ 550.0 $ 565.1
Cost of gas sold 322.2 357.5 382.0
-------- -------- --------
Gas sales margin 192.8 192.5 183.1
Gas transportation margin 7.8 6.6 9.7
-------- -------- --------
Total margin $ 200.6 $ 199.1 $ 192.8
======== ======== ========
1995 1994 1993
(Millions of Therms) -------- -------- --------
Sales volumes
Firm 841 795 823
Interruptible 314 282 208
Transport volumes 145 119 174
-------- -------- --------
Total throughput 1,300 1,196 1,205
======== ======== ========
Total gas margin increased by 1% and 3% in 1995 and 1994, respectively. The
increase in 1995 margin was due to higher volume sales which resulted
primarily from weather which was 6% colder than 1994, offset in part by the
rate reductions discussed above. The increase in 1994 margin was due to a
November 1993 rate increase, offset by the impact of lower volume sales and
the November 1994 rate decrease. Lower volumes in 1994 were primarily due to
weather which was 5% warmer than 1993. In 1994, a number of industrial
customers switched from transportation services to interruptible sales. This
trend reversed in 1995. The Company anticipates more customers will switch
to transportation services in 1996. Under current rates, there is no impact
on margins from this switching activity.
Operation and maintenance expenses decreased by $12.3 million, or 11%, in
1995 as compared with 1994. The decrease was due primarily to lower labor
and related benefit expenses ($6.3 million), the impact of the November 1994
rate reduction which reduced non-cash amortizations by $5.7 million and the
nonrecurrence of a one-time charge of $2.7 million relating to a 1994 early
retirement program taken in the first quarter of 1994. Operation and
maintenance expenses increased by $6.1 million, or 6%, in 1994 as compared
with the prior year. The increase was in large measure due to increases in
uncollectible receivables expense ($2.8 million), the one-time charge of
$2.7 million described above and amortization of business system software
costs ($1.6 million). Savings from a reduced work force were somewhat offset
by higher labor rates. Except for the 1994 early retirement program charge,
these increases in expenses were recovered in rates on an annual basis under
the November 1993 rate order. Since July 1993, the Wisconsin Gas work force
has declined by 319 employees, or 23%, through early retirement, involuntary
severance and attrition.<PAGE>
<PAGE> 4
Manufacturing Group --
Manufacturing operating income in 1995 was $20.3 million compared with $22.2
million in 1994 and $17.8 million in 1993. The 1995 decrease in operating
income was the result of soft domestic markets, sharply higher material
costs in both domestic and international operations and a falloff in the
Company s Australian operations. Furthermore, a combination of substantially
reduced manufacturing inventories in North America and lower sales
domestically and in Australia resulted in underutilized manufacturing
capacity for the year. Management believes that these are short-term
problems and are not indicative of the outlook for the manufacturing
business in the long run. Manufacturing sales in 1995 were $337.8 million,
an increase of 9% over 1994. International sales increased by 14% while
domestic sales increased by 5% over the comparable period in 1994. On July
19, 1995, the Company acquired Hypro Corporation ( Hypro ) (See Note 2 of
Notes to Consolidated Financial Statements). The Company s consolidated
financial statements include the operating results of Hypro from the date of
acquisition. Pro forma results of operations have not been presented because
the effect of this acquisition was not significant. Hypro s post acquisition
sales were $18.4 million.
Sales in 1994 were $311.2 million, an increase of 13% over 1993.
International sales improved by 21% and domestic sales also contributed to
the increase. Significant sales improvements were noted in the water
systems, pool and spa, recreational vehicle, marine and industrial markets.
International and export sales represented 39%, 37% and 34% of manufacturing
sales in 1995, 1994 and 1993, respectively. The increase in 1995 was due
primarily to continued sales growth that occurred in the Company s European
markets.
Operating expenses increased in 1995 by 8% over 1994 due primarily to the
addition of Hypro operating expenses. As a percentage of sales, 1995
operating expenses remained flat compared to the same period in 1994.
Operating expenses increased in 1994 by 11% over 1993 primarily as a result
of increased sales.
Interest Expense, Other Income and Expenses and Income Taxes --
The 1995 increase in interest expense as compared to 1994 was due primarily
to increased manufacturing borrowings for higher international working
capital requirements, the debt incurred for the Hypro acquisition and
slightly higher interest rates. The 1994 decrease in interest expense as
compared to 1993 was due primarily to a September 1993 long-term debt
refinancing and to reduced levels of short-term borrowings.
The 1995 increase in other income was due primarily to the sale of the
Company s investment in Filtron Technologies Corporation ( Filtron ) for a
pre-tax gain of $1.4 million, $0.8 million after tax.
Income tax expense increased in 1995 reflecting increased pre-tax income.
Income tax expense decreased in 1994 despite the increase in pre-tax book
income. The effective income tax rate was reduced in 1994 primarily as a
result of utilizing foreign tax incentives and the settlement of disputed
tax matters.<PAGE>
<PAGE> 5
Accounting Changes --
In March 1995, the Financial Accounting Standards Board ( FASB ) issued
Statement of Financial Accounting Standards ( SFAS ) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. The Company is required to adopt this Statement no later than its 1996
fiscal year.
In October 1995, SFAS No. 123, Accounting for Stock Based Compensation, was
issued and also requires adoption by the Company no later than its 1996
fiscal year. The standard requires expanded disclosures, and permits, but
does not require, changes in the accounting for stock based compensation.
The implementation of SFAS No. 121 and SFAS No. 123 is not expected to have
a material impact on the financial statements.
Effects of Changing Prices --
It is management s view that changes in the rate of inflation have not had a
significant effect on WICOR s income over the past three years. Inflationary
increases generally have been recovered through productivity improvements
and/or product price increases. The Company continues to monitor the impact
of inflation in order to minimize its effects in future years through
pricing strategies, productivity improvements and cost reductions.
In November 1994, Wisconsin Gas received approval from the PSCW to use an
alternative method of rate making that includes a three-year margin rate
cap. After reviewing the impact of the margin rate cap and other factors,
management believes that productivity improvements have and will continue to
offset the impact of inflationary cost increases. This alternative method is
discussed on page 23 under Regulatory Matters.
LIQUIDITY AND CAPITAL RESOURCES
Over the last three years, the Company has generated sufficient cash flows
from operations to cover operating expenses, dividends and a portion of
investment activities. Cash flow from operations totalled $69.9 million for
1995, compared with $103.6 million and $3.4 million for 1994 and 1993,
respectively. The Company s cash flow provided by operating activities for
1995 included net income of $39.5 million; depreciation and amortization of
$48.5 million; and a net increase in working capital, excluding cash and
short-term debt. Cash flow provided by operating activities for 1994
included net income of $33.2 million; depreciation and amortization of $47.1
million; and a net decrease in working capital, excluding cash and short-
term debt. Cash flow provided by operating activities for 1993 included net
income of $29.3 million; depreciation and amortization of $43.7 million; and
a net increase in working capital, excluding cash and short-term debt. These
items were offset with funds used by Wisconsin Gas to purchase its initial
inventory of gas held in storage. One of the impacts of Federal Energy
Regulatory Commission ( FERC ) Order No. 636 is that utilities such as
Wisconsin Gas must assume the responsibility for purchasing gas supplies and
maintaining gas in storage. Previously, the pipeline companies performed
those functions.<PAGE>
<PAGE> 6
Investment Activities --
Capital expenditures increased by $1.1 million and $3.2 million in 1995 and
1994, respectively. Utility expenditures returned to more normal levels
during the three-year period ending in 1995 following completion of a major
expansion project in 1992. Both utility and manufacturing capital
expenditures are expected to increase modestly in 1996, and are expected to
be funded from operations.
In January 1995, WICOR sold its interest in Filtron, a manufacturer of
filtration products, for approximately $5.1 million.
In July 1995, the Company acquired Hypro for $58 million in cash and the
assumption of $13.3 million in operating liabilities. The acquisition was
initially financed with borrowings under a credit facility entered into in
connection with the acquisition. A portion of these borrowings were repaid
during 1995 with the net proceeds from an offering of WICOR common stock.
See Financing Activities and Note 2 of Notes to Consolidated Financial
Statements for further discussion of this transaction.
In July 1993, WICOR acquired Shurflo Pump Manufacturing Co. ( Shurflo ) by
exchanging approximately $27 million of WICOR stock for the outstanding
common stock of Shurflo. See Note 2 of Notes to Consolidated Financial
Statements for a further discussion of this transaction.
In 1992, the PSCW issued an order prescribing an equity-based formula for
determining the limitation on non-utility investments. As of December 31,
1995, WICOR would be permitted to invest an additional $52.6 million in
nonutility equity under this order. Nonutility subsidiaries can also borrow
additional amounts for acquisitions within certain PSCW guidelines (See Note
6 of Notes to Consolidated Financial Statements).
Financing Activities --
During the latter part of each year, the energy business generally incurs
short-term debt to finance increases in gas in storage and customer accounts
receivable. The short-term debt is normally eliminated by the second quarter
of the year as gas in storage is depleted and cash is received from winter
heating sales.
In November 1995, Wisconsin Gas issued $65 million of 63/8% Notes due in
2005, the proceeds of which were used to redeem, at par, $50 million of
91/8% Notes due in 1997. The remainder of the proceeds were used to retire
short-term debt which had been incurred for working capital purposes. During
1993, Wisconsin Gas issued $45 million of 6.6% Notes due in 2013, the
proceeds of which were used to refinance $45 million of first mortgage bonds
which had higher interest rates. The Company s ratio of debt to
capitalization decreased to 34% in 1995 as compared to 36% in 1994 and 38%
in 1993. The utility s embedded cost of long-term debt was 8.1%, 8.1% and
8.9% for the years ended December 31, 1995, 1994 and 1993, respectively.
In December 1995, the Company completed a public offering of 1,265,000
shares of common stock for the purpose of repaying a portion of the
borrowings under the credit facility entered into in connection with the
July 1995 acquisition of Hypro. Amounts remaining outstanding under this
credit facility accrued interest at an annual rate of approximately 5.9% as
of December 31, 1995, and mature in July 1996. Net proceeds to the Company
from the common stock offering, after deduction of associated expenses, were
$38.9 million. In the first half of 1996, the Company, and/or one of its
subsidiaries, plans to issue long-term debt for the purpose of repaying the
remaining balance of the credit facility.<PAGE>
<PAGE> 7
WICOR raised its dividend by approximately 3% in each of 1995, 1994 and
1993. The current annual dividend rate is $1.64 per share. At December 31,
1995, the Company had $104.1 million of unrestricted retained earnings
available for dividend payments to shareholders.
The WICOR Plan, established in 1992, allows customers, shareholders,
employees, Wisconsin residents and certain suppliers to purchase WICOR
common stock directly and through dividend reinvestment without paying fees
or service charges. During 1995, 1994 and 1993, respectively, 54,000,
511,000 and 685,000 shares of WICOR common stock were issued through the
WICOR Plan and through various employee benefit plans. These stock issuances
provided funds to the Company of $1.2 million, $10.6 million and $16.7
million in 1995, 1994 and 1993, respectively. Effective February 1, 1995,
share requirements for the WICOR Plan have been met through open market
purchases of WICOR common stock.
As described in Note 6 of Notes to Consolidated Financial Statements, a 1993
PSCW rate order retained certain limitations with respect to equity levels
and dividend payments of Wisconsin Gas. Restrictions imposed by the PSCW are
not expected to have any material effect on WICOR s ability to meet its cash
obligations.
Wisconsin Gas ratio of pre-tax earnings to fixed charges was 4.0 in 1995
and 2.9 in 1994, as a result of higher earnings and fixed charges that
remained relatively constant.
Access to credit markets and the costs associated therewith can be
correlated to credit quality. Wisconsin Gas unsecured bond rating from
Moody s Investors Service and Standard and Poor s Corporation remained in
1995 at Aa3 and AA-, respectively. Such ratings are not a recommendation to
buy, sell or hold securities, but rather an indication of creditworthiness.
The following is a summary of the meanings of the ratings shown above and
the relative rank of the Company s rating within each agency s
classification system. Moody s top four corporate bond ratings (Aaa, Aa, A
and Baa) are generally considered investment grade. Obligations which are
rated Aa are judged to be of high quality by all standards. Together with
the Aaa group they comprise what are generally known as high-grade bonds. Aa
securities are rated lower than the Aaa rated bonds because margins of
protection may not be as large as in Aaa securities; or fluctuation of
protective elements may be of greater amplitude; or there may be other
elements present which make the long-term risk appear somewhat larger than
the Aaa securities. A numerical modifier ranks the security within the
category with a 1 indicating the high end, a 2 indicating the midrange and
a 3 indicating the low end of the category. Standard & Poor s top four
corporate bond ratings (AAA, AA, A and BBB) are considered investment
grade. Based on Standard & Poor s rating system, debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the
highest rated issues only in small degree. A plus (+) or minus (-) sign may
be used after Standard & Poor s ratings to designate the relative position
of a credit rating within the rating category.<PAGE>
<PAGE> 8
Commercial paper carrying an A-1+ rating by Standard & Poor s Corporation
and P-1 by Moody s Investors Service is routinely issued by Wisconsin Gas as
needed to finance seasonal working capital needs, principally customer
receivables and gas in storage. Such ratings are not a recommendation to
buy, sell, or hold securities, but rather an indication of creditworthiness.
Moody s top three short-term debt ratings (P-1, P-2 and P-3) are generally
considered investment grade and are intended to indicate the relative
repayment ability of related issuers. According to Moody s rating system,
short-term debt rated P-1 has a superior ability for repayment of senior
short-term debt obligations. Wisconsin Gas had no short-term debt
outstanding for five months and two months in 1995 and 1994, respectively.
WICOR and its subsidiaries maintain multi-year revolving credit agreements
expiring in March 1998, including separate agreements of $25 million for
WICOR, $30 million for Wisconsin Gas and $15 million for Sta-Rite. Wisconsin
Gas finances working capital by issuing commercial paper in the open market.
In 1993, Sta-Rite renewed a $25 million commercial paper issuance facility.
Commercial paper outstanding, on a consolidated basis, at December 31, 1995
and 1994 was $60.0 million and $94.6 million, respectively.
The Company believes that it has adequate capacity to fund its operations
for the foreseeable future through its borrowing arrangements and internally
generated cash.
Regulatory Matters --
Wisconsin Gas is subject to the jurisdiction of the PSCW as to various
phases of its operations, including rates, service and issuance of
securities. The PSCW has instituted a generic proceeding to consider how its
regulation of gas distribution utilities should change to reflect the
changing competitive environment in the gas industry. To date, the PSCW has
made a policy decision to deregulate the sale of natural gas in customer
segments with workably competitive market choices. Hearings are tentatively
planned for 1996, with the expectation that the general policy decisions
defining the scope of a new regulatory framework will be made by the end of
1996. The Company is unable to determine what impact this proceeding may
have on Wisconsin Gas future operations.
Under current utility regulation Wisconsin Gas only earns a profit on the
transportation of natural gas and not on the sale of natural gas. Because of
this and consistent with the PSCW s policy decision, Wisconsin Gas is
actively seeking to create the competitive market conditions necessary to
exit the natural gas sales business and provide only gas transportation
services within its utility service territory. To that end, Wisconsin Gas
made a filing with the PSCW on December 29, 1995, designed to enhance the
competitive market for gas sales to non-residential customers. In general,
under its filing Wisconsin Gas proposes to provide new services to enable
third-party marketers of natural gas to establish pools, or groups, of
customers. A customer pool would effectively be treated by Wisconsin Gas as
if it were a single customer, thereby greatly reducing the administrative
burden and costs incidental to marketers serving a large number of
customers. The Wisconsin Gas filing also proposes changes to the gas sales
rate schedules applicable to its largest interruptible customers. The
changes are designed to enhance competition by enabling those customers to
compare services and prices available from Wisconsin Gas and third-party
marketers.<PAGE>
<PAGE> 9
Wisconsin Gas expects to make another filing during the first half of 1996
to implement a residential customer supplier choice demonstration program.
Such a program would test market acceptance of competition by enabling
third-party gas marketers to pool residential customers in a manner similar
to that described above for non-residential customers.
The Company is unable to predict: (1) whether the PSCW will approve
Wisconsin Gas pending and future filings nor when any such approvals will
be issued and become effective, (2) the length of time it will take for
Wisconsin Gas to fully exit the gas sales business for all customer classes,
if indeed it will be permitted to do so, and (3) whether and to what extent
shareholders might be required to bear any costs that may arise in
connection with contractual commitments and additional costs involved in
transforming Wisconsin Gas business.
In July 1995, the PSCW initiated a proceeding to develop principles and
analyze alternatives for gas utilities to recover purchased gas costs to
replace the traditional purchased gas adjustment ( PGA ) mechanism. The PSCW
staff is soliciting proposals from interested parties. It is possible that
some form of gas cost incentive mechanism will be recommended for adoption
by the PSCW. In general, an incentive mechanism would establish a targeted
gas cost for a utility and would reward or penalize that utility based on
its actual gas costs incurred relative to the target. The PSCW has scheduled
hearings for March 1996, with any changes in the PGA mechanism to be
effective November 1, 1996. The Company is unable to predict whether any
changes to the PGA mechanism will be adopted or the effect any changes that
are adopted may have.
Under a November 1994 rate order, Wisconsin Gas rates are subject to a
three-year margin rate cap (through October 1997) based upon rates approved
in November 1993. The PSCW order also specified margin rate floors for each
rate class. Wisconsin Gas has the ability to raise or lower margin rates
within the specified range on a quarterly basis. Wisconsin Gas reduced its
base rates by $1.5 million and $3.0 million on an annualized basis effective
August 1, 1995, and November 1, 1995, respectively. With these reductions,
Wisconsin Gas rates are designed to recover $4.5 million per year less than
the maximum margin recovery allowed by the PSCW s rate order.
On November 1, 1993, ANR Pipeline Company ( ANR ), Wisconsin Gas principal
pipeline supplier, filed for a general rate increase with the FERC. The
filing proposes increases in many areas of ANR s regulated cost of service.
The FERC ordered a reduction or elimination of certain cost increases and
permitted ANR to place the balance of the rate increase into effect on May
1, 1994, subject to refund of any amounts ultimately determined to be unjust
and unreasonable. Hearings began January 31, 1996. The Company believes that
any amount by which ANR is ultimately permitted to increase its rates in
this proceeding will not have a material impact on Wisconsin Gas or the
Company.
SFAS No. 71 Accounting for the Effects of Certain Types of Regulation
provides that rate-regulated public utilities such as Wisconsin Gas record
certain costs and credits allowed in the ratemaking process in different
periods than would be required for unregulated businesses. These costs and
credits are deferred as regulatory assets or regulatory liabilities and are
recorded on the income statement at the time they are recognized in rates.
SFAS No. 71 continues to be applicable to Wisconsin Gas in that its rates
are approved by a third party regulator and are designed to recover its cost
of service. Wisconsin Gas believes its current cost based rates are
competitive in the open market.<PAGE>
<PAGE> 10
Pipeline companies have been allowed to pass through to local gas
distributors various costs incurred in the transition to FERC Order No. 636.
The PSCW has authorized that such costs that have been passed through to
Wisconsin Gas be recovered in rates charged to customers. Although complete
assurance cannot be given, it is believed that any additional future
transition costs will also be recoverable from customers.
Environmental Matters --
Wisconsin Gas is in the process of preparing a remedial action options
report and recommendation for presentation to the Wisconsin Department of
Natural Resources concerning two previously owned sites on which it operated
manufactured gas plants. Wisconsin Gas currently anticipates that the costs
incurred in the remediation effort will be recoverable from insurers or
through rates and will not have a material adverse effect on the Company s
liquidity or results of operations.
The manufacturing segment has provided reserves believed sufficient to cover
its estimated costs related to contamination associated with its
manufacturing facilities.
For additional disclosure regarding environmental matters, see Note 7 of
Notes to Consolidated Financial Statements.
*** FOUR BAR CHARTS FOLLOW THIS DISCUSSION ***
WICOR Operating Income
(millions of dollars)
year 91 92 93 94 95
------ ------ ------ ------ ------
energy $39.5 $43.3 $46.2 $44.4 $58.8
manufacturing 11.7 10.0 17.8 22.2 20.3
------ ------ ------ ------ ------
total $51.2 $53.3 $64.0 $66.6 $79.1
====== ====== ====== ====== ======
WICOR Return on Average Common Equity
before cumulative effects of accounting changes
year 91 92 93 94 95
------ ------ ------ ------ ------
9.5 9.2 11.2 11.6 13.1
Annual Degree Days
% warmer than 20-year average
year 91 92 93 94 95
------ ------ ------ ------ ------
10.8 6.4 4.1 9.0 2.8
Manufacturing International and Export Sales
(millions of dollars)
year 91 92 93 94 95
------ ------ ------ ------ ------
75.5 85.9 93.8 114.2 130.2<PAGE>
<PAGE> 11
To the Shareholders and Board of Directors of WICOR, Inc.:
We have audited the accompanying consolidated balance sheets and statements
of capitalization of WICOR, Inc. (a Wisconsin corporation) and subsidiaries
as of December 31, 1995 and 1994, and the related consolidated statements of
income, common equity and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of WICOR, Inc. s management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WICOR, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Milwaukee, Wisconsin Arthur Andersen LLP
January 22, 1996<PAGE>
<PAGE> 12
Consolidated Statements of Income
(Thousands of Dollars, Except per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Operating Revenues
Energy $ 522,840 $ 556,587 $ 574,835
Manufacturing 337,754 311,168 274,693
---------- ---------- ----------
860,594 867,755 849,528
---------- ---------- ----------
Operating Costs and Expenses
Cost of gas sold 322,198 357,482 382,027
Manufacturing cost of sales 245,688 222,679 197,297
Operations and maintenance 174,515 181,820 169,068
Depreciation and amortization 29,696 29,416 28,044
Taxes, other than income taxes 9,421 9,748 9,141
---------- ---------- ----------
781,518 801,145 785,577
---------- ---------- ----------
Operating Income 79,076 66,610 63,951
---------- ---------- ----------
Interest expense (19,299) (16,698) (17,428)
Other income and expenses 2,438 574 266
---------- ---------- ----------
Income Before Income Taxes 62,215 50,486 46,789
Income taxes 22,688 17,312 17,476
---------- ---------- ----------
Net Income $ 39,527 $ 33,174 $ 29,313
========== ========== ==========
Per Share of Common Stock
Net income $ 2.32 $ 1.99 $ 1.82
Cash dividends $ 1.62 $ 1.58 $ 1.54
Average common shares outstanding (thousands) 17,020 16,708 16,096
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 13
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Thousands of Dollars) December 31, 1995 1994
----------- -----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 20,380 $ 35,138
Accounts receivable, less allowance for
doubtful accounts of $10,343 and $9,233,
respectively 132,203 103,487
Accrued utility revenues 48,847 40,327
Manufacturing inventories 68,236 60,239
Gas in storage, at weighted average cost 24,117 38,050
Deferred income taxes 20,256 15,540
Prepayments and other 14,990 19,519
----------- -----------
329,029 312,300
----------- -----------
Property, Plant and Equipment, at cost
Gas distribution 757,950 718,988
Manufacturing 119,032 103,696
----------- -----------
876,982 822,684
Less accumulated depreciation
and amortization 440,942 407,121
----------- -----------
436,040 415,563
----------- -----------
Deferred Charges and Other
Regulatory assets 104,145 116,896
Goodwill 61,096 6,914
Prepaid pension costs 33,073 30,865
Systems development costs 28,868 34,071
Other 16,263 14,099
----------- -----------
243,445 202,845
----------- -----------
$1,008,514 $ 930,708
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> 14
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Thousands of Dollars) December 31, 1995 1994
----------- -----------
<S> <C> <C>
Liabilities and Capitalization
Current Liabilities
Short-term borrowings $ 106,377 $ 111,506
Accounts payable 63,920 65,626
Refundable gas costs 34,347 18,058
Accrued payroll and benefits 16,340 15,141
Current portion of long-term debt 6,836 5,031
Accrued taxes 6,940 8,400
Other 19,638 15,661
----------- -----------
254,398 239,423
----------- -----------
Deferred Credits and Other
Postretirement benefit obligation 67,306 69,730
Regulatory liabilities 64,896 60,900
Deferred income taxes 39,282 42,322
Accrued environmental remediation costs 36,381 37,188
Unamortized investment tax credit 7,724 8,187
Accrued pipeline transition costs 261 7,411
Other 18,287 12,410
----------- -----------
234,137 238,148
----------- -----------
Commitments and Contingencies (Note 7)
Capitalization (See accompanying statement)
Long-term debt 174,713 161,669
Redeemable preferred stock - -
Common equity 345,266 291,468
----------- -----------
519,979 453,137
----------- -----------
$1,008,514 $ 930,708
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> 15
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
(Thousands of Dollars) Year Ended December 31, 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Operations
Net income $ 39,527 $ 33,174 $ 29,313
Adjustments to reconcile net income to
net cash flow from operating activities:
Depreciation and amortization 48,477 47,097 43,738
Deferred income taxes (6,436) (9,091) (3,969)
Changes in:
Receivables (33,298) 21,105 (13,993)
Manufacturing inventories (1,931) (2,027) (2,590)
Gas in storage 14,121 6,647 (38,050)
Other current assets 3,545 (4,827) (569)
Systems development costs - (841) (6,530)
Accounts payable (6,889) 2,943 (11,055)
Refundable gas costs 16,289 2,462 1,955
Accrued taxes (7,839) (2,412) 9,169
Other current liabilities 5,176 947 (292)
Other noncurrent assets and liabilities (824) 8,374 (3,726)
---------- ---------- ----------
Cash provided by operating activities 69,918 103,551 3,401
---------- ---------- ----------
Investment Activities
Capital expenditures (56,241) (55,051) (51,906)
Proceeds from sale of assets 5,099 42 5,328
Acquisitions (58,256) (72) (2,120)
Other, net 365 343 541
---------- ---------- ----------
Cash (used in) investing activities (109,033) (54,738) (48,157)
---------- ---------- ----------
Financing Activities
Change in short-term borrowings 4,059 (21,617) 59,603
Issuance of long-term debt 65,000 1,869 47,446
Reduction of long-term debt (57,700) (4,795) (50,982)
Issuance of common stock 40,285 10,649 16,682
Dividends paid on common stock,
less amounts reinvested (27,454) (23,247) (21,450)
Other 167 513 (222)
---------- ---------- ----------
Cash (used) provided by financing activities 24,357 (36,628) 51,077
---------- ---------- ----------
Change in Cash and Cash Equivalents (14,758) 12,185 6,321
Cash and cash equivalents at beginning of year 35,138 22,953 16,632
---------- ---------- ----------
Cash and Cash Equivalents at End of Year $ 20,380 $ 35,138 $ 22,953
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> 16
Consolidated Statements of Capitalization
<TABLE>
<CAPTION>
(Thousands of Dollars) December 31, 1995 1994
---------- ----------
<S> <C> <C>
Long-Term Debt
Wisconsin Gas:
First mortgage bonds
Adjustable Rate Series,
9.3% and 7.4%, respectively, due 1999 $ 6,000 $ 10,000
9-1/8% Notes due 1997 - 50,000
7-1/2% Notes due 1998 40,000 40,000
6.6% Notes due 2013 45,000 45,000
6-3/8% Notes due 2005 65,000 -
Sta-Rite:
First mortgage notes, adjustable rate, 5.3%
to 5.8%, due semi-annually through 2000 909 1,203
Industrial revenue bonds, 7.84%,
payable through 2000 1,770 2,190
Commercial paper under multi-year
credit agreement 11,202 6,853
Capital lease obligations and other 1,271 1,222
Unamortized (discount), net (1,754) (1,169)
ESOP loan guarantee 5,315 6,370
---------- ----------
174,713 161,669
---------- ----------
Redeemable Preferred Stock
WICOR:
$1.00 par value; authorized 1,500,000 shares - -
Wisconsin Gas:
Without par value, cumulative;
authorized 1,500,000 shares - -
---------- ----------
- -
---------- ----------
Common Equity
Common stock, $1.00 par value, authorized
60,000,000 shares; outstanding 18,237,000
and 16,918,000 shares, respectively 18,237 16,918
Other paid-in capital 219,133 180,000
Retained earnings 113,491 101,418
Unearned compensation-ESOP and restricted stock (5,595) (6,868)
---------- ----------
345,266 291,468
---------- ----------
Total Capitalization $ 519,979 $ 453,137
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> 17
Consolidated Statements of Common Equity
<TABLE>
<CAPTION>
(Thousands of Dollars) December 31, 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Common Stock
Balance at beginning of year $ 16,918 $ 16,407 $ 15,722
Issued in connection with underwritten
public offering 1,265 - -
Issued in connection with dividend
reinvestment, customer stock purchase
and employee benefit plans 54 511 685
---------- ---------- ----------
Balance at end of year 18,237 16,918 16,407
---------- ---------- ----------
Other Paid-in Capital
Balance at beginning of year 180,000 166,710 148,064
Issued in connection with underwritten
public offering 37,684 - -
Received in connection with dividend
reinvestment, customer stock purchase
and employee benefits plans 1,449 13,290 18,646
---------- ---------- ----------
Balance at end of year 219,133 180,000 166,710
---------- ---------- ----------
Retained Earnings
Balance at beginning of year 101,418 94,643 90,102
Net income 39,527 33,174 29,313
Dividends on common stock (27,454) (26,399) (24,099)
Other - - (673)
---------- ---------- ----------
Balance at end of year 113,491 101,418 94,643
---------- ---------- ----------
Unearned Compensation - ESOP and Restricted Stock
Balance at beginning of year (6,868) (7,484) (8,601)
Loan payments 1,055 1,114 1,117
Issuance of restricted stock - (723) -
Amortization of restricted stock 218 225 -
---------- ---------- ----------
Balance at end of year (5,595) (6,868) (7,484)
---------- ---------- ----------
Total Common Equity at End of Year $ 345,266 $ 291,468 $ 270,276
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> 18
Quarterly Financial Data (Unaudited)
Because seasonal factors significantly affect the Company s operations
(particularly at the Wisconsin Gas level), the following data may not be
comparable between quarters:
<TABLE>
<CAPTION>
(Thousands of Dollars, Except per Share Amounts)
Quarters: First Second Third Fourth
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
1995
- ---------------------------------------
Operating revenues $ 269,304 $ 179,199 $ 162,738 $ 249,353
Operating income (loss) $ 42,848 $ 8,456 $ (3,033) $ 30,805
Income available for common stock $ 24,789 $ 2,678 $ (4,944) $ 17,004
Net income(loss)/common share(a) $ 1.46 $ 0.16 $ (0.29) $ 0.99
1994
- ---------------------------------------
Operating revenues $ 320,625 $ 186,079 $ 151,037 $ 210,014
Operating income (loss) $ 49,444 $ 5,500 $ (8,668) $ 20,334
Income available for common stock $ 28,202 $ 998 $ (8,069) $ 12,043
Net income(loss)/common share(a) $ 1.71 $ 0.06 $ (0.48) $ 0.71
</TABLE>
(a) Quarterly earnings per share may not total to the amounts reported for
the year since the computation is based on weighted average common
shares outstanding during each quarter.<PAGE>
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 ACCOUNTING POLICIES
a Principles of Consolidation
The consolidated financial statements include the accounts of WICOR, Inc.,
(WICOR or the Company) and its wholly-owned subsidiaries: Wisconsin Gas
Company (Wisconsin Gas), WICOR Energy Services Company (WESCO), Sta-Rite
Industries, Inc. (Sta-Rite), SHURflo Pump Manufacturing Co. (Shurflo) and
Hypro Corporation (Hypro). All appropriate intercompany transactions have
been eliminated.
b Business
The Company is a diversified holding Company with two principal business
groups: energy and manufacturing of pumps and processing equipment used to
pump, control, transfer, hold and filter water and other fluids. The Company
engages in natural gas distribution through Wisconsin Gas, the oldest and
largest natural gas distribution utility in Wisconsin. Wisconsin Gas is
subject to regulation by the Public Service Commission of Wisconsin (PSCW)
and gives recognition to ratemaking policies substantially in accordance
with the Federal Energy Regulatory Commission (FERC) System of Accounts. At
December 31, 1995, Wisconsin Gas served approximately 505,000 customers in
503 communities. The natural gas distribution and related services group
accounted for 61% and 74% of the Company s 1995 operating revenues and
operating income, respectively. Through several nonutility subsidiaries, the
Company also engages in the manufacture and sale of pumps, fluid processing
and filtration equipment. The Company s products are used primarily in water
system, pool and spa, agriculture, RV/marine and beverage/ food service
applications. The manufacturing group accounted for 39% and 26% of the
Company s 1995 operating revenues and operating income, respectively.
c Gas Distribution Revenues and Purchased Gas Costs
Utility billings are rendered on a cycle basis. Revenues include estimated
amounts accrued for service provided but not yet billed.
Wisconsin Gas rate schedules contain purchased gas adjustment (PGA)
provisions which permit the recovery of actual purchased gas costs incurred.
The difference between actual gas costs incurred and costs recovered through
rates, adjusted for inventory activity, is deferred as a current asset or
liability. The deferred balance is returned to or recovered from customers
at intervals throughout the year and any residual balance at the annual
October 31 reconciliation date is subsequently refunded to or recovered from
customers.
The PSCW is currently permitting Wisconsin Gas to recover pipeline supplier
take-or-pay settlement costs, allocating a portion of the direct-billed
costs to each customer class, including transportation customers.
d Plant and Depreciation
Gas distribution property, plant and equipment is stated at original cost,
including overhead allocations. Upon ordinary retirement of plant assets,
their cost plus cost of removal, net of salvage, is charged to accumulated
depreciation, and no gain or loss is recognized.<PAGE>
<PAGE> 20
The depreciation of Wisconsin Gas assets is computed using straight-line
rates over estimated useful lives and considers salvage value. These rates
have been consistently used for ratemaking purposes. The composite rates are
4.2%, 4.5% and 4.7% for 1995, 1994 and 1993, respectively. Depreciation of
manufacturing property is calculated under the straight-line method over the
estimated useful lives of the assets (3 to 10 years for equipment and 30
years for buildings) and is primarily reported as a cost of sales.
e Regulatory Accounting
The Company and Wisconsin Gas account for their regulated operations in
accordance with Statement of Financial Accounting Standards (SFAS) No. 71,
Accounting for the Effects of Certain Types of Regulation. This statement
sets forth the application of generally accepted accounting principles to
those companies whose rates are determined by an independent third-party
regulator. The economic effects of regulation can result in regulated
companies recording costs that have been or are expected to be allowed in
the ratemaking process in a period different from the period in which the
costs would be charged to expense by an unregulated enterprise. When this
occurs, costs are deferred as assets in the balance sheet (regulatory
assets) and recorded as expenses in the periods those same amounts are
reflected in rates. Additionally, regulators can impose liabilities upon a
regulated company for amounts previously collected from customers and for
amounts that are expected to be refunded to customers (regulatory
liabilities).
The amounts recorded as regulatory assets and regulatory liabilities in the
Consolidated Balance Sheet at December 31, 1995 and 1994 are as follows:
(Thousands of Dollars) 1995 1994
---------- ----------
Regulatory assets:
Postretirement benefit
costs (Note 9) $ 45,054 $ 47,832
Deferred environmental costs 41,457 41,942
Pipeline transition costs 261 7,411
Income tax-related amounts
due from customers 3,357 3,711
Other 14,016 16,000
---------- ----------
$ 104,145 $ 116,896
========== ==========
Regulatory liabilities:
Income tax-related amounts
due to customers $ 22,891 $ 24,098
Pension costs (Note 9) 19,482 22,333
Other 22,523 14,469
---------- ----------
$ 64,896 $ 60,900
========== ==========
Consistent with PSCW regulation, Wisconsin Gas has capitalized computer
systems development costs and amortizes the costs to expense over a five- to
ten- year period.
Wisconsin Gas is precluded from discontinuing service to residential
customers within its service area during a certain portion of the heating
season. Any differences between doubtful account provisions based on actual
experience and provisions allowed for ratemaking purposes by the PSCW are
deferred for later recovery in rates as a cost of service. The most recent
PSCW rate order provides for a $13.9 million allowable annual provision for
doubtful accounts, including amortization of prior deferred amounts.<PAGE>
<PAGE> 21
See Notes 7 and 9 for discussion of additional regulatory assets.
f Income Taxes
The Company files a consolidated Federal income tax return and allocates
Federal current tax expense or credits to each subsidiary based on its
respective separate tax computation.
For Wisconsin Gas, investment tax credits were recorded as a deferred credit
on the balance sheet and are being amortized to income over the applicable
service lives of the related properties consistent with regulatory
treatment.
g Net Income per Common Share
Net income per common share is based on the weighted average number of
shares. Employee stock options are not recognized in the computation of
earnings per common share as they are not materially dilutive.
h Manufacturing Inventories
Approximately 58% and 48% of manufacturing inventories, in 1995 and 1994,
respectively, are priced using the last-in, first-out (LIFO) method (not in
excess of market), with the remaining inventories priced using the first-in,
first-out (FIFO) method. If the FIFO method had been used exclusively,
manufacturing inventories would have been $7.9 million and $8.4 million
higher at December 31, 1995 and 1994, respectively.
i Cash Flows
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. Due to the
short maturity of these instruments, market value approximates cost.
Beginning in 1995, dividends to be reinvested in shareholder accounts were
purchased in the open market. The Company s dividends reinvested (pursuant
to its dividend reinvestment plan) totalled $3.2 million and $2.6 million
for 1994 and 1993, respectively.
For purposes of the Consolidated Statements of Cash Flows, income taxes paid
(net of refunds) and interest paid (excluding capitalized interest) were as
follows for each of the years ended December 31, 1995, 1994 and 1993:
(Thousands of Dollars) 1995 1994 1993
-------- -------- --------
Income taxes paid $ 27,801 $ 31,384 $ 16,106
Interest paid $ 18,855 $ 15,714 $ 17,678
j Derivative Financial Instruments
The Company has a limited involvement with derivative financial instruments
and does not use them for trading or speculative purposes. Foreign exchange
futures and forward contracts are used to hedge foreign exchange exposure
resulting from international purchases or sales of products. Gains and
losses from open contracts are deferred until recognized as part of the
purchase transaction. Such gains and losses included in net income in the
Consolidated Statements of Income for the years ended December 31, 1995,
1994 and 1993 were not material. Wisconsin Gas purchased options in 1995 to
hedge a small portion of gas costs incurred for resale. The cost of the
options and any gains or losses realized do not affect income since they are
accounted for under the purchased gas adjustment clause.<PAGE>
<PAGE> 22
k Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those results.
l Reclassifications
Certain prior year financial statement amounts have been reclassified to
conform to their current year presentation.
2 MERGERS AND ACQUISITIONS
On July 19, 1995, the Company completed the acquisition of Hypro for $58
million in cash and the assumption of operating liabilities totaling $13.3
million. Hypro designs, manufactures and markets pumps and water processing
equipment for the agricultural, high-pressure cleaning, marine, industrial
and fire protection markets. The acquisition has been accounted for as a
purchase and the results of operations of Hypro have been included in the
consolidated financial statements commencing July 19, 1995. The purchase
price was allocated to the net assets based upon their estimated fair market
values. The excess of the purchase price over the estimated fair value of
net assets acquired amounted to approximately $58 million, which has been
recorded as goodwill and is being amortized straight line over 40 years.
On July 28, 1993, the Company completed its merger with Carr-Griff, Inc.
which became SHURflo, a wholly-owned subsidiary of WICOR, Inc. Shurflo
designs,
manufactures and sells pumps to the food service, recreational vehicle,
marine, industrial and water purification markets. The Company issued
approximately 0.9 million shares of common stock, valued at approximately
$27 million, for all the outstanding common stock of Shurflo. This
transaction was accounted for as a pooling of interests.
3 INCOME TAXES
The current and deferred components of income tax expense for each of the
years ended December 31, are as follows:
<TABLE>
<CAPTION>
(Thousands of Dollars) 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current
Federal $ 25,728 $ 23,516 $ 18,576
State 6,641 5,816 4,742
Foreign 1,256 1,627 834
---------- ---------- ----------
Total Current 33,625 30,959 24,152
---------- ---------- ----------
Deferred
Federal (10,275) (11,247) (6,432)
State (1,816) (2,012) (961)
Foreign 1,154 (388) 717
---------- ---------- ----------
Total Deferred (10,937) (13,647) (6,676)
---------- ---------- ----------
Total Provision $ 22,688 $ 17,312 $ 17,476
========== ========== ==========
/TABLE
<PAGE>
<PAGE> 23
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate
to pretax income as a result of the following differences:
<TABLE>
<CAPTION>
(Thousands of Dollars)
Year ended December 31, 1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S. tax rates $21,775 35.0% $17,670 35.0% $16,376 35.0%
State income taxes, net 3,235 5.2 2,518 5.0 2,326 5.0
Excess of foreign (benefit) provision
over U.S. statutory tax rate 378 0.6 (174)(0.3) 886 1.9
Investment credit restored (457)(0.7) (461)(0.9) (473)(1.0)
Amortization of excess deferred taxes (507)(0.8) (505)(1.0) (532)(1.1)
Settlement of disputed tax matters - - (998)(2.0) - -
Other, net (1,736)(2.8) (738)(1.5) (1,107)(2.4)
-------------- -------------- --------------
Effective Tax Rates $22,688 36.5% $17,312 34.3% $17,476 37.4%
============== ============== ==============
</TABLE>
The components of deferred income tax assets and liabilities at December 31,
1995 and 1994 are as follows:
(Thousands of Dollars) 1995 1994
--------------------
Deferred Income Tax Assets
Recoverable gas costs $ 13,416 $ 7,258
Inventory 1,290 1,935
Deferred compensation 2,416 2,026
Other 3,134 4,321
--------------------
$ 20,256 $ 15,540
====================
Deferred Income Tax Liabilities
Property related $ 44,647 $ 41,054
Systems development costs 11,586 13,675
Investment tax credit (5,109) (5,416)
Gas transition costs 105 2,974
Postretirement benefits (8,195) (8,059)
Deferred compensation (3,044) (3,055)
Pension benefits 5,039 2,842
Environmental (4,725) (1,669)
Other (1,022) (24)
--------------------
$ 39,282 $ 42,322
====================<PAGE>
<PAGE> 24
4 SHORT-TERM BORROWINGS
As of December 31, 1995 and 1994, the Company had total unsecured lines of
credit available from banks of $204.2 million and $206.5 million,
respectively. These borrowing arrangements may require the maintenance of
average compensating balances, which are generally satisfied by balances
maintained for normal business operations, and may be withdrawn at any time.
(Thousands of Dollars) December 31, 1995 1994
--------------------
Notes payable to banks
U.S. subsidiaries $ 27,000 $ 100
Non-U.S. subsidiaries 19,352 16,835
Commercial paper - U.S. 60,025 94,571
--------------------
$ 106,377 $ 111,506
====================
Weighted average interest rates on
debt outstanding at end of year:
Notes payable to banks
U.S. subsidiaries 5.9% 7.5%
Non-U.S. subsidiaries 9.2% 6.2%
Commercial paper - U.S. 5.9% 5.9%
Highest month-end balance $ 129,058 $ 111,506
Average month-end balance $ 71,911 $ 63,451
5 LONG-TERM DEBT
In November 1995, Wisconsin Gas issued $65 million of 6 3/8% Notes due in
2005, a portion of the proceeds were used to redeem $50 million of 9 1/8%
Notes due in 1997. In September 1993, Wisconsin Gas issued $45 million of
6.6% Notes due in 2013, the proceeds of which were used to refinance $45
million of first mortgage bonds. Substantially all gas distribution and
certain manufacturing property and plant is subject to first mortgage liens.
Maturities and sinking fund requirements during the succeeding five years on
all long-term debt total $6.8 million, $14.9 million, $43.0 million, $2.1
million and $0.4 million in 1996, 1997, 1998, 1999 and 2000, respectively.
6 RESTRICTIONS
A November 1993 rate order issued by the PSCW sets an equity range of 43% to
50% for Wisconsin Gas and also requires Wisconsin Gas to request PSCW
approval prior to the payment of dividends on its common stock to WICOR if
the payment would reduce its common equity (net assets) below 43% of total
capitalization (including short-term debt). Under this requirement, $26.8
million of Wisconsin Gas net assets at December 31, 1995, plus future
earnings, were available for such dividends without PSCW approval. In
addition, the PSCW must also approve any dividends in excess of $16 million
for any 12 month period beginning November 1 if such dividends would reduce
Wisconsin Gas total equity below 48.43% of its total capitalization.
Wisconsin Gas paid $4 million in dividends in November 1995 and expects to
pay $19 million in dividends for the 12 months ending October 1996.<PAGE>
<PAGE> 25
In connection with its long-term debt agreements, Sta-Rite is subject to
restrictions on working capital, shareholder equity and debt. These
agreements also limit the amount of retained earnings available for the
payment of cash dividends to WICOR and for certain investments. At December
31, 1995, $6.3 million of Sta-Rite net assets plus 50% of its future
earnings were available for payment of dividends
to WICOR.
Combined restricted common equity of the Company s subsidiaries totaled
$241.2 million under the most restrictive provisions as of December 31,
1995; accordingly, $104.1 million of consolidated retained earnings is
available for payment of dividends.
Historically, the PSCW has imposed restrictions on public utility holding
companies, including WICOR, relating to future nonutility investments. Under
current restrictions, Wisconsin Gas should remain the predominant business,
generally as measured by equity, within the holding company system. Under
these restrictions, the amount allowable for future nonutility equity
investment at December 31, 1995, was $52.6 million. Also, nonutility
subsidiaries can borrow additional amounts for acquisitions; however, if
debt for the combined nonutility entities exceeds 40% of total
capitalization for these entities, further PSCW actions may be necessary.
Debt was 32% of total capitalization for the nonutility entities at December
31, 1995.
7 COMMITMENTS AND CONTINGENCIES
a Gas Supply
Wisconsin Gas has agreements for firm pipeline and storage capacity that
expire at various dates through 2008. The aggregate amount of required
payments under such agreements totals approximately $1,010 million, with
annual required payments of $133 million in 1996, $132 million in 1997, $125
million in 1998, $123 million in 1999 and $123 million in 2000. Wisconsin
Gas total payments of fixed charges under all agreements were $130.5
million in 1995, $130.4 million in 1994 and $133.9 million in 1993. The
purchased gas adjustment provisions of Wisconsin Gas rate schedules permit
the recovery of gas costs from its customers. In 1992, the FERC issued Order
No. 636 that, among other things, mandated the unbundling of interstate
pipeline sales service and established certain open access transportation
regulations that became effective beginning in the 1993-94 heating season.
Order No. 636 permits pipeline suppliers to pass through to Wisconsin Gas
any prudently incurred transition costs, such as unrecovered gas costs, gas
supply realignment costs and stranded investment costs. Wisconsin Gas
estimates its portion of such costs from all of its pipeline suppliers would
approximate $14.5 million at December 31, 1995, based upon prior filings
with FERC by the pipeline suppliers. The pipeline suppliers will continue to
file quarterly with the FERC for recovery of actual costs incurred.
The FERC has allowed ANR Pipeline Company to recover capacity and above
market supply costs associated with quantities purchased from Dakota
Gasification Company ( Dakota ) under a long-term contract expiring in the
year 2009. Consistent with guidelines set forth in Order No. 636 ANR has
allocated 90% of Dakota costs to firm transportation service recoverable
through a reservation rate surcharge and 10% to interruptible service. ANR
and other pipelines reached a settlement with Dakota governing the price of
Dakota gas. A FERC administrative law judge ( ALJ ) has overturned the
settlement and ordered refunds of amounts collected from pipeline customers.<PAGE>
<PAGE> 26
The ALJ s decision is subject to review by FERC. Pending a final resolution,
ANR currently recovers the difference between costs paid to Dakota and the
current market price. Based on Wisconsin Gas contracted quantities with ANR,
Wisconsin Gas is currently paying approximately $500,000 per month of Dakota
costs. This amount varies month-to-month and across years based on the
spread between ANR contract terms with Dakota and the market indices for
pricing spot gas.
Transition costs billed to Wisconsin Gas are being recovered from customers
under the purchased gas provisions within its rate schedules. Assuming no
drastic changes in the market for natural gas, Wisconsin Gas does not expect
pipeline transition costs to significantly affect the total cost of gas to
its customers because (1) Wisconsin Gas will purchase its wellhead gas
supplies based upon market prices that should be below the cost of gas
previously embedded in the bundled pipeline sales service and (2) many
elements of transition costs were previously embedded in the rates for the
pipelines bundled sales service. The unbundling of pipeline sales service
requires Wisconsin Gas to contract directly and separately for wellhead gas
supply and firm transportation services. As a result of FERC Order No. 636,
Wisconsin Gas has contracted directly for underground storage since 1993.
b Capital Expenditures
Certain commitments have been made in connection with 1996 capital
expenditures. Energy Group s capital expenditures for 1996 are estimated at
$48 million. The Manufacturing Group s capital expenditures for 1996 are
estimated at $19 million.
c Environmental Matters
Wisconsin Gas has identified two previously owned sites on which it operated
manufactured gas plants that are of environmental concern. Such plants
ceased operations prior to the mid-1950 s. Wisconsin Gas has engaged an
environmental consultant to help determine the nature and extent of the
contamination at these sites. Based on the test results obtained and the
possible remediation alternatives available, the Company has estimated that
cleanup costs could range from $22 million to $75 million. As of December
31, 1995, the Company has accrued $36.4 million for future cleanup costs.
These estimates are based on current undiscounted costs. It should also be
noted that the numerous assumptions such as the type and extent of
contamination, available remediation techniques, and regulatory requirements
which are used in developing these estimates are subject to change as new
information becomes available. Any such changes in assumptions could have a
significant impact on the potential liability. Due to anticipated regulatory
treatment, as discussed below, changes in the recorded liability do not
immediately impact net income.
The Wisconsin Department of Natural Resources ( WDNR ) issued a Probable
Responsible Party letter to Wisconsin Gas for these two sites in September
1994. Following receipt of this letter, Wisconsin Gas and the WDNR held an
initial meeting to discuss the sites. At the meeting it was agreed that
Wisconsin Gas would prepare a remedial action options report from which it
will select specific remedial actions for recommendation to the WDNR. During
1995 the Company gathered additional environmental data regarding these two
sites, held extensive discussions concerning remedial options with current
land owners and solicited information from environmental consulting and
remediation firms on technology and approaches that would best suit the
sites. These efforts were directed toward preparing a remedial action
options report and recommendations for presentation to the WDNR during 1996.
Once such a plan is approved, initial remediation work will begin.<PAGE>
<PAGE> 27
Expenditures over the next three years are expected to total approximately
$20.0 million. Although most of the work and the cost are expected to be
incurred in the first few years of the plan, monitoring of sites and other
necessary actions may be undertaken for up to 30 years.
In March 1994, Wisconsin Gas commenced suit against nine insurance carriers
seeking a declaratory judgment regarding insurance coverage for the two
sites. Settlements were reached with each of the carriers during 1994.
Additional insurance recoveries are being pursued. Under recent PSCW rate
orders, the Company expects full recovery of incurred remediation costs,
less amounts recovered from insurance carriers. If the amount recovered from
the insurance carriers is insufficient to remediate both sites, expenditures
not recovered will be allowed full recovery (other than for carrying costs)
in rates based upon recent PSCW orders. Accordingly, a regulatory asset has
been recorded for the accrued cost. Certain related investigation costs
incurred to date are currently being recovered in utility rates. However,
any incurred costs not yet recovered in rates are not allowed by the PSCW to
earn a return. As of December 31, 1995, $4.8 million of such costs had been
incurred.
The manufacturing subsidiaries are involved in various environmental
matters, including matters in which the subsidiaries or alleged predecessors
have been named as potentially responsible parties under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA). The Company
has established accruals for all environmental contingencies of which
management is currently aware in accordance with generally accepted
accounting principles. In establishing these accruals, management considered
(a) reports of environmental consultants retained by the Company, (b) the
costs incurred to date by the Company at sites where clean-up is presently
ongoing and the estimated costs to complete the necessary remediation work
remaining at such sites, (c) the financial solvency, where appropriate, of
other parties that have been responsible for effecting remediation at
specified sites, and (d) the experience of other parties who have been
involved in the remediation of comparable sites. The accruals recorded by
the Company with respect to environmental matters have not been reduced by
potential insurance or other recoveries and are not discounted. Although the
Company has and will continue to pursue such claims against insurance
carriers and other responsible parties, future potential recoveries remain
uncertain and, therefore, were not recorded as reduction to the estimated
gross environmental liabilities. Based on the foregoing and given current
information, management believes that future costs in excess of the amounts
accrued on all presently known and quantifiable environmental contingencies
will not be material to the Company s financial position or results of
operations.
d Other
The Company is party to various legal proceedings arising in the ordinary
course of business which are not expected to have a material effect on the
Company s financial position or results of operations.<PAGE>
<PAGE> 28
8 COMMON STOCK AND OTHER PAID-IN CAPITAL
The Company s articles of incorporation authorize 60,000,000 shares of
common stock, of which 18,236,998 shares and 16,918,004 shares were
outstanding at December 31, 1995 and 1994, respectively. In December 1995,
the Company sold in a public offering 1,265,000 shares of its common stock
which generated net proceeds of approximately $38.9 million. The proceeds
were used to pay a portion of the debt incurred for the acquisition of
Hypro. Common stock totaling 2,853,563 shares is reserved for issuance under
the Company s dividend reinvestment, stock and incentive savings plans. In
addition, 21,306,072 shares are reserved pursuant to the Company s
shareholder rights plan.
Under certain circumstances, each right entitles the shareholder to purchase
one common share at an exercise price of $75, subject to adjustment. The
rights are not exercisable until ten business days after a person or group
announces a tender offer or exchange offer which would result in their
acquiring ownership of 20% or more of the Company s outstanding common stock
or after a person or group acquires at least 20% of the Company s
outstanding common shares. Under certain circumstances, including the
existence of a 20% acquiring party, each holder of a right, other than the
acquiring party, will have the right to purchase at the exercise price WICOR
common stock having a value of two times the exercise price. If, after 20%
or more of the outstanding shares of WICOR common stock is acquired by a
person or group and the Company is then acquired by that person or group,
rights holders would be entitled to purchase shares of common stock of the
acquiring person or group having a market value of two times the exercise
price of the rights. The rights do not have any voting rights and may be
redeemed at a price of $.01 per right. The rights expire on August 29, 1999.
9 BENEFIT PLANS
a Pension Plans
The Company s subsidiaries have non-contributory pension plans which cover
substantially all their employees and include benefits based on levels of
compensation and years of service. Employer contributions and funding
policies are consistent with funding requirements of Federal law and
regulations. Commencing November 1, 1992, Wisconsin Gas pension costs or
credits have been calculated in accordance with SFAS No. 87 and are
recoverable from customers. Prior to this date, pension costs were
recoverable in rates as funded.
The following table sets forth the funded status of pension plans at
December 31, 1995 and 1994. The cumulative difference between the amounts
funded and the amounts based on SFAS No. 87 through November 1, 1992, is
recorded as a regulatory liability and is being amortized as a reduction of
pension expense over an eight-year period effective November 1, 1994.<PAGE>
<PAGE> 29
<TABLE>
<CAPTION>
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
---------------------- ----------------------
(Thousands of Dollars) December 31, 1995 1994 1995 1994
----------------------------------------
<S> <C> <C> <C> <C>
Accumulated benefit obligation
Vested benefits $(110,484)$ (97,478)$ (7,234)$ (5,825)
Nonvested benefits (12,339) (10,827) (1,457) (1,185)
----------------------------------------
(122,823) (108,305) (8,691) (7,010)
Effect of projected future
compensation levels (43,481) (41,021) (1,267) (677)
----------------------------------------
Projected benefit obligation (166,304) (149,326) (9,958) (7,687)
Plan assets at fair value 217,156 197,278 474 209
----------------------------------------
Plan assets greater (less) than
projected benefit obligation 50,852 47,952 (9,484) (7,478)
Unrecognized net (asset) liability at
September 30, 1985 being recognized
over approximately 16 years (15,024) (16,777) 966 1,035
Unrecognized prior service costs 4,422 4,794 258 253
Unrecognized net (gain) loss (7,177) (5,104) 1,143 523
Additional minimum liability recorded - - (1,468) (1,307)
----------------------------------------
Prepaid pension asset (accrued liability) $ 33,073 $ 30,865 $ (8,585) $ (6,974)
========================================
</TABLE>
The weighted average discount rate assumptions used in determining the
actuarial present value of the projected benefit obligation were 7.5%, 8.25%
and 7.5% for 1995, 1994 and 1993, respectively. The expected long-term rate
of return on assets was 8.6% for 1995 and 1994 and 8.2% for 1993. The
expected long-term rate of compensation growth was 5.3% for 1995 and 1994
and 6.0% for 1993.
Net pension (income) costs for each of the years ended December 31, include
the following components:
(Thousands of Dollars) 1995 1994 1993
------------------------------
Service costs $ 4,374 $ 5,260 $ 5,658
Interest costs on projected
benefit obligations 12,830 12,249 11,807
Actual (gain) loss on plan assets (29,107) 1,225 (18,016)
Net amortization and deferral 10,760 (18,896) (69)
Gain on early retirement incentive - (268) -
Amortization of regulatory liability (2,851) (475) -
------------------------------
Net pension income $ (3,994)$ (905)$ (620)
==============================<PAGE>
<PAGE> 30
b Postretirement Health Care and Life Insurance
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees when they
reach normal retirement age while working for the Company. Wisconsin Gas
funds the accrual annually based on the maximum tax deductible amount.
Commencing January 1, 1992, Wisconsin Gas postretirement benefit costs have
been calculated in accordance with SFAS No. 106 and are recoverable from
customers. The cumulative difference between the amounts funded and the
amounts based on SFAS No. 106 through January 1, 1992, is recorded as a
regulatory asset and is being amortized over a twenty-year period effective
January 1, 1992.
The following table sets forth the plans funded status, reconciled with
amounts recognized in the Company s Statement of Financial Position at
December 31, 1995 and 1994, respectively.
Accumulated benefit obligation
(Thousands of Dollars) 1995 1994
--------------------
Retirees $ (55,729)$ (54,088)
Active employees (42,044) (29,544)
--------------------
Accumulated benefit obligation (97,773) (83,632)
Plan assets at fair value 39,417 30,666
--------------------
Accumulated benefit obligation
in excess of plan assets (58,356) (52,966)
Unrecognized prior service costs (15,915) (16,347)
Unrecognized actuarial gain (loss) 6,965 (417)
--------------------
Accrued postretirement benefit $ (67,306)$ (69,730)
====================
Net postretirement health care and life insurance costs for each of the
years ended December 31, consisted of the following components:
(Thousands of Dollars) 1995 1994 1993
------------------------------
Service cost $ 2,023 $ 2,688 $ 2,813
Interest cost on projected
benefit obligation 6,694 6,913 6,495
Actual (gain) loss on plan assets (6,185) 147 (1,414)
Amortization of regulatory asset 2,778 2,778 2,651
Net amortization and deferral 2,531 (2,549) -
Loss on early retirement incentive - 3,650 -
------------------------------
Net postretirement benefit cost $ 7,841 $ 13,627 $ 10,545
==============================
The 1994 postretirement benefit cost was increased due to the early
retirement of 131 employees under a voluntary early retirement incentive
plan at Wisconsin Gas for employees age 55 and over. <PAGE>
<PAGE> 31
The postretirement benefit cost components for 1995 were calculated assuming
health care cost trend rates ranging up to 11% for 1995 and decreasing to
5.0% over 8 to 23 years. The health care cost trend rate has a significant
effect on the amounts reported. Increasing the assumed health care cost
trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation ( APBO ) as of December 31,
1995 by $14.7 million and the aggregate of the service and interest cost
components of postretirement expense by $1.9 million.
The assumed discount rate used in determining the actuarial present value of
the APBO was 7.5% and 8.25% in 1995 and 1994, respectively. Plan assets are
primarily invested in equities and fixed income securities.
c Retirement Savings Plans
Wisconsin Gas and Sta-Rite maintain various employee savings plans, which
provide employees a mechanism to contribute amounts up to 16% of their
compensation for the year. Company matching contributions may be made for up
to 5% of eligible compensation including 1% for the Employee Stock Ownership
Plan ( ESOP ). Total contributions were valued at $1.7 million in 1995, $1.7
million in 1994 and $1.8 million in 1993.
d Employee Stock Ownership Plan
In November 1991, WICOR established an ESOP covering non-union employees of
Wisconsin Gas. The ESOP funds employee benefits of up to 1% of compensation
with Company common stock distributed through the ESOP. The ESOP used the
proceeds from a $10 million, 3-year adjustable rate loan (6.44% interest
rate at December 31, 1995), guaranteed by the Company, to purchase 431,266
shares of WICOR common stock. The Company extended the adjustable rate loan,
with similar terms, until March 29, 1996. The unpaid balance ($5.3 million)
is shown as long-term debt with a like amount of unearned compensation
reported as a reduction of common equity on the Company s balance sheet. The
Company expects to refinance the adjustable rate loan in the first quarter
of 1996.
The ESOP trustee is repaying the $10 million loan with dividends on shares
of WICOR common stock in the ESOP and with Wisconsin Gas contributions to
the ESOP.
e Stock Options
The Company has a total of 135 employees participating in one or more of its
common stock option plans. All options were granted at prices not less than
the fair market value on the date of grant and expire not later than eleven
years from the date of grant. Changes in stock options outstanding for all
plans were as follows:
1995 1994 1993
------------------------------
Outstanding at January 1 664,633 794,925 763,342
Granted 136,400 135,800 180,350
Exercised/Canceled (55,983) (266,092) (148,767)
------------------------------
Outstanding at December 31 745,050 664,633 794,925
==============================
Exercise price per share $ 15.34- $ 13.38- $ 10.38-
$ 30.63 $ 30.63 $ 27.31
Available for future grant at year-end 607,200 743,600 783,116 <PAGE>
<PAGE> 32
Under the Company s 1994 Long-Term Performance Plan ( 1994 Plan ), awards
covering up to 820,000 shares of common stock may be granted. The types of
awards that may be granted under the 1994 Plan include incentive stock
options, nonqualified stock options, stock appreciation rights and
restricted stock.
Awards of restricted stock subject to performance vesting criteria have been
granted under the 1994 Plan. These awards will vest only if the Company
achieves certain financial goals over the three-year performance periods
1994 to 1996. Recipients of restricted stock awards are not required to
provide consideration to the Company other than rendering service and have
the right to vote the shares and the right to receive dividends thereon.
A total of 23,000 restricted shares (net of cancellations) were issued in
1994. Initially, the total market value of the shares is treated as unearned
compensation and is charged to expense over the vesting periods. For both
restricted stock and performance option shares, adjustments are made to
expense for changes in market value and progress towards achievement of
financial goals. Unearned compensation charged to expense was $0.1 million
and $0.2 million for performance options, and $0.2 million for restricted
stock in 1995 and 1994, respectively.
f Postemployment Benefit Plans
Effective January 1, 1994, the Company adopted SFAS No. 112, Employers
Accounting for Postemployment Benefits, which requires accrual for all other
postemployment benefits. Total postemployment benefit expense was $0.6
million in 1995 and 1994, respectively, including a one-time cumulative
adjustment in 1994. The incremental costs of adopting this statement are
insignificant on an ongoing basis.
10 FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable and
short-term borrowings approximates fair value due to the short-term
maturities of these instruments.
The fair value of the Company s long-term debt is estimated based on the
quoted market prices of U.S. Treasury issues having a similar term to
maturity, adjusted for the Company s bond rating and the present value of
future cash flows.
Because Wisconsin Gas operates in a regulated environment, shareholders
would probably not be affected by realization of gains or losses on
extinguishment of its outstanding fixed-rate debt. Realized gains would be
refunded to and losses would be recovered from customers through gas rates.
The estimated fair value of WICOR s financial instruments at December 31, is
as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
Carrying Fair Carrying Fair
(Thousands of Dollars) Amount Value Amount Value
----------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 20,380 $ 20,380 $ 35,138 $ 35,138
Accounts receivable $ 132,203 $ 132,203 $ 103,487 $ 103,487
Short-term debt $ 106,377 $ 106,377 $ 111,506 $ 111,506
Long-term debt $ 174,713 $ 176,700 $ 161,669 $ 159,318
/TABLE
<PAGE>
<PAGE> 33
11 OTHER FINANCIAL INFORMATION
See page 28 for unaudited quarterly financial data. See Financial Review
on page 19 for industry segment data.
Selected Financial Data
(Thousands of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated
Operating Data:
Operating revenues (6) $ 860,594 $ 867,755 $ 849,528 $ 747,409 $ 716,767 $ 696,023 $ 741,218 $ 780,633
Net income continuing operations $ 39,527 $ 33,174 $ 29,313 $ 22,764 $ 22,966 $ 16,651 $ 33,359 $ 30,400
Net income $ 39,527 $ 33,174 $ 29,313 $ 14,799 $ 22,966 $ 16,651 $ 33,881 $ 34,163
Common Stock Data:
Net income per share
from continuing operations $ 2.32 $ 1.99 $ 1.82 $ 1.47 $ 1.54 $ 1.14 $ 2.30 $ 2.12
Net income per common share (1) $ 2.32 $ 1.99 $ 1.82 $ 0.96 $ 1.54 $ 1.14 $ 2.33 $ 2.38
Cash dividends per common share(1) $ 1.62 $ 1.58 $ 1.54 $ 1.50 $ 1.46 $ 1.42 $ 1.37 $ 1.32
Book value per common share (1) $ 18.93 $ 17.23 $ 16.47 $ 15.60 $ 15.84 $ 16.12 $ 16.83 $ 15.82
Balance Sheet Data:
Long-term debt $ 174,713 $ 161,669 $ 165,230 $ 164,171 $ 168,366 $ 130,215 $ 122,639 $ 133,034
Redeemable preferred stock - - - - - - - -
Common equity 345,266 291,468 270,276 245,287 243,453 237,407 244,351 227,080
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Capitalization at year-end $ 519,979 $ 453,137 $ 435,506 $ 409,458 $ 411,819 $ 367,622 $ 366,990 $ 360,114
========== ========== ========== ========== ========== ========== ========== ==========
Total assets at year-end (2) $1,008,514 $ 930,708 $ 933,726 $ 825,774 $ 670,250 $ 651,559 $ 620,548 $ 565,967
Other General Data:
Market-to-book ratio at year-end (%) 170 165 191 175 153 122 148 123
Dividend payout ratio (%)(2)(3)(4) 69.5 79.6 82.2 96.1 89.0 117.2 55.0 52.0
Yield at year-end (%) 5.1 5.6 5.0 5.6 6.1 7.3 5.6 6.9
Return ave common equity (%)(2)(3)(5) 13.1 11.6 11.2 9.2 9.5 6.8 14.3 15.3
PE ratio at year-end (2)(3) 13.9 14.3 17.3 18.5 15.7 17.2 10.7 8.2
Price range $ 26 5/8 - $ 25 1/2 - $ 25 5/8 - $ 22 7/8 - $ 18 5/8 - $ 18 1/4 - $ 19 3/8 - $ 15 5/8 -
$ 32 7/8 $ 32 5/8 $ 32 7/8 $ 27 3/8 $ 24 3/8 $ 25 1/4 $ 25 3/8 $ 20 7/8
/TABLE
<PAGE>
<PAGE> 34
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholders at year-end 15,238 16,517 17,091 17,780 18,503 19,463 20,509 21,611
Cash flow from operations $ 69,918 $ 103,551 $ 3,401 $ 37,012 $ 50,413 $ 10,022 $ 94,623 $ 73,526
Capital expenditures $ 56,241 $ 55,051 $ 51,906 $ 71,873 $ 45,113 $ 37,529 $ 40,944 $ 48,295
Employees at year-end 3,359 3,214 3,222 3,178 3,196 3,152 3,696 3,927
Debt/equity ratio at year-end 34/66 36/64 38/62 40/60 41/59 35/65 33/67 37/63
Energy Operations
Operating revenues $ 522,840 $ 556,587 $ 574,835 $ 495,415 $ 474,702 $ 455,559 $ 441,477 $ 476,904
Net income $ 27,701 $ 18,896 $ 19,870 $ 18,060 $ 17,086 $ 13,195 $ 25,169 $ 23,223
Capital expenditures $ 42,852 $ 44,626 $ 42,253 $ 62,125 $ 34,473 $ 27,978 $ 25,813 $ 37,148
Gas sold and transported (MDth)
Residential 49,425 46,369 47,964 45,905 45,614 43,020 48,154 46,769
Commercial 21,157 18,598 19,060 17,840 17,861 16,319 18,089 17,012
Industrial firm 13,496 14,544 15,246 14,488 15,690 15,106 16,915 16,808
Industrial interruptible 31,353 28,217 20,849 17,388 17,440 16,620 5,475 3,752
Transported 14,549 11,908 17,408 21,379 19,658 16,565 29,158 29,639
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
129,980 119,636 120,527 117,000 116,263 107,630 117,791 113,980
========== ========== ========== ========== ========== ========== ========== ==========
Customers at year-end 504,746 495,129 485,103 470,956 460,549 452,906 445,771 439,063
Customers served per employee 471 419 352 331 323 321 319 311
Average cost of gas per Dth purchased $ 2.79 $ 3.34 $ 3.76 $ 3.34 $ 3.18 $ 3.30 $ 3.15 $ 3.68
Average annual residential bill $ 686 $ 719 $ 779 $ 712 $ 677 $ 670 $ 758 $ 770
Average per residential customer (Dth) 114 110 116 115 117 113 129 127
Degree days 6,836 6,431 6,775 6,683 6,416 6,103 7,382 7,124
% colder (warmer) than normal (2.8) (9.0) (4.1) (6.4) (10.8) (16.0) 1.5 (2.0)
Manufacturing Operations (2)
Operating revenues $ 337,754 $ 311,168 $ 274,693 $ 251,994 $ 242,065 $ 240,464 $ 300,156 $ 303,729
International and export sales
as a % of total sales 39 37 34 34 31 27 24 22
Net income (3) $ 11,826 $ 14,278 $ 9,443 $ 4,704 $ 5,880 $ 3,456 $ 8,712 $ 10,940
Capital expenditures $ 13,389 $ 10,425 $ 9,653 $ 9,748 $ 10,640 $ 9,551 $ 15,131 $ 11,147
</TABLE>
(1) Adjusted for a two-for-one stock split in March 1989.
(2) Includes continuing operations and discontinued operations up to the
year disposition was authorized.
(3) Before effects of 1992 accounting changes. Adjusted for merger with
Shurflo through (4) 1988 and (5) 1989.
(6) Includes revenues (in thousands) from discontinued operations from
1986 to 1989 of $58,209, $58,318, $63,552 and $56,318, respectively.
Data from 1985 are not available. Note: Hypro operations are
reflected as of July 19, 1995.<PAGE>
<PAGE> 35
Selected Financial Data
(Thousands of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
1987 1986 1985
---------- ---------- ----------
<S> <C> <C> <C>
Consolidated
Operating Data:
Operating revenues (6) $ 699,418 $ 761,104 $ 853,175
Net income from continuing operations$ 17,215 $ 17,363 $ N/A
Net income $ 19,682 $ 19,780 $ 24,900
Common Stock Data:
Net income per share
from continuing operations $ 1.22 $ 1.34 $ N/A
Net income per common share (1) $ 1.39 $ 1.53 $ 1.98
Cash dividends per common share(1) $ 1.30 $ 1.28 $ 1.18
Book value per common share (1) $ 14.68 $ 15.74 $ 13.81
Balance Sheet Data:
Long-term debt $ 127,833 $ 144,495 $ 154,159
Redeemable preferred stock 8,000 14,267 18,200
Common equity 207,658 203,477 173,941
---------- ---------- ----------
Capitalization at year-end $ 343,491$ 362,239 $ 346,300
========== ========== ==========
Total assets at year-end (2) $ 536,998$ 542,036 $ 531,192
Other General Data:
Market-to-book ratio at year-end (%)117 134 112
Dividend payout ratio (%)(2)(3)(4) 91.1 79.9 57.0
Yield at year-end (%) 7.6 6.1 7.6
Return ave common equity (%)(2)(3)(5) 9.3 10.5 14.6
PE ratio at year-end (2)(3) 12.4 13.8 7.8
Price range $ 13 3/8 - $ 14 3/4 - $ 13 -
$ 21 7/8 $ 23 $ 15 3/4
/TABLE
<PAGE>
<PAGE> 36
<TABLE>
<CAPTION>
1987 1986 1985
---------- ---------- ----------
<S> <C> <C> <C>
Shareholders at year-end 23,010 23,987 26,083
Cash flow from operations $ 41,237$ 63,583$ 46,342
Capital expenditures $ 34,264$ 36,498$ 32,381
Employees at year-end 4,040 3,932 3,641
Debt/equity ratio at year-end 37/63 40/60 45/55
Energy Operations
Operating revenues $ 424,069$ 531,970$ 637,167
Net income $ 12,580$ 14,338$ 17,460
Capital expenditures $ 24,344$ 28,353$ 23,208
Gas sold and transported (MDth)
Residential 39,369 42,837 44,813
Commercial 14,510 15,292 16,394
Industrial firm 16,106 19,379 22,541
Industrial interruptible 4,714 22,403 31,675
Transported 26,129 5,502 1,716
---------- ---------- ----------
100,828 105,413 117,139
========== ========== ==========
Customers at year-end 432,509 426,481 420,967
Customers served per employee 288 277 279
Average cost of gas per Dth purchased$ 3.74 $ 3.75 $ 4.13
Average annual residential bill $ 660 $ 761 $ 838
Average per residential customer (Dth) 108 120 128
Degree days 6,185 6,788 7,325
% colder (warmer) than normal (14.8) (7.3) (0.5)
Manufacturing Operations (2)
Operating revenues $ 275,349$ 229,134$ 216,008
International and export sales
as a % of total sales 20 16 12
Net income (3) $ 7,102$ 5,442$ 7,440
Capital expenditures $ 9,920$ 8,145 $ 9,173
/TABLE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Wisconsin Gas Company Form 10-K for the year ended December 31, 1995 and is
qualified in its entirety by reference to such financial statements and the
related footnotes.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 375,401
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 171,569
<TOTAL-DEFERRED-CHARGES> 166,483
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 713,453
<COMMON> 9
<CAPITAL-SURPLUS-PAID-IN> 118,842
<RETAINED-EARNINGS> 76,310
<TOTAL-COMMON-STOCKHOLDERS-EQ> 195,161
0
0
<LONG-TERM-DEBT-NET> 154,246
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 145,000
<COMMERCIAL-PAPER-OBLIGATIONS> 57,500
<LONG-TERM-DEBT-CURRENT-PORT> 4,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 302,546
<TOT-CAPITALIZATION-AND-LIAB> 713,453
<GROSS-OPERATING-REVENUE> 519,398
<INCOME-TAX-EXPENSE> 17,097
<OTHER-OPERATING-EXPENSES> 459,736
<TOTAL-OPERATING-EXPENSES> 476,833
<OPERATING-INCOME-LOSS> 42,565
<OTHER-INCOME-NET> (176)
<INCOME-BEFORE-INTEREST-EXPEN> 42,389
<TOTAL-INTEREST-EXPENSE> 14,312
<NET-INCOME> 28,077
0
<EARNINGS-AVAILABLE-FOR-COMM> 28,077
<COMMON-STOCK-DIVIDENDS> 16,000
<TOTAL-INTEREST-ON-BONDS> 983
<CASH-FLOW-OPERATIONS> 64,956
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
