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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, 1996
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 1-7951
WICOR, Inc.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1346701
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 414-291-7026
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $1 par value New York Stock Exchange
Associated Common Stock Purchase Rights New York Stock Exchange
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: $638,392,028 at February 28, 1997.
Number of shares outstanding of each of the registrant's classes of common
stock, as of February 28, 1997:
Common Stock, $1 par value 18,413,709 shares
Documents Incorporated by Reference
WICOR, Inc. proxy statement dated March 13, 1997 (Part III)
WICOR, Inc. 1996 Annual Report to Shareholders (Parts I and II)
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TABLE OF CONTENTS
PAGE
PART I 1
Item 1. Business 1
(a) General Development of Business 1
(b) Financial Information about Industry Segments 1
(c) Narrative Description of Business 1
1. Energy.. 1
A. General 1
B. Gas Markets and Competition 2
C. Gas Supply, Pipeline Capacity and Storage 3
(1) General 3
(2) Pipeline Capacity and Storage 3
(3) Term Gas Supply 4
(4) Spot Market Gas Supply 4
D. Wisconsin Regulatory Matters 4
(1) Rate Matters 4
(2) Transition Cost Recovery Policy 5
(3) Gas Cost Recovery Mechanism 5
(4) Service Area Expansion 5
(5) Changing Regulatory Environment 5
E. Employees 5
2. Manufacturing of Pumps, Fluid
Processing and Filtration Equipment 6
A. General 6
B. U.S. Operations 6
C. International Operations 6
D. Raw Materials and Patents 7
E. Employees 7
Item 2. Properties 7
(a) Capital Expenditures 7
(b) Energy 7
(c) Manufacturing of Pumps, Fluid Processing and Filtration
Equipment 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 9
Executive Officers of the Registrant 9
PART II. 10
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition 11
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TABLE OF CONTENTS (continued)
PAGE
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 11
PART III. 12
Item 10. Directors and Executive Officers Of the Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain
Beneficial Owners and Management 12
Item 13. Certain Relationships and Related Transactions 12
PART IV. 12
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 12
(a) Documents Filed as Part of the Report 12
1. All Financial Statements and Financial
Statement Schedules 12
2. Financial Statement Schedules 12
3. Exhibits 12
(b) Reports on Form 8-K 15
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PART I
Item 1. BUSINESS
(a) General Development of Business
WICOR, Inc. (the "Company" or "WICOR") is a diversified holding company
with two principal business groups: energy services and pump manufacturing,
with the following subsidiaries engaged in the indicated businesses.
Wisconsin Gas Company ("Wisconsin Gas") engages in retail sales and
distribution of natural gas. WICOR Energy Services Company ("WICOR Energy")
sells energy and energy-related services. FieldTech, Inc. ("FieldTech")
performs contract meter reading, manages field operations and provides
billing services for gas, electric and water utilities. Sta-Rite
Industries, Inc. ("Sta-Rite"), SHURFlo Pump Manufacturing Co. ("SHURflo")
and Hypro Corporation ("Hypro") are manufacturers of pumps and fluid
processing and filtration equipment. WICOR Industries, Inc. ("WICOR
Industries") is an intermediate holding company which was formed during 1996
to hold the stock of the manufacturing subsidiaries. The Company is a
Wisconsin corporation and maintains its principal executive offices in
Milwaukee, Wisconsin.
The Company was incorporated in 1980, when it acquired all the
outstanding common stock of Wisconsin Gas through a merger. The Company
acquired all of the outstanding common stock of Sta-Rite, SHURflo and Hypro
through acquisitions in 1982, 1993, and 1995 respectively.
In March 1995, the Company formed WICOR Energy, as a wholly-owned
subsidiary. WICOR Energy, is in the business of selling natural gas
purchasing, energy and price risk management services.
In July 1995, the company acquired all of the outstanding stock of
Hypro Corporation through a cash purchase. Hypro is a manufacturer of pumps
and fluid-handling equipment for the agricultural, high-pressure cleaning,
marine, industrial and firefighting markets.
In January 1996, the Company acquired an 80% ownership interest in
Hydro-Flow Filtration Systems, Inc. ("Hydro-Flow"). Hydro-Flow is a
California-based manufacturer of disposable in-line and cartridge filtration
devices for use in water treatment applications. Hydro-Flow operates as a
subsidiary of Sta-Rite.
In October 1996, the Company incorporated FieldTech, which had been a
division of Wisconsin Gas. FieldTech's services include contract meter
reading, installation of metering devices, meter reading training,
management of utility field operations and billing for gas, electric and
water utilities.
In December 1996, the Company formed WICOR Industries as an
intermediate manufacturing holding company for the purpose of improving the
Company's ability to raise debt capital for its manufacturing business at a
lower cost, to secure additional flexibility in structuring borrowings, and
to provide better access to capital markets.
At December 31, 1996, the Company (including subsidiaries) had 3,475
employees
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(b) Financial Information About Industry Segments
Refer to the section entitled "Financial Review-General Overview" set
forth in the Company's 1996 Annual Report to Shareholders. That section is
included in Exhibit 13 hereto and is hereby incorporated herein by
reference.
(c) Narrative Description of Business
1. ENERGY
A. General
Wisconsin Gas is the largest natural gas distribution public utility in
Wisconsin. At December 31, 1996, Wisconsin Gas distributed gas to
approximately 513,000 residential, commercial and industrial customers in
514 communities throughout Wisconsin. Wisconsin Gas' service area has an
estimated population of approximately 2,000,000 based on State of
Wisconsin's estimates for 1996. Wisconsin Gas is subject to the jurisdic-
tion of the Public Service Commission of Wisconsin ("PSCW") as to various
phases of its operations, including rates, service and issuance of
securities. See "Wisconsin Regulatory Matters."
WICOR Energy and FieldTech are in their second year of operations, and
their results are not material to the Company's financial position or
results of operations.
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B. Gas Markets and Competition
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.
Competition in varying degrees exists between natural gas and other forms of
energy available to consumers. Most of Wisconsin Gas' large commercial and
industrial customers are dual-fuel customers that are equipped to switch
between natural gas and alternate fuels. Wisconsin Gas offers
transportation services for these customers to enable them to reduce their
energy costs and use gas rather than other fuels. Under gas transportation
agreements, customers purchase gas directly from producers or other sellers
and arrange with pipelines and Wisconsin Gas to have the gas transported to
the facilities where it is used. Wisconsin Gas also offers to sell gas at
prices that are competitive with third-party sellers. Wisconsin Gas earns
the same margin (difference between revenue and cost of gas), whether it
sells gas and transportation to customers or only transports third-party
gas.
The following table sets forth the volumes of natural gas delivered by
Wisconsin Gas to its customers.
Year Ended
---------------------------------------------
December 31, 1996 December 31, 1995
--------------------- ---------------------
Thousands Thousands
of Therms* Percent of Therms* Percent
Customer Class ----------- ------- ------------ -------
Sales
Residential 529,910 39.1 494,250 38.0
Commercial 242,570 17.9 211,570 16.3
Large Volume Commercial and
Industrial Firm 110,780 8.2 134,960 10.6
Commercial and Industrial
Interruptible 196,240 14.5 313,530 24.1
----------- ------- ------------ -------
Total Sales 1,079,500 79.7 1,154,310 88.8
Transportation -
Transported 275,780 20.3 145,490 11.2
----------- ------- ------------ -------
Total Gas Throughput 1,355,280 100.0 1,299,800 100.0
=========== ======= ============ =======
*One therm equals 100,000 BTU's.
The volumes shown as transported represent third-party gas that was
delivered by Wisconsin Gas to its customers. The remaining volumes
represent quantities sold and delivered to customers by Wisconsin Gas.
Wisconsin Gas secures approximately 98% of all new residential
heating, 88% of existing residential and commercial retrofit and 70% of
all new commercial construction customers in its service territory. Up
to 25% of Wisconsin Gas' Milwaukee area annual market requirements can
be supplied through the interstate pipelines of either ANR Pipeline
Company ("ANR") or Northern Natural Gas Company ("NNG"). This
capability enhances competition between ANR and NNG for services to
Wisconsin Gas and its customers, and management believes that such
competition provides overall lower gas costs to all customers than
otherwise would exist
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Federal and state regulators continue to implement policies to
bring more competition to the gas industry. The PSCW has instituted a
proceeding to consider how its regulation of gas distribution utilities
should change to reflect the changing competitive environment in the gas
industry. While the gas utility distribution function is expected to
remain a heavily regulated, monopoly function, the sales of the natural
gas commodity and related services, which were formerly utility monopoly
functions, are expected to become increasingly subject to competition
from third parties. Given this regulatory policy and the fact that
Wisconsin Gas' earnings are the same whether it sells and distributes
the gas or only distributes it, Wisconsin Gas is pursuing a long-term
strategy to no longer sell gas. WICOR Energy sells gas on a for-profit
basis and will seek to replace Wisconsin Gas for a significant number of
Wisconsin Gas' customers as well as those of other utilities. Wisconsin
Gas must obtain PSCW approval to implement its strategy. To date, the
PSCW has stated that it will permit utilities to discontinue the sale of
gas on a market segment by market segment basis, when it determines that
there is adequate and persistent competition in the particular segment.
So far, the PSCW has not permitted the by any utility to discontinue the
sale of gas.
With PSCW approval, Wisconsin Gas has implemented a small-customer gas-
supplier choice pilot program that is designed (1) to test market acceptance
of third-party gas sellers, (2) third-party seller interest in selling gas
in different market segments, and (3) Wisconsin Gas' capabilities to
administer a distribution-only business. The pilot program, which began on
November 1, 1996, was oversubscribed and has 1,460 small commercial and
residential participants. Wisconsin Gas expects to continue the pilot
program, with certain modifications, for a second year beginning November 1,
1997.
Wisconsin Gas also has taken steps to enable its large firm commercial
and industrial customers to transfer from sales and distribution to
distribution-only service. As a consequence of state regulatory policies
and Wisconsin Gas' actions, the volume of gas sold by third parties and
distributed by Wisconsin Gas increased by 90% in 1996 compared with 1995.
See "Wisconsin Regulatory Matters". In 1996, Wisconsin Gas added over 8,000
customers and has added more than 52,000 customers over the past five years.
See "Wisconsin Regulatory Matters - Service Area Expansion".
Wisconsin Gas' future ability to maintain its present share of the
industrial dual-fuel market (the market that is equipped to use gas or other
fuels) depends on the success of Wisconsin Gas and third-party gas sellers
in obtaining long-term and short-term supplies of natural gas at marketable
prices and their success in arranging or facilitating competitively priced
transportation service for those customers that desire to buy their own gas
supplies. Although the dual-fuel market comprises approximately 35% of
Wisconsin Gas' annual deliveries, it contributes only about 12% of Wisconsin
Gas' margin
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C. 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 sellers
of natural gas to Wisconsin Gas. Order No. 636 required the pipelines to
discontinue the sale of gas on a delivered basis. During the transition
period prior to the implementation of Order No. 636, Wisconsin Gas gradually
assumed responsibility for the acquisition of supply from other sellers 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 long-line and storage
capacity and for gas supplies. Local distribution companies, such as
Wisconsin Gas, must contract for capacity and supply sufficient to meet the
firm peak day demand of their customers. Peak or near peak days generally
occur only a few times each year, so capacity release facilitates higher
utilization of capacity and supply during those times when the capacity and
supply are not needed by the utility. Through pre-arranged agreements and
day-to-day electronic bulletin board postings, interested parties can
purchase that excess capacity and supply. The proceeds from these
transactions are passed through to ratepayers, thereby helping to mitigate
the fixed costs associated with maintaining peak levels of capacity and gas
supply. During 1996, Wisconsin Gas was an active participant in the
capacity release market
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Operating under Order No. 636, Wisconsin Gas has been able to meet its
contractual obligations with both its suppliers and its customers despite
periods of severe cold or unseasonably warm weather.
(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 Wisconsin Gas' supply portfolio
and that Canada represents an important long-term source of reliable,
competitively priced gas.
Because of the daily and 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 manage significant changes in daily demand
and 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 long-line
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 mid-
continent and Southeast production areas, as well as the market area. This
storage capacity is designed to deliver gas when other supplies cannot be
delivered during extremely cold weather in the producing areas, which can
reduce long-line supply.
Wisconsin Gas' firm winter daily transportation and storage capacity
entitlements from pipelines under long-term contracts are set forth below.
Maximum Daily
(Thousands
Pipeline of Therms*)
----------- -------------
ANR
Mainline 2,991
Storage 4,879
NNG
Mainline 1,093
Storage 150
Viking
Mainline 75
Peaking Facilities 76
-------------
Total 9,264
*One therm equals 100,000 BTU's
<PAGE> 10
(3) Term Gas Supply
Wisconsin Gas has contracts for firm supplies with terms in excess of
30 days with approximately 20 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 Wisconsin Gas' gas supply expires in any
year. Management 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 Daily
(Thousands
of Therms*)
-------------
Domestic flowing gas 2,370
Canadian flowing gas 1,498
Storage withdrawals 5,029
Total 8,897
*One therm equals 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. Wisconsin Gas has
purchased spot market gas since 1985 and has supply relationships with a
number of sellers from whom it purchases spot gas.
D. Wisconsin Regulatory Matters
(1) Rate Matters
Wisconsin Gas is subject to the jurisdiction of the PSCW as to various
phases of its operations, including rates, customer service and issuance of
securities.
Wisconsin Gas' rates were made subject to a three-year total margin rate
cap (through October 1997) based on the rates in effect in November 1994.
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. The rates at December 31, 1996, were
$7.5 million below the cap because of annualized rate reductions of $4.5
million and $3.0 million made by the utility in 1995 and 1996, respectively.
On October 10, 1996, the PSCW approved a one-year extension, to November 1,
1998, of the margin cap mechanism.
Wisconsin Gas' rates contain clauses providing for periodic adjustment,
with PSCW approval, to reflect changes in purchased gas costs including the
recovery of transition costs passed through by pipeline suppliers. See
"Wisconsin Regulatory Matters - Transition Cost Recovery Policy" and
"Wisconsin Regulatory Matters - Gas Cost Recovery Mechanism"
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(2) Transition Cost Recovery Policy
Under Order No. 636, interstate pipelines are permitted to recover
certain costs incurred in the transition from the bundled sales service to
the unbundled Order No. 636 regime. ANR and NNG have filed to recover
transition costs and may file in the future to recover additional transition
costs. Wisconsin Gas will bear a portion of such additional costs approved
by the FERC. The PSCW has permitted Wisconsin Gas to recover transition
costs from customers through its rates.
In the judgment of management, the incurrence of these transition costs
will have no material effect on Wisconsin Gas' operations or financial
condition under current PSCW policy. See Note 7a to Notes to Consolidated
Financial Statements contained in Exhibit 13, portions of the Company's 1996
Annual Report to Shareholders, which note is hereby incorporated herein by
reference.
(3) Gas Cost Recovery Mechanism
In 1996, the PSCW concluded a proceeding in which it determined that it
prefers that a performance based gas cost recovery mechanism replace the
traditional purchased gas adjustment ("PGA") mechanism. In general, a
performance-based gas cost recovery mechanism would establish a targeted gas
cost. Depending on the mechanism selected, the utility may be rewarded or
penalized based on its gas costs relative to the target. Hearings to
consider a performance-based gas cost recovery mechanism for Wisconsin Gas
are expected to be scheduled for mid-1997, and it is uncertain whether any
changes to the current PGA for Wisconsin Gas will become effective before
1998. It is expected that the performance-based cost gas cost recovery
mechanism will apply so long as Wisconsin Gas remains a gas seller.
Management cannot predict what, if any, changes to Wisconsin Gas' PGA the
PSCW may order, nor the impact such changes would have.
(4) Service Area Expansion
In recent years, Wisconsin Gas has increased its efforts to obtain
regulatory approvals to extend gas service to previously unserved
communities and to convert to natural gas potential customers with homes or
businesses located near the company's distribution system. Whether or not
Wisconsin Gas remains a gas seller, it will continue to distribute gas to
customers. In 1996, Wisconsin Gas added over 8,000 new customers. Over the
last five years, Wisconsin Gas has added new 52,000 customers
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(5) Changing Regulatory Environment
The PSCW has instituted a 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 gas costs for customer segments with workably
competitive market choices. The PSCW has identified numerous issues which
must be resolved before its policy can be implemented. A generic proceeding
has been instituted during which these issues were aired and decided. The
PSCW is expected to make decisions in this proceeding during the first
quarter of 1997. The Company is unable to determine what impact this
proceeding may have on Wisconsin Gas' operations or financial position.
E. Employees
At December 31, 1996, the energy group had 1,095 full-time active
employees.
2. MANUFACTURING OF PUMPS AND FLUID PROCESSING AND FILTRATION EQUIPMENT
A. General
The Company's manufacturing subsidiaries manufacture pumps and fluid
processing and filtration equipment for residential, agricultural and
industrial markets world-wide. Manufacturing and assembly activities are
conducted in plants in the United States, Australia, Italy, New Zealand,
Germany and Mexico.
B. U.S. Operations
Water products include jet, centrifugal, sump, submersible and
submersible turbine water pumps, water storage and pressure tanks,
residential in-line and pool and spa filters, and pump and tank systems.
These products pump, filter and store water used for drinking, cooking,
washing and livestock watering, and are used in private and public swimming
pools, spas, "hot tubs", jetted bathtubs, and fountains. The manufacturing
businesses also produce large higher pressure and capacity water pumps used
in agricultural and turf irrigation systems and in a wide variety of
commercial, industrial and municipal fluids-handling applications.
Small, high performance pumps, and related fluids-handling products, are
used in four primary markets: (1) the food service industry, where gas
operated pumps are used for pumping soft drinks made from syrups, and
electric motor driven pumps are used for water boost and drink dispensing;
(2) the recreational vehicle and marine markets, where electric motor driven
pumps are used for a variety of applications including pumping potable water
in travel trailers, motor homes, camping trailers and boats, and for other
applications including marine engine cooling, and marine wash down, bilge
and live well pumping; (3) industrial markets, where applications are
concentrated in the soil extraction market for use in carpet cleaning
machines, agricultural markets for spraying agricultural pesticides and
fertilizers, firefighting markets, and general industrial applications
requiring fluid handling; and (4) the water purification industry, where
electric motor driven pumps are used to pressurize reverse osmosis systems
and for water transfer
<PAGE> 13
Sales of pumps and water processing equipment are somewhat related to
the seasons of the year as well as the level of activity in the housing
construction industry and are sensitive to weather, interest rates,
discretionary income, and leisure and recreation spending. The markets for
most water and industrial products are highly competitive, with price,
service and product performance all being important competitive factors.
The Company believes it is a leading producer of pumps for private water
systems and swimming pools and spas, and for the food service, recreational
vehicle, agricultural spraying, and marine engine cooling markets.
Management believes the Company also ranks among the larger producers of
pool and spa filters, submersible turbine pumps and pumps for firefighting.
Major brand names under trademarks include "Sta-Rite", "Berkeley",
"SHURflo", "Flotec", "AquaTools", "Hydro-Flow", "FoamPro", "Onga", "Hypro",
"Sherwood", "SherTech", "Teel" and "Nocchi".
Domestic pumps and water products are sold and serviced primarily
through a network of independent distributors, dealers, retailers and
manufacturers' representatives serving the well drilling, hardware,
plumbing, pump installing, irrigation, pool and spa, food service,
recreational vehicle, marine, industrial, commercial and do-it-yourself
markets. Sales are also made on a private brand basis to large customers in
all water products markets and to original equipment manufacturers.
Backlog of orders for pumps and water products is not a significant
indicator of future sales.
C. International Operations
International operations are conducted primarily by international
subsidiaries and export operations from the United States. Products are
sold to markets in approximately 100 countries on six continents. Foreign
manufacturing is carried out by German, Australian, New Zealand, Italian and
Mexican subsidiaries. The products sold in the international markets in
some cases are similar to those sold in the United States, but in many
instances have distinct features required for those markets.
Product distribution channels are similar to those for domestic markets.
Non-domestic operating revenues, including exports, were 34% of 1996
manufacturing group sales.
D. Raw Materials and Patents
Raw materials essential to the manufacturing operations are available
from various established sources in the United States and overseas. The
principal raw materials needed for production of the Company's primary lines
of products include cast iron, aluminum and bronze castings for pumps;
copper wire, steel and aluminum for motors; stainless and carbon sheet
steel, bar steel and tubing; plastic resins for injection molded components;
and powdered metal components. The manufacturing units also purchase from
third party suppliers completely assembled electric motors, plastic molded
parts, elastomers for valves and diaphragms, components for electric motors,
stamped and die- cast metal parts, and hardware and electrical components.
Although the manufacturing subsidiaries own a number of patents and hold
licenses for manufacturing rights under other patents, no one patent or
group of patents is critical to the success of the manufacturing businesses
as a whole
<PAGE> 14
E. Employees
At December 31, 1996, the manufacturing group had 2,380 full time active
employees.
Item 2. PROPERTIES
(a) Capital Expenditures
The Company's capital expenditures for the year ended December 31, 1996,
totaled $51.7 million. Retirements during this period totaled $10.3
million. Except as discussed under "Legal Proceedings", the Company does
not expect to make any material capital expenditures for environmental
control facilities in 1997.
(b) Energy
Wisconsin Gas owns a distribution system which, on December 31, 1996,
included approximately 8,500 miles of distribution and transmission mains,
427,300 services and 515,700 active meters. Wisconsin Gas' distribution
system consists almost entirely of plastic and coated steel pipe. Wisconsin
Gas also owns its main office building in Milwaukee, office buildings in
certain other communities in which it serves, gas regulating and metering
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. Where
distribution mains and services occupy private property, Wisconsin Gas in
some, but not all, instances has obtained consents, permits or easements for
such installations from the apparent owners or those in possession,
generally without an examination of title.
(c) Manufacturing of Pumps, Fluid Processing and Filtration Equipment
The manufacturing group has 13 manufacturing facilities located in
California (3), Minnesota, Nebraska, Wisconsin (2), Germany, Australia,
Italy (2), New Zealand and Mexico. These plants contain a total of
approximately 1,298,000 square feet of floor space. Consolidations to be
completed in 1997 will reduce the number of manufacturing facilities to 12.
The Company through its manufacturing business also owns or leases ten
sales/distribution facilities in the United States, five in Australia, two
in England, and one each in Canada, France, Italy, Mexico, Russia, New
Zealand and Singapore
<PAGE> 15
Item 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending, other than ordinary
routine litigation incidental to the Company's businesses, to which the
Company or any of its subsidiaries is a party, except as discussed below.
There are no material legal proceedings to which any officer or director of
the Company or any of its subsidiaries is a party or has a material interest
adverse to the Company. 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 or any of its subsidiaries is or would be a party.
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 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 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 a 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
described above will not be material to the Company's financial position or
results of operations.
Set forth below are descriptions of several of the environmental matters
involving the manufacturing subsidiaries.
In July 1994, Sta-Rite was notified by the WDNR that the WDNR believes
solvents used at a manufacturing site previously operated by Sta-Rite have
migrated and contributed to the contamination of a Deerfield, Wisconsin
municipal well, serving Deerfield residents, and surrounding property. In
August, 1995 the WDNR issued an order to investigate, restore and repair the
natural resources located in Deerfield. The order was withdrawn on November
6, 1996. Although the Village of Deerfield has brought suit against Sta-
Rite, alleging damages of $500,000 for a new well, management believes that
the resolution of this matter will not have a material adverse effect upon
its financial condition or results of operations. However, there is a
possibility that costs in excess of the amount reserved may be incurred in
the future.
<PAGE> 16
In addition to the matters involving the manufacturing subsidiaries,
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, 1996, the Company has accrued $36.2 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.
The 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 would select specific remedial actions for
recommendation to the WDNR. During the last several years, Wisconsin Gas
has 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 1997. Once such a plan is
approved, initial remediation work will begin. Expenditures over the next
three years are expected to total approximately $10 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 for small amounts were achieved in 1996.
Wisconsin Gas expects full rate 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
<PAGE> 17
On February 21, 1997, Wisconsin Gas was named by the defendant in an
environmental cleanup lawsuit as a co-defendant. The suit involves
contamination of a Milwaukee area industrial site by wood chips
characteristic of those used in the manufactured gas process. Wisconsin Gas
believes it is not the source of the contaminated wood chips and intends to
vigorously defend the suit. Although the Company is unable to predict the
outcome of the litigation, management believes that amounts recovered from
its insurance carriers or through rate recovery will be sufficient to cover
any such liability.
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. Wisconsin Gas 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 Wisconsin Gas will be recoverable from the City of Milwaukee or
in Wisconsin Gas' rates pursuant to the PSCW's orders discussed above.
See Note 7c to Notes to Consolidated Financial Statements contained in
Exhibit 13, portions of the Company's 1996 Annual Report to Shareholders,
which note is hereby incorporated herein by reference.
<PAGE> 18
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth the names and ages of, and the offices held by,
the executive officers of the Company. The officers serve one-year terms
commencing with their election at the meeting of the Board of Directors
following the annual meeting of shareholders in April.
Name Age Offices Held
- -------------------------- ----- --------------------------------------
George E. Wardeberg 61 President and Chief Executive Officer
of the Company and WICOR Industries, and
Chairman of Wisconsin Gas, Sta-Rite,
SHURflo, Hypro, WICOR Energy and FieldTech
Thomas F. Schrader 47 Vice President of the Company and
President and Chief Executive Officer of
Wisconsin Gas, WICOR Energy and FieldTech
James C. Donnelly 51 Vice President of the Company and
President and Chief Executive Officer of
Sta-Rite
Joseph P. Wenzler 55 Vice President, Treasurer and Chief
Financial Officer of the Company and WICOR
Industries; Vice President and Chief
Financial Officer of Wisconsin Gas;
Treasurer and Secretary of SHURflo and
Hypro; and Vice President and Treasurer
of WICOR Energy and FieldTech
Robert A. Nuernberg 57 Secretary of the Company, WICOR Energy
Services and FieldTech; and Vice
President-Corporate Relations and
Secretary of Wisconsin Gas
Each of the executive officers has held his position for more than five
years, except as follows:
Mr. Wardeberg was elected to his current positions effective February
1, 1994. Prior thereto, he was President and Chief Operating Officer of the
Company and Vice Chairman and Chief Executive Officer of Sta-Rite from 1992
to 1994; Vice Chairman of Wisconsin Gas and SHURflo from 1993 to 1994; and
Vice President-Water Systems of Sta-Rite from 1989 to 1992. Previously, he
was Vice Chairman and Chief Operating Officer of Whirlpool Corporation.
Mr. Donnelly was elected President and Chief Executive Officer of Sta-
Rite in 1994. He has been a Vice President of the Company since 1987.
Previously, he served as President and Chief Operating Officer of Sta-Rite
from 1992 to 1994, and as Vice President, Treasurer and Chief Financial
Officer of the Company and Wisconsin Gas from 1990 to 1992
<PAGE> 19
Mr. Wenzler was elected Vice President, Treasurer and Chief Financial
Officer of the Company and Vice President and Chief Financial Officer of
Wisconsin Gas in 1992 and as Treasurer and Secretary of SHURflo in 1993.
Previously, he served as Vice President of the Company and President and
Chief Executive Officer of Sta-Rite from 1990 to 1992.
Each of the executive officers assumed their positions with Hypro in
July, 1995, when Hypro was acquired, with WICOR Energy in March, 1995, when
that company was formed and with FieldTech in October, 1996, when that
company was formed
<PAGE> 20
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock and the associated common stock purchase
rights (which do not currently trade independently of the common stock) are
traded on the New York Stock Exchange. For information regarding the high
and low sales prices for the Company's common stock and dividends paid per
share in each quarter of 1996 and 1995, see the section entitled "Investor
Information" set forth in the Company's 1996 Annual Report to Shareholders.
That section is included in Exhibit 13 hereto and is hereby incorporated
herein by reference.
At December 31, 1996, there were 23,339 holders of record of WICOR
common stock.
The Company's ability to pay dividends is dependent to a great extent
on the ability of its subsidiaries to pay dividends. The Wisconsin Business
Corporation Law and the indentures and agreements under which debt of the
Company and its subsidiaries is outstanding each contain certain
restrictions on the payment of dividends on common stock by the Company's
subsidiaries. See Note 6 of Notes to Consolidated Financial Statements
contained in Exhibit 13, portions of the Company's 1996 Annual Report to
Shareholders, which note is hereby incorporated herein by reference.
By order of the PSCW, Wisconsin Gas is generally permitted to pay
dividends up to the amount projected in its rate case ($16 million).
Wisconsin Gas may pay dividends in excess of $16 million so long as the
payment will not cause its equity ratio to fall below 48.43%. If payment of
projected dividends would cause its 13-month average 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 $21.5 million of dividends to the
Company during the 12 months ending October 31, 1997. See Note 6 of Notes
to Consolidated Financial Statements contained in Exhibit 13, portions of
the Company's 1996 Annual Report to Shareholders, which note is hereby
incorporated herein by reference. For the year ended December 31, 1996,
Wisconsin Gas' average common equity level was 53.3%.
In addition, $5.6 million of Sta-Rite's net assets at December 31,
1996, plus 50% of Sta-Rite's future earnings, are available for dividends to
the Company. See Note 6 of Notes to Consolidated Financial Statements
contained in Exhibit 13, portions of the Company's 1996 Annual Report to
Shareholders, which note is incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
Reference is made to the section entitled "Selected Financial Data" set
forth in the Company's 1996 Annual Report to Shareholders. Such section is
included in Exhibit 13 hereto and is hereby incorporated herein by
reference
<PAGE> 21
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 Company's 1996 Annual Report to Shareholders. Such section is
included in Exhibit 13 hereto and is hereby incorporated herein by
reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Company's consolidated balance sheets and
consolidated statements of capitalization as of December 31, 1996 and 1995,
and the related consolidated statements of income, common equity and cash
flows for each of the three years in the period ended December 31, 1996,
together with the report of independent public accountants dated January 27,
1997, all appearing in Exhibit 13, portions of the Company's 1996 Annual
Report to Shareholders, which is hereby incorporated herein by reference.
<PAGE> 22
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 public accountants on any matter of accounting principles or
practices or financial statement disclosure required to be reported pursuant
to this item.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to "Item No. 1: Election of Directors" included in
the WICOR proxy statement dated March 13, 1997, which is hereby incorporated
herein by reference, for the names, ages, business experience and other
information regarding directors and nominees for election as directors of
the Company. See "Executive Officers of the Registrant" included in Part I
hereof for information regarding executive officers of the Company.
Item 11. EXECUTIVE COMPENSATION
Reference is made to "Executive Compensation" included in the WICOR
proxy statement dated March 13, 1997, which is hereby incorporated herein by
reference, for information on compensation of executive officers of the
Company; provided, however, that the subsections entitled "Board
Compensation Committee Report on Executive Compensation" and "Executive
Compensation - Performance Information" shall not be deemed to be
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to "Security Ownership of Management and Certain
Beneficial Owners" included in the WICOR proxy statement dated March 13,
1997, which is hereby incorporated herein by reference, for information
regarding voting securities of the Company beneficially owned by its
directors and officers and certain other beneficial owners.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to "Item No. 1: Election of Directors" included in
the WICOR proxy statement dated March 13, 1997, which is hereby incorporated
herein by reference, for the information required to be disclosed under this
item
<PAGE> 23
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. The Company's consolidated balance
sheets and statements of capitalization as of December 31, 1996 and
1995, and the related consolidated statements of income, common
equity and cash flow for each of the three years in the period
ended December 31, 1996, together with the report of independent
public accountants dated January 27, 1997, included in Exhibit 13,
portions of the Company's 1996 Annual Report to Shareholders, which
is incorporated herein by reference.
2. Financial statement schedules.
Schedule III -- Condensed Statements of Income, Retained Earnings
and Cash Flows (Parent Company Only) for the
Years Ended December 31, 1996, 1995 and 1994;
Condensed Balance Sheets (Parent Company Only) as
of December 31, 1996 and 1995; Notes to Parent
Company Only Financial Statements.
Financial statement schedules other than those referred to above have
been omitted as not applicable or not required.
<PAGE> 24
3. Exhibits
3.1 WICOR, Inc. Restated Articles of Incorporation, as amended
(incorporated by reference to Exhibit 3.1 to the Company's
Form 10-K Annual Report for 1992).
3.2 WICOR, Inc. 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 Milwaukee Gas
Light 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 Wisconsin Gas 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 Wisconsin Gas
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 Wisconsin Gas Company's 6.60% Debentures
due 2013 (incorporated by reference to Exhibit 4.1 to
Wisconsin Gas 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 Wisconsin Gas Company's 6-3/8% Notes due
2005(incorporated by reference to Exhibit 4 to Wisconsin Gas
Company's Form 8-K Current Report dated November 7, 1995).
4.7 Revolving Credit Agreement, dated as of March 29, 1993, among
Wisconsin Gas Company and Citibank, N.A., Firstar Bank
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)
<PAGE> 25
4.8 Revolving Credit Agreement, dated as of March 29, 1993, among Sta-
Rite Industries, Inc. and Citibank, N.A., Firstar Bank
Milwaukee, N.A., Harris Trust & Savings Bank, M&I Marshall
& Ilsley Bank and Citibank, N.A., as Agent (incorporated by
reference to Exhibit 4.3 to the Company's Quarterly Report
on Form 10-Q dated as of August 9, 1993).
4.9 Revolving Credit Agreement, dated as of March 29, 1993, among
WICOR, Inc. and Citibank, N.A., Firstar Bank Milwaukee,
N.A., Harris Trust & Savings Bank, M&I Marshall & Ilsley
Bank and Citibank, N.A., as Agent (incorporated by
reference to Exhibit 4.1 to the Company's Quarterly Report
on Form 10-Q dated as of August 9, 1993).
4.10 Extension of Revolving Credit Agreement, dated as of March 10, 1995,
among WICOR, Inc. and Citibank, N.A., Firstar Bank Milwaukee, N.A.,
Harris Trust & Saving Bank, M&I Marshall & Ilsley Bank and Citibank,
N.A., as Agent (incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q dated April 28, 1995).
4.11 Extension of Revolving Credit Agreement, dated as of March 10,
1995, among Wisconsin Gas Company and Citibank, N.A.,
Firstar Bank Milwaukee, N.A., Harris Trust and Savings Bank
and M&I Marshall and 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 April 28,
1995).
4.12 Extension of Revolving Credit Agreement, dated as of March 10,
1995, among Sta-Rite and Citibank, N.A., Firstar Bank
Milwaukee, N.A., Harris Trust and Savings Bank and M&I
Marshall and Ilsley Bank and Citibank, N.A., as Agent
(incorporated by reference to Exhibit 4.3 to the Company's
Quarterly Report on Form 10-Q dated April 28, 1995).
4.13 Rights Agreement dated as of August 29, 1989, between WICOR, Inc.
and Manufacturers Hanover Trust Company, Rights Agent
(incorporated by reference to Exhibit 4 to the Company's
Form 8-K Current Report for August, 1989).
4.14 Loan Agreement, dated as of March 29, 1996, by and among ABN AMRO
Bank, N.V., Wisconsin Gas Company Employees' Savings Plans
Trust and WICOR, Inc. (incorporated by reference to Exhibit
4.1 to the Company's quarterly report on Form 10-Q dated
April 26, 1996).
4.15 Guarantee, dated as of March 29, 1996, from WICOR, Inc. to and for
the benefit of ABN AMRO Bank, N.V.
4.16 First Amendment, dated as of November 27, 1996, to Loan Agreement,
dated as of March 29, 1996, by and among WICOR, Inc. Master
Savings Trust (formerly the Wisconsin Gas Company
Employees' Savings Plans Trust), WICOR, Inc. and ABN AMRO
Bank, N.V
<PAGE> 26
4.17 Revolving Credit Agreement Amendment, effective July 12, 1995,
among WICOR, Inc. and Citibank, N.A., Firstar Bank
Milwaukee, N.A., Harris Trust and Savings Bank, M&I
Marshall and Ilsley Bank and Citibank, N.A., as Agent
(incorporated by reference to Exhibit 4.4 to the Company's
Quarterly Report on Form 10-Q dated October 25, 1995).
4.18 Credit Agreement, dated as of July 18, 1995, among HC 1995
Acquisition, Inc. (n/k/a Hypro Corporation) and Citibank,
N.A., Firstar Bank Milwaukee, N.A., Harris Trust and Savings
Bank and M&I Marshall & Ilsley Bank and Citibank, N.A. as
Agent (incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q dated July 31,
1995).
4.19 Loan Agreement Amendment effective July 11, 1996, by and among
Hypro Corporation and Citibank, N.A., Firstar Bank
Milwaukee, N.A., Harris Trust and Savings Bank and M&I
Marshall & Ilsley Bank and Citibank, N.A. as Agent
(incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q dated July 30, 1996).
4.20 Securities Loan Agreement, effective June 22, 1996, among Citibank,
N.A. and Sta-Rite Industries, Inc. (incorporated by
reference to Exhibit 4.2 to the Company's Quarterly Report
on Form 10-Q dated July 30, 1996).
10.1 Service Agreement dated as of June 1, 1994, among WICOR, Inc.,
Wisconsin Gas Company, Sta-Rite Industries, Inc., WEXCO of
Delaware, Inc. and SHURflo Pump Manufacturing Co.
(incorporated by reference Exhibit 10.1 to the Company's
Form 10-K Annual Report for 1995).
10.2 Endorsement of Hypro Corporation dated as of July 19, 1995, to
Service Agreement among WICOR, Inc., Wisconsin Gas Company,
Sta-Rite Industries, Inc. and WEXCO of Delaware, Inc.
(incorporated by reference to Exhibit 10.2 to the Company's
Form 10-K Annual Report for 1995)
<PAGE> 27
10.3# WICOR, Inc. 1987 Stock Option Plan, as amended
(incorporated by reference to Exhibit 4.1 to the Company's
Form S-8 Registration Statement No. 33-67134).
10.4# 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).
10.5# WICOR, Inc. 1992 Director Stock Option Plan (incorporated
by reference to Exhibit 4.1 to the Company's Form S-8
Registration Statement No. 33-67132).
10.6# Form of nonstatutory stock option agreement used in
connection with the WICOR, Inc. 1992 Director Stock Option
Plan (incorporated by reference to Exhibit 4.2 to the
Company's Form S-8 Registration Statement No. 33-67132).
10.7# WICOR, Inc. 1994 Long-Term Performance Plan (incorporated
by reference to Exhibit 4.1 to the Company's Form S-8
Registration Statement No. 33-55755).
10.8# 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
Company's Form S-8 Registration Statement No. 33-55755).
10.9# 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 Company's
Form S-8 Registration Statement No. 33-55755).
10.10# WICOR, Inc. 1997 Officers' Incentive Compensation Plan.
10.11# Wisconsin Gas Company Principal Officers' Supplemental
Retirement Income Program (incorporated by reference to
Exhibit 10.8 to the Company's Form 10-K Annual Report for
1993).
10.12# Wisconsin Gas Company 1997 Officers' Incentive Compensation
Plan.
10.13# Wisconsin Gas Company Group Travel Accident Plan
(incorporated by reference to Exhibit 10.24 to the
Company's Form 10-K Annual Report for 1992).
10.14# Form of Deferred Compensation Agreements between Wisconsin
Gas Company and certain of its executive officers
(incorporated by reference to Exhibit 10.30 to the
Company's Form 10-K Annual Report for 1990).
10.15# Sta-Rite Industries, Inc. 1997 Officers' Incentive
Compensation Plan.
10.16# Sta-Rite Industries, Inc. Group Travel Accident Plan
(incorporated by reference to Exhibit 10.28 to the
Company's Form 10-K Annual Report for 1992)
<PAGE> 28
10.17# WICOR, Inc. Retirement Plan for Directors, as amended
(incorporated by reference to Exhibit 10.29 to the
Company's Form 10-K Annual Report for 1992).
13 Portions of the WICOR, Inc. 1996 Annual Report to Shareholders.
21 Subsidiaries of WICOR, Inc.
23 Consent of independent public accountants.
27 Financial Data Schedule. (EDGAR version only)
99 WICOR, Inc. proxy statement dated March 13, 1997. (Except to the
extent incorporated by reference, this proxy statement is
not deemed "filed" with the Securities and Exchange
Commission as part of this Form 10-K.)
<PAGE> 29
#Indicates a plan under which compensation is paid or payable to directors
or executive officers of the Company.
(b) Reports on Form 8-K.
No Current Report on Form 8-K was filed during the fourth quarter of
1996.
<PAGE> 30
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.
WICOR, Inc.
Date: March 13, 1997 By JOSEPH P. WENZLER
Joseph P. Wenzler
Vice President, Treasurer, and
Chief Financial Officer
<PAGE> 31
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.
WICOR, Inc.
Signature Title Date
- ----------------------- -------------------------------- --------------
GEORGE E. WARDEBERG
George E. Wardeberg President, Chief Executive March 13, 1997
Officer and Director
(Principal Executive Officer)
JOSEPH P. WENZLER
Joseph P. Wenzler Vice President, Treasurer March 13, 1997
and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer)
WENDELL F. BUECHE Director March 13, 1997
Wendell F. Bueche
WILLIE D. DAVIS Director March 13, 1997
Willie D. Davis
JERE D. MCGAFFEY Director March 13, 1997
Jere D. McGaffey
DANIEL F. MCKEITHAN, JR. Director March 13, 1997
Daniel F. McKeithan, Jr.
GUY A. OSBORN Director March 13, 1997
Guy A. Osborn
THOMAS F. SCHRADER Director March 13, 1997
Thomas F. Schrader
STUART W. TISDALE Director March 13, 1997
Stuart W. Tisdale
ESSIE M. WHITELAW Director March 13, 1997
Essie M. Whitelaw
WILLIE B. WINTER Director March 13, 1997
William B. Winter
<PAGE> 32
Schedule III - Condensed
Parent Company Financial Statements
WICOR, INC.
(Parent Company Only)
Statement of Income
Year Ended December 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
(Thousands of Dollars)
Income:
Equity in income of subsidiaries
after dividends $ 19,023 $ 16,052 $ 10,154
Cash dividends from subsidiaries 28,044 23,000 23,000
Interest income and other 722 2,237 373
---------- ---------- ----------
47,789 41,289 33,527
---------- ---------- ----------
Expenses:
Operating (Supplemental Note C) 868 1,120 455
Interest 62 275 163
---------- ---------- ----------
930 1,395 618
---------- ---------- ----------
Income Before Parent
Company Income Taxes 46,859 39,894 32,909
Income Taxes 88 367 (265)
---------- ---------- ----------
Net Income $ 46,771 $ 39,527 $ 33,174
========== ========== ==========
The accompanying notes are an integral part of these statements.
<PAGE> 33
Schedule III - Condensed
Parent Company Financial Statements (continued)
WICOR, INC.
(Parent Company Only)
Balance Sheet
As of December 31,
----------------------
(Thousands of Dollars) 1996 1995
Assets ---------- ----------
- ------
Current Assets:
Cash and cash equivalents $ 1,458 $ 4,416
Intercompany receivable,
net (Supplemental Note B) 12,012 13,754
Other 51 76
---------- ----------
13,521 18,246
---------- ----------
Investment in Subsidiaries, at equity 360,047 337,241
---------- ----------
Deferred Income Taxes 186 192
Deferred Charges and Other 1,426 578
---------- ----------
$ 375,180 $ 356,257
========== ==========
Liabilities and Capitalization
- ------------------------------
Current Liabilities:
Income taxes payable $ 511 $ 5,020
Other 650 161
---------- ----------
1,161 5,181
---------- ----------
Deferred Credits 1,160 620
---------- ----------
Capitalization:
ESOP loan guarantee(Supplemental Note D) 4,407 5,315
---------- ----------
Common equity:
Common stock, $1 par value,
authorized 60,000,000 shares;
outstanding 18,237,000 and 16,918,000
shares, respectively 18,407 18,237
Other paid-in-capital 224,041 219,133
Retained earnings 129,777 113,491
Cumulative translation adjustment 1,349 (125)
Unearned compensation
(Supplemental Note D) (5,122) (5,595)
---------- ----------
Total common equity 368,452 345,141
---------- ----------
$ 375,180 $ 356,257
========== ==========
The accompanying notes are an integral part of these statements.
<PAGE> 34
Schedule III - Condensed
Parent Company Only Financial Statements (continued)
WICOR, INC.
Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Year Ended December 31,
(Thousands of Dollars) ----------------------------------
1996 1995 1994
Operations- ---------- ---------- ----------
Net income $ 46,771 $ 39,527 $ 33,174
Adjustments to reconcile net income to
net cash flows:
Equity in (income) losses of
subsidiaries (19,023) (16,052) (10,154)
Change in deferred income taxes 6 12 (58)
Change in intercompany receivables 1,742 (11,715) 123
Change in income taxes payable (4,509) 597 1,548
Change in other current assets 25 3 33
Change in other current liabilities 489 62 (254)
Change in other non-current assets and
liabilities (719) (1,149) (843)
---------- ---------- ----------
24,782 11,285 23,569
---------- ---------- ----------
Investment Activities-
Investments in subsidiaries (600) (37,875) (5,000)
Proceeds from sale of assets - 5,099 -
---------- ---------- ----------
(600) (32,776) (5,000)
---------- ---------- ----------
Financing Activities-
Issuance of common stock 3,345 40,285 10,649
Dividends paid on common stock, less
amounts reinvested (30,485) (27,454) (23,247)
---------- ---------- ----------
(27,140) 12,831 (12,598)
---------- ---------- ----------
Change in Cash and Cash Equivalents (2,958) (8,660) 5,971
Cash and Cash Equivalents at Beginning
of Year 4,416 13,076 7,105
---------- ---------- ----------
Cash and Cash Equivalents at End of Yr $ 1,458 $ 4,416 $ 13,076
========== ========== ==========
Supplemental Disclosure
Cash paid (received) during the yr for:
Interest paid $ 1 $ - $ -
Income taxes paid $ 202 $ 1,525 $ (4,440)
The accompanying notes are an integral part of these statements.
<PAGE> 35
Schedule III - Condensed
Parent Company Financial Statements (continued)
WICOR, INC.
(Parent Company Only)
Statement of Retained Earnings
Year Ended December 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
(Thousands of Dollars)
Balance - Beginning of Year $ 113,491 $ 101,418 $ 94,643
Add:
Net income 46,771 39,527 33,174
---------- ---------- ----------
160,262 140,945 127,817
Deduct:
Cash dividends on common stock 30,485 27,454 26,399
---------- ---------- ----------
Balance - End of Year $ 129,777 $ 113,491 $ 101,418
========== ========== ==========
The accompanying notes are an integral part of these statements.
<PAGE> 36
Schedule III - Condensed
Parent Company Financial Statements (continued)
WICOR, Inc.
Notes to Parent Company Only Financial Statements
The following are supplemental notes to the WICOR, Inc. (Parent Company
Only) financial statements and should be read in conjunction with the
WICOR, Inc. Consolidated Financial Statements and Notes thereto included
herein under Item 8:
SUPPLEMENTAL NOTES
A. The parent company files a consolidated Federal income tax return
with its subsidiaries.
B. Net amounts due from subsidiaries result from intercompany
transactions including advances and Federal income tax liabilities,
less payments of expenses by subsidiaries on behalf of WICOR, Inc.
C. During 1996, 1995 and 1994, the parent company allocated certain
administrative and operating expenses to its subsidiaries using an
allocation method approved by the Public Service Commission of
Wisconsin:
1996 1995 1994
---------- ---------- ----------
Administrative and operating expenses
allocated to subsidiaries $2,579,000 $2,409,000 $2,452,000
========== ========== ==========
D. In November 1991, WICOR, Inc. established an Employee Stock
Ownership Plan (ESOP) covering non-union employees of Wisconsin Gas
Company. Because the parent company has guaranteed the loan, the
unpaid balance is shown as a liability on the balance sheet with a
like amount of unearned compensation recorded as a reduction of
stockholders' equity.
The ESOP trustee is repaying the $10 million loan with dividends
paid on the shares of WICOR, Inc. common stock in the ESOP and with
Wisconsin Gas Company contributions to the ESOP.
<PAGE> 37
INDEX to Exhibits
3.1 WICOR, Inc. Restated Articles of Incorporation, as amended
(incorporated by reference to Exhibit 3.1 to the Company's
Form 10-K Annual Report for 1992).
3.2 WICOR, Inc. 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 Milwaukee Gas
Light 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 Wisconsin Gas 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 Wisconsin Gas
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 Wisconsin Gas Company's 6.60% Debentures due
2013 (incorporated by reference to Exhibit 4.1 to Wisconsin
Gas 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 Wisconsin Gas Company's 6-3/8% Notes due
2005(incorporated by reference to Exhibit 4 to Wisconsin Gas
Company's Form 8-K Current Report dated November 7, 1995).
4.7 Revolving Credit Agreement, dated as of March 29, 1993, among
Wisconsin Gas Company and Citibank, N.A., Firstar Bank
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 Revolving Credit Agreement, dated as of March 29, 1993, among Sta-
Rite Industries, Inc. and Citibank, N.A., Firstar Bank
Milwaukee, N.A., Harris Trust & Savings Bank, M&I Marshall
& Ilsley Bank and Citibank, N.A., as Agent (incorporated by
reference to Exhibit 4.3 to the Company's Quarterly Report
on Form 10-Q dated as of August 9, 1993).
4.9 Revolving Credit Agreement, dated as of March 29, 1993, among WICOR,
Inc. and Citibank, N.A., Firstar Bank Milwaukee, N.A.,
Harris Trust & Savings Bank, M&I Marshall & Ilsley Bank and
Citibank, N.A., as Agent (incorporated by reference to
Exhibit 4.1 to the Company's Quarterly Report on Form 10-
Q dated as of August 9, 1993).
4.10 Extension of Revolving Credit Agreement, dated as of March 10, 1995,
among WICOR, Inc. and Citibank, N.A., Firstar Bank Milwaukee, N.A.,
Harris Trust & Saving Bank, M&I Marshall & Ilsley Bank and Citibank,
N.A., as Agent (incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q dated April 28, 1995)
<PAGE> 38
4.11 Extension of Revolving Credit Agreement, dated as of March 10, 1995,
among Wisconsin Gas Company and Citibank, N.A., Firstar
Bank Milwaukee, N.A., Harris Trust and Savings Bank and M&I
Marshall and 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 April 28, 1995).
4.12 Extension of Revolving Credit Agreement, dated as of March 10, 1995,
among Sta-Rite and Citibank, N.A., Firstar Bank Milwaukee,
N.A., Harris Trust and Savings Bank and M&I Marshall and
Ilsley Bank and Citibank, N.A., as Agent (incorporated by
reference to Exhibit 4.3 to the Company's Quarterly Report
on Form 10-Q dated April 28, 1995).
4.13 Rights Agreement dated as of August 29, 1989, between WICOR, Inc.
and Manufacturers Hanover Trust Company, Rights Agent
(incorporated by reference to Exhibit 4 to the Company's
Form 8-K Current Report for August, 1989).
4.14 Loan Agreement, dated as of March 29, 1996, by and among ABN AMRO
Bank, N.V., Wisconsin Gas Company Employees' Savings Plans
Trust and WICOR, Inc. (incorporated by reference to Exhibit
4.1 to the Company's quarterly report on Form 10-Q dated
April 26, 1996).
4.15* Guarantee, dated as of March 29, 1996, from WICOR, Inc. to and for
the benefit of ABN AMRO Bank, N.V.
4.16* First Amendment, dated as of November 27, 1996, to Loan Agreement,
dated as of March 29, 1996, by and among WICOR, Inc. Master
Savings Trust (formerly the Wisconsin Gas Company
Employees' Savings Plans Trust), WICOR, Inc. and ABN AMRO
Bank, N.V.
4.17 Revolving Credit Agreement Amendment, effective July 12, 1995, among
WICOR, Inc. and Citibank, N.A., Firstar Bank Milwaukee,
N.A., Harris Trust and Savings Bank, M&I Marshall and
Ilsley Bank and Citibank, N.A., as Agent (incorporated by
reference to Exhibit 4.4 to the Company's Quarterly Report
on Form 10-Q dated October 25, 1995).
4.18 Credit Agreement, dated as of July 18, 1995, among HC 1995
Acquisition, Inc. (n/k/a Hypro Corporation) and Citibank,
N.A., Firstar Bank Milwaukee, N.A., Harris Trust and Savings
Bank and M&I Marshall & Ilsley Bank and Citibank, N.A. as
Agent (incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q dated July 31,
1995).
4.19 Loan Agreement Amendment effective July 11, 1996, by and among Hypro
Corporation and Citibank, N.A., Firstar Bank Milwaukee,
N.A., Harris Trust and Savings Bank and M&I Marshall &
Ilsley Bank and Citibank, N.A. as Agent (incorporated by
reference to Exhibit 4.1 to the Company's Quarterly Report
on Form 10-Q dated July 30, 1996).
4.20 Securities Loan Agreement, effective June 22, 1996, among Citibank,
N.A. and Sta-Rite Industries, Inc. (incorporated by
reference to Exhibit 4.2 to the Company's Quarterly Report
on Form 10-Q dated July 30, 1996).
10.1 Service Agreement dated as of June 1, 1994, among WICOR, Inc.,
Wisconsin Gas Company, Sta-Rite Industries, Inc., WEXCO of Delaware,
Inc. and SHURflo Pump Manufacturing Co. (incorporated by reference
Exhibit 10.1 to the Company's Form 10-K Annual Report for 1995)
<PAGE> 39
10.2 Endorsement of Hypro Corporation dated as of July 19, 1995, to
Service Agreement among WICOR, Inc., Wisconsin Gas Company, Sta-Rite
Industries, Inc. and WEXCO of Delaware, Inc. (incorporated by reference to
Exhibit 10.2 to the Company's Form 10-K Annual Report for 1995).
10.3# WICOR, Inc. 1987 Stock Option Plan, as amended (incorporated by
reference to Exhibit 4.1 to the Company's Form S-8
Registration Statement No. 33-67134).
10.4# 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).
10.5# WICOR, Inc. 1992 Director Stock Option Plan (incorporated by
reference to Exhibit 4.1 to the Company's Form S-8
Registration Statement No. 33-67132).
10.6# Form of nonstatutory stock option agreement used in connection with
the WICOR, Inc. 1992 Director Stock Option Plan
(incorporated by reference to Exhibit 4.2 to the Company's
Form S-8 Registration Statement No. 33-67132).
10.7# WICOR, Inc. 1994 Long-Term Performance Plan (incorporated by
reference to Exhibit 4.1 to the Company's Form S-8
Registration Statement No. 33-55755).
10.8# 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 Company's
Form S-8 Registration Statement No. 33-55755).
10.9# 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 Company's Form S-8
Registration Statement No. 33-55755).
10.10#* WICOR, Inc. 1997 Officers' Incentive Compensation Plan.
10.11# Wisconsin Gas Company Principal Officers' Supplemental
Retirement Income Program (incorporated by reference to
Exhibit 10.8 to the Company's Form 10-K Annual Report for
1993).
10.12#* Wisconsin Gas Company 1997 Officers' Incentive Compensation
Plan.
10.13# Wisconsin Gas Company Group Travel Accident Plan
(incorporated by reference to Exhibit 10.24 to the
Company's Form 10-K Annual Report for 1992).
10.14# Form of Deferred Compensation Agreements between Wisconsin
Gas Company and certain of its executive officers
(incorporated by reference to Exhibit 10.30 to the
Company's Form 10-K Annual Report for 1990).
10.15#* Sta-Rite Industries, Inc. 1997 Officers' Incentive
Compensation Plan.
10.16# Sta-Rite Industries, Inc. Group Travel Accident Plan
(incorporated by reference to Exhibit 10.28 to the
Company's Form 10-K Annual Report for 1992).
10.17# WICOR, Inc. Retirement Plan for Directors, as amended
(incorporated by reference to Exhibit 10.29 to the
Company's Form 10-K Annual Report for 1992).
<PAGE> 40
13* Portions of the WICOR, Inc. 1996 Annual Report to Shareholders.
21* Subsidiaries of WICOR, Inc.
23* Consent of independent public accountants.
27* Financial Data Schedule. (EDGAR version only)
99* WICOR, Inc. proxy statement dated March 13, 1997. (Except to the
extent incorporated by reference, this proxy statement is
not deemed "filed" with the Securities and Exchange
Commission as part of this Form 10-K.)
* Indicates document filed herewith.
#Indicates a plan under which compensation is paid or payable to directors or
executive officers of the Company.
<PAGE> 1
Guaranty
From
WICOR, INC.
To and For the Benefit of
ABN AMRO BANK N.V.
Dated
March 29, 1996
<PAGE> 2
GUARANTY
THIS GUARANTY is made this 29th day of March, 1996, by and from
WICOR, INC., a Wisconsin corporation (the "Company"), to and for the benefit
of ABN AMRO BANK N.V., a bank organized under the laws of the Netherlands (the
"Bank").
W I T N E S S E T H:
WHEREAS, the Company has requested the Bank to extend credit to
the Wisconsin Gas Company Employees' Savings Plans Trust (the "Trust"), the
Trust forming a part of the Wisconsin Gas Company Employees' Savings Plan (the
"ESOP") which has been established by Wisconsin Gas Company, a Wisconsin
corporation and a subsidiary of the Company ("Wisconsin Gas"), and the Bank
has extended credit and/or may in the future extend credit by reason of such
request and in reliance upon this Guaranty; and
WHEREAS, the Bank requires additional assurances and guarantees by
the Company as one of the conditions for making loans or advances to or for
the benefit of the Trust; and
WHEREAS, the Company acknowledges the receipt of considerable
benefits by the advancement of credit to the Trust;
NOW, THEREFORE, in consideration of the Five Million Eleven
Thousand, Two Hundred Forty-Eight Dollar ($5,011,248.00) loan extended and/or
to be extended by the Bank to the Trust under the Loan Agreement hereinafter
referred to, and for other consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company agrees as follows:
SECTION 1. DEFINITIONS
1.1. Defined Terms. As used in this Guaranty, the following
terms shall be defined as set forth below:
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
For the purpose of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the
power to direct or cause the direction of management and policies,
either directly or indirectly, whether through the ownership of voting
securities or by contract or otherwise of any Person.
"Board" shall mean the Board of Governors of the Federal
Reserve System (or any successor).
"Capitalized Lease" shall mean any lease which is
capitalized on the books of the lessee, or should be so capitalized
under GAAP
<PAGE> 3
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations and rulings issued
thereunder.
"Commonly Controlled Entity" shall mean an entity, whether
or not incorporated, which is under common control with the Company
within the meaning of Section 414(b) or (c) of the Code.
"Default" shall mean any of the events specified in Section
10 of this Guaranty, whether or not any requirement for the giving of
notice, the lapse of time, or both, or any other condition has been
satisfied.
"Dollars" and "$" shall mean dollars in lawful currency of
the United States of America.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as the same may, from time to time, be supplemented or
amended.
"ERISA Affiliate" means any Person which for purposes of
Title IV of ERISA is a member of the Company controlled group, or under
common control with the Company, within the meaning of Section 414 of
the Code.
"ERISA Event" means (i) a reportable event, within the
meaning of Section 4043 of ERISA, unless the 30-day notice requirement
with respect thereto has been waived by the PBGC or any successor
thereto; (ii) the provision by the administrator of any Plan of a notice
of intent to terminate such Plan, pursuant to Section 4041(a) (2) of
ERISA (including any such notice with respect to a plan amendment
referred to in Section 4041(e) of ERISA); (iii) the cessation of
operations at a facility in the circumstances described in Section 4068
(f) of ERISA; (iv) the withdrawal by the Company or an ERISA Affiliate
from a Multiemployer Plan during a plan year for which it was a
substantial employer, as defined in Section 4001(a) (2) of ERISA; (v)
the failure by the Company or any ERISA Affiliate to make a payment to a
Plan required under Section 302(f) (1) of ERISA, which Section imposes a
lien for failure to make required payments; (vi) the adoption of an
amendment to a Plan requiring the provision of security to such Plan,
pursuant to Section 307 of ERISA; or (vii) the institution by the PBGC
or any successor thereto of proceedings to terminate a Plan, pursuant to
Section 4042 of ERISA, or the occurrence of any event or condition which
might reasonably constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, a Plan.
"ESOP Note" shall mean the promissory note of the Trust
payable to the order of the Bank in the form of Exhibit A attached to
the Loan Agreement
<PAGE> 4
"Event of Default" shall mean any of the events specified in
Section 10 of this Guaranty, provided that any requirement for the
giving of notice, the lapse of time, or both, or any other condition,
has been satisfied.
"GAAP" shall mean generally accepted accounting principles
in the United States of America in effect from time to time.
"Governmental Authority" shall mean any nation or
government, any state or other political subdivision thereof, and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government and any
corporation or other entity owned or controlled (through stock or
capital ownership or otherwise) by any of the foregoing.
"Hazardous Materials" means any flammable materials,
explosives, radioactive materials, hazardous materials, hazardous
wastes, hazardous or toxic substances, or related or similar materials,
asbestos or any material containing asbestos, or any other substance or
material as so defined and regulated by any Federal, state or local
environmental law, ordinance, rule, or regulation, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections
1801, et seq.), and the Resource Conservation and Recovery Act (42
U.S.C. Sections 6901, et seq.), and the regulations adopted and
publications promulgated pursuant thereto.
"Indebtedness" means all obligations of a Person which in
accordance with GAAP should be classified upon a balance sheet of such
Person as liabilities of such Person, and in any event shall include,
without duplication, all (i) indebtedness for borrowed money, (ii)
obligations evidenced by bonds, debentures, notes or other similar
instruments, (iii) obligations to pay the deferred purchase price of
property or services, (iv) Capitalized Leases, (v) obligations
(contingent or otherwise) in respect of outstanding letters of credit,
(vi) indebtedness of the type referred to in clauses (i) through (v)
above secured by (or for which the holder of such indebtedness has an
existing right, contingent or otherwise, to be secured by) any lien or
encumbrance on, or security interest in, Property (including, without
limitation, accounts and contract rights) owned by such Person, even
through such Person has not assumed or become liable for the payment of
such indebtedness, and (vii) obligations under direct or indirect
guaranties in respect of, and obligations (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor against
loss in respect of, indebtedness or obligations of others of the kinds
referred to in clauses (i) through (vi) above. For the purpose of
computing the Indebtedness of any Person, there shall be excluded any
particular Indebtedness to the extent that, upon or prior to the
maturity thereof, there shall have been deposited with the proper
depositary in trust the necessary funds (or evidences of such
<PAGE> 5
Indebtedness, if permitted by the instrument creating such Indebtedness)
for the payment, redemption or satisfaction of such Indebtedness; and
thereafter such funds and evidences of Indebtedness so deposited shall
not be included in any computation of the assets of such Person.
"Insufficiency" means, with respect to any Plan, the amount,
if any, of its unfunded benefit liabilities, as defined in Section
4001(a) (18) of ERISA.
"Liabilities" shall mean, as to any Person, at any date, all
items which would, in conformity with GAAP, be classified as liabilities
on a consolidated balance sheet of such Person at such time.
"Loan Agreement" shall mean that certain Loan Agreement
dated as of the date hereof by and among the Bank, the Company and the
Trust as the same may be modified, supplemented, extended, renewed or
amended from time to time.
"Loan Documents" shall mean the Loan Agreement, this
Guaranty, the ESOP Note and any schedule or exhibit thereto; one of the
Loan Documents shall be referred to herein as a "Loan Document."
"Multiemployer Plan" shall mean, as to any Person, a Plan of
such Person which is a multiemployer plan as defined in Section 4001(a)
(3) of ERISA.
"Obligations" shall have the meaning given to such term in
Section 2 hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
"Person" shall mean an individual, partnership, joint
venture, corporation, business trust, joint stock company, trust,
unincorporated organization, Governmental Authority or other entity of
whatever nature.
"Plan" shall mean as to any Person any employee pension
benefit plan as defined in Section 3 (2) of ERISA that is covered by
ERISA and in respect of which that Person or a Commonly Controlled
Entity of that Person is an "employer" as defined in Section 3 (5) of
ERISA, excluding any non-qualified deferred compensation arrangement for
individual executives of the Company or any Subsidiary.
"Property" shall mean any interest in any kind of property
or asset, whether real, personal or mixed, or tangible or intangible.
"Quarter" shall mean any period of three (3) calendar months
ending on the last day of February, May, August or November
<PAGE> 6
"Single Employer Plan" shall mean any Plan of a Person which
is not a Multiemployer Plan.
"Subsidiary" shall mean, as to any Person, any corporation
of which shares of stock having ordinary voting power (other than stock
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by such Person.
"Trustee" shall mean Marshall & Ilsley Trust Company, as
trustee of the Trust, or any Person or Persons who are so designated in
accordance with the terms of the ESOP.
"WGC Credit Agreement" means that certain Revolving Credit
Agreement, dated as of March 29, 1993, among Wisconsin Gas, Citibank,
N.A., Firstar Bank Milwaukee, N.A., Harris Trust & Savings Bank, M&I
Marshall and Ilsley Bank, and Citibank, N.A., as agent thereunder, as
amended from time to time.
"Wisconsin Gas" shall mean Wisconsin Gas Company, a
Wisconsin corporation.
1.2. Other Definitional Provisions.
(a) As used herein and in the Loan Documents, and any
certificate or other document made or delivered pursuant hereto,
accounting terms relating to the Company not defined in subsection 1.1
hereof, and accounting terms partly defined in subsection 1.1 hereof to
the extent not defined, shall have the respective meanings given to them
under GAAP.
(b) The words "hereof," "herein" and "hereunder," and
words of similar import when used in this Guaranty shall refer to this
Guaranty as a whole and not to any particular provision of this
Guaranty, and section, subsection, paragraph, clause, schedule and
exhibit references are to this Guaranty unless otherwise specified
<PAGE> 7
SECTION 2. GUARANTY. The Company hereby unconditionally
guarantees to the Bank and its successors and assigns (a) the punctual payment
and performance when due, at the place specified therefor or, if no place is
specified, at the Bank's principal office in Chicago, Illinois, all
indebtedness, obligations and liabilities, direct or indirect, matured or
unmatured, primary or secondary, certain or contingent, of the Trust to the
Bank now or hereafter owing or incurred pursuant to the Loan Agreement or any
other Loan Document (including, without limitation, reasonable attorneys' fees
and other costs and expenses incurred by the Bank in attempting to collect or
enforce any of the foregoing after an Event of Default) accrued in each case
to the date of payment hereunder (collectively, the "Obligations" and
individually, an "Obligation"); and (b) the performance when due in all other
respects of the Trust's obligations under, and strictly in accordance with the
terms of, the Loan Agreement and the other Loan Documents.
SECTION 3. GUARANTY ABSOLUTE. This Guaranty is an absolute,
unconditional, continuing and unlimited guaranty of the full and punctual
payment and performance of the Obligations and not of their collectibility
only and is in no way conditioned upon any requirement that the Bank first
attempt to collect any of the Obligations from the Trust or resort to any
security or other means of obtaining payment of any of the Obligations which
the Bank now has or may acquire after the date hereof, or upon any other
contingency whatsoever. The obligations of the Company hereunder are
irrevocable, absolute and unconditional, irrespective of genuineness,
validity, regularity or enforceability of the Obligations or any security
given therefor or in connection therewith or any other circumstance (except
payment to the Bank of the full amount thereof) which might otherwise
constitute a legal or equitable discharge of a surety or guarantor. Upon any
default by the Trust in the full and punctual payment and performance of the
Obligations (and after the expiration of any applicable grace period provided
in the Loan Agreement), the liabilities and obligations of the Company
hereunder shall, at the option of and upon demand by the Bank, become
forthwith due and payable to the Bank. Payments by the Company hereunder may
be required by the Bank on any number of occasions.
SECTION 4. NO IMPAIRMENT. None of the limitations set forth in
Section 7.9 of the Loan Agreement shall in any way affect, impair, diminish,
relieve or delay the performance of any obligations of the Company under this
Guaranty or, upon an Event of Default, limit or impair the right of the Bank
to accelerate the Obligations as against the Trust and the Company. The
Company agrees that the obligations of the Company hereunder shall not be
impaired, modified, changed, released or limited in any manner whatsoever by
any impairment, modification, change, release or limitation of liability of
the Trust or its estate by reason of the commencement of any case, proceeding
or other action seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of the Trust or its property under any law relating
to bankruptcy, insolvency, reorganization, relief of debtors or seeking
appointment of a receiver, trustee, custodian or similar official for the
Trust or all or part of its Property
<PAGE> 8
SECTION 5. COMPANY'S FURTHER AGREEMENT TO PAY. The Company
further agrees, as the principal obligor and not as the guarantor only, to pay
to the Bank forthwith upon demand, in funds immediately available to the Bank
at its principal office in Chicago, Illinois, all costs and expenses
(including court costs and reasonable legal expenses) incurred or expended by
the Bank in connection with the enforcement of this Guaranty, together with
interest on amounts recoverable under this Guaranty from the time such amounts
become due until payment at a rate per annum equal to the ABN AMRO Rate (as
defined in the Loan Agreement), in effect from time to time, plus two percent
(2%), compounded daily and payable on demand.
SECTION 6. TERMINATION GUARANTY. It is the intention hereof that
the Company shall remain liable under this Guaranty until all of the
Obligations have been fully paid and performed notwithstanding any act,
omission or thing (except payment to the Bank of the full amount of all
Obligations guaranteed hereby) which might otherwise operate as a legal or
equitable discharge of the Company. Notwithstanding anything contained herein
to the contrary, if at any time all or any part of any payment of any of the
Obligations previously received by the Bank pursuant to the Loan Agreement or
otherwise must be returned by the Bank for any reason in connection with any
bankruptcy, insolvency, reorganization, liquidation, debt adjustment or other
similar proceeding involving the Trust, the Trustee or the ESOP, whether by
court order, administrative order or settlement, this Guaranty shall be
revived and reinstated and the Company shall pay the Bank the amount of the
payment returned to the Trust (or to any receiver or trustee of or for the
Trust or the property or estate of the Trust), notwithstanding any termination
of this Guaranty or the cancellation of the Loan Agreement or the ESOP Note.
SECTION 7. BANK'S FREEDOM TO DEAL WITH TRUST AND OTHER PARTIES.
The Bank shall be at liberty after giving notice to the Company, and without
relieving the Company of any liability hereunder, to deal with the Trust and
with each other party who is now, or after the date hereof becomes, liable in
any manner for any of the Obligations, in such manner as the Bank in its sole
reasonable discretion deems fit and to this end the Company hereby gives to
the Bank full authority to do any or all of the following things: (a) extend
credit, make loans and afford other financial accommodations to the Trust or
to any other party at such times, in such amounts and on such terms as the
Bank may approve, (b) vary the terms and grant extensions or renewals of any
present or future indebtedness or obligation of the Trust or of any other
party to the Bank, (c) grant extensions of time, waivers and other indulgences
in respect thereof, (d) vary, exchange, release or discharge, wholly or
partially, or delay in or abstain from perfecting and enforcing any security
or guaranty or other means of obtaining payment of any of the Obligations or
any liability under this Guaranty, which security or guaranty the Bank now has
or acquires after the date hereof, (e) accept partial payments from the Trust
or other party, (f) release or discharge, wholly or partially, any endorser or
guarantor, and (g) compromise or make any settlement or other arrangement with
the Trust or any other party
<PAGE> 9
SECTION 8. REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to extend credit to the Trust and in
recognition of the fact that the Bank is acting in reliance thereupon, the
Company hereby represents and warrants to the Bank that:
8.1. Corporate Existence. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Wisconsin. Each Subsidiary of the Company is duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation. Each of the Company and its Subsidiaries has all requisite
corporate powers and authority to own or lease and operate its Properties and
to carry on its business as now conducted and as proposed to be conducted.
8.2. Due Authorization; No Contravention. The execution,
delivery and performance by the Company of this Agreement and the other Loan
Documents executed by it are within the Company's corporate powers, have been
duly authorized by all necessary corporate action, and do not contravene (i)
the Company's Articles of Incorporation or By-laws, (ii) any law, rule or
regulation applicable to the Company, or (iii) any contractual or legal
restriction binding on or affecting the Company, and will not result in or
require the imposition of any lien or encumbrance on, or security interest in,
any Property (including, without limitation, accounts or contract rights) of
the Company.
8.3. Governmental Approvals. No authorization or approval or
other action by, and no notice to or filing with, any governmental authority
or regulatory body, including, without limitation, the Public Service
Commission of Wisconsin, is required for the due execution, delivery and
performance by the Company of this Guaranty or any other Loan Document
executed by it.
8.4. Enforceable Obligations. This Guaranty and the other Loan
Documents executed by the Company are legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with their terms.
8.5. Financial Condition. Each of the audited, consolidated
balance sheet of the Company and its Subsidiaries as at December 31, 1995, and
the related statements of income and retained earnings of the Company and its
Subsidiaries for the fiscal year then ended, fairly present the financial
condition of the Company and its Subsidiaries as at such dates and the results
of the operations of the Company and its Subsidiaries for the periods ended on
such dates, all in accordance with GAAP consistently applied, and since
December 31, 1995, there has been no material adverse change in such condition
or operations, in the prospects of the Company and its Subsidiaries or in the
ability of the Company to perform its obligations hereunder
<PAGE> 10
8.6. No Material Litigation. There is no pending or threatened
action or proceeding affecting the Company or any of its Subsidiaries before
any court, governmental agency or arbitrator, which may materially adversely
affect the financial condition, operations or prospects of the Company or any
Subsidiary or which purports to affect the legality, validity or
enforceability of this Guaranty or any other Loan Document executed by it or
the ESOP Note.
8.7. Taxes. Each of the Company and its Subsidiaries has filed
all tax returns (Federal, State and local) required to be filed and paid all
taxes shown thereon to be due, including interest and penalties, except to the
extent the Company or any of its Subsidiaries is diligently contesting any
such taxes in good faith and by appropriate proceedings, and for which
adequate reserves for payment thereof have been established.
8.8. Subsidiaries. The Company is the direct, legal and
beneficial owner of 100% of the issued and outstanding stock of Wisconsin Gas.
8.9. Investment Company Act. None of the Company or any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of
1940, as amended.
8.10. Public Utility Holding Company Act. The Company is a
"holding company" exempt from registration under Section 5 of the Public
Utility Holding Company Act of 1935, as amended, pursuant to Section 3(a) (1)
of such Act.
8.11. Margin Stock. The Company is not engaged in the business of
extending credit for the purpose of buying or carrying margin stock (within
the meaning of Regulation U issued by the Board).
8.12. ERISA. No ERISA Event has occurred or is reasonably
expected to occur with respect to any Plan which reasonably could be expected
to materially affect the financial condition, the operations or the prospects
of the Company and its Subsidiaries or in the ability of the Company to
perform its obligations hereunder. Neither the Company nor any of its ERISA
Affiliates is an employer under any Multiemployer Plan. The Company and its
Subsidiaries are in compliance in all material respects with ERISA and the
Code as they apply to any and all Plans.
8.13. Environmental Laws. The Company and its Subsidiaries are in
compliance in all material respects with all applicable Federal, state and
local statutes, rules, regulations, orders and other provisions of law
relating to Hazardous Materials, air emissions, water discharge, noise
emission and liquid disposal, and other environmental, health and safety
matters, other than those the non-compliance with which would not have a
material adverse effect (taking into consideration all fines, penalties and
sanctions that may be imposed because of such noncompliance) on the condition
(financial or otherwise) or operations or prospects of the Company or any of
<PAGE> 11
its Subsidiaries or in the ability of the Company to perform its obligations
hereunder. Neither the Company nor any of its Subsidiaries has received from
any Governmental Authority any notice of any material violation of any such
statute, rule, regulation, order or provision.
SECTION 9. COVENANTS
9.1. Affirmative Covenants. The Company covenants and agrees
that, from the date hereof and until payment in full of the Obligations, the
Company shall, unless the Bank shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply, and cause each of
its Subsidiaries to comply, in all material respects with all applicable
laws, rules, regulations and orders, the failure to comply with which
reasonably could be expected to materially adversely affect the
financial condition, the operations or the prospects of the Company or
such Subsidiary, such compliance to include, without limitation, paying
before the same become delinquent all taxes, assessments and
governmental charges imposed upon it or upon its Property except to the
extent diligently contested in good faith and by appropriate proceedings
and for which adequate reserves for the payment thereof have been
established, and complying in all material respects with all applicable
Federal, state and local statutes, rules, regulations, orders and other
provisions of law relating to Hazardous Materials, air emissions, water
discharge, noise emission and liquid disposal, and other environmental,
health and safety matters.
(b) Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with financially sound and reputable
insurance companies or associations in such amounts and covering such
risks as are usually carried by companies engaged in the same or similar
businesses and similarly situated.
(c) Visitation Rights. At any reasonable time and from
time to time, upon reasonable advance notice, permit the Bank or any
agents or representatives thereof (at the sole cost and expense of the
Bank), to examine and make copies of and abstracts from the records and
books of account of, and visit the properties of, the Company and any of
the Subsidiaries, and to discuss the affairs, finances and accounts of
the Company and any of the Subsidiaries with any of their officers or
directors and with their independent certified public accountants.
(d) Transactions with Affiliates. Conduct, and cause each
of its Subsidiaries to conduct, all transactions with any of their
Affiliates on terms that are fair and reasonable and no less favorable
to the Company or such Subsidiary than it would obtain in a comparable
arm's-length transaction with a Person not an Affiliate
<PAGE> 12
(e) Reporting Requirements. Furnish to the Bank:
(i) as soon as available and in any event within 45
days after the end of each of the first three quarters of each
fiscal year of the Company, a consolidated balance sheet of the
Company and its Subsidiaries as of the end of such Quarter and
consolidated statements of income and retained earnings of the
Company and its Subsidiaries for the period commencing at the end
of the previous fiscal year and ending with the end of such
Quarter, certified by the chief financial officer of the Company
as fairly presenting the financial condition of the Company and
its Subsidiaries as at such date and the results of the operations
of the Company and its Subsidiaries for the periods ended on such
date, all in accordance with GAAP consistently applied (except, as
to Wisconsin Gas, to the extent such generally accepted accounting
principles may be modified [to the extent prescribed by the Public
Service Commission of Wisconsin] by those requirements of the
Uniform System of Accounts Prescribed for Natural Gas Companies
Subject to the Provisions of the Natural Gas Act, set forth from
time to time in Part 201, Subchapter F of 18 C.F.R. Chapter 1
(1988)), together with a certificate of the chief financial
officer of the Company (A) demonstrating and certifying compliance
by the Company with the covenant set forth in Section 9.2(b) and
(B) stating that no Event of Default, or event which, with notice
or lapse of time, or both, would constitute an Event of Default,
has occurred and is continuing or, if an Event of Default or such
an event has occurred and is continuing, a statement as to the
nature thereof and the action which the Company has taken and
proposes to take with respect thereto;
(ii) as soon as available and in any event within 90
days after the end of each fiscal year of the Company, a copy of
the annual report for such year for the Company and its
Subsidiaries, containing financial statements for such year
certified without qualification by Arthur Andersen LLP or other
independent public accountants acceptable to the Bank and, to the
extent not contained in such annual report, the unconsolidated
balance sheet of the Company as of the end of such fiscal year and
the unconsolidated statements of income and retained earnings of
the Company for such fiscal year, certified by the chief financial
officer of the Company as fairly presenting the financial
condition of the Company as at such date and the results of the
operations of the Company for such fiscal year, all in accordance
with GAAP consistently applied, together with a certificate of the
chief financial officer of the Company (A) demonstrating and
certifying compliance by the Company with the covenant set forth
in Section 9.2(b) and (B) stating that no Event of Default, or
event which, with notice or lapse of time, or both, would
constitute an Event of Default, has occurred and is continuing or,
if an Event of Default or such an event has occurred and is
continuing, a statement as to the nature thereof and the action
which the Company has taken and proposes to take with respect
thereto
<PAGE> 13
(iii) as soon as possible and in any event within five
days after the occurrence of each ERISA Event, each Event of
Default and each event which, with the giving of notice or lapse
of time, or both, would constitute an Event of Default, continuing
on the date of such statement, a statement of the chief financial
officer of the Company setting forth details of such ERISA Event,
such Event of Default or such event and the action which the
Company has taken and proposes to take with respect thereto;
(iv) promptly after the sending or filing thereof,
copies of all reports which the Company sends to any of its
security holders, and copies of all reports and registration
statements which the Company or any Subsidiary files with the
Securities and Exchange Commission or any national securities
exchange; and
(v) such other information respecting the condition
or operations, financial or otherwise, of the Company or any of
its Subsidiaries as the Bank may from time to time reasonably
request.
(f) Ownership of Certain Subsidiaries. Maintain at all
times direct, 100%, legal and beneficial ownership of Wisconsin Gas.
9.2. Negative Covenants. The Company further covenants and
agrees that from the date hereof and until payment in full of the Obligations,
the Company shall not, without the written consent of the Bank (which consent
shall not be unreasonably withheld):
(a) Liens, Etc. Create or suffer to exist, or permit any of
its Subsidiaries to create or suffer to exist, any lien, security
interest or other charge or encumbrance, or any other type of
preferential arrangement, upon or with respect to any of its Properties,
whether now owned or hereafter acquired, or assign, or permit any of its
Subsidiaries to assign, any right to receive income, in each case to
secure or provide for the payment of any Indebtedness of any Person,
other than (i) purchase money liens or purchase money security interests
upon or in any Property acquired or held by the company or any
Subsidiary in the ordinary course of business to secure the purchase
price of such Property or to secure Indebtedness incurred solely for the
purpose of financing the acquisition of such Property, (ii) liens for
taxes or assessments or other governmental charges or levies not yet due
or the imposition or amount of which the Company or any Subsidiary is
diligently contesting in good faith by appropriate proceedings and for
which adequate reserves for payment thereof have been established, (iii)
pledges or deposits to secure performance in connection with bids,
tenders, contracts (other than contracts for the payment of money) or
leases to which the Company or any Subsidiary is a party, in each case
made in the ordinary course of business, (iv) materialmen's, mechanics',
carriers', workmen's, repairmen's or other similar liens arising in the
ordinary course of business, or deposits to obtain the release of such
liens, and (v) liens or security interests existing on such Property a
<PAGE> 14
the time of its acquisition (other than any such lien or security
interest created in contemplation of such acquisition).
(b) Indebtedness. Incur or create, any Indebtedness if,
immediately after giving effect to such Indebtedness and the receipt and
application of any proceeds thereof, the aggregate amount of
Indebtedness of the Company shall exceed $150,000,000.
(c) Mergers, Etc. Merge or consolidate with or into, or
sell, convey, assign, transfer, lease or otherwise dispose of (whether
in one transaction or in a series of transactions) all or substantially
all its assets (whether now owned or hereafter acquired) to, any Person,
or permit Wisconsin Gas to do so, except that any Subsidiary of the
Company may merge or consolidate with or into, or dispose of assets to,
any other Subsidiary of the Company and except that any Subsidiary of
the Company may merge into or dispose of assets to the Company, provided
in each case that, immediately after giving effect to such proposed
transaction, no Event of Default or event which, with the giving of
notice or lapse of time, or both, would constitute an Event of Default
would exist and, provided further, in each case that, immediately after
giving effect to such proposed transaction, the Company shall be in
compliance with subsection (b) above.
(d) Intercompany Loans and Investments. Except to the
extent required by the Public Service Commission of Wisconsin, make any
loan to or investment in Wisconsin Gas at any time when an Event of
Default (as defined in the WGC Credit Agreement), or any event which,
with the giving of notice or lapse of time, or both, would constitute
such an Event of Default, shall have occurred and be continuing; or make
any loan to or investment in Wisconsin Gas at any time when an Event of
Default or any event which, with the giving of notice or lapse of time
or both, would constitute an Event of Default, shall have occurred and
be continuing.
(e) Guaranties. Create, incur or suffer to exist any
obligations of the type described in clause (vii) of the definition of
Indebtedness in respect of Wisconsin Gas (other than this Guaranty).
SECTION 10. DEFAULTS
10.1. Events of Default. An Event of Default shall be deemed to
have occurred if:
(a) The Company or the Trust shall fail to pay any
principal of, premium, if any, or any interest on, the Obligations when
the same shall become due and payable, whether by acceleration or
otherwise; or
(b) Any representation or warranty made or deemed made by
the Company in this Guaranty or any certificate, document, financial
statement or other statement furnished at any time under or in
connection with the Loan Documents, proves to have been incorrect in any
material respect on or as of the date made; or
<PAGE> 15
(c) The Company shall fail to perform or observe (i) any
term, covenant or agreement contained in Section 9.1(e) (iii), 9.1(f) or
9.2, or (ii) any other term, covenant or agreement contained in this
Guaranty (other than obligations specifically set forth elsewhere in
this Section 10.1) on its part to be performed or observed if the
failure to perform or observe such other term, covenant or agreement, if
susceptible of remedy, shall remain unremedied for 30 days after written
notice thereof shall have been given to the Company by the Bank; or
(d) The Company or Wisconsin Gas shall fail to pay any
principal of or premium or interest on any Indebtedness of the Company
or Wisconsin Gas when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to
such Indebtedness; or any other event shall occur or condition shall
exist under any agreement or instrument relating to any such
Indebtedness and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such
event or condition is to accelerate, or to permit the acceleration of,
the maturity of such Indebtedness; or any such Indebtedness shall be
declared to be due and payable, or required to be prepared (other than
by a regularly scheduled required prepayment), prior to the stated
maturity thereof; or
(e) The Company or Wisconsin Gas shall generally not pay
its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment
for the benefit of creditors; or any proceeding shall be instituted by
or against the Company or Wisconsin Gas seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry
of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted
against it (but not instituted by it), such proceeding shall remain
undismissed or unstayed for a period of 45 days, any of the actions
sought in such proceeding (including, without limitation, the entry of
an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part
of its property) shall occur or the Company or Wisconsin Gas shall
consent to or acquiesce in any such proceeding; or the Company or
Wisconsin Gas shall take any corporate action to authorize any of the
actions set forth above in this subsection (e); o
<PAGE> 16
(f) Any judgment or order for the payment of money in
excess of Five Million Dollars ($5,000,000) shall be rendered against
the Company or Wisconsin Gas and either (i) enforcement proceedings
shall have been commenced by any creditor upon such judgment or order or
(ii) there shall be any period of 10 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(g) The Company's obligations under this Guaranty shall
become unenforceable, or the Company, or any court or governmental or
regulatory body having jurisdiction over the Company, shall so assert in
writing; or
(h) Any ERISA Event shall have occurred with respect to a
Plan and, 30 days after notice thereof shall have been given to the
Company by the Bank, (i) such ERISA Event shall still exist, and (ii)
the sum (determined as of the date of occurrence of such ERISA Event) of
the Insufficiency of such Plan and the Insufficiency of any and all
other Plans with respect to which an ERISA Event shall have occurred and
then exist (or, in the case of a Plan with respect to which an ERISA
Event described in clauses (iii) through (vi) of the definition of ERISA
Event shall have occurred and then exist, the liability related thereto)
is equal to or greater than Five Million Dollars ($5,000,000); or
(i) If there shall occur any Default or Event of Default
under, or any breach or violation of, the Loan Agreement or any other
Loan Document, which Default, Event of Default, breach or violation is
not fully cured within the applicable grace period therefor, if any; or
(j) (x) Any Person or two or more Persons acting in
concert shall have acquired beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934), directly or indirectly, of securities
of the Company (or other securities convertible into such securities)
representing 50% or more of the combined voting power of all securities
of the Company entitled to vote in the election of directors, other than
securities having such power only by reason of the happening of a
contingency; or (y) during any period of up to 24 consecutive months,
commencing before or after the date of this Agreement, individuals who
at the beginning of such 24-month period were directors of the Company
shall cease for any reason to constitute a majority of the board of
directors of the Company
<PAGE> 17
10.2. Rights Upon Default. If an Event of Default specified in
subsection 10.1(e) shall occur, all principal of and interest on the
Obligations and all amounts owing hereunder shall immediately become due and
payable, whether or not then due and payable under the Loan Agreement. If any
other Event of Default shall occur and so long as it may continue, the Bank
may (i) by notice of default to the Company, declare the Bank's obligations
under the Loan Agreement terminated forthwith, whereupon such obligations
shall terminate, and/or (ii) by notice of default to the Company, declare the
entire principal of and interest on the Obligations and all amounts owing
hereunder to be due and payable forthwith, whereupon the same shall become
immediately due and payable, whether or not then due and payable under the
Loan Agreement. Except as expressly provided above in this subsection,
presentment, demand, protest or further notice of any kind are hereby
expressly waived.
SECTION 11. MISCELLANEOUS
11.1. Waivers by the Company. The Company hereby waives: (a)
acceptance or notice of acceptance of this Guaranty by the Bank; (b) notice of
any extensions of credit in reliance hereon; (c) notice of presentment; (d)
protest and notice of dishonor or, subject to the last sentence of this
Section, of default to the Company or to any other party with respect to the
payment or performance of the Obligations hereby guaranteed; (e) any and all
other notices whatsoever to which the Company might otherwise be entitled; (f)
any requirement that the Bank be diligent or prompt in making demands
hereunder, giving notice of any default by the Trust, filing any claims with a
court in the event of receivership or bankruptcy of the Trust or asserting any
other right of the Bank hereunder; and (g) any and all other legal or
equitable defenses whatsoever to which the Company might otherwise be entitled
as a guarantor or surety.
11.2. No Contest with Bank. So long as any Obligation remains
unpaid or undischarged, the Company will not, by paying any sum recoverable
hereunder (whether or not demanded by the Bank) or by any means or on any
other ground, claim any right of subrogation with respect to any of the
Obligations guaranteed hereby or to any collateral now or hereafter granted to
secure the Obligations or, claim any setoff or counterclaim against the Trust
in respect of any liability of the Company to the Trust or of the Trust to the
Company, or, in proceedings under the United States Bankruptcy Code or
insolvency proceedings of any nature, proceed in competition with the Bank in
respect of payment hereunder or be entitled to have the benefit of any
counterclaim or proof of claim or dividend or payment by or on behalf of the
Trust or the benefit or any other security for any Obligation which, now or
hereafter, the Bank may hold or in which it may have any share
<PAGE> 18
11.3. Remedies Cumulative. Each right, privilege, power and
remedy of the Bank under this Guaranty, the Loan Agreement, any promissory
note or other agreement or instrument signed by the Trust or the Company,
under any other instrument of any other party securing or guarantying any of
the Obligations or under applicable laws shall be cumulative and concurrent
and the exercise of any one or more of them shall not preclude the
simultaneous or later exercise by the Bank of any or all such other rights,
privileges, powers and remedies.
11.4. Notices. Unless otherwise specified, all notices, requests
and demands to or upon the respective parties hereto shall be deemed to be
effective only if in writing or if given by telecopy or telex and, unless
otherwise expressly provided herein, shall be deemed to have been duly given
or made, in the case of a delivered notice, when delivered by hand, or, in the
case of a mailed notice, five (5) days after deposited in the mail, air
postage prepaid, or, in the case of telex notice, when sent, answer back
received, or, in the case of telecopy notice, when telecopied, addressed as
follows or to such other address as may be hereafter specified by the
respective parties hereto and any future holders of the ESOP Note:
The Company: WICOR, Inc.
626 East Wisconsin Avenue
Milwaukee, WI 53202
Attention: Joseph P. Wenzler
Telecopy No.: (414) 291-7033
The Bank: With Respect to reports, notices of default, and other
credit matters
Name: Mark Lasek/Kevin McFadden
Address: ABN AMRO Bank N.V.
135 S. LaSalle Street
Suite 711
Chicago, IL 60674-9135
Telex No.: 6732700
Answerback: ABN AMRO CGO
Telephone No. (312) 904-2074/2131
Fax No.: (312) 904-6217
With respect to interest rate selections and other loan administration
Name: Loan Administration
Address: ABN AMRO Bank N.V.
135 S. LaSalle Street
Suite 425
Chicago, IL 60674-9135
Telex No.: 6732700
Answerback: ABN AMRO CGO
Telephone No.:(312) 904-2961
Fax No.: (312) 606-843
<PAGE> 19
11.5. Survival of Representations and Warranties. All
representations and warranties made hereunder and in any of the Loan
Documents, or any certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Guaranty
and the ESOP Note.
11.6. Indemnification. The Company shall (a) cause Wisconsin Gas
to pay or reimburse the Bank for all of its reasonable out-of-pocket costs and
expenses incurred in connection with the negotiation, consideration,
development, preparation and/or execution of, and any amendment, supplement or
modification to, this Guaranty and the Loan Documents or any other documents
prepared in connection herewith or therewith (whether or not any such
amendment, supplement, or modification is effected or consummated), and the
consummation of the transactions contemplated hereby and thereby, including,
without limitation, the fees and disbursements of counsel to the Bank, (b) pay
or reimburse the Bank for all of its reasonable costs and expenses including,
but not limited to, litigation costs or costs incident to any proceeding
relating to the Company pursuant to 11 U.S.C. ' 101 et seq. incurred in
connection with the enforcement or preservation of any rights or questions
arising under or interpretations of this Guaranty or the Loan Documents or any
such other documents, including, without limitation, fees and disbursements of
counsel, legal assistants or paralegals to the Bank, and (c) pay, indemnify,
and hold the Bank harmless from, any and all recording and filing fees and any
and all liabilities with respect to, or resulting from any delay in paying,
stamp, excise and other taxes, if any, which may be payable or determined to
be payable in connection with the execution and delivery of or consummation of
any of the transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of this Guaranty
or the Loan Documents or any such other documents. The obligations in this
subsection shall survive repayment of the ESOP Note and all other amounts
payable hereunder. In addition, the Company agrees to indemnify the Bank
against, and hold the Bank harmless from, any loss, cost, charge, expense
(including attorney's fees), claims, demands, suits, damages, penalties,
taxes, fines, levies and assessments which may be asserted or imposed against,
or suffered or incurred by, the Bank as a result of any representation or
warranty of the Trust in the Loan Agreement or in any other Loan Document, or
of the Company herein or in any other Loan Document, being untrue or
inaccurate in any respect or as direct or indirect result of the failure by
the Trust or the Company to observe, perform or comply with any of its
respective covenants, undertakings or obligations set forth in the Loan
Agreement or this Guaranty or in any other Loan Document.
11.7. Successors and Assigns. This Guaranty shall be binding upon
and inure to the benefit of the Company, the Bank, all future holders of the
ESOP Note and their respective successors and assigns, except that the Company
may not assign or transfer any of its rights or obligations under this
Guaranty without the prior written consent of the Bank
<PAGE> 20
11.8. Governing Law and Submission to Jurisdiction. This Guaranty
shall be governed by, and construed and interpreted in accordance with the
laws of Illinois. Venue for the settlement of disputes under this Guaranty
shall be in the Courts of the State of Illinois or in the United States
District Court for the Northern District of Illinois, each in Cook County,
Illinois. The Company consents to the exercise of jurisdiction by these
courts and the vesting of venue therein.
11.9. Setoff. In addition to any rights or remedies provided by
law, or any other rights or remedies provided for in this Guaranty or the Loan
Documents, upon the occurrence of any Event of Default, the Bank is hereby
irrevocably authorized, at any time and from time to time without prior notice
to the Company, any such notice being expressly waived by the Company, to set
off, appropriate and apply any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect or contingent or matured or unmatured, at any time held or owing by
the Bank to or for the credit or the account of the Company, or any part
thereof, in such amounts as the Bank may elect, against and on account of the
Obligations whether or not the Bank has made any demand for payment and
although such Obligations may be contingent or unmatured. The Bank shall give
the Company prompt notice after the exercise of any such right.
11.10. Severability. Any provision of this Guaranty which is
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
11.11. Headings. Section, subsection and paragraph headings
in this Guaranty are included herein for convenience of reference only and
shall not constitute a part of this Guaranty for any other purpose.
11.12. Information Respecting Trust. The Company shall be
responsible for obtaining information regarding the Trust, including, but not
limited to, any changes in the business or financial condition of the Trust
and the Bank shall have no duty to notify the Company of any such information.
IN WITNESS WHEREOF, the Company has executed this Guaranty as of
the date first above written.
WICOR, INC.
[Corporate Seal] By:
Title:
Attest:
(Title)
<PAGE> 1
EXHIBIT 4-16
FIRST AMENDMENT
TO
LOAN AGREEMENT
This First Amendment to the Loan Agreement is made and entered
into as of the 27 day of November, 1996, by and among the WICOR, Inc., Master
Savings Trust (formerly the Wisconsin Gas Company Employees' Saving Plans
Trust), (the "Trust"), WICOR, Inc. (the "Company") and ABN AMRO Bank N.V., a
bank organized under the laws of the Netherlands and acting through its
Chicago branch (the "Bank"). All terms not otherwise defined herein shall
have the meanings assigned to such terms in the Loan Agreement by and among
the Trust, the Company and the Bank dated as of March 29, 1996 (the
"Agreement").
W I T N E S S E T H:
WHEREAS, the stated maturity of the ESOP Note (as amended) is
August 31, 2001; and
WHEREAS, the Trust has requested that the principal repayment
schedule of the ESOP Note be revised and that the maturity date of the ESOP
Loan be extended until May 31, 2002 and the Bank is agreeable to such
extension;
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendment of Subsection 2.1. Subsection 2.1 of the
Agreement shall be, and it hereby is, amended by deleting the first sentence
thereof in its entirety and, in lieu thereof, inserting the following:
"Subject to the terms and conditions hereof, the Bank
agrees to lend to the Trust, on the Effective Date, Five Million
Eleven Thousand Two Hundred Forty-Eight Dollars ($5,011,248.00),
which amount shall be payable in thirty-one (31) consecutive
principal installments, consisting of two (2) consecutive
Quarterly principal installments of Two Hundred Thirty-Five
Thousand Dollars ($235,000.00) each payable on the last business
day of May, 1996 and August, 1996; one (1) principal installment
of One Hundred Thirty-Five Thousand ($135,000.00) payable on the
last business day of November, 1996; six (6) principal
installments of Sixty-Seven Thousand Dollars ($67,000.00) each
payable on the last business day of January of each year
commencing January 31, 1997; sixteen (16) Quarterly principal
installments of Two Hundred Thousand Dollars ($200,000.00) each
payable on the last business day of February, May and August of
each year commencing on February 28, 1997; five (5) quarterly
principal installments of One Hundred Thirty-Three Thousand
Dollars ($133,000.00) each payable on the last business day of
November of each year commencing on November 28, 1997; and a final
payment in the amount of the outstanding balance of the ESOP Loan
on May 31, 2002.
<PAGE> 2
2. Amendment of Subsection 2.2. Subsection 2.2 of the
Agreement shall be, and it hereby is, amended by deleting part (b) thereof in
its entirety and, in lieu thereof, inserting the following:
"(b) be stated to mature on May 31, 2002, and be payable as
provided in subsection 2.1 hereof, and"
3. Effectiveness of Amendment. This Amendment shall become
effective upon receipt by the Bank of (i) a copy of this Amendment duly
executed by the Trust, the Bank and the Company, (ii) the Consent of
Guarantor attached to this Amendment duly executed by the Company, and (iii)
the Amended and Restated Promissory Note substantially in the form attached
hereto as Exhibit A executed by the Trust which Note shall hereinafter
constitute the ESOP Note.
4. Miscellaneous.
(a) The Trust hereby represents and warrants to the Bank that all
of the representations and warranties made by the Trust in the Loan
Documents are true and correct on the date of this Amendment and that no
Default or Event of Default under the Agreement has occurred and is
continuing as of the date of this Amendment.
(b) The Company hereby represents and warrants to the Bank that
all of the representations and warranties made by the Company in the
Loan Documents are true and correct on the date of this Amendment; that
no Default or Event of Default under the Agreement has occurred and is
continuing as of the date of this Amendment; that the making, execution
and delivery of this Amendment, and performance of and compliance with
the terms of the Agreement, as hereby amended, (i) have been duly
authorized by the Boards of Directors of Wisconsin Gas and of the
Company and by all other actions, (ii) do not and will not conflict
with, contravene or violate any provision of, or result in a breach of
or default under, or require the waiver (not already obtained) of any
provision of or the consent (not already given) of any Person under the
terms of, the Trust Agreement and (iii) will not violate, conflict with,
or constitute a default under any law, regulation, order or any other
requirement of any court, tribunal, arbitrator, or Governmental
Authority; that the Agreement, as amended hereby and the ESOP Note, as
now amended and restated by the Amended and Restated Promissory Note
constitute valid and legally binding obligations of the Trust, and are
enforceable in accordance with their respective terms, except as limited
by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting generally the enforcement of creditors' rights.
(c) Each reference in the Agreement to "this Agreement" and each
reference in the ESOP Note and the Guaranty to "Agreement" shall be
deemed a reference to the Agreement as amended by this Amendment.
(d) Except as amended by this Amendment, the terms and
conditions of the Agreement shall remain in all other respects in full
force and effect
<PAGE> 3
(e) The Company acknowledges and agrees that pursuant to
subsection 11.6 of the Guaranty, the Company shall cause Wisconsin Gas
to reimburse the Bank for all of its out-of-pocket costs and expenses
incurred in connection with this Amendment, including the fees and
disbursements of the counsel to the Bank for the preparation hereof and
expenses incurred in connection herewith.
(f) This Amendment and the rights and obligations of the parties
hereto shall be governed by the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to Loan Agreement to be executed by their respective officers as of
the date first written above.
MARSHALL & ILSLEY TRUST COMPANY,
AS TRUSTEE FOR THE WICOR, INC.
MASTER SAVINGS TRUST, (formerly the
WISCONSIN GAS COMPANY
EMPLOYEES' SAVINGS PLANS TRUST)
By:
(Title)
WICOR, INC.
By:
(Title)
ABN AMRO BANK N.V., CHICAGO BRANCH
by ABN AMRO North America Inc., as agent
By:
(Title)
By:
(Title)
<PAGE> 4 CONSENT OF GUARANTOR
The undersigned hereby (i) acknowledges and agrees that the
Guaranty executed by the undersigned related to the ESOP Note and Loan is and
remains in full force and effect subject to no defense, counterclaim or offset
of any kind, (ii) acknowledges its receipt of a copy of the foregoing
Amendment, acknowledges that it has received notice of the extension of the
time for payment of the ESOP Loan pursuant to such Amendment and hereby
consents and agrees to the terms of the forgoing Amendment, all in accordance
with Section 7 of the Guaranty and (iii) acknowledges and agrees that the
giving of the undersigned's consent to the foregoing Amendment shall not in
any way be construed to require the giving of the undersigned's consent to any
future amendment.
Dated as of November 27, 1996.
WICOR, INC.
By:
(Title
<PAGE> 1
EXHIBIT 10.10
WICOR, Inc.
1997 Corporate Officer's Incentive Compensation Plan
I. Objectives
The principle objectives of the Plan are:
A. To motivate and to provide incentive for officers of WICOR to create
economic value.
B. To ensure a focus on earning a return on capital in excess of the
cost of capital while also making a positive contribution to
earnings.
C. To assist in the retention of quality senior management.
D. To yield competitive total compensation levels when performance goals
meet the cost of capital requirement.
II. Eligibility
Participation in the Plan is limited to designated WICOR corporate
officers. The Chief Executive Officer 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
executive, as a percentage of base salary (W-2 base salary calendar
earnings), are as follows:
Award as a Percent of Salary
--------------------------------
Position Minimum Target Maximum
------------------ ------- ------ -------
President & CEO 0% 50% 108.75%
VP, Treasurer & CEO 0% 40% 87%
Asst. Treasurer 0% 20% 43.5
<PAGE> 2
B. Each executive's award will be determined based on a combination of
WICOR and individual performance, with WICOR performance accounting
for 75% of the award and individual performance weighted at 25%.
IV. Performance Criteria and Objective Setting
A. Financial Component (75% Weight)
1.) Overall WICOR performance will be measured by Return on Capital
(ROC), which is defined as NOPAT (Net Operating Profit After
Tax) divided by Total Capital Employed (NOPAT and Total Capital
Employed are defined in Appendix I). Threshold, Target, and
Maximum ROC performance levels, and their corresponding
incentive awards are as follows:
1997 Return Award as a %
Performance Level on Capital of Target
- ----------------------- -------------- ------------
Below Threshold Less than 7.2% 0%
Threshold 7.2% 1%
Target 8.5% 100%
Maximum or above 11.1% 200%
* WICOR Cost of Capital = 8.5%
For performance at levels between Threshold and Target or between Target
and Maximum, award calculations will be interpolated on a linear basis.
2.) ROC payout will be further modified by performance against EPS
Growth (the modifier). As seen below, EPS growth performance
can modify the award by +/- 20%.
1997 EPS Award Modification
Performance Level Growth as a % of Target
- ---------------------- -------------- ------------------
Threshold Less than or
equal to 5% 80%
Target 10% 100%
Maximum Greater than or
equal to 15% 120%
For performance at levels between Threshold and Target or between
Target and Maximum award calculations will be interpolated on a linear
basis.
<PAGE> 3
B. Discretionary/Individual Component (25% Weight)
The individual component of total incentive compensation will be
determined by the WICOR Compensation Committee on recommendations from
the CEO reflecting the individual's overall performance as measured
against previously identified and agreed upon goals and objectives. The
award may vary between 0% and 150% of the individual performance portion
of the target award, and will be determined and paid independently of
Corporate financial performance.
Combining the previously mentioned components yields the following
formula for determining annual incentive payout:
Step 1 [ Base Salary x Eligible Target % ]
Multiplied by the sum of Step 2 and Step 3
Step 2 [(ROC Award % x EPS Growth Modifier %) x 75%]
Plus
Step 3 [Discretionary % x 25%]
Equals
Annual Incentive Award
C. The company intends to hold the proposed financial/operational
performance standards constant for at least three years, with annual
reviews to ensure reasonableness vis-a-vis external market conditions.
This is especially relevant with regard to the cost of capital, which is
the key determinant of performance levels for the ROC measure. The cost
of capital should be re-examined if there is a 100 basis point
increase/decrease in the 30-year Treasury bond rate. (For example,
based on the current rate of 7.0%, an increase in rates to 8.0% or more
or a decrease in rates to 6.0% or less, would trigger a review of the
cost of capital.)
D. If the Compensation Committee of WICOR, Inc. determines that corporate
performance was inadequate, it may exercise discretion to reduce or
eliminate any or all bonus payments.
<PAGE> 4
V. Performance
Company performance goals will be for the 1997 calendar year.
VI. Treatment of Acquisitions and Investments
A. Acquisitions
The capitalized value (NOPAT/Target's Cost of Capital) of the
acquired entity's last full year's NOPAT will be added to the capital
base of the acquiring business unit in the month of acquisition. The
acquisition premium (defined as the excess of the purchase price over
the capitalized value ) will be incorporated into the capital base at
a rate of 20% per year starting at the beginning of the first
calendar year after the acquisition.
B. Investments
The entire value of investments of an operating nature (capital
expenditures) will be added to the capital base. However,
investments of a significant dollar amount, whose project life
extends beyond ten years, will be reviewed by management for
potential adjustments to the capital base (similar to the treatment
for acquisitions).
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 officers
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
<PAGE> 5
2. Deferred elections must be made prior to June 30, 1997, and a
definite time period for deferral must be specified.
D. Additionally, if performance significantly exceeds the maximum
standard established, the Compensation Committee has the discretion
to provide an incentive payout in excess of the maximum allowable
payout. However, any exceptional performance which qualifies for
this award, must be a direct result of management efforts and not due
to external factors beyond management's control. Any awards in
excess of the maximum payout opportunity would be paid in WICOR
restricted stock which would vest ratably over five years. However,
if a participant terminates employment due to death, retirement, or
disability, any prior restricted stock awards made under this
provision would become immediately vested.
E. In the event the company's overall ROC is negatively impacted by the
inclusion of a newly acquired company's results, the compensation
committee has the discretion to make a supplemental incentive
payment. The supplemental payment will be considered if the acquired
company is meeting the financial projections established at the time
of the acquisition and the officers of the acquiring entity would
have otherwise received a higher incentive payment had it not been
for the inclusion of the acquired entity's results. The purpose of
this supplemental incentive provision is to motivate officers to
invest in value building projects. The duration of the supplemental
incentive period will be no more than three years.
VIII. Implementation
A. The effective date of the Plan is January 1, 1997.
IX. 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
<PAGE> 6
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> 7 Appendix I
DEFINITIONS OF TERMS
Corporate Consolidated
NOPAT -Net operating profits after tax is calculated as follows:
Sum of the individual Subsidiaries NOPAT, including Energy PCO, WICOR
Industries PCO, WEXCO, Fieldtech, and WESCO.
CAPITAL - Total capital employed is calculated as follows:
Sum of the individual Subsidiaries Average Capital employed,
including Energy PCO, WICOR Industries PCO, WEXCO, Fieldtech
and WESCO.
Measurement for all capital employed items is determined using 13 month
rolling average
G:\LINDA\OFFICER\INC.WPD
9
<PAGE> 1
EXHIBIT 10.12
Wisconsin Gas Company
1997 Officer's Incentive Compensation Plan
I. Objectives
The principle objectives of the Plan are:
A. To motivate and to provide incentive for officers and executive
management (EMT) of Wisconsin Gas Company to create economic value.
B To ensure a focus on earning a return on capital in excess of the
cost of capital while also achieving the performance plus goals.
C. To assist in the retention of quality senior management.
D. To yield competitive total compensation levels when performance goals
meet the cost of capital requirement.
II. Eligibility
Participation in the Plan is limited to designated 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 (W-2 base salary calendar
earnings), are as follows:
Award as a Percent of Salary
----------------------------------------
Position Minimum Target Maximum
- ------------------ ------- ------ -------
President & CEO 0% 40% 87%
VP and EMT 0% 20% 43.5%
B. Each executive's award will be determined based on a combination of
WGC and individual performance, with WGC performance accounting for 75%
of the award and individual performance weighted at 25%
<PAGE> 2
IV. Performance Criteria and Objective Setting
A. Financial Component (75% Weight)
1.) Overall WGC performance will be measured by Return on Capital
(ROC), which is defined as NOPAT (Net Operating Profit After
Tax) divided by Total Capital Employed (NOPAT and Total Capital
Employed are defined in Appendix I). Threshold, Target, and
Maximum ROC performance levels, and their corresponding
incentive awards are as follows:
1997 Return Award as a %
Performance Level on Capital of Target
- ----------------- ---------------- -------------
Below Threshold Less than 6.0% 0%
Threshold 6.0% 1%
Target 7.0%* 100%
Maximum or Above 9.1% 200%
* WGC Cost of Capital = 7.0%
For performance at levels between Threshold and Target or between Target
and Maximum, award calculations will be interpolated on a linear basis.
2). ROC payouts will be further modified by performance against
budgeted criteria denoted as "Performance Plus" (the modifier).
Performance Plus consists of Rate Comparison, Customer Service,
Safety, and Cost Effectiveness. Each year management will recommend
specific goals for the aforementioned criteria. Associated with
various levels of performance for each goal will be a certain number
of award points. The cumulative total of these points will determine
the modification factor. As seen below, achievement of Performance
Plus can modify the award by +/- 20%, or eliminate the award if the
threshold number of points is not achieved.
Award
Performance Plus Performance Plus modification as
Achievement Points a % of Target
- ---------------- ------------------- ---------------
Below Threshold Less than 12 points 0%
Threshold 12 points 80%
Target 24 points 100%
Maximum 40 points 120%
For performance at levels between Threshold and Target or between
Target and
Maximum award calculations will be interpolated on a linear basis
<PAGE> 3
B. Discretionary/Individual Component (25% Weight)
The individual component of total incentive compensation will be based
on the individual's overall performance as measured against previously
identified and agreed upon goals and objectives. The award may vary
between 0% and 150% of the individual performance portion of the target
award, and will be determined and paid independently of Company
financial performance.
Combining the previously mentioned components yields the following
formula for determining annual incentive payouts:
Step 1 [ Base Salary x Eligible Target % ]
Multiplied by sum of step 2 and step 3
Step 2 [(ROC Award % x Performance Plus Modifier %) x 75%]
Plus
Step 3 [Discretionary % x 25%]
Equals
Annual Incentive Award
C. The company intends to hold the proposed financial/operational
performance standards constant for at least three years, with annual
reviews to ensure reasonableness vis-a-vis external market conditions.
This is especially relevant with regard to the cost of capital, which is
the key determinant of performance levels for the ROC measure. The cost
of capital should be re-examined if there is a 100 basis point
increase/decrease in the 30-year Treasury bond rate. (For example,
based on the current rate of 7.0%, an increase in rates to 8.0% or more
or a decrease in rates to 6.0% or less would trigger a review of the
cost of capital.)
D. If the Compensation Committee of WICOR, Inc. determines that corporate
performance was inadequate, it may exercise discretion to reduce or
eliminate any or all bonus payments
<PAGE> 4
V. Performance
Company performance goals will be for the 1997 calendar year.
VI. Treatment of Acquisitions and Investments
A. Acquisitions
The capitalized value (NOPAT/Target's Cost of Capital) of the
acquired entity's last full year's NOPAT will be added to the capital base of
the acquiring business unit in the month of acquisition. The acquisition
premium (defined as the excess of the purchase price over the capitalized
value ) will be incorporated into the capital base at a rate of 20% per year
starting at the beginning of the first calendar year after the acquisition.
B. Investments
The entire value of investments of an operating nature (capital
expenditures) will be added to the capital base. However,
investments of a significant dollar amount, whose project life
extends beyond ten years, will be reviewed by management for
potential adjustments to the capital base (similar to the treatment
for acquisitions).
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 officers
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. Deferred elections must be made prior to June 30, 1997,
and a definite time period for deferral must be specified
<PAGE> 5
D. Additionally, if performance significantly exceeds the maximum
standard established, the Compensation Committee has the discretion
to provide an incentive payout in excess of the maximum allowable
payout. However, any exceptional performance which qualifies for
this award, must be a direct result of management efforts and not due
to external factors beyond management's control. Any awards in
excess of the maximum payout opportunity would be paid in WICOR
restricted stock which would vest ratably over five years. However,
if a participant terminates employment due to death, retirement, or
disability, any prior restricted stock awards made under this
provision would become immediately vested.
E. In the event the company's overall ROC is negatively impacted by the
inclusion of a newly acquired company's results, the compensation
committee has the discretion to make a supplemental incentive
payment. The supplemental payment will be considered if the acquired
company is meeting the financial projections established at the time
of the acquisition and the officers of the acquiring entity would
have otherwise received a higher incentive payment had it not been
for the inclusion of the acquired entity's results. The purpose of
this supplemental incentive provision is to motivate officers to
invest in value building projects. The duration of the supplemental
incentive period will be no more than three years.
VIII. Implementation
A. The effective date of the Plan is January 1, 1997.
IX. 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.
<PAGE> 6
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> 7
Appendix 1
DEFINITION OF TERMS
Wisconsin Gas Company
NOPAT-Net Operating Profit After Taxes-is calculated as follows:
Net Income per financial statements
Plus the change in specific equity equivalents (net of tax):
Uncollectible Reserve
Regulatory Assets and liabilities (except for Environmental liability
related)
Injuries and Damage Reserve
Assets or Liabilities for Deferred Compensation Plans
Other Post Employee Benefits (Medical and Life Insurance)
Pension Expense (Qualified and non-Qualified)
Plus interest expense (net of tax)
Capital-An approximation of the economic book value of cash invested. Capital
is the sum of:
Shareholders equity
Long and short term debt
Capital Equivalents (net of tax)
Measurement of capital employed is determined using a 13 month rolling
average
9
A:\WISGAS.WPD
<PAGE> 1
EXHIBIT 10-15
Sta-Rite Industries, Inc..
1997 Officer's Incentive Compensation Plan
I. Objectives
The principle objectives of the Plan are:
A. To motivate and to provide incentive for officers of Sta-Rite to
create economic value.
B. To ensure a focus on earning a return on capital in excess of the
cost of capital while also making a positive contribution to sales
growth.
C. To assist in the retention of quality senior management.
D. To yield competitive total compensation levels when performance goals
meet the cost of capital requirement.
II. Eligibility
Participation in the Plan is limited to designated officers of Sta-Rite
Industries, Inc. The Chief Executive Officer, 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
executive, as a percentage of base salary (W-2 base salary calendar
earnings), are as follows:
Award as a percent of Salary
----------------------------
Position Minimum Target Maximum
- -------------------------- ------- ------ -------
President and CEO 0% 40% 87%
VP 0% 30% 65.25%
B. Each executive's award will be determined based on a combination of
Sta-Rite and individual performance, with Sta-Rite performance
accounting for 75% of the award and individual performance weighted
at 25%
<PAGE> 2
IV. Performance Criteria and Objective Setting
A. Financial Component (75% Weight)
1.) Overall Sta-Rite performance will be measured by Return on
Capital (ROC), which is defined as NOPAT (Net Operating Profit
After Tax) divided by Total Capital Employed (NOPAT and Total
Capital Employed are defined in Appendix I). Threshold, Target,
and Maximum ROC performance levels, and their corresponding
incentive awards are as follows:
1997 Return on Award as a
Performance Level Capital % of Target
- --------------------- ---------------- -------------
Below Threshold less than 7.5% 0%
Threshold 7.5% 1%
Target 9.8% 100%
Maximum or Above 12.7% 200%
* Sta-Rite Cost of Capital = 10.9%
For performance at levels between Threshold and Target or between Target
and Maximum, award calculations will be interpolated on a linear basis.
2.) ROC payouts will be further modified by performance against
Sales Growth (the modifier). As seen below, Sales growth
performance can modify the award by +/- 20%.
1997 Return on Award as a
Performance Level Growth % of Target
- ----------------- -------------- -----------
Threshold Less than or 80%
equal to 5%
Target 10% 100%
Maximum Greater than or 120%
equal to 15%
For performance at levels between Threshold and Target or between
Target and Maximum award calculations will be interpolated on a linear
basis.
<PAGE> 3
B. Discretionary/Individual Component (25% Weight)
The individual component of total incentive compensation will be based
on the individual's overall performance as measured against previously
identified and agreed upon goals and objectives. The award may vary
between 0% and 150% of the individual performance portion of the target
award, and will be determined and paid independently of Company
financial performance.
Combining the previously mentioned components yields the following
formula for determining annual incentive payouts:
Step 1 [ Base Salary x Eligible Target % ]
Multiplied by sum of step 2 and step 3
Step 2 [(ROC Award % x Sales Growth Modifier) x 75%]
Plus
Step 3 [Discretionary % x 25%]
Equals
Annual Incentive Award
C. The company intends to hold the proposed financial/operational
performance standards constant for at least three years, with annual
reviews to ensure reasonableness vis-a-vis external market conditions.
This is especially relevant with regard to the cost of capital, which is
the key determinant of performance levels for the ROC measure. The cost
of capital should be re-examined if there is a 100 basis point
increase/decrease in the 30-year Treasury bond rate. (For example,
based on the current rate of 7.0%, an increase in rates to 8.0% or more
or a decrease in rates to 6.0% or less would trigger a review of the
cost of capital.)
D. If the Compensation Committee of WICOR, Inc. determines that corporate
performance was inadequate, it may exercise discretion to reduce or
eliminate any or all bonus payments
<PAGE> 4
V. Performance
Company performance goals will be for the 1997 calendar year.
VI. Treatment of Acquisitions and Investments
A. Acquisitions
The capitalized value (NOPAT/Target's Cost of Capital) of the
acquired entity's last full year's NOPAT will be added to the capital base of
the acquiring business unit in the month of acquisition. The acquisition
premium (defined as the excess of the purchase price over the capitalized
value ) will be incorporated into the capital base at a rate of 20% per year
starting at the beginning of the first calendar year after the acquisition.
B. Investments
The entire value of investments of an operating nature (capital
expenditures) will be added to the capital base. However,
investments of a significant dollar amount, whose project life
extends beyond ten years, will be reviewed by management for
potential adjustments to the capital base (similar to the treatment
for acquisitions).
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 officers
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. Deferred elections must be made prior to June 30, 1997, and a
definite time period for deferral must be specified
<PAGE> 5
D. Additionally, if performance significantly exceeds the maximum
standard established, the Compensation Committee has the discretion
to provide an incentive payout in excess of the maximum allowable
payout. However, any exceptional performance which qualifies for
this award, must be a direct result of management efforts and not due
to external factors beyond management's control. Any awards in
excess of the maximum payout opportunity would be paid in WICOR
restricted stock which would vest ratably over five years. However,
if a participant terminates employment due to death, retirement, or
disability, any prior restricted stock awards made under this
provision would become immediately vested.
E. In the event the company's overall ROC is negatively impacted by the
inclusion of a newly acquired company's results, the compensation committee
has the discretion to make a supplemental incentive payment. The supplemental
payment will be considered if the acquired company is meeting the financial
projections established at the time of the acquisition and the officers of the
acquiring entity would have otherwise received a higher incentive payment had
it not been for the inclusion of the acquired entity's results. The purpose
of this supplemental incentive provision is to motivate officers to invest in
value building projects. The duration of the supplemental incentive period
will be no more than three years.
VIII. Implementation
A. The effective date of the Plan is January 1, 1997.
IX. 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
<PAGE> 7
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> 8
Appendix 1
DEFINITION OF TERMS
Sta-Rite
NOPAT- Net operating profits after tax is calculated as follows:
Operating Income Per Financial Statements
Plus (minus) the change in specific equity equivalent adjustments:
Goodwill amortization
increase/(decrease) in LIFO reserve
increase/(decrease) in product liability reserve
increase/(decrease) in "operating" environmental reserve
increase/(decrease) in retiree health benefit liability
increase/(decrease) in deferred compensation
Book environmental provisions for abandoned facilities
Minus cash income tax expense.
Capital- An approximation of the economic book value of all cash invested in
going-concern business activities, capital is essentially a company's net
assets (total assets less non-interest-bearing current liabilities), but with
three adjustments:
1. Marketable securities are subtracted
2. The present value of non-capitalized leases is added to net property,
plant and equipment. (Adjustment determined immaterial for Sta-Rite
at this time. Adjustment will be monitored in the future for
potential inclusion should circumstances change)
3. Certain equity equivalent reserves are added to assets:
Cumulative amortization of Goodwill
LIFO reserve is added to inventories
Bad debt reserve is added to receivables (adjustment not made for
Sta-Rite due to immateriality. Adjustment will be monitored for
potential inclusion should it become material)
Sta-Rite's capital calculation for 1997 is:
Current assets (excluding marketable securities, if any)
Plus Net property, plant & equipment
Plus Goodwill
Plus Other assets
Plus Equity equivalent reserves:
Cumulative goodwill amortization
LIFO reserve
Minus Non-interest bearing current liabilities (incl. warranty reserve)
Measurement for all capital employed items is determined using a 13 month
rolling average
9
<PAGE> 1
EXHIBIT 13
Management's Discussion and Analysis
GENERAL OVERVIEW
WICOR, Inc. ("WICOR" or the "Company") is a diversified holding company with
Energy and Manufacturing business groups. The Energy group provides natural
gas distribution and related services and the Manufacturing group manufactures
and distributes, both domestically and abroad, pumps and equipment used to
pump, control, transfer, hold and filter water and other fluids. The Energy
group includes Wisconsin Gas Company ("Wisconsin Gas"), the oldest and largest
natural gas distribution utility in Wisconsin.
In 1996, WICOR posted record net earnings for the second consecutive year. Net
income increased 18% and earnings per share rose 10% in 1996 as compared with
1995, as both the Company's energy and manufacturing businesses posted
significantly improved results. Net income and earnings per share in 1995 rose
19% and 17%, respectively, from the previous year.
In 1996, the improvement in the Energy group was due to internal cost
reductions and increased sales caused by weather that was colder than normal
and colder than the prior year. Manufacturing operations in 1996 showed
improvement in the water systems, pool/spa, food service, industrial,
RV/marine and fire fighting product lines.
Net cash flow from operations for the years 1994 through 1996 totaled $248.9
million. During that period, the Company's cash flow provided funding for
$163.0 million of capital expenditures, $58.3 million in acquisitions and
$81.2 million of dividends. Segment data for WICOR's operations for the last
three years are summarized below in millions of dollars.
Operating Revenues 1996 1995 1994
- --------------------- -------- -------- --------
Energy $ 602.7 $ 522.8 $ 556.6
Manufacturing-Domestic 269.0 207.6 197.0
Manufacturing-Foreign 140.9 130.2 114.2
-------- -------- --------
$1,012.6 $ 860.6 $ 867.8
======== ======== ========
Depreciation and Amortization 1996 1995 1994
- ----------------------------- -------- -------- --------
Energy $ 40.9 $ 36.7 $ 37.4
Manufacturing-Domestic 10.7 8.8 7.0
Manufacturing-Foreign 3.3 3.0 2.7
-------- -------- --------
$ 54.9 $ 48.5 $ 47.1
======== ======== ========
Operating Income 1996 1995 1994
- ---------------------- -------- -------- --------
Energy $ 64.5 $ 58.8 $ 44.4
Manufacturing-Domestic 19.7 13.7 15.1
Manufacturing-Foreign 6.5 6.6 7.1
-------- -------- --------
$ 90.7 $ 79.1 $ 66.6
======== ======== =======
<PAGE> 2
Actual
Estimated ------------------------------
Capital Expenditures 1997 1996 1995 1994
- ---------------------- -------- -------- -------- --------
Energy $ 40.2 $ 36.6 $ 42.9 $ 44.6
Manufacturing-Domestic 15.3 11.3 8.2 7.1
Manufacturing-Foreign 4.5 3.8 5.1 3.4
-------- -------- -------- --------
$ 60.0 $ 51.7 $ 56.2 $ 55.1
======== ======== ======== ========
Identifiable Assets 1996 1995 1994
- ---------------------- -------- -------- --------
Energy $ 751.1 $ 718.3 $ 707.9
Manufacturing-Domestic 215.8 206.5 152.2
Manufacturing-Foreign 90.8 83.7 70.6
-------- -------- --------
$1,057.7 $1,008.5 $ 930.7
======== ======== ========
RESULTS OF OPERATIONS
Energy Group
The Energy group's primary business is the distribution of natural gas through
Wisconsin Gas. In 1995, the Company formed two non-regulated energy services-
related businesses: WICOR Energy, a gas marketing company, and FieldTech,
whose operations include contract meter reading, management of field
operations and billing services for investor owned and municipal gas, water
and electric utilities. The Company views these businesses as important
elements in meeting increased competition in the natural gas industry and as a
new source of growth for its energy related operations. Operating and net
income derived from the energy services related businesses are not material to
the Company at the present time.
The increase in Energy group operating income of $5.7 million, or 10%, in 1996
compared to 1995 was due primarily to decreased operating and maintenance
expenses and increased sales margins resulting from colder weather. The
improvements were partially offset by higher depreciation expense and
voluntary annualized rate reductions totaling $7.5 million.
Increased sales margins and lower operating expenses resulted in an increase
in operating income in 1995 as compared with 1994.
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 within the regulated business, 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. The following tables set forth margin and volume data for
the Energy group and utility, respectively, for each of the years ended
December 31
<PAGE> 3
[millions of dollars] 1996 1995 1994
- ------------------------- -------- -------- --------
Energy group revenue $ 588.3 $ 515.0 $ 550.0
Cost of gas sold 393.7 322.2 357.5
Sales margin 194.6 192.8 192.5
Gas transportation margin 14.4 7.8 6.6
-------- -------- --------
Total margin $ 209.0 $ 200.6 $ 199.1
======== ======== ========
[millions of therms] 1996 1995 1994
- -------------------------- -------- -------- --------
Sales volumes
Firm 883 841 795
Interruptible 196 314 282
Transport volumes 276 145 119
-------- -------- --------
Total throughput 1,355 1,300 1,196
======== ======== ========
Total Energy group margin increased by 4% and 1% in 1996 and 1995,
respectively. The increase in 1996 margin was largely the result of a 5%
increase in firm sales volumes which was partially offset by voluntary rate
reductions. Utility margin rates have been reduced an aggregate of $10.1
million as a result of a November 1994 rate order of the PSCW and voluntary
annualized rate reductions of $4.5 million in 1995 and $3.0 million in 1996.
These margin reductions have been more than offset by decreases in operating
expenses. The weather in 1996 was 7% colder than normal and 9% colder than
1995. The increase in transportation volumes in 1996 was due mainly to more
customers purchasing gas from sources other than Wisconsin Gas and
transporting the volumes over the Wisconsin Gas distribution system. The
movement in transportation from gas sales had no impact on margin. 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
voluntary rate reductions discussed above.
Operation and maintenance expenses decreased $1.2 million, or 1%, for 1996 as
compared with 1995 as a result of the Company's continuing efforts to reduce
operating costs. The decrease was due mainly to lower labor and related
benefit expenses ($4.3 million) which was partially offset by a one-time $3.0
million amortization of the uncollectible accounts receivable regulatory asset
approved by the PSCW in the fourth quarter of 1996.
In 1995, operation and maintenance expenses decreased by $12.3 million, or 11%
as compared with 1994. The decrease was due primarily to lower labor and
related benefit expenses ($6.3 million), 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. Since July 1993, the Wisconsin Gas work
force has declined by 394 employees, or 29%, through early retirement,
involuntary severance and attrition
<PAGE> 4
Depreciation expense for 1996 increased by $3.9 million, or 14%, compared with
1995. The increase was due to additions to plant and increased depreciation
rates permitted by the PSCW. Depreciation expense is expected to decrease in
1997 due to the second-year impact of the 1996 PSCW approved depreciation
rates, and thereafter increase due to planned capital investments.
Depreciation expense was relatively flat in 1995 as compared with 1994.
Manufacturing Group
In December 1996, the Company established WICOR Industries, Inc., ("WICOR
Industries"), an intermediate manufacturing holding company. The establishment
of WICOR Industries improves the Company's ability to raise debt capital for
its manufacturing businesses at a lower cost and secures additional
flexibility in structuring borrowings.
Financial data regarding the Manufacturing group are set forth in the table
below.
[millions of dollars] 1996 1995 1994
- ------------------------ -------- -------- --------
Revenues $ 409.9 $ 337.8 $ 311.2
Cost of sales 297.1 245.7 222.7
-------- -------- --------
Gross profit 112.8 92.1 88.5
Operating expenses 86.6 71.8 66.3
-------- -------- --------
Operating income $ 26.2 $ 20.3 $ 22.2
======== ======== ========
Manufacturing sales in 1996 increased $72.1 million, or 21%, to $409.9 million
compared to the same period in 1995. Hypro Corporation ("Hypro"), which was
acquired by the Company in July 1995 (See Note 2 of Notes to Consolidated
Financial Statements), contributed $44.3 million and $18.4 million to the
Manufacturing group's total net sales for 1996 and 1995, respectively.
Domestic sales increased $61.4 million, or 30%, to $269.0 million. Overall
shipments for water systems, pool and spa, food service, industrial and
firefighting applications continued their upward trend from last year.
International sales increased by 8% in 1996 as compared with 1995. Although
international sales increased to $140.9, they were hampered by sluggish
economic conditions and unfavorable weather in Europe.
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.
Manufacturing operating income in 1996 was $26.2 million compared with $20.3
million in 1995 and $22.2 million in 1994. The increase in 1996 operating
income was due to increased sales levels and strong domestic operating
performances, particularly in the water systems, pool/spa, food service,
industrial, RV/marine and firefighting segments
<PAGE> 5
The 1995 decrease in operating income was the result of soft demand in
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.
Operating expenses increased by 20.6% in 1996 over 1995 due
primarily to increased sales-related expenses. Operating expenses increased in
1995 by 8% over 1994. As a percentage of sales, 1996 operating expenses were
slightly lower than in 1995 and 1994.
In order to reduce costs and improve productivity and asset utilization, the
Company consolidated its manufacturing operations. These activities resulted
in the 1996 closing of a manufacturing plant located in Detroit, Michigan. In
addition, the Company announced, in 1997, the closing of a second plant
located in Waterford, Wisconsin. As a result of these closures, the Company
recorded an after-tax charge of $0.7 million. The closing of the Waterford
plant is expected to be completed in 1997 and includes combining certain
manufacturing support and administrative functions which will result in a net
reduction of approximately 50 positions.
INTEREST EXPENSE, OTHER INCOME AND INCOME TAXES
Interest expense of $18.4 million for 1996 was $0.9 million, or 5%, lower than
for the prior year, primarily due to lower average interest rates. The lower
rates were partially offset by increased debt incurred to finance the Hypro
acquisition.
The 1995 increase in interest expense as compared to 1994 resulted primarily
from increased manufacturing borrowings for higher international working
capital requirements, the debt incurred for the Hypro acquisition and slightly
higher interest rates.
Other income decreased by $1.3 million in 1996 as compared with 1995. Other
income in 1995 was positively impacted by the sale of the Company's investment
in Filtron Technologies Corporation, for an after-tax gain of $0.8 million
($0.05 per share).
Income tax expense increased $4.0 million in 1996 compared to 1995 reflecting
increased pre-tax income. The effective income tax rate was lower in 1994 than
in either 1996 or 1995 largely as a result of the utilization of foreign tax
incentives and the settlement of disputed tax matters.
ACCOUNTING CHANGES
In 1996, the Company adopted 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 Statement establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets and regulatory assets. There
was no material effect on the financial statements from the adoption because
the Company's prior impairment recognition practice was consistent with the
major provisions of SFAS No. 121
<PAGE> 6
In 1996, the Company also adopted SFAS No. 123, "Accounting for Stock Based
Compensation." SFAS No. 123 permits either recording the estimated value of
stock-based compensation over the applicable vesting period or disclosing the
unrecorded cost and the related effect on earnings per share in the Notes to
Consolidated Financial Statements. The Company will apply the latter approach
and comply with the disclosure provisions of the new Statement (See Note 9 of
Notes to Consolidated 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 in recent years 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.
In 1996, the PSCW approved a one-year extension of the margin rate cap. After
reviewing the impact of the margin rate cap and other factors, management
believes that Wisconsin Gas productivity improvements have offset the impact
of inflationary cost increases. This alternative method is discussed on page
23 under "Regulatory Matters."
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations remain strong and continues to provide the
principal source of the Company's liquidity. WICOR's ability to attract the
necessary financial capital at reasonable terms is critical to the Company's
overall strategic plan. Acquisitions and investments have been initially
financed with short-term debt and later permanently funded with various long-
term debt securities or common equity, depending on market conditions. Working
capital was $83.4 million at the end of 1996 compared to $74.6 million and
$72.9 million at the end of 1995 and 1994, respectively. The current ratio was
1.3 as of December 31, 1996, 1995 and 1994.
Cash flows from operating activities increased by $5.5 million to $75.4
million in 1996 as compared with 1995. Due to the seasonal nature of the
energy business, accrued revenues, accounts receivable, accounts payable and
gas in storage levels are higher in the heating season as compared with the
summer months. The Company stores gas during the non-heating months and
withdraws the gas during the heating months. Cash used to purchase gas
injected into storage increased by $9.5 million due to timing of withdrawals
and a higher 1996 weighted average cost of gas relative to 1995. Withdrawals
from storage during 1996 were 27% lower than in 1995. As customers take
advantage of deregulation within the natural gas industry and move to purchase
their own gas supplies directly from producers or brokers, the impact of gas
purchases on the cash flow of the energy business may diminish.
Over the next three years, the Company believes that cash provided from
operating activities will satisfy anticipated cash requirements, excluding
acquisitions and scheduled debt retirements
<PAGE> 7
INVESTMENT ACTIVITIES
Capital expenditures decreased by $4.5 million in 1996 compared to 1995 and
were relatively flat in 1995 compared to 1994. Consolidated capital
expenditures are expected to increase modestly in 1997, and are expected to be
funded from operations.
In January 1995, WICOR sold its interest in Filtron Technologies Corporation,
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 purchase 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 information.
In 1992, the PSCW issued an order prescribing an equity-based formula for
determining the limitation on nonutility investments. As of December 31, 1996,
WICOR would be permitted to invest an additional $56.6 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
Capital needs in 1996 were satisfied with cash from operations. 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 repaid 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 6 3\8% Notes due in
2005, the proceeds of which were used to redeem, at par, $50 million of 9 1\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. The Company's
ratio of debt to capitalization decreased to 31% in 1996 as compared to 34% in
1995 and 36% in 1994. The utility's embedded cost of long-term debt was 7.0%
for the year ended December 31, 1996 and 8.1% for the years ended December 31,
1995 and 1994.
In December 1995, the Company completed a public offering of 1,265,000 shares
of common stock for the purpose of refinancing a portion of the borrowings
under the credit facility entered into in connection with the July 1995
acquisition of Hypro. Net proceeds to the Company from the common stock
offering, after deduction of associated expenses, were $38.9 million. Amounts
remaining outstanding under this credit facility (approximately $27 million)
accrue interest at an annual rate of approximately 5.8% as of December 31,
1996. During 1996, the maturity date was extended from July 1996 to July 1997.
In the first half of 1997, the Company, and/or one of its subsidiaries, plans
to issue long-term debt for the purpose of repaying the remaining balance
under the credit facility
<PAGE> 8
WICOR raised its dividend by 2.4%, 2.5% and 2.6% in 1996, 1995 and 1994,
respectively. The current annual dividend rate is $1.68 per share. At December
31, 1996, the Company had $120.9 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 and 1994, 54,000 and 511,000 shares of WICOR
common stock, respectively, were newly issued through the WICOR Plan and
through various employee benefit plans. These stock issuances provided funds
to the Company of $1.2 million and $10.6 million in 1995 and 1994,
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 of
and dividend payments by 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's ratio of pre-tax earnings to fixed charges increased to 4.9 in
1996 from 4.0 in 1995, as a result of higher earnings and fixed charges that
were 11% lower in 1996 than in 1995.
Access to credit markets and the costs associated therewith can be correlated
to credit quality. Wisconsin Gas's unsecured bond rating from Moody's
Investors Service and Standard and Poor's Corporation was reaffirmed in 1996
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
considered "investment grade." Obligations which are rated "Aa" are judged to
be of high quality by all standards. 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 designates the relative position of a credit rating within the rating
category.
WICOR and its subsidiaries maintain multi-year revolving credit agreements,
expiring in March 1998, to provide backup funding for commercial paper and to
ensure availability of adequate resources for corporate liquidity. Separate
agreements of $25 million for WICOR, $30 million for Wisconsin Gas and $15
million for Sta-Rite Industries, Inc., a manufacturing subsidiary, exist for
such purposes. Wisconsin Gas finances working capital by issuing commercial
paper in the open market. Commercial paper outstanding, on a consolidated
basis, at December 31, 1996 and 1995 was $71.6 million and $66.0 million,
respectively
<PAGE> 9
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 generic proceedings 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. It has adopted standards for transactions between
a utility and its gas marketing affiliates. Hearings have been held to
identify barriers to competition and to establish criteria for determining
whether markets are workably competitive. PSCW action on these issues is
anticipated during the first half of 1997. The impact of these proceedings on
Wisconsin Gas's future operations is uncertain at this time.
Under current utility regulation, Wisconsin Gas only earns a profit on the
transportation of natural gas and not its sale. 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 transporta-tion services within its utility
service territory. In response to filings made by Wisconsin Gas, the PSCW
approved gas supplier customer choice pilot programs for the utility's firm
market segments effective November 1, 1996. Under these limited pilot
programs, 97 large-volume firm, 642 commercial and 818 residential customers
elected to purchase gas through third-party gas suppliers until October 31,
1997. Requests from customers to participate exceeded the volumes made
available under the pilot programs. These pilot programs are designed to test
market acceptance of supplier choice, the interest of third-party marketers in
serving these market segments and Wisconsin Gas's capabilities to administer
transportation-only services. WICOR Energy Services, as a gas marketer, is one
of the suppliers competing in the pilot programs.
At this point, 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 the extent to which shareholders might be required to
bear any costs that may arise in connection with existing contractual
commitments and in transforming Wisconsin Gas's business are uncertain.
Under a November 1994 rate order, Wisconsin Gas's rates were 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, $3.0 million and $3.0 million on an annualized basis effective
August 1, 1995, November 1, 1995 and November 1, 1996, respectively. With
these reductions, Wisconsin Gas's rates are designed to recover $7.5 million
per year less than the maximum margin recovery allowed by the PSCW's rate
order. At Wisconsin Gas's request, the PSCW extended the margin cap to October
31, 1998
<PAGE> 10
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. In October
1996, the PSCW issued a decision that requires all gas utilities to file new
purchased gas cost recovery mechanisms consistent with conditions set out by
the PSCW. Wisconsin Gas filed its mechanism in January 1997, which will be
subject to hearings and PSCW approval. Wisconsin Gas anticipates approval of a
new gas cost recovery mechanism during the third quarter of 1997. It is
uncertain whether the Wisconsin Gas proposal will be accepted. Under Wisconsin
Gas's proposal, the effect of the mechanism on the Company's results of
operations is not expected to be material.
On November 1, 1993, ANR Pipeline Company ("ANR"), Wisconsin Gas's principal
pipeline supplier, filed for a general rate increase with the Federal Energy
Regulatory Commission ("FERC"). The filing proposed cost increases in many
areas of ANR's regulated services. 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 were completed
in the first quarter of 1996. The Company cannot predict when an order will be
issued by the FERC. 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.
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 Wisconsin Gas
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
<PAGE> 11
Report of Independent Public Accountants
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, 1996 and 1995, and the related consolidated statements of income,
common equity and cash flows for each of the three years in the period ended
December 31, 1996. 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 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 WICOR, Inc. and subsidiaries
as of December 31, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Milwaukee, Wisconsin,
January 27, 1997
<PAGE> 12
Consolidated Statements of Income
[thousands of dollars, except per share amounts]
Years Ended December 31, 1996 1995 1994
------------ ------------ ------------
Operating Revenues
Energy $ 602,685 $ 522,840 $ 556,587
Manufacturing 409,916 337,754 311,168
------------ ------------ ------------
1,012,601 860,594 867,755
Operating Costs and Expenses
Cost of gas sold 393,681 322,198 357,482
Manufacturing cost of sales 297,053 245,688 222,679
Operations and maintenance 187,557 174,515 181,820
Depreciation and amortization 34,355 29,696 29,416
Taxes, other than income taxes 9,244 9,421 9,748
------------ ------------ ------------
921,890 781,518 801,145
------------ ------------ ------------
Operating Income 90,711 79,076 66,610
------------ ------------ ------------
Interest expense (18,349) (19,299) (16,698)
Other income and expenses 1,114 2,438 574
------------ ------------ ------------
Income Before Income Taxes 73,476 62,215 50,486
Income taxes 26,705 22,688 17,312
------------ ------------ ------------
Net Income $ 46,771 $ 39,527 $ 33,174
============ ============ ============
Per Share of Common Stock
Net income $ 2.55 $ 2.32 $ 1.99
Cash dividends paid $ 1.66 $ 1.62 $ 1.58
Average common shares
outstanding (thousands) 18,365 17,020 16,708
The accompanying notes are an integral part of these statements.
<PAGE> 13
Consolidated Balance Sheets
(thousands of dollars)
December 31, 1996 1995
------------ ------------
Assets
Current Assets
Cash and cash equivalents $ 18,784 $ 20,380
Accounts receivable, less allowance
for doubtful accounts of $14,429
and $10,343, respectively 150,076 132,203
Accrued revenues 59,794 48,847
Manufacturing inventories 72,316 68,236
Gas in storage 33,463 24,117
Deferred income taxes 21,706 20,256
Prepayments and other 16,566 14,990
------------ ------------
372,705 329,029
------------ ------------
Property, Plant and Equipment, at cost
Energy 786,643 757,950
Manufacturing 132,342 119,032
------------ ------------
918,985 876,982
------------ ------------
Less accumulated depreciation
and amortization 477,577 440,942
------------ ------------
441,408 436,040
------------ ------------
Deferred Charges and Other
Regulatory assets 101,808 104,145
Goodwill 61,366 61,096
Prepaid pension costs 36,869 33,073
Systems development costs 23,052 28,868
Other 20,444 16,263
------------ ------------
243,539 243,445
------------ ------------
$ 1,057,652 $ 1,008,514
============ ===========
<PAGE> 14
Consolidated Balance Sheets
(thousands of dollars)
December 31, 1996 1995
------------ ------------
Liabilities and Capitalization
Current Liabilities
Short-term borrowings $ 114,810 $ 106,377
Accounts payable 98,951 66,157
Refundable gas costs 31,545 34,347
Accrued payroll and benefits 17,246 16,340
Current portion of long-term debt 4,061 6,836
Accrued taxes 1,260 6,940
Other 21,464 17,401
------------ ------------
289,337 254,398
------------ ------------
Deferred Credits and Other Liabilities
Postretirement benefit obligation 66,391 67,306
Regulatory liabilities 61,749 64,896
Deferred income taxes 39,668 39,282
Accrued environmental remediation costs 36,222 36,381
Unamortized investment tax credit 7,265 7,724
Other 19,399 18,673
------------ ------------
230,694 234,262
------------ ------------
Commitments and Contingencies (Note 7)
Capitalization (See accompanying statement)
Long-term debt 169,169 174,713
Redeemable preferred stock - -
Common equity 368,452 345,141
------------ ------------
537,621 519,854
------------ ------------
$ 1,057,652 $ 1,008,514
============ ============
The accompanying notes are an integral part of these statements.
<PAGE> 15
Consolidated Statements of Cash Flows
(thousands of dollars)
Years Ended December 31, 1996 1995 1994
---------- ---------- ----------
Operations
Net income $ 46,771 $ 39,527 $ 33,174
Adjustments to reconcile net
income to net cash flow
from operating activities:
Depreciation and amortization 54,871 48,477 47,097
Deferred income taxes (1,103) (6,436) (9,091)
Changes in:
Accounts receivable (28,641) (33,298) 21,105
Manufacturing inventories (3,590) (1,931) (2,027)
Gas in storage (9,512) 14,121 6,647
Other current assets (1,167) 3,545 (4,827)
Accounts payable 32,520 (4,652) 2,943
Refundable gas costs (2,802) 16,289 2,462
Accrued taxes (6,028) (7,839) (2,412)
Other current liabilities 4,225 2,939 947
Other noncurrent assets
and liabilities (10,128) (824) 7,533
---------- ---------- ----------
Cash provided by
operating activities 75,416 69,918 103,551
---------- ---------- ----------
Investment Activities
Capital expenditures (51,744) (56,241) (55,051)
Proceeds from sale of assets 1,249 5,099 42
Acquisitions 22 (58,256) (72)
Other, net 285 365 343
---------- ---------- ----------
Cash used in investing activities (50,188) (109,033) (54,738)
---------- ---------- ----------
Financing Activities
Change in short-term borrowings (969) 4,059 (21,617)
Issuance of long-term debt 10,045 65,000 1,869
Reduction of long-term debt (9,194) (57,700) (4,795)
Issuance of common stock 3,345 40,285 10,649
Dividends paid on common stock,
less amounts reinvested (30,485) (27,454) (23,247)
Other 434 167 513
---------- ---------- ----------
Cash (used in) provided by
financing activities (26,824) 24,357 (36,628)
---------- ---------- ----------
Change in Cash and Cash Equivalents (1,596) (14,758) 12,185
Cash and cash equivalents
at beginning of year 20,380 35,138 22,953
---------- ---------- ----------
Cash and Cash Equivalents
at End of Year $ 18,784 $ 20,380 $ 35,138
========== ========== ==========
The accompanying notes are an integral part of these statements
<PAGE> 16
Consolidated Statements of Capitalization
(thousands of dollars)
December 31, 1996 1995
---------- ----------
Long-Term Debt
Wisconsin Gas:
First mortgage bonds
Adjustable rate series, 7.2% and
9.3%, respectively, due 1999 $ 4,000 $ 6,000
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 65,000
WICOR Industries, Inc.:
Securities loan agreement,11-3/4%
due semi-annually through 2000
(includes unamortized bond
premium of $1,078) 7,014 -
First mortgage notes, adjustable
rate, 4.4% to 4.6%, due
semi-annually through 2000 633 909
Industrial revenue bonds, 7.84%,
payable through 2000 1,320 1,770
Commercial paper under
multi-year credit agreements 3,000 11,202
Capital lease obligations and other 342 1,271
Unamortized (discount), net (1,547) (1,754)
ESOP loan guarantee 4,407 5,315
---------- ----------
169,169 174,713
---------- ----------
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 18,407,000 and
18,237,000 shares, respectively 18,407 18,237
Other paid-in capital 224,041 219,133
Retained earnings 129,777 113,491
Cumulative currency
translation adjustment 1,349 (125)
Unearned compensation - ESOP
and restricted stock (5,122) (5,595)
---------- ----------
368,452 345,141
---------- ----------
Total Capitalization $ 537,621 $ 519,854
========== ==========
The accompanying notes are an integral part of these statements.
<PAGE> 17
Consolidated Statements of Common Equity
(thousands of dollars)
Years Ended December 31, 1996 1995 1994
---------- ---------- ----------
Common Stock
Balance at beginning of year $ 18,237 $ 16,918 $ 16,407
Issued in connection with
underwritten public offering - 1,265 -
Issued in connection with
dividend reinvestment, customer
stock purchase, employee
benefit plans and other 170 54 511
---------- ---------- ----------
Balance at end of year 18,407 18,237 16,918
---------- ---------- ----------
Other Paid-in Capital
Balance at beginning of year 219,133 180,000 166,710
Issued in connection with
underwritten public offering - 37,684 -
Received in connection with
dividend reinvestment, customer
stock purchase, employee
benefits plans and other 4,908 1,449 13,290
---------- ---------- ----------
Balance at end of year 224,041 219,133 180,000
---------- ---------- ----------
Retained Earnings
Balance at beginning of year 113,491 101,418 94,643
Net income 46,771 39,527 33,174
Dividends on common stock (30,485) (27,454) (26,399)
---------- ---------- ----------
Balance at end of year 129,777 113,491 101,418
---------- ---------- ----------
Cumulative Currency
Translation Adjustment
Balance at beginning of year (125) (243) (1,741)
Translation adjustments,
net of tax 1,474 118 1,498
---------- ---------- ----------
Balance at end of year 1,349 (125) (243)
---------- ---------- ----------
Unearned Compensation -
ESOP and Restricted Stock
Balance at beginning of year (5,595) (6,868) (7,484)
Loan payments 908 1,055 1,114
Issuance of restricted stock (1,208) - (723)
Amortization and forfeitures
of restricted stock 773 218 225
---------- ---------- ----------
Balance at end of year (5,122) (5,595) (6,868)
---------- ---------- ----------
Total Common Equity
at End of Year $ 368,452 $ 345,141 $ 291,225
========== ========== ==========
The accompanying notes are an integral part of these statements
<PAGE> 18
Quarterly Financial Data (unaudited)
Because seasonal factors significantly affect the Company's operations
(particularly at Wisconsin Gas), the following data may not be comparable
between quarters:
[thousands of dollars, except per share amounts]
<TABLE>
<CAPTION>
Quarters:
-----------------------------------------
First Second Third Fourth(b)
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
1996
Operating revenues $ 328,747 $227,600 $175,139 $281,115
Operating income (loss) $ 54,943 $ 13,300 $ (3,416) $ 25,884
Income available for common stock (b) $ 30,949 $ 5,652 $ (4,478) $ 14,648
Net income(loss) per common share(a)(b) $ 1.69 $ 0.31 $ (0.24) $ 0.80
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) per common share (a) $ 1.46 $ 0.16 $ (0.29) $ 0.99
</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.
(b) The fourth quarter of 1996 includes the effects of charges relating to
the settlement of a product liability lawsuit and the consolidation of two
Wisconsin manufacturing plants. These charges decreased consolidated net
income by $1.2 million or $0.07 per share
<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"), FieldTech, Inc. ("FieldTech") and WICOR Industries, Inc.
("WICOR Industries"), an intermediate holding company for various
manufacturing subsidiaries. All appropriate intercompany transactions have
been eliminated.
b] BUSINESS The Company is a diversified holding company with two principal
business groups: energy services and manufacturing of pumps. 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, 1996, Wisconsin Gas served approximately 513,000 customers in 514
communities. The Energy group accounted for 60% and 71% of the Company's 1996
operating revenues and operating income, respectively. Through WICOR
Industries, Inc., the Company also engages in the manufacture and sale of
pumps and processing equipment used to pump, control, transfer, hold and
filter water and other fluids. 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 over 100
countries.
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's 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 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> 20
The depreciation of Wisconsin Gas's assets is computed using straight-line
rates over estimated useful lives and considers estimated removal costs and
salvage value. These rates have been consistently used for ratemaking
purposes. The composite rates are 4.5%, 4.2% and 4.5% for 1996, 1995 and 1994,
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, 1996 and 1995 are as follows:
[thousands of dollars] 1996 1995
---------- ----------
Regulatory assets:
Postretirement benefit costs (Note 9) $ 42,275 $ 45,054
Deferred environmental costs 41,368 41,457
Deferred uncollectible expenses 10,152 8,248
Income tax-related amounts due
from customers 3,003 3,357
Other 5,010 6,029
---------- ----------
$ 101,808 $ 104,145
========== ==========
Regulatory liabilities:
Income tax-related amounts
due to customers $ 21,369 $ 22,891
Pension costs (Note 9) 16,631 19,482
Other 23,749 22,523
---------- ----------
$ 61,749 $ 64,896
========== ==========
Wisconsin Gas is precluded from discontinuing service to residential customers
within its service area during 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.
<PAGE> 21
million allowable annual provision for doubtful accounts, including
amortization of prior deferred amounts. In the fourth quarter of 1996, the
PSCW staff approved a one-time charge of $3.0 million relating to
uncollectible accounts receivable expense. 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] INVENTORIES
Energy - Substantially all gas in storage inventories in 1996 and 1995 was
priced using the weighted average method of accounting.
Manufacturing - Approximately 55% and 58% of manufacturing inventories, in
1996 and 1995, 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 $8.5 million and $7.9
million higher at December 31, 1996 and 1995, 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, the Company, through an agent, purchased common stock for
shareholders who elected to reinvest their dividends in common stock. The
Company's dividends reinvested (pursuant to its dividend reinvestment plan)
totaled $3.2 million for 1994.
For purposes of the Consolidated Statements of Cash Flows, income taxes paid
(net of refunds) and interest paid (net of capitalized amounts) were as
follows for each of the years ended December 31:
(thousands of dollars) 1996 1995 1994
- ------------------------- ---------- ---------- ----------
Income taxes paid $ 34,669 $ 27,801 $ 31,384
Interest paid $ 16,824 $ 18,855 $ 15,71
<PAGE> 22
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, 1996, 1995 and 1994 were not material. Wisconsin Gas purchased
derivatives in 1996 and 1995 to hedge a small portion of gas costs to be
purchased 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.
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 estimates.
l] RECLASSIFICATIONS Certain prior year financial statement amounts have been
reclassified to conform to their current year presentation.
2 | MERGERS AND ACQUISITIONS
Fiscal 1996 included an acquisition of an 80% interest in Hydro-Flow
Filtration Systems. The effects of this acquisition are immaterial to these
consolidated financial statements.
On July 19, 1995, the Company completed the acquisition of Hypro Corporation
("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.
3 | INCOME TAXES
The components of deferred income tax assets and liabilities at December 31,
1996 and 1995 are as follows:
(thousands of dollars) 1996 1995
- --------------------------- ---------- ----------
Deferred Income Tax Assets
Recoverable gas costs $ 12,658 $ 13,416
Deferred compensation 2,968 2,416
Inventory 1,078 1,290
Product warranties 1,691 1,384
Other 3,311 1,750
---------- ----------
$ 21,706 $ 20,256
========== =========
<PAGE> 23
Deferred Income Tax Liabilities
Property related $ 46,867 $ 44,647
Systems development costs 9,252 11,586
Investment tax credit (4,806) (5,109)
Postretirement benefits (8,914) (8,195)
Deferred compensation (3,734) (3,044)
Pension benefits 8,118 5,039
Environmental (5,677) (4,725)
Other (1,438) (917)
---------- ----------
$ 39,668 $ 39,282
========== ==========
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, 1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S. tax rates $25,717 35.0% $21,775 35.0% $17,670 35.0%
State income taxes, net 3,818 5.2 3,235 5.2 2,518 5.0
Excess of foreign (benefit)
provision over U.S.
statutory tax rate (229) (0.3) 378 0.6 (174) (0.3)
Investment credit restored (453) (0.6) (457) (0.7) (461) (0.9)
Amortization of excess
deferred taxes (556) (0.8) (507) (0.8) (505) (1.0)
Adjustment of prior year's
estimated liability (578) (0.8) (361) (0.6) (998) (2.0)
Other, net (1,014) (1.4) (1,375) (2.2) (738) (1.5)
-------------- -------------- --------------
Effective Tax Rates $26,705 36.3% $22,688 36.5% $17,312 34.3%
============== ============== ==============
</TABLE>
The current and deferred components of income tax expense (benefit) for each
of the years ended December 31, are as follows:
(thousands of dollars) 1996 1995 1994
---------- ---------- ----------
Current
Federal $ 23,479 $ 25,728 $ 23,516
State 6,022 6,641 5,816
Foreign 752 1,256 1,627
---------- ---------- ----------
Total Current 30,253 33,625 30,959
---------- ---------- ----------
Deferred
Federal (2,610) (10,275) (11,247)
State (264) (1,816) (2,012)
Foreign (674) 1,154 (388)
---------- ---------- ----------
Total Deferred (3,548) (10,937) (13,647)
---------- ---------- ----------
Total Provision $ 26,705 $ 22,688 $ 17,312
========== ========== =========
<PAGE> 24
4 | SHORT-TERM BORROWINGS
As of December 31, 1996 and 1995, the Company had total unsecured lines of
credit available from banks of $230.5 million and $204.2 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) 1996 1995
- ------------------------ ---------- ----------
Notes payable to banks
U.S. subsidiaries $ 27,000 $ 27,000
Non-U.S. subsidiaries 19,210 19,352
Commercial paper - U.S. 68,600 60,025
---------- ----------
$ 114,810 $ 106,377
========== ==========
Weighted average interest rates on debt outstanding at end of year:
(thousands of dollars) 1996 1995
- ------------------------- ---------- ----------
Notes payable to banks
U.S. subsidiaries 5.8% 5.9%
Non-U.S. subsidiaries 7.2% 9.2%
Commercial paper - U.S. 5.7% 5.9%
Highest month-end balance $ 114,810 $ 129,058
Average month-end balance $ 69,915 $ 71,911
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. 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 $4.1 million, $47.2 million, $3.9 million, $7.7
million and $0.8 million in 1997, 1998, 1999, 2000 and 2001, respectively.
6 | RESTRICTIONS
A November 1993 rate order issued by the PSCW sets a 13-month average 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,
$39.7 million of Wisconsin Gas's net assets at December 31, 1996, 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's 13-month average equity below 48.43% of its total
capitalization. Wisconsin Gas paid $5 million in dividends in November 1996
and expects to pay $21.5 million in dividends for the 12 months ending October
1997. At December 31, 1996, Wisconsin Gas's equity was 53.3%
<PAGE> 25
In connection with its long-term debt agreements, Sta-Rite Industries, Inc.
("Sta-Rite"), a subsidiary of WICOR Industries, 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, 1996, $5.6 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 $247.5
million under the most restrictive provisions as of December 31, 1996;
accordingly, $120.9 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, 1996, was $56.6 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 30% of total
capitalization for the nonutility entities at December 31, 1996.
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 $838 million,
with annual required payments of $130 million in 1997, $122 million in 1998,
$122 million in 1999, $113 million in 2000 and $108 million in 2001. Wisconsin
Gas's total payments for firm pipeline and storage capacity prior to recovery
from sales of excess capacity were $129.6 million in 1996, $128.1 million in
1995 and $126.0 million in 1994. The purchased gas adjustment provisions of
Wisconsin Gas's rate schedules permit the recovery of gas costs from its
customers. FERC 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 $7.7 million at December 31, 1996, 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. The
FERC has approved a settlement with Dakota governing the price of Dakota gas.
Based on Wisconsin Gas contracted quantities with ANR, Wisconsin Gas is
currently paying approximately $250,000 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> 26
Transition costs billed to Wisconsin Gas are being recovered from customers
under the purchased gas provisions within its rate schedules.
b] CAPITAL EXPENDITURES Certain commitments have been made in connection with
1997 capital expenditures. The Energy group's capital expenditures for 1997
are estimated at $40 million. The Manufacturing group's capital expenditures
for 1997 are estimated at $20 million.
c] ENVIRONMENTAL MATTERS Wisconsin Gas has identified two previously owned
sites on which it operated manufactured gas plants. Such plants ceased
operations prior to the mid-1950's. Wisconsin Gas has engaged an environmental
consultant to help determine possible remediation alternatives. The Company
has estimated that cleanup costs could range from $22 million to $75 million.
As of December 31, 1996, the Company has accrued $36.2 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
would select specific remedial actions for recommendation to the WDNR. During
1995 and 1996, the Company gathered specific environmental data regarding one
of the sites in addition to the previous extensive site investigation data,
held extensive discussions concerning remedial options with current landowners
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 1997. Once such a plan is
approved, initial remediation work will begin. Expenditures over the next
three years are expected to total approximately $10.0 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 (excluding
carrying costs), less amounts recovered from insurance carriers. Accordingly,
a regulatory asset has been recorded for the accrued cost
<PAGE> 27
The Company's 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, have not
been recorded as a 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.
8 | COMMON STOCK AND OTHER PAID-IN-CAPITAL
The Company's articles of incorporation authorize 60,000,000 shares of common
stock, of which 18,407,286 shares and 18,236,998 shares were outstanding at
December 31, 1996 and 1995, 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 2,503,131 shares is reserved for issuance under the Company's
dividend reinvestment, stock option and incentive savings plans. In addition
21,347,379 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
<PAGE> 28
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 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.
The following table sets forth the funded status of pension plans at December
31, 1996 and 1995.
<TABLE>
<CAPTION>
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
(thousands of dollars) 1996 1995 1996 1995
- ------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Accumulated benefit obligation
Vested benefits $(102,638) $(110,484) $ (6,419) $ (7,239)
Nonvested benefits (17,051) (12,339) (2,242) (1,461)
---------- ---------- ---------- ----------
(119,689) (122,823) (8,661) (8,700)
Effect of projected
future compensation levels (35,348) (43,481) (1,148) (1,267)
---------- ---------- ---------- ----------
Projected benefit obligation (155,037) (166,304) (9,809) (9,967)
Plan assets at fair value 231,822 217,156 503 474
---------- ---------- ---------- ----------
Plan assets greater (less) than
projected benefit obligation 76,785 50,852 (9,306) (9,493)
Unrecognized net (asset) liability
at September 30, 1985 being
recognized over approximately
16 years (13,269) (15,024) 876 968
Unrecognized prior service costs 4,099 4,422 240 258
Unrecognized net (gain) loss (30,746) (7,177) 1,557 1,141
Additional minimum liab. recorded - - (1,953) (1,468)
---------- ---------- ---------- ----------
Prepaid pension asset
(accrued liability) $ 36,869 $ 33,073 $ (8,586) $ (8,594)
========== ========== ========== ==========
</TABLE>
The weighted average discount rate assumptions used in determining the
actuarial present value of the projected benefit obligation were 7.75%, 7.5%
and 8.25% for 1996, 1995 and 1994, respectively. The expected long-term rate
of return on assets was 9.0% for 1996 and 8.6% for 1995 and 1994. The expected
long-term rate of compensation growth was 4.8% for 1996 and 5.3% for 1995 and
1994
<PAGE> 29
Net pension (income) costs for each of the years ended December 31, include
the following components:
(thousands of dollars) 1996 1995 1994
- --------------------------------- ---------- ---------- ----------
Service costs $ 4,713 $ 4,374 $ 5,260
Interest costs on projected
benefit obligations 12,833 12,830 12,249
Actual (gain) loss on plan assets (25,338) (29,107) 1,225
Net amortization and deferral 5,117 10,760 (18,896)
Gain on early retirement incentive - - (268)
Amortization of regulatory liability (2,851) (2,851) (475)
---------- ---------- ----------
Net pension income $ (5,526) $ (3,994) $ (905)
========== ========== ==========
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, 1996 and 1995, respectively.
Accumulated benefit obligation
[thousands of dollars] 1996 1995
- ----------------------------------- ---------- ----------
Retirees $ (52,331) $ (55,729)
Active employees (47,204) (42,044)
Accumulated benefit obligation (99,535) (97,773)
Plan assets at fair value 46,562 39,417
Accumulated benefit obligation
in excess of plan assets (52,973) (58,356)
Unrecognized prior service costs (14,432) (15,915)
Unrecognized actuarial gain 1,014 6,965
---------- ----------
Accrued postretirement benefit $ (66,391) $ (67,306)
========== ==========
<PAGE> 30
Net postretirement health care and life insurance costs for each of the years
ended December 31, consisted of the following components:
(thousands of dollars) 1996 1995 1994
- ------------------------------- ---------- ---------- ----------
Service cost $ 2,712 $ 2,023 $ 2,688
Interest cost on projected
benefit obligation 7,251 6,694 6,913
Actual (gain) loss on plan assets (4,695) (6,185) 147
Amortization of regulatory asset 2,778 2,778 2,778
Net amortization and deferral 613 2,531 (2,549)
Loss on early retire incentive - - 3,650
---------- ---------- ----------
Net postretirement benefit cost $ 8,659 $ 7,841 $ 13,627
========== ========== ==========
The 1994 postretirement benefit cost reflects the early retirement of 131
employees under a voluntary early retirement incentive plan at Wisconsin Gas
for employees age 55 and over.
The postretirement benefit cost components for 1996 were calculated assuming
health care cost trend rates ranging up to 11% for 1996 and decreasing to 5.0%
over 6 to 21 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, 1996 by $14.4
million and the aggregate of the service and interest cost components of
postretirement expense by $1.8 million.
The assumed discount rate used in determining the actuarial present value of
the APBO was 7.75% in 1996 and 7.5% in 1995. Plan assets are primarily
invested in equities and fixed income securities.
c] RETIREMENT SAVINGS PLANS Certain of the Company's operating subsidiaries
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 $1.8 million in 1996, and $1.7 million in 1995
and 1994.
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 (5.8% interest rate at December 31, 1996), guaranteed by
the Company, to purchase 431,266 shares of WICOR common stock. The Company
extended the adjustable rate loan, with similar terms, until May 31, 2002. The
unpaid balance ($4.4 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 ESOP trustee is repaying the loan with dividends on shares of WICOR common
stock in the ESOP and with Wisconsin Gas contributions to the ESOP
<PAGE> 31
e] STOCK OPTIONS Effective January 1, 1996, the Company adopted the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," for its
stock option plans. Under SFAS No. 123, the Company is permitted to record the
estimated value of stock based compensation over the applicable vesting period
or disclose the unrecorded cost and the related effect on earnings per share.
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years. The Company
will continue to apply APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. Had compensation cost for the Company's
1996 and 1995 grants for stock-based compensation plans been determined
consistent with SFAS No. 123, the Company's net income and earnings per share
would have been reduced by less than 1%.
The Company has a total of 129 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. A summary of the Company's stock option plans at
December 31, 1996, 1995 and 1994 and changes during the years then ended is as
follows:
1996 1995 1994
----------------- ----------------- -----------------
Wtd Avg Wtd Avg Wtd Avg
Shares Price Shares Price Shares Price
--------- ------- --------- ------- --------- -------
Outstanding at
January 1 745,050 $ 25.01 664,633 $ 24.10 794,925 $ 22.21
Granted 162,700 $ 33.01 136,400 $ 28.31 135,800 $ 30.60
Exercised (98,270) $ 23.10 (44,299) $ 20.90 (214,542) $ 20.53
Canceled (29,331) $ 29.39 (11,684) $ 27.34 (51,550) $ 26.45
--------- --------- ---------
Outstanding at
December 31 780,149 $ 26.76 745,050 $ 25.01 664,633 $ 24.10
========= ========= =========
Exercisable at
End of Year 538,672 $ 24.72 434,980 $ 23.46 382,067 $ 22.67
Available for future
grant at year-end 446,907 607,200 743,600
The weighted average fair value of options granted in 1996 and 1995 was $3.83
and $3.29, respectively.
Under the Company's 1994 Long-Term Performance Plan ("1994 Plan"), awards
covering up to 820,000 shares of common stock may be granted to certain key
employees as compensation. 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 a three-year performance period
beginning in the year of grant. 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. Restricted shares forfeited revert to the Company at no cost
<PAGE> 32
A total of 56,000 restricted shares (net of cancellations) were issued through
1996. 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.
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 nil in 1996 and $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, share-holders
probably would 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:
1996 1995
--------------------- ---------------------
Carrying Fair Carrying Fair
[thousands of dollars] Amount Value Amount Value
- -------------------------- ---------- ---------- ---------- ----------
Cash and cash equivalents $ 18,784 $ 18,784 $ 20,380 $ 20,380
Accounts receivable $ 150,076 $ 150,076 $132,203 $ 132,203
Short-term debt $ 114,810 $ 114,810 $106,377 $ 106,377
Long-term debt $ 169,169 $ 168,962 $174,713 $ 176,700
11 | OTHER FINANCIAL INFORMATION
See page 28 for unaudited quarterly financial data. See Financial Review on
page 19 for industry segment data
<PAGE> 33
Selected Financial Data
(thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
CONSOLIDATED
Operating Data:
<S> <C> <C> <C> <C> <C>
Operating revenues (6) $1,012,601 $ 860,594 $ 867,755 $ 849,528 $ 747,409
NI from continuing oper. $ 46,771 $ 39,527 $ 33,174 $ 29,313 $ 22,764
Net income $ 46,771 $ 39,527 $ 33,174 $ 29,313 $ 14,799
Common Stock Data:
NI/share continuing oper $ 2.55 $ 2.32 $ 1.99 $ 1.82 $ 1.47
Net income/share (1) $ 2.55 $ 2.32 $ 1.99 $ 1.82 $ 0.96
Cash dividends/share (1) $ 1.66 $ 1.62 $ 1.58 $ 1.54 $ 1.50
Book value/share (1) $ 20.02 $ 18.93 $ 17.23 $ 16.47 $ 15.60
Balance Sheet Data:
Long-term debt $ 169,169 $ 174,713 $ 161,669 $ 165,230 $ 164,171
Redeemable preferred stock - - - - -
Common equity 368,452 345,266 291,468 270,276 245,287
---------- ---------- ---------- ---------- ----------
Capitalization at Y/E $ 537,621 $ 519,979 $ 453,137 $ 435,506 $ 409,458
========== ========== ========== ========== ==========
Total assets at Y/E (2) $1,057,652 $1,008,514 $ 930,708 $ 933,726 $ 825,774
Other General Data:
Market/book ratio Y/E (%) 179 170 165 191 175
Dvdnd payout (%)(2)(3)(4) 65.2 69.5 79.6 82.2 96.1
Yield at year-end (%) 4.7 5.1 5.6 5.0 5.6
ROE (average) (%)(2)(3)(5) 12.9 13.1 11.6 11.2 9.2
P/E ratio at YE(2)(3) 14.1 13.9 14.3 17.3 18.5
Price range $ 30 1/8 - $ 26 5/8 - $ 25 1/2 - $ 25 5/8 - $ 22 7/8 -
$ 37 3/4 $ 32 7/8 $ 32 5/8 $ 32 7/8 $ 27 3/8
Registered shrhldrs/YE (7) 23,339 27,379 25,017 23,694 22,864
Cash flow from operations $ 75,416 $ 69,918 $ 103,551 $ 3,401 $ 37,012
Capital expenditures $ 51,744 $ 56,241 $ 55,051 $ 51,906 $ 71,873
Employees at year-end 3,475 3,368 3,214 3,222 3,178
Debt/equity ratio at YE 31/69 34/66 36/64 38/62 40/60
Energy Operations
Operating revenues $ 602,685 $ 522,840 $ 556,587 $ 574,835 $ 495,415
Net income $ 32,141 $ 27,701 $ 18,896 $ 19,870 $ 18,060
Capital expenditures $ 36,617 $ 42,852 $ 44,626 $ 42,253 $ 62,125
Utility throughput MDth
Residential 52,991 49,425 46,369 47,964 45,905
Commercial 24,257 21,157 18,598 19,060 17,840
Industrial firm 11,078 13,496 14,544 15,246 14,488
Industrial interruptible 19,624 31,353 28,217 20,849 17,388
Transported 27,578 14,549 11,908 17,408 21,379
---------- ---------- ---------- ---------- ----------
135,528 129,980 119,636 120,527 117,000
========== ========== ========== ========== ==========
</TABLE>
<PAGE> 34
(thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Utility customers at YE 512,868 504,746 495,129 485,103 470,956
Utility customers/employee 516 471 419 352 331
Ave cost of gas/util Dth $ 3.47 $ 2.79 $ 3.34 $ 3.76 $ 3.34
Ave residential util bill $ 725 $ 686 $ 719 $ 779 $ 712
Use/util resid cust (Dth) 120 114 110 116 115
Degree days 7,458 6,836 6,431 6,775 6,683
% colder(warmer) 20yr norm 6.8 (2.8) (9.0) (4.1) (6.4)
Manufacturing Operations (2)
Operating revenues $ 409,916 $ 337,754 $ 311,168 $ 274,693 $ 251,994
International and export
sales % of total sales 34 39 37 34 34
Net income (3) $ 14,630 $ 11,826 $ 14,278 $ 9,443 $ 4,704
Capital expenditures $ 15,127 $ 13,389 $ 1 0,425 $ 9,653 $ 9,748
</TABLE>
<PAGE> 35
Selected Financial Data
(thousands of dollars, except per share amounts)
CONSOLIDATED
OPERATING DATA:
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating revenues (6) $ 716,767 $ 696,023 $ 741,218 $ 780,633 $ 699,418
NI continuing operations $ 22,966 $ 16,651 $ 33,359 $ 30,400 $ 17,215
Net income $ 22,966 $ 16,651 $ 33,881 $ 34,163 $ 19,682
Common Stock Data:
NI/share continuing oper $ 1.54 $ 1.14 $ 2.30 $ 2.12 $ 1.22
NI per common share (1) $ 1.54 $ 1.14 $ 2.33 $ 2.38 $ 1.39
Cash dividends/ share (1) $ 1.46 $ 1.42 $ 1.37 $ 1.32 $ 1.30
Book value/common share (1)$ 15.84 $ 16.12 $ 16.83 $ 15.82 $ 14.68
Balance Sheet Data:
Long-term debt $ 168,366 $ 130,215 $ 122,639 $ 133,034 $ 127,833
Redeemable preferred stock - - - - 8,000
Common equity 243,453 237,407 244,351 227,080 207,658
---------- ---------- ---------- ---------- ----------
Capitalization at YE $ 411,819 $ 367,622 $ 366,990 $ 360,114 $ 343,491
========== ========== ========== ========== ==========
Total assets at YE (2) $ 670,250 $ 651,559 $ 620,548 $ 565,967 $ 536,998
Other General Data:
Market-to-book at YE (%) 153 122 148 123 117
Dividend payout(%)(2)(3)(4) 89.0 117.2 55.0 52.0 91.1
Yield at year-end (%) 6.1 7.3 5.6 6.9 7.6
ROE Average (%)(2)(3)(5) 9.5 6.8 14.3 15.3 9.3
PE ratio at year-end (2)(3) 15.7 17.2 10.7 8.2 12.4
Price range $ 18 5\8- $ 18 1\4- $ 19 3\8- $ 15 5\8- $ 13 3\8-
$ 24 3\8 $ 25 1\4 $ 25 3\8 $ 20 7\8 $ 21 7\8
Registered shrholder\YE (7) 18,503 19,463 20,509 21,611 23,010
Cash flow from operations $ 50,413 $ 10,022 $ 94,623 $ 73,526 $ 41,237
Capital expenditures $ 45,113 $ 37,529 $ 40,944 $ 48,295 $ 34,264
Employees at year-end 3,196 3,152 3,696 3,927 4,040
Debt/equity ratio at YE 41/59 35/65 33/67 37/63 37/63
Energy Operations
Operating revenues $ 474,702 $ 455,559 $ 441,477 $ 476,904 $ 424,069
Net income $ 17,086 $ 13,195 $ 25,169 $ 23,223 $ 12,580
Capital expenditures $ 34,473 $ 27,978 $ 25,813 $ 37,148 $ 24,344
Utility throughput (MDth)
Residential 45,614 43,020 48,154 46,769 39,369
Commercial 17,861 16,319 18,089 17,012 14,510
Industrial firm 15,690 15,106 16,915 16,808 16,106
Industrial interruptible 17,440 16,620 5,475 3,752 4,714
Transported 19,658 16,565 29,158 29,639 26,129
---------- ---------- ---------- ---------- ----------
116,263 107,630 117,791 113,980 100,828
========== ========== ========== ========== ==========
</TABLE>
<PAGE> 36
(thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Utility customers at YE 460,549 452,906 445,771 439,063 432,509
Util customer/employee 323 321 319 311 288
Cost of gas/Dth purch. $ 3.18 $ 3.30 $ 3.15 $ 3.68 $ 3.74
Ave residential util bill $ 677 $ 670 $ 758 $ 770 $ 660
Ave use/util res cust (Dth) 117 113 129 127 108
Degree days 6,416 6,103 7,382 7,124 6,185
% cold/(warm) 20-yr norm (10.8) (16.0) 1.5 (2.0) (14.8)
Manufacturing Operations(2)
Operating revenues $ 242,065 $ 240,464 $ 300,156 $ 303,729 $ 275,349
International/export sales
as a % of total sales 31 27 24 22 20
Net income (3) $ 5,880 $ 3,456 $ 8,712 $ 10,940 $ 7,102
Capital expenditures $ 10,640 $ 9,551 $ 15,131 $ 11,147 $ 9,920
</TABLE>
<PAGE> 37
Selected Financial Data
CONSOLIDATED
OPERATING DATA:
(thousands of dollars, except per share amounts)
1986
----------
Operating revenues (6) $ 761,104
NI continuing operations $ 17,363
Net income $ 19,780
Common Stock Data:
NI/share continuing oper $ 1.34
NI per common share (1) $ 1.53
Cash dividends/ share (1) $ 1.28
Book value/common share (1)$ 15.74
Balance Sheet Data:
Long-term debt $ 144,495
Redeemable preferred stock 14,267
Common equity 203,477
----------
Capitalization at YE $ 362,239
==========
Total assets at YE (2) $ 542,036
Other General Data:
Market-to-book at YE (%) 134
Dividend payout(%)(2)(3)(4) 79.9
Yield at year-end (%) 6.1
ROE Average (%)(2)(3)(5) 10.5
PE ratio at year-end (2)(3) 13.8
Price range $ 14 3/7-
$ 23
Registered shrholder\YE (7) 23,987
Cash flow from operations $ 63,583
Capital expenditures $ 36,498
Employees at year-end 3,932
Debt/equity ratio at YE 40/60
Energy Operations
Operating revenues $ 531,970
Net income $ 14,338
Capital expenditures $ 28,353
Utility throughput (MDth)
Residential 42,837
Commercial 15,292
Industrial firm 19,379
Industrial interruptible 22,403
Transported 5,502
----------
105,413
==========
<PAGE> 38
(thousands of dollars, except per share amounts)
1986
----------
Utility customers at YE 426,481
Util customer/employee 277
Cost of gas/Dth purch. $ 3.75
Ave residential util bill $ 761
Ave use/util res cust (Dth) 120
Degree days 6,788
% cold/(warm) 20-yr norm (7.3)
Manufacturing Operations(2)
Operating revenues $ 299,134
International/export sales
as a % of total sales 16
Net income (3) $ 5,442
Capital expenditures $ 8,145
(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.
(7) Reflects WICOR Plan participants as of 1992.
Note: Hypro operations are reflected as of July 19, 1995.
<PAGE> 1
EXHIBIT 21
WICOR, Inc.
Subsidiaries of the Registrant
State or Country Percent Voting
Subsidiaries of WICOR, Inc. in Which Incorporated Stock Owned
Wisconsin Gas Company Wisconsin 100%
WICOR Energy Service Company Wisconsin 100%
FieldTech, Inc. Wisconsin 100%
WICOR Industries, Inc. Wisconsin 100%
State or Country Percent Voting
Subsidiaries of Industries, Inc. in Which Incorporated Stock Owned
Sta-Rite Industries, Inc. Wisconsin 100%
SHURflo Pump Manufacturing Company California 100%
Hypro Corporation Minnesota 100%
WEXCO of Delaware, Inc. Delaware 100%
WICOR FSC, Inc. Barbados 100%
Subsidiaries of Sta-Rite State or Country Percent Voting
Industries, Inc. in Which Incorporated Stock Owned
WICOR Canada Inc. Canada 100%
Sta-Rite de Mexico Mexico 80%
Sta-Rite Industries GmbH Germany .5%
Europa
WICOR Industries
(Australia) Pty. Ltd. Australia 100%
Onga (New Zealand) Pty. Ltd. New Zealand 100%
Sta-Rite Holdings, B.V. Netherlands 100%
Nocchi Pompe S.p.A. Italy 47%
Webster Electric Co. Delaware 100%
Hydro-Flow Filtration Systems, Inc. California 80%
Subsidiary of WICOR Country in Which Percent Voting
(Australia) Pty. Ltd. Incorporated Stock Owned
Onga Pty. Ltd. Australia 100%
Dega Research Pty. Ltd. Australia 100%
Subsidiaries of Sta-Rite Country in Which Percent Voting
Holdings, B.V. Incorporated Stock Owned
Sta-Rite Industries Germany 95.5%
GmbH Europa
Nocchi Pompe S.p.A. Italy 30%
Subsidiary of Nocchi Pompe, Country in Which Percent Voting
S.p.A. Incorporated Stock
Owned
Midi Pompes S.a.r.l. France 100%
Nocchi Pompe Moscow Russia 90%
Subsidiary of SHURflo Pump Country in Which Percent Voting
Manufacturing Company Incorporated Stock Owned
SHURflo Ltd. England 100%
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation of our reports included in and incorporated by
reference in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (Nos. 2-93964, 2-93963, 2-
87076, 2-72454, 33-16489, 33-36457, 33-43645, 33-67132, 33-67134
and 33-55755) and Form S-3 (Nos. 33-28289 and 33-50682).
Milwaukee, Wisconsin, ARTHUR ANDERSEN LLP
March 14, 1997.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the WICOR,
Inc. FORM 10-K for the year ended December 31, 1996 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-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 377,335
<OTHER-PROPERTY-AND-INVEST> 64,073
<TOTAL-CURRENT-ASSETS> 372,705
<TOTAL-DEFERRED-CHARGES> 243,539
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,057,652
<COMMON> 18,407
<CAPITAL-SURPLUS-PAID-IN> 224,041
<RETAINED-EARNINGS> 129,777
<TOTAL-COMMON-STOCKHOLDERS-EQ> 372,225
0
0
<LONG-TERM-DEBT-NET> 174,713
<SHORT-TERM-NOTES> 27,000
<LONG-TERM-NOTES-PAYABLE> 150,000
<COMMERCIAL-PAPER-OBLIGATIONS> 68,600
<LONG-TERM-DEBT-CURRENT-PORT> 4,061
0
<CAPITAL-LEASE-OBLIGATIONS> 342
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 410,711
<TOT-CAPITALIZATION-AND-LIAB> 1,057,652
<GROSS-OPERATING-REVENUE> 1,012,601
<INCOME-TAX-EXPENSE> 26,705
<OTHER-OPERATING-EXPENSES> 921,890
<TOTAL-OPERATING-EXPENSES> 948,595
<OPERATING-INCOME-LOSS> 64,006
<OTHER-INCOME-NET> 1,114
<INCOME-BEFORE-INTEREST-EXPEN> 65,120
<TOTAL-INTEREST-EXPENSE> 18,349
<NET-INCOME> 46,771
0
<EARNINGS-AVAILABLE-FOR-COMM> 46,771
<COMMON-STOCK-DIVIDENDS> 30,485
<TOTAL-INTEREST-ON-BONDS> 694
<CASH-FLOW-OPERATIONS> 74,416
<EPS-PRIMARY> 2.55
<EPS-DILUTED> 2.55
</TABLE>
<PAGE> 1
EXHIBIT 99
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the
Securities Exchange Act of 1934
(Amendment No. ____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as
permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
WICOR, Inc.
-----------------------------------------------
(Name of Registrant as Specified in its Charter)
- -----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
WICOR
626 East Wisconsin Avenue
P.O. Box 334
Milwaukee, WI 53201
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held April 24, 1997
To the Shareholders of
WICOR, Inc.:
NOTICE IS HEREBY GIVEN THAT the Annual Meeting of Shareholders of WICOR,
Inc. will be held Thursday, April 24, 1997, at 2:00 P.M. (local time), at the
Italian Community Center, 631 East Chicago Street, Milwaukee, Wisconsin, for
the following purposes:
1. To elect three directors to hold office until the 2000 Annual
Meeting of Shareholders and until their successors are duly
elected and qualified.
2. To consider and act upon any other business which may be properly
brought before the Annual Meeting or any adjournment thereof.
The close of business Friday, February 21, 1997, has been fixed as the
record date for the determination of shareholders entitled to receive notice
of, and to vote at, the Annual Meeting and any adjournment thereof.
A proxy and Proxy Statement are enclosed herewith.
By Order of the Board of Directors
Robert A. Nuernberg
Secretary
March 13, 1997
YOUR VOTE IS IMPORTANT. TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE
DATE THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS, SIGN
EXACTLY AS YOUR NAME APPEARS, AND RETURN IMMEDIATELY
<PAGE> 3
WICOR
626 East Wisconsin Avenue
P.O. Box 334
Milwaukee, Wisconsin 53201
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
To Be Held April 24, 1997
This Proxy Statement is being furnished to shareholders by the Board of
Directors of WICOR, Inc. (the "Company") beginning on or about March 13, 1997,
in connection with a solicitation of proxies by the Board of Directors of the
Company (the "Board") for use at the Annual Meeting of Shareholders (the
"Annual Meeting") to be held on Thursday, April 24, 1997, at 2:00 P.M.(local
time), at the Italian Community Center, 631 East Chicago Street, Milwaukee,
Wisconsin, and at all adjournments thereof, for the purposes set forth in the
attached Notice of Annual Meeting of Shareholders.
Execution of a proxy given in response to this solicitation will not
affect a shareholder's right to attend the Annual Meeting and to vote in
person. Presence at the Annual Meeting of a shareholder who has signed a
proxy does not in itself revoke a proxy. Any shareholder giving a proxy may
revoke it at any time before it is exercised by giving notice thereof to the
Company in writing or in open meeting. Unless so revoked, the shares
represented by proxies received by the Board will be voted at the Annual
Meeting and at any adjournment thereof. A properly executed proxy will be
voted as directed therein by the shareholder.
Only holders of record of the Company's Common Stock, $1 par value
("Common Stock"), at the close of business on February 21, 1997, are entitled
to vote at the Annual Meeting and at any adjournment thereof. On that date,
the Company had outstanding and entitled to vote 18,413,709 shares of Common
Stock. The record holder of each outstanding share of Common Stock is
entitled to one vote per share.
The Company is a holding company. Its principal subsidiaries include
Wisconsin Gas Company ("Wisconsin Gas"), Sta-Rite Industries, Inc. ("Sta-
Rite"), SHURflo Pump Manufacturing Co.("SHURFlo"), Hypro Corporation
("Hypro"), WICOR Energy Services Company ("WICOR Energy") and FieldTech, Inc.
("FieldTech").
ITEM NO. 1: ELECTION OF DIRECTORS
The Board consists of 10 directors. The Company's By-laws provide that
the directors shall be divided into three classes, with staggered terms of
three years each. At the Annual Meeting, shareholders will elect three
directors to hold office until the 2000 Annual Meeting of Shareholders and
until their successors are duly elected and qualified. Directors are elected
by a plurality of the votes cast (assuming a quorum is present at the Annual
Meeting). Consequently any shares not voted, whether due to abstentions,
broker non-votes or otherwise, have no impact on the election of directors.
However, abstentions and broker non-votes are counted in determining whether a
quorum is present at the meeting.
Unless shareholders otherwise specify, the shares represented by the
proxies received will be voted "FOR" the indicated nominees for election as
directors. The Board has no reason to believe that any of the listed nominees
will be unable or unwilling to continue to serve as a director if elected.
However, in the event that any nominee should be unable or for good cause
unwilling to serve, the shares represented by proxies received will be voted
for another nominee selected by the Board.
The following tabulation sets forth information regarding the three
nominees for election as directors and the seven continuing directors. Except
as otherwise noted, each such person has engaged in the principal occupation
or employment and held the offices shown for more than the past five years
<PAGE> 4
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
For Three-Year Terms Expiring April, 2000
A photograph of each nominee and director continuing in office appears
adjacent to the nominee's/director's name and personal information.
WILLIE D. DAVIS Mr. Davis, 62, is President, Chief
Audit (Chairman) and Compensation Executive Officer and a director of
Committees All Pro Broadcasting, Inc., which owns
Director since 1990 and operates radio stations in Los
Angeles and Milwaukee. Mr. Davis is
director of Alliance Bank, The Dow
Chemical Co., Johnson Controls, Inc.,
Kmart Corp., L.A. Gear Inc., MGM Grand
Inc., Rally's Hamburgers, Inc., Sara
Lee Corporation and Strong Capital
Management, Inc.
GUY A. OSBORN Mr. Osborn, 61, is Chairman and a
Compensation (Chairman) and director of Universal Foods Corporation,
Retirement Plans Investment an international manufacturer and
Director since 1987 marketer Committees of value-added food
products. He joined Universal Foods in
1971 and assumed his current position in
1996. Prior thereto, he was Chairman and
Chief Executive. He is a director of
Firstar Corporation, Firstar Bank
Milwaukee, N.A., and Fleming Companies,
Inc., and is a Trustee of The
Northwestern Mutual Life Insurance
Company.
WILLIAM B. WINTER Mr. Winter, 68, is the Retired Chairman,
Audit and Nominating Chief Executive Officer and Director of
Committees Bucyrus-Erie Company, a manufacturer of
Directors since 1980 mining machinery,
and its parent corporation B-E Holdings
Inc.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRING APRIL, 1998
WENDELL F. BUECHE Mr. Bueche, 66, is the Chairman, Chief
Audit and Compensation Executive Officer and a director of
Committees IMC Global, Inc., a producer and marketer
Director since 1984 of crop nutrients. He was named to that
position in 1993. Mr. Bueche previously
was Chairman, President and Chief
Executive Officer of Allis-Chalmers
Corporation. Mr. Bueche is a director of
Marshall & Ilsley Corporation and M&I
Marshall & Ilsley Bank
<PAGE> 5
DANIEL F. McKEITHAN, JR. Mr. McKeithan, 61, is President, Chief
Compensation and Retirement Executive Officer and a director of
Plans Investment (Chairman) Tamarack Petroleum Company, Inc., an
Committees operator of producing oil and gas wells.
Director since 1989 He is also President and Chief Executive
Officer of Active Investor Management,
Inc., a manager of oil and gas wells; and
SeisTech Development, Inc., an oil and
gas exploration and development company,
which he formed in 1995. He is a
director of Firstar Corporation and The
Marcus Corporation, and is a trustee of
The Northwestern Mutual Life Insurance
Company.
GEORGE E. WARDEBERG Mr. Wardeberg, 61, is President and
Nominating Committee Chief Executive Officer of the Company
Director since 1992 and Chairman of its subsidiaries.
He has held his positions with the company,
Wisconsin Gas, Sta-Rite and SHURflo since
1994; with Hypro and WICOR Energy since
1995; and with FieldTech since 1996. He
served in other executive capacities with
the Company and its subsidiaries from
1989 until he assumed his current
positions. He is a director of M&I
Marshall & Ilsley Bank.
ESSIE M. WHITELAW Ms. Whitelaw, 48, is President and
Nominating and Retirement Chief Operating Officer of Blue
Plans Investment Committees Cross & Blue Shield United of
Director since 1992 Wisconsin, a comprehensive health care
insurer. She has held that position
since 1992. She served in other
executive capacities with Blue Cross &
Blue Shield United from 1986 until she
assumed her current position. She is a
director of Universal Foods Corporation.
Members of the Board of Directors continuing in office
Terms Expiring April, 1999.
JERE D. McGAFFEY Mr. McGaffey, 61, is a partner in the
Nominating (Chairman) and law firm of Foley & Lardner. (1) He has
Retirement Plans Investment been in practice with that firm since
Committees 1961 and has been a partner since 1968.
Director since 1980 Mr. McGaffey is a director of Smith
Investment Company.
THOMAS F. SCHRADER Mr. Schrader, 47, is President and
Director since 1988 Chief Executive Officer of Wisconsin
Gas, WICOR Energy and FieldTech, and Vice
President of the Company. Mr. Schrader is
a director of Firstar Trust Company
<PAGE> 6
STUART W. TISDALE Mr. Tisdale, 68, is the Retired Chairman
Audit and Nominating and Chief Executive Officer of the
Committees Company. He is a director of Marshall &
Director since 1980 Ilsley Corporation, M&I Marshall & Ilsley
Bank, Modine Manufacturing Co. and Twin
Disc Inc.
(1) Foley & Lardner was retained in 1996 by the Company and its subsidiaries
to provide legal services and has been similarly retained in 1997.
<PAGE> 7
THE BOARD OF DIRECTORS
General
The Board held eight meetings in 1996. Each director attended at least
75% of the total of such meetings and meetings of any committees on which such
director served. The Board maintains standing Audit, Nominating,
Compensation, and Retirement Plan Investment Committees.
The Audit Committee held two meetings in 1996. The committee's functions
include recommending the selection of the independent auditors each year;
consulting with the independent auditors regarding the scope and plan of
audit, internal controls, fees, non-audit services (including the possible
effect of such services on the independence of the auditors), the audit report
and related matters; reviewing other accounting, internal audit and financial
matters; investigating accounting, auditing or financial exceptions which may
occur; and overseeing the corporate compliance programs of the Company and its
subsidiaries.
The Nominating Committee held two meetings in 1996. The committee's
functions include recommending those persons to be nominated by the Board for
election as directors of the Company at the next Annual Meeting of Share-
holders and recommending the person to fill any unexpired term on the Board
which may occur. The committee will consider nominees recommended by share-
holders, but has no established procedures which must be followed to make
recommendations.
The Compensation Committee held four meetings in 1996. The committee's
functions include reviewing and recommending adjustments to the salaries of
the officers of the Company and the presidents of its subsidiaries;
administering the 1981 Stock Option Plan, the 1987 Stock Option Plan, the 1992
Director Stock Option Plan, the 1994 Long-Term Performance Plan and the other
incentive compensation plans of the Company and its subsidiaries; and
reviewing and recommending director compensation.
Compensation of Directors
The Company revised its director compensation program effective January
1, 1997, to eliminate the retirement plan for directors, to tie more of the
directors' compensation to the performance of the Company's stock, and to
adjust the overall compensation level. Only non-employee directors receive
compensation for service as directors.
Cash Compensation. Effective January 1, 1997, the Company pays its
directors the following cash compensation: an annual retainer fee of $6,000
(compared with $10,000 prior to 1997), $600 for each Board meeting they attend
(no change), and $900 for each Board committee meeting they attend (compared
to $600 prior to 1997). Committee chairmen are paid an additional annual
retainer fee of $1,000 and receive meeting fees for meetings with the Chief
Executive Officer of the Company relating to committee business. Wisconsin
Gas pays its directors an annual cash retainer fee of $4,000 (compared with
$7,000 prior to 1997), and $600 for each Board meeting they attend (no
change). Presently, all directors of Wisconsin Gas are also directors of the
Company. Any fees payable to directors in cash may, at the option of each
individual director, be deferred for future payment as discussed below
<PAGE> 8
Deferred Compensation. Effective January 1, 1997, the Company and
Wisconsin Gas established identical deferred stock plans. Under the deferred
stock plans, each director will receive on January 1 each year beginning in
1997, 557 deferred stock units (334 from the Company and 223 from Wisconsin
Gas). These deferred stock units represent a grant date value of $19,982
based on the price of a share of Company Common Stock on December 31, 1996
($35.875). Each deferred stock unit will be credited with an amount equal to
the dividend paid on a share of Common Stock if and when such dividends are
declared and paid. Such dividend-equivalent amounts will be converted into
deferred stock units based on the per-share price on the dividend payment
date. When a director retires, leaves the Board or dies, the director's
account balance will be paid out in shares of Common Stock. The Company
intends to purchase Common Stock on the open market from time to time in its
discretion to accumulate shares of Common Stock to be used for settlement of
deferred stock balances. However, the Company does not intend to fund its
future payment obligations under the deferred stock plan. Directors also
received a one-time grant of deferred stock units corresponding to the present
value of their accrued benefit under the director retirement plan which was
terminated, as discussed below.
The Company and Wisconsin Gas each maintain a deferred compensation plan
for directors which entitles a director to defer directors' fees otherwise
payable in cash for payment when the director ceases to be a director. Fees
may be deferred for settlement in cash or shares of Common Stock, at the
election of the director. Amounts deferred for settlement in cash accrue
interest at the prevailing announced prime interest rate of a major commercial
bank. Amounts deferred for settlement in Common Stock are converted into
deferred stock units based on the per-share price on the date of deferral.
Each deferred stock unit will be credited with an amount equal to the dividend
paid on a share of Common Stock if and when such dividends are declared and
paid. Each director may elect to receive payment of the director's deferred
account balance in a lump sum or in equal installments over ten years.
All amounts deferred are unsecured. The Company has entered into an
executive trust agreement with Marshall & Ilsley Trust Company to provide a
means of segregating assets for the payment of director deferred compensation,
subject to the claims of the Company's creditors. Such trust is only
nominally funded until the occurrence of a potential change of control.
Termination of Director Retirement Plan. The retirement plan for the
directors was terminated on December 31, 1996, as to directors who had not
retired as of that date. Active directors who were participants in the
director retirement plan on December 31, 1996, received a one-time grant of
deferred stock units under the deferred stock plan based on the actuarially
calculated present value of their accrued benefit under the retirement plan.
Accordingly, directors were credited with the following numbers of deferred
stock units: Messrs Bueche, 4,796; Davis, 3,194; McGaffey 3,635; McKeithan,
3,166; Osborn, 3,342; Tisdale, 3,455; Winter, 4,796; and Ms. Whitelaw, 766.
Directors who retired prior to December 31,1996, will continue to receive
retirement benefits under the director retirement plan as in effect prior to
1997 ($16,000 from the Company and $11,200 from Wisconsin Gas). These amounts
equal the fees that a director attending all board and three committee
meetings would have received in 1996. Retirement benefits are payable for a
period equal to the director's service as a director, up to 10 years, or until
the death of the retired director, whichever occurs earlier
<PAGE> 9
Stock Options. Directors participate in the 1992 Director Stock Option
Plan, pursuant to which options to purchase 2,000 shares of Common Stock are
automatically granted annually on the fourth Tuesday in February to each non-
employee director. The exercise price per share for options granted under the
1992 Director Stock Option Plan is equal to the fair market value of a share
of Common Stock on the date of grant. On February 27, 1996, Messrs. Bueche,
Davis, McGaffey, McKeithan, Osborn, Tisdale and Winter and Ms. Whitelaw each
received an option to purchase 2,000 shares of Common Stock at a per-share
exercise price of $33.0625. Options granted under the 1992 Director Stock
Option Plan are immediately exercisable and have a ten-year term; provided,
however, that no option may be exercised after 24 months have elapsed from the
date the optionee ceased being a director. On February 25, 1997, options to
purchase an additional 2,000 shares of Common Stock were granted to each
director at a per-share exercise price of $36,125
<PAGE> 10
SECURITY OWNERSHIP OF MANAGEMENT
The following tabulation sets forth the number of shares of Common Stock
beneficially owned, as of February 28, 1997, by each director and nominee,
each executive officer named in the Summary Compensation Table, and all
directors and executive officers as a group.
Amount and Nature Percent Deferred
Title of Name of of Beneficial of Stock
Class Beneficial Owner Ownership (1)(2)(3) Class (4) Units (5)
- ------------ --------------------- ------------------- --------- ---------
Common Stock Wendell F. Bueche 12,365 - 5,353
Willie D. Davis 10,511 - 3,751
James C. Donnelly 76,484 -
Jere D. McGaffey 13,129 - 4,192
Daniel F. McKeithan,Jr 11,000 - 3,723
Robert A. Nuernberg 46,430 -
Guy A. Osborn 12,000 - 4,178
Thomas F. Schrader 129,515 -
Stuart W. Tisdale 88,226 (6) - 4,012
George E. Wardeberg 78,066 (7) -
Joseph P. Wenzler 133,371 (8) - 1,333
Essie M. Whitelaw 10,000 - 5,353
William B. Winter 12,588 (9) -
All directors and
executive officers as
a group (13 persons) 633,685 3.4%
(1) Each beneficial owner exercises sole voting and investment power with
respect to the shares shown as owned beneficially, except as noted in
footnotes (3), (5), (6), (7), (8) and (9).
(2) Includes the following numbers of shares covered under options exercisable
as of or within 60 days of February 28, 1997: Mr. Donnelly, 65,649; Mr.
Nuernberg, 33,849; Mr. Schrader, 93,424; Mr. Wardeberg, 36,166; Mr.
Wenzler, 87,750; Messrs Bueche, Davis, McGaffey, McKeithan, Osborn and
Winter and Ms. Whitelaw, 10,000 each; Mr. Tisdale, 8,000 and all directors
and executive officers as a group, 394,838.
(3) Includes the following numbers of shares of restricted stock over which
the holders have sole voting but no investment power: Mr. Donnelly,
4,000; Mr. Nuernberg, 800; Mr. Schrader, 4,000; Mr. Wardeberg, 8,000; and
Mr. Wenzler, 3,000; and all directors and executive officers as a group,
19,800. The restricted stock vests in 1999 if the Company's total return
to shareholders for the three-year period ending with 1998 exceeds a pre-
established goal.
(4) Where no percentage figure is set out in this column, the person owns less
than 1% of the outstanding shares.
(5) Deferred stock units are issued under the deferred stock plan and the
deferred compensation plan discussed under "Compensation of Directors -
Deferred Compensation" and "Compensation of Directors - Termination of
Director Retirement Plan."
(6) Includes 4,852 shares owned by Mr. Tisdale's spouse
<PAGE> 11
(7) Includes 4,200 shares owned jointly by Mr. Wardeberg and his spouse.
(8) Includes 526 shares owned by Mr. Wenzler's spouse.
(9) Includes 2,588 shares owned by Mr. Winter's spouse.
Security Ownership of Other Beneficial Owner. The following tabulation
sets forth information regarding beneficial ownership by persons known by the
Company to own, as of February 21, 1997, 5% or more of the outstanding Common
Stock. The beneficial ownership set forth in the table has been reported on a
filing made on Schedule G with the Securities and Exchange Commission by the
beneficial owner.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
-----------------------------------------
Voting Power Investment Power Percent
Name and Address of ----------------- ---------------- of
Beneficial Owner Sole Shared Sole Shared Aggregate Class
- -------------------------- ------ -------- ------ -------- --------- -------
<S>
Marshall & Ilsley Corp.(1) <C> <C> <C> <C> <C> <C>
770 North Water Street
Milwaukee, WI 53202 69,554 916,682 72,218 913,649 986,236 5.36%
</TABLE>
(1) Represents a joint filing by Marshall & Ilsley Corporation and its
subsidiaries M&I First National Bank, Marshall & Ilsley Trust Company,
Marshall & Ilsley Trust Company of Florida, and M&I Marshall & Ilsley Trust
Company of Arizona. Marshall & Ilsley Corporation and its subsidiaries
disclaim beneficial ownership of 900,230 shares of such Common Stock.
EXECUTIVE COMPENSATION
The following tabulation is a three-year summary of the compensation
awarded or paid to, or earned by, the persons who served as Company's chief
executive officer during 1996 and each of the Company's four other most highly
compensated executive officers whose total cash compensation exceeded $100,000
in 1996
<PAGE> 12
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
---------------------------------------- --------------------------------------------
Securities
Other Annual Restricted Underlying All Other
Name and Principal Compensation Stock Options/ Compensation
Position Year Salary($) Bonus($) ($) (1) Awards($) (2) SARs(#) ($) (3)
- -------------------------------- ---- --------- -------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
George E. Wardeberg, President 1996 $393,750 $217,638 $264,000 20,000 $17,250
and Chief Executive Officer of 1995 368,750 192,455 15,000 16,250
the Company and Chairman of 1994 327,500 113,200 185,250 15,000 19,241
its subsidiaries (4)
Thomas F. Schrader, Vice President 1996 290,650 $177,903 132,000 10,000 $13,126
of the Company and President and 1995 278,500 176,857 10,000 12,640
Chief Executive Officer of 1994 264,925 65,163 123,500 10,000 16,112
Wisconsin Gas, WICOR Energy and
FieldTech(5)
James C. Donnelly, Vice President 1996 277,525 $59,218 132,000 10,000 $12,735
of the Company and President 1995 267,800 28,253 10,000 13,185
and Chief Executive Officer of 1994 251,633 105,020 123,500 10,000 15,848
Sta-Rite
Joseph P. Wenzler, Vice President, 1996 272,050 $120,296 99,000 7,500 $12,382
Treasurer and Chief Financial 1995 261,850 106,700 7,500 11,974
Officer of the Company; Vice 1994 252,650 69,800 92,625 7,500 15,498
President and Chief Financial
Officer of Wisconsin Gas;
Secretary and Treasurer of
SHURflo and Hypro; and Vice
President and Treasurer of
WICOR Energy and FieldTech (5)
Robert A. Nuernberg, Secretary 1996 142,750 $49,125 26,400 2,000 $7,138
of the Company WICOR 1995 138,000 48,307 2,000 6,900
Energy and FieldTech; Vice 1994 133,000 7,000 24,700 2,000 9,516
President-Corporate Relations
and Secretary of Wisconsin Gas (5)
</TABLE>
<PAGE> 13
(1) The aggregate amount of personal benefits provided by the Company and its
subsidiaries to the executive officers named in this table in any year
did not exceed the lesser of $50,000 or 10% of each officer's annual
salary and bonuses reported in the table for any of the years indicated.
(2) The amounts in the table reflect the market value on the date of grant of
restricted stock awarded under the 1994 Long-Term Performance Plan. The
number of shares of restricted stock held by the executive officers named
in the table and the market value of such shares as of December 31, 1996,
were as follows: Mr. Wardeberg, 14,000 shares, $502,250; Messrs.
Schrader and Donnelly, 8,000 shares, $287,000; Mr. Wenzler, 6,000 shares,
$215,250; and Mr. Nuernberg, 1,600 shares, $57,400. The restricted stock
vests three years after issuance provided the Company's three-year total
return to shareholders exceeds a pre-established goal. Holders of shares
of restricted stock are entitled to receive dividends on such shares. The
numbers of shares of restricted stock held by the named officers on
February 28, 1997, are set out in footnote 3 to the Security Ownership of
Management and Certain Beneficial Owners table.
(3) The amounts shown in this column for 1996 are comprised of the following
items: Company contributions to 401(k) and supplemental savings plans:
Mr. Wardeberg, $17,250; Mr. Schrader, $13,126; Mr. Donnelly, $12,601; Mr.
Wenzler, $12,382; and Mr. Nuernberg, $7,138. Above market earnings on
deferred compensation: Mr. Donnelly, $134.
(4) On February 1, 1994, Mr. Wardeberg was elected President and Chief
Executive Officer of the Company and Chairman of Wisconsin Gas, Sta-Rite
and SHURflo. He was elected Chairman of Hypro and WICOR Energy in 1995
and FieldTech in 1996.
(5) These executive officers were elected to their positions with SHURflo in
1993, Hypro and WICOR Energy in 1995, and FieldTech in 1996.
<PAGE> 14
Stock Option Information
The Company has in effect equity plans pursuant to which options to
purchase Common Stock may be granted to key employees (including executive
officers) of the Company and its subsidiaries. The following tabulation sets
forth information regarding grants of options made by the Company in 1996 to
the executive officers named in the Summary Compensation Table. No SARs were
awarded in 1996.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN 1996 FISCAL YEAR
Individual Grants
- ---------------------------------------------------------------------------------
Number of Percent of Total
Sec. Under Options Granted Exercise Grant Date
Opt./SARs to Employees or Base Expiration Present
Name Granted (#)(1) in Fiscal Year Price ($/sh.) Date Value(2)
- ------------------- -------------- ---------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
George E. Wardeberg 20,000 12.3 $ 33.00 2/20/06 $ 76,600
Thomas F. Schrader 10,000 6.1 33.00 2/20/06 38,300
James C. Donnelly 10,000 6.1 33.00 2/20/06 38,300
Joseph P. Wenzler 7,500 4.6 33.00 2/20/06 28,725
Robert A. Nuernberg 2,000 1.2 33.00 2/20/06 7,660
</TABLE>
(1) The options reflected in the table (which are nonstatutory stock options
for purposes of the Internal Revenue Code) were granted on February 20,
1996 and vest ratably over the three-year period from the date of grant.
(2) Amounts in this column were calculated using the Black-Scholes option
pricing model. The model assumes: (a) an option term of 10 years and an
average life of 5.64 years; (b) a risk-free interest rate of 4.97%; (c)
volatility (variance of rate of return) of 16.4%; and (d) a dividend yield of
4.97%. The actual value, if any, that an optionee may realize upon exercise
will depend upon the excess of the price of the Common Stock over the option
exercise price on the date that the option is exercised. There is no
assurance that the value received by the optionee will be at or near the value
estimated by the Black-Scholes model
<PAGE> 15
The following tabulation sets forth information regarding the exercise of
stock options during 1996 and the unexercised options held at December 31,
1996, by each of the executive officers named in the Summary Compensation
Table.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN 1996 FISCAL YEAR,
AND FY-END OPTION/SAR VALUES
Numbers of
Securities Underlying Value of Unexercised
Unexercised Options/ In-the-Money Options/
Shares SARs at FY-End (#) SARs at FY-End ($)
Acquired ----------------------- ------------------------
on Exercise Realized Unexer- Unexer-
Name (#) ($) Exercisable cisable Exercisable cisable
- ------------------- ----------- -------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
George E. Wardeberg 0 $ 0 19,500 40,000 $ 129,156 $ 198,125
Thomas F. Schrader 3,000 43,594 83,424 20,001 1,050,624 97,089
James C. Donnelly 4,500 90,984 55,649 24,501 687,185 181,886
Joseph P. Wenzler 0 0 80,250 15,000 1,061,646 72,813
Robert A. Nuernberg 3,000 54,281 31,849 4,001 437,754 19,424
</TABLE>
<PAGE> 16
Pension and Retirement Plans
The Company and its subsidiaries maintain pension and retirement plans
in which the executive officers and other employees participate. The
companies also maintain supplemental retirement plans for officers and certain
other employees to reflect certain compensation that is excluded under the
retirement plans and to provide benefits that otherwise would have been
accrued or payable except for the limitations imposed by the Internal Revenue
Code.
The following tabulation sets forth the annual retirement benefits
payable under the pension plans, as supplemented, for the indicated levels of
final average earnings with various periods of credited service. Benefits
reflected in the table are based on an assumed retirement age of 65.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
Years of Service
----------------------------------------------------
Remuneration 10 15 20 25 30
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$200,000 $ 38,966 $ 58,449 $ 77,932 $ 89,173 $ 92,173
250,000 48,866 73,299 97,732 111,823 115,573
300,000 58,766 88,149 117,532 134,473 138,973
350,000 68,666 102,999 137,332 157,123 162,373
400,000 78,566 117,849 157,132 179,733 185,773
450,000 88,466 132,699 176,932 202,423 209,173
500,000 98,366 147,549 196,732 225,073 232,573
</TABLE>
The compensation covered by the pension plan, as supplemented, for the
named executive officers includes all compensation reported for each
individual as salary and bonus in the Summary Compensation Table. Messrs.
Wardeberg, Schrader, Donnelly, Wenzler and Nuernberg have 7, 18, 9, 22 and
27 years, respectively, of credited service under the pension plan.
Pursuant to a supplemental retirement plan, Messrs. Schrader and Nuernberg
will receive a supplemental retirement benefit of $25,000 per year for 15
years beginning at age 65, payable in monthly installments.
A retired executive officer who is married at the time of retirement
and selects one of the available joint and surviving spouse annuity payment
options will also receive the difference between the monthly benefits
payable under the single life annuity payment option and the 50% joint and
surviving spouse annuity payment option for the lives of the retired officer
and spouse. Upon the death of the retired officer, the surviving spouse
will receive 50% of the supplemental benefit for life
<PAGE> 17
The retirement benefits set out in the above table are based on a
straight life annuity. The election of other available payment options
would change the retirement benefits shown in the table. The plan does not
provide for reduction of retirement benefits to offset Social Security or
any other retirement benefits.
The Company has entered into an executive trust agreement with Marshall
& Ilsley Trust Company to provide a means of segregating assets for the
payment of these benefits (as well as benefits under the Company's
supplemental retirement plan), subject to the claims of the Company's
creditors. Such trust is only nominally funded until the occurrence of a
potential change of control.
Agreements With Certain Executive Officers
The Company has agreements with Messrs, Wardeberg, Schrader, Donnelly
and Wenzler that provide that each such executive officer is entitled to
benefits if, following a "change of control" (as such term is defined in the
agreements), the officer's employment is ended through (i) termination by
the Company, other than by reason of death or disability or for cause (as
defined in the agreements), or (ii) termination by the officer following the
first anniversary of the change in control or due to a breach of the
agreement by the Company or a significant change in the officer's
responsibilities. In general, the benefits provided are: (i) a cash
termination payment of up to three times the sum of the executive officer's
annual salary and his highest annual bonus during the three years before the
termination, (ii) supplemental pension benefits,(iii) continuation of
equivalent hospital, medical, dental, accident, disability and life
insurance coverage as in effect at the time of termination, and (iv)
outplacement services. The agreements also provide the foregoing benefits
in connection with certain terminations that are effected in anticipation of
a change of control. Each agreement provides that if any portion of the
benefits under the agreement or under any other agreement for the officer
would constitute an "excess parachute payment" for purposes of the Internal
Revenue Code, benefits will be reduced so that the officer will be entitled
to receive $1 less than the maximum amount which he could receive without
becoming subject to the 20% excise tax imposed by the Code, or which the
Company may pay without loss of deduction under the Code.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board. The Compensation Committee is
comprised of four independent, non-employee directors. Following
Compensation Committee review and approval, matters relating to executive
compensation (other than the grant of stock options and restricted stock)
are submitted to the full Board for approval. The Compensation Committee
utilizes an independent compensation consultant. The consultant provides
advice to the Committee on compensation-related issues, including incentive
plan design and competitive compensation data for officer positions
<PAGE> 18
Compensation Policies
Policies are used to set a general direction and as a backdrop against
which specific compensation decisions are made.
- Design of executive pay programs is intended to attract and retain
top talent, motivate and reward performance.
- Differences in pay practices and performance measures between the
Company's primary lines of business are recognized.
- Compensation opportunities, by component and in the aggregate, are
targeted at the median (50th percentile) of competitive practice.
- Achievement of incentive compensation levels is dependent on
attainment of performance goals as agreed to by the Board annually.
These goals relate to the achievement of the Company's operating and
financial plan, individual objectives and milestones in the Company's
longer-term strategic plan.
- In business units where an all-employee bonus or profit-sharing
program exists, a portion of each executive's incentive compensation
is determined on the same criteria.
- The focus on enhancement of shareholder value is accomplished by
tying a significant portion of total pay to performance of the
Company's stock.
In assessing executive performance and pay, the members of the
Compensation Committee consider and weigh in their judgment factors outside
the formal incentive plans. These factors include operational and financial
measures not specifically incorporated in the incentive plans, and actual
performance in dealing with unanticipated business conditions during the
year. The Compensation Committee believes such factors should be considered
in addition to the more formalized factors to assess and reward executive
performance properly.
Base salary midpoints, annual incentive targets and long-term incentive
grants are set based on a competitive analysis conducted by the independent
compensation consultant. As indicated above, compensation opportunities, by
component and in the aggregate, are set at or near the 50th percentile of
competitive practice for comparably sized organizations. Rates for the gas
utility positions are set using survey sources from the utility industry.
There is substantial overlap between the companies in these surveys and the
companies used in the peer company index in the Performance Graph. Rates
for the nonutility positions are set using survey sources from general
industry; there is no overlap with the Performance Graph peer companies
here.
<PAGE> 19
Components of Compensation
Base salary. The Compensation Committee targets salary range midpoints
as indicated above. Individual salaries range above and below the midpoint
based upon an individual's past and current performance, and expectations
for future performance. The factors considered in this review are job
specific and vary depending on the individual's position. There is no
specific weighting given to these factors.
Annual incentive plan. The Company's annual incentive compensation plan
tailors each officer's incentive potential to that officer's Company and
subsidiary responsibilities. The plan sets incentive targets ranging from
20% to 50% of base salary. The plan is designed to compensate the officers
primarily on a formula basis. For the Chief Executive Officer and the Chief
Financial Officer, the formula bases 75% of the targeted award on the
Company's earnings per share (EPS) and 25% on individual performance
objectives. For Company Vice Presidents, who are also the subsidiary
presidents, the formula bases 25% of the targeted award on the Company's
earnings per share, 25% on individual performance objectives, and 50% on
subsidiary performance objectives. Subsidiary performance objectives for
Wisconsin Gas include financial, customer service and safety objectives
(weighted at 67% of this component) and financial objectives (weighted at
33%). Performance objectives for Sta-Rite include net earnings (weighted at
67% of this component) and return on assets (weighted at 33%). Individual
performance objectives vary among the officers, but may include such things
as cost management, product development, sales growth, personnel management
and development, and management of specific projects. The Compensation
Committee exercises its judgment on a case-by-case basis in determining the
weight to be accorded any individual performance objective.
For 1997, the Compensation Committee has approved a modification in the
annual incentive plan to further strengthen the relationship between awards
earned under the Plan and increase in shareholder value. Beginning in 1997,
corporate and business unit earnings goals will incorporate a return on
capital component. Individual performance objectives will continue to be
measured in determining actual awards.
Long-term incentive plan. The Company's long-term incentive
compensation plan provides for annual awards of stock options and biennial
awards of performance-based restricted stock. The plan splits an officer's
long-term incentive opportunity equally (based on value) between stock
options and performance-based restricted stock. The independent compensation
consultant provides the Compensation Committee with a long-term incentive
grant schedule that approximates a market median grant opportunity. The
Compensation Committee reserves the right to adjust this schedule upward or
downward based on Company performance; however, it is the Compensation
Committee's intention that in most cases grants will be provided at targeted
levels
<PAGE> 20
Stock options may be incentive stock options or nonstatutory options
which have a term of not more than ten years and have an exercise price
equal to the fair market value on the date of grant. The Compensation
Committee determines the manner and conditions under which the options
become exercisable. The number of options granted is based on the
participant's office or position, with an equal number of shares generally
being granted to individuals holding the same or similar positions, such as
vice president of an operating subsidiary. Performance-based restricted
stock will vest three years from the year of grant provided the Company's
three-year total return to shareholders equals or exceeds pre-established
goals relative to the Performance Graph peer group (the PaineWebber Gas
Distribution Utility Index). For other subsidiary officers who participate
in the plan, the restricted stock will vest in three-years provided the
appropriate subsidiary's three-year financial performance (three-year
cumulative earnings for Wisconsin Gas and return on assets for Sta-Rite)
equals or exceeds the pre-established goal.
Compensation of Officers
The Compensation Committee sets base salaries of officers within the
established ranges. The Compensation Committee considers specified financial
measures tailored to the Company and each subsidiary, each officer's
contribution to achieving corporate goals, and such officer's achievement of
personal performance objectives. Examples of financial measures are net
income earned relative to budget, return on total assets, return on sales,
and rate of return earned versus allowed. The Compensation Committee weighs
the financial measures differently for each officer, in recognition that the
Company's principal subsidiaries operate in different industries with
different compensation practices and that the officers' responsibilities
differ. For example, the rate of return earned versus that nominally
allowed by state regulatory authorities having jurisdiction over the gas
utility subsidiary is applicable only to officers of the utility company,
whereas return on total assets and return on sales are applicable primarily
to officers of the manufacturing subsidiaries. Examples of personal
performance objectives considered by the Compensation Committee are set out
above in the discussion of the Annual Incentive Plan. The Compensation
Committee exercises its judgment in determining the relative weight to be
accorded each personal objective.
As stated above, each officer's annual incentive award, if any, is
based on a formula, although the Compensation Committee exercises its
judgment in determining the weights to be accorded the achievement of
personal objectives. Long-term incentive awards (stock options and
restricted stock) are also formula-based, with individual awards being set
relative to the officer's position. The specific number of stock options
awarded is based on the number of options to be awarded to all key employees
of the Company and its subsidiaries and the number of options previously
granted and outstanding, as determined by the Compensation Committee.
Options granted in 1996 were nonstatutory, have a term of ten years, and
first become exercisable one-third each year on the first, second and third
anniversary of the grant. Restricted stock grants were made in the
targeted amounts
<PAGE> 21
Compensation of the Chief Executive Officer
For 1996, the Compensation Committee increased the base salary of
George E. Wardeberg, the Company's Chief Executive Officer, by $25,000 or
6.7% effective April 1, 1996. The increase reflects his overall
performance, as demonstrated by record earnings for the Company in 1995, an
increase in earnings per share of 17% and a total return of 20%, along with
his position in the salary range. The increase sets Mr. Wardeberg's salary
in the second quartile of the range targeted by the Compensation Committee.
The Compensation Committee awarded Mr. Wardeberg 20,000 nonstatutory
stock options in 1996. The number of options awarded was at the targeted
number established in the long-term incentive compensation plan.
The annual incentive award to Mr. Wardeberg for 1996 was $217,638 or
55% of his salary as compared to a target of 50% of salary. This award
reflects Mr. Wardeberg's significant contributions to the Company during
1996. The Company's financial objectives were met with net earnings and
earnings per share increasing 18% and 10%, respectively. WICOR also
outperformed its industry peers over the last five years as shown in the
accompanying Total Return Comparison performance graph. In addition, Mr.
Wardeberg accomplished his personal objectives in the areas of growth, human
resources and preserving the Company's financial strength. The Compensation
Committee exercised its judgment in determining the weights accorded to his
accomplishment of these personal objectives.
Compliance with Tax Regulations
The Company has considered the implications of the Section 162(m) tax
rules regarding deductibility of annual executive compensation over $1
million. The cash compensation levels for Company officers fall well below
this level and, hence, no specific changes are proposed to the cash
compensation program. However, it is important to note that most of the
components of compensation described above are consistent with the tax rules
regarding performance-based compensation incentives.
The Compensation Committee did, however, seek qualification of the
stock components of the program as "performance-based compensation" plans
pursuant to these tax rules. To that end, proposals were included in the
1994 Proxy Statement establishing a per-person limitation for stock option
and restricted stock awards. The proposals were approved by the
shareholders.
Guy A. Osborn, Chairman
Wendell F. Bueche
Willie D. Davis
Daniel F. McKeithan, Jr.
Members of the Compensation Committe
<PAGE> 22
PERFORMANCE PRESENTATION
The following graph compares the yearly percentage change in the
Company's cumulative total shareholder return (dividends declared plus share
appreciation) to the S&P 500 Stock Index and the PaineWebber Gas
Distribution Utility Index, comprised of 35 U.S. natural gas distribution
utilities. The information presented assumes that all dividends were
reinvested.
[Performance graph will appear here.]
Total Return Comparison *
Among WICOR, Inc., S&P 500 Index
and PaineWebber Gas Distribution Utility Index
Measurement Period - FYE
Measurement Point - December 31, 1991
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- --------
WICOR $100 $119 $145 $138 $165 $193
S&P 500 $100 $108 $119 $120 $165 $203
Industry** $100 $119 $135 $118 $153 $182
* Includes Reinvested Dividends
** PaineWebber Gas Distribution Utility Index
<PAGE> 23
SHAREHOLDER PROPOSALS
Proposals which shareholders of the Company intend to present at the 1998
Annual Meeting of Shareholders must be received by the Company by the close
of business on November 14, 1997.
OTHER MATTERS
Arthur Andersen LLP was retained as the Company's independent auditors
for the year ended December 31, 1996 and, upon the recommendation of the
Audit Committee, the Board has reappointed Arthur Andersen as independent
public accountants for the Company for the year ending December 31, 1997. A
representative of Arthur Andersen is expected to be present at the Annual
Meeting with the opportunity to make a statement if such representative
desires to do so, and it is expected that such representative will be
available to respond to appropriate questions.
The Company will file with the Securities and Exchange Commission on or
before March 31, 1997, an annual report on Form 10-K for the fiscal year
ended December 31, 1996. The Company will provide without charge a copy of
this Form 10-K (including financial statements and financial statement
schedules, but not including exhibits thereto) to each person who is a
record or beneficial holder of shares of Common Stock as of the record date
for the Annual Meeting and who submits a written request for it. A request
for a Form 10-K should be addressed to Robert A. Nuernberg, Secretary,
WICOR, Inc., P.O. Box 334, Milwaukee, Wisconsin 53201.
Management does not intend to present to the Annual Meeting any matters
other than the matters described in this Proxy Statement. Management knows
of no other matters to be brought before the Annual Meeting. However, if
any other matters are properly brought before the Annual Meeting, it is the
intention of the persons named in the enclosed form of proxy to vote thereon
in accordance with their best judgment.
The cost of soliciting proxies will be borne by the Company. The
Company expects to solicit proxies primarily by mail. Proxies may also be
solicited personally and by telephone by certain officers of the Company and
regular employees of its subsidiaries. The Company may reimburse brokers
and other nominees for their expenses in communicating with the persons for
whom they hold Common Stock.
By Order of the Board of Directors
Robert A. Nuernberg
Secretary
March 13, 199
<PAGE> 24
APPENDIX I
WICOR
VOTING AUTHORIZATION
[X] Please mark your
votes as this
WICOR
VOTING AUTHORIZATION
- ----------------------------------------------------------------------------
The Board of Directors recommends a vote FOR all nominees in Item 1.
- ----------------------------------------------------------------------------
1. Election of the following nominees as directors for three-year terms:
Willie D. Davis, Guy A. Osborn and William B. Winter
FOR all nominees WITHHOLD
(except as marked AUTHORITY
to the contrary) to vote for all nominees
/ / / /
(Instruction: To withhold authority to vote
for any nominee write the name below)
-------------------------------------------
. . . . . . . . . . . . . . . . . . . . . .
. .
. .
. .
. .
. . This Voting Authoriza-
. . tion is Solicited by the
. . Board of Directors
. . . . . . . . . . . . . . . . . . . . . .
Signature(s) _________________________________ Date ________________
NOTE: Please sign as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE> 25
FOLD AND DETACH HERE
March 13, 1997
Dear WICOR Shareholder:
Enclosed is a notice of WICOR's annual shareholders meeting, coming up
April 24, 1997, in Milwaukee. Also enclosed is a proxy statement and voting
authorization card. You have already received a copy of the 1996 WICOR
annual report.
It's important that you fill out and return the authorization card as soon
as possible. It entitles you, as an owner of WICOR common stock through our
company's savings plan, to vote your interest at the annual meeting.
Filing out the card directs the Trustee of your shares held in the savings
plan as of February 21, 1997, to vote them on your behalf. You must return
your marked and signed card in order to have the Trustee vote your shares.
The WICOR Board of Directors urges you to exercise this right to vote. To
make sure your vote counts, and to prevent the expense of WICOR sending
further reminder notices, please mark and sign your voting authorization
card now and return it to the Trustee in the enclosed envelope.
Thank you,
Sincerely,
George E. Wardeberg
President and Chief Executive Officer
YOUR VOTE IS IMPORTANT. TO ASSURE YOUR REPRESENTATION AT THE WICOR
SHAREHOLDERS ANNUAL MEETING, MARK YOUR VOTES ON THE ENCLOSED VOTING
AUTHORIZATION CARD, DATE IT, SIGN IT EXACTLY AS YOUR NAME APPEARS AND RETURN
IT TODAY IN THE ENCLOSED ENVELOPE.
<PAGE> 26
--- (BACKSIDE OF VOTER AUTHORIZATION FORM) ---
WICOR
VOTING AUTHORIZATION
The undersigned acknowledges receipt of the WICOR, Inc. Annual Report for
1996 and the proxy solicitation material relative to the Annual Meeting of
Shareholders of WICOR, Inc. to be held April 24, 1997. As to my interest in
the Common Stock of WICOR, Inc. held by Marshall and Ilsley Trust Company,
the Trustee under the WICOR, Inc. Master Savings Trust, I hereby instruct the
Trustee to vote as indicated on the reverse side.
The shares represented by this authorization will be voted as directed by
the undersigned. If no direction is given when the duly executed
authorization is returned, the Trustee cannot vote such shares.
THIS VOTING AUTHORIZATION IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT
THE ANNUAL MEETING OF SHAREHOLDERS OF WICOR, INC., APRIL 24, 1997.
(continued on the reverse side)
<PAGE> 27
APPENDIX II
/X/ Please mark your
votes as indicated
WICOR in this example
PROXY
- ------------------------------------------------------------------------
The Board of Directors recommends a vote FOR all nominees in Item 1.
- ------------------------------------------------------------------------
1. Election of the following nominees as directors for three-year terms:
Willie D. Davis, Guy A. Osborn and William B. Winter
FOR all nominees WITHHOLD
(except as marked AUTHORITY
to the contrary) to vote for all nominees
/ / / /
(Instruction: To withhold authority to vote for
any nominee write the name below)
------------------------------------------
Please check this box
if you plan to attend
the annual meeting
[ ]
This Proxy is Solicited
by the Board of Directors
Signature(s) __________________________ Date __________________
NOTE: Please sign as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE> 28
FOLD AND DETACH HERE
March 13, 1997
Dear WICOR Shareholder:
We're pleased to send you the enclosed 1996 annual report and proxy
materials. I hope you'll find the annual report interesting and
informative, and that you'll exercise your right to vote at the annual
meeting by returning your proxy card promptly.
I'd also like to invite you to attend WICOR's Annual Meeting of Shareholders
on Thursday, April 24, 1997. This year's meeting will be held at the
Italian Community Center, 631 East Chicago Street, Milwaukee, Wisconsin,
beginning at 2:00 p.m. (Central Time). A map with directions to the center
is on the reverse side of this letter. Free parking is available in a lot
on the south side of the building.
At the meeting, we will elect directors, discuss 1996 performance and talk
about the future. As an investor in WICOR, you have a right and a
responsibility to vote on issues affecting your company. Regardless of
whether you plan to attend the annual meeting, please mark the appropriate
boxes on the proxy form, and then date, sign and promptly return the form in
the enclosed, postage-paid envelope. If you sign and return the proxy form
without specifying your choices, your shares will be voted according to the
recommendations of your board of directors.
If you plan to attend the annual meeting, please check the appropriate box
on the proxy card. We welcome your comments and suggestions, and we will
provide time during the meeting for questions from shareholders. I hope to
see you on April 24.
Sincerely,
George E. Wardeberg
President and Chief Executive Office
<PAGE> 29
WICOR
COMMON SHAREHOLDER PROXY
The undersigned hereby appoints George E. Wardeberg and Joseph P. Wenzler,
and each of them, as proxy with the power of substitution (to act by a
majority present or if only one acts then by that one) to vote for the
undersigned as indicated on the reverse side and in their discretion on such
other matters as may properly be considered at the Annual Meeting of
Shareholders of WICOR, Inc. to be held Thursday, April 24, 1997, at 2:00
P.M., at the Italian Community Center, 631 E. Chicago Street, Milwaukee,
Wisconsin, and at any adjournments thereof.
The shares represented by this proxy will be voted as directed by the
shareholder. If no direction is given when the duly executed proxy is
returned, such shares will be voted "FOR" all nominees in Item 1 and in the
discretion of the proxies on any other items of business as may properly
arise at the meeting.
Please mark, date and sign on the reverse side exactly as name appears and
return in the enclosed postage-paid envelope. If shares are held jointly,
each shareholder named should sign. If signing as attorney, administrator,
executor, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by duly authorized officer.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL
MEETING OF SHAREHOLDERS OF WICOR, INC., APRIL 24, 1997.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
Map of downtown Milwaukee, Wisconsin, showing
location of annual meeting and the routes to take within
Milwaukee and from Chicago, Green Bay and Madison.
