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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, 1997
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: $878,833,100 at February 28, 1998.
Number of shares outstanding of each of the registrant's classes of
common stock, as of February 28, 1997:
Common Stock, $1 par value 18,631,681 shares
Documents Incorporated by Reference
WICOR, Inc. proxy statement dated March 13, 1998 (Part III)
WICOR, Inc. 1997 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) Forward-Looking Statements 1
d) Narrative Description of Business 2
1) Energy 2
A. General 2
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
5) Potential New Pipeline Capacity 4
D. Wisconsin Regulatory Matters 5
1) Rate Matters 5
2) Gas Cost Recovery Mechanism 5
3) Transition Cost Recovery Policy 5
4) 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 6
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 7
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 10
Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition 10
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 10
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TABLE OF CONTENTS (continued)
PAGE
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 10
PART III. 10
Item 10. Directors and Executive Officers
of the Registrant 10
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain
Beneficial Owners and Management 11
Item 13. Certain Relationships and Related Transactions 11
PART IV 11
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 11
a) Documents Filed as Part of the Report 11
1. All Financial Statements and Financial
Statement Schedules 11
2. Financial Statement Schedules 11
3. Exhibits 11
b) Reports on Form 8-K 11
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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.
Per news release in April, 1997 Nocchi Pompe S.p.A., an Italian
subsidiary of Sta-Rite, purchased selected business assets and assumed
certain liabilities of Majmar Pompe s.r.l., a pump manufacturer located
in Milan, Italy. Majmar makes pumps for water circulation and pressure
boosting applications. Majmar pumps are used primarily in residential
and commercial heating systems, fire protection systems, high rise
buildings and municipal water supply systems.
In June, 1997 FieldTech acquired selected business assets of
Can Am Utility Services Corporation, a privately held provider of
contract meter reading, meter installation and other services for water,
gas and electric utilities.
In August, 1997 Sta-Rite purchased a line of swimming pool and
spa lighting equipment made by Hydrel, a division of California-based
QTY industries. Sta-Rite also assumed certain liabilities of Hydrel.
In September, 1997 the Company acquired a 100% ownership
interest in Fibredyne, Inc. ("Fibredyne"). Fibredyne is a New Hampshire
based manufacturer of specialty filter cartridges for purification of
drinking water and industrial process fluids. Fibredyne operates as a
subsidiary of Sta-Rite.
At December 31, 1997, the Company (including subsidiaries) had
3,625 employees.
b) Financial Information About Industry Segments
Refer to the section entitled "Management's Discussion and
Analysis-General Overview" set forth in the Company's 1997 Annual Report
to Shareholders. That section is included in Exhibit 13 hereto and is
hereby incorporated herein by reference.
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c) Forward-Looking Statements
Certain matters discussed in this Annual Report are "forward-
looking statements" intended to qualify for the safe harbor from
liability established by the Private Securities Litigation Reform Act of
1995. These forward-looking statements can generally be identified as
such because the context of the statements will include such words as
the Company "believes," "anticipates" or "expects," or words of similar
import. Similarly, statements that describe the Company's future plans,
objectives or goals are also forward-looking statements. Such forward-
looking statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those currently
anticipated. Such risks and uncertainties include general economic
conditions; weather conditions; business conditions in the energy
industry; the impact of and changes in government regulations; changes
in environmental remediation costs; unanticipated increases in
manufacturing costs; market acceptance of or preference for the
Company's products; technological factors; and other risk factors
identified from time to time by the Company in reports filed with the
Securities and Exchange Commission. Shareholders, potential investors
and other readers are urged to consider these factors carefully in
evaluating the forward-looking statements and are cautioned not to place
undue reliance on such forward-looking statements.
d) Narrative Description of Business
1. ENERGY
A. General
Wisconsin Gas is the largest natural gas distribution public
utility in Wisconsin. At December 31, 1997, Wisconsin Gas distributed
gas to approximately 521,000 residential, commercial and industrial
customers in 521 communities throughout Wisconsin. Wisconsin Gas'
service area has an estimated population of approximately 2,000,000
based on State of Wisconsin's estimates for 1997. Wisconsin Gas is
subject to the jurisdiction of the Public Service Commission of
Wisconsin ("PSCW") as to various phases of its operations, including
rates, service and issuance of securities. See "Wisconsin Regulatory
Matters".
WICOR Energy and FieldTech are in their third year of
operations, and their results are not material to the Company's
financial position or results of operations.
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 gas deliveries occurring during 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 lower-priced interruptible rates and 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 gas marketers 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 substantially the same margin (difference between revenue and cost
of gas), whether it sells gas and transportation to customers or only
transports third-party gas. Effective November 1, 1997, Wisconsin Gas'
margin may be impacted by its gas purchasing practices. See "Wisconsin
Regulatory Matters - Gas Cost Recovery".
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The following table sets forth the volumes of natural gas
delivered by Wisconsin Gas to its customers. The volumes shown as
transported represent third-party gas that was delivered by Wisconsin
Gas to its customers. The sales volumes represent quantities sold and
delivered to customers by Wisconsin Gas.
<TABLE>
<CAPTION>
Customer Class Year Ended
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December 31, 1997 December 31, 1997
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Thousands Thousands
Sales of Therms* Percent of Therms* Percent
- --------------------- --------- ------- ---------- -------
<S> <C> <C> <C> <C>
Residential 484,330 37.5 529,910 39.1
Commercial 219,220 17.0 242,570 17.9
Large Volume Commercial
and Industrial Firm 87,240 6.8 110,780 8.2
Commercial and
Industrial
Interruptible 72,770 5.5 196,240 14.5
--------- ------- ---------- ------
Total Sales 863,560 66.8 1,079,500 79.7
Transportation
- --------------
Transported 428,830 33.2 275,780 20.3
--------- ------- ---------- ------
Total Gas Throughput 1,292,390 100.0 1,355,280 100.0
========= ======= =========== ======
</TABLE>
*One therm equals 100,000 BTU's.
Wisconsin Gas continues to secure 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.
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 direction and the fact that
Wisconsin Gas' earnings are substantially the same whether it sells and
distributes 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 any Wisconsin
utility to discontinue completely the sale of gas to any market segment.
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With PSCW approval, Wisconsin Gas has implemented a small-
customer gas-supplier choice pilot program that is designed to test (1)
market acceptance of third-party gas marketers, (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, has 2,114 small commercial and
residential participants. Wisconsin Gas expects to continue the pilot
program, with certain modifications. 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 has
increased steadily since 1995 and now constitutes approximately one-
third of the gas distributed by Wisconsin Gas. See "Wisconsin
Regulatory Matters". In 1997, Wisconsin Gas added over 8,000 customers
and has added more than 50,000 customers over the past five years.
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 marketers 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 more than 35% of Wisconsin Gas' annual deliveries, it
contributes only about 10% of Wisconsin Gas' margin.
C. Gas Supply, Pipeline Capacity and Storage
1) General
Prior to the Federal Energy Regulatory Commission's ("FERC")
Order No. 636, which was implemented on November 1, 1993, 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 this 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 1997,
Wisconsin Gas continued its active participation 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 and 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. See "Potential New
Pipeline Capacity".
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
Pipeline (Thousands of Therms*)
------------------- ----------------------
ANR
Mainline 2,821
Storage 4,826
NNG
Mainline 1,048
Peaking Facilities 228
Viking
Mainline 77
Peaking Facilities 76
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Total 9,076
=====================
*One therm equals 100,000 BTU's.
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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 1,937
Canadian flowing gas 1,628
Storage withdrawals 5,054
Peaker withdrawals 76
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Total 8,695
==============
*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.
5) Potential New Pipeline Capacity
Viking Voyageur Gas Transmission LLC has filed an
application with the FERC to construct a 775-mile, 42-inch, high-
pressure natural gas pipeline from the United States - Canada border at
Emerson, Manitoba, Canada, to the Chicago area near Joliet, Illinois
("Viking Voyageur"). The pipeline would run generally east from the
Minneapolis area to Marshfield, Wisconsin and then generally south to
Chicago. The pipeline would have a capacity of 1.4 billion cubic feet
of gas per day. The pipeline is proposed to be in service by November
1, 1999.
Wisconsin Gas is in the process of negotiating contracts
for the purchase of Canadian gas which the sellers would deliver to
various points in Wisconsin along the Viking Voyageur route. Wisconsin
Gas would file applications with the PSCW to construct one or more
lateral lines to connect the utility's distribution system to Viking
Voyageur.
The Viking Voyageur pipeline would provide benefits to
Wisconsin Gas and its customers in two major ways. First, it would
provide ongoing competition with ANR and NNG, which is likely to cause
customers' overall gas bills to decline. Second, it would provide
additional capacity which will be necessary to meet future demand for
gas and to ensure gas service remains reliable.
Management cannot predict if or when Viking Voyageur will
be approved and constructed, nor if and when Wisconsin Gas will receive
approval for or construct laterals to connect to Viking Voyageur.
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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 total margin
rate cap (initially three years through October 1997) based on the rates
in effect in November 1994. On October 10, 1997, the PSCW approved a
second one-year extension of the margin cap mechanism to November 1,
1999. 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, 1997, were $9.0 million below the cap because of annualized rate
reductions beginning in 1995.
2) Gas Cost Recovery
Wisconsin Gas' rates traditionally contained 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".
The PSCW approved an incentive gas cost recovery mechanism
for Wisconsin Gas effective November 1, 1997. Under the mechanism,
monthly targeted gas supply costs, including upstream capacity costs,
are set. At the end of each 12-months, Wisconsin Gas' actual gas supply
costs are compared with the aggregate annual targeted costs. If
Wisconsin Gas' actual costs are within 1-1/2% (either above or below)
the target costs, Wisconsin Gas recovers its actual costs. If Wisconsin
Gas' actual costs are between 1-1/2% and 4% below the target, Wisconsin
Gas and its customers share the benefits equally. Similarly, if actual
gas costs are between 1-1/2% and 4% above the target, Wisconsin Gas and
its customers share the additional costs equally. If actual costs are
outside the 4% band either side of the target, the benefits and
additional costs below or above 4%, as the case may be, accrue to or are
borne by customers.
3) 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 8a
to Notes to Consolidated Financial Statements contained in Exhibit 13,
consisting of portions of the Company's 1997 Annual Report to
Shareholders, which note is hereby incorporated herein by reference.
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4) 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 prices for customer
segments with workably competitive market choices. The PSCW has
identified numerous issues which must be resolved before its policy can
be implemented. The PSCW has a number of work groups addressing these
issues. Work group recommendations to the PSCW are due over the next
two years. The Company is unable to determine what impact this
proceeding may have on Wisconsin Gas' operations or financial position.
See "Gas Markets and Competition".
E. Employees
At December 31, 1997, the energy group had 1,174 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, Germany, India, Italy, Mexico and New Zealand.
B. U.S. Operations
Water products include jet, centrifugal, sump, submersible
and submersible turbine water pumps, water storage and pressure tanks,
residential and in-line 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, marine wash down, bilge and live well pumping; (3) industrial
markets, where applications are used in carpet cleaning machines for
soil extraction, agricultural equipment for spraying pesticides and
fertilizers, firefighting applications 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.
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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", 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 Australian, German,
Indian, Italian, Mexican and New Zealand 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 1997 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 material to the success of the manufacturing businesses as a
whole.
E. Employees
At December 31, 1997, the manufacturing group had 2,442
full time active employees.
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Item 2. PROPERTIES
a) Capital Expenditures
The Company's capital expenditures for the year ended
December 31, 1997, totaled $51.6 million. Retirements during this
period totaled $24.6 million. Except as discussed under "Legal
Proceedings", the Company does not expect to make any material capital
expenditures for environmental control facilities in 1998.
(b) Energy
Wisconsin Gas owns a distribution system which, on
December 31, 1997, included approximately 8,700 miles of distribution
and transmission mains, 435,700 services and 523,700 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 15 manufacturing facilities
located in California (3), Minnesota, Nebraska, New Hampshire,
Wisconsin, Australia, Germany, India, Italy (3), Mexico and New Zealand.
These plants contain a total of approximately 1,240,000 square feet of
floor space. The Company through its manufacturing business also owns or
leases six sales/distribution facilities in the United States, five in
Australia, and one each in Canada, France, Italy, Kazakhstan, Mexico,
New Zealand, Russia and the United Kingdom.
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.
<PAGE>
<PAGE> 13
a) Manufacturing Business
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 cleanup 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.
In July 1994, Sta-Rite was notified by the Wisconsin
Department of Natural Resources ("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
dismissed on November 6, 1996. Although the Village of Deerfield has
brought suit against Sta-Rite, alleging damages of more than $500,000
for new wells, 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 accrued may be incurred in the future.
B Energy Business
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 completed a
comprehensive review of its potential environmental liabilities stemming
from these two former manufactured gas plant sites. Significant
technological developments, lower unit costs and the recognition of the
"brown fields" concept by regulatory agencies have all resulted in a
reduction in 1997 in the estimate of the probable liability for cleanup
to $12 million. This cleanup estimate considered a number of factors,
including the estimated extent and volume of contaminated soil and/or
groundwater and is based on current undiscounted costs. In addition,
management believes it is possible, but not likely, that approximately
$5 million in additional remediation costs may be incurred.
Expenditures over the next three years are expected to total
approximately $8 million.
<PAGE>
<PAGE> 14
The cleanup estimate discussed above includes the costs of
feasibility studies, data collection, soil and groundwater remediation
activities and ongoing monitoring activities through 2017.
Environmental remediation work for one of the sites was commenced in the
first quarter of 1998 and will continue through 1999. It is reasonably
possible that, due to uncertainties associated with defining the nature
and extent of environmental contamination, application of laws and
regulations by regulatory authorities and changes in remediation
technology, the ultimate cost of remediation could change in the future.
The Company periodically reviews its accrued liabilities for such
remediation costs as evidence becomes available indicating that its
remediation liability has changed.
Due to anticipated regulatory treatment, changes in the
Wisconsin Gas recorded cleanup liability for the manufactured gas plant
sites do not immediately impact net income. Under the current
ratemaking treatment approved by the PSCW, the costs expended in the
environmental remediation of these sites, net of any insurance proceeds,
are deferred and recovered from gas customers.
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 currently
believes that amounts recovered from its insurance carriers or through
rate recovery will be sufficient to cover any liability imposed on
Wisconsin Gas.
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 8c to Notes to Consolidated Financial Statements
contained in Exhibit 13, consisting of portions of the Company's 1997
Annual Report to Shareholders, which note is hereby incorporated herein
by reference.
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 1997.
<PAGE>
<PAGE> 15
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 62 Chairman and Chief Executive Officer of the
Company and its subsidiaries
Thomas F. Schrader 48 President and Chief Operating Officer of the
Company and Vice Chairman of Wisconsin Gas,
WICOR Energy and FieldTech
Bronson J. Haase 53 Vice President of the Company and President
and Chief Executive Officer of Wisconsin Gas,
WICOR Energy and FieldTech
James C. Donnelly 52 Vice President of the Company and President
and Chief Executive Officer of Sta-Rite
Joseph P. Wenzler 56 Senior 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 VP
and Treasurer of WICOR Energy and FieldTech
Robert A. Nuernberg 58 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 Chairman of the Company effective July 23,
1997. Prior thereto, he was President and Chief Executive Officer of the
Company from 1994 to 1997, and held executive positions with the
Company's subsidiaries from 1989 to 1994. He continues in his position
as Chairman of the Company's subsidiaries.
Mr. Schrader was elected to his current positions in 1997. Prior
thereto, he was Vice President of the Company from 1988 to 1997 and
President and Chief Executive Officer of Wisconsin Gas from 1990 to
1997, WICOR Energy from 1995 to 1997 and FieldTech from 1996 to 1997.
Mr. Haase was elected Vice President of the Company and President and
Chief Executive Officer of Wisconsin Gas, WICOR Energy and FieldTech on
December 31, 1997. Prior thereto, he served as President and Chief
Executive Officer of Ameritech Wisconsin for more than five years.
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 for more than five years.
Mr. Wenzler was elected Senior Vice President, Treasurer and Chief
Executive Officer of the Company on July 23, 1997. Prior thereto, he
served as Vice President, Treasurer and Chief Financial Officer of the
Company from 1992 to 1997. He continues as Vice President and Chief
Financial Officer of Wisconsin Gas and as Treasurer and Secretary of
SHURflo and Hypro.
<PAGE>
<PAGE> 16
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 1997 and 1996, see the
section entitled "Investor Information" set forth in the Company's 1997
Annual Report to Shareholders. That section is included in Exhibit 13
hereto and is hereby incorporated herein by reference.
At December 31, 1997, there were 22,312 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 7 of Notes to Consolidated
Financial Statements contained in Exhibit 13, consisting of portions of
the Company's 1997 Annual Report to Shareholders, which note is hereby
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
Refer to the section entitled "Selected Financial Data"
set forth in the Company's 1997 Annual Report to Shareholders. Such
section is included in Exhibit 13 hereto and is hereby incorporated
herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Refer to the section entitled "Management's Discussion and
Analysis" set forth in the Company's 1997 Annual Report to Shareholders.
Such section is included in Exhibit 13 hereto and is hereby incorporated
herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to the Company's consolidated balance sheets and
consolidated statements of capitalization as of December 31, 1997 and
1996, and the related consolidated statements of income, common equity
and cash flows for each of the three years in the period ended December
31, 1997, together with the report of independent public accountants
dated January 26, 1998, all appearing in Exhibit 13, consisting of
portions of the Company's 1997 Annual Report to Shareholders, which is
hereby incorporated herein by reference.
<PAGE>
<PAGE> 17
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
Refer to "Item No. 1: Election of Directors" included in
the WICOR proxy statement dated March 13, 1998, which is hereby incor-
porated 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
Refer to "Executive Compensation" included in the WICOR
proxy statement dated March 13, 1998, 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. Refer to "Board of
Directors" included in the WICOR proxy statement dated March 13, 1998,
which is hereby incorporated herein by reference, for information on
compensation of directors of the Company.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Refer to "Security Ownership of Management" included in
the WICOR proxy statement dated March 13, 1998, which is hereby
incorporated herein by reference, for information regarding voting
securities of the Company beneficially owned by its directors and
officers.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to "Item No. 1: Election of Directors" included in
the WICOR proxy statement dated March 13, 1998, which is hereby incorpo-
rated herein by reference, for the information required to be disclosed
under this item.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
<PAGE>
<PAGE> 18
(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, 1997 and
1996, and the related consolidated statements of income, common equity
and cash flow for each of the three years in the period ended December
31, 1997, together with the report of independent public accountants
dated January 26, 1998, included in Exhibit 13, consisting of portions
of the Company's 1997 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,
1997, 1996 and 1995; Condensed Balance Sheets (Parent Company Only) as
of December 31, 1997 and 1996; 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.
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).
<PAGE>
<PAGE> 19
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 August 6, 1997, among
WICOR, Inc. and Citibank, N.A., as Agent, Firstar Bank Milwaukee, N.A.,
Harris Trust and Savings Bank and M&I Marshall & Ilsley Bank
(incorporated by reference to Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q dated October 31, 1997).
4.8 Revolving Credit Agreement, dated as of August 6, 1997, among
Wisconsin Gas Company and Citibank, N.A., as Agent, Firstar Bank
Milwaukee, N.A., Harris Trust and Savings Bank and M&I Marshall &
Illsley Bank (incorporated by reference to Exhibit 4.2 the Company's
Quarterly Report on Form 10-Q dated October 31, 1997).
4.9 Revolving Credit Agreement, dated as of August 6, 1997, among WICOR
Industries, Inc. and Citibank, N.A., as Agent, Firstar Bank Milwaukee,
N.A., Harris Trust and Savings Bank and M&I Marshall & Illsley Bank
(incorporated by reference to Exhibit 4.3 to the Company's Quarterly
Report on Form 10-Q dated October 31, 1997).
4.10 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).
4.11 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).
4.12 Guarantee, dated as of March 29, 1996, from WICOR, Inc. to and for
the benefit of ABN AMRO Bank, N.V. (incorporated by reference) to
Exhibit 4.15 to the Company's Annual Report on Form 10-K for 1996).
4.13 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. (incorporated by reference
to Exhibit 4.16 to the Company's Annual Report on Form 10-K for 1996).
4.14 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 Annual Report on Form 10-K 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 Annual Report Form 10-K for 1995).
<PAGE>
<PAGE> 20
10.3# 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).
10.4# 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).
10.5# 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).
10.6# 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).
10.7# 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).
10.8 Form of Key Executive Employment and Severance Agreement between
the Company and certain of its executive officers (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
dated July 31, 1997).
10.9# WICOR, Inc. 1998 Officers' Incentive Compensation Plan.
10.10# Wisconsin Gas Company Principal Officers' Supplemental
Retirement Income Program (incorporated by reference to Exhibit 10.8 to
the Company's Annual Report Form 10-K for 1993).
10.11# Wisconsin Gas Company 1998 Officers' Incentive Compensation
Plan.
10.12# Wisconsin Gas Company Group Travel Accident Plan (incorporated
by reference to Exhibit 10.24 to the Company's Annual Report Form 10-K
for 1992).
10.13# 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 for 1990).
10.14# Sta-Rite Industries, Inc. 1998 Officers' Incentive Compensation
Plan.
10.15# Sta-Rite Industries, Inc. Group Travel Accident Plan
(incorporated by reference to Exhibit 10.28 to the Company's Annual
Report Form 10-K for 1992).
10.16# 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).
10.17# Form 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 Annual Report on Form 10-K for 1991).
<PAGE>
<PAGE> 21
13 Portions of the WICOR, Inc. 1997 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, 1998. (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 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 1997.
<PAGE>
<PAGE> 22
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.
BY /S/ JOSEPH P. WENZLER
---------------------------
Date: March 18, 1998 JOSEPH P. WENZLER
Senior Vice President, Treasurer, and
Chief Financial Officer
<PAGE>
<PAGE> 23
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
GEORGE E. WARDEBERG
George E. Wardeberg Chairman, Chief Executive March 18, 1998
Officer and Director
(Principal Executive Officer)
THOMAS F. SCHRADER
Thomas F. Schrader President, Chief Operating March 18, 1998
Officer and Director
JOSEPH P. WENZLER
Joseph P. Wenzler Senior Vice President, Treasurer March 18, 1998
and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer)
WENDELL F. BUECHE
Wendell F. Bueche Director March 18, 1998
WILLIE D. DAVIS
Willie D. Davis Director March 18, 1998
JERE D. MCGAFFEY
Jere D. McGaffey Director March 18, 1998
DANIEL F. MCKEITHAN, JR.
Daniel F. McKeithan, Jr. Director March 18, 1998
GUY A. OSBORN
Guy A. Osborn Director March 18, 1998
STUART W. TISDALE
Stuart W. Tisdale Director March 18, 1998
ESSIE M. WHITELAW
Essie M. Whitelaw Director March 18, 1998
WILLIAM B. WINTER
William B. Winter Director March 18, 1998
<PAGE>
<PAGE> 24
Schedule III - Condensed
Parent Company Financial Statements
WICOR, INC.
(Parent Company Only)
Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Income:
Undistributed equity in income of
subsidiaries after dividends $ 19,048 $ 19,023 $ 16,052
Cash dividends from subsidiaries 30,000 28,044 23,000
Interest income and other 747 722 2,237
---------- ---------- ----------
49,795 47,789 41,289
---------- ---------- ----------
Expenses:
Operating (Supplemental Note C) 96 868 1,120
Interest 36 62 275
---------- ---------- ----------
132 930 1,395
---------- ---------- ----------
Income Before Parent
Company Income Taxes 49,663 46,859 39,894
Income Taxes 140 88 367
---------- ---------- ----------
Net Income $ 49,523 $ 46,771 $ 39,527
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 25
Schedule III - Condensed
Parent Company Financial Statements (continued)
<TABLE>
<CAPTION>
WICOR, INC.
(Parent Company Only)
Balance Sheet
As of December 31,
----------------------
(Thousands of Dollars) 1997 1996
Assets ---------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 207 $ 1,458
Intercompany receivable,
net (Supplemental Note B) 8,473 12,012
Other 123 51
---------- ----------
8,803 13,521
---------- ----------
Investment in Subsidiaries, at equity 384,565 358,094
---------- ----------
Deferred Income Taxes 151 186
Deferred Charges and Other 1,305 1,426
---------- ----------
$ 394,824 $ 373,227
========== ==========
Liabilities and Capitalization
- ------------------------------
Current Liabilities:
Income taxes payable $ 32 $ 511
Other 447 650
---------- ----------
479 1,161
---------- ----------
Deferred Credits 1,118 1,160
---------- ----------
Capitalization:
ESOP loan guarantee (Supplemental Note D) 3,607 4,407
---------- ----------
Common equity:
Common stock, $1 par value, authorized
60,000,000 shares; outstanding
18,237,000 and 16,918,000
shares, respectively 18,601 18,407
Other paid-in-capital 232,702 224,041
Retained earnings 147,903 129,777
Accumulated other comprehensive income (5,377) (604)
Unearned compensation
(Supplemental Note D) (4,209) (5,122)
---------- ----------
Total common equity 389,620 366,499
---------- ----------
$ 394,824 $ 373,227
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 26
Schedule III - Condensed
Parent Company Only Financial Statements (continued)
<TABLE>
<CAPTION>
WICOR, INC.
Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Year Ended December 31,
(Thousands of Dollars) ----------------------------------
1997 1996 1995
Operations- ---------- ---------- ----------
<S> <C> <C> <C>
Net income $ 49,523 $ 46,771 $ 39,527
Adjustments to reconcile net
income to net cash flows:
Undistributed equity in (income)
losses of subsidiaries (19,048) (19,023) (16,052)
Change in deferred income taxes 35 6 12
Change in interco. receivables 3,539 1,742 (11,715)
Change in income taxes payable (479) (4,509) 597
Change in other current assets (72) 25 3
Change in other current liab. (203) 489 62
Change in other non-current
assets and liabilities (5,833) (719) (1,149)
---------- ---------- ----------
27,462 24,782 11,285
---------- ---------- ----------
Investment Activities-
Investments in subsidiaries - (600) (37,875)
Proceeds from sale of assets - - 5,099
---------- ---------- ----------
- (600) (32,776)
---------- ---------- ----------
Financing Activities-
Issuance of common stock 2,684 3,345 40,285
Dividends paid on common stock,
less amounts reinvested (31,397) (30,485) (27,454)
---------- ---------- ----------
(28,713) (27,140) 12,831
---------- ---------- ----------
Change in Cash and Cash Equivalents (1,251) (2,958) (8,660)
Cash and Cash Equivalents at
Beginning of Year 1,458 4,416 13,076
---------- ---------- ----------
Cash and Cash Equivalents at
End of Year $ 207 $ 1,458 $ 4,416
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Supplemental Disclosure of Cash Flow Information
Cash paid (received) during the year for:
<S> <C> <C> <C>
Interest paid $ 88 $ 52 $ -
Income taxes paid $ (1,149) $ 202 $ 1,525
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 27
Schedule III - Condensed
Parent Company Financial Statements (continued)
<TABLE>
<CAPTION>
WICOR, INC.
(Parent Company Only)
Statement of Retained Earnings
Year Ended December 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Balance - Beginning of Year $ 129,777 $ 113,491 $ 101,418
Add:
Net income 49,523 46,771 39,527
---------- ---------- ----------
179,300 160,262 140,945
Deduct:
Cash dividends on common stock 31,397 30,485 27,454
---------- ---------- ----------
Balance - End of Year $ 147,903 $ 129,777 $ 113,491
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
<PAGE> 28
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 less payments of expenses by
subsidiaries on behalf of the parent company.
C. During 1997, 1996 and 1995, the parent company allocated certain
administrative and operating expenses to its subsidiaries using an
allocation method approved by the Public Service Commission of
Wisconsin:
1997 1996 1995
---------- ---------- ----------
Administrative and operating expenses
allocated to subsidiaries $2,880,000 $2,579,000 $2,409,000
========== ========== ==========
D. In November 1991, the parent 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 the parent company common stock in the ESOP
and with Wisconsin Gas Company contributions to the ESOP.
<PAGE>
<PAGE> 29
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).
<PAGE>
<PAGE> 30
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 August 6, 1997, among
WICOR, Inc. and Citibank, N.A., as Agent, Firstar Bank Milwaukee, N.A.,
Harris Trust and Savings Bank and M&I Marshall & Ilsley Bank
(incorporated by reference to Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q dated October 31, 1997).
4.8 Revolving Credit Agreement, dated as of August 6, 1997, among
Wisconsin Gas Company and Citibank, N.A., as Agent, Firstar Bank
Milwaukee, N.A., Harris Trust and Savings Bank and M&I Marshall &
Illsley Bank (incorporated by reference to Exhibit 4.2 the Company's
Quarterly Report on Form 10-Q dated October 31, 1997).
4.9 Revolving Credit Agreement, dated as of August 6, 1997, among WICOR
Industries, Inc. and Citibank, N.A., as Agent, Firstar Bank Milwaukee,
N.A., Harris Trust and Savings Bank and M&I Marshall & Illsley Bank
(incorporated by reference to Exhibit 4.3 to the Company's Quarterly
Report on Form 10-Q dated October 31, 1997).
4.10 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).
4.11 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).
4.12 Guarantee, dated as of March 29, 1996, from WICOR, Inc. to and for
the benefit of ABN AMRO Bank, N.V. (incorporated by reference) to
Exhibit 4.15 to the Company's Annual Report on Form 10-K for 1996).
4.13 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. (incorporated by reference
to Exhibit 4.16 to the Company's Annual Report on Form 10-K for 1996).
4.14 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 Annual Report on Form 10-K 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 Annual Report Form 10-K for 1995).
<PAGE>
<PAGE> 31
10.3# 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).
10.4# 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).
10.5# 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).
10.6# 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).
10.7# 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).
10.8 Form of Key Executive Employment and Severance Agreement between
the Company and certain of its executive officers (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
dated July 31, 1997).
10.9# WICOR, Inc. 1998 Officers' Incentive Compensation Plan.
10.10# Wisconsin Gas Company Principal Officers' Supplemental
Retirement Income Program (incorporated by reference to Exhibit 10.8 to
the Company's Annual Report Form 10-K for 1993).
10.11# Wisconsin Gas Company 1998 Officers' Incentive Compensation
Plan.
10.12# Wisconsin Gas Company Group Travel Accident Plan (incorporated
by reference to Exhibit 10.24 to the Company's Annual Report Form 10-K
for 1992).
10.13# 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 for 1990).
10.14# Sta-Rite Industries, Inc. 1998 Officers' Incentive Compensation
Plan.
10.15# Sta-Rite Industries, Inc. Group Travel Accident Plan
(incorporated by reference to Exhibit 10.28 to the Company's Annual
Report Form 10-K for 1992).
10.16# 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).
10.17# Form 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 Annual Report on Form 10-K for 1991).
<PAGE>
<PAGE> 32
13 Portions of the WICOR, Inc. 1997 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, 1998. (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 a plan under which compensation is paid or payable to
directors or executive officers of the Company.
<PAGE>
<PAGE> 1
EXHIBIT 10-9
WICOR, Inc.
1998 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 Percent of Salary
------------------------------------------
Position Minimum Target Maximum
- ------------------ ------- ---------- -----------
Chairman & CEO 0% 60% 130.50%
President & COO 0% 50% 108.75
Sr. V.P.,
Treasurer & CFO 0% 45% 97.875%
Asst.Treasurer 0% 20% 43.5%
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%.
<PAGE>
<PAGE> 2
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:
Performance Level 1998 Return on Capital Award as a % 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%.
Award modification
Performance Level 1998 EPS Growth as a % of Target
- ------------------ ------------------ ------------------
Threshold < or = to 5% 80%
Target 10% 100%
Maximum > or = 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.
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.
<PAGE>
<PAGE> 3
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.
V. Performance
Company performance goals will be for the 1998 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).
<PAGE>
<PAGE> 4
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, 1998, 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, 1998.
<PAGE>
<PAGE> 5
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.
B. Partial Year Participation
1. Participants must be employed by the Company on the last day of the
Plan year in order to receive a bonus for that year. However, once earned, a
bonus will be paid to a participant regardless of whether he/she is employed
by the company on the date payment is made.
2. Awards for part year participants will be pro-rated based on the
proportion of the year that the participant was in the Plan. This includes
participants who terminate employment due to death, disability or retirement
3. Participants who terminate employment with the Company prior to the
last day of the plan year shall forfeit all rights to an incentive award
payment under the Plan except for terminations due to death, retirement or
disability.
4. A participant is deemed to be disabled if he/she becomes eligible
for benefits under the Company's Long Term Disability Plan.
<PAGE>
<PAGE> 6 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.
<PAGE>
<PAGE> 1
EXHIBIT 10-11
Wisconsin Gas Company
1998 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 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>
<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:
Performance Level 1998 Return on Capital Award as a % 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.
Performance Plus Performance Plus Award modification
Achievement Points as a % of Target
---------------- ---------------- ------------------
Below Threshold < 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>
<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.
V. Performance
Company performance goals will be for the 1998 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.
<PAGE>
<PAGE> 4
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, 1998, 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.
<PAGE>
<PAGE> 5
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, 1998.
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.
B. Partial Year Participation
1. Participants must be employed by the Company on the last
day of the Plan year in order to receive a bonus for that
year. However, once earned, a bonus will be paid to a
participant regardless of whether he/she is employed by the
company on the date payment is made.
2. Awards for part year participants will be pro-rated based
on the proportion of the year that the participant was in
the Plan. This includes participants who terminate
employment due to death, disability or retirement.
3. Participants who terminate employment with the Company
prior to the last day of the plan year shall forfeit all
rights to an incentive award payment under the Plan except
for terminations due to death, retirement or disability.
4. A participant is deemed to be disabled if he/she becomes
eligible for benefits under the Company's Long Term
Disability Plan.
<PAGE>
<PAGE> 6
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.
<PAGE>
<PAGE> 1
EXHIBIT 10-14
Sta-Rite Industries, Inc.
1998 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 Percent of Salary
------------------------------
Position Minimum Target Maximum
------------------- ------- ------ -----------
President & CEO 0% 45% 97.875%
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>
<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:
Award as a
Performance Level 1998 Return on Capital % of Target
------------------ ---------------------- -----------
Below Threshold less than 8.7% 0%
Threshold 8.7% 1%
Target 10.2% 100%
Maximum or Above 13.3% 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%.
Award modification
Performance Level 1998 Sales Growth as a % of Target
- ------------------- ----------------- -------------------
Threshold < or = to 5% 80%
Target 10% 100%
Maximum > or = 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>
<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.
V. Performance
Company performance goals will be for the 1998 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.
<PAGE>
<PAGE> 4
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, 1998, 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.
<PAGE>
<PAGE> 5
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, 1998.
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.
B. Partial Year Participation
1. Participants must be employed by the Company on the last
day of the Plan year in order to receive a bonus for that
year. However, once earned, a bonus will be paid to a
participant regardless of whether he/she is employed by
the company on the date payment is made.
2. Awards for part year participants will be pro-rated based
on the proportion of the year that the participant was in
the Plan. This includes participants who terminate
employment due to death, disability or retirement.
3. Participants who terminate employment with the Company
prior to the last day of the plan year shall forfeit all
rights to an incentive award payment under the Plan except
for terminations due to death, retirement or disability.
4. A participant is deemed to be disabled if he/she becomes
eligible for benefits under the Company's Long Term
Disability Plan.
<PAGE>
<PAGE> 6
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 1998 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.
8
<PAGE>
<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
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.
WICOR's 1997 financial results exceeded 1996's record performance as net
income rose by 6% to $49.5 million. Basic earnings per share in 1997 rose 5%
to $2.68 compared with 1996, as the Company's manufacturing business posted
significantly improved results. Basic earnings per share in 1997 reached a
record high for the second year in a row.
The 1997 improvement in the Manufacturing Group is attributable to higher
domestic shipments within the beverage, agricultural spraying and pool/spa
markets compared to 1996. Internal cost reductions and a strengthening in the
Company's Australian operations also contributed to the improvement in
earnings.
Segment data for WICOR's operations for the last three years are summarized
below in millions of dollars.
1997 1996 1995
Operating Revenues ---------- ---------- ----------
- ------------------------
Energy $ 596.3 $ 602.7 $ 522.8
Manufacturing-Domestic 280.9 269.0 207.6
Manufacturing-Foreign 143.8 140.9 130.2
---------- ---------- ----------
$ 1,021.0 $ 1,012.6 $ 860.6
========== ========== ==========
1997 1996 1995
Depreciation and Amortization ---------- ---------- ----------
- -----------------------------
Energy $ 40.0 $ 40.9 $ 36.7
Manufacturing-Domestic 10.4 10.7 8.8
Manufacturing-Foreign 3.3 3.3 3.0
---------- ---------- ----------
$ 53.7 $ 54.9 $ 48.5
========== ========== ==========
1997 1996 1995
Operating Income ---------- ---------- ----------
- ----------------------
Energy $ 59.0 $ 64.5 $ 58.8
Manufacturing-Domestic 23.3 18.2 13.7
Manufacturing-Foreign 11.7 8.0 6.6
---------- ---------- ----------
$ 94.0 $ 90.7 $ 79.1
========== ========== ==========
<PAGE>
<PAGE> 2
Estimated
Capital Expenditures 1998 1997 1996 1995
- ---------------------- ---------- ---------- ---------- ----------
Energy $ 45.0 $ 35.1 $ 36.6 $ 42.9
Manufacturing-Domestic 13.1 13.3 11.3 8.2
Manufacturing-Foreign 2.9 3.2 3.8 5.1
---------- ---------- ---------- ----------
$ 61.0 $ 51.6 $ 51.7 $ 56.2
========== ========== ========== ==========
Identifiable Assets 1997 1996 1995
- ------------------- ---------- ---------- ----------
Energy $ 697.3 $ 730.8 $ 718.3
Manufacturing-Domestic 249.6 215.8 206.5
Manufacturing-Foreign 84.4 90.8 83.7
---------- ---------- ----------
$ 1,031.3 $ 1,037.4 $ 1,008.5
========== ========== ==========
Results of Operations
---------------------
Energy Group
- ------------
The Energy Group's primary business is the distribution of natural gas through
Wisconsin Gas. Energy Group operating income decreased by $5.5 million, or 9%,
in 1997 as compared with 1996. This decrease was due primarily to reduced
sales margins resulting from warmer weather and voluntary rate reductions.
Lower operating expenses partially offset the decrease in sales margin.
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
<PAGE>
<PAGE> 3
Revenues, margins and volumes are summarized below. Margin, defined as
revenues less cost of gas, is a better comparative performance indicator than
revenues. Historically, transportation service revenues were recorded at a
slightly higher margin than 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 has a
minimal impact on margin. In addition, prior to November 1997, changes in cost
of gas flowed through to revenue under a purchased gas adjustment clause, with
no effect on margin. The following tables set forth financial data for the
Energy Group as a whole and volume data for Wisconsin Gas on an individualized
basis for each of the years ended December 31.
Millions of Dollars 1997 1996 1995
---------- ---------- ----------
Revenues $ 573.8 $ 588.3 $ 515.0
Cost of gas sold 394.1 393.7 322.2
---------- ---------- ----------
Sales margin 179.7 194.6 192.8
Gas transportation margin 22.5 14.4 7.8
---------- ---------- ----------
Gross margin 202.2 209.0 200.6
---------- ---------- ----------
Operation and maintenance 101.8 102.3 103.5
Depreciation 31.8 32.9 29.0
Interest and other 11.7 12.2 14.2
Taxes, other than income taxes 9.6 9.3 9.3
---------- ---------- ----------
Income before income taxes 47.3 52.3 44.6
Income taxes 17.8 20.2 16.9
---------- ---------- ----------
Net earnings $ 29.5 $ 32.1 $ 27.7
========== ========== ==========
Millions of therms 1997 1996 1995
---------- ---------- ----------
Sales volumes
Firm 791 883 841
Interruptible 73 196 314
Transport volumes 428 276 145
---------- ---------- -----------
Total throughput 1,292 1,355 1,300
========== ========== ==========
Total Energy Group margin decreased by 3% in 1997 primarily as a result of a
10% decrease in firm sales volumes and a $3.0 million voluntary annual rate
reduction effective November 1996, offset in part by a decrease in operating
expenses. Utility margin rates have been reduced an aggregate of $9.0 million
as a result of a November 1994 rate order of the Public Service Commission of
Wisconsin (PSCW) through voluntary annualized rate reductions of $1.5 million,
$3.0 million and $4.5 million in 1997, 1996 and 1995, respectively. The
weather in 1997 was 1% colder than the 20-year average and 5% warmer than
1996.
<PAGE>
<PAGE> 4
Annual Degree Days Line/Area Chart
% colder (warmer) than 20-year normal
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(4.1) (9.0) (2.8) 6.8 1.0
Energy Group margin increased by 4% in 1996. The increase in 1996 margin
compared to 1995 was largely the result of a 5% increase in firm sales volumes
which was partially offset by voluntary rate reductions. The weather in 1996
was 7% colder than the 20-year average and 9% colder than 1995.
Transportation volumes in both 1997 and 1996 increased mainly because more
customers purchased gas from sources other than Wisconsin Gas and transported
this volume over the Wisconsin Gas distribution system. Historically, the
movement to transportation from gas sales has had no impact on margin.
Effective November 1, 1997, a slightly lower margin rate was put into effect
for transportation-only customers. The future impact of this change on total
Company margin is expected to be immaterial.
Non-regulated energy operating revenues in 1997 increased by $30.1 million, or
102% to $59.5 million. This increase in non-regulated energy revenues
consisted largely of increased gas sales at WICOR Energy Services (WESCO)
primarily as a result of customer growth. The WESCO strategy has been to have
gas supply arrangements consistent with customer requirements so that the
Company is not exposed to significant commodity risk.
Total operating and maintenance expenses of $101.8 million for 1997 decreased
$0.5 million compared with the prior year. The decrease resulted primarily
from lower labor and benefit expenses, which included a reduction in post-
retirement benefit expenses reflecting improved health care cost experience.
The decrease was partially offset by higher costs associated with the
increased operating activities of FieldTech, Inc. (FieldTech) and increased
levels of outside services.
Operation and maintenance expenses decreased $1.2 million, or 1%, in 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.
Depreciation expense for 1997 decreased by $1.1 million, or 3%, compared with
1996. This decrease was due to the second year impact of the depreciation
rates approved by the PSCW, the effect of which was partially offset by
additions to property, plant and equipment. Depreciation expense in 1998 is
expected to increase due to planned capital investments.
Depreciation expense for 1996 increased by $3.9 million, or 13%, compared with
1995. The increase was due to additions to plant and increased depreciation
rates permitted by the PSCW.
<PAGE>
<PAGE> 5
Manufacturing Group
- -------------------
The Manufacturing Group had an outstanding year in 1997. Net sales for 1997
rose 4% to a record $424.8 million, outpacing sales of $409.9 million in 1996.
Net income for the year increased 38% to a record $20.1 million compared to
the prior year. Net income in 1996 includes one-time charges totaling $1.2
million relating to the settlement of a product liability lawsuit and the
consolidation of two Wisconsin manufacturing plants.
Financial data regarding the Manufacturing Group are set forth in the table
below.
Millions of Dollars 1997 1996 1995
---------- ---------- ----------
Revenues $ 424.8 $ 409.9 $ 337.8
Cost of sales 307.2 297.1 245.7
---------- ---------- ----------
Gross profit 117.6 112.8 92.1
Operating expenses 82.6 86.6 71.8
---------- ---------- ----------
Operating income 35.0 26.2 20.3
Interest expense and other 4.4 5.1 2.7
---------- ---------- ----------
Income before income taxes 30.6 21.1 17.6
Income taxes 10.5 6.5 5.8
---------- ---------- ----------
Net earnings $ 20.1 $ 14.6 $ 11.8
========== ========== ==========
Domestic manufacturing sales in 1997 increased by 4% to $280.9 million as
compared with 1996. Domestic shipments for beverage, agricultural spraying and
pool/spa markets were up from the prior year. International sales of $143.8
million increased 2% compared to 1996. The increase in international sales was
negatively impacted by currency translation related to the strengthening U.S.
dollar and the weakening of the Korean economy.
Manufacturing sales in 1996 increased $72.1 million, or 21%, to $409.9 million
compared to 1995. The increase was due partly to the incremental sales from
the acquisition of Hypro Corporation (Hypro), which accounted for $25.9
million of the increase (See Note 3 of Notes to Consolidated Financial
Statements). 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
1995. 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. International
sales accounted for 34% of total manufacturing net sales in 1997 and 1996 and
39% in 1995.
International Revenues
in millions of dollars
(CHART)
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
$ 93.8 $ 114.2 $ 130.2 $ 140.9 $ 143.8
<PAGE>
<PAGE> 6
In 1997, manufacturing operating income was $35.0 million compared with $26.2
million in 1996 and $20.3 million in 1995. The increase in 1997 operating
income is attributable to increased sales, plant consolidations and cost-
saving programs, as well as continuing productivity improvements. 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.
WICOR Operating Income
in millions of dollars
(CHART)
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
$ 64.0 $ 66.6 $ 79.1 $ 90.7 $ 94.0
Operating expenses decreased by 5% in 1997 compared to the prior year due to
cost reduction programs and improved performance of the Australian operations.
Operating expenses increased by 21% in 1996 over 1995 due primarily to
increased sales-related expenses. As a percentage of sales, 1997 operating
expenses were 19% of sales compared to 21% in both 1996 and 1995.
In order to reduce costs and improve productivity and asset utilization, the
Company has recently taken steps to consolidate certain of its manufacturing
operations. These activities resulted in the 1997 closing of a plant located
in Waterford, Wisconsin, and the closing, in 1996, of a plant located in
Detroit, Michigan. As a result of these closures, the Company recorded an
after-tax charge of $0.7 million in 1996.
Interest Expense, Other Income and Income Taxes
- -----------------------------------------------
Interest expense in 1997 decreased $0.9 million, or 5%, compared to last year.
This decrease resulted from lower average borrowing levels and slightly lower
interest rates.
Interest expense of $18.3 million for 1996 was $0.9 million, or 5%, lower than
in 1995, primarily due to lower average interest rates. The lower rates were
partially offset by increased debt incurred in connection with the Hypro
acquisition.
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 by $1.6 million in 1997, or 6%, compared to 1996
reflecting increased pre-tax income. Income tax expense increased $4.0 million
in 1996 compared to 1995 reflecting increased pre-tax income. The effective
income tax rate remained relatively unchanged in 1997, 1996 and 1995
<PAGE>
<PAGE> 7
New Accounting Standards
- ------------------------
During 1997, the Financial Accounting Standards Board (FASB) issued two new
accounting standards which the Company adopted in 1997. Statement of
Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share,"
establishes standards for computing and presenting earnings per share (EPS)
for the current year and all prior period EPS data. SFAS No. 130 "Reporting
Comprehensive Income," establishes standards for the reporting and displaying
of comprehensive income.
American Institute of Certified Public Accountants Statement of Position No.
96-1, "Environmental Remediation Liabilities," establishes specific criteria
for the recognition and measurement of environmental remediation liabilities.
The adoption of these statements in 1997 did not have a significant effect on
the Company's financial condition or results of operation.
Effects of Changing Prices
- --------------------------
In management's opinion, 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 November 1997, the PSCW approved a one-year extension of the margin rate
cap through October 31, 1999. After reviewing the impact of the margin rate
cap and other factors, management believes that Wisconsin Gas's productivity
improvements have offset the impact of inflationary cost increases. This
alternative method is discussed on page 24 under "Regulatory Matters."
Liquidity and Capital Resources
- -------------------------------
The Company has access to outside capital markets and has been able to
generate funds internally to meet its investment needs. 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 $74.8 million at the end of 1997 compared to
$83.4 million and $74.6 million at the end of 1996 and 1995, respectively. The
Company's current ratio at December 31 was 1.2 in 1997 and 1.3 in both 1996
and 1995.
Because of timing differences in the receipt and disbursement of cash and the
level of construction requirements, the Energy Group may borrow on a short-
term basis. 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
<PAGE>
<PAGE> 8
Cash flows from operating activities decreased by $26.1 million to $49.3
million in 1997. The decrease is attributable to lower gas prices and warmer
weather in the fourth quarter of 1997, as compared to 1996, which resulted in
a lower accounts payable balance at December 31, 1997. Cash flows from
operating activities increased by $5.5 million to $75.4 million in 1996 as
compared with 1995.
The Company believes that cash provided from operating activities over the
next three years will satisfy normal ongoing cash requirements. The Company
may need external capital for financing acquisitions, scheduled debt
retirement and the proposed pipeline project discussed below.
Various outside parties have proposed to construct a Viking Voyageur pipeline
which will extend from the Minnesota-Canada border to Joliet, Illinois and
cross the state of Wisconsin. If the proposed pipeline is built, Wisconsin Gas
expects that it would construct lateral lines to connect to the new pipeline.
The proposed owners of Viking Voyageur filed an application to construct the
pipeline with the Federal Energy Regulatory Commission (FERC) in October 1997,
and, if approved, the pipeline is scheduled to be in service on November 1,
1999. The Company is actively supporting the project because it will provide
additional pipeline capacity to serve future growth in Wisconsin, increase the
reliability of supply for the state and create true competition for pipeline
capacity serving Wisconsin. As a result, the pipeline should reduce the cost
of gas delivered to the state. The Company anticipates that additional outside
financing may be needed to construct the lateral lines if the pipeline project
is approved.
Investment Activities
- ---------------------
Capital expenditures of $51.6 million in 1997 remained relatively flat
compared to the prior year. Consolidated capital expenditures are expected to
increase modestly in 1998, and are expected to be funded from operations.
Capital expenditures decreased by $4.5 million in 1996 compared to 1995.
During fiscal 1997, WICOR and its subsidiaries consummated four acquisitions
totaling approximately $10 million using a combination of cash and the
issuance of approximately 128,000 shares of the Company's common stock. Three
of the acquisitions involved pump, fluid processing and filtration equipment
companies. The fourth acquisition was a contract meter reading and meter
installation company. Each of the acquisitions was accounted for as a purchase
and the results of operations of the acquired companies were included in the
consolidated financial statements of the Company from their respective
acquisition dates.
In January 1995, WICOR sold its interest in Filtron Technologies Corporation,
a manufacturer of filtration products, for approximately $5.1 million.
In 1992, the PSCW issued an order prescribing an equity-based formula for
determining the limitation on nonutility investments. As of December 31, 1997,
WICOR would be permitted to invest an additional $45.7 million in nonutility
equity under this order. Nonutility subsidiaries can also borrow additional
amounts for acquisitions within certain PSCW guidelines (See Note 7 of Notes
to Consolidated Financial Statements)
<PAGE>
<PAGE> 9
Financing Activities
- --------------------
Cash flows used by financing activities were $6.3 million in fiscal 1997,
primarily resulting from scheduled repayments of long-term debt and dividend
payments. During 1997, the Company, and certain subsidiaries, renegotiated
their existing revolving credit facilities and subsequently refinanced the
remaining outstanding principal balance (approximately $27 million) of the
credit facility entered into in connection with the July 1995 acquisition of
Hypro. Restrictive covenants under the new five-year $115 million credit
facilities, which expire on August 6, 2002, include leverage and interest
coverage ratios.
The Company's ratio of long-term debt to capitalization decreased to 28% in
1997 as compared to 32% in 1996 and 34% in 1995. The utility's embedded cost
of long-term debt was 7.1%, 7.0% and 8.1% for the years ended December 31,
1997, 1996 and 1995, respectively.
WICOR raised its common stock dividend by 2.4% in both 1997 and 1996 and by
2.5% 1995. The current annual dividend rate is $1.72 per share. At December
31, 1997, the Company had $127.3 million of unrestricted retained earnings
available for dividend payments to shareholders.
WICOR Return on Average Common Stock
as a percentage
(CHART)
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
11.2% 11.6% 13.1% 12.9% 13.0%
The WICOR Plan, established in 1992, allows investors to purchase WICOR common
stock directly and through dividend reinvestment without paying fees or
service charges. Since February 1, 1995, share requirements for the WICOR Plan
have been met through open market purchases of WICOR common stock.
As described in Note 7 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 decreased to 4.5 in
1997 from 4.9 in 1996, as a result of lower earnings, the effects of which
were offset in part by fixed charges that were 2% lower in 1997 than in 1996.
Access to capital markets at a reasonable cost is determined in large part by
credit quality. Wisconsin Gas's strong financial position, as evidenced by
Moody's Investors Service 1997 upgrade of its long-term debt from Aa3 to Aa2,
provides a high degree of flexibility in obtaining funds on competitive terms.
Standard and Poor's Corporation's current rating is AA-. These ratings reflect
the views of such organizations, and an explanation of the significance of
these ratings may be obtained from each agency. Such ratings are not a
recommendation to buy, sell or hold securities, but rather an indication of
creditworthiness
<PAGE>
<PAGE> 10
The Company and its subsidiaries maintain lines of credit worldwide. The
Company's primary domestic line of credit is a $115 million unsecured
revolving credit commitment from several banks which expires August 6, 2002.
In addition, the Company has arranged lines of credit from foreign lenders
which allow it to borrow in the applicable local currency. These lines of
credit total $35.0 million and are concentrated in Australia, Canada and
Italy. The Company's lines of credit generally provide borrowing at the bank
reference rate or better which varies depending on the country where the funds
are borrowed. The Company's domestic lines of credit are subject to standard
covenants relating to leverage and interest coverage ratios. The Company was
in compliance with all financial covenants at December 31, 1997. Wisconsin Gas
and WICOR Industries finance working capital needs by issuing commercial paper
in the open market. Commercial paper outstanding, on a consolidated basis, at
December 31, 1997 and 1996 was $125.2 million and $71.6 million, respectively.
The Company believes that it has adequate capacity to fund its operations for
the foreseeable future through its borrowing arrangements and internally
generated cash.
Regulatory Matters
- ------------------
Wisconsin Gas is subject to the jurisdiction of the PSCW as to various phases
of its operations, including rates, service and issuance of securities. The
PSCW has instituted generic proceedings to consider how its regulation of gas
distribution utilities should change to reflect the changing competitive
environment in the natural 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 also adopted standards for
transactions between a utility and its gas marketing affiliates. The PSCW has
established working groups to study and make recommendations on major
deregulation issues. These working groups are scheduled to complete their work
at various times in 1998 and 1999. The impact of these proceedings on
Wisconsin Gas's future operations is uncertain at this time.
Wisconsin Gas is actively seeking to create the competitive market conditions
necessary to exit the natural gas sales business and provide only gas
transportation services within its utility service territory. In response to
filings made by Wisconsin Gas, the PSCW approved gas supplier choice pilot
programs for segments of the utility's firm market effective November 1, 1996.
These programs, with some refinements, were extended for a second year
beginning in November 1997. Under these limited pilot programs, 216 large-
volume firm, 688 commercial and 1,426 residential customers elected to
purchase gas through third-party gas suppliers until October 31, 1998. 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 participating in
the pilot programs.
At this point, it is uncertain how long 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 what costs, if any, shareholders might be required
to bear in connection with existing contractual commitments and in
transforming Wisconsin Gas's business
<PAGE>
<PAGE> 11
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. At Wisconsin Gas's request, the PSCW extended the margin cap to
October 31, 1999. 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 $4.5 million on an annualized
basis in 1997, 1996 and 1995, respectively. With these reductions, Wisconsin
Gas's rates are designed to recover $9.0 million per year less than the
maximum margin recovery allowed by the PSCW's rate order. The Productivity-
based Alternative Ratemaking Mechanism (PARM) has certain criteria that allow
either Wisconsin Gas or the PSCW to reopen PARM at any time. These are for
significant deterioration in safety, failures to meet conservation goals,
significant changes in interest rates and "extraordinary items." To date, none
of the criteria have been triggered.
As required by the PSCW, Wisconsin Gas filed a Gas Cost Incentive Mechanism
(GCIM) specifying how Wisconsin Gas would recover in rates its costs of
acquiring gas and pipeline transportation and storage capacity. The GCIM
replaced the traditional dollar-for-dollar purchased gas adjustment clause
(PGA). The PSCW approved Wisconsin Gas's proposal, with modification,
effective November 1, 1997. Under the GCIM, Wisconsin Gas's gas and capacity
costs are compared to monthly benchmarks. If, at the end of each year, such
costs deviate by more than 1-1/2% from the benchmark cost of gas, the utility
shares such excess or reduced costs on a 50-50 basis with customers. The
sharing mechanism applies only to costs between 1-1/2% to 4% above or below
the benchmark. The new PGA mechanism provides an opportunity for Wisconsin
Gas's earnings to increase or decrease as a result of gas and capacity
acquisition activities. However, management does not believe such increases or
decreases are likely to be material. During the first two months under the
GCIM, actual costs were within 1-1/2% of the benchmark.
ANR Pipeline Company's (ANR) 1993 general rate case before the FERC was
settled by the parties in November 1997. ANR is a primary supplier to
Wisconsin Gas. The settlement provides for a reduction in the rates for most
of ANR's services. The settlement is subject to FERC's approval which is
expected in the first quarter of 1998.
Wisconsin Gas complies with the provisions of Statement of Financial
Accounting Standards (SFAS No. 71) "Accounting for the Effects of Certain
Types of Regulation," which 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. In the event Wisconsin Gas determines that it no longer meets the
criteria for following SFAS 71, the accounting impact would be an
extraordinary, non-cash charge to operations of an amount that could be
material. Criteria that give rise to the discontinuance of SFAS 71 include (1)
increasing competition that restricts Wisconsin Gas's ability to establish
prices to recover specific costs and (2) a significant change in the manner in
which rates are set by regulators from cost-based regulation to another form
of regulation. SFAS No. 71 continues to be applicable to Wisconsin Gas in that
its rates are approved by a third party regulator and are designed to recover
its cost of service. Wisconsin Gas believes its current cost-based rates are
competitive in the open market
<PAGE>
<PAGE> 12
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 the recovery through rates of costs that have been passed through
to Wisconsin Gas. 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 has prepared and submitted to the Wisconsin Department of
Natural Resources a remedial action options report and recommendation
concerning a previously owned site on which Wisconsin Gas operated a
manufactured gas plant. Wisconsin Gas started remediation at this site in the
first quarter of 1998. Furthermore, Wisconsin Gas will address a second such
site during 1998. 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 8 of Notes
to Consolidated Financial Statements.
Year 2000 Date Conversion
- -------------------------
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. Potential software failures due to
processing errors arising from calculations using the Year 2000 date are a
risk. The Company is in the process of addressing this risk to the
availability, reliability and integrity of financial and operational systems.
The Company has established processes for evaluating and managing the risks
and costs associated with this problem. The computing portfolio was identified
and an initial assessment has been completed. The cost for the Company of
achieving Year 2000 compliance is estimated to be approximately $5 million
over the cost of normal software upgrades and replacements through fiscal
1999. As of December 31, 1997, nearly $2 million has been incurred to achieve
Year 2000 compliance.
<PAGE>
<PAGE> 13
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, 1997 and 1996, and the related consolidated statements of income,
common equity and cash flows for each of the three years in the period ended
December 31, 1997. 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, 1997 and 1996, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Milwaukee, Wisconsin,
January 26, 1998.
<PAGE>
<PAGE> 14
WICOR, INC.
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
thousands of dollars,
except per share amounts Years Ended December 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating Revenues
Energy $ 596,262 $ 602,685 $ 522,840
Manufacturing 424,779 409,916 337,754
------------ ------------ ------------
1,021,041 1,012,601 860,594
------------ ------------ ------------
Operating Costs and Expenses
Cost of gas sold 394,101 393,681 322,198
Manufacturing cost of sales 307,160 297,053 245,688
Operations and maintenance 182,976 187,557 174,515
Depreciation and amortization 33,173 34,355 29,696
Taxes, other than income taxes 9,602 9,244 9,421
------------ ------------ ------------
927,012 921,890 781,518
------------ ------------ ------------
Operating Income 94,029 90,711 79,076
------------ ------------ ------------
Interest expense (17,404) (18,349) (19,299)
Other income and expenses 1,222 1,114 2,438
------------ ------------ ------------
Income Before Income Taxes 77,847 73,476 62,215
Income taxes 28,324 26,705 22,688
------------ ------------ ------------
Net Earnings $ 49,523 $ 46,771 $ 39,527
============ ============ ============
Per Share of Common Stock
- -------------------------
Basic earnings $ 2.68 $ 2.55 $ 2.32
Diluted earnings $ 2.66 $ 2.53 $ 2.31
Cash dividends paid $ 1.70 $ 1.66 $ 1.62
Average common shares
outstanding (thousands) 18,475 18,365 17,020
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 15
WICOR, INC.
Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
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
Quarters: First Second Third Fourth(b)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1997
- ----
Operating revenues $ 349,065 $ 221,605 $ 173,342 $ 277,029
Operating income $ 48,879 $ 14,427 $ 612 $ 30,111
Earnings available for common stock $ 27,908 $ 6,315 $ (2,071) $ 17,371
Basic earnings (loss)
per common share (a) $ 1.52 $ 0.34 $ (0.11) $ 0.93
Diluted earnings (loss)
per common share (a) $ 1.51 $ 0.34 $ (0.11) $ 0.93
1996
- ----
Operating revenues $ 328,747 $ 227,600 $ 175,139 $ 281,115
Operating income (loss) $ 54,943 $ 13,300 $ (3,416) $ 25,884
Earnings available for common stock $ 30,949 $ 5,652 $ (4,478) $ 14,648
Basic earnings (loss)
per common share (a) $ 1.69 $ 0.31 $ (0.24) $ 0.80
Diluted earnings (loss)
per common share (a) $ 1.68 $ 0.31 $ (0.24) $ 0.79
</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>
<PAGE> 16
WICOR, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
thousands of dollars December 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 11,810 $ 18,784
Accounts receivable, less allowance
for doubtful accounts of $15,364
and $14,429, respectively 164,243 150,076
Accrued revenues 44,842 59,794
Manufacturing inventories 83,431 72,316
Gas in storage 41,887 33,463
Deferred income taxes 21,531 21,706
Prepayments and other 16,924 16,566
------------ ------------
384,668 372,705
------------ ------------
Property, Plant and Equipment, at cost
Energy 801,523 786,643
Manufacturing 141,610 132,342
------------ ------------
943,133 918,985
------------ ------------
Less:
Accumulated depreciation and amortization 497,239 477,577
------------ ------------
445,894 441,408
------------ ------------
Deferred Charges and Other
Regulatory assets 53,910 83,465
Goodwill 65,953 61,366
Prepaid pension costs 42,753 36,869
Systems development costs 17,424 23,052
Other 20,730 18,491
------------ ------------
200,770 223,243
------------ ------------
$ 1,031,332 $ 1,037,356
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 17
WICOR, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
thousands of dollars December 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Liabilities and Capitalization
Current Liabilities
Short-term borrowings $ 118,900 $ 114,810
Accounts payable 75,034 98,951
Current portion of long-term debt 43,926 4,061
Refundable gas costs 24,776 31,545
Accrued payroll and benefits 17,573 17,246
Accrued taxes 9,684 1,260
Other 19,999 21,464
------------ ------------
309,892 289,337
------------ ------------
Deferred Credits and Other Liabilities
Postretirement benefit obligation 64,323 66,391
Regulatory liabilities 36,533 43,406
Deferred income taxes 43,975 39,668
Accrued environmental remediation costs 12,084 36,222
Unamortized investment tax credit 6,808 7,265
Other 18,987 19,399
------------ ------------
182,710 212,351
Commitments and Contingencies (Note 8)
Capitalization (See accompanying statement)
Long-term debt 149,110 169,169
Redeemable preferred stock - -
Common equity 389,620 366,499
------------ ------------
538,730 535,668
------------ ------------
$ 1,031,332 $ 1,037,356
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 18
WICOR, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
thousands of dollars Years Ended December 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Operations
Net earnings $ 49,523 $ 46,771 $ 39,527
Adjustments to reconcile net earnings to
net cash flow from operating activities:
Depreciation and amortization 53,740 54,871 48,477
Deferred income taxes 4,530 (1,103) (6,436)
Changes in:
Accounts receivable 2,046 (28,641) (33,298)
Manufacturing inventories (7,463) (3,590) (1,931)
Gas in storage (8,424) (9,512) 14,121
Other current assets (464) (1,167) 3,545
Accounts payable (25,975) 32,520 (4,652)
Refundable gas costs (6,769) (2,802) 16,289
Accrued taxes 8,561 (6,028) (7,839)
Other current liabilities (1,502) 4,225 2,939
Other noncurrent asset and liabilities (18,479) (10,128) (824)
---------- ---------- ----------
Cash provided by operating activities 49,324 75,416 69,918
---------- ---------- ----------
Investment Activities
- ---------------------
Capital expenditures (51,572) (51,744) (56,241)
Proceeds from sale of assets 3,362 1,249 5,099
Acquisitions (2,065) 22 (58,256)
Other, net 293 285 365
---------- ---------- ----------
Cash used in investing activities (49,982) (50,188) (109,033)
---------- ---------- ----------
Financing Activities
- --------------------
Change in short-term borrowings 6,115 (969) 4,059
Issuance of long-term debt 27,000 10,045 65,000
Reduction of long-term debt (11,157) (9,194) (57,700)
Issuance of common stock 2,684 3,345 40,285
Dividends paid on common stock (31,397) (30,485) (27,454)
Other 439 434 167
---------- ---------- ----------
Cash (used in) provided
by financing activities (6,316) (26,824) 24,357
---------- ---------- ----------
Change in Cash and Cash Equivalents (6,974) (1,596) (14,758)
Cash and cash equivalents
at beginning of year 18,784 20,380 35,138
---------- ---------- ----------
Cash and Cash Equivalents at End of Year $ 11,810 $ 18,784 $ 20,380
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 19
WICOR, INC.
Consolidated Statements of Capitalization
<TABLE>
<CAPTION>
thousands of dollars December 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Long-Term Debt
Wisconsin Gas:
First mortgage bonds
Adjustable rate series, 8.1%
and 7.2%, respectively, due 1999 $ 2,000 $ 4,000
7-1/2% Notes due 1998 - 40,000
6.6% Notes due 2013 45,000 45,000
6-3/8% Notes due 2005 65,000 65,000
WICOR Industries, Inc.:
Commercial paper under
multi-year credit agreements 27,000 3,000
Securities loan agreement,11-3/4% due semi-
annually through 2000 (includes unamor-
tized bond premium of $814 and $1,078,
respectively) 6,750 7,014
First mortgage notes, adjustable rate, 4.4%
to 4.6%, due semi-annually through 2000 266 633
Industrial revenue bonds, 7.84%,
payable through 2000 830 1,320
Capital lease obligations and other - 342
Unamortized (discount), net (1,343) (1,547)
ESOP loan guarantee 3,607 4,407
---------- ----------
149,110 169,169
---------- ----------
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 18,601,000
and 18,407,000 shares, respectively 18,601 18,407
Other paid-in capital 232,702 224,041
Retained earnings 147,903 129,777
Accumulated other comprehensive income (5,377) (604)
Unearned compensation -
ESOP and restricted stock (4,209) (5,122)
---------- ----------
389,620 366,499
---------- ----------
Total Capitalization $ 538,730 $ 535,668
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 20
WICOR, INC.
Consolidated Statements of Common Equity
<TABLE>
<CAPTION>
Accumulated
Unearned
Other Other Compensation-
Common Paid-in Retained Comprehensive ESOP and
thousands of dollars Stock Capital Earnings Income Restricted Stock
--------- --------- ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1994 $ 16,918 $180,000 $ 101,418 $ (1,550) $ (6,868)
Net earnings - - 39,527 - -
Other comprehensive income:
Translation/minimum pension
liability adjustments - - - (43) -
--------- --------- ------------ ------------- ----------------
Comprehensive income - - 39,527 (43) -
--------- --------- ------------ ------------- ----------------
Issued in connection with
underwritten public offering 1,265 37,684 - - -
Issued in connection with
dividend reinvestment,
customer stock purchase,
employ benefit plans/other 54 1,449 - - -
Dividends on common stock - - (27,454) - -
ESOP loan payments - - - - 1,055
Amortization and forfeiture
of restricted stock - - - - 218
--------- --------- ------------ ------------- ----------------
Balance December 31, 1995 18,237 219,133 113,491 (1,593) (5,595)
--------- --------- ------------ ------------- ----------------
Net earnings - - 46,771 - -
Other comprehensive income:
Translation/minimum pension
liability adjustments - - - 989 -
--------- --------- ------------ ------------- ----------------
Comprehensive income - - 46,771 989 -
--------- --------- ------------ ------------- ----------------
Issued in connection with
dividend reinvestment,
customer stock purchase,
employee benefit plans/other 170 4,908 - - -
Dividends on common stock - - (30,485) - -
ESOP loan payments - - - - 908
Issuance of restricted stock - - - - (1,208)
Amortization and forfeiture
of restricted stock - - - - 773
--------- --------- ------------ ------------- ----------------
Balance December 31, 1996 18,407 224,041 129,777 (604) (5,122)
--------- --------- ------------ ------------- ----------------
Net earnings - - 49,523 - -
Other comprehensive income:
Translation/minimum pension
liability adjustments - - - (4,773) -
--------- --------- ------------ ------------- ----------------
Comprehensive income - - 49,523 (4,773) -
--------- --------- ------------ ------------- ----------------
Issued in connection with
dividend reinvestment,
customer stock purchase,
employee benefit plans/other 194 8,661 - - -
Dividends on common stock - - (31,397) - -
ESOP loan payments - - - - 800
Issuance of restricted stock - - - - (145)
Amortization and forfeiture
of restricted stock - - - - 258
--------- --------- ------------ ------------- ----------------
Balance December 31, 1997 $ 18,601 $232,702 $ 147,903 $ (5,377) $ (4,209)
========= ========= ============ ============= ================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 21
Notes to Consolidated Financial Statements
-------------------------------------------
Note 1 Accounting Policies
- --------------------------
A - Principles of consolidation The consolidated financial statements include
the accounts of WICOR, Inc., and its wholly-owned subsidiaries: Wisconsin Gas,
WESCO, FieldTech and WICOR Industries, Inc. (WICOR Industries), an
intermediate holding company for various manufacturing subsidiaries.
Intercompany transactions and accounts are eliminated in consolidation.
B - Business The Company is a diversified holding company with two principal
business groups: energy services and pump manufacturing. Energy services
consists primarily of natural gas distribution through Wisconsin Gas, the
oldest and largest natural gas distribution utility in Wisconsin. Wisconsin
Gas is subject to regulation by the PSCW and gives recognition to ratemaking
policies substantially in accordance with the FERC System of Accounts. At
December 31, 1997, Wisconsin Gas served approximately 521,000 customers in 521
communities. The Energy Group accounted for 58% and 63% of the Company's 1997
operating revenues and operating income, respectively. Through its subsidiary,
WICOR Industries, the Company 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 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. Subject to the sharing mechanism discussed below, 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.
In October 1997, the PSCW approved Wisconsin Gas's proposed GCIM which became
effective November 1, 1997. The GCIM establishes a reference for the cost of
gas, including pipeline capacity and storage costs. The reference price is
based on a current month index of prices from the supply basins where the gas
is purchased. If the actual costs deviate from the reference by more than 1-
1/2% but less than 4%, Wisconsin Gas and its customers share equally in the
amount within the band. If actual costs deviate from the reference cost by
more than plus or minus 4%, Wisconsin Gas customers bear all the costs above
4% and receive all the benefits of the costs below 4%.
<PAGE>
<PAGE> 22
D - Income taxes The Company files a consolidated Federal income tax return
and allocates Federal current tax expense or credits to each domestic
subsidiary based on its respective separate tax computation.
For Wisconsin Gas, investment tax credits are a deferred credit on the balance
sheet and are amortized to income over the applicable service lives of the
related properties consistent with regulatory treatment.
E - Basic earnings per common share Basic earnings per common share is based
on the weighted average number of shares outstanding during the period.
F - Inventories
Energy - Substantially all gas in storage inventory in 1997 and 1996 were
priced using the weighted average method of accounting.
Manufacturing - Approximately 57% and 55% of manufacturing inventories, in
1997 and 1996, respectively, are priced using the last-in, first-out (LIFO)
method (not in excess of market), with the remaining inventories priced using
the first-in, first-out (FIFO) method. If the FIFO method had been used
exclusively, manufacturing inventories would have been $7.9 million and $8.5
million higher at December 31, 1997 and 1996, respectively.
G - Plant and depreciation Gas distribution property, plant and equipment is
stated at original cost, including overhead allocations. Upon ordinary
retirement of utility plant assets, original cost plus cost of removal, net of
salvage, is charged to accumulated depreciation, and no gain or loss is
recognized.
The depreciation of Wisconsin Gas'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 were 4.3%, 4.5% and 4.2% for 1997, 1996 and
1995, 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 included in cost of
sales.
H - Regulatory accounting Wisconsin Gas accounts for its regulated operations
in accordance with 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 when 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).
<PAGE>
<PAGE> 23
The amounts recorded as regulatory assets and regulatory liabilities in the
Consolidated Balance Sheet at December 31, are as follows:
thousands of Dollars 1997 1996
---------- ----------
Regulatory assets:
Postretirement benefit costs (Note 10) $ 39,498 $ 42,275
Deferred uncollectible expenses 11,056 10,152
Income tax-related amounts due
from customers 2,648 3,003
Deferred environmental costs 76 23,025
Other 632 5,010
---------- ----------
$ 53,910 $ 83,465
========== ==========
Regulatory liabilities:
Income tax-related amounts due to customers $ 19,725 $ 21,369
Unrecognized pension income (Note 10) 13,780 16,631
Other 3,028 5,406
---------- ----------
$ 36,533 $ 43,406
========== ==========
In the fourth quarter of 1997, the Company completed a comprehensive review of
its environmental clean-up liability which ultimately resulted in a reduction
of the liability to $12 million as of December 31, 1997. The regulatory asset
previously recorded was also adjusted to reflect the results of this review.
(See Note 8 for a more detailed description of this matter.)
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 $13.9
million allowable annual provision for doubtful accounts, including
amortization of prior deferred amounts. In the fourth quarter of 1996, the
PSCW approved a one-time charge of $3.0 million relating to uncollectible
accounts receivable expense. See Notes 8 and 10 for discussion of additional
regulatory assets.
I - Cash flows Cash equivalents consist of highly liquid investments which are
readily convertible into cash and have maturities of three months or less. 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.
<PAGE>
<PAGE> 24
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 1997 1996 1995
---------- ---------- ----------
Income taxes paid $ 17,315 $ 34,669 $ 27,801
Interest paid $ 16,352 $ 16,824 $ 18,855
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, 1997, 1996 and 1995 were not material. The Energy Group purchased
derivatives in 1997 and 1996 to hedge a portion of inventory and gas costs to
be purchased for resale. The cost of the options and gains or losses realized
do not affect income since they are recovered dollar for dollar under the
purchased gas adjustment clause and are not subject to the GCIM sharing
mechanism.
During 1997, WICOR entered into a three-year weather insurance agreement to
hedge a portion of the impact weather has on Energy Group earnings. Under this
agreement, a payment will be made or received if the heating degree days from
December 1, 1997 to March 31, 1998 fall outside a specific range. The payment
is limited to a maximum of $2.0 million per year. The counterparty has the
option to extend this agreement for the following two heating seasons with
substantially the same terms. At December 31, 1997, the fair value of this
agreement was not significant.
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.
Note 2 New Accounting Standards
- -------------------------------
During 1997, the Financial Accounting Standards Board issued two new
accounting standards effective in fiscal year 1997. SFAS No. 128, "Earnings
Per Share," establishes standards for computing and presenting earnings per
share. The Company has adopted the requirements of SFAS No. 128 for the
current year and all prior periods in the Consolidated Statements of Income
and Selected Financial Data. SFAS No. 130, "Reporting Comprehensive Income,"
establishes standards for the reporting and displaying of comprehensive income
and its components. The Company has reported comprehensive income in the
Consolidated Statements of Common Equity.
American Institute of Certified Public Accountants Statement of Position No.
96-1, "Environmental Remediation Liabilities," establishes specific criteria
for the recognition and measurement of environmental remediation liabilities.
The adoption of the statement in 1997 did not have a significant effect on the
Company's financial condition or results of operation.
<PAGE>
<PAGE> 25
Note 3 Mergers and Acquisitions
- -------------------------------
During fiscal 1997, WICOR and its subsidiaries consummated four acquisitions.
The aggregate purchase price was approximately $10 million and was financed
using cash and by issuing 127,838 shares of the Company's common stock. Three
of the acquisitions were pump, fluid processing and filtration equipment
companies. The fourth acquisition was a contract meter reading and meter
installation company. Each of the acquisitions was accounted for as a purchase
and the results of operations of the acquired companies were included in the
consolidated financial statements from their respective acquisition dates. The
excess of the purchase price over the estimated fair value of net assets
acquired amounted to approximately $7 million, which has been recorded as
goodwill and is being amortized over 40 years.
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 was 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 over 40 years on a straight-line basis.
Note 4 Income Taxes
- -------------------
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>
Year ended December 31,
---------------------------------------------------
1997 1996 1995
thousands of dollars --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S. tax rates $27,327 35.0% $25,717 35.0% $21,775 35.0%
State income taxes, net 3,383 4.3 3,818 5.2 3,235 5.2
Excess of foreign (benefit)
provision over U.S.
statutory tax rate (280) (0.4) (229) (0.3) 378 0.6
Investment credit restored (451) (0.6) (453) (0.6) (457) (0.7)
Amortization of excess
deferred taxes (630) (0.8) (556) (0.8) (507) (0.8)
Adjustment of prior year's
estimated liability (401) (0.5) (578) (0.8) (361) (0.6)
Other, net (624) (0.7) (1,014) (1.4) (1,375) (2.2)
--------------- --------------- ---------------
Effective Tax Rates $28,324 36.3% $26,705 36.3% $22,688 36.5%
=============== =============== ===============
</TABLE>
<PAGE>
<PAGE> 26
The components of deferred income tax classified as current assets and long-
term liabilities at December 31, are as follows:
thousands of Dollars 1997 1996
---------- ----------
Current deferred income tax assets
Recoverable gas costs $ 9,712 $ 12,658
Deferred compensation 3,407 2,968
Inventory 2,421 1,078
Product related/warranty 1,254 1,691
Other 4,737 3,311
$ 21,531 $ 21,706
Long-term deferred income tax liabilities
Property related $ 48,905 $ 46,867
Systems development costs 6,993 9,252
Investment tax credit (4,503) (4,806)
Postretirement benefits (9,217) (8,914)
Deferred compensation (4,042) (3,734)
Pension benefits 11,033 8,118
Environmental (4,819) (5,677)
Other (375) (1,438)
---------- ----------
$ 43,975 $ 39,668
========== ==========
The current and deferred components of income tax expense (benefit) for each
of the years ended December 31, are as follows:
thousands of Dollars 1997 1996 1995
---------- ---------- ----------
Current
Federal $ 19,229 $ 23,479 $ 25,728
State 4,146 6,022 6,641
Foreign 808 752 1,256
---------- ---------- ----------
Total Current 24,183 30,253 33,625
---------- ---------- ----------
Deferred
Federal 1,836 (2,610) (10,275)
State 926 (264) (1,816)
Foreign 1,379 (674) 1,154
---------- ---------- ----------
Total Deferred 4,141 (3,548) (10,937)
---------- ---------- ----------
Total Provision $ 28,324 $ 26,705 $ 22,688
========== ========== ==========
<PAGE>
<PAGE> 27
Note 5 Short-term Borrowings and Lines of Credit
- ------------------------------------------------
As of December 31, 1997 and 1996, the Company had total unsecured lines of
credit available from banks of $240.0 million and $230.5 million,
respectively. These borrowing arrangements may require the maintenance of
average compensating balances, which are generally satisfied by balances
maintained for normal business operations, and may be withdrawn at any time.
During the third quarter of 1997, the Company, and certain subsidiaries,
renegotiated their existing revolving credit facilities and subsequently
refinanced the remaining outstanding principal balance (approximately $27
million) of the credit facility entered into in connection with the July 1995
acquisition of Hypro. This amount is included as long-term debt on the
Consolidated Balance Sheet. Respective covenants under the new five-year $115
million credit facilities, which expire in August, 2002, include leverage and
interest coverage ratios.
thousands of Dollars 1997 1996
---------- ----------
Notes payable to banks
U.S. subsidiaries $ - $ 27,000
Non-U.S. subsidiaries 20,668 19,210
Commercial paper - U.S. 98,232 68,600
---------- ----------
$ 118,900 $ 114,810
========== ==========
Weighted average interest rates on debt outstanding at end of year:
thousands of Dollars 1997 1996
---------- ----------
Notes payable to banks
U.S. subsidiaries - 5.8%
Non-U.S. subsidiaries 5.8% 7.2%
Commercial paper - U.S. 5.8% 5.7%
Highest month-end balance $ 118,900 $ 114,810
Average month-end balance $ 79,701 $ 69,915
Note 6 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. Maturities and sinking fund requirements during the
succeeding five years on all long-term debt total $43.9 million, $3.9 million,
$7.6 million, $0.8 million and $27.8 million in 1998, 1999, 2000, 2001 and
2002, respectively.
<PAGE>
<PAGE> 28
Note 7 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,
$41.8 million of Wisconsin Gas's net assets at December 31, 1997, 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 $5.5 million in dividends in November 1997
and expects to pay $23.5 million in dividends for the 12 months ending October
1998. At December 31, 1997, Wisconsin Gas's equity was 53.3%.
Combined restricted common equity of the Company's subsidiaries totaled $262.4
million under the most restrictive provisions as of December 31, 1997;
accordingly, $127.3 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 WICOR's predominant
business, generally as measured by equity. Under these restrictions, the
amount allowable for future nonutility equity investment at December 31, 1997,
was $45.7 million. Also, nonutility subsidiaries can borrow additional amounts
for acquisitions; however, if debt for the combined nonutility entities
exceeds 40% of total capitalization for these entities, further PSCW actions
may be necessary. Debt was 32% of total capitalization for the nonutility
entities at December 31, 1997.
Note 8 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 $640 million,
with annual required payments of $110 million in 1998 and 1999, $106 million
in 2000, $101 million in 2001 and $97 million in 2002. Wisconsin Gas's total
payments for firm pipeline and storage capacity prior to recovery from sales
of excess capacity were $126.6 million in 1997, $129.6 million in 1996 and
$128.1 million in 1995. The purchased gas adjustment provisions of Wisconsin
Gas's rate schedules permit the recovery of gas costs from its customers
subject to the GCIM sharing mechanism. 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 $4.2 million at December
31, 1997, 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.
<PAGE>
<PAGE> 29
The FERC has allowed ANR Pipeline Company (ANR) to recover capacity and "above
market" supply costs associated with quantities purchased from Dakota
Gasification Company (Dakota) under a long-term contract expiring in year
2009. Consistent with guidelines set forth in Order No. 636, ANR has allocated
90% of Dakota costs to firm transportation service. Based on its contracted
quantities with ANR, Wisconsin Gas is currently paying approximately $100,000
per month of Dakota costs. Transmission 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 1998 capital expenditures. The Energy Group's capital expenditures for
1998 are estimated at $45 million. The Manufacturing Group's capital
expenditures for 1998 are estimated at $16 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 completed a comprehensive
review of its potential environmental liabilities stemming from these two
former manufactured gas plant sites. Significant technological developments,
lower unit costs and the recognition of the "brown fields" concept by
regulatory agencies have all resulted in a reduction in 1997 in the estimate
of the probable liability for cleanup to $12 million. This cleanup estimate
considered a number of factors, including the estimated extent and volume of
contaminated soil and/or groundwater and is based on current undiscounted
costs. In addition, management believes it is possible, but not likely, that
approximately $5 million in additional remediation costs may be incurred.
Expenditures over the next three years are expected to total approximately $8
million. These new estimates have been reflected in the Consolidated Balance
Sheet as of December 31, 1997.
The cleanup estimate discussed above includes the costs of feasibility
studies, data collection, soil and groundwater remediation activities and
ongoing monitoring activities through 2017. Environmental remediation work for
one of the sites was commenced in the first quarter of 1998 and will continue
through 1999. It is reasonably possible that, due to uncertainties associated
with defining the nature and extent of environmental contamination,
application of laws and regulations by regulatory authorities and changes in
remediation technology, the ultimate cost of remediation could change in the
future. The Company periodically reviews its accrued liabilities for such
remediation costs as evidence becomes available indicating that its
remediation liability has changed.
Due to anticipated regulatory treatment, changes in the recorded liability do
not immediately impact net income. Under the current ratemaking treatment
approved by the PSCW, the costs expended in the environmental remediation of
these sites, net of any insurance proceeds, would be deferred and recovered
from gas customers.
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.
<PAGE>
<PAGE> 30
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
are responsible for effecting remediation at specified sites, and (d) the
experience of other parties that 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 manufacturing-related 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.
Note 9 Common Stock and Other Paid-in Capital
- ---------------------------------------------
The Company's articles of incorporation authorize 60,000,000 shares of common
stock, of which 18,600,632 shares and 18,407,286 shares were outstanding at
December 31, 1997 and 1996, 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 3,469,604 shares is reserved for issuance under the Company's
dividend reinvestment, stock option and incentive savings plans. In addition
22,700,217 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 10 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>
<PAGE> 31
Note 10 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.
Subsequent to the 1997 measurement date, the Company's Board of Directors
approved certain amendments to the plan for non-represented employees of
Wisconsin Gas, effective January 1, 1998. Such amendments change the manner in
which benefits accrue and the time at which benefits become payable under the
non-represented plan. Based on the requirements of SFAS No. 87, the Company
will measure Plan assets and liabilities at the January 1, 1998, amendment
effective date. The Company expects this interim 1998 measurement will result
in an approximate $14 million decrease to the accumulated benefit obligation
compared to obligations measured prior to the plan amendment. Based on this
interim measurement, the Company expects that the 1998 pension income will
increase compared to the 1997 reported amount.
The following table sets forth the funded status of pension plans at December
31, 1997 and 1996.
<TABLE>
<CAPTION>
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
---------------------- ----------------------
thousands of dollars 1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Accumulated benefit obligation
Vested benefits $(112,518) $(102,638) $ (7,974) $ (6,419)
Nonvested benefits (18,795) (17,051) (631) (2,242)
---------- ---------- ---------- ----------
(131,313) (119,689) (8,605) (8,661)
Effect of projected future
compensation levels (39,976) (35,348) (1,148) (1,148)
---------- ---------- ---------- ----------
Projected benefit obligation (171,289) (155,037) (9,753) (9,809)
Plan assets at fair value 273,416 231,822 452 503
---------- ---------- ---------- ----------
Plan assets greater (less) than
projected benefit obligation 102,127 76,785 (9,301) (9,306)
Unrecognized net (asset) liability
at September 30, 1985 being
recognized over approx. 16 years (11,515) (13,269) 568 876
Unrecognized prior service costs 3,677 4,099 223 240
Unrecognized net (gain) loss (51,536) (30,746) 2,364 1,557
Additional minimum liab. recorded - - (2,351) (1,953)
---------- ---------- ---------- ----------
Prepaid asset (accrued liability) $ 42,753 $ 36,869 $ (8,497) $ (8,586)
========== ========== ========== ==========
</TABLE>
<PAGE>
<PAGE> 32
The weighted average discount rate assumptions used in determining the
actuarial present value of the projected benefit obligation were 7.25%, 7.75%
and 7.5% for 1997, 1996 and 1995, respectively. The expected long-term rate of
return on assets was 9.0% for 1997 and 1996 and 8.6% for 1995. The expected
long-term rate of compensation growth was 4.5%, 4.8% and 5.3% for 1997, 1996
and 1995, respectively.
Net pension (income) costs for each of the years ended December 31, include
the following components:
thousands of Dollars 1997 1996 1995
---------- ---------- ----------
Service costs $ 4,042 $ 4,713 $ 4,374
Interest costs on projected
benefit obligations 12,742 12,833 12,830
Actual (gain) on plan assets (52,404) (25,338) (29,107)
Net amortization and deferral 30,864 5,117 10,760
Amortization of regulatory liability (2,851) (2,851) (2,851)
---------- ---------- ----------
Net pension income $ (7,607) $ (5,526) $ (3,994)
========== ========== ==========
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.
Subsequent to the 1997 measurement date, the Company's Board of Directors
approved certain amendments to the plan for non-represented employees of
Wisconsin Gas, effective January 1, 1998. Such amendments change the manner in
which benefits accrue and the time at which benefits become payable under the
non-represented plan and impose a limitation on the dollar amount of the
employer's share of the cost of covered benefits incurred by a plan
participant. The Company expects this interim 1998 measurement will result in
an approximate $15 million decrease to the accumulated benefit obligation
compared to obligations measured prior to the plan amendment. Based on this
interim measurement, the Company expects that the 1998 postretirement benefit
cost will decrease compared to the 1997 reported amount
<PAGE>
<PAGE> 33
The following table sets forth the plans' funded status, reconciled with
amounts recognized in the Company's Statement of Financial Position at
December 31, 1997 and 1996, respectively.
Accumulated benefit obligation
thousands of dollars 1997 1996
---------- ----------
Retirees $ (56,104) $ (52,331)
Active employees (49,759) (47,204)
---------- ----------
Accumulated benefit obligation (105,863) (99,535)
Plan assets at fair value 58,907 46,562
---------- ----------
Accumulated benefit obligation
in excess of plan assets (46,956) (52,973)
Unrecognized prior service costs (13,475) (14,432)
Unrecognized actuarial (loss) gain (3,892) 1,014
---------- ----------
Accrued postretirement benefit $ (64,323) $ (66,391)
========== ==========
Net postretirement health care and life insurance costs for each of the years
ended December 31, consisted of the following components:
thousands of Dollars 1997 1996 1995
---------- ---------- ----------
Service cost $ 2,102 $ 2,712 $ 2,023
Interest cost on projected
benefit obligation 6,731 7,251 6,694
Actual (gain) on plan assets (11,356) (4,695) (6,185)
Amortization of regulatory asset 2,778 2,778 2,778
Net amortization and deferral 5,627 613 2,531
---------- ---------- ----------
Net postretirement benefit cost $ 5,882 $ 8,659 $ 7,841
========== ========== ==========
The postretirement benefit cost components for 1997 were calculated assuming
health care cost trend rates ranging up to 11% for 1997 and decreasing to 5%
over 5 to 17 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 as of December 31, 1997, by $14.6 million
and the aggregate of the service and interest cost components of
postretirement expense by $1.5 million.
The assumed discount rate used in determining the actuarial present value of
the APBO was 7.25% in 1997 and 7.75% in 1996. 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 1997 and 1996 and $1.7 million in 1995
<PAGE>
<PAGE> 34
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, three-year
adjustable rate loan (6.2% interest rate at December 31, 1997), guaranteed by
the Company, to purchase 431,266 shares of WICOR common stock. The Company has
extended the adjustable rate loan, with similar terms, until May 31, 2002. The
unpaid balance ($3.6 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.
E - Stock option plans and restricted stock The Company has a total of 134
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, 1997, 1996 and
1995 and changes during the years then ended is as follows:
1997 1996 1995
----------------- ----------------- -----------------
Wtd Avg Wtd Avg Wtd Avg
Shares Price Shares Price Shares Price
--------- ------- --------- ------- --------- -------
Outstanding at
January 1 780,149 $ 26.76 745,050 $ 25.01 664,633 $ 24.10
Granted 269,200 $ 39.50 162,700 $ 33.01 136,400 $ 28.31
Exercised (68,691) $ 24.23 (98,270) $ 23.10 (44,299) $ 20.90
Canceled (800) $ 31.31 (29,331) $ 29.39 (11,684) $ 27.34
Outstanding at
December 31 979,858 $ 30.45 780,149 $ 26.76 745,050 $ 25.01
Exercisable-End of Year 623,275 $ 27.08 538,672 $ 24.72 434,980 $ 23.46
Available for future
grant at year-end 173,990 446,907 607,200
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123), became effective for the Company on January 1,
1996. The Company will continue to apply APB Opinion No. 25 and related
interpretations in accounting for its stock option plans. As required by SFAS
123, the Company has determined the pro forma information as if the Company
had accounted for stock options granted since January 1, 1995, under the fair
value method of SFAS 123. The Black-Scholes option-pricing model was used with
the following assumptions for 1997, 1996 and 1995: dividend yields of 4.8%,
5.0% and 5.7%, risk-free interest rates of 5.1%, 5.0% and 5.8%, expected
volatility of 15.9%, 16.4% and 16.8%, and an expected option life of 5.64
years for all periods. The weighted average fair value of options granted in
1997, 1996 and 1995 was $4.22, $3.83 and $3.29 per share, respectively. Had
compensation cost for the Company's 1997, 1996 and 1995 grants for stock-based
compensation plans been determined consistent with SFAS No. 123, the Company's
net income and diluted earnings per common share would have been reduced to
the pro forma amounts indicated below
<PAGE>
<PAGE> 35
1997 1996 1995
---------- ---------- ----------
Net earnings:
As reported $ 49,523 $ 46,771 $ 39,527
Pro forma $ 49,167 $ 46,557 $ 39,438
Diluted earnings per common share
As reported $ 2.66 $ 2.53 $ 2.31
Pro forma $ 2.64 $ 2.52 $ 2.31
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.
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 that are forfeited revert to the Company at no
cost.
A total of 52,950 restricted shares (net of cancellations) were issued through
1997. 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 - Director compensation plan Effective January 1, 1997, the Company
converted its director compensation plan into a new Deferred Director
Compensation Plan (Director Plan) which provides for the payment of the annual
retainer and meeting fees using a combination of hypothetical shares of
Company common stock (stock units) and cash. A portion of the annual retainer
is now paid using stock units. In addition, a director may elect to defer the
cash portion of the retainer or meeting fees, or both. The value of each stock
unit is equal to the current market price of the Company's common stock.
Retirement benefits for active directors were also converted into stock units
as of December 31, 1996. Benefits will be paid in cash and Company common
stock, at the option of the holder, over varying periods following termination
of service. The Company recognized $0.6 million of compensation expense under
the Director Plan in 1997
<PAGE>
<PAGE> 36
Note 11 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 based on the market prices
of U.S. Treasury issues having a similar term to maturity, adjusted for the
Company's bond rating and present value of future cash flows.
Because Wisconsin Gas operates in a regulated environment, shareholders
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:
1997 1996
---------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
thousands of dollars ---------- ---------- ---------- ----------
Cash and cash equivalents $ 11,810 $ 11,810 $ 18,784 $ 18,784
Accounts receivable $ 164,243 $ 164,243 $ 150,076 $ 150,076
Short-term debt $ 118,900 $ 118,900 $ 114,810 $ 114,810
Long-term debt $ 149,110 $ 150,159 $ 169,169 $ 169,962
Note 12 Other Financial Information
- -----------------------------------
See page 26 for unaudited quarterly financial data. See Financial Review on
page 20 for industry segment data.
<PAGE>
<PAGE> 37
Selected Financial Data
thousands of dollars, except per share amounts
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated
Operating Data:
Operating revenues (4) $1,021,041 $1,012,601 $ 860,594 $ 867,755 $ 849,528 $ 747,409 $ 716,767
Net earnings $ 49,523 $ 46,771 $ 39,527 $ 33,174 $ 29,313 $ 14,799 $ 22,966
Common Stock Data:
Basic earnings per common share (1) $ 2.68 $ 2.55 $ 2.32 $ 1.99 $ 1.82 $ 0.96 $ 1.54
Diluted earnings per share (1) $ 2.66 $ 2.53 $ 2.31 $ 1.98 $ 1.80 $ 0.95 $ 1.54
Cash dividends per common share (1) $ 1.70 $ 1.66 $ 1.62 $ 1.58 $ 1.54 $ 1.50 $ 1.46
Book value per common share (1) $ 20.95 $ 19.91 $ 18.84 $ 17.14 $ 16.47 $ 15.60 $ 15.84
Balance Sheet Data:
Long-term debt $ 149,110 $ 169,169 $ 174,713 $ 161,669 $ 165,230 $ 164,171 $ 168,366
Redeemable preferred stock - - - - - - -
Common equity 389,620 368,452 345,266 291,468 270,276 245,287 243,453
---------- ---------- ---------- ---------- ---------- ---------- ----------
Capitalization at year-end $ 538,730 $ 537,621 $ 519,979 $ 453,137 $ 435,506 $ 409,458 $ 411,819
========== ========== ========== ========== ========== ========== ==========
Total assets at year-end (2) $1,031,332 $1,057,652 $1,008,514 $ 930,708 $ 933,726 $ 825,774 $ 670,250
Other General Data:
Market-to-book ratio at YE (%) 222 179 170 165 191 175 153
Dividend payout ratio (%)(2)(3) 63.4 65.2 69.5 79.6 82.2 96.1 89.0
Yield at year-end (%) 3.7 4.7 5.1 5.6 5.0 5.6 6.1
Rtrn on ave common equity (%)(2)(3) 13.0 12.9 13.1 11.6 11.2 9.2 9.5
Price/earnings ratio at YE (2)(3) 17.3 14.1 13.9 14.3 17.3 18.5 15.7
Price range $ 33 3/8 - $ 30 1/8 - $ 26 5/8 - $25 1/2 - $25 5/8 - $22 7/8 - $18 5/8 -
$ 47 7/8 $ 37 3/4 $ 32 7/8 $ 32 5/8 $ 32 7/8 $ 27 3/8 $ 24 3/8
Registered shareholders at YE (5) 22,312 23,339 27,379 25,017 23,694 22,864 18,503
Cash flow from operations $ 49,324 $ 75,416 $ 69,918 $ 103,551 $ 3,401 $ 37,012 $ 50,413
Capital expenditures $ 51,572 $ 51,744 $ 56,241 $ 55,051 $ 51,906 $ 71,873 $ 45,113
Employees at year-end 3,625 3,475 3,368 3,214 3,222 3,178 3,196
Debt/equity ratio at year-end 28/72 31/69 34/66 36/64 38/62 40/60 41/59
</TABLE>
<PAGE>
<PAGE> 38
Selected Financial Data
thousands of dollars, except per share amounts
<TABLE>
<CAPTION>
1990 1989 1988 1987
---------- ---------- ---------- ----------
<S> C> <C> <C> <C>
Consolidated
Operating Data:
Operating revenues (4) $ 696,023 $ 741,218 $ 780,633 $ 699,418
Net earnings $ 16,651 $ 33,881 $ 34,163 $ 19,682
Common Stock Data:
Basic earnings per common share (1) $ 1.14 $ 2.33 $ 2.38 $ 1.39
Diluted earnings per share (1) $ 1.13 $ 2.32 $ 2.37 $ 1.38
Cash dividends per common share (1) $ 1.42 $ 1.37 $ 1.32 $ 1.30
Book value per common share (1) $ 16.12 $ 16.83 $ 15.82 $ 14.68
Balance Sheet Data:
Long-term debt $ 130,215 $ 122,639 $ 133,034 $ 127,833
Redeemable preferred stock - - - 8,000
Common equity 237,407 244,351 227,080 207,658
---------- ---------- ---------- ----------
Capitalization at year-end $ 367,622 $ 366,990 $ 360,114 $ 343,491
========== ========== ========== ==========
Total assets at year-end (2) $ 651,559 $ 620,548 $ 565,967 $ 536,998
Other General Data:
Market-to-book ratio at YE (%) 122 148 123 117
Dividend payout ratio (%)(2)(3) 117.2 55.0 52.0 91.1
Yield at year-end (%) 7.3 5.6 6.9 7.6
Rtrn on ave common equity (%)(2)(3) 6.8 14.3 15.3 9.3
Price/earnings ratio at YE (2)(3) 17.2 10.7 8.2 12.4
Price range $18 1/4 - $19 3/8 - $15 5/8 - $13 3/8 -
$ 25 1/4 $ 25 3/8 $ 20 7/8 $ 21 7/8
Registered shareholders at YE (5) 19,463 20,509 21,611 23,010
Cash flow from operations $ 10,022 $ 94,623 $ 73,526 $ 41,237
Capital expenditures $ 37,529 $ 40,944 $ 48,295 $ 34,264
Employees at year-end 3,152 3,696 3,927 4,040
Debt/equity ratio at year-end 35/65 33/67 37/63 37/63
</TABLE>
<PAGE>
<PAGE> 39
Selected Financial Data
thousands of dollars, except per share amounts
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Energy Operations
Operating revenues $ 596,262 $ 602,685 $ 522,840 $ 556,587 $ 574,835 $ 495,415 $ 474,702
Net earnings $ 29,443 $ 32,141 $ 27,701 $ 18,896 $ 19,870 $ 18,060 $ 17,086
Capital expenditures $ 35,148 $ 36,617 $ 42,852 $ 44,626 $ 42,253 $ 62,125 $ 34,473
Utility throughput
(thousands of dekatherms-MDth)
Residential 48,433 52,991 49,425 46,369 47,964 45,905 45,614
Commercial 21,922 24,257 21,157 18,598 19,060 17,840 17,861
Industrial firm 8,724 11,078 13,496 14,544 15,246 14,488 15,690
Industrial interruptible 7,277 19,624 31,353 28,217 20,849 17,388 17,440
Transported 42,883 27,578 14,549 11,908 17,408 21,379 19,658
---------- ---------- ---------- ---------- ---------- ---------- ----------
129,239 135,528 129,980 119,636 120,527 117,000 116,263
========== ========== ========== ========== ========== ========== ==========
Utility customers at year-end 520,975 512,868 504,746 495,129 485,103 470,956 460,549
Utility customers served/employee 534 516 471 419 352 331 323
Average cost of gas per
utility Dth purchased $ 3.99 $ 3.47 $ 2.79 $ 3.34 $ 3.76 $ 3.34 $ 3.18
Ave annual residential utility bill $ 701 $ 725 $ 686 $ 719 $ 779 $ 712 $ 677
Use/utility resident customer(Dth) 108 120 114 110 116 115 117
Degree days 7,094 7,458 6,836 6,431 6,775 6,683 6,416
% colder (warmer) than 20-yr normal 1.0 6.8 (2.8) (9.0) (4.1) (6.4) (10.8)
Manufacturing Operations (2)
Operating revenues $ 424,779 $ 409,916 $ 337,754 $ 311,168 $ 274,693 $ 251,994 $ 242,065
International/export sales
as a % of total sales 34 34 39 37 34 34 31
Net earnings (3) $ 20,080 $ 14,630 $ 11,826 $ 14,278 $ 9,443 $ 4,704 $ 5,880
Capital expenditures $ 16,424 $ 15,127 $ 13,389 $ 10,425 $ 9,653 $ 9,748 $ 10,640
</TABLE>
<PAGE>
<PAGE> 40
Selected Financial Data
thousands of dollars, except per share amounts
<TABLE>
<CAPTION>
1990 1989 1988 1987
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Energy Operations
Operating revenues $ 455,559 $ 441,477 $ 476,904 $ 424,069
Net earnings $ 13,195 $ 25,169 $ 23,223 $ 12,580
Capital expenditures $ 27,978 $ 25,813 $ 37,148 $ 24,344
Utility throughput
(thousands of dekatherms-MDth)
Residential 43,020 48,154 46,769 39,369
Commercial 16,319 18,089 17,012 14,510
Industrial firm 15,106 16,915 16,808 16,106
Industrial interruptible 6,620 5,475 3,752 4,714
Transported 16,565 29,158 29,639 26,129
---------- ---------- ---------- ----------
107,630 117,791 113,980 100,828
========== ========== ========== ==========
Utility customers at year-end 452,906 445,771 439,063 432,509
Utility customers served/employee 321 319 311 288
Average cost of gas per
utility Dth purchased $ 3.30 $ 3.15 $ 3.68 $ 3.74
Ave annual residential utility bill $ 670 $ 758 $ 770 $ 660
Use/utility resident customer(Dth) 113 129 127 108
Degree days 6,103 7,382 7,124 6,185
% colder (warmer) than 20-yr normal (16.0) 1.5 (2.0) (14.8)
Manufacturing Operations (2)
Operating revenues $ 240,464 $ 300,156 $ 303,729 $ 275,349
International/export sales
as a % of total sales 27 24 22 20
Net earnings (3) $ 3,456 $ 8,712 $ 10,940 $ 7,102
Capital expenditures $ 9,551 $ 15,131 $ 11,147 $ 9,920
</TABLE>
<PAGE>
<PAGE> 41
(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.
(4) Includes revenues (in thousands) from discontinued operations from 1987
to 1989 of $58,318, $63,552 and $56,318, respectively.
(5) Reflects WICOR Plan participants beginning with 1992.
<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%
Fibredyne, Inc. New Hampshire 100%
Onga (New Zealand) Pty. Ltd. New Zealand 100%
Sta-Rite Holdings, B.V. Netherlands 100%
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 77%
Subsidiary of Nocchi Pompe, Country in Which Percent Voting
S.p.A. Incorporated Stock Owned
- ----------------------------- ---------------------- --------------
Nocchi 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%
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, 33-55755, 333-13029 and 333-43257) and Form S-3 (Nos. 33-
50682 and 333-27415).
Milwaukee, Wisconsin, ARTHUR ANDERSEN LLP
March 16, 1998.
<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, 1997 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-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 379,971
<OTHER-PROPERTY-AND-INVEST> 65,923
<TOTAL-CURRENT-ASSETS> 384,668
<TOTAL-DEFERRED-CHARGES> 200,770
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,031,332
<COMMON> 18,601
<CAPITAL-SURPLUS-PAID-IN> 232,702
<RETAINED-EARNINGS> 147,903
<TOTAL-COMMON-STOCKHOLDERS-EQ> 389,620
0
0
<LONG-TERM-DEBT-NET> 149,110
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 110,000
<COMMERCIAL-PAPER-OBLIGATIONS> 98,232
<LONG-TERM-DEBT-CURRENT-PORT> 43,926
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 350,444
<TOT-CAPITALIZATION-AND-LIAB> 1,031,332
<GROSS-OPERATING-REVENUE> 1,021,041
<INCOME-TAX-EXPENSE> 28,324
<OTHER-OPERATING-EXPENSES> 927,012
<TOTAL-OPERATING-EXPENSES> 955,336
<OPERATING-INCOME-LOSS> 65,705
<OTHER-INCOME-NET> 1,222
<INCOME-BEFORE-INTEREST-EXPEN> 66,927
<TOTAL-INTEREST-EXPENSE> 17,404
<NET-INCOME> 49,523
0
<EARNINGS-AVAILABLE-FOR-COMM> 49,523
<COMMON-STOCK-DIVIDENDS> 31,397
<TOTAL-INTEREST-ON-BONDS> 525
<CASH-FLOW-OPERATIONS> 49,324
<EPS-PRIMARY> 2.68
<EPS-DILUTED> 2.66
</TABLE>
<PAGE>
<PAGE> 1
EXHIBIT 99
WICOR
626 East Wisconsin Avenue
P.O. Box 334
Milwaukee, WI 53201
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held April 23, 1998
To the Shareholders of
WICOR, Inc.:
NOTICE IS HEREBY GIVEN THAT the Annual Meeting of Shareholders of WICOR,
Inc. will be held Thursday, April 23, 1998, 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 four directors to hold office until the 2001 Annual
Meeting of Shareholders and until their successors are duly elected
and qualified.
2. To approve the 1994 Long-Term Performance Plan, as amended.
3. To consider and act upon any other business which may be properly
brought before the Annual Meeting or any adjournment or
postponement thereof.
The close of business Monday, February 23, 1998, 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 or postponement
thereof.
A proxy and Proxy Statement are enclosed herewith.
By Order of the Board of Directors
Robert A. Nuernberg
Secretary
March 13, 1998
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>
<PAGE> 2
WICOR
626 East Wisconsin Avenue
P.O. Box 334
Milwaukee, Wisconsin 53201
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
To Be Held April 23, 1998
This Proxy Statement is being furnished to shareholders by the Board of
Directors of WICOR, Inc. (the "Company") beginning on or about March 13, 1998,
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 23, 1998, at 2:00 P.M.(local
time), at the Italian Community Center, 631 East Chicago Street, Milwaukee,
Wisconsin, and at all adjournments or postponements 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 the 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 or postponement 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 23, 1998, are entitled
to vote at the Annual Meeting and at any adjournment or postponement thereof.
On that date, the Company had outstanding and entitled to vote 18,627,281
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"), WICOR Industries, Inc. ("WICOR
Industries"), 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 four
directors to hold office until the 2001 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, or
otherwise, have no impact on the election of directors. However, abstentions
are counted in determining whether a quorum is present at the meeting.
<PAGE>
<PAGE> 3
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 sets forth information regarding the four nominees for
election as directors and the six 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>
<PAGE> 4
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
For Three-Year Terms Expiring April, 2001
A photograph of each nominee and director continuing in office appears
adjacent to the nominee's/director's name and personal information
WENDELL F. BUECHE Mr. Bueche, 67, is the Chairman and a
Audit and Compensation director of IMC Global, Inc., a producer
Committees and marketer of crop nutrients. He was
Director since 1984 named to that position in 1997. He served
as Chairman and Chief Executive Officer of
IMC from 1994 to 1997 and as President and
Chief Executive Officer from 1993 to 1994.
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.
DANIEL F. McKEITHAN, JR. Mr. McKeithan, 62, 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 Since 1995 he has also been President and
Chief Executive Officer of both Active
Investor Management, Inc., a manager of oil
and gas wells, and SeisTech Development,
Inc., an oil and gas exploration and
development company. 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, 62, is Chairman and Chief
Nominating Committee Executive Officer of the Company and
Director since 1992 Chairman of its subsidiaries. He was
elected Chairman and Chief Executive
Officer of the Company in 1997. Previously,
he was President and Chief Executive
Officer of the Company from 1994 to 1997.
He has held his positions with 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 beginning in 1989. He is a
director of M&I Marshall & Ilsley Bank and
Twin Disc, Inc.
ESSIE M. WHITELAW Ms. Whitelaw, 49, is Vice President -
Nominating and Retirement National Business Development and Govern-
Plans Investment Committees ment Employee Services of Blue Cross & Blue
Director since 1992 Shield United of Wisconsin, a comprehensive
health care insurer. She has held her
current position since 1997. Previously,
she served as President and Chief Operating
Officer of Blue Cross & Blue Shield United
from 1992 to 1997. She is a director of
Universal Foods Corporation.
<PAGE>
<PAGE> 5
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRING APRIL, 1999
JERE D. McGAFFEY Mr. McGaffey, 62, is a partner in the law firm
Nominating (Chairman) and of Foley & Lardner.(1) He has been in practice
Retirement Plans Investment with that firm since 1961 and has been a
Committees partner since 1968. Mr. McGaffey is a director
Director since 1980 of Smith Investment Company.
THOMAS F. SCHRADER Mr. Schrader, 48, is President and Chief
Director since 1988 Operating Officer of the Company and Vice
Chairman of Wisconsin Gas, WICOR Energy and
FieldTech. He was elected to those positions
in 1997. Previously, he served as President
and Chief Executive Officer of Wisconsin Gas,
WICOR Energy and FieldTech, and Vice President
of the Company. Mr. Schrader is a director of
Firstar Bank Milwaukee, N.A.
STUART W. TISDALE Mr. Tisdale, 69, retired as Chairman and Chief
Audit and Nominating Executive Officer of the Company in 1994. He
Committees is a director of Marshall & Ilsley Corporation
Director since 1980 Corporation, M&I Marshall & Ilsley Bank,
Modine Manufacturing Co. and Twin Disc Inc.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRING APRIL, 2000
WILLIE D. DAVIS Mr. Davis, 63, is President, Chief
Audit (Chairman) and Executive Officer and a director of All Pro
Compensation Committees Broadcasting, Inc., which owns and operates
Director since 1990 radio stations in Los Angeles and Milwaukee.
Mr. Davis is a 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, 62, retired as Chairman of
Compensation (Chairman) and Universal Foods Corporation, an international
Retirement Plans Investment manufacturer and marketer of value-added food
Committees products, in 1997. He is a director of
Director since 1987 Universal Foods Corporation and Fleming
Companies, Inc., and is a Trustee of The
Northwestern Mutual Life Insurance Company.
WILLIAM B. WINTER Mr. Winter, 69, retired as Chairman, Chief
Audit and Nominating Executive Officer and a director of Bucyrus-
Committees Erie Company, a manufacturer of mining
Director since 1980 machinery, and its parent corporation B-E
Holdings Inc., in 1994.
(1) Foley & Lardner was retained in 1997 by the Company and its subsidiaries
to provide legal services and has been similarly retained in 1998.
THE BOARD RECOMMENDS A VOTE "FOR" ALL NOMINEES FOR ELECTION AS DIRECTORS, ITEM
NO. 1. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS
SHAREHOLDERS SPECIFY A DIFFERENT CHOICE.
<PAGE>
<PAGE> 6
THE BOARD OF DIRECTORS
GENERAL
The Board held seven meetings in 1997. 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 Plans Investment Committees.
The Audit Committee held two meetings in 1997. 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 1997. 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 three meetings in 1997. 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 1987 Stock Option Plan, the 1992 Director Stock Option Plan,
the Director Deferred Stock 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.
The Retirement Plans Investment Committee held three meetings in 1997.
The committee's functions include generally overseeing the management of
Company and subsidiary retirement and other employee benefit and welfare
plans. The committee determines investment policy, selects the trustees and
investment managers, and monitors and evaluates the performance of the
trustees and investment managers. The committee also recommends to the Board
changes in plan design.
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 Common Stock, and to adjust
the overall compensation level. Only non-employee directors receive
compensation for service as directors.
Cash Compensation. The Company pays its directors the following cash
compensation: an annual retainer fee of $6,000, $600 for each Board meeting
they attend, and $900 for each Board committee meeting they attend. 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, and $600 for each Board meeting they attend.
<PAGE>
<PAGE> 7
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.
Deferred Compensation. The Company and Wisconsin Gas have identical
deferred stock plans for directors. Under the deferred stock plans, each
director receives on January 1 of each year, 557 deferred stock units (334
from the Company and 223 from Wisconsin Gas). Each stock unit has an economic
value equivalent to a share of Common Stock. As of December 31, 1997, these
deferred stock units had a value of $25,866 based on the price of a share of
Common Stock on that date ($46.4375). Each deferred stock unit is 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 (for itself and on behalf of Wisconsin Gas) 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, neither the Company nor Wisconsin Gas intends to fund its
future payment obligations under its deferred stock plan. On January 1, 1997,
directors also received a one-time grant of deferred stock units corresponding
to the then present value of their accrued benefit under the director
retirement plan which was terminated on December 31, 1996.
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.
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 25, 1997, 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 $36.125. 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 24, 1998, options to
purchase an additional 2,000 shares of Common Stock were granted to each non-
employee director at a per-share exercise price of $46.875.
<PAGE>
<PAGE> 8
SECURITY OWNERSHIP OF MANAGEMENT
The following tabulation sets forth the number of shares of Common Stock
beneficially owned, as of February 28, 1998, by each director and nominee,
each executive officer named in the Summary Compensation Table, and all
directors and executive officers as a group. The tabulation also reflects the
number of deferred stock units held by each such person.
Amount and Nature
Name of of Beneficial Percent of Deferred Stock
Beneficial Owner Ownership (1) (2) (3) Class (4) Units (5)
- ---------------------- --------------------- --------- ---------------
Wendell F. Bueche 14,168 - 6,520
Willie D. Davis 12,533 - 4,474
James C. Donnelly 85,616 -
Jere D. McGaffey 15,229 - 4,934
Daniel F. McKeithan, Jr. 13,000 - 4,446
Robert A. Nuernberg 44,284 -
Guy A. Osborn 14,000 - 4,948
Thomas F. Schrader 141,811 -
Stuart W. Tisdale 90,081 (6) - 4,747
George E. Wardeberg 99,999 (7) -
Joseph P. Wenzler 142,419 (8) -
Essie M. Whitelaw 12,000 - 1,949
William B. Winter 14,588 (9) - 6,415
All directors and
executive officers as
a group (14 persons) 699,728 3.8% 38,433
(1) Except as otherwise noted in the footnotes to the table, each beneficial
owner exercises sole voting and investment power with respect to the
shares shown as owned beneficially.
(2) Includes the following numbers of shares covered under options
exercisable as of or within 60 days of February 28, 1998: Mr. Donnelly,
75,649; Mr. Nuernberg, 31,248; Mr. Schrader, 98,824; Mr. Wardeberg,
54,499; Mr. Wenzler, 90,650; Messrs Bueche, Davis, McGaffey, McKeithan,
Osborn and Winter and Ms. Whitelaw, 12,000 each; Mr. Tisdale, 10,000; and
all directors and executive officers as a group, 448,870.
(3) Includes the following numbers of shares of restricted stock over which
the holders have sole voting but no investment power: Mr. Donnelly,
5,500; Mr. Nuernberg, 1,200; Mr. Schrader, 6,000; Mr. Wardeberg, 11,600;
and Mr. Wenzler, 4,500; and all directors and executive officers as a
group, 28,800. The number of shares include restricted stock grants to
become effective April 23, 1998, following approval by the shareholders
of the 1994 Long-Term Performance Plan, as amended. See "Item No. 2,
Approval of the 1994 Long-Term Performance Plan, as amended - Outstanding
Future Awards." The restricted stock vests three years after grant if the
Company's total return to shareholders for the three-year period 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
<PAGE>
<PAGE> 9
(5) Deferred stock units are issued under the deferred stock plans and the
deferred compensation plan discussed under "Compensation of Directors -
Deferred Compensation."
(6) Includes 4,852 shares owned by Mr. Tisdale's spouse.
(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.
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 1997 and each of the Company's four other most highly
compensated executive officers whose total cash compensation exceeded $100,000
in 1997.
<PAGE>
<PAGE> 10
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
---------------------------- --------------------------
Securities
Restricted Underlying All Other
Name and Principal Stock Options/
Compensation
Position Year Salary ($) Bonus ($) Awards ($)(2) SARs (#) ($) (3)
- ------------------------------ ---- ---------- --------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
George E. Wardeberg, Chairman 1997 $ 440,833 $185,200 20,000 $ 19,233
and Chief Executive Officer 1996 $ 393,750 $217,638 $ 264,000 20,000 $ 17,250
of the Company and its sub- 1995 $ 368,750 $192,455 15,000 $ 16,250
sidiaries (4)(7)
Thomas F. Schrader, President 1997 $ 321,616 $144,700 10,000 $ 14,465
and Chief Operating Officer 1996 $ 290,650 $177,903 $ 132,000 10,000 $ 13,126
of the Company and Vice 1995 $ 278,500 $176,857 10,000 $ 12,640
Chairman of certain of its
subsidiaries(5)
James C. Donnelly, Vice-Pres- 1997 $ 287,250 $ 78,000 10,000 $ 14,775
ident of the Company and 1996 $ 277,525 $ 59,218 $ 132,000 10,000 $ 12,735
President and Chief Execu- 1995 $ 267,800 $ 28,253 10,000 $ 13,185
tive Officer of Sta-Rite
Joseph P. Wenzler, Senior 1997 $ 286,825 $ 96,400 7,500 $ 13,073
Vice President, Treasurer 1996 $ 272,050 $120,296 $ 99,000 7,500 $ 12,382
and Chief Financial Officer 1995 $ 261,850 $106,700 7,500 $ 11,974
of the Company; Vice Presi-
dent and Chief Financial
Officer of Wisconsin Gas;
Secretary and Treasurer of
SHURflo and Hypro; and Vice-
President and Treasurer of
WICOR Energy and FieldTech (6)(7)
Robert A. Nuernberg, Secretary 1997 $ 148,875 $ 39,000 2,000 $ 7,444
of the Company, WICOR Energy 1996 $ 142,750 $ 49,125 $ 26,400 2,000 $ 7,138
and FieldTech; Vice Presi- 1995 $ 138,000 $ 48,307 2,000 $ 6,900
dent-Corporate Relations and
Secretary of Wisconsin Gas (7)
</TABLE>
<PAGE>
<PAGE> 11
(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 bonus 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, 1997,
were as follows: Mr. Wardeberg, 8,000 shares, $371,500; Messrs. Schrader
and Donnelly, 4,000 shares, $185,750; Mr. Wenzler, 3,000 shares,
$139,313; and Mr. Nuernberg, 800 shares, $37,150. 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, 1998, are set out in footnote 3 to the Security Ownership of
Management table.
(3) The amounts shown in this column for 1997 are comprised of the following
items: Company contributions to 401(k) and supplemental savings plans:
Mr. Wardeberg, $19,233; Mr. Schrader, $14,465; Mr. Donnelly, $13,090; Mr.
Wenzler, $13,073; and Mr. Nuernberg, $7,444; and above-market earnings on
deferred compensation: Mr. Donnelly, $1,685.
(4) On July 22, 1997, Mr. Wardeberg was elected Chairman and Chief Executive
Officer of the Company. He previously served as President and Chief
Executive Officer. He continues as Chairman of the Company's
subsidiaries.
(5) On July 22, 1997, Mr. Schrader was elected President and Chief Operating
Officer of the Company. He previously served as Vice President. On
December 16, 1997, Mr. Schrader was elected Vice Chairman of Wisconsin
Gas, WICOR Energy and FieldTech. He previously served as President and
Chief Executive Officer of those subsidiaries.
(6) On July 22, 1997, Mr. Wenzler was elected Senior Vice President,
Treasurer and Chief Financial Officer of the Company. He previously
served as Vice President, Treasurer and Chief Financial Officer. He
continues in his positions with the Company's subsidiaries.
(7) These executive officers were elected to their positions with SHURflo in
1993, Hypro and WICOR Energy in 1995, and FieldTech in 1996.
<PAGE>
<PAGE> 12
Stock Option Information
The Company has in effect benefit plans pursuant to which options to
purchase Common Stock may be granted to key employees (including executive
officers) of the Company and its subsidiaries. The following tabulation sets
forth information regarding grants of options made by the Company in 1997 to
the executive officers named in the Summary Compensation Table. No SARs were
awarded in 1997.
OPTION/SAR GRANTS IN 1997 FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- ---------------------------------------------------------------------------------
Number of Sec. Percent of Total Grant
Underlying Options Granted Exercise or Date
Options/SARs to Employees Base Expiration Present
Name Granted (#) (1) in Fiscal Year Price ($/sh.) Date Value (2)
- ------------------- --------------- ---------------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
George E. Wardeberg 20,000 7.9 $ 35.1875 2/18/07 $ 84,400
Thomas F. Schrader 10,000 3.9 $ 35.1875 2/18/07 $ 42,200
James C. Donnelly 10,000 3.9 $ 35.1875 2/18/07 $ 42,200
Joseph P. Wenzler 7,500 3.0 $ 35.1875 2/18/07 $ 31,650
Robert A. Nuernberg 2,000 0.8 $ 35.1875 2/18/07 $ 8,440
</TABLE>
(1) The options reflected in the table (which are nonstatutory stock options
for purposes of the Internal Revenue Code) were granted on February 18,
1997 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 5.09%; (c)
volatility (variance of rate of return) of 15.94%; and (d) a dividend yield of
4.8%. 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>
<PAGE> 13
The following tabulation sets forth information regarding the exercise of
stock options during 1997 and the unexercised options held at December 31,
1997, by each of the executive officers named in the Summary Compensation
Table.
AGGREGATED OPTION/SAR EXERCISES IN 1997 FISCAL YEAR,
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Numbers of
Securities Underlying Value of Unexercised
Unexercised Options/ In-the-Money Options/
Shares SARs at FY-End (#) SARs at FY-End ($)
Acquired on Value ------------------------- -------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George E. Wardeberg 0 $ 0 36,166 38,334 $ 594,699 $ 495,113
Thomas F. Schrader 0 $ 0 93,424 20,001 $2,121,815 $ 262,725
James C. Donnelly 0 $ 0 65,649 20,001 $1,424,103 $ 262,725
Joseph P. Wenzler 0 $ 0 87,750 15,000 $2,027,881 $ 197,031
Robert A. Nuernberg 0 $ 0 29,249 4,001 $ 687,907 $ 52,651
</TABLE>
PENSION AND RETIREMENT PLANS
The Company and its subsidiaries maintain pension and retirement plans
in which the executive officers and other employees participate. The Company
and its subsidiaries 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.
Effective January 1, 1998, the basic pension plan was amended to restate
the benefit accrual as a "cash balance" formula. Under a cash balance pension
plan, a participant's benefit is based on an annual accrual of a percentage of
current year's compensation, with such annual accruals being combined and
adjusted by an earnings factor. The actual pension benefit is then determined
by converting such lump sum balance into an equivalent annuity value.
The Company's cash balance formula provides an annual accrual of 6% of
salary and bonus, with a guaranteed earnings rate of 4%. In its discretion,
the Company may amend the plan from year to year to grant a higher earnings
rate for the applicable year. In order to recognize the pre-1998 service and
compensation of current participants, the plan grants each participant a
special transition credit. In addition, in order to protect such existing
participants, the revised pension plan guarantees that for employment through
December 31, 2007, the benefit accrual will not be less under the new cash
balance formula than under the pre-1998 final average earnings formula.
<PAGE>
<PAGE> 14
The plan's actuaries project that for long-service employees the revised
cash balance formula will provide substantially equivalent benefits commencing
at age 65 as under the pre-1998 "final average earnings" formula. Such
projection is subject to the applicable earnings rate that is applied from
time to time to the cash balance account and to future interest rates. The
plan's actuaries have projected the ultimate benefits for the named executive
officers. Because of the ten-year guarantee until the end of 2007 and the
fact that Messrs. Wardeberg, Wenzler and Nuernberg will have attained age 65
prior to that time, the actuaries project that the pre-1998 final average
earnings formula will provide the better benefit.
The following tabulation sets forth estimated annual retirement benefits
payable under the pension plans, as supplemented, for Messrs. Wardeberg,
Wenzler and Nuernberg. It is based on the final average earnings formula for
the indicated levels of final average earnings with various periods of
credited service. Benefits reflected in the table are based on a straight
life annuity and an assumed age of 65. 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.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Remuneration 10 15 20 25 30
- ------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 300,000 $ 58,726 $ 88,089 $ 117,452 $ 134,384 $ 138,884
$ 400,000 $ 78,526 $ 117,789 $ 157,052 $ 179,684 $ 185,684
$ 500,000 $ 98,326 $ 147,489 $ 196,652 $ 224,984 $ 232,484
$ 600,000 $ 118,126 $ 177,189 $ 236,252 $ 270,284 $ 279,284
$ 700,000 $ 137,926 $ 206,889 $ 275,852 $ 315,584 $ 326,084
$ 800,000 $ 157,726 $ 236,589 $ 315,452 $ 360,884 $ 372,884
For Messrs. Schrader and Donnelly, who have more than 10 years until
their attainment of the normal retirement age of 65, using a 6.5% earnings
assumption and assuming continuation of compensation at the level paid in 1997
as defined in the plan, the plan actuaries projected estimated annual benefits
under the pension plan, as supplemented, payable upon retirement at normal
retirement age of 65 of $280,995 and $139,660, respectively.
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 8, 19, 10, 23 and 28
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.
<PAGE>
<PAGE> 15
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.
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>
<PAGE> 16
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.
Actual compensation earned by an executive may exceed the market
median for above average performance and be less than median for
performance that is below expectation.
- - 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>
<PAGE> 17
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, Chief
Operating Officer and the Chief Financial Officer, the formula bases 75% of
the targeted award on the Company's return on capital and 25% on individual
performance objectives. The return on capital calculation is further modified
by performance against earnings per share growth. For Company Vice
Presidents, who are also the subsidiary presidents, the formula bases 75% of
the targeted award on the subsidiary's return on capital and 25% on individual
performance objectives. The return on capital calculation is further modified
by performance against sales growth for Sta-Rite and by performance against
rate comparison, customer service, safety and cost effectiveness criteria for
Wisconsin Gas. 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.
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.
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.
<PAGE>
<PAGE> 18
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 capital, 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 1997 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. No
restricted stock grants were made in 1997.
Compensation of the Chief Executive Officer
The Compensation Committee increased the base salary of George E.
Wardeberg, the Company's Chief Executive Officer, by $35,000 or 8.8% effective
April 1, 1997. The increase reflects his overall performance, as demonstrated
by record earnings for the Company in 1996, an increase in earnings per share
of 10% and a total return of 17%, along with his position in the salary range.
The increase set Mr. Wardeberg's salary in the second quartile of the range
targeted by the Compensation Committee.
During July, 1997, Mr. Wardeberg was named the Company's Chairman in
addition to being Chief Executive Officer. In light of the increased
responsibilities, the Compensation Committee increased his base salary by
$35,000 or 8%, effective August 1, 1997.
The Compensation Committee awarded Mr. Wardeberg 20,000 nonstatutory
stock options in 1997. The number of options awarded was at the targeted
number established in the long-term incentive compensation plan.
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<PAGE> 19
The annual incentive award to Mr. Wardeberg for 1997 was $185,200 or 42%
of his salary as compared to a target of 50% of salary. This award reflects
Mr. Wardeberg's contributions to the Company during 1997. The less than
targeted incentive award was caused by certain financial objectives which were
not met. These included the Company's return on capital at 8.2%, less than
targeted at 8.5% and earnings per share growth at 5%, less than targeted at
10%. This was caused by the Company's manufacturing operations falling short
of a very aggressive target. Despite this shortfall, manufacturing had an
exceptionally strong year with net earnings up 38% over the prior year. As a
result, WICOR's net earnings and earnings per share increased 6% and 5%,
respectively. WICOR outperformed its industry peers over the last five years
as shown in the accompanying Total Return Comparison performance graph. In
addition, Mr. Wardeberg accomplished many of his personal objectives in the
areas of growth, preserving the Company's financial strength, and human
resources which included a successfully executed succession plan. The
Compensation Committee exercised its judgment in determining the weights
accorded to his accomplishment of these personal objectives.
Compliance with Tax Regulations
Under Section 162(m) of the Internal Revenue Code, the tax deduction by
corporate taxpayers, such as the Company, is limited with respect to the
compensation of certain executive officers unless such compensation is based
upon performance objectives meeting certain regulatory criteria or is
otherwise excluded from the limitation. The Compensation Committee currently
intends to qualify compensation paid to the Company's executive officers for
deductibility by the Company under Section 162(m) of the Code.
Guy A. Osborn, Chairman
Wendell F. Bueche
Willie D. Davis
Daniel F. McKeithan, Jr.
Members of the Compensation Committee
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 34 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, 1992
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- --------
WICOR $ 100 $ 121 $ 116 $ 139 $ 162 $ 218
S&P $ 100 $ 111 $ 112 $ 153 $ 188 $ 251
Industry $ 100 $ 114 $ 100 $ 130 $ 154 $ 198
* Includes Reinvested Dividends
** PaineWebber Gas Distribution Utility Index
<PAGE>
<PAGE> 20
ITEM NO. 2: APPROVAL OF THE 1994 LONG-TERM
PERFORMANCE PLAN, AS AMENDED
General
The Board has unanimously adopted three amendments to the Company's 1994
Long-Term Performance Plan contingent upon shareholder approval of such plan,
as so amended, at the Annual Meeting. The Long-Term Performance Plan, as
amended, is referred to herein as the "1994 Plan". The 1994 Plan provides for
the grant of options to purchase Common Stock, stock appreciation rights
("SARs") and shares of restricted Common Stock to key employees of the Company
and its subsidiaries. The first amendment to the 1994 Plan increases the
authorized number of shares for which awards may be made thereunder from
820,000 to 1,745,000. On February 17, 1998, without giving effect to the
amendment, only 155,990 shares of Common Stock remained available for future
awards under the 1994 Plan. The Board approved the amendment increasing the
number of shares for which awards may be made under the 1994 Plan to provide
the opportunity for additional awards to be granted thereunder in the future.
The second amendment to the 1994 Plan modifies the limitations on awards
made to individual participants under the 1994 Plan. Without giving effect to
the amendment, the 1994 Plan provides that during the term of the Plan no
participant may receive grants that could result in the participant exercising
options for, or SARs with respect to, more than 125,000 shares of Common
Stock, or receiving restricted stock awards for more than 25,000 shares of
Common Stock. As amended, the 1994 Plan provides that no participant may
receive awards in any calendar year of options for, or SARs with respect to,
more than 150,000 shares of Common Stock, or receive restricted stock awards
in any calendar year of more than 10,000 shares of Common Stock. The
modification of the individual limitations on awards is being proposed both to
reflect the increase in the number of authorized shares under the 1994 Plan
and to minimize the burden of administering the 1994 Plan by changing the
limitations to calendar year restrictions as opposed to limitations for the
term of the 1994 Plan.
The third amendment modifies the criterion that must be satisfied for
restricted stock to vest. Without giving effect to the amendment, the 1994
Plan provides that restricted stock grants to Company executive officers and
subsidiary chairmen and presidents will vest if the Company attains, over a
period of at least three years, a specified compounded annual total return to
shareholders (stock price appreciation plus Company cash dividends paid and
assumed to be reinvested in Common Stock) compared to a specified group of gas
distribution utilities. Restricted stock granted to other participants under
the 1994 Plan prior to amendment would vest based on such conditions as the
Compensation Committee determined. As amended, the 1994 Plan provides that
restricted stock grants to all participants will vest if the Company attains
over a specified period a compounded annual total return to shareholders fixed
by the Compensation Committee at the time of the grant. The Company remains
committed to permitting restricted stock to vest based on the performance of
the Company. However, as the Company's manufacturing and non-utility energy-
related businesses become larger in size and of greater importance to the
Company's overall performance, the Board believes it is inappropriate to
require Company performance to be measured solely by comparison to gas utility
distribution companies
<PAGE>
<PAGE> 21
The 1994 Plan was initially adopted by the Board effective March 1,
1994, and was approved by shareholders on April 28, 1994. The 1994 Plan, as
amended, was approved by the Board on February 26, 1998. The 1994 Plan, as
amended, is included as Appendix A to this Proxy Statement. The description of
the 1994 Plan set forth below is qualified in its entirety by reference to
Appendix A.
Purpose
The purpose of the 1994 Plan is to enhance the ability of the Company
and its affiliates to attract, retain and motivate key salaried employees upon
whom, in large measure, the sustained growth and profitability of the Company
depend, and to provide incentive to those salaried employees that are more
directly linked to the profitability of the Company's businesses and increases
in shareholder value.
Administration
The 1994 Plan is administered by the Compensation Committee (the
"Committee") of the Board which consists of four non-employee directors.
Subject to the terms of the 1994 Plan, the Committee has authority to
interpret the 1994 Plan, prescribe, amend and rescind rules and regulations
relating to the 1994 Plan, and make all other determinations necessary or
advisable for the administration of the 1994 Plan.
Participation
The Committee selects participants in the 1994 Plan from among key
salaried employees of the Company and its affiliates. The Committee solicits
and considers recommendations of the Chief Executive Officer in determining
those key salaried employees who will be eligible to participate in the 1994
Plan. Approximately 110 employees are currently eligible to participate in
the 1994 Plan.
Stock Subject to the 1994 Plan
Assuming the 1994 Plan, as amended, is approved by the shareholders, the
maximum number of shares issuable thereunder will be 1,745,000, subject to
adjustment as described below. Awards may be granted as options (either
incentive stock options or nonstatutory stock options), SARs or restricted
stock. If any shares covered by an award granted under the 1994 Plan, or to
which any award relates, are forfeited or if an award otherwise terminates,
expires or is canceled prior to the delivery of all of the shares or of other
consideration issuable or payable pursuant to such award, and if such
forfeiture, termination, expiration or cancellation occurs prior to the
payment of dividends or the exercise by the holder of other indicia of
ownership of the shares to which the award relates, then the number of shares
counted against the number of shares available under the 1994 Plan in
connection with the grant of such award, to the extent of any such forfeiture,
termination, expiration or cancellation, will again be available for granting
of additional awards under the 1994 Plan. Notwithstanding the foregoing, if a
new award for additional shares is granted to a participant in connection with
such an expiration, forfeiture, cancellation or termination, then the shares
subject to the expiration, forfeiture, cancellation or termination will reduce
the number of shares that can otherwise be issued under the 1994 Plan. Shares
to be issued under the 1994 Plan may be either authorized but unissued or
treasury shares.
<PAGE>
<PAGE> 22
In the event of any change in the outstanding shares of Common Stock by
reason of a stock dividend or split, recapitalization, merger, consolidation,
combination, spin-off, exchange of shares or other similar corporate change,
the number of shares subject to outstanding options and their stated option
prices, and the number of shares subject to the 1994 Plan, will be adjusted
equitably by the Committee. In such event, the Committee will also adjust
equitably the number of shares subject to restricted stock grants and the
number of outstanding SARs and related grant values.
Options
Options may be granted to participants at such times as determined by
the Committee. The Committee will also determine the number of options
granted and whether an option is to be an incentive stock option or
nonstatutory stock option. Pursuant to the Internal Revenue Code, the
aggregate fair market value of Common Stock with respect to which incentive
stock options are exercisable for the first time by a participant during any
calendar year shall not exceed $100,000. The option price per share of Common
Stock will be fixed by the Committee, but will not be less than the fair
market value of the Common Stock on the date of grant and cannot be
subsequently changed except as noted above. No option shall be granted,
directly or indirectly, in connection with the expiration, forfeiture,
cancellation or termination of an option previously granted under the 1994
Plan prior to its normal expiration date if such expired, forfeited, canceled
or terminated option had an exercise price higher than the exercise price of
the option proposed to be granted. The Committee will determine the
expiration date of each option, but the expiration date will not be later than
the tenth anniversary of the grant date. Options will be exercisable at such
times and be subject to such restrictions and conditions as the Committee
deems necessary or advisable. No options will be assignable or transferable
by a participant, except by will or the laws of descent and distribution and
may be exercised during the life of the participant only by the participant.
At the time of exercise, the option price must be paid in full. The
Committee will determine the form of payment, which may include either (i)
cash; (ii) tendering shares of Common Stock having a fair market value at the
time of exercise equal to the option price; (iii) electing to have the Company
withhold from shares of Common Stock otherwise issuable upon exercise that
number of shares of stock having a fair market value at the time of exercise
equal to the option price; (iv) a combination of (i), (ii) and (iii); or (v)
such other form of payment as the Committee determines. The Committee may
permit the practice known as "pyramiding" whereby shares of Common Stock
acquired upon exercise of an option are simultaneously surrendered in exchange
for all or part of the remaining shares subject to the option.
Stock Appreciation Rights
The Committee may also grant SARs under the 1994 Plan, independently or
in tandem with a related option, giving the participant the right to receive a
payment (in cash, shares of Common Stock, or a combination thereof as the
Committee shall determine) equal to the excess of the fair market value of a
share of Common Stock at the date of exercise over the exercise price.
SARs granted in tandem with options will be exercisable at such times,
on such conditions and to the extent that the related option may be exercised.
<PAGE>
<PAGE> 23
Restricted Stock
The Committee may grant shares of restricted stock to participants in
such amounts and at such times as it determines. Under the 1994 Plan, as
amended, restricted stock awards will vest based on attaining a specified
compounded annual total shareholder return (stock price appreciation plus
Company cash dividends paid and assumed to be reinvested in Common Stock).
Shares of restricted stock may not be transferred in any way, other than by
will or by the laws of descent and distribution, for the period of
restriction. After the period of restriction, the shares of restricted stock
become freely transferable.
The Committee may impose such other restrictions on restricted stock as
it may deem appropriate. If any dividends or distributions are paid in shares
of capital stock, the shares will be subject to the same restrictions on
transferability as the shares on which the dividends or distributions are
paid.
Tax Withholding
Whenever shares of Common Stock are to be issued under the 1994 Plan,
the Company may withhold from any cash otherwise payable to the participant or
require the participant to remit to the Company an amount sufficient to
satisfy federal, state and local withholding taxes. Unless the Committee
determines otherwise, a participant may satisfy such withholding requirements
by tendering already owned shares of Common Stock or requesting that the
Company withhold shares of Common Stock issuable in connection with the award.
Certain Federal Income Tax Consequences
Stock Options. The grant of an option under the 1994 Plan creates no
income tax consequences to the employee or the Company. An employee who is
granted a nonstatutory stock option will generally recognize ordinary income
at the time of exercise in an amount equal to the excess of the fair market
value of the Common Stock at such time over the exercise price. The Company
will be entitled to a deduction in the same amount and at the same time as
ordinary income is recognized by the employee. A subsequent disposition of
the Common Stock will give rise to capital gain or loss to the extent the
amount realized from the sale differs from the tax basis, i.e., the fair
market value of the Common Stock on the date of exercise. This capital gain
or loss will be short-term, mid-term or long-term capital gain or loss
depending on the holding period.
In general, an employee will recognize no income or gain at the time of
exercise of an incentive stock option (except that the alternative minimum tax
may apply). If the employee holds the shares of Common Stock acquired
pursuant to the exercise of an incentive stock option for at least two years
from the date of grant and one year from the date of exercise, any gain or
loss realized by the employee on the disposition of the Common Stock will be
treated as a long-term or mid-term capital gain or loss depending on the
holding period. No deduction will be allowed to the Company. If these
holding period requirements are not satisfied, the employee will recognize
ordinary income at the time of the disposition equal to the lesser of (i) the
gain realized on the disposition; or (ii) the difference between the exercise
price and the fair market value of the shares of Common Stock on the date of
exercise. Any gain realized by the employee over the fair market value at the
time of exercise will be treated as a capital gain which will be a short-term,
mid-term or long-term capital gain depending on the holding period. The
Company will be entitled to a deduction in the same amount and at the same
time as ordinary income is recognized by the employee. The Committee may
provide for a sharing between the Company and the participant of any tax
benefits to the Company arising from such disqualifying disposition.
<PAGE>
<PAGE> 24
Stock Appreciation Rights. The grant of an SAR will create no income
tax consequences for the employee or the Company. Upon exercise of an SAR,
the employee will recognize ordinary income equal to the amount of any cash
and the fair market value of any shares of Common Stock or other property
received, except that if the employee receives restricted stock upon exercise
of an SAR, recognition of income may be deferred in accordance with the rules
applicable to such an award. The Company will be entitled to a deduction in
the same amount and at the same time as income is recognized by the employee.
Restricted Stock. An employee will not recognize income upon the award
of restricted stock under the 1994 Plan unless the election described below is
made. However, an individual who has not made such an election will recognize
ordinary income at the time the restrictions lapse in an amount equal to the
fair market value of the restricted stock at such time. The Company will be
entitled to a corresponding deduction in the same amount and at the same time
as the participant recognizes income. Any otherwise taxable disposition of
the restricted stock after the restrictions lapse will result in capital gain
or loss (short-term, mid-term or long-term depending on the length of time the
restricted stock is held after the restrictions lapse). Dividends paid in
cash and received by a participant prior to time the restrictions lapse will
constitute ordinary income to the participant, and the Company will be
entitled to a corresponding deduction for such dividends. Any dividends paid
in stock will be treated as an award of additional restricted stock subject to
the tax treatment described above.
An employee may, within 30 days after the date of the award of
restricted stock, elect to recognize ordinary income as of the date of the
award in an amount equal to the fair market value of such restricted stock on
the date of the award. The Company will be entitled to a corresponding
deduction in the same amount and at the same time as the participant
recognizes income. If the election is made, any cash dividends received with
respect to the restricted stock will be treated as dividend income to the
participant in the year of payment and will not be deductible by the Company.
Any otherwise taxable disposition of the restricted stock (other than by
forfeiture) will result in capital gain or loss (long-term or short-term
depending on the holding period). If the participant who has made an election
subsequently forfeits the restricted stock, the participant will not be
entitled to deduct the amount previously included in income as a loss. The
Company would then be required to include as ordinary income the amount of the
deduction it originally claimed with respect to such shares
<PAGE>
<PAGE> 25
Outstanding Future Awards
On February 17, 1998, the Committee granted Options and restricted stock
to participants effective as of the date of the Annual Meeting, assuming
shareholder approval of the 1994 Plan, as amended. The Options will have a
per-share exercise price equal to the fair market value of a share of Common
Stock on the effective date of the grant. On February 27, 1998, the closing
per-share price of Common Stock on the New York Stock Exchange was $47.8175.
The following tabulation sets out the grants of stock options and restricted
stock to participants.
NEW PLAN BENEFITS
1994 Long-Term Performance Plan
Number of Shares Number of Shares of
Name and Position Subject to Options Restricted Stock
- --------------------- ------------------ -------------------
George E. Wardeberg 100,000 3,600
Chairman and Chief
Executive Officer
Thomas F. Schrader 30,000 2,000
President and Chief
Operating Officer
James C. Donnelly 20,000 1,500
Vice President
Joseph P. Wenzler 20,000 1,500
Senior Vice President,
Treasurer and Chief
Financial Officer
Robert A. Nuernberg 2,000 400
Secretary
Executive Group 192,000 9,000
Non-Executive 155,100 9,700
Officer Group
Except as set forth in the table, the Company cannot currently determine
awards that may be made to eligible participants under the 1994 Plan, as
amended. Such determination will be made from time to time by the Committee.
Duration of Plan
The 1994 Plan will remain in effect until all Common Stock subject to it
has been purchased or acquired, unless terminated earlier by the Board.
However, no option, SAR or restricted stock may be granted after March 1,
2004.
<PAGE>
<PAGE> 26
Amendment, Modification and Termination
The Board may amend, modify or terminate the 1994 Plan at any time,
provided that no such action of the Board, without approval of the
shareholders, may (i) increase the maximum number of shares issuable under the
1994 Plan or the maximum number of shares which can be awarded to any
participant; (ii) modify the performance criteria pursuant to which restricted
stock vests; (iii) materially modify the eligibility requirements for
participation in the 1994 Plan; or (iv) materially increase the benefits to
participants under the 1994 Plan. Termination, amendment or modification of
the 1994 Plan will not adversely affect the right of participants under
options, SARs or restricted stock previously granted, without the consent of
the participant.
Vote Required for Approval
The affirmative vote of a majority of the votes cast on the proposal by
shareholders is required for approval of the 1994 Plan, as amended, provided
that a majority of the outstanding shares of Common Stock are voted on the
proposal. Assuming such proviso is met, any shares not voted (whether by
broker non-vote or otherwise, except abstentions) will have no impact on the
vote. Shares as to which shareholders abstain from voting will be treated as
votes against the 1994 Plan, as amended. The shares represented by the
proxies received will be voted FOR approval of the 1994 Plan, as amended,
unless a vote against such approval or to abstain from voting is specifically
indicated on the proxy. In the event that the 1994 Plan, as amended, is not
approved by the shareholders at the Annual Meeting, the 1994 Plan (without
giving effect to the amendments described above) will remain in full force and
effect.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE 1994
PLAN, AS AMENDED, ITEM NO.2. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED
UNLESS SHAREHOLDERS SPECIFY A DIFFERENT CHOICE.
SHAREHOLDER PROPOSALS
Proposals which shareholders of the Company intend to present at and
have included in the Company's proxy statement for the 1999 Annual Meeting of
Shareholders must be received by the Company by the close of business on
November 13, 1998.
OTHER MATTERS
Arthur Andersen LLP was retained as the Company's independent auditors
for the year ended December 31, 1997 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, 1998. 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.
<PAGE>
<PAGE> 27
The Company will file with the Securities and Exchange Commission on or
before March 31, 1998, an annual report on Form 10-K for the fiscal year ended
December 31, 1997. 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 and regular
employees of the Company and its subsidiaries. The Company has also retained
ChaseMellon Shareholder Services to assist in the solicitation of proxies, and
expects to pay such firm a fee of approximately $4,750, plus out-of-pocket
expenses. 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, 1998
<PAGE>
<PAGE> 28
APPENDIX A
WICOR, INC.
1994 LONG-TERM PERFORMANCE PLAN
(as proposed to be amended)
Proposed additions to Section 4(a)(i), Section 4(a)(ii) and Section
6(c)(iii) of the Company's 1994 Long-Term Performance Plan that would be
effected if the shareholders approve the 1994 Plan, as amended, have been
underlined and proposed deletions have been indicted by overstriking.
Section 1. Purpose
The purpose of the WICOR, Inc. 1994 Long-Term Performance Plan (the
"Plan") is to enhance the ability of WICOR, Inc. (together with any successor
thereto, the "Company") and its Affiliates (as defined below) to attract,
retain and motivate key salaried employees upon whom, in large measure, the
sustained growth and profitability of the Company depend and to provide
incentives to such key salaried employees which are more directly linked to
the profitability of the Company's businesses and increases in shareholder
value.
Section 2. Definitions
As used in the Plan, the following terms shall have the respective
meanings set forth below:
- "Affiliate" shall mean any entity that, directly or through one or more
intermediaries, is controlled by, controls, or is under common control with,
the Company.
- "Award" shall mean any Option, Stock Appreciation Right or Restricted
Stock granted under the Plan.
- "Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award granted under the Plan.
- "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
- "Commission" shall mean the United States Securities and Exchange
Commission or any successor agency.
- "Committee" shall mean a committee of the Board of Directors of the
Company designated by such Board to administer the Plan and composed of not
less than two directors, each of whom is a "non-employee director" within the
meaning of Rule 16b-3.
- "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
- "Fair Market Value" shall mean, with respect to any property (including,
without limitation, any Shares or other securities), the fair market value of
such property determined by such methods or procedures as shall be established
from time to time by the Committee.
- "Incentive Stock Option" shall mean an Option granted under Section 6(a)
of the Plan that is intended to meet the requirements of Section 422 of the
Code, or any successor provision thereto.
- "Key Salaried Employee" shall mean any officer or other key salaried
employee of the Company or of an Affiliate who is responsible for or
contributes to the management, growth or profitability of the business of the
Company or any Affiliate as determined by the Committee.
- "Non-Qualified Stock Option" shall mean an Option granted under Section
6(a) of the Plan that is not intended to be an Incentive Stock Option.
- "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
<PAGE>
<PAGE> 29
- "Participant" shall mean a Key Salaried Employee designated to be granted
an Award under the Plan.
- "Person" shall mean any individual, corporation, partnership,
association, limited liability company, joint-stock company, trust,
unincorporated organization, or government or political subdivision thereof.
- "Released Securities" shall mean Shares of Restricted Stock with respect
to which all applicable restrictions have expired, lapsed, or been waived.
- "Restricted Securities" shall mean Awards of Restricted Stock or other
Awards under which issued and outstanding Shares are held subject to certain
restrictions.
- "Restricted Stock" shall mean any Shares granted under Section 6(c)of the
Plan.
- "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the Commission under
the Exchange Act, or any successor rule or regulation thereto.
- "Shares" shall mean shares of common stock of the Company and such other
securities or property as may become subject to Awards pursuant to an
adjustment made under Section 4(b) of the Plan.
- "Stock Appreciation Right" shall mean any right granted under Section
6(b) of the Plan.
- "Total Shareholder Return" shall mean the appreciation of the price of a
share of common stock of the Company, plus the value of dividends paid thereon
assuming reinvestment in common stock of the Company.
Section 3. Administration
The Plan shall be administered by the Committee; provided, however, that
if at any time the Committee shall not be in existence, the functions of the
Committee as specified in the Plan shall be exercised by those members of the
Board of Directors of the Company who qualify as "non-employee directors"
under Rule 16b-3. Subject to the terms of the Plan and applicable law, the
Committee shall have full power and authority to: (i) designate Participants;
(ii) determine the type or types of Awards to be granted to each Participant
under the Plan; (iii) determine the number of Shares to be covered by (or with
respect to which payments, rights, or other matters are to be calculated in
connection with) Awards granted to Participants; (iv) determine the terms and
conditions of any Award granted to a Participant; (v) determine whether, to
what extent, and under what circumstances Awards granted to Participants may
be settled or exercised in cash, Shares, other securities, other Awards, or
other property, or canceled, forfeited, or suspended to the extent permitted
in Section 7 of the Plan, and the method or methods by which Awards may be
settled, exercised, canceled, forfeited, or suspended; (vi) determine whether,
to what extent, and under what circumstances cash, Shares, other securities,
other Awards, other property, and other amounts payable with respect to an
Award granted to Participants under the Plan shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(vii) interpret and administer the Plan and any instrument or agreement
relating to, or Award made under, the Plan (including, without limitation, any
Award Agreement); (viii) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the
proper administration of the Plan; and (ix) make any other determination and
take any other action that the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided in the Plan,
all designations, determinations, interpretations, and other decisions under
or with respect to the Plan or any Award shall be within the sole discretion
of the Committee, may be made at any time, and shall be final, conclusive, and
binding upon all Persons, including the Company, any Affiliate, any
Participant, any holder or beneficiary of any Award, any shareholder, and any
employee of the Company or of any Affiliate.
<PAGE>
<PAGE> 30
The Committee shall solicit and consider the recommendations of the Chief
Executive Officer of the Company with regard to, among other things, the
designation of Participants, the type of Awards to be granted under the Plan
to such Participants and the number of Shares to be subject thereto, and the
other terms and conditions of Awards granted to Participants, subject to the
limitations of Rule 16b-3.
Section 4. Shares Available for Award
(a) Shares Available. Subject to adjustment as provided in Section 4(b):
(i) Number of Shares Available. The total number of Shares with
respect to which Awards may be granted under the Plan shall be 820,000
1,745,000. If, after the effective date of the Plan, any Shares covered by an
Award granted under the Plan, or to which any Award relates, are forfeited or
if an Award otherwise terminates, expires or is canceled prior to the delivery
of all of the Shares or of other consideration issuable or payable pursuant to
such Award and if such forfeiture, termination, expiration or cancellation
occurs prior to the payment of dividends or the exercise by the holder of
other indicia of ownership of the Shares to which the Award relates, then the
number of Shares counted against the number of Shares available under the Plan
in connection with the grant of such Award, to the extent of any such
forfeiture, termination, expiration or cancellation, shall again be available
for granting of additional Awards under the Plan; provided, however, that if
an Award covering additional Shares is granted to a Participant in connection
with such forfeiture, termination, expiration or cancellation, then the Shares
subject to the forfeiture, termination, expiration or cancellation shall be
counted against the total number of Shares with respect to which Awards may be
granted under the Plan and the maximum number of Shares that may be the
subject of Awards granted to individual Participants under the Plan in an
amount equal to the number of Shares to which such additional grant relates.
(ii) Limitation on Awards to Individual Participants. No During any
one calendar year, no Participant shall be granted Awards that could result in
such Participant exercising of Options for, or Stock Appreciation Rights with
respect to, more than 125,000 150,000 Shares or receiving receive more than
25,000 10,000 Shares of Restricted Stock under the Plan.
(iii) Accounting for Awards. The number of Shares covered by an
Award under the Plan, or to which such Award relates, shall be counted on the
date of grant of such Award against the number of Shares available for
granting Awards under the Plan; provided, however, that if Options and Stock
Appreciation Rights are granted in tandem and the exercise of either an Option
or Stock Appreciation Right results in an offsetting reduction in the number
of Options or Stock Appreciation Rights subject to the Award, then the number
of Shares to which such Award relates shall only be counted against the number
of Shares available for granting Awards under the Plan to the extent of the
aggregate number of Shares as to which such Award may be exercised.
(iv) Sources of Shares Deliverable Under Awards. Any Shares
delivered pursuant to an Award may consist, in whole or in part, of authorized
and unissued Shares or of treasury Shares.
<PAGE>
<PAGE> 31
(b) Adjustments. In the event that the Company shall pay a dividend on
its common stock in Shares, effect a stock split, or effect a similar
corporate transaction or event that affects the Shares such that an adjustment
is determined by the Committee to be appropriate in order to prevent dilution
or enlargement of the benefits or potential benefits intended to be made
available under the Plan, then the number of Shares subject to the Plan and
which thereafter may be made the subject of Awards and the number of Shares
subject to outstanding Awards under the Plan, and the exercise and grant
prices thereof, shall be equitably adjusted by the Committee such that the
number of Shares, as adjusted, shall bear the same relation to the total
number of outstanding shares of common stock of the Company following the
transaction or event as immediately prior to such transaction or event;
provided, however, that the number of Shares subject to any Award payable or
denominated in Shares shall always be a whole number.
Section 5. Eligibility
Any Key Salaried Employee, including any executive officer or employee
who is also a director of the Company or of any Affiliate, who is not a member
of the Committee shall be eligible to be designated a Participant.
Section 6. Awards
(a) Options. The Committee is hereby authorized to grant Options to
Participants with the terms and conditions as set forth below and with such
additional terms and conditions, in either case not inconsistent with the
provisions of the Plan, as the Committee shall determine; provided, however,
that no Option shall be granted, directly or indirectly, in connection with
the forfeiture, termination, cancellation or expiration of an Option
previously granted under the Plan prior to its normal expiration date if such
forfeited, terminated, canceled or expired Option has an exercise price higher
than the Option proposed to be granted.
(i) Exercise Price. The exercise price per share under an Option
shall be determined by the Committee; provided, however, that such exercise
price shall not be less than 100% of the Fair Market Value of a Share on the
date of grant of such Option; and provided further, that such exercise price
shall not be adjusted following the date of grant of such Option except as
provided in Section 4(b) hereof.
(ii) Option Term. The term of each Option shall be fixed by the
Committee; provided, however, that in no event shall the term of any Option
exceed a period of ten years from the date of its grant.
(iii) Exercisability and Method of Exercise. An Option shall become
exercisable in such manner and within such period or periods and in such
installments or otherwise as shall be determined by the Committee. The
Committee also shall determine the method or methods by which, and the form or
forms, including, without limitation, cash, Shares, other securities, other
Awards, or other property, or any combination thereof, having a Fair Market
Value on the exercise date equal to the relevant exercise price, in which
payment of the exercise price with respect to any Option may be made or deemed
to have been made.
(iv) Incentive Stock Options. The terms of any Incentive Stock
Option granted under the Plan shall comply in all respects with the provisions
of Section 422 of the Code, or any successor provision thereto, and any
regulations promulgated thereunder.
<PAGE>
<PAGE> 32
(b) Stock Appreciation Rights. The Committee is hereby authorized to
grant Stock Appreciation Rights to Participants. Subject to the terms of the
Plan and any applicable Award Agreement, a Stock Appreciation Right granted
under the Plan shall confer on the holder thereof a right to receive, upon
exercise thereof, the excess of (i) the Fair Market Value of one Share on the
date of exercise over (ii) the grant price of the right as specified by the
Committee, which shall not be less than the Fair Market Value of one Share on
the date of grant of the Stock Appreciation right. Subject to the terms of the
Plan, the grant price, term, methods of exercise, methods of settlement
(including whether the Participant will be paid in cash or Shares, or a
combination thereof), and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee; provided, however,
that the grant price of a Stock Appreciation Right may not be adjusted
following the date of grant of such Stock Appreciation Right except as
provided in Section 4(b) hereof. The Committee may impose such conditions or
restrictions on the exercise of any Stock Appreciation Right as it may deem
appropriate, including, without limitation, restricting the time of exercise
of the Stock Appreciation Right to specified periods as may be necessary to
satisfy the requirements of Rule 16b-3.
(c) Restricted Stock Awards
(i) Issuance. The Committee is hereby authorized to grant Awards
of Restricted Stock to Participants.
(ii) Restrictions. Shares of Restricted Stock granted to
Participants shall be subject to such restrictions as the Committee may
impose, which restrictions may lapse separately or in combination at such time
or times, in such installments or otherwise, as the Committee may deem
appropriate.
(iii) Performance Criteria. The restrictions applicable to Company
executives and the Chairman and President of each subsidiary of the Company
Participants shall be based on the criteria of attaining over a period of at
least three years a compounded annual percentage rate of Total Shareholder
Return compared to a specified group of gas distribution utilities. The
restrictions applicable to other executives of the subsidiaries shall be as
determined by the Committee.
(iv) Registration. Any Restricted Stock granted under the Plan to a
Participant may be evidenced in such manner as the Committee may deem
appropriate. In the event any stock certificate is issued in respect of
Shares of Restricted Stock granted under the Plan to a Participant, such
certificate shall be registered in the name of the Participant and shall bear
an appropriate legend (as determined by the Committee) referring to the terms,
conditions, and restrictions applicable to such Restricted Stock.
(v) Payment of Restricted Stock. At the end of the applicable
restriction period relating to Restricted Stock granted to a Participant, one
or more stock certificates for the appropriate number of Shares, free of
restrictions, shall be delivered to the Participant, or, if the Participant
received stock certificates representing the Restricted Stock at the time of
grant, the legends placed on such certificates shall be remove.
(vi) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment of a Participant (as determined under criteria
established by the Committee) for any reason during the applicable restriction
period, all Shares of Restricted Stock still subject to restriction shall be
forfeited by the Participant and reacquired by the Company.
<PAGE>
<PAGE> 33
(d) General.
(i) No Consideration for Awards. Awards shall be granted to
Participants for no cash consideration unless otherwise determined by the
Committee.
(ii) Award Agreements. Each Award granted under the Plan shall be
evidenced by an Award Agreement in such form (consistent with the terms of the
Plan) as shall have been approved by the Committee.
(iii) Awards May Be Granted Separately or Together. Awards to
Participants under the Plan may be granted either alone or in addition to, in
tandem with, or in substitution for any other Award or any award granted under
any other plan of the Company or any Affiliate. Awards granted in addition to
or in tandem with other Awards, or in addition to or in tandem with awards
granted under any other plan of the Company or any Affiliate, may be granted
either at the same time as or at a different time from the grant of such other
Awards or awards.
(iv) Limits on Transfer of Awards. No Award (other than Released
Securities), and no right under any such Award, shall be assignable,
alienable, salable, or transferable by a Participant otherwise than by will or
by the laws of descent and distribution (or, in the case of an Award of
Restricted Securities, to the Company); provided, however, that a Participant
at the discretion of the Committee may be entitled, in the manner established
by the Committee, to designate a beneficiary or beneficiaries to exercise his
or her rights, and to receive any property distributable, with respect to any
Award upon the death of the Participant. Each Award, and each right under any
Award, shall be exercisable, during the lifetime of the Participant, only by
such individual or, if permissible under applicable law, by such individual's
guardian or legal representative. No Award (other than Released Securities),
and no right under any such Award, may be pledged, alienated, attached, or
otherwise encumbered, and any purported pledge, alienation, attachment, or
encumbrance thereof shall be void and unenforceable against the Company or any
Affiliate.
(v) Term of Awards. Except as otherwise provided in the Plan, the
term of each Award shall be for such period as may be determined by the
Committee.
(vi) Rule 16b-3 Six-Month Limitations. To be extent required in
order to comply with Rule 16b-3 only, any equity security offered pursuant to
the Plan may not be sold for at least six months after acquisition, except in
the case of death or disability, and any derivative security issued pursuant
to the Plan shall not be exercisable for at least six months, except in case
of death or disability of the holder thereof. Terms used in the preceding
sentence shall, for the purposes of such sentence only, have the meanings, if
any, assigned or attributed to them under Rule 16b-3.
(vii) Share Certificates; Representation by Participants. In
addition to the restrictions imposed pursuant to Section 6(c) hereof, all
certificates for Shares delivered under the Plan pursuant to any Award or the
exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the rules,
regulations, and other requirements of the Commission, any stock exchange or
other market upon which such Shares are then listed or traded, and any
applicable federal or state securities laws, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions. The Committee may require each Participant or
other Person who acquires Shares under the Plan by means of an Award
originally made to a Participant to represent to the Company in writing that
such Participant or other Person is acquiring the Shares without a view to the
distribution thereof.
<PAGE>
<PAGE> 34
Section 7. Amendment and Termination; Waiver of Conditions
(a) Amendments to the Plan. The Board of Directors of the Company may
amend, alter, suspend, discontinue, or terminate the Plan at any time;
provided, however, that no amendment, alteration, suspension, discontinuation
or termination of the Plan shall in any manner (except as otherwise provided
in this Section 7) adversely affect any Award granted and then outstanding
under the Plan without the consent of the Participant; provided further that,
notwithstanding any other provision of the Plan or any Award Agreement,
without the approval of the shareholders of the Company, no amendment,
alterations, suspension, discontinuation, or termination of the Plan shall be
made that would:
(i) increase the total number of Shares available for Awards under
the Plan or the maximum number of Shares with respect to which Awards may be
made to individual Participants, except as provided in Section 4(b) hereof;
(ii) modify the performance criteria pursuant to which Restricted
Stock vests;
(iii) materially increase the benefits accruing to Participants under
the Plan; or
(iv) Materially modify the requirements as to eligibility for
participation in the Plan.
(b) Adjustments of Awards Upon Certain Acquisitions. In the event the
Company or any Affiliate shall assume outstanding employee awards or the right
or obligation to make future such awards in connection with the acquisition of
another business or another corporation or business entity, the Committee may
make such adjustments, not inconsistent with the terms of the Plan, in the
terms of Awards granted to Participants as it shall deem appropriate in order
to achieve reasonable comparability or other equitable relationship between
the assumed awards and the Awards granted under the Plan to Participants as so
adjusted.
(C) Correction of Defects, Omissions, and Inconsistencies. The Committee
may correct any defect, supply any omission, or reconcile any inconsistency in
any Award or Award Agreement in the manner and to the extent it shall deem
necessary or desirable to carry the Plan into effect.
Section 8. General Provisions
(a) No Rights to Awards. No Key Salaried Employee, Participant or other
Person shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Key Salaried Employees,
Participants, or holders or beneficiaries of Awards under the Plan. The terms
and conditions of Awards need not be the same with respect to each
Participant.
(b) Withholding. No later than the date as of which an amount first
becomes includible in the gross income of a Participant for federal income tax
purposes with respect to any Award under the Plan, the Participant shall pay
to the Company, or make arrangements satisfactory to the Company regarding the
payment of, any federal, state, local or foreign taxes of any kind required by
law to be withheld with respect to such amount. Unless otherwise determined
by the Committee, withholding obligations arising with respect to Awards to
Participants under the Plan may be settled with Shares (other than Restricted
Securities), including Shares that are part of, or are received upon exercise
of, the Award that gives rise to the withholding requirement. The obligations
of the Company under the Plan shall be conditional on such payment or
arrangements, and the Company and any Affiliate shall, to the extent permitted
by law, have the right to deduct any such taxes from any payment otherwise due
to the Participant. The Committee may establish such procedures as it deems
appropriate for the settling of withholding obligations with Shares,
including, without limitation, the establishment of such procedures as may be
necessary to satisfy the requirements of Rule 16b-3.
<PAGE>
<PAGE> 35
(c) No Limit on Other Compensation Arrangements. Nothing contained in
the Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in specific
cases.
(d) Rights and Status of Recipients of Awards. The grant of an Award
shall not be construed as giving a Participant the right to be retained in the
employ of the Company or any Affiliate. Further, the Company or any Affiliate
may at any time dismiss a Participant from employment, free from any
liability, or any claim under the Plan. Except for rights accorded under the
Plan and under any applicable Award Agreement, Participants shall have no
rights as holders of Shares as a result of the granting of Awards hereunder.
(e) Unfunded Status of the Plan. Unless otherwise determined by the
Committee, the Plan shall be unfunded and shall not create (or be construed to
create) a trust or a separate fund or funds. The Plan shall not establish any
fiduciary relationship between the Company and any Participant or other
Person. To the extent any Person holds any right by virtue of a grant under
the Plan, such right (unless otherwise determined by the Committee) shall be
no greater than the right of an unsecured general creditor of the Company.
(f) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the internal laws of the State of Wisconsin and applicable
federal law.
(g) Severability. If any provision of the Plan or any Award Agreement or
any Award is or becomes or is deemed to be invalid, illegal, or unenforceable
in any jurisdiction, or as to any Person or Award, or would disqualify the
Plan, any Award Agreement or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the intent of the
Plan, any Award Agreement or the Award, such provision shall be stricken as to
such jurisdiction, Person, or Award, and the remainder of the Plan, any such
Award Agreement and any such Award shall remain in full force and effect.
(h) No Fractional Shares. No fraction Shares or other securities shall
be issued or delivered pursuant to the Plan, any Award Agreement or any Award,
and the Committee shall determine (except as otherwise provided in the Plan)
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares or other securities or any rights thereto
shall be canceled, terminated, or otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not
be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
Section 9. Effective Date of the Plan
The Plan shall be effective as of March 1, 1994, subject, however, to the
approval of the plan by the shareholders of the Company at the next annual
meeting of shareholders, or any adjournment thereof, within twelve months
following the date of adoption of the Plan by the Board of Directors of the
Company.
<PAGE>
<PAGE> 36
Section 10. Term of the Plan
No Award shall be granted under the Plan after March 1, 2004. However,
unless otherwise expressly provided in the Plan or in an applicable Award
Agreement, any Award theretofore granted may extend beyond such date, and, to
the extent set forth in the Plan, the authority of the Committee to amend,
alter, adjust, suspend, discontinue, or terminate any such award, or to waive
any conditions or restrictions with respect to any such Award, and the
authority of the Board of Directors of the Company to amend the Plan, shall
extend beyond such date.
<PAGE>
<PAGE> 37
APPENDIX B
WICOR
VOTING AUTHORIZATION
[X] Please mark your
votes as this
- ----------------------------------------------------------------------------
The Board of Directors recommends a vote FOR all nominees
in Item 1 AND for ITEM 2..
- ----------------------------------------------------------------------------
1. Election of the following nominees as directors for three-year terms:
Wendell F. Bueche, Daniel F. McKeithan, Jr., George E. Wardeberg
and Essie M. Whitelaw
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)
2. To approve and adopt the 1994 Long-Term Performance Plan, as amended.
For Against Abstain
/ / / / / /
-------------------------------------------
. . . . . . . . . . . . . . . . . . . . . .
. .
. .
. .
. . 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>
<PAGE> 38
FOLD AND DETACH HERE
March 13, 1998
Dear WICOR Employee Shareholder:
Enclosed is a notice of WICOR's annual shareholders meeting, coming up
April 23, 1998, in Milwaukee. Also enclosed is a proxy statement, voting
authorization card and WICOR 1997 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 plans, 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 23, 1998, 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>
<PAGE> 39
--- (BACKSIDE OF VOTER AUTHORIZATION FORM) ---
WICOR
VOTING AUTHORIZATION
The undersigned acknowledges receipt of the WICOR, Inc. Annual Report for
1997 and the proxy solicitation material relative to the Annual Meeting of
Shareholders of WICOR, Inc. to be held April 23, 1998. 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 23, 1998.
(continued on the reverse side)
<PAGE>
<PAGE> 40
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
and FOR item 2..
- ------------------------------------------------------------------------
1. Election of the following nominees as directors for three-year terms:
Wendell F. Bueche, Daniel F. McKeithan, Jr., George E. Wardeberg
and Essie M. Whitelaw
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)
------------------------------------------
2. To approve the 1994 Long-Term Performance Plan, as amended.
FOR AGAINST ABSTAIN
/ / / / / /
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>
<PAGE> 41
FOLD AND DETACH HERE
March 13, 1998
Dear WICOR Shareholder:
We're pleased to send you the enclosed 1997 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 23, 1998. 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, VOTE ON THE 1994 Long-Term
Performance Plan, as amended, discuss 1997 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 23.
Sincerely,
George E. Wardeberg
President and Chief Executive Office
<PAGE>
<PAGE> 42
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 23, 1998, 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, "FOR"
Item 2, 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 23, 1998.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
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.
1
</TABLE>
