<PAGE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-7951
WICOR, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1346701
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
626 East Wisconsin Avenue
P. O. Box 334
Milwaukee, Wisconsin 53201
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 414-291-7026
Securities registered pursuant to Section 12(b) of the Act: None
Title of Each Class Name of Exchange on Which Registered
- ------------------------------ ------------------------------------
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: $797,697,261 at March 1, 1999.
Number of shares outstanding of each of the registrant's classes of common
stock, as of March 1, 1999:
Common Stock, $1 par value 37,435,794 shares
----- Documents Incorporated by Reference -----
WICOR, Inc. proxy statement dated March 15, 1999 (Part III)
WICOR, Inc. 1998 Annual Report to Shareholders (Parts I and II
<PAGE>
<PAGE> 2
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) Pipeline Capacity and Storage 3
(2) Term Gas Supply 4
(3) Secondary Market Transactions 4
(4) Spot Market Gas Supply 4
(5) Proposed New Pipeline 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 6
2. Manufacturing of Pumps, Fluid
Processing and Filtration Equipment 6
A. General 6
B. U.S. Operations 6
C. International Operations 6
D. Raw Materials and Patents 7
E. Employees 7
Item 2. Properties 7
(a) Capital Expenditures 7
(b) Energy 7
(c) Manufacturing of Pumps, Fluid Processing
and Filtration Equipment 7
Item 3. Legal Proceedings 7
(a) Energy Business 7
(b) Manufacturing Business 8
Item 4. Submission of Matters to a Vote of
Security Holders 9
Executive Officers of the Registrant 9
PART II 10
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition 10
<PAGE>
<PAGE> 3
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk 10
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 11
PART III. 11
Item 10. Directors and Executive Officers of the Registrant 11
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain
Beneficial Owners and Management 11
Item 13. Certain Relationships and Related Transactions 11
PART IV 12
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 12
(a) Documents Filed as Part of the Report 12
1. All Financial Statements and Financial Statement Schedules 12
2. Financial Statement Schedules 12
3. Exhibits 12
(b) Reports on Form 8-K 14
<PAGE>
<PAGE> 4
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.
The Company has the following subsidiaries engaged in the indicated principal
businesses. Wisconsin Gas Company ("Wisconsin Gas") engages in retail sales and
distribution of natural gas and water. WICOR Energy Services Company ("WICOR
Energy") engages in natural gas purchasing, and energy and price risk
management. FieldTech, Inc. ("FieldTech") provides meter reading and technology
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 holds the stock of the manufacturing subsidiaries. The
Company is a Wisconsin corporation and maintains its principal executive
offices in Milwaukee, Wisconsin.
The Company was incorporated in 1980, when it acquired all the outstanding
common stock of Wisconsin Gas through a merger. The Company acquired all of
the outstanding common stock of Sta-Rite, SHURflo and Hypro through
acquisitions in 1982, 1993, and 1995, respectively.
In 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 November,
1998, Sta-Rite increased its ownership interest in Nocchi Pompe, S.p.A.
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 gas, electric and water
utilities.
In August, 1997, Sta-Rite purchased a line of swimming pool and spa
lighting equipment made by Hydrel, a division of California-based GTY
Industries. Sta-Rite also assumed certain liabilities of Hydrel.
In September, 1997, the Company acquired the outstanding stock of
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.
In November, 1998, Sta-Rite entered into a joint venture arrangement with
Hangzhou Pump General Factory, a Chinese pump manufacturer. Hangzhou
manufactures pumps for agricultural, irrigation, sewage treatment, construction
and mining operations.
In November, 1998, Sta-rite increased its ownership interest in Nocchi
Pompe S.p.A., an Italian subsidiary, to 97%.
In November, 1998, Wisconsin Gas entered the water utility business by
acquiring the water distribution system of a Milwaukee suburb serving about 500
customers.
<PAGE>
<PAGE> 5
On May 29, 1998, the Company effected a 2-for-1 split of its common stock.
At December 31, 1998, the Company (including subsidiaries) had 3,524
employees.
(b) Financial Information About Industry Segments
Refer to the section entitled "Management's Discussion and Analysis" set
forth in the Company's 1998 Annual Report to Shareholders. That section is
included in Exhibit 13 hereto and is hereby incorporated herein by reference.
(c) Forward-Looking Statements
Certain matters discussed in this Annual Report are "forward-looking
statements" intended to qualify for the safe harbors 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. These factors include but are not limited to the
following risks and uncertainties: the impact of warmer- or colder-than-normal
weather on the energy business; the impact of cool or wet weather on the pump
manufacturing markets; general economic conditions, including the availability
of individual discretionary income and changes in interest rates and foreign
currency valuations; changes in natural gas prices and supply availability;
increased competition in deregulated energy markets; the pace and extent of
energy industry deregulation; regulatory, government and court decisions;
increases in costs to clean up environmental contamination; the Company's
ability to increase rates; market demand for the Company's products and
services; and unanticipated expenses or outcomes associated with year 2000 date
conversion.
(d) Narrative Description of Business
1. ENERGY
A. General
Wisconsin Gas is the largest natural gas distribution public utility in
Wisconsin. At December 31, 1998, Wisconsin Gas distributed gas to
approximately 529,000 residential, commercial and industrial customers in 524
communities throughout Wisconsin. Wisconsin Gas' service area has a
population of approximately 2,000,000 based on State of Wisconsin's estimates
for 1998. 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.
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.
<PAGE>
<PAGE> 6
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.
The following table sets forth the volumes of natural gas delivered by
Wisconsin Gas to its customers. The sales volumes represent quantities sold
and delivered to customers by Wisconsin Gas. The volumes shown as transported
represent third-party gas that was delivered by Wisconsin Gas to its customers.
<TABLE>
<CAPTION>
Customer Class Year Ended
-----------------------------------------------
December 31, 1998 December 31, 1997
--------------------- ---------------------
Thousands Thousands
Sales of Therms* Percent of Therms* Percent
- --------------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Residential 408,550 35.7 484,330 37.5
Commercial 193,000 16.8 219,220 17.0
Large Volume Commercial
and Industrial Firm 47,620 4.2 87,240 6.8
Commercial and
Industrial
Interruptible 36,580 3.2 72,770 5.5
---------- ------- ---------- ------
Total Sales 685,750 59.9 863,560 66.8
Transportation
- --------------
Transported 460,170 40.1 428,830 33.2
---------- ------- ---------- ------
Total Gas Throughput 1,145,920 100.0 1,292,390 100.0
========== ======= ========== ======
</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. In 1998, Wisconsin
Gas added over 8,000 customers and has added more than 43,000 customers over
the past five years. Approximately 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. See "Gas
Supply, Pipeline Capacity and Storage - Proposed New Pipeline" for further
information on potential new pipeline competition.
<PAGE>
<PAGE> 7
Federal and state regulators continue to implement policies to bring more
competition to the gas industry. The PSCW has instituted proceedings 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. However, it remains
uncertain if and when Wisconsin Gas may face competition for selling gas to its
smaller firm customers. Consequently, Wisconsin Gas is positioning itself to
react quickly if and when regulation changes to permit customer choice.
WICOR Energy sells gas on a for-profit basis and supplies gas to many
large interruptible customers that formerly purchased gas from Wisconsin Gas.
WICOR Energy is positioning to supply smaller firm customers if and when
regulation changes to permit customer choice. FieldTech, among other things,
provides meter reading and billing service to utilities. FieldTech is
positioning to provide those services for customers if and when regulation
changes to open those services to competition.
With PSCW approval, Wisconsin Gas 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 about 2,300 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, the volume of gas sold by third parties and
distributed by Wisconsin Gas has increased steadily since 1994 and now
constitutes 40% of the gas distributed by Wisconsin Gas. See "Wisconsin
Regulatory Matters".
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 less than 10% of Wisconsin Gas' margin.
C. Gas Supply, Pipeline Capacity and Storage
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.
(1) 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.
<PAGE>
<PAGE> 8
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 in its market area. This
storage capacity is designed to deliver gas when other supplies cannot be
delivered during extremely cold weather in the producing areas, which can
reduce long-line supply.
Wisconsin Gas' firm winter daily transportation and storage capacity
entitlements from pipelines under long-term contracts are set forth below.
Maximum Daily
(Thousands
Pipeline of Therms*)
------------------------- --------------
ANR
Mainline 2,848
Storage 4,826
NNG
Mainline 1,040
Storage 236
Viking
Mainline 105
Peaking Facilities 76
--------------
Total 9,131
==============
*One therm equals 100,000 BTU's.
(2) Term Gas Supply
Wisconsin Gas has contracts for firm supplies with terms in excess of 30
days with 18 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' 1998-1999
winter maximum daily total firm gas deliverability.
Maximum Daily
(Thousands
of Therms*
-------------
Domestic flowing gas 1,949
Canadian flowing gas 1,628
Storage withdrawals 5,062
Peaker withdrawals 76
-------------
Total 8,715
=============
*One therm equals 100,000 BTU's.
<PAGE>
<PAGE> 9
(3) Secondary Market Transactions
Capacity release is a mechanism by which pipeline long-line and storage
capacity and gas supplies under contract can be resold in the secondary market.
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 demand days generally occur only a few times each
year. Capacity release facilitates higher utilization of contracted capacity
and supply during those times when the full contracted capacity and supply are
not needed by the utility, helping to mitigate the fixed costs associated with
maintaining peak levels of capacity and gas supply. 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, subject to the incentive gas
cost mechanism pursuant to which Wisconsin Gas has an opportunity to share in
the cost savings. See "Wisconsin Regulatory Matters - Gas Cost Recovery" for
information on the incentive gas cost recovery mechanism. During 1998,
Wisconsin Gas continued its active participation in the capacity release
market.
(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) Proposed New Pipeline
On March 10, 1999, the Company announced the formation of a joint venture
to construct the Guardian interstate natural gas pipeline from the Chicago
market hub near Joliet, Illinois to southeastern Wisconsin. Subsidiaries of
CMS Energy, a Dearborn, Michigan based international energy company, and
Northern States Power Company, a Minneapolis based diversified energy company,
are the sponsors of the project with WICOR. The three partners will have equal
ownership interests in the project.
The Guardian Pipeline will consist of approximately 150 miles of 36-inch
pipe and related compression equipment and will be designed to carry about
750,000 Dekatherms per day of gas. The total cost of the project, which
requires FERC approval, is approximately $230 million. The pipeline is
scheduled to be in service by November 1, 2002. Wisconsin Gas has committed to
purchase 650,000 Dekatherms per day of capacity on the pipeline and will
construct a 35-mile lateral at a cost of approximately $45 million to connect
its distribution system to the Guardian Pipeline.
The project, if approved by FERC and placed in service, is expected to
increase the availability and reliability of gas transportation service in
Northern Illinois and southeastern Wisconsin as well as introduce or increase
competition among pipelines serving the area.
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.
<PAGE>
<PAGE> 10
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. The PSCW approved two one-year extensions of the margin cap
mechanism in 1996 and 1997. In 1998, the PSCW approved a two-year extension
until November 1, 2001. The PSCW order also specifies 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,
1998, were $1.5 million below the cap because of annualized rate reductions
beginning in 1995 of $9.0 million offset by an increase of $7.5 million in
1998.
(2) Gas Cost Recovery
Wisconsin Gas' rates traditionally contained clauses providing for
periodic rate adjustments, 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 a three-year incentive gas cost recovery mechanism for
Wisconsin Gas effective November 1, 1997. Under the mechanism, monthly
targeted gas supply costs, including pipeline capacity and storage costs, are
set. At the end of each 12-months, Wisconsin Gas' actual gas supply costs are
compared with the annual targeted costs. If Wisconsin Gas' actual costs are
within 1.5% (either above or below) the target costs, Wisconsin Gas recovers
its actual costs. If Wisconsin Gas' actual costs are between 1.5% and 4% below
the target, Wisconsin Gas and its customers share the benefits equally.
Similarly, if actual gas costs are between 1.5% and 4% above the target,
Wisconsin Gas and its customers share the additional costs equally. If actual
costs are outside the 4% band on 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. For the year November 1, 1997 through October 31, 1998,
Wisconsin Gas accrued $3.8 million of benefits under the mechanism.
(3) Transition Cost Recovery Policy
Interstate pipelines are permitted to recover certain costs incurred in
the transition from the bundled sales service to the unbundled FERC Order No.
636 regime. ANR and NNG have made filings since at FERC 1992 to recover
transition costs. Wisconsin Gas will bear a portion of any such additional
costs approved by the FERC. The PSCW has permitted Wisconsin Gas to recover
transition costs from customers through its rates. The Company expects that the
impact of any future filings at FERC to recover additional transition costs
will be immaterial to Wisconsin Gas' results of operations.
(4) Changing Regulatory Environment
The PSCW has instituted proceedings to consider how its regulation of gas
distribution utilities should change to reflect the changing competitive
environment in the gas industry. To date, the PSCW has made a policy decision
that gas prices may be deregulated 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 at various times in 1999. The Company is unable to determine what
impact these proceedings may have on Wisconsin Gas' operations or financial
position. See "Gas Markets and Competition".
<PAGE>
<PAGE> 11
E. Employees
At December 31, 1998, the energy group had 1,143 full-time equivalent
employees.
2. MANUFACTURING OF PUMPS AND FLUID PROCESSING AND FILTRATION EQUIPMENT
A. General
The Company's manufacturing subsidiaries manufacture pumps and fluid
processing equipment, including filtration equipment for residential,
agricultural and industrial markets world-wide. Manufacturing and assembly
activities are conducted in plants in the United States, Australia, China,
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, pool heaters 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.
High performance pumps, related fluids-handling products, accessories and
pumping systems have applications in a variety of markets, including (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 multiple applications including
pumping potable water in travel trailers, motor homes, camping trailers and
boats, and for other purposes including marine engine cooling, marine washdown,
bilge and livewell pumping; (3) agricultural markets, including spraying
fertilizers and pesticides on crops; (4) industrial markets, where applications
include carpet cleaning machines for soil extraction, firefighting and pressure
cleaning applications and general industrial uses requiring fluid handling;,
and (5) the water purification industry, where electric motor driven pumps are
used to pressure reverse osmosis systems for water transfer.
Sales of pumps and water processing equipment are somewhat related to the
season 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, marine
engine cooling, and foam proportioning systems for the firefighting markets.
Management believes the Company also ranks among the larger producers of pool
and spa filters and submersible turbine pumps. Major brand names under
trademarks include "Sta-Rite", "Berkeley", "SHURflo", "Flotec", "AquaTools",
"Hydro-Flow", "FoamPro", "Onga", "Hypro", "Sherwood", "SherTech", and "Nocchi".
<PAGE>
<PAGE> 12
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, filtration, 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 various 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, Chinese, German, Indian, Italian,
Mexican and New Zealand operations. 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 30% of 1998 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, 1998, the manufacturing group had 2,381 full time
equivalent employees.
Item 2. PROPERTIES
- -------------------
(a) Capital Expenditures
The Company's capital expenditures for the year ended December 31, 1998,
totaled $49.3 million. Retirements during this period totaled $10.2 million.
Except as discussed under "Legal Proceedings", the Company does not expect to
make any material capital expenditures for environmental control facilities in
1999.
<PAGE>
<PAGE> 13
(b) Energy
Wisconsin Gas owns a distribution system which, on December 31, 1998,
included approximately 9,100 miles of distribution and transmission mains,
447,700 service laterals and 561,400 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.
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 14 manufacturing/assembly facilities located
in California (2), Minnesota, Nebraska, New Hampshire, Wisconsin, Australia,
China, Germany, India, Italy (2), Mexico and New Zealand. These plants contain
more than 1,200,000 square feet of floor space. The Company through its
manufacturing business also owns or leases seven sales/distribution facilities
in the United States, six in Australia, and one each in Canada, China, 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.
(a) 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. In 1997, 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 the estimate of the probable liability for cleanup
to $7.9 million. Expenditures over the next three years are expected to total
approximately $5 million.
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 1998 and will continue through 1999.
Wisconsin Gas is evaluating potential remediation options at the second site.
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.
<PAGE>
<PAGE> 14
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 in rates (less carrying costs).
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.
(b) Manufacturing Business
Sta-Rite has established an accrual for the continuing environmental
remediation of its owned site in Delavan, Wisconsin and for the investigation
and remediation of its formerly owned manufacturing site in Deerfield,
Wisconsin. Based upon current information, the Company believes that any
future costs in excess of the amounts accrued will not be material to the
Company's financial position or results of operations.
The State of Florida Department of Environmental Protection has accepted
the remedial action plan proposed by Sta-Rite to address contaminated ground
water associated with the operation of a previously leased manufacturing
facility in Osprey Florida. The Company has established accruals for the
remediation and for settlement of a property damage claim by a neighboring
property owner, Based upon current information, the Company believes that the
reserves are sufficient to cover future costs.
The Michigan Department of Natural Resources informed Sta-Rite that it is
a potentially responsibility party under the Comprehensive Environmental
Response Compensation and Liability Act, "CERCLA", for damaged resources at
Reliable Equipment, a company which purchased a plating product line from Sta-
Rite in 1973. Sta-Rite denies it is responsible on the grounds that it did not
generate waste like many of the other potentially responsible parties
identified. Based upon current information, the Company believes its exposure,
if any, will not be material to the Company's financial position or results of
operations.
<PAGE>
<PAGE> 15
The manufacturing subsidiaries are involved in various other environmental
matters, all of which are monitored by the Company. Based upon current
information, the Company believes its exposure is not material to the Company's
financial position or results of operations.
See Note 8c to Notes to Consolidated Financial Statements contained in
Exhibit 13, consisting of portions of the Company's 1998 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 1998.
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 63 Chairman and Chief Executive Officer of the
Company and its subsidiaries.
Thomas F. Schrader 49 President and Chief Operating Officer of the
Company and Vice Chairman of its subsidiaries.
Joseph P. Wenzler 57 Senior Vice President and Chief Financial
Officer of the Company, WICOR Industries, and
Wisconsin Gas; Treasurer and Secretary of
SHURflo and Hypro; and Vice President and
Treasurer of WICOR Energy and FieldTech.
James C. Donnelly 53 Vice-President of the Company and President and
Chief Executive Officer of Sta-Rite.
Bronson J. Haase 54 Vice President of the Company and President and
Chief Executive Officer of Wisconsin Gas, WICOR
Energy and FieldTech.
James J. Monnat 43 Treasurer of the Company, Wisconsin Gas, WICOR
Industries and Sta-Rite.
Robert A. Nuernberg 59 Secretary of the Company, WICOR Energy
Services and FieldTech; and Vice President-
Corporate Relations and Secretary of
Wisconsin Gas.
Thomas M. Rettler 38 Vice President of the Company
Each of the executive officers has held his position for more than five
years, except as follows:
Mr. Wardeberg was elected Chairman and Chief Executive Officer 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.
<PAGE>
<PAGE> 16
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. Wenzler was elected Senior Vice President and Chief Financial Officer
of the Company and Wisconsin Gas Company on May 1, 1998. Prior thereto, he
served as Vice President, Treasurer and Chief Financial Officer of the Company
and Senior Vice President, Treasurer and Chief Financial Officer of Wisconsin
Gas. He continues as Senior Vice President and Chief Financial Officer of WICOR
Industries; Vice President and Treasurer of WICOR Energy and FieldTech; and
Treasurer and Secretary of SHURflo and Hypro.
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. Monnat was elected Treasurer of the Company on May 1, 1998.
Previously, he was Assistant Treasurer of the Company. He continues as
Treasurer of Wisconsin Gas, WICOR Industries and Sta-Rite.
Mr. Rettler was elected Vice President of the Company on May 1, 1998.
Previously he served as Director of Corporate Development from 1996 to 1998 and
as Manager of Mergers and Acquisitions from 1993 to 1996.
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 1998 and 1997, see the section entitled "Investor Information" set
forth in the Company's 1998 Annual Report to Shareholders. That section is
included in Exhibit 13 hereto and is hereby incorporated herein by reference.
At December 31, 1998, there were 21,373 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 1j of Notes to Consolidated Financial Statements contained in Exhibit 13,
consisting of portions of the Company's 1998 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 1998 Annual Report to Shareholders. Such section is included in
Exhibit 13 hereto and is hereby incorporated herein by reference.
<PAGE>
<PAGE> 17
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 1998 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
- -------------------------------------------------------------------
The Company uses derivative financial instruments to manage commodity risk
associated with the price of natural gas and to manage foreign exchange risks.
The Company's policy prohibits the use of derivative financial instruments for
trading purposes.
Wisconsin Gas has a risk management program that has been approved by the
PSCW. This program allows Wisconsin Gas to utilize call and put option
contracts to reduce market risk associated with fluctuations in the price of
natural gas purchases and gas in storage. Under this program, Wisconsin Gas
has the ability to hedge up to 50% of its planned gas deliveries for the
heating season. The PSCW has also allowed Wisconsin Gas to hedge gas purchased
for storage during non-heating months. The cost of the call and put option
contracts, as well as gains or losses realized under the contracts do not
affect net income as they are recovered dollar for dollar under the purchased
gas adjustment clause. As of December 31, 1998, Wisconsin Gas had options
covering approximately 33% of the volumes of gas in storage, and call options
covering 15% of the expected natural gas purchases for the remainder of the
1998-1999 heating season.
WICOR Energy utilizes futures contracts to manage commodity price
associated with firm customer sales commitments. Unrealized gains and losses
on these instruments are deferred and recognized in earnings in the period the
sales occur. As of December 31, 1998, WICOR Energy had natural gas futures
contracts with a notational value of $6.6 million. Substantially all of the
futures contracts expire in 1999.
Certain manufacturing subsidiaries use foreign exchange futures and
forward contracts 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 transaction. These
contracts are not material.
During 1998 and 1997, WICOR entered into weather insurance agreements to
hedge a portion of the impact weather has on Energy Group earnings. Under the
agreements, a payment will be made or received if the heating degree days
during the heating season fall outside a specific range. The payment is
limited to a maximum of $2.0 million per year. At December 31, 1998, the fair
value of the agreement entered into for the 1998-1999 heating season was not
significant. During 1998, the Company recorded income of $1.2 million in
connection with the agreement entered into for the 1997-1998 heating season.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Refer to the Company's consolidated balance sheets and consolidated
statements of capitalization as of December 31, 1998 and 1997, and the related
consolidated statements of income, common equity and cash flows for each of the
three years in the period ended December 31, 1998, together with the report of
independent public accountants dated January 25, 1999, all appearing in Exhibit
13, consisting of portions of the Company's 1998 Annual Report to Shareholders,
which is hereby incorporated herein by reference.
Condensed parent company only financial statements together with the
report of independent public accountants are included in Part IV of
this report.
<PAGE>
<PAGE> 18
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 15, 1999, which is hereby incorporated herein by
reference, for the names, ages, business experience and other information
regarding directors and nominees for election as directors of the Company. See
"Executive Officers of the Registrant" included in Part I hereof for
information regarding executive officers of the Company.
Item 11. EXECUTIVE COMPENSATION
- ------------------------------------
Refer to "Executive Compensation" included in the WICOR proxy statement
dated March 15, 1999, 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 "The
Board of Directors" included in the WICOR proxy statement dated March 15, 1999,
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 15, 1999, 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 15, 1999, which is hereby incorporated herein by
reference, for the information required to be disclosed under this item.
<PAGE>
<PAGE> 19
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
- -------------------------------------------------------------
(a) The following documents are filed as part of this Annual Report on Form
10-K:
1. All Financial Statements. The Company's consolidated balance sheets
and statements of capitalization as of December 31, 1998 and 1997, and
the related consolidated statements of income, common equity and cash
flows for each of the three years in the period ended December 31,
1998, together with the report of independent public accountants dated
January 25, 1999, included in Exhibit 13, consisting of portions of
the Company's 1998 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, 1998, 1997 and 1996; Condensed
Balance Sheets (Parent Company Only) as of December
31, 1998 and 1997; 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 Quarterly Report on
Form 10-Q dated July 31, 1998.
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, dated as of September 1, 1990, between Wisconsin Gas
Company and Firstar Bank Milwaukee, N.A., Trustee (incorporated by reference to
Exhibit 4.11 to Wisconsin Gas Company's Form S-3 Registration Statement No. 33-
36639).
4.2 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).
4.3 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).
4.4 Officers certificate, dated as of January 21, 1999, setting forth
the terms of Wisconsin Gas Company's 5.5% notes due 2009 (incorporated by
reference to Exhibit 4 to Wisconsin Gas Company's Form 8-K Current Report dated
January 15, 1999).
<PAGE>
<PAGE> 20
4.5 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).
4.6 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).
4.7 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).
4.8 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).
4.9 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).
4.10 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).
4.11 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).
4.12 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).
10.3#* WICOR, Inc. 1992 Director Stock Option Plan, as amended.
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).
<PAGE>
<PAGE> 21
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. 1999 Officers' Incentive Compensation Plan.
10.10#* Wisconsin Gas Company Supplemental Retirement Income Program.
10.11#* Wisconsin Gas Company 1999 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. 1999 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).
13* Portions of the WICOR, Inc. 1998 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 15, 1999. (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.
* Indicates a document filed herewith.
(b) Reports on Form 8-K.
No Current Report on Form 8-K was filed during the fourth quarter of 1998.
<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.
Date: March 18, 1999 By /s/ JOSEPH P. WENZLER
Joseph P. Wenzler
Senior Vice President 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, 1999
Officer and Director
(Principal Executive Officer)
THOMAS F. SCHRADER
Thomas F. Schrader President, Chief Operating March 18, 1999
Officer and Director
JOSEPH P. WENZLER
Joseph P. Wenzler Senior Vice President and March 18, 1999
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer)
WENDELL F. BUECHE
Wendell F. Bueche Director March 18, 1999
WILLIE D. DAVIS
Willie D. Davis Director March 18, 1999
JERE D. MCGAFFEY
Jere D. McGaffey Director March 18, 1999
DANIEL F. MCKEITHAN, JR.
Daniel F. McKeithan, Jr. Director March 18, 1999
GUY A. OSBORN
Guy A. Osborn Director March 18, 1999
STUART W. TISDALE
Stuart W. Tisdale Director March 18, 1999
ESSIE M. WHITELAW
Essie M. Whitelaw Director March 18, 1999
WILLIAM B. WINTER
William B. Winter Director March 18, 1999
<PAGE>
<PAGE> 24
Schedule III - Condensed
Parent Company Financial Statements
WICOR
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of WICOR, Inc.
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of WICOR, Inc. included in Exhibit 13
to this Form 10-K, and have issued our report therein dated January 25, 1999.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Supplemental Schedule III
is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules
and is not a required part of the basic consolidated financial statements.
This schedule has been subjected to the auditing procedures applied in the
audit of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects, the financial data required to be
set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 25, 1999.
<PAGE>
<PAGE> 25
Schedule III - Condensed
Parent Company Financial Statements (continued)
WICOR, INC.
(Parent Company Only)
Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1998 1997 1996
(Thousands of Dollars) ---------- ---------- ----------
<S> <C> <C> <C>
Income:
Equity in income of
subsidiaries after dividends $ 13,343 $ 19,048 $ 19,023
Cash dividends from subsidiaries 32,000 30,000 28,044
Interest income and other 1,862 747 722
---------- ---------- ----------
47,205 49,795 47,789
---------- ---------- ----------
Expenses:
Operating (Supplemental Note C) 1,769 96 868
Interest 26 36 62
---------- ---------- ----------
1,795 132 930
---------- ---------- ----------
Income Before Income Taxes 45,410 49,663 46,859
Income Taxes (85) 140 88
---------- ---------- ----------
Net Income $ 45,495 $ 49,523 $ 46,771
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 26
Schedule III - Condensed
Parent Company Financial Statements (continued)
WICOR, INC.
(Parent Company Only)
Balance Sheet
<TABLE>
<CAPTION>
As of December 31,
(Thousands of Dollars) -----------------------
Assets 1998 1997
- ------ ---------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 63 $ 207
Intercompany receivable, net (Supplemental Note B) 11,531 8,473
Other 22 123
---------- ----------
11,616 8,803
---------- ----------
Investment in Subsidiaries, at equity 395,832 384,565
---------- ----------
Deferred Income Taxes 142 151
Deferred Charges and Other 1,096 1,305
---------- ----------
$ 408,686 $ 394,824
========== ==========
Liabilities and Capitalization
- ------------------------------
Current Liabilities:
Income taxes payable $ 877 32
Other 314 447
---------- ----------
1,191 479
---------- ----------
Deferred Credits 1,248 1,118
---------- ----------
Capitalization:
ESOP loan guarantee (Supplemental Note D) 2,807 3,607
---------- ----------
Common equity:
Common stock, $1 par value, authorized
120,000,000 shares; outstanding 37,359,000
and 18,601,000 shares, respectively 37,359 18,601
Other paid-in-capital 216,821 232,702
Retained earnings 160,937 147,903
Accumulated other comprehensive income (7,905) (5,377)
Unearned compensation (Supplemental Note D) (3,772) (4,209)
---------- ----------
Total common equity 403,440 389,620
---------- ----------
$ 408,686 $ 394,824
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 27
Schedule III - Condensed
Parent Company Only Financial Statements (continued)
WICOR, INC.
Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Year Ended December 31,
(Thousands of Dollars) ----------------------------------
1998 1997 1996
Operations - ---------- ---------- ----------
<S> <C> <C> <C>
Net income $ 45,495 $ 49,523 $ 46,771
Adjustments to reconcile net income to
net cash flows:
Equity in (income) losses of subsidiaries (13,343) (19,048) (19,023)
Change in deferred income taxes 9 35 6
Change in intercompany receivables (3,058) 3,539 1,742
Change in income taxes payable 845 (479) (4,509)
Change in other current assets 101 (72) 25
Change in other current liabilities (133) (203) 489
Change in other non-current
assets and Liabilities (477) (5,833) (719)
---------- ---------- ----------
29,439 27,462 24,782
---------- ---------- ----------
Investment Activities -
Investments in subsidiaries - - (600)
---------- ---------- ----------
- - (600)
---------- ---------- ----------
Financing Activities -
Issuance of common stock 2,878 2,684 3,345
Dividends paid on common stock (32,461) (31,397) (30,485)
---------- ---------- ----------
(29,583) (28,713) (27,140)
---------- ---------- ----------
Change in Cash and Cash Equivalents (144) (1,251) (2,958)
Cash and Cash Equivalents at Beginning of Year 207 1,458 4,416
---------- ---------- ----------
Cash and Cash Equivalents at End of Year $ 63 $ 207 $ 1,458
========== ========== ==========
Supplemental Disclosure of Cash Flow Information
Cash paid (received) during the year for:
Interest paid $ 68 $ 88 $ 52
Income taxes paid $ (1,025) $ (1,149) $ 202
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 28
Schedule III - Condensed
Parent Company Financial Statements
WICOR, INC.
(Parent Company Only)
Statement of Retained Earnings
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1998 1997 1996
(Thousands of Dollars) ---------- ---------- ----------
<S> <C> <C> <C>
Balance - Beginning of Year $ 147,903 $ 129,777 $ 113,491
Add:
Net income 45,495 49,523 46,771
---------- ---------- ----------
193,398 179,300 160,262
Deduct:
Cash dividends on common stock 32,461 31,397 30,485
---------- ---------- ----------
Net Income $ 160,937 $ 147,903 $ 129,777
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 29
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 1998, 1997 and 1996, the parent company allocated certain
administrative and operating expenses to its subsidiaries using an
allocation method approved by the Public Service Commission of Wisconsin:
1998 1997 1996
------------ ------------ ------------
Administrative and operating ex-
penses allocated to subsidiaries $ 3,073,597 $ 2,880,000 $ 2,579,000
============ ============ ============
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> 30
INDEX TO EXHIBITS
-----------------
3.1 WICOR, Inc. Restated Articles of Incorporation, as amended
(incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q dated July 31, 1998.
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, dated as of September 1, 1990, between Wisconsin Gas
Company and Firstar Bank Milwaukee, N.A., Trustee (incorporated by reference to
Exhibit 4.11 to Wisconsin Gas Company's Form S-3 Registration Statement No. 33-
36639).
4.2 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).
4.3 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).
4.4 Officers certificate, dated as of January 21, 1999, setting forth
the terms of Wisconsin Gas Company's 5.5% notes due 2009 (incorporated by
reference to Exhibit 4 to Wisconsin Gas Company's Form 8-K Current Report dated
January 15, 1999).
4.5 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).
4.6 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).
4.7 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).
4.8 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).
4.9 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).
<PAGE>
<PAGE> 31
4.10 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).
4.11 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).
4.12 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).
10.3# WICOR, Inc. 1992 Director Stock Option Plan, as amended.
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. 1999 Officers' Incentive Compensation Plan.
10.10# Wisconsin Gas Company Supplemental Retirement Income Program
10.11# Wisconsin Gas Company 1999 Officers' Incentive Compensation Plan.
<PAGE>
<PAGE> 32
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. 1999 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).
13 Portions of the WICOR, Inc. 1998 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 15, 1999. (Except to the
extent incorporated by reference, this proxy statement is not deemed "filed"
with the Securities and Exchange Commission as part of this Form 10-K.)
<PAGE>
<PAGE> 1
WICOR, Inc.
1992 DIRECTOR STOCK OPTION PLAN
AS AMENDED DECEMBER 15, 1998
I. PURPOSE.
The purpose of the WICOR, Inc. 1992 Director Stock Option Plan (the
"Plan") is to promote the best interests of WICOR, Inc. (the "Company") and
its shareholders by providing a means to attract and retain directors of
exceptional competence who are not employees of the Company or any subsidiary
or affiliate thereof ("Eligible Directors") and to provide opportunities for
stock ownership by such Eligible Directors which will increase their
proprietary interest in the Company and, consequently, their identification
with the interests of the Company's shareholders.
II. SECURITIES SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section XI hereof, an aggregate of
300,000 shares of the Company's common stock, $1 par value ("Common Stock"),
may be issued to Eligible Directors upon the exercise of options granted under
the Plan ("Options"). The shares of Common Stock deliverable upon the
exercise of Options may be from authorized but unissued shares of the Company
or shares reacquired by the Company and held as treasury shares; provided,
however, that shares of Common Stock deliverable upon the exercise of Options
bearing Grant Dates (as hereinafter defined) on or after December 31, 1998,
shall be shares of Common Stock reacquired by the Company and held as
treasury shares. In the event that an Option granted under the Plan expires,
is cancelled or terminates unexercised as to any shares of Common Stock
covered thereby, if shares of Common Stock are used to satisfy the Company's
tax withholding obligations, or if shares of Common Stock are delivered to the
Company as payment of the Purchase Price (as hereinafter defined) upon
exercise, such shares shall thereafter be available for the granting of
additional Options under the Plan.
III. EFFECTIVE DATE: DURATION OF PLAN.
The Plan shall become effective as of the date of its adoption by the
Company's Board of DirectorsThe Plan shall terminate (a) when the total number
of shares of Common Stock with respect to which Options may be granted have
been issued, or (b) by action of the Board of Directors pursuant to Section
XIV hereof, whichever shall first occur.
IV. ADMINISTRATION.
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Company's Board of Directors. Grants of Options under the
Plan and the amount and nature of the awards to be granted shall be automatic
as described in Section VI hereof.
However, all questions regarding interpretation, administration and
application of the Plan, any related agreements and instruments, and the value
of shares of Common Stock subject to Options shall be subject to the good
faith determination of the Committee, which determination shall be final and
binding
<PAGE>
<PAGE> 2
VI. OPTIONS.
(a) Grant of Options. Subject to adjustment as provided in Section
XI, as long as this Plan is effective and has not been terminated, on the
fourth Tuesday in February of each year, commencing February 23, 1993, each
Eligible Director shall automatically receive an Option to purchase Four
Thousand (4,000)shares of Common Stock. Any date on which an Eligible
Director receives an Option shall be referred to as a "Grant Date".
(b) Purchase Price. The purchase price at which shares of Common
Stock may be purchased pursuant to Options granted under the Plan shall be
equal to the mean of the high and low prices for shares of Common Stock as
reported in consolidated trading for securities traded on the New York Stock
Exchange (or in the principal market on which the Common Stock is traded, if
other than on the New York Stock Exchange) on the Grant Date (or if no sales
occurred on such date, the average of the high and low prices for shares of
Common Stock as reported in consolidated trading for securities traded on the
New York Stock Exchange or on such other principal market on the last
preceding date on which sales of Common Stock occurred) (the "Purchase
Price").
(c) Option Period. Subject to the following sentence, an Option
granted under the Plan may be exercised at any time while the Eligible
Director holding the Option remains a director of the Company and within two
(2) years after an Eligible Director ceases to be a director of the Company.
No Option granted under the Plan shall be exercisable after the expiration of
ten (10) years from the Grant Date of such Option.
(d) Exercise of Options. An Option shall be exercised in whole or in
part only by delivery of written notice to the Company setting forth the
number of shares with respect to which the Option is to be exercised and the
address to which the certificates for such shares are to be mailed, together
with cash or its equivalents (including checks, bank drafts or postal or
express money orders payable to the order of the Company) and/or such other
consideration (including previously acquired shares of Common Stock or shares
of Common Stock issuable upon exercise of the Option) as may be approved by
the Committee, in an amount equal to the aggregate Purchase Price of such
shares. Any shares of Common Stock tendered by an Eligible Director in
connection with the exercise of an Option shall be valued as of the date of
exercise in accordance with Section VI(b) of the Plan. As soon as practicable
after receipt of such written notification and payment, the Company shall
deliver to the Eligible Director certificates for the number of the shares
with respect to which such Option has been so exercised, issued in the
Eligible Director's name.
(e) Transferability of Options. Options shall not be transferable
otherwise than by will or the laws of descent and distribution and shall be
exercisable during the Eligible Director's lifetime only by such Eligible
Director or by his or her guardian or legal representative.
(f) Termination. Except as expressly provided herein, an Option shall
terminate on the earlier of:
(i) its expiration date as provided above; or
(ii) two (2) years after the Eligible Director
ceases to be a director of the Company.
<PAGE>
<PAGE> 3
VII. MANDATORY HOLDING PERIOD FOR COMMON STOCK.
Shares of Common Stock delivered by the Company upon the exercise of an
Option may not be sold by the Eligible Director or other holder thereof within
the six- (6) month period following the Grant Date of such Option unless such
a sale is consummated with the written consent of the Committee. The Company
may place a legend which sets forth this six- (6) month transfer restriction
on any certificate representing shares of Common Stock delivered upon the
exercise of an Option within six (6) months of the Grant Date.
VIII. REQUIREMENTS IMPOSED BY LAW.
The Company is not required to sell or issue any shares of Common Stock
under any Option if the issuance of such shares constitutes a violation by the
Eligible Director or by the Company of any provisions of any law or regulation
of any governmental authority or national securities exchange. Any such
determination by the Committee shall be final, binding and conclusive.
IX. NO RIGHTS AS SHAREHOLDERS WITH RESPECT TO OPTIONS.
An Eligible Director shall not have rights as a shareholder with respect
to shares of Common Stock covered by an Option except to the extent that an
Option has been exercised, the Purchase Price paid and a stock certificate
issued therefor.
X. NO RIGHT TO CONTINUE AS A DIRECTOR.
The granting of any Option shall not impose upon the Company or its
shareholders any obligation to continue to retain an Eligible Director as a
member of the Company's Board of Directors, and the right of the Company or
its shareholders to remove an Eligible Director shall not be diminished or
affected in any way by reason of the fact that an Option has been granted to
such director.
XI. ADJUSTMENT OF AND CHANGES IN COMMON STOCK.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, distribution of
assets, or any other changes in the corporate structure or stock of the
Company, the aggregate number and kinds of shares of Common Stock authorized
by the Plan, the number and kind of shares covered by outstanding options
granted under the Plan and the Purchase Price for each Option shall be
automatically adjusted.
XII. NON-STATUTORY OPTIONS.
All Options granted under the Plan shall be non-statutory options not
intended to qualify under Section 422A of the Internal Revenue Code of 1986,
as amended.
<PAGE>
<PAGE> 4
XIII. WITHHOLDING.
In the event the Company determines that it is required to withhold
Federal or state income tax as a result of the exercise of any Option, it may
require the Eligible Director to make arrangements satisfactory to the Company
to enable it to satisfy such withholding requirements as a condition to the
exercise of the Option.
XIV. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN.
The Company's Board of Directors may, subject to applicable law and the
shareholder approval requirements of the New York Stock Exchange, suspend,
terminate, revise or amend the Plan in any respect whatsoever (including
amending the Plan from time to time to cause it to continue to comply with the
rules of the Securities and Exchange Commission under Section 16 of the
Securities Exchange Act of 1934, as amended (the "Section 16 Rules"));
provided, however, that no such suspension, termination, revision or amendment
shall become effective if it would cause the Plan to cease to comply with the
Section 16 Rules. Without limitation, the Board of Directors shall have the
right from time to time to amend the first sentence of Section VI(a) of the
Plan to provide that each of the Options to be automatically granted at the
times specified in the Plan to the Eligible Directors shall cover such number
of shares of Common Stock not less than Two Hundred (200) and not more than
Four Thousand (4,000) shares as determined at the time of amendment of
Section VI(a) by the Board of Directors. Notwithstanding the foregoing, the
provisions of Sections V and VI of the Plan may not be amended more than once
in any six (6)-month period other than to comply with changes in the Internal
Revenue Code or the rules thereunder.
XV. NOTICE.
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Secretary of the Company at the Company's
principal executive office, and shall become effective upon receipt.
XVI. FRACTIONAL SHARES.
No fractional share of Common Stock shall be issued pursuant to the
exercise of an Option, but in lieu thereof, the cash value of such fractional
share shall be paid.
XVII. SECTION 16 COMPLIANCE.
Transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Securities Exchange Act
of 1934, as amended. To the extent any provision of the Plan or action by the
Committee or the Company's Board of Directors fail to so comply, it shall be
deemed null and void, to the extent permitted by law and deemed advisable by
the Committee or the Company's Board of Directors.
<PAGE>
<PAGE> 1
EXHIBIT 10-9
WICOR, Inc.
1999 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. & CFO 0% 45% 97.875%
Treasurer 0% 30% 65.25%
V.P Corporate
Development and
Planning 0% 30% 65.25%
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 1999 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 1999 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.
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 1999 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, 1999, 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, 1999.
<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 10-10
WISCONSIN GAS COMPANY
SUPPLEMENTAL RETIREMENT INCOME PROGRAM
1. Purpose of the Program
The purpose of the Wisconsin Gas Company Supplemental Retirement Income
Program (the "Program") is fivefold: (i) to reimburse each designated
corporate officer of Wisconsin Gas Company (the "Company"), WICOR, Inc.,
and/or WICOR Energy Services Company (in the aggregate, the "Employer") for
any reduction in his benefit payments under the Wisconsin Gas Company Pension
Plan for Non-Union Employees (the "Pension Plan") which may be caused by the
limitations imposed thereon by Internal Revenue Code Section 415 (the "415
Limit") or Internal Revenue Code Section 401(a)(17) (the "Compensation Limit")
and/or by the exclusion from the definition of compensation under the Pension
Plan of any earnings paid by Sta-Rite Industries, Inc. to its corporate
officers, and any such earnings voluntarily deferred pursuant to a non-
qualified deferred compensation arrangement (the "Sta-Rite Exclusion"), any
amounts voluntarily deferred from Employer salary pursuant to a non-qualified
deferred compensation arrangement (the "Deferred Compensation Exclusion") or
any bonuses (provided that any bonus payments shall be pro-rated on a monthly
basis over the calendar year for which the bonus payments are applicable) (the
"Bonus Exclusion"); (ii) to reimburse a corporate officer of the Company for
any reduction in his employer or employee contribution allocations under the
Wisconsin Gas Company Employees' Savings Plan (the "Savings Plan") which may
be caused by the 415 Limit, the Compensation Limit, and/or by the Deferred
Compensation Exclusion; (iii) to provide retirement income for any designated
corporate officer retiring on or after January 1, 1987 to replace the post-
retirement life insurance benefit program which will not be available to
anyone retiring after December 31, 1986; (iv) to provide incentive and reward
to such officer through additional retirement income in recognition of his
meritorious service and material contribution to the Employer's continued
growth and development; and (v) to assist the Employer in retaining and
attracting high caliber key executives upon whose efforts the future
successful and profitable operation of its business is dependent.
2. Effective Date
The Program was originally adopted effective as of January 1, 1983 as
the replacement for the Wisconsin Gas Company Corporate Officer Post-
Retirement Benefit Plan in effect prior to that date. This is an amendment
and restatement of the Program and is effective January 1, 1997 for current
and future participants. The terms of the Program in effect prior to
January 1, 1997 shall apply to any former participants who retired or
otherwise terminated employment prior to that date. Prior to January 1, 1997,
the Program was known as the Wisconsin Gas Company Principal Officers'
Supplemental Retirement Income Program.
3. Participants in the Program
As of January 1, 1997, the Program covers Messrs. Wardeberg, Wenzler,
Schrader, Donnelly, Nuernberg, Zeddun and Osborne. Any officer of the
Employer may be added as a participant by action of the Compensation Committee
of the Board of Directors of WICOR, Inc
<PAGE>
<PAGE> 2
4. Savings Plan Benefits
The Company shall establish a Savings Plan Bookkeeping Reserve Account
(the "Reserve Account") for each participant as follows:
(a) As of each December 31 during the participant's employment with
the Employer as an officer commencing December 31, 1983, an amount
shall be credited to the Reserve Account equal to the difference
between (i) four percent (4%) of the participant's aggregate
compensation as defined in the Savings Plan and the amount by
which such compensation is reduced by the Deferred Compensation
Exclusion and Compensation Limit for such calendar year; and (ii)
the actual employer contribution to the Savings Plan allocable to
the account of the participant for such calendar year, excluding
any participant deposits thereunder and excluding the one percent
(1%) additional match commencing November 1, 1991 as a result of
the ESOP provision. Notwithstanding the foregoing, in the event a
participant fails to make deposits equal to four percent (4%) of
his Compensation as defined in the Savings Plan during a calendar
year and such failure was not caused by the 415 Limit or the
discrimination test of Internal Revenue Code Section 401(k)(3) as
estimated by the Company, the reference to four percent (4%) in
(i) above shall be reduced to the percentage of the participant's
compensation as defined in the Savings Plan contributed by the
participant to the Savings Plan for such year.
(b) Pursuant to a salary reduction agreement, if any, executed by the
Company and a participant in the form attached hereto as Exhibit A
(the "Salary Reduction Agreement"), an amount shall be credited by
the Company to the Reserve Account for such participant equal to
the amount, if any, by which the participant's salary is reduced
by the Salary Reduction Agreement (the "Pre-Tax Employee
Contribution"). The credit to the Reserve Account for the Pre-Tax
Employee Contribution shall be made as of the time specified in
the Salary Reduction Agreement. The Pre-Tax Employee Contribution
under the Salary Reduction Agreement is a non-qualified deferred
compensation agreement for purposes of computing the Deferred
Compensation Exclusion under the Program.
(c) The Salary Reduction Agreement may also provide that the
participant will contribute an amount to the Company to be
credited to the Reserve Account for such participant (the "Post-
Tax Employee Contribution"). The credit to the Reserve Account
for the Post-Tax Employee Contribution shall be made as of the
time specified in the Salary Reduction Agreement and may be made
by payroll deduction or other method provided therein.
(d) As of the last day of each month, commencing January 31, 1984, and
prior to any distribution pursuant to subparagraphs (e) and (f)
below, an additional amount shall be credited to the Reserve
Account as an interest equivalent on the balance credited to the
Reserve Account as of the last day of the previous month. The
interest rate earned will be that rate earned for such month by
the "Stable Value Fund" under the Savings Plan
<PAGE>
<PAGE> 3
(e) Payment of the amounts credited to the Reserve Account for each
participant shall commence during the month of January immediately
following the calendar year in which occurs the participant's
termination of employment with the Employer and shall be made in a
lump sum. A transfer of employment to Sta-Rite Industries, Inc.
or other affiliated entity shall not be treated as a termination
of employment causing a required distribution hereunder.
(f) In the event of a participant's death before benefits hereunder
have been paid to him, any amount allocated to the Reserve Account
shall be paid in a lump sum in the month following such death to
such beneficiary or beneficiaries as the participant shall
designate by written instrument delivered to the Secretary of the
Company, or if no such written instrument is properly delivered or
if such designated beneficiary predeceases the participant, to the
executors, administrators, or personal representatives of the
participant's estate.
(g) The Reserve Account shall be utilized solely as a device for the
measurement and determination of the amount to be paid to a
participant at the times specified above for the payment of
Savings Plan benefits. Neither the Reserve Account nor any other
reserve established on the Company's books to reflect the
liabilities under this Program shall constitute or be treated as a
trust fund of any kind. On the contrary, it is expressly agreed
and understood that the Company shall not be required to set aside
any assets with respect hereto and that any assets actually held
by the Company with reference to this Program shall be and remain
the sole property of the Company, and that neither a participant
nor a participant's beneficiaries, heirs, legal representatives or
assigns shall have ownership rights of any nature with respect
thereto, unless and until such time as such assets are paid over
and transferred to the participant or the participant's
beneficiaries, as herein provided.
(h) The Program shall accept a transfer from the Sta-Rite Industries
Officers' Supplemental Retirement Income Program ("Sta-Rite
Supplemental Plan") for Joseph P. Wenzler of the obligations and
liabilities under Section 4 thereof with respect to a deferred
savings plan account, which amount shall be treated as the opening
balance of said individual's Reserve Account.
5. Pension Plan Benefits
(a) Eligibility. This paragraph applies to (i) Messrs. Wardeberg,
Wenzler, Schrader and Donnelly and (ii) any other officer who was
a named Program participant on January 1, 1997 in paragraph 3 who
is a corporate officer immediately prior to his eligibility for
normal or early retirement from the Employer under the terms of
the Pension Plan
<PAGE>
<PAGE> 4
(b) Definitions. For purposes of this paragraph, "Unrestricted
Pension Benefit" means the amount which would have been payable
from the Pension Plan if the (i) 415 Limit, (ii) Compensation
Limit, (iii) Sta-Rite Exclusion, (iv) Bonus Exclusion, and (v)
Deferred Compensation Exclusion did not apply, calculated as of
the participant's date of retirement or pre-retirement death, as
applicable, based on the applicable optional payment method, but
subject to adjustment from time to time for applicable cost of
living increases. "Restricted Benefit Amount" means the amount
actually payable from the Pension Plan calculated as of the
participant's date of retirement or pre-retirement death based on
the applicable optional payment method, but subject to adjustment
from time to time for applicable cost of living increases and for
reductions in the 415 Limit.
(c) Married Participants - Joint and Survivor Annuity. A participant
who is lawfully married at his retirement date and elects to
receive his benefits from the Pension Plan in any joint and
survivor annuity form available thereunder with his spouse
designated as the survivor annuitant, shall receive a monthly
supplement for his lifetime. The supplement shall be equal to the
difference between (i) the Unrestricted Pension Benefit payable on
a life only annuity basis under the terms of the Pension Plan and
(ii) the Restricted Benefit Amount payable on a joint and fifty
percent (50%) survivor annuity basis under the terms of the
Pension Plan. If the participant predeceases his spouse, fifty
percent (50%) of such difference shall then be paid monthly to his
surviving spouse during her lifetime. If both the participant and
his spouse die prior to the end of the ten (10) year period
commencing on his retirement date, fifty percent (50%) of the
aggregated monthly amount received by him under the Pension Plan
and this subparagraph 5(a) shall be paid for the balance of such
ten (10) year period to the beneficiary designated in writing by
him for that purpose or, in the absence of such a designated
beneficiary, to the estate of the last survivor of the participant
and his spouse.
(d) Unmarried Participants - Ten-Year Certain Annuity. A participant
who is unmarried at his retirement date and elects to receive his
benefits from the Pension Plan in the ten (10) year period certain
annuity form available thereunder, shall receive a monthly
supplement for his lifetime. The supplement shall be equal to the
difference between (i) the Unrestricted Pension Benefit payable on
a life only annuity basis under the terms of the Pension Plan and
(ii) the Restricted Benefit Amount payable in a ten (10) year
period certain annuity form under the terms of the Pension Plan.
If the participant dies prior to the end of the ten (10) year
period commencing on his retirement date, the supplement shall be
paid for the balance of such ten (10) year period to the
beneficiary designated in writing by him for the purpose or, in
the absence of such a designated beneficiary, to the estate of the
participant.
<PAGE>
<PAGE> 5
(e) Lump Sum Pension Plan Distribution. A participant who elects to
receive his benefits from the Pension Plan in a lump sum
distribution at his retirement date shall receive a supplement
hereunder based on the difference between (i) the Unrestricted
Pension Benefit, and (ii) the Restricted Benefit Amount, both
calculated on a life only annuity basis. In the event the lump
sum value of such difference payable on a monthly life only
annuity basis calculated using the Pension Plan factors is less
than $100,000, such amount shall be paid to the participant in a
lump sum with no survivor benefits. In the event the lump sum
value is $100,000 or more, the difference between (i) and (ii)
above shall be paid monthly to the participant for his lifetime.
If the participant predeceases the spouse to whom he was married
at his retirement date, if any, fifty percent (50%) of such
monthly supplement shall be paid monthly to his surviving spouse
during her lifetime. If both the participant and his spouse, if
applicable, die prior to the end of the ten (10) year period
commencing on his retirement date, fifty percent (50%) of such
supplement to the participant shall be paid for the balance of
such ten (10) year period to the beneficiary designated in writing
by him for that purpose or, in the absence of such a designated
beneficiary, to the estate of the last survivor of the participant
and his spouse as of his retirement date, if any.
6. Pension Plan Benefits-Other Participants
(a) Eligibility. All Program participants who are not eligible for
benefits under paragraph 5 shall be eligible under this paragraph
if they are vested under the Pension Plan with five (5) years of
vesting service.
(b) Definitions. For purposes of this paragraph, "Unrestricted
Pension Benefit" means the amount which would have been payable
from the Pension Plan if the (i) Compensation Limit and (ii)
Deferred Compensation Exclusion did not apply, calculated as of
the participant's date of retirement or pre-retirement death, as
applicable, based on the applicable optional payment method, but
subject to adjustment from time to time for applicable cost of
living increases. Notwithstanding the foregoing, for any Program
participant who is a corporate officer immediately prior to his
eligibility for normal or early retirement from the Employer under
the terms of the Pension Plan, the applicable limits shall also
include the (i) 415 Limit, (ii) Sta-Rite Exclusion and (iii) Bonus
Exclusion. "Restricted Benefit Amount" has the meaning provided
in subparagraph 5(b).
<PAGE>
<PAGE> 6
(c) Benefit. An eligible participant shall receive a monthly
supplement equal to the difference between (i) the Unrestricted
Pension Benefit and (ii) the Restricted Benefit Amount, both
calculated according to the form of payment elected for his
Pension Plan benefits. The supplement shall be paid for the
participant's lifetime, and in the event the participant's death
and payment election form cause a Pension Plan payment to a
beneficiary, a portion of the supplement shall be paid to such
beneficiary during the period of any related Pension Plan payment.
The portion of the supplement to be paid shall equal the portion
of the participant's Pension Plan benefit which is continued for
such beneficiary.
7. Pension Plan Benefits-Pre-Retirement Death
(a) Eligibility. In the event of the pre-retirement death of a
Program participant, the beneficiary or beneficiaries of any death
benefits under the Pension Plan shall be eligible for death
benefits under this paragraph.
(b) Definitions. For purposes of this paragraph, "Unrestricted
Pension Benefit" means the amount which would have been payable to
the beneficiary from the Pension Plan if the applicable limits did
not apply, calculated as of the participant's date of pre-
retirement death, based on the applicable optional payment method,
but subject to adjustment from time to time for applicable cost of
living increases. The applicable limits for the beneficiaries
shall be those applicable to the participant pursuant to paragraph
5(b) or 6(b). Notwithstanding the foregoing, for purposes of the
supplemental benefit related to the 20% and 5% benefits under
Section 6.07 of the Pension Plan, the Bonus Exclusion shall not be
an applicable limit.
8. Supplemental Retirement Benefits
Supplemental retirement benefits shall be available to an eligible
participant who is a corporate officer immediately prior to his normal or
early retirement from the Employer under the terms of the Pension Plan. The
eligible participants are Messrs. Schrader, Nuernberg, Osborne, and Zeddun.
The monthly supplement is equal to $2,083.33 ($25,000 annually) and shall
commence to the participant at the later of attainment of age sixty-five (65)
or retirement. Payments shall be made as of the first day of the month
commencing with the month following the qualifying event and shall continue
for one hundred eighty (180) months. If the participant dies (i) after
commencement of benefits but prior to the end of the fifteen (15) year period
or (ii) after retirement but prior to attainment of age sixty-five (65), the
supplement shall be paid for the balance of such period to the beneficiary
designated in writing by him for that purpose or, in the absence of such a
designated beneficiary, to the estate of the participant. Payments under (ii)
above shall commence as of the month following the participant's death and
shall continue for the fifteen (15) year period.
<PAGE>
<PAGE> 7
9. Administration of the Program
The Program shall be administered by the Wisconsin Gas Company Employee
Benefit Plan Committee (the "Committee"); provided that a participant in the
Program who is a Committee member may not participate in any Committee action
regarding his benefits hereunder. The Committee shall have all such powers
that may be necessary to carry out the provisions of the Program in the
absence of any action by the Board, including without limitation, the power to
delegate administrative matters to other persons, to construe and interpret
the Program, to adopt and revise rules, regulations and forms relating to and
consistent with the Program's terms and to make any other determinations which
it deems necessary or advisable for the implementation and administration of
the Program; provided, however, that the right and power to amend and/or
terminate the Program are reserved exclusively to the Board. Subject to the
foregoing, all decisions and determinations by the Committee shall be final,
binding and conclusive as to all parties, including without limitation the
Company, any participant hereunder and all other employees and persons.
10. Source of Benefit Payments
No funds or other assets of the Company shall be segregated and
attributable to any benefit payments to be made at a later time as hereinabove
provided, but rather benefit payments under the Program shall be made from the
general assets of the Company at the time any such payment becomes due and
payable. Benefit payments under the Program are to be taken as deductions for
income tax purposes in the Company's fiscal year that they are actually made.
At such time as any benefit payments are made, it shall be determined by the
Company whether any portion thereof is allocable to WICOR, Inc., or other
affiliates because of their recipient having also served as a corporate
officer of any or all of those corporations; and, if such is the case, the
Company shall obtain reimbursement from such entities, as appropriate, for
such allocable portion. No participant or surviving spouse or beneficiary
thereof shall have any proprietary rights of any nature whatsoever with
respect to any benefit payments, unless and until such time a benefit payment,
and then only as to the amount of such payment, is made to such participant or
the surviving spouse or beneficiaries thereof, as the case may be.
11. Non-Alienation of Payments
Any benefits payable under the Program shall not be subject in any
manner to alienation, sale, transfer, assignment, pledge, attachment,
garnishment or encumbrance of any kind, by will, or by inter vivos instrument.
Any attempt to alienate, sell, transfer, assign, pledge or otherwise encumber
any such benefit payment, whether currently or thereafter payable, shall not
be recognized by the Committee or the Company. Any benefit payment due
hereunder shall not in any manner be liable for or subject to the debts or
liabilities of any participant or the surviving spouse or beneficiary thereof,
as the case may be. If any such participant, surviving spouse or beneficiary
shall attempt to alienate, sell, transfer, assign, pledge or otherwise
encumber any benefit payments to be made to that person under the Program or
any part thereof, or if by reason of such person's bankruptcy or other event
happening at any time, such payments would devolve upon anyone else or would
not be enjoyed by such person, then the Committee, in its discretion, may
terminate such person's interest in any such benefit payment, and hold or
apply it to or for the benefit of that person, the spouse, children, or other
dependents thereof, or any of them, in such manner as the Committee may deem
proper
<PAGE>
<PAGE> 8
12. Incompetency
Every person receiving or claiming benefit payments under the Program
shall be conclusively presumed to be mentally competent until the date on
which the Committee receives a written notice, in a form and manner acceptable
to the Committee, that such person is incompetent and that a guardian,
conservator, or other person legally vested with the care of his estate has
been appointed. In the event a guardian or conservator of the estate of any
person receiving or claiming benefit payments under this Program shall be
appointed by a court of competent jurisdiction, payments may be made to such
guardian or conservator; provided that proper proof of appointment and
continuing qualification is furnished in a form and manner acceptable to the
Committee. Any such payment so made shall be a complete discharge of any
liability therefor.
13. Limitation of Rights against the Employer
Participation in this Program, or any modifications thereof, or the
payments of any benefits hereunder, shall not be construed as giving to any
participant any right to be retained in the service of the Employer, limiting
in any way the right of the Employer to terminate such participant's
employment at any time, evidencing any agreement or understanding express or
implied, that the Employer will employ such participant in any particular
position or at any particular rate of compensation and/or guaranteeing such
participant any right to receive any other form or amount of remuneration from
the Employer.
14. Construction
The Program shall be construed, administrated and governed in all
respects under and by the laws of the State of Wisconsin. Wherever any words
are used herein in the masculine, they shall be construed as though they were
used in the feminine for all cases where they would so apply; and wherever any
words are used herein in the singular or the plural, they shall be construed
as though they were used in the plural or the singular, as the case may be, in
all cases where they would so apply. The words "hereof", "herein",
"hereunder" and other similar compounds of the word "here" shall mean and
refer to this entire document and not to any particular paragraph.
15. Liability
Neither the Company nor any shareholder, director, officer or other
employee of the Company or any member of the Committee or any other person
shall be jointly or severally liable for any act or failure to act hereunder,
except for gross negligence or fraud
<PAGE>
<PAGE> 9
16. Amendment or Termination of the Program
The Company, by action of the Board, reserves the right to amend,
modify, terminate or discontinue the Program at any time; and such action
shall be final, binding and conclusive as to all parties, including any
participant hereunder, any surviving spouse or beneficiary thereof and all
other Employer employees and persons; provided, however, that any such Board
action to terminate or discontinue the Program or to change the monthly
payment amount or the time and manner of payment thereof as then provided in
the Program shall not be effective and operative unless and until written
consent thereto is obtained from each participant affected by such action or,
if any such participant is not then living, from the surviving spouse or
beneficiary thereof, as the case may be.
17. Successors or Assigns
The terms and conditions of the Program, as amended and in effect from
time to time, shall be binding upon the successors and assigns of the Company,
including without limitation any entity into which the Company may be merged
or with which the Company may be consolidated.
<PAGE>
<PAGE> 10
WISCONSIN GAS COMPANY
SUPPLEMENTAL RETIREMENT INCOME PROGRAM
Exhibit A
Salary Reduction Agreement
This Agreement is being made and entered into as of this ______ day of
______________, 19__, by and between Wisconsin Gas Company, a Wisconsin
corporation (the "Company") and _____________________________ (the
"Participant").
1. Effective with respect to salary earned on and after
_______________________ (a payroll period commencement date after the
execution of this Agreement), the Company and the Participant agree to defer
$_____________ per payroll period from the Participant's salary. Such
deferred amount shall be credited to the Reserve Account as a Pre-Tax Employee
Contribution as of the time the deferred amount would have been paid to the
Employee but for this Agreement.
2. Effective on and after _______________________ (a payroll
period commencement date after the execution of this Agreement), the
Participant directs the Company to deduct from the Participant's salary
$____________ per payroll period on an after-tax basis as a Post-Tax Employee
Contribution. Such deducted amount shall be credited to the Reserve Account
as of the time the deducted amount would have been paid to the participant but
for this Agreement.
3. On _____________________, the Participant shall give to the
Company in a lump sum $_______________ as a Post-Tax Employee Contribution.
Such amount shall be credited to the Reserve Account as of the first day of
the month following the date of receipt.
Any election under paragraphs 1 or 2 above may be changed on a
prospective basis by action of either the Company or the Participant.
WISCONSIN GAS COMPANY
By:
Participant
Instructions
This form is an optional election by corporate officers participating under
the Program. Company-paid benefits are provided under the Program whether or
not Pre-Tax Employee Contributions or Post-Tax Employee Contributions are
elected. An officer can elect any combination of 1, 2 or 3 (or none of them),
but the maximum amount of such contribution will be determined from time to
time by the Company.
<PAGE>
<PAGE> 11
* * * *
CERTIFICATION
The undersigned, as Administrator of the Wisconsin Gas Company
Supplemental Retirement Income Program, hereby certifies that the foregoing
document is a true and accurate copy of the restatement of said Plan as
amended effective January 1, 1997, by authorization of the Board of Directors
of Wisconsin Gas Company.
Dated this ______ day of _____________________, 1998.
WISCONSIN GAS COMPANY EMPLOYEE
BENEFIT PLANS COMMITTEE
<PAGE>
<PAGE> 1
EXHIBIT 10-11
Wisconsin Gas Company
1999 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%
Senior VP 0% 35% 76.125%
VP and Direct Reports 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 1999 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.
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 1999 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, 1999, 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, 1999.
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> 1
EXHIBIT 10-14
Sta-Rite Industries, Inc.
1999 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 9.3% 0%
Threshold 9.3% 1%
Target 10.9% 100%
Maximum or Above 14.2% 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 1999 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.
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 1999 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, 1999, 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, 1999.
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 1999 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.
<PAGE>
<PAGE> 1
MANAGEMENT'S DISCUSSION AND ANALYSIS
Forward-Looking Statements
- --------------------------
Certain matters discussed in this report are "forward-looking statements"
intended to qualify for the safe harbor from liability established by the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements generally can be identified as such because they include words
such as the Company "believes," "anticipates," "expects," or words of
similar import. Similarly, statements that describe the Company's future
plans, objectives or goals also are considered forward-looking. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from current expectations. These
factors include but are not limited to the risks and uncertainties listed
below. All of these factors are difficult to predict and generally beyond
management's control.
* the impact of warmer- or colder-than-normal weather on the
energy business
* the impact of cool or wet weather on the pump
manufacturing markets
* economic conditions, including the availability of individual
discretionary income and changes in interest rates and foreign
currency valuations
* changes in natural gas prices and supply availability
* increased competition in deregulated energy markets
* the pace and extent of energy industry deregulation
* regulatory, government and court decisions
* increases in costs to clean up environmental contamination
* the Company's ability to increase prices
* market demand for the Company's products and services
* unanticipated expenses or outcomes associated with year 2000
date conversion
General Overview
- ----------------
WICOR's 1998 financial results fell short of 1997's record performance as
net earnings decreased by 8% to $45.5 million. Diluted earnings per share
in 1998 decreased 9% to $1.21 compared to a record $1.33 per share in 1997.
Continued strength in and contributions from the Manufacturing Group
partially offset the impact of extremely unfavorable weather on Energy
Group earnings.
WICOR's 1997 financial results exceeded 1996's record performance as net
income rose by 6% to $49.5 million. Diluted earnings per share in 1997 rose
5% to $1.33 compared with 1996, as the Company's manufacturing business
posted significantly improved results.
<PAGE>
<PAGE> 2
Results of Operations
- ---------------------
Energy Group - 1998 Compared with 1997
- --------------------------------------
The Energy Group's primary business is the distribution of natural gas
through Wisconsin Gas Company (Wisconsin Gas), the oldest and largest
natural gas distribution utility in Wisconsin, which represented 89% of
Energy Group revenues in 1998. The Energy Group also includes WICOR Energy
Services (WESCO), an energy marketer, and FieldTech, a utility services
company.
Margin, defined as revenues less cost of gas sold, is a better comparative
performance indicator than revenues because the mix of utility volumes
between sales and transportation service affects revenues but not margin.
In addition, changes in the cost of gas sold to utility customers are
flowed through to revenue under a gas adjustment clause.
Energy Group net earnings declined by $7.8 million, or 26%, in 1998 as
compared with 1997. During 1998, heating degree days were 17% lower than
1997 and 16% lower than the 20-year average (as published by the United
States Weather Bureau). This decline in heating degree days negatively
impacted Wisconsin Gas margins from heating customers. The lower gas
margins were driven by unseasonably warm weather in the first quarter,
combined with extremely mild weather in November and early December. Net
earnings were positively affected by a gain from a weather insurance
agreement, revenues derived from the gas cost incentive mechanism (GCIM)
and gains realized on the sale of non-utility land.
<PAGE>
<PAGE> 3
The following tables set forth financial data for the Energy Group and
volume data for Wisconsin Gas for each of the years ended December 31.
<TABLE>
<CAPTION>
Energy Group
- ------------
MILLIONS OF DOLLARS 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues $ 459.0 $ 573.8 $ 588.3
Cost of gas sold 295.6 394.1 393.7
-------- -------- --------
Sales margin 163.4 179.7 194.6
Gas transportation margin 22.5 22.5 14.4
-------- -------- --------
Gross margin 185.9 202.2 209.0
Operation and maintenance 100.1 101.8 102.3
Depreciation and amortization 33.7 31.8 32.9
Taxes, other than income taxes 9.0 9.6 9.3
-------- -------- --------
Operating income 43.1 59.0 64.5
Interest expense 12.5 12.3 12.9
Other (income) expenses, net (3.6) (0.6) (0.7)
-------- -------- --------
Income before income taxes 34.2 47.3 52.3
Income taxes 12.5 17.8 20.2
-------- -------- --------
Net earnings $ 21.7 $ 29.5 $ 32.1
======== ======== ========
Wisconsin Gas Company
MILLIONS OF THERMS 1998 1997 1996
-------- -------- --------
Sales volumes
Firm 649.2 790.8 883.3
Interruptible 36.5 72.8 196.2
Transport volumes 460.2 428.8 275.8
-------- -------- --------
Total throughput 1,145.9 1,292.4 1,355.3
======== ======== ========
Heating degree days 5,865 7,094 7,458
======== ======== ========
</TABLE>
<PAGE>
<PAGE> 4
The decrease in firm sales volumes in 1998 was caused principally by the
extremely mild heating season, lower average use per customer and firm
customers switching from sales to transportation service. Transportation
volumes increased mainly because more customers purchased gas from sources
other than Wisconsin Gas and transported volumes through 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. During 1998, Wisconsin Gas realized $3.8 million of margin
under a gas cost incentive mechanism (GCIM). In August 1998, Wisconsin Gas
raised its rates $7.5 million on an annual basis. This rate increase is
expected to offset increased operating expenses.
Non-regulated energy operating revenues in 1998 decreased to $52.9 million
from $59.5 million in 1997. This decrease in non-regulated energy revenues
consisted largely of decreased gas sales volumes and lower prices. The
WESCO gas supply strategy is to match purchase commitments with customer
requirements so that the Company is not exposed to significant commodity
price risk.
Total operating and maintenance expenses of $100.1 million for 1998 were
$1.7 million lower than the prior year. The decrease resulted primarily
from lower labor and benefit expenses and weather related spending
reductions at Wisconsin Gas.
Depreciation and amortization expense for 1998 increased by $1.9 million,
or 6%, compared with 1997, due to additions to depreciable plant balances.
Depreciation expense in 1999 is expected to increase due to planned capital
investments.
Interest expense in 1998 increased $0.2 million compared to 1997. The
increase reflects slightly higher average borrowing levels offset partially
by lower interest rates.
Other income, net of expenses, increased by $3.0 million in 1998 compared
to 1997. Other income was positively impacted by a $1.2 million gain
relating to a weather insurance agreement and $1.2 million in gains
realized on the sale of non-utility property.
Income tax expense decreased $5.3 million in 1998 compared to 1997,
reflecting lower pre-tax income. The effective income tax rate remained
relatively unchanged between 1998 and 1997.
Energy Group - 1997 Compared with 1996
- --------------------------------------
Energy Group net earnings decreased by $2.6 million, or 8%, 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.
<PAGE>
<PAGE> 5
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 had 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) and 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.
Transportation volumes in 1997 increased mainly because more customers
purchased gas from sources other than Wisconsin Gas and transported that
volume through the Wisconsin Gas distribution system. Historically, the
movement to transportation from gas sales has had no impact on margin.
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 WESCO primarily as a result of
customer growth.
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 and the impact of a one-time $3.0 million amortization of the
uncollectible accounts receivable regulatory asset approved by the PSCW in
the fourth quarter of 1996. The decrease was partially offset by higher
costs associated with the increased operating activities of FieldTech and
increased levels of outside services.
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.
Interest expense in 1997 decreased $0.6 million, or 5%, compared with 1996.
This decrease resulted from lower average borrowing levels and slightly
lower interest rates.
Income tax expense decreased $2.4 million in 1997 compared to 1996,
reflecting lower pre-tax income. The effective income tax rate remained
relatively unchanged between 1997 and 1996.
<PAGE>
<PAGE> 6
Manufacturing Group - 1998 Compared with 1997
- ---------------------------------------------
The Manufacturing Group net sales increased 9% to a record $462.7 million
during 1998, outpacing sales of $424.8 million in 1997. In addition, net
earnings increased 18% to a record $23.8 million during the year.
Financial data regarding the Manufacturing Group is set forth in the table
below.
MILLIONS OF DOLLARS 1998 1997 1996
-------- -------- --------
Revenues $ 462.7 $ 424.8 $ 409.9
Cost of sales 329.2 307.2 297.1
-------- -------- --------
Gross profit 133.5 117.6 112.8
Operating expenses 92.0 82.6 86.6
Operating income 41.5 35.0 26.2
Interest expense 4.4 5.1 5.8
Other (income) expenses, net (0.3) (0.7) (0.7)
-------- -------- --------
Income before income taxes 37.4 30.6 21.1
Income taxes 13.6 10.5 6.5
-------- -------- --------
Net earnings $ 23.8 $ 20.1 $ 14.6
======== ======== ========
Domestic manufacturing sales in 1998 increased by 15% to $323.2 million as
compared with 1997. Overall shipments within the water systems, pool/spa,
filtration, industrial and the food and beverage markets in North America
were up from last year due mainly to customer growth and new product
introductions.
International sales of $139.5 million decreased by 3% compared to 1997.
International sales were negatively impacted by currency translation
related to the strengthening U.S. dollar and continued weakness in the
Asian economy. International sales accounted for 30% of total manufacturing
net sales in 1998.
Gross profit margins improved to 29% in 1998, as compared to 28% in the
previous year, due primarily to improved manufacturing productivity.
Operating expenses, as a percentage of sales, increased slightly compared
to 1997. Operating expenses in total increased by $9.4 million, or 11%, due
in part to the impact of higher support spending for acquisitions,
introductions of new products and customer development.
Interest expense in 1998 decreased $0.7 million, or 14%, compared to 1997.
The decrease reflects lower borrowing levels to fund working capital
requirements and lower interest rates.
Income tax expense increased $3.1 million in 1998 compared to 1997,
reflecting higher pre-tax income. The effective income tax rate remained
relatively unchanged between 1998 and 1997.
<PAGE>
<PAGE> 7
Manufacturing Group - 1997 Compared with 1996
- ---------------------------------------------
Net sales for 1997 rose 4% to a record $424.8 million as compared with
sales of $409.9 million in 1996. Net income for 1997 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.
Domestic manufacturing sales in 1997 increased by 4% to $281.0 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.
International sales accounted for 34% of total manufacturing net sales in
1997 and 1996.
In 1997, manufacturing operating income was $35.0 million compared with
$26.2 million in 1996. The increase in 1997 operating income is
attributable to increased sales, plant consolidations and cost-saving
programs, as well as continuing productivity improvements.
Operating expenses decreased by 5% in 1997 compared to the prior year due
to cost reduction programs and improved performance of the Australian
operations. As a percentage of sales, 1997 operating expenses were 19% of
sales compared to 21% in 1996.
The Company initiated efforts to reduce costs and improve productivity and
asset utilization by consolidating certain of its manufacturing operations.
These activities resulted in the 1997 closing of a plant located in
Waterford, Wisconsin, and the 1996 closing of a plant located in Detroit,
Michigan. As a result of these plant closings, the Company recorded an
after-tax charge of $0.7 million in 1996.
Interest expense in 1997 decreased $0.7 million, or 12%, compared to last
year. This decrease resulted from lower average borrowing levels and
slightly lower interest rates.
Income tax expense increased by $4.0 million in 1997, or 62%, compared to
1996 reflecting increased pre-tax income and a higher effective income tax
rate.
<PAGE>
<PAGE> 8
New Accounting Standards
- ------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities," effective in the first
quarter of 2000. SFAS 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The Company is
currently evaluating the impact of the provisions of SFAS 133 on its
financial statements and does not believe that SFAS 133 will materially
increase volatility in earnings and other comprehensive income.
The Company adopted the American Institute of Certified Public Accountants
Statement of Position No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," in 1998 which provides
guidance on accounting for the costs of computer software developed or
obtained for internal use. The after-tax impact of adopting this statement
on the Company's consolidated financial statements was less than $0.01 per
share.
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.
Wisconsin Gas rates are set under an alternative method of rate making (see
page 23 under "Regulatory Matters"). 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.
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 $109.5 million at the end of 1998
compared to $77.0 million and $83.4 million at the end of 1997 and 1996,
respectively. The Company's current ratio at December 31 was 1.4, 1.2 and
1.3 in 1998, 1997 and 1996, respectively.
<PAGE>
<PAGE> 9
Because of timing differences in the receipt and disbursement of cash and
the level of construction requirements, the Energy Group borrows on a
short-term basis. As customers 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.
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 and scheduled debt
retirement.
Investment Activities
- ---------------------
Consolidated capital expenditures in 1998 decreased slightly to $49.3
million. Consolidated capital expenditures are expected to increase
modestly in 1999 due to water utility expenditures, and are expected to be
funded from operations. Capital expenditures of $51.6 million in 1997
remained relatively flat compared to the prior year.
In May 1998, the PSCW approved an increase in the amount the Company may
invest in nonutility businesses. The new investment limitation permits
nonutility investments to constitute up to 60% of the Company's total
capitalization. Under these new restrictions, the amount available to WICOR
for future nonutility investment at December 31, 1998 is $351.7 million.
(See Note 7 of Notes to Consolidated Financial Statements.)
Financing Activities
- --------------------
In November 1998, Wisconsin Gas used its existing lines of credit to issue
commercial paper, the proceeds of which were used to redeem, at par, $40
million of 7.5% Notes due in 1998. In January 1999, Wisconsin Gas issued
$50 million of 5.5% Notes due in 2009, to replace the commercial paper.
The Company's ratio of long-term debt to capitalization was 32% in 1998 as
compared to 28% in 1997 and 32% in 1996. The utility's embedded cost of
long-term debt was 6.9%, 7.1% and 7.0% for the years ended December 31,
1998, 1997 and 1996, respectively.
WICOR raised its common stock dividend by 2.3% in 1998 and by 2.4% in both
1997 and 1996. The current annual dividend rate is $0.88 per share. At
December 31, 1998, the Company had $136.8 million of unrestricted retained
earnings available for dividend payments to shareholders.
The Board of Directors approved a two-for-one stock split of the Company's
common stock to make the stock more accessible to the individual investor
(See Note 9 of Notes to the Consolidated Financial Statements). The stock
split was effective in May 1998.
<PAGE>
<PAGE> 10
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 3.8
in 1998 from 4.5 in 1997, as a result of lower earnings, the effects of
which were offset in part by fixed charges that were 2% lower in 1998 than
in 1997.
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 upgrading 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.
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 facility with several banks which expires August 6, 2002.
Financial covenants under these facilities include leverage and interest
coverage ratios. In addition, the Company arranges domestic seasonal lines
of credit to support its commercial paper borrowing program. The Company
also has arranged lines of credit from foreign lenders which allow it to
borrow in the applicable local currency. These lines of credit total $36.6
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 was in compliance with all financial covenants at December 31,
1998. 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, 1998 and 1997 was $158.7 million
and $125.2 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.
<PAGE>
<PAGE> 11
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 through the year 2000.
Presumably, the PSCW will use the work group reports as the basis for
recommendations to the state legislature. The impact of these proceedings
on Wisconsin Gas's future operations is uncertain at this time.
On November 1, 1996, with PSCW approval, Wisconsin Gas began a one-year
pilot supplier choice program for firm gas customers located in a small
geographic area of the Company's service territory. The program was
modified and extended for the 1997-98 and 1998-99 program years. The
Company has filed with the PSCW to further modify and extend the program
for the 1999-2000 program year, and expects to continue the program from
year to year until it is superseded by a generic PSCW order or state
legislative mandate. The pilot program was designed to test market
acceptance of supplier choice, the interest of third-party marketers in
serving firm markets, including residential, and Wisconsin Gas's
capabilities to administer transportation-only services. WICOR Energy
Services is one of the gas suppliers participating in the pilot program.
It is unclear how long it will take for customer choice to become available
in Wisconsin, and it is unknown what the impacts of customer choice may be
on the Company.
Wisconsin Gas rates are set within the framework of the Productivity-based
Alternative Ratemaking Mechanism (PARM), which was established in 1994 and
has been extended through October 31, 2001. Under PARM, Wisconsin Gas has
the ability to raise or lower margin rates within a specified range on a
quarterly basis. The PARM order also specifies margin rate floors for each
rate class. In 1997, 1996 and 1995, Wisconsin Gas reduced its base rates by
$1.5 million, $3.0 million and $4.5 million on an annualized basis,
respectively. Effective August 1, 1998, Wisconsin Gas increased its base
rates by $7.5 million on an annualized basis. With this increase, Wisconsin
Gas's rates recover $1.5 million per year less than the maximum amount
allowed by the PSCW's rate order. The rate increase is expected to offset
increased operating costs. The PARM has certain criteria that allow it to
be reopened at any time 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.
<PAGE>
<PAGE> 12
The PSCW approved a gas cost incentive mechanism (GCIM) which became
effective on November 1, 1997, for each of the three years ending October
31, 1998, 1999 and 2000. Under the GCIM, Wisconsin Gas's gas commodity and
capacity costs are compared to monthly benchmarks. If, at the end of each
GCIM year, such costs deviate by more than 1.5% 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 1.5% and 4%
above or below the benchmark. The new GCIM provides an opportunity for
Wisconsin Gas's earnings to increase or decrease as a result of gas and
capacity acquisition activities.
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 71 continues to be
applicable to Wisconsin Gas in that its rates are approved by a third party
regulator and are designed to recover its cost of service. Wisconsin Gas
believes its current cost-based rates are competitive in the open market.
Pipeline companies have been allowed to pass through to local gas
distributors various costs incurred in the transition to FERC Order No.
636. The PSCW has authorized 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 identified two previously owned manufactured gas plant
sites where it is responsible for environmental remediation. Wisconsin Gas
started remediation at one site in the first quarter of 1998 and the work
should be completed during 1999. Wisconsin Gas is currently evaluating
potential remedial options at the second site. 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.
<PAGE>
<PAGE> 13
Year 2000 Date Conversion
- -------------------------
Issues relating to Year 2000 conversion are the result of computer software
programs being written using two digits rather than four to define the
applicable year. Any of the Company's software programs, computer hardware
or equipment that have date sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, distribute natural gas,
manufacture products or engage in other normal business activities.
The Company has developed a formal plan to ensure that its significant
date-sensitive computer software and hardware systems (Information
Technology) and other equipment utilized in its various activities
(Operating Equipment) will be Year 2000 compliant and operational on a
timely basis. The plan addresses all of the Company's locations throughout
the world, and includes a review of computer applications that connect
elements of the Company's business directly to its customers and suppliers.
The plan also includes an assessment process to determine if the Company's
significant customers and suppliers will be Year 2000 compliant.
The Company's plan to resolve issues relating to Year 2000 conversion
includes four major phases - assessment, remediation, testing, and
implementation. To assist the Company in reaching Year 2000 compliance, the
Company has retained third party consultants. The Company has substantially
completed the assessment phase of its plan for all of its significant
Information Technology and Operating Equipment that it believes could be
affected by the Year 2000 conversion. Based upon its assessment, the
Company concluded that it would be necessary to reprogram and/or replace
certain of its Information Technology. The Company also determined that
certain of its Operating Equipment would also require modification to
ensure it remains operational.
For its Information Technology applications as of December 31, 1998, the
Company believes it is approximately 72% compliant on all of its
significant systems, and estimates that it will complete software
reprogramming and/or replacement in the second quarter of 1999. The Company
believes that the Operating Equipment at December 31, 1998 is approximately
64% compliant, and the Company is targeting completion during the second
quarter of 1999.
With respect to operations that involve third parties, the Company has made
inquiries of its significant customers and suppliers and, at the present
time and based on such inquiries, is not aware of Year 2000 issues facing
these third parties that would materially impact the Company's operations.
However, the Company has no means of ensuring that these customers and
suppliers (and, in turn, their customers and suppliers) will be Year 2000
compliant in a timely manner. The inability of these parties to
successfully resolve their Year 2000 issues could have a material adverse
effect on the Company.
<PAGE>
<PAGE> 14
Despite the efforts that the Company has undertaken, there can be no
assurances that every Year 2000 related issue will be identified and
addressed before January 1, 2000. An unexpected failure as a result of a
Year 2000 compliance issue could result in an interruption in certain
normal business activities or operations. For that reason, the Company is
currently developing contingency plans to address alternatives in the event
certain Year 2000 compliance failures occur.
Through December 31, 1998, the Company had spent approximately $3.9 million
for Year 2000 remediation. The amount of additional development and
remediation costs necessary for the Company to prepare for Year 2000 is
estimated to be approximately $0.9 million and is expected to be funded
through operating cash flow.
The estimated costs of, and timetable for, becoming Year 2000 compliant
constitute "forward looking statements" as defined in the Private
Securities Litigation Reform Act of 1995.
Annual Degree Days Bar Chart
% COLDER (WARMER) THAN 20-YEAR AVERAGE
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(16.4) 1.0 6.8 (2.8) (9.0)
International Revenues Bar Chart
$ IN MILLIONS
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
$ 139.5 $ 143.8 $ 140.9 $ 130.2 $ 114.2
WICOR Operating Income Bar Chart
$ IN MILLIONS
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Energy $ 43.1 $ 59.0 $ 64.5 $ 58.8 $ 44.4
Manufacturing 41.5 35.0 26.2 20.3 22.2
-------- -------- -------- -------- --------
Total $ 84.6 $ 94.0 $ 90.7 $ 79.1 $ 66.6
======== ======== ======== ======== ========
WICOR Return on Average Common Equity Bar Chart
AS A PERCENTAGE
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
11.3 13.0 12.9 13.1 11.6
<PAGE>
<PAGE> 15
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, 1998 and 1997, and the related consolidated statements
of earnings, common equity and cash flows for each of the three years in
the period ended December 31, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Milwaukee, Wisconsin,
January 25, 1999.
<PAGE>
<PAGE> 16
WICOR, INC.
CONSOLIDATED STATEMENT OF EARNINGS
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Operating Revenues
Energy $ 481,489 $ 596,262 $ 602,685
Manufacturing 462,694 424,779 409,916
------------ ------------ ------------
944,183 1,021,041 1,012,601
------------ ------------ ------------
Operating Costs and Expenses
Cost of gas sold 295,601 394,101 393,681
Manufacturing cost of sales 329,248 307,160 297,053
Operations and maintenance 190,674 182,976 187,557
Depreciation and amortization 35,038 33,173 34,355
Taxes, other than income taxes 9,039 9,602 9,244
------------ ------------ ------------
859,600 927,012 921,890
------------ ------------ ------------
Operating Income 84,583 94,029 90,711
Interest expense (16,746) (17,404) (18,349)
Other income, net 3,706 1,222 1,114
------------ ------------ ------------
Income before income taxes 71,543 77,847 73,476
Income tax provision 26,048 28,324 26,705
------------ ------------ ------------
Net earnings $ 45,495 $ 49,523 $ 46,771
============ ============ ============
Per Share of Common Stock*
Basic earnings $ 1.22 $ 1.34 $ 1.27
Diluted earnings $ 1.21 $ 1.33 $ 1.27
Cash dividends paid $ 0.87 $ 0.85 $ 0.83
Average common shares outstanding 37,311 36,950 36,730
Average diluted shares outstanding 37,608 37,239 36,955
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 17
WICOR, INC.
CONSOLIDATED STATEMENT OF EARNINGS
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
QUARTERLY FINANCIAL DATA (UNAUDITED)
Because seasonal factors significantly affect the Company's operations
(particularly at Wisconsin Gas), the following data may not be comparable
between quarters:
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
QUARTERS:
------------------------------------------------
First Second Third Fourth
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
1998
- ----
Operating revenues $ 303,327 $ 219,879 $ 172,746 $ 248,231
Operating income $ 42,985 $ 13,904 $ 797 $ 26,897
Earnings available for
common stock $ 24,963 $ 6,024 $ (1,211) $ 15,719
Basic earnings (loss) per
common share* $ 0.67 $ 0.16 $ (0.03) $ 0.42
Diluted earnings (loss)
per common share* $ 0.66 $ 0.16 $ (0.03) $ 0.42
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* $ 0.76 $ 0.17 $ (0.06) $ 0.47
Diluted earnings (loss)
per common share* $ 0.75 $ 0.17 $ (0.06) $ 0.46
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.
*Adjusted for a two-for-one stock split in May 1998
</TABLE>
<PAGE>
<PAGE> 18
WICOR, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
THOUSANDS OF DOLLARS 1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 13,383 $ 11,810
Accounts receivable, less allowance for doubtful
accounts of $12,511 and $15,364, respectively 137,321 164,243
Accrued revenues 47,483 44,842
Manufacturing inventories 86,312 83,431
Gas in storage 36,919 41,887
Deferred income taxes 17,195 21,531
Prepayments and other 15,542 16,924
------------ ------------
354,155 384,668
------------ ------------
Property, Plant and Equipment, at cost:
Energy 829,286 801,523
Manufacturing 153,381 141,610
------------ ------------
982,667 943,133
Less accumulated depreciation and amortization 535,002 497,239
------------ ------------
447,665 445,894
------------ ------------
Deferred Charges and Other:
Regulatory assets 59,319 53,910
Goodwill 67,552 65,953
Prepaid pension costs 50,011 42,753
Other 36,494 38,154
------------ ------------
213,376 200,770
------------ ------------
$ 1,015,196 $ 1,031,332
============ ============
</TABLE>
<PAGE>
<PAGE> 19
WICOR, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
THOUSANDS OF DOLLARS 1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND CAPITALIZATION
Current Liabilities:
Short-term borrowings $ 107,653 $ 118,900
Current portion of long-term debt 3,528 43,926
Accounts payable 70,000 75,034
Refundable gas costs 18,570 24,776
Accrued payroll and benefits 20,490 18,599
Accrued taxes 7,885 9,684
Other 16,526 16,757
------------ ------------
244,652 307,676
------------ ------------
Deferred Credits and Other Liabilities:
Postretirement benefit obligation 60,627 64,323
Regulatory liabilities 32,153 36,533
Deferred income taxes 49,065 43,975
Accrued environmental remediation costs 11,215 14,300
Unamortized investment tax credit 6,357 6,808
Other 19,217 18,987
------------ ------------
178,634 184,926
------------ ------------
Commitments and Contingencies (Note 8)
Capitalization (See accompanying statement):
Long-term debt 188,470 149,110
Redeemable preferred stock - -
Common equity 403,440 389,620
------------ ------------
591,910 538,730
------------ ------------
$ 1,015,196 $ 1,031,332
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 20
WICOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
THOUSANDS OF DOLLARS ----------------------------------
1998 1997 1996
Operations: ---------- ---------- ----------
<S> <C> <C> <C>
Net earnings $ 45,495 $ 49,523 $ 46,771
Adjustments to reconcile net earnings to
net cash flow from operating activities:
Depreciation and amortization 54,531 53,740 54,871
Deferred income taxes 9,425 4,530 (1,103)
Net pension/postretirement benefit/(income) (6,955) (1,725) 3,133
Changes in:
Accounts receivable 14,292 2,046 (28,641)
Manufacturing inventories (2,881) (7,463) (3,590)
Gas in storage 4,968 (8,424) (9,512)
Other current assets 623 (464) (1,167)
Accounts payable (5,033) (25,975) 32,520
Refundable gas costs (6,206) (6,769) (2,802)
Accrued taxes (1,039) 8,561 (6,028)
Other current liabilities 2,745 (1,502) 4,225
Other noncurrent assets/liabilities (12,965) (16,754) (13,261)
---------- ---------- ----------
Cash provided by operating activities 97,000 49,324 75,416
Investment Activities: ---------- ---------- ----------
Capital expenditures (49,279) (51,572) (51,744)
Proceeds from sale of assets 1,762 3,362 1,249
Acquisitions (7,288) (2,065) 22
Other, net 301 293 285
---------- ---------- ----------
Cash used in investing activities (54,504) (49,982) (50,188)
Financing Activities: ---------- ---------- ----------
Change in short-term borrowings (14,284) 6,115 (969)
Issuance of long-term debt 52,828 27,000 10,045
Reduction of long-term debt (50,368) (11,157) (9,194)
Issuance of common stock 2,878 2,684 3,345
Dividends paid on common stock (32,461) (31,397) (30,485)
Other 484 439 434
---------- ---------- ----------
Cash used in financing activities (40,923) (6,316) (26,824)
---------- ---------- ----------
Change in Cash and Cash Equivalents 1,573 (6,974) (1,596)
Cash and cash equivalents at beginning of year 11,810 18,784 20,380
---------- ---------- ----------
Cash and Cash Equivalents at End of Year $ 13,383 $ 11,810 $ 18,784
========== ========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Income taxes, net of refunds $ 17,847 $ 17,315 $ 34,669
Interest $ 16,590 $ 16,352 $ 16,824
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 21
WICOR, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Long-Term Debt
Wisconsin Gas:
Commercial paper (See Note 6 of Notes to the
Consolidated Financial Statements) $ 50,000 $ -
6.6% Notes due 2013 45,000 45,000
6.375% Notes due 2005 65,000 65,000
First mortgage bonds
Adjustable rate series, 7.2% and 8.1%,
respectively, due 1999 - 2,000
WICOR Industries, Inc.:
Commercial paper under multi-
year credit agreements 17,000 27,000
Securities loan agreement, 11.75% due semi-
annually through 2000 (includes unamortized
bond premium of $550 and $814, respectively) 6,486 6,750
First mortgage notes, adjustable rate, 4.6%
to 6.5%, due semi-annually through 2000 3,043 266
Industrial revenue bonds, 7.84%,
payable through 2000 295 830
Unamortized (discount), net (1,161) (1,343)
ESOP loan guarantee 2,807 3,607
---------- ----------
188,470 149,110
---------- ----------
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
120,000,000 shares; outstanding 37,359,000
and 18,601,000 shares, respectively 37,359 18,601
Other paid-in capital 216,821 232,702
Retained earnings 160,937 147,903
Accumulated other comprehensive income (7,905) (5,377)
Unearned comp. - ESOP and restricted stock (3,772) (4,209)
---------- ----------
403,440 389,620
---------- ----------
Total Capitalization $ 591,910 $ 538,730
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 22
WICOR, INC.
CONSOLIDATED STATEMENTS OF COMMON EQUITY
<TABLE>
<CAPTION>
Unearned
Accumulated Compensation
Other Other ESOP and
Common Paid-in Retained Comprehensive Restricted
THOUSANDS OF DOLLARS Stock Capital Earnings Income Stock
--------- --------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1995 $ 18,237 $219,133 $ 113,491 $ (1,593) $ (5,595)
Net earnings - - 46,771 - -
Other comprehensive income:
Foreign currency translation - - - 1,474 -
Minimum pension liability - - - (485) -
--------- --------- ---------- ------------- ------------
Comprehensive income - - 46,771 989 -
--------- --------- ---------- ------------- ------------
Issued in connection with
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:
Foreign currency translation - - - (4,375) -
Minimum pension liability - - - (398) -
--------- --------- ---------- ------------- ------------
Comprehensive income - - 49,523 (4,773) -
--------- --------- ---------- ------------- ------------
Issued in connection with
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>
<PAGE>
<PAGE> 23
WICOR, INC.
CONSOLIDATED STATEMENTS OF COMMON EQUITY
<TABLE>
<CAPTION>
Unearned
Accumulated Compensation
Other Other ESOP and
Common Paid-in Retained Comprehensive Restricted
THOUSANDS OF DOLLARS Stock Capital Earnings Income Stock
--------- --------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1997 $ 18,601 $232,702 $ 147,903 $ (5,377) $ (4,209)
Net earnings - - 45,495 - -
Other comprehensive income:
Foreign currency translation - - - (1,405) -
Minimum pension liability - - - (1,123) -
--------- --------- ---------- ------------- ------------
Comprehensive income - - 45,495 (2,528) -
--------- --------- ---------- ------------- ------------
Issued in connection with
employee benefit plans/other 96 2,781 - - -
Two-for-one common stock split 18,662 (18,662) - - -
Dividends on common stock - - (32,461) - -
ESOP loan payments - - - - 800
Issuance of restricted stock - - - - (884)
Amortization and forfeiture of
restricted stock - - - - 521
--------- --------- ---------- ------------- ------------
Balance December 31, 1998 $ 37,359 $216,821 $ 160,937 $ (7,905) $ (3,772)
========= ========= ========== ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE> 24
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, WICOR Energy Services Company (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 Public Service Commission of
Wisconsin (PSCW) and gives recognition to ratemaking policies substantially
in accordance with the FERC System of Accounts. At December 31, 1998,
Wisconsin Gas served approximately 529,000 customers in 524 communities.
The Energy Group accounted for 51% of the Company's 1998 operating revenues
and operating income. 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 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.
A GCIM approved by the PSCW in October 1997 became effective on November 1,
1997, for each of the three years ending October 31, 1998, 1999 and 2000.
Under the GCIM, Wisconsin Gas's gas commodity and capacity costs are
compared to monthly benchmarks. If, at the end of each GCIM year, such
costs deviate by more than 1.5% 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 1.5% and 4% above or below
the benchmark. The GCIM provides an opportunity for Wisconsin Gas's
earnings to increase or decrease as a result of gas and capacity
acquisition activities. Reduced gas costs during the first year under the
GCIM have been shared between the Company and its customers.
<PAGE>
<PAGE> 25
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 amortized to income over the
applicable service lives of the related properties consistent with
regulatory treatment.
E Earnings per common share Effective December 31, 1997, SFAS 128
"Earnings per Share" requires a dual presentation of earnings per share -
basic and diluted. Basic earnings per common share has been computed by
dividing net earnings by the weighted average number of common shares
outstanding. Diluted earnings per share has been computed by dividing net
earnings by the weighted average number of common shares outstanding,
including the dilutive effects of stock options.
F Inventories
ENERGY - Substantially all gas in storage inventory is priced using the
weighted average method of accounting.
MANUFACTURING - Approximately 61% and 57% of manufacturing inventories, in
1998 and 1997, 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 $7.7 million
and $7.9 million higher at December 31, 1998 and 1997, 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 4.4%, 4.3% and 4.5% for 1998, 1997 and
1996, 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.
<PAGE>
<PAGE> 26
H Regulatory accounting Wisconsin Gas accounts for its regulated
operations in accordance with SFAS 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).
The amounts recorded as regulatory assets and regulatory liabilities in the
Consolidated Balance Sheet at December 31 are as follows:
THOUSANDS OF DOLLARS 1998 1997
---------- ----------
Regulatory assets:
Postretirement benefit costs (Note 10) $ 36,720 $ 39,498
Deferred uncollectible expenses 19,960 11,056
Income tax-related amounts due from customers 2,295 2,648
Other 344 708
---------- ----------
$ 59,319 $ 53,910
========== ==========
Regulatory liabilities:
Income tax-related amounts due to customers $ 18,058 $ 19,725
Unrecognized pension income (Note 10) 10,929 13,780
Other 3,166 3,028
---------- ----------
$ 32,153 $ 36,533
========== ==========
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 and
recovered in future rates.
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 in
the open market for shareholders who elected to reinvest their dividends in
common stock.
<PAGE>
<PAGE> 27
J Derivative financial instruments The Company uses derivative financial
instruments to manage commodity risks associated with the price of natural
gas and to manage foreign exchange risks. The Company's policy prohibits
the use of derivative financial instruments for trading purposes.
Wisconsin Gas has a commodity risk management program that has been
approved by the PSCW. This program allows Wisconsin Gas to utilize call and
put option contracts to reduce market risk associated with fluctuations in
the price of natural gas purchases and gas in storage. Under this program,
Wisconsin Gas has the ability to hedge up to 50% of its planned gas
deliveries for the heating season. The PSCW has also allowed Wisconsin Gas
to hedge gas purchased for storage during non-heating months. The cost of
the call and put option contracts, as well as gains or losses realized
under the contracts do not affect net income as they are recovered dollar
for dollar under the purchased gas adjustment clause. As of December 31,
1998, Wisconsin Gas had put options covering approximately 33% of the
volumes of gas in storage, and call options covering 15% of the expected
natural gas purchases for the remainder of the 1998-1999 heating season.
WESCO utilizes gas futures contracts to manage commodity price risk
associated with firm customer sales commitments. Unrealized gains or losses
on these instruments are deferred and recognized in earnings in the period
the sales occurs. As of December 31, 1998, WESCO had natural gas futures
contracts with a notional value of $6.6 million. Substantially all of the
futures contracts expire in 1999.
Certain manufacturing subsidiaries use foreign exchange futures and forward
contracts 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 transaction. These contracts were
not material.
During 1998 and 1997, WICOR entered into weather insurance agreements to
hedge a portion of the impact weather has on Energy Group earnings. Under
the agreements, a payment will be made or received if the heating degree
days during the heating season fall outside a specific range. The payment
is limited to a maximum of $2.0 million per year. At December 31, 1998, the
fair value of the agreement entered into for the 1998-1999 heating season
was not significant. During 1998, the Company recorded income of $1.2
million in connection with the agreement entered into for the 1997-1998
heating season.
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.
<PAGE>
<PAGE> 28
Note 2 New Accounting Standards
- ----------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities," effective in the first
quarter of 2000. SFAS 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The Company is
currently evaluating the impact of the provisions of SFAS 133 on its
financial statements. The Company does not believe that SFAS 133 will
materially increase volatility in earnings and other comprehensive income.
During 1998, the Company adopted Statement of Position No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which provides guidance on accounting for the costs of
computer software developed or obtained for internal use. The impact of
adopting this statement on the Company's consolidated financial statements
was immaterial.
Note 3 Mergers and Acquisitions
- ----------------------------------
During 1998, WICOR and its subsidiaries acquired a small municipal water
utility, made an additional equity investment in an Italian subsidiary and
entered into a joint venture arrangement with an existing Chinese pump
manufacturer. Total funds invested as a result of these activities amounted
to $7.3 million during 1998.
During 1997, WICOR and its subsidiaries completed four acquisitions. The
aggregate purchase price was approximately $10 million and was financed
using cash and by issuing 255,676 shares of the Company's common stock.
Three of the acquisitions were pump, fluid processing and filtration
equipment companies. The fourth acquisition was a utility 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 has
been recorded as goodwill and is being amortized over 40 years.
<PAGE>
<PAGE> 29
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>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
THOUSANDS OF DOLLARS 1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S. tax rates $ 25,064 35.0% $ 27,327 35.0% $ 25,717 35.0%
State income taxes, net 3,151 4.4 3,383 4.3 3,818 5.2
Other, net (2,167) (3.0) (2,386) (3.0) (2,830) (3.9)
---------------- ---------------- ----------------
Effective Tax Rates $ 26,048 36.4% $ 28,324 36.3% $ 26,705 36.3%
================ ================ ================
</TABLE>
The current and deferred components of income tax expense (benefit) for
each of the years ended December 31 are as follows:
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ 15,960 $ 19,229 $ 23,479
State 3,640 4,146 6,022
Foreign 1,432 808 752
---------- ---------- ----------
Total Current 21,032 24,183 30,253
---------- ---------- ----------
Deferred:
Federal 3,698 1,836 (2,610)
State 1,262 926 (264)
Foreign 56 1,379 (674)
---------- ---------- ----------
Total Deferred 5,016 4,141 (3,548)
---------- ---------- ----------
Total Provision $ 26,048 $ 28,324 $ 26,705
========== ========== ==========
</TABLE>
<PAGE>
<PAGE> 30
The components of deferred income tax classified as current assets and
long-term liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS 1998 1997
---------- ----------
<S> <C> <C>
Current deferred income tax assets:
Recoverable gas costs $ 7,176 $ 9,712
Deferred compensation 3,246 3,407
Inventory 2,398 2,421
Product related/warranty 1,123 1,254
Other 3,252 4,737
---------- ----------
$ 17,195 $ 21,531
========== ==========
Long-term deferred income tax liabilities:
Property related $ 49,427 $ 48,905
Systems development costs 5,178 6,993
Investment tax credit (4,205) (4,503)
Postretirement benefits (8,064) (9,217)
Deferred compensation (4,019) (4,042)
Pension benefits 14,798 11,033
Environmental (3,180) (4,819)
Other (870) (375)
---------- ----------
$ 49,065 $ 43,975
========== ==========
</TABLE>
Note 5 Short-term Borrowings and Lines of Credit
- ---------------------------------------------------
As of December 31, 1998 and 1997, the Company had total unsecured lines of
credit available from banks of $266.6 million and $240.0 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 1997, the Company, and certain subsidiaries, renegotiated their
existing revolving credit facilities. Financial covenants under the
Company's five-year $115 million credit facilities, which expire in August,
2002, include leverage and interest coverage ratios.
<PAGE>
<PAGE> 31
The components of short-term borrowings at December 31 are as follows:
THOUSANDS OF DOLLARS 1998 1997
---------- ----------
Notes payable to banks
Non-U.S. subsidiaries $ 15,976 $ 20,668
Commercial paper - U.S. 91,677 98,232
---------- ----------
$ 107,653 $ 118,900
========== ==========
Weighted average interest rates on debt outstanding at end of year:
THOUSANDS OF DOLLARS 1998 1997
---------- ----------
Notes payable to banks
Non-U.S. subsidiaries 4.6% 5.8%
Commercial paper - U.S. 5.7% 5.8%
Highest month-end balance $ 107,653 $ 118,900
Average month-end balance $ 63,480 $ 79,701
Note 6 Long-term Debt
- ------------------------
In January 1999, Wisconsin Gas issued $50 million of 5.5% Unsecured Notes
due 2009. The proceeds of this offering were used in part to reduce
commercial paper issued in November 1998, in connection with the maturity
of $40 million of 7.5% Notes.
Maturities and sinking fund requirements during the succeeding five years
on all long-term debt total $3.5 million, $7.6 million, $1.2 million, $18.6
million and $0.4 million in 1999, 2000, 2001, 2002 and 2003.
Note 7 Restrictions
- ----------------------
On May 7, 1998, the PSCW approved an increase in the amount the Company
may invest in nonutility businesses. The new investment limitation permits
nonutility investments to constitute up to 60% of the Company's total
capitalization. The PSCW also found that the utility does not have to be
WICOR's predominant business. The PSCW conditioned the change on the
utility maintaining at least a single A bond rating and its continued
compliance with the customer service and safety standards included in the
PARM order. Failure to comply with these conditions could trigger a
reopening of the investment limitation. Under the new investment
limitation, the amount available for future nonutility investments at
December 31, 1998, was $351.7 million.
<PAGE>
<PAGE> 32
The PSCW has established a 13-month average equity ratio 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 the
Company if the payment would reduce its common equity (net assets) below
43% of total capitalization (including short-term debt). Under this
requirement, $41.4 million of Wisconsin Gas's net assets at December 31,
1998, 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 $6.0 million in dividends
in November 1998 and expects to pay $25.5 million in dividends for the 12
months ending October 1999. At December 31, 1998, Wisconsin Gas's equity
ratio was 53.2%.
Combined restricted common equity of the Company's subsidiaries totaled
$266.7 million under the most restrictive provisions as of December 31,
1998; accordingly, $136.8 million of consolidated retained earnings is
available for payment of dividends.
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 $505.9
million, with annual required payments of $105.5 million in 1999, $97.5
million in 2000, $95.6 million in 2001, $93.5 million in 2002 and $74.9
million in 2003. Wisconsin Gas's total payments for firm pipeline and
storage capacity prior to recovery from sales of excess capacity were
$113.9 million in 1998, $126.6 million in 1997 and $129.6 million in 1996.
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.
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 1999 capital expenditures. The Energy Group's capital expenditures for
1999 are estimated at $45.3 million. The Manufacturing Group's capital
expenditures for 1999 are estimated at $18.7 million.
<PAGE>
<PAGE> 33
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. During 1997, Wisconsin Gas
completed a comprehensive review of its potential environmental accrual
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 all resulted in a reduction
of the estimated probable liability for cleanup to $7.9 million.
Expenditures over the next three years are expected to total approximately
$5 million.
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 1998 and will continue through 1999.
Wisconsin Gas is evaluating potential remedial options at the second site.
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.
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.
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.
<PAGE>
<PAGE> 34
The Company periodically reviews its accrued liabilities for such
remediation costs as evidence becomes available indicating that its
remediation liability has changed. Based on the foregoing and given current
information, management believes that future costs in excess of the amounts
accrued on all presently known and quantifiable environmental contingencies
will not be material to the Company's financial position or results of
operations.
D Other The Company is party to various legal proceedings arising in the
ordinary course of business which are not expected to have a material
effect on the Company's financial position or results of operations.
Note 9 Common Stock and Other Paid-in Capital
- ------------------------------------------------
In April 1998, the Company's Board of Directors approved a two-for-one
split of the Company's common stock to be effected by the distribution of
one share for each share outstanding. Such distribution was made on May 29,
1998, to shareholders of record as of the close of business on May 14,
1998. The par value of the additional shares of common stock issued ($1 per
share) in connection with the stock split has been credited to common stock
and a like amount charged to other paid-in capital. Per share amounts
throughout the financial statements and footnotes have been restated.
In connection with stock split, the Company increased its authorized shares
of common stock from 60,000,000 to 120,000,000 of which 37,359,413 shares
and 37,201,264 shares were outstanding at December 31, 1998 and 1997,
respectively. Common stock totaling 8,273,295 shares is reserved for
issuance under the Company's dividend reinvestment, stock option and
incentive savings plans. In addition 45,661,308 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 $37.50, 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> 35
Note 10 Benefit Plans
- ------------------------
A Pension and other postretirement benefit plans The Company provides
defined benefit pension and postretirement benefit plans to employees.
Effective January 1, 1998, the Company adopted SFAS 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." The
following provides a reconciliation of benefit obligations, plan assets and
funded status of the plans, at December 31, 1998 and 1997.
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
--------------------- ---------------------
THOUSANDS OF DOLLARS 1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at January 1 $ 181,018 $ 164,701 $ 105,863 $ 99,535
Service cost 4,014 4,042 1,176 2,102
Interest cost 12,782 12,742 5,822 6,731
Amendments and settlements (943) (879) (14,382) -
Actuarial loss (gain) 15,733 11,929 (15,913) 1,730
Benefits paid (13,975) (11,517) (4,266) (4,235)
---------- ---------- ---------- ----------
Benefit obligation at December 31 198,629 181,018 78,300 105,863
---------- ---------- ---------- ----------
Change in plan assets
Fair value of plan assets at January 1 273,871 232,284 54,958 40,846
Actual return on plan assets 14,804 52,446 2,732 11,320
Employer contributions - - 3,948 5,717
Benefits paid from plan assets (13,270) (10,868) (3,187) (2,925)
---------- ---------- ---------- ----------
Fair value of plan assets at December 31 275,405 273,862 58,451 54,958
---------- ---------- ---------- ----------
Funded status of the plans 76,776 92,844 (19,849) (50,905)
Unrecognized net actuarial (gain) (26,734) (49,161) (16,223) (3,890)
Unrecognized prior service cost 2,762 3,900 (26,474) (13,476)
Unrecognized net transition (asset) (9,253) (10,950) 1,919 3,948
---------- ---------- ---------- ----------
Net amount recognized $ 43,551 $ 36,633 $ (60,627) $ (64,323)
========== ========== ========== ==========
Amounts recognized in the
Consolidated Balance Sheets
Prepaid benefit cost $ 50,011 $ 42,753 $ - $ -
Accrued benefit liability (6,460) (6,120) (60,627) (64,323)
Additional minimum liability (3,474) (2,351) - -
Accumulated other
comprehensive income 3,474 2,351 - -
---------- ---------- ---------- ----------
Net amount recognized $ 43,551 $ 36,633 $ (60,627) $ (64,323)
========== ========== ========== ==========
Assumptions as of December 31
Discount rate (weighted average) 6.50% 7.25% 6.50% 7.25%
Expected return on plan assets 9.00% 9.00% 9.00% 9.00%
Rate of compensation increase 4.50% 4.50% 4.50% 4.50%
</TABLE>
<PAGE>
<PAGE> 36
Net pension (income) costs and other postretirement benefit costs for each
of the years ended December 31, include the following components:
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
-------------------------- --------------------------
THOUSANDS OF DOLLARS 1998 1997 1996 1998 1997 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service costs $ 4,014 $ 4,042 $ 4,713 $ 1,176 $ 2,102 $ 2,712
Interest costs on projec-
ted benefit obligations 12,782 12,742 12,833 5,822 6,731 7,330
Expected (gain) on assets (21,443) (19,884) (19,028) (5,168) (4,053) (3,412)
Amortization of:
Transition obli-
gation (asset) (1,693) (1,693) (1,723) - - -
Prior service cost 195 389 389 (1,384) (957) (957)
Actuarial (gain) loss (40) (352) 141 (1,143) (719) 208
-------- -------- -------- -------- -------- --------
(6,185) (4,756) (2,675) (697) 3,104 5,881
Amortization of regula-
tory (liability) asset (2,851) (2,851) (2,851) 2,778 2,778 2,778
-------- -------- -------- -------- -------- --------
Net benefit (income)/exp. $(9,036) $(7,607) $(5,526) $ 2,081 $ 5,882 $ 8,659
======== ======== ======== ======== ======== ========
</TABLE>
Pension plans 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 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 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.
In 1998, 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.
<PAGE>
<PAGE> 37
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 106 and are recoverable from customers. The cumulative
difference between the amounts funded and the amounts based on SFAS 106
through January 1, 1992, is recorded as a regulatory asset and is being
amortized over a twenty-year period effective January 1, 1992.
In 1998, 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 postretirement benefit cost components for 1998 were calculated
assuming health care cost trend rates ranging up to 10% for 1999 and
decreasing to 5% in 2004. An increase of one percentage point in the
assumed health care cost trend rate in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1998, by
$3.6 million and the aggregate of the service and interest cost components
of postretirement expense by $0.3 million. A corresponding decrease of one
percentage point would decrease the accumulated postretirement benefit
obligation by $3.1 million and the aggregate of the service and interest
cost components of postretirement expense by $0.2 million.
Plan assets are primarily invested in equities and fixed income securities.
B 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 $1.9 million in 1998 and $1.8
million in 1997 and 1996.
C 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, adjustable
rate loan (5.6% interest rate at December 31, 1998), guaranteed by the
Company, to purchase 862,532 shares of WICOR common stock. The Company has
extended the adjustable rate loan, with similar terms, until May 31, 2002.
The unpaid balance ($2.8 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 the
Company's common stock held in the ESOP and with Wisconsin Gas
contributions to the ESOP.
<PAGE>
<PAGE> 38
D Stock option plans and restricted stock The Company has a total of 131
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 no later than eleven years from the date of
grant.
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
WTD AVG WTD AVG WTD AVG
THOUSANDS OF DOLLARS SHARES PRICE SHARES PRICE SHARES PRICE
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 1,959,716 $ 15.22 1,560,298 $ 13.38 1,490,100 $ 12.51
Granted 744,200 $ 23.61 538,400 $ 19.75 325,400 $ 16.50
Exercised (120,749) $ 13.23 (137,382) $ 12.11 (196,540) $ 11.55
Canceled (21,604) $ 21.13 (1,600) $ 15.66 (58,662) $ 14.69
---------- ---------- ----------
Outstanding at December 31 2,561,563 $ 17.70 1,959,716 $ 15.22 1,560,298 $ 13.38
========== ========== ==========
Exercisable at December 31 1,423,174 $ 14.30 1,246,550 $ 13.54 1,077,344 $ 12.36
========== ========== ==========
Available for future
grant at year-end 1,437,984 347,980 893,814
========== ========== ==========
</TABLE>
SFAS 123, "Accounting for Stock-Based Compensation," 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 1998, 1997 and 1996, respectively: dividend yields of 3.6%, 4.8% and
5.0%, risk-free interest rates of 5.3%, 5.1% and 5.0%, expected volatility
of 15.1%, 15.9% and 16.4%, and an expected option life of 5.64 years for
all periods. The weighted average fair value of options granted in 1998,
1997 and 1996 was $3.59, $4.22 and $3.83 per share, respectively. Had
compensation cost for the Company's 1998, 1997 and 1996 grants for
stock-based compensation plans been determined consistent with SFAS 123,
the Company's net income and diluted earnings per common share would have
been reduced to the pro forma amounts indicated below:
1998 1997 1996
-------- -------- --------
Net earnings:
As reported $45,495 $49,523 $46,771
Pro forma $44,594 $49,167 $46,557
Diluted earnings per common share
As reported $ 1.21 $ 1.33 $ 1.27
Pro forma $ 1.19 $ 1.32 $ 1.26
<PAGE>
<PAGE> 39
Under the Company's 1994 Long-Term Performance Plan (1994 Plan), awards
covering up to 3,490,000 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
theCompany at no cost.
A total of 142,700 restricted shares (net of cancellations) were issued
through 1998. 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.
E 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 no
compensation expense in 1998 and $0.6 million of compensation expense under
the Director Plan in 1997.
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.
<PAGE>
<PAGE> 40
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.
Likewise, any gains or losses on gas commodity instruments used by
Wisconsin Gas are refunded to or recovered from customers under the PGAC.
The estimated fair value of WICOR's financial instruments at December 31,
is as follows:
1998 1997
CARRYING FAIR CARRYING FAIR
THOUSANDS OF DOLLARS AMOUNT VALUE AMOUNT VALUE
---------- ----------- ----------- -----------
Cash and cash equivalents $ 13,383 $ 13,383 $ 11,810 $ 11,810
Accounts receivable $ 137,321 $ 137,321 $ 164,243 $ 164,243
Short-term debt $ 107,653 $ 107,633 $ 118,900 $ 118,900
Long-term debt $ 188,470 $ 192,412 $ 149,110 $ 150,159
Note 12 Business Segment Information
- ---------------------------------------
Effective December 31, 1998, the Company adopted SFAS 131, "Disclosures
About Segments of an Enterprise and Related Information" which changes the
way the Company reports information about its operating segments.
The Company is a diversified holding company with two principal business
segments: an Energy Group responsible for natural gas distribution and
related services, and a Manufacturing Group responsible for the manufacture
of pumps and processing equipment used to pump, control, transfer, hold and
filter water and other fluids.
The Company's reportable segments are managed separately because each
business requires different technology and marketing strategies. Most of
the businesses were acquired as a unit, and the management at the time of
the acquisition was retained. The accounting policies of the reportable
segments are the same as those described in Note 1 of Notes to the
Consolidated Financial Statements. The Company evaluates the performance of
its operating segments based on income from continuing operations.
Intersegment sales and transfers are not significant.
Information regarding products and services and geographic areas are not
presented as they are not included in measures that are reviewed by the
Company.
<PAGE>
<PAGE> 41
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The other category includes the
results of the parent company only and non-regulated energy operations
involved in energy and risk management services, automated meter reading
and other related services.
<TABLE>
<CAPTION>
ENERGY
-------------------------------
THOUSANDS OF DOLLARS REGULATED OTHER TOTAL MANUFACTURING CONSOLIDATED
--------- --------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1998
- ----
Revenues $428,562 $ 52,927 $ 481,489 $ 462,694 $ 944,183
Depreciation and
amortization $ 40,336 $ 134 $ 40,470 $ 14,061 $ 54,531
Net earnings $ 22,668 $ (1,012) $ 21,656 $ 23,839 $ 45,495
Total assets $651,492 $ 14,284 $ 665,776 $ 349,420 $ 1,015,196
Capital expenditures $ 34,995 $ 170 $ 35,165 $ 14,114 $ 49,279
1997
- ----
Revenues $536,720 $ 59,542 $ 596,262 $ 424,779 $ 1,021,041
Depreciation and
amortization $ 39,820 $ 139 $ 39,959 $ 13,781 $ 53,740
Net earnings $ 29,335 $ 108 $ 29,443 $ 20,080 $ 49,523
Total assets $683,888 $ 13,780 $ 697,668 $ 333,664 $ 1,031,332
Capital expenditures $ 35,017 $ 131 $ 35,148 $ 16,424 $ 51,572
1996
- ----
Revenues $573,255 $ 29,430 $ 602,685 $ 409,916 $ 1,012,601
Depreciation and
amortization $ 41,111 $ 43 $ 41,154 $ 13,717 $ 54,871
Net earnings $ 32,724 $ (879) $ 31,845 $ 14,926 $ 46,771
Total assets $718,990 $ 13,418 $ 732,408 $ 304,948 $ 1,037,356
Capital expenditures $ 36,586 $ 31 $ 36,617 $ 15,127 $ 51,744
</TABLE>
<PAGE>
<PAGE> 42
SELECTED FINANCIAL DATA THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS
1998 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
Operating Data:
Operating revenues(4) $ 944,183 $1,021,041 $1,012,601 $ 860,594 $ 867,755 $ 849,528
Net earnings $ 45,495 $ 49,523 $ 46,771 $ 39,527 $ 33,174 $ 29,313
Common Stock Data:
Basic earnings per
common share(1) $ 1.22 $ 1.34 $ 1.27 $ 1.16 $ 0.99 $ 0.91
Diluted earnings
per share(1) $ 1.21 $ 1.33 $ 1.27 $ 1.16 $ 0.99 $ 0.90
Cash dividends per
common share(1) $ 0.870 $ 0.850 $ 0.830 $ 0.810 $ 0.790 $ 0.770
Book value per
common share(1) $ 10.80 $ 10.47 $ 9.96 $ 9.42 $ 8.57 $ 8.24
Balance Sheet Data:
Long-term debt $ 188,470 $ 149,110 $ 169,169 $ 174,713 $ 161,669 $ 165,230
Common equity 403,440 389,620 366,499 343,673 289,918 270,276
---------- ---------- ---------- ---------- ---------- ----------
Capitalization at Y/E $ 591,910 $ 538,730 $ 535,668 $ 518,386 $ 451,587 $ 435,506
========== ========== ========== ========== ========== ==========
Total assets Y/E(2) $1,015,196 $1,031,332 $1,057,652 $1,008,514 $ 930,708 $ 933,726
Other General Data:
Market-to-book ratio
at year-end (%) 202 222 179 170 165 191
Dividend payout
ratio (%)(2)(3) 71.4 63.4 65.2 69.5 79.6 82.2
Yield at year-end (%) 4.0 3.7 4.7 5.1 5.6 5.0
Return on average com-
mon equity (%)(2)(3) 11.3 13.0 12.9 13.1 11.6 11.2
Price/earnings ratio
at year-end(2)(3) 17.8 17.3 14.1 13.9 14.3 17.3
Price range(1) $ 19-5/8- $16-11/16- $ 15-1/16- $ 13-5/16- $ 12-3/4- $12-13/16-
$ 25-1/2 $ 23-15/16 $ 18-7/8 $ 16-7/16 $ 16-5/16 $ 16-7/16
Registered share-
holders at Y/E(5) 21,373 22,312 23,339 27,379 25,017 23,694
Cash flow-operations $ 97,000 $ 49,324 $ 75,416 $ 69,918 $ 103,551 $ 3,401
Capital expenditures $ 49,279 $ 51,572 $ 51,744 $ 56,241 $ 55,051 $ 51,906
Employees at year-end 3,524 3,625 3,475 3,368 3,214 3,222
Debt/equity ratio Y/E 32/68 28/72 32/68 34/66 36/64 38/62
Energy Operations
Operating revenues $ 481,489 $ 596,262 $ 602,685 $ 522,840 $ 556,587 $ 574,835
Net earnings $ 21,656 $ 29,443 $ 32,141 $ 27,701 $ 18,896 $ 19,870
Capital expenditures $ 35,165 $ 35,148 $ 36,617 $ 42,852 $ 44,626 $ 42,253
</TABLE>
<PAGE>
<PAGE> 43
SELECTED FINANCIAL DATA THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS
1998 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Utility throughput
(000'S of dekatherms)
Residential 40,856 48,433 52,991 49,425 46,369 47,964
Commercial 17,967 21,922 24,257 21,157 18,598 19,060
Industrial firm 6,095 8,724 11,078 13,496 14,544 15,246
Ind. interruptible 3,657 7,277 19,624 31,353 28,217 20,849
Transported 46,017 42,883 27,578 14,549 11,908 17,408
---------- ---------- ---------- ---------- ---------- ----------
114,592 129,239 135,528 129,980 119,636 120,527
========== ========== ========== ========== ========== ==========
Utility customers Y/E 528,963 520,975 512,868 504,746 495,129 485,103
Utility customers
served per employee 549 534 516 471 419 352
Ave. cost of gas/util-
ity Dth purchased $ 3.62 $ 3.99 $ 3.47 $ 2.79 $ 3.34 $ 3.76
Ave. annual residen-
tial utility bill $ 561 $ 701 $ 725 $ 686 $ 719 $ 779
Ave. use/utility resi-
dential customer(Dth) 90 108 120 114 110 116
Degree days 5,865 7,094 7,458 6,836 6,431 6,775
% colder (warmer) than
20-year average (16.4) 1.0 6.8 (2.8) (9.0) (4.1)
Manufacturing Oper.(2)
Operating revenues $ 462,694 $ 424,779 $ 409,916 $ 337,754 $ 311,168 $ 274,693
International/export
% of total sales 30 34 34 39 37 34
Net earnings(3) $ 23,834 $ 20,080 $ 14,630 $ 11,826 $ 14,278 $ 9,443
Capital expenditures $ 14,115 $ 16,424 $ 15,127 $ 13,389 $ 10,425 $ 9,653
</TABLE>
<PAGE>
<PAGE> 44
SELECTED FINANCIAL DATA THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS
1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED
Operating Data:
Operating revenues (4) $ 747,409 $ 716,767 $ 696,023 $ 741,218 $ 780,633
Net earnings $ 14,799 $ 22,966 $ 16,651 $ 33,881 $ 34,163
Common Stock Data:
Basic earnings
per common share(1) $ 0.48 $ 0.77 $ 0.57 $ 1.17 $ 1.19
Diluted earnings
per share(1) $ 0.47 $ 0.77 $ 0.57 $ 1.16 $ 1.19
Cash dividends per
common share(1) $ 0.750 $ 0.730 $ 0.710 $ 0.685 $ 0.660
Book value per
common share(1) $ 7.80 $ 7.92 $ 8.06 $ 8.42 $ 7.91
Balance Sheet Data:
Long-term debt $ 164,171 $ 168,366 $ 130,215 $ 122,639 $ 133,034
Common equity 245,287 243,453 237,407 244,351 227,080
---------- ---------- ---------- ---------- ----------
Capitalization at year-end $ 409,458 $ 411,819 $ 367,622 $ 366,990 $ 360,114
========== ========== ========== ========== ==========
Total assets at Y/E(2) $ 825,774 $ 670,250 $ 651,559 $ 620,548 $ 565,967
Other General Data:
Market-to-book ratio Y/E(%) 175 153 122 148 123
Dividend payout
ratio (%)(2)(3) 96.1 89.0 117.2 55.0 52.0
Yield at year-end (%) 5.6 6.1 7.3 5.6 6.9
Return on average
common equity (%)(2)(3) 9.2 9.5 6.8 14.3 15.3
Price/earnings ratio
at year-end(2)(3) 18.5 15.7 17.2 10.7 8.2
Price range(1) $11-7/16- $ 9-5/16- $ 9-1/8- $9-11/16- $7-13/16-
$13-11/16 $ 12-3/16 $ 12-5/8 $12-11/16 $ 10-7/16
Registered shareholders
at year-end(5) 22,864 18,503 19,463 20,509 21,611
Cash flow from operations $ 37,012 $ 50,413 $ 10,022 $ 94,623 $ 73,526
Capital expenditures $ 71,873 $ 45,113 $ 37,529 $ 40,944 $ 48,295
Employees at year-end 3,178 3,196 3,152 3,696 3,927
Debt/equity ratio Y/E 40/60 41/59 35/65 33/67 37/63
Energy Operations
Operating revenues $ 495,415 $ 474,702 $ 455,559 $ 441,477 $ 476,904
Net earnings $ 18,060 $ 17,086 $ 13,195 $ 25,169 $ 23,223
Capital expenditures $ 62,125 $ 34,473 $ 27,978 $ 25,813 $ 37,148
</TABLE>
<PAGE>
<PAGE> 45
SELECTED FINANCIAL DATA THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS
1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Utility throughput (000's
of dekatherms-MDth)
Residential 45,905 45,614 43,020 48,154 46,769
Commercial 17,840 17,861 16,319 18,089 17,012
Industrial firm 14,488 15,690 15,106 16,915 16,808
Indus. interruptible 17,388 17,440 16,620 5,475 3,752
Transported 21,379 19,658 16,565 29,158 29,639
---------- ---------- ---------- ---------- ----------
117,000 116,263 107,630 117,791 113,980
========== ========== ========== ========== ==========
Utility customers at Y/E 470,956 460,549 452,906 445,771 439,063
Utility customers
served per employee 331 323 321 319 311
Average cost of gas per
utility Dth purchased $ 3.34 $ 3.18 $ 3.30 $ 3.15 $ 3.68
Average annual resi-
dential utility bill $ 712 $ 677 $ 670 $ 758 $ 770
Average use per utility
residential customer(Dth) 115 117 113 129 127
Degree days 6,683 6,416 6,103 7,382 7,124
% colder (warmer) than
20-year average (6.4) (10.8) (16.0) 1.5 (2.0)
Manufacturing Operations(2)
Operating revenues $ 251,994 $ 242,065 $ 240,464 $ 300,156 $ 303,729
International/export sales
as a % of total sales 34 31 27 24 22
Net earnings(3) $ 4,704 $ 5,880 $ 3,456 $ 8,712 $ 10,940
Capital expenditures $ 9,748 $ 10,640 $ 9,551 $ 15,131 $ 11,147
</TABLE>
(1) Adjusted for a two-for-one stock split effected in May 1998.
(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 1988
and 1989 of $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%
Subsidiaries of State or Country Percent Voting
WICOR 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 79%
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%
Sta-Rite Holdings, B.V. Netherlands 100%
Webster Electric Company 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%
WICOR, Canada Inc. Australia 21%
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 99.5%
GmbH Europa
Onga (New Zealand) Pty. Ltd. New Zealand 100%
Nocchi Pompe S.p.A. Italy 97%
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 100%
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, 333-43257 and 333-51735) and Form S-
3 (Nos. 33-50682 and 333-27415).
Milwaukee, Wisconsin, ARTHUR ANDERSEN LLP
March 18, 1999.
<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, 1998 and is qualified in its
entirety by reference to such financial statements and the related footnotes.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 380,478
<OTHER-PROPERTY-AND-INVEST> 67,187
<TOTAL-CURRENT-ASSETS> 354,155
<TOTAL-DEFERRED-CHARGES> 213,376
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,015,196
<COMMON> 37,359
<CAPITAL-SURPLUS-PAID-IN> 216,821
<RETAINED-EARNINGS> 160,937
<TOTAL-COMMON-STOCKHOLDERS-EQ> 403,440
0
0
<LONG-TERM-DEBT-NET> 188,470
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 110,000
<COMMERCIAL-PAPER-OBLIGATIONS> 91,677
<LONG-TERM-DEBT-CURRENT-PORT> 3,528
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 328,081
<TOT-CAPITALIZATION-AND-LIAB> 1,015,196
<GROSS-OPERATING-REVENUE> 944,183
<INCOME-TAX-EXPENSE> 26,048
<OTHER-OPERATING-EXPENSES> 859,600
<TOTAL-OPERATING-EXPENSES> 885,648
<OPERATING-INCOME-LOSS> 58,535
<OTHER-INCOME-NET> 3,706
<INCOME-BEFORE-INTEREST-EXPEN> 62,241
<TOTAL-INTEREST-EXPENSE> 16,746
<NET-INCOME> 45,495
0
<EARNINGS-AVAILABLE-FOR-COMM> 45,495
<COMMON-STOCK-DIVIDENDS> 32,461
<TOTAL-INTEREST-ON-BONDS> 846
<CASH-FLOW-OPERATIONS> 97,000
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.21
</TABLE>
<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 22, 1999
To the Shareholders of
WICOR, Inc.:
NOTICE IS HEREBY GIVEN THAT the Annual Meeting of Shareholders of WICOR,
Inc. will be held Thursday, April 22, 1999, 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 two directors to hold office until the 2002 Annual Meeting
of Shareholders and until their successors are duly elected and
qualified.
2. To consider and act upon any other business which may be properly
brought before the Annual Meeting or any adjournment or
postponement thereof.
The close of business Monday, February 22, 1999, 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 15, 1999
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 22, 1999
This Proxy Statement is being furnished to shareholders by the Board of
Directors of WICOR, Inc. (the "Company") beginning on or about March 15, 1999,
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 22, 1999, 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 a proxy. Any shareholder giving a proxy may
revoke it at any time before it is exercised by giving notice thereof to the
Company in writing or in open meeting. Unless so revoked, the shares
represented by proxies received by the Board will be voted at the Annual
Meeting and at any adjournment 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 22, 1999, are entitled
to vote at the Annual Meeting and at any adjournment thereof. On that date,
the Company had outstanding and entitled to vote 37,398,094 shares of Common
Stock. The record holder of each outstanding share of Common Stock is
entitled to one vote per share. Share and per share amounts set forth in this
Proxy Statement, have been adjusted to reflect the 2-for-1 stock split that
was effective May 29, 1998.
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
Stuart W. Tisdale, retired chief executive officer of the Company and a
director for 19 years, and William B. Winter, a director for 20 years, have
reached mandatory retirement age and will be retiring coincident with the
Annual Meeting. The Board extends its thanks to Messrs. Tisdale and Winter
for the valuable contributions they have made to the Company throughout their
tenures. The Board has determined not to replace the retiring directors at
this time. Accordingly, the number of directors on the Board will be reduced
to eight effective with the Annual Meeting. 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 two
directors to hold office until the 2002 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, 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 either of the listed
nominees will be unable or unwilling to continue to serve as a director if
elected. However, in the event that a 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 two 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 at least the past five years.
=============================================================================
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
For Three-Year Terms Expiring April, 2002
=============================================================================
JERE D. McGaffey Mr. McGaffey, 63, is a partner in the
Nominating (Chairman) and law firm of Foley & Lardner.(1) He has
Retirement Plans Investment been in practice with that firm since
Committees 1961 and has been a partner since 1968.
Director since 1980. Mr. McGaffey is a director of Smith
Investment Company.
(1) Foley & Lardner was retained in 1998 by the Company and its subsidiaries
to provide legal services and has been similarly retained in 1999.
THOMAS F. SCHRADER Mr. Schrader, 49, is President and
Director since 1988. Chief Operating Officer of the Company
and Vice Chairman of its subsidiaries.
He was elected to those positions in
1997 and 1998, respectively.
Previously, he served as Vice President
of the Company and President and Chief
Executive Officer of Wisconsin Gas,
WICOR Energy and FieldTech from 1988 to
1997 Mr. Schrader is a director of
Firstar Bank Milwaukee, N.A.
==============================================================================
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
Terms Expiring April, 2000
==============================================================================
WILLIE D. DAVIS Mr. Davis, 64, is President, Chief
Audit (Chairman) and Executive Officer and a director of All
Compensation Committees Pro Broadcasting, Inc., which owns and
Director since 1988. Operates radio stations in Los Angeles
and Milwaukee. Mr. Davis is a director
of Alliance Bank, Bassett Furniture
Industries Inc., The Dow Chemical Co.,
Johnson Controls, Inc., Kmart Corp.,
MGM Grand Inc., Metro-Goldwyn-Mayer,
Inc., Rally's Hamburgers, Inc., Sara
Lee Corporation and Strong Capital
Management, Inc.
<PAGE>
<PAGE> 4
GUY A. OSBORNE Mr Osborne, 63, retire as Chairman of
Compensation (Chairman) Foods Corporation, an international
and Retirement Plans manufacturer and marketer of value-
Investment Committees added food products, in 1997. He is a
Director since 19878 director of Fleming Companies, Inc.,
and is a Trustee of The Northwestern
Mutual Life Insurance Company.
==============================================================================
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
Terms Expiring April, 2001
==============================================================================
WENDELL F. BUECHE Mr. Bueche, 68, retired as Chairman of
Audit and Compensation IMC Global, Inc., a producer and
Committees marketer of crop nutrients in 1998. He
Director since 1984 served as Chairman of IMC from 1997 to
1998, as Chairman and Chief Executive
Officer from 1994 to 1997, and as
President and Chief Executive Officer
from 1993 to 1994. Mr. Bueche is a
director of IMC Global, Marshall &
Ilsley Corporation and M&I Marshall
DANIEL F McKEITHAN, JR. Mr. McKeithan, 63, 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
Director since 1989 wells. Since 1995, he has also been
President and Chief Executive Officer
of 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, 63, is Chairman and
Nominating Committee Chief Executive Officer of the Company
Director since 1992 and 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 is a director
of M&I Marshall & Ilsley Bank, M&I Data
Services, and Twin Disc, Inc.
ESSIE M. WHITELAW Ms. Whitelaw, 50, is Vice President -
Nominating and Retirement National Business Development and
Plans Investment Committees Government Employee Services of Blue
Director since 1992 Cross & Blue Shield United of
Wisconsin, a comprehensive health care
insurer. She has held that 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
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.
THE BOARD OF DIRECTORS
General
- -------
The Board held ten meetings in 1998. 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 1998. 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 1998. 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 1998. 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 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 two meetings in 1998. 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's director compensation program is designed to provide
compensation at a competitive level and tie a substantial portion of the
directors' compensation to the performance of the Company's stock. Only non-
employee directors receive compensation for service as directors.
<PAGE>
<PAGE> 6
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, effective February 1, 1999, $1,000 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 non-employee directors an annual cash retainer fee of $4,000, and
$600 for each Board meeting they attend. 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, 1,114 deferred stock units (668
from the Company and 446 from Wisconsin Gas). Each stock unit has an economic
value equivalent to a share of Common Stock. As of December 31, 1998, these
deferred stock units had a value of $24,299 based on the price of a share of
Common Stock on that date ($21.825). 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.
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 4,000 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, 1998, Messrs. Bueche,
Davis, McGaffey, McKeithan, Osborn, Tisdale and Winter and Ms. Whitelaw each
received an option to purchase 4,000 shares of Common Stock at a per-share
exercise price of $23.55. 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 23, 1999, an option to
purchase an additional 4,000 shares of Common Stock was granted to each
director at a per-share exercise price of $19.94.
<PAGE>
<PAGE> 7
SECURITY OWNERSHIP OF MANAGEMENT
The following tabulation sets forth the number of shares of Common Stock
beneficially owned, as of February 28, 1999, 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 32,140 - 13,550
Willie D. Davis 29,097 - 9,301
James C. Donnelly 199,636 - -
Bronson J. Haase 63,333 - -
Jere D. McGaffey 34,597 - 10,255
Daniel F. McKeithan, Jr. 30,000 - 9,241
Guy A. Osborn 32,000 - 10,777
Thomas F. Schrader 319,385 - -
Stuart W. Tisdale 184,162 (6) (7) - 9,867
George E. Wardeberg 287,800 (8) - -
Joseph P. Wenzler 309,770 (9) - -
Essie M. Whitelaw 28,000 - 4,052
William B. Winter 33,176 (10) (11) - 14,130
All directors and
executive officers as
a group (16 persons) 1,751,152 4.7% 81,173
(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, 1999: Mr. Donnelly, 168,967; Mr.
Haase, 63,333; Mr. Schrader, 210,983; Mr. Wardeberg, 193,333; Mr. Wenzler,
184,633; Messrs. Bueche, Davis, McGaffey, McKeithan, Osborn and Winter and
Ms. Whitelaw, 28,000 each; Mr. Tisdale, 24,000; and all directors and
executive officers as a group, 1,118,699.
(3) Includes the following numbers of shares of restricted stock over which
the holders have sole voting but no investment power: Mr. Donnelly,
6,000; Mr. Schrader, 8,000; Mr. Wardeberg, 14,400; and Mr. Wenzler, 6,000;
and all directors and executive officers as a group, 37,800. 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. However, reflecting the fact that Mr. Wardeberg is approaching
retirement, he will receive a percentage of the shares granted in 1998 and
1999 that otherwise would vest at the end of the three-year period equal
to 1/36 for each month he remains employed beginning January 1, 1998 and
1999, respectively. Any restricted shares from the 1998 and 1999 grants
that are not vested at the time of his retirement will be forfeited.
(4) Where no percentage figure is set out in this column, the person owns less
than 1% of the outstanding shares.
(5) Deferred stock units are issued under the deferred stock plans and the
deferred compensation plan discussed under "Compensation of Directors -
Deferred Compensation".
(6) Includes 9,704 shares owned by Mr. Tisdale's spouse.
(7) Mr. Tisdale will retire from the Board effective with the Annual Meeting.
(8) Includes 8,600 shares owned jointly by Mr. Wardeberg and his spouse.
<PAGE>
<PAGE> 8
(9) Includes 1,052 shares owned by Mr. Wenzler's spouse.
(10) Includes 5,176 shares owned by Mr. Winter's spouse.
(11) Mr. Winter will retire from the Board effective with the Annual Meeting.
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 1998 and each of the Company's four other most highly
compensated executive officers whose total cash compensation exceeded $100,000
in 1998.
<PAGE>
<PAGE> 9
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
---------------------------- --------------------------
Securities
Restricted Underlying All Other
Name and Principal Stock Options/ Compensation
Position Year Salary ($) Bonus ($) Awards ($)(1) SARs (#) ($) (2)
- ------------------------------ ---- ---------- --------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
George E. Wardeberg, Chairman 1998 $ 500,000 $136,232 $ 169,089 200,000 $ 21,600
and Chief Executive Officer 1997 $ 440,833 $185,200 40,000 $ 19,233
of the Company and its sub- 1996 $ 393,750 $217,638 $ 264,500 40,000 $ 17,250
sidiaries (3)(7)
Thomas F. Schrader, President 1998 $ 360,500 $ 81,852 $ 93,939 60,000 $ 16,020
and Chief Operating Officer 1997 $ 321,616 $144,700 20,000 $ 14,465
of the Company and Vice 1996 $ 290,650 $177,903 $ 132,250 20,000 $ 13,126
Chairman of certain of its
subsidiaries(4)
James C. Donnelly, Vice-Pres- 1998 $ 301,175 $155,852 $ 70,454 40,000 $ 16,537
ident of the Company and 1997 $ 287,250 $ 78,000 20,000 $ 14,775
President and Chief Execu- 1996 $ 277,525 $ 59,218 $ 132,000 20,000 $ 12,735
tive Officer of Sta-Rite
Joseph P. Wenzler, Senior 1998 $ 303,850 $ 62,092 $ 70,454 40,000 $ 13,754
Vice President and 1997 $ 286,825 $ 96,400 15,000 $ 13,073
Chief Financial Officer 1996 $ 272,050 $120,296 $ 99,188 15,000 $ 12,382
of the Company and
Wisconsin Gas; Secretary
and Treasurer of SHURflo
and Hypro; and Vice-President
and Treasurer of WICOR
Energy and FieldTech (5)(7)
Bronson J. Haase, Vice 1998 $ 278,750 $ 41,813 40,000 $ 7,797
President of the Company and 1997 - - 200,000 -
President and Chief Executive 1996 - - - -
of Wisconsin Gas, WICOR
Energy and FieldTech (6)
</TABLE>
<PAGE>
<PAGE> 10
(1) 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, 1998,
were as follows: Mr. Wardeberg, 23,200 shares, $506,050; Mr. Schrader,
12,000, $261,750; Mr. Donnelly, 11,000 shares, $239,938; and Mr. Wenzler,
9,000 shares, $196,313. The restricted stock vests three years after
issuance provided the Company's three-year total return to shareholders
exceeds a pre-established goal. However, reflecting the fact that Mr.
Wardeberg is approaching retirement, he will receive a percentage of the
shares that otherwise would vest at the end of the three-year period equal
to 1/36 for each month he remains employed beginning January 1, 1998. Any
restricted shares from the 1998 grant that are not vested at the time of
his retirement will be forfeited. 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, 1999, are
set out in footnote 3 to the Security Ownership of Management and Certain
Beneficial Owners table.
(2) The amounts shown in this column for 1998 are comprised of the following
items: Company contributions to 401(k) and supplemental savings plans:
Mr. Wardeberg, $21,600; Mr. Schrader, $16,020; Mr. Donnelly, $15,100; Mr.
Wenzler, $13,754; and Mr. Haase, $7,797. Above-market earnings on
deferred compensation: Mr. Donnelly, $1,437.
(3) 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.
(4) 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. On April 23, 1998, Mr.
Schrader was elected Vice Chairman of Sta-Rite, SHURflo and Hypro.
(5) On May 1, 1998, Mr. Wenzler was elected Senior Vice President and Chief
Financial Officer of the Company and Wisconsin Gas. He previously served
as Senior Vice President, Treasurer and Chief Financial Officer of the
Company and Vice President, Treasurer and Chief Financial Officer of
Wisconsin Gas. He continues in his positions with the Company's other
subsidiaries.
(6) On December 31, 1997, Mr. Haase was elected Vice President of the Company
and President and Chief Executive Officer of Wisconsin Gas, WICOR Energy
and FieldTech. He previously served as President and Chief Executive
Officer of Ameritech Wisconsin (formerly Wisconsin Bell) from June 1993 to
December 1997.
(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> 11
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 1998 to
the executive officers named in the Summary Compensation Table. No SARs were
awarded in 1998.
OPTION/SAR GRANTS IN 1998 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 200,000 27.5 $ 23.625 2/17/08 $718,000
Thomas F. Schrader 60,000 8.3 $ 23.625 2/17/08 $215,400
James C. Donnelly 40,000 5.5 $ 23.625 2/17/08 $143,600
Joseph P. Wenzler 40,000 5.5 $ 23.625 2/17/08 $143,600
Bronson J. Haase 40,000 5.5 $ 23.625 2/17/08 $143,600
</TABLE>
(1) The options reflected in the table (which are nonstatutory stock options
for purposes of the Internal Revenue Code) were granted on February 17,
1998 and vest one-third each year beginning February 17, 1999. However,
reflecting the fact that Mr. Wardeberg is approaching retirement, his
award vests one-third on February 17, 1999, one-third on February 17,
2000, and one-third on the earlier of February 17, 2001 or his retirement.
(2) Amounts in this column were calculated using the Black-Scholes option
pricing model. The model assumes: (a) an option term of 10 years and an
average life of 5.64 years; (b) a risk-free interest rate of 5.29%; (c)
volatility (variance of rate of return) of 15.10%; and (d) a dividend
yield of 3.6%. The actual value, if any, that an optionee may realize
upon exercise will depend upon the excess of the price of the Common Stock
over the option exercise price on the date that the option is exercised.
There is no assurance that the value received by the optionee will be at
or near the value estimated by the Black-Scholes model.
<PAGE>
<PAGE> 12
The following tabulation sets forth information regarding the exercise of
stock options during 1998 and the unexercised options held at December 31,
1998, by each of the executive officers named in the Summary Compensation
Table.
AGGREGATED OPTION/SAR EXERCISES IN 1998 FISCAL YEAR,
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Numbers of
Securities Underlying Value of Unexercised
Unexercised Options/ In-the-Money Options/
Shares SARs at FY-End (#) SARs at FY-End ($)
Acquired on Value ------------------------- -------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George E. Wardeberg 9,000 $ 96,268 100,000 240,000 $ 623,541 $ 183,322
Thomas F. Schrader 9,200 $ 107,525 197,649 80,001 $1,868,919 $ 91,669
James C. Donnelly 0 $ 0 160,299 60,001 $1,473,935 $ 91,669
Joseph P. Wenzler 9,200 $ 102,063 181,300 55,000 $1,762,234 $ 68,750
Bronson J. Haase 0 $ 0 50,000 190,000 $ 0 $ 0
</TABLE>
<PAGE>
<PAGE> 13
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 using 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 participants as of January 1, 1998, the plan grants each such
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.
The plan's actuaries project that for most 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.
The plan's actuaries have projected the ultimate benefits for the named
executive officers. 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. Because of the ten-year guarantee until the end of
2007, the actuaries project that the pre-1998 final average earnings formula
will provide the better benefit for Messrs. Wardeberg, Wenzler and Donnelly
and the revised cash balance formula will provide the better benefit for
Messrs. Schrader and Haase.
<PAGE>
<PAGE> 14
The following tabulation sets forth estimated annual retirement benefits
payable under the pension plans, as supplemented, for Messrs. Wardeberg,
Wenzler and Donnelly. 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>
Years of Service
--------------------------------------------------------------
Remuneration 10 15 20 25 30
- ------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 400,000 $ 78,484 $ 117,726 $ 156,968 $ 179,684 $ 185,684
$ 500,000 $ 98,384 $ 147,426 $ 196,568 $ 224,984 $ 232,484
$ 600,000 $ 118,084 $ 177,126 $ 236,168 $ 270,284 $ 279,284
For Messrs. Schrader and Haase, using a 4% earnings assumption for the
cash balance formula and assuming continuation of compensation as defined in
the plan at the level paid in 1998, the actuaries project estimated annual
benefits under the pension plan, as supplemented, payable upon retirement at
normal retirement age of 65 of $240,534 and $21,896, 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 Haase have 9, 20, 11, 24 and 1
years, respectively, of credited service under the pension plan. Pursuant to
a supplemental retirement plan, Mr. Schrader will receive a supplemental
retirement benefit of $25,000 per year for 15 years beginning at age 65,
payable in monthly installments.
A retired executive officer (other than Mr. Haase)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 plans), subject to the claims of the Company's
creditors. Such trust is only nominally funded until the occurrence of a
potential change of control.
<PAGE>
<PAGE> 15
Agreements With Certain Executive Officers
- ------------------------------------------
The Company has agreements with Messrs. Wardeberg, Schrader, Donnelly,
Wenzler and Haase 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.
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.
<PAGE>
<PAGE> 16
>> 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.
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 60% 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.
<PAGE>
<PAGE> 17
Long-term incentive plan. The Company's long-term incentive
compensation plan provides for annual awards of stock options and performance-
based restricted stock. The plan splits an officer's long-term incentive
opportunity approximately 75% and 25% (based on value) between stock options
and performance-based restricted stock, respectively. 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 and individual circumstances;
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 a per share exercise
price equal to the fair market value of a share of Common Stock 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.
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 weight 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 1998 were
nonstatutory, have a term of ten years, and first become exercisable one-third
each year on the first, second and third anniversary of the grant. Restricted
stock grants were made in the targeted amounts.
<PAGE>
<PAGE> 18
Compensation of the Chief Executive Officer
-------------------------------------------
The Compensation Committee increased the base salary of George E.
Wardeberg, the Company's Chairman and Chief Executive Officer, by $40,000 or
8.5% effective April 1, 1998. The increase reflects his overall performance,
as demonstrated by record earnings for the Company in 1997, an increase in
earnings per share of 5% and a total return of 35%, along with his position in
the salary range. The increase set Mr. Wardeberg's salary in the third
quartile of the range targeted by the Compensation Committee.
The Compensation Committee awarded Mr. Wardeberg 200,000 nonstatutory
stock options in 1998. This award has special vesting terms as follows: one-
third on February 17, 1999; one-third on February 17, 2000; and one-third on
the earlier of February 17, 2001 or his retirement. The number of options
awarded was two times the targeted number established in the long-term
incentive compensation plan. This increase reflects Mr. Wardeberg's
anticipated retirement in the next several years. As a result, Mr. Wardeberg
will not receive an award of nonstatutory stock options in 1999.
The Compensation Committee also awarded Mr. Wardeberg 7,200 shares of
performance-based restricted stock. The number of shares awarded was at the
targeted number established in the long-term incentive compensation plan, and
the shares will vest pro rata (1/36 for each month of employment beginning
January 1, 1998)should Mr. Wardeberg retire prior to December 31, 2000.
The annual incentive award to Mr. Wardeberg for 1998 was $136,232 or
27.2% of his salary as compared to a target of 60% of salary. This award
reflects Mr. Wardeberg's contributions to the Company during 1998. 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 7.4%, less
than targeted at 8.5% and earnings per share decreasing by 9%, less than the
targeted growth of 10%. This was caused primarily by Wisconsin Gas' earnings
declining by 23% due to weather that was 16% warmer than normal for the year.
Despite the adverse impacts of the weather on utility earnings, manufacturing
net earnings were up 19%, setting another record and partially offsetting the
decline at the utility. The Company also outperformed its industry peers over
the last five years as shown in the accompanying Total Return Comparison
performance graph. In addition, Mr. Wardeberg accomplished many of his
personal objectives in the areas of growth, preserving the Company's financial
strength, and human resources which included a management succession plan.
The Compensation Committee exercised its judgment in determining the weight
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
<PAGE>
<PAGE> 19
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 a peer group comprised of 30 U.S.
natural gas distribution utilities. The peer group formerly was published as
the PaineWebber Gas Distribution Utility Index. However, PaineWebber ceased
publication of the index in 1998. The Company has obtained the performance
information for the same peer group companies from an independent, but
unpublished source. The peer group companies are: AGL Resources Inc., Atmos
Energy Corp., Bay State Gas Co., Cascade Natural Gas Corp., Connecticut Energy
Corp., Consolidated Natural Gas Co., CTG Resources, Inc., Energen Corp.,
Equitable Resources, Inc., Indiana Energy, Inc., KN Energy, Inc., KeySpan
Energy Corp., Laclede Gas Co., MCN Energy Group Inc., National Fuel Gas Co.,
New Jersey Resources Corp., Nicor, Inc., Northwest Natural Gas Co., NUI Corp.,
ONEOK, Inc., Peoples Energy Corp., Piedmont Natural Gas Co., Inc., Providence
Energy Corp., Public Service Company of North Carolina, Inc., Questar Corp.,
South Jersey Industries, Inc., UGI Corp., Washington Gas Light Co., WICOR,
Inc., and Yankee Energy Systems, Inc. The information presented assumes that
all dividends were reinvested. The returns of each company have been weighted
based on such company's relative market capitalization.
[Performance graph will appear here.]
Total Return Comparison *
Value of $100 Invested Year-End 1993
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- --------
WICOR $ 100 $ 95 $ 114 $ 133 $ 180 $ 176
S&P $ 100 $ 101 $ 139 $ 171 $ 228 $ 293
Industry $ 100 $ 86 $ 109 $ 130 $ 159 $ 144
* Includes Reinvested Dividends
<PAGE>
<PAGE> 20
SHAREHOLDER PROPOSALS
---------------------
Proposals which shareholders of the Company intend to present at the 2000
Annual Meeting of Shareholders and have included in the Company's proxy
statement relating to such meeting pursuant to Rule 14a-8 must be received by
the Company by the close of business on November 12, 1999. If the Company
receives notice of a shareholder proposal that is submitted other than
pursuant to Rule 14a-8 after January 29, 2000, the notice will be deemed
untimely and the persons named in proxies solicited by the Board of Directors
for the 2000 Annual Meeting may exercise discretionary voting power with
respect to such shareholder proposal.
OTHER MATTERS
-------------
Arthur Andersen LLP was retained as the Company's independent auditors
for the year ended December 31, 1998 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, 1999. A
representative of Arthur Andersen is expected to be present at the Annual
Meeting with the opportunity to make a statement if such representative
desires to do so, and it is expected that such representative will be
available to respond to appropriate questions.
The Company will file with the Securities and Exchange Commission on or
before March 31, 1999, an annual report on Form 10-K for the fiscal year ended
December 31, 1998. 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 inten-
tion 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 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
/s/ Robert A. Nuernberg
-------------------------
Secretary
March 15, 1999
<PAGE>
<PAGE> 21
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
- ----------------------------------------------------------------------------
1. Election of the following nominees as directors for three-year terms:
Jere D. McGaffey and Thomas F. Schrader.
FOR all nominees WITHHOLD
(except as marked AUTHORITY
to the contrary) to vote for all nominees
/ / / /
(Instruction: To withhold authority to vote
for any nominee write the name below)
-------------------------------------------
. . . . . . . . . . . . . . . . . . . . . .
. .
. .
. .
. . This Voting Authoriza-
. . tion is Solicited by the
. . Board of Directors
. . . . . . . . . . . . . . . . . . . . . .
Signature(s) _________________________________ Date ________________
NOTE: Please sign as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
<PAGE> 22
FOLD AND DETACH HERE
March 15, 1999
Dear WICOR Employee Shareholder:
Enclosed is a notice of WICOR's annual shareholders meeting, coming up
April 22, 1999, in Milwaukee. Also enclosed is a proxy statement, voting
authorization card and WICOR 1998 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 22, 1999, 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
Chairman 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> 23
--- (BACKSIDE OF VOTER AUTHORIZATION FORM) ---
WICOR
VOTING AUTHORIZATION
The undersigned acknowledges receipt of the WICOR, Inc. Annual Report for
1998 and the proxy solicitation material relative to the Annual Meeting of
Shareholders of WICOR, Inc. to be held April 22, 1999. 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 22, 1999.
(continued on the reverse side)
<PAGE>
<PAGE> 24
APPENDIX II
/X/ Please mark your
votes as indicated
WICOR in this example
PROXY
- ------------------------------------------------------------------------
The Board of Directors recommends a vote FOR all nominees in Item 1
- ------------------------------------------------------------------------
1. Election of the following nominees as directors for three-year terms:
Jere D. McGaffey and Thomas F. Schrader
FOR all nominees WITHHOLD
(except as marked AUTHORITY
to the contrary) to vote for all nominees
/ / / /
(Instruction: To withhold authority to vote for
any nominee write the name below)
-----------------------------------------------
Please check this box
if you plan to attend
the annual meeting
[ ]
This Proxy is Solicited
by the Board of Directors
Signature(s) __________________________ Date __________________
NOTE: Please sign as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
<PAGE> 25
FOLD AND DETACH HERE
March 15, 1999
Dear WICOR Shareholder:
We're pleased to send you the enclosed 1998 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 22, 1999. This year's meeting will be held at the
Italian Community Center, 631 East Chicago Street, Milwaukee, Wisconsin,
beginning at 2:00 p.m. (Central Time). A map with directions to the center
is on the reverse side of this letter. Free parking is available in a lot
on the south side of the building.
At the meeting, we will elect directors, discuss 1998 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 22.
Sincerely,
George E. Wardeberg
Chairman and Chief Executive Office
<PAGE>
<PAGE> 26
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 22, 1999, at 2:00
P.M., at the Italian Community Center, 631 E. Chicago Street, Milwaukee,
Wisconsin, and at any adjournments thereof.
The shares represented by this proxy will be voted as directed by the
shareholder. If no direction is given when the duly executed proxy is
returned, such shares will be voted "FOR" all nominees in Item 1, and in
the discretion of the proxies on any other items of business as may properly
arise at the meeting.
Please mark, date and sign on the reverse side exactly as name appears and
return in the enclosed postage-paid envelope. If shares are held jointly,
each shareholder named should sign. If signing as attorney, administrator,
executor, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by duly authorized officer.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL
MEETING OF SHAREHOLDERS OF WICOR, INC., APRIL 22, 1999.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
Map of eastern downtown Milwaukee, Wisconsin, showing
location of annual meeting and the routes to take within
Milwaukee and from Chicago, Green Bay and Madison.
</TABLE>
