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, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-7951
WICOR, Inc.
------------------------------------------------------
(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:
Common Stock, $1 par value New York Stock Exchange
Associated Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. X
Yes No.
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant: $878,833,100 at February 28, 1998.
Number of shares outstanding of each of the registrant's classes of
common stock, as of February 28, 1997:
Common Stock, $1 par value 18,631,681 shares
Documents Incorporated by Reference
WICOR, Inc. proxy statement dated March 13, 1998 (Part III)
WICOR, Inc. 1997 Annual Report to Shareholders (Parts I and II)
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TABLE OF CONTENTS
PAGE
PART I. 1
Item 1. Business 1
a) General Development of Business 1
b) Financial Information about Industry Segments 1
c) Forward-Looking Statements 1
d) Narrative Description of Business 2
1) Energy 2
A. General 2
B. Gas Markets and Competition 2
C. Gas Supply, Pipeline Capacity and Storage 3
1) General 3
2) Pipeline Capacity and Storage 3
3) Term Gas Supply 4
4) Spot Market Gas Supply 4
5) Potential New Pipeline Capacity 4
D. Wisconsin Regulatory Matters 5
1) Rate Matters 5
2) Gas Cost Recovery Mechanism 5
3) Transition Cost Recovery Policy 5
4) Changing Regulatory Environment 5
E. Employees 5
2. Manufacturing of Pumps, Fluid
Processing and Filtration Equipment................6
A. General 6
B. U.S. Operations 6
C. International Operations 6
D. Raw Materials and Patents 6
E. Employees 7
Item 2. Properties 7
a) Capital Expenditures 7
b) Energy 7
c) Manufacturing of Pumps, Fluid Processing
and Filtration Equipment 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 9
Executive Officers of the Registrant 9
PART II 10
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition 10
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 10
2
TABLE OF CONTENTS (continued)
PAGE
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 10
PART III. 10
Item 10. Directors and Executive Officers
of the Registrant 10
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain
Beneficial Owners and Management 11
Item 13. Certain Relationships and Related Transactions 11
PART IV 11
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 11
a) Documents Filed as Part of the Report 11
1. All Financial Statements and Financial
Statement Schedules 11
2. Financial Statement Schedules 11
3. Exhibits 11
b) Reports on Form 8-K 11
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PART I
Item 1. BUSINESS
a) General Development of Business
WICOR, Inc. (the "Company" or "WICOR") is a diversified holding
company with two principal business groups: energy services and pump
manufacturing, with the following subsidiaries engaged in the indicated
businesses. Wisconsin Gas Company ("Wisconsin Gas") engages in retail
sales and distribution of natural gas. WICOR Energy Services Company
("WICOR Energy") sells energy and energy-related services. FieldTech,
Inc. ("FieldTech") performs contract meter reading, manages field
operations and provides billing services for gas, electric and water
utilities. Sta-Rite Industries, Inc. ("Sta-Rite"), SHURflo Pump
Manufacturing Co. ("SHURflo") and Hypro Corporation ("Hypro") are
manufacturers of pumps and fluid processing and filtration equipment.
WICOR Industries, Inc. ("WICOR Industries") is an intermediate holding
company which was formed during 1996 to hold the stock of the
manufacturing subsidiaries. The Company is a Wisconsin corporation and
maintains its principal executive offices in Milwaukee, Wisconsin.
The Company was incorporated in 1980, when it acquired all the
outstanding common stock of Wisconsin Gas through a merger. The Company
acquired all of the outstanding common stock of Sta-Rite, SHURflo and
Hypro through acquisitions in 1982, 1993, and 1995, respectively.
Per news release in April, 1997 Nocchi Pompe S.p.A., an Italian
subsidiary of Sta-Rite, purchased selected business assets and assumed
certain liabilities of Majmar Pompe s.r.l., a pump manufacturer located
in Milan, Italy. Majmar makes pumps for water circulation and pressure
boosting applications. Majmar pumps are used primarily in residential
and commercial heating systems, fire protection systems, high rise
buildings and municipal water supply systems.
In June, 1997 FieldTech acquired selected business assets of
Can Am Utility Services Corporation, a privately held provider of
contract meter reading, meter installation and other services for water,
gas and electric utilities.
In August, 1997 Sta-Rite purchased a line of swimming pool and
spa lighting equipment made by Hydrel, a division of California-based
QTY industries. Sta-Rite also assumed certain liabilities of Hydrel.
In September, 1997 the Company acquired a 100% ownership
interest in Fibredyne, Inc. ("Fibredyne"). Fibredyne is a New Hampshire
based manufacturer of specialty filter cartridges for purification of
drinking water and industrial process fluids. Fibredyne operates as a
subsidiary of Sta-Rite.
At December 31, 1997, the Company (including subsidiaries) had
3,625 employees.
b) Financial Information About Industry Segments
Refer to the section entitled "Management's Discussion and
Analysis-General Overview" set forth in the Company's 1997 Annual Report
to Shareholders. That section is included in Exhibit 13 hereto and is
hereby incorporated herein by reference.
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c) Forward-Looking Statements
Certain matters discussed in this Annual Report are "forward-
looking statements" intended to qualify for the safe harbor from
liability established by the Private Securities Litigation Reform Act of
1995. These forward-looking statements can generally be identified as
such because the context of the statements will include such words as
the Company "believes," "anticipates" or "expects," or words of similar
import. Similarly, statements that describe the Company's future plans,
objectives or goals are also forward-looking statements. Such forward-
looking statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those currently
anticipated. Such risks and uncertainties include general economic
conditions; weather conditions; business conditions in the energy
industry; the impact of and changes in government regulations; changes
in environmental remediation costs; unanticipated increases in
manufacturing costs; market acceptance of or preference for the
Company's products; technological factors; and other risk factors
identified from time to time by the Company in reports filed with the
Securities and Exchange Commission. Shareholders, potential investors
and other readers are urged to consider these factors carefully in
evaluating the forward-looking statements and are cautioned not to place
undue reliance on such forward-looking statements.
d) Narrative Description of Business
1. ENERGY
A. General
Wisconsin Gas is the largest natural gas distribution public
utility in Wisconsin. At December 31, 1997, Wisconsin Gas distributed
gas to approximately 521,000 residential, commercial and industrial
customers in 521 communities throughout Wisconsin. Wisconsin Gas'
service area has an estimated population of approximately 2,000,000
based on State of Wisconsin's estimates for 1997. Wisconsin Gas is
subject to the jurisdiction of the Public Service Commission of
Wisconsin ("PSCW") as to various phases of its operations, including
rates, service and issuance of securities. See "Wisconsin Regulatory
Matters".
WICOR Energy and FieldTech are in their third year of
operations, and their results are not material to the Company's
financial position or results of operations.
B. Gas Markets and Competition
Wisconsin Gas' business is highly seasonal, particularly as to
residential and commercial sales for space heating purposes, with a
substantial portion of its gas deliveries occurring during the winter
heating season. Competition in varying degrees exists between natural
gas and other forms of energy available to consumers. Most of Wisconsin
Gas' large commercial and industrial customers are dual-fuel customers
that are equipped to switch between natural gas and alternate fuels.
Wisconsin Gas offers lower-priced interruptible rates and transportation
services for these customers to enable them to reduce their energy costs
and use gas rather than other fuels. Under gas transportation
agreements, customers purchase gas directly from gas marketers and
arrange with pipelines and Wisconsin Gas to have the gas transported to
the facilities where it is used. Wisconsin Gas also offers to sell gas
at prices that are competitive with third-party sellers. Wisconsin Gas
earns substantially the same margin (difference between revenue and cost
of gas), whether it sells gas and transportation to customers or only
transports third-party gas. Effective November 1, 1997, Wisconsin Gas'
margin may be impacted by its gas purchasing practices. See "Wisconsin
Regulatory Matters - Gas Cost Recovery".
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The following table sets forth the volumes of natural gas
delivered by Wisconsin Gas to its customers. The volumes shown as
transported represent third-party gas that was delivered by Wisconsin
Gas to its customers. The sales volumes represent quantities sold and
delivered to customers by Wisconsin Gas.
Customer Class Year Ended
------------------------------------------------
December 31, 1997 December 31, 1997
-------------------- ----------------------
Thousands Thousands
Sales of Therms* Percent of Therms* Percent
- --------------------- --------- ------- ---------- -------
Residential 484,330 37.5 529,910 39.1
Commercial 219,220 17.0 242,570 17.9
Large Volume Commercial
and Industrial Firm 87,240 6.8 110,780 8.2
Commercial and
Industrial
Interruptible 72,770 5.5 196,240 14.5
--------- ------- ---------- ------
Total Sales 863,560 66.8 1,079,500 79.7
Transportation
- --------------
Transported 428,830 33.2 275,780 20.3
--------- ------- ---------- ------
Total Gas Throughput 1,292,390 100.0 1,355,280 100.0
========= ======= =========== ======
*One therm equals 100,000 BTU's.
Wisconsin Gas continues to secure approximately 98% of all new
residential heating, 88% of existing residential and commercial retrofit
and 70% of all new commercial construction customers in its service
territory. Up to 25% of Wisconsin Gas' Milwaukee area annual market
requirements can be supplied through the interstate pipelines of either
ANR Pipeline Company ("ANR") or Northern Natural Gas Company ("NNG").
This capability enhances competition between ANR and NNG for services to
Wisconsin Gas and its customers, and management believes that such
competition provides overall lower gas costs to all customers than
otherwise would exist.
Federal and state regulators continue to implement policies to
bring more competition to the gas industry. The PSCW has instituted a
proceeding to consider how its regulation of gas distribution utilities
should change to reflect the changing competitive environment in the gas
industry. While the gas utility distribution function is expected to
remain a heavily regulated, monopoly function, the sales of the natural
gas commodity and related services, which were formerly utility monopoly
functions, are expected to become increasingly subject to competition
from third parties. Given this regulatory direction and the fact that
Wisconsin Gas' earnings are substantially the same whether it sells and
distributes gas or only distributes it, Wisconsin Gas is pursuing a
long-term strategy to no longer sell gas. WICOR Energy sells gas on a
for-profit basis and will seek to replace Wisconsin Gas for a
significant number of Wisconsin Gas' customers as well as those of other
utilities. Wisconsin Gas must obtain PSCW approval to implement its
strategy. To date, the PSCW has stated that it will permit utilities to
discontinue the sale of gas on a market segment by market segment basis,
when it determines that there is adequate and persistent competition in
the particular segment. So far, the PSCW has not permitted any Wisconsin
utility to discontinue completely the sale of gas to any market segment.
6
With PSCW approval, Wisconsin Gas has implemented a small-
customer gas-supplier choice pilot program that is designed to test (1)
market acceptance of third-party gas marketers, (2) third-party seller
interest in selling gas in different market segments, and (3) Wisconsin
Gas' capabilities to administer a distribution-only business. The pilot
program, which began on November 1, 1996, has 2,114 small commercial and
residential participants. Wisconsin Gas expects to continue the pilot
program, with certain modifications. Wisconsin Gas also has taken steps
to enable its large firm commercial and industrial customers to transfer
from sales and distribution to distribution-only service. As a
consequence of state regulatory policies and Wisconsin Gas' actions, the
volume of gas sold by third parties and distributed by Wisconsin Gas has
increased steadily since 1995 and now constitutes approximately one-
third of the gas distributed by Wisconsin Gas. See "Wisconsin
Regulatory Matters". In 1997, Wisconsin Gas added over 8,000 customers
and has added more than 50,000 customers over the past five years.
Wisconsin Gas' future ability to maintain its present share of
the industrial dual-fuel market (the market that is equipped to use gas
or other fuels) depends on the success of Wisconsin Gas and third-party
gas marketers in obtaining long-term and short-term supplies of natural
gas at marketable prices and their success in arranging or facilitating
competitively-priced transportation service for those customers that
desire to buy their own gas supplies. Although the dual-fuel market
comprises more than 35% of Wisconsin Gas' annual deliveries, it
contributes only about 10% of Wisconsin Gas' margin.
C. Gas Supply, Pipeline Capacity and Storage
1) General
Prior to the Federal Energy Regulatory Commission's ("FERC")
Order No. 636, which was implemented on November 1, 1993, the interstate
pipelines serving Wisconsin Gas were the primary sellers of natural gas
to Wisconsin Gas. Order No. 636 required the pipelines to discontinue
the sale of gas on a delivered basis. During the transition period
prior to the implementation of Order No. 636, Wisconsin Gas gradually
assumed responsibility for the acquisition of supply from other sellers
in the production areas of North America, as well as the management of
transportation and storage capacities to deliver that supply to its
market area. On November 1, 1993, Wisconsin Gas commenced full
operation and responsibility for its supply and capacity under the
requirements of Order No. 636.
One of the provisions of Order No. 636 is capacity release.
Capacity release creates a secondary market for pipeline long-line and
storage capacity and for gas supplies. Local distribution companies,
such as Wisconsin Gas, must contract for capacity and supply sufficient
to meet the firm peak day demand of their customers. Peak or near peak
days generally occur only a few times each year, so capacity release
facilitates higher utilization of capacity and supply during those times
when the capacity and supply are not needed by the utility. Through
pre-arranged agreements and day-to-day electronic bulletin board
postings, interested parties can purchase this excess capacity and
supply. The proceeds from these transactions are passed through to
ratepayers, thereby helping to mitigate the fixed costs associated with
maintaining peak levels of capacity and gas supply. During 1997,
Wisconsin Gas continued its active participation in the capacity release
market.
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Operating under Order No. 636, Wisconsin Gas has been able to
meet its contractual obligations with both its suppliers and its
customers despite periods of severe cold and unseasonably warm weather.
2) Pipeline Capacity and Storage
Interstate pipelines serving Wisconsin originate in three major
gas producing areas of North America: the Oklahoma and Texas basins,
the Gulf of Mexico and western Canada. Wisconsin Gas has contracted for
long-term firm capacity on a relatively equal basis from each of these
areas. This strategy reflects management's belief that overall supply
security is enhanced by geographic diversification of Wisconsin Gas'
supply portfolio and that Canada represents an important long-term
source of reliable, competitively-priced gas. See "Potential New
Pipeline Capacity".
Because of the daily and seasonal variations in gas usage in
Wisconsin, Wisconsin Gas has also contracted with ANR and NNG for
substantial underground storage capacity, primarily in Michigan. There
are no known underground storage formations in Wisconsin capable of
commercialization. Storage enables Wisconsin Gas to manage significant
changes in daily demand and to optimize its overall gas supply and
capacity costs. In summer, gas in excess of market demand is
transported into the storage fields, and in winter, gas is withdrawn
from storage and combined with gas purchased in or near the production
areas ("flowing gas") to meet the increased winter market demand. As a
result, Wisconsin Gas can contract for less long-line pipeline capacity
than would otherwise be necessary, and it can purchase gas on a more
uniform daily basis from suppliers year-round. Each of these
capabilities enables Wisconsin Gas to reduce its overall costs.
Wisconsin Gas also maintains high deliverability storage in the
mid-continent and Southeast production areas, as well as the market
area. This storage capacity is designed to deliver gas when other
supplies cannot be delivered during extremely cold weather in the
producing areas, which can reduce long-line supply.
Wisconsin Gas' firm winter daily transportation and storage
capacity entitlements from pipelines under long-term contracts are set
forth below.
Maximum Daily
Pipeline (Thousands of Therms*)
------------------- ----------------------
ANR
Mainline 2,821
Storage 4,826
NNG
Mainline 1,048
Peaking Facilities 228
Viking
Mainline 77
Peaking Facilities 76
---------------------
Total 9,076
=====================
*One therm equals 100,000 BTU's.
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3) Term Gas Supply
Wisconsin Gas has contracts for firm supplies with terms in
excess of 30 days with approximately 20 gas suppliers for gas produced
in each of the three producing areas discussed above. The term
contracts have varying durations so that only a portion of Wisconsin
Gas' gas supply expires in any year. Management believes the volume of
gas under contract is sufficient to meet its forecasted firm peak day
demand. The following table sets forth Wisconsin Gas' winter season
maximum daily firm total gas supply.
Maximum Daily
(Thousands
of Therms*)
--------------
Domestic flowing gas 1,937
Canadian flowing gas 1,628
Storage withdrawals 5,054
Peaker withdrawals 76
--------------
Total 8,695
==============
*One therm equals 100,000 BTU's.
4) Spot Market Gas Supply
Wisconsin Gas expects to continue to make gas purchases in
the 30-day spot market as price and other circumstances dictate.
Wisconsin Gas has purchased spot market gas since 1985 and has supply
relationships with a number of sellers from whom it purchases spot gas.
5) Potential New Pipeline Capacity
Viking Voyageur Gas Transmission LLC has filed an
application with the FERC to construct a 775-mile, 42-inch, high-
pressure natural gas pipeline from the United States - Canada border at
Emerson, Manitoba, Canada, to the Chicago area near Joliet, Illinois
("Viking Voyageur"). The pipeline would run generally east from the
Minneapolis area to Marshfield, Wisconsin and then generally south to
Chicago. The pipeline would have a capacity of 1.4 billion cubic feet
of gas per day. The pipeline is proposed to be in service by November
1, 1999.
Wisconsin Gas is in the process of negotiating contracts
for the purchase of Canadian gas which the sellers would deliver to
various points in Wisconsin along the Viking Voyageur route. Wisconsin
Gas would file applications with the PSCW to construct one or more
lateral lines to connect the utility's distribution system to Viking
Voyageur.
The Viking Voyageur pipeline would provide benefits to
Wisconsin Gas and its customers in two major ways. First, it would
provide ongoing competition with ANR and NNG, which is likely to cause
customers' overall gas bills to decline. Second, it would provide
additional capacity which will be necessary to meet future demand for
gas and to ensure gas service remains reliable.
Management cannot predict if or when Viking Voyageur will
be approved and constructed, nor if and when Wisconsin Gas will receive
approval for or construct laterals to connect to Viking Voyageur.
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D. Wisconsin Regulatory Matters
1) Rate Matters
Wisconsin Gas is subject to the jurisdiction of the PSCW
as to various phases of its operations, including rates, customer
service and issuance of securities.
Wisconsin Gas' rates were made subject to a total margin
rate cap (initially three years through October 1997) based on the rates
in effect in November 1994. On October 10, 1997, the PSCW approved a
second one-year extension of the margin cap mechanism to November 1,
1999. The PSCW order also specified margin rate floors for each rate
class. Wisconsin Gas has the ability to raise or lower margin rates
within the specified range on a quarterly basis. The rates at December
31, 1997, were $9.0 million below the cap because of annualized rate
reductions beginning in 1995.
2) Gas Cost Recovery
Wisconsin Gas' rates traditionally contained clauses
providing for periodic adjustment, with PSCW approval, to reflect
changes in purchased gas costs including the recovery of transition
costs passed through by pipeline suppliers. See "Wisconsin Regulatory
Matters - Transition Cost Recovery Policy".
The PSCW approved an incentive gas cost recovery mechanism
for Wisconsin Gas effective November 1, 1997. Under the mechanism,
monthly targeted gas supply costs, including upstream capacity costs,
are set. At the end of each 12-months, Wisconsin Gas' actual gas supply
costs are compared with the aggregate annual targeted costs. If
Wisconsin Gas' actual costs are within 1-1/2% (either above or below)
the target costs, Wisconsin Gas recovers its actual costs. If Wisconsin
Gas' actual costs are between 1-1/2% and 4% below the target, Wisconsin
Gas and its customers share the benefits equally. Similarly, if actual
gas costs are between 1-1/2% and 4% above the target, Wisconsin Gas and
its customers share the additional costs equally. If actual costs are
outside the 4% band either side of the target, the benefits and
additional costs below or above 4%, as the case may be, accrue to or are
borne by customers.
3) Transition Cost Recovery Policy
Under Order No. 636, interstate pipelines are permitted to
recover certain costs incurred in the transition from the bundled sales
service to the unbundled Order No. 636 regime. ANR and NNG have filed
to recover transition costs and may file in the future to recover
additional transition costs. Wisconsin Gas will bear a portion of such
additional costs approved by the FERC. The PSCW has permitted Wisconsin
Gas to recover transition costs from customers through its rates.
In the judgment of management, the incurrence of these
transition costs will have no material effect on Wisconsin Gas'
operations or financial condition under current PSCW policy. See Note 8a
to Notes to Consolidated Financial Statements contained in Exhibit 13,
consisting of portions of the Company's 1997 Annual Report to
Shareholders, which note is hereby incorporated herein by reference.
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4) Changing Regulatory Environment
The PSCW has instituted a proceeding to consider how its
regulation of gas distribution utilities should change to reflect the
changing competitive environment in the gas industry. To date, the PSCW
has made a policy decision to deregulate gas prices for customer
segments with workably competitive market choices. The PSCW has
identified numerous issues which must be resolved before its policy can
be implemented. The PSCW has a number of work groups addressing these
issues. Work group recommendations to the PSCW are due over the next
two years. The Company is unable to determine what impact this
proceeding may have on Wisconsin Gas' operations or financial position.
See "Gas Markets and Competition".
E. Employees
At December 31, 1997, the energy group had 1,174 full-time
active employees.
2. MANUFACTURING OF PUMPS AND FLUID PROCESSING AND FILTRATION
EQUIPMENT
A. General
The Company's manufacturing subsidiaries manufacture pumps
and fluid processing and filtration equipment for residential,
agricultural and industrial markets world-wide. Manufacturing and
assembly activities are conducted in plants in the United States,
Australia, Germany, India, Italy, Mexico and New Zealand.
B. U.S. Operations
Water products include jet, centrifugal, sump, submersible
and submersible turbine water pumps, water storage and pressure tanks,
residential and in-line pool and spa filters, and pump and tank systems.
These products pump, filter and store water used for drinking, cooking,
washing and livestock watering, and are used in private and public
swimming pools, spas, "hot tubs", jetted bathtubs, and fountains. The
manufacturing businesses also produce large higher pressure and capacity
water pumps used in agricultural and turf irrigation systems and in a
wide variety of commercial, industrial and municipal fluids-handling
applications.
Small, high performance pumps, and related fluids-handling
products, are used in four primary markets: (1) the food service
industry, where gas operated pumps are used for pumping soft drinks made
from syrups, and electric motor driven pumps are used for water boost
and drink dispensing; (2) the recreational vehicle and marine markets,
where electric motor driven pumps are used for a variety of applications
including pumping potable water in travel trailers, motor homes, camping
trailers and boats, and for other applications including marine engine
cooling, marine wash down, bilge and live well pumping; (3) industrial
markets, where applications are used in carpet cleaning machines for
soil extraction, agricultural equipment for spraying pesticides and
fertilizers, firefighting applications and general industrial
applications requiring fluid handling; and (4) the water purification
industry, where electric motor driven pumps are used to pressurize
reverse osmosis systems and for water transfer.
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Sales of pumps and water processing equipment are somewhat
related to the seasons of the year as well as the level of activity in
the housing construction industry and are sensitive to weather, interest
rates, discretionary income, and leisure and recreation spending. The
markets for most water and industrial products are highly competitive,
with price, service and product performance all being important
competitive factors. The Company believes it is a leading producer of
pumps for private water systems and swimming pools and spas, and for the
food service, recreational vehicle, agricultural spraying, and marine
engine cooling markets. Management believes the Company also ranks among
the larger producers of pool and spa filters, submersible turbine pumps
and pumps for firefighting. Major brand names under trademarks include
"Sta-Rite", "Berkeley", "SHURflo", "Flotec", "AquaTools", "Hydro-Flow",
"FoamPro", "Onga", "Hypro", "Sherwood", "SherTech", and "Nocchi".
Domestic pumps and water products are sold and serviced
primarily through a network of independent distributors, dealers,
retailers and manufacturers' representatives serving the well drilling,
hardware, plumbing, pump installing, irrigation, pool and spa, food
service, recreational vehicle, marine, industrial, commercial and do-it-
yourself markets. Sales are also made on a private brand basis to large
customers in all water products markets and to original equipment
manufacturers.
Backlog of orders for pumps and water products is not a
significant indicator of future sales.
C. International Operations
International operations are conducted primarily by
international subsidiaries and export operations from the United States.
Products are sold to markets in approximately 100 countries on six
continents. Foreign manufacturing is carried out by Australian, German,
Indian, Italian, Mexican and New Zealand subsidiaries. The products sold
in the international markets in some cases are similar to those sold in
the United States, but in many instances have distinct features required
for those markets. Product distribution channels are similar to those
for domestic markets. Non-domestic operating revenues, including
exports, were 34% of 1997 manufacturing group sales.
D. Raw Materials and Patents
Raw materials essential to the manufacturing operations
are available from various established sources in the United States and
overseas. The principal raw materials needed for production of the
Company's primary lines of products include cast iron, aluminum and
bronze castings for pumps; copper wire, steel and aluminum for motors;
stainless and carbon sheet steel, bar steel and tubing; plastic resins
for injection molded components; and powdered metal components. The
manufacturing units also purchase from third party suppliers completely
assembled electric motors, plastic molded parts, elastomers for valves
and diaphragms, components for electric motors, stamped and die-cast
metal parts, and hardware and electrical components. Although the
manufacturing subsidiaries own a number of patents and hold licenses for
manufacturing rights under other patents, no one patent or group of
patents is material to the success of the manufacturing businesses as a
whole.
E. Employees
At December 31, 1997, the manufacturing group had 2,442
full time active employees.
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Item 2. PROPERTIES
a) Capital Expenditures
The Company's capital expenditures for the year ended
December 31, 1997, totaled $51.6 million. Retirements during this
period totaled $24.6 million. Except as discussed under "Legal
Proceedings", the Company does not expect to make any material capital
expenditures for environmental control facilities in 1998.
(b) Energy
Wisconsin Gas owns a distribution system which, on
December 31, 1997, included approximately 8,700 miles of distribution
and transmission mains, 435,700 services and 523,700 active meters.
Wisconsin Gas' distribution system consists almost entirely of plastic
and coated steel pipe. Wisconsin Gas also owns its main office building
in Milwaukee, office buildings in certain other communities in which it
serves, gas regulating and metering stations, peaking facilities and its
major service centers, including garage and warehouse facilities.
The Milwaukee and other office buildings, the principal
service facilities and the gas distribution systems of Wisconsin Gas are
owned by it in fee subject to the lien of its Indenture of Mortgage and
Deed of Trust, dated as of November 1, 1950, under which its first
mortgage bonds are issued, and to permissible encumbrances as therein
defined. Where distribution mains and services occupy private property,
Wisconsin Gas in some, but not all, instances has obtained consents,
permits or easements for such installations from the apparent owners or
those in possession, generally without an examination of title.
(c) Manufacturing of Pumps, Fluid Processing and Filtration Equipment
The manufacturing group has 15 manufacturing facilities
located in California (3), Minnesota, Nebraska, New Hampshire,
Wisconsin, Australia, Germany, India, Italy (3), Mexico and New Zealand.
These plants contain a total of approximately 1,240,000 square feet of
floor space. The Company through its manufacturing business also owns or
leases six sales/distribution facilities in the United States, five in
Australia, and one each in Canada, France, Italy, Kazakhstan, Mexico,
New Zealand, Russia and the United Kingdom.
Item 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending, other
than ordinary routine litigation incidental to the Company's businesses,
to which the Company or any of its subsidiaries is a party, except as
discussed below. There are no material legal proceedings to which any
officer or director of the Company or any of its subsidiaries is a party
or has a material interest adverse to the Company. There are no
material administrative or judicial proceedings arising under
environmental quality or civil rights statutes pending or known to be
contemplated by governmental agencies to which the Company or any of its
subsidiaries is or would be a party.
13
a) Manufacturing Business
The manufacturing subsidiaries are involved in various
environmental matters, including matters in which the subsidiaries or
alleged predecessors have been named as potentially responsible parties
under the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA"). The Company has established accruals for all
environmental contingencies of which management is aware in accordance
with generally accepted accounting principles. In establishing these
accruals, management considered (a) reports of environmental consultants
retained by the Company, (b) the costs incurred to date by the Company
at sites where cleanup is presently ongoing and the estimated costs to
complete the necessary remediation work remaining at such sites, (c) the
financial solvency, where appropriate, of other parties that have been
responsible for remediation at specified sites, and (d) the experience
of other parties who have been involved in the remediation of comparable
sites. The accruals recorded by the Company with respect to
environmental matters have not been reduced by potential insurance or
other recoveries and are not discounted. Although the Company has and
will continue to pursue such claims against insurance carriers and other
responsible parties, future potential recoveries remain uncertain, and,
therefore, were not recorded as a reduction to the estimated gross
environmental liabilities. Based on the foregoing and given current
information, management believes that future costs in excess of the
amounts accrued on all presently known and quantifiable environmental
contingencies described above will not be material to the Company's
financial position or results of operations.
In July 1994, Sta-Rite was notified by the Wisconsin
Department of Natural Resources ("WDNR") that the WDNR believes solvents
used at a manufacturing site previously operated by Sta-Rite have
migrated and contributed to the contamination of a Deerfield, Wisconsin
municipal well, serving Deerfield residents, and surrounding property.
In August, 1995 the WDNR issued an order to investigate, restore and
repair the natural resources located in Deerfield. The order was
dismissed on November 6, 1996. Although the Village of Deerfield has
brought suit against Sta-Rite, alleging damages of more than $500,000
for new wells, management believes that the resolution of this matter
will not have a material adverse effect upon its financial condition or
results of operations. However, there is a possibility that costs in
excess of the amount accrued may be incurred in the future.
B Energy Business
Wisconsin Gas has identified two previously owned sites on
which it operated manufactured gas plants. Such plants ceased
operations prior to the mid-1950's. Wisconsin Gas completed a
comprehensive review of its potential environmental liabilities stemming
from these two former manufactured gas plant sites. Significant
technological developments, lower unit costs and the recognition of the
"brown fields" concept by regulatory agencies have all resulted in a
reduction in 1997 in the estimate of the probable liability for cleanup
to $12 million. This cleanup estimate considered a number of factors,
including the estimated extent and volume of contaminated soil and/or
groundwater and is based on current undiscounted costs. In addition,
management believes it is possible, but not likely, that approximately
$5 million in additional remediation costs may be incurred.
Expenditures over the next three years are expected to total
approximately $8 million.
14
The cleanup estimate discussed above includes the costs of
feasibility studies, data collection, soil and groundwater remediation
activities and ongoing monitoring activities through 2017.
Environmental remediation work for one of the sites was commenced in the
first quarter of 1998 and will continue through 1999. It is reasonably
possible that, due to uncertainties associated with defining the nature
and extent of environmental contamination, application of laws and
regulations by regulatory authorities and changes in remediation
technology, the ultimate cost of remediation could change in the future.
The Company periodically reviews its accrued liabilities for such
remediation costs as evidence becomes available indicating that its
remediation liability has changed.
Due to anticipated regulatory treatment, changes in the
Wisconsin Gas recorded cleanup liability for the manufactured gas plant
sites do not immediately impact net income. Under the current
ratemaking treatment approved by the PSCW, the costs expended in the
environmental remediation of these sites, net of any insurance proceeds,
are deferred and recovered from gas customers.
On February 21, 1997, Wisconsin Gas was named by the
defendant in an environmental cleanup lawsuit as a co-defendant. The
suit involves contamination of a Milwaukee area industrial site by wood
chips characteristic of those used in the manufactured gas process.
Wisconsin Gas believes it is not the source of the contaminated wood
chips and intends to vigorously defend the suit. Although the Company
is unable to predict the outcome of the litigation, management currently
believes that amounts recovered from its insurance carriers or through
rate recovery will be sufficient to cover any liability imposed on
Wisconsin Gas.
Wisconsin Gas also owns a service center that is
constructed on a site that was previously owned by the City of Milwaukee
and was used by the City as a public dump site. Wisconsin Gas has
conducted a site assessment at the request of the WDNR and has sent the
report of its assessment to the WDNR. Management cannot predict whether
or not the WDNR will require any remediation action, nor the extent or
cost of any remediation actions that may be required. In the judgment
of management, any remediation costs incurred by Wisconsin Gas will be
recoverable from the City of Milwaukee or in Wisconsin Gas' rates
pursuant to the PSCW's orders discussed above.
See Note 8c to Notes to Consolidated Financial Statements
contained in Exhibit 13, consisting of portions of the Company's 1997
Annual Report to Shareholders, which note is hereby incorporated herein
by reference.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the fourth quarter of 1997.
15
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth the names and ages of, and the offices held by,
the executive officers of the Company. The officers serve one-year
terms commencing with their election at the meeting of the Board of
Directors following the annual meeting of shareholders in April.
Name Age Offices Held
George E. Wardeberg 62 Chairman and Chief Executive Officer of the
Company and its subsidiaries
Thomas F. Schrader 48 President and Chief Operating Officer of the
Company and Vice Chairman of Wisconsin Gas,
WICOR Energy and FieldTech
Bronson J. Haase 53 Vice President of the Company and President
and Chief Executive Officer of Wisconsin Gas,
WICOR Energy and FieldTech
James C. Donnelly 52 Vice President of the Company and President
and Chief Executive Officer of Sta-Rite
Joseph P. Wenzler 56 Senior Vice President, Treasurer and Chief
Financial Officer of the Company and WICOR
Industries; Vice President and Chief
Financial Officer of Wisconsin Gas; Treasurer
and Secretary of SHURflo and Hypro; and VP
and Treasurer of WICOR Energy and FieldTech
Robert A. Nuernberg 58 Secretary of the Company, WICOR Energy
Services and FieldTech; and Vice President-
Corporate Relations and Secretary of
Wisconsin Gas
Each of the executive officers has held his position for more than five
years, except as follows:
Mr. Wardeberg was elected Chairman of the Company effective July 23,
1997. Prior thereto, he was President and Chief Executive Officer of the
Company from 1994 to 1997, and held executive positions with the
Company's subsidiaries from 1989 to 1994. He continues in his position
as Chairman of the Company's subsidiaries.
Mr. Schrader was elected to his current positions in 1997. Prior
thereto, he was Vice President of the Company from 1988 to 1997 and
President and Chief Executive Officer of Wisconsin Gas from 1990 to
1997, WICOR Energy from 1995 to 1997 and FieldTech from 1996 to 1997.
Mr. Haase was elected Vice President of the Company and President and
Chief Executive Officer of Wisconsin Gas, WICOR Energy and FieldTech on
December 31, 1997. Prior thereto, he served as President and Chief
Executive Officer of Ameritech Wisconsin for more than five years.
Mr. Donnelly was elected President and Chief Executive Officer of Sta-
Rite in 1994. He has been a Vice President of the Company since 1987.
Previously, he served as President and Chief Operating Officer of Sta-
Rite for more than five years.
Mr. Wenzler was elected Senior Vice President, Treasurer and Chief
Executive Officer of the Company on July 23, 1997. Prior thereto, he
served as Vice President, Treasurer and Chief Financial Officer of the
Company from 1992 to 1997. He continues as Vice President and Chief
Financial Officer of Wisconsin Gas and as Treasurer and Secretary of
SHURflo and Hypro.
16
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock and the associated common stock
purchase rights (which do not currently trade independently of the
common stock) are traded on the New York Stock Exchange. For information
regarding the high and low sales prices for the Company's common stock
and dividends paid per share in each quarter of 1997 and 1996, see the
section entitled "Investor Information" set forth in the Company's 1997
Annual Report to Shareholders. That section is included in Exhibit 13
hereto and is hereby incorporated herein by reference.
At December 31, 1997, there were 22,312 holders of record
of WICOR common stock.
The Company's ability to pay dividends is dependent to a
great extent on the ability of its subsidiaries to pay dividends. The
Wisconsin Business Corporation Law and the indentures and agreements
under which debt of the Company and its subsidiaries is outstanding each
contain certain restrictions on the payment of dividends on common stock
by the Company's subsidiaries. See Note 7 of Notes to Consolidated
Financial Statements contained in Exhibit 13, consisting of portions of
the Company's 1997 Annual Report to Shareholders, which note is hereby
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
Refer to the section entitled "Selected Financial Data"
set forth in the Company's 1997 Annual Report to Shareholders. Such
section is included in Exhibit 13 hereto and is hereby incorporated
herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Refer to the section entitled "Management's Discussion and
Analysis" set forth in the Company's 1997 Annual Report to Shareholders.
Such section is included in Exhibit 13 hereto and is hereby incorporated
herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to the Company's consolidated balance sheets and
consolidated statements of capitalization as of December 31, 1997 and
1996, and the related consolidated statements of income, common equity
and cash flows for each of the three years in the period ended December
31, 1997, together with the report of independent public accountants
dated January 26, 1998, all appearing in Exhibit 13, consisting of
portions of the Company's 1997 Annual Report to Shareholders, which is
hereby incorporated herein by reference.
17
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no change in or disagreement with the
Company's independent public accountants on any matter of accounting
principles or practices or financial statement disclosure required to be
reported pursuant to this item.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Refer to "Item No. 1: Election of Directors" included in
the WICOR proxy statement dated March 13, 1998, which is hereby incor-
porated herein by reference, for the names, ages, business experience
and other information regarding directors and nominees for election as
directors of the Company. See "Executive Officers of the Registrant"
included in Part I hereof for information regarding executive officers
of the Company.
Item 11. EXECUTIVE COMPENSATION
Refer to "Executive Compensation" included in the WICOR
proxy statement dated March 13, 1998, which is hereby incorporated
herein by reference, for information on compensation of executive
officers of the Company; provided, however, that the subsections
entitled "Board Compensation Committee Report on Executive Compensation"
and "Executive Compensation - Performance Information" shall not be
deemed to be incorporated herein by reference. Refer to "Board of
Directors" included in the WICOR proxy statement dated March 13, 1998,
which is hereby incorporated herein by reference, for information on
compensation of directors of the Company.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Refer to "Security Ownership of Management" included in
the WICOR proxy statement dated March 13, 1998, which is hereby
incorporated herein by reference, for information regarding voting
securities of the Company beneficially owned by its directors and
officers.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to "Item No. 1: Election of Directors" included in
the WICOR proxy statement dated March 13, 1998, which is hereby incorpo-
rated herein by reference, for the information required to be disclosed
under this item.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
18
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
1. All Financial Statements. The Company's consolidated balance
sheets and statements of capitalization as of December 31, 1997 and
1996, and the related consolidated statements of income, common equity
and cash flow for each of the three years in the period ended December
31, 1997, together with the report of independent public accountants
dated January 26, 1998, included in Exhibit 13, consisting of portions
of the Company's 1997 Annual Report to Shareholders, which is
incorporated herein by reference.
2. Financial statement schedules.
Schedule III -- Condensed Statements of Income, Retained Earnings
and Cash Flows (Parent Company Only) for the Years Ended December 31,
1997, 1996 and 1995; Condensed Balance Sheets (Parent Company Only) as
of December 31, 1997 and 1996; Notes to Parent Company Only Financial
Statements.
Financial statement schedules other than those referred to above have
been omitted as not applicable or not required.
3. Exhibits
3.1 WICOR, Inc. Restated Articles of Incorporation, as amended
(incorporated by reference to Exhibit 3.1 to the Company's Form 10-K
Annual Report for 1992).
3.2 WICOR, Inc. By-laws, as amended (incorporated by reference to
Exhibit 3.3 to the Company's Form 10-K Annual Report for 1994).
4.1 Indenture of Mortgage and Deed of Trust, dated as of November 1,
1950, between Milwaukee Gas Light Company and Mellon National Bank and
Trust Company and D. A. Hazlett, Trustees (incorporated by reference to
Exhibit 7-E to Milwaukee Gas Light Company's Registration Statement No.
2-8631).
4.2 Bond Purchase Agreement, dated December 31, 1981, between Wisconsin
Gas Company and Teachers Insurance and Annuity Association of America
relating to the issuance and sale of $30,000,000 principal amount of
First Mortgage Bonds, Adjustable Rate Series due 2002 (incorporated by
reference to Exhibit 4.6 to Wisconsin Gas Company's Form S-3
Registration Statement No. 33-43729).
4.3 Indenture, dated as of September 1, 1990, between Wisconsin Gas
Company and First Wisconsin Trust Company, Trustee (incorporated by
reference to Exhibit 4.11 to Wisconsin Gas Company's Form S-3
Registration Statement No. 33-36639).
4.4 Officers' Certificate, dated as of November 19, 1991, setting forth
the terms of Wisconsin Gas Company's 7-1/2% Notes due 1998 (incorporated
by reference to Exhibit 4.1 to Wisconsin Gas Company's Form 8-K Current
Report dated November 19, 1991).
19
4.5 Officers' Certificate, dated as of September 15, 1993, setting
forth the terms of Wisconsin Gas Company's 6.60% Debentures due 2013
(incorporated by reference to Exhibit 4.1 to Wisconsin Gas Company's
Form 8-K Current Report for September, 1993).
4.6 Officers' Certificate, dated as of November 7, 1995, setting forth
the terms of Wisconsin Gas Company's 6-3/8% Notes due 2005(incorporated
by reference to Exhibit 4 to Wisconsin Gas Company's Form 8-K Current
Report dated November 7, 1995).
4.7 Revolving Credit Agreement, dated as of August 6, 1997, among
WICOR, Inc. and Citibank, N.A., as Agent, Firstar Bank Milwaukee, N.A.,
Harris Trust and Savings Bank and M&I Marshall & Ilsley Bank
(incorporated by reference to Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q dated October 31, 1997).
4.8 Revolving Credit Agreement, dated as of August 6, 1997, among
Wisconsin Gas Company and Citibank, N.A., as Agent, Firstar Bank
Milwaukee, N.A., Harris Trust and Savings Bank and M&I Marshall &
Illsley Bank (incorporated by reference to Exhibit 4.2 the Company's
Quarterly Report on Form 10-Q dated October 31, 1997).
4.9 Revolving Credit Agreement, dated as of August 6, 1997, among WICOR
Industries, Inc. and Citibank, N.A., as Agent, Firstar Bank Milwaukee,
N.A., Harris Trust and Savings Bank and M&I Marshall & Illsley Bank
(incorporated by reference to Exhibit 4.3 to the Company's Quarterly
Report on Form 10-Q dated October 31, 1997).
4.10 Rights Agreement, dated as of August 29, 1989, between WICOR, Inc.
and Manufacturers Hanover Trust Company, Rights Agent (incorporated by
reference to Exhibit 4 to the Company's Form 8-K Current Report for
August, 1989).
4.11 Loan Agreement, dated as of March 29, 1996, by and among ABN AMRO
Bank, N.V., Wisconsin Gas Company Employees' Savings Plans Trust and
WICOR, Inc. (incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q dated April 26, 1996).
4.12 Guarantee, dated as of March 29, 1996, from WICOR, Inc. to and for
the benefit of ABN AMRO Bank, N.V. (incorporated by reference) to
Exhibit 4.15 to the Company's Annual Report on Form 10-K for 1996).
4.13 First Amendment, dated as of November 27, 1996, to Loan Agreement,
dated as of March 29, 1996, by and among WICOR, Inc. Master Savings
Trust (formerly the Wisconsin Gas Company Employees' Savings Plans
Trust), WICOR, Inc. and ABN AMRO Bank, N.V. (incorporated by reference
to Exhibit 4.16 to the Company's Annual Report on Form 10-K for 1996).
4.14 Securities Loan Agreement, effective June 22, 1996, among Citibank,
N.A. and Sta-Rite Industries, Inc. (incorporated by reference to Exhibit
4.2 to the Company's Quarterly Report on Form 10-Q dated July 30, 1996).
10.1 Service Agreement, dated as of June 1, 1994, among WICOR, Inc.,
Wisconsin Gas Company, Sta-Rite Industries, Inc., WEXCO of Delaware,
Inc. and SHURflo Pump Manufacturing Co. (incorporated by reference
Exhibit 10.1 to the Company's Annual Report on Form 10-K for 1995).
10.2 Endorsement of Hypro Corporation, dated as of July 19, 1995, to
Service Agreement among WICOR, Inc., Wisconsin Gas Company, Sta-Rite
Industries, Inc. and WEXCO of Delaware, Inc. (incorporated by reference
to Exhibit 10.2 to the Company's Annual Report Form 10-K for 1995).
20
10.3# WICOR, Inc. 1992 Director Stock Option Plan (incorporated by
reference to Exhibit 4.1 to the Company's Form S-8 Registration
Statement No. 33-67132).
10.4# Form of nonstatutory stock option agreement used in connection
with the WICOR, Inc. 1992 Director Stock Option Plan (incorporated by
reference to Exhibit 4.2 to the Company's Form S-8 Registration
Statement No. 33-67132).
10.5# WICOR, Inc. 1994 Long-Term Performance Plan (incorporated by
reference to Exhibit 4.1 to the Company's Form S-8 Registration
Statement No. 33-55755).
10.6# Form of nonstatutory stock option agreement used in connection
with the WICOR, Inc. 1994 Long-Term Performance Plan (incorporated by
reference to Exhibit 4.2 to the Company's Form S-8 Registration
Statement No. 33-55755).
10.7# Form of restricted stock agreement used in connection with the
WICOR, Inc. 1994 Long-Term Performance Plan (incorporated by reference
to Exhibit 4.3 to the Company's Form S-8 Registration Statement No. 33-
55755).
10.8 Form of Key Executive Employment and Severance Agreement between
the Company and certain of its executive officers (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
dated July 31, 1997).
10.9# WICOR, Inc. 1998 Officers' Incentive Compensation Plan.
10.10# Wisconsin Gas Company Principal Officers' Supplemental
Retirement Income Program (incorporated by reference to Exhibit 10.8 to
the Company's Annual Report Form 10-K for 1993).
10.11# Wisconsin Gas Company 1998 Officers' Incentive Compensation
Plan.
10.12# Wisconsin Gas Company Group Travel Accident Plan (incorporated
by reference to Exhibit 10.24 to the Company's Annual Report Form 10-K
for 1992).
10.13# Form of Deferred Compensation Agreements between Wisconsin Gas
Company and certain of its executive officers (incorporated by reference
to Exhibit 10.30 to the Company's Form 10-K for 1990).
10.14# Sta-Rite Industries, Inc. 1998 Officers' Incentive Compensation
Plan.
10.15# Sta-Rite Industries, Inc. Group Travel Accident Plan
(incorporated by reference to Exhibit 10.28 to the Company's Annual
Report Form 10-K for 1992).
10.16# WICOR, Inc. 1987 Stock Option Plan, as amended (incorporated by
reference to Exhibit 4.1 to the Company's Form S-8 Registration
Statement No. 33-67134).
10.17# Form of nonstatutory stock option agreement used in connection
with the WICOR, Inc. 1987 Stock Option Plan (incorporated by reference
to Exhibit 10.20 to the Company's Annual Report on Form 10-K for 1991).
21
13 Portions of the WICOR, Inc. 1997 Annual Report to Shareholders.
21 Subsidiaries of WICOR, Inc.
23 Consent of independent public accountants.
27 Financial Data Schedule. (EDGAR version only)
99 WICOR, Inc. proxy statement dated March 13, 1998. (Except to the
extent incorporated by reference, this proxy statement is not deemed
"filed" with the Securities and Exchange Commission as part of this Form
10-K.)
#Indicates a plan under which compensation is paid or payable to
directors or executive officers of the Company.
(b) Reports on Form 8-K.
No Current Report on Form 8-K was filed during the fourth quarter
of 1997.
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WICOR, Inc.
BY /S/ JOSEPH P. WENZLER
---------------------------
Date: March 18, 1998 JOSEPH P. WENZLER
Senior Vice President, Treasurer, and
Chief Financial Officer
23
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
GEORGE E. WARDEBERG
George E. Wardeberg Chairman, Chief Executive March 18, 1998
Officer and Director
(Principal Executive Officer)
THOMAS F. SCHRADER
Thomas F. Schrader President, Chief Operating March 18, 1998
Officer and Director
JOSEPH P. WENZLER
Joseph P. Wenzler Senior Vice President, Treasurer March 18, 1998
and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer)
WENDELL F. BUECHE
Wendell F. Bueche Director March 18, 1998
WILLIE D. DAVIS
Willie D. Davis Director March 18, 1998
JERE D. MCGAFFEY
Jere D. McGaffey Director March 18, 1998
DANIEL F. MCKEITHAN, JR.
Daniel F. McKeithan, Jr. Director March 18, 1998
GUY A. OSBORN
Guy A. Osborn Director March 18, 1998
STUART W. TISDALE
Stuart W. Tisdale Director March 18, 1998
ESSIE M. WHITELAW
Essie M. Whitelaw Director March 18, 1998
WILLIAM B. WINTER
William B. Winter Director March 18, 1998
24
Schedule III - Condensed
Parent Company Financial Statements
WICOR, INC.
(Parent Company Only)
Statement of Income
Year Ended December 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(Thousands of Dollars)
Income:
Undistributed equity in income of
subsidiaries after dividends $ 19,048 $ 19,023 $ 16,052
Cash dividends from subsidiaries 30,000 28,044 23,000
Interest income and other 747 722 2,237
---------- ---------- ----------
49,795 47,789 41,289
---------- ---------- ----------
Expenses:
Operating (Supplemental Note C) 96 868 1,120
Interest 36 62 275
---------- ---------- ----------
132 930 1,395
---------- ---------- ----------
Income Before Parent
Company Income Taxes 49,663 46,859 39,894
Income Taxes 140 88 367
---------- ---------- ----------
Net Income $ 49,523 $ 46,771 $ 39,527
========== ========== ==========
The accompanying notes are an integral part of these statements.
25
Schedule III - Condensed
Parent Company Financial Statements (continued)
WICOR, INC.
(Parent Company Only)
Balance Sheet
As of December 31,
----------------------
(Thousands of Dollars) 1997 1996
Assets ---------- ----------
Current Assets:
Cash and cash equivalents $ 207 $ 1,458
Intercompany receivable,
net (Supplemental Note B) 8,473 12,012
Other 123 51
---------- ----------
8,803 13,521
---------- ----------
Investment in Subsidiaries, at equity 384,565 358,094
---------- ----------
Deferred Income Taxes 151 186
Deferred Charges and Other 1,305 1,426
---------- ----------
$ 394,824 $ 373,227
========== ==========
Liabilities and Capitalization
- ------------------------------
Current Liabilities:
Income taxes payable $ 32 $ 511
Other 447 650
---------- ----------
479 1,161
---------- ----------
Deferred Credits 1,118 1,160
---------- ----------
Capitalization:
ESOP loan guarantee (Supplemental Note D) 3,607 4,407
---------- ----------
Common equity:
Common stock, $1 par value, authorized
60,000,000 shares; outstanding
18,237,000 and 16,918,000
shares, respectively 18,601 18,407
Other paid-in-capital 232,702 224,041
Retained earnings 147,903 129,777
Accumulated other comprehensive income (5,377) (604)
Unearned compensation
(Supplemental Note D) (4,209) (5,122)
---------- ----------
Total common equity 389,620 366,499
---------- ----------
$ 394,824 $ 373,227
========== ==========
The accompanying notes are an integral part of these statements.
26
Schedule III - Condensed
Parent Company Only Financial Statements (continued)
WICOR, INC.
Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Year Ended December 31,
(Thousands of Dollars) ----------------------------------
1997 1996 1995
Operations- ---------- ---------- ----------
Net income $ 49,523 $ 46,771 $ 39,527
Adjustments to reconcile net
income to net cash flows:
Undistributed equity in (income)
losses of subsidiaries (19,048) (19,023) (16,052)
Change in deferred income taxes 35 6 12
Change in interco. receivables 3,539 1,742 (11,715)
Change in income taxes payable (479) (4,509) 597
Change in other current assets (72) 25 3
Change in other current liab. (203) 489 62
Change in other non-current
assets and liabilities (5,833) (719) (1,149)
---------- ---------- ----------
27,462 24,782 11,285
---------- ---------- ----------
Investment Activities-
Investments in subsidiaries - (600) (37,875)
Proceeds from sale of assets - - 5,099
---------- ---------- ----------
- (600) (32,776)
---------- ---------- ----------
Financing Activities-
Issuance of common stock 2,684 3,345 40,285
Dividends paid on common stock,
less amounts reinvested (31,397) (30,485) (27,454)
---------- ---------- ----------
(28,713) (27,140) 12,831
---------- ---------- ----------
Change in Cash and Cash Equivalents (1,251) (2,958) (8,660)
Cash and Cash Equivalents at
Beginning of Year 1,458 4,416 13,076
---------- ---------- ----------
Cash and Cash Equivalents at
End of Year $ 207 $ 1,458 $ 4,416
========== ========== ==========
Supplemental Disclosure of Cash Flow Information
Cash paid (received) during the year for:
Interest paid $ 88 $ 52 $ -
Income taxes paid $ (1,149) $ 202 $ 1,525
The accompanying notes are an integral part of these statements.
27
Schedule III - Condensed
Parent Company Financial Statements (continued)
WICOR, INC.
(Parent Company Only)
Statement of Retained Earnings
Year Ended December 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(Thousands of Dollars)
Balance - Beginning of Year $ 129,777 $ 113,491 $ 101,418
Add:
Net income 49,523 46,771 39,527
---------- ---------- ----------
179,300 160,262 140,945
Deduct:
Cash dividends on common stock 31,397 30,485 27,454
---------- ---------- ----------
Balance - End of Year $ 147,903 $ 129,777 $ 113,491
========== ========== ==========
The accompanying notes are an integral part of these statements
28
Schedule III - Condensed
Parent Company Financial Statements (continued)
WICOR, Inc.
Notes to Parent Company Only Financial Statements
The following are supplemental notes to the WICOR, Inc. (Parent Company
Only) financial statements and should be read in conjunction with the
WICOR, Inc. Consolidated Financial Statements and Notes thereto included
herein under Item 8:
SUPPLEMENTAL NOTES
A. The parent company files a consolidated Federal income tax return
with its subsidiaries.
B. Net amounts due from subsidiaries result from intercompany
transactions including advances less payments of expenses by
subsidiaries on behalf of the parent company.
C. During 1997, 1996 and 1995, the parent company allocated certain
administrative and operating expenses to its subsidiaries using an
allocation method approved by the Public Service Commission of
Wisconsin:
1997 1996 1995
---------- ---------- ----------
Administrative and operating expenses
allocated to subsidiaries $2,880,000 $2,579,000 $2,409,000
========== ========== ==========
D. In November 1991, the parent established an Employee Stock Ownership
Plan (ESOP) covering non-union employees of Wisconsin Gas Company.
Because the parent company has guaranteed the loan, the unpaid
balance is shown as a liability on the balance sheet with a like
amount of unearned compensation recorded as a reduction of
stockholders' equity.
The ESOP trustee is repaying the $10 million loan with dividends
paid on the shares of the parent company common stock in the ESOP
and with Wisconsin Gas Company contributions to the ESOP.
29
INDEX TO EXHIBITS
3.1 WICOR, Inc. Restated Articles of Incorporation, as amended
(incorporated by reference to Exhibit 3.1 to the Company's Form 10-K
Annual Report for 1992).
3.2 WICOR, Inc. By-laws, as amended (incorporated by reference to
Exhibit 3.3 to the Company's Form 10-K Annual Report for 1994).
4.1 Indenture of Mortgage and Deed of Trust, dated as of November 1,
1950, between Milwaukee Gas Light Company and Mellon National Bank and
Trust Company and D. A. Hazlett, Trustees (incorporated by reference to
Exhibit 7-E to Milwaukee Gas Light Company's Registration Statement No.
2-8631).
4.2 Bond Purchase Agreement, dated December 31, 1981, between Wisconsin
Gas Company and Teachers Insurance and Annuity Association of America
relating to the issuance and sale of $30,000,000 principal amount of
First Mortgage Bonds, Adjustable Rate Series due 2002 (incorporated by
reference to Exhibit 4.6 to Wisconsin Gas Company's Form S-3
Registration Statement No. 33-43729).
4.3 Indenture, dated as of September 1, 1990, between Wisconsin Gas
Company and First Wisconsin Trust Company, Trustee (incorporated by
reference to Exhibit 4.11 to Wisconsin Gas Company's Form S-3
Registration Statement No. 33-36639).
4.4 Officers' Certificate, dated as of November 19, 1991, setting forth
the terms of Wisconsin Gas Company's 7-1/2% Notes due 1998 (incorporated
by reference to Exhibit 4.1 to Wisconsin Gas Company's Form 8-K Current
Report dated November 19, 1991).
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4.5 Officers' Certificate, dated as of September 15, 1993, setting
forth the terms of Wisconsin Gas Company's 6.60% Debentures due 2013
(incorporated by reference to Exhibit 4.1 to Wisconsin Gas Company's
Form 8-K Current Report for September, 1993).
4.6 Officers' Certificate, dated as of November 7, 1995, setting forth
the terms of Wisconsin Gas Company's 6-3/8% Notes due 2005(incorporated
by reference to Exhibit 4 to Wisconsin Gas Company's Form 8-K Current
Report dated November 7, 1995).
4.7 Revolving Credit Agreement, dated as of August 6, 1997, among
WICOR, Inc. and Citibank, N.A., as Agent, Firstar Bank Milwaukee, N.A.,
Harris Trust and Savings Bank and M&I Marshall & Ilsley Bank
(incorporated by reference to Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q dated October 31, 1997).
4.8 Revolving Credit Agreement, dated as of August 6, 1997, among
Wisconsin Gas Company and Citibank, N.A., as Agent, Firstar Bank
Milwaukee, N.A., Harris Trust and Savings Bank and M&I Marshall &
Illsley Bank (incorporated by reference to Exhibit 4.2 the Company's
Quarterly Report on Form 10-Q dated October 31, 1997).
4.9 Revolving Credit Agreement, dated as of August 6, 1997, among WICOR
Industries, Inc. and Citibank, N.A., as Agent, Firstar Bank Milwaukee,
N.A., Harris Trust and Savings Bank and M&I Marshall & Illsley Bank
(incorporated by reference to Exhibit 4.3 to the Company's Quarterly
Report on Form 10-Q dated October 31, 1997).
4.10 Rights Agreement, dated as of August 29, 1989, between WICOR, Inc.
and Manufacturers Hanover Trust Company, Rights Agent (incorporated by
reference to Exhibit 4 to the Company's Form 8-K Current Report for
August, 1989).
4.11 Loan Agreement, dated as of March 29, 1996, by and among ABN AMRO
Bank, N.V., Wisconsin Gas Company Employees' Savings Plans Trust and
WICOR, Inc. (incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q dated April 26, 1996).
4.12 Guarantee, dated as of March 29, 1996, from WICOR, Inc. to and for
the benefit of ABN AMRO Bank, N.V. (incorporated by reference) to
Exhibit 4.15 to the Company's Annual Report on Form 10-K for 1996).
4.13 First Amendment, dated as of November 27, 1996, to Loan Agreement,
dated as of March 29, 1996, by and among WICOR, Inc. Master Savings
Trust (formerly the Wisconsin Gas Company Employees' Savings Plans
Trust), WICOR, Inc. and ABN AMRO Bank, N.V. (incorporated by reference
to Exhibit 4.16 to the Company's Annual Report on Form 10-K for 1996).
4.14 Securities Loan Agreement, effective June 22, 1996, among Citibank,
N.A. and Sta-Rite Industries, Inc. (incorporated by reference to Exhibit
4.2 to the Company's Quarterly Report on Form 10-Q dated July 30, 1996).
10.1 Service Agreement, dated as of June 1, 1994, among WICOR, Inc.,
Wisconsin Gas Company, Sta-Rite Industries, Inc., WEXCO of Delaware,
Inc. and SHURflo Pump Manufacturing Co. (incorporated by reference
Exhibit 10.1 to the Company's Annual Report on Form 10-K for 1995).
10.2 Endorsement of Hypro Corporation, dated as of July 19, 1995, to
Service Agreement among WICOR, Inc., Wisconsin Gas Company, Sta-Rite
Industries, Inc. and WEXCO of Delaware, Inc. (incorporated by reference
to Exhibit 10.2 to the Company's Annual Report Form 10-K for 1995).
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10.3# WICOR, Inc. 1992 Director Stock Option Plan (incorporated by
reference to Exhibit 4.1 to the Company's Form S-8 Registration
Statement No. 33-67132).
10.4# Form of nonstatutory stock option agreement used in connection
with the WICOR, Inc. 1992 Director Stock Option Plan (incorporated by
reference to Exhibit 4.2 to the Company's Form S-8 Registration
Statement No. 33-67132).
10.5# WICOR, Inc. 1994 Long-Term Performance Plan (incorporated by
reference to Exhibit 4.1 to the Company's Form S-8 Registration
Statement No. 33-55755).
10.6# Form of nonstatutory stock option agreement used in connection
with the WICOR, Inc. 1994 Long-Term Performance Plan (incorporated by
reference to Exhibit 4.2 to the Company's Form S-8 Registration
Statement No. 33-55755).
10.7# Form of restricted stock agreement used in connection with the
WICOR, Inc. 1994 Long-Term Performance Plan (incorporated by reference
to Exhibit 4.3 to the Company's Form S-8 Registration Statement No. 33-
55755).
10.8 Form of Key Executive Employment and Severance Agreement between
the Company and certain of its executive officers (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
dated July 31, 1997).
10.9# WICOR, Inc. 1998 Officers' Incentive Compensation Plan.
10.10# Wisconsin Gas Company Principal Officers' Supplemental
Retirement Income Program (incorporated by reference to Exhibit 10.8 to
the Company's Annual Report Form 10-K for 1993).
10.11# Wisconsin Gas Company 1998 Officers' Incentive Compensation
Plan.
10.12# Wisconsin Gas Company Group Travel Accident Plan (incorporated
by reference to Exhibit 10.24 to the Company's Annual Report Form 10-K
for 1992).
10.13# Form of Deferred Compensation Agreements between Wisconsin Gas
Company and certain of its executive officers (incorporated by reference
to Exhibit 10.30 to the Company's Form 10-K for 1990).
10.14# Sta-Rite Industries, Inc. 1998 Officers' Incentive Compensation
Plan.
10.15# Sta-Rite Industries, Inc. Group Travel Accident Plan
(incorporated by reference to Exhibit 10.28 to the Company's Annual
Report Form 10-K for 1992).
10.16# WICOR, Inc. 1987 Stock Option Plan, as amended (incorporated by
reference to Exhibit 4.1 to the Company's Form S-8 Registration
Statement No. 33-67134).
10.17# Form of nonstatutory stock option agreement used in connection
with the WICOR, Inc. 1987 Stock Option Plan (incorporated by reference
to Exhibit 10.20 to the Company's Annual Report on Form 10-K for 1991).
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13 Portions of the WICOR, Inc. 1997 Annual Report to Shareholders.
21 Subsidiaries of WICOR, Inc.
23 Consent of independent public accountants.
27 Financial Data Schedule. (EDGAR version only)
99 WICOR, Inc. proxy statement dated March 13, 1998. (Except to the
extent incorporated by reference, this proxy statement is not deemed
"filed" with the Securities and Exchange Commission as part of this Form
10-K.)
#Indicates a plan under which compensation is paid or payable to
directors or executive officers of the Company.