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.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1346701
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
626 East Wisconsin Avenue
P. O. Box 334
Milwaukee, Wisconsin 53201
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 414-291-7026
Securities registered pursuant to Section 12(b) of the Act: 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
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TABLE OF CONTENTS
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PAGE
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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
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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
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PART I
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Item 1. BUSINESS
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(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.
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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.
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B. Gas Markets and Competition
Wisconsin Gas' business is highly seasonal, particularly as to residential
and commercial sales for space heating purposes, with a substantial portion of
its 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.
Customer Class Year Ended
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December 31, 1998 December 31, 1997
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Thousands Thousands
Sales of Therms* Percent of Therms* Percent
- --------------------- ---------- ------- ---------- -------
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
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Total Sales 685,750 59.9 863,560 66.8
Transportation
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Transported 460,170 40.1 428,830 33.2
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Total Gas Throughput 1,145,920 100.0 1,292,390 100.0
========== ======= ========== ======
*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. 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.
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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.
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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*)
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ANR
Mainline 2,848
Storage 4,826
NNG
Mainline 1,040
Storage 236
Viking
Mainline 105
Peaking Facilities 76
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Total 9,131
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*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*
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Domestic flowing gas 1,949
Canadian flowing gas 1,628
Storage withdrawals 5,062
Peaker withdrawals 76
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Total 8,715
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*One therm equals 100,000 BTU's.
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(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.
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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".
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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".
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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
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(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.
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(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
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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.
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.
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.
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.
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.
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.
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).
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).
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.
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
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
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.
25
Schedule III - Condensed
Parent Company Financial Statements (continued)
WICOR, INC.
(Parent Company Only)
Statement of Income
Year Ended December 31,
----------------------------------
1998 1997 1996
(Thousands of Dollars) ---------- ---------- ----------
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
========== ========== ==========
The accompanying notes are an integral part of these statements.
26
Schedule III - Condensed
Parent Company Financial Statements (continued)
WICOR, INC.
(Parent Company Only)
Balance Sheet
As of December 31,
(Thousands of Dollars) -----------------------
Assets 1998 1997
- ------ ---------- ----------
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
========== ==========
The accompanying notes are an integral part of these statements.
27
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) ----------------------------------
1998 1997 1996
Operations - ---------- ---------- ----------
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
The accompanying notes are an integral part of these statements.
28
Schedule III - Condensed
Parent Company Financial Statements
WICOR, INC.
(Parent Company Only)
Statement of Retained Earnings
Year Ended December 31,
----------------------------------
1998 1997 1996
(Thousands of Dollars) ---------- ---------- ----------
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
========== ========== ==========
The accompanying notes are an integral part of these statements.
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
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).
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.
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.)