-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C4sIs64IE2o3ydyTNCnRTIZAMWfduBC/xlJOUWRKOtAD50yEoUbwYpBawb8kkINa PL0yXr+xkrgT6UyDhixCCw== 0000314890-96-000003.txt : 19960318 0000314890-96-000003.hdr.sgml : 19960318 ACCESSION NUMBER: 0000314890-96-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960315 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WICOR INC CENTRAL INDEX KEY: 0000314890 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 391346701 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-07951 FILM NUMBER: 96535093 BUSINESS ADDRESS: STREET 1: 626 E WISCONSIN AVE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142917026 MAIL ADDRESS: STREET 1: 626 E WISCONSIN AVE CITY: MILWAUKEE STATE: WI ZIP: 53202 10-K405 1 1995 WICOR FORM 10-K FOR THE YEAR ENDED 12/31/95 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, 1995 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 Exact name of registrant as specified in its charter WICOR,Inc. Wisconsin 39-1346701 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 626 East Wisconsin Avenue P.O. Box 334 Milwaukee, Wisconsin 53201 --------------------------------------- (Address of principal executive offices) 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: $604,073,514 at February 29, 1996. Number of shares outstanding of each of the registrant's classes of common stock, as of February 29, 1996: Common Stock, $1 par value 18,305,258 shares Documents Incorporated by Reference WICOR, Inc. proxy statement dated March 12, 1996 (Part III) WICOR, Inc. 1995 Annual Report to Shareholders (Parts I and II) 2 TABLE OF CONTENTS PAGE PART I 1 Item 1. Business 1 (a) General Development of Business 1 (b) Financial Information about Industry Segments 1 (c) Narrative Description of Business 1 1. Energy 1 A. General 1 B. Gas Markets and Competition 2 C. Gas Supply,Pipe Capacity and Storage 3 (1) General 3 (2) Pipeline Capacity and Storage 3 (3) Term Gas Supply 4 (4) Spot Market Gas Supply 4 D. Wisconsin Regulatory Matters 4 (1) Rate Matters 4 (2) Transition Cost Recovery Policy 5 (3) Gas Cost Recovery Mechanism 5 (4) Service Area Expansion 5 (5) Changing Regulatory Environment 5 E. Employees 5 2. Manufacturing of Pumps and Fluid Processing and Filtration Equipment 6 A. General 6 B. U.S. Operations 6 C. International Operations 6 D. Raw Materials and Patents 7 E. Employees 7 Item 2. Properties 7 (a) Capital Expenditures 7 (b) Energy............. 7 (c) Manufacturing of Pumps, Fluid Processing and Filtration Equipment 7 Item 3. Legal Proceedings 8 Item 4. Submission of Matters to a Vote of Security Holders 9 Executive Officers of the Registrant 9 PART II 10 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 10 Item 6. Selected Financial Data 11 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition 11 3 TABLE OF CONTENTS (continued) PAGE Item 8. Financial Statements and Supplementary Data 11 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 11 PART III 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 12 Item 13. Certain Relationships and Related Transactions 12 PART IV 12 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 12 (a) Documents Filed as Part of the Report 12 1. All Financial Statements and Financial Statement Schedules 12 2. Financial Statement Schedules 12 3. Exhibits 12 (b) Reports on Form 8-K 15 4 PART I Item 1. BUSINESS (a) General Development of Business WICOR, Inc. (the "Company" or "WICOR") is a diversified holding company with two principal business groups: energy and manufacturing, with the following subsidiaries engaged in the indicated businesses. Wisconsin Gas Company ("Wisconsin Gas") engages in retail distribution of natural gas. As discussed below, WICOR Energy Services Company ("WES") is a new subsidiary formed by WICOR to sell energy supplies and energy-related services. 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. The Company is a Wisconsin corporation and maintains its principal executive offices in Milwaukee, Wisconsin. The Company was incorporated in 1980 at which time 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 and Shurflo through mergers in 1982 and 1993, respectively. In March, 1995, the Company formed WICOR Energy Services Company, as a wholly-owned subsidiary. WES, which does business as WICOR Gas Marketing, is in the business of selling a variety of energy supply-related services, including natural gas purchasing, storage, and energy and risk management. In July 1995, the Company acquired all of the outstanding stock of Hypro Corporation through a cash purchase. Hypro is a manufacturer of pumps and fluid-handling equipment for the agricultural, high-pressure cleaning, marine, industrial and firefighting markets. On January 31, 1996, the Company acquired an 80% ownership interest in Hydro-Flow Filtration Systems, Inc. ("Hydro-Flow"). Hydro-Flow is a California-based manufacturer of disposable in- line and cartridge filtration devices for use in water treatment applications. At December 31, 1995, the Company (including subsidiaries) had 3,359 full-time equivalent employees. (b) Financial Information About Industry Segments Reference is made to the section entitled "Financial Review-General Overview" set forth in the Company's 1995 Annual Report to Shareholders. Such section is included in Exhibit 13 hereto and is hereby incorporated herein by reference. 5 (c) Narrative Description of Business 1. ENERGY A. General Wisconsin Gas is the largest natural gas distribution public utility in Wisconsin. At December 31, 1995, Wisconsin Gas distributed gas to approximately 505,000 residential, commercial and industrial customers in 503 communities throughout Wisconsin having an estimated population of nearly 2,000,000 based on the State of Wisconsin's estimates for 1995. 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." WES is in the start-up phase of its business, and accordingly, its 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 sales occurring in the winter heating season. Competition in varying degrees exists between natural gas and other forms of energy available to consumers. Most of Wisconsin Gas' large commercial and industrial customers are dual-fuel customers that are equipped to switch between natural gas and alternate fuels. Wisconsin Gas offers transportation services for these customers to enable them to reduce their energy costs and use gas rather than other fuels. Under gas transportation agreements, customers typically seek to purchase lower-priced spot market gas directly from producers or other sellers and arrange with pipelines and Wisconsin Gas to have the gas transported to their facilities. Wisconsin Gas also offers gas sales services that are priced to compete with these transportation services. Wisconsin Gas earns the same margin (difference between revenue and cost of gas), whether it sells gas to customers or transports customer-owned gas. 6 The following table sets forth the volumes of natural gas delivered by Wisconsin Gas to its customers.
Year Ended ---------------------------------- December 31, December 31, ---------------- ---------------- 000's of 000's of Therms * % Therms * * Customer Class --------- ----- --------- ----- Sales Residential 494,250 38.0 463,690 38.8 Commercial 211,570 16.3 185,980 15.5 Large Volume Commercial and Industrial Firm 134,960 10.4 145,440 12.2 Commercial and Industrial Interruptible 313,530 24.1 282,170 23.6 --------- ----- --------- ----- Total Sales 1,154,310 88.8 1,077,280 90.1 Transportation - -------------- Transported 145,490 11.2 119,080 9.9 --------- ----- --------- ----- Total Gas Throughput 1,299,800 100.0 1,196,360 100.0 ========= ===== ========= =====
*One therm equals 100,000 BTU's. The volumes shown as transported represent customer-owned gas that was delivered by Wisconsin Gas to its customers. The remaining volumes represent quantities sold and delivered to customers by Wisconsin Gas. Wisconsin Gas secures approximately 98% of all new residential heating, 88% of existing residential and commercial retrofit and 70% of all new commercial construction in its service territory. 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. See "Wisconsin Regulatory Matters". In 1995, Wisconsin Gas added nearly 10,000 customers and now serves more than one-half million customers. See "Wisconsin Regulatory Matters - Service Area Expansion". 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 Wisconsin Gas believes that such competition provides overall lower gas costs to all customers than otherwise would exist. 7 Wisconsin Gas' future ability to maintain its present share of the industrial dual-fuel market (the market that has installed capability to use gas or other fuels) depends upon Wisconsin Gas' success in obtaining long-term and short-term supplies of natural gas at marketable prices and its success in arranging or facilitating transportation service for those customers that desire to buy their own gas supplies. Although the dual-fuel market comprises approximately 35% of Wisconsin Gas' annual deliveries, it contributes only about 12% of Wisconsin Gas' margin. C. Gas Supply, Pipeline Capacity and Storage (1) General Prior to the Federal Energy Regulatory Commission's ("FERC") Order No. 636, the interstate pipelines serving Wisconsin Gas were the primary suppliers of natural gas to Wisconsin Gas. During the transition period prior to the implementation of Order No. 636, Wisconsin Gas gradually assumed responsibility for the acquisition of supply 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 capacity and gas supplies. Local distribution companies, such as Wisconsin Gas, must contract for capacity and supply sufficient to meet the peak day firm demand of their customers. Peak or near peak days occur only a few times each year, so capacity release facilitates higher utilization of capacity during those times when the capacity is not needed by the utility. Through pre-arranged agreements and day-to-day electronic bulletin board postings, interested parties can purchase that capacity. The proceeds from these transactions are passed through to ratepayers, thereby helping to offset the costs associated with holding the capacity. During 1995, Wisconsin Gas was an active participant in the capacity release market. Operating under Order No. 636, Wisconsin Gas Company has been able to meet its contractual obligations with both its suppliers and its customers despite periods of severe cold and unseasonably warm weather, including record cold weather in late January and early February, 1996. 8 (2) Pipeline Capacity and Storage Interstate pipelines serving Wisconsin originate in three major gas producing areas of North America: the Oklahoma and Texas basins, the Gulf of Mexico and western Canada. Wisconsin Gas has contracted for long-term firm capacity on a relatively equal basis from each of these areas. This strategy reflects management's belief that overall supply security is enhanced by geographic diversification of Wisconsin Gas' supply portfolio and that Canada represents an important long-term source of reliable, competitively priced gas. Because of the 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 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 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 production area which is designed to deliver gas when other supplies cannot be delivered during extremely cold weather. Wisconsin Gas' firm winter daily transportation and storage capacity entitlements from pipelines under long-term contracts are set forth below. Maximum Daily (Thousands Pipeline of Therms*) ---------------- ------------- ANR Mainline 2,999 Storage 4,879 NNG Mainline 1,085 Storage 150 Viking Mainline 72 Peaking Facilities 69 ------------- Total 9,254 ============= *One therm equals 100,000 BTU's. 9 (3) Term Gas Supply Wisconsin Gas has contracts for firm supplies with terms in excess of 30 days with approximately 30 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. Wisconsin Gas believes the volume of gas under contract is sufficient to meet its forecasted firm peak day demand. The following table sets forth Wisconsin Gas' winter season maximum daily firm total gas supply. Maximum Daily (Thousands of Therms*) -------------- Domestic flowing gas 2,350 Canadian flowing gas 1,482 Storage withdrawals 5,029 -------------- Total 8,861 ============== *One therm equals 100,000 BTU's. (4) Spot Market Gas Supply Wisconsin Gas expects to continue to make gas purchases in the 30-day spot market as price and other circumstances dictate. Wisconsin Gas has purchased spot market gas since 1985 and has supply relationships with a number of sellers from whom it purchases spot gas. D. Wisconsin Regulatory Matters (1) Rate Matters Wisconsin Gas is subject to the jurisdiction of the PSCW as to various phases of its operations, including rates, customer service and issuance of securities. Wisconsin Gas' rates are subject to a three year margin rate cap (through October 1997) based on the rates in effect in November 1993, less a $10.4 million reduction implemented when the margin cap became effective in November, 1994. The PSCW order also specified margin rate floors for each rate class. Wisconsin Gas has the ability to raise or lower margin rates within the specified range on a quarterly basis. The rates at December 31, 1995 were $4.5 million below the cap because of annualized rate reductions of $3.0 million and $1.5 million made by the utility in 1995 10 Wisconsin Gas' rates contain clauses providing for periodic adjustment, with PSCW approval, to reflect changes in purchased gas costs including the recovery of transition costs passed through by pipeline suppliers. See "Wisconsin Regulatory Matters - Transition Cost Recovery Policy" and "Wisconsin Regulatory Matters - Gas Cost Recovery Mechanism". (2) Transition Cost Recovery Policy Under Order No. 636, interstate pipelines are permitted to recover certain costs incurred in the transition from the bundled sales service to the unbundled Order No. 636 regime. ANR and NNG have filed to recover transition costs. ANR and NNG may file in the future to recover additional transition costs, and Wisconsin Gas will bear a portion of such additional costs approved by the FERC. The PSCW has permitted Wisconsin Gas to recover transition costs from customers through its rates. In the judgment of management, the incurrence of these transition costs will have no material effect on Wisconsin Gas' operations or financial condition under current PSCW policy. See Note 7a to Notes to Consolidated Financial Statements contained in Exhibit 13, the Company's 1995 Annual Report to Shareholders, which note is hereby incorporated herein by reference. (3) Gas Cost Recovery Mechanism The PSCW has instituted a proceeding to determine whether changes should be made to the purchased gas adjustment ("PGA") mechanism. In particular, the PSCW is examining whether to replace the PGA with an incentive mechanism. In general, an incentive gas cost recovery mechanism would establish a targeted gas cost, and the utility would be rewarded or penalized based on its gas costs relative to the target. Hearings are scheduled for March 1996 and it is expected that any changes to the current PGA will be effective November 1, 1996. The Company cannot predict what, if any, changes the PSCW may order, nor the impact such changes would have. (4) Service Area Expansion In recent years, Wisconsin Gas has increased its efforts to obtain regulatory approvals to extend gas service to previously unserved communities. In 1995, Wisconsin Gas added nearly 10,000 customers. Over the last five years, Wisconsin Gas has extended service to 99 new communities and added 52,000 customers. 11 (5) Changing Regulatory Environment The PSCW has instituted a proceeding to consider how its regulation of gas distribution utilities should change to reflect the changing competitive environment in the gas industry. To date, the PSCW has made a policy decision to deregulate gas costs for customer segments with workably competitive market choices. The PSCW has identified numerous issues which must be resolved before its policy can be implemented. A generic proceeding has been instituted during which these issues will be aired and decided. Hearings are scheduled to begin in January 1996, with the expectation that the new regulatory framework will be implemented by the end of 1996. The Company is unable to determine what impact this proceeding may have on Wisconsin Gas' operations or financial position. E. Employees At December 31, 1995, the energy group had 1,098 full-time equivalent 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, United Kingdom, Australia, Italy, New Zealand, Russia, Germany and Mexico. B. U.S. Operations Water products include jet, centrifugal, sump, submersible and submersible turbine water pumps, water storage and pressure tanks, 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. 12 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 wash down, bilge and live well pumping; (3) industrial markets, where applications are concentrated in the soil extraction market for use in carpet cleaning machines, agricultural markets for spraying agricultural pesticides and fertilizers, 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. Sales of pumps and water processing equipment are somewhat related to the seasons of the year as well as the level of acti- vity 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 and recreational vehicle 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", "AQUALITY", "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 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. 13 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 United Kingdom, German, Australian, New Zealand, Italian, Mexican and Russian 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 sales, including exports, were 39% of 1995 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 and aluminum for motors; stainless and carbon sheet steel, bar steel and tubing; plastic resins for injection molded components; and powdered metal components. The manufacturing units also purchase from third party suppliers completely assembled electric motors, plastic molded parts, elastomers for valves and diaphragms, components for electric motors, stamped and die cast metal parts, and hardware and electrical components. Although the manufacturing subsidiaries own a number of patents and hold licenses for manufacturing rights under other patents, no one patent or group of patents is critical to the success of the manufacturing businesses as a whole. E. Employees At December 31, 1995, the manufacturing group had 2,261 full time equivalent active employees. Item 2. PROPERTIES (a) Capital Expenditures The Company's capital expenditures for the year ended December 31, 1995, totaled $56.2 million. Retirements during this period totaled $8.1 million. Except as discussed under "Legal Proceedings", the Company does not expect to make any material capital expenditures for environmental control facilities in 1996. 14 (b) Energy Wisconsin Gas owns a distribution system which, on December 31, 1995, included approximately 8,300 miles of distribution and transmission mains, 414,000 services and 539,000 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 sta- tions, 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 permis- sible 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 (2), Michigan, Minnesota, Nebraska, Wisconsin (2), Germany, Australia (2), Italy (2), New Zealand, Russia and Mexico. These plants contain a total of approximately 1,466,000 square feet of floor space. These businesses also own or lease ten sales/distribution facilities in the United States, six in Australia, two in England, and one each in Canada, France, Italy, Mexico, New Zealand and Singapore. Item 3. LEGAL PROCEEDINGS There are no material legal proceedings pending, other than ordinary routine litigation incidental to the Company's busi- nesses, 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. 15 The manufacturing subsidiaries are involved in various environmental matters, including matters in which the subsidiaries or alleged predecessors have been named as potentially responsible parties under the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"). The Company has established accruals for all environmental contingencies of which management is aware in accordance with generally accepted accounting principles. In establishing these accruals, management considered (a) reports of environmental consultants retained by the Company, (b) the costs incurred to date by the Company at sites where clean-up is presently ongoing and the estimated costs to complete the necessary remediation work remaining at such sites, (c) the financial solvency, where appropriate, of other parties that have been responsible for remediation at specified sites, and (d) the experience of other parties who have been involved in the remediation of comparable sites. The accruals recorded by the Company with respect to environmental matters have not been reduced by potential insurance or other recoveries and are not discounted. Although the Company has and will continue to pursue such claims against insurance carriers and other responsible parties, future potential recoveries remain uncertain, and, therefore, were not recorded as a reduction to the estimated gross environmental liabilities. Based on the foregoing and given current information, management believes that future costs in excess of the amounts accrued on all presently known and quantifiable environmental contingencies will not be material to the Company's financial position or results of operations. Sta-Rite has entered into a contract with the Wisconsin Department of Natural Resources ("WDNR") to perform and complete the Remedial Investigation/Feasibility Study and Remedial Design/Remedial Action phases of the Federal Superfund environmental process for the Delavan, Wisconsin Municipal Well No. 4, which is located close to one of Sta-Rite's facilities. In 1990 and 1991, Sta-Rite provided reserves to cover the estimated costs under the contract. No additions to reserves were required since 1991. Although management believes the amounts reserved will be adequate to effect any necessary restoration, there is a possibility that additional costs may be incurred. In July 1994, Sta-Rite was notified by the WDNR that it believed 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 resouces located in Deerfield. Based upon the preliminary investigation and reserves established, the Company believes that the resolution of this matter will not have a material adverse effect upon its financial condition. However, there is a possibility that costs in excess of the amount reserved may be incurred in the future. 16 Wisconsin Gas has identified two previously owned sites on which it operated manufactured gas plants that are of environmental concern. Such plants ceased operations prior to the mid-1950's. Wisconsin Gas has engaged an environmental consultant to help determine the nature and extent of the contamination at these sites. Based on the test results obtained and the possible remediation alternatives available, the Company has estimated that cleanup costs could range from $22 million to $75 million. As of December 31, 1995, the Company has accrued $36.4 million for future cleanup costs. These estimates are based on current undiscounted costs. It should also be noted that the numerous assumptions such as the type and extent of contamination, available remediation techniques, and regulatory requirements which are used in developing these estimates are subject to change as new information becomes available. Any such changes in assumptions could have a significant impact on the potential liability. Due to anticipated regulatory treatment, changes in the recorded liability do not immediately impact net income. The WDNR issued a Probable Responsible Party letter to Wisconsin Gas for these two sites in September, 1994. Following receipt of this letter, Wisconsin Gas and the WDNR held an initial meeting to discuss the sites. At the meeting it was agreed that Wisconsin Gas would prepare a remedial action options report from which it will select specific remedial actions for recommendation to the WDNR. During 1995, Wisconsin Gas gathered additional environmental data regarding these two sites, held extensive discussions concerning remedial options with current land owners and solicited information from environmental consulting and remediation firms on technology and approaches that would best suit the sites. The efforts were directed toward preparing a remedial action options report and recommendations for presentation to the WDNR in 1996. Once such a plan is approved, initial remediation work will begin. Expenditures over the next three years are expected to total approximately $20 million. Although most of the work and costs are expected to be incurred in the first few years of the plan, monitoring of sites and other necessary actions may be undertaken for up to 30 years. In March 1994, Wisconsin Gas commenced suit against nine insurance carriers seeking a declaratory judgment regarding insurance coverage for the two sites. Settlements were reached with each of the carriers during 1994. Additional insurance recoveries are being pursued. Wisconsin Gas expects full recovery of incurred remediation costs, less amounts recovered from insurance carriers. If the amount recovered from the insurance carriers is insufficient to remediate both sites, expenditures not recovered are expected to be allowed full recovery (other than for carrying costs) in rates based upon recent PSCW orders. Accordingly, a regulatory asset has been recorded for the accrued cost. Certain related investigation costs incurred to date are currently being recovered in utility rates. However, any incurred costs not yet recovered in rates are not allowed by the PSCW to earn a return. As of December 31, 1995, $4.8 million of such costs had been incurred. 17 Wisconsin Gas also owns a service center that is constructed on a site that was previously owned by the City of Milwaukee and was used by the City as a public dump site. Wisconsin Gas has conducted a site assessment at the request of the WDNR and has sent the report of its assessment to the WDNR. Management cannot predict whether or not the WDNR will require any remediation action, nor the extent or cost of any remediation actions that may be required. In the judgment of management, any remediation costs incurred by Wisconsin Gas will be recoverable from the City of Milwaukee or in Wisconsin Gas' rates pursuant to the PSCW's orders discussed above. See Note 7c to Notes to Consolidated Financial Statements contained in Exhibit 13, the Company's 1995 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 1995. 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 60 President and Chief Executive Officer of the Company, and Chairman of Wisconsin Gas, Sta-Rite, SHURflo, Hypro and WICOR Energy Services Thomas F. Schrader 46 Vice President of the Company and President and Chief Executive Officer of Wisconsin Gas and WICOR Energy Services James C. Donnelly 50 Vice President of the Company and President and Chief Executive Officer of Sta-Rite Joseph P. Wenzler 54 Vice President, Treasurer and Chief Financial Officer of the Company; Vice President and Chief Financial Officer of Wisconsin Gas; Treasurer and Secretary of SHURflo and Hypro; and Vice President and Treasurer of WICOR Energy Services Robert A. Nuernberg 56 Secretary of the Company and WICOR Energy Services; and Vice- President-Corporate Relations and Secretary of Wisconsin Gas 18 Each of the executive officers has held his position for more than five years, except as follows: Mr. Wardeberg was elected to his current positions effective February 1, 1994. Prior thereto, he was President and Chief Operating Officer of the Company and Vice Chairman and Chief Executive Officer of Sta-Rite from 1992 to 1994; Vice Chairman of Wisconsin Gas and SHURflo from 1993 to 1994; and Vice President-Water Systems of Sta-Rite from 1989 to 1992. Prior thereto, he was Vice Chairman and Chief Operating Officer of Whirlpool Corporation. Mr. Donnelly was elected President and Chief Executive Officer of Sta-Rite in 1994. He has been a Vice President of the Company since 1987. Previously, he served as President and Chief Operating Officer of Sta-Rite from 1992 to 1994, and as Vice President, Treasurer and Chief Financial Officer of the Company and Wisconsin Gas from 1990 to 1992. Mr. Donnelly joined the Company and Wisconsin Gas in 1987 as Vice President and Treasurer. Prior thereto, he served as Vice President- Finance of Eastern Gas and Fuel Associates. Mr. Wenzler was elected Vice President, Treasurer and Chief Financial Officer of the Company and Vice President and Chief Financial Officer of Wisconsin Gas in 1992 and as Treasurer and Secretary of SHURflo in 1993. Prior thereto, he served as Vice President of the Company and President and Chief Executive Officer of Sta-Rite from 1990 to 1992, and President and Chief Operating Officer of Sta-Rite from 1986 to 1990. Each of the executive officers assumed their positions with Hypro in July, 1995, when Hypro was acquired, and with WICOR Energy Services in March, 1995, when that company was formed. 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 1995 and 1994, see the section entitled "Investor Information" set forth in the Company's 1995 Annual Report to Shareholders. Such section is included in Exhibit 13 hereto and is hereby incorporated herein by reference. At December 31, 1995, there were 15,238 holders of record of WICOR common stock. 19 The Company's ability to pay dividends is dependent to a great extent on the ability of its subsidiaries to pay dividends. The Wisconsin Business Corporation Law and the indentures and agreements under which debt of the Company and its subsidiaries is outstanding each contain certain restrictions on the payment of dividends on common stock by the Company's subsidiaries. See Note 6 of Notes to Consolidated Financial Statements contained in Exhibit 13, the Company's 1995 Annual Report to Shareholders, which note is hereby incorporated herein by reference. By order of the PSCW, Wisconsin Gas is generally permitted to pay dividends up to the amount projected in its rate case ($16 million). Wisconsin Gas may pay dividends in excess of $16 million so long as the payment will not cause its equity ratio to fall below 48.43%. If payment of projected dividends would cause its common equity ratio to fall below 43% of total capitalization (including short-term debt), or if payment of additional dividends would cause its common equity ratio to fall below 48.43%, Wisconsin Gas must obtain PSCW approval to pay such dividends. Wisconsin Gas has projected the payment of $19 million of dividends to the Company during the 12 months ending October 31, 1996. See Note 6 of Notes to Consolidated Financial Statements contained in Exhibit 13, the Company's 1995 Annual Report to Shareholders, which note is hereby incorporated herein by reference. The PSCW desires Wisconsin Gas to target its common equity level at 43% to 50% of total capitalization. For the year ended December 31, 1995, Wisconsin Gas' average common equity level was 51%. In addition, $6.3 million of Sta-Rite net assets at December 31, 1995, plus 50% of Sta-Rite future earnings, are available for dividends to the Company. See Note 6 of Notes to Consolidated Financial Statements contained in Exhibit 13, the Company's 1995 Annual Report to Shareholders, which note is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA Reference is made to the section entitled "Selected Financial Data" set forth in the Company's 1995 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 Reference is made to the section entitled "Financial Review" set forth in the Company's 1995 Annual Report to Shareholders. Such section is included in Exhibit 13 hereto and is hereby incorporated herein by reference. 20 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the WICOR, Inc. consolidated balance sheets and consolidated statements of capitalization as of December 31, 1995 and 1994, and the related consolidated statements of income, common equity and cash flow for each of the three years in the period ended December 31, 1995, together with the report of independent public accountants dated January 22, 1996, all appearing in Exhibit 13, the Company's 1995 Annual Report to Shareholders, which is hereby incorporated herein by reference. 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 auditors on any matter of accounting principles or practices or financial statement disclosure re- quired to be reported pursuant to this item. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Reference is made to "Item No. 1: Election of Directors" included in the WICOR proxy statement dated March 12, 1996, which is hereby incorporated herein by reference, for the names, ages, business experience and other information regarding directors and nominees for director of the Company. See "Executive Officers of the Registrant" included in Part I hereof for information regarding executive officers of the Company. Item 11. EXECUTIVE COMPENSATION Reference is made to "Executive Compensation" included in the WICOR proxy statement dated March 12, 1996, which is hereby incorporated herein by reference, for information on compen- sation of executive officers of the Company; provided, however, that the subsections entitled "Board Compensation Committee Report on Executive Compensation" and "Executive Compensation - Performance Information" shall not be deemed to be incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Reference is made to "Security Ownership of Management" included in the WICOR proxy statement dated March 12, 1996, which is hereby incorporated herein by reference, for information regarding voting securities of the Company beneficially owned by its directors and officers. 21 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Reference is made to "Item No. 1: Election of Directors" included in the WICOR proxy statement dated March 12, 1996, which is hereby incorporated 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 (a) The following documents are filed as part of this Annual Report on Form 10-K: 1. All Financial Statements. The WICOR, Inc. consolidated balance sheets and statements of capitalization as of December 31, 1995 and 1994, and the related consolidated statements of income, common equity and cash flow for each of the three years in the period ended December 31, 1995, together with the report of independent public accountants dated January 22, 1996, included in Exhibit 13, the Company's 1995 Annual Report to Shareholders, which is incorporated herein by reference. 2. Financial statement schedules. Schedule III Condensed Statements of Income, Retained Earnings and Cash Flow (Parent Company Only) for the Years Ended December 31, 1995, 1994 and 1993; Condensed Balance Sheets (Parent Company Only) as of December 31, 1995 and 1994; 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). 22 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 for November, 1991). 4.5 Officers' Certificate, dated as of September 15, 1993, setting forth the terms of Wisconsin Gas Company's 6.60% Debentures due 2013 (incorporated by reference to Exhibit 4.1 to Wisconsin Gas Company's Form 8-K Current Report for September, 1993). 4.6 Officers' Certificate, dated as of November 7, 1996, 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 and Term Loan Agreement, dated as of March 29, 1993, among Wisconsin Gas Company and Citibank, N.A., Firstar Bank Milwaukee, N.A., Harris Trust & Savings Bank, M&I Marshall & Ilsley Bank and Citibank, N.A., as Agent (incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q dated as of August 9, 1993). 4.8 Revolving Credit and Term Loan Agreement, dated as of March 29, 1993, among Sta-Rite Industries, Inc. and Citibank, N.A., Firstar Bank Milwaukee, N.A., Harris Trust & Savings Bank, M&I Marshall & Ilsley Bank and Citibank, N.A., as Agent (incorporated by reference to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q dated as of August 9, 1993). 4.9 Revolving Credit and Term Loan Agreement, dated as of March 29, 1993, among WICOR, Inc. and Citibank, N.A., Firstar Bank Milwaukee, N.A., Harris Trust & Savings Bank, M&I Marshall & Ilsley Bank and Citibank, N.A., as Agent (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q dated as of August 9, 1993). 23 4.10 Extension of Revolving Credit and Term Loan Agreement, effective March 10, 1995, among WICOR, Inc. and Citibank, N.A., Firstar Bank Milwaukee, N.A., Harris Trust & Saving Bank, M&I Marshall & Ilsley Bank and Citibank, N.A., as Agent (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q dated April 28, 1995). 4.11 Extension of Revolving Credit Agreement dated March 10, 1995, among Wisconsin Gas Company and Citibank, N.A., Firstar Bank Milwaukee, N.A., Harris Trust and Savings Bank and M&I Marshall and Ilsley Bank and Citibank, N.A., as Agent (incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q dated April 28, 1995). 4.12 Extension of Revolving Credit Agreement dated March 10, 1995, among Sta-Rite and Citibank, N.A., Firstar Bank Milwaukee, N.A., Harris Trust and Savings Bank and M&I Marshall and Ilsley Bank and Citibank, N.A., as Agent (incorporated by reference to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q dated April 28, 1995). 4.13 Rights Agreement dated as of August 29, 1989, between WICOR, Inc. and Manufacturers Hanover Trust Company, Rights Agent (incorporated by reference to Exhibit 4 to the Company's Form 8-K current report for August, 1989). 4.14 Loan Agreement, dated as of November 4, 1991, by and among M&I Marshall & Ilsley Bank, Wisconsin Gas Company Employees' Savings Plans Trust and WICOR, Inc. (incorporated by reference to Exhibit 4.16 to the Company's Form 10-K Annual Report for 1991). 4.15 Guaranty, dated as of November 4, 1991, from WICOR, Inc. to and for the benefit of M&I Marshall & Ilsley Bank (incorporated by reference to Exhibit 4.17 to the Company's Form 10-K Annual Report for 1991). 4.16 Revolving Credit Agreement Amendment, effective July 12, 1995, among WICOR, Inc. and Citibank, N.A., Firstar Bank Milwaukee, N.A., Harris Trust and Savings Bank, M&I Marshall and Ilsley Bank and Citibank, N.A., as Agent (incorporated by reference to Exhibit 4.4 to the Company's Quarterly Report on Form 10-Q dated October 25, 1995). 4.17 Loan Agreement Amendment effective December 21, 1995, by and among Wisconsin Gas Company Employees' Savings Plans Trust, WICOR, Inc. and M&I Marshall and Ilsley Bank. 24 Sta-Rite Industries, Inc., a wholly-owned subsidiary of the Registrant, is the obligor under various loan agreements in connection with facilities financed through the issuance of industrial development bonds. The loan agreements and the additional documentation relating to these bond issues are not being filed with this Annual Report on Form 10-K in reliance upon Item 601(b)(4)(iii) of Regulation S-K. Copies of these documents will be furnished to the Securities and Exchange Commission upon request. 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. 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. 10.3# WICOR, Inc. 1987 Stock Option Plan, as amended (incorporated by reference to Exhibit 4.1 to the Company's Form S-8 Registration Statement No. 33-67134). 10.4# Forms of nonstatutory stock option agreement used in connection with the WICOR, Inc. 1987 Stock Option Plan (incorporated by reference to Exhibit 10.20 to the Company's Form 10-K Annual Report for 1991). 10.5# WICOR, Inc. 1992 Director Stock Option Plan, (incorporated by reference to Exhibit 4.1 to the Company's Form S-8 Registration Statement No. 33-67132). 10.6# Form of nonstatutory stock option agreement used in connection with the WICOR, Inc. 1992 Director Stock Option Plan (incorporated by reference to Exhibit 4.2 to the Company's Form S-8 Registration Statement No. 33-67132). 10.7# WICOR, Inc. 1994 Long-Term Performance Plan (incorporated by reference to Exhibit 4.1 to the Company's Form S-8 Registration Statement No. 33-55755). 10.8# Form of nonstatutory stock option agreement used in connection with the WICOR, Inc. 1994 Long-Term Performance Plan, (incorporated by reference to Exhibit 4.2 to the Company's Form S-8 Registration Statement No. 33-55755). 10.9# Form of restricted stock agreement used in connection with the WICOR, Inc. 1994 Long-Term Performance Plan (incorporated by reference to Exhibit 4.3 to the Company's Form S-8 Registration Statement No. 33-55755). 25 10.10# WICOR, Inc. 1996 Officers' Incentive Compensation Plan. 10.11# Wisconsin Gas Company Principal Officers' Supplemental Retirement Income Program (incorporated by reference to Exhibit 10.8 to the Company's Form 10-K Annual Report for 1993). 10.12# Wisconsin Gas Company 1996 Officers' Incentive Compensation Plan. 10.13# Wisconsin Gas Company Group Travel Accident Plan (incorporated by reference to Exhibit 10.24 to the Company's Form 10-K Annual Report for 1992). 10.14# Form of Deferred Compensation Agreements between Wisconsin Gas Company and certain of its executive officers (incorporated by reference to Exhibit 10.30 to the Company's Form 10-K Annual Report for 1990). 10.15# Sta-Rite Industries, Inc. Officers Supplemental Retirement Income Program (incorporated by reference to Exhibit 10.28 to the Company's Form 10-K Annual Report for 1989). 10.16# Sta-Rite Industries, Inc. 1996 Officers' Incentive Compensation Plan. 10.17# Sta-Rite Industries, Inc. Group Travel Accident Plan (incorporated by reference to Exhibit 10.28 to the Company's Form 10-K Annual Report for 1992). 10.18# WICOR, Inc. Retirement Plan for Directors, as amended (incorporated by reference to Exhibit 10.29 to the Company's Form 10-K Annual Report for 1992). 13 Portions of the WICOR, Inc. 1995 Annual Report to Shareholders incorporated by reference herein. 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 12, 1996. (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 1995. 26 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 12, 1996 By JOSEPH P. WENZLER ------------------------------ Joseph P. Wenzler Vice President, Treasurer, and Chief Financial Officer 27 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on the succeeding pages by the following persons on behalf of the registrant and in the capacities and on the dates indicated. WICOR, Inc. Signature Title Date GEORGE E. WARDEBERG George E. Wardeberg President, Chief Executive March 12, 1996 Officer and Director (Principal Executive Officer) JOSEPH P. WENZLER Joseph P. Wenzler Vice President, Treasurer March 12, 1996 and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) WENDELL F. BUECHE Director March 12, 1996 Wendell F. Bueche WILLIE D. DAVIS Director March 12, 1996 Willie D. Davis JERE D. MCGAFFEY Director March 12, 1996 Jere D. McGaffey DAN F. MCKEITHAN,JR Director March 12, 1996 Daniel F. McKeithan, Jr. GUY A. OSBORN Director March 12, 1996 Guy A. Osborn THOMAS F. SCHRADER Director March 12, 1996 Thomas F. Schrader STUART W. TISDALE Director March 12, 1996 Stuart W. Tisdale ESSIE M. WHITELAW Director March 12, 1996 Essie M. Whitelaw WILLIAM B. WINTER Director March 12, 1996 William B. Winter 28 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES To WICOR, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Exhibit 13 to this Form 10-K, and have issued our report thereon dated January 22, 1996. Our audit was made for the purpose of forming an opinion on those 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 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 state 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 22, 1996 29 Schedule III - Condensed Parent Company Financial Statements
WICOR, INC. (Parent Company Only) Statement of Income Year Ended December 31, --------------------------------- 1995 1994 1993 --------------------------------- (Thousands of Dollars) Income: Equity in income of subsidiaries after dividends......................... $ 16,052 $ 10,154 $ 9,356 Cash dividends from subsidiaries.......... 23,000 23,000 21,500 Interest income and other................. 2,237 373 267 --------- --------- --------- 41,289 33,527 31,123 --------- --------- --------- Expenses: Operating (Supplemental Note C)........... 1,120 455 1,942 Interest ................................. 275 163 259 --------- --------- --------- 1,395 618 2,201 --------- --------- --------- Income Before Parent Company Income Taxes... 39,894 32,909 28,922 Income Taxes................................ 367 (265) (391) --------- --------- --------- Net Income.................................. $ 39,527 $ 33,174 $ 29,313 ========= ========= =========
The accompanying notes are an integral part of this statement. 30 Schedule III - Condensed Parent Company Financial Statements (continued)
WICOR, INC. (Parent Company Only) Statement of Retained Earnings Year Ended December 31, --------------------------------- 1995 1994 1993 --------------------------------- (Thousands of Dollars) Balance - Beginning of Year................. $101,418 $ 94,643 $ 90,102 Add: Net income.............................. 39,527 33,174 29,313 --------- --------- --------- 140,945 127,817 119,415 Deduct: Cash dividends on common stock.......... 27,454 26,399 24,099 Other................................... - - 673 --------- --------- --------- Balance - End of Year ...................... $113,491 $101,418 $ 94,643 ========= ========= =========
The accompanying notes are an integral part of this statement. 31 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) -------------------------------- 1995 1994 1993 -------------------------------- Operations- Net income ............................... $ 39,527 $ 33,174 $ 29,313 Adjustments to reconcile net income to net cash flows: Equity in (income) losses of subsidiaries.......................... (16,052) (10,154) (9,356) Change in deferred income taxes......... 12 (58) (73) Change in intercompany receivables...... (11,715) 123 (7,342) Change in income taxes payable.......... 597 1,548 6,923 Change in other current assets.......... 3 33 98 Change in other current liabilities..... 62 (254) 178 Change in other non-current assets and liabilities........................... (1,149) (843) (185) --------- --------- --------- 11,285 23,569 19,556 Investment Activities --------- --------- --------- Investments in subsidiaries............... (37,875) (5,000) (12,000) Proceeds from sale of assets.............. 5,099 - - --------- --------- --------- (32,776) (5,000) (12,000) Financing Activities- --------- --------- --------- Issuance of common stock.................. 40,285 10,649 16,682 Dividends paid on common stock, less amounts reinvested...................... (27,454) (23,247) (21,450) --------- --------- --------- 12,831 (12,598) (4,768) --------- --------- --------- Change in Cash and Cash Equivalents......... (8,660) 5,971 2,788 Cash and Cash Equivalents at Beginning of Year................................... 13,076 7,105 4,317 --------- --------- --------- Cash and Cash Equivalents at End of Year.... $ 4,416 $ 13,076 $ 7,105 ========= ========= ========= Supplemental Disclosure of Cash Flow Information Cash paid (received) during the year for: Interest paid............................. $ - $ - $ 1 Income taxes paid......................... 1,525 (4,440) 2,805
The accompanying notes are an integral part of this statement. 32 Schedule III - Condensed Parent Company Financial Statements (continued)
WICOR, INC. (Parent Company Only) Balance Sheet As of December 31, ---------------------- (Thousands of Dollars) 1995 1994 ---------------------- Assets - ------ Current Assets: Cash and cash equivalents............................. $ 4,416 $ 13,076 Intercompany receivable, net (Supplemental Note B).... 13,754 2,039 Other................................................. 76 79 ---------- ---------- 18,246 15,194 ---------- ---------- Investment in Subsidiaries, at equity................... 337,241 286,725 ---------- ---------- Deferred Income Taxes .................................. 192 204 Deferred Charges and Other.............................. 578 491 ---------- ---------- $ 356,257 $ 302,614 ========== ========== Liabilities and Capitalization - ------------------------------ Current Liabilities: Income taxes payable.................................. $ 5,020 $ 4,423 Other................................................. 161 99 ---------- ---------- 5,181 4,522 ---------- ---------- Deferred Credits........................................ 495 254 ---------- ---------- Capitalization: ESOP loan guarantee (Supplemental Note D)............. 5,315 6,370 ---------- ---------- Common equity: Common stock, $1 par value, authorized 60,000,000 shares; outstanding 18,237,000 and 16,918,000 shares, respectively ............................. 18,237 16,918 Other paid-in-capital .............................. 219,133 180,000 Retained earnings .................................. 113,491 101,418 Unearned compensation (Supplemental Note D)......... (5,595) (6,868) ---------- ---------- Total common equity............................... 345,266 291,468 ---------- ---------- $ 356,257 $ 302,614 ========== ==========
The accompanying notes are an integral part of this statement. 33 Schedule III - Condensed Parent Company Financial Statements (continued) WICOR, Inc. Notes to Parent Company Only Financial Statements The following are supplemental notes to the WICOR, Inc. (Parent Company Only) financial statements and should be read in conjunction with the WICOR, Inc. Consolidated Financial Statements and Notes thereto included herein under Item 8: SUPPLEMENTAL NOTES A. The parent company files a consolidated Federal income tax return with its subsidiaries. B. Net amounts due from subsidiaries result from intercompany transactions including advances and Federal income tax liabilities, less payments of expenses by subsidiaries on behalf of WICOR, Inc. C. During 1995, 1994 and 1993, the parent company allocated certain administrative and operating expenses to its subsidiaries using an allocation method approved by the PSCW: 1995 1994 1993 ---------- ---------- ---------- Administrative and operating expenses allocated to subsidiaries $2,409,000 $2,452,000 $2,388,000 ========== ========== ========== D. In November 1991, WICOR, Inc. (Parent Company Only) established an Employee Stock Ownership Plan (ESOP) covering non-union employees of Wisconsin Gas. Because the parent company has guaranteed the loan, the unpaid balance is shown as a liability on the balance sheet with a like amount of unearned compensation recorded as a reduction of stockholders' equity. The ESOP trustee is repaying the $10 million loan with dividends paid on the shares of WICOR common stock in the ESOP and with Wisconsin Gas contributions to the ESOP. 34 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 for November, 1991). 4.5 Officers' Certificate, dated as of September 15, 1993, setting forth the terms of Wisconsin Gas Company's 6.60% Debentures due 2013 (incorporated by reference to Exhibit 4.1 to Wisconsin Gas Company's Form 8-K Current Report for September, 1993). 4.6 Officers' Certificate, dated as of November 7, 1996, 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 and Term Loan Agreement, dated as of March 29, 1993, among Wisconsin Gas Company and Citibank, N.A., Firstar Bank Milwaukee, N.A., Harris Trust & Savings Bank, M&I Marshall & Ilsley Bank and Citibank, N.A., as Agent (incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q dated as of August 9, 1993). 35 4.8 Revolving Credit and Term Loan Agreement, dated as of March 29, 1993, among Sta-Rite Industries, Inc. and Citibank, N.A., Firstar Bank Milwaukee, N.A., Harris Trust & Savings Bank, M&I Marshall & Ilsley Bank and Citibank, N.A., as Agent (incorporated by reference to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q dated as of August 9, 1993). 4.9 Revolving Credit and Term Loan Agreement, dated as of March 29, 1993, among WICOR, Inc. and Citibank, N.A., Firstar Bank Milwaukee, N.A., Harris Trust & Savings Bank, M&I Marshall & Ilsley Bank and Citibank, N.A., as Agent (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q dated as of August 9, 1993). 4.10 Extension of Revolving Credit and Term Loan Agreement, effective March 10, 1995, among WICOR, Inc. and Citibank, N.A., Firstar Bank Milwaukee, N.A., Harris Trust & Saving Bank, M&I Marshall & Ilsley Bank and Citibank, N.A., as Agent (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q dated April 28, 1995). 4.11 Extension of Revolving Credit Agreement dated March 10, 1995, among Wisconsin Gas Company and Citibank, N.A., Firstar Bank Milwaukee, N.A., Harris Trust and Savings Bank and M&I Marshall and Ilsley Bank and Citibank, N.A., as Agent (incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q dated April 28, 1995). 4.12 Extension of Revolving Credit Agreement dated March 10, 1995, among Sta-Rite and Citibank, N.A., Firstar Bank Milwaukee, N.A., Harris Trust and Savings Bank and M&I Marshall and Ilsley Bank and Citibank, N.A., as Agent (incorporated by reference to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q dated April 28, 1995). 4.13 Rights Agreement dated as of August 29, 1989, between WICOR, Inc. and Manufacturers Hanover Trust Company, Rights Agent (incorporated by reference to Exhibit 4 to the Company's Form 8-K current report for August, 1989). 4.14 Loan Agreement, dated as of November 4, 1991, by and among M&I Marshall & Ilsley Bank, Wisconsin Gas Company Employees' Savings Plans Trust and WICOR, Inc. (incorporated by reference to Exhibit 4.16 to the Company's Form 10-K Annual Report for 1991). 36 4.15 Guaranty, dated as of November 4, 1991, from WICOR, Inc. to and for the benefit of M&I Marshall & Ilsley Bank (incorporated by reference to Exhibit 4.17 to the Company's Form 10-K Annual Report for 1991). 4.16 Revolving Credit Agreement Amendment, effective July 12, 1995, among WICOR, Inc. and Citibank, N.A., Firstar Bank Milwaukee, N.A., Harris Trust and Savings Bank, M&I Marshall and Ilsley Bank and Citibank, N.A., as Agent (incorporated by reference to Exhibit 4.4 to the Company's Quarterly Report on Form 10-Q dated October 25, 1995). 4.17* Loan Agreement Amendment effective December 21, 1995, by and among Wisconsin Gas Company Employees' Savings Plans Trust, WICOR, Inc. and M&I Marshall and Ilsley Bank. Sta-Rite Industries, Inc., a wholly-owned subsidiary of the Registrant, is the obligor under various loan agreements in connection with facilities financed through the issuance of industrial development bonds. The loan agreements and the additional documentation relating to these bond issues are not being filed with this Annual Report on Form 10-K in reliance upon Item 601(b)(4)(iii) of Regulation S-K. Copies of these documents will be furnished to the Securities and Exchange Commission upon request. 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. 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. 10.3# WICOR, Inc. 1987 Stock Option Plan, as amended (incorporated by reference to Exhibit 4.1 to the Company's Form S-8 Registration Statement No. 33-67134). 10.4# Forms of nonstatutory stock option agreement used in connection with the WICOR, Inc. 1987 Stock Option Plan (incorporated by reference to Exhibit 10.20 to the Company's Form 10-K Annual Report for 1991). 10.5# WICOR, Inc. 1992 Director Stock Option Plan, (incorporated by reference to Exhibit 4.1 to the Company's Form S-8 Registration Statement No. 33-67132). 37 10.6# Form of nonstatutory stock option agreement used in connection with the WICOR, Inc. 1992 Director Stock Option Plan (incorporated by reference to Exhibit 4.2 to the Company's Form S-8 Registration Statement No. 33-67132). 10.7# WICOR, Inc. 1994 Long-Term Performance Plan (incorporated by reference to Exhibit 4.1 to the Company's Form S-8 Registration Statement No. 33-55755). 10.8# Form of nonstatutory stock option agreement used in connection with the WICOR, Inc. 1994 Long-Term Performance Plan, (incorporated by reference to Exhibit 4.2 to the Company's Form S-8 Registration Statement No. 33-55755). 10.9# Form of restricted stock agreement used in connection with the WICOR, Inc. 1994 Long-Term Performance Plan (incorporated by reference to Exhibit 4.3 to the Company's Form S-8 Registration Statement No. 33-55755). 10.10#* WICOR, Inc. 1996 Officers' Incentive Compensation Plan. 10.11# Wisconsin Gas Company Principal Officers' Supplemental Retirement Income Program (incorporated by reference to Exhibit 10.8 to the Company's Form 10-K Annual Report for 1993). 10.12#* Wisconsin Gas Company 1996 Officers' Incentive Compensation Plan. 10.13# Wisconsin Gas Company Group Travel Accident Plan (incorporated by reference to Exhibit 10.24 to the Company's Form 10-K Annual Report for 1992). 10.14# Form of Deferred Compensation Agreements between Wisconsin Gas Company and certain of its executive officers (incorporated by reference to Exhibit 10.30 to the Company's Form 10-K Annual Report for 1990). 10.15# Sta-Rite Industries, Inc. Officers Supplemental Retirement Income Program (incorporated by reference to Exhibit 10.28 to the Company's Form 10-K Annual Report for 1989). 10.16#* Sta-Rite Industries, Inc. 1996 Officers' Incentive Compensation Plan. 10.17# Sta-Rite Industries, Inc. Group Travel Accident Plan (incorporated by reference to Exhibit 10.28 to the Company's Form 10-K Annual Report for 1992). 38 10.18# WICOR, Inc. Retirement Plan for Directors, as amended (incorporated by reference to Exhibit 10.29 to the Company's Form 10-K Annual Report for 1992). 13* Portions of the WICOR, Inc. 1995 Annual Report to Shareholders incorporated by reference herein. 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 12, 1996. (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.) * Idicates document filed herewith. #Indicates a plan under which compensation is paid or payable to directors or executive officers of the Company.
EX-4 2 EXHIBIT 4.17 1 EXHIBIT 4.17 THIRD AMENDMENT TO LOAN AGREEMENT This Third Amendment to Loan Agreement is made and entered into as of the 21st day of December, 1995, by and among Wisconsin Gas Company Employees' Saving Plans Trust (the "Trust"), WICOR, Inc. (the "Company") and M & I Marshall & Ilsley Bank, a Wisconsin banking corporation (the "Bank"). All terms not otherwise defined herein shall have the meanings assigned to such terms in the Loan Agreement by and among the Trust, the Company and the Bank dated as of November 4, 1991 (the "Agreement") as amended. WITNESETH WHEREAS, the stated maturity of the ESOP Note (as amended) is December 29, 1995; and WHEREAS, the Trust has requested that the maturity date of the ESOP Note be extended until March 29, 1996 and the Bank has agreed to such extension. NOW, THEREFORE, the parties hereto agree as follows: 1. Amendment of Subsection 2.1. Subsection 2.1 of the Agreement (as amended) shall be, and it hereby is, further amended by deleting the first sentence thereof in its entirety and, in lieu thereof, inserting the following: "Subject to the terms and conditions hereof, the Bank agrees to lend to the Trust, on the Effective Date, Ten Million Dollars ($10,000,000), which amount shall be payable in nineteen (19) consecutive installments, consisting of eighteen (18) consecutive Quarterly installments of Two Hundred Fifty Thousand Dollars ($250,000) each payable on the last Business Day of each Quarter commencing on November 30, 1991, and a final payment in the amount of the outstanding principal balance on March 29, 1996. 2. Amendment of Subsection 2.2. Subsection 2.2 of the Agreement (as amended) shall be, and it hereby is, further amended by deleting part (b) thereof in its entirety and, in lieu thereof, inserting the following: 2 "(b) be stated to mature on March 29, 1996, and be payable as provided in subsection 2.1 hereof, and" 3. Effectiveness of Amendment. This Amendment shall become effective upon receipt of the Bank of (I) copy of this Amendment duly executed by the rust, the Bank and the Company, (ii) the Consent of Guarantor attached to this amendment duly executed by the Company and (iii) the Amended and Restated Promissory Note substantially in the form attached hereto as Exhibit A executed by the Trust which Note shall hereinafter constitute the ESOP Note. 4. Miscellaneous (a) The Trust hereby represents and warrants to the Bank that all of the representations and warranties made by the Trust in the Loan Documents are true and correct on the date of this Amendment and that no Default or Event of Default under the Agreement has occurred and is continuing as of the date of this Amendment. (b) The Company hereby represents and warrants to the Bank that all of the representations and warranties made by the Company in the Loan Documents are true and correct on the date of this Amendment, that no Default or Event of Default under the Agreement has occurred and is continuing as of the date of this Amendment; that the making, execution and delivery of this Amendment, and performance of and compliance with the terms of the Agreement, as hereby amended, (I) have been duly authorized by the Boards of directors of Wisconsin gas and of the Company and by all other actions, (ii) do not and will not conflict with, contravene or violate any provision of, or result in a breach of or default under, or require the waiver (not already obtained) of any provision of or the consent (not already given) of any Person under the terms of the Trust Agreement and (iii) will not violate, conflict with, or constitute a default under any law, regulation, order or any other requirement of any court, tribunal, arbitrator, or Governmental Authority, that the Agreement, as amended hereby and the ESOP Note, as now amended and restated by the Amended and Restated Promissory Note constitute valid and legally binding obligations of the Trust, and are enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights 3 (c) Each reference in the Agreement to "this agreement": and each reference in the ESOP Note and the Guaranty to "Agreement" shall be deemed a reference to the Agreement as amended by this Third Amendment and the First and Second Amendments entered into on November 4, 1994, and November 3, 1995, respectively. (d) Except as amended by this Amendment (and the prior amendments dated November 4, 1994, and November 3, 1995); the terms and conditions of the Agreement shall remain in all other respects in full force and effect. (e) The Company acknowledges and agrees that pursuant to section 11.6 of the Guaranty, the Company shall cause Wisconsin Gas to reimburse the Bank for all of its out-of-pocket costs and expenses incurred in connection with this Amendment t, including the fees and disbursements of the counsel to the Bank for the preparation hereof and expenses incurred in connection herewith. (f) The Amendment and the rights and obligations of the parties hereto shall be governed by the laws of the State of Wisconsin. IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to Loan Agreement to be executed by their respective officers as of the date first written above. MARSHALL & ILSLEY TRUST COMPANY AS TRUSTEE FOR THE WISCONSIN GAS COMPANY EMPLOYEES' SAVINGS PLANS TRUST By: Charlene Kelimann, VP (Title) WICOR, INC. By:J.P. Wenzler VP, Treasurer & CFO (Title) M&I MARSHALL & ILSLEY BANK By Brian Cooper, VP (Title) By Gina A. Peters, SVP (Title) 4 CONSENT OF GUARANTOR The undersigned hereby (I) acknowledges and agrees that the Guaranty executed by the undersigned is and remains in full force and effect subject to no defense, counterclaim or offset of any kind, (ii) acknowledges its receipt of a copy of the foregoing Amendment, acknowledges that it has received notice of the extension of the time for payment of the ESOP Loan pursuant to such Amendment and hereby consents and agrees to the terms of the foregoing Amendment, all in accordance with Section 7 of the Guaranty and (iii) acknowledges and agrees that the giving of the undersigned's consent to the foregoing Amendment shall not in any way be construed to require the giving of the undersigned's consent to any future amendment. Dated as of December 21, 1995. WICOR, INC. By JP Wenzler, VP, Treasurer & CFO (Title) 1 EX-10 3 EXHIBIT 10.1 1 EXHIBIT 10.1 WICOR, INC. SYSTEM SERVICE AGREEMENT This Service Agreement (the "Agreement") is made and entered into as of the 1st day of June, 1994, by and among WICOR, Inc., a Wisconsin corporation ("WICOR"), Wisconsin Gas Company, a Wisconsin corporation ("Wisconsin Gas"), WEXCO of Delaware, Inc., a Delaware corporation ("WEXCO"), Sta-Rite Industries, Inc., a Wisconsin corporation ("Sta-Rite") and SHURflo Pump Manufacturing Company, a California corporation ("SHURflo"), and supersedes the Service Agreement dated as of January 1, 1988, as amended by endorsement dated as of July 28, 1993. WHEREAS, WICOR is a holding company owning all of the issued and outstanding common stock of its subsidiaries, Wisconsin Gas, WEXCO, Sta-Rite and SHURflo; and WHEREAS, WICOR, WEXCO, Sta-Rite and SHURflo (hereinafter referred to as "Nonutility Affiliates") are affiliated interested with Wisconsin Gas pursuant to Stats., ss. 196.52 and 196.795; and WHEREAS, it is necessary and convenient for WICOR to provide certain common services for the benefit of its subsidiaries; and WHEREAS, from time to time it may be necessary, convenient or economical for any one of the parties to this Agreement to provide certain services to one or more of the other parties, which may require that Wisconsin Gas make available public utility affiliate employees and/or property as referred to in s. 196.795(5)(r) and (s) Stats.; and WHEREAS, it is necessary and appropriate that pursuant to ss. 196.52 and 196.795, Stats., the costs for the aforementioned services be determined, allocated and distributed. NOW, THEREFORE, it is agreed by and among the parties as follows: ARTICLE I AGREEMENT TO FURNISH SERVICES 1. WICOR agrees to provide certain common services and to incur certain common expenses and fees, all as described in more detail hereafter, for the benefit of its subsidiaries. 2. Each of the parties agrees to use its best efforts to furnish such services as may from time to time be reasonably requested by another party. 2 ARTICLE II DESCRIPTION OF SERVICES AND PROPERTY The services that may be requested by a party hereto and furnished pursuant to this Agreement shall include, but are not limited to, the following: management, supervisory, accounting, legal, financial, employee benefit services pursuant to an Order of the Public Service Commission of Wisconsin dated April 28, 1994, in Docket 05-UI-106 ("April 28, 1994 Order"), and similar services. Any party shall have the right, exercisable at its sole discretion, to refuse to perform services or to provide property to any other party, except as provided in the April 28, 1994 Order. Wisconsin Gas may, in its sole discretion, sell, lease, transfer to or exchange with a Nonutility Affiliate, property, as defined in s. 196.795(5)(s), Stats., independent of and not related to the provision of any of the services identified above. Such property shall be provided in accordance with the provisions of s. 196.795(5)(s), Stats. and Wisconsin Gas shall be compensated for such property at the fair market value of such property. ARTICLE III COMPENSATION FOR SERVICES Compensation for services or property provided by Wisconsin Gas to a Nonutility Affiliate shall be at the greater of the cost to Wisconsin Gas or the fair market value of such services. For purposes of this Agreement, the cost to Wisconsin Gas of each such service shall include those costs listed in Article V. A Nonutility Affiliate may, if in its sole discretion it elects to do so, provide services comparable to those listed above, or property (both real and personal) to Wisconsin Gas upon request. Compensation for services provided by a Nonutility Affiliate to Wisconsin Gas shall be at the lesser of the fair market value or the cost to the Nonutility Affiliate of such services. For purposes of this Agreement, the cost of each such service shall include those costs listed in Article V. The fair market value of a service provided by Wisconsin Gas to a Nonutility Affiliate shall be equal to the cost which the Nonutility Affiliate would have paid to obtain such service if Wisconsin Gas could not or would not provide such service. In determining the fair market value of a service it provides, Wisconsin Gas shall make a good faith effort to identify the resources necessary to perform the service, and the value of such service based on a general knowledge of the relevant market for such service as well as, if available, comparison with bids or quotations for such a service. If Wisconsin Gas, despite its good faith efforts, is not able to determine the fair market value of a service, the fair market value shall be deemed to be equal to the cost to Wisconsin Gas. 3 The fair market value of a service provided by Wisconsin Gas to a Nonutility Affiliate shall be compared to the cost to Wisconsin Gas of providing the service and the Nonutility Affiliate shall be charged the greater of the fair market value or the cost of providing the service. ARTICLE IV DESCRIPTION OF COST ALLOCATION 1. It is understood and agreed that each party shall bear all costs the incurrence of which benefits solely such party, and that each subsidiary shall bear a fair and equitable portion of costs the incurrence of which benefits partly but not solely such subsidiary. 2. Costs incurred initially by the parties are identified below. a. "Subsidiary Sole Costs" are costs incurred initially by any subsidiary solely for its benefit or directly for the benefit of any single subsidiary. b. "Subsidiary Shared Costs" are costs incurred initially by any subsidiary, partly for the benefit of at least two but not all of the subsidiaries. c. "Common Costs" are costs incurred by any party which benefit the subsidiaries, which include, but are not limited to, those items set forth in Exhibit A attached hereto. d. "WICOR Sole Costs" are costs incurred by any party which do not benefit the subsidiaries, which include, but are not limited to, costs, expenses and fees incurred in conjunction with investigating, reviewing or planning a potential acquisition or divestiture of any equity or ownership interest in another corporation or business enterprise and costs, expenses and fees incurred in consummating any acquisition or divestiture of such interest. Such costs include interest expense associated with any funds borrowed to finance an acquisition. 3. Costs identified above shall be apportioned and borne as follows: a. Subsidiary Sole Costs shall be borne by, billed to or otherwise recorded as costs of the subsidiary receiving the benefit associated with the costs. 4 b. Subsidiary Shared Costs shall be examined and apportioned in a manner designed to match cost responsibility with benefits received. The costs so apportioned shall be borne by, billed to or otherwise recorded as costs of each subsidiary receiving a benefit associated with the incurrence of the costs. c. Common Costs shall be apportioned to, borne by, billed to or recorded as costs of each subsidiary according to the allocation formula and procedures set forth in Exhibit B attached hereto and made a part hereof. The percentage allocations applicable to each subsidiary set forth in Exhibit B shall be recalculated annually using the formula and procedures set forth in Exhibit B, which among other things provides for using amounts recorded on the books of account of the parties at the end of the three preceding calendar years. d. WICOR Sole Costs shall be borne by, billed to or otherwise recorded as costs of WICOR. 4. The cost for services rendered by any part to any of the other parties shall be accounted for and billed on a current monthly basis with settlement of such billings to be made within 30 days after billing. ARTICLE V IDENTIFICATION OF COSTS TO BE ALLOCATED 1. The various costs referred to in this Agreement and to be allocated to and borne by the parties as set forth herein include: a. The cost of any employee's services, which shall be determined in the following manner; i. Actual Compensation based on direct labor expense shall be determined for each employee and shall include consideration for paid absences, such as vacation and illness. ii. The result calculated above will be multiplied by both a fringe benefit percent and a "loading factor." The fringe benefit percent shall include the cost of such items as medical and dental insurance, pensions, social security and life insurance. The "loading factor" shall include such intangible costs as activities necessary to maintain professional licenses, other permits and special skills, general training and business reading and membership or participation in trade associations and professional and business organizations. b. The cost of any property used in connection with the services hereunder, including, but not limited to, materials, equipment, supplies and the like, as reflected by the actual cost as recorded on the books of account of the party supplying such items. The cost of such property shall include a return on the depreciated original cost equal to the return authorized in the latest Wisconsin Gas rate case. 5 c. Travel and other out-of-pocket expenses at actual cost as recorded on the books of account of the party furnishing such items. d. Fees and expenses incurred for outside management, supervisory, accounting, legal, financial, or similar services at actual cost as recorded on the books of account of the party initially bearing such cost. ARTICLE VI Each person who is an officer of both Wisconsin Gas and one or more of the nonutility affiliates, or a person who is a member of the incidental supporting staff of such officer, shall keep a daily record of the amount of time devoted to nonutility affiliates. Actual compensation based on direct labor expense shall be determined for each employee and shall include consideration for paid absences such as vacation and illness. This amount shall be adjusted by both a loading factor and a fringe benefit allocation factor as described in Article V. ARTICLE VII EFFECTIVE DATE - TERM - CANCELLATION 1. This Agreement shall commence as of the date first written above or 60 days after approval by the Public Service Commission of Wisconsin, whichever occurs first, and shall continue until cancelled upon 60 days written notice by any party to the other parties. 2. It is contemplated that, if and when WICOR acquires new subsidiaries, such subsidiaries may become parties to this Agreement by endorsement after review and approval by the Public Service Commission of Wisconsin. 3. It shall not be necessary for the parties to amend or re-execute this Agreement in the event that allocation percentages set forth in Exhibit B are changed as a result of the annual recalculation of such percentages, or that new subsidiaries become parties to this Agreement. ARTICLE VIII MISCELLANEOUS 1. Nothing herein contained shall be construed to release the officers and directors of the parties from the obligation to perform the duties of such offices or to limit the exercise of their lawful powers. 2. The performance of this Agreement shall be subject to valid rules, regulations and orders of any regulatory body having jurisdiction, including approval by the Public Service Commission of Wisconsin. The parties hereto acknowledge that Wisconsin Gas is subject to the provisions of s. 196.795(5)(r) and (s), Stats., regarding the use of "public utility affiliate employe's services" and "property" and agree that Wisconsin Gas shall minimize the use of any "public utility affiliate employe's services" or "property" as required by those subsections. 6 3. Nothing herein shall limit the authority of the Public Service Commission of Wisconsin with respect to inclusion or exclusion of costs for the purpose of setting rates for Wisconsin Gas, or limit the powers of that commission in any other respect. 4. All prior service agreements among the parties shall be and hereby are terminated, without liability to any party; provided, however, that all services performed and costs incurred prior to the date hereof under such contracts shall be accounted for under such contracts. 7 IN WITNESS WHEREOF, each of the parties hereto has caused these presents to be executed in its name on its behalf by its duly authorized officers as of the day and year first above written. ATTEST: WICOR, Inc. R.A. Nuernberg BY T.F. Schrader Secretary President ATTEST: Wisconsin Gas Company R.A. Nuernberg BY J.D. Donnelly Secretary President ATTEST: Sta-Rite Industries, Inc. R.A. Nuernberg BY Secretary President ATTEST: WEXCO of Delaware, Inc. R.A. Nuernberg BY R. Phillips Secretary President ATTEST: SHURflo Pump Manufacturing Company R.A. Nuernberg BY G. Wardeberg Assistant Secretary Chairman 8 Exhibit A COMMON COSTS The component costs of the Common Cost category of costs include but are not limited to the following: Accounting WICOR Parent Company Records and Financial Statements WICOR Consolidated Financial Statements External WICOR Reports and Summary Internal Information Annual Meeting Information Invoice and Check Processing - WICOR Accounting Research Treasury Activities Shareholder Activities (i.e., dividends, stock options, etc.) Coordination of Cash Activities - WICOR Annual Meeting Involvement Financial Planning Public Information External WICOR Reports WICOR News Releases Annual Meeting Activities General Activities Time and Expenses of Officers and Employees of Subsidiaries Devoted to WICOR Matters Other Than Those Matters Constituting WICOR Sole Costs Secretarial Support Annual Meeting - Proxy Handling External Reports Shareholder Activities Tax WICOR Tax Matters Legal Monitoring of Contracts/Consultants Research Other Fringe Benefits Related to Direct and Indirect Labor Stockholder Expense Independent Accountants - Audit Activities Outside Counsel - Legal Matters Personal Expenses of Common Employees Office Space 9 Exhibit B ALLOCATION OF COMMON COSTS It is understood and agreed by the parties that certain costs incurred by or on behalf of WICOR provide a substantial benefit to the subsidiaries. Some of the costs incurred would be, and were prior to the establishment of WICOR, direct costs of the individual subsidiary companies. Other costs would be duplicated at each subsidiary were they not performed at the WICOR level. The allocation method used to allocate Common Costs emphasizes the operations of the subsidiaries by weighing equally total assets, operating expenses (less income taxes) and gross payroll of each subsidiary. The allocation factors will be determined annually. Each subsidiary's percentage of total assets, operating expenses (less income taxes) and gross payroll will be calculated by comparing such items to the sum of the subsidiaries' assets, operating expenses (less income taxes) and gross payroll. Such figures will be determined for the three years preceding the year for which the allocation is to be made. The percentages of assets, operating expenses and payroll so determined for such subsidiary will themselves be averaged to arrive at each subsidiary's overall average percentage to be used in allocating Common Costs. The calculation of the allocation percentages as will be used for 1994 is attached hereto as Schedule 1. If and when subsidiaries join the WICOR system, allocation factors will be determined as if the subsidiary joining the system were in the system for the entire period covered by the calculation. These new allocation factors shall be applied to the Common Cost pool commencing on the effective date of the new subsidiary's acquisition or formation. If the joining subsidiary does not have operating results for any portion of the period, its share of Common Costs will be based upon financial analysis until such time as actual operating results are available. EX-10 4 EXHIBIT 10.2 1 ENDORSEMENT NO. 2 TO SERVICE AGREEMENT (DATED AS OF JUNE 1, 1994) WHEREAS, pursuant to Article VII, Section 2 of the Service Agreement among and between WICOR, Inc. ("WICOR"), Wisconsin Gas Company, Sta-Rite Industries, Inc. and WEXCO of Delaware, Inc., and SHURflo Pump Manufacturing Co., dated as of June 1, 1994 ("Agreement"), new subsidiaries acquired by WICOR may become parties to the Agreement by endorsement after review and approval by the Public Service Commission of Wisconsin; and WHEREAS, on July 19, 1995, WICOR acquired all of the outstanding common stock of Hypro Corporation; and WHEREAS, the parties desire to add Hypro Corporation as a party to the Agreement by endorsement; NOW, THEREFORE, Hypro Corporation agrees to become a party to the Agreement and to be bound by all the terms and conditions of the Agreement. IN WITNESS WHEREOF, Hypro Corporationhas caused this Endorsement to be executed in its name and on its behalf by its duly authorized officers as of the 19th day of July, 1995. ATTEST: Hypro Corporation R.A. Nuernberg By W. Ted Dudley Assistant Secretary Chairman EX-10 5 EXHIB 10.10 1 EXHIBIT 10.11 WICOR, Inc. Officers' Incentive Compensation Plan 1996 I. Objectives The principal objectives of the Plan are: A. To motivate and to provide incentive for key officers of WICOR to achieve superior operating results for the benefit of both customers and stockholders. B. To assist in the retention of quality senior management. C. To yield competitive total compensation levels when performance goals are attained. D. To document the basis of participation by plan participants in subsidiary companies' incentive compensation plans, and to provide supplemental WICOR incentive compensation as required to achieve the above objectives. II. Eligibility Participation in the Plan is limited to designated WICOR corporate officers and subsidiary unit heads. The Chief Executive Officer will be responsible for recommending eligibility changes to the Compensation Committee of the Board of Directors of WICOR, Inc. III. Amount of Potential Award A. The minimum, target and maximum award opportunities for each executive, as a percentage of base salary, are as follows: Award as Percent of Salary --------------------------------- Position Minimum Target Maximum ------------- -------- -------- --------- CEO, WICOR 0% 50% 75.0% Others 0% 40% 60.0% 2 B. Each executive's award will be determined based on a combination of WICOR, subsidiary and individual performance, with specific weights as follows: Percentage of Award Determined By: ------------------------------------ Position WICOR Subsidiary Individual Performance Performance Performance -------------------- ----------- ----------- ----------- CEO, WICOR 75% 0% 25% Subsidiary Unit Head 25% 50% 25% CFO, WICOR 75% 0% 25% Determination of the WICOR performance and individual performance portions of the award are described in Section IV of this document. The Subsidiary performance portion is determined according to the Officer Incentive Compensation Plan for that subsidiary. IV. Performance Criteria and Objective Setting A. Overall WICOR performance will be measured by earnings per share. Threshold, Target and Maximum EPS performance levels, and incentive awards corresponding to each performance level are as follows: Performance Award As % Performance As % of 1996 Of Target Level Target EPS Award ---------------- ------------- ------------------- Below Threshold less than 85% less than 0.0% $2.18 Threshold 85% $2.18 1.0% Target 100% $2.56 100% (budget) Maximum or Above 120% or more $3.07 150% or more For performance at levels between Threshold and Target or between Target and Maximum, award calculations will be pro- rated on a linear basis. 3 B. The individual component of total incentive compensation will be determined by the WICOR Compensation Committee based on recommendations from the CEO reflecting the individual's overall performance as measured against previously identified and agreed upon goals and objectives. The award may vary up to 150% of the individual performance portion of the target award, and will be determined and paid independently of Corporate financial performance. C. If the Compensation Committee of WICOR, Inc. determines that corporate performance was inadequate, it may exercise discretion to reduce or eliminate any or all bonus payments. V. Performance Period Company performance goals will be for the 1996 calendar year. VI. Form and Timing of Award Payments A. Awards will be determined and paid as soon as practicable after the close of the Plan year. B. At each participant's discretion and with the concurrence of the Compensation Committee of WICOR, Inc., awards may be paid in one of three ways: 1. Lump Sum 2. Partly in lump sum and the remainder in deferred annual installments. 3. Completely in deferred annual installments. C. The Company will offer a deferred payment option to those officers who prefer not to receive their awards in current cash, following these guidelines: 1. Deferred incentive award payments will be carried as an accrued liability with an interest rate (three-year treasury bill rate) credited each year. 2. Deferred elections must be made prior to June 30, 1996, and a definite time period for deferral must be specified. VII. Implementation A. The effective date of the Plan is January 1, 1996. 4 VIII. Plan Administration A. Compensation Committee 1. The Plan will be administered by the Compensation Committee of the Board of Directors of WICOR, Inc. 2. The Committee's administration is subject to approval of the Board of Directors of WICOR, Inc. 3. The decisions of the Board are final and binding on all Plan participants. 4. The Board retains the right to terminate or amend the Plan as it may deem advisable. B. Partial Year Participation: 1. Participants must be employed by the Company on the last day of the Plan year in order to receive a bonus for that year. However, once earned, a bonus will be paid to a participant regardless of whether he/she is employed by the company on the date payment is made. 2. Awards for part year participants will be pro-rated based on the proportion of the year that the participant was in the Plan. This includes participants who terminate employment due to death, disability or retirement. 3. Participants who terminate employment with the Company prior to the last day of the Plan year shall forfeit all rights to an incentive award payment under the Plan except for terminations due to death, retirement or disability. 4. A participant is deemed to be disabled if he/she becomes eligible for benefits under the Company's Long Term Disability Plan. EX-10 6 EXHIBIT 10.12 1 EXHIBIT 10.13 Wisconsin Gas Company Officers' Incentive Compensation Plan 1996 I. Objectives The principal objectives of the Plan are: A. To motivate and to provide incentive for key officers and executive management team (EMT) of Wisconsin Gas Company to achieve superior operating results for the benefit of both customers and stockholders. B. To assist in the retention of quality senior management. C. To yield competitive total compensation levels when performance goals are attained. II. Eligibility Participation in the Plan is limited to designated corporate officers and EMT of Wisconsin Gas. The Chief Executive Officer of WICOR will be responsible for recommending eligibility changes to the Compensation Committee of the Board of Directors of WICOR, Inc. III. Amount of Potential Award A. The minimum, target and maximum award opportunities for each participant, as a percentage of base salary, are as follows: Award as a % of Salary ------------------------------------- Position Minimum Target Maximum ------------------ --------- ---------- --------- President & CEO 0% 40% 60% VP and EMT 0% 20% 30% B. Only 50% of the President & CEO's award opportunity will be determined according to the provisions of this Plan. Of that 50%, 67% will be determined by Performance Plus and 33% will be determined by Net Income as a percentage of budget. The remaining 50% will be determined based on the WICOR Officers' Incentive Compensation Plan. 2 IV. Performance Criteria and Objective Setting A. Each executive's incentive award will be related to the achievement of Company performance goals, and a component reflecting individual performance. B. Total incentive opportunity is further based on the following measures: - 50% Performance Plus (Company-wide operational and financial incentive Plan) - 25% Net Income as a percentage of budget - 25% Individual Therefore, 75% of the total bonus opportunity is based on operational and financial results and 25% is based on individual performance. The individual portion of the incentive payout will be based on the individual's overall performance as measured against previously identified and agreed upon goals and objectives. The award may vary up to 150% of the individual performance portion of the target award, and will be determined and paid independently of Company financial performance. C. If the Compensation Committee of WICOR, Inc. determines that the Net Income level was inadequate or that services to customers did not meet corporate goals or standards developed, it may exercise discretion to reduce or eliminate any or all bonus payments. V. Performance Period Company performance goals will be for the 1996 calendar year. VI. Bonus Award Determination A. Performance Plus. Each year management will recommend specific goals for safety, customer service and cost effectiveness. Associated with various levels of performance for each goal will be a certain number of award points. The cumulative total of these points adjusted by a "multiplier", based on Net Income as a percent of budget, will determine the formula payout under this portion of the Plan. For 1996, the performance measures and related points and the "multiplier" are set forth in Exhibit 10.13a. B. Net Income as a Percentage of Budget Actual net income as a percentage of budget will generate incentive compensation equal to 25% of the target award multiplied by the following percentages: 3 Net Income % of as % Target Performance Level of Budget Awarded ------------------- -------------- ----------- Less than threshold Less than 85% 0.0% Threshold 85% 1.0% Target 100% 100.0% Maximum 120% 150.0% For performance at levels between Threshold and Target or between Target and Maximum, award calculations will be pro- rated on a linear basis. For 1996, the amount of targeted net income is set forth in Exhibit 10.13a. C. Total performance awards will be calculated by combining the payouts from Performance Plus, Net Income and Individual Components. VII. Form and Timing of Award Payments A. Awards will be determined and paid as soon as practicable after the close of the Plan year. B. At each participant's discretion and with the concurrence of the Compensation Committee of WICOR, Inc., awards may be paid in one of three ways: 1. Lump Sum 2. Partly in lump sum, and the remainder in deferred annual installments. 3. Completely in deferred annual installments. C. The Company will offer a deferred payment option to those participants who prefer not to receive their awards in current cash, following these guidelines: 1. Deferred incentive award payments will be carried as an accrued liability with an interest rate (three-year treasury bill rate) credited each year. 2. Deferral elections must be made prior to June 30, 1996, and a definite time period for deferral must be specified. 4 VIII. Plan Administration A. Compensation Committee: 1. The Plan will be administered by the Compensation Committee of the Board of Directors of WICOR, Inc. 2. The Committee's administration is subject to approval of the Board of Directors of WICOR, Inc. 3. The decisions of the Board are final and binding on all Plan participants. 4. The Board retains the right to terminate or amend the Plan as it may deem advisable. 5. In evaluating actual Company performance results in comparison with pre-established objectives established for the Plan year, and in establishing resulting incentive compensation levels, the Compensation Committee, at their sole discretion, may take unusual and unique factors into consideration as they deem appropriate. Similarly, the Committee may modify performance targets during the course of a Plan year if significant change takes place which would affect the measure. 6. It shall be the Committee's responsibility to review the overall reasonableness of incentive compensation paid to participants of this Plan in relation to overall services performed and results obtained by the Company during the Plan year. The Committee shall make its determination on the basis of its judgement as to what constitutes satisfactory performance with respect to the fulfillment of the Company's mission or charter. Issues to be considered shall include, but not be limited to the following: a. Quality and level of service provided to customers. b. Health and safety considerations. c. Maintenance of specific required standards of performance. d. Representation of shareholders' interests (including Rate of Return achieved compared to allowed). Based upon this review, the incentive compensation paid to participants may be reduced or withheld so that the total compensation paid will be reasonable in relation to services performed. The decisions of the Committee are final and binding on all parties. 5 B. Partial Year Participation: 1. Participants must be employed by the Company on the last day of the Plan year in order to receive a bonus for that year. However, once earned, a bonus will be paid to a participant regardless of whether he/she is employed by the Company on the date payment is made. 2. Awards for part year participants will be pro-rated based on the proportion of the year that the participant was in the Plan. This includes participants who terminate employment due to death, disability or retirement. 3. Participants who terminate employment with the Company prior to the last day of the Plan year shall forfeit all rights to an incentive award payment under the Plan except for terminations due to death, retirement or disability. 4. A participant is deemed to be disabled if he/she becomes eligible for benefits under the Company's Long Term Disability Plan. 6 Exhibit 10.13a Wisconsin Gas Company Incentive Compensation Plan Formula Performance Goals 1996 Performance Plus* Maximum Points ------- 1. Rate Improvement Improvement in Residential Rates 10 2. Customer Service Favorability/Customer Satisfaction 10 3. Safety 10 4. Cost Effectiveness Operation & Maintenance Expense 10 ------- Maximum Total Points (Target = 24 points) 40 5. Multiplier Net Income as % of Multiplier Budget -------------------- -------------------- Less than 85% 0.0000 85% 0.0100 90% 0.3333 95% 0.6667 100% 1.0000 110% 1.2500 120% 1.5000 * This is a summarization of the Performance Plus Plan which will govern the actual calculation of the payout amounts. Net Income as a % of Budget ----------------------------------------- Minimum (85%) $23,035,000 Target (100%) $27,100,000 Maximum (120%) $32,520,000 EX-10 7 EXHIBIT 10.16 1 EXHIBIT 10.17 Sta-Rite Industries, Inc. Officers' Incentive Compensation Plan 1996 I. Objectives The principal objectives of the Plan are: A. To motivate and to provide incentive for key officers of Sta- Rite to achieve superior operating results for the benefit of both customers and stockholders. B. To assist in the retention of quality senior management. C. To yield competitive total compensation levels when performance goals are attained. II. Eligibility Participation in the Plan is limited to designated officers of Sta- Rite Industries, Inc. The Chief Executive Officer, WICOR will be responsible for recommending eligibility changes to the Compensation Committee of the Board of Directors of WICOR, Inc. III. Amount of Potential Award A. The minimum, target and maximum award opportunities for each officer level position, as a percentage of base salary, are as follows: Award as Percent of Base Salary ------------------------------------- Position Minimum Target Maximum -------------------- --------- ---------- --------- President and CEO 0% 40% 60.0% VP 0% 30% 45.0% B. Only 50% of the President and CEO's award opportunity will be determined according to the provisions of this Plan. Of that 50%, 67% will be determined by Net Income and 33% will be determined by Return on Assets. The remaining 50% will be determined based on the WICOR Officers' Incentive Compensation Plan. 2 IV. Performance Criteria and Objective Setting A. Participants' bonus opportunity is based on consolidated Company performance. B. Total bonus opportunity is further based on the following: - 50% net earnings (dollars) - 25% return on total assets - 25% individual Therefore, 75% of the total bonus opportunity is based on financial results (formula); and 25% is based on individual performance. The individual portion of the incentive payout will be based on the individual's overall performance as measured against previously identified and agreed upon goals and objectives. The award may vary up to 150% of the individual performance portion of the target award, and will be determined and paid independently of Company financial performance. C. If the Compensation Committee of WICOR, Inc. determines that corporate performance was inadequate, it may exercise discretion to reduce or eliminate any or all bonus payments. D. Formula bonus objectives are: 1. Total Company A. Net earnings: defined as absolute dollars of reported net earnings (after-tax) of the Company for the Plan year. B. Return on total assets: defined as reported net earnings (after-tax) divided by average (twelve months) total assets (both current and non- current) of the Company for the Plan year. 2. The specific target levels will be changed from year to year to reflect the changing emphasis of the business plan. Specific target levels for 1996 are set forth on Exhibit 10.17a. V. Performance Period Company performance goals will be for the 1996 calendar year. 3 VI. Bonus Award Determination A. Each year management will establish appropriate formula performance levels for minimum, target and maximum bonus awards. B. As noted in Section III A, the target bonus amount for the President and CEO is 40% of salary and the target bonus for all other officers is 30% of salary. C. Bonus awards for formula and discretionary portions will be evaluated and computed separately. 1. Formula bonus awards will be determined based on achieving the performance levels indicated in the following schedule: Level of Performance Objective Percent of Level Achieved Target Awarded ------------------- ------------- -------------- Less than Threshold Less than 80% 0.0% Threshold 80% 30.0% Target 100% 100.0% Maximum 120% 150.0% For performance between Threshold and Target or between Target and Maximum, award calculations will be pro-rated on a linear basis. VII. Form and Timing of Award Payments A. Awards will be determined and paid as soon as practical after the close of the Plan year. B. At each participant's discretion and with the concurrence of the Compensation Committee of WICOR, Inc., awards may be paid in one of three ways: 1. Lump sum. 2. Partly in lump sum, and the remainder in deferred annual installments. 3. Completely in deferred annual installments. C. The Company will offer a deferred payment option to those officers who prefer not to receive their awards in current cash, following these guidelines: 4 1. Deferred incentive award payments will be carried as an accrued liability with an interest rate (three-year treasury bill rate) credited each year. 2. Deferral elections must be made prior to June 30 1996, and a definite time period for deferral must be specified. VIII. Plan Administration A. Compensation Committee: 1. The Plan will be administered by the Compensation Committee of the Board of Directors of WICOR, Inc. ("Committee"). 2. The Committee's administration is subject to approval of the Board of Directors of WICOR, Inc. 3. The decisions of the board are final and binding on all participants. 4. The Board retains the right to terminate or amend the Plan as it may deem advisable. B. Partial Year Participation: 1. Participants must be employed by the Company on the last day of the Plan year in order to receive an incentive award for that year. However, once earned, the award will be paid to a participant regardless of whether he/she is employed by the Company on the date payment is made. 2. Awards for part year participants will be pro-rated based on the proportion of the year that the participant was in the Plan. This includes participants who terminate employment due to death, disability or retirement. 3. Participants who terminate employment with the Company prior to the last day of the Plan year shall forfeit all rights to an incentive award payment under the Plan except for terminations due to death, retirement or disability. 4. A participant is deemed to be disabled if he/she becomes eligible for benefits under the Company's Long Term Disability Plan. 5 Exhibit 10.17a Sta-Rite Industries, Inc. Incentive Compensation Plan Formula Performance Goals 1996 Performance Goal Net Earnings ($000) Return on Assets ---------------------- ------------------- ---------------- Minimum $10,000 5.4% Target $12,000 6.7% Maximum $15,000 8.1% EX-13 8 WICOR, INC. 1995 ANNUAL REPORT-MD&A,STMTS & NOTES 1 MANAGEMENT DISCUSSION AND ANALYSIS GENERAL OVERVIEW The Company is a diversified holding company with two principal business groups: Energy and Manufacturing. The Energy Group consists of natural gas distribution and related services and the Manufacturing Group focuses on pumps and processing equipment used to pump, control, transfer, hold and filter water and other fluids. The Company engages in natural gas distribution through Wisconsin Gas Company ( Wisconsin Gas ), the oldest and largest natural gas distribution utility in Wisconsin. Wisconsin Gas is subject to regulation by the Public Service Commission of Wisconsin ( PSCW ). At December 31, 1995, Wisconsin Gas served approximately 505,000 customers in 503 communities. The Energy Group accounted for 61% and 74% of the Company s 1995 operating revenues and operating income, respectively. Through its manufacturing subsidiaries, the Company engages in the manufacture and sale of pumps, fluid processing and filtration equipment. The Company s products are used primarily in water system, pool and spa, agriculture, RV/marine and beverage/food service applications. The Company markets its manufactured products in 100 countries. The Manufacturing Group accounted for 39% and 26% of the Company s 1995 operating revenues and operating income, respectively. WICOR s 1995 earnings were $39.5 million, or $2.32 per common share, compared with 1994 earnings of $33.2 million, or $1.99 per common share, and 1993 earnings of $29.3 million, or $1.82 per common share. Gas sales volumes increased in 1995 primarily as a result of colder weather and customer additions. Gas sales volumes decreased in 1994 due to warmer weather, the impact of which was partially offset by customer additions. The Company anticipates future customer additions to be in line with 1995 and 1994 levels. Manufacturing operations in 1995 reported increased sales in several key segments, including water purification and agriculture, but earnings declined due to higher material costs in both domestic and international markets. International sales continued their strong growth. Net cash flows from operations for the years 1993 through 1995 totalled $176.9 million. Cash proceeds of $110.5 million resulting from the net increase in long-term debt, common stock and short- term debt, along with the net cash flows from operations, provided funding for $163.2 million of capital expenditures, $60.4 million in acquisitions and $78.0 million of dividends for that three-year period. Segment data for WICOR s operations are summarized below in millions of dollars. 1995 1994 1993 Operating Revenues ------ ------ ------ Energy $522.8 $556.6 $574.8 Manufacturing 337.8 311.2 274.7 ------ ------ ------ $860.6 $867.8 $849.5 ====== ====== ====== 1995 1994 1993 Depreciation and Amortization ------ ------ ------ Energy $36.7 $37.4 $34.8 Manufacturing 11.8 9.7 8.9 ------ ------ ------ $48.5 $47.1 $43.7 ====== ====== ====== 2 1995 1994 1993 Operating Income ------ ------ ------ Energy $58.8 $44.4 $46.2 Manufacturing 20.3 22.2 17.8 ------ ------ ------ $79.1 $66.6 $64.0 ====== ====== ====== Actual Estimated ------------------------------- 1996 1995 1994 1993 Capital Expenditures ------ ------ ------ ------ Energy $48.1 $42.9 $44.6 $42.3 Manufacturing 18.7 13.3 10.5 9.6 ------ ------ ------ ------ $66.8 $56.2 $55.1 $51.9 ====== ====== ====== ====== 1995 1994 1993 Identifiable Assets -------- -------- -------- Energy $ 718.3 $ 707.9 $ 737.2 Manufacturing 290.2 222.8 196.5 -------- -------- -------- $1,008.5 $ 930.7 $ 933.7 ======== ======== ======== RESULTS OF OPERATIONS Energy Group -- The Company s primary energy business is the distribution of natural gas through its Wisconsin Gas subsidiary. In 1995, the Company formed two non- regulated energy services-related businesses, WICOR Energy Services Company, a wholly owned subsidiary of the Company, and FieldTech, a division of Wisconsin Gas. These businesses offer a variety of services, including natural gas supply and related services and energy risk management; and contract meter reading, management of field operations and billing services for public and municipal gas, water and electric utilities. The Company views these businesses as important elements in meeting increasing competitive challenges in the natural gas industry and as a new source of growth for its energy related operations. The revenues derived from these businesses are not, however, material to the Company at the present time. Increased sales margins for the Energy Group combined with lower levels of operating expenses resulted in an increase in operating income in 1995 as compared with 1994. Utility margin rates were reduced $10.1 million annually by a November 1994 rate order of the PSCW and $4.5 million annually by two voluntary rate reductions in 1995. These margin reductions have been more than offset by decreases in operating expenses. Revenues, margins and volumes are summarized below. Margin, defined as revenues less cost of gas, is a better comparative performance indicator than revenues. Transportation service revenues are recorded at the same margin as sales with no corresponding cost of gas amount. Therefore, for a given rate class, the volume mix between sales and transportation service affects revenues but not margin. In addition, changes in cost of gas flow through to revenue under a gas adjustment clause, with no effect on margin. 3 1995 1994 1993 (Millions of Dollars) -------- -------- -------- Gas sales revenue $ 515.0 $ 550.0 $ 565.1 Cost of gas sold 322.2 357.5 382.0 -------- -------- -------- Gas sales margin 192.8 192.5 183.1 Gas transportation margin 7.8 6.6 9.7 -------- -------- -------- Total margin $ 200.6 $ 199.1 $ 192.8 ======== ======== ======== 1995 1994 1993 (Millions of Therms) -------- -------- -------- Sales volumes Firm 841 795 823 Interruptible 314 282 208 Transport volumes 145 119 174 -------- -------- -------- Total throughput 1,300 1,196 1,205 ======== ======== ======== Total gas margin increased by 1% and 3% in 1995 and 1994, respectively. The increase in 1995 margin was due to higher volume sales which resulted primarily from weather which was 6% colder than 1994, offset in part by the rate reductions discussed above. The increase in 1994 margin was due to a November 1993 rate increase, offset by the impact of lower volume sales and the November 1994 rate decrease. Lower volumes in 1994 were primarily due to weather which was 5% warmer than 1993. In 1994, a number of industrial customers switched from transportation services to interruptible sales. This trend reversed in 1995. The Company anticipates more customers will switch to transportation services in 1996. Under current rates, there is no impact on margins from this switching activity. Operation and maintenance expenses decreased by $12.3 million, or 11%, in 1995 as compared with 1994. The decrease was due primarily to lower labor and related benefit expenses ($6.3 million), the impact of the November 1994 rate reduction which reduced non-cash amortizations by $5.7 million and the nonrecurrence of a one-time charge of $2.7 million relating to a 1994 early retirement program taken in the first quarter of 1994. Operation and maintenance expenses increased by $6.1 million, or 6%, in 1994 as compared with the prior year. The increase was in large measure due to increases in uncollectible receivables expense ($2.8 million), the one-time charge of $2.7 million described above and amortization of business system software costs ($1.6 million). Savings from a reduced work force were somewhat offset by higher labor rates. Except for the 1994 early retirement program charge, these increases in expenses were recovered in rates on an annual basis under the November 1993 rate order. Since July 1993, the Wisconsin Gas work force has declined by 319 employees, or 23%, through early retirement, involuntary severance and attrition. 4 Manufacturing Group -- Manufacturing operating income in 1995 was $20.3 million compared with $22.2 million in 1994 and $17.8 million in 1993. The 1995 decrease in operating income was the result of soft domestic markets, sharply higher material costs in both domestic and international operations and a falloff in the Company s Australian operations. Furthermore, a combination of substantially reduced manufacturing inventories in North America and lower sales domestically and in Australia resulted in underutilized manufacturing capacity for the year. Management believes that these are short-term problems and are not indicative of the outlook for the manufacturing business in the long run. Manufacturing sales in 1995 were $337.8 million, an increase of 9% over 1994. International sales increased by 14% while domestic sales increased by 5% over the comparable period in 1994. On July 19, 1995, the Company acquired Hypro Corporation ( Hypro ) (See Note 2 of Notes to Consolidated Financial Statements). The Company s consolidated financial statements include the operating results of Hypro from the date of acquisition. Pro forma results of operations have not been presented because the effect of this acquisition was not significant. Hypro s post acquisition sales were $18.4 million. Sales in 1994 were $311.2 million, an increase of 13% over 1993. International sales improved by 21% and domestic sales also contributed to the increase. Significant sales improvements were noted in the water systems, pool and spa, recreational vehicle, marine and industrial markets. International and export sales represented 39%, 37% and 34% of manufacturing sales in 1995, 1994 and 1993, respectively. The increase in 1995 was due primarily to continued sales growth that occurred in the Company s European markets. Operating expenses increased in 1995 by 8% over 1994 due primarily to the addition of Hypro operating expenses. As a percentage of sales, 1995 operating expenses remained flat compared to the same period in 1994. Operating expenses increased in 1994 by 11% over 1993 primarily as a result of increased sales. Interest Expense, Other Income and Expenses and Income Taxes -- The 1995 increase in interest expense as compared to 1994 was due primarily to increased manufacturing borrowings for higher international working capital requirements, the debt incurred for the Hypro acquisition and slightly higher interest rates. The 1994 decrease in interest expense as compared to 1993 was due primarily to a September 1993 long-term debt refinancing and to reduced levels of short-term borrowings. The 1995 increase in other income was due primarily to the sale of the Company s investment in Filtron Technologies Corporation ( Filtron ) for a pre-tax gain of $1.4 million, $0.8 million after tax. Income tax expense increased in 1995 reflecting increased pre-tax income. Income tax expense decreased in 1994 despite the increase in pre-tax book income. The effective income tax rate was reduced in 1994 primarily as a result of utilizing foreign tax incentives and the settlement of disputed tax matters. 5 Accounting Changes -- In March 1995, the Financial Accounting Standards Board ( FASB ) issued Statement of Financial Accounting Standards ( SFAS ) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company is required to adopt this Statement no later than its 1996 fiscal year. In October 1995, SFAS No. 123, Accounting for Stock Based Compensation, was issued and also requires adoption by the Company no later than its 1996 fiscal year. The standard requires expanded disclosures, and permits, but does not require, changes in the accounting for stock based compensation. The implementation of SFAS No. 121 and SFAS No. 123 is not expected to have a material impact on the financial statements. Effects of Changing Prices -- It is management s view that changes in the rate of inflation have not had a significant effect on WICOR s income over the past three years. Inflationary increases generally have been recovered through productivity improvements and/or product price increases. The Company continues to monitor the impact of inflation in order to minimize its effects in future years through pricing strategies, productivity improvements and cost reductions. In November 1994, Wisconsin Gas received approval from the PSCW to use an alternative method of rate making that includes a three-year margin rate cap. After reviewing the impact of the margin rate cap and other factors, management believes that productivity improvements have and will continue to offset the impact of inflationary cost increases. This alternative method is discussed on page 23 under Regulatory Matters. LIQUIDITY AND CAPITAL RESOURCES Over the last three years, the Company has generated sufficient cash flows from operations to cover operating expenses, dividends and a portion of investment activities. Cash flow from operations totalled $69.9 million for 1995, compared with $103.6 million and $3.4 million for 1994 and 1993, respectively. The Company s cash flow provided by operating activities for 1995 included net income of $39.5 million; depreciation and amortization of $48.5 million; and a net increase in working capital, excluding cash and short-term debt. Cash flow provided by operating activities for 1994 included net income of $33.2 million; depreciation and amortization of $47.1 million; and a net decrease in working capital, excluding cash and short- term debt. Cash flow provided by operating activities for 1993 included net income of $29.3 million; depreciation and amortization of $43.7 million; and a net increase in working capital, excluding cash and short-term debt. These items were offset with funds used by Wisconsin Gas to purchase its initial inventory of gas held in storage. One of the impacts of Federal Energy Regulatory Commission ( FERC ) Order No. 636 is that utilities such as Wisconsin Gas must assume the responsibility for purchasing gas supplies and maintaining gas in storage. Previously, the pipeline companies performed those functions. 6 Investment Activities -- Capital expenditures increased by $1.1 million and $3.2 million in 1995 and 1994, respectively. Utility expenditures returned to more normal levels during the three-year period ending in 1995 following completion of a major expansion project in 1992. Both utility and manufacturing capital expenditures are expected to increase modestly in 1996, and are expected to be funded from operations. In January 1995, WICOR sold its interest in Filtron, a manufacturer of filtration products, for approximately $5.1 million. In July 1995, the Company acquired Hypro for $58 million in cash and the assumption of $13.3 million in operating liabilities. The acquisition was initially financed with borrowings under a credit facility entered into in connection with the acquisition. A portion of these borrowings were repaid during 1995 with the net proceeds from an offering of WICOR common stock. See Financing Activities and Note 2 of Notes to Consolidated Financial Statements for further discussion of this transaction. In July 1993, WICOR acquired Shurflo Pump Manufacturing Co. ( Shurflo ) by exchanging approximately $27 million of WICOR stock for the outstanding common stock of Shurflo. See Note 2 of Notes to Consolidated Financial Statements for a further discussion of this transaction. In 1992, the PSCW issued an order prescribing an equity-based formula for determining the limitation on non-utility investments. As of December 31, 1995, WICOR would be permitted to invest an additional $52.6 million in nonutility equity under this order. Nonutility subsidiaries can also borrow additional amounts for acquisitions within certain PSCW guidelines (See Note 6 of Notes to Consolidated Financial Statements). Financing Activities -- During the latter part of each year, the energy business generally incurs short-term debt to finance increases in gas in storage and customer accounts receivable. The short-term debt is normally eliminated by the second quarter of the year as gas in storage is depleted and cash is received from winter heating sales. In November 1995, Wisconsin Gas issued $65 million of 63/8% Notes due in 2005, the proceeds of which were used to redeem, at par, $50 million of 91/8% Notes due in 1997. The remainder of the proceeds were used to retire short-term debt which had been incurred for working capital purposes. During 1993, Wisconsin Gas issued $45 million of 6.6% Notes due in 2013, the proceeds of which were used to refinance $45 million of first mortgage bonds which had higher interest rates. The Company s ratio of debt to capitalization decreased to 34% in 1995 as compared to 36% in 1994 and 38% in 1993. The utility s embedded cost of long-term debt was 8.1%, 8.1% and 8.9% for the years ended December 31, 1995, 1994 and 1993, respectively. In December 1995, the Company completed a public offering of 1,265,000 shares of common stock for the purpose of repaying a portion of the borrowings under the credit facility entered into in connection with the July 1995 acquisition of Hypro. Amounts remaining outstanding under this credit facility accrued interest at an annual rate of approximately 5.9% as of December 31, 1995, and mature in July 1996. Net proceeds to the Company from the common stock offering, after deduction of associated expenses, were $38.9 million. In the first half of 1996, the Company, and/or one of its subsidiaries, plans to issue long-term debt for the purpose of repaying the remaining balance of the credit facility. 7 WICOR raised its dividend by approximately 3% in each of 1995, 1994 and 1993. The current annual dividend rate is $1.64 per share. At December 31, 1995, the Company had $104.1 million of unrestricted retained earnings available for dividend payments to shareholders. The WICOR Plan, established in 1992, allows customers, shareholders, employees, Wisconsin residents and certain suppliers to purchase WICOR common stock directly and through dividend reinvestment without paying fees or service charges. During 1995, 1994 and 1993, respectively, 54,000, 511,000 and 685,000 shares of WICOR common stock were issued through the WICOR Plan and through various employee benefit plans. These stock issuances provided funds to the Company of $1.2 million, $10.6 million and $16.7 million in 1995, 1994 and 1993, respectively. Effective February 1, 1995, share requirements for the WICOR Plan have been met through open market purchases of WICOR common stock. As described in Note 6 of Notes to Consolidated Financial Statements, a 1993 PSCW rate order retained certain limitations with respect to equity levels and dividend payments of Wisconsin Gas. Restrictions imposed by the PSCW are not expected to have any material effect on WICOR s ability to meet its cash obligations. Wisconsin Gas ratio of pre-tax earnings to fixed charges was 4.0 in 1995 and 2.9 in 1994, as a result of higher earnings and fixed charges that remained relatively constant. Access to credit markets and the costs associated therewith can be correlated to credit quality. Wisconsin Gas unsecured bond rating from Moody s Investors Service and Standard and Poor s Corporation remained in 1995 at Aa3 and AA-, respectively. Such ratings are not a recommendation to buy, sell or hold securities, but rather an indication of creditworthiness. The following is a summary of the meanings of the ratings shown above and the relative rank of the Company s rating within each agency s classification system. Moody s top four corporate bond ratings (Aaa, Aa, A and Baa) are generally considered investment grade. Obligations which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. Aa securities are rated lower than the Aaa rated bonds because margins of protection may not be as large as in Aaa securities; or fluctuation of protective elements may be of greater amplitude; or there may be other elements present which make the long-term risk appear somewhat larger than the Aaa securities. A numerical modifier ranks the security within the category with a 1 indicating the high end, a 2 indicating the midrange and a 3 indicating the low end of the category. Standard & Poor s top four corporate bond ratings (AAA, AA, A and BBB) are considered investment grade. Based on Standard & Poor s rating system, debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A plus (+) or minus (-) sign may be used after Standard & Poor s ratings to designate the relative position of a credit rating within the rating category. 8 Commercial paper carrying an A-1+ rating by Standard & Poor s Corporation and P-1 by Moody s Investors Service is routinely issued by Wisconsin Gas as needed to finance seasonal working capital needs, principally customer receivables and gas in storage. Such ratings are not a recommendation to buy, sell, or hold securities, but rather an indication of creditworthiness. Moody s top three short-term debt ratings (P-1, P-2 and P-3) are generally considered investment grade and are intended to indicate the relative repayment ability of related issuers. According to Moody s rating system, short-term debt rated P-1 has a superior ability for repayment of senior short-term debt obligations. Wisconsin Gas had no short-term debt outstanding for five months and two months in 1995 and 1994, respectively. WICOR and its subsidiaries maintain multi-year revolving credit agreements expiring in March 1998, including separate agreements of $25 million for WICOR, $30 million for Wisconsin Gas and $15 million for Sta-Rite. Wisconsin Gas finances working capital by issuing commercial paper in the open market. In 1993, Sta-Rite renewed a $25 million commercial paper issuance facility. Commercial paper outstanding, on a consolidated basis, at December 31, 1995 and 1994 was $60.0 million and $94.6 million, respectively. The Company believes that it has adequate capacity to fund its operations for the foreseeable future through its borrowing arrangements and internally generated cash. Regulatory Matters -- Wisconsin Gas is subject to the jurisdiction of the PSCW as to various phases of its operations, including rates, service and issuance of securities. The PSCW has instituted a generic 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 the sale of natural gas in customer segments with workably competitive market choices. Hearings are tentatively planned for 1996, with the expectation that the general policy decisions defining the scope of a new regulatory framework will be made by the end of 1996. The Company is unable to determine what impact this proceeding may have on Wisconsin Gas future operations. Under current utility regulation Wisconsin Gas only earns a profit on the transportation of natural gas and not on the sale of natural gas. Because of this and consistent with the PSCW s policy decision, Wisconsin Gas is actively seeking to create the competitive market conditions necessary to exit the natural gas sales business and provide only gas transportation services within its utility service territory. To that end, Wisconsin Gas made a filing with the PSCW on December 29, 1995, designed to enhance the competitive market for gas sales to non-residential customers. In general, under its filing Wisconsin Gas proposes to provide new services to enable third-party marketers of natural gas to establish pools, or groups, of customers. A customer pool would effectively be treated by Wisconsin Gas as if it were a single customer, thereby greatly reducing the administrative burden and costs incidental to marketers serving a large number of customers. The Wisconsin Gas filing also proposes changes to the gas sales rate schedules applicable to its largest interruptible customers. The changes are designed to enhance competition by enabling those customers to compare services and prices available from Wisconsin Gas and third-party marketers. 9 Wisconsin Gas expects to make another filing during the first half of 1996 to implement a residential customer supplier choice demonstration program. Such a program would test market acceptance of competition by enabling third-party gas marketers to pool residential customers in a manner similar to that described above for non-residential customers. The Company is unable to predict: (1) whether the PSCW will approve Wisconsin Gas pending and future filings nor when any such approvals will be issued and become effective, (2) the length of time it will take for Wisconsin Gas to fully exit the gas sales business for all customer classes, if indeed it will be permitted to do so, and (3) whether and to what extent shareholders might be required to bear any costs that may arise in connection with contractual commitments and additional costs involved in transforming Wisconsin Gas business. In July 1995, the PSCW initiated a proceeding to develop principles and analyze alternatives for gas utilities to recover purchased gas costs to replace the traditional purchased gas adjustment ( PGA ) mechanism. The PSCW staff is soliciting proposals from interested parties. It is possible that some form of gas cost incentive mechanism will be recommended for adoption by the PSCW. In general, an incentive mechanism would establish a targeted gas cost for a utility and would reward or penalize that utility based on its actual gas costs incurred relative to the target. The PSCW has scheduled hearings for March 1996, with any changes in the PGA mechanism to be effective November 1, 1996. The Company is unable to predict whether any changes to the PGA mechanism will be adopted or the effect any changes that are adopted may have. Under a November 1994 rate order, Wisconsin Gas rates are subject to a three-year margin rate cap (through October 1997) based upon rates approved in November 1993. The PSCW order also specified margin rate floors for each rate class. Wisconsin Gas has the ability to raise or lower margin rates within the specified range on a quarterly basis. Wisconsin Gas reduced its base rates by $1.5 million and $3.0 million on an annualized basis effective August 1, 1995, and November 1, 1995, respectively. With these reductions, Wisconsin Gas rates are designed to recover $4.5 million per year less than the maximum margin recovery allowed by the PSCW s rate order. On November 1, 1993, ANR Pipeline Company ( ANR ), Wisconsin Gas principal pipeline supplier, filed for a general rate increase with the FERC. The filing proposes increases in many areas of ANR s regulated cost of service. The FERC ordered a reduction or elimination of certain cost increases and permitted ANR to place the balance of the rate increase into effect on May 1, 1994, subject to refund of any amounts ultimately determined to be unjust and unreasonable. Hearings began January 31, 1996. The Company believes that any amount by which ANR is ultimately permitted to increase its rates in this proceeding will not have a material impact on Wisconsin Gas or the Company. SFAS No. 71 Accounting for the Effects of Certain Types of Regulation provides that rate-regulated public utilities such as Wisconsin Gas record certain costs and credits allowed in the ratemaking process in different periods than would be required for unregulated businesses. These costs and credits are deferred as regulatory assets or regulatory liabilities and are recorded on the income statement at the time they are recognized in rates. SFAS No. 71 continues to be applicable to Wisconsin Gas in that its rates are approved by a third party regulator and are designed to recover its cost of service. Wisconsin Gas believes its current cost based rates are competitive in the open market. 10 Pipeline companies have been allowed to pass through to local gas distributors various costs incurred in the transition to FERC Order No. 636. The PSCW has authorized that such costs that have been passed through to Wisconsin Gas be recovered in rates charged to customers. Although complete assurance cannot be given, it is believed that any additional future transition costs will also be recoverable from customers. Environmental Matters -- Wisconsin Gas is in the process of preparing a remedial action options report and recommendation for presentation to the Wisconsin Department of Natural Resources concerning two previously owned sites on which it operated manufactured gas plants. Wisconsin Gas currently anticipates that the costs incurred in the remediation effort will be recoverable from insurers or through rates and will not have a material adverse effect on the Company s liquidity or results of operations. The manufacturing segment has provided reserves believed sufficient to cover its estimated costs related to contamination associated with its manufacturing facilities. For additional disclosure regarding environmental matters, see Note 7 of Notes to Consolidated Financial Statements. *** FOUR BAR CHARTS FOLLOW THIS DISCUSSION *** WICOR Operating Income (millions of dollars) year 91 92 93 94 95 ------ ------ ------ ------ ------ energy $39.5 $43.3 $46.2 $44.4 $58.8 manufacturing 11.7 10.0 17.8 22.2 20.3 ------ ------ ------ ------ ------ total $51.2 $53.3 $64.0 $66.6 $79.1 ====== ====== ====== ====== ====== WICOR Return on Average Common Equity before cumulative effects of accounting changes year 91 92 93 94 95 ------ ------ ------ ------ ------ 9.5 9.2 11.2 11.6 13.1 Annual Degree Days % warmer than 20-year average year 91 92 93 94 95 ------ ------ ------ ------ ------ 10.8 6.4 4.1 9.0 2.8 Manufacturing International and Export Sales (millions of dollars) year 91 92 93 94 95 ------ ------ ------ ------ ------ 75.5 85.9 93.8 114.2 130.2 11 To the Shareholders and Board of Directors of WICOR, Inc.: We have audited the accompanying consolidated balance sheets and statements of capitalization of WICOR, Inc. (a Wisconsin corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, common equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of WICOR, Inc. s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of WICOR, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Milwaukee, Wisconsin Arthur Andersen LLP January 22, 1996 12 Consolidated Statements of Income (Thousands of Dollars, Except per Share Amounts)
Year Ended December 31, 1995 1994 1993 ---------- ---------- ---------- Operating Revenues Energy $ 522,840 $ 556,587 $ 574,835 Manufacturing 337,754 311,168 274,693 ---------- ---------- ---------- 860,594 867,755 849,528 ---------- ---------- ---------- Operating Costs and Expenses Cost of gas sold 322,198 357,482 382,027 Manufacturing cost of sales 245,688 222,679 197,297 Operations and maintenance 174,515 181,820 169,068 Depreciation and amortization 29,696 29,416 28,044 Taxes, other than income taxes 9,421 9,748 9,141 ---------- ---------- ---------- 781,518 801,145 785,577 ---------- ---------- ---------- Operating Income 79,076 66,610 63,951 ---------- ---------- ---------- Interest expense (19,299) (16,698) (17,428) Other income and expenses 2,438 574 266 ---------- ---------- ---------- Income Before Income Taxes 62,215 50,486 46,789 Income taxes 22,688 17,312 17,476 ---------- ---------- ---------- Net Income $ 39,527 $ 33,174 $ 29,313 ========== ========== ========== Per Share of Common Stock Net income $ 2.32 $ 1.99 $ 1.82 Cash dividends $ 1.62 $ 1.58 $ 1.54 Average common shares outstanding (thousands) 17,020 16,708 16,096
The accompanying notes are an integral part of these statements. 13 Consolidated Balance Sheets
(Thousands of Dollars) December 31, 1995 1994 ----------- ----------- Assets Current Assets Cash and cash equivalents $ 20,380 $ 35,138 Accounts receivable, less allowance for doubtful accounts of $10,343 and $9,233, respectively 132,203 103,487 Accrued utility revenues 48,847 40,327 Manufacturing inventories 68,236 60,239 Gas in storage, at weighted average cost 24,117 38,050 Deferred income taxes 20,256 15,540 Prepayments and other 14,990 19,519 ----------- ----------- 329,029 312,300 ----------- ----------- Property, Plant and Equipment, at cost Gas distribution 757,950 718,988 Manufacturing 119,032 103,696 ----------- ----------- 876,982 822,684 Less accumulated depreciation and amortization 440,942 407,121 ----------- ----------- 436,040 415,563 ----------- ----------- Deferred Charges and Other Regulatory assets 104,145 116,896 Goodwill 61,096 6,914 Prepaid pension costs 33,073 30,865 Systems development costs 28,868 34,071 Other 16,263 14,099 ----------- ----------- 243,445 202,845 ----------- ----------- $1,008,514 $ 930,708 =========== ===========
The accompanying notes are an integral part of these statements. 14 Consolidated Balance Sheets
(Thousands of Dollars) December 31, 1995 1994 ----------- ----------- Liabilities and Capitalization Current Liabilities Short-term borrowings $ 106,377 $ 111,506 Accounts payable 63,920 65,626 Refundable gas costs 34,347 18,058 Accrued payroll and benefits 16,340 15,141 Current portion of long-term debt 6,836 5,031 Accrued taxes 6,940 8,400 Other 19,638 15,661 ----------- ----------- 254,398 239,423 ----------- ----------- Deferred Credits and Other Postretirement benefit obligation 67,306 69,730 Regulatory liabilities 64,896 60,900 Deferred income taxes 39,282 42,322 Accrued environmental remediation costs 36,381 37,188 Unamortized investment tax credit 7,724 8,187 Accrued pipeline transition costs 261 7,411 Other 18,287 12,410 ----------- ----------- 234,137 238,148 ----------- ----------- Commitments and Contingencies (Note 7) Capitalization (See accompanying statement) Long-term debt 174,713 161,669 Redeemable preferred stock - - Common equity 345,266 291,468 ----------- ----------- 519,979 453,137 ----------- ----------- $1,008,514 $ 930,708 =========== ===========
The accompanying notes are an integral part of these statements. 15 Consolidated Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents
(Thousands of Dollars) Year Ended December 31, 1995 1994 1993 ---------- ---------- ---------- Operations Net income $ 39,527 $ 33,174 $ 29,313 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation and amortization 48,477 47,097 43,738 Deferred income taxes (6,436) (9,091) (3,969) Changes in: Receivables (33,298) 21,105 (13,993) Manufacturing inventories (1,931) (2,027) (2,590) Gas in storage 14,121 6,647 (38,050) Other current assets 3,545 (4,827) (569) Systems development costs - (841) (6,530) Accounts payable (6,889) 2,943 (11,055) Refundable gas costs 16,289 2,462 1,955 Accrued taxes (7,839) (2,412) 9,169 Other current liabilities 5,176 947 (292) Other noncurrent assets and liabilities (824) 8,374 (3,726) ---------- ---------- ---------- Cash provided by operating activities 69,918 103,551 3,401 ---------- ---------- ---------- Investment Activities Capital expenditures (56,241) (55,051) (51,906) Proceeds from sale of assets 5,099 42 5,328 Acquisitions (58,256) (72) (2,120) Other, net 365 343 541 ---------- ---------- ---------- Cash (used in) investing activities (109,033) (54,738) (48,157) ---------- ---------- ---------- Financing Activities Change in short-term borrowings 4,059 (21,617) 59,603 Issuance of long-term debt 65,000 1,869 47,446 Reduction of long-term debt (57,700) (4,795) (50,982) Issuance of common stock 40,285 10,649 16,682 Dividends paid on common stock, less amounts reinvested (27,454) (23,247) (21,450) Other 167 513 (222) ---------- ---------- ---------- Cash (used) provided by financing activities 24,357 (36,628) 51,077 ---------- ---------- ---------- Change in Cash and Cash Equivalents (14,758) 12,185 6,321 Cash and cash equivalents at beginning of year 35,138 22,953 16,632 ---------- ---------- ---------- Cash and Cash Equivalents at End of Year $ 20,380 $ 35,138 $ 22,953 ========== ========== ==========
The accompanying notes are an integral part of these statements. 16 Consolidated Statements of Capitalization
(Thousands of Dollars) December 31, 1995 1994 ---------- ---------- Long-Term Debt Wisconsin Gas: First mortgage bonds Adjustable Rate Series, 9.3% and 7.4%, respectively, due 1999 $ 6,000 $ 10,000 9-1/8% Notes due 1997 - 50,000 7-1/2% Notes due 1998 40,000 40,000 6.6% Notes due 2013 45,000 45,000 6-3/8% Notes due 2005 65,000 - Sta-Rite: First mortgage notes, adjustable rate, 5.3% to 5.8%, due semi-annually through 2000 909 1,203 Industrial revenue bonds, 7.84%, payable through 2000 1,770 2,190 Commercial paper under multi-year credit agreement 11,202 6,853 Capital lease obligations and other 1,271 1,222 Unamortized (discount), net (1,754) (1,169) ESOP loan guarantee 5,315 6,370 ---------- ---------- 174,713 161,669 ---------- ---------- Redeemable Preferred Stock WICOR: $1.00 par value; authorized 1,500,000 shares - - Wisconsin Gas: Without par value, cumulative; authorized 1,500,000 shares - - ---------- ---------- - - ---------- ---------- Common Equity Common stock, $1.00 par value, authorized 60,000,000 shares; outstanding 18,237,000 and 16,918,000 shares, respectively 18,237 16,918 Other paid-in capital 219,133 180,000 Retained earnings 113,491 101,418 Unearned compensation-ESOP and restricted stock (5,595) (6,868) ---------- ---------- 345,266 291,468 ---------- ---------- Total Capitalization $ 519,979 $ 453,137 ========== ==========
The accompanying notes are an integral part of these statements. 17 Consolidated Statements of Common Equity
(Thousands of Dollars) December 31, 1995 1994 1993 ---------- ---------- ---------- Common Stock Balance at beginning of year $ 16,918 $ 16,407 $ 15,722 Issued in connection with underwritten public offering 1,265 - - Issued in connection with dividend reinvestment, customer stock purchase and employee benefit plans 54 511 685 ---------- ---------- ---------- Balance at end of year 18,237 16,918 16,407 ---------- ---------- ---------- Other Paid-in Capital Balance at beginning of year 180,000 166,710 148,064 Issued in connection with underwritten public offering 37,684 - - Received in connection with dividend reinvestment, customer stock purchase and employee benefits plans 1,449 13,290 18,646 ---------- ---------- ---------- Balance at end of year 219,133 180,000 166,710 ---------- ---------- ---------- Retained Earnings Balance at beginning of year 101,418 94,643 90,102 Net income 39,527 33,174 29,313 Dividends on common stock (27,454) (26,399) (24,099) Other - - (673) ---------- ---------- ---------- Balance at end of year 113,491 101,418 94,643 ---------- ---------- ---------- Unearned Compensation - ESOP and Restricted Stock Balance at beginning of year (6,868) (7,484) (8,601) Loan payments 1,055 1,114 1,117 Issuance of restricted stock - (723) - Amortization of restricted stock 218 225 - ---------- ---------- ---------- Balance at end of year (5,595) (6,868) (7,484) ---------- ---------- ---------- Total Common Equity at End of Year $ 345,266 $ 291,468 $ 270,276 ========== ========== ==========
The accompanying notes are an integral part of these statements. 18 Quarterly Financial Data (Unaudited) Because seasonal factors significantly affect the Company s operations (particularly at the Wisconsin Gas level), the following data may not be comparable between quarters:
(Thousands of Dollars, Except per Share Amounts) Quarters: First Second Third Fourth ----------- ---------- ----------- ---------- 1995 - --------------------------------------- Operating revenues $ 269,304 $ 179,199 $ 162,738 $ 249,353 Operating income (loss) $ 42,848 $ 8,456 $ (3,033) $ 30,805 Income available for common stock $ 24,789 $ 2,678 $ (4,944) $ 17,004 Net income(loss)/common share(a) $ 1.46 $ 0.16 $ (0.29) $ 0.99 1994 - --------------------------------------- Operating revenues $ 320,625 $ 186,079 $ 151,037 $ 210,014 Operating income (loss) $ 49,444 $ 5,500 $ (8,668) $ 20,334 Income available for common stock $ 28,202 $ 998 $ (8,069) $ 12,043 Net income(loss)/common share(a) $ 1.71 $ 0.06 $ (0.48) $ 0.71
(a) Quarterly earnings per share may not total to the amounts reported for the year since the computation is based on weighted average common shares outstanding during each quarter. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 ACCOUNTING POLICIES a Principles of Consolidation The consolidated financial statements include the accounts of WICOR, Inc., (WICOR or the Company) and its wholly-owned subsidiaries: Wisconsin Gas Company (Wisconsin Gas), WICOR Energy Services Company (WESCO), Sta-Rite Industries, Inc. (Sta-Rite), SHURflo Pump Manufacturing Co. (Shurflo) and Hypro Corporation (Hypro). All appropriate intercompany transactions have been eliminated. b Business The Company is a diversified holding Company with two principal business groups: energy and manufacturing of pumps and processing equipment used to pump, control, transfer, hold and filter water and other fluids. The Company engages in natural gas distribution through Wisconsin Gas, the oldest and largest natural gas distribution utility in Wisconsin. Wisconsin Gas is subject to regulation by the Public Service Commission of Wisconsin (PSCW) and gives recognition to ratemaking policies substantially in accordance with the Federal Energy Regulatory Commission (FERC) System of Accounts. At December 31, 1995, Wisconsin Gas served approximately 505,000 customers in 503 communities. The natural gas distribution and related services group accounted for 61% and 74% of the Company s 1995 operating revenues and operating income, respectively. Through several nonutility subsidiaries, the Company also engages in the manufacture and sale of pumps, fluid processing and filtration equipment. The Company s products are used primarily in water system, pool and spa, agriculture, RV/marine and beverage/ food service applications. The manufacturing group accounted for 39% and 26% of the Company s 1995 operating revenues and operating income, respectively. c Gas Distribution Revenues and Purchased Gas Costs Utility billings are rendered on a cycle basis. Revenues include estimated amounts accrued for service provided but not yet billed. Wisconsin Gas rate schedules contain purchased gas adjustment (PGA) provisions which permit the recovery of actual purchased gas costs incurred. The difference between actual gas costs incurred and costs recovered through rates, adjusted for inventory activity, is deferred as a current asset or liability. The deferred balance is returned to or recovered from customers at intervals throughout the year and any residual balance at the annual October 31 reconciliation date is subsequently refunded to or recovered from customers. The PSCW is currently permitting Wisconsin Gas to recover pipeline supplier take-or-pay settlement costs, allocating a portion of the direct-billed costs to each customer class, including transportation customers. d Plant and Depreciation Gas distribution property, plant and equipment is stated at original cost, including overhead allocations. Upon ordinary retirement of plant assets, their cost plus cost of removal, net of salvage, is charged to accumulated depreciation, and no gain or loss is recognized. 20 The depreciation of Wisconsin Gas assets is computed using straight-line rates over estimated useful lives and considers salvage value. These rates have been consistently used for ratemaking purposes. The composite rates are 4.2%, 4.5% and 4.7% for 1995, 1994 and 1993, respectively. Depreciation of manufacturing property is calculated under the straight-line method over the estimated useful lives of the assets (3 to 10 years for equipment and 30 years for buildings) and is primarily reported as a cost of sales. e Regulatory Accounting The Company and Wisconsin Gas account for their regulated operations in accordance with Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation. This statement sets forth the application of generally accepted accounting principles to those companies whose rates are determined by an independent third-party regulator. The economic effects of regulation can result in regulated companies recording costs that have been or are expected to be allowed in the ratemaking process in a period different from the period in which the costs would be charged to expense by an unregulated enterprise. When this occurs, costs are deferred as assets in the balance sheet (regulatory assets) and recorded as expenses in the periods those same amounts are reflected in rates. Additionally, regulators can impose liabilities upon a regulated company for amounts previously collected from customers and for amounts that are expected to be refunded to customers (regulatory liabilities). The amounts recorded as regulatory assets and regulatory liabilities in the Consolidated Balance Sheet at December 31, 1995 and 1994 are as follows: (Thousands of Dollars) 1995 1994 ---------- ---------- Regulatory assets: Postretirement benefit costs (Note 9) $ 45,054 $ 47,832 Deferred environmental costs 41,457 41,942 Pipeline transition costs 261 7,411 Income tax-related amounts due from customers 3,357 3,711 Other 14,016 16,000 ---------- ---------- $ 104,145 $ 116,896 ========== ========== Regulatory liabilities: Income tax-related amounts due to customers $ 22,891 $ 24,098 Pension costs (Note 9) 19,482 22,333 Other 22,523 14,469 ---------- ---------- $ 64,896 $ 60,900 ========== ========== Consistent with PSCW regulation, Wisconsin Gas has capitalized computer systems development costs and amortizes the costs to expense over a five- to ten- year period. Wisconsin Gas is precluded from discontinuing service to residential customers within its service area during a certain portion of the heating season. Any differences between doubtful account provisions based on actual experience and provisions allowed for ratemaking purposes by the PSCW are deferred for later recovery in rates as a cost of service. The most recent PSCW rate order provides for a $13.9 million allowable annual provision for doubtful accounts, including amortization of prior deferred amounts. 21 See Notes 7 and 9 for discussion of additional regulatory assets. f Income Taxes The Company files a consolidated Federal income tax return and allocates Federal current tax expense or credits to each subsidiary based on its respective separate tax computation. For Wisconsin Gas, investment tax credits were recorded as a deferred credit on the balance sheet and are being amortized to income over the applicable service lives of the related properties consistent with regulatory treatment. g Net Income per Common Share Net income per common share is based on the weighted average number of shares. Employee stock options are not recognized in the computation of earnings per common share as they are not materially dilutive. h Manufacturing Inventories Approximately 58% and 48% of manufacturing inventories, in 1995 and 1994, respectively, are priced using the last-in, first-out (LIFO) method (not in excess of market), with the remaining inventories priced using the first-in, first-out (FIFO) method. If the FIFO method had been used exclusively, manufacturing inventories would have been $7.9 million and $8.4 million higher at December 31, 1995 and 1994, respectively. i Cash Flows The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Due to the short maturity of these instruments, market value approximates cost. Beginning in 1995, dividends to be reinvested in shareholder accounts were purchased in the open market. The Company s dividends reinvested (pursuant to its dividend reinvestment plan) totalled $3.2 million and $2.6 million for 1994 and 1993, respectively. For purposes of the Consolidated Statements of Cash Flows, income taxes paid (net of refunds) and interest paid (excluding capitalized interest) were as follows for each of the years ended December 31, 1995, 1994 and 1993: (Thousands of Dollars) 1995 1994 1993 -------- -------- -------- Income taxes paid $ 27,801 $ 31,384 $ 16,106 Interest paid $ 18,855 $ 15,714 $ 17,678 j Derivative Financial Instruments The Company has a limited involvement with derivative financial instruments and does not use them for trading or speculative purposes. Foreign exchange futures and forward contracts are used to hedge foreign exchange exposure resulting from international purchases or sales of products. Gains and losses from open contracts are deferred until recognized as part of the purchase transaction. Such gains and losses included in net income in the Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993 were not material. Wisconsin Gas purchased options in 1995 to hedge a small portion of gas costs incurred for resale. The cost of the options and any gains or losses realized do not affect income since they are accounted for under the purchased gas adjustment clause. 22 k Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those results. l Reclassifications Certain prior year financial statement amounts have been reclassified to conform to their current year presentation. 2 MERGERS AND ACQUISITIONS On July 19, 1995, the Company completed the acquisition of Hypro for $58 million in cash and the assumption of operating liabilities totaling $13.3 million. Hypro designs, manufactures and markets pumps and water processing equipment for the agricultural, high-pressure cleaning, marine, industrial and fire protection markets. The acquisition has been accounted for as a purchase and the results of operations of Hypro have been included in the consolidated financial statements commencing July 19, 1995. The purchase price was allocated to the net assets based upon their estimated fair market values. The excess of the purchase price over the estimated fair value of net assets acquired amounted to approximately $58 million, which has been recorded as goodwill and is being amortized straight line over 40 years. On July 28, 1993, the Company completed its merger with Carr-Griff, Inc. which became SHURflo, a wholly-owned subsidiary of WICOR, Inc. Shurflo designs, manufactures and sells pumps to the food service, recreational vehicle, marine, industrial and water purification markets. The Company issued approximately 0.9 million shares of common stock, valued at approximately $27 million, for all the outstanding common stock of Shurflo. This transaction was accounted for as a pooling of interests. 3 INCOME TAXES The current and deferred components of income tax expense for each of the years ended December 31, are as follows:
(Thousands of Dollars) 1995 1994 1993 ---------- ---------- ---------- Current Federal $ 25,728 $ 23,516 $ 18,576 State 6,641 5,816 4,742 Foreign 1,256 1,627 834 ---------- ---------- ---------- Total Current 33,625 30,959 24,152 ---------- ---------- ---------- Deferred Federal (10,275) (11,247) (6,432) State (1,816) (2,012) (961) Foreign 1,154 (388) 717 ---------- ---------- ---------- Total Deferred (10,937) (13,647) (6,676) ---------- ---------- ---------- Total Provision $ 22,688 $ 17,312 $ 17,476 ========== ========== ========== /TABLE 23 The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income as a result of the following differences:
(Thousands of Dollars) Year ended December 31, 1995 1994 1993 -------------- -------------- -------------- Statutory U.S. tax rates $21,775 35.0% $17,670 35.0% $16,376 35.0% State income taxes, net 3,235 5.2 2,518 5.0 2,326 5.0 Excess of foreign (benefit) provision over U.S. statutory tax rate 378 0.6 (174)(0.3) 886 1.9 Investment credit restored (457)(0.7) (461)(0.9) (473)(1.0) Amortization of excess deferred taxes (507)(0.8) (505)(1.0) (532)(1.1) Settlement of disputed tax matters - - (998)(2.0) - - Other, net (1,736)(2.8) (738)(1.5) (1,107)(2.4) -------------- -------------- -------------- Effective Tax Rates $22,688 36.5% $17,312 34.3% $17,476 37.4% ============== ============== ==============
The components of deferred income tax assets and liabilities at December 31, 1995 and 1994 are as follows: (Thousands of Dollars) 1995 1994 -------------------- Deferred Income Tax Assets Recoverable gas costs $ 13,416 $ 7,258 Inventory 1,290 1,935 Deferred compensation 2,416 2,026 Other 3,134 4,321 -------------------- $ 20,256 $ 15,540 ==================== Deferred Income Tax Liabilities Property related $ 44,647 $ 41,054 Systems development costs 11,586 13,675 Investment tax credit (5,109) (5,416) Gas transition costs 105 2,974 Postretirement benefits (8,195) (8,059) Deferred compensation (3,044) (3,055) Pension benefits 5,039 2,842 Environmental (4,725) (1,669) Other (1,022) (24) -------------------- $ 39,282 $ 42,322 ==================== 24 4 SHORT-TERM BORROWINGS As of December 31, 1995 and 1994, the Company had total unsecured lines of credit available from banks of $204.2 million and $206.5 million, respectively. These borrowing arrangements may require the maintenance of average compensating balances, which are generally satisfied by balances maintained for normal business operations, and may be withdrawn at any time. (Thousands of Dollars) December 31, 1995 1994 -------------------- Notes payable to banks U.S. subsidiaries $ 27,000 $ 100 Non-U.S. subsidiaries 19,352 16,835 Commercial paper - U.S. 60,025 94,571 -------------------- $ 106,377 $ 111,506 ==================== Weighted average interest rates on debt outstanding at end of year: Notes payable to banks U.S. subsidiaries 5.9% 7.5% Non-U.S. subsidiaries 9.2% 6.2% Commercial paper - U.S. 5.9% 5.9% Highest month-end balance $ 129,058 $ 111,506 Average month-end balance $ 71,911 $ 63,451 5 LONG-TERM DEBT In November 1995, Wisconsin Gas issued $65 million of 6 3/8% Notes due in 2005, a portion of the proceeds were used to redeem $50 million of 9 1/8% Notes due in 1997. In September 1993, Wisconsin Gas issued $45 million of 6.6% Notes due in 2013, the proceeds of which were used to refinance $45 million of first mortgage bonds. Substantially all gas distribution and certain manufacturing property and plant is subject to first mortgage liens. Maturities and sinking fund requirements during the succeeding five years on all long-term debt total $6.8 million, $14.9 million, $43.0 million, $2.1 million and $0.4 million in 1996, 1997, 1998, 1999 and 2000, respectively. 6 RESTRICTIONS A November 1993 rate order issued by the PSCW sets an equity range of 43% to 50% for Wisconsin Gas and also requires Wisconsin Gas to request PSCW approval prior to the payment of dividends on its common stock to WICOR if the payment would reduce its common equity (net assets) below 43% of total capitalization (including short-term debt). Under this requirement, $26.8 million of Wisconsin Gas net assets at December 31, 1995, plus future earnings, were available for such dividends without PSCW approval. In addition, the PSCW must also approve any dividends in excess of $16 million for any 12 month period beginning November 1 if such dividends would reduce Wisconsin Gas total equity below 48.43% of its total capitalization. Wisconsin Gas paid $4 million in dividends in November 1995 and expects to pay $19 million in dividends for the 12 months ending October 1996. 25 In connection with its long-term debt agreements, Sta-Rite is subject to restrictions on working capital, shareholder equity and debt. These agreements also limit the amount of retained earnings available for the payment of cash dividends to WICOR and for certain investments. At December 31, 1995, $6.3 million of Sta-Rite net assets plus 50% of its future earnings were available for payment of dividends to WICOR. Combined restricted common equity of the Company s subsidiaries totaled $241.2 million under the most restrictive provisions as of December 31, 1995; accordingly, $104.1 million of consolidated retained earnings is available for payment of dividends. Historically, the PSCW has imposed restrictions on public utility holding companies, including WICOR, relating to future nonutility investments. Under current restrictions, Wisconsin Gas should remain the predominant business, generally as measured by equity, within the holding company system. Under these restrictions, the amount allowable for future nonutility equity investment at December 31, 1995, was $52.6 million. Also, nonutility subsidiaries can borrow additional amounts for acquisitions; however, if debt for the combined nonutility entities exceeds 40% of total capitalization for these entities, further PSCW actions may be necessary. Debt was 32% of total capitalization for the nonutility entities at December 31, 1995. 7 COMMITMENTS AND CONTINGENCIES a Gas Supply Wisconsin Gas has agreements for firm pipeline and storage capacity that expire at various dates through 2008. The aggregate amount of required payments under such agreements totals approximately $1,010 million, with annual required payments of $133 million in 1996, $132 million in 1997, $125 million in 1998, $123 million in 1999 and $123 million in 2000. Wisconsin Gas total payments of fixed charges under all agreements were $130.5 million in 1995, $130.4 million in 1994 and $133.9 million in 1993. The purchased gas adjustment provisions of Wisconsin Gas rate schedules permit the recovery of gas costs from its customers. In 1992, the FERC issued Order No. 636 that, among other things, mandated the unbundling of interstate pipeline sales service and established certain open access transportation regulations that became effective beginning in the 1993-94 heating season. Order No. 636 permits pipeline suppliers to pass through to Wisconsin Gas any prudently incurred transition costs, such as unrecovered gas costs, gas supply realignment costs and stranded investment costs. Wisconsin Gas estimates its portion of such costs from all of its pipeline suppliers would approximate $14.5 million at December 31, 1995, based upon prior filings with FERC by the pipeline suppliers. The pipeline suppliers will continue to file quarterly with the FERC for recovery of actual costs incurred. The FERC has allowed ANR Pipeline Company to recover capacity and above market supply costs associated with quantities purchased from Dakota Gasification Company ( Dakota ) under a long-term contract expiring in the year 2009. Consistent with guidelines set forth in Order No. 636 ANR has allocated 90% of Dakota costs to firm transportation service recoverable through a reservation rate surcharge and 10% to interruptible service. ANR and other pipelines reached a settlement with Dakota governing the price of Dakota gas. A FERC administrative law judge ( ALJ ) has overturned the settlement and ordered refunds of amounts collected from pipeline customers. 26 The ALJ s decision is subject to review by FERC. Pending a final resolution, ANR currently recovers the difference between costs paid to Dakota and the current market price. Based on Wisconsin Gas contracted quantities with ANR, Wisconsin Gas is currently paying approximately $500,000 per month of Dakota costs. This amount varies month-to-month and across years based on the spread between ANR contract terms with Dakota and the market indices for pricing spot gas. Transition costs billed to Wisconsin Gas are being recovered from customers under the purchased gas provisions within its rate schedules. Assuming no drastic changes in the market for natural gas, Wisconsin Gas does not expect pipeline transition costs to significantly affect the total cost of gas to its customers because (1) Wisconsin Gas will purchase its wellhead gas supplies based upon market prices that should be below the cost of gas previously embedded in the bundled pipeline sales service and (2) many elements of transition costs were previously embedded in the rates for the pipelines bundled sales service. The unbundling of pipeline sales service requires Wisconsin Gas to contract directly and separately for wellhead gas supply and firm transportation services. As a result of FERC Order No. 636, Wisconsin Gas has contracted directly for underground storage since 1993. b Capital Expenditures Certain commitments have been made in connection with 1996 capital expenditures. Energy Group s capital expenditures for 1996 are estimated at $48 million. The Manufacturing Group s capital expenditures for 1996 are estimated at $19 million. c Environmental Matters Wisconsin Gas has identified two previously owned sites on which it operated manufactured gas plants that are of environmental concern. Such plants ceased operations prior to the mid-1950 s. Wisconsin Gas has engaged an environmental consultant to help determine the nature and extent of the contamination at these sites. Based on the test results obtained and the possible remediation alternatives available, the Company has estimated that cleanup costs could range from $22 million to $75 million. As of December 31, 1995, the Company has accrued $36.4 million for future cleanup costs. These estimates are based on current undiscounted costs. It should also be noted that the numerous assumptions such as the type and extent of contamination, available remediation techniques, and regulatory requirements which are used in developing these estimates are subject to change as new information becomes available. Any such changes in assumptions could have a significant impact on the potential liability. Due to anticipated regulatory treatment, as discussed below, changes in the recorded liability do not immediately impact net income. The Wisconsin Department of Natural Resources ( WDNR ) issued a Probable Responsible Party letter to Wisconsin Gas for these two sites in September 1994. Following receipt of this letter, Wisconsin Gas and the WDNR held an initial meeting to discuss the sites. At the meeting it was agreed that Wisconsin Gas would prepare a remedial action options report from which it will select specific remedial actions for recommendation to the WDNR. During 1995 the Company gathered additional environmental data regarding these two sites, held extensive discussions concerning remedial options with current land owners and solicited information from environmental consulting and remediation firms on technology and approaches that would best suit the sites. These efforts were directed toward preparing a remedial action options report and recommendations for presentation to the WDNR during 1996. Once such a plan is approved, initial remediation work will begin. 27 Expenditures over the next three years are expected to total approximately $20.0 million. Although most of the work and the cost are expected to be incurred in the first few years of the plan, monitoring of sites and other necessary actions may be undertaken for up to 30 years. In March 1994, Wisconsin Gas commenced suit against nine insurance carriers seeking a declaratory judgment regarding insurance coverage for the two sites. Settlements were reached with each of the carriers during 1994. Additional insurance recoveries are being pursued. Under recent PSCW rate orders, the Company expects full recovery of incurred remediation costs, less amounts recovered from insurance carriers. If the amount recovered from the insurance carriers is insufficient to remediate both sites, expenditures not recovered will be allowed full recovery (other than for carrying costs) in rates based upon recent PSCW orders. Accordingly, a regulatory asset has been recorded for the accrued cost. Certain related investigation costs incurred to date are currently being recovered in utility rates. However, any incurred costs not yet recovered in rates are not allowed by the PSCW to earn a return. As of December 31, 1995, $4.8 million of such costs had been incurred. 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 currently aware in accordance with generally accepted accounting principles. In establishing these accruals, management considered (a) reports of environmental consultants retained by the Company, (b) the costs incurred to date by the Company at sites where clean-up is presently ongoing and the estimated costs to complete the necessary remediation work remaining at such sites, (c) the financial solvency, where appropriate, of other parties that have been responsible for effecting remediation at specified sites, and (d) the experience of other parties who have been involved in the remediation of comparable sites. The accruals recorded by the Company with respect to environmental matters have not been reduced by potential insurance or other recoveries and are not discounted. Although the Company has and will continue to pursue such claims against insurance carriers and other responsible parties, future potential recoveries remain uncertain and, therefore, were not recorded as reduction to the estimated gross environmental liabilities. Based on the foregoing and given current information, management believes that future costs in excess of the amounts accrued on all presently known and quantifiable environmental contingencies will not be material to the Company s financial position or results of operations. d Other The Company is party to various legal proceedings arising in the ordinary course of business which are not expected to have a material effect on the Company s financial position or results of operations. 28 8 COMMON STOCK AND OTHER PAID-IN CAPITAL The Company s articles of incorporation authorize 60,000,000 shares of common stock, of which 18,236,998 shares and 16,918,004 shares were outstanding at December 31, 1995 and 1994, respectively. In December 1995, the Company sold in a public offering 1,265,000 shares of its common stock which generated net proceeds of approximately $38.9 million. The proceeds were used to pay a portion of the debt incurred for the acquisition of Hypro. Common stock totaling 2,853,563 shares is reserved for issuance under the Company s dividend reinvestment, stock and incentive savings plans. In addition, 21,306,072 shares are reserved pursuant to the Company s shareholder rights plan. Under certain circumstances, each right entitles the shareholder to purchase one common share at an exercise price of $75, subject to adjustment. The rights are not exercisable until ten business days after a person or group announces a tender offer or exchange offer which would result in their acquiring ownership of 20% or more of the Company s outstanding common stock or after a person or group acquires at least 20% of the Company s outstanding common shares. Under certain circumstances, including the existence of a 20% acquiring party, each holder of a right, other than the acquiring party, will have the right to purchase at the exercise price WICOR common stock having a value of two times the exercise price. If, after 20% or more of the outstanding shares of WICOR common stock is acquired by a person or group and the Company is then acquired by that person or group, rights holders would be entitled to purchase shares of common stock of the acquiring person or group having a market value of two times the exercise price of the rights. The rights do not have any voting rights and may be redeemed at a price of $.01 per right. The rights expire on August 29, 1999. 9 BENEFIT PLANS a Pension Plans The Company s subsidiaries have non-contributory pension plans which cover substantially all their employees and include benefits based on levels of compensation and years of service. Employer contributions and funding policies are consistent with funding requirements of Federal law and regulations. Commencing November 1, 1992, Wisconsin Gas pension costs or credits have been calculated in accordance with SFAS No. 87 and are recoverable from customers. Prior to this date, pension costs were recoverable in rates as funded. The following table sets forth the funded status of pension plans at December 31, 1995 and 1994. The cumulative difference between the amounts funded and the amounts based on SFAS No. 87 through November 1, 1992, is recorded as a regulatory liability and is being amortized as a reduction of pension expense over an eight-year period effective November 1, 1994. 29
Assets Exceed Accumulated Benefits Accumulated Benefits Exceed Assets ---------------------- ---------------------- (Thousands of Dollars) December 31, 1995 1994 1995 1994 ---------------------------------------- Accumulated benefit obligation Vested benefits $(110,484)$ (97,478)$ (7,234)$ (5,825) Nonvested benefits (12,339) (10,827) (1,457) (1,185) ---------------------------------------- (122,823) (108,305) (8,691) (7,010) Effect of projected future compensation levels (43,481) (41,021) (1,267) (677) ---------------------------------------- Projected benefit obligation (166,304) (149,326) (9,958) (7,687) Plan assets at fair value 217,156 197,278 474 209 ---------------------------------------- Plan assets greater (less) than projected benefit obligation 50,852 47,952 (9,484) (7,478) Unrecognized net (asset) liability at September 30, 1985 being recognized over approximately 16 years (15,024) (16,777) 966 1,035 Unrecognized prior service costs 4,422 4,794 258 253 Unrecognized net (gain) loss (7,177) (5,104) 1,143 523 Additional minimum liability recorded - - (1,468) (1,307) ---------------------------------------- Prepaid pension asset (accrued liability) $ 33,073 $ 30,865 $ (8,585) $ (6,974) ========================================
The weighted average discount rate assumptions used in determining the actuarial present value of the projected benefit obligation were 7.5%, 8.25% and 7.5% for 1995, 1994 and 1993, respectively. The expected long-term rate of return on assets was 8.6% for 1995 and 1994 and 8.2% for 1993. The expected long-term rate of compensation growth was 5.3% for 1995 and 1994 and 6.0% for 1993. Net pension (income) costs for each of the years ended December 31, include the following components: (Thousands of Dollars) 1995 1994 1993 ------------------------------ Service costs $ 4,374 $ 5,260 $ 5,658 Interest costs on projected benefit obligations 12,830 12,249 11,807 Actual (gain) loss on plan assets (29,107) 1,225 (18,016) Net amortization and deferral 10,760 (18,896) (69) Gain on early retirement incentive - (268) - Amortization of regulatory liability (2,851) (475) - ------------------------------ Net pension income $ (3,994)$ (905)$ (620) ============================== 30 b Postretirement Health Care and Life Insurance In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees when they reach normal retirement age while working for the Company. Wisconsin Gas funds the accrual annually based on the maximum tax deductible amount. Commencing January 1, 1992, Wisconsin Gas postretirement benefit costs have been calculated in accordance with SFAS No. 106 and are recoverable from customers. The cumulative difference between the amounts funded and the amounts based on SFAS No. 106 through January 1, 1992, is recorded as a regulatory asset and is being amortized over a twenty-year period effective January 1, 1992. The following table sets forth the plans funded status, reconciled with amounts recognized in the Company s Statement of Financial Position at December 31, 1995 and 1994, respectively. Accumulated benefit obligation (Thousands of Dollars) 1995 1994 -------------------- Retirees $ (55,729)$ (54,088) Active employees (42,044) (29,544) -------------------- Accumulated benefit obligation (97,773) (83,632) Plan assets at fair value 39,417 30,666 -------------------- Accumulated benefit obligation in excess of plan assets (58,356) (52,966) Unrecognized prior service costs (15,915) (16,347) Unrecognized actuarial gain (loss) 6,965 (417) -------------------- Accrued postretirement benefit $ (67,306)$ (69,730) ==================== Net postretirement health care and life insurance costs for each of the years ended December 31, consisted of the following components: (Thousands of Dollars) 1995 1994 1993 ------------------------------ Service cost $ 2,023 $ 2,688 $ 2,813 Interest cost on projected benefit obligation 6,694 6,913 6,495 Actual (gain) loss on plan assets (6,185) 147 (1,414) Amortization of regulatory asset 2,778 2,778 2,651 Net amortization and deferral 2,531 (2,549) - Loss on early retirement incentive - 3,650 - ------------------------------ Net postretirement benefit cost $ 7,841 $ 13,627 $ 10,545 ============================== The 1994 postretirement benefit cost was increased due to the early retirement of 131 employees under a voluntary early retirement incentive plan at Wisconsin Gas for employees age 55 and over. 31 The postretirement benefit cost components for 1995 were calculated assuming health care cost trend rates ranging up to 11% for 1995 and decreasing to 5.0% over 8 to 23 years. The health care cost trend rate has a significant effect on the amounts reported. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation ( APBO ) as of December 31, 1995 by $14.7 million and the aggregate of the service and interest cost components of postretirement expense by $1.9 million. The assumed discount rate used in determining the actuarial present value of the APBO was 7.5% and 8.25% in 1995 and 1994, respectively. Plan assets are primarily invested in equities and fixed income securities. c Retirement Savings Plans Wisconsin Gas and Sta-Rite maintain various employee savings plans, which provide employees a mechanism to contribute amounts up to 16% of their compensation for the year. Company matching contributions may be made for up to 5% of eligible compensation including 1% for the Employee Stock Ownership Plan ( ESOP ). Total contributions were valued at $1.7 million in 1995, $1.7 million in 1994 and $1.8 million in 1993. d Employee Stock Ownership Plan In November 1991, WICOR established an ESOP covering non-union employees of Wisconsin Gas. The ESOP funds employee benefits of up to 1% of compensation with Company common stock distributed through the ESOP. The ESOP used the proceeds from a $10 million, 3-year adjustable rate loan (6.44% interest rate at December 31, 1995), guaranteed by the Company, to purchase 431,266 shares of WICOR common stock. The Company extended the adjustable rate loan, with similar terms, until March 29, 1996. The unpaid balance ($5.3 million) is shown as long-term debt with a like amount of unearned compensation reported as a reduction of common equity on the Company s balance sheet. The Company expects to refinance the adjustable rate loan in the first quarter of 1996. The ESOP trustee is repaying the $10 million loan with dividends on shares of WICOR common stock in the ESOP and with Wisconsin Gas contributions to the ESOP. e Stock Options The Company has a total of 135 employees participating in one or more of its common stock option plans. All options were granted at prices not less than the fair market value on the date of grant and expire not later than eleven years from the date of grant. Changes in stock options outstanding for all plans were as follows: 1995 1994 1993 ------------------------------ Outstanding at January 1 664,633 794,925 763,342 Granted 136,400 135,800 180,350 Exercised/Canceled (55,983) (266,092) (148,767) ------------------------------ Outstanding at December 31 745,050 664,633 794,925 ============================== Exercise price per share $ 15.34- $ 13.38- $ 10.38- $ 30.63 $ 30.63 $ 27.31 Available for future grant at year-end 607,200 743,600 783,116 32 Under the Company s 1994 Long-Term Performance Plan ( 1994 Plan ), awards covering up to 820,000 shares of common stock may be granted. The types of awards that may be granted under the 1994 Plan include incentive stock options, nonqualified stock options, stock appreciation rights and restricted stock. Awards of restricted stock subject to performance vesting criteria have been granted under the 1994 Plan. These awards will vest only if the Company achieves certain financial goals over the three-year performance periods 1994 to 1996. Recipients of restricted stock awards are not required to provide consideration to the Company other than rendering service and have the right to vote the shares and the right to receive dividends thereon. A total of 23,000 restricted shares (net of cancellations) were issued in 1994. Initially, the total market value of the shares is treated as unearned compensation and is charged to expense over the vesting periods. For both restricted stock and performance option shares, adjustments are made to expense for changes in market value and progress towards achievement of financial goals. Unearned compensation charged to expense was $0.1 million and $0.2 million for performance options, and $0.2 million for restricted stock in 1995 and 1994, respectively. f Postemployment Benefit Plans Effective January 1, 1994, the Company adopted SFAS No. 112, Employers Accounting for Postemployment Benefits, which requires accrual for all other postemployment benefits. Total postemployment benefit expense was $0.6 million in 1995 and 1994, respectively, including a one-time cumulative adjustment in 1994. The incremental costs of adopting this statement are insignificant on an ongoing basis. 10 FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of cash and cash equivalents, accounts receivable and short-term borrowings approximates fair value due to the short-term maturities of these instruments. The fair value of the Company s long-term debt is estimated based on the quoted market prices of U.S. Treasury issues having a similar term to maturity, adjusted for the Company s bond rating and the present value of future cash flows. Because Wisconsin Gas operates in a regulated environment, shareholders would probably not be affected by realization of gains or losses on extinguishment of its outstanding fixed-rate debt. Realized gains would be refunded to and losses would be recovered from customers through gas rates. The estimated fair value of WICOR s financial instruments at December 31, is as follows:
1995 1994 ---------------------- ---------------------- Carrying Fair Carrying Fair (Thousands of Dollars) Amount Value Amount Value ---------------------------------------- Cash and cash equivalents $ 20,380 $ 20,380 $ 35,138 $ 35,138 Accounts receivable $ 132,203 $ 132,203 $ 103,487 $ 103,487 Short-term debt $ 106,377 $ 106,377 $ 111,506 $ 111,506 Long-term debt $ 174,713 $ 176,700 $ 161,669 $ 159,318 /TABLE 33 11 OTHER FINANCIAL INFORMATION See page 28 for unaudited quarterly financial data. See Financial Review on page 19 for industry segment data. Selected Financial Data (Thousands of Dollars, Except Per Share Amounts)
1995 1994 1993 1992 1991 1990 1989 1988 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Consolidated Operating Data: Operating revenues (6) $ 860,594 $ 867,755 $ 849,528 $ 747,409 $ 716,767 $ 696,023 $ 741,218 $ 780,633 Net income continuing operations $ 39,527 $ 33,174 $ 29,313 $ 22,764 $ 22,966 $ 16,651 $ 33,359 $ 30,400 Net income $ 39,527 $ 33,174 $ 29,313 $ 14,799 $ 22,966 $ 16,651 $ 33,881 $ 34,163 Common Stock Data: Net income per share from continuing operations $ 2.32 $ 1.99 $ 1.82 $ 1.47 $ 1.54 $ 1.14 $ 2.30 $ 2.12 Net income per common share (1) $ 2.32 $ 1.99 $ 1.82 $ 0.96 $ 1.54 $ 1.14 $ 2.33 $ 2.38 Cash dividends per common share(1) $ 1.62 $ 1.58 $ 1.54 $ 1.50 $ 1.46 $ 1.42 $ 1.37 $ 1.32 Book value per common share (1) $ 18.93 $ 17.23 $ 16.47 $ 15.60 $ 15.84 $ 16.12 $ 16.83 $ 15.82 Balance Sheet Data: Long-term debt $ 174,713 $ 161,669 $ 165,230 $ 164,171 $ 168,366 $ 130,215 $ 122,639 $ 133,034 Redeemable preferred stock - - - - - - - - Common equity 345,266 291,468 270,276 245,287 243,453 237,407 244,351 227,080 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Capitalization at year-end $ 519,979 $ 453,137 $ 435,506 $ 409,458 $ 411,819 $ 367,622 $ 366,990 $ 360,114 ========== ========== ========== ========== ========== ========== ========== ========== Total assets at year-end (2) $1,008,514 $ 930,708 $ 933,726 $ 825,774 $ 670,250 $ 651,559 $ 620,548 $ 565,967 Other General Data: Market-to-book ratio at year-end (%) 170 165 191 175 153 122 148 123 Dividend payout ratio (%)(2)(3)(4) 69.5 79.6 82.2 96.1 89.0 117.2 55.0 52.0 Yield at year-end (%) 5.1 5.6 5.0 5.6 6.1 7.3 5.6 6.9 Return ave common equity (%)(2)(3)(5) 13.1 11.6 11.2 9.2 9.5 6.8 14.3 15.3 PE ratio at year-end (2)(3) 13.9 14.3 17.3 18.5 15.7 17.2 10.7 8.2 Price range $ 26 5/8 - $ 25 1/2 - $ 25 5/8 - $ 22 7/8 - $ 18 5/8 - $ 18 1/4 - $ 19 3/8 - $ 15 5/8 - $ 32 7/8 $ 32 5/8 $ 32 7/8 $ 27 3/8 $ 24 3/8 $ 25 1/4 $ 25 3/8 $ 20 7/8 /TABLE 34
1995 1994 1993 1992 1991 1990 1989 1988 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Shareholders at year-end 15,238 16,517 17,091 17,780 18,503 19,463 20,509 21,611 Cash flow from operations $ 69,918 $ 103,551 $ 3,401 $ 37,012 $ 50,413 $ 10,022 $ 94,623 $ 73,526 Capital expenditures $ 56,241 $ 55,051 $ 51,906 $ 71,873 $ 45,113 $ 37,529 $ 40,944 $ 48,295 Employees at year-end 3,359 3,214 3,222 3,178 3,196 3,152 3,696 3,927 Debt/equity ratio at year-end 34/66 36/64 38/62 40/60 41/59 35/65 33/67 37/63 Energy Operations Operating revenues $ 522,840 $ 556,587 $ 574,835 $ 495,415 $ 474,702 $ 455,559 $ 441,477 $ 476,904 Net income $ 27,701 $ 18,896 $ 19,870 $ 18,060 $ 17,086 $ 13,195 $ 25,169 $ 23,223 Capital expenditures $ 42,852 $ 44,626 $ 42,253 $ 62,125 $ 34,473 $ 27,978 $ 25,813 $ 37,148 Gas sold and transported (MDth) Residential 49,425 46,369 47,964 45,905 45,614 43,020 48,154 46,769 Commercial 21,157 18,598 19,060 17,840 17,861 16,319 18,089 17,012 Industrial firm 13,496 14,544 15,246 14,488 15,690 15,106 16,915 16,808 Industrial interruptible 31,353 28,217 20,849 17,388 17,440 16,620 5,475 3,752 Transported 14,549 11,908 17,408 21,379 19,658 16,565 29,158 29,639 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 129,980 119,636 120,527 117,000 116,263 107,630 117,791 113,980 ========== ========== ========== ========== ========== ========== ========== ========== Customers at year-end 504,746 495,129 485,103 470,956 460,549 452,906 445,771 439,063 Customers served per employee 471 419 352 331 323 321 319 311 Average cost of gas per Dth purchased $ 2.79 $ 3.34 $ 3.76 $ 3.34 $ 3.18 $ 3.30 $ 3.15 $ 3.68 Average annual residential bill $ 686 $ 719 $ 779 $ 712 $ 677 $ 670 $ 758 $ 770 Average per residential customer (Dth) 114 110 116 115 117 113 129 127 Degree days 6,836 6,431 6,775 6,683 6,416 6,103 7,382 7,124 % colder (warmer) than normal (2.8) (9.0) (4.1) (6.4) (10.8) (16.0) 1.5 (2.0) Manufacturing Operations (2) Operating revenues $ 337,754 $ 311,168 $ 274,693 $ 251,994 $ 242,065 $ 240,464 $ 300,156 $ 303,729 International and export sales as a % of total sales 39 37 34 34 31 27 24 22 Net income (3) $ 11,826 $ 14,278 $ 9,443 $ 4,704 $ 5,880 $ 3,456 $ 8,712 $ 10,940 Capital expenditures $ 13,389 $ 10,425 $ 9,653 $ 9,748 $ 10,640 $ 9,551 $ 15,131 $ 11,147
(1) Adjusted for a two-for-one stock split in March 1989. (2) Includes continuing operations and discontinued operations up to the year disposition was authorized. (3) Before effects of 1992 accounting changes. Adjusted for merger with Shurflo through (4) 1988 and (5) 1989. (6) Includes revenues (in thousands) from discontinued operations from 1986 to 1989 of $58,209, $58,318, $63,552 and $56,318, respectively. Data from 1985 are not available. Note: Hypro operations are reflected as of July 19, 1995. 35 Selected Financial Data (Thousands of Dollars, Except Per Share Amounts)
1987 1986 1985 ---------- ---------- ---------- Consolidated Operating Data: Operating revenues (6) $ 699,418 $ 761,104 $ 853,175 Net income from continuing operations$ 17,215 $ 17,363 $ N/A Net income $ 19,682 $ 19,780 $ 24,900 Common Stock Data: Net income per share from continuing operations $ 1.22 $ 1.34 $ N/A Net income per common share (1) $ 1.39 $ 1.53 $ 1.98 Cash dividends per common share(1) $ 1.30 $ 1.28 $ 1.18 Book value per common share (1) $ 14.68 $ 15.74 $ 13.81 Balance Sheet Data: Long-term debt $ 127,833 $ 144,495 $ 154,159 Redeemable preferred stock 8,000 14,267 18,200 Common equity 207,658 203,477 173,941 ---------- ---------- ---------- Capitalization at year-end $ 343,491$ 362,239 $ 346,300 ========== ========== ========== Total assets at year-end (2) $ 536,998$ 542,036 $ 531,192 Other General Data: Market-to-book ratio at year-end (%)117 134 112 Dividend payout ratio (%)(2)(3)(4) 91.1 79.9 57.0 Yield at year-end (%) 7.6 6.1 7.6 Return ave common equity (%)(2)(3)(5) 9.3 10.5 14.6 PE ratio at year-end (2)(3) 12.4 13.8 7.8 Price range $ 13 3/8 - $ 14 3/4 - $ 13 - $ 21 7/8 $ 23 $ 15 3/4 /TABLE 36
1987 1986 1985 ---------- ---------- ---------- Shareholders at year-end 23,010 23,987 26,083 Cash flow from operations $ 41,237$ 63,583$ 46,342 Capital expenditures $ 34,264$ 36,498$ 32,381 Employees at year-end 4,040 3,932 3,641 Debt/equity ratio at year-end 37/63 40/60 45/55 Energy Operations Operating revenues $ 424,069$ 531,970$ 637,167 Net income $ 12,580$ 14,338$ 17,460 Capital expenditures $ 24,344$ 28,353$ 23,208 Gas sold and transported (MDth) Residential 39,369 42,837 44,813 Commercial 14,510 15,292 16,394 Industrial firm 16,106 19,379 22,541 Industrial interruptible 4,714 22,403 31,675 Transported 26,129 5,502 1,716 ---------- ---------- ---------- 100,828 105,413 117,139 ========== ========== ========== Customers at year-end 432,509 426,481 420,967 Customers served per employee 288 277 279 Average cost of gas per Dth purchased$ 3.74 $ 3.75 $ 4.13 Average annual residential bill $ 660 $ 761 $ 838 Average per residential customer (Dth) 108 120 128 Degree days 6,185 6,788 7,325 % colder (warmer) than normal (14.8) (7.3) (0.5) Manufacturing Operations (2) Operating revenues $ 275,349$ 229,134$ 216,008 International and export sales as a % of total sales 20 16 12 Net income (3) $ 7,102$ 5,442$ 7,440 Capital expenditures $ 9,920$ 8,145 $ 9,173 /TABLE EX-21 9 SUBSIDIARIES OF WICOR, INC. 1
EXHIBIT 21 WICOR, Inc. Subsidiaries of the Registrant State or Country Percent Voting Subsidiaries of WICOR, Inc. in Which Incorporated Stock Owned - -------------------------- ---------------------- -------------- Wisconsin Gas Company Wisconsin 100% Sta-Rite Industries, Inc. Wisconsin 100% SHURflo Pump Manufacturing Company California 100% Hypro Corporation Minnesota 100% WEXCO of Delaware, Inc. Delaware 100% Hydro-Flow Filtration Systems, Inc. California 80% WICOR FSC, Inc. Barbados 100% WICOR Energy Service Company Wisconsin 100% Subsidiaries of Sta-Rite State or Country Percent Voting Industries in Which Incorporated Stock Owned - --------------------------- ---------------------- -------------- WICOR Canada Inc. Canada 100% Sta-Rite de Mexico Mexico 80% Sta-Rite Industries GmbH Germany .5% Europa WICOR Industries (Australia) Pty. Ltd. Australia 100% Onga (New Zealand) Pty. Ltd. New Zealand 100% Sta-Rite Holdings, B.V. Netherlands 100% Nocchi Pompe S.p.A. Italy 47% Webster Electric Co. Delaware 100% Subsidiary of WICOR Country in Which Percent Voting (Australia) Pty. Ltd. Incorporated Stock Owned - ---------------------------- ---------------- -------------- Onga Pty. Ltd. Australia 100% Dega Research Pty. Ltd. Australia 100% Subsidiaries of Sta-Rite Country in Which Percent Voting Holdings, B.V. Incorporated Stock Owned - ----------------------------- ----------------- -------------- Sta-Rite Industries Germany 95.5% GmbH Europa Nocchi Pompe S.p.A. Italy 30% Subsidiary of Nocchi Pompe, Country in Which Percent Voting S.p.A. Incorporated Stock Owned - ----------------------------- ---------------- -------------- Midi Pompes S.a.r.l. France 100% Nocchi Pompe Moscow Russia 90% Subsidiary of SHURflo Pump Country in Which Percent Voting Manufacturing Company Incorporated Stock Owned - ----------------------------- ----------------- -------------- SHURflo Ltd. England 100%
EX-23 10 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our reports included in and incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (Nos. 2-93964, 2-93963, 2-87076, 2-72454, 33-16489, 33-36457, 33-43645, 33-67132, 33-67134 and 33-55755) and Form S-3 (Nos. 33-28289 and 33- 50682). ARTHUR ANDERSEN LLP Milwaukee, Wisconsin, March 12, 1996 EX-27 11 FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the WICOR, Inc. 1995 Form 10-K for the year ended 31, 1995 and is qualified in its entirety by reference to such financial statements and the related footnotes. 1,000 YEAR DEC-31-1995 DEC-31-1995 PER-BOOK 375,516 60,524 329,029 243,445 0 1,008,514 18,237 219,133 107,896 345,266 0 0 174,713 27,000 145,000 60,025 6,836 0 1,271 0 394,674 1,008,514 860,594 22,688 781,518 804,206 56,388 2,438 58,826 19,299 39,527 0 39,527 27,454 1,000 69,918 2.32 2.32
EX-99 12 WICOR PROXY DATED MARCH 12, 1996 1 EXHIBIT 99 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ____) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a- 6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12 WICOR, Inc. ----------------------------------------------- (Name of Registrant as Specified in its Charter) - ----------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0- 11 1) Title of each class of securities to which transaction applies: 2) Aggregate number of securities to which transaction applies: 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): 4) Proposed maximum aggregate value of transaction: 5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: 2) Form, Schedule or Registration Statement No.: 3) Filing Party: 4) Date Filed: 2 WICOR 626 East Wisconsin Avenue P.O. Box 334 Milwaukee, WI 53201 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held April 25, 1996 To the Shareholders of WICOR, Inc.: NOTICE IS HEREBY GIVEN THAT the Annual Meeting of Shareholders of WICOR, Inc. will be held Thursday, April 25, 1996, at 2:00 P.M. (local time), at the Italian Community Center, 631 East Chicago Street, Milwaukee, Wisconsin, for the following purposes: 1. To elect three directors to hold office until the 1999 Annual Meeting of Shareholders and until their successors are duly elected and qualified. 2. To consider and act upon any other business which may be properly brought before the Annual Meeting or any adjournment thereof. The close of business Tuesday, February 20, 1996, has been fixed as the record date for the determination of shareholders entitled to receive notice of, and to vote at, the Annual Meeting and any adjournment thereof. A proxy and Proxy Statement are enclosed herewith. By Order of the Board of Directors Robert A. Nuernberg Secretary March 12, 1996 YOUR VOTE IS IMPORTANT. TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE DATE THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS, SIGN EXACTLY AS YOUR NAME APPEARS, AND RETURN IMMEDIATELY. 3 WICOR 626 East Wisconsin Avenue P.O. Box 334 Milwaukee, Wisconsin 53201 PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS To Be Held April 25, 1996 This Proxy Statement is being furnished to shareholders by the Board of Directors of WICOR, Inc. (the "Company") beginning on or about March 12, 1996, in connection with a solicitation of proxies by the Board of Directors of the Company (the "Board") for use at the Annual Meeting of Shareholders (the "Annual Meeting") to be held on Thursday, April 25, 1996, at 2:00 P.M.(local time), at the Italian Community Center, 631 East Chicago Street, Milwaukee, Wisconsin, and at all adjournments thereof, for the purposes set forth in the attached Notice of Annual Meeting of Shareholders. Execution of a proxy given in response to this solicitation will not affect a shareholder's right to attend the Annual Meeting and to vote in person. Presence at the Annual Meeting of a shareholder who has signed a proxy does not in itself revoke a proxy. Any shareholder giving a proxy may revoke it at any time before it is exercised by giving notice thereof to the Company in writing or in open meeting. Unless so revoked, the shares represented by proxies received by the Board will be voted at the Annual Meeting and at any adjournment thereof. A properly executed proxy will be voted as directed therein by the shareholder. Only holders of record of the Company's Common Stock, $1 par value ("Common Stock"), at the close of business on February 20, 1996, are entitled to vote at the Annual Meeting and at any adjournment thereof. On that date, the Company had outstanding and entitled to vote 18,300,133 shares of Common Stock. The record holder of each outstanding share of Common Stock is entitled to one vote per share. The Company is a holding company. Its principal subsidiaries include Wisconsin Gas Company ("Wisconsin Gas"), Sta-Rite Industries, Inc. ("Sta-Rite"),SHURflo Pump Manufacturing Co. ("SHURflo") and Hypro Corporation ("Hypro"). 4 ITEM NO. 1: ELECTION OF DIRECTORS The Board consists of 10 directors. The Company's By-laws provide that the directors shall be divided into three classes, with staggered terms of three years each. At the Annual Meeting, shareholders will elect three directors to hold office until the 1999 Annual Meeting of Shareholders and until their successors are duly elected and qualified. Directors are elected by a plurality of the votes cast (assuming a quorum is present at the Annual Meeting). Consequently any shares not voted, whether due to abstentions, broker non-votes or otherwise, have no impact on the election of directors. However, abstentions and broker non-votes are counted in determining whether a quorum is present at the meeting. Unless shareholders otherwise specify, the shares represented by the proxies received will be voted "FOR" the indicated nominees for election as directors. The Board has no reason to believe that any of the listed nominees will be unable or unwilling to continue to serve as a director if elected. However, in the event that any nominee should be unable or for good cause unwilling to serve, the shares represented by proxies received will be voted for another nominee selected by the Board. The following tabulation sets forth information regarding the three nominees for election as directors and the seven continuing directors. Except as otherwise noted, each such person has engaged in the principal occupation or employment and held the offices shown for more than the past five years. NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS For Three-Year Terms Expiring April, 1999 A photograph of each nominee and director continuing in office appears adjacent to the nominee's/director's name and personal information. JERE D. McGAFFEY Mr. McGaffey, 60, is a partner in the Nominating (Chairman) and law firm of Foley & Lardner. (1) He has Retirement Plans Investment been in practice with that firm since Committees 1961 and has been a partner since 1968. Director since 1980 Mr. McGaffey is a director of Smith Investment Company. THOMAS F. SCHRADER Mr. Schrader, 46, is President and Director since 1988 Chief Executive Officer of Wisconsin Gas and Vice President of the Company. He has been with Wisconsin Gas since 1978 and assumed his current position in 1990. He was elected Vice President of the Company in 1988. Mr. Schrader is a director of Firstar Trust Company. STUART W. TISDALE Mr. Tisdale, 67, is the Retired Chairman Audit and Nominating and Chief Executive Officer of the Committees Company. He is a director of Marshall & Director since 1980 Ilsley Corporation, M&I Marshall & Ilsley Bank, Modine Manufacturing Co. and Twin Disc Inc. (1) Foley & Lardner was retained in 1995 by the Company and its subsidiaries to provide legal services and has been similarly retained in 1996. 5 MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE Terms Expiring April, 1997 WILLIE D. DAVIS Mr. Davis, 61, is President, Chief Audit (Chairman) and Compensation Executive Officer and a director of Committees All Pro Broadcasting, Inc., which owns Director since 1990 and operates radio stations in Los Angeles and Milwaukee. Mr. Davis is a director of Alliance Bank, The Dow Chemical Co., Johnson Controls, Inc., Kmart Corp., L.A. Gear Inc., MGM Grand Inc., Rally's Hamburgers, Inc., Sara Lee Corporation and Strong Capital Management, Inc. GUY A. OSBORN Mr. Osborn, 60, is Chairman, Chief Compensation (Chairman) and Executive Officer and a director of and Retirement Plans Investment Universal Foods Corporation, an inter- Committees national manufacturer and marketer of Director since 1987 value-added food products. He joined Universal Foods in 1971 and assumed his current position in 1990. He is a director of Firstar Corporation, Firstar Bank Milwaukee, N.A., and Fleming Companies, Inc., and is a Trustee of The Northwestern Mutual Life Insurance Company. WILLIAM B. WINTER Mr. Winter, 67, is the Retired Chairman, Audit and Nominating Chief Executive Officer and Director of Committees Bucyrus-Erie Company, a manufacturer of Directors since 1980 mining machinery, and its parent corporation B-E Holdings Inc. He served as Chairman and Chief Executive Officer from 1988 until his retirement in 1994. MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE Terms Expiring April, 1998 WENDELL F. BUECHE Mr. Bueche, 65, is the Chairman, Chief Audit and Compensation Executive Officer and a director of IMC Committees Global, Inc., a producer and marketer Director since 1984 of crop nutrients. He was named to that position in 1993. Mr. Bueche previously was Chairman, President and Chief Executive Officer of Allis-Chalmers Corporation. Mr. Bueche is a director of Marshall & Ilsley Bank. 6 DANIEL F. McKEITHAN, JR. Mr. McKeithan, 60, is President, Chief Compensation and Retirement Executive Officer and a director of Plans Investment (Chairman) Tamarack Petroleum Company, Inc., an Committees operator of producing oil and gas wells. Director since 1989 He is also President and Chief Executive Officer of Active Investor Management, Inc., a manager of oil and gas wells; and SeiTech Development, Inc., an oil and gas exploration and development company, which he formed in 1995 GEORGE E. WARDEBERG Mr. Wardeberg, 60, is President and Nominating Committee Chief Executive Officer of the Company, Director since 1992 and Chairman of Wisconsin Gas, Sta-Rite, SHURflo and Hypro. He has held these positions since 1994. He served in other executive capacities with the Company and its subsidiaries from 1989 until he assumed his current position. He is a director of M&I Marshall & Ilsley Bank. ESSIE M. WHITELAW Ms. Whitelaw, 47, is President and Nominating and Retirement Chief Operating Officer of Blue Plans Investment Committees Cross & Blue Shield United of Director since 1992 Wisconsin, a comprehensive health care insurer. She has held that position since 1992. She served in other executive capacities with Blue Cross & Blue Shield United from 1986 until she assumed her current position. She is a director of Universal Foods Corporation. 7 THE BOARD OF DIRECTORS GENERAL -- The Board held eight meetings in 1995. Each director attended at least 75% of the total of such meetings and meetings of any committees on which such director served. The Board maintains standing Audit, Nominating and Compensation Committees. The Audit Committee held two meetings in 1995. The committee's functions include recommending the selection of the independent auditors each year; consulting with the independent auditors regarding the scope and plan of audit, internal controls, fees, non-audit services (including the possible effect of such services on the independence of the auditors), the audit report and related matters; reviewing other accounting, internal audit and financial matters; investigating accounting, auditing or financial exceptions which may occur; and overseeing the corporate compliance programs of the Company and its subsidiaries. The Nominating Committee held two meetings in 1995. The committee's functions include recommending those persons to be nominated by the Board for election as directors of the Company at the next Annual Meeting of Shareholders and recommending the person to fill any unexpired term on the Board which may occur. The committee will consider nominees recommended by shareholders, but has no established procedures which must be followed to make recommendations. The Compensation Committee held two meetings in 1995. The committee's functions include reviewing and recommending adjustments to the salaries of the officers of the Company and the presidents of its subsidiaries; administering the 1981 Stock Option Plan, the 1987 Stock Option Plan, the 1992 Director Stock Option Plan, the 1994 Long-Term Performance Plan and the other incentive compensation plans of the Company and its subsidiaries; and reviewing and recommending director compensation. COMPENSATION OF DIRECTORS -- The Company pays its directors who are not officers of the Company, Wisconsin Gas, Sta-Rite, SHURflo or Hypro an annual retainer fee of $10,000, plus $600 for each meeting they attend of the Board and committees of the Board on which they serve. Committee chairmen are paid an additional annual retainer fee of $1,000. Committee chairmen receive meeting fees for meetings with the Chief Executive Officer of the Company in preparation for regular committee meetings. Wisconsin Gas pays its directors who are not officers of the Company, Wisconsin Gas, Sta-Rite, SHURflo or Hypro an annual retainer fee of $7,000, plus $600 for each meeting of the Wisconsin Gas board they attend. Directors who are also officers of the Company, Wisconsin Gas, Sta-Rite, SHURflo or Hypro receive no fees for service as directors of those companies. Presently, all directors of the Company are also directors of Wisconsin Gas. Non-employee directors participate in the 1992 Director Stock Option Plan, pursuant to which options to purchase 2,000 shares of Common Stock are automatically granted annually on the fourth Tuesday in February to each non-employee director. The exercise price per share for options granted under the 1992 Director Stock Option Plan is equal to the fair market value of a share of Common Stock on the date of grant. On February 28, 1995, Messrs. Bueche, Davis, McGaffey, McKeithan, Osborn, Tisdale and Winter and Ms. Whitelaw each received an option to purchase 2,000 shares of Common Stock at a per-share exercise price of $28.75. Options granted under the 1992 Director Stock Option Plan are immediately exercisable and have a ten-year term; provided, however, that no option may be exercised after 24 months have elapsed from the date the optionee ceased being a director. 8 On February 27, 1996, options to purchase an additional 2,000 shares of Common Stock were granted to the non-employee directors at a per-share exercise price of $33.0625. The Company and Wisconsin Gas each maintain a deferred compensation plan for active directors which entitles a director of the respective corporation to defer directors' fees until the director ceases to be an active director. All amounts deferred are unsecured and accrue interest at the prevailing announced prime interest rate of a major commercial bank. The Company and Wisconsin Gas maintain retirement plans for directors who are not officers of the Company or its subsidiaries, have reached the age of 65, and have served at least five years as a director of the Company or Wisconsin Gas. Retired directors receive essentially the same annual compensation as active directors receive ($16,000 from the Company and $11,200 from Wisconsin Gas for 1995). Retirement benefits are payable for a period equal to the director's service as a director, up to 10 years, or until the death of the retired director, whichever occurs earlier. SECURITY OWNERSHIP OF MANAGEMENT The following tabulation sets forth the number of shares of Common Stock beneficially owned, as of February 28, 1996, by each director and nominee, each executive officer named in the Summary Compensation Table, and all directors and executive officers as a group. Amount and Nature Title of Name of of Beneficial Percent of Class Beneficial Owner Ownership (1)(2)(3) Class (4) - ------------ ------------------------ ------------------- ---------- Common Stock Wendell F. Bueche 10,362 - Willie D. Davis 8,500 - James C. Donnelly 70,091 - Jere D. McGaffey 11,024 - Daniel F. McKeithan, Jr. 9,000 - Robert A. Nuernberg 42,676 - Guy A. Osborn 10,000 - Thomas F. Schrader 119,199 - Stuart W. Tisdale 86,226 (5) - George E. Wardeberg 63,508 - Joseph P. Wenzler 126,721 (6) - Essie M. Whitelaw 8,000 - William B. Winter 10,588 (7) - All directors and exec- utive officers as a group (13 persons) 575,895 3.2% 9 (1) Each beneficial owner exercises sole voting and investment power with respect to the shares shown as owned beneficially, except as noted in footnotes (3), (5), (6) and (7). (2) Includes the following numbers of shares covered under options exercisable as of or within 60 days of February 28, 1996: Mr. Donnelly, 60,150; Mr. Nuernberg, 31,849; Mr. Schrader, 83,424; Mr. Wardeberg, 19,500; Mr. Wenzler, 80,250; Messrs Bueche, Davis, McGaffey, McKeithan, Osborn and Winter and Ms. Whitelaw, 8,000 each; Mr. Tisdale, 6,000 and all directors and executive officers as a group, 337,173. (3) Includes the following numbers of shares of restricted stock over which the holders have sole voting but no investment power: Mr. Donnelly, 8,000; Mr. Nuernberg, 1,600; Mr. Schrader, 8,000; Mr. Wardeberg, 14,000; and Mr. Wenzler, 6,000; and all directors and executive officers as a group, 37,600. The restricted stock vests in three years after the grant if the Company's total return to shareholders for the three-year period exceeds a pre-established goal. (4) Where no percentage figure is set out in this column, the person owns less than 1% of the outstanding shares. (5) Includes 4,852 shares owned by Mr. Tisdale's spouse. (6) Includes 526 shares owned by Mr. Wenzler's spouse. (7) Includes 2,588 shares owned by Mr. Winter's spouse. 10 EXECUTIVE COMPENSATION The following tabulation is a three-year summary of the compensation awarded or paid to, or earned by, the persons who served as Company's chief executive officer during 1995 and each of the Company's four other most highly compensated executive officers whose total cash compensation exceeded $100,000 in 1995.
SUMMARY COMPENSATION TABLE Annual Compensation Long Term Compensation Awards -------------------------------- -------------------------------------- Securities Other Annual Restricted Underlying All Other Compensation Stock Options/ Compensation Name and Principal Position Year Salary($) Bonus($) ($) (1) Awards($)(2) SARs(#) ($)(3) - ----------------------------------- ---- -------- -------- ------------ ------------ ----------- ------------ George E. Wardeberg, President 1995 $368,750 $192,455 15,000 $ 16,250 and Chief Executive Officer of 1994 327,500 113,200 $ 185,250 15,000 19,241 the Company, and Chairman of 1993 272,000 150,000 $ 52,459 18,000 16,257 Wisconsin Gas, Sta-Rite, SHURflo and Hypro(4) Thomas F. Schrader, Vice President 1995 278,500 176,857 10,000 12,640 of the Company and President and 1994 264,925 65,163 123,500 10,000 16,112 Chief Executive Officer of 1993 260,000 142,881 10,500 15,192 Wisconsin Gas James C. Donnelly, Vice President 1995 267,800 28,253 10,000 13,185 of the Company and President 1994 251,633 105,020 123,500 10,000 15,848 and Chief Executive Officer of 1993 236,250 110,174 7,950 15,203 Sta-Rite Joseph P. Wenzler, Vice President, 1995 261,850 106,710 7,500 11,974 Treasurer and Chief Financial 1994 252,650 69,800 92,625 7,500 15,498 Officer of the Company; Vice 1993 245,300 100,629 9,750 15,131 President and Chief Financial Officer of Wisconsin Gas; and Secretary and Treasurer of SHURflo and Hypro (5) Robert A. Nuernberg, Secretary 1995 138,000 48,307 2,000 6,900 of the Company; Vice President- 1994 133,000 7,000 24,700 2,000 9,516 Corporate Relations and Secretary 1993 131,000 25,000 3,000 9,416 of Wisconsin Gas /TABLE 11 (1) The aggregate amount of personal benefits provided by the Company and its subsidiaries to the other executive officers named in this table in any year did not exceed the lesser of $50,000 or 10% of each officer's annual salary and bonuses reported in the table for any of the years indicated, except Mr. Wardeberg in 1993. (2) The amounts in the table reflect the market value on the date of grant of restricted stock awarded under the 1994 Long-Term Performance Plan. The number of shares of restricted stock held by the executive officers named in the table and the market value of such shares as of December 31, 1995, were as follows: Mr. Wardeberg, 6,000 shares, $193,500; Messrs. Schrader and Donnelly, 4,000 shares, $129,000; Mr. Wenzler, 3,000 shares, $96,750; and Mr. Nuernberg, 800 shares, $25,800. The restricted stock vests in 1997 provided the Company's three-year (1994-96) total return to shareholders exceeds a pre-established goal. Holders of shares of restricted stock are entitled to receive dividends on such shares. (3) The amounts shown in this column for 1995 are comprised of the following items: Company contributions to 401(k) and supplemental savings plans: Mr. Wardeberg, $16,250; Mr. Schrader, $12,640; Mr. Donnelly, $12,212; Mr. Wenzler, $11,974; and Mr. Nuernberg, $6,900. Above market earnings on deferred compensation: Mr. Donnelly, $973. (4) On February 1, 1994, Mr. Wardeberg was elected President and Chief Executive Officer of the Company and Chairman of Wisconsin Gas, Sta-Rite and SHURflo. He was elected Chairman of Hypro on July 19, 1995. (5) Mr. Wenzler was elected Secretary and Treasurer of SHURflo in 1993 and of Hypro on July 19, 1995. STOCK OPTION INFORMATION The Company has in effect equity plans pursuant to which options to purchase Common Stock may be granted to key employees (including executive officers) of the Company and its subsidiaries. The following tabulation sets forth information regarding grants of options made by the Company in 1995 to the executive officers named in the Summary Compensation Table. No SARs were awarded in 1995. OPTION/SAR GRANTS IN 1995 FISCAL YEAR
Individual Grants Grant Date Value --------------------------------------------------------- ---------------- % of Total Options Number of Sec. Granted to Exercise or Under. Opt./SARs Employees Base Price Expiration Grant Date Name Granted (#)(1) in Fiscal Year ($/sh.) Date Present Value(2) - ------------------- ---------------- -------------- ----------- ---------- ---------------- George E. Wardeberg 15,000 12.5 $ 28.25 2/21/05 $ 51,150 Thomas F. Schrader 10,000 8.3 28.25 2/21/05 34,100 James C. Donnelly 10,000 8.3 28.25 2/21/05 34,100 Joseph P. Wenzler 7,500 6.2 28.25 2/21/05 25,575 Robert A. Nuernberg 2,000 1.7 28.25 2/21/05 6,820 /TABLE 12 (1) The options reflected in the table (which are nonstatutory stock options for purposes of the Internal Revenue Code) were granted on February 21, 1995 and vest ratably over the three-year period from the date of grant. (2) Amounts in this column were calculated using the Black-Scholes option pricing model. The model assumes: (a) an option term of 10 years; (b) a risk-free interest rate of 5.75%; (c) volatility (variance of rate of return) of 0.1676; (d) an annual discount of 3% over the vesting period for the risk of forfeiture; and (e) a dividend yield of 5.7%. The actual value, if any, that an optionee may realize upon exercise will depend upon the excess of the price of the Common Stock over the option exercise price on the date that the option is exercised. There is no assurance that the value received by the optionee will be at or near the value estimated by the Black-Scholes model. The following tabulation sets forth information regarding the exercise of stock options during 1995 and the unexercised options held at December 31, 1995, by each of the executive officers named in the Summary Compensation Table. AGGREGATED OPTION/SAR EXERCISES IN 1995 FISCAL YEAR, AND FY-END OPTION/SAR VALUES
Numbers of Securities Value of Unexercised Underlying Unexercised In-the-Money Options/SARs Options/SARs at FY-End (#) at FY-End ($) ---------------------- ---------------------- Shares Value Acquired on Realized Exer- Unexer- Exer- Unexer- Name Exercise (#) ($) cisable cisable cisable cisable - ------------------- ------------- ----------- ---------- ---------- ---------- ---------- George E. Wardeberg 2,000 $ 10,875 5,000 31,000 $ 8,125 $ 105,875 Thomas F. Schrader 3,000 39,469 77,133 20,167 799,122 68,115 James C. Donnelly 0 0 51,483 19,317 516,319 63,918 Joseph P. Wenzler 1,300 19,053 72,800 15,750 744,581 54,172 Robert A. Nuernberg 2,000 34,187 32,766 4,334 365,569 15,105 /TABLE 13 PENSION AND RETIREMENT PLANS The Company and its subsidiaries maintain pension and retirement plans in which the executive officers and other employees participate. The companies also maintain supplemental retirement plans for officers and certain other employees to reflect certain compensation that is excluded under the retirement plans and to provide benefits that otherwise would have been accrued or payable except for the limitations imposed by the Internal Revenue Code. The following tabulation sets forth the annual retirement benefits payable under the pension plans, as supplemented, for the indicated levels of final average earnings with various periods of credited service. Benefits reflected in the table are based on an assumed retirement age of 65.
PENSION PLAN TABLE Years of Service Remuneration 10 15 20 25 30 - --------------- ------- -------- -------- -------- -------- $200,000 $39,004 $ 58,506 $ 78,008 $ 89,259 $ 92,259 250,000 48,904 73,356 97,808 111,909 115,659 300,000 58,804 88,206 117,608 134,559 139,059 350,000 68,704 103,056 137,408 157,209 162,459 400,000 78,604 117,906 157,208 179,859 185,859 450,000 88,504 132,756 177,008 202,509 209,259
The compensation covered by the pension plan, as supplemented, for the named executive officers includes all compensation reported for each individual as salary and bonus in the Summary Compensation Table. Messrs. Wardeberg, Schrader, Donnelly, Wenzler and Nuernberg have 6, 17, 8, 22 and 26 years, respectively, of credited service under the pension plan. Pursuant to a supplemental retirement plan, Messrs. Schrader and Nuernberg will receive a supplemental retirement benefit of $25,000 per year for 15 years beginning at age 65, payable in monthly installments. A retired executive officer who is married at the time of retirement and selects one of the available joint and surviving spouse annuity payment options will also receive the difference between the monthly benefits payable under the single life annuity payment option and the 50% joint and surviving spouse annuity payment option for the lives of the retired officer and spouse. Upon the death of the retired officer, the surviving spouse will receive 50% of the supplemental benefit for life. The retirement benefits set out in the above table are based on a straight life annuity. The election of other available payment options would change the retirement benefits shown in the table. The plan does not provide for reduction of retirement benefits to offset Social Security or any other retirement benefits. 14 BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Company's executive compensation program is administered by the Compensation Committee of the Board. The Compensation Committee is comprised of four independent, non-employee directors. Following Compensation Committee review and approval, matters relating to executive compensation (other than the grant of stock options and restricted stock) are submitted to the full Board for approval. The Compensation Committee utilizes an independent compensation consultant. The consultant provides advice to the Committee on compensation-related issues, including incentive plan design and competitive compensation data for officer positions. Compensation Policies -- Policies are used to set a general direction and as a backdrop against which specific compensation decisions are made. - Design of executive pay programs is intended to attract and retain top talent, motivate and reward performance. - Differences in pay practices and performance measures between the Company's primary lines of business are recognized. - Compensation opportunities, by component and in the aggregate, are targeted at the median (50th percentile) of competitive practice. - Achievement of incentive compensation levels is dependent on attainment of performance goals as agreed to by the Board annually. These goals relate to the achievement of the Company's operating and financial plan, individual objectives and milestones in the Company's longer-term strategic plan. - In business units where an all-employee bonus or profit-sharing program exists, a portion of each executive's incentive compensation is determined on the same criteria. - The focus on enhancement of shareholder value is accomplished by tying a significant portion of total pay to performance of the Company's stock. In assessing executive performance and pay, the members of the Compensation Committee consider and weigh in their judgment factors outside the formal incentive plans. These factors include operational and financial measures not specifically incorporated in the incentive plans, and actual performance in dealing with unanticipated business conditions during the year. The Compensation Committee believes such factors should be considered in addition to the more formalized factors to assess and reward executive performance properly. Base salary midpoints, annual incentive targets and long-term incentive grants are set based on a competitive analysis conducted by the independent compensation consultant. As indicated above, compensation opportunities, by component and in the aggregate, are set at or near the 50th percentile of competitive practice for comparably sized organizations. Rates for the gas utility positions are set using survey sources from the utility industry. There is substantial overlap between the companies in these surveys and the companies used in the peer company index in the Performance Graph. Rates for the nonutility positions are set using survey sources from general industry; there is no overlap with the Performance Graph peer companies here. 15 Components of Compensation -- Base salary. The Compensation Committee targets salary range midpoints as indicated above. Individual salaries range above and below the midpoint based upon an individual's past and current performance, and expectations for future performance. The factors considered in this review are job specific and vary depending on the individual's position. There is no specific weighting given to these factors. Annual incentive plan. The Company's annual incentive compensation plan tailors each officer's incentive potential to that officer's Company and subsidiary responsibilities. The plan sets incentive targets ranging from 20% to 50% of base salary. The plan is designed to compensate the officers primarily on a formula basis. For the Chief Executive Officer and the Chief Financial Officer, the formula bases 75% of the targeted award on the Company's earnings per share (EPS) and 25% on individual performance objectives. For Company Vice Presidents, who are also the subsidiary presidents, the formula bases 25% of the targeted award on the Company's earnings per share, 25% on individual performance objectives, and 50% on subsidiary performance objectives. Subsidiary performance objectives for Wisconsin Gas include financial, customer service and safety objectives (weighted at 67% of this component) and financial objectives (weighted at 33%). Performance objectives for Sta-Rite include net earnings (weighted at 67% of this component) and return on assets (weighted at 33%). Individual performance objectives vary among the officers, but may include such things as cost management, product development, sales growth, personnel management and development, and management of specific projects. The Compensation Committee exercises its judgment on a case-by-case basis in determining the weight to be accorded any individual performance objective. Long-term incentive plan. The Company's long-term incentive compensation plan provides for annual awards of stock options and biennial awards of performance-based restricted stock. The plan splits an officer's long-term incentive opportunity equally (based on value) between stock options and performance-based restricted stock. The independent compensation consultant provides the Compensation Committee with a long-term incentive grant schedule that approximates a market median grant opportunity. The Compensation Committee reserves the right to adjust this schedule upward or downward based on Company performance; however, it is the Compensation Committee's intention that in most cases grants will be provided at targeted levels. Stock options may be incentive stock options or nonstatutory options which have a term of not more than ten years and have an exercise price equal to the fair market value on the date of grant. The Compensation Committee determines the manner and conditions under which the options become exercisable. The number of options granted is based on the participant's office or position, with an equal number of shares generally being granted to individuals holding the same or similar positions, such as vice president of an operating subsidiary. Performance-based restricted stock will vest three years from the year of grant provided the Company's three-year total return to shareholders equals or exceeds pre-established goals relative to the Performance Graph peer group (the PaineWebber Gas Distribution Utility Index). For other subsidiary officers who participate in the plan, the restricted stock will vest in three-years provided the appropriate subsidiary's three-year financial performance (three-year cumulative earnings for Wisconsin Gas and return on assets for Sta-Rite) equals or exceeds the pre-established goal. 16 Compensation of Officers -- The Compensation Committee sets base salaries of officers within the established ranges. The Compensation Committee considers specified financial measures tailored to the Company and each subsidiary, each officer's contribution to achieving corporate goals, and such officer's achievement of personal performance objectives. Examples of financial measures are net income earned relative to budget, return on total assets, return on sales, and rate of return earned versus allowed. The Compensation Committee weighs the financial measures differently for each officer, in recognition that the Company's principal subsidiaries operate in different industries with different compensation practices and that the officers' responsibilities differ. For example, the rate of return earned versus that nominally allowed by state regulatory authorities having jurisdiction over the gas utility subsidiary is applicable only to officers of the utility company, whereas return on total assets and return on sales are applicable primarily to officers of the manufacturing subsidiaries. Examples of personal performance objectives considered by the Compensation Committee are set out above in the discussion of the Annual Incentive Plan. The Compensation Committee exercises its judgment in determining the relative weight to be accorded each personal objective. As stated above, each officer's annual incentive award, if any, is based on a formula, although the Compensation Committee exercises its judgment in determining the weights to be accorded the achievement of personal objectives. Long-term incentive awards (stock options and restricted stock) are also formula-based, with individual awards being set relative to the officer's position. The specific number of stock options awarded is based on the number of options to be awarded to all key employees of the Company and its subsidiaries and the number of options previously granted and outstanding, as determined by the Compensation Committee. Options granted in 1995 were nonstatutory, have a term of ten years, and first become exercisable one-third each year on the first, second and third anniversary of the grant. No restricted stock grants were made in 1995. Compensation of the Chief Executive Officer -- For 1995, the Compensation Committee increased the base salary of George E. Wardeberg, the Company's Chief Executive Officer, by $25,000 or 7.1% effective April 1, 1995. The increase reflects his overall performance, as demonstrated by the increase in the Company's total return to shareholders in 1995 compared to the peer group which is shown in the graph in the Performance Presentation section below, and his position in the salary range. The increase sets Mr. Wardeberg's salary in the first quartile of the range targeted by the Compensation Committee. The Compensation Committee awarded Mr. Wardeberg 15,000 nonstatutory stock options in 1995. The number of options awarded was at the targeted number established in the long-term incentive compensation plan. The annual incentive award to Mr. Wardeberg for 1995 was $192,455, or 52% of his salary as compared to a target of 50% of salary. This award reflects Mr. Wardeberg's significant contributions to the Company during 1995. The Company's financial objectives were met with net earnings and earnings per share increasing 19% and 17%, respectively. WICOR also outperformed both its industry peers and the S&P 500 Stock Index over the last five years as shown in the accompanying Total Return Comparison performance graph. In addition, Mr. Wardeberg accomplished his personal objectives in the areas of growth, human resources and preserving the Company's financial strength. The Compensation Committee exercised its judgment in determining the weights accorded to his accomplishment of these personal objectives. 17 Compliance with Tax Regulations -- The Company has considered the implications of the Section 162(m) tax rules regarding deductibility of annual executive compensation over $1 million. The cash compensation levels for Company officers fall well below this level and, hence, no specific changes are proposed to the cash compensation program. However, it is important to note that most of the components of compensation described above are consistent with the tax rules regarding performance-based compensation incentives. The Compensation Committee did, however, seek qualification of the stock components of the program as "performance-based compensation" plans pursuant to these tax rules. To that end, proposals were included in the 1994 Proxy Statement establishing a per-person limitation for stock option and restricted stock awards. The proposals were approved by the shareholders. Guy A. Osborn, Chairman Wendell F. Bueche Willie D. Davis Daniel F. McKeithan, Jr. Members of the Compensation Committee PERFORMANCE PRESENTATION The following graph compares the yearly percentage change in the Company's cumulative total shareholder return (dividends declared plus share appreciation) to the S&P 500 Stock Index and the PaineWebber Gas Distribution Utility Index, comprised of 35 U.S. natural gas distribution utilities. The information presented assumes that all dividends were reinvested. [Performance graph will appear here.] TOTAL RETURN COMPARISON * Value of $100 Invested Year-End 1990 1990 1991 1992 1993 1994 1995 ------ ------ ------ ------ ------ ------ WICOR $ 100 $ 132 $ 157 $ 191 $ 182 $ 218 S&P 500 $ 100 $ 130 $ 140 $ 155 $ 156 $ 215 Industry $ 100 $ 114 $ 135 $ 153 $ 134 $ 173 ** * Includes reinvested dividends ** Paine Webber Gas Distribution Utility Index SHAREHOLDER PROPOSALS Proposals which shareholders of the Company intend to present at the 1996 Annual Meeting of Shareholders must be received by the Company by the close of business on November 14, 1996. 18 OTHER MATTERS Arthur Andersen LLP was retained as the Company's independent auditors for the year ended December 31, 1995 and, upon the recommendation of the Audit Committee, the Board has reappointed Arthur Andersen as independent public accountants for the Company for the year ending December 31, 1996. A representative of Arthur Andersen is expected to be present at the Annual Meeting with the opportunity to make a statement if such representative desires to do so, and it is expected that such representative will be available to respond to appropriate questions. The Company will file with the Securities and Exchange Commission on or before March 30, 1996, an annual report on Form 10-K for the fiscal year ended December 31, 1995. The Company will provide without charge a copy of this Form 10-K (including financial statements and financial statement schedules, but not including exhibits thereto) to each person who is a record or beneficial holder of shares of Common Stock as of the record date for the Annual Meeting and who submits a written request for it. A request for a Form 10-K should be addressed to Robert A. Nuernberg, Secretary, WICOR, Inc., P.O. Box 334, Milwaukee, Wisconsin 53201. Management does not intend to present to the Annual Meeting any matters other than the matters described in this Proxy Statement. Management knows of no other matters to be brought before the Annual Meeting. However, if any other matters are properly brought before the Annual Meeting, it is the intention of the persons named in the enclosed form of proxy to vote thereon in accordance with their best judgment. The cost of soliciting proxies will be borne by the Company. The Company expects to solicit proxies primarily by mail. Proxies may also be solicited personally and by telephone by certain officers of the Company and regular employees of its subsidiaries. The Company may reimburse brokers and other nominees for their expenses in communicating with the persons for whom they hold Common Stock. By Order of the Board of Directors Robert A. Nuernberg Secretary March 12, 1996 19 APPENDIX I WICOR VOTING AUTHORIZATION [X] Please mark your votes as this WICOR VOTING AUTHORIZATION - ---------------------------------------------------------------------------- The Board of Directors recommends a vote FOR all nominees in Item 1. - ---------------------------------------------------------------------------- 1. Election of the following nominees as directors for three-year terms: Jere D. McGaffey, Thomas F. Schrader and Stuart W. Tisdale FOR all nominees WITHHOLD (except as marked AUTHORITY to the contrary) to vote for all nominees / / / / (Instruction: To withhold authority to vote for any nominee write the name below) ------------------------------------------- . . . . . . . . . . . . . . . . . . . . . . Please check this box if . . you plan to attend the . . annual meeting . . / / . . . . This Voting Authoriza- . . tion is Solicited by the . . Board of Directors . . . . . . . . . . . . . . . . . . . . . . Signature(s) _________________________________ Date ________________ NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - FOLD AND DETACH HERE March 12, 1996 Dear WICOR Shareholder: Enclosed is a notice of WICOR's annual shareholders meeting, coming up April 25, 1996, in Milwaukee. Also enclosed is a proxy statement and voting authorization card. You have already received a copy of the 1995 WICOR annual report. It's important that you fill out and return the authorization card as soon as possible. It entitles you, as an owner of WICOR common stock through our company's savings plan, to vote your interest at the annual meeting. Filing out the card directs the Trustee of your shares held in the savings plan as of February 20, 1996, to vote them on your behalf. You must return your marked and signed card in order to have the Trustee vote your shares. The WICOR Board of Directors urges you to exercise this right to vote. To make sure your vote counts, and to prevent the expense of WICOR sending further reminder notices, please mark and sign your voting authorization card now and return it to the Trustee in the enclosed envelope. Thank you, Sincerely, George E. Wardeberg President and Chief Executive Officer 20 YOUR VOTE IS IMPORTANT. TO ASSURE YOUR REPRESENTATION AT THE WICOR SHAREHOLDERS ANNUAL MEETING, MARK YOUR VOTES ON THE ENCLOSED VOTING AUTHORIZATION CARD, DATE IT, SIGN IT EXACTLY AS YOUR NAME APPEARS AND RETURN IT TODAY IN THE ENCLOSED ENVELOPE. --- (BACKSIDE OF VOTER AUTHORIZATION FORM) --- WICOR VOTING AUTHORIZATION The undersigned acknowledges receipt of the WICOR, Inc. Annual Report for 1995 and the proxy solicitation material relative to the Annual Meeting of Shareholders of WICOR, Inc. to be held April 25, 1996. As to my interest in the Common Stock of WICOR, Inc. held by Marshall and Ilsley Trust Company, the Trustee under the Wisconsin Gas Company Non-Union Employees' Savings Plan, Wisconsin Gas Company Local 6-18 Savings Plan, Wisconsin Gas Company Local No. 1 Savings Plan and the Sta-Rite Industries' Incentive Savings Plan, I hereby instruct the Trustee to vote as indicated on the reverse side. The shares represented by this authorization will be voted as directed by the undersigned. If no direction is given when the duly executed authorization is returned, the Trustee cannot vote such shares. THIS VOTING AUTHORIZATION IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING OF SHAREHOLDERS OF WICOR, INC., APRIL 25, 1996. (continued on the reverse side) 21 APPENDIX II /X/ Please mark your votes as this WICOR PROXY - ------------------------------------------------------------------------ The Board of Directors recommends a vote FOR all nominees in Item 1. - ------------------------------------------------------------------------ 1. Election of the following nominees as directors for three-year terms: Jere D. McGaffey, Thomas F. Schrader and Stuart W. Tisdale FOR all nominees WITHHOLD (except as marked AUTHORITY to the contrary) to vote for all nominees / / / / (Instruction: To withhold authority to vote for any nominee write the name below) ----------------------------------------------- Please check this box if you plan to attend the annual meeting [ ] This Proxy is Solicited by the Board of Directors Signature(s) ____________________________________ Date __________________ NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - FOLD AND DETACH HERE March 13, 1996 Dear WICOR Shareholder: We're pleased to send you the enclosed 1995 annual report and proxy materials. I hope you'll find the annual report interesting and informative, and that you'll exercise your right to vote at the annual meeting by returning your proxy card promptly. I'd also like to invite you to attend WICOR's Annual Meeting of Shareholders on Thursday, April 25, 1996. This year's meeting will be held at the Italian Community Center, 631 East Chicago Street, Milwaukee, Wisconsin, beginning at 2:00 p.m. (Central Time). A map with directions to the center is on the reverse side of this letter. Free parking is available in a lot on the south side of the building. At the meeting, we will elect directors, discuss 1995 performance and talk about the future. As an investor in WICOR, you have a right and a responsibility to vote on issues affecting your company. Regardless of whether you plan to attend the annual meeting, please mark the appropriate boxes on the proxy form, and then date, sign and promptly return the form in the enclosed, postage-paid envelope. If you sign and return the proxy form without specifying your choices, your shares will be voted according to the recommendations of your board of directors. If you plan to attend the annual meeting, please check the appropriate box on the proxy card. We welcome your comments and suggestions, and we will provide time during the meeting for questions from shareholders. I hope to see you on April 25. Sincerely, George E. Wardeberg President and Chief Executive Officer 22 WICOR COMMON SHAREHOLDER PROXY The undersigned hereby appoints George E. Wardeberg and Joseph P. Wenzler, and each of them, as proxy with the power of substitution (to act by a majority present or if only one acts then by that one) to vote for the undersigned as indicated on the reverse side and in their discretion on such other matters as may properly be considered at the Annual Meeting of Shareholders of WICOR, Inc. to be held Thursday, April 25, 1996, at 2:00 P.M., at the Italian Community Center, 631 E. Chicago Street, Milwaukee, Wisconsin, and at any adjournments thereof. The shares represented by this proxy will be voted as directed by the shareholder. If no direction is given when the duly executed proxy is returned, such shares will be voted "FOR" all nominees in Item 1 and in the discretion of the proxies on any other items of business as may properly arise at the meeting. Please mark, date and sign on the reverse side exactly as name appears and return in the enclosed postage-paid envelope. If shares are held jointly, each shareholder named should sign. If signing as attorney, administrator, executor, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by duly authorized officer. THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING OF SHAREHOLDERS OF WICOR, INC., APRIL 25, 1996. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - FOLD AND DETACH HERE Map of downtown Milwaukee, Wisconsin, showing location of annual meeting and the routes to take from Chicago, Green Bay and Madison. -----END PRIVACY-ENHANCED MESSAGE-----