Document Summary:
Document: EDGARJUN
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Creation Date: 08/15/1994
Modification Date: 08/15/1994
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1994
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 0-15420
IWC RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1668886
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1220 Waterway Boulevard, Indianapolis, Indiana 46202
(Address of principal executive office) (Zip Code)
(317) 639-1501
Registrant's telephone number, including area code
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 twelve 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: Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, no par value per share 6,851,109
Class Outstanding at 7-1-94
IWC RESOURCES CORPORATION AND SUBSIDIARIES
Index
Part I. Financial Information:
Consolidated Balance Sheets as of June 30, 1994 and
1993, and December 31, 1993 (Unaudited)
Consolidated Statement of Shareholders' Equity - Six Months
ended June 30, 1994 (Unaudited)
Consolidated Statements of Earnings - Three Months and Six
Months ended June 30, 1994 and 1993 (Unaudited)
Consolidated Statements of Cash Flows -
Three Months and Six Months ended June 30, 1994 and
1993 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information:
PART I. FINANCIAL INFORMATION
<TABLE>
IWC RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1994 and 1993 and December 31, 1993
(Unaudited)
<CAPTION>
June 30, December 31,
1994 1993 1993
(in thousands)
ASSETS:
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 3,364 1,624 1,813
Accounts receivable, less allowance for
doubtful accounts of $190 13,939 12,147 9,515
Materials and supplies, at average cost 2,140 1,511 1,722
Other current assets 1,589 1,935 871
Total current assets 21,032 17,217 13,921
Utility plant:
Utility plant in service 329,741 317,203 323,313
Less accumulated depreciation 73,362 67,967 70,406
Net plant in service 256,379 249,236 252,907
Construction work in progress 10,652 6,904 7,756
Utility plant, net 267,031 256,140 260,663
Construction funds held by Trustee 2,032 1,984 2,010
Other property 9,540 7,077 6,825
Goodwill, net of accumulated amortization 17,219 17,437 17,479
Deferred charges and other assets 14,077 9,138 11,545
$330,931 308,993 312,443
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 18,514 24,384 21,779
Current portion of long-term debt - - 1,200
Accounts payable and accrued expenses 17,434 14,312 14,380
Dividends payable 51 51 -
Federal income taxes 1,872 - 392
Customer deposits 1,089 973 1,027
Total current liabilities 38,960 39,720 38,778
Long-term obligations:
Long-term debt, less current portion 99,375 86,575 85,375
Customer advances for construction 45,841 42,566 43,597
Total long-term obligations 145,216 129,141 128,972
Deferred income taxes 24,208 22,490 23,795
Unamortized investment tax credits 4,969 5,083 5,029
Contributions in aid of construction 29,309 27,344 28,081
Other credits 6,026 4,371 5,069
Preferred stock of subsidiary and
redeemable preferred stock 5,705 5,705 5,705
Total liabilities and other credits 254,393 233,854 235,429
Shareholders' equity
Common stock 59,893 58,651 59,301
Retained earnings 16,745 16,749 17,912
76,638 75,400 77,213
Less unearned compensation 100 261 199
Total shareholders' equity 76,538 75,139 77,014
Commitments and contingencies
$330,931 308,993 312,443
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
IWC RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Six months ended June 30, 1994
(Unaudited)
<CAPTION>
Total
Common Stock Retained Unearned Shareholders'
Shares Amount Earnings Compensation Equity
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 6,821,953 $ 59,301 $ 17,912 $ (199) $ 77,014
Net earnings - - 3,650 - 3,650
Dividends - $.35 per share:
Common Stock - - (4,781) - (4,781)
Redeemable preferred stock - - (36) - (36)
Common stock issued -
Dividend Reinvestment Plan 27,995 592 - - 592
Compensation expense - - - 99 99
Balance at June 30, 1994 6,849,948 $ 59,893 $ 16,745 $ (100) $ 76,538
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
IWC RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months and six months ended June 30, 1994 and 1993
(Unaudited)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1994 1993 1994 1993
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenues:
Water utilities $17,968 16,103 34,053 31,239
Utility-related services 10,732 2,398 16,006 2,942
28,700 18,501 50,059 34,181
Operating expenses:
Operation and administration
Water utilities 8,692 7,864 17,333 16,172
Utility-related services 7,431 l,l73 12,890 1,341
Depreciation 1,922 1,541 3,761 2,992
Taxes other than income taxes 2,059 1,450 3,966 2,995
Total operating expenses 20,104 12,028 37,950 23,500
Operating earnings 8,596 6,473 12,109 10,681
Other income (expense):
Interest expense, net (2,022) (1,804) (3,838) (3,566)
Interest income 38 75 82 91
Dividends on preferred
stock of subsidiary (51) (51) (102) (102)
Other, net 3 25 (392) (186)
(2,032) (1,755) (4,250) (3,763)
Earnings before income taxes 6,564 4,718 7,859 6,918
Income taxes 3,337 2,257 4,209 3,503
Net earnings $ 3,227 2,461 3,650 3,415
Per common and common equivalent share $ .47 .38 .53 .53
Average number of common
and common equivalent shares outstanding 6,893 6,500 6,886 6,457
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
<TABLE>
IWC RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months and six months ended June 30, 1994 and 1993
(Unaudited)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1994 1993 1994 1993
(in thousands)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,227 2,461 3,650 3,415
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 2,407 1,777 4,613 3,417
Deferred income taxes and
investment tax credits 290 385 353 704
Gain on sales of other property (87) (290) (87) (345)
Provision for bad debts 85 85 190 165
Dividends on preferred stock of subsidiary 51 51 102 102
Other, net 50 (134) (194) 76
Changes in operating assets and liabilities:
Accounts receivable (4,312) (2,045) (4,614) (2,079)
Materials and supplies (328) (74) (418) (214)
Other current assets (708) (5) (718) 503
Accounts payable and accrued expenses 1,893 (956) 3,054 (617)
Federal income taxes 1,130 (496) 1,429 357
Customer deposits 31 (12) 62 29
Net cash provided by operating activities 3,729 747 7,422 5,513
Cash flows from investing activities:
Acquisition of S.M.& P. Conduit Co., Inc.,
net of cash acquired - (12,482) - (12,482)
Additions to utility plant and other property (8,284) (3,245) (12,852) (5,604)
Proceeds from sales of other property 100 420 100 488
Customer advances for construction 1,446 1,418 4,680 3,242
Refunds of customer advances for construction (451) (750) (1,442) (1,431)
Other investing activities, net (1,500) (68) (1,517) 117
Net cash used by investing activities (8,689) (14,707) (11,031) (15,670)
Cash flows from financing activities:
Increase (decrease) in notes payable to banks 8,577 16,381 (3,265) 16,303
Increase in long-term debt - - 14,000 -
Payments of long-term debt - - (1,277) (1,180)
Increase in construction funds
held by Trustee (9) (25) (22) (27)
Cash dividends (2,462) (2,300) (4,868) (4,543)
Proceeds from issuance of common stock 293 321 592 623
Net cash provided by financing activities 6,399 14,377 5,160 11,176
Increase in cash and cash equivalents 1,439 417 1,551 1,019
Cash and cash equivalents at beginning of period 1,925 1,207 1,813 605
Cash and cash equivalents at end of period $ 3,364 1,624 3,364 1,624
Supplemental disclosures of cash flow information-
Cash paid for:
Interest on long-term debt and notes payable
to banks, net of capitalized interest $ 1,277 1,302 3,455 3,392
Income taxes $ 2,732 2,516 3,146 2,782
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
IWC RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
BASIS OF PRESENTATION
The foregoing consolidated financial statements are unaudited.
However, in the opinion of management, all adjustments (comprising
only normal recurring accruals) necessary for a fair presentation
of the financial statements have been included. Results for any
interim period are not necessarily indicative of results to be
expected for the year. The consolidated financial statements
include the accounts of IWC Resources Corporation (Resources) and
its wholly owned subsidiaries. The term "Company" refers to the
consolidated operations of Resources and its subsidiaries.
Through its water subsidiaries, the Company owns and operates
waterworks systems supplying water for residential, commercial and
industrial uses and for fire protection in Indianapolis, Indiana,
and the surrounding area. These subsidiaries are regulated by the
Indiana Utility Regulatory Commission (Commission), and their
accounting policies, which are substantially consistent with
generally accepted accounting principles, are governed by the
Commission. The Company also owns and operates businesses which
are involved in utility line locating, data processing and other
utility-related services, and real estate sales and development.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
A summary of the Company's significant accounting policies is set
forth in Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
CURRENT EVENTS
Rate Case
On May 17, 1993, Indianapolis Water Company and Zionsville Water
Corporation, both wholly owned subsidiaries of the Company, filed a
petition with the Commission for approval of a merger of the two
companies and a new schedule of rates and charges applicable to
their interconnected systems. The increase in combined annual
revenues sought by the companies was approximately $8.9 million, or
14%. This request for new rates included the increased costs
associated with adoption of accrual accounting for postretirement
benefits other than pensions in accordance with SFAS No. 106. On
November 10, 1993, the Utility Consumer Counselor, representing
ratepayers, proposed adjustments which, if adopted by the
Commission, would have resulted in a decrease in current rates of
approximately $4.6 million, or 7.2%.
On August 10, 1994, the Commission approved an immediate increase
in the combined rates of Indianapolis Water Company and Zionsville
Water Corporation of approximately $1.3 million or 2%. The
Commission deferred for further investigation the rate effects of
implementing accrual accounting for postretirement benefits other
than pensions amounting to $1.7 million.
Income Taxes on Customer Advances for Construction
In 1994 the Company began charging developers and customers for
income taxes incurred on new customer advances for construction.
Such income taxes collected are included both in water utilities
operating revenues and income taxes for financial statement
purposes and, accordingly, do not effect net earnings. For the
three months and six months ended June 30, 1994, income taxes
collected amounted to $710,000 and $976,000, respectively.
COMMITMENTS AND CONTINGENCIES
Pursuant to the 1986 Amendments of the Safe Drinking Water Act, the
United States Environmental Protection Agency (EPA) continues to
propose new drinking water standards and requirements which, if
promulgated, could be costly and require substantial changes in
current operations of the Company. The outcome of EPA's proposals
are uncertain at this time. Additionally, the Indiana Department
of Environmental Management issues permits for discharges from the
Company's treatment stations, the terms and limitations of which
can, and may well be, onerous and expensive.
The Company has agreements with four key executives which provide
that in the event of change in control of the Company, each
executive vests in a three-year employment contract at their then
existing level of compensation.
RECLASSIFICATIONS
Certain amounts as of June 30, 1993 and for the three months and
six months then ended have been reclassified to conform with the
1994 presentation.
-2-
IWC Resources Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The operations of IWC Resources Corporation and subsidiaries
(Company) include two significant segments: (1) water utilities
and (2) utility-related services.
The most significant change in the Company's operations within
the past year results primarily from the acquisition of SM&P
Conduit Co., Inc. (SM&P) in June 1993. SM&P's results of
operations are included in the utility-related segment.
The Company's results of operations for both water utility and
utility-related segments are seasonal in nature with the higher
proportion of operating revenues and operating earnings being
realized in the second and third quarters of the year than the
first and fourth quarters. Such seasonality is considered by
the Company in developing its budgets by quarter.
Three Months Ended June 30, 1994, Compared with
Three Months Ended June 30, 1993
Operating revenues and operation and administration expenses
were budgeted at $18,339,000 and $9,374,000, respectively, for
the water utilities segment and $9,979,000 and $6,820,000,
respectively, for the utility-related segment. This compares to
actual operating revenues and operation and administration
expenses of $17,968,000 and $8,692,000, respectively, for the
water utilities segment and $10,732,000 and $7,431,000,
respectively, for the utility-related segment.
The Company anticipated, but did not receive, a resolution of
its current rate case early in the second quarter of 1994 and,
accordingly, the water utilities segment experienced lower
operating revenues and operation and administration expenses
compared to budgeted amounts. Utility-related segment operating
revenues and operation and administration expenses were higher
than budgeted amounts primarily due to new business contracts
realized at several operating locations.
Following is a discussion and analysis of actual operating
results.
Operating revenues increased $10,199,000 (55.1%) of which
$8,334,000 is applicable to the utility-related segment. The
increase in water utilities segment revenues of $1,155,000,
which is net of $710,000 in income taxes collected from
developers, represents a 7.2% increase compared to the three
-3-
months ended June 30, 1993, and is primarily due to a 5.9% increase
in total water consumption. Operation and administration expenses
increased $7,086,000 (78.4%) of which $6,258,000 is applicable to the
utility-related segment. The increase in water utilities segment
expenses of $828,000 represents a 10.5% increase over the three
months ended June 30, 1993, and is primarily due to the effects of
inflation on the Company's costs and increased maintenance activities
in 1994. Labor expenses increased $234,000 (7.4%) mainly due to a
general wage increase, effective January 1, 1994, and to a general
increase in maintenance activity. Power costs increased $68,000
(11.3%) primarily due to increased pumpage. Chemical costs increased
$146,000 (75.3%) primarily due to increased usage and the higher cost
of chemicals. Materials and transportation costs increased $164,000
(31.4%) largely due to the increase in maintenance activities.
Regulatory expenses decreased $59,000 (70.1%) primarily due to
decreased rate case expenses. Depreciation increased $381,000
(24.7%) of which $332,000 is applicable to the utility-related
services segment.
Taxes, other than income taxes, increased $609,000 (42.0%) of which
$446,000 is applicable to the utility-related services segment. The
increase in interest expense, net, of $218,000 (12.1%) is largely due
to the combined effects of an increase in total debt outstanding at
higher interest rates. Income taxes increased $1,080,000 (47.8%)
primarily due to the combined effects of higher pretax earnings and
income taxes collected from developers on customer advances for
construction.
Six Months Ended June 30, 1994, Compared with
Six Months Ended June 30, 1993
Operating revenues and operation and administration expenses were
budgeted at $34,270,000 and $18,093,000, respectively, for the water
utilities segment and $14,676,000 and $12,403,000, respectively, for
the utility-related segment. This compares to actual operating
revenues and operation and administration expenses of $34,053,000 and
$17,333,000, respectively, for the water utilities segment and
$16,006,000 and $12,890,000, respectively, for the utility-related
segment.
The Company anticipated, but did not receive, a resolution of its
current rate case early in the second quarter of 1994 and,
accordingly, the water utilities segment experienced lower operating
revenues and operation and administration expenses compared to
budgeted amounts. Utility-related segment operating revenues and
operation and administration expenses were higher than budgeted
amounts primarily due to new business contracts realized at several
operating locations.
-4-
Following is a discussion and analysis of actual operating results.
Operating revenues increased $15,878,000 (46.4%) of which $13,064,000
is applicable to the utility-related segment. The increase in water
utilities segment revenues of $1,838,000, which is net of $976,000 in
income taxes collected from developers, represents a 5.9% increase
compared to the six months ended June 30, 1993, and is primarily due
to a 5.9% increase in total water consumption. Operation and
administration expenses increased $12,710,000 (72.6%) of which
$11,549,000 is applicable to the utility-related segment. The
increase in water utilities segment expenses of $1,161,000 represents
a 7.2% increase over the six months ended June 30, 1993, and is
primarily due to the effects of inflation on the Company's costs and
weather related problems experienced during 1994. Labor expenses
increased $534,000 (8.4%) mainly due to a general wage increase,
effective January 1, 1994, overtime incurred due to maintenance
repairs resulting from colder weather in January and February 1994,
and to a general increase in maintenance activity during 1994. Power
costs increased $69,000 (5.6%) primarily due to increased pumpage.
Chemical costs increased $184,000 (54.0%) primarily due to increased
usage and the higher cost of chemicals.
Materials and transportation costs increased $299,000 (28.0%) largely
due to the increase in maintenance activities. Regulatory expenses
decreased $127,000 (73.4%) primarily due to decreased rate case
expenses. Costs of the Company's pension and other benefit plans
increased $72,000 (9.2%) primarily due to the higher costs of
benefits provided. Depreciation increased $769,000 (25.7%) of which
$673,000 is applicable to the utility-related services segment.
Taxes, other than income taxes, increased $971,000 (32.4%) of which
$823,000 is applicable to the utility-related services segment. The
increase in interest expense, net, of $272,000 (7.6%) is largely due
to an increase in short-term and long-term debt outstanding at higher
interest rates. Income taxes increased $706,000 (20.2%) primarily
due to income taxes collected from developers on customer advances
for construction.
Liquidity and Capital Resources
At the present time, the majority of the Company's business
activities are conducted through its water utilities. In June 1993,
the Company acquired SM&P which diversified the Company's
operations. The Company may, in the future, become involved in other
water utilities and utility-related activities through the
acquisition or formation of additional subsidiaries. The source of
capital to finance these subsidiaries will be determined at the time
they are established or acquired. However, the Company does not
intend to enter into any business that would impair the Company's
primary commitment to maintain and develop its water utilities to
meet the current and future needs of their customers.
-5-
Cash Flows From Operating Activities
Cash flows from operating activities result primarily from net
earnings adjusted for non-cash items such as depreciation and
deferred taxes and changes in operating assets and liabilities. The
seasonal nature of the Company's business typically results in higher
operating revenues in the second and third quarters of the year than
in the first and fourth quarters. Fluctuations in accounts payable
and accrued expenses result primarily from property taxes and timing
of payments, whereas federal income taxes vary with pretax earnings
and the level of taxable customer advances for construction received
by the Company.
Cash Flows From Investing Activities
Cash flows from investing activities fluctuate primarily as a result
of additions to utility plant and other property and the level of
customer advances for construction, net of refunds.
The Company received $4,680,000 in new customer advances and refunded
$1,442,000 in customer advances during the six months ended June 30,
1994, compared to $3,242,000 and $1,431,000, respectively, during the
six months ended June 30, 1993. The Company also added $12,852,000
to utility plant and other property during the six months ended
June 30, 1994, compared to $5,604,000 during the six months ended
June 30, 1993.
Cash Flows From Financing Activities
Cash flows from financing activities consists primarily of the
Company's borrowings, dividend payments and sales of common shares.
The Company utilizes borrowings against its lines of credit with
local banks for its short-term cash needs.
In January 1993, the Company prepaid $1,100,000 in principal amount
of its 12-7/8% Series Bonds at a premium of $80,000 and in January
1994, prepaid an additional $1,200,000 in principal amount of these
bonds at a premium of $77,000. Funds used to prepay the amounts in
1993 and 1994 were derived from proceeds of the sale of common shares
through the Company's Dividend Reinvestment and Stock Purchase Plan.
-6-
In March 1994, the Company issued $14,000,000 of 6.31% Senior Notes
due in 2001. Proceeds from the notes were used to repay $13,700,000
in short-term notes payable to banks incurred for the acquisition of
SM&P.
Approximately 99%, 110%, and 81% of net earnings applicable to common
and common equivalent shares were declared payable in cash dividends
during 1993, 1992, and 1991, respectively. Long-term debt, as a
percentage of total capital and long-term debt, decreased to 52.6% at
December 31, 1993, compared to 56.2% at December 31, 1992. The
decrease in 1993 in the "debt ratio" was primarily due to the
combined effects of a payment of $12,700,000 in long-term debt and
issuance of new long-term debt of $11,600,000, issuance of $8,300,000
in common stock for the acquisition of SM&P, issuance of common stock
through the Company's dividend reinvestment and restricted stock
plans of $1,273,000 and an increase in retained earnings of $86,000.
During 1993, the Company increased its line of credit for working
capital purposes to $22,200,000; borrowings under the lines were
$17,488,000 at June 30, 1994.
Capital Expenditures
Capital expenditures for 1994 are budgeted at approximately
$23,000,000 and will be financed primarily from internally generated
cash, customer advances for construction, short-term bank borrowings
and draws from construction funds held by the trustee. Capital
expenditures for the five-year period 1994 through 1998 are budgeted
at approximately $125,000,000 with the major portion for new mains
and distribution and plant facilities. The Company anticipates that
it will be necessary during the five-year period 1994 through 1998 to
secure additional outside financing from both short and long-term
debt, in order to finance planned capital expenditures and long-term
debt maturities.
Projected capital expenditures do not include any construction
projects that IWC could be required to undertake to comply with
legislative or regulatory environmental or water quality requirements
that may be imposed in the future. If IWC is required to adopt new
methods of water treatment, the costs involved will be substantial.
Capital costs are estimated at $37,000,000 for ozonation and
$90,000,000 for granular activated carbon (GAC). Additionally, IWC
is subject to regulatory requirements regarding discharges from its
treatment plants. The Company estimates that the cost to comply with
possible changes to existing regulatory requirements could aggregate
$30,000,000 for additional facilities and $1,000,000 in increased
operating costs. Such costs and expenses should be recoverable
through water rates, but only after appropriate regulatory action.
-7-
Environmental Matters
The Company's utility operations are subject to pollution control and
water quality control regulations, including those issued by the
Environmental Protection Agency (EPA), the Indiana Department of
Environmental Management (IDEM), the Indiana Water Pollution Control
Board and the Indiana Department of Natural Resources. Under the
Federal Clean Water Act and Indiana's regulations, the Company must
obtain National Pollutant Discharge Elimination System (NPDES)
permits for discharges from its White River, Fall Creek, and the
Thomas W. Moses treatment stations. The Company's current NPDES
permits were to expire June 30, 1989, for White River and Fall Creek
stations and December 31, 1990, for Thomas W. Moses treatment
station. Applications for renewal of the permits have been filed
with, but have not been acted upon by, IDEM (these permits continue
in effect pending review of the applications). The Company received
an NPDES permit for its White River North Station on April 1, 1991,
and it has complied with the reporting requirements for the initial
twelve-month period of the permit. IDEM has authority to reopen this
permit and it could propose in some or all of these permits
additional limitations that could be difficult and expensive.
Accordingly, the full impact of such restrictions cannot be assessed
with certainty at this time. The Company anticipates, however, that
the capital costs and expense of compliance with any such permits are
likely to be significant.
Under the federal Safe Drinking Water Act (SDWA), the Company is
subject to regulation by EPA of the quality of water it sells and
treatment techniques it uses to make the water potable. EPA
promulgates nationally applicable maximum contaminant levels (MCLs)
for "contaminants" found in drinking water. Management believes that
the Company is currently in compliance with all MCLs promulgated to
date. EPA has continuing authority, however, to issue additional
regulations under the SDWA, and Congress amended the SDWA in July
1986 to require EPA, within a three-year period, to promulgate MCLs
for over 80 chemicals not then regulated. EPA has been unable to
meet the three-year deadline, but has promulgated MCLs for many of
these chemicals and has proposed additional MCLs. Management of the
Company believes that it will be able to comply with the promulgated
MCLs and those now proposed without any change in treatment
technique, but anticipates that in the future, because of EPA
regulations, the Company may have to change its method of treating
drinking water to include ozonation and/or GAC. In either case, the
capital costs could be significant (currently estimated at
$37,000,000 for ozonation and $90,000,000 for GAC), as would be the
Company's increase in annual operating costs (currently estimated at
$1,600,000 for ozonation and $4,300,000 for GAC). Actual costs could
exceed these estimates. The Company would expect to recover such
costs through its water rates; however, such recovery may not
necessarily be timely.
-8-
Under a 1991 law enacted by the Indiana Legislature, a water utility,
including the utility subsidiaries of the Company, may petition the
Indiana Utility Regulatory Commission (Commission) for prior approval
of its plans and estimated expenditures required to comply with
provisions of, and regulations under, the Federal Clean Water Act and
SDWA. Upon obtaining such approval, the utility may include, to the
extent of its estimated costs as approved by the Commission, such
costs in its rate base for ratemaking purposes and recover its costs
of developing and implementing the approved plans if statutory
standards are met. The capital costs for such new systems, equipment
or facilities or modifications of existing facilities may be included
in the utility's rate base upon completion of construction of the
project or any part thereof. While use of this statute is voluntary
on the part of a utility, if utilized, it should allow utilities a
greater degree of confidence in recovering major costs incurred to
comply with environmental related laws on a timely basis.
Trends, Inflation, and Changing Prices
Under normal conditions and particularly during periods of inflation,
water utility revenues from increased water consumption will not keep
pace with the increase in operating costs. Therefore, periodic water
rate and service charge adjustments are necessary, with the frequency
of such increases being partially determined by the amount of
inflation.
Results for any interim period are not indicative of results to be
expected for the year. Typically, the seasonal nature of the
Company's business results in a higher proportion of operating
revenues being realized in the second and third quarters of the year
than the first and fourth quarters of the year.
-9-
Part II. OTHER INFORMATION
IWC RESOURCES CORPORATION AND SUBSIDIARIES
June 30, 1994
Item 6. Exhibits and Reports on Form 8-K
(a) exhibits None
(b) reports on Form 8-K No reports on Form 8-K were
filed during the quarter
ended June 30, 1994.
-10-
SIGNATURES
Pursuant to the requirements 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.
IWC RESOURCES CORPORATION
(Registrant)
By:
J. A. Rosenfeld, Executive
Vice President (Chief
Financial Officer) duly
authorized to sign this
report on behalf of the
registrant
Date
James P. Lathrop, Controller
(Chief Accounting Officer)
Date
-11-
