Document Summary:
Document: EDGARSEP
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Creation Date: 11/14/1994
Modification Date: 11/14/1994
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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 September 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 6,867,193
Class Outstanding at 10-1-94
IWC RESOURCES CORPORATION AND SUBSIDIARIES
Index
Part I. Financial Information:
Consolidated Balance Sheets as of September 30, 1994 and
1993, and December 31, 1993 (Unaudited)
Consolidated Statement of Shareholders' Equity - Nine Months
ended September 30, 1994 (Unaudited)
Consolidated Statements of Earnings - Three Months and Nine
Months ended September 30, 1994 and 1993 (Unaudited)
Consolidated Statements of Cash Flows -
Three Months and Nine Months ended September 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
September 30, 1994 and 1993 and December 31, 1993
(Unaudited)
<CAPTION>
September 30, December 31,
1994 1993 1993
(in thousands)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 2,106 2,103 1,813
Accounts receivable, less allowance for
doubtful accounts of $190 13,487 11,263 9,515
Materials and supplies, at average cost 1,965 1,583 1,722
Other current assets 1,870 1,459 871
Total current assets 19,428 16,408 13,921
Utility plant:
Utility plant in service 338,340 319,563 323,313
Less accumulated depreciation 74,604 69,231 70,406
Net plant in service 263,736 250,332 252,907
Construction work in progress 10,112 7,717 7,756
Utility plant, net 273,848 258,049 260,663
Construction funds held by Trustee - 1,997 2,010
Other property 9,690 7,070 6,825
Goodwill, net of accumulated amortization 17,091 17,096 17,479
Deferred charges and other assets 14,143 10,339 11,545
$334,200 310,959 312,443
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 15,771 21,353 21,779
Current portion of long-term debt - - 1,200
Accounts payable and accrued expenses 16,898 14,232 14,380
Dividends payable 51 51 -
Federal income taxes 3,076 484 392
Customer deposits 1,107 1,025 1,027
Total current liabilities 36,903 37,145 38,778
Long-term obligations:
Long-term debt, less current portion 99,375 86,575 85,375
Customer advances for construction 47,678 43,703 43,597
Total long-term obligations 147,053 130,278 128,972
Deferred income taxes 24,853 23,574 23,795
Unamortized investment tax credits 4,939 5,052 5,029
Contributions in aid of construction 29,555 27,753 28,081
Other credits 6,481 4,944 5,069
Preferred stock of subsidiary and
redeemable preferred stock 5,705 5,705 5,705
Total liabilities and other credits 255,489 234,451 235,429
Shareholders' equity
Common stock 60,195 58,946 59,301
Retained earnings 18,566 17,780 17,912
78,761 76,726 77,213
Less unearned compensation 50 218 199
Total shareholders' equity 78,711 76,508 77,014
Commitments and contingencies
$334,200 310,959 312,443
======= ======= =======
<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
Nine months ended September 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 - - 7,888 - 7,888
Dividends - $1.05 per share:
Common Stock - - (7,180) - (7,180)
Redeemable preferred stock - - (54) - (54)
Common stock issued -
Dividend Reinvestment Plan 44,135 894 - - 894
Compensation expense - - - 149 149
Balance at September 30, 1994 6,866,088 $ 60,195 $ 18,566 $ (50) $ 78,711
<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 nine months ended September 30, 1994 and 1993
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
(in thousands, except per share data)
Operating revenues:
<S> <C> <C> <C> <C>
Water utilities $21,051 17,622 55,104 48,861
Utility-related services 11,055 8,294 27,061 11,236
32,106 25,916 82,165 60,097
Operating expenses:
Operation and administration
Water utilities 8,973 7,845 26,306 24,017
Utility-related services 7,954 5,964 20,844 7,305
Depreciation 2,010 1,776 5,771 4,768
Taxes other than income taxes 1,951 1,453 5,917 4,448
Total operating expenses 20,888 17,038 58,838 40,538
Operating earnings 11,218 8,878 23,327 19,559
Other income (expense):
Interest expense, net (2,001) (1,916) (5,839) (5,482)
Interest income 17 71 99 162
Dividends on preferred
stock of subsidiary (50) (50) (152) (152)
Other, net 109 (26) (283) (212)
(1,925) (1,921) (6,175) (5,684)
Earnings before income taxes 9,293 6,957 17,152 13,875
Income taxes 5,055 3,530 9,264 7,033
Net earnings $ 4,238 3,427 7,888 6,842
Net earnings per common and equivalent share $ .61 .51 1.14 1.04
====== ====== ====== ======
Average number of common
and common equivalent shares outstanding 6,908 6,850 6,893 6,588
====== ====== ====== ======
<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 nine months ended September 30, 1994 and 1993
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1994 1993 1994 1993
(in thousands)
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net earnings $ 4,238 3,427 7,888 6,842
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 2,402 2,231 7,015 5,648
Deferred income taxes and
investment tax credits 615 339 968 1,043
Gain on sales of other property (30) (219) (117) (564)
Provision for bad debts 116 76 306 241
Dividends on preferred stock of subsidiary 50 50 152 152
Other, net (85) 8 (279) 84
Changes in operating assets and liabilities:
Accounts receivable 336 808 (4,278) (1,271)
Materials and supplies 175 (72) (243) (286)
Other current assets (281) 626 (999) 1,129
Accounts payable and accrued expenses (536) 91 2,518 (526)
Federal income taxes 1,192 334 2,621 691
Customer deposits 18 52 80 81
Net cash provided by operating activities 8,210 7,751 15,632 13,264
Cash flows from investing activities:
Acquisition of S.M.& P. Conduit Co., Inc.,
net of cash acquired - - - (12,482)
Additions to utility plant and other property (9,233) (3,820) (22,085) (9,424)
Proceeds from sales of other property 75 258 175 746
Customer advances for construction 2,761 1,884 7,441 5,126
Refunds of customer advances for construction (678) (338) (2,120) (1,769)
Other investing activities, net 483 (62) (1,034) 55
Net cash used by investing activities (6,592) (2,078) (17,623) (17,748)
Cash flows from financing activities:
Increase (decrease) in notes payable to banks (2,743) (3,031) (6,008) 13,272
Increase in long-term debt - - 14,000 -
Payments of long-term debt - - (1,277) (1,180)
Decrease (increase) in construction funds
held by Trustee 2,032 (12) 2,010 (39)
Cash dividends (2,467) (2,446) (7,335) (6,989)
Proceeds from issuance of common stock 302 295 894 918
Net cash provided (used) by
financing activities (2,876) (5,194) 2,284 5,982
Increase (decrease) in cash and cash equivalents (1,258) 479 293 1,498
Cash and cash equivalents at beginning of period 3,364 1,624 1,813 605
Cash and cash equivalents at end of period $ 2,106 2,103 2,106 2,103
====== ====== ====== ======
Supplemental disclosures of cash flow information-
Cash paid for:
Interest on long-term debt and notes payable
to banks, net of capitalized interest $ 2,541 2,283 5,996 5,675
Income taxes $ 3,133 2,157 6,279 4,939
<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 August 10, 1994, the Commission approved a merger of
Indianapolis Water Company (IWC) and Zionsville Water Corporation
and an immediate increase in their combined rates of approximately
$1.3 million or 2%. In its petition filed May 17, 1993, IWC had
requested an increase in combined annual revenues of $8.9 million,
or 14%.
The Commission deferred for further investigation the rate effects
of implementing accrual accounting for postretirement benefits
other than pensions (OPBR), in accordance with SFAS 106, until an
appropriate restricted fund arrangement is approved. Related rates
should amount to $1.7 million or approximately 3% of the requested
14% increase in combined annual revenues.
On October 11, 1994, IWC filed supplemental testimony with the
Commission which discusses IWC's proposed plan for a grantor trust
to hold OPRB-related revenues. The Utility Consumer Counselor,
representing ratepayers, has until November 25, 1994, to conduct
its investigation in this matter and respond to IWC's proposed
plan. This matter should be concluded during the first quarter of
1995.
On September 23, 1994, IWC filed a petition with the Commission for
approval of a new schedule of rates and charges. The increase in
revenues sought by IWC is approximately $5.0 million, or 8%, based
on water consumption for the twelve months ended June 30, 1994.
The Company is to prefile its evidence in this case on November 21,
1994. Hearings are expected to conclude in April, 1995.
Authority to Issue New Securities
On September 23, 1994, IWC filed a petition with the Commission to
issue on or before December 31, 1996, up to $30 million in
principal amount of long-term debt, preferred stock and common
equity capital.
Proceeds from the issuance of these securities will be used for the
construction, extension and improvement of its facilities, plant
and distribution system and the discharge or refunding of
short-term debt and higher cost long-term debt.
This matter has not yet been set for hearing by the Commission, and
will not likely be concluded until 1995. The timing and amount of
the securities to be issued, if approved, will be based on fund
requirements and market conditions.
Dividend Reinvestment and Stock Purchase Plan
The Company has a Dividend Reinvestment and Stock Purchase Plan
which allows common shareholders the option of receiving their
dividends in cash or common stock and permits optional cash
purchases of shares at current market values to a maximum of $5,000
per quarter.
On July 15, 1994, the Company amended its plan to allow certain
employees and utility customers of the Company or its subsidiaries
to purchase common shares. A minimum investment of $10 by
employees and $100 by utility customers is required up to a total
of $100,000 annually. A total of 500,000 authorized but unissued
common shares have been registered for purchase under the plan.
The price of common shares purchased with reinvested dividends or
optional cash payments will be 97% of the average of the means
between the high and low sale prices of the common shares as
determined for the five consecutive trading days ending on the day
of purchase. Shareholders who do not choose to participate in the
plan will continue to have an option to receive their dividends in
cash.
-2-
Income Taxes on Customer Advances for Construction
In 1994 the Company began charging developers and other applicants
for main extensions for income taxes incurred on 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 nine months ended September 30, 1994,
income taxes collected amounted to $1,524,000 and $2,500,000,
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 September 30, 1993 and for the three months
and nine months then ended have been reclassified to conform with
the 1994 presentation.
-3-
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 services segment.
The Company's results of operations for both water utility and
utility-related services 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 September 30, 1994, Compared with
Three Months Ended September 30, 1993
Operating revenues and operation and administration expenses
were budgeted at $21,115,000 and $10,012,000, respectively, for
the water utilities segment and $9,408,000 and $6,343,000,
respectively, for the utility-related services segment. This
compares to actual operating revenues and operation and
administration expenses of $19,527,000 (excluding $1,524,000 in
income taxes collected from developers) and $8,973,000,
respectively, for the water utilities segment and $11,055,000
and $7,954,000, respectively, for the utility-related services
segment.
The Company's water utility segment anticipated a resolution of
its most recently completed rate case early in the second
quarter of 1994 but did not receive an order until August 10,
1994. The order authorized the Company to increase its rates
approximately 2% compared to the 14% requested and deferred for
further investigation the rate effects of implementing accrual
accounting for postretirement benefits other than pensions
amounting to $1.7 million or approximately 3% of the initially
requested 14% increase. Actual operation and administration
expenses were lower compared to budgeted amounts primarily due
to a planned reduction in budgeted expenses and a deferral of
certain expenses due to the time lag associated with the
Company's rate case.
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 $6,190,000 (23.9%) of which
$2,761,000 is applicable to the utility-related services
segment. The increase in water utilities segment revenues of
$1,905,000, which is net of $1,524,000 in income taxes collected
from developers, represents a 10.8% increase compared to the
three months ended September 30, 1993, and is primarily due to
an increase in water consumption.
Operation and administration expenses increased $1,128,000
(14.4%) in the water utilities segment and $1,990,000 (33.4%) in
the utility-related services segment, or a total of $3,118,000
(22.6%). The increase in water utilities segment is primarily
due to the effects of inflation on the Company's costs and
increased maintenance activities in 1994. Labor expenses
increased $263,000 (8.2%) mainly due to a general wage increase,
effective January 1, 1994, and to a general increase in
maintenance activity. Power costs increased $95,000 (13.0%)
primarily due to increased pumpage. Chemical costs increased
$238,000 (104.9%) primarily due to increased usage and the
higher cost of chemicals. Materials and transportation costs
increased $170,000 (35.0%) largely due to the increase in
maintenance activities. The cost of outside services increased
$108,000 (8.0%) primarily due to the increase in consulting and
other services. Insurance expense increased $150,000 (15.8%)
reflecting higher health and general liability insurance premium
costs. Costs of the Company's pension and other benefit plans
increased $121,000 (37.0%) primarily due to the higher costs of
benefits provided.
The increase in the utility-related services segment expenses is
due primarily to additional labor and fringe benefit costs
incurred as a result of the increased volume of business
primarily involved in utility line locating.
Depreciation increased $234,000 (13.2%) largely due to
additional utility plant and depreciable other property placed
in service. Taxes, other than income taxes, increased $498,000
(34.3%) primarily due to the combined effects of increased
property taxes resulting from additions to plant in the water
utilities segment and increased payroll taxes resulting from
increased personnel in the utility-related services segment.
The increase in interest expense, net, of $85,000 (4.4%) is
largely due to the combined effects of total debt outstanding at
higher interest rates. Income taxes increased $1,525,000
(43.2%) primarily due to the combined effects of higher pretax
earnings and income taxes collected from developers on customer
advances for construction.
-5-
Nine Months Ended September 30, 1994, Compared with
Nine Months Ended September 30, 1993
Operating revenues and operation and administration expenses
were budgeted at $55,385,000 and $28,105,000, respectively, for
the water utilities segment and $24,083,000 and $18,746,000,
respectively, for the utility-related services segment. This
compares to actual operating revenues and operation and
administration expenses of $52,604,000 (excluding $2,500,000 in
income taxes collected from developers) and $26,306,000,
respectively, for the water utilities segment and $27,061,000
and $20,844,000, respectively, for the utility-related services
segment.
The Company anticipated a resolution of its most recently
completed rate case early in the second quarter of 1994 but did
not receive an order until August 10, 1994. The order
authorized the Company to increase its rates approximately 2%
compared to the 14% requested and deferred for further
investigation the rate effects of implementing accrual
accounting for postretirement benefits other than pensions
amounting to $1.7 million or approximately 3% of the initially
requested 14% increase. Actual operation and administration
expenses were lower compared to budgeted amounts primarily due
to a planned reduction in budgeted expenses and a deferral of
certain expenses due to the time lag associated with the
Company's rate case.
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 $22,068,000 (36.7%) of which $15,825,000
is applicable to the utility-related services segment. The increase
in water utilities segment revenues of $3,743,000, which is net of
$2,500,000 in income taxes collected from developers, represents a
7.7% increase compared to the nine months ended September 30, 1993,
and is primarily due to an increase in water consumption.
Operation and administration expenses increased $15,828,000 (50.5%)
of which $13,539,000 is applicable to the utility-related services
segment. The increase in water utilities segment expenses of
$2,289,000 represents a 9.5% increase over the nine months ended
September 30, 1993, and is primarily due to the effects of inflation
on the Company's costs and weather related problems experienced early
in 1994. Labor expenses increased $797,000 (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 $164,000 (8.4%) primarily due to
increased pumpage. Chemical costs increased $422,000 (74.3%)
primarily due to increased usage and the higher cost of chemicals.
-6-
Materials and transportation costs increased $469,000 (30.2%)
primarily due to the increase in maintenance activities. The cost of
outside services increased $151,000 (3.4%) primarily due to the
increase in consulting and other services. Insurance expense
increased $156,000 (5.3%) reflecting higher health and general
liability insurance premium costs. Regulatory expenses decreased
$144,000 (58.3%) primarily due to decreased rate case expenses.
Costs of the Company's pension and other benefit plans increased
$193,000 (17.4%) primarily due to the higher costs of benefits
provided.
Depreciation increased $1,003,000 (21.0%) of which $846,000 is
applicable to the utility-related services segment. Taxes, other
than income taxes, increased $1,469,000 of which $978,000 is
applicable to the utility-related services segment. The remaining
increase of $491,000 applicable to the water utilities segment is
primarily due to an increase in property taxes resulting from
additional plant in service. The increase in interest expense, net,
of $357,000 (6.5%) is largely due to the combined effects in total
debt outstanding at higher interest rates. Income taxes increased
$2,231,000 (31.7%) 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.
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.
-7-
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 $7,441,000 in new customer advances and refunded
$2,120,000 in customer advances during the nine months ended
September 30, 1994, compared to $5,126,000 and $1,769,000,
respectively, during the nine months ended September 30, 1993. The
Company also added $22,085,000 to utility plant and other property
during the nine months ended September 30, 1994, compared to
$9,424,000 during the nine months ended September 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.
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.
In September 1994, the Company withdrew the remaining construction
funds held by trustee.
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
$14,346,000 at September 30, 1994.
-8-
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.
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.
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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.
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.
-10-
Part II. OTHER INFORMATION
IWC RESOURCES CORPORATION AND SUBSIDIARIES
September 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 September 30, 1994.
-11
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
-12-
