Document Summary:
Document: 10QSEP95
Author:
Addressee:
Operator:
Creation Date: 08/01/1994
Modification Date: 11/14/1995
Identification key words:
Comments:
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, 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 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 8,036,338
Class Outstanding at 10-06-95
IWC RESOURCES CORPORATION AND SUBSIDIARIES
Index
Part I. Financial Information:
Consolidated Balance Sheets as of September 30, 1995 and
1994, and December 31, 1994 (Unaudited)
Consolidated Statement of Shareholders' Equity - Nine Months
ended September 30, 1995 (Unaudited)
Consolidated Statements of Earnings - Three Months and Nine
Months ended September 30, 1995 and 1994 (Unaudited)
Consolidated Statements of Cash Flows -
Three Months and Nine Months ended September 30, 1995 and
1994 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
PART I. FINANCIAL INFORMATION
IWC RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1995 and 1994 and December 31, 1994
(Unaudited)
<CAPTION>
September 30, December 31,
1995 1994 1994
(in thousands)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 2,523 2,106 2,889
Accounts receivable, less allowance for
doubtful accounts of $330, 190 and 190 25,842 13,487 10,124
Materials and supplies, at cost 3,635 1,965 2,257
Other current assets 2,348 1,870 1,099
Total current assets 34,348 19,428 16,369
Utility plant:
Utility plant in service 356,047 338,340 343,488
Less accumulated depreciation 80,650 74,604 75,801
Net plant in service 275,397 263,736 267,687
Construction work in progress 9,881 10,112 7,407
Utility plant, net 285,278 273,848 275,094
Construction funds held by Trustee 18,076 - -
Other property, net of accumulated depreciation 33,364 9,690 13,053
Goodwill, net of accumulated amortization 24,040 17,091 16,964
Deferred charges and other assets 16,878 14,143 13,902
$411,984 334,200 335,382
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 35,600 15,771 17,674
Current portion of long-term debt - - 1,150
Accounts payable and accrued expenses 21,163 16,898 16,295
Dividends payable 51 51 -
Federal income taxes 3,691 3,076 256
Customer deposits 1,259 1,107 1,126
Total current liabilities 61,764 36,903 36,501
Long-term obligations:
Long-term debt, less current portion 116,225 99,375 98,225
Customer advances for construction 51,967 47,678 48,750
Other liabilities 8,202 6,481 6,079
Total long-term obligations 176,394 153,534 153,054
Deferred income taxes 34,577 29,792 31,003
Contributions in aid of construction 32,290 29,555 30,181
Preferred stock of subsidiary and
redeemable preferred stock 5,705 5,705 5,705
Shareholders' equity
Common stock, authorized 10,000 common
shares; 7,998, 6,866, and 6,886 issued
and outstanding 81,871 60,195 60,540
Retained earnings 20,029 18,566 18,398
101,900 78,761 78,938
Less unearned compensation 646 50 -
Total shareholders' equity 101,254 78,711 78,938
Contingencies
$411,984 334,200 335,382
======= ======= =======
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, 1995
(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, 1994 6,886,271 $ 60,540 $ 18,398 $ - $ 78,938
Net earnings - - 9,054 - 9,054
Dividends - $1.05 per share:
Common Stock - - (7,369) - (7,369)
Redeemable preferred stock - - (54) - (54)
Common stock issued -
Dividend Reinvestment Plan 327,438 6,105 - - 6,105
Restricted stock plan 29,461 878 - (878) -
Acquisition of subsidiary 755,148 14,348 - - 14,348
Compensation expense - - - 232 232
Balance at September 30, 1995 7,998,318 $ 81,871 $ 20,029 $ (646) $101,254
========= ======= ======= === =======
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, 1995 and 1994
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenues:
Water utilities $23,548 21,051 60,690 55,104
Utility-related services 19,615 11,055 38,565 27,061
43,163 32,106 99,255 82,165
Operating expenses:
Operation and administration
Water utilities 9,690 8,973 26,943 26,306
Utility-related services 15,335 7,954 32,679 20,844
Depreciation 2,481 2,010 6,888 5,771
Taxes other than income taxes 2,514 1,951 6,999 5,917
Total operating expenses 30,020 20,888 73,509 58,838
Operating earnings 13,143 11,218 25,746 23,327
Other income (expense):
Interest expense, net (2,694) (2,001) (6,878) (5,839)
Interest income 4 17 30 99
Dividends on preferred
stock of subsidiary (50) (50) (152) (152)
Other, net 489 109 1,157 (283)
(2,251) (1,925) (5,843) (6,175)
Earnings before income taxes 10,892 9,293 19,903 17,152
Income taxes 5,375 5,055 10,849 9,264
Net earnings $ 5,517 4,238 9,054 7,888
====== ====== ====== ======
Net earnings per common and common
equivalent share $ .73 .61 1.26 1.14
====== ====== ====== ======
Average number of common
and common equivalent shares outstanding 7,556 6,908 7,195 6,893
====== ====== ====== ======
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, 1995 and 1994
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
(in thousands)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,517 4,238 9,054 7,888
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 3,046 2,402 8,242 7,015
Deferred income taxes 400 615 1,068 968
Gain on sales of other property (71) (30) (814) (117)
Provision for bad debts 110 116 290 306
Dividends on preferred stock of subsidiary 50 50 152 152
Other, net 68 (85) 651 (279)
Changes in operating assets and liabilities:
Accounts receivable (2,347) 336 (7,738) (4,278)
Materials and supplies (345) 175 (133) (243)
Other current assets (170) (281) 40 (999)
Accounts payable and accrued expenses 1,205 (536) 847 2,518
Federal income taxes (578) 1,192 3,400 2,621
Customer deposits 59 18 13 80
Net cash provided by operating activities 6,944 8,210 15,192 15,632
Cash flows from investing activities:
Acquisition of Miller Pipeline Corporation,
net of cash acquired (5,147) - (5,147) -
Additions to utility plant and other property (4,465) (9,233) (21,976) (22,085)
Proceeds from sales of other property 102 75 391 175
Customer advances for construction 2,373 2,761 6,727 7,441
Refunds of customer advances for construction (31) (678) (1,700) (2,120)
Other investing activities, net (315) 483 (1,745) (1,034)
Net cash used by investing activities (7,483) (6,592) (23,450) (17,623)
Cash flows from financing activities:
Increase (decrease) in notes payable to banks (258) (2,743) 10,526 (6,008)
Proceeds from long-term debt 18,076 - 18,076 14,000
Payments of long-term debt - - (1,215) (1,277)
Decrease (increase) in construction funds
held by Trustee (18,076) 2,032 (18,076) 2,010
Cash dividends (2,570) (2,467) (7,524) (7,335)
Proceeds from issuance of common stock 3,146 302 6,105 894
Net cash provided (used) by
financing activities 318 (2,876) 7,892 2,284
Increase (decrease) in cash and cash equivalents (221) (1,258) (366) 293
Cash and cash equivalents at beginning of period 2,744 3,364 2,889 1,813
Cash and cash equivalents at end of period $ 2,523 2,106 2,523 2,106
====== ====== ====== ======
Supplemental disclosures of cash flow information-
Cash paid for:
Interest on long-term debt and notes payable
to banks, net of capitalized interest $ 2,920 2,541 7,111 5,996
Income taxes $ 4,966 3,133 6,385 6,279
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 utility 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, installation, repairs and maintenance of underground
pipelines, 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, 1994.
CURRENT EVENTS
Securities
On March 22, 1995, the Commission granted Indianapolis Water
Company (IWC) authority to issue, on or before December 31, 1996,
an aggregate of $30 million in securities, to consist of not more
than $18 million in the form of long-term debt and/or preferred
equity, and, assuming favorable market conditions, at least $12
million in common equity. The timing and amount of the securities
to be issued will be based on fund requirements and market
conditions. In September 1995, IWC issued $18 million of 5.85%
First Mortgage Bonds to secure a like amount of Economic
Development Bonds, issued by the City of Indianapolis. Proceeds
from the issuance of these bonds will be used for the construction,
extension and improvement of its facilities, plant and distribution
system and for reimbursement of IWC's treasury for previously made
plant capital expenditures.
Acquisition of Miller Pipeline Corporation
On August 22, 1995, the Company acquired Miller Pipeline
Corporation ("MPC"). MPC installs, repairs and maintains
underground pipelines used in gas, water and sewer utility
transmission and distribution systems. MPC also repairs and
provides installation services and products for natural gas, water
and sewer utilities. The cost of the acquisition was paid by cash
of approximately $5,513,000 and the issuance of 755,148 shares of
the Company's common stock. The excess of the total acquisition
cost over a preliminary estimate of the fair value of the net
assets acquired of $7,459,000 is being amortized over 40 years.
Following is a summary of the assets acquired and liabilities
assumed in the acquisition of MPC:
(in thousands)
Property and equipment $ 14,921
Accounts receivable 8,158
Materials and supplies 1,245
Other current assets 1,161
Other noncurrent assets 822
Short-term notes payable
to banks (7,400)
Accounts payable and
other accrued expenses (3,999)
Deferred income taxes (2,506)
Net assets acquired $ 12,402
======
During August 1995, the Company borrowed $5,600,000 in a short-term
bank loan which was used primarily for the acquisition of MPC.
Interest on this loan is based on the LIBOR rate plus .75% (6.5625%
at September 30, 1995). Interest on short-term notes payable to
banks assumed in the acquisition of MPC is based on prime less .50%
(6.95% at September 30, 1995).
-2-
The consolidated financial statements include the results of MPC's
operations beginning September 22, 1995. Pro forma operating
results for the nine months ended September 30, 1995 and 1994
follow:
(in thousands, except per share date)
1995 1994
Operating revenues:
Water utilities $ 60,690 55,104
Utility-related services 65,866 61,444
Total operating revenues $ 126,556 116,548
======= =======
Net earnings $ 9,046 8,795
======= =======
Net earnings per common and
common equivalent share $ 1.18 1.18
======= =======
Pro forma net earnings of $9,046,000 and net earnings per common
and common equivalent share of $1.18 for the nine months ended
September 30, 1995 were lower than net earnings of $9,054,000 and
net earnings per common and common equivalent share of $1.26 as
reported for the same period in the Consolidated Statements of
Earnings primarily due to start-up costs associated with MPC's new
product lines.
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. As a result, compliance with such
permits may be expensive.
RECLASSIFICATIONS
Certain amounts as of September 30, 1994 have been reclassified to
conform with the 1995 presentation.
-3-
IWC Resources Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The most significant changes in the consolidated financial
condition and results of operations of IWC Resources Corporation
and subsidiaries (Company) are attributable to the combined
operations of its two segments: (1) water utilities and (2)
utility-related services. These segments are discussed more
fully in Notes to Consolidated Financial Statements, Segment
Reporting, in the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
The Company acquired Miller Pipeline Corporation ("MPC") in
August 1995. As a result of this acquisition, many of the
differences between results of operations for the three months
and nine months ended September 30, 1995 and 1994 are due to
MPC's operations, which are included in the utility-related
services segment. The following discussion and analysis will
concentrate primarily on differences due to the results of
operations of the water utilities segment and those of the
utility-related services segment excluding those of MPC.
The Company's results of operations for both water utilities 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.
Three Months Ended September 30, 1995, Compared with
Three Months Ended September 30, 1994
Operating results in the water utilities segment improved
primarily due to the net effects of three increases in water
rates approved by the Indiana Utility Regulatory Commission
effective August 10, 1994, April 26, 1995, and
May 10, 1995, and a moderate increase in operation and
administration expenses. Operating results in the utility-
related services segment declined slightly primarily due to the
net effects of operating earnings generated by MPC offset by
reduced operating earnings in the remainder of this segment
caused by expenses incurred associated with the expansion of
business.
Total operating revenues increased $11,057,000 (34.4%).
Operating revenues applicable to the water utilities segment
increased $2,573,000, excluding a decrease of $76,000 in income
taxes collected from developers, representing a 13.2% increase
over 1994, and is primarily due to the combined effects of a
1.2% increase in water sold and the three rate increases. The
increase in utility-related services segment operating revenues
of $8,560,000 is due primarily to the acquisition of MPC and
continued expansion of business contracts at several operating
locations.
-4-
Total operation and administration expenses increased $8,098,000
(47.8%). Operation and administration expenses applicable to the
water utilities segment increased $717,000 (8.0%). Labor expenses
decreased $85,000 (2.5%) mainly due to the net effects of a reduction
in the cost of maintenance activities offset by the general wage
increase, effective January 1, 1995. Power costs increased $127,000
(15.4%) primarily due to increased pumpage and an increase in power
rates. Chemical costs increased $33,000 (7.2%) primarily due to
increased chemical usage. The cost of outside services increased
$38,000 (2.6%) chiefly due to an increase in consulting and other
services. Regulatory expenses increased $40,000 (69.5%) principally
due to increased rate case expenses. Costs of the Company's pension
and other benefit plans increased $447,000 (99.7%) primarily due to
the higher costs of benefits provided including $393,000 applicable
to postretirement healthcare and life insurance benefits.
Operation and administration expenses applicable to the
utility-related services segment increased $2,207,000 (27.7%),
excluding $5,174,000 in expenses applicable to the operations of
MPC. Labor increased $822,000 (15.5%) primarily due to the addition
of employees resulting from the expansion of business in this
segment. Materials expense increased $187,000 (39.7%) primarily due
to start-up costs incurred in 1995. Transportation costs increased
$331,000 (67.7%) primarily due to the increase in the number of
vehicles, leasing costs and associated maintenance costs. Insurance
expense increased $136,000 (21.4%) primarily due to higher healthcare
premiums resulting from increased number of employees and increases
in general liability and worker's compensation insurance premiums.
Fringe benefit costs, including pension related benefits, increased
$73,000 (16.1%) primarily due to the cost of increased benefits
provided to an increasing employee base. Cable cut costs increased
$216,000 (56.6%) primarily due to the expansion of business and the
increased costs associated with cuts.
Depreciation increased $471,000 (23.4%) of which $361,000 is
applicable to the utility-related services segment. The increase in
water utilities segment and utility-related services segment
depreciation represents a 7.3% and 71.5% increase, respectively, over
1994 and is primarily due to additional utility plant and other
property placed in service including other property added through the
acquisition of MPC.
Taxes, other than income taxes, increased $563,000 (28.9%) of which
$493,000 is applicable to the utility-related services segment. The
increase in taxes other than income taxes in the water utilities
segment represents a 4.9% increase over 1994, and is primarily due to
an increase in property taxes resulting from additional plant in
service. The increase in the utility-related services segment
represents a 95.9% increase and is primarily due to additional
payroll taxes resulting from an increased employee base in this
segment.
-5-
The increase in interest expense, net, of $693,000 (34.6%) is largely
due to the combined effects in total debt outstanding at higher
interest rates. Other, net, increased $380,000 primarily due to gain
on sales of other property and pretax earnings of an unconsolidated
partnership interest.
Income taxes increased $320,000 (6.3%) primarily due to the net
effects of higher pretax earnings and a decrease of $76,000 in income
taxes collected from developers.
Nine Months Ended September 30, 1995, Compared with
Nine Months Ended September 30, 1994
Operating results in the water utilities segment improved primarily
due to three increases in water rates approved by the Indiana Utility
Regulatory Commission effective August 10, 1994, April 26, 1995, and
May 10, 1995, and a moderate increase in operating expenses.
Operating results in the utility-related services segment declined
slightly primarily due to the net effects of operating earnings
generated by MPC offset by expenses incurred associated with the
expansion of business resulting in reduced operating earnings in the
remainder of this segment.
Total operating revenues increased $17,090,000 (20.8%). Operating
revenues applicable to the water utilities segment increased
$4,012,000, excluding an increase of $1,574,000 in income taxes
collected from developers, representing a 7.6% increase over 1994,
and is primarily due to the three rate increases. The increase in
utility-related services segment operating revenues of $11,504,000 is
due primarily to the acquisition of MPC and continued expansion of
business contracts at several operating locations.
Total operation and administration expenses increased $12,472,000
(26.4%). Operation and administration expenses applicable to the
water utilities segment increased $637,000 (2.4%). Labor expense
decreased $364,000 (3.5%) mainly due to the net effects of a
reduction in maintenance repairs experienced resulting from milder
weather in 1995 as compared to the extremely cold weather in January
and February of 1994 offset by a general wage increase, effective
January 1, 1995. Power costs increased $173,000 (8.2%) primarily due
to increased pumpage and an increase in power rates. Chemical costs
increased $280,000 (28.3%) primarily due to increased chemical
usage. Materials and transportation costs decreased $234,000 (11.6%)
largely due to the reduction in maintenance activities. Insurance
expense decreased $118,000 (3.8%) primarily due to an insurance
rebate received in June 1995. Regulatory expenses increased $196,000
primarily due to increased rate case expenses. Costs of the
Company's pension and other benefit plans increased $858,000 (66.0%)
primarily due to the higher costs of benefits provided including
$654,000 applicable to postretirement benefits other than pensions.
-6-
Operation and administration expenses applicable to the
utility-related services segment increased $6,661,000 (32.0%)
excluding $5,174,000 in expenses applicable to the operations of
MPC. Labor expense increased $3,062,000 (22.4%) primarily due to the
addition of employees resulting from the expansion of business in
this segment. Materials expense increased $523,000 (38.2%) primarily
due to increased start-up costs incurred in 1995. Transportation
costs increased $914,000 (69.4%) primarily due to the increase in the
number of vehicles, leasing costs and associated maintenance costs.
Insurance expense increased $459,000 (23.8%) primarily due to higher
healthcare premiums resulting from increased numbers of employees and
increases in general liability and worker's compensation insurance
premiums. Fringe benefit costs, including pension related benefits,
increased $365,000 (29.7%) primarily due to the cost of increased
benefits to an increasing employee base. Cable cut costs increased
$416,000 (49.5%) primarily due to the expansion of business and the
increased costs associated with such cuts.
Depreciation increased $1,117,000 (19.4%) of which $777,000 is
applicable to the utility-related services segment. The increase in
water utilities segment and utility-related services segment
depreciation represents a 7.6% and 59.2% increase, respectively, over
1994 and is primarily due to additional utility plant and other
property placed in service including other property added through the
acquisition of MPC.
Taxes, other than income taxes, increased $1,082,000 (18.3%) of which
$795,000 is applicable to the utility-related services segment. The
increase in taxes, other than income taxes in the water utilities
segment, represents a 6.5% increase over 1994, and is primarily due
to an increase in property taxes resulting from additional plant in
service. The increase in such taxes in the utility-related services
segment amounts to 53.0% and is due primarily to additional payroll
taxes resulting from the increased employee base in this segment.
The increase in interest expense, net, of $1,039,000 (17.8%) is
largely due to the combined effects of higher total debt outstanding
and higher interest rates. Other, net, increased $1,440,000
primarily due to gain on sales of other property and pretax earnings
of an unconsolidated partnership interest.
Income taxes increased $1,585,000 (17.1%) primarily due to the
combined effects of higher pretax earnings and an increase of
$1,574,000 in income taxes collected from developers.
-7-
Liquidity and Capital Resources
At the present time, the majority of the Company's business
activities are conducted through its water utilities. In 1993, the
Company acquired SM&P which diversified the Company's operations and
as described under Current Events, the Company acquired Miller
Pipeline Corporation ("MPC"), which further 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 businesses 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.
During 1994, the Company added $28,256,000 to utility plant and other
property and approximately 113 miles of new mains were placed in
service. The Company received approximately $9,200,000 in new
customer advances for construction of new mains in 1994 and refunded
approximately $2,200,000. Such advances are subject to refund over a
ten-year period based on the addition of new customers to the
constructed mains.
The Company continues to experience significant growth in its
distribution system. The Company received $6,727,000 in new customer
advances and refunded $1,700,000 in customer advances during the nine
months ended September 30, 1995, compared to $7,441,000 and
$2,120,000, respectively, during the nine months ended September 30,
1994. The Company also added $36,897,000 (including $14,921,000 from
the acquisition of MPC) to utility plant and other property during
the nine months ended September 30, 1995, compared to $22,085,000
during the nine months ended September 30, 1994.
-8-
Cash Flows From Financing Activities
Cash flows from financing activities consist primarily of the
Company's borrowings, dividend payments and sales of common stock.
The Company utilizes borrowings against its lines of credit with
local banks for its short-term cash needs.
In January 1994, the Company prepaid $1,200,000 in principal amount
of its 12-7/8% Series Bonds at a premium of $77,000 and in March
1995, prepaid an additional $1,150,000 in principal amount of these
bonds at a premium of $65,000. Funds used to prepay the amounts in
1994 and 1995 were derived from proceeds of the sale of common shares
through the Company's Dividend Reinvestment and Share Purchase Plan.
During 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.
In March 1995, the Commission gave IWC approval 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. In September 1995,
IWC issued $18,000,000 of First Mortgage Bonds to secure a like
amount of Economic Development Bonds, issued by the City of
Indianaplis. Proceeds from these bonds are held by Trustee and will
be used primarily for authorized additions to IWC's utility plant.
Approximately 95%, 99%, and 110% of net earnings applicable to common
and common equivalent shares were declared payable in cash dividends
during 1994, 1993, and 1992, respectively. Long-term debt, as a
percentage of total capital and long-term debt, increased to 55.4% at
December 31, 1994, compared to 52.6% at December 31, 1993, and 56.2%
at December 31, 1992. The increase in 1994 in the "debt ratio" was
primarily due to the net effects of the issuance of new long-term
debt of $14,000,000, issuance of common stock through the Company's
dividend reinvestment and restricted stock plans of $1,239,000 and an
increase in retained earnings of $486,000.
At September 30, 1995, the Company had lines of credit for working
capital purposes of $54,200,000; borrowings under the lines at this
date were $34,759,000.
-9-
Capital Expenditures
Excluding capital expenditures associated with the acquisition of
MPC, capital expenditures for 1995 are budgeted at approximately
$33,000,000 and will be financed primarily from internally generated
cash, customer advances for construction, short-term bank borrowings,
and long-term financings. Capital expenditures for the five-year
period 1995 through 1999 are budgeted at approximately $111,000,000
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 1995 through 1999 to secure additional outside
financing from both short- and long-term debt and equity capital in
order to finance planned capital expenditures and long-term debt
maturities. At September 30, 1995, the Company had not attempted to
secure additional outside financing other than for normal seasonal
operating needs.
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 may be substantial.
Additionally, IWC is subject to regulatory requirements regarding
discharges from its treatment plants. Such costs 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 and/or
administered 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, Thomas W. Moses, White River North and Geist
treatment stations. The Company's current NPDES permits were to
expire June 30, 1989, for White River and Fall Creek treatment
stations, and December 31, 1990, for Thomas W. Moses treatment
station and April 30, 1994 for Geist treatment station. Applications
for renewal of the permits have been filed with, but not finalized
by, IDEM (these permits continue in effect pending final action on
the applications). The NPDES permit for the White River North
treatment plant will expire on January 31, 1996, and the Company has
filed an application with IDEM for renewal of that permit, which will
remain in effect pending final action on renewal application. IDEM
has authority to propose new requirements and restrictions with
respect to these permits and such limitations could be difficult and
expensive. The full impact of any such restrictions cannot be
assessed with certainty at this time. The Company anticipates,
however, that the capital costs and expense of compliance with such
restrictions could be significant.
-10-
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
$27,000,000 for ozonation and $105,000,000 for GAC), as would be the
Company's increase in annual operating costs (currently estimated at
$1,400,000 for ozonation and $5,600,000 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 environmentally related laws on a timely basis.
-11-
Inflation, Rate Changes and Seasonality
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. Subject to certain exceptions, IWC has agreed to not seek
an adjustment in its basic rates and charges prior to April 1, 1997.
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.
-12-
Part II. OTHER INFORMATION
IWC RESOURCES CORPORATION AND SUBSIDIARIES
September 30, 1995
Item 6. Exhibits and Reports on Form 8-K
(a) exhibits 27 - Financial Data Schedule
(b) reports on Form 8-K Form 8-K, pertaining to the
acquisition of Miller Pipeline
Corporation, was filed on
September 5, 1995. Form 8-K/A,
applicable to pro forma
financial information
pertaining to the acquisition
of Miller Pipeline Corporation,
was filed on November 6, 1995.
-13-
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 (Principal
Financial Officer)
Date
James P. Lathrop, Controller
(Principal Accounting
Officer)
Date
-14-
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet as of September 30, 1995, and from the consolidated
statements of earnings and cash flows for the nine months then ended, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 285,278
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<TOTAL-CURRENT-ASSETS> 34,348
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<TOTAL-ASSETS> 411,984
<COMMON> 81,871
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1,200
4,505
<LONG-TERM-DEBT-NET> 116,225
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<INCOME-TAX-EXPENSE> 10,849
<OTHER-OPERATING-EXPENSES> 0
<TOTAL-OPERATING-EXPENSES> 73,509
<OPERATING-INCOME-LOSS> 25,746
<OTHER-INCOME-NET> (5,843)
<INCOME-BEFORE-INTEREST-EXPEN> 26,781
<TOTAL-INTEREST-EXPENSE> 6,878
<NET-INCOME> 9,054
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<EARNINGS-AVAILABLE-FOR-COMM> 9,054
<COMMON-STOCK-DIVIDENDS> 7,423
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