Document Summary:
Document: EDGARJUN
Author:
Addressee:
Operator:
Creation Date: 08/15/1994
Modification Date: 08/14/1995
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 June 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 7,138,361
Class Outstanding at 7-17-95
IWC RESOURCES CORPORATION AND SUBSIDIARIES
Index
Part I. Financial Information:
Consolidated Balance Sheets as of June 30, 1995 and
1994, and December 31, 1994 (Unaudited)
Consolidated Statement of Shareholders' Equity - Six Months
ended June 30, 1995 (Unaudited)
Consolidated Statements of Earnings - Three Months and Six
Months ended June 30, 1995 and 1994 (Unaudited)
Consolidated Statements of Cash Flows -
Three Months and Six Months ended June 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
June 30, 1995 and 1994 and December 31, 1994
(Unaudited)
<CAPTION>
June 30, December 31,
1995 1994 1994
(in thousands)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 2,744 3,364 2,889
Accounts receivable, less allowance for
doubtful accounts of $190 15,335 13,939 10,124
Materials and supplies, at average cost 2,045 2,140 2,257
Other current assets 1,449 1,589 1,099
Total current assets 21,573 21,032 16,369
Utility plant:
Utility plant in service 349,799 329,741 343,488
Less accumulated depreciation 79,039 73,362 75,801
Net plant in service 270,760 256,379 267,687
Construction work in progress 12,093 10,652 7,407
Utility plant, net 282,853 267,031 275,094
Construction funds held by Trustee - 2,032 -
Other property, net of accumulated depreciation 19,256 9,540 13,053
Goodwill, net of accumulated amortization 16,708 17,219 16,964
Deferred charges and other assets 15,230 14,077 13,902
$355,620 330,931 335,382
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 28,458 18,514 17,674
Current portion of long-term debt - - 1,150
Accounts payable and accrued expenses 15,872 17,434 16,295
Dividends payable 51 51 -
Federal income taxes 4,234 1,872 256
Customer deposits 1,200 1,089 1,126
Total current liabilities 49,815 38,960 36,501
Long-term obligations:
Long-term debt, less current portion 98,225 99,375 98,225
Customer advances for construction 50,215 45,841 48,750
Other liabilities 7,902 6,026 6,079
Total long-term obligations 156,342 151,242 153,054
Deferred income taxes 31,671 29,177 31,003
Contributions in aid of construction 31,401 29,309 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; 7,074, 6,850, and 6,886 issued
and outstanding 64,377 59,893 60,540
Retained earnings 17,032 16,745 18,398
81,409 76,638 78,938
Less unearned compensation 723 100 -
Total shareholders' equity 80,686 76,538 78,938
Contingencies
$355,620 330,931 335,382
======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
IWC RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Six months ended June 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 - - 3,537 - 3,537
Dividends - $.70 per share:
Common Stock - - (4,867) - (4,867)
Redeemable preferred stock - - (36) - (36)
Common stock issued -
Dividend Reinvestment Plan 158,222 2,959 - - 2,959
Restricted stock plan 29,461 878 - (878) -
Compensation expense - - - 155 155
Balance at June 30, 1995 7,073,954 $ 64,377 $ 17,032 $ (723) $ 80,686
========= ======= ======= === =======
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, 1995 and 1994
(Unaudited)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenues:
Water utilities $20,076 17,968 37,142 34,053
Utility-related services 12,502 10,732 18,950 16,006
32,578 28,700 56,092 50,059
Operating expenses:
Operation and administration
Water utilities 8,652 8,692 17,253 17,333
Utility-related services 10,039 7,431 17,344 12,890
Depreciation 2,281 1,922 4,407 3,761
Taxes other than income taxes 2,213 2,059 4,485 3,966
Total operating expenses 23,185 20,104 43,489 37,950
Operating earnings 9,393 8,596 12,603 12,109
Other income (expense):
Interest expense, net (2,011) (2,022) (4,184) (3,838)
Interest income 24 38 26 82
Dividends on preferred
stock of subsidiary (51) (51) (102) (102)
Other, net 80 3 668 (392)
(1,958) (2,032) (3,592) (4,250)
Earnings before income taxes 7,435 6,564 9,011 7,859
Income taxes 4,180 3,337 5,474 4,209
Net earnings $ 3,255 3,227 3,537 3,650
====== ====== ====== ======
Net earnings per common and common
equivalent share $ .46 .47 .50 .53
====== ====== ====== ======
Average number of common
and common equivalent shares outstanding 7,054 6,893 7,014 6,886
====== ====== ====== ======
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, 1995 and 1994
(Unaudited)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
(in thousands)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,255 3,227 3,537 3,650
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 2,657 2,407 5,196 4,613
Deferred income taxes 324 290 668 353
Gain on sales of other property (111) (87) (743) (87)
Provision for bad debts 85 85 180 190
Dividends on preferred stock of subsidiary 51 51 102 102
Other, net 295 50 583 (194)
Changes in operating assets and liabilities:
Accounts receivable (4,841) (4,312) (5,391) (4,614)
Materials and supplies 54 (328) 212 (418)
Other current assets (2) (708) 210 (718)
Accounts payable and accrued expenses (1,207) 1,893 (358) 3,054
Federal income taxes 2,696 1,130 3,978 1,429
Customer deposits 60 31 74 62
Net cash provided by operating activities 3,316 3,729 8,248 7,422
Cash flows from investing activities:
Additions to utility plant and other property (9,904) (8,284) (17,511) (12,852)
Proceeds from sales of other property 133 100 289 100
Customer advances for construction 2,869 1,446 4,354 4,680
Refunds of customer advances for construction (267) (451) (1,669) (1,442)
Other investing activities, net (1,051) (1,500) (1,430) (1,517)
Net cash used by investing activities (8,220) (8,689) (15,967) (11,031)
Cash flows from financing activities:
Increase (decrease) in notes payable to banks 6,004 8,577 10,784 (3,265)
Proceeds from long-term debt - - - 14,000
Payments of long-term debt - - (1,215) (1,277)
Increase in construction funds
held by Trustee - (9) - (22)
Cash dividends (2,515) (2,462) (4,954) (4,868)
Proceeds from issuance of common stock 2,641 293 2,959 592
Net cash provided by
financing activities 6,130 6,399 7,574 5,160
Increase (decrease) in cash and cash equivalents 1,226 1,439 (145) 1,551
Cash and cash equivalents at beginning of period 1,518 1,925 2,889 1,813
Cash and cash equivalents at end of period $ 2,744 3,364 2,744 3,364
====== ====== ====== ======
Supplemental disclosures of cash flow information-
Cash paid for:
Interest on long-term debt and notes payable
to banks, net of capitalized interest $ 1,487 1,277 4,191 3,455
Income taxes $ 1,363 2,732 1,419 3,146
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, 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. IWC currently anticipates issuing $18 million of
long-term debt in September 1995. Proceeds from the issuance of
these securities will be used for the construction, extension and
improvement of its facilities, plant and distribution system,
reimbursement of IWC's treasury for plant capital expenditures
previously made, and the discharge or refunding of short-term debt
and higher cost long-term debt.
Merger with Miller Pipeline Corporation
On July 25, 1995, the Company entered into an agreement to acquire
Miller Pipeline Corporation (Miller), an Ohio corporation, by means
of a merger into a wholly owned subsidiary of Resources.
Miller has two divisions: (1) the Construction division, which
maintains, repairs, and installs pipelines for natural gas
utilities, and (2) the Products and Services division, which
performs technical repair and installation services and also sells
sealing materials for natural gas, water, and sewer industries
throughout the country. Miller has offices in New Jersey, Kansas,
Massachusetts, Illinois, California, as well as Ohio and Indiana,
and reported revenues for its latest fiscal year ended March 31,
1995, in excess of $50 million.
The merger is anticipated to be concluded sometime during August
1995, with 60% of the purchase price paid for in the Company's
common stock and the balance in cash. Resources expects to borrow
from a bank $5.5 million in cash to pay the cash portion of the
consideration.
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 June 30, 1994 have been reclassified to
conform with the 1995 presentation.
-2-
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'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 June 30, 1995, Compared with
Three Months Ended June 30, 1994
During the three months ended June 30, 1995, operating revenues
and operation and administration expenses were $20,076,000 and
$8,652,000, respectively, for the water utilities segment and
$12,502,000 and $10,039,000, respectively, for the
utility-related services segment. This compares to 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 services segment during the three months
ended June 30, 1994.
The improvement in operating results in the water utilities
segment is due primarily to the combined 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 decrease in operating expenses
resulting primarily from a milder winter in 1995 as compared to
the same period in 1994. Operating results in the utility-
related services segment declined primarily due to expenses
incurred associated with the expansion of business in this
segment.
-3-
Total operating revenues increased $3,878,000 (13.5%). Operating
revenues applicable to the water utilities segment increased
$1,068,000, excluding an increase of $1,040,000 in income taxes
collected from developers, representing a 6.2% increase over 1994,
and is primarily due to the three rate increases. The increase in
utility-related services segment operating revenues of $1,770,000 is
due primarily to continued expansion of business contracts at several
operating locations.
Total operation and administration expenses increased $2,568,000
(15.9%). Operation and administration expenses applicable to the
water utilities segment decreased $40,000 (.5%). Labor expense
decreased $100,000 (2.9%) mainly due to the net effects of a
reduction in maintenance repairs experienced as a result of 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. Chemical costs increased $212,000 (62.5%) primarily
due to increased chemical usage. Materials and transportation costs
decreased $110,000 (16.1%) largely due to the reduction in
maintenance activities. The cost of outside services decreased
$91,000 (5.6%) chiefly due to a decrease in consulting and other
services. Insurance expense decreased $197,000 (19.2%) primarily due
to an insurance rebate received in June 1995. Regulatory expenses
increased $83,000 primarily due to increased rate case expenses.
Costs of the Company's pension and other benefit plans increased
$377,000 (94.3%) primarily due to the higher costs of benefits
provided including $261,000 applicable to postretirement, healthcare
and life insurance benefits.
Operation and administration expenses applicable to the
utility-related services segment increased $2,608,000 (35.1%). Labor
expense increased $1,117,000 (23.0%) primarily due to the addition of
employees resulting from the expansion of business in this segment.
Materials expense increased $412,000 (112.3%) primarily due to
increased start-up costs incurred in 1995. Transportation costs
increased $378,000 (77.6%) primarily due to the increase in the
number of vehicles, leasing costs and associated maintenance costs.
Insurance expense increased $182,000 (25.4%) primarily due to higher
healthcare premiums resulting from increased numbers of employees and
increases in general liability and worker's compensation insurance
premiums. The cost of cable cuts increased $105,000 (35.6%)
primarily due to the expansion of business and the increased costs
associated with such cuts.
Depreciation increased $359,000 (18.7%) of which $242,000 is
applicable to the utility-related services segment. The increase in
depreciation is primarily due to additional utility plant and other
property placed in service.
-4-
Taxes, other than income taxes, increased $154,000 (7.5%) of which
$127,000 is applicable to the utility-related services segment. The
increase in such taxes in the utility-related services segment is due
primarily to additional payroll taxes resulting from an increased
employee base.
Other, net, increased $77,000 primarily due to gain on sales of other
property and pretax earnings of an unconsolidated partnership
interest.
Income taxes increased $843,000 (25.3%) primarily due to the net
effects of an increase of $1,040,000 in income taxes collected from
developers and lower pretax earnings.
Six Months Ended June 30, 1995, Compared with
Six Months Ended June 30, 1994
During the six months ended June 30, 1995, operating revenues and
operation and administration expenses were $37,142,000 and
$17,253,000, respectively, for the water utilities segment and
$18,950,000 and $17,344,000, respectively, for the utility-related
services segment. This compares to 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 services segment
during the six months ended June 30, 1994.
The improvement in operating results in the water utilities segment
is due primarily to the combined 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
decrease in operating expenses resulting primarily from a milder
winter in 1995 as compared to the same period in 1994. Operating
results in the utility-related services segment declined primarily
due to expenses incurred associated with the expansion of business in
this segment.
-5-
Total operating revenues increased $6,033,000 (12.1%). Operating
revenues applicable to the water utilities segment increased
$1,439,000, excluding an increase of $1,650,000 in income taxes
collected from developers, representing a 5.0% increase over 1994,
and is primarily due to the three rate increases. The increase in
utility-related services segment operating revenues of $2,944,000 is
due primarily to continued expansion of business contracts at several
operating locations.
Total operation and administration expenses increased $4,374,000
(14.5%). Operation and administration expenses applicable to the
water utilities segment decreased $80,000 (.5%). Labor expense
decreased $279,000 (4.0%) mainly due to the net effects of a
reduction in maintenance repairs experienced as a result of 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. Chemical costs increased $247,000 (46.9%) primarily
due to increased chemical usage. Materials and transportation costs
decreased $237,000 (17.3%) largely due to the reduction in
maintenance activities. Insurance expense decreased $100,000 (5.0%)
primarily due to an insurance rebate received in June 1995.
Regulatory expenses increased $156,000 primarily due to increased
rate case expenses. Costs of the Company's pension and other benefit
plans increased $411,000 (48.2%) primarily due to the higher costs of
benefits provided including $261,000 applicable to postretirement,
healthcare and life insurance benefits.
Operation and administration expenses applicable to the
utility-related services segment increased $4,454,000 (34.6%). Labor
expense increased $2,240,000 (26.8%) primarily due to the addition of
employees resulting from the expansion of business in this segment.
Materials expense increased $336,000 (37.4%) primarily due to
increased start-up costs incurred in 1995. Transportation costs
increased $584,000 (70.6%) primarily due to the increase in the
number of vehicles, leasing costs and associated maintenance costs.
Insurance expense increased $324,000 (38.0%) primarily due to higher
healthcare premiums resulting from increased numbers of employees and
increases in general liability and worker's compensation insurance
premiums. The cost of cable cuts increased $200,000 (43.6%)
primarily due to the expansion of business and the increased costs
associated with such cuts.
Depreciation increased $646,000 (17.2%) of which $416,000 is
applicable to the utility-related services segment. The increase in
depreciation represents a 7.8% and 51.6% increase, respectively, over
1994 and is primarily due to additional utility plant and other
property placed in service.
-6-
Taxes, other than income taxes, increased $519,000 (13.1%) of which
$297,000 is applicable to the utility-related services segment. The
increase in taxes, other than income taxes in the water utilities
segment, represents a 7.4% 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 30.6% and is due primarily to additional payroll
taxes resulting from the increased employee base.
The increase in interest expense, net, of $346,000 (9.0%) is largely
due to the combined effects of higher total debt outstanding and
higher interest rates. Other, net, increased $1,060,000 primarily
due to gain on sales of other property and pretax earnings of an
unconsolidated partnership interest.
Income taxes increased $1,265,000 (30.1%) primarily due to the net
effects of an increase of $1,650,000 in income taxes collected from
developers and lower pretax earnings.
-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. As
described under Current Events, the Company has also agreed to
acquire MPC, which will further diversify 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. As described under Current Events, the
Company intends to borrow approximately $5.5 million to pay the cash
portion of the purchase price of MPC. 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 $4,354,000 in new customer
advances and refunded $1,669,000 in customer advances during the six
months ended June 30, 1995, compared to $4,680,000 and $1,442,000,
respectively, during the six months ended June 30, 1994. The Company
also added $17,511,000 to utility plant and other property during the
six months ended June 30, 1995, compared to $12,852,000 during
the six months ended June 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. Subject to market
conditions, IWC currently anticipates issuing $18,000,000 in
long-term debt (the maximum amount of long-term debt authorized)
during the third quarter of 1995.
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 June 30, 1995, the Company had lines of credit for working capital
purposes of $32,200,000; borrowings under the lines at this date were
$27,621,000.
-9-
Capital Expenditures
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.
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.
Capital costs are presently estimated at $27,000,000 for ozonation
and $105,000,000 for granular activated carbon (GAC). 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
June 30, 1995
Item 6. Exhibits and Reports on Form 8-K
(a) exhibits 27 - Financial Data Schedule
(b) reports on Form 8-K No reports on Form 8-K were
filed during the quarter
ended June 30, 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 June 30, 1995, and from the consolidated
statements of earnings and cash flows for the six months then ended, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 282,853
<OTHER-PROPERTY-AND-INVEST> 19,256
<TOTAL-CURRENT-ASSETS> 21,573
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<OTHER-ASSETS> 0
<TOTAL-ASSETS> 355,620
<COMMON> 64,377
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 17,032
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1,200
4,505
<LONG-TERM-DEBT-NET> 98,225
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<GROSS-OPERATING-REVENUE> 56,092
<INCOME-TAX-EXPENSE> 5,474
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<TOTAL-OPERATING-EXPENSES> 43,489
<OPERATING-INCOME-LOSS> 12,603
<OTHER-INCOME-NET> (3,592)
<INCOME-BEFORE-INTEREST-EXPEN> 7,721
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<EARNINGS-AVAILABLE-FOR-COMM> 3,537
<COMMON-STOCK-DIVIDENDS> 4,903
<TOTAL-INTEREST-ON-BONDS> 7,257
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