NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
TO BE HELD ON APRIL 18, 1996
March 8, 1996
SHAREHOLDERS OF IWC RESOURCES CORPORATION:
The annual meeting of shareholders of IWC Resources Corporation
("Resources") will be held at the University Place Conference Center and Hotel,
850 West Michigan Street, Room 132, Indianapolis, Indiana 46202, on Thursday,
April 18, 1996, at 11:00 a.m., EST, for the following purposes:
(1)To elect five directors to serve three-year terms until the annual meeting
of shareholders in 1999 and until their successors are elected and have
qualified, as set forth in the accompanying Proxy Statement;
(2)To approve or disapprove a proposed amendment to Article V of Resources'
Articles of Incorporation increasing the number of authorized shares of
common stock from 10,000,000 to 20,000,000 shares;
(3)To approve or disapprove the proposed appointment of KPMG Peat Marwick LLP
as auditors for Resources for 1996; and
(4)To transact such other business as may properly come before the meeting.
All shareholders of record at the close of business on February 29, 1996,
will be eligible to vote.
It is important that your shares be represented at this meeting so that a
quorum will be assured. Whether or not you expect to be present, please
complete, date, sign and return the enclosed proxy form in the accompanying
addressed, postage-paid envelope. If you attend the meeting, your proxy will
be canceled at your request.
By Order of the Board of Directors,
JOHN M. DAVIS, Secretary
IWC RESOURCES CORPORATION
<PAGE>
(ANNUAL REPORT MAILED CONCURRENTLY)
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS OF
IWC RESOURCES CORPORATION
TO BE HELD ON APRIL 18, 1996
This statement is being furnished on or about March 8, 1996, to
shareholders of record on February 29, 1996, in connection with a solicitation
by the Board of Directors of IWC Resources Corporation ("Resources") of proxies
to be voted at the annual meeting of shareholders of Resources to be held at
11:00 a.m., EST, Thursday, April 18, 1996, at the University Place Conference
Center and Hotel, 850 West Michigan Street, Room 132, Indianapolis, Indiana
46202, for the purposes set forth in the accompanying Notice. Resources is the
parent corporation of Indianapolis Water Company ("IWC").
On February 29, 1996, there were outstanding and entitled to vote 8,293,765
common shares of Resources. The shareholders entitled to vote at the meeting
will be determined from the record at the close of business on that date and
will have one vote for each share held. In addition, on such date there were
outstanding and entitled to vote 51,612 shares of Resources Series B
Convertible Redeemable Preferred Stock ("Preferred Stock"). The holders of the
Preferred Stock are entitled to one vote for each share held and vote together
with the holders of the common shares.
If the enclosed form of proxy is executed and returned, it may nevertheless
be revoked at any time insofar as it has not been exercised. Unless revoked, a
properly executed proxy will be voted at the meeting in accordance with the
instructions of the shareholder in the proxy as to Proposals 1, 2 and 3 or, if
no instructions are given, for the election as directors of all nominees listed
under Proposal 1 and for approval of Proposals 2 and 3. Assuming a quorum is
present at the meeting, directors will be elected by a plurality of the votes
cast by the shares entitled to vote in the election at the meeting. The
approval of the proposal to increase the number of authorized shares of
Resources will require an affirmative vote of a majority of the total
outstanding shares. The appointment of auditors will require that the votes
cast in favor of such proposal exceed the votes cast against. Pursuant to the
Indiana Business Corporation Law and the Bylaws of Resources, shares held by
persons who abstain from voting on a proposal will be counted in determining
whether a quorum is present but will not be counted as voting either for or
against such proposal. If a broker indicates on a proxy that it does not have
discretionary authority as to certain shares on a particular proposal, those
shares will not be counted in determining whether a quorum is present or as
voting with respect to that proposal.
The Board of Directors knows of no matters, other than those reported
herein, which are to be brought before the meeting. However, if other matters
properly come before the meeting, it is the intention of the persons named in
the enclosed form of proxy to vote such proxy in accordance with their judgment
on such matters.
The cost of this solicitation of proxies will be borne by Resources.
<PAGE>
PROPOSAL 1. ELECTION OF DIRECTORS
Directors are elected for staggered terms of three years with approximately
one-third of the Board of Directors standing for election each year. At the
meeting, five directors are to be elected, each to hold office for a three-year
term and until his successor is elected and has qualified. It is the intention
of the persons named in the accompanying form of proxy to vote such proxy for
the election to the Board of Directors of the persons identified on the
following page. Each such person has indicated that he will accept nomination
and election as a director. However, if any such person is unable or unwilling
to accept nomination or election, it is the intention of management to nominate
such other person as director as it may in its discretion determine, in which
event proxies will be voted for such other person.
The following tables set forth information regarding the nominees for
director and those directors of Resources whose terms of office continue past
the meeting. Unless otherwise indicated in a footnote to the following table,
the principal occupation of each person has been the same for the last five
years.
<TABLE>
<CAPTION>
Nominees for Directors
<S> <C> <C> <C>
NAME AND AGE Present Principal Director Term to EXPIRE
OCCUPATION SINCE
Joseph R. Broyles,* 53 President of the Industries 1992 1999
Division of Resources (1)
Robert B. McConnell,* 74 Chairman of the Executive 1971 1999
Committee of Resources and IWC (2)
J. George Mikelsons, 58 Chairman of the Board and 1989 1999
Chief Executive Officer,
Amtran, Inc. (airlines)
Thomas M. Miller,* 66 Associate, Schenkel, McVey 1985 1999
and Associates
(public relations)(3)
Jerry D. Semler, 59 Chairman of the Board, President -- 1999
and Chief Executive Officer,
American United Life
Insurance Company
(mutual life insurance company)(4)
</TABLE>
<TABLE>
<CAPTION>
Directors Continuing in Office
<S> <C> <C> <C>
NAME AND AGE Present Principal Director Term to EXPIRE
OCCUPATION SINCE
Joseph D. Barnette, Jr., 56 Chairman and Chief Executive Officer, Bank 1983 1998
One, Indianapolis, NA (commercial bank)
Robert A. Borns, 60 Chairman of the Board, 1994 1997
Borns Management Corporation
(real estate management)
Milton O. Thompson,** 41 Partner, Baker, Siegel & Page, 1996 1997
(attorneys)(5)
Otto N. Frenzel, III,* 65 Chairman of the Executive Committee, 1963 1998
National City Bank, Indiana
(commercial bank)(6)
J. B. King, 66 Vice President and General Counsel, 1981 1997
Guidant Corporation
(medical devices)(7)
James T. Morris,* 52 Chairman of the Board and Chief 1989 1997
Executive Officer of Resources
and IWC (8)
Susan O. Conner, 43 Senior Vice President of Public Affairs, 1995 1998
USA Group, Inc. (student loans)(9)
J. A. Rosenfeld, 64 President of the Utilities 1995 1998
Division of Resources and IWC (10)
Fred E. Schlegel, 54 Partner, Baker & Daniels 1988 1998
(attorneys for Resources and IWC)
</TABLE>
* Member of Executive Committee
** Appointed to fill the vacancy created by the resignation of Murvin Enders
incident to Mr. Enders joining Resources as vice president of
administrative affairs in 1995.
( 1)Mr. Broyles joined IWC in 1965 as plant engineer and has served as an
executive officer of IWC in several capacities since 1983, most recently as
president from January 1992 until August 1995 when he was appointed
president of the Industries Division of Resources, incident to formation of
the two divisions (Utilities and Industries).
( 2)Mr. McConnell was chairman of the Board and chief executive officer of
Resources and IWC from October 1986 to April 1991. He also served as
president of Resources and IWC from October 1988 to January 1989.
( 3)Mr. Miller was formerly chairman of the Board and chief executive officer,
NBD Indiana, Inc. and NBD Bank, N.A. Mr. Miller is also a director of NBD
Indiana, Inc., NBD Bank, N.A. and IPALCO Enterprises, Inc.
( 4)Mr. Semler has been employed by American United Life Insurance Company
since 1959, and was elected president in 1980, chief executive officer in
1989, and chairman in 1991, respectively.
( 5)Mr. Thompson also serves on the Board of Directors of American States
Insurance.
( 6)Before retiring December 1995, Mr. Frenzel served as chairman of the Board
of National City Bank, Indiana. Mr. Frenzel is a director of American
United Life Insurance Company, Baldwin & Lyons, Inc., Indiana Energy, Inc.,
IPALCO Enterprises, Inc. and National City Corporation.
( 7)From October 1, 1987 to February 28, 1995, Mr. King served as vice
president and general counsel of Eli Lilly and Company, a pharmaceutical
manufacturer. Mr. King assumed his current position on September 13, 1994.
Concurrent with his duties at Guidant Corporation, Mr. King joined the
legal staff of Baker & Daniels in 1995.
( 8)Mr. Morris became chairman of the Board and chief executive officer of
Resources and IWC in April 1991. He was president and chief operating
officer of Resources and IWC from January 1989 until April 1991. Prior to
that time, Mr. Morris was president of Lilly Endowment, Inc. Mr. Morris is
also a director of American United Life Insurance Company and National City
Bank, Indiana.
( 9)Ms. Conner joined USA Group, Inc. in 1992 as vice president of public
affairs. Prior to that time, she was communications director at Lilly
Endowment, Inc., a philanthropic foundation.
(10)Mr. Rosenfeld joined Resources in October 1991 and has served as its chief
financial officer since 1992. Prior to joining Resources, he was president
and a member of the Board of Directors of MSA Realty Corporation, a
publicly traded real estate investment trust. He was appointed president
of the Utilities Division of Resources in August 1995, incident to the
formation of the two divisions (Utilities and Industries).
During 1995, the Board of Directors of Resources held five meetings. All
directors, except Messrs. Barnette, Borns and Reich, attended at least 75% of
the total number of meetings of the Board of Directors and of the committees on
which he or she served. The Board of Directors has created various committees,
including Audit and Compensation committees. The Audit Committee consists of
Messrs. Barnette, McConnell and King. That committee reviews Resources'
internal auditing and reporting procedures and recommends appointment of
Resources' auditors. During 1995, the Audit Committee held four meetings. The
Compensation Committee consists of Messrs. Frenzel, Mikelsons and Miller. The
Compensation Committee determines executive compensation and administers
certain of Resources' employee benefit plans. During 1995, the Compensation
Committee held two meetings. The Board of Directors of Resources does not have
a nominating committee.
<PAGE>
SECTION 16(A) REPORTING
Section 16(a) of the Securities Exchange Act of 1934 requires Resources'
officers and directors, and persons who own more than 10 percent of the
outstanding common shares, to file reports of ownership with the Securities and
Exchange Commission. Officers, directors and greater than 10 percent
shareholders are required to furnish Resources with copies of all Section 16(a)
forms they file. Based solely on its review of copies of such forms received
by it, or written representations from certain reporting persons that no
reports were required for those persons, Resources believes that during 1995,
all filing requirements applicable to its officers, directors and greater than
10 percent shareholders were met.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT OWNERSHIP
The following table sets forth information as of January 9, 1996, regarding
the beneficial ownership of common shares of Resources by each 5% beneficial
owner and by each director of Resources, the chief executive officer and the
four other most highly compensated executive officers of Resources whose salary
and bonus exceeded $100,000 for fiscal 1995, and the directors and executive
officers of Resources as a group. The persons named in the table have sole
voting and investment power with respect to all common shares owned by them
unless otherwise noted.
AMOUNT AND NATURE
NAME OF BENEFICIAL OF BENEFICIAL PERCENT OF
OWNER OWNERSHIP (1) CLASS
Don W. Miller 625,494 7.9
Joseph R. Broyles 54,552 (2) *
Robert B. McConnell 14,167 *
J. George Mikelsons 250 *
Thomas M. Miller 423 *
Jerry D. Semler 10,000 *
Joseph D. Barnette, Jr. 200 *
Milton O. Thompson 0 *
Robert A. Borns 8,274 *
Susan O. Conner 178 *
Murvin S. Enders 105 *
Otto N. Frenzel, III 20,927 (3) *
J. B. King 2,057 *
James T. Morris 22,327 (4) *
Jack E. Reich 45,204
Fred E. Schlegel 1,106 *
John M. Davis 6,425 (5) *
Kenneth N. Giffin 17,626 (6) *
J. A. Rosenfeld 10,044 (7) *
Directors and Executive Officers
as a group (27 persons) 874,506 (8) 11%
* Less than 1%
(1) None of the above named persons beneficially owned any shares of IWC
preferred stock except Mr. Broyles, who may have been deemed to own
beneficially 500 shares of preferred stock for which he is custodian for
his minor children.
(2) Shares shown include 7,229 shares owned by Mr. Broyles as custodian for his
minor daughters and 1,329 shares owned by Mr. Broyles' wife, as to which
Mr. Broyles disclaims beneficial ownership. Shares shown include 8,483
shares credited to Mr. Broyles' account under Resources' Employee Stock
Ownership Plan, 4,663 restricted shares granted pursuant to Resources'
Restricted Stock Plan and 7,162 shares allocated within Resources' Thrift
Plan.
(3) Shares shown include 100 shares held in a family partnership, as to which
Mr. Frenzel has voting and investment power, and 18,000 shares of stock
held in charitable remainder trusts in which Mr. Frenzel is co-trustee.
(4) Shares shown include 723 shares credited to Mr. Morris' account under
Resources' Employee Stock Ownership Plan, 7,203 restricted shares granted
pursuant to Resources' Restricted Stock Plan and 4,711 shares allocated
within Resources' Thrift Plan.
(5) Shares shown include 125 shares credited to Mr. Davis' account under
Resources' Employee Stock Ownership Plan and 3,346 restricted shares
granted pursuant to Resources' Restricted Stock Plan.
(6) Shares shown include 4,037 shares credited to Mr. Giffin's account under
Resources' Employee Stock Ownership Plan, 2,766 restricted shares granted
pursuant to Resources' Restricted Stock Plan and 7,412 shares allocated
within Resources' Thrift Plan.
(7) Shares shown include 280 shares credited to Mr. Rosenfeld's account under
Resources' Employee Stock Ownership Plan and 4,147 restricted shares
granted to Mr. Rosenfeld pursuant to Resources' Restricted Stock Plan.
(8) Includes 20,137 shares credited to officers under Resources' Employee Stock
Ownership Plan (with respect to which the officers have voting but not
investment power), 12,959 shares with respect to which voting and
investment power is shared with spouses or relatives of the directors and
officers, 1,329 shares as to which beneficial ownership is disclaimed,
27,309 restricted shares granted pursuant to Resources' Restricted Stock
Plan and 31,046 shares allocated within Resources' Thrift Plan with respect
to officers. As to beneficial ownership of shares of IWC Preferred Stock,
see footnote 1.
<PAGE>
COMPENSATION COMMITTEE REPORT TO SHAREHOLDERS
During 1995, the Compensation Committee consisted of Messrs. Frenzel,
Mikelsons, Miller and Reich. The Compensation Committee determines executive
compensation and administers certain of Resources' employee benefit plans.
GENERAL
Resources' executive compensation policy seeks to serve three goals: (1) to
encourage the creation of value for shareholders by linking compensation to
shareholder value performance; (2) to encourage superior individual
performance; and (3) to provide a total compensation package that is
competitive within the industry, in order to attract and retain qualified
executives.
COMPENSATION STRATEGY
An executive's compensation consists of three principal components: base
salary, annual cash bonus and grants of restricted shares under Resources'
Restricted Stock Plan. Base salary levels are set in part with reference to
compensation paid by other companies in the water utility industry. For
purposes of this comparison, Resources utilizes a comparison group of investor-
owned water utilities. Resources generally seeks to be within the 50-75
percentile of comparison group compensation. In determining base salary,
Resources also takes into account individual experience and performance,
specific issues particular to Resources, including its past compensation
practices, and general salary levels in the Indianapolis area.
The amount of cash bonuses is determined annually by the Compensation
Committee. The Compensation Committee considers a number of factors in
determining the level of bonuses, including the extent to which Resources has
met its financial and operating goals for the year, the performance of
Resources stock in terms of share price and dividends and the individual
performance of the executive during the year. Annual bonuses generally range
from 0% to 40% of base salary.
Effective January 1, 1992, Resources instituted a Restricted Stock Plan
pursuant to which Resources may make grants of common shares to officers of
Resources and its affiliates. The purpose of the Restricted Stock Plan is to
enable Resources to attract, retain and motivate its officers by providing them
with a means of acquiring or increasing a proprietary interest in the Company,
so that they will have an increased incentive to work toward the attainment of
the long-term growth and profit objectives of Resources. Common shares granted
pursuant to the Restricted Stock Plan are subject to restrictions upon transfer
and risk of forfeiture for a three-year period.
The Restricted Stock Plan is administered by the Compensation Committee.
Awards are made to officers of Resources and its affiliates selected by the
Compensation Committee. Grants under the Restricted Stock Plan are made by the
Compensation Committee at the beginning of each measuring period consisting of
three consecutive years ("Measurement Period"). All grants of restricted
shares are subject to adjustments ("Shareholder Value Performance Adjustments")
pursuant to which at the end of the Measurement Period grantees may be entitled
to grants of additional shares or required to forfeit restricted shares
previously granted. The Shareholder Value Performance Adjustments provide for
an increase or decrease in the number of shares granted to a grantee based upon
various levels of performance ("Shareholder Value Performance") of Resources
compared to the Shareholder Value Performance of a group of companies
designated by the Compensation Committee as a comparison group (the "Comparison
Group"). Holders of restricted shares will receive immediate vesting of
restricted shares, as adjusted assuming the maximum Shareholder Value
Performance Adjustment, in the event of a change in control of Resources.
After giving effect to the supplemental awards earned for the Initial
Measurement Period, Resources granted 8,604, 5,200, 4,039, 3,166 and 1,954
restricted shares to Messrs. Morris, Broyles, Rosenfeld, Giffin and Davis,
respectively, in connection with the Initial Measurement Period, after
reduction for mandatory in-kind tax withholding. For the three-year
measurement period beginning January 1, 1995, Resources granted 7,203, 4,663,
4,147, 2,766 and 3,346 shares to the aforementioned individuals, respectively.
Resources also provides medical and pension benefits to its executive
officers. With the exception of the Executive Supplemental Benefits Plan, the
benefits paid to executive officers are similar to those available to other
employees of Resources.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
For 1995, Mr. Morris received a salary of $316,592, the annual base salary
rate established in December, 1994, plus a cash bonus of $120,814. The bonus
for 1995 represented an increase over the bonus paid in 1994. The Compensation
Committee believes the higher bonus paid for 1995 was appropriate because of
Resources' excellent performance in 1995 in achieving record earnings, and
because of Mr. Morris' central role in Resources' strategic planning, its
progress in the area of growth in both regulated and non-regulated markets.
Otto N. Frenzel, III
J. George Mikelsons
Thomas M. Miller
Jack E. Reich
<PAGE>
COMPENSATION OF EXECUTIVES
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning total compensation
for each of the last three fiscal years awarded to or earned by the chief
executive officer of Resources and the other four most highly compensated
officers of Resources.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
<S> <C> <C> <C> <C> <C> <C>
Name & Principal Fiscal Year Salary Bonus (1) Restricted LTIP All Other
Position Stock Payouts (3) Compensation (4)
Awards (2)
James T. Morris 1995 $316,592 $120,814 $72,930 -- $21,870
Chairman of the Board
and CEO
1994 304,202 114,639 -- $170,921 18,848
1993 287,219 72,100 -- -- 14,318
Joseph R. Broyles 1995 208,407 78,215 47,213 -- 14,331
President, Industries
Division
1994 193,269 69,269 -- 104,797 11,814
1993 176,079 44,200 -- -- 9,913
J.A. Rosenfeld 1995 182,269 69,555 41,988 -- 12,591
Executive Vice
President,
Chief Financial
Officer and President,
Utilities Division
1994 174,903 61,600 -- 82,198 10,643
1993 156,799 40,000 -- -- 8,855
Kenneth N. Giffin 1995 128,353 29,299 28,006 -- 7,883
Senior Vice President
1994 119,026 17,608 -- 65,315 6,149
1993 113,937 13,780 -- -- 5,747
John M. Davis 1995 147,057 29,536 33,878 -- 15,174
Vice President,
General
Counsel and Secretary
1994 141,342 21,300 -- 41,619 7,319
1993 63,690 6,750 18,700 -- --
</TABLE>
(1) Includes all amounts received with respect to a fiscal year, even though
actual payment of some or all of the bonus may have been made in the
following fiscal year.
(2) For the three-year measurement period beginning January 1, 1995, Resources
granted an aggregate of 29,461 restricted common shares under its
Restricted Stock Plan. Messrs. Morris, Broyles, Rosenfeld, Giffin and
Davis received 7,203, 4,633, 4,147, 2,766 and 3,346 restricted shares,
respectively. The amounts shown as awards in 1995 reflect one-half of the
number of restricted shares initially granted, representing the number of
shares to which the named executive was entitled at the lowest level of
performance. The value shown for restricted shares awarded in 1995 is
based upon the closing price of Resources common shares of $20.25 on
January 3, 1995. Holders of restricted shares are entitled to receive any
dividends paid on the common shares.
(3) Restricted shares granted relate to a three-year measurement period and
generally vest upon completion of such three-year period. The number of
shares granted is subject to adjustment based upon the Shareholder Value
Performance of Resources compared to the Shareholder Value Performance of a
Comparison Group. See "Compensation Committee Report to Shareholders."
Under the schedule of Shareholder Value Performance Adjustments adopted by
the Compensation Committee, if the Shareholder Value Performance of
Resources for the measurement period would place Resources in the top
quartile of the Comparison Group, the number of shares granted would be
increased by 100%. If the Shareholder Value Performance of Resources would
place it in the bottom quartile, the number of restricted shares would be
reduced by 50%, and if Shareholder Value Performance is in the second or
third quartile, a ratable adjustment would be made. Amounts shown reflect
the value of additional shares awarded January 11, 1995, pursuant to the
Shareholder Value Performance Adjustments, based upon the closing price of
Resources common shares of $20.25 on January 3, 1995.
(4) Includes amounts contributed by Resources for the benefit of the named
executive pursuant to Resources' Employee Stock Ownership Plan, Employee
Thrift Plan and Non-Qualified Deferred Compensation Plan.
EMPLOYEES' PENSION PLAN AND OTHER RELATED PLANS
All employees of Resources (and subsidiaries) become eligible to
participate in a pension plan (the "Pension Plan") as of the first January 1 or
July 1 after completing one year of service (as defined in the Pension Plan).
Resources and IWC also maintain a nonqualified executive supplemental benefits
plan (the "ESB") to supplement the benefits of key executives under the Pension
Plan. Participation is limited to key executives designated by Resources'
Board of Directors, and the ESB currently covers eighteen persons, including
Messrs. Morris, Broyles, Rosenfeld, Giffin and Davis.
The following table sets forth a range of combined annual retirement
benefits under the Pension Plan and the ESB for graduated levels of average
annual earnings and years of service (as calculated under the ESB) for
employees of Resources and its subsidiaries. The benefit amounts listed in the
table are computed as a straight life annuity beginning at age 65.
<TABLE>
<CAPTION>
Years of Service Credited under ESB at Retirement
<S> <C> <C> <C> <C> <C> <C>
Average Annual 10 YEARS 20 YEARS 30 YEARS 40 YEARS 50 YEARS 52 Years
Earnings OR MORE
(3 HIGHEST YEARS)
$100,000 12,500 25,000 37,500 50,000 62,500 65,000
150,000 18,750 37,500 56,250 75,000 93,750 97,500
200,000 25,000 50,000 75,000 100,000 125,000 130,000
250,000 31,250 62,500 93,750 125,000 156,250 162,500
300,000 37,500 75,000 112,500 150,000 187,500 195,000
350,000 43,750 87,500 131,250 175,000 218,750 227,500
400,000 50,000 100,000 150,000 200,000 250,000 260,000
</TABLE>
Generally, the Pension Plan provides a pension beginning at age 65 of $20
per month multiplied by the participant's years of service or, if greater, a
pension equal to (a) 1.25% of the participant's average stated salary (for the
three consecutive years that produce the highest average) in excess of $833 per
month multiplied by the participant's years of service (up to 50 years), plus
(b) varying lesser percentages (ranging from .85% to 1.13%) of salary under
$833 per month, multiplied by the number of the participant's years of service
to which each percentage applies under the Pension Plan. The Pension Plan also
includes provisions for early retirement benefits, late retirement benefits,
disability retirement benefits, optional methods of benefit payments to an
employee who leaves the employ of Resources and its subsidiaries after a
certain number of years of service and payments to the surviving spouse.
Pension Plan benefits are funded through a tax-exempt trust to which Resources
and its subsidiaries make annual contributions.
In calculating a participant's benefit under the ESB, the participant's
total years of service are added to their years of service as an executive.
Thus, for example, if a participant has 25 years of service with Resources and
its subsidiaries and has served as an executive for 20 years, they will be
credited with 45 years of service. Messrs. Morris, Broyles, Rosenfeld, Giffin
and Davis have been credited with 19, 43, 6, 39 and 4 years of service,
respectively, under the ESB. In the case of Mr. Morris, his years of credited
service includes those as director of Compucom, a formerly affiliated company.
The monthly amount of the life annuity payable to a participant under the
ESB upon their retirement on or after age 65 is calculated as follows:
Step 1. The participant's years of service (determined in the
aforementioned manner) are multiplied by 1.25% of the participant's average
stated salary for the 36 consecutive months that produce the highest average.
The amount determined under this Step 1 is limited to 65% of the participant's
average stated salary for the 36 consecutive months that produce the highest
average.
Step 2. The result of Step 1 is reduced by the amount payable to the
participant under the Pension Plan.
If a participant retires before age 65, their benefit under the ESB is
reduced, unless they retire after attaining age 60 and have completed 30 years
of service. If a participant dies after retirement, one half of the retirement
annuity payable to them during their life will be continued to their spouse.
In addition, the spouse of a participant who dies before retirement is entitled
to a death benefit, as if the decedent retired on their date of death with such
full benefit paid to surviving spouse until decedent's age 65, at which time it
is reduced to 50%.
Benefits payable under the Pension Plan and ESB are not reduced by any
Social Security payments made. The amount of covered compensation for each of
the executive officers of Resources named in the Summary Compensation Table is
approximated by the amount shown as salary and bonus in the table.
COMPENSATION OF DIRECTORS
Each director who is not a salaried officer or employee of Resources,
receives a retainer of $2,500 per quarter and an additional $1,000 for each
Board of Directors meeting attended. Each such director who is a member of the
Executive Committee receives an additional $500 per month, and $1,000 for each
Executive Committee meeting attended. Each such director who is a member of
the Audit Committee or Compensation Committee receives $1,000 for each
committee meeting attended. Mr. McConnell receives an additional $1,667 per
month for his services as chairman of the Executive Committee. Messrs.
Barnette and Frenzel each receive an additional $313 per quarter for their
services as chairman of the Audit and Compensation committees, respectively.
DIRECTORS' RETIREMENT
On October 21, 1994, the Board of Directors established the IWC Resources
Directors' Retirement Plan. The purpose of the Plan is to provide a quarterly
retirement benefit for retiring directors, and to establish certain age
criteria for director election or re-election. Normal retirement, for purposes
of this Plan, is at age 65 or when the director's term is complete, whichever
is later. A director may not stand for re-election if they have attained the
age of 70 years, except for directors who formerly served as the chairman of
the Board.
A director may choose to retire at any age; however, quarterly benefits
will not commence until reaching age 65. Upon attaining age 65 with at least
ten years of service, a director will be entitled to receive the directors
quarterly retainer ($2,500) upon his or her retirement. If a director retires
on or after age 65 with less than ten years of service, the quarterly benefit
will be reduced by 1/10 for each year of service less than ten. The quarterly
benefits are payable for the life of the director.
COMPENSATION COMMITTEE INTERLOCKS
Messrs. Frenzel, Mikelsons, Miller and Reich served as members of the
Compensation Committee during 1995. Each of these persons is an outside
director and, with the exception of Mr. Reich, not a present or former officer
or employee of Resources. Mr. Reich served as chairman of the Board of IWC
from 1962 to 1967. No executive officer of Resources served as a member of the
Compensation Committee of another entity, one of whose executive officers
served on the Compensation Committee. Mr. Morris serves as director of
National City Bank, Indiana. Mr. Frenzel is Chairman of the Executive
Committee of National City Bank, Indiana. Mr. Morris does not serve on the
Compensation Committee of National City Bank, Indiana.
EMPLOYMENT CONTRACTS
There are no contracts for current employment between Resources and any of
its executive officers. Under the Resources Restricted Stock Plan, holders of
restricted shares will receive immediate vesting of restricted shares, as
adjusted assuming the maximum Shareholder Value Performance Adjustment, in the
event of a change in control of Resources. However, in the event of a change
in control of Resources, Messrs. Morris, Broyles, Rosenfeld, Giffin and Davis
each vest in a three-year employment contract at the same title, duties,
location and compensation as before such change in control. In the case of
Messrs. Morris, Broyles and Giffin, in the event of a change in control, a
supplemental pension applies pursuant to their contracts that provides for the
difference between their benefits under the regular benefit plans and that
which would be available upon attaining age 65.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(M) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation over $1 million
paid to the corporation's chief executive officer and four other most highly
compensated executive officers. Qualifying performance-based compensation will
not be subject to the deduction limit if certain conditions are met.
Resources does not foresee that the limitation will apply because the
compensation for the chief executive officer and four other highest-compensated
executives is significantly below the limitation threshold. If the limitation
was exceeded, it would be as a result of performance-based portions of the
respective compensation packages, which Resources structured in order to
qualify for deduction.
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total shareholder return on the
common shares of Resources for the last five years with a cumulative total
return on the S&P 500 index and a comparison group of companies (the
"Comparison Group") over the same period (assuming the investment of $100 in
Resources common shares, the S&P 500 index and the Comparison Group on January
1, 1990, and reinvestment of all dividends).
(1) The Comparison Group consists of the following investor-owned water
utilities: American Water Works Company, Inc., Aquarion Company,
Connecticut Water Service, Inc., Consumers Water Company, E'town
Corporation, GWC Corporation, Middlesex Water Company, Philadelphia
Suburban Corporation and United Water Resources.
<PAGE>
PROPOSAL 2. AMENDMENT TO ARTICLE V OF RESOURCES'
ARTICLES OF INCORPORATION
The Board of Directors has proposed an amendment to Article V of Resources'
Articles of Incorporation increasing the number of authorized shares of
Resources' common stock, no par value, from 10,000,000 to 20,000,000 shares.
The affirmative vote of the holders of 4,123,677 shares of the Company's common
stock, representing a majority of the total outstanding shares entitled to vote
on the proposal as of the record date, is necessary for approval. At February
29, 1996, there were 1,706,235 authorized but unissued shares of common stock
of Resources, most of which were reserved for issuance in connection with
Resources' Dividend Reinvestment and Stock Purchase Plan. If the proposed
amendment is approved by the shareholders, the authorized but unissued shares
will be increased to a total of 11,706,235. All of the shares proposed to be
authorized will be available for future issue as determined by the Board of
Directors for any proper corporate purpose, including raising additional
capital and investing in or acquiring other businesses, without further action
by the shareholders. Shareholders will have no preemptive rights to subscribe
to purchase such additional shares when and if issued. The Board has no
present plans, and there are no negotiations or understandings, with respect to
the issuance of any of the additional shares proposed to be authorized. The
Board, however, believes that the proposed additional authorized shares would
provide Resources with increased flexibility in dealing with its future
financing needs.
The following is the exact text of Article V of Resources' Articles of
Incorporation, as proposed to be amended:
The total number of shares which the Corporation has authority to issue
shall be 22,000,000 shares, consisting of 20,000,000 common shares (the
"Common Shares") and 2,000,000 special shares (the "Special Shares"). The
Corporation's shares do not have any par or stated value, except that,
solely for the purpose of any statute or regulation imposing any tax or fee
based upon the capitalization of the Corporation, all of the Corporation's
shares shall be deemed to have a par value of $1.00 per share.
If the amendment is approved by the shareholders of Resources, it will
become effective upon the filing of Articles of Amendment with the Indiana
Secretary of State, which is expected to be accomplished as promptly as
practicable following shareholder approval.
The Board of Directors recommends a vote for the proposed amendment.
PROPOSAL 3. APPOINTMENT OF AUDITORS
The appointment of KPMG Peat Marwick LLP as auditors for Resources for 1996
is recommended by the Board of Directors and will be submitted to the meeting
in order to permit the shareholders to express their approval or disapproval.
KPMG Peat Marwick LLP has served as auditors for Resources and IWC since 1954.
In the event of a negative vote, a selection of other auditors will be made by
the Board. A representative of KPMG Peat Marwick LLP will be present at the
meeting, and will be provided an opportunity to make a statement and respond to
appropriate questions.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
The date by which shareholder proposals must be received by Resources for
inclusion in proxy materials relating to the 1997 annual meeting of
shareholders of Resources is November 9, 1996.
INFORMATION INCORPORATED BY REFERENCE
The following information has been incorporated by reference into this
proxy statement:
The audited financial statements of Resources and Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in
Resources' Annual Report to Shareholders, which was mailed concurrently
herewith. You are encouraged to review the financial information contained in
the Annual Report before voting on the proposal to amend the Articles of
Incorporation.
<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
I hereby appoint James T. Morris, J.A. Rosenfeld and John M. Davis, or any of
them, my proxies with power of substitution, to vote all shares of common stock
of the Company which I am entitled to vote at the annual meeting of common
shareholders of the Company, to be held at the University Place Conference
Center and Hotel, 850 West Michigan Street, Room 132, Indianapolis, Indiana
46202, on April 18, 1996 at 11:00 a.m., E.S.T., and at any adjournment, as
follows:
<TABLE>
<CAPTION>
1. ELECTION OF DIRECTORS FOR the nominees listed below (except WITHHOLD AUTHORITY
as marked to the contrary below)____ (to vote for the nominees listed
below) ____
<S> <C> <C>
Joseph R. Broyles, Robert B. McConnell, J. George Mikelsons, Thomas M. Miller, Jerry D. Semler
</TABLE>
(INSTRUCTIONS: To WITHHOLD authority to vote for any individual nominee write
that nominee's name on the space provided below.)
2. PROPOSAL to approve an amendment to the Company's Articles of
Incorporation.
______ FOR ______ AGAINST ______ ABSTAIN
3. PROPOSAL to approve the appointment of KPMG Peat Marwick LLP, as auditors
for the Company for 1996.
______ FOR ______ AGAINST ______ ABSTAIN
4. In their discretion, on any other matters that may properly come before the
meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NOT DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION AS DIRECTOR OF THE NOMINEES LISTED UNDER PROPOSAL 1 AND
FOR PROPOSALS 2 AND 3.
Please sign exactly as your name appears below. When shares are held by two or
more persons, all of them should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
SIGNATURE
SIGNATURE IF HELD JOINTLY
DATE _____________________________,
1996
Please mark, sign, date and return
the proxy card promptly using the
enclosed envelope.
<PAGE>
IWC RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
(in thousands)
Current assets:
Cash and cash equivalents $ 1,771 2,889
Accounts receivable, less allowance
for doubtful accounts of $327 and $190 21,585 10,124
Materials and supplies 3,194 2,257
Other current assets 3,877 1,099
Total current assets 30,427 16,369
Utility plant:
Utility plant in service 362,610 343,488
Less accumulated depreciation 81,594 75,801
Net plant in service 281,016 267,687
Construction work in progress 7,855 7,407
Utility plant, net 288,871 275,094
Construction funds held by Trustee 14,260 -
Other property 32,909 13,053
Goodwill, net of accumulated amortization 23,776 16,964
Deferred charges and other assets 18,636 13,902
$408,879 $335,382
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
1995 1994
(in thousands)
Current liabilities:
Notes payable to banks $ 30,589 17,674
Current portion of long-term debt - 1,150
Accounts payable and accrued expenses 20,282 16,551
Customer deposits 1,369 1,126
Total current liabilities 52,240 36,501
Long-term obligations:
Long-term debt, less current portion 113,375 98,225
Customer advances for construction 51,606 48,750
Other liabilities 9,346 6,079
Total long-term obligations 174,327 153,054
Deferred income taxes 37,347 31,003
Contributions in aid of construction 32,932 30,181
Preferred stock of subsidiary and
redeemable preferred stock 5,705 5,705
Shareholders' equity:
Common stock, authorized 10,000
common shares; 8,247 and 6,886 issued
and outstanding in 1995 and 1994 86,575 60,540
Retained earnings 20,321 18,398
106,896 78,938
Less unearned compensation 568 -
Total shareholders' equity 106,328 78,938
Commitments and contingencies
$408,879 $335,382
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
IWC RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Common Stock
<S> <C> <C> <C> <C> <C>
Shares Amount Retained Unearned Total
Earnings Compensation Shareholders'
Equity
(in thousands, except share data)
Balance at December 31, 1992 6,407,591 $ $ 17,826 $ (349) $ 67,205
49,728
Net earnings 9,376
9,376
Dividends -
$1.40 per share:
Common (9,254)
stock (9,254)
Redeemable (36)
preferred stock (36)
Common stock
issued:
Acquisition 356,991 8,300
of subsidiary 8,300
Dividend 55,646 1,236
Reinvestment Plan 1,236
Restricted 1,725 (37) -
Stock Plan 37
Compensation expense 187 187
Balance at December 31, 1993 6,821,953 (199) 77,014
59,301 17,912
Net earnings 10,142
10,142
Dividends -
$1.40 per share:
Common stock (9,620)
(9,620)
Redeemable (36)
preferred stock (36)
Common stock
issued:
Dividend 59,257 1,159
Reinvestment Plan 1,159
Restricted
Stock Plan, net
of 16,189 shares tendered for 5,061 (80) -
tax 80
withholding and then retired
Compensation 279 279
expense
Balance at December 31, 1994 6,886,271 - 78,938
60,540 18,398
Net earnings 12,192 12,192
Dividends-
$1.40 per share:
Common stock (10,233)
(10,233)
Redeemable (36)
preferred stock (36)
Common stock
issued:
Acquisition 755,148 14,348
of subsidiary 14,348
Dividend 576,473 10,809
Reinvestment Plan 10,809
Restricted 29,461 (878) -
Stock Plan 878
Compensation 310 310
expense
Balance at December 31, 1995 8,247,353 $ $ $ (568) $ 106,328
86,575 20,321
</TABLE>
<PAGE>
The accompanying notes are an integral part of the consolidated
financial statements.
IWC RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31, 1995, 1994 and 1993
1995 1994
1993
(in thousands, except per
share data)
Operating revenues:
Water utilities $ 80,377 $ 73,524 $
64,583
Utility-related services 66,688 37,855
19,659
147,065 111,379
84,242
Operating expenses:
Operation and administration:
Water utilities 37,352 35,573
32,074
Utility-related services 54,172 28,120
13,037
Depreciation 9,527 7,820 6,556
Taxes other than income taxes 9,390 7,821
5,907
Total operating expenses 110,441 79,334
57,574
Operating earnings 36,624 32,045
26,668
Other (income) expense:
Interest expense, net 9,395 7,959
7,295
Interest income (184) (109)
(208)
Amortization of acquisition costs 1,198 1,126
674
10,409 8,976
7,761
Earnings before income taxes
and dividends on preferred stock
of subsidiary 26,215 23,069
18,907
Income taxes 13,820 12,724 9,328
Earnings before dividends on
preferred stock of subsidiary 12,395 10,345
9,579
Dividends on preferred stock of subsidiary 203 203
203
Net earnings $ 12,192 $ 10,142 $
9,376
Net earnings per common and common
equivalent share $ 1.64 $ 1.47 $
1.41
Average number of common and
common equivalent shares outstanding 7,438 6,901
6,658
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
IWC RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
1995 1994
1993
(in thousands)
Cash flows from operating activities:
Net earnings$ 12,192 $10,142 $9,376
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 12,903 9,597
7,808
Deferred income taxes 3,838 2,179
1,241
Gain on sales of other property (1,370) (783)
(1,052)
Provision for bad debts 437 430
335
Dividends on preferred stock of subsidiary 203 203
203
Other, net (71) (776) 137
Changes in operating assets
and liabilities:
Accounts receivable (3,628) (1,039)
353
Materials and supplies 382 (535)
(425)
Other current assets (2,035) (332)
1,741
Accounts payable and accrued expenses (99) 1,915
279
Federal income taxes (291) (187)
232
Customer deposits 243 99
83
Net cash provided by operating activities:22,70420,913
20,311
Cash flows from investing activities:
Additions to utility plant and other property(27,914)(28,256)
(13,967)
Proceeds from sales of other property 700 424
1,517
Customer advances for construction 8,233 9,175
5,748
Refunds of customer advances for construction(2,925) (2,156)
(2,242)
Acquisition of Miller Pipeline Corporation,
net of cash acquired (5,147) -
-
Acquisition of SM&P Utility Resources, Inc.,
net of cash acquired - -
(12,482)
Other investing activities, net (2,234) (952)
(963)
Net cash used by investing activities(29,287)(21,765)
(22,389)
Cash flows from financing activities:
Increase (decrease) in notes payable to banks 5,515 (4,105)
12,775
Proceeds from long-term debt 18,076 14,000
11,600
Payments of long-term debt (4,203) (1,277)
(12,780)
Decrease (increase) in construction funds
held by Trustee (14,260) 2,010 (52)
Cash dividends (10,472) (9,859) (9,493)
Proceeds from issuance of common stock 10,809 1,159
1,236
Net cash provided by financing activities5,465 1,928
3,286
Increase (decrease) in cash and cash equivalents (1,118) 1,076
1,208
Cash and cash equivalents at beginning of year 2,889 1,813
605
Cash and cash equivalents at end of year $ 1,771 $ 2,889 $
1,813
Supplemental disclosure of cash flow information-
Cash paid for:
Interest on long-term debt and notes payable
to banks, net of capitalized interest $ 8,992 $ 7,396 $
7,104
Income taxes$11,969 $ 11,480 $ 7,488
The accompanying notes are an integral part of the consolidated
financial statements.
IWC RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
NATURE OF OPERATIONS
IWC Resources Corporation ("Company") is a holding company which owns
and operates seven subsidiaries. The operations of these subsidiaries
are included in two business segments:
(1) regulated water utilities, and (2) unregulated utility-related
services.
The water utilities segment include the operations of the two waterworks
subsidiaries which supply water service to approximately 235,000
customers for residential, commercial, and industrial uses, and fire
protection service in Indianapolis, Indiana, and surrounding areas and
serve a territory of approximately 309 square miles. 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 utility-related services segment include the operations of the
remaining subsidiaries 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. This segment predominately serves other utilities,
principally the gas and telecommunications industries, which operate in
Indiana and Ohio and other parts of the midwest and south west regions
of the country.
USE OF ESTIMATES
The Company's consolidated financial statements are prepared in
conformity with generally accepted accounting principles which require
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Summary of Significant Accounting Policies
Principles of Consolidation
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.
In November 1993, a subsidiary of the Company became majority partner in
White River Environmental Partnership (Partnership). In December 1993,
the Partnership was awarded a five-year contract by the city of
Indianapolis to manage and operate its two advanced wastewater treatment
plants commencing January 30, 1994. The Company's share of Partnership
earnings, which are reported on the equity basis, are not significant to
the Company's consolidated earnings and are included in operating
revenues in the utility-related services segment.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
maturities of three months or less to be cash equivalents.
UTILITY PLANT
Utility plant is stated at cost which includes the cost of land, outside
contract work, labor and materials, interest and certain indirect costs
incurred during the construction period. Such indirect costs consist of
administration, general overhead, and other costs applicable to
construction projects.
When utility plant in service is retired, except for land and land
rights, the accumulated cost of the retired property plus cost of
removal and less salvage value is charged against accumulated
depreciation. If land or land rights are sold, the net gain or loss is
included in earnings. Property not currently used in utility operations
is included in other property.
Depreciation of utility plant for financial statement purposes is
computed at a composite annual rate of 1.9% as approved by the
Commission.
Generally, maintenance and repairs and the cost of replacements of minor
items of property are charged to operation expense accounts as incurred.
OTHER PROPERTY
Other property is stated at cost and is depreciated or amortized using
the straight-line method over the estimated useful lives of the assets.
The service lives for the principal assets, vehicles and operating
equipment, range from 5 to 20 years.
GOODWILL
The Company recognizes the excess of cost over fair value of tangible
and other identifiable assets acquired in business acquisitions as
goodwill which is amortized by the straight-line method over 20 or 40
years. The Company continually evaluates the recoverability of goodwill
by comparing its annual amortization to the acquired company's average
pretax earnings before amortization over a 3-year period and by
assessing whether the amortization of the remaining goodwill balance
over its remaining life can be recovered through expected future
results. Amortization expense was $573,000, $511,000 and $319,000 in
1995, 1994 and 1993, respectively. Accumulated amortization at December
31, 1995 and 1994 was $1,970,000 and $1,397,000, respectively.
INCOME TAXES
For financial statement purposes, investment tax credits are deferred
and amortized ratably over the lives of the applicable assets as
prescribed by the Commission. For income tax purposes, the credits are
deducted in the year in which the constructed or acquired property was
placed in service.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
amounts for assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
which apply to taxable income in the years in which those temporary
differences are expected to reverse. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in the period the
change is enacted.
CUSTOMER ADVANCES AND
CONTRIBUTIONS IN AID OF CONSTRUCTION
In certain cases, customers advance funds for water main extensions.
These advances are included in customer advances for construction and
are generally refundable to the customer over a period of ten years.
Advances not refunded within ten years are permanently transferred to
contributions in aid of construction.
REVENUES
Utility revenues are recognized based on water usage at rates approved
by the Commission. Service revenues are recognized as services are
provided.
PENSION PLANS AND OTHER RETIREMENT BENEFITS
The Company has a noncontributory defined benefit pension plan which
covers the majority of its utility employees and certain other
employees. Benefits are based on, among other factors, an employee's
services rendered to date and average monthly earnings for the 36
consecutive calendar months that produce the highest average. The
Company's funding policy is to contribute annually at least the minimum
contribution required to comply with ERISA regulations.
The Company has an unfunded executive supplemental benefit plan which
provides additional retirement benefits to certain officers. Benefits
are based on, among other factors, an employee's age, services rendered
to date, and benefits received from the Company's noncontributory
defined benefit pension plan.
The Company also sponsors defined contribution plans covering
substantially all non-bargaining unit employees and an employee stock
ownership plan covering substantially all of its utility employees and
certain other employees.
The Company provides postretirement life insurance and healthcare
benefits to certain of its employees. The Company accounts for such
benefits by accruing currently, during the period of employment, the
present value of the estimated cost of such benefits.
RECLASSIFICATIONS
Certain amounts for 1994 and 1993 have been reclassified to conform with
the 1995 presentation.
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 an estimate of the fair value of the net assets
acquired of $7,385,000 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 1,319
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 $ 12,476
During August 1995, the Company borrowed $5,600,000 in 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% (6.418% at December 31,
1995). Interest on short-term notes payable to banks assumed in the
acquisition of MPC is based on prime less .50% (8.0% at December 31,
1995).
The consolidated financial statements include the results of MPC's
operations beginning August 22, 1995. Pro forma operating results,
assuming the acquisition took place at the beginning of each of the
years presented, follow:
(in thousands, except per share data)
1995 1994
Operating revenues:
Water utilities $ 80,377 73,524Utility-
related services 94,867 85,550
Total operating revenues $ 175,244 159,074
Net earnings$ 12,203 12,156
Net earnings per common and
common equivalent share $ 1.54 1.59
Net earnings and net earnings per common and common equivalent share
were $12,192,000 and $1.64, respectively, compared to pro forma net
earnings and net earnings per common and common equivalent share of
$12,203,000 and $1.54, respectively. The increase in pro forma net
earnings of $11,000 in 1995 is due primarily to seasonal losses
recognized during the period prior to the acquisition of MPC. The
decrease in pro forma net earnings per common and common equivalent
share of $.10 is due primarily to the increase in outstanding common
shares issued in the acquisition.
Acquisition of
SM&P UTILITY RESOURCES, INC.
On June 14, 1993, the Company acquired SM&P Utility Resources, Inc.
(formerly SM&P Conduit Co., Inc.) (SM&P) in a transaction accounted for
as a purchase. SM&P is engaged in the business of providing a single
source facility locating service for all utilities including: gas,
electric, telephone, cable television, water and sewer. The Company also
entered into not to compete agreements with SM&P shareholders at a cost
of $3,000,000. The cost of the acquisition and agreements not to compete
was paid by cash of $12,503,000 and the issuance of 356,991 shares of
the Company's common stock and 51,612 shares of the Company's Series B
Redeemable Preferred Stock. Goodwill of $16,379,000 is being amortized
over 40 years, and the cost of agreements not to compete is being
amortized over their five-year lives. The consolidated financial
statements include the results of SM&P's operations beginning June 14,
1993.
A summary of the SM&P assets acquired and liabilities assumed follows:
(in thousands)
Property and equipment $ 5,021
Accounts receivable 2,986
Other current assets 1,456
Short-term notes payable (3,933)
Accounts payable and accrued expenses (2,524)
Federal income taxes payable (364)
Net assets acquired $ 2,624
FAIR VALUE
OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards (SFAS) No. 107, "Disclosures about Fair
Value of Financial Instruments." The estimated fair value amounts have
been determined by the Company using available market information and
appropriate valuation methodologies. However, considerable judgment is
required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates herein are not necessarily indicative
of the amounts the Company could realize in a current market exchange.
The use of different market assumptions and/or estimation methods may
have a material effect on the estimated fair value amount.
The carrying amounts of cash equivalents, accounts receivable,
construction funds held by Trustee, and notes payable to banks
approximate fair value because of the short maturity of those
instruments.
The fair value of long-term debt at December 31, 1995, is estimated to
be $116,431,000. The fair value was determined by discounting future
payments at current interest rates for similar issues.
<PAGE>
UTILITY PLANT IN SERVICE
A summary of utility plant in service at December 31 follows:
1995 1994
(in thousands)
Land and land rights $ 8,869 $ 7,009
Structures and improvements 51,279 49,767
Pumping station equipment 15,549 14,746
Purification system 25,820 25,492
Transmission and distribution system 250,670 236,541
Other $ 362,610 $343,488
OTHER PROPERTY
A summary of other property at December 31 follows:
1995 1994
(in thousands)
Land and improvements $ 605 $ 26
Buildings and improvements 1,479 281
Real estate held for sale
or development 6,984 3,985
Utility property held
for future use 1,395 82
Vehicles and operating
equipment 25,491 9,290
Other 2,809 2,349
38,763 16,013
Accumulated depreciation
and amortization 5,854 2,960
$ 32,909 $ 13,053
REGULATORY ASSETS
Deferred charges and other assets include certain costs which are
capitalized as regulatory assets and amortized pursuant to utility rate-
making proceedings. The Commission allows recovery of these assets
through rates, but not a return on investment, over periods ranging from
2 years to 30 years. A summary of regulatory assets at December 31
follows:
1995 1994
(in thousands)
Costs of postretirement benefit
obligations other than pensions $ 3,609 $ 3,722
Income taxes 902 950
Tank painting costs 2,175 710
Rate proceeding costs 528 668
Debt issuance costs 1,803 1,661
$ 9,017 $ 7,711
In December 1992, the Commission authorized all Indiana utilities,
including the utility subsidiaries of the Company, to record as a
regulatory asset the excess of accrual basis costs of postretirement
life insurance and healthcare benefits (OPRB) over the cash basis costs
which were used to establish current rates. The Company received
approval to recover its OPRB costs on an accrual basis in its rate case
settled August 10, 1994, subject to the Company's proposal and
Commission's acceptance of an appropriate restricted fund. On April 26,
1995, the Commission approved a grantor trust for these funds, as agreed
upon by IWC and the Utility Consumer Counselor (UCC) representing
ratepayers, and a related annual increase in IWC's water rates of
approximately $1,800,000, to cover current costs and the amortization of
the regulatory asset through 2014. The Grantor Trust provides for the
transfer to the Trust monthly and subsequent investing and disbursing by
the Trust of all amounts received by IWC in rates to cover its OPRB
obligations. The Trust Agreement contains certain provisions which
limit investment activities, provide for annual reporting and, in the
event that Trust funds are no longer needed for OPRB purposes, directs
payment of the remaining funds to IWC ratepayers. At December 31, 1995,
$928,000 is held in the Trust and included in deferred charges and other
assets.
Income taxes represent the effects of the 1993 increase in the federal
corporate tax rate on the Company's water utilities' net deferred tax
liabilities and will be amortized through 2009.
Tank painting and rate proceeding costs are generally being amortized
through 2011 and 1997, respectively, and result from costs required to
be deferred for regulatory purposes.
Debt issuance costs include various costs deferred for regulatory
purposes which are to be amortized over the original lives of applicable
debt through 2026.
<PAGE>
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
A summary of accounts payable and accrued expenses at December 31
follows:
1995 1994
(in thousands)
Accounts payable$ 4,765 $3,364
Accrued property taxes 5,570 5,039
Accrued interest on notes
payable to banks and
long-term debt 2,082 1,864
Accrued vacations 1,974 1,732
Other accrued expenses 5,891 4,552
$ 20,282 $ 16,551
NOTES PAYABLE TO BANKS
AND LONG-TERM DEBT
At December 31, 1995, the Company had lines of credit with banks
aggregating $43,000,000 which require a compensating cash balance of
$100,000. At December 31, 1995, unused lines of credit aggregated
$13,659,000. Interest on borrowings under the lines of credit is
variable (an average of 6.58% at December 31, 1995).
The Company has a Controlled Disbursement Agreement with a bank which
authorizes the bank to transfer funds daily between the Company's
checking and note payable accounts. Outstanding checks drawn on this
checking account are reported as a component of notes payable to banks.
At December 31, 1995 and 1994, such outstanding checks amounted to
$1,248,000 and $604,000, respectively.
A summary of First Mortgage Bonds (secured by IWC's utility plant) and
other long-term debt (Senior notes of Resources) outstanding at December
31 follows:
1995 1994
(in thousands)
5-7/8% Series due 1997 $ 6,775 $ 6,775
5.20% Series due 2001 11,600 11,600
8%Series due 2001 3,000 3,000
6.31% Senior notes due 2001 14,000 14,000
12-7/8% Series due 2002 - 4,000
7-7/8% Series due 2019 40,000 40,000
9.83% Series due 2019 5,000 5,000
6.10% Series due 2022 5,000 5,000
8.19% Series due 2022 10,000 10,000
5.85% Series due 2025 18,000 -
113,375 99,375
Less current portion - 1,150
$ 113,375 $ 98,225
Provisions of trust indentures related to the 5-7/8% Series Bonds and
the 8% Series Bonds require annual sinking or improvement fund payments
amounting to 1/2% of the maximum aggregate amount outstanding. As
permitted, this requirement has been satisfied by substituting a portion
of permanent additions to utility plant. These bonds are redeemable at
the option of the Company at varying premium amounts at different
periods prior to the respective dates of maturity.
The 5.20% Series Bonds are due and payable in full May 1, 2001. In the
event the bonds lose their tax-exempt status, mandatory redemption of
the bonds is required.
The 6.31% Senior Notes are due and payable in full March 15, 2001.
Optional redemptions by the Company are allowed in whole on or after
March 15, 1997, at the greater of par or the present value of the notes
discounted 1/2% over the applicable Treasury rate.
In January and December 1995, the Company prepaid the remaining
principal amount of the 12-7/8% Series Bonds at a premium of $203,000.
The 7-7/8% Series Bonds include issues of $10,000,000 and $30,000,000,
both of which are due and payable in full March 1, 2019. In the event
the bonds lose their tax exempt status, mandatory redemption of the
bonds is required. Optional redemptions by the Company are allowed on or
after March 1, 1998, and are generally subject to a premium.
The 9.83% Series Bonds are redeemable at the option of the Company, on
or after June 15, 2014, with final redemption by June 15, 2019. Early
redemptions are subject to a premium.
The 6.10% Series Bonds are due and payable in full December 1, 2022. In
the event the bonds lose their tax exempt status, mandatory redemption
of the bonds is required. Optional redemptions by the Company are
allowed on or after December 1, 1999, and are generally subject to a
premium.
The 8.19% Series Bonds are due and payable in full December 1, 2022.
Optional redemptions by the Company are allowed at any time at the
greater of par or the present value of the bonds discounted at 1/2% over
the applicable Treasury rate.
The 5.85% Series Bonds are due and payable in full September 1, 2025.
In the event the bonds lose their tax exempt status, mandatory
redemption of the bonds is required. Optional redemptions by the
Company are allowed on or after September 1, 2002, and are generally
subject to a premium.
Required principal payments on long-term debt for the five years
following December 31, 1995, exclusive of obligations which may be
satisfied by permanent additions to utility plant, amount to $6,775,000
in 1997.
Interest expense is net of an allowance for funds used during
construction (AFUDC) which is an amount capitalized for construction
projects as authorized by the Commission. AFUDC amounts capitalized were
$98,000, $212,000 and $160,000 during 1995, 1994 and 1993, respectively.
At December 31, 1995, the Company's AFUDC rate was 9.35% (4.51% debt
component and 4.84 equity component).
PREFERRED STOCK OF SUBSIDIARY
The preferred stock of subsidiary represents 45,049 shares of
Indianapolis Water Company cumulative preferred stock of $100 par value
per share. The preferred stock is redeemable at the option of the
subsidiary upon proper notice at prices ranging from $100 to $105 per
share plus accrued dividends (an aggregate redemption value of
$4,658,000).
Dividends on the preferred stock are payable at rates ranging from 4% to
5% per annum.
REDEEMABLE PREFERRED STOCK
At December 31, 1994, 60,000 special shares of Series B Convertible
Redeemable Preferred Stock, no par value, have been authorized, of which
51,612 shares have been issued and are outstanding. The preferred stock
was issued in connection with the acquisition of SM&P and is convertible
by the holder at any time, in whole, into shares of common stock at a
conversion rate of one common share for each share of preferred stock.
Mandatory redemption of the preferred stock is required on July 14,
1998, at $23.25 per share plus accrued dividends (an aggregate
redemption value of $1,200,000). Holders of the preferred stock are
entitled to the same voting and dividend rights as common shareholders
and such shares are considered common share equivalents in the
calculation of earnings per share.
COMMON STOCK
The Company's authorized capital stock consists of 10,000,000 common
shares and 2,000,000 special shares with no par value. No special shares
have been issued other than the 60,000 shares designated as Series B
Convertible Redeemable Preferred Stock.
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. Effective March 10, 1995, purchases were allowed with a minimum
investment of $10 by employees and $100 by customers up to a total of
$100,000 annually. A total of 1,500,000 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 is 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 continue to receive their dividends
in cash. At December 31, 1995, 900,676 shares of common stock were
reserved for issuance under the plan.
The Company has a Restricted Stock Plan under which 200,000 common
shares have been reserved and may be awarded to officers and key
employees. Restricted stock plan participants are entitled to cash
dividends and voting rights on their awarded shares. Restrictions
generally limit the sale, transfer, or pledge of shares during a three-
year measurement period following the issuance of such shares. The
initial three-year measurement period concluded December 31, 1994.
The number of shares awarded under the plan are subject to adjustment at
the end of the measurement period as determined by the provisions of the
plan. The adjustment at the end of the initial three-year measurement
period was an incremental award of 21,250 shares, of which 16,189 shares
were tendered to the Company to satisfy tax withholding requirements,
and retired.
Participants may vest in certain restricted shares upon death,
disability or retirement as described in the plan. In the event of a
change in control of the Company, all restrictions expire and
participants may receive additional shares as determined by provisions
of the plan.
In January 1995, the Company commenced its second three-year measurement
period and awarded 29,461 restricted shares.
Unearned compensation recorded as of the effective dates of the awards
is amortized to expense during the three-year measurement period. At
December 31, 1995, 121,073 shares were reserved for future awards.
In January 1988, the Company's board of directors adopted a Shareholder
Rights Plan pursuant to which a dividend distribution of one preferred
share purchase right for each outstanding share of common stock was made
to shareholders of record on February 18, 1988. Under the plan, each
right will initially entitle shareholders to purchase one one-hundredth
of a share of a new series of preferred stock of the Company at an
exercise price of $45. The rights become exercisable when a person or
group acquires 20% or more of the Company's common stock or commences a
tender offer for 30% or more of the Company's common stock. Upon the
happenings of certain events, each right not owned by a 20% shareholder
or shareholder group will entitle its holder to purchase, at the right's
then current exercise price, shares of the Company's common stock having
a value of twice that price. The rights expire in February 1998.
<PAGE>
TAXES
Components of taxes other than income taxes follow:
1995 1994 1993
(in thousands)
Property taxes$5,333 $ 4,879 $ 4,092
Other 4,057 2,942 1,815
$ 9,390 $ 7,821 $
5,907
Refundable federal income taxes of $1,191,000 is included in other
current assets and currently payable federal income taxes of $256,000 is
included in accounts payable and accrued expenses at December 31, 1995
and 1994, respectively.
Components of income taxes follow:
1995 1994 1993
(in thousands)
Federal:
Currently payable $ 7,514 $ 8,122 $
5,864
Deferred 3,411 1,971 1,119
$ 10,925 $ 10,093 $
6,983
State:
Currently payable $ 2,468 $ 2,423 $
2,223
Deferred 427 208 122
2,895 2,631
2,345
$ 13,820 $ 12,724 $
9,328
The differences between actual income taxes and expected federal income
taxes using statutory rates follow:
1995 1994 1993
(in thousands)
Expected federal income taxes $ 7,531 $ 6,810 $
6,617
Taxes on advances collected from developers 4,698 3,611
- -
Taxable customer advances for construction 137 454
1,309
State income taxes, net of
federal income tax benefit 1,284 1,251
1,524
Other, net 170 598
(122)
$ 13,820 $ 12,724 $
9,328
<PAGE>
The tax effects of significant temporary differences represented by
deferred tax assets and deferred tax liabilities at December 31 follow:
1995 1994
(in thousands)
Deferred tax assets:
Customer advances for construction $ 972 $ 1,854
Accrued pension costs 984 694
Accrued vacations 655 617
OPRB'S 587 119
Other 861 1,005
Total deferred tax assets 4,059 4,289
Deferred tax liabilities:
Utility plant, principally due to differences in
depreciation and capitalized costs 34,857 29,324
Unamortized investment tax credits 4,801 4,913
Debt redemption premiums
deducted for tax 572 508
Other property bases 428 105
Equity in earnings of investee 390 181
Other 358 261
Total deferred tax liabilities 41,406 35,292
Net deferred
tax liabilities $ 37,347 $ 31,003
Customer advances for construction received after 1986 are includible in
taxable income when received and are deductible if subsequently refunded
to customers. Prior to 1994, such advances were excluded from financial
statement income. Effective September 8, 1993, the Commission granted
IWC permission to surcharge developers for income taxes on advances and
reduce its water rates by a corresponding amount. In 1994, IWC began
collecting surcharges on advances from developers. Income tax
surcharges collected from developers amounted to $4,698,000 in 1995 and
$3,611,000 in 1994 and are reported as a component of water utilities
operating revenues and income taxes and, accordingly, have no effect on
net earnings.
PENSION PLANS AND OTHER RETIREMENT BENEFITS
The Company has two defined benefit pension plans: (1) a noncontributory
plan which covers the majority of its utility employees and certain
other employees, and (2) an executive supplemental plan which provides
additional retirement benefits to certain officers.
<PAGE>
The following tables set forth the plans' funded status and accrued
pension cost amounts recognized in the Company's consolidated financial
statements at December 31:
Majority Plan Supplemental
Plan
1995 1994 1995
1994
(in thousands) (in
thousands)
Accumulated benefit obligation $ 9,084 $ 5,856 $ 2,782 $
1,798
Vested benefit obligation $ 8,174 $ 5,165 $ 2,647 $
1,726
Projected benefit obligation $ 15,192 $ 11,918 $ 3,468 $
2,362
Plan assets at fair value, primarily listed
stocks and bank fixed income funds13,471 10,834 -
-
Projected benefit obligation
in excess of plan assets 1,721 1,084 3,468
2,362
Unrecognized net asset
(obligation) at transition 789 917 (44)
(55)
Unrecognized prior service costs (386) (417) (587)
(647)
Unrecognized loss (1,558) (1,444) (815) (26)
Additional minimum liability - - 760
112
Accrued pension cost $ 566 $ 140 $ 2,782 $
1,798
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the projected benefit obligation
were 7-1/4% and 4%, respectively, for 1995, 8-1/2% and 5%, respectively,
for 1994, and 7-1/4% and 4-1/2%, respectively, for 1993. The expected
long-term rate of return on assets was 8% for 1995, 1994 and 1993.
Net periodic pension costs for the years ended December 31 include the
following components:
<PAGE>
<TABLE>
<CAPTION>
Majority Plan Supplemental Plan
<S> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1995 1994 1993
(in thousands) (in thousands)
Service cost - benefits $ 758 $903 $769 $174 $150 $
earned during year 86
Interest cost on 1,042 1,006 902 231 167
projectedbenefit 149
obligation
Return on plan assets (2,641) 387 (562) - -
-
Net amortization anddeferrals 1,657 (1,345) (393) 82 67
45
Net periodic pension cost $ 816 $951 $716 $487 $384 $
280
</TABLE>
Contributions to the Company's defined contribution plans and its
employee stock ownership plan amounted to $724,000 and $249,000 in 1995,
$489,000 and $292,000 in 1994, and $352,000 and $274,000 in 1993,
respectively.
The Company also participates in several industry-wide, multi-employer
pension plans for certain of its union employees at MPC. These plans
provide for monthly benefits based on length of service. Specified
amounts per compensated hour for each employee are contributed to the
trustees of these plans. Contributions by the Company to these plans
amounted to $623,000 in 1995. The relative position of each employer
participating in these plans with respect to the actuarial present value
of accumulated plan benefits and net assets available for benefits is
not available.
<PAGE>
The Company provides OPRBs to certain employees. The following tables
set forth the accumulated postretirement benefit obligation and net
periodic postretirement benefit cost amounts recognized in the Company's
consolidated financial statements at December 31:
1995 1994
(in thousands)
Accumulated postretirement
benefit obligation:
Active employees $$ xx,xxx $ 10,710
Retired employees x,xxx 6,495
xx,xxx 17,205
Unrecognized transition
obligation xxx,xxxx (14,868)
Unrecognized gain x,xxx 1,449
Accrued postretirement
benefit cost$ x,xxx $3,786
The weighted-average discount rate used to measure the accumulated
postretirement benefit obligation was 8-1/2% and 7-1/4% for the years
ended December 31, 1994 and 1993, respectively. The Company used premium
growth rates to compute assumed healthcare cost trend rates. In 1994,
these rates ranged from 11-1/5% in 1995 to 5-1/4% in 2001 and thereafter
and in 1993 these rates ranged from 13% in 1994 to 5-1/4% in 2000 and
thereafter. Had these healthcare cost trend rates been higher by 1%, the
net periodic postretirement benefit cost would have been higher by
$207,000 in 1994 and the accumulated postretirement benefit obligation
would have been higher by $1,516,000 in 1994.
Net periodic postretirement benefit costs for the years ended December
31 include the following components:
1995 1994 1993
(in thousands)
Service cost-benefits
earned during year $ xxx $ 555 $ 462
Interest cost on accumulated
postretirement benefit
obligation x,xxx 1,271 1,322
Amortization of transition
obligation XXXXX 826 826
Net periodic postretirement
benefit cost$ X,XXX $2,652 $2,610
For the years ended December 31, 1995, 1994, and 1993, the excess of net
periodic postretirement benefit cost over the amount currently funded
amounted to $1,086,000, $177,000 and $135,000, respectively.
SEGMENT INFORMATION
The Company's operations include two business segments: regulated water
utilities and unregulated utility-related services. The water utilities
segment includes the operations of the Company's two water utility
subsidiaries. The utility-related services segment provides utility line
locating services, installation, repairs and maintenance of underground
pipelines, data processing and billing and payment processing, and other
utility-related services to both unaffiliated utilities and to the
Company's water utilities, and holds real estate for sale or
development.
Intersegment activity primarily represents certain operating cost
allocations between affiliates.
Identifiable assets are those assets used exclusively in the operations
of each business segment. Corporate assets are principally comprised of
cash, miscellaneous receivables, and certain other property.
The following table shows operating revenues, operating earnings and
other summary financial information by segment as of and for the year
ended December 31, 1995, 1994 and 1993.
Utility-
Water Related
Utilities Services Corporation
Consolidated
1995 (in thousands)
Operating revenues:
Unaffiliated$ 80,377 $66,688 $- $147,065
Affiliated 87 4,249 (4,336) -
Total 80,464 70,937 (4,336)
147,065
Operating earnings 30,404 6,220 - 36,624
Depreciation 6,439 3,088 - 9,527
Identifiable assets 330,058 74,162 4,659
408,879
Capital expenditures, excluding
acquisition of MPC 20,941 6,894 79
27,914
Utility-
1994 Water Related
Utilities Services Corporation
Consolidated
(in thousands)
Operating revenues:
Unaffiliated$ 73,524 $37,855 $- $111,379
Affiliated 87 4,147 (4,234) -
Total 73,611 42,002 (4,234)
111,379
Operating earnings 26,027 6,018 - 32,045
Depreciation 6,017 1,803 - 7,820
Identifiable assets 297,354 37,212 1,104
335,382
Capital expenditures 23,462 4,774 20
28,256
Utility-
1993 Water Related
Utilities Services Corporation
Consolidated
(in thousands)
Operating revenues:
Unaffiliated$ 64,583 $19,659 $- $84,242
Affiliated 242 4,025 (4,267) -
Total 64,825 23,684 (4,267)
84,242
Operating earnings 21,645 5,023 - 26,668
Depreciation 5,757 799 - 6,556
Identifiable assets 280,823 29,739 1,881
312,443
Capital expenditures,
excluding acquisition
of SM&P13,049 778 140 13,967
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. As a result,
compliance with such permits may be expensive.
On August 10, 1994, the Commission approved a general increase in IWC's
water rates, but deferred increasing IWC's rates to cover implemention
of accrual accounting for postretirement life insurance and healthcare
benefits (OPRBs), in accordance with Statement of Financial Accounting
Standards No. 106 (SFAS No. 106), pending a determination of an
appropriate restricted fund for the related revenues. On April 26,
1995, the Commission approved the creation of a grantor trust for these
funds, as agreed upon by IWC and the Utility Consumer Counselor (UCC)
and a related annual increase in IWC's water rates of approximately
$1,800,000, to cover current costs and the amortization of the
regulatory asset over approximately 18 years.
The Grantor Trust provides for the transfer to the Trust monthly and the
subsequent investment and disbursement by the Trust of all amounts
received by IWC in rates to cover its OPRB obligations. The Trust
Agreement contains certain provisions which limit investment activities,
provide for annual reporting and, in the event that Trust funds are no
longer needed for OPRB purposes, directs payment of the remaining funds
to IWC ratepayers.
On September 23, 1994, IWC filed a petition for Commission approval of a
new schedule of rates and charges. The increase in revenues sought by
IWC was approximately $5,100,000, or 8%, based on water consumption for
the twelve months ended June 30, 1994. On April 5, 1995, the UCC, four
intervening customers and IWC filed with the Commission a Settlement
Agreement which, as revised on April 27, 1995, set forth the parties'
agreement resolving all issues in the case and their recommendation that
the Commission approve an annual increase in IWC's rates of $2,547,000,
or approximately 4%. The parties further agreed not to seek an
adjustment in IWC's basic rates and charges prior to April 1, 1997,
subject to IWC's interim right to request approval of new rates to cover
operating expenses connected with implementing measures which might be
required in connection with new National Pollutant Discharge Elimination
System permits which IWC anticipates receiving for wastewater discharges
at its Fall Creek and White River Stations (NPDES permits). The parties
also agreed that prior to April 1, 1997, IWC may request that the
Commission approve, in a separate proceeding, prior to April 1, 1997,
the continuation of the allowance for funds used during construction
(debt component only), and the deferral of depreciation, on any capital
expenditures made in connection with new NPDES permits at the Fall Creek
and White River Stations or IWC's anticipated new South Well Field
Station until a rate base determination has accrued with respect to
these items in IWC's next rate case. On May 10, 1995, Commission
approved all terms of the parties' settlement and the related rate
increase.
On March 22, 1995, the Commission granted IWC authority to issue, on or
before December 31, 1996, an aggregate of $30,000,000 in securities, to
consist of not more than $18,000,000 in the form of long-term debt
and/or preferred equity, and, assuming favorable market conditions, up
to $12,000,000 in common equity. IWC issued $18,000,000 of long-term
debt in September 1995, in the form of First Mortgage Bonds, 5.85%
Series due 2025. Proceeds from the issuance of these securities may be
used for the construction, extension and improvement of IWC's
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.
In December 1995, Resources made an equity capital contribution to IWC
of $10,505,000. In 1996, IWC Resources intends to make another equity
capital contribution to IWC of $1,495,000, and exhaust the $12,000,000
authorized from the Commission for new IWC equity. The amounts invested
by Resources were derived from proceeds of the sale of common shares of
the Company through its Dividend Reinvestment and Stock Purchase Plan.
The Company has agreements with five key executives which provide that
in the event of change of control of the Company, each executive vests
in a three-year employment contract at his then existing level of
compensation. In the case of three of these key executives, in the
event of change of control of the Company, a supplemental pension
applies pursuant to their contracts that provides the difference between
their benefits under the regular benefit plans and that which would be
available upon attaining age 65.
Quarterly Financial Data (Unaudited)
Quarters
First Second Third Fourth
(in thousands, except per share data)
1995
Operating revenues (a) $ 24,455 $ 33,002 $ 43,831 $
45,777
Operating earnings (a) 4,080 9,754 13,914
8,876
Net earnings 282 3,255 5,517 3,138
Net earnings per common and common
equivalent share .04 .46 .73
.41
1994
Operating revenues (a) $ 21,514 29,056 32,632
28,177
Operating earnings (a) 3,399 8,851 11,638
8,157
Net earnings 423 3,227 4,238 2,254
Net earnings per common and common
equivalent share .06 .47 .61
.33
(a)Certain reclassifications have been made to originally reported
amounts to conform with classifications adopted for December 31, 1995.
These reclassifications did not have a material effect on the quarterly
results as originally reported.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
and Shareholders
IWC Resources Corporation:
We have audited the accompanying consolidated balance sheets of IWC
Resources Corporation and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of shareholders' equity,
earnings, and cash flows for each of the years in the three-year period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of IWC
Resources Corporation and subsidiaries at December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995, in conformity
with generally accepted accounting principles.
Indianapolis, Indiana
January 2X, 1996
<PAGE>
Selected Financial Data
The selected consolidated financial data presented below have been
derived from and should be
read in conjunction with the Company's Consolidated Financial Statements
and related Notes
thereto included elsewhere in this report.
Summary of Operations Data:
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
(in thousands, except per share data)
Operating revenues $ $111,379 $84,242 $63,452 $59,930
47,065
Operating earnings 32,045 26,668 24,283 22,494
36,624
Cumulative effect of accounting - - - 1,280
change -
Net earnings $ $10,142 $9,376 $8,113 $9,017
12,192
Per common and common equivalent
share:
Earnings before 1.47 1.41 1.27 1.45
cumulative effect 1.64
of accounting change
Cumulative effect of - - - 0.24
accounting change -
Net earnings $ $ 1.47 $1.41 $1.27 $1.69
1.64
Cash dividends per common share $ $ 1.40 $1.40 $1.395 $1.38
1.40
Average number of common and
common equivalent 6,901 6,658 6,379 5,335
shares outstanding 7,438
Utility plant, net
Total assets
Capitalization:
Long-term debt
(excluding current $ $98,225 $85,375 $86,275 $72,675
portion) 113,375
Preferred stock of
subsidiary 5,705 5,705 4,505 4,505
and redeemable 5,705
preferred stock
Common shareholders' 106,328 78,938 77,014 67,205 66,695
equity
Total capitalization $ $182,868 $168,094 $157,985 $143,875
225,408
</TABLE>
<PAGE>
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 Information.
Beginning in 1993, the Company has grouped its operations according to
major segments. The Company acquired SM&P Utility Resources, Inc.
(formerly SM&P Conduit Co., Inc.) (SM&P) in June 1993, and Miller
Pipeline Corporation (MPC) in August 1995. As a result of these
acquisitions, many of the differences between results of operations in
the utility-related services segment for 1995, 1994 and 1993 are due
primarily to the operations of MPC and/or SM&P, which are included in
this segment.
1995 COMPARED TO 1994
Operating earnings in the water utilities segment increased to
$30,404,000 (37.8% of revenues) in 1995 from $26,027,000 (35.4% of
revenues) in 1994. Improvement in operating earnings in this segment is
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, an increase of $1,087,000 in
income taxes collected from developers, offset by a moderate increase in
total operating expenses. Operating earnings in the utility-related
services segment increased $202,000 in 1995 as compared to 1994;
however, the margin on operating earnings decreased to 9.3% in 1995 as
compared to 15.9% in 1994. The reduction in the margin on operating
earnings in this segment is primarily due to increased labor and other
operating costs incurred related to the expansion of SM&P. Management
is aware of the circumstances which cause this problem and is taking
steps to improve the operating margin in this segment during 1996 by
introducing procedures to position itself to serve the upper quality-
oriented end of its market and commence partnering efforts with
companies in this market to eliminate their service outages caused by
underground damages.
Total operating revenues increased $35,686,000 (32.0%). Operating
revenues applicable to the water utilities segment increased $5,766,000,
excluding an increase of $1,087,000 in income taxes collected from
developers, representing an 8.2% increase over 1994, and is primarily
due to the three rate increases and a moderate increase in total water
consumption. Water consumption is affected by the frequency and pattern
of rainfall, temperatures, the level of economic activity, and
conservation efforts.
The increase in utility-related services segment operating revenues of
$28,833,000 (76.2%) is primarily due to $21,000,000 in operating
revenues at MPC and the continued expansion of business contracts at
SM&P.
Total operation and administration and maintenance expenses increased
$27,831,000 (43.7%) of which $26,052,000 is applicable to the utility-
related services segment. The increase in water utilities segment
expenses of $1,779,000 which is discussed below represents a 5.0%
increase over 1994 and is primarily due to the effects of inflation on
the Company's costs and other factors. Labor expenses increased $80,000
(.6%) 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, an increase
in capitalized labor due to increased construction and other factors,
offset by a general wage increase, effective January 1, 1995. Power
costs increased $229,000 (8.2%) primarily due to increased power rates.
Chemical costs increased $322,000 (26.7%) primarily due to increased
usage and higher chemical costs. The cost of outside services increased
$284,000 (4.7%) chiefly due to an increase in consulting and other
services. Insurance expense decreased $114,000 (2.7%) primarily due to
an insurance rebate received in June 1995. Regulatory expenses
increased $200,000 (104.1%) primarily due to increased rate case
expenses. Costs of the Company's pension and other benefit plans
increased $756,000 (31.7%) primarily due to the amortization of cost of
postretirement benefits other than pensions commencing May 1995
resulting from the settlement of IWC's rate case on April 26, 1995.
Operation and administration expenses applicable to the utility-related
services segment increased $9,384,000 (33.4%) excluding $16,668,000 in
expenses applicable to the operations of MPC. Labor expense increased
$3,986,000 (21.5%) primarily due to the addition of employees resulting
from the expansion of SM&P. Materials expense increased $511,000
(25.8%) primarily due to the expansion of business of SM&P.
Transportation costs increased $1,259,000 (69.0%) primarily due to the
increase in the number of vehicles, leasing costs and associated
maintenance costs. Insurance expense increased $644,000 (24.4%)
primarily due to higher healthcare premiums resulting from increased
numbers of employees and increases in general liability and worker's
compensation insurance premiums. Other fringe benefit costs, including
pension related benefits, increased $1,121,000 (66.3%) primarily due to
the cost of increased benefits to an increasing employee base. Cable
cut costs increased $640,000 (55.3%) primarily due to the expansion of
business and the increased costs associated with such cuts.
Depreciation increased $1,707,000 (21.8%) of which $1,285,000 is
applicable to the utility-related services segment. The increase in
water utilities segment and utility-related services segment
depreciation 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 $1,569,000 (20.1%) of which
$1,295,000 is applicable to the utility-related services segment which
results primarily from payroll related taxes. The remaining increase of
$274,000 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 $1,436,000 (18.0%) is largely
due to the combined effects of higher average debt outstanding.
Income taxes increased $1,096,000 (8.6%) primarily due to an increase of
$1,087,000 in income taxes collected from developers.
1994 COMPARED TO 1993
Operating revenues increased $27,137,000 (32.2%) of which $18,196,000 is
applicable to the utility-related services segment. The increase in
water utilities segment revenues of $5,330,000, excluding $3,6ll,000 in
income taxes collected from developers, represents an 8.2% increase over
1993, and is primarily due to an 8.8% increase in total water
consumption, reflecting more normal weather conditions experienced
during summer 1994 as compared to conditions experienced during summer
1993.
Operation and administration expenses increased $18,582,000 (41.2%) of
which $15,083,000 is applicable to the utility-related services segment.
The increase in water utilities segment expenses of $3,499,000 which is
discussed below represents a 10.9% increase over 1993 and is primarily
due to the effects of inflation on the Company's costs and other
factors. Labor expenses increased $435,000 (3.3%) mainly due to a
general wage increase, effective January 1, 1994. Power costs increased
$181,000 (7.0%) primarily due to increased pumpage. Chemical costs
increased $454,000 (60.1%) primarily due to increased usage and higher
chemical costs. Materials and transportation costs increased $477,000
(22.6%) largely due to an increase in maintenance activities. The cost
of outside services increased $279,000 (4.8%) chiefly due to an increase
in consulting and other services. Insurance expense increased
$1,009,000 (30.8%) reflecting higher health and general liability
insurance premium costs and nonrecurring credits recognized in 1993.
Regulatory expenses decreased $97,000 (33.5%) primarily due to decreased
rate case expenses. Costs of the Company's pension and other benefit
plans increased $841,000 (54.5%) primarily due to the higher costs of
benefits provided.
In 1994, operating earnings in the utility-related services segment was
$6,018,000 (15.9% of revenues) compared to $5,023,000 (25.6% of
revenues) in 1993. The reduction in the margin on operating earnings is
primarily due to additional expenses incurred to expand SM&P's business
in 1994.
Depreciation increased $1,264,000 (19.3%) of which $1,004,000 is
applicable to the utility-related services segment. The increase in
water utilities segment depreciation of $260,000 represents a 4.5%
increase over 1993, and is primarily due to additional plant placed in
service.
Taxes other than income taxes increased $1,914,000 (32.4%) of which
$1,114,000 is applicable to the utility-related services segment. The
remaining increase of $800,000 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 $664,000 (9.1%) is largely due
to the combined effects of higher average debt outstanding and higher
interest rates. The increase in amortization of acquisition costs of
$452,000 (67.1%) is primarily due to the acquisition of SM&P in 1993.
Income taxes increased $3,396,000 (36.4%) primarily due to $3,611,000 in
income taxes collected from developers.
LIQUIDITY AND CAPITAL RESOURCES
At the present time, the Company's business activities are conducted
through its regulated water utilities and unregulated utility-related
businesses. The Company acquired SM&P in June 1993 and MPC in August
1995 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 its 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.
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. In August 1995, the Company
used the proceeds from additional short-term borrowings of $5,600,000 to
acquire the net assets of MPC.
During 1995 and 1994, the Company added $42,835,000 (including
$14,921,000 from the acquisition of MPC) and $28,256,000, respectively,
to utility plant and other property. The Company continues to
experience significant growth in its distribution system. Approximately
85 miles of new mains were placed in service in 1995 compared with
approximately 113 miles during 1994. The Company received approximately
$8,233,000 in new customer advances for construction of new mains in
1995 and $9,175,000 in 1994. Such advances are subject to refund over a
ten-year period based on the addition of new customers to the
constructed mains. The Company refunded approximately $2,900,000 during
1995 and $2,200,000 during 1994.
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. In February 1995, the
Company prepaid an additional $1,150,000 in principal amount of these
bonds at a premium of $65,000 and in December 1995, the Company prepaid
the remaining $2,850,000 principal balance of these bonds at a premium
of $138,000. Funds used to prepay these amounts were derived from
proceeds of the sale of common shares through the Company's Dividend
Reinvestment and Stock Purchase Plan.
During March 1994, the Company issued $14,000,000 of 6.31% Senior Notes
due March 15, 2001. Proceeds from these notes were used to repay
$13,700,000 in short-term notes with banks incurred for the acquisition
of SM&P.
IWC filed a petition with the Commission to issue on or before December
31, 1996, up to $30,000,000 in principal amount of long-term debt,
preferred stock and common equity capital. In March 1995, the
Commission granted IWC authority to issue, on or before December 31,
1996, an aggregate of $30,000,000 in securities, to consist of not more
than $18,000,000 in the form of long-term debt and/or preferred equity,
and assuming favorable market conditions, at least $12,000,000 in common
equity. In September 1995, IWC issued $18,000,000 of 5.85% Series First
Mortgage Bonds to secure a like amount of Economic Development Bonds
issued by the City of Indianapolis bonds due September 1, 2025.
Proceeds from this issue were deposited with a trustee and will be used
for the construction, extension and improvement of IWC's facilities,
plant and distribution system and reimbursement of IWC's treasury for
plant capital expenditures previously made.
In December 1995, the Company invested approximately $10,505,000 in the
common stock of IWC and intends to invest in 1996 the remaining balance
of the $12,000,000 authorized by the Commission. The amounts invested
were derived from proceeds of the sale of common shares through the
Company's Dividend Reinvestment and Stock Purchase Plan.
The Company's goal is to reduce the percentage of net earnings
applicable to common and common equivalent shareholders declared payable
in cash dividends to a level which allows the Company greater
flexibility in operating its businesses. Approximately 84%, 95%, and
99% of net earnings applicable to common and common equivalent
shareholders were declared payable in cash dividends during 1995, 1994,
and 1993, respectively. The reduction in the payout percentage in 1995
is due primarily to improved net earnings resulting from diversification
of the Company's businesses and improved operating results in the water
utilities segment. Cash dividends declared payable to common and common
equivalent shareholders, as a percentage of net cash provided by
operating activities, decreased to 45.2% during 1995, compared to 46.2%
and 45.7% in 1994 and 1993, respectively. Long-term debt, as a
percentage of total capital and long-term debt, decreased to 51.6% at
December 31, 1995, compared to 55.4% at December 31, 1994. The decrease
in the "debt ratio" was primarily due to the net effects of the issuance
of new long-term debt of $18,000,000, the payment of long-term debt of
$2,850,000, issuance of common stock through the Company's dividend
reinvestment plan of $10,809,000, the issuance of common stock for the
acquisition of MPC of $14,348,000, and an increase in retained earnings
of $1,923,000.
At December 31, 1995, the Company had lines of credit with banks
aggregating $43,000,000 which require a compensating cash balance of
$100,000. At December 31, 1995, unused lines of credit aggregated
$13,659,000. Interest on borrowings under the lines of credit is
variable (an average of 6.58% at December 31, 1995).
CAPITAL EXPENDITURES
Capital expenditures for 1996 are budgeted at approximately $xx,000,000
and are expected to be financed primarily from internally generated
cash, customer advances for construction, short-term bank borrowings,
and long-term financing. Capital expenditures for the five-year period
1996 through 2000 are budgeted at approximately $xxx,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 1996 through 2000 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 will 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.
The Company estimates that the cost to comply with possible changes to
existing regulatory requirements for discharges could aggregate
$34,000,000 for additional facilities and $2,000,000 in increased annual
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, Thomas W. Moses, and the
Geist treatment stations. The Company's current NPDES permits were to
have expired on June 30, 1989, for White River and Fall Creek stations,
December 31, 1990, for Thomas W. Moses 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 review of the applications). IDEM has authority to impose 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 any such restrictions could be significant.
Under the federal Safe Drinking Water Act (SDWA), the Company is subject
to regulation by EPA of the quality of water it sells and treatment
techniques it uses to make the water potable. EPA promulgates nationally
applicable maximum containment 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.
RATE CASE
On August 10, 1994, the Commission approved a general increase in IWC's
water rates, but deferred increasing IWC's rates to cover implemention
of accrual accounting for postretirement life insurance and healthcare
benefits (OPRBs), in accordance with Statement of Financial Accounting
Standards No. 106 (SFAS No. 106), pending a determination of an
appropriate restricted fund for the related revenues. On April 26,
1995, the Commission approved the creation of a grantor trust for these
funds, as agreed upon by IWC and the Utility Consumer Counselor (UCC)
and a related annual increase in IWC's water rates of approximately
$1,800,000, to cover current costs and the amortization of the
regulatory asset over approximately 18 years.
The Grantor Trust provides for the transfer to the Trust monthly and the
subsequent investment and disbursement by the Trust of all amounts
received by IWC in rates to cover its OPRB obligations. The Trust
Agreement contains certain provisions which limit investment activities,
provide for annual reporting and, in the event that Trust funds are no
longer needed for OPRB purposes, directs payment of the remaining funds
to IWC ratepayers.
On September 23, 1994, IWC filed a petition for Commission approval of a
new schedule of rates and charges. The increase in revenues sought by
IWC was approximately $5,100,000, or 8%, based on water consumption for
the twelve months ended June 30, 1994. On April 5, 1995, the UCC, four
intervening customers and IWC filed with the Commission a Settlement
Agreement which, as revised on April 27, 1995, set forth the parties'
agreement resolving all issues in the case and their recommendation that
the Commission approve an annual increase in IWC's rates of $2,547,000,
or approximately 4%. The parties further agreed not to seek an
adjustment in IWC's basic rates and charges prior to April 1, 1997,
subject to IWC's interim right to request approval of new rates to cover
operating expenses connected with implementing measures which might be
required in connection with new National Pollutant Discharge Elimination
System permits which IWC anticipates receiving for wastewater discharges
at its Fall Creek and White River Stations (NPDES permits). The parties
also agreed that prior to April 1, 1997, IWC may request that the
Commission approve, in a separate proceeding, prior to April 1, 1997,
the continuation of the allowance for funds used during construction
(debt component only), and the deferral of depreciation, on any capital
expenditures made in connection with new NPDES permits at the Fall Creek
and White River Stations or IWC's anticipated new South Well Field
Station until a rate base determination has accrued with respect to
these items in IWC's next rate case. On May 10, 1995, Commission
approved all terms of the parties' settlement and the related rate
increase.
On March 22, 1995, the Commission granted IWC authority to issue, on or
before December 31, 1996, an aggregate of $30,000,000 in securities, to
consist of not more than $18,000,000 in the form of long-term debt
and/or preferred equity, and, assuming favorable market conditions, up
to $12,000,000 in common equity. IWC issued $18,000,000 of long-term
debt in September 1995, in the form of First Mortgage Bonds, 5.85%
Series due 2025. Proceeds from the issuance of these securities may be
used for the construction, extension and improvement of IWC's
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.
In December 1995, Resources made an equity capital contribution to IWC
of $10,505,000. In 1996, IWC Resources intends to make another equity
capital contribution to IWC of $1,495,000, and exhaust the $12,000,000
authorized from the Commission for new IWC equity. The amounts invested
by Resources were derived from proceeds of the sale of common shares of
the Company through its Dividend Reinvestment and Stock Purchase Plan.
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.
<PAGE>
COMPARATIVE HIGHLIGHTS
1995 1994 1993 1992
1991
(in thousands, except per share
data)
Operating revenues $147,065 $111,379 $84,242 $ 63,452 $
59,930
Operating earnings 36,624 32,045 26,668 24,283
22,494
Income taxes 13,820 12,724 9,328 9,197
7,905
Net earnings applicable to
common and common equivalent
shareholders 12,192 10,142 9,376 8,113
9,017
Average number of common and
common equivalent shares
outstanding during year 7,438 6,901 6,658 6,379
5,335
Per common and common
equivalent shares:
Net earnings 1.64 1.47 1.41 1.27
*1.45
Dividends declared 1.40 1.40 1.40 1.395
1.38
Book value $ 12.81 $ 11.38 $ 11.20 $ 10.49 $
10.54
Capital additions $27,914 $28,256 $13,967 $ 15,751 $
14,416
Total assets 408,879 335,382 312,443 275,112
279,608
*$1.69 including cumulative effect of an accounting change
<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT
OF 1934
(AMENDMENT NO. ___)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant[ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to <section>240.14a-11(c) or
<section>240.14a-12
IWC RESOURCES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-
6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
