Document Summary:
Document: EDSEP96
Author:
Addressee:
Operator:
Creation Date: 11/14/1996
Modification Date: 11/14/1996
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Comments:
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-15420
IWC RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1668886
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1220 Waterway Boulevard, Indianapolis, Indiana 46202
(Address of principal executive office) (Zip Code)
(317) 639-1501
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days: Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, no par value per share 9,005,082
Class Outstanding at 10-1-96
IWC RESOURCES CORPORATION AND SUBSIDIARIES
Index
Part I. Financial Information:
Consolidated Balance Sheets as of September 30, 1996 and
1995, and December 31, 1995 (Unaudited)
Consolidated Statement of Shareholders' Equity - Nine
Months ended September 30, 1996 (Unaudited)
Consolidated Statements of Earnings - Three Months and Nine
Months ended September 30, 1996 and 1995 (Unaudited)
Consolidated Statements of Cash Flows -
Three Months and Nine Months ended September 30, 1996 and
1995 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information:
<TABLE>
PART I. FINANCIAL INFORMATION
IWC RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and 1995 and December 31, 1995
(Unaudited)
<CAPTION>
September 30, December 31,
1996 1995 1995
(in thousands)
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 2,706 2,523 1,771
Accounts receivable, less allowance for
doubtful accounts of $202, 330 and 327 26,869 25,842 21,092
Materials and supplies, at cost 2,979 3,635 3,194
Other current assets 1,836 2,348 4,370
Total current assets 34,390 34,348 30,427
Utility plant:
Utility plant in service 368,416 356,047 362,610
Less accumulated depreciation 86,284 80,650 81,594
Net plant in service 282,212 275,397 281,016
Construction work in progress 17,249 9,881 7,855
Utility plant, net 299,461 285,278 288,871
Construction funds held by Trustee 8,084 18,076 14,260
Other property, net 35,869 33,364 32,909
Goodwill, net of accumulated amortization 23,255 24,040 23,776
Deferred charges and other assets 19,794 16,878 18,636
$420,853 411,984 408,879
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 16,407 35,600 30,589
Current portion of long-term debt 6,775 - -
Accounts payable and accrued expenses 22,179 21,163 20,282
Dividends payable 51 51 -
Federal income taxes 3,661 3,691 -
Customer deposits 1,349 1,259 1,369
Total current liabilities 50,422 61,764 52,240
Long-term obligations:
Long-term debt, less current portion 112,200 116,225 113,375
Customer advances for construction 49,431 51,967 51,606
Other liabilities 11,233 8,202 9,346
Total long-term obligations 172,864 176,394 174,327
Deferred income taxes 38,126 34,577 37,347
Contributions in aid of construction 35,202 32,290 32,932
Preferred stock of subsidiary and
redeemable preferred stock 5,697 5,705 5,705
Shareholders' equity
Common stock, authorized 10,000 common
shares; 8,934, 7,998, and 8,247 issued
and outstanding, respectively 99,752 81,871 86,575
Retained earnings 19,170 20,029 20,321
118,922 101,900 106,896
Less unearned compensation 380 646 568
Total shareholders' equity 118,542 101,254 106,328
Commitments and contingencies
$420,853 411,984 408,879
======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
IWC RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Nine months ended September 30, 1996
(Unaudited)
<CAPTION>
Total
Common Stock Retained Unearned Shareholders'
Shares Amount Earnings Compensation Equity
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 8,247,353 $ 86,575 $ 20,321 $ (568) $106,328
Net earnings - - 8,073 - 8,073
Dividends - $1.08 per share:
Common Stock - - (9,168) - (9,168)
Redeemable preferred stock - - (56) - (56)
Common stock issued:
Dividend Reinvestment Plan 684,969 13,138 - - 13,138
Restricted stock plan 1,969 39 - (39) -
Compensation expense - - - 227 227
Balance at September 30, 1996 8,934,291 $ 99,752 $ 19,170 $ (380) $118,542
========= ======= ======= === =======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
IWC RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three months and Nine months ended September 30, 1996 and 1995
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
(in thousands, except per share data)
Operating revenues:
<S> <C> <C> <C> <C>
Water utilities $22,895 23,594 60,123 60,818
Utility-related services 32,251 20,237 78,328 40,470
55,146 43,831 138,451 101,288
Operating expenses:
Operation and administration
Water utilities 10,302 9,688 30,527 26,950
Utility-related services 25,411 15,234 66,034 32,703
Amortization of acquisition costs 335 282 1,006 845
Depreciation 2,912 2,481 8,598 6,888
Taxes other than income taxes 2,861 2,514 8,838 6,999
Total operating expenses 41,821 30,199 115,003 74,385
Operating earnings 13,325 13,632 23,448 26,903
Other income (expense):
Interest expense, net (2,374) (2,694) (7,302) (6,878)
Interest income 162 4 687 30
(2,212) (2,690) (6,615) (6,848)
Earnings before income taxes
and dividends on preferred
stock of subsidiary 11,113 10,942 16,833 20,055
Income taxes 4,803 5,375 8,608 10,849
Earnings before dividends
on preferred stock of subsidiary 6,310 5,567 8,225 9,206
Dividends on preferred stock of subsidiary 50 50 152 152
Net earnings $ 6,260 5,517 8,073 9,054
====== ====== ====== ======
Net earnings per common and common
equivalent share $ .72 .73 .94 1.26
====== ====== ====== ======
Average number of common
and common equivalent shares outstanding 8,836 7,556 8,567 7,195
====== ====== ====== ======
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
<TABLE>
IWC RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months and Nine months ended September 30, 1996 and 1995
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
(in thousands)
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net earnings $ 6,260 5,517 8,073 9,054
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 3,667 3,046 10,562 8,242
Deferred income taxes 233 400 779 1,068
Gain on sales of other property (145) (71) (269) (814)
Provision for bad debts 166 110 372 290
Dividends on preferred stock of subsidiary 50 50 152 152
Other, net 527 68 994 651
Changes in operating assets and liabilities:
Accounts receivable (559) (2,347) (6,012) (7,738)
Materials and supplies 168 (345) 215 (133)
Other current assets (372) (170) 2,397 40
Accounts payable and accrued expenses 688 1,205 1,897 847
Federal income taxes 2,928 (578) 3,661 3,400
Customer deposits (16) 59 (20) 133
Net cash provided by operating activities 13,595 6,944 22,801 15,192
Cash flows from investing activities:
Additions to utility plant and other property (7,571) (4,465) (22,713) (21,976)
Acquisition of Miller Pipeline Corporation,
net of cash acquired - (5,147) - (5,147)
Proceeds from sales of other property 24 102 150 391
Customer advances for construction 356 2,373 2,623 6,727
Refunds of customer advances for construction (585) (31) (2,528) (1,700)
Other investing activities, net (62) (315) (804) (1,745)
Net cash used by investing activities (7,838) (7,483) (23,272) (23,450)
Cash flows from financing activities:
Increase (decrease) in notes payable to banks (15,354) (258) (14,182) 10,526
Proceeds from long-term debt 5,600 18,076 5,600 18,076
Payments of long-term debt - - - (1,215)
Decrease (increase) in construction funds
held by Trustee 1,924 (18,076) 6,176 (18,076)
Cash dividends (3,221) (2,570) (9,326) (7,524)
Proceeds from issuance of common stock 6,512 3,146 13,138 6,105
Net cash provided (used) by
financing activities (4,539) 318 1,406 7,892
Increase (decrease) in cash and cash equivalents 1,218 (221) 935 (366)
Cash and cash equivalents at beginning of period 1,488 2,744 1,771 2,889
Cash and cash equivalents at end of period $ 2,706 2,523 2,706 2,523
====== ====== ====== ======
Supplemental disclosures of cash flow information-
Cash paid for:
Interest on long-term debt and notes payable
to banks, net of capitalized interest $ 3,100 2,920 7,808 7,111
Income taxes $ 1,401 4,966 2,961 6,385
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
IWC RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
BASIS OF PRESENTATION
The foregoing consolidated financial statements are unaudited.
However, in the opinion of management, all adjustments (comprising
only normal recurring accruals) necessary for a fair presentation
of the financial statements have been included. Results for any
interim period are not necessarily indicative of results to be
expected for the year. The consolidated financial statements
include the accounts of IWC Resources Corporation (Resources) and
its wholly owned subsidiaries. The term "Company" refers to the
consolidated operations of Resources and its subsidiaries.
Through its water utility subsidiaries, the Company owns and
operates waterworks systems supplying water for residential,
commercial and industrial uses, and for fire protection in
Indianapolis, Indiana, and the surrounding area. These
subsidiaries are regulated by the Indiana Utility Regulatory
Commission (Commission), and their accounting policies, which are
substantially consistent with generally accepted accounting
principles, are governed by the Commission. The Company also owns
and operates businesses which are involved in utility line
locating, installation, repair and maintenance of underground
pipelines, data processing, other utility-related services, and
real estate sales and development. All significant intercompany
accounts and transactions have been eliminated in consolidation.
A summary of the Company's significant accounting policies is set
forth in Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
CURRENT EVENTS
Dividend Reinvestment and Share Purchase Plan
Effective October 1, 1996, Resources suspended sales of its common
stock under the optional cash purchase feature of its enhanced
Dividend Reinvestment and Share Purchase Plan (Plan). Dividend
reinvestment will continue to be available under the Plan.
Resources amended its Plan in 1994 to allow certain employees and
utility customers of the Company or its subsidiaries to purchase
common shares. Effective March 10, 1995, common shares could be
purchased with reinvested dividends or optional cash purchases at a
price of 97% of the average of the means between the high and low
sale price of the common shares as determined for the five
consecutive trading days ending on the day of purchase. Resources
has raised more than $22 million since March 1995 pursuant to the
Plan, an amount vastly exceeding original expectations.
Small Business Job Protection Act
On August 20, 1996, President Clinton signed into law a bill (H.R.
3448) entitled the "Small Business Job Protection Act" (Act), which
repealed provisions of the 1986 Tax Reform Act that had made
Contributions in Aid of Construction (CIAC) taxable income for
federal income tax purposes. Such contributions to the Company
were generally made by developers desiring main extensions. The
repeal generally applies to contributions received for all property
placed in service after June 12, 1996, except property placed in
service pursuant to a binding contract in effect before June 10,
1996. Prior to the repeal, CIAC were includible in taxable income
when received and deductible if subsequently refunded to the
deposition. Effective September 8, 1993, the Commission granted
Indianapolis Water Company (IWC) authority to surcharge developers
for income taxes owing on CIAC, and IWC reduced its water rates by
a corresponding amount. In 1994, IWC began collecting such
surcharges, reporting them as a component of operating revenues and
income tax expense. Accordingly, after 1993, they had no effect on
IWC's net earnings.
The Act also created a new classification of depreciable property,
called "Water Utility Property", and mandates the use of the
straight-line method of depreciation on such property and a
recovery period of not less than 25 years for tax purposes. Prior
to the Act, accelerated depreciation of such property could be
used, over a life as short as 20 years, for tax purposes.
Installation of Main Extensions
Effective for contracts entered into on or after April 1, 1996, IWC
allows developers to install, or provide for the installation of,
main extensions, which are to be transferred to IWC upon
completion. This is a departure from the past, when IWC was
responsible for the installation of all new mains.
This change has caused a reduction in cash inflows from developers,
as deposits to pay the cost of main extensions are now invested by
the developer directly in the new mains, as well as cash outflows
no longer necessary to pay for these installations.
As a result of this change, as indicated in the accompanying
Consolidated Statements of Cash Flows, customer advances for
construction decreased $2,017,000 and $4,104,000 during the three
months and nine months ended September 30, 1996, compared to the
same periods in 1995.
-2-
COMMITMENTS AND CONTINGENCIES
Recently enacted (August 1996) amendments of the Safe Drinking
Water Act (SDWA) provide for new standards pursuant to which the
United States Environmental Protection Agency (EPA) is required to
propose, promulgate and review drinking water standards. The 1996
Amendments allow the Administrators of EPA more authority to weigh
the costs and benefits of regulations being considered in some (but
not all) cases, but do not reduce the number of new standards
required by the 1986 amendments of the Act. Such standards, if
promulgated, could be costly and require substantial changes in
current operations of the Company. 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.
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.
RECLASSIFICATIONS
Certain amounts as of September 30, 1995 have been reclassified to
conform with the 1996 presentation.
-3-
IWC Resources Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The most significant changes in the consolidated financial
condition and results of operations of IWC Resources Corporation
and subsidiaries (Company) are attributable to the 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, in the
Company's Annual Report on Form 10-K for the year ended December
31, 1995.
In August 1995, the Company acquired Miller Pipeline Corporation
(MPC). As a result of this acquisition, many of the differences
between results of operations in the utility-related services
segment for 1996 are due primarily to the operations of MPC,
which is included in this segment.
The Company's results of operations for both water utilities and
utility-related services segments are seasonal in nature with
the higher proportion of operating revenues and operating
earnings being realized in the second and third quarters of the
year than the first and fourth quarters.
Three Months Ended September 30, 1996, Compared with
Three Months Ended September 30, 1995
During the three months ended September 30, 1996, total
operating earnings were $13,325,000 (24.2% of revenues) compared
to $13,632,000 (31.1% of revenues) during the same period in
1995. Operating earnings in the water utilities segment
decreased to $9,414,000 (41.1% of segment revenues) in 1996 from
$10,782,000 (45.7% of segment revenues) in 1995. The reduction
in the operating margin from 45.7% in 1995 compared to 41.1% in
1996 is primarily due to the combined effects of a reduction in
income taxes collected from developers (included in operating
revenues) and an increase in operation and administration
expenses. Operating earnings in the utility-related services
segment increased to $3,911,000 (12.1% of segment revenues) in
1996 from $2,850,000 (14.1% of segment revenues) in 1995. The
reduction in the operating margin from 14.1% in 1995 to 12.1% in
1996 is due primarily to the net effects of operating earnings
provided by MPC acquired in August 1995 offset by reduced
operating earnings in the remainder of this segment.
-4-
Total operating revenues increased $11,315,000 (25.8%) during
the three months ended September 30, 1996 over the same period
in 1995. Operating revenues applicable to the water utilities
segment increased $792,000, excluding a decrease of $1,491,000
in income taxes collected from developers, representing a 3.6%
increase over 1995, and is primarily due to a 1.2% increase in
total water consumption and the two rate increases in the second
quarter of 1995. Operating revenues applicable to the
utility-related services segment increased $12,014,000 (59.4%)
due primarily to the acquisition of MPC and the continued
expansion of business contracts at SM&P Utility Resources Inc.
(SM&P).
Total operation and administration expenses increased
$10,791,000 (43.3%) of which $10,177,000 is applicable to the
utility-related services segment. The increase in water
utilities segment expenses of $614,000 which is discussed below
represents a 6.3% increase over 1995. Labor expenses increased
$405,000 (12.0%) mainly due to an increase in maintenance
activity during 1996 as compared to 1995 and a general wage
increase, effective January 1, 1996. The cost of outside
services increased $133,000 (8.9%) chiefly due to an increase in
consulting and other services. Insurance expense increased
$116,000 (10.9%) primarily due to an increase in group insurance
premiums.
Operation and administration expenses applicable to the
utility-related services segment, excluding an increase of
$6,960,000 in expenses applicable to the operations of MPC,
increased $3,217,000 (32.0%). Labor expense increased
$2,205,000 (40.8%) primarily due to the addition of employees
resulting from the expansion of business contracts at SM&P and a
general wage increase. Transportation costs increased $594,000
(72.4%) primarily due to the increase in the number of vehicles,
leasing costs and associated maintenance costs. Fringe benefit
costs, including pension related benefits, increased $505,000
(95.8%) primarily due to the cost of increased benefits to an
increasing employee base.
Amortization of acquisition costs increased $53,000 (18.8%)
primarily due to the acquisition of MPC. Depreciation increased
$431,000 (17.4%) 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 $347,000 (13.8%)
primarily due to an increase in payroll related taxes resulting
from an increase in the number of employees in the
utility-related services segment.
-5-
The decrease in interest expense, net, of $320,000 (11.9%) is
largely due to the effects of lower average debt outstanding and
an increase in capitalized interest costs. The increase in
interest income of $158,000 is primarily due to the increase in
construction funds held by Trustee.
Income taxes decreased $572,000 (10.6%) primarily due to a
decrease of $1,491,000 in income taxes collected from
developers.
Nine Months Ended September 30, 1996, Compared with
Nine Months Ended September 30, 1995
During the nine months ended September 30, 1996, total operating
earnings were $23,448,000 (16.9% of revenues) compared to
$26,903,000 (26.6% of revenues) during the same period in 1995.
Operating earnings in the water utilities segment decreased to
$19,824,000 (33.0% of segment revenues) in 1996 from $24,340,000
(40.0% of segment revenues) in 1995. The reduction in the
operating margin from 40.0% in 1995 to 33.0% in 1996 is
primarily due to the combined effects of a reduction in income
taxes collected from developers and an increase in operation and
administration expenses. Operating earnings in the
utility-related services segment increased to $3,624,000 (4.6%
of segment revenues) in 1996 from $2,563,000 (6.3% of segment
revenues) in 1995. The reduction in the operating margin from
6.3% in 1995 to 4.6% in 1996 is due primarily to the net effects
of operating earnings provided by MPC acquired in August 1995
offset by reduced operating earnings in the remainder of this
segment.
Total operating revenues increased $37,163,000 (36.7%) during
the nine months ended September 30, 1996 over the same period in
1995. Operating revenues applicable to the water utilities
segment increased $2,483,000, excluding a decrease of $3,178,000
in income taxes collected from developers, representing a 4.4%
increase over 1995, and is primarily due to the two rate
increases in the second quarter of 1995. Operating revenues
applicable to the utility-related services segment increased
$37,858,000 (93.5%) due primarily to the acquisition of MPC and
the continued expansion of business contracts at SM&P.
-6-
Total operation and administration expenses increased
$36,908,000 (61.9%) of which $33,331,000 is applicable to the
utility-related services segment. The increase in water
utilities segment expenses of $3,577,000 which is discussed
below represents a 13.3% increase over 1995. Labor expenses
increased $962,000 (9.7%) mainly due to an increase in
maintenance activity during 1996 as compared to 1995 and a
general wage increase, effective January 1, 1996. Materials and
transportation costs increased $520,000 (29.1%) primarily due to
increased maintenance activities. The cost of outside services
increased $475,000 (10.3%) chiefly due to an increase in
consulting and other services. Insurance expense increased
$529,000 (16.7%) primarily due to an increase in group insurance
premiums. Costs of the Company's pension and other benefit
plans increased $545,000 (25.2%) primarily due to the
amortization of the 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, excluding an increase of
$25,432,000 in expenses applicable to the operations of MPC,
increased $7,899,000 (28.7%). Labor expense increased
$5,986,000 (35.7%) primarily due to the addition of employees
resulting from the expansion of business contracts at SM&P and a
general wage increase. Transportation costs increased
$1,150,000 (51.6%) primarily due to the increase in the number
of vehicles, leasing costs and associated maintenance costs.
Fringe benefit costs, including pension related benefits,
increased $1,110,000 (63.3%) primarily due to the cost of
increased benefits to an increasing employee base. Cable cut
costs increased $304,000 (24.2%) primarily due to the expansion
of business and the increased costs associated with such cuts.
Amortization of acquisition costs increased $161,000 (19.1%)
primarily due to the acquisition of MPC. Depreciation increased
$1,710,000 (24.8%) 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 $1,839,000 (26.3%)
primarily due to an increase in payroll related taxes resulting
from an increase in the number of employees in the
utility-related services segment.
The increase in interest expense, net, of $424,000 (6.2%) is
largely due to the effects of higher average debt outstanding
offset by an increase in capitalized interest costs. The
increase in interest income of $657,000 is primarily due to the
increase in construction funds held by Trustee.
Income taxes decreased $2,241,000 (20.7%) primarily due to a
decrease of $3,178,000 in income taxes collected from
developers.
-7-
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 businesses typically results in
higher operating revenues in the second and third quarters of the
year than in the first and fourth quarters. Fluctuations in accounts
payable and accrued expenses result primarily from property taxes and
timing of payments, whereas federal income taxes vary with pretax
earnings and the level of income taxes collected from developers on
customer advances for construction.
Cash Flows From Investing Activities
Cash flows from investing activities fluctuate primarily as a result
of additions to utility plant and other property and the level of
customer advances for construction, net of refunds.
The Company continues to experience significant growth in its
distribution system. The Company received $2,623,000 in new customer
advances and refunded $2,528,000 in customer advances during the nine
months ended September 30, 1996, compared to $6,727,000 and
$1,700,000, respectively, during the same period in 1995. The
Company also added $22,713,000 to utility plant and other property
during the nine months ended September 30, 1996, compared to
$21,976,000 during the same period in 1995.
-8-
Cash Flows From Financing Activities
Cash flows from financing activities consist primarily of the
Company's borrowings, dividend payments and sales of common stock.
The Company utilizes borrowings against its lines of credit with
local banks for its short-term cash needs.
In 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 due September 1, 2025. Proceeds from this issue were
deposited with a trustee and are being 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 and March 1996,
Resources made equity capital contributions to IWC of $10,505,000 and
$1,495,000, respectively, which amounts to the $12,000,000 authorized
by the Commission. The amounts invested by Resources were derived
from proceeds of the sale of common shares of Resources through its
Dividend Reinvestment and Share 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.
At September 30, 1996, the Company had lines of credit with banks
aggregating $49,600,000 which require a compensating cash balance of
$100,000. At September 30, 1996, unused lines of credit aggregated
$33,868,000. Interest on borrowings under the lines of credit is
variable (an average of 6.11% at September 30, 1996).
-9-
Capital Expenditures
Capital expenditures for 1996 are budgeted at approximately
$48,000,000 and are expected to be financed primarily from internally
generated cash, customer advances for construction, short-term bank
borrowings, and long-term financings. Capital expenditures for the
five-year period 1996 through 2000 are budgeted at approximately
$150,000,000 with the major portion for new mains and distribution
and plant facilities and other operating equipment. 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 markets, to finance and
refinance 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. In addition to SDWA requirements
imposed by the EPA, IWC is subject to regulatory requirements of the
State of Indiana regarding discharges from its treatment plants. The
Company estimates that the cost to comply with anticipated changes to
existing regulatory requirements for discharges approximate
$2,000,000 in increased annual operating expenses and approximately
$9,000,000 in capital costs. Such capital costs and increased annual
operating 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, White River North, Fall
Creek, Thomas W. Moses and the Geist treatment stations. The
Company's current NPDES permits were to have expired June 30, 1989,
for White River and Fall Creek stations, December 31, 1990, for
Thomas W. Moses, April 30, 1994, for Geist treatment station, and
January 31, 1996 for White River North station. Applications for
renewal of the permits have been filed and are the subject of ongoing
discussions with, but not finalized by, IDEM. (These permits
continue in effect pending review of the applications).
-10-
Under the federal Safe Drinking Water Act (SDWA), the Company is
subject to regulation by EPA of the quality of water it sells and
treatment techniques it uses to make the water potable. EPA
promulgates nationally applicable maximum contaminant levels (MCLs)
for contaminants found in drinking water. Management believes that
the Company is currently in compliance with all MCLs promulgated to
date. EPA has continuing authority, however, to issue additional
regulations under the SDWA. In August 1996, Congress amended the
SDWA to allow EPA more authority to weigh the costs and benefits of
regulations being considered in some (but not all) cases. The 1996
amendments do not, however, reduce the number of new standards
required by the 1986 amendments. Such standards promulgated could be
costly and require substantial changes in the Company's operations.
The Company would expect to recover the costs of such changes through
its water rates; however, such recovery may not necessarily be
timely.
Under a 1991 law enacted by the Indiana Legislature, a water utility,
including the utility subsidiaries of the Company, may petition the
Indiana Utility Regulatory Commission (Commission) for prior approval
of its plans and estimated expenditures required to comply with
provisions of, and regulations under, the Federal Clean Water Act and
SDWA. Upon obtaining such approval, the utility may include, to the
extent of its estimated costs as approved by the Commission, such
costs in its rate base for ratemaking purposes and recover its costs
of developing and implementing the approved plans if statutory
standards are met. The capital costs for such new systems, equipment
or facilities or modifications of existing facilities may be included
in the utility's rate base upon completion of construction of the
project or any part thereof. While use of this statute is voluntary
on the part of a utility, if utilized it should allow utilities a
greater degree of confidence in recovering major costs incurred to
comply with environmentally related laws on a timely basis.
-11-
Rate Case
On May 10, 1995, the Commission approved a Settlement Agreement
entered into by the UCC, four intervening customers and IWC. As part
of the Agreement, the parties 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, 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 (ground for which was broken in August 1996)
until a rate base determination has been made with respect to these
items in IWC's next rate case.
Inflation, Rate Changes and Seasonality
Under normal conditions and particularly during periods of inflation,
water utility revenues from increased water consumption will not keep
pace with the increase in operating costs. Therefore, periodic water
rate and service charge adjustments are necessary, with the frequency
of such increases being partially determined by the amount of
inflation.
Results for any interim period are not indicative of results to be
expected for the year. Typically, the seasonal nature of the
Company's business results in a higher proportion of operating
revenues being realized in the second and third quarters of the year
than the first and fourth quarters of the year.
-12-
Part II. OTHER INFORMATION
IWC RESOURCES CORPORATION AND SUBSIDIARIES
September 30, 1996
Item 6. Exhibits and Reports on Form 8-K
(a) exhibits 27 - Financial Data Schedule
(b) reports on Form 8-K No reports on Form 8-K were
filed during the quarter
ended September 30, 1996.
-13-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IWC RESOURCES CORPORATION
(Registrant)
By:
J. A. Rosenfeld, President
IWC Utilities (Principal
Financial Officer) duly
authorized to sign this
report on behalf of the
registrant
Date
James P. Lathrop, Assistant
Treasurer (Principal Accounting
Officer)
Date
-14-
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<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet as of September 30, 1996, and from the consolidated
statements of earnings and cash flows for the nine months then ended, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
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<TOTAL-OPERATING-EXPENSES> 115,003
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<INCOME-BEFORE-INTEREST-EXPEN> 15,375
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<EARNINGS-AVAILABLE-FOR-COMM> 8,073
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